LUKOIL GROUP SUSTAINABILITY REPORT FOR 2019 RESPONSIBLE energy CONTENTS 2 MESSAGE FROM 4 LUKOIL’S ACTIONS 6 BUSINESS MODEL 8 GEOGRAPHY THE PRESIDENT DRIVEN BY THE COVID-19 OF PRESENCE OF PJSC LUKOIL PANDEMIC 10 SUSTAINABILITY 12 MATERIAL TOPICS 14 OUR CONTRIBUTION 16 ABOUT STRATEGY AND ISSUES TO THE UN SUSTAINABLE THE REPORT OF LUKOIL GROUP OF THE REPORT DEVELOPMENT GOALS IN 2019 18 ABOUT THE COMPANY: HIGHLIGHTS OF THE YEAR 20 CORPORATE GOVERNANCE 23 Sustainability and climate change management 31 Risk management 34 Ethics and statutory compliance 35 Human rights 39 Stakeholder engagement 44 Supply chain 46 CLIMATE CHANGE 49 Context: Climate change as our common challenge 53 Approaches to managing climate change issues 56 Goals and indicators 58 Energy conservation 64 Renewable Energy Sources 66 Reduction of emissions 68 SAFETY 72 Integrated HSE management system 78 Occupational safety 87 Pipeline reliability and emergency preparedness 92 Case study. The Komi Republic 96 Case study. Safety of the Arctic Zone, northern territories and offshore facilities 99 Information security Interactive version of Sustainability Report of LUKOIL Group for 2019 100 ENVIRONMENTAL PROTECTION 103 Environmental safety program 106 Water 114 Emissions 117 Waste 120 Biodiversity conservation Case study. Biodiversity conservation program 122 in Uzbekistan 124 OUR EMPLOYEES 128 Leadership philosophy 131 Employment and diversity 132 Social policy 135 Training and development 138 SOCIETY 141 Product quality and customer relations 144 External social policy priorities 152 Supporting indigenous minorities of the North 154 CONCLUSION 156 APPENDIX w WWW.LUKOIL.COM MESSAGE FROM THE PRESIDENT OF PJSC LUKOIL The sustainable development management system changed significantly in the reporting year, with the leading role for enhancement of LUKOIL Group activities in this area given to the Strategy, Investment and Sustainability Committee of the Board of Directors of PJSC LUKOIL. All issues on sustainability reviewed at the Board of Directors undergo preliminary preparation and discussion in that Committee. Last year’s results demonstrated a 3.3% decrease in direct GHG emissions and almost a twofold decrease in methane emissions in Russia compared to the baseline of 2016, when the first target for reducing greenhouse gas emissions for Russian entities was set. Importantly, we managed to achieve this goal while at the same time increasing hydrocarbon production and refining volumes. The Company also implemented measures to reduce the impact of climate change in its foreign entities. For example, in 2019 the largest LUKOIL gas projects in Uzbekistan saw a drop in greenhouse gas emissions of 10.9% compared to 2018. These results were achieved due to investments in the modernization and construction of production facilities and infrastructure, as well as the implementation of targeted corporate programs. Consequently, the efficient Dear readers! use of associated petroleum gas (APG) reached 97.6% across all LUKOIL Group production entities, which is close Our Company continues to evolve in accordance with the UN to the technological maximum. As a result of modernization Sustainable Development Goals, which we do not see as being projects and energy efficiency measures, the Energy Intensity distant prospects, but they rather form the basis of our daily Index of our refineries is steadily improving. Oil and gas work. production entities are implementing a program for transitioning to energy efficient pumping equipment. Hence, energy The 2019 reporting year was successful for the Company consumption for production needs is being reduced annually. in terms of operational and financial results. And no less significant was that we also took specific steps to overhaul We participate in global industry-specific initiatives our system for managing climate change issues. The Board aimed at mitigating the impact of oil and gas companies of Directors of PJSC LUKOIL made important decisions on the climate. Since 2018 LUKOIL has participated in the “Zero to facilitate mitigation of climate change, including setting Routine Flaring by 2030” World Bank initiative, and currently quantitative targets to reduce greenhouse gas emissions we are implementing two infrastructure building projects and conducting inventories of sources of direct and indirect at our fields for APG collection and utilization. emissions. Assessment of the impact of climate change on production facilities and infrastructure in the Arctic and permafrost zones is planned. 2 w ABOUT CORPORATE CLIMATE SAFETY ENVIRONMENTAL OUR SOCIETY THE COMPANY GOVERNANCE CHANGE PROTECTION EMPLOYEES We continue to enhance production safety standards We continue long-term programs to support the territories in all the countries where LUKOIL operates. This covers where we operate and the indigenous minorities the occupational safety of our employees and contractors, of the North. The most successful programs, such as the Social improving the reliability of technological systems and Cultural Projects Competition, include not only Russia and equipment, and environmental protection. In 2019 but also the foreign countries where LUKOIL has a presence. we continued preparation for transitioning to the new international standard ISO 45001:2018, which expanded Our 10th Sustainability Report is being released at a time the requirements for elaborating safety management systems. when the global community is taking its first steps to recover We are also stepping up work with contractors in this area. from the COVID-19 virus pandemic. At LUKOIL, we took prompt measures to protect the health of employees, while All LUKOIL Group entities continually analyze occupational our plants and filling stations continued working to support safety indicators, and make maximum efforts to strengthen the economy of regions and countries where we operate. measures aimed at preventing injuries. Also, state-of-the- The pandemic has proved how important it is to address art technologies are being introduced to boost the level a wide range of global problems, including issues relating of industrial safety. to sustainable development, and thereby to increase society’s “immunity” to all challenges that may arise. The decrease in basic injury rates among LUKOIL employees and among our contractors in the last five years demonstrates the effectiveness of our efforts. Another achievement of the Company has been a continuous reduction in oil and petroleum product spills in Russia Vagit Alekperov in the past three years – and in 2019 this figure fell by half President, Chairman of the Management compared to the previous year. Committee of PJSC LUKOIL Furthermore, as a result of the implementation of the Environmental Safety Program we reduced pollutant emissions, ensured the disposal of all waste generated, and reduced the amount of waste accumulated in entities prior to their joining LUKOIL Group. The Company is expanding its participation in biodiversity conservation projects: together with the Ministry of Natural Resources of the Russian Federation and the WWF-Russia Environmental Fund, we have launched a joint saiga antelope conservation project in Southern Russia. We are increasing the scope of education programs for our employees through the use of modern distance- learning tools, which have become especially important during the coronavirus pandemic. In 2019 LUKOIL employees spent about two million hours using distance training in corporate programs. 3 WWW.LUKOIL.COM LUKOIL’S ACTIONS DRIVEN BY THE COVID-19 PANDEMIC During the preparation of this Report months (a portion of specialists involved management, psychological resilience in March 2020, the COVID-19 pandemic in the West Qurna-2 project had during the lockdown period and other was already beginning to spread returned home before the active stage topics were held, and employees globally affecting many countries, of the pandemic began). At distant experiencing unusual stress were given including Russia. production facilities, the Company the opportunity to obtain the advice arranged for the transportation of psychologists remotely. Shortly after the first notifications of employees to local healthcare centers regarding the growing threat when required. To unite and consolidate all of large-scale infection, LUKOIL employees, a special “MYVMESTE” took measures to protect the health Because of the ongoing nature (“We are in this together”) channel of its employees by preventing further of their operations, all of the Company’s was created, and virtual hobby clubs contagion. For immediate response plants continued functioning. For those were launched. Several corporate and coordination, PJSC LUKOIL who remained at their workplaces, activities have now moved to the virtual and all Group entities created command conditions to secure physical distancing space (such as the competition centers which were put in charge of daily to the maximum extent possible were for young professionals). For families monitoring and situation awareness. created; the number of production with children, we tried to assist personnel working in shifts was reduced; with one of the most difficult issues From the very start of the pandemic, and schedules of office-wide on-call duty during the lockdown period – how enhanced sanitary protection measures were introduced. To protect fuel station to keep children occupied. Jointly were implemented across offices operators, protective shields were with the Higher School of Economics, and enterprises.