The Budapest Stock Exchange (BSE) aims to promote “green” finance by improving sustainability reporting and environmental, social and governance (ESG) data sharing of listed companies. “As the number of sustainable products increases on the stock exchange, we want to develop green markets,” stock market adviser Balázs Bozsik told the Budapest Business Journal.
ESG wants to improve the awareness of issuers and institutional investors about ESG factors in the Hungarian capital market, said Bozsik, ESG expert at ESG. One way to do this is through international cooperation. ESB joined the United Nations Sustainable Fellowships (SSE) initiative in 2019.
“It is an organization of exchanges, where members share their expertise and best practices with each other,” explains Bozsik.
The initiative is a United Nations partnership program with more than 80 scholarships around the world. The SSE provides a global platform for stock exchanges, investors, issuers, regulators, policy makers and relevant international organizations to improve performance on ESG issues and encourage sustainable investment.
ESB also works closely with the Federation of European Securities Exchanges (FESE), a Brussels-based lobby group, in its working group on sustainable finance.
In February 2021, the ESG released an ESG reporting guide for Hungarian issuers (existing and potential) that shows how to start reporting sustainability and providing ESG data, Bozsik said.
“Our task is to increase transparency for investors by urging issuers to publish relevant ESG data rather than trying to push them to operate in an environmentally friendly manner. We want to facilitate investment decisions regarding ESG factors. In preparing the guide, the ESB checked best practices from other exchanges and worked with external experts.
On the issuers’ side, the ESB notes a strong interest in ESG reporting. “Both issuers and advisers, including large audit firms and specialist agencies, attend the EGS workshops and conferences we organize for educational purposes,” says Bozsik.
“We assessed Hungary’s ESG disclosure practices and found that there are pioneers, as well as issuers who have yet to improve their sustainability data disclosure,” Bozsik notes. However, most Hungarian issuers do not disclose any sustainability data.
In 2020, MOL qualified for the fifth consecutive year for inclusion in the Dow Jones Sustainability World Index (DJSI) in the Upstream & Integrated Oil & Gas category. MOL uses the Global Reporting Initiative (GRI) standards as the main framework for its sustainability reporting, in addition to other standards. The group can thus increase its outreach to international investors.
The other three Hungarian blue chips, Magyar Telekom, Richter and OTP Bank, receive ratings from major ESG rating agencies, such as Arabesque, ISS ESG, MSCI, RobecoSAM and Sustainalytics.
“We asked late issuers to develop a plan on how to introduce ESG reporting first,” said Bozsik. The problem is that the initial costs of this transformation are high, while companies and investors will only see its positive impact in the long term.
Green bonds, green market
There are already a few green bonds in the Hungarian corporate bond market. Hungarian property developer Futureal, for example, issued a 10-year green bond with a face value of HUF 55 billion in March as part of the National Bank of Hungary’s (MNB) Bond for Growth program.
The MNB, the owner of the exchange, says it is looking to develop a domestic market for green mortgage bonds. The bank has also started promoting green mortgages through a green mortgage bond purchase program.
The Public Debt Management Agency (ÁKK) has already issued green bonds in forint and euro. Its first auction of green forint bonds in April generated strong demand.
Besides green mortgage bonds, social bonds will be available sooner or later, according to Bozsik. “As the number of green financial products increases, we will be able to create green markets and green indices,” he adds.
ESG strives to incorporate ESG principles into its strategy and provide sustainable data as a model for listed companies, he adds.
To learn more about ESG and sustainability, see our special report on green businesses in the next issue of the Budapest Business Journal.
Richter statement on ESG
“With increasing investor expectations for ESG, Richter will be releasing its sustainability report every year starting this year. The report, published every two years since 2005, examines Richter’s corporate governance and its initiatives to achieve social and environmental sustainability in a transparent manner. Our aim is to provide a comprehensive picture of all of the areas that investors and various ESG rating agencies review regarding Richter and pharmaceutical producers in general. When it comes to our external communication, we also make sure to present relevant information in an easily accessible way. As a responsible company, Richter places great importance on aspects of sustainability that affect every element of the company’s vertically integrated activities, whether it is pharmaceutical manufacturing, research and development, or commerce. and marketing.
OTP Bank ESG declaration
“In November 2020, OTP Bank launched its ESG program and set up an ESG committee. He regularly reports on the status of the ESG program to the management committee and has started to develop OTP Bank’s ESG strategy. We have to meet expectations both as a bank and as a legal entity. Here the bank needs to think about strategic processes, such as how ESG considerations are reflected in our risk management or compensation policies. With these, the bank also meets the expectations of the various ESG rating agencies. Based on their rating, our clients and partners see to what extent the bank complies with ESG rules. In addition, in the area of services (this means thousands of products in customer portfolios), we also had to assess and show the sustainability risks of these products.
“The bank had until March 10 to complete the publication of regulations on compensation, organization and product side, risk management, transparency of adverse reactions and associated procedures. OTP is already at the forefront of financing green infrastructure, housing loans, electric cars, renewable energy production and making its activities more environmentally friendly in terms of saving materials and energy.
István Kutas, Director of Corporate Communications at Magyar Telekom
“Magyar Telekom has developed its approach to sustainability according to the three pillars ESG, environmental, social, economic, and includes values such as climate protection, a healthy environment, a sustainable society, diversity, social solidarity, catching up digital, sustainable products and services, as well as fair trade and transparency. Magyar Telekom has published an annual sustainability report since 2004 that adheres to strict international standards, ensuring comparability and analysis. Reports follow GRI guidelines. Our most recent report for 2020 was prepared using the “Comprehensive” application level of the GRI standard. In addition to improving TCFD (Task Force on Climate-Related Financial Disclosures) compliance, the requirements of the Sustainability Accounting Standards Board (SASB) have also been added to the current report. It is based on the international standard ISAE 3000, an independent third party PwC tested and certified to meet GRI criteria.
“As in previous years, the 2020 report summarizes the progress made in accordance with the principles of the United Nations Global Compact. In 2009, Magyar Telekom joined the initiative and its 10 principles in the areas of human rights, working conditions, environmental protection and the fight against corruption. Responsible investors already own 45% of the free shares of Magyar Telekom. In the 2020 and 2021 ratings, leading agencies such as ISS, MSCI and FTSE4Good rank the group among the best companies in its sector. Magyar Telekom has been confirmed as a member of the FTSE4Good index family by FTSE Russell. In addition, as the only Hungarian company, Magyar Telekom was among the top 7% of companies based on the Supplier Engagement rating of the Carbon Disclosure Project.
This article first appeared in the print issue of the Budapest Business Journal on September 10, 2021.