2 October 2023
The English version of the MCUR Digest (MGIMO Centre for Sustainable Development and ESG Transformation) is a regular information source accumulating the main Russian and world news in the sphere of sustainable development and ESG transformation, responsible finance and climate agenda. The English version is published monthly.
The fifteenth issue is focused on the latest developments in the above-mentioned areas that were in the spotlight in June-August 2023. The originals of the news are available via active links in the text.
Climate Policy and Carbon Regulation
On June 22-23, the summit for a New Global Financing Pact was held in Paris, attended by 40 world leaders and delegates from 130 countries. The purpose of the summit was to lay down the foundations of a new financial system to address the common challenges of the 21st century – to combat inequality, climate change and to protect biodiversity. Antonio Guterres, UN Secretary-General, made a speech at the summit. “Today, 52 countries are in default or dangerously close to it. This includes the majority of the least developed countries, as well as the majority of the 50 countries most vulnerable to climate change”, he said. The investment needs of developing countries for economic development, combating climate change and biodiversity preservation are enormous and are estimated to reach $2 trillion by 2030. At the summit, the IMF announced that an agreement had been reached on making available a $100 billion worth in special drawing rights for developing countries. More than one-fifth of this amount will be given by the United States, but the White House has yet to wait for Congress approval of this decision.
On June 1, 2023, the register of greenhouse gas emissions was launched in Russia. The register automatically collects carbon reports from industrial enterprises. By July 1, large Russian companies had submitted the first reports on greenhouse gas emissions for 2022. At this stage, only the largest enterprises of the energy sector which emit more than 150,000 tons of CO2 per year are included in the register. You can check if any Russian entity has to submit a report on greenhouse gas emissions using this link. From 2025, the register is expected to include medium-sized companies in carbon-intensive sectors of the economy which emit more than 50,000 tons of CO2 per year. It should be noted that the penalty for violations in carbon reporting can be as high as 500,000 rubles.
Other news on the topic:
09.06.2023 Australia Mandates Bank Regulator to Consider Climate Risk, Adopt Climate Reporting Standards
12.06.2023 En Réaction à la Chaleur, un Opérateur Britannique Allume une Centrale à Charbon
15.06.2023 Europe to Set a New Goal to Solve a Global Problem
21.06.2023 Solar and Wind Generated More Electricity than Coal for Record 5 Months
25.06.2023 EU to Reduce Energy Consumption by 11.7% by 2030
07.07.2023 Germany’s Constitutional Court Did Not Allow the Government to Force the “Green Change” in Heating
19.07.2023 A Cross-Border Energy Tax May Be Introduced in the CIS
21.08.2023 Sibur Has Started Selling Tokenized Carbon Credits Using Blockchain
24.08.2023 Climate Agenda, Energy and Methane
26.08.2023 “Moscow Is Ready for Climate Change”, Officials at the Moscow Urban Forum Say
29.08.2023 The State Commission on Resources Has Assessed Russia's Potential for CO2 Storage
30.08.2023 Green Energy Issues Discussed at the BRICS Summit
Useful materials:
State of the Climate in Europe 2022
The Path towards Climate Neutrality
Global Initiatives to Prevent “Carbon Leakage”: Risks and Opportunities for Russia
Sustainable Finance
Sustainable investment practices continue to spread around the world, and ESG factors play an ever-greater role in making financial decisions. For example, a recent KPMG study indicates that 51% of investors feel inclined to cancel M&A deals as a result of a material finding during ESG due diligence. Other consequences of material findings mentioned were more conservative conditions (52%) and price reduction (44%). Approximately 60% of investors said they would pay a premium for a target that demonstrates a high level of ESG maturity.
As far as Russia is concerned, it is important to highlight the recommendations of the Bank of Russia for financial organizations on disclosure of information related to sustainable development. They reflect the approaches used by the IFRS Foundation in S1 and S2 ESG standards (read more about S1 and S2 ESG standards in the Corporate ESG Transformation section of this digest), and take into account information disclosure standards of China and Brazil. In addition to general recommendations, the document also contains a list of specific topics (Appendix 2) and indicators (Appendix 3) for specific sectors (banking, insurance, asset management).
In June-August 2023, Russian banks continued to implement various ESG practices:
- Center-Invest Bank launched a cashback mechanism for legal entities, the amount of cashback depending on the ESG rating. The assessment is carried out by the bank on the basis of a questionnaire and allows clients to receive up to 5% off commission payments in cashback. The methodology of the assessment was developed in 2022. According to the officials of the bank, ESG-rated loans make up two-thirds of the bank’s loan portfolio, and it has given 4,000 loans worth 25 billion rubles.
- Sovcombank announced a project to support social initiatives to meet public demand. The management of the bank notes that social and technological challenges are key elements of ensuring sustainable development in Russia.
- Novikombank (owned by Rostec) and Shvabe Holding signed an agreement to attract financing for environmental projects. The projects will be aimed at reducing the level of wastewater pollution and constructing wastewater treatment plants. The total volume of investment will amount to 3 billion rubles, and the loans will be subsidized under the Environmental Projects Program of the Industrial Development Fund.
- MTS Bank launched a social charity campaign titled “One ruble for food”, in which the bank will transfer one ruble from each transaction to the charity fund to support the meal centers in Rostov-on-Don. Meal centers prepare free hot lunches for people in need.
- Akcept Regional Universal Bank launched a campaign titled “Successful Start”, which offers banking services on favorable terms to entrepreneurs whose business is focused on local sustainable development. This example shows that not only large Russian banks embrace the ESG agenda. Explore the website of the bank to learn more about its other ESG initiatives.
Other news on the topic:
05.06.2023 EU Regulators Find Growing Greenwashing Risk for Banks, Asset Managers
26.06.2023 DOE Backs Ford EV Battery Buildout with Largest-Ever $9.2 Billion Loan Commitment
29.06.2023 FCA Flags Greenwashing Concerns in Sustainability-Linked Loan Market
04.07.2023 ADGM Implements its Sustainable Finance Regulatory Framework
07.07.2023 Almost the Whole Issue of Moscow’s Green Bonds Has Been Sold
18.07.2023 Sberbank Belarus Has Summed Up Its ESG Activities in 2022
21.07.2023 Astana Exchange Has Cancelled Initial Payments for ESG Bonds Placement for 2023
28.07.2023 “Green” Debt Will Flourish Soon
03.08.2023 Focus: For Investors, Green Companies still Hard to Find with New Emissions Reporting Rules
28.08.2023 PRI’s Global ESG Investing Talks in Tokyo to Tackle ‘Sense of Crisis’
31.08.2023 BRICS Countries Cling to ESG Agenda
Useful materials:
Emerging Markets Real Economy Sustainability Bonds Volume II – Supported by IFC and HSBC
Corporate ESG Transformation
Throughout the summer of 2023, there were the following changes in the ESG ratings of Russian companies:
- ACRA assigned ESG ratings to Sberbank (ESG-B, level ESG-2), T Plus (ESG-C, level ESG-5), Rosseti (ESG-2, level ESG-B), Rosseti Lenenergo (ESG-C, level ESG-5), as well as to First – Russian Equity Fund (ESG-E, level ESG-13).
- Expert RA assigned ESG ratings to Rosatom (ESG-II(b)), Sberbank (ESG-II(a)), confirmed the rating of Transmashholding (ESG-II(c)) and withdrew the ratings of Arkhangelsk Pulp and Paper Mill and GTLK.
- RAEX launched two new ESG-related rankings: on human rights, diversity and inclusivity, and on implementation of sustainability practices in supply chains. In addition, the agency assigned an ESG rating to Zarubezhneft (65.8 points (hereinafter – out of 100), BBB [ESG], above average), PhosAgro (86.5 points, AA[ESG], high), Norilsk Nickel (76.2 points, A [ESG], high). Sberbank was the new leader of the ranking in August 2023.
Another important step towards the development of the Russian ESG ratings market was the publication of the Bank of Russia’s recommendations on the development of methodology and assignment of ESG ratings for financial market participants. The document contains the definition of ESG ratings, establishes a minimum set of elements which should be taken into account for evaluation for each of the ESG aspects and introduces a unified rating scale.
There have also been notable innovations in terms of regulating ESG ratings and their providers abroad. For example, the Data and Ratings Code of Conduct Working Group (DRWG) of the UK Financial Conduct Authority (FCA) has published a voluntary code of conduct for providers of ESG ratings and data.
In the field of ESG reporting, the main event was the publication of the first two standards for the disclosure of ESG information (S1 and S2) by the International Sustainability Standards Board (ISSB) under the auspices of IFRS. The S1 standard is dedicated to the disclosure of financially significant ESG information, while the S2 standard outlines the requirements for the disclosure of financially significant information related to climate change and is supposed to replace the TCFD recommendations. The standards will come into force from January 2024, but will be implemented in stages – in the first year it is possible to use only the S2 standard, while S1 will become a requirement only from the second year. ISSB received support from organizations such as G7, G20, IOSCO.
The launch of a public digital service for comparing non-financial information of Russian companies esg-disclosure.ru, developed jointly by the Interfax Group and the National ESG Alliance, was also an important event for the Russian corporate sector. The digital service contains data on more than 600 companies, and more than 60 ESG parameters are available for each entity.
In July-August, Metalloinvest, Uralchem, Lukoil, VK, Segezha Group, as well as Rosvodokanal (for the first time in the water supply and sanitation industry) published their non-financial reports (separately or as part of general reports) for 2022. Besides, Polyus released a theme report on sustainable development titled “Success Based on Cooperation”, which is about the company’s interaction with its employees, regional and local administrations, as well as with local communities.
The issue of sustainable supply chains is becoming topical both in Russia and around the world:
- Large international brands, such as IKEA, acquire stakes in supplier companies to provide operational control to achieve their ESG goals, as well as to make their supply chains more stable.
- Amazon is planning to include a requirement for mandatory carbon reporting and reducing greenhouse gas emissions in its standard of interaction with suppliers next year. This is necessary to achieve Amazon’s carbon Scope 3 neutrality target by 2040.
- According to Deloitte’s 2023 Global Chief Procurement Officer (CPO) Survey, the ESG agenda has become the second highest priority area for global CPOs. The most important aspects are related to closed-loop economy and climate change.
- Norilsk Nickel has launched a pilot project of surveying its suppliers by ESG criteria to improve its sustainable supply chain. The initiative is the next step in the implementation of Norilsk Nickel’s strategy in this area. Since 2021, the company has complied with requirements of the OECD and the London Metal Exchange. It has also released a report on its sustainable supply chain for 2021-2022.
Other news on the topic:
02.06.2023 EU Parliament Votes in Favour of ‘Groundbreaking’ Checks on Supplier Human Rights Abuses
15.06.2023 Business Sustainability Index 7th Edition
26.06.2023 ESG in Procurement Will Affect the Work of Supplier Companies
04.07.2023 Rating the ESG Rating Agencies
19.07.2023 The UN Discussed EAEU Progress in Achieving Sustainable Development Goals
27.07.2023 Polyus Contributed to a Joint RAEX Webinar to Present Company Expertise in Non-Financial Reporting
31.07.2023 Companies with Good ESG Scores Pollute as Much as Low-Rated Rivals
02.08.2023 Corporate ESG Claims to Soon Face Audits to Address Greenwashing Fears
22.08.2023 Real Estate Market: the Standards We Choose
29.08.2023 The Next Generation Will Be ESG Savvy
30.08.2023 Women’s Salaries Are Lower due to Prejudices
31.08.2023 Green Construction Will Be Included in the Development Strategy of Moscow’s Construction Industry
Useful Materials:
2023 Update of the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct
Inclusion and Equality: How to Create Opportunities?
Sustainability Reports in Russia: Research and Recommendations
Compliance as a Driver of Responsible Governance
Responsible Forest Management in the Supply Chains of Sveza Company
Digital Solutions for ESG Transformation
Environmental Protection
Twelve years ago, one of the largest man-made disasters of the 21st century occurred at the Fukushima-1 nuclear power plant. According to estimates, the total release of radioactive isotopes of iodine and caesium was some 10-15% that of the Chernobyl disaster. In 2021, Japan announced that it was planning to dump 1.34 million tons of water contaminated with radioactive tritium from the power plant into the Pacific Ocean. This decision drew sharp criticism from neighboring countries, including China, as well as from local fishermen. In early summer of 2023, when Japan reaffirmed its commitment to that plan, threats from the discharge of water were actively discussed by experts and the media. In July, the IAEA published a 140-page report on the issue of water discharge from Fukushima-1. On August 24, the first discharge of water (7,800 tons) was effected. Consequently, relations between China and Japan worsened. Russian experts also assessed the danger of releasing waters containing tritium isotope and demanded that Russian experts should be admitted to the power plant. It should be noted that the discharge of tritium water from nuclear power plants is a fairly common practice in the world. Such water is not considered radioactive waste from the legal point of view. It is expected that all water from Fukushima-1 will be released into the ocean within 30 years.
Over the past few years, Russian experts have been discussing measures which would urge packaging manufacturers to use waste recycling technologies in their business activities. The Extended Producer Responsibility (EPR) mechanism was introduced in 2015. In late 2020, Victoria Abramchenko, Deputy Prime Minister, approved the Concept of EPR Development. In August this year, the law on extended responsibility of manufacturers and importers of goods and packaging was adopted. The law provides that by January 1, 2027, manufacturers and importers should ensure the disposal of packaging waste step by step. From 2024 they are expected to do that according to the disposal standards established by the Government, from 2025, 55% of the package weight should be disposed, from 2026 it should be 75%, and from January 1, 2027 it should reach 100%. The law comes into force on January 1, 2024, although some of its provisions have other time frames.
Other news on the topic:
02.06.2023 New Requirements for Electronics Disposal Have Been Established in Russia
05.06.2023 “Green Patrol” Has Presented the National Environmental Rating of Russian Regions
05.06.2023 The International Community Intends to Get Rid of Plastic Waste
03.07.2023 Russia’s Government Has Outlawed Uncertified “Green” Products
05.07.2023 EU Authorities Are Mulling Over Obliging Companies to Pay for “Fast Fashion”
09.08.2023 New Development Bank to Help Protect the Amazon Rainforests
25.08.2023 Experts Have Assessed the Declaration Adopted at the 15th BRICS Summit
26.08.2023 New Documentary ‘Proves’ that Offshore Wind Farms Kill Whales
30.08.2023 The Harmful PFAS
30.08.2023 Russia’s Government Decree No. 1407 On Planning Recreational Activities of National Parks
Useful materials:
The Fukushima Disaster: Response Experience and Lessons to Learn
Authors: Andrey Avramenko, Sofia Denisova
Editor-in-chief: Capitolina Tourbina
Translator: Stanislav Shurygin
Designer: Maria Bakhireva
Disclaimer: The point of view of the MGIMO Centre for Sustainable Development and ESG Transformation may differ from the opinions of the authors of the news cited in the analytical publication. All materials are for reference only, and the MCUR is not responsible for their implementation in practice. The links to news sources used in the compilation of the MCUR Digest are indicated in the text and are active only in online format. The Digest does not use external copyrighted materials or reproduce them. If you have any questions, please contact: mcur@inno.mgimo.ru.
The MCUR Digest is being issued as part of the implementation of the strategic academic leadership program “Priority 2030”.
Department of International Complex Problems of Nature Management and Ecology
MGIMO Centre for Sustainable Development and ESG Transformation
