Jorgovanka Tabakovi: Only sustainable growth and development
lead to a sustainable future
Address by Dr Jorgovanka Tabakovi, Governor of the National Bank of Serbia, at the
First Western Balkans Sustainable Investing Forum, National Bank of Serbia, Belgrade,
17 November 2022.
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Accompanying presentation of the speech
Welcome to the National Bank of Serbia and the First Western Balkans Sustainable
Investing Forum, I hope the first of many.
First of all, I would like to greet my colleague and friend Igor Mirovi, the President of the
Provincial Government. At his initiative, the Development and Guarantee Fund of
Vojvodina and the Guarantee Fund of the Republic of Srpska founded the business
association "Green Navigator of the Western Balkans". All forms of cooperation,
especially those aimed at strengthening renewable energy sources and agriculture, are
an important element of sustainable growth.
I also welcome Mr. Alessandro Bragonzi, Head of Regional Representation for Western
Balkans at the European Investment Bank (EIB). The EIB is the EU's climate bank, but
through its activities it also supports the green transition in the Western Balkans. The
cooperation between the NBS and the EIB is particularly dynamic in the area of
disbursement of Apex loans, with the NBS acting as Serbia's agent. Apex loan funds
are intended for entrepreneurs, small and medium-sized enterprises, companies of
medium market capitalisation, priority projects and local self-government, for projects in
infrastructure, protection and improvement of the environment, energy efficiency, health
and education. Around 9,600 new jobs are to be opened throughout Serbia within the
projects that have been financed so far from the Apex loans, and I am especially happy
about those that support the employment of young people in Serbia as well as the
development of education, because there is no substitute for knowledge.
Ladies and gentlemen,
It is evident that not all growth is equally good. Only sustainable growth and
development lead to a sustainable future. And if growth is not sustainable, investments
cannot be sustainable either. The reverse is also true. That's why when we talk about
sustainable growth, we can't help but include the following questions:
green economy,
digital economy, and
issues of various types of equality.
I will continue about:
Awareness of the importance of "green" transformation
Necessity of taking a gradual approach in that process
NBS activities in the area of sustainable investing
I will start by stating that we are rightly speaking more often about the importance of the
transformation of economy which is based on ecologically sustainable foundations, i.e.
we are talking about the concept of green transformation. Mitigating climate risks is a
global task, because the risk is shared. However, it is particularly important for countries
whose growth relies on the economic sectors which are more sensitive to climate
change, such as agriculture, forestry and water management. From central bank's point
of view, I would like to say that we are aware that climate risks do not come from the
financial area, but we are also aware of their impact on numerous areas of social life.
This also affects the financial system, which is not isolated from people and economy.
On the contrary! This is why investing in environmental, social and corporate
governance (ESG) is becoming more widespread.
However, I believe that we all agree that the overall concept of the green economy is
complex, and that concepts, methodologies and data are still in the process of
standardisation. Therefore, the process of its implementation in the local framework
must be gradual. How gradual depends on conditions in the domestic market, but also
on the policies pursued in regional peers, because, as I have already stated, we share
climate risks. In addition, although "green and digital" are and must be among the
priorities of policy makers in this century, the key priority remains "safe and stable".
Because, without stability, there can be no sustainable investing, which we recognise in
Serbia. Even during the two pandemic years, as well as during 2022, which was
marked by the Ukraine conflict and the global energy and food crisis, Serbia achieved
excellent results:
The unemployment rate has been reduced to a single-digit level and is on a
downward trajectory.
During the three crisis years (from 2020 concluding with 2022), Serbia's real
economic growth will be around 9%, fixed investments - around 12% and
personal consumption - around 9%.
Moreover, during the three crisis years, FDI inflow to Serbia will reach around
EUR 11 bn, while exports of goods and services will amount to around EUR 38-
40 bn, i.e. around 63% of GDP.
GDP per capita will reach close to EUR 9,000 in 2022, whereas, for example, in
2012 it was around EUR 4,700.
Also, in September 2021, Serbia issued the first green instrument, thus becoming one
of the few European countries and the only non-EU country to have issued a green
eurobond. The issued bond was worth EUR 1 bn, with a maturity of seven years, at the
lowest coupon rate of 1.0%. Such a low rate is owed to strong demand of international
investors who assess that Serbia has excellent growth prospects. The issuance was
aligned with the Green Bond Principles of the International Capital Market Association,
with a clear obligation to use the funds exclusively for projects in the areas of renewable
energy, energy efficiency, transport, water management, pollution prevention and
control, circular economy, biodiversity and environmental protection, and sustainable
agriculture.
Furthermore, in respect of FX reserve management, the NBS also has green bonds of
high-ranking prime international issuers in its portfolio, thereby also supporting the
green transformation.
In addition, as a regulator and supervisor, we have conducted a survey among banks in
Serbia on how climate-related risks affect their operations and what are the activities
they undertake in this regard. The preliminary conclusions of the survey indicate that:
1. the banking sector began to recognise climate risks in the context of the risk
management system, and half of them defined the concept of that risk in their
internal acts;
2. more than half of banks expect a significant impact of climate risks on the bank's
risk profile in the coming period, with the majority expecting that impact in a period
longer than five years;
3. a majority of banks have not yet included these risks in the scope of the bank's
management bodies, nor in the system of reporting on risks;
4. half of banks did not define any limits or restrictions arising from climate risks.
Other banks have mostly done this by defining exposure limits in the form of a
target maximum value that needs to be reached by a certain date, or activity
restrictions by defining a list of activities that are not supported.
Moreover, as an institution responsible for the financial system stability, we have been
implementing advanced macroprudential stress tests of the banking sector's solvency
and liquidity for a long time. As an additional step forward, within the new regional IPA
project, we will work together with central banks from the European System of Central
Banks to include various macro scenarios of the impact of climate risks in the existing
framework.
Also, as part of cooperation, since July 2021 we are a member of the Network for
Greening the Financial System. This year, shortly after its founding, we joined the work
of the Vienna Initiative Climate Change Working Group, which is co-chaired by the
European Investment Bank, the European Commission, the European Bank for
Reconstruction and Development and the World Bank Group. The goal of the working
group is to discuss availability and quality of data, regulation and supervision,
development and improvement of knowledge and capacity in the area of climate risks,
as well as the transition process faced by many sectors. It is a good platform that
enables the exchange of experience and plans, especially since the representatives of
the European and global regulators are present in the working group, which gives an
insight into the current and planned measures for managing and monitoring the risks
related to climate change.
Ladies and gentlemen,
There is no doubt that ecology must be one of the priorities of policy makers, and in
Serbia it is, because it is interwoven with many policies. Also, all actors - from
individuals to institutions and decision makers - must act responsibly. However, this
does not mean that we should close factories that are not eco-friendly, but that every
activity should be carefully measured, and that our task is to find sustainable solutions
that will be the best for our citizens. This is evident in the example of the current global
energy crisis, where it takes time to build alternative energy sources, and where energy
security is a priority. This means that it is important to find the right measure and the
right sequence of activities, and we all have to participate. Today's event is a proper
collective action.
Thank you for your attention and I wish you a successful First Western Balkans
Sustainable Investing Forum