ESG-Transformation: Russia is at the Very Beginning of the 'Green' Path
Today, environmental, social and corporate governance issues are proving to be key factors in ensuring the sustainable development of companies, states and society. But the ESG agenda should not worsen the situation of the business, and many Russian regions do not have enough funds to switch to the principles of sustainable development. This was discussed at the regular session of the Discussion Club of HSE and Sber held within the framework of the XXII April International Academic Conference.
Opening the session 'ESG Agenda for Russian Regions: New Constraints or Opportunities for Development?', Valery Katkalo, First Vice Rector of HSE, Dean of Graduate School of Business, noted that today there is a heated discussion around the acronym ESG (environmental, social, governance). So far in Russia, the terminology of sustainable development and ESG is little known. Recently Forbes magazine published a survey of the Russian population and the results of the survey showed that 56% of respondents do not know the term "sustainable development" and only 2.8% are involved in ESG-transformation processes.
But today, environmental, social and corporate governance issues are turning out to be key factors in ensuring sustainable development not only for companies but also for states, regions and modern society as a whole, says the Dean of GSB. The processes of 'green' business and 'green' finance are growing very rapidly. According to some estimates, by early 2021, around one trillion investments in global financial markets were linked to the ESG agenda.
"In our country, not only the discussion but also practical steps towards ESG-transformation are actively unfolding. It is not surprising that this is happening in an avalanche fashion. We see obvious reasons for the growing interest in this agenda," says Valery Katkalo. - These are environmental problems, global warming, and a sharp rise in social and economic inequality. We are at the very beginning of this path and our discussion will help to focus on very important aspects for our country - strategic planning, investment issues and development of Russian regions in the context of ESG calls".
Alexander Vedyakhin, First Deputy Chairman of Sberbank's Management Board, stressed that the topic of sustainable development is directly related to business. Business is stable when there is support from customers, the government and stable employee work.
He recalled that Black Rock, one of the world's largest investment funds, which manages trillions of dollars in assets, decided that it would withdraw from companies that have not declared carbon neutrality by 2050. "They just don't want to lose money," Alexander Vedyakhin believes. Shares of companies following the ESG agenda are growing faster because the market considers them more sustainable.
The ESG agenda for business is not just a matter of responsible behaviour and goodwill, but also a very practical issue of fundamental sustainability and profitability
To realise its obligations to customers, shareholders, employees and society, the business must be stable and sustainable. This, in turn, is facilitated by following ESG principles," he said. Alexander Vedyakhin also stated that Sberbank, as the largest financial institution in the country, is ready to lend to businesses on preferential terms in order to contribute to environmental issues and overall ESG transformation of both individual companies and entire industries.
Vyacheslav Alenkov, Deputy Chairman of the Sakhalin Oblast Government, is convinced that the ESG agenda has not only environmental but also investment significance. The regional government has decided to conduct a climate experiment. "We intend to create a carbon management system. It will be possible to trade carbon units and reach carbon neutrality by 2025-26, we are now preparing an inventory of emissions and removals to understand the situation. We already have transition programmes in place: we plan to switch 100% of boiler houses from coal to gas, switch half of the transport to gas and electricity and begin the transition to renewable energy sources," said Vyacheslav Alenkov, also stressing that it is equally important that the new regulations do not halt the economy or increase the burden on business.
Mikhail Akim, Member of the Management Board of the Association of European Businesses, Chairman of the AEB's Innovation and Modernisation Working Group and GSB Professor, drew attention to the pitfalls of the new agenda. He noted that Russia is losing emission absorption capacity due to the growing damage caused by fires in the forests of Siberia and the Far East. The responsibility for their protection has been transferred to the regions, which lack the means to do so.
The XXII April International Academic Conference on Economic and Social Development (AISC) will be held April 13 – April 30 this year. For the first time, the conference will be co-organised by the Higher School of Economics and Sberbank. The conference will include a series of scientific and expert discussions in the format of the HSE and Sber Discussion Club, an expert platform where representatives of science, business and government discuss current challenges for the economy and society based on scientific knowledge and share best practices of business and institutional development, forming an image of the future.
He also believes that the situation in agriculture is a serious challenge: "We see different strategies. Wealthy regions focus on the intensification of agriculture, while underdeveloped regions convert forest areas into agricultural areas to feed the population, which worsens the environmental situation. Many of them do not have the funds to implement ecological technologies and do not have other jobs. If agriculture is intensified, it is not clear where the people employed in it will go. So there are regions where social problems clash with environmental problems”.
Mikhail Akim pointed out that certain trendy topics are poorly developed. In particular, German researchers have calculated that organic consumption without chemicals requires 35% more land than conventional agricultural production. The production of batteries for electric cars also affects emissions, and many battery materials are mined using child labour, which is brutally exploited. "Not all green technologies are as green as they seem," he concluded.
"No one should get the impression that ESG is just a trendy and hype story," stressed Valery Katkalo.
Natalya Zubarevich, Doctor of Geographical Sciences, Chief Researcher at the Institute for Social Policy at the Higher School of Economics, drew attention to the regional aspect of the ESG agenda in Russia. "There are two big corners in this triangle: the state and business, and one small one, which probably will have to be looked at over a microscope, which is the regions... There are six or seven regions in Russia that can afford infrastructure investments. Sakhalin is doing well, but I would not venture to talk about extending the Sakhalin experience to the Far East, no other region in the Far East has that kind of money. If we are talking about opportunities and risks, I do not hear a word about the Kemerovo Region, although it is a very substantial risk," she said.
In her opinion, the readiness of the regions to embrace the new agenda is minuscule:
Regions are not ready to seriously consider the environmental issues. As a reminder, real per capita income has fallen by 10.5% compared to 2013. It is hard to explain the ESG agenda to the poor
"We got a good charge of realism," commented Valery Katkalo on Zubarevich's speech.
Marco Sorge, Director of Municipal Infrastructure, Europe, Middle East and North Africa at the International Finance Corporation (Vienna), pointed out that the problem of reducing emissions is not limited to switching from fossil fuels to gas and renewables. "If you lose less, you need to produce less when generating. Insulating the building, the energy consumption points and the gas pipelines, saves a lot, this investment has a high return," said the expert. Changing generation sources requires motivation, private renewable sources operators should be able to sell such energy, a system of subsidies should be created to switch to these technologies.
The transition to electric vehicles is not as straightforward. Several countries and cities are taking the first rather inexpensive step by using trolleybuses. Trolleybuses are a transitional solution between the bus and the electric bus because they are powered by electricity and do not burn mineral fuel, they do not need expensive batteries. They can also have batteries when they do not use wires and can go beyond regular routes," said Marco Sorge.
To improve the waste and recycling situation, he said, it was necessary to educate the public and provide guarantees to owners of recycling plants to purchase the energy they generate at certain rates.
"We talked about ESG thinking, culture and pragmatism, which is needed at all levels of decision-making in our country; we saw many challenges and many opportunities. The road is travelled, let's schedule a discussion for the next conference", summed up the discussion Valery Katkalo.