The decarbonisation of the economy, climate risks and sustainable development are on the front pages of the media. Against the backdrop of the ESG (environmental, social, and governance) trend gaining momentum in Russia, institutional investors and banks see their goal as reducing investment in extractive industry companies and increasing investment in green companies. In September, the Russian government approved the criteria for sustainable (including green) development projects (the taxonomy of green projects), as well as provisions for creating and verifying sustainable development financial instruments as described in more detail in our Alert.
ESG rhetoric is accompanied by increased attention to environmental and industrial safety issues and stricter regulation. The draft regulations analysed in our Alert and showing the general vector in this area are illustrative of the stricter approach. For example, financial support is being considered as part of the obligation of owners of certain hazardous facilities to take steps when mothballing and abandoning facilities.
ESG regulation
Goals and main areas of Russia’s sustainable (green) development approved
On 14 July 2021 regulations came into force that define the goals and main areas of sustainable (including green) development of the Russian Federation. The regulations define the key focus areas of Russia’s government policy to develop investment in Russia and raise non-public funds for projects with a positive environmental impact. They also focus on pursuing areas of sustainable development in accordance with international treaties to which the Russian Federation is a party[1].
In particular, Russia’s main areas of sustainable (green) development include waste management, energy, construction, industry, transport and industrial engineering, water supply and sanitation and a number of other areas.
The concept of the “green project” has been introduced. A green project is one that meets all of the following conditions:
- it meets the quantitative and qualitative criteria for green projects (see below for more details on these criteria);
- it is committed to achieving the goals of the 12 December 2015 Paris Agreement, or those of the 25 September 2015 United Nations Declaration, also known as the sustainable development goals, in particular (1) availability and sustainable use of water and sanitation for all, (2) access for all to affordable, reliable, sustainable and modern forms of energy for all, (3) promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all[2] and other goals;
- it is committed to achieving the following priority goals related to positive environmental impact: (1) conservation, protection and improvement of the environment, (2) reduction of pollutant emissions and discharges, (3) reduction of greenhouse gas emissions, (4) energy saving and improved resource efficiency;
- it is committed to achieving an environmental effect during the term of the green or adaptation project[3], which (1) is material, i.e., the effect of the project has a long-term and significant positive impact on the climate and the environment, and (2) complies with the requirements of Russian environmental protection laws;
- it is consistent with the technological indicators of the best available technologies;
- there are no significant side effects on the environment, i.e., the project complies with Russia’s environmental laws.
The concept of adaptation projects has been introduced in addition to green projects. They must also meet some of the above conditions for green projects. Adaptation projects are subject to less stringent requirements than green projects.
Criteria for sustainable development projects in Russia approved
In order to achieve the goals and main areas of sustainable (green) development in the Russian Federation (see above for more detail), the Russian government has approved the corresponding criteria for sustainable (green) development projects in the Russian Federation and the requirements for the verification of such projects [4] (hereinafter the “Criteria”, which went into effect on 2 October 2021).
The Criteria include (1) criteria for green projects (green project taxonomy) and (2) criteria for adaptation projects (adaptation project taxonomy).
Adaptation (“transitional”) projects have requirements that are more flexible than those for green projects. Such projects include activities in industries that are not “green” and do not fully comply with international standards established for green projects, but are characterized as having a significant positive environmental effect and are aimed at reducing environmental damage.
One of the Criteria for both green and adaptation projects is compliance with the indicators of the Best Available Technologies Guide[5].
Other Criteria include, but are not limited to, the following:
- for projects aimed at improving the energy and thermal efficiency of existing facilities in the “efficient power supply” area, existing facilities must see a more than 20% (in kWh/m2) reduction in energy use, while the effect is determined by the initiator and confirmed by the verifier for new facilities;
- for projects aimed at improving the energy and thermal efficiency of existing facilities in the “efficient water supply systems” area, water consumption must be reduced by more than 20%;
- for aluminium production, direct greenhouse gas emissions must be less than 1.514 tonnes of CO2e/t or total greenhouse gas emissions associated with electrolysis and with the production of electricity consumed for electrolysis must be less than 3 tonnes of CO2e/t;
- for the creation/upgrading of agricultural product storage and processing infrastructure CO2e emissions must be reduced by at least 20%;
- other Criteria.
Green projects that don’t have additional Criteria set include projects based on no-till technology for agricultural land, projects aimed at providing water recycling water supply, construction and modernisation of infrastructure for clean energy transport and other projects.
There are plans to finance the capital costs and operating expenses associated with the implementation of a green or adaptive sustainable development project by raising by issuing a sustainable development financial instrument (bonds or loans to finance sustainable development projects).
A verification procedure is carried out to verify that such projects meet the Criteria. Verification can be carried out both at the stage before and after funds are raised. In addition, verification is carried out on a regular basis – at least once a year during the validity period of the financial instrument.
A law regulating the limitation of greenhouse gas emissions is coming into force
In order to meet Russia’s commitments under the Paris Agreement on Climate Change, Federal Law No. 296-FZ dated 2 July 2021 “On limiting greenhouse gas emissions” (“Federal Law 296“) will come into force on 30 December 2021. It governs activities accompanied by greenhouse gas emissions and is intended to create conditions for Russia’s economy to develop sustainably while cutting greenhouse gas emissions.
Federal Law 296 provides for the following measures to limit greenhouse gas emissions:
- state accounting of greenhouse gas emissions by keeping a register of greenhouse gas emissions;
- setting of targets to reduce greenhouse gas emissions;
- supporting activities to reduce greenhouse gas emissions and increase capture of greenhouse gases in accordance with Russian laws.
Federal Law 296 requires organisations engaged in activities accompanied by greenhouse gas emissions equivalent to 150,000 or more tonnes of carbon dioxide per year for the period before 1 January 2024, or 50,000 or more tonnes of carbon dioxide per year for the period after 1 January 2024 to annually (before 1 July of the year following the reporting year) submit reports on greenhouse gas emissions to the authorised state body.
Federal Law 296 also envisions that organisations will voluntarily implement climate projects, i.e., a set of measures to reduce (prevent) or increase the capture of greenhouse gas emissions.
Extended producer responsibility and waste recycling
New form of the product waste recycling report approved
From 18 June 2021 to 1 January 2022 product manufacturers will be required to report on meeting product waste recycling targets using the new form of the waste recycling report approved by the Federal Service for Supervision of Natural Resources (Rosprirodnadzor) in April of this year[6].
You may recall that earlier Rosprirodnadzor recommended two forms of the waste recycling report[7] as part of waste recycling target reporting. The contents of the previous forms have now been combined into a single new form and include the following information:
- information about the contractor that disposes of the waste (name, OGRN, TIN, OKVED, location, etc.);
- information about the customer (i.e., producer/importer of goods);
- list of waste disposed of;
- information on what was produced in the process of disposal (recycling, regeneration, recovery).
Recall also that a copy of the recycling report must be submitted to Rosprirodnadzor at its request in order to monitor the meeting of established recycling targets[8].
List of goods/product packaging to be disposed of after they have lost their consumer properties updated
Pursuant to Art. 24.2(4.1) of Federal Law No. 89-FZ of 24 June 1998 “On Production and Consumption Waste,” the product waste recycling target may be met by recycling any waste from the use of goods belonging to one or more product groups (product packaging groups), provided the goods/product packaging have a similar purpose or similar waste treatment method.
The list of goods to be disposed of after they lose their consumer properties contains a column “Category of goods of similar purpose and/or similar waste treatment method” with numbers assigned to groups of goods/product packaging.
In accordance with the amendments that entered into force on 26 April 2021[9], the following list of goods to be disposed of after they have lost their consumer properties[10] has a new column “Category of goods of similar purpose and/or similar waste treatment method”:
- Group No. 17 “Tires, tire casings and rubber innertubes” has been assigned to category 2;
- Group No. 33 “Lead batteries” has been assigned to category 12;
- Group No. 34 “Batteries” has been assigned to category 14;
- Group No. 35 “Electrical lighting equipment” has been assigned to category 27;
- Group No. 36 “Household electrical appliances” has been assigned to categories 23 and 24 depending on the item;
- Group No. 37 “Non-electrical household appliances” has been assigned to category 27;
- Group No. 40 “Filters for internal combustion engines” has been assigned to category 26.
Thus, the product waste recycling target can be met by recycling waste from the use of goods included in different groups of goods only if they have the same value in the column “Category of goods of similar purpose and/or similar waste treatment method”[11]. For example, the waste recycling target for goods in group No. 1 “Readymade textile products (except clothing)” can be met either completely or partially when recycling waste from the use of goods included in group No. 2 “Carpets and carpet products”.
Rosprirodnadzor guidelines on complying with the obligation to meet waste recycling targets
Rosprirodnadzor’s guidelines presented in Letter No. AA-10-03-34/32761 of 29 September 2021 state that when the manufacturer/importer meets the recycling targets by concluding contracts with a waste management operator, a Russian environmental operator, a regional operator or legal entities or individual entrepreneurs which do product waste recycling, the waste recycling report will not comply with Federal Law No. 89-FZ of 24 June 1998 “On Production and Consumption Waste” about ensuring the waste recycling target is met, as entrusted by manufacturers/importers, if the report is issued by persons not on the list or by persons with whom the manufacturer/importer has not concluded the appropriate contracts.
If the manufacturer/importer entrusts a third party to ensure the recycling target is met, the third party must be named in the recycling report.
Adverse Environmental Impact
Guidelines for registering facilities where capital construction activities are carried out (including construction sites)
According to the criteria for categorising facilities that have an adverse impact on the environment (hereinafter “AEI Facilities“), facilities where construction activities are carried out (including construction sites) are classified as AEI Facilities of categories III and IV depending on the duration of the activities.
AEI Facilities are subject to state registration by the organisations carrying out activities at the AEI Facilities, on the basis of the corresponding application for state registration[12].
Letter of the Ministry of Natural Resources and Environment of Russia No. 12-50/4954-OG of 15 April 2021 “On facility registration” specifies that it is reasonable to state the date the construction permit was issued as the commissioning date. If no construction permit is required, then the date the design documentation was approved may be stated in the application.
It is also noted that, after construction is completed and a facility is commissioned the facility’s category may be changed depending on the degree of adverse environmental impact. This can happen when the registration data on the AEI Facility are updated based on information received. A decision may be made to include or exclude the facility on/from the list of facilities subject to federal state environmental oversight.
Guidelines on payment of the environmental impact fee for category III facilities
The procedure for calculating and collecting the environmental impact fee for category III facilities is regulated by items 11.1 and 11.2 of the Rules for calculating and collecting the environmental impact fee approved by Russian Government Decree No. 255 of 3 March 2017.
Letter of the Ministry of Natural Resources and Environment of Russia No. 19-50/10802-OG of 4 August 2021 “On the environmental impact fee” clarifies that the environmental impact fee must be paid for all pollutants on the pollutants list and present in the enterprise’s emissions. This includes highly toxic substances, substances having carcinogenic or mutagenic properties (hazard class I and II substances). Emissions of radioactive substances are regulated separately by Rostechnadzor bodies and no environmental impact fee is calculated for them.
Other changes
New regulations for issuing sanitary and epidemiological reports approved
New administrative regulations governing the procedure for Rospotrebnadzor to issue sanitary and epidemiological reports (“SER”) came into force on 11 July 2021[13].
The new regulations, in particular, provide the following:
- the range of applicants for the state service of issuing SER has been expanded and now includes natural persons[14] and authorised representatives in addition to legal entities and individual entrepreneurs;
- the timeframe for issuing a SER has been updated:
- the time for issuing a SER for a proposed sanitary protection zone is 15 working days (previously there was no separate deadline);
- the time for issuing a SER on the siting of facilities that may threaten aircraft flight safety, adversely impact human health and the environment, or interfere with the operation of radio equipment installed at an aerodrome is 10 calendar days;
- the time for providing the state service of issuing a SER is 20 working days (previously it was 30 calendar days).
- it has been clarified that the result of the state service of issuing a SER is put into the form of an electronic document. Rospotrebnadzor will issue a paper copy of the SER on a prescribed form if the applicant requests one.
Generally speaking, Rospotrebnadzor’s administrative regulations on issuing SER have not undergone major changes other than those mentioned above.
Draft legislation
Draft law obligating owners of hazardous production facilities to eliminate environmental damage to persons considered
The State Duma is currently considering (and has adopted in the first reading) amendments to Federal Law No. 7-FZ of 10 January 2002 “On Environmental Protection”.[15] The amendments establish obligations to eliminate environmental damage for persons using hazardous production facilities/hazard class I and II waste disposal facilities (hereinafter referred to as “Draft Law 4764-8“).
In particular, the new notion of “separate production facilities” (“SPF“) is being introduced. It means production facilities of hazard classes I and II that must be included in the register of SPFs based on established criteria, as well as for hazard class I and II waste disposal facilities (with the exception of some facilities).
Among the key responsibilities imposed on owners of SPFs, Draft Law 4764-8 provides for the following:
- steps must be taken to prevent and eliminate environmental pollution resulting from the operation of a hazard class I or II production facility when it is mothballed or abandoned[16];
- the following must be developed and submitted to Rosprirodnadzor no later than five years before the end of the service life of the buildings/structures[17] which are separate production facilities or where SPFs are located:
- an action plan[18] for preventing and eliminating environmental pollution resulting from the operation of the separate production facility, including the steps to be taken when mothballing or abandoning the facility[19];
- documents confirming the financial support for taking the actions, for example, an independent guarantee or a guarantee for obligations to pay sums of money; a document confirming that the facility’s owner has set up a reserve fund with the amount of money needed to implement the action plan.
Owners of separate production facilities who fail to comply with the above requirements are required to pay a compensation payment. The payment is calculated based on the degree of environmental pollution resulting from the operation of the facility and cannot exceed the estimated costs of implementing the action plan.
If the facility’s owner is a joint stock company, failure to pay the compensation payment results in a ban on the owner resolving to pay dividends on shares and a ban on paying declared dividends.
Draft Law 4764-8 is scheduled to take effect 1 September 2022.
Higher environmental impact fee rates planned for 2022
The Ministry of Natural Resources and Environment of Russia has prepared a draft Russian Government Decree “On the application of environmental impact fee rates in 2022” (the “Draft Decree“), which sets the following fee rates:
- for environmental impact: in the amount of the rates set for 2018 indexed by a coefficient of 1.17, which is equivalent to the rise in prices from 2019 to 2022;
- for coal dust pollutant emissions from stationary sources: in the amount of RUB 66.17 per tonne.
As follows from the explanatory note to the Draft Decree, the rates are currently very low and require a systematic increase to encourage environmental protection measures.
Higher product waste recycling targets planned for 2022
The Ministry of Natural Resources and Environment of Russia has prepared a draft Russian Government Decree “On approval of product waste recycling targets for 2022”, which provides for an increase in the rate of the recycling target for each group of goods compared to 2021 rates.
In particular, there are plans to set the following product recycling targets in 2022:
- group No. 1 (Readymade textile products (except clothing) will be 20% (it was 10% in 2021);
- group No. 6 (Other clothing and accessories) will be 20% (it was 10% in 2021);
- group No. 9 (Corrugated paper and cardboard, containers made of corrugated paper and cardboard) will be 55% (it was 45% in 2021);
- group No. 27 (Computers and peripheral equipment, office equipment) will be 25% (it was 15% in 2021).
The draft decree is still being considered and has not been finally adopted.
New rules governing the procedure for land reclamation and conservation expected to be approved in 2022
The Ministry of Natural Resources and Environment of Russia has prepared a draft Russian Government Decree “On land reclamation and conservation” which proposes changes to the procedure of land reclamation and conservation. The draft decree also addresses specific features of land reclamation for forests which have been polluted or otherwise negatively impacted (hereinafter the “Procedure“).
In particular, the new version of the Procedure provides as follows:
- if there is no information on the persons whose activities have led to the degradation of land whose state ownership has not been demarcated, the subjects of the Russian Federation and municipalities have the right to perform their own reclamation and conservation;
- the reclamation of agricultural land whose designated purpose has been changed for the purpose of mineral extraction must ensure the land is restored to the condition as of the date the reclamation project was approved. The land must be restored to at least agricultural land fertility (unless the land plots have been withdrawn for state and municipal needs);
- if land reclamation is done for public land and a state environmental expert review report has been obtained for the reclamation project, Rosprirodnadzor remotely monitors the implementation of such land reclamation work to determine whether it complies with the established environmental protection requirements and the reclamation project.
The Procedure is still being considered and has not yet been approved.
There are plans to extend the form of the product waste recycling report until 2027
The Ministry of Natural Resources and Environment of Russia has prepared a draft Russian Government Decree “On amendments to paragraph 2 of Russian Government Decree No. 2010 of 3 December 2020 ‘On approval of the Rules for reporting by producers and importers of goods on meeting the product waste recycling targets’” (“Order 2010“). The draft extends the previously approved form of the product waste recycling report[20] until 1 January 2027.
Order 2010 is at the stage of public discussion and has not been signed.
[1] Russian Government Order No. 1912-r of 14 July 2021 “On approval of the goals and main areas of sustainable (including green) development of the Russian Federation”.
[2] Goals No. 6, No. 7 and No. 8 according to the UN Declaration of 25 September 2015 “Transforming Our World: The 2030 Agenda for Sustainable Development”.
[3] Adaptation projects have more flexible requirements than green projects.
[4] Russian Government Decree No. 1587 of 21 September 2021 “On approval of the criteria for sustainable (including green) development projects in the Russian Federation and requirements for the verification system of sustainable (including green) development projects in the Russian Federation”.
[5] Approved by Rosstandart Order No. 2185 of 23 December 2020.
[6] Rosprirodnadzor Order No. 236 of 30 April 2021 “On approval of the form of the product waste recycling report”.
[7] Rosprirodnadzor Letter No. AS-10-01-36/25460 of 15 December 2016 “On sending an order”.
[8] Pursuant to paragraph 14(b) of the Rules for reporting by producers and importers of goods on meeting the product waste recycling targets approved by Russian Government Decree No. 2010 of 3 December 2020.
[9] Russian Government Order No. 1067-r of 26 April 2021 “On amendments to Russian Government Order No. 3721-r of 31 December 2020”.
[10] Annex 1 to Russian Government Order No. 3721-r of 31 December 2020 “On approval of the list of goods and product packaging to be disposed of after they lose their consumer properties”.
[11] Rosprirodnadzor Letter No. AS-10-02-36/6274 of 2 April 2018.
[12] Art. 69.2(1) of Federal Law No. 7-FZ of 10 January 2002 “On Environmental Protection”.
[13] Rospotrebnadzor Order No. 747 of 5 November 2020 “On approval of the Administrative Regulations of the Federal Service for Supervision of Consumer Rights Protection and Human Welfare to provide the state service for issuing sanitary and epidemiological reports based on the results of sanitary and epidemiological expert reviews, investigations, examinations, tests, toxicological, hygienic and other assessments of compliance with sanitary and epidemiological and hygienic requirements”. The previous administrative regulations approved by Rospotrebnadzor Order No. 775 of 18 July 2012 are thus no longer in force.
[14] In the case of a SER on the siting of facilities that may threaten aircraft flight safety, adversely impact human health and the environment, or interfere with the operation of radio equipment installed at an aerodrome.
[15] Draft Federal Law No. 4764-8 “On amendments to the Federal Law ‘On Environmental Protection’ and certain legislative acts of the Russian Federation”.
[16] Article 1(7) of Draft Law 4764-8.
[17] According to the design documentation.
[18] Article 1(7) of Draft Law 4764-8.
[19] A state environmental expert review report must also be obtained for the action plan.
[20] Approved by Rosprirodnadzor Order No. 236 of 30 April 2021 “On approval of the form of the product recycling report”, which is valid until 1 January 2022.