Prospects for the Russian ESG market in 2024

In 2023, sustainable development bonds were placed on the Russian market for the first time—this instrument allows financing environmental and socially significant projects. In total, at the end of the year, the volume of the ESG financing market grew by 27%, to 489 billion rubles, as estimated by the Expert RA rating agency. Companies surveyed by the agency, however, indicate a lack of clear economic incentives for verifying issues.

Despite the fact that some issuers postponed plans to issue ESG bonds, the volume of the market for such instruments at the end of 2023 grew by 27%, to 489 billion rubles, according to the Expert RA review. In total, nine new issues of ESG bonds were placed, including over-the-counter “green” bonds worth RUB 142.8 billion. At the same time, the issues of “green” bonds of KamAZ and Sberbank, as well as the social issue of SOPF “Infrastructure Bonds” were repaid.

Development institutions and state-owned companies remain the main issuers of ESG bonds—the largest issue in 2023 was the “green” bonds of VEB.RF.

According to the agency’s forecast, at least five placements are expected in 2024, and the market volume, taking into account the impact of upcoming placements and redemptions, will not exceed RUB 550 billion. At the same time, any major transaction can significantly affect the volume, but it is impossible to predict the appetite for such a one-time deal, Expert RA notes. Increasingly pronounced differences are emerging among release categories. “Green” and social bonds have become commonplace on the Russian market; last year, a new ESG instrument was placed for the first time—sustainable development bonds.

At the same time, issuers are wary of ESG instruments that have not yet been placed on the Russian market—climate transition bonds and bonds related to sustainable development. In general, the trend towards strengthening the social component of ESG continues. Ecology and corporate governance are inferior, but only slightly – less than 10%.

The agency also conducted a survey of companies about their readiness to attract ESG financing – 82% of respondents answered that they do not intend to do this in the long term (only 14% of companies plan to issue ESG bonds in 2024).

The main limitation remains the lack of economic incentives for such placements – currently neither issuers nor investors receive preferences for verifying an issue as an ESG instrument, and the greenium effect (reduction of rates for “green” bonds) for the Russian market is not yet significant. 34% of surveyed companies indicated its absence as a limitation; another 21% of respondents noted that they lack government support in terms of reimbursement of verification costs. In addition, companies noted the importance of lowering the key rate – 58% of respondents indicated that they needed a rate of less than 8% to issue green bonds.

To stimulate the development of the ESG market, new ways of standardizing projects were approved, for example, social taxonomy, but, as the survey shows, only 33% of surveyed companies are familiar with the document. Market participants also 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 volume of the sustainable financing portfolio or individual facts about it, but there is no holistic picture of the market, the agency notes. Let us recall that the Bank of Russia last year issued recommendations on the disclosure of information in the field of sustainable development.

As a result, for now, sustainability ratings remain mainly a tool for creating and maintaining an image, and are also an opportunity to work with banks and investors.

Nevertheless, the ESG transformation barometer of the Expert RA agency showed some improvement in the situation after the shock of 2022, with non-financial companies assessing themselves better than financial ones – the agency attributes this to “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, and the leading positions in the sustainable development market are occupied by X5 Retail Group, DOM.RF and Sberbank. They have received the ESG-II(a) level, which means a very high degree of commitment to sustainable development policies when making key decisions.

Yulia Lysenok