A strAtegic mAnAgement ApproAch

sustAinAbledevelopment

MMeeting the needs of the present without compromising the ability of future generations to meet their own needs.

UN, Brundtland Report, 1987

Sustainable development has become a global issue and one of the most important challenges of the 21st century. The concept goes far be-yond ethical or marketing issues; it involves equal consideration of its three pillars - envi-ronment, economy and society - at one and the same time, to ensure coming generations enjoy the same opportunities as we do today. The “fu-ture”, however, is getting ever closer, when we consider the issues we have to deal with right now, such as climate change, poverty and the depletion of natural resources. Energy compa-nies face a double challenge in this respect - they have to satisfy today’s growing demand for energy, an element fundamental to our econo-my, whilst striving to achieve sustainable opera-tions, the very basis of our future survival.Poor sustainability performance entails higher risk-levels and may lead to management ac-tions that are not in the interests of sharehold-

ers. In contrast, corporate operations with inte-grated sustainability standards are indicators of improved value-creation which can lead to optimum business decisions and competitive positions. Thus sustainable development is not a task per se but a strategic management issue. It is, in fact, an integral factor in our long-term business success and must surely, therefore, be a normal part of our day-to-day operations.Since its formation, MOL has put in place several individual environmental and social programmes that go far beyond legal require-ments. While these programmes constitute an important step towards sustainable operations, the challenge of adopting an integrated strate-gic approach still remains. In 2006, MOL Group decided to face up to this challenge and so set up a Sustainable Development Management System. Comparing our performance with in-ternational practices, we sincerely believe that

Letter from the Group Ceo and Chairman of the Sd Committee of the Board

we have now taken a major step forward to inte-grating sustainability principles into our every-day operations. However, to put such a plan into actual operation, it is vitally important to make maximum use of MOL’s professional experi-ence, to assess and integrate all current activi-ties, and to introduce dynamic new measures.

György Mosonyi

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the poSition taken By moL Group in reLation to SuStainaBLe deveLopment

our definitionSustainable Development, for us, means a cor-porate commitment to the balanced integration of economic, environmental and social factors into our everyday business operations to max-imise long-term stakeholder value and to safe-guard our “licence to operate”.

our long-term goalTo continuously work towards sustainable operations

We want to achieve this by• translating global challenges into local solutions• incorporating sustainable development prin-ciples and best practices into our business strategy and processes as well as into our cor-porate culture using a systemic approach• adopting a proactive approach to managing risk and to grasping opportunities• analysing available solutions and selecting those that best establish an optimum balance between environmental, social and economic factors • increasing stakeholder involvement and en-hancing transparency

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our common Future

SintroduCtion to SuStainaBLedeveLopment

Sustainable development is an integral factor in companies’ long-term business success.

Over the past fifty years, the concept of “de-velopment” has tended to mean the promotion of economic growth, both at country and indi-vidual company levels. The provision of basic needs, however, has remained out of kilter and the blind pursuit of growth for growth’s sake has often resulted in significant damage to the environment. Occasionally weird situations have occurred whereby environmental damage has positively contributed to GDP by creating a market for new services to eliminate such damage, mainly caused by industry in the first place! Companies’ strategies and operations have basically been driven by the profit mo-tive and social and environmental issues have been considered to be cost-factors and any measures to manage them have been limited to compliance with legal requirements. The rec-ognition that our world is no longer sustainable has finally sunk in, and forced us to develop a new way of behaving.

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The holistic concept of sustainable develop-ment (SD) now appears to have become the new long-term model for future development, integrating and balancing, as it does, environ-mental and social issues with economic con-siderations in decision-making processes. The concept has to replace traditional thinking and should be the answer to problems related to today’s environmental and social capital.The business community has a crucial role to play in the furtherance of SD. There is growing evidence that responsible behaviour by compa-nies with regard to social and environmental is-sues can contribute to their long-term business success. Consequently, the ultimate objective for companies is to establish a new systemic approach. They will now have to adopt behav-iour which goes way beyond local issues since SD requires international thinking and action to integrate its three pillars equally into corporate strategy and programmes in all operating areas. However, there is no one-size-fits-all solution to the implementation of sustainable development. Each industrial field and company naturally has different sets of objectives, traditions and prac-tices and therefore has to identify and develop its very own specific tasks and objectives.

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environment We are all part of the Earth’s ecosystem which provides us with all the crucial elements we need to exist and survive. The efficient use and protection of our natural resources, such as water, minerals and soil, therefore, are the fundamental duties of all human beings, as individuals, members of society or of a workforce. This implies, among other things, the urgent need for emission reduction, waste-minimisation, remediation and the promotion of renewable resources.

economyThe economic pillar is naturally of outstanding importance to companies operating in a mar-ket economy. Maintenance of a strong financial position and credibility among investors are crucial components of a sustainable business model and a fundamental precondition to be-coming a “good corporate citizen”. In addition, long-term business thinking strengthens a com-pany’s ability to adapt to changes which affect its core activities.

Society The social pillar of SD covers all those areas and topics that re-late to stakeholders i.e. those di-rectly affected by a company’s operations, such as local commu-nities, employees, or the general

public. This pillar therefore com-prises respect for human rights and

cultures, the promotion of cooperation and the sharing of knowledge, as well as

the assurance of equal opportunities, ongoing training and safe workplaces to each and every employee.

the tripLe Bottom Line

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governAnce FrAmeWorK

Mour SuStainaBLe deveLopment manaGement SyStem

MOL has opted for and only uses the term »Sustainable Development« to denote its new approach and actions taken related to long-term performance.

MOL Group is committed to sustainable devel-opment. It recognises the need to create shared values and regards SD as a powerful benefit to society that is also of great value to business. Accordingly, the Company set up its own Sus-tainable Development Management System (SDMS) in 2006, to adopt and be in harmony with international best practices and requirements, on the one hand, and to develop sustainable operations within the company as a long-term objective, on the other. This new framework pro-vides MOL with an effective monitoring system and a soundly-based and appropriate planning and decision making-process.

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The SDMS task is based on the principle that SD should be an integral part of MOL’s day-to-day operations, which implies that it should be integrated into prevailing business strategies and recognised as a normal part of our business operations, embracing environ-mental and social considerations not just eco-nomic ones. There is, therefore, no such article as a “sustainability strategy” or “sustainability budget” since every business strategy and bud-get should comprise all issues related to sus-tainable development.As part of this new system, MOL now carries out an annual Company screening. It assesses cur-rent practices to identify existing and missing elements based on international best practices in the oil and gas industries; benchmark docu-ments; the basic requirements of international conventions – all to see “where we are”.The SDMS ensures the efficient achieve-ment of our clearly stated strategic objectives and specific goals and, furthermore, acts as a powerful stimulus for ongoing MOL Group and Unit-level research and development ef-forts, as well as for the strengthening of sustain-ability awareness and greater transparency.

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GovernanCe StruCture

The most senior SDMS body in MOL, the Sustainable Development Committee of the Board of Directors, is chaired by MOL Group’s CEO, with three non-executive members, thus ensuring the highest commitment to and rep-resentation of sustainability issues, both in in-ternal and external MOL Group relations. The implementation of SDMS objectives is carried out by the Sustainable Development Core and Working Teams, made up of MOL Business and Functional Unit representatives, thus guaran-teeing the integration of sustainability into day-to-day Group-level operations and the develop-ment of new behavioural patterns throughout the company. In addition, the Working Team sets targets, proposes development opportuni-ties, coordinates assessments and monitors re-sults achieved. The SD Chief Advisor is respon-sible for coordinating and guiding the Teams’ activities, and for reporting on its operations to the SD Committee, therefore acting as a bridge between Management and the Business and Functional Units.

Sd Committee of the Board of directors

Sd Chief advisor

Sd Core team

Sd Working team

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KeY success FActors

Mour StrateGiC SuStainaBLe deveLopment initiativeS

MOL has integrated Sustainable Development into its business strategy – a fundamental pre-condition of successful sustainable operations.

In 2005, in its 2006-2010 business strategy, MOL Group announced its commitment to sustainable development. To support this am-bitious commitment, 7 Group-level strategic SD initiatives were identified, to take place up to 2010, based on key areas identified during the first Company sustainability screening ex-ercise. These initiatives, with precisely measur-able targets, and covering 25 topics such as climate change, product stewardship and the need to attract talented recruits, embrace all the Company’s activities and are indeed consid-ered to be “key success factors” in the achieve-ment of our strategic corporate business objec-tives. “Strategy” implies action; therefore MOL Group Business and Functional Units have conceived almost 100 projects that will bring the Company closer to its long-term goal: sustainable operations.

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initiative i.

Strengthen good governance and risk managementMOL corporate governance is a multi-faceted concept. It deals with the way the company is directed, administered and controlled, and involves the implementation of guidelines and mechanisms to ensure transparency, accountability and good behaviour throughout the MOL Group.

Good governance cannot exist without effec-tive risk management. To enhance the culture of risk awareness and to facilitate decision-making at different levels, a new framework, Enterprise Risk Management (ERM), has been launched in MOL to handle different classes of risk, using a common methodology. Ethical issues are strongly related to good governance and proper risk management. Our Code of Ethics supports the recognition of basic human values and rights at all levels and in all geographical areas and covers such issues as the stamping out of bribery and corruption, the provision of equal opportunities and diversity, under-pinned by a monitoring system to ensure on-going compliance.

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initiative ii.

focus on future portfolio steering to increase competitivenessThe striving for long-term economic viabil-ity is the driving force behind future product portfolio navigation. This is all related to stra-tegic decisions and opportunities in our core businesses, and covers, inter alia, the proper balance between the management of oil and gas reserves and production, the increase in share of renewables in energy production and use, as well as the production of cleaner fuels. In 2005, MOL started the production and market-ing of exclusively sulphur-free fuels that already met stringent EU 2009 standards. The company has also taken important steps in the area of bio-fuels including the blending of bio-components in its fuel products as well as participation in the construction of a bio-diesel plant in Hungary.

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initiative iii.

focus on internal and external customer relationsOne of MOL Group’s most important objectives is to satisfy its customer needs to the highest possible degree. All issues related to customer services, customer satisfaction and feedback

as well as performance monitoring and the consequent integration of results into develop-ment projects belong to the sphere of Custom-er Relationship Management (CRM). Keeping the “customer in focus” is a key feature of our business strategy and to serve our customers best we have to segment them so as to recog-nise and meet their different needs effectively – the core of CRM. Tracking our brand value and further increasing brand loyalty is the responsi-bility of strong strategic Brand Management.

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initiative iv.

enhance trust and credibility among stakeholdersAll companies need to pay close attention to stakeholder dialogue, which involves identify-ing those affected, in one way or another, by Company operations, continuously keeping them informed, listening to their points of view, and then integrating the results into the deci-sion-making process. This leads to increased transparency as a basic principle in achieving success in this vital area. Accordingly, MOL Group is committed to the ongoing process of multi-stakeholder dialogue i.e. open and trans-parent communication with our stakeholders. We would like our stakeholders to perceive us through the quality of the products and ser-vices we offer and the values we hold dear. In addition, through our Social Investment Programmes, we constantly strive to preserve the cultural heritage and diversity of local and national communities and make every effort to be a reliable partner by supporting public activi-ties, outstanding programmes, children, those in need, and talented people.

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initiative v.

reduce our environmental footprintThe protection of the environment has become one of the most impassioned issues of the 21st century. As a direct result, MOL Group needs urgently to identify all those areas where it can make a difference and take measures to reduce the environmental footprint of its production facilities and products. Emissions reduction, water and waste management and the protec-tion of natural resources are some of the areas where we can and where we must act each year in line with international best practices to satisfy the energy demands of society whilst minimising our environmental footprint. To of-fer a telling example, in 2002, MOL Group, in line with our commitment to reduce our envi-ronmental impact, adopted the concept of “car-bon thinking” and has integrated it into each of our investment projects ever since. In addition, the Company has implemented a very effec-tive greenhouse gas emission management strategy, with the ultimate goal of decreasing carbon-dioxide emissions.

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initiative vi.

manage opportunities, risks and liabilities in the value chainProduct stewardship is the never-ending responsibility of all those involved in product life cycles to share accountability for minimis-ing the environmental and social impacts of products. It is closely related to the imple-mentation of life cycle management, where the potential negative impact of a product is monitored and mitigated from “womb to tomb” and covers product development, biodiversity impact, health and safety issues and procure-

ment process standards. MOL Group, as a pro-ducer and retailer, recognises its responsibility to reduce the environmental and social impact of its products. Thus, we are committed to inte-grating the stewardship concept into our man-agement processes by adopting the best avail-able methods. By re-thinking the characteristics of our products, our relationships with the sup-ply chain, and with the ultimate customer, we have become more and more capable of pro-viding better products and services, reducing costs in certain cases, and providing customers with more value, but less impact.

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initiative vii.

Capitalize on human resourcesThe long-term success of a company depends to a large degree on the quality and commit-ment of its workforce. Attracting, developing and retaining the most talented individuals are activities of the highest priority in MOL’s efforts to strengthen its market position and to prog-ress further towards sustainable operations. Therefore to maximise employee engagement, MOL Group makes every effort to develop its human capital and provide employees with challenging tasks and opportunities as well as the best available working conditions and compensation in all its operating areas. In ad-dition, our regular employee job satisfaction survey and the monitoring of human-resources related indicators give us continuous feedback on our performance in this vital area and help us identify future development opportunities.

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for further information:

Ms Orsolya PallaghySD Chief AdvisorMOL Group 1117 BudapestOktóber huszonharmadika u. 18.HungaryFax (+36) 1 464 1806E-mail: sustainabledevelopment@mol.huwww.molgroup.hu

Members of MOL Group