3. Corporate social responsibility
and sustainable development

Introduction

Sakhalin Energy's activities in the area of corporate social responsibility (CSR) are aimed at the implementation of the corporate strategy to improve the company’s image and role in society, and to carry out its business activities in compliance with the standards of sustainable development and good business ethics. It is an integral part of the Sakhalin Energy production and business activities and strategic development plan.

Due to high transparency and active stakeholder engagement, corporate governance at Sakhalin Energy has gradually progressed to managing the company as an open system. Sakhalin Energy has developed a system to take into account and control external production, financial, technological, social, and environmental impacts, which allows the company to mitigate all types of risks to enhance its corporate sustainability (see Section 5.6. Risk Management ).

Sustainable Development Goals

At the 70th session of the UN General Assembly in September 2015, a new global agenda was adopted—Transforming Our World: the 2030 Agenda for Sustainable Development, which includes 17 Sustainable Development Goals (SDGs), which seek to build on the Millennium Development Goals. One of the specific features of the new goals is the chosen approach to achieve them: the SDGs are addressed not only to governments, but also to other participants in the sustainable development process, in particular businesses, civil society, and all individuals.

In connection with this, the company initiated work to study the SDGs and define Sakhalin Energy's contribution to their achievement. The analysis showed that most of the company CSR programmes and practices are specific activities that contribute to the achievement of the SDGs. These include the occupational safety and employment programmes (SDGs 3, 8, 12), the environmental protection and biodiversity conservation programmes (SDGs 6, 7, 12, 13, 14, 15), stakeholder engagement and partnerships practices (SDGs 16, 17), human rights (SDGs 10, 16), and others.

In 2016, Sakhalin Energy updated its Sustainable Development Policy. One of the fundamentally new provisions included in the updated Policy is the adoption by Sakhalin Energy of its commitments to the SDGs: Sakhalin Energy strives to be a leader in the field of sustainable development, taking into account the Sustainable Development Goals set out in the 2030 Agenda for Sustainable Development. In addition, the company took the decision to include information in the Sustainable Development Report, showing its contribution to the achievement of the SDGs. It was also suggested that the participants of the dialogues with stakeholders, held as part of the preparation of this Report, share ideas on the company ways towards reaching the SDGs.

In December 2016, Sakhalin Energy made a report titled Sustainable Development Goals: Business Role and Opportunities at the extended meeting of the RSPP Committee's on Corporate Social Responsibility and Demographic Policy with the participation of the Steering Committee of the UN Global Compact Network Russia and the Public Chamber of the Russian Federation on the topic Responsible Business Practices and the Millennium Development Goals through the Reporting Prism.

Sakhalin Energy's CSR System

Corporate social responsibility applies to all activities of Sakhalin Energy. This approach is supported by its mission, vision, and values. Practical aspects are reflected and approved in a number of corporate documents (see Section 5. Corporate Governance), including:

  • Code of Conduct, including the Statement of General Business Principles;
  • Sustainable Development Policy;
  • Human Rights Policy;
  • Commitment and Policy on Health, Safety, Environment and Social Performance.

CSR Management System

 

The company extends an essential part of the requirements and business principles set out in these documents to its contractors. This is in line with the recommendations of the GRI G4 Guidelines and the GRI standards, which will come into effect in July 2018. In addition to special contractual provisions and specific requirements, the company arranges training sessions and workshops to ensure these principles are effectively integrated into the work of its contractors and to oversee their compliance (see Section 7.4. Supply Chain Management).

At Sakhalin Energy, CSR trends and indicators are regularly evaluated by authorised personnel and senior management within the company’s system of internal oversight and audit, as well as by lenders, their advisers, and external certifying authorities. Assessments are also done through stakeholder engagements:

  • public consultations;
  • workshops and topical discussions;
  • opinion surveys;
  • consultation in the information centres established by the company in the settlements located along the Trans-Sakhalin Pipeline System and in close proximity to other facilities of Sakhalin Energy;
  • grievance addressing in accordance with the established system, etc.

For details, see Section 6. Stakeholder Engagement Management.

The company regularly provides the general public with reports on sustainable development and fulfilment of commitments. To define the Report content and material topics, consultations with all stakeholders are conducted. In 2015, the stakeholder engagement process for defining material topics of the Report was considerably extended as part of the final transition to the G4 version of the GRI Guidelines (see Section 2. About the Report).

Performance Standards

Russian companies refer to CSR business, social, and environmental activities defined by legislation, as well as a range of additional programmes and responsibilities with regard to employees and society. The results are reflected in various non-financial reports on activities. A number of companies take on additional responsibilities beyond the minimum set by legislation based on their strategic and regional priorities and their level of corporate culture. Sakhalin Energy is no exception. It operates in accordance with the international standards established with regard to CSR.

Many initiatives and standards have been established worldwide in the area of environmental and social responsibility. The leading ones are the UN Global Compact and the CSR centres all over the globe, which bring together commercial and non-commercial entities, the Global Reporting Initiative (GRI), the АА 1000SES, i.e. the Stakeholder Engagement Standard, the International Financial Corporation (IFC) Standards, as well as ISO 26000:2010 Guidance on Social Responsibility and many others.

In 2009, Sakhalin Energy joined the UN Global Compact (UNGC) and pledged its commitment to consistently follow the UNGC’s principles concerning human rights, labour, environment, and anti-corruption. In 2011, Sakhalin Energy became the first and (as per beginning of 2017) the only Russian company chosen by the UN to participate in its new Sustainable Corporate Leadership platform — the UN Global Compact LEAD, established in the framework of the UN Global Compact. LEAD companies are obliged to carry out certain activities in the areas of environmental protection, social performance, and corporate governance, as well as to develop new CSR standards.

The main international standards that Sakhalin Energy applies are as follows:

  • ISO standards (environmental management, quality control, health and safety, and social responsibility);
  • European Union and United Nations standards and directives (environment, human rights, indigenous peoples, etc.);
  • World Bank and International Finance Corporation standards (governance systems, risk and impact assessment, biodiversity, public health, cultural heritage, indigenous peoples, involuntary resettlement, stakeholder engagement, grievance management, etc.);
  • GRI and AA1000SES standards (non-financial reporting, stakeholder engagement).

In 2016, Sakhalin Energy completed the self-assessment of its application of ISO 26000:2010 Guidance on Social Responsibility. It was the second time that the company had carried out this type of assessment. The first self-assessment was completed in 2012. It was the first full self-assessment to be carried out in Russia.

During the self-assessment in 2015–2016, Sakhalin Energy paid particular attention to documents and processes that had entered into force in recent years. The projects aimed at the expansion of the company’s operations, namely the OPF Front-End Compression and the LNG Train 3 projects, were also taken into consideration. The Statement on application of ISO 26000:2010 Guidance on Social Responsibility issued based on the results of the self-assessment, is public and available on the company’s website (www.sakhalinenergy.com).

The company made a report used the results of this self-assessment titled The Experience of Carrying out Self-Assessment of the Application of Standard ISO 26000:2010 as a Regular Business Process of Social Responsibility Diagnostics, at the extended meeting of the RSPP Committee's on Corporate Social Responsibility and Demographic Policy with the participation of the Steering Committee of the UN Global Compact Network Russia and the Public Chamber of the Russian Federation on the topic Responsible Business Practices and the Millennium Development Goals through the Reporting Prism. In addition, in 2016 Sakhalin Energy published a brochure that provides an overview of ISO 26000:2010, the stages of self-assessment of its application, including the company’s experience. The brochure is also available on the company’s website.

Sustainable Development Policy

The Sustainable Development Policy has been pursued since the foundation of Sakhalin Energy by incorporating SD principles into the company’s business strategies, plans, and processes.

According to the UN definition, sustainable development is about ensuring that ‘the needs of the present generation are met without compromising the ability of future generations to meet their own needs.’ In its practice, Sakhalin Energy relies upon this definition. This approach presumes and ensures economic effectiveness, environmental safety, social justice, and ethical behaviour of the corporation and its employees, combined with an overall reduction of human impact on the ecosphere. This is implemented via strong, transparent, constructive, and systematic cooperation and two-way communication with all the stakeholders.

In 2016, Sakhalin Energy consistently implemented the provisions of the Sustainable Development Policy — the public strategic document approved by the Committee of Executive Directors in 2003. The Policy sets forth the company’s principles, directions, and responsibilities in this area.

The main provisions of the company’s Sustainable Development Policy are as follows:

  • Sakhalin Energy will carry out its business responsibly and efficiently so as to deliver a robust project that will maximise benefits to the Russian Federation, the Sakhalin Oblast, and the shareholders.
  • Sakhalin Energy will contribute to the present and future needs of the society on the Sakhalin Island, while keeping a balance between economic development, environmental protection, and social responsibility, beside taking into account cultural diversity.
  • Sakhalin Energy will work with all stakeholders to identify ways to contribute to the wider, long-term economic, environmental, and social benefits in the Sakhalin Oblast.

To comply with these principles, Sakhalin Energy makes the following commitments to sustainable development:

  • incorporate SD principles into  business plans, procedures, and processes;
  • ensure compliance with the corporate Commitment and Policy on HSE and Social Performance, as well as standards specified in the Health, Safety, Environmental and Social management systems and Action Plan (HSE&SP-MS and HSESAP);
  • inform and engage with our stakeholders on the company’s SD performance and seek feedback;
  • develop and implement social investment and sustainable development programmes and projects that are linked to the company’s strategy and priorities, and have clear procedures and controls;
  • focus on developing strategic partnerships with external stakeholders to enhance positive impact of community development programmes;
  • issue annual non-financial reporting in accordance with the Global Reporting Initiative (GRI) standards and principles as per corporate Sustainable Development Report Development Procedure;
  • be a participant of the UN Global Compact (UNGC) complying with its ten principles and promoting them;
  • be a member of UNGC LEAD demonstrating sustainability leadership.

HSE and Social Performance Management

HSE and Social Performance Management System

The company is committed to preventing potential damage to the community and environment as a result of its operations and contributes to sustainable development to benefit the residents of Sakhalin and other primary stakeholders.

During Sakhalin-2 project implementation, the Russian Federation and Sakhalin Oblast have received numerous benefits, including multibillion investments, employment growth, an increase in contracts with Russian companies, etc. (see Section 7.1 Importance of the Sakhalin-2 Project for the Russian Federation and the Sakhalin Oblast). Understanding that the scope and complexity of the project can have an impact on the environment and social performance, Sakhalin Energy made a commitment to prevent associated potential problems, reduce risks and prevent adverse impacts in a consistent manner. In its operations, the company adheres to the principle of eliminating hazards and threats, paying special attention to preventive risk management and impact assessment (see Section 5.6 Risk Management).

Health, Safety, Environment, Social Performance, and Industrial Safety Management is an integral element of the corporate management system and is regulated by a number of fundamental documents including:

  • Sustainable Development Policy;
  • Commitment and Policy on Health, Safety, Environment and Social Performance (adopted in 2001, updated in 2016);
  • HSE&SP Management System;
  • Health, Safety, Environment and Social Action Plan;
  • Hydrocarbon Flaring Commitment;
  • Statement of Sakhalin Energy Investment Company Ltd. Industrial Safety Policy;
  • Policy on the Industrial Safety Management System;
  • Business Continuity Policy;
  • Guidance on the Business Continuity Management System.

The above documents were approved by the Committee of Executive Directors, signed by the Sakhalin Energy Chief Executive Officer, and communicated to the personnel and contractors.

The company uses a systemic approach to handling HSE&SP issues, which ensures continuous development in the field. The comprehensive HSE&SP Management System includes controls used by Sakhalin Energy to handle hazardous situations and risks. The system is applied to all Sakhalin Energy facilities, projects, and operations, including those conducted by contractors. Sakhalin Energy considers control of risks as a critically important prerequisite for successful performance; therefore, the risk management system is subject to continuous updating, improvement, and optimisation.

The system is based on the Plan-Do-Check-Act methodology of ISO 14001 and OHSAS 18001 standards.

The commitments adopted by the company following the results of assessing the impact on the environment, health, and social performance conducted prior to the start of the Phase 2 construction work, are included in the Health, Safety, Environment and Social Action Plan (hereinafter—the Plan). The development of the Plan was mandatory in order to obtain a loan for Sakhalin-2 Phase 2 implementation.

The Plan was developed in compliance with Russian laws and international standards, including World Bank Policies and Directives, standards of the International Finance Corporation, etc. The Plan describes the HSE&SP Management System, provides detailed information on measures to minimise the adverse environmental impact, monitoring, activities in environmental and social areas, as well as all internal and external standards regulating the company’s HSE&SP activities. The Plan is approved by the project lenders. The fourth edition was approved in 2014 and published in 2015.

The Plan was posted on the company’s website (in Russian and English), as well as in the company’s information centres and libraries of the settlements located in the vicinity of the company’s facilities. A few materials are available in Japanese for stakeholders in Japan. The implementation of the Plan is regularly monitored by the company, lenders and their consultants; inspection results are published on the company’s website (www.sakhalinenergy.com).

The Plan-Do-Check-Act Methodology is applied in order to:

  • identify goals and set procedures necessary to achieve performance indicators in compliance with the Commitment and Policy HSE&SP. This includes identifying legal and other requirements, determining problems and risks, assessing the impact, identifying management elements, as well as developing annual performance improvement plans;
  • implement procedures for training and advanced training, contractor performance management, participation and interaction, change management, emergency response, as well as operational control over hygiene, personal safety, integrity of facilities, and industrial safety. The procedures cover transportation, health, safety, environment, and social performance issues, including those associated with public activities, cultural heritage, land acquisition, relocation, and provision of additional assistance, conducting scheduled consultations and sharing information with the community, grievance consideration, and social investments;
  • monitor and assess performance in accordance with the set objectives, legal and other requirements; provide reports on results, incidents, and non-conformities; take corrective and preventive measures; conduct HSE management system audits at the company’s facilities and in functions;
  • regularly perform the overview of the management system and contribute to the continuous optimisation of HSE&SP performance.

The Sakhalin Energy HSE&SP management structure consists of the HSE Management Committee, which exercises comprehensive control over the area. The Committee is managed by the company CEO. The HSE General Manager reports to the CEO and oversees the development, introduction, operation, and monitoring of the management system. To ensure the fulfilment of the industrial safety and HSE standards, HSE services were formed in company’s structural and functional units.

Impact Assessment

The company is committed to making an impact assessment prior to any new activities or significant changes in existing projects. This is the basis of the due diligence approach and all risk management processes.

Impact management is a process of predicting and managing the future project activities by improving project solutions, taking measures targeted at minimising potential adverse impacts and increasing benefits from the company’s activities.

Sakhalin Energy seeks to avoid or reduce the impact to the lowest possible level or to compensate for it by taking appropriate measures. The following measures are taken when any potential adverse impact is identified:

  • avoid;
  • prevent;
  • decrease;
  • compensate;
  • use experience to reduce the probability of occurrence.

An integral part of any impact assessment carried out by the company are consultations with the stakeholders to inform them about the planned activities, identify concerns, take into account their opinions, and discuss possible measures to manage the impact.

The results of previous environmental and social impact assessments (including the results of comprehensive and strategic environmental assessments as well as the required additional and special studies) are taken into account in the company’s standards, while its ongoing activities are based on relevant plans and programmes. The impact assessment results are posted on the company’s website. The validity and completeness of the assessments are monitored by government authorities and project lenders.

In 2016, the company (with contractor involvement) started collection of baseline data and project documentation development including integrated impact assessment in accordance with Russian and International requirements for the LNG Train 3 Construction project (see Section 4.2.2.3. LNG Train 3 Construction Project). Impact Assessment work will continue according to the project schedule.

Stages of Impact Assessment

DESIGN AND DECISION MAKING

STAKEHOLDER ENGAGEMENT

Inspection and Audit

Since 2005, external and internal inspections and audits have been conducted to ensure control over all the elements of the integrated HSE&SP management system in compliance with approved annual plans. External audits are conducted by representatives of the company’s shareholders and lenders, external certifying authorities, etc. For internal audits, specially trained auditors (the company's qualified employees and shareholder specialists) are engaged. In 2016, eight HSE&SP management system audits were conducted, including five external and three internal ones (see the Inspections and Audits of the HSE&SP Management System in 2016 table).

Inspections and Audits of the HSE&SP Management System in 2016

Audit level Number of audits Content
External 5 Control over the compliance with HSE&SP standards issued by the representative of lenders—by the independent environmental consultant *
Audit for compliance with ISO 14001 and OHSAS 18001 standards
Audit of flight operations (helicopters and charters) with the participation of Shell auditors
Control overview of marine transportation performance indicators by Shell specialists
Monitoring of implementation of the Sakhalin Indigenous Minorities Development Plan —by the External Monitor of the Plan *
Internal 3 Audit of the HSE system of the LNG Plant
Audit of the HSE system of the Onshore Assets
Audit of the HSE system of the Facilities Management Department

* The reports are published on the official company’s website (www.sakhalinenergy.com).