Risks related to TAURON Group’s sustainable development

1.

Social risk

The risk materialization results in a loss of reputation and the customers’ trust, disputes with customers, a failure to achieve goals, including sales goals, and possible penalties for non‑compliance with the legal requirements regarding personal data protection.

1. Adoption and implementation of the PRO Client Social Policy.
2. Conducting of the dialogue with customers, including customer satisfaction surveys, tailoring the product offering to their needs, ensuring high quality of customer service.
3. Developing relationships with customers and the market environment.
4. Responsibility for the product, including for the quality and security of supply, tailoring the product offering to customer expectations.
5. Protection of privacy and security of the customers’ personal data.
6. Deploying tools supporting the implementation of the client social policy.
7. Standardization of the draft contracts (contract templates) with customers and their adaptation to the changes in legal regulations as well as the optimization of the sales and service processes.
8. Implementation of the promotional activities in accordance with the adopted TAURON Brand Strategy and the TAURON Group’s Sponsorship Strategy for 2018-2025, including respect for human rights and conducting responsible marketing activities.

2.

Corporate social responsibility area management risk

1. Implementation and performance of the CSR project plan, which specifies all activities, including the justification thereof.
2. Implementation and application of the document entitled TAURON Group’s Principles of Conducting Corporate Social Responsibility (CSR) projects.
3. Approval of the key activities by authorized areas.

3.

Risk of reputation management by shaping the brand image

1. Supervising the process of establishing the methodology for conducting promotional and sponsorship campaigns, approving of the key activities by authorized areas.
2. Implementing the Visual Identification System, appointing a Team responsible for assessing and approving the image building projects.

1.

Short-term physical risk (acute risk)

• frequent occurrence of extreme temperatures, greater rainfall intensity that can cause floods at any time of the year, uneven rainfall resulting in longer periods of no rainfall, intermittent abrupt rainfall (torrential rain),
• increase in the frequency and intensity of hurricanes, strong winds, incidentally accompanied by tornadoes and lightnings causing machinery and equipment failures, distribution grid failures (electricity, heat), more frequent drought occurrences and water restrictions related thereto, as well as an increased risk of fires.

The risk materialization also results in:

• increased costs of maintaining transmission systems resulting from the costs of fixing failures, a decrease in the volume of electricity and heat sales, a decrease in the volume of production, a deterioration of the electricity distribution quality indicators affecting the regulated revenue,
• sharp fluctuations of market prices due to the occurrence of extreme temperatures affecting the levels of demand and the ability to satisfy such demand by the supply side,
• the need to shut down individual power generating units due to the too low water level in rivers, the water from which is used to cool the units.

The risk includes the risks identified and managed by the TAURON Group: environmental risk (in the context of excessive impact on the climate), weather risk, company assets related risk and market risk.

1. Adoption and implementation of the TAURON Group’s Climate Policy.
2. Conducting business operations that affect the climate in accordance with the principles of sustainable development.
3. Maintaining the required level of the pollution reduction devices’ performance.
4. Frequent assessment of compliance of the activities with the legal requirements regarding climate impact.
5. Active search for the technical and organizational solutions that would minimize the impact of TAURON Group’s activities on climate change, gradual adaptation of the production assets to the consequences of extreme weather occurrences and the volatility of weather conditions, in particular in the lines of business sensitive to these factors,
6. Optimization of investment outlays allocated for asset replacement, active monitoring of the condition of the machinery, equipment and installations.
7. Increasing of the professional qualifications and work culture of employees by organizing courses and training courses.
8. Responding to an emergency situation by the technical operational personnel and the automated protection systems.
9. Property insurance against fortuitous events (excluding the underground assets).
10. Introduction of IT tools with respect to improving the monitoring and management of failure rates.
11. Gradual adaptation of the production assets to the consequences of extreme weather occurrences and volatility of weather conditions, in particular in the Distribution Line of Business.

2.

Long-term physical risk

• decrease in the volume of sales of the products offered by the TAURON Group’s subsidiaries, in particular as a result of a temperature deviation from the planned values, resulting primarily in a loss of revenues in the individual segments of the TAURON Group’s operations as a consequence of reduced demand,
• reduction, especially in summer, of the water levels in rivers and water reservoirs, and an increase in their temperature, which generates a decrease in the efficiency of the generating units and a decline in the dispatchability of the units during the peak electricity demand periods. The above may lead to a blackout in an extreme scenario,
• change of the market conditions for the operations of the TAURON Group’s subsidiaries, in particular as a result of changes in the weather conditions resulting in a drop of the margin in the Generation Line of Business (CDS/volume) and, in general, an increase of the costs and a decrease of the revenues,
• increased failure rate of the machines and devices constituting the assets of the TAURON Group’s subsidiaries due to permanent climate changes – such as prolonged droughts, global warming, for example.

The risk includes risks identified and managed by the TAURON Group: volume and margin risk, company assets related risk and market risk.

1. Ongoing offering updates, introduction of the multi-packet products for sale.
2. Conducting marketing activities, acquiring new customers.
3. Activities focused on retaining current customers and recovering the lost ones.
4. Daily measurement and reporting of the portfolio positions.

1.

Risk related to the transition

The consequences of the risk include the reputation, technology, policy and regulatory issues, as well as the market issues. In particular, the effects of the risk may be:

• decrease in the volume of sales of the products offered by the TAURON Group’s subsidiaries, in particular as a result of the development of energy efficiency, insulation of buildings, development of prosumers, resulting primarily in a loss of revenue in the individual segments of the TAURON Group’s business operations resulting from the reduced demand,
• change of the market conditions for the operations of the TAURON Group’s subsidiaries, in particular as a result of the tightening of the European Union’s climate policy, the growing ecological awareness of the customers, the activities supporting energy efficiency (departure from the coal use as fuel, growth of prosumers, support for thermal insulation, construction of own electricity and heat sources) resulting in a drop of the margin in the Generation Line of Business (CDS/volume) and, in general, an increase of the costs and a decrease of the revenues,
• difficulties or an increase in the cost of raising capital to finance operations based on fossil fuels,
• loss of reputation due to involvement in fossil fuels,
• the need to transform the assets and, as a consequence, the need to incur additional expenses as a result of the climate change,
• difficulty or an increase in the insurance costs for the assets based on fossil fuels,
• an increase in the costs of the environmental fees and the need to incur additional investment outlays to adapt the assets to the environmental requirements,
• an increase in the price of the CO₂ emission allowances and, as a consequence, a decrease in the margin in the conventional electricity segment,
• a decrease in demand for electricity as a result of energy efficiency and growth of the prosumers segment,
• a decrease of the demand for the products offered thus far by the TAURON Group’s subsidiaries,
• limiting or discontinuing the operations based on fossil fuels and carbonates,
• the need to restructure employment resulting from a change in the business operations profile,
• impediments to administrative procedures involving the public by non-governmental organizations,
• a decline in the company value,
• inability to meet market expectations due to the lack of the expected products in the portfolio.

The risk includes risks identified and managed by the TAURON Group: climate change, reputation, regulatory, volume and margin, market, obtaining of the financing, company assets, human resources related risks.

1. Applying of the TAURON Group’s Climate Policy.
2. Defining and updating as well as implementing of the TAURON Group’s Strategy.
3. Update of the TAURON Group’s Strategic Research Agenda.
4. Adaptation of the TAURON Group’s Investment Strategy to the guidelines stemming from the Climate Policy and the Investment Strategy.
5. Ongoing analysis of the draft ordinances and acts,
6. Active participation in the work of teams providing opinions on projects and proposing optimal solutions,
7. Gradual adaptation of TAURON Group’s production assets and energy mix to the production of renewable energy and zero and low-emission electricity generation technologies,
8. Gradual withdrawal of the anthropogenic sources of greenhouse gas emissions coming from fossil fuels through the development of renewable energy and zero and low-emission electricity generation technologies,
9. Active search for the technical and organizational solutions that would minimize the impact of TAURON Group’s operations on climate change.

1.

Human capital management risk

The materialization of the risk may result in interruptions or disruptions to the operations, employee complaints, collective disputes, strikes, loss of specialized staff and difficulties in recreating it.

1. Adoption and implementation of the Employee Recruitment, Selection and Adaptation Policy.
2. Adoption and implementation of the Policy of Compliance with Ethics Principles and Counteracting Mobbing and Discrimination.
3. Taking care of the development of the employees’ competences, including through the participation in training courses.
4. Conducting consultations with social organizations in the TAURON Group.
5. Implementation of the HR policy based on the Competence Model and the applicable remuneration and labor law regulations (Remuneration Regulations, ZUZP, Labor Regulations).
6. Adoption and implementation of the Diversity Policy.
7. Adoption and implementation of the Human Rights Respect Policy.

1.

WHS Risk

The materialization of the risk results in employee injury, loss of health or excessive exposure of the employee to factors harmful to health, compensation paid for damage to health.

1. Prioritizing the safety of employees, customers, contractors and stakeholders in the business operations undertaken.
2. Adoption and implementation of the TAURON Group’s Work Health and Safety Policy.
3. Ensuring optimal working conditions.
4. Conducting active monitoring of the working conditions and the correctness of work organization.
5. Raising employees’ qualifications with respect to improving work safety.
6. Conducting training courses, implementing and improving the WHS management system.

2.

Pandemic risk

1. Monitoring the state (condition) of the epidemiological threat (risk) at TAURON Capital Group.
2. Collecting information on the threats and identification of the potential threats to the safety of the workforce of TAURON Capital Group’s subsidiaries.
3. Developing and recommending solutions aimed at reducing the level of threat to the resources of TAURON Capital Group.
4. Ongoing monitoring of the risk related to the availability of the employees and services provided by TAURON Capital Group’s subsidiaries.
5. Recommending solutions aimed at curbing the effects of the materialization of the threat to the resources of TAURON Capital Group.
6. Preparing and providing opinions (feedback) on the content of the messages to be disseminated at the level of TAURON Capital Group and the Company.
7. Use of the screening tests.
8. Preparing of the contingency plans in the event of the loss of key employees of TAURON Capital Group.
9. Developing backup business continuity plans.
10. Undertaking trading activities in order to balance the buy position on an ongoing basis in relation to the observed drops in the volume of electricity sales.
11. Taking advantage of market opportunities to hedge the position in the Generation Line of Business (buy-backs).
12. Taking advantage of the anti-crisis shield mechanisms.
13. Increasing the frequency of monitoring the overdue accounts receivable.
14. Introducing additional guidelines with respect to taking credit risk and extending the scope of the customer financial condition examination (vetting).
15. Introduction of a mechanism for monitoring and curbing spending.

1.

Internal communication risk

1. Developing relationships with the TAURON Group’s social party and close cooperation with the Social Dialogue Ombudsman.
2. The use and development of available communication tools to provide relevant information to the employees of the TAURON Group.
3. When providing relevant information – organizing direct meetings of the management team with the personnel.
4. Ongoing monitoring of the situation and events taking place at the TAURON Group’s subsidiaries that may cause social concerns.
5. Regular periodic meetings with the representatives of the subsidiaries dealing with the internal communication in order to exchange information.
6. Developing a Communication Strategy for the TAURON Group.

1.

Environmental risk

The risk also involves the possibility of:

• a lack of valid environmental decisions,
• depositing waste in places not intended for this purpose or not in accordance with the operating conditions of the facilities designated for this,
• occurrence of a crisis situation, e.g. fire, displacement of earth masses, extreme weather events,
• use of waste not in accordance with the authorized intended used,
• a lack of appropriate safeguards limiting the negative impact of the TAURON Group’s operations on the environment,
• release of hazardous substances to the environment,
• social protests.

The consequence of the materialization of the risk is the degradation of the natural environment and penalties for a failure to comply with the environmental requirements, the need to fix the deficiencies, reduction of production, delays in the implementation of the investment projects, pollution of water sources in a way that prevents their use, destruction of a valuable natural habitat, site or area – environmental compensation, restrictions on further business development, damage to the GROUP’s image, limitation of the use of financial assistance programs.

The risk also includes an increase in the environmental requirements stemming from the tightening of the European Union’s climate policy.

1. Adoption and implementation of the TAURON Group’s Environmental Policy.
2. Conducting business operations that affect the environment in accordance with the principles of sustainable development.
3. Conducting and intensifying activities aimed at increasing the utilization of the UPS/UPW waste.
4. Striving to maximize the management (utilization) of the post-production waste generated at all of TAURON Group’s coal mines.
5. Striving for the optimum management of water resources.
6. Ongoing supervision over compliance with the conditions of the environmental decisions.
7. Maintaining the required level of the pollution reduction devices’ efficiency (performance).
8. Frequent assessment of compliance of the activities with the legal requirements with respect to the environment protection.
9. Implementation of the investment projects with respect to the environment protection in order to minimize the consequences of an adverse impact of mining and processing operations on the environment and climate.
10. Active search for the technical and organizational solutions that would minimize the impact of TAURON Group’s operations on climate change.

1.

Purchasing process risk

The consequences of the materialization of the risk include unfavorable purchase agreements, the need to cancel the tender procedures, damage to the image of the TAURON Group and credibility with the stakeholders.

1. Adoption and implementation of the Code of Conduct for the Contractors of the TAURON Group.
2. Adoption and implementation of the TAURON Group’s Anti‑Corruption Policy.
3. Adoption and implementation of the Policy of Respect for Human Rights.
4. Standardization of the rules of conducting proceedings in the purchasing process and its transparency.
5. Developing lasting relationships with the contractors (counterparties) based on trust and mutual respect.
6. Expecting the contractors to comply with the legal regulations, ethical standards and good commercial practices, including occupational safety and health rules, principles of discrimination and unequal treatment, respect for human rights and dignity of employees, transparent personnel policy, environment protection, fair competition, prevention and countering of fraud, and information security and protection.
7. Application of standard contract forms (drafts, templates) and standard clauses to contracts regarding compliance with human rights by the TAURON Group’s business partners.

1.

Legal risk

The consequence of the materialization of risk may result in financial penalties, criminal and civil law liability, damage to the Group’s image.

1. Continuous monitoring of the legal environment and changes to the legal regulations, including social issues, respect for human rights, anti-corruption, environment protection and employee issues.
2. Implementation of the changes required to the internal regulations.
3. Establishing working groups to prepare and implement the changes required due to the legal environment.
4. Continuous cooperation with the authorities supervising the energy market and the capital market.
5. Consultations with the organizational units with respect to the planned key regulations for the area of compliance.
6. Employee training with respect to the knowledge of the legal regulations and the internal regulations.

1.

Internal fraud risk

1. Educational and training activities for the employees, including the mandatory e-learning training with respect to the TAURON Group’s Compliance Management System.
2. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization, enabling the TAURON Group’s employees to report potential cases of abuse to their immediate superior, the Ethics Committee, the Compliance Officer/Compliance Coordinator, or via the abuse (fraud) notification form at http://www.tauron.pl/.
3. Conducting of the investigative probes by the Compliance Officer or Compliance Coordinators.
4. Building the organizational culture based on TAURON Capital Group’s values and principles.
5. Adoption and implementation of the TAURON Group’s Anti‑Corruption Policy.
6. Adoption and implementation of the TAURON Group’s Corporate Social Responsibility Code of Conduct,
7. Adoption and implementation of the TAURON Group’s Rules for accepting and giving gifts.

2.

External fraud risk

1. Raising the employees’ awareness through training and information campaigns related to the existing threats of external fraud (abuse).
2. Adoption and implementation of the Code of Conduct for Contractors (Counterparties) of TAURON Group’s Subsidiaries.
3. Introduction of the anti-corruption clauses to the contracts with the contractors (counterparties).
4. Adoption and implementation of TAURON Group’s Anti-Corruption Policy.

5. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
6. Monitoring of the cooperation with the contractors (counterparties) and testing their credibility at TAURON Capital Group.

7. Promoting of the best practices, improving the procedures, conducting training courses and applying TAURON Group’s Corporate Social Responsibility Code of Conduct and the functioning of the abuse (fraud) reporting (whistleblowing) system.
8. Building the organizational culture based on TAURON Capital Group’s values and principles.

3.

Risk of unethical behavior and mobbing

1. Raising employee awareness through training and information campaigns on the existing threats of external abuse (fraud).
2. Adoption and implementation of the Code of Conduct for Contractors of the TAURON Group’s Subsidiaries.
3. Implementation of anti-corruption clauses in the contracts with the contractors.
4. Adoption and implementation of the TAURON Group’s Anti‑Corruption Policy.
5. Effective use of a whistleblowing system in the organization, enabling reporting of the potential cases of abuse, the system also allows for reporting of abuse (fraud) by the external entities through the abuse (fraud) reporting form at http://www.tauron.pl/.
6. Monitoring the cooperation with contractors and testing their credibility in the TAURON Group.
7. Promoting best practices, improving procedures, conducting training courses and applying the TAURON Group’s Corporate Social Responsibility Code of Conduct, Code of Ethics and functioning of the abuse (fraud) reporting system.