ACRA CONFIRMED COMPLIANCE OF THE ISSUE OF BONDS OF STATE CORPORATION FOR DEVELOPMENT "VEB.RF" (SERIES PBO-002R-33 (ISIN RU000A104Z48)) WITH ICMA GREEN BONDS PRINCIPLES AND THE NATIONAL GREEN BONDS STANDARD

acra has confirmed the compliance of the series PBO-002P-033 bond issue of state development corporation “veb.rf” with the green bond principles of the international capital market ASSOCIATION (icma) and the national standard; it has confirmed the compliance of the projects refinanced using the issuance proceeds with INTERNATIONALLY RECOGNIZED PRINCIPLES AND STANDARDS IN THE FIELD of ecology and green financing and verified the report on the use of proceeds from the green bond issue

compliance of the issue with Regulation of the Bank of Russia dated December 19, 2019 No. 706-P

As part of the series PBO-002P-33 (ISIN RU000A104Z48) bond issue of State Development Corporation “VEB.RF” (hereinafter, VEB.RF, the Issuer, or the Initiator) ACRA verified the compliance of the bond issue with the internationally recognized principles, standards, and criteria in the field of ecology and green financing (Green Bond Principles (GBP) of the ICMA), criteria of green financial instruments in accordance with Decree of the Government of the Russian Federation No. 1587 dated September 21, 2021 (hereinafter, the National Standard), as well as compliance of the projects refinanced using the proceeds from the bond issue with internationally recognized principles and standards in the field of ecology and green financing.

The projects presented by the Issuer (see below and Appendix 1) fall into the following ICMA project categories:

Clean transportation;

Sustainable water and wastewater management.

The projects correspond to the following areas of the Russian green project taxonomy:

5.1. Manufacture of railway transportation vehicles that use clean energy sources (passenger, cargo), purchase of railway transportation vehicles that use clean energy sources, migration of existing rolling stock to clean energy sources (Projects A, B and C).

5.7. Construction and upgrade of infrastructure for clean energy transportation vehicles (including construction of railway and tramway lines) (Project C).

6.2.1. Construction and upgrade of drinking water treatment infrastructure (Project D).

6.2.2. Improving the resource and energy efficiency of drinking water infrastructure (Project D).

6.4.2. Projects aimed at reducing the concentration of pollutants in wastewater (Project D).

Refinancing such projects through the issuance of green debt instruments is possible in both international and Russian practice.

Below is a list of analyzed projects refinanced using the issuance proceeds (see the full description of projects and environmental effects from their implementation in Appendix 1):

A.      Replacement of outdated rolling stock and improvement of the comfort and safety of Moscow Metro passengers;

B.      Upgrading a fleet of electric suburban passenger trains;

C.      Modernization of Taganrog Tramvai (Taganrog’s tram network);

D.      Modernization and operation of the water supply and wastewater discharge system of Yuzhno-Sakhalinsk based on a concession agreement.

The final monetary volume of the issue amounted to RUB 50 bln. The Issuer notified the Agency on the distribution of the issuance proceeds among the projects and presented evidences of such distribution.

Table 1. Proceeds from the green bond issuance applied for refinancing VEB.RF's expenses for providing clients with funds for the projects' purposes

Source: ACRA, issuer's data

The above projects allow positive environmental effects to be achieved, which is expressed in the following¹:

Project A: expected reduction of greenhouse gas emissions by 30,613 tons of CO₂ equivalent per year (949,003 tons of CO₂ equivalent over the 31-year operating life of the project).

Project B: expected reduction of greenhouse gas emissions by 30,358 tons of CO₂ equivalent per year (1,214,320 tons of CO₂ equivalent over the 40-year operating life).

Project C: expected reduction of greenhouse gas emissions by 5,987 tons of CO₂ equivalent per year (167,636 tons of CO₂ equivalent over the 28-year operating life).

Project D: expected reduction of greenhouse gas emissions by 8,471 tons of CO₂ equivalent per year (415,079 tons of CO₂ equivalent over the project implementation period (concession agreement is valid for 50 years, with the positive environmental effect beginning from the second year). In addition, the following environmental effects will be reached thanks to the implementation of this project: reduction of water loss by 8,920,000 m³ per year (437,080,000 m³ over the project implementation period (concession agreement is valid for 50 years, with the positive environmental effect beginning from the second year). The project will also allow the volume of wastewater treatment to be increased by 2,483,000 m³ per year (121,667,000 m³ over the project implementation period (concession agreement is valid for 50 years, with the positive environmental effect beginning from the second year).

A complete list of the projects that the Issuer has refinanced using the proceeds from the analyzed green bond issue, as well as a description of the environmental effect of each project, is provided in Appendix 1.

ACRA confirms that the projects refinanced through the issuance of green bonds continue to comply with all the basic internationally recognized principles and standards in the field of ecology and green financing set out by the ICMA in 2021 (2021 GBP).

¹ Model calculations of environmental effects are presented.

COMPLIANCE OF THE ISSUE WITH THE ICMA’S GREEN BOND PRINCIPLES

ACRA confirms that the bond issue continues to comply with all the basic components of the ICMA’s 2021 GBP. The area in which proceeds are used (projects refinanced through the issue of bonds to achieve objectives that comply with ICMA project categories and have a positive environmental effect), process of evaluating and selecting projects, and management of proceeds and reporting presented in the VEB.RF Green Bond Framework² (hereinafter, the Framework) are fully in line with 2021 GBP criteria, and consequently the analyzed bond issue can be considered as green.

² As of the reverification date, the document was approved by the Green Financing Committee of VEB.RF and was available on the Issuer’s website at: https://xn--90ab5f.xn--p1ai/investoram/zelenye-obligatsii/.

KEY ISSUE PROPERTIES

Source: ACRA, Issuer’s data

The Issuer operates on the basis of the Federal Law “On the State Development Corporation ‘VEB.RF’” (Federal Law No. 82-FZ dd. May 17, 2007 “On the State Development Corporation ‘VEB.RF’”). The main objective of VEB.RF is to facilitate Russia’s long-term economic development. In partnership with commercial banks, the Issuer finances major projects aimed at developing infrastructure, industry, and the social sphere, strengthening technological potential, and improving the quality of life of the country’s residents.

The Agency notes that VEB.RF as a development institution plays a key role in the establishment of a sustainable financing system in Russia. The Issuer was designated as a methodological center for financial instruments for sustainable development by Decree of the Government of the Russian Federation No. 3024-r dated November 18, 2020. From March 2020 to May 2021, VEB.RF developed a national green financing methodology, which includes a green project taxonomy, a taxonomy of adaptation projects, and requirements to the system of verification of sustainable development financing instruments in the Russian Federation (National Standard). VEB.RF also takes part in the development of the National Taxonomy for Social Projects.

The Issuer takes part in many Russian and international sustainability initiatives:

o   As a development institution, VEB.RF carries out systemic work to introduce responsible business standards in Russia. During VEB.RF’s presidency of the BRICS Interbank Cooperation Mechanism in 2020, VEB.RF together with Vnesheconombank Institute, the Russia-OECD Center RANEPA and the partners within the Mechanism prepared the Memorandum of BRICS DFIs Principles for Responsible Financing.

o   The Issuer has been a participant of the UN Global Compact since 2011.

o   The Issuer has been a member of the international responsible finance initiative — the United Nations Environment Program Finance Initiative (UNEP FI) since 2013 (VEB.RF was the first UNEP FI participant from Russia).

o   In 2019, the Issuer held its first expert session on green approaches to urban sustainability at the COP25 Climate Change Conference. In 2021, the Issuer organized a Green Finance Day and a number of sessions as part of the International Development Finance Club (IDFC) at COP26. The Issuer's representatives also spoke at COP27 events.

o   The representatives of the Issuer are also actively involved as experts³ in the activity of two key work groups of the G20 — the Infrastructure Working Group and the Sustainable Finance Working Group. These groups were created within the framework of cooperation between the ministries of finance and central banks of the G20 countries.

o   In addition, the representatives of the Issuer participate in the two groups of Business 20 (B20) involved in financing sustainable infrastructure, climate, and resource efficiency.

o   The Issuer's sustainable development financing projects have won a number of ADFIAP Awards: VEB-RF's ESG Transformation Program (2023), ESG Charter of Russian Cities (2023), Inaugural Issue of Green Bonds (2023), Social Impact Project in the Primorsky Krai (2022), Best Sustainable Development Report (2022), etc.

In 2022, the Issuer adopted the VEB.RF Green Bond Framework, which outlines the Issuer’s approaches to the procedure for preparing and placing green bonds: it describes the process of preliminary assessment and selection of projects; provides the requirements for green projects financed (refinanced) by issuing green bonds; indicates permitted areas for the use of funds (in accordance with the national green project taxonomy and ICMA’s eligible project categories); and describes the approaches to managing attracted funds, as well as the principles of verification and reporting.

³ The Issuer’s employees represent the Russian Federation in the Sustainable Finance Working Group, which develops methodology for climate transition financial instruments for all countries of the G20.

key assessment factors

The Issuer provided ACRA with documents containing project eligibility criteria that can be included in the green bond issue, project selection process, approaches to managing proceeds, and reporting. ACRA drew conclusions on the compliance of the bond issue with the four components of the 2021 GBP based on these documents.

Use of proceeds

The proceeds from the issuance of these bonds were used to refinance (replenish the funds previously assigned for financing) projects that are aimed at preserving and protecting the environment and having a positive impact on it, as well as preventing climate change or adapting to climate change, and are consistent with internationally recognized goals, principles, standards and criteria in the field of ecology and green finance, as well as the goals and main areas of sustainable (including green) development of the Russian Federation and criteria for sustainable (including green) development projects in the Russian Federation (green project taxonomy) (see Appendix 1).

The Issuer has refinanced the following projects using the bond issuance proceeds:

A)      Replacement of outdated rolling stock and improvement of the comfort and safety of Moscow Metro passengers (Area 5.1. of the Taxonomy “Production of rail transportation that uses green energy sources (passenger, freight), purchase of rail transportation that uses green energy sources, conversion of existing rail transportation to green energy sources” as per the current version of the National Standard).

B)      Upgrading a fleet of electric suburban passenger trains (Area 5.1. of the Taxonomy “Production of rail transportation that uses green energy sources (passenger, freight), purchase of rail transportation that uses green energy sources, conversion of existing rail transportation to green energy sources” as per the current version of the National Standard).

C)      Modernization of Taganrog Tramvai (Taganrog’s tram network) (Area 5.1. “Production of rail transportation that uses green energy sources (passenger, freight), purchase of rail transportation that uses green energy sources, conversion of existing rail transportation to green energy sources” and Area 5.7. of the Taxonomy “Construction and modernization of infrastructure for clean transportation (including the construction of railroads and tram lines and other railway and tramway infrastructure)” (as per the current version of the National Standard).

D)     Modernization and operation of the water supply and wastewater discharge system of Yuzhno-Sakhalinsk based on a concession agreement (Area 6.2.1. “Construction and modernization of infrastructure for the preparation of drinking water”, Area 6.2.2. “Improving the resource and energy efficiency of drinking water infrastructure” and Area 6.4.2. “Projects aimed at reducing the concentration of pollutants in wastewater” of the Taxonomy (as per the current version of the National Standard).

All of the proceeds from the analyzed green bond issue were used solely to refinance the abovementioned projects, which can be included in the following ICMA project categories as per the 2021 GBP:

Clean transportation;

Sustainable water and wastewater management.

In addition to the documents presented by the Issuer for the purposes of the initial verification⁴, the Issuer provided the Agency with:

(1)    Updated questionnaire as requested by the Agency;

(2)    Updated information about project implementation, including goals and short descriptions, as well as environmental impact and the stages of readiness for each project;

(3)    Updated calculation of the climate effect for each project;

(4)    Report on the use of proceeds (Par. 4.2 of the securities issuer's report; hereinafter, the Report);

(5)    Information on the Issuer's participation in each project and distribution of issuance proceeds among projects;

(6)    Project documentation, including:

• Information note on the progress of the project for upgrading the tramway network of Taganrog (as of April 4, 2023);

• Information note on the progress of the project to modernize and operate the water supply and wastewater discharge system of Yuzhno-Sakhalinsk based on a concession agreement (as of April 24, 2023);

• Financial and technical monitoring report No. 7 dated December 31, 2022 for the period October 1, 2022–December 31, 2022 (the project for upgrading the tramway network of Taganrog);

• Engineering note "Approval of updated budget and schedule for the project for upgrading the tramway network of Taganrog (as of April 24, 2023);

• Preliminary expert opinion "Forecasted passenger traffic on the tramway and other passenger transport routes of Taganrog (as of March 31, 2021);

• Documents on the reasons for changes to parameters of the project for upgrading the tramway network of Taganrog;

• Report on the reliability, quality and energy efficiency indicators of Rosvodokanal for 2022, approved by the Administration of Yuzhno-Sakhalinsk (as of April 14, 2023);

• Materials of the financial and technical audit of the project to modernize and operate the water supply and wastewater discharge system of Yuzhno-Sakhalinsk based on a concession agreement (for the period October 1, 2022–December 31, 2022) (as of February 7, 2023).

The Issuer provided the Agency with updated (as of the assessment date) information on the progress of the projects:

·         Project A. The Issuer provided the client with financing to implement the project. As of the reverification date, all railcars (768 pcs), the delivery of which is envisaged within the framework of the project, were purchased and transferred for the possession and use of the State Unitary Enterprise Moscow Metro, which operates these railcars on various metro lines. VEB.RF does not participate in the subsequent stages of the project. The project was started in 2017 (replacement of rolling stock) and is to be completed in 2050 (expiration of a lifecycle contract).

·         Project B. The Issuer provided the client with financing to implement the project. As part of the project, 17 electric trains were purchased and leased to a lessee who operates rolling stock on the Rizhsky, Belorussky, Savyolovsky, and Kievsky lines of the Moscow Transportation Hub, providing passenger rail transportation. VEB.RF does not participate in the subsequent stages of the project. The project was started in 2016 (replacement of suburban rolling stock) and is to be completed in 2030 (as may be rescheduled).

·         Project C. The Issuer provided the client with financing to implement the project. The project has two stages. In the 1^st stage, 10.53 km of tramway tracks were built, 10 trams were launched on the route, and the traffic control room and three traction substations were upgraded. The 1^st stage was completed on July 14, 2022.

The 2^nd stage involves⁵:

• Modernizing 34.72 km of tramway tracks (34 km are complete);

• Upgrading five traction substations (two substations are complete);

• Upgrading a tram depot (~ 55% is complete);

• Procuring 40 units of rolling stock (all units were delivered; the total number of units was decreased by 10 after negotiations with the concession provider).

The second stage was underway on the reverification date. The total project progress is 85%, six routes were put into operation. The second stage is expected to be completed in Q3 2023.

·         Project D. The Issuer provided the client with financing to implement the project.

The concessionaire is performing actions stipulated by the investment program.

2.5 km of outdated water supply and wastewater discharge lines were rebuilt/replaced; 5.7 km of new lines were laid⁶.

In 2022, all quality, reliability and energy efficiency targets set forth in the concession agreement were met, which is confirmed by a third-party expert opinion.

The following information was provided on certain project components:

Construction of the Yuzhny water supply inlet:

• Design work is complete; state expert review is complete; a contractor is selected; construction work is started;

• Work completion and commissioning date: Q4 2024.

Utilities for the Uyun residential area (water supply and wastewater discharge networks):

• Design work is complete; state expert review is complete; a contractor is selected; construction work is started;

• Concession expiry date: 2070.

The above information is confirmed by third-party expert opinions (Projects C and D), internal reports of the Issuer's subdivisions, and information on loans issued (Projects A and B) (see p. 6–7 of this press release).

According to the information provided by the Issuer, none of the analyzed projects have federal or regional significance and therefore are not subject to mandatory state ecological expertise. In addition, according to the Issuer’s information and in accordance with the procedures adopted by the Issuer, environmental risk assessment is only carried out in cases stipulated by the mandatory requirements of the law of the Russian Federation. These projects do not fall under the relevant category, and therefore the Issuer has not carried out any environmental risk assessment. According to the Agency's methodology, this constricts the final assessment.

ACRA notes that the projects refinanced by the Issuer do not have any significant side effects for the environment (Do No Significant Harm principle): environmental protection law of the Russian Federation is observed when implementing the projects.

In 2022, the following environmental effects were ensured by the projects:

A.      Project A: operation of new rolling stock has resulted in the following reduction of GHG emissions (a positive effect emerged in 2017):

• 32,395 tons of CO₂ equivalent;

• Accumulated total for 2017–2022: 145,330 tons of CO₂ equivalent.

B.      Project В: operation of new rolling stock has resulted in the following reduction of GHG emissions (a positive effect emerged in 2020):

• 30,668 tons of CO2 equivalent;

• Accumulated total for 2020–2022: 81,180 tons of CO₂ equivalent.

C.      Project C: operation of new rolling stock (trams) has resulted in the following reduction of GHG emissions (a positive effect emerged in 2022):

• 4,903 tons of CO₂ equivalent (2022).

D.      Project D: GHG emissions result from electric power generation; lower electricity consumption (as part of the project) has resulted in the following reduction of GHG emissions (a positive effect emerged in 2022):

• 6,153 tons of CO₂ equivalent (2022).

In addition, implementation of the project has resulted in the following effects (positive effects emerged in 2022):

• Decrease in water losses in 2022 — 4,541,000 m³;

• Increase in the volume of wastewater treatment in 2022 compared to 2021 — 277,000 m³;

• Electric power savings in 2022 — 14.75 mln kW*h.

ACRA considers the calculations and key assumptions made by the Issuer to calculate the expected environmental effect produced by the projects to be acceptable.

At the same time, the Agency expects that when calculating the actual achieved environmental effect, the following data will be used, if any:

A.      Project A: actual carbon intensity of electric power produced by the United Energy System (UES) of Center for the entire circulation period of the bonds; actual average distance passed by a Moscow metro train for the entire circulation period of the bonds.

B.      Project B: actual carbon intensity of electric power produced by the UES of Center for the entire circulation period of the bonds; actual passenger traffic of the Moscow transport hub for the entire circulation period of the bonds broken down by transport type; actual carbon intensity of different transport types of the Moscow transport hub.

C.      Project C: actual carbon intensity of electric power produced by the UES of South for the entire circulation period of the bonds; actual passenger traffic of Taganrog as of the beginning and completion of the project broken down by transport type; actual use efficiency of trams.

D.      Project D: actual operational indicators of water supply and wastewater discharge systems set forth in the concession agreement for the entire circulation period of the bonds; actual structure of emissions from generating facilities in the Central Energy District of the Sakhalin Region for the entire circulation period of the bonds.

A complete list of green projects refinanced using the proceeds from the green bond issue, including short descriptions of them, a list of planned actions, as well as an assessment of environmental effects and an indication of the projects’ compliance with internationally recognized principles and standards in the field of ecology and green financing (2021 GBP), as well as with the National Standard, is provided in Appendix 1.

⁴See ACRA's press release of July 15, 2022 https://www.acra-ratings.ru/press-releases/3399/?lang=en.
⁵ Data as of 2022-end.
⁶ Data as of 2022-end.

Process of evaluating and selecting projects

The Issuer confirmed that the evaluation and selection of the projects refinanced by the analyzed issue were carried out in accordance with the procedure set out in the VEB.RF Green Bond Framework⁷.

The Issuer also confirmed that for the selected projects, environmental risks were not accounted for and neutralized due to the fact that any environmental impact assessment for these projects is optional under the current law of the Russian Federation. As of the reverification date, the Issuer developed internal regulations for neutralizing environmental risks when financing projects.

ACRA also confirms that the projects refinanced by the analyzed green bond issue fully comply with VEB.RF ESG Strategy until the end of 2024 and further until 2030⁸. According to this strategy, the Issuer will invest in environmentally friendly projects (for example, clean transport, new industrial technologies, reducing carbon emissions, water treatment).

In addition, the Memorandum on the Financial Policy of VEB.RF approved by Order of the Government of the Russian Federation of August 10, 2021 No. 2208-r (the Memorandum) sets forth project participation principles, one of which stipulates that VEB.RF, taking responsibility before future generations, shall give priority to projects that include ESG factors in any business and other profit-making activities.

The Agency notes that the calculations of environmental effects were carried out directly by the Issuer without the involvement of external experts. The calculation of the climate effect for the projects was prepared by employees of the Issuer’s Risk Unit, who took part in the development of the National Standard and underwent advanced training at the Skolkovo Moscow School of Management’s Energy Transition course, and advanced professional training in the Fuel and Energy Industry Sustainable Development program at Skolkovo Institute of Science and Technology, as well as by the Issuer's professional environmentalists.

The projects selected by the Issuer for the analyzed issue (see Appendix 1) fall under the following 2021 GBP categories:

Sustainable water and wastewater management;

Clean transportation.

The projects are aligned with the following UN Sustainable Development Goals (SDGs):

SDG 6: Ensure availability and sustainable management of water and sanitation for all;

SDG 11: Make cities and human settlements inclusive, safe, resilient and sustainable;

SDG 13: Take urgent action to combat climate change and its impacts.

In ACRA’s opinion, the described algorithm generally determines an efficient process of project evaluation and selection.

⁷ See ACRA's press release of July 15, 2022 https://www.acra-ratings.ru/press-releases/3399/.
⁸ https://xn--90ab5f.xn--p1ai/ustojchivoe-razvitie/esg-strategiya/.

Management of proceeds

The Issuer confirmed that proceeds from the issue of green bonds are managed in line with the VEB.RF Green Bond Framework⁹.

The Issuer presented the updated Register of Issued Green Exchange-traded Bonds, which allows tracking the funds spent on the refinancing of green projects, including, among other things, proceeds received from the issue of green bonds.

The Issuer also presented a Report and other evidences (see section Reporting below).

ACRA confirms that, as of the reverification date, the total refinancing amount allocated to green projects out of issuance proceeds was higher than the total par value of the bonds.

The Issuer confirmed that all of the proceeds are used exclusively for refinancing (replenishing funds previously allocated for financing) of the projects described above as follows:

• Project A: in 2022, RUB 31 bln were utilized to refinance the Issuer's expenses for providing the client with funds for implementation of the project (purchase of 768 metro railcars).

• Project B: in 2022, RUB 12 bln were utilized to refinance the Issuer's expenses for providing the client with funds for implementation of the project (purchase of 17 suburban electric trains).

• Project C: in 2022, RUB 6.85 bln were utilized to refinance the Issuer's expenses for providing the client with funds for implementation of the project (upgrade of the tramway network of Taganrog, including construction costs, namely, design, cadaster, installation, assembly and pre-commissioning works, purchase of equipment and rolling stock, EPCM contractor services, advisory services).

• Project D: in 2022, RUB 0.15 bln were utilized to refinance the Issuer's expenses for providing the client with funds for implementation of the project for upgrading and operation of water supply and wastewater discharge system in Yuzhno-Sakhalinsk, including the financing of the project's production and investment programs.

In the reporting period, all the proceeds from the green bond issuance were utilized to refinance VEB.RF's expenses for financing the projects, so that there were no idle funds.

In the Agency’s opinion, the procedure for managing proceeds from the issue of green bonds generally complies with the 2021 GBP.

Reporting

The Issuer has drawn up the Report and presented it to ACRA. The Report contains the following information:

• Securities identification data;

• Project targets and areas;

• Project principles, criteria and standards specified in the resolution on the issuance of green bonds the projects comply with;

• Project characteristics showing that the projects comply with the principles, criteria and standards specified in the green bond issue resolution;

• Qualitative and quantitative indicators of positive environmental effects of implementation of the projects;

• Description of the manner in which the Issuer will identify the risks of negative environmental and social effects of implementation of the project(s) and manage such risks;

• Description of how targets and areas of the use of proceeds from the bond issue correlate with the Issuer's sustainable development strategy;

• Start date of each project;

• Completion date of each project;

• Progress on each project (as of the reporting date);

• Information on attaining the qualitative and quantitative indicators of positive environmental effects of implementation of the projects;

• Information confirming the implementation of the project described in the green bond issue resolution and actual application of all proceeds received from the issue of the green bonds;

• Description of the Issuer's policy on the management of green bond issue proceeds;

• Information on spending/allocating funds raised through the green bond issue, including in the reporting period;

• Information on the management of non-allocated funds;

• Other information:

o   Total amount of green bond issue proceeds;

o   Amount of green bond issue proceeds in the reporting period;

o   Amounts of funds spent in total and in the reporting period for each of the projects;

o   Amount of green bond issue proceeds not allocated to refinance the projects and information on the use of such amount;

o   The Issuer's opinion no the compliance of the use of green bond issue proceeds in the reporting period with the Issuer's policy on the management of green bond issue proceeds;

o   Facts and amounts of any misuse of green bond issue proceeds;

o   Facts and essence of any non-compliance with the principles and standards in the field of environment and green financing during project implementation

As part of the verification of the Report, the Issuer has presented, for all sections of the Report, documents and materials that confirm the information contained in the relevant sections. The Agency considers such information as sufficient and reliable.

In the Agency’s opinion, the above reporting procedure and the Report fully comply with the 2021 GBP.

⁹ https://xn--90ab5f.xn--p1ai/investoram/zelenye-obligatsii/.

Additional assessment factors

Organizational structure and strategy

According to the Issuer, the employees of its Risk Unit took part in the development of the National Standard. In addition, the employees have completed the Energy Transition course at the Skolkovo Moscow School of Management and advanced professional training in the Fuel and Energy Industry Sustainable Development program at Skolkovo Institute of Science and Technology. The Issuer has assigned a division in charge of environmental expert examination of projects. However, the Issuer does not have a separate division that is solely responsible for implementing green projects.

The issuer has approved the VEB.RF Green Bond Framework, adopted a general Development Strategy until 2024 and for the period up to 2030 and an ESG Strategy until 2024 and for the period up to 2030.

ACRA assesses the degree of integration of the Sustainable Development Principles into the policies and procedures of the Issuer as high. The Issuer has joined a number of global ESG initiatives (see pages 4–5).

The Agency assesses the overall quality of the Issuer’s corporate governance and strategic planning as high.

Financial feasibility of the projects

Purchases have already been made for Projects A and B.

The progress on Projects C and D is described on pp. 7–8 of this press release.

ACRA assesses the financial feasibility of the projects as high. At the same time, the Agency will assess the implementation of the projects as part of its standard monitoring procedures.

key assumptions for calculating environmental effects

To calculate the environmental and climatic effects, the Issuer used the models similar to models described as part of the initial verification¹⁰.

1.      Project A. To assess the environmental efficiency in 2022, the carbon intensity (g of CO₂ equivalent/kW*h) of electric energy consumed by electric transport vehicles was updated using the information on the structure of installed capacities of electric power plants in the UES of Center for 2022, installed capacity utilization factors of electric power plants in the UES of Center for 2021, and the needs of heat power plants in organic fuels in the UES of Center for 2022.

2.      Project B. To assess the environmental efficiency in 2022, the data on passenger traffic structure in the Moscow transport hub (including data as of late 2021) was updated, specific values of electric vehicles' carbon intensity (including actual emissions of electric buses in Russia) was adjusted, the carbon intensity (g of CO₂ equivalent/kW*h) of electric energy consumed by electric transport vehicles was updated using the information on the structure of installed capacities of electric power plants in the UES of Center for 2022, installed capacity utilization factors of electric power plants in the UES of Center for 2021, and the needs of heat power plants in organic fuels in the UES of Center for 2022.

3.      Project C. To assess the environmental efficiency in 2022, the data on tram passenger flow was updated for 2022 on the basis of the updated financial model of the project, the carbon intensity (g of CO₂ equivalent/kW*h) of electric energy consumed by electric transport vehicles was updated using the information on the structure of installed capacities of electric power plants in the UES of South for 2022, installed capacity utilization factors of electric power plants in the UES of South for 2021, and the needs of heat power plants in organic fuels in the UES of South for 2022.

4.      Project D. To assess the environmental efficiency in 2022, the indicators of actual useful supply of drinking water to consumers, actual treatment of wastewater, specific values of electricity consumed to wastewater treatment and transportation were updated, the carbon intensity (g of CO₂ equivalent/kW*h) of consumed electric energy was updated using the information on the structure of emissions of generating assets in the Central Energy District of the Sakhalin Region for 2021.

¹⁰ See ACRA's press release of July 15, 2022 https://www.acra-ratings.ru/press-releases/3399/.

rating components

Compliance of the issue with the 2021 GBP: yes.

Assessment score: GR1.

additional information

The assessment of the bonds of State Development Corporation VEB.RF and the projects refinanced as part of the bond issue and the report on the use of proceeds from the green bond issue (as part of par. 4.2 of the Issuer's report) for compliance with internationally recognized goals, principles, standards and criteria in the field of environment and green financing (2021 GBP), as well as the requirements to the system of verification of sustainable (including) green development projects in the Russian Federation have been performed based on the Methodology for Green Debt Obligation Assessment with respect to green bond assessment.

The compliance assessment may be revised within one year following the publication date of this press release.

ACRA’s opinion on the compliance of the bonds of State Development Corporation VEB.RF and the projects refinanced as part of the bond issue for compliance with internationally recognized goals, principles, standards and criteria in the field of environment and green financing (2021 GBP) and on the reliability of data presented in the report on the use of proceeds from the green bond issue (as part of par. 4.2 of the Issuer's report) is based on data provided by State Development Corporation VEB.RF, information from publicly available sources, and ACRA’s own databases. The assessment of compliance of the bonds of State Development Corporation VEB.RF and the projects refinanced as part of the bond issue for compliance with internationally recognized goals, principles, standards and criteria in the field of environment and green financing (2021 GBP) and on the reliability of data presented in the report on the use of proceeds from the green bond issue (as part of par. 4.2 of the Issuer's report) is solicited, and State Development Corporation VEB.RF participated in the assessment process.

In assigning the assessment, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.

No conflicts of interest were discovered in the course of the assessment process.

The assigned assessment is not a credit rating.

Appendix 1. Projects refinanced by the proceeds received from the issue of series PBO-002-33 (ISIN RU000A104Z48) exchange-traded bonds

Source: State Development Corporation VEB.RF

Appendix 2. Compliance of the bond issue and the Report with the criteria in Decree of the Government of the Russian Federation dated September 21, 2021 No. 1587 “On approval of the criteria for sustainable (including green) development projects in the Russian Federation and the verification system requirements for sustainable (including green) development finance instruments in the Russian Federation”

ACRA has also verified the bond issue and the projects refinanced with the proceeds from the issue and the Report for compliance with the criteria set by Decree of the Government of the Russian Federation dated September 21, 2021 No. 1587 and the criteria for green projects (the Green Project Taxonomy).

Compliance opinion

The assessed financial instrument (bonds) complies with the criteria.

The Report also complies with the criteria. The Agency considers this information to be sufficient and reliable.

Assessment methodology

The verification of the bonds for compliance with the internationally recognized principles and standards in the field of environment and/or green financing and the projects refinanced with the proceeds from the bond issue, as well as the reliability of data presented in the Report, has been performed based on the Methodology for Green Debt Obligation Assessment with respect to green bond assessment.

Actions taken

Documents and information received from the Issuer were reviewed by the Agency for compliance with the specified criteria as well as for credibility and reliability.

In addition to the documents presented by the Issuer for the purposes of the initial verification¹¹, the Issuer provided the Agency with:

(1)    Updated questionnaire as requested by the Agency;

(2)    Updated information about project implementation, including goals and short descriptions, as well as environmental impact and the stages of readiness for each project;

(3)    Updated calculation of the climate effect for each project;

(4)    Report on the use of proceeds (Par. 4.2 of the securities issuer's report; hereinafter, the Report);

(5)    Information on the Issuer's participation in each project and distribution of issuance proceeds among projects;

(6)    Project documentation, including:

• Information note on the progress of the project for upgrading the tramway network of Taganrog (as of April 4, 2023);

• Information note on the progress of the project to modernize and operate the water supply and wastewater discharge system of Yuzhno-Sakhalinsk based on a concession agreement (as of April 24, 2023);

• Financial and technical monitoring report No. 7 dated December 31, 2022 for the period October 1, 2022–December 31, 2022 (the project for upgrading the tramway network of Taganrog);

• Engineering note "Approval of updated budget and schedule for the project for upgrading the tramway network of Taganrog (as of April 24, 2023);

• Preliminary expert opinion "Forecasted passenger traffic on the tramway and other passenger transport routes of Taganrog (as of March 31, 2021);

• Documents on the reasons for changes to parameters of the project for upgrading the tramway network of Taganrog;

• Report on the reliability, quality and energy efficiency indicators of Rosvodokanal for 2022, approved by the Administration of Yuzhno-Sakhalinsk (as of April 14, 2023);

• Materials of the financial and technical audit of the project to modernize and operate the water supply and wastewater discharge system of Yuzhno-Sakhalinsk based on a concession agreement (for the period October 1, 2022–December 31, 2022) (as of February 7, 2023).

Discussions were held with the Originator.

Confirmation of independence of the opinion and the absence of conflicts of interest or other circumstances hampering proper, objective and impartial analysis and judgement

See page 16 of this press release.

Confirmation of the type of sustainable development financial instrument declared by the Originator

Green financial instrument (green bond).

Is the Originator liable for non-compliance of the sustainable development financial instrument with the requirements?

No.

Compliance of the sustainable development projects with one or more areas set by the sustainable development project criteria

5.1. Manufacture of railway transportation vehicles that use clean energy sources (passenger, cargo), purchase of railway transportation vehicles that use clean energy sources, migration of existing rolling stock to clean energy sources (Projects A, B and C).

5.7. Construction and upgrade of infrastructure for clean energy transportation vehicles (including construction of railway and tramway lines) (Project C).

6.2.1. Construction and upgrade of drinking water treatment infrastructure (Project D).

6.2.2. Improving the resource and energy efficiency of drinking water infrastructure (Project D).

6.4.2. Projects aimed at reducing the concentration of pollutants in wastewater (Project D).

See Appendix 1.

Information about the Originator and the sustainable development projects

The Originator is a development institution that, in accordance with a mandate defined by law, performs a unique function of financing strategically important investment projects, which, in view of the increased risks and the regulatory factor, cannot be performed by commercial banks.

The Originator is not a commercial bank, and it is regulated by a special law, Federal Law No. 82-FZ “On the State Development Corporation ‘VEB.RF’” dated May 17, 2007. According to the Financial Policy Memorandum of VEB.RF, the Originator participates in the implementation of initiatives of the Government of the Russian Federation in the field of the country's socio-economic development.

Areas and goals of refinancing the portfolio of green projects

Project A. Area: transportation and industrial engineering. Goal: reduction of greenhouse gas emissions.

Project B. Area: transportation and industrial engineering. Goal: reduction of greenhouse gas emissions.

Project C. Area: transportation and industrial engineering. Goal: reduction of greenhouse gas emissions.

Project D. Area: water supply and wastewater discharge. Goal: saving energy and increasing the efficiency of resource management.

Compliance of the bond issue with the requirements set by the Bank of Russia in line with the law of the Russian Federation on securities issues for bonds whose issue or prospectus contains additional identification using the words “green bonds”

Yes (an extended confirmation is presented on pages 1–3 of this press release).

Assessment of compliance of the relevant sustainable development projects with the sustainable development project criteria

Complies (see pages 2–4 of this press release and Appendix 1).

Results of the analysis of the goals for which proceeds will be applied and the procedures for ensuring recommendations on the use and management of proceeds

Complies (see pages 6–12 of this press release).

Results of the analysis of the procedures for selection and approval of sustainable development projects

Complies (see pages 10–11 of this press release).

Results of the analysis of the control over the implementation of sustainable development projects

Complies (see pages 8–13 of this press release).

Values of indicators and an independent confirmation of the expected environmental effect from the sustainable development projects

The Issuer presented the calculations for the following environmental effects:

• Project A: expected reduction of greenhouse gas emissions by 30,613 tons of CO₂ equivalent per year (949,003 tons of CO₂ equivalent over the 31-year operating life).

• Project B: expected reduction of greenhouse gas emissions by 30,358 tons of CO₂ equivalent per year (1,214,320 tons of CO₂ equivalent over the 40-year operating life).

• Project C: expected reduction of greenhouse gas emissions by 5,987 tons of CO₂ equivalent per year (167,636 tons of CO₂ equivalent over the 28-year operating life).

• Project D: expected reduction of greenhouse gas emissions by 8,471 tons of CO₂ equivalent per year (415,079 tons of CO₂ equivalent over the project implementation period (concession agreement is valid for 50 years, with the positive environmental effect beginning from the second year). In addition, the following environmental effects will be reached thanks to the implementation of this project: reduction of water loss by 8,920,000 m³ per year (437,080,000 m³ over the project implementation period (concession agreement is valid for 50 years, with the positive environmental effect beginning from the second year). The project will also allow the volume of wastewater treatment to be increased by 2,483,000 m³ per year (121,667,000 m³ over the project implementation period (concession agreement is valid for 50 years, with the positive environmental effect beginning from the second year).

Size of expected environmental effects of the green projects

Presented in Appendix 1.

Information on conflicts of interest and the independence of judgement

¹¹ See ACRA's press release of July 15, 2022 https://www.acra-ratings.ru/press-releases/3399/?lang=en.