Amber Grid — Environmental & Social Information 2018

Mar 23, 2018

AB Amber Grid

SOCIAL RESPONSIBILITY REPORT 2017

ON THE PROGRESS REPORT 3
STATEMENT FROM THE CEO3
PRINCIPLES AND PRIORITIES OF SOCIALLY RESPONSIBLE ACTIVITIES4
ON THE COMPANY 8
RESPONSIBILITIES AND TRANSPARENCY 15
STAFF 17
ENVIRONMENT PROTECTION AND EMPLOYEE SAFETY 23
MARKET AND CUSTOMERS 26
PUBLIC RELATIONS: SUPPORT 28
SOCIAL INITIATIVES 29
EVALUATION OF ACTIVITIES 30
INDEX OF GRI INDICATORS 31

ON THE PROGRESS REPORT

AB Amber Grid (hereinafter referred to as "the Company") is guided by the Labour Principles of the United Nations Global Compact and the recommendations of the Global Reporting Initiative (GRI) in preparation of the Corporate Social Responsibility Progress Report (hereinafter referred to as the "Progress Report", "Report"), which helps to evaluate the Company's performance according to the economic, environmental, employee, human rights, market and public relations indicators.

In 2017, the Corporate Social Responsibility Progress Report for 2016 was prepared as a separate document for the first time. Previous reporting on activities of the Company in the field of social responsibility was published as part of annual reports.

This Progress Report 2017 presents the AB Amber Grid works and achievements of social responsibility activities related to the market, environment, and relationships with employees and society. The Report describes the social responsibility strategic directions, actions and achievements of the Company.

Questions or comments and notes on improvement of the social responsibility report are welcome by the e-mail address soc.atsakomybe@ambergrid.lt

During 2017, there was no feedback from the stakeholders about 2016 reporting or on-going responsible activities.

This Progress Report is prepared in Lithuanian and English. The Report is published on the Company's website www.ambergrid.lt and the Nasdaq Baltic website. The Report is not audited.

STATEMENT FROM THE CEO

The world is constantly changing and changing very quickly. We constantly live in a process of change regardless of whether we perceive it or not.

Understanding of the inevitability of change and its benefits allows participating actively and consciously in it and creating the future as we want. Rejection of the inevitable change and opposing to the need for change turn potential creative forces into destructive.

Avoiding change is often explained by experience, however, experience is not what happened to you but what conclusions you made. Every day we encounter or learn something new. What was unquestionable yesterday is no longer true today, and what seems unquestionable today may be no longer true tomorrow.

What is important is that changing should be socially responsible.

Changing is always at risk. "An action that is not knowledgeable is a crime" (P. R. Chateaubriand). There is also another stalemate as "Knowing interferes." This happens when deep knowledge of one area and the perception of potential risks obscure the overall picture and paralyze the will to act.

The change is not an end in itself. Each of us should answer to ourselves – what is my goal? And if the answer is that I want to be someone now then there is already a basis for constant change and improvement because the present is just a thin boundary between the past and the future.

Many of us are discouraged from the change by the fear – what will happen tomorrow, and what will we be when/if we change? There is only one way to know the future, and it is to create it, and if we do not change, we will certainly be nothing.

Horizon line goes upwards when you raise your eyes.

Yours faithfully,

Saulius Bilys

PRINCIPLES AND PRIORITIES OF SOCIALLY RESPONSIBLE ACTIVITIES

AB Amber Grid, carrying out its activities in a responsible way, consistently adheres to the opinion that the ways in which results are achieved are important. Therefore, relying on the accumulated and best practices of the country and international organizations, the Company seeks to improve its business practices, implement modern human resource management, and apply technologies saving natural resources, materials and processes that are not harmful to human health. AB Amber Grid, when planning its activities, takes into account the economic and social expectations of interest holders, ensures transparent management, develops ethical relations in the market, implements anti-corruption measures and contributes to creating a good business climate in the country.

The Company understands the sustainable business development as a whole set of targeted economic, social and environmental actions, increasing the general public welfare and limiting permissible environmental impact limits in its professional activities as understood in the National Sustainable Development Strategy approved by the Government of the Republic of Lithuania.

In 2017, in its activities the Company followed the Social Responsibility Policy approved on 22 March 2017, and the plan of measures for implementation in 2017.

Corporate social responsibility is distinguished in these separate areas:

• socially responsible market activities (safe and reliable transmission of natural gas to users of the system, creation of conditions for the development of a competitive gas market, promotion of ethical and transparent cooperation with customers and suppliers, intolerance to corruption)
• social responsibility in the field of environmental protection (continuous improvement of the environmental management system, effective and rational use of material resources necessary for activities, application of preventive measures to reduce their costs, improvement of people's work and other environment)
• social responsibility in relations with employees (implementation of advanced management and remuneration systems, provision of the conditions for employees' personal and professional development, development of general competences, provision of healthy and safe working conditions focusing on the protection of occupational health, prevention of occupational diseases, promotion of physical activities, equal participation of people, ensuring of respect for the rights of the child, prevention of discrimination based on age, gender, origin and convictions)
• social responsibility in relations with the society (cooperation with schools of higher education, provision of the conditions for students practice in the Company, cooperation with communities contributing to the social development of society and welfare, encouragement and support of voluntary activities of the Company's employees in pursuit of goals of public interest).

In 2017, a social responsibility survey was carried out, during which the Company's socially responsible activities in the market, social responsibility in the field of environmental protection and in relations with employees and society as well as employees' attitude towards the Company's social responsibility were assessed. The results of the research were presented to the Company's management and on the basis of the results of research the social responsibility action plan for 2018 was prepared.

Values, strategy and objectives of the company

AB Amber Grid Board annually approves the Company's strategy of activities. Strategic directions for the strategy of 2017-2022 are in line with the strategic directions formed by the main shareholder EPSO-G, namely development of regional activities and ensuring the success of strategic projects, effective activities, developing and advanced organization.

AB Amber Grid has set specific strategic objectives for each of the strategic directions of the Company (see Figure 1) which the Company will seek during the period of the strategy implementation (up to 2022). Specific measurement indicators have been developed for the Company's strategic objectives based on which it will assess the efficiency of its activities in the short and long term.

Figure 1. Relation between the Company's strategic directions and goals

For the purpose of realisation of the strategic directions, AB Amber Grid forms the appropriate organizational culture based on the Company's values. AB Amber Grid follows the general human, national and professional values. Company's values make foundation for the Company's behaviour, activities, and organizational culture.

The Company identified 6 key organizational values:

• mutual trust;
• competence;
• cooperation;
• openness;
• responsibility;
• orientation to results;

In the strategy implementing perspective, AB Amber Grid sees the gas market of four Baltic countries − Lithuania, Latvia, Estonia and Finland − as united, i. e. operating in accordance with harmonized rules and having a common area of gas trading, balancing and entry-exit points. By the end of 2021, with completion of the interconnection for the Lithuanian and Polish gas pipelines (having implemented the project of gas pipeline interconnection between Poland and Lithuania (hereinafter – GIPL)), the regional gas market will be merged with the EU gas market.

Interested parties

Balanced implementation of strategic directions is aimed at taking into account the interests and expectations of stakeholders. The following key stakeholders are identified:

• customers;
• regional and national regulators;
• other regional authorities;
• international, national and local non-governmental organizations (NGOs);
• local groups and communities, legal entities ;
• the general public;
• research centres, consultants;
• suppliers of services and goods;
• contractors;
• shareholders;
• employees.

The strategic directions of AB Amber Grid reflect the interests of the most important stakeholders. Each strategic direction concerns one or more stakeholders. The groups or individuals that express special interests in the Company's activities are encouraged to engage in formal, partnership or consultative relationships. All interested parties are provided with detailed, relevant information related to the Company's activities.

The Company has a mechanism for the registration and exchange, examination and provision of information for inquiries, complaints, replies to them, and notifications related to the Company's activities.

AB Amber Grid determines its responsibility, and its activities are based on the following documents:

• Code of Organizational Culture;

• Remuneration Policy;

• Corruption Prevention Policy;

• Procurement Policy;
• Social Responsibility Policy;
• Ethical Employment and Working Conditions Policy;
• Equal Opportunities Policy;
• AB Amber Grid Support Procedure;
• AB Amber Grid Collective Agreement.

ON THE COMPANY

AB Amber Grid is the Lithuanian natural gas transmission system operator responsible for natural gas transmission (transportation by high-pressure pipelines) to users of the system, and operation, maintenance and development of the natural gas infrastructure. The Company has been operating since 1 August 2013 when the National Commission for Energy Control and Prices (NCC) issued the temporary natural gas transmission license.

Following the transfer of the Company's shares of E.ON Ruhrgas International GmbH (on 21 May 2014), and of OAO Gazprom (on 19 June 2014) to UAB EPSO-G, the company controlled by the Ministry of Energy of the Republic of Lithuania, and changes in the composition of the Board of the Company by the decisions of the Extraordinary Shareholders' Meeting of AB Amber Grid held on 30 June 2014, the operations and property of AB Amber Grid were separated from the activities of enterprises engaged in production and supply of the natural gas. On 10 April 2015, the NCC issued the Company an open-end transmission system operator licence and the Company was appointed as a certified transmission system operator in accordance with the requirements of the EU.

The company manages UAB GET Baltic organizing the trade on the natural gas exchange for which the NCC issued a license of the natural gas market operator. At present, UAB GET Baltic organizes trade on natural gas exchange in the markets of Lithuania, Latvia and Estonia. AB Amber Grid owns 100% of GET Baltic shares.

From 1 November 2015, AB Amber Grid is a member of the European Network of Transmission System Operators for Gas (ENTSOG).

Shareholders

In 2017, the structure of the Company's shareholders did not change. UAB EPSO-G retained 96.58% of the Company's shareholding, and was the sole shareholder who managed more than 5%per cent of the Company's shares (see Table 1). As shares of AB Amber are traded on the stock exchange, the number of shareholders is constantly changing. As of 31 December 2017, data received from the intermediary of public trading of securities showed that shareholders of the Company were 1.525 natural and legal persons from Lithuania and foreign countries, of which one shareholder owned more than 5%of the Company's shareholding.

Shareholder	Residence address/legal entity	Number of shares owned by
	code	the right of ownership, units
UAB EPSO-G	A. Juozapavičiaus Street 13	172.279.125
	Vilnius, Lithuania/302826889
Small shareholders		6.103.389
In total:		178.382.514

Table 1. Shareholders of the Company

The Company seeks to maintain close relations with existing and potential investors of the Company. On the Internet site and through the Nasdaq Vilnius Stock Exchange by the terms provided in the legal acts the relevant information is provided to investors including the structure of shareholders, announcements of material events, periodic and annual financial statements of the previous periods. All information and documents for investors are published in Lithuanian and English. Information of the Company is equally accessible to all shareholders and potential investors. In 2017, no violation of the rules of the stock market was recorded.

Key Performance Indicators

At the end of 2017, after revaluation of non-current assets and subsequent depreciation of EUR 35,507, activities of the Company in 2017 were loss-making, and the net loss amounted to EUR 9,861. Not assessing the effect of impairment of assets, in 2017, the net profit would reach EUR 20,320. In 2017, for Lithuania's consumers, amount of 24.29 GWh of natural gas was transported to the domestic exit point.

For more: AB Amber Grid Audited Annual Report 2017, financial results, p. 19

Management of the Company

The company applies corporate governance principles which are established for the entire UAB EPSO-G (see Figure 2)

Figure 2. AB Amber Grid management principles

The General Meeting of Shareholders

The General Meeting of Shareholders is the highest management body of the Company. During the reporting period, the Company's shareholders enjoyed equal rights (material and non-material) as provided by laws, other legal acts and the Company's Articles of Association. No shareholder had any special control rights, and rights of all the shareholders were the same. During the reporting period, the Company's management bodies provided the right conditions for the exercise of the shareholders' rights.

Board of the Company

The Board is a collegial management body of the Company consisting of 5 members who are elected at the general shareholders' meeting for a four-year term. The term of office of the member of the Management Board is not more than two full-term successive terms, i.e. not more than eight consecutive years. The election of the members of the Board ensures that the principle of proper

representation of the rights of all shareholders in the Board is ensured. Taking into account this principle of proposing candidates to the Board members, two candidates for the Board members are proposed from the Management of the Parent Company, two candidates – from the Company's management staff, and at least 1 (one) candidate to the members of the Board shall be an independent person the independence whereof shall be defined following the criteria laid down in the Company's Code of Management as well as the requirements set forth by other applicable legal acts. Any of the Company's shareholders shall be entitled to propose a candidate to the independent members of the Board. Responsibilities of members of the Board shall be in line with the main areas supervised by the Board. Regarding the criteria for candidates to the Board members, first of all shall be the candidate's competence and the necessity to ensure that the Board covers all the necessary competences in accordance with the main areas supervised by the Board. The Board shall elect the chairman of the Board from among its members.

The Chief Executive Officer (CEO) of the Company

The Head of the Company, which is CEO, is a single-person management body of the Company appointed by the Board of the Company. The competence of the CEO, the procedure for election and revocation is established by laws, other legal acts and the Articles of Association of the Company. The CEO is elected and revoked by the Board of the Company. The CEO organizes the activities of the Company, managers it, acts on behalf of the Company and concludes contract acting separately except in cases provided for in the Articles of Association of the Company and legal acts.

For more: AB Amber Grid Audited Annual Report 2017, Governance, p. 30

Information on the internal and external audits

Internal audit

In order to ensure transparency and efficiency, EPSO-G Group has a centralized internal audit system. This means that the functions performed by the Internal Audit Unit are carried out on a group-wide basis and accountable to the EPSO-G Board, the majority of the Internal Audit Unit consists of independent members. EPSO-G auditors are not subject to the administration of the audited entity. This creates better preconditions for identifying possible deficiencies in order to eliminate them and to highlight areas for increasing efficiency.

The EPSO-G Internal Audit mission is to support creation of added value for all companies of the group and contribute to the achievement of their business objectives by systematically and

comprehensively evaluating and helping to improve the efficiency of management, risk management and control processes. These functions are implemented through an independent and objective assurance and advisory activity.

The staff of the Internal Audit Unit carries out internal audits and regularly monitors the implementation of the recommendations as well as correction of any weaknesses related to internal control identified by the external auditors, regulator and state control institutions.

Principles of EPSO-G internal audit activity:

• Independence. The condition that the Internal Audit Unit impartially performs its functions is ensured through direct and unrestricted access to the senior managers of the Group and the EPSO-G board. The Internal Audit Unit shall be provided the access to all the information required to perform its functions. Internal audit must contain all information in relation to assurance, consulting services and other tasks after significant changes in the organization, processes, legislation or due to gross violations of established internal requirements, etc.
• Objectivity. This is a condition for internal auditors to be able to guarantee the results of their work and make no compromises regarding the quality of their work. In the course of audits, the judgment of internal auditors is not influenced by the opinion of other persons, i.e. they are impartial, do not use prejudices, avoid any conflict of interest, and support their conclusions by established facts and evidence.
• Confidentiality. The staff of the Internal Audit Unit shall take into account the content and value of the information received in the course of task implementation and respect the rights of its owner, therefore such information shall not be disclosed without appropriate permission unless required by law or professional need to be disclosed. When submitting reports of the audits and reviews to external parties, restrictions on the dissemination and use of results shall be indicated.
• Competence. Internal auditors perform only tasks for which they have knowledge, skills and experience. If the Unit does not have the expertise required, the consultants may be involved.
• Accountability. Each quarter of the year, the Manager of the Internal Audit reports to the EPSO-G Board and provides information to the Audit Committee on the implementation of the business plan, the unit's findings on disclosed significant risks and control issues as well as information on implemented and delayed implementation of internal audit recommendations. The Head of EPSO-G and top level managers involved in the activities under review are introduced with all internal audit reports.

External audit

The financial statements of the Company for 2016 and 2017 were audited by the external audit company UAB PricewaterhouseCoopers.

Membership in organizations

In 2017, the Company participated in the activities of the following Lithuanian and international organizations:

• European Network of Transmission System Operators for Gas (ENTSOG);
• National Lithuanian Energy Association;
• Polish and Lithuanian Chamber of Commerce.

Description of the Supply Chain

The Gas Transmission System Operator Amber Grid is responsible for transmission of natural gas and operation of the main gas pipelines, and operation and development of the secure and reliable gas transmission system. Prices for natural gas transmission services are regulated. On 1 January 2017, price limits for the services of natural gas transmission to the points of entry and exit set for the Company by the Decision of NCC of October 2016 entered into force. These price caps can be adjusted annually by the decision of the NCC in accordance with the procedure established by the Methodology for Determining the State Regulated Prices in the Natural Gas Sector.

On 14 November 2017, AB Amber Grid Board approved the lower prices for natural gas transmission services which will be valid from 1 January 2018. This decision was endorsed by the NCC. After the decrease in gas transmission prices, in the next year, the network users will pay about EUR 13 million lesser amount. Since the beginning of 2017, the average natural gas transmission prices for the users of the Lithuanian system have already decreased by 8%. In 2018, the natural gas transmission prices for the Lithuanian network users, calculating on the basis of the unit of energy transmitted, will decrease on average by 36.5% compared to prices in 2017, which is up to 1.13 EUR/MWh.

According to the entry-exit point pricing model, the specific transmission service prices are set separately at the entry points to the transmission system and at the exit points from the transmission system.

In 2018, the prices set at the points of entry into the Lithuanian transmission system are the same and remain at a similar level as in 2017. Taking into account that at certain points gas flows in the last year have no seasonal nature and in order to stimulate the development of the natural gas market of Lithuania and the whole region, the prices for transmission capacities at points of admission and the point of release to the Republic of Latvia (Kiemėnai) set for short periods (quarter, month, and day) shall be calculated without seasonal multipliers, and be lower compared to 2017. Such pricing will have an incentive effect on cross-border gas flows.

Prices for natural gas transmission services valid from 1 January 2018 are posted on AB Amber Grid website www.ambergrid.lt.

The Company acquires various goods, services and works necessary for ensuring the effective operation of the Company from suppliers operating in the market. This is done in accordance with the Law on Public Procurement.

Risks and management

In the EPSO-G group, the risk management system is based on three lines of defence (Figure 3)

Figure 3. Risk management system

The first line of defence is managers and employees who identify and manage the risks in their daily activities.

The second line of defence comprises centralized functions of the EPSO-G responsible for the risk identification:

• Financial control is responsible for the routine control of the Group's financial results

• Risk management is responsible for the establishment and coordination of the Group's risk management system. This function encompasses identification of the main risk areas of all companies of the Group and coordination of their management activities

The third line of defence is responsible for an independent assessment of risk management. The centralized internal audit unit assesses whether the first two defence lines properly perform their functions in the risk management process. Annual financial statements of EPSO-G companies are audited by independent external audit firms in accordance with the law. External audit companies are approved by the General Meeting of Shareholders of the Group companies.

For more: AB Amber Grid Audited Annual Report 2017, Risks and their Management, p. 25

RESPONSIBILITIES AND TRANSPARENCY

AB Amber Grid implements projects of regional and national importance. These are major investment projects. Their success depends on the awareness, trust and support of shareholders, partners, controlling and regulating institutions, and people of Lithuania. Therefore, in implementation of the Company's activities, the Company pays great attention to the supervision of procurements and the prevention of corruption. In 2017, AB Amber Grid presented to contractors the projects and works planned for 2018 and subsequent years for which the public tenders will be announced.

The Company in its activities does not tolerate any manifestations of corruption, and acceptance, provision, offer, promise or demand for the undue benefit misusing the current position. AB Amber Grid's concept of the fight against corruption involves offering and acceptance of inappropriate privileges, trading in influence, inappropriate influence expressed as protection of relatives, relatives or friends, as we strive to ensure that the decisions of the Company are not influenced by personal interests or personal gain.

The Company's corruption prevention activities are based on national legislation and voluntary commitments exceeding them:

• all managers of the Company are directly responsible for the implementation of anticorruption measures and show an example to their employees
• proportionate and based on the risk assessment anti-corruption procedures are applicable

regular assessment of corruption-related risks is carried out, measures to mitigate and anticipate corruption are planned and adapted; effectiveness of anti-corruption activities is monitored and, if necessary, more effective measures introduced.

In 2017, the new Rules for the Implementation of the Corruption Prevention Policy (hereinafter – the Rules) were approved. In accordance with the Rules, in January-February 2017, employees of the Company submitted declarations of their private interests (hereinafter – the Declarations). During the year 2017, two Declarations were revised, and supplemented. Four employees reported potential conflicts of interest, and one of them suspended performance of the functions as it could have caused a conflict of interest.

There was a case that possible corruption manifestations were reported to the security manager by an employee. On the basis of this report, another employee of the Company was questioned and consequently asked to supplement the declaration of private interests and indicate the related persons due to acquaintance and relations with whom a conflict of interests might appear. In the discussion with the employee, the employee was advised and instructed on ways of avoiding conflicts of interest (informing on conflict of interests, not participating).

Violations of legal acts and rules of conduct, violations of business transactions and accounting, bribery, re-compensation, trading in influence, abuse, conflicts of interest, nepotism and cronyism, violations of the transparency of procurements, equality, non-discrimination, proportionality and impartiality committed by the Company's managers and employees can be reported to the trust line by e-mail: sauga@ambergrid.lt or phone +370 666 06 084; +370 5 2327787. This information is available only to the Company's Security Manager who ensures the full confidentiality of the sender. During the year, the line of trust did not receive any notices and complaints.

Important role in this area of the Company's activities is devoted the centralized EPSO-G Internal Audit function. The auditors are accountable to the EPSO-G Board, the majority of which consists of independent members. EPSO-G auditors are not subject to the administration of the audited entity. This creates better preconditions for identifying possible deficiencies in order to eliminate them and to identify areas where it is necessary to increase the efficiency of operations.

In June 2017, EPSO-G received a complaint from one of the Company's contractors regarding possible manifestations of corruption in the Company in the course of procurement of engineering systems. For the investigation of this complaint, a joint commission with representatives of the Company (hereinafter - the Commission) was formed by order of the CEO of EPSO-G. In August 2017, the Commission having assessed the information gathered in the course of the investigation provided a conclusion and suggestions. The main conclusion was that specific data on corruptionrelated offenses or other violations had not been received.

In 2017, the Company's Safety Manager, in accordance with the Law on the Prevention of Corruption of the Republic of Lithuania, and Procedure for Corruption Risk Analysis approved by the Resolution No. 1601 "On Approval of the Procedure for the Analysis of the Risk of Corruption" of the Government of the Republic of Lithuania of 8 October 2002, taking into account recommendations on the establishment of activities of state or municipal institutions in which there is a high probability of corruption occurrence approved by the Order No. 2-170 "On the Approval of Recommendations for the Establishment of Areas of Activities of State or Municipal Institutions in which there is a high probability of occurrence of corruption" of the Director of the Special Investigation Service of the Republic of Lithuania of 13 May 2011, carried out identification and assessment of the probability of corruption occurrence and areas of activity where there is a high probability of corruption occurrence in the Company. Having assessed the information received in accordance with the criteria set forth in Paragraphs 4 and 6 of Article 6 of the Law on the Prevention of Corruption, and taking into account the measures implemented by the Company in order to reduce the likelihood of corruption, it was concluded that the probability of corruption occurring in the activity of AB Amber Grid and particular fields of activities that had been verified is minimal.

In December 2017, in commemoration of the International Anti-Corruption Day, the annual corruption prevention event/training was organized for the Company's employees who make decisions on behalf of the Company, are involved in procurements, etc. 50 employees of the Company participated in the event.

STAFF

Strength of AB Amber Grid is employees – experienced and competent professionals implementing projects of strategic importance for the state. The Company focuses on the formation of a business culture for the development of employees' professional skills and values. The aim is to have the employees of the Company proud that they are working in an active and honest organization, enabling employees to develop in the professional field, reconcile their professional and family obligations, and promote the tolerance of individual differences.

As of 31 December 2017, the Company had 346 employees. The distribution of employees by position groups is provided in Table 2. In 2017, the Company's indicator of employee turnover was 6.2%, and in 2016 it was 5.3%. The distribution of employees by education level is provided in Table 3.

SOCIAL RESPONSIBILITY REPORT 2017

CATEGORY GROUPS	Number of employees 31 December 2017	Number of employees 31 December 2016
General Manager	1	1
Executives	4	4
Medium-level managers	28	29
Experts-specialists	195	196
Workers	118	127
In total	346	357

Table 2. The distribution of employees by categories

EDUCATION	Number of employees 31 December 2017
Higher	188
Advanced	54
Secondary and vocational	104

Table 3. The distribution of employees by education level

Labour remuneration system

The purpose of the Company's remuneration system is to create motivational incentives for employees in order to match their remuneration with the implementation of the tasks. Therefore, the remuneration of all AB Amber Grid employees consists of two parts - fixed and variable. The fixed part of the remuneration depends on the level of responsibility of the position, which is determined according to the methodology applied in the international practice. A variable part of the remuneration is payable when individual targets set during the annual evaluation are reached. The variable part of the reward is not a bonus. The Company reports to the shareholder for the achievement of the Company's annual goals. Average monthly salary by employee groups for 20172016 is shown in Table 4. Average salary in Lithuania in 2017 was EUR 843 (Information source: https://osp.stat.gov.lt/statistiniu-rodikliu-analize?indicator=S3R0050#/).

Category groups	Average monthly salary, EUR (before taxes) in 20171	Average monthly salary, EUR (before taxes) in 2016
General Manager	9.605	9.562
Executives	5.519	5.195
Medium-level managers	2.738	2.408
Experts-specialists	1.426	1.257
Workers	1.008	879
Average	1.462	1.280

Table 4. The average monthly salary by employee groups in 2016 -2017

Trade union

On 23 June 2017, at the constituent meeting, 113 employees of the Company set up the AB Amber Grid Trade Union, approved its Articles of Association, and elected the Council of 15 members. The aim of the trade union is to represent and protect the professional, labour, economic and social rights and legitimate interests of its members. At present, the company's trade union has 225 members. Occasionally, meetings of the trade union representatives and company management are held to discuss issues of relevance to the trade union. The Company supports employees' involvement in voluntary trade unions, and works closely with them developing constructive social dialogue.

Collective Bargaining Agreement

In December 2016, AB Amber Grid renewed the collective bargaining agreement that provides for greater protection and additional benefits for employees. The purpose of the collective bargaining agreement is to represent the rights and legitimate interests of all employees. The contract

¹ In 2017, the average salary formally increased compared to 2016 due to a change of the policy for paying the variable remuneration part (VRP) of managers/specialists/workers: the payout of the VRP to these groups of employees was linked with the assessment of the employee's yearly performance, and paid for 2016 after the annual performance review in 2017. This VRP policy for the top executives has been applied since 2013.

stipulates work, remuneration, social, economic and professional conditions and guarantees which are not regulated by laws, and other normative legal acts. Employees receive additional guarantees (benefits in the event of accidents, illness, death of family members, child benefit after the birth, extra paid holidays in the event of childbirth, marriage, death of the family member, etc.). In 2017, 50 employees used these social guarantees.

The Company supports the cultural, sporting and tourist activities of the employees of the collective, various festive events and other social activities in which all employees of the Company are entitled to participate without discrimination and restrictions.

Competence development

AB Amber Grid devotes much attention to the development of employee competences. Development plans are made annually taking into account the Company's objectives and the compliance of the employee competence with these goals.

In 2017, 227 employees took part in the mandatory vocational trainings and certification to obtain special certificates for work. In 2017, they obtained or renewed 338 certificates.

In the trainings for General Competences, 194 employees took part in 2017. General trainings are organized by sending some employees to seminars and conferences organized by external suppliers as well as organizing trainings and forming groups within the Company. In total, employees participated in 138 different training programs.

In total, AB Amber Grid employees spent approximately 2,500 hours in trainings in 2017. The number of training hours per employee is 7 hours. On the whole, 304 employees of the Company participated in trainings. It accounts for almost 87% of all the employees.

In the "Competence development" part, the indicator is the total number of participants, which means that part of the employees may have participated in the trainings more than once.

Integration of new employees

In 2017, the procedure for adaption of the new employees was updated. The adaptation program for new employees is prepared, during implementation of which the new employees are introduced with the employees of the Company's departments, and activities of the units. The aim of the program is to help the new employees to adapt more quickly to the organizational culture of the Company, integrate into the team, understand the principles of work and start creating value for the Company as soon as possible.

Internship opportunities

The Company cooperates with educational institutions and enables university and college students to apply theoretical knowledge and gain practical skills. In 2017, 1 student from the Mykolas Romeris University completed a practical part of the studies at the Company.

Human rights protection and equal opportunities

The Company implements its Policies of Ethical employment and Equal Opportunities approved in 2017 which emphasize that all forms of discrimination are strictly prohibited (Conventions No. 100 and No. 111 of the International Labour Organization). The Company ensures equal rights for all employees and does not tolerate discrimination in the areas of employment, remuneration, training, careers, termination of employment, retirement and other areas due to race, nationality, gender, sexual orientation, age, political views as well as other aspects which could lead to discrimination, and does not tolerate any threatening, harassing or exploiting behaviour among the employees.

Employees who may have been the subject of unlawful acts may lodge a complaint with the responsible person designated by the Company. If the employee is not satisfied with the result of the complaint examined, the employee can defend his or her violated right in accordance with the procedure established by legal acts. Any employee who has seen and/or suspected, and/or witnessed a case of discrimination, harassment or sexual harassment shall notify his/her immediate supervisor or the responsible person designated by the Company. The Company ensures confidentiality in dealing with complaints, accordingly, all employees and the Company shall keep any information received in the course of an infringement investigation confidential. Breach of this provision is considered a gross violation of the work discipline.

In 2017, the Company did not disclose any discrimination or other incidents related to the human rights violations.

The majority of the Company's employees are men. This is greatly influenced by the specifics of the activities carried out: women rarely choose technical engineering profile and field-related technological works and professions directly related to them. In 2017, the company employed 63 women and 283 men. The average age of employees is 45.3 years (age of women – 45.5 years, and men – 45.2 years). At the end of 2017, the number of employees in the managerial positions at middle-level units comprised of 21 men and 7 women.

System of the employee activity management and its improvement

Management of the employee activities is one of the most important ways of managing and effective supervision which helps to achieve the goals of the organization and develop positive relations between managers and their subordinates allowing them to plan their career and increase their motivation.

Annual performance review

The annual performance review is an employee activity management tool which ensures that their personal goals are met in accordance with the Company's objectives. Objectives must be measurable, specific, timed, accessible and motivating. The annual performance review helps to assess the achievement of the objectives of the employee and establishes new goals, forms a feedback culture between the manager and the subordinate. During the conversation, employees' competence development, training, career opportunities are discussed. In 2017, 183 employees participated in the annual performance review, which is 54% of all AB Amber Grid employees.

In 2017, the Company launched the LEAN Practicing Company Implementation Program, which includes training and workshops for the Company employees and managers devoted to application of the LEAN practices and methods. The LEAN program includes workshops on the particular selected process improvement, standardization, problem solving standardization, LEAN practice deployment strategies, and day-to-day activity management processes.

Employees' health

The company promotes healthy lifestyles, sports activities and physical well-being. In the Company, mandatory preventive health checks are organised. In 2017, 159 employees were tested for health. 158 employees were vaccinated against tick-borne encephalitis. 111 employees vaccinated against influenza.

The employees regularly or frequently working in the field were provided with thermal clothes and thermoses for drinks and food. Employees working by shifts for 24 hours are equipped with ergonomic chairs.

Sports activities and other initiatives

In 2017, the company created favourable conditions for employees to play sports – basketball, football or volleyball. 40 employees of the Company proved their endurance at 'We Run Vilnius", "Danske Bank Vilnius Marathon", and other marathons.

In 2017, the company hosted a Health Week, during which the staff did physical exercises at the workplace, participated in contests and competitions. Lectures on healthy lifestyle and stress management were read.

Team building events were arranged, and they focussed on employees' sporting activities and the promotion of healthy lifestyles.

Professional skills

The company attaches great importance to the professional competence and safety of workers at work. One of the measures to promote the willingness of employees to improve and test their knowledge is the professional excellence competition. In 2017, for the first time, the Professional Excellence Competition was organized in which forty employees of the company competed demonstrating a high professional level, and exchanged experience

ENVIRONMENT PROTECTION AND EMPLOYEE SAFETY

AB Amber Grid principles and obligations related to environmental protection and safety and health of employees are set out in the Environmental Protection and Occupational Safety and Health Policy.

The policy principles are aimed at minimizing the negative environmental impact of the Company's activities and ensuring the safety and health of workers as effectively as possible. The established principles of prevention, safety, environmental sustainability must be observed by all interested parties and their groups participating in AB Amber Grid activity process.

Management system

The Company has an environmental and safety and health management system that meets the requirements of international standards ISO 14001 and OHSAS 18001. The environmental and safety and health management system is integrated into AB Amber Grid planning, organization and management processes. The environmental and occupational safety and health management established by the Standards ensures constant reduction of the environmental impact of the activity, the occupational risk to the safety and health of workers and the implementation of the requirements established by international and legal acts, regulations and other normative documents of the Republic of Lithuania applicable to the activities.

The Company's management is committed to ensuring continuous improvement of environmental protection and safety and health management processes, improvement of environmental protection and health and safety at work, and management based on standards acceptable to the management process taking into account the socio-economic situation as well as the financial and technical capabilities of the company.

The environmental and safety and health management system implemented in the Company operates under the repetitive process of "planning-implementation-verification-analysis". The process involves employees at all levels in accordance with clearly defined responsibilities for the coordination of the management process and its implementation. Taking into account the changing economic, social and natural environment conditions, the external and internal factors that are changing and affecting the Company's activities, system processes are constantly monitored, reviewed and periodically adjusted. The management of the influence factors is directly related to the goals and objectives of the Company's environmental and occupational safety and health policy implementation.

By improving environment and working conditions, the Company constantly invests in the new equipment, production process technologies, information management and other measures. Taking into account the identified environmental aspects and occupational risk factors arising from the Company's activities, only measures that are reliable and of a quality standard, which minimize environmental impact and protect the health and safety of workers, are applicable.

The identification of occupational risk factors and their significance are assessed in accordance with generally accepted risk management methodologies and valid international legislation, internal and external legal acts of the Republic of Lithuania and the Company as well as taking into account everincreasing performance indicators, Company's obligations to stakeholders, duration of exposure, frequency, severity, consequences, etc.

On 13-15 November 2017, an external oversight audit of the Integrated Environmental and Occupational Safety and Health Management System was conducted during which no inconsistencies were revealed.

For the purpose of ensuring social co-operation and partnerships in the field of environmental protection and safety and health at work all employees of the Company are constantly informed and instructed.

Implementation of measures ensuring environmental protection and labour safety

In the Company, particularly great attention is paid to preventive measures.

One of the means of increasing the reliability of the preventive maintenance of the natural gas transmission system is the continuous monitoring of the gas pipeline condition (taking into account the statutory requirements for operating and the lifetime of the main gas pipeline). Condition of the pipelines is monitored and tested using advanced methods such as in-house diagnostics of pipelines, external diagnostics of gas pipelines based on electromagnetic field measurements, visual observation of pipelines by helicopter using laser gas leakage detection equipment, etc. Appropriate measures are taken to ensure the security and reliability of the transmission system based on the results obtained (the minimum repair work on individual pipeline sections is carried out). In addition, timely detection and elimination of gas leakage is necessary in order to ensure not only safe and reliable but also sustainable operation of the natural gas transmission system by implementing one of the targets of reduction of the negative environmental impacts (caused by the yearly activities undertaken on the air, water bodies, soils and other environmental components) in order to reduce greenhouse gas emissions into the environment (methane is the main component of natural gas that is classified as greenhouse gases).

In May 2017, a search of the gas leakage from the transmission system was carried out for the entire natural gas transmission system (2 113 km) by observation from the helicopter. An infra-red laser-based system integrated in the helicopter that detects methane emissions was used to detect leakage. Possible cases of 24 gas leaks were identified during the operation. All of them were checked with a gas analyser. Of the 24 identified gas leaks, 13 were not confirmed, 7 were removed, 3 would be removed in the process of nearest planned works, and 1 leak will be surfaced in the near future.

In 2017, 160 km length sections of the main pipeline were checked by method of internal diagnostics (MD Šakiai - Klaipėda DN400). For the main gas pipeline, control measures were used including 5 cleaning tools, the Electronic Geometry Tool (EGP), the Combined MFL/SIC Detection Tool (CDP) and the Transverse Field Inspection Tool (TFI).

In additions, works for 269 km of internal gas pipelines were completed (MD Panevėžys-Šiauliai-Klaipėda DN300 350, MP branch to Alytus DSS (DN400), MD branch to Marijampolė DSS (DN400). We plan to finish the cleaning work in the 1st quarter of 2018.

On 21 November, the Company signed an agreement with the Public Enterprise Lithuanian Business Support Agency on EU financial support for the investment project "Reconstruction of separate sections of the main gas pipeline Vilnius-Panevėžys-Riga". After implementation of the project, a section of 13.9 km of the main pipeline Vilnius-Panevėžys-Riga in which internal corrosion damage was detected during internal diagnostics will be reconstructed. The project is expected to be completed by the 1st quarter of 2020. The total investment planned for the project amounts to EUR 6.87 million.

In the context of rational energy and water consumption, in 2017, the audit of energy, energy resources and water consumption of AB Amber Grid was performed. The purpose of audit for technological processes and equipment was to evaluate energy and water losses in technological processes and equipment and provide technical and organizational measures to reduce energy and water losses.

The company continuously undergoes the professional risk assessment process, and in 2017 the internal control system for occupational safety and environmental protection was created with the aim of training employees in risk assessment and compliance with safety requirements for work.

In 2017, the plan for the development of a safety and health and environmental protection culture was implemented with the aim of encouraging worker development, activism and thinking. The measures provided for in the plan focused on the employee instructing to identify the risks involved in their day-to-day work and learn how to protect themselves. For this purpose, informative announcements, and visual materials were distributed, and competitions such as "Bingo! Safety!", "See the Risk!", and other organized.

MARKET AND CUSTOMERS

The Company is granted exclusive rights to provide natural gas transmission services throughout the entire territory of the Republic of Lithuania.

In ensuring the country's strategic interests, the Company effectively develops the transmission system and reliably carries out the transmission of gas. With a view to securing favourable conditions for the gas market of the Baltic region to operate in the integrated European gas network, the Company actively contributes to the creation of the integrated European gas transmission system, cooperates with gas transmission system operators of the Baltic region.

The transmission system operated by the Company is connected with the natural gas transmission systems of the Republic of Latvia, the Republic of Belarus, and the Kaliningrad Region of the Russian Federation, Klaipėda LNG terminal, the distribution systems of Lithuanian distribution system operators, and systems of consumers directly connected to the transmission system.

Regional gas market

On July 1 natural gas transmission system operators of the Baltic countries – AB Amber Grid (Lithuania), Conexus Baltic Grid AS (Latvia), and Elering AS (Estonia) have started using the implicit capacity allocation model to allocate short-term natural gas transmission capacities at interconnection points between the Baltic countries. The mechanism connects capacity allocation with trading in GET Baltic gas exchange. At the same time UAB GET Baltic started to operate market areas of the gas exchange in Latvia and Estonia becoming a regional exchange. This has achieved another important stage in the development of the Baltic natural gas market, consistently

implementing AB Amber Grid's strategy. Rapid changes in the natural gas markets of the Baltic States, by integrating them and creating new opportunities for market participants, are constantly emphasized by the European Commission and presented as an example to other Member States of the Community.

By applying implicit capacity allocation model a request to buy or sell natural gas in one country will be displayed on the market areas in other Baltic countries including the transportation price. When a contract is made in two different market areas, the natural gas exchange operator will take care of transportation and the short-term transmission capacities for the purchased amount of gas will be allocated automatically.

By applying implicit capacity allocation model a short-term gas market of Baltic States becomes integrated. This will surely increase its liquidity and competitiveness, as well as the possibilities for the market participants to acquire gas when needed, of needed quantity, and also reduce the gas trade price difference for short-term natural gas products.

Plans are to start a single regional gas market in 2020. By that time all Baltic natural gas markets will be merged into one area, where cross – border transportation prices between the countries will be waived, as well as gas system balancing and transmission capacity allocation centralized and gas trading will be carried out in a single virtual trading point.

This will lead the prices of natural gas to be unified, a significantly increased trading platform of single market to become more attractive for the world gas trading companies making conditions for a greater competition, drop of gas prices, and other more attractive gas supply possibilities.

The natural gas transmission system operators of the Baltic countries also prepared and in October of 2017 launched a public consultation on the principles of transmission capacity management in the common Baltic market and the concept of a common balancing zone model. Following a public consultation, both the evaluation of the documents and the comments submitted were endorsed by the Regional Gas Market Coordination Group. This enables the operators of transmission system to continue to implement the Common Gas Market model and in 2018 develop rules for transportation and balancing of the common Baltic gas market.

Customers

The Company's customers are large producers of electricity and district heating, industrial companies and Lithuanian medium-sized businesses, natural gas supply companies, and natural gas distribution system operators, to which natural gas transmission services are provided. In 2017, the Company signed contracts with 100 network users (in 2016, there were 95 network users).

PUBLIC RELATIONS: SUPPORT

The Board of the AB Amber Grid in order to ensure the appropriateness, publicity and transparency of the support granting process by the Decision of 22 August 2017 approved the Company's granting procedure which was prepared in accordance with the Company's objectives of the operational strategy for 2017-2022, and the provisions of the support policy of the company belonging to the UAB EPSO-G.

Support directions

The aforementioned procedure provides that the Company in the course of implementation of the development envisaged in the strategy and projects of economic importance to the state may affect the quality of life of the communities or their environment. Therefore, the Company has the right from its profit to provide support for the needs of local regions and/or communities in which such projects are carried out including education, culture, sport, social services, health care or other areas of community welfare. The Company may also provide support for students of the programs related to the direct activities of the Company. The Company also encourages the voluntary unpaid involvement of employees in the implementation of the goals relevant to society or the local community and, in this context, can provide support.

The Company follows the following principles maintained in providing support: compliance with operational objectives, transparency and impartiality, equal rights and confidentiality, and publicity.

No support is provided to finance political parties or political campaigns, to cover debt obligations that have arisen during political campaigns of political campaign participants or related to political campaigns, charity and support funds established by politicians or their close people, legal entities that have not properly implemented or have previously violated agreement with any company belonging to the UAB EPSO-G (with the other sponsor, and the fact is known) in relation to support as well as activities promoting or related to gambling or gambling or similar gaming, alcoholic beverages, smoking or intoxicating substances, and other activities which have or may have a negative impact on the public.

The share of profit allocated to the Company's support is determined annually at the ordinary general meeting of shareholders, and the amount allocated at the reserve taking into account the profit gained during the accounting year and the projects implemented. The share of the profit used for support may not exceed 1% of the net profit for the accounting financial year, and in any case may not exceeding EUR 50 thousand. The procedure for granting support is published on the Company's website: https://www.ambergrid.lt/en/about-us/ab-amber-grid-social-responsibilitypolicy/sponsorship-policy

In 2017, no support was given to anyone.

SOCIAL INITIATIVES

Blood donation

On 5th June, 2017 the Company organised the citizen campaign of the "Blood Donor Day". 42 employees of the Company (in 2016, it involved 31 employee) participated in this campaign by donating their blood and thus contributing to saving the health and lives of patients. 14.4 litre of blood was donated. The National Blood Centre expressed its appreciation to AB Amber Grid for active participation and for the dissemination of the ideas of gratuitous blood donation.

Environment management campaign

In April of 2017, more than 70 employees of the Company, together with their family members, participated in the voluntary public campaign "We Are Doing" (in 2016, it involved 60 employees). For participation in the campaign "We Are Doing", the Company received appreciation from the organisers of the campaign.

The Company's employees gave the children possibility to watch a performance

On 1 June 2017, the festivities of "Children's Galaxy" organized by the Lithuanian National Drama Theatre (LNDT) together with partners in the framework of the National Social Security Campaign "For the Secure Lithuania" initiated by the President of the Republic of Lithuania Dalia Grybauskaitė were celebrated.

Employees of the Company personally contributed to the implementation of this beautiful idea giving joy to the children under the care of Raguvėlė Children's Day Centre of the Public Institution Save the Children, the Nativity of the Blessed Virgin Mary Parish in Ignalina, Varėna District Public Organization Let's Extend the Hand to the Child, and Rokiškis District Municipality. The employees bought 49 tickets to the recent performance of the LNDT "Old Man Bones Son the Iron Mountain", which was awarded the Golden Cross of the Scene.

"School Pupils to the Government" project

AB Amber Grid contributed to the project "School Pupils to the Government" organized by the Ministry of Energy. Project participants, twelve school pupils preparing for the last school year, visited the strategically important Lithuanian energy objects.

The pupils visited the Company, got acquainted with managing of the gas transmission system at the central dispatching station of AB Amber Grid, and operations of the Jauniūnai Gas Compressor Station.

"Children's Dreams" project

AB Amber Grid employees joined this project and turned the dreams of children growing under difficult social conditions into reality. During the "Children's Dreams" project implementation, clothing, footwear and various toys were donated.

"Christmas of Books" campaign

The employees of AB Amber Grid joined the Christmas of Books, the social campaign initiated by Dalia Grybauskaitė, the President of the Republic of Lithuania. The books collected by the Company's employees were donated to the Charity Foundation "Mamų Unija" (Mothers' Union) - a support and charity fund for children with oncological diseases. In total, 280 books were donated.

"Little Guboja"campaign

In cooperation with youth from Guboja Special Creative Society, a campaign was organised, during which young people from Guboja Society, in the premises of the Company, offered for sale handicraft made by them.

"A Day Without a Car" campaign

The campaign "A Day without a Car" aimed at reducing greenhouse gas emissions was organized. A large part of the company's employees went to work this day by the other means of transportation, and not a private car.

EVALUATION OF ACTIVITIES

AB Amber Grid, which creates a competitive and liquid domestic gas market, won the Lithuanian Business Leadership 2017 Award. Readers of the Verslo žinios (Business News) have recognized the Company as the leader in the energy sector, and it received majority of their votes from all energy companies.

INDEX OF GRI INDICATORS

The list of the indicators of the Report

Indicator code according to GRI	Description	Page
	Strategy and analysis
GRI 102-14	Statement of the CEO of the Company	3
	Description of the Company
GRI 102-1	Name of the Company	4
GRI 102-2	Activities of the Company, main brands and services	8
GRI 102-3	Address of the headquarters of the Company	9
GRI 102-5	Nature of ownership and legal form	9
GRI 102-6	Markets served by the Company	26
GRI 102-7	Scale of the Company	17
GRI 102-8	Workforce	18
G4-11	Percentage share of all employees covered by the collective employment agreement	19
GRI 102-11	Precautionary principle application	15
GRI 102-12	External economic, environmental and social initiatives	23-30
GRI 102-13	Membership in national and international organisations	13
Ethics and integrity
GRI 102-16	The values, principles, standards and norms of the organization relate to behavioural and ethical codes	6
Governance
GRI 102-18	Governance structure of the Company	10

GRI 102-19	Delegated powers	10
GRI 102-20	Appointment and representation of senior management of the Company in the field of finance, environment and social responsibility	11
GRI 102-21	Responsibility in providing information/advice to shareholders on issues of finance, environment and social responsibility	11
	Interested parties
G4-24	List of the Interested parties	7
	Report Parameters
G4-28	Reporting period	3
G4-29	Date of the previous report	3
G4-30	Reporting Frequency	3
G4-31	Contact person for questions related to social responsibility	3
G4-33	Organization's policies and practices regarding the external audit report	3
Management
G4-34	The company's management structure, including top-level committees	10

List of impacts and specific indicators of the company
Impact	Description, provided method of	External check	Page/Sourc
	management, and indicator		e
	Economic performance
Economic efficiency	Direct economic benefits received and distributed	Done	Annual report 22
Market	Comparison of employee standard salary and minimum salary	Not done	Social Responsibili ty Report 19
Indirect economic impacts	Development and impact of investment in infrastructure and services	Done	Annual report 25
Environmental Protection

Products and services	Mitigation measures for environmental impact of the products and services of the company (G4-EN27)	Not done	Social Responsibili ty Report 24
	Social
Education and training	Programs for improving employee skills and lifelong learning to ensure employee career continuity and guidance (G4-LA10) (G4-LA10)	Done	Annual report 41
Non-discrimination	Number of discrimination incidents and actions taken to deal with human rights violations (G4-HR3)	Not done	Social Responsibili ty Report 21
Local communities	Units that involve local communities in assessing impacts or development programs (G4-SO1)	Not done	Social Responsibili ty Report 28