Bank Polska Kasa Opieki S.A. (PEO) Earnings Call Transcript & Summary

Good afternoon, good morning. Welcome, everyone, to Bank Pekao ESG Strategy Presentation. The presentation will be held by CEO of the bank, Leszek Skiba; and Management Board members, Mr. Marcin Gadomski, Magdalena Zmitrowicz and Jerzy Kwiecinski. We'll start from the short video presenting key strategic directions and strategic pillars. Then we'll go for the presentation, and we'll end with Q&A session. [Operator Instructions] So please present the video. [Presentation]

Thank you. So let's start the presentation. I will now pass over to CEO of the bank, Leszek Skiba.

Thank you very much. Thank you for your presence here. We'd like to start with the question about the bank, what kind of bank we will be in terms of ESG, what is the plan for the next 4 years. What is important for us, we would like to be a responsible bank, delivering long-term value to all our shareholders and future generations. This is important that we are a responsible bank in terms of credit policy, but this is not enough to be -- for us. We'd like to be a responsible bank in other areas. And this long-term value means that it should last longer. The second issue is that will be more involved in energy transformation. This is a hot issue now in Poland. Poland is not well-known country for the -- that the coal is the main source of energy. We know that Poland is now in the process of energy transformation. This is very important for us to support this project to be -- that Poland should be cleaner, Polish energy should be cleaner, should be greener. Polish industry should be also cleaner and greener. We know that this is our -- for us is the challenge to be supportive of this process. This is important for Poland. This is important for whole Europe. We would like to also support sustainable social and economic development and growth of prosperity. It is important because we understand that being responsible in terms of social relations is also important factor for every financial institution. We will maintain high management standards while supporting diversity, equality and inclusions. We know that it is important for us to address the gaps we identify in Poland. On this slide, you can see 3 main pillars of our ESG strategy. The first is environment. We would like to finance important for these transformation projects. This is also important because we would like to -- this is orderly and gradual transition to a low-carbon economy. This is a challenge for Poland. And for us, this is important. And the third aspect is reduction of carbon footprint and achievement of climate neutrality. Engagement, the second pillar. This is about social engagement, including education. This is support for development of Polish companies and what is important for whole sector, digital and innovative solutions. Third pillar of governance, high standards of corporate governance and ethical approach to business, integration of ESG in all key processes, ensuring development, diversity and equality of employees. On the next slide, you can see 3 main strategic goals that we plan to achieve in 2024. The first is that the bank -- the level of financing, PLN 30 billion, is the minimum level and our aspiration and as a tool to achieve energy transformation in Poland. The second goal is to increase the number of hours as a part of employee volunteering. We would like to help this activity, employee volunteering, in our company. And we -- our goal is to increase this number of hours to 5,500 hours. And the third goal is to reduce the gap, the gender pay gap. This is important because we identified that in financial sector, this gap is quite huge. It's more than 30% in -- not only in Poland, but in whole Europe. We -- our plan is to reduce this gap by 5% between now and 2024. And I pass the voice to Marcin Gadomski.

Good morning. Good afternoon. I will describe our directions in the first pillar, environment. So in this pillar, we have 3 strategic directions. First one is intentional and proactive involvement in financing of sustainable projects. The second one is support of our customers in energy transformation so that whole economy will transit into low-carbon economy. The third one is our activities to achieve climate-neutrality, first, through reduction of our own emissions as well as reduction of emissions of our business partners. And now I will move to the first of these strategic directions. So increase of our involvement in financing of environmental projects. First of all, it's important to note that we are already one of the major banks in terms of financing of environmental projects in Poland. But still, we want to significantly increase this involvement. We want to have specific projects, let's call it, to support this line of financing, to have separate projects, to have a separate policy, to have also separate pricing conditions for these projects. So we want to finance at least PLN 8 billion of sustainable projects, I mean, direct financing from Bank Pekao. Additionally, we want to organize issues of ESG bonds by our clients for the amount of at least PLN 22 billion. And by environmental projects, we mean, first of all, a project which reduce CO2 emissions as well reduce consumption of coal. So for example, green building or low-emission transport. But also, of course, we mean production of energy from renewable sources, so wind farms, biogas plants or photovoltaic installations. And for us, it's extremely important to be a facilitator and also direct -- also provide direct financing for transformation programs of our government as well as EU as part of climate transformation agenda of EU and of our country. Second strategic direction relates to the energy transformation of our clients. Already now, we have relatively low exposure to high-carbon financing. So it's 1.3%. And within the strategy, we want to significantly decrease it so it will be -- below 1% of our balance sheet portfolio will relate to high-carbon financing. Of course, energy economy is something which cannot be kind of transformed in 1 or 2 years, so we want to be part of the transformation of our clients, especially in energy sector, which also means that we will not be financing new projects relate -- energy projects which are based on coal. Already now, Bank Pekao is not financing hard and lignite coal mining projects, and we will keep our policy in this respect. And again, energy -- climate transformation is a challenge for many regions in Poland. So within the transformation agenda of Polish government and of European Union, we, again, want to be active part of distribution of these funds and also provider of additional funds and facilitator of these projects, thanks to our network of clients, network -- also our distribution network, so our capacity to be really facilitator of these programs. And the third strategic direction is our own emissions and our agenda to be climate-neutral. We set for ourselves ambition goal of being -- climate-neutrality in 2030. And with this strategy, we are at the beginning of our path to this goal, the part which has a set of structured activities. So first of all, we want to start precise measurement of our own emissions. So it goes within scope 1 and 2 of the taxonomy. And then we will start ecological improvements to our facilities. And also, we'll be monitoring consumption of raw materials, and we will launch dedicated less-waste activities. And then we will move to a measurement of emissions of our cooperators, so it's so-called scope 3. And it all should bring us first to the lower emissions in 2024 and then to get this aspiration of climate-neutrality in 2030. And now I will give the floor to Jerzy, who will describe the second pillar of our strategy.

Thank you very much, Marcin. Ladies and gentlemen, we are moving now to the second pillar, engagement. In this pillar, we will strengthen our efforts to support sustainable development of society, economy and what is also important, prosperity of our society by the following 3 strategic direction: the first one, engaging in social activities aimed at providing help, leveling opportunities and preventing exclusion; second, educating society and raising environmental awareness for partnerships and providing digital tools to our clients; and finally, by increasing involvement in programs supporting development and innovation of Polish companies. How are we going to do that? Looking more at details, we have divided our engagement in 4 areas. First one is social engagement, which is, in particular, charity and sponsorship activities and employee volunteering, a very important part of our community involvement, and accessibility of services and removal of barriers for people with special needs, people with disabilities, what we will fulfill mainly by our own program, Pekao Without Barriers. This program aims at ensuring the best standards of service, taking into account customers with special needs. We've been already supporting our stakeholders by education for years. That is why it is still a crucial part of our community involvement. We will primarily render it by the special activities such as cooperation with international social organization, especially such ones like UNGC, United Nations Global Compact; UNEP/GRID and -- social and educational campaigns and training like, for example, [ Syneron ], as well as the others. We will concentrate on preparation of special sector reports, we've done already such one; active participation in business conferences. Another one is support of economic development where we want to support entrepreneurship and our clients, companies and welfare by the special actions, offering special guarantee programs for companies and especially for start-up accelerators. And also by cooperation with technology companies, fintech and universities, we have already strengthened our links by the cooperation with the Polish fintech company PeoPay. We will cooperate with companies on technology development, fintech and universities. Last but not least, part of our engagement is digitization, which accelerate green and social transformation. We develop electronic channels, mobile payments and many more remote services. Thanks to digitization, we ensure easy access to banking services through selfie-mobile. We educate all of our clients, especially younger generation, through our platform, PeoPay KIDS. We have low and negative environmental impact, for example, by such action like less trips to our clients, less CO2 emission, less usage of paper due to remote access. What we want to achieve in this field within our strategy, that means by 2024. First, systemic increase in expenditure for social and environmental purposes. At least 5 new ESG initiative launched each year. Third, systematic increase in hours worked as a part of volunteering exercise in our company from about 4,400 in 2020 to some 5,500 in 2024. And the fourth, we want to achieve around 100% bank digitization rate of our services. Thank you very much. And now I pass on the floor to my colleague, to Magda, please.

Thank you, Jerzy. Good afternoon. The third strategic pillar of our ESG strategy is, of course, governance. What does this mean? We would like to become an example of bank with the responsible approach to the business. Besides, we want to strength the activities for the sustainable development of our bank. What would be included into such approach? First of all, it is important and -- to highlight, as we run our business in the past, we want to maintain high corporate governance standards and, of course, as usual, an ethical approach. Secondly, we will include all ESG in key processes while maintaining transparency in the field of sustainable reporting. This would be a big positive development in our organization toward making our business more sustainable and meeting sustainability regulations. And finally, we want to promote development, diversity and equal (sic) [ equality ] by creating an inclusive organization. Let's focus on 2 points I have just mentioned. We plan to build long-term value of our organization by ensuring high corporate governance standards and ESG factors in all key areas. Inclusion of ESG targets in the incentive system, management by objective for managers and directors, ESG processes of asset management and investment advisory as well as credit and purchase, all processes, and also extension of the range of E&G -- ESG products. Institutional approach to ESG. We have set up ESG units now and ESG also Board. Our aspiration is definitely to improve our position in rankings, both financial and ESG, as well as also reputation surveys. Now I would like to focus on our core pillar, employees in our organization. Pekao, for years, was active in developing our employees and making the workplace attractive in many ways. We make it by special training, special development programs, succession plan or also agile management. Recently, we have reinforced our activity in well-being programs, also new campaign activation only for female community, No sugar name of this campaign. Program is acting from -- for a couple months. But it's worth to mention, to emphasize, that we were already rewarded now. We also offer attractive salary in our bank related to performance; many facilitators in remote hybrid workings as well as open communication with employees, which is very important for us. Our last bank strategy, which we presented, was built bottom-up, involving many different employees, also many units. It is very important for us to enlarge also our community of volunteers to be more present locally, to build their position locally and focus, especially focused on this project on green and eco initiatives. Our aspiration is to continue to increase satisfaction and commitment of our employees. Women. Women play an important role in our organization. We want to ensure quality in every aspect, also in compensation. We measure our average gender pay gap, and this is now 37%, comparable to Polish, as Mr. -- as Leszek mentioned previously, average in banking sector. This is very similar. Gap arise from the fact mostly because it's more women on operational and sales levels, especially in smaller cities where the average salary is usual lower. Our aspiration and target is to, of course, decrease average pay gap by 5% to 35%. But I would like also emphasize that gender pay gap, including the positions function, is much more lower, is around 10%. Of course, our aspiration is to have the same compensation for the same work. What is worth also to emphasize that 58% of our managers are women. We work on a succession plan and development programs to support women professional development. Our aspiration is also to maintain a balanced number of women and men on managerial positions. Because as my colleagues mentioned and our Board and all employees, ESG is for us a very important topic. Those we make a lot to better manage sustainable development topic. We have established the ESG Board, which is an independent body, to recommend ESG solution to Management Board of bank. We have set up a ESG unit, which concern only ESG topic in the bank. Moreover, we selected ESG coordinators in crucial areas of our organization. The ESG strategy is monitored by Management Board and also Supervisory Board. Our goal is to create a deep ESG culture in our bank, effectively monitor implementation of our ESG strategy and, of course, promote our sustainable activities on the market. Our efforts and activities have been already recognized by global ESG opinion leaders. We are already in the main ESG ranking, like Bloomberg Gender-Equity -- -Equality Index; FTSE Russell, the name of the score is FTSE4Good; MSCI ESG; and many others. We want to, of course, continue to improve our rankings within the strategy of 2024. Thank you very much.

Thank you. Thank you very much. Implementation of this ESG strategy will be monitored and reported, taking into account qualitative and quantitative measures. Every ESG initiative has attributed, enabling it to be effectively implemented with necessary clearly defined goals, precise measures, detailed schedule of implementation, with more budget and the owner of the process. And we identify 30 initiatives that are important in -- for our bank. And I repeat this initiative that were presented in -- earlier. What is important is we would like to have more than PLN 8 billion new sustainable project financing during this strategy period; more than PLN 22 billion of support for ESG bonds issued by our clients; increase in the scale of green financing in bank portfolio, higher than 4%; a decrease in the share of high-carbon financing in the bank's portfolio, lower than 1%; decrease in the balance sheet exposure in nominal term to high-carbon activities versus 2020 to lower than PLN 1.9 billion; reduction of own emission by 2024; and own climate-neutrality until 2030. The pillar engagement includes increase in the number of hours worked as a part of volunteering higher than 5,500; minimum number of new ESG initiatives undertaken annually, it is minimum 5 per year; systemic increase in social spendings; digitalization rate should achieve level of 100%; improving position in ESG ranking and indices higher; increase in customer satisfaction. And third pillar, governance, includes increase of position in ESG ratings; continuation of gender pay gap narrowing by minimum 5 percentage points; maintaining a balanced level of the number of women and men in managerial positions; and continuation of the increase in employees' satisfaction and commitment. Thank you very much.

So thank you. I would like now to open Q&A session. [Operator Instructions] So the first question, what kind of ESG products would you like to offer?

Now it's -- in this strategy, we talk about financing aspiration and the change that we see is necessary in relation to employees' equality, this is the strategy about. We don't have now new products. But of course, during the next years, we, our team, our ESG unit and our ESG Council will present new products for our retail consumer, but it's not now presented.

I mean maybe I will add, if I can, to that question that we already have specialists who focus on energy sector based on renewable sources. So this team has just built a dedicated methodology of how to perform -- create assessment of such projects because they have their own specifics, their own regulation. So first of all, there are dedicated funding products -- financing products for these customers. We have also a dedicated approach to financing of green projects with subsidies of -- EU subsidies or governmental subsidies. And basically, if you look on the projects which we are doing recently, they relate mostly to energy sector. We, for example, are financing the biggest transformation under construction from lignite coal production into solar energy. Another aspect is we support our corporate clients in their ESG green bond issues. So it's, first of all, organizing these issues, but also creating awareness among corporate customers how to -- what do they need to do in order so that the projects are green. And then based on that, that they can issue these bonds. So I would say these are the main ones.

Maybe one thing it's necessary to add is that our funds -- we'll offer the green dedicated fund. It is -- this is -- this will be announced, but it is important for us to offer new products for our retail consumer. We think about it, but it's in kind of thinking about new product, it will be launched later. Marcin said about our products for corporates, for SMEs, we have. And we are very, very developed in this area. And now we would like to be better in terms of credit financing.

If I can add to the answer to this question, this green bonds or ESG-related bonds mentioned by Marcin already offered by us on the market and both for corporate clients as well as for the public sector. And we have a substantial share in this product market share, around 2/3. And we will continue because we can see that there is enormous demand for this type of financing on the market. And also, as mentioned, we introduced the special treatment of express loans for our retail clients, for our private clients. So they can receive express loans also for their let's -- so-called green purposes. Thank you.

[Operator Instructions] We have the next question. Are you going to still finance coal?

We -- I shortly answer. We don't have the loans dedicated to coal mines. This is -- that is why we don't have this kind of loans, and this is -- we don't plan to finance it.

Of course, this is a kind of wider question because, first of all, it's mining, then there is a production of energy. So as it is said in our strategy, we will not finance new projects dedicated to production of energy, heat or electricity based on this source of energy. Still, 80% of energy production in Poland is based on coal. And the transition to low-emission economy is a complex process. And our -- we are dedicated to take part in this process. And sometimes, or quite often actually, it's -- PLN 1 spent on transforming of energy plants into lower emission is -- has a much greater benefit to the environment than PLN 1 spent on kind of fully renewable new source. So we have a dedicated approach to decreasing emission, increasing effectiveness of energy. And when our economy will be transforming into less carbon-intensive economy, based on the improvements to the current kind of production plant, we will be -- we want to be part of this transformation.

So the next question, how you want to reduce the gender pay gap?

As I mentioned in the presentation that pay gap on the same-function position is much lower, around 10%. But of course, we see and we noticed that we have this gender gap, and we will be persuading to decrease this amount, but we have also a lot of program dedicated to women, like succession plan implemented, mentor, a lot of courses, trainings, mentoring programs that, definitely, I would like to also emphasize that in our bank, 58% of managerial position is occupied by women. And actually, of course, we want to change balance on higher position and pay the same salary for the same work.

Maybe it's also important to add that we have dedicated also programs kind of -- for skill improvement, which part of them is actually directed to women. So we hope that more and more positions can be filled with women like specialized position. And there are -- but there are also some objective reasons for this difference because if you look, for example, as banking institutions are looking right now, so the share of IT staff is increasing rapidly. And as you probably can imagine that kind of -- and this is well-paid actually staff, yes. And then if you can imagine the share of men in this IT specialization is great. So we'll be having activities kind of to -- so that women who also want to go into this field educate, and hope that this traction will also move in the direction favorable for the greater share of women in this area.

The next question, since when are you going to measure scope 3?

So it was also mentioned by me in the presentation. So in this year and the next year, we will be focusing on setting fundamentals and focusing on scope 1 and scope 3 -- scope 2, excuse me. But then we will move to this more complex area in 2023 of measuring emissions actually made by our cooperators. Of course, we have other activities already now because for procurement above a certain amount, we already assessed our cooperators of -- assess their ESG activities. But talking directly about scope 3, it's 2023.

And the last question for the time being, do you include ESG in your credit process? Or are you going to include?

Yes. So we already have ESG in our credit process. So it's -- a part of credit assessment is actually a questionnaire related to the areas, actually, this E, S and G areas of our clients. We also made a further improvement actually now, also taking occasion of that EU guidelines, European Banking Authority guidance relating to lending also relate to this area, so making adjustments to our kind of assessment process. We also kind of made a step forward in this direction. But this is our first ESG strategy. And one of the initiatives within this strategy is actually to even more kind of think structurally what we should do in our lending process to be really ESG-conscious bank.

So there's no other questions. So thank you for all the questions. Please feel free to contact me for further information. It was a pleasure to host you today. So we are going to meet again in August during the quarterly result presentation. So thank you for your time, and have a good day, and have a good weekend. Thank you.

Thank you very much.

Thank you.