Taxonomic disclosures

The EU taxonomy as a classification system has established a list of environmentally sustainable economic activities. An environmentally sustainable activity is one that makes a significant contribution to one or more of the six environmental objectives:

• climate change mitigation,
• adaptation to climate change,
• sustainable use and protection of water and marine resources,
• transition to a circular economy,
• pollution prevention and control,
• protection and restoration of biodiversity and ecosystems.

In addition, such activities must not cause serious harm to any of the other objectives, whilst providing the minimum safeguards, including human rights safeguards, and technical criteria for classification laid down for particular activities.

The examination of taxonomy alignment is required by the regulator for reports published from January 1st 2023, while pursuant to Article 10 of the delegated act published in the Official Journal of the European Union in December 2021, reports published from January 1st to December 31st 2022 must only comply with simplified rules for the verification of activities against the taxonomy disclosure requirements for, among others, non-financial undertakings (taxonomy eligibility). 

During the period, non-financial undertakings are required to disclose the proportion of taxonomy-eligible and taxonomy non-eligible economic activities in:

• turnover,
• capital expenditures (CapEx),
• operating expenditures (OpEx).

Disclosures of potential taxonomy eligibility cover only the first two environmental objectives: climate change mitigation and climate change adaptation, for which delegated acts have been published so far. Also required are qualitative disclosures on accounting policies, assessment of compliance with Regulation 2020/852, and contextual information. 

Assessment of compliance with Regulation 2020/852

Mandatory taxonomy disclosures apply to undertakings that meet the criteria specified in Article 19a or 29a of Directive 2013/34/EU. As a company that is subject to the obligations under the directive and prepares non-financial reports in accordance with the amended Accounting Act, Grupa Azoty is obliged to make taxonomy disclosures for 2021. The reporting of taxonomy disclosures by the Group complies with Regulation 2020/852 and the delegated acts thereto.

In order to calculate the required ratios, all activities described in the taxonomy were analysed in terms of their share in the Group's revenues. To identify turnover from taxonomy-classified activities, the descriptions of economic activities in the Climate Delegated Act to Regulation 2020/852 were used. The analysis of revenues at each of the Grupa Azoty Group companies ensures that each revenue item was taken into account only once. For the purposes of calculating the CapEx and OpEx KPIs, the relevant expenditures on assets and processes were analysed and the associated business activities described in the Climate Delegated Act were identified. Since the analysis was conducted individually for each item of the expenditures in all Group companies, we are satisfied that no item of the expenditures was taken into account more than once. 

Company-specific data was collected and analysed by departments and business units responsible for reporting data by line of business. The Consolidation Department of the Group's Corporate Controlling Department was responsible for data collection and aggregation.

Analysis of Grupa Azoty’s activities in terms of taxonomy eligibility

The manufacturing and selling activities of Grupa Azoty are conducted by five segments:

• Agro Fertilizers,
• Plastics,
• Chemicals,
• Energy,
• Other Activities.

The principal business of the Group, i.e. the manufacture of mineral and compound fertilizers, is not captured in the taxonomy classification. Although the NACE code for the fertilizer manufacturing activities is described in the Delegated Act, Grupa Azoty has adopted a conservative approach and has not classified revenues from the manufacturing of mineral and compound fertilizers as taxonomy eligible. This approach followed a recommendation from the European Commission described in the December 2021 and February 2022 Taxonomy FAQ documents, which indicate the need to examine the compatibility of activities with the activity description in the Delegated Act and not to treat NACE codes as the sole determinant of taxonomy eligibility.

It is worth noting, however, that the manufacture of the main components for the production of mineral and compound fertilizers (i.e. ammonia and nitric acid) by some Group companies for use by other Group companies (intragroup revenues eliminated on consolidation) is classified as taxonomy eligible. Therefore, on a non-mandatory basis for taxonomy disclosure, we report that external revenues from sale of mineral and compound fertilizers based on ammonia and nitric acid (feedstocks included in the taxonomy classification) manufactured by the Group were PLN 7,263 million in 2021.

The analysis of other activities carried out by the Grupa Azoty Group indicates that a part of turnover qualifying as taxonomy eligible was contributed by the following activities:

• 3.10. Manufacture of hydrogen
• 3.14. Manufacture of organic basic chemicals
• 3.15. Manufacture of ammonia
• 3.16. Manufacture of nitric acid
• 3.17. Manufacture of plastics in primary forms 
• 4.9. Transmission and distribution of electricity
• 4.15. District heating/cooling distribution
• 4.25. Production of heat/cooling using waste heat
• 5.1. Construction, extension and operation of water collection, treatment and supply systems
• 5.3. Construction, extension and operation of wastewater collection and treatment systems
• 5.4. Renewal of wastewater collection and treatment
• 6.2. Freight rail transport
• 6.16. Infrastructure enabling low-carbon water transport

For capital expenditures (CapEx) and operating expenditures (OpEx), some of the taxonomy-eligible costs were related to the following activities:

• 3.6. Manufacture of other low-carbon technologies
• 3.10. Manufacture of hydrogen
• 3.14. Manufacture of organic basic chemicals
• 3.15. Manufacture of ammonia
• 3.16. Manufacture of nitric acid
• 3.17. Manufacture of plastics in primary forms 
• 4.1. Electricity generation using solar photovoltaic technology
• 4.9. Transmission and distribution of electricity
• 4.15. District heating/cooling distribution
• 4.25. Production of heat/cooling using waste heat
• 5.1. Construction, extension and operation of water collection, treatment and supply systems
• 5.2. Renewal of water collection, treatment and supply systems
• 5.3. Construction, extension and operation of wastewater collection and treatment systems
• 5.4. Renewal of wastewater collection and treatment
• 5.5. Collection and transport of non-hazardous waste in fractions segregated at source
• 6.2. Freight rail transport
• 6.14. Infrastructure for rail transport
• 6.16. Infrastructure enabling low-carbon water transport
• 7.2. Renovation of existing buildings
• 7.3. Installation, maintenance and repair of energy efficiency equipment
• 8.2. Data-driven solutions for GHG emissions reductions
• 9.1. Activity close to market research, development and innovation

Accounting policies

Under the 2021 disclosure obligations, key performance indicators include: the proportions of taxonomy-eligible and non-eligible activities in turnover, capital expenditures (CapEx) and operating expenditures (OpEx), as well as additional qualitative information, without verification of the technical screening criteria.

Descriptions of the three key indicators are provided below:

Turnover

• The denominator includes revenue consistent with the disclosure in the consolidated financial statements as at December 31st 2021. Turnover includes revenue recognised in accordance with International Accounting Standard (IAS) 1.82(a). 
• The numerator is equal to the portion of net revenue from the sale of products or provision of services, including intangible assets, related to the eligible business activities.

Capital expenditures (CapEx)

• The denominator covers additions to property, plant and equipment and intangible assets during the financial year before depreciation, amortisation and any revaluations, including those resulting from revaluations and impairments, for the financial year, excluding changes in fair value. The denominator also includes additions to property, plant and equipment and intangible assets resulting from business combinations.
• The individual values are presented in the consolidated financial statements as at December 31st 2021 in the following line items: Property, plant and equipment (note 9) and Intangible assets (note 12): increase due to purchase, production, manufacturing, increase due to business combinations, decrease due to commissioning; Investment property (note 11): increase due to purchase, production, subsequent expenditure, increase due to accounting for business acquisition, decrease due to commissioning; Right-of-use assets (note 10): increase due to execution of new contracts, decrease due to commissioning.
• The numerator is equal to the portion of capital expenditures (CapEx) that relate to assets or processes related to taxonomy-eligible activities, involve purchase of products from taxonomy-eligible activities, or when they are part of a plan to meet the eligibility criteria.

Operating expenses (OpEx)

• The denominator covers direct non-capitalised costs that relate to research and development, building renovation measures, short-term lease, maintenance and repair, and any other direct expenditures relating to the day-to-day servicing of assets of property, plant and equipment by the undertaking or third party to whom activities are outsourced that are necessary to ensure the continued and effective functioning of such assets.
• The denominator does not include any other expenditures in the other direct expenditures category.
• The numerator is equal to the portion of operating expenses (OpEx) that are related to assets or processes associated with taxonomy-eligible activities, purchases of products from taxonomy-eligible activities, or when they are part of a plan to meet the eligibility criteria.

Calculation of key performance indicators

Turnover

• Having analysed all the activities described in the taxonomy, the Group concluded that the taxonomy-eligible revenues represent 3.5% (PLN 562 million) of total revenues generated by the Group in the financial year 2021. Non-eligible revenues account for 96.5% (PLN 15,339 million) of total revenues generated by the Group in the financial year 2021. 
• The taxonomy-eligible revenues were derived primarily from the following activities: 3.17. Manufacture of plastics in primary forms (41% of taxonomy-eligible revenues), 4.9. Transmission and distribution of electricity (31% of taxonomy-eligible revenues), 3.16. Manufacture of nitric acid (11% of taxonomy-eligible revenues), 3.15. Manufacture of ammonia (10% of taxonomy-eligible revenues).
• The turnover KPI denominator is PLN 15,901 million.

¹ Grupa Azoty Kędzierzyn is not a listed company and is therefore not subject to EU taxonomy.

Capital expenditures (CapEx)

• The analysis of all capital expenditures (CapEx) shows that taxonomy-eligible expenditure accounted for 63.6% (PLN 1,541 million) of the Group's total capital expenditures (CapEx) in the financial year 2021. Non-eligible capital expenditure (CapEx) accounted for 36.4% (PLN 884 million) of the Group's total capital expenditures (CapEx) in the financial year 2021.
• The taxonomy-eligible capital expenditures (CapEx) were primarily associated with the following activities: 3.14. Manufacture of organic basic chemicals (31% of taxonomy-eligible capital expenditures), 3.17. Manufacture of plastics in primary forms (16% of taxonomy-eligible capital expenditures), 3.16. Manufacture of nitric acid (10% of taxonomy-eligible capital expenditures). The CapEx KPI denominator is PLN 2,425 million. 

² Grupa Azoty Kędzierzyn is not a listed company and is therefore not subject to EU taxonomy.

Operating expenses (OpEx)

• The analysis of all operating expenditures (OpEx) shows that taxonomy-eligible expenditures accounted for 13.6% (PLN 40m) of the Group's total operating expenditures (OpEx) in the financial year 2021. Non-eligible operating expenditures accounted for 86.4% (PLN 253 million) of the Group's total operating expenditures (OpEx) in the financial year 2021.
• The taxonomy-eligible operating expenditures (OpEx) were primarily associated with the following activities: 3.16. Manufacture of nitric acid (27% of taxonomy-eligible operating expenditures), 3.17. Manufacture of plastics in primary forms (17% of taxonomy-eligible operating expenditures).
• The OpEx KPI denominator is PLN 293 million.

³ Grupa Azoty Kędzierzyn is not a listed company and is therefore not subject to EU taxonomy.