Environmental matters

The direct impact on the environment depends on the manner of consumption of limited natural resources. All entities belonging to the Bank’s Group monitor the consumption of such resources and are involved in activities aimed at reducing their consumption. A number of Group entities performed the energy efficiency audit (2017 – the Bank, 2018 – PKO Leasing SA, PKO Towarzystwo Ubezpieczeń SA, PKO Życie Towarzystwo Ubezpieczeń SA), based on which areas with the highest energy saving potential were identified and action plans were drawn up which are currently successively implemented. As a result of these activities, the consumption of all energy carriers (except for gas) went downin 2018 in the Bank’s Group.

The use of electric energy went slightly up at the Bank. The data on energy use in the Group entities was collected for the first time. The estimate is incomplete and contains only data from 10 subsidiaries because the remaining companies make the respective settlements based on the service charge.

Apart from electricity consumption arising from the work of the offices / branches, energy consumption in the Bank’s Group is related to the use of boiler rooms and electricity generators (consumption mainly by the Bank) and travelling with its own car fleet.

Apart from the streamlining activities, the decline in the consumption of heating oil resulted from reducing the number of boiler rooms by 11 (10 in the Bank and 1 in other entities) and from favourable weather conditions (shorter heating season). There are still two boiler rooms using coal but they also reduced the use of this raw material. The higher use of fuels in boiler rooms resulted from including vindicated real estate of which PKO Leasing SA is the owner as part of lease agreements and the management of which was taken over due to terminating contracts with the Customers (data for 2018 includes for the first time the use of fuel in the boiler rooms).

The car fleet and aggregates affect the consumption of fuels. In spite of the increased number of cars in the Bank and in the Bank’s Group (accompanied by a drop in the remaining entities), the fuel consumption was lower. At the same time, the structure of fuel consumption changed towards higher consumption of petrol and lower use of diesel oil (by more than 30% in the Bank) which is more harmful to the natural environment due to higher concentration of harmful gases. The consumption of fuels went down in spite of the increase in the number of aggregates by 11.

For the purpose of this report, an effort has been made to estimate the use of water by all of the Bank’s Group entities. Selected entities from the groups (Centrum Haffnera sp. z o.o., Merkury fiz an, PKO Leasing SA and KREDOBANK SA) used 56 200 m³of water, and the remaining entities perform settlements based on the service charge. As part of this review it was impossible to obtain similar data for the Bank. The Bank does not have a groundwater intake.

The impact on the natural environment depends on management of waste. In 2018 the amount of waste other than municipal waste was reduced. The Bank entrusts the task of recycling or neutralizing non-municipal waste to specialized companies. In terms of municipal waste, selective collection was conducted in five of the Bank’s Group companies. The Bank conducts selective collection of waste in some branches.

The Centrum Haffnera sp. z o.o. Group (i.e. the indirect subsidiaries of the Bank) successively conduct environmental protection activities comprising segregation of waste (including fat) and introducing bio products to the pipelines for the purpose of initially decomposing the fat.

In 2018, there was one administrative procedure pending against the Bank initiated by the Zachodniopomorski Voivodeship Environmental Protection Inspectorate concerning serving an administrative penalty in connection with the delay in submitting the collective information on the types and amounts of waste and their management, and installations used for recovery and neutralization of such waste for 2014 to the Marshal of the Zachodniopomorskie Voivodeship. The proceedings were finalized in December 2018 and an administrative fine of PLN 500 was charged. No administrative proceedings related to a breach of the environmental regulations were conducted with respect to any of the subsidiaries that would result in any financial penalties.

The Bank’s Group entities may indirectly affect the environment through the effects of their cooperation with other firms in the supply chain. Agreements with contractors of the Bank’s Group entities (including the Bank) do not contain clauses explicitly referring to respect for the natural environment. However, according to the enquiry of every entity of the Bank’s Group, by joining the purchasing procedure, the suppliers state, among other things, that they “… care for the natural environment and its resources, including complying with the law in this respect and have clearly defined and written objectives to minimize the negative impact on the environment and monitoring progress in their pursuit.” None of the Bank’s Group entities conducted audits at their business partners’ premises related to compliance with environmental protection regulations.

The Bank does not have a formal energy saving policy or, for example, an ISO 50001 System regarding an energy management system. However, the Bank is planning to analyse a possibility of implementing this system in the organization and assess the profitability of its implementation. The Bank is working towards optimizing energy consumption with a simultaneous cost optimization policy.

An energy efficiency audit of the business was conducted at the Bank in 2017 (in accordance with the Energy Efficiency Act), on the basis of which the areas of the greatest energy-saving potential and the action plan were identified. Moreover, the Bank regularly defines new areas in which it is possible to take actions related to limiting the consumption of energy.

In terms of electricity, the main objectives of these activities include:

• completing the realization of investments planned in the years 2017-2018, the currently pending (completion planned for the 2^nd quarter of 2019) modernization of one of the largest refrigeration installations at the Bank, further analyses of the possibilities of conducting new investments in this area;
• the modernization of lighting: LED lighting has been introduced into the standard; a gradual replacement of lighting from fluorescent luminaires to LED lighting is planned in the largest properties after taking into account the economic calculation and successive replacement in the branches in accordance with the modernization plans;
• the analysis and modernization of other technical infrastructure installations in the facilities in line with the modernization plans;
• ongoing design optimization during modernizations and investments.

With regard to the other energy media (gas, heat energy, heating oil and diesel fuel) the main objectives of these activities include:

• preparing the implementation of a change in the supply of central heating boilers from heating oil to gas – a cleaner and cheaper source of heat energy (a detailed technical and financial analysis of the individual locations was performed in 2018 for the individual locations, locations were selected in which the implementation is possible and justified);
• standardization of hot water temperature settings to reduce “overheating” of hot domestic water;
• preparing a plan of modernization of the infrastructure of central heating installations supplied with heat energy from external suppliers, e.g. by modernizing of heat exchangers, control automation systems, etc.,
  taking into account the economic calculation;
• other modernizations in accordance with the modernization plans for the entire infrastructure of facilities;

The nature of the Bank’s business activities (high degree of dispersion of small properties) and the accepted principle that cost-saving measures should also be economically sensible (taking into account the life cycle of the facility) means that the optimization of energy consumption is a process which the Bank is trying to conduct in parallel with other processes, e.g. planned investments.

One of the strategic goals of the Bank for the years 2016-2020 is to simplify and streamline its processes by limiting the amount of paper documents. The SMARTOP project regarding the digitization of sales and support processes was launched in 2017.

In 2018, the Customers were offered a possibility of placing 28 new instructions through the internet banking tool iPKO (which could so far be placed in the Bank’s outlets and through the Contact Center). The Customers made use of this solution approx. 85 thousand times. The possibility of placing instructions through a remote channel has a positive impact on the Customer satisfaction and results in reducing the number of documents printed at the branch.

At the same time, works were conducted on digitalization of the processes conducted in the branch. In 2018, the Bank implemented in the entire network of branches and agencies a possibility of authorizing instructions by a text message instead of a signature on a paper document for 23 instructions (including the most frequent deposits, withdrawals and transfers). One month after implementing this functionality 26.6% of the instructions (for which the text message authorization is available) were placed in a “paperless” form.

In 2018, the effects of another change implemented in 2017 were also noticeable. This change concerned reducing by 50% the number of documents generated for two most frequently executed cash transactions.

All the activities conducted at the Bank (including the SMARTOP project) resulted in a more than 20% reduction in paper consumption compared with 2017, which is a continuation of a trend (a 7% reduction in 2017).

The extended environmental responsibility of the Bank’s Group, including the Bank, is mainly included in the policy of financing the activities of business and public entities.

Social responsibility, including environmental responsibility, is a part of the Bank’s activities. The Bank has been taking initiatives with the objective of caring for the environment for years. This applies to several areas of activity:

1. The Bank, together with the other entities from the Bank’s Group, supports the development of the economy by financing investments in new technologies, the modernization of technological lines and energy-saving projects.
2. The Bank influences the attitudes of customers by participating in the financing of pro-ecological projects, including the construction of waste incineration plants, sewage treatment plants and power generation systems using modern, pro-ecological technologies.
3. The Bank has been actively involved for many years in cooperation with local authority units (LAUs), including through the financing of projects regarding environmental protection or the pro-environmental modernization of public service facilities.
4. Issues related to the environmental impact in the credit products offered by the Bank to enterprises are taken into account in the assessment of the business and transactions. Such an assessment is conducted in the case of all transactions related to the financing of investment projects.
5. In the case of specialized financing, in its investment project assessment, the Bank analyses the impact of the project on the environment, including in particular:
   • possession of all administrative permits regarding environmental protection arising from the applicable law
     (e.g. environmental decision, water permit, permit for the production of waste, integrated permit for installations that can cause significant pollution of individual elements of nature or the environment as a whole and permit for emitting gases or dust into the air);
   • geographic and environmental conditions within the area of impact of the project (e.g. the project’s location, the presence of landfills and sewage treatment plants, ecological and social aspects).
6. In the process of analysing property valuations constituting security of its receivables, the Bank pays attention to whether the valuation report contains a description of the environmental factors affecting the value of the property, including the type and degree of contamination of the environment and the presence of harmful substances at the property or in its immediate vicinity (e.g. petrol, oil, solvents and paints).
7. At the stage of implementation of investment projects, the Bank monitors their course, including through an independent technical consultant (ITC). In his reports, the ITC assesses whether the conditions of all the required permits have been satisfied, especially with regard to environmental protection.

The Bank and the remaining entities from the Bank’s Group take environmental issues into account in the process of managing credit risk. For example, appropriate provisions on not financing projects which cause harm to the natural environment were included in the lending policy of KREDOBANK SA.

Another example of special care about environmental issues are activities of PKO Leasing SA where as part of cooperation with IFC and EBRD in 2016 it partially implemented a policy related to protection of the natural environment, health and safety of the employees. The social and environmental policy has two dimensions: (1) one referring to PKO Leasing SA as an enterprise and (2) another one referring to PKO Leasing SA as a lessor.

In the first dimension, PKO Leasing SA is obliged to conduct its operations so as to limit the risk for the natural environment and for the employees and the society. In the second dimension, PKO Leasing SA performs an assessment of environmental and social risk generated by the lessees and the proposed financing entities, and takes actions to mitigate the above-mentioned risk. The Company is obliged to maintain the exposure from Customers belonging to the so-called excluded industries (per the criteria set by EBRD/IFC) at below 1% of the portfolio¹. In 2019, the monitoring of social and environmental risks will be extended to the entire new portfolio of PKO Leasing SA.

The share of environmental protection investments at the Bank to the total amount of financing of the sector of business and public entities (including loans and debt securities), as at 31 December 2018, was 1.4% (0.9% in 2017).  The list of areas included in the indicator includes:

• the generation of energy from renewable sources;
• the discharge and treatment of sewage;
• waste collection, processing and treatment activities, as well as recovery of raw materials;
• activities related to reclamation and other service activities related to solid waste management.

The Bank’s commitment to the financing of the mining sector as at the end of 2018 amounted to 2.2% (the share in the loan portfolio of business and public entities) and it has not changed significantly for several years (1.9% in 2017 and 2.3% in 2016).

¹ Applying the same criteria for the Bank indicates that the share of the so-called excluded industries as at the end of 2018 is 3.3% of the financing of the corporate and public sector.

From December 2009, the Bank as one of the main investors participated in the project named “The 2020 European Fund for Energy, Climate Change and Infrastructure” (“Marguerite Fund I”). The Bank’s commitment (investment commitment) was EUR 100mn, and the share in the fund’s capital is 14%. Marguerite Fund I was the first example of a pan-European model of financing infrastructure projects in the history of the European Union, especially in the area of road and energy infrastructure, as well as infrastructure related to renewable energy sources. Infrastructure projects worth almost PLN 2bn have been implemented in Poland with the involvement of the Marguerite Fund I, and important investments have been conducted in the European Union countries, for example:

• construction of a municipal waste thermal treatment plant in Poznań (considered to be the largest project implemented to date in Poland in the public-private partnership formula);
• construction of wind farms in Kukinia and Tychów;
• construction of a flight terminal in Zagreb;
• the acquisition of shares in Latvia Gas, which enabled the separation of gas transmission assets previously controlled by Gazprom from distribution assets and enabled the construction of a cross-border gas pipeline.

In 2017, the fund’s resources were utilized in full.Upon achievement of the assumed strategic goals, the Bank decided to withdraw from the Marguerite Fund I and on 27 April 2018 closed the negotiations with Bank Gospodarstwa Krajowego (BGK) concerning the sale of shares. The decision to sell the shares is related to the financial involvement of BGK in the newly formed fund Marguerite II with which new investment projects will be financed.