LUKOIL Group's Sustainability Strategy

Our approach to sustainability management is based on seeking to align the interests and plans of the Company with UN sustainability principles, common human values, and global trends and priorities in domestic and regional development. This involves integrating economic, environmental, and social aims and objectives into the corporate system when making business decisions.

Strategic goals

The industrial, environmental, and personal safety of employees in LUKOIL Group companies and improving the safety culture within the supply chain remain unwavering priorities for LUKOIL at all stages of value creation.

Strategic goals

The oil and gas industry was one of the main drivers of social and economic development in the 20th century, and made a notable contribution to attaining such social and economic UN Sustainable Development Goals Hereinafter, Sustainable Development Goals (or SDGs) mean the goals and targets set forth in the document 2030 Agenda for Sustainable Development adopted in September 2015 at the UN Summit as affordable and clean energy, human well-being, and decent work and economic growth.

However, the industry is also associated with negative impacts that can lead to a change in the balance of non-renewable energy resources, an increase in greenhouse gas emissions, and disruptions to soil and natural systems.

LUKOIL is ready to change, along with the world. We are NOT AFRAID of new trends, and we actively participate in the process of change and in finding an answer to the question: what can be done now, before the economic paradigm changes completely

Vagit Alekperov, speech to the Board of Directors, January 2019

Nevertheless, we believe that the oil and gas industry will continue to play an important role in the global economy for at least 20–30 years, and that demand for hydrocarbon resources will remain high. This is demonstrated by such factors as continuing world population growth (in Asia, Africa, and Latin America), relatively rapid economic development in Asia-Pacific region countries (mainly China and India), the non-uniform economic development of a number of countries, and continued high demand for energy in the traditional economic sectors established during the period of industrialization.

Key performance indicators

Since 2003, the Company has implemented a performance assessment system based on key performance indicators (KPIs). The list of KPIs includes indicators that illustrate resource efficiency (e.g. the level of APG use) and HSE (health, safety and environment) efficiency. The indicator "Assurance of the required HSE level in LUKOIL Group entities" is comprehensive in nature and takes into account injury rates and environmental impact factors (specific pollutant emissions into the atmosphere, specific discharges of wastewater effluents into the atmosphere, and the ratio of waste disposed of during the year to newly generated waste). The value of this indicator is established by a decision of the Management Committee of PJSC LUKOIL. In 2018 the KPI was achieved.

KPIs are motivational in nature and are taken into account when determining the level of remuneration of LUKOIL Group executive employees.

For more information about the status of achieving KPIs see the section “Performance Assessment System” in the 2018 Annual Report.

Together with these factors, we are also facing the challenges of the 21st century, which are already impacting the global economy and the oil and gas industry and shaping a new political and energy landscape. The 2018 World Economic Forum report indicates a range of global risks, with destructive potential for various complex economic, environmental, and social systems.

  • Climate change and growing political instability were cited as being the most dangerous risks for humanity.
  • A slowing of globalization processes and weakening confidence in international institutions could significantly change the international trade system as well as economic activity trends.
  • The collapse of ecosystems and the accelerated disappearance of biodiversity could lead to food crises and man-made, environmental disasters.
  • Increasing cyber-dependence and cyberattacks pose a significant threat in terms of potential operational failures of the systems that govern key sectors of the global economy. This risk stems from a gap between people's ability to create software products and their ability to control them.

In view of the global nature of the oil industry, these threats may have a significant impact on its future development. The UN Sustainable Development Goals to a large extent define the mechanisms and areas for combating negative scenarios. That is why we support this strategic platform and seek to contribute to combined efforts to attain respective goals.

At the same time, changes in the energy balance are already taking place within the sector itself and in developed markets. These changes require oil and gas companies to adopt more flexible strategic approaches. The main trends that could to a greater or lesser extent influence LUKOIL's operations include the following:

  • A gradual change in demand for primary energy sources based on the continuing growth observed in the electric vehicle segment.
  • Increased economic competition as the global energy sector becomes a more competitive.
  • Changes in investment flows, as some companies representing the investment community diversify their strategies with regard to carbon-based assets.

The yearly report of the UN Secretary-General "Progress towards the Sustainable Development Goals" for 2018 outlines the global community’s success in achieving a number of social indicators in the fields of education, health care, and social welfare (e.g. reducing the poverty level). However, the report also draws attention to an increase in greenhouse gas emissions and energy consumption for the first time since 2015, which represents an alarming trend.

In Russia, strategic development priorities are mainly socially oriented. A Russian Presidential DecreeRussian Presidential Decree of May 7, 2018 "On National Goals and Strategic Objectives to Develop the Russian Federation up to 2024" sets out national strategic development priorities and goals up to 2024 – these include achieving a twofold reduction in poverty, ensuring sustainable growth in the real income of the population, accelerating the development of technology, and facilitating an accelerated implementation of digital technologies in the economy and in the social sphere. The main areas of strategic development include health care, education, the environment, supporting employment, the digital economy, and small business development. LUKOIL Sustainability Strategy is fully consistent with national priorities related to social and environmental programs.

Trends in Russia and worldwide contain both risks and opportunities. We believe the main ways that the oil industry can adapt to change are through enhanced production efficiency and accelerated technological development. LUKOIL invests considerable efforts in retaining its leadership position in the new environment.