Ethics and Human Rights

Our corporate values are at the heart of our business approach. These values enable us to observe high ethical standards, including unconditional statutory compliance, strict observance of human rights, zero-tolerance towards corruption of any kind, and adherence to the rules of fair trade.

Business Ethics

The ethical principles set forth in the PJSC LUKOIL Code of Business Conduct and Ethics are a fundemental part of our corporate culture and cover all aspects of doing business. We also promote ethical behavior among our business partners, suppliers and contractors, informing them about our rules, and requiring them to familiarize themselves with the Code of Business Conduct and Ethics of PJSC LUKOIL.

Group entities are instructed to ensure that all personnel are made familiar with the Code of Business Conduct and Ethics as well as main local regulatory acts (LRAs). This recommendation is communicated to the entities’ directors, as well as to HR managers during annual meetings. All new hires at LUKOIL Group entities are required to sign a document affirming that they are familiar with the Code of Business Conduct and Ethics and key LRAs.

The Company has grievance mechanisms (a hotline, Business Ethics Commission) that any staff member can use to report violations. In 2020, nine inquiries were filed with the Business Ethics Commission (seven in 2019); the inquiries mainly related to labor relations during the COVID-19 pandemic, including the specifics of working remotely. Each case was investigated, and the Commission provided clarifications or feedback.

The Company’s internal control and internal audit systems are intended, among other things, to enhance the efficiency of risk management and to provide LUKOIL’s management bodies and external stakeholders with reliable and up-to-date information on Company activities.

Among the most effective methods of monitoring compliance with LRA requirements and corporate ethics standards are internal audits and consultations. Audits conducted in 2020 uncovered 88 significant See Appendix 6 for the definition of a significant deviation/deficiency related to non-compliance with LRA requirements. deviations/deficiencies related to non-compliance with LRA requirements (53 in 2019). This growth was the result of changes made to the audit process, including an increase in the scope and number of audited areas, as well as in the provision of consultations by the internal audit unit for LUKOIL Group entities during the year.

The deficiencies identified were mainly associated with the unsatisfactory execution of corporate procedures. At the same time, no violations of the Code of Business Conduct and Ethics of PJSC LUKOIL and LRAs were recorded that would have had a significant effect on the Company’s achievement of its strategic goals.

Preventative guidelines have since been prepared for LUKOIL Group entities. Details of the most significant and systematic deviations/deficiencies were reported to the heads of group entities and the functional and line managers of PJSC LUKOIL.

Anticorruption Policy

LUKOIL Group adopts a zero-tolerance approach towards corruption of any kind or manifestation, regardless of jurisdiction and local laws, even if the local laws permit certain types of behavior (for example, facilitation payments).

We do not engage in or in any way encourage corrupt practices, including by our business partners, and we do our utmost to prevent them. The Company does not tolerate any payments or other forms of incentives provided to representatives of state authorities.

LUKOIL’s stance on the above issues is outlined in the LUKOIL Anticorruption Policy, which was elaborated and approved in 2020 according to the instructions of the Board of Directors.

The Policy sets common principles, goals, and objectives for combatting corruption, and defines key activities that reduce the chance of corruption risks in the following contexts: gifts and hospitality, conflicts of interest, charitable donations and sponsorships, interaction with counterparties, participation in politics, relations with competitors and public authorities, etc.

The Company conducts due diligence screenings of the Group’s counterparties (see details in the Supply chain” section).

New employees are required to sign the Policy upon joining the Company.

Any stakeholder can report suspected or known violations of anti-corruption laws or Company Policy via an established hotline and can also agree to assist in such investigations.

The Hotline can be reached via anticorruptionline@lukoil.com. The confidentiality of messages received is guaranteed.

Tax Policy

The Company’s reputation as a good-faith taxpayer has been confirmed by the recent transitioning of the Group’s Russian entities to a new form of tax administration. This new system of tax monitoring gives the tax authorities real-time access to data from the Group’s accounting systems and documents.

LUKOIL is one of the largest taxpayers in Russia, paying taxes in more than 60 constituent entities of the Russian Federation. Thus, the Company has a significant impact on the income of Russian regions. Foreign entities of LUKOIL Group operate in over 45 jurisdictions, of which the largest taxpayers are companies located in Romania, Bulgaria, Italy, and Belgium.

We strictly abide by the applicable tax laws of the Russian Federation, international treaties, the legislation of foreign jurisdictions where Group entities operate, and the provisions of international statutes and directives. Group companies do not enter into transactions intended to reduce tax remittances and do not engage in aggressive tax planning practices.

The management and control system for tax relations in LUKOIL Group PJSC "LUKOIL" Management Committee approved LUKOIL’s Policy on Cooperation with its Subsidiaries in Managing the Tax Planning and Administration Business Process through Resolution No. 18 dated September 16, 2019. is integrated with the general mechanism for strategic and corporate management, planning, and control LUKOIL Group’s Policy on Strategic Management, Planning, and Control in LUKOIL Group was approved by Resolution No. 12 of the Management Committee dated June 18, 2018. and is designed to prevent tax risks and ensure timely and complete fulfillment of tax liabilities.

There is a consolidated system in place for managing tax relations, ensuring a systematic and uniform approach to applying tax legislation across LUKOIL Group. All of the main processes for monitoring and fulfilling tax liabilities are automatic, and their effectiveness is assessed regularly. LUKOIL’s Tax Department is a unified competence center for tax matters.

A global trend in tax administration is the tightening of tax controls over the activities of international holdings through a set of measures elaborated by the OECD (BEPS Plan). These are intended to strengthen controls over the distribution of the tax base of multi-national holdings, including more stringent tax controls in the area of transfer pricing.

LUKOIL Group has created the necessary environment to comply with transfer pricing legislation. We have controls in place that allow us to perform a comprehensive assessment of applicable market pricing principles in principal supply chains and intra-group financing. We effectively employ the method of signing transfer pricing agreements with the tax authorities to eliminate transfer pricing risks. Such agreements have been concluded in Russia, the Netherlands, Austria, Cyprus, Switzerland, Italy, Romania, and the United States of America. To ensure the transparency and completeness of the tax base in the context of the jurisdictions where Group entities operate, LUKOIL annually prepares the BEPS 13 Country Report, Master File, and National Documentation.

In 2020, a total of RUB 1,096 billion was remitted to governments according to IFRS Data include the amount of taxes (except income tax), excise and export duties, income tax (current + deferred). .

Statutory compliance

LUKOIL respects the laws of the countries in which its facilities and offices operate, constantly strives to prevent legal violations, and upholds the principles of fair business conduct. LUKOIL Group does not tolerate any manifestations of bad faith, or abuse of a dominant or monopolistic position.

There were no penalties imposed on the Company in 2020 by state authorities in cases See href="/appendices/abbreviation/">Appendix 6 for the definition of a "Case". related to breaches of anti-corruption regulations, or involving product quality and labor relations, which resulted in personal injuries or loss of life of personnel and product consumers, or in amounts exceeding RUB 1 million. No material claims See href="/appendices/abbreviation/">Appendix 6 6 for the definition of a "Material claim relating to a breach of antitrust law" relating to any violations of antitrust laws were initiated against the Company. Five significant fines See href="/appendices/abbreviation/">Appendix 6 for the definition of a "Material claim relating to a breach of environmental law. Information about the amount of the significant fine is included in the description of this term". totaling RUB 105 million related to the Company’s environmental impact were paid in Russia. In 2019, there was one major fine of RUB 68.9 million.

Human Rights

We engage in a constructive dialogue on human rights with stakeholders in the Group’s operating regions. Our stance on human rights extends to our relationships with partners and counterparties.

We recognize, respect, and uphold human rights, including freedom of speech, and operate under the fundamental principles outlined in the UN Universal Declaration of Human Rights. Our commitments apply to all the Company’s regions of operation and areas of activity. Risk assessments related to human rights form part of the general risk management system.

LUKOIL Group prohibits all forms of violence and abasement of human dignity, aggression of any kind, and the use of child, forced, or slave labor. We believe that it is unacceptable to hinder the work of human rights organizations and show respect for their activities carried out within the existing legal framework.

In terms of labor rights, the Group’s entities comply with established norms related to working hours, create a favorable environment for professional training and career development, and ensure equal pay for employees in the same job positions. The Company regularly organizes meetings to discuss human rights issues, such as the right to fair and favorable working conditions and social security rights, arranges sessions with trade union representatives, and maintains a high level of collective agreement coverage for employees.

Twice a year, Professional Training Days for managers of LUKOIL Group entities are organized, where the most current issues are discussed. For example, in 2020, this event included training on “Social engineering” devoted, among other things, to security issues in modern conditions of information systems development.

The Company continuously monitors the observance of human rights. In 2020, there were no reports of human rights violations (including child, forced, or slave labor, and involuntary resettlements of indigenous people) by the Group’s entities. HR audits HR audits are performed to check the compliance of processes related to the registration of employment relations and the payment of wages, with the labor legislation of the host country and corporate regulatory acts, as well as other labor law requirements. were conducted in six Group entities: no material See Appendix 6 for the definition of a "Material violation of human rights". violations of human and labor rights were identified.

Stakeholders can raise concerns about the Company’s non-compliance with human rights via various communication channels (e.g., ethics and anti-corruption hotlines) and through the HR units or trade unions. If a violation of human rights is committed as a result of the activities of the Company or its representatives, LUKOIL takes the necessary measures to eliminate the consequences of such violations.

Share of employees covered by collective agreements in LUKOIL Group, %