Management of sustainable
development

VKG has been implementing an integral policy of social responsibility and sustainable development for 13 years by now. In both short-term and long-term perspective, the Group’s strategy includes sustainable development tasks in a period of changes in the energy sources market and the interests of society.

In strategic planning, we take into account risks and opportunities related to climate change and the transition to low carbon emission energy production, including the European Union’s Green Deal and the Fit for 55 package.

We aim to combine the dynamic growth of the company with reducing the burden on the ecosystem, maintaining the security and safety of production facilities and increasing the efficiency of all types of investments.

Sustainable development strategy

The Group’s overall strategy is based on strict requirements for the environmental sustainability of production, social responsibility, and occupational safety. We have mapped the ESG (environmental, social and corporate governance) objectives and focus on seven topics which we handle as a part of a consistent process. One integral part of our sustainability strategy is the responsible use and rational enrichment of natural resources. We are aware that the extraction and production of any mineral resources has an impact on the surrounding environment and we therefore always strive to do more than prescribed by laws or regulations.

Sustainable development priorities

Increasing the efficiency of the main activities

Production and occupational safety;
minimising the environmental impact;
energy efficiency and saving;
development of employee potential;
supporting regional development.

Supporting initiatives and membership in associations

we share the principles of the United Nations Global Compact;
our sustainable development objectives and areas of activity are related to the UN Sustainable Development Goals;
we support the implementation of the Paris Agreement and the efforts towards achieving climate neutrality in the European Union by 2050;
participation in associations:
- vastutustundliku Ettevõtluse Foorum (Corporate Social Responsibility Forum)
- hoolime ja Vastutame (Responsible Care)
- united Nations Global Compact
- global Reporting Initiative

Our guiding principles

openness and transparency;
honesty and correctness;
honesty and correctness;
compliance with international standards.

Organisation culture

We integrate the principles of corporate responsibility into our organisation culture: the prevalence of the safety of people, the environment and the Group’s property, compliance with human rights, equality of opportunities, and compliance with occupational ethics standards.

The Group’s values – openness, commitment, development – as an integral part of our business activities and consolidate the interests of the Group and its employees. The values influence the adoption of decisions, shape our reputation and determine our work principles.

Organisation culture values and principles that support sustainable development

1.

Safety of people, the environment, and property

The safety of employees, local residents and the environment always stands above any economic, technical or other considerations. The Group aims to ensure safe working conditions for people, and we demand the same from our partners. The Group has established a clear, understandable and fulfillable system of safety rules. We respect our employees’ right to refrain and/or refuse from performing work tasks which may damage human health or the environment.

2.

Working conditions based on respect

We comply with human rights and ensure equal opportunities for everyone. The Group strives to create a working environment free of bullying and harassment. The arrangement of employment relationships does not depend on nationality, religious beliefs, gender, age, social status or origin, physical limitations, state of health, civil status, sexual self-expression or orientation, or any other attributes. We expect our employees to treat each other with respect and courtesy, together creating an atmosphere of open communication, trust and mutual respect.

3.

Attentiveness and respect towards colleagues

We find that the efficient performance of duties and the solution of extensive tasks is not possible without trust, mutual assistance and a constructive discussion of different viewpoints.

We are always ready to help colleagues, regardless of which subunit they work in.

4.

Equal and understandable requirements for all business partners, compliance with business ethics standards

VKG sets equal and clear requirements for all its business partners and holds competitive tenders for selecting the most optimal cooperation partner by price, quality and terms and conditions. In communicating with the representatives of partners as well as in other communication related to the activities of the Group’s partners, our employees have to comply with the generally applicable business ethics standards, avoiding excesses, derisive attitudes and personal opinions. The employees who are responsible for cooperation with partners have to let the partners know which ethical requirements must be complied with and how to respond to such requirements.

5.

No corruption, conflicts of interest and misuse of inside information

The Group does not tolerate any forms of corruption. Bribes, payoff, expensive gifts or other such are categorically forbidden. If a violation of anti-corruption laws is discovered among employees or partners, the Group shall immediately take appropriate measures.

Among the best - we were once again recognised with a bronze medal!

Viru Keemia Grupp participated once again in the corporate social responsibility index questionnaire organised by the Corporate Social Responsibility Forum, in order to get an assessment of the company’s socially responsible and sustainable activities also by external experts. This year, activities were assessed in three categories: governance, climate and environment, and society and social environment. A total of 63 companies took part in the assessment.

Responsibility is not a separate objective or plan for us. Above all, it is natural output of our work and this way of thinking has from year to year been integrated in our strategy and everyday activities. To ensure our sustainability in an ever-evolving and changing business environment, we need to do and contribute just a little more than we are asked to. As one of the region’s largest employers and an industrial company, we are well aware of the impact of our operations, which is why we work every day to reduce the environmental impact of our production, to ensure a safe working environment for our 1,630 employees, and to ensure their personal development. We also believe it is important to contribute to the lives of our employees’ families and the overall community in the region, to keep the cultural and educational life of the region active.

The Corporate Responsibility award is not an award for past performance, but a public declaration that, among other things, sets an example to others in the industry and attracts people with the same values to work for the company.

Ahti Asmann
Chairman of the Management Board of Viru Keemia Grupp

Risk management in the area of sustainable development

The Group runs a risk management system which determines a uniform approach to the risk management process and concentrates the standardised tools and methods for analysing risks, including environmental, production safety and social risks.

The main risks in the area of sustainable development include risks related to environmental and production safety and the availability of qualified labour. We take appropriate preventive measures in order to prevent the risks from materialising and to protect people, the environment, equipment and technological processes.

We manage risks related to human life and health and the environment by taking the precautionary approach.

The risk management document is reviewed once in every two years. The last update took place at the end of 2020. The Group’s risk management report addresses risks in different areas: strategic, operational, financial and compliance risks. For each risk, the likelihood and impact of its occurrence are assessed and classified accordingly: critical, conditional, low impact, negligible and insignificant. For each risk, a responsible party and a mitigation plan have been assigned.

The precautionary approach has in international documents been formulated as follows:

Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.

Rio Declaration on Environment and Development

14 june 1992

Risk management process

The risk management objectives are:

to support the making of management decisions;
to avoid or diminish any damages to the Group’s assets and reputation;
to increase the effectiveness of the Group’s activities;
to increase the efficiency of using the Group’s resources (capital, energy);
to reduce occurrences of unexpected situations and to prepare action plans for such situations.

Risk management measures

The risk management report identifies the risks that are significant for VKG, their description, assessment and mitigation measures. Risk management is based on the Group’s key objectives, which are primarily related to VKG’s aim to maximise the value of oil shale and process it in the most efficient way.

The risks identified are split into five categories:

strategic risks – related to the Group’s long-term objectives (changes in the market, competition);

operational risks – related to the Group’s processes (activities of employees and equipment);

financial risks – related to direct financial losses (interest rates, exchange rates);

fraud and theft – related to damages and financial losses;

compliance risks – related to regulations (laws, guidelines).

Risk assessment

The risk management report highlights risks that need more attention and require further action to mitigate. The risks listed in the Risk Management Report are assessed on a 4-point scale for their likelihood and impact. According to the result of the assessment, the risk is ranked on an impact/likelihood scale as follows (in brackets is the likelihood or impact rating from 1 to 4):

Critical risk - when the risk materialises, the Group’s activities (processes) are significantly disrupted and the achievement of the objectives requires significant additional resources (3); or the activities cannot be continued, there is consequential damage, which requires significant additional resources (4). The occurrence of the risk is probable (3) or certain (4).

Conditional risk - the occurrence of the risk will result in the need for significant additional resources (3) or significant damage to assets/reputation (4), but the risk is not critical because the probability of occurrence is low (1) or possible (2).

Low impact risk - the occurrence of the risk is probable (3) or certain (4) but, if it occurs, it will cause little disruption to the Group’s activities and require few additional resources (effects 1 and 2).

Negligible risk - the occurrence of the risk is unlikely (1) or possible (2) and will not lead to significant disruption to operations, achievement of objectives, resource needs (effects 1 and 2).

Insignificant risk - mentioned only on the grounds that the risk has been previously mentioned as a significant risk but subsequently assessed as unlikely to materialise (0) and/or its impact as practically negligible (0).

The total risk rating is determined as a product of impact and probability.

Below are just a few examples of the mapped risks.

Strategic market and legal risks

We operate in a volatile global market, where price volatility is influenced by a range of factors at national, European and global level. Thus, one of the strategic risks we see is a fall in the oil selling price below the critical threshold in the context of a general fall in the oil price. Sales of shale oil account for 2/3 of the Group’s net turnover, so the risk of changes in the market prices of oil and oil products is an inevitable part of the Group’s activities. The vast majority of our sales contracts are subject to the condition that the selling price of the product is directly linked to the market prices of oil products. The other part is indirectly dependent on world market prices. The selling price of shale oil may fall as a result of both a fall in the world oil price and depreciation of the dollar.

Another important strategic risk relates to the fall in the volume of free CO₂ quotas and the rapid increase in the price of the quota. The massive increase in the price of CO₂ quotas will impose a heavy additional tax burden on oil production, making the cost of oil production more expensive than the market price of oil and therefore making business unviable.

The shale oil industry is a part of the EU’s oil refining and carbon leakage sector, which is allocated free CO₂ quotas. The trading rules and the procedures for allocating free CO₂ allowances until 2025 are currently known. The further procedures are still being developed. Decisions to be taken by the European Parliament and the Commission in the course of the Green Deal will play an important role in ensuring the Group’s business and competitiveness, as they could significantly reduce the amount of free CO₂ quotas allocated to shale oil production and increase the purchase price of the quotas.

Operating risks

Operating risks stem from deficient and ineffective processes and systems as well as the insufficient competences or activities of people in managing the work processes. In order to avoid operating risks, the Group has developed risk management principles, various standards and management systems. We understand operating risks to include technological and IT risks as well as operating risks related to the external environment, such as those arising from clients and suppliers.

We pay great attention to risks related to occupational safety and the working environment. All the Group enterprises implement the respective systems for managing and monitoring activities. We handle occupational safety risks on the principle that prevention is more important than dealing with consequences. The Group implements a system for registering dangerous situations, which is accessible to all the employees, partners and visitors to the production territory. An in-depth analysis and timely elimination of registered dangerous situations has prevented several potential work accidents.

Relying on the experience from the previous year, we treat widely spread epidemics and pandemics (e.g. COVID-19) as a separate risk which may cause complex problems for the enterprise:

a possible effect on the employees’ health;
an extensive spread of a disease may cause production downtime;
the measures taken to limit the wide spread of a disease may cause a decrease in the demand for oil.

A special focus is on the management of the risk of fraud. In order to reduce the threat of the risk of fraud and theft as well as the threat of possible damage, we primarily concentrate on preventive measures and increasing efficiency. We regularly perform random checks and increase the efficiency of process transparency. Great attention is paid to the detection of cases of fraud and to the speed of responding to such cases. The focus is on everyday work towards informing the Group’s employees and encouraging them to provide feedback, for which purpose various operative channels have been created.

Management of social and environmental risks

Production and environmental safety risks

Since VKG is a representative of the processing industry and a manufacturer of fuel containing carbon, significant environmental risks accompany the activities of VKG, which manifest themselves both in oil shale extraction, boosting its value, and marketing oil shale products. The goal of VKG is to become a pioneer in this branch of industry and set an example of how it is possible to resolve environmental risks within traditional production in a smart and rational way, using modern technologies. Within the past 17 years the Group has made an investment in a total amount of 90 million euros into different environmental projects, aiming at minimising its environmental footprint. Investments have mainly been focused on the efficient use of resources and the minimisation of the entailing environmental effects.

Risk management measures

Regulation monitoring: The Environmental Department performs the internal monitoring of regulations related to the environment – amendments to laws and directives are being monitored on a daily basis.
Keeping up to date with the industry trends; being represented in decision-making processes: VKG participates in all possible workgroups via the Estonian Chemical Industry Association.
Timely investments.
Engagement of stakeholders and timely notification and information exchange.

Risks related to people

The Group’s activities directly depend on its employees. The lack of a sufficient number of qualified employees, particularly in the area of engineering and technology, may cause risks related to labour deficit. Competition in the Estonian labour market may grow tighter, as there is a shortage of qualified specialists. Inability to attract new qualified employees and/or retain the existing qualified employees may have a negative effect on the attractivity of the Group as an employer. The demand for and the expenses incurred on qualified employees are growing as expected, largely reflecting the interest of other industries and state projects in them.

Risk management measures

The Group offers safe jobs and a competitive salary, participation in large-scale projects and interesting work tasks and trains its employees under special programmes. We take additional measures to reduce labour turnover and encourage employees to engage in self-development.
The enterprise identifies the existing key employees and talents and creates a development programme for them in order to ensure the consistency of knowledge. We participate in the development of the study programmes of areas of specialisation of interest to us at TalTech.
Scholarships for TalTech students in order to motivate them to stay at their homeplace.

Risks related to the local community

The risk that the way of thinking in the community becomes increasingly greener and opposes the production of fossil fuels. Social unacceptance may affect the activities and reputation of the enterprise and cause difficulties in implementing investment projects and recruiting employees.

The risk that the local community does not support the new development projects of the enterprise and the expansion of the industry. In order to hedge this risk, we communicate openly with the local residents and hold regular meetings with initiative groups, in the course of which we describe the directions of development and discuss environmental matters. We make extensive investments into the improvement of the living environment, e.g. into the improvement of ambient air quality in the city of Kohtla-Järve. At the same time, it is important to note that the integration of the oil shale industry in socio-economic development and their mutual effect are characteristic features of the Ida-Viru region. The oil shale industry is one of the largest employers in the region – approximately 7,300 people are directly employed in the sector, but many times more are indirectly involved. The sector also offers a salary that is above the average in the region. For the people living here, the presence and development of the sector therefore mean a confidence in their future and a stable income which ensures everyday subsistence and a sense of security.

Internal audit

Internal audit plays a crucial role in enhancing the efficiency of the management of the Group and in financial activities.

The company has an internal control system which ensures:

risk minimisation;
continuity of operations of the company, highest possible efficiency and sustainability and opportunities for development, including adjusting the operation of the company in due course according to changes in the internal and external environment;
a uniform and systematic methodological approach and high-quality information and analytical support to management decision-making;
resolving conflicts of interests emerging during the operation of the enterprise in due course.

Combating corruption

Viru Keemia Grupp manages all of its business processes in an ethical and responsible manner. The Group does not tolerate any corruption, including giving and accepting bribes.

VKG has developed and approved the Procedure for Avoiding Conflicts of Interest which is mandatory for all the employees of the Group and its subsidiaries, regardless of their position.

The Procedure determines the definition of a conflict of interest and other terms and definitions related to the fight against fraud and tasks the senior management with developing a uniform ethical standard on the unacceptability of any forms and manifestations of corruption.

The Procedure lists the methods and procedures used in combating fraud and corruption in the Group – including a hotline, the organisation of investigations, and a call to act responsibly, reporting violations. The document also contains the principles of cooperation with officials, accepting and making gifts, representation expenses, and financial relations with third persons.

Three major corruption risks identified by VKG, together with the measures used for hedging the risks:

Giving bribes to ensure the interests of the Group - VKG is a responsible and transparent enterprise which has established zero tolerance towards corruption and bribery.
Accepting bribes in choosing suppliers and cooperation partners - the Group has established a procurement policy the aim of which is to avoid swayed procurements and always choose the most favourable cooperation partner for the Group. Compliance with the procurement policy is regularly monitored.
Conflicts of interest of executive employees in representing the interests of the enterprise - The Group has developed a procedure for the submission of reports of economic interests, pursuant to which executive employees have to report their holdings in and connections to companies outside the Group. It is forbidden for Management Board members to provide competition in any area of activity of VKG, unless the Supervisory Board has granted its prior written consent to that.

The Group has a special confidential channel (vihje@vkg.ee) through which any employee or third person can report violations related to the activities of the Group, let it be issues related to corporate management and corporate ethics, compliance with human rights, work organisation, safety, protection at the workplace, quality of goods and services, or any other matters of corruptive nature. There were no confirmed cases of corruption during the reporting period.

vihje@vkg.ee

Report processing

Cooperation with stakeholders takes place via feedback channels which allow stakeholders to express their opinion or file complaints. One such channel is the hotline for reporting corruption, fraud and violations of law. The hotline is a tool for exchanging information in the Group and receiving feedback from stakeholders.

Reports may be sent to the hotline by e-mail or phone or via the webpage. The confidentiality of the person making the report is guaranteed in the use of any of these communication channels.

Anyone can use the hotline, anonymously, if wished. All the reports are handled individually and after an objective and comprehensive review a decision is made and feedback is given. The reports are checked by the representatives of our subunits – personnel specialists, lawyers and production safety employees. We are interested in our employees/partners actively using the hotline and being aware of its possibilities.

Compliance with human rights

VKG builds its activities on compliance with human rights and ensuring equal opportunities and labour law. We strive to create a working environment free of bullying and do not allow discrimination on the basis of nationality, gender, age or any other attributes. We expect our employees to treat each other with courtesy and respect. We do not use child labour or forced labour. The Group respects the employees’ right to form voluntary associations to protect their rights and interests, including the right to form trade unions, and to join such associations. In the area of human rights, we responsibly comply with legal requirements and the standards of international law.

The Group’s human rights positions are established in the following documents:

Personnel Policy;
Procedure for Combating Conflicts of Interest;
Industrial and Environmental Safety and Work Protection Policy.

Data security

The Group has in place a document entitled “Procedure for Processing Personal Data”. In addition, we also have 7 simple principles for responsible data processing, which are available to all employees on our internal website, and we have also covered this topic in the Group’s internal newsletter. This topic is also covered in the Code of Ethics, with specific instructions for all employees. The Group’s subsidiaries most involved in the protection of personal data are those providing network services to customers – VKG Soojus and VKG Elektrivõrgud. These companies also have specialists responsible for personal data protection. In order to ensure data security, the Group has established a secure IT network that meets all the requirements, and has trained data processing staff.

Disclosure of information

An important part of the management system of Viru Keemia Grupp is transparency and the disclosure of information, which is at the same time in balance with the protection of the Group’s trade secrets and other confidential information.

Our objective is to present timely and regular information about our activities to all the persons interested in receiving it.

The main principles of information concerning our activities include openness, reliability, operativity, timeliness and accessibility.

The main means of transmitting information include the Group’s official webpage and the webpages of the subsidiaries as well as social networks such as Facebook, Instagram and LinkedIn.

The main information channels that have found a wide audience include the Group’s official page on the Internet, the annual report ning the social responsibility and sustainable development report. The homepage and the reports provide news and information about important events as well as financial and production indicators.

In order to make information equally accessible to all the stakeholders, we publish information on the Group’s homepage in Estonian, English and Russian (the annual report is available in Estonian and English, while the social responsibility and sustainable development report is available in three languages).

Cooperation with the media

Viru Keemia Grupp supports active cooperation with the representatives of the media. Cooperation with the media is regulated by the Procedure for Media Relations.

The main objectives of the disclosure of information are:

to provide high-quality and fact-based information about the Group’s activities;
to shape and support the Group’s reputation;
to build an equal and partner-based dialogue with the representatives of mass media, the authorities and the social organisations related to the Group’s area of activity.

VKG’s Public Relations Department operatively responds to enquiries from the representatives of the media, providing thorough and accurate information about the Group’s projects and commenting on important cross-sectoral topics.

International management systems

The enterprises undergo regular monitoring of the fulfilment of the objectives of the quality management system, hold internal audits and external audits by an independent certification body. In the framework of implementing the best practices, new solutions and best practices are also sought in quality management.

The Group’s companies use international ISO and OHSAS management systems, as shown in the table below.

	ISO certificates (environmental and quality management systems)	OHSAS certificate (occupational health and safety management system)
VKG	ISO9001, ISO14001	-
VKG Oil	ISO9001, ISO14001, ISO50001	ISO45001
VKG Kaevandused	ISO9001, ISO14001	ISO45001
VKG Energia	ISO9001, ISO14001, ISO 50001	ISO45001
Viru RMT	ISO9001
VKG Logistika	ISO9001, ISO14001	ISO45001
VKG Soojus	ISO9001, ISO14001	ISO45001
VKG Elektrivõrgud	ISO9001	ISO45001

Recertifications and interim audits of Group companies during the reporting period

VKG Oil

certification of the energy management system in accordance with standard ISO 50001,
regular external audits of the quality management system and the occupational health and safety management systems (in accordance with standards ISO 9001, ISO 14001 and ISO45001) and recertification in 2021,
transition audit of the chemistry laboratory upon transition from standard EVS-EN ISO/IEC 17025:2006 to standard EVS-EN ISO/IEC 17025:2017 and the accreditation of the chemistry laboratory of VKG Oil in accordance with standard EVS-EN ISO/IEC 17025:2017.

VKG Kaevandused

ISO 9001 quality management systems,
ISO 14001 environmental management systems,
ISO 45001 occupational health and safety management systems.

VKG Energia

ISO 9001 quality management systems,
ISO 14001 environmental management systems,
ISO 50001 energy management systems,
ISO 45001 occupational health and safety management systems.

Viru RMT

ISO9001;
EN ISO 3834-2 quality requirements for fusion welding, recertification,
EN 1090-2 execution of steel structures and aluminium structures - Part 2: Technical requirements for steel structures, recertification,
EN ISO/IEC 17011 supervision of the accreditation of the calibration laboratory, recertification.

VKG Elektrivõrgud

ISO 9001 quality management systems,
ISO 45001 occupational health and safety management systems.

VKG Soojus

ISO 9001 quality management systems,
ISO 14001 environmental management systems,
ISO 45001 occupational health and safety management systems.

Supply chain management

The priorities in VKG’s purchasing activities include the openness of information, the absence of discrimination and unjustified competition restrictions with regard to the parties in the purchasing process, and the creation of long-term relationships with suppliers.

The Group’s principles in communicating with suppliers:

transparency,
competition,
equality,
mutual securities,
confidentiality,
openness of information.

In purchasing works, services, materials and equipment, the Group uses competition between suppliers. The Procedure for Purchasing Goods, Works and Services applies at the Group level. It is the basic document in planning and performing purchase procedures and selecting suppliers.

The selection of and cooperation with suppliers is based on an integrated management system which is in conformity with standard ISO 9001.

The Purchase Division is responsible for all the purchases made by the Group and its subsidiaries. In order to achieve the necessary level of competition, the Purchase Division may conduct a public pre-qualification procedure to create a database of potential purchase participants which would include companies that are capable of performing works, providing services and supplying goods in accordance with the requirements established for production processes, quality and safety and the results of work and services. Potential participants, whose qualification meets the required level, may be invited to participate in future purchase tenders.

Main requirements for participants in procurement competitions:

conformity with the main requirements for participants, which are specified in the Procedure for Purchasing Goods, Works and Services;
experience, production capacity and the availability of qualified labour for the production (supply) of predefined types of goods, the performance of predefined types of work and the provision of predefined types of services at the necessary quality level;
solvency;
positive corporate financial and reputation value.

Reporting period in 2020

513

competitions organised

2102

tenders received

64.5

million euros in purchases

Reporting period in 2021

585

procurements organised plus 321 small procurements

2676

tenders received

136

million euros in purchases

Cooperation with stakeholders

Viru Keemia Grupp constantly cooperates with stakeholders, holding dialogues for the purpose of analysing the internal and external social environment and taking into account the Group’s strategic objectives and the priorities of the stakeholders. Cooperation with stakeholders is aimed at achieving the goals of sustainable development and mapping the expectation and common interests of the parties. We have selected a number of target groups whose interests are notably related to our activities and may have a significant effect on the achievement of our strategic objectives. We see a special importance in involving the local community in development projects. A good example of this involvement is the development of a bioproduct production complex, which we started last year and which we introduced by organising meetings with local residents in different rural municipalities.

Stakeholders are organisations and individuals for whom the Group’s activities, products or services may have a considerable effect or whose activities may have an effect on the achievement of strategic objectives.

Principles of cooperation with stakeholders:

respect for the interests of the parties;
constructive cooperation;
transparency of information concerning the Group’s activities;
regularity of joint activities;
fulfilment of obligations.

Main mechanisms of cooperation with stakeholders:

business contacts, cooperation contracts, and agreements;
work-related meetings and presentations;
the Group’s communication system;
public hearings;
joint workgroups;
surveying and studying the opinions of employees and clients;
membership in social and expert associations;
conferences and roundtables;
reporting.

Main stakeholder groups:

shareholders;
employees;
clients;
suppliers and partners;
state and local government institutions;
the local community;
NGOs and civic associations;
professional unions.