Sustainable development report of the ENEA Group for 2019

We manage risks related to our activity in a systematic and coordinated manner to ensure the maximum possible protection against their effects, should they occur.

The enterprise risk management model in the ENEA Group relies on coordination of the process by ENEA S.A. The Risk Management Department functioning in the Company consists of two offices responsible for, respectively, managing financial risk and managing business risk, business continuity and insurance. The individual Group companies operate units responsible for risk management, which cooperate with the Risk Management Department at ENEA S.A. This model is supplemented by the business continuity management system in place in the Group, which identifies the critical processes in individual companies and implements mechanisms and procedures to ensure their continuity in emergencies.

The process for managing enterprise risk (including non-financial risks) is regulated by appropriate policies, procedures and methodologies. The overriding document regulating the whole risk management area is the ENEA Group Enterprise Risk Management Policy.

Effectiveness of the enterprise risk management process is ensured by:

identification of risks, including non-financial risks (e.g. risks related to climate change) at the level of individual Group companies, which captures the unique features of their activity;

development of policies, procedures and methodologies for selected segments of the process;

three-stage approach to the process: identification and assessment of new risks, monitoring of existing risks and reporting;

operational management of the risks by individual companies, within the limits granted and according to the rules approved by the ENEA Group Risk Committee;

business continuity management system.

Notably, the risk management system allows the Group to identify financial and non-financial impact of a single risk.

Risk Committee

The Risk Committee is composed of the selected members of the ENEA S.A. Management Board and the boards of the subsidiary companies, as well as the directors of departments of ENEA S.A. responsible for the key business areas.

In the enterprise risk management process, non-financial risks have been identified for the key Group companies that may have a significant negative impact on the labor, social, environmental, human rights areas and on anti-corruption and anti-bribery issues.

Labor area

risk of generation gap,
risk of social unrest if the social stakeholders fail to reach an agreement when the provisions of the internal collective bargaining agreement are revised or when new methods of human resources management are introduced,
risk of accidents at work or occupational diseases,
risk of disputes with employees, groups of employees, trade unions.

Social area

risk of breaching reporting duties (e.g. by releasing confidential information or information that may affect investor decisions to the media, by failing to meet the deadline to disclose any information, by formulating disclosures in a way that may be misleading),
risk of improper information management (including lack of information) in a crisis situation, releasing contradictory information to the public or disclosure of information by unauthorized employees,
risk of an increase in the number of claims of property owners for payment of past due amounts for transmission easement/tenancy of properties,
risk of causing damage or losses to customers and third parties,
risk of delays in the completion of the investment projects that are required for connections,
risk of delays in obtaining or failure to obtain connection decisions that are of crucial importance to customers,
risk of failure or damages to infrastructure critical for the production and supply of electricity,
commodity risks related to the production of electricity (e.g. caused by a counterparty defaulting on its contractual obligations relating to fuel supply or transport services).

Human rights area

risk of infringement of personal data protection provisions (e.g. as a result of human error; unfamiliarity with or violation of the law and internal regulations by employees or associates; failure of an IT system; cyberattack),
risk of violating the provisions on competition and consumer protection.

Environmental area

risk of failure to adapt the technology to the requirements of environmental legislation (BAT conclusions), which may result in reduced utilization of production capacity,
risk of failure to adapt the technology to the requirements of environmental legislation (IED),
risk of unavailability of FGD, SCR and/or electrostatic precipitators due to a failure of these units, which may cause higher environmental charges or reduced utilization of the production capacity,
risk of failure to conform to the terms and conditions of the applicable permissions with respect to:
- water and sewage management (including the instream flow requirements and the permitted temperature of spent cooling water),
- waste management, including sludge from flue-gas desulfurization installations,
- atmospheric emissions, including NO_x, SO₂ and particles,
risk of reducing or ceasing the activity due to a failure to obtain valid environmental decisions and permits,
risk of statutory fines for non-compliance with the obligation to install video surveillance on the landfill where slag-ash mixtures are stored,
risk of exceeding the mass of stored waste specified in the environmental permit (this applies to remaining waste, other than combustion side products),
risk of an increased amount of ammonia in combustion waste and in plaster,
risk of causing damage to elements of natural environment in connection with the operation of or execution of investment projects on or near the electric power grid.

Anti-corruption and anti-bribery area

risk of irregularities in making “emergency contracts”,
the risk that the ENEA Foundation grants financial, material or organizational assistance to entities acting against the law or taking actions contrary to the interest of the ENEA Group or public good.

The Risk Management Department at ENEA S.A. has also highlighted the risks associated with the Group’s impact on the climate:

risk of causing damage to elements of the natural environment in connection with the operation of or execution of investment projects on or near the electric power grid,
risk of failure to conform to the terms and conditions of the applicable permissions with respect to:
- water and sewage management (including the instream flow requirements and the permitted temperature of spent cooling water),
- waste management, including sludge from flue-gas desulfurization installations,
- atmospheric emissions, including NO_x, SO₂ and particles,

and risks associated with the impact of the climate on the Group:

risks related to the transformation
- risk of failure to adapt the technology to the requirements of environmental legislation (BAT conclusions, IED), which may result in reduced utilization of the production capacity,
- risk of difficulty in attracting and retaining employees in connection with increasing environmental awareness (as part of the risk of generational gap);
risks related to the effects of climate changes:
- risk of more frequent damages in the electric grid in connection with increased intensity of storms and wind,
- risk of periodic shutdowns of power units in connection with the falling level of water in rivers,
- risk of limitations for cooling power units and for discharging wastewater into rivers due to prolonged hot periods,
- risk of interruptions in electricity production due to stronger floods.

As at the publication date of the report, the risks related to climate changes have not been identified for the short-, medium- and long-term horizon. Also, the risk has not been analyzed for the whole supply chain. At present, the enterprise risk management system is focused on managing risks. The analytical work is conducted to introduce the process of identifying opportunities associated with climate changes.

Company name	Non-financial risk	Risk management
ENEA S.A.	Risk of a generation gap	Update of remuneration systems – providing an incentive-based remuneration system preventing the potential outflow of key competences and attracting new personnel with the desired competence. Employer branding activities, including those addressed to students and graduates. Unification of the development activities process to allow Employees to improve their competences on equal terms.
ENEA S.A.	Risk of social unrest	Regular meetings with trade unions, active and open dialog with the social stakeholder in respect to information about the Company’s activity, planned changes, financial performance, HR, health and safety issues, etc. Appropriate selection of the means to communicate important organizational or business changes to the Group’s Employees.
ENEA Bioenergia	Risk of an insufficient number of qualified Employees	Signing of contracts for an indefinite term and, if Employees use adult education support, signing of loyalty agreements. Filling of vacancies related to retirement of Employees.
ENEA Logistyka	Risk of an insufficient number of qualified Employees	Active search for Employees with appropriate competence in the ENEA Group and on the external market.
ENEA Operator	Risk of difficulties in recruiting specialists caused by insufficient interest in the profession of electrical technician and insufficiently attractive remuneration	Establishing cooperation with vocational schools (which includes, among others, adjusting the curriculum to match the company’s needs), ongoing monitoring of the level of salaries by the Management Board, participation in job fairs.
ENEA Oświetlenie	Risk of difficulties in recruiting specialists	Launching patronage of selected technical schools, acceptance of apprentices, participation in the “Get Installed at ENEA” program.
ENEA Elektrownia Połaniec	Risk of a failure to ensure the optimal competence level in order to maintain appropriate level of performance of the company’s operations in the 2018-2022 period (during the generation shift)	identification of the company’s staffing needs, analysis of the Employees retirement rights, constant monitoring of employee turnover, planning and effective implementation of recruitment processes, organization of training courses (including on-the-job training), preparation of long-term employment plans.
ENEA Pomiary	Risk related to the lack of candidates for electrical equipment installer jobs	Patronage over selected technical schools, participation in the dual studies program, development of potential Employees by accepting trainees.
ENEA Serwis	Risk of a generation gap	Elimination of differences in salaries in different organizational units in the Company and actions aimed at accepting ENEA Operator’s pay scales. Running patronage classes in technical schools and a practical (dual) education program for students.
ENEA Trading	Risk of errors in calculation of salaries in connection with inconsistent employee remuneration principles as a result of employee transfers under Article 231 of the Labor Code.	Starting the unification of remuneration principles by introducing a single internal collective bargaining agreement.
MR Bogdanka	Risk of shortage of Employees with appropriate qualifications, driven by the low supply of such candidates on the local market and high financial demands due to, among others, increased costs of commuting	Close cooperation with the County Labor Office in Łęczna to improve or change qualifications of the persons employed in the Company, cooperation with schools to reach future graduates with job offers, an incentive-based remuneration system.
RG „Bogdanka”	Risk of insufficient number of Employees or lack of Employees with specific competence	Regular recruitment of Employees, which including hiring people with basic qualifications for professional training and supporting the development of staff in accordance with the available career paths.
ENEA Innowacje	Risk of hiring Employees with inadequate competence	Launching a traineeship program, recruitment within the Group, a broad-based cooperation program with universities.
ENEA Ciepło Białystok CHP Plant Division	Risk of a generation gap	Studying staffing needs and employment planning together with trade unions, also in the context of the Employees acquiring retirement rights, interviews conducted by organizational unit managers with Employees about the planned retirement dates, implementation of succession plans, examining and planning training needs.

Company name	Non-financial risk	Risk management
ENEA Bioenergia	Risk of accidents at work and occupational diseases	Introducing instructions for safe operation of individual machinery, purchasing machines that reduce occupational risks related to vibration, ensuring the correct temperature in vehicles, building a waste handling box to reduce the risk associated with dust, obtaining certificates of qualification for the operation of bucket-wheel excavators, purchasing a gas meter.
ENEA Centrum	Risk of fire	Evacuation exercises, training.
ENEA Elektrownia Połaniec	1. Risk of failure to adapt internal regulations to the provisions of the new regulation on occupational health and safety near power equipment	1. Appointing a team for developing the new edition of Instruction on Safe Work Organization in ENEA Elektrownia Połaniec S.A.
	2. Risk that machinery and equipment do not meet the minimum OHS requirements	2. Conducting periodic reviews of machinery and equipment in this respect.
	3. Risk resulting from low OHS awareness and competence of employees and contractors	3. Conducting training, instructions and knowledge contests, updating the Intranet site on the subject of OHS on an ongoing basis.
	4. Risk of lack of up-to-date operation and maintenance manuals for machinery	4.Appointing teams to review and update instructions.
	5. Risk related to the language barrier for contractors’ Employees	5. Enforcing the requirement for contractor Employees to have command of Polish language or the contractor hires a representative with fluent knowledge of the Polish language.
Lubelski Węgiel „Bogdanka”	Risk of lethal, severe and group accidents at work and excessive absenteeism due to illnesses and accidents	Continuous improvement of the Employee training process, monitoring of existing/acquired knowledge in the area of OHS, use of safe working methods, use of appropriate collective and individual safety equipment, social reviews of working conditions in selected divisions.
ENEA Ciepło Białystok CHP Division	Risk of accidents at work and occupational diseases	Periodic reviews of fire installations, protective measurements of power installations, reviews of individual protection equipment and measurements of the working environment, air-tightening of dump stations and installation of water mist sprinkler systems, removal of dust settled on the surface of floors and machinery, introduction of the obligation to use respiratory protection into job instructions, developing instructions for handling carcinogens and keeping the register of Employees exposed to carcinogenic substances, designation of protective zones for selected positions resulting from measurements of the magnetic and electric field, performance of certain types of work only on written orders, usage of gas detectors and self-rescue devices during the remedial of environmental emergencies.
ENEA Ciepło Serwis Białystok CHP Plant Division	1. Health risks related to removal of asbestos and cement insulation from the heating network.	1. Training for manual workers and their supervisors, who are or may be exposed to dust arising from asbestos due to their responsibilities.
ENEA Ciepło Serwis Białystok CHP Plant Division	2. Risk of occupational diseases.	2. Measurements of harmful, noxious and hazardous factors linked on selected positions (welder, woodchip supply coordinator, biomass equipment supervisor, biomass specialists, heavy machinery operators, drivers, Employees removing the asbestos and cement insulation, fitters of heating devices and installations).

Company name	Non-financial risk	Risk management
ENEA S.A.	Risk of loss of brand reputation due to imprecise communication of the Group’s position	Application of communication procedures in crisis situations. Maintaining efficient communication channels with key business units.
ENEA Operator	Risk of protests against the company’s investment projects (especially line projects)	Developing a document entitled Standards for building and implementing communication and PR strategies for ENEA Operator’s key network investment projects, which assumes that external stakeholders, including local communities and local governments, are included in the communication process. It also contains examples of CSR and PR activities that reduce the risk of protests.
ENEA Wytwarzanie	Risk of protests by environmental organizations against the investment projects carried out	Conducting health promotion activities (e.g. “ENEA for health”) and pro-environmental activities (e.g. “The Green Side of the Kozienice Power Plant”).
Lubelski Węgiel „Bogdanka”	1. Risk of discontinuation of communication with representatives of the local community	1. Cooperation between the unit coordinating CSR activities and all divisions and subsidiaries, publication of non-financial reports annually, signing of letters / agreements with partners from the scientific, NGO and business community, organization of dialog sessions with stakeholders, regular meetings with representatives of trade unions and the Social Committee, development of the Social Involvement Policy, launching the “Socially Engaged Bogdanka” program to implement initiatives proposed by Employees.
Lubelski Węgiel „Bogdanka”	2. Risk of incorrect implementation of the corporate social responsibility strategy (failure to achieve the assumed social objectives, failure to engage stakeholders in the company’s initiatives).	2. Development of the Social Responsibility Strategy for 2018-2021 by an interdisciplinary team, taking into account the outcome of the dialog sessions with representatives of key stakeholder groups based on the AA1000 standard.
ENEA Ciepło	Risk of social dissatisfaction and negative reception of the ENEA brand in connection with increases in heat prices	Providing a communication to the media containing a clear explanation of the reasons for the rising heat prices and notifying the Company’s Customers in this respect with the required lead time.

Company name	Non-financial risk	Risk management
ENEA Operator	Risk of the necessity to pay rebates for late examination of complaint notifications in connection with the amendment of the secondary legislation to the Energy Law	Continuation of work on automating the process of granting rebates in the billing system, continuous monitoring of the fulfillment of notifications subject to the rebate granting system.
ENEA Pomiary	1. Risk of breaching personal data protection of ENEA Operator’s customer	1. Signing of the agreement to entrust personal data, signing of confidentiality agreements by the company’s Employees and associates, GDPR and personal data protection training, ensuring physical and organizational security of facilities (video surveillance, facility cards).
	2. Risk of failing to keep the delivery schedule of metering devices	2. Contracts signed with external suppliers to provide transport services.
	3. Risk of failing to keep meet the deadlines for reading electricity meters	3.Ongoing monitoring of reading processes, development of the Meter Reading Order Management Instructions.
	4. Risk of failing to perform technical orders within the specified timeframe.	4. Ongoing monitoring of the fulfillment of technical orders
	5. Risk of injury to fitters caused by customer aggression	5. Training to improve knowledge and personal culture of fitters, development of the Work Instructions of a Metering Device Installer.
ENEA Centrum	1. Risk of losing access to billing systems	1-4. Adequate mitigating measures undertaken by the IT function.
	2. Risk of attack on the IT infrastructure
	3. Risk of loss of continuity of ICT environments and infrastructure
	4. Risk of no connection with the Internet
	5. Risk of breaching personal data protection laws and internal regulations	5. Coordination of activities by the data protection supervisor, including induction and periodic training, scheduled reviews, security measures of personal data processing systems.
ENEA S.A.	Risk related to violation of competition and consumer protection regulations.	Changing processes and educating Employees based on the analysis of Customer complaints and notifications, standardizing the templates of agreements with Customers and responding to recurring notifications from Customers, cooperating with the Energy Trading Association regarding Customer education, application of Best Practices of Electricity and Gaseous Fuel Suppliers.

Company name	Non-financial risk	Risk management
ENEA Elektrownia Połaniec	Risk of losing the permit for co-firing of waste due to a change in business assumptions (freezing of the project of continuous co-firing of alternative fuels in units 2-7)	The company plans to equip the waste treatment plant with hydrocyclone batteries in order to limit the volume of sludge produced in the FGD process and then to install a filter press. It carries out research in order to demonstrate that the FGD sludge has properties preventing the slagging of EP 650 boilers. Adaptation of the terms of the integrated permit to the requirements of BAT conclusions.
ENEA Wytwarzanie	1. Risk of reducing or ceasing the activity of the Kozienice Power Plant due to a lack of valid environmental decisions and permits as a result of actions taken by environmental organizations (challenging and demanding cancellation of permits and decisions held by the Power Plant, joining the proceedings for the amendment of integrated permits in order to protract them, etc.).	1. Cooperation with leading law firms (representing the Company in lawsuits and before the authorities issuing relevant decisions and permits) and with the Mazowiecko-Świętokrzyskie Ornithological Society (representing the Company in contacts with environmental organizations).
	2. Risk of fines levied for incorrect or late settlement of the volumes of greenhouse gas emissions	2. Effective oversight over the implementation of the monitoring plan, which is an integral part of the decision issued by the Mazowieckie Voivodship Marshal’s Office permitting the emission of greenhouse gases; two-stage review of the annual report for the National Center for Balancing and Management of Emissions, which offers the opportunity to correct it before it is sent to the reviewer.
	3. Risk of a failure to adapt the integrated permit for units 1-10 to the amended Waste Act and the Environmental Protection Act, due to the lack of video surveillance on a separated storage site for sludge from industrial wastewater treatment plants	3. Appointment of an expert team to work out the optimum concept of adaptation.
Lubelski Węgiel „Bogdanka”	1. Risk of creating hazards for the aquatic environment	1. Ongoing monitoring of operations in this respect, continuous oversight and ongoing reviews and if needed modernization of individual installations, ongoing training to raise awareness and competence among Employees.
	2. Risk of improper handling of chemical substances	2. The crew is regularly familiarized with the rules of safe use of chemicals and continuous access to these rules is ensured, the regulations governing the use of chemicals are monitored on an ongoing basis.
	3. Risk of failure to adapt the organization to new environmental regulations	3. Continuous monitoring of legal acts being introduced and planned to be introduced and decisions of industry authorities.
ENEA Ciepło Białystok CHP Plant Division	Risk related to pollution (NO_x, particles, SO₂, CO₂, CO, HCl, HF)	Conversion of the coal-fired WR-25-014S no. 1 boiler into a boiler fired by natural gas in the “Zachód” Heat Plant in order to reduce particle and gas pollutants significantly, development of Instruction I-OŚ-15 “Analysis of the risk of monitoring CO₂ emissions”, control of respective stages of activities, from determining the quantity of fuel consumed, to overseeing the combustion process, control of data collection and processing, to the calculation of the volume of all pollutant emissions.
ENEA Wytwarzanie RES Segment	1. Risk of interruption of morphological continuity of rivers where hydro power plants or weirs are localized.	1. Scenario analysis in order to apply the most advantageous solutions in this respect to each individual hydro power plant, cooperation with state units in order to build fish ladders where necessary (fish ladders have been built on the Reda river and one on the Drawa river).
ENEA Wytwarzanie RES Segment	2. Risk of negative influence of wind turbines on bird and bat populations	2. Contracting and overseeing the monitoring of the impact that the company’s wind farms have on these animals.
ENEA Elektrownia Połaniec	Risk of periodic shutdowns of power units in connection with the falling level of water in rivers	Building a flexible weir on the Vistula river, launching a mixed circulation regime, removal of pumps in order to ensure the minimum flow rate.
ENEA Wytwarzanie	Risk of limitations for cooling power units and for discharging wastewater into rivers due to prolonged hot periods.	Starting the unit pump at standstill, starting splash cooling units, temporary restriction of production, construction of fan coolers.

Company name	Non-financial risk	Risk management
ENEA Serwis	Risk related to insufficient awareness of the management and employees with respect to the need to monitor and report corruption incidents (including presumed ones) to appropriate organizational units/cells	Regular training (e-learning, meetings, workshops).

More information on the risk management model in the ENEA Group is provided on Pages 44-47 of the Management Board Report on the Activity of ENEA S.A. and ENEA Group in 2019.

02 ENEA Group

Non-financial risk management