Appendix to the Annual Report of Mechel PAO for the accounting period of 2020

REPORT

on Compliance with the Principles and Recommendations of

the Corporate Governance Code

Statement of the Board of Directors of Mechel PAO on compliance with the Corporate Governance Principles prescribed by Code of Corporate Governance

Mechel PAO is using the model of corporate governance (hereinafter referred to as the "Model") built up in compliance with the requirements of the legislation of the Russian Federation to the securities issuers whose shares are in the MOEX quotation list of A level. The Model of Corporate Governance of the Company ensures the effectiveness of the system of Corporate Governance, meeting the interests of the shareholders and compliance with the high standards of information disclosure. The Model also implies creation and support of the effective system of risks management and of the internal control, clear distinguishing between the domain of activities and powers of each governance body of the Company, employing a mechanism of evaluating the performance by them of their functions and duties.

In accordance with the Charter of Mechel PAO the following are the governing bodies of the Company:

  • General Shareholders' Meeting;
  • Board of Directors;
  • Management Board;
  • Chief Executive Officer.

The current activities of the Company are governed by its sole executive body (Chief Executive Officer) and by its collegial executive body (Management Board). The Chief ExecutiveOfficer and the Management Board shall report to the General Shareholders' Meeting of the Company.

The Charter of the Company does not provide for bodies of control over financial and economic activities. Considering that the Company has an effective internal audit system and the Board of Directors' Audit Committee, which consists of independent directors, the current version of Mechel PAO's Charter does not provide for an audit commission.

The current version of Mechel PAO's Charter does not provide for an audit commission. The audit of financial and economic activities is carried out by an auditor on the basis of an agreementwith him in accordance with the legal acts of the Russian Federation.

1

Description of the methodology that was used by the Company to evaluate the compliance with the Corporate Governance Principles prescribed by Code of Corporate Governance:

The evaluation of the compliance by the Company with the Corporate Governance Principles prescribed by Code of Corporate Governance was performed in accordance with the Recommendations of the Code of Corporate Governance (letter of the Central Bank of the Russian Federation No. ИН-06-52/8 dd. February 17th 2016 ). The table enclosed contains the explanations of the main reasons, factors and (or) circumstances resulting in the Company's incompliance or partial compliance with the Corporate Governance Principles prescribed by Code of Corporate Governance and the description of the mechanisms and tools of corporate governance that are used by Company instead of (to replace) the ones recommended by Code of Corporate Governance as well as the planned (proposed) actions and measures to improve the model and practices of corporate governance and the timelines for the implementation of such measures and activities.

The Company is in compliance with the most of the Corporate Governance Principles recommended by Code of Corporate Governance, mainly the following:

  • Equal and just attitude to all the shareholders is ensured when they are exercising their rights related to participation in corporate governance;
  • The shareholders are provided with equal and just opportunities to participate in the profit of the Company by way of dividends;
  • Equitable treatment of shareholders is ensured in respect of all types of shareholders (holders of shares of one category (class), including minority (minor) shareholders and foreign shareholders) and equal attitude of the Company towards them;
  • Reliable ways of registering and monitoring rights for shares are ensured as well as a possibility of a free and unhindered alienation of shares by shareholders;
  • The shareholders are provided with information and documents in accordance with the principles of equal and unhindered access;
  • The Board of Directors is an effective professional governance body of the Company that is authorized to make independent objective judgements and to make decisions on behalf of the Company and its shareholders;
  • the Board of Directors consists of a sufficient number of independent directors;
  • BoD members are duly informed and act in good faith and reasonably in the interests of the Company, with due diligence and care;
  • BoD Sub-committees have been established for the purpose of preliminary consideration of the most important questions related to the activities of the Company;
  • a subdivision was established to perform functions of the Corporate secretary of the Company, including the following: effective current interactions with the shareholders, coordination of the activities of the Company related to the protection of shareholders' rights and interests, ensure the effective work of the Board of Directors;
  • payment of remuneration to BoD members, executive bodies and other key management staff of the Company is performed in accordance with the remuneration policy followed by Company; the level of the remuneration paid by Company is sufficient to attract, motivate and retain the staff with necessary competencies and qualification;
  • the incentive system for BoD members provides for the correlation between the financial interests of BoD directors and long-term financial interests of the shareholders.

2

No.

Corporate governance principles

Criteria for assessment of compliance with the

Status of

Explanations of deviation from the criteria for assessment of

corporate governance principles

compliance with

compliance with the corporate governance principles

the corporate

governance

principle

1.1

The Company shall ensure equal and fair treatment of all shareholders as regards their implementation of the right to participate in the company management.

1.1.1

The Company creates the most favorable

1. The Company's internal document approved by the

Compliance

conditions for the shareholders to participate in

General Shareholders' Meeting regulating the procedures for

the meeting, conditions for development of the

the General Shareholders' Meeting is publicly available.

sound stance on the agenda issues of the

2. The Company provides accessible way of communication

General Shareholders' Meeting, coordination

with the Company such as "hotline", e-mail or Internet

of own actions, as well as the chance to voice

forum allowing the shareholders to share their opinion and

own opinion on the issues under consideration.

send questions with regard to the agenda while preparing for

the general meeting. The above actions were taken by the

Company shortly before each general meeting held in the

reporting period.

1.1.2

The procedure of notifying of the general

1. The notice of the General Shareholders' Meeting is

Compliance

meeting and the materials to be submitted for

available (published) on the Internet website no less than 30

the general meeting gives a chance for the

days before the general meeting.

shareholders to be duly prepared for

2. The place of the meeting and the documents necessary for

participation in the meeting.

accessing the premise are specified in the notice of the

meeting.

3. The shareholders were provided with the access to the

information about who proposed the agenda issues and who

nominated the candidates to the Board of Directors and the

Revision Commission of the Company.

1.1.3

When preparing for and holding the general

1. In the reporting period, the shareholders had a chance to

Criterion 1) is complied with partially: In view of COVID-19 related

meeting the shareholders had a chance to

ask questions to the members of the executive bodies and the

restrictions, the annual general shareholders in 2020 was in form of absent

receive the information about the meeting and

members of the Board of Directors of the Company shortly

voting. Such form does not provide for the personal presence of both, the

related materials freely and in a timely manner,

before and during the General Shareholders' Meeting.

Partial compliance

shareholders and the executive bodies of the Company, and members of the

ask questions to the executive bodies and

2. The Board of Directors' stance (including special opinions

Board of Directors of the Company, as well as broadcasting the meeting

members of the Board of Directors, network

entered into in the minutes) on each agenda issue of the

. Nevertheless, the Company provides its shareholders with an opportunity

among themselves.

general meeting held in the reporting period was included

of asking their questions: on the eve of the shareholders' meeting, the

into the materials to the General Shareholders' Meeting.

questions can be sent to our corporate e-mail address mechel@mechel.com;

3. The Company provided the shareholders, who were

ir@mechel.com;

entitled to the same, with access to the list of persons entitled

On the website of the Company (in the materials for the shareholders

to participate in the general meeting starting from the date

meetings) there is information that representatives of the Investor Relations

when the Company received it, in all general meeting held

Department of the Company will be able to answer questions from

in the reporting period.

shareholders by phone: + 7-495-221-8888, and by email: ir@mechel.com

1.1.4

The shareholder's right to request convocation

1. In the reporting period, within 60 days after the end of the

Compliance

of the general meeting, nominate candidates to

relevant calendar year the shareholders had a chance to

the governing bodies and submit proposals for

submit proposals for inclusion into the agenda of the annual

inclusion into the agenda of the general

general meeting.

meeting was not associated with the needless

2. In the reporting period, the Company did not refuse to

complexities.

accept proposals for the agenda or nominations to the

3

governing bodies because of misprints or other minor

deficiencies in the shareholder's proposal.

1.1.5

Each shareholder had a chance to freely

1. The internal document (internal policy) of the Company

Compliance

exercise the voting right in the simplest and the

contains provisions stating that each participant of the

most convenient way for him or her.

general meeting can request a copy of a bulletin filled in by

them and certified by the Tabulation Commission before the

end of the relevant meeting.

1.1.6

The procedure of the general meeting

1. There was sufficient time for reports on the agenda issues

Criterion 1: In view of COVID-19 related restrictions, the annual

established by the Company provides equal

and time for their discussion at the General Shareholders'

general shareholders in 2020 was in form of absent voting.

opportunity for all those present at the meeting

Meeting in the form of a meeting (joint presence of

Criterion 2) is complied with partially: In view of COVID-19 related

to voice their opinion and ask questions they

shareholders) in the reporting period.

Partial compliance

restrictions, the annual general shareholders in 2020 was in form of absent

are interested in.

2. Candidates to the governing and supervision bodies of the

voting. Such form does not provide for the personal presence of both, the

Company were available for answering the shareholders'

shareholders and the nominees to the governing and supervision bodies of

questions at the meeting where their nominations were put

the Company.

to vote.

Criterion 3) is not complied with: During the accounting period directors

3. When making decisions related to preparation and holding

did not consider a possibility of using telecommunication means to provide

of the General Shareholders' Meetings, the Board of

the shareholders with a remote access to general shareholders' meetings

Directors considered the issue on the use of the

during the accounting period due to the meeting held in absentia for the

telecommunication means for providing the shareholders

reasons specified in clause 1.

with the remote access to participate in the general meetings

. But the Company provides the shareholders with a possibility of sending

in the reporting period.

their questions on a remote basis to the corporate e-mail address of the

Company mechel@mechel.com; ir@mechel.com.

Starting from 2020 the Company provided the shareholders with a

possibility of taking part in the general shareholders' meeting by electronic

voting during shareholders' meetings.

On the website of the Company (in the materials for the shareholders

meetings) there is information that representatives of the Investor Relations

Department of the Company will be able to answer questions from

shareholders by phone: + 7-495-221-8888, and by email: ir@mechel.com

The shareholders are provided with an equal and fair opportunity to participate in the company revenue by receiving dividends.

1.2

1.2.1

The Company developed and implemented a

1. The Company developed and disclosed the dividend

Compliance

transparent and clear method of determining

policy that is approved by the Board of Directors.

the dividends and their payment.

2. The relevant provisions of the dividend policy include the

consolidated indicators of the financial statements while the

Company's reporting indicators are used in the Company's

dividend policy to determine the size of dividends.

1.2.2

The Company does not make any decisions on

1. The Company's dividend policy contains clear

Non-compliance

The dividend policy followed by Company uses differential approach in

dividend payment when such a decision,

instructions on financial/economic circumstances when the

respect of dividends payment. Decision making on dividends payment

without formally breaching the restrictions

Company should not pay dividends.

directly depends on the financial/economic conditions in a certain

established by the laws, is economically

accounting period and the Charter of the Company contains information

unfeasible and can lead to false representation

related to the amount of annual fixed dividend to be paid per one privileged

of the Company's activities.

share of the Company that is to be announced and paid provided that the net

profit of the Company is sufficient to pay the dividend. The amount of the

fixed dividend to be paid per one common share of the Company is not

defined by the dividend policy of the Company and by the Articles of

4

Association of the Company.

The Company plans to consider the issue of bringing the Regulation on

dividend policy in line with the recommendations of the Corporate

Governance Code (recommended by the Central Bank of the Russian

Federation), in part of the description of the mechanism for determining the

amount of dividends paid on ordinary shares, as well as defining clear

indications of financial / economic circumstances in which the Company

should not pay dividends in the following financial year.

1.2.3

The Company does not allow for deterioration

1. In the reporting period, the Company did not take any

Compliance

of dividend rights of the existing shareholders.

actions leading to deterioration of the dividend rights of the

existing shareholders.

1.2.4

The Company is committed to prevent the

1. In order to prevent the shareholders from using other ways

Compliance

shareholders from using other ways of

of receiving profit (income) at the Company's expense in

receiving profit (income) at the Company's

addition to dividends and disposal value, the methods of

expense in addition to dividends and disposal

control that ensure timely identification and procedure of

value.

approving transactions with entities affiliated (associated)

with the existing shareholders (entities having the right to

dispose of the votes attached to the voting shares) are

established in the Company's internal documents in cases

when the law does not formally recognize such transactions

as related-party transactions.

The system and practice of corporate governance ensure equal conditions for all shareholders owning shares of similar category (type), including minority (minor) shareholders and foreign

1.3

shareholders and their equal treatment by the company.

1.3.1

The Company created conditions for fair

1. Within the reporting period the procedures for the

Compliance

treatment of each shareholder by the governing

management of potential conflicts of interests for the

and supervision bodies of the Company,

existing shareholders are efficient and the Board of Directors

including conditions ensuring prohibition of

gave due consideration to the conflicts among the

abuse on the part of the major shareholders

shareholders, if any.

with regard to the minority shareholders.

1.3.2

The Company does not take any actions that

1. There are no any quasi treasury shares or they were not

Compliance

cause or may cause artificial redistribution of

included in the voting during the reporting period.

the corporate governance.

1.4

The shareholders are provided with reliable and efficient ways of share rights accounting, as well as the opportunity of free and unhindered alienation of shares owned by them.

1.4.1

The shareholders are provided with reliable

1. Quality and reliability of the activities of the company's

Compliance

and efficient ways of share rights accounting,

registrar for maintaining the register of the security holders

as well as the opportunity of free and

meet the needs of the Company and its shareholders.

unhindered alienation of shares owned by

them.

2.1

The Board of Directors carries out the company strategic management, determines the main principles and approaches to organization of the risk management and internal control system in the

company, supervises the activities of the Company's executive bodies, as well as implements other key functions.

5

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Mechel PAO published this content on 28 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 May 2021 14:42:01 UTC.