Russia’s Green Taxonomy could come into force imminently, says Head of ESG Finance for national development bank

Russia’s Development Corporation, VEB.RF – the organisation leading the work on the country’s planned green taxonomy – is hoping the National Green Taxonomy will be signed into effect within the coming weeks, it has told RI. 

Work on the taxonomy first began by VEB.RF in March 2020 – after a series of consultations, discussions, and public hearings with a range of stakeholders, the document is now with the Prime Minister Mikhail Mishustin’s office.

“It seems like at this point the only obstacle is finding time in the PM's busy calendar to put his signature on the dotted line,” Andrey Bayda, Vice President, Head of ESG Finance, State Development Corporation VEB.RF, told RI.

The Russian government press department had not replied to a request for comment when this article went to press. 

Bayda confirmed the main aim of the taxonomy is to define what is eligible as a green bond. One difference compared with the EU’s taxonomy is that Russia plans to have a project-based framework, which is simpler to create and suits the green bond market, where credible projects need to be easily identifiable. 

Once implemented, as a government decree, the taxonomy will be mandatory for everyone looking to issue a green bond.

Compliance, however, is not an automatic seal of approval, Bayda explained to RI. "I’ve been a participant of numerous discussions with the Central Bank and Moscow Stock Exchange. Even if a bond is formally compliant, these guys with our help act as ruthless watch dogs, turning down what might even remotely seem as greenwashing."

He added that the Ministry of Economic Development is currently also working on a financial stimulus for green bond issuers, which will only be available to taxonomy-compliant issuers. 

When RI previously spoke with Alexey Miroshnichenko, Vice Chairman of VEB.RF, he explained the aim for the taxonomy is to stick closely to international best practice such as the Climate Bonds Initiative’s standards, ICMA’s Green Bond Principles and the EU Taxonomy. 

Bayda highlighted that since RI’s September interview, coal-to-gas has been omitted from the Taxonomy.

“It all stems back from our ambition to come up with a green finance system that helps Russian companies attract funding from Western capital markets. Our intent is to make sure we can’t be accused of greenwashing.”

Continuing his point, he said the only major company active in coal-to-gas in Russia is Gazprom. “And I’m somewhat sceptical that ESG-conscious funds in London, New York and Frankfurt will agree that Gazprom coal-to-gas bond can be considered green and this will most [likely] jeopardise our entire taxonomy.”

Another green taxonomy moving forward is South Africa’s.

Currently a draft is available, but Karin Ireton, who was brought on by the IFC to support the National Treasury work in 2018, believes that by either the end of this year, or beginning of next, the final version will be made available. 

She however stressed that this does not mean that all of the technical criteria will be finalised and agreed.  “Only that based on the comments received and some other work going on internationally, the working draft will be Version 1 of the Green Finance Taxonomy, with provision for future additions and amendments.”

‘It all stems back from our ambition to come up with a green finance system that helps Russian companies attract funding from Western capital markets. Our intent is to make sure we can’t be accused of greenwashing.’ – Andrey Bayda, Vice President, Head of ESG Finance, VEB.RF

Ireton added that an updated technical paper, which serves as an umbrella document for the broader sustainable finance strategy, is also due imminently.

“The process of creating a taxonomy has actually gone very smoothly so far; it's remarkable how just over a year ago the National Treasury draft technical paper was published recommending that a taxonomy be created or adopted. Right now we have a very good working draft,” she told RI.

Like its Russian counterpart, South Africa’s taxonomy has taken inspiration from the EU. However, once again the unique aspects of the country’s economy is feeding into the work. For example, Karin said the final version will cover aspects such as platinum mining and the hydrogen economy as “South Africa is well placed to create value in those activities, given its abundant platinum resources and potential for green hydrogen.”

“What's still to be determined is the governance of the taxonomy, but I expect it will likely be chaired by the Treasury and remain linked to the technical document,” she explained. 

When the Taxonomy is available she believes it will be likely linked to the Johannesburg Stock Exchange or large funding programmes in a voluntary fashion.

“It's not been envisaged to become a mandatory or regulated tool – instead it is an enabler of the transition. I expect there will be a lot of uptake.”

She highlighted there are already discussions about whether the taxonomy should be extended to include a wider range of issues, for example, social or a Just Transition, or whether these should have a standalone taxonomy.

“I think that in the long term the Green and Social need to be integrated into one, but as a stepping stone, given the particular needs in the South African economy of very high unemployment, huge needs for social security, there will be an emphasis on separate ones to begin with.” 

Yesterday, RI reported on investors' responses to the EU’s recent consultation on a draft report regarding its proposed social taxonomy.

In other taxonomy-related news, Mongolia developed its green taxonomy in 2019 and is now in full swing working on an SDG equivalent. 

The draft consists of 14 sectors including renewable energy, low pollution energy, sustainable agriculture and food security, sustainable land use, biodiversity conservation & eco tourism, and health, education and culture.

“They reflect the unique challenges faced by our country, which is the main reason for getting our own national taxonomy,” Oyungerel Munkhbat, Project and Partnership manager at Mongolian Sustainable Finance Association (MSFA), told RI.

UNDP Mongolia is financing the project, whilst MSFA is developing it, based on its experience developing the Green Taxonomy. The aim is for the document to be finalised by the end of November.

“The SDG taxonomy is currently aligned with the Mongolian government's effort to SDG-tag its public investments, in addition to measuring the private sector's contribution to the impact indicators,” explained Munkhbat. In addition, the aim is to help map out SDG and SDG-linked investment opportunities for investors. 

On foreign influences, she highlighted: “We're looking at mostly the CBI and China SDG taxonomy, but looking into the EU and Kazakhstan taxonomy for metrics.”