The sustainability of the social sphere, particularly its economic constituents like social enterprises and non-governmental organization, is intrinsically linked to the position and sustainability of businesses, whether large or small. The more sustainable the business, the more effectively it bolsters the development of the entire social sector. Well-being represents a broad spectrum of factors that encompass addressing social challenges from the global scale down to the local level of individual lives and their families.
Traditionally, social initiatives rely on what is termed “corporate social responsibility”: through philanthropy and patronage, sponsorship, social investments, and innovative social entrepreneurship projects. However, in recent years, the familiar acronym “CSR” is progressively being supplanted by the abbreviation “SDG,” representing the 17 UN Sustainable Development Goals and their respective national applications.[16 - President of Russia. (2020). Decree on Russia’s National Development Goals through to 2030. Retrieved from: http://www.kremlin.ru/events/president/news/63728 (accessed: 26.03.2024)]
The recognition that all major businesses should embrace CSR has evolved into a strategic pursuit of sustainable development goals, subsequently forming an ESG agenda, which dictates that businesses meet developmental criteria across three domains: environmental, social, and governance. ESG serves as a financial mechanism to incentivize and quantify the SDGs. These mechanisms include preferential terms for lending, bonds and other forms of borrowing within the global financial system and national finance frameworks. In Russia, this particularly refers to the “green” and “social” taxonomies. Furthermore, the Bank of Russia has formulated recommendations for developing a methodology and assigning ESG ratings.[17 - ConsultantPlus. (2023). The Bank of Russia has provided guidelines on developing methodologies and assigning ESG ratings (sustainability ratings). Retrieved from: https://www.consultant.ru/law/hotdocs/81057.html?ysclid=ls05xjdt2b543458434 (accessed: 26.03.2024).]
The National ESG Alliance was also established, with a mission to “fortify the national sustainable development agenda in Russia by uniting the efforts of large-scale business and the government.”[18 - National ESG Alliance. (2023). Retrieved from: https://esg-a.ru/ (accessed: 26.03.2024).] In 2022, the Alliance launched the ESG Ecosystem Atlas, which features over 30 sections detailing the roles of regulators, standards and taxonomy developers, data aggregators, and professional users of non-financial data, as well as creators of services and authors involved in diverse projects in this domain. Simultaneously, it is envisaged to considerably scale up the national ESG agenda within Russia, incorporating not just prominent ESG transformation leaders but also small and medium-sized enterprises, as well as the society at large, by 2030, which is beyond the immediate horizon.
Discussing ESG indicators, it is crucial to understand the stance of the state. In 2021, the Russian President expressed his viewpoint as follows: “ESG is a comprehensive gauge of how a state envisions its progression for the near future and beyond into the medium and long term. Undoubtedly, such development must place the individual at its core, which is what it does. The Russian government fully recognizes this, not merely to keep to the trend but because our entire policy is founded around the individual. At least that’s what we are certainly striving to do.”[19 - President of Russia. (2021). Investment Forum “Russia Calling!”. Retrieved from: http://www.kremlin.ru/events/president/transcripts/speeches/67241 (accessed: 26.03.2024).]
In 2022, Vladimir Putin, after convening with members of the Business Russia organization, directed the Russian Government to “explore defining criteria for classifying investment projects in line with the standards of environmental, social, and governance responsibility (ESG), and to consider state support for such project participants.”[20 - Ibid.]
WANING INTEREST IN ESG AND DEVELOPING A LOCALIZED AGENDA
In 2023, the Accounts Chamber of the Russian Federation conducted an evaluation of the UN SDGs ratified by Russia in its 85 regions and acknowledged positive trends in the majority of indicators.[21 - Zaitsev, D. A. The Accounts Chamber has suggested establishing a registry of exemplary SDG practices in the regions. Accounts Chamber of the Russian Federation. 28.09.2023. Retrieved from: https://ach.gov.ru/checks/sp-predlozhila-sozdat-reestr-luchshikh-praktik-realizatsii-tsur-v-regionakh?ysclid=ls09hig8dm293542431 (accessed: 26.03.2024).] Yet, the actual understanding of SDGs within the regions, as well as public awareness of the topic, remains at a modest level, with the implementation by local authorities being highly contingent upon regional specificity and the engagement of senior officials.
Based on a 2023 study by hh.ru and the ecological service “Save the Forest,” it appears that the majority of Russia’s economic sectors have decreased the salaries of ESG specialists and scaled back their recruitment.[22 - “Save the Forest” and hh.ru: Anticipated growth in demand for ESG specialists in 2024. Retrieved from: https://forest-save.ru/esg-blog/esg/soxrani-les-i-hh.ru-spros-na-esg-speczialistov-vyirastet-v-2024-godu (accessed: 26.03.2024).]
The reality is, despite the ratification of UN SDGs by Russia, the national ESG agenda as a basis for financial stability – upon which large investments were forecasted and decisions for significant international financial dealings were made – has seen substantial shifts over the past couple of years. Consequently, the nation’s leading figures have repeatedly emphasized the necessity of creating a bespoke, local ESG agenda.
By mid-2023, Russia had established the conditions necessary for reevaluating and forming a novel concept, one that would naturally incorporate a human-centered, social agenda addressing the development of transparency and engagement with society, inclusivity, support of volunteer and other civic initiatives, and the overall contribution to and assessment of positive social changes. This approach rests on a broader comprehension of sustainable development, not restricted to a narrow set of ESG benchmarks. Let us now consider a number of recent initiatives that have been introduced, fostering the development of the ESG discourse in Russia.
METHODOLOGICAL RECOMMENDATIONS FOR SUSTAINABLE DEVELOPMENT REPORTING
In November 2023, the Ministry of Economic Development of the Russian Federation published the document “On Approval of Methodological Recommendations for the Preparation of Sustainable Development Reporting.”[23 - Ministry of Economic Development of the Russian Federation. (2023). Order No. 764 dated November 1, 2023, on the approval of methodological recommendations for sustainable development reporting. Retrieved from: https://www.economy.gov.ru/material/file/70c9039795779d4b5b55c3fb8066afd3/764_2023-11-01.pdf?ysclid=ls08hlska1138827320 (accessed: 26.03.2024).] It refers to that very Reporting Standard that, at the moment of publishing, was still in the phase of development.
At the WeAreTogether forum during the “Russia” exhibition in December 2023, experts discussed this approach, suggesting significant refinements for the forthcoming iteration of the standard. This discussion was held within the framework of the strategic session titled “Sustainability Reporting Standard as a tool for fostering volunteerism and social engagement among residents, businesses, and territories.”[24 - YouTube. (2023). Discussion on the “Sustainable Development Reporting Standard.” Retrieved from: https://youtu.be/a6RWL91-t80?si=t_NITfX0xaKhTWG4 (accessed: 26.03.2024).]
Irina Filippova, the Deputy Director of the Department of Corporate Regulation at the Russian Ministry of Economic Development and Trade, stated in the discourse that the issue of standardizing the assessment of the SDG achievement was initially raised in the 2017 development concept of public non-financial reporting, with the Ministry actively working on it following government directives. This subject was revisited in April last year during the RSPP Congress, leading to a directive issued by the President of the Russian Federation. The culmination of this work was the methodological guidelines developed by the Russian Ministry of Economic Development, approved and then published on the ministry’s website.
“I want to highlight that this is a discretionary, advisory document,” said Irina Filippova. “We consider it a fundamental set of guidelines that enables companies not yet engaged in sustainability reporting processes to exhibit their work results.”
The document contains recommendations for organizing stakeholder engagement in report preparation, and for revealing historical data for at least the past three years to understand the development dynamics of the company. Additionally, to prevent dishonest practices and errors, it is advised that reports be professionally verified – through auditing firms (according to the existing draft of the Sustainable Development Reporting Standard available to the editorial board).
The set of indicators was compiled from an analysis of various reporting standards of companies, with the United Nation’s UNCTAD standards on economic, social, governance, and environmental aspects being the baseline at the initial stage.[25 - UNCTAD, the United Nations Conference on Trade and Development, serves as the coordinating center for issues of development and related areas of trade, finance, technology, investment, and sustainable development. Its central mission is to assist in the integration of developing countries and transition economies into the global market through trade and investments. Source: https://vk.cc/cvIb7I.]
“In the guidelines, we pinpointed the metrics that warrant attention and endeavored to precisely define how to calculate them and their sources,” Filippova says. “For organizations to compare against one another, it’s critical that they consistently disclose and compute these metrics year over year using a uniform approach.”
The social indicators spectrum now includes factors related to both internal stakeholders, like employees and their families, and external social effects, such as the organization’s involvement in philanthropy. When discussing corporate social responsibility, the economic indicators also encompass those related to sustainable investing.
Furthermore, Filippova noted that following the publication of the methodological recommendations, legislation supporting additional volunteer activities was enacted, coming into effect on January 1, 2024. Additionally, there have been revisions to the taxonomy of green projects, notably those elements associated with volunteer activities.
“As we progress with the methodological recommendations, the subsequent phase provides for creating a more comprehensive and detailed Standard,” said the expert. “While these recommendations themselves don’t exert regulatory impact, they signify the priorities of the government regulator and business community.”
The development of the Standard is being orchestrated by VEB.RF, by mandate of the Ministry of Economic Development. At the “Strong Ideas for New Times” forum in June 2023, VEB.RF presented to the President its alternative to ESG – ‘5C’: consistent strategic development, consideration of employee and family welfare, social programs, environmental care, and dedication to the homeland.[26 - President of Russia. (2023). ASI “Strong Ideas for New Times” Forum. Retrieved from: http://special.kremlin.ru/events/president/transcripts/71554 (accessed: 26.03.2024).]
According to Denis Bokov, Managing Director of the VEB.RF Government Agent Block, in the context of evaluating the achievement of sustainable development goals, it is imperative that the indicators be qualitative. This approach is essential for accurately measuring the effectiveness of efforts in these domains. “We incorporate these principles in our operations,” the expert disclosed when questioned, “although other companies continue to adhere to the international ESG standard.” It is challenging for a single entity, VEB.RF, to rapidly overhaul established practices and redirect them onto domestic tracks. However, I must point out that within the corporation this is happening, and in terms of social impact projects, we’ve been successful.” The objective is not to alter the paradigm, but rather to refine the language within the existing paradigm, to broaden it slightly and make it more precise, Bokov contends.
BUSINESS SOCIAL CAPITAL STANDARD
There is also an alternative approach to this issue from the Agency for Strategic Initiatives: the “Business Social Capital Standard,” designed to coordinate elements of established corporate practices in the field of responsible business conduct and sustainable development, based on a platform solution, to eliminate contradictions, and to provide a universally recognized mechanism for assessing and accounting for the contribution of organizations’ activities to improving the quality of life in Russia.
Alexander Sinitsyn, the head of the ASI Sustainable Development Project Office, noted a significantly greater flexibility of this standard as a key difference from the documents prepared by state regulators. “The documents issued by governmental agencies have very strict requirements, and they should not allow for any interpretations, so only iron-clad confirmed indicators are included in such standards,” explains Sinitsyn. “However, the market is, of course, raising questions about the flexibility of assessment models. And that’s where we come in, as the operator of our standard is an NGO that serves the role of a public institution. Consequently, we can afford to be more flexible, meaning we can foster the development of methodologies and take into account factors that aren’t yet so clearly defined and standardized as to be included in the documents of state regulators.”
A unique feature of the “Business Social Capital Standard” is that it does not merely disclose what goals the company has achieved, but also evaluates the extent to which the results align with the broadest possible range of sustainability indicators. This includes both quantitative economic indicators, based on methodological recommendations from the Ministry of Economic Development, the Central Bank’s directives, and common practices, as well as qualitative management indicators. Plus, what sets it apart from global ESG practices is its emphasis on contribution to national goals and the reinforcement of the country.
“It’s essential to recognize that we’re assessing dynamics,” says the expert. ”For this, we’ve developed a system encompassing quantitative and qualitative blocks, feedback tools, and a specific methodology that aligns with the overall approach to sustainable development assessment. The qualitative assessment block is extremely important because the field of sustainable development is not yet so established that everything can be accurately and uniformly quantified for everyone.”
Evaluation is an ongoing narrative because the subject varies from company to company, industry to industry, and a one-size-fits-all accounting system has not been set up. Sinitsyn quotes examples such as employee health issues, which different companies may address in various ways, from on-site doctors to comprehensive medical insurance plans, sick pay supplements, and so forth. These practices are not yet standardized, so they are continuously monitored and updated.
To achieve the Sustainable Development Goals and implement a nationally customized list of relevant indicators, the authors suggest incorporating the ASI approach into the Standard. This approach assesses whether results comply with specified criteria. Specifically, they recommend partially integrating the “Business Social Capital Standard” into the overall framework of the official document currently being drafted by Russia’s Ministry of Economic Development.
ECG RATING OF RESPONSIBLE BUSINESS
Other original approaches exist, such as the increasingly popular ‘ESG Rating of Responsible Business,’ developed by the Financial University under the Government of Russia in collaboration with the Mendeleev Institute of Taxation, and supported by the Federal Tax Service and the Accounts Chamber of Russia. This approach is in line with the ESG acronym – environment, staff, and government – and takes into account almost 100,000 businesses throughout the country.[27 - ЭКГ-рейтинг. рф. (2023). ESG rating of responsible business. Retrieved from: https://xn-etbbhpfd3axw8i.xn-p1ai/. (accessed: 26.03.2024).]
We sought commentary on this approach from Anastasia Gorelkina, Deputy Chairman of the Board of Directors of the Siberian Business Union Holding Company and Co-Chair of the Commission on Social Responsibility and Corporate Communications of the Association of Communication Agencies of Russia (ACAR). Anastasia Gorelkina is confident that all initiatives motivating companies to pursue sustainable development are a positive signal for our society. All the existing major projects – ‘Sustainability Reporting Standard,’ ‘ESG Rating,’ and ‘Business Social Capital Standard’ – advocate the same principle: to demonstrate success not merely from a financial performance perspective but also in terms of social responsibility. The more information a person has about how a company cares for him, his loved ones, society, and the nation, the more peaceful and harmonious their life becomes.
“Now, several projects have emerged that are rethinking global challenges, placing more emphasis on social responsibility, and even adding an element of ‘competition’ through the ‘ECG Rating’,” says Anastasia Gorelkina. “Ultimately, this will have a positive impact on businesses and their approaches to both project initiation and quality. Indeed, everyone aspires to achieve a high ranking, and to attain that, it’s essential to align with the most effective practices.”
The expert notes that the list of basic indicators for sustainable development reporting, published by the Ministry of Economic Development last November, currently includes only financial indicators in the social block, such as “expenditures on organizing and conducting social, fitness, and medical events for employees and their families.” This needs to be more detailed, showcasing the number and scope of the programs, and who they are intended for. It is also necessary to broaden the block of social indicators, considering new forms of care for employees, their families, overall demographics, and to provide data on inclusion, talent development and support, and programs aimed at fostering spiritual and moral values. Additionally, Gorelkina emphasizes the importance of communication in social projects, as sometimes even people within companies are unaware of such projects’ existence. Businesses often are not informed that they can promote their social projects using governmental support such as social advertising. Integrating communication metrics would greatly complement the existing indicators.
The expert highlights that it is the social focus that differentiates the Russian approach from the widely accepted international ESG practices, which Russia has also been following until recently. “There is significant demand in our society for knowledge and information about social and environmental projects,” concludes Anastasia Gorelkina.
It is the social focus that differentiates the Russian approach from the widely accepted international ESG practices, which Russia has also been following until recently.
The authors believe it is logical to enhance the Reporting Standard with principles that form the basis of the “ECG Rating of Responsible Business.” This enhancement would enable the final document to be highly aggregated and visualized, reflecting the perspectives of all stakeholders involved.
WEAKNESSES OF NEW APPROACHES
Upon reviewing all initiatives and the documents at our disposal, it became evident that all these approaches share a common weakness. Namely, the assessment approach itself is quite limited and is based on the provision of data on financial and non-financial indicators without taking into account the actual social impact and its influence on sustainable development.
For example, in the draft standard from the Ministry of Economic Development of Russia and VEB.RF, there are specified requirements for the allocation of funds to projects recognized as social, environmental, and the like. However, the evaluation of these investments is not mandated and falls on the initiator, which almost inevitably leads to formal assessments conducted merely for the sake of reporting.
Metrics are measured in terms of money spent, percentages, the number of people reached, or even the frequency of board of directors and audit committee meetings and their attendance.
Plus, the developers of the document emphasize the voluntary nature of its implementation, making this reporting initially non-mandatory. It is expected that in Russia, major corporations that set the tone in finance will, in this case on a national scale, adhere to the official standard. If the standard lacks a mandatory requirement for assessing the social impact, it would be very easy to align the implementation of social projects with PR or similar corporate needs, without genuine concern for achieving real social impact.
The closest to the truth, in our opinion, have been significant stakeholders with direct beneficiary interests such as IRI, AVC, ANO “Equal Opportunities Space,” and others. Previously, they were not involved in drafting the standard, but at our request, they offered significant amendments and additions to the current project.
First of all, it was suggested to disclose the organization’s activities in terms of achieving social impact and influence in the short, medium, and long term. It was also recommended to report both expected and actual social effects and impacts, including those that were unplanned, to conduct analysis and disclose reasons for the outcomes, and to back assessments with qualitative and quantitative indicators supported by valid and evidence-based data.
It is also advised to describe the problematic situation requiring change, list the target audiences affected, and explain how and why each group is connected to the issue. For substantiation of the choice of the problem selected, its causes, target audiences, and their relation to the issue, as well as the action plan, the use of statistical data from reliable sources is recommended. Desk research with various data sources can also be used, including media publications and academic papers, citing them as necessary. Additionally, data can be drawn from expert surveys, as well as from one’s own conducted empirical research with disclosure of information about the research. The experience of key projects and/or organizations addressing the issue over the past three years will also be useful.
“The standard should create a trend, set the tone for the future,” believes Igor Novikov, Director of ANO “Equal Opportunities Space” and a member of the Presidential Council for Civil Society and Human Rights. The way we write it will determine what kind of companies we will see in a few years. Thus, the final document should reflect not only those aspects of organizations’ activities that they are accustomed to reporting on but also those that are yet unknown within the companies.”
According to the expert, the project critically lacks several aspects. Whereas previously companies were expected to merely report good deeds, now a key aspect of business activity (including that of the government and NGOs) has become learning and impact. Since business drives development, the society expects to see resilient companies capable of overcoming challenges and learning and innovating through the process. “Such companies are perceived as sustainable,” Novikov is convinced. “One of the key lessons in the BANI[28 - BANI stands for: Brittle, Anxious, Nonlinear, Incomprehensible.] era is the ability to establish strategic partnerships with the government, NGOs, and other companies for systemic problem-solving across the community.” Maintaining balance is key to collaborating effectively in partnerships with different problem-solving cultures, and this pertains more to civil society than to corporate accolades for “social breakthrough of the year.” Every successful product manager knows that a “lone wolf” strategy does not lead to value creation and product management will fail; companies must learn to work as teams, and this should be reflected in the standard.
Also, a crucial aspect is the engagement (or inclusion) of vulnerable and marginalized groups. Currently, inclusion is conventionally seen as a means to achieve diversity within teams. Those who are compelled to keep pace with the times, study demographic forecasts and the like, are actively trying to cover the deficit in organizational capability to involve “not like everyone else” in the value creation chain and the consumption of goods. Therefore, the standard should include more coherent and near-future oriented requirements for the involvement of vulnerable groups (people with disabilities and special needs, young professionals, individuals with migration experience, women with young children, the elderly, etc.). “The conversation should not just be about the simple demonstration of hiring metrics (though it would be good if companies start to disclose this data), but about organizational and other innovations,” Novikov emphasizes.
