ACRA has assigned ESG-B, level ESG-3 to X5 Retail Group N.V. (hereinafter, X5 or the Company), which corresponds to a very high score in the field of the environment, social responsibility and governance.
According to the Methodology for Assigning ESG Ratings, a very high score in the field of the environment, social responsibility and governance means that increased attention is paid to these issues.
The rating is driven by the Company’s moderately negative indicators in the field of environmental impact, favorable injury rates (low) and social investment (high), as well as the high quality of corporate governance. In addition, the Company has policies, procedures and measurable performance indicators in the field of management of key industry ESG risks and a high level of compliance with best corporate governance practices.
X5 is one of Russia’s leading food retailers. The Company successfully develops various trading formats, both offline and online. As of September 30, 2023, the Company’s chain included 23,466 stores, including 20,761 Pyaterochka stores, 955 Perekrestok supermarkets, and 1,071 Chizhik hard discounters.
KEY ASSESSMENT FACTORS
The Company has a moderate level of impact on the environment as per the Agency’s methodology. X5 demonstrates a positive (low) wastewater discharge rate per unit of revenue in US dollars compared to the sample companies1. In terms of the specific indicator of water consumption per unit of revenue, expressed in US dollars, the Company received a moderate score. The Company received conservative scores for water consumption, energy consumption and greenhouse gas emissions per unit of revenue expressed in US dollars. At the same time, ACRA notes the positive dynamics of the last two indicators (decrease in specific indicators) for the analyzed period, which generally indicates the Company’s work to reduce its negative impact on the environment. Negative dynamics of specific indicators are observed in the water consumption and wastewater discharge segments.
1 Foreign and international companies in the Retail Trade sector were chosen as benchmarks.
The Agency also applied positive modifiers in view of the Company’s technological processes that ensure the industrial recycling of most of the generated waste, automation of the environmental monitoring and control system, including monitoring of greenhouse gas emissions, as well training its suppliers on environmental, social and governance aspects.
In addition, ACRA applied an additional positive analytical adjustment for disclosure of information on greenhouse gas emissions (Scope 3). An extremely small number of companies disclose this information in the Russian Federation.
In general, X5 has a relatively high level of management of environmental risks. The Company received maximum or high scores for most industry risks, which the Agency believes are relevant.
The Agency highly assesses the level of elaboration of environmental issues at X5 in comparison with best practices. The Company continuously assesses environmental risks, has created necessary centers of competencies and divisions, developed mechanisms for external communication regarding environmental issues, and has a public environmental strategy, as well as a program for increasing energy efficiency. The Company’s management includes an ESG committee. In addition, the supervisory board reviews ESG issues at its strategic committee. At the same time, the Company does not have certified energy and environmental management systems, which is an area for improvement for X5.
In terms of social responsibility, the Agency notes favorable gender equality at the Company, a low injury rate, and a high level of social investment in relation to revenues. Staff turnover rates lag behind the industry average indicators calculated for foreign and international companies in the Retail Trade industry. At the same time, ACRA notes a significant positive trend (decrease) in the staff turnover rate at X5 over the past four years. Despite the fact that the average salary at the Company in terms of purchasing power parity (PPP) is lower than international benchmarks, it is adequate for the local market. Salaries were assessed by the Agency based on PPP: the calculated salary indicator at the Company was adjusted by the appropriate ratio. The fatal injury rate had a constraining effect on the assessment. Additionally, in the Social Responsibility block, ACRA applied a positive modifier for the high percentage of women in the Company’s top management (44%), as well as for the high percentage of employee training coverage (86%).
For most of the industry social risks, which ACRA views as relevant, the Company received maximum or high scores. The Company received moderate scores for two risks due to the lack of relevant, in the Agency’s opinion, KPIs and (in a number of cases) internal regulations.
ACRA also highly assesses the level of compliance with best social responsibility practices at X5. The Company regularly publishes information about the gender composition of personnel, holds staff training, has formed specific mechanisms to protect employees’ rights, has a transparent personnel assessment system, takes into account ESG criteria when selecting suppliers, as has developed programs to support employees during relocation.
At the same time, X5 lacks certification of its occupational health and safety management systems, formal regulations to avoid sexual harassment in the workplace, and maternity support programs beyond accepted market practices. In addition, the Company does not regularly conduct external audits in the field of labor protection and industrial safety, and there are no quantitative targets for the share of purchases from local suppliers, which had a limiting effect on the assessment.
As part of the assessment of the quality of corporate governance as per the Agency’s methodology, the Company received high scores for the level of information disclosure (X5 annually publishes a report in line with the GRI standard) and the share of independent members of the board of directors, and a moderate score for the industry work experience of the members of the board of directors. At the same time, the stability of the Company’s board of directors received a conservative assessment.
During the assessment of the quality of corporate governance, the Agency additionally applied positive modifiers for the presence of an external conclusion on non-financial reporting and a report on adherence to principles and recommendations of the corporate governance code, for the absence of the CEO among the board of directors, as well as in view of the independence of the chairman of the supervisory board.
The Company has regulatory policies and internal regulatory documents for all corporate governance risks, and carries out the associated activities. The Company received maximum or high scores for most corporate governance risks.
ACRA highly assesses the Company’s corporate governance policies and procedures in terms of their compliance with best practices. The Company has adopted a code of business ethics, a dividend policy and a policy on interaction with stakeholders, there is supervision over corporate governance practices, and a risk management and compliance service.
KEY ASSUMPTIONS
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Foreign and international companies in the Retail Trade sector were chosen as benchmarks.
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Data provided by X5 in the questionnaire and the report on social responsibility and corporate sustainable development is reliable and comparable to benchmarks.
RATING COMPONENTS
Final ESG rating: ESG-B.
Final level: ESG-3.
ESG rating determination: very high assessment in the field of the environment, social responsibility and governance. Increased attention is paid to the environment, social responsibility, and governance issues.
E assessment: ESG-3.
S assessment: ESG-5.
G assessment: ESG-1.
ADDITIONAL INFORMATION
The ESG rating has been assigned in accordance with the Methodology for Assigning ESG Ratings and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
An ESG rating has been assigned to X5 Retail Group N.V. for the first time. The ESG rating is expected to be revised within one year following the publication date of this press release.
The ESG rating was assigned based on data provided by X5 Retail Group N.V., information from publicly available sources, and ACRA’s databases.
The ESG rating is solicited and X5 Retail Group N.V. participated in its assignment.
In assigning the ESG rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodology.
No conflicts of interest were discovered in the course of the assessment process.
The assigned ESG rating is not a credit rating.
