3. Corporate Social Responsibility and Sustainable Development

3.1 Introduction

Sakhalin Energy’s activities in the area of corporate social responsibility (CSR) are aimed at the implementation of the corporate strategy to improve the company’s image and role in society, and to carry out its business activities in compliance with the standards of sustainable development and good business ethics. It is an integral part of Sakhalin Energy’s production and business activities and strategic development plan.

Due to high transparency and active stakeholder engagement, corporate governance at Sakhalin Energy has gradually progressed to managing the company as an open system. Sakhalin Energy has developed a system for accounting and controlling internal and external production, financial, technological, social, and environmental impacts, which allows the company to mitigate all types of risks in order to enhance its corporate sustainability (see Section 5.6. Risk Management).

In 2017, for the second year in a row, Sakhalin Energy was among the leaders of the Sustainable Development Vector Index and the Responsibility and Transparency Index, compiled by the RUIE since 2014 with the purpose of making an independent assessment of companies in terms of sustainable development, corporate responsibility and reporting.

Compiling the Responsibility and Transparency Index, the RUIE evaluates the disclosure of information in key areas of activity, analyses 70 indicators characterising responsible business practices, including economic, environmental, and social performance indicators, as well as governance aspects. The Sustainable Development Vector Index shows performance dynamics and therefore makes it possible to identify leaders among the largest companies, with the highest degree of transparency and, at the same time, demonstrate a generally positive dynamics in the area of sustainable development.

3.2 SAKHALIN ENERGY’S CSR SYSTEM

Corporate social responsibility applies to all activities of Sakhalin Energy. This approach is supported by its mission, vision, and values. The practical aspects are addressed and approved in a number of corporate documents (see Section 5. Corporate Governance), including:

  • Code of Conduct, including the Statement of General Business Principles;
  • Sustainable Development Policy;
  • Human Rights Policy;
  • Commitment and Policy on Health, Safety, Environment and Social Performance.

Sakhalin Energy extends an essential part of the requirements and business principles set out in these documents to its contractors. This is in line with the GRI standards that are due to come into effect in July 2018. In addition to special contractual provisions and specific requirements, including the results of environmental, health, and social impact assessment (see Section 3.5.2. Impact Assessment), the company arranges training sessions and workshops to ensure that business ethics, social and environmental principles are effectively integrated into the work of its contractors, and to oversee their compliance (see Section 7.4. Supply Chain Management).

At Sakhalin Energy, CSR areas and indicators are regularly evaluated by authorised personnel and senior management within the company’s system of internal control and audit, as well as by lenders, their consultants, and external certifying authorities.
Assessments are also done through stakeholder engagements:

  • public consultations;
  • workshops and focus meetings;
  • opinion surveys;
  • consultation in the information centres established by the company in the communities located along the trans-Sakhalin pipeline system and in close proximity to other facilities of Sakhalin Energy;
  • addressing grievances and appeals, etc.

For detailed information on the mechanisms for interaction with different stakeholders, see Section 6. Stakeholder Engagement Management.

3.3 Performance Standards

Russian companies refer to CSR business, social, and environmental activities defined by legislation, as well as a range of additional programmes and responsibilities with regard to employees and society. The results are reflected in various non-financial reports on activities. A number of companies take on additional responsibilities beyond the minimum set by legislation based on their strategic and regional priorities and their level of corporate culture. Sakhalin Energy is no exception. It operates in accordance with the international standards established with regard to CSR.

Many initiatives and standards have been established worldwide in the area of environmental and social responsibility. The leading standards are the United Nations Global Compact, the Global Reporting Initiative (GRI), the European Council Directive on disclosure of non-financial information, the International Finance Corporation Performance Standards, ISO standards and others.

In 2009, Sakhalin Energy joined the UN Global Compact (UNGC) and pledged its commitment to consistently follow the UNGC principles concerning human rights, labour, environment, and anti-corruption. In 2011, Sakhalin Energy became the first (and the only among 43 LEAD companies, as of late 2017) Russian company participating in Sustainable Corporate Leadership platform — the Global Compact LEAD, established in the framework of the UN Global Compact. LEAD companies are obliged to carry out certain activities in the areas of environmental protection, social performance, and corporate governance, as well as to develop new CSR standards. Starting 2018 the UN Global Compact will be implementing the LEAD programme using new criteria, and Sakhalin Energy will continue to participate in the programme, including in the Reporting on the SDGs and Decent Work in Global Supply Chains Action Platforms (see Sections 3.4.2. UN Sustainable Development Goals and 9.4.1 Human Rights: Principles and Management System).

The main international standards that Sakhalin Energy applies are as follows:

  • ISO standards (environmental management, quality control, health and safety, and social responsibility);
  • European Union and United Nations standards and directives (environment, human rights, indigenous peoples, etc.);
  • World Bank and International Finance Corporation standards (governance systems, risk and impact assessment, biodiversity, public health, cultural heritage, indigenous peoples, involuntary resettlement, stakeholder engagement, grievance mechanisms, etc.);
  • GRI standards (non-financial reporting, stakeholder engagement).

In 2017, the company developed the corporate Procedure on ISO 26000:2010 “Guidance for Social Responsibility” Self-Assessment, taking into account the experience of two self-assessments completed in 2012 and 2016, as well as the Guidelines for CSR Self-Assessment for Companies based on the Provisions of ISO 26000:2010 Guidance for Social Responsibility, published by the Russian Union of Industrialists and Entrepreneurs in 2011. The procedure extends to employees of all divisions of the company, involved in the self-assessment process, and defines the areas of responsibility, the process of self-assessment, the methodology, the criteria for the determination of self-assessment boundaries, and much more.

The self-assessments of 2012 and 2016 showed that the company applied the principles and provisions of this standard to the full extent. The self-assessment statements, as well as a brochure with an overview of ISO 26000:2010, the stages of self-assessment of its application, including the relevant experience of Sakhalin Energy, are available on the company’s website (www.sakhalinenergy.com).

3.4 Sustainable Development Policy 3.4.1 Key Provisions of the Sustainable Development Policy

Since its foundation, Sakhalin Energy has pursued the Sustainable Development Policy by incorporating SD principles into the company’s business strategies, plans, and processes.

According to the UN definition, sustainable development is about ensuring that ‘the needs of the present generation are met without compromising the ability of future generations to meet their own needs.’ In its practice, Sakhalin Energy relies upon this definition. This approach presumes and ensures economic effectiveness, environmental safety, social justice, and ethical behaviour of the corporation and its employees, combined with an overall reduction of human impact on the ecosphere. This is implemented via strong, transparent, constructive, and systematic cooperation and two-way communication with all the stakeholders.

In 2017, Sakhalin Energy consistently implemented the provisions of the Sustainable Development Policy — a public policy document approved by the Committee of Executive Directors in 2003 (the latest revision of the document in 2016 includes the company’s commitment to the United Nations Sustainable Development Goals, see Section 3.4.2. UN Sustainable Development Goals).

The main provisions of the company’s Sustainable Development Policy are as follows:

  • Sakhalin Energy will carry out its business responsibly and efficiently so as to deliver a robust project that will maximise benefits to the Russian Federation, the Sakhalin Oblast, and the shareholders;
  • Sakhalin Energy will contribute to the present and future needs of the society on the Sakhalin Island, keeping a balance between economic development, environmental protection, and social responsibility, and considering cultural diversity;
  • Sakhalin Energy will work with all stakeholders to identify ways to contribute to the wider, long-term economic, environmental, and social benefits in the Sakhalin Oblast.

To comply with these principles, Sakhalin Energy makes the following commitments to sustainable development:

  • incorporate SD principles into business plans, procedures, and processes;
  • ensure compliance with the corporate Commitment and Policy on HSE and Social Performance, as well as standards specified in the Health, Safety, Environmental and Social management systems and Action Plan (HSE and SP managment system and HSESAP);
  • inform and engage with our stakeholders on the company’s SD performance and seek feedback;
  • develop and implement social investment and sustainable development programmes and projects that are linked to the company’s strategy and priorities, and have clear procedures and controls;
  • focus on developing strategic partnerships with external stakeholders to enhance positive impact of community development programmes;
  • provide annual non-financial reporting in accordance with the Global Reporting Initiative (GRI) standards and principles, as well as the corporate Sustainable Development Report Preparation Procedure;
  • participate in the UN Global Compact (UNGC), complying with and promoting its ten principles;
  • be a member of UNGC LEAD demonstrating sustainability leadership.
3.4.2. UN Sustainable Development Goals


When defining the company’s priorities and objectives in respect of the SDGs, a significant prerequisite of success is the involvement of stakeholders in the exchange of ideas about possible ways to achieve the SDGs by the company. Since 2016, relevant questions have been put on the agenda of dialogues with the external stakeholders in the preparation of the Sustainable Development Report and discussions with the company’s personnel. In 2017, questions regarding these issues were added to questionnaires for the stakeholders to determine the content of the Sustainable Development Report. As a result, the stakeholders identified SDGs 3, 4, 7, 8, 12, 14, and 15 as the most significant for the company.

At the 70th session of the UN General Assembly in September 2015, a new global agenda was adopted — Transforming Our World: the 2030 Agenda for Sustainable Development, that includes 17 Sustainable Development Goals (SDGs), which replaced the Millennium Development Goals. One of the specific features of the new goals is the chosen approach to achieve them: the SDGs are addressed not only to governments, but also to other participants in the sustainable development process, in particular businesses, civil society, and all individuals. The universal character of the SDGs allows companies to adopt a set of Goals that best corresponds to their activities and existing CSR programmes.

At the end of 2015, Sakhalin Energy initiated work to study the SDGs and to define the company’s contribution to their achievement, including:

  • making a preliminary review of the SDGs to consider their targets and indicators against the company’s priorities, objectives, activity areas, programmes and projects (2015–2016);
  • making a commitment with respect to the SDGs. The company’s commitment to contribute to the achievement of the SDGs is included in the corporate Sustainable Development Policy: “Sakhalin Energy endeavours to take a lead on sustainable development taking into account the Sustainable Development Goals of the 2030 Agenda for Sustainable Development” (2016 revision);
  • defining priorities and goals — analysing the company’s priorities and goals and selecting the most significant SDGs in terms of their importance to the company’s activities and contribution to their achievement (since 2016).
  • integrating commitments and goals with the processes and practices of the company. An analysis indicated that the company’s existing processes, programmes, and practices in the field of sustainable development contribute to the achievement of most of the SDGs and the targets they set (since 2016). In 2017, an analysis was made of each SDG target (in total, 169 targets) and relevant global indicators (in total, 230 indicators) to determine specific processes and practices of the company, as well as corporate indicators that correspond to each target and global SDG indicator. The analysis showed that not all SDG targets were applicable or relevant to the company’s activities. In 2018, Sakhalin Energy will continue to define targets and indicators (including its own) with respect to the SDGs;
  • public reporting. The company made a decision to include information on its contribution to the SDGs achievement in annual Sakhalin Energy Sustainable Development Reports(starting with the 2016 Report and at least until 2030), as well as its annual reporting as a participant of the UN Global Compact (Communication on Progress).

In 2017, the company joined the Reporting on the SDGs Action Platform, which was initiated by the UN Global Compact and the Global Reporting Initiative (GRI) in partnership with the Principles for Responsible Investment (PRI) initiative in order to unite the efforts of all stakeholders in developing the framework, principles, and recommendations for corporate reporting on the SDGs. At the same time, the initiators of the project are guided primarily by the GRI Standards and the UN Global Compact requirements. As a result, companies will be able to integrate reporting on the SDGs with existing reporting formats.

All structural units of Sakhalin Energy are involved in the above-described work with respect to the SDGs.

The table below presents the company’s goals and objectives with examples of activities, projects, programmes or measures related to specific SDGs. In addition, Appendix 1. GRI Standards Compliance Table contains SDGs that correspond to specific topics / targets of GRI standards.

Sakhalin Energy’s goals and objectives, examples of activities, projects, programmes, or measures related to SDGs

SDGs

Goals and objectives
of the company

Areas, programmes, projects (examples)

Report section(s) and/or other references




Provision of an attractive and competitive compensatory and social package.

Achievement of Russian Content at the level of 70% for the entire duration of the project (as per the PSA).

Contribution to sustainable development of host regions (Sakhalin Oblast).

Effective management of grievances from stakeholders, paying special attention to vulnerable groups.

Timely and efficient social impact assessment

Remuneration and bonus system.

Social guarantees, benefits and compensations system.

Vendor management.

Vendor Development Programme.

Local business contracts.

Revenues generated for the RF and the Sakhalin Oblast.

Sakhalin Island infrastructure upgrade programme.

Grievance mechanisms.

Social impact management.

Resettlement Action Plan.

Sakhalin Indigenous Minorities engagement practices (in accordance with the Human Rights Policy, indigenous peoples are a vulnerable group)

6, 7, 9.1, 9.4, 9.5,

 

references in Appendix 4:

 

Sakhalin Oblast infrastructure upgrade;

 

brochure Resettlement: Experience of Sakhalin Energy;

 

website of the Sakhalin Indigenous Minorities Development Plan

Goal Zero: No Injuries, No Spills.

Occupational health provision

Labour safety and protection and (measures to ensure industrial safety, road safety, etc.).

Occupational health (health risk assessment, occupational hygiene, organisation of medical examinations, medical emergency response, voluntary health insurance and disease prevention programmes, etc.).

Industrial environmental control

9.2, 9.3, 8.1

 


Meeting the company’s needs for highly qualified personnel to achieve current and strategic objectives.

Achievement of Russian Content at the level of 70% for the entire duration of the project (as per the PSA)

Contribution to the sustainable development of host regions (Sakhalin Oblast)

 Personnel development and  learning programmes. 

Vendor management, Vendor Development Programme.

Local business contracts.

Revenues generated for the RF and the Sakhalin Oblast.

Remuneration and bonus system.

Social guarantees, benefits and compensations system.

Measures to ensure occupational safety and health.

7, 9.1, 9.2, 9.3

Compliance with Russian legislation and international standards for the respect for, protection and promotion of human rights

Assurance of gender equality and non-discrimination in all aspects of labour relations, including recruitment, selection, hiring, assessment, promotion, training of employees, maintaining discipline, learning and development, compensation, and termination of employment contracts.

9.1



Implementation of efficient and lean production methods

Protection of water bodies against pollution, sustainable use of water resources

Sustainable use of energy resources

Using gas turbines equipped with Low-NOx burners.

Using increased gas turbulence units, which facilitates gas flaring in a soot-free mode.

Drilling waste disposal via dedicated reinjection wells into deep subsurface horizons with the necessary insulating layers.

 Enhanced operational reliability and to ensure failure-free operation of equipment.

Industrial environmental control of the impact on atmospheric air and water bodies; waste management.

Energy saving and energy efficiency activities.

Public reporting on sustainable development

2, 4, 8.1


Goal Zero: No Injuries, No Spills

Implementation of agreed biodiversity conservation and local monitoring programmes.

Environmental risk and impact assessment.

Implementation of an effective and sustainable waste management strategy.

Implementation of the action plan to achieve the established environmental standards.

Maintenance and improvement of emergency and oil spill response mechanisms

8

 

Compliance with all applicable laws and regulations of the countries in which the company operates.

Provision all stakeholders with safe and confidential ways of expressing concerns and grievances, or reporting non-compliances

Availability of the General Business Principles, values, norms and standards of the Code of Conduct.

Anti-bribery and corruption

Grievance mechanisms.

Assurance of safety with respect for human rights.

Conflict of Interest policy.

Stakeholder engagement practices, including open public consultations and public sustainable development reporting

2, 5, 6, 9.4,

reference in Appendix 4:

brochure Human Rights: Experience of Sakhalin Energy

 

 

Note: since SDGs are complex and indivisible, the goals and objectives of the company, with examples listed, are presented for several SDGs simultaneously.

One of the prerequisites for achieving the SDGs, which is also formulated as separately in Goal 17, is uniting efforts in global, regional, or local partnerships, bringing together governments, business, and civil society. Sakhalin Energy attaches great importance to the creation and implementation of strategic long-term partnerships engaging external stakeholders. This applies to environmental projects, personnel development programmes, social investments, etc. (see Sections 8.2. Environmental Monitoring and Biodiversity Conservation, 9.1. Personnel: Management and Development, and 9.5. Social Investment and Contribution to Sustainable Development of the Host Region).

Sakhalin Energy is making efforts to promote the SDGs in the business community. In particular, in 2017:

  • the company translated into Russian and distributed The Guide for Business Action on the SDGs, or the SDG Compass, which is a practical tool that provides guidance for organising SDG work in any organisation, regardless of industry, size, and form of ownership. The SDG Compass was developed by the Global Reporting Initiative, the United Nations Global Compact, and the World Business Council for Sustainable Development (WBCSD), taking into account the results of consultations with companies, government agencies, academic institutions, and civil society organisations around the world. The text of the SDG Compass in Russian is available on the company’s website, on the sites of the RUIE and the UN Global Compact Network Russia;
  • the company participated in a series of events dedicated to the issues of CSR, sustainable development, human rights, interaction with indigenous peoples, where it covered its activities with respect to the SDGs.
3.5 HSE аnd Social Performance Management 3.5.1 HSE and Social Performance Management System

The company is committed to preventing potential damage to the community and environment as a result of its operations and contributes to sustainable development to benefit the residents of Sakhalin and other primary stakeholders. Since the beginning of the Sakhalin-2 project implementation, the Russian Federation and the Sakhalin Oblast have received numerous benefits from it, including multi-billion investments, employment growth, contracts with Russian companies, etc. (see Section 7.1. Importance of the Sakhalin-2 Project for the Russian Federation and the Sakhalin Oblast). Understanding that the scope and complexity of the project can have an impact on the environment and social performance, Sakhalin Energy made a commitment to consistently prevent associated potential problems and adverse impacts, and to reduce risks. In its operations, the company adheres to the principle of eliminating hazards and threats, paying special attention to preventive risk management and impact assessment (see Section 5.6. Risk Management).





Health, safety, environment, social performance, and industrial safety management is an integral element of the corporate management system and is regulated by a number of fundamental documents that include:

  • Sustainable Development Policy;
  • Commitment and Policy on Health, Safety, Environment and Social Performance;
  • Health, Safety, Environment and Social Performance Management System;
  • Health, Safety, Environment and Social Action Plan;
  • Flaring Commitment;
  • Statement of Industrial Safety Policy;
  • Policy on the Industrial Safety Management System;
  • Regulation on Industrial Environmental Control;
  • Business Continuity Policy;
  • Guidance on the Business Continuity Management System.

The above documents were approved by the Committee of Executive Directors, signed by the Sakhalin Energy Chief Executive Officer, and communicated to the personnel and contractors.

The company applies a systemic approach to handling HSE and social performance issues, which ensures continuous improvement in this area. The comprehensive HSE and SP Management System includes controls used by Sakhalin Energy to handle hazardous situations and risks. The system is applied to all Sakhalin Energy facilities, projects, and operations, including those conducted by contractors. Sakhalin Energy considers control of risks as a critically important prerequisite for successful performance; therefore, the risk management system is subject to continuous updating, improvement, and optimisation.

The system is based on the Plan-Do-Check-Act methodology of ISO 14001 and OHSAS 18001 standards.

The commitments adopted by the company following the results of assessing the impact on the environment, health, and social performance, conducted before the start of the Phase 2 construction work, are included in the Health, Safety, Environment and Social Action Plan (hereinafter — the Plan). The development of the Plan was a mandatory condition for obtaining a loan for Sakhalin-2 Phase 2 implementation.

The Plan was developed in compliance with Russian laws and international standards, including the World Bank’s Policies and Directives, the standards of the International Finance Corporation, and others. The Plan describes the HSE&SP Management System, provides detailed information on measures to minimise the adverse environmental impact, monitoring, activities in environmental and social areas, as well as all internal and external standards regulating the company’s HSE and SP activities. The Plan is approved by the project lenders. The fourth edition was approved in 2014 and published in 2015.

The Plan was posted on the company’s website (in Russian and English), as well as in the company’s information centres and libraries of the communities located in the vicinity of the company’s facilities. A few materials are available in Japanese for stakeholders in Japan. The implementation of the Plan is regularly monitored by the company, lenders and their consultants; inspection results are published on the company’s website (www.sakhalinenergy.com).

HSE and Social Performance Management System

The Plan-Do-Check-Act Methodology is applied in order to:

  • identify goals and establish procedures necessary to achieve performance indicators in compliance with the Commitment and Policy on Health, Safety, Environment and Social Performance. This includes identifying legal and other requirements, determining problems and risks, assessing impacts, identifying management elements, as well as developing annual performance improvement plans;
  • implement procedures for training and advanced training, contractor performance management, engagement and interaction, change management, emergency response, as well as operational control over hygiene, personal safety, integrity of facilities, and industrial safety. The procedures cover the issues of transportation, health, safety, environment, and social performance, including those associated with public activities, cultural heritage, land acquisition, relocation and provision of additional assistance, conducting scheduled consultations and sharing information with the community, grievance consideration; with social investments;
  • monitor and assess performance in accordance with the set objectives, legal and other requirements; provide reports on findings, incidents, and non- compliances; take corrective and preventive measures; conduct audits of the HSE and social performance management system at the company’s facilities and in functions;
  • regularly perform a review of the management system and promote continuous optimisation of HSE and SP performance.

The Sakhalin Energy HSE and SP management structure consists of the HSES Management Committee, which exercises comprehensive control over the area. The Committee is chaired by the company’s CEO. The HSE General Manager reports to the CEO and oversees the development, introduction, operation, and monitoring of the management system. To ensure the fulfilment of the industrial safety and HSE standards, HSE services were formed in the company’s structural and functional units.

3.5.2 Impact Assessment

The company is committed to making an impact assessment prior to any new activities or significant changes in existing projects. This is the basis of the due diligence approach and all risk management processes.

Impact management is a process of predicting and managing the future project activities by improving project solutions, taking measures targeted at minimising potential adverse impacts and increasing benefits from the company’s activities.

Sakhalin Energy seeks to avoid or reduce the impact to the lowest possible level or to compensate for it by taking appropriate measures. When any potential adverse impact is identified, the following actions are consistently developed and taken:

  • avoid;
  • prevent;
  • mitigate;
  • compensate;
  • use experience to reduce the probability of occurrence.

An integral part of any impact assessment carried out by the company are consultations with the stakeholders to inform them about the planned activities, identify concerns, take into account their opinions, and discuss possible measures to manage the impact.

Stages of Impact Assessment



The results of previous environmental and social impact assessments (including the results of comprehensive and strategic environmental assessments as well as the required additional and special studies) are taken into account in the company’s standards, while its ongoing activities are based on relevant plans and programmes. The results of impact assessments are published on the company’s website and incorporated into plans for managing the impact of the company and contractors. The validity and completeness of the assessments are monitored by government authorities and project lenders.

In 2017, the company (with contractor involvement) continued to develop project documentation development including integrated impact assessment in accordance with Russian and International requirements for the LNG Train 3 Construction project (see Section 4.2.2.3. LNG Train 3 Construction Project).

In accordance with Russian legislation, in 2017 the company completed the environmental impact assessment of temporary landing facility construction in Lunskoye Bay, planned as part of the OPF Compression project (see Section 4.2.2.1. OPF Compression Project). Corresponding public hearings were held in Nogliki and Nysh. The impact assessment report is available on the company’s website.

In April 2017, a public hearing was held in Korsakov to discuss the design documentation for the LNG plant reconstruction. Sakhalin-2 project. LNG loading jetty, including materials on environmental impact assessment (EIA) in the framework of the LNG Train 3 Construction project. Materials and minutes of the hearing are available on the company’s website.

In October 2017, Glavgosexpertiza of Russia approved the project to modernise the gas transportation system as part of the LNG Train 3 Construction project.

3.5.3 Inspection and Audit

Since 2005, external and internal inspections and audits have been conducted to ensure control over all the elements of the integrated HSE and SP management system in compliance with approved annual plans. External audits are conducted by representatives of the company’s shareholders and lenders, external certifying authorities, etc. For internal audits, the company engages specially trained auditors — qualified employees of the company and shareholder specialists. In 2017, six HSE and SP management system audits were conducted,five of which were external and one — internal (see the Inspections and Audits of the HSE and SP Management System in 2017 table).

\ Inspections and Audits of the HSE&SP Management System in 2017

Audit level

Number of audits

Content

External

5

Control over the compliance with HSE&SP standards issued by the representative of lenders — by the independent environmental consultant *

Audit for compliance with ISO 14001 and OHSAS 18001 standards

 

Monitoring of the Sakhalin Indigenous Minorities Development Plan implementation — by the External Monitor of the Plan*

Independent evaluation of social investment / sustainable development (SI / SD) programmes / projects

Internal

1

Audit of the system in the field of diving operations

*The reports are available on the company’s official website (www.sakhalinenergy.com).




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