Key principles [102−16]

Corporate governance structure [102−18]

Subsidiary management

PJSC RusHydro has stakes (including indirectly through its subsidiaries) in the authorized capital of companies engaged in electricity and heat generation and distribution, energy facilities design, construction, repair, maintenance, rehabilitation and modernization, and other activities.

RusHydro has, either directly or indirectly, 100% or majority (as the case may be) stakes in the authorized capital of most of the Group’s subsidiaries, which helps it pursue the Group’s strategy and corporate governance policies all across the controlled entities.

The Company contributes to subsidiaries' strategy delivery, stable economic growth and investment appeal, and protection of rights and interests of the shareholders of both the Company and its subsidiaries.

The Company manages its subsidiaries by being represented at general meetings of shareholders/participants, on boards of directors and in supervisory bodies of the subsidiaries.

Deciding on matters reserved to supreme governing bodies of the subsidiaries where PJSC RusHydro exercises the rights of the sole shareholder (participant) falls within the remit of the Management Board. Establishing the Company’s position on key matters regarding subsidiaries (reorganization, liquidation, increase of the authorized capital, approval of major transactions, participation of the subsidiary in other energy organizations, disposal of energy assets) falls within the remit of the Board of Directors. PJSC RusHydro’s position on other important matters regarding subsidiaries (KPI approval (adjustment), participation of the subsidiary in non-energy organizations, nomination of candidates to the subsidiary’s governance and supervisory bodies, etc.) is established by the Management Board.

In addition to that, the Company’s internal regulations formalize the right of the members of RusHydro’s Board of Directors to access documents and make inquiries on subsidiaries while also considering matters relating to material aspects of their business.

The regulations governing subsidiary relations include:

• Charter of PJSC RusHydro;
• Procedure for Interacting with the Organizations Where PJSC RusHydro Has an Interest.

Improving the corporate governance system

In 2019, the Company continued to implement the standards set forth in the Corporate Governance Code of the Bank of Russia (the “Code”) to improve overall corporate governance by consistently amending the internal regulations and applying the standards in the day-to-day operations.

The following key actions were taken in 2019:

• The Company’s Board of Directors approved a new version of the Regulations on Dividend Policy and the Regulation on the Assessment of the Activities of the Board of Directors and the Board of Director Committees of PJSC RusHydro;
• On June 28, 2019, the Company’s shareholders could for the first time vote at the Annual General Meeting of Shareholders using an electronic voting system, while also having an opportunity to benefit from a new forum on the meeting agenda;
• With the adoption of a new version of the Internal Control and Risk Management Policy, the Board of Directors started playing a more prominent role in managing risks, including by approving Guidelines on RusHydro Group’s Risk Appetite;
• The Company’s Charter and internal regulations were amended to include the following corporate governance enhancement clauses:
  • resolutions on critical matters set forth in recommendation 170 of the Code shall be passed by a majority vote involving all elected directors;
  • shareholders shall have access to the list of persons entitled to attend General Meetings of Shareholders as soon as such list becomes available to the Company;
  • material corporate actions involving a potential conflict of interest shall be assessed by independent directors;
  • shareholders holding collectively at least 2% of the Company’s voting shares shall have the right to submit proposals for the agenda of meetings held by the Company’s Board of Directors;
• The quality and exhaustiveness of information disclosed in the Company’s annual report and on the Company’s website were improved;
• Candidates to the Board of Directors were assessed to confirm they have the necessary experience and knowledge, good reputation and no conflict of interest, with the assessment results submitted to shareholders as part of the materials for the Annual General Meeting of Shareholders;
• In April 2019, a meeting of the Board of Directors held in person reviewed results of the corporate governance practice assessment and self-assessment of the Board of Directors' performance, considered positive changes in the assessments of independent experts and took note of the proposals put forward to improve the Board’s performance*.

In addition to that, the reporting period saw election of the senior independent director, assessment of the risk management and internal control system efficiency, review of a report on progress in implementing the Information Policy Regulations, etc.

Corporate governance improvement prospects

Key areas for improvement as regards the Company’s corporate governance in 2020 include the following:

• increasing the number of meetings held by the Board of Directors in person;
• making arrangements for a comprehensive formal self-assessment of the Board of Directors and its committees with a focus on their performance as a single body and individual contributions of directors to the proceedings of the Board of Directors and its committees; drafting recommendations for the Board of Directors to improve the operating performance of the Board of Directors and its committees; and preparing a report on the results of the self-assessment exercise to be reviewed by the Board of Directors at a meeting held in person;
• lowering the threshold applied to disclosures of material transactions on the Company’s website;
• improving corporate governance performance in the ESG ratings.

Compliance with the Corporate Governance Code

As a result of corporate governance improvement efforts and implementation of the standards set forth in the Code, the share of principles fully observed by RusHydro increased from 92% in 2018 to 95% in 2019.

Compliance with the priciples and recommendations of the Corporate Governance Code, %

95%

of the Corporate Governance Code’s principles recommended by Russian Central Bank are fully observed by PJSC RusHydro

For a detailed report on the Company’s compliance with the Corporate Governance Code principles and recommendations, see Appendix No. 1.