Russia Considering Sovereign Government Green Bonds

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The Russian Ministry of Finance is working on issuing the first Russian government green bonds and is currently studying international experience in issuing similar securities, according to the Ministry Press service. Russia’s Ministry of Economic Development also supports the issue of Ecobonds and notes growing interest in them from various Russian regions and businesses. In the corporate sector, the demand for the issue of green bonds is also recognized – corresponding plans were announced by Sberbank, VEB and Russian Post. However, such securities are not particularly beneficial for Russian investors at present: the rates on them are the same as on ordinary bonds.

What Are Green Bonds?

Green bonds are debt securities, the proceeds of which are used to finance projects aimed at improving the environmental situation and minimizing damage to the environment. They can be associated with renewable energy sources, environmentally friendly transport, increasing energy efficiency, reducing harmful emissions into the atmosphere, recycling waste, etc. The emergence of such projects is associated with the strengthening of the global trend towards sustainable development.

Russian Green Bond Prospects

The Ministry of Finance may issue sovereign green bonds. The department is working on this and is studying similar international experience, without specifying the possible timing and volume of the issue of such securities. According to the OECD, since 2016, 19 countries and territories have issued sovereign green bonds, including Germany, France, Great Britain, Italy and South Korea, and the Hong Kong SAR.

According to Russia’s Accounting and Corporate Regulatory Authority (ACRA), in the first half of 2021, the volume of green bonds globally amounts to about US$240 billion. Their total volume, according to the Climate Bond Initiative (CBI), has already reached US$1.3 trillion.

The growth of the market for green securities is a priority for the Ministry of Economic Development’s climate agenda. Green finance is one of the main instruments for low-carbon development. After the successful placement of Moscow government bonds, other Russian regions have also become interested.

The Russian government approved the criteria for classifying projects as green last month, (September 2021), but the placement of federal bonds falls within the remit of the Ministry of Finance. At present, Russia’s Central Bank has not commented on the issuance of Russian sovereign green bonds, although this can be expected to change once policy is worked out.

In Russia, green bonds issued by local Governments are gaining popularity. 14 issues of green bonds totaling over 100 billion rubles (US$1.39 billion) are currently circulating on the Moscow Exchange. ACRA clarified that 10 companies (including Russian Railways and Atomenergoprom) acted as their issuers, and the total accumulated volume of Russian Ecobonds is 292 billion rubles (US$4 billion) including placements abroad.

Within Russia, the first green bonds were issued by Moscow in May this year, when the Moscow city government placed securities at the Moscow Exchange for 70 billion rubles (US$980 million). Three more regions, St. Petersburg, the Greater Moscow region, and Krasnodar are planning to issue similar bonds.

Traditionally, demand for green securities has been the remit of foreign investors, although recently, the Russian interest from the banking, institutional and private investors has been growing. The adherence of the issuing company to the principles of sustainable development is becoming one of the important factors for choosing investment targets for both foreign and Russian investors. , according to the Moscow Stock Exchange.

Vladimir Gorchakov, Deputy Director of the ACRA Sustainable Development Risk Assessment Group In Russia has said that “There is still a very limited circle of people who purposefully invest in green bonds. As a rule, these are banks from among the top ten, including those with foreign participation. There are no special benefits for investors in Russian green securities so far, so the demand for such securities in Russia does not differ much from ordinary ones.”

In international practice, there are privileges for Ecobonds, and motivations build in to assist in their acquisition. There are funds that have specific agendas to acquire green bonds as a percentage of their overall investment strategy. In addition, green bonds are always targeted, so the use of funds is more transparent and understandable for investors. How Russia stimulates the issuance of sovereign green bonds for domestic and global investors will be an interesting development to look out for.

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