Global trends

1. Increasing attention to ethics and integrity issues

The purchasing behaviour of over 60% of people [2] is influenced by sustainability and ethical criteria, and this figure is increasing by 10% a year. They are also prepared to pay more for products from 'ethically selected' suppliers (ethical and committed) and manufactured in a sustainable manner.

2. Prioritising supply chain safety, sustainability and transparency

More than ever, the COVID-19 pandemic and the war in Ukraine have brought the issue of dependence on global supply chains to the fore, and these factors will also impact on the economy throughout 2023 and beyond. This year, governments and businesses are focusing on the following criteria when selecting suppliers: security, reliability and high performance. Supply chains continue to come under scrutiny from consumers and investors. This includes emissions, environmental impact, labour relations and management practices. Supply chain sustainability will become a key criterion for investment decisions [3] over the next decade as investors increasingly look for evidence of integrity, circularity and compliance with frameworks such as the Equator Principles [4] and the UN Sustainable Development Goals [5] . The need to report Scope 3 emissions is expected to increase in 2023, as is the expectation to reduce them, which is a challenge for many. These are the emissions produced by all participants in an organisation's supply chain. According to a 2021 report on 8,000 companies [6], supply chain emissions are as follows
was 11 times higher than commercial activities. Adopting low-carbon supply chains is a key priority in any organisation's efforts to reduce its impact on the environment.

3. Human resources: transformation and adaptation

The already intense focus on workforce and skills issues is likely to intensify in the coming years as industries move to a 'carbon-free economy' and face evolving climate and social challenges. Large-scale structural changes in sectors such as mining and energy will exacerbate the workforce and work practice issues that organisations faced during the COVID-19 pandemic.
As countries embark on the transition to clean energy, the need for new skills will increase in many sectors of the economy. So it's not surprising that as the number of jobs created by green economy initiatives increases, so does the pressure on businesses to recruit, particularly to provide skilled labour. Many companies in the renewable energy sector are already finding that applicants do not have the experience or qualifications [7] needed to seize the opportunities that lie ahead. Training will be key to improving the skills of the workforce, especially as it is estimated that 59% of vacancies [8] in the energy transition between 2025 and 2050 will be in the high-skilled category.
While employment in the renewable energy sector is booming [9], many workers and communities associated with declining industries such as fossil fuels will be affected by the transition.
More and more human resources will choose employers that align with their values and will even resort to the practice of 'climate resignation'. As a result, organisations with high ESG scores will have an advantage in attracting and retaining talent.

4. Participation and empowerment of indigenous peoples

With increasing emphasis on engaging indigenous peoples, companies are expected to ensure active decision-making in line with the principle of free, prior and informed consent. With the abundance of capital available, PWC expects a marked shift from 'do no harm' to a broader engagement that will include co-investment and co-ownership to achieve mutually beneficial economic outcomes. Everyone will benefit from greater inclusion of indigenous peoples and perspectives. Companies that lead the way will be better placed to gain greater social licence and trust, attract and retain talent, and be able to take advantage of new business opportunities and profitable partnerships. PWC recommends that organisations take concrete action in 2023 to improve outcomes for all and prepare for the policy changes that may come in the years ahead.

5. A dynamically changing political and regulatory environment

In 2023, governments are responding rapidly to the changing geopolitical landscape to ensure countries' energy security, stabilise and strengthen supply chains and take advantage of energy transition opportunities. Some of these responses, such as the US Inflation Reduction Act (IRA) [11] , could trigger a global race to the bottom in green subsidies. The IRA will mobilise $369 billion to support local energy production and manufacturing. This will create a platform to attract clean energy businesses, investment, highly skilled labour and materials. Some countries are concerned about the impact these measures could have on their own clean energy aspirations. The EU has responded by adopting the European Industrial Plan for the Green Deal [12] and the Critical Raw Minerals Act [13]. Organisations that can clarify their visions, strategies and plans, and consider possible alternatives, will be best placed to make rapid adjustments if necessary.

In 2023, we will see an acceleration in the pace of transition to standardised ESG reporting. The International Sustainability Standards Board (ISSB) continues to work on finalising international standards for sustainability and climate reporting. Meanwhile, other governments have published consultation papers on the development of climate-related financial reporting frameworks for companies and financial institutions [14], planning to phase in mandatory sustainability and ESG reporting requirements for large companies from 2024. Under the current proposal, companies will be required to collect, assess and disclose annual data and information, including on climate risk management and assessment - initially under the Climate Financial Reporting Task Force [15] , which will then transition to the IFRS Foundation's [16] new International Sustainability Reporting Standards Board (ISSB) [16] sustainability reporting standards, to be issued by the International Accounting Standards Board (IASB) [16] . PWC believes that the regulatory environment will continue to evolve rapidly and dynamically for some time to come. Now is the time to be alert to the changes and improve internal ESG reporting preparedness in line with international standards. By preparing in advance, it will be easier and quicker to adapt when the new requirements come into force.


Trends in Russia

ESG transformation in Russian companies has only just begun, and this process requires the implementation of supportive measures by the government, as well as the development of the Russian ESG infrastructure: standards, certificates, criteria and methodologies. For example, Government Resolution No. 1587 dated 21.09.2021 "On the approval of the criteria for sustainable (including green) development projects in the Russian Federation and the requirements of the verification system for sustainable (including green) development projects in the Russian Federation" has had a positive impact on the development of investment activities and the attraction of cheaper financing, including PPP projects.
Compared to the world leaders, Russia seems to be lagging behind in terms of the volume and diversification of the sustainable finance market[19]. [The first sustainable bond issue only took place in 2018, 11 years after the international launch. Compared with the world leaders, the Russian market only represents $2 billion (0.2% of the international market). In 2021, the volumes of sustainable financing in Russia were as follows: green bonds - $2.4 billion (United States - $61.4 billion, Germany - $41.3 billion, France - $37 billion, PRC - $15.7 billion, Netherlands - $17 billion); social bonds - $0.4 billion (France - $49.6 billion, United States - $10.3 billion, Japan - $8.3 billion, Korea - $7.7 billion, Netherlands - $4.5 billion). The investment volume of green, social and adaptation bonds in 2021 totalled RUB 126.5 billion, mainly due to the Moscow City Government's green bonds (RUB 70 billion). In 2022, this figure fell by 44.7%. The sustainable bond market in Russia has great prospects. It will continue to grow and develop over the coming years, despite geopolitical tensions. Further development will depend on the government's position and on any easing of regulations for ESG issuers. Research [19] shows that the drivers for implementing ESG principles in business models differ considerably. European companies implement sustainability because of their personal convictions and pressure from external factors - environmental and social. In Asia-Pacific, customer demand, brand and reputation are the main drivers. For North American companies, employee engagement and brand are the main catalysts for growth, while external factors have minimal impact. In Russia, the main incentives for implementing a sustainable business model are corporate reputation, the ability to raise capital on external financial markets, operational efficiency, buyer and customer demands, risk management and orientation towards international legal and development standards. Despite the economic sanctions and restrictions imposed on Russian companies, companies that have chosen the vector of sustainable development will continue to work in this direction, as their investments in ESG projects are long-term and affect their strategic objectives. This type of investment reflects the global trend and will continue to develop in the future. ESG projects are most often implemented in the energy, waste treatment, water resources, transport, agriculture and forestry sectors. Construction, consumer goods production and commercial property lag behind in this area. [19]


Bibliography:

1. ESG trends in 2023 www.pwc.com.au | 2023 Main ESG trends to watch this year. https://www.pwc.com/kz/en/publications/new_publication_assets/esg-trends-in-2023-ru.pdf
2. Will consumers pay more for sustainable products? We asked the question.
https://powerretail.com.au/will-consumers-pay-more-for-sustainable-products-we-asked/
3. https://www.proximagroup.com/resource/
4. THE PRINCIPLES OF THE EQUATOR https://equator-principles.com/
5. https://sdgs.un.org/goals
6. https://cdn.cdp.net/cdp-production/cms/reports/ documents/000/005/554/original/CDP_SC_ Report_2020.pdf?1614160765
7. https://www.cleanenergycouncil.org.au/resources/resources-hub/skilling-the-energy-transition
8. https://energytransitionsinitiative.org/wp-content/ uploads/2023/02/Skilling-Australian-industry-forthe-energy-transition-February-2023-Accenturereport-for-Australian-Industry-ETI-phase-3.pdf
9. https://assets.cleanenergycouncil.org.au/documents/CEC_Skilling-the-EnergyTransition-2022.pdf
10. https://www.bloomberg.com/ news/features/2023-01-05/how-to-quit-your-job-to-fight-climate-change
11. https://www.iea.org/policies/16156-inflation-reduction-act-of-2022
12. https://ec.europa.eu/commission/presscorner/ detail/en/ip_23_510
13. https://ec.europa.eu/commission/presscorner/ detail/en/STATEMENT_22_5523
14. https://treasury.gov.au/sites/default/files/2022-12/ c2022-314397_0.pdf
15. https://www.fsb-tcfd.org/
16. https://www.ifrs.org/news-and-events/ news/2022/03/issb-delivers-proposals-that-createcomprehensive-global-baseline-of-sustainability-disclosures/
17. https://www.ifrs.org/about-us/who-we-are/
18. https://www.ifrs.org/news-and-events/ news/2023/02/issb-ramps-up-activities-tosupport-global-implementation-ahead-of-issuinginaugural-standards-end-q2-2023/
19. IZVESTIYA SANCT-PETERBURGSK STATE ECONOMIC UNIVERSITY, IZVESTIYA SANCT-PETERBURGSK STATE ECONOMIC UNIVERSITY Periodical Scientific Journal No. 3 (141) Part I SANCT-PETERBURG, 2023, Ovechkina A.I., Petrova N.P., Prisyazhnaya R.I. ESG-transformation of Russian Companies: Problems and Prospects