Sistema presents first-ever ESG strategy

Moscow, Russia – 20 October 2022 – Sistema PJSFC (“Sistema” or the “Corporation”) (LSE: SSA, MOEX: AFKS), a publicly traded Russian investment company, discloses its ESG strategy, which was approved earlier by its the Board of Directors.

Sistema’s ESG strategy is aimed at making its investment portfolio more sustainable, enhancing its positive impact on social development and reducing its environmental impact through effective asset management.

In accordance with the road map for Sistema’s medium-term ESG transformation, adopted in 2019, the Corporation successfully implemented a number of initiatives aimed at improving its sustainability management system as well as introducing corresponding standards and practices in its portfolio companies. From 2019 through 2021, the Group’s direct social investments exceeded RUB 5 billion, and more than RUB 2.7 billion was allocated for environmental protection.  

The most important outcome from the first three years was the integration of ESG principles into the investment process at all stages – from the exclusion of “toxic” industries and the evaluation of acquired assets to the monetisation of investments (the first green IPO in the forestry sector was carried out in 2021) – as well as the inclusion of ESG issues on the agenda of Sistema’s Board of Directors Strategy and Sustainability Committee. The Committee, chaired by Anna Belova, the Chair of Sistema’s Board of Directors, is responsible for, among other things, facilitating the formulation and implementation of the Corporation’s sustainability strategy and preliminary approval of its charity strategy.

“Our ESG strategy is based on the fundamental notion that quality corporate governance and due consideration of social and environmental risks and opportunities enhance the long-term value and sustainability of our business, especially in the context of a high degree of market volatility and economic turbulence. Therefore, we intend to continue integrating ESG into the Corporation’s activities, which will enable us to achieve global sustainable development goals and find solutions to urgent problems in terms of the country’s socio-economic development”, said Sistema President Tagir Sitdekov, who also heads the Board of Trustees of Sistema’s Charitable Foundation.

In the latest phase, the Corporation’s strategic ESG priorities remain responsible investment and asset management in an effort to create overall value for shareholders and a wide range of stakeholders. The Corporation aims to build competitive, socially and environmentally responsible businesses capable of contributing to the sustainability of industries and regions of operations as well as the steady improvement of socio-economic and technological potential, human capital, quality of life and social well-being.

“The social agenda is now taking centre stage. While maintaining our main focus on the development of human capital and technologies that improve people’s quality of life, we intend to consolidate the resources and competencies of our businesses and corporate Charitable Foundation in order to maximise what we do for the public good. We have set corresponding objectives for the leadership of the Foundation, which will continue its main mission of working with young people and regions of the Group’s presence”, added Mr Sitdekov.

Sistema’s ESG strategy: interim results and implementation plans

Over the past three years, in the area of corporate governance (G), Sistema has adopted framework policies on sustainability, the environment and human rights that provide guidelines for the Corporation’s portfolio companies, several of which (MTS, Segezha Group and Steppe) have adopted their own sustainability strategies. The steps taken enabled Sistema to take out its first-ever ESG loan and to improve its position in independent ratings. In June 2022, for example, the Corporation took 450th place out of almost 15,000 international companies in the Sustainalytics ranking, rising 6,775 places since 2019. At the same time, Sistema’s score improved to 11.5 (low ESG risk exposure), compared with 30.9 (high ESG risk exposure) three years earlier.

In terms of environmental (E) impact management, the carbon footprint of Segezha Group, Sistema’s largest production asset, was assessed for the first time; the forest holding is increasing the amount of territory it reforests every year and switching its production sites to a closed cycle, using waste from its sawmills to supply energy and produce biofuel. The Group’s companies have established a unique centre of excellence for the construction of multi-storey wooden homes out of environmentally friendly CLT panels – the first such buildings have already been built in the Vologda region. Steppe is introducing a no-till technology that protects soil against erosion, and it also launched projects in 2022 in the Stavropol and Rostov regions to restore soil fertility and carry out landscaping work (trees will be planted on a total area of about 160 hectares). In addition, for the second year in a row, Sistema’s Charitable Foundation and Group companies are playing an active role in a project to restore protective forest belts in Russia’s Southern Forest Belt (as part of the #ZaLes charity race, featuring the participation of athlete volunteers, more than 5,000 trees have already been planted over two years), and an environmental awareness-raising project aimed at promoting environmentally friendly habits was launched this year.

In the area of social responsibility (S), Elevator to the Future, a free EdTech platform for training, career guidance and career support that has over 330,000 registered users, was launched, and internship and scholarship programmes began for high-school and post-secondary students, who have been given a wide range of opportunities to learn sought-after specialisations and build a career in Sistema Group companies. Today, more than 1 million young people from all over Russia are involved in the Sistema Charitable Foundation’s flagship educational programme. During the COVID-19 pandemic, the large-scale initiative “Virus-Free Country” raised RUB 1.7 billion to support doctors and medical institutions. Sistema’s Charitable Foundation together with Web.rf and the Kostroma region initiated one of the first social-impact projects in the country focused on regional education implemented by a non-profit organisation.

According to the strategy, in order to improve the sustainability of Sistema’s investment portfolio in the new environment, the Corporation cooperates closely on ESG issues with the boards of directors of its portfolio companies, whose remit includes those areas in which Sistema Group has had a long-term social and environmental impact in terms of: 

• public welfare (human capital, health and safety, confidentiality and protection of personal data);

• responsibility to consumers (affordability and quality of products and services, customer experience);

• the creation of a smart living environment and improvement of the environmental performance and energy efficiency of production through the incorporation of advanced technologies (digital, construction, agroindustrial and others). 

The next stage in the implementation of the Corporation’s sustainability strategy will focus on the details of its approach to assessing the ESG profile of potential investments and portfolio businesses by industry (including agriculture, forestry, aquaculture, etc.) in order to avoid possible risks ahead of time and to identify additional business opportunities associated with finding solutions to important social problems in areas such as inclusion and mobility, healthy lifestyles and healthcare, affordable housing and urban infrastructure, clean energy, waste reduction and the circular economy, public catering, etc.

To systematically assess and track the progress of the implementation of ESG practices within Sistema Group, the Corporation plans to develop its own methodology for carrying out ESG diagnostics regarding its portfolio companies, on the basis of which an internal rating of the Corporation’s assets and a common system of metrics for monitoring each of the key areas of responsibility of Sistema’s portfolio companies will be established.

The planned measures should result in an increase in the number of Sistema Group companies that have sustainability policies and strategies in place, approved at the level of their board of directors, with specific goals for the most important aspects of their social, environmental and climate impact, as well as an increase in the share of revenue from sustainability measures in the long term.

The goals of the ESG strategy also include improving the approach to responsible procurement, developing systems for collecting and verifying non-financial data, creating a corporate knowledge base and increasing employees’ awareness of sustainability issues.

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Sistema PJSFC is a publicly traded diversified Russian holding company in the sectors of telecommunications, high technology, financial services, retail, e-commerce, paper and packaging, agriculture, real estate, tourism and medical services. The company was founded in 1993. Revenue in 2021 was RUB 802.4 billion; total assets equalled RUB 1.8 trillion as of 31 December 2021. Sistema’s global depositary receipts are listed under the ticker “SSA” on the London Stock Exchange. Sistema’s ordinary shares are listed under the ticker “AFKS” on Moscow Exchange. Website: www.sistema.ru.