ACRA CONFIRMS THE COMPLIANCE OF THE SERIES 002P-01 BOND ISSUE OF SBERBANK WITH THE ICMA’S INTERNATIONALLY RECOGNIZED PRINCIPLES AND NATIONAL GREEN BOND STANDARDS

acra has confirmed the compliance of the series 002p-01 bond issue of sberbank with the green bond principles of the international capital market ASSOCIATION (icma) and national standards; it has confirmed the compliance of the projects refinanced as part of the issue with INTERNATIONALLY RECOGNIZED PRINCIPLES AND STANDARDS IN THE FIELD of ecology and green financing

Compliance of the issue with Regulation of the Bank of Russia dated December 19, 2019 No. 706-P

As part of the assessment of the series 002P-01 bond issue (ISIN RU000A103YM3) of Sberbank (hereinafter, the Issuer, or the Initiator) ACRA confirmed the compliance of the bond issue with the internationally recognized goals, principles, standards and criteria in the field of ecology and green financing (the ICMA’s Green Bond Principles (GBP)), green financial instrument criteria as per Russian Federation Government Decree No. 1587 dated September 21, 2021 (Green Project Taxonomy), as well as the compliance of the projects refinanced using funds from the bond placement with internationally recognized principles and standards in the field of ecology and green financing.

The projects presented by the Issuer — construction of power plants using solar energy as a source of energy — are part of the ICMA’s Renewable Energy project category and correspond to the following area of the Green Project Taxonomy (see Appendix 1):

2.1.1. Solar Power

Refinancing such projects through the issuance of green debt instruments is possible both in international and Russian practices.

The specified projects — the construction of eight solar power plants (SPPs) — were operating as of confirmation of compliance, are included in the list of qualified generating facilities operating on the basis of renewable energy sources (RES), and are supplying electricity to the wholesale electricity and capacity market (WECM).

The issuer provided the Agency with information confirming the use of funds raised through the issue of bonds in the amount of RUB 25 bln to replenish funds previously allocated for issuing loans for the implementation of projects for the construction of power plants:

• One power plant of the UPS¹ of the Middle Volga with a full planned capacity of 75 MW;

• Five power plants of the UPS of the South with a full planned capacity of 180 MW;

• Two power pants of the UPS of Ural with a full planned capacity of 50 MW.

The implementation of these projects made it possible to achieve a positive effect from an environmental point of view, as it will result in:

• An increase in the total installed capacity and electricity generation from RES facilities within the framework of the UPSs and the Unified Energy System (UES) of Russia as a whole (direct effect);

• An increase in the share of RES in the installed capacity and electricity generation within the UPSs and the UES of Russia as a whole (direct effect);

• Indirect reduction of CO₂ emissions due to the substitution of fossil fuel-fired capacities by the assessed SPPs (indirect effect).

A brief overview of the projects refinanced via green bond issues and their environmental impact can be found in Appendix 1.

ACRA confirms that projects refinanced through the issuance of green bonds comply with all the basic internationally recognized principles and standards in the field of ecology and/or green financing of the ICMA as amended in 2021 (2021 GBP).

Compliance of the issue with the ICMA’s Green Bond Principles

ACRA confirms that the Issuer’s bond issue complies with all the basic components of the 2021 Green Bond Principles (2021 GBP) of the ICMA. The area in which proceeds will be used (projects that are refinanced through the issue of bonds to achieve objectives that comply with ICMA project categories and have a positive environmental impact), process of evaluating and selecting projects, management of proceeds and reporting presented in the Green Bond Framework (hereinafter, the Framework)² are fully in line with 2021 GBP criteria, and consequently the bond issue can be considered as green.

¹According to the definition of System Operator of the Unified Energy System JSC, a UPS is a set of several energy systems, united by a common mode of operation, having a common dispatch control as the highest level of control in relation to the dispatch control of the power systems included in it. The list of UPSs is provided on the website of System Operator of the Unified Energy System JSC: https://www.so-ups.ru/functioning/glossary/fops/.
² https://www.sberbank.com/common/img/uploaded/files/pdf/normative_docs/en/green_bond_framework_en.pdf

key issue properties

Sources: ACRA, Issuer’s data

Sberbank is the largest bank in Russia in terms of assets. The Issuer is actively involved in the sustainable development agenda, which is evidenced by its recent initiatives, including the following:

• In 2020, the Issuer’s ESG strategy for 2021–2023 was affirmed and integrated into the 2023 corporate development strategy;

• In 2021, the Issuer began participating in a UN global initiative involving an environmental protection program for the financial sector (UNEP FI: Principles for Responsible Banking), as well as the UN Global Compact;

• The Issuer has an Environmental, Social, Governance and Sustainability Policy, as well as a Policy for Managing Social Risks, Environmental Risks, and Corporate Governance;

• An organizational structure for managing ESG and sustainability has been formed, which includes an ESG directorate and an ESG committee;

• The Issuer’s contribution to the achievement of the UN Sustainable Development Goals (SDGs) has been determined;

• As of mid-2022, the Issuer had issued over RUB 200 bln worth of green loans (portfolio of investment lending or project financing transactions aimed at the implementation of green projects according to the Issuer’s definition), the ESG loan portfolio exceeded RUB 195 bln (portfolio of loans with ESG conditions);

• Calculations of СО₂ emissions from direct and indirect sources have been carried out, and work has begun on assessing the carbon footprint of the Bank’s portfolio;

• The Issuer has published an Impact Report for 2021³;

• The Agency notes the Issuer’s experience in financing renewable energy projects.

³ https://www.sberbank.com/common/img/uploaded/files/pdf/normative_docs/en/sber_impact_report_for_2021.pdf

key assessment factors

The Issuer provided ACRA with documents containing project eligibility criteria that were included in the green bond issue, project selection process, approaches to managing proceeds, and reporting. ACRA made conclusions on the compliance of the bond issue with the four components of 2021 GBP based on these documents.

Use of proceeds

The objectives of the issuance of green bonds were clearly formulated and comply with 2021 GBP. The proceeds from the issuance of these bonds were used to replenish the funds previously assigned for the issuance of loans to finance projects that meet the criteria specified in the Framework.

For the purposes of the assessed issue, the Issuer has identified the construction of eight SPPs operating in the following UPSs of the UES of the Russian Federation as projects:

• One power plant of the UPS of the Middle Volga with a full planned capacity of 75 MW;

• Five power plants of the UPS of the South with a full planned capacity of 180 MW;

• Two power pants of the UPS of Ural with a full planned capacity of 50 MW.

Therefore, the proceeds from the bond issuance were used exclusively for projects that fall under the ICMA project category Renewable Energy as per 2021 GBP.

The Issuer provided the Agency with: (1) a complete list of power plants (projects) and information on their location; (2) data on the commissioning dates and when the projects will reach full planned capacity; (3) data on the total volume of financing for each project; (4) timing of financing; (5) data on the maximum and full planned capacity of the power plants; (6) calculated data on annual electricity generation for each power plant (including actual generation for 2021); (7) a calculation of indirect environmental effects in terms of the “non-emitted” amount of CO₂. In addition, the Issuer provided the results of a technical review of the construction project for each SPP, including an analysis of each project’s compliance with environmental protection requirements.

All the assessed facilities will not produce a significant negative impact on the local environment⁴. In addition, none of the projects are of federal or regional importance, and therefore are not subject to a mandatory state environmental review.

The Issuer determined the planned capacity of the power plant to be commissioned under the project as a positive environmental effect.

The direct environmental effects from the implementation of the projects are expressed in:

• An increase in the total installed capacity and electricity generation from RES facilities within the UPSs and the UES of Russia as a whole;

• An increase in the share of RES in the installed capacity and electricity generation within the framework of the UPSs and the UES of Russia as a whole.

According to data provided by the Issuer, the total actual generation at the eight assessed SPPs for 2021 amounted to 388,043 MW/h.

The issuer presented an updated calculation of indirectly avoided CO₂ emissions due to the generation of electricity at the assessed SPPs in 2021, taking into account key assumptions, (see Key Assumptions on page 8).

According to the Issuer, prevented carbon dioxide emissions in 2021 due to the operation of the eight SPPs amounted to 92,810 tons of CO₂.

The Agency considers the Issuer’s calculations and the key assumptions made by the Issuer to calculate the actual environmental effect from the implementation of projects to be acceptable.

A complete list of green projects refinanced through the assessed green bond issue, with environmental impact assessments and an indication of their compliance with internationally recognized principles and standards in the field of ecology and/or green financing (2021 GBP) and national green bond standards is provided in Appendix 1 to this press release.

⁴ See the press release from October 21, 2022: https://www.acra-ratings.ru/press-releases/2945/?lang=en

Process of evaluating and selecting projects

The Issuer adopted a transparent and logical procedure for assessing and selecting projects, which is described in the Framework. All projects that were refinanced using funds from the issuance of the Issuer’s green bonds must meet two basic criteria:

• Have a level of risk that is not substantial or material in accordance with the Issuer’s internal documents for managing social risks, environmental risks, and corporate governance at Sberbank Group;

• Meet the criteria for green projects established by the Framework.

If a loan allows for subsequent issue of green bonds for financing/refinancing purposes, then the potential borrower for green lending is asked to provide information about the goals and target results of activities for which it needs the loan. The issuer recognizes a loan as green if:

• The loan meets the criteria for green loans stipulated by the Framework;

• The internal structural unit of the Issuer (ESG Directorate) recognizes the loan as green.

After a loan is recognized as green, it can act as a loan selected for the placement of green bonds in order to replenish the Issuer’s funds aimed at financing the corresponding green projects. Taking into account the fact that the Issuer has set very clear criteria for the use of funds (to issue green bonds using a loan, only a loan containing a requirement in its structure (in the form of variable rate parameters and (or) covenants) can be replenished by proceeds from the issuance of green bonds) for commissioning an energy facility, the source of electricity production of which is renewable energy sources (wind and solar energy)), and also taking into account the fact that the Issuer has developed the Environmental, Social, Governance and Sustainability Policy (public document), as well as the Policy for Managing Social Risks, Environmental Risks, and Corporate Governance (internal regulatory document), the Agency believes that the process of evaluating and selecting the Issuer’s projects fully complies with 2021 GBP and best market practices.

All projects selected by the Issuer for the assessed issue (see Appendix 1) are categorized as Renewable Energy according to 2021 GBP and relate to the following UN SDGs:

• SDG 7: Ensure access to affordable, reliable, sustainable and modern energy for all.

In ACRA’s opinion, the described algorithm is evidence of an efficient process of project appraisal and selection and corresponds to the best market practices.

Management of proceeds

The procedure for managing proceeds from the issuance of green bonds is also outlined in the Framework. In order to keep record of the spent proceeds, the Issuer created a register of green bonds. In line with the established procedure, the Issuer maintains the aggregate amount of projects financed/refinanced by the proceeds from the green bond issuance at a level not less than the aggregate par value of outstanding green bonds. The green bond register contains data sufficient to identify each green bond issue. The Framework also states that at times when the par value of outstanding green bonds exceeds the value of projects financed through green bond offerings, the excess amount will be invested in the Bank’s liquidity management instruments.

In addition, the Issuer indicated that its relevant divisions confirm the intended use of borrowed funds for projects financed/refinanced by loans included in the register of green projects. In case of any non-compliance by the borrower with the covenants, which is an event of default on loans included in the register of green projects, and the Issuer decides to enforce such event of default, the loan will be excluded from the register of green projects. The Issuer has also established a procedure for substituting repaid loans in order to maintain the total amount of loans included in the register of green projects at a level not less than the total par value of outstanding green bonds.

In ACRA’s opinion, the procedure for managing proceeds fully comply with 2021 GBP and the best market practices among banks who are green bond issuers.

Reporting

The Issuer published a report on the target use of proceeds received from the issuance of the exchange-traded bonds on its corporate website⁵. The Issuer also provided relevant information for its disclosure on the website of Moscow Exchange⁶.

The report contains the following information:

• Name of projects (subject to confidentiality policy);

• A brief description of the projects (subject to confidentiality policy);

• The approved volume of financing of projects using bonds;

• The share of financing of projects from other sources;

• Information on spending (distribution) of funds raised through the bond issue in the reporting period;

• Information on qualitative and quantitative indicators of the implementation of the projects (type and maximum capacity of power plants);

• Information confirming the implementation of the projects, and the actual use of all funds received from the placement of bonds;

• Information about the status of the projects as of the end date of the reporting period.

The Issuer confirmed to the Agency that it will continue to publish the report annually, subject to current rules and recommendations for information disclosure by issuers.

In the Agency’s opinion, the above procedure fully complies with 2021 GBP.Additional assessment factors

Organizational structure and strategy

According to the Issuer, green loans will be approved by its Key Clients Lending Department and Key Clients Department in accordance with standard lending procedures.

Moreover, in accordance with its current Environmental, Social, Governance and Sustainability Policy, the Issuer has established the ESG Directorate, which is the main coordinating unit that (1) implements a systemic approach to ESG and the sustainable development agenda, (2) manages implementation of the action plan based on corporate standards, (3) provides ESG expert support to other units, and (4) is responsible for the monitoring and submission of reporting in this line of work. ESG risks are also within the scope of responsibility of the Issuer’s risk management service, and ESG subdivisions within the Issuer’s business units are in charge of business areas that carry out thematic ESG initiatives.

The Agency assesses the level of integration of the Sustainable Development Principles into the Issuer’s policies and procedures (including as part of ESG risk assessment) and strategy as high. In 2020, the Issuer’s ESG strategy for 2021–2023 was approved, which in turn is integrated into the general corporate development strategy until 2023. The ESG strategy formulates key areas and goals, including those expressed in quantitative parameters. In addition, the Issuer clearly formulates its contribution to achieve the UN SDGs.

The Agency’s opinion on the overall quality of the Issuer’s corporate governance and strategic planning is also high.

⁵ https://www.sberbank.com/ru/sustainability/news/article?newsID=0edc3857-fde5-4506-bf52-6decbcedc636&blockID=fee571ad-8da3-4eae-afdb-4b2d7e28cb16&regionID=77&lang=ru&type=NEWS
⁶ https://www.moex.com/s3019

KEY ASSUMPTIONS

• Targeted use of proceeds from the issuance of green bonds;

• The maximum capacity (MW) of power plants corresponds to the design documentation for each project.

KEY ASSUMPTIONS FOR ESTIMATING ENVIRONMENTAL EFFECTS

• To determine the amount of prevented greenhouse gas emissions, it was assumed that greenhouse gas emissions are zero at solar power plants.

• To calculate CO₂ emissions from electricity generation under the alternative scenario (use of non-renewable energy sources), the calculated factors of carbon dioxide emissions from electricity generation for the relevant UPS were used in t CO₂/kWh.

• Emission factors for each UPS are calculated in accordance with Methodologic Guidelines of the Russian Ministry of Natural Resources No. 330 using data on the regional volume of generated electricity and the structure of fuel balance of electricity generating companies excluding electricity flows between UPSs.

• The Issuer used Rosstat’s data on electricity generation (mln MWh) by Russian region, data on the composition of unified power systems, data on the consumed fuel resources (tons of OE by type of fuel) to produce electricity by region, and data on CO₂ emissions from burning various types of fuel as indicated by Methodologic Guidelines of the Russian Ministry of Natural Resources No. 330.

• A regional method for quantifying greenhouse gas emissions was used. The methodology used by the Issuer was effective as of mid-February 2022. The methodology was amended at the end of March 2022.

assessment components

Compliance of the issue with GBP: yes.

Assessment score: GR1.

ADDITIONAL INFORMATION

The assessment of the bonds of Sberbank and the projects refinanced as part of these bonds for compliance with internationally recognized goals, principles, standards, and criteria in the field of ecology and green financing (2021 GBP), as well as with the requirements for the framework for verification of sustainable (including green) development projects in the Russian Federation has been performed based on the Methodology for Green Debt Obligation Assessment with regard to green bond assessment.

The compliance assessment may be revised within one year following the publication date of this press release.

ACRA’s opinion on the compliance of the bonds of Sberbank and the projects refinanced by this bond issue with internationally recognized goals, principles, standards, and criteria in the field of ecology and green financing (2021 GBP) is based on data provided by Sberbank, information from publicly available sources, and ACRA’s own databases. The assessment of compliance of the bonds of Sberbank, as well as the projects refinanced by the bond issue with internationally recognized goals, principles, standards, and criteria in the field of ecology and green financing (2021 GBP) was solicited, and Sberbank participated in the assessment process.

In assigning the assessment, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodology.

No conflicts of interest were discovered in the course of the assessment process.

The assigned assessment is not a credit rating.

Appendix 1. Projects refinanced by proceeds from the green bond issue that comply with internationally recognized principles and standards in the field of ecology and/or green financing (2021 GBP)

Sources: Sberbank, System Operator of the Unified Energy System JSC

Appendix 2. Compliance of the assessed bond issue with the criteria for compliance of a financial instrument with the requirements stipulated by decree of the Government of the Russian Federation dated September 21, 2021 No. 1587 “On approval of criteria for sustainable (including green) development projects in the Russian Federation and requirements for the verification system for sustainable (including green) development projects in the Russian Federation”.

ACRA also verified the compliance of the issue and projects refinanced using the proceeds raised from this issue for compliance with the criteria stipulated by Decree of the Government of the Russian Federation dated September 21, 2021 No. 1587, and the criteria for green projects (Green Project Taxonomy).

Opinion on compliance:

The assessed financial instrument (bonds) complies with the criteria.

Verification methodology:

The assessment of projects refinanced as part of the issuance of Sberbank’s green bonds for compliance with internationally recognized principles and standards in the field of ecology and/or green financing, as well as the bonds themselves was carried out on the basis of the Methodology for Green Debt Obligation Assessment in terms of the assessment of green bonds.

Activities performed:

As part of the assessment, the Verifier (ACRA) requested and analyzed the following materials provided by the Initiator (Issuer):

1)      Public policies of the Issuer in the field of sustainable development;

2)      Internal policies and procedures of the Issuer in the field of sustainable development and risk management;

3)      The Agency’s questionnaire completed by the Initiator;

4)      Description of projects;

5)      Reports on the results of technical expertise of projects;

6)      Models and assumptions on environmental effects provided by the Initiator.

A series of interviews was held with the Initiator.

Confirmation of independence of judgment and absence of conflicts of interest or other circumstances that impede proper, objective and impartial analysis and judgment:

See page 8 of this press release.

Confirmation of the type of sustainable development financial instrument declared by the Initiator:

Green financial instrument (green bonds).

Responsibility of the Initiator for non-compliance of the sustainable development financial instrument with the requirements:

See page 6 of this press release.

Compliance of the sustainable development project with one or more areas stipulated by the criteria for sustainable development projects:

Creation and modernization of generating facilities and supporting infrastructure for the generation of energy from renewable energy sources and low-carbon fuels (solar energy) (Clause 2.1.1 of the Green Project Taxonomy).

Information about the Initiator and the sustainable development projects:

The bond issuer is Sberbank, the largest commercial bank in the Russian Federation in terms of assets. In the context of this issue, green projects mean the construction of eight SPPs.

Objectives of refinancing the selected portfolio of green projects:

The Issuer selected the construction and upgrade of generating facilities and supporting infrastructure for generating energy from renewable energy sources, namely, generating facilities using solar energy (Clause 2.1.1 of the Green Project Taxonomy), as the objectives of financing. A detailed description of the projects is presented on pages 4–5 of this press release and in Appendix 1.

Compliance of the bonds with the requirements established by the Bank of Russia in accordance with Russian legislation on the issue of securities for bonds, the issue or program of which contains additional identification using the words “green bonds”:

Yes (extended confirmation is provided on page 1 of this press release).

Assessment of the compliance of the financed sustainable development project with the criteria for sustainable development projects:

Complies (see pages 1–2 and 4–5 of this press release).

Analysis of the purposes for which the attracted funds are used and the procedures for providing recommendations on the use and management of funds:

Complies (see pages 4–5 of this press release).

Analysis of procedures for selection and approval of sustainable development projects:

Complies (see pages 5–6 of this press release).

Analysis of control over the implementation of sustainable development projects:

Complies (see page 6 of this press release).

Value of indicators and independent confirmation of the expected environmental effect from the implementation of the sustainable development project:

The Issuer presented detailed calculations of the environmental effects (see pages 4–5 and Appendix 1).

Expected environmental effects of green projects:

Provided in Appendix 1 to this press release.

Information about the presence (absence) of conflicts of interest, independence of judgment.

No conflicts of interest were identified as part of the assessment process (see page 12 of this press release).