Climate risk management
At the Grupa Azoty Group, we have initiated the process of implementing the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD) within our management and reporting framework.
At the Grupa Azoty Group, we have initiated the process of implementing the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD) within our management and reporting framework. The review includes a detailed assessment of the Group’s approach to risk identification and management, as well as the opportunities stemming from the low-carbon transition and physical climate change. In our efforts, we seek to integrate the climate change adaptation processes with our systems, procedures and business strategy.
Ujawnienia informacji związanych z klimatem (TCFD)
Disclosure of governance rules for climate impact exposures (both risks and opportunities)
Disclosure of current and potential climate impacts on the organisation’s business, including its strategy and financial planning, to the extent that such impacts are significant.
Disclosure of processes for identifying, assessing, and managing climate-related risks.
Disclosure of metrics and targets used to assess and manage specific areas of material climate risks.
TCFD was established in 2015 by the Financial Stability Board (FSB) to help identify the information needed by investors, lenders and insurers to properly assess and measure climate risks and opportunities. TCFD recommendations are structured around four thematic areas that represent core elements of how organisations operate: governance, strategy, risk management, and 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
Disclosure of governance rules for climate impact risk
We believe that responsible and forward-looking leadership increases the resilience of an organisation and supports long-term value creation. Climate change and the related threats and opportunities play an important role in the Group’s development. Therefore, decarbonisation efforts, including with respect to our energy mix and technological processes, are of key importance to us. The chemical industry has a significant impact on greenhouse gas emissions, but is also directly affected by climate change.
Responsibility for supervision over sustainability aspects and determination of relevant frameworks for our Group rests with the President of the Management Board and members of the Management Board within their respective areas of competence. Tomasz Hinc, President of the Management Board, is responsible, among other things, for sponsorship and CSR, compliance, legal support, and representation of the Grupa Azoty Group before stakeholders. The scope of responsibility of Filip Grzegorczyk, Vice President of the Grupa Azoty Management Board, includes issues related to the energy transition and the European Green Deal, as well as regulations and enterprise risk management. Grzegorz Kądzielawski, Vice President of the Management Board, is responsible for the monitoring of investment project implementation at the Grupa Azoty Group, social dialogue, strategic planning and monitoring of strategy implementation, strategic project management (excluding energy transition), adaptation to the requirements of the New Green Deal and circular economy at the Group. Individual companies have also designated staff members who are responsible for supervising environmental issues. At Grupa Azoty Puławy, it is Head of the Support Division, at Grupa Azoty Police – Head of the Plant Safety Department and Project Manager for GHG Emissions, Technological and Environmental Analysis, at Grupa Azoty Kędzierzyn – Head of the Infrastructure Department, and at Grupa Azoty S.A. – Head of the Corporate Technology and Energy Department (position established in the second half of 2021).
The Group engages in decarbonisation efforts. In this area, the following have been established recently:
- Corporate Technology and Energy Department, whose main responsibility is to ensure energy security, supervise decarbonisation at the Grupa Azoty Group, both in the commercial generation and in the Chemicals segment, and monitor the carbon footprint and set emission reduction targets;
- Energy Transition Committee.
The Grupa Azoty Group also has an EU ETS Management Committee in place, which periodically monitors both the situation on the emission allowances exchange market and the progress of the emission allowance purchasing plan.
Strategy
Approach to the actual and potential impact of climate risks and opportunities on the organisation’s business, strategy and financial planning
We have taken steps to assess the risks associated with the environmental impacts of the Group’s business in its day-to-day operations, as well as in the medium and long term. We have started a review of the resilience of our business model, taking into account the target benchmarks of emissions and pollutant concentrations. Sustainability-related innovation and development are largely reflected in the Grupa Azoty Group’s new strategy for the next decade (until 2030), which provides, among other things, for the launch of low- or zero-carbon heat and power generation projects.
The Grupa Azoty Group indirectly factors in climate risks in its strategy. One category where climate issues have been identified is the regulatory risk connected with climate change as well as the related market, financial, technological, environmental and reputational risks and opportunities.
The Group also takes steps to identify business development opportunities resulting from a change of approach to environmental and climate considerations. 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 identified potential for increasing energy and cost efficiency. Measures have been taken to implement solutions that address the challenges related to the identified risks and opportunities in the light of the upcoming changes and their ultimate integration within the enterprise risk management system.
Climate risk management
Disclosure of how the organisation identifies, assesses and manages climate risks
In the risk management process, climate change is an important factor for the implementation of our growth strategy and building our stakeholders’ confidence. Another decisive element is the changing legal requirements, and the need to comply with them and bear the related costs (introduction of new regulatory requirements that are not correlated with the investment plans and the financial capacity of the organisation); the requirements are defined, e.g., in the EU and national laws on trading in CO2 emission allowances. In order to mitigate its greenhouse gas emission impacts, the Grupa Azoty Group has been taking steps to lower the energy intensity of its processes and bring down GHG emissions.
TCFD has identified two types of climate risks:
- transition risks related to the transition to a lower-carbon economy;
- physical risks involving the physical effects of climate change.
Since climate risks are strategic risks, the Group has taken steps to integrate climate risk management processes into the enterprise risk management (ERM), so that they form part of the current risk management model and are subject to the same procedures.
The enterprise risk register provides information identifying the key climate and environmental risks directly or indirectly related to climate change (the former being connected with the enterprise itself and the latter involving shocks and disruptions in the supply chain and in the markets), or ESG risks defined in a context broader than climate considerations.
Risks directly affecting the Grupa Azoty Group’s business are primarily related to the management of CO2 emission allowances and other physical and transition factors in the area of regulations, technologies and products/markets:
- risk of extreme weather and natural disasters being physical consequences of climate change;
- regulatory risks arising from the climate transition occurring through implementation of the European Green Deal reforms;
- regulatory risks related to the circular economy and extended producer responsibility concepts;
- regulatory risks arising from the implementation of legislative changes forming the ‘Fit for 55’ package;
- risks related to the monitoring and consumption of electricity;
- risks related to the monitoring and management of direct and indirect emissions of greenhouse gases and other air pollutants;
- risk of restrictions on fertilizer sales due to physical climate change;
- risk of a decline in sales of selected plastics as a result of increased requirements on plastic recycling;
- risk of production constraints caused by lack of adequate water resources or increased salinity of river water;
- process and technological risks related to the need to adapt to low-carbon economy requirements and achieve decarbonisation targets;
- risk of increased exposure to failures, accidents and stoppages of production facilities and technological constraints due to physical consequences of climate change;
- risk related to the prices and availability of natural gas;
- risk related to the prices and availability of electricity and heat;
- risk related to the prices and availability of coal;
- risk related to the management of CO2 emission allowances;
- risk of restrictions on sales of fertilizers due to loss of biodiversity, ecosystem changes, major and unforeseeable weather changes and extreme weather;
- risk of restrictions on sales of plastics and chemicals due to market and legislative constraints and changing consumer behaviours.
In addition, the Group identifies risks that are not directly related to climate, such as:
- risk of adopting inappropriate strategy objectives, inconsistent strategy operationalisation, and lack of proper supervision and correct assessment of the delivery of strategic goals;
- risks related to investment project execution;
- risks related to investment project design and development;
- risk related to ineffective financial and economic projections;
- liquidity risk;
- risk related to the availability and effectiveness of capital and other sources of funding;
- risk related to negative impact on the company brand;
- risks related to investor relations and compliance with the disclosure requirements;
- risk of failure to meet expectations of the public;
- reputational risk related to ineffective communication of social initiatives and ESG projects;
- risk related to growing customer requirements concerning fertilizers;
- risk of higher fertilizer imports;
- risk of disruptions in or increased cost of maritime transport;
- risk related to the operation of the in-house power generation system;
- risk related to the prices and availability of propylene and polyethylene;
- risk of major industrial accidents;
- risk of major technical failures disrupting the continuity of processes and operation of key production units;
- risk of trade wars and significant limitation of the free movement of goods and services in the Oxoplast Business Unit;
- risk of substitution of products and production technologies resulting in a deterioration of the Group’s competitive position;
- risk of restrictions on sales of plastics due to market constraints and consumer behaviour changes as a result of more widespread adoption of pro-environmental attitudes;
- risk of restrictions on sales of chemicals due to market constraints and consumer behaviour changes as a result of more widespread adoption of pro-environmental attitudes;
- risk related to fire safety;
- risk of violation of law in the context of compliance management;
- regulatory risk related to increasing environmental requirements;
- risk of adverse impacts on biodiversity and wild natural habitats.
Identification of the risks listed above helps us better manage climate risks, including by planning measures to mitigate them.
In 2020, the enterprise risk register of the Grupa Azoty Group was updated. The ESG risks are presented below in the section in the ESG risk map. Work is underway on the identification and preliminary examination of the climate change risks, which will be included in the organisation’s overall risk management system in 2021.
Under the risk management model in place at the Grupa Azoty Group, the qualitative risk analysis involves identification of both risks and opportunities associated with a given risk.
Key considerations related to the status and materiality of climate risks at each of the key companies
Grupa Azoty Kędzierzyn:
Because of their significant greenhouse gas emissions and the applicable regulatory requirements, the Grupa Azoty Group companies are subject to the EU Emissions Trading Scheme (EU ETS). As part of the EU ETS, the company monitors and settles greenhouse gas emissions generated by its facilities. In accordance with the applicable laws, the Group is annually allocated free emission allowances for its designated installations, which it is required to surrender to cover its CO2 emissions. The estimated volume of emission allowances required for 2019–2021 exceeded the free allocation volume. The projected deficit in these years is 370,000–600,000 EUAs per year (in 2021). The company purchased the balance of the allowances for 2020 on the market, in accordance with the emission allowance purchasing plan and the common CO2 emission allowance management model applied by the largest companies of the Grupa Azoty Group, whose main objective is to spread the allowance price risk over time. The emission allowance purchasing plans are made annually for the next three years.
Grupa Azoty Puławy:
The company reduces its GHG emissions on a continuous basis by using high-efficiency catalysts to bring down N2O emissions and increase energy efficiency. Grupa Azoty Puławy is working on solutions to lower its consumption of natural gas (production and energy efficiency improvements) and energy carriers (energy efficiency improvements), especially of high-pressure heating steam and process steam. The activities in this area are monitored and supervised based on the regulations of the energy management system.
Grupa Azoty Police:
In 2020, the company identified no new risks or opportunities arising from climate change or weather patterns. As regards the legal framework for greenhouse gas emissions, the situation is stable. 2013–2020 was the third trading period of the European Emissions Trading Scheme (EU ETS), which covers five of the company’s installations. 2020 was the eighth and the last year of the period. As the company participates in the EU ETS and maintained the required level of production, in 2020 three of its process installations and one combustion installation received free emission allowances in such quantities as previously determined by the National Administrator of the Emission Trading Scheme. Due to the shutdown of the only emission source since mid-2016, on CHP I, no free emission allowances were allocated to this installation.
Metrics and targets
Used to assess and manage material climate risks and opportunities
Risk response and mitigation plans, defined by activities, including metrics and targets, are determined in accordance with the principles of the enterprise risk management system.
The Grupa Azoty Group calculates and reports annually a set of performance indicators, including in the natural environment area, such as greenhouse gas emissions, energy, water and materials consumption. They 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 risks and opportunities, mainly with respect to transition risks.
The Grupa Azoty Group identifies greenhouse gas emissions as the key factor of its direct impact on climate and the natural environment. In calculating GHG emissions we use the GHG Protocol, which covers all activities envisaged to monitor them in Scope 1 and 2. Our Scope 1 emissions are emissions from the organisation’s direct operations, use of energy, including electricity, heat (steam and frigorie) and energy purchases (Scope 2).
In 2020, the Grupa Azoty Group’s carbon footprint was 9.433 million tonnes of CO2 equivalent.
Direct greenhouse gas emissions (Scope 1)] We constantly work towards reducing our carbon footprint, taking into account changes in our product portfolio.
Chart with a summary of Scope 1 and 2 emissions
| Group entity | Greenhouse gas emissions [MgCO2e] | ||
| Scope 1 | Scope 2 | Total Scope 1 and 2 | |
| Grupa Azoty Puławy S.A. | 3,407,814 | 701,361 | 4,109,174 |
| Grupa Azoty Police S.A. | 1,691,172 | 230,528 | 1,921,699 |
| Grupa Azoty Kędzierzyn S.A. | 1,280,946 | 456,377 | 1,737,322 |
| Grupa Azoty S.A. | 945,845 | 159,445 | 1,105,290 |
| Other companies | 70,223 | 488,289 | 559,512 |
| Symbol | Type | Description |
|---|---|---|
| EMI | Direct (process) greenhouse gas emissions | Direct emissions of methane and CO2, e.g. in landfill gases, process emissions of methane, nitrous oxide, cooling agents listed in AR5 |
| ENE | Emissions associated with energy imports | Emissions calculated based on indicators provided by electricity and/or heat suppliers, by type of fuel, in accordance with the Regulation of the Minister of Economy (Dz.U. No. 93 of 2007, item 623) |
| PAL | Emissions from the combustion of fuels | Carbon dioxide from the combustion of coal, liquid and gaseous fuels on the basis of the calculated or measured emission indicator |
| SUR | Emissions from energy carriers used as feedstock for synthesis | Emissions produced when energy carriers (high-methane and other gases) are used for synthesis (mainly ammonia synthesis) |
The changing purchase prices of EUAs are one of the main climate risk factors to be monitored on an ongoing basis. According to the current short- and long-term forecasts, the prices will be on the rise. They are and will continue to be driven by the demand and supply and the global political situation and developments in the power generation industry. Failure to redeem or timely redeem the required allowances is subject to an administrative penalty of EUR 100 per 1 Mg of outstanding CO2. The situation on the emission allowances exchange market and the progress of the allowance purchasing plan designed to secure the necessary allowances to be redeemed for a given year are also monitored periodically by the EU ETS Management Committee of the Grupa Azoty Group. Among the Committee members are authorised representatives of the Company, as documented in the minutes of the Committee meetings.
