CC BY
25
УДК 321
PesotskayaA.E.
Second-year master student SPbU, Saint Petersburg, Russian Federation Песоцкая А.Е. студентка 2 курса магистратуры СПбГУ, г. Санкт-Петербург, РФ
RUSSIAN EXPERIENCE OF SUPPORTING AND REGULATING THE TRANSFORMATION
OF BUSINESS IN THE FIELD OF ESG
Abstract
The relevance of the article rises from the growing importance of ESG-transformation in the Russian business practice in the conditions of strengthening of interaction between business and. The article examines the practices and regulation of ESG-principles of Russian business, highlighting the specific features of the ESG-transformation process.
Keywords:
ESG-transformation, green investments, socially oriented investments, corporate responsibility.
Social responsibility of business began to develop in Russia in the 1990's, during the formation of a market economy. The first ten years of capitalist relations in post-Soviet Russia were characterized by unorganized, spontaneous attempts to hold a discussion about the need for companies to observe social justice. During 2000's and 2010's, this discussion began to take on a formal character - companies began to learn the principles of corporate social responsibility. The term «social partnership» as a system of relations between employees, employers and public authorities for the purpose of coordinating their interests also became relevant. In recent years the Russian business community, public organizations and state authorities began to use the term ESG, which is a logical continuation of the past activities for the development of social responsibility of business.
In Russia, the concept of socially responsible investing is in its infancy. One of the reasons for this situation is the lack of investor awareness. A study conducted by the PRI (Principals for Responsible Investment) Responsible Investment Association in 2017-2018 showed that Russian companies pay a lot of attention to corporate governance issues, but are virtually uninterested in social and environmental responsibility aspects. It can be assumed that this is due to the predominant focus of Russian business on short-term profits.
Forums, conferences, business events aimed at explaining the use of ESG factors in the analysis of companies' activities, taking into account national specifics and best foreign practices, can serve as a measure that can help to remove this barrier. One of the main barriers to successful socially oriented investments in Russia is also the lack of access to high-quality and objective non-financial information that would describe companies' sustainability activities.
Another reason for the insufficient development of ESG practices is the lack of a strong base of institutional investors represented by pension funds and insurance companies, which in other countries of the world form the main demand for the development of the ESG investment market. The request to use ESG criteria and disclose non-financial information comes to Russian firms mainly from foreign investors. Due to financial sanctions and fears of possible additional penalties in case of interaction with Russian companies that are not yet included in the sanctions lists, but may get there, the demand for such information is very limited.
It is noteworthy that not only resource extraction companies, whose activities are connected with pollution technologies, are interested in environmental issues, but also IT companies. In particular, East Capital experts appreciate Yandex's efforts in this area: Yandex's data processing server, located in Finland, sends excess
heat to heat residential buildings. Earlier such activities of the company would have been classified as charity, nowadays they are considered part of the social investment strategy and are aimed at obtaining concrete results in the long run [5]. Although Russian companies are still not accustomed to the principles of social, corporate, ethical and environmental responsibility becoming a factor in assessing the value of their shares, the public demand for the application of these criteria is present [3]. The financial literacy of the population is increasing, business philosophy is changing, business interest in social responsibility is growing - all the mentioned processes somehow contribute to the demand for ESG criteria implementation in the Russian investment practice. The financial indicators of companies are not important for ESG ratings, which is also still unusual for Russian business.
Lack of development of ESG practices in Russia has been detrimental to Russian companies interacting with U.S. partners. As noted by Belyaeva I.Yu., Kozlova N.P., Danilova O.V., «this trend represents a very serious challenge for Russian companies. Here are just a couple of examples. In December 2020 representatives of the third largest pension fund in the USA said that they will exclude from their portfolio securities of oil and gas companies that will not meet their environmental requirements within the next four years. In the portfolio of this fund there are securities of Russian companies: PJSC "Novatek", PJSC "Rosneft", PJSC "Surgutneftegaz" and PJSC "Tatneft". And in early 2021 it became known that the world's largest bond fund PIMCO refused to buy social bonds of JSC "Russian Railways", because in the structure of cargo transportation company carbon-containing cargoes account for more than 50%» [1].
In order to develop approaches to responsible investing at Russian financial market in 2020 the Bank of Russia directed recommendations on implementation of responsible investing principles (information letter of the Bank of Russia No IN-06-
28/111 dd. 15.07.2020) for application [4]. The essence of the recommendations is that responsible investing implies making investments taking into account significant risks associated with sustainability factors in the selection and management of investment objects. The recommendations are voluntary and are considered as guidelines for institutional investors and trustees of institutional investors' assets when they invest in shares and bonds of Russian companies. According to the spirit of the recommendations of the Bank of Russia, buying shares in companies that comply with ESG principles is not only an investment, but also a way to express their civic position in support of increased attention to environmental and social responsibility issues. Russia's first major responsible business congress «ESG-(R)Evolution» was held in Moscow on October 14, 2021 and discussed the transformation of sustainable development principles in the Russian economy.
As E.A. Divaeva notes, «in this regard, it is necessary to recognize the crucial role of the state in stimulating enterprises to implement green technologies and make green investments. Forms of state support are standard, observed in all countries, the specificity lies in the extent of state support and in the approach to the organization of the process. Risks associated with green investments can be reduced through government grants, subsidies, guarantees, preferential financing through commercial banks at lower interest rates, the creation of "green" funds, etc» [2].
An important event in this direction of formation of the National Green Project Financing System was the adoption of the RF Government Decree No1587 dated 21.09.2021 «On approval of the criteria for sustainable (including green) development projects in Russia and requirements for the verification system of sustainable (including green) development projects in Russia». The national methodology developed by the Ministry of Economic Development of the Russian Federation together with the VEB RF (State Development Corporation «VEB.RF) defines the criteria for green projects in the following areas: waste management, energy, construction, industry, transport, water supply, agriculture, biodiversity and natural landscapes conservation, establishes requirements for verification system, financial instruments of sustainable development and verifiers.
This document is a methodological guideline for the recognition of financial instruments of sustainable development, defining the requirements for the system of verification of sustainable (including green)
development projects in the Russian Federation and the procedure for using financial instruments of sustainable development [2]. The Decree also determines the requirements and procedure for including legal entities in the list of verifiers. At present, there is a temporary list of independent verifiers approved by VEB RF, which includes the leading rating agencies: Expert RA Agency, ACRA Agency, National Rating Agency.
Bonds are considered one of the key instruments for raising private financial resources for the green economy. Green bonds, as defined by the International Capital Markets Association (ICMA), are «any type of bond instrument whose proceeds will be used exclusively to finance or refinance, in part or in full, new or/and existing green projects». At the moment there is a lack of qualitative research in Russia, reflecting the industry and regional specifics of ESG.
There are the following features of ESG-transformation of business in Russia:
1. Low consumer receptivity to social projects beyond the scope of the company's direct activities. Charity, interaction with authorities and public organizations are of little concern to the Russian consumer. There is a situation where socially significant projects implemented by the company are not considered by the consumer when choosing to buy a home. This situation reduces the interest of companies in ESG.
2. Russia lacks effective non-profit organizations (NPOs) that would act as influential stakeholders in a dialogue with business. Formally, there are a significant number of NGOs in Russia that are linked to business in their profile, but in most cases their activities are formal. Civil society institutions, as they exist in the United States and Western Europe, do not operate in Russia - they function largely as imitation and do not express public aspirations.
3. Russia has not developed a mass media capable of covering the social projects of business actors. The media audience does not demonstrate an interest in business activities for the good of society beyond the usual commercial activities. To a large extent, the Russian audience of media resources perceives materials on the social activities of businesses as irresponsible advertising. Such materials do not always elicit positive reactions, but may be perceived neutrally or hostilely.
4. Russian labor relations are characterized by the weak role of trade unions. Employees are often unable to act as participants in the negotiation process with the employer and demonstrate low activity in uniting to assert their rights and improve working conditions. There is a situation when the company management is able to ignore employees as an internal stakeholder. As a result the activity of the company on development of human resources is based on initiatives coming only from the management of the company, while from the point of view of ESG theorists this activity should be initiated by both managers and employees themselves.
5. The most influential stakeholder influencing Russian companies is the state represented by executive authorities - at the federal and especially at the regional level. The executive authorities, as the dominant stakeholder, have the greatest influence on the Russian company implementing investment and construction projects. Business entities tend to respond positively to various initiatives of state regulatory bodies more than to those of other stakeholders, since the construction company's relationship with the authorities influences the possibility of obtaining building plots and other preferences.
6. The foreign policy environment that emerged in February 2022 hinders the development of ESG in Russia. This business practice has value within the global economy. The ESG-transformation based on the UN SDGs is largely interested in those companies that seek to work with partners from the U.S. and EU, attract investments from these countries, and operate in European markets.
References:
1. Belyaeva I.Yu., Kozlova N.P., Danilova O.V. ESG-faktory kak instrument formirovaniya delovoj reputacii // Vestnik Astrahanskogo gosudarstvennogo tekhnicheskogo universiteta. Seriya: Ekonomika. - 2021. - No 4. -P. 15-22;
2. Divaeva E.A. Usloviya transformacii ESG-principov: ekonomicheskie i social'nye aspekty // Innovacii i investicii. - 2022. - No 1. - S. 65-70;
3. Rhodes R., Marsh D. Policy Network in BritishPolitics. A Critique of Existing Approaches // Policy Network in British Government -1992. - P. 10-13;
4. Godovye otchety banka «Sankt-Peterburg». Access Mode: https://www.bspb.ru/disclosure/annual-reports/ (Date of application: 05.05.2022);
5. Korporativnaya otchetnost' Akcionernogo bank Rossiya. Access Mode: http://abr-report.ru/ (Date of application: 05.05.2022).
© Pesotskaya A.E., 2022
