Corporate Sustainability – The Way Forward

Since its inception in 1994, Sakhalin Energy has based its activities on a strategy of sustainable development. It allows the company to achieve business goals while taking into consideration the potential environmental and social impacts on its employees and on local communities. It is fair to say that such an approach means no operational or technological decision is made without adequate environmental, health,and social assessments of the potential impact of the Sakhalin-2 Project.

Sakhalin Energy has adopted the highest international standards and takes a proactive approach in implementing business and human rights in its corporate management system and practicesas well as in managing and gauging environmental, health, safety, and social impacts. External verifications, including lenders’ audits (Sakhalin Energy has secured a multibillion-dollar project financing from a group of international credit organizations), have been held regularly and, in the majority ofcases, they demonstrated that the company has met the adopted standards. In November 2009, Sakhalin Energy reached a new level of social responsibility and transparency by deciding to start participating in the UN Global Compact. The company committed to consistently advance the Global Compact’s TenPrinciples covering the areas of human rights, labor, the environment, and anti–corruption.For Sakhalin Energy, these principles are notnew. Inmany years of working on the Sakhalin-2 Project, the company has been guided by its General Business Principles, many of which reflect the Principles of the Global Compact. The core values of Sakhalin Energy, such as integrity, transparency, and respect for people,are the basis for all company activities.

Sakhalin Energy is implementingGlobal Compact Principles via strong governance, policies, strategies, management systems, standards, and operations:

• Policies, management systems (MS), andstandards cover each Global Compact Principle and include a Sustainable Development Policy;code of conduct;health, safety, and environment and social performancepolicies and MSs; risk-and impact assessment; whistleblower/grievancemechanisms; anti-bribery and corruption procedures; etc. A Health, Safety, Environmental, and Social Action Plan – a publicly available,detailed system of standards and commitments – was developed on the basis of the best Russian and international experiences in an openand honest discussion with stakeholders.
• Roles and responsibilities are mainstreamed into corporate functions and business units.
• Value-chain policies and procedures are in place and supported by communicating policies and expectations to suppliers and other relevant business.
• Trainings, awareness-raising workshops, etc., are conducted for staff and contractors; control measures are in placeto guarantee operations.
  

Sakhalin Energy endeavors to contribute to the future global agenda for corporate responsibility and is taking actions in support of broader UN goals and issues via:

• Company’s core business strategy, which aligns with UN goals/issues on environment, labor, human rights, anticorruption, etc.;
• Strategic social investments and philanthropy, which is an integrated element of the company’s sustainability strategy and MS;
• Fair, transparent, and open stakeholder engagement and information disclosure; unique three-level engagementmechanism (see picture);
• Robust and comprehensivemechanism to deal with concerns and grievances (company is one of four business participants in the UN’s Ruggie Guiding Principlestesting project);
• Implementing partnerships (see picture);
• Active participant in the Russian Global CompactLocal Network openly sharing the best practices and experience.
  

When the Tripartite Agreement on implementation of the Sakhalin Indigenous Minorities Development Plan was signed back in 2006, its partners were among the optimists who sincerely believed in success. But even they did not realize what a long way they had to go together for true cooperation.

The Sakhalin Indigenous Minorities Development Plan (SIMDP) is an innovative social plan funded by Sakhalin Energy. Sakhalin Energy has had an ongoing dialog with Sakhalin’s indigenous minorities since the Company was founded in 1994. Since its inception, the company has supported a lot of social projects for indigenous minorities in a range of areas – cultural, sport, and educational. But in 2005, indigenous minorities staged a protest against all the oil and gas companies operating on Sakhalin Island. The protest was supported by national and international NGOs. They demanded a more regular and transparent dialog and greater recognition of the needs of the indigenous peoples. Doing “a lot” turned out to be not enough. Responding to indigenous protests, Sakhalin Energy decided to completely revise its strategy of engagement with the Sakhalin indigenous peoples. The year ended with Sakhalin Energy signing a Memorandum of Understanding with the communities, and a commitment to build for them a series of development plans in compliance with the best international and Russian standards.

From 2005 to 2006, Sakhalin Energy held large-scale consultations with all stakeholders, including in areas densely populated by the indigenous minorities and in the city of Yuzhno-Sakhalinsk, the capital of Sakhalin Oblast. Based on a strategy developed by the indigenous minorities and suggestions on how to implement it, the first Sakhalin Indigenous Minorities Development Plan (SIMDP 1) was created and signed in May 2006. SIMDP 1 was prepared by the company in close cooperation with the Sakhalin Oblast Government and the Regional Council of the Authorized Representatives of Indigenous Minorities of Sakhalin Oblast. It incorporated measures to mitigate potential negative impacts from the project on the Sakhalin indigenous minorities, as well as activities to improve the living standards of the indigenous peoples, provide access to the project benefits, and help the 4,000 indigenous Sakhalin inhabitants (Nivkh, Uilta, Evenki, and Nanai peoples– key Sakhalin indigenous population groups) in capacity-building. The Plan was delivered through the Traditional Economic Activities Support Program, the Social Development Program, and Mini-Grant Fund activities. In order to ensure the Plan’s effectiveness in meeting its key objectives, an External Monitor worked during the entire period of SIMDP 1 implementation,visiting all the indigenous communities and meeting key stakeholders and public representatives.

In the last year of implementation, a plan completion evaluation (PCE) was performed. The PCE Team interviewed people and conducted a survey of indigenous opinion. The Team included the Head of Sociological Laboratory of the Sakhalin State University, and independent indigenous representative not previously involved in SIMDP activities, and was headed by the External Monitor. The Team found the Plan to be a success in terms of both the very positive material benefits received and the strong capacity-building accomplished. Quoting a prominent government official, the evaluation noted, “Thanks to the SIMDP, people changed. The Plan helped to unite the people and give them some direction for the future.” Some difficulties were inevitable and indeed occurred, but they did not detract significantly from the Plan’s overall success as a benefits-providing mechanism, a capacity-building exercise, and as a qualified model for similar projects.
PCE performed by three independent experts is a good practice model that shows accurate results of Plan implementation and, by itself, contributes to building and maintaining trust between the partners.

Simultaneously with the PCE process, a Working Group started preparations for the second SIMDP (SIMDP 2). The Working Group was established on the principle of equal partnership and comprised the representatives of the Regional Council of the Authorized Representatives of Indigenous Minorities of Sakhalin Oblast, Sakhalin Energy, the Sakhalin Oblast Government, the Sakhalin Oblast Duma (elected legislative assembly), and the Russian Association of Indigenous Peoples of the North, Siberia, and the Far East – the umbrella organization of indigenous peoples in Russia. Six of eight Working Group members were indigenous. The goal of the Working Group was to elaborate recommendations for the development of SIMDP 2 on the basis of experiences with the first Plan and lessons learned, as well as the results of the two rounds of consultations, held in the seven Sakhalin districts of traditional living of the Sakhalin indigenous minorities. The consultations were followed by a special indigenous peoples’ conference in Yuzhno-Sakhalinsk, where they discussed the prospects for further development under the SIMDP 2. Delegates from seven districts traditionally inhabited by indigenous peoples of Sakhalin examined the draft of SIMDP 2 and approved its implementation. At the conference, the indigenous delegates agreed that consultations were carried out without coercion, were held early enough for the community to discuss the issues at length, and that they had been provided all information regarding the first and second Plans that was necessary for them to formulate their own independent assessments of the Plans. The delegates also declared that they gave their consent to the Plan and authorized their representatives to sign a new Tripartite Agreement to implement the Plan.

SIMDP 2 will be carried out with even more active participation by the indigenous population. The Governing Board is the highest management body; its work is supplemented by an Executive Committee, a Traditional Economic Activities Support Program Committee, and a Social Development Fund Council. The two latter bodies are now completely managed and monitored by the elected representatives of indigenous peoples from seven districts where the indigenous population traditionally lives and works.
In December 2010, a new Tripartite Agreement on implementation of SIMDP 2 was signed by the three parties in Moscow, Russia.

The development and implementation of SIMDP caused a breakthrough in the relationship between the oil and gas company and the indigenous inhabitants of the island. Indigenous peoples are directly involved in management, fund allocation, and control. The Plan has emerged as a good practice model on both the international and national levels, but what is most important is that the Plan is highly appreciated by the indigenous peoples.

The International Finance Corporation called SIMDP “a good practice example” in their 2007 Stakeholder Engagement guidebook; the World Bank also holds up SIMDP as a good practice example of plan implementation for indigenous peoples. SIMDP became laureate of the Corporate Donor, a Russia-wide contest for social investment, and won the international Vitus Bering award at the Sixth Russian Congress of Indigenous Peoples.

One of the important tools for building trust-based relationships with indigenous minorities was the implementation of grievance procedures, which effectively regulates the process of receipt, registration, and resolving grievances related to the implementation of the first and second SIMDPs.This procedure was developed in accordance with the general principles and approaches of the Community Grievance Procedure of Sakhalin Energy and with involvement of indigenous peoples communities. Having proven its effectiveness over the years, it was called “a best practice” by UN experts in the process of testing the Ruggie Guiding Principles. Prof. John Ruggie, Special Representative of the UN Secretary General for Business and Human Rights, developed this set of practical principles, which constitute a new standard for the complaints review process for businesses worldwide.

Oleg Kapkaun, PCE independent indigenous expert: “In the course of SIMDP implementation, the mindset of indigenous individuals started to change.They started to understand that with support from SIMDP, they can establish clan enterprises. Even their appearance has changed; they’ve got more sparkle in their eyes, a desire for a full life rather than mere subsistence, and increasing pride in their ethnic lifestyles. They want to preserve their traditions and culture, they envisage growth of their clan enterprises and communities, and they’ve begun to develop a vision for the future. SIMDP provides real and effective assistance in preserving their languages, in promotion of health, and support of national sports. With support from SIMDP, indigenous community leaders have received capacity-building trainings, computer equipment has been purchased, and accounting workshops have been organized for clan enterprises and communities and for indigenous NGOs. Most significantly, young indigenous leaders have emerged and they care about future generations and about the revival of indigenous traditions.The indigenous peoples themselves say SIMDP represents an historic change, and is the kind of agreement they’ve been asking for decades.”