X5 Retail Group. Годовой отчет за 2022 год (на английском)

Sustainability strategy and UN SDGs

Achieve an employee
engagement rate above 75%

Focus

In 2022, engagement was not measured, but in 2021 the indicator was higher than the stated goal and totalled 82.5%.
In 2023, the Company plans to measure the indicator again.

In 2022, the Company conducted an eNPS measurement: the indicator reached 40.9%, which is 11 p.p. higher compared to
the previous period.

Priority

Goals for 2023

Goals through 2030

Initiatives throughout 2022

Relevant UN SDGs

primary and secondary
goals

EMPLOYEES

Become the leading food
retailer in rankings of Russian
employers

Maintain our #1 position among
food retailers in rankings of Russian
employers

Running programmes to make the Company more attractive to young people.

Received Platinum status in Forbes rating of the best employers in Russia in 2022.

Increasing the Company’s average salary by 11%.

Create a safe, healthy
workspace for all employees

Ensure the introduction of an
appropriate standard for a safe,
healthy workspace for all
employees

The Company redeveloped and launched a health and safety induction course (mandatory for ofﬁce workers) following

changes in Russian laws and regulations.

Training, holding external and internal occupational safety events, and auditing relevant courses.

Rethinking the way goods are moved from the warehouse to the ramp at Vprok.ru, reducing the total weight loaded on the
trolley so that two people can move it.

Implementing the WISE programme (a series of interactive events and videos on health and safety in common areas) at

Perekrestok DCs to raise the occupational safety culture.

Piloting a project at Pyaterochka to introduce electric warehouse trolleys in stores, signiﬁcantly reducing the effort needed

to unload vehicles and meeting female labour regulations.

Learn more on progress towards our strategic targets over the reporting year in the
2022 Sustainability Report.

The Company’s veriﬁed and audited Sustainability Report details the Company’s

approach to its sustainability strategy and provides quantitative data for the
reporting period.

Indirect

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

SUSTAINABILITY STRATEGY

Sustainability management

Our approach

Sustainability remains our strategic priority year after year. We assessed new constraints and opportunities, as well as how we delivered

on our goals for 2023 to set targets for 2025 in line with our updated strategy.

A long-term value creation model

This model helps articulate our business metrics, providing risk awareness through sustainability and enabling business continuity and agile reprioritising.

Our impact

Value creation

stage

Procurement

Delivery to distribution

centres and stores

Sales

Consumption

At all value
creation

stages

Engaging with
suppliers in:

Optimising supply
chain legs to minimise

losses

Reducing food waste

Providing quality
products to all

demographics

product quality control;

using eco-friendly
packaging;

respect for human rights
in production through
supplier training initiatives
and introducing
sustainability guidelines.

Respect for human rights

Minimising our waste

Lower energy and water consumption

Reducing our carbon footprint

Caring for our people and preventing injuries

Engaging in dialogue with stakeholders using feedback tools

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

SUSTAINABILITY MANAGEMENT

Governance

The Supervisory Board reviews issues related to sustainable
development two times per year – this includes approval of
the strategy, setting targets, monitoring the implementation
of goals by responsible persons, and amending goals as
needed. At this the Supervisory Board also discusses climate
issues and risks associated with sustainable development.
The Executive Board reviews and develops sustainability
goals and monitors their achievement across the Group.
More detailed information on ESG governance structure will
be available in 2022 Sustainability report.

The Supervisory Board oversees the Executive Board’s
activities, both in terms of strategy development and the
implementation of ESG projects, including climate action
initiatives.

The Company also has a cross-format sustainable
development committee, which was created to make key
decisions on achieving the targets of X5 Group’s sustainable
development strategy. This includes monitoring progress

Performance benchmarking of governance

Our long-term ESG KPIs designed for Company management
have a positive impact on our investment decisions and
sustainability goals. These KPIs include recognition by
customers, employees and shareholders. We are on the
verge of integrating them into each of our new investment
projects.

X5 Group has introduced climate change KPIs for managers
to drive progress on its 30x30 agenda. For example, our long-
term incentive programme targets a 10% cut in carbon
emissions by 2023 versus a 2019 baseline. There are also
other sustainability metrics, including more recyclable
packaging and waste management projects crucial to
reducing Scope 3 emissions. Overall, 5% of all management
KPIs are related to climate change.

towards each goal, prioritising tasks for the structural
divisions of X5 Group business units, as well as coordinating
the overall work to achieve set targets. The cross-format
Sustainability Committee also has an ESG Innovation
Subcommittee and a GR ESG Committee. There are teams in
each business unit and retail chain who implement
sustainability programmes and represent their subdivisions in
the drive for X5’s corporate goals. They gauge progress
towards targets, while our Corporate Centre works with the
Executive Board to review the broader implementation of the
Group’s strategy.

We have centralised strategic sustainability decision making
along with a platform for business units and retail chains with

speciﬁc competence to propose and implement strategy-

driven initiatives.

Learn more on our governance structure in the Corporate
Governance section of this Annual Report.

Sustainable investing

In 2022, we expanded our investment strategy with a
separate category of projects poised to achieve our
strategic goals. This category of non-commercial
procurement projects, each with their own payback
periods and terms, is used to invest in sustainability
projects.

X5 Group assesses key risks that may serve as
obstacles to it meeting strategic and operational
goals and compliance regulations, along with
sustainability risks related to climate change,
responsible supply chains, respect for human rights,
and business ethics. We have an assessment
framework in place, with each ESG risk reviewable at
the Management, Executive Board and Supervisory
Board levels.

The year of 2022 highlighted our focus on climate
change and human rights, and we are now assessing
potential human rights risks using OECD methods.

This covers key stakeholders, whose rights could
potentially be affected by the Company’s operations,
namely our customers, employees, logistics and
delivery services, and suppliers.

Every year we assess risks and opportunities to make
our business strategy more tolerant of climate
change risk and disclose information in our annual
Sustainability Report in line with TCFD guidelines.

In 2022, the Company faced the following

sustainability challenges:

For major risk assessment procedures and outcomes,
see the Risk Management section of this Annual
Report. Our TCFD report is available in our

Sustainability Report.

Declining living standards and a surge in demand

for affordable products and charity programmes

Climate change

The need to reduce waste by increasing the share

of recyclable packaging

The need to work with suppliers on sustainability

issues, including SMEs

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

SUSTAINABILITY MANAGEMENT

Key regulation-related policies

The Company seeks to build a culture driven by shared values, ethics, mutual respect, and rigorous compliance.

The Code of Business Conduct and Ethics, along with relevant policies, constitute X5’s across-the-board values
and standards of conduct.

These documents are designed to help our people comply with laws and act ethically. They are available on our website and our
corporate digital hub for all X5 employees. We constantly scrutinise and update the Code and related policies to adapt to changing
laws or internal processes.

Key documents

Highlights

Code of
Business
Conduct
and Ethics

The Code regulates employees’ interactions with customers,
suppliers and other staff, and sets out the Company’s basic
business principles.

It encompasses fair competition, anti-corruption and anti-
bribery, conservation, personal data and asset protection,

conﬂicts of interest, equal opportunities, and a safe working

environment, plus interactions with customers, suppliers and
competitors.

The Code applies to all employees, regardless of their
position or role. We regularly assess its performance at our
training sessions based on examples and real cases.

We have a hotline for ethics matters staffed by our managers.

Key documents

Highlights

Inside
Information
and Dealing

Code

The Code is designed to prevent the unauthorised use of
insider information by employees, as well as the suspicion of
such use, and to ensure that employees operate following
regulations on insider information and securities

transactions.

Code of
Interaction
with Business

Partners

The Code covers compliance with trade, anti-trust, and anti-

corruption legislation, as well as goods and service quality

control, conservation, occupational health and safety,

communication standards, data protection, conﬂicts of

interest, etc.

Violations of the Code are reviewed by the Conciliation
Commission.

Policy on
Countering
Misconduct
Including
Fraud and

Corruption

The Policy is focused on building a culture of integrity as well
as preventing employees acting illegally and minimising the
Company’s exposure to corruption. The anti-corruption
framework encompasses mechanisms, procedures and tools
for preventing, identifying, investigating, and dealing with
potential abuses. It also assigns anti-corruption roles and
responsibilities to units and management bodies.

As we only partner with those who share our zero-tolerance
approach to corruption and fraud, we added relevant clauses
on this to our supplier contracts and other partnership
agreements.

Key documents

Highlights

Personal Data
Processing

Policy

Aligned with Russian data protection laws and other relevant
legislative acts, the Policy applies to all employees and data-
handling procedures, including the collection, recording,

systematisation, accumulation, storage, clariﬁcation,

extraction, use, transfer, anonymisation, blocking, deletion,

and destruction.

Compliance

Policy

To comply with regulatory and stakeholder requirements,

internal standards, and our Code of Code of Business
Conduct and Ethics, we have adopted the Compliance Policy
in line with ISO-based GRC standards and management
systems.

Charity Policy

The Policy outlines basic principles and rules, as well as our
priorities in this area, along with the roles and responsibilities
of employees involved in corporate philanthropy.

These are the basic principles for charitable activities we
adhere to:

Equal

Opportunities
Policy

We understand that equality, diversity and inclusion – both
internally and when we interact with stakeholders – inﬂuence

business availability and performance. Thus, the Policy

encompasses the following four principles:

To implement these principles, we drafted a set of rules to
follow: it is mandatory to read the Policy and receive
sustainability training, continuously monitor and enforce the
Policy, and use a dedicated hotline to report violations. The
Policy appoints people to roles and responsibilities and

spans all Company employees.

Decent work environment

Equal opportunities for growth

Promoting diversity

Mutual respect

focus and scale;

responsibility and agility; and

transparency and accountability.

Declaration on
Human Rights

Protection

The Declaration speciﬁes the principles and rules for

complying with and promoting international human rights

protection practices at all levels:

The year of 2022 saw updates to the Declaration and a full
transformation of the Human Rights Policy. The Policy will be
approved in 2023.

Zero tolerance of discrimination and forced labour

Zero tolerance of harassment

Respect for diverse cultures and their values

Respect for the rights to freedom of assembly and

association

Occupational health and safety

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

SUSTAINABILITY MANAGEMENT

Stakeholder

engagement

How we engage

We maintain regular communication with stakeholders to create

value and ensure sustainable and proﬁtable growth in the years

ahead.

X5 Group’s key stakeholders are its customers, employees, shareholders,
investors, suppliers, local communities, regulatory bodies, and state
authorities. As 2022 witnessed regulatory changes and a green lending
surge, the Company began interacting with banks in various areas to drive up
the sustainability agenda.

This and the following pages review measures, forms and objectives of the
Company’s stakeholder engagement.

Customers

Using big data analytics on customer transactions

to unlock better decision-making when it comes

to customer demand

Maintaining various consumer interaction

channels, from messenger chatbots to a hotline.

Using Food.ru (an edutainment media platform)

and sending its subscribers sustainability digests

Monitoring consumer feedback and evaluations

to collect and analyse their preferences

Measuring customer satisfaction on the federal
level using NPS

X5 Group keeps dialogue between several stakeholder groups on speciﬁc
sustainability aspects top-of-mind:

Learn more on stakeholder engagement methods and outcomes in our

2022 Sustainability Report.

Informing suppliers of sustainable packaging trends among customers

Collaborating with state authorities to analyse local community needs;
engaging suppliers and business partners to meet them

Employees

Enabling a meaningful career journey along with an attractive, fair, and
transparent compensation and motivation system. Leveraging enhanced
feedback mechanisms to improve labour practices, remuneration, governance,
and corporate culture across the Company

Developing our corporate university, called Polka (“Shelf”), which combines
training activities offered within the Company with external training

opportunities in a single educational marketplace

Championing our corporate human rights policy and making sure our
employees have all the freedoms they are entitled to

Introducing rigorous occupational health and safety regulations and
communicating relevant requirements to employees

Supporting employees through hardship; e.g., due to a long-term illness, an
accident or the loss of a family member or property

Incentivising employees to boost the Company’s success

Encouraging employees to participate in corporate social responsibility
programmes and help those in need

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

STAKEHOLDER ENGAGEMENT

How we engage

Shareholders

and investors

Disclosing updates and changes to our strategic
priorities on a timely basis. Constantly enhancing
our ESG disclosure methods to align with global

best practice

Communicating how we view the food market
and competitive landscape as well as their trends.
Improving our corporate governance system to

follow the world’s leading research

Regularly updating the investor website with
timely, accurate and relevant information on the
Company’s performance, including annual and

sustainability reports, ﬁnancial statements, press
releases, and presentations

Ensuring direct stakeholder and investor
engagement through virtual and face-to-face
roadshows, investor conferences, conference
calls, and group meetings with analysts and

investors

Engaging with suppliers on sustainable
development issues has become even more
relevant in 2022. In particular, this includes issues
related to sustainable packaging due to the
reduction of import solutions and the need for
localisation. We closely interacted with our
suppliers on this and other topics in 2022,
including organising webinars for suppliers with an
overview of current challenges and localised

packaging solutions.

Suppliers

and counterparties

Tapping into big data to offer our suppliers
comprehensive analytics on market demand and
trends. Delivering high, trustworthy and respect-
based standards of supplier engagement to
properly tackle consumer feedback and
complaints. Reaching out to regional producers to
raise the share of local goods across X5’s retail

chains

Ensuring both large federal and small local
suppliers can access and leverage our transport

and logistics infrastructure

Conducting regular surveys and other activities to
obtain supplier feedback, as well as elevating the
Company’s own X5 Dialog platform to raise

awareness of sustainability and other topics

Society

and local communities

Extending initiatives to better the well-being of
local communities, including cooperation with the
Basket of Kindness food bank and LizaAlert

search and rescue team

Collaborating with municipal, regional and federal
authorities to forward projects for the vulnerable,
usually pensioners and families with children in

hardship

Spotlighting programmes for X5 customers to

donate

Hosting events to make life better for local
communities: tree planting, clean-up days and
Victory Day celebrations. Aligning the Company’s
operations with environmental laws. Assessing
and disclosing X5’s sustainability achievements
and informing local communities about our efforts

to reduce consumption, emissions and waste

Government /

regulators

Cooperating with governing bodies industry
associations representing the retail business on
state regulation and legislation (e.g. the National

ESG Alliance)

Interacting with government ofﬁcials at important

Company events (e.g. DC openings) to showcase
X5’s efforts to create jobs and back up local

producers

Participating in federal and regional task forces

Testing new technology; for example, labelling for

various goods, electronic document ﬂow and
signatures

Promoting an open dialogue with the Retail
Companies Association (RCA) and
communicating X5’s position on relevant industry
issues (environmental protection, sanitary

regulations, etc.)

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

STAKEHOLDER ENGAGEMENT

Community

UP TO

Annual increase in the number of families
receiving support through the Basket
of Kindness project

STRATEGIC GOALS

FOR 2023

STRATEGIC GOALS

THROUGH 2030

Double the number of families
receiving food aid through the
Basket of Kindness project
compared with 2019

Develop partnership
programmes with small and
medium-sized businesses,
farmers and local producers

Develop community care
programmes

Engage all stores in Help for
Lost People programme

Our approach

X5 Group provides local communities with
charitable and social projects and partners
with local producers.

Rolling out the Farm category is a key
programme at X5. Various regions feature this
category in retail chain stores, with over 200
farmers supplying their products.

X5 Group’s Charity Policy covers all business
units, outlines the charity framework and
describes its priority areas. It also sets out the
roles and duties of responsible employees.

The Company’s charitable activities are
focused on providing food aid, a comfortable
and safe environment, wellness, and healthy
lifestyle. Conscious of these priority areas, the
Company implements community-oriented
projects to carefully protect health and well-
being.

We do our best to promote and encourage
corporate volunteering, engaging our
employees in charitable and volunteer
projects.

We identiﬁed key target groups of
beneﬁciaries that include children, the elderly,

people experiencing hardship, local
communities, and refugees.

We work with non-proﬁt organisations (NPOs)

that release feedback after each project.

The National Development Goals, NPO

experts and global best practice also guide
us on the way.

X5 Group’s 2022 Sustainability Report
contains more details on our charitable and

volunteering efforts.

Plans for 2023

Achieving the targets for our charitable
projects:

Increase the number of families covered

by Basket of Kindness support by 30%

Maintain the Safety Zones programme
across all Pyaterochka and Perekrestok

stores to help lost people

Scale up the food sharing project

Providing people in need with food aid
under the new Regional Food Aid Centres

(RFAC) programme among other things

Fast-tracking inclusion initiatives

Boosting current programmes for local

communities

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

COMMUNITY

Planet

Reduction in GHG
emissions (Scope 1 and
Scope 2) intensity per
sqm of selling space
compared with 2019

UP TO

Reduce the ratio of
waste generated to
retail sales compared
with 2019

UP TO

Increase the share of
recyclable solid waste
generated by our retail
chains that is sent for
recycling

STRATEGIC GOALS

FOR 2023

STRATEGIC GOALS

THROUGH 2030

Our approach

In December 2019, X5 approved the Sustainability Strategy that
enables us to embed proper principles and thus achieve the
Company’s priority UN SDG 12 (Responsible Consumption and
Production). For steady performance growth in this area, we are also
testing and adopting novel and innovative ways of optimising
resource consumption across the Company, and promoting prudent
use, reuse and recycling among our customers.

In late 2021, X5 reafﬁrmed its sustainability commitment, adopting a

decarbonisation plan and aspiring to become carbon-neutral by
2050. In 2022, we expanded efforts to reduce greenhouse gas
emissions per square metre of retail space by 30% by 2030.

The Company’s environmental management is based on clear role allocation
among responsible employees and departments. The Company has guiding
policies and procedures in place. However, each division or business unit is
mature enough to take its own management approach.

The Company is implementing a project to automate non-ﬁnancial reporting

and monitor data. Automated data recording systems have replaced manual
ones. They rely on our proprietary product – WRS (Web Request System) –
web forms or checklists for engineers to better monitor the use of various
resources.

In 2022, we launched an ESG innovation track to work with partners and
source new solutions in the market that could help overcome technological
constraints as part of our food waste, climate and sustainable packaging
targets for 2023.

Governance

Reduce GHG emissions
(Scope 1 and Scope 2)
intensity per sqm of
selling space compared
with 2019

Increase the use of
renewable energy in
our operations

Develop principles and
practices for tracing
suppliers’ responsible
sourcing of goods

UP TO

Increase the share of
non-expired food that is
no longer saleable sent
for reprocessing

UP TO

Share of private
label goods in
environmentally friendly
packaging

UP TO

Increase share of
renewable energy used
in our operations

Reduction in ratio of
waste generated to
retail sales

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

PLANET

Reducing energy consumption

Reducing waste and developing sustainable packaging

Waste prevention

In 2019, a GHG emission assessment programme was
launched across the Company under the Corporate
Greenhouse Gas Emissions Protocol’s Accounting and
Reporting Standard. In 2020, we introduced the

contributing to our ongoing decarbonisation efforts and

energy efﬁciency. We put in place a set of practices to

improve our GHG emission reduction and energy
performance by cutting energy consumption and switching
to renewable energy.

To achieve our goals, we launched multiple initiatives, such as
green distribution centres and stores. In the reporting year,
we connected 11 DCs to low-carbon power. Our Smart Store
system is rolled out to all new stores and those slated for

renovation. With sensors, monitoring devices and software,

the system seamlessly integrates into ongoing operations,
helping to save energy and manage electricity consumption.

For more initiatives under our strategic energy-saving goals,
go to our 2022 Sustainability Report.

Energy

Efﬁciency and Climate Change Prevention Policy

One of our overriding priorities is optimising waste
management.

In the year under review, X5 revised its Waste Minimisation
Policy in light of legislation changes. Our Waste Management

Procedure, featuring training for dedicated staff, is also now in
place.

Improving the accuracy of stock management is an
important tool to reduce waste generation, but X5 Group is
taking further steps to minimise waste. These include big
data-enabled demand modelling, increasing product
supplies, tailoring products to meet customer needs,
lowering minimum order quantities, and temperature control
during transportation.

Waste management is part of our innovation track aimed at
ﬁnding various recycling solutions. In 2022, X5 Group started

working on an accessible map of recycling solutions in the

regions. We will post the map on our ofﬁcial website as soon
as it is ﬁnished. On top of all this, we are piloting new

solutions to prevent waste generation.

We introduced an intuitive feature to submit a request for

pallet return on our supplier platform, promoting the reuse of
materials in logistics operations. Pyaterochka stores already
return a portion of pallets to the supplier and make repairs in
DCs for further reuse. Perekrestok launched a project in 2022
to centralise the transportation of recyclables from stores to
DCs: two centres joined the project in all areas, while a
further two joined it partially.

The Company’s retail chains remain busy assessing and
improving their waste management, all while training
dedicated employees. In this regard, Pyaterochka and
Perekrestok have sales-linked recycling standards tailored to

each store. We also advanced the system to control the

volume of store-to-DC recyclables and equipped DCs with
scales and incoming control to leverage actual
measurements.

For more initiatives under our strategic waste reduction goals,
refer to X5 Group’s 2022 Sustainability Report.

Reduce GHG emissions (Scope 1 and
Scope 2) intensity per sqm of selling
space compared with 2019

Increase the use of renewable
energy in our operations

STRATEGIC GOALS

FOR 2023

Reduce GHG emissions (Scope 1 and
Scope 2) intensity per sqm of selling
space compared with 2019

UP TO

Increase share of renewable
energy used in our operations

STRATEGIC GOALS

THROUGH 2030

UP TO

Reduce the ratio of waste generated
to retail sales compared with 2019

UP TO

Increase the share of recyclable solid
waste generated by our retail chains
that is sent for recycling

UP TO

Increase the share of non-expired food that
is no longer saleable sent for reprocessing

UP TO

Share of private label goods in
environmentally friendly packaging

STRATEGIC GOALS

2023

UNTIL

Reduce the ratio of waste generated
to retail sales compared with 2019

STRATEGIC GOALS

THROUGH 2030

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

PLANET

Guidelines for suppliers

In June 2020, X5 Group drafted and published
sustainability guidelines for its suppliers, based on
Company analysis of publicly available research, data
from authorities or public environmental NPOs, and

the ﬁndings of the supplier survey and public expert

hearings.

These guidelines:

In 2021, X5 disclosed thorough sustainable
packaging guidelines for 13 product categories,
developed in conjunction with manufacturers,

suppliers, industry associations, and the expert

community. We obtained feedback from 23 partners

and 16 experts on the recommendations. X5 also

held a public project discussion that brought
together 100 stakeholders. The document enlists

speciﬁc examples of most preferred and least

preferred raw materials for packaging. We are
constantly brushing up our guidelines and are open
to dialogue with each of our partners to share our

insights for the beneﬁt of the whole market.

X5 has updated its internal procurement regulations
to adjust to new supplier instructions. In August, we
designed a sustainability training course for our
suppliers. It is publicly available on the Company’s
website.

X5 Group continued screening sustainable suppliers
through a dedicated survey on its supplier portal (the

Company’s ofﬁcial supplier interface) by expanding it
with mandatory ﬁelds dedicated to sustainability.
These ﬁelds give us insights into packaging and
voluntary certiﬁcation.

Our efforts in supplier awareness and feedback
include our sustainability guidelines and supplier co-
marketing programmes.

The reporting year saw our selective ESG veriﬁcation

for private label suppliers come into force, and we
plan to carry this practice into the future covering
more suppliers.

To read about all supplier engagement initiatives,
please refer to X5 Group’s 2022 Sustainability Report.

Develop principles and practices
for monitoring suppliers’
responsible sourcing of goods

STRATEGIC GOALS

FOR 2023

Develop a responsible
supply chain

Promote the principles of responsible
sourcing of raw materials across the

supply chain

UP TO

Share of private label goods in
environmentally friendly packaging

OTHER KEY GOALS

outline voluntary environmental and social

certiﬁcations for diverse product categories,
highlighting responsible production practices;

formalise X5’s vision for sustainable packaging:
reusable packaging materials that are recyclable in
Russia, the use of mono-materials and reusable
containers and design streamlining; and

comprise particular examples of the most and least

suitable raw materials for packaging.

TCFD disclosure

Throughout 2022, X5 Group has upheld its focus on
incorporating climate-related risks into its business

operations as well as expanding the scope and

improving the transparency of the Company’s climate
reporting. The following TCFD disclosure is a
thorough review of the Group’s performance amid
the political, legal and economic environment of the
prior year. The information in this section is correct as
at 31 December 2022, unless stated otherwise.

Governance

As the Company is committed to proactively
managing its climate footprint and mitigating the risks
associated with it, X5 has developed a
decarbonisation strategy that emphasises conscious
consumption of resources while building resilience to

external challenges. Our corporate governance

framework is set up to ensure that the highest levels
of management reinforce our long-term strategy for
addressing climate change. Supervisory Board
members are in charge of developing and monitoring
our sustainable development strategy, ensuring that

executive management implements sustainability-
and climate-related measures quickly and efﬁciently.

In 2022, we also introduced the President position to
further strengthen our operational decision-making in
line with the Group’s strategic priorities in a fast-

changing external environment.

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

PLANET

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

PLANET

Corporate governance structure

Supervisory Board

Supervisory Board supervises the

Management Board which is supported by

pages 130–136

Supervisory Board

The Company’s overall course of affairs, strategy, and operational
performance, including on climate action and climate risk response, are
overseen by the Supervisory Board. The

the Executive Board – the

Company’s senior management – and delegates essential responsibilities
to the standing committees in accordance with their areas of responsibility.
See more on the Supervisory Board on

Our sustainable development strategy was approved by the Supervisory
Board and has become an integral part of our long-term business strategy.
At least once per quarter, the Supervisory Board meets to review and
approve the process for assessing corporate risks, including climate risk
assessments within it. Regular detailed reports from the relevant committees
allow the

to monitor performance across all key projects

and activities, including advances in climate risk mitigation measures,
progress against the sustainable development strategy, and the impact of
environmental projects. Each year, the Board approves the budget for the
Company and its projects in line with the Group’s strategic priorities,
including ESG- and climate-related initiatives.

Executive Board

The Executive Board is in charge of handling day-to-day strategic and
operational decisions that drive progress against the Company’s overall
strategy as well as its sustainable development strategy. As part of its
activities, the Executive Board is involved in identifying and appropriately
addressing risks that threaten the achievement of the Company’s business
objectives and the continuity of its operations, which includes regularly
monitoring climate-related risks and opportunities. The Executive Board
holds monthly meetings and provides regular progress updates regarding
ongoing projects and climate-related findings to the Supervisory Board.
To keep close track of environmental performance and the risks and
opportunities associated with climate change, the Executive Board receives
regular reports from representatives of the Company’s business units.

Sustainable Development and Innovation Committee

On 16 March 2022, the authority and duties formerly held by the Sustainable
Development and Innovation Committee were returned to the broader
Supervisory Board amid recent events.

ESG and climate considerations are not only an integral part of the Group’s
long-term strategic vision, they are also being incorporated into its short-
term corporate strategy until 2025, which is currently under development.
The update will include a sustainable development section as one of the
Company’s strategic priorities.

Climate-related issues are taken into account at various levels in the Group’s
decision-making processes as X5 Group continues to expand its awareness
of, and commitment to, environmental and climate responsibility in its
strategy:

Investment decisions

When making decisions on investment initiatives, X5 considers the financial
impact that transitional and physical risks may have as well as the potential
impact on the Group’s GHG emissions. Furthermore, in 2022, some
changes were made to the investment policy to integrate special
conditions into ESG projects, including climate-related projects designed to
soften the climate impact of the Company’s operations. According to the
new investment policy, ESG- and climate-related projects have lower
approval requirements than the regular standards set for the Group

Operational planning

Decarbonisation and energy efficiency opportunities have been
incorporated into the decision-making process concerning the launch of
new business units. From 2022 onwards, new Pyaterochka and Chizhik
distribution centres have had a particular set of building requirements to
ensure more climate-conscious operations, such as the installation of
energy-saving equipment and making other efficiency gains, where
possible

Budget considerations

Climate risks are also taken into account when making budgeting decisions.
The regularly updated climate risk register and an assessment of financial
impact (e.g. an analysis of changes in refrigerant prices and the cost of
replacing equipment) are incorporated into capital expenditure decision-
making

Strategy

Our sustainable development strategy is driven by cost-effective decarbonisation
measures that are set to increase the long-term value of the Group. The strategy is
directly updated with the results of our ever-evolving risk assessment processes and
by measuring our climate impact against the Group’s targets. By analysing how
climate risks affect us, we gain a more comprehensive understanding of how the
Group’s strategy should be designed as well as of how we should mitigate the
consequences of potential issues in the future. We continuously assess the possible
financial implications of climate-related issues and changes in climate scenarios on
our strategy to ensure we deliver on our sustainability goals and business objectives
despite any external challenges.

The sustainable development strategy is integrated into
the Group’s broader strategy and is aligned with Russia’s
decarbonisation goals. As part of this vision, X5 has
introduced the 30x30 agenda, which aims to reach the
following medium-term targets by 2030:

Reduction in GHG emissions
intensity (Scope 1 and Scope 2)
per square meter of selling
space against a 2019 baseline

Share of renewable energy
in X5 operations against
a 2019 baseline

Reduction in the ratio of waste
generated to retail sales against
a 2019 baseline

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

PLANET

Climate-related risks

most recent edition

In order to efficiently identify and manage climate-related issues and develop effective decarbonisation measures, the
Group analyses and monitors its climate risks. Our risk assessment process is informed by the following climate scenarios
from the IPCC’s Sixth Assessment Report (AR6) and IEA’s annual outlooks, including its

X5 Group considers the SSP2-4.5 scenario to be the primary
one for our industry. Therefore, we pay particular attention to
materiality scores within the SSP2-4.5 scenario (the 2.0 °С
scenario), as we believe it to have a long-term effect on the
Group’s strategic resilience and estimated financial impacts.

Physical and transition risks

The Company’s approach to climate risk assessment considers both physical and transition
risks in line with global best practice. Physical climate-related risks are associated with the
physical impacts of climate change, such as storms, droughts and forest fires. The Group
identified extreme weather events and changes in precipitation amounts and patterns as
the most significant risks in this category as they pose the biggest threat to the supply
chain and, therefore, to X5’s retail activities. As per

, extreme weather events are expected to increase in frequency by 2050, which

corresponds to the long-term horizon within the Company’s risk assessment framework and
strategy. Therefore, the impact of physical risks will be more significant in the long term.

X5 Group is closely monitoring environmental changes that may affect the severity of risks
associated with the transition to a low-carbon economy, also known as transition risks, as the
Company’s financial performance is more likely to be significantly impacted by such risks
due to an increase in expenditures arising from subsequent operational transformations.
Hence, X5 pays special attention to this category of climate risks, as they are more volatile
and present a more immediate threat to its operations.

the IPCC’s Sixth Assessment Report

(AR6)

2022

In 2022, the Company continued its efforts in operating an efficient and up-to-date risk
identification and assessment system, while continuously enhancing it. As such, a thorough
review and revaluation of the entire climate risk register was conducted to incorporate the
most recent developments in both national and international regulations, stock exchange
requirements, methodological frameworks as well as other relevant events. The key changes
in risk scores and materiality compared to their 2021 values, as well as the reasons for the
adjustments made, are summarised below. While the results of the qualitative analysis and
expert assessment reflect the average materiality results for the Group in the reporting year,
X5 analyses each business unit separately in order to have a comprehensive understanding
of the risk exposure across business activities and geographies.

In 2021, X5 conducted a comprehensive quantitative assessment of climate-related risks
and opportunities, the results of which were presented in the form of a detailed risk register,
reflecting both physical and transitional risks. A full and complete disclosure of the risks
analysed, their materiality estimates and potential consequences, as well as the
corresponding mitigation activities, can be found in our

on pages

68–72.

A comprehensive revaluation and recalculation was carried out in 2022, with the materiality
scores of each risk within a specific climate scenario and time horizon colour-coded in the
table below and arrows showing the direction of change for each score (compared to their
values in 2021).

2021 Sustainability Report

(scenario SSP1-2.6)

1.5 °С scenario

The most challenging scenario, involving considerable adjustments to
the Company’s activities; yet one that would help to greatly lessen the
impact of physical climate risks for the Company and, on a larger scale,
for society. This scenario ensures that the goals of the Paris Agreement
are met. The world moves towards a low-carbon development path
and a greener economic model, and away from its current resource-
and energy-intensive practices. Both developed and developing
countries strive to achieve net zero as soon as is practically possible
and adopt relevant policies. On top of lowering GHG emissions in hard-
to-abate sectors, carbon capture technologies are developed. The
share of fossil fuels in the global energy mix declines in the mid-2020s
and flattens out in the 2030s as a result of the worldwide contribution
to a rapid reduction in the use of such energy sources.

2.0 °С scenario

(scenario SSP2-4.5)

Though less drastic than the 1.5 °C scenario, this scenario would
nonetheless require significant adjustments in the way the Company
operates. The impact of physical climate risks on the Company and the
global economy as a whole would be partially reduced. Compared to
the 1.5 °C scenario, this path leads to worsening climate change and
more dangerous consequences. However, it does see the world’s
energy mix shift in favour of more sustainable sources. It also assumes
that, despite the challenges posed by climate change and declining
use of energy sources like oil and gas, economic growth will continue.
The overall energy consumption is also reduced, although in a less
efficient and environmentally friendly way than in the first scenario. The
share of fossil fuels in the global energy mix declines around 2030 and
flattens out around the 2040s, as both developed and developing
economies strive for net zero. The decarbonisation initiatives
undertaken by developed nations and subsequent similar actions
introduced by emerging economies several decades later result in a
reduction in the resource and energy intensity of the global economy.

4.0 °С scenario

(scenario SSP5-8.5)

Under this scenario, the Company’s activities do not need to change
significantly, and operations would proceed as usual. Physical climate
risks would have a greater effect on the Company as well as the world
economy. Both developed and emerging nations experience fast
economic growth. Oil and gas remain the key energy sources, and
there is still a tremendous demand for natural resources and materials.
While some economies seek to implement decarbonisation initiatives,
these efforts are not enough to materially impact the global economy,
development, or energy intensity. As the share of fossil fuels in the
global energy consumption remains unchanged or potentially
increases, GHG emissions continue to grow until the end of the
century.

Risk

Payments for GHG
emissions

Risk component

Changes in regulation

Regulatory risks arise
from governmental
requirements for
compliance with
national climate goals
and international
commitments to
combatting climate
change

Payments for GHG
emissions would increase
logistics costs

Consequences

Monitoring the volume of
emissions (Scope 1, Scope 2
and Scope 3)

Regular reporting on GHG
emissions and other climate-
related and ESG issues in
compliance with the current
national legislation and
international standards

Continuously monitoring
relevant regulatory and
legislative developments and
disclosure trends

Conducting a climate-related
risk assessment in line with TCFD
and other relevant frameworks

Reducing overall GHG emissions
across the value chain

Completing a comprehensive
cost analysis of the shift to low-
carbon operations, including the
shift to more environmentally
friendly equipment

Developing GHG emission-
reduction initiatives, including
the transition to refrigerants with
a lower GWP

Increasing the share of on-site
renewable energy generation

Using an internal carbon price
at the project discussion

Risk management initiatives

A score increase in the short-
term across all three scenarios is
due to the recent developments
in national legislation.

While there is currently no fee for
GHG emissions in Russia, on 2
July 2021, Federal Law No. 296-
FZ On Limiting Greenhouse Gas
Emissions came into force, laying
down the regulatory framework
for mandatory carbon reporting.
Although retail trade is not listed
among the regulated industries,
fuel combustion in Company
transport falls under the new
regulations.

Further amendments and
additions to the law are to be
expected. As such, there is a
planned introduction of
administrative penalties for
failure to submit mandatory
carbon reporting. A respective
bill has already been submitted
to the State Duma.

Furthermore, on 1 September
2022, a GHG quota trading
system was piloted in the
Sakhalin Region. The experiment
is likely to be scaled to other
regions in the future, and then
rolled out across the whole
country.

Commentary

Scenario SSP1-2.6

(~1.5 °С)

2030

2050

2025

Scenario SSP2-4.5

(~2.0 °С)

2030

2050

2025

Scenario SSP5-8.5

≥

( 4.0 °С)

2030

2050

2025

2022

Lowest impact

Medium impact

Highest impact

Score increase

Score decrease

No score change

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Risk

Risk component

Consequences

Risk management initiatives

Monitoring the volume of
emissions (Scope 1, Scope 2

and Scope 3)

Regular reporting on GHG
emissions and other climate-
related and ESG issues in
compliance with the current
national legislation and
international standards

Continuously monitoring
relevant regulatory and
legislative developments and
disclosure trends

Conducting a climate-related
risk assessment in line with TCFD
and other relevant frameworks

Reducing overall GHG emissions
across the value chain

Completing a comprehensive
cost analysis of the shift to low-
carbon operations, including the
shift to more environmentally
friendly equipment

Developing GHG emission-
reduction initiatives, including
the transition to refrigerants with
a lower GWP

Increasing the share of on-site
renewable energy generation

Using an internal carbon price

at the project discussion

A downgrade in the short-term
score across all three scenarios
is driven by the suspension of
Russian companies’ (including

X5) listings by the London Stock

Exchange in 2022.

Medium- and long-term
estimates remain unchanged,

as trading activities are likely to

resume in the future; therefore,
the risk of non-compliance with
the mandatory climate-related
disclosure requirements in the
medium and long term remains.
Furthermore, on top of the UK,

a number of other jurisdictions

have either adopted or
announced their intentions

to introduce requirements or

recommendations for the
disclosure of climate-related
information by 2025 at the latest.

Commentary

Scenario SSP1-2.6

(~1.5 °С)

2030

2050

2025

Scenario SSP2-4.5

(~2.0 °С)

2030

2050

2025

Scenario SSP5-8.5

(

4.0 °С)

≥

2030

2050

2025

Lowest impact

Medium impact

Highest impact

Score increase

Score decrease

No score change

2022

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Changes in climate
disclosure requirements
of stock exchanges for
public companies

Stock exchanges may
suspend the Group’s
listings for failure to
disclose climate-related
aspects of its operations

Risk

An increase in the cost of
borrowing and required
rate of return on equity as
well as the implementation

of strict ﬁnancial and non-
ﬁnancial covenants

Consequences

In the mid-term, the risk score
increases, as in the 1.5 °C
scenario, investors and ﬁnancial
regulators are expected to have
the most stringent requirements,
while exchanges actively impose

tighter restrictions on climate

disclosures.

The short-term risk estimate
under the 2.0 °С scenario has
been slightly lowered, since
investor expectations towards
climate-related disclosures are
likely to be less exacting than in
the 1.5 °С scenario, although not
as liberal as in the 4.0 °С
scenario.

Finally, in the 4.0 °С scenario, the
short-term risk score is adjusted

upwards because this scenario

does not exclude a negative

assessment by potential

investors, especially considering

that the time horizon has been

revised to 2025.

Commentary

Risk management initiatives

Monitoring developments in
the reporting requirements of
international stock exchanges
and best practice for climate-

related disclosures

Implementing best practices

in responsible business and

decarbonisation methods

Articulating the Company’s

decarbonisation strategy and
explaining what challenges the

Company may face during the

transition

Providing a third-party
assurance of climate-related

data

Improving climate-related
disclosures for key ESG ratings

Changes in investor
behaviour

Investors may have more

exacting requirements

regarding a company’s

climate strategy and

actions, particularly in

terms of the scope of

climate disclosures. Since
ESG scores may inﬂuence
investors’ decision-making,
a low ESG score alerts
investors to increased
climate risks and poor

quality of management

Risk component

A potential loss of investor
interest, should insufﬁcient

information be disclosed
about:

the Company’s activities

in response to climate
change

the impact of climate
change on the

Company’s ﬁnancial

performance

GHG emissions, carbon

intensity of production

and other climate-

related metrics and
targets

Scenario SSP5-8.5

(

4.0 °С)

≥

2030

2050

2025

Scenario SSP1-2.6

(~1.5 °С)

2030

2050

2025

Scenario SSP2-4.5

(~2.0 °С)

2030

2050

2025

Lowest impact

Medium impact

Highest impact

Score increase

Score decrease

No score change

2022

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Risk assessment

Risk mapping tool

In 2022, X5 introduced a new climate risk analysis tool, which builds on the
previous quantitative and qualitative climate risk assessments and augments
them with a geographical dimension. The new climate risk mapping tool
takes the form of a dashboard that visualises climate change data in
combination with related socio-economic factors to help identify and
analyse the Group’s climate-related risks and opportunities.

The tool includes the climate scenarios used in the previous quantitative and
qualitative climate risk assessments (1.5 °С, 2.0 °С and 4.0 °С) and their
effects on the Company’s stores, distribution centres and transportation
hubs as well as the pathways plotted for the 2022–2050 time horizon. The
dashboard allows us to select a climate scenario for physical and transition
risks and estimate its financial impact on specific assets within the selected
timeframe, based on a range of physical, social and economic indicators (e.g.
the cost of refrigerants, changes in diesel prices, changes in per capita
disposable income, and precipitation patterns, among other factors).

Thus, the previously completed quantitative assessment, combined with a
qualitative scenario analysis within the risk register and geographical
considerations of the climate risk mapping tool constitute a comprehensive
system designed for rapid and effective risk identification, assessment and
mitigation, while also informing the Company’s budgeting and investment
decisions as well as its strategic and operational planning.

The Group’s strategy and climate risk assessment is structured across three
time horizons:

Up to 2025, the short-term horizon

2025–2030, the medium-term horizon

2030–2050, the long-term horizon

The Group uses uniform approaches to assessing climate risks, utilising a
scale to gauge risk impact, which classifies risks from the lowest to the
highest possible impact to estimate the materiality of climate threats. Risks
are identified and scored for each business unit separately. This assessment
includes the impact of risks on the market share, financial performance,
investor relations, interactions with regulators, operational processes, and
employees. If a new risk becomes apparent and material at a business unit
level, it will be escalated for further analysis as per the Group’s corporate risk
assessment process.

The Group assesses the impacts of climate-related risks and opportunities
on X5’s financial performance through 2030. The financial consequences of
physical and transition risks have been assessed, taking into account the
potential effects on the Group’s key financial performance indicators.
Financial estimates are subject to periodic review and reassessment to
ensure accurate and climate-informed decision-making. The results of the
financial assessment conducted in 2020 were reviewed in 2022, and no
changes identified were significant enough to require a full reassessment.

The process of evaluating climate risks evolves on a yearly basis: in 2022, X5
expanded its climate risk analysis by proceeding with geographically
mapping climate risks in order to determine the degree of the Company’s
exposure and vulnerability to climate change in its areas of presence.

Our climate risk assessment process aligns with the Group’s general risk
assessment and is closely reviewed on a regular basis during the Supervisory
Board’s strategy sessions. Additional information on the Group’s risk management
can be found on pages 119–126.

The results of climate risk and opportunity assessments help the Group develop a
more comprehensive understanding of the changes necessary to transition to a
low-carbon economy business model. Our decarbonisation initiatives closely align
with the results of climate risk assessments, especially with the proposed
measures to mitigate such risks, to ensure the effectiveness and resilience of the
Group’s sustainability strategy.

Both physical and transition climate risks are incorporated into the general risk
register and are subject to annual review.

The climate risk assessment complies with the Group’s risk assessment procedures
and includes the following steps:

Risk identification

Risk assessment

Risk response (avoidance, mitigation, transfer, or acceptance)

Development and implementation of measures to reduce risks

Control and monitoring

Risk management reporting

1 Strategy 2025 is currently under development.

X5 Retail Group. Годовой отчет за 2022 год (на английском) - часть 6