The Bank is aware of the impact of its loan portfolio on climate and the impact of the risk of climate change on its loan portfolio. The Bank has adopted lending policies for the carbon-intensive sector, RES as well as the chemical, oil and gas industries. The aim of the policy for the carbon-intensive sector is to successively reduce the exposure to customers and transactions based on coal as an energy carrier (consistency with the European climate policy and moving towards net-zero carbon emissions in 2050) and to refrain from financing new energy production sources based on coal and lignite. On the other hand, the RES policy assumes increasing the financing of operations related to renewable energy in a successive manner.
The Bank carefully monitors the information published on anthropogenic climate change and is aware of corporate responsibility for complying with the obligations recorded in the Paris Agreement. The Bank wants to achieve its business objectives by maintaining its impact on the climate change resulting from its operating and product activities and the impact of climate change on business activities at the lowest possible level. In its activities, the Bank wants to support the long-term objective of the Paris Agreement – increase of the global average temperature below 2°C as compared to pre-industrial times.
Since 2019 the Bank has been calculating the level of greenhouse gas emissions from operating activities (for the Bank and for the Bank’s Group). In 2021, it adopted ambitious short-term objectives concerning reduction in the Bank’s (Scope 1 and Scope 2) GHG emissions aligned with the objectives of the Paris Agreement (accounting the Directors’ Report for 2022). The Strategy for 2023-2025 adopts new climate targets and an accounting of these is provided in section 13.4. The Bank is focused on improving and expanding the measurement categories of GHG emissions generated by the Bank in all three scopes. Additionally, the Bank eliminates carbon-intensive energy sources, buys energy from RES, takes actions limiting energy consumption (e.g. photovoltaic installations in selected real properties of the Bank).
As part of works on the Bank’s Strategy 2023-2025, the Bank tried to estimate the volume of emissions generated by its loan portfolio. The Bank does not have the full data on the emissions of its customers, while some of them do not even have such knowledge about themselves. In order to estimate the emissions, data on the industry’s average emissivity were used. The estimated product emissions in Scope 3 exceed the reported emissions of the Bank in Scope 1 and Scope 2 by over 300 times. In the new strategy, the Bank declared that it will start emission calculations in Scope 3 and prepare the trajectory of emission reductions based on a scientific approach. For more information on the calculation of Scope 3 emissions, see Metrics and Targets.
The Bank discloses climate-related information in accordance with the TCFD (Task Force on Climate-related Financial Disclosures) recommendation. The guidelines aim to encourage financial institutions and non-financial companies to disclose information on climate-related risks and opportunities. The guidelines centre around four thematic areas: Governance, Strategy, Risk management, Metrics and objectives. For several years, the Bank has been conducting climate disclosures in CDP Disclosure Insight Action using the TCFD recommendations and for 2023 as one of eight Polish banks, and it has received a climate change disclosure rating (“D”).
Climate disclosures according to the TCFD standard
The Management Board of the Bank defines the risk framework, oversees the implementation of the set objectives, strategies and policies and defines the principles of their management in the context of the risk management in the field of environmental protection. In accordance with their powers, units are responsible for the coordination and management of individual ESG risks and their impact on the Bank’s operational risk.
The committees functioning in the Bank within the scope of their tasks and competences take decisions, issue recommendations, and opinions on activities related to ESG risk.
A Sustainable Development Committee was established in 2023 to take the decisions necessary for the implementation of the Bank’s and the Bank Group’s strategic objectives in terms of sustainable development and to oversee the management of the impact of ESG factors on the Bank and the Bank’s Group. The Committee is composed of all members of the Management Board and heads of most areas. The Committee’s activities are chaired by the President of the Management Board or the Vice-President of the Management Board managing the work of the Bank’s Management Board, and their deputy is the Vice President of the Management Board supervising the Risk Management Area.
At the end of 2022, an ESG Sustainability Department was established in the Bank, reporting to the President of the Management Board. Its task is to ensure that the Bank’s and the Bank Group’s operations comply with generally applicable laws and other external regulations relating to sustainable and responsible ESG development and to coordinate activities to ensure that the Bank’s and the Bank Group’s strategic ESG objectives are met.
The Credit Risk Department is responsible for the development and creation of solutions and tools to support ESG risk management, including the sourcing of information for ESG risk management and the implementation of solutions arising from generally applicable legislation (e.g. EU Taxonomy, Pillar 3 disclosure) or regulations of supervisory or control authorities regarding ESG risk management. The Department is also responsible for monitoring strategic credit risk limits and strategic climate risk limits for credit risk, monitoring the utilisation of internal portfolio limits, in particular with regard to climate risk limits, coordinating the implementation of consistent risk management standards across the Bank’s Group for mitigating the impact of climate factors on individual risks, in particular on the risk level of the Bank’s loan portfolio.
The ESG Public Programmes Department is responsible for supporting the development of the Bank’s offering to its banking customers: companies, enterprises and corporate banking in terms of products and services linked to public and EU programmes, including those supporting ESG sustainability, in particular climate transformation.
The Bank adopted a Strategy for 2023-2025, in which it specified its climate ambitions as follows:
- limiting own CO2 emissions of the Bank through modernisation of branches and offices, and electrification of fleets,
- increasing the share of energy purchased certified as green-sourced,
- reaching net-zero in Scope 1 and 2 by 2030.
In the risk area, the Bank intends to:
- extend the process of scoring and analysis of the portfolio to include ESG aspects,
- build sector expert opinions,
- carry out climate stress tests,
With regard to financing, the Bank wants to:
- expand the product offer supporting sustainable development,
- identify priority sectors and customers to support decarbonisation,
- finance complex transformation investments,
- begin calculating Scope 3 emissions as part of the preparation of the trajectory of a science-based reduction.
The Bank continuously analyses the possible impact of climate change trends by identifying opportunities and threats to its operational activities and growth prospects. One of the key opportunities related to climate action is the possibility of expanding the Bank Group’s product offering for financing sustainable and transformational projects, including with the use of public funds.
The Bank recognises new opportunities to finance low-carbon products and services and to finance customers’ energy transition towards low-carbon and climate-resilient operations. This offering is tailored to the changing needs of all customers in the Bank’s Group (corporate customers, companies and enterprises, and individual customers). As a result of the activities undertaken, the Bank intends to become the leader of the highest volume of new financing of sustainable and transformation projects.
Taking into account the strategic objectives in terms of sustainable development, understood as a positive impact on the environment and society together with ensuring compliance with the principles of corporate governance, the Bank adopted the „Principles for the classification of sustainable development financing in the PKO Bank Polski S.A. Group” in December 2023. The principles take into account the requirements of international standards and the regulatory environment, in particular those arising from the EU Taxonomy and the European Green Bond (Regulation (EU) 2023/2631 of the European Parliament and of the Council). The principles are subject to regular review, at least quarterly. The findings of the review are presented to the Sustainable Development Committee.
The Bank is in the process of implementing the provisions of the Principles, in particular with regard to its business and reporting processes, as well as the related IT systems. At the same time, the process of adapting the offering to the requirements for products with a positive environmental impact is underway.
The Bank is aware of the potential impact of climate change on operating activities. In the long to medium term, it identifies the following physical risk factors and risks associated with the transition to a low-carbon economy:
- an increase in the frequency and suddenness of abnormal weather events (storms, floods, fires, heat waves) can lead to a loss of some revenue, reducing debt servicing capacity and the value of collateral (credit risk),
- natural disasters and sudden weather events may cause a sudden increase in cash requirements (liquidity risk),
- rising greenhouse gas emission allowance prices could significantly alter the financial position and debt servicing capacity of companies operating in carbon-intensive sectors: energy, fuel, transport and logistics (credit risk),
- the lack of market success of green technologies financed by the Bank may lead to a loss of some revenue (financing risk),
- the need for the Bank’s customers to incur high capital expenditure in the area of energy transformation may lead to a reduction in the economic value of the credit exposure due to a deterioration in the customer’s ability to service its liabilities (credit risk),
- the financing of carbon-intensive sectors negatively perceived by stakeholders, market participants and rating agencies may translate into reputational damage for the Bank (reputational risk),
- the sudden revaluation of securities and derivatives, for example for products related to industries affected by stranded assets, could result in a financial loss for the Bank (market risk, liquidity risk),
- the need for the Bank’s customers to undergo a capital-intensive energy transition, may result in a reduction in deposits (liquidity risk),
- the downgrading of the Bank’s ESG rating may make it more difficult to attract new investors and increase the cost of funding (liquidity risk).
The industry in which the Bank Group operates does not have a significant direct impact on the climate. This impact manifests itself primarily indirectly through the financing provided to customers. Therefore, the Bank considers environmental, social and governance impact assessments in the risk assessment of each lending transaction. The findings of the assessments are reflected in the customer rating and structure of the transaction.
The Bank carries out a number of projects and analyses at the customer and portfolio level aimed at developing solutions and tools to support ESG risk management. The Bank analyses exposures in the banking book sensitive to:
- the impact of chronic and sharp physical events related to climate change according to the sector and geographical location of the customer’s activity or the location of the collateral in the form of real estate. In its analyses, the Bank uses climate models (the KLIMADA 2.0 project) published by the National Institute for Environmental Protection, under which RCP8.5 scenario is analyzed (maintenance of the current rate of growth of greenhouse gas emissions, in the business as usual formula, the average temperature of the Earth will increase by 4.5° in relation to pre-industrial levels) for the decades 21-30; 31-40; 41-50. The Bank uses the scale of exposure to physical risk from 1 to 5 (1 – low, 5 – very high). In the Report „Capital Adequacy and other information of the Powszechna Kasa Oszczędności Bank Polski S.A. Group subject to disclosure as at 31 December 2023” (hereinafter: F3 Disclosure Report), the Bank discloses the existence of physical risk in all geographical locations for which the risk of a prolonged and violent physical phenomenon is very high;
- transition risks associated with the transition to a low-carbon and climate-resilient economy, according to sectors that are major contributors to climate change. Based on an expert review of its portfolio of non-financial companies, the Bank identified entities operating in the fossil fuel, oil fuel, natural gas and electricity generation industries. With climate impact reduction targets in mind, the Bank decided to gradually change the structure of its loan portfolio by implementing lending policies such as: the High Carbon Energy Sector or ChemistryOil-Gas.
Buildings account for around 40% of energy consumption in the European Union. Due to the significant contribution of the real estate sector to the total energy consumption level, the Bank analyses the exposures in its loan portfolio that are linked to collateral in the form of developed real estate on the basis of the size of the non-renewable primary energy (PE) demand indicator. For some properties, the Bank has the actual values of the PE indicator as set out in the energy certificates made available in the Central Register of Energy Performance of Buildings maintained by the Ministry of Development and Technology. For properties for which the Bank does not hold energy performance certificates, the size of the PE ratio was estimated using an expert method based on the type of property and the year of its construction. Importantly, in the process of valuing the credit collateral for corporate customers, the Bank has introduced a requirement to submit, together with the appraisal report, the certificates issued for the property with regard to compliance with environmental standards, in particular the energy performance certificate. If the property generates above-average risks, in particular environmental risks, it can only serve as supporting collateral.
Detailed information on the Bank Group’s loan portfolio secured by real estate, broken down by energy efficiency baskets according to the value of the PE indicator, is contained in the F3 Disclosure Report.
The primary analytical tool used for climate risk management in financial institutions is climate stress testing. The Bank has developed a methodology and tools for carrying out climate stress tests. The methodology is based on a modification of customers’ financial statements and takes into account key factors affecting customers’ financial position and the value of collateral such as greenhouse gas (GHG) prices, capital expenditure, energy intensity of buildings and drought risk. The use of scenarios with time horizons of 1 year, 3 years and 30 years enables a thorough analysis of both short-term and long-term risks. The work to develop climate stress tests is a milestone set out in the Bank’s Strategy. The entire exercise will be completed on 30 June 2024 with an analysis of the impact on the Bank’s loan portfolio.
The Bank is participating in a one-off non-reporting study on climate risk scenarios in the context of the EU 'FIT-for-55′ package organized by the European Banking Authority, through the Office of the Polish Financial Supervision Authority.
In the ESG Risk Management Area, the Bank performs tasks to ensure compliance with the following external regulations:
- EU Taxonomy (Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 including delegated regulations) – in 2024, the Bank Group is for the first time required to report a key performance indicator, the Green Asset Ratio (GAR), which measures the percentage of the Bank Group’s assets that finance taxonomy-compliant (environmentally sustainable) business activities relative to the Bank Group’s total assets. In 2023, the Bank initiated work on implementing a tool to support the assessment of meeting the technical eligibility criteria of the EU Taxonomy in the form of taxonomy questionnaires. The taxonomy questionnaires will be an integral part of the process of identifying/classifying sustainable assets.
- Implementing Technical Standards – Commission Implementing Regulation (EU) 2022/2453 of 30 November 2022 amending the implementing technical standards laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of environmental, social and governance risks in accordance with Article 449a of Regulation (EU) No 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012. The Bank develops principles for disclosure of information on ESG risks in accordance with the applicable regulation implementing technical standards (ITS). Due to the limited availability of some data as at 31 December 2023, the disclosures are based on actual data and data estimated by experts. For details of this disclosure, please refer to the F3 Disclosure Report.
The Bank is working to expand its IT systems for collecting, aggregating and managing sustainability data.
ESG risk is monitored through a strategic tolerance limit on exposure to customers in carbon-intensive industries, introduced in 2021 into the risk management strategy. A measure of tolerance for this risk is the ratio of the value of loans for customers in high-emission industries and the Bank’s total assets. As at 31 December 2023, the share of loans to customers in carbon-intensive industries was 0.19% (with a tolerance limit of ≤ 1.6% for the Bank and ≤ 1.6% for the Bank Group) compared with 0.38% at the end of 2022 (with a tolerance limit of ≤ 0.8% for the Bank and ≤ 0.8% for the Bank Group). The tolerance limit has been increased by 0.8 p.p. for the Bank to enable the financing of the country’s energy transition. This limit is monitored on a quarterly basis and reported to the Bank’s Management Board. The Bank decided to increase its financing in the district heating sector and to selectively finance energy security transactions (coal purchases) on a transitional basis, in view of the war in Ukraine and the increase in energy commodity prices and the need to secure coal supplies from alternative sources other than Russia, thus pursuing its social responsibility dimension.
The Bank is currently working on determining the emission intensity of the Bank’s asset portfolio (scope 3). To achieve this, in 2023 the Bank joined the Partnership for Carbon Accounting Financials (PCAF), which has developed a single global standard for calculating and reporting greenhouse gas emissions for the financial sector. The PCAF methodology enables the quantification of GHG emissions associated with, among other factors, corporate loans, securities and mortgages. The results of the GHG emissions calculations for the industries identified in Formula 1 and Formula 3 of the Implementation Technical Standards will be presented in the F3 Disclosure Report as at 30 June 2024.
By determining the level of funding for Scope 3 emissions, the Bank will be able to commit to a decarbonisation path for the loan portfolio over the next few years. A decarbonisation path will be developed using a science-based approach to contribute to reducing global warming of the planet.
Section „Environment” shows the emission values for the other scopes.