Alex Čaičics, Head of ESG/SRI Communications at Polyus, discusses the importance of ESG for companies and investors.
Alex Čaičics, Head of ESG/SRI Communications at Polyus, gave an interview to Plus-one.ru where he explained the purpose of ESG ratings, how these can be used to increase capitalization and establishing channels of communication with investors.
Polyus has ESG ratings with Sustainalytics, S&P Global, MSCI and CDP. What is the value of these ratings for your investors, and which are the most meaningful to you?
Ratings are the first thing investors look at when evaluating a company’s ESG (Environmental, Social, Governance) performance. The ratings certainly don’t provide the full and final picture: large investment funds tend to assess issuers themselves basing on their sustainability performance, and this is a good professional approach. But, if an investor has never dealt with a company they will use the ratings as a starting point. They may then check the rating agencies’ data and agree or disagree with their conclusions. From Polyus’ perspective as an issuer, international ESG ratings linked to stock exchange indexes are probably the most important for us. Being included in these lists helps to attract index investors.
Does that mean that the S&P and MSCI ratings are the priority?
Yes, but as well as these we are also interested in other influential ESG ratings that are used by investors, even if they are not directly affiliated with stock exchange indexes or credit rating agencies. Sustainalytics and CDP are examples of this.
You mentioned investment funds, do these ratings matter for individual investors?
These ratings are visible and accessible. Many agencies disclose their ratings reviews publicly and issuers may be compared based on their scores in one or several ratings. This is very convenient for an individual investor. Issuers can be short-listed based on their ESG ratings before carrying out a more detailed review of their non-financial reports looking at specific figures.
What is the difference between the interests of institutional and individual investors?
Institutional investors usually have a deeper understanding of the topic. They try to review corporate non-financial reports on their own with a specific focus on the figures that the ratings are based on. This is why it’s to the issuer’s advantage to disclose correctly. It helps both ratings and investors who want to see what the ratings are based on.
How many ESG ratings does a company need to raise funds on international capital markets? What is the difference between them?
There are many ratings, and you do not need to be on all of them. The rating market is becoming more established with an increasing entry threshold. We choose ratings basing on how important they are for our stakeholders, primarily our investors.
Different ratings involve different methods, industrial and geographical factors which they interpret in different ways. Every rating agency tries to be professional and has its own approach to assessing the companies, from a perspective which it believes is right.
Basically, ESG is a very large area. Take the environmental aspects for instance — they are numerous for operations of a large industrial company. They can be assessed in different ways, some prioritized and others sidelined. In our industry, the key indicators include water stewardship, waste disposal and greenhouse gas emissions. It is a similar story with social aspects, which include relations with local communities, relations with workers, etc. Obviously, the methods used to assess all of these factors and account for their weight may differ, sometimes substantially.
That being said, there is a correlation between every rating, and our investors understand that rating agencies are looking at the company from different angles. If it has good scores across all ratings that suggests that the company pays sufficient attention to ESG issues, the respective processes and procedures are organized to a high standard, and the company is heading in the right direction in terms of its sustainable development.
Over the past few years our ESG ratings have improved, and the company’s capitalization has also increased. There is certainly a correlation between these two, but it is difficult to assess how far ESG factors contributed to the increase in capitalization. We assume that if we don’t treat ESG topics appropriately, investors will lose interest and this will have a negative impact on our capitalization.
Do you plan to raise funding for green projects, or attract some specific forms of debt, or issue green bonds? Given that this is a very large market.
We are thinking about it but we have not yet done any deals like this. We are considering various options. Lending linked to a specific ESG rating is the most interesting option. It would send an additional message, demonstrating our engagement and our commitment to sustainability. This would show that we are ready to put money behind future ambitions and further improve in terms of ESG. Let’s wait and see.
What is going on in Russia in this area?
There are several Russian ESG ratings. But it is currently unclear whether they will survive in the long-term and how important they are. Generally, Russian investors are still interested in ESG, although less than international investors. We have a different motivation here: if a rating is known to the professional community, we need to compare well against our peers. This is why Russian ratings are also important for us, so we are keeping an eye on them and providing the rating agencies with updates.
You said stakeholders in the West are much more interested in sustainability than in Russia. Does that mean that obtaining ESG ratings is mainly a concern of public companies who have a lot of international investors, lenders and contractors, and it is not relevant for companies only oriented towards the domestic market?
Sustainability is now about money: investments on the capital markets, loans, client and contractor relations. International investors choose greener and more socially conscious companies. Respectively, the companies who want to attract these investments will try to adjust their corporate processes in terms of environmental and social responsibility. A universal human motivation also persists, even for purely Russia-focused companies. Sustainability will become more important as an aspect of business for anyone, including private companies. This is just the way things must be done done nowadays.
How often are sustainability issues raised when you talk to investors and analysts?
Very often. This has become an integral part of our communication with investors. When choosing between two similar cases in terms of financials, the investors will put their money into the company with a more developed ESG approach.
When did this trend become obvious?
This topic has pretty much been around for a long time, but it was a niche subject which was only of interest to a limited number of investors. Now it is mainstream. We believe it reached Russian companies two or three years ago.
So, it became prominent after the Paris Agreement of 2015?
I would not definitively say that there is a link between these two things. There was rather a transition from quantity to quality, as sustainability has been critical for several decades, especially in developed countries. Over that time generations have changed, and investment decisions are now taken by people who grew up experiencing this movement, so it is close to their hearts. The wider society demands more environmental friendliness, more social justice, transparency and fairness — and relevant structural changes, including economics and investments. There is no escaping it.
Original story (in Russian): https://plus-one.rbc.ru/economy/voprosy-esg-nevozmozhno-ignorirovat