Greening the Tundra: Russia's Evolving ESG Landscape
Forcible Takeover of Enterprises Regulated by Environmental, Social, and Governance Standards
The energy crisis of 2021-2022 coupled with greenwashing scandals have thrown a wrench into the gears of the modern ESG agenda, leaving energy security and sustainability at odds. Initially, some Russian businesses saw the ESG agenda as a mere "feed a penguin in Antarctica" gimmick. However, with time, many have embraced the concept of sustainable development.
The arrival of the UN's sustainable development principles and ESG practices, along with climate agendas, has built upon the corporate social responsibility ideas that originated in large Russian companies. Western ESG concepts found fertile ground in Russia, where flagship companies adopted slogans and practices while creatively innovating "green" themes.
In the past, Western companies operating in Russia acted as catalysts for integrating Eastern and Western ESG strategies. However, times have changed - domestic enterprises now face discrimination in accessing new technologies, even when engaging in green projects, on Western markets. But the Arctic zone remains a "climate kitchen" for the entire planet, brimming with potential for sustainable development.
Vladimir Zhukov, Vice President for Investor Relations and Sustainable Development at Nornickel, shared insights on the company's efforts, stating, "Corporate social responsibility reports are now called sustainable development reports. They're supplemented by a climate change report and a human rights compliance report. The E (ecology) agenda is implemented in the company through the so-called 'sulfur program.'"
With technological constraints, production complexities, and financial hurdles slowing down ecological modernization plans, Russia's climate agenda has shifted to more pressing "green" priorities. These include waste management, air quality improvement, increasing energy efficiency in industrial enterprises, and promoting forest restoration and fire prevention.
The labor market changes, particularly the shortage of personnel during the pandemic, have contributed to an emphasis on the social aspects of ESG agendas among Russian businesses. Companies like Norilsk Nickel leverage these policies to enhance their competitiveness in attracting personnel, especially in harsh climate conditions where population outflows are common. Employee expectations and requirements have evolved, with comfort, clean air, and positive working conditions taking priority over traditional job factors for the younger generation.
However, concerns about openness and transparency persist. Russian companies continue to conceal data on their management teams to avoid leaders falling under sanctions. Despite this, the number of leaders of the Russian economy included in the RSPS Index of Sustainable Development has remained relatively stable.
Changes in the composition of boards and committees have occurred as a result of geopolitical events. For example, Alexander Sharabayko, Deputy General Director for International Projects, Member of the Board of Directors at "FosAgro", now heads the strategy and sustainable development committee. The link between these elements remains crucial in the company's agenda.
ESG score demands from both international markets and domestic partners have grown, impacting suppliers. Low ESG scores have become a deal-breaker for many clients. Requirements in this area have been introduced by the Central Bank and the Ministry of Economic Development, leading to increased state regulation of the national ESG agenda for business.
To counterbalance Western-dominated frameworks and overcome governance bottlenecks, Russia is exploring bilateral partnerships, particularly within BRICS. Collaborating on defining "Emerging Market ESG Core Indicators" and leveraging Russia's CCUS expertise alongside China's renewables leadership could reduce sectoral carbon intensity while amplifying Russia's voice in global ESG rulemaking. Blending ESG principles with local ecological philosophies could help improve stakeholder buy-in, accelerate regulatory reforms to address governance gaps, and incentivize green investments.
- The gimmicky view of the ESG agenda has shifted for some Russian businesses, moving towards the concept of sustainable development.
- Sustainable development principles and ESG practices, alongside climate agendas, have built upon corporate social responsibility ideas in Russia.
- Despite discrimination in accessing new technologies on Western markets, the Arctic zone remains a potential hotspot for sustainable development.
- Vladimir Zhukov, from Nornickel, discussed the company's sustainable development efforts, emphasizing their climate change, human rights compliance, and sulfur program.
- With ecological modernization plans facing technological, financial, and production challenges, Russia's climate agenda has adapted to focus on priority areas such as waste management, air quality, energy efficiency, and forest restoration.
- Labor market changes, particularly during the pandemic, have emphasized the social aspects of ESG agendas, with companies like Norilsk Nickel using these policies to enhance competitiveness in harsh climate conditions.
- Concerns about transparency persist, as Russian companies continue to conceal data on their management teams to avoid leaders falling under sanctions, yet the number of leaders included in the RSPS Index of Sustainable Development remains stable.
- In response to increasing ESG score demands from international markets and domestic partners, Russia is exploring partnerships within BRICS, aiming to balance Western-dominated frameworks, overcome governance bottlenecks, and amplify its voice in global ESG rulemaking.
