Procedures for preparing the double materiality assessment

PZU Group began adapting the methodology by defining the ESG topics, value chain, key stakeholders and timeframe for assessing dual materiality. In the absence of sector-specific guidelines, the assessment was based on the list of ESG topics in accordance with ESRS 1 AR 16. The assessment was conducted at the topic, sub-topic and sub-sub-topic level, if relevant, depending on the availability of data and market practices. At the same time, most topics were assessed at the sub-topic level, taking into account the specifics of the Group’s operations, stakeholder engagement strategy and three time horizons (short <1 year, medium 1 – 5 years, long >5 years).

PZU Group has adopted the sub-topic level as a baseline, while taking into account the analysis of themes and smaller thematic units, taking into account disclosure requirements and data availability. In the absence of sector-specific reporting standards, the need for additional topics was assessed by comparing the ESRS list with existing practices and international standards. As a result, cybersecurity was recognized as a material topic, reflecting the Group’s commitment to data protection and service continuity.

Next, PZU Group analyzed its business activities by taking into account seven key elements, based on the distribution of the Group’s revenues or assets, constituting elements of the downstream value chain. In accordance with ESRS guidelines, the identified elements were added to already identified own operations and the supply chain, forming PZU Group’s value chain. A detailed discussion of PZU Group’s value chain can be found in the “Business model and value chain” section.

Once the list of sub-themes and the value chain was compiled, their applicability to each component was determined.

In the first reporting year, PZU Group decided that each topic applied to corresponding parts of the value chain. At the same time, some topics were deemed inapplicable to the relevant elements of the value chain at the beginning of the analysis due to an obvious lack of impact and financial materiality:

• E3 „Water and Marine Resources” subtopics did not apply to „Life & Health Insurance” and „Retail Banking” (only the „Water” subtopic was considered), given the focus of these activities on individual clients
• E4 „Biodiversity” subtopics were not applicable to the „Life and Health Insurance” topics, considering the nature of operations focused on individual clients
• E5 „Circular Economy” subtopics did not apply to „Life & Health Insurance”, considering the business model focused on individual clients (the financial sector is characterized by low waste generation intensity)
• S1 „Own Workforce” subtopics applied only to „own operations”
• S2 „Workers in the Value Chain” subtopics applied to the entire value chain, except for „own operations,” as covered above
• S4 „Consumers and End-Users” subtopics did not apply to „proprietary investments” (considering PZU Group’s business model and „downstream” value chain elements), „own operations” and „suppliers”
• G1 „Business practices” subtopics did not apply to „Life & Health Insurance,” as they relate to corporate governance in enterprises rather than individual clients.

PZU Group applied a hierarchical approach to the preassessment. Due to data availability and their level of objectivity, four approaches were used:

• objective Group perspective (internal analyses supported by external data sources, e.g., databases)
• comparative perspective
• industry perspective
• subjective entity perspective (qualitative expert assessment).

The multidimensional approach allowed the evaluation process to flexibly adapt to available data and quantitative analysis. At the same time, it ensured its reliability and compliance with regulatory assumptions.

The adopted approach prioritized quantitative data. In cases where quantitative data were unavailable, an expert assessment was applied, based on predefined qualitative scales for each indicator.

The assessment of materiality for environmental topics was based on analyses of PZU Group’s internal characteristics (e.g., commercial insurance portfolio structure) compared to external materiality indicators (e.g., materiality levels for individual sectors according to ENCORE). In addition, the Group used internal analyses (e.g., ORSA) and, to complete completeness, qualitative, expert analysis of individual topics. All assessment results were subject to review by the Group’s internal experts and selected external stakeholders.

In particular, the analyses of environmental topics were based on:

• E1 (climate change): sectoral materiality analysis of the topic based on the structure of the business customer portfolio, together with an assessment of the company’s own operations regarding the relevant element of the value chain based on a sectoral impact assessment. As part of the assessment of risks and opportunities, the PZU Group used existing internal analyses (e.g., ORSA) as well as external databases and industry reports;
• E2 (Pollution): the impact analysis was performed analogously to the sectoral analysis of climate change, where, due to the regional nature of the impact of pollution, the level of pollution in the countries of the Group’s operations was included as a variable. For risks and opportunities, the PZU Group analyzed the level of dependence on the subject of pollution according to the according to sectoral data from external databases and used qualitative expert assessment, including on the basis of industry reports;
• E3 (Water and marine resources): the analysis was carried out analogously to theme E2 (Pollution), using relevant indicators, related to consumption levels, availability and quality of water and marine resources;
• E4 (Biodiversity and ecosystems): the analysis carried out was analogous to theme E2 (Pollution), where, for theme E4, indicators related to sectoral impacts on the quality, safety and coverage of ecosystems were examined using analysis of the structure of client portfolios and operations PZU Group as indicated by external databases (e.g., ENCORE);
• E5 (Closed-loop economy – GOZ): the analysis was based primarily on a sectoral assessment of the impact of the insurance, investment and credit portfolio, and own operations on GOZ. In addition, the PZU Group conducted qualitative analyses, including based on industry reports, to supplement the quantitative analyses. At the same time, due to the reduced regionalization of impacts, risks and opportunities, the analysis was based on the global nature of IRO.

In order to faithfully reflect the PZU Group’s significant impacts, risks and opportunities under environmental topics, it was decided to use a standardized analysis methodology, modifying the it accordingly in order to faithfully reflect and analysis of specific ESG topics.

The PZU Group conducted an additional analysis of the influences, risks and opportunities of Armatura Kraków at the subject level, due to its significantly different business activities, with a low financial impact on the Group as a whole and a low scale of operations, significantly reducing the occurrence of significant influences, risks and opportunities. The analysis was aimed at identifying unique material topics for significantly different business activities for the PZU Group.

The results of the analysis have been included in the final results of the PZU Group as a separate section due to the very low scale of the IRO of Fixtures Krakow preventing the identification of significant impacts, risks and opportunities.

At the same time, the analysis was taken into account in the overall dual materiality assessment process PZU Group