CC BY
2DOI: 10.29141/2658-5081-2023-24-2-4 EDN: GNBHGA JEL classification: N60, M14, Q01
Alla N. Golovina Ural State University of Economics, Ekaterinburg, Russia
Dmitry A. Shtykhno Plekhanov Russian University of Economics, Moscow, Russia Vladislav V. Potanin Ural State University of Economics, Ekaterinburg, Russia
Sustainable development and corporate strategies: The case of Russian metals enterprises
Abstract. The uncertainty promotes the transformation of corporate strategies in accordance with the principles of sustainable development. Metals industry is among the most important ones for the Russian economy since the management of economic development at industrial, regional and national levels significantly depends on the sustainability of metals enterprises. The paper aims to assess the sustainability of Russia's leading metals companies and the alignment of their corporate strategies with the principles of sustainable development. The concepts of sustainable development and ecosystems constitute the methodological basis of the study. To determine whether the companies' strategies correspond to the said principles the authors applied the own set of tools and methods. The evidence is the information about the activities of seven Russian ferrous and non-ferrous metals enterprises. Along with economic, social and environmental pillars of sustainable development, the paper considers an investment and technological one. The paper justifies the choice of indicators for measuring these pillars and proposes a composite index that reflects the total level of sustainable development of enterprises. The ratio of this index to its standard deviation allowed empirically establishing the quantitative borders for classifying the level of sustainable development of Russia's largest metals enterprises and distinguish between four types of these enterprises. The value of the research lies in detecting the trends in the creation of strategies by Russia's leading metals companies according to the sustainable development principles.
Keywords: sustainable development; industrial enterprise; corporate strategy; metals industry; economic sustainability; social sustainability; environmental sustainability; investment and technological sustainability.
For citation: Golovina A. N., Shtykhno D. A., Potanin V. V. (2023). Sustainable development and corporate strategies: The case of Russian metals enterprises. Journal of New Economy, vol. 24, no. 2, pp. 66-85. DOI: 10.29141/2658-5081-2023-24-2-4. EDN: GNBHGA.
Article info: received March 6, 2023; received in revised form March 27, 2023; accepted March 31, 2023
Introduction
Russia's metals industry is of particular significance for the national economy. Its direct contribution to GDP comprises up to 5 %, to the value added of the manufacturing industry - 17.4 %, to exports - 10 %1. The products of metals industry are critically needed for other sectors of the country's economy: mechanical engineering, the transport industry, the oil and gas industry, construction, etc. The metals sector employs about 500 thousand people2. While revising the social responsibility of big business in Russia, the role of metals enterprises is being updated as well. In particular, this follows from the Message of the President of Russia to the Federal Assembly: "...Big Russian business ... is responsible for the work of strategic enterprises, for thousands of workers; it determines the socioeconomic situation in many regions. <...> Launch new projects, earn money, invest in Russia, invest in businesses and jobs, help schools and universities, science and health care, culture and sports3. Reviewing such a contribution of enterprises is recommended as part of their comprehensive activities to apply the principles of sustainable development.
Industrial enterprises have to respond to the changes in the economic, social and environmental spheres (price conditions, amendments to legislation, public opinion), since their underestimation can significantly affect production performance indicators. Constant monitoring of these indicators will reveal the ability of enterprises, in particular metals ones, to fulfill their goals. For example, it is necessary to determine how many enterprises and to what extent they correspond to sustainable development at a given point in time, what trend in changing production performance indicators is [Kondrashina, 2019], what actions are required to support the industry.
For almost twenty years, leading companies of big Russian business have been reporting on sustainable development issues. Imposing international sanctions in 2022 influenced the way industrial enterprises assess their contribution to sustainable development. On the one hand, some companies began to abandon foreign requirements
1 On approval of the Strategy for the development of the metals industry of the Russian Federation for the period up to 2030: Decree of the Government of the Russian Federation of December 28, 2022 no. 4260-r. https:// www.garant.ru/products/ipo/prime/doc/405963845/. (In Russ.)
2 Working conditions of employees of Russia's organisations of certain types of economic activity. https://rosstat. gov.ru/compendium/document/13264. (In Russ.)
3 Message of the President of Russia to the Federal Assembly on February 21, 2023. http://www.kremlin.ru/ events/president/transcripts/messages/70565. (In Russ.)
for sustainable development; on the other hand, a new incentive to maintain reporting was the reorientation of export-oriented enterprises to Asian countries, where stock exchanges demand providing non-financial data1. Preliminary results for 2022 showed that some companies stopped assessing their own sustainability, while some new enterprises reported on it for the first time. All this testifies to the continued relevance of sustainable development in Russia, but with a certain revision of its purpose in a dramatically changed economic environment.
There is the aggravated contradiction between the prevalence of various approaches in the area under consideration, including foreign ones, and the incomparability of the estimates obtained with their help. For further balanced principles formation of sustainable development at industrial enterprises, it is necessary to unify methodological approaches [Bansal, 2002]. Their joint development requires an analysis of the methodological provisions used to assess the enterprises' sustainability.
The relevance of this scientific problem, its insufficient methodological elaboration and practical significance determined the direction of the study. The purpose of the study is developing and testing methodological tools for calculating the composite index and the pillars of sustainable development for metals enterprises, which allows determining the compliance of their strategies with the principles of sustainable development and establishing their type of sustainability and its dynamics.
In order to achieve the purpose, the following objectives were set out:
1) systematising the existing methodological approaches to assessing the sustainable development of industrial enterprises;
2) developing methodological tools for calculating the composite index and pillars of sustainable development;
3) empirically determining the types of sustainable development in the largest Russian metals enterprises.
For most enterprises, the requirements for sustainable development are determined by the internationally recognised standard GRI (Global Reporting Initiative)2, which includes three sets of indicators: economic, environmental and social. To achieve the objective, it was necessary to analyse the indicators of the leading metals enterprises in order to divide them into types of sustainability and then determine the directions for improving their social, environmental and economic sustainability. The novelty of the study is due to the consideration of a new pillar - investment and technological, which will expand the provisions for the concept of sustainable development.
1 On ESG ratings. Expert RA. https://raexpert.ru/ratings/esg/about. (In Russ.)
2 Global Reporting Initiative. (2013). G4 Sustainability Reporting Guidelines. Implementation manual. https:// rspp.ru/simplepage/informatsionnoe-partnerstvo-s-gri/. (In Russ.)
Theoretical foundations for assessing the sustainable development
of metals enterprises
The grounds for this study rest on the existing fundamental provisions for the concept of sustainable development. One of the central theoretical postulates implies minimising the harmful impact of enterprises on the environment for the sake of future generations [Theys, 2020]. The associated environmental pillar of sustainable development is complemented and enhanced by social and economic pillars [Ner-ini et al., 2019]. The social pillar of sustainable development is undergoing a certain revision, in particular in the direction of strengthening its role. This is confirmed by corporate events in different countries, for example, labour unrest associated with deteriorating working conditions, especially during the pandemic, the lack of personal protective equipment for personal, the continued downward trend in real wages and their inconsistency with living expenses [Lo, Sheu, 2007 ]. The economic pillar also includes ways to achieve sustainable development [Orekhova, 2016; Fatimah et al., 2020]. To ensure sustainability, enterprises are increasingly using new technologies that help reduce the energy consumption of corporate IT systems, automate processes, integrate IT infrastructures, transform internal processes towards the production of more sustainable products, etc. [Dao, Langella, Carbo, 2011].
Researchers suggest considering sustainable development as an opportunity to match the industry and technological structure of an enterprise to changing conditions [Martin, 2012]. Such conditions, including crisis ones, create an environment for actually testing the sustainability of an enterprise and its ability to respond to new external challenges.
The authors note various factors that allow enterprises to achieve sustainable development. These primarily include enterprise strategies [Elkington, 1994], focused on reducing costs and risks, increasing sales and profits, strengthening reputation, brand value and employer attractiveness, and increasing innovative opportunities [Schaltegger, Ludeke-Freund, Hansen, 2012; Scarpellini et al., 2016]. Recently, in order to achieve greater sustainability, enterprises have been using digital technologies [Vaulin, Golovina, 2022], which is obvious, for example, due to an increased interest in the developing responsible information systems [Pan, Zhang, 2020]. Therefore, enterprise strategies, viewed broadly as a meaningful guideline and course of action backed by resources [Chandler, 1962], play an important role in achieving sustainable development.
It seems appropriate to consider this development along with the concept of ecosystem development [Potanin, Golovina, 2022]. In particular, the researchers note that the definition of sustainability is based on such concepts as preserving ecosystems, meeting the needs of communities, maintaining the supply of non-renewable
materials, providing shareholders with a constant profit and cash flow sufficient to achieve liquidity [Geissdoerfer et al., 2017]. External challenges affecting sustainable development can be defined as critical change. In business, it usually appears as a result of a decrease in confidence, trust or commitment of counterparties [Bengtson, Ljung, Hadjikhani, 2013]. Thus, the commitment of an enterprise to sustainable development increases the trust of surrounding communities in it, which creates conditions for the formation of an ecosystem and the accumulation of a synergistic effect as a result of interaction.
These and other provisions of sustainable development concept create the basis for the formation of a methodological assessment of the sustainability in industrial, and metals enterprises, in particular. We have analysed the closest methodological approaches to this assessment published in open sources and identified their key elements. Let us consider them in detail.
1. The cumulative assessment of an industrial enterprise's sustainable development in the form of a composite index that simultaneously characterises all pillars: environmental, social, economic, etc. (Table 1). The latest methodological approaches that we share consider the addition of traditional pillars with new ones that previously did not receive sufficient attention. These include, for example, methods that reflect the innovation and technological pillar.
2. Methods for calculating every pillar of sustainability, which in most cases provide separate values for each pillar of sustainability. For this reason, various calculation tools are used:
- an unweighted average (for all indicators included in the pillar, the same weights are used), for example, based on the geometric mean formula ([Ilyicheva, 2013] and others);
- a weighted average (the weight of each indicator included in the pillar is calculated) ([Khomyachenkova, 2010; Podolyak, Kuznetsov, 2019], and others).
With a less laborious approach, every pillar of sustainability (economic, environmental or social) can be calculated on the basis of one formula using the original standard indicators, and in cases of more complex methodological approaches - on the basis of intermediate indices that must first be obtained from other indicators.
3. Methods for obtaining a composite indicator through calculating:
- an unweighted average (the same weights are used for all pillars) based on the arithmetic mean formula [Denisov, 2014] or geometric mean formula [Khomyachenkova, 2010; Podolyak, Kuznetsov, 2019; Ryabchukova, 2020; and others];
Table 1. Theoretical and methodological approaches to the identification of sustainable development pillars
Approach Essence of the approach
ESG approach, including three traditional pillars and corporate governance "Sustainable development can be reflected by various economic, social and environmental factors that are closely interrelated with each other" [Callens, Tyteca, 1999; Elhuni, Ahmad, 2017]. ESG rating (Expert RA rating agency)*
Partial transformation of the ESG approach (reflected in the GRI standard) - replacement of the "corporate governance" pillar with an economic pillar "Determining the balance between economic, social and environmental indicators of sustainable development" [Ryabchuko-va, 2020]. This approach was the most common (cf.: [Khomy-achenkova, 2010; Ilyicheva, 2013; Podolyak, Kuznetsov, 2019])
Extended ESG approach A fourth pillar is added, for example, an innovation and technological pillar for technological sustainability [Romanovskaya, Kozlova, 2018], an "innovation pillar" [Imamverdieva, 2022], or a spatial pillar: the sustainability rating of large Russian companies (social policy and personnel, ecology, development region of presence, support for the region's economy, financial assessment)** (Expert journal)
Notes: (*) On ESG ratings. Expert RA. https://raexpert.ru/ratings/esg/about. (In Russ.); (**) Sustainable development rating of Russian companies. https://expert.ru/ustoychivoye_razvitiye/2021. (In Russ.)
- a weighted average: the own weight is taken into account for each pillar of sus-tainability ([Ilyicheva, 2013], assessment of the Expert journal1, ESG Rating2, etc.).
4. Data used for evaluation:
- official data from Federal State Statistics Service (Rosstat) and its regional offices [Lapaev, Mityakov, Mokretsova, 2013)];
- survey results of company representatives3;
- data from reports published by companies, including annual reports under IFRS (sustainability-related financial information)4 and non-financial statements [Ryab-chukova, 2020].
Thus, despite a long theoretical history of researching sustainability issues, there is no single approach to assessing the businesses' sustainable development and the mechanisms for its provision, which dictates the need for further studies.
1 Sustainable development rating of Russian companies. https://expert.ru/ustoychivoye_razvitiye/2021. (In Russ.)
2 On ESG ratings. Expert RA. https://raexpert.ru/ratings/esg/about. (In Russ.)
3 Sustainable development rating of Russian companies. https://expert.ru/ustoychivoye_razvitiye/2021. (In Russ.)
4 Ibid.
A methodological approach to assessing the sustainable development of industrial enterprises should contribute to settling the actual applied problems they face. In its turn, the corresponding method should observe the following conditions:
- ensure openness of assessment: the assessment object is enterprises seeking to increase their publicity both on the domestic and foreign markets (export-oriented) and integrate their products into the world economy;
- maintain investment attractiveness of public companies the shares of which are traded on Russian or world stock exchanges. The availability of valuations can increase their access to capital, including on Asian and other markets.
An analysis of the existing methodological approaches has shown that not all of them correspond to the designated actual objectives. It is necessary to develop a method that takes into account the specifics of a single enterprise and the possibility of comparing the results obtained with information about other enterprises in an industry or a sector.
The advantage of our methodological tools in comparison with existing approaches is their optimality. On the one hand, it meets the requirements for companies (complies with the GRI standard), and on the other hand, it allows for additional factors, the role of which has greatly increased, in particular, innovation and technological efficiency of a company [Steblyanskaya, Vang, Bragina, 2019].
Materials and methods
According to the results of various studies (cf.: [Mai, Chan, Zhan, 2019]), it is the industry that plays the role of a stabiliser in an ever-changing environment, especially in conjunction with technologies and innovations initiated by employees of enterprises. Russia's metals industry is one of those industries that, more than others, is constantly under tremendous pressure, including the one related to the topic of sustainable development, both coming from the inside of the country and put by foreign partners.
For the analysis we selected major public companies in the ferrous and non-ferrous metals industry of Russia: GMK Norilsk Nickel, NLMK Group, Severstal, Mechel, MMK, UC Rusal, TMK. Here is a brief description of them:
- GMK Norilsk Nickel is a Russian mining and metals company, the world's largest producer of nickel and palladium. It possesses the greatest reserves of nickel ore. It also produces platinum, copper, silver, gold, cobalt, and other non-ferrous metals;
- NLMK Group is an international steel company with assets in Russia, the USA and Europe. The main asset of the group is the Novolipetsk Iron and Steel Works, which consists of three divisions: NLMK-Russia, NLMK-Europe and NLMK-USA;
- Severstal is a Soviet and Russian vertically integrated steel and mining company that owns the Cherepovets Steel Mill, Russia's second largest steel mill. It consists of the Severstal Russian Steel and Severstal Resources divisions;
- Mechel is a mining and metals company, which includes about 20 industrial enterprises: producers of coal, iron ore, steel, rolled products, ferroalloys, heat and electricity;
- MMK (Magnitogorsk Iron and Steel Works) owns one of the biggest metals plants in Russia; it also has a division in Turkey;
- UC Rusal (United Company Rusal) is a Russian aluminum company, one of the world's top producers of primary aluminum;
- TMK (Pipe Metallurgical Company) is the largest Russian pipe manufacturer, one of the top three leaders in the global pipe business.
In accordance with the recommendations on reporting under the GRI standard, three pillars are traditionally proposed for analysis: economic, environmental and social. We propose to supplement these sets by including one more pillar - the investment and technological pillar, which, in our opinion, is determined by the introduction of innovations and the amount of capital investments. Let us take a closer look at these pillars.
The economic pillar of sustainable development. The starting point for the study was the selection of a sufficiently large number of indicators from the GRI standard and their objective analysis. For the analysis, data from open sources1 were used, which reflect:
- production indicators of an enterprise (revenue, operating cash flow, etc.);
- attitude to investors (dividend payments);
- ratios for investors (P/E, P/S, etc.);
- debt burden (interest payments, debt/EBITDA2, etc.);
- development (CAPEX, R&D);
- production efficiency (profitability indicators).
In connection with the need for a correct comparison of companies with different capitalisation, two options were considered to obtain dimensionless indicators: dividing by the book value of a company (BV) or enterprise value (EV)3. However, when dividing by the book value in the case of Mechel and TMK (for which this value is negative for a number of reporting annual periods), we obtained negative dimensionless revenue indicators, EBITDA, which does not quite correctly
1 Smartlab. https://smart-lab.ru/. (In Russ.)
2 EBITDA is a company's profits for a particular period of time, not including interest payments on its debt, tax payments, and amounts to cover the decreasing value of machinery, equipment etc.
3 EV is calculated as the sum of a company's market capitalisation and all its outstanding debt minus a company's available cash.
reflect the economic essence of these dimensional values. Therefore, to move to di-mensionless values, all indicators in absolute terms were divided by the enterprise value.
For every enterprise, in line with the recommendations of the GRI standard, we selected the following indicators:
1) revenue/EV to characterise the created economic value;
2) EBITDA/EV to characterise the created economic value, including income, operating costs and payments to employees;
3) net profit/BV to characterise the economic efficiency of the company, as well as the two following indicators;
4) EBITDA margin;
5) net margin;
6) CAPEX/EV to indirectly characterise the situation of local hiring;
7) net debt/EV to characterise payments to capital providers;
8) debt/EBITDA to characterise the economic significance of payments to capital providers for an enterprise.
To take into account a possible negative book value (in case of low economic efficiency of a company), the EV/BV indicator was used.
Ecological pillar of sustainable development. To assess the sustainability of this pillar, the GRI standard suggests using eight indicators: materials; energy; water; biodiversity; emissions; sewage and waste; compliance with environmental requirements; environmental assessment of a supplier. Their quantitative determination is difficult, as a rule, due to the lack of specific information in official reports, on company websites and in open sources. In the conditions of scant empirical data for assessing the sustainability of industrial companies, the scoring method is used ([Ryabchukova, 2020] and others)1. The indicators were calculated using a scoring method depending on the presence/absence of a company's strategic activities on the relevant topic of the GRI standard. If it is available in the official reports or on the official website of an enterprise, the indicator was estimated at 1 point, in the absence - 0.
The indicator no. 7 "Compliance with environmental requirements", stated in the GRI standard, was assessed on the basis of the data listed below from open sources on environmental violations by the companies under consideration.
GMK Norilsk Nickel. In 2021, the company paid a record fine of 146 billion rubles for spilling fuel2. This value amounted to 0.574 of its book value.
1 On ESG ratings. Expert RA. https://raexpert.ru/ratings/esg/about. (In Russ.)
2 Norilsk Nickel has paid a record fine of 146 billion rubles for a fuel spill. https://www.rbc.ru/business/10/03/2 021/6048a2309a794732bec10c5d. (In Russ.)
NLMK. Rosprirodnadzor revealed 26 violations of environmental legislation at JSC Stoilensky Mining and Processing Plant, which is part of the NLMK group1. Additionally, the company has been seen dumping pollutants2.
Severstal. Belgorod Beneficiation Plant belonging to Severstal was fined for noncompliance with environmental requirements3. The company had caused air pollution in Cherepovets4.
Mechel. The Office of Rosprirodnadzor for the Chelyabinsk Region imposed fines on Mechel-Coke LLC (Chelyabinsk Coke and Chemical Products Plant), as the environmental prosecutor's office revealed a number of violations due to the unsatisfactory operation of gas processing plant5. The enterprise did not fully monitor the state and pollution of the environment on the sites where production and consumption waste disposal facilities are located, did not ensure the accuracy of accounting for transferred production waste (slag)6.
MMK. Rosprirodnadzor estimated the environmental damage caused by the Magnitogorsk plant in the amount of 3.2 billion rubles7. MMK was fined for launching a sinter plant without permission8.
UC Rusal. The company was fined 291 million rubles for environmental pollution9. The Krasnoyarsk plant of the company10 was fined for the same violation.
TMK. JSC TMK Management Company paid a fine based on the results of an environmental inspection11.
All companies develop environmental programmes in accordance with the GRI standard. However, the specifics of production require a lot of effort to 100 % fulfill
1 Rosprirodnadzor fined Stoilensky Mining and Processing Plant (NLMK Group) 1.2 million rubles for environmental violations. https://www.interfax-russia.ru/center/news/rosprirodnadzor-oshtrafoval-stoylenskiy-gok-nlmk-na-1-2-mln-rub-za-ekologicheskie-narusheniya. (In Russ.)
2 NLMK was fined for violation of requirements for water sites protection. https://xoroshiy.ru/194553-nlmk-oshtrafovali-zanarushenie-trebovaniy-kohrane-vodnyh-obektov.html. (In Russ.)
3 Rosprirodnadzor fined the Belgorod Beneficiation Plant of Severstal for environmental violations. https:// www.interfax-russia.ru/center/news/rosprirodnadzor-oshtrafoval-belgorodskiy-gok-severstali-za-ekologicheskie-narusheniya. (In Russ.)
4 Severstal deprives of health. https://newsvo.ru/press/104093. (In Russ.)
5 Mechel Coke was fined for a large amount for emissions in Chelyabinsk. https://obzor174.ru/mechel-koks-oshtrafovan-na-krupnuyu-summu-za-vybrosy-v-chelyabinske. (In Russ.)
6 In the South Urals, Mechel was again fined for environmental pollution. https://eanews.ru/news/na-yuzh-nom-urale-mechel-snova-oshtrafovali-za-zagryazneniye-okruzhayushchey-sredy_15-12-2020. (In Russ.)
7 Rosprirodnadzor estimated the environmental damage caused by MMK at 3.2 billion rubles. https://www.rbc. ru/business/16/07/2018/5b4893659a794767162a3e4f. (In Russ.)
8 MMK was fined for operating a sinter plant without a permit. https://www.kommersant.ru/doc/5170106. (In Russ.)
9 Rusal was fined 291 million rubles for environmental damage. https://secretmag.ru/news/s-rusala-vzyskali-291-mln-rublei-za-vred-ekologii-04-10-2021.htm. (In Russ.)
10 The Rusal plant in Krasnoyarsk was fined for exceeding emissions. https://news.rambler.ru/ecology/43834269/ ?utm_content=news_media&utm_medium=read_more&utm_source=copylink. (In Russ.)
11 JSC TMK Management Company paid a fine based on the results of the inspection by environmentalists of the "pink smoke". https://ustinka.kz/vko/71061.html. (In Russ.)
all environmental requirements. Let us evaluate the considered violations of the companies within the scoring system. The minimum score 1 will be assigned to GMK Norilsk Nickel (a fine of 146 billion rubles indicates the most serious technical and environmental violations). Let us characterise the MMK company with a value of -0.5 (a significant fine in the amount of 3.2 billion rubles should be noted). For other companies, the value of this indicator will be 0.
For TMK, indicator no. 8 "Supplier environmental assessment" is 1. TMK's suppliers are metals enterprises such as MMK, Severstal, Mechel, MMK, and NLMK1. They have environmental disadvantages, which, according to our approach, should be mentioned in TMK's environmental assessment.
The social pillar of sustainable development. According to GRI, the social pillar of sustainability is designed to characterise a company's impact on the social sphere where it operates.
The indicators of the GRI social pillar reflect the efficiency of labour organisation, the observance of human rights in the company and responsibility for the products produced. There are 19 indicators: employment; labour/management relations; occupational health and safety; training and education; diversity and equal opportunity; non-discrimination; freedom of association and collective bargaining; child labour; forced or compulsory labour; security methods; the rights of indigenous peoples; assessment of the human rights observance; local communities; social assessment of suppliers; public policy; customer health safety; marketing and labeling; client confidentiality; socioeconomic compliance.
Let us consider in more detail the evaluation of the employment indicator. For the calculation, we use the official data of Rosstat. In 2021, the amount of average wages in the Russian Federation was 56,501 rubles2. In the metals industry, the average wage in the country in 2021 was 63,232 rubles. It is possible to evaluate the employment attractiveness in the metals industry as the ratio of wages to the national level, equal to the value of1.12. It is an indicator of the employment prestige in metals enterprises. We will carry out similar calculations for the industries coal mining and ore mining. The average wage was equal to 73,576.6 rubles and 96,365.2 rubles, respectively. The values characterising employment for the sectors "coal mining" and "ores mining" amounted to 1.30 and 1.71 respectively.
According to the company's official website, GMK Norilsk Nickel owns both metals and mining assets. In this regard, the employment indicator (1.42) is calculated as an average for the metals industry and the ore mining industry.
1 Issuer analysis. TMK - Pipe Metals Company. https://bcs-express.ru/novosti-i-analitika/razbor-emitenta-tmk-trubnaia-metallurgicheskaia-kompaniia. (In Russ.)
2 Average monthly nominal wages of employees of organisations. https://rosstat.gov.ru/labor_market_employ-ment_salaries. (In Russ.)
UC Rusal owns both metals and mining assets, for this reason the same indicator is 1.42 as well.
Severstal and Mechel have metals production, subdivisions that mine various coals and iron ore. Therefore, the indicator in question was calculated as the average value of wages in the metals industry, the coal mining and ore mining industries and turned out to be equal to 1,38.
MMK is dominated by the metals division, which is why its employment indicator will be taken equal to 1.12.
TMK does not have any mining divisions, and in this case the employment indicator is 1.12.
Quantitative determination of other indicators (nos. 2-19) is complicated due to the lack of specific information for their calculation in official reports, on a company's website and in open sources. We will also use the scoring method, that is, if there is strategic activity on the relevant topic of the GRI standard in official reports and on a company's website, we will assign a value equal to 1, and in their absence - a 0 value.
The results of calculations using the our method show that in 2021, most metals companies had similar values of the social pillar of sustainability according to the GRI standard - about 60-65 %. Mechel is in a slightly worse situation, both according to our estimates and according to the Sustainable development rating of Russian companies.
Investment and technological pillar of sustainable development. This pillar should take into account the volume of R&D and the value of a company's CAPEX to maintain competitiveness in the market environment. To evaluate this, it is proposed to use the ratio of the total volume of R&D and CAPEX to revenue.
In our opinion, when developing a composite index of sustainable development for metals enterprises, one should to take into account the following parameters:
1) development (growth) of the economic sustainability. This pillar includes the quality of functional management and the management structure of an enterprise, as well as external market conditions, for example, the ratio of revenue (if necessary, gross profit) to the total balance;
2) company's profitability, which allows taking into account the efficiency of using a company's production and human resources in relation to the debt load, for example, the ratio of profit before taxes to the total balance (if necessary, to equity capital);
3) growth or stable maintenance of environmental sustainability, which characterises the investment in ensuring the environmental safety of a company's production cycle;
4) growth or stable maintenance of the social sustainability, indicating the amount of financial investment in a company's human resources, their reproduction, development and training;
5) growth or stable maintenance of innovations and capital investments introduction.
Based on these parameters, we propose calculating the composite index of metals enterprises' sustainable development (sustainable development index). Allowing for the existing methodological practice, it is advisable to carry out the calculation using the geometric mean formula [Khomyachenkova, 2010; Podolyak, Kuznetsov, 2019; Ryabchukova, 2020; and others]:
ISD = y la»« x ROE x Iecol x Jsoc x Icap, (1)
where ISD is a composite index of a metals enterprise's sustainable development; Iecon is the economic pillar of a metals enterprise's sustainable development; ROE is the profitability of a metals enterprise1; Iecol is the environmental pillar of a metals enterprise's sustainable development; Isoc is the social pillar of a metals enterprise's sustainable development; Icap is investment and technological pillar of a metals enterprise's sustainable development.
Research results: Typology of Russian metals enterprises
To analyse the indicators and their changes in 2017-2021, corresponding values2 were collected from IFRS reports of international companies. Table 2 shows the calculated coefficients characterising the economic, environmental, investment and technological pillars of metals enterprises' sustainable development.
Table 2. Calculations of the Iecon, Iecol, Isoc and Icap coefficients, 2017-2021
Company 2017 2018 2019 2020 2021
Iecon
GMK Norilsk Nickel 0.56 0.69 0.73 0.73 0.76
NLMK 1.05 1.31 1.27 1.17 1.69
Severstal 1.04 0.91 0.98 0.85 1.19
Mechel 1.06 1.11 0.92 0.90 1.55
MMK 1.25 1.32 1.25 1.07 1.51
Rusal 7.59 0.76 0.63 0.57 0.73
TMK 1.23 1.38 1.17 0.62 0.81
Iecol
GMK Norilsk Nickel 0.50 0.50 0.50 0.50 0.50
NLMK 0.63 0.63 0.63 0.63 0.63
1 Smartlab. https://smart-lab.ru/. (In Russ.)
2 Official data on the Mechel company is limited.
Table 2 (concluded)
Company 2017 2018 2019 2020 2021
Severstal 0.63 0.63 0.63 0.63 0.63
Mechel 0.25 0.25 0.25 0.25 0.25
MMK 0.56 0.56 0.56 0.56 0.56
Rusal 0.63 0.63 0.63 0.63 0.63
TMK 0.63 0.63 0.63 0.63 0.63
Isoc
GMK Norilsk Nickel 0.60 0.60 0.60 0.60 0.60
NLMK 0.60 0.60 0.60 0.60 0.60
Severstal 0.60 0.60 0.60 0.60 0.60
Mechel 0.39 0.39 0.39 0.39 0.39
MMK 0.64 0.64 0.64 0.64 0.64
Rusal 0.65 0.65 0.65 0.65 0.65
TMK 0.59 0.59 0.59 0.59 0.59
Icap
GMK Norilsk Nickel 0.22 0.14 0.10 0.12 0.15
NLMK 0.06 0.06 0.10 0.12 0.08
Severstal 0.08 0.08 0.14 0.20 0.10
Mechel 0.02 0.02 0.02 0.02 0.02
MMK 0.10 0.10 0.11 0.11 0.10
Rusal 0.08 0.08 0.08 0.10 0.10
TMK 0.05 0.06 0.05 0.05 0.04
The obtained values of the composite indices of sustainable development of metals enterprises are presented in Table 3.
Table 3. Calculations of the ISD composite index, 2017-2021
Company 2017 2018 2019 2020 2021 Average value
GMK Norilsk Nickel 0.45 0.48 0.51 0.47 0.57 0.49
NLMK 0.35 0.40 0.41 0.42 0.52 0.42
Severstal 0.47 0.45 0.49 0.47 0.53 0.48
Mechel -0.16 -0.16 -0.11 -0.09 -0.27 -0.16
MMK 0.40 0.40 0.38 0.35 0.48 0.40
Rusal 0.57 0.37 0.31 0.33 0.00 0.32
TMK 0.24 0.26 0.28 0.33 0.28 0.28
Figure 1 graphically represents the dynamics of the composite indices. These data allow us to speak about a fairly stable value of ISD for GMK Norilsk Nickel, Severstal, NLMK, MMK and TMK. There are significant changes in ISD values for Rusal and Mechel.
2021
— GMK Norilsk Nickel
— NLMK Severstal Mechel
— MMK
— Rusal TMK
Fig. 1. Composite index of sustainable development (ISD) of Russian metals companies,
2017-2021
In addition to the composite index, a company's sustainable development can be characterised by another parameter - the relative value of the standard deviation (o/ISD) of the sustainable development index for 2017-2021 (Table 4).
Table 4. Calculations of the o/ISD indicator
Company 2017 2018 2019 2020 2021
GMK Norilsk Nickel 0.27 0.49 1.08 0.51 1.20
NLMK 0.85 1.06 1.03 0.93 1.48
Severstal 0.71 0.59 0.59 0.48 0.88
Mechel -4.00 -4.12 -3.66 -3.62 -5.30
MMK 1.07 1.14 1.08 0.92 1.32
Rusal 10.29 0.96 0.88 0.83 1.02
TMK 1.78 1.99 1.68 1.00 1.21
Figure 2 shows the dependence of these two parameters, the composite index of sustainable development (ISD) and its standard deviation (a/ISD), for the period under consideration.
We argue that if the values fall into the third quarter, where the values of a/ISD and ISD are negative, a company does not meet the criterion of sustainable development. In this case, it is Mechel. For this reason, we exclude it from further consideration. The results obtained after this exclusion are shown in Figure 3.
There are also the average values calculated from a/ISD and ISD data. An average value ISD= 0.32 and an average value a/ISD= 1.31 were obtained. These values are marked in Figure 3 with black diamonds and, in their turn, they divide the study area into four parts. Companies that have a higher ISD value and a lower a/ISD value are more stable.
a/L,
12 10 8 6 4 2
—f— i UT--0.6 -0.4 -0.2 0.0
-2 • --4
-6
♦
-
0.2
O/Isd 2.0
0.4
0.6
0.8
1.0 L,
♦ GMK Norilsk Nickel NLMK
A Severstal x MMK Rusal + TMK
• Mechel
Fig. 2. Dependence "a/ISD - ISD" for metals companies, 2017-2021
1.5
1.0
0.5
ж
▲
A ▲ *
♦ GMK Norilsk Nickel NLMK
Severstal
* MMK Rusal
+ TMK
0.0 ♦
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Fig. 3. Dependence "o/Isd - IsD of GMK Norilsk Nickel, Severstal, NLMK, MMK,
Rusal and TMK, 2017-2021
As a basis for classifying metals enterprises according to the type of sustainable development, we propose to use the following gradation:
1) substantially sustainable companies: ISD > 0,32 and o/ISD < 1,31;
2) sustainable companies: ISD > 0,32 and a/ISD > 1,31;
3) unsustainable companies: 0 < ISD < 0,32 and o/ISD > 0;
4) substantially unsustainable companies: ISD < 0 or o/ISD < 0.
The empirically established quantitative boundaries of o/ISD and ISD are not absolute and can be refined when expanding the list of analysed companies.
Based on the results of the study, we obtain the following distribution of the largest metals companies in Russia according to types of sustainable development for 2017-2021:
1) substantially sustainable companies are GMK Norilsk Nickel, to a lesser extent -NLMK, Severstal and MMK;
2) sustainable companies were not identified among the studied ones;
3) Rusal and TMK are unsustainable companies;
4) the group of substantially unsustainable companies is made up of Mechel.
Thus, within the study, we developed and tested the methodological tools for calculating the composite index and the pillars of metals enterprises' sustainable development. The validity of the results obtained during its testing is ensured due taking into account new actual conditions and the use of reliable primary and secondary data in the calculations.
Conclusion
Based on a retrospective analysis, we summarised the existing fundamental propositions of the sustainable development concept. Methodological approaches to assessing the sustainable development of industrial enterprises are classified according to such elements as the subject of assessment, the methods for calculating its components and a composite index, as well as the data used.
The theoretical significance of the study lies in complementing traditional pillars with a new investment and technological pillar as objectively significant for industrial enterprises. It seems that such an approach will add to the sustainable development concept.
The practical significance of the research findings is due to the possibility of using the proposed methodological tools for calculating the composite index and pillars of sustainable development. This will make it possible to determine the compliance of metals enterprises' strategies with the sustainable development principles, as well as to establish the type of sustainability and its dynamics. Based on the relevant data, metals companies can reasonably respond to a revision of sustainability principles, to new requirements for social responsibility and integrate them into their corporate strategies and activities to achieve sustainability.
Future research should further improve the methodological approach, and include new metals enterprises in the calculations, as well as new time periods. A system of
informed recommendations in order to boost and maintain sustainability for enterprises of every type is planned to be developed.
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Information about the authors
Alla N. Golovina, Dr. Sc. (Econ.), Prof., Director of Higher School of Corporate Education, Head of Enterprises Economics Dept. Ural State University of Economics, Ekaterinburg, Russia. E-mail: vshko@inbox.ru
Dmitry A. Shtykhno, Cand. Sc. (Econ.), Associate Prof., Vice-Rector, Associate Prof. of Entrepreneurship and Logistics Dept. Plekhanov Russian University of Economics, Moscow, Russia. E-mail: shtykhno.da@rea.ru
Vladislav V. Potanin, Applicant for Candidate Degree of Enterprises Economics Dept. Ural State University of Economics, Ekaterinburg, Russia. E-mail: vlad.potanin.75@in-box.ru
© Golovina A. N., Shtykhno D. A., Potanin V. V., 2023
