Our approach to reporting

The 9th Integrated Report of the KGHM Polska Miedź S.A. Group contains non-financial and financial results of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group for 2021 (reporting period: 1 January – 31 December 2021) [102-50]. True to our commitment of publishing an annual integrated report every year [102-52], we are presenting our environmental, economic and social impacts. The previous integrated report for 2020 was published in 2021 [102-51]. [102-54] This report has been prepared using selected indicators of the Global Reporting Initiative (GRI) Standards 2016, including the updates to the standards in respect to individual indicators in 2018, 2020 and 2021, and using the guidelines for conducting socially responsible business, presented in norm ISO 26000 (Guidance on social responsibility), issued by the International Organization for Standardization and taking account of the specific requirements for the metals and mining industry.

No restatements [102-48] and no significant changes in reporting [102-49] have been made to the report and, in this Report, greenhouse gas emissions for KGHM Polska Miedź S.A. for 2020 were determined in accordance with Commission Regulation (EC) No 601/2012 of 21 June 2012 on monitoring and reporting greenhouse gas emissions according to Directive 2003/87/EC of the European Parliament and of the Council and taking into account the provisions of the GHG Protocol. Information on Scope 3 greenhouse gas emissions for 2021 in accordance with the GHG Protocol for KGHM Polska Miedź S.A. and for the KGHM Group will be announced publicly in Q4 2022.

This Report also employs elements of the guidelines issued by the Task Force on Climate-related Financial Disclosures, the Communication from the Commission No. 2019/C 209/ 01 – Supplement on reporting climate-related information and the assumptions for the EU 2050 development program (The European Green Deal). Additionally, pursuant to Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (“EU Taxonomy”), it contains a disclosure whether and to what extent the conducted business activity is consistent with the assumptions of the Taxonomy classifying and describing environmentally sustainable businesses.

Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (“EU Taxonomy”) obligates companies to disclose whether and to what extent their business activity is consistent with the assumptions of the Taxonomy, which classifies and describes environmentally sustainable economic activities.

From 1 January 2022 to 31 December 2022 (i.e. for the year 2021), the mandatory disclosures of non-financial companies involve a percentage share of the economic activity that is taxonomy-eligible, and of the economic activity that is taxonomy-non-eligible, in terms of the total:

• turnover,
• capital expenditures (CapEx)
• and operating expenditure (OpEx),

as well as the related qualitative (explanatory) information – specified pursuant to the Commission Delegated Regulation (EU) 2021/21783*

Pursuant to Commission Delegated Regulation (EU) 2021/21784**, for the purposes of the disclosures for 2021 economic activity that is taxonomy-eligible means the economic activity as set out in Commission Delegated Regulation (EU) 2021/2139.5***

To verify the eligibility, an assessment was conducted for the two first objectives for which technical screening criteria have been published:

• Climate change mitigation, set out in Annex I of Commission Delegated Regulation (EU) 2021/2139
• Climate change adaptation, set out in Annex II of Commission Delegated Regulation (EU) 2021/2139

For the purposes of consistency with the other parts of the Non-Financial Report, published pursuant to the applicable provisions of the Accounting Act, the key performance indicators have been drawn up both at the consolidated level, for the KGHM Group, as well as at the standalone level, for the Parent Entity – KGHM Polska Miedź S.A.

For the purposes of the disclosures for 2021, all companies of the KGHM Polska Miedź S.A. Group conducted a thorough analysis of their economic activities. As a result, taxonomy-eligible activities have been identified, i.e. the activities that meet the criteria of activities listed in Annex I or Annex II to Commission Delegated Regulation (EU) 2021/2139. The financial data for eligible activities presented in the disclosures below include both the revenues (turnover) from the taxonomy-eligible economic activities, the related capital expenditures or operating expenditures, as well as purchases from the eligible activities. An activity has been classified as taxonomy-eligible based on a comparison of a given actual activity with the relevant description of the activity provided in Annex I or Annex II of Commission Delegated Regulation (EU) 2021/2139.

The indicators of turnover, capital expenditures and operating expenditures are calculated based on the definitions set out in Annex I of Commission Delegated Regulation (EU) 2021/2178. The calculation of the indicators for the Group takes account of the relevant consolidation exclusions based on the methods used in the financial statements.

The individual types of the conducted activities have been assigned to only one taxonomy-eligible activity. No part of the revenues, CapEx and OpEx has been double-counted. If an activity that generated revenue (turnover) in 2021 has been qualified as taxonomy-eligible, the CapEx and OpEx related to this activity have been assigned thereto as well, and they have not been further assessed in terms of eligibility for the purposes of other activities.

The remaining values of CapEx and OpEx (i.e. not related to the revenue-generating eligible activity) were assessed for their possible classification in the category of purchases from taxonomy-eligible activities. The individual CapEx and OpEx items were assigned to only one activity. In other words, if they could be assigned to more than one activity, only one, the most relevant, activity was chosen. The Parent Entity of the Group oversaw the disclosure process, also verifying the financial data to be attributed to the individual activities, in order to avoid double-counting.

The KGHM Group conducts its business activity outside of the European Union as well. These economic activities were assessed for taxonomy-eligibility in the same manner as all the activities conducted in the EU

* Commission Delegated Regulation (EU) 2021/2178 of 6 July 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 (“Delegated Act on Article 8 of the Taxonomy”)

** Commission Delegated Regulation (EU) 2021/2178 of 6 July 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 (“Delegated Act on Article 8 of the Taxonomy”)

*** Commission Delegated Regulation (EU) 2021/2139 of 4 June 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 (“Delegated Act establishing technical screening criteria”)

Copper and other minerals produced by KGHM are necessary for successful energy transition and achieving climate neutrality by the European Union. It is estimated that the annual turnover of the European non-ferrous metal industry is EUR 120 billion, which is generated by more than 900 plants producing and processing base, precious and specialty metals, which employ over half a million people. More information is given in the section “Importance of copper for energy transition” of this Non-Financial Report.

The European copper industry, including KGHM Polska Miedź, has been implementing ambitious targets in the reduction of greenhouse gas emissions. In 2021, the Climate Policy of KGHM Polska Miedź S.A. was published, which sets the target of KGHM Polska Miedź’s climate neutrality to be achieved by 2050, as well as seeks to implement a climate reporting system based on the 2017 Recommendations of the Task Force on Climate-Related Financial Disclosures. The Climate Policy will be followed by the Decarbonization Program of the KGHM Group, specifying the total capital expenditures related to the implementation of the greenhouse gas emission reduction measures. More information is presented in the chapter “Actions aimed at protecting the natural environment, including the climate, and implementation of a circular economy” of this Non-Financial Report.

Furthermore, environmental targets constitute the key pillar of the “Strategy of the KGHM Polska Miedź S.A. Group to the year 2030 with an outlook to 2040”, published in January 2022, and described in the chapter “Sustainability and climate action in the strategy of KGHM Polska Miedź S.A.” of this Non-Financial Report.

KGHM Polska Miedź S.A. also participates in the global CDP project (former Carbon Disclosure Project), which presents the impact of companies on carbon dioxide emissions and climate change. In 2021, the Company again took part in the CDP initiative, with a broader disclosure, including among others Scope 3 emission. Information on the CDP survey can be found in the ESG section under the “Investors” tab on the KGHM Polska Miedź S.A. corporate website.

However, the scopes of Annex I and Annex II of Commission Delegated Regulation (EU) 2021/2139 do not cover copper production. As a result, it is not possible to perform a comprehensive qualification of the KGHM Group’s core economic activity – which, as mentioned above, is of critical importance for successful energy transition in the European Union – in terms of taxonomy-eligibility for 2021.

Consequently, it is only to a limited extent that the key performance indicators of the KGHM Group correspond to Taxonomy-eligible activities under the first two environmental objectives: climate change mitigation and climate change adaptation. It should however be noted that the list of Taxonomy-eligible activities will be growing as the European Commission publishes technical screening criteria for the four remaining environmental objectives: 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.

At the same time, we declare that together with other representatives of the sector we shall undertake actions in support of including copper production in various types of the EU Taxonomy-eligible activities, which will reflect the actual role of the sector in the transition of the economy towards sustainability, especially in comparison with the other metal production industries already included in the EU Taxonomy.

The disclosures aligned with the Taxonomy of the KGHM Polska Miedź S.A. Group for 2021 are presented in the following tables as well as in the descriptions below, prepared in accordance with the methodology discussed at the beginning of this chapter of the Report.

For the activities listed in the table, all of the assigned eligible turnover pertains to revenue from contracts with customers.

For the calculation of the indicators, the denominator value is the turnover value consistent with the value given in the Consolidated annual report of the KGHM Polska Miedź S.A. Group, in Part 2 “Activity segments and revenue information”.

The CapEx values pertain only to direct expenditures on property, plant and equipment and intangible assets, i.e. expenditures in the area of purchases, internally generated assets, capitalisation of stripping costs, receiving of assets under new leasing agreements and amendment of the existing leasing agreements (in 2021, there are no increases resulting from acquisition of subsidiaries).

The CapEx denominator comprises the items disclosed and described in the 2021 Consolidated financial statements of the KGHM Polska Miedź S.A. Group, in Part 9 “Non-current assets and related liabilities”, in note 9.1 “Mining and metallurgical property, plant and equipment and intangible assets”, and in note 9.2 “Other property, plant and equipment and intangible assets”.

The OpEx indicator includes expenditures on on-going operation of property, plant and equipment, i.e. the expenditure incurred on renovations and maintenance of the individual items of property, plant and equipment. In accordance with the definition of OpEx, the indicator also incorporates possible costs in the category of research and development and short-term leasing excluded from CapEx.

1: Rounding applied at the level of performance for the individual activities, while retaining the precise subsum for item “A. “Taxonomy-eligible activity” and “B. Taxonomy-non-eligible activity”

The disclosures aligned with the Taxonomy of KGHM Polska Miedź S.A. for 2021 are presented in the following tables as well as in the descriptions below, prepared in accordance with the methodology discussed at the beginning of this chapter of the Report.

For the activities listed in the table, all of the assigned eligible turnover pertains to revenue from contracts with customers.

For the calculation of the indicators, the denominator value is the turnover value consistent with the value given in the Financial Statements of KGHM Polska Miedź S.A. for 2021, in Part 2 “Activity segments and revenue information”.

The CapEx values reflect only direct expenditures on property, plant and equipment and intangible assets, i.e. the expenditures in the area of purchases, internally generated assets, receiving of assets under new leasing agreements and amendment of the existing leasing agreements

The CapEx denominator comprises the items disclosed and described in the Financial Statements of KGHM Polska Miedź S.A. for 2021, in Part 9, in note 9.1 “Mining and metallurgical property, plant and equipment and intangible assets”, and in note 9.2 “Other property, plant and equipment and intangible assets”.

The OpEx indicator includes expenditures on on-going operation of property, plant and equipment, i.e. the expenditure incurred on renovations and maintenance of the individual items of property, plant and equipment. In accordance with the definition of OpEx, the indicator also incorporates possible costs in the category of research and development, and non-capitalized costs of short-term leasing

1: Rounding applied at the level of performance for the individual activities, while retaining the precise sub-sum for item “A. “Taxonomy-eligible activity” and “B. Taxonomy-non-eligible activity”

The table below presents the values of key non-financial indicators of KGHM Polska Miedź S.A. for 2020-2021:

Selected indicators for 2021 illustrating activities in the area of social issues:

A detailed list of donations granted to institutions is presented at

http://www.fundacjakghm.pl/

* greenhouse gas emissions for KGHM Polska Miedź S.A. for 2020 have been determined in accordance with the Commission Regulation (EU) No. 601/2012 of June 21, 2012 on the monitoring and reporting of greenhouse gas emissions, in accordance with Directive 2003/87 / EC of the European Parliament and of the Council and with taking into account the provisions of the GHG Protocol.

Information on the volume of Scope 3 greenhouse gas emissions in accordance with the GHG Protocol for 2021 for KGHM Polska Miedź S.A. and for the KGHM Group, they will be made public in the fourth quarter of 2022.

Determining the amount of greenhouse gas emissions for KGHM Polska Miedź S.A. and the KGHM Group, for the purposes of this Report, it is not possible due to the lack of indicators for Scope 2 of the emissions, which for the reported year do not appear until the end of March, and the ongoing verification of emissions under the ETS system.