ESG (environmental, social, governance) refers to a company's adherence to each of the three pillars for the sake of sustainable development. Kulaziya Chokusheva, Director of Asset Management and Corporate Governance Department, explained how these concepts are implemented in «NC «Kazakhstan Engineering» JSC and what they provide to the company.

What is the implementation of ESG principles by «NC «Kazakhstan Engineering» JSC?

In recent years, the role of sustainable development in the activities of the corporate sector of the country, including quasi-public companies, has increased significantly. The processes of implementation of ESG principles are of particular relevance, given the government objectives of attracting foreign investment in the economy and expanding exports of manufacturing products. Investors pay extremely serious attention to the ESG component of companies.

How is it planned to introduce ESG principles in company policy and will this affect the development of the company?

«NC «Kazakhstan Engineering» JSC considers the growth of long-term value while ensuring sustainable development as its main strategic objective. Sustainability management issues are described in the Company's Corporate Governance Code, and the objectives are included in the Company's Development Plan until 2029 as a separate strategic direction.

The Company identifies three main components for sustainable development: economic, environmental and social.

The economic component directs the activities of the Company and its subsidiaries towards growth of long-term value, securing the interests of the shareholder and investors, increasing the efficiency of processes, increasing investments in the creation and development of modern technologies, and increasing labor productivity. The Company makes a worthy contribution to the development of mechanical engineering and to the economic development of the country as a whole. Efforts in this area are focused on improving the overall efficiency of the Company's entire group, including increasing revenues from sales, reducing costs and increasing profitability.

Despite the difficult situation in the Company's financial and economic activities, caused, firstly, by high debt burden, «Kazakhstan Engineering» has shown growth dynamics in the last 2-3 years.

Subsidiaries play an important role in the development of regions, in the processes of formation of gross regional product, providing jobs for local population, replenishment of local budgets, etc.

Companies make every effort to improve the living standards and welfare of the population in the regions where they operate. These methods include investing in small and medium-sized businesses, creating jobs, developing the social sphere, supporting secondary and higher professional education programs, developing healthcare, physical culture and sports and promoting corporate social responsibility programs through sponsorship, charity and support for socially vulnerable groups and persons with disabilities.

For example, in 2020, in the context of the pandemic, the Company's enterprises were mobilized for nationwide measures to eliminate the spread of the coronavirus infection. As part of the conversion process, defense enterprises promptly switched to the production of civilian medical products. Thus, Kokshetau plant «Tynys» started production of mobile devices for artificial respiration and medical masks - 180 units of artificial respiration devices were given to health care institutions of the republic on free of charge basis.

The enterprises «Gidropribor» JSC, «Zenit» JSC, «Petropavlovsk Heavy Engineering Plant», «S.M. Kirov plant» JSC and «Munaymash» JSC provided the regions of presence with disinfection tunnels and barriers.

«Kazakhstan Aselsan Engineering» LLP, a kazakh-turkish company producing military night vision equipment, localized production of Biovent remote thermometers and ventilators.

«S.M. Kirov plant» JSC has mastered the production of computer equipment, thus contributing to the continuous learning process for schoolchildren and students in a new environment for Kazakhstani education.

The company is also contributing to the development of the country's medium-sized businesses by transferring some of its non-strategic assets to the competitive environment.

The company has developed a conceptual vision for further development and progressive growth - its essence is the implementation of a cluster approach based on scientific and production clusters on the main types of products for the power structures. The implementation of projects will be guided by the basic principles of sustainable development, including through the creation of an ecosystem around the clusters, with extensive involvement of small and medium-sized businesses, scientific and educational structures, and local communities.

The environmental component ensures minimization of environmental impact, optimal use of resources, and application of environmentally friendly, energy- and resource-saving technologies, creation of environmentally acceptable products, minimization, recycling and disposal of waste.

The Company's enterprises are not major emitters of atmospheric emissions, so the environmental efforts of the enterprises improving the energy efficiency of production and reducing waste. Efforts are made to control wastewater and air quality, as well as soil and water conditions at industrial waste storage sites. All generated waste is handed over under contract to specialized organizations; temporary storage of waste is carried out in compliance with the necessary requirements that exclude impact on the soil cover. As part of energy efficiency improvements, conventional lamps are being replaced with LED energy-saving lamps. The façades, windows and roofs of production facilities are insulated to reduce heat loss.

For example, this year energy saving measures at «PZTM» JSC, «S. M. Kirov Machine Building Plant» JSC, «Semey Engineering» JSC, «Zenit Plant in Uralsk» JSC have resulted in energy savings from 3% to 22%, which also has a positive effect on profitability.

Implementation of a proactive approach to environmental issues is considered an important area of focus, with planned measures including introduction of environmental management, application of innovative energy-saving technologies, use of infrared heaters, waste recycling projects for reuse, development of environmentally friendly products, participation in projects for production of renewable energy sources, etc.

The social component focuses on the principles of social responsibility, which include ensuring occupational safety and health of employees, fair remuneration and respect for employee rights, individual development of personnel, promotion of a healthy lifestyle, implementation of social programs for personnel, creation of new jobs, sponsorship and charity.

For example, this year, the roof of one of «NII «Gidropribor» JSC’s shops were leaking. The company provided financial assistance, which enabled the plant to repair the roof. As a result, working conditions at the plant have improved, productivity has increased and heat losses in production have decreased.

«811 KI Car Repair Plant» JSC pays special attention to the creation of conditions for employees and social security. The roof was repaired and heating was restored, the premises and dormitory were refurbished and repaired. A blast room and special equipment wash were also installed, which greatly improves the productivity of the staff, and the territory and the interior of the company was cleared of previously accumulated rubbish and scrap metal.

The company has a workforce of over 4000 people. The company regards human capital as its main asset and the most important strategic factor determining its success.

Kazakhstani experts have noted that an important obstacle to the development of our industry is the lack of qualified personnel. How does your company solve this problem?

Kazakhstan Engineering's enterprises are among the oldest machine-building plants in the country and have a good human resource potential, but we are also experiencing certain difficulties against the background of ageing personnel, reluctance of young people to go into working professions, and relatively low salaries.

Therefore, the Company understands that the long-term success of its operations depends on its ability to attract, develop, accumulate and retain human capital.

As it is today, human potential is still very important for any company.

Key activities in this area include:

• ensuring equal opportunities and working conditions;
• helping employees realize their professional, career and personal potential by investing in training, developing and upgrading their skills, and promoting sports and healthy lifestyles;
• improvement of the remuneration and motivation system;
• establishment of a succession pool and ensuring succession;
• attracting and supporting young specialists, developing the practice of labor mentoring and the dual training model;
• social support for employees and ensuring stability in labor collectives, measures to improve corporate spirit;
• Developing a culture of workplace safety to the level of international best practice.

The first steps in this direction have already been taken: the Knowledge and Competence Centre of the DIC has been launched, and a Corporate Fund is being created, the main purpose of which is to preserve the continuity and connection between generations of production workers.

We recently held our first Olympics among the Company's plants, which also included invitations from private enterprises of the defense industry, with 22 teams taking part. The competition demonstrated great will to win, strong support from the fans and mutual respect between the athletes. In general, sport is one of the most powerful tools for bringing colleagues together and enhancing corporate spirit, and we plan to make such events regular.

All three components are important for sustainable development, and it is noticeable that the Company adheres to the ESG methodology it has developed. What goals does your company aim to achieve in the future?

The Company, realizing the importance of these topics for future development, pays increased attention to the practical aspects of implementing the principles of sustainable development. The Company and its subsidiaries have recently adopted a Sustainable Development Policy, which specifies the main objectives, areas of activity and approaches to organizing processes in this area.

A distinctive feature of the document is the alignment of the Company's sustainable development goals and objectives with the UN Global Sustainable Development Goals (UN SDGs). Of the 17 UN SDGs, the Company will focus its efforts on achieving the six most relevant to the industry and to which the Company can make a significant contribution:

SDG 3. «Ensure healthy lifestyles and promote well-being for all at all ages».

SDG 4. «Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all».

SDG 5. «Ensure gender equality and empower all women and girls».

SDG 8: «Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all».

SDG 9: «Build resilient infrastructure, promote inclusive and sustainable industrialization and innovation».

SDG 12: «Ensure transition to sustainable consumption and production patterns».

The Policy, taking into account specifics of machine-building production, defines main directions of the Company's activities in the field of sustainable development:

1) economic sustainability;

2) human capital development;

3) occupational health and safety;

4) ecological responsibility;

5) scientific-technical and innovative-technological development;

6) efficient corporate governance and risk culture;

7) high ethical standards and anti-corruption;

8) responsible purchasing;

9) responsible business conduct - stakeholder engagement, community engagement and reporting.

The Company also commits to sustainability disclosure using advanced international reporting standards, such as Global Reporting Initiative (GRI) standards.

At the same time, as instructed by the Company's Board of Directors, the Sustainable Development section of the Development Plan (Development Strategy) is to be redrafted to update the goals and objectives and to establish specific measurable KPIs to monitor the implementation of sustainable development principles in business activities.

Thank you!

Interviewed: Kamilla Ormanbetova