ESG risk map based on the Grupa Azoty Group’s enterprise risk register

The Grupa Azoty Group’s operations are directly exposed to the risk of major industrial accidents or technical accidents in key production plants due to the need to ensure continuous and smooth production processes and highly effective response to emergencies arising as a result of equipment defects and failures within the Company’s facilities.

Risk response

• The Grupa Azoty Group companies were classified as upper tier establishments (UTE). The Group has developed and put in place accident prevention programmes, and has monitored and implemented safety regulations, including those arising from the SEVESO III Directive. Detailed contingency analyses are carried out based on the Accident Prevention Manual and the contingency analysis approach. Technical risks are reviewed in the area of operation of production assets and the impact on the thermodynamic status of selected machinery. Contingencies are prevented at the Grupa Azoty Group by ongoing monitoring of hazards in technological processes and operation of machinery and equipment, coupled with monitoring of hazards in storage and transport operations.

The core business of the Grupa Azoty Group involves processing, manufacture, storage and transport of hazardous chemicals, which may affect the natural environment, health or lives of the Group’s employees and residents of the adjacent areas.

Risk response

• Detailed process risk analyses are carried out at the Grupa Azoty Group on a regular basis under the emergency prevention programme. A safety report is prepared for upper tier chemical plants at least once every five years. The Grupa Azoty Group monitors and responds to regulatory changes in the area of production and storage of hazardous materials on an ongoing basis.

Grupa Azoty Group transports flammable, explosive and toxic hazardous goods, which may pose a risk to the natural environment, to the health or life of employees, and to local communities in the vicinity of the plants.

Risk response

• As a result of their activities, state authorities impose additional restrictions on the transport of hazardous substances, which may result in temporary or permanent unavailability of parts of the transport infrastructure used by the company. In order to minimise the risk of adverse events, deliveries of dangerous goods are monitored on an ongoing basis pursuant to an internal regulation governing this aspect. In addition, contracts with companies that rent their rolling stock and with carriers licensed and equipped to carry out transport operations include appropriate provisions on the carriage of dangerous goods.

Given the technologies employed by the Group, its operations involve unavoidable releases of CO2, NO2, SO2, NH3, F, particulate matter and other substances to the environment, and are subject to European and Polish laws.

If more stringent regulations are introduced, in particular imposing tighter pollutant emission limits, the Grupa Azoty Group may need to incur significant costs in order to upgrade its plants or replace equipment which does not conform to the new emission standards. Non-compliance entails, among other things, sanctions imposed on individual Grupa Azoty Group companies if the emission limits are exceeded. The environmental protection laws require that BAT conclusions be adopted as a benchmark for defining the technical conditions of the integrated permit and for setting emission limits.

Risk response

• The Grupa Azoty Group holds all necessary environmental permits for its operations. It monitors its air emissions on an ongoing basis. Measurements are made at the intervals specified in the relevant integrated permits and they are reflected in the annual pollutant emission measurement schedules. The Grupa Azoty Group regularly monitors and responds to regulatory changes in the area of environmental emissions.

The CO2 emissions trading market is highly unpredictable due to its high volatility and sudden spikes in CO2 emission allowance prices.

Risk response

• The management of CO2 emission allowances at the Grupa Azoty Group is supervised by the EU ETS Management Committee and the EU ETS Executive Team, based on the CO2 emission allowance trading policy in place. Allowances are purchased according to an annual purchasing plan, following a recommendation from the EU ETS Committee and the Financial Committee. The EU ETS Management Committee, which supervises the common model for managing CO2 emission allowances at the parent companies, tracks the implementation of purchasing plans and price developments of CO2 emission allowances. In addition, the EU ETS Executive Team monitors the prices of emission allowances on the market on an ongoing basis and analyses price trends in the short and long term.

The Grupa Azoty Group is exposed to the risk of fire or explosion as a result of which a company’s assets may become damaged or destroyed and its operations may be restricted or suspended.
 
The fire safety risk involves possible injury or death of employees, environmental contamination, considerable material damage from explosion or fire at a production facility, as well as loss of quality or usefulness of products or raw materials due to explosion or fire at a storage facility, fire during transport, and the related, e.g. financial, consequences.

Risk response

• The Company Fire Brigade units responsible for the oversight of fire-fighting activities at the Grupa Azoty Group companies have fire-fighting and rescue equipment to extinguish fires and remove other local hazards and effects of natural disasters. The Group operates an automated hazard reporting system, and its fire prevention system provides ongoing fire safety oversight.

In connection with their operations, the Grupa Azoty Group companies abstract water and discharge wastewater. In the event of non-compliance with water and wastewater management regulations, which includes exceeding any parameters set in the applicable decisions, sanctions are imposed. At Grupa Azoty S.A. this is related to the implementation of new projects and expansion of existing units/plants. Substances acting as inhibitors present in effluents from the caprolactam polymerisation unit have an adverse effect on the biological treatment of the effluents, resulting in technical degradation of existing units/plants.

Risk response

• The Grupa Azoty Group monitors the Water Law on an ongoing basis for any amendments tightening the existing standards or introducing new requirements applicable to the Company with respect to water abstraction and wastewater discharge. The Grupa Azoty Group holds all relevant legal permits related to water and wastewater management. When designing process units and applying for permits, the Group companies estimate and account for the effect of the unit/equipment on the volume of pollutants emitted into the environment. The volumes and quality of wastewater discharged and water abstracted are analysed on an ongoing basis. The Grupa Azoty Group responds to regulatory changes in the area of water and wastewater management on an ongoing basis.

An accident occurring on a Grupa Azoty Group company’s premises gives rise to a risk of soil contamination and incurring significant costs related to its remediation/reclamation, as well as a risk of administrative decisions being issued against the company, obligating it to clean up legacy contamination.
 
As a result, a Grupa Azoty company may be required to carry out reclamation work on the affected site and restore it to its original condition. In the case of legacy contamination, the company may be required, by way of an administrative decision, to draw up and deliver a site reclamation plan.

Risk response

• The Grupa Azoty Group holds all relevant legal permits regarding soil contamination.
  To mitigate any possible incidents, groundwater on legacy contamination sites is monitored and the places where hazardous substances are loaded, unloaded and stored are inspected. A detailed risk assessment is carried out based on the type and quantity of substances in the process units as well as evaluation of the measures taken to prevent the substances from contaminating the soil. The Grupa Azoty Group responds to regulatory changes in the area of land pollution requirements on an ongoing basis.

Radioactive substances used by the Grupa Azoty Group may adversely affect the health or life of employees or other persons present in the area of their potential impact. The Group may fail to meet the legal conditions for their use.
 
There is a risk of leakage from storage containers for radioactive substances, a risk of using defective equipment/apparatus that operates using radioactive substances, or a risk of inappropriate protection of such equipment/apparatus against access by third parties. A loss of a radioactive source due to theft or misplacement, as well as detachment of a radioactive source from its apparatus, are very unlikely as far as the apparatus containing the source is normally operated.

Risk response

• In order to eliminate the risks, all radioactive sources in the operating apparatus are placed in transport and work containers with built-in locks preventing easy removal of the source without using special keys. The containers are screwed to the supporting structure. Radioactive sources used in units operating in open space are additionally secured using padlocks with patented lock systems. All apparatus with radioactive sources have output signals incorporated in the units’ computer systems. During unit shutdowns or overhaul work in the immediate vicinity of radioactive sources, these sources are placed in transport and work containers in the isotope storage room. Once a year drills are carried out at the Grupa Azoty Group to review and update the contingency plan for radiological emergencies. Sealed radioactive sources are used during such drills.

Manufacturing processes generate waste which is classified in accordance with environmental protections laws as hazardous, non-hazardous and inert waste.
 
The changing legal requirements make it necessary to adjust and pay the costs of exceeding the waste limits. Failure to comply with the legal requirements may result in fines being imposed on Grupa Azoty by way of administrative decisions. Storage of waste at a place other than that specified in the integrated permit gives rise to a risk of penalties for storage of waste in a place not intended for that purpose.

Riske response

• During design work on the Group’s units and in applications for integrated permits, the unit’s effect on the amount of generated waste is taken into account. The Grupa Azoty Group holds all legal permits related to waste management and responds to regulatory changes in the area of waste management on an ongoing basis.

If the noise emission limits applicable to the areas adjacent to Grupa Azoty S.A. are tightened, the Company may be subject to penalties by way of administrative decisions and may be required to present a plan of measures to ensure compliance with the limits set out in the relevant regulation. The location of a new investment project is always selected taking into account the project’s potential impact on protected areas. During the unit design phase, equipment with appropriate parameters is selected, and the location of the unit takes into account the level of noise emitted.

Risk response

• The Group holds all legal permits regarding environmental noise. In the existing units, soundproofing cabins and acoustic silencers have been installed. In accordance with the integrated permits, the Group companies regularly monitor and analyse the measurements of noise emitted to the environment. The Grupa Azoty Group responds to regulatory changes in the area of environmental noise requirements on an ongoing basis.

The work performed within the Grupa Azoty Group companies entails the risk that the production process may be halted as a result of an accident causing a serious injury or fatality on the premises of a Grupa Azoty Group company.

Risk response

• The OHS services at Grupa Azoty carry out regular on-site inspections and participate in accident and emergency teams. Any near-miss incidents reported by employees in electronic and paper form are reviewed by the OHS services. A register of hazards, near-miss incidents and ‘STOP Accidents’ observations is kept and updated on an ongoing basis in an online database. In order to prevent any dangerous situations, the Grupa Azoty Group companies exchange information by publishing conclusions from investigation of near-miss incidents on an online platform.

Employees of Grupa Azoty Group companies can contract infectious diseases that could result in (potentially considerable) health losses, which may cause a large number of absences leading to a partial or complete shutdown of units.

Risk response

• In connection with the spread of SARS-CoV-2 pandemic in Poland and globally, a number of mitigation measures have been identified and planned. Work organisation has been changed at Grupa Azoty to reduce contact between employees. The measures taken include: ban on meetings, procedures for changing work patterns so that employees working one shift do not contact those working the next, working from home, procedures in the event of a confirmed infection, testing employees for COVID-19. The Grupa Azoty Group has also established a COVID-19 crisis management team to monitor the situation on an ongoing basis, make decisions on preventive measures and issue guidelines on what steps to take. Moreover, epidemiological forecasts issued by central authorities, the National Sanitary Inspectorate, the Ministry of Health and the Sanitary Inspectorate are regularly monitored.

Risk of misalignment between shareholder interests, which may lead to difficulties and slow down decision-making processes assigned to governing bodies, including the exercise of the right to veto or the right to contest a resolution

Risk response

• The Grupa Azoty Group adopted a Declaration of Compliance with Corporate Governance Principles and Best Practice for GPW Listed Companies 2016 . A transparent information policy ensures that any strategic intentions are communicated effectively via a website offering open and easy access to any materials placed on the agenda of the General Meeting. Measures have been taken to limit the voting right to one-fifth, except for the State Treasury votes, in line with the provisions of the Grupa Azoty S.A. Articles of Association. In order to minimise this risk, Management Board plans accompanied by relevant reasoning are presented and conferences are held for investors and brokerage houses. In addition, investor presentations and publications of current reports are prepared, and complete information is published on the Company’s website.
  
  

  ¹ An updated version of the Best Practice for GPW Listed Companies was published in 2021.

The Grupa Azoty Group has identified a threat of personal data breach that may potentially lead to an accidental or unlawful destruction, loss, alteration, unauthorised disclosure of and access to personal data (GDPR).

Risk response

• The Grupa Azoty Group continuously monitors compliance with the personal data protection rules and the personal data processing safeguards implemented at workstations. Personal data is processed pursuant to outsourcing agreements for data processing, which is the responsibility of the owner of the IT system processing the personal and/or the process. With respect to a joint controllership agreement, the responsibility rests with the owner of the IT system processing the personal data and/or the process by means of which the data is processed, and the data is jointly controlled by two or more operators. The relevant contractual provisions governing personal data processing are based on the Grupa Azoty Group’s manual on contracting and contract performance. GDPR privacy notices, consent clauses and privacy policies are created on an ongoing basis to address the business needs and they satisfy the information requirements under the GDPR. Any arrangements in this respect are made at the level of the Grupa Azoty Group Data Protection Committee.

Risk related to security of information in terms of its confidentiality, availability, non-repudiation and authenticity where employees work remotely outside of the Group’s IT infrastructure

In connection with the Grupa Azoty Group’s operations there may be inconsistencies in the Group companies’ documentation, or excessive formal requirements for the communication and decision-making processes.

Risk response

• The Group maintains a register of implemented corporate standards, based on information received from its subsidiaries and resolutions adopted on the basis of such information. Reports are submitted on the progress in the implementation of those standards, along with an assessment by a given company’s Supervisory Board. Regular contact is maintained with the leaders at the subsidiaries who are responsible for implementing corporate regulations, as well as with Chairs of Supervisory Boards – with respect to assessment of the implementation status of corporate standards.

There is a risk that either national or international law governing compliance management may be violated at the Grupa Azoty Group with regard to corruption, competition protection, embezzlement, prevention of money laundering and terrorist financing, human rights, exports control, or occurrence of a situation caused by acts or omissions by employees, subcontractors acting on behalf of the Company or its subsidiary.

Risk response

• In the event of a breach of law at the Group, penalties may be imposed following inspections by relevant supervisory authorities. Any resulting reputational damage to the Grupa Azoty Group brand may lead to the loss of contracts, customers and trading partners. In connection with adverse occurrences the Group makes provisions for potential damages that may be sought in court or arbitration proceedings. The Grupa Azoty Group monitors draft amendments to the existing laws or new legislation that can affect its business in line with the Grupa Azoty Code of Ethics.

There is a risk of a Grupa Azoty Group company’s failure to comply with good corporate governance practices and capital market regulations, including the provision of untrue information outside the Group, delays/errors in the current and periodic reports of a company that is an issuer, due to lack of precision in the company’s communication with external stakeholders.

A Grupa Azoty Group company may be exposed the risk of negative publicity in connection with improper care for social and public interests, for instance as a result of unintentional cooperation with low-reputation trading partners, the Group’s insufficient involvement in implementing its CSR policy, and inappropriate communication of its CSR projects.

Risk response

• To mitigate negative activity, the Group has implemented internal rules and regulations governing its social and sponsorship policies as well as a communication policy incorporating the Group’s rules on image building. In addition, the contracts and agreements contain appropriate provisions to safeguard the interests of third parties, the parties' representations, and anti-corruption and confidentiality rules. Should trading parties fail to comply with their terms and conditions, the following steps can be taken: imposing contractual penalties, taking legal action, terminating cooperation or performing inspections/audits.

Negative perception of the Grupa Azoty Group by the general public and media, as well as loss of brand reputation caused by deterioration of the Grupa Azoty Group companies’ image as a result of negative publicity from competitors, poor quality, service and sales-related activities, may cause customer dissatisfaction.
 
The reputation of the Grupa Azoty Group's product brands may also be compromised by the presence of counterfeit products on the market, unfair competition or negative opinions about the Company's products in the media, insufficient communication on investment projects between persons responsible for project implementation and employees in the communication area, resulting in inappropriate information flow and negative publicity of a given project, as well as accidents at work involving employees, disasters and failures.

Risk response

• Grupa Azoty S.A. monitors the media, responds to press inquiries, and develops communication concepts for image-building projects (e.g. core business, CSR and sponsorship), taking into account the internal and external communication procedure and the Grupa Azoty Group communication policy.