ESG Risk Management

Climate risks for KMG are associated with the transition to a low-carbon economy and the physical impacts of climate change. These include:

Transition risks – tightening regulatory requirements, changes in technology, market risks, and reputational risks;

Physical climate risks – extreme weather events (floods, droughts) and chronic climate changes (water stress, rising temperatures).

In 2024, floods in KMG’s regions of operation, including Atyrau, Aktobe, and West Kazakhstan regions, led to a state of emergency, requiring urgent measures to minimize damage.

Potential Impact

Climate risks may lead to increased costs, reduced profitability, limited market opportunities, deterioration of employee health, and a higher likelihood of injuries. They may also impact demand for the Company’s products and the long-term sustainability of the business.

KMG is actively working to reduce climate risks, including:

• Implementing the Low-Carbon Development Program through 2060;
• Monitoring energy consumption and greenhouse gas emissions, and launching projects to reduce methane emissions;
• Conducting quarterly monitoring of subsidiaries’ action plans for the implementation of the Low-Carbon Development Program at the Corporate Center level;
• Purchasing international renewable energy certificates (I-REC);
• Exploring opportunities for carbon capture, utilization, and storage (CCUS);
• Developing hydrogen energy by assessing the potential for low-carbon hydrogen production;
• Analyzing the prospects for sustainable aviation fuel (SAF) production and the implementation of forest-climate projects;
• Developing measures to prepare for spring floods and prevent flooding of vulnerable areas (e.g., road erosion, damage to power lines, flooding of wells).

KMG continues to improve its climate adaptation measures, reducing the impact of climate risks on the Company’s operations.

KMG is exposed to the risk of negative environmental impact, including emissions of pollutants into the air, water and soil contamination, as well as increasing environmental regulatory requirements. Non-compliance with environmental standards may lead to stricter sanctions, additional financial costs, and damage to the Company’s reputation.

Potential Impact

The realization of environmental risk may lead to fines, excess payments, environmental remediation costs, and legal liability. Furthermore, a decline in environmental performance may negatively impact investment attractiveness and the long-term sustainability of the business.

To minimize environmental impact, KMG implements a comprehensive set of actions:

• Management of air emissions and reduction of flaring of raw gas;
• Implementation of water and waste management projects;
• Environmental monitoring and land reclamation;
• Application of best available techniques and automated emission monitoring systems;
• Preventive management of significant environmental impacts and engagement with stakeholders on environmental issues;
• In 2024, KMG developed and approved a Waste Management Standard and updated its Corporate Standard for Environmental Impact Assessment.

KMG continues to improve environmental protection measures, ensuring compliance with environmental requirements and reducing the impact of its operations on the environment.

Oil spills may occur due to violations of technological procedures, pipeline accidents, equipment failures, and challenging natural conditions in the Caspian Sea. Risk factors include shallow waters, high reservoir pressure at fields, the presence of hydrogen sulfide, and seasonal surface freezing.

Potential Impact

Oil spills can cause severe environmental damage, halt production processes, and result in significant financial costs for response and compensation efforts.

To minimize the risk of oil spills, KMG implements a range of preventive measures:

• Continuous monitoring of technological processes and equipment condition;
• Scheduled preventive maintenance of pipelines and equipment;
• Personnel training and oil spill response drills;
• Effective operation of the North Caspian Environmental Response Base;
• Monitoring of abandoned wells;
• Participation in working groups on accident prevention.

KMG continues to improve its oil spill prevention and response system, reducing potential environmental and financial risks.

KMG’s production activities involve a high level of hazard, creating the risk of accidents, explosions, fires, and other industrial disasters. Potential causes include equipment wear and tear, violations of technological processes, human error, and adverse external factors.

Potential Impact

Accidents at production facilities may result in injuries or fatalities, destruction of equipment and infrastructure, significant financial recovery costs, and environmental damage.

To prevent accidents, KMG implements a comprehensive set of measures:

• Preventive actions during well drilling operations;
• Regular maintenance and diagnostics of equipment;
• Industrial safety assessments and identification of potential hazards;
• Personnel briefings and training on safe equipment operation;
• Monitoring the implementation of industrial safety enhancement measures;
• Property insurance contracts to cover potential damages.

KMG continues to improve its systems for preventing and responding to technogenic risks, ensuring robust protection of personnel, equipment, and the environment.

The risk of occupational injuries is associated with non-compliance with occupational safety rules, violations of workplace discipline, and exposure to hazardous and harmful production factors. This may lead to accidents, loss of working capacity, and threats to employee life.

Potential Impact

• Occupational injuries may result in serious consequences, including:
• Deterioration of employee health, temporary or permanent disability;
• Reduced production efficiency and unplanned downtime;
• Financial losses related to compensation, fines, and legal claims;
• Reputational risks for the Company.

To prevent workplace injuries, KMG implements a systematic approach to occupational health and safety:

• Ensuring safe working conditions and introducing new technologies;
• Conducting regular safety briefings and training;
• Implementing behavior-based safety observation programs;
• Internal monitoring of compliance with occupational safety standards;
• Rolling out a near-miss reporting program through the “Qorgau” card system.

KMG is committed to reducing injury rates by ensuring safe working conditions and fostering a strong safety culture among employees.

KMG’s production activities involve exposure to adverse factors such as intoxication, pollution, vibration, noise, and significant physical strain. Prolonged exposure to these factors can lead to occupational diseases. There is also a threat of infectious disease outbreaks, including new virus strains, which may impact employee health and the stability of production processes.

Potential Impact

• Development of occupational diseases, temporary or permanent loss of employee work capacity;
• Increased illness rates and higher healthcare costs;
• Potential workforce reduction and decreased production efficiency;
• Risk of infectious disease spread affecting operational activities.

To reduce this risk, KMG implements the following measures:

• Regular workplace certification on working conditions;
• Mandatory medical examinations for employees;
• Occupational sanitary control and improvement of working conditions;
• Implementation of a health protection action plan for employees.

KMG continues to enhance its occupational health and safety system, minimizing the risks of occupational diseases and infectious threats.

This risk is associated with employee turnover, a shortage of specialists with the required competencies, and potential challenges in attracting and retaining qualified personnel. The shortage may be driven by a competitive labor market, workforce migration, and evolving professional requirements.

Potential Impact

Decreased efficiency and productivity of the Company;

Increased workload on existing staff, risking process disruptions;

Delays in the implementation of strategic projects;

Higher costs for recruitment, training, and onboarding of new employees.

KMG implements a comprehensive approach to attract, develop, and retain talent:

• Regular monitoring of turnover reasons and exit surveys;
• Employee satisfaction surveys on working conditions;
• Implementation of the “MANSAP” program;
• Improvement of incentive programs and working conditions;
• Creation of career opportunities and professional development programs.

KMG is actively addressing personnel risks by creating attractive conditions for employee growth and development.

This risk is associated with the possibility of terrorist and other violent acts targeting the Company’s personnel, contractors, and assets. KMG operates in regions where there may be security threats, necessitating measures to protect employees and facilities.

Potential Impact

Threats to the life and health of employees;

Disruption of operations and damage to Company assets;

Increased costs for security and infrastructure restoration;

Reputational and legal risks.

KMG implements a comprehensive set of safety measures:

• Inspection of security systems and updating of evacuation plans;
• Personnel training on anti-terrorism protection;
• Cooperation with law enforcement agencies;
• Emergency response drills and training;
• Monitoring of video surveillance systems and access control;
• Certification of facilities vulnerable to terrorism, in accordance with counterterrorism legislation.

KMG continues to enhance its employee and facility protection measures, reducing terrorism-related risks.

This risk is associated with the potential for social tensions, unauthorized strikes, and protest actions in regions where KMG operates. The main causes include employee demands for higher wages, improved social conditions, and stronger labor guarantees.

In 2024, 17 strikes were recorded in the Mangystau region, 11 of which involved KMG’s contractors. Despite the Company’s full compliance with its obligations to employees, social discontent remains a risk factor.

Potential Impact

Reputational risks and reduced public trust in the Company;

Potential disruptions to operations;

Increased operating costs related to resolving labor disputes;

Impact on the Company’s investment attractiveness.

KMG is taking a comprehensive approach to stabilize the social climate:

• Implementation of Roadmaps to improve working and living conditions in subsidiaries;
• Monitoring of social infrastructure and elimination of deficiencies;
• Support for healthcare workers and development of the social sector in the regions;
• Oversight of labor conditions in contractor organizations;
• Support for the socio-cultural development of the city of Zhanaozen;
• Development of transparent employment tools;
• Automation of the contractor database for real-time monitoring.

KMG continues to engage with employees and stakeholders to ensure social stability in the regions of operation.

Compliance risks are associated with potential instances of corruption, violations of legislation, and internal regulatory documents, which may result in financial losses, reputational damage, and legal consequences. Ensuring transparency in business processes and adherence to ethical standards is a key priority for KMG.

Potential Impact

Financial losses and fines;

Erosion of trust from investors and partners;

Legal liability for the Company and its employees;

Reputational risks affecting the sustainable development of the business.

KMG implements a range of measures to prevent compliance risks:

• Conducting internal analyses of corruption risks and developing corrective actions;
• Regular anti-corruption monitoring and compliance audits;
• Review and update of internal regulatory documents;
• Promoting an anti-corruption culture among employees through training and awareness programs.

KMG continues to improve its compliance control system, ensuring transparency of business processes and minimizing the risk of legal violations.