The regulatory frameworks in Russia and China are very different. The fact is that China has been developing its ESG framework for the past 15–20 years. And in the last 5–8 years, new laws have been passed that set strict guidelines at both the corporate and provincial levels. So, strange as it may seem, Chinese laws are much stricter than Russian ones. China’s technical regulations are also much stricter.

Having long been associated with cheap and dirty technology, China has invested heavily in “whitewashing” its image. Despite its long history of progress, China is still considered an environmentally backward country. And this is no longer true. So, if Russia supports some of China’s initiatives, it will be of great benefit to China. The second very important point is that almost all large companies in China have adopted the most stringent standards. This led to higher production costs. As a result, China wants to sell its products at higher prices, claiming that they are made to high standards. And in this context, Russia is a very important market. Because customers in, say, Southeast Asia or Central Asia are most interested in the lower price. And the third point: China has repeatedly expressed its interest in creating broader coalitions or associations in the area of ESG. And for that, China needs the support of another country. In theory, our countries could create an intergovernmental commission and legislate common environmental and technological standards.

But we have to understand that there are some things that China cannot and does not want to share with other countries. For example, China decided to achieve carbon neutrality by 2060, and since the decision was made by the Chinese Communist Party, these numbers cannot be compromised. Many provinces joined the race to be the first to reduce emissions and transform production, and by 2021 it turned out that many provinces were running out of resources and raw materials. Some provinces experienced blackouts as they tried to beat the clock. As a result, they increased emissions and violated ESG principles. China quickly revised its approach and regulations, while maintaining high labor standards and labor guarantees. And, by the way, it cost a lot of money. In other words, China is getting things right at home first, and only then starts to export. And China’s experience and approach are not always applicable to other countries.

I would not say that China has a valid ESG framework. There are some strategic efforts by the Chinese government in certain areas that overlap with the ESG agenda, with a focus on the environment, which is consistent with the Environmental pillar of ESG. China’s environmental efforts began a long time ago, when its environmental crisis reached a catastrophic level, making the environment top priority for the Chinese government. Reducing pollution, building a “Beautiful China” with clean water, green grass, and arable land: All of this fits perfectly with China’s strategic goal, announced by Xi Jinping, to completely decarbonize the Chinese economy by 2060. But there is a catch: emissions will peak by 2030. As for the remaining pillars, S and G have limited application in China, because the CCP, rather than businesses, is in the driver’s seat. Regarding pillar G, the private sector clearly determines the main lines of its development, but in large companies, even if they are private and not state-owned, there most likely is some sort of a CCP cell that monitors the company’s behavior. Obviously, corporate goals are to some extent aligned with the strategic development goals of the state itself. Therefore, it cannot be said that China has a robust ESG framework in the Western sense of the term. However, some Chinese companies, especially those listed on foreign and Chinese stock exchanges, already publish ESG reports, but they focus mainly on the Environmental pillar. In Russia, too, this is largely a new phenomenon introduced from the West to meet the needs of foreign investors. I would conclude that neither Russia nor China has a full-fledged ESG framework yet, but it is gradually emerging, especially in China.

The two countries have different ESG strategies. However, in certain areas (reporting standards, green product/process certification, carbon credits, green and social taxonomies) there is potential for Russian and Chinese ESG frameworks to find common ground.

But first we would need to agree on common concepts. The EU has established an international emissions trading scheme. A similar scheme in Eurasia would accelerate the region’s decarbonization. Unification of reporting and certification processes would boost the market for cross-border investment in green projects, and a joint carbon credit trading scheme with China could be economically attractive for Russia.

Today, environmental, social, and governance issues are becoming key factors in ensuring sustainable development not only of companies, but also of nations as a whole. Both in Russia and in China, “green” business and financing processes are expanding rapidly.

However, under the increasing pressure of Western sanctions, priorities are being reconsidered and the ESG agenda is taking a back seat both in Russia and globally. By March 2022, the focus has clearly shifted from the demands of Western investors and regulators to those of Russian legislators and the domestic sustainable development agenda. Issues of supporting businesses, workers, and local communities are coming to the fore.

China has set certain “carbon milestones” for itself. These are 2025, 2030, and 2060. What Russia can do is to align its own “carbon milestones” with China’s. After all, China is now the largest consumer of Russian hydrocarbons. At the same time, China is transitioning to a low-carbon model. This means that if we do not take into account the pace of China’s transition to a low-carbon future, many of our plans through 2030 may not be in line with our largest customer.

We also have task force structures, an intergovernmental commission, that ultimately lead to a meeting at the level of prime ministers or heads of state.
The most important thing is to understand that the most beneficial agreement with China would be a comprehensive agreement, rather than something focused on a particular group of companies or certain ESG standards. All of this should be implemented in the context of the broader Russia–China relationship. We can stipulate that Russia will only buy products from those Chinese companies that meet ESG standards. In return, products from Russian companies with progressive ESG practices should be given priority to enter the Chinese market. In addition, we can expect Russian products to be given a “green light” in China, including reduced taxes.

Speaking of Russia, I think that it should not be a purely Russian framework, but rather one that covers the entire EAEU, to be further integrated with the Chinese framework, because otherwise the Chinese framework will take us over. These are obvious things.

Such integration should start with high-level negotiations. But to be able to negotiate with China on an equal footing, Russia would need a comparable ESG infrastructure, and we are still lagging behind. China has had a national green finance taxonomy in place since 2015, while Russia’s did not appear until 2021. China launched domestic carbon credit trading in 2021; Russian carbon credits are expected to appear in 2028.

Joint food certification programs need to be developed: this will give Russian organic products an advantage in the Chinese market. Joint certification programs for green buildings or other forms of sustainable production will make it easier for Chinese businessmen to obtain permits and set up joint ventures in Russia. Sberbank is ready to support the development of such certification and verification programs.

At the moment, I think the best way to start integration is through green bonds. Over the past few years, Chinese companies have made great progress in this direction. Last year, the state-owned China Development Bank became the largest issuer of certified climate bonds, outpacing European players.

In Russia, by contrast, the market for “green” financial instruments is just beginning to develop, and sustainable investment is currently a key trend in the economic development of Russian companies. Chinese companies, for example, can list their bonds in the Sustainability Sector of the Moscow Exchange. Despite the early stage of development of domestic investment in Russia, this approach to raising capital to finance environmental and social projects may become a driver for achieving ESG goals in the future.

Certain mechanisms are already in place. One example is the cooperation between China’s Belt and Road Initiative and the EAEU. We can encourage the adoption of common ESG standards for the wider Eurasian community. This means that a number of other countries, for example, Kazakhstan, Uzbekistan, Central Asian countries, can also endorse these common standards.

In addition, we could probably take some steps to help people understand what ESG is, because not everyone comprehends what ESG standards are. For example, introducing ESG-related courses, standards, and requirements in universities, both in Russia and China, based on common platforms. Joint training programs for ESG professionals can be created.

By the way, China is making great efforts to fight greenwashing. Many Chinese manufacturers used to put self-proclaimed “green” labels on their products, from cars to chocolate. They were deceiving their customers. The Chinese government realized that the very idea of ESG was losing credibility, and they put everything under their strict control. That is why confidence in the green economy is growing in China, because people know that the government is on top of it. Once the Russian people realize that the government is tightly controlling everything related to ESG, life will be easier and communication with China will become smoother.

I think we can expect the first agreements in 2–3 years.

I would choose the path of developing a full-fledged framework in Russia, extending its main regulations to the EAEU, and then aligning it with the Chinese concept, framework, and strategy. We will have to do this anyway, because China will continue to develop its ESG framework and imbed it into its economy. Accordingly, it will make similar demands on us. And, of course, we will have to meet these demands because China is the second largest global economy and may become the largest one by the middle of the century.

To begin developing a cross-border framework, we must first obtain the support and commitment of the national leadership. Next, we should analyze the commonalities and differences between Russia, China, and the EAEU countries. Then, we could create a task force that would include members of the government, representatives of the private sector, and various experts to resolve the differences. The final solutions would be submitted to the leaders of the involved countries for consideration. An example of the implementation of this approach can be found in the IPSF mechanism, which aims to develop common ground between the taxonomies of China and the European Union.

We should keep in mind that our countries’ economies and market regulations differ quite strongly. It is still too early to talk about a single framework, but Russia and China should be concerned about localizing ESG tools and applying already existing global standards, principles, and practices, and intensify the development of common technologies to replace Western ones. It is also worth developing a joint ESG ratings system and creating a unified approach to sustainability reporting.

In my opinion, expanding cooperation in the nuclear and gas sectors is also the most important aspect of achieving carbon neutrality. There are opportunities for the construction of hydropower plants and the supply of related equipment, as hydropower is the world’s most important source of low-carbon energy and China needs to reduce its share of coal-generated electricity.