Nebius Group N.V. (NBIS) Earnings Call Transcript & Summary

Yes. Hello, everyone. That's Slava from Goldman Sachs. I'm joined today with Evan Tylenda who's the Head of EMEA and GS Sustained ESG research team at Goldman Sachs. We are pleased to host the conference call to discuss the first sustainability report of Yandex, which was published on the 28th of May. Today's speakers from Yandex include John Boynton, the Chairman and -- of the Board of Directors and the Corporate Governance Committee. Also Yulia Gerasimova, Head of Investor Relations; and Daria Mukhortova, the Sustainability Manager. We will start with the questions that investors sent to Yandex team before the call, and there were quite a number of them. And all the participants have the opportunity to submit their questions into the chat during the call, and we will leave time to answer them in the end. But just before we start, we're required to make certain disclosures in public appearances about our Goldman Sachs' relationships with companies that we discuss. The disclosures relate to investment banking relationships, compensation received or 1% or more ownership. We are prepared to read aloud disclosures for any issuer upon request. However, these disclosures are available on our most recent reports available to U.S. clients on firm portals. Disclosures and updates to those disclosures are also available by ticker on firm's public website at gs.com Research page.

So let's start with the sustainability agenda. You present a comprehensive ESG agenda that consists of 12 streams. Although the report provides a detailed description of how those have been compiled, could you do a small recap for us, all the key steps that were taken to arrive to that result? And which stakeholders have you engaged? And what kind of analysis fed into the process of delivering the key topics?

Why don't I take that one? Thank you, Slava. Thank you, Evan. And I want to say thank you to all of you who are joining the call. This is a project that has been a long time in the making, and we are incredibly proud to have released this report. I should thank Yulia and Dasha for all the work they've done to lead a big team of people to create something that's truly a significant step forward for Yandex at this point in time. I want to throw the disclaimer out there that it was a massive piece of work. I don't claim to be expert in all dimensions of it. So I'm going to rely on Dasha and Yulia to support me on these questions where I don't have the information. I also want to thank everybody for joining by Zoom because I think we're all pretty tired of these Zoom meetings. But in the not-too-distant future, I hope we'll be able to have meetings like this in person, and won't that be wonderful? So thank you. You asked, Slava, about how we actually developed kind of the approach taken in the report? And I'd say, really, there were 3 primary streams. First of all, we did a -- kind of undertook a big effort to look at what Yandex was already doing in these key areas because although we hadn't published a report before, we had a lot of things underway. Secondly, we looked around the world to see what other IT companies are doing in terms of ESG to make sure we understand what the best practices are and what we can learn from them. And finally, we spoke to a lot of stakeholders, including some of the folks who are on this call, to understand where you think we should be focusing as a company. And taking all that information together, that's really what we used to develop the framework for the report. Yulia, Dasha, you could feel free to jump in any time.

Sure. And I think -- go ahead.

Okay. So you mentioned -- Yes. So you mentioned 12 streams in this report. Can you help us understand which are the key priorities for Yandex as of now?

Okay. It's a good question because, again, 12 streams feels like a lot. Some of these are things that we have been doing for a long time, others we call kind of relatively new in terms of our activities. So we have -- out of the 12, 5 of them fall into that category, relatively new and are things where we're really going to be placing a lot of emphasis in the coming 12 months. The first is reducing our carbon footprint. From an ESG standpoint, we know how important that is to investors, how important that is to society. That is a priority. Secondly, working to improve our waste management is another key focus. Third, we want to see how we can use technology to streamline IT education. I think that's important. Four, we want to be sure that all of our services are as inclusive as they can be. We know this is a very important theme for all of us as people. We want to be sure that everybody is included, that everybody can access these amazing new services that Yandex and companies like us are rolling out. And finally, we really want to make sure that we're supporting our service partners as effectively as we can. We now have something like 700,000 drivers, working for Yandex.Taxi. We've got 300,000 couriers. We've got tens of thousands of other folks doing different things outside the employment base of the company. So it's a significant number of folks we've put into that service partner category. And we want to be sure that we are taking the best care of them that we can. So those are really the 5 areas where we're going to focus most of our energy on at this point.

Okay. So speaking about the stakeholder engagement to define the ESG targets and streams, were there any interesting findings that you could share with us? Any issues that are found material by your employees, your management or your users that were found less material by the investment community?

Let me tell, it's a good question, Slava. Yulia, you want to take this one?

Yes, let me take this one because I think we spend [indiscernible] a lot of time actually, like surveying a lot of stakeholders, including like employees, separately top management, like partners or also consumers and stuff like that. So -- and we actually put this -- when we put it together, there was a good comparison table, and we even discussed in the Management Board because it was interesting to see how different groups answered. So a few things I would highlight. So one is probably like on the talent retention and HR issues. That was surprisingly more highly rated by the investment community than by internal stakeholders. And I think I could understand the interest of investors to the talent retention topic because of the high competition for the IT specialists currently. But for the internal stakeholders, I think the reason why it was relatively lower rated, it's simply because we, I would say, definitely have a very mature approach to the HR management in the company. And this simply probably was not the most pressing issue, not with a high-risk and high-priority topic that management has seen as opposed to things like data privacy or informational security. But on the contrary, the support to the service parties, that was something where our internal stakeholders have expressed quite higher interest and higher -- and assigned higher priority to that versus the investment community, for example. And this actually was among the top 5 streams that was rated highly by the -- both internal stakeholders group, employees and top management separately. Another one I would mention, probably it's educational initiatives because that is something which is not necessarily always regarded highly by the investment community as a top priority. But that actually basically incentivized us to add a little bit more details about that in sustainability report, because we believe it's not only the huge kind of social help, but it's also, in a way for us, the kind of the opportunity to strengthen the quality and bring -- build awareness about IT profession among schoolchildren. That's an opportunity for us to attract new talent. And there's also a great tool for us to overly increase the kind of the degree of the preparation -- degree of IT specialists in the country from where we highly benefit. So I think those are like probably the key things I would highlight in terms of the different opinions.

Okay. So to wrap up the sustainability agenda, many companies set quite ambitious long-term goals and present their specific ESG road maps to achieve them. Would you consider sharing your future strategic ESG plans and certain specific numeric targets at some point of time?

I think the answer is yes. At this stage, as a first step, just going out and documenting where we are and establishing the areas where we should be focusing, that really was the priority for this report. So at this point, we haven't set firm goals for any of our work streams at this point. But I would anticipate we will do that in the future. One of the things that Yandex has always been good at, and I've been on the Board now for, I guess, since the beginning, is once the company engages with a particular topic, it's like kind of the hive mind, the whole company kind of mobilizes to make things happening. That kind of agility and that kind of innovation is important to us. So as I look at this from the Board's point of view, I see that we've kind of established a really strong baseline. We understand where we are. We now have kind of the priorities and the focus for which we will set goals going forward. And I think that we are going to see regular updates on these ESG topics coming from the team. And I think that -- I can imagine, in time, we might set goals for ourselves. But at this point, we want to see how rapidly we can run. And so rather than being constrained by a particular target, let's get the team engaged, let's start running as fast as we can, pursuing these 5 relatively new topics. And we'll see where we are a year from now, and then we'll likely provide kind of improvements or enhancements to the way that we approach the whole challenge and the whole topic of sustainability.

Yes. If I may just say like a couple of words, I think we always have been for the substance. And would like to make a proper kind of analysis and understanding, what goals are achievable for us? How exactly we're going to achieve them? I think it's -- rather than just setting the goals for the sake of having them. So I think that also has been something that Yandex has been particularly proud of. So it's definitely something to consider, but requires proper analysis.

I'd also add one more thing, Yulia, which is that market feedback is important to us, right?

Yes.

Your thoughts, your input will absolutely help shape how quickly we move, in which direction. That stakeholder input was really important during our report development process. And so we look forward to having a dialogue about all this with all of our stakeholders.

That's excellent. So Evan here from Goldman Sachs, leading the GS sustained research team, where we've been focusing on ESG data for well over a decade now. And I just want to reiterate, having looked at this report for the first time, it was quite impressive how much material you've been able to make available. And often in an industry that's not as quite as transparent as ESG research analysts would like, so I just want to reiterate that that's exciting to see. Maybe starting with a straightforward question here on governance. How does Yandex think about diversity on the Board? Are there any plans to increase the representation of women and minorities going forward?

First of all, to your comment about transparency, I appreciate that. That is one thing where -- from the beginning of Yandex, we have sought to be as transparent as we reasonably can be. We've set -- sought -- set standard around governance. And I think that we've managed to do a pretty good job with that. So I'm glad you recognized the attempt to be as transparent as we can be. As I was going through the report, I kind of felt like it was -- it went way beyond simply ESG and sustainability. It actually helped -- shared a lot of insight into how the company actually works, how we think. And so I'm glad you noticed that. On the question of diversity, diversity was absolutely important to this company. It's an area where we do have work to do. But I would anticipate that in coming years, we will see our Board getting increasingly diverse. That is something that we would like to do. I think it's worth noting that I'm based in Boston. So a lot of my context for this stuff is in more of a U.S. or Western European context. Russia doesn't have the same ethnic diversity that United States has for sure or Europe might have. We also don't yet have the same gender diversity in our workforce that some of the other countries have. I can tell you, having chaired the Compensation Committee for many years and still serving on that committee, that we, for years, have been looking at the balance of men and women in the company, looking at diversity, looking at kind of all aspects of it, and that's important to us. So I guess I'm saying, expect to see more progress. It's an area where we want to make more progress. And I think that we also would tell you openly that diversity is an important contributor to creativity and insight and innovation. And so we want to have as diverse a team as we can. And I think that if you -- again, if you look around Russia, I think that Yandex, despite the way it might look from the outside, I think we have more diversity than a lot of companies, and I think it's a value that we are going to really continue to develop.

No, that's excellent. And then kind of on the topic that you mentioned on, it's often a sensitive one, but around remuneration. In the report, you mentioned that ESG metrics are incorporated into the financial and operating performance of the business. Can you elaborate a little bit on that? And then are there any plans to link compensation of executives directly to ESG targets?

Yes. I'm happy to. I mean, at this point, when we talk about members of the management team who are compensated with broad KPIs, generally, we're talking about very top management. And they're using -- we're using very -- kind of very high level metrics, like revenues, revenue growth, like profitability. From our point of view, a lot of those ESG elements are baked into those numbers. So take revenue, for example. The popularity of our services, the way we're perceived in the market, the way our brand is regarded. That all is influenced by what we're doing on the ESG front. And in turn, is translated into the revenue number, right? So at this point, we haven't singled out any particular ESG metric for our management KPIs, which is not to say there are folks lower down in the company who have ESGs on their agendas. But very top management just as we haven't set goals yet for the company on the ESG level, we haven't baked ESG components into the KPIs for their compensation. But I expect that as we proceed, there's a good chance that will happen.

And if I may add just a couple of words here. I think on the -- I think you would talk -- like go like one level down from like minus 1, minus 2 from the management team, I think there's relevant business unit leaders and like function leaders/heads. They have certain KPIs that some way or another link to what we have to be discussed in this report. For example, like, I don't know, 0 breaches in the data privacy is something which -- like the security team is kind of watching, Chief Privacy Officer, or the kind of efficiency of our data centers, which is absolute priority, and we are making good progress here for our management team on that side. So I think in the e-chart, it could be -- we're managing the staff turnover and especially the one which is undesirable staff turnover, and we are also in quite good position. So we reported those numbers in our reports. And those are very, very low, I would say. So for taxi and for the mobility services like traffic efficiency of the transportation because we're always working on decreasing the idle times, decreasing the time, like optimizing the routes. So I think all of that is actually already included into the KPIs, and those are part of what we discussed in the sustainability report.

No, that's excellent. And then I guess, maybe talk us through some of the decision-making process when it comes to actually addressing these ESG issues. Talk to that structure, which levels of management are involved? Who approves the action? How far down that employee base does this risk management go? So that would be helpful.

If you let me probably take this question. So I think everything starts with the Management Board. So I think Management Board just sets the overall ESG agenda, which is then gets to be approved by the Board of Directors. So -- and we went through this process while approving this 12 streams that we have presented in the report. And also our Corporate Governance Committee, which John is also like -- where John is also Chairman, is actually receiving regular updates on the progress on the -- some of the key projects and initiatives. And by regular, I mean, at least on a quarterly basis. So as we also discussed earlier on this call, we have like some of our streams were actually were forming the road map, and we call right now them foundation streams. But those have been always on the agenda and have been discussed extensively by the Board, both management and the Board of Directors. Again, like data privacy, informational security, employee well being. So those always have been important and been discussed. And these new streams, look during this -- for the past several months, we have been doing this exercise of systematizing all of the issues and -- sorry, all the initiatives that we have within Yandex and those new 5 streams appeared. So again, they were discussed at the management and then approved by the Board of Directors. And now the execution of those is going to come down to the relative heads of the business units and specific functions. And -- but when we speak about like -- particularly like stand-alone ESG projects within the streams, those -- there, we use like a bottom-up approach as we usually do in Yandex, because we very much, I would say, promote this kind of initiative and innovations. So we like when our employees are coming to us with idea presented to the team leaders. And then if it's really like a great idea, then it goes back up to the senior management and the Management Board. And the risks, when we talk about the risks, they also, as a result of that, managed on the operational level. So -- by these respective teams who are actually executing on specific streams. But there's obviously also overall supervision from the departments like legal department and compliance from the internal audit. And all of the critical risks and issues are definitely reported and discussed on the Management Board. So I think that is just high -- on a high level how it works.

Let's probably now turn to antitrust matters. So we see that technology platforms across the globe have become too dominant and very powerful across some of the markets globally, and they obviously face increased scrutiny from the regulators. If we speak about Russia, the Russian Central Bank is also talking about the potential regulation of technology platform also called ecosystems in Russia. So what are the potential areas of regulation in your view? And what do you do preemptively to address the potential concerns from the government?

Slava, you're absolutely right. I think we all see growing government and regulatory interest in overseeing technology. Social media, in particular, has been a hot area. And Russia is no different than the rest of the world in that way. I do think that -- well, it's interesting. So as -- over the last few years, as we've grown -- well, let's go back 5 or 6 years, Search was like 90% of Yandex's revenue. I believe this year will be the first time the Search is less than 50% of the company's revenue. So we've seen an evolution of the business model, which is much more about being an ecosystem. And we're also seeing in Russia other ecosystems attempting to emerge to compete with the Yandex ecosystem. So it's natural that the government would be interested in this sort of thing. I think what happened in the U.S. with the most recent election cycle as well has created real concern on the part of governments globally about the role that social media plays in kind of facilitating or preventing the leaders from communicating with the populace. I think that when Trump was taken off -- taken off Facebook, taken off Twitter, that was a major move, right? And I could imagine governments around the world, say, "Oh, can companies really do that, right?" And so in our case, this is an issue that we are, of course, intensely aware of. We have not heard anything from the Russian government that gives us concern that they're going to behave or do anything any differently than the rest of the world. And I'll say that we also have a very kind of strong dialogue with all the relevant regulatory bodies in Russia. We have, I think, Russia -- Yandex in general is regarded as a very positive contributor to the economy, an important player in society. The Russian government has acknowledged that it needs to support its local IT companies in the face of competition from abroad to make sure that we don't fall victim to some of the monopolies that might exist outside of Russia. And so I guess the bottom line is we keep a very close year. We were in regular conversations. It's something we monitor very closely. But at this point, we don't see anything kind of that's likely to impact Yandex in a dramatic or negative way.

Yes, it's all good. Let us then probably turn to the information security and data privacy. It should be very topical in case of Yandex. So the question is, how can you just manage the personal data that they share with Yandex services?

I guess, I will be happy to take this question. So actually last week, Yandex ID, which is a unified authentification service of Yandex, it introduced an important update. It introduced a tool which allows users to manage their personal data. That is collected by Yandex.Services and the number of the services, basically around 50, 5-0. So basically what users can do, they can request the deletion of some information, for example, that could be some search history on Zen, which is the log-in platform, or request history with the voice assistant, Alice, or any other information. And this request is processed within a day. So the exception here would be the data that is required, like legally required to be stored for a fixed period of time. And in case the user requests the deletion of this kind of data, then it gets removed right after such period is over. And this is like first-of-its-kind tool for advanced management of user personal information that is now in the market. What basically Yandex does? It informs users that the deletion of some data may affect the level of service personalization. So for example, if you delete search history in Yandex.Music, then the service is no longer able to offer playlist suggestions. But it is important that the user now has the freedom to choose whether to share the data with Yandex and receive personalized experience in return or request the removal and opt for default functionality. There is another function that is actually worth mentioning here that helps user manage data sharing with third-party parties when browsing the Internet. Last year -- actually, no, early this year, I'm sorry, Yandex.Browser introduced an updated third-party tracker blocking feature, which is called Your Tracking Protection. And what it does basically, it adds a control panel that lets the user see a list of third-party trackers and choose which ones to allow or deny. And it protects them from unwanted interactions with the providers of services that they never requested. So in case you go on a website and you insert your phone number and then you go on another website, which has a similar third-party tracker, that another -- like the service provider from another website can call you and offer some service, and that would be very unwanted and bothering and in the way. So the feature allows you to actually control the trackers that capture your data. And Yandex was the first one to introduce this feature in its browser. Users can familiarize with the rights they have to manage the data in the privacy policy. It is absolutely available in the public domain, and it was last updated in October last year. The policy also includes several provisions on how -- what kind of data Yandex collects and how it processes this data. What are the circumstances under which data can be shared with third parties and, et cetera. So a very useful document. And probably the last thing I will add is that data is almost always processed automatically. So without any human interaction, unless absolutely necessary, Yandex employees only have access to the data that is needed to do their job and all the authentification information is encrypted. So I guess that basically sums it up.

I just wanted to stress [ what Dasha ] twice, like mentioned about like that something you -- Yandex did something for the first time. So I think that the recent opportunity to delete the data and the features she just described in the Yandex.Browser, I think it was indeed like one of the first to actually coming with that. We were first to come with that. So I think it's also like highlights that we are on the forefront of the data privacy management.

Interesting. You have also recently appointed a new Chief Privacy Officer. How will that strengthen your cybersecurity practices?

May I take that one?

Yes, sure.

Okay. I think that it's an important step for us because while cybersecurity and information security has obviously been a key priority for us for decades, as our ecosystem grows and we have more data being shared across various services, it becomes even more important that we manage that data with protection. And so while the tasks that the Chief Privacy Officer will be overseeing are not new, concentrating, responsibility and accountability in a single person, I think, will really help us. This world has gotten more complicated. Our information security group is doing more and more things. And when you add on to that fact as a European company, we're subject to GDPR with the work we do there, we need to make sure that we are kind of running ahead of the regulation. And so having a strong CPO with strong experience really helps us out.

Good. Let's then probably move to the topic of content quality. So according to the data that you disclosed, the number of cases of noncompliance with the advertising placement rules has increased in 2020 compared to the levels of 2019. Can you elaborate on the key drivers behind that? And what does Yandex do on top of the monitoring compliance with the legislation to ensure that the ad content is safe?

I may lean on Dasha or Yulia for some help on this one. But I think at a high level, if you think about what's involved in regulating our platform, or moderating a platform with nearly 100 million monthly average users, with 20 million users a day coming to Zen, with hundreds of thousands of advertisers, I mean it is a -- it's a tricky thing to manage. And we do our best to make it work. It's also, again, given the scrutiny that's being given to IT platforms these days worldwide, no surprise that we are under a lot of scrutiny. So we do it in a number of ways. Again, this is -- with all this advertising migrating online and so many folks, it's hard to do it. Ad moderation is something that we use machine learning to do. And machine learning supplemented with human oversight tends to -- it becomes stronger and stronger with time. But I think in terms of specifics, Yulia, Dasha, can I turn to you guys?

Dasha, do you want to take that one?

Yes. I guess -- yes, I can cover this one. I guess the last part of the question was about what kind of measures we have on top of legislation, right? So how we deal with inappropriate ads? So basically, on this part, what Yandex does is it improves its moderation mechanism. So ad moderation is an important, like a crucial tool of the process of ad placement process. So the process is entirely automated, and it has specific criterias that they like the robots, the machine learning follows. However, like human manual moderation can take place in case the result of an automated moderation is inconclusive. And the specialists, they follow also very strict set of criteria, which is not available in public. Well, some of the criteria is available in public, some not because while nobody wants this criteria, this regulations to be circumvented. So that's why it's kept strictly confidential. And we -- you and I, we do not know this moderation criteria. So it's all built to ensure that no inappropriate ad actually enters the space. And last year, in 2020, Yandex rejected over 150 million ads that did not meet Yandex advertisement requirements. And Yandex advertisement requirements is actually the document that is available in the public domain. So every advertiser can get familiarized with it. Also what Yandex does, it analyzes latest fraud schemes. So for example, that could be some deceptive campaigns that disguise ads that are like of a legal nature, of legal products and services. And it incorporates the findings into the machine learning and moderation algorithms. So this is a big part of our job that we are doing here. Also, I guess, noteworthy is that what Yandex does, it does not only try to protect the user, it also tries to help the advertiser, because there are certain schemes that are targeting advertisers and they aim to drive up their advertising budgets by, so to say, invalid click activity or fake impressions, conversions generated by bots. So what we do here was filter this kind of activity and basically protect the advertiser as well from the manipulated statistics.

Yes. So switching to employees, which are really critical stakeholders in the tech space to develop IT. How would you first describe your unique selling proposition to simply attract talent? And then maybe in the context of remote work practices becoming much more commonplace, you're likely experiencing more foreign competition from companies that don't require relocation. So what helps you retain that talent once you've acquired them?

I'll take this one. That's a great question because talent is something that we focus on, we put a lot of effort into. I'd say that maybe 6 to 8 years ago, we started seeing much more intensive recruitment efforts by companies like Microsoft, Facebook, Google in Russia, attempting to take our engineers and pulling away, right? So we measure on a quarterly basis at the comp committee level. We are looking at how many folks we are losing to immigration. And I will tell you that the number is remarkably low given the competition that we face from these great companies. And I think that's really due to 3 separate factors. One is Yandex is a really interesting place to work. The quality of projects, the fact that you get to work with a bunch of other -- the brightest people in the country is a real opportunity that our employees appreciate. So we've got an incredible body of talent, people like to be part of that. Secondly, we have a brand that is admired in the country. I believe we've been cited as the #1 employer in the company. People love to work for Yandex. We take good care of our employees. So that is important for retention as well. Finally, I think, compensation. We have been very competitive with our compensation. We benchmark our comp against international peers. So when we look at compensation, we're not looking at 5 of the Russian companies, we are looking at Google, we are looking at Facebook, we are looking at all of the NASDAQ traded tech companies that we consider our peers. And when we compensate on that basis in Russia, our people are actually paid really well. But they earned that money. They've generated a ton of value for shareholders. And we want to be sure that we retain them. So that's a really important priority for us and something that personally I'm really proud of the work environment we've been able to create for our employees. Anything else that you guys want to add?

Well, I think I'm just -- if I may, just like a couple of numbers, I would just stress from the report, I think, which, in my opinion, are important is that the number of employees that are involved in the kind of equity compensation scheme. I think that's kind of -- it's more than 60%. And I think that's kind of unique, I would say, for the Russian equity market. That means that like big portion of the employees are actually fully aligned with the share price performance, and they truly care about what's happening with the company. I think another important number, which we also disclosed, that was the pay gap between the employees on the developers' level, like the key developers now, which is like 3% to 5%, which basically, I think it's -- could be considered as a margin error. And in certain cases, it's actually in favor of women. So it's -- well, that's something we're very much proud of. And I think the level of engagement, which is like, it was 87% of actively engaged, and this is sustainably high figure, which from year-to-year is actually like either stable or even slightly improving. So I think those are just like some numbers to back up what John just mentioned, and they're all available in the report.

The thing to remember is that the job market has become global, right? People are so mobile. They can move around at the drop of a hat. And so I'm really proud of the fact that we're able to retain such talent in Russia, and I think that we really stand apart for that reason. We would not be nearly as successful as we are if we didn't have the talent that we have. And so we owe a ton of gratitude to all those folks who love their jobs and are working hard to create magical services.

Now that's excellent. And then maybe kind of skipping to a little bit of a hot topic at the moment with the gig economy, contract workers. Can you touch on some of the regulatory risks related to the support for drivers and couriers? And do you think Yandex will face similar demands or criticisms such as Uber, Deliveroo and the others?

Yes. I mean it's a good question because it certainly is a hot topic in Europe and the United States right now. So we'll see how things develop in Russia. I think the numbers we see are, number one, I see over 1 million people who are signing up for driver and courier jobs with Yandex, right? No one's being forced to take those jobs. They're coming to us, and they're excited about them. So we've got a large -- a huge number of people who want those jobs. When we benchmark their compensation, particularly in the regions of Russia, outside of Moscow, our numbers suggest that a fully employed driver or courier is making -- typically 150% of the regional average, right? So they're actually making more than the average person would be making in those regions. And if you're good at what you do, you can earn even more, right? So I look at this and I say, one, we've got a large group of people who are responding to the opportunity to take these jobs and they look to be being paid well. Secondly, Russia is a little different from the United States where this has been such a hot button issue, particularly in California. In that, a lot of the kind of the insurance benefits that contractors in the United States don't get. So all those Uber drivers who are treated as gig workers, they don't get paid health insurance, right? That's not an issue in Russia, right? That's all provided for everybody. We also provide an additional level of insurance for all of our couriers that is not typical in the United States. So do I worry about it? A little bit, but I think that it's a different kind of context in Russia. I think that our folks actually feel pretty good about the jobs they have, and I'm not overly worried about it.

Just -- maybe just to add a couple of points on that. I think we -- at Yandex, we also have been proactive on that matter. So I think we have like regular kind of, again, like questionaries and the checks with -- what we -- we check with our service partners what is important for them and we try to kind of reflect that in the benefits or in the kind of relationship that we have with them. But in particular, what we have recently introduced and, again, we were kind of first in the market to do that, it's in March 2021, we started this pilot project which is effectively somewhat kind of similar to the paid sick leave. And it's basically a kind of a co-investment. Basically, that's a collaboration with insurance company, and it was offered voluntary for our service partners. That means that like they can -- we can -- Yandex can cover part of the compensation of the insurance -- of the insurance payments, which then will provide the compensation for the driver in case of illness. So I think it's in early stage, it's a pilot. And I think we're just like getting the feedback from the -- from our service partners of how they respond to that. And -- but in any case, as I said, it's kind of a first-of-a-kind in the market. And the whole idea here is that we're trying to do like seeing in the regulatory environment in other countries. And we are actively engaging with our service partners just to make sure that we can create kind of not a standard, but I think it's kind of widely accepted standards for that particular relationship in Russia and be ahead of the curve. So I think that is the most important.

No, that regional context is actually super helpful. So maybe switching here to the other hottest topic, which is carbon. Can you just talk to the company's carbon footprint, recognizing there's a multitude of different business segments? What are the major sources? And then how do you plan to reduce those going forward?

Can I take this one? It's my favorite topic, carbon footprint. I will take this one, if I may.

You can just go ahead.

Okay. Well, about the first part of the question about sources of emissions. So more than half of our carbon footprint, and it's 52% to be precise, it is associated with electricity consumption. And 90% of that electricity consumption is basically data centers. The remaining parts of emissions are attributed to fuel combustion, it's around 44%. And the remaining 4% would be heat consumption and refrigerator leakage, which is basically immaterial. So in order to evaluate our performance here, we -- and to think of possible ways of how we can reduce carbon footprint, we analyze our carbon intensity metrics first. Well, we think that it is like a more useful indicator for tracking actual performance that absolute emissions. So what we have revealed while calculating our Scope 1 and Scope 2 emissions for the first time this year, and when calculated our carbon intensity, we saw that our carbon intensity per 1 megawatt of energy used is basically flat. So it does not change over time. And what we can infer from here is that the growth of emissions is basically in line with the growth of energy consumption. And that we rely on the very same energy mix. So meaning that sources of energy are just the same. And in order for us to reach a declining trend here, we will have to consider alternative sources of energy. So Yandex now considers various green energy providers outside of Russia, and we will keep you updated if we have any more information on how we proceed with this part. About what we have now, we do not have a formal environmental policy as of now. However, well, we must assure you that environmental issues are highly important to us. And all the responsible teams are working on various aspects of environmental responsibility, that would be improving energy efficiency, that would be following the most rigorous standards, some circular solutions. Well, just to back up the statement, there are a number of examples from the report. We reported high energy efficiency of our data centers. In 2020, the average power usage effectiveness, which is like the PUE of data centers was -- by 25% more efficient than the global average. And our newest data centers have demonstrated the average PUE of 1.1. And in case of this indicator, the lower the better, so the perfect PUE would be equaling 1.0. So for 3 consecutive years that we reported, our newest data centers had this 1.1 PUE. And it means that they are 6x more efficient than the global average with respect to overhead energy consumption, which means that they use less energy on top of like main energy consumption to power server equipment. A different example that would back up my statement about like using -- employing some circular solutions is our case of a data center in Finland which uses -- which tries to make the best use of waste heat to warm local homes. And here, what we basically do, we use the equipment that cool the servers with outside air. Then this air gets heated, fanned into special reservoirs to heat water and the water basically feeds into central heating system. And last year, the municipal utility company calculated that the server heats, well, the heat supplied by Yandex, it accounted for 51% of the city supply of thermal energy. So which, from my personal perspective, is pretty cool. Just a quick remark about us going forward. So I'm pretty sure you're wondering if we will have -- and when we will have a separate environmental policy. So of course, we will consider a separate policy or guideline on environmental responsibility. And our goal would be here to make an effective document, like instrument. So what was mentioned before about like not developing certain targets for the sake of having targets, the same goes for a policy. So developing the document for the purpose of having it is not what we would want to do. In the meantime, while we are considering this, we are -- we plan to update our stakeholders about the results of our environmental actions. Also for climate issues, we started calculating our carbon footprint of infrastructure, and we plan to extend our analysis to carbon footprint of selected services. So we also start -- we also plan to start applying the TCFD recommendations and work towards setting science-based targets to reduce greenhouse gas emissions. Perhaps you're also wondering if we are considering offsetting, and the answer is no, not for now. We believe that the core improvement has to be done at an operational level. So by optimizing processes, eliminating sources of emissions and opting for new energy sources, as I mentioned before, so where possible. I guess that's from my side.

Okay. Let's probably stick with the governance matters for quite a while. So you have created quite a unique structure, the shareholder structure, 1.5 years ago with a public interest foundation having certain functions as well as the golden share. Can you share what was the level of collaboration between you and the public interest foundation since then?

That's a good question, and I'm going to trust that everyone on the call has some familiarity with our new governance structure that we rolled out a couple of years ago. The public interest foundation has a very specific and targeted set of roles. Basically, it's involved. It would be asked to vote in the event that there was an effort to consolidate more than 10% of Yandex voting shares. They approve the nomination of 2 of the directors to our Board. And should Yandex engage in a transaction to sell or license a significant portion of its intellectual property, that would require the approval of the PIF. So the PIF is not a body that needs to meet very often. And there's not a lot of regular interaction between the Board and the PIF. But I would say that since developing the structure, which really was an attempt to balance the needs of our shareholders with the needs of society, make sure that everything is kind of operating well together. Since developing that new structure, from the Board perspective, I'd say it's operating very effectively, and we're really happy about it.

Yes. I just wanted to add again like during the 2020, I think that the public interest foundation have [ maps ] like 2x. And this basically was mainly administrative issues that have been deciding. And I think once they just approve, they have a formal approval of the merger of the Yandex.Market that we have back in 2020. So I guess that's it. So there's -- that's good that there was no kind of agenda for them to discuss beyond the administrative side.

So taking a question actually here from the line. You mentioned early on in your remarks, you did a worldwide assessment of your peers. So the question is, what companies do you regard as best-in-class for ESG within your universe?

May I take this question?

Sure. Go ahead.

So -- well, basically, I guess, first of all, it is important to understand that Yandex is a very diversified business. So there are a lot of peers in our space that we need to consider, that we need to look at to actually understand where we are. So speaking about how we did the analysis, the benchmarking, when we were looking at ourselves, like what kind of practices we looked at, we basically did a mapping of our businesses with different industries. So that would be like ride-hailing services, that would be e-commerce, some IT products, hardware production and stuff like that. And we picked the companies that are regarded, that basically ranked higher in terms of ESG and that we are heard of as the best-in-class that like -- that are regarded as the ones that would be interesting to look at when it comes to some specific initiatives and projects. And of course, like that would be the big tag that we looked at, that would be our partners and competitors, that would be Google, that would be Facebook, Twitter, that would be Amazon when we come to e-commerce, that would be Uber, Lyft and other ride-hailing services and a number of companies like that. But we did not just -- basically, we did not try to narrow down our search to the companies that we have like similar services with. We also extended our search to the companies that are doing great in other sectors in the Russian market. So we will be considering like companies like Unilever, like IKEA because they have very mature practices here in the Russian market. We always basically asked ourselves if this practice could be working could be working -- could be viable in the Russian market? And then we try to analyze our own business processes and see how we compare it to like a presumably high benchmark. So answering to the question, which we consider as the top companies? Well, I guess, there are a lot of great practices in many companies across the universe, across the -- across different industries. And it is our responsibility to be updated on what is happening around us and our ecosystem. And to be interacting with other companies, exchange knowledge with them, and getting your feedback also because you're the ones who interact with these companies as well. So we, again, will appreciate your feedback about our reports and in case you see some great practice that you think we might consider, please do share, we will be happy to integrate that.

And I believe one more question from the line. Can you talk a little bit how ESG agenda impact the designs of the new headquarters as well as the new warehouses? I believe that's for the e-commerce side.

I can take that question. Well, environmental questions will be all to me. So yes, we are building a new headquarter in Moscow, and it will take a couple of years before it is fully operational. The headquarters were designed having the BREEAM standards in mind, which is the standard for eco-efficient buildings, and we will make sure that the new facility meets the standards, the most rigorous standards. And now while we are discussing how the insides of the office will look like, we are already discussing some sustainable engineering techniques that will ensure high performance of our indoor systems. And that would be basically lighting, that would be heating, ventilation, plumbing and other issues to be considered. Also, we are considering how the surroundings of the office will look like because it is important that we do not just build a building that there is some area that is suitable for outdoor activities that is green. So we're working with architects, with the planners to discuss the park that will be surrounding the building and will be available to public. So it's not going to be an exclusive space for Yandex employees only. So everybody will be welcome there. And we hope that we will improve also the -- like the level of comfort when living in the city. Well, the warehouses, I guess I did not cover that part. The warehouses are also to be energy efficient. We have a new facility that was opened this year. So what we consider there is the lighting, of course, because while there are huge areas and they have to be lighted. And we will be undergoing certain environmental screenings and assessments first internally, then probably perhaps asking for third-party support to make sure that our processes are designed in an efficient way. And we will, of course, update our stakeholders about the progress we make.

Okay. I suppose, actually, we are running out of time. So I would like to thank Yandex and investors for dialing in. Maybe any final closing remarks from your side?

I would just say, once again, thank you, everybody, for your interest in today's topic. Thank you for your support of the company. And we welcome an ongoing dialogue here because we are at the beginning of a journey, and there's a lot of great stuff we can do, and your input will be helpful to us. So thank you.

Yes. Thank you, Goldman Sachs, for hosting this and asking us tough questions. Thank you very much.

Thank you. Goodbye.

Thanks, everybody. Bye-bye.

Take care.