Green Energy
ESG and Carbon Projects for Kazakhstan
Georgy Safonov, Director of the Center for Environmental Economics of the Higher School of Economics (Russia), international expert of the OECD
Some time ago, the ESG concept appeared in Russia and slowly but progressively began to be discussed and, most importantly, implemented. This abbreviation from the words Environmental, Social, Governance means a set of company management characteristics reflecting its participation in solving environmental, social, and managerial tasks.
Three criteria characterize the ESG concept. The first block – the environmental part – includes environmental pollution, greenhouse gas emissions, use of natural resources, compliance with environmental legislation.
The social section includes such issues as the attitude towards staff, suppliers, customers, and partners, the health and safety of employees, (non) use of child labor (which was a serious challenge for many companies, for example, coffee producers), professional development of employees, minimization of harmful working conditions, respect for human rights.
The management section includes the effectiveness of management, the validity of executive remuneration, compliance with shareholders' rights, audit quality, (non) participation in corruption and fraud.
Why do companies need to comply with ESG standards? First of all, to reduce the risks associated with environmental issues, external or national carbon regulation issues. When we don't know anything about a company (particularly how big its carbon footprint is), we may be afraid that if a carbon price is introduced at a high level, it may turn out that the company will be unprofitable.
This applies equally to environmental issues. History knows many cases when a company has traditionally worked and worked without doing anything particular about environmental issues and then at some point received a huge fine. And that's when the company had difficulties.
The second advantage of ESG is the loyalty of customers, partners, and investors. If you report, disclose information in three directions, you will be trusted. This is due to improving the company's business reputation. Still, it can also be an important point of reducing costs when raising borrowed funds. For more green and socially responsible companies, loan rates are already lower than ordinary ones.
Stimulating the company's innovative development, increasing efficiency is often associated with the development of the ESG direction in the corporate sector. Some interesting figures. Over a fairly long period of time, about 2,000 studies were conducted. In 63% of them, the results showed a positive relationship between the use of ESG principles and the company's capitalization. The higher the ESG rating – the higher the company's value. According to other sources, almost 97% of investors in the world conduct (informally or systematically) an assessment of ESG indicators in the market. Funds investing in ESG companies have reached $20 trillion today (a quarter of all investment funds held in trust management). This is a huge segment of the investment market. And finally, the volume of green, social bonds, and bonds related to sustainable development in the world is breaking records, having already exceeded the threshold of 1 trillion US dollars last year. And over the past year alone, $250 billion worth of such bonds have been added.