The most material risk categories

Key risk management Risks related to TAURON Group’s sustainable development
Financial capital Financial capital
Human capital Human capital
Intellectual capital Intellectual capital
Natural capital Natural capital
Production capital Production capital
Social capital Social capital

Below are presented the most material risk categories identified for TAURON Capital Group. Each of the risks is also assigned a trend and a materiality level, as indicated below:

The most material risk categories identified for TAURON Capital Group

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RISK NAME
RISK DESCRIPTION
TREND AND RISK MATERIALITY
RESPONSE TO RISK
TRADING
1.
Market risk

 

The risk related to unfavorable changes in prices on the wholesale electricity market and the energy related product markets, which adversely affect the financial results.
  1. Granting and control of the compliance with risk mandates with certain limits.
  2. Daily measurement and reporting of portfolio positions.
  3. Ongoing monitoring of the result level and the risk level (VaR, Stop Loss, open positions).
  4. Use of tools that minimize the formation of open trading positions (position limits and the Hedge Curve tolerances).
  5. Taking advantage of the synergy effect among TAURON Capital Group’s individual lines of business (central trading risk management).
  6. Adoption of an optimal trading strategy.
  7. Implementing pre-emptive position hedging mechanisms.
  8. Preparation and periodic verification of the price forecasts in the short, medium and long term.
FINANCE AND CREDIT
2.
Interest rate risk
Risk related to an unfavorable impact of interest rates on TAURON Capital Group’s financial results.
  1. Ongoing monitoring of risk exposure in order to minimize negative impact of changes to the interest rates.
  2. Transfer of risk through the use of derivative instruments.
3.
FX rate risk
Risk related to an unfavorable impact of FX rates on TAURON Capital Group’s financial results.
  1. Ongoing monitoring of risk exposure vulnerable to the FX rate risk.
  2. Use of risk limits for TAURON Capital Group’s operational FX position (Value at Risk).
  3. Transfer of the FX rate risk through the use of the hedging transactions in accordance with the adopted TAURON Group’s Financial Risk Management Policy.
4.
Liquidity risk
Risk related to the lack of TAURON Capital Group’s ability of to pay its liabilities on an ongoing basis and difficulties in accessing capital, changes in the conditions for obtaining and servicing the financing already contracted and planned (incl. due to the tightening of the EU climate policy).
  1. Diversification of the sources of financing including arranging guaranteed financing programs as well as securing alternative sources of financing.
  2. Analyzing the market and the availability of the sources of financing.
  3. Ongoing communications with the financial institutions.
  4. Arranging financing agreements 12-24 months in advance of the date the funding is needed.
  5. Monitoring of the financial liquidity and planning the use of the available sources of financing.
  6. Taking actions and recommendations regarding the operations of the Financial Management Area, indicated by the Risk Committee or the Management Board of the Company.
5.
Financing risk
Risk related to the difficulties in accessing capital, changes in the conditions for obtaining and servicing the financing already contracted and planned (incl. due to the tightening of the EU climate policy).
  1. Diversification of the use of the available sources of financing by using the financing instruments that reduce the risk of breaching the covenant in the form of the net debt/EBITDA ratio (e.g. hybrid bonds, factoring).
  2. The use of instruments without financial covenants and limiting the number of conditions that breach such covenants.
  3. Ongoing communications with the financial institutions.
  4. Pre-emptive activities with respect to obtaining approvals from the financial institutions to carry out transactions or activities specified in the financing agreements.
  5. Identification of events that may potentially affect the breach of the financial contracts and taking advance actions to mitigate the negative impact of the occurrence of such an event.
  6. Taking actions and recommendations regarding the operations of the Financial Management Area, indicated by the Risk Committee or the Management Board of the Company.
  7. Taking actions aimed at reducing the net debt and/or increasing EBITDA based on the decisions of the Risk Committee or the Management Board of the Company.
6.
Tax risk
Risk related to incorrect or untimely payment of the tax obligations.
  1. Activities in accordance with legal regulations (Corporate Income Tax Act).
  2. Issuing opinions on the economic events by TAURON Capital Group’s tax advisors.
  3. Jointly agreed positions at TAURON level.
  4. Applying uniform accounting principles for companies within the PGK (Tax Capital Group).
  5. Preparation of tax documentation for transactions between PGK companies and related entities outside PGK, requiring such documentation in accordance with the CIT Act, and auditing other transactions to confirm that they are concluded at arm’s length.
7.
Credit risk
Risk related to a potential occurrence of overdue accounts payable or a conclusion of a contract with a counterparty (business partner, contractor) that may turn out to be insolvent.
  1. Regular monitoring of the counterparties (business partners, contractors)’ financial standing.
  2. Periodic customer scoring, credit rating of each customer prior to submitting an offer/concluding a contract.
  3. Use of protection mechanisms (hedging) in commercial agreements.
ENVIRONMENT (STAKEHOLDERS)
8.
Reputational risk
Risk related to the current and future impact on the company’s revenue and capital (equity) due to the negative public opinion backlash, including the risk related to not following the market trends related to the climate protection.
  1. Continuous monitoring of the Company’s external and internal threats.
  2. Media monitoring, developing contacts and relationships with the media within TAURON Capital Group.
  3. Preparing procedures for the Company’s communications with the external and internal environment (stakeholders).
  4. Striving to change the business profile to zero and low emission (carbon).
  5. Adoption and implementation of: TAURON Group’s Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination, TAURON Group’s Anti-corruption Policy, TAURON Group’s Corporate Social Responsibility Code of Conduct, TAURON Group’s Diversity Policy, TAURON Group’s Respect for Human Rights Policy.
9.
License risk
Risk related to the lack of the possibility to conduct operations as a result of a prolonged process of obtaining a license or amending the licenses held, as well as the unfavorable legal changes with respect to the licensed operations.
  1. Ongoing control of the correct performance of the licensing obligations.
  2. Monitoring changes to the legal acts with respect to the licensing obligations.
  3. Legal support for the license extension and obtaining process.
10.
Macroeconomic risk
Risk related to the changes in the economic situation of the country, instability of the financial markets resulting in a decrease of the demand for electricity.
  1. Diversification of the revenue sources.
  2. Market analysis and the application of the pre-emptive actions for the anticipated crisis or a slowdown of the GDP growth rate.
11.
Climate change risk
Risk related to the tightening of the EU climate policy, as well as the environmental requirements resulting from the climate change, activities supporting energy efficiency (prosumer development, support for the thermal insulation, construction of in-house energy and heat sources, departure from coal as fuel), change in the conditions of TAURON Capital Group’s operations (the need to adapt the company to the challenges of change resulting from the climate change).

The implications of the risk include: difficulties or increase in the cost of raising capital to finance operations based on the fossil fuels, the need to incur additional capital expenditures for adapting the assets to the environmental requirements, an increase of the price of the CO2 emission allowances, declining demand for the products offered by TAURON Capital Group’s subsidiaries.

  1. Application of TAURON Group’s Climate Policy.
  2. Defining, updating and implementing the Strategy.
  3. Update of TAURON Group’s Strategic Research Agenda.
  4. Adaptation of TAURON Group’s Investment Strategy to the guidelines stemming from TAURON Group’s Climate Policy and Investment Strategy.
  5. Update and implementation of TAURON Group’s Sustainable Development Strategy.
TECHNOLOGY, INFRASTRUCTURE AND SECURITY (SAFETY)
12.
Environmental risk
Risk related to the impact of the business operations conducted on the natural environment and the use of its resources, including, in particular, the loss of control over the process that would enable the prevention of excessive pollution, damage, disruption or failures of the installations or equipment that would have a negative impact on the environment.

The risk also related to the possibility of: lack of the validity of environmental decisions, depositing waste in places not intended for such purpose or not in accordance with the conditions of the use of the facilities intended for such a purpose, the occurrence of a crisis situation (e.g. fire, displacement of earth masses, extreme conditions), the use of the waste not in accordance with the authorized destination (intended use), the lack of the appropriate safeguards limiting the negative impact of TAURON Capital Group’s operations on the environment, release of the hazardous substances into the environment, social protests.

The implications of the risk include: degradation of the natural environment and penalties for a failure to comply with environmental requirements, the need to remove such substances, the curtailment of the production, delays in the implementation of the investment projects, pollution of water sources in a way that would prevent their use, destruction of a habitat, object or valuable natural area – environmental compensation, restrictions on a further expansion of the business operations, a loss of the image of TAURON Capital Group, limitation of the ability to use the financial assistance programs. The risk also includes an increase in the environmental requirements due to the tightening of the EU’s climate policy.

  1. Adoption and implementation of TAURON Group’s Environmental Policy.
  2. Conducting business operations that affect the environment in accordance with the principles of the sustainable development.
  3. Ongoing supervision over compliance with the conditions of the environmental decisions.
  4. Maintaining the required efficiency of the devices reducing the emission of pollutants.
  5. Frequent evaluation of the compliance of the activities with the legal requirements with respect to environment protection.
  6. Implementing investment projects in the environment protection area in order to minimize the adverse impact of the mining and processing operations conducted on the environment and climate.
  7. Active search for the technical and organizational solutions that would minimize the impact of TAURON Capital Group’s operations on the climate change.
13.
Weather risk
Risk related to the more frequent occurrence of the weather anomalies, including relatively high temperatures in winter, higher rainfall intensity that can cause floods at any time of the year, uneven precipitation, resulting in longer periods of no rainfall, intermittent abrupt rainfall, and the intensification of the evaporation processes, increased frequency and intensity of the hurricanes, strong winds incidentally accompanied by tornadoes and lightnings, more frequent occurrence of droughts and restrictions in access to water related thereto, as well as an increased risk of fires, a very high risk of weakening of the stands, making trees more susceptible to the damage caused by the wind.

The implications of the risk include, in particular: a decrease of the volume of electricity and heat supply, a decline of the production volume, the deterioration of the quality indicators and an impact on the regulated revenue.

  1. Upgrading (refurbishing) the hydroelectric structures aimed at optimizing the utilization of the water resources.
  2. Preparing of the plans of overhauls, inspections and maintenance activities with flexible provisions on deadlines for completing the works.
  3. Continuous monitoring of the wind conditions and icing on the wind farms’ blades.
  4. Continuous technical oversight over the operation of the individual wind farms, conducted by the companies operating the farms.
  5. Monitoring and analyzing new technological solutions that reduce the impact of the adverse weather conditions on the volume of the electricity generated.
  6. Gradual adaptation of the production assets to the consequences of the extreme weather conditions and the variability of the weather conditions, in particular in the Lines of Business sensitive to these factors.
14.
Company asset failure risk
Risk related to the machinery and equipment failures, distribution grid failures (electricity, heat) caused, among others, by the operation thereof, but also by random events including those related to the extreme weather conditions (storms, floods, hurricane winds, heat waves, fires) as a consequence of, among others, the climate change.

The materialization of the risk affects the availability of the assets and results in downtime related to the asset failures, increased costs of the rectification thereof. In addition, it may also be a failure to meet the capacity obligation, resulting in the need to conclude transactions on the secondary market or the payment of the financial penalties to the TSO (PSE).

  1. Optimizing capital expenditures on asset replacements, ongoing monitoring of the condition of the machines, devices and installations.
  2. Raising professional qualifications and work culture of the personnel by organizing courses and training.
  3. Responding to an emergency situation by the technical personnel and automatic process safety interlocks (safeguards).
  4. Insuring assets against fortuitous events (excluding underground assets).
  5. Introducing IT tools with respect to improving the monitoring and managing failure indicators (ratios).
  6. Continuous monitoring of the availability (dispatchability) of the generation units and the demand reduction, as well as shifting the capacity obligations that require reserving to the dedicated intra-group reserve units or external entities.
  7. Updating the activities related to the handling of the group reserve, with particular emphasis on the analyses of the functioning of the secondary market starting from January 2021.
  8. Updating TAURON Capital Group’s maintenance (overhaul) shutdowns (outages).
  9. Gradual adaptation of the production assets to the consequences of the extreme weather phenomena and the variability of the weather conditions, in particular in the Distribution Line of Business.
15.
IT risk
Risks related to the IT infrastructure security, failures of the IT infrastructure.
  1. Developing and maintaining plans aimed at ensuring continuity of the IT infrastructure’s operation.
  2. Periodic identifying and categorizing of the IT resources based on the service restoration targets.
  3. Use of the IT solutions with the appropriate technical parameters, providing an acceptable level of reliability and performance of the operation (including also UPS devices, GSM modem, mobile phones).
  4. Planning and conducting training courses on the IT infrastructure’s continuity of operation and security.
  5. Storing and protecting the back-up data.
16.
Asset (property) security and protection risk
Risk related to compromising the integrity of machines/devices and to the security of information, including its improper processing and unauthorized disclosure.
  1. Monitoring the implementation of the developed plans to protect the facilities that are subject to mandatory protection.
  2. Maintaining and updating contingency procedures/plans.
  3. Oversight over compliance with the information security rules in force.
  4. Regular personnel training with respect to the security procedures in force.
17.
Geological risk
Risk related to the impact of geological factors on the mining operations.
  1. Making test drillings for the better intelligence on the positioning of the coal deposits.
  2. Continuing to take preventive measures in areas under threat in order to improve the geological and mining conditions and to provide protection against natural threats (including, among others, long-drilled blasting hole shooting in order to break the rock mass.
WORKFORCE AND ORGANIZATIONAL CULTURE
18.
Social dispute risk
Risk related to collective disputes, strikes, social conflicts being the consequence of a lack of the personnel’s satisfaction with the economic and social situation.
  1. Conducting public consultations regarding the planned changes.
  2. Conducting a policy of dialogue with the social partners (workforce).
  3. Preparing and implementing motivational solutions for the personnel.
  4. Standardizing the tasks and requirements towards the personnel.
  5. Developing organizational culture based on values.
  6. Conducting active internal communications on personnel matters.
19.
Human resources risk
Risk related to the employee issues, including also diversity, participation, employment and labor conditions, relations with the trade unions and respect for the right to freedom of association, human capital management, career path and recruitment management, training systems, health and safety at work as well as, in the long run, the need to restructure employment due to the climate change, forcing a change in the profile of the business operations.

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 TAURON Group’s Subsidiaries Employee Recruitment, Selection and Adaptation Policy. Adoption and implementation of TAURON Group’s Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination.
  2. Taking care of developing personnel competences through the participation in the training courses.
  3. Conducting consultations with the social organizations at TAURON Capital Group.
  4. Implementation of the human resources policy based on TAURON Group’s Competence Model and the applicable remuneration and labor law regulations (Compensation Regulations, Company Collective Bargaining Agreement, Labor Regulations).
  5. Adoption and implementation of TAURON Group’s Diversity Policy and TAURON Group’s Respect for Human Rights Policy.
20.
Risk of the lack of the employees’ due diligence
Risk related to non-compliance with the procedures and the lack of the employees’ due diligence in the performance of the official duties.
  1. Implementation of TAURON Group’s Subsidiaries Employee Recruitment, Selection and Adaptation Policy.
  2. Systematic periodic employee training.
  3. Analysis of the recurring cases of errors and mistakes of the employees, taking systemic remedial actions.
  4. Implementation of the Internal Control (Audit) System and the control (audit) mechanisms for the processes conducted in TAURON Capital Group
21.
Pandemic risk
Risks related to the persistence of the pandemic disrupting Poland’s economic system and administration and causing significant changes    in the market environment, impacting the operating conditions of TAURON Capital Group’s subsidiaries. The increase in the number of infection cases leads to the curtailment of the economic activity, affecting the level of demand for the products offered by TAURON Capital Group’s subsidiaries, including, in particular, the electricity distribution and supply volumes.
  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.
22.
Work Health and Safety (WHS) Risk
Risk related to ensuring health and safety at work.

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

  1. Prioritizing safety of the employees, customers, contractors and stakeholders in the business activities undertaken.
  2. Adoption and implementation of TAURON Group’s WHS Policy.
  3. Ensuring optimal labor conditions.
  4. Conducting active monitoring of the working conditions and the correctness of its organization.
  5. Raising the employees’ qualifications with respect to improving work safety.
  6. Conducting training courses, implementing and improving the WHS management system.
23.
Communications risk
Risk related to providing inaccurate untrue information or a lack of information disclosure at specific time.
  1. Building relationships with the social partners (workforce) of TAURON Capital Group and close cooperation with the Social Dialogue Ombudsman.
  2. Use and development of the available communications tools to provide relevant information to the employees of TAURON Capital Group.
  3. When providing the relevant information – organizing the direct meetings between the management and the employees.
  4. Ongoing monitoring of the situation and events at TAURON Capital Group’s subsidiaries that may cause social anxiety.
  5. Regular periodic meetings with the representatives of the subsidiaries dealing with the internal communications in order to exchange information.
  6. Developing the Communications Strategy for TAURON Capital Group
COMPLIANCE
24.
Internal fraud risk
Risk related to the appropriation or use of the Company’s assets, its devastation, theft, the use of the official position for personal gain resulting in the financial losses, criminal and administrative sanctions, criminal and civil law liability.
  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.
  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 TAURON Group’s Anti-Corruption Policy, TAURON Group’s Corporate Social Responsibility Code of Conduct, and TAURON Group’s Rules for accepting and giving gifts.
25.
External fraud risk
Risk related to the occurrence of an external fraud (abuse) that affects the operations of TAURON Capital Group through: disclosure of information to unauthorized persons, loss of information, commercial espionage, terrorist attack and hacker attacks, tax fraud, theft, vandalism, counterfeiting, money laundering, terrorist attack.
  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.
  1. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
  2. Monitoring of the cooperation with the contractors (counterparties) and testing their credibility at TAURON Capital Group.
  1. 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.
  2. Building the organizational culture based on TAURON Capital Group’s values and principles.
26.
Risk of unethical behavior and mobbing
Risk related to the occurrence of unethical behavior resulting, in particular, in the lack of cooperation, bad atmosphere in the team, mobbing, harassment, insulting, discrimination of the employees.
  1. Adoption and implementation of TAURON Group’s Respect for Human Rights Policy, TAURON Group’s Policy of Compliance with the Principles of Ethics and Counteracting Mobbing and Discrimination, TAURON Group’s Anti-Corruption Policy and TAURON Group’s Rules for accepting and giving gifts.
  2. Effective use of the abuse (fraud) reporting (whistleblowing) system in the organization.
  3. Conducting of the investigative probes by the Compliance Officer or Compliance Coordinators with respect to the anonymous reports of mobbing and discrimination.
  4. Reviewing of the reports of mobbing or discrimination by the Ethics Committee.
  5. 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.
  6. Building the organizational culture based on TAURON Capital Group’s values and principles.
27.
Legal risk Risk related to non-compliance with the legal provisions, misinterpretation of the new laws and regulations, the requirements imposed by the regulator and the supervisory authorities.

The materialization of the risk may result in the financial penalties, criminal and civil law liability, a loss of the image of TAURON Capital Group.

  1. Adoption and implementation of TAURON Group’s Compliance Policy.
  2. Continuous monitoring of the legal environment and changes to the legal regulations with respect to the non- sector regulations related to information security or the area of compliance in order to minimize the risk of non-compliance.
  3. Monitoring of the implementation process or implementing of the changes to the internal regulations required by the law.
  4. Setting up or participating in the working groups tasked with adapting the organizations to the changes stemming from the legal environment.
  5. Consultations with the relevant organizational units with respect to the planned key regulations for the area of compliance.
  6. Training of the personnel with respect to the changes to the legal regulations and the internal regulations.
28.
Risk of a breach of the contractual provisions (default)
Risk related to a breach of the contractual provisions with respect to the contract parameters or a failure to perform the contract (default).
  1. Updating and adapting the contract templates to the legal changes.
  2. Monitoring of the complaints and proceedings to the Energy Regulatory Office (URE)/Office of Competition and Consumer Protection (UOKiK).
  3. Process optimization.
29.
Personal data protection risk
Risk related to inadequate storing and processing of personal data resulting in an undesirable leak or violation of the rights of data subjects related to personal data protection.
  1. Identifying and implementing the appropriate technical or organizational measures to ensure the adequate level of security of personal data.
  2. Monitoring the compliance with the legal regulations related to personal data protection.
  3. Raising the level of awareness of the workforce with respect to personal data protection, in accordance with the applicable regulations.
  4. Defining and implementing the process of handling the data subjects’ requests in accordance with the regulations and process documentation in force at TAURON Capital Group.
  5. Providing information and advice on persona data protection to the employees of the organization.
CUSTOMERS AND COUNTERPARTIES (BUSINESS PARTNERS, CONTRACTORS)
30.
Customer service risk
Risk related to non-compliance with the customer service standards leading to customer dissatisfaction with the service, customer complaints, loss of customers.
  1. Monitoring and analyzing the external customer satisfaction indicators and the indicators related to the complaints.
  2. Taking the additional measures, e.g. with respect to the internal regulations, defining standards of conduct as a result of the analysis of indicators.
  3. Taking the additional measures, e.g. introducing new internal regulations, in order to improve the customer service standards.
  4. Developing the key account managers’ competences and skills.
  5. Continuous raising of the customer service standards.
31.
Risk related to performance of agreements by contractors and subcontractors
Risk related to the improper performance by the contractors and subcontractors of the works commissioned, the termination of the agreement and delays, changes to the budget and scope related thereto.
  1. Concluding of the agreements with the contractors and subcontractors in accordance with TAURON Capital Group’s standards.
  2. Analyzing the performance of the subject of the agreement, examining the quality of services provided by the contractors and subcontractors.
  3. Evaluating the financial standing and credibility of the contractors and the subcontractors.
32.
Volume and margin risk
Risk related to the decline in the volume of the sales of the products offered by TAURON Capital Group’s subsidiaries, in particular as a result of the development of the energy efficiency solutions, building insulation, prosumer development (growth), the impact of the climate factors causing a significant temperature deviation from the planned values.

The implications of the risk include, first of all, the loss of revenue in the individual operating segments of TAURON Capital Group due to the reduced demand.

  1. Ongoing updating of the offering, launching of the sales of the multi-package type products.
  2. Conducting the marketing campaigns, acquiring new customers.
  3. Taking actions focused on retaining the existing customers and recovering the lost ones.
33.
Purchasing process risk
Risk related to the purchasing proceedings conducted, their erroneous implementation, an unplanned increase of the purchase costs, including the methods used to prevent violations of the human rights by the business partners, counteracting corruption and abuse (fraud) in the purchasing process and compliance with the ethical and moral standards during the implementation thereof.

The materialization of the risk results in unfavorable purchase agreements, the need to cancel the tender procedures, a loss of the image of TAURON Capital Group and its credibility with the stakeholders.

  1. Adoption and implementation of the Code of Conduct for Contractors (Counterparties) of TAURON Group’s subsidiaries.
  2. Adoption and implementation of TAURON Group’s Anti- Corruption Policy.
  3. Adoption and implementation of TAURON Group’s Respect for Human Rights Policy.
  4. Standardization of the rules of conducting the proceedings in the purchasing process and the transparency thereof.
  5. Building lasting relationships with the contractors (counterparties) based on trust and mutual respect.
  6. Expecting the contractors (counterparties) to comply with the legal provisions, ethical standards and good commercial practices, including the work health and safety standards, the principles of countering discrimination and unequal treatment, respect for human rights and dignity of the employees, transparent personnel policy, environment protection, fair competition, preventing and combating fraud, and information security and protection.
  7. Application of the contract forms (templates) and standard clauses in the contracts regarding compliance with the human rights by the business partners of TAURON Capital Group.
REGULATIONS
34.
Regulatory risk
Risk related to the change of the existing regulations or the introduction of the new regulations that affect the operations of TAURON Capital Group and the need to adapt to the regulatory changes, in particular those resulting from a significant increase in the requirements of a specific regulation, including the environmental requirements stemming from the climate change, the support for the pro-climate activities (prosumer development, thermal insulation, development of in-house production sources).

The implications of the risk are primarily: the loss of revenues in the individual operating segments of TAURON Capital Group, the increase in the operating expenses as a result of the need to adapt to the legislative changes.

  1. Ongoing analysis of the draft regulations and acts.
  2. Active participation in the works of the teams providing opinions on the drafts and proposing optimal solutions.
  3. Gradual adaptation of the generation assets and the energy mix of TAURON Capital Group to the production of renewable energy as well as to the zero and low-emission electricity generation technologies.

RISK CATEGORY MAP

Below is presented the classification of risks based on TAURON Capital Group’s operating segments. The risk categories indicated below are consistent with the Risk Model adopted by TAURON Capital Group.

Classification of risks based on TAURON Capital Group’s operating segments

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RISK
TERM
OPERATING SEGMENT*
Short
Medium
Long
Mining Segment
Generation Segment
RES Segment
Distribution Segment
Supply Segment
Other Operations
1.
Market risk
x x x 3 5 5 3 5 0
2.
Interest rate risk
x x x 2 2 2 4 2 3
3.
FX rate risk
x x x 1 3 2 1 0 3
4.
Liquidity risk
x x x 4 4 2 2 2 2
5.
Financial risk
x x x 5 5 3 3 3 3
6.
Tax risk
x 3 3 3 3 3 3
7.
Credit risk
x x 1 1 1 3 4 1
8.
Reputational risk
x x x 1 1 1 2 2 1
9.
License risk
x x x 3 3 3 3 3 0
10.
Macroeconomic risk
x x x 4 4 3 4 4 2
11.
Climate change risk
x x x 5 5 4 4 4 4
12.
Environmental risk
x 2 2 2 1 0 0
13.
Weather risk
x 1 3 3 3 2 0
14.
Company asset failure risk
x 5 5 4 4 0 1
15.
IT risk
x 3 3 1 3 3 4
16.
Asset (property) security and protection risk
x 2 3 2 3 1 2
17.
Geological risk
x 5 0 0 0 0 0
18.
Social dispute risk
x 4 4 2 4 3 2
19.
Human resources risk
x x 3 2 1 3 2 2
20.
Risk of the lack of the employees’ due diligence
x 2 2 2 2 2 2
21.
Pandemic risk
x x x 4 5 3 5 2 3
22.
Work Health and Safety (WHS) Risk
x 3 3 2 3 1 1
23.
Communications risk
x 2 2 1 2 2 2
24.
Internal fraud risk
x 2 2 2 2 2 2
25.
External fraud risk
x 3 3 3 3 3 3
26.
Risk of unethical behavior and mobbing
x 2 2 2 2 2 2
27.
Legal risk
x 3 3 2 3 3 2
28.
Risk of a breach of the contractual provisions (default)
x 2 2 2 2 2 2
29.
Personal data protection risk
x 2 2 2 3 3 3
30.
Customer service risk
x 1 1 0 3 3 1
31.
Risk related to performance of agreements by contractors and subcontractors
x 2 2 2 2 1 2
32.
Volume and margin risk
x x 5 4 4 5 5 2
33.
Purchasing process risk
x 2 2 2 3 1 2
34.
Regulatory risk
x x x 5 5 3 4 4 2

*values signifying the impact of the individual risks on TAURON Capital Group’s operating segments: 0 – neutral, 1 – immaterial on the Company’s level, 2 – material on the Company’s level, 3 – serious on the Company’s level, 4 – material on TAURON Capital Group’s level, 5 – serious on TAURON Capital Group’s level