Sustainability and Annual Report 2019 How to Use the Report GRI indicators disclosed in the section AboutReturn Latvenergo to Group the Contents page GRI 102-48, 102-49, 102-50, 102-51, 102-52, 102-53, 102-54 – Foreword – About the Report About the Report – About the Group – Group Strategy Reporting period 1 January 2019 – 31 December 2019 Reporting frequency Annually, since 2009, in accordance with the Global Reporting Initiative (GRI) Guidelines. – Corporate Social About Latvenergo Group Responsibility Publication date 8 April 2020 – Foreword Publication date of the previous report 17 April 2019 – Awards – About the Report Navigate Global Reporting Initiative The Sustainability Report 2019 has been prepared in accordance with the GRI Standards Core level requirements and includes non-financial – About the Group information as stated by Directive 2014/95/EU of the European Parliament and of the Council and the Law on the Financial Instruments Market. between sections – Group Strategy Corporate Governance Scope of the report The report discloses information about Latvenergo Group (see the section About the Group). – Corporate Social Responsibility Content of the report The report discloses information about the topics and indicators that are important to the operations and sustainability of the Group. Link to an external source General Standard Disclosures are fully covered according to the GRI Standards Core level requirements. Based on the materiality assessment, Operating Segments – Awards 16 material topics relevant to the sustainability of the Group and 31 Specific Standard Disclosures are disclosed (see the GRI Index table). or another section in the report The report preparation process is described in the section Materiality Assessment. The methods for measuring data have not been altered Corporate Governance significantly compared to the sustainability reports for previous years. Sustainability Indicators Taking into account the Cabinet of Ministers’ decision of 8 October 2019 on complete unbundling of the transmission system assets from Operating Segments Latvenergo Group by 1 July 2020, the lease of transmission system assets is shown as discontinued operations in the financial statements of 2019. This affects profit and loss accounts compared to the data published previously. Annexes to the Sustainability Indicators Independent auditor's assurance report The assurance report on the Sustainability Report 2019 has been prepared by PricewaterhouseCoopers SIA. Sustainability Report Report format The report is available electronically: Annexes to the Sustainability Report on the Latvenergo website www.latvenergo.lv (in Latvian and English); Annual Report • in the GRI Sustainability Disclosure Database http://database.globalreporting.org/ (in English); Annual Report • on the Nasdaq Baltic website www.nasdaqbaltic.com (in Latvian and English). Contact information Please send any questions or suggestions regarding the Sustainability Report to: [email protected] GRI Standards disclosure requirements Core level Comprehensive level General Standard Disclosures (GRI 100) At least 33 disclosures from GRI 102 All disclosures from GRI 102 Specific Standard Disclosures (GRI 200, 300, 400) At least one topic-specific disclosure for each material topic All topic-specific disclosures for each material topic 7 2 Contents About Latvenergo Group About Latvenergo Group Corporate Governance Operating Segments Corporate Governance Operating Segments 5 Foreword 21 Corporate Governance Model 39 Generation and Trade 7 About the Report 22 Governance Bodies 40 Generation Sustainability Indicators 8 About the Group 28 Group Management 45 Trade 13 Group Strategy 29 Internal Control System and Risk Management 48 Mandatory Procurement Annexes to the 16 Corporate Social Responsibility 32 Group Procurement 49 Distribution Sustainability Report 19 Awards 34 Stakeholder Engagement 51 Lease of Transmission System Assets Annual Report Latvenergo Group Consolidated Sustainability Indicators Annexes to the Sustainability Report and Latvenergo AS Annual Report 54 Materiality Assessment 78 Green Bond Report 89 Key Figures 56 Economic Topics 80 GRI Index 91 Management Report 62 Social Topics 84 Abbreviations 97 Financial Statements 62 Product Responsibility 85 Independent Practitioner’s Assurance Report 97 Statement of Profit or Loss 66 Society 97 Statement of Comprehensive Income 67 Employees and the Work Environment 98 Statement of Financial Position 72 Environmental Topics 99 Statement of Changes in Equity 100 Statement of Cash Flows 101 Notes to Financial Statements 149 Independent Auditor’s Report 3 About Latvenergo Group – Foreword – About the Report – About the Group – Group Strategy – Corporate Social Responsibility – Awards Corporate Governance Operating Segments Sustainability Indicators Annexes to the About Latvenergo Group Sustainability Report Annual Report 4 GRI 102-14 Foreword of European Green Deal measures, which aim to make Europe the led to a reduction in thermal energy demand, and lower natural gas first climate-neutral part of the world by 2050. This plan provides and coal prices were observed. It should be noted that in 2019, for a substantial decline in GHG emissions as well as investment generation of electricity in the Baltics was 21% lower than in 2018. About Latvenergo Group in research and innovative technology to preserve the natural The biggest decrease in electricity generation occurred in Estonia, environment as much as possible. Latvia supports the criteria of the where operations of oil shale power plants were limited due to high – Foreword Green Deal in its National Energy and Climate Plan, which sets the prices of emission allowances. – About the Report basic principles, goals and action lines of the national energy and In 2019, 4.9 TWh of electricity and 1.8 TWh of thermal energy was climate policy for the next ten years. generated by Latvenergo Group’s power plants. Water inflow in the – About the Group At the time of preparation of the Latvenergo Group Sustainability Daugava was lower than the annual average inflow, which negatively – Group Strategy Report for 2019, global news agencies were chronicling the affected the electricity output by the Daugava HPPs. In 2019, the – Corporate Social accelerating spread of COVID-19, a new viral infection previously Daugava HPPs generated 2 TWh, which was 14% less than in 2018. Responsibility unknown to humanity. As of this report’s publication, a state of Due to the significant decrease in electricity generation in Estonia, emergency has been declared in many parts of the world, including the role of the CHPPs of Latvenergo AS and the amount of electricity – Awards in the Baltic States, and it is certain that the world has been hit by they generated increased considerably. It should be noted that in a new and different kind of economic crisis, which has paralysed 2018, the CHPPs of Latvenergo AS produced historically the largest Corporate Governance numerous business fields due to the threat of the virus. In 2020, the amount of electricity, but the record was broken again in 2019, economy and the energy sector will face serious challenges. when the CHPPs produced 2.8 TWh of energy or 5% more than a year earlier. Thus, in 2019, Latvenergo Group successfully took Operating Segments In a state of emergency, Latvenergo Group ensures appropriate operating modes in strategically important energy generation advantage of its diversified electricity generation capabilities, and facilities: the Daugava hydropower plants and combined heat and the CHPPs fulfilled the function of the provider of base capacities Sustainability Indicators power plants of Latvenergo AS as well as Sadales tīkls AS. The not only in Latvia, but also across the Baltics, while the modernised Group will continue to responsibly provide the entire economy with CHPPs provided an opportunity to generate electricity with as little Annexes to the such important services in this challenging time. GHG emissions as possible compared to other fossil fuel power Sustainability Report The future vision of Latvenergo is related to the development plants in the region. of the Baltic region and technologies. In times of change in the In 2019, Latvenergo Group supplied 6.5 TWh of electricity in retail, energy sector, and in the year of its 80th anniversary, the Group was more than a third of which was supplied outside Latvia. The total Annual Report Last year, 2019, was a big year in the operations of Latvenergo successfully operating in new business directions: electric mobility portfolio of electricity customers of the Group comprises about Group: we celebrated the 80th anniversary of the company with as well as trade of natural gas, solar panels and other electricity- 757 thousand customers, including more than 35 thousand excellent results in energy generation and new and creative related products. Presently, Latvenergo operates in all energy trade customers outside Latvia. initiatives in the organisation of our work. The Latvenergo CHPPs segments in Latvia, Lithuania and Estonia and remains one of the In 2019, Latvenergo Group successfully continued operations in set a new electricity generation record for the second year in a largest providers of energy supply services in the Baltics. new markets and actively offered new services under the Elektrum row, thus remaining the cornerstone of the Latvian energy supply brand in compliance with its chosen operational strategy. Energy system and a provider of base load