After a 20,000-tonne diesel in the far north of the country, Russia’s state development bank wants to start turning the world’s largest energy exporter into a hub for green finance days.
VEB.RF, which has been used in the past to finance infrastructure projects by President Vladimir Putin, aims to have guidelines on green bonds by the end of the summer. The lender wants to help companies raise around 300 billion rubles ($ 4.3 billion) for environmental projects, deputy chairman Alexei Miroshnichenko said in an interview from Moscow.
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Global green bond issuance rose nearly 50% to $ 271 billion in 2019, and the move was picked up by other emerging markets. Russia’s bid follows years of dragging out of the Kremlin on climate change and a 20,000-ton diesel spill at an MMC Norilsk Nickel PJSC power plant in the Arctic last week.
“In theory, it is an enormous opportunity for many Russian issuers to diversify their investor base,” says Sergey Dergachev, asset manager at Union Investment Privatfonds GmbH in Frankfurt. “But right now, metal and mining companies in particular may find it more difficult to manage a potential green bond issue.”
Green bond sales rose 50% in 2019
Green finance should provide a channel for Russia to raise money to support the much-needed transition away from being heavily dependent on fossil fuels. But the leadership of the world’s fifth largest greenhouse gas emitter has shown little commitment to tackling climate change. A low-carbon development plan published in March provides for a small increase in emissions to current levels.
Investigators said Nornickel’s unit had breached safety regulations, resulting in fuel spills threatening extinction for many fish, birds and mammals unique to the Siberian Taimyr Peninsula.
A floating dam limits the spread of the fuel leak near Norilsk, Russia, on June 10.
Photographer: Irna Yarinskaya / AFP via Getty Images
Nornickel, who has pledged to fully fund a cleanup that could cost $ 146 million, has suggested the disaster was caused by climate change, which caused the permafrost to melt. President Vladimir Putin publicly reprimanded management for not upgrading the tank before it leaked and the accident could become a catalyst in enforcing long-stalled environmental regulations.
Russian energy companies Novatek and Gazprom are among those companies that have assets in the Arctic that could be prone to melting permafrost, but theirs aren’t as old as Nornickel’s, according to Ksenia Mishankina, director of emerging market bonds at Union Bancaire Privee in London .
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The efforts to develop green bonds in Russia, which are also supported by the central bank and the government, are part of “international efforts to save the planet, reduce greenhouse gas emissions and restore nature,” said Miroshichenko. It will enable companies to become “more sustainable,” he said.
As the global green bond market has grown, it has been faced with allegations of greenwashing – misleading claims about how effective a project is in fighting climate change – made worse by the lack of globally recognized standards or rigorous scrutiny.
The European Union is pushing for environmental goals to be anchored in standards for banks, asset managers and insurers. Russia is “carefully” analyzing the EU’s planned environmental reforms and international standards for green bonds, said Miroshnichenko.
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Russia’s largest rail operator, Russian Railways, sold the country’s first international green bond last year and has met with high demand from investors who are flooded with money for sustainable financial products. The company started a second issue in March this year, and other issuers have sold small green bonds denominated in rubles.
“We will likely see more investor attention for Russian issues,” said Mishankina of UBP, adding that bonds, which meet international standards, should be manageable.
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