MGIMO Centre for Sustainable Development and ESG Transformation Digest #2

MGIMO Centre for Sustainable Development and ESG Transformation Digest #2

18 March 2022

The English version of the MCUR Digest (MGIMO Centre for Sustainable Development and ESG Transformation) is a regular information source accumulating the main Russian news in the sphere of sustainable development and ESG transformation, responsible finance and climate agenda.

The second issue is focused on the latest news in the above-mentioned areas that were in the spotlight in Russia in February 2022. The originals of the news are available via active links in the text. The English version is published monthly.

Sustainable Finance

In order to implement the principles of responsible, or sustainable, finance, specific mechanisms and procedures of implementation and control have to be introduced. One of such mechanisms is verification — that is the process of independent assessment of financial instruments, such as bonds, loans, projects, for their compliance with the criteria of the national taxonomy. On February 8, VEB.RF approved the first list of verifiers for sustainable development financial instruments. The list includes five organizations: Financial and Accounting Consultants LLC, National Credit Ratings LLC, National Rating Agency LLC, Expert RA Rating Agency and Analytical Credit Rating Agency (ACRA). According to VEB.RF, more applications are currently being considered, so the list of approved verifiers can be expanded.

For the implementation of the national taxonomy, green standards are also needed at the industry level. The first such standard may be a green technical standard (GOST — official state standards) for multi-apartment residential buildings, which is being developed by DOM.RF together with the Ministry of Construction. The GOST is planned to be approved in 2022, however, DOM.RF has already started pilot labeling of apartment buildings in accordance with the draft standard.

In 2021 the Russian financial market participants invested 152 billion rubles in sustainable development bonds on the Moscow Stock Exchange. As of December 31, 2021, 22 issues of ESG bonds of 13 issuers were traded, of which ten were issued in 2021. The Russian authorities consider funds from green bonds as a source of funding for climate projects and estimate the volume of such issues at more than 400 billion rubles by 2024.

Russian banks have continued to expand the ESG agenda:

  • Otkrytie Bank has approved its corporate sustainability strategy until the end of 2023. The strategy establishes the principles, activities and goals of the bank in the field of sustainable development, as well as the corporate management system for sustainable development. In particular, one of the bank’s goals is to reduce Scope 1 and 2 greenhouse gas emissions by more than 10%.
  • Since the beginning of 2022, Sber has also taken a number of steps to implement its ESG strategy: the Supervisory Board has approved a Climate Strategy which defines measures to achieve carbon neutrality for Scope 1 and 2, including interim goals for 2022 and 2023. In addition, the bank has started implementation of the ESG rating for its corporate clients.
  • Credit Bank of Moscow has published a Code of conduct for counterparties and an environmental and social impact management Code to implement ESG principles in its procurement activities. According to the strategy, by the end of 2023, the level of environmental and social impact will be determined for 100% of the bank’s suppliers.

Other news on the topic:

26.01.2022 Svetlana Bik: ESG Is Not for Them, It’s for Us, for Clean Air, Human Health and Comfortable Life
10.02.2022 Russian Central Bank to Adopt a Regulatory Framework for Adaptation Bonds This Year
10.02.2022 DOM.RF to Issue Russia’s First Green Mortgage Bonds
11.02.2022 Sber Has Issued 6.1 Billion Rubles’ Worth of Loans to Southern Russia Businesses Based on ESG Principles
15.02.2022 Sber: Five Russian Companies to Issue Green Bonds in the Second Half of 2022
16.02.2022 Russian Ministry of Economic Development Encouraged Russian Regions to Develop Social Taxonomy

Climate Policy and Carbon Regulation

The Russian Ministry of Economic Development has prepared a draft plan for the implementation of the Russian low-carbon development strategy. The draft sets out regulatory measures designed to stimulate the decarbonization of the Russian economy. Vladimir Lukin, a KPMG expert, highlights the forest carbon projects. The aspiration of big business to achieve carbon neutrality by 2050-2060 in order to receive ESG financing should become the driver for the development of Russian forestry. As Vladimir Dmitriev, Head of the Department of Science and International Cooperation of the Federal Forestry Agency, noted, despite the desire to take into account the absorbing capacity of all ecosystems, it is «forests that have the greatest potential and the best prospects». However, according to Evgeny Schwartz, Head of the Centre for Responsible Environmental Management of the Institute of Geography of the Russian Academy of Sciences, and Oleg Pluzhnikov, Deputy Chairman of the Committee for Environmental Management and Ecology of the Russian Chamber of Commerce and Industry, there is much more to be done to implement forest climate projects. First of all, regulatory problems must be solved: a new type of lease should be introduced to art. 25 of the Forest Code. Besides, it is necessary to eliminate contradictions with the legislation on agricultural lands (including Article 78, paragraph 4 of the Land Code) by including forest climate projects among the permitted activities.

At the round table of the Russian Climate Rescue Partnership «Climate projects — an auxiliary tool or a basis of decarbonization for the next decade?» in which large corporations, including Rusal and Sber, also participated, it was confirmed that the proven absorption capacity of Russian forests can become a competitive advantage for Russia in the dialogue on cross-border carbon regulation.

Considering the vectors of state policy in the field of decarbonization, two key areas can be distinguished: the use of hydrogen (the Ministry of Energy has put forward a proposal to transfer 10% of urban transport to this type of energy by 2030) and the electrification of motor vehicles (in this regard, on February 8, the Russian government agreed to provide tax benefits for manufacturers and owners of electric charging stations).

According to the draft government resolutions, it is planned that in 2024, companies will pay fines of 1,000 rubles for each ton of CO2-eq. in excess of the quotas allocated to them. In addition, there are two alternative ways to raise the rate every year: by taking into account the consumer price index and a special excess coefficient or by setting a fixed amount. In this, the Russian regulator is guided by the experience of China and the EU, and the proposed rate for 2024 corresponds to the average value for exceeding the quota in China, and for 2028 — the same in the EU, currently set at around 10 thousand rubles.

Rosatom State Corporation was instructed to initiate the project «Technologies for creating electric power storage systems, including portable ones».

Other news on the topic:

17.01.2022 Russia’s Climate Projects to Be Harmonized with World’s Best to Attract Investment
17.01.2022 Russian Ministries Explore Options to Encourage Businesses to Participate in Forest-Climate Projects
27.01.2022 Russia to Create System of Climate Projects for Low-Carbon Development in 2022
29.01.2022 Putin Instructed Government Use Abandoned Agricultural Land for Forest-Climate Projects
02.02.2022 Solar and Wind Power Plants Doubled Electricity Generation in Russia
07.02.2022 Dzerhinsk to Build Eco-Technopark for Recycling Lithium-Ion Batteries
08.02.2022 Putin: Too Early Give up Hydrocarbons!
14.02.2022 Government Discussed Carbon «Fork» for Russia
16.02.2022 State Duma Adopted Law on CO2 Experiment on Sakhalin
17.02.2022 Lukoil Started Supplying Solar Power to Nizhny Novgorod Refinery
17.02.2022 Rosneft Studies Wind Energy Market on Taimyr as Part of Vostok Oil Project
17.02.2022 Rosatom Develops Model Range of Electrolysis Plants for Hydrogen Production

Other news on the topic:

EnergiaVita. An Analysis of the Draft Operational Plan for the Implementation of a Low-carbon Strategy

Climate Projects (Special Edition)

In January, The Federal Service for Supervision of Natural Resources (Rosprirodnadzor) published a rating of Russian regions, ranking the ability of local forests to absorb CO2.

The Russian forest management authority (Roslesinforg) has compiled a rating of the main tree species which absorb greenhouse gases most effectively. The leaders of the rating are deciduous tree species: aspen — up to 3.6 tons of CO2 per year/ha.; birch — up to 3.3 tons of CO2 per year/ha and oak — up to 3.2 tons of CO2 per year/ha. They are followed by coniferous tree species: pine — up to 2.4 tons of CO2 per year/ha, spruce and fir — up to 2 tons of CO2 per year/ha, cedar — up to 1.8 tons of CO2 per year/ha and larch — up to 1.8 tons of CO2 per year/ha.

In Russia there is great interest in carbon polygons — these are model areas of natural ecosystems where the absorption capacity of territories is calculated. Once again, this topic was discussed in February in the State Duma together with Sibur. The Voronezh Region, one of the regions of Sibur’s presence, joins the project. As part of the company’s sustainable development strategy, at least 5 million trees will be planted under the reforestation program. The project involves not only research work in the forests of the Voronezh Region, but also measures to preserve the local ecosystems.

«According to the audit conducted by the Accounts Chamber of Russia, 93.6% of the forests which died or got cut down in 2019 were restored by the end of 2020. Despite this positive trend, the annual forest loss exceeds the pace of reforestation. Currently, the total area of forests in need of restoration is 35.4 million hectares. The situation with nurseries of seedlings with an open root system, necessary for forest restoration, is quite deplorable. In a number of regions, state nurseries are in decline. Private nurseries cannot meet the demand everywhere at any one time. For example, to restore forests in Primorsky Krai, we had to purchase planting material in the Amur region and transport it by trucks to the planting sites. According to the legislation, from 2022 20% of artificial reforestation must be carried out with planting material with a closed root system. Currently there are very few nurseries growing this type of seedlings. Many regions are facing a shortage of planting material and cannot reach the target of 20%. The situation is complicated by the high costs of equipment for such nurseries.»

Useful information:

05.12.2021 Carbon Reserve in Russian Forests Assessed
14.01.2022 Edelgeriev: Every Russian Can Contribute to Minimizing Wildfires
20.01.2022 Ministry of Education and Science Release Almanac of Carbon Polygons for 2021
31.01.2022 Meridional Transect of Carbon Polygons to Be Created in Western Siberia for Comprehensive Study and Monitoring of Climate Change

Other news on the topic:

The Battle for Climate: Russia Bets on Carbon Farming

Authors: Andrey Avramenko, Sofia Denisova, Polina Raikova, Nikita Savostitskiy, Egor Solovey, Kristina Zakharcheva.

Editors-in-chief: Capitolina Tourbina, Andrey Avramenko, Sofia Denisova.

Translator: Stanislav Shurygin.

Designer: Maria Bakhireva.

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