Corporate Responsibility Report 2007

Conduct

BG Group’s success is dependent on operating to high standards, as set out in our Business Principles. We recognise that the operations of any industry can have undesirable impacts if they are not managed with the needs of the broader community and environment in mind. We also believe that conducting our business with integrity and regard for others makes the Group more productive and effective in achieving its long-term strategic goals.

This belief in the importance of Corporate Responsibility (CR) led BG Group to establish a statement of principles in 1998, and to review it annually to ensure the principles reflect the evolving nature of our industry and stakeholder expectations.

For BG Group, CR means putting our Business Principles into practice. Today, our Business Principles consist of 15 statements of core values and behaviours with which all employees must comply. These Business Principles are supported by two documents, which together comprise the expression of BG Group’s Principles:

• Corporate Commitments, which provides more detail on the Business Principles to external stakeholders; and
• Principles into Practice, which provides practical guidance for employees on applying the Business Principles in business life.

The Business Principles and these two supporting documents are distributed across the Group and are available in 12 different languages. Instruction on the Business Principles is included in our employee development Core Curriculum, and is an integral part of our Business Discovery programme (our blue-ribbon business training course). Business Principles training is also part of our induction course for new employees at our corporate headquarters. Through these training courses, more than 1 300 people received training in 2007, over one third of whom were in management roles.

As a further step towards embedding the principle that CR is fundamental to the way we operate, in 2007 we introduced a new reward framework. The link between reward and performance is now more transparent and annual incentives are directly linked to HSSE and behavioural objectives.

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Group Executive Leadership

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BG Group recognises that we need to demonstrate our commitment to integrity, fairness and transparency in order to earn and maintain the trust of our partners in government, business and the community.

Business Principles and the supply chain

Our business is based on partnership and co-operation. Because of this, we are committed to working with our contractors to cascade our Business Principles through our supply chain. As is widely recognised, the assessment and monitoring of CR in the supply chain is a challenging and complex task. However, we have identified this challenge as a priority and included it among the targets to be led by the Group Executive (see above).

In 2007, we also initiated a pilot project that aimed to monitor the compliance of the Group’s key contractors with our Business Principles. This project has not yet been completed, but we have achieved the following milestones:

• a review of the UK industry standard questionnaire developed by First Point Assessment Limited (FPAL);
• a gap analysis comparison of the FPAL questionnaire against BG Group requirements for contractors;
• direct discussions with selected contractors; and
• the preparation of a Corporate Responsibility workshop for selected top-tier contractors. The first workshop, held in January 2008, discussed the assessment of compliance in the supply chain.

While we plan to work with our top-tier contractors to extend our assessment of compliance with the Business Principles to key first-tier sub-contractors, we cannot do so until we are satisfied that we have fully addressed the assessment and monitoring of top-tier contractors. In 2008, the Group will focus on raising awareness of the Business Principles among key first tier sub-contractors.

In line with our commitment to integrity and transparency, in 2007 we continued to support the Extractive Industries Transparency Initiative (EITI) as it moved forward as the international standard for revenue management within the extractive industry. We continue to work with host governments that are EITI participants on procedures to increase transparency. However, until the EITI has been fully adopted into the local legislation of the countries in which we operate, the confidentiality requirement in our commercial agreements places constraints on our freedom to disclose payments to governments.

With a business that spans an extremely wide and complex range of activities and geographic locations, we are subject to an extensive list of legislative and regulatory requirements, authorisations and exemptions, including competition rules, contracting, business conduct, employment, maritime and environmental protection. Furthermore, the licences which govern our operations often include additional requirements and conditions.

Many of the countries in which we operate may have only recently developed, or may still be in the process of developing, hydrocarbon regulatory and legal frameworks, and even in other more mature markets regulatory frameworks continue to evolve.

Our legal department provides training for employees in legal and regulatory compliance. This training focuses on equality and diversity, employment law obligations, competition law, health and safety and anti-corruption measures.

Information on the processes that aim to ensure compliance with our Business Principles and legal and regulatory requirements is set out in the Governance section below and in the Corporate Governance section of our 2007 Annual Report and Accounts.

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Goldman Sachs GS Sustain

In keeping with our commitment to act with integrity, fairness and transparency, BG Group does not tolerate corruption in any form, and we take steps to educate our employees and to enforce this principle.

BG Group communicates its position on corruption to employees through the Anti-Corruption Standard, rolled out in 2006. The Standard provides six ‘Golden Rules’ intended to help employees avoid or deal with difficult situations, and requires all of our businesses to maintain a register of offers of, and demands for, illegal payments from any third parties. Businesses are also required to record any payments made by BG Group employees as a result of concern for their physical safety. The Group carried out a review of the Anti-Corruption Standard with input from legal counsel after its first year of operation to determine possible areas of improvement. In addition, BG Group supports Transparency International’s Business Principles for Countering Bribery and is a signatory of the UN Global Compact.

BG Group’s Policies also require employees to avoid conflicts of interest between their personal activities and Company activities. Anti-Corruption and Conflict of Interest Policies provide direction on avoiding potential conflicts. In addition, our Gifts and Hospitality Standard places limits on the value of corporate hospitality and gifts that may be accepted, and requires all hospitality and gifts to be recorded. The BG Standard on Political Donations prohibits donations to political parties and organisations, or to politicians, and political expenditure of any kind.

Fraud

BG Group has a Fraud Risk Management Standard designed to mitigate and manage the risks from fraud and malpractice. The Standard requires all assets to appoint a Fraud Officer to identify and assess fraud risks; co-ordinate local anti-fraud training; ensure that pre-employment checks are in place; and see that all staff understand their responsibilities under the Standard. The Officer is also responsible for promptly reporting all instances of fraud (whether actual or attempted and irrespective of value) to Group Security.

In 2007, in response to allegations of internal fraud, BG Group commenced six investigations. Further details of these can be found in the Whistleblowing case study.

BG Group’s belief that CR is good business is demonstrated by our willingness to apply our Business Principles in directing our investment resources. BG Group is prepared to decline opportunities in countries where we have concluded that it would not be possible to operate in accordance with our Business Principles.

Our investment decision procedures ensure that non-financial risks and impacts such as human rights, health, safety, security and environment risks are explicitly considered, and that all new country entry proposals that raise social or environmental issues are reviewed by the Board Corporate Responsibility Committee before the Group reaches an investment decision.

In 2007, we reinforced the application of this principle by further integrating CR into our formal business decision-making process. This involved building additional steps and CR-related checks into our Capital Investment Process, as well as into our revised and relaunched Value Assurance Framework – a formal step-by-step process that informs our decision-making on business opportunities.

BG Group’s commitment to CR starts at the highest level of the Company, with our Board and Group Executive Committee.

The Corporate Responsibility Committee (CRC) was established to assist the Board in providing strategic leadership, direction and oversight, and policy-setting on CR issues.

In 2007, principal activities of the CRC included:

• a review of BG Group’s Business Principles;
• assurance that the Group would be able to conduct its business in accordance with the Business Principles in new areas of activity;
• a review of security management issues;
• a review of community relations;
• approval of the Social Performance Governance Framework to govern the implementation of the society element of our Business Principles;
• a review of the Group strategy for managing greenhouse gas emissions and climate change; and
• receiving regular reports on health, security and the environment.

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See description

In previous years, the CRC also received reports on safety. Following publication of the Baker Report, in January 2007, the Board reserved to itself the oversight of all matters relating to safety and asset integrity.

The CRC is a committee of the Board (see diagram above), and is chaired by Sir John Coles, a non-executive Director. The other members of the CRC are Sir Robert Wilson (Chairman of the Board), Frank Chapman (Chief Executive), and three further non-executive Directors; Peter Backhouse, Jürgen Dormann and Dr. John Hood.

Since March 2006, compliance with the Business Principles and the Group’s governance, risk management and assurance process has been overseen on behalf of management by the Governance and Risk Committee (GRC), a sub-committee of the Group Executive Committee.

Review of Board performance

An independent evaluation of the effectiveness of Board Committees (including the CRC) was conducted during 2007 by external consultants. The reviewers concluded that there is a high degree of confidence in the Board Committees, their Chairmen and the work they undertake.

Business assurance processes

In 2007, awareness of some of the elements of BG Group’s Business Principles was assessed at a high level across the Group through internal audit activities. These reviews identified a small number of actions to be taken to enhance the understanding of the Business Principles.

In addition, each member of the Group Executive Committee (GEC) annually completes and submits a Letter of Assurance (LOA) to the Chief Executive. This Letter provides confirmation that all areas of the business for which he or she is accountable have complied with a series of Core Controls (controls that significantly contribute to the identification and mitigation of one or more risks relating to the Group’s objectives). The management level directly reporting to members of the GEC also each complete a Governance Self Assessment (GSA) questionnaire that complements and supports the LOAs. Data from the LOAs and GSA questionnaires are used to assess the effectiveness of the Internal Control Framework.

Brindisi investigation

Last year, we reported on a criminal investigation in connection with our planned facility in Brindisi. Legal proceedings are still ongoing. Further details on this investigation are available in our 2007 Annual Report and Accounts.

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Whistleblowing Policy

The Governance and Risk Committee (GRC), a sub-committee of the Group Executive Committee, oversees the Group’s compliance with the Business Principles. The GRC reviews and monitors compliance with a number of relevant policies including the Whistleblowing Policy and the Fraud Risk Management Standard.

The GRC has delegated to the General Counsel responsibility for investigating whistleblowing reports and ensuring an appropriate response is taken – the process is described in the case study on page 19. Where a case involves allegations of fraud or improper accounting, the Group Financial Controller is consulted. Concerns arising through other channels (such as the work of internal audit or the employee survey) that merit investigation by the General Counsel are also dealt with via the whistleblowing mechanism.

During 2007, the Group revised its Whistleblowing Policy, which will be renamed and relaunched in 2008. Key changes include an increase in the scope of the Policy to cover all reported breaches of Business Principles, along with an obligation for all employees to report suspected breaches of the Business Principles or other misconduct. A new external provider has been appointed to provide the independent hotline and a new secure web reporting facility.

The new whistleblowing facilities will be available to third parties such as suppliers, joint venture partners, employees’ families and members of the public.

Compliance with the revised Policy will continue to be monitored by the GRC. The General Counsel will retain responsibility for investigating reported concerns and monitoring the progress of investigations, and will continue to report back to the GRC with summaries of investigations and findings.

The total number of whistleblowing and fraud cases during 2007 was 40 (34 whistleblowing, six fraud). Feedback from whistleblowing investigations has been provided to the relevant BG Group function to ensure appropriate follow up action, such as amendments to Company procedure. An example is set out within the Society section. We found evidence of fraud in two cases, and three cases are still under investigation. Two employees’ contracts have been terminated and Company procedures have been amended. The amounts involved in cases of fraud ranged from £25 to £17 000. None of the reported fraud cases demonstrated a material weakness over financial reporting controls, and they did not involve employees who have a significant financial reporting role.

In addition, one allegation of external fraud was investigated and proven. The amount involved was £62 000. BG Group does not believe that there was any internal involvement by employees in the fraud. Company procedures are being amended as a result of this investigation.

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Case study: Whistleblowing

Investor dialogue

BG Group maintains a programme of engagement with its major shareholders on CR issues, including face-to-face meetings with analysts and written responses to surveys. In addition, reports and presentations can be accessed from the Group website.

In 2007, BG Group’s Regional Managing Director for Europe and Central Asia presented and led a CR discussion with the Socially Responsible Investor community.

BG Group continues to be a member of the Dow Jones Sustainability Indexes (DJSI) and the FTSE4Good index. In 2007, BG Group’s overall score in the DJSI was 68%, compared to the sector average of 53%. The FTSE4Good Index does not make scores available.

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Stakeholder Commentary

Ernst & Young remarks

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