Green trends: zero-carbon hype or who makes money off ESG in Russia?

Sustainable development is a big topic for many people today — from top managers of industrial holding companies to owners of hotel chains and restaurants. However, what exactly does it mean to integrate ESG principles? How do they help companies to develop? Sergey Semenov, Vice-President for Sustainability Consultancy at Schneider Electric in Eastern Europe, shares answers to these questions.

Schneider Electric has over 200 own factories in the world and 6 - in Russia. Many of them use the energy from renewable resources. By 2025, the company plans to become carbon neutral and make its supply chain greener in the subsequent 5 years. Schneider Electric is the leader in many reputable rankings on sustainable development. The company actively supports its business partners in becoming more environmentally friendly and cost efficient. During the past year, the customers of Schneider Electric in Russia saved tens of millions of euros on electricity costs and reduced the greenhouse gas emissions by 300,000 tons.

– Sergey, can you explain in a simple way, why everyone in the world has suddenly learned the words ‘sustainable development’?

It is easy: according to the Paris Agreement, 192 countries agreed to significantly reduce greenhouse gas emissions. The largest companies in the world supported this initiative and declared their intention to run business observing these principles. When calculating emissions, a company takes into account not only internally produced emissions, but also the emissions generated by all subcontractors. In this regard, the number of tasks on carbon footprint optimization started to grow like a rolling snowball even among the companies that were not going to follow green agenda at first.

– In other words, everything is based on social responsibility only?

No, not only on that. The analysis of largest companies from the S&P 500 list demonstrates that the leaders in the field of sustainable development have reduced the volatility of their income by 50 %, increased the dividends by 21 % and ROI - by 67 %. Moreover, the investors refuse to invest money into the companies with unconfirmed ESG goals. If the declared goals have not been reached, the credit rating falls abruptly.

– Is it happening all over the world including Russia?

Russia has its own agenda of sustainable development. Many companies report planting trees. Some industrial facilities start growing shellfish or mussels declaring in earnest that they introduce green technologies. It is great and it can be a part of their public agenda, but if we take a look at international climate rankings, Russian companies are far from being in the top. To prevent the average temperature on the planet from rising by over 1.5-2 degrees, companies should reduce greenhouse gas emissions proportionally by up to 46 % in many cases. These are significant investments. But the main thing is to reach the desired goal within 10 years. Thus, the majority of Russian companies limit themselves to slogans and the planning horizon of 25-30 years with no liabilities incurred.

– In this case, who really works with ESG?

The companies that already work at the European market or with international companies at the Russian market. Their requests to reduce carbon footprint have changed from the ‘nice to have’ to ‘must have’ category. According to our research, 96 % of surveyed representatives in large business already consider sustainability development issues when forming business strategies. At the same time, only half of them prepare ESG reports. These companies realised that sustainable development is not a short-term hype, but a filter for long-term growth or even a spring-board to a new level of running business. You can get ahead of your competitors much faster this way.

– Short planning horizon fails to combine with long-term ESG agenda. Has anything changed over the last two-three years in this regard?

Itis hard to plan investment projects with the payback period of several decades. On the contrary, if the company focuses only on short-term profit, it can lose the market in the mid-term perspective. The reality has already changed and so have the conditions of doing business. For example, if previously the suppliers in Russia were selected based on the quality-price ratio, today they also look at the carbon footprint. One of our customers considered this factor even when choosing lattice suppliers in the Krasnodar Krai for his restaurant chain. We have a project with an oil and gas company that is constructing a large factory. It was important for the company to choose not only reliable, but also carbon neutral equipment to reduce their Scope 3. Our carbon footprint turned to be smaller than that of our competitors. Our partners from the field of logistics realised that transportation and shipment play an important role in calculating emissions in the majority of companies. Without waiting for the regulatory framework, they decided to become the greenest company in the field, which boosted their sales. This is an example of ESG contribution to business development, especially when the company passes on from saying slogans to implementing concrete science-based targets initiative (SBTI).

– However, the suppliers are not always able to transition to sustainable production. What can you do if you still don’t want to lose them?

It’s worth following the example of international companies. They help their suppliers to become more sustainable by giving the technology for free, sharing best practices, paying more for green technologies. For example, a retail chain of sports goods in Russia orders us to develop decarbonization strategies for its suppliers. A supplier that sews T-shirts for them cannot invest into green technologies because it is economically irrational at this point. The retailer has made the following proposal: ‘We will conclude a long-term contract with you, if your production becomes sustainable, and we will cover half of the costs associated with this transition’ This looks like a promising approach. In the new realities, companies try not to compensate for the carbon footprint, but prevent it at the stage of creating the goods. They involve sustainability experts already at the stage of conceptual design, which is called Eco Design.

– What solutions are offered by Schneider Electric?

My company works at the junction of energy production, finance and IT. All technological and energy production processes can be optimized to the maximum only with the intelligent choice of digital solutions and their further integration into the energy infrastructure. In other words, we are responsible for the symbiosis of energy efficiency and digitalization. The most important thing is to make your business carbon free and more profitable by cutting production costs. We develop a strategy of sustainable development for our customers, calculate the emissions, reduce them, select most cost-effective solutions to reach carbon neutrality from internal renewable energy sources to purchasing green certificates. As a result, our customers have high rating in climate rankings.

– You created an entire division in ESG consultancy. Is it an attempt to diversify business or a response to the market demand?

It is not easy to find a consultant on sustainable development in Russia today. Such services are mostly provided by companies from the Big Four. I've been working in the field for over ten years and only recently many customers have started to contact us and speak the same language. Five years from now, everyone will follow this trend. No industry will be left behind. However, it is hard to find a company that will not only develop the vision of an ESG strategy or recommend easy-to-get rankings, but will become a partner that offers a sustainable development integration strategy, implements it together with the customer on a turn-key basis, calculates financial efficiency of the events, selects the right financial model with a guarantee of achieving the desired results. All of it together is quite hard to perform in the territory of the CIS.

– Schneider Electric has established the Green Light Award. What are you counting on?

As the saying goes, always start with yourself. | was thinking what | could do personally to promote sustainable development in the CIS and | hit on an idea to create a regional award popularising this agenda. The Green Light Award is open for the companies with the CIS presence that integrate sustainability principles. We have no intention to feed the ego of the players in various markets. We want to select and present best practices in public. In Russia, they don’t like to talk about it. While sharing stories about planting trees, companies rarely take specific steps on optimizing processes and introducing green technologies. Very rarely. Thus, we would like to involve as many participants as possible into this agenda and demonstrate its practical value. We can already say that the award has gained popularity. Representatives of completely different industries have participated in it - from L’Oréal to Baltika, from Leroy Merlin to Magnitogorsk Metallurgical Combine. It demonstrates relevance of the competition.