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Low-carbon policy in the company

In order to achieve the targets of the KMG Low-Carbon Development Program (LCDP) for the period 2022–2031 expressed in reducing the carbon footprint by 1.6 mln tons CO₂ and construction of renewable energy sources (RES) facilities with a total capacity of at least 300 MW, in 2022 the KMG Board approved the Action Plan for the implementation of the Program.

The action plan contains a set of actions both having organizational nature and in the areas of energy efficiency and energy conservation increase, the development of renewable energy sources, monitoring of methane leakages, as well as additional decarbonization actions, which corresponds to the key areas of the LCDP. Moreover, the Plan includes organizational actions concerning assurance of the implementation and monitoring of the achievement of cumulative targets for key business areas based on the developed individual Plans of SDEs, included in the LCDP perimeter.

External context on carbon regulation:

In 2022, the National Allocation Plan of Greenhouse Gas Emissions Quotas, which provides for an annual reduction of the carbon budget and the amount of free-issued greenhouse gas emissions quotas by 1.5 %, was approved for the period 2022–2025. This annual reduction in the volume of quotas is intended to ensure that the Republic of Kazakhstan achieves the goals of Nationally Determined Contributions (NDC): 15 % by 2030, and a more radical annual reduction in the volume of quotas is expected in the new National Allocation Plan of Greenhouse Gas Emissions quotas from 2026.

With the aim of effective implementation of the Program, as well as coordination of decarbonization processes on a systematic basis, in 2022, the Department of Low-Carbon Development was created in the structure of the KMG Central Body, which includes the Administration of Energy Efficiency and Renewable Energy and the Administration of Low-carbon Policy.

The Administration of Energy Efficiency and Renewable Energy oversees the issues:

• control over the execution of the Action Plans of SDEs for the implementation of the KMG LCDP and their achievement of target indicators in the field of energy intensity, energy management and RES;
• coordination and organizational-and-methodological support for the implementation of RES projects;
• participates in the improvement of the regulatory framework in the field of energy efficiency and energy conservation, RES and alternative energy, taking into account the KMG corporate interests.

The Administration of Low-carbon Policy coordinates the matters on:

• improvement of the greenhouse gas emissions management system in the KMG Group of Companies;
• reporting generation of carbon footprint;
• preparation of project documentation in framework of implementation of offset projects;
• Improving KMG internal policy with a view to achieve target indicators on carbon footprint.

Methodology of monitoring and reporting on KMG greenhouse gas emissions

In order to standardize approaches to monitoring and reporting on greenhouse gas emissions among SDEs, a Methodology of monitoring and reporting on KMG greenhouse gas emissions has been developed and approved by the Board decision. The methodology defines the basic approaches to inventory and monitoring of direct and indirect greenhouse gas emissions; it includes emission sources, levels of assessment, formulas of calculation for greenhouse gas emissions, procedures for collection and processing initial data, as well as forms of reporting on greenhouse gas emissions for KMG SDEs. The methodology was developed in accordance with the Environmental Code of the Republic of Kazakhstan, as well as with international standards for accounting for greenhouse gas emissions used in the framework of ESG reporting.

At the moment, KMG SDEs are developing and approving similar documents, or bringing internal documents into line with the Methodology, which will allow KMG to systematize its activities and approve unified approaches for inventory and monitoring greenhouse gas emissions, as well as ensure timely forecasting of the size of KMG carbon footprint and taking proactive measures to reduce risks of non-fulfillment of the goals of the KMG Low-Carbon Development Program.

Internal carbon pricing program

With the view of assessment and minimizing the financial risks of the Company due to the toughening of carbon regulation in the Republic of Kazakhstan, as well as for creation of additional stimulation for SDEs to implement low-carbon projects, the KMG Internal Carbon Pricing Program was developed and approved by the KMG Board decision. The internal carbon pricing program describes the main approaches and directions for the implementation of internal carbon pricing mechanisms, general proposals for the functioning of internal carbon pricing in KMG in order to form the direction of further development of the greenhouse gas emissions management system. The detailed development of the mechanisms and their implementation into the KMG internal regulations will be carried out in 2023 by the working group, established for the development of internal carbon pricing mechanisms. The main areas of functioning of the mechanisms under consideration are the application of:

• shadow price upon the evaluation of investment projects and projects purchase;
• implicit price for estimating the cost of a reduced ton of CO₂-equiv., as part of the costs for reducing greenhouse gas emissions and/or the costs for complying with government orders;
• collection of internal carbon charge fee for additional stimulation of SDEs to implement decarbonization measures and their financial support.

In addition, we have launched a number of initiatives aimed at improving reporting, increasing the investment attractiveness of the Company and improving international ratings.

So, for example, with support of the European Bank for Reconstruction and Development, within the framework of the memorandum of cooperation signed in June 2022, it is planned to set up a project in 2023 to introduce Climate Change Reporting Framework in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). It is planned that the work will focus on stress testing practices of the Company supply chains in various climate change scenarios, determination of appropriate priorities of actions in the field of climate change, including assessment of financial essentiality, determination of appropriate scientifically grounded indicators and goals that lead to improved results of corporate actions in the field of climate change.

Scope 3

At the moment, KMG discloses information on Scope 3 emissions in category No. 11 ‘Use of sold products’. In framework of implementation of the Action Plan for the realization of the Low-Carbon Development Program for the period 2022–2031 the work has begun to expand the coverage of the Scope 3 emissions inventory up to 12 categories that are of highest relevance to the Company. This initiative will provide a basis for interaction strategy formulation with our suppliers and consumers in order to systematically reduce indirect emissions of products manufactured by KMG.

LIST OF CATEGORIES FOR INDIRECT EMISSIONS CALCULATION Scope 3