MOL Hungarian Oil and Gas Public Limited Company (hereinafter: “MOL” or “Company”) has always been committed to implementing the highest standards of corporate governance structures and practices. This is not only with regard to national expectations but also with reference to the continually evolving and improving standards of good governance on an international level.
MOL Group Organization
- Strategic Operations and Development
- Compliance and Internal Audit
- Human Resources
- MOL Campus
- Exploration and Production
- Center of Business Excellence
- Information Technologies
- Consumer Services
- Industrial Services
- Ventures and Open Innovation Hub
- Corporate Communications and Marketing
MOL Hungarian Oil and Gas Public Limited Company (hereinafter: “MOL” or “Company”) has always been committed to implementing the highest standards of corporate governance structures and practices. This is not only with regard to national expectations but also with reference to the continually evolving and improving standards of good governance on an international level. As a result MOL is geared towards shareholders’ interests, whilst taking into account the interests of a broader group of stakeholders inevitably necessary to enhance the creation of exceptional value for MOL’s shareholders and society.
Among other things, the voluntary approval of the declaration on the Budapest Stock Exchange Corporate Governance Recommendations by the Annual General Meeting in 2006, before the official deadline, served as testament to the Company’s commitment to corporate governance. In addition, MOL made a declaration concerning the application of the corporate governance recommendations of the Warsaw Stock Exchange prior to the admission of its shares to the Warsaw Stock Exchange in December 2004. The Company submits its declaration on this topic to the Budapest Stock Exchange every year, reviews the compliance with the Recommendation of the Warsaw Stock Exchange and in case of any change, publishes it.
MOL’s corporate governance practice meets the requirements of the regulations of the Budapest Stock Exchange and the relevant capital market regulations. MOL also subjects its policies to regular review to ensure that they take account of the continually evolving international best practice in this area.
Shareholders (general meeting)
The general meeting is the supreme body of the Company consisting of the totality of shareholders.
The general meeting, as the main decision-making body, enables shareholders to make decisions on issues that are of a material nature concerning the operations of the Company, to approve actual corporate governance actions and to exercise effective governance and control rights.
Exercising the shareholders’ rights, general meeting participation
Voting rights on the general meeting can be exercised based on the voting rights attached to shares held by the shareholders. Each “A” Series share entitles its holder to one vote. The actual voting power depends on how many shares are registered by the shareholders participating in the general meeting.
Shareholders can exercise their right at MOL General Meetings either in person or by nominee. In addition, our company gives the opportunity to represent themselves through a Proxy card in accordance with the Articles of Association. An internet subsite containing materials for the general meeting serves to facilitate participation (https://molgroup.info/en/investor-relations/annual-general-meeting) which contains several information, including a location map, the conditions for participation, the general meeting documents, and the power of attorney templates.
Condition of participation and voting at the general meeting for shareholders is that the holder of the share(s) shall be registered in the Share Register. The depositary shall be responsible for registering the shareholders in the Share Register pursuant to the instructions of such shareholders in line with the conditions set by the general meeting invitation. According to Article 8.6 of the Articles of Association: „Each shareholder – at the shareholder’s identification related to the closing of the share registry prior to the next general meeting –, shall declare whether he, or he and any other shareholder belonging to the same shareholder group as specified in Articles 10.1.1 and 10.1.2 holds at least 2% of the Company’s shares, together with the shares regarding which he asks for registration.” If the conditions described in the previous sentence are met, the shareholder requesting registration is obliged to declare the composition of the shareholder group taking into account the provisions of Articles 10.1.1 and 10.1.2.
Furthermore, the shareholder shall, on the request of the Board of Directors, immediately identify the ultimate beneficial owner with respect to the shares owned by such shareholder. In case the shareholder fails to comply with the above request or in case there is reasonable ground to assume that a shareholder made false representation to the Board of Directors, the shareholder’s voting right shall be suspended and shall be prevented from exercising it until full compliance with the said requirements.
According to Article 10.1.1 of the Articles of Association: „No shareholder or shareholder group (as defined in Article 10.1.2 of Articles of Association) may exercise more than 10% of the voting rights with the exception of the organization(s) acting at the Company’s request as depository or custodian for the Company’s shares or securities representing the Company’s shares (the latter shall be exempted only insofar as the ultimate person or persons exercising the shareholder’s rights represented by the shares and securities deposited with them do not fall within the limitations specified here below).”
In accordance with Act V of 2013 on the Civil Code (hereinafter: “Civil Code”) the shareholders have the right to participate, to request information and to make remarks and proposals at the general meeting. Shareholders are entitled to vote, if they hold shares with voting rights. The shareholders having at least one per cent of the voting rights may request the Board of Directors to add an item to the agenda of the general meeting. Where a group of shareholders together controlling at least one per cent of the votes in the Company propose certain additions to the agenda in accordance with the provisions on setting the items of the agenda, or table draft resolutions for items included or to be included on the agenda, the matter proposed shall be construed to have been placed on the agenda if such proposal is delivered to the Board of Directors within eight days following the time of publication of notice for the convocation of the general meeting, and the Board of Directors publishes a notice on the amended agenda, and on the draft resolutions tabled by shareholders upon receipt of the proposal. The conditions to participate in the general meeting are published in the invitation to the general meeting. Invitations to the general meeting are published on the company website according to the Articles of Association. The ordinary general meeting is usually held in April, in line with the current regulations.
The ordinary general meeting, based on the proposal of the Board of Directors approved by the Supervisory Board, shall have the authority to determine profit distribution, i.e. the amount of the profit after taxation to be reinvested into the Company and the amount to be paid out as dividends. Based upon the decision of the general meeting, dividend can be paid in a non-cash form as well.
The starting date for the payment of dividends shall be defined by the Board of Directors in such way as to ensure a period of at least 10 working days between the first publication date of such announcement and the initial date of dividend distribution. Only those shareholders are entitled to receive dividend, who are registered in the share register of the Company on the basis of shareholders identification executed on the date defined by the Board of Directors and published in the announcement on the dividend payment. Such date relevant to the dividend payment determined by the Board of Directors may deviate from the date of the general meeting deciding on the payment of dividend.
Relationship with the shareholders
The Board is aware of its commitment to represent and promote shareholders’ interests, and recognises that it is fully accountable for the performance and activities of the MOL Group. To help ensure that the Company can meet shareholders’ expectations in all areas, the Board continually analyses and evaluates developments, both in the broader external environment as well as at an operational level.
Formal channels of communication with shareholders include regular announcements, the annual report, the half-year report and quarterly earnings reports, furthermore extraordinary announcements. Regular and extraordinary announcements are published on MOL’s website, on the Budapest Stock Exchange (primary exchange), on the Warsaw Stock Exchange and on the Capital Market Information Disclosure System operated by the National Bank of Hungary (Magyar Nemzeti Bank). Moreover we send e-mail announcements to those who subscribed to the distribution list of e-mail announcements of Investor Relations and to the international and domestic media. In addition, presentations on the business, its performance and strategy are given to shareholders at the Annual General Meeting. Regular Roadshow visits are also made to various cities in the UK, the US and Continental Europe where meetings are held with representatives of the investment community, including MOL’s shareholders and holders of MOL’s Depository Receipts (DR). Furthermore, investors are able to raise questions or make proposals at any time during the year, including the Company’s general meeting. Investor feedbacks are regularly reported to the Board of Directors.
MOL has an Investor Relations department which is responsible for the organisation of the above activities as well as for the day-to-day management of MOL’s relationship with its shareholders (contact details are provided in the “Shareholder Information” section at the end of the annual report). Extensive information is also made available on MOL’s website (https://molgroup.info/en/ ), which has a dedicated section for shareholders and the financial community. MOL has always paid special attention to provide a considerably wide range of information to the capital markets, in line with international best practice. Therefore Investor Relations Department of MOL is continuously renewing its website (direct link at: https://molgroup.info/en/investor-relations). The aim of the development is to make the website even more user-friendly, in line with the intention to continuously improve our services. These enable us to meet the expectations of our shareholders, analysts and other capital market participants more effectively.
In 2020, MOL did not participate on any roadhows due to the difficulties caused by the pandemic. MOL Group held about 200 online meetings with potential and current investors. The Investor Day in November was postponed to 24 February 2021, when MOL Group presented the updated long-term strategy (MOL 2030+).
Annual remuneration for MOL Group management
Board of Directors
Annual fixed remuneration of the members of the Board of Directors
The members of the Board of Directors are entitled to the following fixed net remuneration after each Annual General Meeting:
- Members of the Board of Directors 25,000 EUR/year
- Chairmen of the Committees 31,250 EUR/year
Members of the Board of Directors who are not Hungarian citizens and do not have a permanent address in Hungary are provided with gross 1,500 EUR for each Board or Committee meeting (maximum 15 times a year) when they travel to Hungary.
Share based incentive
As a variable component, the aim of the share based incentive is to ensure the interest in long-term stock price growth and to maintain motivation related to the dividend payment. To ensure these, a 1-year retention obligation (restraint on alienation) is determined for 2/3 of the shares (the retention obligation terminates at the date of the expiration of the mandate).
The incentive consists of two parts: share allowance and cash allowance related thereto.
- in case of the members of the Board of Directors: 1,200 pieces of series „A” MOL ordinary shares with a nominal value of HUF 125 per month
- in case of the chairman of the Board of Directors: additional 400 pieces of series „A” MOL ordinary shares with a nominal value of HUF 125 per month.
If the Chairman is not a non-executive director, the deputy chairman (who is non-executive) is entitled to this extra remuneration (400 pieces/month).
The share allowance is provided once a year, within 30 days after the Annual General Meeting closing the given business year.
The incentive based on share allowance is a net incentive, which means that the Company ensures to pay the taxes, contributions and other payables incurred upon acquisition of the shares in line with the relevant and effective laws. Such cash-based coverage of taxes and contributions does not include any further tax(es) or cost(s) incurred in relation to exercising rights attached to the shares or disposal of the shares (e.g. dividend tax, income tax); these shall be borne by the respective members of the Board of Directors.
In line with this, there is a further cash allowance part of the incentive system, the rate of which is the gross value of taxes, contributions and other payables incurred upon acquisition of the shares in line with the relevant and effective laws, including also the tax difference and contributions incurring in the country of tax-residence in case of non-Hungarian members of the Board of Directors.
The proportional share of individual components
The proportional share of remuneration of the Chairman and member of the Board of Directors for the performance of their function is determined as follows:
Share allowance (+related cash allowance)
Chairman of the Board of Directors (in case of Non-Executive)
Chairman of the Board of Directors (in case of Executive)
Member of the Board of Directors
Member of the Board of Directors and as well Chairman of Committee
The proportion might be influenced by the number of BoD and Committee meetings and the member’s attandance on them, the share price of MOL and the applicable EUR/HUF exchange rate at the date of payment. Actual tax and contribution liabilites might also influence the proportion.
- Personal insurances
- Health and wellbeing benefits
- Tax advisory
- Immigration services
Chief Executives’ Committee and Management Committee
Incentive system for the top management
The aim of MOL’s remuneration system is to provide incentives for the top management to carry out the company’s strategy and reward them for the achievement of strategic goals through a combination of short-term and long-term incentives. The Corporate Governance and Remuneration Committee recognizes that remuneration plays an important role in supporting the achievement of these goals. Through the design of its incentive schemes, MOL aims to ensure that executive remuneration is aligned with and supports the company’s strategic objectives within a framework that closely aligns the interests of MOL executives to those of our shareholders.
The remuneration mix of Chief Executives’ Committee (CEC) and Management Committee consist three key pillars:
- Annual Base Salary (BS): fixed annual amount paid to the individuals
- Short-Term Incentive (STI): annual bonus, based on individual and company performance
- Long-Term Incentive (LTI): promotes performance driven culture and enhances the focus on the top management team to be aligned with the interests of shareholders
The incentive system for the top management included the following elements in 2019:
- Short Term Incentive system
The basis of the short term incentive is a target of 70%-100% of the annual base salary. The amount thereof is defined in line with the evaluation of performance of the given manager.
Based on MOL Group’s decision making authorities the annual performance of the CEC members is evaluated by the Corporate Governance and Remuneration Committee with final approval of the Board of Directors.
Performance Measures for the STI
The aim of MOL Group STI scheme is to motivate the participants to achieve operative, business and individual performance targets which can be reached within a year, and support MOL Group’s long term strategy.
In 2020, the CEC and MC’s STI framework was designed to include key focus areas in a mix of financial and non-financial KPIs in order to achieve the targets of MOL Group.
In 2020, the key focus of the Chief Executives’ Committee members was to deliver the EBITDA and CAPEX targets to achieve the 2030 strategic targets of MOL Group.
Management Committee members’ performance is assessed on operative and financial measures reflecting annual priorities and the strategic direction of each business division within the framework of the Group’s long-term strategy. Financial KPIs are suggested by Group Financial Planning and Reporting, and may contain efficiency, investment and cost-related indicators.
CEC and MC members are also accountable for non-financial targets alongside financial ones:
Safety is a number one Group priority, which is why the Corporate Governance and Remuneration Committee consistently defines divisional SD&HSE-(Sustainable Development and Health, Safety and Environment) related performance indicators. Hence in 2020, MOL Group set the fulfillment of TRIR indicators of each business units, as this shows the commitment for conducting safe, sustainable and compliant operations at all times. number of work accidents is also set as KPI.
For CEC members individual targets were set to further implement the MOL Group 2030 Strategy increase employee engagement, to review and simplify the governance structure in order to enhance the new operation modell which enables more agile operation and faster decision-making.
For MC members individual targets were set to increase efficiency, implement cost optimizing projects, to realize their division’s business strategy, e.g.: strategic portfolio management, decarbonization projects, digitalization projects.
During 2020 crisis management actions were prioritized for the whole management due the unprecedented business, industrial and regional challenges of COVID-19.
Short-term incentive results and their evaluation
The applied performance indicators reflect the intention of the Corporate Governance and Remuneration Committee to assess the participants based on a broad range of corporate and divisional measures.
The payout of the incentive is calculated based on the Corporate EBITDA Factor and the the financial and/or non-financial divisional and individual factors’ evaluation. The evaluation of the financial targets is made based on the results prepared by the Group Financial Planning and Reporting organization, by the Corporate Governance and Remuneration Committee who judges whether the results against the performance measures are a reflection of the underlying performance of MOL Group.
2. Short term share ownership program
In accordance with the decision of Board of Directors that from 1 January 2018 top management may select - instead of their short-term incentive - a share ownership scheme in each year. The scheme is operated via MOL Plc. Employee Share Ownership Program Organization, a legal entity independent from MOL Plc., in compliance with the provisions of the Employee Share Ownership Program (Munkavállalói Résztulajdonosi Program, ’MRP’) Act.
The primary aim of this voluntary short-term share ownership program is to incentivize the top management to achieve the strategic targets of MOL Group in line with the shareholders’ interests.
3. Long Term Incentive
The purpose of the long-term incentive system is to incentivize and reward the delivery of sustainable value and to provide full alignment between MOL Group executive team and MOL shareholders.
The long-term incentive framework was reviewed in the last quarter of 2020. Starting from 1 January 2021, Restricted Share Plan is applied instead.
The currently ongoing long term incentive plans remain valid until payout or expiry.
The new long-term incentive creates an even stronger link to the the strategic targets of MOL Group, shareholders’ interests and long-term incentivization and retention of top management.
The main characteristics of the two incentive schemes are as follows:
a, Absolute Share Value Based Remuneration
The basis of the remuneration is a share entitlement. The incentive pays at a selected date within the redemption period and the payout is calculated as a difference between a past strike price and a selected spot price, defined in a number of shares.
|Stock Option||Strike Price||Exercise Period|
|2016||1,669 HUF||1 Jan 2018-31 Dec 2020|
|Absolute Share Value Based Remuneration||Strike Price||Redemption Period|
|2017||2,352 HUF||1 Jan 2019-31 Dec 2020|
|2018||3,107 HUF||1 Jan 2020-31 Dec 2021|
|2019||3,052 HUF||1 Jan 2021-31 Dec 2022|
|2020||2,918 HUF||1 Jan 2021-31 Dec 2023|
b, Relative Market Index Based Remuneration (former Performance Share Plan)
The program is a 3-year share-based incentive using the MOL Plc. comparative share price methodology with the following characteristics:
- The target is the development of MOL’s share price compared to relevant and acknowledged CEE regional and industry specific indices.
- The expected payout amount is additionally linked to individual short-term performance, as the potential payout is based on three years’ individual factors in the annual performance evaluation for each participant. This ensures that constant individual over-performance on a long-term basis is rewarded and the consequences of long term underperformance are managed.
- The remuneration is share based, and it is paid either in MOL shares or in cash.
The following chart provides an overview about the latest Performance Share Plan results for the 3-year programs:
|PSP Plan||Payout Ratio|
Restricted Share Plan
The program is a 3-year share-based incentive based on MOL corporate performance with the following characteristics:
- Each year a new, 3-year program starts, the payout takes place after the 3-year period.
- The corporate target is the MOL Group EBITDA, a financial KPI of significant importance in MOL Group operation.
- Besides the corporate target achievement, the final incentive amount is modified by the individual performance. This ensures rewarding the long term over or underperformance.
The incentive is share based, the payout happens either in MOL shares or in cash.
Performance measures of the long-term incentive plans
Long-term incentive plan is linked to share price and dividend payment reflecting the Board’s strategic priority on reaching continuous and sustainable value creation. Through its long-term incentives schemes, MOL prioritizes providing its shareholders with a return on their investment through both the appreciation of the share price as well as through the payment of dividends.
As MOL competes on a regional basis as well as with the global emerging market Oil & Gas sector companies, so the relative share based remuneration measures MOL performance to a relevant regional, and an industry specific benchmark index that indcoporate share prices of such companies. As such, MOL’s incentive system provides competitive remuneration to executives and future investors on regional and global oil and gas markets taken in broader meaning as well.
Members of the Supervisory Board receive gross 4,000 EUR/month, while the Chairman receives gross 6,000 EUR/month. In addition to this monthly fee, the Chairman of the Supervisory Board is entitled to receive gross 1,500 EUR for participation in each Board of Directors or Board Committee meeting, up to fifteen (15) times per annum. The Chairman of the Audit Committee is entitled to receive gross 1,500 EUR for participation in each Board Committee meeting, up to fifteen (15) times per annum.
Besides the monthly remuneration both the Chairman of the Supervisory Board and the members are entitled to receive further 1,500 EUR for each extraordinary meeting that is held in addition to the scheduled annual meetings. This remuneration is provided maximum two times a year.
- Personal insurances
- Health and wellbeing benefits
- Tax advisory
- Immigration services
Integrated corporate risk management function
As operators in a high-risk industry MOL Group is committed to manage and maintain its risks within acceptable limits.
The aim of MOL Group Risk Management is to keep the risks of the business within acceptable levels and safeguard the resilience of its operations as well as the sustainable management of the company. For this purpose, as an integral part of our corporate governance structure, MOL Group has developed a comprehensive Enterprise Risk Management (ERM) system which focuses on the organisation’s value creation process, meaning factors critical to the success and threats related to the achievement of objectives but also occurrence of risk events causing potential impact to people, assets, environment or reputation. Within the ERM framework all significant risks throughout the whole Group are identified, assessed, evaluated, treated and monitored, covering all business and functional units, geographies as well as projects, taking into consideration multiple time horizons.
In order to ensure an effective risk management, risks are being managed (assess, evaluate, treat) as a 1st line of defence by Risk Owners who are managers responsible for each business areas including supervising the existing mitigation and the implementation of new mitigation actions in their organisations. Group level business and functional units, specialised risk management functions, the Group Risk Management department provide oversight. The MC, the CEC, the Board of Directors and the Supervisory Board together with their specialized committees provide supervision and assurance on the effectiveness of the group level application of the risk management framework.
Regular risk reporting to top management provides oversight on top risks and assurance that updated responses, controls, and appropriate mitigation actions are set and followed. Effectiveness of the risk management system is monitored by the MC, the CEC, the Board of Directors, Supervisory Board and its respective Committees.
The main risk drivers of the Group
Risks are categorised to ensure effective risk reporting and consistent responses for similar or related risks.
1. Market and financial risks include, but are not limited to:
- Commodity price risk: MOL is exposed to commodity price risk on both the purchasing and sales sides. The main commodity risks reflect the integrated business model with downstream processing more crude than our own production and selling refined products. We monitor this risk in order to support our strong financial position and capacity to fund operations and investments. When necessary, MOL Group may consider a variety of commodity hedging instruments to mitigateother than ‘business as usual’ risks or general market price volatility.
- Foreign exchange (FX) risk: MOL’s current FX risk management policy is to monitor the FX risk and to balance the FX exposures of the operating & investment cash flow with the financing cash flow exposures when necessary and optimal.
- Interest rate (IR) risk: According to risk management policy of MOL Group IR risk is continuously monitored and managed by the adequate mix of funding portfolio.
- Credit risk: MOL Group provides products and services to a diversified customer portfolio - both from business segment and geographical point of view – with a large number of customers representing an acceptable credit risk profile. MOL Group’s risk management tracks these risks on a continuous basis, and provides support to the sales processes in accordance with MOL Group’s sales strategy and ability to bear risk. In order to mitigate the customer credit risk, credit insurance policies are in place group-wide.
- Financing/Refinancing Risk: The financing and refinancing risk is managed by using diversified funding sources/instruments as well as having a diversified, balanced, and decently long maturity profile. Financing and refinancing activities of the Group are supported by the investment grade rating (BBB-) of the Group recently affirmed by Fitch and S&P with a stable outlook.
2. Main operational risks affecting the Company:
- Physical asset safety and equipment breakdown risk: High asset concentration in Downstream is a significant risk driver. The potential negative effects are mitigated by comprehensive HSE activities, a group-wide Process Safety Management system including an asset related operational risk management process and a group-wide insurance management program. Physical risks associated with climate change covered under ”Climate change risk” section below.
- Crude oil supply risk: Crude supply disruption is a major risk factor for the Downstream business, as it can disrupt continuous operations. In order to mitigate risk, a crude oil-supply diversification strategy has been implemented with regular crude cargo deliveries from the Adriatic Sea via pipeline to the Group’s land-locked refineries.
- E&P reserve replacement: Higher than expected decline of E&P production and failure to replace reserves may lead to the decrease in the revenues generated by E&P segment. Operating optimization programs and reserve replacement are both focus areas of E&P operations. In 2020, significant mitigating steps were taken with the acquisition of ACG and the achievement of a 100% reserves replacement ratio in Hungary as well.
- Cyber risk: Due to digitalization and new technologies more cyber threat and vulnerability appear. Global trends show steadily growing frequency and intensity of Cyber-attacks / incidents as well as more specified Cyber Crime Groups targeting Industrial Control System’s weaknesses, which may have increasing economic impact and relevance on MOL. Therefore, MOL continuously improves Cyber Security capabilities. MOL Group entities supervise their cyber security risks ensuring the protection of the confidentiality, integrity and availability of data, furthermore assure that Cyber Security is built into all the MOL Group products and services. MOL continuously educates their employees and partners about cyber security risks and support them to act in a responsible way.
- Human Capital risk: as the Group's ability to implement its 2030 Strategy is dependent on the capabilities and performance of its people, management, experts and technical personnel, MOL has been operating HR frameworks to attract, develop, reward and retain talented employees. MOL promotes diversity and generational collaboration by enhancing internal knowledge transfer, strongly focusing on digital transformation, and employee experience, further developing innovation & feedback culture, utilizing flexible working arrangements and adjusting mobility frameworks.
- Pandemic risk: pandemics may significantly adversely affect the business environment, including price and demand on the Group’s products and services. Availability of contractors, subcontractors as well as raw materials, creditworthiness of credit customers may be affected and on the other side availability of the key personnel could also be limited causing deterioration of the Group’s business results of operations or financial condition, and leading to the need to cut capital expenditures. The Group has Crisis Management plans in place to reduce the impact of pandemic risk.
3. Key strategic risks affecting the Company:
- Regulatory risk: MOL has significant exposure to a wide range of laws, regulations and policies on the global, the European and the individual country level, that may change significantly over time and may even require the Group to adjust its core business operation. Government actions may be affected by the elevated risk of economic and, in some regions, political crisis, increasing their impact on MOL’s operations.
- Country risk: The international presence of MOL Group contributes to diversification but also exposure to country specific risk at the same time. Therefore we monitor and manage political risk and compliance with local regulations and international sanctions to keep country risk in our investment portfolio within acceptable limits.
- Reputation risk: MOL, as a major market player and employer in the region with a sizeable operational footprint, operates under special attention from a considerable number of external stakeholders, and constantly seeks to meet its responsibilities. MOL Groups stakeholder governance processes enable the Group to monitor and adjust to any reputational risks.
- Climate change risk: transition and physical risks associated with climate change have the potential to negatively impact MOL’s current and future revenue streams, expenditures, assets and financing. MOL Group’s transformational strategy is not only meant to mitigate risks associated with the low-carbon transition, but to capitalize on the opportunities created by it. Additionally, several operational steps have been taken to mitigate physical risks emanating from climate change. .
- CAPEX project execution risks are that the projects are delayed or less profitable than expected or unsuccessful for numerous reasons, including cost overruns, lower product prices, higher raw material or energy prices, equipment shortages, limited availability of contractors and execution difficulties. In order to manage such risks, a dedicated team is operating within MOL Group to identify risks at earlier stages, plan for mitigation or avoidance by linking potential risks with schedule and budget to build realistic estimates, and following it up through the project lifecycle.
Risk Review Process in 2020
Risk owners in the Group identified, analysed and evaluated their major risks in 2020 – both on medium-term and long-term time horizon - and defined and/or updated the relevant mitigation plans where it has been necessary. Risk reports have been discussed by the Finance and Risk Management Committee.
Main risk management tools
As described above an Enterprise Risk Management (‘ERM’) system is operated as a general risk management framework.
Hedging Policy: to ensure the profitability and the financial stability of the group, financial risk management is in place to handle short-term, market related risks. Commodity price, FX and interest rate risks are measured regularly by using a complex model based on advanced statistical methods and are managed – if and when necessary - with hedging measures.
Insurance Policy: transferring the financial consequences of our operational risks is done by insurance management, which represents an important risk mitigation tool to cover the most relevant exposures and liabilities arising out of our operations. Insurance is managed through a joint program for the whole group to exploit considerable synergy effects.
Crisis and Business Continuity Management: following best industry practice and focusing on low probability high potential risks that could disrupt our operations, value chain and cash generation, MOL Group has implemented an integrated crisis management and business continuity program in order to reduce recovery times within tolerable limits for processes critical to our business.
TCFD disclosure on Risk Management
Climate change related risks are covered within the ERM framework, both in the long-term and mid-term risk review process.
Top down approach is taken to identify and assess long term strategic risks affecting long term strategy of the Group. Climate change riska, including transitional and physical risks, have been identified as long-term risks and are therefore assessed together with mitigation plans within the strategic risk review process. Sponsorship, oversight of management of such risks sits with executive leadership while operative leaders directly reporting to executive leadership are nominated as risk owners, who are responsible for assessment, mitigation of these risks. Strategic Risk Reports are discussed by the Finance and Risk Management Committee.
Within the bottom-up mid-term risk process several climate change related individual risks (regulatory changes, demand for fossil fuels, risk on physical assets) were and may be identified and reviewed regularly. Various organizational levels and locations are involved in the process, with the aim of covering all material risks, including climate related ones. Operative managers are nominated as risk owners, being responsible for assessing and mitigating the relevant risks. Aggregated, consolidated risk report is discussed by the Finance and Risk Management Committee.
Risk owners, with the involvement of subject matter experts, assess risks taking into consideration the probability of occurrence and the potential impact on the Group’s objectives. Depending on the level of risk acceptable for the Group, risk owners define appropriate mitigation plans.
Identified climate change related risks
Identified transition risks include a) policy and legal risks (actions that attempt to constrain activities that contribute to climate change and/or actions that encourage adaption/limitation of climate change, including stricter emission rules and carbon pricing), b) technological risks (innovation that supports transition to a low carbon world, including increasingly efficient and lower consumption in transportation), c) market risks (shift in supply/demand for certain products and services due to changes in customer preferences, and technology), and d) reputational risks (stakeholder pressure). MOL Group’s long-term strategy seeks not only to mitigate risks associated with the transition to a low carbon economy, but to capitalize on opportunities created by it.
Identified physical risks include a combination of both acute risks (extreme rainfall and flooding), as well as chronic risks (extreme heat, fluctuating water levels and drought). If any of these events were to occur, they could have an adverse effect on the Group’s assets, operations and staff. MOL Group has incurred and is likely continue incurring additional costs to protect its assets, operations and staff from physical risks. In case the frequency, severity of such severe weather events or other climate conditions increase, the operation of MOL Group may be needed to adjust and as a result of these incurring costs could adversely affect its financial position.
Principles of prohibition of insider trading
MOL Group is committed to the fair trade of financial instruments admitted to public trading.
MOL Group employees are expected:
- not to acquire or dispose of MOL or other company’s shares or other financial instruments for their own account or for the account of a third party, directly or indirectly, do not withdraw or modify orders related to the above financial instruments, do not give order or instruction for this, do not induce another person to do so and do not suggest or accept decisions connected to the above financial instruments, if they are in possession of insider information,
- not to disclose insider information to persons not belonging to MOL Group except they are empowered in writing to do is,
- to be careful when disclosing insider information even within the employees of MOL Group, to hand over information only in the possession of a permission and to the extent necessary to carry out work,
- to protect insider information from accidental disclosures to the public.
All employees of MOL participates in regular, annual recurring training on the rules related to the prohibition of insider trading and the handling of insider information. Employees regularly take exams on the knowledge they have acquired in education.
The Insider Committee of MOL decides on matters related to the registration, delay, publication of insider information and other insider related questions.