Sustainability report 2012–2013 1

CONTENTS

About the Company······················································································································· 2 Chairman’s Message····················································································································· 4 A Responsible Investor·················································································································· 6 Our approach to responsible investment··················································································· 6 Stakeholder Relations ·············································································································· 9 Managing corporate social responsibility··················································································· 10 Social Investment·························································································································· 13 Culture and Arts························································································································ 15 Education and Science············································································································· 18 Sports······································································································································ 23 Social development·················································································································· 25 Corporate governance and culture································································································· 29 Corporate Governance············································································································· 29 Corporate culture and business relations··················································································· 36 Our personnel································································································································ 43 Personnel structure and headcount ·························································································· 43 HR policy·································································································································· 44 Human rights···························································································································· 46 Motivation and remuneration····································································································· 46 Personnel assessment, development and rotation····································································· 47 Social safeguards····················································································································· 48 Occupational health and safety································································································· 49 Healthy lifestyle························································································································· 50 Environmental protection··············································································································· 53 Air, water and soil protection····································································································· 54 Resource saving······················································································································· 54 Waste disposal························································································································· 55 Biodiversity restoration·············································································································· 56 Environmental activities ············································································································ 56 Report profile································································································································· 58 2 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 3

Revenue, US$ m Adjusted OIBDA, US$ m Sistema’s portfolio companies Comment 40,000 10,000 About MTS is the leading telecommunications group in and the CIS, offering mobile and fixed voice, 35,942.1 8,918.5 broadband and pay TV services. MTS is included in the top-100 most valuable brands in the world the Company 33,950.4 5.9% 8,430.6 30,000 7,50 0 5.8% JSOC Bashneft is a vertically integrated oil company ranking in the top-10 Russian companies 20,000 5,000 in terms of oil production and in the top-5 in terms of oil refining Sistema JSFC is the largest publicly-traded diversified holding company in Russia and Bashkirian Power Grid Company is one of the largest regional electricity transmission companies 10,000 2,500 the CIS. Incorporated in 1993, Sistema is now one of Russia’s top 10 companies by revenue, and is one of the largest holding 0 0 Targin (formerly Bashneft-Service Assets) is a management company of an oilfield services holding companies in the world. The Company’s 2012 2013 2012 2013 which comprises 11 companies portfolio comprises stakes in predominantly Russian businesses in a range of sectors, United Petrochemical Company is a vertically integrated petrochemical company which owns including telecommunications, oil and gas, Operating income, US$ m 2012–2013 Highlights: four businesses in the Republic of utilities, healthcare services, consumer, high 6,000 tech, and others. Sistema is the control- 5,663.0 ling shareholder in most of its portfolio 19.8% 4,500 companies. 4,725.8 167.5 k Sistema Mass-Media (SMM) is one of Russia’s leading media holdings employees Sistema’s portfolio companies serve more 3,000 than 100 million consumers in Russia, MTS Bank is a universal commercial bank of federal scale, one of the top 50 Russian banks the CIS, Europe and Asia across industries by the size of equity and net assets 1,500 such as telecommunications, high tech, oil >100 m and energy, radio and space technology, customers Detsky Mir is the largest children’s goods retailer in Russia and the CIS banking, retail, mass media, tourism, and 0 healthcare services. 2012 2013

VAO Intourist is the oldest operator in the Russian tourism market Sistema’s shares are listed on the London $69.9 bn Stock Exchange as Global Depository Earnings per share, in revenues in 2012–2013 Receipts (GDRs). The Company’s ordinary 30 in US cents shares are listed on the Stock Medsi is a leading provider of private healthcare services in Russia which operates the largest Exchange. The main shareholder of the Com- 25 private chain of medical institutions in the country 24.43 pany is the Chairman of Sistema’s Board 20 140.1% P3.6 bn of Directors Vladimir Evtushenkov (64.19%). of social investments in 2012–2013 15 RTI is a major Russian industrial holding which develops and manufactures high-tech products SISTEMA’S PORTFOLIO COMPANIES and infrastructure solutions using proprietary microelectronic technologies. The company 10 10.18 is one of the top 100 largest defence companies in the world In November 2012, Sistema’s Board of Direc- 5 P676 bn Binnopharm is a pharmaceutical company which operates one of Russia’s largest facilities tors approved a new organisational structure, of tax payments in 2012–2013 for full cycle production of biotech drugs under which all of the Company’s investments 0 were grouped into asset portfolios. 2012 2013

NIS is a leader in the Russian navigation and information market, implementing major projects P113 bn to deploy GLONASS, a Russian satellite navigation system Sistema is ranked 308th Net income attributable staff costs in 2013 2,500 to Sistema, US$ m in the Fortune Global 500 Russkaya Zemlya (RZ Agro Holding Ltd.) is a major grain producer in the south of Russia 2,257.5 with a land bank of approximately 100 thousand hectares and ranks in the top 10 Russian 2,000 138.6% 3,500 companies by revenue. 1,500 employees involved in volunteer projects SG-trans is Russia’s largest independent railcar operator in the market for transportation 1,000 of liquefied gas 946.1 500 >300 Sistema Shyam TeleServices Ltd (MTS India) is a mobile operator in India 0 social projects run by the Company 2012 2013 4 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 5

Chairman’s Message

Dear Partners and Shareholders, undergo a significant transformation: we do not just Bashneft’s integrated Occupational Health & Safety Employees and Customers, construct new buildings to house clinical diagnostic and Environmental Management System was certified centres; we want to bring to Russia the most advanced to the internationally recognised standards ISO 14001 I am pleased to present our Sustainability Report. international medical technologies, including both and OHSAS 18001. In the reporting period, we saw In 2012–2013, we initiated a number of important latest equipment and latest medical know-how. RTI’s a significant decline in the occupational injury rates social projects, the largest of them being the all-Russia contribution to enhancing Russia’s security received at our hazardous facilities . programme to support talented youth, Lift to the Future. the highest recognition possible when in 2012 The companies comprising the Corporation have funded the developers of its new radar station were awarded Sustainable development of our Company is based the construction and renovation of dozens of sports, the State Prize in science and technology. on our relationships with the social, natural and economic healthcare and educational centres in many regions environment. While presenting this report I invite you of Russia; thousands of volunteers from our companies Transparency and high standards of business ethics to make proposals and suggestions as to how to make have participated in charitable activities. Every year, our are an integral part of our operations. We have these relationships even more harmonious nd productive. positive contribution to society is becoming increasingly succeeded in becoming a role model for many Russian significant and visible: in 2012, Sistema won first place businesses for corporate governance and investor Your views are particularly important as we have set in the annual Corporate Philanthropy Leaders ranking. relations. Our approach to new investments continues highly ambitious goals for 2014–2015. We are launching this trend — we grow market leaders, the companies new exciting environmental and social projects and I would like to emphasize the positive social changes we can be proud of. One example of this approach is seek to involve as many subsidiaries as possible into that our business brings to the lives of people. Today, the transformation of SG-trans, launched in the reporting the ongoing ones. We also plan to make employee our telecommunications company, MTS, serves more period; this successful project is presented as a case participation in volunteer initiatives a company-wide than 100 million subscribers. Over the years of its in this report. In planning new investments we always commitment. In many of our portfolio companies existence, it has brought advanced communications estimate not only the expected returns on our investment higher standards for anti-corruption procedures will services to hundreds of remote communities across but also the impact that the target company has on be introduced in the near future. We will continue Russia which previously lacked even landline the environment and local communities, and evaluate the implementation of best corporate governance telephone service. Its subsidiary in Armenia helped its commitment to providing quality products or services, practices and further improve the performance of our improve ambulance waiting times due to the roll-out its work environment , and contributions to society corporate Board of Directors. And of course, all our of state-of-the-art telecommunications technology. and Russia. subsidiaries are set to deliver even stronger performance Bashneft is spending billions of roubles on renovating for the benefit of the Russian economy and people in all Soviet-era refineries in Bashkortostan. One of its key Sistema employs almost 170,000 people, with jobs countries and regions we operate in. accomplishments is the full transition to production provided in every region of Russia and in ten foreign of Euro-5-compliant gasoline. The use of this fuel countries . It is an immense responsibility. We provide drastically reduces car emissions. our employees with decent remuneration for their work and seek to offer exciting development opportunities Sincerely, In 2013, Detsky Mir reinvented its approach to retail: and career prospects to employees of our companies. Vladimir Evtushenkov a new store format was launched focused on providing We invest not only in production but also in human capital. Chairman, fun for children. The network of Medsi clinics will In addition, a special focus is made on safety. In 2013, Sistema’s Board of Directors 6 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 7

but focuses on the consistent development MANAGING SUSTAINABLE address corporate governance, environ- of the Russian economy, opening up new Bashneft is actively introducing technology A Responsible of every business, taking it to a leader- DEVELOPMENT ISSUES mental and social issues. Sistema leverages opportunities for people, promoting the devel- innovations in the refining and petrochemi- ship position in their respective industries. IN THE INVESTMENT PROCESS all the experience of its investment team opment of society and facilitating the nation’s cal business segments to produce products Investor This investment approach is based on a firm as well as that of other subsidiaries to develop integration into the global community. that meet the most stringent environmental belief that only a long-term view of invest- Sistema invests in businesses with yet optimal tailored solutions and sets reasonable requirements, as well as to further increase ment coupled with pro-active involvement undiscovered potential value. This approach KPIs for the management. One aspect of MTS’ social role is increasing the depth of refining, introduce advanced in the development of the subsidiary’s busi- always implies certain risks. The Company the availability of fair-priced communications technology solutions that drive efficiency, OUR APPROACH ness and due account for the interests of all conducts thorough due diligence on potential Achieving significant progress on govern- services. MTS is continuously improving optimize costs, ensure energy efficiency, TO RESPONSIBLE INVESTMENT stakeholders can generate sustainable growth investment targets, which provides for accu- ance, environmental and social issues often its offering, launching new attractive tariff and improve safety. of shareholder value and corporate efficiency. rate risk assessment and development takes time. However, Sistema is focused plans. The company regularly launches new Sistema enjoys a prominent position in the Rus- of mitigation programme. on the long-term growth of the market value offers providing users with new capabilities Bashneft plays an important role in the econo- sian economy. The decisions we make have RESPONSIBLE INVESTMENT of its subsidiaries’ businesses, so their man- and helping them optimize communications my of its key region of operations, the Repub- significant implications not only for our portfolio PRINCIPLES As a part of this due diligence process, Sistema agement teams have the opportunity to take costs. MTS consistently reduces its prices lic of Bashkortostan. In addition, the company companies but also for the lives of local com- makes analyses of the market in which the tar- consistent efforts towards ensuring sustain- per minute, for example, between 2008 and is actively involved in the development of munities, and the industries that employ In its activities, Sistema adheres to the Prin- get company operates, its operations, current able development, along with efforts to drive 2013, the average price per minute (APPM) social infrastructures and charitable projects millions of Russians. Therefore, as part of the ciples for Responsible Investment developed strategy, and a range of macroeconomic business growth. in the company’s cellular networks in Russia in the region. In 2012–2013, the company investment process, as well as in the manage- by a group of major international institu- factors — all this is done to assess its growth was cut by almost half. allocated more than RUB 2.5bn for those ment of its subsidiaries, the Company acts as tional investors and supported by the United potential and develop a clear plan to increase OUR STRATEGY purposes. a responsible investor, i.e. takes into account Nations. These principles are based on its market value. In doing so the Company Bashneft: Improving the environmental, social and governance the acknowledgement that environmental, not only reviews the business performance, All Sistema’s businesses are guided by oil production efficiency Detsky Mir: Products for children aspects of its operations. We are confident social and governance (ESG) issues influence but also analyzes the impacts environmental, responsible investment principles in their Bashneft is one of the key assets in the Com- and their parents that the integration of these considerations into the value and the dynamics of an invest- social and governance issues have on it — operations, generating benefits for society pany’s investment portfolio. A vertically inte- Detsky Mir is the leading retail chain in the Company’s business strategy and tactics ment portfolio, and their use can improve to see whether they drive or hinder growth. and seeking to make people’s lives better. grated oil business, the company is, accord- the market for children’s products in Russia, ensures business sustainability and makes the alignment of business goals to societal The analysis of these issues as part of the due This is how we mostly see our social role. ing to its 2013 results, Russia’s 6th largest oil as well as one of the most recognizable Rus- positive impacts on society in general. aspirations. The Company seeks to use these diligence process allows Sistema to fully map producer and ranks 4th in oil refining. sian brands. Today, the company operates principles not only at the corporate level, risks and opportunities and make informed MTS: Caring about the customer more than 200 Detsky Mir stores in more than Responsible Investment Considerations but also integrates them into the business investment decisions. One of Sistema’s strategic assets is MTS, Bashneft has more than 170 oil fields in com- 100 cities across Russia, as well as 27 ELC, Depending on the industry and the specific processes of the portfolio companies. a leading telecommunications operator in mercial operation. The company seeks to or Early Development Centre, stores. company targeted for investment, a range Of course, the Company does not base Russia and the CIS, offering integrated mobile ensure efficient oil production by leveraging of different issues are considered. The key UN Principles for Responsible Investment: its decisions solely on the above factors; and fixed telephony, long distance and interna- advanced technology solutions with the lowest In December 2013, Detsky Mir presented considerations include: Incorporate ESG issues into investment however the availability of objective informa- tional communications services, cable televi- environmental footprint. Bashneft also seeks a new concept of its stores. The new concept analysis and decision-making processes; tion on these issues determines to a great sion, data transmission based on wireless and to expand its resource base — in 2012–2013, draws on the idea of a “store for children”, with Social considerations: Be active owners and incorporate ESG extent the investment appeal a certain wired solutions, as well as financial services the company’s key focus along with oil produc- the key focus on little buyers. For them, there public benefits; issues into our ownership policies and business has to Sistema. For example, to its 100 million subscribers. MTS growth tion at existing fields, was on the development is a separate entrance, their own “children’s” employee engagement; practices; the Company may decide against investing strategy is based on investment-driven expan- of new promising fields. During the reporting store guide and more than 20 entertainment occupational safety; Seek appropriate disclosure on ESG in an attractive business which has good sion of telecom infrastructure in the countries period, commercial production was launched zones. Adjusted height shelving allows shop- human rights; issues by the entities in which we invest; growth prospects but also significant ESG where it operates, above all, in Russia. at R. Trebs and A. Titov fields in the Nenets pers to see almost the whole room from any personal data security; Promote acceptance and implementa- risks. On the other hand, other things being Autonomous Area, boosting Bashneft’s point, while wider aisles provide for a comfort- relationships with local communities. tion of the Principles within the investment equal, companies with effective corporate The company drives the development overall oil production volumes. Contingent oil able shopping experience when shopping industry; governance and environmental management of the Russian high-tech sector and helps resources of the above deposit are estimated with a stroller. As part of the new concept, Environmental considerations: Work together with the investment com- systems in place and strong personnel com- improve the investment appeal of the national by Miller and Lents at 649.4 million barrels. innovative lighting solutions were introduced responsible land use; munity to enhance our effectiveness in imple- mitment have more appeal for Sistema. economy. MTS not only offers best-in-class to change colour and highlight attractive energy saving and resource efficiency; menting the Principles; service and quality of communications, but During the reporting period, the com- offers. Detsky Mir chain stores set a new reduction of pollution and CO2 emissions; Report on our activities and progress When making a new investment, Sistema also the latest technology solutions, including pany continued modernization of its refining standard in retail products for children, and waste management; towards implementing the Principles. commits itself to active ownership, becom- mobile broadband Internet access based capacities, aimed at improving production the growing number of stores in the regions environmental friendliness of products. ing deeply involved in its management and on 3G and 4G networks. In 2012–2013, efficiency and reducing its environmental means higher availability of high-quality chil- Sistema contemplates becoming an official development through the Board of Direc- the company installed 22,100 new base sta- footprint. In addition, every upgrade project dren’s products across the country. Corporate governance considerations: signatory of the initiative and commit tors. The Company is focused not only on tions. Its 2G network covers 91% of the pop- implemented by Bashneft means not only a business ethics; to unconditional compliance with the UN operating and financial performance of the ulation, with the 3G and LTE networks reach- foundation for the company’s future develop- Medsi: Advanced treatment anti-corruption and fraud prevention poli- Principles for Responsible Investment. subsidiary, but also on the steps it takes to ing 78% and 11% of the Russian population, ment, but also a contribution to the nation’s solutions for everyone cies and procedures; respectively. Geographically, MTS network healthy environment. A number of production Medsi is a leading private provider of health- corporate governance; covers the entire territory of Russia. The com- facilities have been upgraded, which allowed care services in Russia; the company offers openness and transparency; pany has provided connection to residents Bashneft to boost production of high-quality a full range of services in prevention, diag- government relations. of hundreds of remote communities which fuels, particularly of Euro-5-compliant gaso- nosis and treatment of diseases, as well as Sistema invests in businesses which, along with the investment income, previously had no telecommunications and line. In addition, we continued upgrades to rehabilitation for children and adults. Medsi Sistema acts as a strategic investor in most sometimes even power supply. By develop- Bashneft-Ufaneftekhim’s biological treatment clinics use advanced treatment methods, may bring benefits to society, the economy and the environment, portfolio companies. It means primarily that ing the communications infrastructure and plants, which will result in 100x reduction in oil making sure that care is provided as promptly the Company does not seek quick profits and improve the quality of people’s lives in general. services MTS directly drives the performance contamination of waste water. and efficiently as possible. All Medsi clinics 8 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 9

are equipped with the latest medical equip- RTI System: Contributing production to encapsulation, providing for STAKEHOLDER RELATIONS Principles of Stakeholder potential. The Company also participates ment and staffed with experienced doctors to the national security maximum control of product quality and Relations in government-sponsored programmes with the highest qualifications and PhDs Concern RTI Systems comprises enterprises safety. Mikron is ahead of other Russian We firmly believe that sustainable business In its interactions with investors and aimed at the development of innovative prod- in medical sciences. The clinics’ capabilities that have vast R&D and production capabili- microelectronics manufacturers by 4 to 5 development and the achievement of stra- shareholders, the Company sees sus- ucts and services, strengthening the country’s provide for timely prevention, quality diag- ties in implementing unique hi-tech projects. generations of technology. tegic objectives are only possible when tainable business growth, high return on defences and improving the living standards nosis and appropriate treatment, combined due regard is taken of the interests of all investment, increasing shareholder value, of the population. with advanced service for patients. The company’s mission is to support The company produces over 500 chip types, stakeholders and responsible management and development of an effective mechanism the Russian Government and major busi- supplying its products to all regions of Russia, of stakeholder relations is ensured. for planning and implementation of invest- In its interactions with employees, Sistema In the reporting period, Medsi launched nesses in implementing large-scale high-tech CIS countries, China, Japan, and South-East ment projects as its main tasks. The Com- is committed to providing decent salaries a large-scale transformation of assets to projects and military-technical programmes Asia. Chips are also supplied to the Russian In 2013, the Company held a special strategy pany’s responsibility towards the above and work environment. The Company build a full cycle of medical services: the that contribute to Russia’s economic growth military and industrial complex enterprises, meeting which was attended by representa- stakeholders is in providing them with free recognizes its responsibility as an employer company refined the referral process for and national security. The concern focuses the Russian Space Agency, and Rosatom. tives of 13 subsidiaries, as well as external and timely access to information, ensuring to offer jobs with competitive salaries and patients — from primary care clinics to the on several science and technology areas: advisors. The meeting identified the following the unconditional right of all shareholders fringe benefits, provide for comprehensive clinical diagnostic centre, and from there, if radio engineering and rocket technology, inte- In the reporting period, Mikron commis- stakeholders whose interests are to a varied to participate in the management of Sistema professional and cultural development of its there are indications — to clinics, or sanatori- grated communications systems and security, sioned a production line for 90 nanometre extent taken into account by Sistema in its and its income. employees, and offer opportunities for career ums if rehabilitation is required. This system of information and management systems, microchips; additional technological options day-to-day activities: growth. The Company has built a number care provides for high quality standards and systems for special agencies, geo-informatics were developed to produce a wide range Shareholders and investors; In its interactions with the State, the Com- of communications channels for employee advanced treatment techniques. and radars. Many RTI Systems’ products are of microchips for navigation, telecommuni- Government; pany recognizes its responsibility to ensure engagement: face-to-face meetings with one-of-a-kind globally. cations equipment, and identification and Employees; strict compliance with legislation, create the management, interaction through Binnopharm: Biotechnology payment systems. Its successful moderniza- Customers; conditions for resource and energy effi- trade unions, feedback tools (Internet and development and application Over the years, the company has earned tion programme has helped the company NGOs and public organisations; ciency, environmental safety, job creation, telephone channels), and surveys on various Binnopharm is a Russian pharmaceutical pro- a reputation of a reliable partner of the state increase its exposure to government-spon- Partners and suppliers. and development of the nation’s economic aspects of the Company’s life. ducer focusing on biotech drugs. The com- in the implementation of major federal and sored R&D and production projects related pany operates one of the nation’s largest regional projects, including the deployment both to the national security and innovative biopharmaceutical complexes with an area of radar stations of high ex-works readiness solutions covering all citizens of Russia, such of 32,000 sq. m, as well as a factory produc- and the establishment of the National Centre as chips for new Russian passports and for ing infusion solutions and plasma substitutes, for Crisis Management commissioned by universal electronic cards. Stakeholder Matrix PFC Alium. Binnopharm has built a team EMERCOM of Russia. RTI Systems is includ- of leading biotechnology scientists to focus ed in the international ranking Defense News Sitronics: Developing IT solutions on promising biopharmaceuticals. Top 100 and is one of the 100 largest defence for infrastructure High companies in the world. Sitronics is a leading supplier of solutions Employees Shareholders and investors The company’s focus is on the production for telecommunications and IT. of innovative medicines and on the govern- One of the company’s more important ment-sponsored import substitution pro- achievements in the reporting period was An important priority of the company’s devel- gramme. Its production facility has production the commissioning of new generation opment is the design and implementation Customers Government lines adaptable to all main dosage forms: Voronezh radar station, boosting the security of various control systems based on informa- tablets, capsules, ampoules and environ- levels for Russia. The station has a modular tion technology. For example, in the reporting mentally friendly aerosols. Binnopharm is also design, providing for rapid re-configuration period, Sitronics developed an intelligent engaged in distribution of active pharmaceuti- of the complex, replacement of outdated transport system (ITS) for the city of Moscow, Media cal ingredients and finished dosage forms units, improvements to combat capabili- the first such system in Russia, designed in the hospital segment. ties, and, if necessary, quick re-deployment to improve the safety and quality of life in Mos- to a new location. cow through improved traffic flows. The sys- Local communities Biotechnology and genetic engineering tem will increase the capacity of the city’s are special focus areas for the company. The new generation radar stations use road network by 10%, reduce the number Advanced biotechnological full-cycle produc- a number of unconventional design solu- of serious accidents by a third, and increase tion is GMP certified, producing drugs for tions and advanced technologies and design the average traffic speed in the Russian capi- Partners treating socially dangerous diseases, mostly techniques, which significantly improved tal by 35%. Influence on Sistema JSFC Sistema on Influence Regevac B, a hepatitis B vaccine. their capabilities in detecting and recognising targets and reduced energy consumption In the run-up to the 2014 Winter Olympics, PFC Alium plant acquired by Binnopharm and maintenance costs. an automated control system for multi-modal Suppliers in 2013 enabled the company to diversify freight and passenger transportation was its pharmaceuticals portfolio and penetrate Mikron*: Microelectronics deployed in Sochi. The project increased the infusion solutions segment, a new line production the capacity of the Sochi transport hub of business for the company. This plant was Mikron is Russia’s largest manufacturer by more than 20%, reduced the need for road Competitors NGOs and public organisations also designed to GMP standards and is by of microelectronics in terms of revenue, transport in Sochi by 30% during the prepa- its design capacity Russia’s leading produc- volumes of production and chip exports, rations and holding of the Winter Olympic

tion facility, with filling lines using more popular and manufacture of RFID cards and tags. Games, and helped improve the safety Low and modern plastic containers. The company runs a full cycle from chip of passenger transportation. Low Interest in Sistema JSFC High

* The company’s official name is JSC Mikron; its main shareholders are RTI (62.6%), RUSNANO (25.1%) and the Federal Agency for State Property Management (8.05%). 10 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 11

In its interactions with customers, Sistema MANAGING CORPORATE SOCIAL In a number of Sistema’s subsidiaries, efforts and its subsidiaries are responsible for ensur- RESPONSIBILITY were taken to structure CSR activities and ing strict quality and environmental safety align them with the Company’s objectives control of products and services, and building Issues of strategy and CSR management are and guidelines. In addition, strategic integra- long-term relationships with customers based a constant focus for the Board of Directors tion projects were identified that could have on mutual trust and respect. The Company’s which regularly considers them at special larger effects and social benefits if efforts of portfolio companies seek to accommodate meetings. Day-to-day management is all subsidiaries and associates are consolidat- the interests of different customer groups performed by Sistema’s Corporate Commu- ed. This is above all a programme to support and grow their business to meet the different nications Division. The division’s objectives talented youth, Lift to the Future, to which needs of our diverse customers. include the development and implementa- corporate CSR KPIs were linked (see more tion of measures to put in place CSR policies about the project on page 18). In its interactions with NGOs, public and charitable activity guidelines. Every year, organisations and local communities, the Corporate Communications Division pre- In 2014, corporate KPIs include the develop- Sistema provides support to socially vulner- pares and publishes corporate social reports. ment of shared value* projects, corporate able groups, promotes projects in the sectors Its functions also include the collection and volunteering, integration of subsidiaries and of the economy that are important to society, analysis of statistical data and monitoring affiliates, growth in the number of references pursues socially significant charitable projects of the effectiveness of the implementation in the media to CSR activities of Sistema in the social, cultural, environmental and sci- of corporate social responsibility policy. and its subsidiaries. Starting from 2014, ence fields, and seeks to support traditions In order to introduce the latest and most cur- CSR issues will be evaluated annually by of small peoples of Russia. Part of the Compa- rent practices in CSR, the division organises the Boards of Directors of Sistema’s subsidi- ny’s income is regularly allocated for funding workshops with invited experts, including aries and affiliates. of the above categories of projects, including seminars for portfolio company professionals. in cooperation with non-governmental organi- sations and associations in the regions where In each of Sistema’s subsidiaries, executive we operate. Another engagement channel for bodies ensure cascading of strategic deci- public associations and NGOs is membership sions on CSR to the portfolio company level. of representatives of Sistema and its subsidi- aries in various associations and foundations. In 2012–2013, Sistema made significant improvements to its CSR management, In its interactions with partners and sup- both through the introduction of integrated pliers, Sistema is guided by the principles CSR projects and by strengthening training of openness and fairness, providing interested and consulting functions. Sistema provides parties with all required information to an equal advisory support on all aspects of CSR, holds extent. Equal access to procurement proce- training courses, reviews and enhances dures is implemented through the provision the reports and plans of portfolio companies. of equal competitive opportunities and uniform Corporate social responsibility is integrated rules for all bidders in the procurement pro- into the Board strategic planning process cess before the launch of the tender process. in six subsidiaries of the Company. All regula- tory CSR documents of the Company’s sub- Sistema has a responsibility to all its stake- sidiaries are based on the Corporate Social holders. We seek to identify the needs and Responsibility Policy adopted by Sistema and expectations of every stakeholder group. on its corporate Code of Ethics. Sistema sees When engaging the above groups of stake- the main role of the management in CSR in holders, we seek to maintain the balance integrating CSR projects and improving their of interests, and promote dialogue and performance for the benefit of society at large. cooperation based on the principles of mutual respect, partnership and openness. CSR audits In 2013, Sistema performed audits of CSR The most important prerequisite for an effi- projects of all its subsidiaries to evaluate their cient social policy is our ongoing dialogue alignment with the objectives in CSR develop- with representatives of all stakeholder groups. ment of each individual company and their Sistema notifies the public about its activities capabilities. The audit provided exhaustive as prescribed by the Russian laws and inter- information and systematized data on CSR national standards applicable to public com- activities of the Company’s subsidiaries. panies. The key communications channels on our CSR activities are the official websites In the reporting period, based on the audit of Sistema and its subsidiaries in the Internet, report, methods were identified to evalu- and the media. ate project performance and reporting.

* An internationally recognized CSR principle which involves creating economic value in a way that also creates value for society. 12 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 13

How do investments in IT technology promote the development of culture?

IT development, supported by Sistema, Social Investment opens up vast opportunities to implement unique innovative projects in the sphere of culture and arts. Sistema invests in the development of social environment, and helps maintain and build up the educational, scientific, cultural and sporting potential of Russia.

Sistema’s social projects are implemented through Sistema’s Charitable Foundation established in 2003 (CF Sistema). The main goal of CF Sistema is maximizing the impacts of social and charitable investments of the Company. CF Sistema’s objectives include the development of a social investment strategy, planning of large-scale company- wide programmes, raising of necessary funds, building up of a portfolio of charitable projects, and implementation of such projects.

The Company supports projects which are unique and innovative, and in doing so it often ventures into the areas previously overlooked by sponsors and donors. Sistema’s strategy

In 2012–2013, the amount of Sistema’s social investments was about RUB 3.6 bn. 14 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 15

Key CSR projects of Sistema’s companies in 2012–2013* of social investment aims at achieving real successfully operating. The centres offer visi- “The Tsar’s Cause” (created in memory results: improved quality of life, promotion Culture and Arts tors a virtual tour of the palaces comprising of the reign of the Romanov dynasty, the game Company Project of national culture, strengthening of national the Russian Museum complex, an opportu- themes cover different aspects of the royal identity, etc. Applications are considered nity to watch online in real time the events tak- family’s life, and milestones of Russian history). Sistema Lift to the Future and decisions on the allocation of the Founda- ing place at the Museum, as well as a chance MTS Network for All Ages tion’s funds are taken annually at a meeting Sistema pursues a number of projects to look at the historical reconstructions of lost Exhibition and publishing projects Corporate volunteer initiative Simply Be Good of the Board of Trustees. The Board includes in the sphere of culture and arts, aimed interiors. The project provides a platform for In the reporting period, the Russian Museum representatives of the Company’s subsidiar- at preserving Russian art, improving the cross-cultural dialogue, giving people in other with the support of Sistema held dozens Eco-Telecom ies: MTS, Bashneft, RTI and others. cultural and educational level of Russians, countries an opportunity to learn more about of exhibitions in Russia and abroad (London, Charity programme Give the Gift of Kindness! and promoting the moral and ethical values Russia, its history and culture. Delhi, etc.), introducing visitors to its richest Major social projects are implemented by all of a society based on the cultural and histori- collection, as well as to previously not exhibit- Telecom Idea subsidiaries of the Company: MTS, Bashneft, cal traditions of national spiritual heritage. During the reporting period, an open web ed unique artwork. Thousands of people were Federal educational and exhibition project Children on the Internet RTI, BPGC and others. portal of the project was designed offered an exposure to the fascinating world of MGTS Network for All Ages (Moscow) MUSEUMS AND FESTIVALS (www.virtualrm.ru), providing Internet surfers Russian art. For each exhibition full-colour gift Social investments of the Company could worldwide with an access to a multimedia albums and catalogues were printed, including MTS-Ukraine Mobile Medicine be grouped into four main categories: The Russian Museum library of tours around the Russian Museum, multilingual ones, prepared through joint efforts K-Telecom Neonatal equipment for hospitals in Armenia culture and Arts; Since 2003, Sistema has been cooperating lectures and information materials on various of almost all departments of the museum. (VivaCell-MTS, Equipment for ambulances education and Science; with the State Russian Museum (the Muse- eras, genres and artists whose works com- Armenia) sports; um), which has the world’s richest holdings prise the Russian Museum’s holdings. In particular, in May 2012, the Grand Palace’s Implementation of IT structures in the universities of Armenia (Lab project) social development. of Russian art, including more than 400,000 Catherine Hall at Tsaritsyno Museum-Reserve Caucasus Wildlife Refuge — a conservation project to reduce the telecom’s exhibits, palaces and gardens in St. Peters- The Russian Museum’s hosted the opening ceremony of the exhibi- emission footprint In 2012, the amount of funds allocated by CF burg. Thanks to the financial support of CF Media Library tion Youth of Russia in Fine Arts from the Sistema to support social and charitable Sistema, the Museum got the opportunity The Russian Museum was the first to create collection of the State Russian Museum dedi- Detsky Mir — Centre All-Russia charity programme “Get Involved!” projects amounted to RUB 1.75bn, and to implement large-scale nation-wide projects innovative resources in the education and cated to the 1150th anniversary of the Rus- Bashneft (including UPC Social educational project “I want to become an oilman” in 2013 — to RUB 1.4bn. Aggregately, in exhibition and publishing, restoration of public awareness areas of museum activities, sian statehood. The exhibition was visited by and Targin projects) Water and Environmental Management Programme “Springs the Fund and Sistema’s subsidiaries spent works of art, palaces and parks in the Muse- as well as in the museum gaming industry. more than 1 million people. of Bashkortostan” RUB 1.825bn towards charitable purposes um complex, as well as research and educa- With the financial support of CF Sistema, in 2013. tion. The total funding provided over ten years more than 100 multimedia programmes In addition, with the support of CF Sistema, Construction and renovation of sports facilities (Sports Palace in , amounted to more than RUB 300m. and films for different audiences were pro- an illustrated catalogue of works of art from Universal Ice Complex in Tuimazy, etc.) duced, providing Virtual Branches’ visitors the collection of the Russian Museum was Repair and renovation of schools and healthcare institutions In 2013, the partnership between Sistema anywhere in the world with the opportunity published, dedicated to the emergence of and the Russian Museum reached a new to get acquainted with the masterpieces of Russian statehood. The catalogue was trans- Volunteer initiative Kind Hearts milestone: an agreement was signed on Russian art. Computer quests for children ferred to the Russian Museum for use in Rus- RTI Young Professionals Council (the subsidiary — Radio Engineering Institute cooperation and financing of various projects were developed based on the art collection sian art promotion activities among school- of Academician A. L. Minz) of the Museum for a total amount of RUB of the Russian Museum, “Peers” (based on children, students and museum visitors. Investment programme to develop young potential and provide housing 300m. The new agreement expires in 2023. the works of Russian painters of the 18th– to young professionals on a long-term basis (the subsidiary — Radio 20th Centuries; its characters are of the same The Easter Festival Engineering Institute of Academician A. L. Minz) The Russian Museum: A Virtual Branch age as the audience targeted by the game), The Company is a permanent partner The agreement established a large-scale pro- “Warriors and sons of Russia” (based on his- of the Mariinsky Theatre (St. Petersburg) Additional childbirth benefits to one parent working under an employment ject The Russian Museum: a Virtual Branch torical, battle paintings depicting wars of the in holding the Moscow Easter Festival contract (the subsidiary — OJSC NPK NIIDAR) which has become a unique highlight of past eras), “Fireflies” (quests of this game are and the Festival of classical music Stars Establishment of a professional training centre for companies specializing national culture, which has no precedents in based on the study of light effects in painting), of the White Nights. With the financial on supplies to the defence industry (the subsidiary — Concern RTI the world. The aim of the project is to expose Systems) the general public to the riches of Russian cul- ture and the historical past of Russia through Grant of the President of the Russian Federation for state support of young In 2013, the Chairman free access to digital and printed materi- scientists of Sistema’s Board of Directors als. Informational and educational centre Vladimir Evtushenkov and Vladimir NIS Support to Orel boarding school for children with speech impairments “The Russian Museum: a Virtual Branch” Gusev, Director of the State is a kind of a digital replica of the Russian Mikron Learn Math! Russian Museum (right), signed Museum. The Virtual Branches use the latest Become an Engineer a new 10-year cooperation computer technology in their activities and agreement NVision Group My Teacher represent a new level of integrating differ- ent countries, not just regions of Russia into Museum Inspector a common cultural and information space. Joint master’s programmes and programmes for trainees

SG-trans A Gift from Santa Claus Under the project, 138 Virtual Branches of the Russian Museum, including 37 abroad SSTL — Sistema Shyam India Unites To End Polio Now (IUEPN) and one in Antarctica, were launched and are TeleServices Limited

* Based on the CSR audit in January-February 2013. 16 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 17

support of Sistema, in the reporting period, Financial support in 2012–2013 was also Approximately 1,000 Moscow schoolchil- SUPPORT FOR THE RUSSIAN the theatre’s tour in London took place and provided to Sergey Zhenovach theatre studio, dren took part in the project. During the LANGUAGE AND LITERATURE had a great success, and concerts of the M. N. Yermolova Moscow Drama Theatre, event, the children visited more than 400 Mariinsky Theatre in the Novgorod Kremlin, the Vladimir Spivakov International Charity museums, galleries and exhibitions. The aim In 2012–2013, the Company continued and in Ivangorod, were held, acclaimed as Foundation and many others. of the project is to get schoolchildren aged to implement a number of publishing exciting unique events in the cultural life of 7 to 15 interested in the cultural and histori- projects aimed at expanding the horizons the country. The concert organised with the Children’s CineMay cal heritage of Russia and other countries, of primarily young readers, promoting scien- assistance of the Company to mark the 300th Since 2009, Sistema has been supporting to broaden the horizons of children and teen- tific knowledge and discovery and celebrat- anniversary of St. Petersburg was attended the charity programme “Children’s Cin- agers in various aspects of arts and science. ing the achievements of Russian culture by more than 5,000 people. eMay”, an event providing charity screenings The greatest success with children was in various fields of creative activity. As a part of the best Russian and foreign feature and enjoyed by the entertaining science museum of its publishing programme, the Company The Easter Festival launched to revive Rus- animated films for children, as well as meet- “Experimentanium”, the State Darwin supported periodicals of historical, cultural sian culture traditions takes place in the days ings with filmmakers, and master classes Museum, the museum of history of exterior and patriotic content. In particular, journal of Easter. The event has gained a reputa- hosted by famous actors and directors. lighting “The Lights of Moscow”, the Mos- Russia in Global Affairs and popular science tion as one of the largest and most impor- The purpose of the event is providing educa- cow Planetarium, the Pushkin Museum of and history magazine Rodina (‘Motherland’) tant musical events in Russia and Europe. tion and socially enriching and stimulating Fine Arts and others. received support from the Fund, and a In 2012, the Moscow Easter Festival covered entertainment to children from social institu- series of educational brochures and book- five capitals — of Russia, Kazakhstan, Lithu- tions, children with disabilities and families SPIRITUAL HERITAGE lets was published together with the Rus- ania, Belarus, Ukraine — and 37 cities in Rus- that have adopted orphans. In the reporting sian Union of Industrialists and Entrepre- sia and Kazakhstan within 16 days. A total of period, “Children’s CineMay” was held as part ‘Faith and Word’ International 45-volume book series Smolensk Land in Russian Literary Monuments — neurs (RSPP). 122 concerts of symphonic, choral, chamber of the Moscow Charitable Cinema Forum, Orthodox Mass Media Festival Sistema’s gift to Smolensk on the city’s 1150th anniversary and bell ringing programmes were given, with the St. Petersburg Charitable Film Festival, In 2012, Sistema provided financial support The most exciting publishing project approximately 2,000 participants. Performers the Charitable Film Week in Smolensk, and to the fifth ‘Faith and Word’ International of the Foundation was a publication devoted hailed from Russia, Greece, Ukraine, Belarus, Pskov Cinevacation. During each of the above Orthodox Mass Media Festival. The festival Orthodox cathedral in Moscow in Osennyaya is located in the centre of Ufa. The Company to the 1150th anniversary of the birth of Rus- Lithuania, Abkhazia, Hungary, Serbia, France, events, the Company provided targeted assis- is held every two years with the aim to con- street. In Ufa, the Company participates has funded its renovation, refurbishment sian statehood and Smolensk’s founding Germany, the United States and Finland. tance to orphanages located in Smolensk, solidate the church and secular journalism, in financing the construction of the Nativity of rooms and purchases of furniture. anniversary - a 45-volume book series titled Pskov, Moscow and Leningrad regions. identify new forms of cooperation between of the Theotokos cathedral of Ufa diocese “Smolensk Land in Russian Literary Monu- With Sistema’s support, the Festival holds the Russian Orthodox Church and modern of the Russian Orthodox Church and Return of Andrei Tarkovsky’s archives ments”. Each volume is published in 800 annually more than 70 charity concerts of Museum Inspector society, and find ways to develop spiritual the overhaul of St John the Baptist church In 2012, Sistema together with the Rus- copies. This edition was Sistema’s gift to mark sacred choral music and other activities. Tra- At the end of 2012, NVision Group together foundations of society. Roundtables, master in Kurachevo village. sian Ministry of Culture and the Ivanovo the official date — the 1150th anniversary ditionally, during the Easter festival, those who with Expomania agency launched an interac- classes, presentations of diocesan media Region Administration initiated the return of Smolensk (September 2013). The series cannot afford a ticket even at a nominal price tive educational project “Museum Inspector”, resources were held as part of the event. In 2012, CF Sistema allocated funds to sup- of the archive holdings of the famous film includes essays by Smolensk region authors may attend concerts for free. Musicians give aimed at identifying the most popular metro- port the Representation of the Russian Ortho- director Andrei Tarkovsky which had been put and writers, mostly unknown and inacces- visiting concerts in hospitals, nursing homes, politan museum for children. Schoolchildren In the reporting period, the Company also dox Church in Karlovy Vary, the restoration up for auction. The archives had been consid- sible to the current generations. They tell orphanages, military units and prisons. get an opportunity to visit museums, galleries took an active part in projects to preserve of the Donskoy Monastery and repair works ered lost for a long time; however collectors the story of the great people whose activities, and exhibitions, as well as to choose the best and construct Orthodox culture monuments. at the Martha and Mary Convent. and Tarkovsky’s students collected the docu- in one way or another, are associated with Musical Kremlin Festival museum of the capital through a special In particular, we have been providing funds ments, priceless for the national culture, the Smolensk land. Musical Kremlin Festival at ’s web portal. for the construction of St. Hermogenes Jewish Museum literally one by one. Armoury was launched by the outstanding and Tolerance Centre virtuoso pianist Nikolai Petrov. Held under In 2012, with the support of Sistema and The archives comprise Tarkovsky’s letters, Participants in the Children’s CineMay festival the maestro’s direction and with his participa- at the initiative of the Federation of Jewish drafts manuscripts, audio records and photos, tion until 2011, it was renamed after his death Communities of Russia, the world’s first and notes in the margins of film scripts. One of in 2012 to honour the name of its founder. largest Jewish Museum and Tolerance Cen- the most valuable items is a letter to Brezhnev By the same decision of the Russian Ministry tre was launched in Moscow. The Museum in which Tarkovsky requests permission to of Culture, the Nikolai Petrov Musical Kremlin boasts the richest high-tech capabilities in work in the Soviet Union and to show his films Festival was formalised as an ongoing project Moscow, as it is equipped with the latest which were banned in his homeland at the time. held annually at the Armoury. Sistema’s multimedia systems and state-of-the-art The auction lots also included notebooks with Charitable Foundation has been a partner computer technology solutions. frame-by-frame descriptions of film scenes, of the festival for many years. draft scripts, many of which differ significantly Support for the Muslim community from the final versions, as well as 32 audio Ballet Prize Benois de la Danse in Bashkortostan records in which the director talks about art CF Sistema is a permanent partner of Ballet Promotion of spiritual heritage in the Republic and life. Tarkovsky’s private photos include Prize Benois de la Danse. The Fund’s col- of Bashkortostan has been a priority of Sis- pictures with family, friends and celebrities. laboration with the Program of the Interna- tema’s integrated charitable programmes. tional Ballet Prize Benois de la Danse began During the reporting period, a three-storeyed The archive holdings were handed to the direc- in 2004 when financial support was provided building was donated to the Spiritual Ad- tor’s house-museum in Yurievets. In summer for the first time. Since then, this cooperative ministration of Muslims of Bashkortostan. 2013, the filmmaker’s archive became avail- relationship has evolved without interruption. The building, previously owned by Bashneft, able to Tarkovsky’s admirers online. 18 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 19

development and scientific and technical Partnerships with 270 universities PROJECTS WITHIN THE LIFT Education creativity of teenagers and young people, in 65 regions of the Russian Federation were TO THE FUTURE PROGRAMME foster social mobility and mentoring, and established during the lifetime of the project. and Science improve the availability of advanced training Key partners of Lift to the Future programme System of Priorities in innovations for schoolchildren, students, include , with which In 2013, Sistema Charitable Foundation postgraduate students, young professionals a science and education centre “Institute for initiated the System of Priorities, a contest and educators. the development of the intellectual potential for gifted pupils of grades 7 to 11 from Rus- Education and science are an important of young people” was established, as well as sia and the former USSR states who are focus of the Company’s social investment Lift to the Future also promotes friendly infra- Bauman Moscow State Technical University, passionate about natural, exact and applied programmes. Sistema implements a step- structure to facilitate intellectual and personal Russian Union of Rectors, the Russian Coun- disciplines. Works in the following areas are by-step programme seeking out young development and provide career advice cil of School Olympiads, leading research accepted: health, medicine and biotech- talent, supports scientific and technical to programme participants regardless of their teams, and Russian high-tech companies. nology; telecommunication technologies; creativity of the young generation, provides place of residence and financial situation In 2012, all educational projects supported transport; innovative industrial technologies grants and awards scholarships to students, of their families. The programme is designed by Sistema were consolidated for further Schoolchildren’s project activities are an important part of Lift to the Future programme and materials; environment and environmen- talented teachers and promising research- to help the most talented participants secure implementation as part of Lift to the Future run by CF Sistema tal management; energy. ers, implements joint educational projects jobs at high-tech companies which are Programme. with educational and research centres, and partners of the programme upon completion Festival of Science at Lomonosov and globally, aimed to train a new generation Educational and research schools actively promotes the introduction of univer- of their professional training. LIFT TO THE FUTURE PROGRAMME Moscow State University of business and community leaders. Lift to the Future arranges annual All-Russian sity students’ or young scientists’ projects Within its cooperation with Moscow State educational and research schools for pupils into industrial production. As at the end of 2013, the project was run Graduate School of Management University, Sistema supports the Festival GSOM pays special attention to training top of grades 7 to 11. The key objectives of such in 19 Russian regions. As a part of the pro- and Innovation, Lomonosov Moscow of Science, the core goal of which is to managers who have strong analytical and school are to identify creative skills, fos- LIFT TO THE FUTURE gramme, a web portal with the same State University explain to the general public what happens at leadership qualities and are able to work ter an environment promoting intellectual name was launched to offer unique tools In 2006, Sistema launched a corporate univer- researchers’ labs and how research improves in a team in the context of information society. development and support pupils interested The most ambitious project of Sistema for remote project activities under the guid- sity, based on which Graduate School of Man- the quality of lives. The Festival of Science has GSOM SPbU has about 1,200 students and in research and technical activities. The stu- in education and science is Lift to the Future ance of a supervisor. The portal consolidates agement and Innovation was established become a deserved member of the European attendants. Time and again, its student teams dents have an opportunity to acquire skills which has been implemented by CF Sistema information about the programmes run by all (as a department of Moscow State University). community of festivals of science. Annually, have won national and global professional needed to implement their ideas success- since 2011. Lift to the Future is a unique Russian universities, major federal and region- The main purpose of the Graduate School it presents over 100 research alliances and contests. The executives of Sistema and its fully, discuss their projects with academic nation-wide programme seeking out talented al research institutes, advanced training of Management and Innovation is to provide universities of Russia, attracting over 150,000 subsidiaries (e.g. MTS, Bashneft, Sitronics, and business community leaders and work young people and supporting their further institutions and businesses and targeting a two-year training course to train specialists participants and over 1.0 million visitors. etc.) have delivered multiple lectures at differ- out a plan of further actions, supported development. It seeks to promote intellectual the younger audience. and managers for high-tech companies. ent GSOM departments. by the programme mentors. Graduate School of Management at Saint-Petersburg University In 2012, GSOM became an active participant In 2012–2013, about 400 talented pupils from (GSOM SPbU) of the Lift to the Future programme. GSOM all over Russia were trained at summer school. Altogether, over the years of Lift to the Future’s existence: Since 2007, the Company has been sup- students became eligible for a scholar- porting the Graduate School of Manage- ship programme, while its tutors became Telecom Idea by MTS ment, Saint-Petersburg University (GSOM supervisors at the programme’s web-portal. Since 2011, MTS, as a part of Lift SPbU). The mission of the GSOM SPbU Within the project, personal professorships to the Future, has been running Telecom 200,000 3,000businessmen, 70 project is to establish a national school of were established, educational grants were Idea (www.telecomidea.ru), a contest to schoolchildren and students became research and educational organisa- competitions were held for business of a global level to train national top awarded to talented students, and research support and implement «open innovations», participants of the programme tions became project supervisors schoolchildren and students managers who shall ensure the competitive- projects were implemented. Within the pub- and engage students, young researchers, ness of Russia on the global scene. Over lishing programme, publication of a series developers and start-up entrepreneurs in the years of its development, GSOM SPbU of books with lectures of Nobel laureates the development of its business. The pro- has become a leading school in Europe in economics was launched. ject helps MTS find new ideas, as well as 8,000 3,200 500 evaluate and support promising projects schoolchildren and students students received grants from students became programme in the field of information telecommunication Participants in MTS’ Telecom Idea competition share one goal became winners of the programme Lift to the Future fellows technologies, which can be useful in busi- ness, social and public sectors.

Innovative projects at any stage of develop- 50 4 young scientists received 250 teachers and ment, from a concept to implementation students were trained at high-tech grants for scientific training in some of supervisors received grants to launch and operation, including technical solutions enterprises in Europe the world’s leading research centres projects involving students and software products design for com- munication systems, new services, mobile, content and web-based services, marketing and managerial solutions, are accepted for 400 the contest. Practical application of technol- teachers took advanced training ogy and services is the most important courses at Moscow State University project evaluation criterion. 20 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 21

In 2013, the contest was focused on the use Learn Math! is a multimedia interactive sciences. This programme is designed visited the web-portal since the programme with about 11,000 participants in the report- of opportunities offered by mobile and fixed web-portal where every pupil or anyone can to build a system of selection and social sup- was launched. Over 5,000 pupils have partici- ing period. The winners were rewarded broadband access, and monetization of data assess, in the form of a game, their math- port for talented youth, ensure professional pated in Olympiads. with certificates and prizes from the contest transmission. 172 projects from Russia and ematical readiness for life by taking a series orientation of school graduates and introduce organisers and partners. the CIS states were submitted. Most of them of tests. Learn Math! web-site enables any them to the job of an oilman. It encourages Interneshka by MTS were at the seed stage (58%). 57 works registered user to determine the «depth» interest in the industry, as well as in technical Interneshka, a children’s on-line contest co- SUPPORT FOR THE RUSSIAN qualified for the second stage. In the final, and «breadth» of mathematical knowledge. disciplines and innovations. For Bashneft, organised by MTS, is the most famous aware- GEOGRAPHIC SOCIETY 14 participants, assisted by mentors from That is to say, first one can determine how this programme is among priorities, aimed, ness raising project in the field of safe Internet the Higher School of Marketing and Business much mathematics they have in them and first of all, to foster a favourable development in Russia. Its aim is to develop the skills Since 2010, Sistema has been providing Development, National Research University who they are — a junior school student, a col- environment for the motivated youth. of using the Internet in a beneficial and safe support to the Russian Geographic Soci- Higher School of Economics, defended their lege student or a professor. The programme manner, as well as creative skills and infocom- ety, the oldest public organisation in Rus- developments in a presentation session will offer several questions and, after answer- A unique pre-university programme of spe- munication culture in the growing generation. sia, founded in 1845. Environmental and format in front of an expert board comprised ing those questions, a person can not only cialised education helps create a networking Internehska is supported by governmental geographic activities — study of the impact of relevant specialists from MTS and experts see his or her mathematical alter ego, but also environment by providing an educational agencies and international organisations. of global changes on the environmental situ- of ICT, IT and venture markets. Some authors think about his or her future: to what extent social network. The programme includes Young Internet users aged 6 to 17 years ation on the planet and its population — are who won in the key nominations were his or her current knowledge will enable him regular intellectual tournaments, Olympi- and living in Russia, the former USSR states among the key activities pursued by the Geo- rewarded with certificates to become mem- or her to achieve the career growth the per- ads for pupils, as well as field schools and or abroad participate in the contest. graphic Society. bers of TechnoCup federal accelerator net- son is willing to achieve. seminars. Professional orientation activities work to improve the technical, marketing and are organised for university students as a part In 2012, Interneshka included contests in lit- In the reporting period, the Society, sup- investments parameters of their products. Within this project, Sitronics organises math- of cooperation with the leading university in erature and drawing, where children drew ported by Sistema, implemented a number ematical Olympiads among school students, the Republic, Ufa State Petroleum Techno- pictures and created banners on the topic of exciting and useful projects: TV series Learn Math! (Uchi Matematiku!) with their winners having an opportunity Network for All Ages by MGTS logical University (USPTU). of beneficial and safe use of the Internet, “Russian Pathfinders, Discoverers of the Far by Sitronics to attend the summer and winter schools In 2012, MTS in cooperation with wrote fairy tales or described stories from East”, a cycle of films «Faces of Russia - RGS In 2012, Sitronics presented Learn Math!, under the Lift to the Future programme. the Internet Development Fund, Over 1,000 pupils from grades 8 to 11 from real life. Over 24,000 pupils from all over Goes to the North», multi-purpose expedition a project designed to show that studying the League of Nation’s Health, Connec- almost 30 regions of Russia and former Russia and the CIS states participated in “Selenga-Baikal”, «The Heritage of Russian this science could be really exciting and I Want to Become an Oilman at Bashneft tion of Generations Charitable Founda- USSR states registered at the programme’s the contest. Young users submitted over America - Alaska Expedition 2012», summer unconventional, and that the knowledge and Annually, Bashneft holds I Want to Become tion and other partners, launched Net- web-portal (http://www.neftyanik-school.ru/) 2,000 works to creative contests. The best camp “Sinking Fortresses”, «Russian Arctic skills acquired at the lessons would be useful an Oilman, an educational contest intended work for All Ages, a social awareness in 2012. In 2013, over 65,000 users visited authors were recognized with certificates in the 21st Century: Natural Challenges and in future studies, job search and tackling dif- for senior school and university students inter- raising project designed to improve the web-site and about 7,000 users regis- and valuable prizes. Interneshka-2013 Exploration Risks», «New Maps of Russia», ficult life challenges. ested in chemistry, mathematics and Earth Internet skills, promote modern informa- tered. In total, over 140,000 children have included contests in literature and drawing, and much more. tion technology and useful on-line ser- vices among users over the age of 40, and help them acquire practical Internet Winner of I Want to Become an Oilman educational contest awarded skills to perform their daily tasks. at Sistema’s headquarters in Moscow

MTS arranged special sites at its sales Arctic expedition and service centres, and, in partnership of Fyodor Konyukhov with the Government of Moscow, sites In 2013, Sistema helped organise North at social protection centres and vet- Pole — Greenland, a unique 900-km- erans’ unions. As of the end of 2013, long Arctic expedition of the famous over ten sites were available in Moscow Russian traveller Fyodor Konyukhov. to train people to use the Internet, The results of the studies carried out based on MGTS, a subsidiary of MTS. by the travellers during the expedition will be needed to develop a rotation In total, over 1,000 Moscow citizens scheme model to be used during have acquired Internet skills since the development of the Arctic region. the project was launched. In 2013, Using radar, technical and telemetric MTS extended the project to other functionality of radio and IT systems, regions, such as the Samara region, they demonstrated the prospects Obninsk, Saint-Petersburg, Kazan, of remote environmental monitoring Tula, Kirov, the Perm Territory, and security control during the devel- Kemerovo, the Amur region, Kamchat- opment of the Arctic, with the help ka, and Sakhalin. In total, over 5,000 of advanced information technology. persons were trained in Russia under The expedition also demonstrated the Network for All Ages programme. the information and technical capa- Late in 2013, the project was launched bilities of Russia with respect to the in Belarus. development of the Arctic region. 22 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 23

How does hi-tech research encourage healthy lifestyles?

Proceeds generated by innovative products Sports are invested by the Company, inter alia, in activities that encourage interest in healthy lifestyles and sports. We view support to sports as an impor- tant area for our social investment. We are convinced that promoting sports and healthy lifestyles is vital for public health in Russia.

Support to the Olympic movement Sistema is a founder and a permanent partner of the Russian Olympians Foundation. The key mission of the Foundation is to promote the Olympic movement in the country and contribute to better results in Olympic sports.

Today, the Foundation helps Russian national teams prepare for Olympics Games, finances specialised children and youth sports schools of the Olympic Reserve, and provides support to veteran Russian Olympians, national sports federations and specialised sports clubs.

The Russian Olympians Foundation pays incentive bonuses and presents memento gifts to Russian Olympic winners and winners of international competitions. In particular, after the London 2012 Olympic Games the Foundation paid more than 60 bonuses to winners. 24 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 25

The Foundation was also fully involved of the Kind Hearts volunteer movement of Preodolenie took part in the Second Inter- in the preparations of the Russian national Social help a total of 524 children and teenagers. national Wheelchair Rugby Tournament for team for the Sochi Winter Olympics. The company’s volunteers visit the children people with locomotive disability that was held development on a regular basis and invite them to the com- in Spain. We also hold a chess tournament Juniors Rugby Tournament by Sistema’s pany’s corporate events. for disabled people on a regular basis and Charitable Foundation organise concerts for physically challenged Since 2001, Sistema has been support- BPGC sponsors orphanages in the village children. Sistema consistently provides assis- ing the Russian juniors rugby tournament Sistema is involved in major social develop- of Mayachniy, village of tance to Olimpro, an Olympic projects support to discover new talents among young Rus- ment, sports and healthcare initiatives. We (Bashkortostan). fund that organises football tournaments sian rugby players. Vladislav Korshunov, Igor do not restrict ourselves to one specific area, for amputees. We also support the Moscow Klyuchnikov, Yuri Kushnarev: they all once but provide support to rehabilitation centres, MTS strongly supports social projects that Riding Club for the Disabled that implements successfully played in Sistema’s tournament community organisations, orphanages, chil- help children deprived of parental care. a unique children rehabilitation programme. and today they are defending the Russian dren’s refuges, boarding schools, other edu- In particular, the company provides steward- colours in games for the national team. cational institutions, children and youth sports ship for Novosibirsk Orphanages Nos. 7 development centres, as well as to victims and 8 and participates in programmes of the National Badminton of natural calamities and social upheavals. Solnechniy gorod charitable foundation help- Development Foundation Participants in the Juniors Rugby Tournament, supported by Sistema’s Charitable Foundation ing disabled children from the Oyashskiy and We provide financial support to the National SOCIAL SUPPORT Obskiy Orphanages. In 2013, MTS’ employ- MTS Green Express Badminton Federation of Russia and ees visited children in orphanages under In 2012 and 2013, MTS’ employees National Badminton Development Founda- ice complex was completed in the town an official partner of the Russian national We are convinced that business should not their stewardship in the Moscow region, ran a traditional annual charitable tion. Both organisations seek to support, of Tuimazy with Bashneft’s financial support. rugby and aerobatics teams. Since 2008, replace the government, but in case of some Astrakhan, Bryansk, Voronezh, Izhevsk, tour of “MTS Green Express” sup- develop and promote amateur and profes- A four-storey 5,000 sq m sports facility was MTS has been a permanent partner of social issues, particularly when children need Kaliningrad, Novosibirsk, Ryazan, Tver and ported by the participation of company sional badminton in Russia, including among built in the village of Chishmy in the reporting the Russian Sportfishing League support- help, we cannot stand idly by. other Russian cities. They brought presents volunteers. children and youth. Sistema also supports period. The facility comprises a swimming ing the team at international events. In 2013, with them and had a hand in the preparation a number of annual nationwide and regional pool, a fitness room, including an individual MTS sponsored the Russian Football Support to orphanages of parties for the children. The main goal of the campaign is to competitions. fitness room for physically challenged people, Premier-League and was the first telecom We have been long supporting Healthcare support vulnerable population groups healthcare facilities, coach rooms, and bal- operator in Russia to directly address fans. Centre and Orphanage No. 30 in Pushkino In the reporting period, VAO Intourist provided and raise public awareness of the social Construction of sports conies for visitors. The facility that cost about As part of the partnership, the company held (Moscow region) that has been providing support to Rodnik (Klin), a rehabilitation centre development problems existing in facilities by Bashneft RUB 165m in total is fitted with everything football-related events for football players and refuge to parentless children for more than for disabled children and teenagers and the cities in which MTS has a market Construction of various sports facilities in necessary for mobility impaired people. supporters across the country, and launched 70 years. This is the first Russian apartment- to disabled members of the Moscow Down presence. In 2013, the campaign Bashkortostan (Russia) is a priority social special offers and mobile services such based orphanage that accommodates Syndrome Society. The company collected was held nationwide. In 2013, as part investment target for Bashneft. In 2012–2013, Sports support by MTS as Footballisator. In Belarus, MTS acts as over 100 children aged between three and and sent beds, mattresses, pillows, blankets, of the tour, over 100 members of MTS’ the company disbursed over RUB 1.2bn for MTS provides support to athletic events the general partner of the Byelorussian Gym- seventeen. Each apartment includes several books and films for kids, board games, toys, corporate volunteer movement, Simply these purposes. E. g. in 2013, the first stage in countries and regions of its presence. nastics Association and as an official partner bedrooms, a lobby, a common playroom, sports gear, colouring books, and various Be Good, organised a concert for chil- of a RUB 302m 800-seat multifunctional Among other things, the company is of the National Olympic Committee. a kitchen and a bathroom. other things, both for children and adults dren from Moscow Region orphanag- (clothes, footwear, linen, headwear, etc.). es. One of MTS’ volunteer teams came Children learn to take care of themselves and On 1 June 2013, the International Children’s to Vdokhovenie, a children’s rehabilita- organise their living space, but also acquire Day, the company organised a special charita- tion centre in Ruza, where they taught Bashneft spent more than RUB 300m housekeeping skills that they will need later ble lunch event for 600 disabled and orphaned children how to decorate gingerbreads, to construct a multifunctional ice complex to integrate themselves into community life. children in the Cosmos Hotel Moscow. make homemade chocolates, paint in Tuimazy Apart from giving financial aid, buying com- on T-shirts and caps, make felt toys puters and making repairs, we also arrange This is a non-exhaustive list of childcare insti- and act on the stage. various entertainment events for children such tutions. Employees of many subsidiaries pro- as charity concerts, fairs and contests and vide help to children in difficult life situations bring children gifts. at their own initiative and organise charitable visits by volunteer teams. We also regularly provide help to Ivanovo Orphanage No. 3, Pavlovsk Boarding School Aid to disabled people No. 4 for mentally challenged children, and We are always committed to helping disabled Moscow Department for Families and Youth people. Over several years, Sistema’s Charita- Policy. ble Foundation has been supporting Preodo- lenie, a rehabilitation centre. In the reporting Bashneft’s units in Bashkortostan, the Nenets period, we helped the centre to buy medical Autonomous District, Orenburg, Izhevsk and diagnostic and rehabilitation equipment other regions took twelve childcare institu- (physiotherapeutic equipment, fluoroscopes, tions under their care. They include social etc.). We also support the centre in imple- rehabilitation centres, orphanages, boarding menting important social programmes schools, and social refuges where members and events. In particular, in 2012, patients 26 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 27

for children in need living in foster care institu- the war as well as long-service employees. Our subsidiaries and employees also man- and developing water springs, has a special tions across Russia, children from large families The ceremonies include gala concerts aged to collect about 20 pallets with goods place in the programme. The project mainly and disabled children. During the campaign by famous artists, leading classical and folk for children. covers springs in distant villages and com- days, anybody can leave presents for children musicians, dance groups and war-themed munities that often serve as the only drinking in Detsky Mir stores, in special areas near cash shows, with valuable souvenirs distributed A total of more than 200 cubic metres of first water source in the neighbourhood. A total desks. Buyers can bring children’s clothes, to veterans at the end of every event. priority goods were sent to various refugee of 67 unique springs across the Republic have footwear, toys, sports and outdoor gear, and camps in the Rostov Region: clothes, adult been restored and developed. prams for children in need. In 2012–2013, In May 2012 and 2013, MTS introduced spe- and children’s footwear, personal hygiene and the campaign was joined by more than six cial federal and regional tariff offers for World women’s care products, bedding, toys and Bashneft has started the construction of new million visitors, while the total value of presents War 2 veterans and for all Russian citizens. many other things. A large batch of immune- hospital and treatment buildings in a number so collected exceeded RUB 220m. In particular, on the Ninth of May (Victory Day biological medicines required for preventive of villages using the funds of Sistema’s Chari- in Russia), in Moscow veterans could make vaccination of refugees made up an important table Foundation. In 2012, the Company allo- As of late 2013, this initiative was run in more toll-free and unlimited long-distance and part of the humanitarian cargo. cated RUB 150m to the project. The money than 300 Russian social care institutions that international calls from their fixed-line MGTS was used to construct and provide logistical provide help to parentless children, large (Moscow City Telephone Network) phones. NATIONAL DEVELOPMENT support for the treatment building of the Cen- families and disabled children. In 2013, MTS launched a Call to a Comrade- tral District Hospital in the village of Burayevo, in-Arms campaign that offered every veteran Investments in social infrastructure and to construct fitness and healthcare Poliomyelitis vaccination in India an opportunity to congratulate his or her In the Republic of Bashkortostan, Sistema centres in the villages of Chishmy, Verkhneyar- Over the last three years, SSTL (an Indian relatives on the Victory Day by calling from and Bashneft are implementing a number keyevo and Verkhniye Tatyshly. We also fully subsidiary of MTS) has been cooperating special transportable mobile communications of projects via Sistema’s Charitable Foundation renovated the former building of a municipal with UNICEF and IUEPN (India Unites to End outlets installed at central squares of Rus- to upgrade public utilities, construct and over- comprehensive school in the village of Redkino Polio Now) under a poliomyelitis awareness sian cities. In a number of regions, veterans haul healthcare, cultural, educational (including that was transformed into the Recreational RUB 220m worth of presents collected programme. In the reporting period, SSTL were offered video conferences with their pre-school) and athletic facilities. We are Camp for Children Kama. under Detsky Mir’s Get Involved! campaign used its telecommunication capabilities comrades-in-arms and colleagues from other spending over RUB 1.1bn on an annual basis to send out tens of millions of SMS messages Russian regions. to finance the Republic’s social infrastructure. In 2012, the Company also financed the reno- informing subscribers of a forthcoming Polio vation, construction and fitting out of Culture Crystal Children Ravivar (“Polio Sunday”). The company was Aid to Ukrainian refugees* Sistema is involved in the financing of the Houses in the villages of Yemashi, Sharan, Since 2006, we have been pursuing also actively involved in installing special vac- In July 2014, Sistema’s Charitable Foundation Republic’s water programme. The programme Nizhniye Tashly, Zirikly, Krasnokhomskiy, the Crystal Children initiative in Russia that cination tents in district communities of Delhi, ran campaigns to collect aid for Ukrainian ref- covers twenty districts and eight towns of and Razdolye, the Centre of Children’s Art seeks to help children with Osteogenesis Uttar Pradesh (Western) and West Bengal. uges staying in refugee camps in the Rostov Bashkortostan and provides for the draft- in the village of Askino, and the construction Imperfecta, the brittle bone disease. Every Region. Sistema’s call to join the campaign ing of design specifications and estimates, of an entertainment centre started in the vil- month children from various regions come Support to veterans for collecting humanitarian aid for refugees full renovation and overhaul of existing and lage of Nadezhdino. We also overhauled five to the American Medical Center of MEDSI Sistema and subsidiaries have been organis- was responded by all companies of the group construction of new water intake facilities, childcare centres and repaired fifteen second- for free consultations. Based on the results ing Victory Day anniversary ceremonies and by employees of the Corporate Centre. water pipeline networks, drilling of wells ary comprehensive schools and gymnasiums of examination, the paediatrician prescribes honouring veterans of World War 2 and those We bought multiple tonnes of vital goods and installation of water towers. Springs in the Republic’s districts that receive children a treatment course. Each year we make pay- who worked behind the battle lines during for displaced families. of Bashkortostan, a project for restoring from nearby villages. ments to cover the cost of treatment for sev- eral children who need therapy, and, together with MTS and MTS Bank, collect donations More than 200 cubic metres of goods sent to refugee camps in the Rostov Region for other young patients. The Gorshkov Youth Centre in , Bashkortostan, renovated using Neonatal equipment installed in the funds provided by Bashneft Armenian maternity hospitals For more than six years MTS together with BirthLink, a UK NGO, has been running a pro- ject in Armenia to provide maternity hospitals with state-of-the-art equipment: Continu- ous Positive Airway Pressure (CPAP), pulse meters, portable oxygen canisters, first aid kits, etc. Experts say that, in 2012, medical efforts aided by this equipment reduced child mortality in the country by 11% as compared to 2011.

Get Involved! Campaign Since 2007, employees of Detsky Mir have been actively involved in the nationwide Get Involved! campaign that collects presents

* Subsequent event.

culture

governance and and governance Corporate Corporate

28 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 29 125% € How do corporate $ MTSS values improve business management efficiency?

53 892 49 998 42 143 The corporate governance system Corporate 32 812 of Sistema is based on the principles 25 042 25 042 Governance of trust, respect, impartiality and openness. These principles are the cornerstone of effective relations with shareholders Sistema has in place a robust corporate gov- and investors. ernance framework built on a clear division of areas of responsibility among governance bodies, while safeguarding the rights and interests of shareholders and promoting infor- mation transparency. Maintaining a system of corporate governance and transparency at the level of the world’s best practices is one of the crucial elements of the strategy of Sistema as an investment company.

CORPORATE GOVERNANCE 5% PRINCIPLES Sistema’s corporate governance is based on the following principles: transparency and clarity of all processes for investors and partners; a proactive and professional Board AFKS of Directors; a consistent and collective approach to decision-making; a transparent dividend policy; investment decisions made with due account for established procedures; BANE 30 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 31

the attention of the Board of Directors BOARD OF DIRECTORS 61% of Sistema’s Corporate governance structure to all transactions with related parties; directors are independent. active participation of the Board of Direc- The Board of Directors is responsible for tors in strategic planning. Sistema’s strategic governance: it deter- Secretariat of the Chairman mines the strategy, prepares the budget, sets of the Board of Directors Internal Audit Department These principles guide all of Sistema’s activi- the principles for investing, appraises execu- Board of Directors Managing Director, ties, including strategic and financial manage- tive performance and incentive schemes, man- In the reporting period, the Board of Direc- Chairman of the Board of Directors ment, corporate governance throughout ages risks and approves major transactions. tors’ involvement in the Company’s business Head of the Department the Group, HR and social policy, reporting, became very visible. Directors are engaged Secretariat of the Board of Directors control and audit, and risk management. The Company attaches much importance in discussing strategies and preparing deals While mainly drawing on the Russian legal to the efficient operation of the Board of Direc- early on. In doing so, they make correc- framework, Sistema also recurs to best tors, including to balanced decision-making tions and bring in some new ideas which international practices to continually improve that takes into account the interests of all are reflected in the eventual deal structure. its corporate governance. shareholders. Virtually all directors take part in Sistema’s President, Chairman strategy session and in the strategy sessions Secretariat of the President Sistema sets out the principles and procedures Independent directors of its portfolio companies. Directors’ commit- of the Management Board of its corporate governance in its Charter, Sistema makes a special focus on pro- ment to the Company’s business provides and in a number of publicly available by-laws. moting the role of independent directors. us with a robust inflow of quality investment Sistema’s Corporate Conduct Code and Code In June 2012, the independent representation ideas and proposals. of Ethics describe additional commitments in on the Company’s Board of Directors grew Management board transparency, social responsibility and ethical from five to eight seats. As of 31 December business principles. Sistema follows the guide- 2013, independent directors made up 61% lines set out in the Russian Corporate Conduct of the Board’s total membership. Breakdown of Sistema’s Code and best corporate conduct practices, Board of Directors including the UK Corporate Governance Code. The independence criteria applied to Sis- tema’s directors are in line with the guidelines First Vice-President, Finance and Investment Portfolio Strategy and Investment CORPORATE GOVERNANCE of the Russian Corporate Conduct Code and Senior Vice-President, Functional Division Analysis Department 8% STRUCTURE the Listing Rules of Moscow Stock Exchange. Vice-President, Senior Vice-President, Executive Vice-President, Executive Vice-President Head of the Division Head of the Department Sistema’s main governance bodies are: BREAKDOWN OF SISTEMA’S BOARD the General Meeting of Shareholders, OF DIRECTORS 31% the Board of Directors, the President and Corporate Governance the Management Board. The Board of Direc- Sistema’s Board of Directors meets regularly, Investment portfolio IT and Security Department Functional Division tors and the President have committees in line with the approved work schedule which 61% Executive Vice-President, Senior Vice-President, that develop recommendations for forming is based on Sistema’s strategic planning and Head of the Department Sistema’s decisions in the respective areas. reporting cycle. Extraordinary meetings are Head of the Division held to examine urgent issues as necessary. Sistema adopted its existing organisational The Chairman of the Board of Directors is structure in May 2012. It reflects our transition responsible for preparing the work schedule to the investment company model. As of 31 of the Board of Directors and for including addi- Administrative Department Legal Functional Division December 2013, the structure comprises four tional items in such schedule (for more details Executive Head of Administration, Vice-President, Head of the Division functions, eight investment portfolios and five on the operation of the Board of Directors see Non-executive Head of the Department departments. Sistema’s annual reports for 2012 and 2013). Independent

A director is considered independent unless: he/she is related to the Company, including if he/she has been Corporate Communications Functional Division on the Board of Sistema for more than seven years in total; Vice-President, Head of the Division he/she or his/her related persons are related to a substantial shareholder in the Company;

he/she or his/her related persons are related to a substantial Personnel Management counterparty or competitor of Sistema; Department Executive Vice-President, he/she or his/her related persons are related to the Government Head of the Department or a municipality. 32 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 33

Vladimir Jeannot Krecké The Board of Directors membership the feedback process within the Board In October 2013, Sistema’s Board of Direc- Members of Sistema’s governance bod- Evtushenkov Independent Director The current Board was elected at the Annual of Directors, while improving the Board’s tors approved a full set of documents ies must promptly inform of their intention Chairman of the Board General Meeting of Shareholders held overall performance through relevant perfor- governing a new executive incentive scheme to enter into deals with the Company’s of Directors on 29 June 2013. mance enhancement plans. The procedure aligned with the investment company model. securities, of positions that they or their close also provides a comprehensive evaluation For more details see Our Personnel Chapter relatives hold (or are intending to hold) in com- Board of Directors’ Committees of the Board’s performance for shareholders on page 47. panies outside the Group, and business and The key role of committees is to assist to ensure efficient control over its activities. other interests outside the Group that take the Board of Directors in preparing and mak- In 2013, the process of self-assessment The long-term top management incentive a considerable part of their working time. Alexander Peter Mandelson ing decisions in relevant functional areas and by Sistema’s Board of Directors showed scheme comprises: Goncharuk Independent Director to provide an in-depth preliminary analysis that the Board’s performance is generally a three year long-term incentive plan OBSERVING SHAREHOLDERS’ Deputy Chairman of matters presented to the Board of Directors regarded as high. (2012–2014) seeking to build Sistema’s share RIGHTS of the Board for consideration. The Board’s committees value and setting up further drivers to main- of Directors enjoy broad procedural powers and may The assessment results are then used tain long-term employment and corporate Sistema seeks to ensure the maximum pro- engage third party experts and recur to other to work out solutions to improve the Board’s relations between the company and its tection of shareholders’ rights to participate resources of the Company. performance. Theу will also drive further executives; in management process and receive income. improvements to the corporate governance an option plan for initiating and pro- The fundamental rights of a shareholder David Iakobachvili Roger Munnings Sistema’s Board of Directors has five framework in 2014. moting M&A projects seeking to enhance in these areas include the right to take part Independent Drector, Independent Director committees: the management’s commitment in identify- in the work of the General Meeting of Share- Deputy Chairman of Strategy Committee (chaired by Vladimir Sistema’s portfolio companies have also intro- ing, acquiring and developing new targets holders, the right to vote on items in the the Board of Directors Evtushenkov); duced regular self-assessment procedures to build up Sistema’s share value and market agenda, and the right to obtain dividends. Audit, Finance and Risk Committee for their respective Boards of Directors as part capitalisation. (chaired by Roger Munnings); of standard requirements to the corporate To secure these rights we circulate notice Nomination, Remuneration and Cor- governance framework. A total of RUB 2.9bn was paid to Sistema’s of the General Meetings of Sharehold- porate Governance Committee (chaired top management in calendar year 2013. ers, and voting ballots, to all shareholders, Sergei Boev Marc Holtzman by Robert Kocharyan); Remuneration of directors In 2012, the amount paid to the top manage- at least 30 days before the meeting. Also, all Board Director Independent Director Ethics and Control Committee (chaired and top managers ment was RUB 2.4bn (including RUB 1.4bn materials covering the agenda items appear by Alexander Goncharuk); Remuneration payable to members paid in late 2011). Sistema’s directors were on Sistema’s website in Russian and English Investor Relations and Dividend Policy of Sistema’s Board of Directors consists of: paid RUB 155m in 2013, and RUB 122m (www.sistema.ru and www.sistema.com). Committee (chaired by David Iakobachvili). fixed amounts for participating in meetings in 2012. of the Board of Directors and committees Depositary receipt holders may vote The Audit Committee, the Nomination, Remu- and acting in the capacity of the Chairman Conflict of interests on the items of Shareholder Meeting neration and Corporate Governance Commit- and Deputy Chairmen of the Board of Direc- Sistema has in place procedures designed agendas by proxy through Deutsche Bank Brian Dickie Serge Tchuruk tee, and the Investor Relations and Dividend tors and committees; to identify conflicts of interests between AG which Sistema uses as the depositary Independent Director Independent Director Policy Committee are all led by independent based on the performance for the year, all employees and directors. Directors bank for the GDR programme: Global Equity directors. directors are paid a fixed amount, half of which refrain from actions that lead, or may Services,Trust and Securities Services. is payable in shares (USD 250,000–325,000); lead, to a conflict between their interests Board of Directors’ performance if the Company’s market capitalisa- and those of Sistema, and, if such a conflict Every shareholder may also attend Gen- assessment tion grows, directors are also paid 0.1% exists or arises, disclose information eral Meetings of Shareholders in person Assessment of the Board’s performance of the capitalisation growth at the year-end. on such a conflict to the Board of Direc- or through a representative, and vote is an essential tool promoting corporate tors and refrain from voting or participat- on agenda items directly. Dmitry Zubov Mikhail Shamolin governance in the Company. Sistema has Until 2013 (inclusive), Sistema’s short-term top ing in the discussion on relevant items Board Director Board Director, in place a self-assessment framework for management incentive scheme comprised: of the agenda. An important guarantee of the shareholder’s President the Board to evaluate its own performance. a monthly salary based on the corporate right to participate in running the Company Directors provide their own judgement on hierarchy; All employees and their close relatives is the right to access documents that Sistema how well the Board’s activities are organ- an annual bonus payable for achieving may not: is obliged to retain in line with the provisions ised. To this end, the activities are grouped investment KPIs (Key Performance Indicators) have a personal interest in the business of the Federal Law On Joint-Stock Com- into four areas: membership and structure applicable across the Group in the report- of the Company’s competitors; panies. To exercise this right, a shareholder of the Board; procedure and framework for ing period. In 2013, agreed investment KPIs invest in companies competing against should send a written request to Sistema’s Robert Kocharyan the Board of Directors’ activities; the Board included: iTSR, TSR, cash income (dividends, the Company; Corporate Secretary. Independent Director committees’ performance; and quality of proceeds from sale of businesses, capital accept gifts, services, rewards or personal the Board’s decisions in individual areas. gains and debt recovery), SG&A /NAV, net benefits that influence the management Holders of material blocks of shares are The Secretariat of the Board of Directors income, external debt /OIBDA of the Group, decisions they may take relating to Sistema’s entitled to make proposals on the agenda provides an annual analysis of the summary Corporate Centre debt /OIBDA; operations. of the General Meeting of Shareholders, feedback and submits the results to the additional remuneration for generat- and to nominate candidates to the govern- Nomination, Remuneration and Corporate ing cash income over the year subject In case of a potential or actual conflict ance and control bodies (holders of 10% Governance Committee, the Chairman to achievement of the annual investment of interests, any employee must immediate- and more of voting shares also have the right of the Board of Directors, and the Board KPIs, or an extra bonus payable exclusively ly notify the Ethics and Control Committee to request an Extraordinary General Meeting of Directors itself. This procedure maintains at the discretion of the Board of Directors. of the Board of Directors. of Shareholders). 34 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 35

To ensure the proper observance of share- on the insider list are notified of their key rights Dividend payouts by Sistema, holders’ rights to Sistema’s profits, we and obligations related to access to insider 2011–2013 announce in advance the amount of divi- information and penalties for its unlawful Corporate governance Audit of JSOC Bashneft’s corporate governance. The auditor’s recommenda- dends the Board of Directors recommends, distribution, disclosure or use. 20 transformation at SG-Trans governance system tions mainly concerned the operation of along with the date it will make the sharehold- 19.879 In November 2012, Sistema acquired Bashneft enjoys one of the most advanced committees (with regard to setting up indi- er register for the purposes of payment. The Company has in place blackout periods (2.06) 100% of the shares of SG-trans, corporate governance systems among vidual committees of independent direc- when insiders are forbidden from dealing in a railway freight operator, and largely Russian oil companies. Bashneft has been tors) and additional disclosure. The audit Dialogue with minority shareholders Sistema’s securities. These periods cover dis- remodelled its corporate governance running an annual internal audit of corpo- report was considered by the Corporate The corporate secretary and the IR Depart- closure of financial results and are intended to structure. Before the deal, the Board rate governance practices since 2010, Governance Committee of Bashneft’s ment are in continual dialogue with minority prevent suspicions of insider trading and pro- of Directors at SG-trans as a govern- and in 2013, its Board of Directors also Board of Directors. The Committee also shareholders, providing an interface between tect insiders from unwarranted accusations. ment-owned company included mostly engaged external auditors. Auditors are approved recommendations for optimising them and the Company’s governance bodies the shareholder’s representatives, who engaged to provide a fair and independent these practices in the company. and holding regular meetings between minor- PLANS FOR CORPORATE often lacked professional background opinion of the corporate governance level ity shareholders and the management. GOVERNANCE FRAMEWORK 15 in business management, while in the company, benchmark Bashneft’s In December 2013, Elvira Zhuravleva, DEVELOPMENT IN 2014–2015 the existing corporate procedures practices to recognised leaders, and Head of the Office of the Board of Direc- IR arranged and held 199 investor meetings of the Board fell short of our corporate develop recommendations on improving tors — Corporate Secretary of Bashneft, in 2012 and 202 meetings in 2013. 64% of We will continue refining our governance standards. The Board’s meetings the corporate practices. won a Director of the Year award of the meetings were joined by Sistema’s CFO or system. In 2014–2015, we plan to adapt new lacked dynamism, with inadequate Independent Directors Association and CEO. One roadshow was run in 2012, cover- provisions of the Russian Corporate Conduct attention paid to the company’s devel- Four areas were audited: shareholders’ the Russian Union of Industrialists and ing major global financial hubs. Since 2013, Code, in particular, the guidelines on nomina- opment strategy. rights; membership and efficiency of Entrepreneurs in the Best Director for Cor- Sistema has been running two roadshows tions to the Board of Directors and the role of governance and control bodies; disclosure; porate Governance / Corporate Secretary a year, involving its top management. the Nomination, Remuneration and Corporate By overhauling the company’s corpo- and corporate social responsibility. category for successful projects to stream- Governance Committee in this process. rate governance standards we expand- line the operation of the Board of Directors 10 Shareholders in Sistema and any of its ed and changed the membership of its The 2013 audit report suggests that Bash- and introduce best corporate governance subsidiary and affiliates can always voice their Sistema is also planning to launch a mecha- Board of Directors to include directors neft leads the Russian market in corporate enhancement practices in the company. 9.264 proposals by calling a 24/7 hotline number. nism for challenging material deals and pro- (0.96) who are highly qualified managers with The Company is also planning to hold regular jects submitted to the Company’s govern- complementary expertise. We also meetings of minority shareholders and pro- ance bodies for consideration. Directors will significantly increased the number and spective investors with independent directors. be offered an independent critical opinion frequency of the Board’s meetings. of the project/deal to help them make more E. g. in 2012, the Board only met eleven DIVIDEND POLICY informed voting decisions. times, while it held as many as 20 meetings in 2013, considering 93 items

High return on shareholder equity is para- To maximise the time available to directors for 5 related to the company’s development. mount to Sistema. This is ensured by a trans- discussing business projects, we plan to limit parent and predictable dividend policy. the number of items on the agenda related Today, the Board of Directors focuses to technical matters and to cut the time for on developing a strategy for SG-trans The Board of Directors recommends the size formal presentation of materials. These steps and building rigorous corporate govern- of dividends in line with the dividend policy are intended to enhance the quality of discus- 2.702 ance standards, while providing higher approved in October 2011. Under the policy, sion at the Board’s meetings. (0.28) business transparency and healthy risk the dividends should be at least 10% of management. In 2013, the company Sistema’s consolidated net income under US IMPROVING CORPORATE drafted a new Charter and regula- GAAP and at least 10% of net cash income GOVERNANCE IN SUBSIDIARIES tions for the Board of Directors and all generated by investment transactions over 0 its executive bodies and introduced the year. Regular dividend payouts under Sistema specifically focuses on improving 2011 2012 2013 a detailed division of responsibilities the existing dividend policy show that the divi- corporate governance in its subsidiaries. between the Board and the execu- dend flow to shareholders is predictable and We hold regular audits of the corporate gov- Dividends, RUB bn tive management based on Sistema’s contingent on the company’s fundamental ernance framework and share our expertise (Dividend per share, RUB) corporate documents. performance. with our portfolio companies in building advanced corporate governance systems INSIDER INFORMATION to help them achieve certain standards in a rather short period of time. We seek Among all subsidiaries of Sistema, SG-trans Since 2010, Sistema has in place its Informa- to ensure that our portfolio companies have (a company acquired in a privatisation auction tion Policy that sets out a framework for coun- independent directors on their Boards, includ- in late 2012) experienced the greatest change teracting unlawful use of insider information. ing as chairmen of the Audit and Nomination in its corporate governance practices during and Remuneration Committees. The Boards the reporting period. In subsidiaries, changes The Company maintains and makes regular at our subsidiaries are deeply involved in corporate governance are also driven updates to the list of persons who have in building strategies, executive incentive by external audits. In the reporting period, access to its insider information. The persons schemes and risk management framework. an external audit was run in JSOC Bashneft. 36 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 37

and subsidiaries follow the same high ethical Corporate culture standards which are a distinguishing charac- teristic of Sistema. RegiON contest Bashneft’s Knowledge Laboratory and business In the reporting period, MTS held Since September 2013, Bashneft has CORPORATE CULTURE RegiON, an international teambuild- been operating a Knowledge Labo- relations IN SUBSIDIARIES ing contest for its employees which ratory. Any employee may apply for was attended by several thousand and obtain information materials from All subsidiaries of Sistema are building their people. As part of the contest, MTS training events or join a round table own corporate culture by introducing codes employee teams took part in master led by an employee who took part in OUR ETHICS of ethics and conduct which often set new classes, flash mobs, charity and other a compelling training course working benchmarks in their respective industries. events, scoring points for every event. towards corporate goals. We place a great emphasis on ethics in our The contest comprised a total of 1.5 relations with business partners, sharehold- Corporate culture in JSOC Bashneft thousand events. The top prize for the As at the early 2014, there were 173 ers, employees and authorities. We strictly Bashneft has been operating for more than winners was participation in the final knowledge exchange applications from adhere to our corporate Code of Ethics 80 years. While introducing forward-looking contest held in Greece in October 2013 the Company’s employees and nine which is based on the principles of loyalty, corporate culture, Bashneft also stays mind- and attended by 450 employees. round tables were held. The largest transparency and good faith. The Code ful of its legacy: wide geographical coverage; round table was on Best Internal Audit imposes mandatory ethical rules of day-to- different mentalities, traditions and cultures Organisation Practices. Economic day activities both on directors and senior of employees; scattered business opera- and Information Safety. officers of the Company and rank-and-file tions; head office remote from key operating employees. In some respects, the document regions; and specific aspects in upstream provides for conduct standards that exceed and downstream. In its efforts to enhance Our procurement policy is subject to internal bid assessment and comparison criteria and during the supplier selection process is con- those set out in applicable laws or common corporate governance, Bashneft seeks and external audit. procedures. Procurement compliance reports sidered and investigated by the Internal Audit business practices. to provide a friendly, open and psychological- are considered by subsidiaries’ Boards Department. ly healthy work environment that would drive Any procurement of goods, works or services of Directors and by the Corporate Centre Governing ethical principles performance and facilitate the achievement by Sistema for an amount exceeding RUB on a regular basis. PROCUREMENT IN SUBSIDIARIES and values of the Company of the company’s objectives. The company’s 100,000 is to be made in line with an estab- Trust. Since its creation, Sistema has man- leadership and coaching framework and its lished procedure and, in competitive markets, In late 2011, we decided to develop electronic All our subsidiaries maintain their own pro- aged to gain the trust of thousands of con- internal feedback system provide two other only through a bidding process driven mostly procurement using the capabilities offered by curement policies. Procurement procedures tractors and millions of customers around critical elements in promoting corporate by open procedures. Decisions are made on the trading platform of Sberbank-AST CJSC, are largely governed by corporate regulatory the world by building amicable ties with its culture across the company. PROCUREMENT a collective basis. Russia’s largest e-trading operator accredited documents and based on the relevant Code shareholders, investors and employees, and by the Russian Federal Antimonopoly Service of Sistema. Sistema is determined to preserve, strength- Corporate culture in MTS Sistema has built a transparent, robust and In 2012, we introduced the necessary tools and the Ministry of Economic Development. en and develop these relationships. MTS’ team stands apart for its innovative continually improving procurement system. and procedures and appointed officers for In 2012–2013, our online procurement In 2012–2013, MTS and Bashneft accounted Transparency. Sistema’s policy of trans- thinking that has helped the company maintain evaluation of the business reputation and accounted for c. 10% of the total procure- for c. 90% of the total procurement by our parency regarding information does not only the leadership position in the telecom industry The Bidding Procedures and Procurement financial stability of potential suppliers as part ment. Our target for the coming years is to subsidiaries, thus making themselves our larg- guarantee all interested parties the right in recent years. MTS relies on, encourages Code is the principal document governing of the selection process in contract bidding. shift all competitive procurement to online- est procurers with the biggest impact on the to receive reliable and relevant information and leverages innovation at all levels and in all operations of Sistema in this area. The Code Background checks on counter-parties are only platforms. Company. MTS and Bashneft are also among about Sistema’s business, but it is also one aspects of its operations. The company’s set serves as a benchmark for regulatory docu- a compulsory procedure involving an elabo- procurement leaders in their respective sec- of the most important elements of our corpo- of corporate values is called PROSTO. Each ments of all subsidiaries. It describes the pro- rate framework of criteria designed to prevent Sistema has a well-established supplier feed- tors in Russia. Detsky Mir comes third in terms rate culture. letter in PROSTO (meaning SIMPLE in Rus- cedure for preparing requirements to prod- money laundering and minimise the risks of the back procedure: all proposals or complaints of procurement by Sistema’s subsidiaries. Respect to people. Sistema’s HR policy sian), stands for one of the six key principles ucts to be procured and lists transparency Company being drawn into corrupt practices. related to the bidding process (including by The company consistently builds up the share is aimed at ensuring equal opportunities for all shared by every employee of MTS. requirements to bidding rules that ensure any subsidiary) can be e-mailed by any bidder of Russian-made goods in its product range. employees, irrespective of their ethnic origin, a consistent, fair and competitive environment Sistema and its subsidiaries make regular to [email protected] or to hotline e-mail religion, political views or personal convic- PROSTO (‘SIMPLE’): and equal opportunities for all bidders. compliance checks of their procurement addresses of the Group’s companies. Any MTS tions, sex, lifestyle or age. Partnership is simple if you know procedures, with a particular focus on the complaint that alleges irregularities or abuses MTS boasts one of the most advanced pro- Integrity and impartiality. Sistema takes how to work in a team; Procurement procedures comprise the fol- curement systems within the Group. In 2013, management decisions on the basis of Efficiency is simple if you achieve lowing stages: over 80% of the company’s procurement information that has been thoroughly analysed, the set objectives; assessing a business case MTS was among the first Russian companies to introduce supplier was via competitive bidding or online auc- and selects its contractors and partners, Responsibility is simple if you for the procurement; tions. In 2013, the company made more than surveys to enhance its corporate procurement procedures. E. g. in 2013, and conducts business with them, on the are responsible for the outcome planning the procurement; RUB 15.8bn worth of purchases in online auc- basis of transparent and fair market conditions, of your actions; selecting suppliers via a bidding proce- MTS ran a survey, Voice of the Supplier, that covered 30 of its strategic tions in Russia, or double the figure in 2012. without any biased preferences or prejudice. Courage is simple if you are the first dure (single-source procurement is allowed Whenever possible, MTS seeks to source suppliers. Each supplier answered eighteen closed-ended and five Zero tolerance towards corruption and to step forward; only in the absence of any competition services or goods locally so as to support unfair competition. Sistema does not partici- Creativity is simple if you think in the market); open-ended questions. The survey results will be used to improve economic growth in the regions and countries pate in unethical, unlawful or unfair business beyond usual boundaries; requesting proposals and quotes; in which it operates. In 2013, the share the corporate procurement system. MTS is planning to use this tool activities and also strives to ensure that its Openness is simple if you have competitive negotiations; of procurement by MTS from local Russian business partners, contractors, employees learned to listen and hear. signing and following up the contract. on an annual basis. suppliers was as high as 85%. 38 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 39

The company’s accomplishments in procure- COUNTERACTING AND PREVENTING disposal of non-core assets; ment management did not go unnoticed. CORRUPTION charitable activities, etc. For example, in 2013, Valery Shorzhin, Sistema’s hotline its Director for Procurement Management, Safeguarding the interests of shareholders, In the reporting period, we developed and In addition to the above procedures, was Highly Commended in the Procurement members of governance bodies, executives, implemented a set of anti-corruption proce- in 2008 we launched a publicly accessi- Leader category at the international Procure- employees and partners of Sistema against dures integrated into our business processes. ble Whistleblowing Policy, under which ment Leaders Awards 2013. MTS was the only the risks of being involved in corruption The existing procedures were reinforced with the Company’s executives and employ- Russian company to make it to the Awards’ schemes and against potential adverse impli- new ones: anti-corruption clauses; follow- ees and its subsidiaries or other third final round. MTS also collected the Competi- cations is a priority for us. up of payments to agents; and government parties may freely (including anony- tive Procurement Leader award (established relations. We also refined procedures related mously) alert the top management by B2B0-Center, an international e-trading For this reason, Sistema and its subsidiar- to borrowing and investment; background to potentially corrupt activities or report platform) for high procurement transparency. ies and affiliates act proactively to prevent checks on counter-parties and control their reasonable suspicions in this corruption, guided by statutory require- of counter-party settlements; and internal regard. All information received via Bashneft ments and international standards applicable investigations. the hotline is recorded and analysed. In 2013, Bashneft began to introduce in Russia and in developed nations. Then, if there is a good reason to do procurement category management. Internal audit of compliance so, relevant employees of the Com- Goods, works or services that are strategic* Sistema’s approach with anti-corruption procedures pany will initiate internal investigations to the company’s operations were grouped Detsky Mir growing the share of Russian goods in the product mix to anti-corruption practices In 2012, Sistema and its largest subsidiar- to fully check whether the allegations into 36 categories (including 28 categories The Anticorruption Policy and the Code ies ran an internal audit of compliance with are true or false and report their findings for goods and 8 categories for works or of Ethics are our core documents setting out anti-corruption procedures. The audit results to the top management. In 2012–2013, services). Together, they currently account procurement exceeding RUB 2m in line products and 29% of stationery offered by the the Company’s key anti-corruption and ethi- were presented in a report submitted to Sis- the hot line received over one hundred for c. 20–25% of the total procurement by with the corporate Procurement Policy. retailer were made in Russia. cal business conduct principles and rules tema’s Board of Directors, with recommen- calls, with most of them triggering Bashneft and its branches and subsidiaries. Since May 2013, the company has been of employee conduct. dations on improving anti-corruption prac- an internal investigation. making its online purchases via the e-trading Detsky Mir also sourced locally a range tices circulated to a number of subsidiaries. A qualification selection and procurement platform of Sberbank Ast CJSC. In 2013, of clothes, footwear and stationery marketed The Policy sets out the key anti-corruption We are planning regular awareness- strategy was defined for each category. To this 35% of its overall purchases were made under its own brand, which goes a long way principles followed by Sistema, including For 2014, we are planning additional reviews, raising events with all potential stake- end, Bashneft set the objectives and targets, online, while the pool of its suppliers doubled towards supporting national manufacturing zero tolerance to corruption in any form, strict testing and refinement of the previously holders on using the hotline. estimated procurement demand; identified as compared to 2011. industries. For instance, during the back- prohibition of corruption; regular assessment implemented corporate anti-corruption docu- requirements to goods and services; reviewed to-school season (from July to August) the of corruption risks; development of anti- ments. The process will involve independent historical procedures to highlight their flaws; Detsky Mir is committed to diversifying share of Russian clothes and footwear in this corruption procedures and their incorporation external advisors and will capture relevant APPROACH TO CORRUPTION studied the target market (made a list of poten- its range of Russian-made products both segment grows to as much as 80% of total into business processes; compliance checks legal provisions, regulatory guidelines and PREVENTION IN SUBSIDIARIES tial suppliers, service providers and contrac- by growing the pool of Russian suppliers and procurement. on these procedures; and accountability best practices. tors); and defined qualifying criteria for poten- procurement volumes from them and by pro- to the Company’s Board of Directors. MTS and Bashneft, our two largest subsidi- tial bidders. The company then selected viding local companies with marketing sup- As of late 2012, the share of domestic goods Anti-corruption training aries, have in place a set of anti-corruption the best procedure and a list of qualification port and management advice. In the reporting was 19% of the total turnover of Detsky Mir, The Code of Ethics sets out the key stand- Since 2012, Sistema’s Corporate Centre measures similar to those of Sistema, but requirements to vendors for each category. period, the share of Russian-made products while the total share of Russian goods grew ards and guidelines to build unified ethical has been running anti-corruption training adapted to the specific operations and busi- grew considerably in many product catego- to 21% in 2013. The company expects this standards for the Company’s operations courses mandatory for all employees. These ness environment of these companies. Then, a pool of qualified suppliers was ries. E. g. as of late 2013, 26% of baby food share to reach 25% in 2014. and conduct of its executives and employees events take the form of an awareness-raising selected for each of the 36 procurement so as to develop a company-wide framework web-based presentation followed by a series In 2014, another seven large subsidiar- categories for the next three years. To encour- of ethical values and establish criteria for ethi- of test questions and scoring. ies of the Company started implementing New procurement category management of Bashneft helps to spare funds age competition the company also accepts cal and integral conduct in relations with share- the anti-corruption framework similar to those and to improve quality of acquired goods qualification requests from other suppliers holders, contractors, officials and co-workers. In 2012, a total of 310 Sistema’s employees of Sistema, MTS and Bashneft. The project within this period. of all levels (98.5% of the total headcount) is expected to be completed in Q1 2015. Our anti-corruption procedures took anti-corruption training. The average The introduction of the category-based The anti-corruption procedures integrated score of correct answers to test questions Anti-corruption efforts in MTS procurement management system helped into our business processes cover and gov- was 88%, which shows that employees fully MTS is committed to implementing and the company expand competition by involv- ern, among other things, the following areas understand how important this issue and improving anti-corruption measures compliant ing new bidders; raise the quality ofprod- of activities: applicable guidelines and policies are. with the anti-corruption laws of the countries ucts it purchases; boost the economic finance and debt management, including in which it operates, industry-specific require- effect through volume consolidation; and borrowing and investment; All new hires of Sistema are required to read ments and international standards. The key shorten procurement procedure timelines control of tender and procurement key anti-corruption documents and take, with- documents that govern anti-corruption for qualified suppliers. processes; in the first month of employment, an aware- requirements within MTS include the Code background checks on counter-parties ness-raising web-based training course that of Corporate Conduct and Business Ethics Detsky Mir and control of counter-party settlements; will guide them through the key requirements and the Anti-Corruption Laws Compliance In building the product mix for its retail investor and government relations; of applicable anti-corruption laws and relevant Policy. Procedures to ensure compliance with chain, Detsky Mir seeks to promote open entertainment expenses; corporate guidelines, policies and procedures. anti-corruption laws are set out in the regula- and fair competition. The company has in personnel management; Sistema did not record any violations of anti- tions for MTS’ business processes. In 2012, place a special commission that manages logistical support; corruption laws or procedures in 2012–2013. the company continued implementing best

* Strategic procurement covers goods, works or services that the company needs every year and the lack of which is estimated by functional units as presenting the highest risks for its business operations and high purchasing costs. 40 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 41

Sistema did not record MEMBERSHIP IN PUBLIC any violations of anti-corruption ORGANISATIONS

laws or procedures in 2012–2013. Sistema is keen to adopt global sustainabil- ity principles. The Company confirmed its commitment to these principles by becom- anti-corruption practices and standards ing the first Russian company to sign to bring them in line with the UK Bribery Act. the UN Global Compact in 2002 and by join- In particular, the company developed and ing the World Business Council for Sustain- introduced a new version of its Anti-Corrup- able Development (WBCSD). Sistema pro- tion Policy, the Policy on Conflicts of Interests vides comprehensive support to promoting and the Policy on Gifts and Entertainment. business ethics across Russia and is ready to refer business conflicts to the Court of The company has a distributed anti-cor- Arbitration and the Commission on Business ruption compliance function. The initiator Ethics of the Russian Union of Industrialists of an activity and its immediate supervisors and Entrepreneurs (RSPP). are charged with checking and evaluating whether such activity is corruption-free. Sistema is a member of Not-for-profit The company’s compliance system provides Partnership Russian Institute of Directors tools tailored to manage regulatory risks, that serves as a forum for sharing best improve the corporate culture, as well as practices in corporate governance. We are implement and enhance best corporate gov- also a member in the EU — Russia Industrial- ernance practices and responsible business ists’ Round Table (IRT) whose main mission conduct standards across MTS. is fostering an environment conducive to the development and expansion of In some cases, when entering into contracts, economic dialogue with the EU. Vladimir MTS signs a mandatory anti-corruption Evtushenkov, Chairman of Sistema’s Board clause that imposes a commitment to refrain of Directors, sits on the RSPP Board as from corruption schemes. The company Chairman of the Committee on Industrial mainly uses agreements with the anti-cor- Policies and is also a member of the National ruption clause with government entities and Council on Corporate Governance. agencies, regional administrations, and with third parties interacting with government In 2012–2013, Sistema made a significant officials on behalf of MTS. contribution to the activities of Business 20’s Task Force on Improving Transparency and To minimise the risk of being involved into Anticorruption set up as part of G20’s summit corruption schemes MTS has in place due in Saint Petersburg. The Task Force prepared diligence procedures that are applicable recommendations for B20/G20 leaders to its counter-parties (both individuals and published a summary of the practices and legal entities). The company also recurs of Sistema and a number of other Russian to these procedures when acquiring interests companies in preventing involvement in cor- in other companies. ruption schemes. 42 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 43

+ 236 ------743 979 What is the correlation ¾ between corporate social responsibility and employee ½ engagement? ∫f(x)dx Sistema is committed to promoting Our personnel a comfortable work environment ¼ that facilitates continuous development and helps the staff improve their professional Sistema adheres to the best HR practices. Implementing their HR policy, the Com- skills and achieve high performance. pany and its subsidiaries fully comply with the labour law in the countries in which they operate, offering decent remuneration and social protection to their employees. Personnel welfare is an unconditional priority Вв for the Company, since the strategic goals of Sistema cannot be achieved without prop- er motivation and professional development of its personnel. The Company continuously improves HR management and enhances social and labour relations with its staff.

PERSONNEL STRUCTURE AND HEADCOUNT

As at the end of 2013, Sistema and its sub- sidiaries employed 167,544 people versus 161,000 people employed by Sistema and all its subsidiaries as at the end of 2012. Total headcount increased primarily due to the E=mc2 acquisition of new businesses. No significant changes occurred in length of service and age distribution of personnel in 2012–2013 versus 2010–2011. 44 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 45

Headcount at Sistema HR POLICY Labour turnover rate at Sistema, including its subsidiaries, In 2013, Sistema was assigned A.hr employer appeal rating (highly as at the end of 2013, people Sistema and its subsidiaries strive was 20%* in 2012 and declined to 18% appealing employer) by RAEX. Also in 2013, the Company won Sistema offers equal work and professional not only to recruit the best personnel, but in 2013**. The Corporate Centre continu- Company Headcount development opportunities to its employees. also to foster conditions facilitating profes- ously monitors labour turnover rates at each the HR Brand 2012 Award in the WORLD nomination. Its corporate HR policy is aimed to build an sional and career growth and enhancing of the companies, benchmarking such data MTS 65,209 efficient team able to implement Sistema’s employee engagement. Labour turnover against the average values in the relevant In 2013, MTS ranked second in the Best Employer among Russian Bashneft 28,116 business strategy in today’s market environ- remained low during the reporting period industry and analysing causes of dismissal. Companies nomination according to the rating compiled by HeadHunter ment. Investments in human resources should due to a comfortable working environment BNSA 18,700 bring a maximum return to the Company, and broad professional growth opportuni- In the reporting period, average labour turno- Holding, PricewaterhouseCoopers and Vedomosti newspaper. In 2012, RTI 14,343 ensuring a long-term competitive advantage ties offered by Sistema. Turnover rates ver rates at the Company, including its sub- the company, for its achievements in the field of HR management, was and leadership in the industries where Sistema at the Company’s subsidiaries largely sidiaries, were comparable to the rates seen BPGC 7,23 4 and its subsidiaries operate. In HR manage- depend on the industry where a business in developed European countries: according recognised with the Crystal Pyramid Award in the HR Project of the Year Detsky Mir 6,902 ment, the Company is guided by the HR operates, but do not exceed average values to the most recent report by HayGroup, turn- nomination. Management Code and the Code of Ethics. in the industry. Average labour turnover over rates in those countries were circa 19%. Medsi 6,533 However, Russia’s average turnover rate was MTS Bank 4,437 HR management framework about 23% (which corresponds to the rates Collective bargaining agreements sick pay, voluntary health insurance, payment and approaches observed in emerging markets). A number of companies belonging to Sistema of travel costs for northerners, allowance for UPC 4,203 Sistema companies adhere to the common Length of service distribution make collective bargaining agreements with single mothers or disabled, etc.). Moreover, NVision 3,197 framework of and approaches to HR policy of personnel, 2013 Personnel recruitment their employees, which provide additional all aspects of employment relationship are administration. Efforts of the relevant ser- and selection system advantages, benefits and safeguards com- clearly stated and formalised in such agree- SSTL 1,792 vices of the Company’s entities are mainly Sistema’s personnel selection system pared to those granted by the applicable ments. In the reporting period, the collective Intourist 1,568 focused on: is based on common criteria used to laws and regulations. In particular, 100% bargaining agreement of Bashneft was modi- recruitment, development and retention evaluate candidates’ professional and of employees at Bashneft, BNSA (renamed fied most of all. SG-Trans 1,278 22% of highly qualified and efficient managers 21% managerial skills, general development into Targin in spring 2014) and subsidiaries SG-Trading 1,088 and professionals who will be able to increase potential and compatibility with corporate of RTI Concern are covered by collective Trade unions business value through excellence in corpo- culture. The image of Sistema as an attrac- bargaining agreements. Sistema interacts actively with the trade RZ Agro 1,027 rate asset management; tive employer is improving year after year: unions existing within a number of its subsidi- Sitronics-N 423 provision of equal career growth oppor- 16% the scope and ambitious nature of the chal- A collective bargaining agreement gov- aries. The corporate management under- tunities to employees of all categories based lenges faced by the Company, as well erns the relations between employees and stands the important role of trade unions, NIS GLONASS 359 only on their professional skills, personal 28% as broad professional and career growth the employer and mutual responsibilities perceiving them as an efficient tool to protect Sistema 327 qualities, and performance; opportunities attract established profes- of the parties, and provides additional benefits employees’ labour rights and facilitating their 13% provision of a competitive base salary sionals, talented youth, and leading Russian and safeguards to the employees, thus activity in every possible way. The most active Binnopharm 327 and bonuses based on measurable perfor- and foreign managers. This is supported making it more appealing to them. The key are union organisations at BNSA (renamed SMM 225 mance results, as well as employee benefits, by the awards received by Sistema and advantages of such an agreement for person- into Targin in spring 2014), MGTS (belongs which, taken as a whole, should correspond its subsidiaries. nel are additional social safeguards (additional to MTS), Sitronics, and RTI Systems Concern. Other 256 to the level of a major Russian company. < 1 3–5 > 10 Total 167,544 1–3 5–10 During the reporting period, the most impor- Labour turnover. 25.2 tant events of HR policy development included: Age distribution of personnel, 25 Trends (Source: Hey Group) the introduction of a new incentive scheme 2013 at the Corporate Centre to ensure efficient

project implementation and generate profits; 23 23.22 23.38 a considerable improvement of the evalua- 22.91 10% 22.46 tion and recruitment procedure for candidates 15% 21.7 21.98 to top management positions at Sistema’s 21 21.18 subsidiaries, and the introduction of recruit- 20.56 ment and dismissal standards; 21% 20.31 20.32 the development and launch of the Corpo- 19.3 19 rate Talent Bank project designed to identify and retain talented and highly efficient manag- 18.15 ers at the Company and its subsidiaries; 33% 17 the implementation of CEO School “Safety 21% Capsule” programme at JSOC Bashneft; in addition, the Corporate Centre updated internal communication tools and implement- 15 ed HR brand building projects. As a result, 2010 2011 2012 2013 2014 2015 2016 2017 2018 employee engagement at the Company < 25 35–44 > 55 increased by 7%. 25–34 45-54 Global trend Europe Emerging markets

* Disregarding the labour turnover rates at Detsky Mir with its traditionally high average percentage. ** Disregarding the labour turnover rates at Detsky Mir and data for SG-trans that underwent restructuring in the reporting period, which involved headcount optimisation. 46 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 47

Labour costs at Sistema can be rewarded with corporate stock. The Sistema Recruiters Community was set The long-term management incentive up in 2013 to generate an efficient synergy companies totalled Collective bargaining Barrier free environment at MTS community events organised and held scheme is based on stock price changes in the recruitment process and create a “com- agreements at Bashneft In 2013, MTS took first steps to create by the Board member companies, such RUB 113.5 billion in 2013. and total stockholder return (TSR). mon space of resources and opportunities” In February 2013, Bashneft made a barrier free environment*. The com- as Path to Career, a contest for students to fill in vacancies with in-house resources. a new collective bargaining agreement pany became a member of the Business and graduates with disabilities; Busi- Such incentive scheme provides a fairer for 2013–2015 with its employees Advisory Board on Disability, an organisa- ness for Equal Opportunities Forum; The Company’s subsidiaries, with their remuneration system that is tied to the tar- Sistema attaches great importance which provides more benefits and tion dealing with disability issues from the Disability Film Festival “Breaking Down strategies focused on a stable equity value gets for strengthening control over the Cor- to the development of employees’ profes- social safeguards than applicable law. perspective of business community**. Barriers”; Exhibition “Life in Full Colour”; maintenance and growth, also have long- porate Centre’s costs and creating a history sional skills and management competencies, and Best Buddies Dancing Marathon. term incentive schemes. The core incentive of progressive dividend payout. since it is skills and competencies that even- When drafting the collective bargain- Being on the Board enables MTS Social events of this kind are perfect for principles of such companies as Bashneft, tually determine success of the Company. ing agreement, similar agreements to share experience and successful socialisation of people with disabilities, MTS, SSTL, BPGC and RTI will remain Modernisation of SG-trans’ Most subsidiaries determine employees’ of major Russian oil & gas companies examples of employment of people making it possible for them to overcome unchanged in the future. incentive scheme development needs based on annual employ- and labour market reviews prepared by with disabilities. In 2013, MTS employ- barriers that handicapped people are In 2013, the Company revised considerably ee performance assessment. Assessment the leading consulting companies were ees were involved actively in numerous facing in society. The Company is going to introduce, by SG-trans’ incentive and labour scheme, results provide inputs for personal employee taken into consideration. Bashneft the end of 2014, a long-term incentive aligning it with the current market conditions. training plans that include activities to develop involved employee delegates in the scheme at its subsidiaries Targin (formerly Before revision, the company’s incentive professional knowledge and skills, and also bargaining process. For the purpose known as Bashneft-Service Assets), United scheme treated everyone equally and was not behavioural competencies. of consideration of the terms and Petrochemical Company, MTS Bank, aimed to support the best workers, with fringe conditions of the collective bargain- Leader-Invest, Business Nedvizhimost, Det- benefits provided irrespectively of perfor- A master programme in the field of stra- ing agreement, the employees set up sky Mir, Medsi, SG-trans, Intourist, and NVi- mance and financial standing of a particular tegic management and innovations has the United Employee Representative sion, whose strategies provide for liquidity employee and his/her family. been running since 2006 in cooperation Body comprising members of the events (IPO, sale of share). In 2015, Sistema with the Graduate School of Management Employee Council and shop-floor plans to introduce new long-term incentive The remuneration and incentive scheme at and Innovation, Lomonosov Moscow union organisations. scheme standards at Sistema Mass-Media, SG-trans was revised completely. The com- State University. Stream, NIS GLONASS, Sitronics, Binnop- pany preserved all fringe benefits, including The new agreement reflects all wishes harm, Mosdachtrest, and SG-trading. additional payouts and increments, which Sistema is focused on professional training of the employees. For example, the are guaranteed by law, but revised signifi- and development using its internal resources. agreement provides for an extended The most significant changes in incentives cantly additional benefits. The new incentive For example, the Institute of Internal Coaches package of fringe benefits to improve schemes in the reporting period occurred scheme was aimed to attract and retain highly was launched in 2013 to: the life conditions of employees and at SG-trans and MTS. At SG-trans, its out- qualified personnel using KPIs providing for capitalise on internal resources, i. e. devel- their families, in particular voluntary dated financial incentive scheme was mod- incentive payments based on the company’s op the core business skills and competen- health insurance and occupational ified, since it did not correspond to the cur- performance and specific contribution made cies of the senior management using internal accident insurance, as well as treat- rent market conditions and did not ensure by each employee to the accomplishment coaches for that purpose; ment and recreation at sanatoriums a sustainable correlation between each of production and financial targets. using the best internal expertise to develop and resorts. employee’s remuneration and contribution, the core business skills and competencies and his/her competences, position and Fringe benefits were also considerably of the senior management; target accomplishment. MTS was among revised. Now, each employee is eligible for streamline HR development costs; the first companies of Sistema Group to certain fringe benefits, including health insur- develop common corporate standards HUMAN RIGHTS in today’s Russian society. The company have short-term (quarterly and annual) and make non-cash incentives exciting and ance, financial aid (both guaranteed and tar- and values. believes employment of handicapped peo- long-term (option programmes and phantom appealing for its employees. geted, allocated based on the Commission’s Sistema and its subsidiaries are totally ple to be an important social aspect that stock) incentive schemes. The remuneration decision with due account for the financial Each company of Sistema Group conducts intolerant to discrimination in any form. deserves close attention. system of the Company and its subsidiaries Sistema’s new incentive scheme standing and life circumstances of every its own trainings compulsory for all employ- The Company strictly adheres to the principle is based on common principles laid down Late in 2013, Sistema adopted a new incen- individual employee). The Company provides ees. In the reporting period, a number of tolerance to racial, religious, physical and MOTIVATION AND REMUNERATION in a number of in-house documents. tive scheme for the employees at the Cor- mandatory life insurance cover for members of employee development projects were other differences of its employees. Hiring porate Centre, which has become a key of voluntary emergency response teams. implemented at some Sistema companies, a person with disabilities, we are guided by A key task of the Company is to provide its Employees’ salaries include a fixed and element to transform the Company into with the most advanced and exciting ones applicable Russian law. employees with an opportunity to reveal their a variable part. The amount of fixed part an investment company. In line with the best PERSONNEL ASSESSMENT, implemented by Sistema’s Corporate Centre, capabilities as much as possible, ensuring is based on the salary ranges fixed for every industry practice, managers’ compensation DEVELOPMENT AND ROTATION JSOC Bashneft, and OJSC MTS Bank. The Company has never used and is not an adequate remuneration for successes. job grade (class). A grade range mid value is based on return on investments yielded using child labour or forced labour. No cases Sistema uses a wide range of advanced moti- is determined for every grade. To determine by each of the Company’s portfolio. The Company offers professional develop- of employee discrimination in any form have vation tools designed to improve employees’ a grade range mid value, labour market ment and growth opportunities to its talented been reported at Sistema. In the report- performance. Competitive salaries and fair overviews provided by major global consult- Starting from 2014, the compensation employees. In case of new vacancies, they In 2013, over RUB 400 million ing period, significant changes in the field remuneration are the core principles behind its ing companies are used. The variable part is of Sistema’s employees is based on cash are filled in, first of all, with employees trained was invested in personnel training of human rights occurred at MTS that was incentive scheme. The Company and its sub- linked to the achievement of key performance flow generated for the Corporate Centre under corporate training programmes. among the first Russian companies to pay sidiaries monitor salaries among the relevant indicators (KPIs), i. e. the organisation’s finan- by each investment portfolio. The top In total, 46% of key managers appointed at the Company and Sistema's more attention to employment of the disa- reference groups in the labour market on a reg- cial and operating targets set for a particular managers are also eligible for a long-term within the Company in 2013 previously subsidiaries. bled, a topic being largely a taboo or ignored ular basis. Most companies of the Company employee and/or structural division. incentive scheme: Sistema’s executives worked at Sistema or its subsidiaries.

* Barrier free environment enables all people, including those with disabilities, to use the surrounding space without anyone’s assistance. ** The Business Advisory Board on Disability includes over 40 companies that initiate the integration of people with disabilities (e.g. employees, partners, customers, etc.) in the activities of organisations. 48 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 49

Extended fringe benefits All employees of Sistema companies are eligi- Occupational injury rates Sistema provides voluntary medical insurance ble for the corporate pension scheme. In total, at Bashneft decreased Non-cash incentives at MTS professional of the year from a functional to all its employees. In addition, the Compa- the Company offers three pension resources As competition in the labour market block, the best cross-functional team, ny’s personnel may have their family members development schemes: by 17% in 2013. increases, non-cash incentives become and the best call centre. The company insured at corporate rates, but at their own compulsory pension insurance, which is more and more important to retain person- developed new criteria for each of the pro- expense. In case of temporary incapacity a tool to use the funded part of pension that nel and make them more loyal. MTS pays grammes which were aligned with MTS’ due to illness, the employees still retain their each working person has in the most rational standards, the company arranges not only much attention to non-cash incentives. KPI system, and added new nominations, salary (for 2 weeks in case of outpatient treat- way. its own operations, but also those of its con- In 2012, the company approved its new Business Unit of the Year and Call Centre ment or 3 weeks in case of hospitalisation). the state pension co-financing scheme tractors, and for this purpose each procure- Non-cash Personnel Motivation Policy. of the Year, which reflect the top-priority In addition, the employees may take a course (known as “1000 x 1000”), which is a tool to ment team includes an occupational health The document lays down the core princi- business areas. The contests are followed of treatment at sanatoriums and resorts with increase the funded part by making voluntary and safety expert who shall monitor compli- ples and areas of non-cash motivation and by a solemn award ceremony. a 20% discount. All employees and members contributions. The government doubles every ance with Bashneft’s standards. includes a range of steps aimed to satisfy of their families are eligible for such discount. RUB 1,000 contributed by an insured person. the personnel’s needs that are not directly To offer more non-cash incentives, Sistema’s employees may also benefit from non-state pension scheme, which is a tool In addition to the implementation of an up-to- connected with cash compensation. MTS extended its compensation pack- special retail and mortgage loans provided to make voluntary contributions in order date occupational safety and environmental age in 2013 by adding fitness classes by MTS Bank. to increase them and subsequently receive management system, the company assumed The company runs a unique federal and visits to the swimming pool for all a decent non-state pension. Non-state voluntarily some additional occupational recognition programme, being an incen- employees. Moreover, the company holds The employees with irregular working hours pension scheme may be either corporate health and safety obligations. For exam- tive scheme for its best professionals regular internal contests, recognizing are entitled to three additional days of leave. or individual. ple, it introduced a work-stop procedure who have achieved outstanding results its best managers, specialists and teams. Traditional additional social safeguards in case a hazard is detected, permitting any in their functional areas. Annually, MTS The corporate editions and news feed contained in the in-house documents (“Social OCCUPATIONAL HEALTH AND SAFETY employee to stop work whenever a hazard selects, on a competitive basis, the best at the corporate website provide a regular Policy”) of various Sistema companies usu- is detected, and a targeted programme was of the best in the following individual and coverage of the successes and achieve- ally include sick pay exceeding the statutory Sistema companies pay much attention adopted to reduce employee illness rates. group nominations: manager of the year, ment of MTS’ employees. minimum applicable in Russia, financial aid, to occupational safety and provision of a safe voluntary health insurance, free lunches, working environment for their employees. The activities completed in 2013 reduced payment of transportation costs, as well as All companies of the Company continuously occupational injury rates at the company a partial compensation of rent for employees improve their occupational safety manage- by 17% versus 2012. Talent bank belonging to Bashneft Group who had a pro- of junior workers, and foster loyalty to the from other cities. ment systems. Occupational health and In the reporting period, Sistema developed fessional technical education were enrolled bank. During one month, the school attend- safety issues are critical at the industrial Two accident-free years at United the Corporate Talent Bank programme and in the programme. ants learn, free of charge, the basic notions Corporate pension scheme companies belonging to Sistema, such as Petrochemical Company started its implementation. The project was and laws in the banking sector, MTS Bank’s From 2000 to 2012, Sistema ran the non- Bashneft, SG-trans, United Petrochemical Ufaorgsintez, a major petrochemical produc- designed to identify and retain successful The programme was drafted using the methodology and products, software, as well state fund Sistema offering a wide range Company, SG-trans, and BNSA (renamed tion site in Russia, is the key asset of United and efficient managers at all subsidiaries. best global experience and in consultation as selling and client service skills. Following of pension schemes to the employees of into Targin in spring 2014). Petrochemical Company. The process flow Such employees will be preferred candi- with the leading experts and practitioners. training, each school graduate has an oppor- the companies belonging to the Company. of the enterprise that produces, inter alia, dates to fill in vacancies within new projects, The core principles of the programme are tunity to be employed by MTS Bank. The fund’s key task is to manage employ- High standards of Bashneft phenol, polypropene and acetone, comprises whether at their home companies or at other focus on practice and ability to use acquired ees’ pension savings in an efficient manner. In 2013, Bashneft received OHSAS 18001 a number of hazardous production sections. subsidiaries of the Company. knowledge directly in the production process. In 2012–2013, the programme was avail- Certificate for its occupational health and United Petrochemical Company takes equal Cross-functional interaction enabled the able in Moscow, Saint Petersburg, Ufa, and Since 2012, Sistema’s pension schemes safety management system and ISO 14001 occupational health and safety measures with In 2013, a candidate pool of 194 managers trainees to understand the specifics of all Khabarovsk. Over a year and a half of project have been administered by Big Pension Fund Certificate for its environmental manage- respect to all employees, including part-time was created to fill the Corporate Talent Bank, corporate business processes, get to known existence, more than 300 persons completed (BPF), a successor to the non-state pen- ment system. These certificates finalized and temporary workers, and subcontractors. and the first stage of assessment, remote their co-workers, including their powers and the programme, with 45 groups graduated. sion fund Sistema. The merger of the funds the formalization of the processes seen at All personnel must take occupational health assessment, was completed. The project functions, betters, and feel the team spirit. Over the period of time that the school exists, resulted in a greater scale of their activities, the company in recent years. For example, and safety, basic fire safety, first aid, and continues to evolve, with its key targets for 43 graduates changed their positions (47% and a stable and growing yield from the pen- Bashneft analysed all accidents over the last electrical safety training. United Petrochemi- 2014 being to establish a development pro- In the reporting period, 35 persons attended of all graduates employed as of the end of sion accounts of the Company’s employees. five years, identified certain systemic causes cal Company conducts accident response gramme and a system of common corporate the programme, and the corporate managers December 2013): 6 persons from the back That step also enabled the fund to reach and developed a corrective action plan that training and exercises on a regular basis. career lifts that would ensure an adequate completed training in 7 modules. office, and 37 persons were promoted at front a new level and become a top non-state formed the basis for its Functional Health, professional and career growth for the man- offices. In the Moscow region, 79% of newly pension fund in the country. The assets of Safety and Environment Strategy until 2017. All enterprises of the company have collective agers included in the Corporate Talent Bank. Transaction Officer School of MTS Bank hired tellers and 47% of all front-office person- the united Big Pension Fund totalled RUB 25 and personal protective equipment, and all In June 2012, MTS Bank launched a pro- nel are graduates of the School. billion in 2013, with its client base exceeding International standards provide inputs technical facilities are fitted with accident Safety Capsule of Bashneft gramme to train inexperienced specialists for 560,000 people. to draft in-house documents, which enabled prevention systems. All personnel of the In April 2013, Bashneft in collaboration with junior positions within the bank. The Transac- SOCIAL SAFEGUARDS the company to develop, for example, a cor- United Petrochemical Company are provided Sistema launched a development pro- tion Officer School addressed two objectives: porate and a standard risk register, hazard with personal protective equipment, as well gramme for the oil company’s key manag- on the one hand, help students and young Sistema takes care of the welfare and social observation cards that can be used to revise as with washing agents and neutralising ers, called “CEO School “Safety Capsule”. specialists who have just graduated from protection of its employees, providing them risk assessments under new conditions substances. Its objective is to develop the key manage- a university or a college find their first job with additional social safeguards, apart from Big Pension Fund's client base and brief employees before work, as well ment and industry-specific competencies (a person without work experience always fac- the benefits and safeguards required by law. as a number of other standards to organise Due to a high level of occupational health and exceeded 560,000 people and foster a safe and lean production culture. es employment difficulties), and, on the other Such safeguards vary based on the actual business processes with due account for safety measures, no accident has occurred at The managers of the production companies hand, reduce labour turnover and shortage needs of employees at different subsidiaries. in 2013. occupational safety issues. Guided by such the company’s enterprises since 2011. 50 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 51

HEALTHY LIFESTYLE In addition to their participation in all competi- tions held by Sistema, the employees of Det- The Company attaches great importance sky Mir practice actively football, volleyball, to work aimed to trigger interest in healthy life- basketball, paintball and table tennis. style and sport in its employees. The purpose of sport and recreational events is not only At MTS Bank, hockey, volleyball, football health improvement, but also team building. and tennis teams train on a regular basis, with training sessions in basketball, curling, For already eleven years, Sistema has held bowling, carting and paintball taking place an annual Spartakiade in which Sistema from time to time. The Bank’s teams compete Group companies, united in several teams, in corporate tournaments, friendly matches have participated traditionally. In the and various championships. competitions held in 2013, most Sistema companies from different Russian regions, RTI’s personnel participate in basketball, CIS states and India participated. The 21st bowling, volleyball and billiard tournaments, Corporate Summer Spartakiade Cup 2013 annual Football Cup, basketball tournaments was won by Bashneft’s team. In 2013, 1,335 in memory of A. L. Mints, Mikron Minifootball persons competed in Sistema’s corporate Championship, the Skier Day, and the Ice competitions, which is 30% more than Skates Day. the previous year.

SG-trans’ emergency response teams are certified by the EMERCOM of Russia Sistema’s subsidiaries also organise numer- ous sport events. For example, Bashneft promotes actively football, volleyball, hockey, table tennis, paintball, billiards and other kinds SG-trans creates its own standards, such as Key Safety Rules; Leader, of sport. In 2013, the company held the first fire brigade Behavioural Safety Audit; and Risk Assess- volleyball, table tennis and hockey cup. SG-trans is a leading operator of rolling stock ment. Six interactive briefing classes were for transportation of cargo in the petrochemi- equipped and a corporate overalls catalogue MTS holds, on a regular basis, the MTS cal and oil & gas sectors of Russia. The com- was created. In addition, all buses were fitted Group Minifootball Cup, the Health Day pany operates over 35,000 railway carriages, with safety belts in line with the Vehicle Safety (a family sport event), an annual beach vol- mainly tank cars used to carry inflammable standard, and a campaign started to equip leyball tournament in the Siberia macroregion, goods; and tank car maintenance and servic- vehicles with rear obstacle sensors and light- and a camping event in the South macrore- ing are hazardous operations, since there is reflecting elements. Defensive Driving training gion. Bowling, volleyball, chess, carting and a risk of fire, explosion or other emergency. was taken by 474 drivers. table tennis tournaments are held.

SG-trans comprises 9 repair and test sites capable of servicing 400 carriages simultane- RTI is an active participant in Sistema’s company-wide corporate sports competitions ously. For such hazardous sites, SG-trans set up 7 emergency response teams and repair teams, all certified by the EMERCOM of Rus- sia. The highly qualified professionals of these teams can perform rescue operations, extin- guish fires, and carry out decontamination and disinfection. Thus, in the reporting period SG-trans was the only private company in Russia to have a network of specialised emer- gency response and rescue teams.

BNSA improves safety level In 2013, BNSA (renamed into Targin in spring 2014) implemented corporate standards to improve safety culture. In particular, it imple- mented an internal accident investigation procedure and arranged communication of occupational health and safety incidents to all its employees. The Company also launched mass training of its employees in its corporate 52 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 53 eco

How does increased oil production reduce environmental footprint?

Sistema’s oil producing and refining Environmental companies are highly committed to improving protection their environmental performance. Minimizing their environmental footprint and implementing advanced environmental protection Environmental protection is an integral part technologies are among their priorities. of corporate social responsibility of the Com- pany. Sistema and its subsidiaries pay much attention to environmental issues, such as climate change and growing consumption of electricity, water and natural resources, and try to reduce their environmental footprints. The principle of strict compliance with environmental norms and participation in environmental protection programmes are fixed in the Sistema’s Code of Ethics and in in-house regulations of its subsidiaries.

The Company’s business covers several areas, so Sistema companies have different environmental objectives and programmes. The main environmental protection efforts are focused on improved energy saving, resource saving, waste management, and air, water and soil protection. However, the range of environmental protection projects pursued by the Company is not limited to the above- mentioned issues and covers a much larger circle of environmental issues. 54 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 55

AIR, WATER AND SOIL production and consumption waste. Compli- Environmental protection costs Electricity consumption by Sistema companies in 2012–2013, kW• h PROTECTION ance with environmental legislation is subject by areas, RUB million to ongoing monitoring at the Company’s sites. 10,500 Company 2012 2013 New-generation fuel Environmental protection at Bashneft In 2013, Bashneft launched production 2,396 Bashneft 5,780,168,000 5,331,579,000 Bashneft is the largest subsoil user among Careful attitude to soil at RZ Agro of a new-generation fuel with improved Sistema’s subsidiaries: in 2013 alone, RZ Agro’s core business is farming and United Petrochemical Company* – 711,087,000 operational and environmental param- the company extracted 16.1 million tonnes large-scale grain production. The Company eters, branded ATUM. AI-92 ATUM 9,000 MTS 662,258,071 736,914,547 of oil and produced 19.6 million tonnes of oil implements a range of measures to protect gasoline compliant with the Euro 5 products. Therefore, Bashneft pays special soil from pollution and depletion, in particular, RTI 105,288,370 113,401,565 standard was the first product under attention to environmental issues. analyses soil condition, monitors climate, that brand. Unlike with traditional gaso- SSTL 92,816,002 91,206,344 performs land reclamation, restores soil line, when ATUM fuel is used, exhaust 602 In 2013, Bashneft spent RUB 10.2 billion and improves soil fertility. 7,50 0 Targin (formerly known as BNSA) 50,428,804 57,738,673 gases contain less benzene, aromatic on environmental protection activities, which hydrocarbons and other carcinogenic 7,213 BPGC 4 0,9 97,271 41,200,682 is four times more than in 2012 (RUB 2.4 bil- In the reporting period, RZ Agro, for the pur- substances. The company invested lion). The Company is expected to spend pose of air, soil and water protection, per- Detsky Mir 47,874,000 74,582,165 RUB 8 billion in this project. over RUB 46.7 billion on these purposes formed agrochemical soil analyses and regu- 6,000 Other companies 62,329,189 50,018,991 in 2014–2018. lar soil and plant diagnostics, based on which fertilizer consumption rates were adjusted. Total 6,842,159,706 7,207,728,9 67 The company deploys new technologies, To prevent soil depletion the Company uses upgrades its equipment, reducing industrial sustainable crop rotation; and to reduce waste and emissions, and produces products pesticide load on soil and accelerate biologi- 4,500 compliant with the international environmental cal degradation of vegetable remains, it uses Electricity consumption at Sistema and subscriber base grow, the company standards. Key strategic areas of the com- subsurface tillage energy-saving technolo- In 2013, total power consumption by all Sis- consumes more energy, which inevitably pany’s activity as regards environmental gies and introduces necessary biological tema companies exceeded 7 billion kW• h ver- increases the load on power plants, affecting safety include: air, water and soil protection. preparations. 3,000 sus 6.8 billion kW• h in 2012. Such an increase in this way the environment. The company spends the largest share was caused mainly by the Company’s rapid of its funds on emission reduction. RZ Agro introduces new moisture reten- growth. MTS has developed and is implementing 448 tion technologies, takes steps to prevent 512 its own energy saving and energy efficiency In air protection, Bashneft implements a set soil erosion and restore forest belts, uses 1,325 Resource saving at United programme. The company uses special M2M 1,500 1,364 of measures that can be categorized into organic fertilizers and advanced efficient Petrochemical Company modules and telematic services for on-line WASTE DISPOSAL three main groups: powerful machines with low fuel and lubricant United Petrochemical Company is among monitoring of electricity consumption by its emission control and monitoring; consumption rates and minimal soil and air the leading petrochemical producers in infrastructure facilities. Using radio access Day-to-day operations of Sistema companies production facilities upgrades to reduce pollution. 632 Russia and, of course, does have an impact network software, MTS can change trans- produce various types of waste, including 271 direct and indirect atmospheric pollution; 0 on the environment. In the reporting period, mitter operation mode, reducing electricity hazardous and recyclable waste. All sub- increasing associated gas utilization. RESOURCE SAVING 2011 2012 2013 the company started the active phase consumption or switching the transmitter off, sidiaries of the Company have adopted of its resources saving and efficient use activi- when traffic is low. a responsible approach to waste disposal, In spring 2013, the Company and the Gov- Sistema’s Corporate Centre does not Air protection ties. In 2013 alone, energy saving measures striving to mitigate environmental pollution. ernment of the Republic of Bashkortostan have any significant environmental impact. Water protection implemented at Ufaorgsintez produced heat When building new base stations, MTS signed an agreement regarding protection However, the Company still tries to reduce Soil protection savings of RUB 33.8 million. In addition, the installs energy efficient equipment, including Safe disposal by Binnopharm of the air. In accordance with the agreement, its environmental footprint as much as pos- share of own steam generation in total produc- outdoor enclosures with a free cooling system Binnopahrm is a high-tech company devel- the Company assumed obligations to take sible by optimising its resource consumption. tion-related heat consumption increased by to cool the base station systems using the oping biotechnology medicines. Its opera- a number of measures on emission control In 2012, the Company shifted to using only 15% versus 2012. Work to make the Com- ambient temperature. Using energy saving tions produce specific waste requiring certain and monitoring, as well as upgrading its pro- energy saving bulbs, reducing its electric- pany more energy efficient will continue. technologies, MTS reduced specific electricity specific disposal procedures. Binnopharm duction facilities to reduce its environmental ity consumption in 2013 by 7–8% versus consumption by 3% or 20 million kW• h in 2012 disposes of its waste in line with the applica- footprint. All activities planned for 2013 were 2012. Today, the Corporate Centre uses only Energy efficiency improvement Energy saving at MTS versus 2011. In 2013, specific electricity con- ble laws, using different approaches to waste completed by the Company in due time, electronic documents and no longer prints at Bashneft Although the business of MTS has no direct sumption per one site decreased by circa 3%. management and disposal of different waste: with costs amounting to RUB 5.6 billion. out any materials of the Management Board, Energy efficiency improvement by reduc- environmental impact, its facilities, such waste raw materials, auxiliary substances or meetings of the Board of Directors or Board ing energy costs is among the key areas as cell sites, office buildings, sales outlets, All office buildings, call centres and other and pharmaceutical products (G class) are Improvement of the environmental committees. The Company launched portals of the company’s environmental protection call centres, etc., consume electricity. Most premises of MTS use energy saving and LED collected in PE bags, labelled and disposed; management system at United of the Management Board and the Board efforts. Bashneft implements the Energy Effi- power plants in Russia are gas- or coal- lamps, which enables the company to cut waste from microbiological laboratories Petrochemical Company of Directors, enabling real-time document ciency Strategy up to 2015 that sets the fol- fuelled and emit carbon dioxide. As traffic significantly its electricity consumption. or immunobiological production sites work- United Petrochemical Company continuously processing. Moreover, Sistema almost lowing targets: organise a highly efficient ing with group 3 or 4 pathogens (B class) improves its environmental management has no “current” paper documents related electricity consumption management system, is neutralized; system. Annually, the Company carries out to different areas, which reduces the volume upgrade production equipment and imple- waste solvents are delivered to special activities to reduce its environmental footprint. of paper documents. Electronic documents ment energy-saving technologies, optimise In 2013, Bashneft became the only Russian company to join disposal enterprises; In the reporting period, United Petrochemical reduce consumption of resources, e.g. paper, heat generation and consumption, and devel- waste luminescent mercury-containing the International Petroleum Industry Environmental Conservation Company completed stocktaking of sources toners and electricity. The Corporate Centre op own generation sources, including those tubes are collected in special containers and of hazardous emissions and sources of saves 25,000 A4 paper sheets annually. using associated petroleum gas (APG). Association (IPIECA). then delivered to special disposal enterprises.

* Electricity consumption by United Petrochemical Company in 2012 is included in the figure for Bashneft. 56 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 57

Disposal of telecommunication In the reporting period, Bashneft carried out activities to upgrade its oil and painted 530 metres of fencing. The top Centre. This service makes it possible In 2013, MTS installed special equipment by MTS managers of Sistema and its subsidiaries to notify the employees of the Centre processing facilities in the Republic of Bashkortostan, which covered equipment in a hard-to-reach taiga For the purpose of disposal, MTS sells equip- installed and decorated 12 benches with and the Environmental Management and ment with expired service life back to the rel- two areas: improving engine fuel quality with a complete shift to Euro-5 an exclusive design. Protection Committee for Pskov and Pskov area in the Primorie Territory, which evant manufacturer or to other companies Region about fire risks in the region. During products and increasing oil refining depth. A consistent implementation enabled WWF specialists to monitor through a tender or makes contracts with MTS fights against forest fires the fire hazard season of 2013, the Centre disposal companies. of such activities made it possible to increase the Nelson complexity In 2012–2013, MTS developed its Lesnoy employees sent almost 4,000 messages fires remotely in the region where Dozor (Forest Watch) IT system, a spe- about fire risk in the region’s forest every index describing secondary conversion capacity of a petroleum refinery the endangered Far Eastern leopard In the latter case, equipment is delivered cial complex for ongoing monitoring and month. In total, 80 fires were extinguished to a special site where it is disassembled, from 8.55 to 8.83 points. early detection of forest fires in the Central thanks to the service. lives. After the first year of operation, and scrap metal is sorted and weighed. Then Federal District, South region, Volga South, that equipment came to be believed a check is conducted to make sure that scrap Urals and Far East of Russia. Forests are Intourist develops metal has been prepared in accordance with Budyonny horse restoration ENVIRONMENTAL ACTIVITIES monitored using video cameras installed ecotourism in Altai one of the most efficient systems the GOST standard, inspected by a pyrotech- An important area of activity of RZ Agro is on base stations. The equipment transmits Every year, ecotourism, a new type of tour- of this kind in the country. nist, decontaminated, classified as explosion the revival of horse breeding in the country, Everyone Goes to Subbotnik video to the control station of forest fire ism when travellers’ environmental impact is safe and permitted to be recycled and melted. in particular restoration of the Budyonny Sistema and its subsidiaries organise annual services. In case smoke is detected, infor- as low as possible, becomes more and more After that, scrap metal is delivered to a dis- horse, one of the best sport horse breeds. subbotniks for their employees all over mation is communicated to the relevant for- popular in Russia. The Altai Republic is cur- posal company that will recycle it. Budyonny horses are a product of repro- the country. The Company and its subsidi- estry, which enables firemen to localize and rently one of the most exciting and pollution- ductive crossing of two valuable breeds — aries employ over 167,000 people, which extinguish fires. The technologies used in free Russian regions for ecotourism. In 2013, MTS contracted companies that the Thoroughbred and the Russian Don. is equal to the population of a not-so-small this project enable one specialist to monitor dispose of equipment abroad and meet strict The Budyonny has more champion qualities Russian town. The efforts of thousands large forest areas remotely and determine Here, Intourist has been developing a special international requirements to waste manage- than any other breed. It is especially true of employees of the Company enable it the exact coordinates of a fire, thus making economic zone for tourism and recreation ment and environmental protection, such of the horses bred at the 1st Cavalry Army to make a considerable contribution in keep- response more prompt. since 2009, focusing on the promotion as Basel Action Convention. Stud Farm in the Rostov region. There, ing Russian cities clean. of Altai Resort, a tourist complex situated in female horses have always had a higher In summer 2013, MTS helped extinguish a picturesque place surrounded by mountain BIODIVERSITY RESTORATION horse racing class than horses from any In May 2013, Sistema initiated a charitable and prevent over 180 fires in the forests chains, cedar and larch forests in the Maima other stud farm, which made it possible city subbotnik called “Environmental Landing of the Pskov region thanks to the use River bottom, 40 km away from Gorno- Land of the Leopard National Park to ensure good performance in the next Forces” at N. V. Tsitsin’s Botanical Garden of of the MTS Kommutator (MTS Switch) Altaisk. The company will promote further In 2012, Sistema supported a new research generations. the Russian Academy of Sciences, Moscow, service by the Pskov Region Forest Fire ecotourism in Altai. and environmental project aimed to protect which was dedicated to the 20th anniversary the endangered Far Eastern leopard and pro- RZ Agro helps improve the conditions of Sistema and MTS. The event slogan was vide assistance to the Land of the Leopard, in which horses live, and the quality of their “20 years for Moscow and Moscow dwell- a Far Eastern national park. The Company breeding and training. Thanks to the efforts ers.” In the Botanical Garden occupying 22 provides various assistance to the national of RZ Agro, the headcount of brood mares hectares, 3,000 employees of the Com- park to save the population of rear species, increased from 93 mares to 102 mares, and pany collected over 10 tonnes of rubbish the only subspecies of leopard that can the number of studs increased from 9 to 14 survive in the condition of a long semitropical over the last two years. In 2013, a stud horse summer and a severe snowy winter. won the Champion title at the 8th annual exhi- Stud from the 1st Cavalry Army Stud Farm bition Golden Horse, and many young horses in the Rostov region Currently, the majority of the population of that stud farm won prizes. Horses from of Far Eastern leopards, which decreased the stud farm demonstrate excellent results 40 times since the 1980-s, lives in the in horse racing, triathlon and show jumping. south-western part of the Primorie Territory. Trainers and jockeys come to the stud farm, Now no more than 50 such leopards live since its young horses guarantee successful in the wild nature in Russia. performance in the future.

Disposal of old handsets mobile phones were used in the region. In 2012, MTS launched a mobile phone Office equipment contains both substanc- collection and disposal campaign es that are hazardous for the environment in the Belgorod region within its Eco and precious metals that can be recycled. Project. Over 700,000 items of office Mobile phones, computers and office equipment and approximately 1.5 million equipment were collected at MTS’ shops. 58 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 59

Recognition of CSR projects of Sistema’s companies in 2012–2013 MATERIAL ASPECTS and Bashneft (since 2006). In the reporting Report profile AND SCOPE OF REPORT period, all such reports were verified by the Entity Project Public recognition Non-Financial Reporting Council of the Rus- Sistema Lift to the Future Ranked by Vedomosti / PricewaterhouseCoopers and Not-for-profit Organisation Forum The report presents aggregated data for all sian Union of Industrialists and Entrepre- Donorov among top charitable programmes for involving youth in social and economic companies where the Company is a control- neurs, and MTS’ report also received a GRI development GENERAL ling shareholder or can have a material Application Level B certificate. influence on the operations, and covers Winner of HR Brand award, March 2013 Dear Reader, this is the fifth Sustain- the period from 1 January 2012 to 31 Decem- MTS Ukraine Mobile Medicine Winner of a CSR business case competition in the Community Development category, ability Report (social report) of Sistema ber 2013. The report for this period details December 2011 JSFC. The previous social report covering the operations of the Company and its sub- 2010–2011 was published in 2012. The Com- sidiaries in all regions and countries where Best “Green” Social Project, Green Awards Ukraine 2011 pany releases a non-financial report every Sistema is present. two years. MTS Corporate volunteer movement In September 2012, the company ranked first among Russian operators in the first national The production and financial indicators con- Simply Be Good corporate social responsibility rating for its strong social responsibility The report describes the key areas and strat- tained in this report are based on the Interna- Charitable programme Give the MTS collected the Best Programme Promoting Volunteer Movement in Russia award egy of corporate social responsibility (CSR); tional Financial Reporting Standards (IFRS) Gift of Kindness of the Leaders of Corporate Charity 2012 awards, November 2012 social, environmental and charitable projects and relate to the Company in general (unless pursued by the Company and its subsidiar- otherwise expressly stated). No significant Ranked second as the Best Programme (Project) Promoting Volunteer Movement in ies in the countries where they operate; changes have been made with respect to Russia, February 2013 corporate mechanisms ensuring work quality the coverage or scope of, or measurement and reliability; characteristics and analysis techniques used in, this report compared Telecom Idea Time for Innovations award, December 2011 of relations with key stakeholders in terms to the previous reporting periods. The report National award Best Corporate Video by the Association of Communication and Corporate of sustainable development. The report is does not contain revised information from Media Directors of Russia, February 2013 published for all stakeholders. previous reports or any grounds for such revision, or any changes in the reporting Federal awareness and Runet Award 2012, November 2012 exhibition project Children on REPORTING PRINCIPLES periods or nature of business or assessment In November 2012, the international children’s online contest Interneshka ranked among the Internet methodology. top ten cases in a survey run by the Russian Public Relations Association (RPRA) Sistema’s Sustainability Report was drafted and Medialogia, a research firm in line with the GRI Sustainability Report- The report contains a full description of ing Guidelines. When drafting the report, the key areas of sustainable development, RTI Establishment of the Training Several certificates the Company was also guided by the United key social and community projects pursued Centre for Defence Industry Nations Principles for Responsible Invest- by the Company, and its corporate govern- Professionals ment and the guidelines of the Russian ance principles in terms of sustainable devel- Grant by the Russian President Conference awards Union of Industrialists and Entrepreneurs. opment. The report covers what we believe for government support of To determine important issues to be covered to be the most important projects demon- young researchers in the report, the Company also consulted strating the Company’s understanding of with the stakeholders. its responsibility to the economic, natural Mikron JSC Become an Engineer National PR development Silver Archer, February 2012 and social environment. K-Telecom Caucasus Wildlife Refuge World Land Trust environmental award for an outstanding contribution to the preservation For the purposes of this report, a working of environmental assets of Armenia, 2011 group was set up, comprising representa- The management of Sistema’s companies tives of all divisions and most of subsidiaries and of the Company itself uses reporting NVision Group My Teacher Participated in the 25th Russian Education Forum on invitation of Sistema. The working group determined data to assess how efficient the Company’s Participated in the 5th international exhibition congress Global Education on invitation a list of relevant topics to cover in the report, social and charitable programmes are, developed the report structure, outlined improve their corporate governance and HR Participated in the 9th Annual Conference of by Forum Donorov, October 2011 a general approach to covering the topics, management practices, and also as a tool Joint master’s and trainee Letter of recognition from the Governor of the Novosibirsk Region for the development selected and identified specialists responsi- to develop strategies of interaction with programmes of a project for setting up Basic Departments in major higher education institutions ble for information collection and processing. the stakeholders in the future. Thanks to structured organisation of work, Subproject Trainees. New View of Business nominated to HR Brand 2012 independent the report offers a clear view of the key sus- A number of companies within Sistema award in the Region category tainable development activities in the period release their own social reports offering JSC “Detskiy Mir — Nationwide charitable Best social project at the National Competition Golden Networks, 2010 covered. The report contents and information a more detailed description of approaches, Center” programme Get Involved! to be included in the report were deter- social projects and interaction with the Best charity campaign, National Goods and Services Award, 2011 mined based on Sistema’s Corporate Social stakeholders adopted by each of such SSTL India Unites To End Polio Now Letter of recognition from Aid-Matrix Foundation Responsibility Policy, Sistema’s Code of Eth- companies. In 2012–2013, eight companies (IUEPN) ics, experience of interaction with the stake- of Sistema released their own social reports. holders, and the current best sustainability Independent reports are also published reporting practices. by Sistema (since 2006), MTS (since 2008), 60 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013 61

GRI-G4 content index

GRI Indicator Disclosure Level of Location of disclosure/ GRI Indicator Disclosure Level of Location of disclosure/ reporting Comment reporting Comment

Strategy and Analysis G4-25 Basis for identification and selection of stakeholders with whom to engage + 10-11

G4-1 A statement from the most senior decision-maker of the organization (such as + 4-5 G4-26 Organization’s approach to stakeholder engagement 10-11 CEO, chair, or equivalent senior position) about the relevance of sustainability to the organization and the organization’s strategy for addressing sustainability G4-27 Key topics and concerns that have been raised through stakeholder engagement 10-11

Organizational Profile Report Profile

G4-3 Name of the organization + 2 G4-28 Reporting period (such as fiscal or calendar year) for information provided + 58

G4-4 Primary brands, products, and services + 2-3 G4-29 Date of most recent previous report (if any) + 58

G4-5 Location of the organization’s headquarters + The Company G4-30 Reporting cycle (such as annual, biennial) + 58 headquarters are located in Moscow G4-31 Contact point for questions regarding the report or its contents + Elena Rytsareva, Project Manager, Corporate G4-6 Number of countries where the organization operates, and names of countries + 2 Communications where either the organization has significant operations or that are specifically Function, Sistema JSFC, relevant to the sustainability topics covered in the report. +7 (495) 692 10 88 [email protected] G4-7 Nature of ownership and legal form + 2 G4-32 GRI Content Index + 60-61 G4-8 Markets served (including geographic breakdown, sectors served, and types + 2 of customers and beneficiaries) G4-33 External assurance + 58

G4-9 Scale of the organization + 2 Corporate Governance

G4-10 Total number of employees + 43-44 G4-34 Governance structure of the organization + 29-35

G4-11 Percentage of total employees covered by collective bargaining agreements. + 44-45 Ethics and Integrity

G4-12 Organization’s supply chain. + 37-41 G4-56 Organization’s values, principles, standards and norms of behavior such as codes + 36 of conduct and codes of ethics. G4-13 Significant changes during the reporting period regarding the organization’s size, + 2, 37-41, 44 structure, ownership, or its supply chain Environmental aspect

G4-14 Explanation of whether and how the precautionary principle is addressed by + 53 G4-EN3 Energy Energy consumption within the organization + 55 the organization G4-EN6 Energy Reduction of energy consumption Partially 55-56 G4-15 Externally developed economic, environmental and social charters, principles, + 41 or other initiatives to which the organization subscribes or which it endorses G4-EN13 Biodiversity Habitats protected or restored + 57

G4-16 Membership of associations (such as industry associations) and national or + 41 Social international advocacy organizations in which the organization: holds a position on the governance body, participates in projects or committees, provides substantive G4-LA1 Employment Total number and rate of new employee hires during + 43-45 funding beyond routine membership dues, views membership as strategic the reporting period, by age group, gender and region

Identified Material Aspects and Boundaries G4-LA6 Occupational Type of injury and rates of injury, occupational diseases, lost Partially 50-51 Health and Safety days, and absenteeism, and total number of work-related G4-17 All entities included in the organization’s consolidated financial statements + 58 fatalities, by region and by gender or equivalent documents G4-LA10 Training and Programs for skills management and lifelong learning that + 48-49 G4-18 Process for defining the report content and the Aspect Boundaries + 58 Education support the continued employability of employees and assist them in managing career endings G4-19 All the material Aspects identified in the process for defining report content + 58 Human rights G4-20 Aspect Boundary within the organization + 58 G4-HR3 Non-discrimination Total number of incidents of discrimination and corrective + 46 G4-21 Aspect Boundary outside the organization + 58 actions taken

G4-22 Effect of any restatements of information provided in previous reports, + 58 Society and the reasons for such restatements G4-SO4 Anti-corruption Communication and training on anti-corruption policies + 39-40 G4-23 Significant changes from previous reporting periods in the Scope and Aspect + 58 and procedures Boundaries

Stakeholder Engagement

G4-24 A list of stakeholder groups engaged by the organization + 10-11 62 SISTEMA JSFC SUSTAINABILITY REPORT 2012–2013

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