Market Overview and Competitive Landscape

Climate Agenda and Carbon Management

Climate Agenda and Carbon Management

Before the UN Climate Action Summit that was held during the 74th session of the UN General Assembly in September 2019, Russia’s Prime Minister signed Government Resolution No. 1228 On the Adoption of the Paris Agreement dated 21 September 2019, de facto ratifying it.

Russia’s Intended Nationally-Determined Contribution (INDC) suggests a long-term target of limiting anthropogenic greenhouse gases in the country to 70–75% of the 1990 levels by 2030, subject to the maximum possible account of absorbing capacity of forests.

In December 2019, the Russian Government's Resolution No. 3183-r introduced a "first-stage" national action plan of adapting to climate change until 2022. The plan states that based on years of observation by the Federal Service for Hydrometeorology and Environmental Monitoring, the average surface air temperature in Russia has been growing 0.47°C every ten years since the mid-1970s, which is 2.5 times higher than the global average of 0.18°C per ten years. A significant part of the Russian territory is subject to (observed and predictable) climate changes. The negative consequences of the expected climate changes in Russia include more frequent, intense and lasting droughts in some regions; extreme precipitation and floods in others; an increased risk of forest fires; melting of permafrost in the northern regions causing damage to buildings and communication lines; disruption of the ecological balance (including some species replacing others); and increased energy consumption for air conditioning in the warm season. Potential benefits include reduced energy consumption during the heating season; more favourable ice conditions and hence easier Arctic cargo transportation; better access to Russian continental shelf in the Arctic Ocean; and increased productivity of boreal forests.

With climate change climbing higher on the global agenda, environmental, social and governance (ESG) criteria are becoming a key factor in determining a company's investment appeal. Investors have come to rely on ESG ratings from international agencies when making allocation decisions, and companies' climate change initiatives are starting to represent a major competitive advantage.

Rosneft fully recognises the importance of the climate agenda and makes sure to assess the systemic, environmental, infrastructural and economic risks associated with climate change. Most human activities involving the burning or oxidation of carbon/hydrocarbon produce greenhouse gas emissions. Reducing GHG emissions and climate change associated with them involves burning less of certain fuels. Over the last decades, Rosneft has structured its GHG initiatives around reducing associated petroleum gas (APG) flaring, improving energy efficiency, and decreasing hydrocarbon losses in the key production processes. This is an area of ongoing focus for the Company. In 2006, we launched and have since been expanding our Gas Investment Programme, which is aimed at increasing the level of APG utilisation. During 2006–2012, Rosneft combined forces with the World Bank and a number of European state funds to carry out three joint implementation projects under the Kyoto Protocol. The projects aimed to reduce APG flaring and resulted in a 2 mmt decrease in annual CO2 emissions. Rosneft’s Energy Efficiency Programme was approved in 2009 and is regularly updated with direct input from the Board of Directors.

In 2013, Rosneft started a systemic assessment and monitoring of its GHG emissions. In 2017, we launched a programme to regularly monitor and optimise production losses, and to ensure sustainable use of energy by our facilities.

This ongoing initiative will enable us to achieve lower GHG intensity compared to peers. For any oil and gas company, exploration and production operations are the key source of emissions. Traditionally, these operations account for 40–70% in the carbon footprint of the vertically integrated oil and gas producers.

On 20 December 2018, the Board of Directors approved the Company's ESG initiatives and announced its commitment to the 17 UN Sustainable Development Goals. In June 2019, we joined the Guiding Principles on Reducing Methane Emissions across the Natural Gas Value Chain.

In August 2019, we set up a Carbon Management Subcommittee under the Health, Safety, and Environment Committee. Its aim is to coordinate our work towards strategic goals of reducing GHG emissions. At its meeting in December 2019, the Board of Directors reviewed the approaches and a phased action plan to develop carbon management (for details see the Health, Safety, and Environment section).

As a result of our efforts over the year, we became one of the leading global oil and gas companies in the CDP's carbon disclosure rating ratingCDP (Carbon Disclosure Project) is the most reputable non-profit organisation that assesses companies’ environmental, strategic, governance and risk management effort as regards battling climate change. Climate ratings assigned by CDP following the disclosure assessment are published by the leading analytical agencies along with financial data and used by investors to screen investments. CDP works with 525 institutional investors managing USD 96 trln worth of assets. In 2019, over 8.4 thousand companies, including 62 from Russia, with more than 50% of the global market capitalisation disclosed environmental data through CDP.. Following an independent review, Rosneft received a “B”, which is the best grade among Russian oil and gas producers, two notches higher than the average of European peers.