Flex LNG : 2021 Annual ESG report

esg

r e p o r t

2021

THIS REPORT HAS BEEN PREPARED

BASED ON THE REQUIREMENTS OF

THE SUSTAINABILITY ACCOUNTING

STANDARDS BOARD

C O N T E N T S

5	|	INTRODUCTION
6	|	OUR ESG FRAMEWORK
8	|	SUSTAINABILITY GOVERNANCE
10	|	BUSINESS ETHICS AND ANTI-CORRUPTION
12	|	ENVIRONMENT
16	|	SAFETY, LABOUR CONDITIONS AND HUMAN RIGHTS
20	|	SUSTAINABILITY ACCOUNTING STANDARD DISCLOSURES

23 | DISCLAIMER AND ASSUMPTIONS FOR THE SASB REPORTING

ABOUT FLEX

FLEX LNG LTD. ("Flex LNG") is a commercial operator of fifth generation LNG carriers with large cargo capacity, focusing on the growing market for Liquefied Natural Gas (LNG). Flex LNG is listed on the Oslo Stock Exchange (OSE), and on the New York Stock Exchange (NYSE) under the symbol FLNG.

Our fleet consists of thirteen LNG carriers on the water, and all of our vessels are state- of-the-art ships with the latest generation two-stroke propulsion (MEGI and X-DF). These modern ships, built between 2018 and 2021, offer significant improvements in fuel efficiency, and thus also a lower carbon footprint including methane slip compared to the older steam and four-stroke propelled ships. During 2021, we built up a significant contract backlog while maintaining market exposure to capture the opportunities in the growing LNG shipping market.

S A S B A C T I V I T Y M E T R I C S 2 0 2 1

ACTIVITY	UNIT OF	DATA	DATA	SCOPE BY	CODE
METRIC	MEASURE	2021	2020	CONTRACT
Number of shipboard	Number	338	144	Operated fleet	TR-MT-000.A
personnel
Total distance trav-	Nautical miles (nm)	1 351 803	820 438	All assets	TR-MT-000.B
elled by vessels
Operating days	Days	4 560	2 683	Operated fleet	TR-MT-000.C
Deadweight tonnage	Deadweight tons	1 221 177	936 884	All assets/Oper-	TR-MT-000.D
				ated fleet
Number of assets in	Number	13	10	All assets	TR-MT-000.E
fleet
Number of vessel port	Number	228	149	All vessels/Oper-	TR-MT-000.F
calls				ated fleet

ABOUT THIS REPORT

This report is our fourth comprehensive and stand-alone sustainability report. The report meets the disclosure requirements of the Sustainability Accounting Standards Board (SASB) Marine Transportation Standard (2018) and has been prepared in accordance with the Global Reporting Initiative (GRI) Standards (2021). A separate GRI Index is available on our website. The report presents our material environmental, social, and governance (ESG) performance, along with how we manage material sustainability topics, for the financial year ended December 31, 2021.

Determination of sustainability impacts and material ESG topics for reporting was undertaken by an independent expert ESG advisor, in consultation with our staff and stakeholders, and was approved by the BoD. The materiality determination method followed the GRI Materiality Standard, GRI 3 (2021). Critical or material events occurring on or after December 31, 2021, and up until the publication date are also covered in this report.

For questions or feedback to this report, please contact us at [e-mail]

3 • ABOUT FLEX | SASB ACTIVITY METRICS 2021 | ABOUT THIS REPORT

"Higher fuel costs provide

us with a competitive

advantage as our fleet is more efficient than the industry average."

INTRODUCTION

0.34 3430

LOST TIME	REVENUE	NUMBER OF
INCIDENT RATE	USD MILLION	SPILLS

THE LNG VALUE CHAIN

EXPLORATION &	LIQUEFACTION	SHIPPING	STORAGE &	END
PRODUCTION			REGASIFICATION	USERS

OUR CARGO - LNG IN BRIEF

access to energy is vital for economic and social development. The Director of the International Energy Agency (IEA), Dr Fatih Birol, has stated that natural gas is one of the mainstays in the global energy mix. Where it replaces more polluting sources of energy, it improves air quality and limits emissions of carbon dioxide. LNG plays a key role in reducing carbon intensity across all segments of the energy system including power generation, industry, the residential sector and transport.

the president of the european commission, Ursula von der Leyen, has stated that "Gas will have a role to play in the transition towards a carbon-neutral economy (...) in particular by making full use of the potential of affordable liquefied natural gas." Looking ahead, LNG can help to further decarbonise the transport sector, with the use of synthetic and bio LNG, that offer significant GHG emissions reductions. As nations move to displace traditional energy with low-carbon energy, LNG is viewed as a viable solution for years ahead.

climate change is the biggest global challenge, and 2021 saw world leaders come together in Glasgow to agree a roadmap to a low carbon future. According to the IEA, the decarbonisation of the gas and broader energy systems will require the deployment and scale-up of low-carbon gases.1 The war in Ukraine adds to the complexity: While Europe relies

on Russia for 34 percent of its natural gas, the gas market is global, and Europe's need for alternative gas sources will affect other LNG importers in Asia, the Middle East, and Latin America.

The existing natural gas infrastructure can act as

an enabler in the deployment of low-carbon gases by providing network access, reducing transport costs and ultimately facilitating their integration into the broader energy system. Currently, we are transporting conventional LNG, and we deem the IEA's predictions to underline that our services will be an important part of the infrastructure needed for reaching net zero emissions by 2050.

This roadmap will have a major effect on the shipping industry, and challenges the Initial IMO GHG Strategy, which aims to reduce carbon intensity of international shipping by 40% by 2030, compared to 2008. In June 2021, the IMO adopted guidelines on the operational carbon intensity reduction factors, which is set at a rate, relative to 2019, of 11% by 2026. The introduction of the Efficiency Existing Ship Index (EEXI) and the GHG emissions reduction requirements will in our segment lead to a massive reduction in available capacity: Of the global LNG fleet consisting of 747 vessels2, 30 per cent are of the first and second generations - vessels not likely to meet emission reduction requirements. For FLEX LNG, running the latest technology, this puts us in a favourable spot.

In 2021, we took delivery of three newbuilds, and our fleet now counts 13 ships, all built between 2018 and 2021. Last year, the EU adopted the first of two delegated acts for the Taxonomy, confirming the parameters on sustainable activities for climate change adaptation and mitigation objectives. FLEX LNG welcomes these

developments, and has an ESG strategy that is forward looking and resilient to increasing regulation.

Throughout 2021, the pandemic continued to cause strain on the global economy and societies across the globe. In spite of the challenges, FLEX LNG was able to operate effectively, thanks to

our employees and business partners who have worked hard and shown great determination under difficult circumstances. Notwithstanding the health threats of the pandemic, FLEX LNG has succeeded in keeping a very strong track when it comes to lost time incidents. Since we started publishing our annual ESG reports in 2019, the LTIR remained at zero (0) until 2021. In March last year, we experienced one incident at Flex Rainbow, contributing to an LTIR of 0.34. We will keep our strong focus on safety in all operations to avoid risk adverse health impacts to our staff and seafarers.

We hope you find this report informative of our approach to ESG.

at flex lng, we believe that supplying LNG to the market by the most efficient seaborn transportation makes an important contribution to the broader agenda of SDG 3 and SDG 13, as the use of LNG relates to reducing air pollution and limit the rise in energy- related emissions by displacing coal and oil in power generation, heating, transportation and industrial uses.

The prospects of higher fuel costs also provides us with a	Øystein Kalleklev
competitive advantage as our fleet is highly fuel efficient.	CEO, Flex LNG Management AS

1. Gas Market Report Q4 2021, IEA: 57
2. Fearnleys, Poten, Clarksons, SIN and Company - includes conventional LNG carriers with a capacity of 100k cbm. Laid up vessels are included.

5 • INTRODUCTION

OUR ESG FRAMEWORK

our approach to managing relevant ESG topics is structured around the three core environmental, social and governance pillars. Our framework reflects the incorporation of the UN Global Compact principles in our operations in general, and our enhanced ESG management system in form of a digital platform.

MATERIAL TOPICS

We have reviewed and refreshed the comprehensive analysis of material ESG topics undertaken in 2020, which included feedback from selected stakeholders such as employees, investors, customers, crew, bank relations, analysts, board representatives and a select number of NGOs, e.g. Nordea, SEB, ABG Sundal Collier, Arctic Securities, the WWF, and the Fridtjof Nansen Institute. Our review of potentially material topics followed the GRI Materiality Standard (GRI 3, 2021), considering the severity and likelihood of our impacts. Our ESG priorities also take into consideration those which are financially material, and we are guided by the SASB Marine Transportation Standard (2018) in this regard.

The following topics have been considered by the Board and are deemed material for inclusion in this report:

• Climate-relatedrisks
• Direct emissions
• Energy mix
• Marine casualties involving crew and assets
• Corruption risk
• Ship recycling
• Spills and releases
• Compensation and remuneration
• Training - compliance training and training on board (e-based)

FLEX LNG will continue to work to improve performance in these areas, and our public ESG targets include →

		ACTUAL	ACTUAL	TARGETS
		2020	2021	2022
	OVERALL FLEET
E	WEIGHTED	Not	A	A
AVERAGE
CARBON	reported
	INTENSITY
	RATING
S	LOST TIME	0	0.34	0
INCIDENT RATE
	% OF NEW BUSI-
G	NESS PARTNERS	Not	100%	100%
SCREENED IN
reported
COMPLIANCE
	WITH THE KYBP
	POLICY

6 • 2021 • Environmental Social Governance

7 • OUR ESG FRAMEWORK

SUSTAINABILITY GOVERNANCE

we believe clear guidance and robust control mechanisms are essential to ensure the proper handling of sustainability risks and opportunities. FLEX LNG has established policies and control processes to manage our material risks and to ensure compliance with all applicable international and local laws and regulations. Our most important ESG related policies are available on our website.

Our Board of Directors (BoD) is responsible for ESG at FLEX LNG. The BoD oversees the strategy, including ESG priorities, ensures that appropriate and effective related risk management and internal control systems are in place, and that our corporate governance framework is reviewed annually. In line with the Norwegian Corporate Governance Code, the BoD has throughout the year considered important ESG matters, and has reviewed our annual ESG report. The BoD's Audit Committee monitors reports and complaints received by the company relating to internal controls and compliance. All incidents are reported to the BoD in an annual review. The Chief Executive Officer (CEO) carries the responsibility for the daily implementation of ESG at FLEX LNG and our technical managers are the fiirst in line to handle incidents. Crewing and ship management is outsourced to third parties that are closely supervised and assessed by our flleet manager.

We have established a comprehensive Compliance Program led by our Compliance Officer to ensure we conduct our business in an honest and ethical manner. FLEX LNG has implemented policies and procedures outlining how we manage ESG issues to help mitigate potential risks. In 2021, we conducted a full Compliance Risk Assessment to identify and mitigate the compliance risks FLEX LNG is exposed to. The Compliance Risk Assessment resulted in a risk map covering all identified risks, with sanctions and cybercrime dominating the risk map.

All FLEX LNG policies and procedures were updated in 2021. Communication and training regarding compliance and governance helps our company follow laws, reduce risks of corporate and personal liability and operate effectively. FLEX LNG provides training to all employees and management, as well as the BoDs, through physical training sessions and an e-learning platform which was implemented this year. All employees and management need to undergo mandatory training in our internal policies and procedures on an annual

basis. New employees undergo the training as part of their onboarding. 100% of FLEX LNG's employees have completed the main mandatory training session. Further, we conducted face-to-face training. The training focused on potential compliance issues; how to identify them, what to do if facing a potential issue and included cyber risks.

FLEX LNG relies on data driven sustainability management, meaning that we collect and use data to make decisions that support sustainable business practices that can be meas- ured. To do so, we use our digital ESG management system. By using the insights and support functions within the digital platform, we effectively communicate on ESG topics, both internally and externally with our ship management compa- nies. This has enabled the full integration of ESG management within our business and has laid the foundation for setting targets for our material risks and opportunities with associated KPIs, for the short, medium and long term.

CO-OPERATION TO PROMOTE SUSTAINABLE OPERATIONS

Some of the challenges our industry is facing require joint actions. Together with industry peers such as Avance Gas, Frontline, Golden Ocean and SFL, FLEX LNG has established an ESG forum: the goal is to design industry leading approaches to ESG performance and risk management, as well as reporting parameters.

We actively participate in and support the following initia- tives:

• The Neptune Declaration
• The Maritime Anti-Corruption Network (MACN)
• The Clean Shipping Alliance
• The International Association of Independent Tanker Owners (Intertanko)
• Oil Companies International Marine Forum (OCIMF)

MATERIAL ISSUE	INTERNAL GOVERNANCE DOCUMENTS	INTERNATIONAL STANDARDS AND REFERENCES
Climate change	Environmental Policy	The Paris Agreement
		The Intergovernmental Panel on Climate Change (IPCC)
		Initial IMO Strategy on Reduction of GHG Emissions from Ships
Air emissions	Environmental Policy	IMO MARPOL Convention Annex VI EU
		Sulphur Directive 2016/802 UNCLOS
Ecological impact	Environmental Policy	UN Global Compact
	FLEX LNG Ship	IMO MARPOL Convention Annex VI
	Recycling Policy	IMO Ballast Water Management Convention IMO MARPOL
		Convention Annex VI
		Hong Kong Convention
Anti-Corruption	Corporate Code of Business Ethics and Conduct	UN Global Compact
	Financial Crime Policy	The US Foreign Corrupt Practices Act and the UK Bribery Act
	Know Your Business Partner Policy
Employee Health &	Corporate Code of Business Ethics and Conduct	UN Global Compact
Saftey	FLEX LNG Ship Recycling Policy	ILO Conventions
		Maritime Labour Convention, 2006 (MLC, 2006)
		International Management Code for the Safe Operation of Ships
		and for Pollution Prevention (The ISM Code)
		Hong Kong Convention
		Marine Crew Resource Management
Accident &	Corporate Code of Business Ethics and Conduct	International Management Code for the Safe Operation of Ships
Safety	Know Your Business Partner Policy	and for Pollution Prevention (The ISM Code)
Management		Marine Crew Resource Management

8 • 2021 • Environmental Social Governance

9 • SUSTAINABILITY GOVERNANCE