Environmental policy. Corporate social responsibility

UNDERLYING PRINCIPLES AND IMPLEMENTATION FRAMEWORK

In its business practices, RAO "UES of Russia" is consistently implementing the principles of the Social Charter of Russian Business that proceeds from the recognition of common goals of business activities, economic and social responsibility, observance of labour rights and protection of economic freedoms. As a joint-stock company, RAO "UES of Russia" is responsible to its shareholders for ensuring growth of capitalization and investment attractiveness of its subsidiary energy companies. At the same time, it is responsible for maintaining the condition and development of the electricity industry as a key element of the public infrastructure and carrying out the electricity reform in a socially responsible fashion (to the extent of the authority delegated by the state).

In the Company, Corporate social responsibility (CSR) is implemented through a non-financial risk management system, which incorporates international standards and COSO-II risk management guidelines, AA1000SES stakeholder engagement standards, GRI sustainability reporting guidelines (G3 Guidelines), AA1000AS audit standards, and ISAE 3000.

In 2007, RAO "UES of Russia" as member of e8, the international association of electric utilities, took part in drafting the GRI Electric Utility Sector Supplement. This new standard was first used by Russian companies in their operations.

The system of fundamental corporate documents relating to CSR matters was supplemented with the Concept Statement for the Customer-Centric Policy of RAO "UES of Russia" and the Customer Service Standard for utilities which included the Customer Service Quality Assessment Procedure. On the basis of these documents, the boards of directors of the SDCs of RAO "UES of Russia" adopted Customer Service Standards for their companies. Last year saw the launch of customer service assessment process in 140 subsidiaries operating on the retail energy markets.

MAJOR ACTIVITIES TO OPTIMIZE ON NON-FINANCIAL RISKS

In 2007, the non-financial risk management activities were focused on:

• improving the quality of electricity and heat supply services provided to customers of energy retail, distribution and heat supply companies, and implementing a customer-centric policy;
• raising the efficiency of environmental risk management measures in the course of development and implementation of investment projects;
• ensuring proper performance under the electricity sector tariff agreement and other employer undertakings;
• promoting the idea of socially responsible business conduct in the newly established energy companies;
• enhancing transparency of information on the efforts being taken to protect customer rights, ensure environment safety and address other matters of social concern.

As RAO "UES of Russia" is nearing the completion of the final phase of its reorganization, special attention is given to addressing shareholder risks, safeguarding the minority rights and increasing the transparency of corporate governance and the reorganization process.

STAKEHOLDER ENGAGEMENT

RAO "UES of Russia" uses various forms of interfacing with stakeholders, ranging from stakeholder engagement in decision-making on the electricity reform issues to the monitoring and assessment of performance under the CSR commitments.

In 2007, stakeholders were engaged, for the first time, in the development of corporate standards. Business associations, customer protection organizations, independent market participants, as well as representatives of the Russian Federal Service for Oversight in the Area of Protection of Consumer Rights and Human Well Being (Rospotrebnadzor) took part in the development of the Customer Services Standard.

Practice was expanded to carry out public monitoring and providing warranties of performing the obligations undertaken by energy companies. A report on the performance of the Electricity Sector Tariff Agreement is to be jointly certified by the parties to the social partnership—RaEl Association and the All-Russian Electricity Industry Union. Representatives of consumers, regional and local authorities took part in the procedure of ratification of the Declarations of Customer Service Quality Standard drawn up by subsidiaries of RAO "UES of Russia". With that purpose, open sessions of Regional Customer Relations Centers of RAO "UES of Russia" were held nearly in all constituent entities of the Russian Federation.

Discussion of environmental aspects of electricity sector development was conducted in the form of consultations with the leading Russian and international public organizations, meetings on the subsidiaries' environmental strategies and investment projects. Most attention was paid to the development strategy for the hydroelectric sector and alternative energy sources. In this connection, OAO "HydroWGC" organized a series of public sessions and consultations, including with the purpose of assessing the hydro power potential of different territories, producing schemes for using bodies of water, ensuring environmental safety for the mainstream of the Amur River, Volga-Akhtyubinsk flood basin, and other important projects.

CUSTOMER RELATIONS

Improving customer relations is viewed as a key priority in managing non-financial risks. Since its creation, the Customer Relations Center reviewed 3,172 customer complaints, 11 percent of which were submitted through the online reception. Beginning in January 2007, Regional Customer Relations Centers started working in 61 regions of Russia. They are based on the local units of RP "Energotekhnadzor". These Centers were granted the necessary authority to resolve the possible conflicts and promptly respond to complaints from individuals and organizations. Decisions on one third of such complaints were taken in favour of customers.

Before the reorganization of RAO "UES of Russia" is completed, the distribution companies will implement the Standard for Information Disclosure on the status of customers' applications for electricity network connection. Also, the companies will adopt the Rules for review of electricity quality complaints which will place a special emphasis on the interface between the distribution and energy retail companies.

These documents will supplement the framework terms and conditions of the network connection agreement and the standard form of connection agreement, a measure designed to eliminate the potential conflicts among grid companies, electricity users and generators.

This will also be facilitated by the system created in 2007 to monitor the process of handling complaints and applications to IDCs, and the implementation by DCs of a system of measures designed to improve transparency of the process of connection to distribution grids. Improvements were made to the system for informing customers. Network and energy retail companies now release information intended for their customers in a more convenient and easy-to-understand form, and the grid companies' websites have customer relations sections. The checks of customer service quality carried out at RAO UES subsidiaries demonstrated significant improvements achieved over the period from Q3 2007 to Q1 2008.

In September 2007, pilot projects were launched to provide a complete range of services to households, small businesses, and other retail customers, including those relating to resolving any issues relating to electricity supply, connection to distribution grids, and heating supply.

Creation of such full-service centers will make it possible to create a convenient arrangement for customers after the functional unbundling is completed at the energy companies, reduce the time needed to receive services, eliminate the need for multiple or redundant requests, and cut costs for setting up a customer services system for each company.

NON-FINANCIAL REPORTING AND INFORMATION ON MANAGEMENT OF NON-FINANCIAL RISKS

With RAO "UES of Russia" gradually performing its CSR commitments, the Company updated the information booklets on its website intended for various stakeholders, such as "Non-financial Risks Management", "Interface with Customers", etc.

Detailed information in the influence of the Company's operations on the economy, environment and society was presented in its Report on Social Responsibility and Corporate Sustainability for years 2006 to 2007, which was prepared on the basis of the new international non-financial reporting standard for the electricity industry, GRI Electric Utility Sector Supplement. The Report was audited by Ernst & Young, with the involvement of stakeholders.

PROMOTING CSR BUSINESS PRACTICES IN SUBSIDIARY ENERGY COMPANIES

RAO "UES of Russia" assists its subsidiaries in the development of their own public policies on corporate social responsibility (CSR) based on common values and with regard to the peculiarities of their operations. Specifically, for generation companies, the key issues were those of adhering to good business practices on the electricity and capacity market, ensuring environmental safety, etc., while for grid and energy retail companies, the list of such issues included ensuring that customers have access to electricity and heat, and providing high-quality services to each customer.

To identify the best practices at RAO UES subsidiaries, the Company held a third corporate contest called "Social Energy" in 2007. Last year, the contest was organized for the first time in collaboration with the Russian Union of Industrialists and Entrepreneurs, with public organizations involved in the project assessment. Among the contest participants were 60 energy companies, with the number of participants' applications increasing.

Drawing on the Parent Company's experience, 5 WGCs and 12 TGCs drew up non-financial reports in 2007. 12 companies held public hearings to certify their CSR reports.

AWARDS

In 2007, RAO "UES of Russia" scored 50 points in the Accountability Rating, an international CSR rating. The Company received the principal award of the All-Russia Contest of the Russian Union of Industrialists and Entrepreneurs "Best Russian Enterprises-2007" in the category "Development of Non-Financial Reporting". The awards jury emphasized that RAO "UES of Russia" demonstrated continuity in its CSR approach, as well as a comprehensive and well-grounded approach to non-financial reporting as a whole. Eight energy subsidiaries received various awards in the National Contest "Best Social Report", which was organized in Russia in 2006 within the framework of the European Sustainability Reporting Awards (ESRA).

ENSURING CONTINUITY OF RAO UES POLICY

Independent surveys have demonstrated continuity of the CSR principles and policies of RAO "UES of Russia" at its subsidiaries.

In 2007, the Social Information Agency carried out a CSR study at energy companies which demonstrated continuity of the CSR principles and policies of RAO "UES of Russia" does exist, with the depth of coverage of some matters varying significantly. The CSR principles are applied best in such areas as relations with suppliers and customers, environment and management of natural resources, and HR policy. The continuity in approaches to stakeholder relations is best seen in the course of such actions as public hearings on SDCs' non-financial reports, investment programmes, environmental programmes, etc.

After the Holding Company is reorganized, the continuity of its environmental and customer-centric policies will be ensured through implementation of corporate polices and standards adopted by the energy companies' boards of directors. It is noteworthy that some energy retail companies adopted their Customer Services Standards after RAO "UES of Russia" auctioned its stakes in the companies.

In 2008, customer services quality was for the first time assessed with the involvement of independent participants of the energy market. Also in 2008, OAO "FGC UES" is expected to adopt its Customer-Centric Policy. The IDC Holding and Not-for-profit Partnership of Guaranteeing Suppliers and Energy Supply Companies will have a role to play in improving the customer relations activities.

Most generation companies will present their second CSR reports in 2008, which will assess the progress made in performing their undertakings. It is also planned that the companies will improve their compliance with the international non-financial reporting standards. Grid companies, including OAO "FGC UES" and OAO "Center IDC", will produce their first non-financial reports. OAO "HydroWGC" will pay special attention to disclose the environmental aspects of hydropower development.

Work will be continued to carry out public certification of energy companies' non-financial reports and assess the progress in implementing their commitments in environment protection, development of social partnership, etc.

The "Social Energy" Contest will continued by the RaEl Association with support of the Russian Union of Industrialists and Entrepreneurs and the Federal Energy Agency of Russia.