Sustainability risk management

GRI 102–11

Approach to managing sustainability risks

Risk management forms an essential element of the Group’s activities and is aimed at attaining its strategic objectives, including those related to sustainability. The risk management approach was elaborated in EVRAZ to cover all the Group’s business processes and is adopted in all its operations.

There is a unified framework in place in the Group that is used to identify, assess, and manage risks at both corporate and operational level. Risk management consists of the timely identification, analysis, and assessment of risks and implementing appropriate measures when necessary.

At EVRAZ, we apply the same approach to managing financial and non-financial risks. Hence the Group takes actions to manage risks related to sustainable development: environmental, social, and economic, as well as the other risks that it is exposed to (strategic and financial).

The table below describes the Group’s sustainability related risks and gives an overview of the Group’s measures to manage them.

The Group’s sustainability risks
Risk Description Risk management actions
HSE: environment

Steel and mining production carry an inherent risk of environmental impact and incidents relating to issues as diverse as water usage, quality of water discharged, waste recycling, tailing management, air emissions (including greenhouse gases), and community satisfaction.

Consequently, EVRAZ faces risks including regulatory fines, penalties, adverse reputational impact and, in the extreme, the withdrawal of plant environmental licences, which would curtail operations indefinitely.

Globally, there is an increase in regulatory scrutiny and pressure, as well as investor and customer expectations.

  • EVRAZ monitors its environmental risk matrix on a regular basis, and develops and implements mitigation measures in response to these risks. The top management also devotes greater attention to monthly monitoring of environmental risk trends and factors.
  • The Group implements programmes to reduce air emissions and water use at its plants, as well as to improve its waste management practices.
  • EVRAZ has developed an environmental strategy and has updated its list of projects in accordance to achieve strategic goals regarding emissions and waste. The strategy is being implemented through dedicated programmes in each division.
  • Most of the Group’s operations are certified under ISO 14001 and work is ongoing to bring the remaining plants in compliance with this international standard. EVRAZ is currently compliant with REACH requirements.
  • The Group has begun to develop a Climate Change Strategy, including performing various scenario analyses and identifying appropriate risks.
  • EVRAZ also participates in the development of GHG emissions regulation in Russia. In addition, the Group has achieved reductions in GHG emissions as a positive side-effect of its energy efficiency projects.
HSE: health, safety

Inherent HSE risks include the potential danger of fire, explosions and electrocution, as well as risks specific to individual mines, where elevated methane levels, rock falls and other accidents could lead to loss of personnel, outage or production delays, loss of material, equipment or product, or extensive damage compensation.

In addition, the breach of any HSE laws, regulations and standards may result in fines, penalties and adverse reputational impacts and, in the extreme, the withdrawal of mining operational licences, thereby curtailing operations for an indefinite period.

There is also the risk of infection with COVID-19, which may be associated with the need for a mass quarantine of workers.

  • To mitigate these risks, EVRAZ ensures that its management KPIs place significant emphasis on safety performance and the standardisation of critical safety programmes.
  • The Group is implementing an energy isolation programme, further developing a programme of safety observations behaviour to drive a more proactive approach to preventing injuries and incidents, as well as launching a series of health and safety initiatives related to underground mining.
  • Other measures include implementing maintenance and repair modernisation programmes, launching a downtime management system, further developing the occupational safety risk assessment methodology, as well as analysing the effectiveness of corrective measures.
  • In addition, the Group conducts mass testing of personnel for COVID-19 and has introduced reliable barriers to prevent carriers of the virus from entering its facilities.
Business interruption

Prolonged outages or production delays, especially in coal mining, could have a material adverse effect on the Group’s operating performance, production, financial condition and future prospects.

In addition, any long-term business interruption may result in a loss of customers and competitive advantage, as well as damage to the Group’s reputation.

  • The Group has defined and established disaster recovery procedures that are subject to regular review. Business interruptions in mining mainly relate to production safety. Measures to mitigate these risks include methane monitoring and degassing systems, timely mining equipment maintenance, as well as employee safety training.
  • EVRAZ performs detailed incident cause analyses to develop and implement preventative actions. Records of minor interruptions are reviewed to identify any more significant underlying issues.
Potential regulatory actions by governments, including trade, antimonopoly, antidumping regulation, sanctions regimes, and other laws and regulations

New laws, regulations or other requirements and regimes could limit the Group’s ability to obtain financing on international markets, sell its products and purchase equipment. EVRAZ may also be adversely affected by government sanctions against Russian businesses or otherwise reducing its ability to conduct business with counterparties.

There is a risk of adverse geopolitical situations in the countries where the Group operates.

Other risks include the possibility that EVRAZ could fail to adapt to new market conditions or could incur losses connected with existing contracts in case of additional sanctions implementation.

  • EVRAZ and its executive teams are members of various national industry bodies. As a result, they contribute to the development of such bodies and, when appropriate, participate in relevant discussions with political and regulatory authorities. The Group seeks to monitor potential legislative changes before their introduction, at the point when new laws are being drafted.
  • EVRAZ has implemented and will further develop procedures to ensure that sanctions requirements are complied with across its operations. While the Group’s internal compliance controls address the associated risks, the general uncertainty in the area increases management’s focus on this risk.
  • EVRAZ also continuously monitors changes in temporary legislation related to the COVID-19 pandemic.
Product competition

Excessive supply on the global market and greater competition, mostly in the steel products market, primarily due to competitors’ activity and introduction of new facilities. Low demand for construction products and increasing competition in this segment. Increasing competition in the rail product segment.

Excessive supply of slabs on the global market and intensified competition.

  • EVRAZ works to expand its product portfolio and penetrate new geographic and product markets as well as to improve product quality.
  • The Group constantly works on the development and improvement loyalty and on the implementation of customer focus programmes and initiatives.
  • EVRAZ strives to expand the share of value-added products.
HR and employee risks
Risks related to a lack of skills, a lack of succession planning, and reduced productivity due to labour unrest or low job satisfaction levels.
  • EVRAZ continuously monitors changes and compliance with applicable labour laws and regulations.
  • The Group implements a human capital development programme, arranges regular meetings with trade union representatives and analyses employee engagement levels and seeks to find the ways to their improvement.
  • EVRAZ has introduced a grading system and remuneration management principles. In addition, the Group collaborates with universities and colleges to enhance educational programmes.
Social and community risks
Risks related to socio-economic instability in the regions where the Group operates, deteriorations in relations with local communities and authorities, and loss of the Group’s “social licence” to operate.
  • To mitigate these risks, the Group arranges and proactively supports social, infrastructure, sport, educational, and cultural programmes in the regions of operation.
  • EVRAZ pays close attention to stakeholder engagement and collaborations with cities and regional authorities.
Climate change risks
Risks related to climate change and extreme weather events that could lead to business disruptions, resource shortages, and damage to the supply chain, equipment, and reputation.
  • EVRAZ implements energy efficiency projects that lead to lowering greenhouse gas emissions The Group supports global programmes to reduce greenhouse gas emissions.
  • EVRAZ participates in drawing up greenhouse gas emission regulations in Russia.
Human rights risks
Risks related to violations of human rights.
  • EVRAZ has adopted a Human Rights Policy and regularly informs employees about the principles set forth in the Policy and in the Group’s Code of Business Conduct and runs whistleblowing hotlines.
  • ERVAZ ensures its compliance with all applicable laws and regulations.
  • The Group annually discloses a Modern Slavery Transparency Statement.
Quality
Risks related to product quality.
  • The Group regularly monitors customer satisfaction levels and arranges meetings and feedback sessions with clients.
  • Site visits to production assets are organized on a regular basis.
  • EVRAZ implements production and quality improvement programmes.
Digital effectiveness, as well as effective, efficient and continuous IT service

A failure to proactively use IT opportunities to increase the efficiency of business operations could result in a loss of competitive advantage and margins.

Information technology and information security risks have the potential to cause prolonged production delays or shutdowns.

At the same time, increased digital transformation and the convergence of IT and operational technology make companies more vulnerable.

  • Digital Transformation is a part of the Group’s IT strategy.
  • EVRAZ continuously assesses and monitors information security risks, and it implements mitigation measures upon completion of external assessments by an independent advisor.
  • The Group conducts regular continuity testing for the most critically important IT systems.
  • Successful mitigation measures include launching the IT Security Operation Centre, conducting security awareness training for employees and effectively organising remote work for staff during the COVID-19 pandemic.