Herman Gref: We must help companies locate funding to successfully complete a monumental green transformation

Sberbank CEO and Chairman of the Executive Board Herman Gref participated in a session titled Global Transition to Green Economy: Challenges for Russia and the Financial Sector's Role moderated by Russian Central Bank Governor Elvira Nabiullina at the International Financial Congress. Also participating were Sylvie Goulard, Deputy Governor of the Banque de France, and Dmitry Konov, Chairman of the Management Board at SIBUR Holding. Deputy Prime Minister of the Russian Federation Alexander Novak also shared his position in a recording of a conversation with Elvira Nabiullina.

The participants discussed what measures the Russian Government, Bank of Russia, and private sector will need to take to reduce growing environmental risks, considering the high carbon intensity of the Russian economy, and whether it is possible to turn climate challenges into strategic opportunities for Russia.

Nabiullina noted that preserving the integrity of natural ecosystems requires a restructuring of all economic and public relations. A global climate transition is inevitable, and Russia needs to move from the stage where it reflects upon and discusses potential approaches to the stage where it implements them in practice as soon as possible. The green agenda should be incorporated into the business models of Russian enterprises in various sectors of the economy.

Goulard opined that it is the task of central banks to work towards forming financial standards for a green transition and green portfolios, stress testing, and carrying out financial evaluations of transition strategies, complementing the efforts made by national governments.

Novak discussed how Russia's Energy Strategy 2035 takes into account the decarbonization trend and energy transition. He also acknowledged that such a transition is inevitable, although he noted that the pace at which we move to new energy sources will depend on a number of factors. According to various estimates, the proportion of traditional hydrocarbons in global energy consumption will decrease from its current level (90%) to 20-70% by 2050. Regarding domestic energy consumption, the strategy assumes an increase of the proportion of renewable energy sources from 1% to 10%, a twofold reduction in the proportion of coal, the upgrading of traditional power plants, the development of hydrogen fuel production, and more active use of nuclear energy.

Gref noted that this was the first IFC session to be completely devoted to green topics and that, while it might seem like humanity can go on existing in its traditional paradigm, in fact, we have almost run out of time. If current trends stay as they are, the year 2100 will see the world facing a 3C increase in average annual temperatures, coastal flooding due to rising sea levels, and more devastating consequences.

Gref indicated that the Bank of Russia is doing much to develop and promote the ESG agenda. A special task force has been established, which Sberbank is a part of. Its tasks include evaluating the financial component of the issue, because decarbonization will require immense investments - approximately USD 1 tn for Russia. Revenue from carbon credits could be a significant source of funds. New technologies will also be required, as only 65% of the goals set can be implemented using current technological solutions.

The Sberbank CEO explained that the green transformation process does not only create problems - it also creates opportunities. It provides great impetus to the revitalization of international cooperation and will also create thousands of new jobs.

We carried out a stress test to understand the transition to net zero in 2050. Under this scenario, oil will drop from USD 77 to USD 26 and gas prices will be halved. Oil production in Russia will decrease by a factor of three in the next 30 years and export will decrease by a factor of four to six. EU countries recently decided to reduce greenhouse gas emissions by 55% by 2030 instead of 40%, which was the initial plan. This is an even more dramatic scenario. If nothing changes, this will slash the national growth rate by one-third. Detailed projections based on facts and figures force us to advance more vigorously, making calculations and proposing solutions, so we are not at a disadvantage as a result of the processes taking place worldwide over the next 20-30 years.

Herman Gref

CEO, Chairman of the Executive Board, Sberbank

Konov observed that decarbonization went from being 'nice to have' to something you simply cannot choose not to do in a matter of years. He also noted that it is difficult to find a balance on most issues: e.g., SIBUR's polymers are the result of a relatively clean production process when it comes to carbon footprint, however, many consider them to be plastic debris, which is why the processing industry needs to be developed.

Gref added that today environmental risks are triggering many other risks, including credit risks. The past two years were characterized by a number of concrete decisions and prompted changes in the Bank of Russia's credit policy. As Nabiullina put it, the scale of the ongoing transition is such that the Bank of Russia will have to change its formula perceptions and approaches to regulation.

We are creating a line of green products that are in high demand. We have already issued over RUB 50 bn in green loans and another RUB 650 bn in financing is in consideration. I believe that the financial sector has two roles to play. The first is to urge industries toward a climate transformation. It is already more difficult to place non-green bonds, and companies must follow an ESG agenda. The second role entails that banks and regulators work together to create impetus and opportunities. We must help companies locate funding to successfully complete a monumental green transformation, the first of its kind.

Herman Gref

CEO, Chairman of the Executive Board, Sberbank