Taxonomy disclosures

From 1 January 2022 to 31 December 2022, the mandatory disclosures of non-financial companies include a percentage share of the economic activity that is Taxonomy-eligible and non-eligible, as well as the economic activity that is Taxonomy-aligned, as a ratio to total:

as well as the related qualitative (explanatory) information – specified pursuant to Commission Delegated Regulation (EU) 2021/2178, taking into account Commission Delegated Regulation (EU) 2022/1214, amending the above regulation.

The first annual reporting period included 2021, for which eligibility indicators were reported. In the second reporting year (i.e. for 2022), indicators are reported in terms of eligibility for and alignment with the Taxonomy.

Pursuant to Delegated Regulation (EU) 2021/2178, economic activity that is Taxonomy-eligible means the economic activity as set out in Commission Delegated Regulation (UE) 2021/2139, taking into account Commission Delegated Regulation (EU) 2022/1214, amending the above regulation. Taxonomy-aligned activity (hereafter: “Taxonomy-aligned activity”) is the activity contributing substantially to the implementation of one or more of the environmental objectives, causes no significant harm to any of the environmental objectives of the Taxonomy, and is carried out in accordance with the minimum safeguards set out in Article 18 of Regulation 2020/852 as well as meets the technical screening criteria that have been established by the European Commission.

In accordance with the regulatory obligation, an assessment against the first two environmental objectives was carried out as part of the eligibility verification for 2022:

• Climate change mitigation,
• Climate change adaptation.

The indicators of turnover, capital expenditure and operating expenditure included the definitions set out in Annex I of Commission Delegated Regulation (EU) 2021/2178. The calculation of the indicators for the Group takes account of the relevant consolidation exclusions based on the methods used in the financial statements.

The individual types of the conducted activities have been assigned to only one Taxonomy-eligible activity. No part of the revenues, CAPEX and OPEX has been double-counted. If an activity that generated revenue (turnover) in 2022 has been qualified as Taxonomy-eligible, the CapEx and OpEx related to this activity have been assigned thereto as well, and they have not been further assessed in terms of eligibility for the purposes of other activities. The remaining values of CapEx and OpEx (i.e. not related to the revenue-generating eligible activity) were assessed for their possible classification in the category of purchases from Taxonomy-eligible activities. Individual CAPEX and OPEX expenses were assigned to only one activity. The Parent Entity of the Group oversaw the disclosure process, also verifying the financial data to be attributed to the individual activities, in order to avoid double-counting.

The KGHM Polska Miedź S.A. Group conducts its business activity outside of the European Union as well. These economic activities were assessed for Taxonomy-eligibility in the same manner as all the activities conducted in the EU.

Eligible activity that simultaneously:

• contributes materially to the implementation of one or more environmental objectives identified within the Taxonomy,
• does not cause serious harm to any of the other environmental objectives,
• is carried out in accordance with the minimum safeguards set out in Article 18 of Regulation 2020/852,
• satisfies technical screening criteria, can be considered an environmentally sustainable activity, i.e. aligned with the Taxonomy.

As part of the preparation of the taxonomic disclosures, an analysis of the compatibility of eligible activities in terms of meeting the technical screening criteria for individual activities included in Delegated Regulation 2021/2139 was carried out.

The compliance of the economic activity pursued with the minimum social safeguards was verified by the KGHM Polska Miedź S.A. Group through performing the due diligence. To this end, cooperation was established with an external consultant.

The due diligence performed included analysing the compliance of the economic activity carried out by the KGHM Polska Miedź S.A. Group with the minimum safeguards set out in Article 3(c) in conjunction with Article 18 of Regulation 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment. Article 18 of Regulation 2020/852 defines minimum safeguards as the procedures implemented by an undertaking that is carrying out an economic activity to ensure the alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights. On the basis of the indicated acts and the report of the Sustainable Finance Platform on minimum social safeguards, the methodology of the survey was defined and its main areas were identified.

The survey covered the following areas: disclosures of strategic and internal affairs, human rights, labour rights, anti-corruption and anti-bribery, consumer protection, competition, tax policy, environmental protection and other areas.

The methodology of the survey was divided into four main stages:

The examination of each of the stages presented showed that the KGHM Polska Miedź S.A. Group had adopted the policies and procedures necessary to fulfil the minimum social safeguards. The survey also excluded the existence of indications of a failure to provide minimum safeguards in any of the areas identified.

Copper and other minerals produced by KGHM are necessary for successful energy transition and achieving climate neutrality by the European Union.

However, the scopes of Annex I and Annex II of Delegated Regulation 2021/2139 do not cover copper production, including both primary and the secondary sources. As a result, it is not possible to include in the Taxonomy disclosures for 2022 the core economic activity conducted by KGHM Polska Miedź S.A. Group – which, as a type of activity directly determines the success of the energy transition in the European Union.

Also, we have been working together with other sector players since 2022 to take action supporting the inclusion of copper production in various types of activities included in the Taxonomy, to reflect the actual role of the sector in the transition of the economy towards sustainability, especially in comparison with the other metal production sectors already included in the Taxonomy. KGHM participates directly in the work of the sector team (ST2B) for mining at the Sustainable Finance Platform and also collaborates with the International Copper Association, Euromines, Eurometaux and BSP (Business & Science Poland) in the preparation of materials, data and opinions submitted to the Sustainable Finance Platform. One indication of the validity of the actions taken is the inclusion of Manufacture of copper activities in the report “Platform on Sustainable Finance: Technical Working Group. Supplementary: Methodology and Technical Screening Criteria”, published in October 2022 by the European Commission’s advisory body.

The total value of eligible turnover was PLN 526.0 million, of which activities with the turnover value of PLN 340.5 million were defined as the turnover of Taxonomy-eligible activities.

For the activities listed in the table, all of the assigned eligible turnover pertains to revenue from contracts with customers.

For the calculation of the indicators, the denominator value is the turnover value consistent with the value given in the Consolidated annual financial statements of the KGHM Polska Miedź  S.A. Group, in Part 2 “Activity segments and revenue information”.

The total value of eligible turnover was PLN 214.3 million, of which activities with the turnover value of PLN 8.8 million were defined as the capital expenditure of Taxonomy-eligible activities.

The values recognised as CAPEX pertain only to direct expenditure on property, plant and equipment and intangible assets, i.e. expenditure in the area of purchases, internally generated assets, capitalisation of stripping costs, receiving of assets under new leasing agreements and amendment of the existing leasing agreements (in 2022, there are no increases resulting from acquisition of subsidiaries).

The CAPEX denominator comprises the items disclosed and described in the 2022 Consolidated financial statements of the KGHM Polska Miedź S.A. Group, in Part 9 “Non-current assets and related liabilities”, in note 9.1 “Mining and metallurgical property, plant and equipment and intangible assets”, and in note 9.2 “Other property, plant and equipment and intangible assets”.

The total value of eligible operating expenditure was PLN 177.4 million, of which activities related to operating expenditure with the value of PLN 35.4 million were defined as the expenditure of Taxonomy-eligible activities.

The OPEX indicator includes expenditure on on-going operation of property, plant and equipment, i.e. the expenditure incurred on renovations and maintenance of the individual items of property, plant and equipment. In accordance with the definition of OPEX, the indicator also incorporates possible costs in the category of research and development and short-term leasing excluded from CAPEX.

Annex No. 4 to this Report presents the disclosure in accordance with Annex III of Delegated Regulation 2022/1214, supplementing Delegated Regulation 2021/2178 with Annex XII, concerning standard templates for the disclosure of information referred to in Article 8(6) and (7) – i.e. for activities related to nuclear power and natural gas.