Risk
Map of ESG risks and opportunities
The Grupa Azoty Group is a complex of chemical plants that produce and store hazardous materials and substances, potentially posing a threat to the local communities, employees and the natural environment.
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[IR - Risks and opportunities]
The Grupa Azoty Group is a complex of chemical plants that produce and store hazardous materials and substances, potentially posing a threat to the local communities, employees and the natural environment. In 2021, the enterprise risk register of the Grupa Azoty Group was updated. Below we present the key ESG risks included in the updated enterprise risk register for 2021, with an indication of areas directly or indirectly related to climate change.
Regulatory and legal risks
inter alia:
- carbon pricing
- reporting obligations
- commitments and regulations covering existing products and services
- exposure to penalties
- exposure to claims
| Risk | Impact | Odpowiedź na ryzyko |
|---|---|---|
| Implementation of the European Green Deal reforms | Change in regulatory environment – costs of adapting operations to new requirements | The Group continuously monitors projects and proposals of administrative bodies regarding changes to existing laws or new legislation. It takes an active part in the work of registration consortia and European associations, and partners with Polish institutions to respond to upcoming changes in legislation. The Group analyses risks associated with legislative trends and draft amendments or proposed new regulations. The impact of new regulations on its operations and marketed products is examined by the Group on a case-by-case basis. Amendments to EU directives and regulations applicable to the Group’s principal manufacturing and trading activities give rise to a potential risk that the use of the company’s products by customers in the EU countries may be restricted. The risk of failure to comply with EU climate policy requirements was mitigated by introducing additional criteria for the selection of investment projects which are in line with the EU taxonomy for sustainable activities as part of preparation of the Long-Term Investment Plan. In addition, steps were taken to identify environmental projects and to examine whether they are in compliance with the EU taxonomy for sustainable activities according to Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020. The Grupa Azoty Group has in place a circular economy and extended producer responsibility monitoring team that participates in designing and implementing development programmes for strategic products and materials. The responsibilities of the team include monitoring of proposed legal changes which affect or are likely to affect the Plastics business. |
| Implementation of ‘Fit For 55’ legislative changes | ||
| Risk of introduction of unfavourable guidelines for the adoption of the circular economy concept and the extended producer responsibility strategy | ||
| Risk of restrictions on sales of plastics and chemicals due to legislative constraints | ||
| Risk of excessive emissions of GHG and other air pollutants as a result of a company’s operations and risk of failure to take sufficient measures to reduce the emissions | Non-compliance with emission limits set out in environmental permits | Emission measurements are made at the intervals specified in the relevant integrated permits and are reflected in the annual pollutant emission measurement schedules. All the companies operate on the basis of appropriate permits and submit their mandatory reports to external supervisory authorities in a timely manner. GHG emissions from energy generation processes account for around a half of total emissions generated by the Grupa Azoty Group. This is why the Group Strategy for 2021–2030 envisages steps to upgrade the Group’s onsite energy generation assets, reduce energy consumption and improve the energy efficiency of its chemical units. Planned decarbonisation projects will allow Grupa Azoty to reduce its estimated CO2 emissions by over 800 thousand tonnes in 2030. At present, the company is adjusting the FGD unit of boiler K5, which is the main source of heat for the parent, to the new requirements set out in Commission Implementing Decision (EU) 2017/1442 of 31 July 2017 establishing best available techniques (BAT) conclusions for large combustion plants. Upon completion, the project will provide a peak-load/reserve source meeting the emission requirements arising from BAT conclusions and enabling the parent to maintain a sustained generation capacity of its process heat source. Moreover, the implementation of energy efficiency improvement projects, related, among others, to the steam policy, will lead to a drop in emissions from combustion at the captive CHP plant, and the thermal upgrade of reaction columns and pipelines will enable carbon emissions to be reduced. |
| Possibility of imposing stricter requirements for reducing air pollutant emissions (including NOx, SOx and particulate matter) and possibility of exceeding the applicable air emission limits (including NOx, SOx and particulate matter) | Possibility of incurring significant costs in connection with plant upgrades or the need to purchase new equipment to replace assets which do not comply with emission standards, and possibility of incurring penalties for exceeding applicable emission limits | The Grupa Azoty Group holds all necessary environmental permits for its operations. It regularly monitors and responds as needed to any changes in emission limits and European laws, including those relating to the energy and climate package requirements, as well as to changes in Polish law. The Group monitors its air emissions on an ongoing basis. Measurements are made at the intervals specified in the relevant integrated permits and are reflected in the annual pollutant emission measurement schedules. |
| Possibility of tightening the existing requirements or introducing new requirements applicable to water abstraction and wastewater discharge | Necessity to incur expenditure to adapt infrastructure to new requirements | The Group keeps monitoring amendments introduced to the Water Law in order to identify any new requirements that may apply to the company with respect to water abstraction and wastewater discharge, or to identify any tightening of existing requirements. The Grupa Azoty Group monitors and responds to legislative changes in water and wastewater management on an ongoing basis. |
| Risk of non-compliance with water and wastewater management requirements (excessive water quantities consumed in the course of operations, quantity or quality of discharged effluents non-compliant with permits held) and risk of failure to take sufficient measures to reduce the amount of water used | 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. | 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 released into the environment. The entity conducts regular analyses of the quantity and quality of wastewater discharged and water abstracted. The Grupa Azoty Group responds to regulatory changes in the area of water and wastewater management on an ongoing basis. The Company is constructing a unit for biological treatment of wastewater from production units of the parent. The project will make it possible to carry out tests to develop an upgrade concept for the biological wastewater treatment plant. |
| Risk related to non-compliance with waste management requirements – generation and storage of excessive waste amounts, storage on a site other than that specified in the environmental permit, failure to take sufficient measures to reduce waste quantity and to reuse waste | Failure to comply with the legal requirements may result in fines being imposed on the company by way of administrative decisions. The changing legal requirements make it necessary to adjust waste quantities and pay the costs of exceeding the applicable waste limits. | When designing a unit and in applications for integrated permits, the unit’s effect on the volume of generated waste is taken into account. The Grupa Azoty Group holds all legal permits related to waste management and regularly monitors and responds as needed to regulatory changes in waste management. |
| There is a risk of a 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 company’s current and periodic reports due to lack of precision in the company’s communication with external stakeholders. | Adverse effect on the Company’s or the Group’s reputation and investor relations | To ensure uniform legal interpretation of disclosure requirements and uniform compliance, the Grupa Azoty Group companies that are issuers use the services of the same legal advisor with respect to their disclosure obligations. A uniform information policy ensures oversight of information flow and communication processes at the Group, in line with the adopted management model. The effectiveness of the efforts taken is ensured by providing training on disclosure requirements and information policy and by continuous monitoring of electronic mail by persons whose email addresses have been designated for providing notifications with respect to the Group’s information policy. |
| Risk of violation of laws governing compliance management with regard to corruption, competition protection, embezzlement, prevention of money laundering and terrorist financing, human rights, exports control, caused by acts or omissions of employees, subcontractors acting on behalf of the Company or a subsidiary. | Possibility of violating national or international laws, reputational harm to the brand and, consequently, potential loss of contracts, customers and trade partners | In the event of any breach of legislation, the Group may potentially incur penalties imposed following inspections conducted by authorised supervision authorities. In connection with adverse occurrences, [...] provisions for potential damages that may be sought in court or arbitration proceedings have been created. In accordance with the Code of Ethical Conduct, the Group monitors legislative environments in its areas of interest in order to timely identify any changes to the applicable laws or new requirements. |
Technology risk
inter alia:
- replacement of existing products and services with equivalents generating lower emissions
- unsuccessful investments
| Risk | Impact | Risk response |
|---|---|---|
| Process and technological risks related to the need to adapt to low-carbon economy requirements and achieve decarbonisation targets and risk of substitution of products and production technologies | Weakening of the competitive position as a result of late implementation of low-carbon solutions and innovations | In the agreement on cooperation in implementing the LIFE EKOMALOPOLSKA integrated project, the parent made commitments across the following areas: striving to achieve climate neutrality in its production processes and activities carried out in the Małopolska Region by 2050, implementing projects supporting energy transition, including in particular those involving the use of renewable energy sources and reducing GHG emissions by 2030, striving to decarbonise industrial activities and minimise carbon footprint, developing green ammonia and green hydrogen technologies, implementing R&D projects that will contribute to the achievement of environmental and climate objectives of the European Green Deal. In 2021, Grupa Azoty Puławy was working on a number of environmental investment projects, including upgrade of steam generator no. 2, upgrade of the nitric acid unit, construction of new nitric acid units, neutralisation, production of new fertilizers based on nitric acid, expansion of the decarbonisation station, and utilisation of emissions. |
| Risk of excessive energy consumption as a result of the company’s operations, failing to use renewable energy sources or insufficient measures to reduce energy consumption | Rising energy prices leading to higher expenditure compared with competitors who modernise their energy sources | Grupa Azoty continuously improves its processes and implements energy saving initiatives by using innovative solutions and conducting energy audits. In 2021, the Group carried out an energy review under the ISO 50001:2018 system, which helped it gather complete information on energy consumed by the organisation. Modernisation of the hot water network is in progress. This investment will help reduce heat losses in transmission pipelines and ensure security of heat supplies to customers. The implementation of the New Energy Concept is under way. Benefits will include lower demand for electricity and steam required in industrial processes and partial replacement of coal with gas in steam production. The Company is carrying out a range of projects to reduce heat consumption, such as the construction of a turbine generator which will enable the use of waste heat for electricity generation. |
| Risks related to the implementation of investment projects | There is a risk that some of the projects within the Group’s investment programme will be revised, delayed or not completed or that they will fail to bring the expected results or there will be budget overruns on the projects. | Implementation of strategic investment projects is among the principal areas of Grupa Azoty’s activity, critical to maintaining the Company’s value and driving its growth. The investment projects are carried out in accordance with internal procedures. Grupa Azoty has implemented monthly reporting, for which project managers are responsible, as well as quarterly corporate reporting. The reports contain analyses identifying potential increases in the risk of deadline or budget overruns for specific projects. |
Market risk
inter alia:
- changes in buyer behaviour
- ambiguous signals from the market
- increase in raw material costs
| Risk | Risk Impact | Risk response | |
|---|---|---|---|
| Upstream | Negative impact of prices on the CO2 emission allowances trading market in the EU ETS | Higher expenditure on purchase of CO2 emission allowances | The management of CO2 emission allowances at the Grupa Azoty Group is supervised by the internal EU ETS Management Committee and the EU ETS Executive Team, based on the CO2 emission allowance trading policy in place. The Company purchases allowances according to an annual procurement 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 main companies, tracks the implementation of procurement plans and carbon price developments. 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 policies and procedures in place are designed to ensure smooth trading in CO2 emission allowances, ensure its efficiency, minimise the cost of operation of the EU ETS at the Group, and reduce the risks associated with participation in the scheme. They are also designed to reduce spending on the purchase of emission allowances by entry into futures transactions. The Group has signed framework agreements with three banks, under which it has been granted trading limits to purchase greenhouse gas emission allowances under futures contracts. The potential risk related to full utilisation of existing trading limits at banks has been mitigated by negotiating new, increased limits. |
| Risk related to the prices and availability of natural gas | Growing pressure on the prices and availability of gas due to demand volatility driven by: the growing share of renewables in energy generation, supplemented by flexible gas-fired units, the level of gas consumption for heating in winter, globalised LNG market, with Europe’s own production declining and price arbitrage between the European and Asian markets, perceived by many suppliers as competing markets. | The issue of gas supplies is under constant monitoring. Contingency scenarios have been developed in case manufacturing operations have to be curtailed in the event of a reduction in natural gas supplies, including in particular a reduction of the load on production units and acceleration of annual maintenance shutdowns. In order to mitigate the impact of significant gas price movements on the spot market on gas costs incurred by the Grupa Azoty Group companies, measures mitigating the risk were taken in 2021, consisting in locking in gas prices for a portion of the required volumes through transactions with fixed delivery prices. Furthermore, work was initiated to develop a comprehensive market risk management model. | |
| Risk related to the prices and availability of electricity and heat | Higher expenditure on purchase of electricity and heat | Grupa Azoty continuously improves its processes and implements energy saving initiatives by using innovative solutions and conducting energy audits. | |
| Risk related to prices and availability of coal | Increase in expenditure on coal purchases | Execution of amendment agreements to coal purchase contracts, introducing a flexible approach to reducing purchased coal volumes in the following years of the contract terms, which is consistent with Grupa Azoty Group Strategy for 2021−2030 with respect to decarbonising power generation. | |
| Downstream | Risk of increases in the volumes of fertilizers imported into Poland from other EU countries and from third countries, risk of a decline in economic performance as a result of squeezed product margins, and risk of substitution of products and production technologies | Risk of failure to achieve targeted revenue from sales of fertilizers | Mitigating the risks by strengthening and consolidating position in the segment of fertilizer production and sale. The Group monitors the volume of fertilizer imports and the share of each company in the fertilizer market, adapting its sale policies to market developments, for instance by adjusting price paths to current trends on the European and key global markets and taking steps to optimise the production costs and expand the portfolio of products and services offered to customers. |
| 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 | Risk of failure to achieve targeted revenue from sales of plastics and chemicals | The Group monitors the demand and supply situation throughout the value chain. It optimises the product and application portfolio so that certain product streams can be allocated to the market segments in which sales efforts deliver the best economic results. | |
| Risk of a decline in sales of certain plastic materials as a result of tighter requirements on plastic recycling | Risk of failure to achieve targeted revenue from sales of plastic materials and the need to incur expenditure on bringing the business in line with new requirements | The Grupa Azoty Group has in place a circular economy and extended producer responsibility monitoring team that participates in designing and implementing development programmes for strategic products and materials. The responsibilities of the team include monitoring of proposed legal changes which affect or are likely to affect the Plastics business. Moreover, Polimery Police is one of the largest projects currently under way in the Polish and European chemical industry, which fulfils the requirements of the strategy for a climate neutral circular economy and takes into account the process of decarbonisation throughout the entire life cycle of highly durable multi-use plastics replacing single-use products. |
Reputational risk
inter alia:
- changes in consumer preferences
- increased stakeholder concerns/negative feedback
- stigmatised industry
| Risk | Impact | Risk response |
|---|---|---|
| Risks related to availability and effectiveness of capital and other financing sources, including risks and opportunities related to investment projects undertaken to meet decarbonisation requirements | Difficulties and/or delays in planned investments | In autumn 2021, a work team appointed by the parent’s Management Board developed criteria for the evaluation of investment projects with a view to obtaining bank and non-bank financing and their compliance with the EU taxonomy. These measures will enable meeting the EU commitments made in the Paris Agreement at the level of the Grupa Azoty Group, reducing the risk of implementing investment projects that do not meet decarbonisation requirements. In addition, green financing in the form of bonds or credit facilities will provide funds for investments aimed at taking the Group through the energy transition process, primarily including investments in PV and wind sources developed on the Group’s own land and in improving the energy efficiency of our production processes. Funds granted under the National Recovery Plan and other planned support measures are to finance capital projects with lower rates of return, necessary to enable technological transformation. Corporate financing roll-over will involve extension or conclusion of new corporate financing agreements providing funding for new projects undertaken at the Group until 2030. |
| Risks of negative impacts on the image of the Group and its companies caused by negative publicity from competitors, unfair practices applied by competitors, poor quality, service and sale-related activities resulting in customer dissatisfaction, emergence of counterfeit products on the market, bad product publicity in the media, inadequate communications on investment projects, or as a consequence of accidents at work, disasters and plant failures. | Unfavourable perception of the Grupa Azoty Group by the public and media and loss of brand reputation | The Company monitors the media, responds to press inquiries, and develops communication concepts for image-building projects (encompassing core business, CSR and sponsorship), taking into account the internal and external communication procedure and the Grupa Azoty Group’s Communication Policy. To mitigate negative activity, the Group has implemented internal rules and regulations governing its social and sponsorship policies and a communication policy, which incorporate 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, as well as 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. |
| Reputational risk, stigmatisation of the chemical sector and downgrades of ESG ratings due to insufficient information activity, incomplete reporting of ESG activities and insufficient preventive measures. | Reputational harm to the brand and, consequently, potential loss of contracts, customers and trading partners | Sustainable development was recognised as a priority under the Group’s Strategy until 2030. Initiatives already undertaken in these areas will be included in the Grupa Azoty Group’s ESG Strategy, organised around five strategic pillars. These efforts will contribute to delivering the UN’s 2030 Sustainable Development Goals, with the ‘Green Azoty’ strategic corporate project demonstrating the Group’s commitment to environmental and social responsibility. |
Physical risk
| Risk | Impact | Risk response | |
|---|---|---|---|
Sudden developments, such as extreme weather events | Risk of extreme weather events and natural disasters as physical consequences of climate change: sudden storms, floods, heat waves, hurricanes, tornadoes, lightning strikes, and other weather events | Risk of increased exposure to major industrial accidents or plant failures disrupting the operation of key production units and necessitating adaptation of industrial infrastructure and production technologies to climate change | Grupa Azoty has in place reliable safety systems as well as preventive and prediction measures at all organisational and technological levels, ensuring occupational health and safety as well as protection against industrial accidents. The adequacy of safety measures is assessed by internal and external auditors and accreditation/certification bodies. The strategy for managing the risk of major industrial accidents or plant failures focuses in the first place on measures to prevent critical situations. However, should any such event occur, the risk is shared with the insurer. Measures to prevent emergency situations at the Grupa Azoty Group companies include ongoing monitoring of hazards related to technological processes and operation of machinery and equipment, ongoing assessment of their technical condition, and monitoring of threats in storage and transport. The Group’s plants and units are equipped with safety and protection systems to minimise the risk of major accidents and environmental contamination, as well as risks to human life and health. The Group’s units are Best Available Techniques (BAT) compliant. The units are kept in a proper working order also by carrying out scheduled technical stoppages and maintenance shutdowns, periodic inspections and routine rounds as required in the technological and job instruction manuals. The relevant execution resources are provided. If a failure or accident occur, they are thoroughly analysed in order to identify their causes. Following such analysis, preventive measures are taken to minimise the risk of reoccurrence. Accident prevention programmes and legal safety requirements (including those prescribed by SEVESO II Directive) have been developed and implemented: detailed routine accident analyses based on emergency preparedness instructions, review of technical risks in production asset operation and thermodynamic condition of selected machinery, ongoing monitoring of hazards in technological processes, plant and equipment operation, and monitoring of hazards in storage and transport. Risk analysis based on actual secondary data and materiality of events is currently under way. The analysis will provide the basis for developing appropriate action scenarios. |
| Risk related to fire safety | As a result of a fire/explosion (in a production facility, warehouse or during transport), the company’s assets may be damaged or destroyed and its operations will be limited or suspended. The risk is also associated with loss of health or life by employees, potential contamination of the environment, significant damage to property, and related financial or other consequences. | In-house fire brigade units responsible for 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. As a result of their activities, state authorities impose restrictions on the transport of hazardous substances, which may result in temporary or permanent unavailability of parts of the transport infrastructure used by a company. In order to minimise the probability of adverse events, the Group monitors the supply of hazardous materials on an ongoing basis, in accordance with the internal regulation on the transport of hazardous materials. 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 hazardous materials. | |
| Risks of restrictions on sales of fertilizers due to major and unforeseeable weather changes and extreme weather events (hail, severe frost, summer heat waves, droughts, heavy rainfall, floods, storms) | Possible decline in the purchasing power of farmers and a drop in fertilizer sales resulting in revenue falling below expectations. | Measures taken by the Grupa Azoty Group to mitigate this risk consist in adjusting the prices, terms of sales and product mix to the market situation. | |
| Chronic, inter alia: changes in weather patterns, higher average temperature, increase in the sea level | Risk of restrictions on fertilizer sales due to physical climate change | As a result of physical climate change risks of a chronic nature* and the water crisis** the purchasing power of farmers and fertilizer sales may decline, resulting in revenue falling below expectations. *Changes in the vegetation period of plants due to increased temperatures, lower availability of water and intensified water cycle, as well as increased occurrence of extreme weather events. **Limited water availability and intensified water cycle (summer heat waves, droughts, heavy rain, floods, storms). | Measures taken to mitigate the risk to the Grupa Azoty Group consist in adjusting the prices, terms of sales and product mix to the market situation. The Grupa Azoty Group’s activities include efforts to introduce new fertilizers containing organic matter, soil de-acidifying fertilizers and products improving soil water holding capacity (some of them are already available). The Group works with universities and scientific institutions to develop advanced fertilizer application technologies, including technologies related to agricultural specialisation. |
Strategy, organisation and management risks
An operational risk consisting in inadequate handling of climate change issues by the organisation’s management bodies
| Risk | Description | Risk response |
|---|---|---|
| Risk related to the management of CO2 emission allowances | The CO2 emissions trading market is highly unpredictable due to its high volatility and sudden spikes in CO2 emission allowance prices. | Once implemented and completed, the decarbonisation programme will allow the Grupa Azoty Group to reduce estimated carbon dioxide (CO2) emissions in 2030 by more than 800 thousand tonnes compared with 2020 and by 3.7 million tonnes per year relative to 1990, the EU’s reference year. The Grupa Azoty Group assumes in the Strategy that, relative to 2020, CO2 emissions from its captive plants will be reduced by 34%, while CO2 emissions from electricity purchased from third parties will be reduced by 51%. In line with the Strategy, by 2030 coal consumption at the Grupa Azoty Group will be reduced by 65% compared with 2020. The ‘Green Azoty’ project aims to reduce the use of grid electricity from coal to less than 50% of total energy consumed. By 2030, capital expenditure on green and decarbonisation projects will amount to approximately PLN 3 billion. CO2 emission allowances are managed by a dedicated EU ETS Management Committee and EU ETS Executive Team in accordance with the CO2 emission allowance trading policy in place. Allowances are purchased according to an annual procurement 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 main companies, tracks the implementation of procurement plans and carbon price developments. In addition, the EU ETS Executive Team continuously monitors the market prices of emission allowances and analyses price trends in the short and long term. |
| Risk of adopting inappropriate strategy objectives, inconsistent strategy operationalisation, and lack of proper supervision and correct assessment of the delivery of strategic goals | Risk that the objectives set will not lead to making full use of opportunities, building competitive advantage and achieving good results in climate neutrality transition | In line with the adopted plans, the business strategy, of which the Sustainable Development Strategy until 2030 forms an integral part, will be regularly reviewed and updated to take account of changes in the external environment, new challenges or emerging solutions and tools. The strategy sets out the directions for environmental changes at the Grupa Azoty Group, resulting from new European laws. In addition, progress in defining and implementing management policies with regard to climate risk and opportunities prepare the Group to effectively pursue its strategic objectives. |
| Risk related to ineffective financial and economic projections | Risk of low level of financial and economic warning in the area of climate neutrality transition | The process of deepening the diagnosis of and managing climate risks in accordance with the TCFD recommendations contributes to effective forecasting of trends and preparing for changing regulatory and economic environments. |
| Risk of ethical misconduct, corruption, conflicts of interest and violation of the rules of fair competition. | Possibility of reputational harm to the brand from issues related to the impact on climate change and preparation for climate neutrality transition | The Group has implemented and applies the Grupa Azoty Code of Ethical Conduct, the Trading Partners Code of Conduct, the Anti-Corruption Code, the Whistleblowing Policy, the Conflicts of Interest Policy, and the Gift Policy. Regular staff training is conducted to increase staff awareness of possible misconduct. The Group operates a Compliance Management System. |
| Risk of non-implementation or incomplete implementation of corporate regulations at the companies due to none or limited oversight (lack of coherence in the companies’ documentation with excessive formal requirements in communication and decision-making processes) | Possibility of reputational harm to the brand from issues related to the impact on climate change and preparation for climate neutrality transition | The Group keeps a register of implemented corporate standards based on resolutions and information received from the subsidiaries. Reporting is required for the progress of document implementation, plus an assessment made by the supervisory boards of the individual companies. The Group maintains regular contact with the leaders responsible for implementing corporate regulations at the subsidiaries, as well as with the chairs of supervisory boards – with respect to assessment of the implementation status of corporate standards. |
| There is a risk of a 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 company’s current and periodic reports due to lack of precision in the company’s communication with external stakeholders. | Possibility of reputational harm to the brand from issues related to the impact on climate change and preparation for climate neutrality transition – leading to potential loss of contracts, customers, and trading partners. | To ensure uniform legal interpretation of disclosure requirements and uniform compliance, the Grupa Azoty Group companies that are issuers use the services of the same legal advisor with respect to their disclosure obligations. A uniform information policy ensures oversight of information flow and communication processes at the Group, in line with the adopted management model. The effectiveness of the efforts taken is ensured by providing training on disclosure requirements and information policy and by continuous monitoring of electronic mail by persons whose email addresses have been designated for providing notifications with respect to the Group’s information policy. |
Environmental risk
| Risk | Description | Risk response |
|---|---|---|
| Regulatory risk related to increasing environmental requirements | The risk relates to the possible tightening of air emission, water and wastewater management, waste management, noise emission and land pollution requirements. | 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 are reflected in the annual pollutant emission measurement schedules. The Group responds to changes in regulations applicable to environmental emissions on an ongoing basis. |
| Risk of land pollution and related costs | An accident occurring on a Grupa Azoty 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 remediation work on the affected site and restore it to its previous 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 remediation plan. | The Grupa Azoty Group holds all relevant legal permits regarding soil contamination. To mitigate the risk of soil pollution, underground water on legacy pollution sites is monitored and places where hazardous substances are loaded, unloaded and stored are inspected. A detailed assessment is carried out based on the type and quantity of substances in a process unit and the measures taken to prevent the substances from polluting the soil. The Grupa Azoty Group responds to regulatory changes in the area of land pollution requirements on an ongoing basis. |
| Risk related to the use of radioactive substances | Radioactive substances used by the Grupa Azoty Group may adversely affect the health or life of employees or persons present in the area of their potential impact, or the legal conditions for their use may not be met. 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 long as the apparatus containing the source is normally operated. | In order to eliminate such 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 and the containers are screwed to the supporting structure. Radioactive sources used in process 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, the Grupa Azoty Group carries out drills to review and update the contingency plan in the event of a radiological emergency. Sealed radioactive sources are used during such drills. |
| Risk of exceeding environmental noise limits | The risk that a company will generate excessive noise emissions in the course of its operations and that it will not take sufficient measures to reduce its noise emissions. | During the unit design phase equipment with appropriate parameters is selected, and the location of the unit takes into account the environmental impact of noise emissions. 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 relating to noise emissions as soon as they are introduced. |
| Risk of adverse impacts on biodiversity and wild natural habitats | The risk that a company’s operations will lead, directly or indirectly through its supply chain, to loss of biodiversity and destruction of wild fauna and flora. | The Group has not identified any material direct or indirect impact of its operations on biodiversity. The Group mitigates its impact on biodiversity and wildlife by conducting its operations in a responsible and environmentally sound manner. |
| Risk of obtaining invalid test results or of failure to perform environmental and workplace pollution tests | The risk of obtaining invalid results (in the context of validation of results in compliance with ISO/IEC 17025) of environmental and workplace pollution tests due to laboratory error, lack of equipment, equipment failure or staff error. The risk of failure to obtain the required accreditation for tests performed. | The Grupa Azoty Group has applied a process-based approach to managing environmental issues relying on interactions compliant with relevant procedures. The system of responsibility and accountability for managing key activities of the Group defines the methods of analysing incompatibilities, opportunities and threats, which is important in order to identify the action needed. |
Social risk
| Risk | Description | Risk response |
|---|---|---|
| Risk of loss of positive public perception due to violation of human rights by employees of the Company or its business partners | The risk of negative public attitude resulting from a breach or alleged breach of or failure to comply with due diligence procedures for monitoring violations of human rights by employees of the Company or its business partners. | The Group has implemented and applies the Grupa Azoty Code of Ethical Conduct, the Trading Partners Code of Conduct, the Whistleblowing Policy, and the Workplace Bullying and Anti-Discrimination Policy of Grupa Azoty S.A. Regular staff training is conducted to increase staff awareness of human rights and their possible violations. |
| Risk of failure to meet expectations of the public | The risk of a company taking outreach initiatives that are not compatible with stakeholder needs due to lack of dialogue with the local community. | The Group has implemented and applies the Social and Sponsorship Policy, the Donation Policy and Donation Rules, the CSR Policy and the Communication Policy. Regular dialogue is maintained with local communities, meetings are held between the management and local government representatives, and media monitoring and perception surveys are conducted. |
| Risk related to misalignment of shareholder interests | There is a risk of misalignment between shareholder interests, which may lead to difficulties and slow down decision-making processes of corporate bodies, including through the exercise of the right to veto or the right to contest a resolution. | The Grupa Azoty Group adopted a Declaration of Compliance with Corporate Governance Principles and Best Practice for WSE Listed Companies 2016. The transparent information policy presented on the up-to-date corporate website, with easy and clear access to all materials submitted for consideration by the General Meeting, ensures that strategic intentions are communicated effectively. 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 are presented with appropriate rationale and the Company organises conferences for investors and brokerage houses. In addition, the Company prepares investor presentations, publishes current reports and presents complete information on its website. |
| Risk of personal data breach | The Grupa Azoty Group has identified a risk 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). | The Group continuously monitors compliance with the rules of personal data protection and personal data processing safeguards implemented at workstations. Personal data is processed pursuant to outsourcing agreements for data processing, and the responsibility for processing lies with the owner of the IT system processing the personal data and/or the process. In the case of 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 provisions of agreements for personal data processing are defined 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 satisfy the information requirements under the GDPR. Any arrangements in this respect are made at the level of the Data Protection Committee of Grupa Azoty. |
| Risk of infringing on or interfering with employees’ right to freedom of association and collective bargaining | The risk of infringing on or interfering with employees’ rights to freedom of association or their right to strike, organise and bargain collectively; risk of industrial disputes. | The Grupa Azoty Group does not prevent employees from unionising – there are several trade unions active at the Group. The relations between the employer and employees, based on partnership and mutual respect, takes place in accordance with the Collective Bargaining Agreement. The trade unions use the employer's property. |
| Risk of accidents at work, occupational ill-health and other threats | The work performed at the Grupa Azoty Group companies entails the risk of production stoppages caused by an accident or emergency resulting in a serious injury or fatality on the premises of a Grupa Azoty Group company. | OHS staff at the Grupa Azoty Group carry out regular on-site inspections and participate in accident and emergency teams. Any near-miss incident reported by employees in electronic or paper form is reviewed by the OHS function. 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 unsafe situations, the Grupa Azoty Group companies share information by publishing conclusions from investigation of near-miss incidents on an online platform. |
| Risk of loss of employees with competencies of key importance to a company due to a high attrition rate | The risk of failure to secure availability of personnel with relevant competencies to carry out day-to-day operations and development projects as a result of difficulties in hiring and retaining employees and employees retiring. | In order to ensure the highest standards across all areas of its operations, the Group offers its employees attractive pay, training opportunities and non-pay benefits. |
| Risk to employee health and safety arising from widespread incidence of communicable diseases | Employees of Grupa Azoty Group companies may contract infectious diseases or suffer (potentially considerable) ill health, which may cause significant absence rates leading to a partial or complete shutdown of units. | In connection with the spread of SARS-COV-2 pandemic in Poland and globally, a number of mitigation measures were identified and planned. Work organisation was changed at Grupa Azoty to reduce contact between employees. The measures taken included: ban on meetings, procedures for changing work patterns so that employees working one shift did not contact those working the next, working from home, procedures in the event of a confirmed infection, testing employees for COVID-19. Grupa Azoty also established a COVID-19 crisis management team to continuously monitor the situation, 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 monitored on a regular basis. |
Climate opportunities table
As part of its risk management model and qualitative risk analysis, Grupa Azoty identifies both risks and opportunities associated with a given risk.
Efficiency of resource use
| Opportunity | Opportunity response |
|---|---|
| Grupa Azoty continuously improves its processes and implements energy saving initiatives by using innovative solutions and conducting energy audits. In 2021, the Group carried out an energy review under the ISO 50001:2018 system, which helped it gather complete information on energy consumed by the organisation. An upgrade of the hot water network is currently in progress. The project will help reduce heat losses in transmission pipelines and ensure security of heat supplies to customers. The implementation of the New Energy Concept is under way. Benefits will include lower demand for electricity and steam required in industrial processes and partial replacement of coal with gas in steam production. The Company is carrying out a range of projects to reduce heat consumption, such as the construction of a turbine generator which will enable the use of waste heat for electricity generation. Moreover, Grupa Azoty Kędzierzyn is implementing a key project aimed at ensuring the company’s energy security and good outlook for the future, and at driving down the consumption of primary raw materials, carbon dioxide emissions, and energy intensity of the company’s core production. The new power generation concept will be largely based on the use of process heat from chemical installations rather than on investments in new coal-fired boilers. |
Energy sources
| Opportunity | Opportunity response |
|---|---|
| Grupa Azoty will work towards becoming an emission-free energy producer by 2030. It plans to implement renewable energy projects using mainly its own assets, but does not rule out the possibility of becoming involved in third-party projects. The new renewable energy sources are planned to deliver a total of about 300 MW in 2030. The Grupa Azoty Group expects that the planned projects will allow it to save more than PLN 200 million per year on electricity purchases, and the average share of renewables in the energy mix will reach 40%. |
Products and services
| Opportunity | Opportunity response |
|---|---|
| In its innovation strategy, the Grupa Azoty Group will focus on innovation in the following four areas: innovative projects, development of an innovation system, support for corporate projects and innovation geared towards minimising the impact of regulatory risks. The goal will be to deliver high quality new or improved products and to maintain a long-term competitive advantage. The necessary expenditure expected to be incurred on research, development, pilot units and innovation in 2030 is estimated at 2–3% of the Grupa Azoty Group’s revenue. |
| Biodegradable coatings for granular fertilizers being developed in collaboration with Compo Expert, fertilizers for application in forest areas, urease and nitrification inhibitors and fertilizer formulas enriched with micronutrients from utilised waste streams. Speciality fertilizers reduce losses of nutrients, and the efficiency of using such products is 50% higher than that of traditional ones, with fertilizer application reduced by 20%. | |
| Placing on the market of the Fosfarm product line, comprising modern and environmentally-friendly NPK fertilizers manufactured in accordance with the principles of sustainable development, including circular economy. | |
| Grupa Azoty will step up its efforts in the field of precision farming, contributing to the European Commission’s overall objective for the agro area, which is to increase fertilizer use efficiency. With the use of AfroCeres scanners for rapid soil analysis, the results are available within a few minutes after the test, together with precise recommendations on the minerals the soil needs, thanks to which only the necessary nutrients are introduced into the soil. | |
| Grupa Azoty is the first producer in Central and Eastern Europe to offer fully biodegradable plastics. The Tarnów-based company has launched a pilot line able to produce 300 tonnes of thermoplastic starch per year. It uses a proprietary technology (patented in 2020) for manufacturing biodegradable polymers for the needs of the packaging industry of the future. | |
| Implementation of the technology for recycling polymer plastics (polyolefins, polyamides) or recovery of phosphorus and potassium from alternative sources. | |
| Production of polyamide 6 and its compounds – the automotive industry uses this material to reduce the weight of cars and thus fuel consumption. |
Markets
| Opportunity | Opportunity response |
|---|---|
| Key initiatives undertaken in the energy area are among the most significant steps in the ‘Green Azoty’ flagship project. Grupa Azoty’s active participation in the development of the European hydrogen market will be one of the pillars of the project. As the largest hydrogen producer in Poland and a major hydrogen processor in Europe, the Grupa Azoty Group will carry out research and development activities relating to the production and use of green hydrogen. The Group is carrying out economic studies and technical analyses of electricity production from its own renewable sources. The aim is to reduce the carbon footprint and to ultimately produce ‘green hydrogen’ using electrolytic cells powered by this renewable electricity. Work will also be continued on fuel cell development and the launch of a quality accreditation laboratory testing hydrogen for fuel cell applications in transport. As a member of the European Clean Hydrogen Alliance, in the coming years the Grupa Azoty Group will actively participate in the work on European regulations regarding the classification of green hydrogen. The Company was among the signatories to a letter of intent, signed at the initiative of the Ministry of Climate and Environment, to establish a partnership for building a hydrogen economy and signing a sectoral hydrogen agreement. Grupa Azoty is also a member of the European Clean Hydrogen Alliance, a project launched by the European Commission, which aims to deploy hydrogen as an alternative energy carrier in Europe. Grupa Azoty is carrying out a number of development initiatives which include projects focused on fuel-cell hydrogen technologies. The solutions may be instrumental in providing an efficient source of power for rolling stock and developing hydrogen and ammonia production from renewable energy sources, serving as a fuel for rail transport. |
| In accordance with the European Green Deal, a significant part of Grupa Azoty’s research and development resources will be geared towards climate neutrality targets. As part of ‘Green Azoty’, Grupa Azoty will also implement projects in such areas as electric mobility, i.e. development of fuel cells and materials used in their production. Grupa Azoty is also analysing the prospects of building small modular reactors at its main plants. Such reactors could help stabilise the Grupa Azoty Group’s energy mix and guarantee a competitive price of energy utilities. |
Grupa Azoty has taken steps to address the risks and tap the opportunities brought by the approaching changes and to ultimately integrate them as part of its enterprise risk management system. Risk assessment in the short, medium and long term and a scenario analysis assuming an increase in average temperature by less than two degrees Celsius were assigned to risk owners as mitigating and monitoring measures in the risk charts in 2021. The results of the risk analysis over different time horizons will be available and verified in the next reporting period.
