Annual Report 2021
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Task Force on Climate-related Financial Disclosures

Disclosure of climate-related information in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)

There is a growing awareness of climate change among our customers, investors and other stakeholders, accompanied by increasing regulatory pressure related to climate neutrality goals adopted by the EU and its member states. Simultaneously, the rollout of network infrastructure and the growing volume of data traffic are contributing to increased consumption of electricity in the telecommunications sector. Since, in Poland, electricity is produced mainly from fossil fuels, this generates greenhouse gas emissions.

As discussed above, energy consumption, especially for network operation, is the main source of emissions by telecommunications operators (Scopes 1 and 2 of the GHG Protocol – direct and indirect own emissions). Therefore, the initiatives regarding both the volume optimisation and the structure of origin of energy are of key importance.

In order to improve its energy efficiency and reduce its negative impact on the climate, Orange Polska has carried out a number of measures mainly focused on energy usage optimisation and increasing the amount of energy coming from renewable sources in the energy mix.

The Energy Optimisation Programme has been in place since 2014. About 200 initiatives have so far been implemented in various network areas, generating total energy savings of over 700 GWh between 2014 and 2020, which translated to roughly half a million tonnes of CO₂e in total emissions avoided.

All initiatives carried out in the Programme have been divided into four areas:

  • FIX Legacy Decommissioning encompasses initiatives related to legacy fixed-line technologies, that is PSTN or ATM. As part of these initiatives, customers are switched to newer and more energy-efficient technologies. In addition, older devices are optimised by increasing the ‘density’ of customer accesses on cards and disabling redundant cards.
  • RAN network efficiency improvement involves a series of measures to reduce energy consumption in the mobile radio access network, while maintaining the best quality of services provided to customers. During periods of low subscriber activity, e.g. at night, smaller radio resources are required to handle calls and data transfer, so they are temporarily turned off, thus reducing energy consumption.
  • Modernisation of the technical environment is to ensure the optimal conditions for the operation of telecommunications equipment through modern air conditioning systems, power supply solutions, heating systems, etc. The key initiatives include replacing of A/C systems with more effective ones and retrofitting of technical compartments with ventilation-based cooling systems (free cooling).
  • Big Data – Energy: The available energy data are collected, processed and analysed using the Business Intelligence tool. As a result, it is possible to detect anomalies and optimise energy costs and consumption. An example is the cyclic selection of energy tariffs for each facility on Orange Polska’s network on an individual basis.

The Company has taken measures to increase the share of energy from renewable sources in its energy mix by direct contracting of renewable energy from its producers based on long-term Power Purchase Agreements (PPAs). The first such agreement was concluded in 2020. As a result, two wind farms were constructed and became operational in 2021; they will supply about 9% of the energy needed by Orange Polska annually, which corresponds to a reduction in CO₂e emissions by approximately 30,000 tonnes each year. In December 2021, Orange Polska signed another PPA for additional wind installations, which will secure a further 20% of the Company’s energy consumption by 2024. Orange Polska intends to increase the share of energy from such renewable sources in its energy mix to at least 60% by 2025.

Furthermore, Orange Polska has been optimising its transport fleet and real estate portfolio, which leads to fuel and electricity savings. In addition, the Company has undertaken circular economy initiatives, such as collecting and buying back old phones, offering refurbished handsets to customers, and refurbishing and relaunching about 500,000 pieces of customer premises equipment (CPE, e.g. modems and set-top boxes) per annum. Owing to the aforementioned energy saving initiatives, despite the growing volume of data traffic on its networks, Orange Polska has achieved a 27% reduction in its own emissions (GHG Protocol Scopes 1 and 2) in 2021 compared to 2015 (which is the base year for emissions in the Orange Group). Our emission reduction target is 65% by 2025 compared to 2015. It was formally adopted by the Management Board of Orange Polska and announced publicly in April 2021, together with the confirmation of our overarching climate commitment to achieve climate neutrality (Net Zero Carbon) by 2040 in terms of both our own emissions and our entire value chain (i.e. Scopes 1, 2 and 3 of the GHG Protocol). Should these initiatives to reduce our negative impact on the climate be unsuccessful, Orange Polska, as a socially responsible company, would be exposed to reputational losses. Furthermore, Orange Polska’s failure to achieve the intended share of energy from renewable sources could result in higher than expected electricity costs and, consequently, have a negative impact on its financial performance.

27 %
reduction in its own emissions (GHG Protocol Scopes 1 and 2) 2021 vs 2015
60%
targeted share of energy from renewable sources in Orange Polska by 2025
65 %
our reduction target by 2025

In order to facilitate our climate impact management, in 2020 we created the position of Climate Officer, who is responsible for the co-ordination of Orange Polska’s pursuit of environmental goals. His role is to develop our climate policy and monitor its implementation in close co-operation with the entire organisation. The Climate Officer reports directly to the Management Board Member in charge of Strategy and Corporate Affairs.

Environmental objectives have been incorporated into Orange Polska’s business strategy, .Grow, and their implementation is reported to the Management Board on a quarterly basis. Orange Polska has launched a special programme, #OrangeGoesGreen, which is led by the Climate Officer and co-sponsored by the CEO and the Management Board Member for Strategy and Corporate Affairs.

A dedicated team composed of top managers of different functions has been established to accelerate progress in 13 streams identified as key for Orange Polska’s #OrangeGoesGreen climate goals. They represent all key areas for a durable green transformation of the Company: Technology and Network; Work Environment; Supply Chain; Sourcing; Devices; B2C; B2B; Human Capital; CSR & Communication; Regulatory Co-operation; Investor Relations; Strategy; Brand; and Finance. On top of day-to-day management to advance the actions, the entire team meets every two months and the progress is reported to the Management Board at least twice a year.

The Management Board has approved Orange Polska’s environmental goals in a formal resolution and reviews the progress in their implementation at least twice a year.

Since 1H 2022, the reduction of GHG emissions in Scopes 1 and 2 is included as a KPI in the MBO performance scheme for all managers of the Company covered by the Management By Objectives (MBO) incentive system. It is also an element of the long-term incentive programme (LTIP) for the entire top management of the Company.

Orange Polska maintains a risk management framework to identify, assess and manage risks. This framework has been based on the ISO 31000:2018 standard. Event-based risks are subject to assessment according to their likelihood and impact in terms of financial, reputational, business continuity and human loss. If risk consequences are, for example, both financial and reputational, the risk is assessed according to the most negative consequence.

The identified similar risks are grouped into clusters. The risk assessment process is managed by domain co-ordinators. Risks are divided into the domains of: operating risks, loss of information, business continuity, compliance, fraud and social risks. This division ensures a uniform and objective approach to the assessment of risks of similar consequences (cause and effect analysis). Climate risks have been included in the social risk domain and constitute a separate cluster. Risk assessment and management – including identification of new and emerging factors, monitoring of risks and the effectiveness of controls, as well as reporting – are a responsibility of the persons managing the relevant area and business functions, while the process is co-ordinated by the social risk domain owner.

Risks and the mitigation measures assigned to them constitute an input for the development of the Annual Internal Audit Plan. Indicative heat maps are used to report and evaluate risks. The results of assessment of TOP risks, including one climate risk, are reported to the Supervisory Board annually.

Reference to the key risks related to the Company’s environmental impact

Unsuccessful implementation of Orange Polska’s climate strategy may have an adverse impact on the Company’s reputation and result in an increase in operating costs and loss of some investors and customers, as it could reduce investor interest in the Company and, in the longer run, it could be reflected in lower customer satisfaction and loyalty. Therefore, it is necessary to reduce the environmental impact of the Company’s activity, as well as the products and services it provides.

While 5G is more energy efficient than older technologies, continuously increasing data traffic volume will increase the overall electricity consumption and could, therefore, mean higher CO₂ emissions (as electricity use is the principal emission driver in the telecommunications industry). Increasing the share of renewable energy used by Orange Polska through long-term Power Purchase Agreements is crucial to reducing its emissions despite this growth.

Orange Polska’s objective is to achieve Net Zero Carbon by 2040 and significant GHG emissions reduction by 2025. This objective can be achieved by purchase of green energy through long-term Power Purchase Agreements directly with producers and optimisation of energy use, including but not limited to technology evolution and further deployment of more energy efficient solutions. These actions are supported by an open dialogue with stakeholders on Orange Polska’s commitment to climate and the positive impact of the telecommunications industry on reducing emissions in other sectors. It is a short-term risk.

Analysis and determination of the level and nature of the importance of climate change

In 2021, the Company carried out a process aimed at the identification of risks and opportunities as well as determinants and components of developing action scenarios related to those risks (and opportunities) in the matrix layout with reference to local climate scenarios for Poland (positive, neutral, negative and very negative; scenario-based approach) as well as short-, medium- and long-term horizon (by 2025, 2050 and 2100, respectively; timeframe-based approach). A team composed of representatives of the Company’s management and various functions which were considered crucial in terms of the current or potential environmental impact was involved in the entire process. The process was divided into the following stages:

Assessment of Orange Polska’s exposure to climate change (in terms of the financial significance of such exposure) for different climate scenarios.

  • Importance of negative climate factors to Orange Polska for different climate scenarios

Objective:
To identify the most important negative climate factors and the opportunities which affect, depending on the climate scenario, the vulnerability and adaptive capacity in particular areas and value chains.

Outcome:
List of the most important negative climate factors and the opportunities faced by Poland and Orange Polska throughout the value chain for different climate scenarios.

  • Importance of negative socio-economic factors to Poland (with respect to Orange Polska) for different climate scenarios Risk of loss of reputation due to negative climate impact

Objective:
To describe the most important negative socio-economic factors and the opportunities affecting Poland and the telecommunications industry.

Outcome:
List of the most important socio-economic challenges and opportunities affecting the vulnerability to climate change in Poland and the telecommunications industry. Identification of the required information or detailed analyses of specific negative socio-economic factors or opportunities related to climate change in order to determine the overall vulnerability to climate change

Assessment of Orange Polska’s sensitivity to climate change (in terms of the analysis of climate-related risks) for different climate scenarios.

  • Analysis of Orange Polska’s sensitivity to negative climate factors in the context of socio-economic changes for different climate scenarios

Objective:
To identify the most sensitive actions in the areas or sectors to be hit most by negative climate and socio-economic factors.

Outcome:
List of the most sensitive actions or impacts of negative climate and socio-economic factors on the deterioration or relief of Orange Polska’s objectives and actions. Identification of the potential gaps in Orange Polska’s knowledge on the impact of climate and socio-economic change on specific actions.

Identification and classification of Orange Polska’s adaptive capacity to climate change (in terms of the analysis of climate-related risks) for different climate scenarios.

  • Analysis of Orange Polska’s adaptive capacity to climate change in the context of climate-related risks and opportunities for different climate scenarios

Objective:
To identify and classify the internal and external factors of adaptive capacity in order to select the most important factors for the assessment of the vulnerability to climate change in Poland and the telecommunications industry.

Outcome:
List of factors with the biggest impact on the adaptive capacity in the local area or the particular sector of the economy.

Development of Orange Polska’s action plan for adaptation to climate change (in terms of the analysis of climaterelated risks) for different climate scenarios.

  • Development of the Company’s integrated vulnerability assessment and action plan

Objective:
To identify the inhibiting or supporting factors of processes.

Outcome:
List of hierarchical adaptation and capitalisation measures, potential conflicts, facilitating factors and common benefits as well as hampering barriers regarding the implementation of particular measures. Action plan with hierarchical measures, including specific steps.

The methodology regarding risk identification, valuation and mitigation measures for Orange Polska has been based on the recommendations of the Task Force on Climate-related Financial Disclosures (TFCD), reports of the Intergovernmental Panel on Climate Change (IPCC) and taxonomy regulations of environmentally sustainable investments, related to the Regulation (EU) 2020/852 of the European Parliament and of the Council.

Risks were valued for four scenarios of temperature increase above pre-industrial levels (19th century), including two extreme scenarios presented at the Climate Summit in Paris in 2015, as well as for three periods: 2022–2025 (corresponding to Orange Polska’s strategy), 2025–2050 (corresponding to the EU’s target of climate neutrality by 2050) and 2100 (corresponding to the projection at the Climate Summit in Paris).

The presented methodology was applied with the assistance of Prof. P. Bogacz of the University of Science and Technology in Cracow.

The analysis involved the development of four scenarios for Orange Polska:

  1. RCP2.6 positive scenario – climate warming by 2100 of below 1.5°C above pre-industrial levels;
  2. RCP4.5 neutral scenario – climate warming by 2100 of between 1.5 and 2°C above pre-industrial levels;
  3. RCP6 negative scenario – climate warming by 2100 of between 2 and 3°C above pre-industrial levels;
  4. RCP8.5 very negative scenario – climate warming by 2100 of above 3°C above pre-industrial levels.

On the above basis, the following risks time horizon was adopted:

  • Short-term (by 2025);
  • Medium-term (by 2050);
  • Long term-(by 2100).

Environmental and climate-related risks, like other social risks, are subject to a standard review of risks on an annual basis. They are reported to the Management Board and Supervisory Board. As indicated above, TOP risks are subject to an additional oversight procedure, and may constitute an input for the development of the Annual Internal Audit Plan and the assessment by the Audit Committee. The risk of loss of reputation due to negative climate impact has been included in the TOP risk category. Risks related to the climate impact on Orange Polska have been linked to selected TOP risks as long-term materialisation factors.

Reference to the key risks related to the climate impact on the Company

The Group analysed the impact of climate change on its financial statements and concluded that it did not affect the balance-sheet value of its assets and liabilities as at December 31, 2021. Short-term risks are related mainly to Orange Polska’s negative environmental impact, while risks related to the climate impact on Orange Polska are considered mainly in the medium- and long-term horizon.

Climate change, that is natural disasters as well as other related emergencies, may lead, through destruction or damage, to a significant reduction in the value of the Company’s assets, resulting in both service interruptions and high costs of repairs. Extreme weather events related to the present climate change (floods, storms, heat waves) are increasing in frequency and severity, exacerbating catastrophes and increasing their costs. In the short-term perspective, rising sea levels due to melting of glaciers and ice sheets may more often affect on-shore locations and facilities. While insurance coverage of claims may continue to be reduced, the damage caused by large-scale disasters might result in significant costs, a proportion of which may still burden the Company, thus affecting its financial standing and growth prospects.

Orange Polska’s experts identified the risks related to climate change that might significantly affect the Company. These risks were assessed in terms of value and likelihood. Risk valuation was based on discounted future cash flows for a period until 2100.

Out of more than a dozen potential risks identified in the process, four risks were considered material due to being the most likely and threatening the highest potential impact on the Company. They are described in the table below, combined with individual climatic factors and their effects.

Climate factor based on long-term prognoses for different temperature increase scenarios (by 2–4°C) Risk (described below) Risk resulting from the climate factor Risk value = future cash flows resulting from:
Heat waves, torrential rainfall and storms, river floods a) Equipment damage caused by high temperatures, heat waves, floods or other extreme weather conditions Costs of repairs of damaged property
Rising sea levels a) Equipment damage caused by sea level rise Costs of restoration and relocation of property
Temperature increase b) Increased demand for energy Costs of additional energy consumption
Heat waves b) Blackout Lost revenues and costs of fines and damages resulting from blackout
No specific climate facto c) Equipment shortages and delayed deliveries Lost sales margins resulting from shortages and delayed deliveries
No specific climate factor c) Additional costs, charges and taxes resulting from legislation changes, fines, migration, skilled labour shortages or diseases No valuation

Infrastructure damage or malfunction due to climate change

Climate change may result in infrastructure damage or malfunction, leading to failures. The key risks include increased temperatures (more frequent prolonged heat waves or higher daily temperatures), extreme weather events (e.g. storms, winds, lightning) and flooding of land (and infrastructure) due to acute or chronic climate change (torrential rainfall, river floods, transient or permanent sea level changes), which in extreme cases may lead to non-accessibility of certain areas. For the Company, such situations require changes in investment planning or parameters.

The main approach to physical risk management is an understanding, measurement, monitoring and mitigation of potential impacts for various climate/temperature scenarios over the short, medium and long term, accounting for the impact on financial issues and business continuity.

We have identified high-risk areas in Poland in order to account for climate-related risks in our investment decisions (planning of future facilities or relocation of the existing ones, design choices, additional protective or response measures).

We review and monitor the potential impact of climate factors on our infrastructure, so that in justified cases we can implement new solutions in infrastructure design and construction (e.g. active equipment optimisation, placing equipment higher above the ground, mobile installations, insulation, cooling systems) or provide proper protection systems (e.g. pumps).

It is a medium-term and long-term risk.

Impact of climate change on energy supply, consumption and costs

Climate change, particularly increasing temperatures and extreme weather events, is likely to have a considerable impact on energy supply, consumption and costs. This impact will increase as power supply and cooling systems deteriorate. This risk may be: (i) extreme-event driven (acute), e.g. increased average daily temperature, heavy storm or rainfall, or (ii) long term (chronic), e.g. increased frequency of heat waves or heavy storms. Both types of this risk would have a similar, significant impact on energy supply, consumption and costs for Orange Polska.

Furthermore, the Polish power grid is under growing strain (as more energy is needed for cooling and higher temperatures increase the likelihood of system failures), which may result in reduced electricity supply and higher prices or, in more serious cases, even local power outages. Higher ambient temperatures also increase cooling requirements related to the Company’s infrastructure itself.

Orange Polska’s attitude to the management of this risk is based on updated business continuity scenarios for power outages or other disturbances to the power supply, providing for energy storage or other low-emission emergency power supply solutions (and taking into account both costs and reliability). In addition, the Company optimises energy use in order to reduce demand (consumption). The Energy Optimisation Programme encompasses energy use optimisation for nontechnical real estate and evolution towards more energy-efficient technologies. We also focus on the technology of cooling systems, reducing electricity consumption and combining passive and active solutions. Furthermore, in order to ensure long-term access to the required amounts of energy, we secure renewable energy from suppliers (under Power Purchase Agreements), while supplementing it from our own sources (in the Solar-as-a-Service model). It is a short-term, medium-term and long-term risk.

Supply chain disruption may result from issues related to climate change, particularly insufficient availability of crucial resources or interruptions in supply from unstable regions. Shortages may occur, especially with respect to some critical resources coming from the areas vulnerable to extreme weather events (resulting in production downtime, transport route disruption, etc.) or sociopolitical disturbances (affecting resource extraction). There is only limited diversification of supply of some raw materials, which might pose a problem in the coming years in case of excessive dependence on suppliers from certain regions. It may hinder the provision of services by Orange Polska due to shortages or delayed deliveries of equipment, including infrastructure components from outside Europe. Delays in equipment delivery may in turn cause potential problems with functioning of ICT systems. There is also a risk of reduced availability and/or higher prices of products from the current sources. This may necessitate transition to alternative technologies and involve high costs of modernisation.

In terms of risk management, we have identified those resources which are both of key importance for business continuity and the availability of which may potentially be affected by disturbances related to climate change. To address potential interruptions in supply, we undertake a number of actions, including diversification of suppliers, securing so-called ‘backup suppliers’, building inventory, an ongoing search for alternative technologies and the use of different transport routes. Issues related to environmental and climate impact are accounted for in the process of supplier verification and assessment. We are also looking for solutions based on circular economy. We are co-operating with the Orange Group (including BuyIn) in order to adopt adequate solutions on the international level.

It is a medium-term and long-term risk.

The social, demographic, economic and regulatory effects of climate change will become increasingly visible over time. In the short term, legal and regulatory changes responding to the need to adapt to climate change may be expected. Such changes may have a significant impact on the requirements for the biggest enterprises in terms of operating or financial costs. These requirements may be related to the mandatory reduction in emissions, use of renewable energy, environmental impact management, circular economy solutions, etc. In the long term, depending on the severity of the actual climate change scenario, demographic and socioeconomic changes may be expected (particularly mass migrations affecting the customer structure, needs and purchase power or the macroeconomic environment in Poland).

At present, no individual or main risks have been identified in this area. However, the whole phenomenon of climate-related socioeconomic and regulatory evolution is dynamic and multidimensional. The impact of particular developments, especially related to future changes in legislation, has been reviewed by our experts. Initially, we believe that this impact will be largely mitigated by the high standards and ambitious goals set by Orange Polska in its own strategy. The areas with potentially the biggest impact on the Company’s operations include: anticipated EU regulations regarding energy-efficiency of data centres; revision of packaging and waste management provisions; potential regulations regarding resilience and continuity of telecom services under extreme weather conditions; EU regulatory expectations resulting in higher costs of high-emission materials, such as steel or concrete; growth in prices of electricity, especially based of fossil fuels; and changes in the social structure and the economic and political situation.

Therefore, the legal and regulatory environment is constantly monitored by our dedicated team of experts for developments related to climate change. We regularly inform and engage key internal stakeholders in order to respond to ongoing changes in advance and in the best possible way. We also co-operate with external stakeholders (European, national and local authorities, and the business environment) in order to predict, prepare for and respond to changing regulations and standards. Furthermore, we monitor on a current basis the broader socio-economic and demographic changes in Poland and worldwide which may have a significant impact on Orange Polska’s standing and business operations.

It is a medium-term and long-term risk

Impact of climate-related risks and opportunities on the Company’s strategy

Within the #OrangeGoesGreen approach Orange Polska has developed a climate strategy of which the key goal is to become climate neutral and achieve Net Zero Carbon by 2040. Neutrality will cover both direct and indirect own greenhouse gas emissions (Scopes 1 and 2 of carbon footprint in terms of the GHG Protocol) and emissions in the value chain (Scope 3).

Our first period of action is 2025 when we plan to reduce CO₂ emissions by 65%. During this period our actions focus on the three main priorities discussed in more detail in the “#OrangeGoesGreen priorities” section above: Priority 1: Responsibility for reducing our CO₂ emissions. Priority 2: Value for our customers and all stakeholders thanks to our climate action. Priority 3: Impact on the green, digital transformation of the Polish economy.

Metrics and targets

The key environmental targets defined in Orange Polska’s strategy and harmonised with Orange Group’s global climate goals (covered by the Engage 2025 strategy) are science-based and confirmed with the Science-Based Targets Initiative that they are aligned with the objectives of the Paris Agreement (holding the increase in global average temperature in the 21st century to 1.5°C above pre-industrial levels). In 2021 we reduced CO₂ emissions by 9% which was an acceleration versus previous years. Last year’s reduction was the first to be achieved with support from renewable energy. Renewable energy contributed about 6% to our annual consumption in 2021. Our 2021 emission were 27% below 2015 level. We are on track to reach our 2025 objective.

Annual Report 2021

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