SFDR, MIFID and Taxonomy

According to Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (Sustainable Finance Disclosure Regulation), in 2021 PKO TFI S.A. and the Bank’s Brokerage Office published their strategies for incorporating sustainability risks into investment decision-making processes (Article 3) and information on the integration of changes in compensation policies to consider sustainability risks (Article 5) (https://www.pkotfi.pl/sfdr/, https://www.bm.pkobp.pl/media_files/9636be2e-3d5f-4b30-b4b6-a9936c8ee499.pdf). PKO TFI S.A. also published a statement that it does not take into account the adverse effects of its investment decisions on sustainable development factors (Article 4 of the SFDR).

Currently PKO TFI works on the introduction of the fund to the product offer, which, in accordance with the provisions of the SFDR regulation, promotes, among other things, environmental and/or social aspects. Completion of this work, including appropriate disclosures on the transparency of sustainability impacts at the level of the product, is planned for the first quarter of 2023. Work is also underway to extend the product offer to include a larger number of funds meeting the criteria set out in the SFDR Regulation.

In 2022, the Bank implemented the Commission Delegated Regulation (EU) 2017/565, which recommended the inclusion of ESG factors in the investment advisory and portfolio management services (full regulatory names available in Chapter 2.6).

Changes were made to the classification of customers and the assessment of suitability of investment services and financial instruments.

A question was added to the MiFID survey concerning the identyfication of customer’s preferences related to sustainability in the case of investment advisory services provided by the Bank and the Brokerage Office.

In the investment recommendation provided, the Bank takes into account the specific sustainability preferences indicated by the customer. If no financial instrument offered by the Bank as part of the investment advisory service meets the customer’s preferences, the Bank does not provide an investment recommendation to the customer and explains the reasons for its decision. The recommendation covers participation units of investment funds managed by PKO TFI S.A. (a company belonging to the Bank’s Group). Due to the fact that the investment advisory service provided by the Bank is limited to PKO TFI S.A.’s investment funds, risks for sustainable development are taken into account at the stage of implementation of the investment policy by PKO TFI S.A. In the case of the Brokerage Office, the scope of advisory services is wider and covers, apart from fund units, other financial instruments.

The Bank also implemented Directive 2017/593 together with transposition in the form of a regulation of the Minister of Finance of 11/08/2022, which came into force on 22/11/2022. Internal regulations were amended and MiFID questionnaire was supplemented with an additional question to customers regarding their investment goals related to sustainable development. ESG factors were also included in the process of product governance, i.e. the identification of target markets.

Information collected from customers regarding the ownership and/or non-fulfilment of investment purpose related to sustainable development is taken into account when determining whether the customer is in the target group for the product. This principle does not apply to structured deposits, derivatives and State Treasury bonds.

Similar changes concerning the survey of customer sustainable development goals preferences were introduced in PKO TFI S.A.

The customer may, at any time, adjust their preferences and objectives.

As part of its investment advisory services, the Bank does not currently consider the main adverse effects of investment decisions on sustainable development factors and their potential impact on return on investment. The Bank does not rule out the possibility of changing this position in the future. With respect to instruments included in the investment advisory service, the Brokerage Office shall take into account the adverse effects on sustainability factors.

According to Article 8 of Regulation (EU) 2020/852 of the European Parliament and of the Council and Commission Delegated Regulation (EU) 2021/2178 (Article 10), the Bank’s Group is obliged to disclose its indicators for 2022 as regards two objectives of the Taxonomy for sustainable activities: climate change adaptation and climate change mitigation. Delegated acts have not yet been adopted for the remaining four objectives of taxonomy.

The Bank’s Group is working on incorporating the criteria of compliance with the Taxonomy into its business strategy, the establishing of objectives, into product building processes and into the principles of cooperation with its Customers and counterparties. In accordance with the new Strategy, the Bank set the objective of achieving the highest volume of new financing of sustainable and transformation projects.

The ratios presented relate to Taxonomy-eligible activities. Determining a green asset ratio will require setting apart Taxonomy-aligned exposures.

The Bank presents adjusted values of ratios for 2021 and new ratios for 2022. The adjustment of last year’s data results mainly from clarification of definitions and exclusion of off-balance sheet exposures.

In the process of classification of activities to the taxonomy, the Bank analyzing the portfolio of exposures to the entities in the corporate market customer segment (excluding LGUs), identified non-financial reporting entities. The criteria of the Accounting Act, which concern the obligation of non-financial reporting (Article 49b) for public interest entities listed on EU markets were applied. The Bank has performed a system-based PKD/NACE verification of the customer with regard to Taxonomy qualification (eligible, non-eligible) without determining the compliance of the granted financing with the technical classification criteria (aligned, non-aligned).

The group of the Bank’s customers which are public interest entities also include financial sector entities. For financial sector entities which report non-financial information, the Bank verified the consistency of a customer’s core PKD/NACE codes with the types of activities for the first two objectives of the Taxonomy (climate change adaptation and mitigation). The exposures defined in the above are divided into taxonomy-eligible and non-eligible exposures.

Entities which conduct business activities and report non-financial information, have mostly not published information about what proportion of their activities is Taxonomy-eligible yet. In this situation, the Bank made estimates based on generally available data, which means that the values presented are voluntary disclosures.

Apart from exposures to customers conducting business activities, there is a group of exposures to households and local government units which may be assessed in the future in terms of eligibility and alignment with the Taxonomy. The share of exposures to households collateralized with residential properties and exposures to local government units in 2022 was nearly 27.1% of total assets.