3
RisKs AND contrOL
3.1 Risk Factors
The Group conducts its activities in an ever-changing environment and is exposed to risks that, if they were to occur, could have a material adverse effect on its business, financial condition, including its operating income and cash flow, reputation or outlook.
The Group employs a continuous process of identifying and analyzing risks in order to determine those that could prevent it from achieving its objectives. This chapter presents the significant risks to which the Group believes it is exposed as of the date of this Registration Document. However, as of such date, the Group may not be aware of, or may be underestimating the potential consequences of, other risks that could, or other risks may not have been considered by the Group as being likely to have a material adverse impact on the Group, its business, financial condition, including its operating income and cash flow, reputation or outlook.
The main internal control and risk management procedures, in particular those relating to the preparation and processing of accounting and financial information, are described in point 3.3 of this chapter.
3.1.1 Risks related to market environment and other financial risks
The financial performance of TOTAL is sensitive to a number of market environment related factors, the most significant being hydrocarbon prices, refining margins and exchange rates.
Generally, a decline in hydrocarbon prices has a negative effect on the Group’s results due to a decrease in revenues from oil and gas production. Conversely, a rise in hydrocarbon prices increases the Group’s results.
In 2018, at first, oil prices increased to reach their highest point in October above $80 per barrel, supported by supply tensions and geopolitics. Prices then decreased to below $60 per barrel by the end of the year, mainly driven by record production in the United States. In December, OPEC and Russia announced a production cut to mitigate the price drop. The oil and natural gas markets remain highly volatile.
For the fiscal year 2019, according to the scenarios retained below, the Group estimates that an increase of $10 per barrel in the average liquids price would increase annual adjusted net operating income (1) by approximately $2.7 billion and annual cash flow from operations by approximately $3.2 billion. Conversely, a decrease of $10 per barrel in the average liquids price would decrease annual adjusted net operating income by approximately $2.7 billion and annual cash flow from operations by approximately $3.2 billion.
The impact of changes in crude oil and gas prices on downstream operations depends upon the speed at which the prices of finished products adjust to reflect these changes. The Group estimates that a decrease in its European Refining Margin Indicator ("ERMI") of $10 per ton would decrease annual adjusted net operating income by approximately $0.5 billion and annual cash flow from operations by approximately $0.6 billion. Conversely, an increase in its ERMI of $10 per ton would increase annual adjusted net operating income by approximately $0.5 billion and annual cash flow from operations by approximately $0.6 billion.
All of the Group’s activities are, for various reasons and to varying degrees, sensitive to fluctuations in the dollar/euro exchange rate. The Group estimates that a decrease of $0.10 per euro (strengthening of the dollar versus the euro) would increase annual adjusted net operating income by approximately $0.1 billion and have a limited impact on annual cash flow from operations. Conversely, an increase of $0.10 per euro (weakening of the dollar versus the euro) would decrease adjusted net operating income by approximately $0.1 billion and have a limited impact on annual cash flow from operations.
Sensitivities 2019 (a) | Scenario retained | Change | Estimated impact on adjusted net operating income | Estimated impact on cash flow from operations |
Dollar | 1.2 $/€ | +/-0.1 $ per € | -/+0.1 B$ | ~ 0 B$ |
Average liquids price | 60 $/b (b) | +/-10 $/b | +/-2.7 B$ | +/-3.2 B$ |
European Refining Margin Indicator (ERMI) | 35 $/t | +/-10 $/t | +/-0.5 B$ | +/-0.6 B$ |
(a) Sensitivities revised once per year upon publication of the previous year’s fourth quarter results. Indicated sensitivities are approximate and based upon TOTAL’s current view of its 2019 portfolio. Results may differ significantly from the estimates implied by the application of these sensitivities. The impact of the $/€ sensitivity on adjusted net operating income is attributable essentially to Refining & Chemicals.
(b) Brent environment at 60 $/b.
In addition to the adverse effect on the Group’s revenues, margins and profitability, a prolonged period of low oil and natural gas prices could lead the Group to review its projects and the evaluation of its assets and oil and natural gas reserves.
Prices for oil and natural gas may fluctuate widely due to many factors over which TOTAL has no control. These factors include:
-variations in global and regional supply of and demand for energy;
-global and regional economic and political developments in natural resource-producing regions, particularly in the Middle East, Africa and South America, as well as in Russia;
-the ability of the OPEC and other producing nations to influence global production levels and prices;
-prices of unconventional energies as well as evolving approaches for developing oil sands and shale oil, which may affect the Group’s realized prices, notably under its long-term gas sales contracts and asset valuations, particularly in North America;
-cost and availability of new technologies;
-regulations and governmental actions;
-global economic and financial market conditions;
(1) Adjusted results are defined as income at replacement cost, excluding special items and the impact of fair value changes.
-the security situation in certain regions, the magnitude of international terrorist threats, wars or other conflicts;
-changes in demographics, notably population growth rates, and consumer preferences; and
-adverse weather conditions that can disrupt supplies or interrupt operations of the Group’s facilities.
Prolonged periods of low oil and natural gas prices may reduce the economic viability of projects in production or in development and reduce the Group’s liquidity, thereby decreasing its ability to finance capital expenditures and/or causing it to cancel or postpone investment projects.
If TOTAL were unable to finance its investment projects, the Group’s opportunities for future revenues and profitability growth would be reduced, which could materially negatively impact the Group’s financial condition, including its operating income and cash flow.
Prolonged periods of low oil and natural gas prices may reduce the Group’s reported reserves and cause the Group to revise the price assumptions upon which asset impairment tests are based, which could have a significant adverse effect on the Group’s results in the period in which it occurs. For additional information on impairments recognized on the Group’s assets, refer to Note 3 to the Consolidated Financial Statements (point 8.7 of chapter 8).
Conversely, in a high oil and gas price environment, the Group can experience significant increases in cost and government take, and, under some production-sharing contracts, the Group’s production rights could be reduced. Higher prices can also reduce demand for the Group’s products.
The Group’s results from its Refining & Chemicals and Marketing & Services segments are primarily dependent upon the supply and demand for petroleum products and the associated margins on sales of these products, with the impact of changes in oil and gas prices on results on these segments being dependent upon the speed at which the prices of petroleum products adjust to reflect movements in oil and gas prices. In 2018, the positive effects of higher oil and gas prices on the Group’s results have been greater than the decrease of the results of the Refining & Chemicals segment. The Group’s refining margins remain highly volatile.
The activities of Trading & Shipping (oil, gas and power trading and shipping activities) are particularly sensitive to market risk and more specifically to price risk as a consequence of the volatility of oil and gas prices, to liquidity risk (inability to buy or sell cargoes at market prices) and to counterparty risk (when a counterparty does not fulfill its contractual obligations). The Group uses various energy derivative instruments and freight-rate instruments to reduce its exposure to price fluctuations of crude oil, petroleum products, natural gas, power and freight-rates. Although TOTAL believes it has established appropriate risk management procedures, large market fluctuations may adversely affect the Group’s activities and financial condition, including its operating income and cash flow.
[REDACTED SECTION: CERTAIN TEXT HAS BEEN REDACTED.]
TOTAL is exposed to other financial risks related to its financing and cash management activities.
The Group is exposed to changes in interest rates and foreign exchange rates. Even though the Group generally seeks to minimize the currency exposure of each entity with regards to its functional currency (primarily the dollar, the euro, the pound sterling and the Norwegian krone), the Group’s financial condition, including its operating income and cash flow, could be impacted by a significant change in the value of these currencies.
In addition, as TOTAL mostly turns to financial markets for its external financing, its financial condition and operations could be materially impacted if access to those markets were to become more difficult.
For further information on financial risks, refer to Notes 15 and 16 to the Consolidated Financial Statements (point 8.7 of chapter 8).
3.1.2 Industrial and environmental risks and risks related to climate issues
TOTAL is exposed to risks related to the safety and security of its operations.
The Group’s activities involve a wide range of operational risks, such as explosions, fires, accidents, equipment failures, leakage of toxic products, emissions or discharges into the air, water or soil, that can potentially cause death or injury, or impact natural resources and ecosystems.
The industrial event that could have the most significant impact is a major industrial accident, e.g., blow out, explosion, fire, leakage of highly toxic products or massive leakage, resulting in death or injury and/or accidental pollution on a large-scale or at an environmentally sensitive site.
Acts of terrorism or malicious acts against employees, plants, sites, pipelines and transportation or computer systems of the Group’s or its contractors could also disrupt the Group’s business activities and could cause harm or damage to people, property and the environment and could have a material adverse effect on the Group’s financial condition.
Certain activities of the Group face additional specific risks. TOTAL’s Exploration & Production activities are exposed to risks related to the physical characteristics of oil and gas fields, particularly during drilling operations, which can cause blow outs, explosions, fires or other damage, in particular to the environment, and lead to a disruption of the Group’s operations or reduce its production. In addition to the risks of explosions and fires, the activities of the Gas, Renewables & Power (1), Refining & Chemicals and Marketing & Services business segments entail risks related to the overall life cycle of the products manufactured, as well as the materials used. With regard to transportation, the likelihood of an operational accident depends not only on the hazardous nature of the products transported, but also on the volumes involved and the sensitivity of the regions through which they are transported (quality of infrastructure, population density, environment).
(1) Integrated Gas, Renewables & Power, as from January 1, 2019 (refer to point 2.2 of chapter 2).
Total’s workforce and the public are exposed to risks inherent to the Group’s operations, which could lead to legal proceedings against the Group’s entities and legal representatives, notably in cases of death, injury and property and environmental damage. Such proceedings could also damage the Group’s reputation. In addition, like most industrial groups, TOTAL is concerned by declarations of occupational illnesses.
To manage the operational risks to which it is exposed, the Group has adopted a preventive and remedial approach by putting in place centralized HSE (health, safety and environment) and security management systems that seek to take all necessary measures to reduce the related risks (refer to points 5.4 and 5.5 of chapter 5). In addition, the Group maintains third-party liability insurance coverage for all its subsidiaries. TOTAL also has insurance to protect against the risk of damage to Group property and/or business interruption at its main refining and petrochemical sites. TOTAL’s insurance and risk management policies are described in point 3.4 of this chapter. However, the Group is not insured against all potential risks. In certain cases, such as a major environmental disaster, TOTAL’s liability may exceed the maximum coverage provided by its third-party liability insurance. The Group cannot guarantee that it will not suffer any uninsured loss and there can be no guarantee, particularly in the event of a major environmental disaster or industrial accident, that such loss would not have a material adverse effect on the Group’s financial condition, including its operating income and cash flow, and its reputation.
Crisis management systems are necessary to effectively respond to emergencies, avoid potential disruptions to the Group’s business and operations and minimize impacts on third parties or the environment.
The Group has crisis management plans in place to deal with emergencies (refer to point 5.5 of chapter 5). However, these plans cannot exclude the risk that the Group’s business and operations may be severely disrupted in a crisis situation or ensure the absence of impacts on third parties or the environment. TOTAL has also implemented business continuity plans to continue or resume operations following a shutdown or incident. An inability for the Group to resume its activities in a timely manner could prolong the impact of any disruption and thus could have a material adverse effect on its financial condition, including its operating income and cash flow.
TOTAL is subject to increasingly stringent environmental, health and safety laws and regulations in numerous countries and may incur material related compliance costs.
The Group’s activities are subject to numerous laws and regulations pertaining to the environment, health and safety. In most countries where the Group operates, particularly in Europe and the United States, sites and products are subject to increasingly stringent laws governing the protection of the environment (water, air, soil, noise, protection of nature, waste management and impact assessments, etc.), health (occupational safety and chemical product risk, etc.) and the safety of personnel and residents. Product quality and consumer protection are also subject to increasingly strict regulations. The Group’s entities ensure that their products meet applicable specifications and abide by all applicable consumer protection laws. Failure to do so could lead to personal injury, property damage, environmental harm and loss of customers, which could negatively impact the Group’s financial condition, including its operating income and cash flow, and its reputation.
TOTAL incurs and will continue to incur substantial expenditures to comply with increasingly complex laws and regulations aimed at protecting health, safety and the environment. Such expenditures could have a material adverse effect on the Group’s financial condition.
The introduction of new laws and regulations could compel the Group to curtail, modify or cease certain operations or implement temporary shutdowns of sites, which could diminish productivity and have a material adverse impact on its financial condition.
Moreover, pursuant to applicable regulations, most of the Group’s activities will require, at site closure, decommissioning followed by environmental remediation after operations are discontinued. Costs related to such activities may materially exceed the Group’s provisions and adversely impact its operating incomes. With regard to the definitive shutdown of activities, the Group’s environmental contingencies and asset retirement obligations are addressed in the "Asset retirement obligations" and "Provisions for environmental contingencies" sections of the Group’s consolidated balance sheet (refer to Note 12 to the Consolidated Financial Statements, point 8.7 of chapter 8). Future expenditures related to asset retirement obligations are accounted for in accordance with the accounting principles described in the same Note.
Laws and regulations related to climate change as well as growing concern of stakeholders may adversely affect the Group’s business and financial condition.
Firstly, there is a risk incurred by rapidly changing modes of energy production in favor of a lower-carbon energy mix that allows for a more limited share of fossil fuel. This could impact the Group’s business model, profitability, financial situation and shareholder value.
The growing concern of certain stakeholders with regards to climate change could also have an impact on certain external financing of the Group’s projects or influence certain investors involved in the oil and gas sector.
Moreover, regulations may change and require the Group to reduce, change or cease certain operations, and subject it to additional obligations with regards to the compliance of its facilities. This could have a negative effect on its activities and its financial situation, including operating income and cash flow. Regulations designed to gradually limit fossil fuel use may, depending on the GHG emission limits and time horizons set, negatively and significantly affect the development of projects, as well as the economic value of certain of the Group’s assets. In Europe, for example, the Group’s industrial facilities are part of the CO2 emissions quotas market (EU-ETS), and the financial risk incurred by purchasing these quotas on the market could increase due to the reform of the system that was approved in 2018. This emission quotas market is in its third phase. The Group estimates that about 25% of emissions subjected to EU-ETS are not covered by free quotas in the period 2013-2020 (phase 3) and to 30% or more from 2021 to 2030 (phase 4). At the end of 2018, the price of these quotas was about €20/t, and the Group expects this price to be higher than €30/t in phase 4.
Internal studies conducted by TOTAL have shown that a long-term CO2 price of $40/t (1) applied worldwide would have a negative impact of around 5% on the discounted present value of the Group’s assets (upstream and downstream). [REDACTED SECTION: CERTAIN TEXT HAS BEEN REDACTED.]
(1) As from 2021 or the current price in a given country.
Finally, the Company and several of its subsidiaries have received claims issued by public entities in certain countries in view of financing the protective measures to be implemented in order to limit the consequences of climate change. The Group is subject to the risk of judicial actions in this area.
The physical effects of climate change may adversely affect the Group’s business.
TOTAL’s businesses operate in various regions, where the potential physical impacts of climate change, including changes in weather patterns, are highly uncertain and may adversely impact the Group’s operating income.
Climate change potentially has multiple effects that could harm the Group’s operations. The increasing scarcity of water resources may negatively affect the Group’s operations in some regions of the world, high sea levels may harm certain coastal activities, and the multiplication of extreme weather events may damage offshore and onshore facilities. These climate risk factors are continually assessed in the risk management and prevention plans.
The Group believes that it is impossible to guarantee that the contingencies or liabilities related to the matters mentioned in this point 3.1.2 would not have a material adverse impact on its business, financial condition, including its operating income and cash flow, reputation, prospects or shareholder value, if such risks were to occur.
3.1.3 Risks related to critical IT systems security
Disruption to or breaches of TOTAL’s critical IT services or information security systems could adversely affect the Group’s activities.
The Group’s activities depend heavily on the reliability and security of its information technology (IT) systems. The Group’s IT systems, some of which are managed by third parties, are susceptible to being compromised, damaged, disrupted or shutdown due to failures during the process of upgrading or replacing software, databases or components, power or network outages, hardware failures, cyber-attacks (viruses, computer intrusions), user errors or natural disasters. The cyber threat is constantly evolving. Attacks are becoming more sophisticated with regularly renewed techniques while the digital transformation amplifies exposure to these cyber threats. The adoption of new technologies, such as the Internet of things (IoT) or the migration to the cloud, as well as the evolution of architectures for increasingly interconnected systems, are all areas where cyber security is a very important issue. The Group and its service providers may not be able to prevent third parties from breaking into the Group’s IT systems, disrupting business operations or communications infrastructure through denial-of-service attacks, or gaining access to confidential or sensitive information held in the system. The Group, like many companies, has been and expects to continue to be the target of attempted cybersecurity attacks. While the Group has not experienced any such attack that has had a material impact on its business, the Group cannot guarantee that its security measures will be sufficient to prevent a material disruption, breach or compromise in the future.
As a result, the Group’s activities and assets could sustain serious damage, services to clients could be interrupted, material intellectual property could be divulged and, in some cases, personal injury, property damage, environmental harm and regulatory violations could occur, potentially having a material adverse effect on the Group’s financial condition, including its operating income and cash flow.
3.1.4 Risks related to the development of major projects and reserves
The Group’s production growth and profitability depend on the delivery of its major development projects.
Growth of production and profitability of the Group rely heavily on the successful execution of its major development projects that are increasingly complex and capital-intensive. These major projects may face a number of difficulties, including, in particular, those related to:
-economic or political risks, including threats specific to a certain country or region, such as terrorism, social unrest or other conflicts (refer to point 3.1.6 of this chapter);
-negotiations with partners, governments, local communities, suppliers, customers and other third parties;
-obtaining project financing;
-controlling capital and operating costs;
-earning an adequate return in a low oil and/or gas price environment;
-respecting project schedules; and
-the timely issuance or renewal of permits and licenses by public agencies.
Poor delivery of any major project that underpins production or production growth could adversely affect the Group’s financial condition, including its operating income and cash flow.
The Group’s long-term profitability depends on cost-effective discovery, acquisition and development of economically viable new reserves; if the Group is unsuccessful, its financial condition, including its operating income and cash flow, could be materially affected.
A large portion of the Group’s revenues and operating results are derived from the sale of oil and gas that the Group extracts from underground reserves developed as part of its Exploration & Production activities. The development of oil and gas fields, the construction of facilities and the drilling of production or injection wells is capital intensive and requires advanced technology. Due to constantly changing market conditions and environmental challenges, cost projections can be uncertain. For Exploration & Production activities to continue to be profitable, the Group needs to replace its reserves with new proved reserves (likely to be developed and produced in an economically viable manner).
In addition, a number of factors may undermine TOTAL’s ability to discover, acquire and develop new reserves, which are inherently uncertain, including:
-the geological nature of oil and gas fields, notably unexpected drilling conditions, including pressure or unexpected heterogeneities in geological formations;
-the risk of dry holes or failure to find expected commercial quantities of hydrocarbons;
-equipment failures, fires, blow-outs or accidents;
-shortages or delays in the availability or delivery of appropriate equipment;
-the Group’s inability to develop or implement new technologies that enable access to previously inaccessible fields;
-the Group’s inability to anticipate market changes in a timely manner;
-adverse weather conditions;
-the inability of the Group’s partners to execute or finance projects in which the Group holds an interest or to meet their contractual obligations;
-the inability of service companies to deliver contracted services on time and on budget;
-compliance with both anticipated and unanticipated governmental requirements, including U.S. and EU regulations that may give a competitive advantage to companies not subject to such regulations;
-economic or political risks, including threats specific to a certain country or region, such as terrorism, social unrest or other conflicts (refer to point 3.1.6 of this chapter);
-competition from oil and gas companies for the acquisition and development of assets and licenses (refer to point 3.1.7 of this chapter);
-increased taxes and royalties, including retroactive claims and changes in regulations and tax reassessments; and
-disputes related to property titles.
These factors could lead to cost overruns and/or could impair the Group’s ability to complete a development project or make production economical. Some of these factors may also affect the Group’s projects and facilities further down the oil and gas chain.
If TOTAL fails to develop new reserves cost-effectively and in sufficient quantities, the Group’s financial condition, including its operating income and cash flow, could be materially affected.
The Group’s oil and gas reserves data are estimates only and subsequent upward or downward adjustments are possible. If actual production from such reserves proves to be lower than current estimates indicate, the Group’s financial condition, including its operating income and cash flow, could be impacted.
The Group’s proved reserves figures are estimates prepared in accordance with SEC rules. Proved reserves are those reserves which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically recoverable - from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations - prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. Reserves are estimated by teams of qualified, experienced and trained geoscientists and petroleum, gas and project engineers, who rigorously review and analyze in detail all available geoscience and engineering data (for example, seismic data, electrical logs, cores, fluids, pressures, flow rates and facilities parameters). This process involves making subjective judgments, including with respect to the estimate of hydrocarbons initially in place, initial production rates and recovery efficiency, based on available geological, technical and economic data. Consequently, estimates of reserves are not exact measurements and are subject to revision.
A variety of factors that are beyond the Group’s control could cause such estimates to be adjusted downward in the future, or cause the Group’s actual production to be lower than its currently reported proved reserves indicate. Such factors include:
-a prolonged period of low prices of oil or gas, making reserves no longer economically viable to exploit and therefore not classifiable as proved;
-an increase in the price of oil or gas, which may reduce the reserves to which the Group is entitled under production sharing and risked service contracts and other contractual terms;
-changes in tax rules and other regulations that make reserves no longer economically viable to exploit, or disputes related to property titles; and
-the actual production performance of the Group’s deposits.
The Group’s reserves estimates may therefore require substantial downward revisions should its subjective judgments prove not to have been conservative enough based on the available geoscience and engineering data, or the Group’s assumptions regarding factors or variables that are beyond its control prove to be incorrect over time. Any downward adjustment could indicate lower future production amounts, which could adversely affect the Group’s financial condition, including its operating income and cash flow.
3.1.5 Risks related to equity affiliates and management of assets operated by third parties
Many of the Group’s projects are conducted by equity affiliates or are operated by third parties. For these projects, the Group’s degree of control, as well as its ability to identify and manage risks, may be reduced.
A significant number of the Group’s projects are conducted by equity affiliates (1) or operated by third parties. In cases where the Group’s company is not the operator, such company may have limited influence over, and control of, the behavior, performance and costs of the partnership, its ability to manage risks may be limited and it may, nevertheless, be prosecuted by regulators or claimants in the event of an incident.
Additionally, the partners of the Group may not be able to meet their financial or other obligations to the projects, which may threaten the viability of a given project. These partners may also not have the financial capacity to fully indemnify the Group or third parties in the event of an incident.
With respect to joint-ventures, contractual terms generally provide that the operator, whether an entity of the Group or a third party, assumes full liability for damages caused by its gross negligence or willful misconduct.
(1) For additional information, refer to Note 8 to the Consolidated Financial Statements (point 8.7 of chapter 8).
In the absence of the operator’s gross negligence or willful misconduct, other liabilities are generally borne by the joint-venture and the cost thereof is assumed by the partners of the joint-venture in proportion to their respective ownership interests.
With respect to third-party providers of goods and services, the amount and nature of the liability assumed by the third party depends on the context and may be limited by contract. Contracts may also contain obligations to indemnify TOTAL or for TOTAL to indemnify partners or third parties.
3.1.6 Risks related to political or economic factors
TOTAL has significant production and reserves located in politically, economically and socially unstable areas, where the risk that the Group’s operations may be materially affected is relatively high.
A significant portion of TOTAL’s oil and gas production and reserves is located in countries that are not part of the Organisation for Economic Co-operation and Development (OECD). In recent years, a number of these countries have experienced varying degrees of one or more of the following: economic or political instability, civil war, violent conflict, social unrest, actions of terrorist groups and the application of international economic sanctions. Any of these conditions alone or in combination could disrupt the Group’s operations in any of these regions, causing substantial declines in production or revisions to reserves estimates.
In Africa (excluding North Africa), which represented 24% of the Group’s 2018 combined liquids and gas production, certain of the countries in which the Group has production have recently suffered from some of these conditions, including Nigeria, which is one of the main contributing countries to the Group’s production of hydrocarbons (refer to point 2.1.9 of chapter 2).
The Middle East and North Africa zone, which represented 24% of the Group’s 2018 combined liquids and gas production, has in recent years suffered increased political instability in connection with violent conflict and social unrest, particularly in Libya and Syria, where the European Union (EU) and the U.S. have enacted economic sanctions prohibiting TOTAL from producing oil and gas since 2011. In Yemen, the deterioration of security conditions in the vicinity of the Balhaf site caused the company Yemen LNG, in which the Group holds a stake of 39.62%, to stop its commercial production and export of LNG and to declare force majeure to its various stakeholders in 2015. The plant has been put in preservation mode. In Iran, TOTAL signed in July 2017 a 20-year contract with the National Iranian Oil Company (NIOC) relating to the development and production of phase 11 (SP11) of the giant South Pars gas field. Following the withdrawal of the United States from the Joint Comprehensive Plan of Action on May 8, 2018, TOTAL withdrew from this project and finalized its withdrawal on October 29, 2018, prior to the re-imposition of US secondary sanctions on the oil industry as of November 5, 2018. TOTAL was the operator and had a 50.1% interest alongside the Chinese state-owned company CNPC (30%) and Petropars (19.9%); a wholly-owned subsidiary of NIOC. TOTAL ceased all operational activity in Iran before November 4, 2018.
In South America, which represented 6% of the Group’s 2018 combined liquids and gas production, certain of the countries in which TOTAL has production have recently suffered from political or economic instability, including Argentina, Brazil and Venezuela.
Since July 2014, international economic sanctions have been adopted against certain Russian individuals and entities, including various entities operating in the financial, energy and defense sectors. As of December 31, 2018, TOTAL held 21% of its proved reserves in Russia, from which the Group had 14% of its combined oil and gas production in 2018.
For additional information concerning international economic sanctions applicable notably to Cuba, Iran, Russia, Syria and Venezuela, refer to point 3.1.9.1 of this chapter.
Furthermore, in addition to current production, TOTAL is also exploring for and developing, or is participating in the exploration and/or development of, new reserves in other regions of the world that are historically characterized by political, social or economic instability.
The occurrence and magnitude of incidents related to economic, social or political instability are unpredictable. It is possible that they could have a material adverse impact on the Group’s production and operations in the future and/or cause certain investors to reduce their holdings of TOTAL’s securities.
TOTAL, like other major international energy companies, has a geographically diverse portfolio of reserves and operational sites, which allows it to conduct its business and financial affairs so as to reduce its exposure to political and economic risks. However, there can be no assurance that such events will not have negative consequences on the Group.
Intervention by host country authorities can adversely affect the Group’s activities and its operating incomes.
TOTAL has significant exploration and production activities, and in some cases refining, marketing or chemicals operations, in countries whose governmental and regulatory framework is subject to unexpected change and where the enforcement of contractual rights is uncertain. The legal framework of TOTAL’s exploration and production activities, established through concessions, licenses, permits and contracts granted by or entered into with a government entity, a state-owned company or private owners, is subject to risks of renegotiation that, in certain cases, can reduce or challenge the protections offered by the initial legal framework and/or the economic benefit to TOTAL.
In addition, the Group’s exploration and production activities in such countries are often undertaken in conjunction with state-owned entities, for example as part of a joint-venture in which the state has a significant degree of control. In recent years, in various regions globally, TOTAL has observed governments and state-owned enterprises impose more stringent conditions on companies pursuing exploration and production activities in their respective countries, increasing the costs and uncertainties of the Group’s business operations. TOTAL expects this trend to continue.
Potential increasing intervention by governments in such countries can take a wide variety of forms, including:
-the award or denial of exploration and production interests;
-the imposition of specific drilling obligations;
-price and/or production quota controls and export limits;
-nationalization or expropriation of assets;
-unilateral cancellation or modification of license or contract rights;
-increases in taxes and royalties, including retroactive claims and changes in regulations and tax reassessments;
-the renegotiation of contracts;
-the imposition of increased local content requirements;
-payment delays; and
-currency exchange restrictions or currency devaluation.
If a host government were to intervene in one of these forms in a country where TOTAL has substantial operations, including exploration, the Group could incur material costs or the Group’s production or asset value could decrease, which could potentially have a material adverse effect on its financial condition, including its operating income and cash flow.
For example, the Nigerian government has been contemplating new legislation to govern the petroleum industry which, if passed into law, could have an impact on the existing and future activities of the Group in that country through increased taxes and/or operating costs and could affect financial returns from projects in that country.
3.1.7 Risks related to competition and lack of innovation
The Group operates in a highly competitive environment. Its competitiveness could be adversely impacted if the Group’s level of innovation lagged behind its competitors.
TOTAL’s main competitors are comprised of national (companies directly or indirectly controlled by a state) and international oil companies. The evolution of the energy sector has opened the door to new competitors and increased market price volatility.
TOTAL is subject to competition in the acquisition of assets and licenses for the exploration and production of oil and natural gas as well as for the sale of manufactured products based on crude and refined oil. In the gas sector, major producers increasingly compete in the downstream value chain with established distribution companies. Increased competitive pressure could have a significant negative effect on the prices, margins and market shares of the Group’s companies.
The pursuit of unconventional gas development, particularly in the United States, has contributed to falling hydrocarbon market prices and a marked difference between spot and long-term contract prices. The competitiveness of long-term contracts indexed to oil prices could be affected if this discrepancy persists and if it should prove difficult to invoke price revision clauses.
The Group’s activities are carried out in a constantly changing environment with new products and technologies continuously emerging. The Group may not be able to anticipate these changes, identify and integrate technological developments in order to maintain its competitiveness, maintain a high level of performance and operational excellence, and best meet the needs and demands of its customers. The Group’s innovation policy requires significant investment, notably in R&D, of which the expected impact cannot be guaranteed.
In the field of R&D, the multiplication of research partnerships, in particular in related technical fields, may make it difficult for the Group to track technical information exchanged with research partners and monitor related contractual restrictions (e.g., confidentiality, limited use). New and increasingly complex digital technologies as well as the multiplication of partnerships are all likely to increase contamination risks, which could, as a result, limit TOTAL’s ability to exploit innovations.
3.1.8 Ethical misconduct and non-compliance risks
Ethical misconduct or non-compliance of the Group or its employees with applicable laws could expose TOTAL to criminal and civil penalties and be damaging to TOTAL’s reputation and shareholder value.
The Group’s Code of Conduct, which applies to all of its employees, defines TOTAL’s commitment to ethical standards, business integrity, human rights and compliance with applicable legal requirements. TOTAL maintains a "zero tolerance" principle for fraud of any kind, particularly bribery, corruption and influence peddling. Non-compliance with laws and regulations as well as ethical or human rights misconduct by TOTAL, its employees or a third-party acting on its behalf could expose TOTAL and/or its employees to investigations, criminal and civil sanctions and to additional penalties (such as debarment from public procurement). Further measures could, depending on applicable legislation (notably, the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, the French law n° 2016-1691 dated December 9, 2016 relating to transparency, the fight against corruption and modernization of the economy or the Regulation (EU) 2016/679 with regard to the protection of personal data), be imposed by competent authorities, such as the review and reinforcement of the compliance program under the supervision of an independent third party. Any of the above could be damaging to the financial condition, shareholder value or reputation of the Group.
Generally, entities of the Group could potentially be subject to administrative, judicial or arbitration proceedings that could have a material adverse impact on the Group’s financial condition and reputation (refer to point 3.2 of this chapter).
3.1.9 Countries targeted by economic sanctions
TOTAL has activities in certain countries targeted by economic sanctions. If the Group’s activities are not conducted in accordance with applicable laws and regulations, TOTAL could face penalties.
Economic sanctions or other restrictive measures could target countries, such as Cuba, Iran, and Syria and/or target actors or economic sectors, such as in Russia or in Venezuela.
U.S. and European restrictions relevant to the Group and certain disclosure concerning the Group’s limited activities or presence in certain targeted countries are outlined in points 3.1.9.1 and 3.1.9.2, respectively.
3.1.9.1 U.S. and European legal restrictions
TOTAL closely monitors applicable international economic sanctions regimes, including those adopted by the United States and the European Union ("EU") (collectively, "Sanctions Regimes"), changes to such regimes and possible impacts on the Group’s activities. TOTAL takes steps to ensure compliance with applicable Sanctions Regimes and believes that its current activities in targeted countries do not infringe the applicable Sanctions Regimes. However, the Group cannot assure that current or future regulations related to Sanctions Regimes will not have a negative impact on its business, financial condition or reputation. A violation by the Group of applicable Sanctions Regimes could result in criminal, civil and/or material financial penalties.
A) Restrictions against Cuba
U.S. sanctions against Cuba prohibit any person subject to the jurisdiction of the United States (1) from engaging, directly or indirectly, in any activities or dealings related to Cuba, without government authorization. Therefore, the use of the U.S. dollar is prohibited for almost all transactions related to Cuba. Furthermore, it is prohibited to export and reexport to Cuba all goods subject to the Export Administration Regulations (2) without a license and with exceptions (for example, certain medical equipment), as well as to import all goods of Cuban origin into the United States. Cuba is not subject to European economic sanctions.
TOTAL has had an interest in a liquefied petroleum gas (LPG) cylinder filing plant in Cuba since 1997 and continues the development of its activities regarding lubricants, fluids and greases in Cuba.
B) Restrictions against Iran
Several countries and international organizations, including the United States and the EU, maintain Sanctions Regimes of varying degrees targeting Iran.
On July 14, 2015, the EU, China, France, Russia, the United Kingdom, the United States and Germany reached an agreement with Iran, known as the Joint Comprehensive Plan of Action (the "JCPOA"), regarding limits on Iran’s nuclear activities and relief under certain U.S., EU and UN economic sanctions regarding Iran. On January 16, 2016, the International Atomic Energy Agency ("IAEA") confirmed that Iran had met its initial nuclear compliance commitments under the JCPOA. Therefore, as from that date, UN economic sanctions, most U.S. secondary sanctions (i.e., those covering non-U.S. persons (3) and for activities outside U.S. jurisdiction) and most EU economic sanctions were suspended (4).
Following the withdrawal of the United States from the JCPOA in May 2018, U.S. secondary sanctions concerning the oil industry were re-imposed as of November 5, 2018.
In July 2017, TOTAL signed a contract for a period of 20 years with the National Iranian Oil Company ("NIOC") relating to the development and production of phase 11 (SP11) (5) of the giant South Pars gas field. Following the withdrawal of the United States from the JCPOA, TOTAL withdrew from this project and finalized its withdrawal on October 29, 2018, prior to the re-imposition of U.S. secondary sanctions on the oil industry as of November 5, 2018. TOTAL ceased all operational activity in Iran before November 4, 2018.
Furthermore, certain U.S. states have adopted regulations with respect to Iran requiring, in certain conditions, state pension funds and other state-owned institutional investors to divest securities in any company that has or had business operations in Iran and state public contracts not to be awarded to such companies. Certain U.S. state regulators have adopted similar initiatives relating to investments by insurance companies. TOTAL believes the impact of these regulations to be limited due to the Group’s decision to withdraw from Iran. Nevertheless, TOTAL continues to closely monitor these measures, which are generally still in effect following the withdrawal of the United States from the JCPOA.
With respect to the Group’s activities conducted under the sanctions framework that was in place prior to the entry into force of the JCPOA, the U.S. Department of State made a determination on September 30, 2010 that certain historical activities would not be deemed sanctionable and that, so long as TOTAL acted in accordance with its commitments related to this determination, it would not be regarded as a company of concern for its past Iran-related activities. TOTAL’s historical activities in Iran have been conducted in compliance with these Sanctions Regimes. Since 2011, TOTAL has had no production in Iran.
Refer to point 3.1.9.2 below for information concerning Section 13(r) of the Securities Exchange Act of 1934, as amended, pertaining to activities of the Group related to Iran.
C) Restrictions against Russia
Since July 2014, various Sanctions Regimes have been adopted against Russia, including prohibitions to deal with certain Russian individuals and entities or restrictions on financings, as well as restrictions on investments and exports to Russia.
The economic sanctions adopted by the EU since 2014 do not materially affect TOTAL’s activities in Russia. TOTAL has been formally authorized by the French government, which is the competent authority for granting authorization under the EU sanctions regime, to continue all its activities in Russia on the Kharyaga and Termokarstovoye fields and the Yamal LNG and the Arctic 2 LNG projects.
The United States adopted various economic sanctions, some of which target PAO Novatek (6) ("Novatek"), and the entities in which Novatek (individually or with other similarly targeted persons or entities) owns an interest of at least 50%, including OAO Yamal LNG (7) ("Yamal LNG"),Terneftegas (8) and OOO Arctic 2 LNG (9). These sanctions prohibit, in particular, U.S. persons from all transactions in, providing financing for, and other dealings in debt issued by these entities after July 16, 2014 of longer than 90 days maturity (reduced to 60 days as from the end of November 2017). The use of the U.S. dollar is therefore prohibited for these types of financings, including Yamal LNG. The Yamal LNG project’s financing was finalized in successive steps in 2016 in compliance with applicable regulations. The financing of the Arctic LNG 2 project is under discussion.
In addition, the U.S. Department of Commerce has imposed restrictions on exports and reexports of certain goods to Russia under the regulation related to the U.S. export control with respect to certain oil projects, which do not materially impact TOTAL’s current activities in Russia.
In August 2017, the United States adopted the Countering America’s Adversaries Through Sanctions Act ("CAATSA"). This law provides for, in particular, the possibility to impose secondary sanctions against a non-U.S. person who (i) invests in certain types of crude oil projects; (ii) carries out a significant transaction with a sanctioned Russian individual or entity; (iii) carries out a significant transaction with an individual/entity party to or acting on behalf of Russian economic intelligence or defense sectors; (iv) carries out a direct and significant investment (beyond certain amounts), which contributes to the development of Russian export pipelines or (v) sells, leases or provides goods, services, technologies or information that could directly and in a significant manner facilitate the maintenance or expansion of the construction, modernization or repair of energy export pipelines by Russia. This law also, on the one hand, reduced the maturity periods of debts restricting the financing of certain entities and, on the other hand, extended, as from January 29, 2018, the prohibition applicable to certain entities to export goods and services outside of Russia in support of exploration or production projects of oil in deep water, beyond the Arctic offshore, or concerning shale formations (shale oil).
On April 6, 2018, the American Department of Treasury’s Office of Foreign Assets Control (OFAC) for the first time designated and registered certain Russian oligarchs and political figures, as well as several entities owned by them, on the list of Specially Designated Nationals and Blocked Persons List. Non-U.S. persons may now be sanctioned under secondary sanctions for having carried out significant transactions with the designated persons.
TOTAL continues its activities in Russia in compliance with applicable sanctions regimes.
(1) Cuban Assets Control Regulations (CACR), 31 CFR Part. 515.
(2) Export Administration Regulations (EAR) § 734.3.
(3) "U.S. person" means any U.S. citizen and permanent resident alien wherever he/she is in the world, entity organized under the laws of the United States or any jurisdiction within the United States, including foreign branches, or any person or entity located in the United States.
(4) Certain U.S. and EU human rights-related and terrorism-related sanctions remain in force.
(5) TOTAL was an operator of the SP11 project and held 50.1% alongside the national Chinese company China National Petroleum Corporation ("CNPC") (30%) and Petropars (19.9%), a 100% owned subsidiary of NIOC.
(6) A Russian company listed on the Moscow and London stock exchanges and in which the Group held an interest of 19.4% as of December 31, 2018.
(7) A company jointly owned by PAO Novatek, Total E&P Yamal (20.02%), China National Oil and Gas Exploration Development Corporation - CNODC, a subsidiary of CNPC and Silk Road Fund.
(8) A company jointly owned by PAO Novatek and Total Termokarstovoye BV (49%).
(9) A company wholly-owned owned by PAO Novatek as of December 31, 2018.
As of December 31, 2018, TOTAL held 21% of its proved reserves in Russia, where the Group had 14% of its combined oil and gas production in 2018.
D) Restrictions against Syria
The EU adopted measures in 2011 regarding trade with and investment in Syria that are applicable to European persons and to entities constituted under the laws of an EU Member State, including, notably, a prohibition on the purchase, import or transportation from Syria of crude oil and petroleum products. The United States also has adopted comprehensive measures that broadly prohibit trade and investment in and with Syria. Since 2011, the Group ceased its activities that contributed to oil and gas production in Syria and has not purchased hydrocarbons from Syria since that time (refer to point 3.1.9.2).
E) Restrictions against Venezuela
Since 2014, different Sanctions Regimes were adopted relating to Venezuela, including prohibitions to deal with certain Venezuelan individuals and entities, as well as restrictions on financings.
In August 2017, the United States adopted economic sanctions relating to the Government of Venezuela as well as certain state-owned or controlled entities (collectively, the "Government of Venezuela"), including Petroleos de Venezuela, S.A. ("PdVSA") as well as entities in which PdVSA (individually or with other similarly targeted persons or entities collectively) owns an interest of at least 50% (which includes Petrocedeño S.A., a company in which the Group held an interest of 30.32% as of December 31, 2018). These sanctions prohibit all U.S. persons (1) from transacting in, providing financing for or otherwise dealing in debt issued by PdVSA as from August 25, 2017 of longer than 90 days maturity. The use of the U.S. dollar is therefore prohibited for these types of financings, including with Petrocedeño S.A.
Since November 13, 2017, Venezuela has also been subject to European sanctions, which mainly provide for the freezing of assets of certain individuals and entities, a military embargo as well as restrictions on the exportation of certain goods.
In May 2018, the United States adopted a new round of sanctions against the Government of Venezuela, prohibiting all U.S. persons from transacting in (i) the purchase of debts owed to the Government of Venezuelan and (ii) the sale, transfer, assignment, or pledging as collateral by the Government of Venezuelan of any equity interest in any entity in which the Government of Venezuela has a 50% or greater ownership interest.
On January 28, 2019, pursuant to Executive Order 13850, American Department of Treasury’s Office of Foreign Assets Control (OFAC) designated and registered PdVSA on the list of Specially Designated Nationals and Blocked Persons List, as well as any entities in which PdVSA owns an interest of at least 50%, including Petrocedeño S.A.
To date, TOTAL has organised the management of its interest to ensure compliance with applicable sanctions.
3.1.9.2 Information concerning certain limited activities in Iran and Syria
Information concerning TOTAL’s activities related to Iran that took place in 2018 provided in this section is disclosed according to Section 13(r) of the Securities Exchange Act of 1934, as amended ("U.S. Exchange Act").
In addition, information for 2018 is provided concerning the payments made by Group affiliates to, or additional cash flow that operations of Group affiliates generate for, the government of any country identified by the United States as a state sponsor of terrorism (currently, Iran, North Korea, Syria and Sudan) (2) or any entity controlled by those governments.
TOTAL believes that these activities are not sanctionable, including for activities previously disclosed. For more information on certain U.S. and EU restrictions relevant to TOTAL in these jurisdictions, refer to point 3.1.9.1 of this chapter.
A) Iran
The Group’s operational activities related to Iran were stopped in 2018 following the withdrawal of the United States from the JCPOA in May 2018 and prior to the re-imposition of U.S. secondary sanctions on the oil industry as of November 5, 2018.
Statements in this section concerning affiliates intending or expecting to continue activities described below are subject to such activities continuing to be permissible under applicable international economic sanctions regimes.
a) Exploration & Production
Following the suspension of certain international economic sanctions against Iran on January 16, 2016, the Group commenced various business development activities in Iran. Total E&P South Pars S.A.S. ("TEPSP") (a wholly-owned affiliate), CNPC International Ltd. ("CNPCI") (a wholly-owned affiliate of China National Petroleum Company) and Petropars Ltd. ("Petropars") (a wholly-owned affiliate of NIOC) signed a 20-year risked service contract in July 2017, (the "Risked Service Contract") for the development and production of phase 11 of the South Pars gas field ("SP11").TEPSP (50.1%) was the operator and a partner of the project alongside CNPCI (30%) and Petropars (19.9%). These companies entered into a joint operating agreement in July 2017 (the "JOA") concerning, among other things, the governance of their obligations under the Risked Service Contract and the designation of TEPSP as the project’s operator.
In 2018, TEPSP continued conducting petroleum operations on behalf of the above-mentioned consortium in accordance with the terms and conditions of the Risked Service Contract and the JOA. In particular, TEPSP: (i) held several meetings with the Iranian authorities, NIOC and other Iranian state owned/controlled entities; (ii) launched tenders for award of service contracts for the purposes of the SP11 project; (iii) negotiated various agreements (such as service and/or supply agreements and bank service agreements); and (iv) performed other activities under the Risked Service Contract and the JOA.
In 2018, TEPSP completed the technical studies, which were started in November 2016, in accordance with the technical services agreement (the "TSA") between NIOC and TEPSP, acting on behalf of the consortium.
(1) "U.S. person" means any U.S. citizen and permanent resident alien wherever he/she is in the world, entity organized under the laws of the United States or any jurisdiction within the United States, including foreign branches, or any person or entity located in the United States.
(2) In North Korea, other than fees related to trademarks and designs paid in 2018, TOTAL is not present. In this country. In Sudan, other than the payment of fees related to trademarks, the Group is not aware of any of its activities in 2018 having resulted in payments to, or additional cash flow for, the government of that country.
However, as a result of the withdrawal of the U.S. from the JCPOA in May 2018, TOTAL ceased all of its activities related to the SP11 project and finalized its withdrawal from the SP11 project on October 29, 2018, at which time it transferred its participating interest and operatorship of the project to CNPCI.
The MOU entered into between TOTAL and NIOC in January 2016 to assess potential developments in Iran (including South Azadegan) was amended to include North Azadegan and to extend its duration. NIOC provided TOTAL in 2017 with technical data on the Azadegan oil field so that it could assess potential development of this field. Representatives of TOTAL held technical meetings in 2017 with representatives of NIOC and its affiliated companies and carried out a technical review of the Azadegan (South & North) oil field as well as the Iran LNG Project (a project contemplating a 10 Mt/y LNG production facility at Tombak Port on Iran’s Persian Gulf coast), the results of which were partially disclosed to NIOC and relevant affiliated companies. In addition, TOTAL signed an MOU in 2017 with an international company to evaluate jointly the Azadegan oil field opportunity with NIOC. This international company decided in February 2018 to withdraw from this technical cooperation and a MOU termination agreement was formally executed with TOTAL on May 16, 2018. Technical studies were pursued by TOTAL until March 2018 on the Azadegan area with regular contacts with NIOC. All work and contacts with NIOC on this subject ceased at the end of March 2018.
During 2018, in connection with the activities under the aforementioned Risked Service Contract and MOUs, and to discuss other new opportunities, representatives of TOTAL attended meetings with the Iranian oil and gas ministry and several Iranian companies with ties to the government of Iran. In connection with travel to Iran in 2018 by certain employees of the Group, TOTAL made payments to Iranian authorities for visas, airport services, exit fees and similar travel-related charges. In addition, representatives of TOTAL had meetings in France with the Iranian ambassador.
Neither revenues nor profits were recognized from any of the aforementioned activities under the aforementioned Risked Service Contract and MOUs in 2018.
Maersk Oil studied two potential projects with NIOC, prior to the acquisition of Maersk Oil by TOTAL in March 2018. These studies ceased after a meeting with NIOC representatives in May 2018.
The Tehran branch office of TEPSP, opened in 2017 for the purposes of the SP11 project, ceased all operational activities prior to November 1, 2018 and will be closed and de-registered in 2019. Since November 2018, Total Iran BV maintains a local representative office in Tehran with a few employees, solely for non-operational functions. Concerning payments to Iranian entities in 2018, Total Iran BV and Elf Petroleum Iran collectively made payments of approximately IRR 31.7 billion (approximately $300,000 (1)) to the Iranian administration for taxes and social security contributions concerning the personnel of the aforementioned representative office and residual obligations related to various prior risked service contracts. In 2019, similar types of payments are to be made in connection with maintaining the representative office in Tehran, albeit in lower amounts. None of these payments has been or is expected to be executed in U.S. dollars.
Furthermore, Total E&P UK Limited ("TEP UK"), a wholly-owned affiliate, holds a 1% interest in a joint venture for the Bruce field in the United Kingdom with Serica Energy (UK) Limited ("Serica") (98%, operator) and BP Exploration Operating Company Limited ("BP") (1%), following the completion of the sale of 42.25% of TEP UK’s interests in the Bruce field on November 30, 2018 pursuant to a sale and purchase agreement dated August 2, 2018 between TEP UK and Serica. Upon the closing of the transaction on November 30, 2018, all other prior joint venture partners also sold their interests in the Bruce field to Serica (BP sold 36% retaining a 1% interest; BHP Billiton Petroleum Great Britain Limited ("BHP") sold their full 16% interest and Marubeni Oil & Gas (U.K.) Limited (("Marubeni") sold their full 3.75%).
The Bruce field joint venture is party to an agreement (the "Bruce Rhum Agreement") governing certain transportation, processing and operation services provided to another joint venture at the Rhum field in the UK, co-owned by Serica (50%, operator) and the Iranian Oil Company UK Ltd ("IOC"), a subsidiary of NIOC (50%). Under the terms of the Bruce Rhum Agreement, the Rhum field owners pay a proportion of the operating costs of the Bruce field facilities calculated on a gas throughput basis. IOC’s share of costs incurred under the Bruce Rhum Agreement have been paid to TEP UK in 2018 by Naftiran Intertrade Company Limited ("NICO"), the trading branch of the National Iranian Oil Company ("NIOC"). NIOC is the parent company of IOC and an Iranian government owned corporation. In 2018, based upon TEP UK’s 1% interest in the Bruce field and income from the net cash flow sharing arrangement with Serica, gross revenue to TEP UK from IOC’s share of the Rhum field resulting from the Bruce Rhum Agreement was approximately £8 million. This sum was used to offset operating costs on the Bruce field and as such, generated no net profit to TEP UK. This arrangement is expected to continue in 2019.
In 2018, TEP UK acted as agent for BHP and Marubeni, which faced difficulty securing banking arrangements allowing them to accept payments from IOC, and, thus, received payments from IOC in relation to BHP and Marubeni’s share of income from the Bruce Rhum Agreement under the terms of an agency agreement entered into in June 2018 between BHP, Marubeni and TEP UK (the "Agency Agreement"). Payments made from IOC to BHP and Marubeni in 2018 related to the periods prior to the completion of their divestment to Serica in November 2018. Total payment received on behalf of BHP and Marubeni by TEP UK under this arrangement in 2018 was approximately £7 million. This amount relates to income due to BHP and Marubeni under the Bruce Rhum Agreement for 2017 and 2018. TEP UK transferred all income received under the Agency Agreement to BHP and Marubeni and provided the service on a no profit, no loss basis. The Agency Agreement is expected to be terminated upon receipt of all payments relating to the period up to November 30, 2018.
Prior to the re-imposition of U.S. secondary sanctions on the oil industry as of November 5, 2018, TEP UK liaised directly with IOC concerning its interest in the Bruce Rhum Agreement and it received payments directly for services provided to IOC under the Bruce Rhum Agreement. In October 2018, the U.S. Treasury Department’s Office of Foreign Asset Control ("OFAC") granted a new conditional license to BP and Serica authorizing the provision of services to the Rhum field, following the reinstatement of U.S. secondary sanctions. The principal condition of the OFAC license is that the Iranian government’s shareholding in IOC is transferred into a trust in order that Iran may not derive any benefit from the Rhum field or exercise any control while the U.S. secondary sanctions are in place. A Jersey based trust has been put in place with the trustee holding IOC’s shares in the Rhum field. IOC’s interest is now managed by a new independent management company established by the trust and referred to as the "Rhum Management Company" ("RMC") and where necessary TEP UK liaises, and expects to continue doing so in 2019, with RMC in relation to the Bruce Rhum Agreement.
TEP UK is also party to an agreement with Serica whereby TEP UK uses reasonable endeavors to evacuate Rhum NGL from the St Fergus Terminal (the "Rhum NGL Agreement"). TEP UK provides this service - subject to Serica having title to all of the Rhum NGL to be evacuated and Serica having a valid license from OFAC for the activity - on a cost basis, but for which TEP UK charges a monthly handling fee that generates an income of approximately £35,000 per annum relating to IOC’s 50% stake in the Rhum field. After costs, TEP UK realizes little profit from this arrangement.TEP UK expects to continue this activity in 2019.
(1) Converted using the average exchange rate for fiscal year 2018, as published by Bloomberg.
Following the acquisition of Maersk Oil in 2018, the undeveloped Yeoman discovery is now wholly owned by the Group, under license P2158 granted to Maersk Oil North Sea UK Limited, recently renamed Total E&P North Sea UK Limited ("TEPNSUK"). Yeoman is situated adjacent to the Pardis discovery in which IOC held an interest, which it sold in October 2018. Prior to this divestment, non-legally binding technical and commercial discussions had taken place between TEPNSUK, IOC and the UK Government’s Oil and Gas Authority during the first half of 2018 regarding a potential joint development of Yeoman and Pardis but no contractual arrangements were implemented in connection with such discussions. Also prior to this divestement, other discussions had taken place between TEPNSUK and IOC on an informal basis regarding a potential farm-in to Pardis by Maersk Oil.
Lastly, TOTAL S.A. paid approximately €8,000 to Iranian authorities related to various patents (1) in 2018. Similar payments are expected to be made in 2019 for such patents.
b) Other business segments
In 2018, TOTAL S.A. paid fees of approximately €1,500 to Iranian authorities related to the maintenance and protection of trademarks and designs in Iran. Similar payments are expected to be made in 2019.
Trading & Shipping
Following the suspension of applicable EU and U.S. economic sanctions in 2016, the Group commenced the purchase of Iranian hydrocarbons through its wholly-owned affiliate TOTSA TOTAL OIL TRADING SA ("TOTSA"). In 2018, the Group continued its trading activities with Iran via TOTSA, which purchased approximately 18 Mb of Iranian crude oil for nearly €1 billion pursuant to term contracts. It is not possible to estimate the gross revenue and net profit related to these purchases because the totality of this crude oil was used to supply the Group’s refineries. In addition, in 2018, approximately 1 Mb of petroleum products were sold to entities with ties to the government of Iran. These activities generated gross revenue of nearly €43 million and a net profit of approximately €1 million. The Group ceased these activities in June 2018.
Gas, Renewables & Power
Saft Groupe S.A. ("Saft"), a wholly-owned affiliate, in 2018 sold signaling and backup battery systems for metros and railways as well as products for the utilities and oil and gas sectors to companies in Iran, including some having direct or indirect ties with the Iranian government. In 2018, this activity generated gross revenue of approximately €2.5 million and net profit of approximately €0.3 million. Saft ceased this activity in 2018. Saft also attended the Iran Oil Show in 2018, where it discussed business opportunities with Iranian customers, including those with direct or indirect ties with the Iranian government. Saft ceased this activity in 2018.
Total Eren, a company in which Total Eren Holding holds an interest of 68.76% (TOTAL S.A. owns 33.86% of Total Eren Holding), had preliminary discussions during January to March 2018 for possible investments in renewable energy projects in Iran, including meetings with ministries of the Iranian government. These discussions and meetings ceased as of March 2018 and neither revenues nor profits were recognized from this activity in 2018.
Refining & Chemicals
As of May 2018, Hutchinson SA and its affiliates no longer accepted orders from Iranian companies and ceased all activities, in general, with Iran and all Iranian companies prior to August 6, 2018.
Le Joint Français, a wholly-owned affiliate of Hutchinson SA, sold vehicular O-ring seals in 2018 to Iran Khodro, a company in which the government of Iran holds a 20% interest and which is supervised by Iran’s Industrial Management Organization. This activity generated gross revenue of approximately €54,056 and net profit of approximately €8,108.
Paulstra S.N.C., a wholly-owned affiliate of Hutchinson SA, obtained in 2017 an order from Iran Khodro to sell vehicular anti-vibration systems over a 5-year period. This activity did not generate any gross revenue or net profit in 2018 because Paulstra did not delivery any product to Iran Khodro. The order was terminated in 2018. Paulstra S.N.C. also sold oil seals in 2018 to Iran Khodro. This activity generated gross revenue of approximately €1,078,887 and net profit of approximately €161,833.
Catelsa Caceres, a wholly-owned affiliate of Hutchinson Iberia, itself wholly-owned by Hutchinson SA, sold sealing products to Iran Khodro in 2018. This activity generated gross revenue of approximately €1,449 and net profit of approximately €217.
Hutchinson GMBH, a wholly-owned affiliate of Hutchinson SA, sold hoses for automotive vehicles to Iran Khodro in 2018. This activity generated gross revenue for approximately €257,400 and net profit of approximately €38,610. The last shipments from Hutchinson and its affiliates to Iran Khodro were in August 2018 and last payments were made in October 2018.
Hanwha Total Petrochemicals ("HTC"), a joint venture in which Total Holdings UK Limited (a wholly-owned affiliate) holds a 50% interest and Hanwha General Chemicals holds a 50% interest, purchased approximately 17 Mb of condensates from NIOC for approximately KRW 1,310 billion (approximately $1.2 billion) from January to July 2018, then HTC stopped purchasing from NIOC. These condensates are used as raw material for certain of HTC’s steam crackers. HTC also chartered fifteen tankers of condensates with National Iranian Tanker Company (NITC), a subsidiary of NIOC, for approximately KRW 24 billion (approximately $22.3 million). In November 2018, South Korea was granted a significant reduction exemption waiver (the "SRE waiver") allowing it to import Iranian condensate from NIOC for six months. For 2019, based on the SRE waiver, HTC is reviewing the feasibility to resume purchases from NIOC.
Total Research & Technology Feluy ("TRTF", a wholly-owned affiliate), Total Marketing & Services ("TMS", a wholly-owned affiliate), and Total Raffinage Chimie ("TRC") paid in 2018 fees totaling approximately €1,000 to Iranian authorities related to various patents. Similar payments are expected to be made by TRTF and TRC in 2019. TMS abandoned its patent rights in Iran in 2018, thus no payments are expected by TMS in 2019.
Marketing & Services
Until December 2012, at which time it sold its entire interest, the Group held a 50% interest in the lubricants retail company Beh Tam (formerly Beh Total) along with Behran Oil (50%), a company controlled by entities with ties to the government of Iran. As part of the sale of the Group’s interest in Beh Tam, TOTAL S.A. agreed to license the trademark "Total" to Beh Tam for an initial 3-year period (renewed for an additional 3 year period) for the sale by Beh Tam of lubricants to domestic consumers in Iran. Royalty payments for 2014 were received by TOTAL S.A. during the first semester of 2018 in the amount of approximately €730,000. There remain outstanding royalty payments for 2015 through 2017 in favor of TOTAL S.A. This licensing agreement was terminated in 2018. In addition, representatives of Total Oil Asia-Pacific Pte Ltd, a wholly-owned affiliate, visited Behran Oil beginning 2018 regarding the potential purchase of 50% of the share capital of Beh Tam. Discussions on this matter ended following the announcement of the re-imposition of U.S. secondary sanctions on the oil industry.
(1) Section 560.509 of the U.S. Iranian Transactions and Sanctions Regulations provides an authorization for certain transactions in connection with patent, trademark, copyright or other intellectual property protection in the United States or Iran, including payments for such services and payments to persons in Iran directly connected to intellectual property rights, and TOTAL believes that the activities related to the industrial property rights described in this point 3.1.9.2 are consistent with that authorization.
Total Marketing Middle East FZE, a wholly-owned affiliate, sold lubricants to Beh Tam in 2018. The sale in 2018 of approximately 43 t of lubricants and special fluids generated gross revenue of approximately AED 500,000 (approximately $136,000) and net profit of approximately AED 260,000 (approximately $71,000) (1). The company stopped all transactions with this customer as of August 2018.
Total Marketing France ("TMF"), a company wholly-owned by TMS, provided in 2018 fuel payment cards to the Iranian embassy and delegation to UNESCO in France for use in the Group’s service stations. In 2018, these activities generated gross revenue of approximately €32,000 and net profit of approximately €5,000. The company expects to continue this activity in 2019.
TMF also sold jet fuel in 2018 to Iran Air as part of its airplane refueling activities in France. The sale of approximately 260 cubic meters of jet fuel generated gross revenue of approximately €130,000 and net profit of approximately €570. The company stopped all transactions with this customer prior to November 5, 2018.
Total Belgium, a wholly-owned affiliate, provided in 2018 fuel payment cards to the Iranian embassy in Brussels (Belgium) for use in the Group’s service stations. In 2018, these activities generated gross revenue of approximately €11,000 and net profit of approximately €4,000. The company expects to continue this activity in 2019.
B) Syria
Since early December 2011, TOTAL has ceased its activities that contribute to oil and gas production in Syria and maintains a local office solely for non-operational functions. In late 2014, the Group initiated a downsizing of its Damascus office and reduced its staff to a few employees. In 2018, TOTAL paid approximately €84,000 to the Syrian government as contributions for social security in relation to the aforementioned personnel.
In addition, the Group paid fees related to various industrial property rights (patents, trademarks and designs) in 2018.
3.2 Legal and arbitration proceedings
There are no governmental, legal or arbitration proceedings, including any proceeding of which the Company is aware that are pending or threatened against the Company, that could have, or could have had during the last 12 months, a material impact on the Group’s financial situation or profitability.
Described below are the main administrative, legal and arbitration proceedings in which the Company and the other entities of the Group are involved.
Alitalia
In the Marketing & Services segment, a civil proceeding was initiated in Italy, in 2013, against TOTAL S.A. and its subsidiary Total Aviazione Italia Srl before the competent Italian civil court. The plaintiff claims against TOTAL S.A., its subsidiary and other third parties, damages that it estimates to be nearly €908 million. This proceeding follows practices that had been condemned by the Italian competition authority in 2006. The parties have exchanged preliminary findings and a request for an expert opinion has been approved by the court. The existence and the assessment of the alleged damages in this procedure involving multiple defendants remain contested.
FERC
The Office of Enforcement of the U.S. Federal Energy Regulatory Commission (FERC) began in 2015 an investigation in connection with the natural gas trading activities in the United States of Total Gas & Power North America, Inc. (TGPNA), a U.S. subsidiary of the Group. The investigation covered transactions made by TGPNA between June 2009 and June 2012 on the natural gas market. TGPNA received a Notice of Alleged Violations from FERC on September 21, 2015. On April 28, 2016, FERC issued an order to show cause to TGPNA and two of its former employees, and to TOTAL S.A. and Total Gas & Power Ltd., regarding the same facts. TGPNA contests the claims brought against it. A class action, launched to seek damages from these three companies, was dismissed by a judgment of the U.S. District court of New York issued on March 15, 2017. The Court of Appeal upheld this judgment on May 4, 2018.
Grande Paroisse
On September 21, 2001, an explosion occurred at the industrial site of Grande Paroisse (a former subsidiary of Atofina which became a subsidiary of Elf Aquitaine Fertilisants on December 31, 2004). The explosion caused the death of 31 people, including 21 workers at the site, injured many others and caused significant damage on the site and to property in the city of Toulouse.
After many years, the investigating magistrate brought charges against Grande Paroisse and the former Plant Manager before the Toulouse Criminal Court. On November 19, 2009, this tribunal acquitted both the former Plant Manager and Grande Paroisse due to the lack of reliable evidence for the explosion. The Court declared Grande Paroisse civilly liable for the damages caused by the explosion to the victims in its capacity as custodian and operator of the plant.
On September 24, 2012, the Court of Appeal of Toulouse convicted Grande Paroisse and the former Plant Manager.
On January 13, 2015, the French Supreme Court (Cour de cassation) fully quashed the decision of September 24, 2012. The case was referred back to the Court of Appeal of Paris, which, on October 31, 2017, convicted Grande Paroisse and the former Plant Manager. Both have decided to appeal this decision before the French Supreme Court (Cour de cassation).
A compensation mechanism for victims was set up immediately following the explosion. €2.3 billion was paid for the compensation of claims and related expenses amounts. A €10 million reserve remains booked in the Group’s Consolidated Financial Statements as of December 31, 2018.
Iran
In 2003, the Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation against TOTAL, and other oil companies, for alleged violations of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations in connection with the pursuit of business in Iran in the 1990s.
(1) Converted using the average exchange rate for fiscal year 2018, as published by Bloomberg.
In late May 2013, and after several years of discussions, TOTAL reached settlements with the U.S. authorities (a Deferred Prosecution Agreement with the DoJ and a Cease and Desist Order with the SEC). These settlements, which put an end to these investigations, were concluded without admission of guilt and in exchange for TOTAL respecting a number of obligations, including the payment of a fine and civil compensation for an aggregate amount of $398.2 million. By virtue of these settlements, TOTAL also accepted the appointment of an independent compliance monitor to review the Group’s compliance program and to recommend possible improvements.
In July 2016, the monitor submitted his third and final report, in which he certified that TOTAL had devised and implemented an appropriate compliance program. As a result of this certification, the U.S. authorities, after having reviewed the monitor’s report, concluded that TOTAL had fulfilled all of its obligations, thus bringing an end to the monitoring process. As a result, a Court in the State of Virginia granted a motion to dismiss on November 9, 2016, thereby terminating the procedure directed at the Company, which can no longer be pursued in the United States for these same facts.
With respect to the same facts, TOTAL was placed under formal investigation in France in 2012. In October 2014, the investigating magistrate decided to refer the case to trial. Pursuant to a judgment issued on December 21, 2018, the Paris Criminal Court convicted TOTAL of corruption of foreign official and ordered the Company to pay a €500,000 fine. Given the specific circumstances of this case, which has been already judged in the U.S. and in which none of the individuals can defend themselves, TOTAL did not want to pursue the case. This decision is thus definitive.
Italy
As part of an investigation led by the Public Prosecutor of the Potenza Court in 2007, Total Italia and also certain Group employees were the subjects of an investigation related to alleged irregularities in connection with the purchase of lands and the award of calls for tenders in relation to the preparation and development of an oil field located in the south of Italy.
Pursuant to a judgment issued on April 4, 2016, the Potenza Criminal Court found four employees to be guilty of corruption, with two of these employees also being found guilty of misappropriation in connection with the purchase of land. The procedure with respect to Total Italia was sent back to the public prosecutor due to the imprecision of the terms of prosecution. The four employees decided to challenge the judgment before the Court of Appeal.
Pursuant to a definitive judgment issued on February 20, 2018 the Court of Appeal of Potenza recorded the termination of the proceedings directed towards the four employees prosecuted for corruption because of the expiration of the statute of limitation.
Pursuant to a judgment issued on July 17, 2018, the Court of Appeal of Potenza acquitted two of the Group’s employees prosecuted for misappropriation. The public prosecutor and a civil party (plaintiff) have decided to appeal this decision.
3.3 Internal control and risk management procedures
The following information was prepared with the support of several functional divisions of the Company, and in particular the Audit & Internal Control, Legal and Finance Divisions. It was examined by the Audit Committee, then approved by the Board of Directors.
3.3.1 Fundamental elements of the internal control and risk management systems
The Group is structured around its business segments, to which the Group’s operational entities report. The business segments’ management are responsible, within their area of responsibility, for ensuring that operations are carried out in accordance with the strategic objectives defined by the Board of Directors and General Management. The functional divisions at the Holding level help General Management define norms and standards, oversee their application and monitor activities. They also lend their expertise to the operational divisions.
The Group’s internal control and risk management systems are structured around a three-level organization - Holding level, business segments, operational entities - where each level is directly involved and accountable in line with the level of delegation determined by General Management.
General Management constantly strives to maintain an efficient internal control system, based on the framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In this framework, internal control is a process intended to provide reasonable assurance that the objectives related to operations, reporting and compliance with applicable laws and regulations are achieved. As for any internal control system, it cannot provide an absolute guarantee that all risks are completely controlled or eliminated.
The COSO framework is considered equivalent to the reference framework of the French Financial Markets Authority (Autorité des marchés financiers). The Group has also chosen to rely on this framework as part of its obligations under the Sarbanes-Oxley Act. The Group’s internal control and risk management systems are therefore based on the five components of this framework: control environment, risk assessment, control activities, monitoring, and information and communication.
The Group’s risk management system draws on the main international standards (COSO Enterprise Risk Management integrated framework, ISO 31000: 2018 - Risk management) as well as on French standards (Reference framework of the French Financial Markets Authority). The internal Risk Management, Internal Control and Audit Charter forms the common framework on which the Group relies to ensure control of its activities.
The Group’s internal control and risk management systems cover the processes of the fully consolidated entities. Regarding acquisitions, the Group’s control environment is implemented in the acquired entities after a critical analysis of their own systems.
The principles of control fit into the framework of the rules of corporate governance. In particular, these rules task the Board of Directors’ Audit Committee with monitoring the efficiency of the internal control and risk management systems, and of the internal audit performed to assess the risk management systems at all levels of the organization and make recommendations for their improvement. The Audit Committee also monitors the process of producing accounting and financial information, in order to guarantee its integrity.
Approximately 400 employees monitor the internal control systems within the Group. The assessment of the internal control and risk management system is mainly overseen by the Audit & Internal Control Division.
3.3.2 Control environment
Integrity and ethics - Framework
TOTAL’s control environment is based primarily on its Code of Conduct, which spells out the Group’s values, two of which are core values: Safety and Respect for Each Other, the latter being reflected in the areas of integrity (fraud and corruption), respect for human rights as well as environment and health. The principles of the Code of Conduct are set forth in a number of guides, such as the Business Integrity Guide and the Human Rights Guide. These documents are distributed to employees and are available on the intranet. They also set out the rules of individual behavior expected of all employees in the countries where the Group is present. Similarly, a Financial Code of Ethics sets forth the obligations applicable to the Chairman and Chief Executive Officer, the Chief Financial Officer, the Vice President of the Corporate Accounting Division and the financial and accounting officers of the principal Group activities.
As a priority of General Management, the Group deploys an integrity policy and compliance programs, in particular for the prevention of corruption, fraud and competition law infringement. These programs include reporting and control actions (review and audit missions). Ethical assessments are also conducted (refer to point 5.7 of chapter 5). In these areas, the Group relies on the Compliance network, the Ethics officers’ network and the Ethics Committee, the role of which is to listen and provide assistance.
TOTAL has a framework of Group standards that is completed by a series of practical recommendations and feedback. Like the Group’s organization, this framework has a three-level structure: a Group level, frameworks for each business segment, and a specific framework for each significant operational entity.
Governance, authorities and responsibilities
The Board of Directors, with the support of its Committees, ensures that the internal control functions are operating properly. The Audit Committee ensures that General Management implements internal control and risk management procedures based on the risks identified, such that the Group’s objectives are achieved.
General Management ensures that the organizational structure and reporting lines plan, execute, control and periodically assess the Group’s activities. It regularly reviews the relevance of the organizational structures so as to be able to adapt them quickly to changes in the activities and in the environment in which they are carried out.
The business segments and operational entities’ General management are responsible for the internal control and risk management system within their scope of responsibility.
The Group has also defined central responsibilities that cover the three lines of internal control: (1) operational management, which is responsible for implementing internal control, (2) support functions (such as Finance, Legal, Human Resources, etc.), which prescribe the internal control systems, verify their implementation and effectiveness and assist operational employees, and (3) internal auditors who, through their internal control reports, provide recommendations to improve the effectiveness of the system.
An accountability system is defined and formalized at all levels of the organization, through organization notes, organization charts, appointment notes, job descriptions and delegations of powers. Each business segment has established, in accordance with the Group’s instructions, clear rules applicable to its own scope.
The Group’s Audit & Internal Control Division pursues a continual process aimed at strengthening the assessment of the role and involvement of all employees in terms of internal control. Training initiatives tailored to the various stakeholders involved in the internal control process are regularly launched within the Group.
Control activities and assessment
Any activity, process or management system may be the subject of an internal audit conducted by Group Audit, in accordance with the international internal audit framework of internal audits and its Code of Conduct. The Group’s Audit & Internal Control Division also conducts joint audits with third parties and provides assistance (advice, analysis, input regarding methodology). The audit plan, which is based on an analysis of the risks and risk management systems, is submitted annually to the Executive Committee and the Audit Committee. The Group’s Audit & Internal Control Division employs 75 people and conducted about 150 internal audit missions in 2018.
The Group regularly examines and assesses the design and effectiveness of the key operational, financial and information technology controls related to internal control over financial reporting, in compliance with the Sarbanes-Oxley Act. In 2018, this assessment was performed with the assistance of the Group’s main entities and Audit & Internal Control Division. The system covers:
-the most significant entities, which assess the key operational controls of their significant processes and respond to a Group questionnaire for assessing the internal control framework; and
-other less significant entities, which respond only to the Group questionnaire for assessing the internal control system.
These two categories of entities, which include the central functions of the business segments and the corporate, account for approximately 80% and 10%, respectively, of the financial aggregates in the Group’s Consolidated Financial Statements.
Direct Énergie, Quadran and Global LNG, entities acquired in 2018, are excluded from the scope of the assessment and conclusion on the effectiveness of internal control over financial reporting. These three entities represented respectively 1.34%, 0.50% and 2.15% of the Group’s consolidated balance sheet as of December 31, 2018 and 0.34%, 0.04% and 0.07% of the Group’s 2018 consolidated sales.
The statutory auditors also review the internal controls that they deem necessary as part of their certification of the financial statements. Pursuant to American regulations, they reviewed in 2018 the implementation of the Group’s internal control framework and the design and effectiveness of key internal controls in its main entities regarding financial reporting. Based on their review, the statutory auditors stated that they had no remarks on the information presented on internal control and risk management procedures.
The reports on the work performed by the Group Audit and statutory auditors are periodically summarized and presented to the Audit Committee and, thereby, to the Board of Directors. The Senior Vice President, Audit & Internal Control attended all Audit Committee meetings held in 2018. The Audit Committee also meets with the statutory auditors at least once a year without any Company representatives present.
If areas of improvement are identified by these internal audits and operational controls, then corrective action plans are drawn up and shared with operational management, who, along with the Group’s Audit & Internal Control Division, monitor their implementation closely.
Based on the internal reviews, General Management has reasonable assurance of the effectiveness of the Group’s internal control.
3.3.3 Risk assessment and management
3.3.3.1 General principles
To implement its strategy, General Management ensures that clear and precise objectives are defined at the various levels of the organization with regard to operations, reporting and compliance.
Operational objectives focus on the definition and efficient use of human, financial and technical resources. In particular, they are defined during the budgetary processes and in the long-term plan, and are regularly monitored as part of the self-assessment process.
The monitoring of operational objectives (financial and non-financial) helps in decision-making and monitoring the performance of activities at each level of the organization.
The Group implements a risk-management system that is an essential factor in the deployment of its strategy, based on responsible risk-taking.
This system relies on a continuous process of identifying and analyzing risks in order to determine those that could prevent the achievment of TOTAL’s goals.
The Executive Committee, with the assistance of the Group Risk Management Committee (GRMC), is responsible for identifying and analyzing internal and external risks that could impact the achievement of the Group’s objectives. The main responsibilities of the GRMC include ensuring that the Group has a map of the risks to which it is exposed and that suitable risk management systems are in place. The GRMC’s work focuses on continuously improving risk awareness and the risk management systems.
Risk mapping, which has been carried out since the 2000s, is a dynamic process that has taken shape over the years. The Group’s risk map feeds the audit plan, which is based on an analysis of the risks and the risk management systems, and the work of the GRMC.
The GRMC relies on the work carried out by the business segments and functional divisions, which concurrently establish their own risk mapping. The business segments are responsible for defining and implementing a risk management policy suited to their specific activities. However, the handling of certain transverse risks is more closely coordinated by the respective functional divisions.
Regarding commitments, General Management exercises operational control over TOTAL’s activities through the Executive Committee’s approval of investments and expenses that exceed defined thresholds. The Risk Committee (CORISK) is tasked with reviewing these projects in advance, and in particular, with verifying the analysis of the various associated risks.
3.3.3.2 Implementation of the organizational framework
The Group Risk Management Committee (GRMC)
The GRMC is chaired by a member of the Executive Committee, the Group’s Chief Financial Officer, and includes the Senior Vice Presidents of the corporate functions, together with the chief administrative officers or chief financial officers of the business segments. The Group’s Chief Financial Officer attends all meetings of the Board of Directors’ Audit Committee, thus strengthening the link between the GRMC and the Audit Committee.
The GRMC meets six times a year. At each meeting, the participants share any potential risks they have identified and presentations are given on one or more risk-related topics, during which the members of the GRMC are invited to cast a critical eye over the subject, question the work done and, if applicable, provide additional information or clarification in order to enhance the understanding of the risk and improve the risk management systems. The GRMC can request that actions be taken.
The work of the GRMC is led by the Audit & Internal Control Division, which assists contributors in preparing the presentations and acts as the committee’s secretary. In this capacity, the Audit & Internal Control Division reports regularly on the work of the GRMC to the Executive Committee, and once a year to the Audit Committee in the presence of the Group’s Chief Financial Officer who chairs the GRMC.
The Risk Committee (CORISK)
The Risk Committee is chaired by a member of the Executive Committee (Senior Vice President of Strategy & Innovation or Chief Financial Officer). It is made up of representatives from the corporate Strategy & Climate, Finance, Legal, Insurance and HSE divisions.
The Risk Committee meets on the same schedule as the Executive Committee. Any project submitted to the Executive Committee (and therefore giving rise to a financial commitment that exceeds certain thresholds) is first presented to the Risk Committee by the relevant operational division.
Following the review by the Risk Committee of the risks associated with the project submitted, the Strategy & Climate Division sends the Executive Committee a memorandum stating its opinion in light of the Risk Committee’s comments.
The Audit & Internal Control Division
The Risk Team of the Audit & Internal Control Division is responsible for producing and continuously updating the Group’s risk map. To this end, it uses all of the risk-mapping work carried out across the Group, in the business segments and in the functional divisions, the results of all audits and internal control activities, the action plans resulting from this work and the monitoring of their implementation, structured feedback, benchmarks and other external information sources, regular interviews with the Group’s executive officers, and all information gathered during GRMC meetings and the preparation for these meetings.
The Audit & Internal Control Division reports regularly on its work related to the Group’s risk map to the Executive Committee, which are presented annually to the Audit Committee.
3.3.3.3 Systems in place
Risk management systems are implemented in the operational and financial fields as well as in information systems and protection of intellectual assets. Specific systems are deployed to prevent risks related to ethics and non-compliance. The main risk management systems covering health, safety, industrial security, the environment and the prevention of corruption are presented in the statement of non-financial performance (chapter 5).
Financial risks
The management and conditions of use of financial instruments are governed by strict rules that are defined by the Group’s General Management, and which provide for centralization by the Treasury Division of liquidity, interest and exchange rate positions, management of financial instruments and access to capital markets. The Group’s financing policy consists of incurring long-term debt at a floating rate or at a fixed rate, depending on the Group’s general corporate needs, and interest rates. Debt is incurred mainly in dollars or euros.
The Group’s cash balances, which mainly consist of dollars and euros, are managed to maintain liquidity based on daily interest rates in the given currency. Maximum amounts are set for transactions exceeding one month, with placements not to exceed 12 months. TOTAL S.A. also has committed credit facilities granted by international banks. These credit facilities, along with the Group’s net cash position, allow it to continually maintain a high level of liquidity in accordance with targets set by General Management.
In terms of counterparty risk in financial transactions, the Group adheres to a cautious policy, and only makes commitments with institutions featuring a high degree of financial soundness, as based on a multi-criteria analysis. An overall credit limit is set for each authorized financial counterparty and allocated among the subsidiaries and the Group’s central treasury entities according to their needs. In addition, to reduce market value risk on its commitments, the Treasury Division has entered into margin call contracts with its counterparties. In addition, since December 21, 2018, pursuant to Regulation (EU) No. 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR), some of the interest rate swaps entered into by the Group are now being centrally cleared.
The Group seeks to minimize its currency exposure, on the one hand, by financing its long-term assets in the functional currency of the entity to which they belong and, on the other hand, by systematically hedging the currency exposure generated by commercial activity. These risks are managed centrally by the Treasury Division, which operates within a set of limits defined by General Management.
The policy for managing risks related to financing and cash management activities, as well as the Group’s currency exposure and interest rate risks, are described in detail in Note 15 to the Consolidated Financial Statements (point 8.7 of chapter 8).
Risks related to information systems
In order to maintain information systems that are appropriate to the organization’s needs and limit the risks associated with information systems and their data, TOTAL’s IT Division has developed and distributed governance and security rules that describe the recommended infrastructure, organization and procedures. These rules are implemented across the Group under the responsibility of the various business segments. To address cyber threats, the Group conducts specific risk analyses permitting to define and put in place appropriate security controls concerning information systems.
The Group has also developed control activities at various levels of the organization relating to areas where information systems cover all or part of the processes. Information Technology General Controls aim to guarantee that information systems function and are available as required, and that data integrity and confidentiality are also ensured and changes controlled.
Information Technology Automated Controls aim to ensure the integrity and confidentiality of data generated or supported by business applications, particularly those that impact financial flows.
The outsourcing of some components of the Group’s IT infrastructure to service providers poses specific risks and requires the selection and development of additional controls of the completeness, accuracy and validity of the information supplied and received from such service providers. Accordingly, to ensure continuous improvement, the Group assesses whether suitable controls are implemented by the service providers concerned and identifies the controls necessary within its own organization to maintain these risks at an acceptable level.
Furthermore, faced with rising legal and security-related risks, the Group deploys policies to retain documents and to protect personal data and the security of its information assets. The Group has also employed an Operational Security Center to detect and analyze IT system security events.
Ethical misconduct and non-compliance risks
Fraud prevention
The Group deploys an anti-fraud and fraud-prevention program and has implemented a range of procedures and programs that help to prevent and detect different types of fraud. This effort is supported by the business principles and values of individual behavior described in the Group’s Code of Conduct and other standards applied by the Group’s business segments.
The Group has issued a directive for handling incidents of fraud that has been widely distributed to employees, and has created an alert system that employees can use to report acts including those that may constitute fraud.
An anti-fraud compliance program has been deployed since 2015, including e-learning modules for all Group employees, a Guide to the "Prevention and the fight against fraud", a map of the risks of fraud in the Group, a guide to the types of risk of fraud that includes descriptions of the main risks and was published in 2016, and campaigns to raise awareness of the major risks of fraud, launched at the end of 2016 and 2018. This program is deployed by the network of fraud risk coordinators in the business segments and operational entities. The role of coordinator is usually performed by the Compliance Officer. Fraud risk analyses are also carried out in the subsidiaries.
For information on prevention of corruption, refer to point 5.8.1 of chapter 5.
Prevention of competition law infringement
A Group policy aimed at ensuring compliance with, and preventing infringement of, competition law has been in place since 2014 and is a follow-up to the various measures previously implemented by the business segments. Its deployment is based, in particular, on management and staff involvement, training courses that include an e-learning module, and an appropriate organization.
Prevention of conflicts of interest and market abuse
To prevent conflicts of interest, each of the Group’s senior executives completes an annual statement declaring any conflicts of interest to which they may be subject. By completing this declaration, each senior executive also agrees to report to their supervisor any conflict of interest that he or she has had, or of which he or she is aware in performing his or her duties. An internal rule named "Conflicts of Interests" reminds all employees of their obligation to report to their supervisor any situation that might give rise to a conflict of interests.
The Group implements a policy to prevent market abuse linked to trading on the financial markets that is based, in particular, on internal ethics rules that are updated on a regular basis and distributed. In addition, the Group’s senior executives and certain employees, in light of their positions, are asked to refrain from carrying out any transactions, including hedging transactions, on TOTAL shares or ADRs and in collective investment plans (FCPE) invested primarily in TOTAL shares (as well as derivatives related to such shares) on the day on which the Company discloses its periodic results publications (quarterly, interim and annual), as well as during the 30 calendar-day period preceding such date. An annual campaign specifies the applicable blackout periods.
Prevention of risks of non-compliance with international economic sanctions regimes
The Group’s activities in relation to sanctioned countries (refer to point 3.1.9 of this chapter) are subject to an analysis of compliance with the various applicable economic sanctions regimes. With respect to Iran and until the withdrawal of the Group’s business operations from this country on October 29, 2018, a specific compliance program was put in place. In-depth investigations, carried out by specialized service providers, were conducted on the Group’s stakeholders in Iran, in order to identify possible links with companies or persons listed under international sanctions (Specially Designated
Nationals and Blocked Persons Lists, List of Frozen Assets of the EU and the UN, etc.). U.S. persons (1) were also excluded from any transactions related to Iran. An Iran compliance coordinator, appointed in 2016, liaised with the compliance teams of the relevant business segments and the Holding in order to ensure compliance of the Group’s activities with applicable laws and regulations.
Risks related to the protection of intellectual assets
To mitigate the risks of third parties infringing its intellectual property and the leak of know-how, TOTAL protects its rights under research partnership agreements negotiated by the Group’s intellectual property specialists, the terms and conditions of which are consistent with the Group’s industrial and commercial strategy. The Group has a policy of filing and maintaining patents, it monitors technological developments in terms of freedom of use, and it takes, when necessary, all appropriate measures to ensure the protection of its rights.
In addition, since some of its employees have access to confidential documents while performing their duties, TOTAL has adopted internal rules concerning the management of confidential information. The Group’s intellectual property specialists also carry out awareness-raising activities with Group employees, so that they are better informed about restrictions that may apply to the use of information and data.
3.3.4 Main characteristics of the internal control and risk management procedures relating to the preparation and processing of accounting and financial information
Accounting and financial internal control covers the processes that produce accounting and financial data, and mainly the financial statements processes and the processes to produce and publish accounting and financial information. The internal control system aims to:
-conserve the Group’s assets;
-comply with accounting regulations, and properly apply standards and methods to the production of financial information; and
-guarantee the reliability of accounting and financial information by controlling the production of accounting and financial information and its consistency with the information used to produce the control panels at every appropriate level of the organization.
At Group level, the Finance Division, which includes the Accounting Division, the Budget & Financial Control Division and the Tax Division, is responsible for the production and processing of accounting and financial information. The scope of the internal control procedures relating to the production and processing of financial and accounting information includes the parent company (TOTAL S.A.), and all fully consolidated entities or entities whose assets are under joint control.
Refer to point 4.1.2.3 of chapter 4 for a description of the role and the missions of the Audit Committee. These missions are defined by Directive 2014/56/EU and regulation (EU) n° 537/2014 pertaining to the legal control of accounts.
3.3.4.1 Production of accounting and financial information
Organization of the Financial and Information Systems function
Dedicated teams implement the accounting and financial processes in the areas of consolidation, tax, budget and management control, financing, cash positions and information systems. The entities, business segments and General Management are respectively responsible for accounting activities.
The Accounting Division, which is part of the Finance Division, is responsible for drawing up the Consolidated Financial Statements and manages the Group’s network of accounting teams.
The tax function, made up of a network of tax experts in the Holding, the business segments and the entities, monitors changes in local and international rules. It oversees the implementation of the Group’s tax policy.
Management control contributes to the reinforcement of the internal control system at every level of the organization. The network of management controllers in the entities and the business segments is supervised by the Budget & Financial Control Division. This department also produces the monthly control panel, the budget and the long-term plan for the Group.
The Treasury Division implements the financial policy, and in particular the processing and centralization of cash flows, the debt and liquidity investment policy and the coverage of currency exposure and interest rate risks.
The Information Systems Division makes decisions on the choice of software suited to the Group’s accounting and financial requirements. These information systems are subject to works to reinforce the task separation system and to improve the control of access rights. Tools are available to make sure that access rights comply with the Group’s rules in this area.
Consolidated Financial Statements process
The Accounting Division, which reports to the Finance Division, prepares the Group’s quarterly Consolidated Financial Statements according to IFRS standards, on the basis of the consolidated reporting packages prepared by the entities concerned. The Consolidated Financial Statements are examined by the Audit Committee, then approved by the Board of Directors.
The main factors in the preparation of the Consolidated Financial Statements are as follows:
-the processes feeding the individual accounts used to prepare the reporting packages for consolidation purposes are subject to validation, authorization and booking rules;
-the consistency and reliability of the accounting and control data are validated for each consolidated entity and at each appropriate level of the organization;
-a consolidation tool, supervised by the Accounting Division, is used by each consolidated entity and the Group. It guarantees the consistency and reliability of the data at each appropriate level of the organization;
-a consolidation reporting package from each entity concerned is sent directly to the Accounting Division. It is used to optimize the transmission and the completeness of the information;
-a corpus of accounting rules and methods is formally defined. Its application is compulsory for all the consolidated entities in order to provide uniform and reliable financial information. This framework is built according to IFRS accounting standards. The Accounting Division centrally distributes this framework through regular and formal communication with the business segment managers, formal procedures and a Financial Reporting Manual that is regularly updated. In particular, it specifies the procedures
(1) "U.S. person" means any U.S. citizen and permanent resident alien wherever he/she is in the world, entity organized under the laws of the United States or any jurisdiction within the United States, including foreign branches, or any person or entity located in the United States.
for the booking, identification and valuation of off-balance sheet commitments;
-new accounting standards under preparation and changes to the existing framework are monitored in order to assess and anticipate their impacts on the Consolidated Financial Statements;
-an accounts plan used by all the consolidated entities is formally set forth in the Financial Reporting Manual, specifying the content of each account and the procedures for the preparation of the reporting packages for consolidation purposes;
-the account closing process is supervised and is based mainly on the formalization of economic assumptions, judgments and estimates, treatment of complex accounting transactions and compliance with established timetables announced through Group instructions disclosed to each entity;
-in particular, the process applicable to the preparation of the accounts of the acquired entities are reviewed and, where appropriate, amended to integrate them into those applicable to the preparation of the Consolidated Financial Statements. Furthermore, the booking in the accounts of the purchase price allocation of each of these entities is based on assumptions, estimates and judgments in line with the Group’s business model;
-off-balance sheet commitments, which are valued according to the Financial Reporting Manual are reported on a quarterly basis to the Audit Committee.
Processing of accounting and financial information
Internal control of accounting information is mainly focused around the following areas:
-a monthly financial report is formalized by Group and business segment control panels. This report and the Consolidated Financial Statements use the same framework and standards. In addition, the quarterly closing schedule is the same for preparing the Consolidated Financial Statements and financial reporting;
-a detailed analysis of differences as part of the quarterly reconciliation between the Consolidated Financial Statements and financial reporting is supervised by the Accounting and Budget & Financial Control Divisions, which are part of the Finance Division;
-a detailed analysis of differences between actual amounts and the yearly budget established on a monthly basis is conducted at each level of the organization. The various monthly indicators are used to continually and uniformly monitor the performances of each of the entities, business segments and of the Group, and to make sure that they are in keeping with the objectives;
-an annual reconciliation between the parent company financial statements and the financial statements based on IFRS standards is performed by entity;
-periodic controls are designed to ensure the reliability of accounting information and mainly concern the processes for preparing aggregated financial items;
-a regular process for the signature of representation letters is deployed at each level of the organization;
-an annual control system of the accounts of equity affiliates based on a questionnaire completed by each entity concerned. This system is integrated into the Group’s internal control framework; and
-the Disclosure Committee (CCIP) ensures the respect of the procedures in place.
Other significant financial information is produced according to strict internal control procedures.
Proved oil and gas reserves are evaluated annually by the relevant entities. They are reviewed by the Reserves Committees, approved by Exploration & Production’s general management and then validated by the Group’s General Management. They are also presented to the Audit Committee each year.
The internal control process related to estimating reserves is formalized in a special procedure described in detail in point 2.1.3 of chapter 2. The reserves evaluation and the related internal control processes are audited periodically.
The strategic outlook published by the Group is prepared, in particular, according to the long-term plans drawn up at the business segment and Group levels, and on the work carried out at each relevant level of the organization. The Board of Directors reviews the strategic outlook each year.
3.3.4.2 Publication of accounting and financial information
Significant information about the Group is published externally according to formal internal procedures. These procedures aim to guarantee the quality and fair presentation of the information intended for the financial markets, and its timely publication.
The Disclosure Committee (CCIP), chaired by the Chief Financial Officer, ensures, in particular, the respect of these procedures. It meets before TOTAL’s financial results press releases, strategic presentations and annual reports are submitted to the Audit Committee and the Board of Directors.
A calendar of the publication of financial information is published and made available to investors on the Group’s web site (refer to point 6.6 of chapter 6). With the help of the Legal Division, Investor Relations ensures that all publications are made on time and in accordance with the principle of equal access to information between shareholders.
Assessment of the system for the internal control of accounting and financial information
The Group’s General Management is responsible for implementing and assessing the internal control system for financial and accounting disclosure. In this context, the implementation of the Group’s internal control framework, based on the various components of the COSO framework, is assessed internally at regular intervals within the Group’s main entities.
Pursuant to the requirements introduced by Section 302 of the Sarbanes-Oxley Act, the Chairman and Chief Executive Officer and the Chief Financial Officer of the Company have conducted, with the assistance of members of certain divisions of the Group (in particular Legal, Audit & Internal Control and Corporate Communications), an evaluation of the effectiveness of the internal disclosure controls and procedures, over the period covered by the annual report on Form 20-F. For fiscal year 2018, the Chairman and Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures were effective.
In addition, a specific process is in place for reporting any information related to the Group’s accounting procedures, internal control and auditing. This process is available to any shareholder, employee or third party.
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3.4 Insurance and risk management
3.4.1 Organization
TOTAL has its own reinsurance company, Omnium Reinsurance Company (ORC). ORC is integrated within the Group’s insurance management and is used as a centralized global operations tool for covering the Group companies’ insurable risks. It allows the Group’s worldwide insurance program to be implemented in compliance with the specific requirements of local regulations applicable in the countries where the Group operates.
Some countries may require the purchase of insurance from a local insurance company. If the local insurer agrees to cover the subsidiary of the Group in compliance with its worldwide insurance program, ORC negotiates a retrocession of the covered risks from the local insurer. As a result, ORC enters into reinsurance contracts with the subsidiaries’ local insurance companies, which transfer most of the risk to ORC.
At the same time, ORC negotiates a reinsurance program at the Group level with oil industry mutual insurance companies and commercial reinsurance markets. ORC allows the Group to better manage price variations in the insurance market by taking on a greater or lesser amount of risk corresponding to the price trends in the insurance market.
In 2018, the net amount of risk retained by ORC after reinsurance was, on the one hand, a maximum of $100 million per onshore or offshore third-party liability insurance claim and, on the other hand, $125 million per property damage and/or business interruption insurance claim. Accordingly, in the event of any loss giving rise to an aggregate insurance claim, the effect on ORC would be limited to its maximum retention of $225 million per occurrence.
3.4.2 Risk and insurance management policy
In this context, the Group risk and insurance management policy is to work with the relevant internal department of each subsidiary to:
-define scenarios of major disaster risks (estimated maximum loss);
-assess the potential financial impact on the Group should a catastrophic event occur;
-help implement measures to limit the probability that a catastrophic event occurs and the financial consequences if such event should occur; and
-manage the level of financial risk from such events to be either covered internally by the Group or transferred to the insurance market.
3.4.3 Insurance policy
The Group has worldwide property insurance and third-party liability coverage for all its subsidiaries. These programs are contracted with first-class insurers (or reinsurers and oil and gas industry mutual insurance companies through ORC).
The amounts insured depend on the financial risks defined in the disaster scenarios and the coverage terms offered by the market (available capacities and price conditions).
More specifically for:
-third-party liability: because the maximum financial risk cannot be evaluated by a systematic approach, the amounts insured are based on market conditions and oil and gas industry practice. In 2018, the Group’s third-party liability insurance for any third-party liability (including potential accidental environmental liabilities) was capped at $900 million (onshore) and $850 million (offshore). In addition, the Group adopts, where appropriate, the necessary means to manage the compensation of victims in the event of an industrial accident for which it is liable; and
-property damage and business interruption: the amounts insured vary by sector and by site and are based on the estimated cost and scenarios of reconstruction under maximum loss situations and on insurance market conditions. The Group subscribed for business interruption coverage in 2018 for its main refining and petrochemical sites.
For example, for the Group’s highest risks (its North Sea platforms and main refineries or petrochemical plants), in 2018 the insurance limit for the Group’s share of the installations was approximately $2 billion for the Refining & Chemicals segment and approximately $2.25 billion for the Exploration & Production segment.
Deductibles for property damage and third-party liability fluctuate between €0.1 and €10 million depending on the level of risk and liability, and are borne by the relevant subsidiaries. For business interruption, coverage is triggered 60 days after the occurrence giving rise to the interruption. In addition, the main refineries and petrochemical plants bear a combined retention for property damage and business interruption of $75 million per insurance claim.
Other insurance contracts are bought by the Group in addition to property damage and third-party liability coverage, mainly in connection with car fleets, credit insurance and employee benefits. These risks are mostly underwritten by outside insurance companies.
The above-described policy is provided as an example of a situation as of a given date and cannot be considered as representative of future conditions. The Group’s insurance policy may be changed at any time depending on market conditions, specific circumstances and General Management’s assessment of the risks incurred and the adequacy of their coverage.
TOTAL believes that its insurance coverage is in line with industry practice and sufficient to cover normal risks in its operations. However, the Group is not insured against all potential risks. In the event of a major environmental disaster, for example, TOTAL’s liability may exceed the maximum coverage provided by its third-party liability insurance. The loss TOTAL could suffer in the event of such disaster would depend on all the facts and circumstances of the event and would be subject to a whole range of uncertainties, including legal uncertainty as to the scope of liability for consequential damages, which may include economic damage not directly connected to the disaster. The Group cannot guarantee that it will not suffer any uninsured loss, and there can be no guarantee, particularly in the event of a major environmental disaster or industrial accident, that such loss would not have a material adverse effect on the Group.
3.5 Vigilance Plan
3.5.1 Introduction
3.5.1.1 Background and Group commitments
In accordance with Article L. 225-102-4 of the French Commercial Code, the vigilance plan (hereafter referred to as the "Vigilance Plan") aims to set out the reasonable measures of vigilance put in place within the Group in order to identify the risks and prevent severe impacts on human rights and fundamental freedoms, human health and safety and the environment resulting from the activities of the Company and those of the companies it controls as defined in point II of Article L. 233-16 of the French Commercial Code, directly or indirectly, as well as the activities of subcontractors or suppliers with which it has an established commercial relationship, where such activities are linked to this relationship.
TOTAL operates in over 130 countries in a variety of complex economic and socio-cultural contexts and in business areas that are likely to present risks that fall within the scope of the Vigilance Plan.
The One Total company project, which embodies the Group’s ambition to become the responsible energy major, is based specifically on Safety and Respect for Each Other, the two core values central to the Group’s collective principles. In addition to complying with applicable legislation in each country where the Group operates which most often aims at preventing severe impacts in the scope of Article L. 225-102-4 of the French Commercial Code, TOTAL relies on structured frameworks and stringent risk management systems for the conduct of its operations.
The Vigilance Plan and its implementation are part of a dynamic process aimed at continual improvement of the Group’s practices with regard to the issues identified within each of the areas concerned.
3.5.1.2 Method and preparation of the Vigilance Plan
The Vigilance Plan covers the activities (hereafter referred to as the "Activities") of TOTAL S.A. and its fully consolidated subsidiaries as defined in II of Article L. 233-16 of the French Commercial Code (hereafter referred to as the "Subsidiaries"). Certain companies, such as Hutchinson, Saft Groupe and SunPower, have set up risk management and severe impact prevention measures specific to their organizations and activities; those measures related to Article L. 225-102-4 of the French Commercial Code are specified in the Group’s Vigilance Plan. In addition, for newly acquired companies, reasonable vigilance measures are intended to be implemented progressively during the integration phase of these companies into the Group systems. They do not therefore fall within the scope of the Vigilance Plan for 2018.
The Vigilance Plan also covers the activities of suppliers of goods and services with which TOTAL S.A. and its Subsidiaries have an established commercial relationship, where such activities are associated with that relationship (hereafter referred to as the "Suppliers"). In accordance with legal provisions, suppliers with which the Group does not have an established commercial relationship do not fall within the scope of the Plan.
The Vigilance Plan sets out the rules and measures which, as part of risk management systems, enable the Group to identify and prevent actual or potential severe impacts related to its Activities and to mitigate their effects thereof, as the case may be. It does not guarantee that the risks identified will not materialize. It reflects the responsible purchasing principles applicable to relationships with Suppliers, but is not aimed at replacing the measures in place at those Suppliers.
Finally, the Vigilance Plan covers the risks set forth under Article L. 225-102-4 of the French Commercial Code.
3.5.1.3 Dialogue with stakeholders
TOTAL sets up dialogue procedures with its stakeholders at every level of its organization.
In accordance with the Group’s framework on societal matters, stakeholders are identified, mapped and prioritized according to their levels of expectations and involvement. This mapping is kept up to date. A structured dialogue with the stakeholders is established and maintained, initially at local level but also at the central level.
At the local level, TOTAL has deployed since 2006 its internal Stakeholder Relationship Management (SRM+) methodology. This approach aims to list the main stakeholders of each Subsidiary and site (depots, refineries, etc.), to categorize them, to schedule consultation meetings to better understand their expectations, concerns and opinions. This approach then permits to define action plans to manage the impacts of activities and to take into account local development needs in order to build a long-term trusting relationship. This mechanism is used to explain the Group’s Activities to communities and other stakeholders, and to pay particular attention to potentially vulnerable local populations. It has been integrated in almost all the Subsidiaries. The system is supplemented by a network of mediators with local communities, deployed within the Exploration & Production segment to maintain a constructive dialogue with neighboring communities.
At the central level, the relevant departments of the Holding also ensure that dialogue is maintained with the Group’s stakeholders. For example, in 2018 upon publication of the Information Document on Human Rights, the Human Rights Department of the Civil Society Engagement Division consulted certain of its stakeholders on the risk map published in the 2017 Vigilance Plan. This consultation led to the conclusion that the mapping could thus be maintained.
Among these numerous stakeholders, TOTAL maintains regular dialogue with the Group’s employees and their representatives who have a privileged position and role.
3.5.2 Severe impact risk mapping
The mapping work presented below was carried out using the Group’s existing risk management tools. This work was supplemented with regard to Suppliers by a mapping of the risks related to procurement, by category of goods and services, on the basis of questionnaires completed by the managers of each purchasing category.
3.5.2.1 Human rights and fundamental freedoms
The risks of severe impacts on human rights and fundamental freedoms have been identified in accordance with the criteria set out in the UN Guiding Principles Reporting Framework, namely the scale, scope and remediability of the impact.
This identification work was carried out in 2016 in consultation with internal and external stakeholders. The process included in particular workshops with representatives of key functions within the Group and Subsidiaries operating in sensitive contexts or situations particularly exposed to risks related to human rights and fundamental freedoms, and a series of interviews with independent third parties (GoodCorporation, International Alert and Collaborative Learning Project).
As a result, the following risks of severe negative impacts on human rights and fundamental freedoms were identified:
-forced labor, which corresponds to any work or service which people are forced to do against their will, under threat of punishment; as well as child labor, which is prohibited for any person aged under 15, or under 18 for all types of work deemed hazardous in accordance with International Labour Organization standards;
-discrimination, characterized by unfair or unfavorable treatment of people, particularly due to their origin, sex, age, disability, sexual and gender orientation, or membership of a political or religious group, trade union or minority;
-non-compliance with fair and safe working conditions, such as for example the absence of employment contracts, excessive working hours or lack of decent compensation;
-restriction of access to land by neighboring local communities, resulting from the Group having, for some of its projects, temporary or permanent access to the land that might result in the physical and/or economic displacement and relocation of these groups;
-impacts on the right to health of local communities, such as noise and dust emissions and other impacts generated by the Activities that might have consequences for the health of local communities, their means of subsistence and their access to vital services such as drinking water, for example; and
-the risk of disproportionate use of force, when intervention by government security forces or private security companies might be necessary to protect the Group’s staff and facilities.
3.5.2.2 Safety, health and environment
The Group defines the risk of a severe impact on safety, health or the environment as the probability of TOTAL’s Activities having a direct and significant impact on the health or safety of employees of Group companies, employees of external contractors (1) and third parties, or on sensitive natural environments (2). This risk can materialize gradually or suddenly.
TOTAL has developed safety, health and environment risk assessment procedures and tools applicable to operate its Activities, such as analyses performed regularly at various levels (Group, activities and/or industrial sites):
-prior to investment decisions in industrial projects of the Group, acquisition and divestment decisions;
-during operations;
-prior to releasing new substances on the market.
These analyses have highlighted the following risks of severe impacts:
-the risks to the safety of people and to the environment resulting from a major industrial accident (on an offshore site, onshore site or during the transport of products). These risks are, for example, an explosion, fire or leakage, resulting in death or injury and/or accidental pollution on a large scale or at an environmentally sensitive site;
-the risks to the safety of people and to the environment related to the physical characteristics of oil and gas fields, particularly during drilling operations, which can cause blow outs, explosions, fires or other damages;
-the risks to the safety of people and to the environment related to the overall life cycle of the products manufactured, and to the substances and raw materials used; and
-the risks associated with transportation, for which the likelihood of an operational accident depends not only on the hazardous nature of the products handled, but also on the volumes, the length of the journey and the sensitivity of the regions through which they are transported (quality of infrastructure, population density, environment).
Climate change is a global risk for the planet and results from various human actions such as energy production and consumption. As an energy producer, TOTAL seeks to reduce its direct greenhouse gas emissions resulting from its operated Activities. In addition, TOTAL implements a strategy to tackle climate change challenges and reports on this in details, notably in its statement of non-financial performance (refer to point 5.6 of chapter 5), in accordance with Article L. 225-102-1 of the French Commercial Code.
3.5.3 Action Principles
The Group has frameworks that set out the Action principles to be followed in order to respect the Group’s values and prevent severe impacts on human rights and fundamental freedoms, human health and safety and the environment (the "Action Principles"). When the legal provisions applicable to the Activities provide less protection than the Group’s Action Principles, TOTAL strives under all circumstances to give precedence to the latter, while seeking to ensure that it does not infringe any applicable mandatory public policy.
(1) Refer to the definition in point 5.4.1 of chapter 5.
(2) Sensitive natural environments include, in particular, remarkable or highly vulnerable natural areas, such as the Arctic, and/or areas covered by regulatory protection (integral nature reserves, central park areas, biotope orders in France, etc.), as well as areas covered by significant regulatory protection such as Protected Area Categories I to IV as defined by the International Union for Conservation of Nature (IUCN).
3.5.3.1 Code of Conduct
TOTAL’s Vigilance Plan is based primarily on the Group’s Code of Conduct (1), which specifies the Group’s values, including the two core values of Safety and Respect for the Other, particularly declining in the areas of respect for human rights, the environment and the health and safety of persons.
The Code particularly sets forth the Group’s compliance with the following international standards:
-the principles of the Universal Declaration of Human Rights;
-the United Nations Guiding Principles on Business & Human Rights;
-the principles set out in the International Labour Organization’s fundamental conventions;
-the principles of the United Nations Global Compact;
-the OECD Guidelines for Multinational Enterprises; and
-the Voluntary Principles on Security and Human Rights.
The Code of Conduct, which can be consulted on the Group’s website, is aimed at all employees and external stakeholders (host countries, local communities, customers, suppliers, industrial and commercial partners and shareholders). It was updated in December 2018.
3.5.3.2 Safety Health Environment Quality Charter
The Group ensures that it complies with strict safety, security, health and environment standards in the performance of its Activities. The Safety Health Environment Quality Charter sets out the principles that apply to the conduct of its operations in all of the countries where it operates.
As such, the Group’s Subsidiaries (2) implement a framework incorporating occupational health and safety, security, societal commitment and environment as well as associated management systems (Management And Expectations Standards Towards Robust Operations, MAESTRO).
With regard to safety at work, the Golden Rules, which were established on the basis of feedback and restructured in 2017 into a set of "dos and don’ts", apply to all Group entities, employees and Suppliers on site. Each individual must ensure that they are adopted, strictly followed and monitored on the ground. Each individual is also authorized to use his or her "Stop Card" and stop any work under way in particular in the case of non-compliance with any of these rules.
3.5.3.3 Fundamental Principles of Purchasing
The relationship between the Group and its Suppliers is based on adherence to the principles set forth in the Code of Conduct and in the Fundamental Principles of Purchasing (3).
The Fundamental Principles of Purchasing specify the commitments that TOTAL expects from its suppliers in the following areas: respect for human rights at work, health protection, safety and security, preservation of the environment, prevention of corruption and conflicts of interest and fraud, respect for competition law, as well as the promotion of economic and social development.
The requirements specified by this document must be communicated to Suppliers and be included in or transposed into agreements. These principles are available for consultation by all suppliers in both French and English on TOTAL’s website.
3.5.3.4 Internal control framework
At the Group, business segment and Subsidiary level, internal controls are based on specific procedures for organization, delegation of responsibilities and staff awareness and training, based on the framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
TOTAL has a Group reference framework that is supplemented by a series of practical recommendations and feedback. Like the Group’s organization, this framework has a three-level structure: a Group level, with the REFLEX Group framework and the technical framework set out by the Group Technology Committee, frameworks for each business segment, and a specific framework for each significant operational entity.
3.5.4 Organization
The Group’s organization is structured around three main levels: Corporate, business segments and operational entities. The Action Principles are driven by the Executive Committee. The People and Social Responsibility Division headed by a member of the Executive Committee coordinates the Group’s action in the area of Human Resources, health - safety - environment (HSE), security and societal commitments. Purchases of goods and services are under the authority of an entity in the Total Global Services Branch which also reports to the Executive Committee member responsible for this division. This organization aims to support operational managers in the implementation of the Action Principles. Each level is involved in and accountable for identifying and implementing the reasonable vigilance measures deemed appropriate.
3.5.4.1 Ethics Committee
The Ethics Committee is a central structure representing all of the Group’s business segments. All its members are Group employees who collectively have good knowledge of its activities and have demonstrated the independence and impartiality necessary for carrying out their duties.
The Ethics Committee is the guarantor of compliance with the Code of Conduct and ensures its proper implementation. It is assisted in its work by the relevant departments, as well as by a network of local Ethics Officers. The Chairperson of the Ethics Committee reports to the Chairman and Chief Executive Officer of TOTAL. The Chairperson submits an annual report to the Executive Committee and the Governance and Ethics Committee of the Board of Directors.
Employees and stakeholders can refer any breach of the Code of Conduct to the Ethics Committee at any time, in accordance with the procedure described in point 3.5.7. The members of the Ethics Committee are subject to a confidentiality obligation.
3.5.4.2 Human Rights Committee and Department
The Human Rights Committee is made up of representatives from different departments (safety, purchasing and societal commitment in particular) and business segments. It meets several times a year and coordinates actions relating to human rights and fundamental freedoms led by the various business segments and Subsidiaries, in line with the Human Rights roadmap approved by the Executive Committee.
(1) SunPower, a company listed on the NASDAQ in the United States and in which TOTAL has a majority interest, has a Code of professional conduct specific to the company that sets forth its values and the ethical principles with which all employees, as well as suppliers and partners, must comply. It covers subjects relating to compliance, integrity and protection of the company’s assets, as well as certain issues relating to human rights, fundamental freedoms, human health and safety and environment.
(2) Hutchinson and SunPower have developed HSE management systems specific to their activities and organization (for example, The Environmental Health Safety & Quality Management System).
(3) Saft Groupe and SunPower have defined fundamental principles of purchasing specific to their activities (for example, SunPower Supplier Sustainability Guidelines).
The Human Rights Department, within the Civil Society Engagement Division, supports the Group’s operational managers with its expertise in implementing the Action Principles relating to human rights and fundamental freedoms.
3.5.4.3 Occupational Health, Safety and Environment Division
Since 2016, a single HSE Division combines the Group’s Occupational Health, Safety and Environment functions. Its role is to implement a strong and unified HSE model.
Within the division, the HSE Departments of the Exploration & Production, Gas, Renewables & Power, Refining & Chemicals and Marketing & Services segments are in particular responsible for supporting the implementation of the Group’s HSE policy. Specific expert units set up in 2016 cover the following areas: major risks, human and organizational factors, environmental and societal issues, transportation and storage, crisis management and pollution prevention, standards and legislation, audits and feedback.
3.5.4.4 Procurement
Since January 1, 2017, a dedicated subsidiary, Total Global Procurement centralizes management of a large part of the Group’s goods and services purchasing (1), whether for categories of products or services specific to one business activity or categories shared between several business activities. In the Subsidiaries, purchasers implement framework agreements as well as manage local procurement.
A Responsible Purchasing Committee meets at least once a year and brings together the Management Committee of Total Global Procurement and the Civil Society Engagement (including the Human Rights Department), HSE and Legal Divisions as well as the Ethics Committee in order to monitor implementation of the Group’s Responsible Purchasing roadmap. The roadmap sets out the strategic direction of the Responsible Purchasing working group.
Furthermore, the Vetting department of Trading & Shipping defines and applies the selection criteria for the tankers and barges used to transport the Group’s liquid petroleum or chemical products and gas products, in order to ascertain their technical qualities relative to the best international standards, the crews’ experience and the quality of the ship owners’ technical management.
3.5.5 Assessment procedures
The Group has set up procedures for assessing its Subsidiaries and Suppliers, particularly in conjunction with independent bodies, which help identify and prevent risks of severe impacts on human rights and fundamental freedoms, human health and safety.
3.5.5.1 Procedures for assessing Subsidiaries
HSE assessments
The Audit and Feedback Unit within the central HSE Division is a key component of HSE governance. It steers the internal control mechanisms intended to verify compliance with the Group’s HSE requirements.
This mechanism is organized around a self-assessment to be carried out by the Subsidiaries at least every two years and an assessment every three to five years conducted by the Audit unit and feedback based on an audit protocol. The objective is to identify potential gaps in the application of the rules by the Subsidiairies and to enable them to define and implement improvement actions.
This unit is also in charge of analysis of major incidents and management of feedback.
Additionally, the Management Committee of each of the Group’s business segments performs monitoring of its major risk analyses and of the progress of the associated action plans.
Lastly, the HSE Division steers the measurement and reporting work relating to greenhouse gas emissions resulting from the Activities. These direct greenhouse gas measurements (Scope 1) are published in section 3.5.9.2 of this Chapter.
Assessments regarding human rights and fundamental freedoms
Since 2002, the Group has engaged GoodCorporation, a company specialized in ethical assessments, to verify the proper application of the principles set out in the Code of Conduct at the Subsidiary level. These assessments include criteria relating to human rights and fundamental freedoms, and corruption. As part of the process, a selection of employees and external stakeholders of the Subsidiary are questioned to understand how their Activities are perceived locally. Following the assessment, the Subsidiary in question defines and implements an action plan and a monitoring procedure.
Furthermore, TOTAL works with the Danish Institute for Human Rights (DIHR), an independent national body for the defense and promotion of human rights and fundamental freedoms, which assesses the impact on human rights and fundamental freedoms of the Group’s activities in sensitive contexts.
In some cases, the Group works with independent experts such as CDA, a company specialized in preventing and managing conflict between businesses and local communities. The reports by CDA are published online on its website.
Lastly, an annual self-assessment questionnaire enables each of the Group’s Subsidiaries and operational entities to measure and evaluate the level of implementation of their societal governance on the field. Actions involving dialogue, impact management and the contribution to socioeconomic and cultural development are recorded and analyzed.
3.5.5.2 Procedures for assessing Suppliers
The Supplier qualification process was harmonized at Group level in 2017 by Total Global Procurement. A new internal framework was published in 2018. In particular, it was used to set up a new IT qualification tool to be deployed progressively within the Group which also will serve as a consolidated database. The framework covers human rights, environment, health and safety.
Depending on the results of a risk analysis carried out by Suppliers, a detailed assessment is performed. It includes questionnaires addressing the aforementioned issues and, if needed, an action plan, a technical inspection of the site by employees or an audit of working conditions carried out by a specialist service provider with which a framework agreement was signed in 2016. Crude oil and petroleum product purchasing by Trading & Shipping, gas and electricity purchasing by the subsidiary Total Gas & Power Ltd, and the purchases made by the Subsidiaries Hutchinson, Saft Groupe and SunPower are subject to Supplier qualification processes specific to their organizations.
This qualification process may be completed if needed by specific organizations, such as the unit put in place in the Group as from September 2018 for the selection of palm oil suppliers. This unit aims to ensure that palm oil purchases are made on the basis of sustainability certifications such as the ISCC EU certification.
(1) With the exception of purchases made by the Subsidiaries Hutchinson, Saft Groupe and SunPower. Total Global Procurement made purchases from over 100,000 suppliers worldwide in 2018.
This type of certification incorporates criteria relating to carbon footprint, anti-deforestation, good use of land and respect for human rights. In addition to this mandatory certification, suppliers must have signed the Fundamental principles of purchasing and be members of the Roundtable on Sustainable Palm Oil (RSPO).
As regards the chartering of tankers and barges, any operation that involves tankers or barges calling at a terminal operated by a Group Subsidiary, carrying shipments that belong to the Group or chartered by TOTAL must be approved in advance by the Vetting department. Responses are given on the basis of technical data and independently of any commercial considerations. The audits conducted with ship owners also permit the assessment of the quality of the technical management systems implemented by the operators, crew selection and training, as well as the support provided to vessels.
Through the annual inspections performed by inspectors representing the Group, TOTAL is actively involved in sharing inspection reports with other international oil and gas companies through the SIRE (ship inspection report) Program set up by the OCIMF (Oil Companies International Marine Forum), thus contributing to the continuous improvement of petroleum shipping safety.
3.5.6 Awareness and training actions
3.5.6.1 Awareness and training of Group employees
The Group has put in place a variety of communication and information channels enabling all employees of TOTAL S.A. and its Subsidiaries to have access to the Action Principles defined by the Group in relation to human rights and fundamental freedoms, health, safety and the environment.
The Code of Conduct is distributed to all employees and can be consulted on the Group’s website. All new employees must confirm that they are familiar with it.
Events such as the annual Business Ethics Day are used to raise awareness among employees of TOTAL S.A. and its Subsidiaries. Practical guides are available on the Group’s intranet, such as the Human Rights Guide and the Guide to dealing with religious questions within the Group, to help Group employees apply the commitments provided for in the Code of Conduct in each individual cases.
The HSE Division organizes the Group’s World Safety Day, which aims to bring teams on board and raise awareness of ways to put the HSE Action Principles into practice. The Group’s employees implement its safety culture on a day-to-day basis through "Safety Moments" at the beginning of meetings or before hazardous operations, consisting of a short discussion to reiterate the key safety messages and align participants with mutual commitments.
Training courses, incorporating on-line educational programs as well as technical training tailored to the various business segments, are offered to all Group employees.
Dedicated human rights and fundamental freedoms training programs have been set up for senior executives, site directors and the employees most exposed to these issues. Awareness-raising sessions on these subjects are organised regularly for employees, as is the case at the time of ethical assessments of Subsidiaries. In the field of procurement, training modules explaining the Group’s ethical commitments and the Fundamental Principles of Purchasing have also been developed for the Group’s purchasers.
Similarly, training programs in the fields of health, safety and environment have been rolled out within the Group reflecting different perspectives: general, by type of activities or by subject areas. For example, the following general training actions exist depending on the level of responsibility and experience in the Group: HSE Leadership for Group senior executives, HSE training for managers, and Safety Pass training for new recruits.
3.5.6.2 Awareness and training of Suppliers
The Fundamental Principles of Purchasing are brought to the attention of Suppliers as of their registration in the Supplier database.
Training initiatives are also undertaken with the Group’s Suppliers, such as the responsible security training given to safety service providers’ personnel, and the Safety Contract Owners program, which brings together more than 650 suppliers at the Group level.
3.5.6.3 Information on product risks
All of the chemical and petroleum products marketed by the Group are covered by a safety data sheet prepared in accordance with applicable regulations. The packaged products are labelled accordingly.
Each safety data sheet provides comprehensive information on the substances or mixtures usable in the regulatory framework of managing chemicals in the workplace. It enables users to identify the risks linked to handling such products, particularly regarding safety and the environment, in order to implement any measures necessary to protect people and the environment.
Safety data sheets are available to carriers of dangerous goods, emergency services, poison control centers, as well as professional and industrial customers. Consumers are informed of the risks and precautions of use through product labelling.
3.5.7 Whistleblowing mechanisms
To support employees on a day-to-day basis, the Group encourages a climate of dialogue and trust that enables individuals to express their opinions and concerns. Employees can thus go to their line manager, an HR or other manager, their Compliance Officer or their Ethics Officer.
The Group’s employees and Suppliers, as well as any other external stakeholder, can contact the Ethics Committee to ask questions or report any incident where there is a risk of non-compliance with the Code of Conduct using the generic email address (ethics@total.com). The system is supplemented by specific whistleblowing mechanisms implemented at certain subsidiaries (SunPower, Hutchinson).
The Group’s Suppliers can also contact the internal supplier mediator using a generic email address (mediation.fournisseurs@total.com). The mediator is available to Suppliers and purchasers, and restores dialogue to find solutions when measures taken with the usual contact have been unsuccessful.
Grievance handling procedures are also in place within the Group in order to receive and facilitate the resolution of concerns and grievances of local communities that may be affected by its Activities.
As regards HSE, an on-call system has been set upto alert the directors of the business segments and of the Group as quickly as possible in the case of a major incident. Depending on the incident, a crisis management and monitoring process is pt in place (refer to point 3.3.3.1).
3.5.8 Monitoring procedures
To ensure the continuous updating of the Vigilance Plan, TOTAL relies on existing monitoring procedures and tools relating to human rights, safety, health and environment made available to the Subsidiaries.
Thus, the system of internal reporting and of indicators for monitoring implementation of the actions undertaken in the Group in these areas is based:
-for social indicators (including, in particular, health), on a guide entitled "Corporate Social Reporting Protocol and Methodology";
-for industrial safety indicators, on a Group rule concerning event and statistical reporting; a feedback analysis process identifies, in particular, events for which a structured analysis report is required in order to learn lessons in terms of design and operation; and
-for environmental indicators, on a Group reporting procedure, together with activity-specific instructions.
Consolidated objectives are defined for each key indicator and reviewed annually. The business segments apply these indicators as appropriate to their area of responsibility, analyze the results and set out a plan.
All of the procedures enable regular monitoring of actions and areas for improvement to be implemented in the area of human rights, safety, health and environment. The Group Performance Management Committee (refer to point 4.1.5.2 of chapter 4) is involved in this approach. In particular, it is responsible for examining, analyzing and steering the Group’s HSE, financial and operational results on a quarterly basis.
In addition, the committee responsible for monitoring the CSR Global Agreement signed by TOTAL in 2015, known as the "FAIR Committee", meets every year in the presence of representatives who are members of trade unions affiliated to the IndustriALL Global Union (refer to points 5.3.3.3 and 5.10.3 of Chapter 5) and appointed by this federation to monitor and implement the agreement. It identifies good practice and areas for improvement in the fields of safety, health, human rights and fundamental freedoms.
Additionally, the Group publishes a Human Rights information document that describes the Group’s Activities’ major impacts on human rights and fundamental freedoms and the remedial measures taken. In 2016, TOTAL became the first company in the oil industry to have published this document in accordance with the UN Guiding Principles Reporting Framework. It is available on the Group’s website and was updated in 2018.
Since 2015, TOTAL also publishes a report to assess the progress made in the implementation of the Voluntary Principles on Security and Human Rights. The information set out in the report is based on annual reporting organized by the Security Division that brings together the results of the risk and compliance analyses for each subsidiary operating in a sensitive context.
Lastly, in September 2018 TOTAL published the third edition of its "Integrating climate in our strategy" brochure dedicated to the consideration of climate issues and detailing the Group’s lines of action in this area.
3.5.9 Report on implementation of the Vigilance Plan (1)
3.5.9.1 Human rights and fundamental freedoms
TOTAL’s human rights approach is based on written commitments. It is supported by a dedicated organization, and embedded through an awareness-raising and training program, as well as evaluation and follow-up mechanisms aiming at measuring the effectiveness of the Group’s actions.
A) Human rights in the workplace
The prohibition of forced and child labor, non-discrimination, just and favorable conditions of work, as well as safety all form part of the principles set out in TOTAL’s Code of Conduct and Human Rights Guide.
TOTAL’s commitment to human rights in the workplace is demonstrated, in particular, by the signature of various agreements, such as the one concluded with IndustriALL Global Union (2) in 2015. In particular, this agreement covers the promotion of human rights in the workplace, diversity, the participation of employees and their representatives in social dialogue and the recognition of health and safety at work as absolute priorities in the Group’s activities and global supply chain.
In its activities
TOTAL cares about the working conditions of its employees which are governed by the Group’s Human Resources policy (refer to point 5.3 of chapter 5).
Safety is one of the Group’s core values. Over the last few years, the Group has continued to develop occupational health and safety standards focusing on the right to enjoy fair and adequate living and working conditions (refer to point 3.5.9.2 of this chapter).
TOTAL is committed to promoting diversity and endeavors to combat all forms of discrimination (origin, gender, sexual orientation, handicap, age, membership in a union or a political or religious organization, etc.). The Diversity Council, which is chaired by a member of the Executive Committee, illustrates this commitment.
In 2017, TOTAL published a "Practical guide to dealing with religious questions within the Group" in order to provide practical solutions to the questions raised by the Group’s employees and managers worldwide. It draws on the experiences of the business segments in various countries and encourages dialog, respect and listening as a way to find solutions suited to the local context. Many internal and external experts helped draft this document, including representatives of various religious communities. This guide has been translated into nine languages.
(1) Refer to point 5.11 of chapter 5 concerning the reporting ‘s scope and medology concerning information provided in point 3.5.9 of this chapter. Since the identification of risks and the prevention of severe impacts on human rights, human health and safety and the environment overlap partially with certain risks covered in the non-financial performance statement (refer to chapter 5), TOTAL has chosen to report on the implementation of its Vigilance Plan by incorporating certain aspects of its non-financial performance statement although it includes risks of varying degrees.
(2) International union federation representing more than 50 million employees in the energy, mining, manufacturing and industrial sectors in 140 countries.
In addition to the Group’s reporting and internal control system, the working conditions of TOTAL’s employees are evaluated by GoodCorporation, an independent third party, as part of the ethical assessments of the Group’s entities.
In the Group’s value chain
The Fundamental Principles of Purchasing (FPP) set out the commitments expected from suppliers in various domains, including human rights in the workplace and safety. A Group directive reaffirms the obligation to annex the FPP or to transpose them in the selection process as well as in the contracts concluded with suppliers of goods or services.
The prevention of forced and child labor in the supply chain is a critical point of attention identified in the 2017-2018 human rights roadmap endorsed by the Executive Committee. TOTAL has therefore developed a new methodology for selecting its suppliers which takes account the risks of human rights violations, in particular forced and child labor. In September 2016, TOTAL also entered into a partnership with a third-party service provider in charge of evaluating suppliers’ practices with regard to fundamental rights in the workplace (refer to point 3.5.9.5 of this chapter).
Finally, the working conditions of the employees of service stations’ dealers are evaluated by GoodCorporation, an independent third party, as part of the ethical assessments conducted in the Group entities. Between 2016 and 2017, a baseline study of 22 affiliates in the Marketing & Services segment across different continents was also conducted. One of the main recommendations identified is to improve service station dealers’ awareness of the Group’s Code of Conduct principles and of the fundamental Conventions of the International Labor Organization. In response, Marketing & Services is developing educational tools, which should be promoted in 2019 to this business segment’s entities.
B) Human rights and local communities
TOTAL’s operational activities may have impacts on the rights of local communities, in particular when TOTAL obtains temporary or permanent access to their land for Group’s projects that may involve the physical and/or economic displacement of these populations. Noise and dust emissions and other potential impacts may also have consequences on the livelihood of neighboring communities. Consequently, the access to land of local communities and their right to health and an adequate standard of living are two salient issues for TOTAL.
In accordance with internationally recognized human rights standards, TOTAL requires the Group entities to maintain a regular dialogue with their stakeholders and make sure that their activities have no negative consequences on local communities or, if these cannot be avoided, that they limit, mitigate and remedy them. The solutions proposed in response to the expectations of local communities are coordinated by the societal teams that work in close collaboration with the legal, safety and environmental teams. The Group’s approach to this topic is described in the section on societal issues of the non-financial performance Statement in point 5.9 of chapter 5.
C) Respect for human rights in security-related activities
In certain situations, intervention by government security forces or private security providers might be necessary to protect TOTAL staff and assets. In order to prevent any misuse of force, TOTAL asks Group employees, private security providers and government security forces to implement the Voluntary Principles on Security and Human Rights (VPSHR) issued by States, NGOs and Extractive Companies.
TOTAL has been a member of this initiative since 2012. Within this framework, the Group publishes an annual report setting out the challenges, lessons learned and good practices in relation to security and human rights and, if applicable, reports any incidents associated with the Group’s activities. This report is available at sustainable-performance.total.com.
Self-assessment and risk analysis tools have been developed and are deployed, in particular, in the entities located in high risk countries and conflict zones.
When government security forces are deployed to ensure the protection of the Group’s staff and assets, the Group entities maintain an ongoing dialogue with the representatives of national or regional authorities in order to raise their awareness on the need to respect the VPSHR and encourage them to sign memorandums of understanding that comply with these principles.
TOTAL regularly organizes training sessions and awareness-raising activities on the risk of misuse of force, and more generally on the VPSHR, for its staff, private security providers and government security forces. In 2018, TOTAL partnered with other Extractive Companies and the Myanmar Center for Responsible Business to organize two VPSHR awareness workshops for government officials, private security providers and NGO in Myanmar.
3.5.9.2 Personal health and safety
TOTAL places safety at the heart of its ambition to be a responsible company. The measures and indicators used to manage the Group’s activities are based on this fundamental value, in accordance with the strictest standards, particularly relating to health.
A) Preventing occupational accidents
The Group’s personal safety policy covers three main areas: preventing occupational accidents, preventing transport accidents, and preventing accidents linked to technological risks, such as fires and explosions. It relates to all employees of Group subsidiaries, employees of external contractors working on these entities’ sites as well as employees of transport companies under long-term contracts. The safety results are monitored with the same vigilance for all.
Indicators defined according to an internal procedure measure the main results. In addition to its aim of zero fatalities in the exercise of its activities, the Group has set the target of continuously reducing the TRIR (1) and, for 2018, of keeping it below 0.9 for all personnel (Group and External Contractors).
(1) TRIR: Total Recordable Injury Rate.
Safety indicators | 2018 | 2017 | 2016 |
TRIR (a): number of recorded injuries per million hours worked - All Personnel | 0.91 | 0.88 | 0.91 |
Group company employees | 0.82 | 0.89 | 0.83 |
External contractors employees (b) | 1.01 | 0.88 | 0.99 |
LTIR (c): number of lost time injuries per million hours worked - All Personnel | 0.59 | 0.58 | 0.51 |
SIR (d): average number of days lost per lost time injury | 26 | 28 (e) | 30 (e) |
Number of occupational fatalities | 4 | 1 | 1 |
(a) TRIR: Total Recordable Injury Rate.
(b) As defined in point 5.11.4 of chapter 5.
(c) LTIR: Lost Time Injury Rate.
(d) SIR: Severity Injury Rate.
(e) Excluding Saft Groupe.
The Group’s safety efforts over more than 10 years have resulted in a significant improvement in the TRIR and LTIR. Performance has stabilized since 2016, mainly due to acquisitions and disposals of assets or subsidiaries. The gradual implementation of the One MAESTRO framework aims to strengthen the Group’s safety culture and create a new drive to improve safety results. Despite the measures put in place, in 2018 three accidents resulted in the death of four employees working for external contractors: one during road transport in Ethiopia, one during a handling operation in the Republic of the Congo, and two during an operation to recommission a fuel storage tank in Egypt.
Generally, an analysis is launched in response to any type of accident whatsoever. The method and scope of the analysis depend on the actual or potential severity of the event. Consequently, a near miss with a high severity potential is treated as a severe accident, and its analysis is considered an essential factor of progress. Depending on its relevance to the other Group entities, it triggers a safety alert and the distribution of a feedback form, depending on the circumstances.
Regarding occupational safety, since 2010, the basic rules to be scrupulously followed by all personnel, employees and contractors alike, in all of the Group’s businesses worldwide, are described in the document "Safety at Work: TOTAL’s Twelve Golden Rules", which has been widely circulated within the Group.
The aim of the Golden Rules is to set out simple, easy-to-remember rules that cover a large number of occupational accidents. In addition, further rules can be found in the One MAESTRO HSE framework, the business segment frameworks and the subsidiary frameworks.
According to the Group’s internal statistics, in more than 44% of severe incidents or near misses with high severity potential in the workplace, at least one of the Golden Rules had not been followed. The proper application of these Golden Rules, and more generally of all occupational safety procedures, is verified through site visits and internal audits. The Stop Card system, which was set up in 2015, also enables any employee of the Group or an external contractor to intervene if any of the Golden Rules is not being followed. In addition, in 2016, the HSE department created a unit bringing together the reference persons on high-risk operations (work at height, lifting, high-pressure cleaning, excavations, etc.) in order to consolidate in-house knowledge and relations with contractors.
The reporting of anomalies and near misses (approximately 600,000 per year) is strongly encouraged on a daily basis and is permanently monitored. The ability of each employee to identify anomalies or dangerous situations is one of the measures of the employees’ involvement and vigilance in accident prevention and reflects the safety culture within the Group. In 2016, the Group HSE Department also created a unit aimed at providing support for sites to improve their safety culture upon their request.
Regarding road transport, for many years the Group has been monitoring the number of severe road accidents involving its employees and those of external contractors. The actions taken have reduced the number of severe accidents between 2016 and 2018 by 33%. Work began in new areas in 2018, particularly relating to the use of new technologies in accident prevention (defining a new standard for the light vehicles used, driver fatigue detection) and the assessment of the driver support and assistance systems offered by manufacturers (automatic emergency braking, lane keeping assist, lane change assist, etc.).
Number of severe road accidents (a) | 2018 | 2017 | 2016 |
Light vehicles and public transport (b) | 7 | 11 | 9 |
Heavy goods vehicles (b) | 23 | 26 | 36 |
(a) Overturned vehicle or other accident resulting in the injury of a crew member (declared incident).
(b) Vehicles on long-term contract with the Group ( > 6 months).
With regard to technological risks (also known as "major" industrial risks), the risk analysis and prevention actions are described in point 3.5.9.3.B of this chapter.
Whatever the nature of the accident, prevention actions rely on all employees abiding by the Group’s safety policies. These are disseminated through training courses aimed at the various groups of employees (new arrivals, managers, senior executives, etc.).
As TOTAL’s core value, Safety has been a component of the Group’s employee compensation policy since 2011. A portion of the variable compensation received by employees, as well as by senior executives and the Chairman and Chief Executive Officer, depends on the achievement of HSE targets (refer to point 4.3.2 of chapter 4 and point 5.3.1 of chapter 5).
With regard to security, the Group has put in place means to analyze threats and assess risks in order to take preventive measures to limit its exposure to security risks in the countries where it operates.
B) Preventing occupational health risks through improved assessment
With regard to prevention of occupational health risks, the Group implements a policy that defines the risk assessment methodology to be applied by all Group entities and subsidiaries. The associated Group directive stipulates that the assessment includes chemical, physical, biological, ergonomic and psychosocial risks, and that it must result in the design and roll-out of an action plan. In addition, it requires that each Group entity sets out a formal medical monitoring procedure taking into account the requirements under local law (frequency, type of examination, etc.) and the level of exposure of its personnel to the various risks.
To complement this program, the Group has set up an employee health observatory. The aim is to monitor the health of a sample of employees in order to identify the emergence of certain illnesses and, if applicable, suggest appropriate preventive measures. The data is gathered anonymously during medical examinations and covers approximately 12% of Group employees worldwide.
The Group also has a Medical Advisory Committee that meets regularly to discuss key health issues relating to the Group’s activities. It decides whether there is a need for additional health protection strategies to be implemented. It consists of external scientific experts and also brings together the Group’s senior executives and stakeholders concerned by these issues.
In terms of prevention, the Group has decided to make psychosocial risk prevention a priority commitment. In 2018, the Group identified four areas of progress worldwide:
-a minimum level of awareness and training for all;
-a system for measuring stress and the quality of the social climate, facilitating the production of action plans;
-a system for listening to and supporting employees in difficult situations;
-coordination of actions and monitoring of indicators.
A Quality of Life at Work and Health working group was set up in September 2018 to coordinate and ensure the effectiveness of all of the actions taken. Led by the Group Human Resources division, all of TOTAL’s business segments are represented, particularly the international medical department. Its first task is to create and roll out a Worldwide Psychosocial Risk (PSR) Prevention program that addresses the four areas for progress.
Regarding the priority commitment to training, a fully updated PSR pack aimed at entity managers, prevention contributors and managers was finalized in 2018. Approved by international experts, it has now been translated into 11 languages and is the core material for training on this subject. The pack consists of two guides: a methodological guide for entity managers and anyone with a role in PSR prevention, and a practical guide for managers to raise awareness of the importance of the quality of life at work as a key factor in preventing PSRs. It also aims to support them in the day-to-day management of their teams in the event of difficulties, risky situations and crisis situations.
On a broader level, TOTAL is helping to promote individual and collective health programs in the countries where it operates, including vaccination campaigns and screening programs for certain diseases (AIDS, cancer, malaria, etc.) for employees, their families and local communities. Action is also taken regularly to raise awareness of lifestyle risks (anti-smoking and anti-drinking campaigns, etc.).
The Group has put in place the following indicators to monitor the performance of its program:
Health indicators (WHRS scope) | 2018 | 2017 | 2016 |
Percentage of employees with specific occupational risks benefiting from regular medical monitoring (a) | 98% | 98% | 99% |
Number of occupational illnesses recorded in the year (in accordance with local regulations) | 154 | 143 | 108 |
(a) As an exception to the reporting principles described in section 5.11 of chapter 5, the 2018 rate does not include a company that did not report its data in time for the 2018 WHRS.
Reporting on occupational illnesses covers only the Group’s personnel (WHRS scope) and illnesses reported according to the regulations applicable in the country of operation of each entity.
Musculoskeletal disorders, the main cause of occupational illnesses in the Group, represented 69% of all recorded illnesses in 2018, against 68% in 2017. Therefore, in addition to ergonomic risk assessments and the gradual training of personnel on its sites, the annual Group Industrial Hygiene Day in December 2017 was on the theme of Ergonomics and Musculoskeletal disorders.
The annual Group Industrial Hygiene day held in September 2018 was dedicated to asbestos and refractory ceramic fibers.
C) Minimizing the risks throughout the life cycle of products to prevent consumer health and safety risks
Unless certain precautions are taken, some of the products marketed by TOTAL pose potential risks to the health and safety of consumers. The Group therefore aims to meet its obligations with regard to information and prevention in order to minimize the risks throughout the life cycle of its products.
TOTAL’s health and products directive sets out the minimum requirements to be observed by the Group’s entities and subsidiaries for marketing the Group’s products worldwide in order to reduce potential risks to consumer health and the environment. TOTAL identifies and assesses the risks inherent to its products and their use. The material safety data sheets (MSDS) that accompany the products marketed by the Group (in at least one of the languages used in the country) as well as product labels are two key sources of information. All new products comply with the regulatory requirements in the countries and markets for which they are intended.
3.5.9.3 Environment
TOTAL places the environment at the heart of its ambition of being a responsible company. In light of the specific nature of its activities, the Group’s operations pose risks for which TOTAL develops structured management systems.
Environmental indicators have been monitored for many years in order to constantly adapt the Group’s environmental protection measures, which are presented in this section.
A) General policy and environmental targets
TOTAL considers the respect for the environment to be a priority. All employees, at every level, must do their utmost to protect the environment as they go about their work. TOTAL strives to control its energy consumption, its emissions in natural environments (water, air, soil), its residual waste production, its use of natural resources and its impact on biodiversity. With regards to the environment, TOTAL takes a constructive approach that is based on transparency and dialogue when communicating with its stakeholders and third parties.
To this end, the HSE division and the HSE departments within the Group’s entities seek to ensure both applicable local regulations and internal requirements resulting from the Safety Health Environment Quality Charter and the Group’s additional commitments are respected. Group steering bodies, led by the HSE division, are tasked with:
-monitoring TOTAL’s environmental performance, which is reviewed annually by the Executive Committee, for which multi-annual improvement targets are set;
-handling, in conjunction with the business segments, the various environment-related subjects of which they are in charge; and
-promoting the internal standards to be applied by the Group’s operational entities.
The Group’s environmental targets (a): -decrease SO2 air emissions by 50% between 2010 and 2020; -maintain hydrocarbon content of water discharges below 30 mg/l for offshore sites and below 15 mg/l for onshore and coastal sites; -valorize more than 50% of the waste produced by the sites operated by the Group. Moreover, the Group is committed to: -systematically develop biodiversity action plans for production sites located in protected areas (1); -not conducting oil and gas exploration or production operations in the area of natural sites listed on the UNESCO World Heritage List (2); -not conducting exploration in oil fields under sea ice in the Arctic. (a) For climate, refer to point 3.5.9.4.D of this chapter. What has been accomplished: -more than 50% reduction in SO2 air emissions reached since 2017; -100% of the Group’s oil sites have met the target for the quality of onshore discharges since 2016 and 96% of the Group’s oil sites have met the target for the quality of offshore discharges in 2018; -more than 50% of the waste produced by the sites operated by the Group was valorized in 2018; -5 biodiversity action plans deployed or in preparation in 2018; -no oil and gas exploration or production activity in the area of natural sites listed on the UNESCO World Heritage List (2); -no exploration activity in oil fields under sea ice in the Arctic. |
The Group’s internal requirements state that the environmental management systems of its operated sites that are important for the environment (3) must be ISO 14001 certified within two years of start-up of operations or acquisition: 100% of these 71 sites were in conformity in 2018. Beyond these internal requirements, at the end of 2018, a total of 264 sites operated by the Group were ISO 14001 certified. In 2018, the Moho Nord site (Republic of the Congo) has been ISO 14001 certified.
All investment, divestment or acquisition projects which are submitted to the Executive Committee for approval are assessed and reviewed with regards to their risks and impact, particularly environmental, before the final investment decision is made.
TOTAL seeks to ensure that all employees share its environmental protection requirements. Employees receive training in the required skills. TOTAL also raises employee awareness through internal communication campaigns (e.g., in-house magazines, intranet, posters).
B) Preventing incident risks
To prevent incident risks and, in particular, major industrial events, TOTAL carries out periodic risk assessments and implements adapted risk-management policies and measures.
The Group has management structures and systems that present similar requirements and expectations across all the entities. TOTAL strives to minimize the potential impacts of its operations on people, the environment and property through a major technological risk management policy. This management draws on a shared approach in all segments that includes, on the one hand, risk identification and analysis, and on the other hand, the management of these risks.
This structured approach applies to all of the Group’s operated businesses exposed to these risks. In addition to its drilling and pipeline transport operations, the Group has at the end of 2018 195 sites and operating zones exposed to major technological risks, which could cause harm or damage to people, property and the environment, corresponding to:
-all the offshore and onshore operating activities in Exploration & Production; and
-the Seveso classified industrial sites (upper and lower threshold) and their equivalents outside the EU (excluding Exploration & Production).
This approach first sets out an analysis of the risks related to the Group’s industrial operations, on each site, based on incident scenarios for which the probability of occurrence and the severity of the consequences are assessed.
Second, based on these parameters, a prioritization matrix is used to determine whether further measures are needed in addition to compliance with the Group’s standards and local regulations. These mainly include preventive measures but can also include mitigation measures.
The management of major technological risks also hinges on:
-staff training and raising awareness;
-a coherent event reporting and indicators system;
-systematic, structured serious event analysis, particularly to learn lessons in terms of design and operation;
-regularly tested contingency plans and measures.
In terms of monitoring indicators, the Group reports the number of Tier 1 and Tier 2 events as defined by the API and the IOGP. The Group set itself a loss of primary containment target of under 100 (Tier 1 and Tier 2) in 2018.
The target is slightly exceeded due to the inclusion of new entities in the reporting scope. In addition to the 103 Tier 1 and Tier 2 operational events indicated in the table below, the Group recorded four Tier 1 events and one Tier 2 event due to sabotage or theft in 2018.
Loss of primary containment (a) | 2018 | 2017 (b) | 2016 (b) |
Loss of primary containment (Tier 1) | 30 | 28 | 38 |
Loss of primary containment (Tier 2) | 73 | 75 | 101 |
Loss of primary containment (Tier 1 and Tier 2) | 103 | 103 | 139 |
(a) Tier 1 and Tier 2: indicator of the number of loss of primary containment events, with more or less significant consequences, as defined by the API 754 (for downstream) and IOGP 456 (for upstream) standards. Excluding acts of sabotage and theft.
(b) Excluding TEP Barnett in 2016 and 2017.
In accordance with industry best practices, TOTAL also monitors accidental liquid hydrocarbon spills of more than one barrel. Spills that exceed a predetermined severity threshold (in terms of volume spilled, toxicity of the product in question or sensitivity of the natural environment affected) are reviewed on a monthly basis and annual statistics are sent to the Group Performance Management Committee. All large spills are followed by corrective actions aimed at returning the environment to an acceptable state as quickly as possible. Due to their unpredictable nature, there is no quantitative target for accidental hydrocarbon spills. Nevertheless, changes in the number of spills are observed and analyzed.
(1) Sites located in an IUCN I to IV or Ramsar convention protected area.
(2) Natural sites included on the UNESCO World Heritage List of December 31, 2017.
(3) Sites that emit more than 30kt CO2e per year.
Accidental hydrocarbon spills (a) | 2018 | 2017 (b) | 2016 |
Number of hydrocarbon spills | 74 | 62 | 73 |
Total volume of hydrocarbon spills (thousands of m³) | 0.3 | 0.5 | 0.9 |
(a) Accidental spills with an environmental impact and of more than one barrel.
(b) In 2017, the indicator perimeter was updated to exclude spills due to sabotage by a third party.
In order to manage a major accidental spill efficiently, the Group implemented a global crisis management system that is primarily based on a dedicated organization and a crisis management center at the head office to enable the management of two simultaneous crises. As part of this process, TOTAL regularly trains in crisis management on the basis of risk scenarios identified through analyses.
In particular, the Group has response plans and procedures in place in the event of a hydrocarbon leak or spill. For accidental spills that reach the water surface, oil spill contingency plans are regularly reviewed and tested during exercises. These plans are specific to each company or site and are adapted to their structure, activities and environment while complying with Group recommendations.
Oil spill preparedness | 2018 | 2017 | 2016 |
Number of sites whose risk analysis identified at least one risk of major accidental pollution to surface water (a) | 126 | 126 | 143 |
Proportion of those sites with an operational oil spill contingency plan | 99% | 91% | 99% |
Proportion of those sites that have performed at least one oil spill response exercise during the year | 86% (b) | 95% | 89% |
(a) The variation of the number of sites between 2016 and 2018 is due to perimeter variation.
(b) Decrease in 2018 compared to 2017 corresponds mainly to two subsidiaries where equipment was being refurbished in 2018.
In the event of accidental pollution, the Group companies can call on in-house human and material resources (Fast Oil Spill Team, FOST) and benefit from assistance agreements with the main third-party organizations specialized in the management of hydrocarbon spills.
Since 2014, subsea capping and subsea containment equipment that can be transported by air has been strategically positioned at different points of the world (South Africa, Brazil, Norway and Singapore) in order to provide solutions that are readily available in the event of oil or gas eruptions in deep offshore drilling operations. From these locations, the equipment can benefit TOTAL’s operations worldwide. This equipment was developed by a group of nine oil companies, including TOTAL, and is managed by Oil Spill Response Ltd (OSRL), a cooperative dedicated to the response to marine pollution by hydrocarbons. TOTAL has also designed and developed its own capping system ("Subsea Emergency Response System") to stop potential eruptions in drilling or production operations as quickly as possible. Since 2015, equipment has been installed in Angola, then the Republic of the Congo, potentially covering the entire Gulf of Guinea region.
For its sea and river shipment requirements, TOTAL only charters ships and barges that meet the highest international standards. The Group has an internal policy that lays down the process and criteria by which ships and barges are selected (known as vetting). These criteria are based, in particular, on the regulations, best practice and recommendations of the OCIMF (1) and, in Europe, on the European Barge Inspection Scheme (EBIS). Tankers and barges are vetted by a single centralized Group entity. The average age of the Group Shipping division’s time-chartered fleet is approximately six years.
With regard to operated marine terminals, the Group got involved in an initiative that seeks to systematically record their physical characteristics and store this data in a global database that forms part of the Marine Terminal Information System (MTIS) of the OCIMF. At the end of 2018, 95% of coastal marine terminals and 50% of offshore terminals had submitted their characteristics, thereby making it easier to assess the compatibility of ships with the ports of call. Additionally, since 2018, large TOTAL terminals have used the Marine Terminal Management Self Assessment (MTMSA), the framework recommended by the industry for the self-assessment of terminals and the continuous improvement of the safety of product transfers. A training course on ship/shore interface management (SSSCL - Ship Shore Safety Check List) and cargo transfer operations, developed by the Group in 2016, had completed by operators of 80% of operated-terminals by the end of 2018.
C) Limiting the environmental footprint
Wherever TOTAL conducts its business, it makes sure that it complies with applicable laws and regulations, which the Group complements with specific requirements and commitments when necessary. TOTAL implements an active policy of avoiding, reducing, managing and monitoring the environmental footprint of its operations. As part of this policy, emissions are identified and quantified by environment (water, air and soil) so that appropriate measures can be taken to better control them.
Water, air
The Group’s operations generate emissions into the atmosphere from combustion plants and the various conversion processes and discharges into wastewater. In addition to complying with applicable legislation, the Group’s companies actively pursue a policy aimed at reducing emissions. After analyses have been conducted and when necessary, the sites introduce various reduction systems that include organizational measures (such as using predictive models to control peaks in sulfur dioxide (SO2) emissions based on weather forecast data and the improvement of combustion processes management, etc.) and technical measures (wastewater treatment plants, using low-NOX burners and electrostatic scrubbers, etc.).
For new facilities developed by the Group, impact assessments are systematically carried out on these emissions and, if necessary, actions are taken to limit their impact.
In 2010, SO2 emissions were 99 kt. The Group set itself the target of not exceeding 49.5 kt by 2020; it has met this target since 2017.
Chronic emissions into the atmosphere (a) | 2018 | 2017 | 2016 |
SO2 emissions (kt) | 48 | 47 | 52 |
NOx emissions (kt) | 66 | 69 | 76 |
(a) Refer to point 5.11 of chapter 5 for the scope of reporting.
SO2 emissions that are likely to cause acid rain are regularly checked and reduced.
(1) OCIMF (Oil Companies International Marine Forum): An industry forum including the leading worldwide oil companies. This organization manages, in particular, the Ship Inspection Report (SIRE) Programme, which holds and provides access to tanker and river barge inspection reports (Barge inspection Questionnaire - BIQ).
NOX emissions, which are mainly concentrated in the Exploration & Production, are primarily located offshore and far away from the coast. Their impact on air quality is therefore considered to be minor.
Discharged water quality
In 2018, with regards to discharges to aquatic environments, all of the operated sites met the onshore discharge quality target set to restrict the impact on receiving environments.
| 2018 | 2017 | 2016 |
Hydrocarbon content of offshore water discharges (in mg/l) | 14.1 | 17.7 | 17.2 |
% of sites that meet the target for the quality of offshore discharges (30 mg/l) | 96% (a) | 100% (a) | 100% (a) |
Hydrocarbon content of onshore water discharges (in mg/l) | 1.8 | 2.4 | 3.1 |
% of sites that meet the target for the quality of onshore discharges (15 mg/l) | 100% | 100% | 100% |
(a) Alwynn site (United Kingdom) excluded, as its produced water discharges only occur during the maintenance periods of the water reinjection system and are subject to a specific regulatory authorization.
In 2018, the percentage of sites conforming to the targets for quality of offshore discharges decreased due to a site acquired as part of the Mærsk Oil acquisition that exceeds the targets of the Group. The water discharge from this site is minor in terms of volume and represents less than 3% of the Group’s global offshore discharge.
The improvement in the quality of onshore water discharges in 2018 is linked to a better performance of the waste water treatment plants at Anvers, Donges and Normandie Refineries and to the expiry of the Mahakam license in Indonesia.
Soil
The risks of soil pollution related to TOTAL’s operations come mainly from accidental spills (refer to point 3.5.9.3.B of this chapter) and waste storage (refer to point 3.5.9.3.E of this chapter).
The Group’s approach to preventing and managing these types of pollution is based on four key principles:
-preventing leaks, by implementing, as far as possible, industry best practices in engineering, operations and transport;
-carrying out maintenance at appropriate frequency to minimize the risk of leaks;
-overall monitoring of the environment to identify any soil and groundwater pollution; and
-managing any pollution from previous activities by means of containment and reduction or elimination operations.
In addition, a Group directive defines the following minimum requirements:
-systematic identification of each site’s environmental and health impacts related to possible soil and groundwater contamination;
-assessment of soil and groundwater contamination based on various factors (extent of pollution inside or outside the site’s boundaries, nature and concentrations of pollutants, presence of a vector that could allow the pollution to migrate, use of the land and groundwater in and around the site); and
-management of health or environmental impacts identified based on the use of the site (current or future, if any) and the risk acceptability criteria recommended by the World Health Organization (WHO) and the Group.
Lastly, decommissioned Group facilities operated by Group entities or affiliates (i.e., chemical plants, service stations, mud pits or lagoons resulting from hydrocarbon extraction operations, wasteland on the site of decommissioned refinery units, etc.) impact the landscape and may, despite all the precautions taken, be sources of chronic or accidental pollution. TOTAL created a policy of evaluation, treatment of environmental risks related to soil and groundwater and remediation of its sites at the end of their activity. In agreement with the authorities, the aim is to allow new operations to be set up once the future use of the land has been determined. Remediation operations are conducted by specialized entities created by the Group. At the end of 2018, 123 industrial sites that were no longer in operation (excluding service stations) were in the process of remediation.
Sustainable use of resources
Fresh water
The Group’s activities, mainly those of Refining & Chemicals, and to a lesser extent those of the Exploration & Production, Gas, Renewables & Power segments, may potentially have an impact on, as well as be dependent of, water resources. This is especially true when an activity is located in a water resources sensitive environment.
Fully aware of these challenges, TOTAL implements the following water risk management actions:
1. monitor water withdrawals to identify priority sensitive sites and then carry out a risk assessment;
2. improve the water resources management depending on identified needs, by adapting the priority sites’ environmental management system.
In order to identify the priority facilities, TOTAL records the withdrawal and discharge of water on all of its sites and assesses these volumes on the basis of the current and future water stress indicators of the WRI (1) Aqueduct tool (currently 9.7% (2) of fresh water withdrawals take place in a global water stress area).
In addition, TOTAL assesses water resources risk levels of priority facilities which are those that withdraw more than 500,000 m³ per year and are located in areas potentially exposed to water resource risks, using the Local Water Tool (LWT) for Oil & Gas from the Global Environmental Management Initiative (GEMI). This tool also helps to guide the actions taken to mitigate any risks in order to make optimal use of water resources on these sites.
Globally, the sites operated by the Group are not particularly exposed to water risk. By the end of 2018, out of the 24 priority sites identified, the level of water risk was assessed on 16 priority Group sites (11 Refining & Chemicals, 3 Exploration & Production, 2 Gas, Renewables & Power). Following this assessment, two sites were identified as being at risk and were reported to the CDP. This analysis process is expected to be extended to other current priority sites, including eight additional sites that have been identified.
In 2018, the Group answered the CDP Water survey for the 2017 period and was graded A-. The main indicator used in this reporting is aggregated withdrawal.
Water-related indicator (a) | 2018 | 2017 | 2016 |
Fresh water withdrawals excluding cooling water and rain water (million m³) | 116 | 116 | 123 |
(a) Refer to point 5.11 of chapter 5 for the scope of reporting.
Soil
TOTAL uses the ground surface that it needs to safely conduct its industrial operations and, in 2018, did not make extensive use of ground surfaces that could substantially conflict with various natural ecosystems or agriculture.
(1) World Resources Institute.
(2) According to CDP Water 2018 definition.
In 2018, the Group introduced a specific selection process concerning palm oil suppliers to ensure all palm oil purchases for the La Mède facility will be certified sustainable in accordance with European Union criteria (ISCC EU certification) and are conducted with a limited number of suppliers.
D) Not to harm biodiversity and ecosystems during projects and operations
TOTAL’s activities may potentially be located in sensitive natural environments.
The Group is fully aware of this challenge and takes biodiversity and ecosystems into account during its projects and operations. In July 2018, and within the framework of the Act4Nature initiative, the Group made 16 biodiversity commitments to make this policy more tangible. The 16 commitments are described in the biodiversity brochure available on the website sustainable-performance.total.com. There are 10 general commitments common to all of the signatory companies and an additional 6 commitments specific to TOTAL, some of which existed before the initiative. These differentiate the Group from its competitors.
3.5.9.4 Climate
TOTAL’s ambition is to become the responsible energy major. The Group is committed to contributing to the United Nations Sustainable Development Goals, particularly with regards to those subjects that are connected to climate change and the development of more available and cleaner energy for as many people as possible.
In order to make an effective contribution to the climate change issue, TOTAL relies on an organization and structured governance framework to make sure climate-related challenges are fully integrated into the Group’s strategy. Consequently, the Group has a robust strategy and implements a structured risk management system.
In line with the multiple situations encountered in the field, and while supporting the Group’s governance bodies, the Strategy and Climate division shapes the Group’s approach to climate change while working with the operational divisions of the Group’s business segments. By monitoring indicators, progress can be measured and the Group’s actions can be adjusted.
A) Governance
TOTAL has an organization and structured governance framework to make sure climate-related challenges are fully integrated into the Group’s strategy. Since September 2016, its organization includes a Strategy-Innovation corporate division, which includes the Strategy & Climate division as well as the Gas, Renewables & Power business segment, whose President is a member of the Executive Committee.
Oversight by the Board of Directors
TOTAL’s Board of Directors ensures that climate-related issues are incorporated into the Group’s strategy and examines climate change risks and opportunities during the annual strategic outlook review of the Group’s business segments.
To carry out its work, the Board of Directors relies on its Strategic & CSR Committee, whose rules of procedure were changed in September 2017 then in July 2018 in order to broaden its missions in the realm of CSR and in questions relating to the inclusion of climate-related issues in the Group’s strategy.
Aware of the importance of climate-change challenges faced by the Group, the Board of Directors decided, in 2016, to introduce changes to the variable compensation of the Chairman and Chief Executive Officer to take better account of the achievements of Corporate Social Responsibility (CSR) and the Group’s HSE targets. For fiscal year 2018, the importance given to these criteria rose further: CSR performance is assessed by considering the extent to which climate issues are included in the Group’s strategy, the Group’s reputation in the domain of Corporate Social Responsibility as well as the policy concerning all aspects of diversity.
The Board of Directors meeting of March 13, 2019 decided to change the criteria for the determination of the variable portion of the Chairman and Chief Executive Officer’s compensation for the year 2019. Among others, a quantifiable criteria related to the evolution of GHG emissions (Scopes 1 & 2) on operated oil & gas facilities (refer to chapter 4, section 4.3.2 for details).
Role of management
TOTAL’s Chairman and Chief Executive Officer, in compliance with the long-term strategic direction set by the Board of Directors, implements the strategy of the Group and its business segments while making sure climate change challenges are taken into account. He relies on the President, Group Strategy-Innovation, who is a member of the Executive Committee, to whom the Senior Vice President Strategy & Climate, and the Senior Vice President Climate report (refer to the Group organization chart in chapter 1). The Senior Vice President Climate chairs the Climate-Energy steering Committee, which mainly includes representatives of Strategy and HSE management from the various business segments. The mission of this Committee consists of structuring the Group’s approach to the climate.
B) Strategy
Identification of climate-related risks and opportunities
The identification of climate-related risks forms an integral part of the analysis of investment projects. The impact of these risks is also examined for the Group asset portfolio as a whole. These risks are presented in detail in point 3.1.2 of this chapter.
In order to ensure the viability of its projects and long-term strategy in light of the challenges raised by climate change, the Group integrates, into the financial evaluation of investments presented to the Executive Committee, either a long-term CO2 price of $30 to $40 per ton (depending on the price of crude), or the actual price of CO2 in a given country if higher.
TOTAL has five major levers to integrate climate in its strategy.
1) Improving energy efficiency
Optimizing the energy consumption of its operated facilities is TOTAL’s first lever to reduce emissions. The Group therefore aims to improve the energy efficiency of its operated facilities by an average of 1% per year over the 2010-2020 period, at a time when exploration is becoming increasingly complex. This indicator is described in point 3.5.9.4.D of this chapter.
TOTAL uses appropriate architectures and equipment and introduces technological innovations. For example, on offshore production barges, offshore platforms and onshore facilities, heat recovery systems at gas turbine exhausts have been implemented thereby avoiding the need for furnaces or boiler systems.
2) Growing in natural gas
To respond responsibly to the strong rise in demand for electricity, TOTAL remains committed to gas, whose CO2 emissions are half those of coal when used to generate electricity (1).
The Group wishes to be present throughout the whole gas chain, from production to end customer. Significant operations have taken place in the upstream and the downstream to make this possible. Upstream, TOTAL has acquired a stake in the giant Yamal LNG project in the north of Russia. The Group has also acquired the LNG assets of Engie. These two complementary portfolios allow for the management of a volume of nearly 40 Mt of LNG as from 2020. Downstream, the Group has made strategic acquisitions, such as Direct Énergie and Lampiris, gas and electricity suppliers on the French and Belgian markets, and has developed Total Spring, which was launched in 2017 on the French market.
(1) Source: International Reference Centre for the Life Cycle of Products, Processes and Services; Life cycle assessment of greenhouse gas emissions associated with natural gas and coal in different geographical contexts, October 2016.
Finally, TOTAL has committed itself to gas fuel for transport by acquiring a 25% stake in Clean Energy Fuels Corp., one of the leading distributors of gas fuel for HGVs in the United States, and by signing a contract with CMA-CGM, the first shipping company to equip its transcontinental container ships with LNG-powered engines.
Strengthening the position of gas in the energy mix must however be accompanied by a greater focus on control of methane emissions. To preserve the advantage that gas offers in terms of GHG emissions compared to coal for electricity generation, it is necessary to strictly reduce the methane emissions associated with the production and transportation of gas. In 2018, TOTAL’s methane emissions are kept below 0.25% of the commercial gas produced (1). TOTAL’s target is to sustainably reduce the intensity of its methane emissions of its operated facilities in the Exploration & Production segment to less than 0.20% of commercial gas produced by 2025.
The Group has been a member since 2014 of the partnership between governments and industrial companies for the improvement of tools to measure and control methane emissions set up by the Climate and Clean Air Coalition and promoted by UN Environment and the non-profit organization Environmental Defense Fund. The Group also took several actions as part of the Oil & Gas Climate Initiative and signed the guiding principles on the reduction of methane emissions on the gas value chain (2).
3) Developing a profitable low-carbon electricity business
TOTAL is developing along the whole of the low-carbon electricity value chain, from electricity generation, storage and sale to the end customer. As demand for electricity is expected to grow strongly in the coming decades, TOTAL intends to become a major player in this segment. To meet this target, TOTAL plans to invest $1.5 to $2 billion per year. In 2018, the Group completed the acquisition of Direct Énergie, a French electricity supplier, for nearly €2 billion. With regards to the generation of electricity, TOTAL aims at holding a production capacity of 10 GW of low-carbon electricity by 2023. In 2018, TOTAL acquired four combined-cycle natural gas power plants in France with a global capacity of 1.6 GW. Refer to chapter 2 for further information on recent acquisitions.
4) Developing sustainable biofuels
A pioneer in biofuels for more than 20 years, TOTAL is now one of Europe’s major actors with 2.4 Mt (3) blended sustainable biofuels in 2018 for a worldwide distribution of 3.2 Mt.
Furthermore, TOTAL produced 0.1 Mt of sustainable biofuels in its refineries in 2018. Production at La Mède factory is scheduled to start in 2019. It has a capacity of 0.5 Mt per year of hydrotreated vegetable oil (HVO) based on sustainable certified charges, the Group intends to reach a market share of over 10% in Europe. Biofuels that are currently available are mainly made with vegetable oil and sugar.
For more than 10 years, TOTAL’s R&D teams have developed technologies that have broadened the range of usable resources, while also meeting the need for sustainability. The consortium BioTFuel is working on, for example, the development of lignocellulose (plant waste).
5) Investing in carbon sink businesses
Carbon storage is key to achieving carbon neutrality in the second half of the 21st century. TOTAL is focusing, on the one hand, on developing CCUS and, on the other, on preserving and restoring the capacity of ecosystems to act as carbon sinks. CCUS is vital for several industries, especially those that emit massive amounts of CO2 due to the nature of their business (cement, steel, etc.). TOTAL allocates significant resources to this area by dedicating up to 10% of the Group’s R&D budget to it. Several projects have made substantial progress in recent months. Northern Lights (Norway) is a project in which the Group participates alongside Equinor and Shell. TOTAL is also a partner of the Clean Gas Project (UK), together with the OGCI’s investment fund and a few companies of the sector (4).
TOTAL announced in February 2019 the creation of an entity dedicated to investments in natural carbon sinks, composed of experts in environment and agronomy, with an investment budget $100 million per year from 2020 onwards. Furthermore, actions of preservation and restoration of the forest are currently conducted (refer to point 5.9 of chapter 5 where presented the Total Foundation program carried mainly by the Fondation d’entreprise Total).
Sector initiatives and international framework
TOTAL is also in various sector initiatives on the main challenges raised by climate change. Indeed, tackling climate change requires cooperation between all actors, from both public and private sectors.
Thus, in 2014, TOTAL decided to join the call of the UN Global Compact, which encourages companies to consider a CO2 price internally and publicly support the importance of such a price via regulation mechanisms suited to the local context. In particular, TOTAL advocates the emergence of a balanced, progressive international agreement that prevents the distortion of competition between industries or regions of the world. Drawing attention to future constraints on GHG emissions is crucial to changing the energy mix. TOTAL therefore encourages the setting of a worldwide price for each ton of carbon emitted, while ensuring fair treatment of "sectors exposed to carbon leakage" (as defined by the EU). In addition, TOTAL is working with the World Bank as part of the Carbon Pricing Leadership Coalition (CPLC). In June 2017, TOTAL became a founder member of the Climate Leadership Council, an initiative that calls for the introduction of a "carbon dividend", namely, a redistribution mechanism that would tax the biggest fossil fuel consumers (a population’s wealthiest citizens) in order to pay a dividend to the entire population.
In 2014, TOTAL was actively involved in launching and developing the Oil & Gas Climate Initiative (OGCI), a global industry partnership. At year-end 2018, this initiative involved 13 major international energy players. Its purpose is to share experiences, advance technological solutions and catalyze meaningful action in order to assist the evolution of the energy mix in a manner that takes into account climate change issues. Launched in 2017, the OGCI Climate Investments fund, which has access to over $1 billion over 10 years, invests in technology that significantly cuts emissions. The fund’s initial investments notably are: a large-scale industrial CO2 capture and storage project (Clean Gas Project); a solution that reduces the carbon footprint of cement by using CO2 instead of water to set concrete (Solidia Technologies); a high-efficiency opposed-piston engine that reduces GHG emissions (Achates Power) and a technology that incorporates CO2 as a raw material in the production of polyols used in polyurethanes, which are plastics that have multiple uses (Econic Technologies).
(1) Refer to the OGCI methodology for methane intensity calculation: http://oilandgasclimateinitiative.com/blog/methodological-note-for-ogci-methane-intensity-target-and -ambition.
(2) "Guiding Principles on Reducing Methane Emissions across the Natural Gas Value Chain".
(3) Physical volume of biofuels in equivalent ethanol and esters according to the rules defined by the European RED Directive, excluding volumes sold to third parties via trading.
(4) BP, ENI, Equinor, Occidental Petroleum and Shell.
The Group also plays a role in various international initiatives that involve the private and the public sectors to bring about (non-exhaustive list):
-carbon pricing within Caring for Climate - United Nations Global Compact, and the Paying for Carbon call;
-the end of routine flaring of gas associated to oil production within the World Bank’s Zero Routine Flaring by 2030 initiative;
-greater transparency, while taking into account the recommendations of the G20 Financial Stability Board on climate, and of the Task Force on Climate-related Financial Disclosures (TCFD);
-the development of new state-of-the-art energy companies, since 2017 within the Breakthrough Energy Coalition (BEC), a group of investors created by Bill Gates in 2015, and since 2016 within the Breakthrough Energy Ventures, a $1 billion fund created in 2016 by the BEC.
C) Targets and metrics to measure climate-related risks
TOTAL has set itself targets and introduced a number of indicators to coordinate its performance.
The Group’s climate targets: -an 80% reduction of routine flaring (1) on operated facilities between 2010 and 2020 in order to eliminate it by 2030; -an average 1% improvement per year in the energy efficiency of operated facilities between 2010 and 2020; -a sustainable reduction in the intensity of the methane emissions of the Exploration & Production segment’s operated facilities to less than 0.20% of gas produced for sale, by 2025; -a GHG emission reduction (Scopes 1 & 2) on operated oil & gas facilities of 46 Mt CO2e in 2015 to less than 40 Mt CO2e in 2025. What has been accomplished: -more than 80% reduction in routine flaring between 2010 and 2018; -more than 10% improvement in energy efficiency between 2010 and 2018; -an intensity of the methane emissions below 0.25% of the commercial gas produced in 2018; -a GHG emission reduction (Scopes 1 & 2) on operated oil & gas facilities from 46 Mt CO2e to 42 Mt CO2e between 2015 and 2018. |
Indicators related to climate change
| | 2018 | 2017 | 2016 | 2015 |
SCOPE 1 Direct greenhouse-gas emissions (operated scope) | Mt CO2e | 40 | 38 | 41 | 42 |
Breakdown by segment | | | | | |
Exploration & Production | Mt CO2e | 18 | 17 | 19 | 19 |
Gas, Renewables & Power | Mt CO2e | 2 | 0 | 0 | - |
Refining & Chemicals | Mt CO2e | 21 | 21 | 22 | 22 |
Marketing & Services | Mt CO2e | < 1 | < 1 | < 1 | < 1 |
SCOPE 1 Direct greenhouse-gas emissions based on the Group’s equity interest | Mt CO2e | 54 | 50 | 51 | 50 |
SCOPE 2 Indirect emissions attributable to energy consumption by sites | Mt CO2e | 4 | 4 | 4 | 4 |
GHG emissions (Scopes 1 & 2) on operated oil & gas facilities | Mt CO2e | 42 | 41 | 45 | 46 |
Net primary energy consumption (operated scope) | TWh | 143 (a) | 142 | 150 | 153 |
Group energy efficiency indicator | Base 100 in 2010 | 88.4 | 85.7 | 91.0 | 90.8 |
Daily volume of all flared gas (Exploration & Production operated scope) (including safety flaring, routine flaring and non-routine flaring) | Mm3/d | 6.5 | 5.4 | 7.1 | 7.2 |
Of which routine flaring | Mm3/d | 1.1 | 1.0 | 1.7 (b) | 2.3 (c) |
(a) Excluding primary energy consumption of Direct Énergie gas power plants.
(b) Estimated Volume at end 2016 based on new definition of Routine Flaring published in June 2016 by the Working Group Global Gas Flaring Reduction.
(c) Volumes estimated upon historical data.
All this data as well as the related risks are also reported to the CDP once a year, and TOTAL’s response to the CDP Climate Change questionnaire is posted on the Group’s website (sustainable-performance.total.com). For its 2018 reporting regarding 2017 activities, the Group received an A-.
Flaring
Reducing routine flaring has been a long-standing target of the Group, which designs its new projects without resorting to it. In addition, TOTAL is committed to putting an end to routine flaring of its operated facilities by 2030. An 80% reduction target was set for 2020 compared to 2010, in other words, an average of 1.5 Mm3/d. This target has been met since 2017.
Furthermore, as part of the Global Gas Flaring Reduction program, TOTAL has worked alongside the World Bank for over 10 years to help producing countries and industrial players control flaring of gas associated to oil production.
The increase in flaring linked to oil production in 2018 is due to acquisition and startup of new sites.
(1) Routine flaring, as defined by the working group of the Global Gas Flaring Reduction program within the framework of the World Bank’s Zero Routine Flaring initiative.
Energy efficiency
One of the Group’s performance targets is to better control energy consumption. Since the beginning of 2013, a Group directive has defined the requirements to be met at operated sites using more than 50,000 tons of oil equivalent per year of primary energy (approximately 40 sites). At end 2018, all the concerned sites reported compliance or had taken steps to comply with this directive. The aim is to ensure that 100% sites using more than 50,000 tons of oil equivalent per year by the end of 2020 have an Energy Management System auditable, such as the ISO 50001 on energy management (1). A certain number of sites that use less energy have, voluntarily, taken measures to become ISO 50001 certified.
Energy efficiency is a key factor for the improvement of economic, environmental and industrial performance. Since 2013, the Group has used a Group Energy Efficiency Index (GEEI) to assess its performance in this area. It consists of a combination of energy intensity ratios (ratio of net primary energy consumption to the level of activity) per business.
The Group’s target for the 2010-2020 period is to improve the energy efficiency of its operated facilities by an average of 1% per year. By design, the base value of the GEEI was defined as 100 in 2010 and the target is to reach 90.4 in 2020. This target has been met since 2017.
Through the "Total Ecosolutions" program, the Group is developing innovative products and services that perform above market standards on the environmental front. At year-end 2018, 97 products and services bore the "Total Ecosolutions" label. The CO2 eq emissions avoided throughout the life cycle by the use of "Total Ecosolutions" products and services, compared to the use of benchmark products on the market and for an equivalent level of service, are measured annually based on sales volumes. This represented 1.75 Mt CO2e in 2018.
GHG emissions
The Group has reduced by 25% the GHG emissions produced by its operated activities since 2010. This reduction was reached thanks to notably reducing flaring and improving energy efficiency.
In February 2019, TOTAL announced a target to decrease the GHG emissions (Scopes 1 & 2) on its operated oil & gas facilities to less than 40 Mt O2e in 2025.
3.5.9.5 Contractors and suppliers
TOTAL’s activities generate hundreds of thousands of direct and indirect jobs worldwide. Present in more than 130 countries, the Group currently works with a network of more than 100,000 suppliers of goods and services worldwide. In 2018, the Group’s purchases of goods and services (excluding petroleum products and vessel chartering by Trading & Shipping) represented approximately $29 billion (2) worldwide. The allocation of expenditures on the Group level is approximately 32% for goods (products, materials, etc.) and approximately 68% for services (in particular consulting services, work with supply of materials, transport, etc.).
TOTAL’s success as a responsible company is played out all along its value chain, and the Group is convinced of the importance of working with suppliers that respect human rights and take care of their employees. The Group expects its suppliers to adhere to principles equivalent to those in its own Code of Conduct, as set out in the Fundamental Principles of Purchasing directive. To this end, the Group wanted the management of its supplier relations to be coordinated by the dedicated cross-functional "Total Global Procurement" entity, which is tasked, in particular, with delivering Purchasing services and assisting the Group’s entities and sites, mainly in Exploration & Production, Refining & Petrochemicals, Marketing & Services and Gas, Renewables & Power. This approach is complemented by employee training programs and actions to raise awareness amongst the Group’s partners, customers and suppliers. Its success is also based on TOTAL’s involvement in international initiatives or collaborative approaches specific to the energy sector that promote the emergence of good practices.
A) The Group’s responsible procurement policy
The Group ensures that contractual conditions are negotiated in an equitable manner with its suppliers. The Code of Conduct restates this requirement and the three essential principles that guide TOTAL’s relations with its suppliers: dialogue, professionalism and the fulfillment of commitments.
These principles are also set forth in the Fundamental Principles of Purchasing, launched in 2010, that specify the commitments that TOTAL expects its employees and suppliers to adhere to in the following areas: respect for human rights at work, the protection of health, safety and security, preservation of the environment, prevention of corruption, and conflicts of interest and the fight against fraud, respect for competition law, as well as the promotion of economic and social development. These principles were drawn up in keeping with the fundamental principles defined in particular in the United Nations Universal Declaration of Human Rights, the conventions of the International Labor Organization, the United Nations Global Compact and the OECD Guidelines for Multinational Enterprises.
Furthermore, a Sustainable Procurement road map defines TOTAL’s guidelines in this area. A Sustainable Procurement Committee regularly brings together the Management Committee of Total Global Procurement and the Civil Society Engagement (including the Human Rights Department), HSE and Legal divisions as well as the Ethics Committee. It is tasked with monitoring the implementation of the Group’s Sustainable Procurement road map.
Employee awareness-raising actions and training
TOTAL has set up a number of channels of communication to raise employee awareness of the risks and issues related to its supply chain. Training modules explaining the Group’s ethical commitments and the Fundamental Principles of Purchasing have been developed for and made available to Group procurement representatives. In 2018, 196 procurement representatives were trained on respect of human rights and working conditions by suppliers, and 250 on anti-corruption rules.
The Group provides its procurement representatives with supporting materials, such as the "Sustainable Purchasing Awareness Cards" that recap human rights at work and identify the purchaser practices that must alert them. A set of communication tools intended to help procurement representatives to enter discussions on the Fundamental Principles of Purchasing was also distributed within Total Global Procurement. The materials used in the annual performance review have been revised to include a section on human rights.
In June 2018, the International Procurement Days brought together the 170 procurement representatives present in 41 countries. The Fundamental Principles of Purchasing were distributed during the event and the internal supplier qualification and audit processes were presented.
With respect to the development of good practices in business relations, TOTAL also launched an initiative to raise its employees’ awareness of mediation as an alternative method for resolving disputes. Since 2013, a training day run by professional mediators to raise awareness of mediation has been organized in French and English. In 2017, an open day for employees of the Group, lawyers and suppliers, enabled participants to learn about the benefits of mediation. A brochure designed to increase awareness of the mediation process is available to all Group employees. In addition, an email address is available on the Group website (under "Suppliers"). The Group’s suppliers can contact the internal supplier mediator using a generic email address (mediation.fournisseurs@total.com). The internal mediator is tasked with facilitating relations between the Group and its French and international suppliers. The general purchasing terms and conditions also mention the possibility of recourse to mdiation.
(1) The ISO 50001 standard accompanies the implementation in companies of an energy management system that allows a better use of energy.
(2) $25 billion excluding Hutchinson, SunPower and Saft Group.
B) Extension of the Group’s policy to the supply chain
TOTAL expects its suppliers to:
-adhere to the Fundamental Principles of Purchasing and ensure that they are adhered to in their activities;
-accept to be audited according to these principles;
-remain attentive to the everyday working conditions of their employees and their suppliers’ employees;
-ensure that their own suppliers and subcontractors adhere to these Fundamental Principles of Purchasing;
-refer to the Group Ethics Committee when in doubt or in the event of any malfunction.
The rules set out in these Principles must be included or transposed into the agreements concluded with suppliers. To this end, these Principles are available for consultation by all suppliers in both French and English on TOTAL’s website (under "Suppliers").
The supplier qualification process
The supplier qualification process was harmonized at Group level in 2017 by Total Global Procurement. A new internal framework was published in 2018. A new computerized qualification tool will gradually be rolled out starting in 2019, with a planned scope of 107 countries thus far.
It will be used to automate and document the supplier qualification process, which unfolds in four stages:
1. confirmation of interest;
2. a risk pre-analysis to decide whether an in-depth analysis of each criterion is necessary (HSE, anti-corruption, societal, financial, technical);
3. determination of the qualification status;
4. monitoring and renewal of qualification. Qualifications are valid for three years.
The supplier assessment process
Simultaneously, the Group has set up a supplier assessment process to identify and prevent risks of severe impacts on human rights and fundamental freedoms, human health and safety. Thus, since 2016, the Group started conducting campaigns to audit working conditions amongst its suppliers. These audits are conducted by a specialized service provider, with which TOTAL signed a framework contract in 2016.
Since 2017, the Group has been rolling-out specific training for Group purchasers to evaluate suppliers with respect to human rights.
Moreover, in September 2018, TOTAL, BP, Equinor and Shell announced their intention to develop a common collaborative approach to assess the respect of human rights by their suppliers. The partner companies are convinced of the importance of working with suppliers that respect human rights, on the one hand, and take good care of their employees, on the other. The goal of this common approach is to encourage the improvement of working conditions in the supply chain of the companies involved. This initiative addresses the United Nations SDG N° 8: "to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all".
Supplier awareness-raising actions
The deployment of the anti-corruption policy in purchasing continued in 2017 with awareness-raising sessions for strategic suppliers at the Suppliers Day. This event gathered more than 100 suppliers that are considered to be strategic in view of their contribution to Group operations. In addition to numerous initiatives taken in previous years, in 2018 approximately 229 suppliers underwent an anti-corruption analysis through the issuing of specific questionnaires, completed, in some cases, by external inspections.
Every year, one of the departments of the IPO (TOTAL IPO in Shanghai, China) organizes a compliance day and invites one of its approved suppliers. It can explain the actions it takes regarding anti-corruption compliance, the concrete problems encountered and how it deals with them. The discussions, based on case studies and topical issues, are enlightening for all. In 2018, this event was held in December (refer also to point 5.8.1 of chapter 5).
Finally, pursuant to Rule 13p-1 of the Securities Exchange Act of 1934, as amended, which implemented certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, TOTAL has submitted since 2014 to the SEC an annual document relating to "conflict minerals" (1) sourced from the Democratic Republic of the Congo or an adjoining country. The document indicates whether, during the preceding calendar year, any such minerals were necessary to the functionality or production of a product manufactured (or contracted to be manufactured) by the TOTAL S.A. or one of its affiliates had. The main objective of the rule’s obligation to publish this information is to prevent the direct or indirect funding of armed groups in central Africa. For more information, refer to TOTAL’s most recent publication available at: sustainable-performance.total.com or www.sec.gov.
C) The Group’s responsible procurement commitments
Since 2010, TOTAL is a signatory to the French Economy and Finances Ministry’s Sustainable Supplier Relations Charter, which aims to allow more sustainable and balanced relations between customers and suppliers.
Worldwide, a CSR global agreement monitoring Committee (known as the "FAIR Committee") meets every year in the presence of representatives who are members of trade unions affiliated with the IndustriALL Global Union and appointed by this federation to monitor and implement the agreement. It identifies good practice and areas for improvement. In application of the areas for improvement defined by this Committee, the programs mentioned earlier have already been set up: Suppliers Day, International Procurement Day and trainings in human rights for purchasers.
Since 2018, TOTAL has been a member of the United Nations Global Compact platform on Decent Work in Global Supply Chains, and, in this capacity, takes part in various workshops that aim to help the member companies of the Global Compact to make progress in this area. In December 2018, the Group committed to pursuing its efforts in terms of decent work and respecting human rights in its supply chain by signing the "Six Commitments" of the United Nations Global Compact.
The Group’s buyers also take part in international working groups on responsible procurement. TOTAL is an active member of IPIECA’s Supply Chain Working Group. Building on the workshops held since 2015, TOTAL continued to participate in the Operationalization of the UN Guiding Principles work organized by the IPIECA, aimed at both oil and gas companies and engineering, procurement and construction (EPC) contractors.
Finally, the Group pays special attention to the disabled and protected employment sectors. In France, the Group’s purchases from this sector enabled the achievement of an indirect employment rate of nearly 1% in 2018. TOTAL is a member of the Pas@Pas association and provides its buyers with an online directory that can be used to identify potential suppliers and service providers (disabled or protected employment sectors) by geographical area and by category (refer to point 5.3.5.3 in chapter 5).
(1) Rule 13p-1 defines "conflict minerals" as follows (irrespective of their geographical origin): columbite-tantalite (coltan), cassiterite, gold, wolframite as well as their derivatives, which are limited to tantalum, tin and tungsten.
