Russia's largest crude oil producer, state-controlled Rosneft, signed a collaboration agreement with British Petroleum on supporting the carbon management and sustainability activities of both companies. BP is the largest foreign shareholder in Rosneft with a 19.75% stake.

As reported by bne IntelliNews, in the past two years Russian industrial majors have scrambled to improve their ESG scores or face the risk of losing investors that are increasingly careful about long-term environmental strategies.

On the state policy level, ESG is also in focus as Russia belatedly prepares to tackle the EU carbon tax introduction and other "green" challenges. Recent reports suggest several initiatives are being developed at the same time, such as green certificates, a greenhouse gas (GHG) emission reduction strategy, and an energy efficiency policy.

Rosneft is ranked number 16 in the latest RA Expert Russian corporate ESG ranking, a new list that describes the ESG scores of the major Russian corporates. It ranks best on the environment (7) and worst on corporate governance (27).

In this environment a comprehensive ESG agenda is a logical next step for Rosneft, which has been working hard on improving its investment appeal. In 2018 the company pushed a broad investment makeover, when it pledged to cut debt, rein in its investment programme and shed non-profitable assets. The company also raised its dividend payout to 50% of IFRS profit.

Now Rosneft and BP have agreed "to co-operate in identifying and developing new low carbon solutions and programmes that will support their shared sustainability goals." The oil majors will also jointly evaluate new projects envisaging the use of renewables, opportunities for carbon capture, utilisation and storage (CCUS), as well as developments for hydrogen.

"ESG scoring is an increasingly important part of investors’ decision-making process. Therefore, a strategic agreement between Rosneft and BP on carbon management should be considered a positive for Rosneft," BCS Global Markets commented on February 5, while affirming a Buy call on Rosneft's shares.

"ESG is becoming an increasingly important part of investment management, with Portfolio Managers required to devote a large and increasing amount of time, we think, to justifying their investments on an ESG basis as well as a return basis," BCS GM analysts wrote.

Rosneft also reminds that it had adopted a 2035 Carbon Management Plan featuring clear targets for reducing GHG emissions, which was updated by the board in December 2020.

The goals outlined in the plan include the prevention of direct and indirect GHG emissions of 20mn tonnes of CO2 equivalent, a 30% reduction in the intensity of direct and indirect emissions in oil and gas production, methane emission rate below 0.25%, and zero routine flaring of associated extracted gas.

"In late 2020, FTSE Russell, a unit of the London Stock Exchange, verified Rosneft’s entering the global FTSE4Good Index Series," the company stressed, while noting that "Rosneft has been recognised as the leading oil and gas company in Russia by several international ESG ratings, such as Refinitiv, Bloomberg, Corporate Human Rights Benchmark, and has been ranked among leaders in the Climate and Water Resources international ratings of CDP."

As for BP, within 10 years it aims to have increased its low-carbon investment 10-fold to around $5bn annually, while developing around 50 GW of net renewable generating capacity, a 20-fold boost.