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PZU Group’s ESG Strategy regarding the environment and the climate

PZU AR 2021 > Strategy and outlook 2021+ > Climate > PZU Group’s ESG Strategy regarding the environment and the climate
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As one of the largest financial institutions in Central and Eastern Europe the PZU Group is aware that both its direct operations and the insurance products it offers, as well as its banking and investment business, are areas through which companies may affect the behavior of their clients and, as a consequence, their approach to the natural environment and climate change.

Environmental issues have been present in the PZU Group’s daily business practice for many years. In turn, in 2021 the PZU Group announced its path to climate neutrality in response to the growing environmental and climate-related challenges. This commitment is an integral part of the PZU Group’s Business Strategy in 2021-2024. The core tenet regarding the path to climate neutrality is embodied by a number of initiatives to achieve energy neutrality in the Group’s direct business by 2024. In turn, a road map has been drafted up to 2050 in line with European commitments and Poland’s climate neutrality plan. The PZU Group is striving to ensure that the Group’s business partners, and cooperating entities become climate neutral by 2040 and for its insurance and investment clients to do so by 2050. In the upcoming years PZU will focus on growing its portfolio in low emission and sustainable industries and on devising an insurance offering to support decarbonization and the process of shifting the energy mix in Poland. Moreover, the PZU Group would like to assign greater importance to sustainable aspects in its relationships with corporate clients. For that reason it has taken on a commitment to evaluate ESG risk and factors in respect of its largest corporate clients and investments. The PZU Group wants to be an advocate of, and partner in, the “green” transition among its business partners, clients and social partners by underwriting large investments in RES, offering the appropriate insurance products, offering investment funds based on ESG issues and rendering advisory services to companies undergoing decarbonization.

To facilitate the execution of strategic commitments PZU has embraced two policies that lay down the rules and establish the avenues of activity in keeping with the principles of sustainable development. The first one is the PZU Group’s Environmental Policy and the second one is the PZU and PZU Życie Sustainable Investment Policy.

PZU Group’s Environmental Policy defines the framework for management of the environmental footprint of the Companies’ activity in accordance with the sustainable development principles. The aim of the Environmental Policy in the PZU Group is to manage the environmental footprint of its activity effectively in accordance with the sustainable development principles by minimization of the direct impact on the environment and climate and minimization of the indirect impact on the environment and climate in connection with the offered products and services.

The PZU and PZU Życie Sustainable Investment Policy ratified at the end of 2021 lays down the general rules for investing funds, the ESG factors taken into consideration and how the goals of sustainable investing specified in the ESG Strategy and the PZU Group Strategy are executed. This is applicable when investing own funds and the funds satisfying insurance-related obligations. In addition, the Policy provides illustrative ESG factors taken into consideration in the Companies’ investment activity.

[GRI 102-12] [GRI 102-13]

On top of internally implemented documents and procedures, the PZU Group gets involved in a number of external initiatives to further sustainable development.

PZU is a signatory of the United Nations Environment Programme Finance Initiative established between the United Nations Environment Program and the financial sector. The global partnership between the United Nations Environment Programme and the financial sector serves the purpose of mobilizing the financial and insurance sectors to act towards the achievement of sustainable development goals. By joining this initiative, the PZU Group has become one of more than 350 organizations committed to making their business decisions consciously with a view to contributing to a favorable impact on people’s lives and the quality of the natural environment.

The PZU Group participates in dialogue on sustainable development and sustainable finance. A PZU representative chairs the Task Force on Sustainable Finance at the Polish Insurance Association (PIU). PZU also participates in the work of the Financial Market Development Council for Sustainable Finance and the Group for development of non-financial reporting at the Ministry of Finance. PZU also chairs the Natural Disaster Risk Management Team, one of whose tasks is to support the UKNF in defining climate change stress tests.

In 2021 PZU joined the “Agreement for the Development of Offshore Wind Power in Poland” and the “Sector Agreement for the Development of the Hydrogen Economy”. These projects have been initiated by the Ministry of Climate and Environment. They constitute a platform for inter-sector collaboration for Poland’s economic development, enhancing the competitiveness of Polish commercial undertakings, developing initiatives to ensure Poland’s economic and energy security based on low and zero emission sources of energy. Moreover, a PZU Życie Management Board Member has been appointed to be a member of the Council for Coordinating Offshore Wind Power.

The involvement of a PZU Życie Management Board Member in the initiative known as Chapter Zero Poland affirms the growing significance of climate change and its place in business development. Chapter Zero Poland is the Polish branch of the international initiative entitled Climate Governance established by the World Economic Forum. It was formed to raise awareness concerning the consequences of climate change for the business community and its impact on the climate.

Bank Pekao joined the initiative known as the United Nations Global Compact, and in that manner it confirmed its readiness to act for the benefit of Agenda 2030 and incorporate the 10 Principles of the UN Global Compact in its strategy while committing to embrace far-reaching objectives regarding social, economic and environment issues. Membership in the UN Global Compact means participating in the largest global platform of corporate sustainable development leaders who represent nearly every sector in the business community. PZU also plans to join this initiative in 2022.

On top of the initiatives described above, the PZU Group keeps monitoring the activities taken by financial institutions and international organizations, specifically the United Nations (UN), the Organization for Economic Cooperation and Development (OECD) and the European Commission (EC). By disclosing information and managing risks related to climate change in the financial sector, the PZU Group observes the provisions of the climate agreement entered into by 195 countries in Paris in 2015. A document of major significance as a guideline for action from the perspective of efforts aimed at reducing natural disasters is the “Action Plan on the Sendai Framework for Disaster Risk Reduction 2015-2030 – A disaster risk-informed approach for all EU policies” (Sendai Framework for Disaster Risk Reduction 2015–2030). While working on solutions aimed at tackling environmental and climate change challenges, the Group also takes heed of activities carried out by the Polish government and the objectives of “Poland’s Energy Policy until 2040”.

[GRI 102-15] [IIRC]

Climate change is one of the biggest global challenges to sustainable development.

Climate change currently poses one of the biggest global challenges to sustainable development. The Global Risk Report1 a risk perception survey presented in the World Economic Forum’s report shows that the three most critical global risks are associated with environmental issues. In 2012, a similar list contained only one environmental risk. Additionally, two of the five largest risks that have become more pronounced since the outbreak of the COVID-19 outbreak are related to the climate.

The PZU Group is fully aware of the fact that the need to prevent climate change and adapt to the new conditions requires coordinated efforts by decision-makers, businesses and the financial sector. It actively participates in initiatives pursued in its industry, gets involved in public consultation processes and shares its opinions on draft legislation related to climate protection. The risks related to climate change, both physical ones and those related to transformation, will require an increasingly more consistent and comprehensive inclusion in the management of the PZU Group, because their impact on financial performance will become more and more substantial.

The Emissions Gap Report 20212 demonstrates that the new domestic climate-related commitments coupled with other measures to mitigate adverse repercussions put the world on the path towards a global increase in the temperature by 2.7°C by the end of the century. That is substantially above the objectives in the Paris Agreement and may lead to catastrophic climate change. To keep global warming under 1.5°C in this century, which is an aspiring goal in the Paris Agreement, the world must slash by one half its annual greenhouse gas emissions within the next eight years.

If the commitment to zero net emissions is effectively introduced, countries may cap warming at 2.2°C. The authors of the report point out that curtailing methane emissions from the mineral fuel, waste and agricultural industries may be of assistance in eradicating the emission gap and limiting warming in the short-term.

The report entitled IPCC Climate Change 2021: the Physical Science Basis3 emphasizes that global warming by 2°C means extreme temperatures will more frequently attain critical tolerance thresholds in the agriculture industry and health. This does not solely refer to temperature growth. Climate change also triggers many adverse consequences that differ by region of the world. As the report’s authors point out, they will become more pronounced as further warming continues and will extend to include changes related to moisture content, wind, snow, ice, coastal zones and oceans.

It is expected4 that the adverse consequences of climate change for Poland will be chiefly manifested by floods, torrential rains, landslides and droughts. Also expected is a greater frequency of regionally occurring strong winds. From the perspective of national-level events, floods are the most severe events due to material losses they cause.

In response to the evolving guidelines concerning reporting and growing requirements and expectations of stakeholders in terms of transparent information policy addressing preparation for climate change, this section contains information regarding direct and indirect environmental impact. According to EU guidelines on non-financial reporting and the Supplement on reporting climate-related information (2019/C 209/01), the information disclosed in this section meets the principle of double materiality, i.e. it contains information on the climate’s impact on the PZU Group’s activity and the Group’s impact on the climate. In particular, in accordance with the general and additional guidelines for financial institutions, this report provides a detailed description of climate-related risks, processes enabling their identification and management, and an analysis of the impact of these risks under two scenarios.

Risks have been identified in the setup proposed by TCFD and the European Commission’s Guidelines and a scenario-based analysis of climate change has been carried out regarding the climate’s impact on the PZU Group’s business in the context of growth, performance and circumstances.

As a member of the Polish Insurance Association (PIU), the PZU Group is involved in analyzing the impact of climate change on the insurance sector in Poland. The purpose of these analyses is to support the regulatory authority in developing stress test methodologies. In PIU’s opinion, stress tests conducted by the European Insurance and Occupational Pensions Authority (EIOPA) or local regulatory authorities may be a better tool than ORSA in terms of taking into account a forward-looking approach based on standardized scenarios, whereas the respective national authorities should encourage insurers to develop scenarios and facilitate their access to data and sources of valuable information and research results.

The European Commission’s Guidelines on non-financial reporting, providing for the disclosure of detailed climate-related data and TCFD recommendations classify the risks related to the climate’s adverse impact on businesses as physical risks and transition risks. Physical risk stems from the physical consequences of climate change and encompasses acute (e.g. storms, fires) and long-term risk (rising sea level). Transition risk is the risk related to the economy’s transition to a low emission economy resistant to climate change and encompasses risk related to policy and legal, technological, market and reputational risks.

A similar approach was proposed in April 20195. The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) an organization bringing together central banks and regulatory authorities. Based on the conviction that climate-related threats are a source of financial risks and that it is the duty of central banks and regulatory authorities to ensure the financial system’s resilience to such threats, six recommendations were formulated for central banks, regulators, decision-makers and financial institutions to ramp up their role in “greening” the financial system and managing the environment and climate risks.

Scenario analysis is one of the new tools consistent with TCFD recommendations and the European Commission’s Guidelines. It employs hypothetical models of temperature changes, enabling assessment of a company’s operations depending on the changing climate and the resilience of its business model. The need for the conduct of analyses related to climate change by insurance undertakings was also highlighted in an EIOPA consultation document6. The scenario structure proposed by the NGFS was adopted as the starting point for the analyzes conducted by the PZU Group. The scenarios are structured according to the degree of attainment of the climate goals and the transition pattern. In turn, in its document, EIOPA assigned two long-term scenarios of temperature increase (above and below 2 degrees Celsius) to the four global pictures defined by the NGFS.

Risk analysis makes it possible to identify precisely the risks associated with sustainable development, and in particular climate change. The PZU Group Strategy and its entire business are focused on addressing identified risks so that it is possible to orchestrate a change in the direction of a sustainable product offering that does not just correspond to client needs and the identified climate-related challenges but above all that offers an opportunity for business development and building a market edge. For instance, managing the climate risk following from the transition of the insurance portfolio to extend and augment the attractiveness of the offering of financial products addressed to low emission branches of the economy and those branches that harness renewable energy also contributes to the development of these branches. In this manner the positive impact exerted by the Group’s product offering on the climate and environment can be manifested.

The PZU Group’s climate impact is multiple-dimensional. Group companies utilize resources in their business operations. However since most of the Group's companies are financial institutions, their direct climate impact is relatively small. On the other hand, by financing, insuring and investing, these companies can, to a certain degree, influence clients' conduct, and hence their impact on the environment and climate change. Armed with this awareness the PZU Group’s ambition is to become a trusted partner in energy transition and develop its offer to support the development of the low emission economy.

According to Delegated Commission Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and Council, insurance business covering products offered as insurance other than life insurance is business supporting adaptation to climate change, and therefore it is eligible to participate in the system.

4 Resolution of 13 December 2011 on the adoption of the 2030 National Zoning Concept, Official Journal of the Republic of Poland (Monitor Polski) of 2011 No. 137, item 252

5 A call for action; Climate change as a source of financial risk, April 2019