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EU Taxonomy

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sdgs:
  • Goal 6
  • Goal 7
  • Goal 9
  • Goal 11
  • Goal 12
  • Goal 13
On this page you learn
  1. Regulatory framework
  2. Consolidated disclosures of the ORLEN Group
  3. Key performance indicators and relevant accounting principles

Regulatory framework

Regulation (EU) 2020/852 of the European Parliament and of the Council of June 18th 2020 on the establishment of a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088 (“Regulation 2020/852”) has introduced the obligation to include in the Non-Financial Report of the ORLEN Group and ORLEN S.A. for 2022 information on how and to what extent their activities qualify as environmentally sustainable.

The technical screening criteria for determining whether a given economic activity qualifies as environmentally sustainable are set out in Commission Delegated Regulation (EU) 2021/2139 of June 4th 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives (“Regulation 2021/2139”), and in Commission Delegated Regulation (EU) 2022/1214 of March 9th 2022 amending Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities (“Regulation 2022/1214”)1.

The disclosure obligations have been further specified in Commission Delegated Regulation (EU) 2021/2178 of July 6th 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic. activities, and specifying the methodology to comply with that disclosure obligation (“Regulation 2021/2178”)2.

1 Regulation 2021/2139 and Regulation 2022/1214 are jointly referred to as the “Technical Screening Criteria”
2 Regulation 2020/852, Regulation 2021/2139, Regulation 2022/1214 and Regulation 2021/2178 are jointly referred to as the “Taxonomy”

Consolidated disclosures of the ORLEN Group

In this section, ORLEN, being a non-financial parent undertaking, presents disclosures pertaining to the ORLEN Group in accordance with the Taxonomy requirements. In its disclosures for 2021, the Company was obliged to present the proportion of the ORLEN Group’s Taxonomy-eligible economic activities. The disclosures for 2022 for the first time fulfil the obligation to present the extent to which the ORLEN Group’s economic activities are environmentally sustainable, i.e. contribute substantially to at least one of the environmental objectives set out in Regulation 2020/852, do no harm to the other environmental objectives, are conducted in compliance with minimum safeguards, and meet the requirements of the Technical Screening Criteria. The obligation requires, in particular, indication of the percentage of turnover derived from sale of products or provision of services associated with the ORLEN Group’s environmentally sustainable (“Taxonomyaligned”) activities and the percentage of capital expenditure (CapEx) and operating expenditure (OpEx) corresponding to assets or processes associated with environmentally sustainable economic activities (“key performance indicators”, “key indicators”, “KPIs”).

The list of Taxonomy-eligible activities will be expanded by the European Union. At present, work is under way on the Technical Screening Criteria for the next four environmental objectives, namely sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems, which may result in more environmental objectives being contributed to by the ORLEN Group’s existing Taxonomy-eligible activities or in more ORLEN Group’s activities qualifying as Taxonomy-eligible.

Determination of Taxonomy-eligible economic activities

In accordance with Regulation 2021/2178, an economic activity described in relevant delegated acts qualifies as Taxonomy-eligible irrespective of whether that economic activity meets any or all of the Technical Screening Criteria. The ORLEN Group has determined which of its activities qualify as Taxonomy-eligible and Taxonomynon- eligible based on the description of activities contained in the Technical Screening Criteria, and using the NACE codes provided there as ancillary information.

The ORLEN Group’s economic activities that qualify as Taxonomy-eligible are associated primarily with the environmental objective of climate change mitigation. The activities listed at the end of this section of the Report are associated with the ORLEN Group’s revenue generating activities, and activities in which capital expenditure or operating expenditure is incurred.

Activities with which no revenues and no capital or operating expenditures are associated are not subject to the disclosure obligations. Also, early-stage research and development projects do not constitute Taxonomy-eligible activities.

The ORLEN Group has not qualified as Taxonomyeligible its activities related directly to refining processes and based on fossil fuels, as the Taxonomy does not cover activities related to the production and sale of fuels. In the ORLEN Group’s opinion, processes related directly to the production of fuels are not subject to disclosure either, as such activities make no contribution and do not have the potential to make a contribution to any of the environmental objectives, as specified in the Taxonomy. Examples include assets associated with integrated hydrogen installations, as well as other facilities and assets used for refining processes.

Determination of Taxonomy alignment of Taxonomy-eligible economic activities

The process of determining the Taxonomy alignment of Taxonomy-eligible economic activities of the ORLEN Group consisted in examining the satisfaction of criteria of contributing substantially to climate change mitigation, and then, once the activities meeting the substantial contribution criteria were identified, reviewing the satisfaction of doing no significant environmental harm (“DNSH”) criteria against the other environmental objectives. At the same time, an assessment of the ORLEN Group’s compliance with so-called minimum safeguards was performed to determine whether the ORLEN Group has procedures in place to ensure compliance with the OECD Guidelines for Multinational Enterprises, the United Nations Guidelines on Business and Human Rights (including the principles and rights established as part of the eight fundamental conventions of the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work), as well as the principles and rights set forth in the International Bill of Rights.

For some Taxonomy-eligible activities, such as new gas-fired power plant projects, it has not been possible at the current stage to document their alignment with the Technical Screening Criteria, so such activities are disclosed as Taxonomy-eligible but not Taxonomy-aligned, which may change in the future.

Substantial contribution

The Taxonomy has established various substantial contribution criteria for eligible activities. In its analysis, the ORLEN Group assessed satisfaction of the criteria established for each such activity. Below is an explanation how satisfaction of these criteria was assessed for each activity:

1. As regards the following activities: 4.1. Electricity generation using solar photovoltaic technology, 4.3. Electricity generation from wind power, 4.10. Storage of electricity, 6.15. Infrastructure enabling low-carbon road transport and public transport, 7.6. Installation, maintenance and repair of renewable energy technologies, Regulation 2021/2139 has not introduced substantial contribution criteria, as the very conduct of such activities suffices for them to qualify. Hence, the ORLEN Group’s activities such as:

  • electricity generation using solar photovoltaic technology (4.1),
  • electricity generation from wind power (4.3),
  • pumped-storage power plant and energy storage systems in the form of lithium-ion and lead-acid batteries (4.10),
  • electric vehicle charging infrastructure and hydrogen refuelling points (6.15),
  • installation of solar PV systems (7.6),

make a substantial contribution to climate change mitigation.

2. As regards activity 3.14. Manufacture of organic basic chemicals, Regulation 2021/2139 has established GHG emission limits for the substantial contribution criterion. The Group’s activities associated with the production of organic chemicals as part of the Olefins III complex (3.14) satisfy this criterion.

3. As regards activity 4.13. Manufacture of biogas and biofuels for use in transport and of bioliquids, Regulation 2021/2139 has established a number of substantial contribution criteria, including GHG emission limits. Some of the ORLEN Group’s projects associated with the production of advanced biofuels satisfy the substantial contribution criteria.

4. Provisions of the Taxonomy regarding compliance with the substantial contribution criteria of activity 4.9 Transmission and distribution of electricity are not clearly formulated and require interpretation. The ORLEN Group has interpreted the substantial contribution criteria in respect of point 4.9 of Regulation 2021/2139 in light of the requirements under Article 3 and Article 10 of Regulation 2020/852, which stipulate that substantial contribution to climate change mitigation is made by activities associated, among other things, with the distribution of energy from renewable sources. On this basis, the ORLEN Group has assumed that the portion of revenue, capital expenditure and operating expenditure that is associated with the distribution of electricity from renewable sources is Taxonomy-aligned (information on the adopted allocation key is provided in the section concerning the key performance indicators and relevant accounting principles).

In addition, as regards activity associated with the distribution of electricity, Regulation 2021/2139 specifies which infrastructure components can be considered aligned. Infrastructure directly associated with renewable energy sources (i.e. connections and network extensions), electric infrastructure for the electrification of transport, metering infrastructure and the installation of transmission and distribution transformers satisfy the substantial contribution criteria and so the key performance indicators for activity 4.9 include these infrastructure components. Given that some companies active in the energy sector have disclosed all their electricity distribution activities as Taxonomy-aligned, the European Commission should issue a relevant interpretation to ensure the comparability of sector disclosures. Such interpretation could affect the scope of future disclosures.

5. As regards activity 4.15. District heating/cooling distribution, Regulation 2021/2139 has introduced several alternative criteria. Some of the ORLEN Group’s heat distributionactivities meet the definition of an efficient district heating system and satisfy the substantial contribution criteria.

6. As regards activity 4.8. Electricity generation from bioenergy, the Regulation has established different requirements for assessing substantial contribution depending on the total thermal input of an installation. Activities meeting these criteria include electricity generating installations with a total rated thermal input below 2 MW and using gaseous biomass fuels.

Compliance with the DNSH criteria

The DNSH criteria are designed to ensure that economic activities do no significant harm to the other environmental objectives. The combination of the substantial contribution and DNSH criteria is aimed at ensuring that contribution to one of the environmental objectives of the Taxonomy is not made at the expense of other environmental objectives.

The DNSH criteria for activities contributing to climate change mitigation include specific requirements relating to climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems. The DNSH criteria vary from activity to activity (except for those DNSH criteria that apply to climate change adaptation, where the assessment approach is substantially the same for all activities).

The ORLEN Group has analysed compliance with the DNSH criteria for all economic activities meeting the substantial contribution criteria. The analysis included an assessment of the location where a given economic activity is carried out, the specificities of the economic activity concerned and the applicable DNSH criteria. Hence, some activities satisfying the substantial contribution criteria, such as hydropower plants put into operation decades ago, were not considered Taxonomy-aligned as it was impossible to confirm their compliance with the DNSH criteria.

Compliance with minimum safeguards

The assessment of the ORLEN Group’s compliance with minimum safeguards was made on the basis of recommendations contained in the Final Report on Minimum Safeguards, prepared by the Platform On Sustainable Finance, an advisory body to the European Commission (the “Platform”), taking into account the ORLEN Group’s procedures and processes. The assessment was made in relation to four core topics, i.e. human rights, corruption and bribery, fair competition and taxation.

Adherence to the standards of responsible conduct is embedded in the ORLEN Group’s organisational culture. The standards find their reflection in a number of internal procedures and processes. The Group’s main policies for this area include the ORLEN Group Code of Ethics, ORLEN Group Supplier Code of Conduct and ORLEN Group Human Rights Policy, implemented in 2022.

The ORLEN Group’s due diligence activities are constantly developed and implemented in a way facilitating their integration, which is particularly important given the acquisitions of the LOTOS Group and PGNiG Group completed in 2022.

In its recommendation concerning assessment of compliance with the minimum safeguards, the Platform refers to violations identified for individual topics. During the period under review, a final judgment in anti-trust proceedings was issued against one of the subsidiaries, but it relates to behaviour from more than five years ago which, in the Company’s opinion, can in no way affect the assessment of compliance in 2022. Other than that, no notifications were found in the registers of the OECD’s National Contact Point or the Business and Human Rights Resource Centre (BHRRC).

For detailed information on the core topics for which compliance with minimum safeguards should be defined, see the dedicated sections of the Non- Financial Report of the ORLEN Group and ORLEN S.A. for 2022 (s. 45, 47, 121, 285).

Key performance indicators and relevant accounting principles

Key performance indicators have been calculated in accordance with the guidelines set out in Regulation 2021/2178.

In order to calculate the proportion of turnover, capital expenditure (CapEx) or operating expenditure (OpEx) that is associated with environmentally sustainable activities, the same accounting principles were applied as those used to prepare the ORLEN Group’s consolidated full-year financial statements. The calculation of the key performance indicators for the Group took into account the relevant consolidation eliminations applied in the preparation of the financial statements. The presentation of KPIs excludes intra-group sales and turnover resulting from own consumption. It should be noted that no portion of revenue, capital expenditure or operating expenditure was double counted. The ORLEN Group also operates outside Poland. All its activities were assessed in the same way as the activities carried out in Poland.

In the case of the electricity distribution activity (activity 4.9), the energy balance was used to determine the ratio of renewable electricity fed into the grid and distributed and, based on this ratio, it was determined what proportion of revenue, capital expenditure and operating expenditure is associated with the Taxonomy-aligned activity. The key performance indicators for activity 4.9 additionally include the infrastructure components indicated in point 4.9 of Regulation 2021/2139.

Turnover KPI

The turnover KPI was determined by dividing net revenue from sale of products or provision of services associated with Taxonomy-aligned economic activities of the ORLEN Group by the ORLEN Group’s consolidated revenue. The Parent of the ORLEN Group supervised the process of preparing the key performance indicators, and verified financial data related to the environmentally sustainable activities in order to avoid double allocation of any amount to the KPIs.

The basis for calculating the turnover KPI was the ORLEN Group’s consolidated revenue for 2022 disclosed in the consolidated financial statements under Revenue, described in Notes 13.1, 13.2 and 13.3.

The turnover KPI was calculated using financial data on external sales of products and services associated with environmentally sustainable economic activities.

The Company does not present a breakdown of the numerator of the turnover KPI into lease revenue and other revenue as 98.5% of the ORLEN Group’s revenue is derived from contracts with customers.

CapEx KPI

The CapEx KPI was calculated by dividing total capital expenditure associated with environmentally sustainable economic activities by total capital expenditure of the ORLEN Group. With regard to capital expenditure, the basis for calculating the KPI was the ORLEN Group’s capital expenditure including an increase in property, plant and equipment, intangible assets, investment property and right-of-use assets, together with capitalisation of borrowing costs, and decrease due to liquidated damages received or receivable for delayed contract performance, recognised in the consolidated financial statements for 2022 and described in Note 11 Revenue, expenses, financial results, increase in non-current assets.

The difference between the amount of capital expenditure disclosed in the consolidated financial statements of the ORLEN Group and the denominator of the CapEx KPI results from including in the denominator property rights acquired (for details, see Note 14.2.2 Property rights), and an increase in property, plant and equipment, intangible assets and other non-current assets on the acquisition of new companies (excluding goodwill) as at the date of acquiring control (for details, see Note 7.3 Accounting for acquisitions of shares under IFRS 3 Business Combinations).

The ORLEN Group does not include in the denominator of CapEx KPI property rights received free of charge or goodwill, which is not defined as an intangible asset under IAS 38.

Where the same items of property, plant and equipment or intangible assets were also used to produce products or services associated with Taxonomy-eligible economic activities, the capital expenditure was disaggregated. In calculating the amount of capital expenditure (the numerator of the KPI for the relevant activity), the utilisation rate of the assets was taken into account. When an asset was used for different Taxonomy-eligible economic activities, the capital expenditure amounts were allocated to the numerator only once.

The CapEx KPI reflects capital expenditure incurred under a plan (the “CapEx Plan”) aimed to expand Taxonomy-eligible economic activities or upgrade Taxonomy-eligible economic activities to render them Taxonomy-aligned. Details of capital expenditure included in the numerator of the CapEx KPI, including capital expenditure incurred as part of the CapEx Plan, are shown in Table 1.

Table 1 - Quantitative breakdown at economic activity aggregated level of amounts included in the CapEx numerator into the categories identified at the ORLEN Group as defined by Regulation 2021/2178.

OpEx KPI

The OpEx KPI was calculated by dividing total operating expenditure associated with Taxonomyaligned economic activities by total operating expenditure.

With respect to operating expenditure, the basis for calculating the KPI was the ORLEN Group’s operating expenditure, which includes direct non-capitalised costs related to research and development, building renovation activities, short-term leases, maintenance and repairs, and any other direct costs related to the day-to-day operation of property, plant and equipment. In calculating direct costs related to the day-to-day operation of property, plant and equipment, maintenance costs were taken into account, in particular cost of maintenance and repair of machinery, maintenance materials cost, and IT cost dedicated to plant maintenance and service cost. The OpEx amount includes the cost of maintenance and repair services provided also within the ORLEN Group. Details of operating expenses included in the numerator of the OpEx KPI are presented in Table 2.

Additional disclosures

Additionally, the ORLEN Group has joint ventures accounted for with the equity method, such as Basell ORLEN Polyolefins Sp. z o.o. and Baltic Power Sp. z o.o. The CapEx KPI does not include capital expenditures of PLN 73.3m incurred by the ORLEN Group in 2022 on the development of a project to construct a wind farm of Baltic Power Sp. z o.o. Disclosures on additional KPIs related to investments accounted for with the equity method are not required.

The presentation of Tables 2-10 fulfils the obligation to disclose key performance indicators, taking into account the requirements of Regulation 2021/2178 and Regulation 2022/1214.

The CapEx KPI reflects capital expenditure incurred under a plan (the “CapEx Plan”) aimed to expand Taxonomy-eligible economic activities or upgrade Taxonomy-eligible economic activities to render them Taxonomy-aligned. Details of capital expenditure included in the numerator of the CapEx KPI, including capital expenditure incurred as part of the CapEx Plan, are shown in Table 2.

Table 2 – Quantitative breakdown of amounts included in operating expenditure

Table 3 – Proportion of turnover from products or services associated with Taxonomy-aligned economic activities

Table 4 – Proportion of capital expenditure on products or services associated with Taxonomy-aligned economic activities

Table 5 - Proportion of capital expenditure on products or services associated with Taxonomy-aligned economic activities 

Table 6 - Nuclear and gas activities

Table 7 - Taxonomy-aligned economic activities (denominator)

Table 8 - Taxonomy-aligned economic activities (numerator)

Table 9 - Taxonomy-eligible economic activities that are not Taxonomy-aligned

Table 10 - Taxonomy non-eligible economic activities

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