THE REPORTING YEAR’S CHANGES AND RESULTS
GREATER INVOLVEMENT ON THE PART OF THE BOARD OF DIRECTORS IN MATTERS OF SUSTAINABILITY, SOCIAL AND ENVIRONMENTAL RESPONSIBILITY, AND CLIMATE CHANGE
APPROVAL OF THE ANTI-CORRUPTION AND HUMAN CAPITAL MANAGEMENT POLICIES
CONTINUOUS IMPROVEMENT OF THE CARBON MANAGEMENT SYSTEM
CHANGES TO PROCUREMENT MANAGEMENT BUSINESS PROCESS, THE INTRODUCTION OF A COUNTERPARTY INTEGRITY MONITORING SYSTEM
CONTRIBUTION TO SDGs
The total financial contribution to achieving SDGs stood at
RUB 224 billion
PLANS FOR 2021 AND THE MIDTERM

Finalize LUKOIL Group’s Strategic Development Program for 2022-2031 and Climate Strategy

Improve the cooperation in the supply chain in order to implement responsible business practices

Management System

LUKOIL’s long-term development model is focused on satisfying society’s energy needs in an economically, environmentally, and socially acceptable manner. Environmental, industrial, social, and personal safety are among the Company’s absolute priorities. LUKOIL Group’s Strategic Development Program defines sustainable development as one of its strategic goals.

Organizational structure

The Board of Directors, the Strategy, Investment, Sustainability and Climate Adaptation Committee of the Board of Directors Before 2020: the Committee was called the Strategy, Investment and Sustainability Committee. , the President and the Management Committee of PJSC LUKOIL determine the course of action to be taken at a strategic level. In addition, the Sustainability Task Force and Corporate Secretary actively engage with the Board of Directors and its committees on these matters.

At the operational level LUKOIL’s Health, Safety and Environmental Committee (the HSE Committee), the Sustainability Task Force, the Decarbonization and Climate Change Adaptation Task Force, heads of LUKOIL’s structural business units, and heads of Group entities analyze sustainable development activities and elaborate necessary proposals.

The communication structure on aspects of sustainability (see the chart) illustrates the changes that were introduced in 2020 following the creation of the climate strategy (see the Climate Change section for more details). Sustainable development indicators are incorporated within the personnel incentive program, and cover all PJSC LUKOIL employees as well as the heads and managers of the Group’s entities.

The Company has created a system of communication on sustainable development matters. The established organizational structure incorporates all management levels, from the Board of Directors to LUKOIL Group entities. Sustainable development tasks are monitored at both the strategic and operational levels.

During the process of improving our sustainability management system we adhere to the UN Sustainable Development Goals and the guidelines of the World Business Council for Sustainable Development (WBCSD).

In 2020, LUKOIL was invited by the Russian Ministry of Economic Development to join the Expert Council for Sustainable Development, chaired by Russian Minister of Economic Development Maksim Reshetnikov. The Council addresses the social and environmental aspects of corporate activities as well as the private sector’s contribution to attaining the UN SDGs.

Organizational Structure of the Sustainable Development Management System

Risk Management

PJSC LUKOIL has established a risk management system that regularly identifies, describes, evaluates, and monitors possible events that could adversely affect the Company’s activities, and elaborates measures to prevent their occurrence or to minimize their negative impact should they occur. The Company is constantly working to identify and assess new risks and to update information in the corporate information system, including as it applies to sustainability risks.

PJSC LUKOIL’s Risk Management and Internal Control Policy sets forth unified and mandatory basic principles and approaches to organizing the Company’s risk management system, outlining its key objectives, and defining the tasks of risk management system participants.

The Company has identified the following key sustainability risks:

  • Risks to public health and those associated with the spread of epidemics
  • Climate change risk
  • Health, safety and environmental risks
  • Risk of shortage of qualified personnel
  • Reputational risk

Risk data are included in reports submitted to the Company’s management when deciding on whether to take part in investment projects and when creating budgets, investment programs related to the Group’s entities, and strategic development programs. Information on the most pertinent sustainability risks, including climate change and HSE risks, can be put forward for discussion by the Audit Committee as well as the Board of Directors, if necessary.

Board of Directors

The Board of Directors of PJSC LUKOIL plays a critical role in defining the Company’s strategy and initiatives concerning sustainability and the climate change agenda. The growing involvement of Board members is evidenced by the increased number and frequency of issues addressed: during 2020, reports on specific issues were included on the agenda of almost every meeting. The appointment in 2020 of Leonid Fedun, Vice President for Strategic Development, and member of the Strategy, Investment, Sustainability and Climate Adaptation Committee, as the member of the Board of Directors who is directly responsible for Company activities related to climate change was a significant event for the Company.

An independent Board member, Toby T. Gati, contributes significantly to advancing the Board’s efforts to address climate change and the SDGs. She is actively involved in the discussion of these topics and brings international experience and in-depth expertise to the table.

In 2020, the Board of Directors addressed 13 issues, including:

  • LUKOIL Group’s development in the context of energy transformation
  • Enhancement of the risk management and internal control system
  • Assessment of the occupational health and safety status and measures to improve the level of work safety
  • Assessment of the results of remediation efforts following environmental incidents
  • Relations with investors and shareholders
  • Approval of the Anti-Corruption and Human Capital Management policies of PJSC LUKOIL
  • Review of the LUKOIL Group’s Sustainability Report for 2019

Information updates for members of the Board of Directors and the Management Board were held thanks to extensive assistance from the Corporate Secretary, Natalia Podolskaya.


Issues addressed at Board Committees
Committee
SUSTAINABILITY-RELATED ISSUES ADDRESSED
Strategy, Investment, Sustainability and Climate Adaptation Committee

Seven meetings were held in 2020 to review various issues, including:

  • The Roadmap for the Climate Adaptation Strategy
  • The Program for the development of renewable energy sources (RES)
  • The petrochemical and gas industry development program
  • HSE status and measures to improve work safety
Audit Committee

Key issues covered included further improving the risk management and internal control system, as well as recommendations to the Board of Directors for approval of the Anticorruption Policy of PJSC LUKOIL.

Human Resources and Compensation Committee

The committee reviewed the issue of recommendations to the Board of Directors on the approval of the Human Capital Management Policy of PJSC LUKOIL. The matters discussed included:

  • Improvement of the payroll system for senior executives of PJSC LUKOIL
  • KPI performance in the reporting period
  • The effectiveness of proactive and preventive measures to ensure compliance with workers’ labor rights
  • Measures to incorporate ethical standards and the analysis of employee feedback on these issues

Health, Safety and Environment Committee of PJSC LUKOIL

The HSE Committee is an effective mechanism for facilitating interactions between the Company’s management and functional and linear divisions of PJSC LUKOIL and LUKOIL Group entities on health, safety, and environmental issues.

The Committee holds meetings twice a year. The first meeting considers material risk registers for LUKOIL Group in HSE issues, as well as regulatory developments in the countries of operation. These factors are subsequently taken into account during the development and implementation of target programs. The second meeting summarizes the results of the health and safety programs for the reporting year, schedules activities for the next period, and considers measures to enhance the culture of safety. In 2020, the Committee also discussed the results of the GHG emissions inventory and potential paths towards decarbonization.

Task Force

Sustainability Task Force

The Sustainability Task Force focuses on establishing a uniform corporate position and preparing recommendations for LUKOIL’s management bodies on various aspects of sustainable development. The Task Force also serves as a liaison between the Company’s structural units and augments the system used to gather, prepare, and disclose reporting information.

Despite the necessity to work remotely during the pandemic, the Task Force held seven meetings in 2020 (four in 2019), addressing 20 issues related to sustainability reporting, climate change, human rights, and responsible supply chain. To expand the expertise of Sustainability Task Force members, independent consultants and experts spoke at the meetings on the following topics:

  • The Climate Action 100+ Net-Zero Emissions Company Benchmark
  • Reporting requirements in the CDP and recommendations of TCFD The Task Force on Climate-related Financial Disclosures.
  • An assessment of physical risks due to climate change
  • An analysis of legislation regulating GHG emissions in the countries where LUKOIL Group operates
  • Human rights and responsible supply chain management

The Sustainability Task Force focuses specifically on organizing the preparation of the LUKOIL Group Sustainability Report, as well as analyzing stakeholder feedback. Sustainability Task Force meetings regularly included information on the preparations progress and results of the independent audit of the Report, on the concept of the 2020 Report and material topics to be included in it, and on the Company’s priority SDGs. Toby T. Gati, an independent member of the Board of Directors, was an active participant in discussing the material issues of the Report for 2020.

In future periods the Sustainability Task Force objectives include further improving sustainability practices and their integration into the Company’s business processes, with special emphasis on developing responsible supply chain and strengthening human rights observance practices.

The Decarbonization and Climate Change Adaptation Task Force

This task force was set up in 2020 to elaborate future steps to be taken to implement the Company’s climate strategy.

Corporate Secretary

The Corporate Secretary, Natalia Podolskaya, is actively involved in improving LUKOIL’s sustainable development activities, focusing on supporting corporate initiatives and the practical application of the expertise and exceptional competencies of Board of Director members in this area.

Natalia Podolskaya pays special attention to developing the annual action plan for the Sustainability Task Force, preparing meetings, and organizing presentations by external experts and other stakeholders. In 2020, she initiated training sessions and courses for members of the Sustainability Task Force, as well as for employees of PJSC LUKOIL and Group entities.

The Corporate Secretary is involved in promoting LUKOIL’s best practices in sustainable development to the expert and scientific community, and speaks at professional forums dedicated to shaping the corporate management system for sustainable development. Natalia Podolskaya has been appointed Head of the Sustainability / ESG Task Force of the National Association of Corporate Secretaries. In 2020, the Sustainability Task Force had its first video meeting, featuring Toby T. Gati, a Board member, as a speaker on a panel dealing with corporate governance trends as they relate to Environmental, Social and Governance (ESG) factors.

Центральное здание лукойл

of sustainable development. Responsible business practices

LUKOIL’s corporate culture was shaped by the views and values of its founders, who were well ahead of their time. In the early 1990s, when the first private companies started to appear in Russia, V. Alekperov, now the President of PJSC LUKOIL, was convinced that business could be built with the environmental and social well-being of society in mind. Bringing this idea to life, in the early years of the Company’s operations basic mechanisms were established, facilitating the step-by-step transformation of diverse and persistent activities into a coordinated sustainability management system.

The very first staff schedule of PJSC LUKOIL introduced the position of a Health, Safety and Environment Specialist. It was not until almost 10 years later that a federal law Federal Law No. 7 of January 10, 2002 “On Environmental Protection”. was approved in Russia requiring all entities that have an impact on the environment to appoint specialists responsible for this aspect of their business. By that time, LUKOIL had already completed its first environmental safety program, The Health, Safety and Environmental Policy of LUKOIL Group in the 21st Century had been elaborated, and the Zero-discharge principle for offshore projects had been put in effect.

Despite the challenging social and economic situation in Russia in the 1990s, the LUKOIL Charity Fund was established to support people and businesses across Russia. Indeed this was one of the first-priority decisions made by Company managers. The development of corporate philanthropy in Russia only began in the 2000s. By that time the LUKOIL Charity Fund, together with the Group’s entities, had been holding a Social Projects Competition in several regions of the country.

A crucial decision relating to the social sector was preserving the trade unions. These were later merged into one structure: the Association of Trade Union Organizations. Trade unions joined together with employees and helped develop the Company’s social policy as full partners.

In 2020, 30 years after the Company was established, LUKOIL Group has clear strategic goals defined and a sustainable development management system in place that is committed to achieving new goals related to climate change, the environment, labor protection, and social welfare.