1.1. Sustainability Management

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The Gazprom Group’s mission when it comes to sustainable development is to make a positive contribution to the social and economic development of Russia and other regions of operation in line with environmental and social responsibility standards, so as to preserve and enhance the opportunities for future generations while meeting the needs of today.

Sustainability management is integrated into the corporate governance system of PJSC Gazprom.

PJSC Gazprom’s Sustainability Management System
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The Management Committee and the Chairman of the Management Committee administer the Company’s day-to-day operations, including economic, environmental and social matters, based on separation of powers pursuant to the Articles of Association of PJSC Gazprom and other applicable regulations. The Management Committee and the Chairman of the Management Committee report to the General Shareholders Meeting and the Board of Directors of the Company.

Activities of PJSC Gazprom Board of Directors and its committees in 2020
Indicator Board of Directors Audit Committee Nomination and Remuneration Committee
Number of directors, including 11 3 3
Independent directors 3 2 2
Number of meetings62128
In person 5 0 0
In absentia 57 12 8
Number of items addressed 163 13 10
Number of items related to sustainability 17 2 4

The Chairman of the Management Committee may delegate authority to other employees of the Company, including by issuing orders concerning distribution of responsibilities, powers of attorney to represent the Company before third parties. 

PJSC Gazprom has established organizational units in charge of various activities, including finance, strategy, environmental protection, occupational safety, HR management, etc. Their heads report to the Chairman of the Management Committee either directly or indirectly.

Sustainable development activities of PJSC Gazprom and its approaches to the implementation of its sustainable development obligations are regulated by the Sustainable Development Policy of the Gazprom Group approved by Resolution of the Gazprom Board of Directors No. 3576 dated April 30, 2021.

Key strategic documents of Gazprom
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Unlocking economic potential:

  • Long-Term Development Program of PJSC Gazprom;
  • Innovative Development Program of PJSC Gazprom until 2025.

Shaping management approaches:

  • Corporate Governance Code of PJSC Gazprom;
  • Anti-Corruption Policy of PJSC Gazprom;
  • Dividend Policy of PJSC Gazprom;
  • Risk Management and Internal Control Policy of PJSC Gazprom;
  • Quality Management Policy of PJSC Gazprom;
  • Regulation on Hot Line for Fighting Fraud, Corruption, and Embezzlement at Gazprom Group;
  • Regulation on Procurement of Goods, Works, and Services by PJSC Gazprom and Gazprom Group Companies.

Environmental protection:

  • Environmental Policy of PJSC Gazprom;
  • Comprehensive Environmental Program of PJSC Gazprom for 2020–2024;
  • Energy Efficiency and Energy Saving Policy of PJSC Gazprom;
  • Energy Saving and Energy Safety Improvement Program of PJSC Gazprom.

HR, social policy, and human rights:

  • HR Management Policy of PJSC Gazprom, its Subsidiaries and Entities;
  • Comprehensive Program for Improvement of HR Management at PJSC Gazprom, its Subsidiaries and Entities;
  • General Collective Labor Agreement of PJSC Gazprom and its Subsidiaries;
  • Code of Corporate Ethics of PJSC Gazprom;
  • Regional Policy Concept of PJSC Gazprom;
  • PJSC Gazprom’s Occupational, Industrial, Fire and Road Safety Policy;
  • Process Safety Management System Development Strategy of PJSC Gazprom.

Dmitry Pashkovsky

Head of Department, PJSC Gazprom; in charge of shaping and implementing the comprehensive risk management and internal control policy. The continuous improvement and enhancement of the integrated corporate framework provides reasonable assurance that the Gazprom Group will achieve its strategic goals and meet its environmental and social obligations.

Sustainability Management

Key Impacts, Risks, and Opportunities

Risk Management and Internal Controls

Key documents regulating Gazprom Group’s risk management and internal controls:
  • Risk Management and Internal Control Policy of PJSC GazpromApproved by resolution of the Board of Directors of PJSC Gazprom No. 3195 dated December 25, 2018;
  • Risk Index of PJSC Gazprom, its Subsidiaries and EntitiesApproved by order of PJSC Gazprom No. 848 dated December 15, 2017 (as amended by orders of PJSC Gazprom No. 8 dated January 16, 2020 and No. 376 dated September 14, 2020);
  • Regulation on Credit Risk Management at PJSC Gazprom, its Subsidiaries and EntitiesApproved by order of PJSC Gazprom No. 559 dated December 11, 2019;
  • Regulation on Operational Risk Management at the Gazprom GroupApproved by order of PJSC Gazprom No. 291 dated July 11, 2019;
  • Regulation on Liquidity Risk Management at the Gazprom GroupApproved by order of PJSC Gazprom No. 390 dated July 10, 2018;
  • Regulation on Foreign Exchange Risk Management at the Gazprom GroupApproved by order of PJSC Gazprom No. 390 dated July 10, 2018;
  • Regulation on Interest Risk Management at the Gazprom GroupApproved by order of PJSC Gazprom No. 390 dated July 10, 2018;
  • Risk Management Guidelines Based on Qualitative AssessmentApproved by decree of PJSC Gazprom No. 149 dated June 20, 2019.
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The Gazprom Group has in place a robust risk management and internal control system (RMICS) which provides reasonable assurance that it will achieve its goals. The Company has established a dedicated unit (Department of PJSC Gazprom) in charge of risk management and internal controls which implements the single risk management and internal control policy and uniform guidelines across PJSC Gazprom and Gazprom Group entities. The Risk Management and Internal Control Policy of PJSC Gazprom was developed and approved.

The RMICS is an integral part of the corporate governance system of PJSC Gazprom and Gazprom Group entities, which is embedded into the planning system and the project management and process safety management systems.

PJSC Gazprom’s RMICS performance in 2020 was confirmed by the Expert RA rating agency, and PJSC Gazprom’s quality management system was reviewed by a third-party organization.

PJSC Gazprom and the Gazprom Group entities ensure timely identification of risks and evaluation of potential events, circumstances, and internal and external factors influencing the achievement of the Gazprom Group’s targets and goals, and develop relevant risk management measures and internal control procedures.

Components of the Gazprom Group’s RMICS
RMICS goals, objectives, and functions as part of corporate governance at PJSC Gazprom and the Gazprom Group entities
RMICD functions:
  • ensuring the implementation of the single risk management and internal control policy at PJSC Gazprom and the Gazprom Group entities and providing the required guidelines throughout this process;
  • coordinating risk management and internal control activities of organizational units of PJSC Gazprom and the Gazprom Group entities;
  • developing a methodological framework for risk management processes and internal control procedures;
  • building a portfolio of PJSC Gazprom’s key risks;
  • monitoring the implementation of risk management processes and internal control procedures at PJSC Gazprom and the Gazprom Group entities, etc.
Key RMICD activities in 2020:
  1. Development of a legal and methodological framework for centralized management of market, credit, financial, and operational risks;
  2. Coordination of the development and implementation of the RMICS at the Gazprom Group;
  3. Improvement of the risk management and internal control culture at the Gazprom Group, including training of employees at organizational units.

In 2020, a new risk was identified — the one related to the spread of COVID-19. Nonetheless, the implemented measures allow PJSC Gazprom to maintain the identified risks at an acceptable level.

In early 2021, the Expert RA rating agency assessed PJSC Gazprom’s risk management system as high-quality and assigned its highest management quality rating, А++.gq, to the Company in appreciation of PJSC Gazprom’s dedicated unit in charge of risk management and internal controls, regular risk reporting, and sophisticated RMICS regulations, including operational, credit, foreign exchange and liquidity risk management.

PJSC Gazprom’s Approach to Material Sustainability Risks Management

The year 2020 saw changes in PJSC Gazprom’s approach to sustainability risk management, with the following risk management regulations and guidelines developed and introduced.

Risk management regulations and guidelines
  • Risk Ranking Guidelines Based on Pairwise ComparisonApproved by decree of PJSC Gazprom No. 163 dated May 8, 2020;
  • Guidelines for Risk Management System Self-Assessment at the Gazprom GroupApproved by decree of PJSC Gazprom No. 164 dated May 8, 2020;
  • Guidelines for Developing Key Risk IndicatorsApproved by decree of PJSC Gazprom No. 168 dated May 13, 2020;
  • Guidelines for Risk Reporting at the Gazprom GroupApproved by decree of PJSC Gazprom No. 176 dated May 19, 2020;
  • Regulation on Insurance of Construction, Renovation and Overhaul Projects at PJSC Gazprom, its Subsidiaries and EntitiesApproved by order of PJSC Gazprom No. 511 dated December 10, 2020.
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In 2020, the Gazprom Group’s list of sustainability risks was expanded to include sanitary and biological (epidemiological) risks associated with the global spread of the COVID-19 coronavirus infection. The Plan to Counter the Potential Negative Consequences of the Coronavirus Pandemic, including Measures to Protect Employees and Ensure Business ContinuityApproved by resolution of the Board of Directors of PJSC Gazprom No. 3403 dated March 19, 2020was developed and approved.

Risk management activities are governed by the Risk Management and Internal Control Policy of PJSC Gazprom and other local regulations of PJSC Gazprom.

Risk management include:
  • risk assessment and monitoring;
  • development, implementation and monitoring of risk management measures;
  • risk reporting.
Risk management seeks to:
  • analyze internal and external factors;
  • forecast potential changes in the external and internal environment;
  • identify interrelationships between risk factors;
  • rank risks to determine risk management measures and internal controls.

The management of risks identified in 2020 includes, among other things, the development and implementation of action plans to prevent and control the spread of infections among employees.

PJSC Gazprom’s Approach to Material Sustainability Risks Management
No. Risk group Description Risk management/mitigation Risk factors(internal/external)
Operational risks
1. Production risks Core business operations involving hydrocarbon production, transportation, processing and storage are associated with potential technological, technical, natural and climate risks, as well as the risk of inappropriate actions by employees or third parties. The Unified Gas Supply System ensures overall reliability of gas supplies. Insurance covers property, interruption of operations at gas processing plants (GPPs), and contractor’s liability for construction, repair and operation of industrial facilities. Internal and external
2. Occupational health and industrial safety risks Business activities are exposed to potential risks of adverse impact on employees’ health and safety. The Integrated System of Process Safety Management (ISPSM) is in place. The System is designed to manage risks, achieve targets and meet obligations in the area of occupational health, industrial, and fire safety. Internal and external
3. Sanitary and biological (epidemiological) risks The global spread of the COVID-19 coronavirus infection may affect the operations and interactions of organizational units of PJSC Gazprom and Gazprom Group entities. The Plan to Counter the Potential Negative Consequences of the Coronavirus Pandemic, including Measures to Protect Employees and Ensure Business Continuity was developed and approved. Preventive measures were introduced to mitigate the potential consequences of the spread of the COVID-19 coronavirus infection. Internal and external
Environmental risks
4. Environmental damage resulting from construction and operation of facilities The core hydrocarbon production, transportation, processing and storage operations are associated with potential risk of environmental pollution. As part of the Environmental Policy, environmental protection activities are implemented, environmental risk insurance is provided, green technologies are adopted, and programs and activities designed to reduce environmental footprint are carried out. External
5. Accidents and incidents associated with business operations Environmental impact resulting from potential accidents during business operations. The following activities are carried out:
  • analysis of the potential adverse environmental impacts and their implications resulting from the identified accidents and other emergencies;
  • emergency prevention, localization, response, and impact mitigation;
  • environmental damage assessment in case of accidents and other emergencies.
External
6. Adverse impact on ecosystems Potential impacts on ecosystems resulting in land and water pollution, deterioration of soil and vegetation, and erosion. This may lead to degradation of ecosystems and loss of habitat for rare and endangered plant and animal species. Comprehensive initiatives are underway for enhancement of reliability of pipeline systems, landscape stabilization, soil reclamation, and vegetation rehabilitation. External
Natural and climate-related risks
7. Climate change and greenhouse gas emissions Potential climate changes and adverse weather conditions that may cause damage to buildings and structures, pipeline transportation systems and service lines. Ongoing analysis of changes in the climate and geocryological conditions. Efforts are being made to adapt to potential climate changes and create an additional reliability margin for facilities. Energy efficiency and energy saving programs are implemented to reduce GHG emissions. External
8. Climate conditions A major part of the natural gas produced comes from Western Siberia, where production is difficult and relatively costly because of climate conditions. Effective technological procedures adapted to various climatic conditions are developed and implemented, and programs are underway to boost the efficiency of production and transportation systems and gas transmission network operation. External
Legal and industry-specific risks
9. Tariff (pricing) regulation of natural monopolies State regulation of wholesale prices for gas produced and sold on the domestic market, as well as tariffs for gas transportation via trunklines. Relations are maintained with government authorities in order to justify the regulated gas prices and tariffs for gas transportation services. Contributions are made to the development and expert review of laws and regulations governing pipeline-based gas transportation. External
10. Government regulation Potential changes in regulation and laws in the Russian Federation and other countries of the Gazprom Group’s operations. Legislative changes are monitored on a regular basis. Interaction is maintained with government authorities for the purpose of timely adjustment of operations to legislative changes. External
Market, country and regional risks
11. Volume risks Adverse economic conditions, lower demand for energy commodities. Sales markets and channels are diversified, and the scope of natural gas use is expanded. External
12. Price risks Decline in energy prices and mercantile exchange quotations and/or their long-time stagnation at low levels. Contract terms are adjusted in line with the current market environment, and permitted transaction types and financial instruments are defined. External
13. Foreign exchange risks Currency exchange rate volatility along with the multicurrency structure of revenues and expenditures. Hedging strategies are used to address the risk of market-driven shifts in exchange and interest rates, and the debt profile is optimized. External
14. Sanction-related risks Russian companies are exposed to restrictions imposed by the USA, EU, and other countries. The policy of technological self-sufficiency and import substitution is pursued. External
15. Natural gas transit risks Natural gas transit through the territory of third countries is subject to the risk of default on transit obligations. Steps are taken to diversify export routes, broaden access to underground gas storage (UGS) facilities, and develop liquefied natural gas (LNG) trade. External
Credit risks
16. Credit risks Counterparties’ default on or failure to timely or completely fulfil their financial obligations. The creditworthiness of counterparties is assessed and monitored. The payment terms are determined and payments of counterparties (guarantees, letters of credit, prepayments) are secured. Credit limits are established and compliance therewith is monitored across PJSC Gazprom and Gazprom Group entities. External

Gazprom Group’s Sustainable Development Goals

The Gazprom Group’s sustainable development goals underpin its operations and are integrated into its strategic, medium-term and short-term planning systems.

 

Monitoring the Sustainability Progress

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The Gazprom Group’s sustainability progress is monitored against a set of key performance indicators (KPIs) used in planning PJSC Gazprom’s operations or assessing the performance of executives at PJSC Gazprom, its subsidiaries and entities.

Unlocking economic potential:
  • economic profit growth;
  • return on capital employed;
  • integrated KPI for innovation.
Improving the corporate governance system:
  • total shareholder return;
  • customer satisfaction index in Russia (gas business, power generation business, NGV business).
Environmental protection:
  • reduction in unit greenhouse gas emissions (in CO2 equivalent), including methane;
  • reduction in specific consumption of fuel and energy resources for internal process needs and transportation losses.
Human rights:

average hours for all types of training per year by employee categoryManagers, specialists and other white-collar staff; blue-collar staff;

share of employees who participated in professional development (for blue-collar staff), skills upgrading and retraining programs by employee category.

Industrial safety:
  • reduction in workplace accidents rate;
  • reduction in workplace incidents rate.

Interaction with International and National Industry Organizations and Associations on Topical Issues of the Oil and Gas Market and Sustainable Development

The Company’s commitment to sustainable development principles is evidenced by its membership in Russian and international organizations and support of sustainable development initiatives, which enables exchange of information and best practices, as well as dialogue on relevant topics.

 

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The Gazprom Group companies are part of the management bodies of and contribute to the work of international and national industry associations and organizations, such as the International Business Congress (IBC), the International Gas Union (IGU), the Global Gas Centre (GGC), the World Energy Council (WEC), the Natural & bio Gas Vehicle Association (NGVA Europe), the German-Russian Forum, the Boao Forum for Asia (BFA), the United Nations Economic Commission for Europe (UNECE), the Gas Exporting Countries Forum (GECF), the Asia-Pacific Economic Cooperation (APEC), the Russian Union of Industrialists and Entrepreneurs (RSPP), the Corporate Owners Club (Non-Commercial Partnership for Efficient Management of Corporate Properties), the Russian Gas Society (Union of Oil and Gas Industry Organizations), etc.

In 2020, the Gazprom Group companies continued to participate in key economic and energy forums and landmark events of international standing, including the European Gas Conference, the Sakhalin Oil & Gas international conference and exhibition, the 26th Annual Flame Gas & LNG Conference (FLAME 2020), the Abu Dhabi International Petroleum Exhibition & Conference (ADIPEC 2020), the Strong Ideas for a New Time forum, the Budapest Energy Summit, the World LNG Summit, the World Energy Week, etc.

The international economic and energy agenda in 2020 mainly focused on global and regional energy and climate strategies, gas industry development amid the spreading coronavirus infection, energy transition strategies, prospects of the global gas and LNG market, and insights into the gas market in Europe and the Asia-Pacific Region (APR).

PJSC Gazprom seeks to raise awareness among foreign authorities about the importance of gas for sustainable development both directly by participating in meetings and public events and indirectly by communicating the Company’s opinion through targeted consultations.

In 2020, PJSC Gazprom took part in the public consultations announced by the European Commission to present its position on such matters as the EU Hydrogen Strategy, the EU strategy to reduce methane emissions, and the EU laws governing sustainable investment.

Gazprom Group in ESG Ratings

PJSC Gazprom consistently strengthens its relationships with rating agencies and expands the number of its international ratings. The ESG ratings of PJSC Gazprom reflect the Company’s sustainability progress and its assessment by the Russian and international communities.

 

Gazprom in ESG ratings, 2017–2020
2017 2018 2019 2020
S&P CSA (SAM) S&P CSA (SAM) S&P CSA (SAM) S&P CSA (SAM)
MSCI Sustainalytics Sustainalytics Sustainalytics ESG Risk Rating
CDP MSCI MSCI MSCI
CDP CDP CDP Climate Change
CHRB ISS-Oekom CDP Water Security
CHRB ISS-Oekom
Vigeo Eiris FTSE4Good
CHRB
VigeoEiris
Gazprom’s ranking scores in key ESG ratings in 2020
Ratings 2019 2020
S&P CSA (SAM) 36 42SAM score for 2020 as of January 26, 2021
Sustainalytics ESG Risk RatingThe score reflects the risk level. The lower the better 38.9 37.5Based on the Sustainalytics website data for 2020 in line with the updated ESG Risk Rating
MSCIhttps://www.msci.com/our-solutions/esg-investing/esg-ratings/esg-ratings-corporate-search-tool/issuer/gazprom-pao/IID000000002167503 BBB BB
CDP Climate Change C B
CDP Water Security C B—
CHRB 10.4CHRB score as of September 26, 2019. The adjusted score for 2019 is 1.5 out of 26 (benchmark for comparison with the 2020 abbreviated questionnaire score) 4.5CHRB score as of September 26, 2020
Environmental transparency rating of Russian oil and gas companies 10 8
Responsibility and Transparency index (RUIE) Leader group
(individual index above 0.75)
Leader group
(individual index above 0.75)
Sustainable Development Vector index (RUIE) Leader group
(individual index above 0)
Leader group
(individual index above 0)

In 2020, PJSC Gazprom (B for Climate Change and B— for Water Security) and PJSC Gazprom Neft (B for Climate Change) were named the best Russian oil and gas companies according to CDP’s international rating.

The Company also holds top positions in Russian ratings. It has been ranked among the leaders of the “Responsibility and Transparency” and “Sustainable Development Vector” indices of the Russian Union of Industrialists and Entrepreneurs. In 2020, the Gazprom Group was among the Top 5 in RAEX-Europe’s annual ESG ranking in the Environmental category. Gazprom also ranked among the Top 10 in the environmental transparency rating of Russian oil and gas companies conceived by WWF Russia and CREON Group. In the reporting year, Gazprom placed 12th in the Sustainable Development ranking of the Expert magazine.

In 2020, Gazprom Energoholding companies ranked among the Top 10 in the environmental transparency rating of Russian power generating companies conceived by WWF Russia. In particular, PJSC Mosenergo and PJSC OGK-2 came in second and third out of the 18 possible positions.