Towards more sustainable business in Russia

The blog text is written by Export Maker project coordinator Miila Leisiö

Green business is a hot topic all around the world, and even though Russia might not be the first country that comes to mind when discussing green business, it should not be ignored because it does play an active role in it. On July 5th, we attended a round-table discussion on green business in Russia. The reference point was the energy transition in Germany, also known as Energiewiende. The event took place in St. Petersburg and was organized by the International Business Association (SPIBA). The guest speakers were all experts on the green business field. Speakers of the event were Bernd-Georg Spies (Managing Director, Russell Reynolds Associates), Roman Ishmukhametov (Associate, Baker McKenzie), Irina Antyushina (Senior Sustainable Business & Communications Manager, Unilever in Russia, Ukraine and Belarus), Maxim Titov (ENERPO Executive Director, European University) and Vladimir Lukin (Manager, KPMG: Climate Change Related Risk Management and Low-carbon Development Projects in Russia).

Green or grey Russia?

For green business, there is good news – according to Maxim Titov, Russia is doing much more to increase its green development than is recognized in the international field. Maxim Titov brought up the UN´s sustainable development goals and reckoned that, in fact, sustainable development in Russia is in line with the UN´s goals. Also, Irina Antyushina, mentioned the increasing interest of Russians towards the responsibility of the company and eco-friendliness of the products they are buying. This development can be especially seen in big cities.

Even though Russia is a major user and exporter of oil and gas and Russia has substantial inefficiencies in its energy consumption (especially when it comes to household consumption), over one third of consumed electricity in Russia is produced from nuclear and hydroelectric power plants as well as other renewable energy sources. Geographically, the division of energy sources is such that in the European parts of Russia (including Urals), the energy sources are primarily natural gas and nuclear energy while in Siberian parts and in the Far East, coal and hydropower are the most used energy sources. In Russia, the clean energy technology development is concentrated on the grid interconnection and on the support of the additional generation based on renewables. Additionally, Maxim Titov underlined that there are companies investing in wind and solar power. Thus, there is potential to increase the use of renewables (also other than hydropower) as the source of energy in the future in Russia. However, the development of renewable energy technology is rather slow, because of the lack of investments in the green business.

3 Ds of green business

Briefly about the German energy transition program; the goal of the German government was to decrease greenhouse gas emissions by 55% by 2030 from the level of 1990s and to increase the share of renewables by 50% in electricity consumption. The follow-up goal is to reduce greenhouse gas emissions by 80-95% by 2050 compared to the levels of 1990s and the share of renewables should rise to at least 80%.

The pros of the program introduced by Mr. Spiel were great; Energiewiende resulted in a 37% increase in renewable energy in 2017 and generated 330 000 new jobs. However, nothing comes without a price – according to rough estimates, the energy transition will cost German consumers 520 bn euros. Despite the high price, Germany remains one of the heaviest coal-users in Europe, having 40% of its energy from coal.  The question then arises – is it even useful to compare countries like Germany and Russia? Why would Russian consumers want to invest billions of euros in an economically unstable situation in the energy transition when they have (at least for now) large amounts of cheap black gold?

Bernd-Georg Spies named the three most important building blocks in energy transition; the “triangle of transition” consists of: decentralization (1), decarbonizing (2), and digitalization (3). In short, in the future, the electricity production will be increasingly decentralized, and consumers will be more active and play a bigger role in energy supply – today´s consumer is tomorrow´s “prosumer”. Evidently, the next step will be the shift from fossil fuels to renewable energy sources. Last but not least, digitalization will play a major role in the energy transition as it will help e.g. the transportation of energy and ease the metering.

Thus, what are the most crucial elements for a company when entering energy markets according to Mr. Spiel?

  1. Interest and understanding of digitalization. One must understand digitalization and the benefits it can bring to their business. It is important to keep up with the change.
  2. Collaboration. A professional leader is not enough. It is highly important to include each and every one in the organization to the transition and change.
  3. Risk-taking capacity. The renewable energy business is highly risky, and it must be considered.
  4. Deeper understanding of the consumers In the future, consumers will have a bigger role in the energy field. With the help of new technology, it is possible to understand consumers’ needs better and act towards them.
  5. Excellent understanding of politics and regulations. As the energy business is a highly regulated field of business, careful observation of legislations and norms is necessary to be able to act in the energy business field.

There are many changes made in the Russian legislation towards a more ecological environment. Legislation is trying, little by little, to direct consumers to choose sustainable products. There are both carrots and sticks to encourage producers to act in a more sustainable way. Russia is executing legislative changes towards cleaner transportation; it imposed a zero-tax rate for imported electric cars (although, at the moment this initiative is cancelled, and it is planned to be reimposed). Additionally, education plays a major role in understanding the importance of green products.

All in all, it seems that hope in a greener future is high, and Russia has made some changes in its legislation to support this change. Also, especially the younger generation is interested in sustainable development and is driven to make the change. However, in order to take more active steps for the greener future, Russia is in need of foreign know-how. Here, foreign companies could play a big role by cooperating and sharing knowledge in the Russian field of sustainable business.

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