Integrated Annual Report of LOTOS Capital Group 2015

In its relations with trading partners, Grupa LOTOS adheres to the principles of honest competition, openness to their expectations, and appreciation of people’s intellectual capital and competences. The LOTOS Group’s mission and system of values incorporate the principles of ethical, responsible and transparent business. 

By trading with due respect for the law and a sense of responsibility for the consequences of its actions, the LOTOS Group:

• Promotes attitudes based on a strong ethical culture and seeks to continuously improve of that culture, both internally and in relations with its external trading partners,
• Makes sure that employee rights are respected and that the employees are guaranteed safe and healthy working conditions,
• Seeks to reduce its adverse environmental impact through rational use of resources and use of environmentally friendly technological solutions,
• Remains objective and impartial in business relations, trying to avoid conflicts of interest and prevent malpractice.

In 2015, our key suppliers whose supplies accounted for more than 10% of the Group’s total revenue were VITOL SA of Switzerland, Rosneft Oil Company of Russia, and Tatneft Europe AG of Switzerland.

Supplier selection and evaluation criteria

All LOTOS Group companies must obligatorily use these clauses in contracts with suppliers. 

Aware of the importance of working with a local supplier base, we strive to partner with companies which offer the competencies we expect and meet our standards of cooperation. We seek to minimize the negative impact of fossil fuels in transport by sourcing 72% of the biocomponents (bioethanol and FAME) we use to produce our fuels from local suppliers.

• The data does not account for settlements with employees, tax settlements related to VAT, excise duty and income tax, settlements with the Social Insurance Institution, customs duties, stockholding fee, local taxes and charges, and payments for perpetual usufruct of land.
• Grupa LOTOS’ domestic spending includes purchases from related entities (e.g. LOTOS Petrobaltic, LOTOS Kolej, LOTOS Serwis, LOTOS Straż, LOTOS Ochrona, LOTOS Lab, etc.)
• It needs to be emphasized, though, that the products which are essential to the Group’s operations and represent the largest proportion of its procurement costs are not available in sufficient quantities in the local market understood as the whole of Poland (crude oil, petroleum products and specialist equipment), this being the reason for the low share of local spending in total spending.

Our procurement practices

The LOTOS Group companies (excluding LOTOS Petrobaltic) are not required to conduct their tenders in accordance with the provisions of the Public Procurement Act. Nevertheless, we have decided to internally impose a certain order in this respect and to internally regulate our procurement processes. We have put in place certain instructions, procedures and directives the purpose of which is to enhance the legal security and efficiency of our procurement processes. Furthermore, we have introduced standardized contract forms to facilitate and optimize the process of entering into and pursuing business relationships. 

In accordance with our internal procedure, each contract must contain corporate social responsibility clauses. The obligation to include such clauses in their contracts has also been imposed on other LOTOS Group companies by way of a relevant directive.

---

---

---

How we evaluate our suppliers

Supplier audits provide us with information on the degree to which our suppliers meet the quality requirements, as well as occupational safety and environmental protection standards, which are high on our list of priorities. With these audits we can be sure that all work is conducted in a safe manner, and we are also able to identify areas where improvement is needed. 

We realize that satisfying our expectations may be a demanding task for suppliers, and therefore we provide them with detailed and accurate information on all audited areas.

Plans for the future

At Grupa LOTOS, we are currently embarking on an analysis of the organization’s indirect environmental impact; the analysis will also cover our suppliers. We hope that the methodology we develop and the analysis we will carry out will provide us with a useful insight into our suppliers’ environmental impacts. As a result of these efforts, we should be able to more effectively manage the environmental impact across our entire supply chain.

In 2016, we intend to ask every new supplier to fill out a survey containing questions on human rights, employment policies, and responsible business management. In this way we want to check whether our new contractors’ value systems and business conduct vision are consistent with the LOTOS Group’s vision and CSR principles.

Rules of cooperation that are clear for all

We make every effort to ensure that the standards and rules of conduct we impose are comprehensible to the trading partners we work or want to work with. This is why we have published a catalogue of CSR clauses and other documents on our website for stakeholders.

The published documents include a Declaration of Cooperation with Trading Partners, an electronic version of the Code of Ethics, the Catalogue of CSR Clauses, the Policy for Counteracting Malpractice, and the current Corporate Social Responsibility Strategy. Other materials published on the website include standard contract forms most frequently used by the LOTOS Group that suppliers may use in their business.

Activities undertaken by the LOTOS Group as part of the efforts to evaluate suppliers’ employment practices, respect for human rights, or impacts on local communities also include regular meetings with the trading partners. During such meetings we present our principles and standards; by exchanging experience we improve their knowledge on responsible business management, thus also contributing to the consolidation of good practice in the market.

We want to work only with partners who make every effort to ensure compliance with the law, and therefore we communicate our requirements to potential suppliers already at the stage of announcing a call for offers.

Good practice: