DEVELOPMENT OF CORPORATE GOVERNANCE

As a result of efforts to improve corporate governance, the corporate governance rating was maintained at a high level (NCGR 7), and there was a high level of discipline in executing decisions of the governing bodies.

Measures to improve corporate governance in 2023:

• Ensuring that the corporate governance rating is at a high level
• Updating of the Company’s internal documents related to corporate governance in general, as well as documents regulating the organisation of activities of governance bodies
• Conducting evaluations of the Board of Directors and committees under the Board of Directors
• Making sure that the governance bodies’ resolutions are fulfilled properly
• Disclosing non-financial statements in the form of an integrated report

New documents

In order to facilitate the fastest possible integration of newly elected members of the Board of Directors and committees of the Company into the above bodies and familiarise them with the Company’s production, financial, and business operations, the General Director approved the guidelines for induction of newly elected members of the Board of Directors and committees of the Board of Directors of PJSC Rosseti South.

Self-assessment of the performance of the Board of Directors and its committees

In 2023, we conducted another self-assessment of the performance of the Company’s Board of Directors and its committees based on the Methodology approved by the Board of Directors on 17 March 2020 (Minutes No. 364/2020 dated 18 March 2020), which was formulated in accordance with the laws of the Russian Federation, the Company’s Articles of Association and the Corporate Governance Code of the Bank of Russia. The overall performance score of the Board of Directors of PJSC Rosseti South for the 2022/2023 corporate year was 4.8, which means ‘more likely complies’ with the recommendations contained in international and Russian standards of best corporate governance practices.

Preparation of non-financial statements

In the past year, the Company prepared an integrated Annual Report for 2022, which was publicly certified by the RUIE Non-Financial Reporting Council.

Plans to improve the corporate governance model and practices for 2024:

• To comply with the rules and principles of corporate governance set out in the current internal documents of the Company
• To adopt its own Corporate Governance Code
• To ensure the effective functioning of the Company’s governance bodies and control over the execution of their decisions
• To maintain the corporate governance rating at the level of Wel-Developed Corporate Governance Practice
• To implement action plans based on the results of the Company’s corporate governance assessment

In 2024, the Company is set to continue analysing the best corporate governance practices and assess the expediency of their implementation, plans to update corporate standards, including plans to prepare amendments to the Company’s Articles of Association and propose them for consideration by the General Meeting of Shareholders of the Company.

ASSESSMENT OF THE CORPORATE GOVERNANCE LEVEL

The Company’s internal audit function annually assesses the corporate governance of PJSC Rosseti South.

Compliance of corporate governance with the principles and recommendations set out in the Corporate Governance Code and (or) the Listing Rules, and (or) best corporate practices is a measure used to assess corporate governance.

The assessment process covers six components of corporate governance:

• Shareholders’ rights
• Board of Directors
• Executive management
• Transparency and disclosures
• Risk management, internal control and internal audit
• Corporate social responsibility, business ethics and compliance

The efficiency of the Company’s corporate governance system for the 2022/2023 corporate year was assessed in accordance with the Corporate Governance Assessment Methodology of PJSC Rosseti South approved by the Company’s Order No. 481 dated 25 August 2020.

The assessment determined that corporate governance is consistent with ‘developed practices’ (423.5 out of 489 points, 86%, which corresponds to scoring boundaries of <96% and ≥80%). The Company’s corporate governance score for the 2021/2022 corporate year was at the same level (420.5 out of 489 points, 86%, corresponding to scoring boundaries of <96% and ≥80%).

At the same time, there is an area for improvements for the components / elements as follows:

• Board of Directors – 15 points (9.7%)
• Executive management – 4 points (10.0%)
• Transparency and disclosure of information – 2 points (1.5%)

For certain issues (a significant part of those assessed as ‘non-compliant’), the growth potential is contingent on factors that the Company cannot influence, in particular, the position of the controlling party, PJSC Rosseti.

Based on the results of the assessment of corporate governance in the Company at the end of 2022–2023, the internal auditor’s contains the following recommendations:

• To ensure that an effective level of corporate governance is maintained
• To consider the possibility of eliminating non-compliance with the corporate governance principles for the components identified in this Report

Independent assessment

The Company engages an external corporate governance consultant as an independent expert on an ongoing basis, which enables tracking the effectiveness of ongoing changes and consistently implementing management system improvement tools, as well as elements of best practices.

Assessment of compliance with the principles and recommendations of the Corporate Governance Code of the Bank of Russia

The Company strives to improve its corporate governance system, the main principles of which are as follows:

• To ensure equal and fair treatment of all shareholders when they exercise their right to participate in the management of the Company
• To provide shareholders with an equal and fair opportunity to participate in the Company’s profits by receiving dividends
• To ensure equal conditions for all shareholders, including minority shareholders, and equal treatment by the Company
• To provide shareholders with reliable and efficient ways of accounting for their rights to shares, as well as the possibility of free and unencumbered disposal of their shares
• To create a system of disclosure of information on the Company’s activities that is transparent and accessible to shareholders, investors and other stakeholders

The policy pursued by the Company in the context of corporate governance contributes to building relations of trust, provides a real opportunity for the Company’s shareholders to exercise their rights, and reduces the risk of violation of shareholders’ rights.

One of the continuing processes in developing the corporate governance structure of the Company is implementing as many elements of best practices from both abroad and Russia as possible.

In the process of improving the efficiency of the corporate governance system, the Company endeavours to follow the best Russian practices enshrined in the Corporate Governance Code of the Bank of Russia.

Full information on the Company’s compliance with the principles and recommendations of the Corporate Governance Code of the Bank of Russia is provided in Appendix No. 4 to this Report.

To improve the level of corporate governance at PJSC Rosseti South in 2024, the Company plans to:

• Increase the number of in-person meetings of the Company’s governance bodies
• Update the Company’s internal documents in line with changes in the legislation of the Russian Federation