Sustainability and Governance

The company's development is based on maintaining a consistent focus on the environmental, social and governance (ESG – environmental, social, and governance) principles. Tackling climate change is important, but social and governance aspects are also crucial to ensuring sustainable development.

The company's management board and sustainability manager are responsible for ESG at Alexela. Each area manager is responsible for ensuring that ESG issues are integrated into the achievement of the area's objectives within their area of responsibility.

In order to map and better manage key ESG issues, we have carried out a Double Materiality Assessment, in which we involved the company's main stakeholders. We have identified our impact on the environment and society, as well as the sustainability-related risks we are exposed to. Alexela's most significant areas of impact concern climate change, its workforce, consumers and end-users, and business conduct, as well as pollution, the circular economy and affected communities.

Environmental impacts and risks are directly linked to our strategic activities as we transition from a business model based primarily on fossil fuels to smart renewable energy, decentralised generation, storage, distribution and sales.

The introduction of new renewable energy solutions will mitigate the climate impact, but at the same time it requires significant investments in a new business sector whose effectiveness we cannot yet assess realistically. On the other hand, we are threatened by less favourable funding conditions should our sustainability performance be poor, as well as a decline in competitiveness if we fall behind in research, development and innovation.

The transition to a more sustainable business model also affects our employees, customers and end-users. We focus on ensuring that the change process is inclusive and communicated clearly and responsibly, and that the safety and security of our products and services – including data protection – are guaranteed for our own employees, partners and customers.

All of this is supported by a responsible corporate culture, value-based behaviour, cooperation with organisations that share the same values, and contributing to the quality of legislative drafting through professional organisations.

Alexela's goal is to achieve carbon neutrality in its operations (Scopes 1 and 2) by 2030. We have been measuring our carbon footprint since 2020 and have verified the results for the base year. Under the GHG Protocol, calculations for Scopes 1 and 2 are mandatory, whilst Scope 3 is voluntary. Companies can therefore begin by mapping out the most immediate impacts. For Scope 3, we use a tiered approach, incorporating various relevant impact categories depending on the availability of data and the options available. Work and activities in this area are continuing.

Alexela's main environmental impact stems from our energy portfolio. Environmental principles form part of our strategy to mitigate climate change. We monitor and measure the achievement of our environmental targets.

Our activities focus on reducing emissions, and we have set ourselves the target of achieving carbon neutrality in our operations by 2030 (Scopes 1–2). In order to achieve this, we use 100% green electricity ourselves; in addition, we generate, purchase and offer renewable energy to our customers. In addition, we have converted nearly half of our fleet of cars and lorries to electric, bio-LNG and bio-CNG.

As Alexela's most significant impact areas relate to climate change, a significant part of the company's business activities is focused on developing more environmentally friendly solutions and ensuring sustainability, thereby contributing to both the natural environment and local communities:

• the development of less polluting refuelling solutions, such as biomethane and hydrogen filling stations, and e-mobility.
• Biomethane production based on the principles of the local circular economy.
• The development of solar and wind farms, including storage facilities.
• Developing renewable energy storage capacity, such as Zero Terrain's pumped hydro storage facility in Paldiski.
• The Rohesärts green electricity package.
• Alexela also engages its customers through community and national defence initiatives, enabling them to contribute both to environmental activities (such as tree planting) and to Estonia's national defence via the Reserve Forces Fund.
• Promoting biodiversity, for example through the insect drive-in project in the green areas at Alexela filling stations.
• Rewarding reuse in retail, for example, hot drinks at a reduced price when using a reusable cup, and Alexela water packaged in recycled plastic bottles.

The Omnibus Package, adopted in late 2025, will have a significant impact on sustainability reporting in Estonia, as it reduces the number of companies subject to reporting requirements by approximately 80%, leaving only companies with more than 1,000 employees in the mandatory CSRD reporting framework. As a result of this change, Alexela is no longer required to report on sustainability. In addition, the implementation of sustainability reporting is being postponed by two years, which means that many Estonian companies will not have to submit their first reports before 2028. The Omnibus also restricts the right of large companies to require extensive sustainability information from smaller Estonian suppliers.

Russia's ongoing aggression in Ukraine has kept the energy policy of the European Union focused on achieving greater independence from aggressor states than before. We played an active role in refining the sanctions policy of the Estonian Tax and Customs Board and the Ministry of Foreign Affairs, and in strengthening supervision of the LPG and LNG markets. We also drew the legislator's attention to the need to remove national market barriers to liquefied biomethane that are incompatible with EU law, which would mean lower fuel prices for consumers.

The synchronisation of the electricity systems of the Baltic States with the Continental European frequency zone, which took place in early 2025, is a landmark step towards enhancing Estonia's energy security. However, this necessary transition was an economic shock to market participants due to the activities of Elering, as costs in both the capacity market and the energy market turned out to be significantly higher than forecast. Although, under pressure from market participants, political decisions were made to extend the application of the capacity reserve procurement charge (also referred to as the frequency reserve charge or balancing capacity charge) to consumers and producers, postponed until 2026, legal clarity regarding such a charge has not yet been established. It is also unclear whether the application of such a charge is proportionate in relation to consumers and producers.

Now that the European Union's Fit for 55 package has reached the transposition and implementation phase, it has become clear that the current, overly slogan-driven policy needs to be adapted. In light of this, our focus is primarily on preparations for the reform of the Emissions Trading System (ETS) and the implementation of the new Emissions Trading System for road transport and buildings (ETS2). The entry into force of the ETS2, which is expected to have a significant impact (with the addition of a CO2-based excise duty) on consumption decisions in the fuel and gas markets and related investment decisions, has been postponed, and the directive is caught in a political crosswind.

With regard to the Renewable Energy Directive, we waited for the government's decision on what would serve as the benchmark for meeting renewable energy targets in the transport sector where, from a statesman's perspective, a GHG reduction target would clearly be preferable, as this would allow to simultaneously reduce fuel costs for consumers (including transport operators and local authorities), send a strong investment signal to domestic biomethane producers in the agricultural sector, and enable the Estonian agricultural sector to meet its own GHG reduction targets. Regrettably, the government postponed making these decisions.

In addition, work on developing a regulatory framework for hydrogen and other new energy carriers of non-biological origin has gathered pace; however, this progress remains too slow in comparison with the state's obligations. Even under these circumstances, we opened a public H2 filling station. However, in order to meet expectations for future developments, the state must, in cooperation with market participants, draw up and implement a plan that would provide greater legal clarity and certainty than at present, so that the investment decisions necessary for the development of the Estonian economy do not remain merely on paper. The Renewable Energy Directive is expected to be transposed into Estonian law in 2026, which in our view would provide the necessary legal certainty.

We are convinced that only trust-based cooperation between the public and private sectors can create a stable regulatory environment that supports both Estonia's energy security, the achievement of climate targets and the competitiveness of Estonian companies. As a domestic family-run business, we continue – despite the regulatory uncertainty – to invest in solutions that strengthen Estonia's energy independence and create long-term value for Estonian society.