Committees of the Board of Directors

In 2021, the Committee focused on pursuing effective HR, payment and remuneration policies, succession planning, providing social support and harmonising the corporate culture across the Company. The Committee regularly looked into the progress of the MANSAP project to develop a Succession Plan for Key Positions within KMG Group. In addition, the Committee developed and approved the KMG Board of Directors Succession Planning Policy and the Board of Directors Succession Plan.

The discussions of KMG’s new Strategy for 2022–2031 highlighted changes in KMG operations with an increasing focus on the development of renewable energy sources, which requires relevant changes both to the Company’s structure and corporate culture. This means that the Company needs to build a pool of employees capable of delivering high performance while responding effectively to external challenges. The goal is to shift to prioritising human capital over resources.

In addition, in the reporting period, the Committee actively engaged with the Company’s management in discussing social issues, including structural reorganisation, compensation and remuneration, as well as mitigation of KMG’s reputational risks. While reviewing the report on the implementation of KMG’s HR Policy, the Committee members discussed regional social tensions and strategies to address them. Furthermore, the Committee participated in discussing the HR unit’s workstreams, including the system of efficient personnel management, the headcount management programme, relations with contractors and the succession plan.

The Committee seeks to make consistent and balanced decisions with a view to maintaining social stability at the Company, which remains the Committee’s primary focus.

In 2021, the Committee's areas of focus included updating KMG's Development Strategy and considering measures to minimise the Company's risks associated with the introduction of a carbon tax on EU imports, in particular by finding optimal sales channels for KMG's products. The Committee actively reviewed issues related to the Company’s investment activities and management of its assets, including those in the renewable energy sources sector.

The Committee paid special attention to discussing oil and gas chemistry projects, as well as the status of the transfer of JSC KazTransGas to JSC Samruk-Kazyna and the impact of this transaction on KMG in the run-up to KMG’s IPO. Ahead of the planned IPO, the Committee repeatedly reviewed a number of designated social projects (including reconstruction of the trunk water pipeline and construction of a desalination plant, as well as the construction of a gas processing plant project in Zhanaozen) and sources of funding for such projects.

Also, the Committee was monitoring the implementation of KMG’s Digital Transformation Programme by closely reviewing the reports of the Transformation and Digitalisation Department along with interactions with JSC Samruk-Kazyna, and supporting the implementation of JSC Samruk-Kazyna’s proposals on amending KMG's Charter to expand the Board of Directors’ expertise in transformation matters.

At every meeting, the Committee heard progress reports on major fields such as Kashagan, Karachaganak and Tengiz, as well as status reports on privatisation and divestment programmes. At its last meeting, the Committee decided to also hear progress reports on construction and commissioning of petrochemical facilities on a regular basis.

Given the importance of KMG’s credit ratings and the need to develop a clear vision for the Company’s efforts to improve the ratings and maintain them at an acceptable level, the Committee heard and discussed the report on KMG's credit rating.

KMG is a national oil and gas company carrying out its operations in line with the strategies of the Republic of Kazakhstan and JSC Samruk-Kazyna. With this in mind, the Committee seeks to make consistent and balanced decisions aimed at implementing KMG’s Development Strategy.

In 2021, the Audit Committee continued to monitor the Company’s system of internal control, risk management and performance across key functional areas as well as review and challenge, as appropriate, reports and key decisions made by the management. The Audit Committee carried out its work in line with the expectations and functional responsibilities set by the Code and Regulations on the Audit Committee, as well as resolutions of KMG’s Board of Directors.

The Committee regularly reviewed the reports from the management and the external auditor on material accounting matters and decisions. These reviews help the Committee members engage in a substantive dialogue on the reliability, balance and clarity of KMG’s financial statements.

In 2021, we significantly accelerated the drafting and approval of the Company reporting, including its annual report and financial statements.

Also in 2021, the Committee continued work to improve internal controls and corporate governance. Following an independent review of corporate governance in 2021, KMG's corporate governance rating was upgraded from “BB” in 2018 to “BBB” in 2021. The upgrade testifies to the Company’s ability to ensure compliance of its corporate governance framework in all materials respects with most of the set criteria and provide sufficient evidence to demonstrate its efficiency. According to the independent consultant, the current rating is optimal for the Company to hold an IPO.

The Committee will continue its work to increase transparency and efficiency of the Company's operations.

KMG Group proclaimed 2021 the Year of Environment, using this occasion to raise ecological awareness, reduce environmental impact, and take steps needed to meet new environmental requirements and global trends. In 2021, the Company managed to reduce emissions by 20% compared to the 2017 level. We keep focusing on proper disposal of waste, including legacy waste, and remediation of contaminated soil. In 2021, Sustainalytics, an independent ratings firm, upgraded KMG’s ESG rating, with a score of 72 after 69 in 2020. The Company’s ESG risk rating also improved from 34.7 in 2020 to 28.4 in 2021. These improvements moved KMG into the medium-risk range, ranking 16th out of 251 oil and gas companies worldwide. KMG topped, for the fifth consecutive year, the Environmental Transparency Rating of Oil and Gas Companies in Kazakhstan. In the reporting period, KMG was assigned a “B” water security rating for 2020 by the CDP, an improvement from the “C” rating in 2019. KMG and its HSE & SD Committee recognise a global trend for decarbonisation. The Company has set a target to reduce its direct and indirect greenhouse gas emissions by 15% by 2031 (from the 2019 level). This target is part of KMG’s Development Strategy and Low-Carbon Development Programme for 2022–2031.

Unfortunately, in 2021, there were some accidents at KMG Group, including fatalities caused by an explosion at Petromidia Refinery and a fire at the Borankol field of KazMunayTeniz LLP. The Company and its HSE & SD Committee paid particular attention to these accidents and will make sure that proper corrective actions are implemented to fully eliminate the underlying root causes.

KMG’s Occupational Health and Safety Policy is driven by our senior management setting the tone at the top in occupational health and safety and engaging every employee in building a robust safety culture. Management teams at KMG and its subsidiaries and associates take a zero-tolerance approach to losses and damage caused by accidents (including traffic accidents), emergencies, as well as by the use of alcohol, narcotic drugs, psychotropic and other similar substances.

The Committee introduced the practice of making deep dives into key HSE issues at its meetings. In 2021, it carried out deep dives into five areas, including waste management and implementation of the Memorandum on Legacy Waste Disposal, occupational health and hygiene management system, requirements of the new Environmental Code of the Republic of Kazakhstan, management of KMG contractors and emissions management.

The Committee also consistently reviewed reports on the situation with COVID-19 at KMG and on measures taken across the Group to prevent the spread of the virus.

Achievements and key initiatives of the Company in 2021 across the areas supervised by the HSE & SD Committee:

• On 10 September 2021, the 6th Annual HSE Forum of KMG Group’s CEOs “Towards Safe and Sustainable Development” was held. It was attended by members of the Board of Directors and management of KMG, CEOs of subsidiaries and associates, and representatives of JSC Samruk-Kazyna, government agencies and KMG’s foreign partners. The purpose of the forum was to assess the current state of occupational health and safety and environmental protection across KMG Group and to exchange experience in employee life and health protection.
• KMG joins Vision Zero, a multinational road traffic safety initiative that aims to achieve zero fatalities or serious injuries on the road.
• Medical examinations and vaccination of KMG employees are carried out on a regular basis, free of charge.

Our priority environmental projects include eliminating legacy pollution and reducing emissions and discharges, as well as implementing the Green Office principles and improving ecological culture and awareness.

The Committee seeks to make consistent and balanced decisions that would foster safe and sustainable development.