Sustainability risks in the risk management system

The Company’s management team pays significant attention to risk management in order to ensure a reasonable guarantee of attaining strategic goals against a backdrop of uncertainty and negative factors.

PJSC LUKOIL regularly determines, describes, assesses, and monitors potential events that could negatively impact the Company's activities, and elaborates measures to prevent their manifestation or to mitigate their adverse impacts as much as possible should they materialize.

Risk management is carried out at all levels: in LUKOIL Group entities and PJSC LUKOIL and at the level of the Board of Directors. Information about the risk profile of LUKOIL Group entities is included in the annual reports, which are reviewed by the Board of Directors of PJSC LUKOIL and the Audit Committee of the Board of Directors of PJSC LUKOIL.

Sixteen groups of the most material risks affecting the business activities of LUKOIL Group entities were determined, and these undergo annual qualitative and quantitative assessments based on the likelihood of the risk arising and the extent of the consequences. For each material risk, an acceptability level and measures to mitigate or eliminate its negative impacts are developed. Employees from the Risk Management Department and dedicated units monitor the implementation of these measures and their effectiveness.

Given the uncertain nature of risks, as well as their external nature in relation to the Company, PJSC LUKOIL cannot guarantee that risk management measures will fully eliminate the negative impacts of risks. By reporting on identified risks, we inform stakeholders about the existence of certain circumstances that could worsen the Company's performance indicators.

Furthermore, PJSC LUKOIL invests considerable efforts in mitigating risks associated with its production operations in the regions where the Company operates.

List of main sustainable development risks
Description of risk category Risk management and mitigation measures
HSE risks
The Company's facilities are exposed to risks associated with process interruptions, emissions of hazardous products, environmental damage, and accidents, fres, and accidents, which in turn may lead to a shutdown of the Company's production. To mitigate these risks, an integrated HSE management system has been created and is successfully operating. The following activities are implemented:
  • Targeted corporate industrial and environmental safety programs.
  • Production supervision over the operation of hazardous production facilities.
  • Diagnostics (non-destructive testing) and monitoring of equipment parameters.
  • The repair and timely replacement of equipment.
  • Ensuring the implementation of requirements in the field of industrial safety, labor and environmental protection related to contractors, at all stages of interaction with them.
  • Leadership development and promoting a culture of safety.
  • Ensuring that personnel of all levels are suitably qualified.
  • Special assessments of working conditions, improving the working conditions of employees.
  • Developing action plans to localize and eliminate the consequences of accidents at hazardous production facilities, spill response plans for oil and petroleum products, creating a reserve of means to eliminate emergencies and emergency situations, trainings for personnel serving at hazardous production facilities and for rescue teams to prevent and respond to emergency situations.
  • Other measures to reduce accidents and labor injuries at LUKOIL Group entities.
Risks associated with climate change
The toughening of carbon regulation rules in various countries, together with changes in the investment strategies of financial market participants, could have negative impacts on the activity of PJSC LUKOIL as a large producer of fossil fuels and an emitter of greenhouse gases, in the form of increased costs and a decrease in efficiency. In addition, PJSC LUKOIL operates in regions where the potential physical impact of climate change is rather unpredictable and can cause significant negative impacts. To mitigate these risks, the Company:
  • Monitors greenhouse gas emissions and plans measures for their regulation.
  • Continuously monitors regulatory changes related to climate change and implements measures to obtain information about such changes , and also ensures the participation of the Company's representatives in these discussions to explain in detail the Company's position in relation to the issues, as well as possible risks and uncertainties arising from new legislative initiatives.
  • Takes into account climate change risks in the design engineering and construction of facilities in vulnerable territories (the Far North, coastal regions).
Risk of insufficiently qualified staff
Insufficiently competent or qualified employees can have a negative impact on the Company's performance results. In order to reduce the negative impacts of this risk, the Company pays key attention to the integrated development of human resources:
  • A talent pool has been created and is replenished with the most experienced and promising employees.
  • Young specialists and graduates are recruited from leading higher educational institutions.
Risk of loss of goodwill (reputational risk)
PJSC LUKOIL encounters various factors that could result in reputational risk, including violations of legislation, defaulting on contractual obligations, the quality of finished products, and negative perceptions surrounding the financial stability and position of the Company. In order to manage this risk the Company implements measures aimed at:
  • Maintaining regular communications with stakeholders.
  • Providing timely and objective information on financial and operational performance indicators.
  • Providing constant monitoring of compliance with legislation and current agreements, and timely payments to contractors.
The Company provides high quality of products and services: a Hotline has been set up to promptly respond to complaints and suggestions related to the operation of fueling stations. The Company pays great attention to safety and environmental issues and is guided in its activity by the highest industrial safety, labor protection, and environment standards. The Company attaches great importance to the organization of working conditions and social responsibility. Programs are in place to maintain and improve an effective system of labor protection and social safety.
The risk management system also comprises the following categories, which include risks and measures for their mitigation: strategic, country, competition, macroeconomic, financial, legal, and industry specific risks, and risks related to acts of terrorism and illegal actions by third parties.