MOSCOW — In Russia, climate change has been an afterthought for many large companies, some of which are among the world’s biggest polluters.
But in a country that is warming 2.5 times faster than the global average, Russian companies are now striving to be greener, seeking to push back new regulations, improve their image and respond to growing pressure from businesses. investors.
Russia emitted 11.3 tonnes of carbon dioxide emissions per capita in 2017, compared to seven tonnes in the European Union, according to Our World in Data, a project based at the University of Oxford. Melting permafrost is already damaging oil and gas infrastructure as it sinks into warming Russian soil.
The climate is quickly rising to the top of the agenda of the government of Russian President Vladimir Putin. Earlier this month, Mr Putin ordered authorities to draw up a plan to cut carbon emissions below EU levels by mid-century.
At the same time, shareholders have paid more attention to environmental, social and corporate governance guidelines globally in recent years. The pressure on Russian companies is even stronger to show that the country is still serious about attracting Western capital. With ratings hit by a combination of Western sanctions, a checkered history of environmental policies, and high levels of carbon emissions to begin with, Russian companies are being forced to put more effort into convincing their investors, analysts say. business.
From oil and gas to nickel and aluminum, the extraction of raw materials forms the backbone of the Russian economy. Russia’s largely export-oriented energy sector is responsible for about a third of government revenue, and the government continues to focus on coal exports to Asian markets, such as China, where consumption is increasing.
But an EU plan to introduce a carbon tax on imports could affect more than 40% of Russian exports, costing companies up to $ 5 billion a year, the Russian central bank has estimated. The EU’s plan is expected to be announced in detail next month. It could enter into force during a transition period starting as early as 2023 and be fully effective in 2025.
This has forced many Russian companies, which are far behind their European counterparts in green initiatives, to reduce their carbon footprint before the taxes go into effect.
“For Russian companies, growing pressure from investors is essential and their management realizes that international regulations outside of Russian control will also affect them,” said Elena Anankina, senior director of S&P Global Ratings. “This is the moment of truth for them, as the climate is not only becoming something investors are asking for, but something that could cost companies money in the short term.”
The State Duma, the lower house of Russia’s parliament, has approved a bill requiring large companies to report their emissions. The law also introduces carbon trading, which allows companies to buy the right to pollute from others who have a lower carbon footprint.
In April, Russia’s largest gold producer Polyus, which does not export to Europe, said it had become the first major gold producer to become carbon neutral in power generation. with a series of contracts for the purchase of electricity from hydropower plants. The remainder of its non-green electricity use would be offset by the company’s purchase of green certificates, which document a certain amount of energy created from a sustainable source and can be bought and sold to offset the carbon footprint of a company.
Polyus CEO Pavel Grachev said some Russian companies need to do more than their Western counterparts to convince investors of their environmental, social and corporate governance measures, commonly known as ESG measures.
Mr Grachev said he hopes Polyus’ environmental measures will add a premium to the valuation of the company, which has been boosted in recent years by the company’s Sukhoi Log mine, considered one of the largest unexploited gold mines in the world.
Other large companies are looking for their own renewable energy sources that will give them their own access to green energy.
“Most Russian mining companies have the advantage of vertical integration and a low cost base,” said stock analyst Yuriy Vlasov of Sova Capital in London. “The transformation into green energy will not hurt them and shareholders will not complain.
Rusal, the world’s largest aluminum maker outside of China, said last month it would turn its high-carbon assets into a separate company so it can focus on low-carbon aluminum. carbon content using cleaner energy sources such as hydropower. Overall, the company aims to achieve carbon neutrality by 2050. Carbon-focused corporate restructurings are not unique to Russia, and while they do not reduce emissions, these measures show that companies are increasingly sensitive to their carbon footprint, according to S&P Global Ratings said in a report.
The steel company Novolipetsk Steel plans to build a new low-carbon steel production plant at a cost of more than $ 3 billion. Another major steel producer, Severstal,
has invested in new technologies to reduce its carbon footprint through its venture capital arm, including hydrogen-based ovens instead of the traditional blast type.
Petrochemical giant Sibur recently announced plans to offset some of its emissions by logging Russia’s giant forests from 2024. The company has said it will purchase carbon credits, or offsets linked to emissions reduction activities. , from projects to plant trees, which absorb carbon dioxide, or increase the absorptive capacity of existing forests.
Other companies focus on improving the efficiency of existing operations, for example by reducing losses of electricity in the grid or reducing fuel consumption.
Russia also has potential for carbon capture projects, where waste carbon dioxide is removed from factory chimneys and pumped underground or stored in a solid form, according to company analysts.
Globally, financial assets under management with ESG strategies hit a record $ 1.7 trillion in 2020, according to industry tracker Morningstar,
but executives and business analysts say the key to convincing investors is transparency about their climate goals and how to monitor their progress. This is not a problem only in Russia, with global regulators, banks, investors and auditors working to develop new reporting standards.
For greater transparency, Severstal has started to measure its so-called Scope 3 greenhouse gas emissions, which do not result from a company’s own activity but from its supply chain and the way consumers use it. its products, with results verified by external auditors.
But changing the traditional carbon-intensive business model of Russian companies is a tall order, according to executives. Part of the challenge is the cost of implementing new technologies, while another problem is that regulatory changes impact capital spending decisions which, in turn, take years to produce. an effect.
“The task is not to increase the cost of steel and sacrifice our margins and shareholder value,” said Andrey Laptev, director of business development and venture capital projects at Severstal. “Decarbonization is a big challenge and a feature of the macro environment these days and we have accepted it.”
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