The needs of business for environmental post-war recovery in Ukraine: survey results
06 September, 2022
The purpose of the survey is to find out about the state and needs of Ukrainian business during full-scale law, as well as about intentions to take into account environmental modernization during post-war reconstruction. For this, the UN Global Compact in Ukraine, which united more than 100 Ukrainian businesses, conducted a joint survey with the Innovation Development Center, the Office for Entrepreneurship and Export Development, the Diia.Business national project and Advanter Group with the support of the European Union, the Ministry of Digital Transformation, the Ministry of economy of Ukraine, the Ministry of Finance of Ukraine, the Ministry of Development of Communities and Territories, the Ministry of Reintegration of Temporarily Occupied Territories, the Coalition of Business Communities for the Modernization of Ukraine and the USAID Program “Competitive Economy of Ukraine”.
Key findings:
- The total direct losses of small and medium-sized businesses during the five months of the war are estimated at $87 billion. The figure has increased slightly when compared with the previous wave of research.
- 39.9% of enterprises have completely or almost completely stopped working since February 24, 2022. This is half the rate since the beginning of the invasion.
- According to their own estimates, the total financing needs of small and medium-sized businesses are $63.5 billion.
Top key decisions for the future:
- 41.6% of businesses plan to further develop and compete through unique business connections and partnerships.
- 38.9% — due to technological innovations.
- 20.9% — using business innovations.
Business plans for remediation according to the best available technologies (hereinafter BAT) (Industrial Pollution Directive 2010/75/EU):
- 15.7% of businesses record that they know about BAT for their field, the rest say that they do not. Therefore, it is very important to continue an information campaign to raise awareness among businesses about the implementation of BAT.
- Representatives of the agricultural sector, telecommunications, various types of industry and mechanical engineering know the best about BAT.
- 8.2% of businesses plan to make an assessment of compliance with BAT, 1.2% of enterprises have already done it. 47.7% of respondents are thinking. They mainly include representatives of industrial processing, food industry, furniture production and construction.
Survey period: 20.07–01.08.2022. Number of respondents: 842 owners and CEOs of enterprises.
Ukrainian business demonstrates remarkable resilience during wartime operations. The number of businesses that have completely or nearly ceased operations since the beginning of the invasion has halved. Business believes and invests in victory! Only 2% of enterprises relocated abroad, and approximately 70% volunteer, help the state and IDPs. At the same time, a significant part of the business has already adapted and resumed activity. It is encouraging that approximately 40% of them see their development through the introduction of technological innovations and are oriented towards the development of exports. Approximately 50% are thinking about taking into account BAT, which are European norms of energy and eco-efficiency for industry, in the process of reconstruction. In addition, the business notes that the unavailability of the necessary financial resources is one of the top obstacles for its recovery and development. Reasonable business needs for development, excluding compensation for direct war losses, are now $63 billion.
From business sentiment, we see a high motivation for post-war recovery, but they lack available information and resources to implement BAT for ecological reconstruction.
A number of environmental reforms are being actively implemented in Ukraine today, among them: the waste management reform (Law No. 2320-IX), the draft law implementing the 75th Directive on industrial pollution (draft law No. 6004-2), ongoing discussions on the design of the implementation of the trade system quotas for greenhouse gas emissions — STV in Ukraine. These initiatives are critically important for the green reconstruction of Ukraine and its association with the EU. In these difficult times, I see a great desire in Ukrainian business to learn and borrow the best practices for accounting and reducing emissions in accordance with scientifically based goals to achieve zero pollution in unison with Europe by 2050. These are the topics we are covering at the Climate Ambition Accelerator from the UN Global Compact. After all, climate practices are not a matter of reputation, but of business survival in the conditions of abandoning fossil fuels and building sustainable business processes. At the same time, we see that for part of the business in Ukraine, the implementation of advanced environmental practices based on BAT, which are currently not legislated in Ukraine, is a priority task. Individual companies have invested significant funds to bring production processes into compliance with European standards. These examples are in our report and they need international support to scale up further.
Reform of industrial pollution for ecological reconstruction of Ukraine
Environmental reconstruction of the economy today is:
- Increasing the energy efficiency of industry, which is critically important during the green transition period.
- Reduction of industrial emissions that irreversibly pollute the environment.
- The possibility of attracting foreign investments, because international financial organizations support only environmentally friendly technologies.
- Support of sustainable technologies that modernize production.
Due to Russia's war against Ukraine, metallurgy lost 30% of its assets. About a hundred enterprises were damaged or destroyed, among them: MK “Azovstal”, Mariupol MK named after Ilyich and Avdiivka Coke Chemical Plant. Other businesses are suspended or operating at partial capacity.
The absence of industry is automatically the absence of the defense sector, and therefore of the country itself. And this completely coincides with the interests of Moscow. After all, it is much easier to “denazify, denationalize and demilitarize” a deindustrialized country. Therefore, all 30 years of the existence of industry — first on Russian gas, then on coal and old technologies — played against us.
Therefore, during the recovery of Ukrainian industry, it is necessary to take into account current European standards in the form of Best Available Technologies and Management Methods (BAT). Directive 2010/75/EU, which is based on BAT, provides a high level of protection of human health and the environment and has shown its high effectiveness in practice. Since 2004, European enterprises have reduced emissions of sulfur dioxide by 77%, nitrogen oxide by 49% and dust by 81%. And also significantly improved energy efficiency indicators.
From 1990 to 2018, EU industry reduced greenhouse gas emissions by 23%, while the economy grew by 61%. After all, ecological modernization often involves reducing the energy intensity of enterprises.
Why did the EU succeed, but not Ukraine? The main reason is the lack of legal regulation.
Unlike Ukraine, the requirement to implement European standards for industry, the so-called BAT, when issuing documents of a permissive nature in the European Union has been applied since 1996, in accordance with Directive 2008/1/EU (the first version of the Directive — 96/61/EU) on integrated prevention and control of industrial pollution.
In the coming decades, the EU is set to provide major incentives to invest in industrial modernization, as last year the European Commission adopted the Zero Pollution Action Plan, which aims to help make the European Union climate neutral by 2050. Last June, the G7 countries reached an agreement to allocate $100 billion a year to finance climate protection projects in developing countries. The EU already actively supports the “green” transformation of Ukraine in the energy, agriculture and transport sectors, allocating EUR 300 million in grants and EUR 700 million in loans. And this is far from an exhaustive list of possible help. Joint opposition to the Russian aggressor only stimulates the green transition in European countries, so we can hope that the declared amount of funding will grow.
The Environmental Policy Committee has draft law No. 6004-2, which introduces European norms for industry (BAT), which are already the only way for businesses to attract available international investments, especially during reconstruction. The adoption of this draft law will allow Ukraine to jump on the bandwagon of global climate investments, which will be a guarantee of the preservation of industry and the health of Ukrainians.
The state and needs of business in wartime: the results of the survey in July
1. State of work of enterprises
As of July, 39.9% of enterprises have completely or almost completely ceased operations since February 24, 2022. This is lower than in June 2022, when 46.8% of enterprises were completely or almost inactive. In contrast, 11.5% did not change or increased the amount of work compared to the day of the full-scale invasion of Russia.
2. Small and medium-sized businesses losses for 175 days of the active phase of a full-scale war
The total direct losses of small and medium-sized businesses in the five months of the war are estimated at $87 billion. The indicator has slightly increased when compared with the previous wave of research. This indicator is a generalized assessment by a business of its direct losses, covering resources, goods, fixed assets, forced overpayments and relocation costs.
3. Need for funding for recovery
According to the business' own estimates, the total financing needs of small and medium-sized businesses are $63.5 billion.
4. Competitive advantages that the business plans to use for development
Significantly, 36.5% of businesses plan to use technological innovation for business recovery (2nd place) and business innovation (3rd place).
5. Does the business have a strategy, business development plan taking into account new realities?
33.8% of businesses have already adapted and have an action strategy.
These are mainly companies from the field of health care, various sectors of industry and agriculture.
6. Orientation of business to the domestic market or export
In the current economic situation, 38% of businesses are export-oriented.
In addition to the IT sphere, various spheres of the processing industry are most oriented towards export.
7. What types of state aid have you used since February 24, 2022?
Every fifth respondent states that tax benefits are the most popular type of public assistance they have used. Instead, only 4% of respondents used credit, which indicates a huge lack of available financial instruments for business.
8. What prevents you from restoring and developing your business now?
26.4% of respondents indicated the unavailability of credit funds as one of the reasons that prevents business recovery. Businesses also consider unpredictable actions of the state (32.3%), lack of sufficient capital (39.4%), unpredictability of the development of the situation (46.6%), lack of a sufficient number of solvent customers (62.2%) as such reasons. All of these reasons show that affordable credit programs are critical to business recovery.
9. What key decisions do you approve of for your business in 2022-2023?
Finding financing (35.9%) and finding partners in foreign markets (27.1%) are important decisions for businesses in the process of post-war reconstruction.
10. Business intentions to take into account BAT in accordance with Directive 2010/75/EU in the process of post-war reconstruction.
Only 10% of enterprises currently plan to resume production in accordance with the best available technologies and management methods. 47.7% of respondents are thinking.
Regionally: 14.1% — in the East of Ukraine, 10.1% — in the Center, 9.6% — in the West, 8.5% — in the North, and 8.3% — in the South.
This is explained primarily by the low level of business awareness: only 15.7% know what BAT is.
From 13.8% — (in the West of Ukraine) to 18.6% (in the Center) declare their awareness of the conclusions of BAT. Therefore, it is very important to conduct an information campaign to raise awareness among businesses about the introduction of BAT.
Representatives of the agricultural sector, telecommunications, various types of industry and engineering are the most knowledgeable about BAT.
Businesses that plan to resume production in accordance with BAT mainly include representatives of industrial processing, food industry, furniture production and construction.
Business comments on recovery under BAT:
- Agro-industrial holding “Astarta-Kyiv”
In 2015, Astarta started implementing the Best Available Technologies program, introducing resource-efficient technologies at sugar factories. Thanks to the implementation of this program, the company managed to reduce the consumption of technical water by 20%, natural gas by 27%, and electricity by 64% per ton of processed beets over 6 years.
Astarta is constantly working on improving the efficiency of operational processes. Over the past two years, the company has been operating a system of operational improvement aimed at increasing the operational and managerial activities of the business, in particular, the flexibility and speed of response to external changes and challenges, as well as achieving the highest business performance indicators.
According to the results of the two-year operation of the system, its economic effect exceeded UAH 30 million. Almost 900 company employees became active participants in this system, i.e. almost 14% of the entire workforce of Astarta. On average, one participant accounts for 32,000 hryvnias of economic effect. More than 2,100 ideas were submitted in all business segments of the company. 31 operational improvement projects have already been implemented. 14 “kaizen projects” are currently in the active implementation phase. The company paid UAH 2.5 million in bonuses to the authors and implementation teams.
Astarta is also currently actively working on the development of a decarbonization strategy. The strategy will contain a list of measures to improve the energy efficiency of production and, as a result, reduce greenhouse gas emissions. The project is implemented jointly with international consulting and financial institutions.
Today, the implementation of BAT is already a mandatory requirement for Ukrainian companies. After all, the energy crisis provoked by Russia's military actions in Ukraine requires the entire world community to immediately search for alternative energy sources and, accordingly, implement modern energy-efficient technologies that will reduce energy dependence on fossil energy resources.
- LLC “Kronospan UA”
Kronospan's operating principle is to always be a leader in the industry. In particular, in implementing the best available technology and management methods and increasing environmental safety. For more than ten years, Ukraine has been systematically moving towards the European Union. Planning and carrying out modernization in accordance with Directive 2010/75/EU is a visionary strategy of true European manufacturing. It is rational, profitable and socially responsible. A high level of environmental safety at production facilities is the need of the hour. System modernization in accordance with the Best Available Techniques (BAT) Reference Document for the Production of Wood-based Panels of the factory in the city of Novovolynsk has been ongoing for more than eight years.
In 2017, the company replaced the gas boiler with a modern solid fuel boiler, in 2018 it became the first in Ukraine to produce a stove with reduced formaldehyde content (E-LE). Kronospan products meet the international requirements of CARB (California Air Resource Board) and EPA (Environmental Protection Agency of the USA). In 2019, it built an 8-meter-high noise-reducing concrete barrier. In 2020-2021, OSP launched state-of-the-art wet electrostatic vacuum cleaners WESP on the existing chipboard line and the new line. As a result of modernization, production workers received modern technologies and equipment, and the company's clients received Ukrainian-made products that meet the highest international standards. At the same time, the indicators of industrial emissions are now significantly lower than not only the standards of Ukraine, but also of the European Union. And this is repeatedly confirmed by the results of measurements.
The principles of BAT compliance were immediately incorporated into the construction project of the new Kronospan plant in the village of Horodok, Rivne region. The enterprise is equipped with one of the world's best flue gas recirculation and drying systems with a heat exchanger and waste gas heat treatment UTWS and wet electrostatic dust cleaners WESP. Installation and adjustment works are still ongoing in Horodok, but the company's management is confident that the enterprise will meet the highest environmental standards of Ukraine and the EU for many years.
Nataliia Pokinska, general director of Kronospan UA LLC.
- Metinvest International Mining and Metallurgical Group of Companies
We realize that the need to reduce industrial pollution will become more and more acute both at the national and international levels. Therefore, the goal of switching to more modern and efficient technologies remains. As a result, post-war reconstruction will be characterized by two directions: (1) restoration of damaged objects for their operation as soon as possible and (2) full restoration (reconstruction) of destroyed industries, which, most likely, will take place taking into account the conclusions of BAT. Reconstruction of destroyed enterprises (where restoration is impossible) and construction of new facilities will take place taking into account BAT and modern energy-efficient technologies, which also allow reducing greenhouse gas emissions. At the same time, for surviving enterprises and enterprises that can be restored (where it is economically feasible), it is necessary to follow a balanced approach regarding the terms of implementation of the BAT conclusions. Sufficient transition period for implementation of BAT conclusions should be provided — approximately 15-20 years. This is a condition for preserving tens of thousands of jobs, billions of tax revenues and ensuring economic and social stability.
Full recovery and the use of the most modern technologies, in particular those provided for by BAT, will require the involvement of foreign contracting organizations, a long time for the construction itself and, most importantly, financing. However, it is important to note that Ukraine aspires to full membership in the EU, therefore, in order to ensure a competitive level of industry, access to EU financial instruments and funds is necessary on equal terms with European companies. It is the ability to attract financing and investment on the same terms that is a key factor for the possibility of post-war reconstruction.
The stability and predictability of the tax and regulatory environment will also have a major impact on recovery, as these factors will one way or another directly affect the ability of businesses to raise funds and build long-term plans.
The system of integrated EU permits, a component part of which, in fact, are the conclusions of the BAT, is quite complex, bureaucratic and in constant development. Therefore, Ukraine needs to significantly improve the institutional capacity of the relevant state bodies to first implement and then administer such a complex system in the same modality as EU countries. In addition, it is very important to ensure the participation of Ukraine (both state bodies and business) in the Seville process of developing new and updating the existing conclusions of the EU BAT.
- Ukrainian industrial company, manufacturer of seamless pipes and railway wheels “Interpipe”
INTERPIPE has considerable experience in implementing BAT in Ukraine. In 2012, long before our country received the status of a candidate for joining the European Union, the largest environmental investment was made not only in the company, but also in the entire Ukrainian industry. INTERPIPE built the electric steelmaking plant INTERPIPE STEEL from scratch, investing $1 billion in this project. The new plant made it possible to close the outdated production, which was located near the very center of the modern Dnipro, and reduce CO₂ emissions by 10 times. This is in line with the general world trend — the abandonment of coal and coke, which is used in blast furnaces, and the transition to the electric arc method of steel smelting.
INTERPIPE STEEL is built on a turnkey basis by the Danieli company, taking into account all advanced technologies in metallurgy. In addition to reducing greenhouse gas emissions (the plant's CO₂ emissions already meet European targets for 2050), INTERPIPE STEEL has reduced energy consumption and a ton of steel by 2.2 times, and gas consumption has been reduced by 60 million cubic meters. The enterprise is equipped with a modern gas purification system that effectively captures gas and dust generated in the steel smelting process. Thus, a minimum of impurities enters the air. Also, the enterprise has built a closed cycle of water consumption. Water for production is cleaned and reused, which eliminates any discharge of industrial effluents into water bodies. To provide the plant with electricity, for the first time in Ukraine, an underground ultra-high voltage cable line was built instead of the usual overhead transmission line. The underground cable line has a negligible sanitary zone and does not harm the environment.
The construction of INTERPIPE STEEL was financed with the involvement of the Italian export credit agency Sace, which supported the Italian leading manufacturer of metallurgical equipment, Danieli. A mandatory condition for financing the project was the involvement of international auditors to check compliance with European environmental standards during the engineering and implementation of the project, as well as in the first years of operation of the new plant.
For the effective modernization of industry in Ukraine, not only the informational and advisory, legislative and regulatory base developed and coordinated with the involvement of international experts should be available in accordance with European strategies and standards. The most important thing is that financial mechanisms and state tax, investment and other incentives for the development of the industrial sector should exist and work, just as it happens in European countries. For example, according to the European steel association Eurofer, investments by EU steel companies in new steelmaking technologies to achieve carbon neutrality should amount to about €144 billion, while the source of financing will be not only the companies' own funds, but also state funds and revenues received from the system trading of CO₂ emissions quotas. The EU is also developing mechanisms for providing soft loans and subsidies for the “green” transition of industry. Effective financial incentives for Ukraine are the most critical, since a significant part of the industry will have to be rebuilt, not just modernized (as it was before the war).
It is worth noting that the further development of Ukrainian industry is no longer possible without the introduction of modern technical solutions and management practices. Today, they are the main prerequisite for the competitiveness of products on the world market. Moreover, any modernization or reconstruction of the industrial sector must take into account the ecological and energy-efficient component.
Fortunately, today INTERPIPE enterprises are unscathed as a result of hostilities and continue to operate in wartime conditions.
Despite the current conditions, the company constantly takes into account the best global experience and BAT when maintaining our capacities. We are not waiting for some moment or decision, but simply doing everything possible for the country right now.
For example, at INTERPIPE production enterprises, a program to reduce natural gas consumption is being implemented step by step, which is one of the most important tasks both for further decarbonization and from the point of view of the energy security of our country.
Any measures that take into account the environmental component as one of the highest priorities should be supported and financially stimulated — as opposed to the rehabilitation of obsolete and inefficient equipment.
Comments on the United Nations Global Compact in Ukraine:
The United Nations Global Compact in Ukraine interviewed 17 businesses anonymously by sending a Google questionnaire on the topic of intentions for ecological modernization. Businesses indicated that for post-war recovery they need:
- modernization consultations regarding BAT, financial and technical support, namely: available loans for a long period of time for the purchase of new equipment, available loans to support the liquidity of the enterprise, attracting irrevocable financial assistance and technologies, consulting on restoration taking into account the requirements of BAT, technical assistance in the preparation of reconstruction projects, localization of equipment production in Ukraine, support for the export of Ukrainian products, financial guarantees for the restoration of production.
They also note that today they are actively raising shareholders' funds / the company's own funds for post-war reconstruction. The state-owned company has attracted an international loan (5 surveyed companies have a total of experience of cooperation with international institutions).
10 companies indicated that they had made investments in production greening and emission reduction, 13 companies indicated that they planned to continue making investments in production greening and emission reduction during post-war reconstruction, and one company indicated that it had minimal emissions. 4 companies have already carried out conformity assessment according to BAT. 8 companies have implemented an environmental management system and 3 are planning to implement it. 16 companies answered that they plan to retool production taking into account advanced technologies (all taking into account BAT), the enterprise with minimal emissions indicated that it plans to return to the previous state.
17 companies were surveyed, representing the chemical, mining, engineering industries, metal production and processing, land and pipeline transport, energy generation and supply, postal and courier activities, construction of buildings and structures, and plastic processing.