MOSCOW, Feb. 1, 2021 /PRNewswire/ -- S&P Global Ratings said today that Siberian Coal Energy Co. (SUEK) scored 44 in its ESG Evaluation. On our scale of 0 to 100, a higher ESG Evaluation indicates a stronger sustainability assessment. The company's ESG Evaluation of 44 is the result of an ESG profile of 51, combined with emerging preparedness.
ESG Evaluation: Siberian Coal Energy Co.
SUEK is Russia-based company that operates in the coal energy business. The company recently expanded beyond coal mining (70% of assets) by purchasing coal power generation assets (20%), and is expanding its logistic assets (10%), which include railcars and ports. All its assets are in Russia, and the company is a major coal exporter, with revenue exposure to Asia, and Europe to a lesser extent. Its logistic assets are primarily used to export coal and other mining goods, although these assets are equipped to expand into other goods.
Our ESG Evaluation of 44 incorporates the company's current position as a coal energy company as well as potential from its expanding logistics business. While the coal sector faces increasingly immediate environmental and social risks, SUEK's mining segment outperforms peers on greenhouse gas (GHG) emissions. We believe this demonstrates that SUEK is more focused on improving energy use than decarbonization. At present, the company's power generation lags the rest of the sector on emissions, and lags overall on other pollution indicators. The company is generally in line with peers for its most material factors of safety and communities, but we note strong performance in workforce and diversity. Its governance structure compares positively to local standards and well with international standards.
"We assess the company's preparedness as emerging, since we believe that coal will likely be gradually phased out and replaced by gas and renewable sources and SUEK does not have an action plan to transition from coal or rapidly decarbonize," said Alexander Griaznov, the analytical contact for the evaluation. This lowers our final ESG Evaluation score to 44 from an ESG Profile score of 51.
That said, the pace of energy transition could vary, and we believe SUEK's strategy to increase coal exports does not pose near-term financial risk, since we expect demand in Asia will remain strong in the next years and decline at a slower pace than in Europe or the U.S. "We note the company has taken some steps to reduce exposure to coal prices and invested in logistics, but its near-term focus is still expanding coal production. The board and executive management are aware of the challenges of implementing an adaptive and sustainability-focused culture into its workforce, which we view currently as developing."
Our ESG Evaluations analysis starts with an ESG Profile, which measure a company's exposure to and mitigation of the most material environmental (E), social (S) and governance (G) risks. Each of the E, S and G profiles starts with a sector and regional macroanalysis that captures the relative exposure of sectors and regions to significant ESG risks and opportunities.
From this macroanalysis, we derive a blended sector/region score, weighted by the entity's sector and regional business mix (E and S Profiles). For the G Profile, the sector/region score is derived from an entity's country of incorporation, and can be adjusted for other considerations, including operation mix or assets locations. These sector/region scores form the anchor in our ESG profile assessment, and reflect the risk exposure the company faces before any mitigating actions are considered. We incorporate the company's performance and mitigating actions in the ESG Profile via E, S, and G entity-specific scores.
We assess SUEK as operating in the coal mining (70% of assets), coal power generation (20% of assets), and logistics (10% of assets, primarily ports) sectors, with all its assets located in Russia. Therefore, these sectors and the company's location underpin SUEK's E, S and G exposure, which we capture in a sector-region score.
SUEK's exposure to environmental risks (reflected in a sector/region score of 12 out of 50) primarily reflects our view that coal mining and coal generation have a considerable negative impact on the environment. Coal extraction and combustion result in high levels of downstream GHG emissions and air pollution, and more directly can cause water contamination, while land destruction can threaten local biodiversity.
SUEK's exposure to social risks (reflected in a sector/region score of 14 out of 50) also comes primarily from coal mining and coal generation activities, in our view. Power generation and coal mining sector specifically have exposure to safety risks both for employees and communities. In addition, local communities may also face adverse economic consequences when mines close. Finally, we also incorporate our view of the social standards in Russia, which we assess as somewhat lower than in other countries.
SUEK's exposure to governance risk (reflected in a sector/region score of 18 out of 35) primarily reflects our view of governance standards in Russia as relatively low. That said, we acknowledge that corporate governance practices vary significantly between companies. We weight the entity-specific analysis in the G Profile more than for the E and S Profiles. This is because in our view entities with strong governance standards can more than offset any potential weakness in a country or region.
SUEK's entity-specific score for environmental profile is 28 out of 50. If we compare SUEK with Asian coal companies, SUEK stands out as one of the better performers, because of the high quality of its coal. The company produces high calorific coal, which is more energy efficient and therefore supports lower emissions than traditional coal. The company also invested significantly into coal washing, a process aimed at reducing coal ash, which we view positively. However, SUEK lags industry peers in water use due to the location of its assets in water-stressed areas. It is difficult to compare SUEK with European and U.S. coal producers as most of them are now part of bigger and more diversified energy companies, which do not provide comprehensive reporting on coal assets.
SUEK's entity-specific score for social profile is 32 out of 50. The company performs in line with the industry for the material factors, and has a strong performance in managing its workforce.
SUEK's entity-specific score for governance profile is 46 out of 65. This is because we view SUEK as one of the strongest Russian companies in terms of governance. Despite its majority ownership by one individual, the company has a more than 10-year track record of having an independent board, which is a global best practice for privately owned companies. SUEK has also approved all the necessary policies and procedures, in line with international practices. The company's general reporting compares well with Russian peers, and SUEK is gradually improving its sustainability reporting.
Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P) receives compensation for the provision of the S&P Global Ratings ESG Evaluation product, including the report (Product). S&P may also receive compensation for rating the entity covered by the Product or for rating transactions involving and/or securities issued by the entity covered by the Product.
The Product is not a credit rating, and is not indicative of, nor related to, any credit rating or future credit rating of an entity. The Product provides a cross-sector, relative analysis of an entity's capacity to operate successfully in the future and is grounded in how ESG factors could affect stakeholders and potentially lead to a material direct or indirect financial impact on the entity. ESG factors typically assess the impact of the entity on the natural and social environment and the quality of its governance. The Product is not a research report and is not intended as such.
S&P's credit ratings, opinions, analyses, rating acknowledgment decisions, any views reflected in the Product and the output of the Product are not investment advice, recommendations regarding credit decisions, recommendations to purchase, hold, or sell any securities or to make any investment decisions, an offer to buy or sell or the solicitation of an offer to buy or sell any security, endorsements of the suitability of any security, endorsements of the accuracy of any data or conclusions provided in the Product, or independent verification of any information relied upon in the credit rating process. The Product and any associated presentations do not take into account any user's financial objectives, financial situation, needs or means, and should not be relied upon by users for making any investment decisions. The output of the Product is not a substitute for a user's independent judgment and expertise. The output of the Product is not professional financial, tax or legal advice, and users should obtain independent, professional advice as it is determined necessary by users.
While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.
S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Product. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for reliance of use of information in the Product, or for the security or maintenance of any information transmitted via the Internet, or for the accuracy of the information in the Product. The Product is provided on an "AS IS" basis. S&P PARTIES MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDED BUT NOT LIMITED TO, THE ACCURACY, RESULTS, TIMLINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT TO THE PRODUCT, OR FOR THE SECURITY OF THE WEBSITE FROM WHICH THE PRODUCT IS ACCESSED. S&P Parties have no responsibility to maintain or update the Product or to supply any corrections, updates or releases in connection therewith. S&P Parties have no liability for the accuracy, timeliness, reliability, performance, continued availability, completeness or delays, omissions, or interruptions in the delivery of the Product.
To the extent permitted by law, in no event shall the S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence, loss of data, cost of substitute materials, cost of capital, or claims of any third party) in connection with any use of the Product even if advised of the possibility of such damages.
S&P maintains a separation between commercial and analytic activities. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
This report does not constitute a rating action.
The reports are available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase copies of these reports by calling (1) 212-438-7280 or sending an e-mail to email@example.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following S&P Global Ratings numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009.
Copyright © 2021 by Standard & Poor's Financial Services LLC. All rights reserved.
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
STANDARD & POOR'S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor's Financial Services LLC.
SOURCE S&P Global Ratings