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The product offer as a response to climate challenges

PZU AR 2021 > Capitals (IIRC) > Natural capital > The product offer as a response to climate challenges
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Risk area: Climate risks associated with transformation of the insurance portfolio

Approach to management: The PZU Group takes measures to support the policy of curtailing greenhouse gas emissions, among others, by developing its insurance offering for renewable energy source (RES) installations. The PZU Group invests in projects to ratchet up the share of green energy in the country’s energy mix. The PZU Group supports also activities aimed to increase electrification in transport.

Key policies: ESG strategy Balanced Growth”, Sustainable Investment Policy

The PZU Group is aware that insurance services, banking and investment activity are areas in which decisions of Group companies may influence client behaviors and, as a consequence, also their attitude towards the natural environment, the importance of respecting human rights and ethically doing business.

Considering the various scenarios and directions of climate change, the Group’s product offering and activities are multidimensional. On one hand, they focus on contributing to the prevention of climate change, or they concentrate on supporting the economy in its efforts to navigate the transition and curtail greenhouse gas emissions. That is why an important part of the commitments under the ESG Strategy is linked to developing the product offering to support the nation’s energy transition. On the other hand, the Group’s business contributes to adapting to climate change, or building the country’s resilience to climate change.

Nevertheless, the PZU Group’s insurance business is aimed at offering insurance products tailored to the needs of individual and corporate clients in various sectors of the economy. The Group’s highest priority is to properly respond to the current needs of the Polish market and economy in accordance with national and EU regulations (including those safeguarding the principles of fair competition and permitting cooperation only with those business clients whose activity, according to PZU’s knowledge, complies with the applicable laws). The complexity of needs and, consequently, of the offering has led PZU do provide insurance cover also to entities operating in the mining and power sectors. Besides traditional operations consuming coal and other mineral fuels, clients from this group also develop their activities in renewable energy sources. Moreover, the PZU Group is fully aware that the transformation process of the Polish economy towards carbon neutrality will require commitment and investment by commercial undertakings currently operating in the power sector. To enable a successful and orderly transformation, financial products, including loans and insurance policies, must be available to entities doing business in this sector.

PZU Group activities addressing climate and environmental risks: curtailing greenhouse gas emissions

Corporate clients

Having regard for the magnitude of the impact exerted by the business of corporate clients in 2021 the PZU Group took a number of efforts to extend its product offering targeting corporate clients. The extended product offering responds to the largest climate challenges, it contributes to attenuating the adverse environmental impact and at the same time it is aligned to Poland’s distinct economic nature.

By responding to the needs following from the burgeoning renewable energy market and living up to its strategic commitment as a “Trusted Partner in green transformation”, in 2021 PZU marketed two new insurance policies for corporate clients. The PZU Wind Power and PZU Solar Power policies are twin products that protect wind and solar power plants in the event of a failure, damage or destruction. These policies also give clients protection against civil liability and loss of profit caused by material damages. Both policies offer protection for the equipment directly responsible for generating energy (the PZU Wind Power offer: gondolas, towers, foundations, internal cabling and the PZU Solar Power offer: photovoltaic panels, their construction, internal cabling, inverters) and all of the accompanying infrastructure: energy storage units, underground cable connections, overhead power cables, fiber optic cables, equipment to export the capacity to the power grid and the auxiliary infrastructure: fencing, lighting, oversight systems, internal roads, buildings housing the station and the switch board and equipment.

Other Group entities are also taking actions to support clients in their energy transition.

TUW PZUW operates in the insurance segment for corporate clients, medical operators and public institutions and takes climate issues into account in its offering in a comprehensive manner also by including the offer described above for renewable energy sources. The specific nature of business insurance provided by a mutual insurance company involves the execution of insurance contracts by way of negotiation based on an individual risk assessment, with insurance programs attuned to the individual needs and expectations of its members. According to the ESG “Sustainable Development” strategy TUW PZUW is also a partner in the green transition of the Polish economy. It lives up to its commitment by providing insurance cover to entities operating in the broadly construed power and coal sectors that have initiated or are in the process of changing their energy mix, with particular emphasis on those business areas that seek to develop generation capacity from renewable energy sources, such as wind farms, photovoltaic farms and a network of hydroelectric power plants and biogas-fired plants. In 2021 it marketed new insurance products: “Power of the Wind” for wind farms and “Power of the Sun” for photovoltaic installations. This is comprehensive property insurance against all risks, including against damage and loss of profit, as well as liability insurance associated with the operation of wind turbines and photovoltaic panels. In addition, TUW PZUW offers insurance to companies operating in a segment consuming low-carbon energy sources based on natural gas (including Gaz System, PLNG and new Baltic Pipe investment projects). It supports new environmentally friendly investment projects in the power sector that satisfy stringent environmental requirements imposed by the EU and replace less environmentally effective assets. Additionally, TUW PZUW creates and promotes its own fire safety standards in an attempt at reducing the number of fires in business entities, thus contributing to a decrease in the emission of toxic pollutants into the atmosphere and surface and ground waters.

Alior Bank has rolled out a special offer to finance renewable energy source (RES) projects participating in auctions. This proposal targets commercial undertakings that plan to build wind or photovoltaic power plants with a capacity in excess of 500 kW. Special-purpose vehicles from the small, medium and large company segments doing business in the generation of energy from renewable energy sources may take advantage of this offer. The bank finances projects in the form of an SPV run by seasoned investors in RES project execution. Alior Bank also offered a thermal modernization loan earmarked for financing thermal modernization in the residential sector focusing mainly on housing cooperatives, housing communities and building societies (TBS). This loan is co-financed using funds from Regional Operational Programs for the following regions: Lower Silesia, Łódź, Smaller Poland, Podlaskie, Pomerania and Kujawy-Pomerania.

In 2021 Alior Bank extended its offer to finance thermal modernization to include a loan with a bonus from Bank Gospodarstwa Krajowego. The BGK bonus not subject to repayment to be used as a source of partial amortization of the financing for energy modernization or renovating buildings is just one of the new offer’s strong suits. Housing cooperatives and communities and local governments from across Poland can also count on a high amount of funding: up to PLN 5 million, a long term of funding: up to 20 years and reimbursement for the costs of the audit and technical documentation.

Bank Pekao supports projects contributing to developing sustainable urban transportation indirectly contributing to enhancing air quality in urban centers. In 2021 Bank Pekao participated in a bond issue to the tune of PLN 491 million to carry out an investment program to improve the standard of urban transportation in Wrocław. Pekao participated in financing for the amount of PLN 496 million in a consortium with Bank Gospodarstwa Krajowego designated for modernizing and building track infrastructure in the Silesian Urban Area and buying streetcar rolling stock and specialized rail vehicles.

The broad-based approach to investments supporting energy transition is an important direction and a visible change in the approach to managing the impact on climate change. According to this strategic commitment TFI PZU and PZU are jointly working on extending their traditional risk assessment criteria to include ESG issues. This includes proprietary scoring methodologies on the debt and equity markets, raising exposure to projects involving RES and energy transition, as well as incorporating ESG issues at all stages of the investment process. However, the most measurable activity is the commitment of PLN 450 million to investments to support the climate and energy transformation.

Participation in financing wind farms in Grajewo and Mława kicked off the companies’ exposure in this area. In June of 2021, TFI PZU SA participated in underwriting the construction of two wind farms in Poland with a total capacity of 51.4 MW whose total annual generation of clean electricity will be approximately 192 GWh.

Another important step was signing an agreement to fund the Potęgowo wind farm. This is currently the largest project of its kind in Poland. This project is run by a special-purpose company whose shareholders are the Israel Infrastructure Fund as the main arranger and controlling entity, Helios Energy Investment, CME Holdings and Allied Infrastructure Ltd. The Potegowo wind investment project is predicated on best in class technology. PZU’s participation will contribute to the installation of another 17 wind turbines, thereby contributing to the further increase in the percentage of green energy in the power grid. The Potęgowo wind farm is located in the northwestern part of the Pomeranian region and in the vicinity of the northeastern border of the Western Pomeranian region. The secured funding will be used to expand the project to include the Wieliszewo wind farm with a capacity of 37.4 MW. In total, the capacity of the Potęgowo power plant will be 256.9 MW. This means that it will account for nearly 4% of the total capacity of wind farms installed in Poland. Construction is slated for completion at the turn of 2022 and 2023.

Bank Pekao is also actively participating in building the RES sector in Poland, inter alia, by offering and organizing sustainable development bonds. Bank Pekao was the sole arranger and dealer for the issuance of 10-year ESG rating-linked bonds with a fixed coupon (the interest rate was linked to the level of the company’s ESG rating) for PKN Orlen with a total nominal value of PLN 1 billion as part of its support for issuing clients’ ESG bonds in 2021. In addition, Bank Pekao was one of the global coordinators and joint bookrunners for the issuance of 7-year green bonds for PKN Orlen with a value of EUR 500 million placed on the international market. The net proceeds from the bond issue will be designated to finance or refinance the group’s green projects. Bank Pekao was also one of the arrangers and dealers for the issue of green bonds by Famur S.A. with a value of PLN 400 million. The purpose of the issue was to provide direct and indirect financing or refinancing for the development, purchase, construction and operation of the Famur Group’s green projects.

In September 2021 the Bank jointly with the Polish Development Fund (hereinafter: PFR) announced their joint project to finance an investment in renewable energy sources called “PFR Green Hub”. The program’s total amount is PLN 1 billion. This program is supposed to facilitate the execution of the first 500 MW of new photovoltaic installations built on the basis of market power prices. In December 2021 Bank Pekao signed an agreement to issue green bonds with the company doing business as Miejskie Przedsiębiorstwo Oczyszczania-Łódź Sp. z o.o. The value of the program is PLN 400 million. These bonds will finance the construction of the Łódź Recycling Center, namely an installation to recycle urban waste.

Individuals and SMEs clients

The PZU Group is expanding its “green” product offering not just to span solutions designated for corporate and institutional clients. It is also responding to the needs of companies in the Small and Medium-sized Enterprise (SME) space. The PZU Group is aware that involving these firms in environmental protection efforts has the potential of generating significant benefits. For this reason, the offering of PZU Advisor targeted at the SME segment is focused on protecting the assets of these companies. The insurance cover protects the following installations and devices:

  • photovoltaic installations, including photovoltaic farms;
  • wind farms (windmills);
  • biogas-fired plants – devices for generating gas energy from biomass;
  • sewage treatment plants.

Moreover, the insurance cover protects third party property used by the insured company to render services and may be purchased by firms that install photovoltaic panels for retail customers. Such cooperation supports rapid sales of photovoltaic installations, but above all protects users against any damage to their equipment. The offering targeted at SMEs also includes third party liability insurance for damage to the natural environment (e.g. covering the costs of removing leaked substances from soil).

Similarly, the banks of the PZU Group are taking efforts to support SME clients on their path to climate neutrality. In 2021 Alior Bank launched Biznes Kredyt Zakupowy (Business Procurement Loan) to carry out ecological initiatives. This loan is for commercial undertakings in the micro company and small and medium enterprise segment that plan to roll out modern tools to mitigate the adverse impact exerted by a company’s business on the natural environment. The loan funds may be designated, among other things, to purchase and assemble photovoltaic panels, purchase ecological cars with an electrical or hybrid engine, thermal modernization of real estate or the purchase and assembly of a new source of heat. The loan collateral is in the form of guarantees offered by Bank Gospodarstwa Krajowego – a COSME guarantee or a de minimus guarantee and promissory notes to the benefit of Alior Bank and Bank Gospodarstwa Krajowego.

PZU is aware that individual clients are also looking for ecological solutions and investing in low emission solutions. Responding to market needs the Company has extended its offer of property insurance to include a special product that protects devices generating energy from renewable sources and also protects owners of photovoltaic installations against the risk of power interruptions or lower effectiveness in electricity generation. The new product - PZU Eko Energia is a solution, among others, for households, small and medium-sized enterprises and agricultural farms that use photovoltaic cells, solar thermal collectors or heat pumps to produce energy for their own needs. This insurance product is available in three options. Clients can choose the one best suited to their needs. The PZU Eko Energia policy protects photovoltaic installations (including a car charger and battery) against all risks, meaning loss, damage or total destruction as a result, e.g. of a failure, fire, power surge, flood, wind gust, hail or other sudden weather phenomena as well as vandalism and theft. PZU’s new product has been created and adapted to the needs of the owners of devices generating renewable energy.

PZU offers a new scope of motor own damage insurance for the owners of electrical vehicles. It covers damages to chargers, including a wallbox and charging wires and the battery. This responds to the growing popularity of electrical vehicles. As PSPA data show, in November 2021 there were 35.2 thousand passenger vehicles with an electric drive registered in Poland. That is two times more than in 2020. This new clause means that the owners of electrical vehicles who buy a motor own damage policy can count on protection in the event of damages to those parts of an electrical vehicle that result, among other things, from theft, overburdening the installation, overheating, circuit break, drop in voltage and damage due to gross negligence. The sum insured for cables and batteries is specified in the MOD insurance agreement. For a charger it is set separately and totals PLN 3,000. The development of charging infrastructure is conducive to the growing number of vehicles. According to data from the end of November 2021, the users of cars with an electric plug have at their disposal 1,813 generally accessible charging stations in Poland, plus 3,544 points. In just November another 207 points were launched. At the end of 2021 legislative changes were made to facilitate the assembly of electric car charging points in response to the request of the residents of a given building.

Banks are responding to the needs of retail clients. They have prepared a special loan offer for them.

The Express Loan for environmental purposes was available in 2021 to Bank Pekao’s clients, e.g. for renewable energy sources, to purchase a central heating boiler, windows, doors or home insulation materials. Funds from this loan can be used to underwrite the purchase of electric or hybrid cars, electric motorcycles and electric scooters and electric bicycles or refinance the costs incurred to make such purchases incurred since the beginning of 2021. The Bank also offered EKO Kredyt Mieszkaniowy (ECO Residential Loan). Financing was available to install solar collectors, photovoltaic panels and heat pumps during the construction or renovation of a property.

In 2021 Alior Bank’s offer included Eco Loan (Eko Pożyczka), namely a special loan offer prepared for clients who intend to buy a new electric vehicle. Clients could also take advantage of the Własne Eko-M mortgage loan offer to finance the purchase of a house or residential unit on the primary or secondary market and finance the construction of an energy-savings house in the event that the annual demand for user energy to heat and ventilate it does not exceed 50 kWh/m2/year. Alior Bank also offered the “Clean Air” Cash and Installment Loan to finance the replacement of old heat sources and purchase and assemble new heat sources, thermal modernization of single-family houses and purchase photovoltaics in connection with the purchase of new heat sources.

In response to the climbing environmental and climate awareness of retail investors the PZU Group companies are marketing products enabling them to invest their funds in sustainable investments. TFI PZU launched its first investment product advancing the environmental aspect referred to in Article 8 of SFDR (Regulation 2019/2088 on the disclosure of information related to sustainable development in the financial services sector), or the bright green product. inPZU Akcje Sektora Zielonej Energii – is a separate subfund under inPZU SFIO operating as an index fund designed to reflect the composition of an index and generate a rate of return equal to the rate of return offered by the MSCI Global Alternative Energy Net Return Index. The Pekao Ekologiczny subfund was added to Pekao TFI’s offer in 2021. It focuses on supporting sustainable investments. Companies from environmentally-friendly and pro-ecological sectors were selected as part of its portfolio (renewable energy, electromobility, energy efficiency, recycling and waste management). When analyzing their selection, on top of financial factors, ESG issues were equally important, namely environment, social and governance-related aspects.

Claims handling

The PZU Group endeavors to reduce the environmental impact of its products not only in the process of their creation and offering, but also throughout their lifecycle, in particular during the claims handling process. Within the framework of the claims handling process under third party liability and motor own damage insurance, an innovative process called Green Parts has been launched to handle the management of waste generated during the repair of damaged vehicles. PZU covers the manufacturing costs of approximately four million vehicle spare parts per year. It assumes responsibility for managing the remains of damaged vehicles (parts replaced with new ones) in accordance with the requirements of generally applicable laws. Improper disposal of damaged vehicle parts creates an environmental hazard. That is why partners of the Green Parts program who collect the remains of damaged vehicles after the repair are firms with experience in the disposal of motor vehicles and their replacement parts. They hold all the required permits. Their professional approach and reputation for integrity guarantee that each part collected by them is handled in compliance with the applicable legal requirements and the best environmental standards. The technical condition of damaged vehicle parts may pose a threat to human health and lives. In collaboration with a network of qualified partners, we make efforts to ensure that all parts (qualified for replacement due to damage) are replaced rather than refurbished. Our actions in this area are also aimed at reducing the volume of trade on the secondary market for salvage that has lost its safety features.

TUW PZUW offers an insurance product to clients that promotes the repair of a broken device instead of purchasing a new one. It is designed to generate financial savings for the client and helps to protect the environment by reducing waste. These benefits are provided through assistance insurance at TUW PZUW. Owing to their cooperation with TUW PZUW, power companies support their clients in emergency situations, offering them the tradesman product, ensuring assistance in arranging and performing repairs of home equipment and devices. It is also a response to the changing trends, growing awareness among consumers, the need to protect the environment and demand for comprehensive professional home assistance services. Under this offering, customers of power companies may take advantage of professional support in the event of a failure of electrical devices (electronics, household appliances, computers), heating and air conditioning systems, internal electricity, gas, water and sewage installations, doors, locks, etc.

The PZU Group’s efforts to adapt to climate change and prevent environmental risks: gaining a better grasp of risk factors

Risk area: The physical risk of pollution of natural environment and natural disasters resulting from climate changes

Approach to management: PZU takes measures for better understanding of the catastrophic risk factors, taking into account in particular the flood risk. For this purpose, the PZU Group runs, among others, periodic analyses of the non-life insurance portfolio for its exposure to natural disasters. The insurance portfolio is divided into zones with specific degrees of exposure to the risk of floods and cyclones. The values of prospective losses are assigned to each one of the zones under analysis. They correspond to the severity of a given phenomenon and, consequently, its specific probability level. On this basis, as part of the annual reinsurance cover program design process, the distribution of the level of possible catastrophic loss is estimated.

PZU also tailors its product offer to the identified risk factors, among others by an offer for sectors of the economy exposed to the highest climate risks, such as agriculture.

The PZU Group employs also weather scenarios as a basis for the construction of the reinsurance program and for the calculation of capital requirements. The capital requirements provide a guarantee that even in the event of catastrophic floods or cyclones the PZU Group will have the capacity to pay its liabilities to clients.

Key policies: ESG “Balanced Growth” Strategy

Engineering underwriting has been performed for large clients such as industrial plants for many years to enable the insurer to calculate their premiums. A detailed outcome of the underwriting exercise along with event-based scenarios are presented to the client. The underwriting covers business risks, which are often combined with environmental risks. For this reason, the actions taken by the client to eliminate or reduce certain elements of its risks, even if induced solely by an attempt to suppress insurance costs, contribute to diminishing the risks to the environment or humans. As part of its new ESG strategy PZU has undertaken to incorporate ESG factors to a greater extent when it assesses key clients and investment projects. At present, work is underway on devising an assessment methodology for this purpose. Such an assessment will be conducted in later years, and it will allow PZU to appreciate the level of ESG risks in the value chain.

TUW PZUW conducts regular risk analyses and issues recommendations on how to augment safety. The recommendations issued by PZUW’s risk engineers to enterprises classified as Large Risk Establishments (ZDRs) and Higher Risk Establishments (ZZWs) reduce the risk of industrial failures and minimize their impact on humans and the environment.

TUW PZUW prepared and disseminated an offering to waste management firms, designed in particular to promote environmentally friendly waste management methods, including the construction of highly efficient waste processing plants, such as those that turn waste into fertilizers, recover heat from thermal treatment or produce alternative fuels.

The PZU Group performs a regular analysis of its exposures in terms of the jeopardy related to natural disasters by giving special consideration to the risk of flooding due to the landscape and the number of surface waterways. PZU breaks down its insurance portfolio into zones according to specific degrees of exposure to the risk of floods (river floodplains and areas behind flood embankments) and cyclones – each such zone covered by the analysis is assigned a value of potential losses corresponding to the assumed probability levels. Annual introduction of changes in the frequency and scale of catastrophic events and their occurrence in the design of the reinsurance protection program.

The PZU Group’s efforts to adapt to climate change and prevent environmental risks: aligning the product offer to the risk factors

PZU has a customized insurance offering for sectors exposed to the highest climate risk such as the agriculture industry, which entails protection against the result of acts of fate such as flooding or minor flooding, cyclone, storms, snow fall or hail and torrential rain.

The environmental guarantee is a form of protection for companies whose activities may cause an adverse impact on the environment, e.g.: chemical plants, companies dealing in transborder movement of waste and municipal services plants. The guarantee is a commitment to pay a specified compensation if the company to which the guarantee has been granted fails to remove adverse environmental effects of its business operations. The beneficiary of this guarantee is the environmental protection authority issuing the relevant administrative instrument giving a permit to use natural resources.

As part of its cover against lost profits, PZU protects businesses whose profits decline, for instance as a result of damage to their assets caused by fire, flood, cyclone or other random events.

PZU offers extended clauses for businesses holding third party liability insurance to cover damage to the environment. The first such clause extends the third party liability insurance cover to include losses arising in connection with the release of hazardous substances into the air, water or soil. The second clause extends the insurance cover to include liability for damage to the environment. Such clauses are offered predominantly to industrial operators, construction companies, utilities, wastewater treatment plants and waste management companies. .

Some weather scenarios form the basis for construing reinsurance programs and calculating capital requirements. The capital requirements provide a guarantee that even in the event of catastrophic floods or cyclones the PZU Group will have the capacity to pay its liabilities to clients.

PZU offers reinsurance of natural risks for annual periods with a non-proportional structure. Whenever a reinsurance program is renewed, the contract structure, information about the insurance portfolio and the loss history are updated. Every year PZU models and quantifies the risks of floods and cyclones in Poland.

The PZU Group’s efforts to adapt to climate change and prevent environmental risks: innovation as a means of protection against the future

In the claims handling process in PZU in crop insurance there is an innovative process of determining the scope of damage to winter crops using satellite remote sensing solutions. This solution determines the objective results and makes it possible to assess the damage to the crops in sites that are not easily accessible and at short order, which is very important when it comes to larger plots of land. The utilization of remote sensing methods is also applicable to damages under risks related to spring ground frosts and when determining the timing for harvesting crops for most field crops. In addition, work is underway to design a new remote sensor technology in damages caused by cyclone and torrential rain risks. Thus far, drones were used to ascertain the scope of damages in 120 cases.

PZU Lab carries out audits and issues recommendations for various companies aimed at improving their safety in terms of assets, downtimes, human safety and the environment. It also runs the PRO Risk prevention program.

LINK4 in collaboration with Skywarn Poland (Polish Storm Hunters) has given clients holding real estate insurance access to a weather alert system. Clients receive a text message containing a warning and a website link where they can read about how to protect themselves against the adverse consequences of various weather event.