In the modern world, ESG (Environmental, Social and Governance) is a widely accepted trend in developing efficient and sustainable business. This philosophy significantly affects project financing, among other things, by enabling investors and creditors to understand how companies interact with the society and environment, how they respect human rights, and if they are committed to the best worldwide ESG practices.
The concept of sustainable development and SDGs approved by the UN are the fundamental and inseparable part of the Group’s strategy. The INK Group has developed the Sustainable Development and ESG Policy, and is now working on the climate strategy (de-carbonization strategy, sustainable development strategy), which includes climate risks assessment, scientifically determining and setting the goals to reduce greenhouse gas emissions, to develop a monitoring system, and to carry out an independent audit of emissions of greenhouse gas and other contaminants that are directly or indirectly generated in the operations of all the Group companies.
In implementing its projects, INK not only assesses the impact of its activities on the climate and environment, but also adheres to the principle of sustainable financing of its projects (e.g., by refinancing of expenses incurred).
Transition bonds issue
In autumn 2021, the Government of the Russian Federation approved the national taxonomy of green and adaptation (transition) projects. Specifically, Decree No. 1587 “On Approval of Sustainable (and Green) Development Projects Criteria in the Russian Federation and Requirements for Sustainable (and Green) Development Projects Verification System in the Russian Federation” (hereinafter referred to as Decree No. 1587) was issued on September 21, 2021, which sets out unified criteria for green and adaptation (transition) projects that enable economically incentivizing the adoption of advanced environmental standards.
In December 2021, JSC INK-Capital (hereinafter referred to as the Company) carried out its debut placement of transition bonds, which became the first Russian financial instrument of sustainable development included in the National and Adaptation (Transition) Projects Segment of the sustainable development section (see Bonds section for details on JSC INK-Capital’s issue of transition bonds).
The project of gas cycling with reinjection in the Yaraktinsky oil and gas condensate field (hereinafter referred to as the Project) was selected as the project the expenses of which will be refinanced by the funds raised by the Company’s issue of the transition bonds. The Project is fully in line with the Group’s goal of contributing to accomplishment of the UN-approved SDGs and is directly related to combatting climate change — specifically, by reducing greenhouse gas emissions in the Yaraktinsky OGCF (Irkutsk Region) through the cycling process (an engineering solution for utilization of APG by re-injection instead of flaring).
JSC INK-Capital developed the concept of transition bonds in 2021 to select and evaluate projects. And this issue of the bonds fully met the basic criteria of transition bonds as set forth by The Climate Transition Finance Handbook:
- Funds utilization;
- Project selection procedure and the issuer implementation transparency;
- Separate accounting;
- Information disclosure;
- Issuer’s climate transition strategy and governance;
- Business model environmental materiality;
- “Science-based” climate transition strategy.
To arrange for the debut bonds issue, which became the first adaptation instrument under the Russian taxonomy, the Company engaged with:
- Arranging banks: VTB Capital, Raiffeisenbank, Sber,
- International environmental advisor – Environ Consult CIS (Ramboll Group),
- Two credit rating agencies – ACRA and Expert RA,
- Verifier – Expert RA.
The successful debut placement of bonds (with oversubscription) took place on the Moscow Exchange on December 17, 2021, with 5 billion rubles worth of bonds in the issue.
‘Transition’ (adaptation) bonds are becoming an effective tool for financing sustainable development of carbon-intensive industries. The market reacted positively to this offering, which indicates great prospects for ESG financing.
We consider this as an important step for the development of the sustainable financing market in Russia. The oil and gas industry has considerable potential for the implementation of projects with positive environmental effects, and we are pleased that INK-Capital was the first company to issue transition bonds in accordance with the provisions of the "adaptation" section of the Russian taxonomy developed by the Ministry of Economic Development and VEB.RF.
The bond issue is a major innovation in the market of local ruble bonds. The INK Group has once again confirmed its commitment to the sustainable development concept.
VTB Capital, as one of the leading organizers of ESG standards in Russia, was pleased to offer assistance to INK-Capital for this noble endeavor, which required structuring the deal, going through the verification process, and finding investors who share our values.
INK assumed the responsibility for the first issue of "transition" (adaptation) bonds in Russia in accordance not only with international but also national standards, thereby opening the door for other companies from carbon-intensive industries. This issue will encourage the growth of the national sustainable finance market. We were glad to be involved in this important pilot project in Russia as a verifier.
The Company provided all relevant information, including a report of the international environmental adviser Environ Consult CIS (Ramboll Group), for the second-party verifier to provide an opinion on compliance with the principles of adaptation (transition) bonds:
«The Project is aimed at environmental protection and has a significant positive effect of preventing pollutants and greenhouse gas emission, enhancing the resource management efficiency, and is in line with the international sustainable development principles and the climate transition criteria.».
According to the verifier opinion — Expert RA credit rating agency, the debut issue of Series 001P-01 exchange-traded bonds aligns with the transition bonds principles set forth in The Climate Transition Finance Handbook by the International Capital Markets Association (ICMA) (the Company’s bonds were listed in the ICMA Sustainable Bonds Database on February 11, 2022), meets the adaptation financial instrument criteria formulated in Decree No. 1587, and confirms the Project compliance with internationally accepted principles and standards of environmental protection and climate transition finance developed by the ICMA.The ICMA Executive Committee has resolved to suspend the membership of the Russian verifiers with effect from March 1, 2022, and delist the issues of all the Russian companies from the ICMA Sustainable Bonds Database.
As can be seen, the Group pursues a comprehensive approach to resolve the tasks undertaken, seeking a long-term balance of economic benefits, business continuity, contributing to a favorable living and operation environment for all stakeholders, and environmental stewardship for the good of the current generation and generations to come.
The INK Group confirms its commitment to the sustainable development concept by issuing adaptation (transition) bonds, which are the first transition bonds in the Russian stock market history aligned with the ICMA principles and standards, and the first – and so far the only – sustainable development financial instrument in Russia’s oil industry.