Alexey Raskhodchikov. Cities’ Transfer to ESG: What Is in It for Developer Companies.11 february 2022

Alexey Raskhodchikov, Chairman of the Moscow Center of Urban Studies “City”

When people talk about ESG, they usually lapse into discussing ecology and issues related to it. As the only scientist among the speakers here I would like to explain what ESG actually is and how scientific approach to it is different from any other. Scientists attempt to get to the bottom of the matter. We have two key issues here, and one of them is politics. ESG is rooted deeply in the philosophy of the Western society. Western political system was built on humanism and democracy. But after Nazi concentration camps where you could just take a living and breathing person and burn them alive, we have to stop talking about humanism. If we look at the real number of victims of those camps, it will be obvious that at some point in the past, humanism just stopped working. The other issue is democracy. It could also be called to question: during the pandemic, it was legal to interfere with the private lives of citizens and lock them in their homes. It turned out that the so-called Western community does not in fact exist; there is no real political agenda. In that situation, saving our planet could become an agenda, it could cement the society together and show to the common people that they fight for everything good and against everything bad. I mean, this is inevitable. This process has already started, and it will only build momentum.

Another thing that people don’t understand is the question of competition. What is the main point of carbon transition and the related environmental policy? Well, that’s simple. Oil comes either from Russia or from the Arabic countries, in which democracy is not exactly popular, or so the Western politicians claim, and that is why the “dirty” oil needs to be substituted with “clean” solar batteries. Which, as we all know, are made by Germany. Most of the conference participants here work with construction materials and equipment. As experts, you know the difference between German and domestic equipment, be it wind generators, light-emitting-diodes or anything else, actually. It pains me to say it, but we are at a disadvantage here at the moment. And so, if we try to sell the idea of clean technologies, competition comes into the picture. The same is true for the so-called green materials. If we’re not talking about the construction of wooden houses, which have been so popular lately, we have to admit that, beyond that, there is no mass production of green materials in Russia right now. We just don’t know how to make them. There’s no production capacity for that, and we have never given that a real thought. That’s putting it briefly.

Ecological compatibility is not a temporary thing, nor some “hype” trend like gender equity or anything of that kind. Trust me, it is a serious issue, and it will not go away. We will have to deal with it sooner or later. So, what must we be prepared for?

As for the corporate approach for ESG-companies, that is clear, that we can do already. It will be a question of auditing, reviewing of long-term goals and financial reports. And now I’m going to disagree with my colleagues here. We talked about emissions, and you mentioned that construction industry and housing and utility sector are responsible for the most of them. Well, it is not exactly true. Cities are indeed responsible for 80% of emissions and heat traces, but it is not only the fault of construction industry and utilities sector. Developers are not the biggest bad guy destroying our planet. There are other factors involved. I would like you to focus on the other two letters of the acronym: S for social and G for governance. What are they about? You see, implementation of social standards starts with human health. I believe it is the right approach. You ask why? And what does “social” actually mean? Today, people start to implement ESG standards in relation to cities. VEB.RF together with PwC and Academy of National Economy and Public Administration make lists and draw up indexes. Transfer to ESG is real, you can find the current data on CO2 emissions in London just by checking up the weather on Yandex app. The rules by which we will live tomorrow are being written today. Soon all cities in the world will be rated by their compliance with the ESG principles. And it means that it will be much more difficult to get appropriate permits for construction projects that don’t meet the standards of environmental friendliness, social responsibility and corporate government.

What stands for “social”? This is not an easy question. It doesn’t mean corporate social policy in the classic sense. It is not about wages and salaries, pensions, benefits or any other social safety nets. It’s much more complicated than that. The previous speaker talked about urban planning and green areas, violations of environmental quality standards, and territories that developers are obliged to landscape subject to their contracts. Emission reduction policy is not only about using green materials. To reduce emissions, we need those “15-minute cities” where everything is at a walking distance from citizens’ homes and kids don’t have to use public transport to get to school. If there is no grocery shop at a 15 minutes’ distance from your home nor a school for your children at a 20 minutes’ walk, you don’t live in an SG-city. This is only one factor; there are much more. In fact, the Alliance for Healthy Cities has been active in Russia for some time already as part of the WHO European Healthy Cities Network. They have been working for quite some time on healthy urban planning and lists of parameters that define a healthy city as Europeans understand it. Today, we discussed “green” national state standards, whereas my colleagues and me have been discussing national standards for healthy urban planning for half a year now.

What stands for “governance”? Well, that’s interesting. One of the ESG parameters is closely connected to the level of voters’ activity. I will not say more so as not to get pinned for inappropriate political discussions. Why is governance a problem for developers? For one, because it is also about self-governance. Not corporate policy – you cannot automatically transfer corporate management and principles to a city. Why? Because a city is a community. It comprises a mayor, numerous deputies, local government, municipal councils, property owners’ associations… On every level, there are problems of their own. In a so-called human ant-hill, a high-rise apartment block of +1,000 households, it is impossible to establish an effective house owners’ association. The management company will always be dictating its terms. How did our colleagues of DONSTROY manage to become one of the leading ESG companies? They reviewed their principles. They undertook management of the buildings they had constructed. That is an entirely different approach to the matter. If you construct a building and then forget about it, it is one thing. Quite another thing is if you understand that you will take the responsibility for it after it’s ready and you will bear all management costs. You just have to adjust your perspective. Is that so much of a threat? I believe that my colleagues here will profit from it rather than lose anything. Who could come off a loser? Companies that continue to build those human ant-hills. But companies that care for the people who will live in that particular apartment block, companies that perform comprehensive development intelligently, are professionals in complex management and development of territories and are able to deal with neighborhoods that include apartment houses, retail stores, social venues and transportation systems, – such companies will always have the best of the bargain. This is why it is crucial for developers to participate in elaboration of new national standards as well as new standards related to ESG.

As I already said, the rules by which we will live tomorrow are being written today. And above all, it will affect developer companies. If we do not participate in it, later we will have to meet the requirements set by someone else. Rather than slavishly copying Western standards, which were not made for us anyway, we need to devise our own. We have our own policy, our own huge territory with woods, forests and water arteries. We will not be able to meet competition if we use German light fixtures or Polish planting materials, they are just better that ours, everybody knows that. But we can re-imagine international standards, bring our own products to the market and demonstrate that they are useful and that they can compete. It is always wise to take into account international standards, but we have to create our own ESG-agenda that is clear to people and comfortable for our businesses.