ESG is a company development strategy measuring transparency in management, impact on the environment and a company's treatment of employees. ESG stands for Environmental, Social and Governance.
In 2004, former United Nations Secretary-General Kofi Annan lay the groundwork for the initiative that created the term ESG. He invited the world’s leading financial institutions to develop guidelines on how to better integrate environmental, social and corporate governance issues in financial markets. The resulting study “Who Cares Wins”marked the first use of the term ESG.
The concept fully justified itself. Almost 20 years later, not only large corporations but also many small and medium-sized businesses adhere to the principles of ESG. The concept became relevant for Russia for several reasons. First of all, there is a need to adapt to climate change and reduce import dependence on certain types of strategic raw materials. The gradual development of hybrid power generation systems in the Russian Arctic also increases interest in ESG technologies.
What is ESG for us? What impact will it have on the long-term financial activities of companies? How will it affect people's lives in high latitudes? Let's try to find it out together from this article.
Several Western and Russian economists believe it essential to take ESG factors into account when making socially responsible investment decisions. The lack of access to high-quality non-financial information describing the companies’ activities on sustainable development is one of the main obstacles to successful socially oriented investments in Russia.
Rating-Agentur Expert RA GmbH (RAEX-Europe) assesses environmental, social and management risks and ways to reduce them based on various ESG indicators (click on the link for more details: https://www.raexpert.eu/esg_regional_ranking/).
For example, it estimates the amount of emissions of hazardous air pollutants, along with the measures taken by enterprises to reduce them. Production and wastewater reuse as well as waste management are also taken into account during the assessment. Considering the large-scale burden on the healthcare system, certain indicators attract special attention in the Social section of the ranking. In this section, RAEX-Europe examined the share of the poor, infant mortality rate, along with spending on social policy and medicine.
The results obtained during the study differ depending on the region. For example, the Republic of Sakha ranks 14th place in the environmental sustainability rating. It is followed by Krasnoyarsk Krai (41), Chukotka Autonomous Okrug (60), Arkhangelsk Oblast (72), Komi Republic (80), Murmansk Oblast (76), Yamalo-Nenets Autonomous Okrug (81), Nenets Autonomous Okrug (83) and the Republic of Karelia (84). At the same time, social indicators are somewhat overestimated for the Murmansk region (13), Nenets (1), Yamalo-Nenets (2) and Chukotka Autonomous Okrugs (7).
Let’s consider the problems existing in the Russian Arctic regions:
They are caused by the vulnerability of the Arctic ecosystems, and the need to develop natural resource- intensive industries. Oil and petroleum product spills are hard or even impossible to reverse. According to various estimates, there is a lack or even complete absence of high-quality sounding and spill response technologies. This is of particular importance for permafrost areas.
Several aspects require special attention. First of all, it is the large outflow of population from the Arctic regions to regions with more favorable climate and living conditions. Equally important is the problem of employment. Finally, the healthcare system also faces numerous challenges. There are no hospitals in some areas. Another problem is a deficit between the Hospital Bed Capacity and the number of patients. The number of hospital beds does not exceed six or seven.
The complex logistics by sea and air, road connections, housing and others pose a challenge to the Russian Arctic regions.
Russian government recognizes these problems. That’s why, during the Russian chairmanship of the Arctic Council 2021-2023, a new ESG Competence Center was created under the Association of Polar Explorers. The Center sets quite ambitious goals for itself. One of them is to conduct high-quality expertise on strategic ESG-related issues, including in the territories of the Russian Arctic.
On top of that, the Russian Registry of Carbon Units began its work in 2022. Now market participants can register climate projects, issue carbon units into circulation and conduct transactions with them. Also, Russia announced an updated version of its ESG Guide, "A Guide for Issuers: How to Comply with Best Sustainability Practices". However, these measures are more related to the reorientation of export markets to the countries of Asia and Latin America, rather than to domestic demand. The growing demand of our Eastern partners to reduce the carbon footprint of products is leading to corresponding changes. Therefore, the development of Russia’s approach to climate change and the implementation of ESG factors into the work of enterprises (at least export-oriented ones) is a reality and a matter of the next 5-7 years.
The editorial board of The Arctic Century
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