The government has approved an alternative international taxonomy of social projects

The government has approved criteria for labeling social projects to attract targeted investments – their system, the so-called social taxonomy, should become an alternative to the international standard by which social bonds were previously placed on the Russian market. The Central Bank of the Russian Federation is considering the possibility of extending the mechanism of reduced risk weights for banks to such instruments. Without economic incentives, the impact of taxonomy on the market will be minimal – labeling itself only gives companies a reputational effect, experts say.

The government, by Resolution No. 2415 of December 30, 2023, approved amendments establishing the definition of a social project and its criteria – the so-called social taxonomy. Previously, a similar standard was applied only to green and adaptation projects (amendments were made to the order on the goals and main directions of sustainable development and to the resolution establishing the criteria for sustainable development projects and the requirements for the verification system for financing instruments for sustainable development in the Russian Federation). Social projects may include projects in healthcare, education, support for employment, entrepreneurship and non-profit organizations, housing construction, sports, culture, art and tourism, creating accessible infrastructure, transport, ensuring food security and access to food, social support and protection of citizens , as well as in creating sustainable social and communications infrastructure.

In most cases, additional conditions are written down – for example, during the construction of a medical institution, at least half of its visitors must receive compulsory medical insurance services or belong to socially vulnerable categories of citizens. At the same time, the list also includes projects for the development and production of drugs for the treatment of rare diseases and the introduction of innovative medical technologies. The provision of the Internet will be considered a social project in the case of laying cable in hard-to-reach or rural areas, and the construction of sports facilities – where there is a shortage of them. When constructing housing, it is proposed to take into account the categories of recipients (low-income families, people with disabilities, etc.) and the breakdown of the house. Projects providing housing for internally displaced persons and housing for social rental will also be considered social.

Labeling projects should help attract investment – according to VEB.RF, the instruments already issued within the taxonomy of green projects allow reducing about 1% of Russia’s annual greenhouse gas emissions. The current amendments extend the possibility of attracting targeted instruments for financing sustainable development – social bonds and social loans – for the implementation of projects and introduce a national standard for this – a taxonomy of social projects, the state corporation explains. Social financing instruments have been issued before, but according to international standards. The approval of a national standard makes it possible for businesses to attract investments to implement those projects that take into account our national specifics, expanding international approaches, VEB explains.

However, for now, social labeling can only provide reputational benefits to project initiators and investors. To confirm the status, the initiator of a social project must contact one of the verification companies (their list is approved by VEB). “So far, neither project initiators nor investors can count on any preferences,” VEB explains, “in the future, however, the Central Bank of the Russian Federation is considering the possibility of expanding the practice of using reduced risk weights, which is already used for projects of technological sovereignty and structural adaptation economy, for green and social projects.” Note that in the case of technological sovereignty projects, this applies only to the issuance of loans – a decrease in risk assessment means their reduction in cost.

Director of the ACRA Sustainable Development Risk Assessment Group Vladimir Gorchakov notes that without economic incentives the document will not have an impact on the market – for this year the ceiling for the total volume of placement of all types of “sustainable” bonds in the agency is estimated at 220–250 billion rubles. (in 2023, 142.8 billion rubles were raised). Previously, issuers issued bonds according to the international standard developed by ICMA, now they retain this opportunity, but in general we should expect a more cautious approach to labeling issues – the Russian standard is stricter, the expert adds.

Information on social loans is non-public, their volumes are difficult to calculate (currently Sberbank, Sovcombank, VTB and Rosbank have this practice), but credit institutions will likely conduct additional screening and reclassification of their own portfolios, Vladimir Gorchakov expects. He assesses the prospects of approving measures to support such projects with restraint – a reduction in risk weights for bondholders can only occur in a “pilot” format, this will affect Russian banks, but they are the main buyers of such bonds.

Tatiana Edovina