Ratings

After an annual assessment, the national corporate governance rating of RusHydro was confirmed as level 8 - “Best corporate governance practices”. RusHydro has retained the status of a top-rated leading electric power company for over five years.

The national corporate governance rating is a corporate governance quality indicator allowing to compare the level of development of the company’s corporate governance and the risks related to it. The assessment is conducted annually by the Russian Institute of Directors (RID), Russia’s leading information and research, consulting and training center on corporate governance.

The experts monitored RusHydro’s corporate governance practices using the renewed RID methodology in the areas of shareholders’ rights protection, organizing the work of the management and control bodies, information disclosure, corporate social responsibility and sustainable development.

The RID report notes that the corporate governance practices of RusHydro are characterized by developed institutions aimed at protecting minority shareholders’ rights, well-balanced composition of the Board of Directors and its involvement in resolving strategic issues, and disclosure of material financial and non-financial information. The sustainable development and ESG practices, dividend policy and the work of the Board of Directors also received a positive evaluation.

After an annual assessment, the national rating of RusHydro was confirmed as level 8 - “Best corporate governance practices”. RusHydro has retained the status of a top-rated leading electric power company for over five years.

The national corporate governance rating is a corporate governance quality indicator allowing to compare the level of development of the company’s corporate governance and the risks related to it. The assessment is conducted annually by the Russian Institute of Directors (RID), Russia’s leading information and research, consulting and training center on corporate governance.

RusHydro’s corporate governance practices were assessed according to 160 criteria, including protection of shareholders’ rights, organizing the work of the management and control bodies, information disclosure, corporate social responsibility and sustainable development.

As mentioned in the RID report, RusHydro’s dividend policy ensures stable dividend payments to shareholders and dividend yield. In May 2021, the Board of Directors approved a new version of the Regulation on the Dividend Policy, allowing to extend the baseline scenario of dividend payments in the amount of 50% of the profit under IFRS. The dividend payment level corresponds to the requirements of the principal shareholder (Russian Federation) for the dividend policy of state-owned companies.

In 2020, RusHydro paid record-high 23.3 billion rubles to its shareholders.

The RID report notes that RusHydro has improved the quality of information disclosure in its annual report, expanding the data on the carbon footprint and the influence of climate change on the Group’s activities.

The experts positively evaluated the process of selection and functioning of RusHydro’s Board of Directors. The proportion of independent Directors complies with the requirements of the Listing Rules of Public Joint-Stock Company Moscow Exchange MICEX-RTS for Level 1 listing issuers. In 2021, the work of RusHydro’s Board of Directors was evaluated by an independent consultant. Over the past year, the Board of Directors actively considered strategic development issues – it approved the Long-term Development Program in addition to Strategy, and reviewed investing activities and electric power industry development in the Far East.

The national rating of RusHydro was confirmed as level 8 - “Best corporate governance practices”. This is the highest National Corporate Governance Rating among electric power companies. For the fourth year, RusHydro has maintained its status as one of the leading Russian companies in corporate governance quality.

The rating is assigned by the Russian Institute of Directors (NP RID), Russia’s leading information and research, consulting and training center on corporate governance.

Between September 5, 2019 and September 10, 2020, NP RID experts assessed RusHydro’s corporate governance practices according to 160 criteria, including protection of shareholders’ rights, organizing the work of the management and control bodies, information disclosure, corporate social responsibility and sustainable development.

In its report, RID noted the role of the Board of Directors in improving the Company’s financial profile. The Board of Directors had considered transactions that allowed to reduce the debt burden, reviewed strategic development issues such as updating the Innovative Development Program and Long-term Development Program, and approved measures to raise the efficiency of investing activities.

The experts expressed their appreciation of the revised versions of the Articles of Association, the internal audit policy, the Regulation on Insider Information and the Audit Committee, and also noted the stability of the Company’s dividend policy. According to RID’s conclusion, RusHydro’s draft annual report for 2019, compared to the preceding year, contains changes aimed at compliance with the best global trends in corporate social reporting, and supplementary information recommended by the Russian Code of Corporate Governance. These include: increasing the number of disclosed indices in accordance with GRI SRS by almost a third, improving their disclosure quality, including quantitative indicators of RusHydro’s contribution to achieving the UN 2030 Agenda for Sustainable Development in the report, and describing the Company’s contribution to the development of Russia’s low-carbon economy.

All these changes are aimed at protecting the rights of shareholders and increasing the transparency of activities, objectivity and balance in the decisions made by the management bodies.

The Russian Institute of Directors conducted an assessment of the corporate governance practices at RusHydro (hereinafter referred to as the Company) using the National Corporate Governance Rating (NCGR) methodology. As a result of the assessment, RID confirmed RusHydro’s rating as NCGR level 8 - “Best corporate governance practices”.

The Company's corporate governance practices were assessed in four components:

1. shareholder's rights;
2. activities of the management and control bodies;
3. information disclosure;
4. corporate social responsibility and sustainable development.

After the corporate governance rating was assigned in September 2018, several important corporate events had occurred at RusHydro that had contributed to the level confirmation:

The experts noted the leading role of the Board of Directors in fine-tuning the risk management system, including the approval of the risk appetite by the Board of Directors and approval of the new version of the Internal Control and Risk Management policy.

In April 2019 the Board of Directors approved a new version of the Regulation on the Dividend Policy of RusHydro. The Regulation established the baseline dividend payment scenario as 50% of the profit in the IFRS financial reports of RusHydro. The minimum dividend amount is defined as the average dividend amount for the three previous years.

Amendments to the Regulation on the Information Policy was also made that regulate the procedure for providing information on the companies controlled by RusHydro and the list of information disclosed on the corporate website. The Company also improved the quality of information disclosure in the annual report, providing information on the remuneration paid to each member of the Board of Directors.

The Annual General Meeting of the Company Shareholders took place on June 28, 2019, where e-voting was available to the Company shareholders for the first time.

Among the amendments to the Articles of Association, formalization of the decision-making procedure for the most important issues by the majority of the votes of all elected members of the Board of Directors and clarification of the Board of Directors’ powers received positive comments.

The Regulation on the Procedure for Calling and Conducting Meetings of the Board of Directors formalized the rights of shareholders holding at least 2% of shares to offer suggestions for the Board meeting agenda, and defined the format of assessment for material corporate actions connected to a possible conflict of interest.

During the monitoring period, the Audit Committee and the HR and Remuneration (Nomination) Committee increased the number of in-person meetings. In-person meetings were conducted quarterly.

The Russian Institute of Directors (RID) evaluated the corporate governance practice in RusHydro (hereinafter, the "Company") in accordance with the methodology of the National Corporate Governance Rating (NCGR). As a result of such evaluation, RID increased the National Corporate Governance Rating of the Company to level 8, "Advanced corporate governance practice" according to the NCGR scale.

The corporate governance practice in the Company was evaluated with regard to four components:

1. shareholders' rights;
2. activities of the management and supervisory bodies;
3. information disclosure;
4. corporate social responsibility and sustainable development.

After the corporate governance rating was confirmed in May 2017, a number of significant corporate events took place at RusHydro that changed the rating.

In 2017, RusHydro and VTB Bank (PJSC) signed agreements on the acquisition by the Bank of 55 billion ordinary shares of RusHydro by way of the purchase of an additional issue of shares and a block of quasi-treasury shares. Following the transactions, the proportion of quasi-treasury shares decreased from 4.88% to 0.9%, and these shares do not take part in voting at the General Meeting of Shareholders.

In 2017—2018, the Company's internal documents governing the corporate governance system were amended in accordance with amendments in Russian legislation and the MOEX Listing Rules and the unification of internal documents. Amendments in the Articles of Association introduced the term "significant corporate actions", clarified the competence of the Board of Directors, and changed the competence of the Management Board. The Regulation on the Convening and Holding of Meetings of the RusHydro Board of Directors was supplemented with clauses on instating newly elected members of the Board of Directors and on conflict of interests and established the right of members of the Board of Directors to request information on controlled entities, to engage external consultants, and to participate in training and advanced training programs at the cost of the Company's budget.

The Board of Directors approved the Auditor Rotation Policy and supplemented the Internal Audit Policy with a section on the principles of building a groupwide internal audit function in RusHydro Group.

Remuneration to the members of RusHydro executive bodies provides for the dependence of remuneration payments on the achievement of short-term and long-term performance indicators of the Company. The Long-Term Management Motivation Program has been operating in the Company since 2017. It was developed by an independent consultant and approved by the Board of Directors. This program is in line with the recommendations set out in Chapter 4 of the Corporate Governance Code.

Remuneration to the members of the Board of Directors is paid in the form of a fixed annual remuneration. Based on the results of a study conducted by an independent consultant, the base remuneration of the members of the Board of Directors in 2017 was adjusted to the average market remuneration in comparable companies.

Among the positive changes in the work of the Board of Directors in 2017—2018 were election of the senior independent director, an increase in the number of in-person meetings of the Board of Directors and the key committees, evaluation of internal control and risk management system efficiency, and consideration of the report on compliance with the Regulation on Information Policy. In 2018, an independent consultant evaluated the work of the Board of Directors and its Committees, and the report on the evaluation results was reviewed by the Board of Directors at an in-person meeting.

During the monitoring of corporate governance practice, the Company increased the scope of information disclosure for shareholders when preparing for the General Meeting of Shareholders, and started streaming video of the General Meeting of Shareholders. In 2018, the HR and Remunerations Committee drafted recommendations for the shareholders on electing nominees to the Board of Directors based on the analysis of their professional expertise, experience and conflict of interests (if any).

Insofar as it concerns sustainable development, the Company joined the UN Global Compact and assumed obligations to adhere to sustainable development principles.

Furthermore, corporate governance practice in RusHydro preserves the following key positive aspects:

• the rights to the Company's shares are recorded by a highly reputed registrar with reliable technologies;
• the auditor for the statements is chosen in an open tender. In 2018, the tender for the period of 2018 to 2020 was won by PricewaterhouseCoopers Audit JSC;
• external auditors do not provide any non-audit services to the Company;
• shareholders can put questions to the members of the management and supervisory bodies of the Company during the General Meeting;
• business units were set up for interaction with shareholders and investors, and the Company holds meetings and presentations for shareholders and investors with the participation of the members of the management bodies on a regular basis;
• the powers of the Board of Directors were expanded in terms of decision-making on major transactions;
• the Company has a positive dividend history;
• the minimum portion of net profit to be allocated for payment of dividends on ordinary shares was determined;
• the Board of Directors considers matters of procurement policy on a regular basis;
• 4 out of 15 members of the Board of Directors have the status of independent directors;
• the Chairmen of the Audit Committee and the HR and Remunerations Committee are independent directors;
• the composition and functions of the Audit Committee and the HR and Remunerations Committee are in line with the recommendations of the Corporate Governance Code;
• the Board of Directors has approved an internal document outlining the key principles, elements and procedures of the internal control and risk management system;
• there is comprehensive regulation of conflict of interests of the members of the Board of Directors and the executive bodies;
• there is an Internal Audit Service that performs internal control and audit functions and is functionally subordinated to the Audit Committee;
• a regulatory framework for risk management has been approved, and a Control and Risk Management Department is functioning which performs key risk management functions;
• financial statements are disclosed in due time, including interim IFRS statements and explanations of the management on the statements;
• the Company's statements correspond to the International Integrated Reporting Standard and GRI SRS standard.

The following deficiencies were identified, among other things, in the corporate governance practice of RusHydro:

• the share of independent directors is less than one third of all members of the Board, which does not conform to the recommendation of the Corporate Governance Code;
• there is no succession pool to replace top executive staff of the Company;
• the amount of individual remuneration paid to each member of the Management Board and to each member of the Board of Directors is not disclosed.

According to the National Corporate Governance Rating scale, a Company with an NCGR of 8 complies with the requirements of Russian laws in the field of corporate governance and adheres to a significant number of recommendations of the Russian Corporate Governance Code. The Company is characterized by fairly low risks of loss to owners associated with the quality of corporate governance.