2. About the Report

2.1 General Information

Sakhalin Energy treats sustainable development reporting as a corporate governance tool that systematises its non-financial efforts (environmental, social and other programmes and initiatives) and improves the quality of corporate governance, which increases the overall sustainability of the company. An open reporting culture demonstrates the company’s commitment to corporate social responsibility (CSR) and sustainable development (SD) principles and concepts and provides publicly meaningful information about the economic, environmental, social and ethical aspects of the company’s activities.

CSR and SD reporting benefits Sakhalin Energy in a number of ways, in particular, allows the company to:

  • identify the stakeholders’ opinions and expectations of the company’s activities and clarify the company’s CSR and SD strategy;
  • demonstrate that the company is aware of and takes into account the stakeholders’ opinions, creating long-term trust as well as transparent and constructive cooperation;
  • serve as an effective tool for identifying, preventing, and mitigating non-financial risks, creating a sustainable reputation (as a responsible employer, partner, etc.);
  • create new opportunities and areas of involvement for the company in production, environmental, and social spheres;
  • identify CSR and SD performance indicators, evaluate and apply them to enhance the quality of managerial decisions at all levels;
  • help to comply with the principle of continuous improvement and stimulate the subsequent improvement of internal and external processes in the company;
  • increase the company’s competitiveness.

The company regularly analyses national trends and new requirements in the field of non-financial reporting. In May 2017, the Government of the Russian Federation approved the Public Non-Financial Reporting Concept and the Action Plan for the Implementation of the Public Non-Financial Reporting Concept. These are the first regulatory documents in the Russian Federation which define approaches to non-financial reporting at the state level. Sakhalin Energy actively participated in the discussion of this concept during the expanded meeting of the RUIE Committee on Corporate Social Responsibility and Demographic Policy, dedicated to the topic “Responsible Business Practices and Public Non-Financial Reporting: Focus on the Sustainable Development Goals".

The company monitors global trends and progress in the area of non-financial reporting. In 2017 the European Commission adopted its recommendations on non-financial reporting including the methodology and indicators for disclosure, prepared in accordance with the EU Council Directive on Non-Financial Disclosure. When preparing the 2017 Report, the company took note of all recommendations.

 In 2016 Sakhalin Energy began to include information on its contribution to achieving the Sustainable Developments Goals (SDGs) in the annual Sustainable Development Reports. This work continues in the 2017 Report (see Section 3. Corporate Social Responsibility and Sustainable Development and Appendix 1. GRI Standards Compliance Table).

Each of Sakhalin Energy’s three latest Sustainable Development Reports is devoted to a specific theme. The 2017 Report is dedicated to human rights. There was a strong basis to select this topic for the Report:

  • the company’s Report will be released in the lead-up of the 70th Anniversary of the Universal Declaration of Human Rights.
  • As part of the public endorsement process, the company received recommendations from the RUIE Non-Financial Reporting Council to include in the subsequent Reports a description of specific practices for the application of corporate documents and management procedures that take into account various aspects of social and economic human rights in stakeholder engagement.
  • Respect for human rights is one of the key values and principles of doing business by Sakhalin Energy. The company strives to comply with the most advanced standards regarding human rights implementation. Moreover, Sakhalin Energy is involved in the development and promotion of new human rights standards and policies.

The Report reflects the company’s approaches and practices in various areas of its activities with respect to human rights. The Report also discloses material topics, issues, and indicators of the company's economic, environmental, and social performance, including the stakeholders’ areas of concern and executives’ appraisals of the company’s performance in the reporting period.

The target audience of the Report comprises internal and external stakeholders listed in Section 6. Stakeholder Engagement Management.

The Report is prepared in accordance with the procedures and schedule approved by the Committee of Executive Directors. The procedures provide for the establishment of a dedicated working group to prepare the Report. This group includes managers and specialists from a majority of the company’s divisions, responsible for particular aspects of corporate governance and production activities, as well as for economic, social, and environmental impacts. The Report is approved by the Committee of Executive Directors.

This Report has been prepared in accordance with the GRI Standards: Core option.

The Report is posted on the company’s website and distributed in Sakhalin communities (through the company’s information centres and district libraries), and among key stakeholders through targeted mailing.

The company values opinions, suggestions and comments from all stakeholders on this Report. To share your opinion, you may:

2.2 Principles of the Report Content and Quality Definition

The company acknowledges and uses the following SD reporting principles presented on the Principles of Report Content and Quality Definition chart.


Report content
and quality
definition
  • Stakeholder Engagement
  • Materiality
  • Completeness
  • Clarity
  • Balanced Approach
  • Sustainable Development Context
  • Timelines
  • Accuracy
  • Reliability
  • Compatibility
2.3. Defining Material and Priority Topics to Be Included in the Report

Material topics of the company’s activities reflected in the 2017 Report, and their priority were identified in close cooperation with all key stakeholders of the company, including:

  • shareholders
  • lenders
  • government authorities
  • customers
  • personnel
  • contractors
  • community
  • mass media
  • Japanese stakeholders
  • international organisations
  • NGOs and other non-profit organisations
  • other stakeholders

To determine material topics for inclusion in the Report, the company used the following procedure:

1. Determining material topics to be included in the 2017 Report based on external and internal stakeholders’ opinions

The company used the most preferred engagement mechanisms and information exchange channels for interacting with each group of stakeholders, taking into account the practice of relationships (see Section 6. Stakeholder Engagement Management). Representatives of stakeholders were involved in defining the Report content by means of:

  • electronic surveys and surveys at various events;
  • interviews during personal meetings;
  • dialogue meetings with external stakeholders;
  • discussions with the company personnel.

Two rounds of dialogue meetings were traditionally held while preparing the Report. The stakeholder representatives had an opportunity to put questions to the company’s representatives and to receive answers, as well as to express their opinions on the materiality of any aspect of Sakhalin Energy’s activities (see Appendix 2. Comments and Suggestions of Stakeholders on Individual Aspects, Indicators and/or Programmes and Company’s Response and Commitments).

In addition, in defining the Report content, the company took into account the following:

  • results of regular media monitoring;
  • results of annual public opinion survey and analysis of the subjects of the grievances submitted to the company (see Section 6. Stakeholder Engagement Management);
  • recommendations and comments regarding the 2016 Sustainable Development Report and recommendations of the RUIE Non-Financial Reporting Council that conducted its public endorsement.

The company has also analysed the materiality of the topics presented in the non-financial reports prepared by Russian and foreign companies in accordance with the best international practices.

Detailed information on the results of stakeholder engagement conducted in the preparation of the Report, including dialogues, surveys, etc., is presented in the Most Priority Topics to Be Included in the 2017 Report Based on Stakeholders’ Opinions table.


Most Priority Topics to Be Included in the 2017 Report Based on Stakeholders’ Opinions

Topics

Number of answers

Included in the Report

(sections of the Report)

Results of activity: assets and development projects

161

4.2

Environmental, health, and social impact assessment of the Sakhalin-2 project

137

3.5.2

Importance of the Sakhalin-2 project for the Russian Federation and the Sakhalin Oblast

130

7.1

Financial benefits to the Russian Federation and the Sakhalin Oblast

127

7.2

Stakeholder engagement in 2017

123

6

General information about Sakhalin Energy and the Sakhalin-2 project

122

4.1

Mission, vision, values and principles of the company

121

5.1

Health, safety, environmental and social performance management system

116

3.5

Waste management

112

8.1.3

Russian content, contracting and procurement management, vendor development programme

109

7.37.5

Impact on water bodies

107

8.1.2

Labour safety and protection

107

9.2

Impact to the atmospheric air

104

8.1.1

Learning and development

104

9.1.7

Oil spill prevention and response preparedness

102

8.4

Risk management system

100

5.6

Environmental protection costs and payments for the negative impact

97

8.1.7

Anti-bribery and corruption

94

5.7

Sakhalin Energy's CSR system, Sustainable Development Policy, and performance standards

92

3.23.4

Engagement strategy, principles, and mechanisms

92

6.1

Comments and suggestions of the stakeholders concerning specific aspects, indicators, and/or programmes of the company to be included in the 2017 Report as well as corresponding response and commitments of Sakhalin Energy are listed in Appendix 2. Comments and Suggestions of Stakeholders on Individual Aspects, Indicators and/or Programmes and Company Response and Commitments.

2. Evaluation of the topic materiality based on two impact criteria:

  • impact on assessments and decisions of stakeholders;
  • significance of the economic, environmental, and social impact of the company’s activities.

The results of the evaluation process are presented in the Matrix below.


matrix

Most Priority Topics to Be Included in the 2017 Report Based on Stakeholders’ Opinions

Topics

Substantiation

Stakeholders for whom the topic is the most priority

Reference to the relevant section of the Report

Results of activity: assets and development projects

Sakhalin Energy aims to be the primer energy source and conducts its business on the basis of efficient, reliable, and safe production, as well as a responsible attitude toward social and environmental issues

Shareholders, government authorities, customers, personnel, contractors, community

4.2

Mission, vision, values and principles of the company

Sakhalin Energy is guided by general business principles.  These principles are based on values such  honesty and integrity, respect and care for people, professionalism and individual accountability, continuous improvement and teamwork , and are characterised by responsibility to the shareholders, the Russian party, customers, personnel, business partners, that is, all those with whom the company maintains business relations, as well as to the community as a whole

Shareholders, government authorities, customers, personnel, contractors

5.1

Corporate governance system and Structure

Corporate governance is the process that ensures proper organisation, management, and control at Sakhalin Energy. Governance is carried out through cooperation between Sakhalin Energy’s senior management, shareholders, and the Russian party. They define the areas of activity, establish responsibilities, and evaluate the results achieved

Shareholders, government authorities, customers, personnel

5.2

Risk management system

Sakhalin Energy believes that effective risk management is of great importance for achieving the company’s goals. The risk management system of the company is aimed at maximising opportunities or minimising negative effects of identified risks, including risks of failure to reach the goals, risks of losses, and negative factors affecting such areas as operational excellence, respect for human rights, labour relations, health, safety and environment, anti-bribery and anti-corruption, and others

Shareholders, government authorities, customers, personnel, community

5.6

Anti-bribery and corruption

Sakhalin Energy assists its employees, business partners, contractors, and suppliers in fulfilling requirements for counteracting bribery and corruption

Shareholders, government authorities, customers, personnel, community

5.7

Impact assessment of the company’s activities

The company is committed to making an impact assessment prior to any new activities or introducing significant changes to existing projects. This is in line with the due diligence approach, which is the basis for all risk management processes. Sakhalin Energy seeks to avoid or reduce the impact to the lowest possible level or to compensate for it by taking appropriate measures

Shareholders, government authorities, customers, personnel, contractors, community

3.5.2

HSE and Social Performance management system

The company uses a systemic approach to handling HSE and social performance issues, which enables continuous improvement in this area. The comprehensive HSE&SP Management System defines the controls used by Sakhalin Energy to handle hazardous situations and risks

Shareholders, government authorities, customers, personnel

3.5

Russian content, contracting and procurement management, vendor development programme

The Sakhalin-2 project is one of the most complex projects undertaken in recent decades in the global oil and gas industry. Effective management of contracting and procurement is key for the project to be successful

Shareholders, customers, personnel, contractors

7.3 and 7.4

Stakeholder engagement in 2017

The company considers regular and meaningful engagement with stakeholders to be an important component of its successful business operations

Shareholders, government authorities, customers, personnel, contractors

6

Importance of the Sakhalin-2 project for the Russian Federation and the Sakhalin Oblast

 

Financial benefits to the Russian Federation and the Sakhalin Oblast

The Russian Federation and the Sakhalin Oblast receive numerous benefits from the Sakhalin-2 project implementation, including financial and tax revenues to the budgets of the Russian Federation and the Sakhalin Oblast, new opportunities for developing advanced technologies, experience in managing complex high-tech projects, contracts with Russian companies, promotion of employment, etc.

Shareholders, government authorities, customers, personnel, contractors, community

7.1 and 7.2

Industrial environmental control

Environmental monitoring and biodiversity conservation

 

Due to its scope and complexity, the project can potentially cause environmental and social impacts, and Sakhalin Energy is committed to dealing systematically with these impacts so as to mitigate risks and prevent negative consequences. Arranging and implementing industrial environmental control and monitoring, as well as conserving biodiversity, are essential components of the environmental impact management system

Shareholders, government authorities, customers, personnel, contractors, community

8.1 and 8.2

Oil spill prevention and response preparedness

Oil spill prevention and oil spill response (OSR) preparedness are the top priorities for Sakhalin Energy. The company uses the comprehensive approach to handle this important task

Shareholders, government authorities, customers, personnel

8.4

Personnel: management and development

Labour safety and protection

Occupational health

Human rights: principles and management system

Community grievance procedure and grievance handling in 2017

The company and its stakeholders attach special importance to social impact management, such as HR management and development, respect for and promotion of human rights, occupational safety and health, social investments and contribution to the sustainable development of the host region

Shareholders, government authorities, customers, personnel

9.1, 9.2, 9.3, 9.4

2.4. Definition of the Report Scope

The Report contains information on the activities of all structural units and assets of the company in all areas related to sustainable development, including economic, environmental, and social impacts that occur both within (internal boundaries) and outside (external boundaries) the company.

2.5. Public Endorsement of the Report

The RUIE Non-Financial Reporting Council was engaged to provide external public endorsement of Sakhalin Energy’s non-financial report. This Council issues independent expert evaluations at the highest professional level in the Russian Federation. The result was the Public Endorsement Certificate and Conclusion of the RUIE Non-Financial Reporting Council on the Review of the Sakhalin Energy Investment Company Ltd. 2017 Sustainable Development Report for the Purpose of Public Endorsement (see Appendix 7. Certificate of Public Endorsement and Appendix 8. Conclusion on the Result of the Review of Sakhalin Energy 2017 Sustainable Development Report by the RUIE Non-Financial Reporting Council for the Purpose of Public Endorsement).

The primary focus of public endorsement is the materiality and completeness of the information on the company’s performance disclosed in the non-financial report according to the best practices of conducting business.

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