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ESG

ESG Risk Management at PKO Bank Polski

ESG (Environmental, Social and Governance) risk management constitutes an important element of the management framework at PKO Bank Polski. Due to its cross-sectional nature, ESG risk affects multiple areas of the Bank’s operations, encompassing both the assessment of the impact of ESG factors on the functioning of the Bank’s Capital Group and a detailed analysis of the effects of its activities in the context of the broadly understood external environment.

Definitions relating to ESG have been included in the “Risk Management Strategy of PKO Bank Polski S.A. and the PKO Bank Polski S.A. Capital Group”. These include:

  • ESG factors – environmental, social and governance factors that may have a positive or negative impact on the Bank’s clients and counterparties or on the Bank’s balance sheet positions; ESG factors with a negative impact are referred to as ESG risk factors;
  • ESG risk – the risk of adverse financial consequences for the Bank resulting from the current or prospective impact of ESG risk factors on the Bank’s clients and counterparties or on the Bank’s balance sheet positions.

The Bank verifies and assesses its financial, capital and strategic plans in terms of the level of risk generated and their alignment with sustainable development objectives, taking into account ESG risks over the short-, medium- and long-term horizons.

In December 2024, the Bank introduced regulations concerning the assessment of compliance with minimum safeguards and the implementation of a due diligence mechanism for assessing adverse impacts of business activities on human rights within the framework of minimum safeguards applicable to the Bank’s clients and counterparties. The assessment of compliance with minimum safeguards is linked to the examination of the following areas: anti-corruption, taxation, fair competition, science, technology and innovation, as well as human rights and labour rights. The methodology for assessing compliance with minimum safeguards is subject to review, at least annually, to ensure alignment with generally applicable laws and regulations.

In the process of assessing the loan portfolio, the Bank applies the definitions of environmental (including climate-related) physical risk and transition risk in accordance with the CRR Regulation.

    • ESG risk management is supervised by the Bank’s Management Board, which defines the risk framework, oversees the implementation of established objectives, strategies and policies, and determines the principles for their management in the context of environmental risk management.
    • Organisational units are responsible, within the scope of their respective competencies, for the coordination and management of ESG risk and its impact on the Bank’s operational risk profile.
    • Committees operating within the Bank, within the scope of their responsibilities and competencies, take into account analyses and opinions related to ESG risk-related activities when making decisions.
    • The ESG risk management process also involves units responsible for strategic planning, sustainability disclosures, legal support and compliance assessment.

    The Bank assesses, on a case-by-case basis, the impact of environmental, social and governance factors on a client’s creditworthiness within the credit process for corporate banking clients and business banking clients assessed using the rating method. The Bank also analyses the impact of credit transactions on ESG matters and classifies them into the aforementioned ESG categories. An assessment of the credit transaction itself is likewise carried out within the credit process.

    ESG risk assessment within the credit process is also implemented through the application of credit policies dedicated to specific industries/sectors, as described in the Sustainability Report.

    The Bank has implemented principles for the classification of the loan portfolio for the purposes of ESG risk management and reporting, which define, in particular, the criteria for identifying and classifying exposures financing activities related to environmental protection, social policy and corporate governance.

    The Bank distinguishes four classes of exposures financing activities related to environmental protection, social policy and corporate governance:

    1. Exposures supporting sustainable development – light green exposures (including exposures recognised in the calculation of the BTAR), relating to the financing of:
      a) environmentally sustainable objectives;
      b) the transition towards a climate-neutral and sustainable economy – exposures supporting the environmental objectives referred to in Article 9 of the EU Taxonomy;
      c) sustainable development (including the sustainable transformation of the economy) – exposures meeting market standards for sustainable finance;
      d) sustainable development transactions co-financed with public funds and co-financed by national and supranational institutions;
      e) social objectives concerning the financing of activities generating a positive impact on society and local communities.
    2. Environmentally sustainable (taxonomy-aligned) exposures – dark green exposures (recognised in the calculation of the GAR), relating to the financing of economic activities meeting the conditions set out in Article 3 of the EU Taxonomy, namely:
      a) making a substantial contribution to at least one of the six environmental objectives;
      b) doing no significant harm to any of the other environmental objectives (the DNSH principle);
      c) being conducted in compliance with minimum safeguards;
      d) meeting the technical screening criteria specified in delegated acts issued by the European Commission supplementing the EU Taxonomy Regulation.
    3. Exposures with a neutral environmental impact – white exposures relating to the financing of economic activities for which it is not possible to assign an environmental objective and which have not been classified as exposures supporting sustainable development, environmentally sustainable exposures or exposures with a negative environmental impact.
    4. Exposures with a negative environmental impact – brown exposures relating to the financing of economic activities contributing to significant greenhouse gas emissions, air, water and soil pollution, deforestation, waste generation, biodiversity loss or the excessive use of natural resources.

    The Bank assesses, on a case-by-case basis, the impact of environmental, social and governance factors on a client’s creditworthiness within the credit process applicable to corporate banking clients and business banking clients assessed using the rating method. The Bank also analyses the impact of credit transactions on ESG matters and classifies them into the above-mentioned ESG categories. Furthermore, an assessment of the credit transaction itself is conducted as part of the credit process.

    On the one hand, the Bank examines the impact of a given credit transaction on ESG matters, while on the other hand it assesses how ESG factors may affect the credit transaction. In assessing ESG factors, the Bank takes into account, inter alia, climate change risk and its impact on the client’s operations, as well as the client’s potential contribution to climate change.

    Detailed information regarding climate risk management is available in the report entitled “Capital Adequacy and Other Information Subject to Disclosure by the Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna Capital Group as at 31 December 2025”.

  • An element of environmental risk management is the strategic ESG risk tolerance limit. Starting from 2025, the Bank changed the definition of the indicator in order to ensure consistency with Pillar III disclosures (ITS template 3). The measure of risk tolerance is the ratio of the value of loans granted to clients operating in the Energy and Fossil Fuel Combustion sectors to the Bank’s total balance sheet value.

    Previously, high-emission entities had been identified using an expert-based approach. The change in the methodology for calculating this indicator resulted in an increase in its value compared to the end of 2024. As at 31 December 2025, the share of loans granted to clients from the above-mentioned sectors amounted to 0.54% for the Bank and 0.64% for the Bank’s Capital Group, against a tolerance limit of ≤ 1.6% applicable to both the Bank and the Bank’s Capital Group (in 2024, the indicator amounted to 0.13% for both the Bank and the Capital Group). The limit is monitored quarterly and reported to the Bank’s Management Board.

    One of the analytical tools used to assess the resilience of the loan portfolio to environmental risks within the framework of climate risk management in financial institutions is climate stress testing. The Bank has developed its own climate stress-testing methodology, designed on the basis of standards established by the European Central Bank (ECB Report on Good Practices for Climate Stress Testing, July 2022), NGFS climate scenarios, and recognised publications concerning the materialisation of climate risk from the perspective of credit losses incurred by financial institutions.

    The methodology enables the inclusion of a broad range of climate-related factors, provided that they can be quantified from the perspective of clients’ financial statements or variables used in credit risk models.

    In accordance with regulatory requirements, in December 2024 the Bank conducted a separate climate stress test for the corporate loan portfolio. The analysis covered the impact of physical risks (droughts and floods) and transition risks (political and legal risks related to changes in greenhouse gas emission allowance prices, as well as technological risks associated with the costs of transitioning to low-emission technologies) on clients’ rating assessments over both short- and long-term horizons, as well as on probability of default (PD) indicators and expected credit loss (ECL).

    The scenarios were analysed across three time horizons (up to 1 year, up to 3 years and up to 30 years), enabling a comprehensive assessment of risk in both the short and long term. Currently, the Bank is analysing the possibility of further developing and adapting its existing methodology to new regulatory requirements in future reporting periods. Detailed information on climate stress testing is available in the Sustainability Report.

    In 2025, the Bank incorporated short-term climate scenarios into the corporate client rating assessment process for both physical risk (floods) and transition risk (increases in GHG emission prices and the related costs of transitioning to low-emission technologies). For each type of risk, a rating is determined on the basis of appropriately adjusted financial statements and the PD parameter.

    These ratings constitute important support in assessing the impact of ESG factors on a client’s creditworthiness within the credit process. Through direct adjustments to rating assessments used in the calculation of internal capital, the Bank gradually builds a buffer for unexpected losses resulting from the materialisation of ESG risk, in particular environmental risk.

    This mechanism enables ESG factors to be incorporated into capital requirements at an earlier stage, thereby increasing the institution’s resilience to future events related to climate change and the transition towards a low-carbon economy.

    Thanks to its advanced approach to ESG risk management, PKO Bank Polski ensures full compliance with applicable regulations and is actively engaged in transparent reporting of activities supporting sustainable development, thereby contributing to the transformation of the financial sector towards a more sustainable model.