ESG Ranking of Russian regions 2019

Region / Position

E

S

G

ESG

Republic of Tatarstan

7

12

1

1

Moscow

32

4

3

2

Sverdlovsk region

6

34

10

3

Kursk region

5

18

28

4

Tver region

3

40

32

5

Lipetsk region

4

21

36

6

Khanty-Mansiysk Autonomous Okrug-Ugra

52

8

7

7

Chuvash Republic

8

30

26

8

Ryazan region

43

23

6

9

Irkutsk region

20

73

5

10

Novosibirsk region

33

60

4

11

Tyumen region (without autonomous regions)

75

11

2

12

Yaroslavl region

11

28

35

13

Voronezh region

31

20

15

14

St. Petersburg

69

3

13

15

Leningrad region

57

9

17

16

Saratov region

9

48

34

17

Samara Region

39

24

14

18

Novgorod region

16

35

38

19

Ulyanovsk region

54

29

8

20

Khabarovsk region

23

26

33

21

Nenets Autonomous Okrug

83

1

9

22

Tula region

63

17

12

23

Moscow region

64

6

31

24

Chelyabinsk region

27

69

11

25

Smolensk region

1

64

75

26

Krasnodar region

42

31

20

27

Republic of Adygea

19

38

44

28

Vologda region

12

59

41

29

Kaluga region

34

36

27

30

Sakhalin region

77

5

16

31

Yamalo-Nenets Autonomous District

80

2

18

32

Rostov region

25

56

37

33

The Republic of Buryatia

24

78

19

34

Omsk region

18

61

47

35

Krasnoyarsk region

28

45

40

36

Altai Republic

2

80

65

37

Mari El Republic

44

50

30

38

Udmurt Republic

30

44

46

39

Murmansk region

76

14

22

40

The Republic of Mordovia

35

25

56

41

Penza region

72

19

29

42

Nizhny Novgorod Region

68

27

25

43

Ivanovo region

59

46

23

44

Belgorod region

55

10

61

45

Altai region

36

70

39

46

The Republic of Sakha (Yakutia)

13

13

79

47

Kaliningrad region

60

22

48

48

Chukotka Autonomous Region

38

7

77

49

Primorsky Krai

58

77

21

50

The Republic of Dagestan

22

66

58

51

Republic of Bashkortostan

40

41

57

52

Orenburg region

29

49

62

53

Vladimir region

51

52

45

54

Kirov region

47

65

42

55

Kurgan region

10

79

72

56

Tambov Region

62

15

63

57

Bryansk region

17

58

74

58

Oryol Region

26

54

71

59

Amur region

50

71

43

60

Stavropol region

45

62

55

61

Perm region

56

63

51

62

Transbaikal region

14

81

67

63

Komi Republic

70

32

52

64

Kostroma region

46

53

60

65

Republic of North Ossetia - Alania

49

42

66

66

Tomsk region

67

57

49

67

Volgograd region

48

39

70

68

The Republic of Khakassia

53

47

64

69

Chechen Republic

37

76

68

70

Astrakhan region

73

55

50

71

Arkhangelsk region (without autonomous region)

74

43

54

72

Karachay-Cherkess Republic

21

74

76

73

Kemerovo region

81

72

24

74

Jewish Autonomous Region

65

82

53

75

Republic of Karelia

78

37

69

76

The Republic of Ingushetia

41

75

80

77

Kamchatka Krai

79

33

59

78

Magadan Region

82

16

73

79

Pskov region

71

67

81

80

Tyva Republic

15

83

78

81

Kabardino-Balkar Republic

66

51

82

82

Republic of Kalmykia

61

68

83

83

This first ESG ranking of Russian regions describes the key environmental, social and governance risks of the regions, together with the level of risk mitigation. We analyzed indicators of environmental pollution and waste management; indicators of poverty, lack of school facilities, infant mortality and crime; as well as conducted a comprehensive survey of the quality of public administration.

The comprehensive ranking ultimately allowed us to evaluate the Russian regions in terms of so-called “responsible investments” potential, which became a popular trend in the international financial markets, and over time should become a mainstream for the largest investors.

The most balanced results (high scores for all three components of the ESG) belong to the Republic of Tatarstan. The Republic shows high indicators of solving environmental problems, low social risks and high quality of public administration, due to the transparency of the government and the high investment attractiveness of the region. As a result, the Republic of Tatarstan is ranked number one in our ranking.

Air Pollution: Metallurgy and Oil Industry

The results of the environmental risk assessment show that for the regions where high levels of pollution per capita were caused by the large metallurgical plants, the final score was supported by various risk mitigation indicators. For example, despite the poor ecological image of Lipetsk and Sverdlovsk regions, they were included in the top 10 best regions in terms of the environmental component. On the contrary, the regions where the oil and gas sector is the main source of pollution are in the tail of the ranking, because the level of mitigation against the mentioned risks turned out to be much lower. The main gas producers - Nenets and Yamalo-Nenets autonomous districts took the 83rd and 80th places respectively. The “oil” regions - Sakhalin, Tyumen regions and the Khanty-Mansiysk district are located at 77th, 75th and 52nd places. The low population level in the oil and gas regions only partially explains their positions. Such indicators as “The proportion of captured and neutralized air polluting substances” or “The proportion of used and neutralized waste in the total amount of waste generated” do not depend on the population size. According to official data, in the Lipetsk region the share of captured and neutralized pollutants is more than 80%, while in the Khanty-Mansi Autonomous Okrug and Yamal-Nenets Autonomous area this figure does not exceed 1%.

From our point of view, this demonstrates the different behavior of private businesses and state-owned companies towards environmental problems. The metallurgical sector is mainly in private hands, while oil and gas industries are almost entirely controlled by the state. Practically all the largest metallurgical enterprises in Russia over the past 15 years have undergone a full-scale modernization including implementation of modern environmental protection technologies. On the contrary, the key problem of the Russian oil industry - the burning of associated petroleum gas (APG), which affects the level of emissions to the atmosphere, is being solved at a slower pace.

The Republic of Tatarstan is a special case, where large oil producing and petrochemical enterprises went through a deep modernization a long time ago. As a result, the Republic ranked 7th in the environmental component of the ranking.

Garbage collection: Statistics glance

Our Ranking also made it possible to analyze the currently critical garbage problem using officially published statistical sources.

The most frequently discussed Moscow region, is one of the leaders in the removal of municipal solid waste (MSW) per capita. Here, this figure is almost 3 cubic meters per person per year, which is 1,5 times higher than the average value in Russia. At the same time, only 6,8% of MSW is going to waste recycling and sorting plants, with an average value of 10% for the country. In the neighboring Kaluga and Smolensk regions, this figure is 30% and 16%, and in the Lipetsk region - almost 60%. As a result, the Moscow region took only the 64th place in the environmental component of the ranking.

In general, garbage disposal at waste recycling plants is not a common practice for all regions. At the end of 2017 (the most recent data), according to Rosstat, in 36 regions, garbage was not removed at all for recycling, and in 12 regions less than 1% of municipal solid waste was removed. It is important to mention, that over the past 8 years the number of such regions has significantly decreased and the process of building waste recycling plants has been launched in many regions.

Social well-being and governance

Naturally, the leaders of our social indicators are “oil and gas” regions, as well as Moscow and St. Petersburg. Essentially, the workers’ high income in the basic industry, combined with a good budget performance and a relatively small population, makes it possible to maintain high social standards. Similarly, in the “capital” regions, the high incomes of large corporations through salaries and dividends are transformed into a high level of social well-being according to the Russian standards. On the contrary, the agrarian republics of the North Caucasus and Southern Siberia, as well as regions of the Far East with a population decline trend and low personal income, stood at the bottom of the ranking.

Governance risk assessment contributes to a primary audit of key anti-corruption practices in the regions. At the end of 2018, anti-corruption commissions were created in all regions, and the income and property of the heads of administrations and departments were disclosed. However, the degree of transparency and the structure of this information differ significantly. In many cases, there is no information about the decisions of the commissions or it remains unknown whether the commission meets more than once a year.

In addition, the ranking recorded a rapid deterioration in the quality of regional finance management: in recent years, the number of violations of the budget code by Russian regions has more than doubled, and the number of violating regions increased by 1,5 times. The changes in the budget code itself could partially explain this tendency; however, the trend of the regional finance stability reduction has been also noticed under this indicator.

The leader of the ranking on the quality of government is The Republic of Tatarstan. For many years now, the Republic has been one of the leaders of the investment attractiveness of Russian regions, which is complemented by the presence of a special economic zone and several industrial parks. In addition, The Republic of Tatarstan was noted by the federal government as a region with high level of budget management, as well as elevated quality of information disclosure as the best among all regions.

On the contrary, the agrarian republics of the North Caucasus and southern Siberia, as well as regions where a long outflow of human capital reduces the level of demand for quality management, in particular, the Pskov, Bryansk and Smolensk regions, are in the tail of the ranking in terms of governance.

Ranking process principles

The core of the majority of ESG ratings/rankings is the principle of combining the level of the risk exposure with the effectiveness of its mitigation.

Example: Assuming a company belongs to the chemical industry, where air and water pollution in general is very high as compared to other industries. However the company has shown through official policies and established programs that it takes the necessary precautions and is working on a new technology that will make it possible to decrease or to stop using hazardous substances in the future and therefore reduce the water and air pollution per production unit as compared to its industry peers, then, the total score for these parameters may be relatively high

Available statistical information from various institutions in Russia allows us to build a system of indicators to assess the exposure of regions to potential risks and the degree of their mitigation. For each factor, in order to assess risk exposure and risk mitigation at the same time two indicators were selected. For example, in the Environmental section, we use the indicator “Emission of pollutants from stationary sources per capita into the atmosphere”. It is supplemented by the “Share of captured and neutralized air pollutants in the total amount of waste from stationary sources”. In the best case scenario, if the first indicator is very high, the second indicator should be as high. However, if the second indicator is lower, this indicates the presence of imbalances, which suggests that risks are not given appropriate attention

An exception is the section G (governance), where the assessment is based on verifying the existence of key tools to improve the quality of public administration and transparency in the regions: the presence of anti-corruption commissions, disclosure of information about the income of government employees, etc. In addition, the assessment is supplemented with integral indices, such as the RAEX rating of investment attractiveness of Russian regions1 and Monitoring of the financial position and quality of financial management of the Ministry of Finance of the Russian Federation2

 

List of ESG Rating indicators of Russian Regions 201

Environmental risks

Risk indicator

Risk mitigation indicator

1

Amount of pollutants emitted from stationary sources into the atmosphere, per capit

The share of captured and neutralized air pollutants in the total amount of waste from stationary source

2

Emissions of harmful substances (pollutants) in the atmosphere from motor vehicles, per capit

The share of cars, trucks and buses in the regions of the Russian Federation, with the possibility of using natural gas as a motor fue

3

Discharge of polluted wastewater into surface water bodies, per capit

The volume of recycled and used consistently water, per capit

4

The amount of wastes accumulated from production and consumption, per capit

The share of used and neutralized waste in the total amount of waste in production and consumption proces

5

Amount of municipal waste removed in a year, per capit

The share of the solid municipal waste  moved to facilities used for waste treatment to the total municipal waste removed, %

Social risks

 

Risk indicator

Risk mitigation indicator

1

The share of population with incomes below the subsistence leve

Amount of expenditures from the consolidated budget of the region on the "Social policy", adjusted for the cost of living, per capit

2

The share of school students enrolled in the second shif

Amount of expenditures from the consolidated budget of the region on the "Education", adjusted for the cost of living, per capit

3

Infant mortality rate (Number of registered death in the first year of life per 1,000 births

Amount of expenditures from the consolidated budget of the region on the "Health care", adjusted for the cost of living, per capit

4

The number of grave and especially grave crimes recorded in the reporting period, per 100 thousand peopl

Amount of expenditures from the consolidated budget of the region on the "Security", adjusted for the cost of living, per capit

5

Population dynamics over 10 years (the ratio of the average population in the reporting year to the number 10 years ago),

The total number of jobs created by groups of organizations in which the average number of employees has increased and by newly created organizations, per 1000 resident populatio

The quality of governance

1

Position in the rating of investment attractiveness of Russian regions “Expert RA” (RAEX)

2

The presence of certified industrial park / parks

3

The presence of special economic zones

4

Assessment of the level of centralization / decentralization of the regional administration site

5

The number of interface languages for the regional administration site

6

The presence of vacancies in the administration of the region, available on the site

7

The presence of anti-corruption commissions at the regional administration and the transparency of its activities

8

Availability of information about the income and property of employees on the main site of the regional administration

9

Quality assessment of the regulatory impact assessment in the regions

10

Monitoring the financial position and the quality of financial management of the Russian Federation and municipal entities

11

Monitoring of compliance with the requirements of the Budget Code of the Russian Federation by subjects of the Russian Federation

12

Expenditures of the consolidated budget of the region under the heading "National issues" in relation to the GRP

 

What is an ESG assessment and why is it important

An ESG (environmental, social and governance) assessment is based on an analysis of three key factors affecting the sustainability and ethicality of investments: environmental, social risks and the quality of corporate governance

The idea of responsible investments and assessment of ESG factors appeared in the early 2000s, when a number of companies and non-profit organizations in developed countries for the first time took initiatives to integrate social and environmental standards and rules in the financial sector. In 2006, the UN organization established the principles of responsible investments (PRI) for financial market participants and launched their implementation on the New York Stock Exchange. As a result, investors who want to understand precisely whether the project in which they are investing carries risks for the environment and societ, receive a tool to capture such exposures for investment decision. Shortly afterwards, major financial markets joined these principles. At the end of 2018, the number of companies, which had already signed the principles, exceeded 2000, and the total amount of assets under their management was USD 80 tn

Until recently, there was no systematic approach to develop this idea in Russia. However, in mid-2017, theadvisory council on the market for long-term investment under the Central Bank of the Russian Federation emerged, which was the trigger for the introduction of sustainable practices in the country. In 2018, a working group on responsible financing, including the so-called “green financing,” was created at the council and, from 2019 onwards, it is expected that a new sector exclusively specialized on green bonds will be created in the Moscow Stock Exchange, launching the circulation of the environmentally oriented securities

For Russian regions, the topic of responsible investments is important from the perspective of attracting foreign funds. Large western companies are gradually requiring ESG standards audited by specialized providers prior to establishing a partnership or choosing a supplier. For the most part, this relates to the corporate sector. In Russia, however, regional administrations play a key roleindeciding theproductionfacilities’ localization. Therefore, the assessment of exposures to environmental, social, and governance risks may be relevant during the decision-making process. In addition, while investing in Russian projects, the financial partner of a foreign company (a bank or a fund) may take into account the macro environment, which, among other things, includes the assessment of ESG parameters

1www.raexpert.eu

2 The full version of the methodology is published on the Agency's website: www.raexpert.eu