Risk management
The Company has a risk management system in place which makes a basis for the regular identification, assessment and monitoring of potential events that can have an adverse impact on the operations of the Company as well as for the development of actions to prevent such events or minimize their negative impact in case their occurrence. New risks are identified and assessed and information is updated in the corporate information system on a continuous basis.
Uniform principles and approaches to the risk management system of the Company, its main goals and objectives of participants in the risk management system are described in the Risk Management and Internal Control Policy of PJSC LUKOIL (the "Policy"). The Risk Management business process in the LUKOIL Group consists of the following main stages:
Identifying, describing and assessing risks;
defining risk response measures;
developing and implementing risk mitigation actions;
monitoring and controlling the progress of risk mitigation actions.
In accordance with the Policy, all employees of the LUKOIL Group at all levels of management are responsible for the identification of risks. Every employee in the course of his/her job duties should assess his/her activities for the potential impact of risks. If a risk is recognized as material, appropriate information is entered into the corporate information system.
Data about risks is included into the reports submitted to the Company management for the purposes of making decisions on the participation in investment projects, preparing budgets, investment programs and strategic development programs.
A dedicated body was established under the Company President, the Risk Committee, that is in charge of improving the risk management system and enhancing the efficiency of risk management processes in the Company.
Sustainability Risk Management
Sustainability risk management is integrated into the overall risk management system.
List of Major Sustainability Risks
| Risk Description | Risk Management |
| 1. Risks Related to Public Health and Epidemic Spread | |
| Epidemics can affect the health of the Company staff and thus impact the continuity of operations. Restrictions on mobility resulting from the epidemic spread can delay the schedule and progress of projects, reduce the demand and prices for products of the Company leading to the decline in production and financial results of the Company. | The Company reacts promptly to changes in the epidemiological situation, strictly observes requirements and recommendations of authorities, takes additional measures to protect the health of its employees and arrange for the continuity of operations, manages project execution schedules and develops marketing channels for its products. |
| 2. Risk of Climate Change | |
| Climate change is associated with a number of risks, including changes in the demand for hydrocarbons, regulatory tightening, natural disasters and permafrost thaw. The climate risks, if occur, can reduce the rate of return and limit development opportunities. | The Company uses a number of tools to minimize climate risks, including the following:
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| 3. Health, Safety and Environment Risks (HSE) | |
| Facilities of the Company face risks of process shutdown, emissions of hazardous substances, damage to environment and people, accidents, fires and safety incidents which, in turn, can lead to the shutdown of production facilities of the Company. | To minimize these risks, an HSE management system was created in the Company that is certified for the ISO 14001 and ISO 45001 international standards. The Company implements dedicated corporate HSE programs developed on the basis of best available technologies. Hazardous production facilities as well as facilities that can have a negative impact on the environment are subject to the industrial monitoring, timely repair and equipment replacement. Much attention is paid to the training of personnel in charge of the maintenance of hazardous production facilities and emergency response staff in emergency prevention and response actions. The Company puts much efforts in promoting the safety culture, carries out the assessment of work places and improves working conditions for employees.
See Safety and Environment Sections for more detail |
| 4. Risk of Shortage of Qualified Personnel | |
| Insufficient qualifications and professionalism of employees can have an adverse impact on financial results of the Company. | To reduce the negative impact of this risk the Company pays much attention to the comprehensive development of its human resources. The staffing strategy is based on the Development Strategy of the Company and staffing needs of the business segments. To implement the staffing strategy, plans and budgets are prepared that allow for the efficient redistribution of manpower through the use of internal human resources, timely hiring of staff and their professional training and development. See Our Employees Section for more detail. |
| 5. Reputational Risk | |
The risk of a loss of business reputation can have a negative impact on financial results of the Company and its share price. This risk can be triggered by internal and external factors, including failure to comply with requirements of laws, incorporation and internal documents, failure to fulfil contractual obligations, poor quality of end products, negative perception of the financial stability and financial position of the Company.
| To manage this risk the Company puts much efforts in:
The Company controls the quality of its products and services. In particular, a hotline was launched to collect customer feedback about LUKOIL filling stations. Much attention is paid to safety, environmental protection, organizing comfortable working conditions and social responsibility. Programs are in place to maintain and improve the efficient occupational safety and social protection system. See Sustainability Management and Society Sections for more detail |
The full description of sustainability risks and related mitigation measures is disclosed in accordance with regulatory requirements as well as in annual reports of PJSC LUKOIL, including stages, organizational structure and functional map of the participants in the risk management system (sections of 2020 Annual Report: Corporate Governance - page 88, Risk Management and Internal Control System – page 119, Appendix 2 to 2020 Annual Report: Risks - page 33).
