LUKOIL GROUP SUSTAINABILITY REPORT FOR 2019
RESPONSIBLE energy CONTENTS
2 MESSAGE FROM 4 LUKOIL’S ACTIONS 6 BUSINESS MODEL 8 GEOGRAPHY THE PRESIDENT DRIVEN BY THE COVID-19 OF PRESENCE OF PJSC LUKOIL PANDEMIC Interactive version of Sustainability Report of LUKOIL Group for 2019
10 SUSTAINABILITY 12 MATERIAL TOPICS 14 OUR CONTRIBUTION 16 ABOUT STRATEGY AND ISSUES TO THE UN SUSTAINABLE THE REPORT OF LUKOIL GROUP OF THE REPORT DEVELOPMENT GOALS IN 2019 18 ABOUT THE COMPANY: HIGHLIGHTS OF THE YEAR
20 CORPORATE GOVERNANCE 100 ENVIRONMENTAL PROTECTION 103 Environmental safety program 23 Sustainability and climate change management 106 Water 31 Risk management 34 Ethics and statutory compliance 114 Emissions 35 Human rights 117 Waste 39 Stakeholder engagement 120 Biodiversity conservation Case study. Biodiversity conservation program 44 Supply chain 122 in Uzbekistan
124 OUR EMPLOYEES 46 CLIMATE CHANGE 128 Leadership philosophy 131 Employment and diversity 49 Context: Climate change as our common challenge 132 Social policy 53 Approaches to managing climate change issues 135 Training and development 56 Goals and indicators 58 Energy conservation 64 Renewable Energy Sources 138 SOCIETY 66 Reduction of emissions 141 Product quality and customer relations 144 External social policy priorities 152 Supporting indigenous minorities of the North 68 SAFETY
72 Integrated HSE management system 78 Occupational safety 87 Pipeline reliability and emergency preparedness 92 Case study. The Komi Republic 154 CONCLUSION 96 Case study. Safety of the Arctic Zone, northern territories and offshore facilities 99 Information security 156 APPENDIX w
WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES MESSAGE FROM THE PRESIDENT OF PJSC LUKOIL
The sustainable development management system changed We continue to enhance production safety standards We continue long-term programs to support the territories significantly in the reporting year, with the leading role in all the countries where LUKOIL operates. This covers where we operate and the indigenous minorities for enhancement of LUKOIL Group activities in this area given the occupational safety of our employees and contractors, of the North. The most successful programs, such as the Social to the Strategy, Investment and Sustainability Committee improving the reliability of technological systems and Cultural Projects Competition, include not only Russia of the Board of Directors of PJSC LUKOIL. All issues and equipment, and environmental protection. In 2019 but also the foreign countries where LUKOIL has a presence. on sustainability reviewed at the Board of Directors undergo we continued preparation for transitioning to the new preliminary preparation and discussion in that Committee. international standard ISO 45001:2018, which expanded Our 10th Sustainability Report is being released at a time the requirements for elaborating safety management systems. when the global community is taking its first steps to recover Last year’s results demonstrated a 3.3% decrease in direct GHG We are also stepping up work with contractors in this area. from the COVID-19 virus pandemic. At LUKOIL, we took emissions and almost a twofold decrease in methane emissions prompt measures to protect the health of employees, while in Russia compared to the baseline of 2016, when the first All LUKOIL Group entities continually analyze occupational our plants and filling stations continued working to support target for reducing greenhouse gas emissions for Russian safety indicators, and make maximum efforts to strengthen the economy of regions and countries where we operate. entities was set. Importantly, we managed to achieve this goal measures aimed at preventing injuries. Also, state-of-the- The pandemic has proved how important it is to address while at the same time increasing hydrocarbon production art technologies are being introduced to boost the level a wide range of global problems, including issues relating and refining volumes. The Company also implemented of industrial safety. to sustainable development, and thereby to increase society’s measures to reduce the impact of climate change in its foreign “immunity” to all challenges that may arise. entities. For example, in 2019 the largest LUKOIL gas projects The decrease in basic injury rates among LUKOIL employees in Uzbekistan saw a drop in greenhouse gas emissions of 10.9% and among our contractors in the last five years demonstrates compared to 2018. the effectiveness of our efforts.
These results were achieved due to investments Another achievement of the Company has been a continuous in the modernization and construction of production reduction in oil and petroleum product spills in Russia Vagit Alekperov facilities and infrastructure, as well as the implementation in the past three years – and in 2019 this figure fell by half President, Chairman of the Management of targeted corporate programs. Consequently, the efficient compared to the previous year. Committee of PJSC LUKOIL Dear readers! use of associated petroleum gas (APG) reached 97.6% across all LUKOIL Group production entities, which is close Furthermore, as a result of the implementation Our Company continues to evolve in accordance with the UN to the technological maximum. As a result of modernization of the Environmental Safety Program we reduced pollutant Sustainable Development Goals, which we do not see as being projects and energy efficiency measures, the Energy Intensity emissions, ensured the disposal of all waste generated, distant prospects, but they rather form the basis of our daily Index of our refineries is steadily improving. Oil and gas and reduced the amount of waste accumulated in entities work. production entities are implementing a program for transitioning prior to their joining LUKOIL Group. The Company to energy efficient pumping equipment. Hence, energy is expanding its participation in biodiversity conservation The 2019 reporting year was successful for the Company consumption for production needs is being reduced annually. projects: together with the Ministry of Natural Resources in terms of operational and financial results. And no less of the Russian Federation and the WWF-Russia Environmental significant was that we also took specific steps to overhaul We participate in global industry-specific initiatives Fund, we have launched a joint saiga antelope conservation our system for managing climate change issues. The Board aimed at mitigating the impact of oil and gas companies project in Southern Russia. of Directors of PJSC LUKOIL made important decisions on the climate. Since 2018 LUKOIL has participated in the “Zero to facilitate mitigation of climate change, including setting Routine Flaring by 2030” World Bank initiative, and currently We are increasing the scope of education programs quantitative targets to reduce greenhouse gas emissions we are implementing two infrastructure building projects for our employees through the use of modern distance- and conducting inventories of sources of direct and indirect at our fields for APG collection and utilization. learning tools, which have become especially important during emissions. Assessment of the impact of climate change the coronavirus pandemic. In 2019 LUKOIL employees spent on production facilities and infrastructure in the Arctic about two million hours using distance training in corporate and permafrost zones is planned. programs.
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LUKOIL’S ACTIONS DRIVEN BY THE COVID-19 PANDEMIC
During the preparation of this Report months (a portion of specialists involved management, psychological resilience Saratov, Sverdlovsk, Tyumen, In the Perm Territory, LUKOIL-PERM The above measures do not represent in March 2020, the COVID-19 pandemic in the West Qurna-2 project had during the lockdown period and other Chelyabinsk, Orenburg and Samara arranged for 3 meals per day free-of- by any means an exhaustive list was already beginning to spread returned home before the active stage topics were held, and employees regions, as well as in the republics charge to be delivered to the workplaces of measures actually taken by LUKOIL globally affecting many countries, of the pandemic began). At distant experiencing unusual stress were given of Tatarstan, Bashkortostan, Karelia, of the medical staff of the Perm entities, our charity fund and President including Russia. production facilities, the Company the opportunity to obtain the advice Udmurtia and in the Khanty- Territorial Clinical Infectious Hospital. of PJSC LUKOIL V.Yu. Alekperov. arranged for the transportation of psychologists remotely. Mansi Autonomous Area – Yugra. Over 400 sets of protective equipment We will continue providing help Shortly after the first notifications of employees to local healthcare centers In the Khanty-Mansi Autonomous and portable radio sets to facilitate as required to countries and regions regarding the growing threat when required. To unite and consolidate all Area – Yugra, we also remitted cash communication between specialists where we operate, thus further of large-scale infection, LUKOIL employees, a special “MYVMESTE” funds to the Regional Development of the infectious department and those consolidating the ties between took measures to protect the health Because of the ongoing nature (“We are in this together”) channel Fund to combat the spread of infection. of other departments were handed LUKOIL and the local communities of its employees by preventing further of their operations, all of the Company’s was created, and virtual hobby clubs The Kogalym plant producing chemical over to medical professionals. Fuel and combining our efforts. More contagion. For immediate response plants continued functioning. For those were launched. Several corporate reagents partially repurposed its output was provided at no cost to volunteer detailed information will be presented and coordination, PJSC LUKOIL who remained at their workplaces, activities have now moved to the virtual to manufacture disinfectants which were organizations and needy multi-member in future Reports. and all Group entities created command conditions to secure physical distancing space (such as the competition distributed across the region. families. centers which were put in charge of daily to the maximum extent possible were for young professionals). For families We are confident that monitoring and situation awareness. created; the number of production with children, we tried to assist In the Komi Republic, LUKOIL-Komi In foreign countries (Azerbaijan, the experience of overcoming personnel working in shifts was reduced; with one of the most difficult issues helped streamline and increase Bulgaria, Iraq, Moldova, Mexico, the pandemic will help strengthen From the very start of the pandemic, and schedules of office-wide on-call duty during the lockdown period – how the production of personal protective Romania, Serbia, Turkey, Croatia the Company’s response to such enhanced sanitary protection measures were introduced. To protect fuel station to keep children occupied. Jointly equipment for healthcare professionals and Uzbekistan), the Company events in the future. Safeguarding were implemented across offices operators, protective shields were with the Higher School of Economics, (100 thousand masks and 1.5 thousand transferred much needed equipment, people’s health and making it possible and enterprises. These included installed at all sites. we elaborated an online project “HSE protective suits). Help was also supplied protective suits and disinfectants to local to restore a safe work environment frequent cleaning and anti-bacterial for Kids” children’s camp which includes to the Department of Infectious healthcare facilities and provided at our production sites are LUKOIL’s top ultraviolet light treatment of premises, Over 20 thousand employees began educational, entertainment and sports Diseases of the Usinsk Central Hospital fuel free-of-charge to medical teams. priorities. as well as disinfection of work spaces. working from home. For many activities. in the form of oxygen and compressed At the Company’s gas stations, medical Employees were provided with masks; of them, it was a good opportunity air and a Wi-Fi network development. professionals were served coffee free antiseptic dispensers were installed to apply the wide variety of corporate We also assisted countries and Russia’s During the most acute period of charge. Support was also rendered in premises; and ongoing monitoring digital tools and services in practice. regions where our entities operate. of the pandemic, LUKOIL’s gas stations to medical scientific institutes to assist of body temperature and the state To facilitate the transition and adaptation This support program was deployed provided free fuel to ambulances in research aimed at discovering of employees’ health were introduced. to the new conditions, the AR LUKOIL in 22 constituent entities of the Russian from 18 healthcare facilities. ways to combat the novel virus. mobile application was developed Federation and in 12 foreign countries. The veterans of the Great Patriotic War In Italy, we arranged to send supplies We canceled all business trips and integrated on a tight deadline and disabled people were given special of specialized equipment to intensive to foreign countries and minimized to raise the awareness of the tools Protective equipment and disinfection care and financial support. President care units at local hospitals. In the United movements of our employees across available and to train employees both means were purchased for healthcare of PJSC LUKOIL transferred his personal Arab Emirates (UAE) LUKOIL paid Russia’s regions. Production companies in Russia and abroad. In April alone, facilities, and fuel was provided funds to the Republic to help local for the accommodations of Russians who in Russia, Uzbekistan and Iraq extended 14 webinars devoted to methods for medical transport at no cost bodies and individuals address the most were unable to return home because air the term of rotation shifts up to three of arranging work from home, time in the Astrakhan, Volgograd, Kirov, pressing challenges. travel was suspended.
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LUKOIL is a global vertically integrated company accounting for around 2% of global oil production BUSINESS MODEL and around 1% of proved hydrocarbon reserves. REFINING 6 COUNTRIES OF THE WORLD EXPLORATION AND PRODUCTION Our refineries product mix is used as fuel for various means of transport, as well as feedstock for other 89% Exploration Oil refinery yield industries. LUKOIL is a leader by proved liquid hydrocarbon reserves and by proved reserves to production ratio. The majority Oil refining of LUKOIL reserves are of conventional 14 1 type. COUNTRIES 4 oil refineries in Russia and 4 – in Europe . OF THE WORLD • Products: motor fuel, lubricants and bitumen, bunker and jet fuel Gas processing 76% Offshore projects share of oil (0.3 to 3,000 m ) 4 gas processing plants and 2 processing facilities and onshore at other plants in Russia.
reserves • liquid hydrocarbon and marketable gas 24% in proved projects share of oil Petrochemicals 2 petrochemical plants in Russia and 2 production Around Development and production facilities at European oil refineries. 17% • pyrolysis and organic synthesis products, fuel We develop reserves located, inter fractions and polymeric materials alia, in major oil and gas provinces share of international in Russia, Uzbekistan and Iraq, projects production producing liquid hydrocarbons in total hydrocarbon (oil and gas condensate), natural production and associated petroleum gas. 1 LUKOIL owns a 45% share in the Dutch • Climate zones: refinery from subarctic to equatorial • Leadership in development of hard-to-recover reserves in Russia
MARKETING POWER GENERATION AND >100 The power generation sector Thermal power plants DISTRIBUTION COUNTRIES OF THE WORLD is represented by a complete chain and boiler houses in the south LUKOIL is a major crude oil and marketable gas trader and a supplier from generation to transmission of Russia, 4 hydroelectric of premium quality fuels and lubricants. and sale of thermal and electric power plants, solar and wind energy to external consumers. power generation stations International trading: lubricants production Electric power generation wholesale marketing of our crude and marketing: oil and petroleum products, trading 35 production facilities, 71% 29% third-party hydrocarbons over 800 types of lubricants commercial supporting Marine and river generation power generation bunkering Retail sales: fuel stations 19 Aircraft refueling 6% RES share in total commercial network countries power generation of the world 6 7 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
THE ARCTIC RUSSIA GEOGRAPHY • APPLYING THE BEST AVAILABLE TECHNOLOGIES, PIT- OF PRESENCE FREE DRILLING 1 Austria • CONSTRUCTION OF PILE-SUPPORTED 2 Azerbaijan PIPELINES WE OPERATE In Russia, we work OVER PERMAFROST 3 Belarus in over 60 Russian TERRAIN 4 Belgium in over 84% entities. Extensive • PERFORMANCE OF STAFF experience of working THE KRASNOYARSK STANDARDS 5 Bulgaria is employed TERRITORY ACCORDING 30 1 in Russia in a multinational THE BARENTS TO KONKRAFT REPORT 6 Ghana countries SEA environment is our SEA RECOMMENDATIONS of the world 7 Georgia 11% competitive advantage. OF STAFF 20 8 Egypt on 4 is employed THE KOMI REPUBLIC, continents in Europe THE NENETS AUTONOMOUS AREA, 9 Iraq THE YAMAL-NENETS AUTONOMOUS AREA, THE KHANTY-MANSI AUTONOMOUS AREA - YUGRA 10 Spain OFFSHORE PROJECTS 11 Italy 28 INDIGENOUS 12 Kazakhstan PEOPLES 13 Cameroon • ‘ZERO DISCHARGE’ PRINCIPLE • THE KHANTY, MANSI, BALTIC SEA Russia NENETS, SELKUP, 14 Luxembourg • SATELLITE THE ENERGY OF WATER DOLGAN, NGANASAN MONITORING 15 Macedonia AND THE SUN PEOPLE OF MARINE AND COASTAL 19 • ECONOMIC 16 Mexico ECOSYSTEMS AGREEMENTS 3 WITH INDIGENOUS 17 Moldova 4 PEOPLE 14 18 Nigeria 25 12 • HISTORICAL AND CULTURAL AREA 19 Netherlands SURVEYS THE SEA 16 1 20 Norway 17 OF AZOV 27 21 UAE 23 The Republic 22 10 11 29 24 of the Congo THE BLACK 23 6 5 SEA 7 ARID Romania 13 30 18 15 2 REGIONS 24 Serbia 21 THE CASPIAN GULF • USE 25 The USA OF GUINEA 22 26 SEA OF WATER-EFFICIENT TECHNOLOGIES 26 Turkey • SUPPLIES OF CLEAN POTABLE WATER 27 Uzbekistan REGULATION RENEWABLE TO SCHOOLS, 28 ENERGY ORPHANAGES, HEALTH Finland ON CLIMATE CARE CENTERS 29 Croatia 9 • HPP MODERNIZATION • MODERNIZATION • GHG EMISSIONS OF WATER SUPPLY 30 Montenegro REDUCTION PROJECTS • PROMOTION INFRASTRUCTURE • CDP PROJECT OF HIGHER ENGINEERING 8 REPORTING EDUCATION IN THE AREA OF RENEWABLE Exploration Oil production Oil refining Petrochemicals Power generation Aircraft refueling ENERGY SOURCES Gas production Gas processing Distribution Throughput Lubricants
1 8 Of the headcount as at December 31, 2019 9 w
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Our approach to managing sustainability is based on alignment of the Company’s interests and plans with the United Nations sustainable development principles, universal values, global SUSTAINABILITY STRATEGY trends, as well as national and regional development priorities. OF LUKOIL GROUP
INDICATORS UNDER OTHER STRATEGIC SUSTAINABLE DEVELOPMENT GOALS OF LUKOIL GROUP SDGs KPIs UNCTAD INDICATORS PLANS REPORTING REPORTING SYSTEMS GUIDELINES Our absolute priorities at all levels of the value The efficient use • Further increase in the APG use chain are issues of industrial, of APG reached1 We are committed to improving • Further implementation environmental, social, INDUSTRIAL 97.6% throughout of industrial and environmental GRI industrial safety, reducing on-the- as well as the personal safety AND ENVIRONMENTAL LUKOIL Group Russian entities cut safety programs IPIECA job injury rates, ensuring accident- The lost time injury frequency their air pollutant emissions UNCTAD of employees of LUKOIL Group SAFETY, RELIABILITY free operation of our production rate (LTIFR) stood at 0.13 • Further introduction of safety The lost time by 7.2% SASB entities and improvement AND EFFICIENCY facilities, and continuously reducing culture tools accident frequency RSPP of the safety culture OF PROCESSES our environmental impacts • Development of cooperation rate (LTAFR) in the supply chain. with contractors in the area amounted to 0.19 of occupational health and safety
Refinery • Development of further yield2 – 89.4% long-term goals to reduce • As compared to 2016 • The refining depth GHG emissions; preparing As compared (the base year), methane (the Nelson Index) the inventory of GHG emissions to 20143, the EII index emissions decreased for LUKOIL Group • F urther implementation by 46%, and GHG emissions We are focused on boosting our overall (Solomon) decreased refineries rose up to 9.1 of the energy conservation GRI operational performance and achieving to 96.5% dropped 3.3% across IPIECA LUKOIL GROUP’S • The Information Strategy program COMPETITIVENESS more rational use of resources (natural, Russian Entities UNCTAD of LUKOIL Group is being • F urther improvement STRATEGIC human, production, and financial) The energy intensity • The share of electric power SASB implemented in the efficiency of processing of refining one tonne generated from renewable GOALS • Project teams have been raw materials and modernization of basic raw material sources in 2017–2019 formed of the product mix at petrochemical averaged 6% • F urther introduction of leadership plants amounted tools into HR management In 2017, to 270 kWh/t the Board of Directors of PJSC LUKOIL • The share of LUKOIL determined four strategic Group employees covered goals of LUKOIL Group by collective agreements • Employees • Implementation of programs in the area of sustainable SOCIAL We take a very responsible attitude equaled 88.9% of LUKOIL Group received to improve operational efficiency, towards our stakeholders and always Specific revenue • Share of young employees over 300 thousand digitalization and investment development that RESPONSIBILITY, 4 GRI take their needs into account. We pursue (labor productivity) in the total LUKOIL Group health-related services programs can be aligned A WORTHY IPIECA a responsible social policy towards amounted to employee headcount was 37% • The share of local managers • Formation of key management with 11 UN Sustainable UNCTAD CONTRIBUTION our employees and make a significant RUB 77 million/ • The amount of training in foreign entities of LUKOIL personnel Group was 33%5 SASB Development Goals TO SOCIAL contribution to improving living standards person reached over 258 thousand • Further implementation of social and 15 targets. DEVELOPMENT in the regions where we operate person-courses • 785 projects in Russian and economic development • External social support regions received support programs in regions contributions in LUKOIL Group We implement many were RUB 9 billion programs and annually disclose their results in public reports. We follow a flexible reinvestment • Implementation of programs The 2019 results policy, work constantly to improve to improve operational efficiency, demonstrate that RETURN ON EQUITY, our performance and foster technological The free cash • The dividends paid digitalization and investment RETURN ON INVESTMENT, development. Thanks to successful flow was The revenue of LUKOIL Group on shares amounted programs the Company is evolving to RUB 180.7 billion, AND CONTINUOUS implementation of our strategy, RUB 702 billion, stood at RUB 7,841 billion • Improvement of corporate thanks to continuous a rise of 14.1% on 2018 CREATION we maintain our competitive advantages, up 26% on 2018. governance improvement create shareholder value, and boost of its sustainability OF SHAREHOLDER the Company’s investment appeal performance. VALUE
1 Indicators dynamics is assessed in relation to 2018, unless otherwise indicated. Comparison with indicators for a longer period is caused by specific 4 A service provided to an employee under social programs is the provision of the relevant service at the employee’s request or the provision indicators. of an amount of money to pay for the service or compensate for its cost. 2 The indicator relates to the processing of raw materials by LUKOIL Group entities at its own refineries (excluding mini-refineries). 5 The indicator is calculated using the number of senior managers. 3 10 Starting from 2014, the list of organizations covered by the study has changed while the scope of the study has remained unchanged. 11 w
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TARGET TARGET TARGET
TARGET TARGET TARGET а MATERIAL TOPICS CLIENTS. SUPPLIERS AND CONTRACTORS TARGET TARGET TARGET AND ISSUES OF THE REPORT SUSTAINABLE DEVELOPMENT MANAGEMENT, ETHICS AND TARGET TARGET HUMAN RIGHTS 1 CLIMATE CHANGE 2
Based on the results SAFETY 3 EMPLOYEES of a comprehensive analysis, AND TRADE UNIONS six topics were identified ENVIRONMENTAL as material for public PROTECTION 4 reporting purposes: RESPONSIBLE SOCIAL POLICY 5 KEY GROUPS 1 sustainable development management, ethics SOCIETY 6 OF STAKEHOLDERS and human rights;
1 3 5 6 2 climate change; KEY INQUIRIES Clients SHAREHOLDERS RECEIVED FROM Suppliers and Contractors 3 safety; AND INVESTORS STAKEHOLDERS 4 environmental protection; IN 2019 1 2 3 5 6 Employees and trade unions 5 responsible social Indigenous minorities of the North policy (human resources 1 2 3 4 5 6 The quality of products and services management); Programs for regions, Social and Cultural Projects Competition Shareholders and investors Leadership philosophy 6 society (local communities Training 2 4 and indigenous minorities Remuneration and bonuses State legislative Working environment, collective agreements of the north). STATE LEGISLATIVE and executive authorities Emissions and Waste AND EXECUTIVE Biodiversity and Ecosystems AUTHORITIES Water 1 2 3 4 6 Environmental Safety Society: local authorities, media, Digitalization, cybersecurity state, municipal, public organizations, Workplace safety environmental organizations and the public, Information on the procedure Industrial Safety and Oil Spills residents of the regions where LUKOIL for determining material topics is given GHG emissions, reduction of emissions operates, expert and scientific communities, in Appendix 2. Climate Strategy and Reporting SOCIETY international initiatives and industry Stakeholder Engagement associations, indigenous minorities For more details, see p. 158 Human Rights of the North Ethics, corruption Corporate governance
INITIATIVES European Business Network «Zero Routine Flaring United Nations Collaboration agreement for 2018– The initiative “Business for Corporate Social by 2030» Initiative Global Compact 2022 between the International and Biodiversity” within International projects, Responsibility of the World Bank and UN Labor Organization and Public the framework of the federal programs and initiatives Joint-Stock Company «Oil project of Russia “Conservation LUKOIL Group / PJSC LUKOIL Company «LUKOIL». of Biological Diversity participates in and Development of Ecotourism”.
12 13 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES OUR CONTRIBUTION TO THE UN SUSTAINABLE DEVELOPMENT GOALS IN 2019
TOTAL INVESTMENTS IN ACHIEVING THE OUR PROGRAMMS OUR PROGRAMMS OUR PROGRAMMS • A comprehensive program of interaction between • Personnel costs (remuneration • Environmental Safety Program UN SUSTAINABLE LUKOIL Group entities and institutions of higher and social programs) of LUKOIL Group entities, Biodiversity DEVELOPMENT GOALS education in the oil and gas, chemical and energy conservation subprogram areas • The costs for improvement of workplace environment • Industrial environmental control IN 2019 • Support programs for students and teachers of higher and labor protection, reducing • Emergency Prevention and Response and secondary education organizations in Russia injuries and occupational illnesses TARGET 4.4 TARGETS TARGETS • Biodiversity Conservation Program • Charity support for schools and educational 8.3, 8.8 institutions / centers 14.1, 14.5 for the Company’s facilities operating in the Arctic zone of the Russian EXPENSES EXPENSES 218.1 • Personnel education programs Federation RUB BILLION 1,172 151,586 RUB million RUB million EXPENSES 13,493 • We share the ILO standards for decent OUR PROGRAMMS RUB million and productive work for women and men • Program of scientific and technical in terms of equal opportunities, providing social works guarantees and respect for human dignity. • Digital Development Programs Taking into account the strategic as part of the Information Strategy • Environmental Safety of LUKOIL Group Program, Biodiversity guidelines of LUKOIL Group, and Remediation subprogrammes the Company’s experience TARGET 5.5 TARGET 9.4 in implementing environmental and industrial safety programs, EXPENSES social programs for employees 6,723 of our entities and for the regions RUB million TARGET 15А in which our enterprises operate, EXPENSES as well as the expectations OUR PROGRAMMS of interested parties, 1,088 • LUKOIL Group entities Environmental Safety • Environmental Safety Program RUB million we have identified 11 priority UN Program, Clean Water subprogram of LUKOIL Group entities, Sustainable Development Goals • Charity projects and programs Waste subprogram and 15 Targets. • Social and Cultural Projects Competition («Ecology» nomination) OUR PROGRAMMS TARGETS • Volunteer actions to clean up river banks • Participation in the World Bank 6.3, 6.4 from garbage. TARGET 12.5 and UN project These goals and targets • Projects related to provision of drinking water • Membership in the UN Global EXPENSES EXPENSES are harmoniously combined 2,611 in foreign countries Compact Initiative with operational programs RUB million 3,352 implemented by LUKOIL Group RUB million TARGET 17.17 entities, and are part of corporate planning and budgeting. EXPENSES Therefore, we believe that OUR PROGRAMMS OUR PROGRAMMS 8,236 RUB million their implementation, alongside • RES Development Projects • The Environmental Safety Program other steps taken by the Company, • Energy Conservation Programs of LUKOIL Group of LUKOIL Group, Clean Air largely determines the contribution “LUKOIL contribution to the attainment entities subprogram of the UN Sustainable Development LUKOIL Group makes to achieve • Program for the rational use Goals” brochure the UN global Sustainable of APG of LUKOIL Group entities Development Goals. TARGETS 7.2, 7.3 TARGET 13.1
EXPENSES EXPENSES 4,973 24,912 RUB million RUB million
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ABOUT THE REPORT STRATEGIC ENVIRONMENT In 2019, several reports were published on the progress towards achieving the UN Sustainable Development Goals (SDGs)1 that analyzed the positive developments and challenges during the year after publication of the previous report2. The documents PJSC “LUKOIL” (hereinafter PJSC LUKOIL) is pleased to present the tenth highlight a number of positive trends that attest to the effectiveness of actions taken by states and companies. Sustainability Report of the LUKOIL Group (hereinafter the LUKOIL Group is referred to as LUKOIL Group) (the “Report”) summarizing performance for the period from 1 January 2019 to 31 December 2019. The previous report was published in July 2019 (for the reporting period from 1 January 2018 to 31 December 2018).
At the same time, the reports highlight areas in 2019 Since 2014, LUKOIL Group has been Progress has been made in providing where no significant improvements have been made In preparing this Report, we used the following non-financial consistently ranked among the top clean drinking water to more people and that require special attention in order to take more reporting standards and guidelines: ten companies in the Responsibility dynamic action. Four out of 17 SDGs are considered to be and Transparency and the Sustainable the most important areas of focus: combating climate Development Vector Indices compiled • Business Reporting • The United Nations Global Compact change (SDG 13 “Climate Action”), reducing inequalities by the Russian Union of Industrialists on the Sustainable Development (SDG 10 “Reduced Inequalities”), protecting biodiversity and Entrepreneurs (RSPP) based Goals (SDGs) • The Basic Performance (SDG 15 “Life on Land”), and solving the problem of waste on the analysis of public reporting Indicators and the Responsibility Access to energy is becoming easier (SDG 12 “Responsible Consumption and Production”). of Russia’s 100 largest companies • Global Reporting Initiative (GRI) and Transparency and the Sustainable and stock market indices (the MOEX – Sustainability Reporting Standards Development Vector Indices According to the 2019 reports, climate change has RSPP Responsibility and Transparency (“Core” option). The table of the Russian Union of Industrialists a cumulative effect that poses risks for countries, Index and MOEX – RSPP Sustainable of standard general and specific and Entrepreneurs (RSPP) companies, and people. Labor productivity is growing, while Development Vector Index). GRI disclosures and individual GRI indicators are provided unemployment is decreasing Inequality continues to exist in many ways, including We have been publishing sustainability in Appendices 3 and 4 respectively uneven distribution of value added among different reports since 2005. They are addressed factors of production, which leads to a lower share to a wide range of stakeholders and seek of the national product attributable to labor. to provide balanced information relevant to the interests of each stakeholder New technology is being introduced So, too, the rate of biodiversity loss has increased group. The Company pays significant significantly, including land degradation, forest loss, We also used the following reporting platforms: to stimulate international trade attention to corporate governance and loss of unique ecosystems. of sustainability issues and continuously strives to improve the quality of reported • Guidance on Core Indicators • IPIECA (International Petroleum Global consumption of resources is growing faster than information. We believe that independent for Entity Reporting on Contribution Industry Environmental Conservation population and global production, which means that audits of disclosed information Towards Implementation Association) Oil and Gas Industry the efficiency of their use is consistently low. This is also and external assurance of the Report of the Sustainable Development Guidance on Voluntary Sustainability Investment in combating climate evidenced by a significant increase in waste generation. contribute to these objectives. The audit Goals, UNCTAD, 2019 Reporting, 2019 change has increased, the uptake Much of this waste appears as a result of irreversible firm’s opinion is published on page 175. of renewables has accelerated, removal of natural wealth from the environment. The conclusion of the RSPP Council • SASB (Sustainability Accounting and new carbon sequestration on Non-Financial Reporting concerning Standards Board) reporting and capture technology has been A group of independent scientists3 warns that the external assurance of the Report standards – material topics developed the overlapping of negative trends would lead is published on page 179. and individual indicators to irreversible changes in the Earth’s conditions. Experts expect that investment analysis methodologies used by investors and professional investment managers will include not only ESG indicators that are already widely used, but also data on companies’ contribution to implementation of the SDGs.
Throughout this document, The list of abbreviations, Previous reports formulas for calculating a number are available the words “LUKOIL Group,” “LUKOIL,” of indicators, and definitions on PJSC LUKOIL’s “the Company,” “the Group,” of terms are given in Appendix 7. website at: the pronoun “we” and its various 1 Sources: The Future is Now. Science for Achieving Sustainable Development. Global Sustainable Development Report 2019. UN Department related forms refer to PJSC LUKOIL See page 172 of Economic and Social Affairs, 2019. and LUKOIL Group entities, unless 2 The Sustainable Development Goals Report, 2018. specified otherwise. 3 Source: The Future is Now. Science for Achieving Sustainable Development. Global Sustainable Development Report 2019. UN Department of Economic and Social Affairs, 2019. 16 17 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
You can find more information of finished products. The launch to this project, the capacity of the plant about LUKOIL Group’s operational of this plant will help optimize logistics reached 48 MW. The Company decided and financial performance in Central Asia. Biodegradable hydraulic to construct the second solar power in the Company’s financial reports: and metalworking fluids are being plant (SPP) with a capacity of 20 MW ABOUT THE COMPANY: developed, including special hydraulic at the Volgograd Refinery (LLC LUKOIL- oils that can be used in Arctic conditions. Volgogradneftepererabotka). Pilot HIGHLIGHTS OF THE YEAR projects to construct digital substations The Power Generation business sector were continued. Public Joint-Stock Company “Oil company “LUKOIL” (hereinafter PJSC LUKOIL) is one is represented by a complete vertically integrated chain, from generation The Corporate and Other business of the world’s largest publicly traded, vertically integrated oil and gas companies to transmission and distribution of heat segment includes PJSC LUKOIL in terms of total proved reserves and hydrocarbon production. PJSC LUKOIL and power to external consumers and other entities. One of the main The Annual Report of PJSC LUKOIL is the Corporate center of LUKOIL Group. LUKOIL Group entities employ (commercial power generation) functions of the corporate center for 2019: over 100 thousand people across Russia, Europe, Asia, Africa, and the Americas (more and for operational needs (supporting is to coordinate and manage power generation). The aggregate organizational, investment, and financial than 30 countries worldwide). We strive for technological leadership and ecological installed capacity of our power processes at the Company’s subsidiaries. balance so that all of us can share in a prosperous future. generating facilities1 was 6.4 GW2, including the combined capacity of renewable power generating facilities of 0.4 GW. Full list of LUKOIL Group entities LUKOIL Group’s operations In 2019, the Company completed in accordance with IFRS is given The Analyst Databook for 2019 : in Appendix 1. and financial activities a significant project for this business are coordinated from its head sector – renovation of Belorechensk EXPLORATION REFINING, CORPORATE See page 156 office located in Moscow Hydro Power Plant (HPP). Thanks in the Russian Federation. We AND PRODUCTION MARKETING AND OTHER divide our operations into AND three business segments: DISTRIBUTION
Key financial and operational indicators
2017 2018 2019 EXPLORATION AND PRODUCTION Financial The Company has a high-quality production increased by 0.4% year-on- a stake in the deep-water Marine Revenue, RUB billion 5,937 8,036 7,841 portfolio of assets diversified both year due to production growth at its XII project in the Republic EBITDA, RUB billion 832 1,115 1,236 geographically and by type of reserves. fields in the Caspian Sea and larger of the Congo; the Company also joined Our proved reserves of oil and gas production of high viscosity crude oil the Gasha concession in the Persian Total debt to EBITDA, % 74 48 45 are mostly conventional. In 2019, they in Timan-Pechora. Gulf and the Zhenis block project Capital expenditures, RUB billion 511 452 450 amounted to 15.8 billion BOE1, 24% in the Republic of Kazakhstan. of which were gas. The Company’s In 2019, LUKOIL expanded Free cash flow, RUB billion 247 555 702 proven reserve life is 18 years. its participation in foreign Research and development costs, RUB billion 6 6 6 In 2019, the Company’s annual oil projects: the Company acquired Number of patents received, patents 20 37 30 Labor productivity, RUB million / person 57 78 77 REFINING, MARKETING AND DISTRIBUTION Operational Production of oil and gas condensate (including the share in associates), million This business segment includes as compared to 2018. The Company LUKOIL is developing production of new 645 644 646 organizations2 whose operations continued increasing the refinery yield products, including next-generation barrels of oil equivalent relate to refining of hydrocarbons; and interfactory integration. The share bitumen. As part of this project, Crude oil production (including the share in associates), thousand tonnes 87,414 87,124 87,488 transportation; wholesale and retail of fuel oil in the product mix continues a modern bitumen materials research Gas production, million cubic meters 28,861 33,543 35,046 trade and trading; and generation to decrease, with the growth of light center was opened in the Nizhny of electricity and heat. products share. At the Volgograd Novgorod Region. • including APG 8,942 8,772 9,548 Refinery, the production of low-sulfur Output of petroleum products, thousand tonnes3 69,908 70,188 69,296 In 2019, refinery throughput at LUKOIL’s marine fuel oil has begun, which In the reporting year, a new lubricants own refineries in Russia increased complies with the requirements plant was commissioned in Kazakhstan. Lubricants production (full cycle), thousand tonnes 998 961 963 by 2.2% and by 1.9% in European entities of MARPOL. Its capacity is 100 thousand tonnes Output of marketable petrochemicals, thousand tonnes 1,171 1,246 1,137
1 According to the classification of the Securities and Exchange Commission (SEC); BOE – barrels of oil equivalent. 1 The total electric capacity of the Group’s entities takes into account facilities owned by the Company but leased out to other legal entities. 2 This business segment includes several business sectors, such as: “Oil refining in Russia,” “Oil refining abroad,” “Petrochemicals,” “Oil product supply 2 The data do not include the West Qurna-2 project. in Russia,” “Oil product supply abroad,” “Transportation,” and “Other entities from the Refining, Marketing and Distribution business segment.” 3 At own, affiliated, and third-party refineries (according to the Group’s share).
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CORPORATE GOVERNANCE
23 SUSTAINABILITY AND CLIMATE CHANGE MANAGEMENT 31 RISK MANAGEMENT 34 Q WHAT DO YOU THINK ABOUT THE CHANGES Q WHAT CHANGES DID ETHICS AND STATUTORY TO THE SUSTAINABILITY MANAGEMENT THE SUSTAINABILITY TASK COMPLIANCE SYSTEM IN 2019? FORCE SEE? 35 HUMAN RIGHTS A Significant efforts were made last year to develop A The Sustainability Task Force has the heads the corporate sustainability management system, of the Company’s dedicated divisions as its members. and we are already getting positive feedback on those The goal of the Task Force is to coordinate the efforts Evgeny changes from our stakeholders. The Board of Directors, of its members and to develop a united position Khavkin together with the Strategy, Investment, and Sustainability on sustainable development issues. In 2019, independent 39 Committee, initiated defining system-wide activities members of the Board of Directors and external experts STAKEHOLDER Vice President — and tasks, both for the near and long term. At meetings and advisers took part in the Sustainability Task Force’s ENGAGEMENT Chief of Staff the governing bodies reviewed the most pressing issues meetings, which had a significant positive impact of PJSC LUKOIL concerning environmental and industrial safety, and risk on the level and quality of discussions and expanded management, with a special focus placed on climate change. the range of matters discussed. The expansion of the Task We intend to proceed with these efforts and believe that Force’s functions testifies to the high importance the Company’s key task is to achieve meaningful results, both of sustainability matters to the Company. 44 for shareholders and society in general. SUPPLY CHAIN WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
SUSTAINABILITY AND CLIMATE CHANGE MANAGEMENT
THE REPORTING YEAR’S CHANGES The management system was modified in 2019, bringing real improvements AND RESULTS INCLUDE in management systems and processes as well as disclosure approaches.
AN INCREASE IN THE NUMBER THE BOARD OF DIRECTORS Sustainability management system structure at PJSC LUKOIL OF BOARD MEETINGS WHERE MADE A DECISION TO SET SUSTAINABILITY MATTERS LONG-TERM CLIMATE GOALS MANAGEMENT AREAS OF SUSTAINABILITY WERE DISCUSSED LEVEL EFFORTS
The Board of Directors Issues regularly considered at the Board of Directors’ meetings include of PJSC LUKOIL the following: THE BOARD OF DIRECTORS THE FUNCTIONS • Climate change — NEW ; ENHANCED ITS OF THE STRATEGY, INVESTMENT • Assessing the results of the Environmental Safety and the Industrial Safety ENGAGEMENT AND SUSTAINABILITY Chairman: Valery Grayfer1 Programs, Better Working Environment, Emergency Prevention and Response WITH INVESTORS COMMITTEE WERE Program; ON SUSTAINABILITY EXPANDED • Review of issues related to the HSE at LUKOIL Group; AND CLIMATE ISSUES • Review of information on major incidents and accidents, their causes, the results of response measures, as well as actions taken to mitigate similar risks in the future
The Committee is, among other things, responsible for: A SUSTAINABILITY THE NUMBER The Strategy, Investment MANAGEMENT FUNCTION OF SUSTAINABILITY and Sustainability • preparing recommendations for the Board of Directors on the following: WAS INTRODUCED TASK FORCE MEETINGS Committee – strategic goals in sustainable development, including climate agenda, AT THE MANAGEMENT INCREASED AND THE RANGE of the Board of Directors industrial safety, environmental activities and social responsibility, COMMITTEE LEVEL OF ISSUES DISCUSSED of PJSC LUKOIL – integration of those goals into the Strategic Development Program EXPANDED of LUKOIL Group – NEW , – enhancement of the corporate governance system, Chairman: Sergei Shatalov, – development and evaluation of the Company’s engagement an independent member with stakeholders on sustainability matters — NEW , of the Board of Directors – improvement of the quality of disclosures in LUKOIL Group’s Sustainability Igor Ivanov, an independent Report, member of the Board – consideration of sustainability reporting, including LUKOIL Group’s of Directors, held this position Sustainability Report; until 20 June 2019 • monitoring of the improvement of HSE management system procedures; • analyzing the causes of incidents and accidents; • monitoring relations with stakeholders; • evaluating the effectiveness of the Company’s long-term activities
1 Valery Grayfer was a Chairman of the Board of Directors of PJSC LUKOIL until 24 April 2020 (date of death). During the preparation of the Report Ravil Maganov was appointed Chairman of the Board of Directors by resolution of the Board of Directors of PJSC LUKOIL (Minutes No.11 dated 23 June 2020).
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MANAGEMENT AREAS OF SUSTAINABILITY MANAGEMENT AREAS OF SUSTAINABILITY LEVEL EFFORTS LEVEL EFFORTS
NEW The Audit Committee The Committee, among other things, oversees: The Vice President for Sustainability is responsible for: of the Board of Directors • processes used to ensure reliability and efficiency of the risk management Vice President • organization and development of a single corporate position; and internal control system; of PJSC LUKOIL for Sustainability • coordination of works related to the creation and implementation of unified • procedures ensuring compliance with the requirements of applicable laws, corporate information policy on sustainability; corporate ethical standards, rules and procedures, as well as stock exchange • ensuring interaction and coordination of collaboration among structural units; requirements; Chairman: Viktor Blazheev, • organizing and ensuring engagement with all stakeholders; • whisteblowing procedures for potential bad faith actions on the part Evgeny Khavkin, a member an independent member of LUKOIL Group employees and third parties, or other violations of PJSC LUKOIL Management • development of internal regulations and a regulatory framework; of the Board of Directors Committee, Vice President, Chief • organizing activities of the Sustainability Task Force, development of its work of Staff of PJSC LUKOIL plans, and monitoring the implementation of its decisions; • preparation of proposals on the improvement of the sustainability management system and practices at PJSC LUKOIL and other LUKOIL Group entities
The Human Resources The Committee is, among other things, responsible for: The Corporate Secretary The Corporate Secretary of PJSC LUKOIL and the Office of the Corporate and Compensation • preparation of proposals for the Board of Directors on the development of PJSC LUKOIL Secretary are responsible for: Committee of the corporate HR policy; • engagement with the Board of Directors and Board committees on sustainable development issues; of the Board of Directors • annual review of the Board of Directors and its members’ performance; • initiating actions to improve the quality of sustainability management to ensure • developing and revising periodically the Compensation Policy for members Natalia Podolskaya of PJSC LUKOIL of the Board of Directors, the Management Committee, and the President better integration of sustainability issues into business processes; of the Company, and also monitoring implementation • participation in coordinating sustainability reporting efforts; • participation in stakeholder engagement, including preparation of responses Chairman: Roger Munnings, to shareholder and investor requests regarding the Group’s sustainability an independent member performance. of the Board of Directors
NEW The Management The Management Committee is responsible for the management The Sustainability Task Force (hereinafter the Task Force) sets goals of LUKOIL Group’s day-to-day operations. and contributes to developing a single corporate position on relevant Committee The Sustainability Task sustainability and climate change matters at its meetings. The range of matters of PJSC LUKOIL 1 discussed was expanded in 2019, which is reflected in the Task Force’s new name. The matters discussed by the Management Committee at its meetings Force include but are not limited to: The Sustainability Task Force is responsible for: • the progress and implementation of the Strategic Development Program President, Chairman and development plans and approval of their results; Head: Evgeny Khavkin, a member • organization of communications and interaction between relevant divisions of the Management Committee: of PJSC LUKOIL Management of PJSC LUKOIL, setting goals to implement changes in management systems; Vagit Alekperov • securing the highest HSE standards, approval of HSE corporate policy, Committee, Vice President, Chief analyzing efficiency of the HSE management system and improving its • organizing and monitoring the process of Sustainability Report preparation; performance; of Staff of PJSC LUKOIL • enhancing the system of collecting, preparing and disclosing reporting • approval of target HSE programs; information; • the functioning of the risk management and internal control system; • preparing recommendations for governing bodies on the matters discussed; • reviewing the report “The State of HSE at LUKOIL Group” • analyzing feedback from stakeholders on sustainable development issues
1 The name of the Task Force was changed pursuant to PJSC LUKOIL Order No. 173 dated 30 September 2019.
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MANAGEMENT AREAS OF SUSTAINABILITY BOARD OF DIRECTORS LEVEL EFFORTS A PARTIAL LIST OF MATTERS related to sustainable During the reporting year, the members development discussed by the Board of Directors of the Board of Directors’ became much in 2019 included: more active in discussing and promoting The Health, Safety and Environmental Committee is responsible for: The Health, Safety the sustainability and climate agenda and Environmental • developing a Health, Safety and Environmental Policy, setting goals at the Company. Relevant matters and assigning tasks, assessing significant risks and opportunities in HSE, were included in the agenda of several (HSE) Committee analyzing environmental issues (including climate-related issues) meetings during the reporting year. of PJSC LUKOIL and the achievement of key performance indicators (KPIs) The number of matters raised and related Implementation of the Strategic Development Program • analyzing and approving any HSE initiatives and assessing tasks doubled year-on-year. of LUKOIL Group during 2018-2027 their effectiveness Chairman: Ravil Maganov, • evaluating compliance of LUKOIL Group’s activities with applicable laws First Executive Vice President and other HSE requirements For more detail, see the section Potential for growth given the transition to a low-carbon of PJSC LUKOIL • preparing proposals on the improvement of LUKOIL Group’s HSE of the Report entitled “Climate economy management system. Change.”
For more detail, see p. 48 Key global trends in the liquid hydrocarbon market in the period through 2035
The Board of Directors also enhanced its engagement with stakeholders on climate change. Specifically, a meeting was held Enhancement of the risk management and internal PJSC LUKOIL Heads of relevant divisions manage the implementation of strategic and targeted with representatives of an investment control system programs that address sustainable development issues, including climate, water fund participating in the Climate Action use, biodiversity and waste. 100+ initiative.
Independent Member of PJSC LUKOIL Anti-corruption measures Board of Directors Toby Gati was actively involved in sustainability and climate change discussions at meetings of the Board of Directors Implementation of the Code of Business Conduct and the Sustainability Task Force and Ethics of PJSC LUKOIL LUKOIL Group entities and provided recommendations, including regarding the improvement of disclosures. Occupational health and safety status and measures to improve the level of work safety Heads of LUKOIL Group Make operational decisions at enterprise level to ensure that industrial safety, The goals and objectives for further environmental protection, and injury rate targets are attained as required. Ensure development of sustainable development entities the achievement of targets approved by the Group’s Corporate Center. activities are set. Significant focus will be placed on the development Engagement with PJSC LUKOIL investors and shareholders of measures in response to climate change.
Another important focus area LUKOIL Group’s Sustainability Report for 2018 will be the enhancement of occupational Heads of dedicated Lead the implementation of strategic and target programs. and environmental safety, as well as the overall improvement business units Implementation of target and functional programs of the sustainability management system and practices, and determination of the contribution to the United Nations’ Sustainable Development Goals.
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Composition and activities of the Board of Directors and its committees in 2019 STRATEGY, INVESTMENT members also considered issues To strengthen the competencies AND SUSTAINABILITY pertaining to the implementation of the Task Force members, a workshop COMMITTEE of ethical standards and analyzed titled “The outlook for legal regulation Strategy, Human feedback from employees on those of sustainability matters in the Russian Board Investment Audit Resources The Strategy, Investment issues. Federation after the ratification Indicators of Directors and Sustainability Committee plays of the Paris Agreement” was held and Sustainability Committee and Compensation of PJSC LUKOIL a key role in advancing LUKOIL Group’s The Committee conducted an analysis to which independent experts Committee Committee sustainability efforts. The number of matters related to the external from KPMG were invited. of matters related to sustainable assessment of the Board of Directors’ 11 4 3 3 development on the Committee’s performance in the reporting year With the active involvement agenda has risen significantly. All and made a decision to consider of the Corporate Secretary, the level Number of members relevant matters put before the Board the feasibility of implementing of informing the Board of Directors of Directors are first considered the external assessment. and management on the most relevant by the Committee. In the reporting issues of sustainable development year, the Committee also considered for stakeholders was increased. the development of investor In particular, meetings1 Types of members Full information on the Board 6/3/2 2/2/0 3/0/0 3/0/0 relationships, implementation committees’ activities is available with a representative of Hermes, of functional programs, and a cost- in the Company’s Annual Report an investment fund participating independent saving program. for 2019 in the Climate Action 100+ initiative, were executive1 organized where the goals of the initiative non-executive directors For more details see p. 108 and investor’s informational expectations AUDIT COMMITTEE were discussed with Task Force Gender composition 2/9 1/3 0/3 0/3 members. An expert on climate Key matters discussed by the Committee reporting with a solid track record women members in the reporting year SUSTAINABILITY with CDP presented current projects men concerned the systematization TASK FORCE to monitor corporate activity in mitigation of anti-corruption measures, external and adaptation to climate change. assessment of a PJSC LUKOIL internal As the volume of reporting information Number of meetings 9/11 7/0 8/0 6/1 audit methodology, as well as further continually grew, sustainability reporting The Company is stepping up its efforts improvement of the risk management standards expanded and became more to raise awareness of stakeholders personal system. An independent assessment complicated and, especially given about LUKOIL Group’s position absentee2 of the internal audit was conducted. the need to enhance relations with all on and contribution to the attainment groups of stakeholders, the functions of the United Nations’ Sustainable The Board of Directors charged of the Task Force were expanded in 2019 Development Goals. A brochure Number of sustainability the Committee with the drafting resulting in its renaming. “Contribution to the Attainment of the UN development matters 20 15 4 5 of an Anticorruption Policy, an internal Sustainable Development Goals” was discussed regulatory document which will In 2019, the Sustainability Task Force published by LUKOIL. systemize the Company’s anticorruption conducted four meetings. Toby Gati, position and outline the anticorruption an independent member of the Board The Company plans to continue its framework, goals and objectives. of Directors, and experts on various efforts to implement a sustainability Attendance rate at personal sustainability areas were present at some management system, including meetings, % of those meetings. Among other things, the adoption of the following documents HUMAN RESOURCES the following issues were examined in 2020: AND COMPENSATION in 2019: • Anticorruption policy COMMITTEE • methodology for identifying material • Program for Development topics of the Sustainability Report of Renewable Energy Sources Information on the structure of PJSC LUKOIL Board of Directors, compliance Matters discussed by the Committee • reporting boundaries • Regulations on the Preparation of the Company’s corporate governance practices with the Bank of Russia’s at its meetings included, among • legal regulation of climate change of a Sustainability Report. Corporate Governance Code, details of the Board members and other others, processes related to personnel matters in Russia information are published in annual reports and on the Company’s website management, improvement • assessment of reporting boundaries LUKOIL will also keep working to ensure in the section “Corporate Governance”: of the compensation and incentive and preparation of a GHG emission Company adaptation to climate change. system for the Company’s senior inventory executives, effectiveness of prevention • the framework for and stages measures ensuring that employees’ of preparation of the Report labor rights and interests are respected, • development of Regulations and the results of a staff morale on the Preparation of a Sustainability and motivation survey conducted Report at LUKOIL Group entities. Committee • feedback from investors.
1 According to the recommendations of the Corporate Governance Code, executive directors are understood not only as members of the Management Committee of PJSC LUKOIL, but also as persons having working relationships with the Company. 2 It is common practice for PJSC LUKOIL to hold absentee meetings. Typically, absentee meetings are called to discuss matters requiring quick approval that cannot be planned beforehand. 1 The meetings took place in January–February 2020.
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HEALTH, SAFETY AND ENVIRONMENTAL (HSE) COMMITTEE OF PJSC LUKOIL SUSTAINABLE DEVELOPMENT AWARDS IN 2019
The Committee is an effective for LUKOIL Group in HSE issues, year, making plans for the future period, mechanism for liaison between as well as regulatory developments and considering initiatives to promote For the second Based PJSC LUKOIL was one of the winners the Company’s management in countries where LUKOIL is present. a culture of safety at the Company. year in a row, on evaluation of the contest for the best socially and functional and linear divisions Those factors are subsequently taken PJSC LUKOIL results, responsible oil and gas companies of 2018. of PJSC LUKOIL and LUKOIL Group into account during the development In 2019, the Committee took several ranks first LUKOIL Group’s Results of the contest were announced entities on industrial, fire and implementation of target programs. decisions to further promote a culture in the ESG rating managed Sustainability at the Ninth International Gas Forum in Saint- and environmental safety, health The second meeting is devoted of safety and leadership culture by the rating agency RAEX. Report for 2018 was Petersburg. The contest is organized by the Ministry and accident prevention. to taking stock of progress of health and to introduce changes to target The rating evaluates the way the prize winner in the RSPP of Energy of the Russian Federation. The Company was and safety programs for the reporting programs for 2020–2023. in which environmental, nomination for “The Best awarded certificates for the development of charitable The Committee was established social and managerial risks Report on Corporate activities, for the best public non-financial report in 2016 to advance the HSE of a company are taken Social Responsibility by an oil and gas company, and also won a certificate management system in LUKOIL Group into account in its strategy and Sustainable with a special badge of the Russian fuel and energy and is led by Ravil Maganov, a member Snapshot of the Health, Safety and Environmental (HSE) and management, which Development” complex for its active social policy. of the Board of Directors, thus Committee of PJSC LUKOIL (2019) indicates the long-term in the Moscow Exchange’s ensuring communication of health, sustainability of the business. 22nd Annual Report safety and environmental matters NUMBER OF MEMBERS Competition in 2018. to the Board of Directors. The Board 11 of Directors is presented annually VICE PRESIDENTS a report on the state of the management COMPOSITION including those who are members 10 of the Board of Directors system in those areas, and the results of activities and initiatives undertaken HEADS OF DEPARTMENTS 1 RISK MANAGEMENT to improve the management quality and speed of decision-making. NUMBER OF MEETINGS 2 The Company’s management Key sustainability risks include: by the Board of Directors of PJSC LUKOIL The Committee holds meetings NUMBER places considerable emphasis • climate change risks and the Audit Committee of the Board twice a year. The first meeting is held OF MATTERS DISCUSSED 7 on risk management issues • health, safety and environmental risks of Directors of PJSC LUKOIL. to consider material risk registers to provide reasonable assurance • risk of shortages of qualified personnel as to the achievement of strategic goals • reputational risks. Sixteen groups of the most significant in the face of uncertainties and negative risks affecting the business activities factors. Certain steps were taken to enhance of LUKOIL Group entities were identified. EMERGENCY AND ACCIDENT WARNING SYSTEM the risk management system The qualitative and quantitative PJSC LUKOIL regularly identifies, in the reporting year. assessment of such risks is carried out The Company has a system The functioning of the system with risks of serious consequences describes, evaluates and monitors • Work continued to improve the practice annually according to risk probability for monitoring, warning, communication is regulated by standards and local (death of employees and significant possible events that could adversely of accounting for risks when making criteria and criteria on the magnitude and reporting on emergency situations regulations developed on the basis damages), the Operational Headquarters affect the Company’s activities, develops key investment decisions. of the consequences. Risk appetite was and accidents covering all levels of legal requirements. was established1 to deal with accidents measures to prevent their occurrence • Draft internal regulatory documents defined for each material risk, and measures of management of LUKOIL Group, at hazardous production facilities or to minimize the negative impact were prepared and forwarded were developed to mitigate or eliminate including the Board of Directors In order to improve of LUKOIL Group entities. in case such events occur. The Company for approval. These were developed their negative impact. The staff of the Risk and the Health, Safety and Environmental the efficiency of PJSC LUKOIL’s constantly works on the identification with the aim of strengthening the risk Management Division and relevant blocks Committee of PJSC LUKOIL. response to potential accidents and assessment of new risks management system at LUKOIL Group monitor the implementation and on updating relevant information entities in accordance with PJSC LUKOIL and effectiveness of the measures. in the corporate information system. Risk Management and Internal CORPORATE SECRETARY Control Policy, as well as improving By reporting the risks identified, LUKOIL Group’s Risk Management the Company’s investment activities we inform stakeholders about certain Corporate Secretary Natalia Vice President for Strategic Development of the agenda and preparation and Internal Control Policy sets and corporate governance. circumstances that may worsen Podolskaya pays significant attention of PJSC LUKOIL, and Toby Gati, of meetings of the Sustainability Task forth unified and mandatory the performance of the Company to sustainable development matters. an independent member of the Board Force, including the invitation of external basic principles and approaches Risks are managed at all the levels: with some certain probability. At the same Taking into account that sustainable of Directors, in active work to improve experts and representatives of various to organizing the risk management at the level of LUKOIL Group entities, time, PJSC LUKOIL is making due efforts development is identified as one the sustainable development system. stakeholders to the meetings. system of the Company, and the key PJSC LUKOIL and at the level of the Board to minimize the risks associated with its of the goals of LUKOIL Group’s strategic objectives of the system, as well as key of Directors. Information on the risk profile own production activities in the regions development, the Corporate Secretary The Corporate Secretary In order to promote stakeholder tasks of the risk management system of LUKOIL Group entities is included of where the Company operates. is committed to supporting the initiatives is actively involved in coordinating engagement, the Corporate Secretary participants at PJSC LUKOIL. in annual reports which are reviewed of the Company and encouraging the preparation of the sustainability deals with incoming requests using all the practical application of expertise reporting of LUKOIL Group available information channels: mail, and exceptional competencies and interacts with the relevant e-mail, and a dedicated internal portal of the Board of Directors members structural divisions of the Company, of the Sustainability Task Force. All in this field. As a result, Natalia as well as with members of the Strategy, requests are processed and discussed Podolskaya facilitated the participation Investment and Sustainability Committee with structural units with the subsequent The text of PJSC LUKOIL Risk of Leonid Fedun, a member of PJSC LUKOIL’s Board of Directors. provision of comprehensive information Management and Internal Control Policy of the Board of Directors of PJSC LUKOIL, Special focus is placed on the formulation on requests and proposals received. is available on PJSC LUKOIL website at:
1 Order No. 48 of PJSC LUKOIL dated 23 March 2015
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A list of key sustainability risks Risk of shortage of qualified personnel
Insufficient skills or qualifications To mitigate this risk, we focus on the comprehensive development DESCRIPTION OF RISK CATEGORY RISK MANAGEMENT AND MITIGATION ACTIVITIES of personnel may have an adverse of our talent pool. LUKOIL’s talent management strategy is aligned with its effect on our financial performance development strategy and the staffing demand of its business segments based on planning and budgeting processes that enable the workforce to be efficiently reallocated through insourcing as well as flexible recruitment, professional training, and developing talent. Climate change risks
For more detail, see the section Strengthened climate change regulations We minimize this risk by: of the Report “Our Staff” could adversely impact operations • recording greenhouse gas emissions and planning initiatives aimed of PJSC LUKOIL as a major fossil fuel at their control; producer and greenhouse gas emitter by driving costs up and performance down. • carrying out constant monitoring of relevant legislative changes Additionally, LUKOIL Group operates and taking steps to obtain information about them at the preliminary discussion stage, as well as ensuring our representatives participate Reputational risks in various regions with hard-to-predict during the preliminary discussions so that the risks and uncertainties potential climate change impacts that may that may arise from new legislative initiatives are clarified PJSC LUKOIL is exposed to various To mitigate this risk, we make efforts to: result in a significant adverse effect. and our views in relation to the proposed changes have been factors that may cause reputational • maintain regular communication with our stakeholders; represented; risks due to both internal and external • taking climate change risk into account when designing factors, including noncompliance • providing unbiased information on financial and operational performance and constructing facilities in environmentally sensitive areas (the Far with statutory requirements, in a timely manner; North, offshore facilities). constituent documents, and internal • ensure continuous monitoring of compliance with statutory requirements regulations, as well as through breach and effective agreements; of contractual obligations, poor • effect timely payments to counterparties. product quality, and a rise in negative For more detail, see the section perceptions of our financial stability The company controls the quality of its products and services. of the Report titled “Climate Change” and position For instance, the Filling Stations Hotline has been set up to promptly address any comments and suggestions regarding filling stations operations. We pay close attention to safety and environmental protection and operate in line with the best HSE standards. We place a great emphasis on social responsibility and working Health, safety and environmental risks conditions, maintaining and improving our effective occupational health and social security framework through targeted programs. The Company’s facilities are exposed To mitigate these risks, we designed and successfully deployed to risks of process disruptions, hazardous the Environmental Protection, Occupational Health and Safety See more in the sections of the Report releases, environmental damage, accidents, Management System certified to ISO 14001 and OHSAS 18001. on “Ethics and Statutory Compliance,” fires, and incidents that may result The following key initiatives are being implemented: “Safety,” “Environment,” “Our Staff” and “Communities.” in unscheduled idle time at these facilities • target corporate HSE programs; • industrial control over the operation of hazardous production facilities; • a process ensuring contractors’ end-to-end compliance with mandatory HSE requirements; • development of leadership and safety culture; • the appointment of qualified staff across various business levels; • development of Plans to Localize and Mitigate the Consequences The risk management system also comprises the following categories which includes risks of Accidents at Hazardous Production Facilities (PLMA) and the Spill and respective mitigation actions: Prevention, Control, and Countermeasure (SPCC) Plans; maintaining strategic, country, competitive risks, macroeconomic, financial, legal and industrial risks, risks of terrorist acts, illegal actions a pool of emergency personnel and resources; and training of third parties, etc. personnel who operate hazardous production facilities as well as the emergency response teams applying PLMA and SPCC Plans.
A full description of the risks and their management measures is disclosed in line with regulatory requirements, as well as in annual reports of PJSC LUKOIL. A detailed description of the risk For more detail, see the sections management system, including the stages, organizational structure and functional map of the Report “Safety” and “Environment” of the participants, is provided in Section “Corporate Governance” of the Annual Report for 2019.
For more details see p. 123
32 33 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
ETHICS AND STATUTORY COMPLIANCE
ETHICAL STANDARDS been violated. All the reports received Stakeholders can contact the Business LUKOIL Group entities comply • abroad: USD 3.3 billion RUB 127 billion to the budgets are handled by the Commission’s Ethics Commission using any available with the tax legislation in effect • in the Russian Federation: of Russia’s constituent entities, Adherence to ethical standards Secretary. Staff members may provide communication channels, including in the countries in which they operate. RUB 1,122 billion, including and RUB 0.54 billion to local budgets; is at the core of our corporate a report anonymously, which ensures in English: ethics@lukoil.com (available In 2019, the following taxes1 were paid: RUB 854 billion to the federal budget, RUB 140 billion in excise taxes. 24/7), via delivery of a written report culture. These standards are set forth their protection and the confidentiality to the Commission, or by telephone. in the PJSC LUKOIL Code of Business of the reports. The Company provides The contact information of the Business Conduct and Ethics and cover various communication tools for such cases which Ethics Commission is provided aspects, including: are available around the clock (e-mail, in the Code of Business Conduct and Ethics ANTICORRUPTION MEASURES • respect for human rights (including a confidential hotline). of PJSC LUKOIL. labor rights, the rights of local LUKOIL promotes a zero tolerance procedures and preventing conflicts Regulations of LLC LUKOIL Uzbekistan communities and small indigenous The Company has grievance approach when it comes to corruption. of interest. Operating Company2. Based peoples, and freedom of association procedures in place, enabling staff The Company does not tolerate any on the commitment to high ethical and trade union activity) to provide suggestions on the work payments or other forms of incentives In foreign countries, in addition standards of doing business, the Board • zero tolerance towards and combatting of the mechanism currently in place, provided to representatives of state to corporate-wide regulations, local of Directors decided to develop corruption and fraudulent activities thus helping the Company get a better authorities. regulatory documents can apply, a document establishing common • adherence to fair competition rules understanding of stakeholders’ needs which were adopted either voluntarily principles, goals and objectives • statutory compliance. and issues. The rules of anti-corruption behavior or in accordance with local legislation to combat corruption, and therefore STATUTORY COMPLIANCE are included in the set of internal and govern economic security instructions were given to draft such The principles of the Code of Business In 2019, HR divisions undertook standards for many business processes, and anticorruption issues. For example, a document and submit it to the Board Conduct and Ethics are consistent to familiarize employees The Company respects laws including the ones that regulate ensuring the Company’s operations in Uzbekistan for its approval in 2020. with the provisions of the United Nations of LUKOIL Group entities in Russia of the countries where its facilities corporate security and confidentiality are governed by the Anticorruption and the International Labor Organization and abroad with the Code of Business and offices operate, strives to prevent of information, conducting tender (ILO) conventions ratified by the Russian Conduct and Ethics. This is included any violations of law, and supports Federation, including those related in the list of documents that new staff the principles of free and fair competition to the observance of human rights must read as part of the hiring process. and fair business conduct. and the prevention of corruption. PJSC LUKOIL employees acknowledge HUMAN RIGHTS For more detail, see Appendix 6. in writing that they have read the Code No material claims1 relating to any of Business Conduct and Ethics. violations of anti-trust, product quality The Company reaffirms its commitment a violation of human rights is committed in LUKOIL Group entities, including We promote ethical behaviors among and labor relations laws were initiated to the principles of human rights as a result of the activities of the Company child, forced and slave labor, forced our business partners, suppliers Heightened awareness among against the Company in 2019. One compliance, including freedom of speech, and/or its individual representatives, resettlement of indigenous peoples4. and contractors, informing them employees and practical implementation significant fine amounting to RUB set forth in the Universal Declaration LUKOIL undertakes to take measures We believe that human rights of our rules, and strongly suggest of the provisions of the document led 68.9 million relating to the Company’s of Human Rights and other UN to eliminate the consequences of such are a comprehensive concept that affects them to familiarize themselves to an increase in reports addressed environmental impact was paid in Russia documents, such as UN Guiding Principles violations. all aspects of our activities, including with the PJSC LUKOIL Code of Business to the Business Ethics Commission. (see Section on “Environmental Protection”). on Business and Human Rights, the OECD labor rights, the right to a healthy Conduct and Ethics, where all basic In 2019, seven reports were received. Guidelines for Multinational Enterprises Entering contractual environment, quality products, the rights The Company publishes a Report principles regarding human rights The reports mainly concerned on Budgetary Contributions annually. and the Voluntary Principles on Security relationship with our partners, of indigenous peoples, etc. This Report are stated, before signing any contract. the clarification of procedures This reporting is aimed at increasing and Human Rights (see Appendix 6). we inform them of our high requirements provides information on what LUKOIL for interaction between managers the transparency of the Company’s The Company prohibits any forms for ethical business conduct and respect is doing in these areas. At the same and staff, matters relating to vacation, payments made in the countries of violence and violation of human for human rights, and urge them time, a top priority for the Company This document can be found of operations. Reports are available on the Company’s website at : and handling procedures for reports. All dignity in compliance with the Russian to follow these requirements, defining is the prevention of violations of labor the documented issues were investigated on the corporate website: Constitution. The Company expects its it as a condition for long-term cooperation rights, the preservation of workers’ and necessary measures taken. business partners to respect and apply with our Company. life and health, and the observance the same principles in this area. of the rights of local residents whose In 2019, during an internal audit, We inform our employees and other interests are affected by our facilities. 53 cases of violation of local regulatory The Company respects and strictly stakeholders about our human rights acts, that are obligatory for execution, observes human rights. A manifestation policy. Standards of human were revealed in the organizations of aggression3 in any form is unacceptable rights compliance are enshrined of LUKOIL Group. Entities took measures in the Company. The company considers in the Code of Business Conduct The Business Ethics Commission led to prevent such violations in the future. it unacceptable to obstruct the activities and Ethics of PJSC LUKOIL by the President of PJSC LUKOIL At the same time, there were no of human rights defenders and shows and are mandatory for all LUKOIL Group considers all aspects of ethical behaviors violations of the norms and provisions due respect for human rights activities entities. demonstrated by the Company’s of the Code of Business Conduct carried out within the legal framework. staff. Any staff member may contact and Ethics of PJSC LUKOIL. Identified The Company expects that similar In 2019, there were no received the Business Ethics Commission using any cases of violations are not significant, approaches are applied by its partners. If complaints on human rights disregard available communication means if they that is, do not affect the achievement think that their rights or interests have of the strategic goals of the Company. 1 The amount of taxes comprises income tax and excise taxes. The calculation methodology for the indicator will be reassessed in line with the GRI Standard 207 Tax 2019. 2 Order No. 150 dated 2 April 2018. 3 Aggression means threats, intimidation, legal attacks, physical injuries. 1 See Appendix 7 for the definition of a material claim relating to the breach of law. 4 The hotline has not been contacted concerning any human rights violations (see Ethics section). 34 35 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
HR audits The Company uses the following tools to monitor the compliance of human rights both in Russia and abroad: HR audits involve auditing the processes associated with the documentation of labor The following issues relations, payroll, the compliance with labor were examined: laws, the Company’s regulations, and other requirements covering labor law provisions. social partnership surveys on the moral and psychological HR audits also check the procedure environment in labor groups for documenting disciplinary actions that may be associated with employees’ non- entering into and termination of employment contracts compliance with the Code of Business annual corporate audits of HR interaction with indigenous minorities Conduct and Ethics (e.g. information services to verify compliance of the North (hereinafter – IMN) 1 on the employment of relatives as direct employment of people with disabilities with labor laws and corporate subordinates may be requested). requirements (HR audits) Effective management systems compliance with the Code of Business Conduct and Ethics interaction with local communities where are reviewed, including those ensuring we work non-discrimination. Based on the results of the audit, the Company develops personal data protection recommendations for the enhancement of personnel management processes. In 2019, audits were conducted Social partnership in all countries and regions where agreements covering all full-time in 11 LUKOIL Group entities1. No material conflicts of interest we are present, taking into account staff. The Russian entities that did violations of human and labor rights were LUKOIL’s regular interaction the specifics and characteristics not conclude collective agreements identified. with the International Association of Trade of local culture. are directly covered by the Industry labor pay Union Organizations of PJSC LUKOIL Agreement for Organizations of the Oil (IATUO), the International Labor As part of social partnerships, and Gas Sectors and the Construction Monitoring staff morale Organization (ILO) and IndustriALL the scope of the social commitments of Oil and Gas Facilities of the Russian and motivation the employee’s right to rest Global Union helps to implement best of the Company and trade union Federation. practices in complying with labor rights organizations that are parties The company regularly monitors and serves as a platform for social to agreements is revised and updated In 2019, collective agreements were compliance with human rights, including weekend work and work on holidays, irregular working hours dialogue. We use common principles on a regular basis. Those commitments in effect in 49 Russian and 9 foreign conducting a study of the moral and approaches to working with staff are documented in collective entities. and psychological context in LUKOIL Group entities. In 2019, the results of monitoring compliance with vacation schedules, including for workers the moral and psychological context in jobs with harmful working conditions; other aspects were reported at a meeting of the Human of employment relations. Share of employees covered by collective agreements in LUKOIL Group,% Resources and Remuneration Committee of the Board of Directors of PJSC LUKOIL. The control section showed a good moral and psychological climate and a high level SHARE OF EMPLOYEES COVERED SHARE OF RUSSIAN ENTITIES’ of satisfaction of the Company’s employees BY COLLECTIVE AGREEMENTS EMPLOYEES COVERED BY COLLECTIVE with working conditions. Interaction with indigenous a harmonious balance between IN LUKOIL GROUP ENTITIES AGREEMENTS minorities on land use the economic activities of LUKOIL Group Monitoring of psychological context and activities in the territories entities in the territories of indigenous 2019 2019 is conducted by regular surveys (no more of traditional lifestyles minorities of the North and the latter’s than once every two years at the same interests in preserving their traditional enterprise). The survey diagnoses the level We share the principles enshrined lifestyle and economic activity. of employee satisfaction with various in the UN Declaration on the Rights 88.9 96.4 aspects of labor and identifies the most of Indigenous Peoples, the UN Global 2017 2018 2017 2018 significant and most challenging aspects Compact and the Resolution of the World of work according to employees. Conference on Indigenous Peoples, The survey uses the methodology and are committed to ensuring of the Stockholm School of Economics 88.0 90.1 95.1 97.7 based on the Employee Satisfaction Index (ESI) model, which is widely used in Europe and in Russia.
1 Including: LUKOIL-BULGARIA EOOD (Bulgaria), LUKOIL MID-EAST LIMITED (Egypt), Perm Branch of LLC LUKOIL-Engineering PermNIPIneft, 1 LUKOIL Uzbekistan Operating Company (Uzbekistan), LLC LUKOIL-Volgogradneftepererabotka, LLC LUKOIL-Permnefteorgsintez, LLC LUKOIL-AERO, According to Russian law, minorities are ethnic groups of no more than 50 thousand people. LLC LUKOIL-Uralnefteprodukt, LLC LUKOIL-Nizhnevolzhskneft, LLC LUKOIL-Yugnefteprodukt, LLC LUKOIL-Engineering.
36 37 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
seeks to avoid involuntary relocation • economic agreements with the heads of people living on the territory of areas of traditional resource use STAKEHOLDER ENGAGEMENT of traditional natural resource use. • agreements on social and economic LUKOIL respects The company applies the Free and Prior development with reindeer farms the rights of indigenous Informed Consent principle and seeks • collaboration with indigenous The successful implementation of our strategic goals WE STRIVE minorities of the North to minimize the consequences for those community organizations is facilitated by a relationship of trust with stakeholders, TO BUILD LONG- affected by such measures. • support for specific projects through provided for by Russian TERM CONSTRUCTIVE laws, including the use grant financing in the framework including state and local authorities, shareholders of resources, the preservation In the reporting year, in the course of the Competition for Social and investors, business partners and customers, workers RELATIONS BASED of the environment, the right of LUKOIL Group’s production activities and Cultural Projects of PJSC LUKOIL. and trade unions, Russian and international ON THE PRINCIPLES to use land and other natural in areas of traditional settlement and/ For more details on Company interaction organizations, and society as a whole. OF PARTNERSHIP, resources. or economic activity of indigenous minorities in the North, no forced with indigenous minorities of the North, see COMPANY resettlement of indigenous peoples PARTICIPATION and no complaints regarding the violation of the indigenous IN IMPLEMENTING Indigenous minorities of the North minorities’ rights by LUKOIL Group LONG-TERM live in four regions of our operations: entities were registered. Compensation DEVELOPMENT GOALS, the Khanty-Mansi Autonomous Area – is annually paid to indigenous people: Yugra1, the Yamal-Nenets Autonomous under license obligations in the territory TRANSPARENCY Area, the Nenets Autonomous of the Khanty-Mansi Autonomous STATE LEGISLATIVE SHAREHOLDERS OF OPERATIONS, Area and the Krasnoyarsk Territory. Area – Yugra (where LUKOIL-Western Engagement with local AND EXECUTIVE AND INVESTORS AND INFORMATION. LUKOIL’s operations are historically Siberia, RITEK and LUKOIL-AIK operate) communities AUTHORITIES associated with the territories inhabited and under agreements with reindeer In order to increase the effectiveness by the Khanty and Mansi, the indigenous farms in the territory of the Nenets With its wide presence in countries We interact with state legislative of relations with shareholders the revised These principles people of Siberia. Thus, the system Autonomous Area (where LUKOIL-Komi having different cultures and socio- and executive authorities of all levels version of the Shareholder Relations are set forth in the Social Code of relations with the indigenous minorities operates). economic patterns, LUKOIL Group uses in Russia and with local authorities Policy of PJSC LUKOIL was established of PJSC LUKOIL and the Code of the North began to take shape a variety of methods for interaction in foreign countries. by the decision of the Board of Directors of Business Conduct and Ethics from the very outset of the Company’s The Company engages representatives with local communities to address of PJSC LUKOIL dated 11 December of PJSC LUKOIL. activity. of indigenous minorities to participate emerging issues. In Russia, representatives 2018 (Minutes No.17). The Policy, in decision-making on projects that of PJSC LUKOIL and LUKOIL Group among other issues, states the principles In Russia, subsoil use, including affect their rights (Articles 27–29 The Company strives to create conditions entities take part on an ongoing basis of equal treatment of all shareholders, the allocation of land plots in traditional of the Declaration on the Rights for unhindered contacts with local in discussing legislative initiatives as well as the commitment to applying settlement areas and/or areas of Indigenous Peoples). In particular, residents when implementing its foreign and in the work of advisory groups best practices of corporate governance. of economic activity of indigenous in order to obtain a preliminary freely exploration and production projects and expert forums, discussing issues The observance of shareholders minorities of the North, is regulated informed consent of the indigenous as an operator. For example, a system that are topical for the Russian oil legitimate rights and mutual by state authorities (under license peoples’ representatives, meetings of collection and response to complaints and gas industry. Management engagement in the benefit of sustainable agreements or other documents that are held at various stages of project and queries was deployed in Uzbekistan. of PJSC LUKOIL and LUKOIL Group and dynamic development entitle companies to use such subsoil implementation: public hearings prior As part of exploration and production entities engages with the authorities of PJSC LUKOIL facilitates creating sites). The terms and conditions to project implementation (in accordance projects where the Company as part of the upgrading of production shareholder value and increasing of the use of licensed areas, including with the legislation of the Russian is a participant, the interaction with local facilities, signing and implementation the reputation of the Company. providing compensation to indigenous Federation), and information events communities is mainly the responsibility of agreements on social and economic communities, are established by federal as projects are implemented. of the operator. LUKOIL informs cooperation, as well as in regional Our investors comprise Russian provide information to representatives and regional authorities. Hence, local communities about its policies and international forums. and foreign entities and individuals of the investment and financial issues related to respect for the rights In general, interaction with indigenous and responsible practices whenever pursuing various investment strategies. communities using various channels, of indigenous peoples, including minorities of the North is carried required. Leveraging legal mechanisms To strengthen investor relations and react promptly to incoming queries. migration issues, are governed by Russian out within the framework of federal guaranteeing stakeholder participation and maintain the investment appeal federal and regional legislation. and regional legislation of the Russian In Russia, a large number of events in the discussion of draft regulations, of the Company, LUKOIL’s equity In recent years, we can observe Federation, licensing obligations are held for residents of regions the Company participates in the creation story is communicated to participants a marked upward trend in the number We fully comply with the conditions of LUKOIL Group entities, as well where human rights can be discussed, of a modern, stable and healthy system in the financial market, including of responsible investors taking set forth in legislation, regularly as federal and regional programs including public hearings, round tables, of state regulation, using internal the disclosure of requested information into account sustainability factors interact with representatives to support indigenous peoples. dialogues, visits to LUKOIL enterprises corporate processes for monitoring, and targeted measures. when making investment decisions. of indigenous communities, and take The following mechanisms are used: (for an example, see the “Komi Republic” evaluation, planning, etc. In this regard, cooperation their opinion into account when planning • cooperation agreements between case study). The practice of engaging In order to attract additional investment with this group of stakeholders has been and implementing exploration PJSC LUKOIL and regional in dialogue2 has begun to be applied LUKOIL liaises with regulatory bodies, in the Company’s equity, a shareholder expanded (including the organization and production projects. The company administrations at the Romanian refinery as well. public associations and non-profit analysis is conducted on an ongoing of meetings with independent members organizations, and monitors regulatory basis, and groups of investors of the Board of Directors), information and legislative activities in the Russian with whom targeted measures disclosure in public materials has been Federation on an ongoing basis. will be carried out are identified. We improved, and work on systemic issues continually strive to raise the level of sustainable development has been of information transparency, regularly enhanced. 1 The region was called the Khanty-Mansi Autonomous Area in 1991. 2 Dialogue (public dialogue) hereinafter in the Report is an in-person event with the participation of the Company and various stakeholders on a wide range of issues related to corporate social responsibility and sustainable development, in connection with LUKOIL activities in a particular region.
38 39 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
We liaise with international rating agencies The past year marked the hundredth and information database owners; anniversary of the International Labor we also publish climate reporting as part Organization. Being ILO’s only partner Stakeholder engagement in 2019 of the Carbon Disclosure Project (CDP). in Russia, LUKOIL Group took an active part in the organization of the anniversary One of the key elements of interaction events. During the Russian hour SUPPLIERS STAKEHOLDERS EVENTS IN 2019 EVENT-RELATED COOPERATION with the investment community of the 24-hour online video marathon, AND CONTRACTORS is to ensure investor feedback the President of PJSC LUKOIL Vagit for PJSC LUKOIL governing bodies Alekperov extended his congratulations LUKOIL’s supply chain covers STATE LEGISLATIVE and management. In response on the ILO’s anniversary. Also, a meeting entities of various legal forms to incoming queries, the level of Russian President Vladimir Putin and sizes, from large companies AND EXECUTIVE AUTHORITIES of disclosure of information in financial with ILO Director-General G. Ryder and small and medium-sized businesses statements, annual reports, sustainability was held where the contribution to individual and social entrepreneurs. Legislative authorities The Company reviewed more than 700 draft Standard-setting initiatives in the field reports and on the corporate website of LUKOIL Group to ILO activities We are open to cooperation and provide of the Russian regulations and submitted proposals of environmental protection covered is constantly increasing. in the Russian Federation was noted. a level playing field. We perform Federation on 260 of them to the federal authorities. issues of compensatory reforestation, impartial and effective selection Compared to 2018, the share of draft emission credits, sanitary protection of suppliers and contractors through regulations affecting the Company’s activities zones of industrial facilities, tender procedures in key areas and requiring its response rose by 30%. and carbon tax of the Company’s business. Regional authorities 44 events with the participation of LUKOIL 9 cooperation agreements, 10 protocols in the Russian President Vagit Alekperov were held, and 20 supplementary agreements Efforts of LUKOIL Group’s investor Federation resulting in the signing of 41 documents to existing cooperation agreements relations service were highly rated CLIENTS on cooperation by the investment community, Memorandum of cooperation resulting in the Group receiving Our clients comprise large and medium- with the Government of Stavropol Territory an award from the professional sized entities operating in various magazine Institutional Investor sectors of the economy and private SOCIETY Tripartite agreement between the Ministry in 2019. individuals. We provide our clients of Sports of the Russian Federation, with high-quality products and services, We build our relations with society the Government of the Khanty- and develop innovative products based on the principles of openness Mansi Autonomous Area – Yugra tailored to the needs of regional markets and partnership. Social investment and PJSC LUKOIL on the construction and the individual needs of consumers. programs are implemented in constant of social and sports infrastructure Our goal is to reinforce our reputation contact with local authorities, mass in the territory of the Khanty-Mansi as a responsible and reliable producer media, and municipal and public Autonomous Area – Yugra and supplier of energy products. organizations. Significant focus is placed on interaction with the environmental Ministries Business trips of PJSC LUKOIL management Activities of LUKOIL Group entities The Company operates a quality community and residents of the Russian to production facilities in the regions management system covering all of the regions and countries in which Federation, local of operations EMPLOYEES the stages a product passes through we work on questions of environmental authorities, AND TRADE UNIONS when moving from the factory protection and social issues. international International Forum devoted to the Year Issues of cultural identity to the consumer. LUKOIL applies The programs are implemented organizations of Indigenous Languages in Russia (2019) and preservation of national languages Social partnership is at the core a responsible approach to customer with the participation of experts having (Khanty-Mansiysk, Russia) in the regions of the Russian Federation of LUKOIL Group’s relations with employees relations and observes the principles a solid track record implementation and trade unions. The Company has of fair marketing and sales of products. of social projects in various industries. 18th Session of the UN Permanent Forum LUKOIL’s experience in the preservation built a social partnership system based To provide strong support to its We respond to queries from foreign, on Indigenous Issues, Round Table and development of national languages on agreements between employer, customers on any emerging issues, federal and regional media, hold media “Preservation and Promotion of the Linguistic of the indigenous minorities of the North trade unions and employees. Meetings the Company studies customer tours and publish relevant materials. Heritage of Indigenous Minorities of employees and representatives feedback thoroughly to identify the most of the North” (New York, the USA) of the management of PJSC LUKOIL pressing issues and research customer LUKOIL is also a participant, organizer and LUKOIL Group entities are held satisfaction. and sponsor of forums, specialized Extended board meeting of the Federal regularly. conferences, roundtables and other Agency for Ethnic Affairs (Moscow, Russia) events where the Company can For many years, LUKOIL has been interact with other industry players Joint meetings of deputies of the Republic Diversity and preservation of languages collaborating with the International Labor and stakeholder groups noted above of Kalmykia’s Hural and the Duma of the Russian Federation’s ethnicities Organization (ILO) and IndustriALL Global on a wide range of topics. of the Khanty-Mansi Autonomous Area – Union. Yugra (Elista and Khanty-Mansiysk, Russia) Tourism development
40 41 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
STAKEHOLDERS EVENTS IN 2019 EVENT-RELATED COOPERATION STAKEHOLDERS EVENTS IN 2019 EVENT-RELATED COOPERATION
SHAREHOLDERS AND INVESTORS SOCIETY
Shareholders More than 200 queries from investors and Climate strategy and reporting Local communities Roundtable «Sustainable Development Presentation of LUKOIL Group Sustainability and investors over one thousand of queries from shareholders and municipal of LUKOIL Territories» (Perm, Russia) Report Measures to reduce emissions of greenhouse were handled authorities gases and pollutants State authorities 6 roadshows, 18 major investment conferences, Oil spill management system and mitigation Scientific and technology conference Corporate best practices in industrial safety, over 180 meetings and 50 calls with investors actions (Rostekhnadzor, “Industrial and Occupational Safety at Oil work quality and efficiency improvement were organized Ministry of Emergency and Gas Enterprises” Land remediation Situations), expert Quarterly conference calls regarding disclosure community (RSPP, of the Company’s financial performance Waste management Union of Oil and Gas Human rights Producers of Russia), A trip for representatives of the investment non-governmental community to the Nizhny Novgorod refinery was Engagement with local communities and oil and gas organized in the run-up to MARPOL-2020 organizations Anti-corruption Two General Shareholders Meetings were held Indigenous Meeting «Approval of the Procedure Compensation of damages to the traditional EMPLOYEES AND TRADE UNIONS minorities for Compensation of Damages Caused habitat of indigenous minorities of the North, authorities to Indigenous Minorities of the Russian of the Russian Federation as a result and non-governmental Federation, Their Associations and Persons of the business activity of companies International Labor 24-hour online video marathon dedicated Implementation of the ILO principles Belonging to Indigenous Minorities of the Russian and individuals organizations Organization (ILO) to the 100th anniversary of the ILO in the work of HR companies Federation» (Kogalym, Russia) of indigenous Roundtable as part of the 74th session of the minorities Awards to the winners of the “Talents The experience of PJSC LUKOIL was UN General Assembly ( New York, the USA) of the North in Russia of the Arctic. Children” project (Moscow, Russia) presented in the area of sustainable development, in particular supporting Exhibition dedicated to the anniversary indigenous minorities of the North, Siberia and the Far East of the Russian Federation of the ILO and its operations in Russia (Moscow, Russia)
International Official launch event of the International Year Culture preservation of indigenous SOCIETY organizations of Indigenous Languages (2019) at UNESCO minorities of the North Headquarters (Paris, France) Public authorities, expert and sectoral National Sustainable Development Forum Corporate sustainable development Regional and local Public dialogue opened by the Romanian Launch of the Competition for Social (Moscow, Russia) practices, sustainable development refinery (Ploesti and Bucharest, Romania) and Cultural Projects; the Company’s organizations, authorities, non- programs of LUKOIL Group governmental experience of holding the competition the mass media in Russian regions in Russia organizations in foreign countries Regional Technology Day in the Republic of Udmurtia Encouraging regional industrial enterprises Authorities RusPrix Award 2019 (Noordwijk, Netherlands) Investment cooperation between Russia governments (Izhevsk), Samara Region (Samara), Tyumen to participate in open tenders conducted and non-governmental and the Netherlands, LUKOIL Group’s work and industrial Region (Tyumen), Voronezh Region (Voronezh) by PJSC LUKOIL and LUKOIL Group entities. organizations in the Netherlands enterprises in Russia Exchange of experience and participation in foreign countries in events International Folklore Festival Burgas-2019 Cooperation between Burgas and Kogalym (Burgas, Bulgaria) Industrial Ecology-2019 conference Industrial ecology, the prospects (Moscow, Russia) for implementation of green economic Media Press releases, press conferences LUKOIL Group strategy and production models plans, developments in oil and gas industry regulations, social responsibility Non-governmental Meetings with representatives of the Pechora Environmental conditions in the Komi and environmental Rescue Committee, WWF Russia, etc. Republic organizations Scientific community Support for environmental and biodiversity Scientific approaches to biodiversity Implementation of the project to rescue projects and research in Russian regions conservation the saiga antelope
42 43 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
During the assessment, the following 2018 2019 SUPPLY CHAIN indicators are taken into account: the occurrence of accidents and fatal accidents; the number of breakdowns Total number of potential tender participants that submitted bids LUKOIL Group entities procure a significant amount of goods, works and incidents over the past three in tenders for the procurement of goods, works, and services and services and interact with a large number of contracting companies years; confirmations that trainings have (Russian entities of LUKOIL Group) annually. At the same time, LUKOIL is also a supplier of goods to consumers been completed; knowledge testing. based all around the world. Potential tender participants also provide social information, in particular 4 ,241 3,330 related to observing the working hours of their employees. TENDERS ANTI-CORRUPTION INDUSTRIAL SAFETY REQUIREMENTS AND OCCUPATIONAL That information is included Including for tenders prescribing an HSE assessment The selection of suppliers of goods, SAFETY REQUIREMENTS in a candidate’s questionnaire works and services in Russia is performed Under the Regulations, potential evaluating their compliance in accordance with the Regulations tender participants who, directly If the subject of the tender requires with the HSE requirements. NUMBER on Holding Tenders to Select Suppliers or indirectly, offer, have given, or agree the need to verify the state Based on the questionnaire, 1,720 1,465 and Contractors of LUKOIL Group Entities to give compensation in any form of the HSE system of a potential tender experts of the Company perform (hereinafter, the Regulations) and is based to an employee of PJSC LUKOIL participant, experts from PJSC LUKOIL the assessment of the HSE level PERCENTAGE OF THE TOTAL NUMBER OF POTENTIAL TENDER PARTICIPANTS on the principles ensuring competitive, or LUKOIL Group entities cannot be and LUKOIL Group entities perform of the candidates. In the event of poor 40.6 44.0 unbiased and effective supplier selection. admitted to tenders. a comprehensive assessment score in the assessment, the candidates THAT SUBMITTED BIDS Foreign entities of LUKOIL Group modify based on a corporate document1. are not admitted to tender. the enterprise-wide documents to make If any such facts are identified, potential The assessment procedure includes2: them compliant with local laws. tender participants can be classified • checking for compliance For certain types of procurement, as bad-faith suppliers of goods, with the international standards technical audits of potential tender In order to minimize risks, when choosing works, and services. The decision OHSAS 18001 and ISO 14001, participants and mandatory assessments Number of potential tender participants admitted to tenders based counterparties the Company is guided to classify a potential tender participant Russian laws and internal regulations of potential tender participants’ on the assessment results by the following criteria: in this category and disqualify of PJSC LUKOIL; employee compliance with corporate • criteria for evaluating the technical it from a tender is made by the Tender • ascertaining whether potential tender requirements of work at the facilities part of the tender offer include Committee or the Procurement participants possess necessary licenses, of LUKOIL Group entities are carried out. 1,579 NUMBER 1,352 determining the reliability Committee of PJSC LUKOIL. adequately qualified staff, personal and experience of the bidder, protective equipment, and technical PERCENTAGE OF THE TOTAL as well as checking the conformity capability and technology. 91.8 NUMBER OF POTENTIAL TENDER 92.3 of the goods with technical PARTICIPANTS CHECKED requirements; • criteria for evaluating the commercial part of the tender offer include determining the competitiveness Note. The information for 2018 is provided taking into account the application of a unified of the tender offer. approach to selecting reporting data for 2018 and 2019, as well as the update of the corporate BASED ON THE RESULTS OF 2019, THE SHARE database of applicants participating in tenders of PJSC LUKOIL and LUKOIL Group entities in 2019. As part of the development of green IN 2019 procurement practices, we collaborate OF RUSSIAN SUPPLIERS OF CENTRALIZED MATERIAL Interaction during • immediately notifying the customer with a foreign company, which AND TECHNICAL RESOURCES STOOD AT the implementation of contracts of all accidents that have taken place is the world’s leading producer of energy 92.3% during the performance of works efficient pumping equipment. OF TENDER Under the terms and conditions • prohibition on the unauthorized of contracts to supply goods/works/ accumulation and placement 94% PARTICIPANTS services, all suppliers and contractors of waste, the discharge of wastewater IN TERMS OF THE NUMBER OF SUPPLIERS FOR WHOM HSE undertake to adhere to the requirements (liquid waste) and chemicals, AND ROSE SLIGHTLY TO ASSESSMENTS WERE of current laws, as well as those the discharge of pollutants into of LUKOIL Group’s Health, Safety the air, or the contamination of soil PRESCRIBED PASSED and Environment Policy in the 21st with chemicals while performing works 94.8% THE COMPREHENSIVE Century. The following requirements at LUKOIL Group entity’s facilities. ASSESSMENT are an integral part of the contracts: IN TERMS OF THE TOTAL VALUE OF PURCHASES • undergoing introductory / initial IN RUSSIA YEAR-ON-YEAR. PROCEDURE workplace briefings before contractors SUCCESSFULLY. begin the performance of works / provide services at LUKOIL Group The number of tender participants entity’s facilities, the availability who successfully passed of personal protective equipment the HSE assessment procedure in accordance with the nature rose year-on-year, indicating of the work being performed, 1 Pursuant to the “Procedure for Assessing the Health, Safety, and Environment Level of Business Entities Intending to Participate in a Tender.” 2 an improvement in the quality confirming that suppliers / contractors The assessment of the candidates for contractors is performed in accordance with an internal regulatory document: Appendix 32 to the Regulations on Holding Tenders to Select Suppliers and Contractors of LUKOIL Group Entities approved by a Resolution of OJSC LUKOIL Management of bids received. have appropriate first-aid skills Committee dated 30 September 2013 (Minutes No. 19 as amended).
44 45 WWW.LUKOIL.COM
CLIMATE CHANGE 48 CLIMATE CHANGE AS OUR COMMON CHALLENGE 53 APPROACHES TO MANAGING CLIMATE CHANGE ISSUES
Q ARE LUKOIL’S ACTIVITIES Q WHAT IS LUKOIL’S ALIGNED WITH THE CURRENT CAPABILITY IN TERMS CLIMATE AGENDA OF ADAPTING TO THE LOW- 56 CARBON MODEL? GOALS AND INDICATORS
A When it comes to the carbon intensity of the Exploration A We are reducing carbon dioxide emissions and are seeing Leonid Fedun and Production business segment, LUKOIL has already a very positive trend vis-à-vis reducing methane emissions, 58 established itself as a leading company in this area driven mainly by associated petroleum gas utilization Vice President in the oil and gas sector. To maintain this leading position, and the implementation of the environmental program. ENERGY for Strategic we are prepared to take further steps to reduce greenhouse gas CONSERVATION We have experience in implementing projects that emissions, and we have a clear vision on how to achieve this. Development are comparable to the practices of leading oil and gas of PJSC LUKOIL We are planning to set long-term goals to reduce greenhouse companies, for example, in the area of renewable energy. Such gas emissions, based on external changes and stakeholder projects are being implemented at the refinery in Volgograd, requests. The Company also intends to perform an assessment where a solar power plant has been built. In the future, 64 of the impacts of climate change on its production facilities we plan to roll out this experience across the Group. We also RENEWABLE and infrastructure, especially in the Arctic and the permafrost see new lines of business that can be developed, including ENERGY SOURCES zone. technologies for absorbing and disposing of carbon dioxide and the construction of pumped-storage facilities, with priority The priority is to make changes to the corporate governance given to projects with the greatest commercial potential. system, based on best global practices. LUKOIL already takes into account the climate factor when managing risks. We In our opinion, an important component of low-carbon are also taking steps to provide more complete disclosures development is a system of compensatory measures, such 66 on greenhouse gas emissions in our public reporting. as reforestation and forest management projects. REDUCTION At the same time, there are a number of factors that may affect OF EMISSIONS the future of the oil industry. Thus an ability to adapt to external changes, combined with a flexible strategic approach, are imperative in modern business. WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
KEY CHANGES AND RESULTS IN THE REPORTING YEAR CONTEXT: CLIMATE CHANGE AS OUR COMMON CHALLENGE
The climate change issue has nature with a wide coverage development to be able to make a sizable MEASURES AIMED AS PER THE COMPANY’S dominated the social agenda for many and requires that efficient solutions be contribution to solving the climate change AT REDUCING THE CLIMATIC ESTIMATES, ELECTRIC POWER years now, and in 2019 very close found to challenging tasks carrying problem while ensuring our economic IMPACTS FROM OPERATIONS GENERATION FROM RENEWABLE attention was paid to the problem. long-term consequences. growth. We see not only risks resulting OF THE COMPANY WERE SOURCES HELPS PREVENT ABOUT Climate change and environmental from global warming but also new threats led the list in global risks Given the global nature of LUKOIL Group’s business opportunities arising CONSIDERED AT THE MEETINGS for our planet1. The climate change business, we are analyzing potential for LUKOIL Group. OF THE BOARD OF DIRECTORS, THOUSAND TONNES problem is of an obviously complex trajectories of the global climate agenda’s THE STRATEGY, INVESTMENT 500
AND SUSTAINABILITY COMMITTEE OF СО2E PER YEAR OF GHG AND THE SUSTAINABILITY TASK EMISSIONS. Rising public activity FORCE. Despite efforts of the international people’s lives and our planet’s health3. An of climatic effects and offers prospects community and growing investment unprecedented burst of social activity4 of increased pressure on governments in a low-carbon economy2, extreme that ultimately transformed itself into and GHG emitters. THE TASK OF DEVELOPING SHARE OF ELECTRIC weather events and ever more evident a Global Climate Strike Campaign testifies LONG-TERM GHG EMISSIONS POWER GENERATION climate changes continue to affect to an increased social comprehension REDUCTION TARGETS WAS FROM RENEWABLE SOURCES SET. IN 2017–2019 AVERAGED The need to act immediately
6% Estimates5 show that nationally determined peak values have been reached. Both Following the UN Climate Summit OF TOTAL COMMERCIAL contributions will not be sufficient to reach the academic and expert communities (COP 25), 121 countries set more GENERATION. the Paris Agreement’s primary temperature demand that governments and countries ambitions national goals to reduce GHG goal of limiting warming to well below 2°C take additional urgent climate protection emissions, and this may have an impact pre-industrial levels. measures and set more ambitious goals. on the Company’s operations in those Not only measures to reduce emissions countries.
Having achieved 55.3 Gt of СО2E are required but also technologies in 2018, GHG emissions continue providing for a higher GHG absorption IN 2019, METHANE EMISSIONS EFFICIENT APG USE OF to grow and there are no indications that capacity. WERE REDUCED BY 97.6% 45.6% WAS ACHIEVED BY LUKOIL GROUP AGAINST THE 2016 LEVEL ENTITIES. IN RUSSIAN ENTITIES.
AN AVERAGE ANNUAL IN 2019, DIRECT GHG REDUCTION IN ENERGY EMISSIONS BY RUSSIAN CONSUMPTION FOR 2017–2019 ENTITIES WERE REDUCED BY AMOUNTED TO APPROXIMATELY 3.3% 5 MILLION GIGAJOULES (GJ). AGAINST THE 2016 LEVEL (SCOPE 1). 1. Source: Global Risk Report, 2019. 2. Sources (examples): Scaling Up Action: Aiming for Net Zero Emissions; Oil and Gas Climate Initiative, 2019; Top Sustainable Business Trends of 2020; Joel Makower, Sustainable Brands, 2019. 3. Sources: Emissions Gap Report 2019. UN Environmental Program, 2019. The Sustainable Development Goals Report 2019. UN, 2019; Carbon Tracker Initiative: https://www.carbontracker.org/. Special Report on the Ocean and Cryosphere in a Changing Climate. Intergovernmental Panel on Climate Change (IPCC), 2019 and other IPCC 2019 publications; NASA data: https://climate.nasa.gov/blog/2942/2020-vision-looking-back-to-drive-forward/. 2018 Report on Climate Patterns in the Russian Federation. Federal Service for Hydrometeorology and Environmental Monitoring, 2019. 4. Sources: BBC, CNN, The Times, The Guardian, etc. 5. Sources: Emissions Gap Report 2019. UN Environmental Program, 2019; Report of the Secretary General on the 2019 Climate Action Summit and the Way Forward in 2020. UN, 2019.
48 49 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
Role of the oil and gas sector Market mechanisms
Slow rates of structural changes growth rate is required to be 3% per track, and this period may be used One of the major uncertainties analyzed, including the introduction in the transport, power and utilities, year to reach the Paris Agreement’s to fundamentally transform the oil of the climate agenda is what global of a cross-border import tax4. However, agriculture, and manufacturing sectors goals. A more rational use of resources and gas sector. mechanism will be created to govern experts anticipate difficulties in assuring that directly depend on oil and gas opens promising opportunities for both the sharing of emission reduction that the new rules comply with WTO 5 Of the 40 countries where supply, as well as an extensive use governments and companies. A progressive development of digital obligations. principles and free trade agreements . 9 of energy resources1, contribute systems and technologies may a carbon tax or GHG to the acuteness of the climate issue. Being the most affordable energy become a source of new opportunities Although no consensus on setting In addition, “a fundamental reshaping emission allowances have resources at the moment for the majority for the oil and gas sector, including up a global market for allowances of finance” is predicted to occur “sooner been introduced in one After 2015, the rate of energy intensity of countries, oil and gas are still in high in terms of reducing climate on GHG emissions1 was reached than most anticipate”6. Investors form or another, LUKOIL reduction in national economies slowed demand. Until new technologies come and environmental impacts. An essential at COP25, measures for state regulation are requiring that companies promptly is present in the EU (the EU down2: in 2018, only a 1% improvement to the required maturity, ‘old’ and ‘new’ transformation of the sector may ensure of climate change are being enhanced respond to environmental changes, Emissions Trading Scheme was seen, while the energy efficiency power industry will develop on a parallel its climate neutrality in the long term. at the national level2. Projections by price as the gap creates investment has been launched across trajectories suggest their growth within and economic threats7. In these the EU, introduced taxes various ranges3. circumstances the climate agenda in Finland and Norway) will become a determining factor and Mexico (excise tax The requirements of the EU climate of upcoming changes, and 2050 will for import and export policy are expected to become even most likely be a crucial year for GHG of oil products; the amount Moderate optimism more stringent. In December 2019, emitters8. of the tax or allowance as the European Commission has is dependent on the volume Still, there has been progress after approved the European Green Deal, A package of “Sustainable Finance” of GHG emissions). Also the signing of the Paris Agreement3. Relatively new renewable energy sources (solar, wind) which aims for carbon neutrality by 2050. laws is now being passed in the EU. plans to introduce the ETS This shows that efficient solutions may are becoming increasingly competitive even when no government These laws are expected to significantly in Kazakhstan are in place. 4 be found and the situation may change aid is provided , and the numbers of new jobs in this sector The EU member states have announced influence the finance sector as they will Introducing the ETS or carbon for the better. LUKOIL expresses its sometimes exceed those in the traditional power industry. the most ambitious plans to achieve establish the criteria for environmentally tax is also being considered support for the Paris Agreement’s net zero pollution by 2050. A reduction and socially responsible economic in Turkey. goals and is now assessing its abilities prospect in carbon emissions activity. This will have a particular impact to intensify efforts to achieve them. Oil and gas companies, financial organizations and funds by 50–55% as early as by 2030 (instead on investments in the fuel and energy are implementing large-scale carbon dioxide absorption projects of the current goal of 40%) is also being complex. as part of the Oil and Gas Climate Initiative. discussed. Measures required to achieve the stated goals are currently being
However, successful efforts of individual countries, companies and projects cannot succeed alone5. The risk that collective actions prove to be insufficient increases the likelihood of a worse case scenario. To close the gap, significant investment is required, because a lot of new technologies are still at the early development stage and have not been adequately piloted yet. Therefore, it is highly likely that participation in joint projects6 will continue, thus opening 1. Sources: https://www.carbonbrief.org/cop25-key-outcomes-agreed-at-the- new cost efficiency opportunities un-climate-talks-in-madrid; https://www.climatechangenews.com/2019/12/16/ for the participating companies. cop25-achieved-next/ 2. Source: State and Trends of Carbon Pricing 2019. World Bank, 2019. 3. Sources: State and Trends of Carbon Pricing 2019. World Bank, 2019; Fiscal Monitor: How to Mitigate Climate Change. International Monetary Fund, 2019. 4. Border carbon adjustment. 5. Sources: Center for European Reform https://www.cer.eu/insights/should-eu- tax-imported-co2; The World Economic Forum: https://www.weforum.org/ agenda/2019/05/the-case-for-climate-tariffs/ 6. Source: Larry Fink, Chairman and Chief Executive Officer of BlackRock, a major asset manager, in his annual letter to portfolio managers. https://www.blackrock. com/corporate/investor-relations/larry-fink-ceo-letter 7. Source: RSF Social Finance CEO Jasper van Brakel: https:// sustainablebrands.com/read/defining-the-next-economy/ 1. Source: https://yearbook.enerdata.ru/co2-fuel-combustion/CO2-emissions-data-from-fuel-combustion.html we-need-a-business-revolution-and-we-can-t-base-it-on-the-kindness-of-ceos 8. 2. Source: https://www.iea.org/reports/energy-efficiency-2018 Source: UN-convened Net-Zero Asset Owner Alliance. 9. 3. Source: Emissions Gap Report 2019. UN Environmental Program, 2019. A ”carbon tax” is a fee imposed on the burning of carbon-based fuels (coal, oil, gas). 4. Source: Global Trends in Renewable Energy Investment 2019. UN Environmental Program, Bloomberg NEF, 2019. 5. Source: Resilience to Climate Change? A new Index Shows Why Developing Countries will be Most Effected by 2050. The Economist Intelligent Unit, 2019. 6. For example, Three Percent Club: https://sdg.iisd.org/news/global-coalition-commits-to-3-annual-global-increase-in-energy-efficiency/ 50 51 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
Russia APPROACHES TO MANAGING CLIMATE
In 2019, Russia acceded to the Paris measures and plans for the fuel CHANGE ISSUES Agreement, becoming one of the parties and energy complex and the Arctic Zone establishing the global climate of the Russian Federation will be developed agenda and officially acknowledging at the national level. LUKOIL is already taking During 2019, a notable progress was achieved in managing climate change issues the significance of collective efforts decisions on the transformation at LUKOIL, a decision was made to integrate climate issues into LUKOIL Group’s to tackle climate change challenges. The 2019 debates of the draft Federal Law of the system used “On the State Regulation of Greenhouse to manage the climate issue, Strategic Development Program. Russia is among the world’s five largest Gas Emissions and on Amendments and is actively involved emitters of greenhouse gases, along to Certain Legislative Acts of the Russian in identifying new ideas with China, the United States, the EU Federation” demonstrated that the legal and opportunities, and India1. At the same time, Russia framework in furtherance of restricting with national plans, GHG MANAGEMENT SYSTEM has substantial potential to mitigate emissions and implementing economic emission policy, and global best practices taken into a negative impact on the climate mechanisms may be established only by enhancing its energy efficiency, over a longer time frame. In March 2020, account. taking measures to promote reduction the Ministry of Economic Development CHANGES DURING 2019 KEY MID-TERM TASKS
of CO2 emissions and forest restoration, of the Russian Federation elaborated and taking steps in other areas2. a draft of Russia’s long-term low-carbon development strategy up to 20503, The Board of Directors considered Plans: A National Action Plan for the First which presents the baseline scenario the issue of LUKOIL Group’s Climate • further enhancement Stage of Adaptation to Climate Change of low-carbon development. Three other Strategy. of the climate change for the Period up to 2022 was scenarios – an intense scenario, an inertial GOVERNANCE Expert discussion of the climate change management system approved by the Government scenario and a scenario of development topic as part of the Sustainability Task of the Russian Federation. Among without state support – are also Force in consultation with Toby Gati, other steps to be taken, strategic considered. a member of the Board of Directors
Implemented: Plans: STRATEGY • scenario analysis of the influence • to develop long-term goals of climatic factors on the Company’s to reduce GHG emissions, business to 2030; with account taken of the Paris • analysis of the strategies of oil Agreement and gas companies • to evaluate GHG reduction potential. The work will be supervised by Vagit Alekperov, President of PJSC LUKOIL.
The Company has the Risk Plans: RISKS Management System in place, which • to implement the procedure also anticipates management for assessing climate change of climate-related risks influence on production facilities and infrastructure
Data related to GHG emissions Plans: is provided in the Sustainability Report, • to perform an extensive GHG INDICATORS the Annual Report, The Data Book emissions inventory and the CDP • to determine the reporting climate boundaries pursuant to the GHG Protocol1
1. The GHG Protocol (Greenhouse Gas Protocol, https://ghgprotocol.org/) is an international standard applied to account and manage GHG emissions 1. Sources: Carbon Tracker Initiative, The Moscow Times (https://www.themoscowtimes.com/2019/09/30/the-cost-of-carbon-in-russia-a67496). from private and public sector operations, value chains and mitigation actions. The standard is a joint project of the World Resources Institute (WRI) 2. Sources: СО2 absorption by the forests in Russia in the context of the Paris Agreement, WWF Russia, 2018; http://duma.gov.ru/news/45976/ and the World Business Council for Sustainable Development (WBCSD). 3. Source: https://economy.gov.ru/material/file/babacbb75d32d90e28d3298582d13a75/proekt_strategii.pdf
52 53 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
MANAGEMENT: ROLE OF THE BOARD OF DIRECTORS
In 2019, outstanding work was The Board of Directors set medium- APG utilization performed to shape the Company’s term tasks, implementation of which will position on climate change issues. Two guarantee that the Company makes a solid Efficient APG use of 97.6% was achieved by LUKOIL Group entities in 2019. meetings of the Board of Directors contribution to the achievement of the UN Further work in this area will involve the implementation of projects as part were held (16 October 2019 SDG 13 and the Paris Agreement’s goals. Further GHG emissions of the World Bank and UN initiative “Zero Routine Flaring by 2030.” and 13 January 2020) to address these The tasks set includes the following reduction goals issues. The key GHG emission points, among others: are to be set and a related factors driving emission dynamics, • determination of the projected action plan is to be developed. as well as opportunities to reduce GHG emissions reduction level, It is our aspiration to actively GHG emissions in the long-term were along with the scope and content participate in public debate discussed. of compensatory measures; over climate change issues and to interact with key • assessment of the impact of the climate Reducing GHG emissions at oil refineries In December 2019, three development change on production facilities stakeholders both in Russia scenarios for the global energy system and essential infrastructure, especially and abroad. At our oil refineries projects to reduce carbon dioxide emissions into and the Russian oil and gas industry in vulnerable territories (the Arctic, the atmosphere either are or will soon be under way. for the period up to 2035 and 2100 permafrost), preparation of a list see the following case study on page 58 in terms of climate change issues were of facilities and territories falling within presented1. At the meeting of the Board the scope of the assessment; of Directors held in January, Leonid • incorporation of internal mechanisms Fedun, Vice President for Strategic designed to mitigate harmful Development of PJSC LUKOIL, impacts on the climate, stress testing presented a report on climate scenarios of investment projects in terms Greater energy efficiency and global trends in the climate agenda. of external regulating measures applicable to GHG emissions. Owing to the use of secondary energy resources and the development of our own cogeneration facilities, the Company’s production needs are satisfied with no increase in direct GHG emissions, with reduced volumes of purchased energy resources and reduced indirect GHG emissions. The average annual reduction in energy consumption for 2017–2019 amounted to approximately 5 million GJ. Potential for further reduction in energy consumption
AREAS FOR ACTION CO2 capture, is based on the implementation of investment projects at oil refineries focused Enhancing efforts utilization on construction, equipment retrofitting and upgrading, as well as improving LUKOIL Group’s Climate Strategy will to improve energy and storage the efficiency of power generation facilities. build upon its current experience efficiency technologies (CCUS and EOR) in delivering low-carbon projects comparable with similar projects LOW-CARBON/ ENERGY- implemented by the leading oil and gas EFFICIENT Renewable energy sector companies. PRODUCTS The installed generating capacity of renewable energy sources rose to 395 MW. APG Our ambition for the future is to satisfy ENERGY The share of ‘green’ energy generated in 2017–2019 averaged 6% of total commercial UTILIZATION – our customers’ demand for energy CONSERVATION generation. According to Company estimates, power generation from renewable EMISSIONS resources, while significantly reducing PROGRAM sources helps prevent around 500 thousand tonnes of СО E per year of GHG REDUCTION 2 GHG emissions and preserving financial emissions. We are planning to proceed with RES projects both in Russia and abroad. stability. “NEW” RES (SOLAR, WIND)
Current projects to reduce Utilization New areas climate impacts of APG “Green hydrogen” and natural gas In addition to the areas noted above, we are seeking to utilize the most suitable CO leaks 2 capture and storage technologies (CCS and EOR), find solutions designed to reduce
natural gas and CO2 emissions, and implement compensatory measures. Low-carbon project areas Forestation under consideration and reforestation
1. “Major Trends in the Global Liquid Hydrocarbon Market to 2035” report: http://www.lukoil.ru/Business/Futuremarkettrends.
54 55 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
GOALS AND INDICATORS 2016 Indicators 2017 2018 2019 (baseline)
LUKOIL demonstrates a sustained LUKOIL Group entities that have Solomon Associated LLC according 2. Geography upward trend in reducing GHG a material impact through GHG to the methodology applied2). emissions and intends to continue active emissions are included in the reporting: Russia 31.29 31.14 29.99 30.26 work to step up efforts in this area. 29 Russian1 and four foreign entities In Russia, the main contribution EU countries 6.73 6.47 6.08 6.63 (three oil refineries in Italy, Romania (around 80%) to the total direct In 2019, the Company surpassed and Bulgaria, and one operating emissions is made by fixed fuel Central Asia NA 0.24 0.37 0.33 its direct GHG emissions reduction company in Uzbekistan). combustion sources. Flaring made Share of emissions accounted for by countries 18 17 17 18 target for Russian entities by two up about 10% of the total emissions where the regulation of GHG emissions has been percentage points – GHG emissions In 2019, the data collection scope and was at the same level as emissions implemented (Romania, Bulgaria, Italy), % were reduced by 3.3% against the 2016 was defined more precisely. Unlike from production processes. level. An upward trend in reducing in previous years, emissions of natural 3. GHG composition (Russian entities) GHG emissions was achieved even gas used for LUKOIL-Komi’s in-house By virtue of projects on efficient APG
with the growth in hydrocarbon needs were taken into account use, methane emissions reduced almost Carbon dioxide, million tonnes of CО2E 29.85 29.87 29.02 29.48 production and refining volumes in the reporting year, which had twofold (45.6% against the 2016 level). Methane, million tonnes of CО2E 1.44 1.27 0.97 0.78 at Russian entities observed since 2016 a significant influence on the dynamics Almost the entire volume (more than Share of methane, % 4.8 4.2 3.2 2.6 (+1% and +6%, respectively). In the 2019 of gross and specific indicators 90%) of methane emissions comes reporting year, the Company committed for exploration and production entities from oil and gas production processes Other GHGs 0 0 0 0 to determining future GHG emissions in Russia. Emission calculations (in the process of APG extraction, reduction targets, with progress to be for foreign entities included additional during preventive maintenance work 4. Specific GHG emissions reported by the Company on a regular emission points of a power complex on equipment and in cases of equipment basis. within a Romanian oil refinery (which failures). 4.1. Specific GHG emissions in Russia became part of the refinery in 2019) Exploration and production, tonnes of СО E / tonne 2 0.108 0.088 0.079 0.099 In 2019, direct GHG emissions amounted and a catalytic cracking and reforming of oil equivalent in produced hydrocarbons to 37.2 million tonnes of СО E, of which unit at a Bulgarian oil refinery 2 Processing, tonnes of CО E / tonne of processed raw 2 0.173 0.209 0.204 0.183 Russian entities accounted for 81%, (included as recommended by HSB materials and foreign entities for 19%. Petrochemicals, tonnes of CО E / tonne of processed 2 0.352 0.370 0.322 0.301 raw materials
1 2016 Electrical energy sector (tonnes of СО2E / MWh Indicators 2017 2018 2019 0.339 0.332 0.326 0.335 (baseline) of generated electrical and heat energy) 4.2 Specific GHG emissions abroad 1. Direct gross GHG emissions (Scope 1), million tonnes of СО E 2 Exploration and production, tonnes of СО E / tonne 2 NA 0.025 0.024 0.020 of oil equivalent in produced hydrocarbons LUKOIL Group, including 38.02 37.85 36.44 37.22 Processing, tonnes of CО E / tonne of processed raw 1.1. Russian entities 31.29 31.14 29.99 30.26 2 NA 0.339 0.319 0.333 materials By types of activity: 5. Specific methane emissions in Russia, tonnes Exploration and production 10.83 8.85 8.07 10.07 of СО2E/tonne of oil equivalent in produced 0.015 0.013 0.009 0.008 Oil processing and petrochemicals 8.27 10.13 10.05 8.88 hydrocarbons 6. Total energy consumption (purchased Electrical energy sector, including 12.07 11.80 11.66 11.11 NA 497.5 489.3 487.5 and internally generated), million GJ • LLC LUKOIL-ENERGOSETI3 1.09 1.49 1.42 1.29 7. Flaring emissions, million tonnes of СО E 4.64 3.54 2.21 2.52 Transportation and sales 0.09 0.09 0.09 0.09 2 1.2. Foreign entities 6.73 6.71 6.45 6.96 Notes. (1) GHG emissions by LUKOIL Group’s Russian entities were calculated in accordance with the calculation methodology prescribed By types of activity: by the Ministry of Natural Resources of the Russian Federation2. Emissions by LUKOIL Group’s foreign entities were calculated in accordance with the national methodologies of the countries of operation. The indicator “Volume of direct GHG emissions” was checked as a part of the audit Exploration and production NA 0.24 0.37 0.33 of the present Report (auditor – JSC KPMG). (2) The value presented in the “Share of emissions accounted for by countries where the regulation Oil processing and petrochemicals 6.73 6.47 6.08 6.63 of greenhouse emissions has been implemented” line item is calculated as the ratio of GHG emissions released by European oil refineries (PETROTEL-LUKOIL S.A., LUKOIL Neftochim Burgas AD, ISAB S.r.l.) to the total GHG emissions released by LUKOIL Group. Information on LUKOIL Uzbekistan Operating Company LLC is not taken into account when calculating the above value, as no regulation of GHG emissions has been implemented in Uzbekistan at a national level. (3) Fluctuations in specific indicators for oil refining and petrochemical entities are due to changes in the production volumes of end products. (4) The figuresfor direct greenhouse gas emissions for 2016 are presented without taking into account data for LUKOIL Uzbekistan Operating Company LLC; for the period 2017-2019 boundaries are unified.
1. The reporting boundaries include five power generation entities and one equipment operating company (LLC LUKOIL-ENERGOSETI), seven oil and gas producing entities, four oil refineries, one gas processing plant, two petrochemical plants, four oil product supply entities and one air bunkering entity, as well as four transportation entities. 1. The indicator excludes LLC LUKOIL-ENERGOSETI (due to the specifics of the activity and the inability to bring the specific indicator to a single denominator) and LLC 2. HSB Solomon Associated LLC (Solomon, https://www.solomononline.com/). 3. LUKOIL-Ekoenergo (due to the «zero» volume of direct greenhouse gas emissions). LLC LUKOIL-ENERGOSETI is a specialized service company that carries out activities not only in the transmission of electric energy, but also 2. Order No. 300 of the Ministry of Natural Resources of the Russian Federation dated 30 June 2015 (registered with the Ministry of Justice of the Russian Federation in the operation and repair of electric power equipment; maintenance of facilities for the production and transport of thermal energy, water supply as No. 40098 on 15 December 2015) “On Approving Methodological Instructions and Guidelines for the Quantitative Determination of the Volume of Greenhouse Gas and sanitation. Emissions by Organizations Engaged in Business and Other Activities in the Russian Federation.”
56 57 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
EUROPEAN OIL REFINERIES REDUCING GHG EMISSIONS MANAGEMENT SYSTEM
ELEMENTS LUKOIL has three oil refining plants in Europe (in Italy, Bulgaria and Romania), one joint venture with Total OF THE MANAGEMENT SYSTEM DESCRIPTION CORPORATE DOCUMENTS in the Netherlands (Zeeland Refinery), and a number of medium-sized plants engaged in the lube oil refining and blending business. In line with the EU policy of reducing emission allowances for manufacturing plants, LUKOIL performs comprehensive assessments, including in terms of CO emission levels, when designing high-profile investment 2 The strategic goals and key LUKOIL Group’s Technical Policy projects. activities to improve the energy on Energy Efficiency was approved GOALS efficiency in each business by the Management Committee A project on the replacement Potential “green hydrogen” production Taking into account preemptive segment were determined of OJSC LUKOIL on 26 March 2012 of afterburners at a sulfur recovery unit at a Bulgarian oil refinery and CO2 CO2 emissions reduction plans was launched at an Italian oil refinery, capture prospects at a Romanian oil and appreciation of emission
and a project aimed at improving refinery are now being analyzed. allowances, technological CO2 energy efficiency of the IGCC unit capture and utilization, “green is also under consideration. Both In the Netherlands, even stronger plans hydrogen” production and low-grade The composition Seven corporate STO 1.20 projects will facilitate CO emissions have been set at the national level: heat utilization solutions are being 2 PRIORITIES/ of process-related indicators, fuel standards reduction. A methanol production developed. The estimated contribution consumption rates, etc., were STANDARDS project is under consideration, • to reduce by 2030 CO2 emissions from this program to СО2 emissions formalized the realization of which will facilitate by 49% of the total GHG emissions reduction by 2030 is expected the reduction of GHG emissions (of the 1990 level); to reach 600 thousand tonnes
by about 600 thousand tonnes • to reduce CO2 emissions of СО2E. This know-how may also be
of CO2-E, according to preliminary in the industry by 35% (of the 2016 used and replicated at other entities Specific electric energy The KPI regulations were estimates. level). of the Company in the EU. consumption per tonne of fluid approved by the Management produced (in the Exploration Committee of PJSC LUKOIL and Production segment). on 16 September 2019 The Solomon Energy Intensity KEY PERFORMANCE Index (EII). INDICATORS Energy intensity per tonne of basic raw material for entities in Petrochemicals business-sector Delivery of the approved energy ENERGY CONSERVATION conservation program1
KEY CHANGES AND RESULTS IN THE REPORTING YEAR CERTIFICATION The Russian entities As of 31 December 2019, 25 OF THE MANAGEMENT of LUKOIL Group implemented entities possessed compliance SYSTEM the ISO 50001:2011 compliant certificates covering 68% of the total energy management system LUKOIL Group headcount
Energy Conservation Program STO LUKOIL 1.20.2-2017 “Energy of LUKOIL Group Entities Conservation. Energy Conservation for 2019−2021 in Russia2. and Energy Efficiency Improvement ENERGY CONSUMPTION PILOT PROJECTS THE ENERGY INTENSITY TARGETED PROGRAMS, Energy audits performance by LLC Program for LUKOIL Group FOR PRODUCTION FOR THE CONSTRUCTION INDEX (EII) REDUCED BY LUKOIL-Nizhegorodniinefteproekt Entities. General Requirements PURPOSES IS REDUCED OF DIGITAL SUBSTATIONS PROJECTS of the entities in the Exploration to Development and Execution” ON AVERAGE BY 1% PER ARE BEING IMPLEMENTED AND INITIATIVES and Production, and Refining, (introduced by Order Marketing and Distribution of PJSC LUKOIL of 20 November YEAR FOR THE PERIOD 3.5 AS COMPARED TO 20141 segments 2017 No. 184) 2017-2019
FURTHER The examination of investment projects covers the evaluation of energy efficiency of business plans and related activities. The findings are considered INFORMATION in the general assessment of the project’s economic performance
1. 1. Since 2014, the list of organizations covered by the study has changed; the boundaries of the study, starting in 2014, did not change. The KPI relates to the Exploration and Production in Russia, Oil Product Supply in Russia, Transportation in Russia and Power business sectors, as well as to the following entities belonging to the Refining, Marketing and Distribution business segment: LLC LUKOIL-Trans, transshipment facilities and LLC LUKOIL-AERO. 2. The energy conservation program covers a 3-year period and is revised and approved by management of PJSC LUKOIL on an annual basis. The program for 2019–2021 was approved on 31 May 2018. During the previous reporting period, the program for 2018–2020 was in effect. 58 59 WWW.LUKOIL.COM ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES
OUR GOALS MANAGEMENT SYSTEM CHANGES
Taking account of external environment System – Requirements with Guidance executives in improving energy changes and the introduction of many for Use,” five corporate standards were efficiency and energy conservation. new technical solutions, in 2019 it was amended1. The schedule of certifying resolved to update the Technical Policy. LUKOIL Group entities according Further energy cost optimization The new version is expected to be to this standard was approved. plans include implementation WE VIEW ENERGY EFFICIENCY IMPROVEMENT AS ONE OF THE KEY FACTORS IMPACTING completed in 2020. of projects aimed at increasing THE ENERGY INTENSITY OF PRODUCTS AND LUKOIL’S ABILITY TO ADAPT TO GLOBAL The Set of KPIs was supplemented the cost effectiveness and reliability CLIMATE CHANGE. RATIONAL USE OF ENERGY RESOURCES ENABLES THE REDUCTION As part of preparing with a new indicator – “Delivery of production facilities of LUKOIL Group for the re-certification of energy of the Approved Energy Conservation entities. Significant new energy facilities OF GHG EMISSIONS. ENERGY EFFICIENCY IMPROVEMENT PLANS WILL BECOME management systems of LUKOIL Group Program,” with reporting to be are expected to be put into operation AN INTEGRAL PART OF THE CLIMATE CHANGE STRATEGY AND WILL BE PRESENTED entities for compliance with a new submitted starting in 2020. This indicator at fields in the Komi Republic; and two IN THE STRATEGIC DEVELOPMENT PROGRAM. version of the international standard heightens the interest of senior digital substations are being built ISO 50000:2018 “Energy Management in the Perm Territory.
ENERGY CONSUMPTION STRUCTURE
Oil and gas production companies The oil refining complex ISAB in Italy of 30 MW. The power boiler is made account for the biggest share of energy operates an energy park composed using the circulating fluidized bed consumption for production purposes of two blocks of combined cycle plants. technology that is the most advanced across LUKOIL Group entities. In addition to natural gas, the energy technology for solid fuel-fired boilers. Heat is primarily consumed by oil park makes use of synthesys gas Oil coke as a by-product of deep oil WE SEE THE POTENTIAL for further and gas producers, oil and gas refineries as fuel. Synthesys gas is produced refining is used as a fuel. The power OUR GOALS energy efficiency improvement through and petrochemical plants. Fuels by gasification facilities from asphalt produced is primarily consumed for oil the implementation of the following measures: are basically consumed by oil refineries, generated as a by-product from deep oil refinery process needs. petrochemical plants and power refining. Electricity produced is mainly providers. supplied to external consumers.
securing the efficiency continuous improvement and performance Russian heat and power entities The oil refinery in Romania operates of operating procedures optimization of the energy efficiency of LUKOIL supply electricity and heat an energy park composed of a power and the functioning of process management system to local communities and industrial boiler with the capacity of 185 MW equipment across LUKOIL Group enterprises in the south of Russia. and a turbogenerator with the capacity
integration of innovative energy-efficient securing the effective use technologies and equipment across LUKOIL Group TARGETED PROGRAM of fuel and energy resources entities across LUKOIL Group (electricity Russian entities run the Energy In 2019, program performance In 2019, 3,885 units and heat, as well as boiler Conservation Program of LUKOIL Group is achieved primarily by the following of PMSMs were integrated. and furnace fuels) use of the demand management entities aimed at improving the energy activities: This initiative is implemented mechanism of LUKOIL Group entities, efficiency of power and fuel and at loss in order to enhance the energy which implies re-distribution of electricity reduction. The program covers activities • For entities involved in production, efficiency of the operation consumption relative to peak demand and allows carried out in entities of each the key energy conservation of the mechanized well stock effective development for the elimination of additional electricity output business sector. A dedicated group activities include the replacement and as part of the strategy and upgrade of energy assets of projects of the highest energy of asynchronous motors with magnet of replacing asynchronous of LUKOIL Group efficiency potential is highlighted. Such motors (PMSM), making use motors with PMSMs across projects are included in roadmaps. of electric submersible pumps securing the maximum return oil and gas production For example, 76 highly effective projects as drives. Pumps of the system which on LUKOIL Group entities’ investments in the long companies of LUKOIL Group. are scheduled in 2020–2022 focused maintain the formation pressure term through management of energy supply, As estimated by the Company, only on refineries. are also being upgraded. conservation and efficiency management the delivery of this strategy will reduce electricity costs of the mechanized well stock.
1. STO LUKOIL 1.20.1–2019 “Energy Conservation. Energy Resources Accounting System. General Provisions and Requirements for Equipping Production Facilities of LUKOIL Group Entities”; STO LUKOIL 1.20.3–2019 “Energy Conservation. Energy Audits of LUKOIL Group Entities. Methodology”; STO LUKOIL 1.20.4–2019 “Energy Conservation. Energy Efficiency. Constitution of Indicators for Entities, Processes, Structures and Production Facilities”; STO LUKOIL 1.20.5–2019 “Energy Conservation. Rates of Fuel Consumption, Heat and Power for Typical Processes and Production Facilities of LUKOIL Group Entities” and STO LUKOIL 1.20.6–2019 “Energy Conservation. Energy Management System of LUKOIL Group Entities. General Provisions and Regulated Facilities.”
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• Refineries carried out 132 activities A good example generation – at the Astrakhanskaya CHPP. of power – notwithstanding an increased The Solomon EII1 is used to evaluate EII benchmarks for the sectoral intended to improve energy is the project of decommissioning Implementing this project will allow extraction of hard-to-recover reserves the level of energy efficiency development program for 2018–2027 consumption and retrofitting. inefficient boiler stations reduction in the volumes of burning non- (HTR reserves) in the West Siberia of refineries. Solomon produces global were in effect. • Power plants replace and upgrade and shifting heat loads to the source renewable types of fuel by 7 million cubic and high-viscosity crude oil in the Komi surveys of refineries fuel and lube profile their process equipment in order of combined heat and electricity meters of natural gas per year. Republic (which requires more heat), every two years (in even-numbered In physical terms, the power saved to increase the efficiency factor as well as a rise in water cut of wells years), with the most recent one held is a significant resource for improving and shift heat loads from inefficient in traditional production regions of West in 2019 for 2018. In uneven-numbered production performance. boiler stations which will Siberia (which increases electricity years, LUKOIL performs its internal subsequently be closed. consumption required to lift raw monitoring of key indices (including materials). In 2019, the specific electricity as part of setting and checking Dynamics of Solomon EII consumption indicator of Russian oil compliance with the efficiency factor); as compared to 2014, % and gas production companies was however, Solomon experts do not verify 20.5 kWh per tonne of fluid produced, such results. The Report shows indicator RESULTS which is lower than the 2017–2018 dynamics only based on verified survey indicator (20.6 kWh per tonne of fluid data. 2016 Over the last three years, energy The reporting boundaries cover In general, the dynamics of power produced). 2014 consumption for production purposes entities of all business segments consumption for production purposes EII is used for long-term planning was reduced thanks to the completion in Russia and abroad that involve are accounted for by several factors. At Russian and foreign refineries, and as the efficiency factor of energy conservation activities. energy consumption for production For oil and gas production entities, energy efficiency activities result for the medium term (three-year plans purposes. The oil refinery in Netherlands the construction of our own generating in a considerable improvement of power for the development of corporate is excluded from these boundaries. facilities allows for reducing purchases consumption indicators: EII decreased sectoral development programs). This Power savings resulting by 3.5 percentage points against indicator is also monitored on a quarterly from the implementation the 2014 level. basis. At the time of this Report, of the Energy Conservation Energy consumption for production purposes of LUKOIL Group entities from non-renewable sources Program of LUKOIL Group and procurement, million GJ entities in Russia, million GJ Specific power consumption at the refinery, GJ / tonne of manufactured products 2017 2018 2019 Total for 2017–2019 Total energy consumption for production purposes, including: 497.5 489.3 487.5 2017 2018 2019 • purchased electric power for production purposes 64.1 61.9 58.7 Total for LUKOIL Group, including: 3.6 3.7 3.5 • purchased heat power for production purposes 35.7 19.9 17.4 • Russian entities 3.7 3.7 3.4
• boiler and furnace fuels consumption for production purposes 520.1 537.9 529.6 • Foreign entities 3.3 3.5 3.5 Electricity power sales and supply, including: Heat Notes. (1) Data for Russian plants is displayed subject to the volume of oil products supplied Boiler and furnace fuel • electricity 75.1 73.9 66.7 from other Group refineries in Russia for further processing. (2) Data is displayed subject to gas processing products (LLC LUKOIL-Permnefteorgsintez) and petrochemical products • heat 47.3 56.5 51.5 (LUKOIL Neftochim Burgas AD and ISAB S.r.l.). (3) Data on mini-refineriesis not included in the calculation of indicators on specific energy consumption at refineries.
Note. (1) Power consumption for production purposes by LUKOIL Group entities = Electricity and heat purchased for production purposes + Consumption of boiler and furnace fuel – Quantity of electricity and heat supplied to third-party consumers, as well as residential electricity/ heat consumption. (2) The 2017–2018 data regarding power consumption for production purposes is different from the Sustainability Report for 2018 due to changes to the reporting boundaries, in particular, the addition of the Power Generation business sector to the reporting DIGITAL PROJECTS boundaries. Moreover, after publishing the 2018 Report, values of fuel and energy resources consumption for production purposes of LLC LUKOIL-Nizhnevolzhskneft for 2018 were amended. (3) The method to calculate indicators was improved: all inputs and estimates were The application of digital technologies and improved forecasting. Expected In 2020, LUKOIL Group expects to put converted into GJ. In this regard, the 2017–2019 data was re-calculated. When converting data, the following factors under GOST R 51750-2001 were used: 1 thousand kWh = 3.6 GJ, 1 Gcal = 4.19 GJ, 1 tonne of oil equivalent = 29.3 GJ). in the power sector opens up prospects effects include improved reliability into operation its first digital Chashkino of an extension in equipment life, and safety of the power infrastructure, substation with a rated transformer as well as better use of fuel and energy reduced injury rates and decreased capacity of 32 MVA to service oil Renewable energy (supporting generation) resources thanks to flexible management power grid losses. production facilities. consumption for production purposes, million kWh