S-OIL has established top-notch transparent and sound corporate governance among listed companies in Korea. The Company protects its stakeholders by disclosing accurate and transparent management information, and in light of recent cyber threats such as customer data theft, it takes every precaution to strengthen cybersecurity. S-OIL strives for sustainable, shared growth with its suppliers based on trust, and practices compliance and ethics management guided by the corporate philosophy of Integrity. The Company also manages various internal and external risks in an integrated manner to strengthen sustainability.
Financial Soundness and Transparency
S-OIL maintains a stable financial structure through efficient financial management and optimized financing in response to rapid changes in its business environment. The Company protects investors and contribute to the national economy through balanced performance distribution, responsible tax compliance, and transparent management information disclosure.
Establishment of Financial Soundness and Efficient Financial Management
S-OIL closely monitors key indicators of financial soundness and develops and implements measures as necessary to maintain a stable financial structure even in a rapidly changing business environment. The Company regularly forecasts future cash flows in order to obtain necessary funding in a timely manner while minimizing unnecessary borrowing. In 2022, S-OIL maintained financial integrity with an adequate level of liquidity by implementing the company-wide profit improvement activities, efficiently managing working capital, and avoiding unnecessary budget execution. In addition, the Company retained excellent credit ratings and actively communicated with domestic and foreign credit rating agencies to ensure that its excellent financial flexibility, potential financial support from parent company, Saudi Aramco, and strategic importance of its business was taken into consideration in credit ratings.
Optimized Financing and Capital Structure
In February 2022, S-OIL issued corporate bonds worth KRW 230 billion at competitive terms thanks to its excellent credit ratings and by actively attracting investors. Of these bonds, 10-year bonds worth KRW 60 billion were issued as ESG bonds (green bonds), and they were certified as Green 1, the highest ESG certification grade, by NICE Rating. In addition, with the final investment decision in November 2022 for the Shaheen Project to secure future growth engines, the Company has developed an optimized financing plan for the project based on well-thought-out financial policies.
S-OIL maintains a stable capital structure by minimizing borrowings through efficient working capital management and timely financing at competitive terms.
Balanced Dividend Policy
S-OIL is committed to delivering maximum value to its long-term shareholders by returning its performance in a balanced manner to shareholders, taking into account maintaining financial soundness, securing future growth engines, and returning profits to shareholders. In November 2021, S-OIL announced its dividend guidance, stating that the Company would maintain its dividend payout ratio at approximately 30% of net income for the 2021 - 2022 fiscal year. In 2022, S-OIL paid a dividend of KRW 5,500 per share to common stock and KRW 5,525 per share to preferred stock including interim dividends, in consideration of financial performance and soundness for the financial period.
Efforts for Efficient Budget Management
In order to efficiently use limited resources, S-OIL sets and executes its budget carefully. The Company strives to prevent unnecessary items being budgeted and to draw up a budget organically linked to its management policy and strategy, and budget execution is also subject to a thorough review by the budget control team. In particular, in 2022, despite the unavoidable rise in costs due to rapid inflation and soaring electricity price, S-OIL curbed unnecessary budget execution and reduced costs as much as possible through careful review. In 2023, it is making company-wide efforts to reduce costs by checking all expense items for necessity and feasibility and budgeting to minimize cost increments in order to respond to the uncertain business environment.
S-OIL will continue to improve the efficiency of resource allocation and budget management through systematic and objective budgeting using the zero-based approach and strengthening the economic analysis of cost and capital expenditure execution.
Sincere Tax Payment
S-OIL takes it as an important responsibility as a respected corporate citizen to contribute to the national economy and social development through faithful tax payments. In accordance with its own tax policy, S-OIL observes the regulations, maintains an honest and transparent relationship with the taxation authorities, and dutifully pays taxes. In addition, corporate tax, deferred tax and effective tax rates are reported in detail through an audit report of independent auditors, and disclosed to the public through the electronic disclosure system of the Financial Supervisory Service.
Tax Policy
S-OIL adheres to the following tax policies, recognizing that contributing to the national economy and social development through sincere tax payment is an important responsibility of corporate citizens.
- The Company shall strictly comply with the tax-related policies, laws, and international standards (OECD Guidelines, etc.) of the country or region where the Company operates its business.
- The Company shall not violate tax laws or conduct inappropriate tax accounting activities for the purpose of tax avoidance.
- The Company shall not use tax-haven countries for offshore tax evasion or inappropriate tax reduction.
- The Company shall not engage in any transactions related to transferring income between countries by trading transparently and fairly in foreign transactions.
- The Company shall apply objective and reasonable transfer prices for transactions with specially related parties in accordance with the arm's length principle.
Full Compliance with Disclosure Regulations
In order to uplift investor confidence and comply with disclosure regulations, S-OIL closely monitors the enactment and amendment of relevant regulations, and provides public disclosure training to employees once a year, taking extra care to prevent any omissions or delay in disclosure. In addition, the Company distributes new and revised regulations, and reference materials that classify important disclosure items to all employees, while faithfully completing the annual training required of employees who are accountable and responsible for disclosures.
In 2022, through this strict compliance with disclosure rules, S-OIL provided its management information transparently to shareholders and investors by making a total of 62 public disclosures, including voluntary disclosures, with no disclosure breach. In recognition of these strict disclosure compliance efforts, its disclosure officer was recognized by the Korea Exchange for outstanding disclosure practice in the Securities Market in 2022. Also in 2023, S-OIL will continue to provide relevant training for employees to have the public disclosure mindset, and continue to make timely and legitimate disclosures.
IR Activities to Enhance Corporate Value
S-OIL actively engages in investor relations activities to provide shareholders and investors with management information in a transparent manner and enhance corporate value. Every year, the Company surveys analysts about their satisfaction with its IR activities and then incorporate their feedback to improve the quality of IR activities. In 2022, for domestic and foreign investors, S-OIL held four earnings releases and eight face-to-face/non-face-to-face non-deal roadshows (NDRs) at home and abroad, attended 11 large-scale domestic and international conferences organized by securities firms, and held 328 meetings with domestic and foreign investors, all of which helped the Company transparently communicate its business information to stakeholders through active IR activities.
Moreover, following the final investment decision for the Shaheen Project, which is the core pillar of its future growth strategy, the Company organized a project briefing session for stakeholders to communicate in detail its business case, core competitiveness, and financing plan.
Going forward, S-OIL will continue to make utmost efforts to communicate with stakeholders its vision and efforts to respond to the rapidly changing business environment and achieve sustainable growth.
Cybersecurity
Recognizing the importance of cyber risk management, S-OIL has established its security management system based on the NIST Cybersecurity Framework, a global cybersecurity standard, and ISMS-P, a domestic standard, and is working to improve its cybersecurity posture by continuously implementing a series of improvement activities to enhance its cybersecurity maturity level.
In order to remain vigilant and responsive to increasingly sophisticated cyber threats, the Company is proactively employing the latest security technologies to strengthen the protection of its information systems (IT) and factory control systems (OT).
Reinforcing IT·OT System Security
At S-OIL, Chief Information Security Officer (CISO) organization functions as a dedicated organization for company-wide cybersecurity, and the Cybersecurity Management Committee chaired by the CISO has been expanded to four times a year from twice previously, to review major policies and action plans related to cybersecurity and respond to the risk of cybersecurity breaches. In 2022, the Company also updated its regulatory framework on cyber risk management, supply chain security, and cloud security to ensure proper response to the latest cyber security trends and laws.
As the Company recognizes the importance of employees' understanding of cybersecurity, S-OIL conducts various education, training, and promotional activities to raise awareness.
The Company conducts mandatory cybersecurity training for all employees at least once a year, and malicious email response drills on a monthly basis to better respond to the risk of important data leakage through malicious emails. S-OIL also publishes cybersecurity newsletters every month to all employees, covering latest cyber threat information and incident cases, to improve employees' interest and awareness of cybersecurity. In 2022, the Company carried out personal information breach response drills using actual incident cases to familiarize employees with their roles in handling incidents, thereby minimizing the impact of possible breaches. Further, an annual company-wide cybersecurity compliance check is conducted to assess the vulnerabilities of its systems in operation and the daily activities of employees to enhance its security posture, and S-OIL makes it sure to develop and implement an action plan for the areas for improvement identified.
On the technical front, S-OIL deployed AI-based global specialized control solutions and hired experts in 2022 to enable faster and more accurate threat detection and response than ever before. For efficient response to Advanced Persistent Threat (APT) and unknown malware, in particular, the Company operates security equipment dedicated to responding to APT attacks, as well as solutions that detect abnormal behavior on user PCs in real time to improve responsiveness to unidentified malware. In addition, S-OIL runs in place solutions that block unauthorized file modification/tampering and malicious files from internal and external web services, such as the Company's homepage.
To ensure physical security, S-OIL's major IT systems are operated in a data center equipped with one of Korea's best security solutions, safeguarding its IT assets from physical intrusions from outside through constant monitoring.
Personal Information Protection based on ISMS-P
In 2021, S-Oil became the first refiner in Korea to obtain the ISMS-P certification, which integrates the Information Security Management System (ISMS) and Personal Information Management System (PIMS), and in 2022, it passed the post-certification audit to maintain the ISMS-P certification.
In compliance with the Personal Information Protection Act and to minimize the risk of customer information leakage, S-OIL disposes of all sensitive personal information such as resident registration numbers immediately after achieving the purpose of use. Under the responsibility of the CISO, the Company is revamping relevant policies and processes so as to minimize handling of personal information, and monitoring in real time the status of customer data as well as changes to the database.
Furthermore, in cases where personal information is shared to an outsourcing partner for the purpose of operating the bonus card system, S-OIL uses a solution that sets the expiry date for the third-party use of such information and deletes it immediately upon expiry, thereby keeping the risk of personal information leakage involving an outsourcing company to minimum.
In order to manage customers' personal information more securely, S-OIL stores all personal information encrypted at all times, implements control access through the personal information access control system, and systematically monitors access history accordingly. S-OIL effectively limits personal data access on an as-needed basis by allowing access rights only to staff-in-charge requiring personal data access for their work. Furthermore, access can only be made through the Virtual Desktop Infrastructure system that separates Internet and internal business networks or the Server Based Computing system that blocks Internet connectivity, thereby minimizing potential risk of customer information leakage. Additionally, system access authorization is exclusively granted with two-factor authentication requiring both password and OTP.
S-OIL provides all employees and contractors' employees who handle customer personal information with periodic privacy protection training at least twice a year. The Company also conducts an annual audit for randomly selected teams and systems to check the status of personal information processing. In particular, S-OIL has established a hotline for employees to immediately report suspicious situations related to information leakage if they witness or recognize them, and also operates internal procedures for systematic investigation.
Supply Chain Sustainability Management
By proactively supporting and managing its suppliers to ensure that they have the capabilities for sustainable development, S-OIL strives to minimize risks caused by its suppliers, while also providing new business opportunities for the Company and its suppliers to develop together.
Procurement Process Improvement
Since 2013, S-OIL has introduced advanced purchasing processes such as auto-invitation and blind-bidding to dramatically improve the transparency, objectivity, and fairness of its purchases. Procurement of goods and services is initiated through automatically inviting all suppliers who joined each sourcing group (SG) after preliminary reviews of the Contracting Committee in accordance with the auto-invitation procedure. S-OIL then selects contractors through Blind-Bidding, where the e-Procurement system automatically carries out the quotation process. Through the advanced purchasing process, S-OIL operates the process of selecting contractors more transparently and fairly, and upgrades its procurement process through continuous communication with suppliers.
Significant Supplier : 114 companies (Approximately 67% of total purchases in 2022)
Selection Standards
- Suppliers of high volume products and services
- Irreplaceable suppliers
- Long-term stable suppliers of products and services
- Essential suppliers for operation of main processes
- Suppliers that are highly relevant to ESG issues such as environment and safety, and can influence the Company's ESG performance
Improvement of SRM System
In order to establish a stable supply chain through mutually beneficial cooperative relationships where suppliers and the Company grow and prosper hand in hand, S-OIL has been operating the Supplier Relationship Management (SRM) system since 2010. Under this system, a comprehensive evaluation of suppliers, including objective credit ratings by Korea Evaluation Data (KoDATA) and performance evaluations of suppliers' supply records, is conducted annually. Based on the results of the comprehensive evaluation, the Company has selected nine excellent suppliers (five for materials and four for services) and awarded them with excellent supplier certificates since 2019 to pursue a long-term mutually beneficial relationship in which suppliers can be proud of and grow altogether.
Systematic Supplier Sustainability Management
S-OIL has set "zero safety and environmental accidents" and " ethics management" as its sustainability management targets for suppliers, and has systematically managed to achieve them. The Company evaluates the fundamental capabilities of its suppliers, such as financial stability and technical capabilities, as well as their ESG aspects, such as ethics, interests with employees, safety, and the environment, and grant bidding opportunities only to those who pass the evaluation. The results of such supplier sustainability management, as well as issues and remedial measures discovered in the process, are reported to the quarterly ESG Steering Committee.
To this end, in 2022, S-OIL laid out the "Supplier ESG Code of Conduct" and urged its suppliers to adhere to it, while conducting an ESG self-assessment survey on 1,227 suppliers registered in its SG, analyzing and explaining the data to help them understand their level of ESG competence and understand the importance of strengthening their ESG capabilities. The Company is also continuously reviewing its purchasing processes to ensure that the requirements of the Supplier ESG Code of Conduct are reflected in its purchasing processes and that ESG requirements, both internal and external, are fully considered.
In 2022, S-OIL conducted ESG third-party assessments through KoDATA for 115 key suppliers, of which 10 suppliers also received on-site inspections by ESG experts and its purchasing staff. For 10 key suppliers that are considered necessary to build a sustainable supply chain with the Company, S-OIL provided safety consulting, including obtaining KOSHA-MS safety certification, to strengthen their safety capabilities as part of their ESG management. Over the coming years, the Company will continue to assess and improve the ESG capabilities of its suppliers.
Additionally, the Company's suppliers are required to sign and comply with the Ethics Compliance Pledge for Suppliers and Bidders. To underline the importance of compliance with the Ethics Code, S-OIL invites its suppliers every year since 2013 to provide education on the Company's transparent and objective procurement system and ethical regulations for suppliers, as well as to check their compliance with the Ethics Code. In 2022, S-OIL switched the supplier invitation program to a virtual program due to the COVID-19 pandemic, whereby the Company produced and distributed educational materials consisting of purchasing procedures, e-Procurement system user manuals, and ethics management to suppliers.
Ethics Policy for Suppliers
S-OIL's suppliers shall comply with the S-OIL Supplier Ethics Policy as stated below and shall make efforts to build sustainable supply chains.
- We comply with international ethics-related regulations as well as anti-corruption and anti-bribery regulations as a member of the nation and local communities.
- We do not carry out any illegal act such as bid rigging that affects cost estimates.
- We do not provide or promise to give valuables or entertainment to project owners.
- We eliminate discrimination in terms of gender, race, nationality, disability, religion, and union activity.
- We respect business partners and their employees, and do not have an impersonal manner. We do not restrain employees' physical and psychological freedom illegally, and we do not force people to work against their will.
- We comply with the working hour requirement and the minimum wage as determined by labor-related laws and regulations.
- We prohibit employment of minors under the age of 15, and exclude employees under the age of 18 from work with higher potential health and safety risks.
- We guarantee freedom of association, and prohibit any disadvantage from it.
- We comply with labor conditions determined by labor-related laws and regulations in each country and region.
- We provide employees and relevant staff with a safe and healthy work environment, and take proper action to prevent them from being exposed to potential safety risks.
- We comply with environmental laws and regulations, and recognize that environmental protection is our basic social responsibility.
- We strive for continuous job creation, and implement social contribution activities for the development of local communities and the national economy.
- We have S-OIL level or higher ethical procurement policy for our suppliers.
Direction of Supply Chain Sustainability Management
- Enhancement of fairness and transparency in the selection of bidders by systematically improving the supplier evaluation process
- Procurement of high-quality products at reasonable price through the differentiated selection of suppliers
- Integration of procurement processes & enhancement of interactive information sharing with the suppliers
- Enhancement of collaboration with outstanding suppliers
- Analysis of information for effective purchasing
Compliance and Ethics Management
Guided by its core value of Integrity, S-OIL places compliance and ethics management as its top priority and incorporate them in the day-to-day business of all employees. The Company ensures that all employees are well informed of and adhere to relevant domestic and international laws and regulations, as well as internal regulations, in the course of their work. With a dedicated organization consisting of legal experts, S-OIL thoroughly review legal issues and contractual matters to prevent legal disputes in advance, and even in the event of a dispute, the Company maintains trust with its stakeholders through providing optimal countermeasures, while making efforts to prevent the recurrence of the same issues by offering in-depth legal assistance and reinforcing training.
Compliance Management as Corporate Culture
Led by the strong commitment of top management to compliance management and the active involvement of employees in practicing it in their daily work, S-OIL has embedded compliance management in its corporate culture. All employees incorporate compliance standards into their daily work and give it the highest consideration before performing their duties. The Company regularly reports major compliance activities to top management, thereby drawing attention to the importance of compliance management. In addition, S-OIL raises employee awareness of compliance by distributing compliance newsletters, disseminating compliance trends led by global companies, and providing various compliance programs such as compliance campaigns. To further strengthen compliance management, the Company conducts in-depth analysis of laws and regulations, develop guidelines, and provide customized training.
Systematic Compliance System
S-OIL takes a systematic approach to compliance management, utilizing profiles and checklists for company-related laws and regulations to help employees practice compliance management. Through the IT-based compliance system, the Company provides information on the latest legislations and revisions to relevant employees in real time, making it convenient for employees to search or inquire legal information relevant to their work, and conduct compliance activities autonomously through regular or ad hoc inspections.
ISO 37301 Certification for Compliance Management System
S-OIL strives to practice proactive compliance management to ultimately promote sustainability and become a leading company in ESG management. On May 13, 2021, the Company became the world's first company to be certified to ISO 37301, the international standard for compliance management systems, and have since maintained this certification through annual follow-up audits. This means that the Company's compliance system is operating effectively and successfully for the systematic practice of compliance management.
Established by the International Organization for Standardization (ISO) in April 2021, ISO 37301 sets out requirements and guidelines for establishing, developing, implementing, evaluating, maintaining, and improving an effective compliance management system. S-OIL's efforts to practice compliance management and establish a culture of compliance for all employees through the introduction of the compliance support personnel system in 2013 and the systematic compliance system in 2014 resulted in the world's first ISO 37301 certification in 2021 and recertification in 2022. Going forward, the Company will continue to maintain, supplement, and intensify its compliance management practices through the certification.
Systematic Ethics Management
S-OIL pursues systematic ethics management with the society based on three organically connected pillars: Ethics Code, Ethics Committee, and Ethics Management training. The Company closely monitors domestic and international trends such as the Anti-Graft Act and the Workplace Harassment Prevention Act, and preemptively reflect in its Ethics Code, and all employees regularly submit a pledge of ethical compliance.
In 2021, S-OIL enhanced the structure and content of its Code by benchmarking it against global best practices. The Company specified the types of discrimination prohibited, including race, nationality, gender, and age, and improved the content related to information protection, protection and proper use of company assets, safety, health, and environmental policies, fair competition, prohibition of insider trading, anti-corruption/anti-bribery, and whistleblower protection. Its Ethics Code extends to suppliers, subsidiaries, and investment companies, and the Company's suppliers are obligated to submit an Ethics Compliance Pledge that they will comply with the Code. Should a supplier be found to be in violation of laws and regulations or engage in unethical behavior, it may be disadvantaged or excluded from transactions with S-OIL. In addition, the Company operates a whistleblower protection system as well as an anonymous reporting channel and a self-reporting liability reduction system to encourage reporting of ethical management violations.
In 2022, there were 3 Ethics Code violations and S-OIL took disciplinary measures against 7 employees in accordance with relevant regulations and procedures. Violation cases were also shared across the company and covered in training for recurrence prevention purposes
Since 2004, S-OIL has operated the Ethics Committee consisting of Legal & Compliance HQ Head, Corporate Planning Division Head, HR Division Head and Controller. They are appointed by the CEO after being screened by the BAC for eligibility. The Committee is responsible for supervising ethics management activities, establishing ethics policies and programs, and elevating ethics awareness in the organization. In particular, for cases where stakeholders of employees with high chances of conflict of interests transact with the company, the Committee must review it to prevent any violation of Ethics Code. The Committee reports activities to the CEO and the BAC on a regular basis, while disclosing its activities to stakeholders through Ethics Management website. Since 2018, S-OIL has conducted ethical management assessments for stakeholders including employees, service stations, LPG filling stations, corporate clients, and suppliers on the Company's overall ethical management, including ethics awareness, respect for employees/customers/suppliers, abuse of dominant position, fairness in business dealings, and any experience with corruption, and reflected the assessment results in company policies to improve ethics management.
Starting from 2009, S-OIL offers ethics management training tailored for different job grades and functions to raise employees' ethical awareness in their day-to-day work while inviting outside experts for special lectures. In 2022, reflecting the result of stakeholder evaluation on S-OIL's ethics management, 5 courses on ethics management were offered as well as case-based marketer training for sales offices that have a high chance of committing an ethics violation due to frequent encounters with business partners. Also, the Company has offered ethics management training for suppliers and affiliated companies since 2013 to help them understand the basic principles of Ethics Code, thereby raising the quality of ethics management across the supply chain.
In 2022, S-OIL customized training contents by reflecting the Ethics & Regulatory Compliance Framework (ERCF), the ethical compliance standards of Saudi Aramco, the Company's largest shareholder, as well as the latest trends in ethics management and actual cases, and conducted e-learning training. The Company has also been operating the Ethics Management Self-Diagnosis System since 2015 to enhance employees' understanding of its Ethics Code.
Ethics Management Help Desk
- Tel
- 82-2-3772-5231
- Fax
- 82-2-3772-5239
- e-mail
- ethics@s-oil.com
- Website
- ethics.s-oil.com
Compliance Monitoring System
S-OIL introduced the compliance monitoring system on internal regulations in 2011 to help employees understand corporate regulations and abide by them in their daily work, thereby minimizing any confusion and risks associated with non-adherence. Currently, the Company carries out compliance monitoring activities against 120 checklists on 38 regulations twice a year. The results are reflected in the performance assessment of all executives and team leads to encourage employees' voluntary compliance with internal regulations. In 2022, zero violations were identified through compliance monitoring.
Risk Management Activities
S-OIL has established and implemented a well-organized risk management system to proactively respond to potential risks that may compromise its economic, environmental, and social values and grow together with stakeholders. In addition, S-OIL's rigorous internal auditing enhances transparency in its business and rectifies any improper practices and inefficient cost structures.
Enhancement of Risk Management System
Since 2008, the Company has operated an advanced risk management system that enables all members of the company to carry out optimal risk management activities for all risk factors that may arise in its business activities, thereby facilitating prompt and effective responses to risks.
Enhancement of Risk Management System
| Enterprise Risk Management (ERM) |
Managing key risks with enterprise-wide impact |
| Emergency Control Program (ECP) |
A program to ensure a quick and effective response in the event of an emergency |
| Early Warning System (EWS) |
Enhancing monitoring and prevention of business-as-usual risks that may arise at any given time |
| Internal Accounting Management System (IAMS) |
Internal control process to ensure the reliability of financial information |
The ERM Committee is an independent committee that consists of senior executives, including the CEO, and sets the direction of enterprise-wide risk management and periodically checks the progress to ensure that the Company's management policies and risk management activities are strategically aligned. Significant issues related to risk management, including internal control reviews, are reported to the BOD and incorporated into strategic risk management policies.
In order to prevent risks that may hinder the achievement of management goals from materializing, S-OIL designates risk owners to systematically manage the process of identifying, evaluating, monitoring, and responding to risks. Since 2020, S-OIL has actively been operating ERM sub-committees for production, marketing, strategy, finance, and IT to review and support risks response activities of risk owners and make recommendations to the ERM Committee for effective risk management. On a quarterly basis, the ERM Committee conducts a final review of risk management activities carried out by risk owners and makes decisions on necessary responses and enterprise-wide policies. In addition, starting in 2021, S-OIL expanded the major risk issue management that had been selectively implemented since 2015, to conduct a comprehensive environmental analysis related to each major risk every quarter led by the risk owner, so as to effectively detect potential risks early on and responding to them proactively.
The ECP is a company-wide emergency preparedness system that serves to swiftly minimize damage to people and property in the event of an emergency. S-OIL has established Emergency Control Centers at major business sites and periodically perform emergency drills to strengthen its emergency response capabilities. In 2022, a company-wide emergency drill was held to examine and improve emergency preparedness against fires in production processes and personal accidents.
The EWS is a system that monitors the vast amount of data generated during daily operations and enables preventive response. The EWS is used to check for abnormalities according to 62 predefined scenarios, and quickly transmit the detected abnormalities to the relevant personnel for proactive risk review and response, preventing risks from escalating or worsening at an early stage.
The IAMS ensures that the internal control process is checked in accordance with the Act on External Audit of Stock Companies and best practices for internal accounting management systems to ensure the reliability of financial information. S-OIL regularly evaluates internal controls for their effectiveness in design and operation, and provide annual training to improve employees' ability to operate IAMS.
Strategic Management of Mid- and Long-Term Risks
S-OIL proactively prepares for changes in the internal and external business environment that could have a significant impact on the Company in the mid- and long-term by systematically analyzing and forecasting changes in the internal and external business landscape, and formulating and implementing corresponding strategies by conducting annual mid- and long-term business environment analysis, quarterly risk assessment and monitoring, and sensitivity analysis and stress testing for major financial and non-financial risk items.
First, S-OIL recognizes a border carbon tax as a strategic risk in the mid- and long-term. The EU and the US are pushing for its adoption, and Korea is also moving toward internalizing carbon costs through the K-ETS (Emission Trading System). Unfortunately, the carbon-based energy industry, of which the Company is a member, is inevitably exposed to enormous carbon cost risks. Accordingly, when the border carbon tax is introduced, its cost structure will be significantly affected in the long term, depending on the internalization of carbon costs. Having emitted 9,710 thousand tons CO2eq (Scope I+II) of greenhouse gases in 2022, S-OIL plans to achieve a 35% reduction in carbon emissions compared to BAU by 2030.
In addition, S-OIL views the shrinking population of Korea and its impact as a strategic mid- to long-term risk. Approximately 50% of the Company's revenue is generated in Korea, and more than 99% of its employees are Korean nationals. Yet, Korea is facing a population cliff with a total fertility rate of 0.78 in 2022, a trend that has no parallel in the world. This represents a significant decline in the Korean consumer population, which accounts for a large portion of the Company's sales, as well as an aging workforce, making it more difficult for the Company to locally recruit young and talented employees. In response, S-OIL continuously diversifies its products and customers to grow both domestic and overseas sales, and strive to enhance the attractiveness of its company as a place of employment with competitive employee benefits and compensation in order to effectively recruit young and talented people.
Operating Effective Internal Audit System
There is an audit organization directly under the Audit Committee to ensure the independence and expertise of internal audit. The Audit Committee directly appoints external auditors and evaluates the internal accounting management system through an independent and objective evaluation in accordance with the relevant procedures for appointing external auditors and the IAMS evaluation.
Based on its extensive experience and in-depth understanding of the business, the audit organization focuses on maintaining a sound internal control system and improving inefficient work processes and cost structures. For efficient and effective internal audit, S-OIL ranks risks by organization or business process, taking into account the size of risks and exposures, controls in place, and audit effectiveness, and formulate a five-year audit plan accordingly. Audit organization then carries out regular internal audits at least every two to five years based on risk assessment results for all organizations across the board in accordance with the five-year audit plan approved by the Audit Committee, and conducts special audits for potentially significant risks. Also, the Company shares past audit cases with business organizations and strengthen follow-up activities for audit recommendations to prevent similar cases from recurring.
Internal Audit Cycle Following Risk Assessment
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4~5year cycle
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3~4year cycle
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2~3year cycle
To encourage reporting and protect informants, S-OIL actively informs employees, business partners, and suppliers of the Company's ethics management policy and reporting hotline. For reports received, the Company thoroughly verifies and investigates them and follows up on cases that are confirmed to be valid for recurrence prevention and improvement. S-OIL also continuously revises internal audit policies and procedures, strengthen internal controls, and raise employees' compliance awareness and self-audit mindset through regular and ad hoc audits based on a risk-based audit plan.
In 2022, the Company further strengthened internal controls for preventing financial irregularities by reviewing the risks associated with its fund deposits and withdrawals and improving the relevant processes, drawing on embezzlement cases that occurred at other companies in Korea, as well as strengthening security controls to prepare for the growing cybersecurity threats.
In 2018, S-OIL received the highest grade of Very Satisfactory in the internal audit quality assessment conducted by Artner Consulting, an independent external expert, in accordance with the Institute of Internal Auditors Standards, with the aim of improving the quality of the audit function and the audit business in general. To continuously reinforce the competence of the audit organization, the Company actively supports the participation in various training programs and the acquisition of professional certifications, and it have developed and implemented a plan to strengthen IT-based audit capabilities, such as monitoring abnormalities and issues requiring improvement around the clock through in-depth data analytics using Audit Command Language, a specialized audit software.
As such, S-OIL promotes corporate value through an exemplary audit system, including an objective and independent audit committee and audit organization, an effective audit system on par with global leading companies, and audits that focus on process improvement.
