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The coronavirus pandemic has dramatically changed the global economy. And investors are “risk on” again. In addition to the pandemic currently sweeping the world the climate crisis remains in the background and investors are increasingly worried about environmental risks. Russian companies, in particular, are worried about being penalised for environment related issues and will have follow the Green Economy trend that is being demanded by retail investors, first and foremost.

The coronavirus pandemic has distracted from the furore created by Swedish climate crisis campaigner Greta Thunberg and her “Friday’s for the Future” youth movement. Nobody seems to care anymore about climate change since the globalization has stalled. People fear losing their jobs more than what the future holds — even on Fridays.

But appearances are deceptive. While governments around the world are busy curbing the pandemic and managing economic loses, a sophisticated green financing infrastructure is being built in the background. Companies, especially in Europe, which has embraced Thunberg’s call to action, taking their ESG (Environment – Social – Governance) responsibilities seriously and including it in their long-term strategies. This trend will not stop, and can be expected to grow in importance.

The pandemic has sharpened the senses to risks among companies’ decision-makers. Coronavirus has clearly demonstrated the fatal consequences of underestimating the risks for supply chains and the disruptive power Mother Nature still commands.

Banks, investors, and regulators re-evaluate risks that go beyond the pandemic. A World Economic Forum (WEF) report on global risks has linked nine out of ten risks directly to ESG factors, the most important of which are the protection of the climate and the environment. Financial players have started to closely monitor companies’ ESG policies.

While the world is fighting the coronavirus, Europe continues its efforts to build up a large-scale financial infrastructure for ESG investors. In 2016, the Luxembourg Exchange launched the Green Stock Exchange (LGX) – a trading platform for securities and Eurobonds of projects that meet 17 UN sustainable development goals (SDGs). Today it is the global leader in the “green bond” market, whose volume doubled to €216bn in 2019. Today less than one per cent of all traded bonds are green, but this market has enormous growth potential.

Investments revaluation

Large investors have already given an impulse to “greenify” the market, and the rest of the investing community is expected to follow. Last summer, the world’s largest investment company Blackrock banned all investments into the traditional energy sector. In October, the Norwegian pension fund Global sold its stake in Russia’s metallurgical titan Norilsk Nickel for environmental reasons: according to the Norwegian Ministry of Finance, the environment is suffering because of the company’s activities, and this violates the fund’s code of ethics (although Global itself made €900bn from oil sales the same year). And Brussels has already banned the European Investment Bank (EIB) and the European Investment Fund (EIF) from investing in oil, gas, and coal industries.

A this trend progresses more and more investors are expected to redistribute funds from fossil fuel producers to green-tech companies. Raising capital in equity markets for green and eco-friendly companies will become easier. Financial institutions will monitor ESG-compliance and make access to credit lines and bank accounts easier. In the case of non-compliance with these standards, credit and capital will become hard to get.

Classical energy companies will be subjected to the neoclassical risks. Why invest in bonds, even a super-profitable oil company, if it is exposed to non-ESG compliance risks or public scandal that could ruin an investment overnight? Neither investors, nor banks, nor regulators are willing to bear responsibility for serious environmental consequences.

Russia has no choice but to follow the trend

“The trend if your friend,” runs the old market adage, but in this case it is a trend with a twist. Falling oil prices have already created problems for the low-liquid waste market, which is still at very early stage of development.

The upshot of the low prices is petroleum raw materials to make plastics is now cheaper than recycled plastic waste. But the large petrochemical producers such as Russia’s Sibur and Nizhnekamskneftekhim remain committed to using recycled plastic in production, thanks to pressure from their strategic partners, customers, investors, and banks as well as their own ESG-compliance rules.

Many Russian companies are actively introducing ESG compliance strategies and officers. For an example, Russia’s major privately owned Lukoil oil producer covers 6% of its electricity needed using renewable sources – primarily solar energy. Shell plans to spend €2bn a year on development of alternative energy sources, and the Norwegian oil major Equinor will invest one fifth of its investment budget in renewables.

Russian petroleum companies are still far from these numbers, though they are already active in environmental protection initiatives. Environmental performance of oil and gas companies is monitored by Transparency Rating of Environmental Responsibility, which has been jointly conducted by Creon Group and WWF Russia (World Wild Fund for Nature Conservation) for seven years already.

The time for large investments into the green economy has come. Now is the time to develop clean renewable energy, reduce burning of associated gas to zero, and increase the share of recycling in the polymer industry. In the new economic order only businesses with a consistent strategy for sustainable development in the social and environmental arena can be profitable. This need has already recognized by many, not just Greta Thunberg.

Florian Willershausen, director of Creon Capital, managing Luxembourg-based fund’s company Creon Energy Fund, which invests in projects of green technologies, renewable energy and logistics projects. The fund is the core part of Creon Group, a strategic consultant in the transition to sustainable development and integration of ESG factors.

This text has been published on Intellinews:

https://www.intellinews.com/opinion-why-the-russian-economy-will-inevitably-become-green-after-the-covid-19-epidemic-is-over-183464/?source=russia

A Russian version is available on the leading Russian online portal RBC:

https://trends.rbc.ru/trends/green/5ea82ca89a79472db412c14a?from=center

The investment Greon Group in partnership with World Wildlife Fund (WWF) Russia extended the participants’ geography of its environmental transparency rating with oil companies from Azerbaijan. For the first time analytics compared them to ones from Russia and Kazakhstan. The rating allows to assess investment attractiveness of oil companies, which becomes very important for industry’s post-corona crisis recovery.

Two corporations from Azerbaijan have been joined this year to the annual transparency rating of oil and gas companies run by Creon Group and WWF: State Oil Company of Azerbaijan Republic (SOCAR) and Azerbaijan International Operating Company (AIOC).

“The situation with coronavirus is alarming but should be temporary: oil and gas markets slump caused by global economic slowdown worsened by the coronavirus pandemic. However, I am sure the industry will overcome today’s challenges”, said Fares Kilzie, chairman of the board of Creon Group. “The rating importance will be even higher after the crisis as it defines transparency and ecological responsibility of oil companies. Here are key indicators for any investors in today’s business reality”, emphasized Kilzie.

Along with newcomers, two Azerbaijan oil companies, the Eurasian rating represents 20 major Russian oil and gas companies with production of crude oil and gas concentrate exceeding 1.5 mln ton per year and 14 Kazakhstani companies with production exceeding 0.5 mln ton per year.

Head of Environmental Policy Program at WWF Russia Alexey Knizhnikov added, “geographical expansion of rating has not only extends the number of participants from new countries, but more importantly, allows us to explore and analyze the level of impact on environment in line with industry average indicators for region. It is the first time when we got a chance to compare oil companies of Russia, Kazakhstan and Azerbaijan by multiple ecological criteria”.

The new criteria have been used to compare greenhouse gas emissions per unit of energy for three countries. Russian and Kazakhstani companies’ emission rate is 73.29 and 76.12 kg per unit of energy respectively, whereas emissions data of Azerbaijani companies is higher. As commented Mr Knizhnikov, “We are certain that the data of greenhouse gas emissions will decline gradually as it decreased in other companies of our rating list”.

According to Mr Kilzie, ESG (Environment-Social-Governance) responsibility factors are becoming key criteria for investment decisions in energy sector. “We see it clearly in western markets as oil companies have to conduct internal audit for board of directors, banks and shareholders, and forced to being transparent and responsible to the broader society. In order to pass double exam and to achieve sustainable development, businesses need to be ranked in a credible ecological rating and keep moving toward transparency”, suggested Mr Kilzie.

DOWNLOAD the Rating brochure here (EN/RU)

Reference

An annual independent Rating of Environmental Responsibility of oil and gas companies have been facilitated in the frame of “Rational Approach” for Russia since 2014, Kazakhstan joined in 2017 and republic of Azerbaijan beginning in 2020. The rating helps to evaluate the ecological responsibility of oil companies with production exceeding 1.5mln ton per year. Joint project of Creon Group and WWF has been found in order to accomplish two goals: to reduce environment impact and encourage oil companies operating in Russia and CIS countries to integrate ESG (Environmental, Social, Governance) related factors, and moving forward sustainable development goals.

Contacts

Alexey Knelz
Head of Corporate Communications CREON Group
alexey.knelz@creon-group.com
+7 (985) 773-31-93

Polina Shkividorova
Press secretary WWF Russia
+7 495 727 09 39
PShkividorova@wwf.ru

As in the previous year, Sakhalin Energy ranked first in the Environmental Transparency Rating of Russian Oil and Gas Companies. The international producer of liquefied natural gas (LNG), owned by Gazprom, Shell, Mitsubishi and Mitsui outperformed in terms of openness on environmental topics, a clear strategy on environmental responsibility and with concrete measures to decrease the production’s impact on the environment. On the second and third ranks followed Zarubezhneft and Exxon Neftegas Ltd., which also confirmed their leading positions of the previous year.

The rating was conducted for the sixth time already. From the very beginning, CREON Group supported the project as a strategic partner, whereas WWF (Russia) takes responsibility for the methodology and the National Rating Agency carries out the calculation based on publicly available sources. In 2019, the project was part of the EU funded People for Nature project. The government of the Russian Federation supported the event as well: The presentation took place in the government’s Analytical Center in Moscow. This time, 20 oil and gas companies were subject of the rating.

In addition, five companies received diplomas in additional categories: Lukoil was granted for its top performance in terms of environmental transparency, Rosneft was honored for encouraging the most constructive dialogue regarding accidents and controversial situations. For its leadership in mitigating environmental impacts Surgutneftegaz received a diploma, whereas Gazprom Neft was granted for its most dynamic growth of oil recovery. Tatneft has shown the most rapid advancement in the rating, which led to a diploma as well.

CREON Group chairman Dr. Fares Kilzie reminded: “We launched this project in 2013, which turned out to be revolutionary for the industry. The concept we are promoting is a forerunner not only in Russia, but globally. It is hard to acknowledge, but the results of our activity will not be visible today or tomorrow. At present, we are witnessing the changes in the Russian oil & gas business, and the massive efforts of the government and the companies are evident now, alongside a significant and inevitable transformation towards sustainable development. And we as a Group are proud of being part of the process.”

Aleksey Knizhnikov of WWF Russia confirms a significant increase of the companies transparency: “The modern economy is rapidly transforming and today investors and consumers value both the economic component of transactions and the social and environmental responsibility of businesses, which is important for gaining a competitive edge,” points out the WWF Russia Head of the Program for the Business Environmental Responsibility. “For the sixth year in a row, we have seen increasing progress in the companies’ disclosure of environmental performance. According to our estimates, public nonfinancial reporting of oil and gas companies has showed the fastest development in Russia over the last years and is becoming the basis for dialog with stakeholders on reducing environmental impacts,” he says.

The robustness of the method and the accuracy of calculations were confirmed by the FBK Grant Thornton audit and consulting group. The company performed selective tests of the criteria and analyzed the accuracy of the scores (levels) against the method, returning a favorable opinion. Vladimir Skobarev, Partner and Head of Corporate Governance and Sustainability at FBK Grant Thornton underlined: “The role of sustainability ratings as important tools for external assessment of corporate social responsibility is increasing every year, while the practice of independent confirmation of the ratings themselves, in turn, is a tool to increase trust in them.”

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About:

The Rating of Environmental Responsibility in the Russian Energy Sector has been launched in 2014 as an initiative of the CREON Group and WWF Russia. The project’s objectives were to conduct tangible and comparable information on environmental activities of oil and gas companies. Thanks to the publicity effect of the rating, some influence could be exerted on the companies in Russia, which partly increased transparency, decreased pollutions or developed an environmental risk-management-system. In 2017, the rating was first presented in Europe, also a separate rating of the Kazakh oil and gas companies was conducted.

The World Wide Fund for Nature (WWF) Russia works with state institutions, companies, experts and local communities to change people’s attitude to nature. The priorities of WWF’s various activities in Russia include the protection and preservation of biodiversity, sustainable forestry and fisheries, the «green economy», environmental governance, climate and energy.

CREON Capital is a fund management company based in Luxembourg. It manages the CREON Energy Fund, which actively invests in energy projects. Green technologies, renewable energy and logistics are among the focus areas of investments. The private equity fund also invests in the processing of gas and the construction of a liquefied natural gas infrastructure.

You may DOWNLOAD the rating brochure HERE:

For further information please contact:

Maria Dymenko, md@communicationz.ru, +7-985-135-1009

Pictures:

Why the Russian economy will inevitably become green after the COVID-19 epidemic is over

WWF and CREON Group presented first Eurasian ecological rating of oil and gas companies

Sakhalin Energy ranks 1st in Environmental Transparency Rating of Oil and Gas Companies