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Gas as the Key to the Country❜s Decarbonization

Over the past years, the national company QazaqGaz has implemented numerous large-scale projects in sustainable development. Additionally, the company has been reporting on sustainable development for the second consecutive year according to the GRI (Global Reporting Initiative) standards. Based on last year’s results, it received its first ESG rating from the leading rating agency Morningstar Sustainalytics, ranking seventh among gas transportation companies globally and first among hydrocarbon production companies in Kazakhstan, as evaluated by this agency. Sanzhar Zharkeshov, General Director of NC QazaqGaz JSC, discusses the company's key achievements and development plans in ESG.
– Is the issue of commercial gas shortages still a concern in the country? What steps are being taken to address this?
– Given the annually increasing gas consumption in the domestic market, it's premature to declare a victory over the shortage. As the national operator, ensuring the country's internal demand for commercial gas is our absolute priority. Despite the dynamic situation in the gas industry, QazaqGaz continues to prioritize Kazakh consumers. For example, during the peak demand for the last autumn-winter period, we fully met the domestic market's needs by partially limiting exports, ensuring an uninterrupted gas supply to the population.

We do not merely acknowledge the issue of commercial gas shortages but are taking concrete actions to address it on several fronts.
Firstly, we are working to establish the currently lacking culture and institution of efficient gas consumption. We have initiated several legislative amendments aimed at disciplined consumption, promoting efficiency, ensuring transparency and automation in gas accounting, regulating private gas distribution organizations, and introducing new tariff-setting methods without affecting socially vulnerable groups.
Secondly, we are expanding our resource base through exploration and production development, increasing the processing of raw associated gas, and boosting import volumes. For example, last year, a new gas field, Anabay, was brought online in the Moyinkum district of the Zhambyl region. Initial production at the field amounted to 6.8 mln cubic meters per year. According to forecasts, recoverable reserves are estimated at around 9.5 bln cubic meters.
Additionally, we have undertaken activities under our license for geological exploration of the Akkuduk site in the Mangystau region. As a result, we obtained environmental permits to begin field seismic exploration.
We have also signed a cooperation agreement with Chevron Corporation regarding geological exploration at the Zhalibek site in the Aktobe region, near the Zhanazhol and Urikhtau fields. This is just the beginning, as the national company has many plans for geological exploration.
As you can see, QazaqGaz is successfully handling current challenges by minimizing the risks of shortages and actively working toward the future. This ensures sustainable gas industry development and enhances the country's energy security.
– In 2022, a comprehensive plan for the development of the gas industry was approved. What has changed since then?
– A lot has changed, indeed.
The comprehensive gas industry development plan has served as the foundation for significant transformations that QazaqGaz has successfully implemented with the support of the head of state, the government, Samruk-Kazyna, and private partners. However, modern challenges have dictated new rules of the game, which must ensure the gas industry's profitability.
In 2023, we developed and presented our QazaqGaz Development Strategy to the head of state. This strategic document, often referred to as a game-changer, has already delivered tangible results across various areas of the company's operations within just one year, from exploration and production to gas supply to end consumers and pricing.
I am proud to note that, to date, we have successfully implemented 43% of the 67 projects outlined in the strategy. This is an impressive achievement.
– When were ESG principles integrated into the company's development strategy? How has this affected operations, and what has changed?
– Integrating ESG principles into operations serves as a kind of gatekeeper, demonstrating the company's commitment to international sustainability standards. Since QazaqGaz positions itself as a socially responsible player in the gas market, we incorporated ESG principles into the core of our development strategy. As time has shown, this has improved not only the environmental, social, and governance aspects but also the financial and economic performance of the company.
One of the top priorities at the time was conducting a full diagnostic of the company's ESG system, involving external consultants from PriceWaterhouseCoopers. Based on their analysis, a roadmap with over 100 initiatives to improve the ESG system was developed.
We started by revising internal regulatory documents and developing new policies. Numerous training sessions were organized to instill the concept of ESG among employees. Establishing an ESG Project Office and a dedicated HSE (Health, Safety, and Environment) division was a key step. We also expanded the functions of the Strategy and Sustainable Development Department and even incorporated ESG functions into the board of directors' mandate.
Regarding the implementation of the company's infrastructure projects—such as the construction of gas transportation and main pipelines, gas processing plants, and pipeline modernization—these are all crucial steps towards sustainable development. They ensure reliable and environmentally friendly energy supply, strengthen the company's market reputation, and, as a result, enhance its investment appeal.
These efforts have not gone unnoticed. Six months ago, we received a high ESG rating from the leading rating agency Morningstar Sustainalytics, which characterized the company as having low sustainability risks. More recently, we became members of the UN Global Compact, further proof of the integration of sustainable development goals into QazaqGaz's activities. These are significant achievements that confirm the correctness of our path.
I am confident that in the long term, adherence to ESG principles will bring significant financial benefits in the form of investment attractiveness, tax incentives, savings on fines and penalties, attracting green bonds, and carbon trading.

– How costly was it for your company to implement ESG principles?
– Implementing ESG principles for the QazaqGaz Group of Companies has been a sensible and strategically important decision that has brought numerous benefits. Although some costs were associated with this process, the investments have more than justified themselves and will yield even greater long-term returns.
Over the past three years, we have been actively implementing ESG principles, with most of the initiatives carried out by our efforts.
In the environmental agenda (E), programs aimed at the company's low-carbon development, biodiversity protection, and climate risk management are currently under development.
In the social component (S), we have developed key policies that regulate processes in sustainable development, human rights protection, engagement with local communities, quality assurance, anti-discrimination and harassment, diversity and inclusion, and freedom of association. Additionally, we plan to implement a program to motivate employees by improving working conditions and workplace safety, introducing "Green Office" programs, and offering training and professional development opportunities.

In governance (G), we have conducted a corporate governance diagnostic, developed and approved a code of business ethics, held anti-corruption training sessions, and continue to improve our internal policies.
A mandatory requirement for portfolio companies is the preparation of an integrated annual report developed in accordance with Global Reporting Initiative (GRI) standards. As part of this report, we undergo verification of non-financial indicators by external auditors from the Big 4. In 2023, the number of GRI indicators for verification increased from 11 to 29, reflecting our commitment to meeting high international standards and ensuring transparency in our operations. These kinds of activities require financial investments.
– What ESG projects have your company implemented in recent years?
All of our projects can be considered ESG projects, as they aim to ensure the country’s energy security and are implemented with environmental and social responsibility in mind.
Over the past two and a half years, the company has implemented and continues to implement important infrastructure projects. These include the construction of the Makat - North Caucasus main gas pipeline. This has ensured uninterrupted gas supplies to the special economic zone "National Industrial Petrochemical Technopark" in the Atyrau region and supported the development of energy and industrial infrastructure, laying the foundation for sustainable regional growth.
Another example is the second line of the Beineu-Zhanaozen gas pipeline and the reconstruction of the gas transportation system in the Mangystau region, which have been crucial for stable gas supply to settlements and large enterprises, such as the Mangistau Atomic Energy Complex.

To date, the company has successfully, ahead of schedule, built gas infrastructure for the Almaty energy complex (TIP-04 jumper and a gas distribution station for CHP-2), allowing us to minimize environmental impact related to heating and electricity consumption.
In Almaty, we are constructing two vehicle gas-filling compressor stations to supply gas to a fleet of up to 1.2 thousand buses. This will reduce the use of diesel and gasoline, improving air quality and the ecological situation in the city. We are also actively building LNG plants, such as in the city of Rudny, which will expand the use of liquefied natural gas, contributing to environmental and energy security. In Astana, extensive district gasification is underway, ensuring a stable gas supply and improving the city's environmental conditions.
As part of socially responsible business practices, a gasification project was implemented in the Sarcha area and the "Warm Beach" resort zone in the Mangystau region. Additionally, in collaboration with local communities, social facilities, including playgrounds, workout zones, basketball courts, and football fields, have been commissioned in the villages of Oyik, Boltirik Sheshen, Seilbek, and Ulanbel in the Zhambyl region.
– In which industries is the ESG agenda most developed, and where do you think it is less relevant?
– The ESG agenda is undoubtedly most developed in industries such as energy, mining, and heavy industry. These sectors face high risks and responsibilities related to environmental impact, making the adoption of ESG principles vital. Companies in these industries actively work to reduce their carbon footprint, manage water resources, and cut greenhouse gas emissions. For example, energy companies are incorporating renewable energy sources and increasing the energy efficiency of their operations.
The financial sector also actively integrates ESG principles, particularly in responsible investing. Banks and investment firms assess the ESG risks of their portfolios and strive for transparency in corporate governance. This helps them attract sustainable investors and minimize reputational risks.
While the IT sector is less traditionally associated with ESG, it is also beginning to focus on social responsibility and inclusivity. Companies in this industry are implementing programs for human rights protection, equality, and diversity and working to minimize the environmental impact of their activities.

In contrast, the ESG agenda is less relevant in small and medium-sized businesses. This is due to limited resources and a need for more knowledge about the importance of sustainable development. However, even here, there is a growing understanding of the need to integrate ESG principles for long-term success and risk minimization.
Active ESG management helps companies avoid many risks, such as inefficient use of water and energy resources, which can lead to economic losses, poor workplace safety, which can result in license losses and work stoppages, and environmental pollution, which can trigger civil and criminal liabilities.
Companies that actively implement ESG principles strive for sustainable development and meet the expectations of investors and the public. This enhances the company's reputation and attractiveness to investors, ensuring capital inflow and increasing stock value.