ESG Risk Management

The Company has introduced and effectively operates a corporate risk management system (CRMS), which is integrated into the key business and management processes of the Company and is aimed at achieving an optimal balance between KMG’s value growth, its profitability and risks. Risk management in the Company allows preventing the occurrence of risk events affecting the achievement of strategic and operational objectives and limiting their impact when they occur.

The CRMS is a key component of KMG’s corporate governance system, with a vertical risk management process built at all management levels and aimed at timely identification, assessment and monitoring of all material risks, as well as taking timely and adequate actions to mitigate risks.

The Board of Directors, supported by the Audit Committee of the Board of Directors, determines the main vector of risk management development to provide assurance of compliance with the Company’s strategic goals, timely identification of the Company’s key risks, their assessment and management methods, and reviews reports on the effectiveness of the risk management system.

The Management Board is responsible for the organisation and effective functioning of the CRMS, timely submission of quarterly risk reports to the Fund, the Audit Committee and the Board of Directors, ensuring implementation of the CRMS Policy, improvement of internal regulatory documents in the field of risk management of the Company and taking necessary risk management actions. The Management Board has a Risk Committee, which is a permanent consultative and advisory body established for preliminary consideration of KMG Group’s risk management issues and preparation of recommendations to the KMG Management Board for decision-making. The Committee considers the Company’s risks and the effectiveness of activities to manage them, methodological documents on risk management, proposals for the development of risk management policies, procedures and structure; new approaches to risk management, and work plans to improve the CRMS.

In accordance with the concept of three lines of defence at KMG, the first line of defence (business functions) – managers and employees of structural divisions – is responsible for risk assessment and management at their level, as well as for ensuring an effective internal control system; the second line of defence (monitoring functions) – managers and employees of structural units – is responsible for ensuring and monitoring the implementation of effective risk management practices, internal control, compliance with legislation, internal documents and investigation of unfair practices on the part of KMG’s employees; and the third line of defence (independent function) – Internal Audit Service – provides confirmation to the Board of Directors and KMG’s Management Board on the effectiveness of the management systems and operation of the first and second lines of defence.

Identification of risks/risk factors inherent in KMG Group’s activities, the occurrence of which may adversely affect the ability to achieve the planned goals and realise the set objectives, assessment and development of an action plan for their management is carried out by the owners of risks/risk factors at all management levels. In 2023, the Company updated the consolidated Risk Register, including risks affecting the sustainable development of KMG Group.

Key ESG risks and actions taken to manage and mitigate them

Trend (over the year)	Risk description and possible consequences	Actions taken to mitigate and manage risk
Environmental aspects
	Climate risks and low-carbon development In its activities, the Company faces risks associated with energy transition and climate change, which include the following risk factors: Risks related to energy transition (restrictions in the sale of carbon units, significant costs of actions, low profitability of low-carbon projects, lack of legislative and permitting regulations, increased electricity tariff). Physical impact of climate change on the Company (short-term: floods, landslides, mudslides, drought, fires, hurricanes; systematic: prolonged period of abnormally high air temperatures, sea level rise and waterlogging of onshore wells, drop in the Caspian Sea level). Impact These risks may adversely affect the Company’s business as a major fossil fuel producer and greenhouse gas emitter by increasing costs, reducing profitability and limiting opportunities for further development. In certain counterparty countries, an increase in the production of energy from renewable sources can be expected, which may lead to a decrease in the consumption of products supplied by the Company.	As part of minimising the risk associated with climate change and its consequences, KMG Group has been taking the following actions: In 2023, with the support of the European Bank for Reconstruction and Development, an Action Plan to improve corporate governance in the field of climate change (in accordance with TCFD recommendations) has been developed; an Agreement of Understanding in the field of carbon capture and utilisation (CCUS) has been signed with Baker Hughes; a Memorandum of Cooperation on the project of construction of solar power plants has been signed with Samruk-Energy JSC; an updated Internal Carbon Pricing Programme has been approved; a draft corporate standard on investments in green projects has been prepared; participation in working groups to improve the legislative framework in the field of low-carbon development, energy efficiency and energy saving, RES and alternative energy, taking into account corporate interests; assessment of the potential for implementing a pilot project to build a “Full Chain“ of CO₂ capture, utilisation and storage (Stage 2); a Forest Climatic Project has been implemented. Stantec is a contractor; a methodology for inventory of greenhouse gas emissions (Scope 3) has been developed for implementation into the Methodology for Monitoring and Reporting of Greenhouse Gas Emissions of the Company; a Memorandum has been signed with Tetra Tech Inc., implementing the Central Asian Energy Project (to inventory the sources of methane emissions at the Company’s facilities and reduce emissions). KMG has joined the OGMP 2.0 (Oil and Gas Methane Partnership) Initiative for reporting on methane emissions among oil and gas companies.
	Risk of adverse environmental impact The Company is exposed to the risk of adverse environmental impact and the risk of stricter liabilities for non-compliance with environmental legislation. Impact The realisation of environmental risk may entail financial costs in the form of fines, excessive payments, environmental remediation costs, as well as statutory liability and increased social and environmental tension.	In the field of environmental protection, the Company’s priority areas of focus are: control of atmospheric emissions and reduction of raw gas flaring; water management; production waste management; land reclamation; improving energy efficiency. To minimise the risk of adverse environmental impact, the Company implements: preventive management of significant environmental aspects based on project management and risk-based approach to improve environmental performance; interaction with stakeholders on environmental issues; implementation of the memorandum of cooperation in the field of environmental protection signed with the authorised body for the purpose of utilisation and recycling of SDEs’ waste; monitoring of inventory of accumulated waste and oiled land reclamation projects; full development of the corporate environmental direction, as well as ensuring the Company’s commitment to the principles of green economy; work is underway to introduce the best available technologies (BAT) and an automated information system (AIS) for environmental monitoring at SDEs.
	Oil spill risk from offshore operations Disturbances of process conditions, pipeline accidents, abnormal operation of production and process equipment, gas and oil spills during drilling of exploration and appraisal wells, as well as the closed ecosystem of the Caspian Sea, shallow water, abnormally high formation pressure in the field, the presence of high hydrogen sulphide content and seasonal freezing of the surface may lead to oil spills. Impact These factors may result in significant environmental damage, shutdown of the production process and financial costs to eliminate the accident and its consequences.	In order to minimise the risk of oil spills, the Company takes the following actions: Constant control and monitoring of process conditions. Continuous monitoring of the operation of production and process equipment and pipelines. Timely scheduled preventive maintenance and repairs. Oil spill response preparedness, training and Level 1, 2 and 3 drills together with the Ministry of Emergency Situations of the Republic of Kazakhstan. Ensuring effective functioning of the North Caspian Environmental Spill Response Base. Monitoring the condition of abandoned wells. Participation in committees, working groups of the North Caspian Production Sharing Agreement (NCPSA) to review planned preventive actions with relevant recommendations and amendments.
	Risk of emergencies and man-made disasters at industrial facilities The Company’s operations are potentially hazardous. There is a risk of damage to property, third parties and the environment as a result of accidents, emergencies and man-made disasters at industrial facilities. In the reporting period, an accident was registered in the oil and gas production department of Embamunaigas JSC: on 16 November 2023, a gas, oil and water inflow occurred during the drilling process while extracting core from the well. There were no casualties. Impact Industrial accidents can lead to the following consequences: Injuries and deaths of workers Partial or complete destruction of equipment, buildings and structures Costs to eliminate environmental impact, extinguish fire, restore production Payment of fines for excessive environmental impact	The following preventive actions are taken to prevent incidents during drilling operations: studies to clarify geological characteristics; control of drilling fluid flow parameters, readings of gas concentration in the drilling fluid and technological process; mandatory control of drilling mud formulation and methodology by specialists of author’s supervision over well construction; monitoring of direct and indirect signs for early detection of gas, oil and water inflow; during the RIH/POOH operations, check for compliance of the volume of drilling mud to be added (displaced) with the volume of drill pipes being lifted (run down). In order to minimise industrial risks, the Company implements: ensuring timely maintenance and repairs of equipment in accordance with the requirements of regulatory documents; timely diagnostics and identification of potential hazards, as well as industrial safety expertise of industrial facilities; control over the implementation of actions to carry out industrial safety expertise of equipment with expired service life; briefings on safe operation of equipment (technical devices); training and testing of knowledge of the requirements of technical regulations for safe operation with the issuance of qualification certificates (permits). Voluntary property insurance contracts are concluded annually against damage (risk of accidental loss, loss or damage) as a result of an insured event.
Social aspect
	Risk of occupational injuries Failure of employees to comply with the established OHS rules, violation of production discipline is a source of threat to life and damage to health of employees. By the end of 2023, 29 employees of KMG Group suffered injuries, compared to 2022; there is a 19 % decrease. Due to the increase in lost time accidents involving contractors in 2023, actions are being taken to improve contractor liaison processes to minimise HSE risks. Impact Failure to comply with OHS rules may result in personal injury, as well as production disruption, financial losses and damage to the Company’s business reputation. For more information, see the Health, Safety and Environment section.	In order to prevent occupational accidents, the Company takes organisational and technical activities to ensure: safe work practices and prevent occupational injuries and diseases; timely training and knowledge testing; internal control in the field of occupational health and safety; introduction of new technologies and means of labour mechanisation; improve of the level of industrial safety of production facilities; A Near Miss reporting programme is being implemented through the use of the Qorgau Card and the cards under the Workplace Safety Behavioural Observation Programme and the Driving Safety Behavioural Observation Programme; work continues on the implementation of the Workplace Safety Behavioural Observation Programme and the Driving Safety Behavioural Observation Programme in SDEs; comprehensive occupational health and safety inspections were carried out in a number of SDEs.
	Pandemic risk The emergence of new viruses/ strains poses a threat to worker health. The epidemiological situation in the Republic of Kazakhstan regarding the incidence of coronavirus infection (CVI) is relatively favourable, with a decrease in the incidence of the disease. In May 2023, the World Health Organisation cancelled the status of “public health emergency of international concern” for COVID-19. However, this does not mean that the virus is no longer a threat. Impact Spread of infection and increase in the number of contact persons in KMG Group. Dissatisfaction, refusal to go to work, misinformation, panic and protest moods, xenophobia. Health damage, temporary disability, fatalities, compensation. Lack or shortage of qualified operating personnel and engineering and technical staff (reduced labour productivity). Forced isolation and hospitalisation of infected and contact persons, restrictive actions on the part of state authorities (quarantine).	Depending on the current epidemiological situation and the epidemiological risk zone in a particular region, the corporate centre and subsidiaries and affiliates comply with the requirements and recommendations of the current resolutions of the chief state sanitary doctors. A set of actions is taken in accordance with approved algorithms to ensure preparedness and continuity of KMG and its SDEs in case of deterioration of the situation related to the spread of new strains.
	Terrorism risk Terrorist and other violent actions against the Company’s personnel, contractors and assets. Impact The Company operates in a number of countries where terrorist acts and other criminal attacks against the Company’s assets are likely to occur. In the reporting period, no facts of realisation of this risk in KMG Group were identified.	The Company implements a set of preventive actions, including: checking the condition of technical security equipment, warning systems, the relevance of evacuation schemes, the current condition of exits and evacuation routes; training of security and service employees on anti-terrorist protection of facilities and personal safety in case of emergency; inspections for physical security and anti-terrorist protection of SDEs’ facilities; interaction with law enforcement and specialised agencies on issues related to physical security and anti-terrorist protection of facilities; verification of employees of contractors allowed to work at the Company’s facilities; training sessions on the actions of security personnel, service and technical units in case of emergency situations at facilities; ensuring control over the maintenance of video surveillance systems, routine maintenance of the integrated security system, access control and management systems and barriers; testing the knowledge of security personnel on how to act in the event of various emergencies; keeping up-to-date the developed regulations on the organisation of access and facility security; certification of facilities vulnerable to terrorism in accordance with the requirements of anti-terrorism legislation.
	Social situation in the regions of operations The Company is exposed to the risk of unauthorised industrial action. Impact Negative impact on the Company’s reputation, resulting in disruption to operations and higher operating costs, and impact on capital expenditure and project schedules. Higher commodity prices, higher domestic inflation or the continued weakening of the tenge could impact negotiations over pay changes. During 2023, there were a number of unauthorised strikes amongst contractor employees and some employees of SDEs. Negotiations with leaders of trade union committees and meetings with employees were held, as well as actions were taken to reduce the wage gap between the Company’s employees and contractors. At the end of 2023, the number of strikes in KMG SDEs and their contractors decreased by 59 % in Mangistau Region (9 strikes in 2023 compared to 22 strikes in 2022).	To mitigate social risks, the Company takes the following actions. For timely settlement of social and labour conflicts in the Mangistau Region, KMG representative office in Aktau is operating. KMG takes part in the work of the Interdepartmental Headquarters for solving problematic issues of Zhanaozen, Mangistau Region. Continuous monitoring of the social situation at KMG entities and their contractors has been organised. Within the framework of the developed Algorithm of Actions for the settlement of protests, a unified position has been developed jointly with authorised state bodies. In order to prevent possible conflicts and improve the social situation, continuous monitoring of industrial relations in the contracting organisations of KMG’s SDEs has been organised. SDEs have developed roadmaps to improve labour and recreation conditions for employees, implementation period 2023–2027, including construction of social infrastructure facilities and overhauls of existing social infrastructure facilities. In 2023, the Corporate Centre developed a uniform form of the SRS (Samruk Research Services) improvement plan for all SDEs, and introduced the practice of visiting SDEs and assisting in developing action plans to improve the social stability index. In the current year, PetroKazakhstan Oil Products LLP jointly with the Social Engagement and Communications Centre conducted in-depth sociological survey. At the end of 2023, the SRS index was 75 %. KMG Group has a Unified System of Internal Communications (Regulations). All entities hold mandatory scheduled meetings of the management with employees to discuss social, household and production issues and jointly develop solutions. In 2023, 101 reporting meetings were held covering 14,000 employees of KMG SDEs, where employees raised more than 500 questions and provided explanations for all of them. KMG actively contributes to reducing unemployment in the Mangistau Region. Since the beginning of 2023, a total of 2,216 people have been employed by KMG’s SDEs and contractors under the direct coordination of KMG’s Representative Office together with Mangistau Region Akimat. Also, under the agreement signed by between KMG and Abu-Dhabi Ports Group (ADP), a competition to fill vacant positions at ADP was launched among the residents of the Region. In order to consolidate employees, build team spirit and a healthy psychological atmosphere, various events are regularly held to develop corporate culture (KMG Spartakiade with participation of all KMG SDEs, professional skills competition “Uzdik Maman“). To improve the educational level of young people in Zhanaozen, a programme has been launched to finance the education of schoolchildren in the best specialised boarding schools and colleges of the country. The programme is designed to educate an average of 1,300 schoolchildren annually.
Corporate governance aspects
	Compliance risks Deliberate actions of corruption aimed at obtaining personal benefit and property interests, including for third parties. Any facts of corruption are absolutely unacceptable in the Company’s activities, regardless of the amount of financial damage. Impact Financial loss, damage to reputation.	The Company carries out consistent work to introduce and strengthen compliance control systems, to establish a unified policy to prevent unlawful and unfair acts of both third parties and the Company’s employees, to establish a procedure for internal investigations of unlawful and unfair acts of employees. The Company has policies and standards in place, taking into account the world’s leading practices, as well as commitments to: improve and strengthen internal and compliance control systems. In the reporting period, additions were made to the rules for planning, organizing, and conducting procurement of goods, works, and services in KMG regarding the validity of the application of grounds for single-source procurement; conduct anti-corruption monitoring; analyze corruption risks; foster an anti-corruption culture, carry out preventive actions, and educate employees about possible violations and measures; establish organizational and legal mechanisms to ensure accountability and transparency of decision-making procedures; adopt and comply with business ethics; organize anti-corruption workshops and training sessions; review draft internal documents for corruption-related factors; prevent conflicts of interest; conduct due diligence checks on counterparties and candidates for positions at CEO-1 and CEO-2 levels; compile an insider list and send notices of restrictions, obligations, and responsibilities to insiders; handle incoming hotline enquiries with reports to the Board of Directors.

Trend (over the year)

Risk description and possible consequences

Actions taken to mitigate and manage risk

Environmental aspects

Climate risks and low-carbon development

In its activities, the Company faces risks associated with energy transition and climate change, which include the following risk factors:

Risks related to energy transition (restrictions in the sale of carbon units, significant costs of actions, low profitability of low-carbon projects, lack of legislative and permitting regulations, increased electricity tariff).
Physical impact of climate change on the Company (short-term: floods, landslides, mudslides, drought, fires, hurricanes; systematic: prolonged period of abnormally high air temperatures, sea level rise and waterlogging of onshore wells, drop in the Caspian Sea level).

Impact

These risks may adversely affect the Company’s business as a major fossil fuel producer and greenhouse gas emitter by increasing costs, reducing profitability and limiting opportunities for further development.

In certain counterparty countries, an increase in the production of energy from renewable sources can be expected, which may lead to a decrease in the consumption of products supplied by the Company.

As part of minimising the risk associated with climate change and its consequences, KMG Group has been taking the following actions:

In 2023, with the support of the European Bank for Reconstruction and Development, an Action Plan to improve corporate governance in the field of climate change (in accordance with TCFD recommendations) has been developed;
an Agreement of Understanding in the field of carbon capture and utilisation (CCUS) has been signed with Baker Hughes;
a Memorandum of Cooperation on the project of construction of solar power plants has been signed with Samruk-Energy JSC;
an updated Internal Carbon Pricing Programme has been approved;
a draft corporate standard on investments in green projects has been prepared;
participation in working groups to improve the legislative framework in the field of low-carbon development, energy efficiency and energy saving, RES and alternative energy, taking into account corporate interests;
assessment of the potential for implementing a pilot project to build a “Full Chain“ of CO₂ capture, utilisation and storage (Stage 2);
a Forest Climatic Project has been implemented. Stantec is a contractor;
a methodology for inventory of greenhouse gas emissions (Scope 3) has been developed for implementation into the Methodology for Monitoring and Reporting of Greenhouse Gas Emissions of the Company;
a Memorandum has been signed with Tetra Tech Inc., implementing the Central Asian Energy Project (to inventory the sources of methane emissions at the Company’s facilities and reduce emissions).
KMG has joined the OGMP 2.0 (Oil and Gas Methane Partnership) Initiative for reporting on methane emissions among oil and gas companies.

Risk of adverse environmental impact

The Company is exposed to the risk of adverse environmental impact and the risk of stricter liabilities for non-compliance with environmental legislation.

Impact

The realisation of environmental risk may entail financial costs in the form of fines, excessive payments, environmental remediation costs, as well as statutory liability and increased social and environmental tension.

In the field of environmental protection, the Company’s priority areas of focus are:

control of atmospheric emissions and reduction of raw gas flaring;
water management;
production waste management;
land reclamation;
improving energy efficiency.

To minimise the risk of adverse environmental impact, the Company implements:

preventive management of significant environmental aspects based on project management and risk-based approach to improve environmental performance;
interaction with stakeholders on environmental issues;
implementation of the memorandum of cooperation in the field of environmental protection signed with the authorised body for the purpose of utilisation and recycling of SDEs’ waste;
monitoring of inventory of accumulated waste and oiled land reclamation projects;
full development of the corporate environmental direction, as well as ensuring the Company’s commitment to the principles of green economy;
work is underway to introduce the best available technologies (BAT) and an automated information system (AIS) for environmental monitoring at SDEs.

Oil spill risk from offshore operations

Disturbances of process conditions, pipeline accidents, abnormal operation of production and process equipment, gas and oil spills during drilling of exploration and appraisal wells, as well as the closed ecosystem of the Caspian Sea, shallow water, abnormally high formation pressure in the field, the presence of high hydrogen sulphide content and seasonal freezing of the surface may lead to oil spills.

Impact

These factors may result in significant environmental damage, shutdown of the production process and financial costs to eliminate the accident and its consequences.

In order to minimise the risk of oil spills, the Company takes the following actions:

Constant control and monitoring of process conditions.
Continuous monitoring of the operation of production and process equipment and pipelines. Timely scheduled preventive maintenance and repairs.
Oil spill response preparedness, training and Level 1, 2 and 3 drills together with the Ministry of Emergency Situations of the Republic of Kazakhstan.
Ensuring effective functioning of the North Caspian Environmental Spill Response Base.
Monitoring the condition of abandoned wells.
Participation in committees, working groups of the North Caspian Production Sharing Agreement (NCPSA) to review planned preventive actions with relevant recommendations and amendments.

Risk of emergencies and man-made disasters at industrial facilities

The Company’s operations are potentially hazardous. There is a risk of damage to property, third parties and the environment as a result of accidents, emergencies and man-made disasters at industrial facilities.

In the reporting period, an accident was registered in the oil and gas production department of Embamunaigas JSC: on 16 November 2023, a gas, oil and water inflow occurred during the drilling process while extracting core from the well. There were no casualties.

Impact

Industrial accidents can lead to the following consequences:

Injuries and deaths of workers
Partial or complete destruction of equipment, buildings and structures
Costs to eliminate environmental impact, extinguish fire, restore production
Payment of fines for excessive environmental impact

The following preventive actions are taken to prevent incidents during drilling operations:

studies to clarify geological characteristics;
control of drilling fluid flow parameters, readings of gas concentration in the drilling fluid and technological process;
mandatory control of drilling mud formulation and methodology by specialists of author’s supervision over well construction;
monitoring of direct and indirect signs for early detection of gas, oil and water inflow;
during the RIH/POOH operations, check for compliance of the volume of drilling mud to be added (displaced) with the volume of drill pipes being lifted (run down).

In order to minimise industrial risks, the Company implements:

ensuring timely maintenance and repairs of equipment in accordance with the requirements of regulatory documents;
timely diagnostics and identification of potential hazards, as well as industrial safety expertise of industrial facilities;
control over the implementation of actions to carry out industrial safety expertise of equipment with expired service life;
briefings on safe operation of equipment (technical devices);
training and testing of knowledge of the requirements of technical regulations for safe operation with the issuance of qualification certificates (permits).

Voluntary property insurance contracts are concluded annually against damage (risk of accidental loss, loss or damage) as a result of an insured event.

Social aspect

Risk of occupational injuries

Failure of employees to comply with the established OHS rules, violation of production discipline is a source of threat to life and damage to health of employees.

By the end of 2023, 29 employees of KMG Group suffered injuries, compared to 2022; there is a 19 % decrease.

Due to the increase in lost time accidents involving contractors in 2023, actions are being taken to improve contractor liaison processes to minimise HSE risks.

Impact

Failure to comply with OHS rules may result in personal injury, as well as production disruption, financial losses and damage to the Company’s business reputation.

For more information, see the Health, Safety and Environment section.

In order to prevent occupational accidents, the Company takes organisational and technical activities to ensure:

safe work practices and prevent occupational injuries and diseases;
timely training and knowledge testing;
internal control in the field of occupational health and safety;
introduction of new technologies and means of labour mechanisation;
improve of the level of industrial safety of production facilities;
A Near Miss reporting programme is being implemented through the use of the Qorgau Card and the cards under the Workplace Safety Behavioural Observation Programme and the Driving Safety Behavioural Observation Programme;
work continues on the implementation of the Workplace Safety Behavioural Observation Programme and the Driving Safety Behavioural Observation Programme in SDEs;
comprehensive occupational health and safety inspections were carried out in a number of SDEs.

Pandemic risk

The emergence of new viruses/ strains poses a threat to worker health. The epidemiological situation in the Republic of Kazakhstan regarding the incidence of coronavirus infection (CVI) is relatively favourable, with a decrease in the incidence of the disease. In May 2023, the World Health Organisation cancelled the status of “public health emergency of international concern” for COVID-19. However, this does not mean that the virus is no longer a threat.

Impact

Spread of infection and increase in the number of contact persons in KMG Group.
Dissatisfaction, refusal to go to work, misinformation, panic and protest moods, xenophobia.
Health damage, temporary disability, fatalities, compensation.
Lack or shortage of qualified operating personnel and engineering and technical staff (reduced labour productivity).
Forced isolation and hospitalisation of infected and contact persons, restrictive actions on the part of state authorities (quarantine).

Depending on the current epidemiological situation and the epidemiological risk zone in a particular region, the corporate centre and subsidiaries and affiliates comply with the requirements and recommendations of the current resolutions of the chief state sanitary doctors.

A set of actions is taken in accordance with approved algorithms to ensure preparedness and continuity of KMG and its SDEs in case of deterioration of the situation related to the spread of new strains.

Terrorism risk

Terrorist and other violent actions against the Company’s personnel, contractors and assets.

Impact

The Company operates in a number of countries where terrorist acts and other criminal attacks against the Company’s assets are likely to occur. In the reporting period, no facts of realisation of this risk in KMG Group were identified.

The Company implements a set of preventive actions, including:

checking the condition of technical security equipment, warning systems, the relevance of evacuation schemes, the current condition of exits and evacuation routes;
training of security and service employees on anti-terrorist protection of facilities and personal safety in case of emergency;
inspections for physical security and anti-terrorist protection of SDEs’ facilities;
interaction with law enforcement and specialised agencies on issues related to physical security and anti-terrorist protection of facilities;
verification of employees of contractors allowed to work at the Company’s facilities;
training sessions on the actions of security personnel, service and technical units in case of emergency situations at facilities;
ensuring control over the maintenance of video surveillance systems, routine maintenance of the integrated security system, access control and management systems and barriers;
testing the knowledge of security personnel on how to act in the event of various emergencies;
keeping up-to-date the developed regulations on the organisation of access and facility security;
certification of facilities vulnerable to terrorism in accordance with the requirements of anti-terrorism legislation.

Social situation in the regions of operations

The Company is exposed to the risk of unauthorised industrial action.

Impact

Negative impact on the Company’s reputation, resulting in disruption to operations and higher operating costs, and impact on capital expenditure and project schedules. Higher commodity prices, higher domestic inflation or the continued weakening of the tenge could impact negotiations over pay changes.

During 2023, there were a number of unauthorised strikes amongst contractor employees and some employees of SDEs. Negotiations with leaders of trade union committees and meetings with employees were held, as well as actions were taken to reduce the wage gap between the Company’s employees and contractors.

At the end of 2023, the number of strikes in KMG SDEs and their contractors decreased by 59 % in Mangistau Region (9 strikes in 2023 compared to 22 strikes in 2022).

To mitigate social risks, the Company takes the following actions.

For timely settlement of social and labour conflicts in the Mangistau Region, KMG representative office in Aktau is operating. KMG takes part in the work of the Interdepartmental Headquarters for solving problematic issues of Zhanaozen, Mangistau Region.
Continuous monitoring of the social situation at KMG entities and their contractors has been organised. Within the framework of the developed Algorithm of Actions for the settlement of protests, a unified position has been developed jointly with authorised state bodies. In order to prevent possible conflicts and improve the social situation, continuous monitoring of industrial relations in the contracting organisations of KMG’s SDEs has been organised.
SDEs have developed roadmaps to improve labour and recreation conditions for employees, implementation period 2023–2027, including construction of social infrastructure facilities and overhauls of existing social infrastructure facilities. In 2023, the Corporate Centre developed a uniform form of the SRS (Samruk Research Services) improvement plan for all SDEs, and introduced the practice of visiting SDEs and assisting in developing action plans to improve the social stability index. In the current year, PetroKazakhstan Oil Products LLP jointly with the Social Engagement and Communications Centre conducted in-depth sociological survey. At the end of 2023, the SRS index was 75 %.
KMG Group has a Unified System of Internal Communications (Regulations). All entities hold mandatory scheduled meetings of the management with employees to discuss social, household and production issues and jointly develop solutions. In 2023, 101 reporting meetings were held covering 14,000 employees of KMG SDEs, where employees raised more than 500 questions and provided explanations for all of them.
KMG actively contributes to reducing unemployment in the Mangistau Region. Since the beginning of 2023, a total of 2,216 people have been employed by KMG’s SDEs and contractors under the direct coordination of KMG’s Representative Office together with Mangistau Region Akimat. Also, under the agreement signed by between KMG and Abu-Dhabi Ports Group (ADP), a competition to fill vacant positions at ADP was launched among the residents of the Region.
In order to consolidate employees, build team spirit and a healthy psychological atmosphere, various events are regularly held to develop corporate culture (KMG Spartakiade with participation of all KMG SDEs, professional skills competition “Uzdik Maman“).
To improve the educational level of young people in Zhanaozen, a programme has been launched to finance the education of schoolchildren in the best specialised boarding schools and colleges of the country. The programme is designed to educate an average of 1,300 schoolchildren annually.

Corporate governance aspects

Compliance risks

Deliberate actions of corruption aimed at obtaining personal benefit and property interests, including for third parties. Any facts of corruption are absolutely unacceptable in the Company’s activities, regardless of the amount of financial damage.

Impact

Financial loss, damage to reputation.

The Company carries out consistent work to introduce and strengthen compliance control systems, to establish a unified policy to prevent unlawful and unfair acts of both third parties and the Company’s employees, to establish a procedure for internal investigations of unlawful and unfair acts of employees. The Company has policies and standards in place, taking into account the world’s leading practices, as well as commitments to:

improve and strengthen internal and compliance control systems. In the reporting period, additions were made to the rules for planning, organizing, and conducting procurement of goods, works, and services in KMG regarding the validity of the application of grounds for single-source procurement;
conduct anti-corruption monitoring;
analyze corruption risks;
foster an anti-corruption culture, carry out preventive actions, and educate employees about possible violations and measures;
establish organizational and legal mechanisms to ensure accountability and transparency of decision-making procedures;
adopt and comply with business ethics;
organize anti-corruption workshops and training sessions;
review draft internal documents for corruption-related factors;
prevent conflicts of interest;
conduct due diligence checks on counterparties and candidates for positions at CEO-1 and CEO-2 levels;
compile an insider list and send notices of restrictions, obligations, and responsibilities to insiders;
handle incoming hotline enquiries with reports to the Board of Directors.

Sustainalytics conducted an annual comprehensive analysis of the environmental, social policy and corporate governance (ESG) performance of NC KazMunayGas JSC.

KMG’s ESG risk management was rated by the rating agency at the level of 32.3 points, while the rating was previously 28.5 points.

In the comparative ranking, KMG moved from 18th place to 40th among 315 global oil and gas companies assessed by Sustainalytics.

According to analysts, the high value of ESG risk exposure rating corresponds to the average values for the industry, i.e. risks inherent to the oil and gas industry. The score reflects the ESG risks faced by the Company in terms of emissions and waste volumes, operational safety performance and corporate governance issues.

At the same time, KMG received a positive expert assessment on risk management on anti-corruption issues, increased the level of risk management on human capital issues, and maintained a stable level of risk management on resource utilisation, biodiversity and business ethics.

KMG recognises the importance of strengthening actions and works on ESG aspects. The key ESG challenges for KMG are reducing emissions, waste, continuing the implementation of the Low-Carbon Development Programme, strengthening work on health and safety of employees, as well as supporting the corporate governance system at the level of international best practice.

Sustainalytics gives ESG rating to the companies by assessing their environmental, social responsibility and governance risks, and their capability to manage such risks as compared to competitors. More detailed information about Sustainalytics rating is available at:

https://www.sustainalytics.com/esg-rating/national-company-kazmunaygas-jsc/1028382256.

Sustainalytics International Rating Agency (Amsterdam, Netherlands)

Sustainalytics is a leading independent company engaged in environmental, social and corporate governance research, ratings and analysis, supporting investors around the world in development and implementation of responsible investment strategies.

For reference

ESG Rating (Environmental, Social and Governance) is an the ecological and social business risk assessment as well as corporate governance risk assessment in a company.

When making investment decisions, the investors use the ESG Rating as a strategic tool that helps to identify risks and opportunities of a company to define its long-term sustainability.