Russia is paying increasing attention to the global climate agenda and is working to develop green finance instruments to support it.
Last week at the St. Petersburg International Economic Forum (SPIEF), Russian President Vladimir Putin said it was a “myth” that Russia doesn’t care about the climate in his address to the nation’s annual showcase economic forum.
The leader of the world’s largest energy exporter cited entire cities built on permafrost in the far north as areas of concern.
Embracing green bonds
The Russian Ministry of Natural Resources and the Ministry of Economic Development first began to develop a methodology for the use of green financial instruments in 2016. And while the pace of development since then has bordered on slow, serious steps in developing green finance are underway.
Recently, the Bank of Russia announced that it would allow issuers to label their bonds as green if they are aimed at financing green projects following the Russian taxonomy.
The move seeks to boost confidence among market participants about the regulator’s commitment to developing green finance. Earlier this year, Deputy Finance Minister Alexei Moiseev urged Russian companies to place ESG issues at the heart of their corporate agenda.
On May 27, the city of Moscow placed the country’s first sub-federal issue of green bonds for RUB 70 billion for seven years. City authorities intend to use the raised funds to finance urban projects that reduce pollutants and greenhouse gas emissions from vehicles.
More plans have been announced to replace the city’s bus fleet with electric buses and metro development. Green bonds should be open to individuals as well as investors, traders and management companies.
Russian business goes green
Russian business is also addressing the latest trends: Sovcombank, a major Russian universal bank, and the St Petersburg Exchange signed an agreement earlier this month to jointly form a green and social bonds segment and trade in low-carbon energy certificates, greenhouse gas emission quotas, and greenhouse gas emissions neutral footprint certificates.
The agreement aims to unite efforts to develop a regulatory framework for emissions trading and green, low-carbon energy and greenhouse gas neutral footprint certificates. As a result, the agreement should contribute to creating an exchange market for sustainable development and new green finance instruments.
At the moment, about RUB 23 billion of bonds are circulating on the Moscow Exchange. Their number has also increased significantly during the past two years, and the trend has accelerated during the pandemic.
According to a recent statement by VEB.RF, Russia’s state-run development institution, the volume of green bond issues in Russia can grow by 30-40% per year in the next ten years.
“By 2024, the volume of the green bond market may reach 300 billion rubles. This is an increase from a very low base. By 2030 the volume of green bond issues can reach up to 20-25% of all issues, or $27-45 billion, depending on the scenario,” according to the statement.
Green financing is used to embed environmentally friendly criteria in major development projects.
In addition, several significant Russian investment funds and corporations may allocate funds to finance and purchase green securities.
While the pace of Russian green finance development is methodical at best, the movement is real – and is gaining much more traction than many anticipated even a year ago.
