Risk management and internal control

The risk management system is designed to provide reasonable assurance about the achievement of strategic, operational goals, goals in the field of preparing reliable reporting and compliance objectives with applicable laws and internal requirements. Internal control is focused on achieving operational goals, goals in the field of preparing reliable reporting, compliance with applicable laws, internal requirements of the Fund and its Portfolio Companies.

The tasks of the Corporate Risk Management and Internal Control System are:

• improving risk culture and integrating risk management and internal control into all aspects of the Fund’s activities;
• reducing the volatility of performance results by increasing the Fund’s ability to prevent situations that threaten goal achivement, effectively respond to possible negative events and soften their consequences, if they occur, to an acceptable level;
• ensuring usage of opportunities to increase the value of assets and profitability of the Fund in the long term.

The key principles and approaches to the organization of risk management and internal control in the Fund Group are reflected in the Fund’s Risk Management and Internal Control Policy. This Policy was compiled taking into account “Conceptual framework for risk management of organizations: integration with strategy and performance indicators” COSO recommendations and is designed to strengthen the responsibility of risk owners for risk management at all levels of the Fund, to increase the integration of risk management into all processes of the Fund.

According to the Policy, the Board of Directors and the Management Board of the Fund, in performing their functions, rely on the “Three lines of defense” model, where the first line of defense (business functions) is represented by structural subdivisions represented by each employee, who, within their competence, directly identify, manage risks and perform control procedures. The second line of defense (monitoring functions) is represented, inter alia, by the Risk Management and Internal Control Department and Compliance Service of the Fund, which are responsible for monitoring the introduction by business functions of effective risk management and internal control practices, compliance with legislation and internal regulatory documents of the Fund. The third line of defense (independent assurance) is provided by the Fund’s Internal Audit Service, conducts an independent assessment of the effectiveness of the risk management and internal control system and contributes to their improvement.

In the Fund and in Portfolio Companies of the Fund, the risk appetite, risk register and risk map are approved on an annual basis; management reporting on significant areas of activity is provided for consideration of the Boards of Directors / Supervisory Boards of Portfolio Companies and the Fund on a regular basis.

A corporate risk reinsurance program is being implemented under the administration of the Fund’s captive, which provides shareholders with confidence in the quality of reinsurance protection for the risks of the Fund companies.

Work continued on building an effective internal control system by documenting control procedures in the internal regulatory documents of the Fund and compliance with internal regulatory documents in the field of risk management and internal control.

Non-exhaustive list of risks of the Fund and Portfolio Companies is as follows:

Strategic risks:

Risks of significant investment projects are subject to internal and external factors. In addition to the classic project risks such as the failure of the project implementation deadlines and increase in capital expenditures, external factors such as high inflation, exchange rate changes and logistical issues negatively affect the indicators of projects. Work is being carried out on an ongoing basis to identify potential and realized risks, and measures are being developed to minimize them.

Reputation risk is a risk associated with a negative perception of the Fund and Portfolio Companies by clients, counterparties, shareholders, investors, creditors, market analysts, supervisory authorities and the general public. To manage this risk, interaction with Portfolio Companies takes place on an ongoing basis in order to build a unified image and communication policy of the Fund Group, measures are taken to ensure compliance with legal requirements and established ethical standards of behavior by the employees of the Fund and Portfolio Companies.

Financial risks:

Liquidity risks and violations of the covenant/listing requirements are risks associated with the inability of the company to finance its activities, timely and fully meet its obligations. As part of the management of these risks, limits on the degree of debt burden of the Fund and Portfolio Companies are established and monitored, various measures are taken to ensure the fulfillment of covenants by Portfolio Companies and to increase the financial stability of the Fund Group.

Operational risks:

Risk of social instability is the risk associated with the social tension of various groups of employees of the Fund and Portfolio Companies. The Center for Social Interaction and Communications analyzes the level of social stability in the Fund Group’s workforce on an annual basis to monitor the state of social stability risk. Complaints and appeals of employees of the Fund Group are also monitored to control over and regulate social and labor relations. The Fund, together with Portfolio Companies, republican and local authorities, is working on systematic measures to improve the welfare of employees and resolve emerging issues.

The accidents risk is one of the key risks for production Portfolio Companies of the Fund. In 2022, the Fund group of companies set a course for the occupation safety development. Thus, 2022 was declared the “Year of Occupational Safety and Health”. Within the framework of joining the international Vision Zero concept in 2022 and following the principle of “zero tolerance”, the Fund, together with Portfolio Companies, has done significant work in accordance with the approved Health & Safety 2022 Plan: within the HSE Committee, work was carried out on the exchange of best practices between PCs, as well as with industry leaders; the practice of cross-audits with the participation of PC experts has been introduced; regular work is underway to improve HS management systems and introduce the best world practices in accordance with the industry specifics of each PC.

The risk of the impact of sanctions legislation is the risks associated with the negative indirect impact of sanctions on the activities of the Fund and Portfolio Companies. The Fund group of companies is not included in any sanctions lists. However, due to the high degree of integration of the Kazakhstan and Russian economies, the introduction of a sanctions regime may have a significant impact on the activities and financial performance of the Fund group of companies. Risk mitigation is carried out by implementing the following measures: monitoring counterparties and partners for presence on sanctions lists; sanctions clauses are included in existing and new agreements; if there is a probability of the risk of violation of sanctions legislation, international law firms are involved; interaction with public authorities and other organizations is carried out in order to exchange experience on minimizing the impact of sanctions restrictions; throughout the Fund group of companies, compliance, risk management and/or legal affairs units carry out constant monitoring of compliance with sanctions restrictions when considering any issues submitted to the authorized bodies of the Fund and PCs.

Legal risks:

Litigation risk is the risk of the Fund and the Portfolio Companies being involved in major litigation. Measures are being taken to minimize these risks by prior settlement of disputes through negotiations, monitoring the Fund’s obligations under existing agreements, clarifying the regulatory legal acts governing the Fund’s activities, and other legal actions to protect the interests of the Fund’s Group.