Economics and governance

In 2021, Ecopetrol signed the Legality and Transparency Pact with Chambers of Commerce, which seeks to promote the local contracting under a framework of law compliance and free and fair competition principles. 

2023 Pact Endorsement:

1. Continue impacting the regions’ economic growth, within the sustainable development principle.

2. Include the energy transition framework according to Ecopetrol´ s 2040 Strategy "Energía que transforma”.

3. Inclusion of Ecopetrol’ s Business Group 🡪 

1. RISK IDENTIFICATION

Ecopetrol’ s Ethics and Compliance Area developed the risk identification in operations, businesses, or contracts methodology, which defines and analyzes each of the possible risk factors in a business relation. According to its definition and guidelines the Supply Chain Process will implement the required measures and actions defined by the Compliance Area for the treatment of the different risk factors:

COUNTERPART:

Natural or legal person, national or foreign with whom it is sought to establish or currently holds a commercial relation

PRODUCTS:

Goods and services offered by the supplier in the development of its corporate purpose.

DISTRIBUTION CHANNELS:

Means used by the supplier to offer and market its goods and services.

TERRITORIAL JURISDICTION:

Risk rating of the geographic areas of the supplier origin, this factor´s risk management is characterized by the level of risk assigned:

Restricted: The supplier will be immediately blocked at Ecopetrol’ s Supplier System Information.

Medium or High: the supplier is asked for its policies, programs or ethical guidelines and internal control system, this evidence is analyzed by the Compliance Area and the Supply Chain Process executes the actions defined for the supplier´s treatment.

Low: It does not present a risk for the operation.

2. SECTOR´S RISK AND OPPORTUNITY ANALYSIS

The Supply Chain Process designed the Market Indicators Surveillance System, through which 50 national and international indexes are monthly analyzed to measure and monitor inflation and key variables that directly or indirectly impact the goods and services rates required by Ecopetrol and its Business Group. 

Additionally, global risks are monitored in Economic and Geopolitical, Environmental, Social and Technological aspects, covering each of the dimensions defined for sustainable Supply Chain Management (T-EGS®).

3. IDENTIFICATION AND MONITORING OF COMMODITIES, GOODS AND SERVICES REQUIRED

Committed to supporting the energy transition, the Supply Chain Process, through the monitoring of 10 key indicators, developed a historical price evolution monitoring board for the different goods and services required for the operation and, also, for the essential needs of the Energy Transition Strategy. 

Currently, the Process is working on the deployment of a prospective analysis concerning the impacts of decarbonization, climate change, reduction of working hours and taxes, to count with risk anticipation mechanisms, containment measures and take advantage of market opportunities. As well, the Supply Chain seeks to generate the respective monetization of these variables impact on Ecopetrol’ s profit and loss statement (P&L).

To guarantee the correct execution of the contractual relations, Ecopetrol has generated an Integral Ecosystem of Risk Management Measures and Contracts Execution Verification Mechanisms:

COMMERCIAL VERIFICATIONS
Validations are carried out to verify the compliance level of commercial obligations in local contracting by critical contractors. With these reviews Ecopetrol generates alerts and recommendations to the suppliers for its respective management and resolution. These verifications were strengthened in 2022 through one of the most strategic project of the Company, assessing 6 critical contracts in Puerto Wilches municipality.

SECOP
Report and disclosure of the contracting managed by Ecopetrol in the National Electronic System of Public Contracting.

COMMERCIAL ASSURANCE

Includes:

• Internal Early Warning System.
• Internal Risk Management System
• Precritical and Critical Contracts Analysis

CONSULT DETAIL 

LABOR VERIFICATIONS
Visits are made to suppliers to ensure compliance with labor obligations and identify breaches, occupational risks and early alarms that may impact labor normality. These verifications are recorded in a standard report that allows the same findings parameters and the identification of improvement actions. In 2022, 390 verifications were carried out.

DUE DILIGENCE
62 internal due diligence of suppliers and contractors were carried out in 2022 to identify and prevent violations of the Code of Ethics and Conduct related to corruption, bribery, fraud, money laundering, terrorism financing, conflicts of interest, ethics conflicts and unfair competition acts.

CLAIM AND COMPLAINTS MANAGEMENT
Ensure the implementation, by the Ecopetrol´ s suppliers, of strong, efficient and timely systems for Petitions, Complaints and Claims the Management and its respective disclosure to stakeholders.

Supply Chain Process Internal Audits: 

In 2022, Ecopetrol carried out internal audits to:

Evaluate the management of critical suppliers that provide technology and information services, as well as the compliance of the guidelines defined at the corporate level for relations with third parties.

Review the implementation level of practices and strategies defined for the Master data management.

Verify the implementation and operation of cybersecurity and cyber defense initiatives.

Assess the assurance of personal data treatment in compliance with Law 1581 of 2012

Measure the CAPEX execution capacity to ensure the achievement of investment goals.

Assessments carried out by an independent accredited auditing body

Certain goods and services needed by Ecopetrol require an external evaluation and certification to be invited, verified, and establish a commercial relation. Therefore, they must carry out the assessment through a third party and present it to Ecopetrol in a current state and guarantee its update, otherwise the supplier will not be able to participate in the selection methods.

The type of certification the supplier must have, is determined according to its economic activity. These accreditations are detailed below:

Compliance with national and international standards and Supply Chain Management Best Practices

Ecopetrol’ s Supply Chain is a national and international benchmark due to its remarkable management, therefore, it continually challenges its performance to incorporate the best market practices and accomplish national and international standards, both in its operation and in its suppliers’ performance. The decisions and strategies made for the Process Evolution have taken into account the recommendations and assessments carried out by international consultants, such as Boston Consulting Group, Kearney and Mckinsey, which have allowed the identification of the Process´ maturity level, including suppliers´ management.

According to these assessments, Ecopetrol have been recognized with a high level of performance, being classified within the top quartile of the industry in the "Aspirant" category in the Kearney Assessment of Excellence in Procurement (AEP) measurement and the consultancy for strengthening of suppliers and contracts segmentation carried out by Boston Consulting Group, which have been implemented in the different phases of the supply chain process.

Internal Health, Safety, Environment, Quality (HSEQ) Audits

Ecopetrol has an internal HSEQ audit system, which seeks to:

Determine the conformity of HSEQ management systems.

Assure the capacity of the HSEQ management systems to ensure the compliance of legal, regulatory, and contractual requirements applicable.

Analyze the effectiveness of HSEQ management systems in ensuring that the organization meets specified objectives.

Identify aspects of potential improvement in HSEQ management systems.

SUPPLIER VERIFICATION AND QUALIFICATION

The supplier verification process evaluates the suppliers ´minimum requirements fulfillment for the company’s approval in Ecopetrol’ s Suppliers Information System. The requirements that suppliers must meet are determined by the following variables:

1. KRALJIC MATRIX Goods and services classification, according to the activity risk and impact. It defines the commercial requirements. 2. ECONOMIC IMPACT Determines the obligation to present financial information. 3. SPECIFIC REQUIREMENTS Commercial activities that by their nature require the endorsement of national or international institutions.

4. HSE RISK HSE risk level (Very High, High, Medium, Low and Null): Establishes the HSE certifications which the supplier must comply.

5. ETHICS AND COMPLIANCE Transversal - required to all suppliers: Money Laundering and Terrorist Financing (ML/FT) Format Commitment to integrity Certification of the correct management and compliance with applicable regulations, systems and legislation on ML/FT aspects, Conflict Minerals, Conflicts of interest, Incompatibilities, among others. 6. COUNTERPARTY VERIFICATION Ecopetrol consults its current and potential suppliers and its related parties on national and international restrictive and control lists. In case of a finding in any supplier in any of these lists and the respective due diligence confirms the findings, the supplier is immediately blocked and cannot be invited to contracting processes or contracted by Ecopetrol.

If the supplier does not comply with the established requirements or do not ensure its qualification in the Information System, the supplier will not be “Approved”, therefore, it cannot be invited to participate in Selection Methods or be contracted by Ecopetrol.

Consult the specific verification requirements for each supplier type:

SUPPLIER FINANCIAL CAPACITY ANALYSIS

Evaluates the financial capacity and risk of potential suppliers to prevent possible breaches of their contractual obligations, through a comprehensive historical analysis of the suppliers’ financial information (3 years).

This analysis provides a supplier financial profile, which contemplates the ability to finance working capital requirements, with internal sources derived from the contracts in progress and/or potential new contracts, as well as its financial profitability, debt, and liquidity.

The assessment ponders the following aspects:

The companies that are identified with "Very High" and "High" risk, must be managed through the identification, design, and implementation of controls and mitigants so that suppliers remain at residual risk levels that do not compromise the agreed contractual obligations.

TESG® FACTORS INTO SUPPLIER SELECTION

During the Supplier´s registration, selection, and assessment performance processes, Ecopetrol considers the following sustainability (T-ESG®) factors:

Required for new suppliers.

Required for existing suppliers.

PERFORMANCE ASSESSMENT

Establishes the methodology and criteria to assess the effectiveness and efficiency of suppliers´ performance to ensure the fulfillment contracting obligations and assure contractual relations with the best suppliers of goods and services. The performance assessment is a permanent process carried out through the analysis of suppliers´ obligations accomplishment during the contractual relations according with the formalized indicators for each contract. 

This assessment is carried out through the measurement of 5 standard criteria:

    
In this process, Ecopetrol provides a guideline on the assessments that must be carried out throughout the contractual relationship, considering variables such as frequency, applicable criteria, among others, according to the specific needs identified during the supply planning and that are correctly formalized in the signed contract. 

Additionally, the performance assessments also indicates that for contracts whose performance term exceeds six (6) months and are classified as Medium (M), High (H) or Very High (VH) HSE Risk, it is mandatory to complement the Performance Assessment with at least one annual audit in the place where the contract is performed, preferably to be carried out within the first three (3) months of the contract performance.

As a due diligence mechanism, for the planning, invitation, and contract subscription during the selection process, Ecopetrol review and considers the favorable and unfavorable information about supplier´s performance such as results, trends, contract´s category and any other data that may be relevant.

Capacity building programs 

Ecopetrol counts with different programs for suppliers´ capacity building, during 2022, 109 significant suppliers participated in one or more of the development actions, achieving a coverage of 91% of significant suppliers. 

ETHICS AND COMPLIANCE MANAGEMENT

Strengthening of supplier compliance and ethical conduct and policies

The conduct of suppliers and their workers with whom Ecopetrol has a commercial relationship must be characterized by transparency, clear rules, and consistency; with a total rejection and zero tolerance of any conduct that goes against the postulates defined and adopted in the Code of Ethics and Conduct of the Ecopetrol Group. Therefore, training spaces have been developed to strengthen the knowledge and appropriation by suppliers of these standards, such as:

Ethical tips Newsletters Ethics Virtual Training "Éticos Siempre" Forum-Workshop

 

Looking to increase Country´s sustainable territorial development, the Supply Chain Management created the Regional Impact Model of Ecopetrol’ s Operations which considers six dimensions:

The implementation of this Model allows:

• Quantify Ecopetrol’ s economic and social contribution in the territories of operation.

• Locate future projects in municipalities with potential to reinforce sustainable local development. 

• Carry out simulations of production fluctuations or new clean energy businesses in local economies.

• Identify a new view of Ecopetrol’ s social and economic benefits and support the information delivered to National Authorities around this.

Likewise, this model´s simulator can estimate the potential effects of production rise on territories in terms of education, health, public services and security, diagnosis supported by the Municipal Performance Measurement-MDM of the National Planning Department.

Internal training program for Supply Officials

Supply Management recognizes the training, reskilling and installation of new capacities and abilities of the human talent to reach and maintain the competence level to face the challenges imposed by new T-ESG® trends, climate change and energy transition for which it has designed a training system for officials. 

The internal training program consist of: 

Los Andes University: Strategic Supply Chain Program: Count with qualified human talent for processes´ transformation, through training in the necessary capacities, skills and knowledge of supply chain and its sustainable management, ensuring that supply chain officials have the fundamental skills in relevant aspects such as strategic thinking, leadership, financial evaluation, risk management and decision making, among others. This Program is developed in alliance with Los Andes University.

Massachusetts Institute of technology (MIT): Digital transformation: Massachusetts Institute of Technology (MIT) Training Program for supply chain officials on leadership of digital transformation skills.

Javeriana University: Analytics and data science: Training for the development of analytical solutions. Program developed in alliance with Microsoft and the Javeriana University.

Contract Monitoring Officials Academy

Contract monitoring officers are key interlocutors for the correct performance of the agreed contractual obligations; therefore, the Supply Chain Process recognizes the importance of updating and strengthening their knowledge by designing training programs on high relevance topics for its function. During 2022, different workshops and forums were held covering topics such as the public works contribution, human rights, suppliers’ verification, payment management, assurance of labor and commercial obligations, HSE management and due diligence, among others.

Additionally, contract monitoring officers received the International Association for Commercial and Contract Management (IACCM) Certificate.

Environmental Management Training

In 2022, Ecopetrol began an environmental management internal training plan through the development of sessions regarding the decarbonization strategy (compensation, green clauses and decarbonization plans) with the attendance of 315 attendees during the different activities carried out. 

In order to have a greater knowledge apprehension and commitment with environmental objectives, the supply chain management deployed the definition of roles and responsibilities for the main actors in this criteria including into their individual performance objectives, the targets to be met in terms of environmental management, likewise, to guarantee the information accessibility, the process counts with a digital repository for internal training with the resources and relevant material for a correct environmental management.