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Before the war in Ukraine, Russia was one of the main trade partners for the European Union. Last year, trade turnover between the EU and Russia exceeded 257 billion euros, which amounted to 36% of all foreign trade for Russia and 6% for the EU.
This cooperation was mutually beneficial not only economically, but also from the ESG standpoint. European companies such as Saipem, SMS Group, Danieli, Metso Outotec, Siemens, Technip and others supplied equipment and technologies for Russian companies to upgrade their industrial facilities and build modern factories from scratch. In turn, Russia was able to produce more high-tech and environmentally friendly products, including for exports.
European companies have made billions of euros selling products to Russia. Siemens, which has recently decided to exit the country, has been supplying high-speed trains running between Moscow and St. Petersburg to Russian Railways. Since the early 2000s, Airbus has sold several hundred planes to Russia, thereby helping domestic airlines to upgrade their fleets. Russia’s recent project to develop the Sukhoi SuperJet air carrier was also carried out in partnership with European aircraft manufacturers.
Russian industrial firms have been investing in technological upgrades and purchasing new production equipment. For example, petrochemical producer Sibur built ultra-modern factories in Russia using European equipment and technologies, and as a result, was supplying products – advanced types of plastics and synthetic rubbers – worth 2 billion euros a year to the EU. Buying these products from Russia was cost-efficient due to its geographical proximity. Tyre manufacturers in Europe have relied heavily on imports of Russian rubber, which cover almost a third of European demand. Producers from China and the Middle East either don’t have enough volumes and variety of grades or are more expensive due to higher logistical costs.
Sibur’s business model is centred around sustainable development. The company has agreements with multiple oil companies to buy associated petroleum gas, a by-product of oil production that would have otherwise been burned through harmful flaring. Sibur processes this by-product into liquefied petroleum gas (LPG), a low-carbon fuel used in cars and heating utilities. It’s substantially cheaper than gasoline and generates 20% fewer CO2 emissions. The company has been exporting about 2 million tons of LPG a year to Europe. After launching its $8.8 billion Zapsib plant – the largest state-of-the-art petrochemical complex in Russia – in 2020, Sibur started processing part of its LPG into high value-added plastics for export to Europe and elsewhere.
Russian aluminium producer Rusal also stands out for its advanced technology, producing most of its metal in smelters powered by hydroelectric dams. The company’s low-carbon aluminium has been in demand by ESG-driven European companies seeking to reduce their carbon footprint throughout their production chain. Elsewhere, Russian iron-ore manufacturer Metalloinvest has been supplying hot-briquetted iron, an ingredient for the least-polluting method of steel production, to leading European steelmakers
The European Union is currently divided on whether to halt oil purchases from Russia. While it’s essential to keep putting pressure on the country to end the bloodshed in Ukraine, ditching Russian oil may hurt many businesses in Europe and further inflate consumer prices. Having restricted trade with Russia, the EU already has to source a lot of commodity products from other countries at higher prices and often with inferior environmental characteristics.
Companies that have quit Russia due to geopolitical tensions are already facing billions of euros in losses and writedowns, according to Reuters. Given the fact that European companies have been driving Russia’s transition towards a more advanced, green economy, cancelling economic ties will damage ESG on both sides.
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