ESG - Part 2. Environmental management at the corporate level

Carbon regulation and the trend towards responsible investment encourage companies to implement environmental risk management mechanisms and minimize their environmental impact.

In the second part of the research, SBS Consulting experts analyzed how the climate agenda affects management decisions in the corporate sector. A generalized plan for the implementation of an environmental management system in the company, a description of the carbon footprint levels, as well as financial instruments and support measures available for financing "green" project.

Carbon management and ESG: key areas of focus

ESG principles :

• Environmental: Considering the environmental aspects of the company's operations, reducing carbon footprint
• Social: Impact on society, respecting human rights, improving working conditions
• Governance: Transparency of corporate governance, compliance with ethical standards.

Government regulation measures :

• Carbon management: Introduction of restrictions on greenhouse gas emissions, mandatory greenhouse gas emissions reporting, introduction of a carbon tax
• Implementation mechanisms: Development of an emissions trading system, introduction of the best available technologies (BAT)

Impact of global and national environmental management

Impact on companies :

1. Mandatory external adjustment:
   
   

   —Mandatory greenhouse gas emissions reporting

   —Carbon tax payment

   —The need to implement BAT to reduce the cost of carbon management

2. Voluntary internal initiatives:
   
   

   —Development of a system for collecting and analysing ESG indicators

   —Disclosure of information according to international standards (sustainability reports)

   —ESG rating to manage long-term risks and reduce the cost of borrowing

Interaction pattern :

1. International organisations: Define global targets and unite countries through international agreements
2. National government: Develops and approves GHG emission standards, carbon tax, trading systems
3. Companies: Implement ESG principles, attract financing for ESG projects
4. Banks and investment funds: Evaluate companies' activities and provide preferential financing
5. Rating agencies: Provide ESG rating and influence investors' assessment of the company

Implementation of environmental management

Polymetal's case study

Policies and standards:

• Climate policy
• Environmental policy
• Environmental management system
• Energy management system

Targets and KPIs:

• Targets for energy, water and GHG emissions
• Environmental KPIs are included in the KPIs of the company's senior management

Public reporting system:

• ESG reporting (GRI, SASB, TCFD)
• CDP disclosure
• Non-financial database on the company's website

Ratings:

• DowJones Sustainability Indexes
• Sustainanalitics
• MSCI
• FTSE4 Good
• Refinitiv

Attracting green financing:

• EBRD loan
• ESG rating-linked loan
• SDG loan with the condition of a non-financial audit
• Two climate credits

Generalised implementation process:

1. Audit: Conducting an environmental audit, identifying problem areas and risks
2. Strategy: Defining environmental goals, developing a sustainability strategy
3. Reporting: Specifying the list and method of evaluation of non-financial indicators, selection of the base period for performance evaluation
4. Financing: Raising funds for green projects, ESG rating

Carbon footprint calculation

Scopes of emissions:

• Scope 1 (Direct Emissions): Emissions from sources owned by a company
• Scope 2 (Indirect Emissions from Energy): GHG emissions from consumed energy purchased by the organisation from external sources
• Scope 3 (Other Indirect Emissions): Other GHG emissions associated with the organisation's value chain

Types of greenhouse gases:

• Carbon dioxide (CO2)
• Methane (CH4)
• Nitrous oxide (N2O)
• Hydrofluorocarbons (HFCs)
• Perfluorocarbons (PFCs)
• Sulphur hexafluoride (SF6)
• Nitrogen trifluoride (NF3)

Sources of information and standards:

• National level: CRF format for national reporting (UN Climate Change - National Inventory Submissions)
• Municipal level: C40 Group
• Corporate level: GHG Protocol

Attracting financing and government support

Funding instruments:

1. Green Bonds: Issued to finance environmental projects, cannot be issued by oil and gas companies
2. Sustainability-linked Bonds: Issued to meet sustainability goals; guidelines: Sustainability-linked Bond Principles
3. Green Loans: Issued for environmental projects, guidelines: Green Loan Principles
4. Sustainability-linked Loan: Aimed at achieving sustainability goals, the rate is linked to performance indicators or ESG ratings

State support:

• Reimbursement Fixed Costs subsidy: For coupon payments on bonds, BAT implementation projects, interest payments on green loans.
• Tax incentives: Special coefficients to the payment for negative environmental impact, accelerated depreciation of equipment.
• IDF programmes, etc.: Preferential loans for BAT implementation, other support measures

Conclusion

The study emphasises the importance of implementing environmental management at the corporate level to improve the sustainability of companies and reduce their environmental impact. Key areas of focus include the development of ESG principles, carbon footprint calculation, attracting green finance and using state support measures. Effective environmental risk management and compliance with international standards will help companies achieve long-term sustainability goals and improve their competitiveness.