The double materiality assessment and analysis process consisted of two stages: impact materiality and financial materiality, the latter involving the evaluation of risks and opportunities.
The PGE CG conducted the double materiality analysis taking into account the perspective of subsidiaries within Business segments when identifying and assessing material topics. Given the unified sector in which the PGE CG operates, and in line with the requirements of the ESRS regarding sustainability statements, the data will generally be presented on a consolidated basis, without separating out the above-mentioned subsidiaries or Business segments. However, for selected disclosures, where justified by the need to provide users of the report with specific information, the PGE CG will supplement the data/information with commentary clarifying its link to a specific business segment or company.
Information required under ESRS E3 regarding the geographical areas where water is a material issue for the PGE CG’s own operations and its upstream and downstream value chain, as well as segments associated with material impacts, risks, and opportunities related to water and marine resources, is presented in sections SBM-3 and ESRS E3.
Assessment of impact materiality
Responsibility for carrying out the comprehensive impact materiality assessment process was assigned to the ESG Division within the Investor Relations and ESG Department at PGE S.A. The process is conducted on an annual cycle and involves representatives from thematic areas within PGE S.A., as well as from segments and subsidiaries. The impact materiality assessment included the following stages:
Identification of business sectors, value chain mapping – in order to assess the context and operating environment of the PGE CG, a review of the Group’s business sector was conducted. Based on the analysis, the identified sector was energy production and energy services (as the company generated more than 10% of its revenue from this sector in the most recent financial year). The main elements of PGE Group’s value chain were also confirmed, covering both upstream and downstream activities, as well as the Group’s own operations.
Identification of an initial list of relevant topics – based on available sources of information, an analysis was carried out including: a benchmark review of selected disclosures by competitors, ESG ratings, and industry reports. In order to capture stakeholder perspectives on the materiality of sustainability topics for the PGE Capital Group, the findings of the stakeholder dialogue session conducted in 2022 were analysed (including input from local communities – affected communities). As PGE Group’s operations have not undergone significant changes since that consultation, its results were mapped against the material ESRS topics. Additionally, eight in-depth internal interviews were conducted (in line with the information provided in section ESRS2 SBM-2). The collected findings served as input for Stage III.
Assessment of impacts and topics in terms of materiality – A broad list of topics, originating both from the ESRS (all sustainability topical standards were assessed9) and from stakeholder consultations and analysis of market and industry trends, was assessed for impact. The assessment was carried out using the dimensions and criteria defined in the ESRS, including: point of occurrence (upstream, own operations, downstream), timeframe, scale, scope of the impact, reversibility of the impact, and probability of occurrence. In the first step, the relevant sector for each identified impact was indicated (as defined in Stage I). In the second step, the timing of the impact was determined – whether the impact is actual (currently occurring) or potential (may occur in the future). In the third step, the impact was assessed using the above criteria, depending on whether the impact was positive (evaluating scale and scope) or negative (evaluating scale, scope, and reversibility). For potential impacts, the assessment also considered time horizons (short, medium, and long-term, in line with ESRS1 definitions) and the probability of occurrence. The evaluation was carried out in the form of workshops.
Rating scale used by the PGE Capital Group in the process of assessing sustainability issues in terms of impact materiality.
As part of Stage III, the PGE CG reviewed its assets, operations, and locations in order to identify impacts (using the results of Stage I) related to pollution, water, the circular economy, and other sustainability topical areas across its own operations and throughout the upstream and downstream value chain. The following aspects were considered: air, water, soil, and biological and food resource pollution; water withdrawal, consumption, and discharge; as well as the type of waste generated and materials used and discharged – including in the context of by-products from combustion processes.
9 Including climate impacts from greenhouse gas emissions.
Aggregation of impact materiality assessment results – The ESG Division of PGE S.A. verified and aggregated the results from the PGE CG based on defined thresholds for total impact scores. Individual sustainability topics were deemed material if they received a combined score of over 50%, and based on an additional qualitative assessment.
No specific public consultations were held with affected communities exclusively concerning the sustainability of shared biological resources and ecosystems. However, the stakeholder perspective in this area was taken into account in the process, in line with the description provided in Stage II of the impact materiality assessment.
The results of the impact materiality assessment process are subject to approval by the Sustainable Development Committee and the Management Board of PGE S.A.
Assessment of financial materiality
Responsibility for conducting the comprehensive process of ESG risk and opportunity assessment and financial materiality analysis was assigned to the Risk and Insurance Department of PGE S.A. The process is carried out on an annual cycle, with the involvement of individuals responsible for coordinating activities within each business segment of the PGE CG. The assessment of ESG risks and opportunities is conducted as a separate process from the PGE Group’s corporate risk management process, which is described in Chapter 3 of the Management Board’s Report on the Group’s Activities. However, the two processes above are complementary from the perspective of the data sources for their implementation and the cross-use of the results.
The ESG risk and opportunity assessment process comprises the following:
Using available data sources – including the results of the corporate risk management process, findings from the taxonomy process, and expert input from representatives of business segments – risks and opportunities related to individual sustainability topical areas were identified. This stage also took into account information regarding the organisation’s impacts and its dependencies on the external environment10.
- The structure and level of detail of internal tools used in the ESG risk and opportunity assessment process within the PGE Group ensure that, at the segment level, it is possible to evaluate the extent to which assets and business activities may be exposed or sensitive to identified climate-related threats. Where relevant, specific locations and assets were also considered.
- As part of the process of assessing ESG risks and opportunities, a period of up to 10 years from the current reporting period was adopted as the long time horizon. From the perspective of high-emission climate scenarios, this timeframe does not reflect significant differences in values for individual physical climate risk factors when compared with a scenario of limiting global warming to 1.5 °C. Nevertheless, during Stage I, the qualitative dimension of these scenarios was taken into account – including factors such as the intensification of extreme weather events, chronic climate changes11, and the implications of a 1.5 °C scenario involving active implementation of decarbonisation policies (at national, regional, or global level).
- As part of Stage I, the PGE CG reviewed its assets, operations, and locations in order to identify risks and opportunities related to pollution, water, the circular economy, and other sustainability topical areas across its own operations and throughout the upstream and downstream value chain. In their assessments, individual segments considered factors such as air, water, soil, and biodiversity and food resource pollution, as well as water withdrawal, consumption, and discharge, the types of waste generated, and materials introduced and discharged — including in the context of combustion by-products. They also took into account potential risk factors that could generate risks and opportunities for the PGE Group in these areas (e.g. market demand shifts, regulatory changes).
- The process of identifying potential ESG risks and opportunities related to biodiversity and ecosystems included transition and physical risks, systemic risks, and the perspective of the Group’s dependencies on biodiversity-related issues.
10Under E1 climate change, those relating to transition risks, i.e. climate change mitigation, and physical risks, i.e. climate change adaptation and energy, are distinguished.
11According to the ESRS E1 AR.11 list of factors.
For the identified ESG risks and opportunities within each sustainability topical area selected for valuation, two key factors were assessed: the probability of occurrence and the potential financial impact. Probability was evaluated using a five-category scale (as presented in the table below), while the financial impact of materialisation was estimated with an accuracy of up to PLN 1 million, referring to its effect on revenues, costs, or capital expenditures. The valuation was conducted for each of the following time horizons:
- Short-term (1 year – year n)
- Medium-term (cumulative assessment over 5 years – years n+1 to n+5)
- Long-term (cumulative assessment over 5 years – years n+6 to n+10)
The assessment of potential financial impact was based, among other things, on data included in financial and investment plans, outcomes of the corporate risk management process, available analyses and market studies, as well as the expert knowledge of ESG risk and opportunity owners in each segment and company.
Probability evaluation scale used by the PGE CG in the process of assessing ESG risks and opportunities.
PGE S.A.’s controlling unit calculates the thresholds for the financial impact assessment.
The Risk and Insurance Department of PGE S.A. verifies and aggregates the results submitted by individual segments of the PGE Capital Group against the defined financial impact thresholds. This includes an additional qualitative assessment for positions where a quantitative valuation is difficult.
The results of the ESG risk and financial materiality assessments are subject to approval by the Risk Committee, the Sustainable Development Committee, and the Management Board of PGE S.A.
The process for managing material ESG risks and opportunities is currently being implemented within the PGE CG, drawing on the experience gained through the general risk management process.