Page 5 - bne_newspaper_July_12_2019

Top Stories
July 12, 2019 www.intellinews.com I Page 5
intensively study maths and chemistry. And we have supported 20 universities with placements where students will come and work for us after they finish,” says Evgeniy Novitskiy, first deputy general director of the PhosAgro fertiliser producer.
Exclusion to inclusion
Raby goes on to point out that until recently it was seen a breach of their fiduciary duty for asset managers to consider non-financial criteria like ESG when assessing an investment decision. The change to start taking ESG criteria into account is a fairly recent development.
“Making investment decisions that take the en- vironmental impact into account so far has been an exclusion approach. We don't invest in fossil fuels. We don't invest in extractive industries. And there has been a big debate about nuclear power,” says Raby. “The social part has been a box-ticking exercise. Do they have a worker safety policy? Do they have women on the board?”
That will have to change now, as companies need to embrace the whole concept of ESG and build it into the heart of their businesses.
“These days ESG has gone from a nice-to- have to a must-have thing. If you don't want to lose existing investors and want to attract new ones then this is already a must,” says Oleg Goshchansky, chairman and managing partner of KPMG in Russia and the CIS.
And ESG could turn out to be a boon for Russian companies as it is one of the few ways they have
to undo the “Russian discount” on their market capitalisation valuations.
All emerging markets stocks are marked down for their emerging market risk. But in Russia’s case it has a discount on top of the discount for its specific “Russia risk” that cuts the valuation of Russian assets in half from their already depressed emerging market status level.
“Russian IT companies are the easiest to sell to international investors as the Russian discount plays the least role in this sector. But for more traditional companies ESG is one of the unique ways to minimise this Russian discount — especially if investors are specifically looking for ESG compliant companies,” says Dmitriy Sedov, chairman, Goldman Sachs Russia.
It is in everyone’s interests to pursue better ESG strategies, as some companies in Russia have already reported that they have lost investors in just the last year as the self- adopted conditionality is phased in, thanks
to their inadequate ESG scores. The issue of improving their stories is already on the agenda of management boards in many of Russia’s biggest companies.
“It is difficult to evaluate the Russian discount. But there is also the G factor that is becoming more and more important. It is a real issue for managers, and it is a KPI [key performance indicator]. It is regularly on the agenda for Russian boards,” says Alexander Shevelyov, chief executive officer of Russian steel giant Severstal Management.