Ethics and statutory compliance

Ethical standards

Adherence to ethical standards is at the core of our corporate culture. These standards are set forth in the PJSC LUKOIL Code of Business Conduct and Ethics and cover various aspects, including:

  • respect for human rights (including labor rights, the rights of local communities and small indigenous peoples, and freedom of association and trade union activity)
  • zero tolerance towards and combatting corruption and fraudulent activities
  • adherence to fair competition rules
  • statutory compliance.

The principles of the Code of Business Conduct and Ethics are consistent with the provisions of the United Nations and the International Labor Organization (ILO) conventions ratified by the Russian Federation, including those related to the observance of human rights and the prevention of corruption. For more detail, see Appendix 6.

We promote ethical behaviors among our business partners, suppliers and contractors, informing them of our rules, and strongly suggest them to familiarize themselves with the PJSC LUKOIL Code of Business Conduct and Ethics, where all basic principles regarding human rights are stated, before signing any contract.

The Business Ethics Commission led by the President of PJSC LUKOIL considers all aspects of ethical behaviors demonstrated by the Company’s staff. Any staff member may contact the Business Ethics Commission using any available communication means if they think that their rights or interests have been violated. All the reports received are handled by the Commission’s Secretary. Staff members may provide a report anonymously, which ensures their protection and the confidentiality of the reports. The Company provides communication tools for such cases which are available around the clock (e-mail, a confidential hotline).

The Company has grievance procedures in place, enabling staff to provide suggestions on the work of the mechanism currently in place, thus helping the Company get a better understanding of stakeholders’ needs and issues.

In 2019, HR divisions undertook to familiarize employees of LUKOIL Group entities in Russia and abroad with the Code of Business Conduct and Ethics. This is included in the list of documents that new staff must read as part of the hiring process. PJSC LUKOIL employees acknowledge in writing that they have read the Code of Business Conduct and Ethics.

Heightened awareness among employees and practical implementation of the provisions of the document led to an increase in reports addressed to the Business Ethics Commission. In 2019, seven reports were received. The reports mainly concerned the clarification of procedures for interaction between managers and staff, matters relating to vacation, and handling procedures for reports. All the documented issues were investigated and necessary measures taken.

In 2019, during an internal audit, 53 cases of violation of local regulatory acts, that are obligatory for execution, were revealed in the organizations of LUKOIL Group. Entities took measures to prevent such violations in the future. At the same time, there were no violations of the norms and provisions of the Code of Business Conduct and Ethics of PJSC LUKOIL. Identified cases of violations are not significant, that is, do not affect the achievement of the strategic goals of the Company.

Statutory compliance

The Company respects laws of the countries where its facilities and offices operate, strives to prevent any violations of law, and supports the principles of free and fair competition and fair business conduct.

No material claimsSee Appendix 7 for the definition of a material claim relating to the breach of law. relating to any violations of anti-trust, product quality and labor relations laws were initiated against the Company in 2019. One significant fine amounting to RUB 68.9 million relating to the Company’s environmental impact was paid in Russia (see Section on «Environmental Protection»).

The Company publishes a Report on Budgetary Contributions annually. This reporting is aimed at increasing the transparency of the Company’s payments made in the countries of operations. Reports are available on the corporate website.

LUKOIL Group entities comply with the tax legislation in effect in the countries in which they operate. In 2019, the following taxesThe amount of taxes comprises income tax and excise taxes. The calculation methodology for the indicator will be reassessed in line with the GRI Standard 207 Tax 2019. were paid:

  • abroad: USD 3.3 billion
  • in the Russian Federation: RUB 1,122 billion, including RUB 854 billion to the federal budget,
    RUB 127 billion to the budgets of Russia’s constituent entities,
    and RUB 0.54 billion to local budgets; RUB 140 billion in excise taxes.

Anticorruption measures

LUKOIL promotes a zero tolerance approach when it comes to corruption. The Company does not tolerate any payments or other forms of incentives provided to representatives of state authorities.

The rules of anti-corruption behavior are included in the set of internal standards for many business processes, including the ones that regulate ensuring corporate security and confidentiality of information, conducting tender procedures and preventing conflicts of interest.

In foreign countries, in addition to corporate-wide regulations, local regulatory documents can apply, which were adopted either voluntarily or in accordance with local legislation and govern economic security and anticorruption issues. For example, the Company’s operations in Uzbekistan are governed by the Anticorruption Regulations of LLC LUKOIL Uzbekistan Operating CompanyOrder No. 150 dated 2 April 2018.. Based on the commitment to high ethical standards of doing business, the Board of Directors decided to develop a document establishing common principles, goals and objectives to combat corruption, and therefore instructions were given to draft such a document and submit it to the Board for its approval in 2020.

Human rights

The Company reaffirms its commitment to the principles of human rights compliance, including freedom of speech, set forth in the Universal Declaration of Human Rights and other UN documents, such as UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises and the Voluntary Principles on Security and Human Rights (see Appendix 6). The Company prohibits any forms of violence and violation of human dignity in compliance with the Russian Constitution. The Company expects its business partners to respect and apply the same principles in this area.

The Company respects and strictly observes human rights. A manifestation of aggressionAggression means threats, intimidation, legal attacks, physical injuries. in any form is unacceptable in the Company. The company considers it unacceptable to obstruct the activities of human rights defenders and shows due respect for human rights activities carried out within the legal framework. The Company expects that similar approaches are applied by its partners. If a violation of human rights is committed as a result of the activities of the Company and/or its individual representatives, LUKOIL undertakes to take measures to eliminate the consequences of such violations.

Entering contractual relationship with our partners, we inform them of our high requirements for ethical business conduct and respect for human rights, and urge them to follow these requirements, defining it as a condition for long-term cooperation with our Company.

We inform our employees and other stakeholders about our human rights policy. Standards of human rights compliance are enshrined in the Code of Business Conduct and Ethics of PJSC LUKOIL and are mandatory for all LUKOIL Group entities.

In 2019, there were no received complaints on human rights disregard in LUKOIL Group entities, including child, forced and slave labor, forced resettlement of indigenous peoplesThe hotline has not been contacted concerning any human rights violations (see Ethics section)..We believe that human rights are a comprehensive concept that affects all aspects of our activities, including labor rights, the right to a healthy environment, quality products, the rights of indigenous peoples, etc. This Report provides information on what LUKOIL is doing in these areas. At the same time, a top priority for the Company is the prevention of violations of labor rights, the preservation of workers’ life and health, and the observance of the rights of local residents whose interests are affected by our facilities.

Social partnership

LUKOIL’s regular interaction with the International Association of Trade Union Organizations of PJSC LUKOIL (IATUO), the International Labor Organization (ILO) and IndustriALL Global Union helps to implement best practices in complying with labor rights and serves as a platform for social dialogue. We use common principles and approaches to working with staff in all countries and regions where we are present, taking into account the specifics and characteristics of local culture.

As part of social partnerships, the scope of the social commitments of the Company and trade union organizations that are parties to agreements is revised and updated on a regular basis. Those commitments are documented in collective agreements covering all full-time staff. The Russian entities that did not conclude collective agreements are directly covered by the Industry Agreement for Organizations of the Oil and Gas Sectors and the Construction of Oil and Gas Facilities of the Russian Federation.

In 2019, collective agreements were in effect in 49 Russian and 9 foreign entities.

Share of employees covered by collective agreements in LUKOIL Group, %

HR audits

HR audits involve auditing the processes associated with the documentation of labor relations, payroll, the compliance with labor laws, the Company’s regulations, and other requirements covering labor law provisions. HR audits also check the procedure for documenting disciplinary actions that may be associated with employees’ non-compliance with the Code of Business Conduct and Ethics (e.g. information on the employment of relatives as direct subordinates may be requested).

Effective management systems are reviewed, including those ensuring non-discrimination. Based on the results of the audit, the Company develops recommendations for the enhancement of personnel management processes. In 2019, audits were conducted in 11 LUKOIL Group entitiesIncluding: LUKOIL-BULGARIA EOOD (Bulgaria), LUKOIL MID-EAST LIMITED (Egypt), Perm Branch of LLC LUKOIL-Engineering PermNIPIneft, LUKOIL Uzbekistan Operating Company (Uzbekistan), LLC LUKOIL-Volgogradneftepererabotka, LLC LUKOIL-Permnefteorgsintez, LLC LUKOIL-AERO, LLC LUKOIL-Uralnefteprodukt, LLC LUKOIL-Nizhnevolzhskneft, LLC LUKOIL-Yugnefteprodukt, LLC LUKOIL-Engineering.. No material violations of human and labor rights were identified.

Monitoring staff morale and motivation

The company regularly monitors compliance with human rights, including conducting a study of the moral and psychological context in LUKOIL Group entities. In 2019, the results of monitoring the moral and psychological context were reported at a meeting of the Human Resources and Remuneration Committee of the Board of Directors of PJSC LUKOIL. The control section showed a good moral and psychological climate and a high level of satisfaction of the Company’s employees with working conditions.

Monitoring of psychological context is conducted by regular surveys (no more than once every two years at the same enterprise). The survey diagnoses the level of employee satisfaction with various aspects of labor and identifies the most significant and most challenging aspects of work according to employees. The survey uses the methodology of the Stockholm School of Economics based on the Employee Satisfaction Index (ESI) model, which is widely used in Europe and in Russia.

Interaction with indigenous minorities on land use and activities in the territories of traditional lifestyles

We share the principles enshrined in the UN Declaration on the Rights of Indigenous Peoples, the UN Global Compact and the Resolution of the World Conference on Indigenous Peoples, and are committed to ensuring a harmonious balance between the economic activities of LUKOIL Group entities in the territories of indigenous minorities of the North and the latter’s interests in preserving their traditional lifestyle and economic activity.

Indigenous minorities of the North live in four regions of our operations: the Khanty-Mansi Autonomous Area – YugraThe region was called the Khanty-Mansi Autonomous Area in 1991., the Yamal-Nenets Autonomous Area, the Nenets Autonomous Area and the Krasnoyarsk Territory. LUKOIL’s operations are historically associated with the territories inhabited by the Khanty and Mansi, the indigenous people of Siberia. Thus, the system of relations with the indigenous minorities of the North began to take shape from the very outset of the Company’s activity.

In Russia, subsoil use, including the allocation of land plots in traditional settlement areas and/or areas of economic activity of indigenous minorities of the North, is regulated by state authorities (under license agreements or other documents that entitle companies to use such subsoil sites). The terms and conditions of the use of licensed areas, including providing compensation to indigenous communities, are established by federal and regional authorities. Hence, issues related to respect for the rights of indigenous peoples, including migration issues, are governed by Russian federal and regional legislation.

We fully comply with the conditions set forth in legislation, regularly interact with representatives of indigenous communities, and take their opinion into account when planning and implementing exploration and production projects. The company seeks to avoid involuntary relocation of people living on the territory of traditional natural resource use. The company applies the Free and Prior Informed Consent principle and seeks to minimize the consequences for those affected by such measures.

In the reporting year, in the course of LUKOIL Group’s production activities in areas of traditional settlement and/or economic activity of indigenous minorities in the North, no forced resettlement of indigenous peoples and no complaints regarding the violation of the indigenous minorities’ rights by LUKOIL Group entities were registered. Compensation is annually paid to indigenous people: under license obligations in the territory of the Khanty-Mansi Autonomous Area – Yugra (where LUKOIL-Western Siberia, RITEK and LUKOIL-AIK operate) and under agreements with reindeer farms in the territory of the Nenets Autonomous Area (where LUKOIL-Komi operates).

The Company engages representatives of indigenous minorities to participate in decision-making on projects that affect their rights (Articles 27–29 of the Declaration on the Rights of Indigenous Peoples). In particular, in order to obtain a preliminary freely informed consent of the indigenous peoples’ representatives, meetings are held at various stages of project implementation: public hearings prior to project implementation (in accordance with the legislation of the Russian Federation), and information events as projects are implemented.

In general, interaction with indigenous minorities of the North is carried out within the framework of federal and regional legislation of the Russian Federation, licensing obligations of LUKOIL Group entities, as well as federal and regional programs to support indigenous peoples. The following mechanisms are used:

  • cooperation agreements between PJSC LUKOIL and regional administrations
  • economic agreements with the heads of areas of traditional resource use
  • agreements on social and economic development with reindeer farms
  • collaboration with indigenous community organizations
  • support for specific projects through grant financing in the framework of the Competition for Social and Cultural Projects of PJSC LUKOIL.

Engagement with local communities

With its wide presence in countries having different cultures and socio-economic patterns, LUKOIL Group uses a variety of methods for interaction with local communities to address emerging issues.

The Company strives to create conditions for unhindered contacts with local residents when implementing its foreign exploration and production projects as an operator. For example, a system of collection and response to complaints and queries was deployed in Uzbekistan. As part of exploration and production projects where the Company is a participant, the interaction with local communities is mainly the responsibility of the operator. LUKOIL informs local communities about its policies and responsible practices whenever required.

In Russia, a large number of events are held for residents of regions where human rights can be discussed, including public hearings, round tables, dialogues, visits to LUKOIL enterprises (for an example, see the «Komi Republic» case study). The practice of engaging in dialogueDialogue (public dialogue) hereinafter in the Report is an in-person event with the participation of the Company and various stakeholders on a wide range of issues related to corporate social responsibility and sustainable development, in connection with LUKOIL activities in a particular region. has begun to be applied at the Romanian refinery as well.