The most notable change in this year’s St. Petersburg International Economic Forum (SPIEF) was the emergence of ESG themes and the relative absence of oil and gas attractions.
Most corporate agreements during Russia’s main economic event related to investment under ESG (Environmental, Social, and Corporate Governance) principles, or at least alluded to them.
Ksenia Yudaeva, First Deputy Chairman of the Bank of Russia, said that ESG would soon be integrated into International Financial Reporting Standards (IFRS) standards and would be mandatory for companies operating in the international market, setting the tone for later discussions.
An increasing number of ESG funds are being created to influence the flow of capital around the world, noted Goldman Sachs’ Co-Head of Russia and CIS countries Timothy Talkington at a session on responsible finance. Inflow to these funds reached $400 billion during the last year and a half, Talkington said. Overall, according to Goldman Sachs estimates, more than 3,000 investors accounting for about $100 trillion of disposable funding already adhere to the principles of responsible investing.
Previous forums sought to outline terms for entry for international business into lucrative Russian markets, mainly in oil, gas and natural resources. Another hot topic was Russia’s role in underwriting energy security via massive contracts for supplies of oil and gas to Asia and beyond.
But the latest forum showed that ESG has now hit the mainstream. And it has already been a few years coming.
In December 2019, the first nationwide ESG rating in Russia appeared. Russian fertilizer producer PhosAgro and petrochemicals giant SIBUR announced significant plans to transform their business models based on sustainable development principles. For the first time, Rating-Agentur Expert RA GmbH assigned a BBB ESG rating to a Russian bank.
Moscow Exchange joined the global Sustainable Stock Exchanges initiative in 2020 and was one of the first to draw attention to the problems of green bonds.
Elsewhere, Russia’s top consumer electronics retailer M.Video-Eldorado Group implemented a programme to recycle used electronics and in 2019 joined the SKO Electronics-Utilization Association, which included the world’s leading manufacturers of household appliances and electronics, for a permanent acceptance of used equipment for disposal.
“Considering the new commitments, we can stay ahead of Europe as the leader on the green agenda,” said Ruslan Edelgeriev, Special Representative of the President of the Russian Federation for Climate Issues, at the St. Petersburg forum.
Rosprirodnadzor, the Russian state watchdog for natural resources, also announced that it would publish environmental anti-ratings of Russian companies from August 1. The move is set to introduce a regulatory framework for Russian companies and facilitate the implementation of the green agenda.
Norilsk Nickel and its shareholder Interros arguably demonstrated the most technologically advanced approach to the ESG agenda at SPIEF. The mining company announced its readiness to release the first large consignments of carbon-free nickel to the world market in 2021 and even tokenize this asset on the co-invested Swiss blockchain platform Atomyze to attract ESG investors.
VTB, a major Russian bank which launched two Responsible Investment Funds in March 2020, announced its future ESG strategy at SPIEF and actively marketed full-cycle services on the forum to assess the current ESG profile of issuing companies.
Sberbank, Russia’s biggest lender, also tabbed ESG as one of its main topics at the forum.
This gives hope for Russia’s gradual entry into the new structure of the global economy, where companies are assessed not only by their financial performance but also by their responsible approach to the surrounding environment.
At the same time, Russia is only starting to create its ESG toolkit and still lags behind global trends.
According to Denis Shulakov, First Vice President of Gazprombank, the market has excellent prospects for issuing green bonds against the backdrop of a deficit of $8-10 trillion in financial instruments on the international market.
But Russia cannot yet fully participate in this process, since only 4% of national companies meet European requirements on attracting green financing.
So while energy seems to have shuffled to the back burner in forum talks, Russia is having a go at the green agenda in attempts to re-engage the global market and offer new avenues for investment.