Like many emerging markets, corporate Russia has historically been playing catch-up to its developed market peers in terms of Environmental, Social & Governance (ESG) disclosure and performance. Yet recently, ESG has risen to the top of the agenda in corporate Russia – to a great degree due to a newfound emphasis on ESG at the Moscow Exchange (MOEX). Together with other leaders in the Russian capital markets, we are rolling out initiatives that will ensure ESG occupies a prime place in Russian reporting, benchmarking and investing in the years to come.
For any market, ESG is important. In Russia, we view it as even more significant because of our status as a major natural resources economy. Notably, 65.8% of the weighting of the benchmark MOEX Russia Index is comprised of companies hailing from the extractive industries. It is all the more important for these companies to have the most robust ESG disclosure systems in place – and indeed a handful of them already do.
Below we highlight several of the key initiatives that are underway in Moscow on the ESG front.
MOEX announced earlier this month that it will begin publishing a daily calculation of the 'Responsibility and Transparency' and 'Vector of Sustainability' indexes. At present, 22 companies that lead the way in terms of ESG disclosure are included in the Responsibility and Transparency index. The Vector of Sustainability index includes 15 companies that have demonstrated the best progress in terms of ESG year-on-year. The composition of the index is reviewed annually by Russia’s most influential business association, the Russian Union of Entrepreneurs and Industrialists (RSPP). The launch of these daily calculations comes in response to demand from investors that are evaluating companies not only in terms of financial performance, but ESG inputs as well.
Green and social bonds
Russia’s first green bond, which began trading on the MOEX Fixed Income Market earlier this year, raised funds to establish a municipal recycling and refuse processing facility in one region of Western Siberia. The bond was aligned with the 'green framework' set out in the ICMA Green Bond Principles. And that was just the beginning.
MOEX recognises there is lots it can do to help issuers tap into the green bond universe, which last year was a $113.7 billion market globally. Later this year MOEX will launch a Sustainability Sector on the Fixed Income Market that will host both green bonds and ‘social bonds’. Green bonds will fund investment projects across renewable energy, energy efficiency, environmental protection, environmentally friendly transportation, water and wastewater management and adapting for climate change. Social bonds will back investments related to access to basic infrastructure and essential services, affordable housing, job creation, industrial safety, socio-economic development and the construction of schools, kindergartens, hospitals and other medical facilities.
In March 2019, MOEX participated in the Ring the Bell for Gender Equality initiative for the second year in a row. The key objectives of the initiative are to raise awareness about the business case for women’s economic empowerment and the opportunities for the private sector to advance gender equality and sustainable development. The exchange was honoured to host leading businesswomen from Russian finance for the event.
UN Sustainable Stock Exchanges initiative
This month, MOEX will become a Partner Exchange of the United Nations Sustainable Stock Exchanges (SSE) initiative, joining other securities exchanges in committing to elevate sustainability practices. We look forward to partnering with our peers around the world to work towards a common objective of fostering financial markets that support the growth of sustainable and responsible business practices, and contribute to the achievement of the UN’s Sustainable Development Goals (SDGs).
In recent months we have also organised workshops, seminars and conferences on ESG and sustainable investment for corporates. We also include an ESG component in our well-known IR Academy programme for young investor relations professionals.
As these projects and programmes have been rolled out in recent months, the Russian market has taken note. Both issuers and investors are now looking to the Moscow Exchange to set the bar and define the rules in terms of ESG in the Russian market, and we look forward to leading the way.