The UN’s COP 26 summit in Glasgow has shone a harsh light on the need for multilateral action in the fight against climate change. India’s last-minute stand against phasing out coal, for example, has been held up by some as an example of individual nations not pulling their weight in what must ultimately be a global effort.
Yet the desire for international collaboration is there. This was the message sent by a panel of leaders from Russian and British companies meeting during the COP 26 climate conference in Glasgow. Eminent speakers representing a range of industries – from metallurgical and nuclear to craft wine – underscored the urgent need for a cross-cutting approach on climate, uniting governments, industry and consumers.
Following the leader
Given the Russian President’s conspicuous absence from the COP 26 summit, it would be easy to assume that climate change is not on the Russian agenda. Yet Russia has a lot to lose if global temperatures continue to rise at their present rate. One fifth of Russia’s territory – and 2mn Russians – are located north of the Arctic circle. Thawing permafrost, melting ice and snow, and wildfires are already creating big problems in Russia, where temperatures are rising three times faster than in the rest of the world.
All of this means that it is firmly within Russia’s interests to become a leader in the fight against climate change. This notion was echoed by the panel of international business leaders at COP 26, who stressed that Russia has both the capability and the motivation to be a driving force in emissions reductions. “In the climate change challenge, Russia has been a bit behind the whole world in its business and its thinking.” Said Elena Sapozhnikova, CEO and co-founder of the World Economic Forum’s climate change initiative in Russia. “It has been reactive, rather than leading the process. Now it is trying to catch up. The fact that we’re one of the largest polluters in the world is not making it an easy process,” she continued. Indeed, recent research by Carbon Brief shows that Russia is the third-largest producer of CO2 historically, increasing the onus on it to step up to the plate when it comes to combatting climate change.
Yet things are moving in the right direction. “In business, we’ve seen a huge shift of mindset.” Sapozhnikova noted. “ESG and climate change are topics at every board meeting – we are all including them in our agendas, in our annual reports, in our conversations with investors. And Russian regulators are also becoming more and more mindful of this, driven by the carbon tax that the EU is imposing.”
Roger Munnings CBE, chairman of the Russo-British Chamber of Commerce and an independent director at Sistema, Lukoil and Nornickel, concurred. “I think it was Bismarck who once said that Russians saddle up slowly, but ride quickly, and you can see that the Russian government and major companies in Russia are now into the ride-quickly phase on ESG matters – not least, in my experience, those companies which are involved in hydrocarbon and raw material production,” Munnings said.
Putting your money where your mouth is
Yet, as Tom Blackwell, chairman of EM, pointed out: “The transition from words to actions remains a slow one, both in Russia and in the world at large. One of the reasons for this is a continued lack of collaboration across industries and borders.” Companies struggle to justify expensive changes to operating models to investors without the certainty that their peers are implementing the same changes. “We know how to calculate each tonne of carbon emissions with the footprint of our products,” said Yuriy Gavrilov, director for Strategy and M&A at steelmaker and iron ore producer Metalloinvest. “But at the same time, we know that in China, they would still continue increasing their level of greenhouse emissions until 2030. We have to think locally, obviously, but within international trade, we need international co-ordination and agreements, because at least 50% of our products go to international markets. Without proper regulations and support, it would just be unfair for certain areas, if we invest, without any real competitive advantage.”
Internationally recognised regulation on emissions is still virtually non-existent. Some bilateral co-operation on climate issues exists, such as the EU-China Partnership on Climate Change, but it is not sufficiently widespread, and is a long way from being ambitious enough to limit global warming to the Paris agreement target of 1.5°C above pre-industrial levels.
The urgent need for a multilateral carbon-cutting framework was a recurring theme at the panel of Russian and British business leaders in Glasgow. “Regulation is obviously needed to help business in this challenging time of transition,” said Irina Bakhtina, chief sustainability officer for Rusal. “Regulators must completely re-imagine the landscape in which we are operating… We need measures from the government to help companies being pioneers, so that everyone in their sectors can start taking those steps and re-engineering their businesses. Carbon pricing is no exception. The expert community says that if every country has a carbon pricing system more or less compatible with each other, then we don’t need all these carbon tax adjustments across borders. Currently we have 64 different systems, with carbon prices varying from €1 or 2 to €150.”
A recent report by the Intergovernmental Panel on Climate Change (IPCC) paints an unsettling picture of earth in the future if temperatures rise to 2°C above pre-industrial levels. The results in some areas will be increased flooding and droughts, and all countries will be affected by migrations of populations away from the most exposed places. It follows, then, that everyone must work together to prevent such a scenario. This is especially true of businesses, which are particularly vulnerable to events happening abroad, as demonstrated by this year’s supply chain disruptions. “In many cases, when your supply chain is international, your exposure [to adverse environmental effects of climate change] is actually much more significant than a single country’s geographically constrained exposure,” said David McGlinchey, chief of external affairs at the Woodwell Climate Research Centre.
When it comes to climate policy, Russia is still fairly early on in the development process, but clear progress has been made in recent years. “It’s a question of global diplomacy,” observed Polina Lion, chief sustainability officer at Rosatom. “This is probably a new topic that everybody agrees on. For the Russian Federation, it was quite challenging to accept these net-zero commitments. A year ago, a special decree was issued by the Russian President with quite controversial commitments on carbon footprint target. But after just one year, we’ve made a public commitment to net zero. That’s thanks to this positive global pressure, because we understand that as a country we need to be in this dialogue and contribute.”
One area where international cooperation is sorely needed is that of energy. A shortage of gas in Europe has seen rising electricity prices this winter. Sergey Vakulenko, director for Strategy and Innovation at Gazpromneft, said that such crises could be avoided. “Sun and wind are inherently intermittent energy sources… From the engineering standpoint, you’d better have your wind and solar sources almost fully backed up with gas and coal and nuclear and other capacities. You shouldn’t be burning all those carbon-emitting fuels when you are able to get your power from sun and wind; however, you still have to have all your sources available for when they don’t work. Either you have to pay capacity charge to thermal generators and oil and gas producers for keeping their resources online for when you need them, or you’d have to live with very substantial price spikes – probably even higher than today. Or, you would have to come up with a new system of energy prices that would include capacity charge elements. That’s something we need to come up with: an absolutely new pricing mechanism for energy systems with a substantial component of something with zero or next to zero short-run cost, albeit an intermittent supply like wind and solar.”
As with so many areas of change, the panellists concluded that government leadership was sorely needed in creating a workable and fair strategy for the energy transition. Rob Malin, co-founder and CEO of craft wine company When in Rome, pointed out that “A carbon-tax-based solution for wine and other FMCG goods would have very rapid effects on the whole industry. Packaging solutions are readily available, but also a lot of the agricultural techniques can be changed, and it’s not expensive and can happen quickly. But they need an incentive to do it, and they need a certainty to do that. We can’t do it alone.”
Although uptake is slow, industry has proved its potential to clean up its emissions, whether through low-carbon alternatives of traditional industrial processes (like electric arc furnaces for steel) or by eliminating inefficiencies in the supply chain. What is less clear, however, is precisely how such processes will be scaled up and made profitable.
Irina Bakhtina of Rusal pointed out that the fundamental energy-saving mechanisms are often already in place in leading companies: “Hydroenergy powered aluminium plants emit seven times less CO2 than coal power plants. But to go further beyond this low-hanging fruit is getting more difficult… The next step for us, in order to bring scope 1 emissions to nearly zero, is to commercialise inert anode technology. This is not a new discovery for the aluminium industry, it’s being piloted here and there, but it’s yet to be commercialised. You’ve probably seen an aluminium pavilion built next to the Armadillo Building in the COP26 space, which is made out of this metal. But it is not yet commercially viable for the sectors that we normally supply to.”
Yuriy Gavrilov of Metalloinvest noted the same problem. “Such technologies are available, and we can use some of them already at the pilot level, although not at the industrial level yet. It requires a lot of R&D and investment to bring them to the required industrial level, to improve these technologies, and to scale them up to reduce the cost of implementation.” But he also emphasised that Russian industry would be a key player in making these changes. “I fully agree that Russia can take a leading role in such a processes, because we already have a very good starting base – not only a natural resources base, but people, skills and practices.”
The Russo-British Chamber of Commerce has received support for international cooperation on the green agenda from both the President of the Russian Federation and the UK’s Foreign, Commonwealth and Development Office, according to Roger Munnings CBE. “There is full government support on both sides – but I would like it to be more overt and vociferous, particularly on areas of mutual benefit and supra-national importance like environment. We want governments to be saying ‘yes, please go ahead, please work together, this is very important, so we want to see it’ Munnings said.
It is clear that businesses and governments alike have a long way to go before COP27. A report by Climate Action Tracker showed that the pledges made in Glasgow will only limit global temperature rises to 2.4°C above pre-industrial levels – well above what the UN had hoped for. But the hardest step, as any psychotherapist will tell you, is admitting that there is a problem, and that is precisely what happened at this COP26 summit. David McGlinchey of the Woodwell Climate Research Center emphasised the potentially drastic consequences of inertia at the meeting of British and Russian business leaders. But he also hinted at some cause for hope: “As recently as five years ago, a conversation like this would be a third rail that nobody would want to be a part of. That has changed so dramatically. It’s now the virtuous issue to be involved with, which makes me optimistic that we’re heading in the right direction.”
You can watch the full panel discussion online here.