| The Issue at Hand for SK Innovation: “Green”

As the CEO of SK Innovation, I am constantly contemplating ways for our company to achieve sustainable growth and bring even greater happiness. In order to draw a new future, I heed the voices of stakeholders regarding their expectations from our company, and it all pretty much comes down to one key value: “Green.” This brings me to the question, “How can I turn ‘green,’ i.e. the environment, which is an obstacle for petrochemical companies, into the growth vision of SK Innovation?”

Going “green” isn’t an idea that suddenly popped up yesterday. SK Innovation has been considering this issue for quite some time. Reintroducing this issue right now serves a different purpose than it did previously. It is not an issue that we can worry about in the distant future, and we simply can’t put it off any longer. SK Innovation has is roots deep in the energy and chemical industries. And as the CEO of our company, I feel a strong sense of responsibility, while pondering whether we will be able to move past our 60-year history and achieve new innovations and whether such innovations will help us survive and grow. With my mind filled with questions, musing on the future has long become part of my everyday life.

| Growing Demand for “Green” Among Stakeholders

S&P has proposed that the enterprise value of energy and chemical firms should be discounted by 30% of the present value in reflection of carbon risk. If climate change occurs at an accelerated rate, thereby driving forth a more rapid transition to green energy sources, the existing energy and chemical companies will lose value to a point where they have to worry about their very survival. That is, unless we change, we will be unable to survive, let alone grow.

The truth is environmental issues are an inherent obstacle in this business area and a problem that all companies in this field have had to deal with. SK Innovation must approach this issue from a new perspective and use it as a vision for new growth. Otherwise, we will not only lose our company value, but we also won’t be able to guarantee our survival. This is crystal clear. Our stakeholders are demanding that we strive toward fundamental change and immediate action. In other words, instead of resorting to short-term improvements and responses, we are asked to become and do something completely different – that is, undergo a total transformation.

We have been asked for a greenhouse gas reduction road-map and specific reduction measures from Climate Action 100+ consisting of some 300 pension funds and action funds from around the world. BlackRock, a global fund, has demanded us to make efforts to counter climate change and asserted that it would hold the Board of Directors accountable if satisfying results aren’t produced. What I have noted is that it will be impossible to meet these expectations by making the usual efforts. Without fundamental change, investors will sell their shares, and we will have to face considerable difficulties in securing resources for survival and growth. We also don’t have much time. This presents us with no other choice but to make a deep change, through which we can overcome the limitations of our industry and revolutionize our growth measures in order to create sustainable happiness.

| Differentiated Strategy of SK Innovation: Green Balance 2030

Thus, SK Innovation has sought and found a solution for survival and growth, that is “Green Balance 2030.” Green balance is the strategy to mitigate the adverse impacts of management activities on the environment and produce more positive impacts as a way to create a balance between the two. And we aim to achieve this balance by 2030. This demonstrates the fact that without fearing or attempting to avoid the “green” issue, we will turn it into a momentum for innovation. To this end, we will make every effort to achieve business transformation.

Transforming the entire petrochemical business overnight is without a doubt a near-impossible feat. Therefore, instead, we are looking for ways to generate more positive effects first. One way we are going about to achieve this is to increase the portion of our investment portfolio dedicated to our green business concerning electric vehicle batteries and materials. We are also aiming to gain a stronger foothold in the United States, China, and Europe, and become one of the world’s top 3 companies in the field of electric vehicle batteries and the world’s No. 1 company in materials. Not only that, we will set up an eco-friendly battery value chain, taking into consideration not only battery production but also repair, rental, reuse, and recycling, to grow as an e-mobility solution provider. Besides, in connection with the ESS business, we will seek to evolve into a total energy solution provider. This dream of SK Innovation actually began in 1982, when late former Chairman of SK Group Chey Jonghyun was leading the company. Back then, energy storage battery system was chosen by former Chairman Chey as the future key business to realize the vision of becoming a total energy solution provider, and that marked the starting point of our journey.

Another way to achieve a green balance is to make an epoch-making reduction of the negative impacts on the environment. By maintaining the business as it is and lowering the harmful impacts, we can make a positive change. For instance, in the petrochemical business, we are working to develop environmentally friendly products, improve the production processes, and so on. This past April, mass production began in full swing with respect to the vacuum residue desulfurization (VRDS)(1) for light crude oil and low sulfur fuel oil production. Technology is being discovered to address environmental issues by applying eco-friendly processes, innovatively reducing CO2 emissions, implementing water treatment, and so on. An eco-friendly ecosystem befitting the vision of Green Balance 2030 is being created together with customers. Good examples of what has been achieved thus far include the development of eco-friendly packaging materials, recyclable asphalt, ultra-lightweight materials for improving mileage, and a high-performance eco-friendly lubricant.

(1) Vacuum Residue Desulfurization (VRDS): Production of light crude oil and low sulfur fuel oil by inducing desulfurization reaction by adding hydrogen with vacuum residue (VR) as a raw material in a decompression distillation process

More recently, we have been collaborating with a startup company to develop a groundbreaking technology to extract the base materials from waste plastic by decomposition and re-input the materials into oil refining and petrochemical processes to make plastic. Plastic waste is arguably a key environmental issue these days, and being able to solve this problem fundamentally will be a major business without doubt.

In conclusion, Green Balance 2030 is a vision that will be pursued by SK Innovation as well as a new identity that the company will need to build. Based on its DNA to innovate, SK Innovation will transform into a green balanced company by 2030 and bring happiness to all.