Sustainable Development Report 2020

SUSTAINABLE DEVELOPMENT REPORT 2020

Head Office: 35 Dzerzhinskogo St., Yuzhno-Sakhalinsk, Sakhalin Oblast, Russian Federation, 693020

Moscow Representative Office: 31 Novinsky Blvd, Moscow, Russian Federation, 123242 Теl.: +7 495 956 1750, fax: +7 495 956 1760 www.sakhalinenergy.com

SUSTAINABLE DEVELOPMENT REPORT 2020 CONTENTS 8.2.7. Green LNG Strategy______153 9.5.6. Korsakov Sustainable Development Partnership Council______240 8.2.8. Utilisation of Associated Gas in Production______154 9.5.7. Sakhalin Indigenous Minorities Development Plan______241 th 8.2.9. Environmental Protection Costs and Payments 9.5.8. 75 Anniversary of the Victory Project ______244

for the Negative Impact______155 9.5.9. Festival — Pristine Russia: Bound for Sakhalin______245 8.3. ENVIRONMENTAL MONITORING 9.5.10. Special Projects for Capacity Building of the Sakhalin

AND BIODIVERSITY CONSERVATION______157 Oblast Non-Profit Sector and Developing Volunteering

8.3.1. General Information______157 in the Region______246

8.3.2. Soil Monitoring______158

8.3.3. River Ecosystems Monitoring______159 10. THE COMPANY’S PLANS FOR 2020.

8.3.4. Flora and Vegetation Monitoring ______160 DEVELOPMENT STRATEGY UP TO 2024______248

8.3.5. Monitoring of Protected Bird Species______162

1. MESSAGE FROM THE CHAIRMAN OF THE 5.4. RISK MANAGEMENT SYSTEM______92 8.3.6. Steller’s Sea Eagle Monitoring ______163 11. APPENDIX______256

COMMITTEE OF EXECUTIVE DIRECTORS 5.5. CORPORATE CULTURE______96 8.3.7. Monitoring of Marine Biota and its Environment______165 Appendix 1______258

AND CHIEF EXECUTIVE OFFICER______4 5.6. ETHICS AND COMPLIANCE______98 8.3.8. Ballast Water Control______166 GRI Standards Compliance Table

5.7. ANTI-BRIBERY AND CORRUPTION______100 8.3.9. Gray Whale Monitoring and Marine Mammal Protection______167 Appendix 2______271

2. ABOUT THE REPORT______10 8.4. PIPELINE RIGHT-OF-WAY MAINTENANCE______169 Comments and Suggestions of Stakeholders

2.1. GENERAL INFORMATION ______12 6. STAKEHOLDER ENGAGEMENT MANAGEMENT______104 8.5. OIL SPILL PREVENTION AND RESPONSE on Individual Aspects, Indicators and/or Programmes

2.2. REPORT PREPARATION STANDARDS______15 6.1. STRATEGY, PRINCIPLES, MECHANISMS PREPAREDNESS______170 and the Company’s Response and Commitments

2.3. REPORTING PRINCIPLES FOR DEFINING REPORT AND ENGAGEMENT TOOLS______106 8.5.1. General Information ______170 Appendix 3______282

CONTENT AND QUALITY______17 6.2. STAKEHOLDER ENGAGEMENT IN 2020______108 8.5.2. Oiled Wildlife Rehabilitation______172 List of Participants in the Dialogues with Stakeholders

2.4. DEFINING MATERIAL AND PRIORITY TOPICS 6.3. ENGAGEMENT WITH PERSONNEL______110 8.6. SANITARY PROTECTION AND SAFETY ZONES______173 as Part of Preparation of the 2020 Sustainable

TO BE INCLUDED IN THE REPORT______18 6.4. LOCAL COMMUNITY ENGAGEMENT THROUGH Development Report

2.5. DEFINITION OF THE REPORT SCOPE______25 COMPANY INFORMATION CENTRES______112 9. SOCIAL IMPACT MANAGEMENT______174 Appendix 4______284

2.6. PUBLIC ENDORSEMENT OF THE REPORT______25 6.5. ENGAGEMENT WITH SAKHALIN INDIGENOUS 9.1. PERSONNEL: MANAGEMENT AND DEVELOPMENT______176 Useful links

MINORITIES______115 9.1.1. Approaches to HR Management and HR Policy______177 Appendix 5______288

3. CORPORATE SOCIAL RESPONSIBILITY 6.6. ENGAGEMENT WITH NON-GOVERNMENTAL 9.1.2. General Information ______179 Company’s Information Centres List

AND SUSTAINABLE DEVELOPMENT______26 AND NON-PROFIT ORGANISATIONS______118 9.1.3. Recruiting, Hiring and Onboarding New Employees______186 Appendix 6______290

3.1. INTRODUCTION______28 6.7. ENGAGEMENT WITH CUSTOMERS AND SHIPOWNERS_119 9.1.4. Remuneration and Bonus System ______191 Feedback Form

3.2. SAKHALIN ENERGY’S CSR SYSTEM______29 6.8. ENGAGEMENT WITH STATE AND LOCAL 9.1.5. Social Benefits and Compensations ______192 Appendix 7______293

3.3. PERFORMANCE STANDARDS______31 GOVERNMENT AUTHORITIES______121 9.1.6. Individual Performance Review ______195 Certificate of Public Endorsement

3.4. SUSTAINABLE DEVELOPMENT POLICY______33 6.9. INTERNATIONAL AND REGIONAL COOPERATION______122 9.1.7. Personnel Training and Development______196 Appendix 8 ______294

3.4.1. Basic Provisions of the Sustainable Development Policy______33 9.2. LABOUR, ASSETS SAFETY AND PROTECTION______211 Conclusion on the Results of the Review of Sakhalin

3.4.2. UN Sustainable Development Goals______34 7. ECONOMIC IMPACT MANAGEMENT______126 9.2.1. General Information ______211 Energy 2020 Sustainable Development Report

3.5. HSE AND SOCIAL PERFORMANCE MANAGEMENT______42 7.1. IMPORTANCE OF THE SAKHALIN-2 PROJECT 9.2.2. Industrial Safety______213 by the RUIE Non-Financial Reporting Council

3.5.1. HSE and Social Performance Management System______42 FOR THE RUSSIAN FEDERATION AND 9.2.3. Safety Culture______216 for the Purpose of Public Endorsement

3.5.2. Impact Assessment______45 THE SAKHALIN OBLAST ______128 9.2.4. Road Safety______219 Appendix 9______299

3.5.3. Inspection and Audit______47 7.2. FINANCIAL BENEFITS TO THE RUSSIAN 9.3. OCCUPATIONAL HEALTH______221 Abbreviations and Definitions

FEDERATION AND THE SAKHALIN OBLAST______129 9.3.1. General Information ______221

4. ABOUT THE COMPANY______48 7.3. RUSSIAN CONTENT______130 9.3.2. Occupational Health amid СOVID-19______223

4.1. SAKHALIN ENERGY______50 7.3.1. Strategy and Outcomes______130 9.4. HUMAN RIGHTS______225

4.2. MAIN PRODUCTION RESULTS IN 2020______52 7.3.2. Standards Harmonisation Project______134 9.4.1. Human Rights: Principles and Management System______225

4.2.1. Assets______52 7.3.3. Sakhalin Energy Maintenance and Repair Facility 9.4.2. Grievance Mechanisms ______226

4.2.2. Development Projects ______63 in Sakhalin Industrial Park______135 9.4.3. Grievance Handling in 2020______227

4.2.3. Hydrocarbon Production and Export______64 7.3.4. Vendor Development Programme______136 9.4.4. Human Rights Training ______229

4.3. INNOVATIONS AND CONTINUOUS IMPROVEMENT______71 7.4. SUPPLY CHAIN MANAGEMENT______138 9.4.5. Monitoring Human Rights______230

4.3.1. Digital Transformation______71 9.5. SOCIAL INVESTMENT AND CONTRIBUTION

4.3.2. Continuous Improvement Programme______74 8. ENVIRONMENTAL IMPACT MANAGEMENT______140 TO THE SUSTAINABLE DEVELOPMENT

4.3.3. Intellectual Property Business Process______78 8.1. GENERAL INFORMATION______142 OF THE HOST REGION______231

4.4. BUSINESS CONTINUITY MANAGEMENT______80 8.2. INDUSTRIAL ENVIRONMENTAL CONTROL______143 9.5.1. Social Investment and Sustainable Development:

8.2.1. General Information______143 Sakhalin Energy’s Principles and Approaches______231

5. CORPORATE GOVERNANCE______82 8.2.2. Impact on Atmospheric Air______143 9.5.2. COVID-19 Social Investment Programme______233

5.1. COMPANY’S MISSION, VISION, VALUES, 8.2.3. Impact on Water Bodies______145 9.5.3. Energy Social Initiatives Fund______236

AND PRINCIPLES______84 8.2.4. Waste Management______147 9.5.4. Safety is Important Programme______237

5.2. CORPORATE GOVERNANCE SYSTEM AND STRUCTURE_84 8.2.5. Energy Production and Consumption______149 9.5.5. Hurry Up for Good Deeds Programme

5.3. CORPORATE GOVERNANCE MODEL______87 8.2.6. Greenhouse Gas and Ozone-Depleting Substance Emissions151_ (Support for Charity Initiatives of Employees)______239 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE 1OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER 6 7 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

Dear colleagues, dear friends,

Let me present the 2020 Sakhalin Energy Sustainable Development Report. This is the 12th non-financial reporting document that has been prepared in compliance with the Global Reporting Initiative (GRI) international standards. When working on the Report, we made every effort to take into account the opinions of the company’s stakeholders to the maximum possible extent.

The COVID-19 pandemic and accompanying macroeconomic challenges made 2020 a difficult year for the Russian oil and gas industry. Nevertheless, the current situation did not affect our long-term goals due to the company’s timely response to the unprecedented challenges. Sakhalin Energy’s key long-term goal − to be the leading supplier of energy to the Asia-Pacific region − is in line with the company’s strategy for continuous improvement, which is the priority topic of this document. The company adheres to the chosen vector towards improvements and transformations in all areas outlined in the Report: business activities, industrial and environmental safety policy, engagement with suppliers and personnel, sustainable development management, and social performance in the host region.

The reporting year was largely successful for Sakhalin Energy. High reliability and integrity indicators of our assets along with the best process safety performance in the entire history of the Sakhalin-2 project allowed us to produce and ship 178.6 standard LNG shipments, which is a record number for the company. This achievement was possible thanks to the fact that we were able not only to ensure the continuity and stability of all stages of the production cycle throughout the year, but also to implement more than 480 initiatives as part of the continuous improvement programme. The ongoing digital transformation, which is taking place at every stage of our work − from geological exploration and well drilling to hydrocarbon processing and equipment maintenance − created an additional synergy effect. Thanks to the use of innovative integrated business solutions, the share of Sakhalin LNG accounted for about 3.3% of global demand and about 4.6% of demand in the Asia-Pacific region in 2020. 8 9 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

The company’s adherence to its commitments, including its obligations to the sharehold- constructive cooperation with the government authorities. The basis for this coopera- ers, required studying and assessing hydrocarbon maturation opportunities. Our achieve- tion is the company’s aspiration to contribute to the improvement of the local commu- ments of the year include the completion of the first phase of updating the integrated % nity’s quality of life and the development of the social infrastructure in the region and 178.6 model of the Lunskoye field. Information gathered during the drilling of new wells, the data 6.9 to facilitate the resolution of pressing issues. In the difficult epidemic situation, Sakhalin standard LNG shipments from the latest geological and technical activities and the monitoring of field development total recoverable reserves Energy has made considerable efforts to minimise the impact of the coronavirus pan- produced and shipped in 2020 made it possible to refine the geological and hydrodynamic models of the field. As a result, optimised demic on the company’s host region through the provision of aid to educational, so- the total recoverable reserves were optimised by 6.9%. cial protection and healthcare institutions. The company initiated the implementation of a comprehensive programme aimed at supporting the healthcare sector of the island. The innovative technologies applied allow the company not only to increase performance but also to successfully fulfil its obligations to the Russian Federation. In this respect, Personnel development is another strategic priority for Sakhalin Energy. I know for certain the optimisation of the Russian Content Development Strategy is an important vector that the success of the company, especially in the current economic conditions, is the result of the company’s further growth. The key tools for the implementation of the strategy are of joint efforts of the whole team; it is evidence of their high professionalism and perfor- the creation of the Sakhalin Energy Production and Maintenance Facility at the Sakha- mance. Throughout the company, we strive to create a corporate culture and an environ- lin Industrial Park, the harmonisation of standards, the Vendor Development Programme, ment that would enable each employee to unleash their individual potential and contribute and raising personnel awareness of the company’s commitments in the field of Russian to achieving common goals. We have a system of continuous professional training that cov- сontent development. This is a multilateral interaction, which allows us to use a systemic ers all categories of employees and is aimed at increasing their motivation in the workplace. approach in our work towards achieving our strategic goals. Being a large oil and gas operator, the company is eager to hire highly qualified specialists Fighting bribery and corruption is one of the topical areas that the company continues trained at local educational institutions, and promotes the development of Research and % to focus on. We are conducting constant monitoring and analysis in this area and take Development activities on Sakhalin. Sakhalin Energy was the first of the region’s oil and 3.3 measures to reduce conditions that lead to such activity. Last year, Sakhalin Energy was gas companies to sign an agreement with the Human Capital Development Agency and awarded the highest class in the first anti-corruption rating compiled by the Russian Union join in the work to develop corporate standards and adapt proactive training programmes share of Sakhalin LNG of global demand in 2020 of Industrialists and Entrepreneurs. This is convincing proof that the company’s internal for future personnel to the real needs of the business. corporate governance and anti-corruption practices comply with international standards.

However, it is not only by production and financial performance indicators that we mea- For us, investment in human capital is an investment sure our success. We are ready to rise to the main challenge facing every oil company in the in the future — the future of our host region, the future world today − to meet the growing demand for energy through the use of cutting-edge technologies, as well as the safest, most efficient and environmentally friendly practices. of the company itself, the successful development In its work, Sakhalin Energy strictly follows the principles of corporate social responsibility of which is inextricably linked with the territory where and pursues the UN Sustainable Development Goals, which are designed to address global Sakhalin Energy extracts and processes hydrocarbons. environmental and social issues. The recognition of Sakhalin Energy as one of the most active participants in Global Compact LEAD − the world’s largest corporate sustainability initiative − for its continued commitment to the UN Global Compact and the Guiding The year 2021 poses new challenges to our company, as well as to the entire industry. Principles on Business and Human Rights confirms its proactive approach in promoting the Given how dynamic the situation is, we will continue to improve the corporate governance SDGs as a strategic benchmark. system, increase the effectiveness of decision making to ensure the company’s efficient operation, and maintain our competitiveness in the market. Our social and environmental projects were included in the first Voluntary National Re- view (VNR) of Russia’s progress in the implementation of the 2030 Agenda for Sustainable Sakhalin Energy has always strived for more, so it will strictly adhere to the principles Development, which was presented in July last year at the 2020 UN High-Level Political of continuous improvement and sustainable development, considering them the key Forum, the central United Nations platform on sustainable development. This proves the to the company’s long-term competitiveness. importance of engaging stakeholders in the process of exchanging ideas on how the company can achieve the SDGs.

An important element of the company’s social responsibility in the host region, where Sakhalin Energy acts as an employer, taxpayer and initiator of innovative projects, was Roman Dashkov 10 11 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

2ABOUT THE REPORT

The 2020 Report focuses on continuous improvement, which is characteristic of all areas of the company’s activities, including production and commercial operations, human resources management, industrial safety, occupational health and safety, environmental protection, social investment and stakeholder engagement. 12 13 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

― helping to comply with the principle of contin- The Report discloses material topics, issues and 2.1. GENERAL INFORMATION uous improvement and stimulating the subse- indicators of the company’s economic, environmen- quent improvement of internal and external tal and social performance, including the stake- processes in the company; holders’ areas of concern and the senior manage- ― increasing the company’s competitiveness. ment’s appraisals of the company’s performance In its efforts to implement the Sustainable Develop- CSR and SD reporting benefits Sakhalin Energy in the reporting period (see Section 2.4. Defining ment Policy, Sakhalin Energy undertakes to annually in a number of ways, in particular by: The target audience of the Report are both the Material and Priority Topics to Be Included in the provide non-financial reporting in accordance with ― identifying the stakeholders’ opinions and internal and external stakeholders listed in Section 6. Report). the standards and principles of the Global Reporting expectations of the company’s activities and Stakeholder Engagement Management. Initiative (GRI). The form of non-financial reporting clarifying the company’s CSR and SD strategy; chosen by the company is a Sustainable Development ― demonstrating that the company is aware of and Report, which serves as a tool for systematising its takes into account the stakeholders’ opinions, In 2020, Sakhalin Energy was recognised as a non-financial reporting leader: non-financial activities (environmental, social and creating long-term trust as well as transparent ― the 2018 Sustainable Development Report was declared the winner of the RUIE other programmes and initiatives) and improving the and constructive cooperation; Leaders of Russian Business: Dynamics, Responsibility, Sustainability competition quality of corporate governance, which increases the ― serving as an effective tool for identifying, company’s overall sustainability. preventing, and mitigating non-financial risks, in the High Quality of Sustainable Development Reporting category; creating a sustainable reputation (as a responsi- ― the 2019 Sustainable Development Report was declared the winner of the 2020 An open reporting culture allows Sakhalin Energy ble employer, partner, etc.); competition for the Best Socially-Oriented Company in the Oil and Gas Industry, to demonstrate its commitment to the principles and ― stimulating new opportunities and areas held by the Ministry of Energy of the Russian Federation, in the Oil and Gas concepts of corporate social responsibility (CSR) and of involvement for the company in production, Company Non-Financial Report category; sustainable development (SD), and provide meaning- environmental, and social spheres; ful information about the economic, environmental, ― identifying CSR and SD performance indicators, ― the 2019 Sustainable Development Report was declared the winner of the Change social and ethical aspects of its activities to its stake- evaluating and applying them to enhance the Management. Visionaries Award in the Best Disclosure of the UN SDGs Strategy holders. quality of managerial decisions at all levels; and Performance category.

Each of Sakhalin Energy’s Sustainable Development Report preparation process Reports over the past six years has been devoted to a specific topic, which allows detailed coverage At Sakhalin Energy, the preparation of the Report of the company’s priority areas of activity. The 2020 is a deliberate systematic process, involving the Report focuses on continuous improvement, which heads and specialists of almost all company’s units. is characteristic of all areas of the company’s activi- It is implemented in accordance with a special corpo- ties, including production and commercial operations, rate procedure, which ensures continuity, reliability human resources management, industrial safety, occu- and process improvement. The procedure includes pational health and safety, environmental protection, a description of the standards and principles for social investment and stakeholder engagement. preparing a report on the sustainable development of the company, defines requirements for determining In addition, following the recommendations of the the content of the document, outlines the pro- Non-Financial Reporting Council of the Russian Union cesses of its preparation, approval and dissemination, of Industrialists and Entrepreneurs (RUIE) and sugges- the distribution of responsibilities for each group tions of stakeholders, the company continues to dis- of indicators and each operation, and also indicates close information about its innovative approaches time frames. and practices (see Section 2.4. Defining Material and Priority Topics to Be Included in the Report). Each Report is prepared, coordinated and approved in accordance with the procedure and the schedule, The Report pays particular attention to the compa- approved by the Committee of Executive Directors ny’s COVID-19 response actions (see Sections 4, 6, 9). on an annual basis. 14 15 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

The company values opinions, suggestions and ― fill out the Feedback Form on the compa- comments from all stakeholders on this Report. ny’s website (www.sakhalinenergy.ru); ORGANISATIONAL AND PREPARATORY To share your opinion, you may: ― fill out the Feedback Form at one of the com- ACTIVITIES ― fill out the Feedback Form (see Appendix 6. pany’s information centres (see Appendix 5. Feedback Form) and send it to the supplied Company Information Centres List). address;

ENGAGEMENT WITH STAKEHOLDERS REPORT PROMOTION TO DEFINE THE CONTENT 2.2. PREPARATION OF REPORT PREPARATION STANDARDS THE SUSTAINABLE DEVELOPMENT REPORT Since the preparation of the 2017 Report, Sakhalin Committee for Corporate Social Responsibility Energy has been guided by the GRI Sustainabil- and Sustainable Development and the RUIE

PRINTING ity Reporting Standards, which came into force Corporate Social Responsibility and Non-Finan- WORK ON THE CONTENT AND DISTRIBUTION in July 2018. In addition, the company uses the cial Reporting Centre; GRI G4 Sector Disclosures (Oil and Gas) guidelines ― takes into account leading ratings and indexes and the requirements of the United Nations Global in corporate social responsibility (the Res Compact (GC) in preparing an annual report on adher- ponsibility and Transparency Index, com- ence to its Ten Principles (UN Global Compact piled by the RUIE, the RAEX-Europe’s ESG PUBLIC ENDORSEMENT Progress Report). ranking, etc.); ― analyses its own activities in the field of cor- The company constantly analyses trends and new porate social responsibility and corresponding requirements in the field of non-financial reporting, activities of other companies; both international and domestic. In the preparation ― studies non-financial reports of other Russian of this Report, the company was guided by: and foreign companies. The procedure provides for the establishment The approved Report is published on Sakhalin Ener- ― The Public Non-Financial Reporting Concept of a Task Force to prepare the Report. This Task Force gy’s website; paper copies are distributed among the and the Action Plan for its implementation, Beginning with the 2016 Report, Sakhalin Energy has includes managers and specialists from the compa- towns and villages of the island (through the com- which were approved by a decree of the Gov- reported on its contribution to achieving Sustain- ny’s units, responsible for particular aspects of cor- pany’s information centres and district libraries), and ernment of the Russian Federation in 2017; able Development Goals. This work was continued porate governance, production activities, economic, sent to the main stakeholders by mail. ― Guidelines of the European Commission in the 2020 Report (see Section 3. Corporate Social social and environmental impacts. The Corporate on Non-Financial Reporting, prepared in accor- Responsibility and Sustainable Development and Affairs Department conducts orientation seminars All annual Sakhalin Energy Sustainable Develop- dance with the Non-Financial Reporting Direc- Appendix 1. GRI Standards Compliance Table). for the Working Group and key Report developers ment Reports are registered in the National Register tive, adopted by the Council of Europe in 2017; to inform them of the requirements and standards of Corporate Non-Financial Reports of the Russian ― Guidance on Core Indicators for Entity Report- The Priority SDGs for Sakhalin Energy, Based for the Report, the plan and schedule of work, Union of Industrialists and Entrepreneurs (RUIE) ing on Contribution Towards Implementation on Stakeholders’ Opinions table lists the material the principles for defining the content and determin- (www.rspp.ru). They are also included in the catalogue of the Sustainable Development Goals, adopted SDGs brought up by stakeholders in a specially ing the quality of the Report, etc. of the Global Reporting Initiative (www.globalreport- by the United Nations Conference on Trade and conducted survey, during dialogues with external ing.org) and are available on the UN Global Compact Development (UNCTAD) in 2019. stakeholders, and during discussions with company The Report is approved by the Committee of Exec- website (www.globalcompact.org). employees, held as part of the preparation of sustain- utive Directors and then by the Chairman of the In addition, when preparing its Sustainable Develop- able development reports. Committee of Executive Directors, the Chief Execu- ment Reports, the company: tive Officer. ― uses materials from analytical reviews of corporate non-financial reports prepared by the RUIE 16 17 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

SDGs to Which Sakhalin Energy Contributes Most Significantly, 2.3. Based on Stakeholders’ Opinions REPORTING PRINCIPLES FOR

SDG Total points* SDG Total points* DEFINING REPORT CONTENT

Promote sustained, inclusive and sustainable Ensure availability and sustainable management AND QUALITY economic growth, full and productive 393 349 of water and sanitation for all employment and decent work for all

Principles of the Report Content and Quality Definition Ensure access to affordable, reliable, sustainable Ensure healthy lives and promote well-being for 389 348 and modern energy for all all at all ages

Make cities and human settlements inclusive, Take urgent action to combat climate change 375 320 safe, resilient and sustainable and its impacts

Ensure sustainable consumption and production Achieve gender equality and empower all 370 318 patterns women and girls

Materiality Comparability Protect, restore and promote sustainable use Promote peaceful and inclusive societies of terrestrial ecosystems, sustainably manage for sustainable development, provide access forests, combat desertification, and halt and 369 311 to justice for all and build effective, accountable reverse land degradation and halt biodiversity and inclusive institutions at all levels loss Stakeholder engagement Accuracy

Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster 369 End poverty in all its forms everywhere 304 Sustainable development innovation Timeliness context PRINCIPLES FOR REPORT CONTENT Conserve and sustainably use the oceans, AND QUALITY seas and marine resources for sustainable 362 Reduce inequality within and among countries 293 development Completeness Clarity

Ensure inclusive and equitable quality End hunger, achieve food security and improved education and promote lifelong learning 355 290 nutrition and promote sustainable agriculture opportunities for all Balanced approach Reliability

Strengthen the means of implementation and revitalise the global partnership for sustainable 350 development

The company acknowledges and uses the following SD mation about the company’s activities is the balance and reporting principles presented on the Principles of Report materiality of information in three key areas of sustainable Content and Quality Definition chart. The main approach development: economic, environmental and social. to defining the content of the Report and presenting infor-

* Respondents indicated the SDGs, relevant to the company’s activities, ranking them on a FIVE-POINT scale: 5—the most significant; 1—the least significant 18 19 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

― electronic surveys (internal and external stake- resentatives had an opportunity to put questions 2.4. DEFINING MATERIAL AND holders); to the company’s representatives and to receive ― dialogue meetings with external stakeholders answers, as well as to express their opinions on the (two dialogue meetings—in November 2020 and materiality of any aspect of Sakhalin Energy’s activ- PRIORITY TOPICS TO BE INCLUDED February 2021); ities (see Appendix 2. Comments and Suggestions ― discussions with the company personnel. of Stakeholders on Individual Aspects, Indicators IN THE REPORT and/or Programmes and Company’s Response and Two rounds of discussions were traditionally held Commitments). while preparing the Report. The stakeholder rep- The material aspects of the company’s activities dis- munity, the media, international organisations, public closed in its Reports, and their priority, are selected and other NPOs, and others. in close cooperation with the company’s stakehold- In preparing the 2020 Report, the company first held dialogue meetings with ers, including its shareholders, lenders, government To determine material topics for inclusion in the external stakeholders in the format of video conferencing due to COVID-19-related authorities, customers, personnel, contractors, com- Report, the company used the following procedure: restrictions. Advanced online technologies allowed for the attendance of those outside the region and in remote areas of the Sakhalin Oblast. The events were attended by representatives of Sakhalin Energy shareholder companies, the Sakhalin 1. Determining material topics to be included in the 2020 Report based on external Oblast Government, municipal authorities, the Public Chamber of the Sakhalin and internal stakeholders’ opinions Oblast, the UN Global Compact Network Russia, Sakhalin State University and other The company used the most preferred engagement tion 6. Stakeholder Engagement Management). Rep- educational and cultural institutions, Sakhalin Indigenous Minorities, as well as experts mechanisms and information exchange channels for resentatives of stakeholders were involved in defining in corporate social responsibility and sustainable development, the Russian Managers interacting with each group of stakeholders, taking the Report content by means of: Association (RMA), the World Wildlife Fund (WWF), and other stakeholders. into account the nature of the relationship (see Sec-

In addition, in defining the Report content, the com- The company has also analysed the relevance of the pany took into account the following: topics presented in the non-financial reports pre- ― the results of regular media monitoring; pared by Russian and foreign companies in accor- ― analysed results of the grievances submitted dance with the best international practices. to the company (see Section 6. Stakeholder Engagement Management); Detailed information on the results of stakeholder ― recommendations and comments regarding engagement activities conducted in preparation the 2019 Sustainable Development Report and of the Report, including dialogue meetings, sur- recommendations of the RUIE Non-Financial veys, etc., is presented in the Most Material Topics Reporting Council that conducted the public to Be Included in the 2020 Report, Based on Stake- endorsement of the 2019 Report. holders’ Opinions table. 20 21 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

The Most Material Topics to Be Included in the 2020 Report, Based on Stakeholders’ Opinions (determined based on the largest total score)

Included in the Total Total Included in the Topics points* Report (sections Topics Report (sections of the Report) points* of the Report)

Oil spill prevention and response preparedness (OSR) 431 8.5.1 Personnel policy and personnel management approaches, general information 376 9.1.1, 9.1.2

Environmental, health, and social impact assessment of the Sakhalin-2 project 430 3.5.2 Recruiting, hiring and onboarding new employees 373 9.1.3

Waste management 430 8.2.4 Social investment and sustainable development: Sakhalin Energy’s principles and approaches 372 9.5.1

Impact on water bodies 427 8.2.3 Labour remuneration, bonuses and social benefits 370 9.1.4, 9.1.5

Environmental monitoring and biodiversity conservation 421 8.3 Company mission, vision, values, and principles 370 5.1

Importance of the Sakhalin-2 project for the Russian Federation and the Sakhalin Oblast 418 7.1 Procurement and contracting management 367 7.4

Impact on atmospheric air 417 8.2.2 Individual performance review 352 9.1.6

Health, safety, environmental (HSE) and social performance management system 416 3.5.1 UN sustainable development goals 350 3.4.2

Environmental protection costs and payments for negative impact 414 8.2.8 Corporate governance system and structure 341 5.2

Security and occupational safety 411 9.2

Occupational health 407 9.3 Moreover, during the dialogue meetings and the grammes to be included in the 2020 Report as well Risk management system 407 5.4 electronic survey, stakeholders mentioned the as corresponding responses and commitments Financial benefits to the Russian Federation and the Sakhalin Oblast 406 7.2 COVID-19 response actions taken by the company of Sakhalin Energy are listed in Appendix 2. Com-

Key performance indicators 405 4.2 (healthcare measures, impact on settlements, etc.) ments and Suggestions of Stakeholders on Individual as a material topic. Aspects, Indicators and/or Programmes and Compa- Stakeholder engagement performance in 2020 404 6 ny’s Response and Commitments. Emissions of greenhouse gases and ozone-depleting substances 404 8.2.6 Stakeholder comments and suggestions concerning specific company aspects, indicators, and/or pro- Russian content 402 7.3

Associated gas evacuation during production 398 8.2.7

Innovations, and Continuous Improvement Programme 396 4.3

Public grievance procedure, and grievance handling in 2020 392 9.4.2 2. Evaluation of topic materiality in terms of impact, based on two impact criteria:

Anti-bribery and corruption 389 5.7 ― impact on stakeholder assessments and deci- Evaluation results are presented in the Topic Materi- Stakeholder engagement strategy, principles and mechanisms 389 6.1 sions; ality Evaluation Matrix.

Corporate culture and the Code of Conduct 387 5.5, 5.6 ― significance of the economic, environmental, and social impact of the company’s activities. Staff training and development 381 9.1.7

Implementing results of individual social investment programmes and projects 381

Human rights: principles and management system 380 9.4.1

Energy production and consumption 380 8.2.5

Sakhalin Energy CSR system, sustainable development policy and performance standards 379 3

* Respondents ranked the topics on a FIVE-POINT scale: 5 — the most significant; 1 — the least significant. * Respondents ranked the topics on a FIVE-POINT scale: 5 — the most significant; 1 — the least significant. 22 23 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

Topic Materiality Evaluation Matrix Rationale for Material Topics

Stakeholders Pertinent Topics Rationale for whom the topic section Key performance is the most material of the indicators Report

COVID-19 response In the unprecedented epidemiological situation, it was critically actions important to ensure effective management of the company as an organisation with a continuous production cycle, and Shareholders, a process of operational decision making. For this purpose, The company’s COVID-19 response authorities, customers,

SUBSTANTIAL the General Coordinating Committee (GCC), chaired by the 4.2, 4.4, 6, 9 actions personnel, contractors, Chief Executive Officer, and three control centres for the key general public areas of activity were established at the company to ensure its continuous operation under the conditions of the rapid spread of the coronavirus infection. Importance of the Waste management Oil spill prevention and Environmental Sakhalin-2 project for response preparedness monitoring Impact on water bodies The company is committed to conducting impact assessment the Russian Federation and biodiversity before beginning any new activities or introducing significant and the Sakhalin Oblast Assessment conservation Shareholders, Impact on atmospheric air of environmental, Assessment of the environmental, changes to existing projects. This is in line with the due authorities, customers, Emissions of greenhouse health and social impacts health and social impacts of the diligence approach, which is the basis for all risk management 3.5.2 personnel, contractors, gases and ozone-depleting of the Sakhalin-2 project Sakhalin-2 project procedures. Sakhalin Energy seeks to avoid or reduce impact general public substances to the lowest possible level or to compensate for it by taking SIGNIFICANT Associated gas evacuation appropriate measures. during production Sakhalin Energy aims to be a premier energy source and Shareholders, conducts its business on the basis of efficient, reliable, and authorities, customers, Key performance indicators 4.2 safe production, and a responsible attitude toward social and personnel, contractors, Risk management system Security and occupational Financial benefits safety to the Russian Federation environmental issues. general public Stakeholder engagement and the Sakhalin Oblast performance in 2020 Occupational health Sakhalin Energy’s continuous improvement (CI) vision and Russian content strategy are aimed at creating a corporate culture where both managers and employees are motivated to search for effective ways of fulfilling business tasks with high economic returns Shareholders, MODERATE Innovation and continuous without compromising safety or reliability, and are constantly authorities, personnel, 4.3 improvement involved in this process. contractors Sakhalin Energy is implementing a digital transformation process to ensure corporate growth and development. The company sees digitalisation as a form of strategic Corporate culture Public grievance Health, safety, Innovations management and a way to create new business opportunities. and the Code of Conduct procedure, and grievance environmental and social and Continuous handling in 2020 performance management Improvement Sakhalin Energy believes that effective risk management plays system Programme Electricity production an important role in achieving the company’s objectives. The risk management system of the company is aimed and consumption Shareholders, at maximising opportunities or minimising negative effects

SLIGHT authorities, customers, Stakeholder engagement Risk management system of identified risks, including risks of failure to reach established 5.4 strategy, principles and personnel, general goals, risks of losses, and negative factors affecting such areas mechanisms public as safety, operational excellence, respect for human rights, labour relations, health, safety and environment, anti-bribery and corruption, and others. IMPACT ON STAKEHOLDER ASSESSMENTS AND DECISIONS AND ASSESSMENTS STAKEHOLDER ON IMPACT Human rights: Environmental protection Staff training Shareholders, Sakhalin Energy assists its employees, business partners, principles costs and payments for and development authorities, customers, and management negative impact Anti-bribery and corruption contractors, and suppliers in fulfilling requirements for 5.7 Implementing results personnel, general system counteracting bribery and corruption. Anti-bribery of individual social public and corruption investment programmes and projects The company considers a systematic approach to HSE and MINOR social performance management, which allows for continuous Shareholders, HSE and social performance improvement in this area. The integrated HSE and social authorities, customers, 3.5 management system performance management system defines the controls that personnel, general Sakhalin Energy uses in addressing unsafe situations and public managing risks. MINOR SLIGHT MODERATE SIGNIFICANT SUBSTANTIAL Stakeholder engagement strategy, Shareholders, The company considers regular and meaningful engagement principles and mechanisms. authorities, customers, with stakeholders to be an important component of its 6 Stakeholder engagement performance personnel, contractors, MATERIALITY OF THE ECONOMIC, ENVIRONMENTAL successful business operations. AND SOCIAL IMPACT OF THE COMPANY’S ACTIVITIES in 2020 general public 24 25 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

Pertinent Stakeholders section Topics Rationale for whom the topic of the is the most material Report

The Russian Federation and the Sakhalin Oblast receive Importance of the Sakhalin-2 project numerous benefits from the Sakhalin-2 project implementation, Shareholders, for the Russian Federation and the including financial and tax revenues to the budgets of the 2.5. authorities, customers, DEFINITION OF THE REPORT SCOPE Sakhalin Oblast Russian Federation and the Sakhalin Oblast, new opportunities 7.1 and 7.2 personnel, contractors, Financial benefits to the Russian for developing advanced technologies, experience in managing general public Federation and the Sakhalin Oblast complex high-tech projects, contracts with Russian companies, facilitation of employment growth, etc. The Report contains information on the activities economic, environmental, and social impact that Sakhalin Energy has identified the main areas and tools for of all structural units and assets of the company in all occurs both within (internal boundaries) and outside increasing Russian Content, and outlined them in the Russian Content Development Strategy. The company gives priority areas related to sustainable development, including (external boundaries) the company. Shareholders, to the implementation of the Standards Harmonisation Russian content authorities, customers, 7.3 Project, the creation of the Sakhalin Energy Production and personnel, contractors Maintenance Facility, the implementation of the Vendor Development Programme and increasing the effectiveness of internal measures aimed at Russian Content development. Environmental monitoring and 2.6. biodiversity conservation PUBLIC ENDORSEMENT Impact on atmospheric air Due to its scope and complexity, the project can potentially Impact on water bodies have an impact on the environment, and Sakhalin Energy Waste management is committed to dealing systematically with these potential Shareholders, Electricity production and OF THE REPORT problems so as to mitigate risks and prevent negative authorities, customers, consumption 8 consequences. Arranging and implementing industrial personnel, contractors, Emissions of greenhouse gases and environmental control and monitoring, as well as conserving general public ozone-depleting substances biodiversity, are essential components of the environmental Associated gas evacuation during impact management system. This Report was endorsed by means of an external company’s performance disclosed in the non-finan- production Environmental protection costs and public endorsement procedure of corporate non- cial report according to the best practices of conduct- payments for the negative impact financial reports at the highest professional level ing business.

Shareholders, in the Russian Federation — an independent expert Oil spill prevention and response preparedness are the Oil spill prevention and response authorities, customers, top priorities for Sakhalin Energy. The company uses 8.5 evaluation (public endorsement) of the Non-Finan- The company seeks to take into account the recom- preparedness personnel, general a comprehensive approach to handle these important tasks. public cial Reporting Council of the Russian Union of Indus- mendations of experts, recorded in the Conclusion trialists and Entrepreneurs (see Appendix 7. Certifi- of the RUIE Non-Financial Reporting Council on the Security and occupational safety Occupational health cate of Report Public Endorsement and Appendix 8. Review of the Sakhalin Energy Investment Com- Staff training and development The company and stakeholders attach special importance RUIE Non-Financial Reporting Council Conclusion pany Ltd. Sustainable Development Report Infor- Human rights: principles and to social impact management, such as HR management and Shareholders, mation on the company’s response to the recom- management system on the Review of Sakhalin Energy Investment Com- development, respect for and promotion of human rights, authorities, personnel, 9 Public grievance procedure, and mendations of the RUIE Non-Financial Reporting occupational safety and health, social investments, and general public pany Ltd. 2020 Sustainable Development Report for grievance handling in 2020 contribution to the sustainable development of the host region. the Purpose of Public Endorsement). Council is included in Appendix 2. Comments and Implementing results of individual social investment programmes and Suggestions of Stakeholders on Individual Aspects, projects The primary focus of public endorsement is the rel- Indicators and/or Programmes, and the Compa- evance and completeness of the information on the ny’s Response and Commitments to this Report. SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABLE 3DEVELOPMENT

In 2020, for the fifth year in a row, Sakhalin Energy was among the leaders of the Sustainable Development Vector Index and the Responsibility and Transparency Index, compiled by the RUIE since 2014 for an independent assessment of companies in terms of sustainable development, corporate responsibility and reporting. 28 29 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

LEADER OF THE SOCIAL PERFORMANCE OF THE LARGEST 3.1. INTRODUCTION RUSSIAN COMPANIES RANKING In 2020, Sakhalin Energy ranked first among companies with the highest contribution to social development per unit of environmental burden — a social performance rating of the largest For Sakhalin Energy, corporate social responsibility Due to a high degree of transparency and active Russian oil and gas companies. (CSR) is a cornerstone of its governance system, pro- stakeholder engagement, corporate governance The rating assesses the social performance of companies in order to identify the best duction and business activities, strategic development at Sakhalin Energy has gradually transformed into plans and proven reputation. It means doing business the management of the company as an open system of them, determines the flagships of the Russian economy, which not only set economic with responsibility to personnel, the community and (see Section 5. Corporate Governance, and Section 6. performance goals, but also adopt a proactive attitude in sustainable development. other stakeholders, complying with the legislation Stakeholder Engagement Management). Sakhalin Successfully passing general independent assessments in CSR and sustainable of the Russian Federation, and applying interna- Energy has developed a system to take into account development, the company remains a leader in certain sectors of this area, such th tional standards. Sakhalin Energy’s activities in the and control internal and external production, finan- as environmental impact management, HR management and personnel development, area of CSR are aimed at implementing a strategy cial, technological, social, and environmental impacts, 5 occupational safety and health, charity, etc. (see Sections 4, 7, 8 and 9). to improve the company’s image and role in society, which allows the company to mitigate all types year in a row Sakhalin Energy was among the and to carry out its activities in compliance with the of risks in order to enhance its corporate sustainabil- leaders of Sustainable standards of sustainable development and good busi- ity (see Section 5.4. Risk Management System). Development Vector Index and the ness ethics. RAEX-EUROPE ESG LEADER Responsibility and Transparency Index In 2020, Sakhalin Energy ranked second in the first ESG ranking of Russian oil and gas companies, compiled by RAEX-Europe. The companies were ranked in three sections: PARTNER OF NATIONAL PROJECTS Environmental, Social, and Governance. Each section included several issue-related factors, In 2020, Sakhalin Energy became one of the first companies to receive the status based on which the experts checked the availability of corporate policies, guidelines, of National Project Partner for its contribution to the implementation of the goals and reports, as well as assessed each company’s performance in the relevant area (a total and objectives of the Ecology, Culture, Demography and Education national projects. of 200 quantitative and qualitative indicators). The status was awarded to Sakhalin Energy by National Priorities Independent Non- nd Profit Organisation based on a review of the company’s corporate practices, included 2 in the toolkit of the Russian Union of Industrialists and Entrepreneurs. place was taken by Sakhalin Energy LEADER OF THE SUSTAINABLE DEVELOPMENT VECTOR in the social efficiency 3.2. rating of the largest AND THE RESPONSIBILITY AND TRANSPARENCY INDICES SAKHALIN ENERGY’S CSR SYSTEM Russian oil and gas companies In 2020, for the fifth year in a row, Sakhalin Energy was among the leaders of the Sustainable Development Vector Index and the Responsibility and Transparency Corporate social responsibility applies to all activities ― Code of Conduct, including the Statement of General Index, compiled by the RUIE since 2014 for an independent assessment of companies of Sakhalin Energy. This approach is supported by its mis- Business Principles; in terms of sustainable development, corporate responsibility and reporting. sion, vision, and values. The practical aspects are addressed ― Sustainable Development Policy; In compiling the Responsibility and Transparency Index, the RUIE evaluates the and approved in a number of corporate documents ― Human Rights Policy; disclosure of information in key areas of activity, analyses 70 indicators characterising (see Section 5. Corporate Governance), including: ― Commitment and Policy on Health, Safety, Environ- responsible business practices, including economic, environmental, and social ment and Social Performance. performance indicators, as well as governance aspects. The Sustainable Development Vector Index shows performance dynamics and therefore makes it possible to identify leaders among the largest companies— leaders in terms of transparency and, at the same time, demonstrating a generally upward trend in the area of sustainable development. 30 31 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

Sakhalin Energy’s CSR Management System 3.3. PERFORMANCE STANDARDS

DEFINING THE POLICY Russian companies refer to CSR business, social, and responsibility. The leading standards are the United environmental activities defined by legislation, as well Nations Global Compact, the Global Reporting as a range of additional programmes and responsibili- Initiative (GRI), the EU Directive as regards disclosure ties with regard to employees and society. The results of non-financial and diversity information by certain are reflected in various non-financial reports on activ- large organisations and groups, the standards of the ities. A number of companies take on additional International Finance Corporation, standards of the Follow-up Planning responsibilities beyond the minimum set by legisla- International Organisation for Standardisation (ISO), tion based on their strategic and regional priorities and a number of others. and their level of corporate culture. Sakhalin Energy is no exception. It operates in accordance with the In 2009, Sakhalin Energy joined the UN Global international standards established with regard to CSR. Compact (UNGC) and pledged its commitment STAKEHOLDER to consistently follow the UNGC’s principles ENGAGEMENT Many initiatives and standards have been established concerning human rights, labour, environment, and worldwide in the area of environmental and social anti-corruption.

SAKHALIN ENERGY IN THE UN GLOBAL COMPACT LEAD Control Implementation In 2011, Sakhalin Energy became the first Russian company to participate in the Global Compact LEAD created as part of the UN Global Compact. LEAD companies are obliged to carry out certain activities in environmental protection, social performance, and corporate governance, as well as to develop new CSR standards. Since 2018, the UN Global Compact has been implementing the LEAD Sakhalin Energy applies an essential part of the oversight and audit, as well as by lenders, their advis- Programme using new criteria, and Sakhalin Energy continues to participate in the requirements and business principles set out in these ers, and external certifying authorities. Assessments documents to its contractors. This is in line with the are also done through various stakeholder engage- programme, including in SDG Reporting and Corporate Social Responsibility in the GRI Standards. In addition to special contractual pro- ment activities, including: Global Compact LEAD. The company submits an annual Communication on Progress visions and specific requirements, including the results ― public consultations; (annual reporting by a member of the UN Global Compact) at an advanced level. of environmental, health and social impact assessments ― workshops and topic-related discussions; At the UN Global Compact Leaders Summit 2020, held at the UN headquarters (see Section 3.5.2 Impact Assessment), the company ― opinion surveys; arranges training sessions and workshops to ensure the ― consultations in information centres established in New York in September 2020, companies were announced, including Sakhalin effective integration of business ethics and social and by the company in settlements located along Energy, which had been recognised by the Global Compact LEAD as showing their environmental principles into the work of its contrac- the Trans-Sakhalin pipeline and in close proxim- continued commitment to the UN Global Compact and its Ten Principles. The Global tors, and control over compliance with these principles ity to other assets of Sakhalin Energy; Compact LEAD companies (a total of 41 companies in the world) are the most active (see Section 7.4 Supply Chain Management). ― addressing grievances and appeals, etc. participants in the UN Global Compact, the world’s largest corporate sustainable At Sakhalin Energy, CSR trends and indicators are reg- For detailed information on the mechanisms for development initiative. ularly evaluated by authorised personnel and senior interaction with different stakeholders, see Section 6. management within the company’s system of internal Stakeholder Engagement Management and Section 9.4. Human Rights. 32 33 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

The main international standards that Sakhalin Energy ― World Bank and International Finance Corpo- 3.4. applies are as follows: ration standards (governance systems, risk and SUSTAINABLE DEVELOPMENT POLICY ― ISO standards (environmental management, impact assessment, biodiversity, public health, quality control, health and safety, and social cultural heritage, indigenous peoples, invol- responsibility); untary resettlement, stakeholder engagement, ― European Union and United Nations standards grievance mechanisms, etc.); 3.4.1. BASIC PROVISIONS OF THE SUSTAINABLE and directives (environment, human rights, ― GRI standards (non-financial reporting, stake- DEVELOPMENT POLICY indigenous peoples, etc.); holder engagement). Since its inception, Sakhalin Energy has pursued its keeping a balance between economic devel- Sustainable Development Policy by incorporating opment, environmental protection, and social APPLICATION OF ISO 26000:2010 GUIDANCE ON SOCIAL RESPONSIBILITY corresponding principles into the company’s business responsibility, and taking into account cultural strategies, plans, and processes. diversity; In 2010, the International Organisation for Standardisation (ISO) proposed ― Sakhalin Energy will work with all stakehold- ISO 26000:2010 Guidance on Social Responsibility (ISO 26000 standard) for use According to the UN definition, sustainable developers to identify ways to contribute to the wider, by organisations worldwide. ment is about ensuring that “the needs of the current long-term economic, environmental, and social Since 2010, Sakhalin Energy has been regularly conducting self-assessments generation are met without compromising the oppor- benefits in the Sakhalin Oblast. tunity for future generations to meet their own needs.” according to this standard. Such self-assessments allow the company to determine the Sakhalin Energy relies upon this definition in its opera- To comply with these principles, Sakhalin Energy extent to which the principles and topics of the standard are adhered to in its policies tion. This approach presumes and ensures economic has made the following commitments to sustainable and procedures, as well as the extent to which the company actually follows them. effectiveness, environmental safety, social justice, and development: In addition, self-assessments make it possible to plan activities that contribute to the ethical behaviour of the company and its employees, ― incorporate SD principles into production and improvement of the company’s efforts in the area of corporate social responsibility. combined with an overall reduction of human impact business plans, procedures and processes; on the ecosphere. This is implemented via strong, ― ensure compliance with the corporate Com- During self-assessments, the company’s directorates and departments use the transparent, constructive, and systematic cooperation mitment and Policy on HSES and Social developed methodology to analyse the company’s standards and experience in the and two-way communication with all stakeholders. Performance, as well as the standards specified areas indicated in the relevant topics of ISO 26000. The topics include: administrative in the Health, Safety, Environmental and Social management, human rights, labour relations, environmental protection, good business In 2020, Sakhalin Energy consistently implemented management systems and Action Plan; practices, customer relations, and engagement with local communities. the provisions of the Sustainable Development ― inform and engage with our stakeholders on the Policy, a public policy document approved by the company’s SD performance and seek feedback; In 2019, the company conducted its fourth self-assessment. Based on its Committee of Executive Directors in 2003 (the latest ― develop and implement social investment and results, it was concluded that the company complies with ISO 26000 completely and revision of the document of 2016 includes the com- sustainable development programmes and proj- maintains engagement with stakeholders on social responsibility issues in line with the pany’s commitment to the United Nations Sustain- ects that are linked to the company’s strategy standard. able Development Goals; see Section 3.4.2. UN Sus- and priorities, and have clear procedures and controls; After each self-assessment, the company’s statement, approved by the Chief tainable Development Goals). The policy declares the principles, directions and obligations of the company ― focus on developing strategic partnerships with Executive Officer, is posted on the company’s website in the Social Performance section. in sustainable development. external stakeholders; Sakhalin Energy intends to permanently adopt this standard and to verify ― provide annual non-financial reporting in accor- compliance with it no less than once every three years. The next self-assessment will The basic provisions of the Sustainable Development dance with GRI standards and principles, as well be carried out in 2022. Policy are as follows: as the corporate Sustainable Development ― Sakhalin Energy will carry out its business Report Development Procedure; responsibly and efficiently so as to deliver a ro- ― participate in the UN Global Compact (UNGC), bust project that will maximise benefits to the complying with and promoting its ten princi- Russian Federation, the Sakhalin Oblast, and the ples; shareholders; ― be a member of UNGC LEAD demonstrating ― Sakhalin Energy will contribute to the present sustainability leadership. and future needs of society on Sakhalin Island, 34 35 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

3.4.2. UN SUSTAINABLE DEVELOPMENT GOALS UN Sustainable Development Goals: Sakhalin Energy’s Measures

Sakhalin Energy’s social and environmental projects were included in the first Voluntary National Review (VNR) of Russia’s progress in the implementation of the 2030 Agenda for Sustainable Development. In particular, experts noted the Making commitment Setting goals and priorities company’s engagement with indigenous peoples, including the application of the principle of free, prior and informed consent (FPIC) as per the UN Declaration on the Rights of Indigenous Peoples, the Biodiversity Action Plan, and the Marine Mammal Observation Programme, designed to protect the population of marine mammals, STAKEHOLDER primarily grey whales. ENGAGEMENT

At the 70th session of the UN General Assem- chosen approach to achieve them: the SDGs are

bly in September 2015, a new global agenda was addressed not only to governments, but also to other Integration of goals and priorities, Public reporting and communication adopted —Transforming Our World: The 2030 participants in the sustainable development process, defining corporate indicators Agenda for Sustainable Development, which includes in a particular business, civil society, and all individu- 17 Sustainable Development Goals (SDGs), which als. The universal character of the SDGs allows com- seek to build on the Millennium Development Goals. panies to adopt a set of Goals that best corresponds One of the specific features of the new Goals is the to their activities and existing CSR programmes.

At the end of 2015, Sakhalin Energy initiated work ― defining priorities and goals—analysing the to study the SDGs and to define the company’s con- company’s priorities and goals and defining the In its activities for the achievement of the SDGs, Sakhalin Energy primarily focuses tribution to achieving them, including: most significant SDGs in terms of their impor- on the following international documents: ― making a preliminary analysis of the SDGs tance to the company’s activities and contribu- ― SDG Compass for Business, developed by the United Nations Global Compact, to align the targets and indicators they set tion to their achievement (since 2016, annually). the GRI and the World Business Council for Sustainable Development (WBCSD); with the priorities, objectives, areas of activi- When determining the company’s priorities and ― Mapping the Oil and Gas Industry to the Sustainable Development Goals: ty, programmes and projects of the company goals in relation to the SDGs, a fundamental (2015–2016); condition is the engagement of stakeholders an Atlas, developed by the International Petroleum Industry Environmental ― making a commitment to achieve the SDGs. in the process of exchanging ideas about possi- Conservation Association (IPIECA) in partnership with the International Finance The company’s commitment to contribute ble ways for the company to achieve the SDGs. Corporation (IFC) and the United Nations Development Programme (UNDP); to the achievement of the SDGs is enshrined Since 2016, relevant issues have been put on the ― SDG Industry Matrix developed by the UN Global Compact and KPMG; in the corporate Sustainable Development agenda of dialogues with external stakeholders ― A number of Russian and international documents related to corporate SDG Policy: Sakhalin Energy strives to be a leader in the preparation of Sustainable Development in sustainable development, taking into account Reports and discussions with company person- reporting (see Section 2.2. Report Preparation Standards). the Sustainable Development Goals set out nel. In 2017, questions regarding these issues in the 2030 Agenda for Sustainable Develop- were added to questionnaires for stakeholders ment (revised in 2016); to determine the content of the Sustainable De- velopment Report. As a result, in 2020, as in the 36 37 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

previous year, the company stakeholders named SDGs. Additional SDG programmes, projects Goals and Objectives of Sakhalin Energy with Examples of Areas of Activity, SDGs 3, 4, 6, 7, 8, 9, 11, 12, 14, 15 and 17 to be the and indicators were identified in 2020 The sum- Projects, Programmes or Activities That Correspond to Specific SDGs most significant for Sakhalin Energy (see Sec- mary of the analysis results, namely the goals tion 2.2. Report Preparation Standards); and objectives of the company with examples and Their Targets, as Well as Key Corporate Indicators ― integrating commitments and goals with the of areas of activity, projects, programmes or Note: since SDGs are complex and indivisible, the goals and objectives of the company, with examples listed, processes and practices of the company. activities that correspond to specific SDGs and are presented for several SDGs simultaneously. See Section 10 for 2021–2026 key performance indicators and An analysis showed that the company’s existing their targets, as well as key corporate indica- corresponding SDGs. processes, programmes, and practices in the tors, is presented in the Goals and Objectives field of sustainable development contrib- of Sakhalin Energy table. In addition, Appen- ute to the achievement of most of the SDGs dix 1. GRI Standards Compliance Table contains SDGs Company Goals Areas, Programmes, Projects Indicators (Included or Referenced Report and Their and Objectives (Examples) to in the Report) Section(s) and/or (since 2016). In 2017, an analysis was made SDGs that correspond to specific topics/targets Targets Other References of each SDG target (169 targets in total) to de- of GRI standards; Provide an attractive Remuneration and bonus Ratio of the standard entry level wage and 4, 6, 7, 9.1, 9.2, 9.4, 9.5; termine which company processes and prac- ― public reporting. The company made a deci- and competitive employee system. Social guarantees, the established minimum wage. for references, see value proposition. benefits and compensations. Russian and local content. Appendix 4: tices correspond to them. The analysis showed sion to include information on its contribution 1.1 70% Russian Content Digital strategy*. Localisation Significant indirect economic impacts. — Sakhalin Oblast that not all SDG targets are applicable to the to SDGs achievement in annual Sakhalin Energy 1.2 over the life of the projects (Sakhalin Energy Intellectual property rights portfolio. infrastructure Project (as per the PSA). maintenance and repair Grievance resolution indicators. development; company or relevant to its activities. In 2018, Sustainable Development Reports (starting with 1.4 1.5 Contribute to sustainable facility in the Sakhalin Units with significant actual or potential — Resettlement: the company analysed the global indicators the 2016 Report and at least until 2030), as well development of the host Industrial Park). Standards negative impact on local communities. Experience regions (Sakhalin Oblast). harmonisation project. Operations involving involuntary of Sakhalin Energy (232 indicators in total) to identify and sys- as in its annual reporting as a participant of the Resolve grievances from Continuous Improvement resettlement, the number brochure; tematise corporate indicators that correspond UN Global Compact (Communication on Prog- stakeholders effectively, Programme. Digitalisation of households resettled in each case, — websites of social paying special attention projects. Supplier and how their livelihoods were affected investment projects to each target and global indicator. It was ress). 2.3 2.4 to vulnerable groups. management. Supplier by the resettlement. and programmes; important that corporate indicators should Conduct effective and Development Programme. Total number of infringement cases — Public consultation All structural units of Sakhalin Energy are involved in the timely environmental, Financial benefits to the RF affecting the rights of indigenous minorities, and disclosure plan; demonstrate the efforts the company makes social and health impact and the Sakhalin Oblast. and actions taken. — Archaeological to achieve the global indicators of the relevant above-mentioned activities with respect to the SDGs. assessment. Introduce Sakhalin Island Infrastructure Operations in areas where indigenous Heritage of Sakhalin 9.1 innovative solutions Improvement. Grievance communities are present or affected Island brochure. 9.4 and carry out digital mechanisms. Environmental by activities and where specific engagement transformation. and social impact strategies are in place. management. Resettlement Number and description of significant In 2020, the company continued work under the Action Platform Reporting on the SDGs, Action Plan. SIM engagement disputes with local communities and practices (in accordance with indigenous peoples. which was initiated by the UN Global Compact and the GRI in partnership with the the Human Rights Policy, Number of road accident victims. 11.1 indigenous peoples are UN Principles for Responsible Investment programme in order to unite the efforts 11.2 a vulnerable group). Social 11.4 of all stakeholders in developing the framework, principles and recommendations for investment programmes and projects. Cultural heritage corporate reporting on SDG implementation. The initiators of the project are guided protection plans. Projects to preserve indigenous primarily by GRI Standards and the UN Global Compact requirements. As a result, languages. Road safety 12.7 assurance activities. companies will be able to integrate reporting on SDGs with existing reporting formats. 12.8

Goal Zero: No Harm. Occupational safety and Occupational injury rate. 9.2, 9.3, 8.2, 8.5 No Leaks. health (measures to ensure Occupational disease rate. Ensure employee health industrial safety, road Total number of work-related fatalities. 3.3 protection. safety, etc.). Employee health Coverage of employees carrying out 3.5 protection (assessment activities in hazardous, dangerous and 3.6 of health risks, occupational arduous working conditions via mandatory 3.8 health, organisation periodic medical examinations. Coverage 3.9 of medical examinations, of employees via clinical screening. emergency medical response, Greenhouse gas emission indicators. voluntary health insurance Emissions of ozone-depleting substances. and disease prevention NOХ, SOX and other significant air programmes, etc.). Industrial pollutant emissions. environmental control. Total water discharge by quality and destination. Total weight of waste by type and disposal method. Total number and volume of significant spills. Volume of flared and vented hydrocarbon. Number of road accident victims. 38 39 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

SDGs Report SDGs Report and Their Company Goals Areas, Programmes, Projects Indicators (Included or Referenced Section(s) and/or and Their Company Goals Areas, Programmes, Projects Indicators (Included or Referenced Section(s) and/or Targets and Objectives (Examples) to in the Report) Other References Targets and Objectives (Examples) to in the Report) Other References

Meet company skilled Staff training and Average hours of training per year per 7, 9.1, 9.2, 9.3 Implement effective Operation of gas turbines Amount of drilling waste (drill mud and 2, 4, 6, 8, labour force requirements development activities. employee by gender and employee category. and lean manufacturing with a system for reducing cuttings) and strategies for treatment and reference to manage ongoing and Localisation projects Proportion of trained personnel by gender methods. nitrogen oxide emissions. disposal. in Appendix 4: 4.3 strategic objectives. (Sakhalin Energy and employee category. 6.3 Introduce innovative Application of enhanced Volume and disposal of formation or Public Consultation 4.4 70% Russian Content maintenance and repair Staff training costs. 6.4 solutions and digitalisation gas turbulence system produced water. and Disclosure Plan 4.5 over the life of the facility in the Sakhalin Indicators of skill development and 6.6 of all processes. to ensure sootless flaring. Volume of flared and vented hydrocarbon. 4.7 Project (as per the PSA). Industrial Park). Standards education programmes, including for Comply with legislation Associated gas evacuation. Rate of associated gas burning. Contribute to sustainable harmonisation project. graduates, trainees, etc. on environmental Drilling waste disposal Total weight of waste by type and disposal development of the host Continuous Improvement Proportion of employees receiving regular protection, observance via dedicated reinjection method. regions (Sakhalin Oblast). Programme. Supplier performance and career development of established wells into deep subsurface Total water discharge by quality and management. Supplier reviews, by gender and by employee 7.3 environmental standards, horizons with sealing barrier destination. 8.1 Development Programme. category. assurance of the rational formations. Enhanced NOХ, SOX and other significant air 8.2 Financial benefits to the Russian and local content. use of natural resources, operational reliability pollutant emissions. 8.3 RF and the Sakhalin Ratio of the standard entry level wage and and fulfilment of plans for and failure-free service Specific pollutant emissions. 8.5 Oblast. Engagement with the established minimum wage. minimising environmental of equipment. Business Emissions of ozone-depleting substances. 8.6 universities*. Remuneration Return to work and retention rates after 8.4 impact. Continuity Management Energy indirect greenhouse gas emissions. 8.8 and bonus system. Social parental leave, by gender. System Industrial Direct greenhouse gas emissions. guarantees, benefits and Occupational injury rate. Environmental Control Specific greenhouse gas emission. compensations. Measures Occupational disease rate. of impact on atmospheric Energy intensity. to ensure occupational safety Total number of work-related fatalities. air and bodies of water, Energy consumption within the organisation. and health of personnel. Number of road accident victims. waste management. Power Specific power consumption. 9.5 saving and enhanced energy Total water withdrawal by source. Comply with Russian Assure gender equality and Total number of discrimination cases 9.1, 9.5 performance. Stakeholder Water sources significantly affected by the legislation and non-discrimination in all and corrective actions taken. engagement practices. organisation’s water intake. international standards for aspects of labour relations, Ratio of the basic salary of men and women. Green LNG Strategy*. Specific water use indicators. respecting, protecting and including recruitment, Composition of governance bodies and Public reporting Total number and volume of significant 5.1 12.2 promoting human rights. selection, hiring, main employee categories by gender and on sustainable development. spills. 5.2 12.4 assessment, promotion, age group. Operational sites on, or adjacent to, 5.4 12.5 training of employees, Proportion of employees receiving regular protected areas and areas of high 5.5 12.6 maintaining discipline, performance reviews, by gender and biodiversity value outside protected areas. learning and development, employee category. Impacts of activities on biodiversity compensation, Average hours of training per year per in protected natural areas and areas of high and termination employee by gender and employee category. biodiversity value. 10.3 of employment contracts Number of employees with disabilities*. Number of species listed in the IUCN Red Social investment Proportion of trained personnel by gender 13.1 List and the National List of Protected programmes*. and employee category. Species. Return to work and retention rates after New environmentally assessed suppliers. parental leave, by gender. Environmental costs and payments for New employee hires and employee turnover adverse environmental impact, including by age group and gender. their structure. Ratio of the standard entry level wage and the established minimum wage. 40 41 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

One of the conditions for achieving the SDGs, which ternational examples that demonstrate various SDGs Company Goals Areas, Programmes, Projects Indicators (Included or Referenced Report and Their Section(s) and/or is also highlighted as separate Goal 17, is to join approaches to the implementation of the SDGs; Targets and Objectives (Examples) to in the Report) Other References efforts in global, regional or local partnerships, ― the company's practices were included in the Goal Zero: No Harm. Assess environmental risks Volume of flared and vented hydrocarbon. 8, uniting governments, businesses and the community. collection of corporate practices “Decent No Leaks. Assess the and impacts. Green LNG NOХ, SOX and other significant air references condition and restoration Strategy*. Effective and pollutant emissions. in Appendix 4: Sakhalin Energy pays special attention to long-term work—sustainable business”, prepared as part 14.1 of the environment viable waste management Energy indirect greenhouse gas emissions. — Biodiversity Action strategic partnerships engaging external stakeholders. of the joint work of the RUIE Committee 14.2 in the areas of the strategy. Implement the Direct greenhouse gas emissions. Plan; 14.3 company’s production environmental compliance Monetary value of significant fines and total — Marine Mammal This applies to environmental projects, production on Corporate Social Responsibility and Sus- 14.4 assets, to identify signs action plan. Coordinated number of non-monetary sanctions for Protection Plan; localisation and personnel development programmes, tainable Development, the RUIE Corporate of the current impact, programmes for biodiversity non-compliance with environmental laws — Oil Spill Prevention and to develop actions conservation and local and regulations. and Response Plans; social investment, etc. (see Sections 6.9. International Responsibility, Sustainable Development and to mitigate it, if necessary. monitoring. Maintain and Operational sites on or adjacent — Oiled Wildlife and Regional Cooperation, 7.3. Russian Content, Social Entrepreneurship Department with the Conduct effective and improve emergency response to protected areas and areas of high Response Plan. 8.3. Environmental Monitoring and Biodiversity support of the International Labour Organisa- 15.1 timely environmental, and oil spill response biodiversity value outside protected areas. 15.2 social and health impact mechanisms, rescue oiled Impacts of activities on biodiversity Conservation, Section 9.1. Personnel: Management tion (ILO) and Sakhalin Energy; assessment. animals. in protected natural areas and areas of high 15.5 and Development, 9.5. Social Investment and Contri- ― Sakhalin Energy took part in the panel discus- 15.9 Impact mitigation, biodiversity value. develop and implement Recovery of wetlands in disturbed areas bution to the Sustainable Development of the Host sion of the draft Voluntary National Review actions aimed at the of the ROW. preservation of rare and Changes in the status of nesting Region). of Russia’s Progress in the Implementation endangered species, populations, protected plant and animal of the 2030 Agenda for Sustainable Develop- as well as environmentally species and their habitats. Sakhalin Energy continued promoting the SDGs significant and vulnerable Changes in aquatic ecosystems. ment (see Section 6.9. International and region- biotopes. State of soils. in the business community. In 2020, in particular: al cooperation); Overgrowing of the ROW. ― Sakhalin Energy was the only Russian company ― Sakhalin Energy presented its experience with Number of species listed in the IUCN Red List and the National List of Protected whose experience was included in the compi- the SDGs at the VIII Russian Donors Forum Species. lation of the best practices of the UN Global Annual Conference (see Section 6.9. Interna- Total amount and volume of significant spills. Compact. In total, the collection contains 31 in- tional and Regional Cooperation).

Comply with all applicable Availability of the General Total value of political contributions 2, 5, 6, 9.4; laws and regulations of the Business Principles, values, by country and recipient/beneficiary. for references, see countries in which the norms and standards of the Total number of incidents related to non- Appendix 4: 16.1 company operates. Code of Conduct. Anti- compliance with regulations and voluntary – Code of Conduct; 16.2 Effective corporate bribery and corruption codes, concerning product and service – Human Rights: 16.3 governance. actions. Feedback and information and labelling. Experience of Sakhalin 16.5 Corporate culture grievance mechanisms. Total number of discrimination cases and Energy brochure. 16.6 management. Anti- Assurance of safety with corrective actions taken. 16.7 bribery and corruption respect for human rights. Confirmed incidents of corruption and 16.10 enforcement. Conflict of Interest Policy. actions taken. Provide all stakeholders Stakeholder engagement Communication and training on anti- with safe and confidential practices, including open corruption policies and procedures. ways of expressing public consultations Rate of security personnel trained in the concerns and grievances, or and public sustainable organisation’s human rights policies or reporting non-compliances. development reporting. procedures that are relevant to operations. Operations and suppliers identified as having significant risk for incidents of child labour, and measures taken to contribute to the effective abolition of child labour. Stakeholder engagement indicators, including feedback. Grievance resolution indicators.

* Additional SDG programmes, projects and indicators were identified in 2020. 42 43 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

3.5. management system, provides detailed information on measures to minimise the HSE AND SOCIAL PERFORMANCE adverse environmental impact, monitoring, activities in environmental and social areas, as well as all internal and external standards regulating the company’s HSE MANAGEMENT and SP activities. The Plan is approved by the project lenders. The fourth edition was published in 2015, revision five is undergoing the final approval round. 3.5.1. HSE AND SOCIAL PERFORMANCE MANAGEMENT SYSTEM The Plan was posted on the company’s website (in Russian and English), as well as in the company’s information centres in libraries of the communities located The company is committed to preventing potential Health, safety, environment, social performance, in the vicinity of the company’s assets. A few materials are available in Japanese damage to the community and environment as a result and industrial safety management is an integral for stakeholders in Japan. The implementation of the Plan is regularly monitored of its operations and contributes to sustainable element of the corporate management system and development to benefit the residents of Sakhalin is regulated by a number of fundamental documents by the company, lenders and their consultants; inspection results are published and other primary stakeholders. Since the beginning that include: on the company’s website (www.sakhalinenergy.com). of the Sakhalin-2 project implementation, the Russian ― Sustainable Development Policy; Federation and the Sakhalin Oblast have received ― Commitment and Policy on Health, Safety, Envi- numerous benefits from it, including multi-billion ronment and Social Performance; investments, employment growth, contracts with Rus- ― HSE and SP Management System Manual; The company applies a systemic approach to handling considers control of risks as a critically important sian companies, etc. (see Section 7.1. Importance of the ― Health, Safety, Environment and Social Action HSE and social performance issues, which ensures prerequisite for successful performance; therefore, Sakhalin-2 Project for the Russian Federation and the Plan; continuous improvement in this area. The compre- the risk management system is subject to continuous Sakhalin Oblast). Understanding that the scope and ― Flaring Commitment; hensive HSE and SP management system includes updating, improvement, and optimisation. complexity of the project can have an impact on the ― Statement of Industrial Safety Policy; controls used by Sakhalin Energy to handle hazardous The system is based on the Plan-Do-Check-Act environment and social performance, Sakhalin Energy ― Policy on the Industrial Safety Management situations and risks. The system is applied to all Sakha- methodology of ISO 14001 and OHSAS 18001 made a commitment to consistently prevent asso- System; lin Energy assets, projects, and operations, including standards. ciated potential problems and adverse impacts, and ― Regulation on Industrial Environmental Control; those conducted by contractors. Sakhalin Energy to reduce risks. In its operations, the company adheres ― Business Continuity Policy; to the principle of eliminating hazards and threats, ― Guidance on the Business Continuity Manage- paying special attention to preventive risk management System. HSE and Social Performance Management System ment and impact assessment (see Section 5.4. Risk Management). The above documents were approved by the Com- inuous improvem mittee of Executive Directors, signed by the Sakhalin Cont ent Energy Chief Executive Officer, and communicated to the personnel and contractors.

Act Plan The commitments adopted by the company following the results of assessing the impact on the environment, health, and social performance, conducted before the start of the Phase 2 construction work, are included in the Health, Safety, Environment and Social Action Plan (hereinafter — the Plan). The development of the Plan was LEADERSHIP a mandatory condition for obtaining a loan for Sakhalin-2 Phase 2 implementation. The Plan was developed in compliance with Russian laws and international standards, including the World Bank’s Policies and Directives, the standards of the International Finance Corporation, and others. The Plan describes the HSE and SP Check Do

Con nt tinuous improveme 44 45 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

The Plan-Do-Check-Act Methodology is applied grievance consideration; with social invest- by acting as guarantors of the corporate environmental management performance. in order to: ments; Although these principles have recently been made part of the standard, Sakhalin ― identify goals and establish procedures nec- ― monitor and assess performance in accordance essary to achieve performance indicators with the set objectives, legal and other require- Energy has implemented them for some time, and they have proved efficient. in compliance with the Commitment and Policy ments; provide reports on findings, incidents, In 2021 the company plans to obtain certification to ISO 45001:2018 — on Health, Safety, Environment and Social and non-compliances; take corrective and International Standard for Occupational Health and Safety (OH & S) that has now Performance. This includes identifying legal and preventive measures; conduct audits of the HSE replaced OHSAS 18001. other requirements, determining problems and and social performance management system In August-September 2020, the Lenders and External Consultants risks, assessing impacts, identifying management at the company’s assets and in functions; elements, as well as developing annual perfor- ― regularly perform a review of the management completed the annual monitoring of the company. Special attention was placed mance improvement plans; system and promote continuous optimisation on measures implemented by the company to prevent the spread of coronavirus. ― implement procedures for training and ad- of HSE and SP performance. Based on the monitoring results a positive appraisal was given by the inspecting vanced training, contractor performance man- parties. The company’s sanitary and anti-epidemic measures, internal and external The Sakhalin Energy HSE and SP management agement, engagement and interaction, change communications and additional charitable initiatives, including healthcare initiatives, management, emergency response, as well structure consists of the HSE Management Com- as operational control over hygiene, personal mittee, which exercises comprehensive control over were highly appraised. safety, integrity of assets, and industrial safety. the area. The Committee is chaired by the compa- The procedures cover the issues of transpor- ny’s Chief Executive Officer. The HSE General Man- tation, health, safety, environment, and social ager reports to the CEO and oversees the develop- performance, including those associated with ment, introduction, operation, and monitoring of the public activities, cultural heritage, land acqui- management system. To ensure the fulfilment of the 3.5.2. IMPACT ASSESSMENT sition, relocation and provision of additional industrial safety and HSE standards, HSE services assistance, conducting scheduled consultations were formed in the company’s structural and func- The company is committed to making an impact adverse impact is identified, the following actions are and sharing information with the community, tional units. assessment prior to any new activities or significant consistently developed and taken: changes in existing projects. This is the basis of the ― avoid; due diligence approach and all risk management ― prevent; Every 3 years the company has its HSE Management System externally certified processes. ― mitigate; against the requirements of the internationally recognised ISO 14001 environmental ― compensate; management standard and OHSAS 18001 occupational health and safety management Impact management is a process of predicting and ― use experience to reduce the probability of oc- managing the future project activities by improving currence. standard. In the intervening years surveillance audits are carried out. In 2018, project solutions, taking measures targeted at min- the company was certified to the new version of ISO 14001:2015, which provides imising potential adverse impacts and increasing An integral part of any impact assessment carried an improved systemic approach to environmental management. benefits from the company’s activities. out by the company are consultations with the With the positive results of the surveillance audit obtained in 2020, Sakhalin stakeholders to inform them about the planned Sakhalin Energy seeks to avoid or reduce the impact activities, identify concerns, take into account their Energy has once again guaranteed to external stakeholders that its environmental to the lowest possible level or to compensate for opinions, and discuss possible measures to manage impacts are under control and its environmental management approaches continue it by taking appropriate measures. When any potential the impact. to be improved. The new version of the Standard introduced the requirement for a company to integrate environmental management system requirements into the organisation’s business processes. This new version also takes HSE leadership to the next level: company executives take a more active role in environmental management 46 47 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE SOCIAL RESPONSIBILITY REPORT 2020 AND SUSTAINABLE DEVELOPMENT

Stages of Impact Assessment 3.5.3. INSPECTION AND AUDIT

DESIGN AND DECISION MAKING Since 2005, external and internal inspections and qualified employees of the company and shareholder audits have been conducted to ensure control over all specialists. the elements of the integrated HSE and SP management system in compliance with approved annual In 2020, five external HSE and SP management plans. External audits are conducted by represen- system audits were conducted (see the Inspections tatives of the company’s shareholders and lenders, and Audits of the HSE and SP Management System external certifying authorities, etc. For internal audits, in 2020 table). Impact identification Impact scope Baseline information Impact management and assessment. Mitigation the company engages specially trained auditors — and borders gathering and description and monitoring measures identification

Inspections and Audits of the HSE and SP Management System in 2020

Audit level Number of audits Content

Surveillance Audit to check compliance with ISO 14001 and OHSAS 18001 Standards STAKEHOLDER ENGAGEMENT Wells HSE: Verify and assist review

Onshore Pipeline Cold Eyes Assurance Review External 5 Monitoring of compliance with HSE and SP standards by the representative of lenders – by the independent environmental consultant* The results of previous environmental and social ― on the documentation Oil Spill Prevention and impact assessments (including the results of com- Response Plan for Prigorodnoye Offshore As- Third SIMDP (Sakhalin Indigenous Minorities Development Plan) completion evaluation** prehensive and strategic environmental assessments sets subject to the state environmental expert * The report is available on the company’s website (www.sakhalinenergy.com). as well as the required additional and special studies) review at the federal level, in the form of a pub- ** The report is available on the SIMDP website (www.simdp.ru). are taken into account in the company’s standards, lic opinion poll; while its ongoing activities are based on relevant plans ― on the documentation Oil Spill Prevention and and programmes. The results of impact assessments Response Plan for Offshore Assets of Pil- are published on the company’s website. The validity tun-Astokh and Lunskoye Oil Gas and Con- and completeness of the assessments are monitored densate Fields subject to state environmental by government authorities and project lenders. expert review at the federal level, in the form of a public opinion poll. In 2020, the company held three public discussions: ― on the design documentation Addendum to the The company provided responses to all the questions Technical Project for Construction and Oper- raised during the meetings. ation of Non-Production-Related Subsurface Facilities for Disposal of Cuttings and other Flu- Participants didn’t express negative views on the ids at Astokh Area of the Piltun-Astokh Field, planned activities. in the form of public hearings; SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

4ABOUT THE COMPANY

The efforts of Sakhalin Energy have largely contributed to Russia becoming one of the key players in the promising Asia-Pacific market. 50 51 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

4.1. SAKHALIN ENERGY The Sakhalin-2 project

PILTUN-ASTOKHSKOYE–B PLATFORM (PA-B) PILTUN-ASTOKHSKOYE OIL FIELD Having achieved a labour productivity indicator of 182.03 mln roubles/person per year, PILTUN-ASTOKHSKOYE-A PLATFORM (PA-A/MOLIKPAQ) the company topped the main category of the “Labour Productivity: Russian Industry LUNSKOYE GAS FIELD LUNSKOYE-A PLATFORM (LUN-A) Leaders 2020” All-Russian award. Sakhalin Energy leads the TOP-100 major enterprises NORTH GAS TRANSFER TERMINAL (GTT) in the country’s key industries. When selecting leaders from among the participants in the ranking, the organisers studied data on more than 5,000 Russian industrial ONSHORE PROCESSING FACILITY enterprises. With its consistently high indicators, Sakhalin Energy has led the ranking COMPRESSION

for the fourth year in a row. ONSHORE PROCESSING FACILITY (OPF) TRANS-SAKHALIN PIPELINE

GAS TRANSFER TERMINAL Sakhalin Energy Investment Company Ltd. (herein- koye and the Lunskoye oil and gas fields in the Sea after referred to as Sakhalin Energy or the company) of Okhotsk offshore Sakhalin Island. was founded in 1994 to develop the Piltun-Astokhs- BOOSTER STATION 2 (BS 2) Sakhalin Energy operates under the Sakhalin-2 project Production Sharing Agreement (PSA) that has been signed by the company and the Russian Feder-

ation represented by the Government of the Russian Federation and the Sakhalin Oblast Administration OIL EXPORT TERMINAL SOUTH GAS TRANSFER TERMINAL (GTT) (currently, the Sakhalin Oblast Government).

LNG PLANT The following companies hold shares in Sakha- lin Energy through their subsidiaries: Gazprom (50% plus one share), Shell, a British-Dutch company (27.5% minus one share), Mitsui (12.5%) and Mitsubi- shi (10%), Japanese corporate groups.

To develop these two fields, the company has built a large-scale infrastructure for the extraction, transportation, processing and subsequent marketing of hydrocarbons. The infrastructure includes three fixed offshore platforms, offshore and onshore pipeline systems, an onshore processing facility, two In addition, the Sakhalin-2 project is remarkable for: ― Russia’s first ice-class offshore oil and gas booster stations, an oil export terminal with a tanker platforms; loading unit, a liquefied natural gas (LNG) plant ― first foreign investment raised for the imple- with an LNG jetty, and gas transfer terminals. Sakha- mentation of a large-scale project in Russia; lin-2 has been one of the most technically complex ― Russia’s first 4D offshore seismic survey. projects implemented in the global oil and gas industry over the last few decades. 52 53 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

4.2. MAIN PRODUCTION 4.2.1.1. Piltun-Astokhskoye-A (Molikpaq/PA-A) Platform The Molikpaq platform was built in Japan 36 years seven water injection wells, and one cutting re-in- ago and has been the main oil production platform jection well. The platform’s average daily production RESULTS IN 2020 in the company for 20 years. rate in 2020 was 4.97 thousand t (36.67 thousand bbl) of oil and 0.53 mln m³ of associated gas. Over the first nine years, starting from 1999, Molikpaq operated only during the ice-free season. In 2008, Since the commencement of field develop- In 2020, Sakhalin Energy produced a record 11.6 mln t of liquefied natural gas — more than the platform commenced year-round production ment, the PA-A platform has produced more the largest amount in the history of the company. of hydrocarbons. than 41 mln t (over 308 mln bbl) of oil, including 1.82 mln t (13.42 mln bbl) produced in 2020. As of the end of 2020, the operating well stock of the mln41 t of oil Molikpaq platform included 17 oil production wells,

has been produced by the PA-A platform 4.2.1. ASSETS since the development On the Molikpaq platform, work was successfully completed to upgrade the fire and commencement gas detection system. This has improved the platform protection level. February 2020 marked eleven years since the first since the launch of the LNG plant and the 700th oil LNG plant in Russia was officially launched as part cargo since the start of year-round production. of the Sakhalin-2 project. The efforts of Sakhalin Energy have largely contributed to Russia becoming As of April 2020, the Molikpaq platform has produced In 2020, the company continued to ensure effective injected for reservoir pressure maintenance (RPM), one of the key players in the promising Asia-Pacific 300 mln bbl (40.65 mln t) of oil since the start of oil control over the development of the field, the reliable and the operation of the drill cuttings injection market. production in the Astokh area of the Piltun-Astokhs- operation of the well stock, the quality of the fluid system. koye field in 1999. In 2020, the company achieved two important milestones: the company shipped its 1,900th LNG cargo

DIGITAL TWIN WORKSTATIONS: IMPLEMENTING REAL-TIME REMOTE SUPPORT SYSTEMS The epidemiological situation changed our approach to the organisation of work at the company’s production facilities. The LNG plant promptly deployed digital twin workstations, a real-time remote support video system. The system enables the production facilities to perform their operations in such a way that other project participants (colleagues in the office, representatives of equipment manufacturers or Shell technical support engineers) can take part in the process remotely as they have a complete idea of what is going on and can share advice or answer any question from an asset in real time. 54 55 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

Work continued to increase the oil recovery coeffi- The quantitative performance indicators of the To prevent sand formation, the wells operate with after the completion of the rig-refurbishment project. cient through treatment of the bottom-hole zones Enhanced Oil Recovery Programme (for the compa- a reduced flow area of the choke or are equipped with The work included comprehensive data analysis and of wells with scale inhibitor. ny’s assets) are presented in the Enhanced Oil Recov- a downhole filter to prevent sand production. Another preparation of reports for wells drilled in 2017–2020. ery Programme Results for 2017-2020 table. important goal was to develop a well drilling strategy

2017-2020 Enhanced Oil Recovery Programme Results

Indicators 2017 2018 2019 2020 4.2.1.2. Piltun-Astokhskoye-B (PA-B) Platform

Total ST since the start of development, pc. 8 8 8 8 PA-B is the largest platform of the Sakhalin-2 project. The platform’s average daily production rate in 2020 Since late 2008, the platform has been producing oil was 3.45 thousand t (25.44 thousand bbl) of oil and Cumulative oil production from ST, thousand t 3,211 4,374 5,368 6,251 and associated gas in the Piltun area of the Piltun-As- 0.94 mln m³ of gas. Since the commencement of oil more than tokhskoye oil field. field development, the PA-B platform has produced Total BHT since the start of development, pc. 4 9 14 21 more than 19 mln t (over 141 mln bbl) of oil, including As of the end of 2020, the PA-B platform had 20 1.26 mln t (9.31 mln bbl) in 2020. Cumulative oil production from BHT, thousand t 91 162 227 248 production wells, eight water injection wells, and two mln19 t of oil cutting re-injection wells. Integration work was performed to update the geo- Two wells were successfully worked over at the begin- logical-hydrodynamic model of the reservoirs of the ning of the year: the first well, where a frac and pack has been produced by the PA-B platform Astokh area, which included determining infill drilling lower completion has been installed to control sand since the commencement The Piltun-Astokhskoye-B (PA-B) platform received the 2020 Shell Award in the Best points; the cycle of knowledge systematisation production, and the second well, in which the tubing of the field development Drilling Rig of the Year category. The ranking is done according to such criteria as HSE was completed in a timely manner, which allowed has been replaced together with an SCSSSV (Surface performance, operational excellence, and staff competency. focusing efforts on the development of an optimal Controlled Sub-Surface Safety Valve) and a downhole 2022–2024 drilling schedule. The strategy, which pressure gauge. As a result, the reliability of down- includes information about the types of wells, their hole equipment has been increased, well integrity has number, and drilling sequence, was successfully been restored, and performance monitoring has been In the reporting year, the company completed the it possible to survey the areas directly adjacent to the approved by the Technical Directorate at the final improved. This work has completed the preparation Well Reservoir and Facility Management (WRFM) production platforms. decision-making stage. The issues related to the of the Molikpaq platform for the scheduled shutdown programme, comprising production optimisation design of the lower well completion were reviewed, required for the rig refurbishment. The quality of the activities like scale treatments and gas lift optimi- Based on the results of the 4D seismic survey, rec- and a concept was chosen using an easy-to-use, completed work was confirmed by tests of the wells sation, quality control of injected fluid for pressure ommendations were given for further optimisation cost-effective open-hole gravel pack. In addition, for leak-proofness in April and October without loss maintenance and VRR, operation of the CRI system of the development of the company’s fields, and the the possibility of optimising the number of casings of production. in the Piltun area of the Piltun-Astokhskoye field. drilling targets for the planned wells were clarified. in sidetracking and new well drilling is under study. The platform continuously monitored the compo- It was concluded that it will be expedient to carry out Focusing on operations, the company carried out work sition and water cut of hydrocarbon products from seismic exploration in subsequent years. In April 2020, a rig-refurbishment project was to determine the technological modes of these wells. the producing wells, the removal of solid/mechanical launched on the Molikpaq platform. This project will impurities, and the integrity of the wells. In the reporting year, two best-in-class production allow further development drilling to cover more As operational measures to control sand production, wells were drilled, one of which was the first at Sakha- remote areas of the Piltun-Astokhskoye field. Oper- bottomhole pressure is continuously monitored using In 2019–2020, the interpretation of 3D/4D seismic lin Energy drilled during the COVID-19 pandemic. ations using the drilling rig are not being performed acoustic sensors, and critical pressure is simulated data obtained as a result of 2018 works at the Pil- According to the Rushmore Reviews, an international during this period. using dedicated software. tun-Astokhskoye field was carried out using offshore drilling performance rating, this well was ranked streaming, which was supplemented with the use among the best in its class, demonstrating excep- For the purpose of stable production rate, the follow- of ocean bottom nodes (OBN). The use of OBN made tional drilling performance. ing measures were taken: 56 57 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

It is noteworthy that the three wells that were com- In Piltun wells, a standard set of open-hole logging ― wellhead equipment was successfully replaced missioned on the PA-B platform prior to this event was carried out, which was supplemented with reser- (as part of the Lunskoye field X-mas tree equip- were also recognised as the best in their class by the voir pressure measurements to monitor the devel- ment replacement strategy); international rating Rushmore Reviews. Thus, the opment process of the area and assess the hydrody- ― information was obtained on the state of down- Sakhalin-2 project team managed to continue the namic connectivity of the reservoirs. The pressure hole equipment, and the feasibility of lifting trend of PA-B record achievements. measurements in the productive intervals in the wells restrictions on its productivity was confirmed; were performed while drilling with the StethoScope. an extended test was carried out, which contrib- The well was drilled in order to maintain the planned uted to the lifting of the previously established oil production, while new wells were drilled tar- To prevent sand formation, preventive measures are limitations on the well productivity; geting low-productivity reservoirs in areas located taken by choking the wells in accordance within the ― An extensive programme of geophysical re- at a significant distance from the PA-B platform. operating limits of the maximum drawdown. Sand search was carried out, which helped to localise To do this, extended reach drilling technologies screens are also installed as standard equipment for the point of flooding in the well (proactive were used, as well as drilling a horizontal section new wells. isolation of the watered reservoir intervals was in geosteering mode, during which all adjustments undertaken). are made in real time. This method not only allows As operational measures to control sand production, for maintaining required production levels, but also continuous monitoring of bottomhole pressure, the In accordance with the strategy for maintaining the optimises the field development strategy, makes the use of acoustic sensors, as well as modelling of well- current level of hydrocarbon production and with development of reserves more manageable, stable bore failure cases and updating of well operating a view to wider reservoir development coverage, the and profitable. envelopes are carried out. company is drilling an increasing number of wells with a significant horizontal displacement.

In 2020, another long gas well was drilled up to the top reservoir but could not be completed due 4.2.1.3. Lunskoye A (LUN-A) Platform to COVID-19. This well is notable for one more technical record—the longest casing liner of all those The LUN-A platform is the first offshore gas produc- As of the end of 2020, the LUN-A platform had more than Our achievements in 2020 include the completion used under the Sakhalin-2 project was installed for tion platform in Russia. This is where most of the gas 19 producing wells and two cutting re-injection wells. of the first phase of updating the integrated model this well, using the floating method. produced under the project comes from. Oil, con- of the Lunskoye field. Information gathered during densate and gas segregation, including the processing In 2020, the platform continued to operate in a stable the drilling of new wells, the data from the latest By the end of 2020, all wells of the platform had been of gas for transportation to the LNG plant, is carried manner, producing an uninterrupted flow of gas from geological and technical activities and the monitor- prepared for operation in the autumn and winter out at the onshore processing facility. the existing wells. The platform’s average daily gas bln189 m³ ing of field development, as well as the results of the period. This was part of the planned comprehensive production rate is 49.52 mln m3. of gas 4D seismic survey carried out in 2015 and 2018 have well integrity assurance work, geological and techni- The LUN-A platform was put into operation made it possible to represent the geological and cal activities. has been produced in December 2008, and gas from the platform has Since the commencement of field development, the by the LUN-A platform hydrodynamic models of the field more accurately. been filling the project’s pipeline system ever since. platform has produced more than 189 bln m³ of gas, since the commencement In addition to drilling and repair operations, the of the field development including more than 18 billion m³ of gas in 2020. The Well Reservoir and Facility Management (WRFM) company conducted petrophysical surveys in open campaign has become one of the milestones this wellbores, continuously monitored reservoir pressure, year. Despite the rapidly changing external conditions the injection of drill cutting and produced water into associated with the COVID-19 pandemic, we managed the subsoil horizons, carried out analysis of produced to carry out WRFM works at four wells, in particular: water samples. 58 59 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

4.2.1.4. Onshore Processing Facility (OPF) In 2020, work on the deployment of industrial Wi-Fi Factory Acceptance Tests with the virtual presence and the Wireless HART (highway addressable remote of experts were carried out as part of the gas turbine The main purpose of the onshore processing facility In 2020, OPF daily average capacity was 49.41 mln m3 transducers) network was started and is currently pro- unit control system upgrading process. (OPF) is to carry out initial treatment of gas and con- of gas and 12.20 thousand t (95.34 thousand bbl) of oil ceeding; communication equipment is being installed densate supplied from the Lunskoye field before they and condensate. to ensure a virtual presence at the assets. The frequency control system of the main compres- are transferred through the pipeline to the oil export sor was upgraded without the mobilisation of foreign terminal (OET) and the LNG plant. In addition, the A Quality Assurance / Quality Control for mainte- contractors. OPF also processes oil and associated gas supplied nance and repair process was developed and is being mln49.4 m³ from the offshore platforms in the Piltun-Astokhs- implemented at the asset to avoid technical failure of gas koye field. and human errors in this process. 4.2.1.5. Trans-Sakhalin Pipeline, Booster Station and Gas Transfer Terminals In 2020, scheduled overhaul and maintenance of one of the gas turbine generators The Trans-Sakhalin pipeline comprises about 280 km ― Sakhalin Energy’s own seismic monitoring was completed at the Onshore Processing Facility (OPF). This equipment supplies of offshore pipelines, onshore multiphase pipelines, system with detectors located along the entire 12.2 electricity to the OPF and the Lunskoye-A platform. Its reliable operation almost 1,600 km of oil and gas pipelines, as well pipeline and the United States Geological Ser- thousand t is a prerequisite for gas transportation from the offshore field and maintaining as 104 block valve stations, five Pipeline Maintenance vices (USGS) system are used to ensure a time- of oil hydrocarbon processing. Depots, a Booster Station (BS), and two Gas Transfer ly response in the event of an earthquake; Terminals (Northern and Southern). ― seismic faults are monitored every year to as- was the OPF daily average The gas turbine unit was overhauled for the first time since its commissioning. capacity in 2020 sess movements and displacements; The task involved replacing about a thousand original components. A large number One of the main tasks of Sakhalin Energy and Gaz- ― prior to seasonal drops in ambient air tempera- of the spare parts used for this purpose were manufactured under a special order. prom Transgaz Tomsk (contracted by Sakhalin Energy ture, the pipeline is checked for water in the to carry out the maintenance of the Trans-Sakhalin pipeline fault crossing trenches so as to avoid pipeline) is to ensure uninterrupted and safe hydro- freezing and limited pipe movement; carbons transportation to the Prigorodnoye produc- ― the pipeline is regularly monitored through tion complex. helicopter overflights; ― physical checks of all pipeline features, includ- At Sakhalin Energy, an HSE case is implemented for ing rivers, fault crossings, swamps, liquefaction its pipelines, which identifies all potential hazards areas, road crossings, rail crossings, etc. Also, the to the integrity of the assets. These hazards include entire pipeline RoW is walked over on annual internal and external surface corrosion, excessive pipe basis; pressure, earthquakes, landslides, soil erosion, seabed ― air photo data obtained by means of space gouging, shore scouring, marine vessel traffic, illegal technologies are used to monitor the vegetation hot taps, and inadvertent or wilful damage. growing on the RoW.

The following measures have been taken to prevent According to statistics, more than 70% of pipeline and eliminate these potential hazards: incidents in the world are caused by unintentional ― cathodic protection systems have been installed damage from human activity. Sakhalin Energy has on the pipelines to deal with external surface been proactively educating the community about corrosion; the rules of behaviour in the vicinity of the pipeline ― Intelligent Pigs, which can detect internal system. Local authorities, contractors, land users are corrosion, are used in the pipelines to monitor regularly informed about land use limitations within internal surface corrosion; the RoW and are provided with addresses and tele- ― the offshore and onshore oil pipelines are phone numbers to contact the company if necessary. pigged on a regular basis to remove water and Additionally, special notice boards are located along sediments; 60 61 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

the RoW with toll-free telephone numbers in the 100% of Sakhalin-2 project pipelines have been oper- ― C-1351 mercury bed replacement; case of questions or concerns. ating less than 13 years (as of the end of 2020) and do ― maintenance of multiple control valves and not exceed their design standard operation life. To ver- inspection of pressurised vessels; Sakhalin Energy continues to accept gas conden- ify pipeline system standard operation life, the com- ― maintenance of electrical, instrumentation and sate from the Sakhalin-3 project gas treatment plant pany carries out regular pigging with a subsequent automation equipment, as well as other works. (Kirinskoye field) as per the agreement between Gaz- analysis of the results and development of preventive prom Export and Sakhalin Energy. The gas condensate maintenance plans. In addition, the entire length More than 834 people from 19 companies took part is transported to the oil export terminal (OET) along of the onshore pipelines is equipped with a cathodic in the shutdown with an estimated total man-hours with Sakhalin Energy’s oil. protection (CP) system to deal with external corrosion. of more than 330 thousand. A total of 741 flanges The company performs regular maintenance and mon- were tagged and disconnected as part of the flange itors the CP system’s performance. management programme, 33 flanges were refaced, and multiple complex lifting operations were performed. In addition, the Prigorodnoye production complex was the first asset to use the digital twin technology — a system for providing remote support in real time. 4.2.1.6. Prigorodnoye production complex During the shutdown period, engineers and technical consultants from around the world were connected The Prigorodnoye production complex, which the territory of Prigorodnoye port, covers an area to video broadcasts at the site and provided online is located in the South of Sakhalin, on the shore of 236 hectares. The LNG plant consists of two support. In the field of HSE, a new concept — Visual of a virtually ice-free Aniva Bay, includes the LNG production lines with a design capacity of 4.8 million Onboarding — was developed and implemented plant, dock and shipping, and the oil export termi- tons of LNG per year each. As a result of the imple- in order to increase the effectiveness of safety train- nal (OET) with a remote tanker loading unit (TLU) mentation of the programme to improve production ing of shutdown staff with a focus on newcomers. located offshore, approximately 5 km from the shore. efficiency and reliability, the plant’s productivity has The Prigorodnoye production complex, including increased significantly in recent years. The Prigorodnoye production complex, along with the company’s other assets, successfully sustained ISO 9001, ISO 14001 and OHSAS 18001 as part of its The Sakhalin-2 LNG plant was named the best among all Shell gas processing assets overall Quality and Health, Safety and Environment in 2020. highly competent, understand their personal respon- Management Systems. In its effort to mitigate the sibility for the quality and safety of the work per- The award is intended to show recognition of the companies’ efforts to ensure risks associated with greenhouse gas (GHG) emis- formed. The audit also confirmed that the plant has sions, the LNG plant prepared a comprehensive safety, improve production efficiency and reliability, and promote professional a risk management system in place and a process for report on the GHG Management Plan, containing development. When selecting the winners, special attention was paid to the detecting failures, and is constantly working to iden- an assessment of current results and proposals for companies’ success in ensuring their competitiveness in the oil and gas industry market tify the causes of their occurrence. a future GHG Reduction Plan. According to the global despite the challenges of 2020. comparative analysis of LNG plants, the Prigorodnoye It is particularly worth noting that the shutdown production complex is one of the top 25% assets activities during the COVID-19 pandemic were in the world in terms of energy efficiency and low completed in full and in accordance with the revised GHG emission. In order to further reduce the impact Despite the challenges caused by COVID-19, 2020 was achievements in the field of safety, efficiency and plans, 3 days ahead of schedule, without LTAs, of greenhouse gases, a long-term Green LNG strategy a successful year for the Prigorodnoye production reliability, and professional development. and in compliance with the Goal Zero programme (for more details, see Section 8.2.7. Green LNG Strat- complex. The new challenges helped to speed up and (i.e., with no harm and no leaks). The following work egy) was developed to deliver carbon neutral LNG improve many existing and new business processes. Additionally, on the backdrop of the COVID-19 scope was performed: cargoes, which will allow Sakhalin Energy to continue As a result of top quartile business performance, pandemic, the LNG plant passed an external audit ― upgrade of Train 2 2К-1420 axial-flow compres- reducing its carbon footprint in the long term. the LNG plant was recognised by Shell as the Best of the Maintenance and Integrity Execution (MIE) sor; Asset of the Year in the Integrated Gas and New Process and proved compliance at the “Calculative” ― medium overhaul of Frame 7 gas turbines with The asset implemented a number of initiatives to fur- Energies category. The award acknowledged the level. This means that all work processes to ensure modification of the mixed refrigerant compres- ther improve its performance in the broadest sense reliable maintenance work are effective, the staff are sor turbine; as part of the Continuous Improvement Programme 62 63 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

4.2.2. DEVELOPMENT PROJECTS

4.2.2.1. OPF Compression Project

The OPF compression facility is designated to sup- are designed for the treatment of gas supplied from port the planned production levels in case of a well- the Lunskoye-A (LUN-A) offshore platform. head pressure drop in the Lunskoye field. As of the end of December 2020, the bulk of the gen- In 2019, oversized large-capacity equipment for the eral construction works and the installation of metal OPF Compression Project (OPFC) was delivered structures and pipe racks were almost completed to the construction site. In October 2019, Sakhalin at the site. The installation of the process equip- Energy successfully completed the installation of two ment for the gas compressor unit and the air cooler inlet separators on the base structures. The separators continues.

4.2.2.2. Extension of licenses for the development of the Piltun-Astokhskoye and Lunskoye fields (see Section 4.3.2. Continuous Improvement Pro- tinuous Improvement Programme at the asset is the Development of the Piltun-Astokhskoye and Sakhalin-2 project, the licenses were extended gramme). The implementation of the programme, participation of all employees in the work to improve Lunskoye fields is being carried out in accordance in accordance with the terms of the Production aiming for small improvements based on the bot- their activities—everyone can suggest an idea, and with the subsoil use licenses. The licenses were Sharing Agreement (PSA) for the next 5-year period — tom-up principle, resulted in significant improve- the managers will readily consider, screen and assess issued to the company in 1996 for a 25-year period. until 19 May 2026. ments in production availability and reliability. A key it before implementing. In 2020, for the first time in the history of the factor contributing to the development of the Con-

LNG PLANT IS ASSESSED AS MIE CALCULATIVE The LNG plant confirmed status “Calculative” during the official maintenance and 4.2.2.3. Growth Projects integrity execution (MIE) external assessment and demonstrated that the asset is safe and reliable. The LNG plant successfully passed the Maintenance and Integrity As part of its Growth Strategy, the company contin- ― Northern Gas project. The potential concepts ued pursuing hydrocarbon maturation opportunities of field development from the existing pro- Execution (MIE) external assessment for two blades of the Operation Excellence on the Piltun-Astokhskoye and Lunskoye fields: duction platforms (PA-A and PA-B) have been Programme: Safety Critical Elements (SCE) and Performance Standards (Integrity ― Northern Gas Project, further develop- defined. Assurance / IA) and Work Preparation, Scheduling and Execution (Maintenance ment of the Piltun-Astokhskoye field ― Piltun-Astokhskoye field Block 2 Project. Execution / ME). The team used standard Shell Global MIE assessment methodology Block 2 Project, Lunskoye field Block 1 Proj- The detailed integrated schedule is being devel- and tools for the certification and final assessments. ect. The LUN-9 exploration well project has oped. Field development concepts for matura- been shifted from 2022 to a later period due tion during the ASSESS stage have been iden- to a combination of macroeconomic factors and tified. Production profiles have been generated, the impact of the COVID-19 pandemic. well costs have been estimated for each concept Since the beginning of operation in 2009, the plant has produced over 125.8 mln tons along with the drilling facilities upgrade costs. of liquefied natural gas. 64 65 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

― Lunskoye Block 1 Project. The integrated project ― Lunskoye Deep Exploration Project (drilling schedule has been prepared. The geologic and LUN-9 HP/HT exploration well). The Project hydrodynamic models have been updated, is at the DEFINE stage. The geologic model production parameters are being calculated. has been updated, the hydrocarbon resources The concepts of field development and infra- re-estimated. The risk management plan has structure setup have been defined and are being been put in place. The exploration project and worked out. The risk management plan has been the engineering survey programme have been put in place. developed.

4.2.2.4. LNG Train 3 Project

In 2017, Sakhalin Energy developed design doc- At present, the Russian party is considering the mon- umentation for the Sakhalin-2 LNG Train 3 proj- etisation of the raw material base of offshore deposits ect. The project design documentation received in the Sakhalin Oblast. For its part, Sakhalin Energy an endorsement from the State Expert Review continues to evaluate possible options for the supply by Glavgosexpertiza in 2018. of raw gas to fill Train 3 and is currently working on cost optimisation and opportunities to increase the Russian content in the Sakhalin-2 project.

Due to regular debottlenecking and equipment In 2020, LNG was transported by the Grand Elena, adjustment, the LNG plant exceeds its design output Grand Aniva, Grand Mereya, Amur River and Ob of 9.6 mln t per year. In 2020, the company produced River specialised ice-class LNG carriers, chartered a record amount of LNG, the most in the entire on a long-term basis, as well as in vessels chartered 4.2.3. HYDROCARBON PRODUCTION AND EXPORT history of the Sakhalin-2 LNG plant, surpassing its FOB (free on board) by customers. The full cargo more than design capacity by more than 20%. capacity of the chartered gas carriers is 148 to 150 thousand m³. In addition, three shipments of LNG 4.2.3.1. LNG In 2020, the company produced and shipped more were delivered to customers in Seri Cempaka, Seri than 11.6 mln t of LNG (178.6 standard LNG ship- Camellia and Energy Frontier gas carriers, chartered 11.6 ments) from the port of Prigorodnoye (one standard on a short-term basis. In 2020, Sakhalin LNG accounted for more than 3.2% of global LNG demand, mln t LNG shipment is 65.0 thousand t). about 4.6% of LNG demand in the Asia-Pacific region, about 7.9% of LNG demand of LNG

in Japan, about 4.7% of LNG demand in South Korea, more than 11.3% of LNG demand was shipped by the company from In 2020, there were no reported cases of COVID-19 among the crews of the chartered in Taiwan, more than 2.4% of LNG demand in China, and more than 1.6% of LNG the port of Prigorodnoye demand in Singapore. in 2020 commercial vessels or customers’ vessels. The company has developed a set of measures aimed at minimising the number of onshore personnel directly interacting with a vessel’s crew during their call at the port of Prigorodnoye. The company Liquefied natural gas (LNG) is a colourless and odour- atmospheric pressure, natural gas liquefies and provided and continues to provide necessary support to shipowners in organising less liquid with a density half that of water. It consists contracts to 1/600th of its initial volume, becoming timely rotations of both Russian and foreign crews to ensure an uninterrupted supply mainly (up to 90%) of methane (СН4), the simplest suitable for collection, storage, and shipment by spe- of hydrocarbons to customers. natural gas in the group of gaseous hydrocarbons. cial-purpose transport. When cooled to approximately –160°C at standard 66 67 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

Year-round LNG shipments to customers began Sakhalin Energy sells LNG under long-term sale and in March 2009. The company has a solid reputation purchase contracts to 11 customers, and under a medi- due to the stability of deliveries, product quality, high um-term agreement—to one customer from the safety standards and highly qualified staff. In addition, Asia-Pacific region. The long-term LNG customers the company has a number of competitive advantages include Japanese energy and gas distribution compa- in the LNG markets in the Asia-Pacific region (Japan, nies, a South Korean gas corporation, and two trading South Korea, Taiwan, China), in particular: companies affiliated with the shareholder companies. ― well-established relationships with major cus- The medium-term LNG customer is a Taiwan state tomers in these countries; oil/gas and fuel company. Additional products are ― long-term sales and purchase contracts with sold on a short-term basis to existing and new cus- all major LNG customers in Japan and South tomers under LNG framework agreements. Korea, a framework sales agreement and a medium-term contract with a Taiwan company, Despite the unprecedented challenges in the 2020 as well as framework sales agreements with world market, the company successfully sold record Chinese customers; LNG volumes on the spot market — 41 standard LNG ― geographical proximity to the sales markets: shipments. the duration of an LNG tanker voyage to Japan is 3–4 days, to South Korea — 4 days, to China — In 2020, Sakhalin Energy delivered LNG to Japan, 5 days, and to Taiwan — 6 days); South Korea, Taiwan, China and Singapore. The vol- ― a vertically integrated production and dis- umes of direct LNG shipments to China and Taiwan tribution model, which allows the company were significantly higher than in the previous years. to control all processes in the value chain from the well to the customer’s terminal.

In 2020, the priorities in managing the chartered fleet made a significant contribution to the protection of the were the safety, reliability and efficiency of maritime Sakhalin Island environment. In addition, with the operations, which is achieved through continuous assistance of DES (Delivered Ex Ship) LNG custom- Sakhalin LNG Sales Market Structure in 2020, % improvement of all work processes, constant monitor- ers, chartered vessels were able to use LNG boil-off ing of transport operations—both in ports and during gas as fuel when offloading LNG at ports in Japan and sea crossings of vessels. It was important in 2020 that China, thereby reducing LNG transportation costs and Japan—51.6 the updated International Convention for the Preven- improving the efficiency of the chartered fleet. 0.6 tion of Pollution from Ships (MARPOL 73/78) came 14.1 South Korea—16.3 into effect to limit the maximum permissible sulphur As a result of the Continuous Improvement Pro- content in marine fuel to 0.5% by mass. The optimisa- gramme, it was also possible to further reduce the Taiwan—17.4 tion carried out by the Commercial Directorate in coop- residual amount of LNG in the cargo tanks of gas car- eration with FOB customers and the owners of char- riers before loading at the port of Prigorodnoye. Due China—14.1 tered vessels made it possible for all LNG carriers to this, the volume of products shipped was increased 17.4 to use LNG boil-off gas as marine fuel during loading and the revenue from each LNG shipment delivered Singapore—0.6 operations at the port of Prigorodnoye, which, in turn, under the DES terms was maximised. 51.6 16.3 In October 2020, the company made their first LNG delivery to Singapore for Gazprom Global LNG. 68 69 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

The gas condensate produced in the Lunskoye in the Asia-Pacific region, the relatively low trans- scale purchases of crude oil, including Sakhalin Blend and the Kirinskoye fields are mixed with portation costs per barrel, the opportunity to unload oil, amid exceptionally low oil prices. crude oil to make light low-sulphur oil with in several ports, as well as the well-established busi- a density of about 42–49° and a sulphur content ness relations and experience of cooperation with In 2020, the market faced a drop in global oil demand, of about 0.16%. Sakhalin Blend is well known most major customers in the region. caused by COVID-19-related restrictions in many in the Asia-Pacific region. It competes successfully countries, which, in turn, reduced economic activity with similar light low-sulphur grades of oil produced The company has been selling Sakhalin Blend oil around the globe. The growing supply and demand in the Middle East, condensates, and heavier Far about both under fixed-term contracts and on a spot basis imbalance (market overstocking) led to a collapse Eastern blends such as Sokol and ESPO. since 2014. Sakhalin Blend oil is mainly purchased in the prices of oil and oil products. Through precise by the leading refineries in the Asia-Pacific region and team coordination and continuous improvement pro- In 2020, the company shipped about 37.9 mln bbl trading companies. cesses, Sakhalin Energy was able to sell all produced (4.8 mln t) of Sakhalin Blend oil from the port of Prig- 37.9 oil shipments successfully, safely and on time despite orodnoye, which amounted to about 54.2 standard oil mln bbl Historically, Japan, South Korea and China are the the different conditions and extremely tough com- shipments (one standard oil shipment is 700.0 thou- of oil main markets for Sakhalin Blend oil. In 2020, the petition caused by the availability of large volumes sand bbl). share of South Korea in the company’s sales remained of cheap oil on the APR market. All operations were was shipped by the company from the port consistently high, as it had been in the previous years, carried out at the ports of unloading in full compli- In 2020, year-round uninterrupted supplies of Sakha- of Prigorodnoye in 2020 but Japan’s share declined due to the influence of the ance with the COVID-19 preventive measures. lin Blend to the ports of the Asia-Pacific region were COVID-19 pandemic on the economy and an overall provided by the company’s chartered oil tanker decrease in oil refining in the country. At the same The share of oil blend exported by Sakhalin Energy fleet — three specialised ice-class Aframax tank- time, China’s share in the company’s sales in 2020 to the APR is about 0.3% of the total volume of oil ers: Zaliv Aniva, Zaliv Baikal and Zaliv Vostok. Oil increased significantly due to the country’s large- consumed in the region. was transshipped to customers’ vessels in the port of South Korea to be further transported to remote 4.2.3.2. Oil markets. The company carried out two operations of oil transshipment to its vessels as yet another Sakhalin Blend is a special oil grade supplied countermeasure against the spread of COVID-19. by Sakhalin Energy to the Asia-Pacific region. Thus, oil was supplied to those ports with It is a light, low-sulphur oil blend, consisting of three an increased risk of infection in different vessels. components produced offshore Sakhalin: ― crude oil from the Piltun-Astokhskoye field; In line with the long-term oil tanker fleet renewal ― gas condensate from the Lunskoye field, in- strategy, the company held a tender in 2020, cluding the C5+ fraction produced at the LNG as a result of which two tankers equipped with bow plant; loading gear and capable of using LNG as their main ― purchased condensate produced in the Ki- marine fuel will be part of the company’s chartered rinskoye gas and condensate field as part of the fleet from 2024 to 2034. The vessels will replace the Sakhalin-3 project. currently operating oil tankers after the expiration of their 15-year service life. The charter of the new With the start of Phase II of the project in Decem- vessels for a 10-year period will improve the effi- ber 2008, the company began shipping oil from the ciency of oil transportation, reduce the cost of marine tanker loading unit of the oil export terminal at the fuel, and make a significant contribution to the overall port of Prigorodnoye. Since 2009, the company has reduction of greenhouse gas emissions and the com- been shipping a mixture of oil and gas condensate pany’s carbon footprint globally and regionally. from the Lunskoye field. In 2014, the company began to use condensate produced in the Kirinskoye field The successful sales of Sakhalin Blend oil are ensured as part of the Sakhalin-3 project (Gazprom). by the proximity to the developed oil refining regions 70 71 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

Structure of the Sakhalin Blend Oil Sales Market in 2020, % 4.3. INNOVATIONS AND CONTINUOUS

11.1 IMPROVEMENT China—51.0

South Korea—37.9 4.3.1. DIGITAL TRANSFORMATION

Japan—11.1 51.0 Technological advances in the digital age require revolutionary changes in business models and individual business processes. The use and development of digital 37.9 platforms, the improvement of artificial intelligence during a scrupulous analysis of a huge real-time source database provides high-tech enterprises with undeniable advantages in work and allows them to effectively regulate financial flows. Today, Sakhalin Energy is implementing digital transformation to ensure further corporate growth and development. The company sees digitalisation as a form 4.2.3.3. Natural Gas of strategic management and a way to create new business opportunities. Since 2011, Sakhalin Energy has been supplying filling the gas pipelines from the block valve sta- natural gas to Gazprom’s gas main pipeline tion to end consumers, was successfully completed system to pay royalties payable in kind to the in December. In 2019, Sakhalin Energy launched a digital trans- ― change corporate culture based on new Russian party. formation process—a comprehensive business approaches to change management, working The commissioning of the remaining five product transformation aimed at improving operations and methods and organisational change; Gas transmission during 2011–2020 was carried out delivery points (in Dolinsk, Makarov, Troitskoye, ensuring the long-term sustainability of the company, ― develop information technologies and use new about at the northern and southern product delivery points. Korsakov and Leonidovo) and the start-up of gas are which consists of changing production and support approaches to architecture and data manage- The product delivery points are part of the North- scheduled for 2021–2022. processes, contractor communication channels, ment, use a product approach and flexible ern and Southern Gas Transfer Terminals (hereinaf- and corporate culture based on fundamentally new development methods, as well as competencies ter referred to as the GTT), located in the vicinity Since the commencement of natural gas delivery, approaches to data management using digital tech- for the digital programme implementation; 1.33 of Boatasino and Dalneye in the north and south about 11,272.1 mln m³ of natural gas has been deliv- bln m³ nologies. ― implement programmes and initiatives for the of Sakhalin, respectively. ered to the Russian party, in particular: introduction of digital technologies and digital of gas ― about 5,602.8 mln m³ (including about 716.5 mil- The purpose of digital transformation at Sakhalin solutions: The updated Regulations on the Distribution lion m³ in 2020) — via the Southern GTT to Yu- of the Sakhalin-2 project Energy is to facilitate the implementation of the ― Digital oil field (DOF). was supplied to the of Hydrocarbons Under the Production Sharing zhno-Sakhalinsk Heat and Power Plant-1 and Russian party in 2020 company’s growth strategy through the effective use ― Digital twins of physical objects. Agreement of the Piltun-Astokhskoye and the other infrastructure facilities. In addition, of technologies and opportunities of the digital age, ― Predictive maintenance and repair of equip- Lunskoye Oil and Gas Fields Development, and the 34.2 thousand m³ of natural gas was transferred and by creating an appropriate structure, processes ment. Specifications for the Transfer and Acceptance of Nat- to the Tymovskoye product delivery point in De- and culture. ― Ecosystem of contractor engagement. ural Gas Between Sakhalin Energy Investment Com- cember 2020; ― Digital employee. pany Ltd. and Gazprom, approved in October 2020, ― about 5,669.3 mln m³ (including about In 2020, Sakhalin Energy developed a high-level ― Digital back office. envisage the supply of gas by the company against 613.2 mln m³ in 2020) — via the Northern GTT digital strategy. ― Occupational and industrial safety, environ- royalty payments in additional six product delivery to the Sakhalin–Khabarovsk–Vladivostok gas mental protection. points on Sakhalin (south of the OPF). pipeline. The gas is intended for further use The objectives of digital transformation were defined ― Digital data platform. under the Far East and Primorye fuel and energy as follows: The construction of the first of them — the Tymovskoye sector development programmes. ― transform business processes, external and in- The company’s digital strategy defines the following product delivery point, designed to supply gas to the ternal communication channels; principles of digital transformation: Tymovskoye gas distribution station, was finished In total, about 1,329.7 bln m³ of Sakhalin-2 gas was in 2020. The commissioning stage, which involved supplied to the Russian party in 2020. 72 73 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

1. Support from the company’s leadership team 5. A unified approach to effectiveness management of the installations while taking into account control have been introduced on the Molikpaq The leadership team actively supports the digital and assessment ongoing changes, and improve the quality and Piltun-Astokhskoye-B platforms. Now, wells transformation of the company and is involved in dis- The unified management system along with processes of control of process parameters. can be launched into operation automatical- cussing the areas for the implementation of digital for evaluating and implementing digital initiatives ― Step cycles. The LNG plant has implement- ly in the shortest possible time without any initiatives. ensure maximum effectiveness of digital projects ed algorithms for automating the offloading sudden changes in reservoir pressure and flow. and the use of resources, as well as optimal decision- of LNG and oil, launching LNG trains and a ni- These systems reduce the workload of the CCR 2. Economic efficiency making. trogen installation. Algorithms for well-fitting operator and minimise the risk of human error. Setting clear and achievable goals makes it possible to predict the impact and costs of digital initiatives. 6. Data are the basis of digital transformation A key skill in corporate digital transformation is the Artificial Intelligence and Machine Learning 3. Digital transformation is part ability to get value and business benefits from data The company aims to reach a new level of critical pattern recognition methods, computer-aided of the company’s business strategy and analytical information. process equipment maintenance organisation, which learning technology, and technology for learning Digital transformation is integrated with the busi- is based on a predictive technical diagnostics strategy. the unique profile of an installation in real load and ness strategy, along with other company develop- 7. Starting with quick wins This will allow more detailed monitoring in real time, operational conditions. This tool, among other things, ment priorities, and directly affects the achievement Implementing high-impact, fast-paced digital ini- an analysis of the current state of equipment, and compares historical data on the equipment operation of business goals. tiatives ensures support from all company employ- identification of malfunctions much earlier than with operational data, and is capable of identifying ees. To increase its competitiveness, the company existing automated process control systems. the preconditions for malfunctions of the process 4. Digital transformation is part of the corporate improves the business processes, technologies and system long before the emergency protection system culture products offered by the industry, implements the A predictive analytics tool is a specialised software is triggered. This will give specialists more time All employees of the company share the same under- best global practices, studies and applies promising that uses individual equipment models and advanced to analyse the situation and take preventive measures. standing of the goals and objectives of digitalisation, tools (machine learning, predictive analytics, artificial are keen on implementing digital initiatives to improve intelligence) and develops its own solutions, includ- the efficiency of the company’s business, as well ing in the area of information security. as on developing their own digital competencies. THE ROLE OF DIGITAL TECHNOLOGIES IN THE TIME OF COVID-19 RESTRICTIONS In 2020, an average of more than 1,300 employees worked remotely on a daily basis. Process Automation In total, they made more than 3.5 million video and voice calls through the corporate telephone system and held more than 17.5 thousand meetings using video conferencing Sakhalin Energy develops and implements innovative densate stabilisation process at the onshore systems. The number of official events, meetings and conferences held using video approaches to process control. Automation is imple- processing facility (OPF) ensures, along with conferencing increased from 160 in 2019 to more than 1,800 in 2020. Most of the visits mented at three main levels. maintaining the required saturated vapour pressure, maximum energy efficiency and optimal of foreign specialists within the framework of the shutdown were replaced by remote ― Basic level. The degree of process control parameters for the uninterrupted operation work using virtual presence systems, which provided for high-quality work. More than automation at all company’s facilities is 100%. of weathering gas compressors. For some APC 600 computers were provided and more than 700 accounts were created to organise This means that all process parameters that system solutions, a real-time task correction the training process for employees staying in temporary accommodation facilities. can be controlled automatically are maintained system has been implemented, which helps at optimum values by automation tools. to adapt to specific conditions. Further devel- ― Advanced process control (APC) systems. opment of the APC system is planned through The use of control tools makes it possible the creation of automated control of the gas to maintain process parameters at the required treatment and transportation processes. This will level and, moreover, do this in a most efficient help to reduce the load on the Central Control way. For example, automation of the gas con- Room (CCR) operators, optimise the operation 74 75 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

4.3.2. CONTINUOUS IMPROVEMENT PROGRAMME Since its inception, Sakhalin Energy has applied continued its CI journey, in line with the CI vision modern management techniques and improvement and strategy and in accordance with the CI roadmap, methodologies, which were bundled in 2019 under as approved by the Committee of Executive Directors the CI banner. Throughout 2020 the company has and set out in the company’s Journey Book. CI Vision, Strategy and Roadmap

Sakhalin Energy’s vision and strategy in the field tinuously look for ways to operate the business more of continuous improvement (CI) aim at creating a cor- effectively and with higher economic return without CI Deployment porate culture and environment where both leaders compromising safety or reliability. and employees are engaged and empowered to con- In 2020, the CI management system, which is based ― align the CI activities across the company with on a decentralised delivery model that is coordinated the overall corporate goals; and supported by the central CI Section, proved its ― achieve high CI value delivery across the CI functionality and capability to: focus areas; Core CI Principles and Ways of Working ― ensure a high degree of efficiency and effective- ― strengthen the CI culture and CI mindset; ness in operating the CI programme; ― sustain the CI Journey of the company.

CI is not a purpose itself but SHOW RESPECT a critical means to achieve our Corporate Production Revenue Vision and Objectives and Wells Maximisation and TPS Optimisation Reduction/Avoidance We ensure visible Leadership Commitment, and Growth where leaders at all levels drive the Continuously Pursue End-2-End CI Culture by demonstrating consistent Improve Results application of CI Ways of Working and supporting their departmental CI Plans and Initiatives

FOCUS We deliver CI initiatives across 6 CI Focus ON THE Areas in support of Corporate Targets, Process Demand Drive Simple CUSTOMER Make Optimisation and Scope Solutions Performance prioritised and linked to selected Gap CI FOCUS and Efficiency Management Visible to Potential assessments AREAS

We deploy CI aligned and coordinated Y G H O by a central CI Team through a decentralised W S E K E Coach S delivery model working at a departmental A for Improvement level where this is fit for purpose and at an inter-departmental level where it is necessary

We build CI Capabilities across all levels Business Partnering Sustainability and Collaboration and Health of the organisation and apply a simple CI Initiatives Management and Realisation Model 76 77 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

CI Focus Areas ― 86% — “I know how CI works and is managed in the Company, I know my role in CI and what is expected from me in the area of Continuous Improvement”; Each individual CI initiative and project is evaluated employees can familiarise themselves with the CI ― 85% — “In my organisational unit, CI is actively and visibly promoted and regarding its cost benefit and tested regarding its initiative, leave comments, ask questions, propose effectiveness and business benefits. In addition, all CI solutions and receive feedback and answers from personally supported by the members of the leadership team”. initiatives and projects are registered on the unified initiators/owners of the corresponding CI initiative corporate continuous improvement portal, where all or project. The application of CI management tools and tech- mapping workshops”), requires employees to have niques (regular “huddles” / “cadence sessions”, appropriate knowledge and skills. CI Leadership “problem solving via A3 thinking” and “value stream

Continuous improvement is built into the manage- CI leadership is underpinned by visible leadership ment structure and is presented at regular meetings commitment, where leaders at all levels drive the and information sessions, both at the corporate and desired CI culture and mindset by demonstrating CI Capability Building at the departmental level, and CI is also part of the a consistent application of the CI ways of working In order to develop the relevant CI competencies, ― CI Awareness and Basic Training Courses on the individual annual goals and targets setting and review and by strongly supporting their departmental CI the company’s CI Capability Building Portal, which CI Methodology and on various CI Tools; process of all leaders and members of staff. plans and initiatives. is available to all staff, provides access to a wide range ― CI Practitioner Training and CI Specialist Train- of dedicated CI (e-learning and classroom) training ing; courses including: ― CI Leadership Training. CI Culture and Ways of Working

The company supports employees in their CI initia- The widespread use of CI techniques, tools and visual CI Value Delivery tives and encourages their participation in the cor- management systems and the increased number The CI value generated through the corporate CI CI plans and initiatives are aligned with and support porate CI programme by recognising successes in the of dedicated CI sessions and CI seminars resulted Programme is based on the implementation and ongoing business improvement / operational excel- area of continuous improvement, praising CI initiators in significant growth in the number of staff that delivery of CI initiatives, which are driven (bottom-up) lence activities as well as departmental and corpo- at all levels in the company and in their individual is involved in the CI programme, which is assessed by frontline staff individuals (identifying improve- rate scorecard targets. The progress of approved CI business units. Successful initiatives are communi- through an annual CI Survey. ment opportunities in their daily work scope) and initiatives is monitored frequently, and the CI teams cated to personnel, posted in all company’s offices (top-down) by the management through key corpo- receive support from leadership members for their CI and assets and participate in the CI Award and recog- rate CI initiatives/projects (including benchmarking initiatives where obstacles need to be removed. nition process at corporate or directorate level. and “gap to potential” studies) addressing major improvement opportunities and delivering of corporate KPIs and scorecard targets. 2020 OPINION SURVEY The results of the CI opinion survey 2020, which was conducted across all directorates in the company, demonstrated a very high level of positive feedback and staff In 2020, the CI funnel of Sakhalin Energy contained more than 1300 CI initiatives with engagement in the CI Programme. The highest average ratings (scores) were achieved a total value of more than US$ 370 mln; more than 560 CI initiatives were completed in the response from staff to the following key questions: and generated an associated value of more than US$ 200 mln and US$ 125 mln ― 94% — “I have a positive attitude towards Continuous Improvement, and I regard CI in bottom line impact for the 2020 year alone. as important for our company”; ― 90% — “In my organisational unit, there is a strong focus on business performance, results and achievements”; ― 86% — “In my organisational unit, we have CI Initiatives in place that are clearly connected to our targets (to deliver our objectives, strategy, scorecard)”; 78 79 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

4.3.3. INTELLECTUAL PROPERTY BUSINESS PROCESS PERFORMANCE RESULTS Throughout its history, Sakhalin Energy has been strengthen the company’s competitive advantages. using the best international practices and the latest The new business process was designed to develop technical solutions. The unique conditions of the a unified approach to the management of substantial Sakhalin-2 project implementation, however, often intellectual property, to ensure its legal protection, require the company and its contractors to search and to obtain additional benefits from intangible for or develop advanced approaches and methods, assets. Much attention is given to the management devices and technologies for fulfilling production and of the intellectual property of third parties and the commercial tasks. A package of intellectual property company’s contractors, obtained under contracts or 51 62 8 rights, which is a valuable asset for the company on other grounds. employees active countries development, helps to maintain efficient and reliable production. In four years, the Intellectual Property process has authored objects foreign yielded noticeable results: as of the end of 2020, the intellectual activity of intellectual patenting In connection with this, in 2016, Sakhalin Energy company held a portfolio of intellectual property results property including member countries European Patent Office and introduced the Intellectual Property business process rights, which included the following: Patent Office Council Arab to implement the processes of intellectual property ― seven patents issued in the Russian Federation cooperation Persian Gulf rights management, consolidation and protection (two of them protect technical solutions related of the company’s rights to new technical solutions to the production of liquefied natural gas, the created as part of the Sakhalin-2 project, and also third patent protects a new solution for mon- Is Important programme (see Sections 9.5.3. Since the start of the business process implementa- itoring the state of an oil and gas field during under the same title). tion, 51 Sakhalin Energy employees authored intellec- hydrocarbon production, the fourth — a solution ― numerous copyright assets: books, videos, tual activity results. aimed at simplifying and increasing the efficien- animated cartoons and comics created as part cy of drilling equipment operations during off- of the Safety Is Important programme (see Sec- These facts demonstrate the company’s desire shore hydrocarbon production, the fifth — a solution 9.5.3. of the same name); various manuals, to improve technical and organisational processes tion for maintaining the operability and integrity publications of works by authors from among and are proof of the unique feature and high level of subsea pipelines, the sixth — a solution aimed the Sakhalin Indigenous Minorities, and many of technical solutions created by Sakhalin Energy at improving the service life of drill strings other publications. specialists. by protecting the joints in the protector body, the seventh — a solution for informative monitoring of the exploited reservoir capacity); The developments included in the company’s intellectual portfolio are applied at its ― five patents issued abroad (one in Australia, one in Qatar, one in Canada, and two in the USA), facilities, increasing work efficiency and strengthening the company’s competitive following the patents for the development advantages as a responsible producer of hydrocarbons. of legal protection for the technical solutions “Method for the Control of the Mixed Re- frigerant Composition” and “Method for the Sakhalin Energy is engaged in activity which In 2021, the company will continue to expand its Control of the Mixed Refrigerant Composition is entirely new for the company—joint patenting intellectual property portfolio by patenting and in a Premixed Refrigerant Cycle in the Produc- of new collective technical solutions developed registering unique IT, technical and other solutions tion of Liquefied Natural Gas”, obtained in the by Sakhalin Energy specialists together with contrac- in the Russian Federation (and abroad, if necessary), Russian Federation; tors, which are in line with modern international prac- and by interacting with contractors in order to benefit ― 49 software programmes registered with Ro- tices and have shown good results when introduced from the use of new solutions developed under the spatent; into the company’s activities. Sakhalin-2 project. ― trademarks: the Sakhalin Energy logo, registered in two colour combinations; the image of Senya — the protagonist of the Safety 80 81 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE COMPANY REPORT 2020

4.4. product shipment, and implementation of project activities. The third command centre, BUSINESS CONTINUITY chaired by the Financial Director, ensured sustainable cash flow and risk control amid sanctions. MANAGEMENT GCC meetings were held on a daily basis, including holidays and days off, for the purpose of prompt response with due regard to the existing situation, decisions Since 2016, Sakhalin Energy has been implementing as soon as practicable. Thus, the BCMS provides of shareholders, recommendations and resolutions of government authorities. In the the Business Continuity Management System (BCMS) a suitable mechanism by which Sakhalin Energy can course of its work, the GCC developed and implemented the Unified Comprehensive to sustain the confidence of customers, shareholders systematically prepare for disruptive events and Action Plan, which was updated as needed. All decisions related to the security and stakeholders in the company’s capability to safe- assure BC capability. guard and restore business-critical activities and of facilities, protection of employee health, and production continuity during the performance in case of any disruptive event. For operational process management there is a 3-year COVID-19 pandemic were taken by GCC. Integrated Business Continuity Improvement Plan To ensure the effective availability of essential 2018-2020 based on BC Desk-Top Exercise and functions, Sakhalin Energy has developed a Business Annual BCP Management Review. Continuity Policy as an overarching commitment to a comprehensive Business Continuity and Recov- BC management has significant interfaces with crisis General Coordinating Committee ery Programme based on ISO 22301:2012 Societal management and emergency response. Security — Business Continuity Management Systems, ratified by the RF standards organisation (GOST By 2020, Sakhalin Energy had already analysed most R22301:2014 Societal Security — Business Continuity of the credible disruptive events that could lead Management Systems). to an interruption in the company’s key activities. The company had also tested its readiness to respond GENERAL COORDINATING COMMITTEE The purpose of the BCMS is to identify and assess effectively and resume business-critical activities the impact that can be caused by disruptive events, after events such as an earthquake, critical IT ser- whether unintentional, intentional, or naturally vices failure, a significant technical or HSE incident caused (disruption, emergency, crisis or natural disas- at a production facility and identified manual work- ter) and to develop recovery plans that would enable arounds for continuity of some business-critical Command centre for developing operations. Command centre for ensuring reliable production, product Sakhalin Energy to resume key business activities and implementing measures to prevent the spread shipment, and implementation of project activities of coronavirus

In 2020, the company proved the effectiveness of its BCMS by responding to the COVID-19 pandemic challenges. In the complicated epidemiological and economic situation it was critically important to arrange efficient management of the company as an organisation with a continuous production cycle and timely decision- Command centre, for sustainable cash flow and risk control amid sanctions making process. For this purpose, the company set up the General Coordinating Committee (GCC), chaired by the Chief Executive Officer and three command centres by areas of activities, to ensure continuous operation of the company amid the rapid spread of the coronavirus infection. The first command centre was responsible for developing and implementing measures to prevent the spread of coronavirus at the facilities. The second command centre was engaged in ensuring reliable production, 82 83 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

CORPORATE 5GOVERNANCE

In 2020 Sakhalin Energy has been rated as Class A1 following the first-ever anti-corruption rating of Russian business completed by the Russian Union of Industrialists and Entrepreneurs (RUIE). This is the top grade a business can earn in terms of anti-bribery/anti-corruption and corporate business ethics. 84 85 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

Corporate governance is a process ensuring due company’s activities, establish areas of responsibility, 5.1. COMPANY’S MISSION, VISION, diligence in organisation, management, and over- and assess performance. sight within Sakhalin Energy. Corporate governance is accomplished by engaging the Sakhalin Ener- The Sakhalin Energy’s Business Management System VALUES, AND PRINCIPLES gy’s senior management with its shareholders and Manual describes the main principles and approach the Russian party to determine the direction of the to managing the company. Sakhalin Energy is guided by general business prin- environment, local communities, as well as commu- ciples, with underlying core values of honesty and nication and engagement with stakeholders. The full integrity, respect and care for people, professionalism text of the company’s General Business Princi- Corporate Governance System and individual accountability, continuous improve- ples is available on the Sakhalin Energy’s website ment and teamwork. These principles are exemplified (www.sakhalinenergy.com). by the company’s responsibilities to its shareholders, the Russian party, customers, the company’s employ- Vision: To be the premier energy source for Asia-Pacific. ees, and business partners—i.e. all parties that have Leadership and Commitment business relations with the company, as well as to the Mission: Sakhalin Energy is committed to being community. a premier energy supplier, recognised for its safety, operational excellence, and reliability. The general business principles cover, among other Policy and Strategic Objective areas, economic features, competition, business We conduct our business in an ethically, socially, and integrity, political activities, health, safety, security, environmentally responsible manner.

Risk Management

5.2. CORPORATE GOVERNANCE SYSTEM Organisation Responsibilities, Resources, AND STRUCTURE Competences

Processes, Assets Corrective “The Business Management System is the fundamental mechanism for Sakhalin and Standards Actions Energy’s operations. The system ensures compliance with our business principles, legislation, obligations to shareholders and other stakeholders, gives an understanding of how the company conducts its business and what policies and standards must Planning be followed in order to properly perform all work. Therefore, updating the Business

Management System along with updating the business process model is the special Implementation Monitoring focus area for the company in the new reality. “

Roman Dashkov, Assurance Chairman of the Committee of Executive Directors and Chief Executive Officer Communication 86 87 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

Leadership and commitment Contingency and emergency response plans are The Journey Book, which is published annually, implemented and regularly evaluated. is used to inform all company’s employees about Sakhalin Energy’s senior management is fully commit- all staff and contractors. The senior management plays the company’s goals, strategy, targets, and measures ted to the Business Management System. Compliance a leading role in the continuous improvement of busi- to achieve them. with senior management decisions is mandatory for ness processes through their decisions and actions.

Implementation Policy and strategic objectives Performance indicators are established and moni- All incidents with significant potential or actual con- The company’s policies and standards comply with to everyone and are consistently incorporated into tored, and results are reported. Corrective measures sequences are thoroughly investigated and reported. Russian laws and regulations as well as with the the policies, standards, processes, and plans adopted are taken as necessary, and policies, organisational All lessons learned are disseminated throughout the requirements of its shareholders and lenders. Sakhalin by the company. structure, risks, plans, and processes are updated. company. Energy’s strategic objectives are inspiring and clear

Assurance Risk management Assurance is in place to ensure the management sys- in a timely manner. Management regularly reviews the When establishing objectives, the company identifies, including decreasing, mitigating, or preventing them tem is reasonably effective. It includes independent suitability and effectiveness of the assurance frame- assesses, and considers overall risks related to achiev- (see Section 5.4. Risk Management). audits of processes and assets. Audits are followed up work. ing these goals and identifies ways to manage risks,

Communication Organisation, responsibilities, resources, and competency Transparent and open communication is essential The CEO and other members of the CED reinforce The organisation and resources of the company are and understood. The employees are prepared and to ensure the company’s business objectives are met. this communication framework with regular staff adequate to meet the strategic objectives. Responsibil- trained in accordance with training plans coordinated Line managers engage with their staff, communicating engagement sessions (see Section 5.5. Corporate Cul- ities at all levels are clearly described, communicated, with structured competency assessment systems. business goals and priorities. The CED receives their ture and Section 6.3. Engagement with Personnel). feedback for information and possible follow-up.

Processes, assets, and standards Processes and assets are defined with clearly assigned priate organisational levels. Process owners ensure 5.3. CORPORATE GOVERNANCE responsibilities. Process/asset standards and proce- the proper implementation of control procedures dures incorporating controls and means of risk man- through regular assurance and compliance activities agement are in place and understood at the appro- adopted by the company. MODEL

Strategic planning is carried out through engaging since 2007, Gazprom holds 50% plus one share, Shell Planning the Sakhalin Energy’s senior management with the holds 27.5% minus one share, Mitsui holds 12.5%, and Russian party (representatives of the federal execu- Mitsubishi holds 10%. All the shareholders operate All plans approved are optimised and fully resourced. active and open discussions with representatives tive authorities and the Sakhalin Oblast Government) through their subsidiaries. Performance targets are set that will ensure progres- of all directorates and departments at the special and company’s shareholders that determine policy sion towards the long-term objectives. The five-year annual event named 100 Workshop (see Section 6.3. directions, establish areas of responsibility, and assess The Supervisory Board is the Sakhalin-2 project plans, that are assessed and adjusted annually, form Engagement with Personnel). the results achieved, including those in the area strategic management body established and oper- the basis of planning. They are established through of sustainable development. Under the shareholding ating in accordance with the Agreement on the structure of Sakhalin Energy, which has not changed Development of the Piltun-Astokhskoye and 88 89 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

Lunskoye Oil and Gas Fields on the Basis of Produc- of the Supervisory Board is available on the Sakhalin The company’s governing bodies have the following agenda of a FAC meeting includes equity/project tion Sharing (PSA). The Supervisory Board super- Energy’s website (www.sakhalinenergy.com). tasks in the governance model. financing arrangements; assurance framework (includ- vises the fulfilment of the PSA terms and approves ing financial business); cost recovery issues; strategic the company’s long-term development plans and Sakhalin Energy uses a three-stage corporate gover- Board of Directors (BoD) — appointed by the com- risks, internal/external audits; work/service contracts, budgets, annual work programme and budget, LNG nance system, in which: pany’s shareholders, it is responsible for the overall agreements and amendments; tax liabilities; insur- sales agreements, procurement procedures, Rus- ― certain key decisions are made by shareholders; governance of the company and for key decisions ance; treasury; accounting policy and supply chain sian national employment and training plans, etc. ― the Board of Directors is responsible for overall regarding economic, environmental, and social activ- management. The Supervisory Board also reviews the compa- company’s governance; ities as well as the strategy and business direction ny’s annual reports and appoints auditors. The Super- ― daily management and operation of the compa- of the company. External Affairs Committee — an advisory committee visory Board consists of 12 members: six represen- ny is the prerogative of the Committee of Exec- to the BoD. The Committee is chaired by the Sakhalin tatives from the company and six representatives utive Directors (CED). The BoD members in 2020 included all the execu- Energy’s Head of the Corporate Affairs Division and from the Russian party. Information on members tive (7) and non-executive (8) directors of the com- consists of representatives from the company and pany. Cederic Cremers, Shell Country Chair in Russia, its shareholders who meet to discuss external affairs, served as the Chairman of the Board as of the end such as formulating and coordinating the compa- Corporate Governance Model of 2020. ny’s positions and communications with shareholders; monitoring and responding to media reports, The BoD is supported by several committees. releases, and inquiries; and coordinating issues associated with managing the company’s reputation. RUSSIAN PARTY SHAREHOLDERS Commercial Committee — chaired by the company’s Commercial Director and consisting Board Assurance Committee — consists of two repre- 50% +1 share 12.5% of representatives from Sakhalin Energy and its sentatives from each of the company’s shareholders, Russian Federation shareholders who meet to discuss commercial issues one of which is a non-executive director. The meet- Sakhalin Oblast and related proposals and strategies pertaining ings are attended by the company’s Chief Executive 27.5% −1 share 10% to PSA/shareholder issues, PSA amendments, Licence Officer, Finance Director, Legal Director, any other Security proposals, infrastructure sharing /cooperation executive directors responsible for the agenda items issues, and business strategies on crude oil, LNG and of a Committee meeting, the Audit Manager, and natural gas, and other commercial issues. other individuals invited by the Committee.

Technical Committee — chaired by the compa- Board Remuneration Committee — an advisory Supervisory Board PSA (1994) Shareholders Agreement Board of Directors ny’s Technical Director and consisting of representa- committee to the BoD. This Committee reviews and tives from the Sakhalin Energy’s Technical and Pro- makes recommendations with regard to the annual duction Directorates and its shareholder companies performance of executive directors as well as overall who meet to discuss technical issues such as value HR policies. The Committee includes two representa- assurance reviews, development proposals, well drill- tives (one of which should be a non-executive direc- SAKHALIN ENERGY INVESTMENT COMPANY LTD. ing and completion, development work programmes tor of the company) from each of the shareholders. and related budget proposals, operational activities, contracting plans and strategies, tender board policy, Committee of Executive Directors — headed by the Committee of Executive Directors project development schedules, HSE management, company’s CEO (Chairman) and consists of all the and engineering, procurement and construction plans. executive directors of the company. CED designates, directs, and oversees the operations of Sakhalin Energy Finance Advisory Committee — chaired by the through business plans and strategies and by decid- Finance Director and consisting of representatives ing how best to implement them. The CED members from Sakhalin Energy and shareholder companies as of 31 December 2020 are shown in the Committee who meet to discuss financial issues. The standard of Executive Directors organisational chart. 90 91 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

Committee of Executive Directors (as of 31st of December 2020) Company’s Organisational Structure (as of 31st of December 2020)

Roman Dashkov CHIEF REPRESENTATIVE Chairman of the Committee EXECUTIVE OFFICE (MOSCOW) of Executive Directors, OFFICER Chief Executive Officer

Grzegorz Timur Roger Andrey Qaiser Alexander Kulawski Gafarov Hickman Okhotkin Lone Sheykin Production Technical Commercial Office HR Finance Legal Production Technical Finance Commercial Legal HR Directorate Directorate Directorate of the CEO Directorate Directorate Directorate Director Director Director Director Director Director

• Offshore Assets • Field • LNG Marketing • Intellectual • HR Business • Supply Chain • Contracts Department Development Property Section Operation, Management and Dispute • Shipping Department Learning and Department Resolution • Onshore Assets and Commercial • HSE Department Development Department • Well Design, Operations • Finance Control • Corporate and • Corporate Division Construction Project Finance • Production • Strategic Affairs • Finance for and Maintenance • Organisation Complex Planning and Department Business • Operations, Department Development, Prigorodnoye: Development Approvals and • Corporate Compensations • Treasury LNG & OET • TD Business Division Litigation Security and Benefits Support • Taxation • Projects Delivery • Business Department Division Department Department Opportunities • SAP • IT and IM • Personnel Maturation • Engineering and Department Administration • Continuous Section Maintenance and SAP HCM Improvement • Facilities Department Division Section Management • Production and Support Development Department The CED is supported by internal committees, includ- The company’s organisational structure ensures that • Logistics • Internal Audit ing, but not limited to: functional tasks related to both assets and processes • Approvals Subdivision ― Management Development Committee; are completed. and Compliance • Industrial and • OPFC Department ― Decision Review Board; Fire Safety, ― Business Integrity Committee; Blowout and Emergency ― Business Assurance Committee; Response ― HSES Management Committee. Department 92 93 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

The risk management process at Sakhalin Energy One of the most important components of effective 5.4. RISK MANAGEMENT SYSTEM includes identification and assessment of risks, risk management is conducting an impact assessment. planning management measures, their implementa- This process is carried out before starting any work tion, monitoring indicators and reassessment of risks. that could potentially affect various areas (see Sec- The cycle is carried out on continuous and dynamic tion 3.5.2. Impact Assessment). basis in order to ensure the identification of areas that Sakhalin Energy believes that effective risk manage- ― ensuring proper assessment, monitoring and require improvement, as well as the implementation Risk management lies within the responsibility ment is critical to achieving the company’s goals. mitigation of risk exposure. of these improvements (see the Risk Management of those who are responsible for achieving the goals Cycle chart). This process is governed by the Corpo- associated with these risks (risk owners and coor- The main goals of effective risk management are In risk management, the company follows the rate Risk Management Procedure. dinators). All executive directors of the company as follows: ISO 31000:2018 Risk Management Standard. ensure proactive risk management as part of his/her ― creating a risk-oriented culture in the company; The key tool for assessing the impact and likelihood leadership activities. Monitoring is carried out by the ― creating value for key stakeholders by ensur- Sakhalin Energy understands risk as a potential sit- of risks is the risk assessment matrix, which provides Business Assurance Committee, which includes ing effective implementation of the corporate uation that can affect the achievement of corporate for classification of actual and potential conse- the company’s executive directors, and the Board strategy; goals. Accordingly, all risks are divided into threats quences, determination of the severity of risks, and of Assurance Committee (see the Controls Frame- ― ensuring sound planning by involving senior and opportunities and assessed in terms of impact proper management thereof. Risks are assessed by the work chart). management in the management of key risks; and probability. likelihood of occurrence and the level of impact on the process of goal implementation.

Risk Management Cycle Controls Framework

inuous improvem Cont ent

es A ur w ed ar c en ro e p s d s n Monitor and reassess controls Identify and assess risks to achieve a s framework the objectives ie ic l o P COMPANY’S OBJECTIVES

• Health, safety, • Digital environment (HSE) transformation and security • Continuous COMPANY’S • People improvement and • Ethics and value OBJECTIVES compliance • Commercial value • Reliability and delivery integrity • Growth strategy • Production and • Status and development reputation of the e c company n Develop and plan responses / internal a Implement responses r u s and controls controls R s e a p d o n rt a in e g nc ia pl m Co

Con nt tinuous improveme 94 95 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

Risks that the company assesses as the most significant, and ways to control them

Risks Description/Controls Reference Risks Description/Controls Reference

Continuous Many of the processes and areas of work used by Sakhalin Energy can be improved in order to increase their efficiency Details Safety risks improvement and/or productivity, which will allow the company to be the leading supplier of energy resources for the Asia-Pacific in Section (opportunity) region. 4.3.2 The company has developed a strategy to achieve maximum production efficiency—the Continuous Improvement Process safety Process Safety is the management of hazards that can cause major accidents that release potentially dangerous materials Details Programme, which includes a number of initiatives to reduce costs, increase profitability and improve production or energy such as a fire or explosion, or both. Potential sources of major accidents are: hydrocarbon releases from in Sections 4 efficiency. production installations or wells, onshore and offshore assets and pipelines which could result in a fire or explosion; loss and 9.2 of structural integrity of offshore installations; marine hazards such as a ship colliding with an installation or another vessel; aviation hazards such as a helicopter crash; major road traffic accidents; contamination of food or water affecting COVID-19 related Risks personnel at the assets; loss of power to remote locations during the winter; dropped objects, and transferring personnel between offshore installations and vessels. Business continuity To reduce the risk the company developed and introduced the imperative measures for minimising the probability Details The Process Safety Control System consists of three elements: of COVID-19 infection intrusion into company’s offices and facilities, specific logistics have been developed for in Section Design Integrity — designing and building the company’s assets so that risks are as low as reasonably practicable personnel/equipment delivery to the company’s assets. General Coordinating Committee executes the control over 4, 9.1, 9.3 (ALARP); compliance with these measures. Technical Integrity — applying technical control measures through effective maintenance, inspection, repair, and quality assurance; Operating Integrity — applying technical control measures and managing critical work processes by using work permits, Personnel health To reduce the risk the company developed and introduced the imperative measures for minimising the probability monitoring technical processes manually, overseeing changes in processes, etc. of COVID-19 infection intrusion into company’s offices and facilities. General Coordinating Committee executes the Senior management must take a leading role in ensuring process integrity in order for this system to be successful. control over compliance with these measures. Leaders should have the ability to pick up on weak signals and create an atmosphere in which people can halt unsafe work and speak up when they feel something is not right. Economic risks The process safety risks are assessed at each company’s asset based on Russian Federation legislation and international practice.

Risk of adverse The United States and several other countries have imposed sanctions that may affect the company’s business. effects of existing Personnel safety The key risks in the area of personnel safety have been associated with hand injuries as a result of jamming, lifting Details The company has formed an interdisciplinary sanction working group responsible for monitoring and developing and potential risks operations and cutting tool handling, falling and leg injuries from trips and slips. Dropped objects and working with in Section 9.2 situation management plans. sanctions electricity entail potential risks. To mitigate safety risks, the company implements adequate preventive and control measures, such as staff training on occupational safety, provision of PPE, medical check-ups, introduction of latest technologies for minimising staff Social and reputational risks exposure to hazards, electronic work permits system that prevents conflict of operations and reduces the likelihood of human error. The implementation of the Goal Zero programme is a special priority aimed at improving the safety culture and Staff turnover It is important for the company to retain the necessary level of trained and qualified personnel. Losing professionals Details decreasing the number of injuries. and specialists, especially those in technical fields, can lead to insufficient trained personnel in the skill pool to fill in Section 9.1 As part of the Effective Observation and Intervention Programme, employees and contractors are engaged in identifying critical positions and can lower the general qualification level of key experts. hazardous work conditions in order to prevent accidents; best interventions are rewarded with prizes and gifts. In order to mitigate the risk, the company strives to support the succession process, including at the level Company management at various levels demonstrates continuous leadership and commitment to safety in the course of managerial targets and goals. Programmes of managerial and leadership skills development are being implemented. of regular visits to production sites and communication with the staff. The competitiveness of the employee value proposition is regularly assessed. The Traineeship Agreement is updated Identification of root causes of accidents enables the company to be proactive and prevent recurrence of incidents annually in cooperation with the shareholders. by learning lessons and sharing experience among production facilities.

Occupational To reduce the risk of occupational diseases: personnel health risk assessment at the facilities, harmful factors production Details diseases risk control, special workplace attestation, periodic medical and clinical examinations, control over compliance with work in Section 9.3 Road safety Within the framework of the OPFC project, the traffic intensity on the southern access road has significantly increased. Details instructions during work, control over the use of PPE, and education on the prevention of occupational diseases. To strengthen road safety control, on the road an additional monitoring group has been arranged. in Section 9.2 Traffic decreased during the operations phase, but the risk levels remain high over the entire service life of the Environmental risks Sakhalin-2 project. Traffic volumes are still high, often in difficult weather and road conditions. The most common violation among contractor drivers is speeding. To manage risks and prevent violations of road traffic rules, the company monitors speed limit violations using IVMS and with the help of Traffic Safety Team inspectors, Risks with regards The company uses the following controls to reduce the risk of negative impacts on the environment and the risk Details conducts training sessions and discussions with drivers, and performs strict journey management. Other precautionary to negative impact of contamination in line with the requirements of environmental legislation and international standards: in Section 8 measures and controls are also being implemented. on the environment identifying all environmental aspects and performing an environmental risk and impact assessment when planning business activities and implementing a project; operating on the basis of permits and licenses obtained, within the limits for emissions and discharges and waste generation volumes specified by the standards; developing and implementing comprehensive programmes for industrial environmental control, local environmental monitoring and biodiversity conservation in the areas of production assets; analysing the results of monitoring, assessing the efficiency of controls and developing and implementing environmental protection plans. Risks are managed in accordance with the company’s Risk Management Standard and the special Atmospheric Air Protection Standard, Water Use Standard, Waste Management Standard, Soil Use Standard, Marine Environment Protection Standard and Biodiversity Standard. 96 97 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

Sakhalin Energy operates in strict compliance with considerations into business decision-making 5.5. CORPORATE CULTURE the Russian Federation legislation and corporate (the principles of environmental and social General Business Principles, including the following: responsibility); ― we do not tolerate corruption, corporate fraud, ― we promote the development and best use embezzlement, money laundering or any other of the talents of our employees; abuse of the company’s assets; ― we conduct business as a responsible corporate ― we seek to work freely and fairly, in compliance “The Reputation of an honest business is a priceless asset for any organisation. member of society, support fundamental human with the business ethics standards; Our success in no small measure is contingent on compliance with both legislative rights and give proper regard to health, safety, ― we seek to maintain mutually beneficial rela- requirements and highest possible ethical standards.” security and the environment; tionships with business partners, contractors Roman Dashkov, ― we contribute to sustainable development, and vendors. integrating economic, environmental and social Chairman of the Committee of Executive Directors and Chief Executive Officer The General Business Principles of the company are communicated to newcomers during the regular onboarding sessions. Values, principles, rules, codes, traditions and prac- rests on trust and our corporate values—honesty, All employees complete biannually online trainings dedicated to the Code tices add up to the company’s corporate culture, mak- integrity, respect, professionalism, individual respon- ing it unique and guiding it to the destination that has sibility, continuous improvement and teamwork — of Conduct, Anti-Bribery and Corruption principles and Conflict of Interest Procedure. been set. Sakhalin Energy’s corporate culture, which contributes to our reputation and business success. In 2020 the company refreshed the mandatory online trainings. In 2020, almost 100% of employees who were required to do these trainings completed them. To enhance zero tolerance of corruption and fraud, the company has developed Corporate Values face to face training sessions on Ethics and Compliance, which are conducted on a regular basis. This format serves as a platform for discussing changes in the anti- corruption legislation and their impact on the business environment and the company. inuous improvem Cont ent

The company’s management is actively involved on the Ethics and Compliance Programme, in promotion of the corporate culture which is based encouraging employees to raise their con- on mutual respect and trust: the company trusting cerns and ask questions to receive advice and VALUES its employees, the shareholders trusting the com- recommendations (via Whistle Blowing and pany, etc. This makes negligence and any malpractice Contacts links). • Honesty and integrity unacceptable. ― Ethics and Compliance Programme. The pro- • Respect and care for people

I gramme was developed in accordance with the n • Professional and individual t

r accountability for performance To enhance and further develop our corporate culture Russian and applicable international legislation, n

l • Continuous improvement aimed to maintain the company’s values, reputation as well as best international practices. Ethics c o m and teamwork e r and high international standing, the following sources and Compliance Manager coordinates the m u t u l n u i have been developed: implementation of the programme in line with c c a e t t i a o r ― Ethics and Compliance internal web-resource. its terms and conditions. The programme is up- n o a p n r d o The E&C website covers ethics and compli- dated annually and information on its delivery e C n g ance information and updates (Stories, Facts is reported to the company senior management ag em e nt and Events sections) and offers information and shareholders on a regular basis as per plan. 98 99 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

5.6. ETHICS AND COMPLIANCE Basic Elements of Ethics and Compliance

The Code of Conduct is an integral part of Sakhalin ing respect for human rights, health, safety and envi- Energy’s corporate governance and culture, defining ronment, anti-corruption and anti-bribery, etc., and Anti-Corruption Conflict and Anti-Bribery essential rules, standards and norms of conduct aimed includes the principles of management commitment, of Interest at achieving Sakhalin Energy’s goals in line with its due diligence and risk assessment, monitoring and requirements, corporate values and principles. reporting, communication and training, etc. (see the Trade Commitment Antitrust and Basic Elements of Ethics and Compliance chart). Facilitation and of senior and line Anti-Money Sakhalin Energy’s Code of Conduct applies directly Sanctions managers Laundering to each employee and covers various aspects, includ-

Integrity Labour and igitalisation Code Corporate Monitoring D Risk assessment Compliance Security and reporting

Inventory Management and Relationships

Technical ETHICS AND

E with Customers and

Compliance COMPLIANCE m

e Contractors

s p

o e

c y

e o

r e

P s Communication Procedures and training Production Internal Compli- Audit ance

Due diligence Observance Cybersecurity of HSE and and Data Industrial Safety Confidentiality

Observance Tax and of Legal and Financial Regulatory Compliance Requirements

Detailed regulation of each of these processes All policies and procedures have been developed is included in the company’s procedures and policies: in line with the existing laws and regulations, as well ― Code of Conduct, including the Statement as the General Business Principles of the company. of General Business Principles; The company has established a safe and confi- ― Sustainable Development Policy; dential whistleblowing hotline for employees and ― Human Rights Policy; others to raise any concerns and report incidences ― Whistle Blowing / Grievance Procedure; of non-compliance with the General Business ― Conflict of Interest Procedure; Principles. Sakhalin Energy employees are expected ― Anti-Bribery and Corruption Procedure. to report to the company any incidents of violation of the General Business Principles. 100 101 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

The company continuously works to reinforce its staff with each group/department, etc.), as well as various In 2020 Sakhalin Energy has been rated as Class A1 following the first-ever anti- engagement and two-way communication frame- types of electronic and written communications and corruption rating of Russian business completed by the Russian Union of Industrialists work using such methods as direct communication feedback (see Section 6.3. Engagement with Person- (general staff communication sessions, meetings nel), etc. and Entrepreneurs (RUIE). This is the top grade a business can earn in terms of anti- bribery/anti-corruption and corporate business ethics. The rating’s objective is to improve the openness and transparency of Russian The company has developed and applies the Conflict of Interest Procedure. Under the companies through publishing information regarding levels of compliance with the procedure, a conflict of interest declaration must be filled out by all the employees Russian Anti-Corruption Charter for Business and ISO 37001-2016 Anti-bribery on an annual basis. Employees must also submit a conflict of interest declaration management systems — Requirements with guidance for use. at other times when an actual, potential or perceived conflict of interest arises. To compile the rating, 37 criteria contained in ISO 37001:2016 were used, The Procedure allows the company to prevent and assess potential conflicts and including the existence of a corporate anti-bribery management system, leadership describes measures to protect both Sakhalin Energy and its personnel from the risk commitment to the principles of honesty and integrity in business, financial and non- of actual conflict between the employees’ private and professional interests. financial controls, raising awareness among personnel and business partners, including In 2020 almost 100% of employees completed their annual conflict of interest extensive anti-bribery and anti-corruption personnel training, availability of effective declaration. mechanisms to communicate information to all relevant stakeholders, etc.

5.7. ANTI-BRIBERY AND CORRUPTION BASIC REGULATORY DOCUMENTS ON BUSINESS ETHICS AND COMPLIANCE

The effective development of Sakhalin Energy ― Sakhalin Energy does not tolerate corporate is based on zero tolerance to corruption and fraud, fraud, bribery, corruption, embezzlement, money and one and the same Code of Conduct being man- laundering or any other abuse of its assets. datory for all the company’s employees, irrespective ― The company promotes its General Business of their position or employment record. Principles to business partners, contractors and ― The company follows Russian and applicable vendors. Anti-Bribery Sustainable Whistle Blowing / Conflict of Interest international anti-corruption and anti-fraud Human Rights Policy and Corruption Code of Conduct Development Policy Grievance Procedure Procedure regulations, corporate General Business Prin- The company continually and diligently makes efforts Procedure ciples and Code of Conduct, as well as internal to prevent and combat corruption and keeps making policies and procedures. these efforts more effective. This includes development of the relevant policies and procedures and implementation of business assurance processes to prevent any unlawful activities. 102 103 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT CORPORATE GOVERNANCE REPORT 2020

Anti-Bribery and Corruption Procedure (hereinafter ruption laws and must attend individual face-to-face referred to as the Procedure) is the primary compa- training on the requirements of this Procedure. ny’s document dealing with bribery and corruption. To raise the awareness of all employees in 2020 com- Risks associated with non-compliance with this pany issued the regular Bulletin on Business Ethics Procedure include failure to follow anti-bribery and and Internal Control. corruption legal requirements and failure to comply with ethical business standards. These risks may lead All newly hired staff must be briefed about the to reputational damage, financial losses (e.g. fines), requirements set forth in the Procedure as part and criminal liability of the company, its employees of their induction. The Finance Controller together as well as its agents, contractors, and intermediaries. with the Ethics and Compliance Manager shall ensure The Procedure lists categories of employees who that Sakhalin Energy employees are made aware present higher risks of violating anti-bribery and cor- of Anti-Bribery and Corruption Procedure (including organisation of training sessions) and comply with this Procedure.

The company informs both internal and external parties on channels for reporting violations of anti-bribery and corruption legislation. For these purposes, various mechanisms have been put in place including posting relevant information on the company’s internal and external websites, in the company’s offices and at production assets. The company’s website has a digital template for making reports on fraud, corruption or embezzlement. company’s processes of contracted works organisation legislation, company’s requirements, and best On an annual basis company informs contractors with which active contracts and procurement and to implement further controls. international practices; exist on its Ethics and Compliance requirements (including Anti-Bribery and ― The Legal Directorate shall monitor any chang- ― The Supply Chain Manager shall ensure that Corruption) via official letter signed by the Finance Director. es in standard contract clauses that specify the standard company’s contracts contain the company’s anti-bribery and corruption require- relevant standard clauses and that controls set ments. forth by this Procedure are effectively integrat- ― To provide methodological support of the ed into the company’s processes of organisation The company’s Legal Directorate shall advise ― applying a set of potential risk indicators, or the company’s contracting and procurement proof contracted works and procurement. Special employees on anti-bribery and corruption legal issues so-called “red flags” (e.g. risks associated with cess and to observe the due diligence principle focus shall be placed on ethics and compliance and risks associated with non-compliance. demands for payment for services not covered related to potential and existing contractors, in terms of training seminars organised for man- by a contract, lack of transparency in invoice employees of the Ethics, Corporate Governance ufacturers and suppliers. The Anti-Bribery and Corruption Procedure estab- supporting documents, etc.); and Assurance Subdivision shall assess the lishes an overall set of controls for compliance with ― applying pre-contractual due diligence, manda- compliance of the proposed changes to the The Business Assurance Committee shall review the anti-bribery and corruption laws, including: tory contract provisions, etc. standard contract terms with the principles monitoring results for compliance with anti-bribery ― anti-bribery and corruption requirements; of business ethics, applicable anti-corruption and corruption requirements. ― identifying non-compliance; The following is arranged in order to integrate ― reporting to the Business Assurance Committee; anti-bribery and corruption requirements into the SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

STAKEHOLDER ENGAGEMENT 6MANAGEMENT

The company considers regular and meaningful stakeholder engagement and public disclosure of relevant information to be essential components of corporate sustainability and successful implementation of the Sakhalin-2 project. 106 107 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

Sakhalin Energy’s engagement with stakeholders ― Social Performance Standard (Public Consulta- 6.1. STRATEGY, PRINCIPLES, is based on its commitments as set forth in key corpo- tion and Disclosure Appendix); rate documents, including: ― Public Consultation and Disclosure Plan (up ― Code of Conduct, including the Statement dated annually). MECHANISMS AND ENGAGEMENT of General Business Principles; ― Sustainable Development Policy; These documents define the strategy, principles, pro- TOOLS ― Human Rights Policy; cess, mechanisms, and stakeholder engagement tools ― Commitment and Policy on Health, Safety, Envi- and are available to the public. ronment and Social Performance; Considering that regular and meaningful engage- entities that are influenced by the company or can ment with the general public and key stakeholders potentially influence the company’s operations. is an important element of successful operations, Sakhalin Energy has been sharing information about The company interacts with a number of stake- Stakeholder Engagement Process its activities and plans and consulting with stake holders including shareholders, personnel, lenders, holders since the start of the project. government authorities, customers, suppliers and contractors, community, Japanese stakeholders, Stakeholders are defined as organisations, compa- international organisations, public and other non- IDENTIFY INTERESTS AND nies, individuals, or groups that have a vested inte governmental/non-profit organisations, mass media, POTENTIAL ISSUES rest in the company or the project, i.e. individuals or and others.

STRATEGY Company’s Stakeholders

• Regular and constructive engagement IDENTIFY AND DEFINE IMPROVEMENT • Broad and open communication STAKEHOLDERS

BASIC PRINCIPLES Personnel Community • Constructability and focus • Openness and transparency DEFINE ENGAGEMENT ANALYSIS AND CONTROL • Positive relationships LEVEL, MECHANISMS International AND TOOLS Contractors • Effective mechanisms, including Organisations consideration of views in relation to issues and solutions

NGOs and other Government Non-Profit Organisations COMPANY IMPLEMENT PLANS, DEVELOP ENGAGEMENT Shareholders Mass Media RECORD OUTCOMES PLANS

Japanese Lenders Stakeholders The most effective mechanisms and tools are Public Consultation and Disclosure Plan on the com- determined by engagement goals and objectives and pany’s website www.sakhalinenergy.com). Customers Other Stakeholders depend on a particular stakeholder group (see the 108 109 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

― engagement with indigenous people under the thorities, and other stakeholders). The meetings 6.2. STAKEHOLDER ENGAGEMENT Sakhalin Indigenous Minorities Development were held in person in February 2020, before the Plan (see Section 6.5. Engagement with the start of the COVID-19 pandemic; Sakhalin Indigenous Minorities (SIM)); ― 29 people visited the office of the Community IN 2020 ― engagement with non-governmental and Liaison Officer in Korsakov. The statistics of vis- non-profit organisations (see Section 6.6. its are presented in the Statistics of Questions Engagement with Non-governmental and from Visitors to the Korsakov Office in 2020 Sakhalin Energy continued systematic and consis- ― engagement with personnel (see Section 6.3. Non-profit Organisations); by Topic chart. The Korsakov Community tent engagement with key stakeholders in 2020. Engagement with Personnel); ― engagement with customers, suppliers and con- Liaison Officer’s open hours were suspended The COVID-19 pandemic caused many changes: ― providing information to stakeholders through tractors (see Section 6.8. Engagement with Cus- starting from March 2020 due to the COVID-19 many of the planned events were held online instead the company’s website, the Vesti monthly tomers, Section 7.4. Supply Chain Management, pandemic, but consultations were conducted of face-to-face, some activities were cancelled, corporate newsletter, and the media (news and 7.3.4. Vendor Development Programme); by phone; in particular: papers, TV); distribution of information reports ― engagement with state and local government ― 2 rounds of dialogue meetings with stakeholders ― public, group and individual meetings with the and printed materials in the communities. authorities (see Section 6.9. Engagement with as part of the preparation of the Sustainable De- community representatives to update them No changes during the COVID-19 pandemic; State and Local Government Authorities). velopment Reports: for 2019 — in February 2020 on the project progress and various aspects ― activities of company information centres (in person), for 2020 — in November 2020 of the company’s activities, as well as to receive established in local libraries (see Section 6.4. Statistics of stakeholder engagement in 2020: (online due to the COVID-19 restrictions). feedback; Local Communities Engagement through ― 5,701 visits to information centres; ― engagement with Japanese stakeholders. company’s Information Centres). Due to the ― 14 public meetings in 12 communities of the dis- Moreover, to prepare non-financial reports in accor- COVID-19 restrictions, most of the compa- tricts of traditional residence of the Sakhalin In- dance with international standards, additional stake- The key activities in 2020 were as follows (changes ny’s information centres were closed between digenous Minorities (200 participants — represen- holder opinion surveys were held in order to deter- caused by the COVID-19 pandemic are specified March and July; afterwards they resumed their tatives of SIM, non-governmental organisations, mine the range of topics to be included in the Report in the indicated sections): work in full; tribal enterprises and communities, municipal au- (see Section 2. About the Report).

Statistics of Questions from Visitors to the Korsakov Office in 2020 (up to March, inclusive) by Topic, %

Employment, personnel learning and development (including training programmes for trainees, development 21 of young specialists, educational grants, etc.)

Social investment (grant projects, sponsorship) 31

Stakeholder engagement 7

Company’s printed materials 17

Other questions 24 110 111 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

― business ethics and internal control newsletter 6.3. ENGAGEMENT WITH PERSONNEL (which is published twice a year as an appendix to the Vesti corporate newsletter); ― monthly Goal Zero e-presentation with stories Sakhalin Energy makes every effort to maintain their rights, and pays special attention to the process of employees who took part in the #IamGoal- an open dialogue with its employees and respect of addressing grievances and requests from employees. Zero project. The presentation includes information about the company’s and contractor employees, whose care and timely intervention 2020 was an extraordinary year for Sakhalin Energy. With the transition of part of the made it possible to prevent serious accidents at the company’s facilities or in everyday life. company’s office personnel to working remotely and an increase in the duration ― the daily newsletter is issued on the basis of shifts for rotational staff, it was necessary to search for new forms of communication of materials from the company’s internal corpo- with employees. rate website; For this purpose, special pages dedicated to COVID-19 were created on the ― email messages on behalf of the members internal and external websites of the company, which ensured constant access for of the company’s Committee of Executive Directors; employees to the most relevant information about the company’s activities under ― distribution of printed information materials pandemic conditions. (posters, leaflets, brochures, etc.) to inform In 2020, an average of more than 1,300 employees worked remotely on a daily employees about various aspects of safety, basis. In total, they made more than 3.5 million video and voice calls through the operational excellence, HR issues, upcoming corporate telephone system and held more than 17.5 thousand meetings using events, etc.; ― placing announcements, posters and other in- traditional and new video conferencing systems. been published, which is also posted on the formation (including photo and video materials, In addition, a 24-hour hotline was established at Sakhalin Energy in the first company’s website; presentations) on special stands in the compa- days of the pandemic. During 2020, it received 1,452 calls from employees of the ― monthly HSE newsletter with a review of inci- ny’s offices, as well as on plasma display panels; company and contractors, as well as their family members. dents both in the company and in the industry ― training workshops and information sessions as a whole, warnings about hazardous produc- to explain new procedures, relevant topics and tion factors and seasonal natural phenomena, the company programmes to employees. Since assessment of and proposed measures to miti- March 2020, they have been held online; Engagement with personnel is an important com- tional survey was conducted among employees gate risks; ― corporate Intranet site, which contains informa- ponent of strengthening and developing the com- to study their opinion on safety management. tion about the company and its activities. pany’s corporate culture (see Section 5.5. Corporate A number of other surveys were conducted Culture) and is conducted, among other ways, through to study the opinions of the company’s emp the internal communication system, which includes loyees on the effectiveness of corporate com- EMPLOYEE OPINION SURVEY ON THE EFFECTIVENESS the following: munications during the pandemic and the spe- ― distribution of the Journey Book among em- cifics of the remote work; to get the rotational OF COMMUNICATIONS UNDER THE COVID-19 PANDEMIC CONDITIONS ployees — this is the company’s key document personnel’s feedback on their work schedule Two surveys of Sakhalin Energy employees’ opinions on the effectiveness for planning the work of all directorates and under the COVID-19 pandemic conditions of communications under the COVID-19 pandemic conditions were conducted organisational units, which provides information in order to assess and optimise it; to define main May and July (as part of a survey on the specifics of remote work). Based on the on the medium-term development strategy terial topics for the Sustainable Development (next five years), as well as the main plans for the Report; to learn about employees’ contribution feedback received, a conclusion was made that, in general, the communications with coming year; to the preservation of natural resources, etc.; the company’s personnel during the pandemic were effective. Studying the opinions ― traditional annual employee opinion survey. ― the Vesti monthly corporate newsletter. It is dis- of employees, collecting their suggestions and comments allowed optimising No such survey was conducted in 2020 due tributed among Sakhalin Energy employees, the provision of information to different categories of personnel engaged in the to the COVID-19 pandemic; sent to the company information centres, and Sakhalin-2 project. ― various issue-related opinion surveys. In 2020, posted on the company’s website. Since 2020, as part of the Goal Zero programme, a tradi- a full version of the newsletter in English has 112 113 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

6.4. LOCAL COMMUNITY ENGAGEMENT THROUGH COMPANY INFORMATION CENTRES

There are 23 information centres at the district and The centres are equipped with essential office equip- village libraries in the communities along the Trans- ment, computers with Internet access, and informa- Sakhalin pipeline and in close proximity to other tion stands. This helps meet the company’s objectives company’s assets. and increase the functional capacity of the libraries.

NOGLIKI MOLODEZHNOYE TYMOVSKOYE YASNOYE KIROVSKOYE ONOR During their working hours, librarians provide con- These tasks require certain knowledge and skills. ROSCHINO SMIRNYKH sultation to information centre visitors on questions All consultants annually attend seminars, which include POBEDINO PORONAYSK related to the company’s activities. issue-related lectures on specific areas of the compa BUYUKLY ny’s activities, such as environmental protection and The following activities are carried out at the infor- biodiversity conservation, protection and support of

GASTELLO mation centres: human rights, the community grievance procedure, etc. VOSTOK ― regular updates to company information stand MAKAROV NOVOYE materials; Most of the company’s information centres were VOSTOCHNOYE VZMORYE ― assistance in finding information on the compa- closed from March to July 2020 due to restrictions SOVETSKOYE ny’s website; related to COVID-19. Some of the centres continued DOLINSK SOKOL ― community assistance in preparing and submit- to operate remotely, offering virtual tours and other YUZHNO-SAKHALINSK KHOLMSK ting complaints in accordance with the Commu- events on social media. In 2020, during an annual TROITSKOYE nity Grievance Procedure; seminar, which was held online the audience learned KORSAKOV ― providing company information materials upon about the company’s actions in response to the request; COVID-19 pandemic, the implementation status ― providing information about the company’s so- of the OPF Compression project, the results of mea- cial programmes; sures taken to reduce the impact on grey whales and ― assistance in organising and conducting other mammals in 2019, the contribution of Sakhalin Sakhalin Energy’s Information Centre meetings of company representatives with the Energy to the achievement of the UN Sustainable local community and stakeholders. Development Goals, etc. 114 115 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

BOOK AS A GIFT PROJECT 6.5. The Book as a Gift project has been implemented since 2010. The company annually ENGAGEMENT WITH SAKHALIN donates issue-related sets of books to Sakhalin city and village libraries, which include reference, historical and biographical publications intended for a wide range of readers. INDIGENOUS MINORITIES The topics of gift sets are selected either by the company alone, or together

with the employees of the libraries that host Sakhalin Energy information centres. Since its foundation, Sakhalin Energy has conti Energy takes this into account in its operations and Normally, the selections are dedicated to significant historical or social events. nuously interacted with Sakhalin Indigenous implementation of social programmes. The long- The topic of the 2020 project was the 75th anniversary of the Victory in the Minorities. Sakhalin Indigenous Minorities are term partnership social programmes are examples Great Patriotic War. The gift set included books for readers of different ages from the a special group of stakeholders, for which the issues of Sakhalin Energy’s activities in support of human series of publications of the same name, devoted to wartime events. of respect for human rights, industrial and environ- rights. The programmes especially cater to the needs mental safety, and the preservation of traditional of vulnerable groups of the population, in particular, In addition, a separate page was created on the company’s website culture are of paramount importance. Sakhalin of indigenous minorities. (http://www.sakhalinenergy.ru/ru/social/icenters/), which covers all events held by the information centres, using the publications received as part of the Book as a Gift project. The company’s activities in the field of engagement with Sakhalin Indigenous Minorities are regulated by the following key documents: In 2020, Sakhalin Energy’s information centres were presented in the Statistics of Visits to the Information ― Human Rights Policy; visited by 5,701 people. The data on the visits are Centres in 2020 chart. ― Sustainable Development Policy; ― Social Performance Standard; ― Sakhalin Indigenous Minorities Development Plan (Development Plan) — the Statistics of Visits to Information Centres in 2020, % company’s main programme in engagement with indigenous minorities since 2006 (see below and Section 9.5.7. Sakhalin Indigenous Minorities Development Plan); ― Tripartite Cooperation Agreement between the company, the Regional Council of Authorised Representatives of the Sakhalin Indigenous Minorities (Regional General information about the project (website, information stands, printed materials) 19 Council) and the Sakhalin Oblast Government; Vesti corporate newsletter 30 ― Public Consultation and Disclosure Plan.

A series of books about the nature of Sakhalin Island 8

Social programmes 3 In 2020, the company continued its regular interac- Minorities (public meetings were held until the tion with representatives of the Sakhalin Indigenous COVID-19 pandemic); Safety Is Important programme 17 Minorities. Taking into account relevant recommenda- ― SIMDP website (www.simdp.ru) and the compa- tions, Sakhalin Energy pays special attention to raising ny’s external website (www.sakhalinenergy.ru); Employment 3 public awareness about current programmes and ― printed materials: SIMDP newsletter and docu Book as a Gift Project 17 opportunities. For this purpose, the company used the ments, a booklet on the Sakhalin-2 project, following tools: books and brochures; Other (environmental issues, Safety Rules Along the Main Pipeline programme, and so on) 3 ― public meetings within the framework of the ― individual and group meetings, consultations Development Plan (see Section 9.5.7. Sakhalin with representatives of SIMDP partners and Indigenous Minorities Development Plan) in the stakeholders throughout the year (held in com- areas of traditional residence and traditional pliance with the restrictions related to the economic activities of the Sakhalin Indigenous COVID-19 pandemic); 116 117 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

― individual consultations on applications for Since 2006, the Sakhalin Indigenous Minorities financing, for participation in programmes and Development Plan (see Section 9.5.7. under the projects; same title) has been the company’s main programme ― open hours by the Community Liaison Officer for engagement with indigenous ethnic groups. for visitors from among the SIM population It is implemented in accordance with the prin in all traditional SIM residence districts (more ciple of partnership between the business (Sakhalin than 70 open hours). With the beginning of the Energy), society (the Regional Council of Sakhalin COVID-19 pandemic, face-to-face appoint- Indigenous Peoples’ Authorised Representatives), ments were replaced with online and telephone and government authorities (the Government of the counselling (over 90 individual consultations). Sakhalin Oblast).

The SIMDP is compiled in accordance with the international standards on engagement with indigenous minorities and implemented in five-year phases. The development of the second (2011–2015), the third (2016–2020) and the fourth Plans (in 2020) was performed in accordance with the principle of free, prior and informed consent (FPIC). The Plan partners have demonstrated that business organisations can effectively engage with indigenous minorities. This has been repeatedly stressed out at the Russian and international levels. In particular, over the years, various government bodies have recommended disseminating the experience of the Development Plan ― publication of The Legends of the Uilta, dedi- ― the Magical World of Vladimir Sangi project, implementation in the constituent entities of the Russian Federation. cated to the anniversary of Elena Bibikova, the which included a presentation of The Chip- Uilta storyteller, who has made a significant munk Looking for a Friend animated film, New continuous contribution to the preservation Year’s events for children, workshops and guid- of the language of one of the smallest ethnic ed tours for residents and guests of the regional The preservation of the SIM languages is one of the and publication of The Wise Seal by Vladimir groups on the planet; centre. key areas of the company’s social activities. In addi- Sangi in Russian, Nivkh, English and French); tion to the SIMDP, the company implements or sup- ― participation of the Sakhalin delegation in the ports various projects related to Sakhalin Indigenous work of the XV International Exhibition-Fair Minorities, pays special attention to the preservation Treasures of the North: Masters and Artists In September, Slow Food Russia Non-Profit Organisation, with the support and promotion of the national culture and languages of Russia 2020 and the All-Russian Forum of In- of Sakhalin Energy, held the Terra Madre Indigenous People Fish Festival at the site of the indigenous peoples of the island. In particular, digenous Peoples of the North, Siberia and the of the International Exhibition-Fair Treasures of the North: Masters and Artists in 2020, Sakhalin Energy, together with its partners, Far East of the Russian Federation (participation of Russia 2020. continued to protect the intangible cultural heritage in festivals, competitions, presentation of the of the SIM and implemented a number of projects, exhibition booth, conducting fish skin, birch Fish occupies a special place among the products favoured by Slow Food since in particular: bark, bead, Nivkh embroidery and wood carving it is the basis of the traditional diet of many ethnic groups and helps them stay healthy. ― publication of the Nivkh Dif (Nivkh Word), the workshops, etc.). The Sakhalin Oblast won the The Fish in the Diet and Culture of Indigenous Peoples of the North conference was only newspaper in the Nivkh language (pub- main award — the Grand Prix in the Best Regional an important event of the festival. Representatives of more than ten regions of Russia lished twice a month in full-colour print, distrib- Exhibition category. The Sakhalin: the Island shared their traditional fish recipes and demonstrated the use of fish in the art and uted among SIM peoples and stakeholders); of Traditions exhibition was presented as a ke- ― series of events devoted to the 85th anniver- raf, a Nivkh summer dwelling. crafts of their ethnic groups. Moreover, the festival featured master classes, the Ark sary of the classic of Nivkh literature Vladimir ― Reindeer Herder’s Drawings exhibition of works of Taste food contest and the presentation of the first catalogue of the same name. Sangi (Nivkh Culture Days anniversary events by Vasily Solovyov, an original indigenous as part of the XIII Regional Holiday of the artist and reindeer herder, at the Literary and Sakhalin Indigenous Minorities, preparation Art Museum of the Book of Chekhov’s Book Sakhalin Island; 118 119 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

6.6. ENGAGEMENT WITH 6.7. ENGAGEMENT WITH CUSTOMERS NON-GOVERNMENTAL AND AND SHIPOWNERS NON-PROFIT ORGANISATIONS The company performs its obligations under the Maintaining and developing constructive, respect- contracts of purchase and sale of hydrocarbons, and ful relationships with customers help the company In 2020, the company continued to engage with local, with the scientists members of the Panel, as well observes the rights and interests of customers with all resolve operational challenges that arise in the course regional, and international public organisations in va as representatives of state regulatory bodies and due responsibility. of oil and LNG contract execution and enter into new rious forms, including online meetings and correspon- non-governmental environmental organisations agreements on the best terms and conditions for the dence. Key important areas of engagement include: included in the WGWAP as observers; parties involved. ― participation in the work of the Russian Union ― participation in the work of the Rosprirod- of Industrialists and Entrepreneurs (RUIE). nadzor Scientific and Technical Council (STC) In 2020, the company’s work in this area was and working groups to develop recommenda- Under the COVID-19 pandemic conditions, the quality of customer engagement has more active. Along with the participation tions for the implementation of state policy been tested by the lack of personal contact. The company still manages to successfully in the work of the Committee on Corporate and legal regulations in respect to environmen- resolve all operational issues and hold price negotiations. Social Responsibility and Sustainable Develop- tal protection, to ensure environmental safety Maintaining and expanding a strong portfolio of oil and gas buyers from the ment and the Commission on the Oil and Gas and to increase the efficiency of environmental Industry, the company’s experts became mem- supervision (see Section 8.2. Industrial Envi main Asia-Pacific countries is a fundamental objective, and the company continues bers of a number of other working bodies of the ronmental Control, Section 8.2.1. General its active work towards it. In 2020, three LNG sales framework agreements were RUIE: the Committees on Corporate Relations, Information); concluded with new buyers, and one — with the company’s long-term customer. Thus, on Industrial Safety, on Vocational Training ― participation in the Donors Forum, in particular, the number of companies with which Sakhalin Energy holds short-term LNG sale and Qualifications, on Technical Regulation, in the discussion of new challenges in cha framework agreements has increased to 29. In 2020, the company also expanded its Standardisation and Conformity Assessment, rity and social investment, as well as the role on Ecology and Environment Management; of charity in the implementation of the global portfolio of Sakhalin Blend oil and gas condensate mixture buyers up to 14 companies. ― cooperation with the Western Grey Whale and national agendas for sustainable develop- Sakhalin Energy has an important task—to place LNG volumes on the market Advisory Panel (WGWAP) of the Internation- ment; based on medium-term LNG sales and purchase agreements, which the company plans al Union for Conservation of Nature (IUCN) ― cooperation with the World Wildlife Fund to supply beginning from 2022 in accordance with the strategy developed in 2020. in developing optimal solutions to minimise the (WWF) in Russia in discussing the criteria and company’s impact on whales (see Section 8.3.11. methods of the environmental openness rating Grey Whale Monitoring and Marine Mam- of Russian oil and gas companies, in summaris- mals Protection). Within the framework of the ing the 2019 rating (see Section 8.1. General Long-term business relationships and close co made every effort to ensure the reliability and safety consultations of the Advisory Panel in 2020, Information). operation with chartered vessel owners allowed the of hydrocarbon shipping. Sakhalin Energy’s representatives had meetings company to ensure safe, reliable and timely supplies of LNG and oil in full scope to the Asia-Pacific mar- Restrictions aimed at preventing the spread of COVID-19, kets, despite the difficult epidemiological situation imposed by a number of states, including the Russian in the region. Federation, in 2020, made changing crews of the vessels much more difficult than before. Sakhalin Energy Given the circumstances, Sakhalin Energy decided has developed a procedure for changing crews of com- against holding the traditional annual Shipowners mercial vessels in the port of Prigorodnoye and foreign Forum. Instead, the company focused on regular ports, with particular attention to monitoring the health interactive communication with shipowners and of the crew under pandemic conditions. 120 121 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

6.8. ENGAGEMENT WITH STATE AND LOCAL GOVERNMENT AUTHORITIES

Sakhalin Energy actively cooperates with state sory bodies provided for by the PSA. In addition, the authorities of the Russian Federation, including company interacted with the government authorities legislative and executive bodies of the federal, on various aspects of the project implementation regional, and local levels. on an ongoing basis. Sakhalin Energy also actively engaged with the Sakhalin Oblast Government, the In 2020, as in previous years, engagement with state Rospotrebnadzor Department for the Sakhalin Oblast, authorities was carried out in various formats, with the and municipal administrations on various issues Supervisory Board (SB) and the SB Working Group related to the COVID-19 pandemic. In addition, the company organised contactless In 2020, all management decisions were imple- acting as the key Sakhalin-2 project official supervi- offloading of oil and LNG in the port of Prigorod- mented remotely, which proved the reliability of the noye, which required a minimum number of people company’s and the shipowners’ management systems, boarding the vessel. This made it possible to signifi- and ensured the effectiveness of the joint actions Despite the difficult sanitary and epidemiological situation and the shutdown at the cantly reduce the risk of viral infections entering ves- taken on the basis of long-term partnerships. Sakhalin-2 gas facilities in 2020, the company effectively organised safe voting sels and thereby make the operation of the fleet safer. on the proposed amendments to the Constitution of the Russian Federation by the company’s employees, employees of contractors and subcontractors, working The company conducted a survey among LNG and oil buyers, which showed a high at remote sites or staying at the temporary accommodation facilities during a 14-day level of customer satisfaction and loyalty to the company, its products and services observation period. in 2020. Sakhalin Energy received positive feedback from its customers on its During the voting process, the company closely interacted with the Sakhalin compliance with international HSE rules and standards, consistently high quality Oblast Electoral Commission, the Sakhalin Oblast Government, the Rospotrebnadzor of supplied products, customer focus and long-term partnerships. The respondents Department for the Sakhalin Oblast and the administrations of the municipalities, also pointed out that the company was constantly making efforts to improve the oil where the Sakhalin-2 facilities are located. and LNG supply chains.

Government officials regularly participate in stake- in Appendix 2. Comments and Suggestions of Stake- In addition to responding to the survey questions, the Thus, a customer survey is an effective tool not only holder dialogue meetings, which the company holds holders on Individual Aspects, Indicators and/or customers expressed their wishes regarding a number for assessing the work and services, but also for as part of the preparation of its annual reports. Programmes and the Company’s Response and of aspects of the company’s business, the planning planning commercial activities. The company is going The results of the 2020 dialogues are presented Commitments. of shipments and transport operations, and stressed to proceed with requesting feedback from its cus- the need for face-to-face meetings with company tomers, increasing the level of customer satisfaction, representatives in 2021. creating a personalised experience for each customer, and promptly responding to any changes. 122 123 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

Oil and Gas Industry Supply Chain (Nefte and co-organisers of the webinar. The event partic- 6.9. INTERNATIONAL AND REGIONAL gazsnab 2020) annual conference, 19 June, online ipants discussed the prospects for accelerating the development and current conditions for adapting The Neftegazsnab 2020 annual conference is a plat- additive technologies in Russia and abroad, the prac- COOPERATION form for productive communication between man- tices of their application in the fuel and energy sector agers of oil and gas supply chain units. The speakers and related industries, economic and technological highlighted the procedures for selecting suppliers aspects, technical regulation and standardisation, Due to the coronavirus pandemic, many important of the Russian Union of Industrialists and Entrepre- and for organising tenders, and answered questions development drivers and administrative barriers. events planned to be held in 2020 all over the world neurs (RUIE). Sakhalin Energy participated in discus- asked by participants in the conference. Sakhalin were cancelled or postponed; some of them were sions of the strategy for the scientific and technologi- Energy made a presentation under the title “Supplier Sakhalin Oil and Gas International conference, held online. Sakhalin Energy strictly complied with cal development of the industry and measures of state Development Programme as a Tool for Localising 30 September to 01 October, Yuzhno-Sakhalinsk, the imposed restrictions. Nonetheless, the company support for the introduction of breakthrough tech- Procurement”. Russia continued to actively strengthen its business repu- nologies, localisation of production and technological tation and its image as a socially responsible com- partnerships, international cooperation and transfer Additive Technologies in the Fuel and Energy Sector: Just like in the previous years, Sakhalin Energy was pany, and took part in a number of significant events, of the science-to-business technology. World Practice and Russian Prospects webinar, one of the main newsmakers at the conference in particular: 18 August, online in 2020: the company’s representatives made pre- Voluntary National Review of Russia’s progress in the sentations in eight out of ten sessions. They provided Days of the Sakhalin Oblast in the Federation Council implementation of the sustainable development The event was organised by the National Oil and Gas up-to-date information on the company’s work of the Federal Assembly of the Russian Federation, goals panel discussion, 13 March, Moscow, Russia Forum jointly with Rosatom State Atomic Energy Cor- in the conditions of the pandemic, its performance, 25–26 February, Moscow, Russia poration as part of the NNF. Digital project. Neftegaz marketing activities, the Russian Content develop- The event was organised by the Analytical Centre for Exhibition and Expocentre acted as strategic partners ment, progress of LNG production, digitalisation In 2020, the Federation Council of the Federal the Government of the Russian Federation to dis- Assembly of the Russian Federation hosted the cuss the first consolidated draft Voluntary National Days of the Sakhalin Oblast. Sakhalin Energy joined Review of Russia’s Progress in the Implementation the regional delegation and presented a corporate of the 2030 Agenda for Sustainable Development. booth, as well as a 3D model of the Prigorodnoye The company shared its practices of engagement with production complex. The company representatives the Sakhalin Indigenous Minorities, the preservation informed the participants and guests of the event of cultural heritage, and so on. about the Sakhalin-2 project, the main achievements of Sakhalin Energy, its development, cooperation Russian Business Week, 17–23 June, online and employment prospects. Within the framework of the Days of the Sakhalin Oblast, the company also As part of the Russian Business Week, the Effective made a presentation of the book by A. P. Chekhov Anti-Crisis Strategies of the State and Business: titled “Sakhalin Island. Facsimile Reproduction and Social Aspect forum was held in two sessions: Labour Optoelectronic Reconstruction of the Manuscript”, Market: Lessons Learnt from the Crisis and Post- dedicated to the 160th anniversary of A.P. Chekhov Crisis Development, and Doing Business Responsibly and the 130th anniversary of his visit to Sakhalin. in the Post-Crisis Development Period. The sessions were attended online by more than 400 represen- Import Substitution in the Oil and Gas Industry tatives of business, government organisations, trade conference, 27–28 February, St. Petersburg, Russia unions, experts (more than 1,000 people, if consi dering YouTube views). The company representatives The event is held annually with the participation of the and other participants discussed topical issues of the RF Ministry of Energy, the RF Ministry of Industry and tax and financial systems, investment climate, labour Trade, the RF Chamber of Commerce and Industry, and market, social investments, elimination of administra- the Committee for Energy Policy and Energy Efficiency tive barriers, and so on. 124 125 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT STAKEHOLDER ENGAGEMENT MANAGEMENT REPORT 2020

1st Regional Forum on Business and Human Rights Respect for Human Rights as an indicator in Eastern Europe and Central Asia, 23–25 November, of corporate responsibility (Business-Related Human online Rights) video conference, 03 December, online

The purpose of the forum was to foster an active The event was organised by the Committee dialogue on business responsibility and human rights, on Corporate Social Responsibility and Sustainable to increase awareness about the UN Guiding Princi- Development of the Russian Union of Industria ples on business-related human rights and to facili lists and Entrepreneurs jointly with the UN Global tate their promotion in the region. The company Compact National Network and in partnership with made a presentation on corporate tools for the the UN High Commissioner for Human Rights Office effective implementation of the UNGPs, on the key in Russia. The online meeting brought together more challenges in the implementation of the Grievance than 100 representatives of the International Labour Procedure and its benefits for business. Organisation, relevant ministries, Russian and international companies, UN agencies in Russia, business Peoples of Russia 1st International Forum, unions and associations, and expert communities. 30 November to 01 December, online At the conference, Sakhalin Energy made a presentation on key human rights challenges and opportu The forum, organised by the Russian Federal Agency nities, and shared its practices. for Ethnic Affairs, was the largest event dedicated to the priority issues of the implementation of the State Ethnic Policy of the Russian Federation. During the forum, the participants discussed topical issues of interethnic relations, intercultural communications and for conflict-resolving strategies.

projects, and the Sakhalin Oil and Gas Industrial Park. VIII Annual donors Forum conference, The company organised and held a number of busi- 19–23 October, online ness meetings with the aim of signing documents, in particular: In 2020, the large-scale discussion platform brought ― a cooperation agreement with Sakhalin State together more than 750 specialists in philanthropy, University and Gazprombank; social investment, communications and sustain- ― an agreement of intent with PetroGazTech able project management, and organisations from Shelf-Service Holding Company; 15 countries of the world (India, USA, UK, Brazil, ― a memorandum of understanding with Nipom; Spain, China, Chile, Mexico, and others) and 60 cities ― an agreement of intent for the joint implemen- of Russia. Company representatives took part in the tation of the Sakhalin Oil and Gas Industrial discussion of the contribution of philanthropy to the Park project in the Sakhalin Oblast, including achievement of global and national development with the residents of the park. goals, as well as the impact of the global UN SDGs agenda and the current social and economic situation on philanthropy in Russia and other countries. SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

ECONOMIC IMPACT 7MANAGEMENT

The Russian Federation and the Sakhalin Oblast receive significant benefits from the Sakhalin-2 project implementation. 128 129 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ECONOMIC IMPACT MANAGEMENT REPORT 2020

7.1. IMPORTANCE OF THE SAKHALIN-2 7.2. FINANCIAL BENEFITS PROJECT FOR THE RUSSIAN TO THE RUSSIAN FEDERATION FEDERATION AND THE SAKHALIN AND THE SAKHALIN OBLAST OBLAST In 1994, Sakhalin Energy signed the Agreement Federation and the Sakhalin Oblast Administration. on the Development of the Piltun-Astokhskoye and A PSA is a commercial contract between an investor Lunskoye Oil and Gas Fields on the Basis of Pro- and a state, allowing the investor to make large-scale, The Russian Federation and the Sakhalin Oblast have ― Many contracts and subcontracts under the duction Sharing (PSA) with the Russian Federation, long-term, and high-risk investments under a stable gained significant benefits from the Sakhalin-2 project. Sakhalin-2 project are being awarded to Sakha- represented by the Government of the Russian tax regime. ― Since Sakhalin Energy started its operations, the lin companies. Russian Federation’s proceeds from Sakhalin ― With the company’s support, extensive social Energy’s activity under the Sakhalin-2 proj- and public initiatives are being carried out ect have totalled over US$ 30.9 bln, including on Sakhalin Island. Production sharing between a company and a state is triggered when an investor approximately US$ 10.8 bln received by the recovers all of its costs (the specific shares of each party are not fixed but depend Sakhalin Oblast. In 2020, according to the International Financial on the profitability of the project). The PSA also stipulates that the company should ― US$ 26.9 bln worth of contracts have been Reporting Standards (IFRS), revenues of Sakhalin pay a profit tax, and the profit tax for the company is currently payable at a rate higher Energy amounted to US$ 4,383 mln, and its total net awarded to Russian companies and organisations. than the profit tax rate for non-PSA taxpayers. US$ ― The Russian Federation has gained valuable income was US$ 1,080 mln. experience in managing complex high-tech projects in remote locations. The entire oil and gas industry has been impacted US$ ― The infrastructure on Sakhalin Island has under- by the spread of a new coronavirus COVID-19 and According to the PSA, the state retains the ownership In total, for the reporting period, Sakhalin Energy allo- 4.383mln gone large-scale upgrades. tense situation on the hydrocarbon markets in 2020. rights to the field and grants the investor an exclusive cated US$ 2.5 bln (in kind and in cash) to the Russian ― Local employment levels and local workforce Management of Sakhalin Energy has taken necessary right to develop the mineral resources. The investor Federation. were the revenues quality have increased (both direct and indirect measures to ensure sustainability of the compa- 2.5 develops the resources by its own means and at its of Sakhalin Energy in 2020 effect). ny’s operations and minimise negative effect of ope bln own risk and invests funds required for the explora- Royalties (in kind and in cash payment) amounted ― Incomes and living standards for the local pop- rating environment in 2020. was allocated by Sakhalin tion and development of the fields. to US$ 232 mln. ulation have risen. Energy to the Russian Federation in 2020 Under the PSA, some types of taxes, levies, and The amount of the Russian party’s production profit duties are replaced with production sharing. This share paid by the company was US$ 272 mln. Revenue and Net Income in 2017–2020 (according to the International Financial effectively means that instead of some taxes (including the mineral extraction tax, property tax, etc.) and The dividends paid by the company to the R-share Reporting Standards (IFRS)), US$ mln levies, Sakhalin Energy uses hydrocarbons as a form amounted to US$ 339 mln. of royalty payment, and after product sharing starts, Parameter 2017 2018 2019 2020 it will use them as the profit share. Financial bene- In addition, the 2019 fiscal year profit tax totalled Revenue 5,401 6,273 5,978 4,383 fits to the Russian party include the profit tax paid approximately US$ 1.6 bln, which was paid by the by the company and a number of mandatory pay- company in 2020. Further payments of profit tax Net Income 1,503 2,041 2,078 1,080 ments, contributions, and levies. In addition, the to the budget of the Russian Federation in the Russian party receives income on R-share dividends amount of US$ 13.7 thousand were made. (a special preference share providing the right to receive dividends). Based on 2020 financial performance profit tax in the amount of approximately US$ 1.0 bln will be paid to the budget in 2021. 130 131 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ECONOMIC IMPACT MANAGEMENT REPORT 2020

Over the entire period of project implementation (1995–2020), the Russian party has The new Russian Content Development Strategy will also contribute to a positive image and credibility received US$ 30.9 bln from Sakhalin Energy under the Sakhalin-2 project, including includes a whole set of internal actions aimed of national manufacturers and vendors. As a result, at increasing the number of initiatives and projects it will increase the interest of the company’s employ- amounts paid in 2020. in the area of import substitution, namely: ees in the RC development. ― familiarisation sessions for Sakhalin Energy employees, including at remote assets; From the start of the project to the end of 2020, ― regular publication of articles and information the total value of awarded contracts and variations Total amount of payments to the Russian party from Sakhalin Energy under materials about successful Russian Content of existing contracts with Russian companies was the Sakhalin-2 project in 1995–2020, US$ mln projects in the Vesti corporate newsletter and about US$ 26.9 bln. In 2020, the value of con- on the company’s website; tracts in these categories reached approximately

1995–2014 2015 2016 2017 2018 2019 2020 ― roll-out of an incentive programme to reward US$ 475.76 mln (or 64% of all new contracts and employees for their contribution to the Russian amended existing contracts). 13,623 5,188 2,022 1,768 2,528 3,328 2,462 Content Development; ― elaboration of Russian Content Development As regards Russian costs (actual disbursement of funds), requirement as part of individual work plans. in 2020, the company reached the indicator of 56%. Taxes and other mandatory payments made to the Sakhalin Oblast budget and to local budgets from Sakhalin Energy under the Sakhalin-2 project Implementation of these actions will not only raise During 2020, the company has awarded 7,603 con- awareness among Sakhalin Energy employees about tracts and orders, 5,563 of which were awarded in 1995–2020, US$ mln Russian Content commitments and successes but to Russian companies.

1995–2014 2015 2016 2017 2018 2019 2020

4,300 2,411 1,281 918 639 707 556 Selected contracts with Russian companies in 2020 included:

― FBU Gormorspassluzhba RF for OSR Vessel for ― Sogaz Insurance for voluntary medical insur- Prigorodnoye long-term charter; ance; 7.3. ― JSC Neftechim Technologies for provision of oil, ― Sogaz Insurance for offshore operational in- RUSSIAN CONTENT water and gas treatment chemicals and associat- surance including physical damage and opera- ed services; tor’s extra expenses; ― Island General Services LLC for provision ― FSDS LLC for provision of diving services. 7.3.1. STRATEGY AND OUTCOMES of on-island transportation services;

Russian Content is the use of Russian manpower, egy, according to which the company’s main focus materials, equipment, and services at the Sakha- areas are: RUSSIAN ENGINEERING AND DESIGN lin-2 project. The PSA requires the Russian Con- ― implementation of the Standards Harmon- Since 2017, Sakhalin Energy has been implementing a large-scale project to transfer tent to be measured in labour input (in man-hours) isation Project (see Section 7.3.2. Standards the contract for engineering support and design services in the renovation of Sakhalin and materials and equipment (in terms of weight) Harmonisation Project); supplied by Russian legal entities and individuals. ― establishment of Sakhalin Energy Maintenance Energy assets from a foreign design company (Production Services Network Sakhalin Energy is committed to achieving a level and Repair Facility as part of Sakhalin Industrial Sakhalin (PSNS)) to Gazproektengineering (GPE), a Russian design institute. In 2020, of 70% of Russian Content over the life of the Park (see Section 7.3.3. Sakhalin Energy Mainte- a plan was approved to accelerate the transfer of work scopes and personnel, along project. In 2020, the company reached the indicator nance and Repair Facility in Sakhalin Industrial with sharing experience and competencies (until the end of 2022 instead of the end of 91% in terms of labour input 85% and 91% in terms Park); of materials and equipment. ― progress in the Vendor Development Pro- of 2026). In the first three years, almost the entire engineering staff (more than 100 gramme (see Section 7.3.4. Vendor Development employees) were transferred from PSNS to GPE. According to international standards, Sakhalin Energy has identified the main guidelines Programme); a workplace mentoring programme was introduced in the Russian organisation to ensure and tools for increasing the Russian Content and set ― improvement of internal Russian Content devel- the effective transfer of competencies in the field of design work. Currently, the them out in the Russian Content Development Strat- opment activities. 132 133 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ECONOMIC IMPACT MANAGEMENT REPORT 2020

implementation of IT infrastructure is underway; further, it is planned to develop and implement a governance system and an information management system. In addition, Russian design institutes and engineering companies are actively involved in the development and engineering support of offshore oil and gas field development projects (for example, OOO Burovaya Tekhnika Research and Production Association and AO Morneftegazproekt).

Sakhalin Energy is actively engaging Sakhalin compa- ― Island General Services LLC for provision nies in the project. The company has established close of on-island transportation services; cooperation and exchange of information with the ― Yuzhno-Sakhalinsk Airport for provision of mi- Sakhalin Oblast Government. It holds regular work- nor services at Nogliki Airport; shops for potential Russian vendors, which are actively ― Engineering Сonstruction Сompany SMNM- attended by representatives of companies operating VECO LLC for OPFC shutdown brownfield on the island. The plan is to include Sakhalin compa- tie-ins; nies in the Prequalification Audit Programme and the ― OOO TransVostok Logistica for supply of lubri- FOR OUTSTANDING CONTRIBUTION TO THE DEVELOPMENT OF RUSSIAN new Vendor Development Programme. cants and oils. CONTENT IN THE SAKHALIN-2 PROJECT

In 2020, the share of contracts and orders awarded Through engagement in the intentional project, In 2020, Sakhalin Energy started a new tradition — awarding diplomas for outstanding to companies registered on Sakhalin amounted Russian companies receive a unique experience contribution to the development of Russian Content in the Sakhalin-2 project to about 69% (3,851) of all contracts awarded to Rus- and opportunities to develop competencies of its to its domestic contractors. The first awards ceremony was held during the Sakhalin sian companies. staff and embed top QA/QC, HSE, industrial and Oil and Gas International Conference. Roman Dashkov, Chief Executive Officer environmental safety standards. This makes them of Sakhalin Energy, thanked the company’s contractors for their contribution to the The largest contracts and orders signed in 2020 with more competitive in the domestic and international companies registered in the Sakhalin Oblast: markets. Sakhalin-2 project and the Russian Content development, and presented diplomas to five Russian companies — PAO TMK (supply of Russian pipe products with premium connections), AO Gazproektengineering (engineering and technical support, and LOCALISATION OF GEOLOGICAL AND ENGINEERING WELL design services), OOO AKROS (cutting re-injection services), OOO INTRA Services SURVEYING SERVICES Company (set of works to restore protective anti-corrosive coating and insulation Striving for localisation and import substitution of services for geological and of pipelines), OOO PetroGazTech Shelf-Service Holding Company (offshore assets engineering surveying of wells while drilling, in 2020, Sakhalin Energy signed inspection using underwater unmanned remotely operated vehicles (ROVs) and agreements of intent with three Russian companies — OOO Geopromalians, hydrographic equipment). Each of the five companies made a significant contribution OAO Kogalymneftgeofizika, and OOO Petroviser. A year earlier, the company signed to the development of Russian Content in the Sakhalin-2 project. Working together a memorandum of cooperation with another Russian company — OOO GeoTime — with Sakhalin Energy provides these companies with the unique experience in the framework of this activity. of participating in Russia’s largest international offshore project and, moreover, gives them a chance to develop their competencies, improve management and control systems, and introduce best practices for safe and efficient production with the help of our professionals. 134 135 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ECONOMIC IMPACT MANAGEMENT REPORT 2020

7.3.2. STANDARDS HARMONISATION PROJECT

Sakhalin Energy assets are designed to operate with plines, such as Electrical Equipment, Steel and Met- materials and equipment of foreign origin, which alwork, Mechanical Equipment, Rotating Equipment, are manufactured in accordance with international Instrumentation and Automation, were developed. technical standards. It restricts usage of Russian equipment and materials, as well as limits the Russian The issuance of relevant documents will be com- content in general. Therefore, in 2014, a decision pleted in 2021. was made to implement the Standards Harmonisa- tion Project, aimed at providing equal opportunities Since 2019, after the completion of the work on the for foreign and Russian manufacturers to purchase first two disciplines listed above, the company has materials from Russian manufacturers for all onshore been implementing the results into its material pro- facilities of the main pipeline system and the onshore curement system. In particular: processing facility without reducing safety, reliability ― the developed technical requirements were and integrity indicators of assets. forwarded to Design Department contractors to be implemented in new projects on re- 7.3.3. SAKHALIN ENERGY MAINTENANCE AND REPAIR FACILITY The harmonisation of a standard refers to bringing construction and modification of the compa- IN SAKHALIN INDUSTRIAL PARK its content in line with another standard to ensure ny’s onshore assets; the interchangeability of products (services), uniform ― in terms of current repair and maintenance, The idea of establishing a dedicated service park production and logistic risks. Considering the inter- understanding of test results and technical infor- the company is creating and updating material for Sakhalin oil and gas industry originated in 2013. national cooperation under the project, the park will mation. In the context of the project, harmonisation master in SAP according to the harmonised In early 2016, Sakhalin Energy entered the feasibil- also serve as a platform for the transfer of technology of standards implies comparative analysis of foreign requirements to materials and equipment, ity study phase followed by signing a memorandum and best industrial practices. and Russian standards in order to subsequently unify communicating with Russian manufacturers and of cooperation between Sakhalin Energy, Sakha- technical requirements, which are based on the com- placing purchase orders. lin Oblast Government and Gazprombank during Such project, especially which is deployed in remote pany’s technical specifications and Shell’s internal the Eastern Economic Forum in September 2018. locations, away from the existing production assets, design standards. In 2020, the company created a task group to apply The Official Ceremony of Capsule Placement is very important. Such parks form local engineering the harmonisation project deliverables in the com- in the Foundation of Sakhalin Industrial Park (SIP) and technological centres and carry out a city-form- The company started with analysing a number pany’s operational and project activities in order was held in December 2018. ing function: one job in the oil industry creates five of normative technical documents (NTD) on ordering, to maximise the benefits from the project and to six jobs in related industries. operating, repairing of equipment and components develop the Russian content. It was decided in mid-2019 to launch Phase 1 of the at Sakhalin Energy onshore assets. It also studied ref- Project on a 4.7 ha land plot allocated for the Mainte- In August 2020, the company and Sakhalin Oblast erence documents of several levels. As a result, over A decision was also made in 2020 to implement nance and Repair Facility of Sakhalin Energy (MARF), Government has reached the agreement to provide 34 thousand NTD required for further harmonisation a standards harmonisation project in the Technical the first anchor resident of Sakhalin Industrial Park. Sakhalin Industrial Park and SEIC MARF with exter- were identified, and a fully-fledged project layout was Directorate. In 2021, it is planned to analyse about Phase 1 will comprise one facility, including logistic nal engineering infrastructure involving funds from developed. 200 standards and, based on the comparative analysis centre with vehicle maintenance shop and archive, and Sakhalin Oblast Development Corporation. At the results, update all drilling contracts. infrastructure sufficient for Launching Stage 1 and 2. Sakhalin Oil and Gas conference, 13 companies signed In the period from 2017 to 2020, comparative analysis agreements of intent to become a resident of the oil of standards, and technical requirements for disci- Establishment of the Sakhalin Energy Maintenance and gas industrial park. Later, two more companies and Repair Facility is one of the strategic objectives joined the residents of the future park. of the company for the period up to 2023. The facility will allow to improve the reliability and efficiency In 2021, it is planned to commence construction and under the Sakhalin-2 project and significantly reduce installation works. 136 137 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ECONOMIC IMPACT MANAGEMENT REPORT 2020

7.3.4. VENDOR DEVELOPMENT PROGRAMME In addition, specialists of the Russian Content Development Team held five specialised videoconferences with existing contractors and vendors of the company, which were The development of Russian vendors is one of the ― qualifying Russian enterprises for their subse- devoted to the updated 2019–2023 Russian Content Development Strategy, its key key activities of Sakhalin Energy, the main purpose quent inclusion in the list of approved vendors of which is to contribute to developing their compe- of Sakhalin Energy. areas and the search for new cooperation formats for the development of the Russian tences and increasing Russian content in the Sakha- Content. The events were attended by more than 100 representatives from 47 Russian lin-2 project. An important component of the Vendor Develop- companies. The participants of the videoconferences were especially interested ment Programme is its training module that has been in the international technical standards harmonisation project and the creation of the providing regular workshops since 2007. The work- For over 14 years, Sakhalin Energy has been actively Sakhalin Energy Production and Maintenance Facility for servicing and repairing oil and implementing the Vendor Development Programme. shops are intended to introduce company’s require- It includes two areas: Integrated Vendor Develop- ments to the Russian manufactures and vendors gas equipment. ment and Training Workshops. as well as to increase their awareness of the forthcoming tenders. The programme of each workshop Integrated Vendor Development is aimed at assisting includes overview of the Sakhalin-2 project and Information about the Vendor Development Pro- completed at BS 2. SPE equipment will replace for- promising Russian partners so that they can improve sessions on the key areas: gramme is available on the company’s website eign equipment at all company assets. their manufacturing processes to meet the Sakhalin ― HSES and Social Performance management (www.sakhalinenergy.ru), including description Energy requirements and international quality and in contracts; of the programme’s components, requirements for The LNG Plant has testing several types of lubricant safety standards. This area includes the following ― QA/QC during materials and equipment pro- participants, application process, preliminary sched- samples produced by Gazpromneft-SM LLC, which activities: curement; preparation for and participation ule with topics indicated, and contact details. will continue into next year. In addition, a number ― working meetings with Sakhalin Energy’s tech- in the Sakhalin Energy tender process; of tests are planned for 2021, including: nical experts for presentations and information ― anti-corruption, and standards of business The company continues to implement continuous ― an ultrasonic flare gas flow meter, manufactured exchange; conduct. improvement initiatives within the Vendor Devel- by Kuibishev Telecom-Metrology NPP LLC, will ― audits of Russian enterprises for compliance opment Programme. In particular, the initiative be tested at the OPF site; with the company’s requirements; In addition, the company provides special training of pilot testing of Russian equipment and materials ― the shut-off and control valve stations of Sakhalin ― preparing individual development plans for sessions for nuanced understanding of HSE in Con- is being implemented by Sakhalin Energy at its assets. Energy’s onshore pipelines will be used to test Russian enterprises and providing follow-up tracts, and individual information sessions (round The pilot testing of one of the TMK pipe products modular power units manufactured by two control; tables) for early informing about terms and conditions with premium PJSC TMK UPPF connections was Russian companies NIPOM LLC and Nauka- ― providing support during testing, pilot testing of forthcoming tenders for potential Russian vendors. successfully completed at Molikpaq platform in 2020. Energotech LLC (trademark Evogress); and certification; During such sessions, Russian vendors get informa- The international certification of two more TMK pre- ― the LNG Plant will test the base station and tion on the scope of supply and general requirements mium connections will be completed in 2021. sensors, manufactured by Tingeniks LLC, for for products and work/service providers. collecting additional data from the industrial In Q1 2020, during drilling of a gas well on Lunskaya site in non-explosive areas; platform pilot testing of Russian-made non-rotating ― paint coatings manufactured by Hempel LLC NEW FORMAT protectors for drill pipes was successfully completed. will be tested at the company offshore platforms. Due to the restrictions imposed in connection with the COVID-19 pandemic in 2020, some of the scheduled trainings and information sessions were held online. Over this With a view to instrumentation and automation Being an effective tool for assessing reliability and year, Sakhalin Energy has conducted three HSES-SP trainings, which were attended equipment import substitution, pilot operation quality of Russian equipment and materials under actual operating conditions, pilot testing is also a step by 16 companies and five round tables with the participation of 64 representatives from of flame detectors and gas analysers manufactured by Spetspozhengineering LLC (SPE) was successfully forward towards Russian manufacturers. 25 companies. 138 139 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ECONOMIC IMPACT MANAGEMENT REPORT 2020

(KPIs) and by organising meetings to review Requirements for the quality of materials, equipment 7.4. SUPPLY CHAIN MANAGEMENT contractor performance; and services supplied ― the company raises awareness of, and conducts trainings for contractors in order to ensure Contractors must: The company pays close attention to the effective- ― sustainable development — ensuring sustainable compliance with its requirements (including ― develop and comply with quality assurance ness of Supply Chain Management (SCM). development in the process of selecting a con- those related to HSE and social performance, policy; tractor and in making supply chain management anti-corruption and bribery principles, human ― specify (develop) and comply with the quality Our fundamental Supply Chain Management docu- decisions; rights, etc.); control process and its procedures; ment is the Sakhalin Energy Supply Chain Manage- ― Sakhalin-2 project growth plans — investing into ― the company conducts contract performance ― specify (develop) and comply with quality ment Policy (hereinafter referred to as the Policy). the major projects, including those offering audits. assurance procedures. This Policy applies to all company’s employees and opportunities for increase in Russian Content. contractors, but primarily to the company’s personnel Sakhalin Energy’s requirements for contractors and Russian content requirements that are directly engaged in supply chain manage- The Policy lists rules and measures that ensure com- suppliers Sakhalin Energy’s Russian content requirements have ment. The Policy is applicable to all activities that pliance with these principles. Sakhalin Energy attaches great importance to the arisen from the Production Sharing Agreement con- involve spending the company’s funds on equipment, fulfilment of the company’s requirements by contrac- cluded with the Russian party. The parameters used materials, resources, services, and works. In accordance with the principles listed above, our tors and suppliers. These requirements include the sourcing and award and contract management pro- to measure the Russian content are weight of material following: The Supply Chain Manager is responsible for ensur- cesses are set up as follows: and equipment, number of man-hours and their cost ing that our model contracts contain the appropriate equivalent. Health, safety and environmental and social perfor- terms and conditions, for effective implementation Creating a list of qualified vendors (for certain scopes mance (HSE & SP) requirements of these terms and conditions in the procurement of resources/services or for specific tender scopes): Requirements for a tender proposal Contractors must: processes and for ensuring that control and assurance ― conducting workshops for potential vendors ― include compliance with HSE & SP principles A tender proposal shall clearly demonstrate and con- measures that are specified in the Policy and other (see Section 7.3.4. Vendor Development Pro- to the performance assessment; firm the following: Policy-based documents. gramme); ― perform checks and investigate any breaches ― a tenderer is a financially stable and solvent ― pre-qualifying potential vendors. of the HSE & SP rules to ensure the compa- company/organisation; Sakhalin Energy adheres to the following principles ny’s HSE policy is properly followed; ― a tenderer has the relevant experience in the in Supply Chain Management: Conducting tenders for purchase of materials/equip- ― independently certify the HSE & SP manage- subject scope; ― safety — causing no harm to people, the en- ment or provision of services: ment system for compliance with generally ― high quality and reliability of the provided ser- vironment, or to our property; ensuring that ― competitive bidding is preferred when sufficient recognised standards; vices/performed works/supplied materials; contractors comply with the company’s safety market capacity exists; ― verify that they comply with HSE&SP standards. ― HSE & SP management systems and procedures standards; ― distributing Invitations to Tender (ITTs) and are in place; ― additional value in SCM — value maximisation, Clarification Bulletins; ― a quality assurance system and procedure are cost effectiveness, and long-term commercial ― receiving bids (proposals); in place; profit; ― conducting technical bid evaluation (including ― availability of resources to meet the work/sup- ― zero tolerance for personal profit, bribery, or HSE, etc.); ply schedule. corruption — in all SCM operations in accor- ― conducting commercial bid evaluation. dance with the supply transparency principle; ― competition — development of open competi- Contract award: tion in markets; ― upon completion of all stages of the bidding ― Russian content — maximisation of the Russian process, the company awards the contract under content and development of Russian suppliers the terms and conditions specified in the ITT. and contractors; ― human rights — ensuring respect for, obser- Contract management: vance, and promotion of human rights by con- ― during performance of the contract, the com- tractors; pany monitors contractor activities by tracking the mutually agreed Key Performance Indicators SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT MESSAGE FROM THE CHAIRMAN OF THE COMMITTEE REPORT 2020 OF EXECUTIVE DIRECTORS AND CHIEF EXECUTIVE OFFICER

ENVIRONMENTAL IMPACT 8MANAGEMENT

Sakhalin Energy conducts environmental management based on environmental protection laws and regulations of the Russian Federation and in line with international standards and best practices of the oil and gas industry. 142 143 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

8.1. GENERAL INFORMATION 8.2. INDUSTRIAL ENVIRONMENTAL CONTROL Sakhalin Energy conducts environmental manage- The HSE & SP management system is described ment based on the environmental protection laws in Section 3.5 above. It has been certified according and regulations of the Russian Federation and in line to ISO 14001:2015 and OHSAS 18001:2007 interna- 8.2.1. GENERAL INFORMATION with international standards and best oil and gas tional standards. Sakhalin Energy exercises industrial environmental The company tracks and controls emissions and industry practices. control of its assets to ensure compliance with leg- discharges, greenhouse gases and ozone-deplet- For continuous improvement of operational effi- islation on environmental protection, to observe the ing substances from hydrocarbon production and Sakhalin Energy’s environmental policy has been ciency, the system follows a repeating cycle: plan — established environmental regulations, and to support transportation assets, and the LNG asset it operates; integrated into the corporate Business Principles, do — check — act. External and internal audits are the rational use of natural resources and fulfilment special attention is given to waste management, Sustainable Development Policy and HSE & SP Policy. held to monitor and evaluate the system’s efficiency. of plans for minimising environmental impact. energy consumption and associated petroleum gas Relevant commitments are included in the HSE & SP Company assets are audited on a regular basis for utilisation issues. Plan, standards and procedures, as well as other cor- compliance with environmental laws and regulations The company exercises industrial environmental porate documents. and corporate standards and procedures. control in the following areas: The company has developed and has been imple- ― air emissions; menting the Air Emissions and Energy Management Sakhalin Energy also promotes the development ― water use and impact on water bodies; Standard, Water Use Standard, and Waste Manage- of vendors and suppliers through a “one team” ― waste management. ment Standard. approach, experience sharing and contractor compliance monitoring.

The company places special focus on proactive risk management and environmental impact assessment. The company has developed and implemented a risk 8.2.2. IMPACT ON ATMOSPHERIC AIR management system (see Section 5.4. Risk Manage- ment System) to reduce environmental impacts and Sakhalin Energy seeks to minimise environmental sphere, the company keeps track of their emission pollution risks. impact, including by reducing air emissions. sources and consumption (see Section 8.2.6. Green- house Gas and Ozone-Depleting Substance Emis- The company is implementing an administrative and In order to reduce emissions, the company uses gas sions). technical action plan to gradually reduce negative turbines equipped with low-NOx burners. A system environmental impacts and to develop the compe- that increases gas turbulence is used on flaring units, The company conducts monitoring of fixed sources tencies of the company and contractor personnel, which facilitates soot-free gas flaring. for compliance with established standards for max- as well as to develop and implement programmes for imum allowable emissions. Air quality monitoring industrial environmental control and monitoring the To reduce atmospheric pollutant emissions, Sakhalin is carried out at the boundaries of sanitary protection natural environment and biodiversity. Energy implements measures to improve operational zones around the company’s production assets. reliability and safe operation of equipment, and monitors compliance with the operating envelope The increase in the total volume of emissions, includ- of the gas turbines. To ensure the timely elimination ing those of carbon monoxide, nitrogen oxide, and of potential gas leaks at company assets, the com- methane, recorded in 2020, is primarily due to the pany performs equipment inspections and diag- repair and maintenance works carried out as part nostics using fixed and portable gas analysers and of the comprehensive scheduled shutdown at the infrared cameras, and carries out any required repair gas infrastructure facilities, as well as to the sched- and maintenance. To assess the impact of greenhouse uled shutdown for maintenance at the PA-A and gases and ozone-depleting substances on the atmo- PA-B platforms. 144 145 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

Specific Air Emissions in 2017–2020, by Areas of Activity

Activity 2017 2018 2019 2020

Hydrocarbon production (kg/toe) 0.18 0.19 0.14 0.15

Hydrocarbon transportation (kg/thousand t-km) 0.06 0.08 0.06 0.08

LNG production (kg/toe) 0.23 0.20 0.20 0.19

8.2.3. IMPACT ON WATER BODIES

The company strives to reduce water consumption for production complex due to the transition of employ- production needs and to minimise the environmental ees to remote and longer duration rotational work impact from wastewater discharge. in response to the coronavirus pandemic.

The intake of water from surface and groundwater A decrease in the volume of seawater injected bodies for domestic, drinking and industrial purposes to maintain reservoir pressure was associated with is carried out on the basis of water use permits and an increase in the water cut of producing reservoirs The efforts made to improve the operational reliabil- Air quality monitoring at the boundaries of the sani- licenses for subsoil use. and the use of produced water to maintain reservoir ity and safe operation of equipment, as well as sys- tary protection zones of the Prigorodnoye production pressure. tematic monitoring to ensure its correct operation, complex, OPF, and BS 2 showed neither non-com- To ensure compliance with the established standards made it possible to keep specific emission values pliance with established standards, nor any increase for the maximum allowable discharges of pollutants An increase in water disposal to surface water bodies at the same level as in the previous years. in pollutant concentrations. to water bodies and rational use of water resources, was due to the transition of employees living in the the company monitors the efficiency of the sew- Zima residential complex to long-term remote work age treatment plants and carries out quality control due to spread of coronavirus infection, and the intro- of sewage, surface and groundwater, as well as mon- duction of a rotational work schedule for personnel Gross Air Emissions in 2017–2020, thousand tonnes itors compliance with the established water use and of the Prigorodnoye production complex. An increase water discharge limits. Water intake and treatment in the volume of discharges to land was caused Pollutant 2017 2018 2019 2020 facilities are maintained in good order; monitoring by a significant amount of atmospheric precipitation. Carbon oxide 4.06 4.21 3.41 3.53 of water protection zones of water bodies is carried out on a regular basis. Groundwater monitoring In 2020 incidences of disposal of insufficiently Nitrogen oxide (in NO2 equivalent) 4.26 4.34 3.93 4.04 is performed to identify areas of possible changes treated wastewater increased. This was caused by the Methane 1.17 1.10 0.70 0.90 in groundwater levels or areas of possible contamina- commissioning of a temporary camp for rotational

Sulphur dioxide 0.04 0.03 0.03 0.03 tion caused by the operation of the company’s pro- workers at the Prigorodnoye production complex, the duction assets. use of additional amounts of disinfectants to com- Other pollutants 0.91 0.62 0.45 0.38 bat the spread of the coronavirus and, accordingly, Total 10.44 10.30 8.52 8.88 In 2020, the water use figures remained the same an increase in the load on the treatment facilities. as in the previous year. A growth in water intake from underground sources was caused by an increase Only 2% of the wastewater was insufficiently treated, in water consumption by personnel of the OPFC another 2% of the wastewater was treated to min- construction camp, residents of the Zima residential imum standards, and the other 96% met minimum complex and temporary camp of the Prigorodnoye standards without treatment. 146 147 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

Environmental monitoring did not reveal any adverse 8.2.4. WASTE MANAGEMENT impact on the water bodies located in the area of the company’s production assets. The company’s waste management activities are tinued monitoring of the seawater condition in the aimed at meeting Russian and international require- bottom layer, sediment and benthic communities. ments and optimising waste management processes Based on the monitoring results for the previous four Consolidated Figures of Water Use in 2017–2020, thousand m3 in order to reduce adverse environmental impact. years, Rosprirodnadzor confirmed that the disposal Most of the company’s waste is classified as low-haz- of drilling waste has caused no adverse impact on the ard (Hazard Class IV and V). It is mainly drilling waste environment. Parameter 2017 2018 2019 2020 and solid domestic waste. Water intake, including: 30,050.94 28,290.83 29,263.78 29,403.01 At the production assets, waste is collected sepa- from surface sources 29,228.98 27,507.64 28,558.22 28,482.38 To prevent adverse environmental impact, in 2020 the rately for subsequent disposal and treatment in order company continued injecting drilling waste through to reduce the amount of waste disposed at landfills; from underground sources 326.27 347.43 348.46 463.82 special disposal wells into deep underground hori- the company conducts inspections of waste storage Water consumption, including: 29,593.53 27,893.77 28,939.95 28,960.95 zons with necessary insulating formations to ensure sites and waste is removed in a timely manner.

for production needs (not including consumption for reservoir their full containment and safe disposal. This is one 22,520.46 21,458.08 21,188.04 22,284.19 pressure maintenance needs) of the best available technologies for the disposal All Hazard Class I-III waste is transferred to licensed

for reservoir pressure maintenance needs 6,689.23 6,077.11 7,379.29 6,279.57 of waste associated with oil and gas production contractors for disposal or treatment. All Hazard (ITS-17, 2016). Class IV–V waste is sent to specially equipped land- Water discharge, including: 23,163.00 22,062.96 21,724.05 22,990.72 fills. The company is actively searching for cost-effec- into surface water bodies 23,047.10 21,944.30 21,582.89 22,750.25 In 2020, the company continuously monitored the tive methods of managing Hazard Class IV-V wastes

on the surface 86.54 88.13 75.19 99.15 injection process and took all reasonable measures in order to reduce the proportion of waste disposed to reduce the volume of drilling waste. To confirm at landfills, including increased reuse and recycling no adverse environmental impact, the company con- of materials.

Specific Water Use in 2017–2020, by Areas of Activity Waste Breakdown by Hazard Class in 2020 (Not Including Drilling Waste), % Water consumption Disposal of polluted water into for in-house needs surface water bodies Activity 2017 2018 2019 2020 2017 2018 2019 2020 Hydrocarbon production (m3/toe) 1.0 1.0 1.0 1.0 0.004 0.004 0.005 0.005 0.03 1.04 3 Hydrocarbon transportation, m /thousand t-km 0.001 0.001 0.001 0.001 – – – – 10.00 I Class — 0.03 LNG production (m3/toe) 0.01 0.01 0.004 0.005 0.006 0.006 0.001 0.004 II Class — 1.04

62.20 III Class — 10.00 26.73 IV Class — 26.73 V Class — 62.20 148 149 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

Waste Management Indicators (Including Drilling Waste) in 2017-2020, 8.2.5. ENERGY PRODUCTION AND CONSUMPTION thousand tonnes The company is striving to use energy resources effi- gramme (see Section 4.3.2. Continuous Improvement

Parameter 2017 2018 2019 2020 ciently, and this is stated in its policies, standards, and Programme). Its core activities are aimed at enhancing commitments on energy management and gas flaring. the operational reliability of equipment, and process Waste generated in the reporting year (all Hazard Classes) 36.58 27.13 30.74 24.67 efficiency. Transferred to other organisations for disposal and treatment 3.47 2.89 4.49 4.53 The company’s assets have been designed in line

Transferred to other organisations for burial at landfills, including: 1.66 1.89 2.01 1.81 with international best practices, and new depletion Natural gas has the biggest share in the energy compression facilities (OPFC) under construction mix of the company. Diesel fuel is used for backup. in the Sakhalin Oblast (with MSW*) 0.21 0.45 1.70 1.37 incorporate the latest technological advances. All The power supply for the company’s infrastruc- outside the Sakhalin Oblast 1.45 1.45 0.31 0.44 production assets use independent power supplies. ture in Yuzhno-Sakhalinsk and Korsakov comes from the public electrical grid, while the energy for Waste disposed at own assets (burial of drilling waste) 31.41 22.50 24.24 18.33 Energy saving and efficiency improvement efforts are heating is generated independently at the assets. * Solid domestic waste. organised under the company’s Continuous Improve- The energy consumption balance is shown in the ment and Production Process Optimisation Pro- table below. As of the beginning of the reporting year, there was residential complex, as well as the transition of office no waste in the temporary waste accumulation area. employees to remote work to prevent the spread The reduction in the volume of generated waste was of the coronavirus disease. Energy Generated and Consumed in 2017–2020, million GJ mainly due to the suspension of drilling activities during the period of scheduled platform maintenance. Solid domestic waste transferred to the regional Parameter 2017 2018 2019 2020 operator was disposed of on the territory of the The amount of waste transferred for disposal and Sakhalin Oblast in accordance with the territorial Primary energy generated 910.28 895.63 857.10 871.55

treatment remained the same as the year before. waste management scheme. A slight increase in the Primary energy sold, including: 858.07 839.04 801.72 817.82 The reduction in the total amount of waste trans- amount of waste buried at landfills outside the region ferred for burial at landfills, including those on Sakha- was associated with the generation of Low Hazard provided to Russian Party 39.83 39.99 44.04 47.34 lin, was due to the closure of leisure facilities and Class IV–V waste during the comprehensive shut- Primary energy consumed, including: 59.29 59.08 57.47 59.44

the cancellation of mass events in the Zima Highland down at the gas infrastructure facilities. direct energy consumed (natural gas) 57.49 57.19 55.61 57.74

primary energy purchased (diesel fuel) 1.80 1.89 1.86 1.70

Indirect energy purchased/consumed (electricity) 0.12 0.13 0.13 0.14

The 2020 energy consumption breakdown by activity and LNG production; energy intensity was virtually is shown in the diagram. A slight increase in energy unchanged compared with the previous year’s data. consumption was due to increased hydrocarbon 150 151 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

Energy Consumption in 2020, by Areas of Activity, % In 2020, Sakhalin Energy installed a novel automatic traffic control system at the start of the Nysh — Lunskiy Bay road. The system is fitted with solar batteries and a wind turbine that provide a continuous power source. Based on the results of this pilot 4.1 project, similar systems may be installed along the route.

20.6 LNG production — 75.3 Hydrocarbon production — 20.6 8.2.6. GREENHOUSE GAS AND OZONE-DEPLETING SUBSTANCE EMISSIONS Hydrocarbon transportation — 4.1 75.3 In 2016, Russia joined the Paris Agreement, under ― inspection and diagnostics of equipment to pre- which each party defines its own contribution to prevent leaks and increase operational reliability; venting global climate change and takes internal ― actions aimed at reducing hydrocarbon losses; measures to adapt to these changes and achieve the ― programmes for improving energy efficiency objectives. The Paris Agreement has superseded the of production processes. Kyoto Protocol, which expired in 2020. Energy Intensity in 2017–2020, by Areas of Activity The company has developed GHG emission man- The company shares the global community’s con- agement and energy efficiency plans for the offshore Activity 2017 2018 2019 2020 cerns regarding climate change and implements the platforms, OPF, and the LNG plant. Hydrocarbon production, GJ/t hydrocarbons produced 0.64 0.63 0.66 0.65 following key measures aimed at climate conservation 2020 saw a slight increase in the total volume of GHG Hydrocarbon transportation, GJ/Kt-km 0.15 0.15 0.15 0.15 and greenhouse gas (GHG) emission reduction: ― development and assessment of design docu- emissions. This was due to a rise in LNG production, LNG production, GJ/t LNG produced 3.85 3.88 3.84 3.85 mentation with regard to environmental safety flaring during maintenance and repair works at hydro- and environmental impact analysis; carbon production assets, as well as an increased use ― monitoring and reporting of GHG emissions; of hydrocarbons to produce energy for internal use ― utilising associated gas and flaring reduction; and other process operations. Sakhalin Energy’s assets have high energy efficiency. In fact, the company’s figures are some of the world’s best. For example, in 2020, energy intensity of the company’s assets was at 0.65 GJ/tonne hydrocarbons produced. The data from the GHG Emissions in 2017–2020, mln tonnes of CO₂ equivalent International Association of Oil and Gas Producers indicate that the average annual energy intensity among international oil and gas companies was 1.45 GJ/tonne Parameter 2017 2018 2019 2020

hydrocarbons produced. Direct emissions (Scope 1) 3.740 3.768 3.529 3.661

Indirect emissions (Scope 2) 0.008 0.009 0.009 0.010

Total 3.748 3.777 3.538 3.671 Sakhalin Energy’s LNG plant is the largest energy at the top of the Shell 2020 rating for operational consumer in the company; however, it remains performance thanks to outstanding safety efforts, a world leader in energy efficiency. It was placed improved efficiency, and production reliability. 152 153 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

2020 GHG Emissions by Company Activity, % GREEN LNG STRATEGY In order to meet the challenges facing the global energy sector, in 2020 the company developed a Green LNG Strategy to reduce its carbon footprint (see 8.2.7. Green LNG 4.1 Strategy). The launch of this strategy implementation is scheduled for 2021.

23.7 LNG production — 72.2 In 2020, Sakhalin Energy’s vehicle fleet welcomed its first electric car. The innovative Hydrocarbon production — 23.7 Renault Kangoo Z.E. will carry passengers and cargoes within Zima residential complex and around Yuzhno-Sakhalinsk. Sakhalin Energy has become the first oil Hydrocarbon transportation — 4.1 72.2 and gas company on the island to introduce this innovative solution to passenger and cargo transportation. The company intends to steadily build an environmentally friendly car fleet.

Specific GHG Emissions in 2017–2020 by Company Activity Some equipment at the company assets, such implementing the Action Plan aimed at the gradual as air conditioners and cooling machinery, con- replacement of this equipment and discontinuing Activity 2017 2018 2019 2020 tains ozone-depleting substances, regulated by the the use of ozone-depleting substances in accordance Montreal Protocol. In 2020, the company continued with the Protocol. Hydrocarbon production, t СО2 eq./t of hydrocarbons produced 0.048 0.052 0.046 0.046

Hydrocarbon transportation, t СО2 eq./thousand t-km 0.009 0.009 0.009 0.009

LNG production, t СО2 eq./t of LNG produced 0.231 0.230 0.228 0.228

The 2020 levels of specific GHG emissions remained similar to those of the previous year. 8.2.7. GREEN LNG STRATEGY

Sakhalin Energy is committed to contributing to the promising activity. The company plans to estimate the Structure of GHG Emission Sources in 2020, % global efforts to address the challenges of climate costs related to the life cycle of natural resource-based change. In 2020 the company developed the Green carbon-sink solutions; promote an environmentally LNG Strategy with the purpose of reducing its carbon responsible culture at all company facilities; develop Source 2020 footprint and identifying options for the production projects aimed at generating carbon credits. Fuel consumption 87.62 and supply of carbon neutral products to our buyers.

Gas flaring 4.31 The strategy focuses on four main areas: nature- The company works continuously on the improve- based solutions, further improving the energy effi- ment of energy efficiency and reduction of green- Uncontrolled leaks 0.17 ciency of Sakhalin-2 Project production technologies, house gas emissions (please refer to chapters Mobile sources 2.94 commercial carbon credit activities and alternative 8.2.5 and 8.2.6). Key emphasis is placed on assessing

Gas venting emissions 0.26 technologies. the potential for further reduction of greenhouse gas emissions in the integrated gas chain: introduction Acid gas removal 4.40 The nature-based solutions activities are focused of process modifications, optimisation of mainte- HFC emissions 0.04 on increasing the absorption of greenhouse gases. Con- nance schedules, application of predictive analytics

Indirect emissions 0.26 servation, restoration and enhancement of forest man- to improve equipment reliability, gas flaring manage- agement are possible options for the Sakhalin Oblast. ment, and instrumented methods for the prevention Afforestation of some areas is considered a potentially and control of leaks. 154 155 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

Additionally, the company is investigating options for and promising alternative technologies that can carbon neutral LNG cargoes to become a standard contribute to the global reduction of greenhouse offer. Consultations with LNG buyers are planned gas emissions. The plan is to perform a feasibility in order to explore their interest in buying carbon neu- assessment of alternative technologies and their tral LNG cargoes and identify their preferred options potential integration with the company’s operations: for compensating greenhouse gas emissions. Options low-carbon and renewable energy such as wind, to purchase carbon credits from third parties will solar and thermal (please refer to chapter 8.2.5); be explored, taking into account the preferences of the production and use of hydrogen; carbon capture and LNG buyers. A proposed pilot carbon trading system storage (CCS). on Sakhalin may introduce the potential to obtain Russian carbon credits that could be used in conjunc- One of the keys to the successful implementation tion with carbon credits generated by the company of the Green LNG Strategy is establishing a partner- as a result of nature-based solutions implementation. ship with the Sakhalin Oblast Government to generate joint long-term solutions in the area of clean The long-term strategy is to implement an “energy energy and assist in developing the state legislative cocktail”, combining the use of both traditional framework for greenhouse gas management.

8.2.8. UTILISATION OF ASSOCIATED GAS IN PRODUCTION The company strives to reduce associated gas flar- Currently, the company does not reinject associated 8.2.9. ENVIRONMENTAL PROTECTION COSTS ing to a minimum. Associated gas produced at the gas into the reservoir. PA-A and PA-B platforms is transported via off- AND PAYMENTS FOR THE NEGATIVE IMPACT shore pipelines to the shore, and it goes though the The company has included targets for associated gas To comply with international and Russian legislation ― Federal Subsoil Resources Management Agency onshore pipelines to the OPF, where it is mixed with utilisation in the Reservoir Management Plans for the requirements, Sakhalin Energy implements envi- (Rosnedra); LUN-A gas for further transportation. Some of the PA-A, PA-B, and LUN-A platforms. The actual associ- ronmental conservation measures. The current cost ― Federal Service for the Supervision of Natural associated gas is used as fuel for production assets. ated gas utilisation in 2020 was 97%. of implementation in 2020 was 3,153 mln roubles. Resources (Rosprirodnadzor); ― Amur Water Basin Committee of the Federal Sakhalin Energy’s environmental conservation activ- Water Resources Agency; Utilisation of Associated Gas in Production in 2020, % ities are monitored by the supervisory authorities ― Ministry of Ecology of the Sakhalin Oblast. at federal and regional levels, including: Year Produced Flared ― Ministry of Natural Resources and Environment In the reporting year, federal supervisory authorities of the Russian Federation; conducted six inspections, which found non-com- 2017 97 3 ― Federal Service for Surveillance on Consum- pliances related to exceeding wastewater discharge 2018 96.5 3.5 er Rights Protection and Human Wellbeing standards and permissible concentrations of pollut- 2019 98 2 (Rospotrebnadzor); ants in wastewater. The company took actions to rem- edy all identified non-compliances. 2020 97 3 156 157 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

Payments for Adverse Environmental Impact in 2017–2020, thousand roubles 8.3. ENVIRONMENTAL MONITORING Parameter 2017 2018 2019 2020

Air emissions 898.41 806.52 595.77 663.60 AND BIODIVERSITY CONSERVATION

Discharges into water bodies 72.01 157.21 127.92 215.80 Waste disposal 180.88 680.15 631.89 7,134.09 8.3.1. GENERAL INFORMATION Total 1,151.30 1,643.88 1,355.58 8,013.49 The implementation of environmental monitoring duction assets, to identify current impact signs, and Despite the reduced adverse environmental impact The share of above-limit payments in the total in potential impact zones during the operational to develop actions to mitigate it, if necessary. due to the reduction in the mass of buried waste, amount of payments for adverse environmental phase ensures Sakhalin Energy’s compliance with the the payments increased. This was due to, among impact was 41%, mainly due to the absence of limits requirements of the State Environmental Expertise The implementation of the corporate Biodiversity other things, a considerable increase in the sur- for the disposal of low-hazard and virtually non-haz- for in-process environmental monitoring and local Action Plan (BAP) fulfils the company’s obligations charge rates established by Article 16.3 of the Federal ardous Hazard Class IV–V waste at landfills and the monitoring. with respect to impact mitigation, development and Law on Environmental Protection, put into force application of multiplying factors beginning from implementation of measures aimed at protecting on 01 January 2020. 01 January 2020. The environmental monitoring programmes are car- both rare and endangered species and environmen- ried out to assess the condition and restoration of the tally significant and vulnerable habitats. environment in the areas of the company’s pro- Current Environmental Costs in 2020, % In 2020, the company participated in various meetings and sessions with external parties dedicated to environmental protection and biodiversity conservation Protection and rehabilitation of land as well 1.4 0.6 as surface water and groundwater, including offshore issues, including the meeting of the Working Group for the Conservation and 3.5 areas — 78.4 Recovery of Certain Rare, Threatened and Endangered Wildlife Species in the Russian Federation, sessions of the Scientific and Technical Council (STC) under 15.8 Waste management — 15.8 Rosprirodnadzor, the meeting of the Western Gray Whale Advisory Panel (WGWAP) under the IUCN, and many others. 0.3 Wastewater collection and treatment — 3.5

Biodiversity conservation and protection of natural territories — 1.4 In 2020, environmental monitoring and biodiversity ― marine environment and biota in the area conservation activities (involving specialist organisa- of Prigorodnoye port and ballast water control; Other environmental protection activities — 0.6 tions and company experts), were carried out in the ― gray whales and marine mammal protection. 78.4 following areas: Atmospheric air protection and climate change ― soil cover; The results of the environmental monitoring and prevention — 0.3 ― river ecosystems; biodiversity conservation measures have confirmed ― flora and vegetation; that the company is minimising the impact of its ― protected species of birds, including the production activities on the environment through its Steller’s sea eagle; environmental protection management system, which ― marine environment and biota in the waters includes risk assessment and prevention, and prompt of oil and gas fields; mitigation of identified risks. 158 159 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

8.3.2. SOIL MONITORING 8.3.3. RIVER ECOSYSTEMS MONITORING

A system of regular soil monitoring allows for the landscape conditions, as well as at two “baseline” The onshore pipeline system, covering virtually the ― the Mereya River and the Goluboy Stream in the identification of trends and potential changes. sites. The concentration of organic matter in the soil whole territory of Sakhalin Island, crosses more than area of the Prigorodnoye production complex. The company assesses the soil condition along the varies greatly: from elevated levels (black bog soils) a thousand water bodies (rivers, streams, lakes and onshore pipeline routes, at the production assets, and to relatively low (high moor soils) and low levels (brown canals) from Chaivo Bay in the north to Aniva Bay Monitoring was performed during two hydrological within the areas around the Prigorodnoye production forest soils). In 2020, no deterioration of the soil layer in the south. During the design and construction seasons: summer low water and autumn high water. complex and the OPF at intervals prescribed in the or signs of degradation related to the operational stages, the company conducted baseline studies and Sampling was carried out at two cross sections: the monitoring programme. activity of the Prigorodnoye production complex has operational monitoring of all crossings of water bod- upstream baseline (with no impact from the company been recorded at any of the monitoring sites. The con- ies. For the operational stage, a comprehensive obser- assets) and downstream monitoring sections. In 2020, soil monitoring included: centrations of petroleum hydrocarbons and benzo(a) vation programme was developed to monitor envi- ― obtaining data on the physicochemical and pyrene in the soils of all monitoring sites are within ronmentally significant and hydrographically complex On most investigated river-crossing sites (from the agrochemical characteristics of soils; background levels throughout all soil cross sections watercourses. This allows the company to monitor any upstream to the downstream cross sections), no sig- ― analysing the content of pollutants in soils and do not exceed permitted levels. In 2020, no con- changes, to identify critical areas, to develop and take nificant horizontal or vertical deformations of river in the territory of the Prigorodnoye production tamination by the ecotoxicants under study has been timely corrective measures. beds were detected. The crossings are in satisfactory complex and along the pipeline route. recorded: the average level of cumulative petroleum condition, and no damage to utility lines was found. hydrocarbons in the 0–25 cm soil layer varied in the River ecosystem monitoring comprises several areas: In 2020, the environmental soil study within the 32–235 mg/kg range, which is considerably below the the quality of surface waters, bottom sediments, and The physicochemical properties of surface waters potential impact zone of the LNG plant and OET was permissible level (1,000 mg/kg); the average concen- benthos. The quality of river ecosystems primarily in all observation seasons complied with regulatory conducted at 12 local soil monitoring sites situated tration of benzo(a)pyrene in the 0–25 cm soil layer indicates the nature and specifics of potential impact benchmarks, demonstrated identical change trends, in three directions (bearings) 0.5, 1.0, 2.0 and 4.0 km was below the detection threshold. on aquatic ecosystems during the operation of pipe- and had similar quantitative and qualitative character- away from the border of the production area of the line and infrastructure facilities. The other objective istics upstream and downstream in each watercourse. plant in locations with the most representative The 2020 soil monitoring along the onshore pipeline of monitoring is to identify any potential adverse route was carried out at 24 permanent sample sites impact from natural factors on the Sakhalin-2 project The oxygen regime of surface water was within norms on the right-of-way, characterised by different land- infrastructure. during all observation periods. Suspended solids scape and orographic conditions and man-made soils demonstrated minor seasonal fluctuations in their and at 24 “baseline” sites with undisturbed natural The monitoring of river ecosystems includes: concentrations. soils. Almost all monitoring sites are covered by vege- ― determination of hydrological and hydrochemi- tation, with 75–100% plant cover, which supports the cal characteristics of watercourses; Among all the studied metals, concentrations of iron formation of proper sod soil. ― assessment of bottom sediment condition and copper showed the highest variability. In most in river beds; of the watercourses, the content of these metals In 2020, the concentration of total petroleum ― identification of hydromorphological changes exceeded the corresponding maximum allowable hydrocarbons, the primary monitored ecotoxicants (river bed and bank erosion in the areas of pipe- concentration (MAC) standards. Elevated concen- in the soil (0–25 cm layer), totalled 15–289 mg/kg, line route crossings); trations of iron and copper is a natural phenomenon which is considerably below the permissible level ― assessment of the composition and abundance common for surface waters in Sakhalin. (1,000 mg/kg). of benthos (community of sediment dwellers); ― assessment of the size and quality of potential Monitoring did not reveal surface water contamina- The monitoring in 2020 did not reveal any land con- Pacific salmon spawning areas. tion by petroleum products. All measured values were taminated with oil or petroleum products as a result insignificant and complied with Maximum permissible of the operation of the company’s infrastructure or In 2020, the monitoring of hydrological and hydro- concentrations for fishery watercourses (MPCf). execution of work in the territories of the compa- chemical characteristics and the condition of bottom ny’s assets. sediments was implemented in the following water The content of petroleum products in bottom bodies: sediments did not significantly change from season As of the end of 2020, the area of disturbed soils ― 18 watercourses crossed by the pipelines; to season. The measurements of their concentrations amounted to 83.36 ha, including 4.21 ha in the report- ― the Vatung River in the area of potential impact made at the upper sections were the same as those ing year related to the OPFC construction works. from the OPF; made at the lower ones. 160 161 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

Grain-size distribution of bottom sediments was to the average for rivers of the Tonino-Anivsky Penin- In 2020, the condition of five species of epiphytic homogenous in all watercourses in all seasons and sula. Filling of the spawning grounds in the Goluboy lichens found in 26 locations, was studied. The thalli was mainly made up of grains of 10 mm or larger. Stream was significantly lower than the long-term of these species of lichens were strong in 17 loca- The share of these particles in the summer and annual average value — the number of spawners that tions. In 9 locations the lichens were still affected autumn periods was more than 50% of the total entered the area in 2020 was estimated at 10 thou- to a certain degree by the change in the microclimatic mass. sand specimens. Around 70% of the total num- conditions (stronger lighting and wind, decreased ber of fish that entered the area actually spawned air humidity at the boundaries of open and forested Benthos monitoring in watercourses continued in the stream, while the rest were killed by poachers. areas). However, thalli of these species of lichens in 2020. The analysis of habitat conditions (bed type, The majority of salmon failed to get further than the continue to sprout, which suggests the preservation current speed, sediment type, depth), quantitative and bridge across the federal road. Most humpbacked pink of the species composition and the general resto- qualitative indices of macro-zoobenthos, showed that salmon spawning grounds were registered within the ration of lichen cover. the variability of the composition, state and structure protected area of the LNG plant and in the area from of benthos communities between the baseline and the LNG plant to the federal road. An excellent degree of grass cover reinstatement control sections of the watercourses under study was recorded for more than 85% of the right-of-way; is due to natural variability, in particular the hetero- Average egg planting was calculated at 86 eggs many sites are characterised by a developed dense geneity of biotopes and hydrologic-hydrochemical per 1 m2. The egg survival rate reached 55% during grass canopy. Individual undergrown areas persist indicators at monitoring stations. the autumn period. on steep slopes and in some areas in the northern districts of the island, which is due to the lack of fer- 17,260 humpbacked pink salmon fry are estimated Overall, the outcomes of river ecosystems moni- tility in sandy and clay soils. Despite this, even these to have migrated in the Goluboy Stream in 2020. toring in 2020 are explained by natural fluctuations areas show a positive trend: vegetation is gradually of parameters; no impact from Sakhalin Energy’s pro- being restored on the right-of-way. In 2020, the timing of humpbacked pink salmon duction assets on the quality of surface waters or spawning migration in the Goluboy Stream was close their flora and fauna was detected. in certain areas due to windfalls has been identified. The monitoring of the vegetation cover along the The species composition of subordinate layers in all pipeline route did not show any disturbances in the sampling areas surveyed has not changed. In 2020, structure or species composition of plant commu- a study was conducted to observe the state of nine nities, with the exception of one site in the Korsa- protected species in 56 locations. Two previously kovsky District that was severely damaged by a wind- 8.3.4. FLORA AND VEGETATION MONITORING monitored species, Daphne jezoensis and Trillium fall in 2015. The condition of 13 protected species tschonoskii, were excluded as they were removed (in 72 locations) has not caused any concern. Only in two locations with Aralia elata, the vegetation Sakhalin Energy implements the Environmental Mon- ― to monitor the restoration of vegetation within from the Red Book of the Sakhalin Oblast in 2019. cover was disturbed as a result of windfall. Stronger itoring Programme of vegetation cover, which allows the rights-of-way and generate recommenda- lighting, however, improved the growth conditions assessment of current vegetation conditions and tions for additional work required in some areas. The vegetation cover around the OPF features boggy for this species. A study of 11 protected species timely response to any adverse environmental impact larch forests and dark coniferous larch forests. Wet- of epiphytic lichens (in 61 locations) showed that from the company assets. In 2020, flora and vegetation monitoring, including lands spread to the north of the OPF. Standing timber of protected species, was conducted in the area in woodlands is not impacted by OPF activities. Iden- none of the locations were disturbed. In all locations, thalli of both the protected and common species The Monitoring Programme includes the following of the Prigorodnoye production complex and around tified insignificant variations in the number of trees continued to sprout, which suggests the preservation objectives: the OPF, including the territory of the OPFC project. are due to natural processes in phytocenoses, such of the species composition of lichen cover in the ― to monitor the condition of vegetation in the Studies were completed on the right-of-way within as undergrowth ageing and natural death of old trees. monitored area. areas adjacent to the company assets; the onshore pipeline area. The species composition of layers at all monitoring ― to evaluate and forecast natural and man-in- sites surveyed has not changed. The habitat of the The results of long-term monitoring show that the duced changes/successions in the plant com- The vegetation cover around the Prigorodnoye pro- only protected species of vascular plants — Sakhalin structure and species composition of plant commu- munities; duction complex mainly features dark coniferous and Ephippianthus — located southwest of the OPF, has nities remain unchanged in the zone of potential ― to monitor the state of rare and protected spe- dark coniferous larch forests. The structure and spe- not been violated. As of today, these habitats, iden- impact from the company assets, and the vegetation cies of plants and lichens; cies composition of vegetation communities in mon- tified in the course of monitoring, are the northern- itored areas remain unchanged. No reduction in the most on Sakhalin. is gradually being restored on the right-of-way. number of trees that was recorded in previous years 162 163 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

8.3.5. MONITORING OF PROTECTED BIRD SPECIES of observations in the vicinity of the Prigorodnoye PC. pigeon, a mating male that kept to the border of the From the 2020 observations, the number of Japanese forest, has been observed in the vicinity of the asset. Subject to Federal Law No. 52-FZ of 24 April 1995 In 2020, rare bird species monitoring was carried out snipe breeding pairs was between 107–112. Studies Over the last four years, the Japanese cormorant has On the Protection of Wildlife (Articles 22 and 24), around the Prigorodnoye production complex (PC) show that the steady increase in Japanese snipe num- been regularly observed in the waters near Prigorod- rare species protection involves a number of restric- within a 4 km radius of the production facility bound- bers in meadow areas (including the reclaimed areas noye Port during the summer roaming and autumn tive measures with regard to users that perform ary. The studies covered both the onshore territory suitable for nesting) that had been observed before migration periods. This season, researchers observed business activities in their habitat. Legal entities and and the adjacent offshore area. has now stopped, and the numbers have stabilised. over a dozen specimens. citizens who implement economic activities onshore As the meadows started to become overgrown with and offshore where animals included in the Red Data Since the start of the monitoring activities in the shrubs and tree undergrowth, the breeding pairs were The areas near the Prigorodnoye PC are important for Books dwell shall bear responsibility for the pres- vicinity of the Prigorodnoye PC, the researchers naturally redistributed across the existing habitats. the nesting and migration of protected bird species, ervation and conservation and reproduction of this have observed a total of 175 bird species, 79 of which including those on the IUCN (International Union wildlife in accordance with the laws of the Russian were nesting species and 33 were protected spe- The population of another nesting species, the for Conservation of Nature) Red List. The long-term Federation and its constituent entities. cies. During the 2020 survey season, the following common reed bunting, does not appear to fluctuate. monitoring during Prigorodnoye PC’s operational protected species were recorded near the Prigorod Annually, 3–4 pairs make nests in the reeds around stage has demonstrated no negative impact of the During the Sakhalin-2 project planning stage, exten- noye PC: Japanese cormorant, great egret, east- Mereya lake. A specimen of the white-bellied green asset on the numbers of these species. sive in-depth studies of avifauna were conducted ern egret and intermediate egret, falcated duck, along the entire onshore pipeline route and in the mandarin duck, white-tailed eagle, Japanese snipe, waters of the offshore fields and Prigorodnoye Port. glaucous-winged gull, white-bellied green pigeon, The results helped establish species composition common reed bunting and russet sparrow. Nesting and number of birds, and identify important nesting, of the Japanese snipe and the common reed bun- 8.3.6. STELLER’S SEA EAGLE MONITORING migration, and feeding areas. Avifauna studies were ting has been observed, while nesting of the man- primarily focused on a number of protected bird spe- darin duck and the white-tailed eagle is presumed. The Steller’s sea eagle is the world’s largest fish- Monitoring is conducted in the Nogliki District within cies that are especially sensitive to human-induced The remaining species were observed during passing eating bird of prey. This species is listed in the IUCN a 2 km corridor along the onshore pipeline routes, impact; these species became the target of sub- visits and seasonal migration periods. (International Union of Conservation of Nature) within a 3 km zone around OPF boundaries, and sequent observation as part of the environmental Red List (Category VU, Vulnerable), in CITES (the in the control zone at a distance of up to 2 km from monitoring and biodiversity conversation programme The Japanese snipe was chosen as a basic ornitho- Convention of International Trade in Endangered the northern part of the Lunsky Bay shoreline. during the operational phase of the project. logical monitoring object for the whole duration Species) Appendix II, in the Bonn Convention, in bilateral agreements on the protection of migra- The research is focused on the following parameters: tory birds between Russia and the USA, Japan, and the total number of Steller’s sea eagles, their age South Korea, in the Red Book of Russia (Category III, composition, the number and quality of nests, the Rare), and in the Red Book of the Sakhalin Oblast predator pressure by brown bears, and the degree (Category II, Rare). of anthropogenic impact. Comparison of the data obtained at the two company monitoring sites and Even at the project feasibility study stage, Sakha- the control zone makes it possible to assess the lin Energy used the results of background studies degree of influence of company assets on the nesting to develop measures to protect nesting areas of the population of eagles. Steller’s sea eagle located within the production assets potential impact area, in line with the require- In 2020, 137 Steller’s sea eagle individuals and ments of Russian legislation and international best 5 white-tailed eagle individuals were identified during practices. the field study. 174 nests were inspected, of which 13 were newly-built. The company monitors eagles and has implemented impact mitigation measures for the Steller’s sea eagle 77 eagle nesting sites were inspected along the pipe- and white-tailed eagle during construction, modifica- line route. 13 nests were used by eagles for breeding, tion and operation of assets under Sakhalin-2 Project. 22 nests were occupied by eagle pairs that did not 164 165 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

breed in them, 7 nests were visited by eagles only Of the 13 eagle nests along the pipeline route, 9 nests 8.3.7. MONITORING OF MARINE BIOTA AND ITS ENVIRONMENT occasionally, 12 nests were unoccupied, 13 nests were were inhabited by pairs which successfully raised one abandoned, and 10 were destroyed. In all, 67 eagle chick each; three nests on the Chayvo Spit had been Environmental safety and conservation of the marine due to the mosaic distribution of bottom nests were identified within the pipeline impact area, ravaged by a bear, and from one of the nests, a chick environment in the course of offshore field develop- sediment types and geological properties 69% of which were in good and satisfactory condition. fell out and died. In total, 9 chicks left the nests. ment are a key priority of Sakhalin Energy. of the region. In general, concentrations Most of the nests had been built in trees, but 37% of contaminants in the bottom sediments near were located on power transmission line supports. Of the 19 nests in the control zone, one chick per In order to ensure timely detection of potential the platforms were low, not exceeding base- nest was successfully raised by eagle pairs inhabiting impact on the quality of seawater, bottom sediments line levels (average TPH levels varied between In the control zone located in the northern part 14 nests, two chicks per nest were reared in 4 nests, and the condition of biological communities as well 0.54–2.30 µg/g, phenols — 0.05–0.06 µg/g, deter- of Lunsky Bay, 91 eagle nesting sites were inspected. and one chick died in one nest. The total number as to monitor the effectiveness of impact mitigation gents — 1.83–2.93 µg/g) and were considerably 19 of them were inhabited by nesting pairs, 16 nests of chicks that left the nests was 22. measures, the company conducts regular environ- below the concentration values that can cause were permanently occupied, 9 nests were occasion- mental monitoring in accordance with environmental primary biological effects on the individual and ally visited by eagles, 10 nests were unoccupied, and The average Steller’s sea eagle brood size in the legislation of the Russian Federation and internal community levels of marine ecosystems; 7 nests had been abandoned. One third of all nests potential pipeline impact area was 1.0 chicks per pair, corporate standards. ― the concentration of TPHs determined by the recorded in the control zone in 2019 (30 nests) had and in the control zone — 1.22 chicks. studies in bottom waters and bottom sedi- ceased to exist, since the trees in which the nests In 2020, as part of industrial environmental monitor- ments near the drilling waste disposal wells had been built in were blown down by strong gusts In 2020, six nesting sites were inspected in the area ing, Sakhalin Energy has continued the study of the did not exceed baseline levels. The maximum of wind, presumably in the autumn of 2019 and in the of potential OPF impact. Two of the identified nests condition of the marine biota and its habitat near the concentration of TPHs in the seawater reached spring of 2020. As a result, there were 61 eagle nests had been abandoned, and four nests had fallen to the company’s production assets in the shelf area of the 0.032 mg/dm3, which is 1.5 times lower than in the control zone as of 2020, 57% of which were ground as a result of storms. The anthropogenic load Sea of Okhotsk off the north-eastern shore of Sakha- the MPCf. TPH levels in bottom sediments in good and satisfactory condition. observed in recent years in the vicinity of the OPF lin and in the coastal area of Aniva Bay. peaked at 5.5 µg/g, which is 6 times lower than and on the adjacent sea coast persists. baseline values typical for these water areas; Field studies in the Piltun-Astokhskoye and ― no accumulation of pollutants was recorded During the field study of 2020, young immature indi- Lunskoye oil and gas fields (near the PA-A, PA-B and near the wellheads of the abandoned appraisal viduals accounted for only 1.5% of the birds. The low LUN-A platforms, as well as in the vicinity of drilling wells at the Piltun-Astokhskoye and Lunskoye proportion of immature individuals is due to the fact waste disposal wells) were conducted in the autumn fields. The concentrations of methane and that in summer they tend to spend most of their time period from the supply vessel Gennadiy Nevelskoy. TCPHs in bottom waters and bottom sediments in the feeding areas, on the shores of shallow bays, The monitoring of the Prigorodnoye Port water area do not exceed background values established and therefore are not included in the head count in Aniva Bay (near the tanker loading unit of the oil for these license areas; carried out at the nesting sites. export terminal (TLU-OET) and the LNG jetty) was ― several benthic communities have been conducted from the company’s tugs. identified near the platforms and at theborders In 2020, the impact of bears on the eagle popula- of the fields. They are typical for the shelf of the tion, or the predator pressure, can be characterised The analysis of long-term data and comparison with Sea of Okhotsk and are characterised by high as significant for the potential pipeline impact area baseline and regulatory values has revealed spatio- species diversity with great abundance indica- (3 nests were destroyed) and insignificant for the temporal dynamics of the monitoring parameters and tors comparable to baseline values. The depth control zone. In the control zone, no confirmed cases led to the following conclusions: and type of bottom sediments are key factors of nests destroyed by bears were identified; in four ― the hydrochemical indicators and levels that determine the benthos structure; cases, however, fresh claw marks were noted in the of contaminants (total petroleum hydrocarbons ― common sand dollars, sea anemones, bivalves lower part of the trees with nests. (TPHs), phenols, detergents) in seawater near and gastropods make up the majority of the the offshore production assets were consider- benthos biomass; polychaetes and crustaceans The 2020 study showed that the breeding popu- ably below the maximum permissible concen- are the most abundant representatives of the lation of eagles in the potential pipeline impact tration (MPCf) values established for fishery communities. Amphipods and polychaetes have area is not significantly affected by the asset. Every waters and did not exceed baseline levels for the largest number of species; bivalves and year eagles nest along the pipeline route, and some these water areas; gastropods are also quite diverse. The species of the nests are located in the immediate vicinity ― the distribution of chemicals (phenols, deter- composition of the benthos is quite stable; of the RoW. gents, TPH) in bottom sediments was uneven no downward trends in the indices of species 166 167 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

diversity and abundance have been identified duction assets have been stable during the operational Bacteriological analysis of ballast waters from vessels in the study areas; stage. They also demonstrate no impact of production that employ ballast water treatment systems did not ― in general, the water area of Prigorodnoye Port activities of the assets on the quality of seawater, reveal any dangerous microorganisms. is characterised by low concentrations of con- bottom sediments and the condition of marine biota taminants both in the seawater and in bottom in the water areas of the Piltun-Astokhskoye and The results of 2020 environmental monitoring in the sediments, as well as by a high abundance Lunskoye fields off the north-eastern shelf of Sakhalin waters of Prigorodnoye port confirmed the absence of indicator species in the benthos; species sen- as well as in the Prigorodnoye Port water area in Aniva of adverse impact of ballast water on Aniva Bay. sitive to pollution are the most abundant in the Bay. This reflects compliance with environmental stan- benthic communities. dards at the production assets of the company. Nevertheless, ballast water monitoring on vessels and in the waters of Aniva Bay will be continued. In general, the results of the long-term studies show that the indicators monitored near the offshore pro- As a result of the long-term monitoring of Aniva Bay marine flora and fauna, over 750 species of phyto- plankton, over 100 forms of zooplankton, about 40 species of ichthyoplankton and 170 species of benthos have been identified. In addition to this, new 8.3.8. BALLAST WATER CONTROL species of seaweed and planktonic animals which had never before been recorded in Aniva Bay, but are local Every year, over 200 standard hydrocarbon cargoes become mandatory for all countries that have joined inhabitants in view of biogeographic and environmen- are loaded onto oil tankers and LNG carriers arriving the Convention, including the Russian Federation, tal characteristics, were registered. to the Prigorodnoye production complex mainly from which ratified it in 2012. ports of the Asia-Pacific region. No protected species of flora and fauna have been Ballast water monitoring and control of tankers and LNG observed during the environmental monitoring of the Ballast water taken on by a vessel at the port of depar- carriers to be loaded in Prigorodnoye port include: Prigorodnoye port waters. ture may contain invasive (alien to the local environ- ― checking vessels’ logbooks for confirmation ment) marine organisms, which, under favourable con- of ballast water exchange in deep waters of the ditions, can adapt to the local environment, disturb Pacific Ocean and the Sea of Japan; the balance of the ecosystem of Aniva Bay and cause ― bacteriological analysis of ballast waters from Number of port calls by vessels where ballast water sampling was undertaken, harm to human health. the vessels with installed and operational ballast 2017–2020 water treatment systems (D-2 regulation); Sakhalin Energy has developed a package of pre- ― planktonic organisms sampling for subsequent Year 2017 2018 2019 2020 ventive measures to manage ballast water risks analysis in the laboratory to identify potentially based on international regulations and best industry dangerous species. Vessel calls 125 100 120 117 practices. Currently the most effective measures to prevent the introduction of alien species are either A vessel is only allowed to commence discharg- ballast water exchange on the high seas (D-1 regu- ing ballast water and loading hydrocarbons when lation) or employing ballast water treatment system an exchange of ballast water in deep waters or its on the vessel (D-2 regulation). These methods are treatment using a dedicated system is confirmed. 8.3.9. GRAY WHALE MONITORING AND MARINE MAMMAL in accordance with the International Convention PROTECTION for the Control and Management of Ships’ Ballast The results of phyto- and zooplankton species analy- Water and Sediments (the Convention), adopted sis in the ballast waters from tankers and LNG carriers 23 species of marine mammals, including 17 species the bowhead whale, the North Pacific right whale, by the International Maritime Organisation in 2004. in 2020 detected potentially dangerous planktonic of cetaceans (whales, dolphins, porpoises) and six the fin whale, the Cuvier’s beaked whale, the harbour The company included requirements to manage this organisms among species that are not typical for species of pinnipeds (seals), can be found in the area porpoise, Far East population of the carnivorous killer risk in the corporate Ballast Water Management Policy Aniva Bay in some ballast water samples. Since these of the Sakhalin-2 project in the coastal waters of the whale as well as pinnipeds such as the Steller sea lion. in 2009 prior to the start of large-scale hydrocar- organisms were found only rarely and in small quan- Sea of Okhotsk. Of these, 8 species are listed in the The Okhotsk Sea population (Western subpopula- bons transportation. Since September 2017, ballast tities, the risk of their adaptation and mass growth Red Book of the Russian Federation — the gray whale, tion) of gray whales, which also has a high conserva- water and sediment management requirements have in Aniva Bay waters is very low. 168 169 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

photo identification catalogue, which, as a result, now comes near to the company’s offshore production includes 332 animals. assets. According to experts from the Western Gray Whale Advisory Panel (WGWAP), the number of indi- In addition to field studies, considerable efforts are viduals in the subpopulation has seen an annual focused on making an interdisciplinary analysis of the increase of 4.3–5.4%. data collected over the past years, and on preparing research results for publication in peer-reviewed Not a single incident negatively impacting marine scientific journals. During the monitoring programme mammals has been registered since the start implementation, more than 100 scientific papers of Sakhalin Energy’s operations on the north-eastern based on the research results were published in lead- shelf of the island. All of this confirms the effec- ing Russian and international publications. tiveness of the management of the environmental aspects of the company’s activities and the measures The results of the long-term monitoring indicate the applied to minimise their impact. well-being of the gray whale feeding aggregation that

Number of Gray Whales registered in the Sakhalin Photo Catalogue tion status in the Red Book of the Russian Federation marine mammals to ensure their safety. Another key in 2017–2020, individuals and is on the Red List of the International Union for component of the MMPP is the presence of marine Conservation of Nature (IUCN), feeds near Sakha- mammal observers while conducting vessel opera- Year 2017 2018 2019 2020 lin Energy’s offshore production assets during the tions in the areas where whale encounters are more Gray whales 283 297 321 332 ice-free period. The company therefore pays close likely, which has been run as a separate observation attention to the monitoring and conservation of gray programme since 2003. According to the long-term whales, as well as other marine mammal species. data, the most common species in the waters of the north-eastern coast of Sakhalin are cetaceans such The corporate Marine Mammal Protection Plan as the harbour and Dall’s porpoises, the minke whale, (MMPP) makes it possible to take into account all the the gray whale; and pinnipeds such as the largha or 8.4. PIPELINE RIGHT-OF-WAY risks associated with production activities, and to take spotted seal, the northern fur seal, and the Steller timely measures to reduce any negative impact. This sea lion. Individual specimens of other rare species, includes establishing special corridors for vessels including the Cuvier’s beaked whale, the short-finned MAINTENANCE to bypass the main feeding areas of gray whales, pilot whale, the northern right whale dolphin, and the imposing speed restrictions for vessels, prescribing North Pacific right whale have been observed over Currently, regular monitoring and geotechnical Based on the outcomes of RoW monitoring, a RoW specific minimum distances between vessels and the years of monitoring. surveys are in place on the RoW. Their results are maintenance plan has been developed. Repair and logged and used in the implementation of necessary maintenance of the RoW were completed in Decem- measures. ber 2020, as planned. Work was performed at four In 2020 Sakhalin Energy conducted acoustic noise monitoring on the border plots and included rectifying the consequences The list of RoW monitoring actions for 2020 included: of natural erosion as well as repairing existing of the Gray Whales’ Piltun feeding area. These measurements confirmed a low level ― helicopter fly-overs and photography; anti-erosion structures. of anthropogenic noise from the company’s assets. ― river crossing surveys; ― river surveys based on geomatic principles; Landslide mitigation activities at two existing bank ― monitoring of river hydrological characteristics; protection sites were completed in 2020. ― surveys of geological hazards, cover thickness; As in previous years, Sakhalin Energy, in close During the 2020 field season, 175 individual whales ― plant growth and local soil monitoring; No pipeline damage occurred in 2020. cooperation with the Sakhalin-1 operator, continued were preliminarily identified, including nine calves ― groundwater surveys; implementing the Integrated Monitoring Programme and two new adult whales. Updates on 11 newly ― satellite surveys of the pipeline RoW; near the north-eastern coast of Sakhalin Island that registered whales have been made to the Sakhalin ― boggy areas surveys. started in 2002. 170 171 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

8.5. OIL SPILL PREVENTION AND RESPONSE PREPAREDNESS

8.5.1. GENERAL INFORMATION

Oil spill prevention and oil spill response (OSR) and expert review conclusions have been obtained preparedness are top priorities for Sakhalin Energy. from the relevant state agencies. The company applies a complex approach to addressing this important mission. The company has concluded contracts for OSR services to be provided by the Professional Emergency The company has established a Crisis Management Response Teams (PERTs) of CREO (Centre of Rescue Team, an Emergency Coordination Team, and a Duty and Environmental Operations), Ecoshelf, and the Dispatcher Service that are on duty 24/7 to coordi- Sakhalin branch of the Rosmorrechflot Offshore Res- nate the response in emergency situations. cue Service for offshore assets.

The company has developed OSR Plans for all Furthermore, the company’s own certified Non-Pro- onshore and offshore assets; all necessary approvals fessional Emergency Response Teams (NERTs) have been established at Sakhalin Energy production assets. Global practices in responding to emergencies have teams and groups. Level III training is intended for OSR vessels with appropriate equipment are contin- proven that an effective response to major oil spills Asset Managers, Department Heads, and Emergency uously on standby near SEIC offshore platforms and is only possible with the integrated application Response Coordinators. in Prigorodnoye port. of mechanical and non-mechanical technologies. In particular, using dispersants and in-situ burning In order to increase the OSR preparedness of per- The number and volume of oil spills have decreased can significantly mitigate environmental damage, sonnel and improve their practical skills, the company significantly in recent years. With 32 emergency oil reduce response time, and rescue unique wildlife conducts monthly practical and theoretical training spills totalling 133.5 litres of oil reported between species. Sakhalin Energy has conducted a Net Envi- sessions at various levels at all its assets. In 2020, 2010 and 2020 versus 21 emergency spills releasing ronmental Benefit Analysis (NEBA) that confirmed large-scale corporate training sessions were held: 3,504.46 litres of oil in 2008−2009. the effectiveness of combining mechanical recovery in June — well blowout and oil spill response drills methods with non-mechanical — use of dispersants at the Lunskoye field, and in September — OSR drills In 2020, there were no oil spills registered at the and in-situ burning — in response to large-scale at the Onshore Processing Facility. company facilities. emergencies. The objectives of the exercise were fully met. Over 21 years (1999–2020), more than 614 MMbbl Emergency Coordination Team members receive As a follow-up to the exercise, recommendations of crude oil and condensate has been produced, while Level I and II OSR programme training, as well were developed and measures were taken to improve the total volume of hydrocarbon spills was 26.6 bbl, as Level I (ICS-100), Level II (ICS-200) and Level III the OSR systems. An analysis of the drills and which is 0.000004%. (ICS-300) Incident Command System training. exercises conducted by the company confirmed its Level I is basic and is designed for ordinary rescuers readiness to respond in the event of an emergency Since the start of operations, there have been and emergency responders, while Level II is designed spill of oil or petroleum products at any offshore or no crude oil and/or petroleum product spills at the for training supervisors, leaders of oil spill response onshore Sakhalin-2 asset. company assets that could be classified as an emergency situation. 172 173 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ENVIRONMENTAL IMPACT MANAGEMENT REPORT 2020

8.5.2. OILED WILDLIFE REHABILITATION

Oil spills can cause serious harm to coastal and The programme was developed in cooperation with marine fauna. Rivers and wetlands, coastal bays the International Fund for Animal Welfare (IFAW) and lagoons temporarily or permanently inhabited and the International Bird Rescue Research Cen- by birds and other wildlife species, many of which tre (IBRRC), taking into account the particularities are protected species, are especially vulnerable to oil of Sakhalin avifauna and the severe climate. The pro- spills. Animals affected by crude oil and petroleum gramme is open for participation to all company and products need prompt and proper rescue actions, contractor employees engaged in oil spill response. including capturing, rehabilitation, and subsequent release into the wild. This task can only be carried out In addition to oil spill response plans, a number by properly trained staff. of corporate documents were developed as part of the programme. The main one is the Oiled Wild- In compliance with its commitments to environ- life Response Plan, which identifies the necessary mental protection and biodiversity conservation and resources and procedures for coordinating actions in line with international best practices, Sakhalin between corporate units and external entities. Energy has been training personnel under the Oiled Wildlife Rehabilitation Programme since 2005. Since 2011, the Sakhalin rehabilitation centre for oiled wild animals has been operating in the territory of the Prigorodnoye production complex. This is the first such centre in Russia and the only one in the Pacific region. 8.6. To implement the programme, the company installed SANITARY PROTECTION specialised equipment in the central and northern parts of the island, at the OPF and at the pipeline AND SAFETY ZONES maintenance depot (PMD) in Gastello.

In 2020, Sakhalin Energy published an Oiled Wildlife To ensure the safety of the population and accord- The onshore main pipelines run in the same right- Rescue Field Guide for rescuers and volunteers. ing to Federal Law No. 52-FZ On the Sanitary of-way and are clearly designated with special signs. and Epidemiological Welfare of the Population A safety zone is established along the entire pipeline More than 200 volunteers and 300 people from 30 of 30 March 1999, a special-use area, i.e. a sanitary route and its boundaries are clearly marked with signs. organisations mainly operating on Sakhalin, including protection zone (SPZ), was established around assets A safety zone was established for the main pipelines representatives of government bodies, oil and gas com- and production sites that may impact human habitat to prevent any possible damage to them. panies and veterinarians, have been trained through the and health. The size of such a zone is set to mitigate Oiled Wildlife Rescue Programme over the years. the impact of pollution on the atmosphere, keeping This zone is mandated by the Rules for Main Pipe- it in line with health standards and acceptable health lines Protection, approved by Ruling No. 9 of Gos- The training includes two response modules: theo risk levels. gortekhnadzor (currently, Rostekhnadzor, the Fed- retical training in the classroom and the develop- eral Service for Environmental, Technological, and ment of practical skills in the field, on the shore area The sanitary protection zone boundaries confirmed Nuclear Supervision) of the Russian Federation, dated of Aniva Bay. The practical training includes repelling, by the Chief State Medical Officer of the Russian 22 April 1992. The safety zone along the pipelines capturing and transportation of birds, and cleaning Federation for the Prigorodnoye production complex, transporting oil and natural gas is a strip of land and stabilisation of birds in the rehabilitation centre OPF, and BS 2 were not changed in 2020. extending 25 m on either side of the pipeline. for oiled wild animals. 174 175 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

SOCIAL IMPACT 9MANAGEMENT

Sakhalin Energy’s key business principles include running its business in a socially responsible manner, compliance with the laws of the Russian Federation, and also respect for fundamental human rights within the legal business framework. 176 177 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

9.1. to IT services and learning applications was published. In the TAFs with no stable PERSONNEL: MANAGEMENT connection to the company’s network, training materials were distributed using USB drives (in total, 200 devices were provided). Training materials were also available in the AND DEVELOPMENT data transmission system and could be downloaded to personal mobile devices. About 45% of the company’s personnel and 8% of contractor employees staying in the TAFs Personnel is the main asset of the company. As in pre- Strictly adhering to the principles of business ethics used the opportunity to study or prepare for training activities. vious years, one of the most important tasks set and corporate culture, the company provides equal by the company is to ensure that the rights of its opportunities for all job applicants and employees employees are respected and supported. Sakhalin in accordance with well-defined and established Energy is committed to upholding the human rights recruitment rules and labour standards, and prevents of its employees, as required by the International any discrimination. Labour Organisation (ILO) Declaration on Fundamen- 9.1.1. APPROACHES TO HR MANAGEMENT AND HR POLICY tal Principles and Rights at Work, including non-dis- Based on the principles of a culture of openness and The HR Directorate meets the company’s man- from shareholder companies and the external labour crimination, the prohibition of child and forced business partnership, Sakhalin Energy undertakes power needs, which include preparing organisational market. The Directorate is guided by the following labour, the right to associate, to create trade unions to develop and comply with regulations pertain- changes for upcoming large-scale projects, staff train- strategic priorities: and to join them, collective bargaining and conclusion ing to all aspects of personnel work in all aspects ing and retention, and attracting skilled employees ― hire and develop highly qualified specialists, of contracts and agreements, the creation of safe of employment relations including recruitment, including residents of the Sakhalin Oblast; and favourable working conditions for the compa- selection, hiring, assessment, promotion, training, ― meet the company resourcing requirements for ny’s employees, as well as contractor, subcontractor, maintaining discipline, professional development, key roles from among the internal successors and agency personnel, including during the COVID-19 compensation, and termination of employment con- pool and personnel reserve of shareholder pandemic. tracts. companies; ― invest in the professional training and development of Russian employees capable of taking Due to its comprehensive and effective approach to the assurance of decent working technical authority and managerial roles in line conditions, in 2020 Sakhalin Energy won in the Development of Labour and Personnel with succession planning; Development category of the competition for the best socially oriented company ― deliver an attractive and competitive employee in the oil and gas industry, held by the Ministry of Energy of Russia. value proposition (EVP); ― introduce digital HR technologies and deliver cost-effective HR processes in the environment of continuous improvement; LESSONS OF ISOLATION ― maintain our unique corporate culture and Sakhalin Energy pays special attention to personnel training issues. However, strengthen our brand as an employer of choice. COVID-19-related restrictions led to dramatic adjustments to the established The company’s senior management believes that all classroom learning model and accelerated the transition to the active use of e-learning employees should feel engaged in their work, be con- and distance learning in the form of online training courses and webinars. fident that the company supports and respects them, Since rotational personnel arriving in Sakhalin are required to spend a 14-day and be given the opportunity to contribute to the observation period at the temporary accommodation facilities (TAFs), the company growth of the company using their knowledge, skills, and abilities. Employee engagement is measured has provided everything necessary for employees to take training courses during this regularly via employee opinion surveys and is viewed period in order to use the time effectively. as one of the most important indicators of employee A catalogue of online and offline training events in key areas of study was work satisfaction at the company. developed, comprising more than 400 training courses; a user manual for connecting 178 179 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

To achieve its people management goals and objec- processes are based on a set of documents regu- tives, Sakhalin Energy implements an HR strategy lating HR management processes, which meets the through a personnel policy, which is a holistic, requirements of international standards. The key strategically-oriented set of methods, tools and Sakhalin Energy documents on the HR policy documents that govern the relationship between include: the employer and its employees, and also allow the ― Code of Conduct; company to quickly respond to changing conditions ― Human Rights Policy; in the global oil and gas market and the labour market ― Programme of Employment and Training of Rus- of qualified specialists. All required notifications sian Nationals; regarding changes in employment conditions are ― Manpower Plan; communicated to the employees in accordance with ― Internal Working Rules; labour legislation of the Russian Federation. ― Learning and Development Standard; ― Successor Pool Planning and Development The HR Director and the Committee of Executive Policy; Directors oversee the development, modification, ― Regulations on Labour Remuneration, Bonuses and approval of the company’s HR policy. These and Social Benefits.

FOR THE FIRST TIME IN SAKHALIN ENERGY’S HISTORY, THE ANNUAL HR THE USE OF THE SAP HCM AUTOMATED SYSTEM WEEK WAS HELD IN A NEW FORMAT The company’s HR Directorate makes maximum use of human capital management Before 2020, the traditional HR Week had always been held in a classroom format software, namely HCM SAP, in the implementation of the HR Policy. This allows only. Last year, the HR Directorate, with the support of the Information Technology the company to significantly save time and to optimise many processes in the HR and Information Management Departments, held the traditional series of events Directorate and other units of the company. In particular, the system modules used remotely. They were conducted with the participation of professionals from a number by the company automate the preparation of HR documents and reports, as well of cities (Moscow, Sochi, Kaliningrad, Ekaterinburg, and others) and from shareholder as aid in managing important processes such as personnel learning and development, companies. The new format also made it possible to reveal the internal reserves succession planning, competence assessment, and recruitment. of the company. For example, in order to close gaps in the competence of personnel, specialists of the Field Development Department shared their experience in using digital technologies in the course of field development; employees of the HR Talent Management Subdivision held a webinar dedicated to the psychological aspects of working remotely; the Goal Zero Implementation Team of the HR Directorate 9.1.2. GENERAL INFORMATION focused on safety when working remotely. After listening to the lectures, the online As of 31 December 2020, the total number of people Implementing the approach set forth in the attendees did practical tasks, asked questions and received answers. This all was employed by the company was 2,190, including company’s HR policy and outlined by the PSA agree- done in real time through a shared chat with the speakers. Unlike regular seminars, % 2,094 Russian employees. Sakhalin Energy operates ment, the company has made a point of hiring Russian the lectures were video-recorded and they are now available for viewing on the 55.4 mostly in the territory of the Sakhalin Oblast, Russian citizens, mostly Sakhalin residents, to work on the Federation. There are 2,167 employees working in the Sakhalin-2 project. At the end of 2020, the number company’s internal website. of the personnel are Sakhalin Oblast residents Sakhalin branch and 23 employees in the compa- of Sakhalin Oblast residents working at the company ny’s Moscow office. was 1,213 people, which is 55.4% of the total personnel. 180 181 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Personnel Structure in 2020 Managerial Personnel Structure in 2020

Total, persons including, persons Total, % including, % Total, persons including, persons Total, % including, %

female male female male female male female male

Russian personnel 2,094 584 1,510 96 99 94 Russian personnel 474 103 371 91 99 89

including Sakhalin Oblast residents* 1,213 460 753 58 79 50 including Sakhalin Oblast residents* 242 83 159 51 81 43

Foreign personnel 96 4 92 4 1 6 Foreign personnel 49 1 48 9 1 11

Total 2,190 588 1,602 100 100 100 Total 523 104 419 100 100 100

* % of the number of Russian personnel. * % of the number of Russian personnel.

The personnel structure is mandated by the specific 61% are office employees; the rest are employed There are 588 women among Sakhalin Energy In 2020, 74 employees were granted child care leave. nature of the company’s operations: 87% are man- at the Sakhalin-2 production assets. employees (more than 27% of the staff). Of these, Of these, three fathers took advantage of this right. agers, specialists and clerks; 13% are workers. About 104 occupy executive positions, making up 20% During the same period, 29 employees (all women) of the company’s management team (see the Mana- resumed their job duties at the end of their child care gerial Personnel Structure in 2020 table). leave. All of them continued their employment with the company. Personnel Structure in 2020 by Asset

Change in the Number of Employees in Managerial Positions in 2017–2020 196 36 (as of the year's end), persons Office — 61%

2017 2018 2019 2020 273 Prigorodnoye PC — 16% Total including Total including Total including Total including 2,190 Platforms — 12% female male female male female male female male persons Russian personnel 413 88 325 438 89 349 460 91 369 474 103 371 OPF — 9% 341 1,344 including Sakhalin Oblast residents 216 66 150 223 68 155 231 71 160 242 83 159 Other — 2% Foreign personnel 83 4 79 69 1 68 58 2 56 49 1 48

In the past two years, the number of employees has strategy. The activities of the company do not require slightly decreased, which is explained by current hiring personnel for seasonal work, as, for example, 474 Russian employees held managerial positions The implementation of the Traineeship Programme, production needs and the company’s development in the tourism or agricultural sectors. (see the Managerial Personnel Structure in 2020 as well as the formation and development of a suc- table), 242 of which are residents of the Sakhalin cessor pool make it possible to meet the compa- Oblast. In order to increase the share of Russian ny’s needs for junior technical staff through the executive personnel, the company is training, devel- recruitment of trainees (see Section 9.1.7.4. Trainee- oping, and promoting existing Russian staff, and ship Programme and Section 9.1.7.5. Successor Pool actively recruiting new qualified Russian specialists. Planning and Development). 182 183 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Change in the Number of Employees in 2017-2020 (as of the year's end), persons At the end of 2020, the average age of employees was 40 years. Employees aged under 50 accounted for more than 87% of total personnel. 2,309 2,298 2,235 2,190 2,118 2,134 2,105

2,094 Personnel Age and Gender Structure in 2020

Total, persons including, persons Total, % including, % Age, years female male female male

Below 35 708 214 494 33 37 31 1,213 1,247 1,243 1,238 36–50 1,188 348 840 54 59 52

Above 50 294 26 268 13 4 17

Total 2,190 588 1,602 100 100 100 204 164 117 96 Taking into account the specific features of the of full-time positions for low-skilled personnel, company’s operations, such as the presence of haz- as of December 2020, 5 employees with disabilities ardous production facilities and workplaces with as part of quota jobs — 3 women and 2 men — have 2017 2018 2019 2020 harmful working conditions, as well as the absence been working in the company.

Russian personnel Foreign personnel With the onset of the COVID-19 pandemic, employees who could do their work including Sakhalin Oblast residents Total outside stationary workplaces located in the company’s office were transferred to remote work in order to prevent the spread of the novel coronavirus disease.

During 2020, 239 employees left the company, in 2018 — 4.3%, in 2017 — 3.75%, and in 2016 — 4.07%. of which 182 were men and 57 — women, including The statistics of personnel who left the company 39 foreign and 200 Russian employees (of which 93 in 2020, broken down by age group and gender, are Local regulations of the company established the ― work schedule with staggered days off accord- were residents of the Sakhalin Oblast). In 2020, the shown in the Structure of Personnel Who Left the following work schedules: ing to an individual plan. personnel attraction rate was 3.9%, in 2019 — 3.5%, Company in 2020 table. ― five-day working week with two days off; ― work schedule with irregular working hours; The working schedules used at the company’s assets ― rotation-based work schedule; are shown in the Company’s Employee Working ― shift work schedule; Schedules by Asset table. Structure of Personnel Who Left the Company in 2020

Total, persons including, persons Total, % including, % Age, years female male female male

Below 35 103 28 75 43 49 41

36–50 89 24 65 37 42 36

Above 50 47 5 42 20 9 23

Total 239 57 182 100 100 100 184 185 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Company’s Employee Working Schedules by Asset For the purpose of minimising the risks of coronavirus infection ingress to the production facilities the company developed a logistic plan for the delivery Company’s asset Working schedule of personnel on rotation, which distributes the passenger flows via the northern and Five-day working week with two days-off; southern hubs. This is exactly where the temporary accommodation facilities were Offices Work schedule with irregular working hours; Work schedule with staggered days-off according to a individual plan. arranged according to the plan. The plan also took into account the regions from which Five-day working week with two days-off; employees arrived (and also the epidemiological situation therein) and the location Work schedule with irregular working hours; Prigorodnoye PC Rotation-based work schedule; of the production assets the employees were to work at after the observation period. Work schedule with staggered-days off according to a individual plan; Shift work schedule. The plan was approved by the Rospotrebnadzor Department for the Sakhalin Oblast as part of the Action Plan to Prevent the Importation of the Coronavirus to Sakhalin Platforms, OPF, BS-2 Rotation-based work schedule. Energy Remote Facilities. Five-day working week with two days-off; Work schedule with irregular working hours; Other Work schedule with staggered days-off according to a individual plan; Shift work schedule. To protect the company’s production facilities against COVID-19, it was decided At the end of 2020, 28% of the company’s employees conditions, in March 2020 the company arranged to arrange the delivery of employees to the assets only after their 14-day observation were working on a rotational basis and living in hotels temporary accommodation facilities for the obser- period, subject to the absence of clinical symptoms of the coronavirus infection and and rotational camps built and equipped in accor- vation of arriving employees in order to prevent the two negative COVID-19 tests. For this purpose, the company organised temporary dance with Russian legislation and best international spread of the coronavirus disease at the compa- practices. In an effort to adapt to the unprecedented ny’s production facilities. accommodation facilities (TAFs) for a 14-day observation period for company and contractor personnel before entering the company’s sterile facilities. Since there were no sites or buildings in the region ready for use as observation facilities, the company started arranging them using its own resources, in accordance with the requirements of government authorities and corporate standards. The company, together with TAF building owners, divided indoor areas according to the epidemiological requirements (clean zones and dirty zones), introduced a disinfection regime (air and surface disinfection every time the doors to the residential rooms open, and waste disposal). The rules for residence, catering, household chores (washing, cleaning), waste disposal, medical supervision and other activities at the TAFs were established and communicated to all TAF residents before their arrival at the facilities (the rules are also available on the company’s website). In total, 10 TAFs were organised by the company. At the end of 2020, four TAFs (two in the south and two in the north of the island) were used to accommodate rotational employees for the mandatory observation period. In addition, two isolation wards were arranged in the north and south of Sakhalin for infected employees and those who had been in contact with COVID-19 patients. 186 187 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

9.1.3. RECRUITING, HIRING AND ONBOARDING Following to the principle of openness, Sakhalin ― Far Eastern Federal University Energy regularly engages with the universities (with (Vladivostok); NEW EMPLOYEES due regard for COVID-19 safety requirements) ― Ufa State Oil Technical University; to attract the best graduates to work at the company. ― Tyumen State University; Despite the difficult epidemic situation in 2020, the ― cooperation with leading recruitment In 2020, Sakhalin Energy held a number of online ― Kazan National Research Technological recruitment of the best professionals in the industry agencies; events with the following universities: University. was one of the most important components of the ― participation in local and regional specialised HR strategy, which is based primarily on a culture job fairs; of openness, business partnership and development. ― publishing vacancy lists in online resources; In July 2020, Sakhalin Energy, in partnership with the Petroschool project (oil and gas ― promoting the company’s Employee Referral During the selection of new employees in 2020, Programme, per which Sakhalin Energy employ- community in social networks), took a part in the Career Intensive event for students focus was made on adapting the toolkit for working ees are given a bonus if their recommended of the Gubkin Russian State University of Oil and Gas. Company representative told in recruitment of the candidates, the automation candidates are hired to work at the company; about interview mistakes made by university graduates and offered advice on how of processes, and on developing Employer brand. ― recruitment of skilled employees from share- to avoid them. holder companies. Openness in the selection of personnel means considering candidates from all possible sources for As in previous years, continuous improvement vacant positions in order to hire the best quality spe- projects development was the company’s strategic Sakhalin Energy continuously improves the existing be a candidate for participation in the Graduate cialists. The main sources for people recruitment and goal in the year 2020. During development of one personnel recruitment programmes putting great Development Programme (see Section 9.1.7.7. Gradu- spreading information about vacancies are as follows: such project, market of automation soft was carefully stock in succession planning: student who receives ate Development Programme). ― Sakhalin Energy’s website. For the convenience screened and negotiations with contractors were a company grant can take an internship and will of applicants there is an automated service for held. Such software allows to automate a number submitting CVs online. The website offers guide- of recruitment processes, to achieve a bigger effect lines for the registration of CVs. Applicants can from working with the candidates, to obtain (detailed) In 2020, Sakhalin Energy won in the Personal Potential of Employees category edit their CVs in their personal accounts. There analytical reports. of the Context competition with the #youthcomeontothefareast programme, which is an alternative option for candidates who did not find a suitable vacancy at the time they In 2020, it was particularly important to use new unites events for retention and development of Far East students and recruitment applied: they can submit their CVs in the Regis- channels of communication with the candidates. of graduates from local universities. tration without vacancy category, so the CVs will During cooperation with the Universities and be stored in the company’s database; Graduates online platforms and social networks ― provision of information on vacancies to the were used. In general, the year 2020 opened up The company has a special relationship with its ― OstroVa All-Russian youth patriotic forum, Yuzhno-Sakhalinsk Labour Centre (on a monthly new opportunities for recruitment new employees long-standing strategic partner—Sakhalin State Univer- during which the Moderators of Sakhalin con- basis); to the company. sity (SSU). Cooperating with SSU, Sakhalin Energy not ducted course and the OstroVa-2030: Image only aims to attract its graduates to work at the com- of the Future on the World Arena talk show pany, but also actively participates in regional projects discussion platform were held; In the spring of 2020, the company first time participated in the second wave of the to help unite local young people, share accumulated ― School of the Future Student. federal project named Professional Internships 2.0 project, and in the autumn — in its knowledge and experience with them. For this purpose, third wave, the results of which will be summed up in February 2021. Following the the company took part in the following events: spring wave, the company received 13 case solutions and 13 students participated in online internships at the company and were included in the skill pool for traineeship and Graduate employment. 188 189 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

SAKHALIN ENERGY’S PRIORITY: LOCALISING QUALITY EDUCATION To further improve its image as a reliable and attractive employer, Sakhalin Energy took On the sidelines of the Sakhalin Oil and Gas Conference 2020, a tripartite cooperation a part in the 2020 Best Russian Employers ranking performed by HeadHunter (hh.ru), agreement was signed between Sakhalin Energy, Sakhalin State University and the largest Russian online recruitment company. Companies participating in the AO Gazprombank. The purpose of the cooperation agreement is to improve the ranking are assessed against three criteria: employee loyalty, HR processes, and the quality of training programmes to meet the requirements of the company, which ranking from the applicants. Sakhalin Energy placed in the top twenty among large includes creating a roadmap for professional development from technician to engineer companies, and in the top five among energy and raw materials production enterprises, through an applied Bachelor’s programme, opening new training areas, and providing behind only major companies such as Rosatom, Sibur, and Gazprom Neft. educational loan opportunities for the residents of the Sakhalin Oblast. Since 2020, SSU has been implementing an initiative, under which students can get two diplomas simultaneously. The key goal is to train specialists in specialities Sakhalin Energy representatives told the audience will transfer some of its onboarding activities which are in high demand and then arrange employment for them at local enterprises about regular information sessions for new staff, to an online format to protect its employees from in the Sakhalin Oblast. The Two Diplomas project gives Sakhalin schoolchildren held in Russian and English, with a complete over- coronavirus. view of the specific features of work in the compa- a unique opportunity to receive education from the country’s leading universities ny’s structural units, various processes, interaction In 2020, the company hired 184 people — 148 men and without leaving the island region. The main focus is on IT, bioinformatics, urban within the company and with its external stake- 36 women, of which 16 people are foreign citizens studies, oil and gas production, and other high-potential areas (21 in total), which were holders. Such sessions facilitate interaction and and 168 — Russian nationals (including 112 residents selected by the government in close cooperation with the major employers of the the exchange of information. In 2021, the company of the Sakhalin Oblast). region, including Sakhalin Energy. In 2020, Sakhalin Energy and the Human Capital Development Agency (HCDA) signed a cooperation agreement, according to which they will join efforts in implementing projects, programmes, and various activities to improve the quality of training for oil and gas specialists. The objectives of the agreement include the development of corporate professional standards for the oil and gas sector and the implementation of WorldSkills practices. In addition, the cooperation agreement envisages revising and upgrading the teaching materials and equipment of secondary vocational educational institutions. The newly developed corporate standards will serve as a basis for creating unified industry standards for the oil and gas enterprises operating on Sakhalin. As a result, educational establishments all over Sakhalin will train highly qualified specialists according to a single curriculum and unified standards. 190 191 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Dynamics of Staff Recruitment in 2017–2020, persons 9.1.4. REMUNERATION AND BONUS SYSTEM

The company applies a time-based remuneration encourages efficient work and provides motivation for system, which also provides for additional payments excellent performance. 269 based on the employee’s skills and position. This 250

The main principles of remuneration adhered to by Sakhalin Energy are to pay 186 184 177

175 competitive salaries that are equal to or exceed the average salary in the Russian oil 168 and gas industry, and to use a transparent bonus system for all personnel categories. 147 133 112 95 90 Remuneration of Sakhalin Energy’s employees ― one-off payment to employees that have re-

30 includes: ceived awards; 19 16 11 ― base salary, hourly rate as per the employment ― bonus for participation in a research-to-practice agreement; conference held by the company on a regular ― compensatory or incentive allowances and rises basis; 2017 2018 2019 2020 to the base salaries and hourly rates payable ― Committee of Executive Directors Award as per the Regulations on Labour Remuneration, to employees who achieved special success Bonuses and Social Benefits, RF Labour Code in teamwork; Russian personnel Foreign personnel and other normative acts; ― bonus to awardees of the Merit Pin for ― bonuses payable as per the Regulations Outstanding Performance and Contribution including Sakhalin Oblast residents Total on Labour Remuneration, Bonuses and Social to the Company. Benefits and other local normative acts. Employees may be awarded certificates of merit and Sakhalin Energy’s remuneration policy, practices and Honorary Letters on Oil and Gas Workers Day and The statistics of employees hired in 2020, broken methods are designed to recognise and encourage the company’s anniversaries. Recognition may also down by age group and gender, are presented in the excellent individual and production performance. be given to their 50th birthday and then every five Personnel Recruitment Structure in 2020 table. The company uses the same remuneration system for years. both male and female employees. Sakhalin Energy regularly monitors the financial Personnel Recruitment Structure in 2020 The existing incentive system uses a single unified, segment of the job market and annually adjusts standard approach to incentivising employees in all employees’ salaries, taking into account their individ-

Total, persons including, persons Total, % including, % the company’s subdivisions. This is achieved through ual performance (see Section 9.1.6. Individual Per- Age, years the following types of bonuses as per the Regula- formance Review) to make sure that the salaries paid female male female male tions on Labour Remuneration, Bonuses and Social by the company to its staff are competitive. Below 35 134 26 108 73 72 73 Benefits: ― Annual Performance Bonus; In 2020, the minimum salary in the company was 36–50 36 10 26 19 28 18 ― Special Recognition Award (SRA); three times higher than the minimum wage estab- Above 50 14 — 14 8 0 9 ― Long Service Award (10 years or more); lished by Russian legislation. Sakhalin Energy’s labour Total 184 36 148 100 100 100 ― Employee Referral Reward; remuneration expenses totalled 12.91 bln roubles 192 193 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

in the reporting year, with award/bonus payments Social Benefits and Compensation at Sakhalin Energy totalling 2.85 bln roubles.

The company’s remuneration and bonus system is adapted to changes in the working mode for all cat- Pension programme egories of personnel. It takes into account the specific features of the production processes and ensures a high level of personnel involvement. Housing benefits, VHI and other including mortgage To ensure business continuity during the COVID-19 forms of insurance programme pandemic, the company has developed and implemented unique measures aimed at preventing the spread of the novel coronavirus at the compa- Compensation of travel Leisure and development ny’s facilities. The work and rest hours of personnel expenses to employees’ programmes for employees’ chosen place of vacation children at all facilities of the company were arranged in strict compliance with applicable laws and regulations. In addition, the company introduced additional payments for employees in connection with mandatory Benefits in case observation and isolation in order to support person- Subsidised meals nel working at the company’s facilities with a contin- of disability uous production cycle during the pandemic.

Financial assistance to employees in difficult Maternity benefits personal circumstances 9.1.5. SOCIAL BENEFITS AND COMPENSATIONS

The company does everything possible to ensure duration of their employment (for those Additional the attractiveness and competitiveness of its com- employed on terms of relocation from other vacation days pensation and benefits package in order to attract regions); and retain skilled and high-potential personnel. ― mortgage programme; The compensations and benefits provided to Sakhalin ― compensation of a portion of round-trip travel Energy’s personnel ensure the well-being and social expenses to vacation destinations within the Housing Benefits security of employees and their families. RF territory (this applies to employees and The company provides benefits related to the provi- The company runs a mortgage programme, which pro- non-working members of their families (spouses sion of housing for employees and their families who vides for compensating a portion of mortgage interest In addition to the guarantees and benefits provided and minor children), living in the Far North and are hired on terms of relocation from other regions for the purchase (construction) of residential prem- for by Russian labour law, Sakhalin Energy provides its equivalent areas; of the Russian Federation, the CIS member states, ises in the Sakhalin Oblast. Under the programme, employees with: ― corporate pension programme; as well as from the Far North and equivalent areas. the company reimburses 40% of interest payments ― voluntary medical insurance, including for fami- ― financial assistance upon the birth (or adop- The benefits are provided in the form of housing from actually paid by an employee during the accounting ly members; tion) of a child and in difficult personal the housing stock of the company, or payments for period, not exceeding the amount set by the company. ― accident and illness insurance; circumstances; the rental of accommodation. ― travel insurance, including for family members; ― maternity benefits; Since the beginning of the programme, 360 Russian ― temporary disability benefits; ― additional paid vacation days; Housing is provided mainly from the company-owned employees (more than 16% of total staff) have partic- ― free meals at the company’s production assets ― leisure and development programmes for chil- housing located at the Zima residential complex. ipated in it. and in the company’s offices; dren of the company’s employees; The company also has leased residential premises ― benefits related to the provision of hous- ― sport and recreation facilities (see also Sec- in Strawberry Hills complex. ing for employees and their families for the tion 9.3 Occupational Health). 194 195 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Medical Insurance cal assistance under voluntary medical insurance 9.1.6. INDIVIDUAL PERFORMANCE REVIEW % contracts in the territory of the Russian Federation. The company provides employees and their families The company also helps employees to acquire volun- The Individual Performance Review process is one This assessment shows whether the employee needs 25 with medical insurance benefits under insurance tary medical insurance policies for family members of the main tools used to achieve the company’s stra- to engage in professional development activities of Russian employees contracts with SOGAZ concluded as part of voluntary on favourable terms. tegic goals of building a performance culture. to ensure his/her further professional growth and of the company are participants medical, accident and illness, and travel insurance to contribute to the improvement of the compa- in the pension programmes. All employees undergo an annual performance ny’s efficiency in general. programme Corporate Pension Plan review. An employee’s performance is assessed based Under the voluntary medical insurance agreement, on the degree to which he/she reaches business and As of the end of 2020, 2,075 employees (95% of the employees and their families have access to telemed- The company offers a corporate non-state pension individual goals set at the beginning of the year. company’s personnel) had successfully passed the icine services, provided by doctors of leading Moscow plan, under which employees and the company pay Individual Performance Review (see the Individual clinics on the SOGAZ-TELEMED platform. During contributions towards occupational pension schemes. Performance Review in 2020 table). the COVID-19 pandemic, this has enabled company employees and their families to get quality medical Participation in the corporate pension plan is volun- care without exposure to unnecessary risks. tary and allows each employee to independently pay Individual Performance Review into their retirement pension. In accordance with Russian legislation, the company provides foreign employees with required medi- At the end of 2020, 25% of the company’s Russian employees are enrolled in the corporate pension plan. INDIVIDUAL PERFORMANCE REVIEW

From 2010 to 2020, the company contributed a total of 406.9 mln roubles to Gazfond.

Employee achievements Contribution to Personnel training in Development of sustainable in accordance with his/her the achievement of accordance with needs for culture of professional Programmes for the Children of Company individual goals and objectives company’s goals professional development efficiency Employees

In 2020, a decision was made to suspend the Happy Holidays summer leisure and recreation programme due to restrictions on public events, as well as the closure of the Zima Highland residential complex for Individual Performance Review in 2020 visits as part of the measures taken by the company to prevent the spread of the coronavirus disease. Employees who underwent Employees who underwent Personnel Category Number of employees, the Individual Performance the Individual Performance persons Review, persons Review, %

Managers 523 510 98

Other male 419 414 99 including Employees and their families can use the compa- female 104 96 92

ny’s shuttle buses, which run along approved routes Specialists 1,365 1,312 96 across the city to the company’s offices, and stop male 896 882 98 at educational institutions of Yuzhno-Sakhalinsk. including female 469 430 92 196 197 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Employees who underwent Employees who underwent Personnel Training and Development Principles Personnel Category Number of employees, the Individual Performance the Individual Performance persons Review, persons Review, %

Salaried workers 10 9 90

male — — — including Equal opportunity Partnership female 10 9 90

Workers 292 244 84

male 287 240 84 PERSONNEL including Reasonable balance TRAINING AND Compliance female 5 4 80 DEVELOPMENT Total 2,190 2,075 95

male 1,602 1,536 96 including Cost efficiency Competent approach female 588 539 92

Centralisation 9.1.7. PERSONNEL TRAINING AND DEVELOPMENT

9.1.7.1. General Information 9.1.7.2. Staff Assessment

Sakhalin Energy’s learning and development system ― cost effectiveness: achieving the maximum lev- The company applies a competence-based devel- ― conducting competence-based structured is designed to meet the needs of the company for el of efficiency through the application of learn- opment approach for HR management. A profile interviews; highly qualified personnel, necessary to achieve its ing and development criteria coordinated with of functional, leadership and general business ― knowledge testing; short-term and long-term production goals. the business needs of the company, as well competences has been developed for each position. ― detailed recording of the employee’s perfor- as the choice of educational service providers Competence assessment is used as the basis for mance results; Training and development of company person- without compromising production safety and recommendations regarding further development and ― analysing the quality of the product delivered nel is based on the following principles (see the reliability; training of the employee occupying a given position, by the employee; Personnel Training and Development Principles ― equal opportunity: continuous, systematic and as well as for other HR decisions. The job compe- ― 360 Degree assessment; chart): consistent improvement of the profession- tency profile is a standard list of competences set for ― solving business cases; ― compliance: the training content is formed al qualifications of employees, development the company for every job. ― Assessment Centre (for leadership based on the needs of personnel and business; of their potential throughout their career in the competences only). the results of training contribute to achieving company; Competence assessment gives a clear understand- production goals and implementing the compa- ― reasonable balance: the ratio of on-the-job ing of professional and behavioural qualities against By the end of 2020, 99% of competence profiles for ny’s overall strategy; training, distance learning, internal and external established requirements, depending on their qualifi- staff (specialists, and managers) had been posted ― competency-based approach: the training and training in accordance with the 70/20/10 model; cations, positions, and tasks performed. in HCM SAP. development process is based on an analysis ― partnerships: maintaining partnerships with in- of staff competence; ternational and Russian educational institutions, There are various tools that can be used by managers To assess the leadership potential and managerial ― centralisation: the learning and development expanding cooperation with universities within in the process of competence assessment, in particular: qualities of personnel, the company uses modern subdivisions are responsible for all training pro- the framework of partnership agreements, ― observation of the employee in the course tools such as: cesses in the company, planning and managing cooperation with organisations and shareholder of work; ― Current Estimated Potential Ranking Exercise — the budget allocated for training; company training centres. ― studying competence evidence provided by the a current estimate of the highest position that employee; the employee can occupy at the peak of his her 198 199 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

career during his/her work at the company. structured interview methodology, during which In 2017, the tracking and control processes under the managers, which in turn ensures the high effective- The assessment is based on the criteria ab- videos were shown that gave examples of proper and Competence Assurance Programme were automated ness of the programme as a reliable tool for the breviated as CAR: capacity, achievements and improper behaviour of managers during a compe- and now are carried out in SAP HCM. Automa- development of highly qualified personnel. In 2020, relationship; tence assessment. The materials are available on the tion has made it possible to visualise competence 98.8% of the company’s employees were covered ― Assessment Centre — a technology for integrat- HR Directorate web page. Six managers took part profiles and their status for all parties involved, by the assessment, of which 97.9% proved to be fully % ed expert assessment of employee leadership in information sessions in 2020. including technicians and their supervisors and competent. competence against their current job profiles, 99 which has been used since 2009. This method To assess employees’ general business competencies, of the staff competency incorporates such components as business the use of tests with specifically designed tasks and profiles are available in SAP HCM cases, business games, structured interviews, questions that help the manager assess the level and feedback with a detailed analysis of the em- of each functional competence of his/her subordi- 9.1.7.3. Personnel Training ployee’s strengths and areas for further devel- nate is recommended. In 2020, 24 people used this opment. The target audience of the Assessment tool. Upon completion of testing, both the employee The company prepares annual plans for personnel In 2020, 1,801 employees attended workshops and Centre is employees included in the successor and the manager receive an automatically generated training and professional development based on cur- training courses, including distance learning (one pool for senior positions. In 2020, 45 employees report, which includes recommendations for devel- rent production targets, career development plans, or more courses per individual). The company proof this category went through this assessment. opment. and employee competence assessment results. vides training for personnel of all categories without Since 2009, the Assessment Centre has been exception (see the Employee Training in 2020 table). used to assess the leadership competence The Competence Assurance Programme is an import- Due to government and corporate restrictions related The average duration of training was 4.44 man-days, or of 797 company employees. ant element of the company’s HR strategy and to COVID-19 and the transition of most of the 35 hours per employee (excluding on-the-job training). ― 360 Degree Assessment — an additional tool an effective tool for ensuring that the production company’s employees to remote work in 2020, the used to assess leadership competency and facilities are staffed with motivated and highly qual- training processes underwent corresponding changes, In 2020, Sakhalin Energy invested 87 mln roubles personal effectiveness of employees, which ified technicians who operate production facilities in particular: in employee training. was developed and implemented in the safely and smoothly. The programme is a system for ― gradual replacement (where possible) of face- company in late 2014. As of the end of 2020, assessing and proving knowledge and skills of tech- to-face training with electronic and distance In 2020, the company continued to implement cost this type of assessment had been arranged nicians involved in technical processes, the repair learning during the pandemic; optimisation programmes, including those aimed for 182 people. To do this, the employee, and maintenance of production equipment. During ― cancellation or postponement of most of the at optimising learning and development costs with- his supervisor, subordinates and peers fill the assessment, employees demonstrate professional planned field and classroom training events due out reducing employees’ opportunities for learning in an online questionnaire designed on the knowledge acquired through training and professional to the closure of the Russian Federation bor- and development, the number of recommended basis of the company’s model of leadership development, as well as the skills and abilities devel- ders, restrictions on travel within the country, programmes and their providers. Pursuing its digi- competences. The final results are presented oped in the course of their work. In addition, when as well as changes in the schedules and training talisation policy, the company continues to actively as average ratings of each group of raters and assessing employee competences, focus is made formats by training providers; implement and use various forms of distance learning are accompanied by the key findings regarding on the rules and standards of labour behaviour in the ― gradual transfer of group training on Sakhalin (webinars, online training courses), using all available the employee’s strengths and weaknesses team and the attitude of employees towards their to a webinar format, caused by brining amount resources, including internal. Priority is given to group as well as recommendations for employee work, which is an important component of operating of business travel to minimun and the introduc- training on Sakhalin instead of individual on-site development. hazardous production facilities. tion of a mandatory observation period for per- training. These methods make it possible to maintain sonnel before entering the production facilities. a high level of competence of company personnel. A structured interview is a highly recommended Competence assessment results are subsequently method for assessing professional competencies. This used to recommend areas for employee development, is an interview during which the competence of a job prepare individual development plans, and make candidate or employee is determined by applying the decisions to promote and transfer employees to other appropriate methodology. The Professional Training units and areas of work within the production facility Subdivision organised information sessions on the or to another asset of the company. 200 201 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Employee Training in 2020

The main objective in this field of training is to orga- Mandatory HSE training is implemented with the Number Average number Number of employees Percentage Average duration of training nise training, certification, and testing of the knowl- involvement of both internal company resources and Personnel Category of employees, who completed of trained of training, courses per edge of managers, specialists and technicians in the external licensed educational organisations, includ- persons training, personnel hours/person person persons field of labour, industrial and process safety, special ing the OPITO (the Offshore Petroleum Industry Managers 523 443 85 27 3.1 types of work, etc. As a result of effective and timely Training Organisation—an international organisation

male 419 368 88 28 3.1 mandatory training, employees receive relevant for training personnel engaged in oil and gas produc- including certificates, necessary knowledge and required work tion on the continental shelf), accredited educational female 104 75 72 24 2.9 permits, which ensures safe performance of work, the institutions capable of providing training in accor- Specialists 1,365 1,101 81 27 2.9 safety of other employees, the environment and com- dance with approved personnel safety programmes male 896 734 82 30 3.0 pany assets, meeting the requirements of RF laws and at offshore oil and gas assets. A significant part including female 469 367 78 21 2.7 regulations, the HSE standards of the company, the of compulsory training as per internal HSE standards requirements of international standards and certifica- is carried out by the company with the involvement Salaried workers 10 10 100 22 1.6 tion bodies. of experts in HSE disciplines. male — — — — — including female 10 10 100 22 1.6

Workers 292 247 85 88 2.5 EXPANDING THE BOUNDARIES OF THE TOOLKIT FOR MONITORING

male 287 243 85 89 2.5 COMPLIANCE WITH THE REQUIREMENTS FOR COMPULSORY TRAINING including female 5 4 80 28 3.0 AND HSE COMPETENCIES

Total 2,190 1,801 82 35 2.9 In 2019, the company completed a project to automate a portfolio of HSE training courses on the SAP HCM electronic system platform. Based on automated male 1,602 1,345 84 40 2.9 including requirements, mandatory certification profiles were created for all positions and roles, female 588 456 78 21 2.7 giving each employee an opportunity to independently monitor their compliance with compulsory training requirements, and to plan their compulsory training in a timely Sakhalin Energy’s unique training resources include Russian and foreign training service providers. manner. The profile is a convenient tool for self-enrolment in training courses, Employees themselves, their line managers, the HR which additionally enables users to undergo mandatory training online. Specially Directorate, and the company’s senior management developed automatic SAP HCM notifications remind employees about upcoming monitor the implementation of training plans. training; notifications for new employees contain complete lists of required training courses applicable to their positions and roles. In 2020, an automatic planning The company determines the types of personnel training, resources for the training, competence exam- tool was developed on the basis of already available automated data. The new tool ination, certification, and professional development allows employees to compile a training plan, taking into account the expiration dates of employees in the following areas: of mandatory certifications. In 2020, HSE competencies were automated and integrated with the existing mandatory certification profiles in SAP HCM. Along with mandatory training, a single 1. Mandatory HSE Training in Accordance tool for monitoring passing competence assessments will significantly improve the with the Requirements of RF Laws and preparation of consolidated reporting and increase compliance with applicable HSE Internal Standards requirements. The company’s activities are a good example of full Both employees and managers of the company point out a positive effect from compliance with RF laws and the internal standards the implementation of the above projects. of the company in terms of HSE competence assurance and HSE training provision. Timely provision of mandatory training is an integral part of the Goal Zero Programme implementation. 202 203 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

2. Professional Training The systematic development of training programmes courses. In cooperation with the Gazprom Training ensures uniform implementation of the competence Simulator Computer Centre (TSCC), the centre The main goal in this area is to increase professional ― professional training and retraining in technical standards at the production facilities. The pro- developed nine electronic training modules; the competence in order to achieve safe, reliable, and effi- and non-technical areas; grammes reflect the specific features of the assets development of another three courses is currently cient operation of all structural units and production ― further training of technicians, obtaining a sec- related to workflow, material handling, and operation at the completion stage. The possibilities of trans- facilities of the company by ensuring that the qual- ond/related profession; of equipment. Further, the training programmes ferring technical training courses from in-person ifications of each employee correspond to the level ― obtaining international professional qualifica- include the requirements and practices in the field to electronic format continue to be explored. Due of complexity of the work performed. The compa- tions (IWCF, CIMA,CIPS, ACCA, NEBOSH); of HSE/technology and personal safety, which allows to the pandemic-related restrictions, 34 training ny’s employees are designated for professional train- ― vendor training (training in engineering support using them as guidelines in the performance of any courses were transferred to an online format (webi- ing in accordance with the qualification requirements and maintenance of equipment, organised work tasks and the implementation of initiatives nars), which made it possible to continue the training for the position occupied to fill gaps in functional by the manufacturer). at the production assets. process in the most popular areas, to store informa- competences, and in the case of production necessity. tion about the advanced technologies and practices Together with providers of educational services, the The company has made it a priority to study the best used by Sakhalin Energy and transfer it to Russian Professional training of personnel is divided into the programmes were adjusted to the unprecedented practices of in-house technical training, the integra- specialists and contractor personnel at any remote following areas: conditions. A number of international professional tion of Russian and international approaches, the use site. ― advanced training of managers and specialists, certification processes were transferred to distance or of modern technologies in the educational process, including advanced training courses, partici- blended learning formats with an increased avail- as well as further development of training portfolios Particular attention is paid to the standardisation pation in workshops, conferences, and round ability of e-courses, adjustment of group sizes and and training facilities. of educational materials for target courses included tables dedicated to professional issues; adherence to social distancing norms. in the portfolio of in-house technical training courses, The Technical Training Centre is actively expand- taking into account the experience of the Gazprom ing its portfolio of e-learning and distance learning Training Simulator Computer Centre. 3. In-House Technical Training

The growth of the company and the use of advanced Programme (see Section 9.1.7.4. Traineeship TECHNICAL TEACHING AIDS AND DIGITALISATION OF THE LEARNING technologies in constructing and operating produc- Programme) aimed at developing technicians PROCESS tion facilities require technicians to have a particular for the company’s production facilities, The company has been actively using various technical and digital training tools, level of knowledge and skills within the framework the Internship Programme for students including Operation Training Simulators, which accurately simulate the technological of their technical competences and the ability of secondary vocational education institutions, processes of the offshore oil and gas production facilities and the LNG plant. to safely and efficiently perform work tasks of any and the Competence Assurance Programme. complexity. The portfolio of programmes offered by the The simulators help control panel operators to practise and improve their skills not ― The technical competences of technicians are centre includes more than 180 targeted training only during normal operations, but also in the event of emergency situations. In 2020, developed through the in-house technical train- courses in the following disciplines: Natural the implementation of the project to update the LNG plant simulator continued. ing system. The Technical Training Centre effec Gas Liquefaction Technology, Equipment Further, it is planned to update the simulators of the offshore oil and gas platforms. Repair and Maintenance, Safe Operation tively implements and improves the system Currently, two projects are underway to develop and introduce of continuous technical training for company of Production Facilities. They are essential for technicians and major personnel. The centre the development of the technical competence virtual/augmented reality simulators into the training process in the following areas: is staffed with trainers and experts in teaching of company technicians in accordance with training of electrical personnel in operational switching in electrical installations, methodologies of relevant disciplines, who have the agreed progression schemes based on the training of maintenance and technical personnel in the maintenance of General extensive production and teaching experience. employee competence assessment, as well as for Electric gas turbines. ― The trainers implement various targeted the major contractors, whose personnel work programmes, including the Traineeship in relevant areas at the company’s facilities. 204 205 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

4. Training in The Development of Leadership, Business, Feedback from the LNG/OET/TLU Assets Manager: “Thanks to the well-established and Personal Effectiveness Skills and stable operation of the Technical Training Centre (TTC), the implementation of the Traineeship Programme ensures constant and even advanced staffing of the LNG plant. The development of general business skills is carried The company recommends that its employees engage out within the framework of the internal training in self-education to develop these skills. At the end of 2020, more than 43% of the company’s technicians were graduates of the system, taking into account the existing competences, programme. The share of programme graduates in the total number of technicians internal assessment, and using electronic resources. The leadership qualities development framework at the Prigorodnoye production complex is more than 70%. A considerable number is specified in Section 9.1.7.6. Leadership and Manage- of former trainees have been progressed to specialists and engineers, and currently ment Development Programmes. occupy key positions in the company. There have been cases when trainees made a brilliant career and became managers at the corporate level.” A vivid example of such career growth is the professional path of one of the 9.1.7.4. Traineeship Programme trainers, formerly an electrician at the Technical Training Centre: “In 2004, I received an invitation to participate in the Traineeship Programme. The company’s personnel strategy prioritises filling of the programme is to create and maintain a pool vacancies for technicians with candidates from among of technicians for the production facilities of the We studied technical English, production processes, company standards, and improved the Traineeship Programme graduates. The main goal company. In total, 323 people have participated in the our skills in the maintenance and repair of the latest electrical equipment. Thanks programme since its launch in 2003. At the end to the programme, we realised how important it was to maintain a safety culture both of 2020, 50 people continued their traineeship. at work and at home. The slogan of our company — Safety Above All! — became our

The programme focuses on the professional devel- personal motto as well. Training under the programme served as a launchpad in my opment of young Sakhalin Oblast residents with professional development. In July 2010, I was appointed as an electrical equipment occupations relevant to the company, a well as their repairman at the Prigorodnoye production complex. In 2015, when I had gained further employment. The programme participants are sufficient experience in my technical discipline, I made a decision to change jobs graduates of secondary vocational education institu- and work as an in-house technical trainer at the TTC. I am glad that I can contribute tions, in particular, the Polytechnic College of Sakha- lin State University. to training young workers — the company’s technical personnel.”

The programme graduates are in demand at all production facilities of the company. When working The key components of traineeship are the develop- The first part of the programme lasts 14 months and at the assets, they demonstrate a high level of knowl- ment of practical skills and gaining work experience includes: edge and skills acquired during the programme, by trainees. The practical part of the programme ensu ― English language module (5 months) — an inten- steady motivation for further professional develop- res that trainees develop their skills and learn the mate- sive training course with elements of general ment, and commitment to the principles of industrial rial so that they reach the required competence level. and technical English; safety culture. ― general technical training modules (9 months), Different training methods are actively used, such as: including theoretical and practical training Company managers at the corporate and asset levels ― participating in the development of projects; in the relevant discipline, SAP and ePTW, consistently highly value the importance of the pro- ― independent developing and delivery of presen- training using computer training systems, work gramme for the company. tations on various topics; with the training equipment in classrooms and ― simulating various production scenarios workshops, etc. followed by analysis. The second part of the Programme lasts 18 months, At all stages of the Traineeship Programme, much and includes on-the-job training as part of a shift, or attention is paid to fostering a production culture, in an allocated work area. including a culture of industrial and personal safety when performing various types of work. 206 207 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Traineeship Programme 9.1.7.6. Leadership and Management Development Programmes

The formation and development of employees’ man- For managers of all Job Groups (JG), there are lead- agement and leadership skills through developmental ership and management development programmes, classroom and online training courses, as well as on-the- prepared on the basis of the Nine Planets Leadership LATE JULY– OCTOBER 5 MONTHS 9 MONTHS 18 MONTHS JUNE AUGUST job training (coaching and mentoring) is an important Competency Model (see the Leadership and Manage- component of training highly skilled leaders and strong ment Development Programmes chart). SELECTION/ EMPLOYMENT ENGLISH TECHNICAL ON-THE-JOB TRANSFER managers at all management levels of the company. RECRUITMENT Registration LANGUAGE TRAINING TRAINING TO A VACANT of candidates of labour relations MODULE MODULES as part of a shift POSITION for the Traineeship (conclusion Intensive training Theoretical and or in an allocated Programme of a fixed-term course with practical training work area employment elements of general in technical Leadership and Management Development Programmes contract) and technical disciplines, SAP and English ISSOW training, process simulator training, work with educational JG 1 The Looking Glass Experience (off-site) equipment in classrooms and Senior-level managers workshops, etc. JG 2 Leadership (modular)

JG 3 Management Algorithms (modular)

Middle-level managers

JG 4–3 Transition to Success (modular)

9.1.7.5. Successor Pool Planning and Development JG 5–4 Access Code (modular)

Successor pool planning and development is a high During the succession planning process for priority activity for further development of the per- 2021–2022, potential successors (in the short- and Future Horizons sonnel capacity of the company. The key stages of the long-term) were identified for 645 of the 684 posi- Lower-level managers for young professionals (modular) process are as follows: tions within the succession planning scope (94%). JG 7–5 ― selection of potential candidates from among For all employees included in the successor pool, Supervisory Executive Skills Russian personnel to replace foreign specialists Individual Development Plans were developed, (for LNG Plant managers, modular) and also Russian employees holding key engi- incorporating training and development activities neering and executive positions; to be taken under the company’s learning and devel- ― assessment of potential successors’ readiness opment framework (professional training, leadership 2-3-day standard programmes: Team Management, Coaching Skills, to succeed the positions according to the Suc- and management skill development, developmental Effective Management of People and Projects, and others cessors Matrix; assignments, coaching, project management, etc.). ― a potential successor’s development in accordance with the job requirements for the In 2020, 91 vacant positions out of the 102 included positions planned for succession. in the Successor Matrix were filled by internal candi- As of the end of December 2020, 242 Russian com- which includes individual mentorship — a relation- dates from among Russian personnel (89%), including pany employees (83 women and 159 men) holding ship, during which an experienced manager (Mentor) 7 out of 7 positions occupied by foreign specialists. leadership positions at various levels completed shares his/her knowledge, experience and skills with training programmes in the field of leadership and an employee (Mentee) to facilitate the personal management skills development, including through and career advancement of the latter. As of the end the use of Skillsoft (e-learning portal). of December 2020, more than 100 employees of the company were engaged in individual mentorship The company also develops its leaders through under the Mentoring Programme. the implementation of the Mentoring Programme, 208 209 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

9.1.7.7. Graduate Development Programme 9.1.7.8. Personnel Development Assignments

Since 2010, the company has been implementing the The company organises systematic work with gradu- Having company employees complete personnel While participating in development assignments, Graduate Development Programme, aimed to meet ates in accordance with the three-year development development assignments at shareholder enter- employees gain extensive experience in project work Sakhalin Energy’s needs for talented staff. Pursuant programme (see the Stages of the Graduate Develop- prises is an integral part of Sakhalin Energy’s HR and receive additional opportunities to use their to the Memorandum on Cooperation in Personnel ment Programme chart). strategy. Personnel development assignments are knowledge and skills in various organisational envi- Management, signed by Gazprom and Shell, represen- organised on the basis of relevant agreements signed ronments, as well as to acquire new skills and experi- tatives of shareholder companies have been involved between Sakhalin Energy and shareholders. This form ence in solving challenging tasks. in the programme since 2016. of cooperation allows trainees to study the practical aspects and specific features of work in correspond- In 2016–2020, personnel development assign- ing units of the host company and to organise more ments in shareholder companies were organised for effective interaction in the implementation of joint 18 employees of Sakhalin Energy. In turn, 15 employ- Stages of the Graduate Development Programme projects. ees of shareholders completed their personnel development assignments at Sakhalin Energy.

ME AND MY ME AND MY ME AND MY COMPANY PROFESSION CAREER 18 9.1.7.9. Developing Scientific Potential young specialists were employed in 2020 • Professional competency and • Professional skills • Further professional leadership skills preliminary development and development Sakhalin Energy makes every effort to promote Once every two years, the company holds a scientific assessment consolidation • Career prospects assessment the development of the scientific potential of its and practical conference of young specialists. • Individual development plan • Building motivation for • Professional competency employees. The company cooperates with universities preparation and approval professional growth assessment and research institutes in the development of joint In 2020, the XI Sakhalin Energy Young Professionals • Assignment of a Mentor and • Professional competency and • Rotation to company technical projects. The company’s specialists are Scientific and Practical Conference was postponed a Coach leadership skills assessment production assets and and development participation in cross involved in the work of scientific student societies, until the epidemic situation caused by the coronavi- disciplinary projects in the preparation and delivering of lectures, and rus disease improved. other activities.

In 2020, the company hired 18 graduates under participated in the programme. At the end of 2020, 9.1.7.10. Internship Programme the programme. Since 2010, 168 young specialists, there were 44 programme participants, including 11 including 43 residents of the Sakhalin Oblast, have residents of Sakhalin. In order to form an external successor pool for “Grad- ondary vocational education institutions underwent uate” positions, the company has been implementing on-the-job training and pre-graduation internships the Internship Programme since 2000. at the company in compliance with WHO recommen- Young Energy Graduates Club dations. All trainees were residents of the Sakhalin Working alongside highly qualified professionals, stu- Oblast. The Young Energy Graduates Club has been function- stage was the How to Properly Deal with Professional dents of Russian universities and vocational schools ing in the company since 2012. Its purpose is to facili- Burnout. A Recipe for Long-Term and Effective Work get acquainted with advanced production technolo- In addition, the company introduced a distance tate the quick adaptation of graduates and to develop workshop, the second — How to Present Mate- gies and the best international and domestic business format for practical training in certain areas to expand their business and leadership skills. In 2020, young rial in a Remote Format Effectively and Efficiently practices, as well as gain unique practical experience. the opportunities for students to undergo on-the-job professionals participated in an online marathon workshop. At the third stage, the marathon partici- training and pre-graduation internships during the to adapt to work in the unprecedented conditions. pants were offered individual personal and/or career In 2020, despite the unfavourable epidemic situation period of restrictions related to COVID-19. The marathon consisted of several stages. The first counselling. caused by the coronavirus and entailing restrictions on travel between the regions of the Russian Fed- The company has a successful partnership with the eration, 32 students of higher education and sec- Polytechnic College of Sakhalin State University 210 211 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

in the area of vocational education, annually accept- training at the Prigorodnoye production complex 9.2. ing 20 to 30 third- and fourth-year students studying (subject to all anti-COVID precautions). LABOUR, ASSETS SAFETY disciplines relevant to Sakhalin Energy’s operations to receive on-the-job training and pre-graduation The Director of the SSU Polytechnic College S.S. Sha- internships at the Prigorodnoye production com- rov highly appreciates the cooperation with the AND PROTECTION plex. Extending the programme to cover secondary company, in particular, the Internship Programme: vocational education students allows the company “Internship at Sakhalin Energy is a great opportunity to ensure the continuity of the system for the training for young people to immerse themselves in the work and development of technicians from among the in the oil and gas industry while they are still college residents of the Sakhalin Oblast. After practical train- students, to learn more about their future occupation 9.2.1. GENERAL INFORMATION ing, when trainees have decided that they made the and the career they have chosen. Thanks to the pro- correct career choice, they can continue their profes- fessionalism of the company’s employees, students In order to successfully implement major projects At present, there are ten mandatory Life Saving Rules sional development through participation in the Train- are able to improve their theoretical knowledge and and operate production assets, the main focus must applied by the company. These rules are associated eeship Programme. In the future, they can be hired gain valuable practical experience. During the intern- be on health and safety. Sakhalin Energy is committed with high-risk activities. by the company to fill vacancies for technicians. ship, students are assigned experienced mentors, who to industrial safety and preventing harm to peo- help them navigate the production process and adapt ple’s health. In 2020, 18 fourth-year students of the Polytechnic to the conditions in the workplace. This increases the College — representatives of all occupations relevant chances of our graduates getting jobs in large oil and for the company — were accepted for on-the-job gas companies.” Life Saving Rules

Life Saving Rules 9.1.7.11. Scholarship Programme

The Scholarship Programme was launched by Sakha- support (scholarships) for gifted Sakhalin youth during Do not appear at work to work under the Work with a valid work permit when required. lin Energy in 2003. their studies at the country’s universities in disciplines influence of alcohol or drugs. that are relevant for the company, with the prospect The Scholarship Programme is open to students of further employment at Sakhalin Energy. Do not smoke outside of designated smoking of secondary comprehensive schools who are finishing areas. Do not carry or use unauthorised ignition Verify isolation before work begins. their course of study under the complete general sec- In 2020, the competition was held in a remote format sources in hazardous areas. ondary education programme and students of second- due to the difficult epidemic situation. Four talented

ary vocational education institutions who are finishing Sakhalin high school graduates were granted scholar- Obtain authorisation before entering Do not walk under a suspended load. their course of study for the first post-secondary ships to study at higher education establishments. a confined space. degree (full-time), are residents of the Sakhalin Oblast and are willing to get a university degree in oil and As of the end of 2020, 26 participants of the Scholar- gas engineering or engineering in related industries. ship Programme were studying at RF universities with While driving, do not use communication Protect yourself against a fall when working devices and do not exceed the speed limit. at height. The purpose of the programme is to provide financial the financial support of the company.

Wear your seatbelt.

Follow the prescribed journey management plan and have valid defensive driving certificate. 212 213 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Statistics on violations of Sakhalin Energy’s Life Sav- presented in the Violations of Sakhalin Energy’s Life Injury Rates for the Company and Contractor Organisations in 2017–2020 ing Rules by company and contractor staff in 2020 are Saving Rules table.

Parameter 2017 2018 2019 2020

Number of people injured in workplace accidents, total people 4 4 8 17 Violations of Sakhalin Energy’s Life Saving Rules in 2020, number of cases including fatalities 0 0 0 0

Number of accidents for contractor organisations at company assets, 4 4 5 17 Alcohol or drug abuse — 16 total people Not taking protective measures against a fall when working including fatalities 0 0 0 0 1 1 1 1 at height — 10 Total registered incidents (per 1 mln man-hours) 0.26 0.23 0.46 0.77

2 Number of people injured in road traffic accidents (per 1 mln man- Failure to follow the requirements of a work permit — 6 0 0 0 0 3 hours) 16 Using a communication device or exceeding the speed limit when driving — 6 The rise in injury rates for 2020 is primarily connected in 2019). For all incidents, the company held an inves- 6 Failure to follow the Journey Management Plan or invalid with a significant increase in construction activities tigation involving management, HSE and technical Defensive Driving Certificate — 3 and manpower at the OPFC project (for comparison: specialists from both the company and contractors in 2020 two million more man-hours were worked than and specific corrective measures have been taken. Locking or isolating equipment before work begins — 2 6 Smoking or use of ignition sources in hazardous areas — 1 10 Standing under suspended load — 1 Obtaining authorisation before entering a confined 9.2.2. INDUSTRIAL SAFETY space — 1 Failure to use a seatbelt — 1 The company’s industrial safety goal is to ensure that Each employee of the company has the right and vital interests of individuals and society are protected obligation to intervene if they identify unsafe condi- from accidents at hazardous production facilities (here- tions or actions, or when activities are being carried inafter referred to as HPF) and to mitigate their effects. out in violation of the Industrial Safety Policy.

Any violation of the Life Saving Rules leads to serious The company’s main fields of activity in the area The company’s leadership team is strongly com- Also, pursuant to legal requirements of the Russian consequences, including potential dismissal. of safety are: mitted to this goal and promotes actions aimed Federation, the company has an Industrial Safety ― leadership and commitment at all levels of the at achieving it. The industrial safety requirements Management System (hereinafter the ISMS). Indus- The company uses a consistent approach when company; are defined as fundamental for further development trial control over compliance with industrial safety handling HSE issues (see Section 3.5. HSE and Social ― industrial safety; of the company. requirements has been organised and is implemented Performance Management). This approach complies ― road safety; at all company HPFs. with both legal requirements and risk management ― preventive work with contractor organisations; To achieve the above goal, the company has approved so as to ensure continuous improvement in this area. ― learning from incidents in the industry and the Industrial Safety Policy. Its key principles are Industrial control (hereinafter, IC) over compliance The company also requires contractors to manage awareness-raising campaigns. the recognition and assurance of the life and health with industrial safety requirements is one of the most HSE issues in compliance with this approach and of employees as a priority over the results of the important elements of the company’s ISMS. international standards adopted by the company. company’s production activities, and the promotion of understanding by employees that industrial safety The purpose of IC is to carry out a set of activi- requirements are an integral part of their daily work. ties aimed at ensuring the safe operation of HPFs, 214 215 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

as well as preventing accidents at these facilities, and 11 HPFs (Hazard Classes I, II and IV) have been compliance with industrial safety requirements ensuring the company’s preparedness for emergency included in the State Register of Hazardous Produc- for HPFs; containment and response, via the implementation tion Facilities. ― monitoring the status of industrial safety in the of a set of organisational and technical activities, company’s organisational units; in the event of accidents at HPFs. For Hazard Class I and II facilities, it is mandatory ― coordinating the industrial safety activities to develop industrial safety declarations. The com- of the company’s organisational units; The main principle that the company is guided pany has developed such declarations for all hazard- ― planning measures aimed at ensuring industrial by in organising and implementing IC is regular and ous production facilities. safety at the company’s HPFs and monitoring scheduled inspections of the company’s HPFs, timely their implementation; examination, diagnostics and expert examination These facilities are staffed with qualified personnel, ― organising industrial safety expert examination; of the equipment operated at HPFs. trained and certified in industrial safety, who do not ― organising interaction with supervisory and have medical contraindications to work. Sakhalin executive authorities on industrial safety issues; The company submits production control data Energy has created all necessary conditions for the ― registering and re-registering HPFs and entering to Rostekhnadzor annually as required by law. continuous improvement and professional develop- new data in the State Register of Hazardous ment of its staff. Production Facilities; The company operates explosive and fire hazard- ― ensuring the availability and operation of tools ous and chemically hazardous production facilities, The company conducts industrial safety training and and systems for control of production processes as well as facilities that use pressurised and hoisting certification for employees working at the compa- in accordance with the established require- equipment in compliance with Federal Law No. 116-FZ ny’s hazardous production facilities in compliance ments; On Industrial Safety of Hazardous Production Facili- with law and the ISMS. Managers and specialists ― developing and updating industrial safety ties of 21 July 1997. undergo industrial safety certification, while HPF declarations for HPFs in operation in a timely vocational workers take an annual knowledge test manner; The company has taken measures to ensure the in this area. ― analysing the industrial safety status annually; preparedness of HPFs for containment and response ― providing information support for the in the event of possible accidents at the facilities; implementation of the company’s industrial warning, communication and support systems have safety activities. Information on Industrial Safety Certification of Sakhalin Energy Managers been arranged to be used in case of an emergency; and Specialists in 2020 there are non-professional emergency response The implementation of all above-listed measures and teams at the company’s assets; emergency response tools in line with the world best practices guarantees training sessions and exercises are regularly held with the company’s compliance with industrial safety staff; the company has a reserve of funds and mate- regulations at all stages of its production activities — rial resources for the containment of and response from the designing of each new well through the Number of meetings of the Industrial Safety Certification Committee 106 to possible accidents. shipment of hydrocarbons from the Prigorodnoye Managers and specialists certified in industrial safety, total persons 646 production complex. Following the decision of the company’s senior Employees certified by type of supervision, persons management, safety justifications were developed Due to the restrictions taken by the company Supervision over oil and gas production facilities 406 and implemented at seven of Sakhalin Energy’s HPFs. to prevent the spread of the COVID-19 disease, Surveying control and safety supervision over subsoil use 7 As required by the legislation of the Russian Feder- Level 5 industrial control inspections of the hazar ation, the safety justifications passed an industrial Supervision over pressurised equipment 106 dous production facilities are being carried out safety expert review. remotely, without site visits. Inspections are desk-top Supervision over hoisting facilities 48 and consist of control over the availability, complete- To maintain high industrial safety performance, the Production supervision at the place of use, storage, application of explosive materials 10 ness and quality of documents as established by the company takes certain measures, in particular: legislation of the Russian Federation on indus- Supervision over chemically hazardous production facilities 69 ― using uniform approaches by the company’s or- trial safety, which are mandatory for the operation ganisational units in their activities to ensure of hazardous production facilities. 216 217 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

9.2.3. SAFETY CULTURE Goal Zero Culture Model

Occupational health and safety is one of the compa- The company supports leadership development ny’s core values. Sakhalin Energy sets high standards at all levels to ensure the creation of a Goal Zero SAFETY IS OUR WAY OF LIFE, and expects all employees of the company, contractor safety culture and continuous improvement. A safety and subcontractor organisations to comply with them. culture is a system of values, beliefs, and ideologies a deeply held value, we work safely WE TREAT adopted in an organisation. It depends on many fac- WE SUPPORT not because we are forced to, but DEVELOPMENT OF because we want to PEOPLE WITH СARE Continuous improvement of the corporate safety tors, in particular: AND RESPECT, culture aimed at achieving Goal Zero is one of the LEADERSHIP AT ALL ― commitment of top managers to HSE principles; LEVELS priority tasks of Sakhalin Energy. ― company priorities; ― company policies, procedures, and standards; at all levels we demonstrate to build safety and continuous commitment and leadership, and Goal Zero is a mindset that actively promotes ― employee engagement and motivation; improvement culture develop trusted relationships no leaks, spills, harm or injury, both at work and ― availability of feedback, information exchange; in daily life. Employees’ personal responsibility for ― safety awareness among employees, their compliance with HSE rules and intervention in unsafe behaviour; situations (as one of the elements of safety culture) ― employee competency. WE WORK help the company to reach its safety targets as well AS ONE TEAM WE LEARN AND SHARE as production goals.

within our company, and with our customers, suppliers, contractors and subcontractors openly lessons learned and best Since the launch of the programme: practices, not only within the company, but across the industry ― over 8,000 company and contractor employees have been trained in Goal Zero and worldwide awareness sessions; ― 300 mid-level managers attended Safety Leadership workshops; WE INSPIRE ― over 600 company and contractor top and mid-level managers attended Goal Zero AND SUPPORT commitment and alignment workshops; WE SUSTAIN A CULTURE our people to be proactive, ― over 100 volunteers amongst employees and contractors trained to be Goal Zero we recognise personal examples trainers. of effective intervention of conscientious accountability and responsibility and fairness

Sakhalin Energy pays particular attention to develop- Key objectives of Goal Zero are shown in the Goal ing HSE leadership among all company and contrac- Zero Culture model. tor employees. Sakhalin Energy promotes its HSE good practices The commitment of the company’s senior man- Implementation of the Goal Zero Programme has accumulated during 27 years of the Sakhalin-2 proj- agers to safety culture is of vital importance, since been an integral part of developing safety culture ect, not only within the company but also among it strongly influences the prevailing attitude towards in the company. contracting organisations and other external stake- HSE issues and safe behaviour patterns in the holders. company. The HSE Leadership Site Visit Programme 218 219 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

is one of the company’s tools to achieve visible HSE attitude towards safety among employees through The results of the staff survey conducted as part of the programme in 2020 leadership. In 2020 managers at all levels (directors, observation, communication, and concrete actions, demonstrated a high level of commitment to Goal Zero. Encouragingly positive asset managers, and heads of subdivisions) visited as well to teach them effective intervention methods. the company’s and contractors’ production facilities responses were given to the following key questions: 101 times. After the introduction of strict quarantine Exceptional HSE behaviours, achievements and ini- ― 96% responded “I am aware of my role in ensuring occupational safety”; restrictions related to the COVID-19 pandemic, some tiatives are encouraged by the CED in the framework ― 95% responded “I’m not afraid and do not hesitate to report problems related of these visits were made online. of the programme. to occupational safety that I have identified”; ― 92% responded “I always consistently adhere to the principles of the Goal Zero The company continues to promote the Effective The company has been holding Summer and Winter Observation and Intervention Programme. The pro- Safety Days for the last 13 years. All company and Programme while at home or outside the workplace”. gramme aims to implement a systematic approach contractor organisation employees gather to discuss to the identification, assessment, and prevention the ever-topical safety issues: how people’s actions of unsafe practices and conditions in the workplace, and behaviour influence the safety of others, and how as well as to continuously improve safety culture and to improve work safety. They also discuss following safe behaviour. safety rules both at the workplace and outside working hours. 9.2.4. ROAD SAFETY All company and contractor organisation employees Road safety is of particular importance for Sakhalin four RS Monitoring Teams inspect roads in dif- can take a training course in Effective Observation Safety Days topics in 2020 included human perfor- Energy. ferent districts of the region; and Intervention. In 2020 this course was taken mance; care for people; dynamic risk assessment; ― Defensive driving training. All profession- by more than 900 company and contractor employ- safety leadership; teamwork; personal resilience; and More than 700 vehicles with a total annual mileage al drivers, and also non-professional drivers ees. The purpose of this course is to build a conscious fatigue management. over 10 million km are engaged in project activities. required to drive on company business, take Sakhalin Energy’s management and the Road Safety defensive driving courses. In 2020, the Training Steering Committee emphasise strict compliance with Center’s activities were reorganised in accor- In 2020, the Winter Safety Day was transformed into the Winter Safety Marathon. the norms of Russian transport legislation and the dance with the temporary recommendations The Marathon included a series of activities dedicated to reducing industrial injuries company’s Road Safety Standard. of Rospotrebnadzor to combat the coronavirus by raising employee awareness of occupational safety guidelines in winter and pandemic. Over 1,700 drivers of various catego- restrictions aimed at preventing the spread of the COVID-19 disease. To maintain and improve its road safety performance, ries take the courses annually; The activities included team discussions, quizzes, art contests on topics such the company continues to implement the following ― Monitoring compliance of vehicles with the actions: requirements of the company and Russian leg- as winterisation, winter driving, healthy lifestyles, harsh weather conditions, and ― Meetings of the Road Safety Steering Com- islation. All company and (sub-)contractor vehi- outdoor safety. All company units, as well as contractor and subcontractor staff took over mittee chaired by the Chief Executive Officer cles used in production activities are inspected. part in the Marathon. of the company; In 2020, in line with temporary recommenda- ― Monitoring of the company’s and contractors’ tions of Rospotrebnadzor to minimise spread drivers compliance with road safety (RS) re- of COVID-19, a remotely issued electronic 1700drivers quirements. Compliance with RS requirements vehicle condition conformity certificate with The success of these activities is measured and perceptions and concerns, allow timely identification is monitored by the In-Vehicle Monitoring Sys- a QR-code was developed; feedback from the front-line to managerial level of emerging issues and better involvement of person- are covered tem (IVMS) and the company’s own RS inspec- ― Interaction with other organisations. The com- by the In-Vehicle is obtained via regular anonymous online surveys, nel in decision making related to safety improvement Monitoring System tion service (RS Monitoring Team). pany initiated cooperation with Gazprom Doby- leadership visits and line-management listening tours, initiatives. IVMS monitors driver behaviour, identifies cha Shelf, which develops the Kirinskoye Field, which ensure better understanding of personnel non-compliance, and allows the company in order to jointly solve road safety issues at the to take steps to prevent situations that may south access road to Lunsky Bay. The RS Moni lead to road traffic accidents. The monitoring toring team patrols the south access road system covers about 1,700 drivers. Every day, together with the traffic police; 220 221 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

within the asset, including journey management 9.3. and inspections of the technical state of vehi- OCCUPATIONAL HEALTH cles and transported cargoes; ― Cargo Securing and Vehicle Transportation training course. Sakhalin Energy’s operations involve the transportation of materials 9.3.1. GENERAL INFORMATION and heavy equipment using the roads of the The company uses a systematic approach in protect- ― occupational hygiene: health risk assessment island. Statistics show that improperly secured ing the health of its personnel. Sakhalin Energy has and chemicals handling; cargoes are one of the main reasons behind developed and approved a corporate occupational ― personnel health and wellness; a significant number of road traffic accidents. health and hygiene standard, which includes the ― chronic fatigue management; It became apparent that a training course had following sections: ― management of alcohol and drugs at work; to be introduced when it was discovered that ― medical emergency response; ― public health. non-compliant cargo transportation had risen ― medical requirements for occupational fitness; under the project and that there were no clear recommendations in the regulations of the Russian Federation on proper securing of cargo. Sakhalin Energy’s Occupational Health and Hygiene Standard More than 200 drivers and responsible persons take this course annually. All oversize and heavy cargoes within the project are transported under the control of the company’s Road Safety Health examinations Department. ― Safe Journey Management training course. In 2020, an online Safe Journey Management training course was developed for remote Health risks assessment Medical emergency response ― Active participation in various forums, where learning. the company shares its experience in ensuring ― Road Safety Management System automation. road safety under the project. The company An automatic RS data collection and analysis holds an Annual Road Safety Conference for system, which applies a new approach to driver Medical requirements Chronic fatigue management Contract Holders and contractors. Sakhalin performance evaluation, was developed. for contractors Oblast Traffic Police representatives take part in the conference. In 2020, despite temporary Under the Road Safety Programme the company has OCCUPATIONAL HEALTH AND HYGIENE restrictions on face to face meetings, the RS committed to promote and disseminate robust cor- STANDARD Department took an active part in international porate safety standards outside of its and contractors’ and domestic online forums; area of responsibility, especially in those communi- Management of alcohol ― Implementation of the Safe Journey Manage- ties and locations in Sakhalin where Sakhalin Energy Additional programmes and drugs at work for prevention of diseases ment Programme at the company’s assets. Each has its operations. This is implemented through of Sakhalin Energy’s production assets has cooperation with the Sakhalin Oblast Government, appointed persons responsible for road safety Yuzhno-Sakhalinsk Administration and Sakhalin who monitor the daily operation of all vehicles Oblast Traffic Police.

As required by the corporate occupational health and In 2020, 87.3% of the company’s employees engaged hygiene standard, an assessment was made of the in work under these conditions underwent a man- health status of company employees working in haz- datory periodic health examination. More than 46% ardous and/or arduous conditions. of the office personnel were covered by a clini- 222 223 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

cal screening due to restrictions associated with to increase the visibility of information on harmful Company and contractor employees at remote In 2020 the company had to respond to the COVID-19 pandemic. factors and allow for efficient assessment. assets of the Sakhalin-2 project, as well as company emergence of the global coronavirus pandemic. employees on business trips abroad are provided with The company’s response to protecting the health The company has continued to focus on preventing An analysis of cause-and-effect relationships high-quality medical support guaranteed by AEA of its employees and contractors from the impacts employee fatigue and has developed fatigue manage- between indicators obtained by measuring various International (Sakhalin). The company’s employees of the global coronavirus pandemic is covered sepa- ment plans to assess and control the risk of employee factors in the working environment (air, vibration, also receive medical services from other healthcare rately in section 9.3.2. fatigue. The company’s employees also have access noise, microclimate, ionising radiation, etc.) and facilities included in the list of the SOGAZ Insurance to an interactive online programme that provides data on the health status of personnel is carried Company under the voluntary medical insurance awareness on how to manage risks associated with out on a regular basis. Corrective measures are programme (see Section 9.1.5. Social Benefits and fatigue. subsequently developed to minimise any risks, Compensations). and an electronic database is used to track that Health risks are assessed at all company assets. the measures are implemented. The rate of reported A system for monitoring harmful occupational factors occupational diseases are provided in the table is employed within the asset industrial monitoring Reportable Occupational Illness Frequency for 2017– programmes. The results are fed into a single database 2020. 9.3.2. OCCUPATIONAL HEALTH AMID СOVID-19

In the challenging epidemic and economic situation To prevent the spread of the infection, ensure early created by the global COVID-19 pandemic it was and effective detection of positive COVID-19 cases, Reportable Occupational Illness Frequency for 2017–2020 critically important to arrange efficient and effective and create barriers to the coronavirus spreading in the response measures to ensure uninterrupted pro- company, the following actions were implemented: Total reportable occupational illness frequency (TROIF) 2017 2018 2019 2020 duction and safeguard the health of the workforce. ― health monitoring of employees; These measures were implemented under control ― mandatory notification of the company (Health Company only 0 0 0.27 0.52 by General Coordinating Committee (GCC) three task Section) about employees’ and/or their house- Company and contractors 0.20 0.40 0.50 0.41 forces, which included the specialists in epidemiol- hold members’ respiratory disease symptoms With temporary disability (company only) 0 0 0.27 0.26 ogy and occupational health and hygiene of Corpo- or fever; tracing of possible contacts with sick rate Health Section, as well as representatives of the people; With temporary disability (company and contractors) 0.10 0.40 0.50 0.05 Facilities Management and Development Division, ― reducing numbers of personnel working in the HSE Department, Human Resources Directorate and offices and transitioning to remote working; An increase of TROIF is connected with several cases age employees to take care of their own health and IT and IM Department, Communications and Media ― enhanced hygiene measures; wearing of masks; of gastrointestinal deceases at the company’s asset fitness and take personal actions for the prevention Relations Subdivision, etc. limiting meetings with more than ten attendees; in 2020. The company immediately implemented all of diseases. holding meetings preferably online; required measures for employee’s treatment. In the early phases of the spread of the virus the ― restricting business travel; recommendation To this end, additional measures were taken such as: company’s Health Section specialists analysed to limit private trips; Occupational illness frequency indicators are ― activities to prevent acute respiratory viral in- Russian COVID-19 control regulations and the best ― mandatory isolation and COVID-19 testing for analysed on a regular basis in order to develop and fections and influenza, including health educa- international prevention and control practices, and employees prior to work rotations at production implement measures to improve working conditions, tion and vaccination campaigns; carefully assessed the company’s preparedness assets; prevent illness, and promote a healthy lifestyle. ― annual anti-smoking campaign. On 31 May, for a flu pandemic. Based on the results, a number ― ceasing sports and recreational activities World No Tobacco Day, Sakhalin Energy tradi- of actions were implemented to reduce the potential at Zima Highlands Residential Complex; In 2020 the use of best practices in calculating body tionally holds employee meetings to discuss for the coronavirus infection to spread to the offices ― medical aid under voluntary health insurance mass index and assessing cardiovascular disease risks tobacco addiction. Employees who smoke are and assets of the company. The required actions were policies; allowed us to effectively monitor personnel with the offered free medical consultations and smoking embedded into company processes and procedures, ― keeping personnel regularly informed about the highest risk of developing acute coronary syndrome. cessation therapy. An extensive information and several task force teams mobilised to support statutory and corporate measures taken and the The company uses software to ensure that only campaign with the use of posters and leaflets their implementation. need to comply with preventive measures such employees who meet the prescribed fitness to work is carried out on an ongoing basis; as personal and public hygiene rules, etc. criteria are admitted working at remote assets. ― continuing to implement high standards for medical emergency response. In 2020, In addition to implementing mandatory health pro- 300 employees of Sakhalin Energy and its grammes, in 2020 the company continued to encour- contractors received first-aid training. 224 225 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

To protect the company’s production facilities against COVID-19, it was decided 9.4. to arrange the delivery of employees to the facilities only after a 14-day observation HUMAN RIGHTS period, subject to the absence of clinical symptoms of the coronavirus infection and two negative COVID-19 tests. For this purpose, the company organised temporary accommodation facilities (TAFs) for the 14-day observation period of company and 9.4.1. HUMAN RIGHTS: PRINCIPLES AND MANAGEMENT SYSTEM contractor personnel before entering the company’s sterile facilities. Since there were Sakhalin Energy’s key business principles include ― incorporation of commitments into the compa- no sites or facilities in the Sakhalin Oblast which were ready for use as observation running its business in a socially responsible manner, ny’s strategy; facilities, the company arranged its own facilities. compliance with the laws of the Russian Federation, ― human rights risks and impact assessment; The company, together with TAF building owners, divided indoor areas and also respect for fundamental human rights within ― stakeholder engagement in connection with the legal business framework. human rights issues; according to epidemiological requirements (clean zones and dirty zones), introduced ― efficient grievance mechanism; a disinfection regime (air and surface disinfection every time the doors to the This integrated approach to human rights has several ― training of company and contractor personnel; residential rooms were opened, as well as waste treatment). interconnected components, in particular: ― human rights monitoring and reporting. The rules for residing, catering, household chores (washing, cleaning), waste ― Human Rights Policy commitment; disposal, medical supervision and other activities at the TAFs were established and The company’s human rights standards are laid out in corporate documents to ensure they are imple- communicated to all TAF residents before their arrival at the facilities (the rules are mented on a day-to-day basis. These include: also available on the company’s website). ― Human Rights Policy; In total, 10 TAFs were organised by the company. At the end of 2020, four TAFs ― Code of Conduct, including the Statement (two in the south and two in the north of the island) with a total capacity of about of General Business Principles; ― Business Management System; 700 people were used to accommodate rotational employees for the mandatory ― Commitment and Policy on Health, Safety, observation period. In addition, two isolation wards were arranged in the north and Environment, and Social Performance; south of Sakhalin for infected employees and those who had been in contact with ― Security Policy; COVID-19 patients. The TAFs and the isolation wards were arranged and provided with ― Contracting and Procurement Policy; accommodation essentials according to the regulations of government authorities and ― Whistle Blowing / Grievance Procedure; ― Sustainable Development Policy. corporate standards. All relevant costs were borne by the company. The Human Rights Policy sets forth the human rights commitments and discusses managing risks associated with potential or actual violations of human rights resulting from the company’s activities (www.sakhalinenergy.com).

Sakhalin Energy has adopted standards for observ- ing human rights in all situations in which there is a potential for violating these rights, namely: ― employee relations; ― working in communities; ― contracting and procurement; ― asset security. 226 227 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

Company Human Rights Activities Community Grievance Procedure to address griev- These mechanisms can help resolve grievances ances from the public and contractor/subcontractor quickly and efficiently; they thoroughly document employees in connection with the Sakhalin-2 project. grievances and corrective measures, and reduce the In addition to the Community Grievance Procedure, likelihood that similar situations will reoccur, thereby Company activities the company established a separate procedure for contributing to building strong, long-term relation- addressing grievances related to the Sakhalin Indige- ships with everyone that the company’s activities nous Minorities Development Plan in 2011 (see Sec- have an impact upon. tion 9.5. Social Investment and Contribution to the Sustainable Development of the Host Region). Employee relations Working in communities

COMPANY To ensure maximum efficiency of the community grievances procedure, the company HUMAN RIGHTS relies on a number of principles to conduct these activities, including: STANDARDS ― legitimacy, and incorporation into the corporate system; ― accessibility;

Asset security Contracting and procurement ― transparency and openness; ― stakeholder engagement and ensuring dialogue during the grievance process; ― setting target dates and taking concerted actions to address grievances; ― confidentiality; ― applicability for both the company and contractors; The company holds training courses and information Rights Training). Security contractors in particular are ― using accumulated experience in taking preventive measures and proactive steps. sessions on human rights (see Section 9.4.4. Human informed about the company’s human rights standards.

9.4.2. GRIEVANCE MECHANISMS 9.4.3. GRIEVANCE HANDLING IN 2020 The company’s stakeholder engagement strategy of Conduct, or other company procedures (related is focused on minimising impacts on human rights. to conflict of interest, bribery, corruption, etc.). In 2020, 81 grievances and requests were received material and services procurement, conflicts of inter- It is obvious, however, that it is impossible to elimi- from company personnel and external stakeholders via est, and unethical behaviour. nate all adverse impacts of a project as large as Sakha- Human Resources Inquiries Procedure, which various corporate grievance mechanisms, including: lin-2. This is why the company adopted a grievance concerns labour and employment issues raised ― 31 grievances under the Whistle Blowing Pro- As of the end of 2020, 31 grievances were received mechanism at the start of construction to effectively by company personnel (violations of the labour laws cedure; through the company’s hotline, operating under address grievances raised in connection with the proj- of the Russian Federation and other regulatory legal ― 1 grievance from a company employee under the the Whistle Blowing Procedure. 26 grievances were ect. The mechanism includes the following: acts of the Russian Federation containing labour laws, Human Resources Inquiries Procedure; reviewed, reported to the Business Integrity Com- local regulations of the employer related to employee ― 49 grievances from the public and employees mittee and settled within the established time frame. Whistle Blowing Procedure to address violations labour activities, as well as violations of the terms of contractor and subcontractor organisations. The remaining five grievances are being handled of the Statement of General Business Principles, Code of employment contracts concluded with employees); by the Internal Audit Subdivision and the Corporate Grievances related to violations of the General Security Department. Business Principles, the Code of Conduct, or other company procedures were handled under the Whistle In 2020, one grievance related to labour relations Blowing Procedure. These grievances concerned in the company and the application of the employ- 228 229 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

er’s local regulations was received from a company temporary accommodation facilities (TAFs), changes 9.4.4. HUMAN RIGHTS TRAINING employee. It was registered and handled in accor- in rotational work schedules, non-compliance by con- dance with the Human Resources Inquiries Procedure tractors with contractual obligations to pay remuner- A certain level of employee awareness is required human rights. The process of appropriate training and was settled within the time frame established ation to employees for the time spent under obser- to incorporate human rights standards into the daily selection is shown in the Appropriate Training Selec- by the Procedure. vation at the TAFs. Information on such grievances, operations of the company and its contractors. tion chart. as well as updates on how they were being handled, Therefore, the company offers systematic training and The grievances from communities and employ- were regularly reported to the General Coordinating awareness sessions for Sakhalin Energy personnel, In 2020, in addition to its regular Human Rights ees of contractor and subcontractor organisations Committee (see Section 4.4). contractors, and other stakeholders. Training Programme, the Corporate Security Depart- were addressed in compliance with the Community ment developed information materials on compliance Grievance Procedure. These grievances were related By the end of 2020, 44 out of 49 grievances from The company’s requirements in the area of human with voluntary security and human rights principles to labour relations (in contractor and subcontractor the community, contractor and subcontractor rights are included in a number of educational brief- and distributed them to all contractors providing organisations), impacts on settlements, construc- employees had been settled within the time frame ings and courses that all company employees and security services. Following the company’s example, tion camp management, compliance with the Code established by the Grievances Procedure (less than contractors are required to take. some of the security contractors (Mintrans of Russia of Conduct, and the implementation of the Sakhalin 45 working days). In addition, nine grievances received Departmental Security Service Directorate (Federal Indigenous Minorities Development Plan. in late 2019 had also been settled. Examples of this training are: State Unitary Enterprise) and Non-Governmental ― general instruction; Security Agency (Private Security Organisation)) 15 of the grievances received were related to the At the end of 2020, five grievances remained unset- ― Code of Conduct training; developed and adopted their Human Rights poli- COVID-19 pandemic. The company received griev- tled. Information on the status of these grievances ― health, safety, environmental, and social cies. This means that the human rights principles ances from contractor and subcontractor employees will be presented in the 2021 Sustainable Develop- performance training. applied by the company in the implementation of the regarding inconveniences related to their stay at the ment Report. Sakhalin-2 project are becoming part of the corporate The company conducts specialised courses for culture of its contractors, and are embedded in their specific personnel that have a higher risk of violating policies and procedures. Categories of Public Grievances in 2020

Appropriate Training Selection 2 1 Labour relations / labour safety — 53% 3 Construction camp management — 25% RISK IDENTIFICATION RELATED TRAINING/ 5 ASSESSMENT OF RISK GROUPS AWARENESS SESSION 26 Code of Conduct — 10% 49 total SIMDP implementation — 6% • Asset security • Contractors • Corporate social responsibility • Hazardous • Contract holders • Grievance Procedure working • Security staff (and related • Occupational safety and health Impact on communities — 4% conditions contractor services) • Respect for human rights by safety • Grievance • Reception staff contractor 12 Other (health effects) — 2% resolution 230 231 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

The Community Grievance Procedure training directly supervise the work of contractor organisa- 9.5. course is offered to employees whose scope of work tions). In 2020, such training was offered to managers SOCIAL INVESTMENT AND includes receiving or resolving grievances from the of four Pipeline Maintenance Depots and OPFC general public (e.g., subdivision heads, reception desk construction site. employees, and the company’s representatives who CONTRIBUTION TO THE SUSTAINABLE DEVELOPMENT OF THE HOST REGION

9.4.5. MONITORING HUMAN RIGHTS In 2020, Sakhalin Energy was recognised with the highest A+ (Leaders) category in the Monitoring is important for ensuring human rights are Internal monitoring is done at the subdivision level rating of the Leaders of Corporate Philanthropy 2020 project, implemented by the observed. Human rights are monitored both internally as well as by the Internal Monitoring Department. Donors Forum Association of Grantmakers in partnership with EY Russia and the and externally. In 2020, the company conducted the External monitoring includes regular audits by lend- following controls: ers, shareholders, and independent experts. In 2020, Kommersant publishing house. Only two Russian companies, Sakhalin Energy being ― surveying contractor and subcontractor per- the audit was conducted online due to restrictions one of them, were distinguished in this category. sonnel. Due to the COVID-19 restrictions, the related to the COVID-19 pandemic. Two of the company’s initiatives were recognised as the winning projects survey was conducted online in the format in the Leaders of Corporate Philanthropy 2020 programme competition. They are the of an electronic questionnaire; The Business Integrity Committee, which includes Preservation, Development and Promotion of the Linguistic Heritage of the Sakhalin ― feedback meetings with internal and external the Chief Executive Officer and a number of other stakeholders, including representatives of con- directors, oversees compliance with the established Indigenous Minorities project, one of the best corporate projects designed to support tractors. Due to the COVID-19 restrictions, the Grievance Procedure. culture and art in Russia; and the project aimed at protecting the health of personnel meetings with representatives of contractors and the community, which was included in the top three projects in category and subcontractors were held in the format Conclusions on the application of human rights of The Best Programme Contributing to the Implementation of the UN Sustainable standards are included in regular internal reports for of videoconferences; Development Goal to Ensure Healthy Lives and Promote Well-Being for All at All Ages. ― reviewing contracts to make sure they contain the senior management and shareholders of Sakhalin human rights provisions. Energy, as well as in the company’s annual Sustain- In 2020, Sakhalin Energy was announced the winner in the Corporate Charitable able Development Reports. Activities category of the competition for the best socially oriented company in the oil and gas industry, held by the RF Ministry of Energy.

9.5.1. SOCIAL INVESTMENT AND SUSTAINABLE DEVELOPMENT: SAKHALIN ENERGY’S PRINCIPLES AND APPROACHES

Since its establishment in 1994, the company has a policy of mutual investments of resources and paid close attention to the implementation of social mutual benefits of all stakeholders. programmes in the territory of the Sakhalin Oblast. The significant and consistent investments in the In 2020, the company’s total investment in the social sphere, as well as the long-term policy focused implementation of external social programmes in the on addressing topical social issues are in line with Sakhalin Oblast amounted to about 92 mln roubles, the principles of sustainable development that the which is almost by 28% more than in 2018. company is committed to. Sakhalin Energy pursues 232 233 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

In accordance with the company’s Social Invest- ronmental, and social development of Sakhalin ― education; The company carries out its social investment activi- ments Strategy, Sakhalin Energy is implementing Island; ― culture and art; ties in line with a number of documents. They identify projects that: ― contribute to the sustainable social, economic, ― healthcare; the objects and principles of the charity activities and ― result from consultations with the public and and environmental development of Sakhalin ― promoting the development of the Sakhalin social investments, and outline how to manage these meet the identified needs of those communities and demonstrate the company’s commitment indigenous minorities. issues, e.g., planning, decision making, and financing impacted by the company’s activities; to sustainable development to stakeholders. procedures. These documents include the Social ― relate to issues that affect the company’s repu- The company’s approach to the development of the Investment Strategy as a part of the Social Perfor- tation; Sakhalin Energy’s social investment programmes are host region is a targeted policy of participating in the mance Management Standard. Pursuant to the Strategy ― may not directly relate to the company’s activ- aligned with the company’s long-term goals in its life of the community. This includes support for the and in accordance with the company’s internal audit ity, while contributing to the economic, envi- host region, Sakhalin. initiatives aimed at the development of the region requirements, Sakhalin Energy conducts continu- (funds for this activity are allocated by shareholders), ous internal monitoring and a triennial independent as well as the involvement of company employees external evaluation of its social investment projects. in corporate social programmes, the development The results of the evaluation conducted in 2019 show Key social investment programmes and projects of charity and volunteer activities in the region, and the effectiveness of social investments and their participation of the company in discussing issues that significance for the region. Respondents note that the are vital to the territory where it operates. company’s social programmes “are aimed at solving important problems”, “supplement rather than dupli- Over the years that it has been developing the Social cate the budget programmes”, “make it possible to sup- Investment Programme, Sakhalin Energy has built its port people’s initiatives and involve them in resolving own model for managing external social programmes, important issues”, “are long-term, that is, designed which is based on the company’s policies and the for an extensive period into the future, and aimed best international charity practices. Not only does the to address current issues”, “the company does not just Development of Сharity Safety is Important! Sakhalin Indigenous Korsakov Sustainable Energy Social Initiatives Initiatives and Volunteering company seek to adapt and use the best international Minorities Developmen Plan Development Partnership Fund give out resources, but invests in obtaining social out- of the Company’s Employees Council practices, but it has become an example of corporate comes”, “does not just give out money, but stimulates philanthropy. the professional development of the social sector”.

9.5.2. COVID-19 SOCIAL INVESTMENT PROGRAMME Volunteering and Safety Preservation of the Sakhalin 75th Anniversary of the Projects for Supply Digital Transformation Development at the Indigenous Minorities Victory Projects of Medical Equipment of Educational and Social Mountain Air Sports Languages and Culture Services Competition In 2020, the world faced the COVID-19 pandemic. For this purpose, the effective period of the grant was The resulting restrictions produced an impact on all extended as necessary, the project plan and formats aspects of social, economic and cultural life. It was of events were changed, and changes in the bud- a period of uncertainty and challenges not only for get were agreed upon. The company prepared a list individuals, but also for businesses. of useful links with information on available training The company is focused on implementing strategic partners, and members of non-governmental organi- resources, which allowed company partners and grant long-term partnership projects with the engage- sations in the territory where the company operates. Sakhalin Energy made significant efforts to mitigate the receivers to develop their knowledge and increase ment of external stakeholders, company and partner impact of the coronavirus pandemic within the host their potential. In addition, Sakhalin Energy assessed resources, and on using various tools and tech- Striving to achieve lasting social changes in the region. The company did not suspend any of its charity demands through the monitoring of mass media, niques to implement social programmes, including region, the company is implementing a number programmes. Sakhalin Energy ensured the most com- consultations with regional government departments competitive funding distribution. Governing bodies of projects within priority areas defined through pub- fortable conditions for its grantees so that all current (the Ministry of Healthcare, the Ministry of Edu- and expert councils have been established to make lic consultations. These are: grant projects financed by the company under existing cation, and the Ministry of Social Protection) and decisions under key programmes. These are collegial ― environmental protection and biodiversity programmes (the Energy Social Initiatives Fund, the an analysis of opportunities and sources of support. coordinating and advisory bodies that involve the conservation; Korsakov Sustainable Development Partnership Coun- As a result, the company identified key demands and company’s representatives, government authorities, ― safety; cil, and others) would be successfully realised. potential areas for support, and then developed three 234 235 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

key initiatives, which were eventually implemented The total amount of funds allocated for the project under the COVID-19 Social Investment Programme, was about 34 mln roubles. namely: ― the Prevention and Treatment project: supply Digital Transformation of Educational and Social of equipment and consumables to healthcare Services Competition institutions; ― the Digital Transformation of Educational and In 2020, Sakhalin Energy announced a new special Social Services grants competition; grants competition — Digital Transformation of Edu- ― the Help Children Get Ready for School cational and Social Services — in order to mitigate corporate charity campaign to support the adverse effects of the coronavirus pandemic and disadvantaged children. develop innovation in the activities of non-profit organisations. The competition was held within the Prevention and Treatment Project framework of the Energy Social Initiatives Fund and was aimed at introducing online formats into the In the challenging epidemiological situation, when activities of educational and social support organisa- the load on the medical institutions in the region had tions, as well as at mitigating the adverse effects of the increased significantly, the company initiated, as part pandemic. Both public and budget-funded institutions of its cooperation with the Ministry of Healthcare could participate in the competition. A competition of the Sakhalin Oblast, the Prevention and Treatment committee was set up to evaluate the bids. It con- ― Digital Boundaries of Education. According a wide range of topics in physics, mathematics, project — a comprehensive programme aimed at pro- sisted of employees of the Sakhalin Oblast Ministries to the initiative, a platform will be created Russian, literature, social science, foreign viding support to the healthcare sector of the island. of Education, Social Protection, Information and Tech- on Sakhalin for the online and offline imple- languages and tourism. The topics will be chosen nology Development, as well as independent experts mentation of educational programmes and based on an online survey. The lecturers will At the request of Sakhalin Energy, the compa- representing non-profit organisations and employ- project activities. To achieve this goal, the be given by the professors of the university and ny’s shareholders agreed to allocate funds for the ees of different units of the company, including the Regional Centre for Education Quality Assess- representatives of its partners. purchase of specialised equipment for medical Information Technology and Information Management ment intends to train teachers to use the Trello institutions. The list of equipment was compiled Department and the Intellectual Property Section. platform. Trello helps project teams to work The Help Children Get Ready for School Corporate by representatives of the Sakhalin Oblast Ministry The winners, determined on a competitive basis, collaboratively and organise information from Charity Campaign of Healthcare. Five healthcare institutions (Sakhalin received up to 600 thousand roubles to implement any location. Regional Hospital, Yuzhno-Sakhalinsk Municipal their project ideas. The competition was held for four ― Education without Borders. A distance learning The Help Children Get Ready for School special Hospital, Korsakov and Nogliki District Hospitals, months, and the winners were determined on a monthly system with various educational programmes charity campaign was organised by Sakhalin Energy and Diagnostic and Treatment Centre) received basis. From June to October, 25 bids were received. will be created in the village of Solovyovka to provide assistance to disadvantaged children, equipment and materials for preventing the spread 12 projects were approved for financing. They include: to streamline the online learning process for including those from families affected by the corona- of infection, protecting people’s health and delivering ― Theatre. Home Reading. The Sakhalin Pup- students regardless of their location. This virus pandemic. quality care to COVID-19 patients. The equipment pet Theatre team intends to create a series will require a special network infrastructure and materials donated include oxygen concentrators, of videos based on works of literature for to be created in the village school with a high- The campaign was part of the Hurry Up for Good a thermal cycler and test systems for it, an oxygen 5th–7th form students. The goal of the project speed internet connection and additional work- Deeds programme, designed to support charity inhalation station, air recirculators, consumables for is to teach children to reason, develop their stations for teachers. This initiative will enable initiatives of company employees and develop respiratory and infusion therapy, and so on. There- imagination and creative skills, and also their online classes, including Financial Awareness corporate volunteering. The beneficiaries of the rd th fore, all necessary conditions were created in those ability to empathise with the characters of lit- lessons for 3 –4 form students in other re- project were 207 schoolchildren from four districts hospitals to deliver timely and efficient medical care. erary works. mote villages. of the Sakhalin Oblast — the Nogliki, Poronaysk and ― Now I Know! The academic online education Korsakov Districts, and Yuzhno-Sakhalinsk. These project initiated by Sakhalin State University will are the municipalities where Sakhalin Energy has its be its first Massive Online Open Course project. key production facilities. The total cost of all school The university staff will create an open access supplies collected by company employees was more series of interactive video lectures, covering than 636 thousand roubles. 236 237 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

9.5.3. ENERGY SOCIAL INITIATIVES FUND teers of the group working in the south of the island. Further work was carried out to create Along with special charity projects aimed at mitigat- the confidence of active citizens and organisations a grey whale entanglement response team ing the adverse effects of the COVID-19 pandemic, in their ability to make a difference. When selecting in northern Sakhalin. The permanent group the company continued the implementation of its key projects, the company was traditionally guided by the of volunteers consists of 15 people. charity programmes. principles of openness and transparency. The Expert ― Oh, on the Spinning Wheel I Spun! The partic- Council, consisting of representatives of the company, ipants of the Patchwork Island quilt studio cre- The Energy Social Initiatives Fund is one of Sakhalin NGOs and government authorities, evaluates pro- ated textile panels based on Russian spinning Energy’s charity programmes demonstrating the com- posals and selects the winning projects. Information patterns. In their work, 13 craftswomen used the pany’s integrated and consistent approach to social on the terms and conditions for participation in the appliqué technique. An exhibition of the textile transformation in the host region, and its commit- competitions, as well as the selection criteria is avail- works of art was held at the Sakhalin Regional ment to addressing topical issues of local communi- able on the website of the Energy Social Initiatives Art Museum. ties. Launched in 2003, the grant programme allows Fund (www.fondenergy.ru). ― So How Old Are You, Okha? A series of local the company to support the most interesting and history events were held in the city library effective solutions to community problems proposed Financing is provided for projects in several focal of Okha. They were dedicated to the study by local non-profit organisations and institutions. areas, including education, environmental protection, of various historical materials, the purpose Targeted efforts can make a substantial contribution art, culture, social support, sports, and promoting of which was to find out when exactly Okha was to the handling of issues which are small in scale, a healthy lifestyle. founded. Previously, this issue had caused much but relevant for certain target groups, and boost controversy among historians. ― From Tourism to a Safe Life. Under the project, demonstrations and training seminars on applied In 2020, financial support was granted to 40 projects, tourism, safety in nature and first aid were held Since 2003, more than 335 non-profit organisations and social institutions in 66 settle- including: in the schools of the Dolinsk District. The project ments across Sakhalin have received financial support as part of the Energy Social Initia- ― Sakhalin: Man and the Sea (North). In 2020, activities culminated in applied tourism compe- classroom and practical training continued for tives Fund. In total, 680 projects have been implemented in the years of the programme. titions among Dolinsk District students, which volunteers of the marine mammals rescue group included a Water Area Rescue Operations stage. in the north of Sakhalin as well as for the volun-

Number of Projects That Received Funding in 2003–2020 (by District)

9.5.4. SAFETY IS IMPORTANT PROGRAMME Okha

Aniva Safety is one of Sakhalin Energy’s top priorities. All-Russian Voluntary Fire Organisation, the Ros- Tomari Nogliki Dolinsk Dolinsk Nevelsk Makarov Tymovsk Kholmsk

Korsakov In 2005, the company initiated the Safety Is Import- soyuzspas Sakhalin Regional Public Organisation, Smirnykh Uglegorsk Poronaysk ant Programme, and has been implementing it in part- the Regional Extracurricular Educational Centre, and nership with the Sakhalin Oblast Chief Directorate others. The Sakhalin Regional Branch of the School of the Emercom and the Sakhalin Oblast Ministry of Safety All-Russian Children and Youth Public Yuzhno-Sakhalinsk of Education ever since. Movement, launched in 2019, also joined in the programme and became an active participant. Alexandrovsk-Sakhalinsky Projects under the programme are implemented with the participation of public organisations and The programme is developing in several key areas,

69 state institutions such as the Sakhalin Search and one of which is the creation of educational cartoons Rescue Team named for V. A. Polyakov, the Depart- about safe behaviour in various situations. Senya, the 53 ment of the State Road Safety Inspectorate of the main character of the cartoons and a constant partic-

250 44 41 31 34 31 26 27 20 20 13 11 10 Ministry of Internal Affairs of the Russian Federation ipant in all programme events, is the symbol of the for the Sakhalin Oblast, the Sakhalin Branch of the programme. Comic books are published based on the 238 239 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

9.5.5. HURRY UP FOR GOOD DEEDS PROGRAMME (SUPPORT FOR CHARITY INITIATIVES OF EMPLOYEES)

Corporate volunteering is one of the forms of corpo- to support disadvantaged children, including those rate social responsibility fulfilment, which expands from families which were affected by the coronavirus the scope and range of the company’s charity pandemic (see Section 9.5.2. COVID-19 Social Invest- programmes. Sakhalin Energy creates favourable ment Programme). conditions for charitable activities and supports volunteer initiatives, thereby uniting its employees and In 2020, the Sakhalin Oblast art schools, whose strengthening the corporate culture. students include children with disabilities, received new equipment. It had been purchased with the funds The programme was launched in 2003 as a grant com- raised during a charity event dedicated to Sakhalin petition to support employees’ charitable initiatives, Energy’s anniversary. According to the rules of the and has undergone a number of changes since. Hurry Up for Good Deeds programme, the company cartoons which are then distributed among Sakhalin The coronavirus pandemic caused changes in the matched the amount donated by its employees. children. The collection of educational videos totals formats and schedules of several events and cam- The programme currently offers various volunteering As a result, more than 3 mln roubles were raised 40 episodes, each of which is devoted to a relevant paigns held as part of the programme. In 2020, the options: to support the development of the island’s nine art topic in the field of safety. traditional annual regional Safety Day was replaced ― participate as a volunteer in preparing and hold- schools. The schools are located in the Smirnykh, by the Safety Is Important! online quiz. The quiz ing corporate campaigns designed to raise funds Tymovsk, Poronaysk, Makarov, Dolinsk, and Kholmsk In 2020, practical safety lessons with Senya were covered all key safety topics, including first-aid skills, for social institutions selected by employees Districts, as well as in Yuzhno-Sakhalinsk. The list held in six districts of the Sakhalin Oblast. They the best course of actions in the face of a natural during a survey via the Intranet; of required supplies had been compiled by the teach- were organised with the participation of the Sakhalin disaster, including fires, safe behaviour in the forest, ― participate in Volunteer Days — Voluntary Com- ers of the art schools. It included about 50 items. Branch of the School of Safety All-Russian Children in the water, in everyday life, in transport, and on the munity Work Days; and Youth Public Movement. The safety lessons Internet. 150 sixth-form students from 15 districts ― initiate and implement their own charity proj- On New Year’s Eve, company employees acted were conducted in the form of a game, which made of Sakhalin took part in the quiz. They also had the ects with the participation of colleagues; as winter magicians — for the 13th time already — it easy for 5th form students to learn the rules of safe privilege of being the first viewers of Senya’s new ― provide professional assistance (pro bono) for 109 disadvantaged children and children with behaviour. The children were assisted by a group cartoon about the use of fire detectors. The winners on their own initiative, or participate disabilities. These included boys and girls attend- of experts from the State Inspection of Small-Sized of the quiz were awarded with prizes. in company projects aimed at developing the ing three social rehabilitation centres and patients Vessels, the Fire and Rescue Squad of the Chief potential of the company’s charity programmes of the Preodoleniye Rehabilitation Centre for chil- Directorate of the Emercom of Russia for the Sakha- Senya, the main character of the programme, took participants (NGOs and state-funded dren and adolescents with disabilities. lin Oblast, Rossoyuzspas, the All-Russian Student an active part in all events held at the Mountain Air institutions). Rescue Corps, and representatives of Sakhalin State Sports and Tourist Complex throughout the ski sea- Sakhalin Energy employees use their professional University. Similar lessons will continue in 2021. son. The opening of the 2020/2021 season was also The various participation formats make it possible knowledge and skills to contribute to the develop- held with his participation. attract those who are ready to act as initiators and ment of partner organisations. In 2020, specialists The year 2020 was an anniversary year for the Safety organisers and involve them in volunteering, as well from the Intellectual Property Section delivered is Important programme. In May, the Happy Birthday, Creating and distributing various educational materi- as those who are willing to join them during a charity a lecture on copyright and related rights for non- Senya! regional birthday greetings art contest was als by programme partners and participants, holding event. According to the evaluation of the social pro- profit institutions and organisations. Employees of the announced as part of the celebration. In five months, activities for different target groups improves the grammes, almost 30% of the company’s employees company also lectured students and schoolchildren 134 entries were submitted by contest participants from quality of teaching Life Safety to schoolchildren and participate in the programme. Employees can also on topics related to oil and gas business, developed 10 districts of the Sakhalin Oblast. The winners were develops a culture of safe behaviour. invite members of their families, including children, career guidance games, worked as members of exam- selected in five categories: Best Postcard, Best Poster, to join in the charity activities under the programme. ination boards at local universities, and participated Best Video Greeting, Best Birthday Poem and Best Information about the programme, as well as its in the implementation of the Pristine Russia: Bound Song. Birthday greetings were accepted for the contest materials are available on the website In summer 2020, the Help Children Get Ready for for Sakhalin cultural and educational project. without any age restrictions. The jury, comprised of pro- (www.senya-spasatel.ru) and on Instagram. School corporate charity campaign was organised fessional writers, artists, philologists and documentary (senya_spasatel) film makers, selected 43 award and diploma winners. 240 241 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

9.5.6. KORSAKOV SUSTAINABLE DEVELOPMENT 9.5.7. SAKHALIN INDIGENOUS MINORITIES PARTNERSHIP COUNCIL DEVELOPMENT PLAN

The Social Investment and Sustainable Development In 2019, an expert council was created to work within Programme implemented in the Korsakov Municipal the framework of the Programme. Its members — rep- District of the Sakhalin Oblast was initiated by Sakha- resentatives of the community and Sakhalin Energy — 9.5.7.1. General lin Energy in 2003. As part of this programme, the evaluate projects submitted for the competition The Sakhalin Indigenous Minorities Development residence proved to be correct and effective, since company renders financial assistance to social according to specially set criteria. The final decision Plan (hereinafter referred to as SIMDP or the Plan) it allowed for an increased number of participants, projects. In February 2019, Sakhalin Energy and the on project financing is made by the members of the is a partnership programme that has been jointly expansion of the scope of the topics discussed administration of the Korsakov Municipal District Korsakov Sustainable Development Partnership implemented by Sakhalin Energy, the Regional from social design issues to the prospects for of the Sakhalin Oblast signed a cooperation agree- Council, taking into account the preliminary rating Council of Authorised Representatives of the Sakha- the development of SIM settlements, identifying ment to implement the new phase (2019–2021) of the of the project, determined as the sum of the points lin Indigenous Minorities (SIM), and the Sakhalin urgent problems, and discussing options to solve Sakhalin Energy Sustainable Development and Social assigned by the competition experts. In addition Oblast Government since 2006. The programme has them. The workshops were attended by more than Investment Programme in the municipal district. to being a stakeholder engagement tool and an inde- been divided into five-year phases, with the period 120 people in 10 settlements of the region — Alek- pendent structure to review projects for social invest- of 2016–2020 being SIMDP 3. sandrovsk-Sakhalinsky, Okha, Poronaysk and Yuzh- The programme is managed by the Korsakov Sustain- ments, the Korsakov Partnership Council also plays no-Sakhalinsk, Smirnykh and Nogliki, Val, Viakhtu, able Development Partnership Council. The Council a role in monitoring the population’s social activity Every year, consultations are held as part of the Plan Nekrasovka and Chir-Unvd. consists of nine members, three representatives of each in the district. in all areas of SIM traditional residence. In 2020, party: Sakhalin Energy, the government authorities, and 14 public meetings, attended by 200 people, were In 2020, the final assessment of SIMDP 3 was the community of the Korsakov Municipal District. The project selection competition for the Korsakov held in 12 communities. The main objectives of the conducted, which included analysing the fulfilment Sustainable Development Partnership Council has consultations were to inform the public about the of tasks and the implementation of the Plan’s proj- existed since 2004. In 2020, the Council supported results of the 2019 Plan and the tender programmes ects and programmes; recommendations for the eight projects proposed by local non-profit organ- for 2020, as well as to discuss issues related to the development of SIMDP 4 (2021–2025) were also isations and state-funded institutions. In partic- development of SIMDP 4, including a question- prepared. The final assessment group included ular, the Active Longevity project initiated by the naire-based public opinion survey. Gregory Guldin, an international expert and Presi- Flagman sports school in the Korsakov city district dent of Cross-Cultural Consulting Services, Gulvaya aims at engaging as many elderly people as possible Decisions on the allocation of funds under SIMDP Kutsenko, a representative of Indigenous Peoples in playing table tennis. Free strength fitness train- are made by programme committees that consist of the Russian Federation and President of Interre- ing was organised for adolescents, including those exclusively of SIM representatives, specially elected gional NGO Lyioravetlyan Informational and Educa- in difficult life situations, under the Healthy Gener- at meetings in the districts. The programme commit- tional Network of Indigenous Peoples, and Alexander ation project implemented by the Sakhalin Oblast tees are supported in their work by Expert Groups Konkov, Chair of the Sociology Department at Sakha- Powerlifting Sports Federation, a regional public and District Committees. In 2020, all meetings of the lin State University. organisation. The School for Junior Assistants, a proj- SIMDP programme committees and coordinating ect of Romashka Kindergarten No. 3 in Korsakov, was bodies were held online in order to prevent the Due to the coronavirus pandemic restrictions, online, another initiative that was supported by the Korsakov spread of COVID-19 infection. video- and audio- monitoring meetings were organ- Partnership Council and financed by Sakhalin Energy ised for assessment participants. For this purpose, in 2020. The main idea of the project is to provide In March, experts from the Resource Centre for company specialists prepared all necessary resources, opportunities for preschoolers of the senior and pre- National Relations Autonomous Non-Profit Organ- including equipment and software. The monitoring paratory groups to be assistants (tutors) for children isation held training events in all districts of SIM was conducted in 10 settlements of traditional SIM with disabilities, attending the same kindergarten, traditional residence dedicated to social design. residence; 79 meetings were held with 89 partici- after a series of classroom and practical lessons with They included master classes on Successful Project pants in the SIMDP programmes. the use of modern didactic equipment. Technology, discussions of social design basics and a workshop on filling in applications. The decision The final programme assessment report is available Materials on the activities of the Council are available to hold these events directly in the areas of SIM on the Plan’s website at www.simdp.ru. on the website www.korsakovsovet.ru. 242 243 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

SIMDP 4: PREPARATION 9.5.7.2. Traditional Economic In early 2020, the final year of SIMDP 3, a Working Group was formed to develop Activities Support Programme of SIMDP 4 for 2021–2025. The Working Group includes representatives of the Regional SIMDP Council of Authorised SIM Representatives, the Sakhalin Oblast Government, Sakhalin The funds of the Traditional Economic Activities Sup- Energy, a SIM Representative to the Sakhalin Oblast Duma, a representative of the port Programme were distributed among its constitu- Sakhalin Oblast Public Chamber, a representative of the Federal Agency for Ethnic ent elements: business planning, self-sufficiency, and Affairs of Russia (FAEA), a representative of the Russian Association of Indigenous capacity building. Peoples of the North, Siberia and Far East (RAIPON), and an external expert. The main goal of the Working Group is to jointly prepare consultations with the indigenous In 2020, the Programme Committee approved 40 projects aimed at supporting clan and family population of the Sakhalin Oblast, respond to the concerns and wishes of SIM enterprises, communities and other associations representatives regarding the new SIMDP, and to draft the document. Like previous of the Sakhalin Indigenous Minorities. The funds allo- SIMDPs, the new Plan is based on international standards pertaining to indigenous cated under the programme were used to purchase peoples, and is implemented in strict compliance therewith. fishing net and tackle materials, vehicles, consumables, certain types of household appliances neces- To ensure that the views of the SIM are taken into account in the new sary for traditional economic activities and improving Plan, the first round of consultations was held in 12 settlements across all SIM the living conditions of SIM population. districts. The objectives of the meetings with community representatives were to collect relevant suggestions and determine priorities in the development of the SIMDP 4 governing structure and programmes. In addition, an opinion survey was conducted from 10 February through 9.5.7.3. Social Development Fund Programme of SIMDP 31 July 2020, with 117 respondents taking part. The Working Group analysed the results of the first round of consultations as well as the survey and came up with suggestions The funds of the Social Development Fund were nous Minorities. As part of the educational projects, that will be discussed with the population and stakeholders during the second round distributed among its constituent elements: Educa- 48 students of secondary vocational and higher edu- tion, Healthcare, SIM Capacity Building, Culture, and cation institutions received financial support, and two of consultations in all SIM districts. Further measures to be implemented as part of the Sports. In 2020, funding was granted to 24 projects. people were provided with aid for medical reasons. SIMDP 4 preparation have been postponed until the epidemic situation improves. The Social Development Fund’s projects were imple- Information on the preparation of SIMDP 4 is available on the programme mented in partnership with the Poronaysk District Detailed information on the implemented projects website (www.simdp.ru). Local Public Organisation of the Sakhalin Indige- is available on the SIMDP website (www.simdp.ru).

In September 2020, with the support of Sakhalin Energy, the Sakhalin Regional Folk Arts and Crafts Centre organised a leadership development workshop for the leaders and participants of folk ensembles of the region. The workshop ended with a theatrical performance titled “As Long as Earth and Water Remain in Endless Time”. The performance was preceded by a week of intensive classes and rehearsals with the participation of the leading experts of the region. The eventful programme covered three key areas: the basics of acting and stage speech, the theory and practice of playing national musical instruments, and the art of national northern dance. 244 245 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

be taken to other areas of Sakhalin — the Korsakov, to workshops, where they had a unique opportunity In addition to the above activities, Sakhalin Energy Nevelsky and Kholmsk Districts. to try on military uniforms. The Meeting Place Is the acted as a partner of the White Dove military history Dance Floor event ended with an open-air showing festival and the Lest There Be a War literary and The Heart Remembers exhibition project of A Second for a Heroic Deed — a war film from the art contest, organised by the Pobeda Museum and collection of Mosfilm. Memorial Complex. The exhibition featured more than 70 exhibits from the collections of the Far Eastern Art Museum (Khabarovsk). Visitors had an opportunity to admire paintings, sculptures, works of arts and crafts, original and printed graphics, created by Russian artists during 9.5.9. FESTIVAL — PRISTINE RUSSIA: BOUND FOR SAKHALIN the Great Patriotic War, as well as in the second half Environmental protection is an integral part of the The first multidisciplinary nature festival on the island of the 20th century. The exhibition was open to the corporate culture and social responsibility policy was organised by Sakhalin Energy, the Pristine Russia public in Yuzhno-Sakhalinsk from March to July. Then at Sakhalin Energy. Projects aimed at involving the All-Russian Nature Festival Organising Committee, it was transformed into two travelling exhibitions: general public in the environmental agenda play and the Literary and Art Museum of Chekhov’s Book The Heart Remembers. Oath; and The Heart Remem- an important role in achieving this goal. The Pristine Sakhalin Island with the support of the Ministry bers. Let Us All Defend Our Motherland!, which were Russia: Bound for Sakhalin nature festival, initiated of Culture and Archives of the Sakhalin Oblast. open in four Sakhalin museums in Nevelsk, Kholmsk, by Gazprom, a Sakhalin Energy shareholder, as part Korsakov and Poronaysk throughout the summer. of the Pristine Russia All-Russian Nature Festival, The key objective of the festival was to remind In Yuzhno-Sakhalinsk alone, the exhibition was vis- proved to be an excellent platform for the interaction people about the beauty of nature and bring their ited by 2.4 thousand people. In addition, online tours of stakeholders in the area of pristine nature preser- attention to the issue of its preservation, which of the exhibition were also available. vation — from environmental scientists to residents is especially relevant for Sakhalin Island as a treasury and guests of the region. of unique flora and fauna. The exhibition was divided 9.5.8. 75TH ANNIVERSARY The Victory Spring project OF THE VICTORY PROJECT The Victory Spring project was implemented in partnership with the Sakhalin Oblast Association In 2020, the company supported a number of projects of Museums and the Sakhalin Regional Art Museum. dedicated to the anniversary of the Victory in the The latter was the venue for most project activities, Great Patriotic War. These projects included the which included issue-related events that combined following: different kinds of art — music, dance, song, poetry, cinema, visual and decorative arts. All events were The Women at War exhibition dedicated to one general topic: the culture and art of the war and post-war times. The project activities The main topic of the exhibition was the role included workshops for different age groups and of women in the life of the country during the war categories of the public. and in post-war years, the contribution of women to the Victory and the restoration of the Mother- Due to the COVID-19 restrictions, some of the events land after the war. The exhibition was opened at the were held online. Sakhalin Regional Art Museum, which presented various exhibits from its collections, such as paint- The culmination of the Victory Spring was the ings, works of graphic art and sculptures by famous Meeting Place Is the Dance Floor festive event, which Soviet and Russian artists. The exhibition in Yuzh- was held outdoors near the Sakhalin Regional Art no-Sakhalinsk was visited by more than 2 thousand Museum. The organisers did their best to create the people. Due to restrictions caused by the corona- atmosphere of the victorious May of 1945. There was virus pandemic, the exhibition went online, on the a military brass band playing music for residents and museum’s social media accounts. In autumn 2020, guests of the city, the Fierce August of 1945 book the exhibition was also presented in the Nogliki exhibition, and an exhibition dedicated to World and Poronaysk Districts. In 2021, the exhibition will War II. Young guests of the event were invited 246 247 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT SOCIAL IMPACT MANAGEMENT REPORT 2020

after the pilot phase of the project launched in late activities. The company’s HSE specialists held work- 2017 and is aimed at the development of volunteering. shops devoted to safety culture issues. Due to the coronavirus pandemic, the 2019–2020 season was The company provided financial support to the closed ahead of schedule. In autumn 2020, a new sports complex to equip the volunteer team, a special team of volunteers was formed, which included about training programme for volunteers, as well as guid- 150 people. The volunteers took an active part in the ance and organisational assistance. Sakhalin Energy opening of the 2020–2021 ski season, all public specialists helped volunteers, most of whom were events and competitions held at Mountain Air, and high school students, to prepare and conduct special also provided information support to its visitors.

9.5.10.2. #IVOLUNTEER Media Project

Sakhalin Energy continued its partnership with the supported by Sakhalin Energy. One of the documen- Third Sector Social Cinema Laboratory. In 2020, the taries is dedicated to the Free Musicians movement, film #IVOLUNTEER. At the Edge of the World was which regularly donates all proceeds from its perfor- included in the programme of the Edge of the World mances to charity. Another documentary film tells the into two sections by topic. The first one was a selec- contests, performances, artistic meetings, a festive Sakhalin International Film Festival. story of children who attend the VAF cartoon studio tion of photographs of rare animals and protected procession and a photo cross-country race. A number in the village of Dachnoye (VAF stands for a phrase areas throughout Russia, taken by the country’s best of cultural institutions as well as Sakhalin artists The new documentary series contains five stories in Russian that can be translated as ‘the art of making nature and wildlife photographers. The second one and musicians joined in the implementation of the featuring Sakhalin, two of which are about projects animations using a still camera’). was a display of the works of Sakhalin photographers project. The partners of the festival numbered more and 13 Sakhalin Energy employees, which showed the than 20 organisations and 50 enthusiasts from Yuzh- unique nature and biodiversity of the Sakhalin Oblast. no-Sakhalinsk, Poronaysk, Vladivostok and Moscow. More than 100 festival events were attended by over The festival’s programme included guided tours, 4 thousand people. 9.5.10.3. Social Project Manager School: Capacity Development lectures, master classes, film screenings, quizzes, of Non-Profit Organisations

In developing grantees and partners within the on accounting and financial accounting in NPOs, and framework of various social programmes, Sakhalin working with volunteers. Energy by no means limits its support to the provision of grants. Organising and conducting seminars In early 2020, seminars on the development of social 9.5.10. SPECIAL PROJECTS FOR CAPACITY BUILDING OF THE on topics relevant to non-profit organisations and projects and preparation of grant applications were SAKHALIN OBLAST NON-PROFIT SECTOR AND DEVELOPING institutions is one of the areas of activities imple- held in nine settlements of the Sakhalin Oblast. They mented for this purpose. The Garant Centre of Social were attended by more than 160 people. Accord- VOLUNTEERING IN THE REGION Technologies — a charity organisation in Arkhangelsk, ing to the results of the 2019 external assessment which engages representatives of leading Russian of social programmes, the seminars were organised NPOs in conducting training and development using a differentiated approach: short-term informa- 9.5.10.1. Project – My Contribution to the Development of the Island events, is the company’s partner in these endeav- tion seminars were held for a wide range of partici- ours. pants and advanced practical workshops — for organ- During the Eastern Economic Forum held in Sep- Complex project. The document provides for cooper- isations that were considered as potential managers tember 2018, Sakhalin Energy and the Sakhalin ation in the development and support of the My Con- As part of the project, seminars were held on top- of targeted and partner projects. The project par- Oblast Government signed a Memorandum of Intent, tribution to the Development of the Island volunteer ics such as evaluation of projects and programmes, ticipants, as well as representatives of all NPOs and which serves as a basis for partnership in the field movement and the improvement of safety culture informational support of projects, social advertising state-funded institutions had access to the Entertain- of socio-economic development of the region within at the Mountain Air Sports and Tourism Complex. and information campaigns, organisation and con- ing Project Management series of books, which had the framework of the Mountain Air Sports and Tourist The Memorandum was signed to continue cooperation duct of interesting and notable events, useful tips been updated with a new book on team management. 248 249 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

THE COMPANY’S PLANS FOR 2020. DEVELOPMENT 10STRATEGY UP TO 2024

The company’s development in 2021 and subsequent years will be based on a growth strategy. In particular, Sakhalin Energy will pursue activities in the following key areas: ― develop its mineral resource base; ― achieve high production efficiency; ― assure good corporate governance. 250 251 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT THE COMPANY’S PLANS FOR 2020. REPORT 2020 DEVELOPMENT STRATEGY UP TO 2024

The company applies a systemic approach to HSE One of the priority areas for the development management to ensure compliance with the regu- of Sakhalin Energy in 2021 and subsequent years will latory and international requirements and promote be the implementation of the digital strategy (digital industry best practices. transformation) which includes: ― aligning the digital strategy with the growth Particular attention will be paid to: strategy, smooth-running operations, and effec- ― preventing the spread of coronavirus disease tive corporate governance; and providing effective medical aid in the event ― establishing solid processes for digital culture of infection with COVID-19, creating conditions and knowledge growth in the company; for maintaining good health, ensuring adequate ― aligning company’s strategies, in particular busi- sanitary and living conditions for personnel; ness divisions, digital, information management, ― further exploration of opportunities under the information technology and security strategies; Green LNG strategy (see Section 8.2.7. Green ― establishing the processes of screening, se- LNG Strategy). lection, planning, and further implementation of opportunities coming from digital technolo- In 2021, key performance indicators in this area gies; (progress towards SDGs 3, 6, 8, 12, 14, 15) include the ― establishing robust cybersecurity protection implementation of industrial environmental control, adequate for new digital era; environmental monitoring and biodiversity conserva- ― utilising the experience gained in 2020 tion programmes, the achievement of planned total in arranging for remote work to introduce recordable case frequency (no more than 0.7 inci- and improve new and efficient forms of the Sakhalin Energy will continue to strengthen its posi- ― work as one team, both within the company and dents per million man-hours) and total recordable company’s activities. tion in accordance with its mission and vision. jointly with customers, suppliers, contractors, occupational illness frequency (no more than 1 case and subcontractors; per million man-hours). To ensure the company’s leading position on the The company’s development in 2021 and subsequent ― demonstrate leadership and commitment hydrocarbons market, the strategy includes the fol- years will be based on a growth strategy. In particular, to HSE, and develop trusted relationships at all In 2021 and subsequent years, the main production lowing objectives: Sakhalin Energy will pursue activities in the following levels; activities will be related to (for more detail, see ― maintain the existing portfolio of LNG and key areas: ― inspire and support people to be proactive and Section 4.2): Sakhalin Blend oil buyers, seek opportunities ― develop its mineral resource base; open-minded, recognise personal examples ― enhancing safety and equipment reliability to increase competitive advantages and expand ― achieve high production efficiency; of effective intervention and responsibility; through proactive equipment condition moni- the customer portfolio; ― assure good corporate governance. ― sustain a culture of conscientious accountabili- toring and analytics; ― increase the company’s revenues through the ty and fairness; ― optimisation of oil extraction, LNG production, sale of oil and LNG at the best prices; The company’s priorities for the coming years are ― inspire and support the health, fitness, and operation of production assets; ― seize the opportunity to enter the market the same as before − health, safety and environment and well-being of our people for their ― increasing production and mining capacity; and be the first Russian oil and gas company (HSE), as well as Goal Zero commitments. productive life; ― development and implementation of key to ship carbon-neutral LNG using third-party ― ensure the HSE and industrial safety com- projects. carbon credits; develop a standard offer for As part of the HSE strategy, the company has adopted petence of people to support safe project the carbon-neutral LNG supply with a positive and included in the 2021–2025 plans the following implementation, contract execution, and asset A separate scope of work planned for 2021 results economic effect; main objectives: operation; from the inclusion of infrastructure expansion projects ― ensure the necessary conditions to provide ― work safely, not because we are forced to, but ― bring significant risks down to as low as rea- (terminals to transfer gas to the Russian party) in the customers with safe, environmentally friendly, because we want to; sonably practicable, following the principle inter-asset interaction and integrated production plan- reliable, and cost-effective LNG and oil trans- ― support development of leaders at all levels so of “Our assets are safe and we know it”; ning system, as well as from development of a plan portation services; that they will be able to make the right deci- ― focus on controls to save lives, prevent injuries, for gas supply to the new gas transfer terminals, taking ― ensure the transportation capabilities to sup- sions, particularly in challenging circumstances, and protect the environment; into account gas supplies to the LNG plant. port marketing; and to build safety and continuous improve- ― focus on transportation and worksite hazards ment culture; in major projects and operations. 252 253 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT THE COMPANY’S PLANS FOR 2020. REPORT 2020 DEVELOPMENT STRATEGY UP TO 2024

― explore and develop growth opportunities ― deliver an attractive and competitive employee in monetising Sakhalin hydrocarbon resources value proposition (EVP); via Sakhalin Energy. ― introduce digital HR technologies and deliver cost-effective HR processes based Sakhalin Energy plans to focus more on ethics issues on continuous improvement in the face and compliance with legal norms and requirements of the new reality; in terms of business integrity. In this area, the com- ― maintain our unique corporate culture and pany pursues the following strategic objectives: strengthen our image as an employer of choice. ― develop and improve the corporate culture by introducing a business ethics and compliance In 2021, key performance indicators in this area programme into the business strategy; (progress towards SDGs 4 and 8) include reaching ― enhance the company’s ethics and compliance the workforce targets (filling at least 95% of key culture in a way similar to the company’s safety positions), filling of existing vacancies with inter- culture; nal candidates (within a succession planning scope ― have members of the Committee of Executive of at least 87%), and achieving the planned indicator Directors and managers focused on promotion of personnel engagement (at least 80%). and enhancement of the organisational culture, values, and models of conduct by their taking Stakeholder engagement remains a critical com- responsibility for ethics and compliance ponent of Sakhalin Energy’s successful operations indicators. and corporate social responsibility (CSR). The key elements of the strategy are as follows: In 2021, key performance indicators in this area ― apply a systematic and structured approach (progress towards SDG 16) include introduction of the to open, regular, and constructive engage- ethics and compliance roadmap, update of target ment with stakeholders in relation to Sakha- specialised face-to-face training programmes (with lin-2 activities and growth projects; a 99% training completion rate), as well as devel- ― maintain the company’s good reputation with opment of a compliance monitoring programme for its employees; ipants who filled in the questionnaires), and resolving ― maintaining a dialogue with stakeholders aimed contractors. ― maintain effective communication across com- grievances within the established time frame (at least at the creation of a sustainable social basis for pany functions, particularly in the face of the 90% of the total number of resolved grievances). the company’s initiatives; As part of the HR management strategy implementa- new reality; ― improving social programmes efficiency by: tion, in 2021 and subsequent years, Sakhalin Energy ― use digital technologies and solutions to man- In its social investment and sustainable development ― involving stakeholders in the development will continue to: age the company’s reputation; programmes, in 2021 and subsequent years, Sakhalin and implementation of external social ― recruit and develop highly qualified specialists; ― make sure the company complies with the Energy will continue to give priority to partnerships programmes; ― create priority opportunities for the compre- established Russian and international standards with external stakeholders and to long-term social ― expanding collaboration with state author- hensive development of the potential of local governing corporate social responsibility and programmes. The company’s objectives in social ities, business partners, expert and public personnel including through cooperation with sustainable development. investments include: organisations when implementing social the higher and secondary vocational education ― developing new strategies aimed at supporting projects; institutions of Sakhalin Oblast; The plans for engaging the public for 2021 have the development and growth of the company ― replicating effective models of social ― meet the company’s manpower needs in key been included in the Public Consultation and and increasing the effectiveness of its contri- programmes in the region and at the federal roles with a focus on the internal skill pool Disclosure Plan (see the company’s website bution to solving regional problems, as well level; as well as shareholders’ resources and external www.sakhalinenergy.com). as reaching the UN Sustainable Development ― managing knowledge in the field of corpo- candidates; Goals, implementing Russian National Projects, rate social responsibility (CSR), developing ― implement the succession plan by investing In 2021, key performance indicators in this area and applying the Guiding Principles on Business the advanced training system to improve in professional training and development (progress towards SDGs 8 and 16) include ensuring and Human Rights; skills of employees engaged in social in- of Russian personnel capable of taking techni- satisfaction of public meeting participants (at a level ― identifying and supporting new partnership vestment programmes; cal authority and managerial roles; of at least 75% of the total number of meeting partic- initiatives and developing existing partnerships; ― ensuring high-level information transparency. 254 255 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT THE COMPANY’S PLANS FOR 2020. REPORT 2020 DEVELOPMENT STRATEGY UP TO 2024

In 2021, key performance indicators in this area Principles, Code of Conduct, Sustainable Develop- (progress towards SDGs 3, 4, 9, 11, 16, 17, and others) ment Policy, and corporate social responsibility stan- include development and implementation of social dards. Sakhalin Energy will make every effort to fur- investment strategies and engagement of employees ther improve its work and conduct its business on the VISION in various charitable and volunteer activities, initia- basis of efficient, reliable, and safe production, digital

tives, and projects (at least 30% of employees). transformation, and a responsible attitude towards MISSION social and environmental issues, thereby contributing Sakhalin Energy will continue to conduct its business to the implementation of the UN Sustainable Devel- GROWTH STRATEGY in compliance with the adopted General Business opment Goals and National Projects. Corporate Governance

Grow Operational VISION AND MISSION Resources Base Excellence

Our people, whilst living our core values and delivering our targets, drive the company strategy to achieve our mission and vision. GOAL/TARGET Production and Development

VISION Ethics and Compliance Digital Transformation Health, Safety, TO BE THE PREMIER ENERGY SOURCE FOR ASIA-PACIFIC. Environmental Continuous and Security Improvement and Value Reliability and Integrity Growth Strategy MISSION Status and Reputation of the Company Commercial Value Delivery SAKHALIN ENERGY IS COMMITTED TO BEING A PREMIER ENERGY SUPPLIER IN THE GLOBAL MARKET. WE CONDUCT OUR BUSINESS IN AN ETHICALLY, SOCIALLY, AND ENVIRONMENTALLY CORE VALUES RESPONSIBLE MANNER. Honesty Respect and Care Professionalism Continuous Improvement and Integrity for People and Individual and Teamwork Accountability

PEOPLE — THE FOUNDATION OF OUR BUSINESS 256 257 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT ABOUT THE REPORT REPORT 2020

11APPENDIX 258 259 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

APPENDIX 1 UN Sustainable GRI index GRI disclosure Report section and/or comments or Page in the Development references to other sources Report Goals

Externally developed economic, 3 environmental and social charters, GRI Standards Compliance Table 102-12 Performance Standards 31-32 6-8 principles, or other initiatives to which the 11-16 For explanation of the material topics and their boundaries, see Section 2. Defining Material and Priority Topics organisation subscribes or which it endorses

to Be Included in the Report. Performance Standards International and Regional Cooperation In November 2009, the company joined the UN Global Compact. General Standard Disclosures In 2020, the company is a member of: Global Compact LEAD; International Business Congress (IBC); UN Sustainable Report section and/or comments or Page in the Russian Union of Industrialists and GRI index GRI disclosure references to other sources Report Development Goals Entrepreneurs (RUIE); Memberships of associations (such Donors Forum; 31-32 102-13 as industry associations) and national or 1. ORGANISATIONAL PROFILE Association of Managers; 122-125 international advocacy organisations Association of organisations performing 102-1 Name of the organisation About the Company 50 engineering surveys in the gas and oil industry Engineer-Surveyor; 102-2 Primary brands, products, and services About the Company 64-70 Self-regulatory organisation Interregional Association of Builders; http://www.sakhalinenergy.ru/ru/contactus. Self-regulatory organisation Association 102-3 Location of organisation’s headquarters asp of organisations performing design work in the gas and oil industry Design Engineer; Number of countries where the organisation Society of Petroleum Engineers SPE operates, and the names of countries where 50 102-4 About the Company it has significant operations and/or that are 64-70 2. STRATEGY relevant to the topics covered in the Report. Message from the Chairman of the Statement from the most senior decision- 102-5 Nature of ownership and legal form Corporate Governance 87-88 102-14 Committee of Executive Directors and the 7-9 maker of the organisation Chief Executive Officer 102-6 Markets where the organisation operates About the Company 64-70 Message from the Chairman of the About the Company 50-51 Committee of Executive Directors and the 7-9 102-7 Scale of the organisation Economic Impact Management 128-129 Chief Executive Officer 92-95 Personnel: Management and Development 179 Risk Management System 42-47 Description of key impacts, risks, and HSE and Social Performance Management 102-15 128-131 1-16 Total number of employees by employment opportunities Economic Impact Management 142-173 102-8 type, gender, employment contract and General Information 128 8 Environmental Impact Management 176-247 region Social Impact Management 250-255 2021 Plans and Development Strategy up 8 to 2025 102-9 Organisation’s supply chain Supply Chain Management 138-139 12 3. ETHICS AND INTEGRITY Significant changes during the reporting 102-10 period regarding the organisation’s size, No significant changes in 2020 Organisation’s values, principles, standards Corporate Social Responsibility and 28-36 structure, ownership, or its supply chain 102-16 and norms of behaviour such as codes Sustainable Development 16 93-101 of conduct and codes of ethics Corporate Governance Sakhalin Energy’s CSR System 29-30 Explanation of whether and how the 3 Sustainable Development Policy 33 Internal and external mechanisms for Corporate Governance System and Structure 102-11 precautionary approach or principle 6-8 Risk Management System 92-93 advice and concerns about ethics and Corporate Culture is addressed by the organisation 11-16 102-17 16 Impact Assessment 45-46 matters related to lack of integrity in the Stakeholder Engagement Management organisation Human Rights 260 261 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

UN Sustainable UN Sustainable GRI index GRI disclosure Report section and/or comments or Page in the Development GRI index GRI disclosure Report section and/or comments or Page in the Development references to other sources Report Goals references to other sources Report Goals

4. GOVERNANCE Organisation’s approach to stakeholder engagement, including frequency Governance structure of the organisation, of engagement by type and by stakeholder About the Report 12-18 12 102-18 including committees of the highest Corporate Governance Model 87-91 102-43 group, and an indication of whether Stakeholder Engagement Management 106-107 16 governance body any of the engagement was undertaken specifically as part of the Report preparation Executive-level position or positions with process 102-20 responsibility for economic, environmental Corporate Governance Model 87-91 and social topics Key topics and concerns that have been About the Report raised through stakeholder engagement, Stakeholder Engagement Management Impact Assessment and how the organisation has responded 16-24 Grievance Handling in 2020 12 Sakhalin Energy’s CSR System 102-44 to those key topics and concerns, including 106-121 45-46 Appendix 2 16 Consulting stakeholders on economic, Stakeholder Engagement Management through its reporting. Stakeholder groups 228-229 102-21 30 16 Use the link specified in Appendix 4. Public environmental, and social topics that raised each of the key topics and 106-25 Consultation and Disclosure Report in 2020 Use the link specified in Appendix 4. Public concerns Consultation and Disclosure Report in 2020 6. REPORTING PRACTICE Composition of the highest governance 5 102-22 Corporate Governance Model 87-90 body and its committees 16 Entities included About the Report 25 12 102-45 in the organisation’s consolidated financial Economic Impact Management 128 16 Whether the Chair of the highest The chairperson of the highest governance statements or equivalent documents 102-23 16 governance body is also an executive officer body is not an executive officer Process for defining the Report content and 12 Highest governance body’s and senior 102-46 the Aspect Boundaries. Reporting Principles About the Report 17-24 16 executives’ roles in the development, for Defining Report Content approval, and updating of the Corporate Social Responsibility and 28-30 102-26 organisation’s purpose, value or mission Sustainable Development List of all the material Aspects identified 84-87 12 statements, strategies, policies, and goals Corporate Governance 102-47 in the process for defining the Report About the Report 20-24 16 related to economic, environmental and content social impacts 12 103-1 Material topic and its boundary About the Report 23-25 Highest governance body’s role in reviewing 16 the effectiveness of the organisation’s risk 102-30 Risk Management System 92-93 management processes for economic, Restatements of information provided 12 environmental and social topics 102-48 in previous reports, and the reasons for such No restatements of information 16 restatements Highest committee or position that formally reviews and approves the Significant changes from previous reporting No significant changes in the scope and 12 102-32 About the Report 13-14 102-49 organisation’s sustainability report and periods in the Scope and Aspect Boundaries aspect boundaries 16 ensures that all material aspects are covered Reporting period (such as fiscal or calendar 12 102-50 2020 5. STAKEHOLDER ENGAGEMENT year) for information provided 16

About the Report 18 12 12 102-40 List of stakeholder groups engaged 102-51 Date of most recent previous report (if any) April 2020 Stakeholder Engagement Management 106 16 16

Basis for identification and selection 12 About the Report 12 102-42 Stakeholder Engagement Management 106-107 102-52 Reporting cycle (such as annual, biennial) 12 of stakeholders with whom to engage 16 Annual 16

Contact point for questions regarding the 12 102-53 Appendices 5–6 288-289 Report or its contents 16 262 263 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

UN Sustainable Report section and/or comments or Page in the Report section and/or comments or Page in the UN Sustainable GRI index GRI disclosure references to other sources Report Development GRI index GRI disclosure Development Goals references to other sources Report Goals

Claims of reporting in accordance with the 12 102-54 About the Report 15 Proportion of senior management hired from General Information 180-181 GRI Standards 16 the local community at significant locations 8 202-2 Recruiting Personnel and Onboarding 190 of operation New Employees GRI Content Index. Reference to the This Appendix 258-270 12 102-55 External Assurance Report Appendices 7-8 293-297 16 GRI 203: Indirect Economic Impacts (2016)

Organisation’s policy and current practice 12 Importance of the Sakhalin-2 Project 102-56 with regard to seeking external assurance for About the Report 25 for the Russian Federation and the 16 2 the Report Sakhalin Oblast 128 5 Development and impact of infrastructure 203-1 231 7 investments and services supported Social Investments and Contributions to Sustainable Development of the 70 9 Host Region 11 Natural Gas

Specific Standard Disclosures 1 2 Significant indirect economic impacts, Economic Impact Management 128 3 203-2 Report section and/or comments or Page in the UN Sustainable including the extent of impacts Natural Gas 70 8 GRI index GRI disclosure references to other sources Report Development 10 Goals 17

CATEGORY: ECONOMIC GRI 204: Procurement Practices (2016)

About the Company Economic Impact Management 50 Proportion of spending on local suppliers Explanation of the material topic and its 204-1 Russian Content 131-132 8 103-1 Remuneration and Bonus System 128-139 at significant locations of operation boundary 1 103-2 Grievance Handling in 2020 191-192 Management approach 16 103-3 Social Investment and Sustainable 228-229 Evaluation of the management approach Development: Sakhalin Energy’s Principles 231-231 GRI 205: Anti-Corruption (2016) and Approaches Explanation of the material topic and its 103-1 GRI 201: Economic Performance (2016) boundary 103-2 Anti-Bribery and Corruption 100-101 16 Management approach 103-3 2 Evaluation of the management approach About the Company 50 5 Direct economic value generated and 201-1 Economic Impact Management 128-131 8 distributed Remuneration and Bonus System 191-192 9 Communication and training on anti- Anti-Bribery and Corruption 100-101 16 13 205-2 corruption policies and procedures

Coverage of the organisation’s defined Social Guarantees, Benefits and 201-3 benefit plan obligations and other 192-194 Confirmed incidents of corruption and No cases of corruption were registered Compensations 205-3 16 retirement plans actions taken in 2020

Financial assistance received from The company received no financial 201-4 CATEGORY: ENVIRONMENTAL government assistance from the government in 2020 HSE and Social Performance GRI 202: Market Presence (2016) 12 Explanation of the material topic and its Management System 42-45 103-1 13 boundary Environmental Impact Management 142-173 103-2 14 Ratio of standard entry level wage 1 Management approach Grievance Handling in 2020 228-229 202-1 by gender compared to local minimum wage Remuneration and Bonus System 192 5 103-3 15 Evaluation of the management approach Environmental Protection Costs and 155-156 at significant locations of operation 8 16 Payments for the Negative Impact

GRI 302: Energy (2016)

Explanation of the material topic and its 7 103-1 boundary Energy Production and Consumption 149-150 8 103-2 Management approach 153-154 12 103-3 Green LNG Strategy Evaluation of the management approach 13 264 265 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

7 3 8 12 302-1 Energy consumption within the organisation Energy Production and Consumption 149-150 Energy indirect greenhouse gas (GHG) Greenhouse Gas and Ozone-Depleting 12 305-2 151-153 13 emissions Substance Emissions 13 14 15 7 8 Emissions of ozone-depleting substances Greenhouse Gas and Ozone-Depleting 3 302-3 Energy intensity Energy Production and Consumption 149-150 305-6 151-153 12 (ODS) Substance Emissions 12 13 3 Nitrogen oxides (NOX), sulphur oxides 12 GRI 303: Water and Effluents (2018) 305-7 Impact on Atmospheric Air 143-144 (SOX), and other significant air emissions 14 Explanation of the material topic and its 15 103-1 Impact on Water Bodies boundary 145-146 103-2 Environmental Protection Costs and 6 Management approach 155-156 GRI 306: Effluents and Waste (2016) 103-3 Payments for the Negative Impact Evaluation of the management approach Impact on Water Bodies Explanation of the material topic and its Waste Management 145-146 103-1 12 Management of water discharge-related General Information boundary Oil Spill Prevention and Response 147-148 303-2 143 6 103-2 14 impacts Impact on Water Bodies Management approach Preparedness 170-171 103-3 15 Evaluation of the management approach Environmental Protection Costs and 155-156 Payments for the Negative Impact 303-3 Total water withdrawal by source Impact on Water Bodies 145-146 6 3 Total weight of waste by type and disposal Total water discharge by quality and 306-2 Waste Management 147-148 6 303-4 Impact on Water Bodies 145-146 6 method destination 12

GRI 304: Biodiversity (2016) 3 6 Explanation of the material topic and its Environmental Monitoring and Biodiversity Oil Spill Prevention and Response 103-1 6 306-3 Total number and volume of significant spills 170-171 12 boundary Conservation 157-168 Preparedness 103-2 14 14 Management approach Environmental Protection Costs and 155-156 103-3 15 15 Evaluation of the management approach Payments for the Negative Impact GRI 307: Environmental Compliance (2016) Operational sites on, or adjacent to, 6 Environmental Monitoring and Biodiversity 304-1 protected areas and areas of high 157-168 14 Conservation HSE and Social Performance Management biodiversity value outside protected areas 15 Explanation of the material topic and its System 41-47 103-1 12 boundary Environmental Impact Management 142-173 Environmental Monitoring and Biodiversity 103-2 14 Significant impacts of activities, products, 6 Management approach Grievance Handling in 2020 228-229 Conservation 103-3 15 304-2 and services on biodiversity on protected 157-168 14 Evaluation of the management approach Environmental Protection Costs and 155-156 There are no significant impacts of activities, areas and areas of high biodiversity value 15 Payments for the Negative Impact products or services on biodiversity Monetary value of significant fines and total Total number of IUCN red list species and 6 Environmental Monitoring and Biodiversity number of non-monetary sanctions for Environmental Protection Costs and 304-4 national conservation list species with 157-168 14 307-1 155-156 16 Conservation non-compliance with environmental laws Payments for the Negative Impact habitats in areas affected by operations 15 and regulations

GRI 305: Emissions (2016) GRI 308: Supplier Environmental Assessment (2016)

Explanation of the material topic and its Greenhouse Gas and Ozone-Depleting Explanation of the material topic and its 103-1 151-153 12 103-1 boundary Substance Emissions boundary 103-2 155-156 14 103-2 Supply Chain Management 138-139 12 Management approach Environmental Protection Costs and Management approach 103-3 153-154 15 103-3 Evaluation of the management approach Payments for the Negative Impact Evaluation of the management approach

3 308-1 Supplier Environmental Assessment 100% 12 12 Greenhouse Gas and Ozone-Depleting 305-1 Direct greenhouse gas (GHG) emissions 151-153 13 Substance Emissions 14 15 266 267 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

HSE and Social Performance Management CATEGORY: SOCIAL Prevention and mitigation of occupational 42-46 System 3 403-7 health and safety impacts directly linked 211-220 Labour, Assets Safety and Protection 8 GRI 401: Employment (2016) by business relationships 221-224 Occupational Health Explanation of the material topic and its 103-1 Approaches to HR Management and boundary 177-179 103-2 HR Policy 3 Management approach 228-229 403-9 Work-related injuries Labour, Assets Safety and Protection 213 103-3 Grievance Handling in 2020 8 Evaluation of the management approach

General Information 3 New employee hires and employee turnover 182 5 403-10 Work-related ill health Occupational Health 222 401-1 Recruiting Personnel and Onboarding New 8 by age group, gender, and region 190 8 Employees GRI 404: Training and Education (2016) 5 Return to work and retention rates after 401-3 General Information 181 8 Explanation of the material topic and its parental leave, by gender 103-1 10 boundary Personnel Training and Development 196-210 103-2 Management approach Grievance Handling in 2020 228-229 103-3 GRI 402: Labour/Management Relations (2016) Evaluation of the management approach

Explanation of the material topic and its Engagement with Personnel 4 103-1 110-111 Average hours of training per year per boundary Approaches to HR Management and HR 5 103-2 177-179 404-1 employee by gender, and by employee Personnel Training 199-200 Management approach Policy 8 103-3 228-229 category Evaluation of the management approach Grievance Handling in 2020 10

In accordance with the effective Labour Programmes for skills management and Code of the Russian Federation, federal laws, Minimum notice periods regarding lifelong learning that support the continued 402-1 and other regulatory legal acts containing 8 404-2 Personnel Training and Development 196-210 8 operational changes employability of employees and assist them norms of labour law, agreements and in managing career endings employment contracts Percentage of employees receiving regular 5 GRI 403: Occupational Health and Safety (2018) performance and career development 404-3 Individual Performance Review 195-196 8 reviews, by gender and by employee Explanation of the material topic and its 10 103-1 Labour, Assets Safety and Protection 211-220 category boundary 103-2 Occupational Health 221-224 Management approach 103-3 Grievance Handling in 2020 228-229 GRI 405: Diversity and Equal Opportunity (2016) Evaluation of the management approach Explanation of the material topic and its 103-1 Approaches to HR Management and boundary 177-179 103-2 HR Policy Occupational health and safety management Labour, Assets Safety and Protection 211-220 3 Management approach 228-229 403-1 103-3 Grievance Handling in 2020 system Occupational Health 221-224 8 Evaluation of the management approach

Composition of governance bodies and Risk Management System 92-95 breakdown of employees per employee Hazard identification, risk assessment, and HSE and Social Performance Management 3 5 403-2 42-46 405-1 category according to gender, age group, General Information 180-181 incident investigation System 8 8 211-213 minority group membership, and other General Information indicators of diversity

5 Ratio of basic salary and remuneration Basic salaries of men and women of all 3 405-2 8 403-3 Occupational health services Occupational Health 221-224 of women to men by employee category personnel categories do not differ 8 10

GRI 406: Non-Discrimination (2016) Personnel Training 200-201 Worker training on occupational health and 3 403-5 Labour, Assets Safety and Protection 211-220 5 safety 8 Total number of incidents of discrimination No cases of discrimination on any grounds Occupational Health 221-224 406-1 8 and corrective actions taken were registered in 2020 16

3 GRI 407: Freedom Of Association And Collective Bargaining (2016) 403-6 Promotion of worker health Occupational Health 221-224 8 268 269 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

UN Sustainable Report section and/or comments or Page in the UN Sustainable Report section and/or comments or Page in the GRI index GRI disclosure Development GRI index GRI disclosure references to other sources Report Development references to other sources Report Goals Goals

Operations and suppliers identified in which No operations in which the right Impact Assessment the right to exercise freedom of association to exercise freedom of association Engagement Strategy, Principles, 407-1 and collective bargaining may be violated 8 Percentage of operations with implemented Mechanisms and Tools 45-46 or at significant risk, and measures taken and collective bargaining may 413-1 local community engagement, impact Social Investment and Contribution to the 106-107 to support these rights be at significant risk assessments, and development programmes Sustainable Development of the Host 231-247 Region GRI 408: Child Labour (2016) 100%

Operations and suppliers identified Impact Assessment as having significant risk for incidents Operations with significant actual and In 2020, the company did not carry No operations risk of involving child 8 1 408-1 of child labour, and measures taken 413-2 potential negative impacts on local out operations with significant actual 45-46 16 2 to contribute to the effective abolition labour communities or potential negative impacts on local of child labour communities

GRI 409: Forced Or Compulsory Labour (2016) GRI 415: Public Policy (2016)

Operations and suppliers identified As per the company’s Code of Conduct, Sakhalin Energy does not support any as having significant risk for incidents Total value of political contributions No operations risk of involving forced 415-1 political parties, organisations, or their 16 409-1 of forced or compulsory labour, and 8 by country and recipient/beneficiary measures to contribute to the elimination or compulsory labour representatives financially and does not of all forms of forced or compulsory labour participate in political activities

GRI 410: Security Practices (2016) GRI 416: Customer Health And Safety (2016) Total number of incidents of non- Percentage of security personnel trained No incidents of non-compliance with compliance with regulations and voluntary 410-1 in the organisation’s human rights policies or 100% 16 regulations and voluntary codes concerning 416-2 codes concerning the health and safety 16 procedures that are relevant to operations the health and safety impacts of products impacts of products and services during and services in 2020 GRI 411: Rights Of Indigenous Peoples (2016) their life cycle, by type of outcomes

GRI 417: Marketing And Labelling (2016) Total number of incidents of violations No registered cases of violation 411-1 involving rights of indigenous peoples and 2 actions taken of rights of Indigenous Peoples in 2019 Total number of incidents of non- No incidents of non-compliance compliance with regulations and voluntary with regulations and voluntary codes GRI 412: Human Rights Assessment (2016) 417-2 codes concerning product and service 16 information and labelling, by type concerning product and service information and labelling in 2020 Employee training on human rights policies of outcomes or procedures concerning aspects of human 412-2 rights that are relevant to operations, Human Rights Training 229 including the percentage of employees trained

GRI 413: Local Communities (2016)

Corporate Social Responsibility and Sustainable Development Explanation of the material topic and its Engagement Strategy, Principles, 28-29 103-1 boundary Mechanisms and Tools 106-107 103-2 Management approach Social Investment and Sustainable 231-233 103-3 Evaluation of the management approach Development: Sakhalin Energy’s Principles 228-229 and Approaches Grievance Handling in 2020 270 271 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

Sector Disclosures (in Addition to General and Specific Standard Disclosures) APPENDIX 2

UN Sustainable GRI index GRI disclosure Report section and/or comments or Page in the Development references to other sources Report Goals Comments and Suggestions of Stakeholders on Individual Aspects, Indicators

CATEGORY: ENVIRONMENTAL and/or Programmes and the Company’s Response and Commitments

Number and percentage of significant 6 Detailed information on the results of stakeholder tronic survey of internal and external stakeholders Environmental Monitoring and Biodiversity OG4 operating sites in which biodiversity 157-168 14 Conservation engagement activities, including dialogue meetings, (see Section 2.3. Defining Material and Priority Topics risk has been assessed and monitored 15 questionnaires, etc., carried out as part of the prepa- to Be Included in the Report). ration of this Report is set out in Section 2. About the 3 6 Report. Stakeholders’ comments and suggestions, as well Volume and disposal of formation or OG5 Impact on Water Bodies 157-168 8 as the relevant responses and commitments of Sakha- produced water 12 In addition to identifying material topics, stakeholders lin Energy, are listed in the table below. 14 have made comments and suggestions on individual

3 aspects, indicators and/or programmes of the com- On the left side of the table are the questions, Impact on Atmospheric Air 7 pany for inclusion in the 2020 Report. comments or suggestions that were voiced during 143-144 Greenhouse Gas and Ozone-Depleting 8 the above-mentioned events. If they were expressed OG6 Volume of flared and vented hydrocarbon 151-153 Substance Emissions 12 154 In October 2020, Sakhalin Energy held the first dia- at the dialogue meetings, the participant’s name, posi- Utilisation of Associated Gas in Production 13 14 logue meeting as part of the 2020 Report preparation. tion, and organisation are indicated. In other cases, At this meeting, the company provided stakeholders the event format aimed at collecting stakeholders’ Amount of drilling waste (drill mud and 3 with information on its activities and achievements opinions (electronic questionnaires, interviewing, etc.) OG7 cuttings) and strategies for treatment and Waste Management 147-148 6 during the reporting period. In February 2021, a sec- is specified. disposal 12 ond dialogue meeting was held to provide responses

CATEGORY: SOCIAL to the comments, suggestions, and questions received The right column contains the responses that the during the first meeting. During this meeting, addi- company provided either during the meetings or Engagement with the Sakhalin Indigenous Operations where indigenous communities tional comments were received from the participants. soon thereafter (in the event that a question required Minorities are present or affected by activities and 1 In addition to the dialogue meetings in November– additional time for examination and/or response OG9 Sakhalin Indigenous Minorities 115-117 where specific engagement strategies are 2 preparation). Development Plan December 2020, the company conducted an elec- in place www.simdp.ru

Number and description of significant In 2020, there were no significant disputes 1 OG10 disputes with local communities and with local communities and indigenous 2 indigenous peoples minorities

In 2020, there was no activity due to which Operations where involuntary resettlement involuntary resettlement took place 1 took place, the number of households OG12 Use the link specified in Appendix 4. 2 resettled in each and how their livelihoods Resettlement: Experience of Sakhalin 11 were affected in the process Energy brochure 272 273 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment

Event: first dialogue meeting Ekaterina Koroleva, member of the Public Chamber of the Sakhalin Oblast and Vice-President of Slow Food in Russia NGO

Alexey Knizhnikov, FES Environmental Policy Officer, World Wildlife Fund (WWF) This year is a kind of anniversary for me: I have had good relationship with Sakhalin Energy for 15 years already. For me, this is a concrete I would like to draw everyone’s attention to a topic that may not have milestone. Over these 15 years, I have participated in dialogue Sakhalin Energy contributes to the gasification of the Sakhalin Oblast, been raised in our dialogue before. The latest Sakhalin Oil and Gas meetings dedicated to your non-financial reports many times. The key using its own resources and infrastructure for this purpose, in particular, conference, which was held in late September, was an impetus for all words associated with the company are “dialogue”, “sustainability”, the Trans-Sakhalin pipeline. The main gas pipeline crosses the of us to discuss this topic actively. It concerns the contribution we can “development”. The most important thing that sets it apart from other entire island and creates opportunities both for supplying gas to the make together to the new energy sector, which is becoming a reality all companies, in my opinion, is its support for public initiatives. inhabitants of the region and for using it in other spheres. At the end over the world, including Russia. You are able to look at things strategically: to figure out how to tackle of 2020, the company ensured the commissioning of a gas distribution My first question is: What actions is the company taking in the area them and predict the result. I am talking about the interaction between station (GDS) built by Gazprom in the Tymovsk District under the of LNG? We are all talking about the importance of gasification, but Slow Food in Russia and Sakhalin Energy. We have held two festivals Sakhalin Oblast Gas Supply and Gasification Programme. it seems to me that it is Sakhalin Energy that should provide assistance in Moscow, thanks to the financial support of the company. This year, Sakhalin-2 project gas will be supplied from the gas distribution station in achieving the new goals set by the Sakhalin Oblast Government for the festival was called Mother Earth. Indigenous Peoples. Fish. It was to the housing and communal services facilities and to residential the gasification segment. held in Russia for the first time. Your company was the co-founder buildings of the district. The second question also concerns the future of the energy sector. of the event. Representatives of the company were also included Sakhalin Energy intends to continue this work, including by providing We have been discussing with one of the company’s shareholders in the jury of the ethnic food contest. In addition, Sakhalin Energy made gas for small-scale LNG production (see Section 4.2. Main Production (Shell) the remarkable progress in the area of new energy types and an excellent presentation at the conference. Results in 2020, and Section 10. The Company’s Plans for 2021. alternative energy demonstrated by Shell at the global level — not only Thanks to the support of the company, we also held the Ark of Taste Development Strategy up to 2025). in Europe, but also on other continents. It is clear that one should international contest and published the Ark of Taste book, as part Sakhalin Energy is committed to contributing to global efforts aimed The company is grateful for the comment. probably not expect a quick entry into the new energy segment of the Mother Earth. Indigenous Peoples. Fish project. The book at meeting the challenges related to climate change. In 2020, the Preservation of the intangible cultural heritage of the Sakhalin within the framework of the Sakhalin-2 project. Nevertheless, some contains many traditional recipes in which the Russian Federation company developed the Green LNG strategy designed to reduce its Indigenous Minorities, including traditional knowledge and languages, actions taken in this area, such as the presentation of some estimates peoples take pride. It includes the recipe for mos, a traditional Nivkh carbon footprint and identify opportunities for production and supply is an important area of the company’s social investment activities. or training materials, could be included in your activities in the area dish, and this makes me really proud, because I am a representative of carbon-neutral products to customers. The strategy includes four This work is carried out as part of the SIMDP, as well as other projects of environmental and social responsibility. I believe that it was the year of this Sakhalin indigenous ethnic group. I am also happy that the main areas: solutions based on natural potential, further improvement and activities, and will be continued in 2021 and subsequent years. 2020 that brought new opportunities and realities to Russia in this Sakhalin bilberry project which I prepared last year was also included of energy efficiency of the Sakhalin-2 project production technologies, See also Section 6.5. Engagement with Sakhalin Indigenous Minorities, respect. Therefore, we would like you to begin disclosing these topics, in Ark of Taste. commercial activities related to the use of carbon credits, and and Section 9.5. Social Investment and Contribution to Sustainable one way or another, in your next report, based on the discussions that These are remarkable examples of engagement with the community alternative technologies (see Section 8.2.7. Green LNG Strategy) Development of the Host Region were held at the conference and support for public initiatives. I suggest that information about Mother Earth. Indigenous Peoples. Alexey Limanzo, representative of Sakhalin Indigenous Minorities at the Sakhalin Oblast Duma, Chairman of the Communities of Indigenous Fish festival and Mother Earth. Indigenous Peoples. Wild Plants festival Minorities of the North, Siberia, and the Far East (which was held last year) should be included in the Report. Please add this, because it was our joint initiative aimed at preserving the traditional First, I would like to thank Sakhalin Energy for the opportunity knowledge of the indigenous ethnic groups of the Russian Federation. to participate in this very important event. The Report describes the The company closely cooperates with the Rospotrebnadzor Now that we are facing the coronavirus pandemic, the UN is paying successful projects being implemented jointly with the company, and Department for the Sakhalin Oblast and the local healthcare particular attention to this aspect: the national cuisine of indigenous we want to thank you for the long-term cooperation. We look forward institutions at the leadership level, providing all necessary information ethnic groups helps strengthen the human immune system. to its continuation. This year is the beginning of the next five-year about the situation at the facilities located in the region in a timely I would also like to ask two questions. period (of the SIMDP. — Editor’s note). Active preparations are under manner, including in the Nogliki District. The first one concerns the SIMDP. Is there any other possible format way, discussions are being held with SIM representatives on how we Sakhalin Energy has taken a number of measures to reduce the load of engagement with the indigenous community, apart from the SIMDP? can jointly improve this process. And indeed, we are developing very on the Nogliki Central District Hospital and the Nogliki Infectious I know that, in addition to the SIMDP, the company implements many constructive, positive solutions. Disease Observation Hospital. The company has arranged temporary projects aimed at supporting the traditional culture, the native language Today, the pandemic is the key phenomenon that affects the sustainable accommodation facilities in the district, as well as an isolation unit, of SIM, so my second question is about the company’s further plans development of the territories where Sakhalin Energy, along with other where, along with notification sent to Rospotrebnadzor and the Nogliki to support preservation of traditional knowledge. companies, is conducting its operations. Could you please tell me Central District Hospital, patients with confirmed COVID-19 cases, In conclusion, I would like to express my gratitude to the company whether any monitoring is being carried out as to how many employees patients with symptoms of COVID-19 disease, and people who were for the last 15 years of fruitful cooperation. Thank you so much! of the company and contractor organisations have actually been infected in contact with these patients are accommodated, to include cases with the coronavirus, in particular, in the Nogliki District? This is the where they do not need hospitalisation (see Section 9.3. Occupational area with the highest concentration of workers. What is the number Health). of infected people today? How are you cooperating with the local From March 2020 until the end of 2020, a total of 509 COVID-19 cases government authorities to prevent the spread of the disease and, at the were detected among Sakhalin-2 project personnel, in particular: same time, to ensure the effective use of the resources available in the 148 cases among the company’s employees; district to respond to the epidemic, so as to create favourable conditions 361 cases among contractor employees. for the treatment of the local population? This is exceptionally It should be pointed out that less than 5% of all detected COVID-19 important. Should the district face a major outbreak of the disease, the cases were admitted to medical institutions for treatment local population will have difficulty in obtaining medical care 274 275 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment

Natalya Novikova, Senior Researcher of the Department for the North and Siberia at the RAS Miklouho-Maclay Institute of Ethnology and Marina Ozeryanskaya, Advisor at the Corporate Responsibility, Sustainable Development and Social Entrepreneurship Division, Russian Union Anthropology of Industrialists and Entrepreneurs (RUIE)

I also hold the company’s social responsibility policy and the Public non-financial reporting − the Sustainable Development Report − implementation of the SIMDP in high esteem. This project is unique is the main tool used by the company to demonstrate progress towards for our country, it has been implemented at the international level and the implementation of the SDGs. The company has analysed the global has been in place for many years already. SDG indicators to identify and systematise corporate indicators that Next year, a new stage of the work will begin. In this respect, I have correspond to each SDG target and global indicator. At the same time, a question to ask and a comment to make. corporate indicators demonstrate the efforts that the company makes In the company’s reports, I would like to see the At the 2019 Sakhalin Oil and Gas conference, a special section was to achieve global benchmarks for the corresponding SDG targets. company’s performance indicators in the key areas of corporate devoted to the discussion of engagement with indigenous peoples. A summary of the analysis results is presented in Section 3.4 of the responsibility, sustainable development, and SDGs for a period of not One of the issues discussed was the company’s contribution Sakhalin Energy respects the human rights of its employees and job Sustainable Development Policy, as well as in the Goals and Objectives less than three years, with simultaneous presentation of measurable to providing employment opportunities for indigenous people applicants, as provided for in the Declaration of the International of Sakhalin Energy with Examples of Areas of Activity, Projects, benchmarks for the upcoming reporting period residing in the districts where the company conducts its operations. Labour Organisation, and adheres to the principles of business Programmes or Activities That Correspond to Specific SDGs and The conference participants expressed different opinions. Over ethics and corporate culture. Therefore, the company provides equal Their Targets, as well as the Key Corporate Indicators table including the years, I have often heard Sakhalin Energy representatives say opportunities for all job applicants and employees in accordance with links to the relevant sections of the Report, which contain indicators that the company does not consider it necessary to provide special the well-defined and generally accepted recruitment rules and labour for periods of at least three years. Section 10. The Company’s Plans assistance to indigenous peoples in this matter. This year, however, standards, and prevents any discrimination. for 2021. Development Strategy up to 2025, includes target key the Federal Law On State Support for Business Activity in the Arctic The priority areas of SIMDP3 included SIM capacity-building and performance indicators with the relevant SDGs specified Zone of the Russian Federation was adopted, which contains an article an educational programme for students of universities and secondary on social responsibility. vocational education institutions. The development of SIMDP4 Nadezhda Nikitina, Head of the Production Sharing Agreements Implementation Department, Ministry of Economic Development of the Sakhalin Although the company does not conduct its operations in the Arctic, is coordinated by a specially appointed Working Group. Decisions Oblast, Sakhalin Oblast Government the possibility of extending the standards of successful work to the regarding the Plan structure, objectives, and components will be made entire Far East (which is under the jurisdiction of the Ministry for the by the indigenous community in accordance with the principle of free, What steps is the company taking to engage Sakhalin Oblast business See Section 9.1.7. Personnel Learning and Development, and Section 7.3. Development of the Russian Far East and Arctic) is currently under prior, and informed consent. See also Section 6.5. Engagement with organisations and residents in the work under the Sakhalin-2 project? Russian Content discussion. The standard has passed all stages of discussion, including Sakhalin Indigenous Minorities, and Section 9.5.7. Sakhalin Indigenous final vote, and now is awaiting signature. I think your company has Minorities Development Plan Mikhail Todyshev, Expert in legislation on indigenous minorities’ rights received a draft of this standard for review. I would like to draw your attention to the fact that, under this standard, the lion’s share of social The work to assess Sakhalin Energy’s social impact began in 2001 and responsibility was transferred to the area of providing employment was carried out not only in accordance with Russian legislation but opportunities for the indigenous population and organising vocational also in line with international standards (e.g., standards established The implementation of SIMDP3 is nearing completion. A lot of projects training and retraining for them. I am sure you are aware of these trends. by the World Bank, International Finance Corporation, and other have been supported directly within its framework, but did they include I would like to know if this will change the company’s position on this organisations) which, among other things, regulate the issues of cultural any projects for conducting historical research to identify sacred sites issue, in the SIMDP that is being developed, and whether any special heritage, including sacred sites of indigenous peoples. According of the indigenous peoples of Sakhalin? If such work has not been done measures will be taken to the assessment results, no sacred sites of Sakhalin Indigenous yet, it should be included in the next SIMDP Minorities were identified in the areas of potential impact of the Sakhalin-2 project. Documents that confirm this fact have been published on the Sakhalin Energy’s website

Alexander Apasov, Deputy Director for Far Eastern Federal District Development at Samara Electrical Installation Works

The company is developing a strategy and an implementation schedule There were plans to build warehouses at the OPF. Will this project for a project to build additional storage areas for spare parts at the be implemented? If so, when does the company plan to implement it? OPFC

When is the start and completion of the construction of the Sakhalin See Section 7.3.3. Sakhalin Energy Maintenance and Repair Facility Industrial Park planned for? in Sakhalin Industrial Park 276 277 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment

Event: second dialogue meeting Ekaterina Koroleva, a member of the Public Chamber of the Sakhalin Oblast and Vice-President of Slow Food in Russia NGO

Alexey Knizhnikov, FES Environmental Policy Officer, World Wildlife Fund (WWF) The company’s key programme for engagement with the indigenous community is the Sakhalin Indigenous Minority Development On the sidelines of the Sakhalin Oil and Gas Conference in 2020, Plan. This programme has already proven its effectiveness, and the Gazprom and the Sakhalin Oblast Government signed an agreement programme partners intend to continue improving it. Following on the gasification of the region, according to which gas from the consultations, it was proposed that the new SIMDP should focus Sakhalin-2 project is planned to be used for this purpose. on the creation of sustainable, relevant, socially significant SIM Can the company carry out the gasification of Sakhalin not only Sakhalin Energy performs its obligations in full by supplying projects with a long-term positive effect, focus on the development by means of pipeline gas, but also with gas from small-tonnage LNG gas to various facilities under the gasification programme. See of local communities, while taking into account the necessity for production facilities? Section 4.2.3.3. Natural Gas, and Section 10. The Company’s Plans their adaptation to the new conditions and requirements, and the for 2021. Development Strategy up to 2025. introduction of online/remote work, as well as on providing assistance Decisions on the further use of gas, including its processing into small- in conducting training events for the use of digitalisation tools in the tonnage LNG shipments, are made by the Sakhalin Oblast Government work under the SIMDP. and Gazprom After the second round of consultations, during which various proposals will be discussed with the SIM community, the Working Long-term planning does not exclude possible use of renewable Group will take into account the new suggestions aimed at further energy sources by the company in the short term. Sakhalin Energy improvement of the SIMDP (see Section 9.5.7. Sakhalin Indigenous is already implementing certain pilot projects in alternative energy Minorities Development Plan). and considering launching more projects in this area. The road traffic What new activities is the company planning in the area of engagement In addition to this programme, the company implements other The company has described long-term solutions related to possible use monitoring system which is installed at the zero kilometre of the with the indigenous community in terms of the continuous initiatives focused on the preservation of the intangible cultural of alternative energy. Why is the company planning for long-term, rather Nysh–Lunsky Bay motorway is one of such projects. The system improvement strategy? heritage of the indigenous peoples of the North, not only in Russia, but than immediate solutions? is powered by solar panels and a wind turbine. also abroad. The company intends to assess the feasibility of using similar Sakhalin Energy has received the status of National Project Partner technologies at its other assets. To make a final decision, however, for its contribution to the implementation of the goals and objectives it is necessary to prepare a comprehensive cost estimate. of Ecology, Culture, Demography, and Education national projects. See Section 8.2.7. Green LNG Strategy The Culture national project is aimed, in particular, at strengthening the cultural identity of the society, based on the cultural values Dinara Gershinkova, Representative of the Sakhalin Oblast Governor of the peoples of Russia. Sakhalin Energy will continue its efforts to preserve the culture and languages of the indigenous minorities Climate risks are considered from two points of view: direct physical of the North, in line with the national project. In 2020, Development impact factors associated with climate change and socio-economic of the Linguistic Heritage of Sakhalin Indigenous Minorities, the factors, or so-called risks of the transition period. company’s programme, was recognised as one of the best projects All production facilities of the company were designed and built aimed at the promotion of culture and art in Russia. so as to withstand extreme natural and climatic phenomena, such The UN General Assembly has declared the years of 2022–2032 as storms, ice and snow loads or earthquakes. At present, there as the International Decade of Indigenous Languages. Sakhalin Energy is no need to develop any additional technical modifications is planning a number of events involving indigenous peoples and to counteract the effects of climate change in the form of realised stakeholders to effectively support, revitalise, and develop indigenous risks of potential impact of physical factors during the period of the languages Sakhalin-2 project implementation. Nevertheless, the company keeps such factors under control, for instance, by monitoring pipeline Please explain the company’s position regarding the assessment river crossovers and carrying out repair and restoration activities, if of climate risks necessary. The accounting and monitoring system used by the company confirms a high efficiency of energy resource utilisation and low specific indicators of greenhouse gas emissions, as compared to industry indicators. The company tracks international initiatives in greenhouse gas management, as well as relevant changes in the legislation of the Russian Federation. In the event that any new regulatory mechanisms are introduced in this area, the company will be ready to study this issue further, in order to assess not only the impact of realisation of socio-political and economic risks but also the effects of the use of alternative technologies and energy sources. See also Section 8.2.7. Green LNG Strategy 278 279 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment

Maria Ganchenkova, Acting Rector of Sakhalin State University Yuri Blagov, Director of the PWC Centre for Corporate Social Responsibility at St. Petersburg University Graduate School of Management

Being an environmentally responsible company, Sakhalin Energy strives Since its inception, Sakhalin Energy has pursued the Sustainable to comply with all Russian and international regulations and standards, Development Policy by incorporating the relevant principles into as well as to constantly seek further effective solutions. It should the company’s business strategies, plans, and processes. Many years be stressed that natural gas − the most environmentally friendly type of experience in its application show that continuous improvement of fuel − accounts for 95% of energy resources used by the company. in this area is not only important but absolutely necessary for the For ten years, the company has been implementing measures aimed company’s sustainable growth and solid business reputation. at reducing energy consumption, greenhouse gas emissions, and The current situation in the world caused by the COVID-19 pandemic pollutant discharges. The company has been implementing modern is vivid proof of this. In particular, there have been significant organisational and technical solutions to ensure trouble-free operation changes in the criteria for business success − focus only on achieving of equipment, to optimise and automate technological processes. production and financial targets is no longer sufficient for a modern Based on global benchmarking indicators, Sakhalin Energy ranks among company to be successful. The benefits that a business company brings the world’s best companies in terms of the GHG emission index to mankind and the protection of the environment are becoming (the index is calculated taking into account the ratio of the amount equally important. Therefore, Sakhalin Energy has committed Does the company have a plan for the implementation of climate of greenhouse gas emissions to the amount of products produced). itself to contributing to the achievement of the UN Sustainable To what extent does the company’s continuous improvement strategy projects? The company is ready to cooperate with the Sakhalin Oblast Development Goals, which are enshrined in the company’s Sustainable correlate (and should correlate) to the goal of sustainable growth? Government in the implementation of a climate programme and Development Policy (see Section 3.4. Sustainable Development Policy) an experiment to regulate GHG emissions and absorption. and supports their integration into its daily activities. In 2020, the company developed the Green LNG strategy designed Constant improvement in the application of CSR and sustainability to reduce its carbon footprint and identify opportunities for production standards is of particular importance today (see Section 3.3. and supply of carbon-neutral products to customers. The strategy Performance Standards). For example, in 2010, Sakhalin Energy includes four main areas: solutions based on natural potential, further started the practice of conducting regular self-assessments of its improvement of energy efficiency of the Sakhalin-2 project production application of ISO 26000:2010 Guidance on Social Responsibility. technologies, commercial activities related to the use of carbon credits, Such self-assessments allow the company to determine the extent and alternative technologies. to which the principles and topics of the standard are adhered to in its See Section 8.2.2. Impact on Atmospheric Air, Section 8.2.5. Energy policies and procedures, as well as the extent to which the company Production and Consumption, Section 8.2.6. Greenhouse Gas and actually follows them. In addition, self-assessments make it possible Ozone-Depleting Substances Emissions, and Section 8.2.7. Green LNG to plan the activities that contribute to the improvement of the Strategy company’s performance in the area ofcorporate social responsibility and sustainable development

Electronic survey

Participation of employees in the life of local communities (corporate See Section 9.5. Social Investment and Contribution to the Sustainable volunteering) Development of the Host Region

Establishing effective engagement between various units of the See Section 6. Stakeholder Engagement Management company

See Section 7.1. Sakhalin-2 Project Importance for the Russian The structure of the company’s income and expenses Federation and the Sakhalin Oblast

See Section 9.1.3. Recruiting, Hiring and Onboarding New Employees, Participation of local residents in the personnel pool and Section 9.1.7. Personnel Learning and Development

See Section 6.5. Engagement with Sakhalin Indigenous Minorities, Support for indigenous peoples and Section 9.5. Social Investment and Contribution to Sustainable Development of the Host Region

Local Communities Engagement Through the Company’s Information See Section 6.4. Engagement with Local Communities Through the Centres Company’s Information Centres 280 281 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment Comment, Question, Critical Remark or Suggestion Company’s Response and/or Commitment

See Section 4. About the Company, Section 6. Stakeholder Engagement According to the document, in this reporting year, Sakhalin Energy COVID-19 response actions Management, and Section 9. Social Impact Management conducted the latest in a series of self-evaluation cycles to assess the application of the ISO 26000:2010 Standard of Social Responsibility. Work with young specialists (mentoring) See Section 9.1.7. Personnel Learning and Development This information appears to be useful to the company stakeholders and deserves more detailed coverage. It is advisable that the next See Section 3.3. Performance Standards Unification of approaches to similar processes carried out in various Report include information about the main deliverables of completed See Section 4.3.1. Digital Transformation units of the company work, its importance for the company, and the management decisions made on the basis of the results obtained. This information serves Onshore processing facility See Section 4.2.1. Assets as additional proof of the company’s responsibility and its commitment to the principles of sustainable development See Section 5.3. Corporate Governance Model, and Section 9.1.2. Organisation and staffing General Information It is reported that Sakhalin Energy is developing a unified digital strategy, seeing digitalisation as a form of strategic management and a way Company plans, including LNG Train 3 See Section 4.2.2. Growth Projects to create new business opportunities. This topic should be covered more extensively in the future; more attention should be paid to the See Section 4.3. Innovation and Continuous Improvement Mental health of personnel See Section 9.3. Occupational Health role of innovations in the implementation of the company’s strategy and to individual significant projects in this area. It would be useful Recommendations of the RUIE Council for Non-Financial Reporting Following the Review of the Sakhalin Energy Investment Company Ltd. to describe the economic benefits of innovations, energy saving efforts, 2019 Sustainable Development Report for the Purpose of Public Endorsement and digital transformation

The Report contains information on the company’s plans and objectives We advise the company to consider supplementing the Report sections for 2020 and its development strategy up to 2024. It is recommended with feedback from representatives of stakeholder groups on the social, See this appendix and Section 9.1.7. Personnel Learning and that the subsequent report includes clear target indicators for the See Section 10. The Company’s Plans for 2021. Development Strategy economic, and environmental impact of the reported information on the Development coming year and the mid-term, describes specific achievements that up to 2025 development of the Sakhalin Island, to enhance its positive perception reflect the goals set, to paint a fuller picture of the correspondence by stakeholders of the plans, targets, and results

The information on the company’s performance of its obligations to contribute to the achievement of the UN SDGs for 2030 appears relevant and important for the stakeholders. However, we would advise See Section 3.4. Sustainable Development Policy, and Section 10. the company to expand the coverage of this topic in future reports, use The Company’s Plans for 2021. Development Strategy up to 2025 specific quantifiable indicators to reflect the goal achievement metrics adopted in the company, and highlight them in the relevant sections of the Report

The Report contains plenty of indicators reflecting the economic, social, and environmental performance of the company, many of which are presented for periods of not less than three years. It seems advisable to apply this approach, in the future, to all aspects and results of the company’s activities, in particular, to covering the results of long-term See Section 9. Social Impact Management, and Section 10. social programmes and projects in the area of sustainable development, The Company’s Plans for 2021. Development Strategy up to 2025 the indicators of the impact of social investments on the territory of Sakhalin Energy’s operation (improvement of the labour force quality, more work opportunities, rise in the island residents’ living standards and income, development of transport and social infrastructures, etc.) 282 283 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

APPENDIX 3 Poronaysk City District Municipality, S. S. Gavrilin, Mitsui Representative Office in Yuzhno-Sakhalinsk, Head of the Economic Development Subdivision Sakuma Hiroshi, Director. of the Financial and Economic Department. Russian Union of Industrialists and Entrepreneurs, List of Participants in the Dialogues with Stakeholders as Part of Preparation Public Chamber of the Sakhalin Oblast, E. A. Koroleva, G. A. Kopylova, Advisor to the Department for Cor- of the 2020 Sustainable Development Report Chamber member, Vice-President of Slow Food porate Responsibility, Sustainable Development and in Russia. Social Entrepreneurship. UN Global Compact Network Russia, L. E. Ovchin- Korsakov Partnership Council for Sustainable Devel- nikova, Sustainable Development Expert. opment. PAO Gazprom, E. S. Erokhina, Deputy Head of Depart- Russian Union of Industrialists and Entrepreneurs, ment 106/2/2. M. N. Ozeryanskaya, Advisor, Centre for Corporate Russian Managers Association, V. Yu. Kovalev, First Sakhalin Oblast Ministry of Education, Yu. М. Domra, Social Responsibility and Non-Financial Reporting. Deputy Executive Director. Specialist. Sakhalin Oblast Government, V. V. Epifanov, First Deputy Head of the Governor’s Office and Sakhalin Russian Union of Industrialists and Entrepreneurs, World Wildlife Fund (WWF), A. Yu. Knizhnikov, Fuel Sakhalin Oblast Ministry for Effective Governance Oblast Government. N. I. Hoffman, Advisor to the Labour Market and and Energy Complex Environmental Policy Pro- of the Region, O. E. Popov, Minister for Effective Social Partnership Directorate. gramme Manager. Governance of the Region. Sakhalin Oblast Government, D. A. Gershinkova, Representative of the Sakhalin Oblast Governor. Samara Wiring Accessories Plant, A. M. Apasov, Chekhov Sakhalin International Theatre Centre, Yuzhno-Sakhalinsk City Urban District, A. V. Romanov, Deputy Director for Far Eastern Federal District K. Dedukhina-Sadruk, Head of the Literature and Head of Yuzhno-Sakhalinsk Environmental Protection Sakhalin Oblast Government, L. Yu. Ustinovskaya, Development. Drama Department. and Landscaping Directorate Municipal Institution. Ombudswoman for Children’s Rights in the Sakhalin Oblast. Sakhalin Oblast Duma, A. G. Limanzo, representative Sakhalin Regional Art Museum, S. N. Sangi, Senior Yuzhno-Sakhalinsk City District Municipality, of Sakhalin Indigenous Minorities at the Sakhalin Researcher of the Regional Art Project Department, I. L. Vovk, Deputy Director of the Economic Develop- Sakhalin Oblast Government, Sakhalin Oblast Oblast Duma, Chairman of the Union of Communities member of the Regional Council of Authorised SIM ment Department. Ministry of Sports, I. E. Ryabkina, Director of the of Indigenous Minorities of the North, Siberia, and Representatives. Department for Physical Culture and Sports. the Far East. Yuzhno-Sakhalinsk City District Municipality, Preodoleniye Rehabilitation Centre for Children N. E. Samarina, Deputy Head of the Yuzhno- Sakhalin Oblast Government, Sakhalin Oblast Sakhalin State University, M. G. Ganchenkova, Acting and Adolescents with Disabilities, N. V. Komisarov, Sakhalinsk Environmental Protection and Ministry of Ecology, M. P. Larionova, Advisor. University Rector. IT Specialist. Landscaping Directorate Municipal Institution. Sakhalin Oblast Government, Sakhalin Oblast Ministry PWC Centre for Corporate Social Responsibility Far Eastern Interregional Directorate of Rosprirod- Yuzhno-Sakhalinsk City District Municipality, of Ecology, N. S. Koltunovich, Director of the Environ- of the Graduate School of Management at St. Peters- nadzor for the Sakhalin Oblast, Yu. S. Kolmakova, P. I. Pavlenko, Director of the Economic Development mental and Water Resources Protection Department. burg State University, Yu. E. Blagov, Director. Specialist-Expert of the State Supervision Depart- Department. ment for the Sakhalin Oblast. Sakhalin Oblast Government, Sakhalin Oblast Shell Russia, N. O. Sharapova, Social Performance Dolinsk City District Municipality, A. F. Yakuba, Ministry of Economic Development, M. I. Farkhutdi- Advisor. RAS Miklouho-Maclay Institute of Ethnology and Deputy Mayor. nov, Deputy Minister. Anthropology, L. I. Missonova, Curator of the Peoples Shell Russia, Kh. E. Vezirov, Communications Advisor. and Cultures multi-volume ethnological series. Nogliki City District Municipality, A. S. Fomina, Sakhalin Oblast Government, Sakhalin Oblast Administration Office Manager. Ministry of Economic Development, N. V. Nikitina, Expert on SIM legislation, M. A. Todyshev. RAS Miklouho-Maclay Institute of Ethnology and Head of the PSA Implementation Department. Anthropology, N. I. Novikova, Lead Researcher of the Korsakov City District Municipality, G. P. Golodnikov, North and Siberia Department. Deputy Mayor, Director of the Social Development Sakhalin Oblast Government, O. Kutaybergey, Advisor Department. to the Sakhalin Indigenous Minorities Department. Regional state institution Apparatus of the Public Cham- ber of the Sakhalin Region, O. V. Santalova, Director. Poronaysk City District Municipality, V. S. Frolova, Representative of the Sakhalin Indigenous Minorities, Lead Specialist-Expert of the Economic Develop- G. N. Egorova, member of the Council of Sakhalin Dachnoye Secondary School, A. S. Smolyanova, ment Subdivision of the Financial and Economic Indigenous Minorities Representatives under the Deputy Director for Education, member of the Department. Administration of Yuzhno-Sakhalinsk. 284 285 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

APPENDIX 4 http://www.sakhalinenergy.ru/en/ (section Library section — Environmental Documents — Oil Spill Oiled Wildlife Response Plan Response Documentation)

Oil Spill Prevention and Response Plans http://www.sakhalinenergy.ru/en/ (section Library — Environmental Documents) Useful links Contracting and Procurement Policy http://www.sakhalinenergy.ru/en/ (section Contracting with Us)

Official website of the company http://www.sakhalinenergy.ru/en/ Human Rights Policy http://www.sakhalinenergy.ru/en/ (section About the Company — Our Principles)

Jobs and Career http://www.sakhalinenergy.ru/en/ (section Jobs and Career) Sustainable Development Policy http://www.sakhalinenergy.ru/en/ (section About the Company — Our Principles)

Vesti newsletter (section Media Centre) http://www.sakhalinenergy.ru/en/ (section Safety and Environment — Health, Safety, Environment Social Performance Standard and Social Action Plan) About the company http://www.sakhalinenergy.ru/en/ (section About the Company) Websites of Projects and Programmes Information for contractors http://www.sakhalinenergy.ru/en/ (section Contracting with us) Korsakov Partnership Council for Sustainable http://www.korsakovsovet.ru/ Media Centre http://www.sakhalinenergy.ru/en/ (section Media Centre) Development

Sustainable Development Principles http://www.sakhalinenergy.ru/en/ (section Social Performance) Sakhalin Indigenous Minorities http://www.simdp.ru/eng.php Development Plan Whistle Blowing / Grievance Procedure http://www.sakhalinenergy.ru/en/ (section About the Company — Our Principles) The Safety is Important Programme http://senya-spasatel.ru/ Grievance Procedure http://www.sakhalinenergy.ru/en/ (section Social Performance) The Energy Social Initiatives Fund http://www.fondenergy.ru/ Company Documents and Materials Referenced in the Report Printed Materials Sakhalin Energy Investment Company Ltd. Statement on the Application http://www.sakhalinenergy.ru/en/ (section Social Performance — Sustainable Development Archaeological Heritage of Sakhalin Island http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) of ISO 26000:2010 Guidance on Social Principles) brochure Responsibility 2019 Steller’s Sea Eagle (photo album) http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Code of Conduct http://www.sakhalinenergy.ru/en/ (section About the Company — Our Principles) The Energy Social Initiatives Fund brochure http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Commitment and Policy on Health, Safety, http://www.sakhalinenergy.ru/en/ (section Safety and Environment — HSE and Social Performance Environment, and Social Performance Policy Management System) Sakhalin Indigenous Minorities http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Development Plan booklet Reports on information campaigns and http://www.sakhalinenergy.ru/en/ (section Library — Social Aspects / Stakeholder Engagement) public consultations (annual) The Universal Declaration of Human Rights http://simdp.ru/eng.php (section Multimedia — Other Materials) in the Nanai Language Lenders’ independent http://www.sakhalinenergy.ru/en/ (section Safety and Environment — Health, Safety, Environment consultant’s environmental and social The Universal Declaration of Human Rights and Social Action Plan) http://simdp.ru/eng.php (section Multimedia — Other Materials) monitoring reports in the Nivkh Language

Sustainable Development Reports (annual) http://www.sakhalinenergy.ru/en/ (section Media Centre) The Universal Declaration of Human Rights http://simdp.ru/eng.php (section Multimedia — Other Materials) in the Uilta Language Health, Safety, Environment and Social Performance Action Plan; company policies http://www.sakhalinenergy.ru/en/ (section Safety and Environment — Health, Safety, Environment Nivkh Dif (Nivkh Word) newspaper http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) and standards in health, safety, environment and Social Action Plan) and social performance, human rights (Note: To the 80th Anniversary of Vladimir Sangi, http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) set of documents) a Patriarch of Nivkh Literature

Biodiversity Action Plan http://www.sakhalinenergy.ru/en/ (section Library — Environmental Documents) Calendar Sakhalin: a Fairytale Island http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications)

Public Consultation and Disclosure Plan http://www.sakhalinenergy.ru/en/ (section Social Performance — Community Awareness Calendar 2016 — 12 Months on the Island http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) (updated annually) and Community Liaison Organisation) of Sunrise 286 287 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

Calendar 2017 — Safety Is Important! http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Basics of Life Safety. Collection http://www.senya-spasatel.ru/ (Media section) of Methodological Developments Calendar 2018 — Hurry Up For Good Deeds http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) EA Best Practices Book, volumes 1–3 http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Calendar 2019 — The Nivkh Year from A to Z http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) EA Best Practices Book, volume 4 (Work http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Calendar 2019 — Sakhalin Energy: 25 Years During the COVID-19 Pandemic) http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) of Energy for Growth Gray Whales. The Sakhalin Story http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Calendar 2020 — Sakhalin Fairy Tales http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Liquefied Natural Gas (Digest of Interesting http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Uiltadairisu http://simdp.ru/eng.php (section Multimedia — Other Materials) Facts)

Family Delicacies Cookery Book http://www.sakhalinenergy.ru (section Library — Published Editions — List of Publications) Sakhalin Fairy Tales http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications)

Comics http://www.senya-spasatel.ru/ (Comics section) Sakhalin Energy Trans-Sakhalin System: http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Environmental Protection Indigenous Peoples and Industrial Companies: Best Practices of Cooperation http://simdp.ru/eng.php (section Multimedia — Other Materials) The World Through the Lens photo album http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) in the Russian Federation Sakhalin-2 Encyclopaedia http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Uilta Legends http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Poisonous Plants and Fungi http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Environmental Protection at the http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Prigorodnoye Production Complex Reference Materials and Other

Environmental Protection at Northern IUCN Western Gray Whale Advisory Panel http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) https://www.iucn.org/western-gray-whale-advisory-panel Assets of Sakhalin Energy (WGWAP)

Resettlement: Experience of Sakhalin UN Global Compact www.unglobalcompact.org http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Energy Mapping the Oil and Gas Industry to the https://www.ipieca.org/resources/awareness-briefing/mapping-the-oil-and-gas-industry-to-the- Human Rights: Experience of Sakhalin Sustainable Development Goals: an Atlas sustainable-development-goals-an-atlas/ http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Energy SDG Compass https://sdgcompass.org/ Self-Assessment of the Application of ISO 26000:2010 Guidance on Social http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) SDG Industry Matrix www.unglobalcompact.org Responsibility Global Initiative Sustainability Reporting http://www.globalreporting.org Birds of Sakhalin Island (photo album) http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Guidelines

Flora of Sakhalin http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Decent Work — Sustainable Business. http://rspp.ru/activity/social/ Collection of Corporate Practices, 2020 Rivers of Sakhalin Island http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) Russian Business and Sustainable Russian Content: Success Stories and New Development Goals. Collection http://www.sakhalinenergy.ru/en/ (section Library — Published Editions — List of Publications) http://media.rspp.ru/document/1/b/2/b24091d44c9660fcf3a9fdad6551b88f.pdf Opportunities of Corporate Practices of the Russian Union of Industrialists and Entrepreneurs Collection of Materials of the Second International Symposium in the Languages Sustainable Development Goals http://www.un.org/sustainabledevelopment/ru/sustainable-development-goals/ http://simdp.ru (section Multimedia — Other Materials) of the Indigenous Minorities of the Russian Far East UN Sustainable Development Goals: http://www.sakhalinenergy.ru/en/social/sdg/ Sakhalin Energy’s Measures Collection of Materials of the Folklore of Paleo-Asiatic Peoples III International http://simdp.ru (section Multimedia — Other Materials) Scientific Conference 288 289 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

APPENDIX 5

Company’s Information Centres List

District Locality Organisation Address District Locality Organisation Address

Rural library, Branch No.7, Sub-division of the Municipal Rural library, Branch No.3, Sub-division of the Municipal Aniva Troitskoye 13, Sovetskaya St. Onor 21, Sovetskaya St. Institution Aniva Municipal Centralised Library System Institution of Culture Smirnykh Centralised Library System

Rural library, Branch No.6, Sub-division of the Municipal Pobedino Rural Library-Museum, Branch No.4, Sub-division Vzmorye 22, Pionerskaya St. Institution Dolinsk Municipal Centralised Library System Pobedino of the Municipal Institution of Culture Smirnykh Centralised 60, Tsentralnaya St. Library System Rural library, Branch No.10, Sub-division of the Municipal Sovetskoye 127а, Tsentralnaya St. Institution Dolinsk Municipal Centralised Library System Smirnykh Smirnykh Central Library, Sub-division of Municipal Smirnykh 12, Lenina St. Dolinsk Institution of Culture Smirnykh Centralised Library System Dolinsk Central City Library, Sub-division of the Municipal Dolinsk 31, Lenina St. Institution Dolinsk Municipal Centralised Library System Rural library, Branch No.6, Sub-division of the Municipal Roschino 44, Shkolnaya St. Institution of Culture Smirnykh Centralised Library System Rural library, Branch No.5, Sub-division of the Municipal Sokol 14, Shirokay St. Institution Dolinsk Municipal Centralised Library System Rural library, Branch No.7, Sub-division of the Municipal Buyukly 1, Kosmonavtov St. Institution of Culture Smirnykh Centralised Library System Central Regional Library named after Yury Nikolayev, Sub- Kholmsk Kholmsk division of the Municipal Institution of Culture Kholmsk 124, Sovetskaya St. Rural library, Branch No.17, Sub-division of the Municipal Molodezhnoye 14а, Sovetskaya St. Centralised Library System of Kholmsk Municipality Institution of Culture Tymovsk Centralised Library System

Rural library, Branch No.2, Sub-division of the Municipal Central District Library, Sub-division of the Municipal Vostochnoye 8, Privokzalnaya St. Tymovskoye 77, Kirovskaya St. Institution Makarov Municipal Centralised Library System Institution of Culture Tymovsk Centralised Library System Tymovsk Makarov Central Library, Sub-division of the Municipal Rural library, Branch No.13, Sub-division of the Municipal Makarov Makarov 9a, 50 Let Oktyabrya St. Yasnoye 2, Titova St. Institution Makarov Municipal Centralised Library System Institution of Culture Tymovsk Centralised Library System

Rural library, Branch No.4, Sub-division of the Municipal Rural library, Branch No.8, Sub-division of the Municipal Novoye 11a -7, Tsentralnaya St. Kirovskoye 70, Tsentralnaya St. Institution Makarov Municipal Centralised Library System Institution of Culture Tymovsk Centralised Library System

Poronaysk Central Library, Sub-division of the Municipal Nogliki District Central Library, Sub-division of the Poronaysk Institution of Culture Poronaysk Municipal Centralised 45, Gagarina St. Nogliki Nogliki Municipal Institution of Culture Nogliki Centralised Library 5a, Pogranichnaya St. Library System System

Rural library, Branch No.4, Sub-division of the Municipal Korsakov city Youth Library, Branch No.13, Sub-division Poronaysk Gastello Institution of Culture Poronaysk Municipal Centralised 42-2, Tsentralnaya St. Korsakov Korsakov of the Municipal Institution of Culture Korsakov Centralised 7, Molodezhny Per. Library System Library System

Rural library, Branch No.13, Sub-division of the Municipal Vostok 13a, Gagarina St. Institution of Culture Poronaysk Central Library System 290 291 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

APPENDIX 6

Feedback Form

DEAR READERS,

You have just read 2020 Sakhalin Energy Sustain- Greatly uninteresting Unsure 10. What other organisations in your opinion may able Development Report (hereinafter — Report). be invited to take part in subsequent dialogues about Your opinion on this Report is very important Unsure Please provide comments in support of your answer preparation of the Sustainable Development Report?

to us and we would really appreciate if you help ______us improve the quality of reporting by answering 3. How do you rate this Report in terms of credibility ______

questions stated in this Form. and unbiasedness of information provided? ______1. After reading the Report, do you have a better Very favourable 11. Which group of parties or persons concerned do idea and understanding of Sakhalin Energy activities ______you belong? in sustainable development? Mostly favourable 5. What Section of the Report was most interesting Sakhalin Energy employee Yes Equal and valuable to you?

Sakhalin Energy management Mostly Yes Mostly unfavourable ______

Investor/Lender Equal Very unfavourable 6. What aspects of Sakhalin Energy activity, in your opinion, are to be improved in order to enhance its Shareholder Mostly No Unsure social responsibility?

Customer Unsure Please provide comments in support of your answer ______

Contractor/Supplier Please provide comments in support of your answer ______7. What other information would you like to have in the next Sakhalin Energy Sustainable Development Authorities ______Reports?

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Public organisation ______4. How do you rate the Report in terms of how easy 8. Please provide general comments on the Report: is it to find required information? Community 2. What is your impression on information contained ______in this Report? Very easy ______Representative of scientific community/expert Very interesting Mostly easy Mass media 9. Are you or your organisation interested in partic- Mostly interesting Equal ipating in dialogues about preparation of 2021 Sus- Other stakeholder groups (please specify) tainable Development Report? Equal Mostly uneasy Yes (please provide your contact information) Mostly uninteresting Very uneasy No 292 293 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

Please indicate your contact information below: APPENDIX 7 Name: ______Certificate of Public Endorsement Job title: ______

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Please return the completed Form on the 2020 Sustainable Development Report to:

35 Dzerzhinskogo St., Yuzhno-Sakhalinsk, Sakhalin List and addresses of information centres are Oblast, Russian Federation, 693020 given in Appendix 5 to the Report. Fill the online questionnaire (http://www.sakhalinenergy.com, You may also send this Form by e-mail: page: MediaCentre, “Sustainable Development [email protected] Report”) or leave it at the cvompany’s Information Centre

Thank you for your feedback! 294 295 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

APPENDIX 8 stantive information and covers key areas of respon- of the company, as well as its risk management sible business practices in accordance with the Social system. It is stressed that business ethics and Charter of Russian Business. It provides sufficiently compliance, anti-bribery and corruption are in- detailed information on the company’s activities tegral parts of the corporate culture. The Report Conclusion on the Results of the Review of Sakhalin Energy 2020 Sustainable in these areas. assures that the company’s goals and objectives Development Report by the RUIE Non-Financial Reporting Council for the Purpose are correlated with the SDGs 2030, shows the of Public Endorsement The 2020 Report addresses the Council’s rec- areas of activity corresponding to the SDG tar- ommendations upon public endorsement for the gets, and indicators for assessing performance The Non-Financial Reporting Council (the Coun- ― Complete information means that the compa- 2019 Sakhalin Energy Report. Thus, information results. It is emphasised that the health, safety, cil) of the RUIE (Russian Union of Industrialists ny’s Report provides integrated information on the priority of the UN Sustainable Development environment and social performance manage- and Entrepreneurs), established by the Bureau on all the main aspects of the company’s activ- Goals to be achieved by 2030 (SDGs 2030) for ment systems comply with international stan- of the Board (Resolution dated 28 June 2007), has ities — the underlying values and strategic goals, Sakhalin Energy and target indicators reflecting the dards, as evidenced by the regular certification. reviewed the 2020 Sustainable Development Report management systems and structures, major company’s contribution to the achievement of the In particular, it is pointed out that the company (the Report) at the request of Sakhalin Energy Invest- achievements and key performance indicators, SDGs was supplemented, the number of indicators conducts self-assessments with respect to the ment Company Ltd. (Sakhalin Energy, or the company). stakeholder engagement processes. presented in dynamics for at least three years was application of the ISO 26000:2010 standard. ― The fact that the company has applied interna- expanded, the results of self-assessment of the appli- ― Business Partnership: The Report describes the The company requested the RUIE to arrange the tional reporting principles is taken into account cation of the ISO 26000:2010 Guidance on Social strategy, principles, mechanisms and tools for process of public endorsement by the Council. as part of the public endorsement process. How- Responsibility were presented more exhaustively. stakeholder engagement, and relevant corporate The Council issues its opinion on the relevance and ever, it is outside the scope of this Conclusion documents. It also specifies the main groups completeness of information disclosed in the compa- to assess the extent of the compliance of the Re- The company’s 2020 Report contains substan- of stakeholders and the corresponding engage- ny’s Report in accordance with responsible business port with international reporting principles. How- tive information regarding the following aspects ment formats used in 2020. The document principles, which are set out in the Social Charter ever, it is outside the scope of this Conclusion of responsible business practices: provides statistics on visits to the company’s in- of Russian Business and are in line with the provisions to assess the extent of the compliance of the ― Economic Freedom and Responsibility: formation centres, public meetings and dia- of the UN Global Compact, as well as Russian and Report with international reporting principles. The Report presents the company’s strategic logues with stakeholders, as well as the topics international social responsibility standards. ― Sakhalin Energy bears all responsibility for the objectives for the development of oil and gas discussed. There is a detailed description of the information and declarations in the Report. fields in the Sea of Okhotsk offshore Sakhalin personnel policy and approaches to personnel During the period from 14 to 30 March 2021, the The authenticity of the factual data provided Island, the structure of the company’s share management; information is provided on the Council’s members reviewed the company’s Report in the Report is outside the scope of the public capital and its contribution to the economy training and development, remuneration and and prepared this Conclusion based on the Coun- endorsement process. of the Sakhalin Oblast and the Russian Federa- motivation of employees. The Report covers cil-approved Rules for Public Endorsement tion in accordance with the Production Sharing the company’s actions taken to respond to the of Non-Financial Reports. The Council’s members This Conclusion is issued for Sakhalin Energy. Agreement. The document describes the com- challenges of the coronavirus pandemic, in par- possess the required competencies in areas of cor- The company may use this Conclusion for internal pany’s vision as a key energy supplier for the ticular, measures aimed at protecting the health porate responsibility, sustainable development, and purposes, as well as for its engagements with stake- Asia-Pacific region. Key financial and operation- of employees and providing comprehensive non-financial reporting; they abide by ethical require- holders, provided the Conclusion is published as is, al performance indicators for the reporting year support to them in this difficult period. Informa- ments for making independent and objective assess- without any changes. are presented in detail, including the results tion is presented about the company’s ap- ments; and they express their personal opinions of the 2017–2020 Enhanced Oil Recovery Pro- proaches to cooperation with its suppliers and as experts, but not the opinions of their respective CONCLUSIONS gramme implementation and production indica- contractors, the extension of its sustainable organisations. Based on the review of the Report and the public tors by field. The Report gives an account of the development requirements to them, and the information published on the company’s website key upgrade and development projects, includ- Vendor Development Programme. The doc- The relevance and completeness of the Report were and following a subsequent discussion of the results ing in digital transformation of the company, ument contains information on the compa- assessed based on the following criteria: of the independent review of the Report by the RUIE process automation, implementation of artificial ny’s interaction with customers and shipowners, ― The information is deemed substantive, since Non-Financial Reporting Council, the Council con- intelligence, and others. The document high- measures taken to ensure uninterrupted supply it demonstrates Sakhalin Energy’s compliance firms the following: lights the role of digital technologies in organ- of LNG and oil to the countries of the Asia-Pa- with responsible business principles as set ising the company’s smooth operations during cific region in the conditions of the pandemic. forth in the Social Charter of Russian Business The 2020 Sustainable Development Report of Sakha- the pandemic. It also outlines the system of cor- It also offers details about the company’s con- (www.rspp.ru). lin Energy Investment Company Ltd. contains sub- porate governance and organisational structure tribution to the work of the leading Russian 296 297 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

expert platforms on the development of the a description of the environmental monitoring of said impact, and about the strategy, policies and term more clearly, reflect them in the appropriate oil and gas sector and sustainability issues, the system adopted by the company, gives an ac- results of the economic, social and environmental sections and present actual achievements against the participation of the company’s representatives count of measures taken to preserve biodiver- activities. The company’s goals and objectives reflect tasks set in order to better correlate plans, targets and in specialised public associations and organisa- sity, including the preservation of endangered the UN SDGs for 2030; the commitments to their performance results, remains relevant. tions. species of plants and animals. It also informs achievement are included in the corporate policy. ― Human Rights: The Report presents informa- about regular monitoring of the ROW of the The document illustrates the key areas and formats Information on the company’s performance of its tion about the company’s approaches to human onshore pipelines and measures to prevent of stakeholder engagement. obligations to contribute to the achievement of the rights assurance, its commitments and current accidental oil spills. UN SDGs for 2030 appears topical and important for regulatory documents in the areas of labour ― Local Community Development: The Re- The Report was prepared with due regard for the the stakeholders. It is also recommended to present relations, industrial safety, respect for the rights port presents information about the compa- recommendations used in the domestic and inter- the results of the company’s activities in the context of the Sakhalin Indigenous Minorities and the ny’s contribution to the development of the national reporting practice (GRI Standards as the of the national development goals and national proj- population of the region in general. The doc- region, including data on the volume of social blueprint), which allows for comparability of infor- ects, which are significant for the stakeholders of the ument explains how the company handles investments. It is stressed that external social mation with that provided by other representatives company. grievances and requests, and contains relevant projects of the company are developed with of the industry from Russia and abroad. When statistics by grievance categories. It is reported the participation of representatives of the local preparing the Report, the company also took into A considerable number of indicators reflecting the that systematic human rights training has been community. The document highlights measures consideration the UN Global Compact, the UNCTAD economic, social and environmental performance organised for the company’s personnel and that to adapt the company’s programmes so that Guidance on Core Indicators for Entity Reporting of the company are presented in dynamics over four awareness in these matters has been consider- they can be successfully implemented in spite on Contribution Towards Implementation of the UN years. In the future, it is advisable to extend this ably raised among contractors staff. of the restrictions related to COVID-19. Partic- SDGs for 2030, and other documents. It is noted that approach to all aspects of the company’s activities, ― Environmental Protection: The Report em- ular attention is given to the implementation the material subjects to be included in the Report disclosing data for a period of at least three years. phasises that the Environmental Policy is part of the topical initiatives — the Prevention and were decided taking into account the opinions of the of the company’s General Business Principles, Treatment project, aimed at equipping regional stakeholders. The key topic of the Report is the Continuous Sustainable Development Policy, Commitment medical institutions with critical equipment, Improvement Programme, which, as indicated and Policy on Health, Safety, Environment and and the Digital Transformation of Educational The 2019 Sustainable Development Report is Sakha- above, covers all areas of the company’s activities. Social Performance, which is reflected in differ- and Social Services grant competition. The ac- lin Energy’s twelfth annual report of this kind, which It would be appropriate to support the data on the ent corporate documents. Information is provid- tivities of the Energy Social Initiatives Fund are confirms the continuity in the development of non-fi- programme’s performance with information about ed on environmental impact management in ac- outlined, the success of the Safety Is Important! nancial reporting process and the company’s adher- the economic effects of the company’s innovative cordance with the ISO 14001 and OHSAS 18001 and the Hurry Up for Good Deeds programme, ence to the transparency and openness. projects and initiatives, including the digitalisation international standards, on industrial environ- designed to support charity initiatives of the strategy and energy efficiency programmes. mental control, including the impact on the company’s employees, are described. An ac- RECOMMENDATIONS air and water bodies, and waste management count is given of the work of the Korsakov Part- Recognising the merits of the Sakhalin Energy’s 2020 Given the production and geographical specifics practices. Gross and specific indicators are nership Council for Sustainable Development. Sustainable Development Report, the Council would of the production, transportation and processing presented in dynamics by type of impact. The Report also contains information on the like to bring to the company’s attention a number of hydrocarbons by the company, it is recommended The document contains information on energy implementation of the Sakhalin Indigenous of aspects related to the informational relevance and to include all environmental performance indicators production and consumption, including broken Minorities Development Plan, as well as spe- completeness of disclosure that are essential for the with a breakdown by the main process facility. down by type of activity, measures to increase cial projects for building the capacity of the stakeholders. We advise the company to consider energy saving and energy efficiency. The Report non-profit sector and developing volunteering these recommendations in subsequent reporting The Report highlights the focus of the social pro- focuses on the climate agenda, and gives an ac- in the region. cycles. grammes that are in demand and are realised in part- count of measures taken to reduce greenhouse nership with the local communities and government gas emissions. It covers the development of the FINAL PROVISIONS The Council would like to point out that the rec- authorities, many of which are designed for long-term Green LNG strategy in 2020 and the introduc- Overall, the Sakhalin Energy’s Report provides infor- ommendations made following the analysis of the implementation. This information, exceptionally tion of innovative transport solutions to further mation on the business practices of the company, company’s previous report for 2020 are still relevant important for stakeholders, will be more complete reduce the company’s carbon footprint. It also which are based on the principles of corporate social and can be used in future reporting. and meaningful if the company includes, in its future specifies the company’s costs for environmental responsibility and sustainable development. It pro- sustainable development reports, an analysis of the protection and the amounts paid for its negative vides adequate details about the company’s impact In particular, the recommendation on the necessity impact of these programmes, positive changes and environmental impact. The document provides on society and the environment, the management to define targets for the coming year and the medium sustainable improvements in the living conditions 298 299 SAKHALIN ENERGY SUSTAINABLE DEVELOPMENT APPENDIX REPORT 2020

in the host region that have occurred as a result porting the company in its adherence to responsible APPENDIX 9 of their implementation, and progress in resolving business principles and noting the consistency of the topical issues. This will show the company’s contribu- reporting process development, confirms that the tion to the sustainable development of local commu- 2020 Sustainable Development Report of Sakhalin nities more clearly. Energy Investment Company Ltd. has received public Abbreviations and Definitions endorsement. PMD Pipeline Maintenance Depot MNR Ministry of Natural Resources The RUIE Non-Financial Reporting Council expresses a positive opinion on the Report and, sup- RUIE Non-Financial Reporting Council ANPO Autonomous Non-Profit Organisation IUCN International Union for the Conservation of Nature RAIPON Russian Association of Indigenous Peoples of the North MSH Minimum Standards for Healthcare

APR Asia-Pacific Region IFRS International Financial Reporting Standards

RS Road Safety SCM Supply Chain Management

IVMS In-Vehicle Monitoring System IFC International Finance Corporation

RES Renewable Energy Sources MChS Ministry of Emergency Situations

TLU Tanker Loading Unit NERT Non-Professional Emergency Response Team

UNGC UN Global Compact OGCM Oil and Gas Condensate Mixture

Rosnedra State BS 2 Booster Station 2 State Commission for Mineral Reserves of the Federal Commission for Agency for Mineral Resources Mineral Reserves NPO Non-Profit Organisation

GCC General Coordinating Committee CI Continuous Improvement

OPFC Onshore Processing Facility Compression Station OR Oil Refinery

BSS Bottom Seismic Stations Gazfond NSPF Gazfond Non-State Pension Fund

RTA Road Traffic Accident RTD Regulatory Technical Document

EBRD European Bank for Reconstruction and Development STC Scientific and Technical Council

IC Information Centre OPF Onshore Processing Facility

WGWAP Western Gray Whale Advisory Panel ESHIA Environmental, Social and Health Impact Assessment

CED Committee of Executive Directors Gazprom TSCC Gazprom Training Simulator Computer Centre

SIM Sakhalin Indigenous Minorities UN United Nations

KPCSD Korsakov Partnership Council for Sustainable Development HPF Hazardous Production Facility

CSR Corporate Social Responsibility HSES Health, Safety, Environment and Security

KChS Committee for Emergency Situations HSE Health, Safety, and Environment

OSR Oil Spill Response HSES-SP Health, Safety, Environment, Security and Social Performance

LUN-A Lunskoye-A Platform TPH Total Petroleum Hydrocarbons

MBIC Municipal Budgetary Institution of Culture SPZ Sanitary Protection Zone

IBC International Business Congress BCMS Business Continuity Management System

IMO International Maritime Organisation ISMS Industrial Safety Management System

ISO International Organisation for Standardisation PA-A Molikpaq Platform (Piltun-Astokhskoye-A Platform)

ILO International Labour Organisation PA-B Piltun-Astokhskoye-B Platform PERT Professional Emergency Response Team Gorny Vozdukh STC Gorny Vozdukh Sports and Tourism Complex

TAF Temporary Accommodation Facility BCMS Business Continuity Management System

GG Greenhouse Gases ISMS Industrial Safety Management System

MPE Maximum Permissible Emissions APC System Advanced Process Control System

MPC Maximum Permissible Concentrations OET Oil Export Terminal

BAP Biodiversity Action Plan FES Fuel and Energy Sector

MMPP Marine Mammal Protection Plan FS Feasibility Study

Prigorodnoye PC Prigorodnoye Production Complex FAI Federal Autonomous Institution

RPM Reservoir Pressure Maintenance FSBI Federal State Budgetary Institution

DP Delivery Point CREO Centre of Rescue and Environmental Operations

UNDP United Nations Development Programme ES Emergency Situation

HLPF High-Level Political Forum on Sustainable Development Rosnedra Central Commission for Central Commission for the Development of Mineral ALARP As Low As Reasonably Practicable the Development Reserves of the Federal Agency for Mineral Resources of Mineral RAS Russian Academy of Sciences Reserves

RUIE Russian Union of Industrialists and Entrepreneurs CCR Central Control Room

BWEG Biodiversity Expert Working Group SDG Sustainable Development Goals

SSU Sakhalin State University UNEP United Nations Environment Programme

BoD Board of Directors DES Delivered ex ship

SPZ Sanitary Protection Zone FOB Free on board

SSIP Sakhalin Salmon Initiative Programme Health, Safety, Environment, and Social Performance Action HSESAP Plan Media Mass Media GRI Global Reporting Initiative Stroitel GNСP Stroitel Gardeners’ Non-Profit Partnership ISO International Organisation for Standardisation LNG Liquefied Natural Gas PERC Pacific Environment and Resources Centre Industrial Environmental Control and Local Monitoring IEC & LMS System WGWAP Western Gray Whale Advisory Panel

PSA Production Sharing Agreement WWF World Wildlife Fund