CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY REPORT 2017 CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY REPORT Table of Contents Message from the Director General 6 OUR REPORT ROSSETI IN 2017: RESULTS AND Development of the AchIEVEMENTS Reporting System 10 Identified Material Topics 10 Operating Data Collection and Financial Methodology 12 Performance 42 Dividend Payment 43 Principal Provisions 4 of the Dividend Policy 1 of ROSSETI 43 Profit Distribution 44 Procurement 44 COMPANY PROFILE International Projects, Nationwide and Regional Events 48 Company History 16 International Projects 48 Business Model 18 Regions of Operations 20 Main Activities 23 Customer Relations 23 High-Quality and Accessible Power Infrastructure 25 2 Innovation 26 Governance 27 HUMAN RESOURCE Charters and Membership DEVELOPMENT in Associations 31 Basic Principles of and Approaches to Human Resource Management 52 Personnel Characteristics 52 Youth Policy 53 Occupational Guidance and Cooperation 5 with Schools 56 Cooperation with Educational Institutions 56 Development of Young Employees’ Competencies 57 OUR SUSTAINABILITY Remuneration StRATEGY and Social Support 57 Cooperation with the All-Russian Sustainability Priorities 34 Electrounion 58 Stakeholder Engagement 35 Personnel Training Risk Management 37 and Human Resource Corporate Ethics Development 59 and Anti-Corruption 39 Occupational Safety 59 Corporate Culture 61 Corporate Social Responsibility and Sustainability Report 2017 Social Responsibility and Sustainability Corporate Awards I T and Achievements 61 SSE 3 O R SocIETY RELATIONS LIST OF DIAGRAMS External Communications 64 Diagram 1 — ROSSETI Materiality Matrix Based on the Results 12 of the Stakeholder Survey Corporate Website 64 Diagram 2 — ROSSETI Group History 16 Mass Media 64 Diagram 3 — Business Model of the ROSSETI Group 18 Social Networks 64 Diagram 4 — Regions of Operations of the ROSSETI Group 20 Social and Diagram 5 — Main Subjects of Customer Inquiries 23 Charitable Projects 65 Diagram 6 — Changes in Inquiries in 2013–2017 23 Diagram 7 — Changes in the Number of Customer Service Offices 25 and Face-to-Face Inquiries in 2013–2017 Diagram 8 — Changes in Network Connection in 2013–2017, pcs. 25 Diagram 9 — ROSSETI’s Governance Structure 30 6 Diagram 10 — Subjects of the Issues Considered by the Board 31 of Directors in 2017 Diagram 11 — Map of the Mutual Influence of the ROSSETI Group’s 35 Stakeholders ENVIRONMENTAL Diagram 12 — Subjects of Allegations on the Hotline in 2017 39 PRotEctION Diagram 13 — Opex Structure, mn RUB 42 Diagram 14 — Structure of Noncurrent Assets, mn RUB 43 Diagram 15 — Structure of Current Assets, mn RUB 43 Diagram 16 — Cost Breakdown by Activity, thsd RUB 44 Understanding Diagram 17 — ROSSETI’s Economic Effect by Year 44 of Environmental Diagram 18 — Regulated Procurement Procedure Breakdown 45 Responsibility 68 by Purchasing Method; Changes in Procurement Environmental on the Electronic Trading Floor Management 68 Diagram 19 — Stages of Procurement Procedures 45 Diagram 20 — Share of Purchases from Small and Medium-Sized 45 Key Environmental Businesses Performance Indicators 69 Diagram 21 — Personnel of the ROSSETI Group by Occupational 53 7 Air Protection 69 Category and by Gender Water Protection Diagram 22 — Personnel of the ROSSETI Group by Educational 53 Level and by Age and Conservation 69 Diagram 23 — Number of Student Labor Brigades of the ROSSETI 56 Land Protection Group and Conservation 70 Diagram 24 — Average Monthly Pay in the ROSSETI Group 58 Waste Management 70 and in Russia, thsd RUB Biodiversity Conservation 70 Diagram 25 — ROSSETI SDCs’ Occupational Injury Rates 60 and Causes of Injuries Energy Consumption Diagram 26 — Information on ROSSETI in Media Outlets by Attitude 64 and Energy Efficiency 70 Diagram 27 — Payments for Adverse Environmental Impacts 68 Voluntary in 2017 Environmental Diagram 28 — Water Consumption in 2016–2017, thsd cbm 69 Initiatives 71 Diagram 29 — Waste by Hazard Class in 2017, thsd tonnes 70 LIST OF TABLES Table 1 — List of Material Topics 11 Table 2 — Targets in the “Getting Electricity” Ranking 26 APPENDICES of Doing Business Table 3 — ROSSETI Group’s Membership in Professional and 31 Industry Associations Table 4 — Sustainability Goals of the ROSSETI Group 34 Compliance Table Table 5 — Stakeholder Engagement of the ROSSETI Group 36 to the GRI Standards 74 Table 6 — Risk Management of the ROSSETI Group 38 General Disclosures 74 Table 7 — Operating Results of ROSSETI in 2017 42 Topic-Specific Table 8 — Financial Results of ROSSETI in 2017 42 Disclosures 76 Table 9— Staff on the Payroll by Subsidiary/Dependent 52 Sector Disclosures 77 Company in 2017 Table 10 — Awards and Achievements of the ROSSETI Group’s 61 External Assurance 78 Employees in 2017 Glossary Table 11 — Environmental Protection Expenses of the 69 and Abbreviations 81 ROSSETI Group in 2017 8 Contact Information 82 Table 12 — Gross Air Pollutant Emissions of the ROSSETI 69 Group in 2016–2017, tonnes www.rosseti.ru/eng Message from the Director General Dear Colleagues: We are pleased to present to you the reduced by almost 20% since 2012 and 2017 Corporate Social Responsibility and continues to decrease. Electricity losses Sustainability Report of ROSSETI. We have gone down by 11% over the same hope that this document, traditionally period. prepared by our Company, will allow all In these circumstances, our strategic goal stakeholders to learn about the ROSSETI in the medium term is to build a smart Group’s activities and our effectiveness in grid, which will make the electric grid the economic, environmental, and social sector much more efficient and reduce spheres. Our objectives and principles of energy losses. ROSSETI is formulating a sustainability have not changed for many strategy for the digitalization of electric Director General and Chairman years. We believe that only being socially grids and already carrying out several of the Management Board oriented, environmentally friendly and pilot projects. Russia’s first digital substa- Pavel Livinsky customer focused can enable the electric tion was put into operation in Krasnoyarsk grid sector to achieve high financial in 2017. The operation of the substation performance and long-term development. is controlled and monitored using iSAS, Our results in 2017 confirm that we have a Russian-made software and hardware taken an appropriate approach. system. Created in the Kaliningrad Re- The sustained development of the ROS- gion, the Network and Small Generation SETI Group as a national grid operator is Control Center is the key element of a inseparable from changes in households’ smart grid with an integrated automated and industrial producers’ electricity con- information system of operational process sumption. In 2017, after two difficult years, control. After the test operation of these the Russian economy recovered from pilot projects, it is intended that they will recession and grew by 1.5%. Economic be extended to all Russian regions and growth in the reporting year was accom- that the digitalization of the electric grid panied by energy consumption (+1.7%). sector will be completed by 2030. Increasing loads made it essential to With new global challenges, ROSSETI will continue securing a reliable and uninter- not be able to become more competitive rupted electricity supply for all customers. without pursuing continuous technological The number of grid accidents has been development and introducing innovative Corporate Social Responsibility and Sustainability Report 2017 Social Responsibility and Sustainability Corporate ROSSETI ROSSETI 6 technology. The Company approved the of the Electric Grid Sector. Additionally, the Russian Union of Industrialists and modernization program for the electric ROSSETI continued in 2017 to implement Entrepreneurs (RSPP): ROSSETI became grid sector in 2017 to implement innova- environmental measures in accordance a leader in RSPP’s Responsibility and tions, enhance electricity supply reliability with the plan adopted for the Year of Envi- Transparency index in 2017. and make its grid infrastructure environ- ronmental Protection in Russia. A major This Report is a result of close coopera- mentally friendlier. The effectiveness accomplishment was measures taken by tion between the Company and stakehold- of the Company’s innovation policy was ROSSETI in accordance with the Stock- ers in 2017. It is our intention to continue appreciated by the Russian International holm Convention to eliminate the use of to communicate openly and constructively Energy Forum in Saint Petersburg on power equipment containing polychlori- with all those who are interested in the April 25, 2017. ROSSETI was recognized nated biphenyls. The Company’s achieve- sustained development of the Russian as the best innovation company in the ments in environmental protection were electric grid sector. electric power industry and became the recognized by the Live Planet television prizewinner in the category “For a Con- network and the Modern Media Research tribution to the Innovative Development of Institute (MOMRI). For the first time in its Sincerely, the Fuel and Energy Sector.” history, ROSSETI was ranked among the The scale of the ROSSETI Group’s opera- top three companies in their environmen- Pavel Livinsky tion, along with the strategic significance tal responsibility ranking in 2017. Director General and Chairman of the energy industry, implies high social ROSSETI strives to systematically en- of the Management Board responsibility