Risk management

The Company’s management places considerable emphasis on risk management issues to provide reasonable assurance as to the achievement of strategic goals in the face of uncertainties and negative factors.

PJSC LUKOIL regularly identifies, describes, evaluates and monitors possible events that could adversely affect the Company’s activities, develops measures to prevent their occurrence or to minimize the negative impact in case such events occur. The Company constantly works on the identification and assessment of new risks and on updating relevant information in the corporate information system.

LUKOIL Group’s Risk Management and Internal Control Policy sets forth unified and mandatory basic principles and approaches to organizing the risk management system of the Company, and the key objectives of the system, as well as key tasks of the risk management system participants at PJSC LUKOIL.

Key sustainability risks include:

  • climate change risks;
  • health, safety and environmental risks;
  • risk of shortages of qualified personnel;
  • reputational risks.

Certain steps were taken to enhance the risk management system in the reporting year.

  • Work continued to improve the practice of accounting for risks when making key investment decisions.
  • Draft internal regulatory documents were prepared and forwarded for approval. These were developed with the aim of strengthening the risk management system at LUKOIL Group entities in accordance with PJSC LUKOIL Risk Management and Internal Control Policy, as well as improving the Company’s investment activities and corporate governance.

Risks are managed at all the levels: at the level of LUKOIL Group entities, PJSC LUKOIL and at the level of the Board of Directors. Information on the risk profile of LUKOIL Group entities is included in 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 significant risks affecting the business activities of LUKOIL Group entities were identified. The qualitative and quantitative assessment of such risks is carried out annually according to risk probability criteria and criteria on the magnitude of the consequences. Risk appetite was defined for each material risk, and measures were developed to mitigate or eliminate their negative impact. The staff of the Risk Management Division and relevant blocks monitor the implementation and effectiveness of the measures.

By reporting the risks identified, we inform stakeholders about certain circumstances that may worsen the performance of the Company with some certain probability. At the same time, PJSC LUKOIL is making due efforts to minimize the risks associated with its own production activities in the regions of where the Company operates.

A list of key sustainability risks

DESCRIPTION OF RISK CATEGORY RISK MANAGEMENT AND MITIGATION ACTIVITIES

Climate change risks

Strengthened climate change regulations could adversely impact operations of PJSC LUKOIL as a major fossil fuel producer and greenhouse gas emitter by driving costs up and performance down. Additionally, LUKOIL Group operates in various regions with hard-to-predict potential climate change impacts that may result in a significant adverse effect.

We minimize this risk by:

  • recording greenhouse gas emissions and planning initiatives aimed at their control;
  • carrying out constant monitoring of relevant legislative changes and taking steps to obtain information about them at the preliminary discussion stage, as well as ensuring our representatives participate during the preliminary discussions so that the risks and uncertainties that may arise from new legislative initiatives are clarified and our views in relation to the proposed changes have been represented;
  • taking climate change risk into account when designing and constructing facilities in environmentally sensitive areas (the Far North, offshore facilities).

For more detail, see the section of the Report titled “Climate Change

Health, safety and environmental risks

The Company’s facilities are exposed to risks of process disruptions, hazardous releases, environmental damage, accidents, fires, and incidents that may result in unscheduled idle time at these facilities

To mitigate these risks, we designed and successfully deployed the Environmental Protection, Occupational Health and Safety

Management System certified to ISO 14001 and OHSAS 18001. The following key initiatives are being implemented:

  • target corporate HSE programs;
  • industrial control over the operation of hazardous production facilities;
  • a process ensuring contractors’ end-to-end compliance with mandatory HSE requirements;
  • development of leadership and safety culture;
  • the appointment of qualified staff across various business levels;
  • development of Plans to Localize and Mitigate the Consequences of Accidents at Hazardous Production Facilities (PLMA) and the Spill Prevention, Control, and Countermeasure (SPCC) Plans; maintaining a pool of emergency personnel and resources; and training personnel who operate hazardous production facilities as well as the emergency response teams applying PLMA and SPCC Plans.

For more detail, see the sections of the Report “Safety” and “Environment

Risk of shortage of qualified personnel

Insufficient skills or qualifications of personnel may have an adverse effect on our financial performance

To mitigate this risk, we focus on the comprehensive development of our talent pool. LUKOIL’s talent management strategy is aligned with its development strategy and the staffing demand of its business segments based on planning and budgeting processes that enable the workforce to be efficiently reallocated through insourcing as well as flexible recruitment, professional training, and developing talent.


For more detail, see the section of the Report “Our Staff

Reputational risks

PJSC LUKOIL is exposed to various factors that may cause reputational risks due to both internal and external factors, including noncompliance with statutory requirements, constituent documents, and internal regulations, as well as through breach of contractual obligations, poor product quality, and a rise in negative perceptions of our financial stability and position

To mitigate this risk, we make efforts to:

  • maintain regular communication with our stakeholders;
  • providing unbiased information on financial and operational performance in a timely manner;
  • ensure continuous monitoring of compliance with statutory requirements and effective agreements;
  • effect timely payments to counterparties.

The company controls the quality of its products and services. For instance, the Filling Stations Hotline has been set up to promptly address any comments and suggestions regarding filling stations operations.
We pay close attention to safety and environmental protection and operate in line with the best HSE standards. We place a great emphasis on social responsibility and working conditions, maintaining and improving our effective occupational health and social security framework through targeted programs.


See more in the sections of the Report on “Ethics and Statutory Compliance,” “Safety,” “Environment,” “Our Staff” and “Communities.”

The risk management system also comprises the following categories which includes risks and respective mitigation actions:
strategic, country, competitive risks, macroeconomic, financial, legal and industrial risks, risks of terrorist acts, illegal actions of third parties, etc.