S-OIL

Governance

S-OIL set response to climate change as one of strategic goals to achieve its Vision 2030 and its top decision-making body, the BOD, checks its progress and outcomes every quarter. The BOD determines specific action tasks, which are incorporated into the Company's sustainability management scheme and mid- and long-term management plans and budgets. S-OIL inspects and analyzes differences between climate change goals and actual performance periodically, thereby establishing detailed measures to meet the goals.
S-OIL is promoting climate change responses as a major task of ESG management, and has established an ESG Steering Committee to manage it more systematically and integrally. The ESG Steering Committee consists of executives from each organization of the Company, including production, marketing, finance, planning, HR, and compliance. It holds regular meetings every quarter to review, evaluate, and deliberate the Company's ESG management activities, including response to climate change. And in 2023, the ESG Committee was established under the Board of Directors, which conducts regular meetings every half year to holistically oversee the Company's strategies, policies, and achievements on issues related to ESG.

Strategy

S-OIL operates the Enterprise Risk Management (ERM) system to conduct a systematic and periodic analysis of countless potential risks in the fast-changing business. Among them, the Company recognizes climate change related risks as core ones and responds to them by injecting company-wide capabilities through the ERM system.

Short-term risk (1~2 years) : Occurrence of abnormal climate due to rising temperatures on the Korean Peninsula

According to the Korea Meteorological Administration, Korea's annual average temperature rose by 1.2℃ over the past 30 years. If GHG emissions continue at this rate just as shown in the RCP 8.5¹⁾ scenario, the speed at which temperatures rise is expected to increase 1.6 times. Precipitation is also projected to triple compared to the global average. In particular, Ulsan where S-OIL's refinery is located is forecast to see a surge in rainfall intensity and the number of heavy precipitation days, which directly affect refinery operations, even in the RCP 6.0¹⁾ scenario. If global warming persists, there is a high likelihood that super-strong typhoons could occur due to a spike in the sea surface temperature. Heavy rain or typhoons that are beyond a predictable scope can disrupt crude oil supply and refinery operations, and a temperature rise in summer could lead to a delay in T&I, causing massive losses. As such, S-OIL beefed up its risk response manual in preparation for typhoons and heavy rain, designed new facilities in a way that production will continue uninterrupted in spite of precipitation exceeding the highest level since observations first began, and overhauled the sewage discharge system of the Refinery in 2019. Also, S-OIL installed an additional Single Point Mooring (SPM) in 2020, a facility for unloading crude oil, to ensure a prompt response when crude oil unloading can be impeded for a long period due to a typhoon, etc. Other than the above, S-OIL set up facilities to prevent health risks for outside workers and work speed slowdowns under scorching heat in summer.

Mid-term risks (3~5 years) : Rising GHG emission allowance price and growing pressure of GHG reductions

The emission allowances allotted by the government are expected to decrease down the road in line with Korea's Nationally Determined Contribution (NDC) and the GHG reduction roadmap. The resulting growing GHG reduction pressure and an increase in GHG emission allowance price will lead to a spike in raw material prices and an increase in production costs, ultimately eroding the Company's profitability. Conversely, the sale of spare GHG emission allowances created by its direct GHG reduction efforts can present opportunities to S-OIL.

Long-term risk (6~10 years) : Decrease in fuel demand resulting from an energy paradigm shift

Global efforts to combat climate change are expected to bring change to the energy paradigm and, in the long term, cause a sharp decline in fuel demand. On the other hand, endeavors to develop and expand low-carbon products in preparation for such change can create new business opportunities.

Risk Management

S-OIL has integrated climate change risk identification and assessment processes into the ERM system for systematic management. ERM environmental change analysis tools are made up of political, economic, market, technological, social, and legal items, and the relative importance of risk is assessed based on the Risk Assessment Matrix, which has been drawn up according to the possibility of the occurrence of each item and its impact. In 2020, S-OIL upgraded the importance of climate change risk by reflecting the globally accelerating carbon neutrality trend and established more rigorous risk identification, assessment, monitoring, and response processes. The Sustainability Management Team, the risk owner of climate change, conducts quantitative assessments of climate change issues every quarter. S-OIL built a process within the ERM that enables prompt and effective control activity to mitigate risk at the corporate level when a risk with a critical impact on the Company arises. In addition, the ERM Committee, comprised of top management including the CEO, conducts the final review of activities to control risk that includes climate change every quarter, prepares necessary response activities, and makes decisions on corporate-wide risk control policy.

Metrics and Targets

S-OIL uses as indicators energy usage and GHG emissions calculated according to the Guidelines for Reporting and Certification of Emissions of Emission Trading Scheme in order to assess climate change risk and opportunity, and discloses such along with water usage and waste discharge volumes. In parallel, S-OIL quantified and developed Carbon Intensity as a KPI by considering the complexity of each process rather than absolute carbon emissions, and incorporated it in each organization's performance management programs to effectively manage climate change efforts, thereby bolstering management's accountability. S-OIL discloses Scope I, II, and III GHG emissions every year, and sets 'Carbon reduction by 35% compared to 2030 BAU' as its target responding to climate change in 2021.

Environmental Policy

S-OIL has established and operates an advanced environmental management system under the principle of preventive green management that prevents environmental hazards and risk factors at every stage of business operation. In addition, the Company complies with the following environmental policies with the cooperation of stakeholders such as customers, suppliers and employees.

1. The Company shall comply with the environmental laws and regulations of the region in which the Company operates its business, establish strict internal standards that are above legal standards, and adhere to the standards.
2. The Company shall minimize the environmental pollutants (air pollutants, water pollutants, soil pollutants, hazardous chemicals, etc.) created in the production processes or business facilities through the improvement of efficiency, etc. and prevent potential environmental accidents including oil spill.
3. The Company shall develop, manufacture and sell highly efficient products that minimize environmental impact on consumers.
4. The Company shall minimize greenhouse gas emissions from the distribution process through efficient logistics system operation and prevent environmental accidents such as leakage.
5. The Company shall treat wastes safely and environmentally, and improve waste reuse.
6. The Company shall consider environmental factors when selecting suppliers and do not receive products and services from suppliers that can cause severe environmental pollution while expanding green purchasing.
7. The Company shall improve the environmental performance of affiliated companies such as JVs and subsidiaries, and also consider environmental factors in capital investments such as mergers and acquisitions.
8. The Company shall actively support and participate in environmental protection activities such as biodiversity conservation.

Air Quality Control

S-OIL has in place stricter internal emissions standards than legally required in order to improve the atmospheric environment in local communities. In 2018, the Company switched all of its heater and boiler fuels from bunker-crude oil to LNG to minimize fine dust and SOx emissions, and is continuously investing in facilities to reduce air pollutant emissions, such as operating an electric dust collector, installing an Ultra Low NOx Burner (ULNB), and a Selective Catalytic Reduction (SCR) system. In addition, a Vapor Combustion Unit (VCU) has been installed to fundamentally reduce volatile organic compound gases emitted from storage facilities. Leak Detection and Repair (LDAR) system is in operation to systematically control the fugitive emission of Hazardous Air Pollutants (HAPs) throughout the entire process of storage and shipping, which are fugitive emission facilities. In 2022, fugitive emissions were thoroughly managed, with a leakage of 0.05% against the Company's internal leakage standard of 500 ppm.
S-OIL proactively responded to the revised Clean Air Conservation Act to strengthen fugitive emission control of HAPs by improving related facilities. The Company is reducing environmental pollutants by making environmental investments such as switching to eco-friendly fuels and improving facilities to increase energy efficiency, and by efficiently operating pollution control facilities.
In addition, S-OIL signed a voluntary air pollutant reduction agreement to participate in the government's particulate matter reduction policy. Accordingly, the Company set a specific reduction target with the government to reduce air pollutant emissions, including particulate matter, by 40% compared to 2014 by 2022, and exceeded the government's target by 62.3% through eco-friendly fuel conversion and continuous environmental investments.
Building on the above, S-OIL has set a target of reducing air pollutant emissions by 40% compared to 2016 by 2024 through the signing of additional voluntary agreements, and is working hard to steadily achieve this target through continuous environmental investments and the operation of emission management facilities.
As for the Total Emission Volume Control System established in 2020, S-OIL stably complied with the 2022 quota granted by the Ministry of Environment, and will continue to comply with the quota granted each year until 2024 through additional environmental investments.

비산배출 : 굴뚝이나 Vent와 같은 통상적인 배출구가 아닌 장치, 이송배관, Seal, 밸브 등에서 오염물질이 대기로 누출되는 것

Water Quality Control

S-OIL stably operates a wastewater treatment plant to minimize the impact of its business operation on the nearby sea and comply with water pollutant legal emission standards. The plant treats wastewater using physical, chemical, and biological methods to ensure removal of pollutants. It also transmits water quality data to administrative agencies in real time through the Tele-Metering System (TMS) to maintain emergency preparedness. S-OIL also expanded rainfall storage tank capacity for the heavy rainy season and strengthened monitoring of 32 specific substances harmful to water quality, such as copper (Cu) and lead (Pb), in addition to general water pollutants.
In the Company's efforts to reduce water pollutant emissions and conserve water resources, S-OIL strives to minimize its water usage increase despite recent plant expansions and large-scale investments. In particular, the Company achieves this by reusing water after removing hydrogen sulfide (H2S) and ammonia (NH3) from acidic water generated during production, utilizing it as backwash water for the production process. S-OIL regularly monitors and manages the amount of water used and reused. The Company plans to continue its efforts to protect water resources through increased water reuse in the future.

Marine Oil Spill Control

To prevent marine pollution accidents, S-OIL has established work standards and procedures and is strengthening on-site monitoring. The Company conducts regular emergency response drills and training. In particular, S-OIL focuses on enabling timely response to crises or emergencies by providing quarterly accident prevention training based on various marine pollution scenarios.
To avoid marine pollution accidents caused by vessels transporting its products, S-OIL operates the Vetting System. The system assesses the risk of all vessels entering and leaving the Company's port facilities in advance and fundamentally blocks vessels that do not meet safety standards. Additionally, for Single Point Mooring (SPM), an offshore marine facility for very large crude oil carriers that can cause significant damage from marine pollution in the event of an accident, S-OIL has implemented a protection system. The system includes radar, tidal current measurement, and mooring tension measurement systems, as well as the Automatic Identification System (AIS) to prevent dock collision accidents. Since 2020, S-OIL has been operating multiple offshore crude oil unloading facilities with the completion of No. 2 SPM, enabling more stable operations. The Company significantly reduced the possibility of environmental problems by conducting regular inspections of areas with a higher risk of marine oil spills in the event of a pipe failure during liquid product transfer due to the dolphin structure of the pier. The main facility of SPM, the buoy located approximately 3 kilometers from the shore, is remotely monitored using CCTV. The fixed oil boom section has been expanded to minimize offshore dispersion in case of marine pollution in the pier area. S-OIL is also continuing to invest in introducing an improved oil spill response equipment, such as inflatable oil containment boom, which are more effective in offshore weather conditions at sea.

Soil Quality Control

S-OIL periodically conducts self-checks, as well as legally mandatory inspections, to prevent soil pollution in the Refinery and terminals, including oil storage facilities. The Company also continues to improve facilities systematically by installing pipes on the ground instead of underground, among other measures. By signing the Voluntary Agreement on Soil Environmental Protection with the Ministry of Environment, S-OIL not only carries out self-inspections on terminals and service stations (S/Ss) for soil pollution but also voluntarily initiate soil restoration activities upon discovering soil pollution. To fulfill the agreement, the Company conducts legal inspections as necessary to monitor soil pollution while performing self-inspections every three years to prevent soil pollution. Moreover, S-OIL constructs new and remodeled S/Ss with the concept of Clean S/S, incorporating eco-friendly facilities to prevent the leakage of pollutants. These facilities feature double-walled tanks and pipelines. In the event of pollutant leakage, instant leakage sensors and alarms are activated to swiftly prevent the spread of pollution.

Hazardous Chemical Control

S-OIL complies with the standards for handling hazardous chemicals and associated facilities in accordance with the Chemical Substances Control Act. The Company also enhances its response capability in the event of a chemical accident through regular emergency drills. Additionally, S-OIL prepares accident scenarios for the hazardous chemicals it handles, estimates the scope of impact, and develops a summary of chemical accident risks and emergency response information through the Off-site Risk Assessment and the Risk Management Plan. The summary is then notified to local communities once a year to ensure comprehensive accident prevention and response activities. In line with the amendment to the Chemical Substances Control Act, in 2022, S-OIL prepared a chemical accident prevention and management plan that integrates the existing off-site impact assessment and risk management plan. The plan obtained approval from the Ministry of Environment. S-OL will fully implement the approved plan to strengthen its chemical accident prevention and response capabilities.

Land Leakage Control

S-OIL has implemented systematic response procedures to prevent oil and hazardous chemicals leakage in the Refinery and to respond effectively to accidents. Significant areas of the Refinery are equipped with 32 oil detectors and block valves to enhance the Company's ability to promptly respond and contain oil spills. Additionally, S-OIL plans to install more detectors for comprehensive monitoring. The Company also conducts annual factory emergency response drills based on hazardous chemicals and oil spill scenarios.

Waste Control

S-OIL has consistently reduced waste discharge and increased waste recycling through strict separation and storage practices to create a virtuous circle of eco-friendly resources. Fire detectors and water spray sprinklers have been installed in the waste and waste catalyst storage facilities to prevent potential fire accidents and contamination during the waste storage process.

1. Net Positive Impact by 2050

   S-OIL is dedicated to achieving Net Positive Impact (NPI) on biodiversity by the year 2050. We will implement actions that go beyond mitigating negative impacts, actively contributing to the restoration and enhancement of biodiversity.

2. Priority Area Targets

   S-OIL is committed to avoiding potential adverse impacts on sites containing globally or nationally important biodiversity. We will exercise precautionary measures and refrain from conducting operational activities in proximity to such areas to prevent any potential harm.

3. Value Chain Responsibility

   S-OIL will hold ourselves and our value chain partners accountable for minimizing biodiversity impacts. We will actively engage with our partners, encouraging them to avoid operational activities near sites with significant biodiversity value.

4. Mitigation Hierarchy

   S-OIL strictly follows a mitigation hierarchy to manage our biodiversity impact effectively.

   Avoidance

   We will prioritize avoiding impacts on nature and biodiversity whenever possible in our operations and projects

   Reduction

   In cases where avoidance is not feasible, we will take all necessary measures to limit and reduce our impact on ecosystems and biodiversity.

   Restoration

   We are committed to restoring areas and ecosystems adversely impacted by our business operations, fostering their recovery and resilience.

   Offset and Compensation

   As a last resort, if any residual, adverse impacts remain after full implementation of the mitigation hierarchy, we will explore offsetting and compensatory measures to balance the biodiversity loss.

5. Biodiversity Risk Assessment

   S-OIL will conduct comprehensive biodiversity risk assessments for our projects. These assessments enable us to identify potential impacts on biodiversity and implement appropriate measures to prevent or mitigate such impacts.

6. Stakeholder Engagement

   S-OIL actively engages with stakeholders to foster collaboration and collective action for biodiversity conservation. We believe that collaboration is essential to address biodiversity challenges effectively.

Policy Compliance

• Within the workplace, S-OIL will reduce emissions and expand investment in reducing greenhouse gas emissions through industrial waste recycling.
• S-OIL will make efforts to create forests and green areas in cooperation with related organizations near the workplace.
• Through the inspection of forest destruction risk of subcontractors and the eco-friendly management system, S-OIL will make efforts to expand forest creation and greening activities to subcontractors.
• S-OIL prepares internal procedures to check the risk of forest destruction when reviewing the expansion of business establishments and the operation of new business establishments.
• S-OIL secures a budget for cooperation with related agencies and strengthens its internal capabilities.
• S-OIL will make efforts to establish an evaluation process and conduct improvement activities to prevent environmental risks such as forest destruction of suppliers.