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The ESG topic in Russia was off the agenda
"Traditional investing takes into account three factors: profitability, risk and liquidity. In ESG investing, additional factors are added to these," says Mind Money analyst Alexander Timofeev. It should be taken into account that large production funds can lose money simply because they refuse to finance them or are excluded from certain areas of activity due to environmental pollution. "These risks are calculated mathematically." In other words, ESG principles are not moral guidelines, but rather describe very real investment risks. The second most common misconception is that the "sustainable development" program is promoted by governments. In fact, pension funds initially began to adhere to these principles. For example, the well-known Norwegian State Pension Fund (Statens pensjonsfond) introduced a similar approach in the middle of the last century. The literal translation is: "We are a fund for future generations and will not invest in weapons, gambling, hazardous substances, etc."
A year ago, the ESG Practice Guide for Issuers was updated, which also includes recommendations for preparing non-financial reporting. And in November 2023, the Ministry of Economic Development published the "Methodological Recommendations for Preparing Sustainability Reports". Each company can decide for itself how and in what format this will be done. Both international and Russian sustainability standards are available. However, if a company chooses a separate non-financial report, it must be disclosed within 3 working days after approval. According to Elena Kuritsyna, the managing director of the exchange, who oversees interaction with issuers, the penalty for "silence" from reporting will be applied in 2026.
At Sberbank, one of the incentives for issuers to enter the ESG market is bonuses such as: They say that it is easier for government agencies to invest in players that comply with ESG, and reporting on compliance with ESG principles is attractive to banks issuing bonds. Its popularity has also grown among clients and employees. But something is not working. According to ACRA's baseline scenario, ESG bonds worth RUB 50 billion may be placed on exchanges by the end of 2024, with the total placement volume this year amounting to about RUB 72.8 billion. This is 51% lower than in 2023 and 67% lower than the 2021 record. The market is shrinking. Therefore, ESG securities in Russia have not yet convinced clients of their added value.
This year, two standards set by the International Committee on Sustainable Development were included in IFRS. In other words, it is mandatory for disclosure and financial reporting. But this is not our case. We work through the Bank of Russia, the Ministry of Finance and the Ministry of Emergency Situations to convince Russian market participants to implement the principles of sustainable development. The company itself does little in this direction, since it does not bring profit to shareholders. This will continue until central banks introduce strict regulation that will make these requirements mandatory.