Preparation of the Sustainability Report for 2017

Accountability

We are aware of our accountability for impact on the economy, the environment and society.

Transparency

Our decisions and actions should be clear and transparent for stakeholders.

The Department for Organizational and Sustainable Development is the responsible structural unit for the preparation of the Sustainability Report for 2017. To prepare this Report, the Department organized work on stakeholder engagement with the responsible structural units of the corporate center of KMG and individual SDEs, collecting and consolidating the necessary information.

Interviewing stakeholders

To determine the content of the Report, an assessment of the material topics was carried out through questionnaires of interested parties to display information on the Group’s activities in field of sustainable development. The evaluation was carried out on the basis of the GRI Standards classification of topics and those identified significant in the previous reporting periods. Also in the perimeter of the reporting key events of the reporting period, determined on the basis of the analysis of publications of authorized parties and the media were included. The list of involved internal and external stakeholders is given in the Annexes to this Report.

Identifying material aspects

Capturing the opinions and ensuring the balance of our stakeholders’ interests is a high priority for us. To determine whether the contents of the Sustainable Development Report is consistent with the GRI principles, we have conducted a survey of a wide range of external stakeholders to evaluate the aspects of sustainable development. According the their responses we have formed a Materiality Matrix on sustainable development aspects.

Thus, we were able to identify the most important aspects for us and for stakeholders, and as a result, we identified the following trends:

  • We are in a similar correlation of interests and priorities with our stakeholders, that is, the visualization of a linear correlation indicates that the interests of the parties are generally similar.
  • The issues of environmental safety remain one of our main priorities.
  • Stakeholders reflected a high concern for the issues of production integrity and dynamism, which was not seen in earlier reporting periods.
  • KMG’s overall concern for sustainability issues generally exceeds the concern of stakeholders, which indicates a special responsibility employeesof the company.

MATRIX OF SIGNIFICANT ASPECTS – 2017

Priority of aspects in 2017

#

Aspects of materiality above 10

1

Direct economic value generated and distributed

60

Development of innovation and operational efficiency

36

Anti-corruption

59

Asset Integrity and safety of production processes

47

Volume and classification of valuation and proved reserves and production

46

Conformity of products and services with regulatory requirements

19

Health and safety in the workplace

52

Drilling waste management

6

Energy

9

Emissions

30

Security practices

51

Volume of burned hydrocarbons and greenhouse gas leaks

54

Information on the composition of the products

20

Training and education

7

Water

42

Consumer health and safety

50

The volumes of associated water and their recovery

53

Spill Prevention and Emergency Preparedness

38

Obstacle to competition

48

Investments in renewable energy sources

10

Discharges and wastes

49

Monitoring of the impact on biodiversity in the regions of operation

26

Non-discrimination

17

Employment

56

Conflict resolution and litigation with the local population in the regions where the activity is carried out

12

Environmental compliance

55

Strategies and programs for interaction with the population in the regions where the activities are carried out

8

Biodiversity

18

Staff-management relations

#

Aspects of materiality above 8.5

21

Diversity and equal opportunities

32

Human rights assessment

27

Freedom of association and collective bargaining

3

Indirect economic impacts

57

Decommissioning of production facilities

2

Presence in the markets

45

Privacy of the consumer

58

Forced population resettlement

35

Local Communities

40

Evaluation of suppliers’ impact on society

4

Procurement practices

28

Risk of child labor

29

Risk of using forced and compulsory labor

37

Government policy

#

Aspects of materiality above 7.5

31

Rights of indigenous minorities

5

Use of materials

15

Environmental assessment of suppliers

44

Marketing Communications

Formation of the Sustainability Report

With a purpose to for a consolidated Report, a number of information requests about company’s impact on the economy, environment and society were sent across the Corporate Center and Subsidiary and Dependent Organizations.

After receiving the information, the Department drafted the Report, which was then agreed in the final version with all the responsible stakeholders of the KMG Corporate Center in accordance with the internal regulations. The report was approved by the decision of the Board of KMG, and approved by the decision of the Board of Directors of KMG.

The Sustainable Development Report for 2017 was not verified by independent auditor. The correctness of the data included in the Report is provided by existing systems of accounting and information collection and KMG’s internal control procedures.

The stakeholders involved in the survey were determined taking into account the criteria of independence of the interviewed party, the interests of the Group, the degree of influence and awareness that were determined on the basis of the engagement practice. Thus, the content of the Report is formed in accordance with the identified expectations of the parties concerned.

More than 10 explanatory seminars and meetings for various structural divisions of KMG were held by the responsible division subject to methodology, structure and content of information requests. Thus, clarification was carried out for all involved departments of the corporate center of KMG, responsible for corporate governance, communication and engagement, human resources management, procurement management, budgeting, accounting, labor and environmental protection, security, strategy, investment management, asset management and other.

The range of issues included in the reporting perimeter also widened. This sustainability report is the result of the collection and consolidation of information across the entire KMG group on more than 160 aspects in accordance with the GRI Standards methodology and the main themes raised by stakeholders during the reporting period. The information was compiled for the entire KMG group, including its units located outside of Kazakhstan.

Reporting Boundaries, Indicators, Notes

The boundaries of this Sustainability Report are covered by all subsidiaries and affiliated organizations of KMG, the share of KMG in which during the reporting period was 50 % or more. This report does not provide information on large non-operating assets – TCO, KPO and NCOC. Some sections provide information on KMG International, the share of which in 2017 was 100 %. Some of KMG’s subsidiaries and affiliates issue a separate Sustainability Report, including KMG International. The last Sustainable Development Report was launched in 2017.

Notes to the Sustainability Report

The list of companies of the KMG Group, whose results are reflected in the Sustainability Report, is formed in accordance with the principles of including companies in the consolidated financial statements under IFRS “Consolidated financial statements”. In this report, a number of financial, economic and operational performance indicators are determined in accordance with the principles of IFRS. In the text of the Report, the amount of individual data may differ slightly from the presented data of the Consolidated Financial Statements on financial and economic activities due to round-offs or other management considerations in order to improve the format and style of the Report. In such cases, the data of the relevant financial statements, which are freely available via the link on the KMG website, are correct.

Enhancing the Culture of Sustainable Development

The practice of reporting in the field of sustainable development requires extensive interaction on informing stakeholders about the report, advising on the definition of materiality and collecting information and feedback to the report.

In 2017, a number of training events were held, including a certified training for heads of structural units on GRI Standards with the participation of the invited trainer of the Swiss consulting company Schwery Consulting. So, based on the results of the two-day training for managers, more than 20 employees received training in determining the materiality and interaction, and 8 employees of various structural subdivisions of KMG received GRI Certificate of Attendance.

Example from practice

Executive tarining in the field of sustainable development

On November 16–17, 2017, the corporate center of JSC NC “KazMunayGas” held a training for heads of structural divisions in the field of sustainable development. The two-day training included training in two international standards: GRI Standards and the AA1000Stakeholder Engagement Standard.

The Global Sustainability Standards Board (GSSB) is established as an independent operating entity under the auspices of GRI, the GSSB is formed of 15 members representing a range of expertise and multi-stakeholder perspectives on sustainability reporting. KazMunayGas, as a national oil and gas operator, launches the Sustainability Report since 2015, the Report reflect the impact of the company’s activities in the context of economic, social development and environmental protection. Stakeholder management in accordance with AA1000SES, accounting and balancing of their interests is one of the key priorities of KazMunayGas on the way to increasing the sustainable development and long-term value of the company. In practical terms, the training is aimed at enriching the management tools of managers in identifying and analyzing risks and opportunities, approaches to managing relationships with different stakeholder groups, smart goal setting and assessing the effectiveness of achievements, and promoting global sustainable development initiatives. This practice of reporting using GRI Standards and management of interaction with stakeholders in accordance with AA1000SES is the most popular among public companies that place their shares on world stock exchanges and is in great demand among potential investors, non-governmental organizations, public movements, mass media and simple citizens.

Training was conducted with the participation of the certified GRI Standards and AA1000SES trainer, head of Swiss company Schwery Consulting – Rolf Schweri, PhD, who has unique experience and internationally recognized qualifications in this field, as well as an expert organization in the field of corporate sustainability and social responsibility in CSR Central Asia in the person of the head Aliya Kadraliyeva. The training program for top management was conducted on a special order from KazMunayGas and in this format was conducted for the first time in Kazakhstan. Thus, KazMunayGas enters a new level of corporate governance quality in the field of sustainable development, as the only company in Kazakhstan, which includes more than 20 certified specialists in sustainable development. As participants of the training noted, the constant increase of workers’ awareness is extremely important for the effective implementation of the values of sustainable development in the activities of the KazMunayGas group of companies.

Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.

The KMG Sustainability Report for 2016 won the nomination in best annual reports competition

December 8, 2017, the ceremony of awarding laureates and nominees of the VII Annual Annual Report Competition, organized by the RAEX Rating Agency (Expert RA Kazakhstan), was held. In 2017, within the framework of the contest, 105 annual reports of Kazakhstan companies, including 41 financial organizations and 64 non-financial companies, were evaluated.

The Sustainability Report for JSC “NC “KazMunayGas” for 2016, prepared by the Department for Health, Safety and Environment, won prizes in three categories at once. The Sustainability Report of KMG this year not only became one of the Best reports on Corporate Social Responsibility, but for the first time went beyond this nomination, taking also prizes as “Best Interactive Report” and “Best Design of the Annual Report”. Members of the jury and experts of the rating agency noted many advantages of this report – qualitative disclosure of information, professional presentation of material, as well as unique creative design.

Earlier, on November 24, 2017, the Sustainability Report of JSC “NC “KazMunayGas” was already recognized as the winner in the annual reports contest in Russia in the nomination of “Design and Polygraphy” among non-financial reports according to the version of Expert RA, the largest rating agency of RAEX Russia. http://raexpert.kz/press-center/news/show/342/