The need for unbiased assessment of production efficiency had emerged long before the global financial and economic crisis of 2007-2008 struck. As early as in 1990-es many economists warned that prices of stocks on securities market did not necessarily reflect actual efficiency of companies. In particular, the markets proved that they lacked sensitivity to environmental safety and energy efficiency of businesses. In late 1997-1998, the World Bank initiated the development of a methodology to produce environmental ratings for businesses in developing economies. The methodology was tested in India, Indonesia, Philippines and China and it was discovered that such evaluations were either extremely prone to corruption (Indonesia) or too sophisticated and therefore expensive to use (India, China). The World Bank Resident Mission in the Russian Federation, having reviewed in 2004 the experience of the Independent Environmental Ratings Agency (NERA) in estimating environmental costs of production in Russia, realized that the approach was promising in the environment of the former Soviet Union. The Russian methodology was corruption-proof, fairly simple and low cost. The World Bank deemed it expedient to provide moral and financial support to the project. To do this, the Bank first identified itself as a partner of the NERA and International Social and Environmental Union in the letters it forwarded to businesses in 2004-2007. Second, in 2004-2006 the WB Resident Mission served as a venue for presentations of environmental costs assessments outcomes for major Russian corporations – RAO UES of Russia, Gazprom, Lukoil, GAZ. KAMAZ., Acron, Nuzhnekamskneftekhim, etc. produced with the NERA methodology. Third, in 2005 the World Bank financed the publication of the first comprehensive reference book “Socio-Economic Liabilities and Ratings of Russian Business” comprising data on social and environmental efficiency of 75 corporations and more than 500 constituent enterprises. The publication was unique in that in addition to ratings based on environmental costs that were grouped by region and by sector, it fully disclosed the rating methodology and contained all feedback from the corporations. The second reference book in the series was made available on the WB website in Russian and English which also provided the NERA with useful information support. Cooperation between the Bank and the NERA and the International Social and Environmental Union under the project to provide an unbiased assessment of environmental impacts produced by major Russian corporations and enterprises resulted in a dramatic increase in the number of businesses disclosing their reports: 0% in 2002, 16% in 2003, 24% in 2004, 55% in 2005 and 57% in 2006. Thus, the Bank using a minimum amount of resources contributed to a paradigm shift in the transparency policy pursued by leading Russian corporations regarding their environmental impacts. Currently the NERA methodology is employed to develop assessments for about 3,000 Russian businesses. Some 30 heads of Russian regions supported this exercise and instructed their environmental protection entities to submit lists of their enterprises that produce the most environmental impact in the region to the NERA. Environmental and energy efficiency assessments done with the NERA methodology proved relevant in the Republic of Kazakhstan where the approach was supported at the highest level – by the Prime-Minister and President Nazarbayev. In March 2009 the Independent Environmental Ratings Agency (Russia) together with the Center for Sustainable Production and Consumption (Kazakhstan) at the Russian Union of Industrialists and Entrepreneurs presented outcomes of environmental, energy and economic efficiency assessment done for 400 businesses from the two countries. As is known, the Bank has always supported projects that provide positive impact on climate change. Introduction of energy efficiency criterion into the NERA system of evaluation in 2008 served as a reason to support today’s event. Criticism of IFIs and rating agencies voiced during the G20 summit on April 2, 2009, called for alternatives in evaluating production efficiency and the Bank regards the NERA methodology presented here as an option. Experience has demonstrated that NGOs are the best channel to promote social innovations and this determined the composition of today’s audience. I hope that in 2009-2010 experience and methodology of the NERA will be demanded and applied in other CIS countries as well. I wish all the participants exciting and useful discussions here in Moscow and collaboration further down the road.
by Klaus Rohland,
The World Bank Country Director for Russia |
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