Make finances “greener”

The Vnesheconombank Development Institute (VEB.RF) has published the first version of guidelines on green finance. Representatives of the Russian Social and Ecological Union believe that the country’s development trend should be not only the development of a climate-friendly “green” image of individual campaigns, but also the “greening” of the entire economy and spheres of life of Russia.

The topic of “green” financing was included in the official agenda in 2016 by the State Council of the Russian Federation. Various approaches and tools have since been repeatedly discussed by representatives of both public and private structures. And recently, a working group on responsible and “green” financing was created at the Central Bank (ESG).

Authors of the Policy Brief “Green Finance” in Russia consider possible elements of the national system of “green” finance, in which environmentally friendly projects can receive financing from the market, the state and development institutions on favorable terms. According to the deputy Chairman of VEB.RF Alexei Miroshnichenko, “more affordable financing for “green projects” will allow to qualitatively and quantitatively increase the volume of investments in projects for water and air purification, waste recycling, environmentally friendly public transport, and green power generation.”

As follows from the VEB.RF document, the recommendations on green financing were developed on the basis of national priorities (in particular, the national project “Ecology”); the experience of the largest international organizations in this area, as well as of the European Union and China, was also taken into account.

“In the absence of clear political signals and a single focal point, much of the effort remains fragmented and does not contribute to the consistent development of green finance in Russia,” analysts say. As noted in the document, “inefficient use of natural resources is causing major economic and social costs, as well as a threat to sustainability in the long term.”

The authors of the Policy Brief note that “greening the Russian economy means green and sustainable growth, as well as the rational use of natural resources, which will extend economic benefits to the poorest and most vulnerable segments of the population. Moreover, green investments generally provide higher levels of employment, contributing to poverty reduction.”

Analysts are confident that Russia can benefit from greening its economy also because energy efficiency measures can reduce carbon emissions and create opportunities for the Russian economy in terms of productivity and competitiveness, as well as through the creation of new jobs and the industry.

Experts note that the transition to a low-carbon economy may not be smooth and potentially lead to a sharp decline in the cost of carbon-intensive assets; given the carbon-intensive nature of the economy, the Russian financial sector is likely to be exposed to carbon risks. However, at the same time, as follows from the document, “Russia does not need to choose between economic growth and environmental protection - these two goals can be achieved simultaneously, which will lead to economic prosperity and preservation of the environment.”

In order to remove the existing barriers to the development of green finance, analysts suggest considering the possibility of applying a systematic, coherent and coordinated approach: revising commitments in relation to climate change, environmental targets and targets for specific sectors, as well as assessing financing needs by sectors; development of a “roadmap” for the development of “green” financing and a corresponding action plan, inclusion of a “green” agenda in the mandates of state development institutions.

“Russia needs to develop an action plan to fulfill its commitments under the Paris Agreement by sectors, including the implementation of nationally determined contributions with financial incentives to stimulate companies to prepare green projects,” experts say.

Experts from VEB.RF have calculated that for the transition to the best available technologies, Russia will need about 4-8 trillion rubles in funding. At the same time, the investment potential of a number of industries may amount to approximately $ 313 billion in the 2016-2030 period. 

Commenting on the analytical note of VEB.RF, Director of the Information and Analytical Center "New Energy" Vladimir Sidorovich pointed out that today's “task of the ‘green industries coincides with the task of the Russian industry as a whole ... There is no problem of the ‘green’ financing in Russia, we have a problem of financing in general…. More than half of the costs paid by consumers within the framework of the mechanism for supporting renewable energy sources (RES) are actually used to pay bank interest.” According to the expert, without the formation of a normal monetary policy, one can hardly talk about a strong economy, economic growth and technological modernization.

Independent analysts are alarmed by the lack of criteria for determining the environmental friendliness of the project in the policy note on “green financing.” “In our case, for some reason, they began to push the conversion of boiler houses from coal to gas and incineration of waste to generate electricity. Whereas, for example, in the EU, the energy use of waste is excluded from the “green list,” and Russian practice includes waste incineration projects in the list of solutions for “sustainable development,” experts write.

The need for “green” financial mechanisms and support has been repeatedly noted by representatives of the Russian Social and Ecological Union (RS&EU). In its Position they point out that ”the country’s development trend should be not only the development of a climate-friendly ‘green’ image of individual campaigns, but also the ‘greening’ of the entire economy and areas of life in Russia.”