1. Message from the Chairman of the Committee of Executive Directors and Chief Executive Officer

This is Sakhalin Energy’s 2017 Sustainable Development report (SDR). As with previous reports, it was prepared in compliance with Global Reporting Initiative (GRI) standards.

The Report reflects comments and recommendations voiced during public meetings, consultations and via opinion polls. This SDR is not a goal in and of itself, but a means to establish constructive dialogue with our key stakeholders, the Russian Party, our customers and the public.

Sakhalin Energy’s openness both stems from and demonstrates our active engagement with the community, our con-tractors, NGOs, Sakhalin regional and municipal authorities and allows us to effectively address multiple issues.

The company has been communicating information to its stakeholders in the Sustainable Development Report format since 2009. This is the third SDR with a focus on a specific theme. Our previous reports were devoted to safety and environmental protection while our 2017 report highlights human rights.

Respect for people and strict adherence to human rights standards are the cornerstones of ethical business conduct in our company. It is no accident that Sakhalin Energy became the only Russian company that was invited, along with four other companies from around the world, to participate in the development and testing of the UN Guiding Principles on Business and Human Rights, the first UN standard in this area.

We have been running one of the largest and most innovative projects in the global oil and gas sector in compliance with the best industrial, environmental and social performance standards. We paved the way for offshore oil and gas development in Russia in a challenging natural environment. We built Russia’s first liquefied natural gas plant and introduced Russian LNG to the global market. We continue to increase our production capacity by using cutting-edge technology, improve our existing processes and develop our personnel.

Sakhalin Energy managed to set a number of records in 2017. Our LNG production reached 11.49 mln t, almost 20% above the 9.6 mln t design capacity. The company exceeded its crude oil and LNG production targets and shipped 67 oil cargoes (vs the target of 62) and 177 LNG cargoes (vs the target of 170) to its customers.

Sakhalin Energy operates on Sakhalin Island and therefore ensures compliance, first and foremost, with Russian laws, and as well as with international regulations, including the Universal Declaration of Human Rights, the UN Global Compact Principles and others. In addition to employee protection guarantees mandated by Russian Law, the company has been providing a wide range of benefits to its employees and their family members. We have been focusing on occupational safety and promoting our employees’ professional development. It is worth noting that a significant number of Sakhalin Energy’s business principles are aligned with Sustainable Development Goals (SDG) adopted by the UN General Assembly in 2015.

Our company respects the human right to a clean and healthy environment. Acting in line with SDG6 (Clean Water and Sanitation), SDG7 (Affordable and Clean Energy), SDG13 (Climate Action), SDG14 (Life Below Water) and SDG15 (Life on Land), we take various measures aimed at reducing our environmental impact and strive to prevent any emergencies. We are convinced it is better to avoid such events rather than mitigate their impact. In this, we are guided by our most important principle stated as Goal Zero – No Harm to People, No Damage to Environment. We have had no events that could be classified as emergencies since the start of Sakhalin-2 operations. In 2017, we did not have a single oil spill at our assets.

Our environmental performance has been recognised by the Russian and international business community. For a second year in a row, Sakhalin Energy tops the Russian Oil and Gas Sector Environmental Responsibility Ranking List. This demonstrates our excellent HSE performance and serves as proof of Sakhalin Energy’s transparency and responsibility.

Focus on engagement and giving our people an opportunity to freely speak their minds is one of our fundamental HR principles. Sakhalin Energy uses a number of effective tools to solicit feedback from our employees, including our annual People Survey. We use the survey results to build working relationships within our team or to make adjustments to our processes and the workplace environment.

When dealing with external stakeholders, we also use an integrated approach. Effective external stakeholder engagement remains an important element of Sakhalin Energy’s success story. The company continues to run regular public meetings and consultations. In 2017, in addition to our annual events, we had several public meetings specifically related to our LNG Train 3 project.

In addition to active community engagement, our company has implemented its Grievance Procedure, another important tool to protect human rights and freedoms. This document complies with the best international standards, including the UN Guiding Principles on Business and Human Rights, and has been recognised both in Russia and internationally.

Anti-bribery and anti-corruption efforts remain at the top of the company’s agenda. By continuously monitoring and reviewing these issues, Sakhalin Energy takes steps to reduce the likelihood of bribery and corruption-related risks. Whilst pursuing the highest business ethics standards, our company has been developing a corporate culture based on mutual respect and trust. Over many years, we have been taking systematic efforts to combat bribery and corruption, demonstrating our commitment to SDG16 (Peace, Justice and Strong Institutions).

Striving to ensure respect for and promotion of human rights, we pay special attention to community and social development programmes. By investing in socially important projects, we continue to give preference to partnership programmes. This is fully aligned with SDG17 (Partnership for the Goals). We promote community activities and public responsibility and thus help to develop the region where we operate.

Sakhalin Energy not only observes human rights and recognises their importance, but also promotes them jointly with our partners and shareholders. In 2017, the company received the Shell CEO Special Merit Award for its Strengthening Sustainable Business Through Managing Human Rights Risks Project.

Over the years, our company has achieved a lot, but we keep moving on. We continue to optimise our processes while staying focused on safety and reliability. We will pay special attention to our growth projects and further process improvement in all areas of activity.

The year 2018 has been declared the Year of Civic Participation and Volunteering. The Universal Declaration of Human Rights was signed 70 years ago. In this special year, we will continue to operate in strict compliance with Russian and international human rights principles and standards. We realise that business can only be successful while operating in a prosperous society; thus, we will continue to uphold our commitment to addressing sustainable development issues and challenges.

Roman Dashkov

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