ESG assessment is playing an increasing role in investment. Is this a temporary trend or will it transform the financial sector in the long term?

To answer this question, it is important to look at the wider context. The European Union is committed to reducing greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and to making Europe’s economy climate neutral and to reaching net zero emissions by 2050. The implementation of these goals will also have an impact on the economic and social environment for decades to come.

There objectives are, in my opinion, a very strong inspiration for economic operators in the short, medium and long term, but they also create opportunities and constraints, which imply a significant need for investment, both for households and for businesses. This economic development trajectory will continue to set the direction for the financial intermediation sector, both in the near and distant future.

What are the ESG trends in bond and equity markets? How open are Hungarian investors to them?

There is a clear trend of growing interest in these investment instruments from large investors, including financial services providers, but this is still far below the interest in traditional instruments. In parallel with the increase in interest from large investors, the small investor side is also expected to see a surge in ESG investment solutions. We see ESG considerations practically built into the lending process and product features. Accordingly, more and more investment funds appear to be obtaining ESG certification in line with EU standards, and the number of products being developed in this spirit is increasing.

Investor demand has now caught up with supply in this market. True, multiple effects are at play here: good returns in themselves generate significant client interest, and funds that respond to the bigger challenges of the world are always in demand. For example, OTP Fund Management’s OTP Climate Change 130/30 investment fund achieved an outstanding return of over 70% for the year. ESG is fundamentally a risk management issue rather than a return issue, yet many people make ESG decisions from a return perspective.

What does the OTP Group offer its customers on ESG?

The Green Programme Directorate was specifically created to provide our clients with expert support in green finance and ESG investments, tailored to their specific needs. As part of this, we can explore ESG risks and how they can be managed, but we can also advise on how to make a company’s operations more sustainable, and even support their understanding of EU Taxonomy or green certification and the potential benefits, beyond traditional financial advice.

We also support the transition towards more sustainable business management as a financing bank. In line with this, the OTP Group has already provided HUF 100 billion in loans to finance renewable energy projects.

OTP Group is the first in Hungary to issue green mortgage bonds. What preceded this and what is expected from the issue?

OTP Jelzálogbank has responded to the changing needs of investors by restructuring its fund acquisition strategy and issuing green mortgage bonds. Following the placement of the new mortgage bonds, capital market participants submitted offers totaling HUF 10.08 billion, of which the issuer accepted HUF 5.02 billion.

We are convinced that the renovation of the Hungarian housing stock with poor energy efficiency indicators could be helped more effectively than ever before. The issue of green mortgage bonds is only the first step in achieving this goal, in line with the OTP Group’s sustainability objectives.

What is your vision and what future do you foresee for ESG?

In the period ahead, market players are expected to take a longer-term view and to focus more than ever on environmental and social responsibility and ethical corporate governance.

It is important to mention that we believe in the synergy between sustainability and digitalisation, and we are already doing a lot to explore and apply the potential of this. A good example of this was the OTP LAB Fintech Meetup@Budapest event, which focused on sustainable financial solutions supported by modern technology.

Two of the OTP Fund Manager’s funds are already ESG-certified, and, on the private banking side, we aim to create investment model portfolios where the individual elements will have a specifically low ESG risk. In addition, we plan to further develop our products in the coming years with sustainability in mind.

Our priority goal is to make the OTP Group the most prepared Central and Eastern European bank in the field of green financing by 2023.