ACRA has affirmed ESG-AA, level ESG-2 (ESG-B on the scale valid until March 25, 2024) to “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY (hereinafter, ROSSETI, or the Company; previously known as PJSC FGC UES), which corresponds to a very high assessment in the field of the environment, social responsibility, and governance. According to the Methodology for Assigning ESG Ratings, a very high ESG assessment means that the Company pays increased attention to environmental, social responsibility, and governance matters.
The rating is based on the Company’s favorable environmental, social responsibility and corporate governance indicators compared to companies in the sample. In addition, the Company has policies and procedures for managing individual industry ESG risks, as well as a relatively high level of compliance with best practices.
The ROSSETI Group transmits and distributes electricity to 82 regions of the Russian Federation in all eight federal districts. ROSSETI collects and processes information on the transmission of electricity along 125 interstate power transmission lines that connect the Russian Federation's energy system with the energy systems of neighboring states.
KEY ASSESSMENT FACTORS
The Scope 1 greenhouse gas emission per unit of revenue indicator is considerably lower the industry averages. The waste generation indicator, on the contrary, exceeds the industry averages. At the same time, in terms of specific indicators for water and energy consumption, emissions of pollutants, and wastewater discharge per unit of revenue, the Company received a moderate score because these indicators are close to the industry averages.
When assessing the Company, the Agency applied positive modifiers in the area of environmental impact due to the high proportion of discharged wastewater that meets the standard of clean water (100%).
At the same time, the Agency applied a negative modifier for the presence at the Company of equipment containing polychlorinated biphenyls, which are hazardous to human health.
Overall, the Company has a high level of environmental risk management. Due to the availability of relevant regulatory documents, risk management measures and measurable performance indicators, the Company received maximum scores for managing the following risks: risks of lack of monitoring of environmental trends/technologies, risks for decarbonization of the economy, physical climate risks, risks of improper waste management and risks of switching to other types of motor fuel/electric transport.
The Company received moderately high scores for most industry environmental risks that ACRA considers to be relevant. The Agency notes that the management of these risks, in particular, the formation of measurable performance indicators, is an area for improvement for the Company.
The Company received a high score for compliance with best practices in the Environment block. The Company constantly assesses environmental and climate risks, has created the necessary competence centers and divisions, developed external communication and feedback mechanisms for requests on environmental issues, and has adopted a new version of the environmental policy of the electric grid complex, a sustainable development policy, and a climate change policy. The Company has certified environmental and energy management systems, as well as a program to improve energy efficiency with specified performance targets.
The Agency notes that the Company has approved a work plan for the annual installation of bird protection devices until 2028, yet it does not have a comprehensive program for the conservation of biodiversity that includes corporate principles and approaches to the conservation of biodiversity, as well as measures to preserve natural resources. At the same time, quantitative targets for biodiversity conservation are recorded in separate documents of subsidiaries of the ROSSETI Group, including in investment programs. The Company does not conduct a scenario analysis of the assessment of the impact of climate factors, which also had a restraining effect on the assessment of the block of compliance with best practices. These areas are potential areas for improvement for the Company.
ROSSETI has a relatively favorable level of gender equality and injury rate, as well as a relatively high level of social investments relative to revenues. The fatal injury rate and employee turnover correspond to the industry averages. At the same time, the level of the average salary at the Company in terms of purchasing power parity (PPP) is lower than international benchmarks, but adequate in the local market. Salaries are assessed by the Agency according to PPP: the Company’s calculated indicator is adjusted by the appropriate coefficient.
In addition, ACRA applied a number of positive modifiers due to the Company’s significant contribution to the development of the social sphere in its regions of presence, use of automated safety monitoring systems, expanded social package for employees, as well as due to the high rate of employee training (100% according to the Company) and annual indexation of wages for all employees (100% according to the Company).
Most of the social risks, which in the Agency’s opinion, are relevant to the Company, have been assigned the highest scores. At the same time, the development of measurable performance indicators for a number of risks reviewed by the Agency is a potential area of improvement.
In terms of using the best social responsibility practices, the Company received a high score, and its approach to solving relevant issues generally corresponds to the best international practices. The Company discloses its gender composition on an ongoing basis, it has a corporate parental support program in addition to state guarantees, and it maintains housing programs for employees. The Company has an HR training and development system that combines intra-corporate and external training; the Company also has a program for partnering with universities, which allows it to maintain personnel sustainability. In addition, the Company regularly conducts an external OHS audits, there is a certification of the OHS management system, as well as an employee performance review system based on transparent key performance indicators (KPIs) covering 100% of employees.
The lack of formalized procedures and regulations to avoid sexual harassment at work, as well as the lack of inclusive employment and women’s leadership programs, had a restraining effect on the assessment of compliance with the best social responsibility practices.
Despite the fact that the Company’s employees are not trained in the principles of respect for human rights, 100% of hired employees are required to familiarize themselves with the principles and rules of professional ethics and internal corporate conduct set out in the Company’s Code of Corporate Ethics and Official Conduct. As part of the integration of human rights compliance factors, ROSSETI will develop a dedicated internal regulation on human rights and ensure that its employees are trained in this area.
The Company is a natural monopoly, and therefore its corporate governance structure has certain specifics. 75% of the Company’s authorized capital belongs to the Russian Federation. In view of this and according to the Agency’s methodology, the shareholding concentration factor is irrelevant for the Company. The Company received moderate scores for the independence and stability of the board of directors. The quality of strategic planning is assessed as moderately high. At the same time, ACRA is positive about the work experience of the board members, as well as about information disclosure. ROSSETI annually discloses its non-financial reports prepared in accordance with the GRI Standards and ensures an independent external audit of these reports.
The Agency applied positive modifiers due to the availability of the Company’s report on compliance with the principles and recommendations of the Corporate Governance Code, disclosure of audit reports on quality control systems, and the availability of a remuneration system for members of executive bodies and other key executives of the Company, which includes KPIs that create material incentives to achieve the priority corporate goals and objectives in the field of sustainable development.
At the same time, the Agency applied a negative modifier for a case of bribery among the management of one of the Company’s subsidiaries over the past four years, which is confirmed by a criminal case.
ACRA is of a high opinion on the level of corporate governance risk management at the Company. The Company received the highest score for all relevant corporate governance risks, due to the availability of regulatory documents, risk management measures, and measurable performance indicators.
The Company demonstrates a fairly high level of compliance with the best corporate governance practices. The Company has adopted codes of corporate ethics and corporate governance; corporate governance practices are supervised, and there is a risk management and compliance service. ACRA notes that the Company has not approved a dedicated policy on related-party transactions, and no ESG strategy has been disclosed. The absence of a separate ESG committee under the board of directors also had a constraining effect on the assessment of the quality of corporate governance. At the same time, certain matters of sustainable development, including human resources management, as well as corporate governance, are supervised by committees under the board of directors.
KEY ASSUMPTIONS
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Companies of the sector Power & Utilities: Grids were selected as benchmarks (peer companies).
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Indicators for the Rosseti Group were used when analyzing quantitative data.
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Active staff turnover indicator for the Rosseti Group was used when analyzing the Company’s staff turnover.
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Data presented by the Company in the questionnaire and the report on social responsibility and corporate sustainable development is reliable and comparable to benchmarks.
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ROSSETI will draw up an internal regulation on human rights and ensure that its employees are trained in this area by the next rating review date.
RATING COMPONENTS
Final ESG rating: ESG-AA.
Final level: ESG-2.
ESG rating determination: very high assessment in the field of environment, social responsibility and governance. Increased attention is paid to the environment, social responsibility and governance matters.
E assessment: ESG-4.
S assessment: ESG-2.
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.
The ESG rating of “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY was published by ACRA for the first time on September 30, 2022. The ESG rating is expected to be revised within one year from the publication date of this press release.
The ESG rating was assigned based on data provided by “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY, information from publicly available sources, and ACRA’s databases.
The ESG rating is solicited and “Federal Grid Company – ROSSETI”, PUBLIC JOINT-STOCK COMPANY participated 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 methodologies.
No conflicts of interest were discovered in the course of the assessment process.
The assigned ESG rating is not a credit rating.
