PGE Group’s activities in terms of the EU Environmental Taxonomy

The PGE Capital Group, as a public interest entity preparing non-financial information statements in accordance with Directive 2014/95/EU of the European
Parliament and of the Council, is required to disclose, for the year 2023, the extent to which its activities can be considered as environmentally sustainable.

This requirement stems from Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on establishing a framework to facilitate sustainable investment, amending Regulation (EU) 2019/2088 and the Delegated Regulations on establishing a framework to facilitate sustainable investment (hereinafter: “EU Environmental Taxonomy”, “Taxonomy”).

The financial data presented in the disclosure for the eligible activities include both:

• revenue (turnover) from business activities that are Taxonomy-eligible, related capital expenditure or operating expenditure,
• purchases from eligible activities,
• related additional (explanatory) information.

The basis for considering an activity as eligible was to compare the actual activity in question with a description of the activity included in the following:

• Annex I (Climate change mitigation – CCM code)

or 

• Annex II (Climate change adaptation – CCA code)
  

to Commission Delegated Regulation (EU) 2021/2139, together with the amendments listed above, and:

• Annex I (Sustainable use and protection of aquatic and marine resources – WTR code)
• Annex II (Transition to a circular economy – CE code)
• Annex III (Pollution prevention and control – PPC code)
• Annex IV (Protection and restoration of biodiversity and ecosystems – BIO code)
  

to Commission Delegated Regulation (EU) 2023/2486.

The codes placed next to each climate target are the required designations under Commission Delegated Regulation (EU) 2023/2486.

The calculations of revenue, capital expenditure (CapEx) and operating expenditure (OpEx) were based on the definitions set out in Annex I to Commission Delegated Regulation (EU) 2021/2178. In the calculation of these figures for the PGE Group, appropriate consolidation exclusions were taken into account, based on the methods used in the preparation of consolidated financial statements.

An economic activity eligible for inclusion in the Taxonomy means an economic activity as described in Commission Delegated Regulations (EU) 2021/2139, 2023/2485 and 2023/2486.

An activity in line with the Taxonomy systematics (hereafter: “Taxonomy-aligned activity”) is one that makes a significant contribution to one or more of the environmental objectives, does not cause serious harm to any of the environmental objectives of the Taxonomy, is carried out in accordance with the minimum guarantees set out in Article 18 of Regulation 2020/852 and meets the technical qualification criteria that have been established by the European Commission.

As part of the implementation of the process described above, the following specific activities were carried out in the PGE Group and their results are disclosed below.

Value of the PGE Group’s turnover eligible for the EU Environmental Taxonomy

This is the value of turnover derived from the sale of products or services related to a business activity that is considered eligible for the Taxonomy in terms of one of the climate objectives “Objectives I-VI” listed below:

I (Mitigation of climate change)

II (Adaptation to climate change)

III (Sustainable use and protection of water and marine resources)

IV (Transition to a circular economy)

V (Pollution prevention and control)

VI (Protection and restoration of biodiversity and ecosystems)

The numerator of the indicator includes taxonomy-eligible revenue from contracts with customers under IFRS 15. The denominator is the total sales revenue reported in the consolidated statement of comprehensive income.

Value of the PGE Capital Group’s capital expenditure (CapEx) eligible for the EU Environmental Taxonomy

As defined in Regulation 2021/2178, capital expenditure is an increase in property, plant and equipment and intangible assets during the financial year before depreciation, amortisation and any revaluations, including those arising from revaluations and impairments for the financial year, excluding changes in fair value. This figure also includes increases in property, plant and equipment and intangible assets resulting from business combinations.

The numerator of the indicator includes the CapEx eligible for the Taxonomy, while the denominator is the sum of the CapEx reported in the consolidated financial statements – note 6.1. the sum for the whole PGE Group of the items “Total capital expenditure” and “acquisition of PPE, IA, IP and RTUA as part of acquisition of new companies”. In addition to the capital expenditures of individual companies, an important element of the taxonomic CapEx in the PGE Group was the acquisition of the property, plant and equipment of PKP Energetyka Holding sp. z o.o., which significantly increased the denominator in relation to 2022 (by PLN 6,977 million), and the property, plant and equipment of LongWing Polska sp. z o.o. (by PLN 338 million).

The acquisition of the PKP Energetyka Group, described in note 1.3.1 to the consolidated financial statements, allowed the PGE Capital Group to create a new segment, namely Railway Power Engineering, and to significantly increase the activities eligible for and compliant with 4.9 Transmission and distribution of electricity, as well as to identify a new activity conducted within the PGE Capital Group, i.e. 6.14 Infrastructure for railway transport.

Given the significant reduction in the list of eligible activities for the next four climate targets under RD 2023/2486 compared to the announced changes and the published draft, particularly for the climate target of Circular economy, it was impossible to make a disclosure in the PGE Group’s Circular Economy segment with respect to activities such as sorting and processing of by-products and the generation of products, by-products and waste in combination with the generation of electricity and heat.

Value of the PGE Capital Group’s operating expenditure (OpEx) eligible for the EU Environmental Taxonomy

Regulation 2021/2178 defines OpEx as the direct, non-capitalised costs associated with research and development, building refurbishment activities, short-term leases, maintenance and repairs, and any other direct expenditure associated with the day-to-day operation (maintenance) of property, plant and equipment by an enterprise or a third party contracted by the enterprise to conduct activities necessary to ensure the continuous and efficient operation of such assets.

The analyses in terms of the OpEx Taxonomy mainly included accounts for maintenance, repair and overhaul costs, as well as leases not included in the balance sheet, in accordance with the guidelines of the OpEx interpretation published by the European Commission in the Official Journal of the EU in October 2022. The sum of the turnover of these accounts, including consolidation exclusions, constitutes the denominator.

The numerator is the part of the denominator that corresponds to the activities that are considered eligible for the Taxonomy in terms of Objectives I-VI.

Assessment of alignment with the Taxonomy systematics

Taxonomy-aligned activity is one that makes a significant contribution to one or more of the environmental objectives, does not cause serious harm to any of the environmental objectives of the Taxonomy, is carried out in accordance with the minimum guarantees set out in Article 18 of Regulation 2020/852 and meets the technical qualification criteria that have been established by the European Commission.

The assessment of the alignment of the identified eligible activities listed above in the first step involved an analysis of the technical eligibility criteria relevant to each activity, as included in the Delegated Regulations: 2021/2139, 2023/2485, 2023/2486 – in terms of the material contribution criteria and the “do no serious harm” principle.

A due diligence analysis was carried out to identify the degree of alignment of the PGE Group’s business activities with the requirements, i.e. the minimum safeguards set out in Article 3(c) in conjunction with Article 18 of Regulation 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment. As defined in Article 18 of the above Regulation, minimum safeguards are the procedures to be followed by a business enterprise to ensure that it complies with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work, as well as the principles and rights set out in the International Bill of Human Rights.

In line with the guidelines of the PSF Report (Platform on Sustainable Finance)[1] , a due diligence analysis was carried out based on the following methodology:

a procedure-based test, i.e. an examination of the PGE Capital Group’s internal regulations and procedures in the context of compliance with the applicable regulations and guidelines, carried out on the basis of documentation provided by the PGE Capital Group,

In line with the guidelines of the PSF Report (Platform on Sustainable Finance)[1] , a due diligence analysis was carried out based on the following methodology:

a performance-based test focusing on final convictions or penalties, with respect to each of the areas examined, taking into account their materiality, carried out on the basis of the PGE Group’s statements,

In line with the guidelines of the PSF Report (Platform on Sustainable Finance)[1] , a due diligence analysis was carried out based on the following methodology:

a database analysis carried out on the basis of information contained in the records of the Business and Human Rights Resource Centre (“BHRRC”) and the National Contact Point, established in accordance with the OECD Guidelines for Multinational Enterprises,

In line with the guidelines of the PSF Report (Platform on Sustainable Finance)[1] , a due diligence analysis was carried out based on the following methodology:

a general survey of publicly available information on the activities of the PGE Capital Group.

¹ Final Report on Minimum Safeguards, Platform on Sustainable Finance; https://finance.ec.europa.eu/system/files/2022-10/221011-sustainable-finance-platform-finance-report-minimum-safeguards_en.pdf [accessed 31.12.2023]

In the above-mentioned areas, the PGE Capital Group adopted procedures corresponding to the standards set out in the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. Furthermore, it applies extensive measures that are in line with both applicable national law and international regulations.

No charges have been brought against the PGE Group by the BHRRC, nor is there any case pending before the National Contact Point, which is reflected in the Group’s record of penalties imposed by common courts and public administration bodies.

The conducted investigation ruled out the existence of negative indications representing a failure to provide minimum safeguards identified in the PSF Report as risk factors.

Indicators of the PGE Capital Group  

The PGE Group’s indicators for 2023 are presented in the tables below. They have been prepared on the basis of the formulas included in Regulation 2023/2486, whereby:

• Y – Yes, activity eligible for the Taxonomy and aligned with the Taxonomy for a particular environmental objective 
• N – No, activity eligible for the Taxonomy but not aligned with the Taxonomy for a particular environmental objective
• N/EL – Not eligible, activity not eligible for the Taxonomy for a particular environmental objective

Turnover

Total eligible turnover amounted to PLN 19,872 million, made up of segment revenue, as shown in the table below.

The PLN 7,595 million increase in turnover from Taxonomy-eligible activities compared to 2022 is mainly due to changes in the following segments:

• Distribution – increase in selling prices of distribution services,
• Heat generation – increase in heat selling prices and electricity selling prices,
• Railway Power Engineering – increase in revenue compared to 2022 as a result of the acquisition of the PKP Energetyka Group. Activities 4.9 Transmission and distribution of electricity and 6.14 Infrastructure for rail transport are classified within the new segment.

Within the segments, Taxonomy-aligned activities were identified, generating a total turnover of PLN 13,478 million, the bulk of which related to the following activities:

• 4.9 Electricity transmission and distribution in the Distribution and Railway Power Engineering segments,
• 4.3 Electricity generation from wind power in the Renewable Power Generation segment,
• 6.14 Infrastructure for rail transport in the Rail Power Engineering segment.

CapEx

Total eligible CapEx amounted to PLN 14,710 million, comprising capital expenditure in the segments, as shown in the table below:

The PLN 7,810 million increase in capital expenditure related to Taxonomy-eligible activities compared to 2022 is mainly due to changes in the following segments:

• Railway Power Engineering – acquisition of the PKP Energetyka Group resulting in an increase in tangible and intangible assets aligned with the Taxonomy and capital expenditure incurred for the modernisation and development of the distribution network (after the date of acquisition),
• Distribution – execution of investments allowing for the modernisation and development of the distribution network.
• Lower level of capital expenditure in the Other Activities segment – expenditure mainly related to the construction of two CCGT units (PGE Gryfino 2050 sp. z o.o.). Lower capital expenditure compared to 2022 was due to the implementation of the investment schedule.

Within the segments, Taxonomy-aligned activities were identified, generating total capital expenditure of PLN 12,412 million, the bulk of which related to the following activities:

• 4.9 Electricity transmission and distribution in the Distribution segment and the new Railway Power Engineering segment,
• 4.1 Electricity generation using photovoltaic technology in the Renewable Power Generation segment,
• 6.14 Infrastructure for rail transport in the new Rail Power Engineering segment.

OpEx

Total OpEx related to eligible activities amounted to PLN 573 million, consisting of operating expenditure incurred in the respective segments.

The increase in the level of Taxonomy-eligible operating expenses by PLN 164 million compared to 2022 is mainly due to the acquisition of the PKP Energetyka Group and its inclusion in the new Railway Power Engineering Segment.

Within the segments, Taxonomy-aligned activities were identified, generating total operating expenditure of PLN 461 million, up by PLN 137 million on 2022, the bulk of which related to the following activities:

• 4.9 Electricity transmission and distribution in the Distribution segment and the new Railway Power Engineering segment,
• 4.3 Electricity generation from wind power in the Renewable Power Generation segment,
• 6.14 Infrastructure for rail transport in the new Rail Power Engineering segment.

Disclosure in accordance with Annex III of Commission Delegated Regulation (EU) 2022/1214, supplementing Commission Delegated Regulation (EU) 2021/2178 with Annex XII on standard templates for the disclosure of information referred to in Article 8(6) and (7). – i.e. for the nuclear energy and natural gas activities is presented in Appendix 1 to this non-financial information statement.

Linking the Taxonomy indicators to the PGE Capital Group Strategy