TAURON Group’s risk management strategy

The Enterprise Risk Management System (ERM System) is governed by the Enterprise Risk Management Strategy at TAURON Group that defines the organization’s risk management framework and rules, and its goal is to ensure the consistency of managing the individual risk categories that were detailed in separate regulations, aligned to the specifics of the individual threat groups.

As part of the ERM System, the following Specific Risks are identified within TAURON Group, for which separate Policies tailored to the nature and specifics of the given group of threats are defined:

The basic classification of the corporate risk is presented in Figure below.

Description of TAURON Capital Group’s specific risks in the ERM system

All of the above specific risks take into account climate opportunities and risks.

Roles and responsibilities of the risk management system’s participants

The key assumption of the ERM system is a clear and precise split of tasks and responsibilities, ensuring no conflict of interest. In particular, the system guarantees independence of the risk taking function from risk control and monitoring. This is achieved through the centralization of the control function at the Parent Company’s level, while maintaining the organizational and functional separation of the risk taking function.

As part of the ERM process the roles and responsibilities of all the participants of TAURON Capital Group’s risk management system are defined in detail.

The links between the various roles and documents regulating TAURON Capital Group’s ERM System in detail at are presented in Figure below

The links between the various roles in the context of the ERM Strategy and the documents regulating the ERM System in detail

All of the above specific risks take into account climate opportunities and risks.

Risk management tools

The basic risk control tool is the Risk Appetite, approved by the Company’s Management Board and the Risk Tolerance that specifies TAURON Capital Group’s maximum permitted risk exposure value. The Risk Tolerance level is expressed in the form of a set of metrics and boundary conditions limiting the risk exposure. The Risk Tolerance is a practical translation of the Risk Appetite, in particular taking into account the division into the key categories of the Specific Risks and the Global Limits related thereto. Based on the adopted Risk Tolerance value as well as the approved Global Limits, the Risk Committee approves the sets of the Operational Limits dedicated to the individual risks or the groups thereof.

While carrying out the Risk Management Process (ERM), estimates are made of the probability and impact of risks (both threats and opportunities), placing a value (valuation) on the impact of the individual risk factors on the planned level of EBITDA or other economic data that is material from the point of view of TAURON Group’s operations. The values (valuations) in question constitute a company secret and are not publicly available.

In addition, it is possible to separate and aggregate the individual groups of risk factors (and, similarly, business opportunities) for the purpose of placing a value (valuation) on them and estimating their probability and impact, particularly in the area related to climate change and energy transition of assets (transition risks and opportunities).

Risk model

Risk model defines a consistent risk classification, enabling a consistent and comprehensive capturing of risk across TAURON Capital Group. Each risk identified is assigned to specific categories and sub-categories. The main risk categories and sub-categories, in accordance with TAURON Capital Group’s Risk Model in place, include:

Operational risk, within which the following risks are identified:

Environment – risks determining the impact of the external environment (stakeholders) on the implementation of TAURON Group’s goals,
Technology, infrastructure and security – all events having an adverse effect on the security of employees, information as well as the generation, transmission, mining or IT infrastructure,
Employees and organizational culture – risks related to employee issues and organizational culture as well as the pandemic risk,
Compliance Risk – risks related to non-compliance, internal and external abuse (fraud), as well as unethical behavior,
Customers and contractors (counterparties) – risks related to the volatility of the supplies/services market, failure of the customer/contractor (counterparty) to meet contractual obligations and the adverse changes or terminations of commercial contracts by customers, affecting both volume as well as margin.

Financial and credit risk, within which the following risks are identified:

Finance and credit – risks related to changes in exchange rates and interest rates, as well as the risk of TAURON Group’s contractors (counterparties) defaulting on contractual obligations.

Trading (commercial) risk, within which the following risks are identified:

Trading – risks related to the market volatility of electricity and related products market prices to which the enterprise is exposed.

Regulatory risk, within which the following risks are identified:

Regulations – risks determining the adverse impact of changes in the legislation at the national and the European level having a direct impact on the operations of TAURON Group.