Application of Corporate Governance in 2022

Section 1 of the Best Practice 2021 sets out the rules for ensuring the proper communications with the stakeholders and conducting a transparent and reliable information disclosure policy.

The Company uses various channels of communications with the capital market participants. All of the information required by the law is posted and updated on an ongoing basis on the Company’s website. The Company maintains ongoing contacts with the investors (institutional and individual) as well as the analysts from the brokerage houses and the investment banks. The Company communicates with them at the conferences organized following the publication of every interim report, individual meetings organized at the request of the investors and analysts, and the regularly organized chats for the retail investors. The contact details for the investors along with the available telephone numbers and e-mail addresses, as well as a contact form (rule 1.1.), are provided on the website https://www.tauron.pl/tauron/relacje-inwestorskie.

The Company prepares and publishes, on the Company’s website at the address: https://www.tauron.pl/tauron/relacje-inwestorskie, the periodic (interim) reports containing the financial results as soon as possible following the end of the reporting period. In order to reduce the investors’ uncertainty with respect to the Company’s financial standing, the Company publishes the estimated financial results prior to the publication of the periodic (interim) reports (rule 1.2.).

the Company also incorporates the ESG subjects into its business strategy, including in particular:

1. environmental issues, including the metrics and risks related to climate change and the sustainability issues,
2. social and labor issues, including the measures, taken and planned, aimed at, among others, ensuring gender equality, sound working conditions, respect for the employees’ rights, dialogue with the local communities, customer relations.

The Group’s Strategy also covers the ESG subjects and it was described in current report no. 27/2022 of June 22, 2022. The detailed information on the adopted Strategii is provided in the presentation posted along with the current report on the Company’s website at the address: https://www.tauron.pl/tauron/relacje-inwestorskie/raporty-biezace/raport-biezacy?id=8361315. In addition, the most relevant information with respect to the Strategy was included in the 2021 Integrated Report published on the Company’s website at the address: https://raport.tauron.pl/ (rule 1.3.).

In order to ensure proper communications with the stakeholders, with respect to the adopted business strategy, the Company posts, on the Company’s website at the addresses: https://www.tauron.pl/tauron/o-tauronie/tauron-dla-otoczenia/zielony-zwrot and https://www.tauron.pl/tauron/o-tauronie/raportowanie-esg, the information on the assumptions of the strategy it has, measurable goals, including in particular the long term goals, planned activities and the progress in the implementation thereof, defined by the metrics, financial and non-financial. The information on strategy in the ESG area, among other things: explains how the climate change issues are taken into account in the decision making processes of the Company and those of its Group’s entities, indicating the risks involved with respect thereto (rule 1.4.).

The Company discloses the expenses incurred thereby and its Group to support culture, sports, charitable institutions, the media, social organizations, trade unions, etc. in the Report of the Management Board on the Operations of TAURON Polska Energia S.A. and  TAURON Capital Group in section 2.9. (rule 1.5.).

The Company holds conference calls for the investors, analysts and media representatives every time after the publication of the financial results. These conference calls are made available online in real time to all of the interested parties. During the earnings conference calls, the representatives of the Management Board of the Company present and comment on the financial results posted, the adopted strategy and the implementation thereof, as well as the most important events that have an impact on the operations of the Company and TAURON Capital Group, as well as the outlook for the future. During the meetings, the Management Board of the Company publicly provides explanations and gives answers to the questions asked (rule 1.6.).

Investors may submit their questions in writing, by phone, via e-mail or using the contact form available on the website https://www.tauron.pl/tauron/relacje-inwestorskie/kontakt-dla inwestorow/formularz. The Company has adopted a Procedure for disclosing the information on the Company and the subsidiaries thereof for the purpose of the Investor Relations, along with an indication of the deadlines for completing the individual activities. The answers to the questions are provided immediately, and in the case of the issues that would require in-depth analyses / calculations, within 10 days (rule 1.7.).

Section 2 of the Best Practice 2021 sets out the rules with respect to the performance of the Management Board and the Supervisory Board of their duties.

At least two members of the Supervisory Board shall meet the independence criteria listed in the Act of May 11, 2017, on certified auditors, audit firms and public oversight, and have no actual and material ties to a shareholder holding at least 5% of the total number of votes in the company (rule 2.3.).

The Company shall ensure that the voting of the Supervisory Board and the Management Board is public, unless otherwise provided for by the legal regulations (rule 2.4.).

The Rules of Procedure of the Company’s Supervisory Board and the Rules of Procedure of the Company’s Management Board shall provide for the voting Members of the Management Board and the Supervisory Board to submit a dissenting opinion to the minutes (rule 2.5.).

Serving on the Company’s Management Board shall be the main area of the professional activity of the Members of Management Board, and the performance of functions by the Members of the Management Board on the corporate bodies of the entities outside of the Capital Group shall require an approval of the Supervisory Board (rule 2.6. and rule 2.7.). The Members of the Supervisory Board shall be able to devote the required amount of time to perform their duties (rule 2.8.)., the Chairperson of the Supervisory Board shall not manage the works of the Audit Committee (rule 2.9.)., and the administrative and financial resources shall be delegated in accordance with the Company’s size and the Company’s financial position to ensure the efficient functioning of the Supervisory Board (rule 2.10.).

Once a year, the Supervisory Board shall prepare and submit to the Ordinary General Meeting for approval an annual report that includes at least the information indicated in rule 2.11.

Section 3 of the Best Practice 2021 refers to the efficient operation of the Company’s internal systems and functions as the tools to be used for the oversight.

The Company shall maintain the following effective systems: internal control system, risk management system and compliance system, as well as an effective internal audit function, corresponding to the size of the Company and the type and scale of its operations (rule 3.1.). The Company shall have in place separate units responsible for the tasks of the individual systems or functions (rule 3.2.).

The Company has appointed an internal auditor who shall manage the internal audit function acting in accordance with generally recognized international standards of professional internal audit practice (rule 3.3.).

The compensation of the persons responsible for the risk management and compliance as well as that of the head of the internal audit shall depend on the performance of the assigned tasks and not on the Company’s short term results (rule 3.4.). The persons responsible for the risk management and compliance shall report directly to the President or another Member of the Management Board (rule 3.5.).

At least once a year, the person in charge of internal audit shall submit to the Supervisory Board an assessment of the effectiveness of the systems and functions referred to in rule 3.1, along with a corresponding report (rule 3.8.). The Audit Committee shall monitor the effectiveness of the following systems: internal control system, risk management system, compliance system, and the internal audit function, while the Supervisory Board shall perform an annual assessment of the effectiveness of the functioning of these systems and functions (rule 3.9.). By 2026, the Company is planning to perform an independent assessment of the internal audit function (rule 3.10.).

Section 4 of the Best Practice 2021 sets out the rules for holding the General Meetings and the other rules aimed at encouraging the shareholders to get involved in the Company’s affairs.

Pursuant to the Regulations of the General Meeting, the Company shall determine the place and date, as well as the form of the General Meeting in a manner that would enable the participation of as many shareholders as possible (rule 4.2.).

The Company shall provide a publicly available broadcast, in real time, of the General Meeting, and the representatives of the media shall be allowed to attend the General Meetings (rule 4.3. and rule 4.4.).

In case the General Meeting is convened by an entity or authority other than the Management Board pursuant to the provisions of the Code of Commercial Companies, the Management Board shall take all of the required steps to convene, organize and conduct the General Meeting (rule 4.5.).

The draft resolutions of the General Meeting related to the issues and decisions other than those of a procedural nature shall include a justification (statement of reason), unless it stems from the documentation presented to the General Meeting (rule 4.6.).

The Supervisory Board shall provide its opinion (feedback) on the draft resolutions to be put on the agenda of the General Meeting by the Management Board (rule 4.7.).

In accordance with the Regulations of the General Meeting the Shareholders should submit draft resolutions of the General Meeting on the issues put on the agenda of the General Meeting no later than 3 days prior to the General Meeting (rule 4.8.).

Pursuant to the Regulations of the General Meeting, the shareholders who intend to propose candidates for the members of the Supervisory Board should provide the Company with the justification of the candidates along with the professional CVs of the candidates and a complete set of materials related thereto, by the deadline that would enable the other shareholders to study them before the General Meeting is held and to make a decision on the appointment of a member of the Supervisory Board based on the adequate knowledge, but not later than 3 days prior to the General Meeting. The information received from the shareholders shall promptly be made available by the Company to the other shareholders in the manner specified in the announcement (notice) on the General Meeting for the provision of the documentation and the draft resolutions to be presented to the General Meeting. A shareholder proposing the candidates for the members of the Supervisory Board shall submit to the Company, along with the justification for the candidate, a statement of the candidate on the candidate’s compliance or non-compliance with the independence criteria specified in the Act of May 11, 2017 on certified auditors, audit firms and public oversight, as well as on the existence or non-existence of the actual and material ties between this candidate and a shareholder holding at least 5% of the total number of votes in the Company (rule 4.9.).

The Members of the Management Board and of the Supervisory Board shall participate in the sessions of the General Meeting in a group of its representatives that would enable them to provide substantive answers to the questions asked during the General Meeting. The Members of the Management Board and of the Supervisory Board as well as the certified auditor of the Company shall, within the limits of their competences and to the extent required to evaluate the matter included in the agenda of the General Meeting, provide the participants of the Meeting with the explanations and information regarding the Company. The Management Board shall present to the participants of the Ordinary General Meeting the financial results of the Company and other material information contained in the financial statements subject to the approval by the General Meeting (rule 4.11.).

In accordance with the Regulations of the General Meeting, a resolution of the General Meeting on the issue of the shares with the subscription rights (rights issue) shall specify in detail the issue price or the mechanism for the determination thereof, or shall oblige the authorized body to determine it prior to the subscription right date, within the time that would enable making of the investment decision Since the date of the Best Practices 2021 coming into force, there have been no resolutions of the General Meeting on the issue of shares with the subscription rights (rights issue) (rule 4.12.).

In accordance with the Regulations of the General Meeting a resolution on a new issue of the shares with the exclusion of the subscription rights, which at the same time grants the pre-emptive right to take up the newly issued shares to the selected shareholders or other entities, may be adopted if at least the following conditions are met:

1. The Company has a rational, economically justified need to urgently raise capital or the issue of the shares is related to the rational, economically justified transactions, among others such deals as a merger with or an acquisition of another company, or the shares are to be taken up under the incentive program adopted by the Company,
2. people who will be entitled to the pre-emptive rights will be identified according to the objective general criteria,
3. the price of the shares to be taken up will be in a rational relation to the current price of the Company’s shares or will be determined as a result of the market based book building process.

Since the date of the Best Practices 2021 coming into force, there have been no resolutions of the General Meeting on the new issue of shares with the exclusion of the subscription rights (rule 4.13.).

Section 5 of the Best Practice 2021 sets out the procedures for managing a conflict of interest and concluding transactions with the related entities under such conditions when there is a possibility of a conflict of interest arising.

In accordance with the Regulations of the Management Board and the Regulations of the Supervisory Board of TAURON Polska Energia S.A., the Members of the Management Board or of the Supervisory Board shall inform the Management Board or the Supervisory Board, respectively, of any conflict of interest or the possibility of the occurrence thereof and they shall not participate in the consideration of a matter in which a conflict of interest may arise with respect thereto (rule 5.1.).

In accordance with the Regulations of the Management Board of TAURON Polska Energia S.A., if a Member of the Management Board or of the Supervisory Board considers that a decision of the Management Board or of the Supervisory Board, respectively, is contrary to the interests of the Company, he/she should demand that his/her dissenting opinion on the matter be included in the minutes of the meeting of the Management Board or of the Supervisory Board (rule 5.2.).

In accordance with the procedures implemented in the Company, no shareholder shall be privileged over the other shareholders in relation to the transactions with the related entities. This shall also be applicable to the transactions between the Company’s shareholders and the entities that are a part of the Company’s group (rule 5.3.).

In accordance with the Company’s Articles of Association a resolution of the General Meeting authorizing the Management Board of the Company to take steps aimed at acquiring the shares to be redeemed shall specify the conditions for the purchase of the shares by the Company (buy-back), while ensuring that the rights of all of the shareholders are respected (rule 5.4.).

In case a transaction of the Company with a related entity requires an approval of the Supervisory Board, prior to adopting a resolution on granting the approval, the Supervisory Board shall assess whether it is necessary to first consult an external entity that will carry out the valuation of the transaction and analyze its economic effects (rule 5.5.). On the other hand, if the conclusion of a transaction with a related entity requires an approval of the General Meeting, the Supervisory Board shall prepare an opinion on the legitimacy of concluding such a transaction and, in such a case, shall assess the need to consult an external entity referred to in the previous sentence (rule 5.6.).

In case the decision on the conclusion by the Company of a material transaction with a related entity is made by the General Meeting, prior to making such a decision, the Company shall provide all of the shareholders with access to the information required to assess the impact of this transaction on the Company’s interest, including providing the opinion of the Supervisory Board referred to in rule 5.6. (rule 5.7.).

The Company publishes on its website a list of the material transactions with the related entities drawn up in accordance with Art. 90i of the Act of July 29, 2005, on a public offering and conditions of introducing financial instruments to an organized trading system and on public companies: https://www.tauron.pl/tauron/relacje-inwestorskie/wykaz-istotnych-transakcji.

Section 6 of the Best Practice 2021 sets out transparent, fair, consistent and non-discriminatory principles for the compensation of the management team.

The compensation of the Members of the Management Board of the Company and of the Supervisory Board of the Company as well of the key managers is sufficient to attract, retain and motivate people with the competencies required for the proper management and oversight of the Company. The amount of the compensation is adequate to the tasks and duties performed by the individuals and the responsibility related thereto (rule 6.1.). The amount of compensation of the Members of the Supervisory Board is not dependent on the Company’s short term performance (rule 6.5.).