The goals of Corporate Risk Management in the KGHM Polska Miedź S.A. Group are consistent with the adopted Strategy of the KGHM Polska Miedź S.A. Group. They are shaped by global megatrends and determine the environmental challenges faced by the KGHM Polska Miedź S.A. Group. The Strategy of the KGHM Polska Miedź S.A. Group to the year 2030 with an outlook to 2040 identifies, among other things, the climate targets related to the reduction of emissions by KGHM Polska Miedź S.A., which are in line with the Climate Policy of KGHM Polska Miedź S.A., i.e. those described in the section of this report entitled “Managing our impact on the environment”.
Preventing and minimizing the environmental and climate impact and rational management of natural resources is of fundamental importance for KGHM Polska Miedź S.A.
GRI
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3-3
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3-3
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2-25
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201-2
KGHM Polska Miedź S.A. has fully integrated climate risk management with the Corporate Risk Management Process of the KGHM Polska Miedź S.A. Group. As a result of these measures, KGHM identified a new category: climate risk, with importance equivalent to other main risk categories in the Company, i.e. value chain, technological, external, internal and market risk.
The corporate risk management process in the KGHM Polska Miedź S.A. Group consists of four stages: (I) Defining the context, (II) Identification and Evaluation, (III) Monitoring and communication, (IV) Analysis and response. The critical stages in the recognition of climate risks are the first stage (scenario analyses as part of Context Definition) and the second stage (taxonomy of climate risk as part of Identification and Evaluation). The remaining stages are consistent with the general corporate risk management process in the KGHM Polska Miedź S.A. Group. As part of the applicable approach to climate risk management, roles and responsibilities for individual stages of the process have been indicated and indicators to measure and manage climate risk have been developed.
In the course of operationalisation of the Business Strategy and taking into account ESG elements and climate-related factors, each of the strategic initiatives was further assessed. Impacts were examined in the negative, neutral or positive category: on Scope 1 and 2 greenhouse gas (GHG) emissions, on ESG image divided into three categories: environment, society and corporate governance and impact on mitigating risks and supporting climate opportunities according to the TCFD (Task Force on Climate-Related Financial Disclosures) Recommendations. Moreover, KGHM Polska Miedź S.A. is implementing a number of other organisational and process changes in line with the TCFD Recommendations, inter alia, in areas related to corporate governance.
Scenario analyses in climate risks
In the first step of the risk management process (Defining the context), KGHM Polska Miedź S.A. considered climate change by performing a scenario analysis, based on recognized reports of the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA). The above analysis is currently conducted on the basis of 5 baseline scenarios: Stated Policies Scenario (STEPS), Sustainable Development Scenario (SDS), Net Zero Emissions by 2050 (NZE2050), RCP4.5 and RCP8.5. In the scenario analysis, the assumptions are considered in three time horizons: short term (2023-2025), medium term (2030), and long term (2050), under a number of assumptions:
- for scenarios examining transition-related risks, in terms of the implementation of the adopted climate policy and the resulting changes in parameters relevant from KGHM’s perspective: e.g. prices of emission allowances, energy consumption, changes in demand for copper,
- for physical risk scenarios, the starting point for the analysis are the levels of greenhouse gas concentrations in the atmosphere and the resulting changes in the Earth’s temperature and their consequences.
KGHM Polska Miedź S.A. has also started work associated with the preparation of its own scenarios to serve as a basis for analysing the impact of climate change on the organisation. This way it will obtain the most suitable, tailored approach, which will constitute the basis for making business decisions regarding the assessment of the organization’s resilience to potential climate change.
The above analysis lays down the critical foundation for the identification and assessment of climate risks in the second stage of the process. According to the accepted classification of the climate risk category, the risks are divided into the following subcategories:
Climate risk categories
Impact of climate change on KGHM Polska Miedź S.A.
Below we present a description of the identified key risks in the climate risk category associated with the adverse impact of climate change on the activities of KGHM Polska Miedź S.A.
Physical climate risk
Acute physical risk related to sudden weather events resulting from climate change.
In the corporate risk management process (which includes analysis of physical scenarios – medium and high emission), the following key factors have been identified that may cause materialisation of acute physical risk:
- accumulated dry days (draught),
- heatwaves,
- heavy daily rainfall,
- very frosty days,
- thick snow cover,
- strong/fierce winds,
- lightning.
Materialisation of this risk may have an adverse impact on both the infrastructure and on working conditions and employee safety. Acute weather events as a consequence of climate change may result in restrictions in operations both as a result of damage to infrastructure and the occurrence of temporary hindrances and interruptions in individual elements of the KGHM Polska Miedź S.A. value chain (e.g. utility supply, logistics disruption). With regard to days without precipitation (droughts), relevant factors include a) restrictions on the availability of water for the needs of the Core Production Business processes, b) the level of the Odra river, which affects the quantity and management of process water. The potential materialisation of the risk in question may involve increased costs relating to the remedying of the adverse consequences of risk materialisation in the form of increased operating costs, maintenance work, energy consumption and other losses, e.g. associated with the suspension of production. The consequences of such materialisation are examined on a case by case basis for the individual elements of the value chain of KGHM Polska Miedź S.A.
- Appointment of task forces and expert teams in the area of counteracting the effects of the materialised extreme weather events on business continuity and development of instructions on the procedure in case of emergency situations.
- Ongoing communication and cooperation with utility suppliers concerning potential supply interruptions.
- Periodic overhauls of key infrastructure equipment on the basis of predetermined schedules.
- Preventive management of key infrastructure elements affecting production continuity and application of crisis response procedures.
- Actively seeking technical and technological solutions that would limit the adverse impact of operations on climate. Conducting and planning investments affecting the infrastructure, among others, to enable remote control and reduce response time
- Application of solutions counteracting the effects of climate hazards using neutral measures and by using modern technology.
- Ongoing monitoring of the microclimate parameters and introduction of remote control and visualisation and surveillance systems in workplaces with particularly adverse climate parameters.
- Division of KGHM Polska Miedź S.A. The Mine and Metallurgical Rescue Unit (JRGH) ensures the safety of employees and provides comprehensive assistance in dealing with the effects of natural hazards and acute physical events associated with climate change, while ensuring the safety of people and facilities.
Acute events associated with climate change that had a negative impact on infrastructure and/or working conditions (including the timing and impact of these events):
- throughout 2022, and up to the date of signing of this report, KGHM Polska Miedź S.A. did not record any events according to the criteria defined.
Chronic physical risk related to permanent changes in weather patterns resulting from climate change
In the corporate risk management process (which includes analysis of physical scenarios – medium and high emission), the following key factors have been identified that may cause materialisation of acute physical risk:
- change in average daily temperature,
- change in total precipitation,
- change of wind intensity,
- change of cooling/heating degree days (hot/cool – temperature above/below 18°C),
- change in the number of days with snow cover.
Materialisation of this risk may lead, among other things, to changes in the conditions in which the operations must be conducted, interruption of business continuity of the Core Production Business, including higher and faster depreciation of infrastructure components than before. Permanent changes in weather patterns as a consequence of climate change can also increase the onerousness of work (e.g. as a result of changes in the average daily temperature, changes in wind intensity, changes in the number of days with snow cover) and consequently necessitate the provision of additional personal protective equipment and reorganisation of work. The potential materialisation of this risk may involve increased costs relating to the upgrading or replacement of individual infrastructure components and increased costs of higher consumption of energy used, for example, for cooling processes. The consequences of such materialisation may be presented for the individual elements of the Parent Entity’s value chain.
Taking the above factors into account, KGHM Polska Miedź S.A. also recognises the opportunity associated with investments in its own renewable energy sources, which may reduce production costs and ensure business continuity while reducing greenhouse gas emissions.
- Periodic overhauls and comprehensive modernisation of key infrastructure equipment on the basis of predetermined schedules and/or investment plans.
- Maintaining the required level of supporting/alternative facilities and infrastructure elements (e.g. power generators, photovoltaic infrastructure, retention infrastructure).
- Systematic limitation of energy consumption under the implemented, ISO 50001:2018-compliant Energy Management System and Energy Savings Program. Planned increase in the efficiency and flexibility of the KGHM Polska Miedź S.A. Group in terms of its Polish and international assets, among others by partially satisfying the needs for electricity from its own sources as well as from renewable energy sources (“RES”) by the end of 2030.
- Development of own zero- and low-emission sources in the short and medium term including construction and acquisition of photovoltaic and wind power plants, supplemented in the long term by the use of small modular reactors (SMRs).
- Diversification and efforts towards sustainable development through building own power capacity from low-emission sources is one of the main Pillars of the newly-adopted Strategy of the KGHM Polska Miedź S.A. Group to the year 2030 with an outlook to 2040, and one of its elements is for KGHM Polska Miedź S.A. to achieve the position of one of the leading producers of environmentally-friendly electricity supporting Poland’s energy transition.
- Efficient risk management system for long-term/strategic risk, encompassing also climate risk management allowing for risk categorisation, identification, assessment and management as well as plans for its mitigation.
Identified significant change in business conditions due to a change in weather patterns resulting in a change in revenue and/or operating costs:
- throughout 2022, and up to the date of signing of this report, KGHM Polska Miedź S.A. did not record any events according to the criteria defined.
Transition-related risk
Regulatory risk related to changes in legal requirements concerning climate change and adaptation to its effects.
The existing and increasing climate-related legal requirements may have direct and indirect impact on KGHM Polska Miedź S.A. This pertains to both European regulations as well as requirements at the domestic level, which will be effectively enforced. This may be materially impacted by the planned full implementation of the European Green Deal in domestic documents and climate/energy frameworks till 2030 and fulfilment of the EU’s climate neutrality objective by 2050. An incorrect interpretation or a failure to observe new regulations may potentially result in non-compliance with the law, exposure to court disputes or sanctions. New legal regulations may also cause interruptions in operations or the necessity to reorganize work and consequently may substantially impact the operations of the KGHM Polska Miedź S.A. Group (among others, transition to the low-carbon economy, circular economy).
- As part of the Corporate Risk Management process in the KGHM Polska Miedź S.A. Group, each identified risk is assessed in terms of impact on Laws and Regulations (assessment of the compliance of occurrences with the applicable laws, the necessity to participate in proceedings before public administration authorities responsible for supervision and regulation and potential sanctions resulting from such proceedings).
- A consistent compliance system in place in the KGHM Polska Miedź S.A. Group is an element of effective management as part of corporate governance through, for example, a more efficient response and readiness for regulatory changes, care for reputation and ethical culture building in the organisation as well as awareness raising and enhancement of the sense of responsibility for compliance among employees.
- Active cooperation with the academic environment, which issues opinions on changes to legal acts, and the on-going providing of positions and opinions with respect to numerous areas subject to legislative change (including as part of membership of national and international organisations). Taking pre-emptive actions to adapt to organisational, infrastructural and technological changes.
Number of lawsuits filed, penalties imposed related to non-compliance with applicable legal requirements in the scope of climate:
- throughout 2022, and up to the date of signing of this report, KGHM Polska Miedź S.A. did not record any events according to the criteria defined.
Reputation risk related to perception of clients and other stakeholders – how they view the activity of the KGHM Polska Miedź S.A. Group in the context of climate change
The KGHM Polska Miedź S.A. Group is exposed to the risk of increasing expectations of stakeholders (e.g. investors, customers, ESG rating agencies) towards the Company with respect to reduction of its impact on climate resulting in a deterioration of the Company’s image and/or loss of stakeholder confidence.
Potential difficulties in attracting customers, employees, business partners and investors if the KGHM Polska Miedź S.A. Group’s activity is considered to be harmful to the climate. In extreme cases, the materialisation of this risk can lead to the blocking of development plans.
The opportunity (positive risk) identified in this area is associated with investments in renewable energy, which support combating greenhouse gas emissions – an image- and market-related opportunity with respect to the industry, i.e. the image of a company caring for the natural environment and striving to limit global climate change (green energy / green copper / green KGHM); a change in the customer’s approach but also legislative changes in favour of KGHM Polska Miedź S.A.’s attitude.
- Care and due diligence in identification of expectations and requirements of external stakeholders concerning the climate and environmental issues.
- Establishment of trade and business relationships with entities that declare that they care about environmental protection and comply with the regulations applicable in this regard.
- Increased awareness of climate change in the organisation and improvement of communication with all stakeholders in this respect, among others through the improvement in the quality of reporting on climate-related information after climate reporting was launched based on the 2017 Recommendations of the Task Force on Climate-Related Financial Disclosures.
- Implemented and improved effective system for resolving sustainable development themes (ESG) in the form of regular meetings of the Sustainable Development Council.
Number of key customers lost due to negative perception of the business in the face of climate change:
- throughout 2022, and up to the date of signing of this report, KGHM Polska Miedź S.A. did not record any events according to the criteria defined.
Technological risk related to the technological progress towards a low-emission economy
The EU’s ambitious climate targets and the existing pressure on the implementation of new low-carbon solutions and the search for reduction of CO₂ emissions in order to achieve the approved emission goals may have a direct impact on KGHM Polska Miedź S.A.’s activities. The need to make the necessary investments and/or a potentially sudden reduction in carbon dioxide emissions in a relatively short period of time may generate considerable costs and difficulties in adapting new solutions to the technology that is used currently. As a result of the necessary changes, the level of complexity of production activities in the new conditions and the increased technical, economic or legal requirements for the Company will rise at the same time, resulting in the need for KGHM Polska Miedź S.A. staff to continuously and dynamically increase their qualifications. Due to the rise in popularity of topics related to the progress towards a low-carbon economy, an increase is seen in the importance of decarbonisation technology providers and a significant increase in demand for their services. In the case of a decision to use solutions offered on the market, the availability of suppliers within the required timeframe may be limited and the need to wait a long time for the procurement of services or goods necessary for the implementation of new technologies may arise, thus extending the project implementation period.
In the technology area an opportunity has been identified arising from increased consumption and capability to process a volume of copper scrap and copper-bearing materials by the smelters and refineries of KGHM Polska Miedź S.A., which results in improved efficiency of waste management in global terms in the context of resource use and longer copper life cycle – a change in the customer’s and the Regulator’s approach in favour of a Circular Economy and low-carbon economy.
- Ongoing monitoring of policy changes intended to reduce CO₂ emissions and the potential tightening of regulations, analysis of market standards, technological innovations, opportunities for using alternative energy sources (RES). Taking pre-emptive actions to adapt to changes in the technological area. Monitoring the activities of competitors and related industry players (e.g. steel industry). Research market observation, technology scouting. Continuous monitoring of ongoing calls for projects financed from national and European funds, which could be used to finance research or investment projects of KGHM Polska Miedź S.A. in the area of climate transformation.
- Since most of the technology is in early advancement stage, it is assumed that by 2030 KGHM Polska Miedź S.A. will focus its efforts primarily on the continuation or launch of research and development work in selected areas, as well as on launching pilot projects. Full implementation of new innovative solutions, leading to achievement of the expected decarbonisation effects in the direct emissions area, will be effected in 2030-2050.
- A Transformation Projects Department dedicated to this risk has been operating since 2022.
Number of key customers lost due to excessive carbon footprint of products offered by KGHM Polska Miedź S.A., excessive level of greenhouse gas emissions of KGHM Polska Miedź S.A. as an organisation or emission reduction target too low:
- throughout 2022, and up to the date of signing of this report, KGHM Polska Miedź S.A. did not record any events according to the criteria defined
Market risk associated with changes in demand for and supply of certain products and services
Heightened expectations and awareness of stakeholders as regards climate issues may lead to increased operating and investment costs and, in extreme cases, to limitation of the business activity. The changing consumer requirements involve also a focus on the production method rather than merely the quality and price of the final product.
At the same time, KGHM Polska Miedź S.A. points to the opportunity coming from increased demand for copper arising from the necessity to supply it to meet the needs of the low-carbon economy as a result of a higher level of electrification (through increased copper consumption for purposes related to manufacturing components for electrical vehicles and development of electromobility) and increased consumption of copper in power networks. A stable growth of the global demand for copper is expected by 2040. The forecast growth will be an effect of, among others, the dynamically increasing demand from industries associated with renewable energy sources.
- Care and due diligence in monitoring and identification of expectations and requirements of business partners concerning the climate and environmental issues and consideration given to these issues in the long-term, strategic perspective.
- Ongoing analysis of technical and technological solutions, which satisfy stakeholder requirements concerning climate issues affecting changes in supply and demand.
Significant change in the structure and source of revenue related to changes in the demand and supply of products and services due to increased stakeholder expectations and awareness of climate issues:
- throughout 2022, and up to the date of signing of this report, KGHM Polska Miedź S.A. did not record any events according to the criteria defined.