Business Fundamentals

Corporate Governance

A transparent and sound corporate governance is the cornerstone for sustainable growth. It is also the bedrock of ensuring corporate transparency and productivity improvement, and is a key to gaining trust from diverse stakeholders and elevating corporate value.

S-OIL has established transparent and sound corporate governance and a trusting relationship with stakeholders, through organizing the Board of Directors (BOD) and sub-committees with diversity, independence and rich expertise and ensuring checks and balances in business activities.

Balance between Diversity and Independence

S-OIL nominates director candidates with diversity including nationality, race, gender, etc. and expertise to ensure that various stakeholders' interests are duly represented and mutual complementation among directors can be maintained in accordance with internal procedures. They are officially appointed as directors at the general shareholders' meeting. Also, thoroughly vetted and carefully considered for director candidate selection are the capability and capacity to work as part of an independent and objective BOD, as well as their vision, leadership, expert knowledge, and career experiences. Further, to ensure the independence of the BOD, a candidate is also screened for factors that may be material to that his/her ability to be independent. Thus, whether he/she is working or has been working for the Company in the past five years, whether he/she is engaging or has been engaging in any audit or consulting service for the Company, and whether he/she has any material relationship or transaction with the Company are comprehensively taken into consideration. For outside directors, the Outside Director Candidates Recommendation Committee (ODCRC) recommends the most suitable candidates, after evaluating candidates in accordance with internal standards to confirm that they have no vested interest in the Company or any other reasons for disqualifica¬tion. The BOD, newly launched in 2019, consists of directors with professionalism in the various fields of oil industry, renewable energy, international trade, accounting, finance, M&A, etc. In particular, the Company expanded female directors among 11 directors to two for enhancing diversity. Having served in various fields, such as the government, international organizations, academia, and industry, they will significantly contribute to enhancing the diversity and independence of the BOD.
Independency Policy of Outside Directors

To help the BOD conduct independent and objective decision-making for the protection of the rights of shareholders and investors, S-OIL appoints a majority of directors as outside directors who satisfy the following independency policy (disqualification reasons). Outside directors lose their posts when they cannot meet the independency policy.

  1. Directors, executive officers and employees who are engaged in the Company, or directors, auditors, executive officers and employees who have engaged in the Company within the last five years;
  2. The principal, his/her spouse, lineal ascendants, and lineal descendants, in cases where the largest shareholder is a natural person;
  3. Directors, auditors, executive officers and employees of a corporation, in cases where the largest shareholder is the corporation;
  4. The spouses, lineal ascendants, and lineal descendants of directors, auditors, and executive officers who have engaged in the Company or a parent company and a subsidiary of the Company within the last three years;
  5. Directors, auditors, executive officers and employees who are engaged in a parent company and a subsidiary of the Company within the last five years;
  6. Directors, auditors, executive officers and employees of a corporation in an important interest such as a business relationship with the Company as follows;
    1. The Company's important customers, suppliers and related persons;
    2. A corporation that concludes an advisory agreement such as legal advice, management consultation, etc. with the Company or top management of the Company;
    3. A corporate that contracts a private service agreement with the Company or top management of the Company;
    4. An accounting firm that has been the auditor of the Company within the last three years;
    5. A non-profit organization and related persons that receives important donations from the Company, etc.
  7. Directors, auditors, executive officers and employees of another company for which directors, executive officers and employees of the Company serve as directors and executive officers; and
  8. A person who is determined to undermine the independence of the BOD due to other interests with the Company or who is otherwise unable to faithfully perform his/her duties as an outside director

Balance between Checks and Cooperation

S-OIL establishes sound and transparent corporate governance led by the BOD and sub-committees (Board of Audit Committee (BAC), Compensation Committee (CC), and ODCRC) ensuring checks and cooperation. BOD members are individually appointed to serve a one-year term at the general shareholders' meeting and a majority of directors are appointed as outside directors who have been verified for independence according to the Company's principle. An independent outside director has been serving the role of BOD Chairman since 2015, and all members except for the CEO who is an inside director are non-standing directors. This allows the BOD to objectively and independently oversee and check the management activities and performances of the CEO and the Company, and thereby ensures that decisions are made in a way that maximizes the value of stakeholders including shareholders. The Company makes sure that the BOD meeting participation rate of each director stays over 75% annually barring exceptional circumstances so that checks and cooperation, one of the key BOD functions, can be achieved through active participation of directors. In addition, the BAC comprised only of outside directors evaluates general matters relating to the Company's management activities and the operational status of the Internal Accounting Management System and gets reports on internal audit performance. The Company bans its outside directors and non-standing directors from serving as directors of two or more companies in addition to the Company, and all outside directors and non-standing directors fulfil this requirement.

Enhancement of Expertise of BOD

To enhance the expertise of the BOD, S-OIL regularly conducts a briefing session to support the BOD's decision-making, including the overall contents such as changes in the business environment, business strategies, risk factors, and risk management measures. The Company also submits a monthly report to directors on economic, social, and environmental issues that may affect the Company's sustainability. The BOD regularly visits Onsan Refinery to stay abreast of the major pending issues on site. In addition, the Company has three sub-committees in support of the BOD's independence and efficient decision-making. Management Committee, which supports the CEO, contributes to enhancing the Company's sustainable growth by pre-analyzing critical issues on social, economic, and environmental fronts to ensure the BOD's reasonable decision-making on annual and long-term business plans, budget, and labor policy. In addition, the BOD analyses its activities and reviews its performance every year.

Accountability of Officers

S-OIL grants compensation to all officers according to the degree of the achievement of short- and long-term targets, which have been set objectively, so that they, including the CEO, can exert their utmost effort to protect shareholder value and to fulfil the Company's role as a corporate citizen. According to the resolution of the CC comprised of directors, excluding inside directors, to ensure the independence and fairness of decision on officer compensation levels, the Company sets the compensation levels of all officers, including the CEO, by taking into account achievement of short-term management targets consisting of ROIC and EBITDA and the three-year mid/long-term targets consisting of the three-year Compound Annual Growth Rate of S-OIL stock prices relative to the KOSPI 200 Energy & Chemicals Index. Directors' remuneration criteria and amount are disclosed for individual directors in the Company's business reports in a transparent manner, and so are the remuneration for key officers as well. The Company also makes it clear that any director, including the CEO, who deliberately or negligently causes damage to the Company should compensate it directly to the Company, thereby promoting responsible management for directors. The scope of the liability extends not only to violation of laws or the Article of Incorporation, but also to damages caused by negligence. In such a case, directors, including the CEO, are liable to repay the entire amount of the damages in principle. Having said that, the amount of the damages recoverable can be capped at six times their annual income (three times for outside directors) through a resolution at the general shareholders' meeting.

Compliance Management

In its journey to becoming an admired energy and chemical company built on integrity, which is one of the core values, S-OIL makes compliance management a top priority and incorporates it in its day-to-day business. The Company operates a system to ensure that its policies, as well as laws and regulations, are well understood and complied with by all employees.

Compliance Management as Corporate Culture

Led by the top management's strong commitment to compliance management and employees' active engagement to practice it in their daily work, S-OIL has embedded compliance management into its corporate culture. All employees incorporate compliance standards into their daily work and give it the foremost consideration before undertaking their job. The Company periodically reports major activities on this front to top management thereby calling attention to the importance of compliance management. Furthermore, the Company enhances employees' awareness of compliance by distributing compliance newsletters, sending out compliance trends led by global corporations, and providing various compliance programs such as compliance campaigns. The Company strives to further reinforce compliance management by analyzing laws and regulations in depth, setting guidelines, and providing customized education.

Well Organized Compliance System

S-OIL systemized its compliance management approach, adopting practical tools such as profiles and checklists on relevant laws in 2014. Since 2015, the Company has also been providing real-time updates on the latest legislation and revisions on its IT-based Compliance System, making it convenient for employees to search or inquire legal information relevant to their work. Furthermore, regular and ad-hoc compliance monitoring is conducted on the Compliance System in a continued effort to encourage employees' voluntary compliance activities. In 2018, the Company upgraded the system once again by embracing the latest digital technologies, such as big data, etc.
10 Compliance Activities
  1. Regular Inspection
  2. Priority Management
  3. Ad-hoc/Special Monitoring
  4. Legal Update
  5. Legal Information Meeting
  6. CEO Legal Update
  7. Management Report
  8. Profile Update
  9. Compliance Training
  10. Compliance Campaign

Appropriate Response to Major Legal Disputes

S-OIL is faithfully complying with relevant laws at home and abroad, focusing its efforts on preventing potential legal disputes by mandating pre-checks on the Compliance System and conducting thorough reviews of issues and contracts in dispute by a team of legal experts. The Company also strives to maintain trust with stakeholders through appropriate responses against actual occurrences of disputes. The Company has been and continues to build healthy, trusting relationships with its stakeholders by ensuring compliance management and effectively preventing potential disputes.

Compliance Monitoring System on Internal Regulations

S-OIL introduced the compliance monitoring system on internal regulations in 2011 to help employees understand corporate regulations and abide by them in their daily work, thereby minimizing any confusion and risks associated with non-adherence. Currently, the Company conducts a quarterly compliance monitoring against 120 checklists on 37 regulations. The results are reflected in the performance assessment of team leaders and division heads to encourage employees' voluntary compliance with in-house regulations. In 2018, there was zero violation identified through compliance monitoring.
Settlement with DOJ on fuel supply to USFK

In Mar. 2019, the Company accepted that unfair act existed in domestic refiners' bidding for fuel supply to the United States Forces in South Korea (USFK) in 2008 and 2012 and agreed with U.S Department of Justice (DOJ) to pay $43.5 million. In an official statement, the Company expressed regrets about it and pledged to put in best efforts to prevent recurrence. The payment will have minimal financial impact on the Company since it will be paid out of the Company's reserves.

In fact, The Company has been taking various efforts to strengthen compliance as part of the plan to establish sustainable management system since 2012, before investigations by DOJ started. In 2014, the Company launched compliance management activities by enacting regulations on legal compliance, appointing compliance officer and setting up Legal Compliance Team. In accordance with regulations on legal compliance, the Company checks its related activities through unannounced, regular and special compliance check-up system. Anything pertaining to compliance with Fair Trade Act is conducted with clear guideline ("DOs and DON'Ts") that all officers and employees need to follow at all conditions including small meetings with competitors. In Jan. 2015, the Company introduced self-assessment system of ethics management as part of the effort to ensure that ethics management becomes an integral part of our officers/employees' daily lives. By reflecting compliance management and ethics management in performance evaluation of officers and employees, the Company ensures that any violation of laws and internal regulations including Ethics Code is prevented.

Recently, the Company strengthened penalty against violation of Ethics Code and fully revised handbook on voluntary compliance of fair trade to ensure compliance with fair trade. We also upgraded e-approval system so as to check compliance in drafting proposals and ensure close examination via compliance system when necessary. Reinforcement of control process on penalty and full upgrade of Compliance IT System, that covers such functions as sharing of laws/regulations, voluntary examination of compliance activities and compliance training, were also implemented.

We shared this issue across the Company to build a consensus around the fact that any duty not in keeping with compliance could leave a serious damage to the Company. In addition, the Company provided five special fair trade training sessions to all marketers and held workshop on fair trade and compliance to team leaders and higher-ranked supervisors in marketing.

Upon completion of the investigation, the Company will review if the upgraded compliance management system is strict enough to prevent recurrence and will take necessary measures if more needs to be done. Also, the Company will discipline personnel involved this issue according to the Company's internal regulations. The Company is closely examining if there has been non-compliance issues other than this and keeping track of monitoring media news.

Human Rights Protection / Ethics Management

S-OIL remains committed to protecting human rights of stakeholders, including employees, suppliers, and local residents, based on its human rights policies that are in line with global standards. In addition, the Company pursues ethics management based on three organically connected pillars: Ethics Code, Ethics Committee, and Ethics Management training.

Human Rights Protection

S-OIL shares its human rights policy with stakeholders including suppliers as per the internal process while identifying potential risk groups and issues by conducting assessment on a regular basis. Risk factors identified in the assessment are addressed and followed up with monitoring to prevent the recurrence of similar cases. The assessment result of suppliers, in particular, is considered when evaluating supplier qualifications. In 2018, the Company conducted human rights inspection in 37 sites including Head Office affected by its business activities and implemented remedial measures against all identified 39 risks. Risks related to work & life balance of shift production workers and livelihood stability of employees with critical illness were discovered. In supply network of 34 suppliers, the Company identified risks related to work condition, safety & health, and human rights of a truck driver having difficulty in driving after a traffic accident. Specific to local communities, risks were identified relating to multi-cultural families setting into the Korean culture and road traffic accidents among school children. To mitigate such risks, the Company decided to start a 4-team, 2-shift work pattern as a pilot program for the first time in the Korean refining and petrochemicals industry to give employees greater freedom to organize their free time, and also expanded medical allowance and leave for employees with serious illness. The Company has also supported suppliers in implementing 1,001 fixes to improve their work conditions and extended its support to the truck driver having financial difficulty after a traffic accident. A multi-cultural family support program was launched, and high visibility backpack covers were also distributed to school children for free to prevent road accident.
Human Rights Policies

S-OIL shall respect human rights norms described in the Universal Declaration of Human Rights, the UN Guiding Principles on Business and Human Rights, the UN Global Compact's principles of human rights and labor, the UN Convention on the Rights of the Child, the ILO Declaration on Fundamental Principles and Rights at Work, and the laws and regulations of the country in which the Company has entered, etc. Therefore, the Company shall seek to protect the human rights of all communities affected by its business activities, as well as its business sites, and contribute to substantial improvements. To this end, the Company shall adhere to the following 8 human rights principles. In addition, suppliers of products or services, direct invested companies, and business partners should also share the Company's human rights policy and participate in the protection and improvement of the human rights of the community in accordance with the 8 principles.

  1. (Working condition) We shall respect and treat its employees with dignity, and provide over legal standards working conditions such as wages, working hours, and breaks. We shall grant the right to freedom of association and collective bargaining, and not take unfair treatment for this reason.
  2. (Safety & health) We shall provide workers with a safe working environment and continuously enhances the safety and health management system. We shall minimize the safety and health impacts of production processes or products and services provided by us.
  3. (Harassment) We shall protect all stakeholders, including employees, business partners, and local residents, from exposure to any kind of harassment that violates human dignity.
  4. (Forced and child labor) We shall not engage in forced labor against the will of employees and not receive any labor in connection with employees' liability. We shall not directly employ children under compulsory education age or under the age of 15. Also, we shall respect and protect all basic rights such as education, rest, health, nutrition, hygiene, freedom from violence and exploitation of children.
  5. (Discrimination) We shall prohibit discrimination based on race, color, religion, sex, national origin, age, disability, and provides equal opportunity and treatment.
  6. (Personal information protection) We shall use personal information only for the purpose of obtaining. We shall continuously check to prevent leakage of personal information to the outside and strengthen management system.
  7. (Human rights of local communities) We shall prevent negative impacts on the human rights of local communities based on respect for the culture of them. We shall contribute to improving the quality of life of local residents by supporting economic, social and cultural development.
  8. (Human rights survey) We shall systematically monitor potential human rights risk groups and issues. If risks are found, we shall take immediate remedial actions and prevent similar cases from recurring. We shall continuously upgrade its human rights management system to prevent human rights issues from occurring throughout the supply chain.
Through the Ethics Code, S-OIL strictly bans employees to use its organization, manpower, and assets for the purpose of providing political funds or for political purposes. In addition, the Company aims to create social and environmental values as a corporate citizen through its CSR activities and stringently prohibits any activity of a political nature that goes astray from their inherent purpose or activity that could cause any negative effect on society. To this end, the Company organized an independent and objective Donation Committee comprised of officers from various organizations. The Committee reviews an overall CSR activity plan every year, and monitors whether it has been implemented appropriately. Also, the Company strictly controls the occurrence of unethical acts that could arise in the process of planning and executing CSR activities. There has been no donation to non-profit foundations nor procurement for political purposes and the Company will continue to ensure that money will be spent on only procurement and CSR activities related to their intrinsic nature and that additional expenses will not be spent to exercise any political pressure.

Methodical Ethics Management System

Code of Business Ethics & Conduct (Ethics Code)
S-OIL's Ethics Code consists of two parts: the Code of Business Ethics stipulates attitudes toward customers, business partners, shareholders, and investors as well as responsibilities to employees, society and communities; and the Code of Conduct defines basic ethics for employees, prohibition of conflict of interests, prohibition of bribery/entertainment/convenience, and reporting process of violations. The Company's suppliers, subsidiaries and joint ventures are required to abide by the Ethics Code. Suppliers, in particular, must sign and submit the Ethics Acknowledgement Statement to register as venders. If the Company's suppliers are found to be involved in legal violations or unethical acts, they may either be excluded from the partners' list or face disadvantage. In order to encourage employees to report ethics management violations, the Company has also strengthened the whistleblower protection system, opened an anonymous reporting channel, and introduced a leniency program for confessors. In 2018, there were two Ethics Code violations that involved libel against the Company based on false allegations, misuse of the Company e-mail, and workplace violence, and the Company took disciplinary measures against two employees in accordance with the relevant policies and procedures. The violation cases were also shared across the Company and covered in training for recurrence prevention purposes.
Ethics Committee
S-OIL operates the Ethics Committee consisting of Legal & Compliance HQ Head, HR Div. Head, Corporate Planning Div. Head and Controller. They are appointed by the CEO after being screened by the BAC for eligibility. The committee is responsible for supervising ethics management activities, establishing ethics regulations and programs, and elevating ethics awareness in the organization. In case where stakeholders of employees with high chances of conflict of interests transact with the Company, the committee must review it to prevent violation of ethics regulations. The committee reports activities to the CEO and the BAC on a regular basis, while disclosing its activities to stakeholders through Ethics Management website. In 2018, the Company implemented ethics management evaluation program where employees, service stations, LPG filling stations, corporate customers and suppliers are asked to evaluate its ethics management that encompasses respect for employees, customers, suppliers, abuse of dominant position, fairness in business dealings, and any experience with corruption. The Company makes sure the evaluation results are reflected in corporate policies to further strengthen its ethics management.
Ethics Management Training
S-OIL offers ethics management training tailored for different positions and job functions to raise employees' ethical awareness in their day-to-day work while inviting outside experts for special lectures. In 2018, the result of stakeholder evaluation on the Company's ethics management was factored in, and seven courses on ethics management were offered. The Company offered case-based marketer training for sales offices that have a high chance of committing an ethics violation due to frequent encounters with business partners. Also, the Company holds ethics management training sessions for employees of suppliers and affiliated companies to help understand the basic principles of Ethics Code, thereby raising the quality of ethics management across the supply chain. Moreover, the Company operates self-assessment of ethics management since 2015 to help raise ethical awareness among employees.
Ethics Management Help Desk

Risk Management

S-OIL has established and implemented an efficient risk management system to proactively respond to potential risks that may compromise the Company's economic, social, and environmental values and grow together with stakeholders including investors. What's more, the Company's rigorous internal auditing promotes transparency in its business and addresses improper practices and inefficient cost structures.

Enhancement of Risk Management System

Since 2008, S-OIL has established a highly-advanced risk management system so as to respond to all risk factors that could arise in the course of the Company's business in a more efficient and timely manner. Employees at the Company conduct optimized risk response activities through risk management systems including Enterprise Risk Management (ERM) for company-wide risk management, Emergency Control Program (ECP) for swift and efficient response to emergencies, Early Warning System (EWS) for enhanced risk monitoring and prevention, and Internal Accounting Management System (IAMS) for effective internal control of the organizations and their work performance.
Risk Management Governance
S-OIL has in place an integrated risk management governance system where all employees from top management down to lower levels are tasked with risk management responsibilities to ensure such activities are performed organically at the corporate level through various risk management programs. Aimed at ensuring that risk management activities are fully aligned with the Company's management principle, the ERM Committee composed of top management including the CEO sets general directions for risk management and supervises enterprise risk management status on a regular basis. Matters requiring attention and priority, such as internal control assessment, are reported to the BOD and reflected in the Company's strategic risk management policies as necessary.
Enterprise Risk Management (ERM)
S-OIL systematically manages the process of identifying, evaluating, monitoring and addressing major risks through designating risk owners, thus ensuring that risks do not materialize and develop into real dangers that stand in the way of achieving management goals. The ERM Committee reviews risk management activities of risk owners, gives instructions on response, and determines matters related to ERM policies. Furthermore, for efficient risk management, the ERM Committee has been prioritizing major risks every year and tracking their status closely since 2015.
ECP for Optimized Risk Response
S-OIL has implemented the ECP aimed at taking a swift, well-coordinated response to minimize personnel and property damage in emergency. Under the ECP, the Company has installed the Emergency Control Center (ECC) in all major business sites and conducted company-wide and regional emergency drills periodically, improving its risk response capability. Emergency drills in 2018 assumed a fire at the Head Office and tested the organizational preparedness for emergency evacuation and business disruption due to IT facility failures. When an actual emergency situation occurred at another firm, the Company followed the ECP to review the impact of the event on its business and implemented emergency measures, thereby minimizing potential negative ramifications.
EWS for Big Data Risk Management
At S-OIL, the EWS enables a real-time monitoring of massive volume of data handled as part of the Company's business operations and preventive response to a variety of risks. Each organization reviews and responds to abnormal signals related to its respective work domain in a swift manner following the pre-defined EWS monitoring scenario, and takes early action to keep risks from becoming real.
Effective Internal Control though IAMS
With the purpose of assuring the reliability of financial information, S-OIL examines internal control process and conducts the evaluation of internal control on a half-year basis by operating the IAMS. In 2018, the Company updated internal control items that govern the roles and responsibilities of each organization at the enterprise level, and streamlined the internal control assessment by developing new assessment items and deleting the less relevant ones. As such, the Company makes continuous improvement to the IAMS in order to secure the reliability of financial information and effectiveness of business.

Mid- and Long-term Risk Management

S-OIL takes a systematic approach to analyze and forecast the business environment, both inside and outside the organization, that may bring about significant changes to the Company's business in the mid- to long-term.

First, S-OIL takes fine dust as a serious strategic risk the Company should tackle in the mid- to long-term. According to the Better Life Index released by OECD in 2017, Korea was among the lowest in the 38 countries surveyed in terms of air quality. A result clearly shows how fine dust has evolved into an issue at national level, affecting quality of life in Korea. The Company expects to be subject to more stringent regulations on fine dust reductions, considering that its only refinery is situated in Ulsan, an industrial city with high portion of fine dust caused by industry. Companies are expected to do more to address the issue as the government has already set the target of reducing the fine dust in the air by 36 percent from the 2014 level by 2022, and the Ulsan City has set its reduction target of 40 percent by 2022. Moreover, any company failing to effectively respond to the tougher regulations or social demand will have to suffer a serious setback in its business in the oil industry, in which pollutants are generated as byproduct around the clock. Although its fine dust emissions are lower than the legal limits, the Company is working to install additional ULNBs that reduce NOx emissions, the main source of fine dust, in order to live up to the expectation of local community and preemptively tackle stringent regulations in the future. The Company has also signed voluntary emission reduction agreements with the Ulsan City and the Ministry of Environment.

Aging and retirement of highly-experienced employees who contribute to operations with their vast knowledge and know-how is considered as a serious mid- to long-term risk S-OIL faces. Having grown through bold large-scale projects, the Company has been hiring a lot of resources at a time in the run-up to a large-scale project. This means the Company will be facing a sudden increase in aging workforce and their retirement. This is substantiated by the data showing employees aged over 50 doubled in a short span of time to 25 percent in 2018 from 12 percent in 2014. An abrupt exodus of skilled resources with retirement is likely to disrupt the stable operations given that know-how and trouble-shooting experience of skilled employees are highly valued in the refining and chemical business. To mitigate this risk, the Company launched an all-around HR upgrade in 2018 to form an HR infrastructure which enable to manage level of proficiency through constitution of Role Level based job structure which specifying required knowledge and techniques of each job and role level. Furthermore, a new training program and career path development plan have been laid out based on the new HR structure, while adopting a fast-track training process for high performers. In addition, understanding tacit knowledge is hard to be documented into job functions, a one-on-one matching apprenticeship program has been made available, and the Company has also opened the channel to rehire high-performing employees after reaching the mandatory retirement age.

S-OIL operates not only new units but also existing units, some of which date as far back as 1980. As such the Company recognizes aged equipment that is more prone to failures and malfunctions as another mid- to long-term risk. Given the nature of the oil business where each production unit is organically connected to another, a trouble in a small unit can lead to production disruption in the following units, causing enormous damage to the business. Equipment aging also represents a safety concern as a failure in high-temperature, high-pressure equipment may bring about casualties. To ensure safe operations of aged equipment for the next 10 years, the Company launched the REVIVE program in 2017. The REVIVE program identifies and eliminates risks in a preemptive manner. The Company takes a graded approach to the program considering obsolescence, stability, and work period, and plans to enhance its mechanical availability to global top level by 2025.

Efficient Internal Audit System

S-OIL has a dedicated audit organization that reports directly to the BAC to guarantee independence and expertise of internal audits. The Company enhances transparency and corporate value by conducting thorough internal audit activities over accounting and business in general. The audit organization, based on the auditors' extensive experience and in-depth understanding of business operations, concentrates its auditing capabilities on sustaining a sound internal control system and improving inefficiency in work processes and cost structures. In 2018, the Company revised the internal audit regulations and procedures and strengthened fraud auditing and internal control functions based on its internal audit improvement master plan. The Company also conducted planned audit activities using a risk-based audit approach and ad-hoc audit activities into emerging risk areas such as IT security, thereby contributing to strengthening its technological and physical security posture for the plant IT systems. E-mail communication has been sent to employees, business partners and suppliers informing the Company's ethics management policy and reporting hotline in order to encourage various stakeholders to report unethical behaviors. The Company recently commissioned an independent audit quality assessment of its internal audit function to identify improvement areas and attain higher audit quality. The assessment was done by an independent third-party agency Artner Consulting based on the International Standards of Institute of Internal Auditors, and the Company's internal audit function received the highest rating of “Very Satisfied”. The Company actively helps auditors to improve individual competency by attending various training courses and to obtain audit certificates while utilizing the professional software Audit Command Language for in-depth data analysis. The Company strives to enhance corporate value through the objective and independent operation of the BAC and the internal audit organization, the establishment of an effective audit system equivalent to that of leading global companies, and the execution of audits centered around process improvement.