Sustainable development

Internal Audit Service

Since May 2022, the Company has an independent Internal Audit Service (IAS), which is a body of the Company that controls the financial and economic activities of NC QazaqGaz JSC, assesses the internal control, risk management, execution of documents in the field of corporate governance and consulting to improve the Company's activities. The IAS is directly subordinate to the Board of Directors and reports to it on its work. The IAS is supervised by the Audit Committee in accordance with the internal documents regulating the Audit Committee's activities. The IAS operates in compliance with the mandatory International Professional Practice Framework for Internal Auditing (IPPF).

The main purpose of the IAS is to assist the Board of Directors and the Executive Body of the Company in enhancing the efficiency of the Company's management, improving its financial and economic activities, including through a systematic and consistent approach to the analysis and evaluation of risk management, internal control and corporate governance systems as tools to provide reasonable assurance of achieving the Company's objectives.

Risk management and internal control

Risk management at NC QazaqGaz JSC is a key element of strategic planning, corporate governance and maintaining financial stability, aimed at ensuring the stability and sustainability of the Company. NC QazaqGaz JSC pays special attention to a systematic approach to risk management at all levels of operating activities. The Company's approach to risk management is developed taking into account external and internal factors and complies with the principles of international risk management standards. Risk management is also carried out on an ongoing basis and is integrated into all business processes. Before launching projects, the Company conducts a risk analysis, assesses the impact and potential consequences, and when identified, measures are developed to reduce them, up to the point of making a decision to abandon the project, thereby implementing the precautionary principle in practice.

Principles of motivation for management and the Board of Directors

GRI 2-19, GRI 2-20, GRI 2-21

NC QazaqGaz JSC attaches high importance to the analysis and assessment of management’s activities, relying on the individual contribution of each member of the Board of Directors and the Management Board in achieving the Company’s strategic goals. The results of the analysis and assessment of activities contribute to making informed decisions to improve corporate governance, increase efficiency and ensure the sustainable development of NC QazaqGaz JSC in the dynamic environment of the gas market.

Remuneration based on the results of work for the reporting period (year) is paid to members of the Management Board based on the results of performance assessment in order to motivate them to achieve strategic and priority goals, expressed in measurable, interconnected, logically constructed and balanced motivational KPI cards.

For preliminary consideration of issues related to the formation of an effective and transparent remuneration system, the Nomination and Remuneration Committee of the Board of Directors was created.

An incentive system can be an effective tool for accelerating the implementation of the ESG agenda, but overall the approach should be an operational efficiency strategy to ensure the sustainability of business operations.

The role of management in the sustainability process is incredibly important because it is the top level of management that sets the tone and direction for the entire company. That's why:

Vision and Strategy: Management sets the company's strategy, including sustainability priorities. They can set long-term goals and benchmarks that are implemented into day-to-day operations.

Decision Making: Management makes decisions that may have a significant impact on the environment and social welfare. These decisions may concern investments in green technologies, reduction of greenhouse gas emissions and other measures aimed at complying with the principles of sustainable development.

Creating a corporate culture: Management creates a corporate culture, including values and standards of behavior that promote sustainable development. This culture can be carried through all levels of the organization.

Social responsibility: Management is responsible to shareholders, employees and society as a whole. They must demonstrate leadership in the company's social and environmental responsibility.

Compliance with Codes and Standards: Management ensures compliance with all relevant sustainability codes and standards. This includes compliance with environmental, social and economic laws and regulations.

The NC QazaqGaz JSC group of companies includes ESG goals in its remuneration policy.

In particular,

• a quarter of the annual bonus of the Deputy Chairman of the Management Board depends on receiving a positive ESG rating;
• 10% of the annual bonus payment package for executive and managerial employees of NC QazaqGaz JSC depends on the lost time injury frequency rate (LTIF);
• in the Company's subsidiaries and affiliates (ICA and AGP), members of the Management Board must reduce carbon emissions in 2023, otherwise this will affect their rating, which determines 15 and 5 percent, respectively, of the annual bonus payment package;
• the reduction in the above indicator will occur, inter alia, due to a reduction in technological losses and a reduction in the volume of gas leaks, the share of which is equal to 20% of the total amount of the annual management bonus;
• an increase in the social stability index compared to 2022 will increase the bonus for a managerial employee of a group of companies by 15%;
• if the planned indicator of behavioral safety observations is not achieved, the member of the Management Board will receive less than 15% of the bonus;
• the weight of the energy saving indicator “specific energy consumption for gas transportation” is equal to a quarter of the bonus fund of the department head;
• as part of ensuring healthy competition and anti-corruption, a fifth (20%) of the annual bonus of the supervising Deputy Chairman of the Board is tied to increasing the share of procurement of goods, works and services purchased in a competitive manner;
• due to the increase in the number of deaths in the workplace not related to work due to poor health, 90% of which are caused by circulatory diseases, the functional KPIs of CEO-1 level managers included the Non-work related fatality rate coefficient with a share of influence on the annual 10% bonus

The conditions and procedure for paying remuneration to members of the Board of Directors are determined by the decision of the Sole Shareholder.

NC QazaqGaz JSC does not finance:

• charitable and sponsorship projects;
• political parties;
• public associations;

for the purpose of gaining or maintaining an advantage in its activities.

The Company does not incur expenses related to lobbying activities and political contributions, donations to political parties.

Non-admission of conflict of interests is an important condition to ensure the protection of interests of the Sole Shareholder, officials and employees of JSC "NC "QazaqGaz".

In order to prevent and resolve corporate conflicts and conflict of interest in "NC "QazaqGaz" JSC, as well as coordination of actions of all bodies and officials, the Board of Directors approved the Policy on settlement of conflict of interest of employees and officials of the Company. The Policy regulates the order and procedures of pre-trial settlement of conflicts, as well as the actions of bodies, officials and employees of the Company within the framework of these processes.

In case of corporate conflicts, the participants seek ways to resolve them through negotiations in order to ensure effective protection of both the rights of the Sole Shareholder and the Company's business reputation. The main principles of prevention of conflicts of interest, methods of their identification, assessment and resolution are set forth in the Code of Business Ethics.

In 2023, there were no cases of corporate conflicts and conflict of interest in the Company.

QazaqGaz NC JSC has a centralized Hotline of Samruk-Kazyna JSC, which covers the Company and its subsidiaries and affiliates and is serviced by an independent operator - KPMG. The Hotline guarantees confidentiality and anonymity (at the request of the contacted person), as well as registration and processing of 100% of appeals with subsequent submission to responsible persons. Appeals to the Hotline are accepted in three languages - Kazakh, Russian and English.

The Hotline is a channel for reporting suspected violations of legislation and/or the Code of Business Ethics, cases of corruption, fraud, as well as unauthorized disclosure of confidential and insider information. All requests received by the Hotline are recorded in an electronic log.

The process of registering incoming appeals and providing responses to the applicant is fully automated, and all appeals from the Hotline operator are received by the Group's compliance officers in real time. The system also allows you to independently create appeals, send them to compliance officers for execution, specify statuses and comments, attach files and upload analytics. The Compliance Service is able to analyze the quality of consideration of appeals by the compliance services of SDCs.

According to the Compliance Service, 20% of the requests received by the Hotline in 2022 were confirmed:

Type/subtype of violation	Received appeals	Confirmed appeals
Labor conflicts	9	3
Corruption	7	1
Threat to health and safety and the environment	1	0
Procurement	7	5
Violation of established procedures and legislation	6	2
Other violations	0	0
Total	30	11

About the Report

GRI 2-3

The Integrated Annual Report of JSC "NC "QazaqGaz" (hereinafter - the Report) discloses environmental, economic and social indicators in the field of sustainable development. In addition, with the help of the Report the Company discloses the development strategy of the Group of companies "NC "QazaqGaz" JSC, goals and objectives within the framework of improvement of sustainable development practices, activities in the field of gas production and transportation, as well as sustainable business model of the Company taking into account the opinion of all stakeholders. The Report has been prepared in accordance with the sustainability reporting standards of the Global Reporting Initiative (hereinafter - GRI), as well as the industry standard for oil and gas companies GRI 11: Oil and Gas Sector Disclosures and International Integrated Reporting Framework. The Report is published in Kazakh, Russian and English.

All reports of the Company are available on the corporate website of JSC "NC "QazaqGaz".

Independent assurance

GRI 2-5

The Integrated Annual Report for 2022 was verified for the first time by an independent external auditor to confirm the reliability of non-financial information reflected in the Report by PriceWaterhouseCoopers LLP.