ACRA has affirmed the ESG rating of PJSC RusHydro (hereinafter, RusHydro or the Company) at ESG-AA, level ESG-2 (ESG-B on the scale effective before March 25, 2024) 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 score in the field of the environment, social responsibility and governance means that increased attention is paid to these issues.
The rating is based on the Company’s moderate environmental impact indicators, favorable social responsibility indicators compared to peer companies, and high quality of corporate governance. In addition, the Company has policies and procedures for managing key industry ESG risks and a high level of compliance with best practices.
RusHydro is one of the world’s largest public hydroelectric power groups. Its activities are focused on electric and heat energy generation and sales in Russia’s wholesale and retail markets.
KEY ASSESSMENT FACTORS
The Company’s indicators for water consumption and wastewater discharge emissions per unit of revenue are close to industry averages. At the same time, the Company received conservative scores for specific indicators of waste generation, energy consumption, greenhouse gas (GHG) emissions, and pollutant emissions. Most indicators per unit of revenue in US dollars did not undergo significant changes (with the exception of negative dynamics in the energy consumption indicator).
At the same time, the Agency took into account the movement of indicators per unit of revenue in rubles because most of the Company’s revenues are denominated in the national currency. ACRA highlights the reduction of the Company’s negative environmental impact: over the past three years, the Company’s specific indicators for most environmental metrics analyzed as part of the rating process (waste generation, water consumption, GHG emissions, and wastewater discharge) have decreased per unit of revenue in rubles.
In the Environmental Impact block, the Agency applied positive modifiers in view of the significant share of electricity generated by the Company using renewable energy sources, provision of 99% of water resources via water recycling, as well as due to the use of automated environmental monitoring and control systems.
The Agency also applied an additional analytical adjustment for the verification of the results of the climate project to reduce specific GHG emissions at Vladivostok CHPP 2 by converting the station from coal to gas1.
The Company actively manages environmental risks. The Company received the maximum score for most relevant environmental risks due to the presence of corresponding regulatory documents, risk management measures, and measurable performance indicators. The approval of the corresponding KPIs continues to be an area for improvement.
The Agency assesses RusHydro’s compliance with environmental best practices as high. The Company regularly assesses environmental and climate risks, implements various projects for the conservation of biodiversity, has a public environmental policy, as well as water and energy efficiency programs. The Company uses a mechanism for external communication with stakeholders on environmental impact issues, carries out certification of environmental and energy management systems, and also has a center of competencies and a department for environmental issues. The Company calculates and verifies the carbon footprint of its products and also maintains partnerships with scientific research institutes and other organizations that specialize in addressing environmental problems.
The lack of external certification of GHG emission data for Scopes 2 and 3 (the Company discloses information and undergoes a certification procedure only for Scope 1) has a restraining effect on the assessment of compliance with best practices. In addition, the Company does not conduct scenario analysis to assess the impact of climate factors. All of the above are potential areas for improvement.
The Company has a high level of social investments relative to revenues, a low injury rate, and high gender equality indicators. The fatal injury rate is in line with the industry averages. The personnel turnover rate and the average salary limit the assessment. The Agency notes the positive dynamics of indicators for wages (growth) and fatal injuries (decline), although the personnel turnover and overall injury rate indicators have, on the contrary, grown, which impacted the final assessment of these indicators.
ACRA notes that the Company has many social initiatives, which allowed the following positive modifiers to be applied: 1) the Company’s substantial contribution to the social sphere in the regions of presence; 2) use of automated safety systems; 3) offering employees a broader social package compared to other companies in the industry, including additional social benefits, personnel development programs, corporate pensions, life insurance, etc.; 4) annual wage indexation for 100% of employees at no lower than the inflation rate; 5) the presence of a corporate university.
RusHydro received the maximum score for all relevant social risks. The Company has established policies and measurable performance indicators, and the existing procedures and measures ensure that these risks are managed and minimized.
RusHydro regularly discloses its gender composition, has drawn up a corporate ethics code, has established mechanisms that prevent discrimination at the workplace and protect employees’ rights, and discloses the share of purchases from small and medium-sized businesses. The Company has established a corporate program to improve employees living conditions, a private health insurance program for all employees, partnerships with universities, and an external communications mechanism. The Company also has a personnel evaluation system with transparent KPIs, covering 100% of employees. RusHydro provides one-time childbirth payments, maternity benefits for up to three years, preschool care compensations, compensations for children’s trips to health camps, and other measures. At the same time, these parental support programs, in the Agency’s opinion, are comparable to those implemented at other large Russian companies.
ACRA notes that RusHydro does not have a supplier code, inclusive programs, women’s career and leadership programs, and does not conduct external occupational health and safety audits for most of its production assets.
RusHydro’s largest shareholders are the Russian Federation (62.2% of the share capital) and state-owned VTB Bank (PJSC) (12.4%). In this regard, according to ACRA’s methodology, the concentration of shareholding factor is irrelevant for the Company and has not been assessed by the Agency. Scores for the stability of the board of directors is moderate and for the share of independent directors it is moderately high. The board members’ industry experience, strategic planning quality, and degree of information disclosure are assessed as high. RusHydro draws up annual reports in an integrated format, including information on sustainable development activities for the reporting period in accordance with the standards of the Global Reporting Initiative (GRI) and an industry annex for energy companies in compliance with the reporting principles.
The availability of a report on compliance with the principles and recommendations of the corporate governance code served as the basis for the application of a positive modifier in the corporate governance factors block. The Agency has also applied positive modifiers because RusHydro discloses the results of quality control systems audits and has a remuneration system for executives and other key managers, including KPIs that encourage attaining the corporate priority goals and objectives in the field of sustainable development.
The Company received the maximum score (1) for all corporate governance risks due to the availability of relevant internal regulations, risk management measures, and measurable performance indicators.
ACRA highly rates RusHydro’s corporate governance policies and procedures. The Company has established a risk management and compliance team that oversees corporate governance practices. The Agency notes the existence of a code of corporate ethics and a dividend policy. The Company’s risk register is disclosed as part of its annual reports. The stakeholder management system is assessed as effective. The publicly available Development Strategy of RusHydro Group up to 2025 and further to 2035 covers sustainable development matters. The Company has regulations aimed at eliminating conflicts of interest in transactions, and related-party transactions are disclosed in the corporate financial statements.
1 https://rushydro.ru/press/news/0708202383166/
KEY ASSUMPTIONS
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Companies from the Diversified Power Industry were selected as benchmarks (i.e. peer companies).
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The Agency calculated and analyzed the quantitative indicators in the Environmental Impact block on the basis of RUB-denominated revenue, since the main portion of the RusHydro’s business generates RUB-denominated revenues.
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Data specified in questionnaire and the annual report of RusHydro that discloses operating performance indicators and sustainable development activities is reliable and comparable to benchmarks.
RATING COMPONENTS
Final ESG rating: ESG-AA.
Final ESG category: ESG-2.
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 matters.
E assessment: ESG-4.
S assessment: ESG-3.
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 PJSC RusHydro was published by ACRA for the first time on December 29, 2022. 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 PJSC RusHydro, information from publicly available sources, and ACRA’s databases.
The ESG rating is solicited and PJSC RusHydro 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 methodologies.
No conflicts of interest were discovered in the course of the assessment process.
The assigned ESG rating is not a credit rating.
