ACRA CONFIRMS THE COMPLIANCE OF THE ISSUE OF EXCHANGE-TRADED BONDS OF PJSC ROSBANK WITH THE SUSTAINABLE DEVELOPMENT BOND STANDARDS

ACRA HAS CONFIRMED THE COMPLIANCE OF THE ISSUE OF EXCHANGE-TRADED BONDS OF PJSC ROSBANK WITH THE INTERNATIONALLY RECOGNIZED SOCIAL AND GREEN FINANCe PRINCIPLES AND STANDARDS (GREEN AND SOCIAL BOND PRINCIPLES OF THE ICMa¹) AND CONFIRMED THE COMPLIANCE OF THE ISSUE WITH THE SUSTAINABLE DEVELOPMENT BOND STANDARDS AND VERIFIED THE REPORT ON THE USE OF PROCEEDS FROM THE PLACEMENT OF SUSTAINABLE DEVELOPMENT BONDS

COMPLIANCE OF THE ISSUE WITH REGULATION OF THE BANK OF RUSSIA DATED DECEMBER 19, 2019 NO. 706-P

As part of the series BO-003P-01 (ISIN RU000A1062L7) bond issue of PJSC ROSBANK (hereinafter, the Bank, or the Issuer) ACRA verified the compliance of the bond issue with the internationally recognized goals, principles, standards, and criteria in the field of ecology and green finance (ICMA Green Bond Principles (GBP), 2021 GBP), internationally recognized goals, principles, standards and criteria in the field of social finance (ICMA Social Bond Principles (SBP), (2021 SBP)), as well as compliance of the projects refinanced using the proceeds from the bond issue with internationally recognized principles and standards in the field of ecology, green finance, and social finance.

The projects presented by the Issuer (see below and the Appendix) fall into the following ICMA project categories:

• Clean transportation (green projects)²;

• Energy efficiency (green projects)²;

• Employment generation, and programs designed to prevent and/or alleviate unemployment stemming from socioeconomic crises, including through the potential effect of SME financing and microfinance³.

Refinancing of similar projects by issuing sustainable development bonds is allowed in international practice.

Below is the list of analyzed projects refinanced as part of the issue (see the full description of projects, as well as environmental and social effects from their implementation in the Appendix):

A.      Project А. Modernization of a poultry plant, which includes the reconstruction and modernization of poultry complexes (farms) and the purchase of equipment for them, as well as the construction of new facilities, and allows to reduce the consumption of heat and electricity (including the purchase of equipment for poultry farms; construction work to assemble equipment; installation of equipment; improvement of storage conditions for finished products in compliance with temperature regimes and sanitary and veterinary rules; improvement of the production site).

B.      Project B. A pool of auto loans previously issued for the purchase of cars with electric motors.

C.      Project С. A pool of loans previously issued to SMEs in Russian regions with unemployment rates above the national average.

The nominal monetary volume of the issue was RUB 3 bln. The Issuer confirmed to the Agency that this amount did not exceed the total amount of financial resources previously provided to its clients for the implementation of the projects.

The Issuer used all the proceeds from placement to refinance projects that meet the criteria of green and social projects in accordance with the Policy in the field of issuing green bonds, social bonds, and sustainable development bonds of PJSC ROSBANK⁴ (hereinafter, the Policy).

Projects A and B allowed positive environmental effects to be achieved, which are expressed in the following:

• Project A: as of January 1, 2024, reduction in electricity consumption per production building by 56% compared to the base year as part of the modernization of the existing production process, as well as a decrease in average electricity consumption per 1 sq. m of area by 37% for new facilities (compared to electricity consumption in similar existing production buildings).

• Project B: as of January 1, 2024, greenhouse gas emissions had been reduced by 544 tons of CO₂ equivalent due to the gradual replacement of cars with internal combustion engines by cars with electric motors.

Project C allowed positive social effects to be achieved, which are expressed in the following:

• Project C: as of January 1, 2024, 3,069 jobs had been preserved by financing SMEs.

Detailed information on the methodology for determining environmental and social impacts is provided in the Key Assumptions section.

ACRA confirms that the projects refinanced through the issuance of sustainable development bonds comply with all of the ICMA’s basic internationally recognized principles and standards in the field of ecology and green finance as amended in 2021 (2021 GBP) (Projects A and B), as well as the ICMA’s 2021 internationally recognized principles and standards for social finance projects (2021 SBP) (Project C).

¹ International Capital Market Association
² See the ICMA’s Green Bond Principles: https://www.icmagroup.org/assets/documents/Sustainable-finance/2022-updates/Green-Bond-Principles_June-2022-280622.pdf
³ See the ICMA’s Social Bond Principles: https://www.icmagroup.org/assets/documents/Sustainable-finance/2022-updates/Social-Bond-Principles_June-2022v3-020822.pdf
⁴ https://api.rosbank.ru/doc/politika-v-sfere-vypuska-obligacii-ustoichivogo-razvitiya.pdf

COMPLIANCE OF THE ISSUE WITH THE ICMA’S GREEN AND SOCIAL BOND PRINCIPLES

ACRA confirms that the Issuer’s analyzed bond issue complies with all the basic components of the ICMA’s 2021 GBP and 2021 SPB simultaneously. 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 positive environmental and social effects), process of evaluating and selecting projects, and management of proceeds and reporting presented in the Policy are fully in line with 2021 GBP and 2021 SPB criteria, and consequently the analyzed bond issue can be considered as a sustainable development issue.

KEY ISSUE PROPERTIES

Sources: ACRA, Issuer’s data

PJSC ROSBANK is a systemically important universal bank holding leading positions in the Russian banking sector in terms of assets and capital and operating in all federal districts across Russia.

The Issuer has developed and implemented a number of policies, procedures and activities in the field of sustainable development, corporate social responsibility, as well as the development of financial instruments related to financing sustainable development. Further information about the Issuer’s sustainable development activities is provided in the Agency’s press release dated March 27, 2023⁵.

In 2022, the Issuer adopted a Policy that outlines its approaches to the procedure for preparing and placing green bonds/social bonds/sustainable development bonds: it describes the process of preliminary assessment and selection of projects; provides the requirements for green and social projects financed/refinanced through the issuance of bonds; outlines permissible areas for the use of funds; and describes approaches to the management of attracted funds, as well as verification and reporting principles.

⁵ https://www.acra-ratings.ru/press-releases/3874/?lang=en

KEY ASSESSMENT FACTORS

The Issuer provided ACRA with documents containing project eligibility criteria that can be included in the sustainable development bond issue, project selection process, approaches to managing proceeds, and future reporting, as well as the Report on the Use of Bond Issue Proceeds. ACRA drew conclusions on the compliance of the bond issue with the four components of the 2021 GBP and 2021 SPB based on these documents.

Use of proceeds

The objectives of the issuance of the Issuer’s bonds are formulated and comply with the 2021 GBP and 2021 SPB.

As part of the Policy, the Issuer has identified the following categories of green and social projects that can be financed/refinanced through the issuance of green bonds/social bonds/sustainable development bonds:

Green:

• Renewable energy sources;

• Construction of green buildings and structures;

• Energy efficiency;

• Transportation using environmentally friendly energy sources, green transportation;

• Sustainable management of water resources;

• Waste management and reduction of environmental pollution;

• Circular economy;

• Natural landscapes, rivers, reservoirs and biodiversity.

Social:

• Increasing or maintaining employment through SME financing;

• Social and economic development and empowerment;

• Affordable housing;

• Access to education and vocational training;

• Access to healthcare.

The Issuer refinanced the following projects using funds from the bond issuance:

A.  Project А. Modernization of a poultry plant, which includes the reconstruction and modernization of poultry complexes (farms) and the purchase of equipment for them, as well as the construction of new facilities, and allows to reduce the consumption of heat and electricity (including the purchase of equipment for poultry farms; construction work to assemble equipment; installation of equipment; improvement of storage conditions for finished products in compliance with temperature regimes and sanitary and veterinary rules; improvement of the production site).

B.  Project B. A pool of auto loans previously issued for the purchase of cars with electric motors.

C.  Project С. A pool of loans previously issued to SMEs in Russian regions with unemployment rates above the national average.

The Issuer confirmed to the Agency that all of the proceeds from the sustainable development bond issue were used solely to refinance the abovementioned projects, which can be included in the following ICMA project categories as per the 2021 GBP and 2021 SBP:

• Energy efficiency;

• Clean transportation;

• Employment generation, and programs designed to prevent and/or alleviate unemployment stemming from socioeconomic crises, including through the potential effect of SME financing and microfinance.

In addition to the previously submitted materials as part of the verification of the Report on the Use of Bond Issue Proceeds, the Issuer provided the Agency with the:

(1)    Report on the Use of Funds from the Issue of Sustainable Development Bonds;

(2)    Report of the issuer of equity securities for 12 months of 2023.

According to the information provided by the Issuer, none of the analyzed projects have federal or regional significance and therefore are not subject to mandatory state ecological expertise.

The positive environmental and social effects from the implementation of the analyzed projects by the Issuer are presented on page 2 of this press release.

The complete list of green and social projects refinanced using the proceeds from the bond issue, including short descriptions of them, a list of actions, as well as an assessment of environmental and social effects and an indication of the projects’ compliance with the internationally recognized principles and standards in the field of ecology and/or green financing (2021 GBP), as well as with the internationally recognized principles and standards in the field of social financing (2021 SBP), is provided in the Appendix.

Process of evaluating and selecting projects

The Issuer has defined a number of internal procedures that govern the process of evaluation and selection of financed/refinanced projects and are set out in the Policy, as well as described in detail by the Issuer in the questionnaire provided to the Agency. In accordance with the submitted documents, the selection of projects accepted for subsequent financing/refinancing through the issuance of green bonds/social bonds/sustainable development bonds consists of several stages. Detailed information on the process of assessing and selecting refinanced mortgage loans is presented in the Agency’s press release dated March 27, 2023⁶. In ACRA’s opinion, the described algorithm evidences that the project evaluation and selection procedure is effective.

⁶ https://www.acra-ratings.ru/press-releases/3874/?lang=en

Management of proceeds

The procedure for managing the proceeds from the issue of bonds, set out in the Policy, as well as in the Bank’s internal non-public documents and the Decision to Issue Securities.

The Issuer’s failure to comply with the condition on the intended use of the proceeds from the placement of bonds does not result in the bondholders being granted the right to demand their early redemption.

During the reporting period, all funds received from the placement of the analyzed bonds were used in full for the purpose of refinancing these projects. There were no temporarily unused funds.

Control over the intended use of the proceeds from the placement of bonds, according to the Issuer, was also carried out by the SPIF expert, including the provision of information as part of the report on the use of funds received from the placement of sustainable development bonds, and informing the unit that initiated the issue of sustainable development bonds about violation of the target use of funds.

Detailed information on the management of proceeds from the analyzed bond issue is presented in the Agency’s press release dated March 27, 2023⁷. In ACRA’s opinion, the procedure for managing the bond issue proceeds generally complies with the 2021 GBP and 2023 SBP.

⁷  https://www.acra-ratings.ru/press-releases/3874/?lang=en

Reporting

The issuer obliged to prepare and publish a report on the use of proceeds from the issue of sustainable development bonds, including on its website. In each report, the Issuer obliged to disclose information about the projects in accordance with the law, and the regulations of the Bank of Russia and the stock exchange where the bonds are listed. The Issuer also undertook to ensure that the verifier conducts an independent external assessment of the Report on the Use of Proceeds.

The report on the use of bond issue proceeds for 12 months of 2023 was prepared on time and disclosed in full by the Issuer at https://www.e-disclosure.ru/portal/files.aspx?id=2427&type=5.

The report on the use of bond issue proceeds contains information required for disclosure by the Issuer of sustainable development bonds:

• For each project:

o   Goals and areas of project implementation;

o   Principles, criteria and standards with which the project complies, specified in the Decision on the issuance of bonds;

o   Characteristics of the project confirming its compliance with the principles, criteria and standards specified in the Decision to Issue Bonds;

o   Information on the achievement of qualitative and quantitative indicators characterizing the positive effect of the project on the environment, climate and public life;

o   Description of how the Issuer plans to identify risks of possible negative consequences for the environment and social sphere associated with the implementation of the project, and manage these risks;

o   Description of how the goals and directions of use of funds received from the placement of bonds relate to the Issuer’s strategy in the field of sustainable development (sustainable development strategy);

o   Project start date;

o   Project completion date;

o   Description of the stage of project implementation or an indication that the project has not begun, establishing the planned start date for the project and (or) the conditions under which the project will beginInformation on the total amount of funds received from the placement of bonds;

• Information on the volume of funds received from the placement of bonds in the specified reporting period;

• Information on the total volume and volume in the reporting period (a reporting period consisting of 12 months) of funds used and on the distribution of these funds between projects, indicating the volume of funds allocated for refinancing each of the projects;

• Information on the volume of funds received from the placement of bonds that were temporarily not used to refinance projects;

• Information on the Issuer’s assessment of the compliance of expenses for refinancing projects in the reporting period (a reporting period consisting of 12 months) with the schedule of planned expenses for refinancing projects;

• Information on the Issuer’s assessment of the compliance of the use of funds received from the placement of bonds in the reporting period with the Issuer’s policy for managing funds received from the placement of bonds;

• Information about the verifier who prepared the conclusion on the compliance of the Report on the use of funds received from the placement of sustainable development bonds with the principles and standards of financial instruments specified in the Decision on the issue of bonds.

ACRA considers the information presented in the Report on the Use of Bond Issue Proceeds to be sufficient and trustworthy. According to the Agency, this Report for the 12 months of 2023 fully complies with the 2021 GBP and 2023 SBP.

Additional assessment factors

Organizational structure and strategy

In accordance with the procedure adopted by the Issuer, the corporate unit of the Bank (Projects A and C), ROSBANK Auto (Project B), and the small business department (Project C) are responsible for providing funds for selected projects. The issuer has allocated a separate staff unit responsible for the consolidation and monitoring of data on the refinanced projects — the head of ESG banking.

The Issuer has approved the Sustainable Development Policy and Roadmap as part of its updated 2023–2027 strategy, and developed a number of sectoral policies to take into account environmental and social risks when financing/refinancing projects.

ACRA assesses the degree of integration of the Sustainable Development Principles into the policies and procedures of the Issuer as high. The Agency assesses the overall quality of the Issuer’s corporate governance and strategic planning as high.

Financial feasibility of the projects

All the projects included by the Issuer in this bond issue were refinanced, which allows their financial feasibility to assessed as high.

KEY ASSUMPTIONS

• Proceeds from the issue of sustainable development bonds will be used as intended.

KEY ASSUMPTIONS FOR CALCULATING ENVIRONMENTAL EFFECTS

1.   Project A. The calculation of the reduction of heat and electricity due to the implementation of the project was carried out on the basis of actual data on the change in the average consumption of energy (electricity, heat and gas supply) in connection with the reconstruction of buildings for the period from 2018 to 2021, as well as on the basis of actual data on the change in the average consumption of energy in connection with the construction of new buildings for the same period (in the latter case, a comparison was made with already functioning buildings).

2.   Project B. There are no direct emissions of greenhouse gases and pollutants from the operation of electric vehicles. To calculate the potential reduction in CO₂ emissions per year, the assumption that the average annual mileage of passenger cars in Moscow is 16,100 km was used. Average GHG emissions per km from new passenger cars in Europe for 2016–2019[1] were used as the average GHG emissions per km for an ICE passenger car. The assumption was made that the considered alternative to buying an electric car is to buy a new car with an internal combustion engine manufactured in the EU. Data for 2020 was not used due to its low representativeness.

3.   Project C. The number of jobs saved was calculated by the Issuer depending on the number of employees at the borrower company at the date of loan provision. For calculations, data from borrowers and various professional market analysis systems and services were taken as the basis. By the time of issue, an expert assessment was carried out, and a coefficient of 0.6 was applied to the base quantity, which determines a more conservative and up-to-date indicator.

⁸ https://www.eea.europa.eu/ims/co2-performance-of-new-passenger

ASSESSMENT COMPONENTS

Compliance of the issue with the 2021 GBP/2021 SPB: yes.

Assessment score: SDR1.

ADDITIONAL INFORMATION

The assessment of the bonds of PJSC ROSBANK (ISIN RU000A1062L7) and the projects refinanced as part of the bond issue for compliance with internationally recognized goals, principles, standards and criteria in the field of environment and green financing (2021 GBP), as well as social financing (2021 SBP) and the Report on the use of funds received from the placement of bonds for 12 months of 2023, has been performed based on the Methodology for Assessing Social Debt Obligations and Sustainable Development Debt Obligations with respect to sustainable development 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 PJSC ROSBANK with internationally recognized goals, principles, standards and criteria in the field of the environment and green finance (2021 GBP), as well as social finance (2021 SBP), and the projects refinanced as part of the bond issue, as well as the Report on the use of funds received from the placement of bonds for 12 months of 2023, is based on data provided by PJSC ROSBANK, information from publicly available sources, and ACRA’s own databases.

The assessment of compliance of the bonds of PJSC ROSBANK and the projects refinanced as part of the bond issue for compliance with internationally recognized goals, as well as the Report on the use of funds received from the placement of bonds for 12 months of 2023, with the principles, standards and criteria in the field of the environment and green finance (2021 GBP) and social finance (2021 SBP) is solicited and PJSC ROSBANK 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 methodologies.

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

The assigned assessment is not a credit rating.

Appendix. Description of projects refinanced by the proceeds received from the issue of sustainable development bonds