- risk of a generation gap,
- risk of a loss of competence,
- risk of social turmoil, deterioration of relations with social partners associated with the pursuit of significant organizational or business changes,
- risk of disputes with employees, groups of employees or trade unions,
- risk of accidents at work or occupational diseases,
- risk of unavailability of employees as a result of an epidemic,
- risk of information leaks by unauthorized employees,
- risk of inflicting personal injury on employees or third parties.
We regularly identify enterprise risks, including non-financial risks related to our operations and manage them accordingly, making sure that the organization is well-prepared for the potential consequences should they materialize. In the coming years, we intend to pay special attention to risks related to climate change.
The process of managing enterprise risks in key companies of the ENEA Group is coordinated by the Group Risk Management Department, which is a unit within the ENEA S.A. structure consisting of the teams responsible for financial risk and management of business risk, business continuity and insurance. The companies covered by the ENEA Group’s enterprise risk management system have units within their structures that are in charge of this area and cooperate with the Group Risk Management Department.
The enterprise risk management process is augmented by the Group’s business continuity management system. Within its confines, the Group’s key companies identify critical processes and resources necessary for their deployment and roll out mechanisms and procedures to ensure the continuity of operation of these processes in emergency situations.
The processes applied by the ENEA Group to manage identified risks (including non-financial risks) is governed by the respective policies, procedures and methodologies. The overriding document governing the whole risk management area is the ENEA Group Enterprise Risk Management Policy.
The reliability of the enterprise risk management process is ensured by observing the guidelines defined in the policies, procedures and methodologies governing the management of specific risk areas, in particular:
- ongoing identification and assessment of risks at the level of the Group’s key companies,
- monitoring of and reporting on existing risks,
- operational management of distinct risks by individual companies within the assigned limits (in terms of financial risks), in line with the terms laid down in the documents approved by the ENEA Group Risk Committee.
The cyclical assessment of enterprise risks is carried out in accordance with the requirements of the ENEA Group Enterprise Risk Management Methodology by risk owners in consultation with risk managers. It involves updating the assessment of the likelihood of risk materialization and the potential implications in the financial and reputational dimensions and in terms of health and safety impact, and since 15 November 2021, also in terms of environmental impact.
The estimation of the likelihood of risk materialization and the assessment of potential implications enable the classification of risks as critical, key, medium and low. Risk owners define plans to deal with the distinct risks, which for all risk categories include the taking of mitigating actions aimed at reducing the likelihood of their occurrence and of the effects of risk materialization, and in the case of key and critical risks – also a response plan in the event of risk materialization.
All identified and assessed risks related to the operations of the respective Group company are entered in the so-called Risk Register. Members of the companies’ management boards are notified of all new risks, potential operational events related to the identified risks and the current progress in the risk assessment process. Moreover, these management boards and the ENEA S.A. Management Board receive periodic reports on the status of enterprise risks.
More information on the risk management model in the ENEA Group is provided on pages 26-28 of the Management Board Report on the Activity of ENEA S.A. and the ENEA Group in 2021.
Non-financial risks
Listed below are non-financial risks for key ENEA Group companies that may exert an adverse impact on the labor, social, environmental, human rights and anti-corruption areas.
- risk of social unrest, additional trade union demands and deterioration of relations with social partners,
- risk of the absence of communication between internal and external customers and/or delays in the provision of necessary documents/information due to e-mail failure,
- risk of improper management of information in a crisis situation (failure to adapt the content of the message and communication channels to stakeholders, provision of false information),
- risk of a breach of stock exchange disclosure obligations,
- risk of delays in issuing or a failure to issue connection decisions that are of crucial importance to customers,
- risk of delays in the completion of key connection investments.
- risk of breaching personal data protection laws and internal regulations,
- risk of breaching competition and consumer protection laws.
- risk of failure to adapt the technology to the requirements of environmental legislation (IED),
- risk of unavailability of FGD, SCR and/or electrostatic precipitators due to a failure of these units, which may cause an increase in atmospheric emissions,
- risk of reducing or ceasing the activity due to a failure to obtain valid environmental decisions and permits,
- the risk of non-compliance with the conditions specified in the applicable permissions with regard to:
- water and sewage management (including the instream flow requirements and the permitted temperature of spent cooling water),
- waste management, including sludge from flue-gas desulfurization installations,
- atmospheric emissions, including NOx, SO2 and particles,
- risk of causing damage to elements of natural environment in connection with the operation of or execution of investment projects,
- risk of improper management of hazardous waste,
- risk of biomass fire,
- risk of the spontaneous combustion of coal due to oxidation.
Climate-related risks and opportunities
The methodology of identification and assessment of enterprise risks in the ENEA Group is not focused directly on assessing the company’s clime impact or the impact of climate on the company’s business. Climate-related risks are selected from the pool of enterprise risks that are identified, prioritized and periodically assessed by their owners within the framework of the enterprise risk management process, in compliance with the assumptions of the ENEA Group Enterprise Risk Management Policy in the ENEA Group Enterprise Risk Management Methodology. These risks, like other types of enterprise risks, are subject to ongoing and cyclical monitoring and reporting for the benefit of both the respective company and the ENEA Group as a whole. Mitigating measures are taken for all risk categories.
As at the publication date of this Report, i.e. 25 May 2022, the ENEA Group has not defined any official goals for the purpose of managing climate-related risks and opportunities. A comprehensive review of such opportunities and risks, along with a plan for their proper management, will be conducted as part of the ENEA Group’s endeavors devoted to climate policy, which began in 2021. Within the framework of the non-financial reporting process carried out in respect of the said year, the Group updated its preliminary list of risks arising from climate change that have the potential of exerting a major impact on its business, revenues or expenses, which was originally prepared for the 2020 report, and, for the first time, the Group also identified climate-related opportunities. The reviews covered the short term (until the end of 2023), the medium term (until the end of 2026) and the long term (until the end of 2035).
For the purpose of this Report, climate-related risks at the ENEA Group were assigned to the categor airsing out of the standards described in the ESG Reporting Guidelines, a guide published in May 2021 by the Warsaw Stock Exchange, which have identified the following types of risk:
resulting from the transition towards a low-carbon economy, including: legal and regulatory risk (resulting from current or upcoming regulations), technological risk (the need to invest in innovative technologies), market risk (resulting from changing consumer behaviors, increasing prices of raw materials, etc.), reputational risk.
resulting from the changing climate, including acute risk (from extreme weather phenomena such as droughts, floods and fires) and chronic risk (from long-term processes such as changes in temperature and rising ocean levels).
It should be pointed out that the risk management model described in this Report identifies risk categories other than those specified in the said guidelines.
Climate-related risks
| Climate-related risks | Description of the risk factor | How the risk affects the ENEA Group | Methods applied in risk management |
|---|---|---|---|
| Risk of catastrophic damage to elements of infrastructure as a result of extreme weather phenomena
Risk category: physical Perspective: long term.. |
An increased frequency of extreme weather phenomena (gusty storms, hurricane winds, icing) may result in catastrophic damage to elements of network infrastructure | Physical damage translating into increased operating expenses |
|
| Climate-related risks | Description of the risk factor | How the risk affects the ENEA Group | Methods applied in risk management |
|---|---|---|---|
| Risk of the consolidation of a strong upward trend on the EUA market, with simultaneous disproportionate increases in electricity prices
Risk category: transition Perspective: short, medium and long term |
High prices of CO2 emission allowances may result in a low or negative value of the clean dark spread (CDS) | Decline in or loss of profitability in electricity generation |
|
| Risks related to extreme weather phenomena
Risk category: physical Perspective: short, medium and long term |
An increased frequency of extreme weather phenomena (droughts, floods affecting the water level on the Vistula River, heavy snowfalls, frosts, icing, hurricanes) may disrupt energy generation | Interruption of business continuity, loss of revenue and significant additional costs |
|
| Risk of construction disasters in hydro power plants
Risk category: physical Perspective: medium to long term |
Factors such as torrential rains may increase the adverse impact of water on hydrotechnical facilities | Partial or complete damage to hydrotechnical equipment |
|
| Risk of construction disasters on wind farms
Risk category: physical Perspective: medium to long term |
Extreme weather phenomena, such as strong winds, hurricanes and tornadoes, may pose a threat to selected elements of farm infrastructure | Partial or complete damage to generation facilities |
|
| Risk of construction disasters in cogeneration plants
Risk category: physical Perspective: medium to long term |
Changing weather conditions throughout the year necessitate the transport of fuel on belt conveyors in cogeneration plants in ‘covered’ technological facilities (tunnels, galleries, etc.), thereby increasing the risk of an explosion of coal dust or biomass | Partial or complete damage to generation facilities |
|
| Risk related to the uncertainty of the legislative environment
Risk category: transition Perspective: medium to long term |
Amendments to EU or national regulations may result in the non-recognition of biomass as a zero-emission energy source | Loss of revenue or increased costs related to changing the company’s business context |
|
| Risk of a decline in sales of heat
Risk category: physical Perspective: short, medium and long term |
The trend of an increase in average temperatures during the heating season may lead to a significant decline in demand for heat | Decline in revenue from sales of heat |
|
| Risk of an increase in environmental fees, in particular, in the cost of CO2 emission allowances
Risk category: transition Perspective: short term |
Due to ongoing climate change, environmental regulations are tightened, resulting in increased fees and penalties | Increase in environmental fees resulting in higher costs of generation processes |
|
| Risk of suspension of electricity/heat generation as a result of technological misalignment with the requirements of environmental protection regulations
Risk category: transition Perspective: short term |
Need to adapt generation units to the applicable legal requirements, including the IED | Suspension of electricity/heat generation as a result of technological misalignment |
|
| Risk of non-continuity of fuel supplies
Risk category: transition Perspective: short, medium and long term |
|
Interruption or curtailment of the continuity of fuel supplies and the related loss of revenue |
|
| Risk of an increase in biogas production expenses
Risk category: physical Perspective: medium term |
A hydrological drought may potentially affect the availability and prices of corn silage, which is the key input substrate in biogas production | Deterioration of the economic profitability of biogas production from plant-based substrates |
|
| Risk of an increase in the cost of raising capital and/or property insurance
Risk category: transition Perspective: short, medium and long term |
Global climate crisis making it increasingly difficult for fossil fuel-based businesses to access finance, insurance undertakings treating the coal-fired energy sector as a high-risk industry | Increase in operating costs associated with higher cost of raising capital and/or property insurance |
|
| Risk related to activities pursued by environmental organizations
Risk category: transition Perspective: short, medium and long term |
Activities of environmental organizations conducting aggressive campaigns against power plants by:
|
Operational slowdown or shutdown of power plants due to difficulties in obtaining or maintaining decisions or permits related to environmental protection | 1. Cooperation with leading law firms.
2. Cooperation with environmental organizations. |
| Risk of losses in capacity caused by hydrologic conditions
Risk category: physical Perspective: short, medium to long term |
The country’s unfavorable hydrological or meteorological translates into a deterioration in the hydrological conditions for the operation of power plants | Low surface levels and high water temperatures of the Vistula River may cause power losses due to problems with the provision of the necessary amount of cooling water (resulting from the need to maintain its uninterrupted flow) or abiding by the permissible temperature of the discharged cooling water | 1. Execution of a project aimed at modernization of the cooling water system in a power plant. |
| Climate-related risks | Description of the risk factor | How the risk affects the ENEA Group | Methods applied in risk management |
|---|---|---|---|
| Risk of adopting outdated assumptions for long-term financial projections
Risk category: transition Perspective: medium to long term |
The progressing climate change affecting the climate policy of various countries and organizations may potentially shape the operating principles of the system and the price of CO2 emission allowances | Unexpected costs caused by outdated assumptions for long-term financial projections |
|
| Risk of commodity price volatility on the forward market
Risk category: transition Perspective: short, medium and long term |
If the actual temperatures in the summer and winter seasons are different from the forecasts, this may cause deviations in electricity and gas prices on the Polish Power Exchange compared to the prices contracted in the previous months | Additional costs and/or lower revenue as a result of the volatility in commodity prices on the forward market |
|
| Risk of commodity price volatility on the spot market
Risk category: transition Perspective: short, medium and long term |
Meteorological conditions:
in the winter season (December-February), monthly average temperatures above the long-term norm, in the summer season (June-August), monthly average temperatures above the long-term norm, may generate financial losses on open positions |
Additional costs and/or lower revenue as a result of the volatility in commodity prices on the spot market | 1. Maintaining and developing competences in the management of this risk within the company.
2. Internal procedures governing optimization on the spot market. 3. Ongoing analysis of factors affecting prices. 4. Monitoring and forecasting of factors affecting prices. 5. Adjustment of orders placed, both in terms of price and volumes, to the current market situation. |
| Risk of disturbances/failures in energy generation
Risk category: physical Perspective: short, medium and long terma |
Climate change may cause:
lower wind generation due to lower wind speeds, very low photovoltaic generation due to heavy clouds, lower generation in hydro power plants due to low water levels;
lower wind generation due to lower wind speeds, low levels of surface/ground waters resulting in the inability to use them for technological purposes in power plants, extreme weather phenomena (violent storms, gusty winds, flash floods), resulting in limited access to energy over a large area |
Additional costs associated with disturbance/failure management |
|
| Climate-related risks | Description of the risk factor | How the risk affects the ENEA Group | Methods applied in risk management |
|---|---|---|---|
| Risks related to the need to change the way the company’s operations are run
Risk category: transition Perspective: medium to long term |
Climate change causing an increasingly restrictive EU climate policy, directly and indirectly translating into a number of more stringent environmental standards imposed on mines | Additional costs associated with increasing environmental standards |
|
| Risk of a decline in demand for steam coal in Poland and globally
Risk category: transition Perspective: medium to long term |
Changes in the country’s energy mix, including the ENEA Group’s energy mix, and from a decrease in demand for electricity generated from coal (e.g. as a result of measures favoring energy efficiency, elimination of retail customers from the portfolio, more frequent switching to own sources of energy and heat generation, higher average atmospheric temperatures in winter) is likely to cause a gradual decrease in demand for the products offered to date | Restricting the possibility to sell mined coal |
|
| Risk of an increase in operating costs due to the need to pay greater compensations for losses in grasslands and agricultural land caused by the need to repair of mining damage to the environment
Risk category: physical Perspective: short, medium and long term |
The conduct of mining activities is associated with the occurrence of mining damage and may lead to the formation of subsidence basins and disruption of local water relations, thus causing occasional local flooding | Increase in operating costs due to the need to pay greater compensations for losses in grasslands and land caused by the need to repair of mining damage to the environment | 1. Effective mining damage management policy. Ongoing dialog with local communities.
2. Continuous monitoring of rock mass movements using of modern measurement methods. 3. Monitoring of environmental aspects through the Integrated Quality, Environment and Safety Management System. 4. Ongoing reclamation of areas adversely affected by mining activities. |
| Risk of an increase in the cost of raising capital and/or property insurance
Risk category: transition Perspective: short, medium and long term |
Global climate crisis making it increasingly difficult for fossil fuel-based businesses to access finance, insurance undertakings treating the mining sector as a high-risk industry | Increase in operating costs associated with higher cost of raising capital and/or property insurance |
|
| Risks associated with the activities of non-governmental environmental organizations
Risk category: transition Perspective: medium to long term |
The activities of environmental organizations, including potential protests related to investment and development activities, may affect the social acceptance of the company | Obstruction in the progress of various administrative procedures conducted with the participation of environmental organizations | 1. Execution of project activities in partnership with environmental organizations.
2. Ongoing communication of activities aimed at improving environmental safety. 3. Increasing the company’s environmental efficiency, e.g. through investments. 4. Respecting state-imposed forms of nature protection (e.g. no mining and no future mining plans under the Polesie National Park). |
| eputation risk related to the conduct of business in the fossil fuel industry
Risk category: transition Perspective: medium to long term |
Due to the climate crisis, the EU’s policy and the activities of environmental organizations, the mining industry may be perceived as the perpetrator of climate change | Damage to the image | 1. Participation in business initiatives.
2. Involvement in local socio-economic development initiatives. 3. Intensive communication activities, focusing chiefly on demonstrating the role played by the company in the Lublin region along with its environmental efficiency and openness to change. |
Source of development opportunity
| Sphere of activity | Source of development opportunity |
| Wholesale and retail energy trading
Opportunity category: market/technology Perspective: short, medium and long term |
Implementation, by the ENEA Group and its environment, of modern technological solutions supporting the fight against climate change |
| How the opportunity affects the ENEA Group | |
|
|
| Sphere of activity | Source of development opportunity |
| Distribution of electricity
Opportunity category: market/technology Perspective: medium to long term |
Implementation, by the ENEA Group and its environment, of modern technological solutions supporting the fight against climate change |
| How the opportunity affects the ENEA Group | |
|
|
| Sphere of activity | Source of development opportunity |
| Production of electricity and heat
Opportunity category: market/technology Perspective: short, medium and long term |
Investments in own renewable energy sources |
| How the opportunity affects the ENEA Group | |
|
|
| Sphere of activity | Source of development opportunity |
| Coal mining
Opportunity category: market/technology Perspective: short, medium and long term |
Investments in own renewable energy sources |
| How the opportunity affects the ENEA Group | |
|
|
| Sphere of activity | Source of development opportunity |
| R&D&I
Opportunity category: technology Perspective: short, medium and long term |
Implementation, by the ENEA Group and its environment, of modern technological solutions supporting the fight against climate change |
| How the opportunity affects the ENEA Group | |
|
|
As at the date of publication of the Report (25 May 2022), no analysis of climate risks and opportunities in the whole supply chain has been performed.