The “KGHM Polska Miedź S.A. Group Responsible Supply Chain Policy” was updated in 2022 to reflect the adopted risk-based approach, including the description of the internal responsible supply chain management system, which enables the identification of high-risk business relationships based on criteria consistent with The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, as well as the LBMA Responsible Gold Guidance and LBMA Responsible Silver Guidance.
Table of contents
- Relationships with suppliers
- Human rights and the value chain
- Responsible Supply Chain Policy in the KGHM Polska Miedź S.A. Group
- Procurement policy of the KGHM Polska Miedź S.A. Group
- Control of procurement processes
- Information on sources of supply of materials used in production, in goods and services
Relationships with suppliers
GRI
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2-6
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3-3
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308-1
Relying on the guidelines concerning the sustainable supply chain, the following policies and procedures apply in the KGHM Polska Miedź S.A. Group, which introduce global, harmonised standards adapted to legal regulations applicable in all jurisdictions where the KGHM Polska Miedź S.A. Group operates. At the same time, the information contained in this section is based on the guidelines of the GRI 2 (Global Reporting Initiative) reporting standard.
Individual documents in this area are addressed to specific stakeholder groups as part of establishing business relationships. Certain assumptions, requirements and obligations are addressed to external recipients on the basis of executive documents developed as part of individual processes addressed to them, while others are of an internal nature addressed to persons directly implementing processes within the organisation of KGHM Polska Miedź S.A.
The introduction of the policies and procedures indicated below is a manifestation of care for maintaining a sustainable supply chain in the entire activities of the KGHM Polska Miedź S.A. Group. The responsibility for the performance of commitments and roles reflect the principles applicable in the organisation regarding the distribution of competence at various operational and management levels and supports the achievement of defined business objectives. All key risks associated with the performance of individual areas of the responsible supply chain are quantified in accordance with the corporate risk management principles effective in the KGHM Polska Miedź S.A. Group, and where required, measures are taken to reduce the probability and susceptibility of the organisation to the defined risks. The company publishes key documents on its website and those of an internal nature only are published in internal IT systems accessible to employees.
Values of selected GRI Standards illustrating the sustainable supply chain of KGHM Polska Miedź S.A. Group in 20221
| GRI Indicator | Issue | Result |
| GRI 2-6 | Supply chain – number of suppliers | 10,407 |
| Supply chain – number of key suppliers | 304 | |
| Supply chain – number of key customers | 35 | |
| GRI 308-1 | Total number of new suppliers | 3,418 |
| Number of new suppliers verified in terms of environmental criteria | 1,515 |
1 The table above presents selected indicators illustrating the sustainable supply chain. The information for calculating the indicators was acquired from SAP (Parent Entity) records and reports of key Group companies. It should be borne in mind that one supplier may appear in the records of several different Group companies. The number of suppliers verified against the environmental criteria in the Parent Entity was identified on the basis of a Contractor Card, which contains the contractor's commitments to observe ethical, human rights, labour and compliance standards, including the commitment to apply environmental standards in order to mitigate the environmental impact, minimise pollution and improve environmental protection standards. The Card is signed by each Contractor commencing cooperation with KGHM Polska Miedź S.A. in the area of purchases covered by the Procurement Policy, and if any irregularities in this respect are found or in the case of a justified risk of serious abuse in the areas indicated, KGHM Polska Miedź S.A. suspends or terminates its cooperation with such contractor.
Human rights and the value chain
We avoid working with companies that practice forced labour, slave labour, child labour, companies that fail to ensure safety conditions in the workplace and companies that fail to respond to other unethical activities. In KGHM Polska Miedź S.A., through the implementation of relevant documents (Procurement Policy, Contracting Policy, Responsible Supply Chain Policy, Anticorruption Policy), we verify entities with which we cooperate from the perspective of human rights protection.
To that end, we use special clauses in contracts or the so-called Contractor’s Charter, in which the contractor declares to respect human rights, in accordance with the standards adopted in this Policy.
In the event of violations of these rights, the Company maintains a consistent dialogue in accordance with its Human Rights Policy in order to mitigate and prevent future violations.
Responsible Supply Chain Policy in the KGHM Polska Miedź S.A. Group
The Responsible Supply Chain Policy is aimed at securing the selection of only responsible suppliers and ensuring that the products and services purchased by the KGHM Polska Miedź S.A. Group do not contribute to the financing of terrorism and are manufactured or provided in compliance with basic human rights, labour standards, environmental protection and anticorruption principles. KGHM Polska Miedź S.A. is fully aware that the selection of responsible suppliers is crucial for conducting activities oriented towards sustainable development. At the same time, the KGHM Polska Miedź S.A. Group has undertaken to adhere to the aforementioned standards and declared its commitment to activities of international organisations for corporate social responsibility and the promotion of sustainable development.
In 2022, a reassessment of the state of compliance with the Copper Mark standard was carried out by KGHM Polska Miedź S.A., confirming that KGHM Polska Miedź S.A. had carried out improvement activities in respect of the responsible supply chains of copper and lead. The fulfilment of the requirements enabled the validity of the certificates awarded to the Legnica Copper Smelter and Refinery and the Głogów Copper Smelter and Refinery to continue until 2024. Obtaining the Copper Mark was indispensable for KGHM Polska Miedź S.A. to continue its free commercial exchange, in particular to ensure easier maintenance of its registration of cathodes on the London Metal Exchange (LME). Further work will be continued in 2023 in terms of the possibility of Copper Mark certification for the Cedynia Copper Wire Rod Plant as well, and further improvement in the areas of the responsible supply chain defined by the standard.
Procurement policy of the KGHM Polska Miedź S.A. Group
KGHM Polska Miedź S.A. is guided by high ethical standards across the procurement process. The main message is to guarantee the professionalism and honesty of the persons responsible for the procurement processes and to prevent potential conflicts of interest, as well as to treat suppliers equally in a way that does not restrict the principles of fair competition.
The purpose of the Procurement Policy of KGHM Polska Miedź S.A. is to implement harmonised standards and to establish general principles for procurement processes in the KGHM Polska Miedź S.A. Group.
- coherence of the activities of entities in the KGHM Polska Miedź S.A. Group, both in relation to entities outside the KGHM Polska Miedź S.A. Group and within the Group,
- transparency of procurement processes both within the KGHM Polska Miedź S.A. Group and in relation to external counterparties,
- financial stability of activities of KGHM Polska Miedź S.A. Group entities,
- effective management and control of purchasing processes,
- work efficiency and exploitation of own potential,
- increasing the competitiveness of tendering procedures,
- increasing the quality and cost-effectiveness of procurement, while reducing the costs of global supply chain processes,
- building relations with business partners and strengthening the brand image of KGHM Polska Miedź S.A. as an honest and reliable counterparty,
- defining surveillance measures to reduce the risk of irregularities in the procurement process.
- ensure transparency of the decision-making process,
- monitor all procurement transactions by introducing a uniform management system for procurement processes,
- ensure effectiveness of cost optimisation, mainly by standardisation of the range of products, optimisation of technical specifications, diversification of the market.
The uniform Procurement Policy is in effect in all the Divisions of KGHM Polska Miedź S.A. and all the major Group production assets. The basic assumptions defined in the above document are put into practice with the use of IT tools.
KGHM Polska Miedź S.A. uses a diverse range of external counterparty verification in the procurement, sales and investment processes, which are regulated by a number of consistent and uniform internal policies and procedures. The Procedure on counteracting money laundering and prevention of fraud and extortion in trading transactions regarding the sale of products and the procurement of ore and copper-bearing materials in KGHM Polska Miedź S.A. (the Procedure) addresses the verification measures taken by the Company when it enters into trading transactions.
To protect its image and the Company’s security, KGHM Polska Miedź S.A. takes measures to prevent the Company from being used by third parties for unlawful purposes, such as money laundering, financing of terrorism, or VAT extortion.
The security measures undertaken in this respect consist, among others, of:
- Client identification and verification of its identity based on the data provided by the Client, publicly available information and/or reports of credit bureaus;
- undertaking, with due diligence, actions to determine the ownership as well as organisational structures or the Client’s links to other entities, in order to identify the Beneficial Owner of the transaction and verify its identity, using publicly available information and/or reports of credit bureaus;
- obtaining information on the Client’s objective and intended character of the business relationship, using publicly available information;
- monitoring of the business relationship with the Client, including completed transactions, in order to check if they are consistent with the Company’s knowledge of the Client and its business profile, and – if possible – examining the source of funds.
Control of procurement processes
The procurement process control instruction has been issued as Appendix no. 1 to the Internal Control Procedure of the Security and Loss Prevention Section of the KGHM Polska Miedź S.A. Group.
The tasks of the Supply Chain Security Department include the control and monitoring of the procurement processes with increased risk of abuse in terms of their compliance with the Procurement Policy in force at KGHM Polska Miedź S.A. The procurement procedure may be subject to the control process on the basis of reports of potential irregularities received (including by whistleblowers), due to their significant value or specific nature, as well as where, as a result of monitoring, it has been determined that they may be exposed to actions contrary to the interest of the KGHM Polska Miedź S.A. Group, actions of a corrupt nature or actions that exclude transparency in the selection of a supplier may occur. In order to carry out the assigned tasks, the Supply Chain Security Department continuously analyses and monitors the process of purchasing projects, uses personal sources of information, supporting activities with business intelligence activities and market analysis. In 2022, control activities were carried out by employees of the Supply Chain Security Department at the Head Office of KGHM Polska Miedź S.A., proxies in the Divisions of KGHM Polska Miedź S.A. and selected Companies of the KGHM Polska Miedź S.A. Group. During the year, control activities were also extended to the Companies that are part of KGHM INTERNATIONAL LTD.
Due to the scale of procurement carried out in the KGHM Polska Miedź S.A. Group, during the year approx. 10 thousand procurement projects are carried out on average, conducted simultaneously by several entities of the KGHM Polska Miedź S.A. Group, while their monitoring is possible only with the support of an adequately designed IT system. To this end, improvement activities are carried out as part of a project enabling acquisition of information on events indicating the likelihood of irregularities from the procurement system. Continuous monitoring of such incidents enables the selection of procurement projects with an increased risk for review.
Where irregularities are found, the audit activities conclude with recommendations aimed at implementing corrective measures. If significant irregularities of a fraudulent or corrupt nature are identified, the case is referred to the Internal Control Department at KGHM Polska Miedź S.A. for in-depth verification.
Information on sources of supply of materials used in production, in goods and services
GRI
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3-3
In the area covered by the Procurement Policy in the Group, KGHM Polska Miedź S.A. cooperated with 4,468 suppliers in 2022 (the number of bidders participating actively in our proceedings), of which 3,202 suppliers were selected to perform deliveries.
The percentage of non-Polish counterparties is relatively small. The number of foreign suppliers in 2022, in respect to the aforementioned information, amounted respectively to 499 and 300, which makes up about 10% of all the Company’s counterparties.
KGHM Polska Miedź S.A. cooperates with all types of counterparties, i.e. intermediaries, wholesalers, distributors and direct suppliers. Moreover, within the Group, KGHM Polska Miedź S.A. uses Logistic Operator services – specialized companies performing procurement functions (Mercus Logistyka sp. z o.o., KGHM Metraco S.A., Energetyka sp. z o.o.).
In 2022, there were no significant changes in sources of procurement of materials for production, commodities and services for KGHM Polska Miedź S.A. There was no dependence on one or more suppliers.
Purchases from local counterparties represented 7.5% of the value of purchases by KGHM Polska Miedź S.A. in 2022.
KGHM Polska Miedź S.A. also reinforces its position as a reliable and ethical business partner by caring for the company’s image in social issues. In the area of procurement to which the aforementioned Policy applies, the Company also strives to ensure that the contractors cooperating with it satisfy the requirements of business ethics and are socially responsible counterparties.
The only entity whose turnover with the Parent Entity exceeded 10% of the sales revenues of KGHM Polska Miedź S.A. in 2022 was KGHM Metraco S.A. (pre-tax value of purchases: PLN 7,249 million).
The copper smelters and refineries of KGHM Polska Miedź S.A. produce electrolytic copper from their own concentrates as well as from purchased copper-bearing material (concentrates, copper scrap and blister copper). In 2022, the production of electrolytic copper from purchased copper-bearing material amounted to 204.5 thousand tonnes, and represented 35% of total electrolytic copper production.
For the most part, this production came from copper scrap (131.0 thousand tonnes of copper; 22% of total electrolytic copper production), which is supplied to KGHM’s metallurgical plants by KGHM Metraco S.A. – a 100%-owned subsidiary of KGHM Polska Miedź S.A.
KGHM Metraco S.A., due to its specialisation and familiarity with the scrap market, as well as to its equity relationship with KGHM Polska Miedź S.A., supplies scrap to the metallurgical plants of KGHM based on exclusivity and as a result revenues of this company from sales to KGHM Polska Miedź S.A. are significant and represent 25% of KGHM Polska Miedź S.A.’s sales revenue and 21% of sales revenue of the Group.