A new study suggests implementing a regulatory framework and strategy to encourage the development of green financing in Russia.

The researchers suggest that green financing initiatives can help implement costly environmental projects, using mechanisms to support the national ‘Ecology’ project. Using data from Rosstat, they found that sustainable finance is approximately $2 billion, and 0.18% of the global market. So how are they suggesting that Russia transitions?

They found conservative approaches to date, which are enmeshed in economic development where there are currently limited green investments to support development and local / regional economic growth. They believe government support needs to be supplemented by private investors who can fund the growth of greener technologies. In the current environment the risks are higher due to economic and policitical conditions, commodity markets and existing tariffs, subsidies for fossil industries.

The Russian government provides some mitigation for these risks by

1)including instruments such as tax credits, standards, feed-in tariffs and quotas for renewable energy;
2) government funding, including grants, subsidies and environmental programs;
3) lending providing project finance, debt funds, green loans and preferential lending rates, as well as the issuance of green bonds;
4) risk reduction through credit guarantees and guarantees, insurance and protection against exchange rate volatility and interest rates.

Shevtsov et al, 2024, Dynamics of green finance in the Russian Federation, BIO Web Conf., 84 (2024) 01014,

They noted that different types of green bonds are only funding environmental projects, require more transparency in reporting including unspent funds and must reflect environmental principles. There isn’t a regulatory framework for green bonds currently in Russia and as previously blogged, low returns on investment resulting in limited environmental project possibilities and investment. Green loans are growing in popularity where the risk of default is lower due to the terms agreed by the creditors, however there are higher service costs because of resources needed for sustainability certification. There are also green crowdfunding and environmental leasing arrangements.

The majority of green financing in Russia has been directed towards protection of atmospheric air and reducing water pollution, with 3.37% towards protection from production and consumption waste. There was over 200% increase between 2020-21 for poretcion and rational use of land. They were a mix of fixed capital and private investment instruments in addition to government funding. They believe that increases in concession agreements and public-private schemes may help green financing become more attractive.

Artyom Shevtsov, Elena Posnaya, Ekaterina Krichevets and Margarita Kaznova, (2024), Dynamics of green finance in the Russian Federation, BIO Web Conf., 84 (2024) 01014, DOI: https://doi.org/10.1051/bioconf/20248401014