How the Russian ESG finance market is growing

In 2023, sustainable development bonds were placed on the Russian market for the first time - this instrument allows financing environmental and socially significant projects. At the end of the year, the volume of the ESG financing market grew by 27% to RUB 489 billion. According to the forecast of the Expert RA rating agency, at least five placements of ESG bonds are expected in 2024, and the market volume will increase to 550 billion rubles.

The main issuers of ESG bonds so far remain state-owned companies and development institutions: the largest issue in 2023 is “green” bonds of VEB.RF. Last year, nine new issues of ESG bonds were placed in the amount of RUB 142.8 billion. The issues of “green” bonds of KamAZ and Sberbank, as well as SOPF “Infrastructure Bonds” were repaid.

Green and social bonds have become commonplace, but last year they added sustainability bonds for the first time.

Olga Kalyuzhnaya, President of the Russian Forest Association: “Over the past two years, the ESG market has seen a tendency to strengthen the social component—the environmental and management components are inferior to it by an average of 10%. At the same time, issuers use new tools in both the social and environmental spheres with caution.”.

The main limitation for large companies in terms of their readiness to attract ESG financing remains the lack of economic incentives for such placements: currently neither issuers nor investors receive preferences for verifying an issue as an ESG instrument, but the greenium effect (reduced rates on " green bonds) is not yet significant for the Russian market.

To stimulate the development of the ESG market, new ways of standardizing projects were approved - for example, social taxonomy. In addition, market participants lack accessible information: data on the ESG portfolios of financial sector companies is still often closed. Some large banks have begun to disclose information about the total size of the sustainable finance portfolio or individual facts about it, but there is no complete picture of the market.

Two years ago, the Bank of Russia issued recommendations on information disclosure in the field of sustainable development. However, for now, sustainability ratings remain mainly a tool for creating and maintaining an image, as well as an opportunity to work with banks and investors.

The ESG transformation barometer of the Expert RA agency showed an improvement in the situation after the shock of 2022, with non-financial companies assessing themselves better than financial ones. The agency associates this with “the high level of ESG maturity of domestic exporting corporations.”

In total, 22 companies are included in the Expert RA sustainable development rating for 2023. Leading positions in the sustainable development market are occupied by X5 Retail Group, DOM.RF and Sberbank. They received the ESG-II(a) level, which means a very high degree of commitment to sustainable development policies when making key decisions.