Highly accurate climate change monitoring and climate finance: how to create synergies?

At the beginning of the week it became known that the Russian government has prepared a project to create a national system of high-precision monitoring and utilisation of climatically active gases. More than 50 research and development projects are expected to be set up by scientific organisations. The strategic initiative “Low-carbon development policy” provides over 8 billion roubles for the project of complex monitoring within the next three years. The project aims to provide scientific support for measures to adapt sectors of the economy to climate change. It is noteworthy that in the related field — green finance — the Bank of Russia also plans to strengthen the scientific component. Is there a new scientific trend in the implementation of sustainable and low-carbon development? There are clear signs of this, but let’s take a closer look at the details.

A national climate monitoring system — what is it about and why?

In June this year at the St. Petersburg International Economic Forum Ilya Torosov, Deputy Minister of Economic Development of the Russian Federation, announced the beginning of the development of climate monitoring system, which should lead to a Russian model of global climate and strengthen the state system of observations on the key components of the climate system, which is supposed to consist of four interrelated thematic blocks: “Climate — World”, “Climate — Russia”, “Economy — World”, “Economy — Russia”. Two climate blocks accumulate and analyse objective data on temperature change processes and their impact on the livelihood ecosystem, while two economic blocks accumulate and analyse data on the effectiveness of global energy transition and decarbonisation measures and low-carbon transformation in Russia.

As a result, the country should have its own model of climate change at the global level, as well as a system of greenhouse gas emission and absorption accounting at the national level. In other words, the state management system as a tool and base for decision-making will receive not only scientifically grounded forecasts of climate change and greenhouse gas emissions, as well as proof of the absorption capacity of Russian ecosystems, but also estimates of economic efficiency of decarbonisation and adaptation models to climate change.

Six consortia have been formed to solve the tasks of creating a unified monitoring system, which included about 50 scientific organizations of the Russian Academy of Sciences and Roshydromet. The first installment of about 1.6 billion rubles has been allocated in accordance with the government decree in the form of subsidies to scientific and research organizations from the reserve fund. What exactly will the money be used for?

Money for land, oceans, seas and anti-desertification researchers is allocated by the state

The funding is divided into six blocks and covers both basic research areas and calculations, as well as methodological support for the tasks at hand.

For example, scientists from the G. I. Marchuk Institute of Computational Mathematics of the Russian Academy of Sciences are to present calculations for modelling the tasks. G.I. Marchuk Institute of Computational Mathematics RAS should present their calculations on the Earth’s climate modelling and the quality assessment results of the reproduction of the climatic system parameters dynamics for the period 1850–2014 in accordance with the CMIP6 programme protocols[1]. P. P. Shirshov Institute of Oceanology. P.P. Shirshov RAS will develop the architecture of modules of the system for monitoring the fluxes of climatically active gases in the sub-polar North Atlantic, the Barents and Kara Seas.

To develop sectoral and regional adaptation solutions, including combating desertification, the A.I. Voyeikov Main Geophysical Observatory will present a systematic design of a high-resolution precipitation monitoring network as part of an integrated urban environmental/climatic service. Programmes of action to combat desertification will be developed for 13 regions of the country with the participation of science.

Part of the work is aimed at developing systems for terrestrial and remote monitoring of greenhouse gas fluxes in the Russian Federation, as well as systems for recording data on fluxes of climate-active substances and carbon budgets in forests and other terrestrial ecological systems. For example, the Space Research Institute of the Russian Academy of Sciences will estimate the carbon stocks and balance in the forests of the Russian Federation on the basis of multi-year satellite remote sensing data and will ensure the pilot operation of the first phase of the operational prototype of the national information-analytical system for carbon monitoring in terrestrial ecosystems of the country.

The area of scientific support for a national high-precision monitoring system certainly includes the state of soils. The Soil Institute named after V.V. Dokuchaev Institute will prepare an assessment of agro-ecosystem carbon stocks and budget under different land use regimes in the European part of the Russian Federation under different agricultural land use regimes based on the existing observation network, as well as justification of composition and order of formation of a geoinformation database for estimation of carbon budget in agricultural ecosystems of the country. The Faculty of Soil Science of M.V. Lomonosov Moscow State University will produce an overview map of the carbon sequestration potential of agricultural soils in the Russian Federation.

Scientists are engaged to create methodologies for developing scenarios and models for assessing the socio-economic effects of the climate agenda and low-carbon development policy, as well as measures for decarbonising the economy and energy sector at country and regional level, the economy and energy sector of the Russian Federation, and developing measures for adapting the Russian population and economy to climate change. Recall that Russia’s current national action plan for the first phase of adaptation to climate change was approved at the end of 2019 and covers the period until the end of 2022.

It is supposed that the second phase adaptation plan will focus on the period up to 2025, for which, inter alia, the Main Geophysical Observatory named after A.I. Voyeikov is preparing a forecast of the natural and climatic characteristics of Russia. The Voyeikov Main Geophysical Observatory is preparing a forecast of natural and climatic characteristics in Russia.

The financial market in the climate agenda: what conditions and instruments are created for business participation

Climate finance is new to the Russian market and is at an early stage of development. The Bank of Russia has been developing a guidance and methodological framework for market participants since 2020. At the first stage, the financial regulator will focus on new climate risks and their impact on the sustainability of the country’s financial system. This was the angle explored in the CBR’s advisory report “The Impact of Climate Risks and the Sustainable Development of the Financial Sector of the Russian Federation”, which was offered for expert discussion.

The Central Bank estimates that the impacts of climate change are not only affecting natural systems and human well-being, but also the stability and development of the financial sector worldwide. And policies that encourage low-carbon energy investments and emission reductions, including through the issuance of sustainable financial instruments, the development of responsible investment and ESG accounting have been identified as a challenge of today and an opportunity to reduce climate risks in the future.

According to the Bank of Russia, one of the constraints to the establishment of regulatory requirements for climate risk accounting by Russian financial institutions is the lack of technical expertise and resources for risk assessment by insurers, as well as the availability and quality of data in certain sectors of the economy. In other words, increased scientific support for climate change at the global and national levels, and the emergence of a national system of high-precision monitoring, will contribute to the development of climate finance and insurance, which I believe will soon inevitably stand alone as a field of activity for insurance and reinsurance organisations.

Last November, the Bank of Russia published a roadmap of key tactical sustainable development goals, which, among other things, provides for the development of existing and introduction into Russian financial market practice of new sustainable development financing instruments — green, social, climate transition and Sustainable Development Goal-linked instruments.

It is clear that the geopolitical crisis has put significant constraints on the development of climate finance in Russia, making it a daunting task to attract private funds into this segment. However, the regulator is moving towards creating financial instruments for sustainable development, with a stronger expert and scientific component in determining and verifying funding goals.

In early October, Elena Kuritsyna, Director of the Corporate Relations Department of the Central Bank of the Russian Federation, announced at one of the events the launch of a bond instrument for companies achieving sustainable development goals. The peculiarity of this instrument is that the cost of money for the borrower depends on achieving the goals for which the financing was raised. Targets can include climate KPIs — e.g. emissions reductions — for which the company must make accounting and disclosure commitments. This means that not only must the borrower be accountable, but the targets must be achievable and scientifically sound.

The Bank of Russia plans to launch another instrument new to the Russian market — climate transition bonds, which will be of interest to “brown” companies, including mining, transportation and also energy generation from traditional sources. The repeatedly voiced position of the Central Bank is that climate change affects the company, but the company also affects climate change. Therefore, the issuer, when issuing climate transition bonds, must make some sort of climate self improvement plan, and this plan must be sufficiently ambitious and verified against scientifically proven climate change scenarios.

Expert and analytical organisations in the financial market should have access to the results of scientific research on the climate

Obviously, the two areas — the creation of a high-precision climate change monitoring system and the launch of climate financing instruments — can, under certain conditions, create synergies. And then the money will not only come from government researchers, but also from businesses through climate financing instruments. However, in order for the two parallels to intersect at the right points in the trajectories, a) access of expert and analytical organisations in the financial market to the results of scientific research, and b) an intellectual and management hub, which can currently only be organised on the platform of the main development institution — VEB.RF. Without access to scientific data, the climate and environmental risk management system cannot develop, which means that financing the adaptation of the economy, territories and population to climate change will fall entirely on the budget.

Cover photo: Dreamstime