GRI Index: G4-13
Our approach to reporting
We present the ORLEN Group’s Annual Report, prepared as an integrated report. This is our second integrated report. The first one focused on the presentation of PKN ORLEN and selected aspects of the ORLEN Group’s business. The present document shows interactions and interrelations between the financial and non-financial aspects of the ORLEN Group’s operations. As such, this report provides a comprehensive and coherent overview of the Group’s activities, business model, strategy, value creation process and financial performance from the point of view of all stakeholders. To successfully achieve this objective, we have structured the layout and content of the document based on the International Integrated Reporting Council (IIRC) and Global Reporting Initiative (GRI) guidelines. The report also reflects the latest directions in the EU legislation on disclosure of non-financial and diversity information.
Experience in reporting
Reporting is a constant and important part in the process of communicating information on the ORLEN Group’s activities. Communication and dialogue with the environment play a vital role in the ORLEN Group’s CSR Strategy for 2015−2017. Reports are issued on an annual basis and are continuously evolving to reflect changes within the ORLEN Group and in its environment.
Until 2014, we published annual reports and CSR reports separately. Since its inception, the PKN ORLEN has published 14 annual reports and 10 corporate social responsibility (CSR) reports. Since 2008, we have produced our CSR reports in line with the Global Reporting Initiative standards. Until 2013, ecology and environmental reports were issued as separate publications.
In August 2015, PKN ORLEN published its first Integrated Report, covering 2014.
Integration is a tenet of our approach to reporting, but it also underlies certain efforts made by the ORLEN Group to understand and meet the expectations of our stakeholders:
- integration through our business segments,
- integration means caring about the environment in the course of day-to-day production, logistics and distribution processes,
- integration means developing all initiatives which help our employees maintain a healthy work-life balance,
- integration means getting employees, customers, suppliers and local communities involved in building a strong market position and finding innovative solutions.
The Integrated Report, which has superseded the annual and CSR reports published every year, presents interactions and interrelations between the financial and non-financial aspects of the operations of PKN ORLEN and selected, representative companies of the ORLEN Group. It reflects global standards and trends in corporate reporting, promoted by organisations such as the International Integrated Reporting Council (IIRC). These guidelines, published in 2011, encourage firms to abandon performance reporting based strictly on their organisational structure in favour of a more dynamic and multidimensional approach to communication with stakeholders. Integrated reporting is a way of communicating and an organisation’s communication tool which demonstrates how the organisation’s strategy, corporate governance and performance, in the context of its environment, allow it to create value in various time horizons.
'Integrated thinking leads to integrated decision-making and actions that consider the creation of value over the short, medium and long term.' (IIRC Framework).
The Report’s new formula followed as a natural next step in adapting our reporting to market tendencies and stakeholders’ expectations, permitting the stakeholders to better understand the business model, strategies and risks, or to better identify business opportunities.
How we prepared this Report
One of the cornerstones of our CSR Strategy is the objective of being perceived as a CSR leader by our Stakeholders. To that end, we have committed to implementing a number of initiatives and measures, including the adoption of integrated reporting. This Report is the second such publication, but the first one to cover the entire ORLEN Group, and it is another step towards improving the quality of our reporting.
Integrated reporting is a new method for communicating our business model. Preparation of an integrated report includes performing analyses and collecting information which is of key relevance to the Group and its Stakeholders. As a result, a reliable Integrated Report is compiled, which, among other things, provides information on how the business strategy pursued by the Group and its risk management system translate into the Company’s value creation over time, taking into account the Company’s environmental impact. This Integrated Report presents the activities of the ORLEN Group in 2015, shows results and effects of their operations, and the key aspects of the Group’s financial and non-financial performance vital to value creation.
No information presented in previous Reports has been restated. Furthermore, this Integrated Report has been externally assured by Deloitte, a reputable audit firm.
Significant changes in the organisation’s size, structure, ownership, or its supply chain during the reporting period
In the reporting period, there were several material changes affecting the size, structure and ownership of the ORLEN Group, including:
Moving forward with its plan to consolidate the refining assets, in 2014 Unipetrol acquired a 32.4% interest in Česka Rafinérská from ENI of Italy. In May 2015, following clearance from the Czech anti-trust authority, the Unipetrol Group closed the share acquisition process to become the sole owner of Česka Rafinérská’s refineries, which enhanced availability of production capacities and secured feedstock supplies for its petrochemical segment. As a result, the Unipetrol Group’s total annual production capacity rose to 8.7 million tonnes.
Work was also conducted on the merger of Benzina and Polymer Institute Brno with Unipetrol RPA, which will ultimately serve as the Unipetrol Group’s operational centre, in charge of key business processes. The merger took effect on January 1st 2016.
In 2015, the Group was also involved in the process of merging Mogul Slovakia with Unipetrol Slovensko, both of which trade in fuels, oils and lubricants manufactured by the Unipetrol Group refineries.
On January 5th 2015, the merger of Rafineria Trzebinia, as the acquirer, with Rafineria Nafty Jedlicze, Fabryka Parafin Naftowax and Zakładowa Straż Pożarna, as the acquirees, was registered. The merged company was renamed as ORLEN Południe, though its strategy remained unchanged and continues to focus on the new Group’s key segments, which are production and sale of biofuels, biocomponents, paraffin waxes and solvents.
On March 1st 2015, agreements between ORLEN Południe and ORLEN Asfalt for lease of the Trzebinia bitumen plant (owned by ORLEN Asfalt) and assumption of all related functions took effect.
In 2015, as part of its efforts to integrate production assets, PKN ORLEN acquired from ORLEN Asfalt its Płock-based production assets and the related logistics system. The acquisition helped improve the operating efficiency of the Group’s activity in this area, and also enabled ORLEN Asfalt to focus on developing its business in Poland and abroad.
In 2015, PKN ORLEN acquired from ORLEN OIL its Płock-based production assets (Lubricate Blending) and the related logistics system. The transaction helped improve the operating efficiency of the Group’s activity in this area and enabled ORLEN OIL to develop its business, including to effectively implement its sales strategy in its home markets.
In addition, with a view to improving the effectiveness of the decision-making processes, simplifying structures and enhancing the efficiency of sales and distribution of oils and lubricants, ORLEN OIL was merged with Platinum OIL and took over all of its assets.
In 2015, the multiple-step process of remodelling the ORLEN Group’s fuel wholesale business was completed. The first step consisted in ORLEN Paliwa taking over from PKN ORLEN the wholesale of fuels and fuel oil to some of the small and medium-sized enterprises and wholesalers. The next step was the acquisition of ORLEN Paliwa by ORLEN PetroTank. The merged company was renamed as ORLEN Paliwa. That was followed by the acquisition of ORLEN Gaz. These changes allowed ORLEN Paliwa to leverage economies of scale in logistics and marketing, and to develop a competitive, comprehensive and quality sales offer.
As part of centralization and outsourcing of the distribution and logistics functions, centralization of supplies to the PKN ORLEN service stations was completed. At present, ORLEN Paliwa directly supplies fuels to all PKN ORLEN service stations in Poland.
The ORLEN Group has been consistently developing its hydrocarbon exploration and production segment. In 2015, PKN ORLEN acquired 100% of shares in FX Energy, thus adding to its asset portfolio in Poland an interest in seven producing fields. The Group also acquired from Kicking Horse Energy production assets in Canada, mostly in the Kakwa region, Alberta. The acquisition increased the Group’s 2P hydrocarbon reserves and production in Canada. As at the end of 2015, production from the assets in the Kakwa region was over 4,500 boe/d. The effects of operation of the acquired production assets will be accounted for starting from 2016.
Following the acquisitions of Kicking Horse Energy of Canada and FX Energy of Poland, the ORLEN Group now holds total oil and gas reserves of 97 Mboe (2P).
In the reporting period, there were no other significant changes in the feedstock supply chain. Oil supplies from all directions proceeded as scheduled, and their safety and continuity were guaranteed by two long-term agreements, which covered over 60% of total supplies. PKN ORLEN supplies oil to its refinery in Płock and to three ORLEN Group refineries: in Litvínov and Kralupy in the Czech Republic, and in Mažeikiai in Lithuania. Crude oil was transported to PKN ORLEN mainly through the Druzhba pipeline and by sea (and further on from Gdańsk through the Gdańsk-Płock pipeline). Crude oil for the Płock refinery was sourced primarily from Russia, but also from Saudi Arabia, Kazakhstan, Norway and the United Kingdom. Crude oil for the Mažeikiai refinery were delivered (through the terminal in Būtingė) mainly from Russia, as well as Algeria, Azerbaijan, Iraq, Kazakhstan and Nigeria. The Unipetrol Group received the feedstock chiefly through the southern section of the Druzhba pipeline (Litvínov) and the TAL and IKL pipelines (Kralupy). Supplies for the refineries in the Czech Republic originated from Russia, Algeria, Azerbaijan, Kazakhstan and Libya.
Natural gas was supplied under PKN ORLEN’s long-term contract with PGNiG as well as contracts with alternative suppliers. The ORLEN Group continued to take steps to ensure stability of feedstock supplies and to lower its natural gas procurement costs, also by diversifying supply sources. In 2015, more than 20% of the ORLEN Group’s natural gas was procured from alternative suppliers.
Definition of reporting aspects
For financial reporting purposes, we apply International Financial Reporting Standards (IFRS). In non-financial reporting, we follow the Global Reporting Initiative (G4) guidelines. In our work on PKN ORLEN’s first integrated report, we followed the 2013 guidelines of the International Integrated Reporting Council (IIRC). Both the GRI and IIRC guidelines focus on the selection of the key reporting aspects that are most relevant to a company’s operations, its impacts, and stakeholder expectations at a given moment.
The Global Reporting Initiative offers an international CSR and sustainability reporting standard for enterprises. It provides a consistent framework for reporting on sustainability aspects, which is applied worldwide. The Framework and Guidelines set the standards and define indicators which may be used by corporations to measure and report their economic, environmental and social performance. In 2013, the GRI published its most recent and comprehensive CSR reporting guidelines − the G4, which extended the scope of CSR reporting in the area of stakeholders’ engagement in the reporting process, and placed a greater emphasis on the role of the value chain and selection of the most relevant information to be included in the report. In 2014, PKN ORLEN published its “Corporate Social Responsibility Report 2013. Ten years of CSR reporting“, the Company’s first report prepared in keeping with the GRI G4 guidelines.
According to the IIRC, integrated reporting is a process that results in communication by an organization, most visibly a periodic integrated report, about value creation over time. An integrated report is a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term (Source: Consultation draft of the international framework, International Integrated Reporting Council, April 2013).
PKN ORLEN also meets the requirements of Directive 2014/95/EU “as regards disclosure of non-financial and diversity information by certain large undertakings and groups.” Pursuant to the Directive, starting from January 1st 2017, listed companies in Poland will be obliged to prepare non-financial reports disclosing information on policies, risks and outcomes as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues. The new EU law is designed to enhance the transparency, relevance and comparability of non-financial disclosures. The matters addressed in the Directive are also covered in the “Core Values and Standards of Conduct of PKN ORLEN S.A.”
The process of defining relevant reporting aspects at the ORLEN Group included the following activities:
- Analysis of perception studies, media coverage of the ORLEN Group and internal analyses, the purpose of which was to identify key financial, social and environmental aspects of the ORLEN Group’s operations.
- The final list of relevant reporting aspects was prepared in consultation with members of PKN ORLEN’s CSR Strategy Committee.
- Next, various internal and external stakeholders were included in the process, among them employees of PKN ORLEN and of the ORLEN Group companies representing various business areas, trading partners and members of local authorities. They were requested to fill in surveys designed to determine the relevance of the individual aspects to the ORLEN Group and its environment.
The ORLEN Group’s Stakeholders, both internal and external, were engaged in the process of structuring the contents of the report. Just like a year earlier, they expressed their opinions through surveys. Internal Stakeholders, that is employees of the ORLEN Group, found emissions, water and wastewater management to be particularly relevant environmental aspects. Matters related to occupational health and safety turned out to be among the most relevant social aspects. External Stakeholders found product responsibility to be one of the most relevant environmental aspects. Impact on the local environment was ranked among the numerous vital social aspects. According to external Stakeholders, issues such as professional development of employees, diversity and equal opportunity were of moderate relevance. Both internal and external Stakeholders identified safety of industrial processes and the Company’s financial standing as relevant economic aspects. Among relevant social aspects, they pointed to responsibility towards customers, compliance with ethical standards and transparency in reporting and communication with stakeholders.
This multiple-step process of defining the relevant aspects led to developing the ORLEN Group’s Relevance Matrix.
In our work on this Report, we also took into consideration the opinions on the 2014 Integrated Report provided by its users through an online survey.
As part of our work on this Integrated Report, we again reviewed the ORLEN Group’s Stakeholder Map. Our analysis showed that the stakeholder base has been rather stable for many years. Internal consultations and the survey allowed us to identify those ORLEN Group Stakeholders who at the next stage of the map review were classified as key or important stakeholders. Representatives of various areas of the ORLEN Group’s business were involved in the review. As a result, the “ORLEN Group companies” were removed as a Stakeholder as this year’s Report covers the ORLEN Group. This means that PKN ORLEN and other ORLEN Group companies are now in the “Employees” stakeholder group. Furthermore, we also found it justifiable to add three new Stakeholders, namely “Non-Polish Regulators (i.e. the EU, the United Nations)”, “Certification Bodies (e.g. ISO, CIPS)”, and “Capital Market Analysts”.
ORLEN Group Stakeholder Map
The ORLEN Group employs approximately 20,000 people.
We believe in social dialogue based on independence of the parties, legal compliance, trust, willingness to compromise, and observance of the rules. The rules of social dialogue are founded on internal regulations and generally applicable laws, which facilitates development of constructive and lasting solutions in partnership with employee representatives.
PKN ORLEN’s share capital comprises 427,709,061 ordinary bearer shares with a par value of PLN 1.25 per share. Largest shareholders: the State Treasury, NationaleNederlanden Pension Fund, Aviva Pension Fund.
The ORLEN Group sells its products to customers in around 60 countries across 4 continents. The ORLEN client base includes both private customers (such as motorists) and institutional clients representing virtually all industries – including the chemical, automotive, aviation, power, construction, packaging, agricultural, and food production sectors.
Local populations living close to our production plants, storage infrastructure and locations where the ORLEN Group carries out its exploration and production activities. It is our closest environment, often including its employees, trading partners and their families. Identification of their needs through an on-going dialogue, as well as respect and care for their living conditions are, on the one hand, a test of the ORLEN Group’s social responsibility, and also the cornerstone of sustainable development.
In 2015, the ORLEN Group cooperated with over 22,000 suppliers; over 12,000 procurement processes were carried out, including more than 1,500 e-auctions. What we buy and who we buy it from is of major importance to the Company. Therefore, we have developed long-standing partnerships with our suppliers to fully meet the ORLEN Group’s requirements on an on-going basis.
The largest shareholder of PKN ORLEN, holding 27.5% of total voting rights at the General Meeting, with certain rights reserved in the Company’s Articles of Association and in laws of general application, including the right to exercise over 10% of total voting rights at the General Meeting, and the right to appoint and remove one member of the Supervisory Board. Also, one member of the PKN ORLEN Management Board is appointed and removed by the Supervisory Board at the request of the minister competent for the State Treasury.
Further, pursuant to the Company’s Articles of Association, as long as the State Treasury has the right to appoint a member of the Supervisory Board, passing a resolution to approve the disposal of or creation of any encumbrance over shares in Naftoport Sp. z o.o., InowrocławskieKopalnie Soli S.A. and in the company to be established to handle pipeline transport of liquid fuels requires that the Supervisory Board member appointed by the State Treasury vote in favour of such resolution.
The State Treasury as the Company’s shareholder may also have certain special rights under laws of general application. Such rights are in particular provided for in the Act of March 18th 2010 on special rights vested in the minister competent for the State Treasury and how those rights should be exercised at certain companies or groups of companies operating in the power, crude oil and gas fuels sectors.
For more detailed information on the Shareholders of PKN ORLEN having special control powers and on limitations of voting rights, see Section 7 of the Directors’ Report on the Company’s operations in the year ended December 31st 2015.
A natural person or legal entity being a party to a transaction with the Company. In practice, our trading partners include both the ORLEN Group’s suppliers and customers buying our products or services. Stable and partnership-based relations with all of the ORLEN Group’s trading partners contribute to the value growth and build trust in the Group companies as market participants.
Entities against which the ORLEN Group’s market position is measured and assessed in individual operating segments.Other market participants which not only stimulate PKN ORLEN to seek new competitive advantages but also, jointly with us, develop business rules and industry standards.Therefore, the Company is open to cooperation with its entire competitive environment and joint development of solutions benefiting all market players. Given the international scale and fundamentals of the ORLEN Group’s business, our key competitors include companies operating in the refining and petrochemical sector and fuel retail chains and Central and Eastern Europe.
Organisations playing an increasingly important role in social and economic development of any country as an essential complement to state institutions. Strengthening their position through the transfer of knowledge and financial support is in the public’s best interest. The ORLEN Group is active in that sector, both by supporting individual NGOs and by running its own corporate foundations.
The main channel used by the ORLEN Group to communicate with the stakeholders, disseminate information on its achievements, plans and performance, and address any business-related enquiries and doubts. The media represent all Stakeholder groups; therefore, we attach great weight to quality, open and active relations with the media, particularly in the context of the growing importance of access to information.
Given the scale and scope of our business, this group is very broad and diversified, including the anchor shareholder, market regulators, public services, and local government administration in locations where we conduct operations. Irrespective of the level of contacts and the areas of activity, the partnership between the ORLEN Group and public administration is always based on an open dialogue and unconditional respect for the law.
Dealers and franchisees
Dealers and franchisees contribute to the steady strengthening of the ORLEN Group’s leading position in the retail fuel market. This group of stakeholders is also very important to customer perception of our brand. Our dealers and franchisees are highly diversified in terms of the scale and scope of their operations and business models. The key to our success, understood as the ORLEN Group’s growth on par with the growth of our partners, is long-term cooperation underpinned by partnership and highest business standards.
Given the state-of-the-art technologies employed by the ORLEN Group, as well as our extensive industry know-how and the position of Poland’s business leader, universities are an extremely important group of our stakeholders. The ORLEN Group focuses primarily on building partnerships with technical universities, as they will be one of the main drivers of the country’s future modernisation and new competitive advantages. What is important, the ORLEN Group has teamed up not only with Polish universities, including the AGH University of Science and Technology and Warsaw University of Technology, but has also established educational centres abroad, including a modern R&D centre in Litvínov, the Czech Republic.
Industry and consumer organisations
We have partnered with a number of industry, expert and business organisations and associations to build long-lasting relations with our business environment.
Through its engagement with industry organisations, the ORLEN Group has access to up-to-date information on the legislation governing the fuel and chemical sectors both in Poland and in the European Union, and to international research and technological solutions which may be applied by the ORLEN Group.
Business organisations, whose inclusiveness and comprehensive nature support the building of economic communities’ position and prestige, provide a forum for exchange of experiences and in-depth discussion of a wide variety of problems faced by the business community, and also serve as important facilitators of functioning of the business community.
Non-domestic regulators (i.e. EU, UN)
Global and EU institutions offer a material contribution to the shaping of relations with the ORLEN Stakeholders, set standards and regulate market practice, thus delineating directions for the ORLEN Group’s activities. In the area of corporate social responsibility alone, the key pillars are sustainable development and responsible business adopted by the UN, as well as EU regulations, including Directive 2014/95/UE (which will take effect on January 1st 2017 and address disclosure of non-financial and diversity information) or the social responsibility standard ISO 26000.
Institutions supporting businesses in standardising and optimising their operations.Through close cooperation with these institutions and thanks to their recommendations, the ORLEN Group obtains external confirmation of the standards it applies in a number of areas of its business, while our customers and trading partners may be certain that they deal with a proven and reliable organisation.
Financial institutions (capital suppliers and investors)
Banks, insurance companies, and stock exchange institutions are important market participants as they determine the market’s shape, dynamics and directions of development. Winning and maintaining the confidence of financial institutions is one of the key factors for market success. Therefore, the ORLEN Group builds its relations with those institutions based on full transparency and long-term partnership.
Capital market analysts
Stakeholders with unique and broad knowledge of the business; they often act as liaisons between the Company and capital markets. Analysts’ recommendations and assessments are likely to have a material effect on the Company’s standing. Aware of the enormous significance of the efficiency of communication market analysts, the ORLEN Group has for years been setting the highest global standards of access to information and transparency in reporting on its day-to-day operations.
Our relations with the Stakeholders are built on the principles of responsibility and dialogue. The way to build those relations is defined in the “PKN ORLEN Core Values and Standards of Conduct”, in which we declare that “We firmly believe that open and honest communication helps foster good relations with stakeholders, thereby enhancing the Company’s competitive advantage and value.” We want to ensure that our relations with trading partners are founded on integrity, transparency, mutual respect and professionalism. To ensure highest quality of stakeholder relations, the frequency and methods of communication are tailored to the characteristics and current expectations of each Stakeholder group. A number of such measures are described in this Report.
Concept and key functionalities
This Report is available only online. It is possible to generate a pdf file containing all the entire contents of the Report
The idea and contents of the ORLEN Group’s 2015 Integrated Report are based on the following four principles:
- Human factor
We have defined our key areas with the principle of integration in mind, which is reflected in the very structure of this Report:
Presentation of the ORLEN Group’s operations through its capitals – the financial, production, human, intellectual, social and natural capital. These capitals represent a resource which is accessible to the Company and which it draws on to create value.
Strategies, achievements and efficient organisation require more than just data and processes. Behind every decision and every success there are People, which is why we asked our key Stakeholders to voice their views for this Report.
Thanks to them, this document provides a fuller picture of how the Group creates value, makes decisions, manages risk and delivers results − as well as its prospects for the future.
The contents of this Report are not static.
Its pages are interlinked, forming a unique, chain-like structure.
Each sub-section is linked to:
The contents may be defined through different kinds of capital − whether financial, production, human, intellectual, social or natural .
This linkage enables easier access to information on capitals, which often overlap building the Company value in different areas.
- GRI G4:
Linkage to GRI G4 guidelines.
This Report presents non-financial data in compliance with the G4 version of the Global Reporting Initiative guidelines.
Each page contains information on the relevant GRI indicator, along with several other tools, such as the GRI search and the GRI table.
- Contents of previous Reports:
Selected internal pages link back to data from the Company’s previous Reports, allowing users to compare relevant data and trends over the past few years.
This Report contains a number of interactive tools facilitating access to contents, an interactive GRI Indicators Table, a glossary of economic and industry-specific terms, and an online survey.