Risk management in sustainable development [103Management approach: Disclosure of ESG risks and the system for managing these risks at the Company., 102–15]

The Risk Management and Internal Control Framework employed by Inter RAO identifies, monitors, and manages sustainable development risks, among other things. Risk assessment and management in matters concerning sustainable development is carried out at all levels of the Group’s corporate governance.

At the highest level of management, the Board of Directors reviews sustainable development risks as part of the Group’s five-year strategy and also each year when approving the Group’s critical risk map. Sustainable development risks are also incorporated into the risk appetite of the Inter RAO Group, which contains regulations on occupational safety, climate change, and responsible business. The Company monitors the implementation of risk management measures in matters concerning sustainable development, updates risk assessments, and also confirms that the risk appetite has not been exceeded on a quarterly basis when preparing management reports.

As a member of the UN Global Compact, PJSC Inter RAO makes every effort to comply with the fundamental principles of the UN Global Compact in such areas as human rights, labor relations, environmental protection, and anti-corruption. The Inter RAO Group shares the UN Sustainable Development Goals (SDGs) and contributes to their achievement, in part through timely identifying, assessing, and responding to sustainable development risks.

Risks associated with climate change

Risks associated with climate change are among the top priorities when preparing the Inter RAO Group’s plans and development strategies.

Climate change could primarily affect the production and output of thermal and electric power.

Impact of climate change on performance indicators

As the average annual air temperatures increase in regions where the Company’s power plants are located, the length of the heating season will decline, which will result in a reduction in the supply of thermal power and lower revenue for heat supply companies compared with previous periods. At the same time, high temperatures during the summer will increase demand for electric power and boost the revenue of the Group’s generating companies.

The impact of climate change on production indicators cannot be accurately predicted. But a steady increase in average annual temperatures will most likely lead to a redistribution of electricity generation throughout the year due to increased demand for air conditioning during the warmer seasons and decreased demand for heat in the winter. Considering that the Group’s assets consist of both thermal and electric power generating assets, this situation does not pose any significant risks (according to expert estimates).

Regulatory control

There is currently a trend in Russia and around the world to toughen legislation regulating greenhouse gas emissions as countries are using more and more renewable energy sources, which may entail financial risks for the Group’s companies.

The Inter RAO Group is proactively responding to risks associated with the regulation of greenhouse gas emissions both in and outside of the Russian Federation, including by:

  • Conducting measures to take inventory and reduce greenhouse gas emissions in accordance with the approved international standards for global corporate carbon reporting
  • Voluntarily disclosing information about greenhouse gas emissions by the Group’s companies
  • Declaring the need to verify carbon reporting in the Group’s risk appetite
  • Monitoring international and Russian initiatives as well as changes in legislation concerning climate regulation
  • Assessing the potential for reducing greenhouse gas emissions
  • Improving energy efficiency and ensuring the technological renovation of equipment (including within the framework of the capacity modernization program, CCAs for new energy facilities, etc.) in order to ensure significant energy savings and reduce greenhouse gas emissions as a result.

Occupational health and safety risks

The Company views its employees as its number one asset, which is one of the key principles of its corporate policy. In this regard, the Group’s companies attach great importance to occupational safety issues to ensure the maximum protection and safety of their employees involved in production. The Group has Occupational Safety Committees that are in charge of improving methods for the safe organization of work and verifying workplace conditions.

The Inter RAO Group’s list of critical risks includes the risk of negative consequences resulting from incidents due to the violation of occupational, industrial, fire, or environmental safety requirements during production activities. The Company pays special attention to critical risks and also regularly monitors and reports on the effectiveness of critical risk management on a quarterly basis.

The Group also takes into account occupational safety and health risks when preparing its strategy. The Group’s strategic priority in occupational safety and health (OSH) is to continuously improve processes that ensure the safe performance of work and are inextricably linked to adapting the best world practices in occupational safety. The Group’s risk appetite also determines the minimum threshold for funding measures to improve working conditions and occupational safety.

Continuously reducing the level of industrial injuries and accidents is also a priority focus of occupational and industrial safety.

Risks of affordable and clean energy

The Inter RAO Group is committed to ensuring the uninterrupted supply of l ow-cost, reliable, and clean electric and thermal power to all consumers.

The Inter RAO Group views the following as risks that could affect its goal of providing affordable and clean energy:

  • Change in sales volumes of electric power and capacity (net supply)
  • Diminished readiness of equipment for work (accidents in the electric power industry)
  • Negative consequences from incidents due to violations of occupational, industrial, fire, or environmental safety requirements during production activities
  • Failure to achieve project success indicators (including construction and commissioning deadlines)

Key measures implemented by the Group to manage the risk of clean and affordable energy:

  • Support and implementation of measures to enhance the reliability of electric and thermal power supply to consumers and prevent shortages of electric and thermal power from expanding
  • Implementation of comprehensive measures to conserve energy and improve energy efficiency at enterprises, publicly funded institutions as well as housing and public utility facilities, including through participation in working groups on energy and engineering within the regional authorities, and to increase the availability of energy infrastructure in the regions by organizing and conducting practical exercises on the basics of energy conservation for school and university schools and employees at enterprises
  • Collaboration with the regional authorities and local governments on solving environmental problems and creating conditions to improve people’s quality of life, including participation in the work of regional coordination councils for environmental protection and sustainable nature management

Information about possible circumstances that objectively impede activities

In the course of its operations, Inter RAO has to deal with a number of circumstances that objectively have the ability to impede the Group’s activities (including earthquake-prone zones, seasonal flooding areas, terrorist acts, and other circumstances). As part of corporate risk management, the Group closely monitors the impact these factors have on the results of operations in the Russian Federation and in the regions where the Group has assets. The majority of these factors are beyond the control of the Group’s management (including natural disasters, terrorist acts, and other force majeure circumstances) and, if the likelihood of these factors increases, management will take all possible measures to limit their negative impact and prevent possible losses.