Risk

Climate risk management

In 2020, we started to implement the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) as part of the Grupa Azoty Group’s management and reporting processes.

Go to GRI STANDARD index

TABLE OF CONTENT

[IR - Risks and opportunities]

TCFD recommendations with respect to disclosure of climate-related risks and opportunities

W Grupie Azoty rozpoczęliśmy w 2020 r. wdrażanie rekomendacji Grupy Zadaniowej ds. Ujawniania Informacji Finansowych Związanych z Klimatem (Task Force on Climate-Related Financial Disclosures, TCFD) w ramach naszych procesów zarządzania i sprawozdawczości. Poniższy przegląd obejmuje szczegółową ocenę podejścia Grupy Azoty do identyfikowania ryzyka oraz szans klimatycznych, możliwości związanych z transformacją do gospodarki niskoemisyjnej oraz zarządzania nimi. Staramy się łączyć adaptację do zmiany klimatu oraz ograniczenie negatywnego wpływu Grupy Azoty na klimat z naszymi systemami, procesami oraz strategią biznesową.

Climate-related risks and opportunities

The Task Force identifies several categories of climate-related risks and opportunities that may give rise to financial impacts on revenues, expenditures, assets and liabilities, and capital and financing.

TCFD was established to develop clear recommendations on the disclosure by companies of the information needed by investors, lenders and insurers to properly assess and measure climate-related risks and opportunities. TCFD recommendations are structured around four thematic areas that represent core elements of how organisations operate: governance, strategy, risk management, as well as metrics and targets. The areas are interconnected and should operate in conjunction with one another to provide an effective framework for managing the climate change risk.

Governance

Supervision and role of the Management Board and senior management in managing climate-related opportunities and risks

Strategy

The Grupa Azoty Group Strategy for 2021−2030 reaffirms the Group’s priority commitment to a climate neutrality and energy transition.

Climate risk management

Risk identification at the Grupa Azoty Group is a continuous process carried out by directors, unit heads and managers in charge of individual business areas.

Metrics and targets

Governance

Supervision and role of the Management Board and senior management in managing climate-related opportunities and risks

The Group has a three-lines risk management model in place.

Overall supervision of the enterprise risk management system lies with the Management Board of Grupa Azoty S.A. At least once a year the Management Board assess the system for effectiveness, also in terms of how well it handles climate risks.

Areas of climate-related risk have been addressed by the Grupa Azoty Group Strategy for 2021−2030. All aspects related to climate change are overseen and monitored at the highest level, within areas identified as key in the Strategy development process. There is also a Group Development Committee at the Grupa Azoty Group, whose role is to support the Strategy implementation, giving opinions on planned investment projects and activities spanning research, development and innovation. All such planned activities are assessed for compliance with the EU taxonomy according to Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment.

In 2021, the following persons were responsible for overseeing sustainability at the level of President of the Management Board as well as Members of the Management Board within their respective remits:

Tomasz Hinc – President of the Management Board – compliance, legal support, representation of the Grupa Azoty Group before stakeholders, sponsorship and CSR,
Dr hab. Filip Grzegorczyk – Vice President of the Management Board – energy transition and ensuring compliance with requirements of the European Green Deal in the energy segment, regulatory area and enterprise risk management,
Dr Grzegorz Kądzielawski – Vice President of the Management Board – monitoring of investment project implementation at the Group, strategic planning and monitoring of the Strategy implementation, strategic project management (excluding energy transition), ensuring compliance with requirements of the European Green Deal, adaptation of the Group to the circular economy concept and social dialogue.

In addition, persons responsible for climate and environmental risks have been appointed at individual companies.

Persons responsible for climate and environmental risks at Grupa Azoty S.A. in 2021:

risks related to environmental protection and industrial accidents – head of the Corporate Technology and Energy Department,
risks related to the need to adapt to low-carbon economy requirements and achieve decarbonisation targets – head of the Corporate Strategy and Development Department.

Persons responsible for climate and environmental risks at Grupa Azoty Kędzierzyn in 2021:

risks related to decarbonisation – head of the Fertilizers BU, head of the OXOPLAST BU and head of the Energy BU,
risks related to industrial accidents, noise, waste and biodiversity – head of the Safety Department,
risks related to energy – head of the Energy BU,
risks related to wastewater management – head of the Safety Department,
risks related to emissions – head of the Safety Department and head of the Energy BU.

Persons responsible for climate and environmental risks at Grupa Azoty Puławy in 2021:

risks related to industrial accidents – head of the Production Division and director of the Production Division of the Plastics Business Segment, director of the Energy Division,
risks related to energy – energy manager in the Energy Division,
risks related to emissions – Chief Emission Management Officer in the Technology and Development Division and Chief Environmental Protection Officer in the Support Division,
risks related to noise, biodiversity – Chief Environmental Protection Officer in the Support Division,
risks related to wastewater and waste management – Chief Environmental Protection Officer in the Support Division,
risks related to land pollution – director of the Production Division of the Plastics Business Segment, director of the Energy Division and director of the Corporate Logistics Department in the Sales Division,
risks related to decarbonisation – director of Technology and Development Division.

Persons responsible for climate and environmental risks at Grupa Azoty Police in 2021:

risks related to industrial accidents, noise, wastewater, waste, biodiversity, and land pollution – head of the Plant Safety Department,
risks related to energy and emissions – head of the Power Centre,
risks related to decarbonisation –head of the Technology Department.

The second line includes an Enterprise Risk Committee, comprising presidents responsible for risk management at individual companies. The role of the Committee is to initiate and consult the general directions of strategic changes to the risk management system, prepare recommendations with respect to the list of key risks, and assess enterprise risks in emergency situations. Material recommendations of the committee are submitted quarterly at the Management Board’s meetings. An annual assessment of the enterprise risk consists in updating risk charts, strategies for addressing individual risks, relevant indicators and mitigation measures. Once assessed, every year the risks are prioritised with key risk areas identified, which are then discussed by the Enterprise Risk Committee and at meetings of the Management Board. At least once a year, climate risk issues are reviewed by the Management Board and, depending on that body’s decision, relevant information is then reported at meetings of the Supervisory Board. Risk owners (first-line roles) are able to carry out risk assessments along similar paths within their respective divisions through subject matter committees when significant variables are noted, to be reported to the Management Board.

Within the first line, climate risks are assigned to risk owners with operational responsibility for identification, classification, analytical appraisal, determination of the scale (qualitative and quantitative analysis), prioritisation and development of management strategies with respect to each such risk. Where justified by quantitative assessment, the owners of individual risks are also required to monitor the KRI (Key Risk Indicators) as well as any instances of exceeding the risk tolerance and appetite thresholds at their level, in principle on a monthly basis, and to report to the second line: Corporate Risk Management Department. The owners of individual climate risks can consult the risk charts to identify relevant teams whose activities may mitigate particular risks.

Responsibility for various risks

	Risk name	Risk owner
	risk of an increased number of accidents and management risk in the case of extreme weather events	Corporate Technology and Energy Department, auxiliary role: company crisis management team taking action in response to specific crisis events
	risk of fertilizer sales declining due to physical effects of climate change (droughts, floods), lower purchasing power of farmers and constrained demand for fertilizers due to crisis situations	Corporate Agro Sales Department
	risks related to monitoring and consumption of electric energy	Corporate Technology and Energy Department, auxiliary role: ISO 50000 Energy Management Team
	risk related to transition to a low-carbon and climate change resilient economy	Corporate Strategy and Development Department, auxiliary role: Corporate Energy Transition Team and Carbon Footprint Team
	risk of restrictions on sales of plastics and chemicals due to market constraints and consumer behaviour changes as a result of more widespread adoption of pro-environmental attitudes	Corporate Communication and Marketing Department
	regulatory risks related to implementation of the European Green Deal, Extended Producer Responsibility and ‘Fit for 55’ package	Corporate Regulation and Public Affairs Department
	risks related to biodiversity impacts	newly identified risk – currently under appraisal

One of the key areas of climate risk, addressed in the Group Strategy for 2021−2030, is related to the transition to a low-carbon and climate change resilient economy. This risk may be mitigated through measures described in the Strategy, which means that its monitoring is tantamount to monitoring of the performance of tasks set out in the Strategy.

Strategy

Identified climate-related risks and opportunities

The Grupa Azoty Group Strategy for 2021−2030 reaffirms the Group’s priority commitment to a climate neutrality and energy transition. Measures planned by the Group involve a consistent focus on investing in innovation and seeking new environmentally-friendly solutions and products. Grupa Azoty’s products and technologies will facilitate the achievement of our customers’ targets in production, sales and environmental protection. In response to diagnosed risk areas, including those related to climate change, the Strategy aims to improve the quality of life of European citizens through positive impacts on climate and the environment as well as active contribution to food security on our continent and elsewhere in the world. As part of its strategic initiatives, the Group will focus on increasing the share of green energy with certificates of origin in the overall energy mix, with rigorous procedures in place for monitoring the carbon footprints of externally sourced raw materials. The Strategy is the Grupa Azoty Group’s response to the expectations of its customers who want a reduction of the carbon footprint of production processes.

The Group has taken steps to assess risks associated with the environmental impacts of its day-to-day operations as well as its medium- and long-term objectives. We have started a review of the resilience of our business model, taking into account the target benchmarks of emissions and pollutant concentrations. In developing the new Grupa Azoty Group Strategy for 2021−2030, we considered the need for innovation and sustainability initiatives, providing, among other things, for the launch of low-or zero-carbon heat and power generation projects.

Climate risks have been factored indirectly in the Group’s Strategy. Climate change issues have been identified as part of the regulatory transition risk as well as market, financial, technological, environmental and reputational risks and attendant opportunities.

Grupa Azoty also sees opportunities for its business in changing the perception of environmental and climate issues. The risk identification process has taken into account the opportunities for raising funds for innovative technology projects or development of new environmentally-friendly products, and has also identified potential for improving energy and cost efficiency.

See our risk and opportunity map

Climate risk management

1. Climate risk identification and assessment processes:

Risk identification at the Grupa Azoty Group is a continuous process carried out by directors, unit heads and managers in charge of individual business areas. Hazard identification involves the definition of risk sources and determination of possible risk impacts, including the extent of those impacts based on historical data, observations, in-house expertise and personnel’s knowledge, expert opinions, computation analyses, audit findings, review of the regulatory and market environments or other methods supporting risk identification.

2. Organisational processes in climate risk management:

In addition to identification and classification, the risk management process includes: risk mapping and qualitative analysis, quantitative analysis and quantification, assessment of risk controls in place, planning and implementation of risk response measures, as well as measurement and reporting of specific risks. Responsibility for managing a specific risk rests always with the relevant risk owner.

3. Integration with the overall risk management system in the organisation of processes related to identification, assessment and management of climate risks:

Given the strategic nature of climate-related risks, the Grupa Azoty Group has integrated the management of those risks with the overall enterprise risk management (ERM) system so it conforms with the rules of the organisation’s general risk management model and procedures.

Climate risks have been classified into all categories of the risk management framework developed at the Grupa Azoty Group:

the category of: Strategy, organisation and management risks – includes issues related to climate risk management, corporate governance of climate risks and relevant strategy
the category of: Financial and credit risks – includes finance-related risks
the category of: Core business risks – includes risks arising from physical effects of climate change adversely affecting the business of the Grupa Azoty Group companies and risks arising from transition to a climate change resilient economy
the category of: Safety risks – includes crisis management risks
the category of: Social and environmental risks – includes risks related to the environment and its protection
the category of: Market and regulatory risk – includes risks of transition to a low-carbon economy

The risk materiality assessment and prioritisation are undertaken once a year and reflected in the risk chart according to a five-stage risk assessment and probability matrix. The financial impacts of each risk are assessed according to an impact matrix. Based on the valuation of a risk reflected in its risk chart and assessment of the degree of the risk control, individual risk maps are drawn up for each company followed by a Group-wide valuation process. As a result, the risks concerned are prioritised and may be included in the list of key risks. The risk materiality assessment is also informed by conclusions from the monitoring of relevant risk indicators (to determine whether there have been risk materialisation incidents), an analysis of global reports and a benchmarking exercise. The data thus collected is used to draw up a list of key risks that is presented by the Enterprise Risk Committee to the Management Board.

Work is currently under way to consolidate the risk management systems of all companies in order to further strengthen the Grupa Azoty Group’s resilience.

Metrics and targets

In response to climate risks and plans to mitigate such risks, the Grupa Azoty Group, in accordance with the principles of the enterprise risk management system, defines relevant actions, targets and metrics.

Each year, the Group calculates and prepares a report on performance indicators, including environmental indicators pertaining to greenhouse gas emissions or to the consumption of energy, water and materials. The indicators enable the Group to assess its efforts to meet its own emission targets, but also provide a basis and context for an assessment of climate risk and opportunities, mainly with respect to the transition risk.

The Group considers GHG emissions as the main area of its direct environmental and climate impacts. In calculating GHG emissions the Group uses the GHG Protocol, which covers all activities envisaged for monitoring in Scope 1 and 2. Scope 1 are direct emissions from the company’s operations and the use of electricity and heat. Scope 2 emissions are emissions associated with the purchase of energy from external suppliers.