The formal basis for drawing up this opinion is the Contract between the Accounting and Tax Institute and KGHM Polska Miedź S.A. dated 23 February 2021 for the Accounting and Tax Institute to render the service of making an expert assessment and attestation of the methodological accuracy and integrity of the preparation of the “Non-Financial Report of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group for 2020” (hereinafter referred to as the “KGHM Non-Financial Report”).

The KGHM Non-Financial Report comprises qualitative and quantitative data for the period from

1 January 2020 to 31 December 2020 pertaining to corporate social responsibility of the KGHM Polska Miedź S.A. Group and Parent Entity, understood as sustainable development of these organizational entities.

KGHM Polska Miedź S.A. has prepared the report following the guidelines of the Directives of the European Parliament and of the Council (2014/95/EU and 2013/34/EU) and the Act of 15 December 2016 Amending the Accounting Act (Journal of Laws of 2017, Item 61; consolidated version: Journal of Laws of 2017 Item 2342), and implementing them in Poland, as well as applying the elements of TCFD’s guidelines (Tak Force on Climate-related Financial Disclosures) to report related Financial Disclosures and of the Communique of the European Commission no. 2019/C 209/01. The supplement pertains to the notification of client-related information and the main assumptions for the EU development program till 2050 (The European Green Deal).

The Non-Financial Report of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group is comprised of five main parts. The first one contains a description of the business, organization structure, business model and the KGHM strategy pursued thereby along with the strategy’s foundation rooted in the idea of sustainable development devised on the basis of the UN 2030 Agenda’s 17 sustainable development goals with special emphasis on the metals and mining industry. This part is wrapped up with a subsection describing the comprehensive risk management system applied in the KGHM Group making it possible to react quickly and effectively to the appearance of any determinants of deviations from the execution of the strategic goals, including within the framework of activities in the labor, social and environmental areas (including the issues of climate and resource efficiency). The second part of the Report forming the subject of this opinion is constituted by the ethical grounds for the operation of the

Group and the Parent Entity, formed by values, as well as the Security and Loss Prevention System with the Code of Ethics as its central document, and furthermore the policies and procedures specifying and upholding the ethical foundations for the operation of both entities in their business environment with special emphasis of respecting human rights and counteracting corruption. The next three parts are formed by sections 3, 4 and 5 with a focus on results and metrics for the employee, social and environmental areas, including the climate and circular economy areas. They have been prepared using globally recognized non-financial reporting standards, relying on the methodology for corporate social responsibility reporting as published by the Global Reporting Initiative in the form of GRI Standards (hereinafer: GRI Standards) and using the guidelines for observing corporate social responsibility, presented in the ISO 26000 standard (Guidance on social responsibility), issued by the International Organization for Standarization.

Defining the Management Board’s responsibility

The auditor concludes that correct preparation of the Non-Financial Report subject to the assessment and attestation is the responsibility of the Management Board of the KGHM Polska Miedź S.A. Group and Parent Entity. The framework for this responsibility consists of the selection, implementation and description of the application of the following: business model of entities observing their corporate social responsibility, key non-financial performance indicators associated with the operations of these entities, policies applied by these entities with regard to social, employee, environmental, respect of human rights and prevention of corruption issues and due diligence procedures as part of the above policies, and the risks and their management in the context of these policies. The level of the above responsibility will be validated by constant compliance of globally executed sustainable development principles and goals specified in the description of the subject matter of the opinion as well as a methodology based on GRI Standards and ISO 26000 guidelines.

Defining the auditor’s responsibility

The auditor declares that its objective was to draw its own conclusions regarding the methods used for setting sustainable development goals, indicators and policy for the KGHM Polska Miedź S.A. Group and KGHM Polska Miedź S.A. as the Parent Entity and their operations presented in the KGHM Non-Financial Report in the descriptive form and confirmed by the figures and levels of selected indicators provided for by GRI Standards. The audit actions based on best knowledge and experience and the auditor’s due diligence were applied to that. In addition, the figures presented in the text and in the indicators provided

for by GRI Standards were verified to determine the risk of material distortion of data and/or the method for calculating them.

The audit was carried out using the International Standard on Assurance Engagements (ISAE) 3000 Revised, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information.

Audit activities performed

The activities performed by the auditor comprised the following five stages:

Stage 1. Assessment of the methodological accuracy of the selection by the KGHM Polska Miedź S.A. Group and Parent Entity of the following: the business model as a group of entities observing their corporate social responsibility, key non-financial performance indicators associated with the operations of these entities, policies used by the entities with regard to social, employee, natural environment, respect of human rights and prevention of corruption issues and due diligence procedures as part of the above policies, and the risks and their management in the context of these policies and selection of the corporate social responsibility indicators in light of the reporting standards compliant with GRI Standards and ISO 26000 and the distinct nature of the metals and mining industry.

Stage 2. Verification of the knowledge of the management concerning the business model used by the KGHM Polska Miedź S.A. Group and Parent Entity as a group of entities observing their corporate social responsibility, key non-financial performance indicators associated with the operations of these entities, policies used by the entities with regard to social, employee, natural environment, respect of human rights and prevention of corruption issues and due diligence procedures as part of the above policies, and the risks and their management in the context of these policies and selection of corporate social responsibility indicators in light of the reporting standards compliant with GRI Standards and ISO 26000 and the distinct nature of the metals and mining industry.

Stage 3. Assessment of the structure and effectiveness of material mechanisms used by the KGHM Polska Miedź S.A. Group and Parent Entity with regard to collection, processing and reporting of data for the key non-financial performance indicators associated with the operations of these entities, policies used by the entities with regard to social, employee, natural environment, respect of human rights and prevention of corruption issues and due diligence procedures as part of the above policies, and the risks and their management in the context of these policies and the corporate social responsibility indicators in light of the reporting standards compliant with GRI Standards and ISO 26000 and the distinct nature of the metals and mining industry.

Stage 4. Assessment of the structure and effectiveness of the key mechanisms for risk management and audit and internal control used by the KGHM Polska Miedź S.A. Group and Parent Entity with regard to collection, processing and reporting of data for the key non-financial performance indicators associated with the operations of these entities, policies used by the entities with regard to social, employee, natural environment, respect of human rights and prevention of corruption issues and due diligence procedures as part of the above policies, and the risks and their management in the context of these policies and the corporate social responsibility indicators in light of the GRI reporting standards and ISO26000 and the distinct nature of the metals and mining industry.

Stage 5. Verification of a sample of source documents for the non-financial indicators used by the KGHM Polska Miedź S.A. Group and Parent Entity, illustrating execution of the actions in the area of corporate social responsibility policies and procedures to define the risk of material distortion on the data presented in the KGHM Non-Financial Report and/or the method for determining them.

The auditor’s activities have made it possible to obtain sufficient and adequate evidence to issue a positive conclusion for the Management Board of the KGHM Polska Miedź S.A. Group as presented below.

Auditor’s conclusion

On the basis of the actions it has completed, the auditor states that the “Non-financial report of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group for 2020” has been prepared correctly in its entirety from a methodological perspective and following the rules on overall integrity, and nothing has been identified therein that would indicate that the aforementioned provisions pertaining to the business model as a group of entities observing corporate social responsibility, key non-financial performance indicators associated with the operations of these entities, policies used by these entities with regard to social, employee, natural environment (including the climate and circular economy), respect of human rights and prevention of corruption issues and due diligence procedures as part of the above policies, and the risks (even though they are presented together in a single section of the KGHM Non-Financial Report) and their management in the context of these policies, failed to follow the guidelines of the Directives of the European Parliament and of the Council (2014/95/EU and 2013/34/EU) and the Act of 15 December 2016 Amending the Accounting Act (Journal of Laws of 2017, Item 61; consolidated version: Journal of Laws of 2017 Item 2342) implementing them in Poland. The auditor also states that the Report subject to this opinion has also applied the TCFD guidelines (Task Force on Climate-related Finanacial Disclosures) to report environmental issues and European Union Communique no. 2019/C 209/01: Supplement regarding the notification of climate-related information and the key assumptions of The

European Green Deal, which should be deemed to be an important element specifying the awareness and liability of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group for issues associated with curtailing the adverse climate-related changes and rational resource management, in respect to both primary and secondary resources.

The clauses of KGHM’s Non-financial Report are also consistent with the global corporate social responsibility standards and the reporting standards provided for in GRI Standards as well as ISO 26000 guidelines, taking into account the distinct nature of the metals and mining industry.

Scope of application of the conclusion

This opinion, particularly the resulting conclusion, has been prepared by the auditor representing the Tax and Accounting Institute, in accordance with the agreement with KGHM Polska Miedź S.A. concluded on 12 February 2021 only for the needs of the KGHM Polska Miedź S.A. Management Board and should not be used for any other purpose. The Accounting and Tax Institute does not assume in connection with this opinion any liability towards other persons than the KGHM Polska Miedź S.A. Management Board.

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With a miner’s greeting,

Paweł Bogacz, Ph.D. Hab. Eng. (Stanisław Staszic AGH University of Science and Technology in Kraków)

Accounting and Tax Institute auditor

Warsaw, 15 March 2021

ABOUT THIS REPORT

This 2020 Non-Financial Report (Report, Non-Financial Report) contains data and measures pertaining to the KGHM Polska Miedź S.A. Group (hereinafter also referred to as the Group) and KGHM Polska Miedź S.A. (hereinafter referred to as the Parent Entity or Company). It has been prepared in accordance with the guidelines of the Accounting Act with regard to disclosure of non-financial information, the Act of 15 December 2016 Amending the Accounting Act (Journal of Laws of 2017, Item 61; consolidated version: Journal of Laws of 2017 Item 2342, as amended) and also based on the Directive of the European Parliament and of the Council no. 2013/34/EU subsequently amended by the Directive of the European Parliament and of the Council no. 2014/95/EU. Non-financial reporting is based on the Global Reporting Initiative (GRI) guidelines developed with the use of indicators included in the GRI Standards methodology selected with a view to providing possibly the most comprehensive description of the issues covered. This Report also employs elements of the guidelines of the Task Force on Climate-related Financial Disclosures and the Communication from the Commission No. 2019/C 209/ 01 – Supplement on reporting climate-related information and the assumptions for the European Green Deal EU development program.

To ensure full transparency, a comprehensive approach and the analytical data layout, this document has been prepared in the form of a Report. The reporting process in the KGHM Polska Miedź S.A. Group and in the Parent Entity KGHM Polska Miedź S.A. is carried out on an annual basis. This report does not contain any corrections of the content of previous reports. The Non-Financial Report of KGHM Polska Miedź S.A. and the Group for 2019 was published on 17 March 2020.

In the process of preparing the Report, the documents, policies, due diligence procedures, risk management principles and other informational materials related to the activities of the KGHM Polska Miedź S.A. Group and the Parent Entity KGHM Polska Miedź S.A. and the metals and mining industry in general, were reviewed. The values of qualitative and quantitative indicators describing the Group and the Parent Entity were calculated with due diligence and in accordance with the principles of comprehensiveness.

The Report has been prepared as a separate 2020 Non-Financial Report of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group. This document has been subjected to an external review. Moreover, in line with its practice to date, by the end of June 2021 KGHM Polska Miedź S.A. will publish its 2020 Integrated Report.

REPORTING METHODOLOGY

The preparation of the content of this Non-Financial Report comprised the following five stages:

Stage 1. Confirmation of the map of stakeholders in order to describe relations with the environment.

Stage 2. Confirmation of the applicability and importance of key business and sustainable development issues that are relevant for the KGHM Polska Miedź S.A. Group and the Parent Entity KGHM Polska Miedź S.A. in order to prepare a description of the business model. Significant issues were defined during discussion meetings with representatives of KGHM Polska Miedź S.A. and representatives of KGHM Group Companies.

Stage 3. Collection of metrics, using the electronic tool to collect non-financial data, depicting the implementation of policies, strategies and sustainable development goals as well as due diligence and risk management principles and their application in the KGHM Group and the Parent Entity in 2020.

Stage 4. Summary of the 2020 Non-Financial Report of the KGHM Group and the Parent Entity based on the collected data in accordance with the Accounting Act of 15 December 2016 (Journal of Laws of 2017, item 61, consolidated text: Journal of Laws of 2017, item 2342) and elements of the guidelines of the Task Force on Climate-related Financial Disclosures and the Communication from the Commission No. 2019/C 209/ 01 – Supplement on reporting climate-related information, and the assumptions for the EU development program (The European Green Deal) announced on 13 December 2019.

Stage 5. Third party audit evaluating the correctness of data and content included in the Non-Financial Report of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group for 2020.

1. ABOUT THE GROUP

1.1. DESCRIPTION OF THE KGHM POLSKA MIEDŹ S.A. GROUP

The KGHM Polska Miedź S.A. Group is a global, innovative organization involved in technologically advanced exploration, mining and smelting operations. For several decades, the Company has been mining and processing valuable underground resources, providing the world with commodities that enable its sustainable development. The Company’s history began in 1957 with the discovery of one of the world’s largest deposits of polymetallic ores, predominantly copper and silver, located in south-western Poland. The deposit has been effectively and reasonably mined to this day. As the years went by, the KGHM Polska Miedź S.A. Group significantly grew its business both in terms of products and the market. KGHM Polska Miedź S.A. is present on four continents: in Europe, South America, North America and Asia. The KGHM Polska Miedź S.A. Group is comprised of KGHM Polska Miedź S.A. as the Parent Entity and several dozen subsidiaries. As at 31 December 2020, the Group was composed of KGHM Polska Miedź S.A. as the Parent Entity and 71 subsidiaries (including two closed-end, non-public investment funds), employing more than 34 thousand people globally, trusting that what they do is important for the world. Owing to their knowledge, courage and responsibility, the KGHM Polska Miedź S.A. Group produces valuable commodities, predominantly metals. Its core business is the production of copper along with non-ferrous metals. We should also note the development of the resource base, which is a key element in securing the exploitation potential of geological resources. The Company is ranked among the world’s top producers of copper and silver. It also produces gold, molybdenum, nickel, rhenium, lead and platinum. The high quality of the copper, silver and other commodities produced by the Company has been confirmed by certificates awarded by various international commodity exchanges. By adopting a responsible approach, the KGHM Polska Miedź S.A. Group sets a good example for others, acting in accordance with its values in a transparent and socially responsible manner.

The cohesion of such a complex organization is built on a set of common values: ZERO HARM, TEAMWORK, RESULTS DRIVEN, ACCOUNTABILITY AND COURAGE. KGHM is a company with 60 years of history, operating on the basis of deeply rooted values and principles which its Employees follow in their daily work. Zero harm, teamwork, results driven, accountability and courage – these values bind all of KGHM’s employees, regardless of whether they work in a mine, processing plant or smelter, in Poland or in other parts of the world. KGHM builds its global position in the world as a reliable producer, trusted business partner and a company pursuing a sustainable development policy. The Company has been listed on the Warsaw Stock Exchange for more than

20 years and is included in the WIG20, WIG30 and WIG-ESG indices. KGHM Polska Miedź S.A. is also among companies included in the FTSE4Good Index Series.

Specifically, the business of the KGHM Polska Miedź S.A. Group covers the following areas:

– mining of copper ores and non-ferrous metal ores

– production of metals, among others copper, silver, molybdenum, nickel, gold, platinum, palladium,

– manufacturing of goods from copper and precious metals,

– recycling of non-ferrous metals.

– underground construction services,

– manufacturing of mining machinery and equipment,

– transportation services,

– research, analysis and design services,

– production of road construction aggregate,

– recovery of metals accompanying copper ore,

The activities of the KGHM Polska Miedź S.A. Group with respect to the exploration and mining of copper and nickel ore and precious metals deposits is based on the concessions held by KGHM Polska Miedź S.A. for the mining of deposits in Poland and the legal titles held by companies belonging to the KGHM INTERNATIONAL LTD. Group for exploration and extraction of raw materials in the USA, Canada and Chile.

1.2. ORGANIZATIONAL STRUCTURE OF KGHM POLSKA MIEDŹ S.A. AND THE KGHM POLSKA MIEDŹ S.A. GROUP

As at 31 December 2020, the Group was composed of the Parent Entity – KGHM Polska Miedź S.A. – and 71 subsidiaries (including two closed-end, non-public investment funds), located on four continents: Europe, North America, South America and Asia. Some of these subsidiaries form their own groups. The largest of these, in terms both of the number of entities as well as the value of equity, is the KGHM INTERNATIONAL LTD. Group, whose main assets are located in Canada, the USA and Chile. It was comprised of KGHM INTERNATIONAL LTD. and its 26 subsidiaries. At the end of the reporting period the KGHM Polska Miedź S.A. Group owned shares in two joint ventures - Sierra Gorda S.C.M. and NANO CARBON Sp. z o.o. in liquidation.

The detailed structure of the KGHM Polska Miedź S.A. Group, together with the relationships between entities, may be found in Appendices 2 and 3.

The Group’s main entities, which are engaged in the mining sector, comprise three primary reporting segments which are independently evaluated by management bodies. These are: KGHM Polska Miedź S.A., KGHM INTERNATIONAL LTD. and Sierra Gorda S.C.M. Other companies, excluding Future 1 Sp. z o.o., Future 2 Sp. z o.o., Future 3 Sp. z o.o., Future 4 Sp. z o.o., Future 5 Sp. z o.o., Future 6 Sp. z o.o. in liquidation and Future 7 Sp. z o.o. in liquidation, are part of the segment called Other segments.

Organizational structure of the KGHM Polska Miedź S.A. Group, including KGHM INTERNATIONAL LTD., and the position of KGHM Polska Miedź S.A. as the Parent Entity and its stakes in each company

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The following diagram presents the significant production assets and projects underway within the reporting segments: KGHM Polska Miedź S.A., KGHM INTERNATIONAL LTD., Sierra Gorda S.C.M. and Other segments:

Reporting segments of the KGHM Polska Miedź S.A. Group

¹⁾ a joint venture between KGHM INTERNATIONAL LTD., Sumitomo Metal Mining and the Sumitomo Corporation

The following companies were not included in any of the aforementioned segments:

- Future 1 Sp. z o.o., which acts as a holding company with respect to the KGHM INTERNATIONAL LTD. Group,

- Future 2 Sp. z o.o., Future 3 Sp. z o.o., Future 4 Sp. z o.o., Future 5 Sp. z o.o., Future 6 Sp. z o.o. in liquidation, Future 7 Sp. z o.o. in liquidation, which operate in the structure related to the establishment of a Tax Group.

These companies do not carry out any operating activities affecting the performance of the individual segments, therefore adding them could affect the data presented in this part of the consolidated financial statements, because of the significant values of internal settlements with other Group entities.

KGHM Polska Miedź S.A., KGHM INTERNATIONAL LTD. and Sierra Gorda S.C.M. Segments have separate Management Boards, which report performance of their operations to the Parent Entity’s Management Board.

The KGHM Polska Miedź S.A. segment consists of the Parent Entity only and the Sierra Gorda S.C.M. segment consists of the Sierra Gorda joint venture only.

1.3. Changes in the main Group governance principles

The Group’s governance model was not changed in 2020. Within the existing broadly defined governance principles, actions were taken to coordinate the processes occurring in the Group, among others in the commercial area, in order to maintain continuity and security of the core production business. Activities associated with the COVID-19 pandemic were some of the more important aspects in this area. Coordination of activities at the Parent Entity level was aimed at mitigating the impact of negative effects of the pandemic on the activity of Group entities.

1.4. Organizational structure of KGHM Polska Miedź S.A.

The Parent Entity of the KGHM Polska Miedź S.A. Group – KGHM Polska Miedź S.A. with its registered office in Lubin at ul. M. Skłodowskiej-Curie 48 – is a joint-stock company registered in the District Court for Wrocław Fabryczna, 9th Business Division of the National Court Register, KRS no. 23302, in the Republic of Poland. In 2020, the multi-divisional organisational structure of the Company, acting under the name KGHM Polska Miedź S.A., comprised the Head Office of the Company and 10 Divisions, as shown on the following diagram:

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Organisational structure of KGHM Polska Miedź S.A. as at 31 December 2020

Changes in the main Company governance principles in 2020:

As a result of a Resolution of the Ordinary General Meeting of KGHM Polska Miedź S.A. adopted on 19 June 2020, changes were made to the Statutes of the Company with respect to the adoption of resolutions by the Management Board in matters exceeding the scope of ordinary management.

Based on changes to the Statutes registered in the National Court Register (KRS), on 12 August 2020 the Management Board introduced changes to the Bylaws of the Management Board, which were approved by the Supervisory Board on 21 January 2021.

KGHM’s business model is divided into 8 segments through which the KGHM Group ensures a full value creation chain – from exploration to sales of finished goods.

Business model of the KGHM Polska Miedź S.A. Group

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The KGHM Polska Miedź S.A. Group holds geographically diversified mining assets (copper ore mines with associated minerals, such as silver, molybdenum, nickel, gold and other precious metals) located in Poland, the USA, Chile and Canada as well as metallurgical facilities in Poland. The key international asset – the Sierra Gorda mine, which is a joint venture of KGHM INTERNATIONAL LTD., Sumitomo Metal Mining and the Sumitomo Corporation – is located in Chile. In addition, the KGHM Polska Miedź S.A. Group has mine projects which are at the preproduction phase (among others Victoria, Sierra Gorda Oxide), as well as other exploration projects.

The main assets of the KGHM Polska Miedź S.A. Group are presented in the diagram below:

Production activity of the KGHM Polska Miedź Group across the world:

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1.5. KGHM POLSKA MIEDŹ S.A. GROUP COMPANIES INCLUDED IN THE 2020 REPORTING ACCORDING TO DIRECTIVE 2014/95/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL RUNNING AN INDEPENDENT BUSINESS, average headcount in the period from 1 January to 31 December 2020

KGHM ZANAM S.A.:

· Total assets: PLN 414 million

· Profit on sales: PLN 745 million

· Employment: 2,261 people

PEBEKA S.A.

· Total assets: PLN 596 million

· Profit on sales: PLN 740 million

· Employment: 2,065 people

"MIEDZIOWE CENTRUM ZDROWIA" S.A.:

· Total assets: PLN 147 million

· Profit on sales: PLN 193 million

· Employment: 729 people

“ENERGETYKA” SP. Z O. O.:

· Total assets: PLN 704 million

· Profit on sales: PLN 561 million

· Employment: 819 people

UZDROWISKA KŁODZKIE S.A. - PGU GROUP:

· Total assets: PLN 148 million

· Profit on sales: PLN 75 million

· Employment: 523 people

NITROERG S.A.:

· Total assets: PLN 384 million

· Profit on sales: PLN 363 million

· Employment: 982 people

POL-MIEDŹ TRANS SP. Z O.O.:

· Total assets: PLN 246 million

· Profit on sales: PLN 167 million

· Employment: 701 people

MERCUS LOGISTYKA SP. Z O.O.:

· Total assets: PLN 277 million

· Profit on sales: PLN 996 million

· Employment: 687 people

KGHM INTERNATIONAL GROUP:

· Total assets: PLN 10,811 million

· Profit on sales: PLN 2,703 million

· Employment: 2,006 people

KGHM Metraco S.A.:

· Total assets: PLN 621 million

· Profit on sales: PLN 3,032 million

· Employment: 263 people

1.6. GOVERNANCE STANDARDS of the KGHM Polska Miedź S.A. Group

In order to ensure the optimal model for managing and supervising the business processes of the KGHM Polska Miedź S.A. Group (hereinafter: KGHM Group), particularly in the context of its rapid development in recent years, the process of establishment of a new corporate governance model was carried out, relying on systemic legal and corporate solutions. The project was based on the KGHM Group’s values and the need for having in place a set of formal and legal regulations governing the principles of

cooperation within the KGHM Group. On this basis, the Code of the KGHM Polska Miedź S.A. Group was introduced in recent years.

The KGHM Group continued to improve its existing tools in order to streamline coordination of processes and enhance the security of its operations. In 2020, the Management Model of the KGHM Group, which contained the formulas for exercising oversight, in particular over domestic entities of the KGHM Group, was updated.

In the reporting period, the KGHM Group Council continued its activity. The Council is a standing team with advisory/consulting powers, which supports the undertaking of organized activities within the KGHM Group and issues opinions on standards implemented in the KGHM Group. The KGHM Group Council cooperates with entities in the KGHM Group in a manner which does not conflict with the powers and responsibilities of their corporate bodies. The mandate of the KGHM Group Council covers all matters that are important for the functioning of the Group. The Council comprises the management staff from the Head Office of KGHM Polska Miedź S.A. responsible for managing respective business areas. In justified cases, other persons may participate in the Council, including representatives of companies in the KGHM Group.

In 2020, the KGHM Group also implemented corporate regulations, which allow the corporate bodies of its domestic subsidiaries to hold meetings and make decisions fully remotely.

In accordance with the Statutes of KGHM Polska Miedź S.A. the members of the Management Board are appointed and dismissed by the Supervisory Board. The allocation of powers within the Management Board of KGHM Polska Miedź S.A. is presented below:

The President of the Management Board is responsible for:

- activities related to overall risk management at the corporate level as well as auditing and internal controlling within the Group,

- the preparation, implementation and execution of the Company’s Strategy and Policy of Sustainable Development

- activities related to comprehensive management of security and preventing losses in the Group,

- corporate supervision standards and compliance with the corporate governance standards adopted by the Company,

- overall corporate oversight over the Group’s subsidiaries in Poland and abroad,

- compliance with formal reporting and publishing obligations within the scope required by law,

- activities related to creating, updating and maintaining the uniformity of the organisation’s internal regulations to maintain consistent operating principles,

- providing organisational and legal services to the Company’s bodies,

- providing legal services to the Company,

- activities related to communications and image-building within the Group,

- the shaping of relations with the Company’s external business environment,

- on the Founder’s behalf – supervision of the functioning of the KGHM Polska Miedź Foundation as well as other organisations serving the public, which support achievement of the Group’s business goals,

- the activities of the Data Centre Division (COPI) with respect to:

- supplying and developing information and communication services required for the proper functioning of the Head Office,

- the management’s rational utilisation of ordered and contracted goods and services, and

- activities related to human capital management.

The Vice-President of the Management Board (Finance) is responsible for

- the shaping of the Group’s financial policy;

- review of the Main Strategy’s projects in terms of their financial feasibility;

- finances in all of the Group’s operations and activities;

- the creation of Group’s tax policy; and

- the Company’s accounting services.

The Vice-President of the Management Board (International Assets) is responsible for:

- the preparation and implementation of strategy for international assets,

- activities related to acquiring and developing the international resource base,

- analysis, assessment and preparation of new international exploration projects,

- preparation of studies and expert opinions concerning international resource base projects,

- coordination of tasks with respect to the plan of the Company’s equity investments in international subsidiaries,

- substantive oversight over the Group’s international production subsidiaries, including the creation and execution of their production plans,

- the shaping of the Company’s commercial and logistics policies.

The Vice-President of the Management Board (Development) is responsible for:

- implementation of the Company’s research and development policy,

- advancement of the Company’s innovation and intellectual property protection policy,

- coordination of the Company’s investments and development projects,

- the development, updating and monitoring of execution of the Group’s equity investments plan,

- shaping of the Company’s products portfolio,

- initiation, development and implementation of management standards in the process of managing projects and programs,

- acquisition and development of the mining resources base in Poland,

- management of real estate,

- overseeing the Company’s administrative services,

- the work of the Procurement Unit.

The Vice-President of the Management Board (Production) is responsible for:

- the integrated planning and optimisation of the Company’s current production;

- occupational health and safety and control of environmental risks;

- activities with respect to maintaining readiness of the production and non-production assets and achievement of the main goals of the Energy Strategy;

- activities with respect to manufacturing products and development of the primary mine and metallurgical production;

- overseeing activities connected with the implementation, maintenance and improvement of management systems in the Company;

- and integrated supply chain management.

1.7. KEY STAKEHOLDERS IN THE KGHM POLSKA MIEDŹ S.A. GROUP AND CONFIRMATION OF KEY REPORTING ISSUES

Since the inception of the KGHM Polska Miedź S.A. Group, a good relationship with stakeholders based on mutual understanding and trust has been crucial for the Group. The Group exerts a significant impact on its economic, social and natural environment, of which it is fully aware and for which it accepts full responsibility. Cooperation – one of the company's values – is the basis for its success in business and social activity. The Group builds relationships with Stakeholders based on partnership and complete transparency, with an awareness of their importance in its long-term strategy and sustainable approach to business and its growth. The basis of this process is dialogue geared towards learning about mutual expectations and capabilities and implementing agreements.

In 2020, discussion meetings were held among the top management staff of KGHM Polska Miedź S.A. and the KGHM Group, in order to determine the degree of qualitative changes in the strength of interest and the strength of influence of individual stakeholders and the organization in respect of key Stakeholders. It was determined during the meetings that no change was identified in respect of key Stakeholders of the KGHM Polska Miedź S.A. Group in 2020. They are presented below:

Map of key stakeholders in the KGHM Polska Miedź S.A. Group in 2020

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The above indicates that the resulting reporting aspects by the KGHM Polska Miedź S.A. Group remained without major changes in 2020 as compared to 2019. However, it was noted that even more weight should be attached to environmental issues, especially in terms of climate protection and resource efficiency, also in the context of the European Union implementing the European Green Deal strategy.

1.8. COMPETITIVE ADVANTAGES OF THE KGHM POLSKA MIEDŹ S.A. GROUP

The scope of activities of the KGHM Polska Miedź S.A. Group, the unique comprehensiveness of our mining and processing operations on a global scale, our pursuit of innovation and continued financial stability, along with our extensive in-depth experience allow us to market products and services that satisfy the expectations of even the most demanding buyers.

The competitive advantages of KGHM Polska Miedź S.A. are depicted on the following diagram:

Competitive advantages of KGHM Polska Miedź S.A.

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Global reach of operations

In the 21st century, KGHM Polska Miedź S.A. became a global mining and processing entity with presence on four continents. On the one hand, such a large scale of operation substantially curtails the risk of disturbance in the continuity and quality of production, while on the other hand, it facilitates the continual transfer of knowledge and experience between its various units. Its mobility policy enables it to post the most prominent experts in the Group wherever their expert knowledge is needed to derive business benefits. That also leads to the diversification and enlargement of its product portfolio.

Unique know-how and skills

During its nearly 60 years of history, KGHM Polska Miedź S.A. has acquired experience, knowledge and skills that have enabled the Company to transform its business from a local miner into an international Group acting as a major player in the global market for non-ferrous metals. The skills developed by our employees are and will be used in the future as one of the fundamental assets for winning a competitive edge in the industry and for building a strong position of Poland as an industrial centre. Also unique is the KGHM Polska Miedź S.A. Group’s fully integrated business chain: from the exploration of deposits, opening of deposits and their mining, including the manufacturing of mining machinery and explosives, processing, recycling, smelting, refining and sales, all the while keeping in mind during the execution of these processes the principles of sustainable development and corporate social responsibility.

Innovation

Innovation is one of the competitive advantages of the KGHM Polska Miedź S.A. Group. Work on innovative solutions is conducted at various business levels, drawing on cooperation with independent entities and scientific establishments, while appreciating the creative potential and ingenuity of our own employees. They are the most familiar with our specific needs and are able to identify areas and solutions that translate into better performance and greater safety, improved ergonomics of employee work and protection of the environment. The KGHM Polska Miedź S.A. Group’s success hinges on the innovation, commitment and collaboration of many thousands of employees representing diverse knowledge and experience. The identification of in-house talent and the creation of individual development paths aligned to the organisation's potential and needs are the key to the future development of the KGHM Polska Miedź S.A. Group.

Integrated process – from exploration to sales

In the KGHM Polska Miedź S.A. Group, production and production-related processes are performed in accordance with the following two models:

Integrated mining, processing, smelting and refining processes in KGHM Polska Miedź S.A.

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Simplified flowchart of the core business of the KGHM INTERNATIONAL LTD. Group

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Production in KGHM Polska Miedź S.A. is a fully integrated process, in which the end product of one technological phase is the starting material (half-finished product) used in the next phase. Mining in KGHM Polska Miedź S.A. is performed by three mining Divisions: Lubin, Rudna and Polkowice-Sieroszowice. In the subsequent phase the Concentrators Division prepares concentrate for the smelters and refineries, while the Tailings Division is responsible for storing and managing the tailings generated by the copper ore enrichment process. The organisational structure of KGHM includes two metallurgical facilities: the Legnica Copper Smelter and Refinery and the Głogów Copper Smelter and Refinery, as well as the Cedynia copper wire rod plant.

A fact worth noting is that recently, as part of its business, KGHM Polska Miedź S.A. has been rapidly developing and implementing certain elements of the circular economy concept. To this end, it has been making progress in the areas of recycling and further improving the utilization of post-production waste as the so-called secondary sources of raw materials.

The core line of business of the members of the KGHM INTERNATIONAL LTD. Group is the mining of metals, including copper, molybdenum, nickel, gold, platinum and palladium, carried out in both open-pit and underground mines, and the execution of mining and exploratory projects.

1.9. KGHM POLSKA MIEDŹ S.A.’S STRATEGY FOR 2019-2023

In 2020, the Company continued to pursue the “Strategy of KGHM Polska Miedź S.A. for the years 2019-2023” which was approved on 19 December 2018 (hereinafter referred to as the Strategy). The Strategy is based on four strategic development directions: elasticity (flexibility), effectiveness, environment and e-industry (the so-called 4Es), resulting from global market trends:

This is presented comprehensive in the chart below:

Strategic directions of KGHM Polska Miedź S.A.

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The aforementioned directions are reflected in six identified strategic areas, with individualised and measurable main goals, as shown in the illustration below:

Strategic areas and primary goals of the Strategy of KGHM Polska Miedź S.A.

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Information on the KGHM Polska Miedź S.A.’s strategy is presented on our website at https://kghm.com/en/about-us/strategy.

In 2020, in order to implement the Strategy, we continued our policy of development directions for the KGHM Polska Miedź S.A. Group. Further actions were also taken aimed at adapting the Group’s organisational functioning model to the business model of KGHM Polska Miedź S.A. and the market environment. In terms of the domestic companies, development policy was also aimed at cooperation between the Group’s entities and at eliminating overlapping areas of competence in terms of individual entities.

To implement the KGHM Polska Miedź S.A. Strategy for 2019-2023, a number of reorganization measures was undertaken in the area of the KGHM Group’s international companies. The actions were aimed at integrating KGHM INTERNATIONAL LTD. in Canada with the company’s activity in Poland and with transference of some of the business functions of KGHM INTERNATIONAL LTD. to Poland. These activities are being continued, mainly with respect to developing joint internal rules and procedures and the standardisation of solutions in individual areas of the Company’s activities. Moreover, internal actions were undertaken aimed at identifying additional scenarios for the development of individual international assets in the Company’s portfolio.

With respect to domestic companies, the main goal of the development intent is to ensure continuity of operations and occupational safety within KGHM Polska Miedź S.A.’s core production business and to integrate the KGHM Group around the sustainable development concept, which included implementation of growth initiatives consistent with the Circular Economy concept in order to reduce the Group’s environmental impact. In the case of the international part of the Group, the Company is concentrating on maximising the value of its asset portfolio.

In terms of the development directions adopted in the Company’s Strategy, investments focus on projects leading to improved efficiencies in the core production business. The investment policy of KGHM Polska Miedź S.A. is based on advancing the Company’s five-year investment plan, enabling execution of the long-term production plan.

In 2020 the Company continued to advance key mining and metallurgical investments, such as:

- The Deposit Access Program (Deep Głogów along with access and development tunnels);

- Development of the Żelazny Most Tailings Storage Facility,

- Investment projects supporting drainage of the Polkowice-Sieroszowice Mine;

- Investment projects adapting metallurgical installations to BAT conclusions for the non-ferrous metals industry and to restrict emissions of arsenic (BAT-As),

- Projects optimizing the utilization of Legnica Copper Smelter’s production capacity (using the existing infrastructure and expanding it to increase its processing of scrap),

- Investment projects related to replacing equipment and optimisation at the Głogów I Copper Smelter and Refinery.

In addition, with respect to development of the domestic resource base, the Company conducted further exploration work under the existing concessions to search for and explore deposits.

The directions adopted also include the advancement of actions under the circular economy concept. Additionally the Company continues to engage in the work on new smart technologies and production management systems based on online communication between elements of the production process and advanced data analysis, in accordance with the assumptions for the KGHM 4.0 Strategic Program.

The Company is also intensifying actions aimed at improving energy efficiency through investments in its own generating capacity, in particular those which have little to no emissions. Investment projects were also commenced in the photovoltaic energy sector. In accordance with the current Strategy of the KGHM Group for the years 2019-2023, it is expected that by the end of 2030, 50% of KGHM Polska Miedź S.A.’s demand for electricity is to be met by its own sources of energy generation and renewable energy sources.

The key achievements in 2020 with respect to strategic tasks being implemented in individual areas of the Strategy are described in the “Management Board’s Report on the activities of KGHM Polska Miedź S.A. and the KGHM Polska Miedź S.A. Group in 2020”, which is available on the Company’s website at https://kghm.com/en/investors/results-center/financial-reports.

STRATEGY SUMMARY AFTER 2 YEARS OF ITS IMPLEMENTATION

In December 2020, two years had passed from the adoption of the Update for KGHM Polska Miedź S.A.’s Strategy for 2019–2023. This summary presents the key achievements of this period from the “4E” perspective. A video summarizing the Strategy after two years is available on our website at https://media.kghm.com/en.

Key achievements of the KGHM Polska Miedź S.A.’s Strategy for 2019-2023 after two years of pursuing it

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Efficiency

Our response to increase in competitiveness in the production and mining sector and Industry 4.0

- Investments were carried out to ensure that domestic mine production remains at the level of 450 thousand tonnes of copper in ore and average annual metallurgical production at the level of 540 thousand tonnes,

- The Revolving-Casting-Refining (RCR) furnace at the Legnica Copper Smelter and Refinery increased the capacity of the purchased materials processing unit and increased production capacity,

- Energy reviews in all of the Divisions and at the Head Office indicated new areas where energy consumption could be reduced, pursuant to the Energy Management System,

- Skills were developed in energy development, including RES (investments in photovoltaic power plants at the Legnica and Głogów Copper Smelters and Refineries and at the Obora Sandpit),

- The efficiency of waste deposition was increased as part of the Project to Develop the Żelazny Most Tailings Storage Facility by building the Southern Quarter,

- External sources were used to finance R&D and innovation projects,

- An effective and diverse organisational culture was developed, based on the Group’s values,

- The Group’s structure was rationalised to more effectively utilise its potential from the perspective of operations of the entire Group,

- Cost discipline was maintained and savings initiatives were implemented,

- Financial efficiency was increased thanks to the diversification of its sources and to the adaptation of financing to the Group’s needs,

- Actions were taken to shorten the receivables recovery period and extend the liabilities payment period (we utilise factoring),

- Continuous, safe access to factoring for the Group was assured.

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Ecology, safety and sustainable development

We rely on electromobility, the development of pro-ecological regulations, the Circular Economy and pro-ecological production in accordance with the highest safety standards

- Intelligent solutions were introduced to enhance employee safety,

- The same OHS procedures were introduced in the Group’s companies and divisions, including a consistent safety management system for all of the assets of KGHM INTERNATIONAL LTD.,

- Numerous actions were taken under the „Copper Heart” employee volunteer program,

- Corporate income taxes were paid by the Group to the State and local budgets - around PLN 400 million annually,

- A minerals extraction tax was paid to the State budget – around PLN 1.5 billion annually,

- Employees were provided with development and educational opportunities through numerous training sessions, development programs and HR projects (e.g. the „4E Skills Academy”),

- New installations were applied, in accordance with BAT conclusions (Best Available Techniques) for the nonferrous metals industry,

- Investments were made in renewable energy sources (RES), mainly in the development of photovoltaics,

- Electromobility was developed – we are testing electric personnel and terrain vehicles; in terms of replacing the machinery park, there is a switch from diesel engines to low-emission vehicle engines,

- Non-financial reporting was expanded to ensure that the Company’s internal and external communication remains consistent,

- High standards were achieved in communicating with the market and investors.

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Elasticity/Flexibility

We adapt our activities to changes in our environment

- Consistent management of deposits and extraction, adapting to the geological structure,

- Metallurgical production was optimised – the RCR furnace at the Legnica Copper Smelter and Refinery, the concentrate roaster at the Głogów Copper Smelter and Refinery,

- A new financing structure was introduced, from short-term to long-term,

- Procurement programs were consolidated and logistics were digitalised,

- Maintenance shutdowns were efficiently planned and performed,

- Power generation from internal sources was increased,

- Implementation Doctorates and other programs were carried out in cooperation with institutions of learning and research institutes, aimed at improving the functioning of the core business,

- Actions were underatken to eliminate generational and know-how gaps - a program was conducted in cooperation with the Ministry of National Education - „Skilled in the mining-metallurgical sector”,

- Employee skills were consistently raised through adaptive and development projects.

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E-Industry

We implement the idea of Industry 4.0., we are striving towards automation and robotisation of production, we are digitally transforming the KGHM Group, we are building a knowledge-based society

- A pilot version of a „System for locating persons and machines in the underground mines” was put into operation,

- „Broad-band data transmission in underground mines” was expanded in the mines,

- The „Centre of Advanced Data Analysis (Centrum Zaawansowanych Analiz Danych - CZAD)” was expanded – the use of algorithms was tested in the analysis of conveyor belt loads in the mines,

- The „Robotisation of production and auxiliary processes” was expanded – construction commenced on a CuXRF robot for scanning for copper content at the working faces,

- Projects related with the National Cybersecurity System and strengthening IT security within the Group were implemented,

- A Projects Management System 2.0. was developed,

- The digitalisation, automatisation and electronic workflow of documents and information was expanded for such areas as administration, logistics, procurement, IT, legal services, data archiving, personnel and wages, communications and PR, agreements/contracts, financial management, real estate, HR,

- IT technologies were developed for the collection and transfer of knowledge within the Group and the archiving of R&D and project documentation in terms of inventions and patent proceedings in the years 1959-2020,

1.10.SUSTAINABLE DEVELOPMENT IN KGHM POLSKA MIEDŹ S.A.

KGHM Polska Miedź S.A. is a global company, open to development aimed at ensuring its stable operation for many decades to come for the benefit of present and future generations

In the pursuit of its objectives, KGHM Polska Miedź S.A. focuses on creating added value while ensuring solid foundations for its enterprise and employees and achieving long-term success. The Company wants to make smart investments in new technologies, innovative solutions, best available practices and employee development. KGHM Polska Miedź S.A. is aware that sustainable development of the mineral resource industry has become a global challenge for the modern world. Sustainable development is essential to our mineral resource safety and to ensuring the comfort of life of our employees and society as a whole as well as to protecting the natural environment. The Company operates based on the principles of sustainable development, reflecting in its daily activities obligations in areas such as Society, the Environment, the Economy, Safety and Resource Efficiency.

The diagram below presents the Sustainable Development Areas of KGHM Polska Miedź S.A.

Sustainable Development Areas of KGHM Polska Miedź S.A.

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KGHM Polska Miedź S.A. is also developing in sustainable development by participating in international organizations dedicated to this issue. The Company is pursuing the idea of sustainable development in raw materials, among others by contributing to and supporting the activities of the European Innovation Partnership – EIP. These are real tasks related to participation in the Horizon 2020 Framework Programme, the EIT RawMaterials KIC Initiative and active development of policies at High Level Group meetings. A representative of KGHM also serves as the President of the European Technology Platform on Sustainable Mineral Resources in Brussels. Implementation of the Platform’s objectives contributes to the medium- and long-term security of stable procurement of raw materials (including key raw materials, industrial mineral materials and wooden materials) which are indispensable for the fulfillment of the basic needs of any modern society striving to achieve efficient resource utilization. The Platform also has an advisory role in the creation of the EIP's raw materials policy.

The sustainable development activities undertaken by KGHM Polska Miedź S.A. are fully and comprehensively consistent with the United Nation’s sustainable development goals (2030 Agenda), as presented below:

KGHM’s activity and the United Nations’ sustainable development goals for 2030 (2030 Agenda for Sustainable Development)

The positive aspects of KGHM Polska Miedź S.A.’s activity drive economic growth in the region. The Group employs more than 34 thousand people, most of them in the area of the so-called “Copper Basin”. The Company’s business drives the development of cooperating firms and the economy, which has a direct effect on the reduction of poverty, elimination of hunger and development of the areas neighboring the Company’s operations. The Company also takes care of the health and well-being of not only its employees and their families, but of all the region's residents. To this end it operates the Miedziowe Centrum Zdrowia (“Copper Health Care Center”), implements health promotion programs and awards grants to health care providers. KGHM Polska Miedź S.A. has a direct effect on the quality education goal. The region in which the Company operates is relatively affluent, mainly because of its presence. As a result, more people can afford to get additional education and obtain additional qualifications. Furthermore, KGHM cooperates with many universities and academics. The Company encourages its employees to pursue continuous development, offering many attractive paths of competence improvement. Actions taken by KGHM contribute directly to reduced inequalities among people. Access to health care, dignified employment and education helps to level out such inequalities that may develop in the society. As a direct correlation, KGHM is also involved in the implementation of the objective related to sustainable towns and communities.

Other objectives pursued by the Company include responsible consumption and innovative production. KGHM as a production company strives to ensure that the entire technological process is as optimal, safe, innovative and sustainable as possible. It seeks methods to improve it even further. It manages resources rationally, but at the same time strives to eliminate waste. The Company has been committed to the concept of the Circular Economy, moving away from the linear economy towards the closed cycle of material consumption. To this end the Circular Economy program is also developed in the Company.

The practices of KGHM Polska Miedź S.A. indicate that the mineral resource industry is inextricably linked to many more sustainable development goals than those considered to be typical for the sector. Partnership for the goals is an important part of the 2030 Agenda. As the Company, we wish to join forces and intensify the activities designed to cooperate with institutions who equally cherish the idea of sustainable development.

In this context, KGHM Polska Miedź S.A. is obviously aware of the impact of these goals on its mining activities; accordingly, it focuses mainly on the implementation of the measures presented below:

Impact of each goal set under the 2030 Agenda for Sustainable Development on the mining industry

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The activities described above resulted in the development of KGHM Polska Miedź S.A.’s sustainable value chain, as presented in the diagram below.

KGHM Polska Miedź S.A.’s sustainable value chain

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Key non-financial indicators of KGHM Polska Miedź S.A. identified and reported in accordance with the Sustainable Development concept for 2019-2020

Society	2019	2020
Maintaining membership in WIG-ESG (previously the RESPECT Index)	YES	YES
Maintaining its position in the FTSE4Good Index Series	YES	YES
0% investment activity without a social dialogue policy	YES	YES
Conclusion and maintaining of long-term contracts; achievement of a proper sales structure ensuring long-term relations with customers	YES	YES
Sponsorship and charitable activities in building corporate social responsibility [sponsorship expenses for the purposes of the Company's promotion and regional support, i.e. sports/culture/science]	PLN 33.3 million	PLN 36.8 million
Resource efficiency
Ore extraction (wet weight) per mine employee [tonne]	2,527	2,509
Production of electrolytic Cu per Company / metallurgical employee [tonne]	31 / 156	30 / 155
Maintaining Cu smelting yields [%]	97.96	98.30
Zero harm
LTIRF_KGHM (Lost Time Injury Frequency Rate KGHM)	10.3	7.3

Since 3 September 2019, the Company has been part of the WIG-ESG index, which includes companies from the WIG20 and mWIG40 indices on the Warsaw Stock Exchange that observe the principles of

corporate social responsibility. From 19 November 2009 until the final calculation and publication date, i.e. 1 January 2020, the Company was continuously included in the RESPECT Index. Additionally, since September 2018, KGHM Polska Miedź S.A. has been included in the FTSE4Good Index Series, which is part of the group of ethical investment indices taking into account the criteria of corporate social responsibility and ESG risk management. In 2020, for the first time ever and as one of the first companies in Poland, KGHM took part in the CDP rating program (previously: Carbon Disclosure Project) focused on communicating the impact of businesses on greenhouse gas emissions.

The new Strategy of KGHM Polska Miedź S.A for the years 2019-2023 comprises 6 strategic areas. One of those areas is “People and the Environment”, which refers, among others, to sustainable development of the Company. Its major objective is to grow based on the idea of sustainable development and safety and to enhance the Group’s image as a socially responsible organization. The effectiveness of the “People and the Environment” strategic area is measured by:

· a minimum level of annual improvements in LTIFR (for domestic assets) and TRIR (for overseas assets),

· the level of the KGHM Group’s employees’ dedication and satisfaction, based on pre-defined measures being implemented until 2023.

INNOVATION AND RESEARCH AND DEVELOPMENT PROJECTS IN KGHM POLSKA MIEDŹ S.A. AND THE KGHM POLSKA MIEDŹ S.A. GROUP

KGHM Polska Miedź S.A. intends to be the innovation leader in Poland and internationally. The status of an international corporation obligates KGHM to pursue broad research and development activity. Innovation is one of the competitive advantages of the KGHM Polska Miedź S.A. Group.

KGHM consistently increases the knowledge it has accumulated over the 60 years of its operations. Its success is based on rich tradition as well as on innovation. The company continuously seeks technologies to help it, reduce production costs, enable higher rates of recovery of copper and associated metals or contribute to higher productivity. The Company is committed to the safety of its employees and protection of the natural environment.

In 2023, KGHM Polska Miedź S.A. intends to allocate 1 percent of the Company’s annual revenue towards innovation and research and development projects, which should amount to nearly PLN 200 million per annum. This constitutes a significant increase of R&D expenditures, which currently are at approximately PLN 40 million per annum. The Company focuses on improving the quality of the tasks it performs and the results it achieves. The main stream of R&D finance and innovation is directed to activities of the core production business (at least 75% in the 2019-2023 period), which have a higher implementation or

commercialization potential. KGHM has in place a consistent management model for innovation and research and development work.

The development of technology and raising the level of innovation are very important for the company. The projects undertaken by KGHM focus on developing new copper ore mining systems in deep deposits as well as efficient technologies for their processing and for producing end materials. Research is also conducted to increase automation of mining processes, develop energy-efficient technologies or reduce the environmental impact of the mining industry.

The Company is building its future on the basis of e-industry. The implemented solutions include robotization, digitization, knowledge management and targets for the 4.0 industry (including data mining aimed at better utilization of machinery and equipment, building a consistent supply chain, energy savings and safety). KGHM does not only promote projects that can be implemented in the short term. The company is not afraid of ambitious challenges and is undertaking work on cutting-edge technologies, which will change the method and nature of mining copper in the future.

KGHM grows by combining the experience and intellectual potential of its employees with external research entities, firms and institutions. The Company uses its resources and funds efficiently, creating value and building its image as a global leader in the mining industry.

Key activities in the Innovation area in 2020:

- Continuation of activities within the CuBR project co-financed by the NCBR (National Centre for Research and Development). R&D projects with the total value exceeding PLN 180 million are being advanced. So far, 25 projects have been launched in four editions of the competition.

- Currently, 15 projects are being advanced .

- 8 projects have been completed.

- 2 projects were halted since it was impossible to implement the research results.

- The Implementation Doctorates Program was continued for 38 doctoral students (KGHM employees) from two editions of the program.

- Initiatives concerned with testing battery-powered, self-propelled mining machines are being implemented.

- The project of building a self-driving robot for measuring copper content at the working faces in the mines was launched as part of the project to robotize production and auxiliary processes.

- Projects subsidised under KIC Raw Materials:

- Subsidised research projects were continued.

- A subsidy for “The Reflux Flotation Cell Technology RFC” project concerning intensification of the recovery of grains of useful minerals was obtained.

- Projects co-funded by the Horizon 2020, the EU Scientific Research and Innovation Framework Programme:

- Launched the “Development of systems for the monitoring of constructed facilities” project, in which the Group intends to test machine learning and artificial intelligence in the systems monitoring the condition of the Żelazny Most Tailings Storage Facility.

- Obtained a subsidy of EUR 753 thousand for the execution of the project entitled “Intelligent control of mine production 2” to develop and implement innovative solutions aimed at improving the efficiency and safety of work in underground mining processes using state-of-the-art technologies.

- Obtained protection for the “KGHM” word trademark submitted in an international procedure for the following countries: the USA, Switzerland, Ukraine, Japan, India and Turkey.

- Registered the “KGHM” figurative trademark with the Canadian Intellectual Property Office.

- The protection of the “KGHM” figurative trademark in the European Union was extended.

- Filed applications for patents for 3 inventions.

- The patent procedures for 5 inventions are pending in the Patent Office of the Republic of Poland.

- More than 70 new invention projects were acquired as part of the Invention Market 2020 in KGHM Polska Miedź S.A.

1.11.COMPREHENSIVE RISK MANAGEMENT SYSTEM IN THE KGHM GROUP

The KGHM Polska Miedź S.A. Group defines risk as uncertainty, being an integral part of the activities conducted and having the potential to result in both opportunities and threats to achievement of the business goals. The current and future, actual and potential impact of risk on the KGHM Polska Miedź S.A. Group’s activities is assessed. Based on this assessment, management practices are reviewed and adjusted in terms of responses to risk.

Under the Corporate Risk Management Policy and Procedure and the Rules of the Corporate Risk and Compliance Committee, the process of corporate risk management in the Group is consistently performed. The Company oversees the process of managing corporate risk in the KGHM Polska Miedź S.A. Group, while in the companies of the KGHM Polska Miedź S.A. Group, documents regulating the management of corporate risk are consistent with those of the Parent Entity.

The Corporate Risk Management Policy of the KGHM Polska Miedź S.A. Group is available on the Company’s website, www.kghm.com.

Each year, the process of managing corporate risk is subjected to an efficiency audit compliant with the guidelines of Best Practice for WSE Listed Companies 2016.

Risk factors in various areas of the KGHM Polska Miedź S.A. Group’s operations are continuously identified, assessed and analysed in terms of their possible limitation. Key risk factors in the KGHM Polska Miedź S.A. Group undergo in-depth analysis in order to develop a Risk Response Plan and Corrective Actions. Other risk factors undergo monitoring by the Department of Corporate Risk Management and Compliance, and in terms of financial risk by the division of the Executive Director for Treasury Operations - Corporate Treasurer.

In order to unify the approach to the systematic identification, evaluation and analysis of the risk of a loss of compliance, defined as adherance to the requirements arising from existing laws (external and internal) or from voluntarily-assumed legal obligations and standards (including ethical standards), in 2020 the Management Board of KGHM Polska Miedź S.A. adopted a Compliance Management Policy for the KGHM Polska Miedź S.A. Group together with a Procedure and Methodology for managing compliance in KGHM Polska Miedź S.A. The process of managing compliance, which is connected with the process of managing corporate risk within the KGHM Polska Miedź S.A. Group, is an important business tool for the prevention of events which could lead to the imposition of penalties.

The corporate risk management process adopted for the in KGHM Polska Miedź S.A. Group is inspired by the solutions adopted by the ISO 31000:2018 standard, best practice in risk management and the specific nature of the Group, and is comprised of the following stages:

Corporate risk management process

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- STAGE 1

- Definition of Context

The first step in the process is comprised of three actions: defining the external context, defining the internal context and the risk management context.

The external context is the environment in which the KGHM Polska Miedź S.A. Group advances its Strategy. Here the definition needs to update the understanding of the social, political, legal, regulatory, financial, economic and technological aspects of the environment which affect its activities.

During the process of defining the internal context, goals are analysed (strategic/business), changes in the organisational structure are planned and performed, new areas of activities, projects, etc.

The last part of this step is to define the risk management context, which comprises the setting or updating of goals, the scope, responsibilities and procedures and methods applied in the risk management process.

- STAGE 2

- Identification and Evaluation

In this step of the process we identify and evaluate risks which could impact the achievement of goals at the level of the KGHM Polska Miedź S.A. Group. The main task in this step is to prepare a complete list of threats which could facilitate, impede, accelerate or delay the achievement of goals. Each identified risk is assigned to a category and a sub-category in the form of a Risk Model, which provides the KGHM Polska Miedź S.A. Group with a consistent risk taxonomy.

Following its identification, each corporate risk is evaluated using a Risk Evaluation Matrix, containing a scaled breakdown of assessments by impact, utility and probability. A risk may have various effects, and therefore in order to ensure the broadest recognition of potential impact and the limitation of subjective evaluation, the following Impact evaluation measures have been defined:

- Finance – impact of the effects of a given risk in its financial aspect by applying value ranges.

- Strategy – evaluation of the risk’s impact on the ability to achieve strategic goals.

- Reputation and Stakeholders – impact of the risk on the Company’s reputation, trust in the brand, investor relations, relations with stakeholders, also including on the effectiveness of actions related to building a responsible business and sustainable development.

- Health and Safety – direct impact on health and safety and human life.

- Natural environment – impact of the materialisation of risk on the climate and natural environment and the functioning of the ecosystem.

- Regulations and Laws – evaluation of the compliance of events with existing laws, the need to participate in proceedings before bodies of public administration of a supervisory and regulatory nature as well as potential penalties as a result of such proceedings.

- Operational continuity –evaluation of the impact of risk on interruptions to activities resulting in significant/irreversible effects and loss of access to information important from the point of view of conducted activities.

- The results of the identification and evaluation of risk is presented in a graphic form, i.e. Risk Maps. These provide a profile of the given risk and support the process of identifying the key risk.

- STAGE 3

- Analysis and Response

The goal of this step is to deepen knowledge and to understand the specific nature of the types of key risks identified in the previous step. Cause and effect analyses and a more substantive description of the means of dealing with risk are aimed at facilitating decision making on whether to maintain or eventually change current actions.

A directional decision is called a Response to risk. A change in the way an action is taken requires the determination of Corrective Actions, meaning organisational, process, systemic and other changes which are aimed at reducing the level of the key risk.

During this step KRIs – Key Risk Indicators – are also defined, being a set of business process parameters or environmental parameters which reflect changes to a given risk profile.

- STAGE 4

- Monitoring and Communication

The goal is to ensure that the adopted Risk Response Plan is effective (ad hoc and periodic reports), new risks are identified (updating of the Risk Registry), changes in the internal and external environments and their impact on activities are uncovered, and appropriate actions are taken in response to incidents (updating of information on Incidents).

Effective, well-planned and appropriately performed monitoring of risk enables flexible and prompt reaction to impending changes in the external and internal environments (e.g. risk escalation, changes in actions related to risk response, or risk evaluation parameters, etc.).

Achievement of this step provides the assurance that risk management in the KGHM Polska Miedź S.A. Group fulfils the expectations of the Management Board of KGHM Polska Miedź S.A., the Audit Committee of the Supervisory Board of KGHM Polska Miedź S.A. and other stakeholders by supplying reliable information about risk, continuous improvement and adaptation of the quality and effectiveness of Risk Response to the demands of the external and internal context.

The allocation of powers and responsibilities conforms to the best Corporate Governance practices and the universally recognised Three Lines of Defence model, as shown on the following graph:

Risk management organizational structure of KGHM Polska Miedź S.A.

Supervisory Board (Audit Committee)
Performs annual assessment of the effectiveness of the risk management process and monitors the level of risk factors and ways to address them.

Management Board
Has ultimate responsibility for the risk management system and supervision of its individual elements.

1st line of defense	2nd line of defense				3rd line of defense

Management	Risk Committees				Audit
Managers are responsible for identifying, assessing and analysing risk factors and for the implementation, within their daily duties, of responses to risk. The task of the management staff is ongoing supervision of the application of appropriate responses to risk within the tasks realised, to ensure the expected level of risk is not exceeded.	Support the effectiveness of the risk management process.				The Internal Audit Plan is based on assessing risk and subordinated business goals, assessed is the current level of risk factors and the degree of efficiency with which they are managed.

	Corporate Risk and Compliance Committee	Market Risk Committee	Credit Risk Committee	Financial Liquidity Committee
	Manages corporate risk and continuously monitors key risk factors.	Manages risk of changes in metals prices (e.g.: copper and silver) as well as exchange and interest rates.	Manages risk of failure of customers to meet their obligations.	Manages risk of loss of liquidity, understood as the ability to pay financial liabilities on time and to obtain financing for operations.
	Corporate Risk Management Policy Compliance Management Policy	Market Risk Management Policy	Credit Risk Management Policy	Liquidity Management Policy	Internal Audit Rules
	Department of Corporate Risk Management and Compliance	Executive Director for Treasury Operations – Corporate Treasurer			Executive Director for Audit and Control
	*Reports to the* *Management* *Board*	*Reports to the Vice President of the* *Management Board (Finance)*			*Reports to the* *President of the Management* *Board*

CORPORATE RISK: KEY RISKS AND MITIGATION

A comprehensive approach to risk management is consistent with a strategy of growth as well as with continuous striving to achieve operational excellence and the principles of a sustainable and responsible business. It was designed in such a way as to support the KGHM Polska Miedź S.A. Group in building a resistant corporate structure. A tool used in identifying risk in the KGHM Polska Miedź S.A. Group is the

Risk Model. Its structure is based on a given risk’s source and is divided into the following 5 categories: Technological, Values chain, Market, External and Internal, which are described in detail in the chart below.

In reference to Article 49a of the Accounting Act, it must be stated that, because of the long value chain of the KGHM Polska Miedź S.A. Group, the geographical footprint of the Group’s activities and the resulting considerable complexity and multi-faceted nature, the detailed description of risks and their management, in the context of the Group’s social, labor, environmental, human rights, corruption prevention policies, is presented in this section, rather than in the sections devoted to the individual topics in the areas listed above. We have decided that the combined comprehensive presentation of this matter will offer the readers of this Report a better chance to fully understand it.

Several dozen sub-categories have been identified and defined for each of these categories, covering particular areas of the operations or management. The KGHM Polska Miedź S.A. Group applies due diligence when undertaking actions aimed at minimising exposure to risk by lowering vulnerability to individual risk factors and reducing the probability of the materialisation of events which such factors could induce. The identification and evaluation of threats is however always associated with uncertainty as to the effectiveness of the preventative measures applied and planned, especially as regards those areas which are beyond the direct control of the KGHM Polska Miedź S.A. Group.

Risk categories in the Risk Model of KGHM Polska Miedź S.A. and their definitions

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Following is the description of the key risk factors in the KGHM Polska Miedź S.A. Group in 2020, broken down into individual categories along with means for their mitigation, including identification of specific risks for the Parent Entity and the KGHM INTERNATIONAL LTD. Group. Key risks are future uncertain events having the greatest impact on the achievement of the business goals of the KGHM Polska Miedź S.A. Group, reflecting an evaluation of vulnerabilities, i.e. the ability of the organisation to limit the possibility of the occurrence of risk and the impact of its materialisation.

The table below uses the following abbreviations: for the KGHM Polska Miedź S.A. Group – the KGHM Group, for the KGHM INTERNATIONAL LTD. Group – the KGHM INTERNATIONAL LTD. Group, for KGHM Polska Miedź S.A. – the Parent Entity.

CATEGORY – Technology

Risk and description of risk factors

Mitigation

(Parent Entity)

Risk of failure to adhere to the efficient working time parameter and of failure to fully utilise the capacity of metallurgical installations to process own concentrate.

Sources of risk include potential breakdowns of key elements of the core production line and failure to adapt technology to production requirements, which could affect the availability of metallurgical infrastructure. An important risk factor is the need to maintain the production of concentrates in an amount and quality required to optimise the utilisation of the metallurgical facilities. Exposure to risk is also associated with the need to ensure required utilities to maintain the expected level of infrastructure availability.

Optimum utilisation of infrastructure, maintaining an appropriate selection of concentrates, R&D initiatives and advancement of programs and projects to adapt metallurgical structure and technology to ensure higher processing capacity for own concentrates, imported copper-bearing materials and purchased scrap. Actions are continuously undertaken aimed at guaranteeing the technical efficiency of production continuity and servicing systems. A maintenance policy is applied, breakdown procedures have been developed and suppliers are continuously monitored within the scope set forth in instructions and agreements. Actions undertaken are aimed at maintaining the availability of metallurgical equipment at the expected level and improving the productivity parameters of metallurgical infrastructure, as well as limiting the negative impact of this risk on KGHM’s operations.

CATEGORY – VALUE CHAIN

Risk and description of risk factors	Mitigation
(KGHM Group) Risk related to an ineffective process of monitoring and providing early warning to management staff on deviations from the budget and financial plans as well as with respect to adopting inappropriate economic parameters related to production, investments, macroeconomics and finance, for forecasts of company results. An ineffective process of monitoring and providing early warning to management staff on deviations from the budget and financial plans may impede or delay the appropriate early identification of deviations in respect of forecasted results, at the same time shortening the time for taking appropriate corrective actions. Sources of risk are related to the possibility of ineffective mechanisms to control these processes. In 2020, an important factor impacting exposure to risk was the general uncertainty on financial markets and the risk of recession in global markets related to the COVID-19 pandemic.	Forecasts related to specific areas of the operations prepared by appropriate specialised units and ensuring the uniformity of operating plans with strategic plans. Monthly reporting of execution on forecasts in all critical areas. Regular contacts with and systematic streamlining of the communication process together with setting criteria enabling the identification of symptoms of potential deviations from the expected results of the KGHM Group. Evaluation of key risk factors, on which the coronavirus pandemic has an impact, were subjected to specific analysis by the on-going monitoring of selected information in terms of production, sales, supply chains, management of personnel and finances, aimed at supporting management processes in conditions of heightened uncertainty caused by the pandemic.
(KGHM INTERNATIONAL Group) Risk related to the precision of estimated costs of decommissioning certain mines. With respect to risk factors related to the precision of estimated costs of decommissioning certain mines, there are questions related to the need to meet obligatory environmental conditions connected with realistic concepts for such liquidation.	Estimated costs of restoration and mine decommissioning based on expert reports and providing guarantees of future environmental obligations related to the closure and restoration of mining areas in accordance with existing laws and regulations.
(KGHM INTERNATIONAL Group) Risk related to the insufficient recognition of deposit parameters and characteristics, both in exploration projects (estimation of preliminary data for deposit evaluation models) as well as in current operations. The risk of changes in the evaluation and management of ore resources involves, among others, geological factors related to the reliable estimation of resources or mining conditions. Risk factors related to the limited reliability and completeness of data, based on which new resource projects are evaluated, may lead to the taking of less than optimal decisions on advancing or suspending a particular project.	Input data for models are collected in accordance with geological documentation possessed, which is prepared pursuant to laws in force as well as reviewed and consulted internally with experienced staff. The results of current work undergo particular analysis and preliminary project assumptions are updated. Expenditures incurred on exploration and evaluation enable the estimation of mineral resources and investigation of geological-mining conditions aimed at planning further mining activities.

(Parent Entity) Risk of the inability to store mine tailings. The KGHM Group is exposed to the risk of a lack of sufficient tailings storage capacity due to delays in the expansion of the Żelazny Most Tailings Storage Facility. Risk factors involve the management and control of the project and may affect its budget, schedule and assumed results and may lead to a failure to adhere to the technological regime for designing and execution. Another source of risk are external factors with respect to administrative bodies, as for the advancement of such a project it is necessary to obtain required administrative decisions. Exposure to risk is also related with eventual unplanned shutdowns resulting from infrastructure breakdowns, which could impact the continuity of KGHM’s operations.	Operating, building and expanding the storage facility in accordance with the operating instructions. Cooperation with a team of international experts (TIE) and a General Designer during the investment process. Applying observational methods based on assessing the geotechnical parameters obtained on the basis of evaluations of the results of monitoring, enabling conclusions to be drawn about the functioning of the expanded and operated facility. Systematic supervision and control over the entire investment process of the expansion of the Żelazny Most Tailings Storage Facility.
(KGHM Group) Risk related to the lack of availability of required energy sources. The KGHM Group is exposed to the risk of lack of availability of power sources for its operations. Potential disruptions in the supply of key power sources is mainly related to risk on the part of external suppliers and breakdowns of their distribution infrastructure. Risk is also related to the suspension of delivery of power supplies as a result of periodic, long-lasting droughts. A consequence of global climate change may be among others a lack of rainfall, leading to periodically lower water levels in rivers, which could cause restrictions in the operations of power plants belonging to KGHM’s suppliers, due to a deficit in water which is required for cooling or as a result of breaches of the acceptable temperature for water discharged to rivers. Amongst internal factors, the most important involve questions of maintaining operations, utilisation and investments and modernisation work.	Ensuring back-up systems for the supply of critical utilities and on-going assessment of the security of the power network. Conducting a variety of investments aimed at strengthening energy security. A framework agreement with the company Polskie Górnictwo Naftowe i Gazownictwo S.A. for the sale of natural gas to increase the security of natural gas supply. Systematic limitation of energy consumption under the implemented, PN-EN ISO50001:2018 compliant Energy Management System and Energy Savings Program (POE). Planned increase in the efficiency and flexibility of the KGHM Group in terms of its Polish and international assets, among others by partially satisfying the needs for electricity from its own sources as well as from renewable energy sources („RES”) by the end of 2030.
(KGHM Group) Risk related to infrastructure breakdowns which disrupt the core production operations, related to natural hazards as well as internal factors related to the applied technology. The KGHM Group is exposed to risk related to the technological potential and efficiency of its infrastructure to meet the needs of the production process. By utilising infrastructure required to maintain its operations, KGHM is exposed to the risk of industrial breakdowns resulting in unplanned shutdowns. Such breakdowns could result both from natural hazards, i.e. catastrophic natural events and force majeure (including as a result of climate-related changes leading to frequent occurrences of extreme weather phenomena), as well as internal factors dependent on the KGHM Group (on-going operations, maintaining production, key suppliers, servicing).	Preventive management of key infrastructure elements affecting production continuity. Appointment of a taskforce and expert teams with respect to counteracting breakdowns of metallurgical infrastructure. On-going analysis of geotechnical risk and the verification of planned recoveries. In terms of ICT (information-communication technology) separating groups of projects related to reducing technological debt. Gradual replacement of older technology with newer solutions, reflecting the corporate architecture standard.
(KGHM Group) Risk related to the cost efficiency of the production process, mining projects, processing of copper-bearing materials, reflecting the risk of a substantial rise in prices of materials, services, electricity, gas and water and restoration costs. The KGHM Group is exposed to the risk of external and internal factors, such as metals prices, exchange rates, costs of supply of purchased metal-bearing materials, the level of TC/RCs and selling premiums and costs of services and of electricity, gas and water. This risk is also related to the estimation of costs of provisions for the restoration of mining terrain based on existing law for the territories in which the KGHM Group operates. In 2020, an important factor affecting exposure to risk was the general uncertainty on financial markets and the risk of recession in global markets related to the COVID-19 pandemic.	On-going control of processing costs, monitoring the market situation, optimising costs, including supplies of purchased metal-bearing materials, hedging transactions and management of the net position. Hedging to secure the Company against changes in the USD/PLN exchange rate and metals prices (mainly copper and silver). Creating multi-year plans and budgets enabling the achievement of profitability under conditions prevailing on the market. Evaluation of key risk factors, on which the coronavirus pandemic has an impact, were subjected to specific analysis by the on-going monitoring of selected information in terms of production, sales, supply chains, management of personnel and finances, aimed at supporting management processes in conditions of heightened uncertainty caused by the pandemic.

(KGHM Group)

The risk of interruptions to the continuity of sales and services (including due to the COVID-19 pandemic)

The KGHM Group, due to its well-developed sales and services structure, is exposed to the risk of interruptions to the continuity of these processes, mainly due to external factors. Sources of risk are changes in demand for certain product groups and on individual geographic markets, production restrictions, transport and logistical interruptions (especially in terms of international transport), force majeure (extreme weather phenomena) and operational restrictions due to laws introduced at the domestic and international level. This risk has a substantial potential to decrease the revenues generated by the KGHM Group, and consequently lower operating profits.

In 2020, an important factor affecting exposure to risk was the general uncertainty on financial markets and the risk of recession in global markets related to the COVID-19 pandemic.

On-going monitoring of the situation prevalent amongst customers, enabling a rapid response to customer needs (such as regular teleconferences, the availability and mobilisation of employees, the utilisation of various channels to exchange information and react to interruptions), analysis of the situation’s impact on customers and logistics in individual customer countries as well as transit routes, rapid changes in the structure of sales (changes of sales in individual assortments, amongst customers from individual sectors and on individual geographic markets enabling reaction to potential changes in demand in individual consumer sectors). Diversification made to customer portfolios, providing the possibility to neutralise smaller orders from some customers by selling more to others, participation in the spot market (enabling immediate product allocation given actual customer demand) apart from the main strategy based on carrying out long-term and annual contracts on the basis of long-term business relationships.

In 2020, the COVID-19 pandemic had the greatest impact on the Group’s secondary activities comprised of hotel and spa services. During the temporary shutdown of these facilities, the KGHM Polska Miedź S.A. Group’s hotels and spas implemented a variety of safety procedures, aimed at protecting hotel and spa customers as well as employees of these companies from the risk of infection by the COVID-19 virus. The spa and hotel companies of KGHM Polska Miedź S.A. took part in the Polish Tourist Voucher program and applied to the Polish Development Fund for subsidies under the Anti-Crisis Shield, as a result of which some of these companies have already received funds. Due to the inability to offset these risk factors, the temporary lockdown and freezing of the basic activities of the spa and hotel companies led to a drop in their revenues. Despite the on-going state of pandemic, the spa and hotel facilities are fully prepared to provide services and welcome customers under a full sanitary regime.

CATEGORY - MARKET

Risk and description of risk factors

Mitigation

(KGHM Group)

Market risk related to volatility in metals prices and risk of changes in exchange rates and interest rates.

Market risk is understood as the possibility of a negative impact on the results of the KGHM Group resulting from changes in the market prices of goods, exchange rates and interest rates, as well as changes in the value of debt securities and in the share prices of listed companies.

In 2020, an important factor affecting exposure to risk was the general uncertainty on financial markets and the risk of recession in global markets related to the COVID-19 pandemic.

This risk is actively managed by the Parent Entity, in accordance with the Market Risk Management Policy. A basic technique for managing market risk in the company are hedging strategies utilising derivative instruments. Natural hedging is also applied.

From the KGHM Group’s point of view, an important effect of the coronavirus pandemic in 2020 was its impact on market risk related to volatility in metals prices and in stock exchange indices. Information on the impact of COVID-19 on the functioning of the Company and Group is described in detail in section 6.6.

Expanded information on market risk is presented in section 12.3 Market, credit and liquidity risk.

(KGHM Group)

Credit risk related to trade receivables.

The KGHM Group sells some of its products to commercial entities with deferred payment terms, as a result of which there may arise the risk of late payments for products delivered.

In 2020, an important factor affecting exposure to risk was the general uncertainty on financial markets and the risk of recession in global markets related to the COVID-19 pandemic.

This risk is actively managed by the Parent Entity, in accordance with the Credit Risk Management Policy. Exposure to credit risk is limited by evaluating and monitoring the financial condition of customers, setting credit limits and applying creditor security. The companies of the KGHM Group have been working for many years with a large number of customers, which affects the geographic diversification of trade receivables.

From the KGHM Group’s point of view, an important effect of the coronavirus pandemic in 2020 was its impact on risk related to the payment of liabilities by customers on time. Information on the impact of COVID-19 on the functioning of the Company and Group is described in detail in section 6.6.

Expanded information on credit risk is presented in section 12.3 Market, credit and liquidity risk.

(KGHM Group)

Liquidity risk.

Management of the risk of loss of liquidity, understood as the ability to pay liabilities on time and to obtain financing for operations.

In 2020, an important factor affecting exposure to risk was the general uncertainty on financial markets and the risk of recession in global markets related to the COVID-19 pandemic.

This risk is actively managed in the Parent Entity in accordance with the updated Financial Liquidity Management Policy.

From the KGHM Group’s point of view, an important effect of the coronavirus pandemic in 2020 was its impact on the risk of loss of liquidity related to volatility in metals prices and in stock exchange indices in 2020. Information on the impact of COVID-19 on the functioning of the Company and Group is described in detail in section 6.6.

Expanded information on liquidity risk is presented in section 12.3 Market, credit and liquidity risk.

CATEGORY – EXTERNAL RISKS

Risk and description of risk factors	Mitigation
(KGHM Group) Risk of seismic tremors and associated roof collapses or destressings of the rock mass, and the occurrence of uncontrolled rock bursts. The KGHM Group is exposed to the risk of natural hazards and force majeure and related insufficient geological knowledge of the rockmass. Key risk factors which affect the materialisation of such risk also involve the results of periodic analyses of the mining situation and the state of hazard and applied measurement methods. Natural hazards associated with the underground mining of copper ore deposits, in particular hazards related to mining tremors and their potential effects in the form of roof and wall collapses. These factors affect safety, as their occurrence can lead to serious or even fatal injuries as well as damage to underground machinery, equipment and infrastructure, along with production downtimes.	Actions aimed at preventing rock bursts and roof collapses, such as systematic seismological observations, on-going assessment of the rock mass and the marking off of areas of particular threat of roof collapse. Use of active methods of preventing rock bursts and roof collapses based on provoking dynamic events through mass blasting of mining faces and through blasting to release stress in the orebody or its roof. Preparation of reserve fields in the orebody which could handle limited production.
(Parent Entity) Risk of restrictions to production or to the advancement of development work due to geodynamic gas-related events and the occurrence of naturally-occurring gases. KGHM is exposed to the specific risk of natural hazards and force majeure (gas-related geodynamic hazards and the occurrence of naturally-occurring hazardous gases) leading to restrictions in realising production plans and the advance of preparatory work. These factors affect safety, as their occurrence can lead to serious or even fatal injuries as well as damage to underground machinery, equipment and infrastructure, along with production downtimes.	The risk of gas hazards occurring is being assessed and principles are being developed for working under the risk of such hazards. Individual employee safety measures are applied as well as equipment and means for reducing concentrations of hydrogen sulphides and neutralising oppressive odours. The preparation of reserve fields which could take over the restricted production.
(Parent Entity) Risk of production restrictions due to unfavourable climatic conditions in the mines. KGHM is exposed to a specific risk related to climatic conditions restricting activities or increasing costs, related to geological conditions, the temperature of the air sent into the mines and the conditions prevalent in the underground mines.	The use of solutions to counteract underground climate risk using neutral means (e.g. the use of short airways and directing air from the lowest temperature rockmass, high-speed air) and through the use of central, workplace and personal air conditioning. The on-going monitoring of microclimate parameters and the introduction of remote control and visulaisation systems and monitoring (industrial cameras) in working areas subject to particularly unfavourable climatic parameters. Decreasing external and internal losses and relative air moisture, as well as increasing air movement intensity. The use of shortened working time.
(Parent Entity) Risk of loss of mine functionality due to underground water hazards. KGHM is exposed to the risk of natural hazards and force majeure in the form of underground water hazards resulting from breakdowns of the main dewatering equipment, human error (actions contrary to the project or technology) or mistaken geological conclusions.	Research into hydrogeological conditions and water hazards, measuring water inflow to the mines, conducting mining operations pursuant with technology for the safe conduct of mining operations in underground mines. Systematic control of mining areas threatened by water inflow, control of water flow pathways and dams according to a set schedule. The preparation and updating of the Rescue Plan in case of water inflow. Development of regional pumps and the piping system, construction of water dams aimed at restricting water inflow, drilling exploratory holes to stabilise uncontrolled water inflow. To minimise the risk of uncontrolled underground water inflow, a project is underway called „Construction of a main dewatering complex in the region of the SW-4 shaft”, aimed at increasing the dewatering capabilities of the mines.

(KGHM Group) Risk of failure to uphold air quality standards (including with respect to arsenic). The KGHM Group is exposed to the risk of negative impact on various components of the natural environment resulting from the mining of copper ore, followed by its processing at all stages of the production process, which could lead to the breaching of permissible emissions limits.	Undertaking actions under the Air Protection Programs and R&D work. Advancement of the Program to adapt the technological installations of KGHM to BAT conclusions for the nonferrous metals industry together with restriction of arsenic emissions (BAT’As).
(Parent Entity) Risk of restrictions to the ability to sell sulphuric acid (due to loss of market/customers and/or a drop in demand as well as due to the COVID-19 pandemic). Risk related to macro- and microeconomic factors involving political actions which result in privileges for a specific group of producers or the introduction of additional fees/legal restrictions. Risk related to unfavourable prices (volatility to the disadvantage of KGHM), high requirements in terms of market parameters for selling sulphuric acid and lower demand for the product on international markets, including as a result of the deterioration in the financial condition of a key customer. In 2020, an important factor affecting exposure to risk was the situation on the fertilizers market related to the COVID-19 pandemic.	Increase the number of internal storage facilities at the metallurgical plants as well as of warehouses in Szczecin. Search for new sales markets. Long term contracts. Incur costs of additional storage. Payments to customers and incur transport costs. Search for alternative ways to manage the acid and utilise it in the Concentrators. In 2020 actions were continuously taken related to the situation on the fertilizers market as a result of the COVID-19 pandemic, i.e. delayed pick-ups and maintaining high inventories of raw materials and fertilizers by customers.
(KGHM Group) Risk related to interruptions in the supply of strategic materials and components affecting the continuity of production by the Core Business (including due to the COVID-19 pandemic) The KGHM Group is exposed to the risk of interruptions in the management of the supply chain resulting mainly from external factors, resulting in an increase in supply chain sensitivity. These factors include unpredictable volatility in supply and demand (which could also be due to customer expectations towards goods whose process of production does not negatively impact climate change), changes in supplier bases, technological changes, changes in inventory buffers and in timeframes for realising orders, dependency on suppliers, as well as logistical interruptions, force majeure (breaks in the supply chain and logistical interruptions in being supplied as a result of more frequent extreme weather phenomena on land and sea as a result of climate change) and volatility in exchange rates and metals prices. In 2020, an important factor affecting exposure to risk was the general uncertainty on financial markets and the risk of recession in global markets related to the COVID-19 pandemic.	Continuous contact is maintained with suppliers, which enables prompt reaction to delays by utilising the strategy of diversification of suppliers and directions of deliveries applied by the KGHM Group and by applying alternative solutions, for example by using substitutes, changes in production/assembly schedules. Moreover, a plan has been developed for the KGHM Group to maintain operational continuity in case of restrictions, production suspensions or the temporary switch to a stand-by operating mode. Suppliers and inventory levels are continuously monitored. As a result of the COVID-19 pandemic actions are being systematically taken to eliminate sporadic instances of delays by suppliers due to lack of availability of components, logistical restrictions or delays by producers of materials and equipment or parts thereof.
(KGHM Group) Risk of failure to adhere to established principles and standards of behaviour with respect to counteracting corruption and with respect to the procurement process as well as the risk of incurring losses from actions which are harmful to KGHM. The KGHM Group is exposed to the risk of actions which are harmful to KGHM taken by external entities participating in the processes of procurement, sales and investment. Threats are in the form of potential losses by the KGHM Group resulting from the intentional actions of external entities, i.e. collusion over minimum pricing, the insufficient technical and economic potential of contractors, falsification of documentation, fictional contractors, conflicts of interest. Other important risk factors include threats as regards all types of improprieties related to breaching anti-corruption and ethical standards by employees of the KGHM Group (such as corruption, conflicts of interest, abuse, discrimination, illegality, nepotism).	Implementation of the Code of Ethics of the KGHM Polska Miedź S.A. Group as the main tool in the corporate culture of the KGHM Group, and other appropriate policies and procedures ensuring the efficiency of implemented principles and values. Meeting global corporate governance standards and increased stakeholder expectations, including above all those of customers and financial institutions. Application under the Responsible Supply Chain Policy of guarantees of the selection of responsible suppliers, especially in the case of acquiring so-called conflict minerals and ensuring that the goods and services acquired by the KGHM Group will not be used to finance terrorism, and that they will be manufactured or provided while respecting human rights, labour standards, environmental protection and counteracting corruption. Proactive monitoring and analysis of procurement processes in terms of identifying abuse and threats of corruption within the organisation and the supply chain, as well as undertaking actions with respect to ethics and counteracting corruption along with the implementation of corrective actions. Internal control with respect to the identification and uncovering of fraud, abuse and corruption in KGHM Group entities and the prevention of such based on the Internal Control Procedure in order to eliminate risk at the level of prevention. The management of compliance under a comprehensive compliance management system.

(KGHM Group)

Risk of loss of compliance with requirements (general laws in force, internal corporate regulations and voluntarily-adopted legal obligations and standards)

The KGHM Group operates in unstable regulatory environments in many jurisdictions. A consequence of the need for technological and organisational adaptation to a variable legal environment (including environmental requirements) may be higher costs of activities or their limitation. Risk of interruptions to operations or the need to reorganise work as a result of new laws may have a significant impact on the KGHM Group’s activities (including the risk of switching to a low-emissions economy, a circular economy).

Active cooperation with the academic environment, which issues opinions on changes to legal acts, and the on-going providing of positions and opinions with respect to numerous areas subject to legislative change (including as part of the membership of numerous organisations at the national and EU level). Cooperation with renowned law firms and the creation of specialised organisational units which monitor the regulatory environment. Taking prophylactic actions aimed at adapting to organisational, infrastructural and technological changes. In order to have a consistent approach to ensuring compliance, defined as adherence to requirements arising from laws in force (external and internal) or voluntarily-adopted legal obligations and standards (including ethical standards), in 2020 the Management Board of KGHM Polska Miedź S.A. adopted a Compliance Management Policy for the KGHM Polska Miedź S.A. Group together with a Procedure and Methodology for managing compliance in KGHM Polska Miedź S.A. Having a consistent compliance system in the KGHM Polska Miedź S.A. Group is an element of effective corporate governance management by among others more efficient reaction to and preparedness for regulatory changes, protecting reputation and building an ethical culture in the organisation as well as increasing awareness and a sense of accountability for compliance amongst employees.

(KGHM Group)

Climate risk related to the negative impact of climate change to the activities of the KGHM Group.

The KGHM Group is exposed to the risk of climate change due to its negative impact on the company. Exposure to this risk is related to factors arising from specified events, in particular related to extreme weather phenomena, such as storms, floods, fires or heat waves, which could interrupt the values chain or the continuity of operations by the Core Business. This risk is related to changes in the conditions under which activities are conducted as a result of environmental or climate change.

The commencement of work on the preparation of a climate policy, which will represent a systemic solution for the implementation of the Communication of the European Commission, representing Guidelines on non-financial reporting: Supplement on reporting climate-related information (2019/C 209/01) together with an annex in the form of Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), in that part comprising Metals and Mining. It will also comprise medium-term (to 2030) and long-term (to 2050) timeframes with quantitative goals with respect to minimising actions in regions exposed to long-term or severe physical risk. Carrying out systemic solutions reflecting potential approaches to environmental sustainability pursuant to the EU Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment and on sustainability‐related disclosures in the financial services sector (2020/852, 2019/2088).

Inclusion in the KGHM Group’s Strategy of global trends related to determinative, climate-related environmental challenges. An effective risk management system which also comprises climate risk management reflecting the categorisation, identification, evaluation and means of dealing with these risks with plans for their mitigation.

CATEGORY – INTERNAL RISKS

Risk and description of risk factors

Mitigation

(KGHM Group)

The risk of serious accidents or industrial illnesses caused by improper workplace organisation, the failure to follow procedures or the use of improper protective measures.

The failure to adhere to occupational health and safety rules and procedures, as well as the employment of persons lacking an appropriate psychophysical predisposition, could be a source of potential accidents. Exposure to unfavourable natural conditions together with associated natural hazards requires, apart from the high requirements in terms of essential professional preparation, that employees possess appropriate qualifications in terms of health, physical ability and psychological fitness. Risk is also associated with the possibility of temporary production stoppages caused by serious accidents, which could potentially affect the operations of the KGHM Group financially, legally and image-wise. The KGHM Group is also exposed to the risk of professional illnesses as a result of the impact of the workplace environment on people. Enhanced exposure to risk is also associated with external factors in the form of sub-contractors and their safety culture.

A detailed division of obligations between management and supervisory staff on the one hand and entities providing services to the Company on the other, to ensure safe working conditions and the proper coordination of work. Systematic discussion of workplace safety with the participation of representatives of sub-contractors and mining oversight authorities. Engaging employees and sub-contractors in campaigns carried out in the KGHM Group aimed at improving OHS standards. Advancement of development initiatives based on the idea of sustainable development and safety and enhancing the Group’s image as being socially responsible under the adopted Strategy. Actions consistent with the cycle of self-improvement in order to continuously seek and prepare for implementation the catalogue of initiatives aimed at further improvement of OHS and advancement of the long-term goal of the Company, „Zero accidents due to human and technical errors”. Optimisation of health care for employees, especially following workplace accidents and the systematic search for new organisational and technical initiatives enabling achievement of a high level of safety for employees in the divisions of KGHM Polska Miedź S.A. Threats are identified and professional risk is evaluated on a cyclical basis as well as in accordance with the needs of the moment, including those related to the SARS-CoV-2 virus pandemic.

(KGHM Group)

The risk of lack of acceptance by the public, local governments or other stakeholders for the conduct of development and exploration work.

The KGHM Group is exposed to the risk of exposure to external factors involving the environment in which it operates and consequently, exposure to changes in the image of the organisation and its products or services. Risk of ineffective management of relations with stakeholders, which affects the willingness of the environment and the taking of actions towards the Group. In extreme cases, the materialisation of this risk may lead to the blocking of development plans. Risk related to the heightened expectations and awareness by stakeholders of questions related to the climate and the environment, which could lead to higher operating and investment costs, and in extreme cases to their limitation. Variable consumer requirements, which is also connected with paying attention to the manner of production, and not only to the quality and price of the final good.

Advancement of CSR Strategy and close cooperation with government bodies. Meetings and negotiations with stakeholders, informational campaigns, conferences, publications. Cooperation with academic and sector bodies and authorities in order to meet the highest communication-public relations standards. Caring about and paying due diligence to the identification of expectations and demands by the external environment in terms of climate and environmental questions. Establishing commercial and business relationships with entities who openly declare an attitude of caring about environmental protection and compliance with existing laws in this regard.

(KGHM Group)

The risk of not being able to secure appropriate staff to advance the Group’s business goals (including the lack of sufficient human resources to maintain the continuity of the Core Business operations due to the COVID-19 pandemic)

The risk of not being able to acquire and keep human resources, among others to support on-going operations and development projects. The KGHM Group is exposed to risk related to the availability of qualified staff in the market as well as on-going identification of staffing needs in terms of required qualifications and supplying them while reflecting staffing fluctuations. Of significance is access to qualified employees in the future in the context of an aging society and a market deficit of certain professions.

In 2020, an important factor affecting exposure to risk was the COVID-19 pandemic and its impact on the availability in particular of key employees necessary to maintain the continuity of the Core Business.

Advancing a variety of HR projects, identification of potential successors for key positions (including in terms of mobility) and preparations for advancement. On-going comparison of remuneration packages (including in relation to working conditions) to offers on the market. Cooperation with schools and universities to promote the company as an employer and to ensure qualified employees. Implementation of programs to develop employee skills and to secure funds for this purpose. Development of recruiting tools and the identification of key skills to advance the company’s business goals.

In 2020, following the appearance of the initial information on the coronavirus, existing solutions in the KGHM Group underwent analysis and evaluation in terms of ensuring employee safety and the implementation of additional solutions aimed at limiting the risk of spreading the virus amongst the staff. Among others the operations of the Core Business were analysed in terms of the processes involved in maintaining their continuity, operating procedures were developed in case of the need to limit or cease production, concepts were prepared for new working systems enabling contact between working shifts, key employees/specialists were identified who are vital to ensuring the operational continuity of these processes as well as potential substitutes for these individuals. Restrictions were introduced to direct contact along with distancing rules between employees, and procedures were implemented on what to do in the case of detection of SARS CoV-2 amongst the employees in line with the guidelines of appropriate governmental institutions. Solutions already implemented in the KGHM Group are systematically analysed and evaluated in terms of ensuring employee safety, and additional solutions are continuously being implemented to limit the risk of spreading the virus amongst the staff.

(KGHM Group)

Risk that the confidentiality, integrity or availability of informational assets which have been collected, stored or processed on IT resources may be compromised, as well as cybernetic threats.

The KGHM Group, due to its well-developed IT structure, is exposed to the risk of a breach in the confidentiality, integrity or availability of informational assets which have been collected, stored or processed on IT resources. The sources of this risk are both forces of nature (e.g. fires, construction catastrophes, downpours) as well as hazards arising from human activities (intentional or not). The KGHM Group is exposed to the risk of an unauthorised loss, change or destruction of critical data and information as well as loss of the possibility of the operational control of equipment and systems as a result of cybernetic attacks on the infrastructure of the KGHM Group. Such incidents could generate the risk of production shutdowns, leading to production and financial losses and claims due to the loss/disclosure of personal data. This risk has a large impact on the reputation of the KGHM Group.

Strict adherence to and application of principles arising among others from the IT Security Policy and from Facility Protection Plans. The systematic evaluation of risk of loss of the confidentiality, integrity or availability of informational assets which have been collected, stored or processed on IT resources. On-going monitoring of the usefulness of existing infrastructure as well as the analysis of and planning for the implementation of teleinformational solutions to increase security, in accordance with global trends and best practice in this regard. Implementation of security systems and adequate organisational solutions at various levels of the company’s infrastructure, aimed at staying ahead of any decrease in the utility of systems at risk and minimising the potential losses of the KGHM Group.

(KGHM Group)

The risk of exceeding project/program budgets and schedules, deviating from defined scopes and failing to meet defined quality parameters as a result of the improper management of portfolios and projects. Risk related to the operational management and development of key mining projects, reflecting the question of incurred costs, permits and infrastructural requirements.

The KGHM Group is exposed to risk related to the advancement of projects and programs as a result of their improper management. The risk of changes in budgets, schedule, scope and deviations from the expected quality of project products and/or programs is related to a variety of factors of an internal nature involving both the methodical approach and the projected structure of management and supervision. Improperly selected tools and techniques, lack of established criteria and principles for evaluating projects, or inconsistency in their application or adherence to them may restrict or prevent the achievement of the KGHM Group’s strategic goals. In terms of external factors, there remains the question of meeting legal and formal requirements which could generate deviations from the assumed schedule, and in extreme instances may halt the advancement of a project/program.

Improve standards in the management of portfolios and projects and implement a projects management system aimed at supporting the organisation in the planning and management of portfolios and projects. Standardisation of planning and preparation processes and in the advancement of investment projects, comprising such aspects as scheduling, preparing costs projections, technical designing, project review, investment handover documentation, risk analysis of projects/programs. Management of projects in accordance with international standards and conducting on-going monitoring of progress. On-going evaluation of the economic feasibility of existing and anticipated development projects.

RISKS AND OPPORTUNITIES RELATED TO CLIMATE CHANGE

The process of corporate risk management in the KGHM Polska Miedź S.A. Group is consistently performed on the basis of the Corporate Risk Management Policy and Procedure and the applicable Rules of the Corporate Risk and Compliance Committee. The goals of Corporate Risk Management in the KGHM Polska Miedź S.A. Group are consistent with the adopted Strategy of the KGHM Polska Miedź S.A. Group. They are shaped by global megatrends and determine the environmental challenges to be met by the KGHM Polska Miedź S.A. Group. The strategic goals and initiatives have been grouped into strategic areas each of which reflects the global megatrends, including Ecology, Safety and Sustainable Development. The care for the natural environment and protection of our employees’ life and health are the foundation of an organization which is aware of the assumed risk and which strives for continuous improvement.

As part of the system, the current and future, actual and potential impact of risk on the KGHM Polska Miedź S.A. Group’s activities is assessed. Based on the assessment, management practices are verified and adapted in response to risks. According to the risk assessment matrix, environmental impact is one of 7 categories used to assess each identified risk. Hence, each identified risk is considered on a multi-level scale from events which do not have an adverse impact on climate and natural environment to ones which might have a serious adverse impact on climate, natural environment (also outside the KGHM Polska Miedź S.A. Group’s areas) and cause major disruptions of the functioning of the ecosystem.

IMPACT OF CLIMATE CHANGE ON THE KGHM POLSKA MIEDŹ S.A. GROUP

The identified key risks related to the adverse impact of climate change on the KGHM Group’s activity as well as their factors and mitigation are presented below. The climate change risk can be classified as physical risk or transition risk.

Physical risk is a risk for the KGHM Group’s activity arising from the physical effects of climate change.

Risks related to the environment, natural hazards and force majeure from the short-term perspective.

Certain events, in particular ones related to weather, such as storms, floods, fires, gales, which might destroy the infrastructure and disrupt the supply chain (severe physical risk).

(Corporate risk category: Value Chain, External, Internal)

THREATS

A consequence of the increased frequency of extreme weather events can be an infrastructure breakdown disrupting the Core Production Business.

KGHM Polska Miedź S.A. is exposed to a specific risk related to the underground climate, limiting activities or increasing costs, involving geological conditions, the temperature of the air sent into the mines and underground mining conditions.

A possible disruption of the supply chain and logistics as a result of extreme weather events onshore and offshore.

Mitigation:

Preventive management of key infrastructure elements affecting production continuity. Appointment of a task and expert teams in the area of counteracting infrastructure breakdowns.

The use of solutions to counteract underground climate risk using neutral means (e.g. the use of short airways and directing air from the lowest temperature rockmass, high-speed air) and through the use of central, workplace and personal air conditioning. Ongoing monitoring of the microclimate parameters and introduction of remote control and visualization and surveillance systems (CCTV cameras) in workplaces with particularly adverse climate parameters. Reduction of external and internal losses and relative humidity and increase in airing intensity. The use of shortened working time.

Constant contact with suppliers is maintained to enable a quick reaction to delays through the supplier and supply direction diversification strategy employed in the KGHM Group and application of alternative solutions, e.g. substitutes, changes in production/assembly schedules.

Risks related to the environment, natural hazards and force majeure from the long-term perspective.

Certain events, in particular ones related to the long-term climate change, such as temperature change and limited availability of water, might disrupt the continuity of the Core Production Business and lead to changes in the conditions of pursuing business activities (long-term physical risk).

(Corporate risk category: Value Chain, External)

THREATS AND OPPORTUNITIES

The KGHM Group is exposed to climate risk related to the adverse impact on the enterprise. The risk exposure is associated with factors arising from certain events, in particular ones related to the long-term climate change leading e.g. to heat waves and limited availability of water, which may disrupt the value chain, continuity of the Core Production Business. The risk is associated with the changes in the conditions of running business activity due to environmental or climate changes.

The KGHM Group is exposed to the risk of unavailability of power sources necessary for its operations. This risk entails, among others, the possibility of power supply being suspended as a result of prolonged droughts. Global climate changes may result in, among other things, lower rainfall, resulting in temporary reduction of water levels in rivers, which in turn may restrict the operations of power plants supplying KGHM if cooling water is not available or if the permitted temperature of water released back into rivers is exceeded.

The opportunity coming from investments in our own renewable energy sources, which result in reducing production costs and ensuring continuity of operation with the simultaneous reduction of greenhouse gases (photovoltaics / wind farms).

Mitigation:

Systematic limitation of energy consumption under the implemented, PN-EN ISO50001:2018-compliant Energy Management System and Energy Savings Program (POE). Planned increase in the efficiency and flexibility of the KGHM Group in terms of its Polish and international assets, among others by partially satisfying the needs for electricity from its own sources as well as from renewable energy sources („RES”) by the end of 2030.

Commencement of work to prepare a climate policy which will be a systemic solution for implementing the Communication of the European Commission being Guidelines on non-financial reporting: Supplement on reporting climate-related information (2019/C 209/01), including an Annex on the Task Force on Climate-related Financial Disclosures (TCFD), in the part applicable to the Metals and Mining sector. It will also include medium-term (2030) and long-term (2050) quantitative goals aimed at minimizing activities in regions exposed to a long-term or severe physical risk.

The KGHM Group Strategy takes into account the global trends that define the environmental challenges. Efficient risk management system encompassing also climate risk management allowing for risk categorization, identification, assessment and management as well as plans for its mitigation (also at the long-term, strategic level).

Transition risk is the enterprise’s risk arising from transitioning to a low-carbon and climate change resilient economy.

Legal and regulatory risk.

The risk of non-compliance, which might result in sanctions, legal disputes and claims in respect of failure to avoid or reduce the adverse impact on climate or to adapt to climate change.

(Corporate risk category: External)

THREATS

The risk involved in the increasing legal requirements regarding climate, potential wrong interpretation of new laws and regulations or non-compliance with legal requirements.

Mitigation:

As part of the Corporate Risk Management process in the KGHM Group, each identified risk is assessed in terms of impact on Laws and Regulations – assessment of the compliance of occurrences with the applicable laws, the necessity to participate in proceedings before public administration authorities responsible for supervision and regulation and potential sanctions resulting from such proceedings. In order to standardize the approach to ensuring compliance defined as observance of the requirements arising from the applicable legal (external and internal) regulations or voluntarily assumed legal obligations and standards (including ethical standards), the Management Board of KGHM Polska Miedź S.A. adopted the Compliance Management Policy in the KGHM Polska Miedź S.A. Group and the Compliance Management Procedure and Methodology in KGHM Polska Miedź S.A. in 2020. A consistent compliance system in the KGHM Polska Miedź S.A. Group is an element of effective management as part of corporate governance through e.g. a more efficient response and readiness for regulatory changes, care for reputation and ethical culture building in the organization as well as awareness raising and enhancement of the sense of responsibility for compliance among employees.

Political risk.

The risk of change in the conditions of pursuing a business activity arising from energy efficiency requirements, mechanisms of setting greenhouse gas emission fees or policy supporting sustainable economy.

(Corporate risk category: External)

THREATS AND OPPORTUNITIES

The KGHM Group is exposed to the risk of non-compliance with the generally applicable legal requirements, internal corporate regulations and voluntarily adopted legal obligations and standards. The risk of interruptions to operations or the need to reorganize work due to new legislation may have a substantial impact on the operations of the KGHM Group (such as the risk of transitioning to the low-carbon economy, circular economy).

The opportunity coming from increased consumption and capability to process a volume of copper scrap and copper-bearing materials by KGHM’s smelters and refineries, which results in improved efficiency of waste management in global terms in the context of resource use and longer copper life cycle – a change in the customer’s and the Regulator’s approach in favor of circular economy and low-carbon economy.

Mitigation:

Active cooperation with the academic environment, which issues opinions on changes to legal acts, and the on-going providing of positions and opinions with respect to numerous areas subject to legislative change (including as part of membership of national and international organizations). Taking prophylactic actions aimed at adapting to organizational, infrastructural and technological changes.

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Volumetric risk.

The risk involved in the awareness about climate change and choices of business consumers leading to shifting interest to products and services which are less harmful to the environment.

(Corporate risk category: Internal)

THREATS AND OPPORTUNITIES

A threat of raised expectations and awareness of stakeholders as regards climate and environmental issues, which could lead to increased operating and investment costs and, in extreme cases, to limitation of the business activity. The changing consumer requirements involve also a focus on the production method rather than merely the quality and price of the final good.

The opportunity coming from increased demand for copper arising from the necessity to supply it to meet the needs of the low-carbon economy as a result of a higher level of electrification (increased copper consumption for purposes related to manufacturing components for electrical vehicles and development of electromobility). A stable growth of the global demand for copper is expected until 2030. The forecast growth will be an effect of, among others, the dynamically increasing demand from industries associated with renewable energy sources.

Mitigation:

Care and due diligence in identification of expectations and requirements of the external stakeholders concerning the climate and environmental issues and consideration given to these issues in the long-term, strategic perspective. Establishment of trade and business relationships with entities that declare care about environmental protection and comply with the regulations applicable in this regard.

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Reputation loss risk.

The risk involved in the awareness about climate change and choices of consumers leading to shifting interest to products and services which are less harmful to the environment.

(Corporate risk category: External, Internal)

THREATS AND OPPORTUNITIES

The KGHM Group is exposed to the risk of exposure to external factors involving the environment in which it operates and consequently, exposure to changes in the image of the organization and its products or services. Risk of ineffective management of relations with stakeholders, which affects the willingness of the environment and the taking of actions towards the KGHM Group. In extreme cases, the materialization of this risk may lead to the blocking of development plans.

The opportunity (positive risk) arising from investments in renewable energy, which support combating greenhouse gas emissions – an image- and market-related opportunity with respect to the industry, i.e. the image of a company caring for the natural environment and striving for limiting the global climate change (green energy / green copper / green KGHM); a change in the customer’s approach but also legislative changes in favor of the KGHM Polska Miedź S.A.’s attitude.

Mitigation:

Care and due diligence in identification of expectations and requirements of the external stakeholders concerning the climate and environmental issues. Establishment of trade and business relationships with entities that declare care about environmental protection and comply with the regulations applicable in this regard.

2. ETHICAL FOUNDATIONS

The rules, methods and tools presented below are the key ethical foundations used to ensure the systematic application of due diligence in the KGHM Polska Miedź S.A. Group and the Parent Entity KGHM Polska Miedź S.A.

2.1. VALUES OF KGHM POLSKA MIEDŹ S.A.

KGHM’s values bind together all employees, regardless of their position in the organization

or nationality, and are a guidepost for all decisions and actions taken

KGHM is a company with 60 years of history, operating on the basis of deeply rooted values and principles which its Employees follow in their daily work. Zero harm, teamwork, results driven, accountability and courage – these values bind all of KGHM’s employees, regardless of whether they work in a mine, processing plant or smelter, in Poland or in other parts of the world. KGHM builds its global position in the world as a reliable producer, trusted business partner and a company pursuing a sustainable development policy. All those values must co-exist, which is reflected in the diagram below.

VALUES of KGHM Polska Miedź S.A.

Rules of conduct based on values developed by KGHM Polska Miedź S.A.

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Zero harm

Zero harm is the top priority of the Company’s value hierarchy:

1. Protecting the lives and health of our employees is our priority.

2. Respect for the natural environment, in particular the resources we mine in a responsible manner.

3. The Company cares for the local communities within which it operates and maintains a dialogue with.

4. KGHM Polska Miedź S.A. puts emphasis on the continuity and stability of its operations.

Results driven

Attainment of results while focusing on KGHM’s long-term success.

1. Ambitious targets and ongoing development.

2. Taking initiative and making extra efforts for the benefit of KGHM.

3. Solid work using the right tools.

Accountability

All Company Employees are jointly responsible for the actions taken for the benefit of our shareholders.

1. Acting in a transparent and socially responsible manner, abiding by the standards of the Code of Ethics.

2. Responsibility for our decisions, obligations and constant, stable development.

3. Building long-term relationships with our business and social partners.

Courage

Facing new challenges in a well thought-out manner:

1. Employees are brave and continually face new challenges.

2. Courageous decisions are made and new, innovative solutions are constantly sought for.

Cooperation

Teamwork is the basis for the Company’s success:

1. Work is performed in teams.

2. Respect for the views of others in a discussion.

3. Using the talents and experience of Employees.

4. Diversity and a multi-cultural environment are valued.

KGHM Polska Miedź S.A. pursues the values presented above based on ethical standards. The fundamental ethical standards are shown in the diagram below.

Key Ethical Standards translating into principles of conduct in KGHM Polska Miedź S.A.

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Breakdown of ethical conduct rules

The communication and implementation of Ethical Standards in the KGHM Polska Miedź S.A. Group is facilitated by a system of codes, policies and procedures. Their implementations is consistent with global corporate governance standards and the increasing expectations of Stakeholders, including in particular clients and financial institutions.

In accordance with the best corporate governance practices, we have adopted the following principles, policies and instructions, which introduce global, unified standards adapted to the laws applicable in all jurisdictions in which the KGHM Polska Miedź S.A. Group operates.

Compliance Management Policy in the KGHM Polska Miedź S.A. Group	The Compliance Management Policy in the KGHM Polska Miedź S.A. Group serves as the framework of the compliance management system and an organization-wide approach to compliance management, based on recognized international standards and industry best practices. The adopted solution has been tailored to the specific case of the KGHM Group and is an important business tool for preventing the occurrence of events that could result in sanctions being imposed. It enables the systematic identification, assessment and analysis of the risk of compliance loss or possible non-compliance with generally applicable law, internal corporate regulations and voluntarily adopted legal obligations and standards, including ethical standards, in order to design and implement actions to ensure compliance.
Competition Law Policy in the KGHM Polska Miedź S.A. Group	The purpose of the Competition Law Policy is to establish an operational framework for a system that will enable the KGHM Polska Miedź S.A. Group to remain in conformity with the competition laws prevailing in all the countries in which the KGHM Polska Miedź S.A. Group operates. By this, the KGHM Polska Miedź S.A. Group undertakes an obligation to compete in the markets in a legal and ethical manner, as well as to prevent, counteract and detect violations in accordance with the applicable legal regulations.
Procurement Policy in the KGHM Polska Miedź S.A. Group	The aim of the Procurement Policy is to establish the principles that should be followed by all participants of the procurement process in the KGHM Polska Miedź S.A. Group, as well as the general regulations of this process. The Policy specifies supervision measures limiting the risk of improprieties in the procurement process.
Anticorruption Policy in the KGHM Polska Miedź S.A. Group	The Anticorruption Policy establishes basic principles and standards, whose goal is to prevent any breaches of the anticorruption laws in the jurisdictions in which the KGHM Polska Miedź S.A. Group operates. The Group applies a zero tolerance policy towards corruption and bribery. The Policy also regulates the reporting of violations of corruption and corruption-related phenomena.

Responsible Supply Chain Policy in the KGHM Polska Miedź S.A. Group

The Responsible Supply Chain Policy is aimed at securing the selection of only responsible suppliers, especially in the case of acquiring so-called conflict minerals (gold, tin, wolfram and tantalum) and at ensuring that the merchandise and services purchased by the KGHM Polska Miedź S.A. Group are not utilised to finance terrorism, and are manufactured or provided in accordance with laws respecting basic human rights, labour standards, protecting the environment and counteracting corruption.

Security Policy in the KGHM Polska Miedź S.A. Group

The Security Policy sets forth joint principles and goals for the entities and organisational units of the KGHM Group related to safety and preventing losses. Pursuant to its clauses, all of the KGHM Group’s employees operate in accordance with basic principles: professional integrity, accuracy in the execution of official duties, loyalty to the employer, a results oriented approach, courage, teamwork, accountability, mutual responsibility for safety and preventing losses and avoidance of actions harmful to the employer.

In order to standardize the approach to ensuring compliance defined as observance of the requirements arising from the applicable legal (external and internal) regulations or voluntarily assumed legal obligations and standards, the Management Board of KGHM Polska Miedź S.A. adopted the Compliance Management Policy of the KGHM Polska Miedź S.A. Group and the Compliance Management Procedure and Methodology of KGHM Polska Miedź S.A. in 2020. A consistent compliance system in the KGHM Polska Miedź S.A. Group is an element of effective management as part of corporate governance through e.g. a more efficient response and readiness for regulatory changes, care for reputation and ethical culture building in the organization as well as awareness raising and enhancement of the sense of responsibility for compliance among employees. The work supporting and raising standards of the compliance function will be continued in 2021.

In order to improve the standards of compliance with the competition law, in 2020 the Management Board of KGHM Polska Miedź S.A. adopted the Instructions to prevent violations under competition law, which expand on and detail the Competition Law Policy in the KGHM Polska Miedź S.A. Group, which was updated in 2019. In December 2020, training was conducted for Local Competition Law Representatives in the KGHM Polska Miedź S.A. Group. The work supporting and raising the standards of compliance with the competition law will continue in 2021.

In 2020, the Procedure for assessing the supply chain for gold and silver in KGHM Polska Miedź S.A. was updated to increase the efficiency of the process while maintaining compliance with the current LBMA Responsible Gold Guidance V8 and LBMA Responsible Silver Guidance V1. The system for managing the responsible gold and silver supply chain is subject to an annual, independent, external assessment to confirm the Company’s adherence to the principles of conflict-free gold and silver under the LBMA Responsible Gold Guidance and the LBMA Responsible Silver Guidance. The current Compliance Report of KGHM Polska Miedź S.A. and the Report on an independent assurance service is available on the website at: https://kghm.com/en/our-business/products/responsible-supply-chain.

In 2020, KGHM Polska Miedź S.A. was actively involved in extensive consultations accompanying the Copper Mark standard development process, during which the company provided its own observations on the shape and content of the standard. Acquiring the "Copper Mark" is essential for KGHM Polska Miedź S.A. to continue to engage in unrestricted commercial activities, including in particular to facilitate

the maintenance of cathode registration on the LME (London Metal Exchange), which from 2021 is introducing additional responsible supply chain requirements. The establishment of the Copper Mark standard is a response of the copper industry to the expectations and requirements of a broad group of stakeholders (commodity exchanges, investors, financial institutions, NGOs, etc.) regarding the compliance of registered copper producers with the principles of socially responsible business, as well as compliance with ethical, environmental and organisational standards. In 2020, the Management Board of KGHM Polska Miedź S.A. adopted a resolution granting consent to conduct a process aimed at obtaining the right to use the Copper Mark standard by selected KGHM Polska Miedź S.A. Divisions. The agreement signed on 17 July 2020 by the Management Board of KGHM Polska Miedź S.A and The Copper Mark and the Letter of Commitment signed on the same day constitute the commitment of KGHM Polska Miedź S.A to undergo the complete accreditation procedure in 2021 confirming compliance with the Copper Mark standard.

In 2018, the Management Board of KGHM Polska Miedź S.A. adopted a new „Code of Ethics of the KGHM Polska Miedź S.A. Group”. In order to comply with the most important principles related to counteracting corruption in the KGHM Polska Miedź S.A. Group and in the companies of the KGHM Polska Miedź S.A. Group located in Poland and abroad, the Anticorruption Policy and the Procedure for Counteracting the Threat of Corruption in the KGHM Polska Miedź S.A. Group were updated. The Procedure sets forth in detail the standards of behaviour in situations where corruption may arise and informs about criminal penalties for abuse. It is applied in order to minimise the risk of corruption and to limit all corruption-related phenomena, including conflict of interests, which could arise in relation to the functioning of the KGHM Group. The Instruction for dealing with business gifts is an annex to the procedure.

In 2020, KGHM Polska Miedź S.A. created a Valuable Gifts Storage Area in its Head Office and implemented the Instructions for its functioning, on the basis of the Business Gifts Instruction, which constitutes Attachment 1 to the Corruption Threat Prevention Procedure in the KGHM Group.

In 2019, the wording of the procedure regulating conflicts of interest and acceptable gifts was updated. In the Divisions and in seven of the domestic companies, units for overseeing security and loss prevention were created, whose operations are regulated by the Instruction implemented in 2020. Ethics and Anticorruption Representatives have been appointed in all of KGHM’s entities, domestic and international. In 2019, the Procedure for Disclosing Improprieties and Protecting Whistleblowers in the KGHM Group was also updated, adapting it to the requirements of the amended Act on public offerings and conditions governing the introduction of financial instruments to organised trading, and on public companies. This procedure is aimed at enhancing the effectiveness of uncovering and resolving situations related to the occurrence of improprieties representing an abuse of regulations applied in the

KGHM Group, in particular the Code of Ethics of the KGHM Group, the Security Policy, the Anticorruption Policy and the Procedure Counteracting the Threat of Corruption .

In 2019, an additional channel for whistleblowers was launched – the “KGHM Ethics Line” platform available on the corporate website for both employees and third parties, including contractors and customers. The platform is available in four languages – Polish, English, Spanish and Russian. It enables the anonymous disclosure of improprieties and is an alternative channel for other forms of contact – telephone lines, email addresses and addresses for correspondence.

In the entities of the KGHM Group an Internal Control Procedure for the Security and Loss Prevention Section of KGHM Polska Miedź S.A. was implemented. Audits conducted by the Security and Loss Prevention Section comprise the identification and uncovering of fraud, improprieties, abuse, corruption, personal abuse and breaches of the Group’s Code of Ethics.

Verification of contractors, including in terms of the risk of corruption and the possibility of a conflict of interest, is executed in accordance with the Verification Procedure in procurement, sales and investment processes implemented in 2019 by the Security Department at KGHM Polska Miedź S.A.

In 2020, the Management Board of KGHM Polska Miedź S.A. adopted a resolution to implement the Anticorruption Management System in the Divisions and Head Office of KGHM Polska Miedź S.A. and in the subsidiaries in accordance with the PN-ISO 37001:2017 standard. The decision was followed by a series of training workshops for employees, including training for prospective internal auditors and Representatives on the Anticorruption Management System in accordance with PN-ISO 37001:2017. The implementation is planned at the end of 2021.

In 2020, the Group also developed and published the “ABCs of Conflicts of Interest. Corporate ethical handbook of KGHM Polska Miedź S.A.”. The publication presents a concise description of conflicts of interest and the company’s regulations for preventing this phenomenon. It also contains a questionnaire, with which any employee may check for themselves whether the issue of conflict of interest applies to them.

The KGHM Group also implemented an Anti-Personal Abuse Procedure, enabling the effective prevention of personal abuse in the workplace. In the area of preventing personal abuse, discrimination and violation of employee rights, the employer is supported by Ethics Committees appointed in KGHM Group entities, which investigate suspicions of breaches of ethical standards in place in the KGHM Group.

The work to support and raise ethical and corporate governance standards will continue in 2021.

2.2. SECURITY AND LOSS PREVENTION SYSTEM IN THE KGHM POLSKA MIEDŹ S.A. GROUP

KGHM Polska Miedź S.A. takes ongoing actions to support and raise standards under the Security and Loss Prevention System in the KGHM Polska Miedź S.A. Group introduced in 2018.

The system is designed first of all to protect the employer’s interests by preventing acts that expose the company to material loss and reputational harm, and secondly to optimize expenses and investments to generate savings for the KGHM Polska Miedź S.A. Group. The key elements of the system include:

· defined procedures and control mechanisms,

· standardization of procedures and processes in the aforementioned area across the KGHM Group,

· effective prevention of abuse that can lead to losses for the KGHM Group,

• effective detection of committed abuse, inspection and control activities and implementation of corrective mechanisms,

• counteracting corruption, and

• improving the ethical awareness of employees.

The Security and Loss Prevention Section in the KGHM Polska Miedź S.A. Head Office is responsible for the implementation, functioning and oversight of the system. Currently, the Section is made up of two Departments:

1. The Security Department, comprising, among others, the Ethics and Anticorruption Procedures Unit, the Loss Prevention and Control Unit, and the Physical and Technical Security Unit.

2. the Supply Chain Security Department, consisting of the Supply Chain Monitoring Unit and the Analyses Unit.

In 2018, Ethics and Anticorruption Representatives were appointed in the Divisions and the Polish and international subsidiaries of the KGHM Group. Their work is monitored, supervised and coordinated by the Ethics and Anticorruption Representative for the KGHM Group (as per the applicable procedure, the function is discharged by the Director of the KGHM Security Department).

In the years 2019-2020, security and loss prevention units were established in KGHM Polska Miedź S.A.’s Divisions and in seven companies in Poland selected on the basis of their level of expenses and domestic threats. The unit heads are responsible for implementation and supervision over the security and loss prevention system, ethics and anticorruption procedures, supply chain security and physical and technical security. They report to the Executive Director for Security and Loss Prevention in KGHM Polska Miedź S.A.

Since 2017, regular security and loss prevention training has been organised, which included the topics of corruption prevention and conflict of interest, for employees of all KGHM entities. The training covers all employees newly employed in KGHM entities. Topical training is also organised. In 2018, a specialised training course was carried out, addressed to senior management and their representatives (40 people).

All materials and instructions are readily available to Employees on the corporate Intranet site via a dedicated tab devoted to ethics and corruption prevention.

In 2019, on-site training on anticorruption was conducted by an expert from the Central Anticorruption Bureau for persons in managerial and executive positions as well as persons responsible for the procurement processes in companies in the KGHM Group. 5 training courses were held in total, attended by 143 persons.

Regular meetings and training sessions are also organised for the Ethics and Anticorruption Representatives (40 persons). In 2020, 5 such training sessions were held. The objective was to improve the abilities of the Representatives and to share knowledge. The Representatives are responsible for the organisation and performance of training sessions on ethics and anticorruption in KGHM’s companies.

In 2020, KGHM Polska Miedź S.A. launched two e-learning training modules on ethics, prevention of irregularities (in particular, corruption, abuse, and discrimination) and receiving whistleblower reports in its Head Office and Divisions:

1. for senior management, the Ethics and Anticorruption Representatives and Members of the Ethics Committee – 636 people completed the training and 98 are currently undergoing the training (as at 15 March 2020).

2. for remaining employees with access to the e-learning platform – the training was completed by 4,452 people and 1,207 are currently in training (as at 15 March 2020).

Because of the decision of the Management Board to implement the Anticorruption Management System in the Divisions and Head Office of KGHM Polska Miedź S.A. and in the Subsidiaries in accordance with the PN-ISO 37001:2017 standard, online training workshops were conducted in the last quarter of 2020 on the requirements of this standard for Ethics and Anticorruption Representatives and Management System Representatives in KGHM Polska Miedź S.A.

1. Practical interpretation of the requirements of the Anticorruption Management System standard according to ISO 37001: 3 one-day training sessions, number of participants: 71;

2. Internal Auditor of the Ethics and Anticorruption Management System based on the international standard ISO 37001, the KGHM Polska Miedź S.A. Code of Ethics and the draft standard ISO/DIS 37002:2020: 2 two-day training sessions, number of participants: 34;

3. Anticorruption Management System Representative according to ISO 37001: 1 two-day training session, number of participants: 17;

In 2019-2020, a number of communication activities were also carried out, addressed to the employees of the KGHM Group, promoting ethical standards and contributing to the culture of the organization:

· 6 educational films were published on the topic of the Code of Ethics, abuse prevention, the Whistleblower Platform and protection of Whistleblowers, rules of acceptance and giving of business gifts, as well as prevention of corruption and conflicts of interest,

· several articles on related topics were published in the company magazine Curier and in the Group’s Intranet,

· a special supplement focusing on Whistleblowers was published in Curier,

· the updated Anticorruption Manual was published in an electronic version,

· the “ABCs of Conflict of Interest. Corporate ethical handbook of KGHM” was developed, published and distributed; the publication presents a concise description of conflicts of interest and the company’s regulations for preventing this phenomenon.

· a questionnaire was developed allowing employees to carry out on their own a voluntary, individual assessment of the risk of conflict of interest,

· an information campaign on the handing of business gifts was conducted.

THE CODE OF ETHICS OF THE KGHM POLSKA MIEDŹ S.A. GROUP

The fundamental document of the Security and Loss Prevention System of the KGHM Group is the KGHM Polska Miedź Code of Ethics, the amended and extended version of which was adopted by a Resolution adopted by the Management Board of KGHM Polska Miedź S.A. in June 2018. It is the basis for actions and conduct in the Group, hence the frequent reference to the Code in this document.

The KGHM Group’s Code of Ethics is based on the aforementioned values and constitutes a guidepost for all the decisions and actions taken in the Parent Entity and the KGHM Group. There are supporting acts regulating the areas of: prevention of corruption, prevention of conflict of interests, security and transparency of procurement processes, verification of external counterparties and prevention of employee rights violations, including discrimination and abuse. The KGHM Group’s Code of Ethics is a collection of rules applicable to the employees of the Parent Entity, the KGHM Group and cooperating entities. It is one of the pillars of KGHM’s organisational culture, which is deeply rooted in the mining and metallurgical traditions. They constitute the genetic code of our community, building its professional identity.

The KGHM Group’s Code of Ethics aims to ensure that the employees follow the highest standards based on the adopted values. The status of a global leader and international corporation obligates us to keep the highest business ethics standards. It is also related to the challenges resulting from the richness of national cultures within which we operate.

KGHM POLSKA MIEDŹ S.A. CODE OF CONDUCT (CODE OF CONDUCT)

In keeping with current business practice, including in the mineral resource industry, our business partners, suppliers, customers and Stakeholders expect companies to have clearly declared ethical regulations.

In June 2018, the Management Board of KGHM Polska Miedź S.A. adopted the KGHM Polska Miedź S.A. Code of Conduct. By doing this, the Company declared its orientation towards sustainable development, based on respect for ethical principles, transparency and best industry practice, and commitment to being a socially and environmentally responsible enterprise. The Code of Conduct is based on the KGHM Group Code of Ethics. Both documents regulate behaviour standards by which the Company is guided. The Codes are an integral, mutually interconnected whole, based on consistent assumptions and values followed by the Company.

The Code of Conduct is a powerfully practical document. Its purpose is to be a guide and support for the employees, showing where to look for answers and who to approach if in doubt about decisions taken in everyday situations. The Code of Conduct provides an easy to understand presentation of the Company’s values for all employees, regardless of their position.

The idea of adopting and pursuing the Code of Conduct and the Code of Ethics was presented in 2018 and is continuously repeated to KGHM Polska Miedź S.A. employees via the company’s internal portal (intranet: “KGHM to My” at extranet.kghm.com). The Codes are distributed in the printed version during training sessions held by the Ethics and Anticorruption Representatives in all Divisions and Companies of the KGHM Polska Miedź S.A. Group. The Code of Conduct and the Code of Ethics are published for the general audience on www.kghm.com, in the Investors/ESG tab https://kghm.com/en/investors/esg.

ETHICS COMMITTEES IN THE KGHM POLSKA MIEDŹ S.A. GROUP

Every KGHM Group Entity establishes an Ethics Committee. The primary task of the Committee is to conduct investigations in response to reports on irregularities consisting of violations of the ethical standards defined in the Code of Ethics, and to recommend corrective and disciplinary actions to the workplace manager.

A report can be filed by:

1. every Employee who has been harmed by actions described in the list of issues reportable to the Ethics Committee;

2. every person who has witnessed actions described in the list of issues reportable to the Ethics Committee.

The investigation conducted by the Committee covers issues that require determination of the actual facts of the matter, in other words disputable issues or those having unclear causes. The investigation is not in conflict with, nor does it replace, the right to pursue claims in accordance with generally applicable laws. Members of the Committee are obliged to resolve the breaches of ethical principles given in the KGHM Group Code of Ethics in an impartial and efficient manner, giving equal treatment to all parties

to the proceedings. The Committee operates pursuant to its Regulations, and observing the generally applicable laws and internal regulations of a given KGHM Group Entity.

The list of issues reportable to the Ethics Committee is as follows:

1. Actions displaying features of abuse, discrimination, harassment or other type of unequal treatment of the Company’s employees or a group of employees;

2. Breaches of employee duties arising from the Labour Code as well as internal regulations of a given KGHM Group Entity, regardless of the position held;

3. Breaches of the rules of community life;

4. Improper performance of professional duties.

5. Unethical behavior towards other employees and third persons in the work place and outside of the working hours;

6. Exposing the good name of the Company to harm.

PROCEDURE OF DISCLOSING IRREGULARITIES AND PROTECTION OF WHISTLEBLOWERS IN THE KGHM POLSKA MIEDŹ S.A. GROUP

In order to allow for effective detection of breaches, confidential channels for reporting of irregularities by so called Whistleblowers have been created, both within the company as well as from outside of its organization. Persons who report irregularities, and who do so in good faith and non-anonymously (Whistleblowers) are protected under the KGHM Group Procedure of Disclosing Irregularities and Protection of Whistleblowers. Anonymous reports are also accepted and followed up. The channels allow reporting without disclosing one’s personal details.

In 2019, the KGHM Group Procedure of Disclosing Irregularities and Protection of Whistleblowers was updated, account being taken of the requirements of the amended Act on public offerings, conditions governing the introduction of financial instruments to organized trading, and public companies. This procedure is aimed at enhancing the effectiveness of uncovering and resolving situations related to the occurrence of improprieties representing an abuse of regulations applied in the KGHM Group, in particular the Code of Ethics of the KGHM Group, the Security Policy, the Anticorruption Policy and the Corruption Threat Prevention Procedure. In 2019, an additional channel for whistleblowers was launched – the “KGHM Ethics Line” platform available on the corporate website for both employees and third parties, including contractors and customers. The platform is available in four languages – Polish, English, Spanish and Russian. It enables the anonymous disclosure of improprieties and is an alternative channel for other forms of contact – telephone lines, email addresses and addresses for correspondence.

The charts below show the increase in Whistleblower reports in the 2018-2020 period, with events that affected the result marked on the timeline, as well as the procedure, which is followed in the event of a breach of ethical principles in the KGHM Group:

Number of reports of breaches of ethical principles in the KGHM Polska Miedź S.A. Group in 2018-2020

Procedure followed in the event of a breach of ethical principles in the KGHM Polska Miedź S.A. Group

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2.3. ANTI-CORRUPTION POLICY IN THE KGHM POLSKA MIEDŹ S.A. GROUP

The Anticorruption Policy in effect in the KGHM Polska Miedź S.A. Group was adopted in July 2018, pursuant to the Resolution of the Management Board of KGHM Polska Miedź S.A. The Policy establishes detailed standards of conduct in corruption-prone situations and identifies the criminal liability in case of abuse. The KGHM Polska Miedź S.A. Group underscores its commitment to fighting corruption in business, by the way of adopting and uncompromising observance of the “zero tolerance for corruption and bribery” rule.

Employees are prohibited from offering or accepting any material benefits in relation to the performance of professional duties. The only exception is giving and accepting business gifts in line with the local norms and cultural customs, provided that the giving and accepting of gifts cannot lead to a situation in which such behavior could be considered as an attempt to exert pressure or persuade the recipient to act against their duties. Detailed rules pertaining to giving and acceptance of customary business gifts have been defined as an instruction under the Corruption Threat Prevention Procedure. Employees are required to avoid any actions or decisions in a situation of a conflict of interests. Particular control under the Policy is over business procurement transactions, including an option of a third party audit, in order to ensure that such transactions meet the highest standards of ethical and transparent business operations.

The Policy also states that the Group Entities and their representatives are obliged to observe all statutory provisions, guidelines of administration bodies and other state authorities, as well as domestic and international legal acts designed to fight corruption. The Policy also states that KGHM Polska Miedź S.A. and the Group Entities and cooperating entities are obliged to follow international legal acts designed to fight corruption, e.g. the U.K. Bribery Act of 2010, the U.S. Foreign Corrupt Practices Act, Canadian Corruption of Foreign Public Officials Act of 1999 and guidelines contained in international agreements, e.g. the OECD Convention or the guidelines of the UN Global Compact as regards responsible business conduct and fighting corruption.

The document stipulates that Employees of the Group and external partners are obliged to report any suspicion of breaches to the Policy and the Corruption Threat Prevention Procedure, directly to the Security Department of KGHM Polska Miedź S.A. or via the dedicated channels of abuse reporting. Every report is confidential and followed up with due diligence. The KGHM Polska Miedź S.A. Group uses a range of tools to effectively implement the Policy’s objectives, including first of all procedures, instructions, remedies and control mechanisms, which specify in detail the standards of conduct in corruption-prone situations and situations in which accountability for abuse may be involved.

The Group’s employees and its representatives are obliged to follow and apply both the Anticorruption Policy as well as the accompanying documents referred to above, in particular the Corruption Threat Prevention Procedure.

CORRUPTION THREAT PREVENTION PROCEDURE IN THE KGHM POLSKA MIEDŹ S.A. GROUP

The Procedure was adopted in July 2018 in accordance with a Resolution of the Management Board of KGHM Polska Miedź S.A. The provisions of the Corruption Threat Prevention Procedure are applied in order to minimize the risk of corruption and limit any corruptive practices that may arise in connection with the operations of the KGHM Group. The Procedure further elaborates the provisions of the KGHM Group Anti-Corruption Policy. The rules defined in the Procedure are addressed to all Employees, as well as Representatives, and are applicable in contacts with clients, counterparties and State authorities. The Procedure stipulates precisely the proper manner of conduct, remedies and control mechanisms, which together with other regulations of the Policy make up the Corruption Threat Prevention System. KGHM Group employees and representatives are obliged to observe all statutory provisions, guidelines of state administration and other authorities, as well as acts of relevant organizations, in which the KGHM Group entity is a member, addressing anticorruption principles and measures. Employees are familiarised with the content of the Anticorruption Policy and the Corruption Threat Prevention Procedure at the time of hiring and periodically, as part of classroom and e-learning training courses.

The Security Department Director plays the role of the Ethics and Anticorruption Representative in the KGHM Group and is responsible for supervision of the implementation and compliance with the Procedure. The Ethics and Anticorruption Representatives were appointed in the Polish and international subsidiaries, the KGHM Polska Miedź S.A. Head Office and the KGHM Polska Miedź S.A. Divisions in order to monitor the implementation of the anti-corruption regulations.

Undertaking, participation in, promotion of, and inciting to any kind of corruptive actions is strictly forbidden. Conduct which is considered by the KGHM Polska Miedź S.A. Group to constitute corruption includes:

- bribery;

- influence peddling;

- unacceptable preferential treatment - an action leading to putting a counterparty, product or service in a privileged position, extended against the interests of the KGHM Group, in return for providing, or promising to provide a material benefit;

- abuse of authority;

- negligence;

- receipt of benefits;

- receipt of a promise;

- making performance of a professional duty conditional;

- demand of benefits;

- conflict of interests;

- nepotism;

- cronyism;

- thwarting or impeding a public tender.

The algorithm for reporting conflicts of interests, including a list of situations that may lead to a conflict of interests, is shown in the diagram below.

The plan of action for reporting conflict of interests, including a list of situations that may lead to a conflict of interests in the KGHM Polska Miedź S.A. Group

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BUSINESS GIFTS INSTRUCTION

Attached to the Corruption Threat Prevention Procedure is the Business Gifts Instruction, adopted in 2018. Offering or receiving business gifts is a frequent way of expressing mutual kindness and respect by business partners. Therefore, in principle an exchange of gifts in purely business relations is allowed, provided that:

• the gift is in line with customary business practice;

• the gift is compliant with the law.

Failure to observe the rules laid down in the Instruction may lead to a conflict of interests and undermine confidence in business decisions made by the gift recipients.

The Instruction does not replace the rules laid down in other internal acts of KGHM Polska Miedź S.A. (e.g. the KGHM Polska Miedź S.A. Group Procurement Policy), but rather provides further clarifications.

In 2020, KGHM Polska Miedź S.A. created a Valuable Gifts Storage Area in its Head Office and implemented the Instructions for running the storage. Any employee who finds themselves in a situation in which a refusal to accept a gift, whose value exceeds the accepted threshold, is not possible for important reasons, is obligated to transfer such a gift to the storage warehouse. The gifts transferred to the storage warehouse are donated to charity.

2.4. PROCUREMENT POLICY OF THE KGHM POLSKA MIEDŹ S.A. GROUP

KGHM Polska Miedź S.A. is guided by high ethical standards across the procurement process. The Code’s main message is to guarantee the professionalism and honesty of the persons responsible for the procurement processes. The document also contemplates issues such as preventing conflicts of interest as well as equal treatment of suppliers to ensure compliance with the principles of fair competition.

The procurement procedures in effect in KGHM are precisely defined in the Procurement Policy and business partners are selected in accordance with the principle of equal treatment.

In tender documentation, the Company reserves the right to audit its suppliers and to assess their activities in terms of compliance with human rights and regulations governing the hiring of minors. External entities are also checked in order to secure the interests of KGHM, in the context of money laundering, breaches of fair competition rules, prevention of conflict of interests, etc.

PROCEDURE OF COUNTERACTING MONEY LAUNDERING AND PREVENTION OF FRAUD AND EXTORTION IN TRADING TRANSACTIONS REGARDING THE SALE OF PRODUCTS AND THE PROCUREMENT OF ORE AND COPPER-BEARING MATERIALS IN KGHM POLSKA MIEDŹ S.A.

KGHM uses a diverse range of external counterparty verification in the procurement, sales and investment processes, which are regulated by a number of consistent and uniform internal policies and procedures. The procedure of counteracting money laundering and prevention of fraud and extortion in trading transactions regarding the sale of products and the procurement of ore and copper-bearing

materials in KGHM Polska Miedź S.A. sets forth the verification measures undertaken by the Company when it enters into trading transactions.

To protect its image and the Company’s security, KGHM takes measures to prevent the Company from being used by third parties for unlawful purposes, such as money laundering, financing of terrorism, or VAT extortion.

The security measures undertaken in this respect consist of:

· Client identification and verification of its identity based on the data provided by the Client, publicly available information and/or reports of credit bureaus;

· undertaking, with due diligence, actions to determine the ownership as well as organizational structures or the Client’s links to other entities, in order to identify the Beneficial Owner of the transaction and verify its identity, using publicly available information and/or reports of credit bureaus;

· obtaining information on the Client’s objective and intended character of the business relationship, using publicly available information;

· monitoring of the business relationship with the Client, including completed transactions, in order to check if they are consistent with the Company’s knowledge of the Client and its business profile, and - if possible - examining the source of funds.

PROCUREMENT PROCESS CONTROL INSTRUCTION OF THE SUPPLY CHAIN SECURITY DEPARTMENT OF THE KGHM POLSKA MIEDŹ S.A. GROUP

The Instruction has been issued as an Appendix to the Internal Control Procedure of the Security and Loss Prevention Section of the KGHM Polska Miedź S.A. Group. Pursuant to the Organizational Regulations of KGHM Polska Miedź S.A., tasks of the Supply Chain Security Department include: control of the transparency of procurement processes, monitoring of procurement processes with increased risk of abuse and control of completed procurement processes - if abuse is suspected - to verify the correctness of those processes and detect corruption threats.

The document regulates a detailed scope of activities of the Supply Chain Security Department, resulting from the aforelisted tasks, and incorporating the stipulations of the KGHM Polska Miedź S.A. Procurement Policy. The Instruction also applies to procurement excluded from the Procurement Policy which has not been regulated in other internal Company acts - to the extent allowed by the unique specificity of individual procurement processes. For procurement excluded from the Procurement Policy which is regulated by other internal Company acts, the control activities proceed in accordance with those acts.

2.5. ANTI-ABUSE PROCEDURE OF THE KGHM POLSKA MIEDŹ S.A. GROUP

The Procedure was adopted in accordance with the Resolution of the Management Board of KGHM Polska Miedź S.A. in September 2018. The objective of the Procedure is to prevent abuse at work, by way of implementation of a prevention system and definition of a procedure to be followed if abuse does occur. The procedure is designed to build and enhance an organisational culture based on good interpersonal relations between and among employees.

The procedure describes a catalogue of actions designed to prevent abuse, actions to be taken if abuse does occur, and defines obligations of the employer and employees in this respect. The Procedure applies to all employees of the KGHM Polska Miedź S.A. Group, regardless of the type of contract or position held. Every employee who believes they have experienced abuse or have witnessed behaviour displaying features of abuse, has the right to lodge an Abuse Report. An Abuse Report is lodged in a process defined in the Procedure of Disclosing Irregularities and Protection of Whistleblowers, using dedicated channels, subject to the stipulation that in this case the personal details of the reporting employee, the employee/employees who may have been subjected to abuse and the employee/employees who have committed actions or behaviour displaying the features of abuse, must be disclosed. The case is examined by the Ethics Committee of the relevant entity of the KGHM Group.

Employees are familiarised with the content of the procedure at the time of hiring and periodically, as part of classroom and e-learning training courses.

Compliance with the Procedure is supervised by the work place manager, who is also responsible for the appointment of the Ethics Committee members. The Committee carries out the proceedings in case of abuse initiated on the basis of an Abuse Report. The Ethics and Anticorruption Representative plays an important role in counteracting abuse. The Ethics and Anticorruption Representative conducts prophylactic actions, including organization of training for Employees, participates in investigation of the abuse reports, is responsible for receiving the reports and initiating further proceedings in accordance with the Procedure of Disclosing Irregularities and Protection of Whistleblowers. A number of abuse reports that have been examined by the Ethics Committee pertained mostly to conflicts at the work place. Early detection of such cases, which is possible thanks to the solutions implemented by KGHM, has helped to avoid escalation and prevented occurrence of abuse.

2.6. PERSONAL DATA PROTECTION POLICY IN KGHM POLSKA MIEDŹ S.A.

In 2018, the Management Board of KGHM Polska Miedź S.A. adopted by resolution a Personal Data Protection Policy. The Policy lays down the rules of processing and securing personal data in KGHM

Polska Miedź S.A., pursuant to Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation, hereinafter: GDPR). The Policy has been adopted to ensure that data processing in KGHM proceeds in compliance with the GDPR and other personal data protection regulations, and to be able to demonstrate this compliance. The Policy is subject to reviews and updates, in keeping with the rules laid down therein. Under the Policy, the object of protection is personal data, processed in IT systems, as well as recorded otherwise on media, including paper form and electronic media. The places where personal data is so processed must be secured in a manner defined by the Policy. The Policy applies to all the personal data processed in KGHM for the purposes of the Company’s activities. The duty to protect personal data processed by KGHM and to apply the Policy covers all persons with access to personal data, regardless of their position, place of work and type of employment relationship. Every person about to have access to personal data may process the data exclusively based on an authorization (delegation). All persons having access to personal data are obliged to familiarize themselves with the Policy and other related documents, and to apply the provisions thereof.

The Policy is consistent with other internal regulations regarding security of information and IT systems applicable in KGHM. Updates to the Policy are supervised by the Personal Data Protection Inspector of KGHM Polska Miedź S.A.

2.7. PROCEDURE FOR VERIFICATION OF COMPLIANCE WITH THE ETHICAL PRINCIPLES OF KGHM POLSKA MIEDŹ S.A.

As a socially responsible company, KGHM Polska Miedź S.A. applies due diligence procedures. In doing so, it attaches importance not only to respect for human rights, lawful terms of employment, environmental norms, freedom of establishing trade unions, compliance of operations with generally applicable laws, no child labour and no sourcing of production raw materials from conflict sources (the so-called conflict minerals) but also wants to cooperate with business partners who share these values. For this reason, KGHM’s customers and suppliers are obligated to declare in writing their compliance with the aforementioned principles, by signing the so-called Customer Card and Supplier Card, which is an important factor of the business decisions on undertaking cooperation with the given partner.

2.8. INTERNAL AUDIT Rules (FOR ETHICS) IN KGHM POLSKA MIEDŹ S.A.

The Internal Audit Department follows the international internal audit standards. The standards cover 14 areas, with ethics being one of them. When performing internal audit tasks, the risks of potential fraud, conflict of interests or other activities which are not compliant with the Code of Ethics and other

internal regulations are analysed. Any areas with increased risk of unethical behaviour are consistently identified and taken into account in the development of the annual audit plan.

2.9. INTERNAL CONTROL PROCEDURE OF THE SECURITY AND LOSS PREVENTION SECTION OF KGHM POLSKA MIEDŹ S.A.

The purpose of the Procedure is to define consistent and uniform rules for conducting Internal Control by the Security and Loss Prevention Section.

The Procedure defines how the Control Process is performed by the Division’s units, defines and assigns roles in the Control Process, delineates the framework of cooperation of its participants, and lists the scope of activities to be performed in the Process. The scope of control carried out by the Security and Loss Prevention Section includes identification and detection of fraud, irregularities, malpractice, corruption, abuse and breaches of the Code of Ethics in the Group, as well as threats related to IT and information security.

2.10.SELECTED INDICATORS ILLUSTRATING ACTIVITIES RELATING TO ETHICAL ISSUES IN THE KGHM POLSKA MIEDŹ S.A. GROUP AND KGHM POLSKA MIEDŹ S.A. IN 2020

G205-3 Confirmed incidents of corruption and actions taken

Recorded corruption cases ended in:	2020		2019
Recorded corruption cases ended in:	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
disciplinary dismissal or punishment of employees	7	0	2	0
refusal to renew contracts with business partners due to breach of corruption rules	0	0	0	0
legal actions pertaining to corruption practices taken against the reporting organization or its employees in the reporting period	0	0	0	0
Total	7	0	2	0

3. ACTIVITY IN THE LABOR AND HUMAN RIGHTS AREA

As the key and most important capital, people are subject to particular protection

and are at the center of attention of the Company’s corporate bodies. KGHM Polska Miedź S.A. aims to

build an organizational culture whose cornerstone is the development

of relationships based on absolute respect for the employee’s dignity and personal rights,

regardless of the place of work and level of subordination

KGHM Polska Miedź S.A. recognizes, respects and observes human rights - including employee rights. The Company has undertaken to operate in accordance with the UN Universal Declaration of Human Rights. The KGHM Declaration on Human Rights Protection defines our approach to human rights protection. Employee dignity and personal rights are subject to absolute protection, and any mutual relations are based on respect thereof. As a global company operating across the world’s markets, KGHM applies standards of work and employee relations as stipulated by the local law, as well as by international institutions, such as the International Labour Organization (ILO) or UN Global Compact. Regulations and policies take account of the interests of employees and mutual relationships, based on best practices, irrespective of the jurisdiction of the Company’s place of operation.

KGHM Polska Miedź S.A. applies impartial and fair criteria of employee assessment, being guided by knowledge, professional skills, social skills and the quality of work. The Company’s culture has created a work environment and venue free from discrimination. No form of discrimination is tolerated, in particular due to gender, race, age, origin, religion, handicap, world view, social status, marital status, disability, political party and trade union membership and the form of employment.

In the KGHM Group, people – employees - are the most valuable asset

The rules:

· Compliance with the labour laws of the jurisdictions in which the KGHM Polska Miedź S.A. Group operates, as well as with the standards of our internal labour regulations.

· Compliance with the regulations concerning working time and minimum wage.

· Respect for employees’ rights to associate in employee organizations and trade unions, and to engage in collective bargaining.

· To foster employee development and support them in improving their skills through a variety of training forms and possibility to participate in new projects.

· Respect for human rights and forbidding of any forms of illegal or forced labour (prevention of modern slavery), including child labour.

Employment

in the Company

Employment

in the Group

LTIFR

KGHM Polska Miedź S.A.

TRIR

KGHM INTERNATIONAL LTD.

18,440

persons

34,116

persons

7.3

0.5

Group

In 2020, the companies of the Group employed 34,083 people, i.e. 0.7% less than in the prior year. The employment structure is presented below:

Average headcount in the KGHM Polska Miedź S.A. Group in 2019-2020

	2020	2019	Change (%)
KGHM Polska Miedź S.A.	18,440	18,444	(0.0)
KGHM INTERNATIONAL LTD.	2,006	1,944	+3.2
Sierra Gorda S.C.M.¹	789	794	(0.6)
Domestic Group companies	12,872	13,137	(2.0)
Other Group companies	9	9	-
Total	34,116	34,328	(0.6)

Sierra Gorda S.C.M. – employment proportional to share in the company (55%)

Employment structure in the KGHM Polska Miedź S.A. Group in 2020

ImageAlt38

¹⁾ Sierra Gorda S.C.M. – employment proportional to share in the company (55%)

KGHM Polska Miedź S.A.

Employment in KGHM Polska Miedź S.A. was stable and at the end of 2020 it amounted to 18,531 people (0.4% more than at the end of 2019) The annual average employment in KGHM Polska Miedź S.A. was 18,440, as shown in detail in the following table:

Average employment in KGHM Polska Miedź S.A. in 2019-2020

-	- 2020	- 2019	- Change (%)
Mines	12,430	12,440	(0.1)
Metallurgical plants	3,604	3,635	(0.9)
Other divisions	2,406	2,369	+1.6
KGHM Polska Miedź S.A.	18,440	18,444	(0.0)

Activity in the KGHM Polska Miedź S.A. Group

Companies in Poland

In 2020, average employment in the companies of the KGHM Polska Miedź S.A. Group in Poland decreased as compared to 2019 by 265 FTEs (or by 2%). This change affected mainly blue-collar positions and was caused by adjusting employment to current needs resulting, among others, from market situation and changes in the organization of work.

Companies abroad

In 2020, average employment in international companies of the Group rose as compared to 2019 by 57 FTEs (or by 2%): the headcount in Sierra Gorda S.C.M. fell by 0.6%, while in KGHM INTERNATIONAL LTD. Group it went up by 3%.

The decline in employment in Sierra Gorda S.C.M. was caused by reduction of employment in the individual areas in connection with the cost savings plan. The increase in headcount in KGHM INTERNATIONAL LTD. was mainly due to an increase in production capacity in the Sudbury Basin mines in Canada and in the Robinson mine in the USA.

3.1. INTERNATIONAL MOBILITY POLICY IN THE KGHM POLSKA MIEDŹ S.A. GROUP

Following the acquisition of assets outside Poland, since 2015 KGHM Polska Miedź S.A. has implemented an employee mobility program. In view of the international operations of the KGHM Polska Miedź S.A. Group, a policy of international mobility has been adopted as the basis for action in conformity with the due diligence procedures. In order to unify the rules for international delegation of employees and improve the functioning of the mobility process, the International Mobility Policy in the KGHM Polska Miedź S.A. Group was introduced on 27 April 2020. The Group also adopted the Procedure for

Implementing an International Mobility Policy in the KGHM Polska Miedź S.A. Group. Being delegated to companies in Chile, Canada and the US represents an investment of major significance for the KGHM Polska Miedź S.A. Group. The policy not only satisfies the local requirement for personnel, but also develops the employee’s professional potential, which increases the Company’s competitive edge. In 2020, 15 employees in total were delegated, of which 4 returned, 8 continued the delegation started before 2020, while 3 started their delegation.

3.2. HUMAN CAPITAL AND RISK ON THE INTERNATIONAL MARKET

The global nature of the KGHM Group also translates into risk related to human capital. The Company wants to recruit and retain the best employees necessary among other things for the execution of development projects. The effectiveness of recruitment processes is also undergoing constant improvement. Since 2015 an employee mobility program has also been in place. It defines in detail the rules of delegating employees abroad. The program guarantees the consistency of human resources management policy with best market practices and ensures continuity of risk management (including legal, tax, immigration risks) in the process of delegating personnel to work abroad. In employee international mobility there is an opportunity to transfer knowledge, experience and best practices among the KGHM Polska Miedź S.A. Group’s companies.

3.3. WORK REGULATIONS AT KGHM POLSKA MIEDŹ S.A.

KGHM Polska Miedź S.A. has in place Work Regulations which define the organization and management of the labour process as well as the related rights and obligations of the employer and employees. The regulations define the manner and rules of accounting for working time, and granting of holidays, as well as the time and manner of remuneration. They define rules of occupational health and safety. Moreover, they describe the adopted practice with regard to rewards and distinctions, as well as punishments used for infringements of order and work discipline.

3.4. HR POLICY OF KGHM POLSKA MIEDŹ S.A.

An HR Policy has been defined for the Parent Entity, which underscores that the Employees of KGHM are its most valuable capital – it is they who create the unique corporate culture and build the Company’s market position. In order to secure the achievement of its strategic objectives, the Company has for many years consistently invested in the labour market and actively influenced the process of young people’s education. The company acts with due diligence towards its employees, since it is people that play a key role in the development of all areas of the business model, build the global standing of the Company and make us an integrated organization open to the future. KGHM recruits the best experts and specialists. As a result, the Company employs people with the greatest potential, who can truly respond to the

Company’s needs. The work of each of these persons is equally important to the success of the entire organization.

The uniqueness of the pursued HR policy is attested to by the fact that KGHM Employees are people who not only are talented and highly qualified, but also act in conformity with KGHM values, are open to changes, seek innovative solutions, and are willing to share their knowledge and experience. Most importantly, however, KGHM Employees, regardless of their job titles, see their personal development as a challenge which contributes to the benefits achieved by the entire organization.

The development of KGHM has also driven changes in human capital management inside the company. Recently, the implementation of the HR policy has been modified. A consistent set of key processes and tools have been implemented to support long-term development of skills, new solutions have been prepared for employee performance and assessment management, internal communication has been improved, and focus has been made on modern project, program and portfolio systems. In view of the Company’s swift development, it has become a priority to identify the best employees efficiently, and then systemically prepare them to assume key roles and functions in all business operations.

In 2020, KGHM Polska Miedź S.A. provided its employees with opportunities to pursue educational programs to develop professional, managerial and specialist competencies, including:

- the opportunity to improve their qualifications through co-financing of university education, including:

o co-financing of MBA studies - 30 people,

o group post-graduate studies entitled “Financial security of a company” in cooperation with the Warsaw School of Economics – 62 people,

o co-financing of individually chosen post-graduate studies – 30 people,

o co-financing of higher education – 27 people,

- improvement of language skills for all Company employees through access to online e-learning tools – the program is available to all 18,000 employees,

- improvement of language skills for all Company employees through the possibility to participate in traditional language courses: English, Spanish and German languages

- implementation of the performance management process for managers and development of an employee assessment system to the level of department directors

- IT tools to support recruitment of the best quality staff, mainly e-Recruitment.

KGHM as a global company gives a unique opportunity to persons who want to gain access to state-of-the art technologies and equipment. They can do so by participating in the work of specialist project

teams. Working in such a team is also a perfect opportunity to share knowledge and experience within the company.

KGHM Polska Miedź S.A is cooperating with external stakeholders in projects aimed at adjusting the way prospective employees are educated. It runs a project entitled “Competent in the industry”, which is addressed to students of technical and industry schools. It also cooperates with the Ministry of National Education in creating new key professions for the company, as KGHM representatives took part in the project of developing the Sectoral Qualifications Framework (SQF) for the Mining Industry. SQF sets out the expected effects of education at each stage of formal and informal education in building skills needed by employees working in the mining industry. SQF is one of the elements that guarantee proper relations between employee qualifications and know-how and their theoretical and practical knowledge.

The project was carried out under the auspices of the Education Research Institute and run by the consortium of the Mining and Geoengineering Department of the AGH University of Science and Technology and JSW Szkolenie i Górnictwo Sp. z o.o. The project involved consultations with representatives of the mining industry. It utilized questionnaires, in-depth interviews and workshops. The experts involved in the project included, in addition to KGHM Polska Miedź S.A. representatives, the representatives of AGH, PGNiG, LW Bogdanka, JSW, PGE, JSW Innowacje, GIPH, WUG and GIG.

Human resources projects in KGHM Polska Miedź S.A. in 2020

Digitalisation of HR processes	To enhance operational efficiency the digitalisation of HR systems became a priority, with some of the processes being implemented in 2020 and work on subsequent ones planned over the next two years.
Start of an on-board training program for new employees (also online)	Cyclical training dedicated to newly-hired employees, with the goal of familiarising them with the company, their rapid integration into the organisation and a smooth transition to accomplishing tasks. During this training the subjects raised are related to the Mission, Vision and Strategy of our Company, the subject of activities and the production process, the principles involved in moving within the organisation, and HR questions.
Advancement of a development project for the COPI Division	Under a project dedicated to employees of the COPI Division, managerial competence was evaluated using the 360 degree method. As a result of this evaluation individual development plans were created for each manager, representing a basis and foundation for organising individual development paths for each of them. Also carried out under the project were two training sessions, „Constructive feedback” and „Facilitating communicating in teams”.
Continuation of the project „Competent in the sector”.	This project is aimed at preparing future staff in professions which were designated by the Division as critical for maintaining production. The program in numbers: - academic scholarships were subsidised in the amount of PLN 145 thousand, - 1 912 students in in sponsored classes in the 2020/2021 school year, - 9 sponsored schools, - outfitting of school workshops in the amount of PLN 170 thousand, - organisation of apprenticeships for 388 students and 242 practical training sessions.
Dual education	The drop in students studying subjects related to mining at the major universities may in future lead to problems for the Company in hiring persons with appropriate qualifications to serve in functions related to the general area of supervision. For this reason the decision was made to commence cooperation with Jan Wyżykowski University and to commence classes in Mining and Geology under the dual studies profile. As a result of this agreement and under the dual studies profile, traditional studies can be combined with the possibility of gaining professional experience. KGHM Polska Miedź S.A. has a real impact on the shape of educational programs, with employees of the Company serving as lecturers at the University. Student internships are held on the grounds of the Company, which enables students to gain knowledge and skills which are critical from the point of view of KGHM’s needs.

Participation in AGH work fairs

At the start of 2020, KGHM Polska Miedź S.A. participated in work fairs organised by the Career Center of the AGH University of Science and Technology in Kraków. The copper company promoted its main products: copper grains from the Cedynia Wire Rod Plant and silver grains from the Głogów Copper Smelter and Refinery. Also on offer was the possibility of engaging in virtual trips to KGHM’s mines and plants utilising VR technology.

Restructurisation of HR processes in KGHM INTERNATIONAL LTD.

The reorganisation of processes in KGHM INTERNATIONAL LTD. is related to HR and administrative services. Under this Reorganisation the following actions were undertaken in the area of HR:

- Changes to the organisational structure along with a change in labour contracts.

- KGHM Polska Miedź S.A. manages the HR and administrative processes in KGHM INTERNATIONAL LTD. and maintains on-going supervision of these processes in cooperation with the President of KGHM INTERNATIONAL LTD.

Activity in the KGHM Polska Miedź S.A. Group

Companies in Poland

In 2020, projects introduced in prior years in the domestic companies continued, including a project comprising all of the companies in Poland, i.e. e-Recruitment. In addition, each of these companies engaged in their own HR projects. These involved subjects such as enhancing professional skills and qualifications, know-how and improving productivity, utilising motivational tools. To deal with problems in acquiring employees, cooperation was initiated with external institutions: professional schools and work offices. Agreements were also signed with schools of higher learning, which enables the advancement of joint R&D projects, such as the organisation of workshops, training, lectures and sector panels.

The Company POL-MIEDŹ TRANS Sp. z o.o. in Lubin engaged in actions aimed at creating a Training and Examinations Center for Machinists and Machinist Candidates. The Training and Examinations Center for Machinists will commence operations within the Company’s structures once it is entered into the list of centers of learning maintained by the President of the Office of Railway Transport (expected date of registration: Q2 2021). The Company will provide professional and financial support to the schools and centers of learning providing training in railway-related professions. The support provided to these schools is aimed at developing professional training for the railway sector and a staff of qualified employees for the Company in the future.

Anti-COVID measures implemented by the HR Division

In connection with the regulations, recommendations and restrictions introduced by the Government regarding the state of epidemic of SARS-CoV-2 and in connection with the need to provide work safety and continuity, the companies introduced internal orders defining, among others, work organization, including rules of remote work, and other regulations arising from the needs determined by the state of epidemic. They focused mainly on the creation of safe work conditions and protection of employees from infection.

The HR Division became actively involved in the measures preventing the effects of the SARS-CoV-2 pandemic. Guided by two goals: safety of people and production, initiatives were undertaken in several key areas:

Communication:

· Organized and operated communication channels for employees (HR hotline open 24/7, e-mail box for employees pytania@kghm.com, through which employees were able to receive answers to questions about the state of pandemic, the safety procedures in effect in the Company, work organization during the pandemic and others).

· Coordinated the flow of information between employees and the OHS function (coordination of access to personal protective equipment, implementation of employee ideas, etc.)

· Managed the flow of information (regular conference calls with Head Office and Branch managers)

· Developed the SAP absenteeism report which enabled an ongoing analysis of the scale of infections and helped in decisions on precautionary delegation to remote working if an employee was in contact with an infected person (implemented by COPI in cooperation with the HR Service Unit)

· Updated and introduced a new functionality of the “Holiday leave requests” application, which made it possible to monitor potential risk of infection by employees who went on holidays to places that were considered to be potential infection sources (implemented by COPI in cooperation with the HR Service Unit)

· Prepared and published a newsletter for mid-level managers providing key information about the pandemic situation (biweekly)

Training and development:

· Conducted a study on the effectiveness of remote work

· Organised training sessions on “Remote team Management” (for managers), “Improving efficiency of remote work” (for employees)

· Organised a webinar titled “How to survive the lockdown without going crazy”

· Changed the procedure for carrying out professional courses on the TEAMS platform

· Introduced e-learning OHS and GDPR courses

· Developed and implemented the rules for safely referring employees to vocational courses

· Inspected and supervised courses conducted by eternal providers in the times of COVID-19 – visits to verify compliance with safety/sanitary standards adopted by the Company

· Cooperated with the Copper Health Care Center and developed the best procedure for the times of COVID-19 for safely referring employees for medical examination

· Managed the process of apprenticeships for students from schools benefiting from endorsed schools (reorganization/halting of apprenticeships/practical courses for students)

Recruitment and onboarding:

• Developed and implemented methods and tools used for online recruitment.

• Developed methods and tools used in the online onboarding process.

KGHM INTERNATIONAL LTD.

In 2020, the following HR projects were advanced in the companies of the KGHM INTERNATIONAL LTD. Group in Canada and the USA:

Assets in the Sudbury Basin in Canada	- a cycle of training workshops for leaders of the production assets and HR teams with respect to communicating, conflict management and employee welfare, - development of a plan of staff succession for key leadership positions in the mines, comprising the following processes: identification of key leadership roles within the organisation, creation of leader competence profiles, determination of employee potential and assessment of their development needs, talent development plans and the monitoring of their achievement.
Robinson and Carlota mines in the USA	- implementation of a modern recruitment platform and automatisation of the process of selecting candidates, - a dedicated program of training for 75 leader representatives in cooperation with the University of Nevada, Reno Extended Studies, - the descriptions of workplaces in the mines were updated – matched to organisational needs and actual market trends, - an employee appreciation program for those supporting leaders in developing an employee appreciation culture within the organisation, - an audit of the process of employee training and the process of legalising non-citizen employment in the USA.
KGHM INTERNATIONAL LTD. in Canada	- reallocation of a portion of the functions of KGHM INTERNATIONAL LTD. to the Head Office of KGHM Polska Miedź S.A. and to other business units of the KGHM INTERNATIONAL LTD. Group.
Sierra Gorda S.C.M.	In 2020, the following HR projects were advanced in the company Sierra Gorda S.C.M.: - implementation of new working systems: 14x14 and 8x6, as well as renewal of permission for the 4x3 and 7x7 working systems, and approval of new working positions in special conditions, - implementation of a diversity and integration policy, - implementation of a new model of skills based on successes in production, - transformation of HR processes into online form, - implementation of a remote work system for administrative positions, - construction of new social facilities for mine employees, - implementation of internet applications with respect to: the system for applying for employee transport, applying for working clothing, an informational campaign on COVID-19, online surveys and voting, a module on employee welfare to simplify quarantine for employees and their families, - implementation of a campaign and projects related to the COVID-19 pandemic with respect to employee safety, information about the pandemic situation, preventative measures, information for external companies on the current pandemic situation in the company and existing procedures.

3.5. MANAGEMENT OF CAREER PATHS AND RECRUITMENT IN KGHM POLSKA MIEDŹ S.A.

KGHM Polska Miedź S.A. secures highly qualified personnel through the process of internal and external recruitment. It protects the KGHM brand as an employer of first choice for current and prospective employees.

The company acts in accordance with due diligence rules and it keeps an electronic register of job candidates based on the announcements published at https://www.rekrutacja.kghm.com. The electronic registration of candidates comprises job vacancies announced by all Divisions of KGHM Polska Miedź S.A. In order to submit an application the candidate should complete the electronic template containing the necessary personal data and the requirements for the job for which the candidate is applying. Online registration is considered as valid if the application was completed within the set term, after entering by the candidate of all necessary data, confirmed in accordance with the information sent to the candidate by the system.

The Company ensures full discretion to candidates who submit applications and reserves the right to contact only selected persons. No information within the term set in the job announcement means that the application was not accepted. Candidates whose applications have been accepted are notified separately of the date of their job interview. Candidates who successfully pass their job interview may be, upon the candidate’s consent, entered in the Central Base of Candidates. The application is stored in the Central Base of Candidates for a period of 12 months. Changes and updates of the stored application are made on the candidate’s request. Personal data collected during electronic recruitment of candidates are used only for these processes and are not made available to third parties. The Candidate’s Communication via the https://rekrutacja.kghm.pl portal is encrypted with SSL protocol with the use of a certificate issued by a trusted certification centre. The electronic recruitment system in KGHM provides for the safety of the candidates’ stored data and for compliance with the requirements of the Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation, hereinafter: GDPR).

3.6. TRAINING PROCESSES IN KGHM POLSKA MIEDŹ S.A.

In view of the international scope of activities, cultural differences and specific characteristics of the industries in which the Group operates, each Company conducts a series of activities related to employee training. The purpose of employee development activities in KGHM in 2020 was to retain and improve human capital and to manage the Company’s intellectual capital taking into account the Company’s new

strategic directions in this process: 4E (Elasticity (flexibility), Effectiveness, Ecology - safety and sustainable development, E-industry) as well as its long-term development plans through:

- securing fulfilment of the requirements defined in regulations by the employees’ participation in periodic training courses on occupational health and safety, courses and examinations entitling to take up jobs in underground mines which require specialist actions as well as other jobs in the company,

- improving employee skills by the organization of training courses and other development activities, with particular focus on linguistic, managerial and interpersonal skills, as well as training on business process orientation in management.

- improving the qualifications of the Company’s employees and changing their educational structure by continuing to co-fund graduate and post-graduate studies.

The Company’s employees may improve their qualifications in the context of expected organizational and technological changes by participating in training courses, conferences, studies and post-graduate studies. The employer ensures a high level of training among others by aligning the contents of the training courses with the business goals.

When planning activities, the Company focuses on ensuring that they fit in the best possible way to the execution of the adopted strategic priorities.

Systemic competence development activities are performed by a centralized unit specialized in this area. Development needs are established regularly and constitute the basis for building a training plan and calculation of the resources needed for its performance. These actions are performed on the basis of the procedures existing in the Company and are registered for purposes of internal and external accounting. Both the competence development activity and the utilization of the allocated budget are regularly monitored and the results are reported.

In 2020 the number of employees participating in a single training event was 32,384.

To reach the largest group of employees we are launching e-learning training courses. One of the greatest advantages of e-learning is that training can be conducted at a convenient time. Moreover, e-training contains interactive elements to facilitate comprehension and committing to memory the needed information. In 2020 KGHM Polska Miedź S.A.’s employees obtained access to the following e-learning training courses:

- Training on ethics:

o Training for employees in managerial jobs (people who manage other people) on ethics, prevention of irregularities in the company (in particular, corruption, abuse and discrimination) and receiving whistleblower reports,

o Training for employees in white-collar and blue-collar positions (people with computer access) on ethics, prevention of irregularities in the company (in particular, corruption, abuse and discrimination) and submitting whistleblower reports concerning irregularities utilizing the channels in place in the company,

- Training on Information Security Policy (Information Security Policy based on the ISO 27000 standard family).

- GDPR training,

- Periodic OHS training:

o for employers and individuals supervising employees,

o for administration and office staff,

o for engineering and technical staff.

The Information Security Policy training, the GDPR training and the periodic OHS training have been designed for all employees of KGHM Polska Miedź S.A who use computers in their daily work. This course aims to inculcate safe behaviors on the web. E-learning training courses provide for an interactive form of learning and contain numerous additional materials, short video clips, case studies and decision-making exercises.

E-learning language courses.

In 2020, foreign language courses conducted by the e-learning method were launched. The employees of KGHM Polska Miedź S.A. are able to participate, free of charge, in English and German courses on two independent language platforms. As an employee benefit, the service is fully financed by the Employer.

Both platforms offer nearly endless learning material in the form of ready-made lessons for practicing language skills for everyday life, such as Travel English, and for professional purposes, e.g. Business English. The platforms offer complementary ranges of exercises: one platform has been designed for self-studying, while the other is geared more towards communication in the world of business, through direct conversations with native speakers.

The pilots of the platforms generated a lot of interest among the Company's employees. In 2020, more than 2 thousand employees took advantage of these platforms. In order to reach the largest possible number of employees, the campaign was regularly promoted through flyers, posters and press and media releases, among others on Intranet and Extranet employee portals and in the CUrier internal magazine.

Interest in online learning continues to grow, especially during the still persisting coronavirus pandemic and in connection with safety restrictions among employees. The idea of online courses was a good fit with the reality that the year 2020 has brought us. Hopefully the pandemic situation in Poland and globally will soon change for the better, but online language courses will remain as a tried and tested form of learning accepted by KGHM Polska Miedź S.A. employees.

3.7. SAFETY POLICY IN THE KGHM POLSKA MIEDŹ S.A. GROUP

The life and health of employees and workplace safety in general is the chief priority in the hierarchy of values of the KGHM Polska Miedź S.A. Group. For several years the Company has advanced its vision of „Zero accidents due to human and technical errors, zero occupational illnesses among our employees and contractors”. In 2020, the Employee Safety Improvement Program „Think About The Consequences” continued as well as the Program to prevent the most common hazards to workplace safety by utilising innovative technology, in accordance with the updated Company Strategy to the year 2023.

The Company applies high OHS standards, both towards its own employees as well as towards those providing services on the grounds of KGHM Polska Miedź S.A., as demonstrated by the Company’s receipt in the current year of certification of a safety management system which is compliant with the ISO 45001:2018 standard. All work stations have identified threats. The Company has assessed occupational risks and updates them continually. Working environments are continually monitored and periodic reviews and potential threat assessments are conducted, as well as reviews of equipment and required technical checks and approvals. Employees undergo systematic training and continually enhance their qualifications. The Company immediately implements new regulations and legal requirements regarding occupational health and safety.

In 2020 the Company recorded a substantial decrease in the total number of workplace accidents (as defined by the Act dated 30 October 2002 on social insurance) due to workplace accidents and occupational illnesses, with a year-on-year change from 299 to 213 injured (a decrease by 86 accidents). The number of workplace accidents in 2020 in KGHM Polska Miedź S.A., excluding accidents due to natural causes (roof collapses, destressings, tremors, rock falls) was lower by 54 (a decrease from 248 to 194). The vast majority of workplace accidents (around 97.2%) qualified as light injuries, caused mainly by loss of balance by employees, contact (striking) with or by moveable/ immoveable objects, as well as the breaking off of pieces of rock from the rockmass.

The mining operations of KGHM Polska Miedź S.A. are associated with natural threats. In particular they arise from the occurance of mining tremors and their potential impact in the form of roof and wall collapses and de-stressings. These are very important from the safety point of view, as their occurrence can lead to serious or even fatal injuries as well as damage to underground machinery, equipment and

infrastructure, along with production downtimes. The Company for many years has carried out a variety of prophylactic actions in its mines involving the intentional provoking of roof collapses and rock falls, comprising systematic seismological observations, on-going assessment of the rock mass and the marking off of areas of particular threat of roof collapse. The size, shape and number of chambers and inter-chamber pillars is selected, as well as the most advantageous direction of mine work advance and the optimum order of ore selection to minimise local concentrations of stress in the rock mass. So-called active methods of preventing uncontrolled roof collapses and rock falls are also applied, based on provoking dynamic events through mass blasting of mining faces and through blasting to release stress in the orebody or its roof.

In 2020, in the mines of KGHM Polska Miedź S.A. a total of 19 workplace accidents were recorded, resulting from natural hazards from the rockmass. These incidents represented 11.3% of all workplace accidents in the mines during this period. The Company is continuously improving its safety record in the mining of the copper ore deposit.

The LTIRF_KGHM ratio (Lost Time Injury Frequency Rate KGHM) in 2020, or the total number of workplace accidents (as defined by the Act dated 30 October 2002 on social insurance) in the Company, being the number of accidents per million hours worked by the employees of KGHM Polska Miedź S.A., amounted to 7.3 and was lower by 61% than the amount recorded in 2010, and also 29% lower than the amount recorded in 2019 (10.3). This is the best result to date in the Company’s history, one achieved thanks to the attitude and commitment of all of the Company’s employees.

LTIFR KGHM ratio in the Parent Entity

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In 2020 KGHM INTERNATIONAL LTD., despite the exceptionally difficult conditions imposed by the pandemic, recorded its best result in history in terms of occupational health and safety.

In 2020, a total of 19 incidents at work were registered in the mines supervised by KGHM INTERNATIONAL LTD. in Canada and the United States of America compared to 31 registered in 2019, while the TRIR ratio

amounted to 1.8. In 100% of the cases these were incidents of a minor nature without serious consequences for the employees.

In Chile, KGHM Polska Miedź S.A. conducts mining operations in two entities, which have separate systems of OHS management adapted to the legal requirements and mining conditions in this country. These systems encompass both the employees in these entities as well as sub-contractors, and are aimed at achieving the long-term vision „Zero harm”. In KGHM Chile SpA, which oversees the Franke mine, and which also engages in its own exploration and other activities, four workplace accidents were recorded in 2020 (compared to 3 registered in 2019), with a TRIR ratio of 0.44. In the company Sierra Gorda S.C.M., 11 workplace accidents were recorded in 2020 (compared to 16 registered in 2019), with a TRIR ratio of 0.24.

In 2020, in the entities in which the KGHM Polska Miedź S.A. Group conducts mining operations in Canada, the United States and Chile, compared to 2019 a total of 16 fewer workplace accidents were registered (a drop from 50 to 34 workplace accidents). The consolidated TRIR ratio (Total Recordable Incident Rate) for these operations reached 0.52. This was 0.25 lower compared to 2019 and at the same time 84% lower than the level recorded in 2010.

TRIR⁽¹⁾ ratio in KGHM INTERNATIONAL LTD.

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¹⁾ TRIR (Total Recordable Incident Rate) calculated using accepted methodology as the number of accidents at work meeting the conditions of registration as defined in the ICMM (International Council on Mining & Metals) standard, in total for the employees of KGHM INTERNATIONAL LTD., KGHM Chile SpA and Sierra Gorda S.C.M. and sub-contractors for these entities, per 200,000 worked hours.

The KGHM Polska Miedź S.A. Group has defined significant risks and their mitigation in the area of safety. Information about key risks and their mitigation are described in this Report in the section “Comprehensive Risk Management System in the KGHM Group”.

OHS GOLDEN RULES

KGHM Polska Miedź S.A. has prepared and applies the Golden Rules of OHS, as presented below:

The Golden Rules of OHS in effect in KGHM Polska Miedź S.A.

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3.8. LABOUR SAFETY COUNCIL OF KGHM POLSKA MIEDŹ S.A.

The Parent Entity’s employees are represented in the Occupational Safety Council whose functioning is based on the principles of mutual trust and cooperation. The Council is the opinion-making and advisory authority with respect to matters of occupational health and safety. It consists of 40 persons, including representatives of the employers (Divisions), representatives of the trade unions operating in the Company and the Company Voluntary Labour Inspectors in KGHM Polska Miedź S.A.’s Divisions. The scope of operation of the Occupational Safety Council encompasses, among other things, periodic evaluation of the state of occupational safety and health at the Company, submitting opinions on prophylactic actions and formulating conclusions with respect to improvement of the working conditions.

At each facility of KGHM Polska Miedź S.A., the representatives of the employer, employees and medical services who are members of the Company Committees for Occupational Health and Safety perform periodic reviews of the working conditions, assess occupational health and safety and draw conclusions with respect to improvement of the Divisional working conditions.

In 2020 and previous years the OHS area was analysed many times using a variety of procedures. The occupational safety status is monitored on an ongoing and regular basis. An ongoing assessment of occupational safety in the Company is made at weekly meetings of the Vice-President of the Management Board (Production), weekly meetings of the OHS and Occupational Risk Department, monthly meetings of the Management Board with the management of all the Divisions and during regular meetings of the Company’s management with the people involved in the OHS process.

3.9. ZERO HARM POLICY OF KGHM POLSKA MIEDŹ S.A.

Risk management, including the principle of prudence, is an essential element of our business. KGHM strives for minimization of any threats to its employees, local communities and the environment (Zero Harm Approach). The best facilities are those with the highest level of safety. Employees in the copper ore mines of KGHM Polska Miedź S.A. work in difficult conditions and are exposed to a great number of various hazards. Natural hazards connected with underground mining of copper ore deposits are among the most important threats to the life and health of employees of KGHM Polska Miedź S.A. Specifically, the threats connected with rock mass tremors and their potential impact in the form of rock bursts and roof collapses are considered to be very important in terms of safety as they may lead to serious or fatal accidents, damage to machinery, equipment, and underground infrastructure, as well as mining downtimes. Since employee safety is our priority, the KGHM Polska Miedź S.A. Group has undertaken various prophylactic measures. Regular seismic observations are conducted in the mines based on a well-developed network of underground and surface-based seismic monitoring stations, encompassing all the regions and mining areas. The Company has implemented an integrated model of occupational health and safety management. The following entities are involved in it:

- company Occupational Health and Safety service;

- the Mine-Smelter Emergency Rescue Unit of proven world-class excellence,

- Miedziowe Centrum Zdrowia S.A., an entity providing specialized medical services;

- Research and development unit, KGHM Cuprum Sp. z o.o. CB-R;

- accredited laboratory of Centrum Badań Jakości Sp. z o.o.;

- An entity specialized in rescue services equipped with its own medical facilities.

3.10.GOOD COOPERATION PRACTICE WITHIN THE KGHM POLSKA MIEDŹ S.A. GROUP

The life and health of employees and workplace safety in general is the top priority in the hierarchy of values of the KGHM Polska Miedź S.A. Group. For several years the Company has advanced its vision of “Zero accidents due to human and technical errors, zero occupational illnesses among our employees and contractors”. It is also one of the pillars of our Corporate Social Responsibility Strategy. The Company has high occupational health and safety standards that apply equally to its employees and the employees of other service providers operating on the premises of KGHM Polska Miedź S.A., which was confirmed this year by the fact that the Company received a certificate for its Occupational health and safety management system under the ISO 45001:2018 standard. In view of our business profile, our direct impact on the environment and care for our employees, we set ourselves ambitious goals, the achievement of which translates into concrete effects in terms of improvement of work and occupational safety conditions. Our focus on respect for life and health improves efficiency and effectiveness and ensures continuity of production, which is essential in the mining and metallurgy industry. Moreover, the highest standards in the OHS area apply not only to the Company, but to all entities providing services to the KGHM Polska Miedź S.A. Group.

DIVERSITY DECLARATION OF KGHM POLSKA MIEDŹ S.A.

Taking into consideration the international nature of our activities, cultural differences and specific natures of the Group’s industries, each company has been engaging in numerous actions in the area of respect for diversity. In view of the above, the independent Diversity Declaration has been defined at KGHM Polska Miedź S.A. The Company complies with the prohibitions of discrimination and takes actions in order to ensure respect of diversity in the workplace. It creates an organizational culture based on mutual respect, equality, access to development opportunities and optimal use of employee talent regardless of ethnic origin, age, gender, nationality, citizenship, religious orientation, political convictions or trade union membership, among others. It aims at ensuring reasonable diversity both in the selection of personnel (including in the recruitment process), with special focus on knowledge, technical competence and social skills.

The Parent Entity guarantees the implementation of the diversity principle across the KGHM Polska Miedź S.A. Group, and promotes and popularizes these values among its stakeholders and business partners.

Diversity management also applies to members of the KGHM Polska Miedź S.A. Supervisory Board and Management Board. The management and supervisory staff are diverse in terms of gender, age and experience. More information on the approach to diversity in the supervisory bodies is presented in the Statement on Corporate Governance in The Management Board’s Report on the activities of KGHM Polska Miedź S.A. and of the KGHM Polska Miedź S.A. Group in 2020.

DECLARATION ON HUMAN RIGHTS PROTECTION OF KGHM POLSKA MIEDŹ S.A.

Taking into consideration the international nature of our activities, cultural differences and specific natures of the Group’s industries, each company engages in a number of actions to protect human rights. Given that fact, the independent Declaration of Human Rights Protection has been defined at KGHM Polska Miedź S.A. The Company declares that it recognizes, respects and promotes human rights wherever it conducts its business. It does not tolerate any violations of human rights. We undertake to operate in compliance with the United Nations’ Universal Declaration of Human Rights and other norms and standards, including the statutory and executive regulations of the home countries of our business operations.

KGHM Polska Miedź S.A. is a global organization, aware of the importance of respect for human rights in the modern world. The Company accepts responsibility for protection and respect for fundamental human rights and implements such standards across the KGHM Polska Miedź S.A. Group. It also assumes that respect for human rights by other entities is a vital element of mutual relationships.

In compliance with the adopted principles, each employee and collaborator of the KGHM Polska Miedź S.A. Group is responsible for ensuring that in his/her closest environment human rights are respected, and any infringements are reported according to the agreed procedure. This Declaration is the basis of our approach to human rights. It supplements and consolidates the human rights issues contemplated in other policies and guidelines of the Company, such as the Code of Ethics, the Diversity Declaration, HR and the Responsible Supply Chain Policy.

The Declaration is implemented in the following manner:

- each employee provided with access to a computer receives the adopted declaration electronically, via the Company Document Circulation System,

- employees with no access to a computer for work purposes are informed of the declaration’s implementation via extranet (accessible to all employees) and by their direct superior.

Infringements are reported as follows:

- an employee has the right and obligation to report an infringement of the Declaration on Human Rights Protection to his/her direct superior;

- employees may report infringements in this regard to the trade unions operating in the Company (in KGHM Polska Miedź S.A. there are 15 trade unions, which have established 48 company trade organizations; the trade union membership percentage ratio in the Company is 88.6%). KGHM Polska Miedź S.A. acts in compliance with the collective bargaining agreement,

- infringements may be reported to the Occupational Health and Safety Committee,

- the Company has in place formal institutions of the Employee Council and a Whistleblower.

- to the State Labour Inspection Service (PIP).

COMPANY COLLECTIVE LABOUR AGREEMENT (CLA) OF KGHM POLSKA MIEDŹ S.A.

The Collective Labour Agreement specifies the conditions to be met by the employment relationship, in particular: working hours, holiday and additional leave, remuneration rules, protection of working conditions, benefits associated with employment and rules of their assignment and provision, benefits for former employees, old-age and disability pensioners and members of their families, and mutual obligations of the parties to the Agreement.

3.11. SELECTED GRI STANDARD PERFORMANCE INDICATORS SHOWING ACTIVITY IN THE LABOR AREA IN THE KGHM POLSKA MIEDŹ S.A. GROUP AND KGHM POLSKA MIEDŹ S.A.

Total number of employees

Total number of employees (headcount) as at 31 December	2020		2019
Total number of employees (headcount) as at 31 December	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Total	34,116	18,440*	34,328	18,444

Number of new hires and employee departures

		Number of employees (in FTEs)		Number of new hires			Rate of new employee hires (in FTEs)
		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group		KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
New hires:	2020	33,526	18,529*	2,898		1,022	8.64%	5.52%
New hires:	2019	34,345	18,536	2,519		988	7.33%	5.33%
		Number of employees (head count)		Number of employee departures (head count)			Percentage of employee departures
		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Departures:	2020	33,526	18,529	3,183	1,031		9.49%	5.56%
Departures:	2019	34,345	18,536*	2,570	952		7.48%	5.14%

Number of work-related accidents by gender

	2020				2019

	KGHM Polska Miedź S.A. Group		KGHM Polska Miedź S.A.		KGHM Polska Miedź S.A. Group		KGHM Polska Miedź S.A.
	Women	Men	Women	Men	Women	Men	Women	Men
Total number of work accidents (incidents)	64	361	3	210	78	464	4	295
Number of fatal accidents (incidents)	0	3	0	3	0	3	0	3
Number of severe accidents (incidents)	0	4	0	3	0	3	0	2
Number of minor accidents (incidents)	64	354	3	204	74	450	0	290
Total number of people injured in accidents	425		213		531		299

Average number of hours of training during the year per employee

	2020		2019
	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Total number of training hours	395,309	326,817	575,861	431,949
Number of employees	33,526	18,529	34,345	18,536*
Average number of training hours	11.80	17.60	16.77	23.30

* workers for whom KGHM Polska Miedź S.A. is the main place of employment (the total number of KGHM Polska Miedź S.A. employees as at 31 December 2020 was 18,531)

4. ACTIVITY RELATED TO SOCIAL ISSUES

In its relations with clients, employees, external partners and local communities, the KGHM Polska Miedź S.A. Group complies with the laws which are in effect in the countries where it operates. The Group also complies with voluntary obligations resulting from ISO and ASTM standards as well as from membership in international organisations such as International Copper Association, European Precious Metals Federation, Eurometaux, Euromines, the London Bullion Market Association, the European Technology Platform on Sustainable Mineral Resources, the European Innovation Partnership, and domestic organisations, including: the Polish Association of Listed Companies, Association of Non-Ferrous Metals Engineers and Technicians, the Economic Chamber of Non-Ferrous Metals and Recycling, the Polish Committee of the World Mining Congress, the Polish Chamber of Chemical Industry, the Polish-Canadian Chamber of Commerce, the Polish Chamber of Commerce for High Technology, and the Employers’ Organization of Polish Copper. The KGHM Polska Miedź S.A. Group does not participate in undertakings which involve breaking the law and pose a threat to its reputation.

The rules:

• We comply with the provisions of law and internal regulations in effect in KGHM Polska Miedź S.A.

• We keep our obligations written in contracts as well as verbal promises made to our clients, suppliers and social partners.

• We duly perform our professional duties.

• We do not offer or accept bribes or other material or personal benefits; we also do not cooperate with companies of doubtful reputation.

The KGHM Polska Miedź S.A. Group assumes

responsibility for the quality of its products and services

In accordance with its Code of Ethics, in relationships with its business partners KGHM observes the principles of ethical conduct. The KGHM Polska Miedź S.A. Group holds to high ethical standards not only its own employees, but also its business partners who receive and must familiarize themselves with the Code of Ethics.

In mutual relationships, the KGHM Polska Miedź S.A. Group follows the principle of “zero tolerance for corruption”. The Group has in place the Corruption Threat Prevention System which, in accordance with the Management Board decision, will be improved and adjusted to the PN-ISO 37001:2017 standard in

2021. KGHM puts special focus on transparency of transactions and prevention of conflict of interest. It monitors the supply chain and product life. Companies competing for cooperation with the KGHM Polska Miedź S.A. Group and those already working with the Group are assessed for, among others, corruption risk. KGHM conducts business with entities of proven reputation. Through appropriate procedural arrangements, the KGHM Polska Miedź S.A. Group prevents money laundering and the financing of criminal activities, including terrorism. It specifically protects the personal data of partners as well as commercial, technical or organizational information entrusted to it. The KGHM Polska Miedź S.A. Group is guided by the principles of fair competition.

4.1. COMPETITION LAW POLICY IN THE KGHM POLSKA MIEDŹ S.A. GROUP

There is a Competition Law Policy in the KGHM Polska Miedź S.A. Group. Its purpose is to establish the operational framework for the system to ensure compliance with the competition laws prevailing in all the countries of its operations.

4.2. RESPONSIBLE SUPPLY CHAIN POLICY IN THE KGHM POLSKA MIEDŹ S.A. GROUP

The KGHM Polska Miedź S.A. Group complies with the highest standards of production and business ethics and business activity. We are guided by those principles across our value creation chain, which is reflected in the Code of Ethics of the KGHM Polska Miedź S.A. Group. We are aware that the selection of responsible suppliers, especially as regards the sourcing of conflict minerals (such as gold, tin, tungsten and tantalum) and silver, is of key importance for conducting operations oriented towards sustainable development. The document regulating these issues is the KGHM Group’s Responsible Supply Chain Policy. Its purpose is not only to guarantee the selection of only responsible suppliers, especially with respect to the conflict minerals listed above, but also to ensure that the goods and services procured do not contribute to financing terrorism and are manufactured or provided in compliance with basic human rights, labour standards, standards of environmental protection and preventing corruption.

The Parent Entity has fully implemented an internal responsible gold and silver supply chain management system which is comprised of the Responsible Supply Chain Policy in the KGHM Polska Miedź S.A. Group and the Procedure for assessing the responsible supply chain for gold and silver in KGHM Polska Miedź S.A. In 2020, the Procedure for assessing the supply chain for gold and silver in KGHM Polska Miedź S.A. was updated to increase the efficiency of the process while maintaining compliance with the current LBMA Responsible Gold Guidance V8 and LBMA Responsible Silver Guidance

V1. The system for managing the responsible gold and silver supply chain is subject to an annual, independent, external assessment to confirm the Company’s adherence to the principles of conflict-free gold and silver under the LBMA Responsible Gold Guidance and the LBMA Responsible Silver Guidance. The current Compliance Report of KGHM Polska Miedź S.A. and the Report on the independent assurance service is available on the website at: https://kghm.com/en/our-business/products/responsible-supply-chain.

In order to ensure due diligence, the Parent Entity introduced an internal system of responsible supply chain management, which is comprised of the scope of the system’s application, the system’s organization, the participants of the process, the criteria for acknowledging a business relationship as being a high risk relationship, the supply chain audit process (taking into account the procedure of business partner reliability assessment), transaction monitoring, documentation storage and employee training. The management of the process has been entrusted to the Head of the Corporate and Compliance Risk Management Department, reporting directly to the Company’s Management Board. An e-mail address conflict.minerals@kghm.com was also set up to which any comments and observations related to the supply chain may be sent by employees, business partners and other stakeholders. The Responsible Supply Chain Policy in the KGHM Polska Miedź S.A. Group is available on the website at: https://kghm.com/en/our-business/products/responsible-supply-chain.

The Risk of failure to adhere to established principles and standards of conduct with respect to counteracting corruption, business ethics and in the procurement process and the risk of incurring losses from actions which are harmful to the KGHM Polska Miedź S.A. Group was described in more detail in this Report in the section “Comprehensive Risk Management System in the KGHM Polska Miedź S.A. Group”.

4.3. SOCIAL DIALOGUE AND COOPERATING WITH LOCAL COMMUNITIES IN THE KGHM POLSKA MIEDŹ S.A. GROUP

The social dialogue and cooperation with Copper Basin local governments is reflected in KGHM Polska Miedź S.A.’s Strategy for 2019-2023, where “People and the Environment” is one of the 6 strategic areas. The major objective for this area is to grow based on the idea of sustainable development and safety and to enhance the Group’s image as a socially responsible organization. The social dialogue goal is achieved through cooperation with municipalities and non-governmental organizations; we employ people from local towns and carry out our activities through sponsorship and donations.

In 2020, a number of pro-family initiatives for employees and the local community were launched:

- In the event of a childbirth, written congratulations are sent to employees in a personalized letter, along with an inspirational book on parenting topics and a few gifts: something copper, something silver, something practical.

- Fathers are able to participate in parenting training through Tato.Net workshops and they have the opportunity to participate in an annual fathers' forum organized by the same foundation.

- In 2020, 18 thousand employees of KGHM Polska Miedź S.A. but also 18 companies of the KGHM Group participated in the Two Hours for a Family campaign celebrating the International Family Day.

In October 2020, an employee survey was conducted in KGHM Polska Miedź S.A. and, for each completed questionnaire, PLN 5 was donated to orphanages specified by the employee. This way more than PLN 40,000 was donated to those in need in the Copper Basin.

Despite the pandemic, pro-family activities were continued in 2020. The activities were adapted to the epidemic situation and were conducted for the most part in an online format:

- 800 students, 400 teachers and 400 parents participated in the “Navigating a Crisis” online prevention program,

- 6,700 Leader 100 tutorials were downloaded,

- 350 educational institutions received and were provided with a “Kids on the Web” manual,

In 2020, the naMIEDZI application was launched, which promotes family and individual tourism in the Copper Belt (24 routes and over 270 sites created mostly by local governments). It is a way for youth to identify with their “small homeland”.

In January 2020 KGHM Polska Miedź S.A. and most of the local governments signed a joint Declaration for family in the Copper Belt, which confirmed the completion of joint projects and anticipated their further expansion. A social campaign was organized to find foster parents for 40 children from the Copper Basin. This multifaceted undertaking resulted in finding 14 foster parent candidates.

In November 2020, KGHM Polska Miedź S.A organized the second conference “To have an impact – 2nd Lower Silesia CSR Conference ‘Sustainable Development in the Service of Family and Humanity’”. The online discussions featured topics such as changes in the approach to business and sustainability and the increasing role of humanity and family-centered CSR. All these aspects are related to the ongoing social transformation caused by the technological revolution, climate change and demographic trends.

KGHM supports local municipalities, among others in the preparation of their development strategies, supports their growth through payment of taxes, hiring residents of local communities and implements a number of Social Agreements to augment the living standard of residents.

The Company’s representatives participate in meetings and sessions of City and Town Councils, and in events organized by local governments. Every year, mayors of municipalities, towns and cities participate in festivities organized to commemorate the Miner’s Day and the Metallurgy Worker’s Day. The Company sponsors events organized by municipalities; it provides support from the KGHM Polska Miedź Foundation’s budget to cover the costs of children’s summer and winter day camps, school field trips and outings to a swimming pool.

In 2020, KGHM Polska Miedź continued its agreement with the Żukowice Municipality on the construction of the GG-2 shaft. In addition to financial resources for the development of the municipality, KGHM ensured health care and recreational cards to residents.

Meetings held between the Company's representatives and local governments are focused on the projects carried out by KGHM Polska Miedź S.A. benefiting the local communities, including social programmes, regional brand building, environmental protection, electromobility or power generation projects.

In September 2020, KGHM Polska Miedź S.A. held a conference with local governments entitled “The Copper Basin Development Strategy – Opportunities and Threats," raising, among others, economic and social topics related to the consequences of the COVID-19 coronavirus pandemic. A letter of intent was signed at the meeting, in which KGHM Polska Miedź S.A. and local governments expressed their commitment to cooperation for the development of renewable energy sources in the Copper Basin by:

- initiating and holding consultations to develop administrative and organizational solutions for development of RES,

- identifying land designated for RES installations shared by KGHM Polska Miedź S.A. and local governments,

- informing all the parties about any actions taken in this respect.

In 2020, KGHM continued its activities promoting health, ecology and a healthy lifestyle for residents of the region. The company contributed PLN 3.2 million for these goals. Types of supported activities:

- the municipality of Legnica received support for the social education campaign entitled “Take your health into your own hands” addressed to families living in the city, and for the social education campaign entitled “I am a miracle” for children and youth. The goal of the campaign was, among other things, to prevent addictions.

- the municipality of Głogów received funds for planting trees and bushes, for nephrology, pulmonology and endocrinology tests as well as promotion of physical, cultural and social engagement.

The remaining local governments received funds for social prevention activities for the youth, development of a website taking into account the needs of the disabled, implementation of regular courses in the Senior+ Club, for equipping schools and Voluntary Fire Brigades. The municipality of Polkowice used some of the donated funds to purchase a modern ultrasound machine for imaging diagnostics.

ACTIVITY IN INTERNATIONAL PROJECTS

Victoria Project

In 2020, exploration work continued to increase the knowledge of mineral resources in the project and construction work was executed on the first phase of the water treatment plant. Activities aimed at maintaining good relationships with key stakeholders in this project were also continued.

Ajax Project

In December 2017, the Ministers of Environment and of Energy, Mines and Petroleum Resources of British Columbia (provincial authorities) decided against the granting of an Environmental Assessment Certificate for the Ajax project. In June 2018, the Government of Canada, through the Governor-in-Council (Cabinet) issued a negative decision regarding the Ajax project as the project is likely to cause significant adverse environmental effects. The decisions were made through the environmental impact assessment process, and reflect the substantial engagement of provincial and federal governmental agencies, First Nations and a broad spectrum of stakeholders, including thousands of local citizens.

In 2020, the Ajax project office was opened in Kamloops (British Columbia) and a person responsible for liaising with local stakeholders was hired as one of the key elements of the project focused on dialogue with the First Nations and the local community. Work was also conducted on monitoring and securing the project site in accordance with regulatory requirements.

information about risk in the area of social dialogue of the KGHM Polska Miedź S.A. Group was described in this Report in the section “Comprehensive Risk Management System in the KGHM Polska Miedź S.A. Group”.

4.4. SUPPORT OF THE PUBLIC BY THE KGHM POLSKA MIEDŹ S.A. GROUP DURING THE COVID-19 CORONAVIRUS PANDEMIC

KGHM Polska Miedź S.A. as well as all of the international mines of the KGHM Polska Miedź S.A. Group and Sierra Gorda S.C.M. took a number of measures in connection with the announced state of epidemic.

As part of the measures, KGHM Polska Miedź S.A., together with the companies of the KGHM Polska Miedź S.A. Group, became involved, among others, in the production of disinfectants (a special production line was launched by NITROERG S.A. to produce the NITROSEPT liquid disinfectant) or the production of protective masks and aprons (KGHM ZANAM S.A. and MERCUS Logistyka Sp. z o.o.).

In 2020, the KGHM Polska Miedź Foundation donated 20 thousand liters of Nitrosept disinfectant to hospitals, hospices and other medical facilities throughout Poland. The first donations of the liquid produced by a company from the KGHM Group were made to the staffs of medical institutions.

The KGHM Foundation also donated over PLN 1.2 million for the purchase of equipment necessary to save health and life in connection with the sudden increase in infected people, including ventilators, testing kits and oxygen dispensers. Assistance was provided to the Copper Health Centre Hospital in Lubin and the Regional Specialized Hospital in Legnica.

Batches of sterilized protective masks sewn by KGHM ZANAM S.A. and MERCUS Logistyka Sp. z o.o. were provided to those in need, including the RCZ Hospital. PHU Lubinpex Sp. z o.o., a KGHM Group company, supplied lunches to the staff of the hospital in Legnica – up to 200 lunches per day were served to the medical personnel. The KGHM Group also donated p2 masks to the Lower Silesian Voivode, who coordinates activities in the region aiming to prevent the spread of the coronavirus. The company also provided the Poviat Starost's Office in Głogów with a building that can be used for quarantine purposes.

KGHM Polska Miedź S.A., together with regional Social Assistance Centers, Caritas and local organizations, planned measures to increase the safety and comfort of the elderly in Lower Silesia. The total involvement of KGHM in the Solidarity Senior Support Service has so far amounted to over PLN 400 thousand. Over 28 thousand older people in the region received assistance. The KGHM Polska Miedź Foundation provides funds for social assistance centers in the region, among others, to purchase food products. These activities are supported by the Company's volunteers, who are actively involved in the preparation and distribution of the individual gifts. In November 2020, the KGHM Foundation provided support to four Caritas units: the Archdiocese of Wrocław, the Diocese of Legnica, the Diocese of Świdnica and the Diocese of Zielona Góra and Gorzów. In this way, nearly 400 food packets were delivered among others to senior citizens in Wrocław and the surrounding area. The packages contained the most needed products, mainly food with long expiry dates. This is crucial as during the pandemic it is quite difficult to do shopping and may be also risky for one’s health.

As part of the execution of the government’s instructions by KGHM Polska Miedź S.A., a temporary ward for coronavirus patients was launched in Wałbrzych, in a building complex on Batorego Street, at the start of December 2020. There are 50 beds for sick residents of the region there.

At the Miedziowe Centrum Zdrowia (Copper Health Center) in Lubin, which belongs to the KGHM Group, a ward for patients with coronavirus and suspected infection has been operating since November 2020. The hospital can take more than 50 patients.

4.5. FOUNDATIONS, SPONSORSHIP AND CSR ACTIVITIES IN THE KGHM POLSKA MIEDŹ S.A. GROUP

KGHM is a “good neighbor and trustworthy investor”. It supports local communities, social organizations and institutions related to science, culture and sport. It promotes an active lifestyle and helps people in need.

One of the pillars of our efforts in the area of corporate social responsibility is the KGHM Polska Miedź Foundation which is engaged in pro publico bono and charitable activities. It helps in performance of socially useful projects, and it supports the people who are experiencing hardships.

KGHM POLSKA MIEDŹ FOUNDATION

The KGHM Polska Miedź Foundation was established in 2003 to continue the tradition formed over many years of pro publico bono activity conducted by its Founder, i.e. KGHM Polska Miedź S.A. and implement local and regional initiatives and projects with a national and global reach. The Foundation's day-to-day activities are informed by the values held by the Founder, which include zero harm, teamwork, results driven, accountability and courage. The basis for the operation of the KGHM Polska Miedź Foundation are financial and material donations granted to:

- individuals in the field of health care and natural disaster relief;

- institutions for project execution.

The projects pursued by the KGHM Polska Miedź Foundation in 2020 were a natural continuation of its activities to date and a result of program changes agreed in the course of consultations between the Management Board and the Supervisory Board of the Foundation and the corporate bodies of the Founder, KGHM Polska Miedź S.A. The Foundation’s activities focused on granting donations and overseeing how they are spent as well as on running social support programs. The commitments undertaken by the Foundation in 2020 were carried out with utmost care, following an in-depth analysis of the submitted requests and with a detailed consideration of the capacity to help, in pursuit of the Foundation’s goals in four main areas:

- HEALTH AND SAFETY,

- SPORTS AND RECREATION,

- CULTURE AND TRADITION,

- SCIENCE AND EDUCATION.

In 2020, the KGHM Polska Miedź Foundation made every effort to identify various social needs, in line with the assumptions of its articles of association and within its capabilities. The support, in the form of monetary and material donations, reached the total amount of PLN 25,097,363.68, of which 390 institutions received PLN 24,393,753.09 and 74 individuals received donations of PLN 703,610.59, as shown in detail in the table below:

Financial support awarded by the KGHM Polska Miedź Foundation in 2020

No.	AREA	Donations
No.	AREA	Amount awarded PLN	Number of projects/individuals
DONATIONS FOR INSTITUTIONS		24,393,753.09	390
1.	HEALTH AND SAFETY	8,314,769.20	69
1.1.	“COVID-19 Countermeasures” Campaign	2,419,517.91	134
2.	SCIENCE AND EDUCATION	3,501,217.16	51
3.	SPORTS AND RECREATION	2,027,508.51	35
4.	CULTURE AND TRADITION	8,130,740.31	101
DONATIONS TO INDIVIDUALS		703,610.59	74
	HEALTH CARE	703,610.59	74
	SOCIAL ASSISTANCE	-	-
TOTAL DONATION AMOUNT		PLN 25,097,363.68

Within the “Health and Safety” area, the KGHM Polska Miedź Foundation provides financial support to healthcare institutions and private individuals. Most of the funds are earmarked for purchase of state-of-the-art equipment and specialist medical apparatus for hospitals, rehabilitation centers and other healthcare facilities. This resulted in a significant improvement in the quality and effectiveness of pro-health prophylaxis. As regards health protection, the Foundation’s activities are not limited merely to

provision of equipment to healthcare facilities but it also finances prophylactic examinations for residents as well as initiates and supports projects promoting blood donation and hemotherapy, and co-funds scientific conferences in the field of medicine. Individuals receive financial aid from the KGHM Polska Miedź Foundation for health care, including in particular: the purchase of hearing aids and wheelchairs, medicines, surgical treatment, including treatment abroad, and inpatient rehabilitation.

Given its focus on wellbeing and safety, the KGHM Polska Miedź Foundation is involved also in numerous projects and actions related to public safety. Funds are dedicated to purchasing modern rescue and fire-fighting equipment and special vehicles for local emergency rescue facilities, e.g. fire and police stations. State-of-the-art equipment contributes to increased safety and enables efficient operation of institutions that protect life, health and property. As part of its social activity, the KGHM Polska Miedź Foundation tries to ease the social exclusion of people and families that find themselves in difficult situations. Cash donations are made to projects related to the organization of Christmas actions for those in need, e.g. Christmas Eve events for the homeless or gifts for children.

In 2020, due to the epidemic situation related to the spread of the COVID-19 coronavirus, “Health and Safety” became the priority area of the KGHM Polska Miedź Foundation’s operations. The majority of donations was granted in this area. 74 individuals received funds in the total amount of PLN 703,610.59 and co-financing was provided to 69 projects in the total amount of PLN 8,314,769.20.

Moreover, concerned about the safety and health of society, the Foundation’s Management Board initiated the “COVID-19 Countermeasures” Campaign in 2020, foreseeing the purchase and in-kind donation of means necessary for preventing, counteracting and fighting COVID-19. In-kind donations with the total value of PLN 2,419,517.91 were provided to 134 institutions, including:

− 16 voivodeship offices, which forwarded the received in-kind donations to 1,038 institutions operating in individual voivodeships,

− 22 voivodeship or poviat hospitals and healthcare facilities,

− complexes of schools located in the Copper Basin,

− 44 city and municipal social assistance centers and local authority units, Caritas brances, social assistance homes, hospices, foundations and other entities caring for the elderly and disabled and acting for the benefit of local communities.

The following were given as part of in-kind donations:

− 107,810 liters of Nitrosept disinfectant,

− 440,880 sachets of Nitrosept disinfectant,

− 43,800 protective masks,

− 1,485 protective suits,

− 250 medical visors,

− 20 protective goggles,

− 3 ventilators.

For the purpose of preventing, counteracting and fighting the COVID-19 contagious disease, financial donations given to institutions were related to financial support for the purchase of specialist equipment, i.e. ventilators, patient monitors, oxygen cylinders, the provision of equipment for the diagnostic line for laboratory tests, thermal imaging cameras, equipment for the performance of tests to increase diagnostic capacities, and for personal protective equipment, the provision of additional meals to healthcare practitioners, and support for seniors during the COVID-19 pandemic in the form of packages with food products, consumer chemicals and medical products.

In the “Science and Education” area, the KGHM Polska Miedź Foundation focuses on promoting these domains. Support from the KGHM Foundation is received by educational facilities, which purchase teaching aids with the received funds, thereby contributing to an increased educational level. Scientific projects supported by the Foundation include also scientific publications or the organization of scientific conferences and contests, as well as educational and integration classes for children and youth.

Science and education is the area of comprehensive actions of the KGHM Polska Miedź Foundation to support the development of education, science, and economy based on knowledge, innovation, social capital, and a learning society. As part of a broad range of initiatives, the amount of PLN 3,501,217.16 was spent to run 51 projects in 2020.

In the “Sports and Recreation” area, the KGHM Polska Miedź Foundation supports all actions for the development of physical activity of young people undertaken by local institutions, associations and sports clubs. The cash donations provided by the Foundation enabled the purchase of sports equipment and the delivery of numerous sport training courses, various tournaments and competitions, and the establishment of new recreational and sports facilities, such as outdoor gyms. Moreover, some of the funds were dedicated to co-funding the organization of summer and winter holidays for children and youth by local divisions of the Society of the Friends of Children (TPD), the Polish Scouting and Guiding Association (ZHP), associations, orphanages and churches. The participants are mainly children and youth from underprivileged, dysfunctional, and poor families, who, thanks to the Foundation’s support, have the opportunity to go to the seaside or the mountains for the first time in their lives and learn about another culture.

Sports and recreation is the area of operation for the KGHM Polska Miedź Foundation which supports all sports initiatives and popularizes social attitudes and behaviours based on values propagated by physical

culture and sport. In 2020, the amount of PLN 2,027,508.51 was expended on the execution of 35 projects.

The Foundation considers popularization of physical culture and sport as well as education in prophylactic health care an important field of social life and therefore intends to continue activities promulgating an active and healthy lifestyle.

The “Culture and Tradition” area is a very important part of the KGHM Polska Miedź Foundation’s activities, in which the Foundation supports projects cultivating mining and smelting traditions, commemorating Polish cultural and historical heritage and strengthening local cultural identity at the local, regional and national levels. The supported projects entail rescuing cultural heritage and tradition and contribute to a considerable improvement of the condition of many historic buildings, even saving some from collapse. To support culture and art, the KGHM Polska Miedź Foundation also provides financial aid to diverse artistic and cultural events organized by various associations, cultural societies, cultural centres and museums.

The Foundation respects the cultural heritage of previous generations, as it forms the basis for building identity; its overriding value is supporting traditions of communities and traditions cultivated by various social, religious and cultural groups. In 2020, it co-financed 101 projects in the area of culture and tradition with the total amount of PLN 8,130,740.31.

KGHM Polska Miedź S.A. Health Promotion And Environmental Hazards Prevention Program

The program has been implemented for four years in cooperation with an external company. In 2020, PLN 127,520.00 was allocated to this program, which supported 49 people from towns neighboring the future Southern Quarter of the Żelazny Most Tailings Storage Facility, who took winter vacation in February 2020.

Because of the epidemic situation in Poland and the spread of the COVID-19 coronavirus, in the 2020/2021 school year, the Management Board of the KGHM Polska Miedź Foundation suspended the organization of group prevention and health trips for children and youth as part of the Foundation’s statutory activity and the Health Promotion and Environmental Hazards Prevention Program. The measures undertaken by the Foundations resulted from its care for the safety and health of the participants, their families and all the people involved in the organization of prevention and health trips for children and youth.

In connection with the significant interest shown both by the participants and the local community, the Management Board of the Foundation hopes that, in the academic year 2021/2022, it will be able to restore the program, which has been a long-term staple of the KGHM Polska Miedź Foundation’s statutory activity.

More information on the activity and projects of the KGHM Polska Miedź Foundation may be found at http://www.fundacjakghm.pl/

REVIMINE INNOVATION AND CULTURAL HERITAGE FOUNDATION

The Revimine Foundation was established in 2014 by KGHM Polska Miedź S.A. In 2020, the foundation supported undertakings counteracting the effects of the coronavirus epidemic, social initiatives in the Copper Basin area, local tourism by launching the naMIEDZI mobile app and development of the skills of young people entering the labour market.

SPONSORSHIP

KGHM’s sponsorship strategy is closely associated with the activity pursued in the area of Corporate Social Responsibility (CSR) and assumes that most funds will be allocated to the performance of the planned actions for promoting the Company and the region on the one hand and for supporting valuable cultural, sports, scientific, and social initiatives and undertakings contributing to Lower Silesia marking its presence on the map of Poland and Europe on the other hand.

Efficient operation of important cultural or scientific institutions today depends largely on the support from sponsors. Without support from companies such as KGHM, many valuable projects would have no chance of successful completion.

The areas falling within the scope of the sponsorship activity are culture, science, and sport of KGHM Polska Miedź S.A.

The Company considers sport an important area of social life and therefore it supports both top-class professional sport and amateur sport. As the largest employer in the region, it appreciates the significance of sport in forming the culture of leisure for adults and its educational role for youth. The Parent Entity is the major sponsor and at the same time the owner of Zagłębie Lubin S.A., a football team playing in the top Polish football league (which is the top league in Poland).

For years, KGHM Polska Miedź S.A. has been one of the sponsors of “Bieg Piastów”, a cross-country skiing marathon, in Jakuszyce. KGHM also supports other running events, such as “Cross Straceńców” (Cross-Country Race of Desperados), the New Year running and walking event in Głogów, the Wolf’s Trail Run to commemorate Polish “Disowned Soldiers”, as well as local sports organizations whose members include employees of the KGHM Group.

KGHM Polska Miedź S.A. is perceived as a patron of culture and art. It participates in the organization of significant projects addressed to regional communities and the whole country and takes patronage over

them. In 2019, KGHM took patronage over the Royal Castle in Warsaw, which was inaugurated by the exhibition “To rule and to dazzle. Jewels and jewellery in Poland in the 16th and 17th centuries”.

As regards science, KGHM Polska Miedź S.A. supports higher education institutions and scientific institutes, thus tightening cooperation and building a bridge between the industry and academia. The Company provides financial and subject-matter aid to projects thematically related to the problems solved to meet the needs of KGHM and the region.

To ensure transparent rules of taking decisions to support a given project, offers are analyzed by the Sponsorship Committee. Decisions issued by the Committee are recorded in a report, which is approved each time by the President of the Management Board of KGHM Polska Miedź S.A.

The sponsorship activity of the KGHM Group is subject to regulations given in the Sponsorship Policy of KGHM Polska Miedź S.A. and the procedure of obtaining an opinion from the Sponsorship Committee.

Amounts granted by KGHM Polska Miedź S.A. through its Sponsorship function in 2020, by area:

Area Amount granted in PLN

Sports 28,977,000

Culture 6,357,000

Science 1,477,110

Total 36,811,110

The amount spent by the KGHM Group companies (excluding the Parent Entity) as part of its Sponsorship activity in 2020 was:

Companies in Poland

KGHM International

Total

Sponsorship	64,546	61,692	126,238
Donations	902,797	470,235	1,373,032
Total	967,343	531,927	1,499,270

KGHM POLSKA MIEDŹ S.A. CSR PROGRAMS

Social responsibility and sustainable development are important elements of business operations today. A company that cares for the development of its own organization must take into account activities aimed at achieving a balance between its profitability and the broadly understood social interest.

CSR is particularly important in the mining industry. Due to the specificity of their operations, Companies like KGHM Polska Miedź S.A. have a special responsibility for the implemented projects.

By planning and pursuing CSR activities, the addressees and direct recipients of which are social beneficiaries of its environment, the Company upholds the “license for operation”, which is important for the group and which is manifested in the social acceptance of KGHM’s business activity in the mining sector.

The ECO-Health program was launched in 2014 as part of corporate social responsibility. The priorities of the ECO-Health program are in particular the promotion of prophylactic health care and an active lifestyle among residents of the Copper Basin. The idea of the program is to take up the projects/initiatives for the promotion of prophylactic health care, active lifestyle, physical activity, and recreation, thus taking care of children’s, adults’ and the elderly’s health, among residents of the region.

The program’s efforts to promote a healthy lifestyle include regular activities: Nordic Walking for adults, recreational gymnastics for elderly citizens, and swimming lessons for children.

The Nordic Walking project is addressed to people over 35 years of age. It assumes cyclic activities with the participation of qualified and experienced instructors in various cities and towns of the Copper Basin. The participants acquire or improve the basic skills of walking with the poles and take part in lectures on Nordic Walking techniques and principles of healthy nutrition.

The impact of Nordic Walking on the body is similar to that of jogging without putting excessive strain on joints and the spine. It relieves hip and knee joints, the lumbar spine, and releases shoulder, neck, and back muscle tension. Additionally, it does not require specialized equipment and engages up to 90 per cent of muscles safely (with a low risk of injury).

So far, 10 editions of the Nordic walking project have been held in which more than 1,500 people participated.

The swimming teaching program assumes cyclic basic swimming classes for children aged 5-10. The classes are held in indoor swimming pools in several towns of the Copper Basin: Chojnów, Legnica, Lubin, Polkowice, Głogów, and Rudna, and children develop their basic swimming skills under the supervision of qualified instructors from swimming clubs in the region. Swimming is a sport strongly recommended to children. It helps ensure the correct posture and reverse scoliosis. This discipline makes a child develop healthily, be physically fit, have a good stamina and motor coordination. Water exercises have a highly positive influence on the respiratory and circulatory systems, too.

So far, 10 editions of the swimming learning project have been held in which approx. 3,000 children participated.

Recreational gymnastics with specialized hammocks, a project dedicated to the elderly, is implemented in a few towns in the region: Lubin, Legnica, Polkowice, Głogów, Chojnów, Ścinawa, and Złotoryja. Fitness instructors and physiotherapists participate in the classes.

The specialist classes project offers many benefits, such as:

− it strengthens and stretches muscles;

− restores natural mobility of the joints;

− minimizes back and muscle pain;

− improves circulation of blood;

− stimulates the immune system;

− strengthens internal organs;

− improves memory and concentration;

− addresses sleep issues;

− prevents depression.

Over 250 people aged 55–80 have taken part in three editions of the recreational gymnastics project so far.

In 2020, because of the epidemic conditions, within the ECO-Health program the Company implemented a number of online projects addressed to employees and residents of the region. Instructional materials on nordic walking, swimming, rollerblading, classes for seniors or general physical activity with well-known sports figures were designed to inspire viewers to spend their free time actively.

The “Copper Heart” employee volunteerism program has been operating in KGHM POLSKA MIEDŹ S.A. since 2014. The support is provided by the employer to employees for their personal development and pursuit of their passions, and joint engagement in socially significant actions enhances integration and job satisfaction. Volunteering activities reinforce the values guiding KGHM employees on a day-to-day basis: responsibility, zero harm, results orientation, courage, and teamwork. Employees engaging in

organizing and participating in charity actions become ambassadors of the KGHM Polska Miedź S.A. brand and they are the best evidence of the effectiveness and appropriate implementation of the corporate social responsibility policy.

The year 2020 showed that nothing is certain. It taught us how to deal with unexpected situations. It also showed that one can always count on the noble hearts of KGHM employees involved in the “Copper Heart” employee volunteerism project. In 2020, the volunteers, while complying with the sanitary requirements, supported senior citizens, prepared food parcels and collected money for those in need. This required exceptional commitment. Marcin Chludziński, President of the Management Board of KGHM Polska Miedź S.A., expressed his gratitude to all volunteers and each one individually.

The activities of KGHM’s employees were recognized by the County Starost’s Office in Lubin. KGHM Polska Miedź S.A. won an award in the CORPORATE VOLUNTEERISM PROGRAM 2020 category. The officials honored the company for promoting various forms of social engagement and for pro-community attitudes.

On 27 March 2019, KGHM Polska Miedź S.A. inaugurated the “Copper Competition” scholarship program. The second edition of the program was held in 2020. The basis for granting the scholarship by the President of the Management Board of KGHM Polska Miedź S.A. is exemplary sporting achievements and orientation towards increasingly better results. The program supports the athletes who have already achieved considerable success. In 2020, in cooperation with the Ministry of Sports, scholarships were awarded to 24 athletes, of which 7 originated from the Copper Basin. The support allows them to focus on training and achieving the best possible performance.

Unique on the Polish scale, the “Leaders” KGHM Leadership School Project is an action that consists in training the future leaders of the business and social sphere and preparing them for fulfilling a significant role in the dynamically changing world. Course participants will acquire the knowledge and skills that are necessary for contemporary managers. The lecturers and trainers who educate the future “Leaders” place a special emphasis on the practical aspect of management of organizations, whose environment imposes continual adaptation, innovation and creativity. The “Leaders” KGHM Leadership School Project is addressed to students of the final year of Master’s studies (or equivalent second cycle studies) and to recent graduates (up to 3 years after graduation). Additionally, doctoral students can be candidates for the program until they finish their studies.

The “Leaders” KGHM Leadership School Project entailed: lectures, training sessions and workshops in the field of politics and economy, analysis and formulation of conclusions, rules of free market economy and basic phenomena related to its operation, financial mechanisms of enterprises and institutions, strategic management, project management and work organization, communication, discussion and public speeches, innovation and creativity, as well as leadership. The classes at the School are delivered by the

leading managers of KGHM, professional trainers and advisers, as well as retired generals and admirals of the US Armed Forces, who are currently working for the renowned consulting firm, The Spectrum Group.

In 2020, 30 students and graduates began classes in the second edition of the “Leaders” Leadership School of KGHM. More information about the project: http://przewodnicykghm.pl/

4.6. SELECTED INDICATORS ILLUSTRATING ACTIVITIES IN THE AREA OF SOCIAL ISSUES IN THE KGHM POLSKA MIEDŹ S.A. GROUP AND KGHM POLSKA MIEDŹ S.A.

Selected indicators for 2020 illustrating activities in the area of social issues:

List of donations from the KGHM Polska Miedź Foundation for institutions and individuals in 2020, by areas

No.	AREA	Donations
No.	AREA	Amount awarded PLN	Number of projects/individuals
DONATIONS TO INSTITUTIONS		24,393,753.09	390
1.	HEALTH AND SAFETY	8,314,769.20	69
1.1.	“COVID-19 Countermeasures” Campaign	2,419,517.91	134
2.	SCIENCE AND EDUCATION	3,501,217.16	51
3.	SPORTS AND RECREATION	2,027,508.51	35
4.	CULTURE AND TRADITION	8,130,740.31	101
DONATIONS TO INDIVIDUALS		703,610.59	74
	HEALTH CARE	703,610.59	74
	SOCIAL ASSISTANCE	-	-
TOTAL DONATION AMOUNT		PLN 25,097,363.68

A detailed list of donations granted to institutions is presented at

http://www.fundacjakghm.pl/

5. ACTIONS TAKEN TO PROTECT THE ENVIRONMENT AND CLIMATE, AND IMPLEMENTATION OF A CIRCULAR ECONOMY

KGHM Polska Miedź S.A., as one of the largest socially responsible companies, acts to reduce its impact on the environment as far as possible.

The sustainable development concept, including in particular conservation of the natural environment is one of the most significant values driving the Company’s activities

We care for the natural environment, minimizing our adverse impact

In pursuing the concepts and values presented above, we are also guided by an awareness of our responsibility not only at present but in the future. Therefore, as regards sustainable development actions, KGHM Polska Miedź S.A. endeavors to find the best solutions serving the purpose of satisfying the demand for copper and other metals in connection with the growing human population (it is estimated that the global population will exceed 9 billion in 2040) with the simultaneous awareness of the Earth Overshoot Day indicator increasing year by year (the demand for resources exceeds the Earth’s regeneration capacity by 75% for 2019). This is presented in the figure below:

ImageAlt42

Source: UN (2013)

overshootday.org (26.06.2019)

The above indications make us look for solutions serving the purpose of providing products but also protecting the environment for both the present and future generations.

The solutions are sought, designed, and implemented based on and in full compliance with the related legislative activities, and often ahead of them. In respect to the topic listed as first, the KGHM Group joins in actions within the European Green Deal concept announced on 13 December 2019 and Implementing the Recommendations of the Task Force on the Climate-related Financial Disclosures (TCFD) of June 2017 as well as the Communication from the European Commission 2019/C 209/01 of 19 June 2019 Guidelines on non-financial reporting: Supplement on reporting climate-related information. On the other hand, KGHM Polska Miedź S.A. is extremely happy to state that many of the indications proposed in the above

documents have already been implemented, following the path of sustainable, environmentally responsible development.

The determination, planning, and performance of these actions would not be possible without the awareness and identification of natural capital by the KGHM Group. Using the definition and the methodology of its identification, created by Natural Capital Coalition, it was determined that the natural capital of the KGHM Group included the natural resources serving as the source of economic and social benefits: mineral resources (ferrous and non-ferrous metal ores, sodium as well as potassium and magnesium salts, organic or mineral aggregates, and petroleum products), water, trees (wood), water and air.

Building on the idea of sustainable development as regards using this natural capital, as described above, the actions taken in the KGHM Group were arranged according to three thematic areas:

- protection of climate and ambient air,

- water and effluents management,

- waste management and implementation of the idea of a circular economy.

Protection of Climate and Ambient Air

The KGHM Group recognises the occurrence of significant changes in Earth’s climate as a result of the increase in the average temperature of our planet, which has been observable since the beginning of the industrial era. It is also aware of the fact that the main cause of this process is the growing emission and excessive accumulation of greenhouse gases (GHG) in Earth’s atmosphere (according to the IPCC scietnific consensus). This has disturbed the natural circulation of these gases, consisting in their emission being balanced by the level of assimilation, which was observed earlier in the human era and analyzed for the preceding periods. This has resulted, in particular in recent years, in an accelerated rate of change of the so-called greenhouse effect generated by the gases. It is illustrated, for instance, by the considerable increase in temperatures over the course of a year and the resulting occurrence of dynamic weather events (thunderstorms, rainstorms, hurricanes, droughts) and climate changes (increase in the average annual temperature, decrease in the average precipitation, and further lowering of water tables as well as the progressing steppe formation) at the latitudes where KGHM pursues its business activities.

Due to its sense of responsibility and the sustainable manner of performing its business activities, the KGHM Group is commencing work on slowing down the pace of the negative climate changes. Thus, it has joined the global actions of countries (decisions of successive World Climate Summits), the European Union (European Green Deal, one of the assumptions of which is to be the world leader in reducing GHG emissions until full climate neutrality is achieved), Poland (change of the energy mix of the country,

developing a low-carbon economy), and individual enterprises pursuing the UN’s sustainable development goals provided for in the 2030 Agenda for Sustainable Development.

These actions will ultimately be performed by the KGHM Group in a fully systematic manner, as recommended in the Communication of the European Commission being Guidelines on non-financial reporting: Supplement on reporting climate-related information (2019/C 209/01), including an Annex being Task Force on Climate-related Financial Disclosures (TCFD) (in the section concerning Metals and Mining). Despite the current non-compulsory nature of the documents listed above, the Group has commenced work for the introduction of the resulting systematic actions and reporting method.

Their starting point was to determine the significance of the information related to climate for the KGHM Group. Based on the guidelines set by the experts from the AGH University of Science and Technology, using a reporting factor significance examination tool, the level of significance of the information related to climate for the KGHM Group was determined to be high in the short, medium, and long term as well as in the entire value chain of the KGHM Group.

It was decided that:

- the short term would be understood as the timeframe of the current strategy of the KGHM Group,

- the medium term would be understood as the 2030 horizon, i.e. the year when the emission targets set by the European Union under the Paris Agreement (COP21) should be met,

- the long term would be understood as the 2050 horizon, i.e. the year when the European Union intends to achieve climate neutrality.

It was established that the KGHM Group does not and will not have a significant, direct impact on climate in the reporting period and in future periods. The main products of the Group, as raw materials, are provided as raw materials to the industries, which will be strongly affected by the low-carbon transformation in order to stop climate change (construction, automotive production, power engineering). The transformation will involve the use of new technologies reducing greenhouse gas emissions and replacement of the current high-emission technologies. Low-emission technologies utilize the Group’s products to a greater extent (in particular copper, silver or lead). Accordingly, achieving climate neutrality, which is a 2050 objective adopted by the European Union, will be possible only if sufficient volumes of metals produced by the Group are available. In its 2017 report, the World Bank pointed out that by 2050, 300% more metal will be needed for wind turbines, 200% more to produce solar panels and as much as 1000% more to manufacture batteries. In the period of 2020-2050, the technologies that are expected to reduce the EU’s greenhouse gas emissions by 75% will require 22 million tons of copper. Therefore, these trends will have a positive effect on the demand for the Group’s products.

Looking at climate change from a broader perspective, the KGHM Group also recognises the financial significance and the related physical risks both in terms of acuteness and duration. This is because the observed intensification of weather anomalies might influence the Group’s production process. In terms of a long-term physical risk, this aspect is associated primarily with the lowering water tables in rivers (mainly the Odra). The lowering of the water level in rivers will affect the discharge of excess salinated over-sediment water from the Żelazny Most Tailings Storage Facility, as the discharge volume is strictly linked to the flow of water in the Odra river. It was also determined that the risk of electricity and other energy carrier supply interruptions due to rainstorms and hurricane winds was a significant issue and they were pointed out as the major components of acute physical risk.

In spite of the above, it must be stated that the KGHM Group has sufficient resources, knowledge, skills, and attitude to join in the application of low- and zero-emission energy sources, emission reduction, and energy efficiency improvement.

These statements are made by the KGHM Group based on the following facts:

1) The Company’s participation in the European emissions trading system (ETS), through the obligation to monitor and report carbon emissions and the purchase of emission allowances, builds the awareness of the system’s influence on the Company’s financial standing and predisposes it to seeking and implementing low-emission solutions. Therefore, as regards metallurgical processes, KGHM has reduced CO₂ emissions by changing the shaft furnace technology into the flash furnace one and, as regards energy-releasing fuel combustion, it utilizes low-emission natural gas-fired CCGT units, thus partly replacing the fine coal-fired units.

2) In accordance with the best available techniques “BAT” conclusions for the non-ferrous metals industries published in the EC Implementing Decision 2016/1032, KGHM is carrying out investments in order to adapt the installations to the requirements of the conclusions and thus further reduce emissions and environmental impact.

3) The KGHM Group is preparing a climate policy which will be a systemic solution for implementing the Communication of the European Commission being Guidelines on non-financial reporting: Supplement on reporting climate-related information (2019/C 209/01), including an Annex on the Task Force on Climate-related Financial Disclosures (TCFD) (in the section concerning Metals and Mining). It will also cover medium-term (2030) and long-term (2050) quantitative goals regarding:

- reduction of direct GHG emissions (scope 1), but also indirect emissions (scope 2 and 3),

- energy efficiency improvement,

- increase in the use of energy from renewable sources,

- minimization of actions in regions exposed to a long-term or acute physical risk,

- increase in the percentage of products related to activities satisfying the criteria of a significant contribution to mitigating the effects of climate changes or adjustment to mitigating the effects of such changes,

- engagement in the green finance system resulting from the new taxonomy.

4) The KGHM Group has taken and will continue to take its own actions for climate and ambient air protection without any regulatory enforcement. An overview of these activities in 2020 is presented below in this section.

Water and effluents management. Water is one of the most valuable natural resources. KGHM Polska Miedź S.A. regularly monitors the quality of ground and surface water in the vicinity of its plants to ensure that the company’s activities comply with strict environmental standards.

Water is necessary for the production of copper. It is used, among others, for enrichment (flotation) of ore, hydrotransport of waste, and also in the core production line in the metallurgical plants.

Water in the ore enrichment (flotation) process

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KGHM Polska Miedź S.A. has three operational underground copper mines, which mine the ore at depths of 400-1200 m. They are: the Lubin Mine Division, the Rudna Mine Division and the Polkowice-Sieroszowice Mine Division. Because of the constant inflow of water from the rock mass into the mine workings, approximately 60,000 cubic meters of saline mine water is pumped to the surface. Depending on the depth of the ore deposit, water may contain from 0.2 to 140 g/l of Cl- and about 2.8 g/l of SO42-. Mine water extracted from deeper parts of the deposit are more salinated, but the volumes are smaller.

On the surface, retention reservoirs are located next to every mine and every ore enrichment plant. They collect rainwater, overflows of cooling water and extracted mine water. Water from the reservoirs is pumped into the flotation tailings ponds (in some cases mine water is pumped directly into flotation tailings ponds). As a result, neither mine water nor wastewater is discharged into local rivers. At the ore enrichment plants (concentrators), all water is stored in closed systems and used for hydrotransporting

flotation tailings to the Żelazny Most tailings storage facility, where suspended solid particles are sedimented. Water from the Żelazny Most Tailings Storage Facility returns, through a system of decantation towers, to the ore enrichment plants.

Because there is a constant inflow of mine water and rainwater into the system, excess water must be removed. Water from the Żelazny Most Tailings Storage Facility is discharged by gravity through a 20 km long pipeline to the Odra river. The volume and quality of discharged water is closely monitored. The general rule is to keep the concentration of the sum of Cl- and SO42- below 1 g/l in the mixed water of the Odra river below the point of discharge. In practice, the discharged water volume is controlled based on a formal table, which takes into account the current flow and salinity of the Odra river. The discharge permit also contains other provisions concerning the concentration of dissolved substances and the water flow rate. Water may be discharged only if the flow of the Odra river is greater than 17.5 m³/s and the flow of the discharged decanted water is less than 2 m³/s. The total level of suspended solids in the discharged water must be maintained under 35 mg/dm³. The size of the flotation tailings pond, especially its surface area, makes the sedimentation of tailings very effective and the overall level of suspended solids is usually kept below 35 mg/dm³. However, during windy weather, higher concentrations of suspended solids can be observed, which requires additional treatment. This situation is kept under control through continuous measurements of turbidity of the discharged water. If it is too high then the decanted water is transferred to a nearby wastewater treatment plant to reduce the volume of suspended solids. After this treatment, the water is pumped into a pipeline which discharges it into the Odra river.

Water in the electrolytic copper production process

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KGHM Polska Miedź S.A. has two operational smelters: the Legnica Copper Smelter and Refinery with a shaft furnace and the Głogów Copper Smelter and Refinery with two flash furnace installations.

Both smelters consume significant amounts of water (approximately 11 mn m³ per year), which is supplied by Energetyka, a KGHM Group company. Energetyka supplies water drawn from the Kaczawa river to the Legnica Copper Smelter and Refinery and from the Odra river to the Głogów Copper Smelter and Refinery.

The water used in production processes is routed back to Energetyka for treatment. Industrial wastewater treatment plants operating for the needs of the Głogów and Legnica metallurgical plants specialise in the removal of heavy metals, including arsenic, mercury and cadmium compounds, which are especially problematic. The wastewater treatment technology relies mainly on neutralization processes supported by coagulants and flocculants.

Because of the high quality of wastewater, approximately 30% of the global stream is reused for production processes in the smelters.

Aproximately 8 million m³of the remaining treated wastewater is discharged to the Odra river (in the case of the Głogów Smelter) and to the Pawłówka stream, which feeds the Kaczawa river (in the case of the Legnica Smelter).

Water management and implementation of the circular economy concept

Striving towards a circular economy is one of the priorities of the KGHM Polska Miedź Group. This direction is related to the Earth Overshoot Day indicator presented above. The Group welcomed the roadmap published on 24 September 2019 for the development of a circular economy in Poland, as well as the publication of the European Green Deal on 13 September 2019.

KGHM has for many years been pursuing the approach resulting from the circular economy (CE) and wants to join its development. The Group bases this assertion on the following facts:

1) The extraction of copper ore, followed by its processing at all stages of production, is inextricably linked to its impact on various aspects of the natural environment. The minimization of this impact, made possible thanks to the implementation of the circular economy, facilitates protection of the environment as well as the improvement and development of KGHM’s industrial installations built in the past with the parallel pursuit of new investments in this field, with simultaneous engagement in local, national, sector and international initiatives for the environment. In order to quantify the above, the KGHM Group constantly monitors data related to the environmental impact of its operations. The Group complies with all requirements resulting from regulations and best practice standards with regard to environmental protection, and to a large extent takes proactive steps in this respect.

2) KGHM Polska Miedź S.A. fully understands and implements the definition of the circular economy, understanding it as the value of products, materials and resources in the economy, sustained as long as possible and waste production reduced to a minimum, aiming at the development of a sustainable, low-emission, resource-saving and competitive economy. It also accepts and wants to pursue the European Union goals which will be achieved thanks to the circular economy: savings in the amount of EUR 600 billion for firms from the EU, which accounts for 8% of their annual turnover, the creation of 580,000 jobs and the reduction of CO₂ emissions by 450 million tonnes by 2030.

3) KGHM Polska Miedź S.A. wants to participate in the implementation of the Polish roadmap to achieve the circular economy. Therefore, it wants to identify all possible activities in the Company aimed at increasing the efficiency of resource utilization and reducing waste production.

Key elements of building the circular economy in KGHM Polska Miedź S.A. include:

- innovation, the strengthening of cooperation between the Company and academia, and consequently implementation of innovative solutions related to the circular economy,

- participating in the growth of the market for secondary metallic raw materials and increasing the share of such materials in production,

- minimizing the volume of post-production waste to residual waste levels,

- seeking and implementing solutions that allow utilization of waste storage sites as secondary deposits.

4) The idea of creating a circular economy is put into practice in the KGHM Group in the following groups of actions:

- commercialization of flotation tailings towards recovering metal from such waste, as well as the economic utilization of rock forming minerals, as sealing material for the Żelazny Most Tailings Storage Facility, as filling in post-mining goafs, and material for applications in construction, road building and agriculture,

- development of the technology of recycling copper smelting in the RCR furnace,

- closing the circulation of water in ore processing,

- full restoration of post-production areas,

- development and implementation of environmentally-friendly flotation reagents and improvement of metal recovery from fine-grained feed,

- utilisation of heat energy contained in the mined deposit,

- development of the Company’s own research and development activity towards a circular economy,

- development of the CuBR Joint Venture towards a circular economy,

- research and development within the Horizon Europe program towards a circular economy,

- development of the Company’s own investments towards a circular economy.

5) KGHM Polska Miedź S.A. implements the requirements introduced by the amended waste act, which include: launching a National Waste Database (BDO), a surveillance system for waste storage and disposal sites and measures to secure claims to cover the costs of eliminating environmental impact. Compliance with the requirements of the amended act entails registration of waste in a way that is transparent to the auditing authorities, while mitigating its adverse effect on the natural environment.

6) KGHM Polska Miedź S.A. has for many years conducted and will conduct a series of its own activities, non-forced by legal regulations, aimed at the implementation of a circular economy. An overview of these activities for 2020 is presented below in this section.

The aforementioned activities in three thematic groups related to environmental protection and the minimization of impact by its operations are implemented in KGHM Polska Miedź S.A. thanks to the

KGHM Environmental Policy and the KGHM Energy Policy, which set the highest ecologic and environmental standards for the Company.

UTILISATION OF WASTE MATERIALS

Every year, the Company endeavours to implement effective solutions in demonstration of its concern to operate in compliance with the Circular Economy idea. One of the elements representing a substantial expression of the circular economy is the production of road-building material from de-copperised slag. This slag is waste (a by-product) from the metallurgical production process. Every year, the Legnica Copper Smelter and Refinery produces around 200 thousand tonnes, and the Głogów Copper Smelter and Refinery approx. 450 – 500 thousand tonnes, of mastic slag. Thanks to our know-how and technology, this material does not end up on a waste heap, but finds a second life. Thanks to the technology employed by companies in the Group, this waste is processed into a full-fledged product, used in road building as a high-quality aggregate. In this way all of the de-copperised slag which arises in the Company is put to use. What is more, the process of producing aggregate based on material supplied by the Company’s smelters also helps to reduce emissions which would otherwise be generated from the traditional process of producing aggregate. Over the last 10 years, the Group company KGHM Metraco has utilised around 10 million tonnes of slag, meaning that the same amount of this material did not need to be acquired from natural deposits, and at the same time such a large volume of waste did not end up being stored on a waste heap.

The aggregate produced in the Group has been utilised in investments such as the building of the S3, S5 and S6 expressways as well as in the S11 expressway currently under construction. Material from the metallurgical plants, after undergoing required processing, also found a use in the construction of the Southern Quarter of the Żelazny Most Tailings Storage Facility. A substantial amount of this material is also used by local customers involved in infrastructural investments ordered by local governments. The main customers are the largest construction firms specialising in roadway construction.

UTILISATION OF SCRAP

At the Legnica Copper Smelter and Refinery a high-quality copper scrap processing line was built, as the first step for the planned Hybrid Metallurgical Plant in Legnica. The plant will include a Scrap Turnover Base, where charge material for a dedicated installation for the casting of other copper-bearing materials from recycling will be prepared.

As part of the first step in the Hybrid Metallurgical Plant in Legnica, copper scrap processing technology was employed using a Revolving-Casting-Refining (RCR) furnace. The RCR furnace enables the processing of copper scrap with average copper content of 95% and a capacity of at least 80 thousand tonnes of copper anode per year. The total production of anode copper at the Legnica Copper Smelter and Refinery in 2020 amounted to 167.6 thousand tonnes, including 58.8 thousand tonnes of production by the RCR furnace. In 2020 a total of 91 thousand tonnes of scrap was processed at the Legnica Copper Smelter and Refinery, and which therefore was brought back into use pursuant to the idea of the Circular Economy.

ELECTROMOBILITY AND LOW-EMISSION MINING MACHINERY

One of the main infrastructural barriers to the development of electromobility is the current lack of a sufficient number of rapid charging points covering an incomplete road network in Poland and Europe. The rapid development of transportation based on electricity will represent an enormous challenge for electricity producers and distributors, but will also guarantee them an increase in their customer base by up to 20%. In light of the above considerations, KGHM Polska Miedź S.A. in 2018 commenced definitive actions in the sphere of electromobility, not only by the successive and consistent replacement of its own transportation fleet with zero-emission electric vehicles, but above all by developing a network of generally available, ultra-fast charging stations in the Legnica-Głogów Copper Belt. The first station arose at the Head Office of KGHM in December 2018, with the next coming in 2019 at the Głogów and Legnica Copper Smelters and Refineries and the Lubin mine. Each „charger” has three types of plugs, which ensures full compatibility with the vehicles available on the market. The stations are connected to the IT system of Tauron Dystrybucja Serwis. To support the development of the electromobility program, acting to protect the environment and climate, the charging is freely provided to users.

Additionally, to support actions aimed at protecting the environment and climate, as well as the health and workplace comfort of employees, work is underway in the Company aimed at reducing emissions from mining machinery, in particular nitrous oxide and particulate matter. The goal is to reduce employee exposure to nitrous oxide in the workplace and achieve concentrations of below 2.5 mg/m³ as well as to reduce exposure to carcinogenic factors to the level of 0.05 mg/m³ converted to elemental carbon.

Currently the Company is in the process of purchasing machinery, which includes the gradual introduction of Stage IV- and V-standard engines, thanks to which it is possible to reduce emissions by several times. At present, of the 1261 machines used by the Company around 10% are low-emission machines. All of the newly-purchased machines have engines of the highest emissions cleanliness standards. Replacement of the entire machinery park will be possible by the end of 2026.

The Company is also working with external producers on testing the functionality and efficiency of electric battery-powered mining machinery. As a result of these actions, tests are underway in the Lubin mine of a battery-powered bolting rig. In the first quarter of 2021 an electric drilling rig and a transport vehicle will undergo testing. In addition, arrangements on the commencement in the Rudna mine of trials of electric loaders are at an advanced stage.

ENERGY FROM INTERNAL SOURCES AND RES

In 2020, the Company achieved record power production by the Gas-fired Steam Power Blocks. Altogether they produced over 0.5 TWh of energy, or nearly 16% of the Company’s total need for electricity. Such a substantial contribution of cheap, ecological energy (compared to energy from the burning of coal) from these blocks in the portfolio of KGHM provides for both the acquisition of environmentally-friendly energy as well as savings on the order of tens of millions of PLN annually. The recipients of this energy are the Rudna and Polkowice-Sieroszowice mines and the Głogów Copper Smelter and Refinery. The power produced by the Gas-fired Steam Power Blocks comes from four 14.7 MWe Titan 130 Gas Turbines and two Siemens Steam Turbines, each with a capacity of 12.3 MWe.

The Group also has other internal energy generating sources, which together with the aforementioned Gas-fired Steam Power Blocks, provided 22.42% of the total amount of energy consumed by KGHM in 2020 (nearly 1.5% more than in 2019). Following is a breakdown of the sources of internally-generated energy in 2020.

Power sources of KGHM Polska Miedź S.A. in 2020

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KGHM Polska Miedź S.A. in 2020 engaged in a variety of actions aimed at developing renewable energy sources :

− Applications were submitted for amendments to municipal planning documentation for permission for the siting of photovoltaic installations with a capacity of over 100 kW on land belonging to KGHM Polska Miedź S.A. in:

− the municipality of Lubin with potential installed capacity of around 20 MW,

− the municipality of Warta Bolesławiecka for sites with potential capacity of more than 50 MW.

− The simultaneous pilot start-up of two gas turbines in the gas-steam block in Głogów producing 16 GWh more of electricity as compared to the initial planned production schedule, which resulted in :

− Lower power acquisition costs by around PLN 1.8 million,

− The avoidance of more than 4 thousand tonnes of CO2 emissions .

− The subsidiary KGHM Zanam S.A. brought a 3.1 MWp photovoltaic power plant on-line .

REDUCTION OF EMISSIONS FROM SMELTERS AND REFINERIES

To minimise the negative impact of metallurgical technology on the environment and to maintain the full technical functionality of equipment to protect the environment, the Company is engaged in the successful adaptation of these installations to BAT conclusions for the nonferrous metals industry together with the restriction of arsenic emissions. The parameters achieved thanks to a broad range of investments remain at substantially better levels than is required by law. The following table presents the details on end results of these investments.

End results of investments with respect to actions to adapt installations to BAT conclusions requirements for the nonferrous metals industry

Name of task/initiative	Expected adaptation to BAT Emissions associated with BAT (BAT-AEL)	Task completion deadline Parameters achieved (during parameter guarantee tests)
Modernisation of the bag filter dedusting unit Psz.1 and cassette filters PSZ 2 and Psz3 at the Shaft Furnaces	BAT 39: PM - 2–5 (mg/Nm³) As – 0.05 (mg/Nm³)	December 2019 PM – below 1 (mg/Nm³), As – below 0.05 (mg/Nm³), average 0.02 (mg/Nm³)
Construction of a 2nd-stage wet dedusting of driers installation to reduce As and Hg to the level specified in BAT Conclusions	BAT 38: PM - 3–5 (mg/Nm³), As – 0.05 (mg/Nm³) BAT 11: Hg – 0.01 – 0.05 (mg/Nm³)	December 2020 PM – below 1 (mg/Nm³), As – below 0.02 (mg/Nm³), average 0.01 (mg/Nm³) Hg – below 0.004 (mg/Nm³) average 0.002 (mg/Nm³)
Design and execution of an installation to eliminate arsenic from gases above the TM-16 casting machine	BAT 44: PM - below 15 (mg/Nm³)	December 2020 PM – below 2 (mg/Nm³), average 1.6 (mg/Nm³)
P-1 Sealing of the copper concentrate conveyor belt tightening station and ore blending warehouse	BAT 8 and BAT 25: These describe the required means of adaptation to prevent fugitive emissions from preliminary processing of natural, primary and secondary materials and their transport, or to reduce such emissions.	October 2019 Closed conveyance systems were applied for the transport and servicing of concentrates, being a source of PM and fluxes and of fine-grained materials, as well as conveyors for fixed materials which are not PM sources (compliance with BAT8a, BAT8b, BAT25)
PG Installation to feed milled de-leaded slag to a flash furnace	BAT54: Describes the means to limit the amount of waste from primary and secondary copper production designated for storage BAT90: Describes the required means of adaptation to prevent fugitive emissions from the preparation of primary and secondary materials or to restrict such emissions (for lead production)	December 2020 The installation enables hermetic transport of waste in the form of de-leaded slag to a flash furnace for metal recovery (compliance with BAT54). A pneumatic transport system was applied for materials generating PM (compliance with BAT90a).

Name of task/initiative

Expected adaptation to BAT

Emissions associated with BAT (BAT-AEL)

Task completion deadline

Parameters achieved (during parameter guarantee tests)

Modernisation of the bag filter dedusting unit Psz.1 and cassette filters PSZ 2 and Psz3 at the Shaft Furnaces

BAT 39:

PM - 2–5 (mg/Nm³)

As – 0.05 (mg/Nm³)

December 2019

PM – below 1 (mg/Nm³),

As – below 0.05 (mg/Nm³), average 0.02 (mg/Nm³)

Construction of a 2nd-stage wet dedusting of driers installation to reduce As and Hg to the level specified in BAT Conclusions

BAT 38:

PM - 3–5 (mg/Nm³),

As – 0.05 (mg/Nm³)

BAT 11:

Hg – 0.01 – 0.05 (mg/Nm³)

December 2020

PM – below 1 (mg/Nm³),

As – below 0.02 (mg/Nm³), average 0.01 (mg/Nm³)

Hg – below 0.004 (mg/Nm³) average 0.002 (mg/Nm³)

Design and execution of an installation to eliminate arsenic from gases above the TM-16 casting machine

BAT 44:

PM - below 15 (mg/Nm³)

December 2020

PM – below 2 (mg/Nm³), average 1.6 (mg/Nm³)

P-1 Sealing of the copper concentrate conveyor belt tightening station and ore blending warehouse

BAT 8 and BAT 25:

These describe the required means of adaptation to prevent fugitive emissions from preliminary processing of natural, primary and secondary materials and their transport, or to reduce such emissions.

October 2019

Closed conveyance systems were applied for the transport and servicing of concentrates, being a source of PM and fluxes and of fine-grained materials, as well as conveyors for fixed materials which are not PM sources (compliance with BAT8a, BAT8b, BAT25)

PG Installation to feed milled de-leaded slag to a flash furnace

BAT54:

Describes the means to limit the amount of waste from primary and secondary copper production designated for storage

BAT90:

Describes the required means of adaptation to prevent fugitive emissions from the preparation of primary and secondary materials or to restrict such emissions (for lead production)

December 2020

The installation enables hermetic transport of waste in the form of de-leaded slag to a flash furnace for metal recovery (compliance with BAT54).

A pneumatic transport system was applied for materials generating PM (compliance with BAT90a).

ACTIVITIES TO PRESERVE BIODIVERSITY

KGHM Polska Miedź takes proactive measures to preserve - and where it is not possible - to compensate for lost biodiversity, and to ensure responsible management of land and forests.

The Divisions of KGHM Polska Miedź S.A. do not operate in, or in the direct vicinity of, areas of outstanding natural heritage (defined as national parks, nature reserves or Nature 2000 areas).

Further away, i.e. from a few to over a dozen kilometers away, are areas of high natural habitat or landscape value, covered by various forms of protection schemes, amongst which it is worth noting the following:

- Nature 2000 Special Bird Protection Areas:

− “Lęgi Odrzańskie” PLB020008 (closest facilities: Tailings Division, Cedynia Wire Rod Division, Głogów Copper Smelter and Refinery),

- Nature 2000 Special Habitat Conservation Areas:

− Kozioróg in Czerna PLH020100 (closest facilities: Głogów Copper Smelter and Refinery),

− “Lęgi Odrzańskie” PLH020018 (closest facilities: Tailings Division, Cedynia Wire Rod Division, Głogów Copper Smelter and Refinery),

− “Pątnów Legnicki” PLH020052 (closest facilities: Legnica Copper Smelter and Refinery),

- Nature reserves:

− Buczyna Jakubowska (within the concession area of the Polkowice-Sieroszowice Mine),

− Uroczysko Obiszów (within the licensed area of the Polkowice-Sieroszowice Mine),

− Żukowskie Śnieżyce (within the licensed area of the Rudna Mine),

− Skarpa Storczyków (Cedynia Wire Rod Division),

− Dalkowskie jary (Głogów Copper Smelter and Refinery),

- Nature and landscape conservation areas:

− Grodowiec (licensed area of the Rudna Mine),

− Guzicki Potok (licensed area of the Rudna Mine),

− Trzebcz (licensed area of the Rudna Mine),

- Ecological sites:

− Łęgi głogowskie (Głogów Copper Smelter and Refinery),

− Glinki in Lasek Złotoryjski (Legnica Copper Smelter and Refinery),

− Lena (Tailings Division),

- Animate and inanimate natural monuments (all divisions).

All investment projects executed by KGHM POLSKA MIEDŹ S.A. which require an environmental impact assessment, pursuant to the Act of 3 October 2008 on the availability of information about the environment and its protection, participation of the public in environmental protection and on environmental impact assessments (consolidated text: Journal of Laws of 2021, item 247) include detailed documents which describe the impact of the project on the natural environment. This work involves experts from many fields (including: ornithology, zoology, botany), who highlight potential risks and present recommendations for actions ensuring the maximum extent of mitigation of the impact of a given project.

Forests have been created in the areas of former protective zones currently managed by the smelters. Near the Legnica Copper Smelter and Refinery, forested areas cover about 385 ha, and near the Głogów Copper Smelter and Refinery - 872 ha. At present, this area is a unique “ecological niche”, being a habitat to birds, small amphibians and lush vegetation.

Moreover, the Tailings Division manages forests over the area of about 212 ha in the municipalities of: Lubin (about 58 ha), Polkowice (about 6 ha), Rudna (about 38 ha) and Warta Bolesławiecka (about 110 ha).

In 2008, the Głogów Copper Smelter and Refinery recorded an unsuccessful nesting attempt of a peregrine falcon. To allow falcons to breed safely, a decision was taken to mount a breeding box on one of the smelter’s stacks. In autumn 2008, the breeding box was mounted on the stack of the Głogów II Copper Smelter and Refinery, the so-called “little clover”.

The felicitous nature of this location was confirmed on 31 March 2009, when 3 peregrine falcon eggs were found in the mounted nest. Three nestlings hatched after a month. They were tagged with leg bands in mid-May, and left their home for good in August.

In 2011, KGHM POLSKA MIEDŹ S.A. decided to allow the falcon family to be watched on-line. Since 2012, the life of the Głogów falcons can be viewed online on the “Sokół” Association website. Every year, the names for the “smelter” falcons are chosen in a contest held on the “Sokół” Association page. KGHM is a co-organizer of the contest and funds awards for the winners. Since the breeding box was mounted at the Głogów II Copper Smelter and Refinery, 36 falcons have successfully hatched, and 35 of them have been leg-banded.

On 28 October 2005, at the request of the Głogów Copper Smelter and Refinery, the Lower Silesia Voivode formally established the “Łęgi Głogowskie” ecological site, to protect the important natural features of, among others, the old Odra riverbed, vegetation clusters, from water plants and reedbeds to rich deciduous forests with a multitude of protected flora and fauna species. The site covers a terrace area of 605.6 ha between the Odra River’s embankments, and stretches over land to which KGHM Polska Miedź S.A. holds a legal title.

Every year, the Głogów Copper Smelter and Refinery undertakes treatment measures to maintain the area, restore habitats and protect the species living in the “Łęgi Głogowskie” ecological site. The measures include, among others, cutting grasslands in a manner which retains patches of late-maturing vegetation (Cnidion meadows) and cutting away reeds in meadow habitats, removal of self-sown trees and shrubs which tend to expand into grassland habitats, planting of trees and shrubs of native species typical for the forest habitats in locations of former foreign trees plantations, construction of habitat rows for birds, hanging daytime shelters for bats and breeding boxes for birds, building of clay and wood structures, the so-called substitute habitats for insects nesting in clay, tidying up works - regular removal of illegally dumped waste. These are examples of measures undertaken by KGHM Polska Miedź S.A. in the area of biodiversity.

5.1. ENVIRONMENTAL ACTIVITIES IN KGHM POLSKA MIEDŹ S.A.

KGHM Polska Miedź S.A., as one of the largest socially responsible enterprises in Lower Silesia, is aware of the objectives and challenges related to the impact our activities have on climate change. We develop our operations based on innovative, low-emission technologies, in line with circular economy principles.

We pursue this objective by investing in best available environmental techniques (BAT), and running our business with the view to the highest achievable environmental neutrality of production processes.

The extraction of copper ore and its subsequent processing at all production stages is inextricably associated with affecting all components of the natural environment. Compliance with rigorous environmental standards laid down by the law is possible thanks to the consistent modernization of our existing installations to protect the environment, as well as new investments in this area. Over the year, intensive work was carried out to implement the European Commission Implementing Decision establishing best available techniques (BAT) conclusions for the non-ferrous metals industry. The on-going adaptation of smelter facilities to the BAT conclusions also results in continued lowering of dust and gas emissions. In 2020, the Company spent more than PLN 186 million on investments to protect the natural environment, of which the largest expenditure, in the amount of over PLN 43 million, was incurred on the construction of an arsenic and mercury removal installation at the desulphurization plant of the Legnica Copper Smelter and Refinery.

In KGHM Polska Miedź S.A., care for the natural environment is intrinsically linked to the business model, in which standards apply throughout all its constitutive segments – from exploration to mining and smelting/refining – to ensure safe and environmentally friendly operations.

The key commitments of KGHM Polska Miedź S.A. in the area of environmental protection:

● We supply metals and related products to achieve the environmental goals of contemporary society, including climate action and efficient energy use.

● We minimize the consumption of limited resources, such as soil, water and energy.

● We operate our installations in conformity with our environmental permits.

● We monitor the pollution of air, water and soil.

● We minimize production of waste and continue to develop waste management techniques to ensure the best possible environmental performance.

● We conduct an objective, open and respectful dialogue with our local communities and relevant authorities on behalf of the environment.

● We take proactive measures to preserve and, where it is not possible, to compensate for lost biodiversity, and to ensure responsible management of our land and forests.

● We observe the principles of responsible chemical substance management introduced by the EU Regulations REACH and CLP.

● We reinforce the feeling of responsibility for the environment in our employees.

As a socially responsible company, KGHM Polska Miedź S.A. cannot and does not want to ignore its responsibility for the condition of the environment. The extraction of copper ore and its subsequent processing at all production stages is inextricably associated with impacts on the individual components

of the natural environment. Compliance with stringent legal standards is possible due to the consistent modernization of existing installations and construction of new ones, to reduce and minimize our impact on the environment.

Most of KGHM’s divisions have implemented the ISO 14001 environmental management system, which means that their operations are safe both to the employees as well as the environment. In 2021, the environmental management system is to be implemented in KGHM’s Head Office and mines. This way, the environmental management system will cover the entire company.

ENVIRONMENTAL FEES

Environmental fees paid by the Divisions of KGHM Polska Miedź S.A. in 2020 amounted to PLN 14.5 milion. In 2020, in the structure of fees, the highest amount incurred was the waste storage fee: PLN 5.2 milion. Another item of costs, over PLN 4.5 milion, is the fee for the discharge of effluents.

LEGAL STATUS, PARTICIPATION IN EU ETS SYSTEM AND FUTURE ACTIONS

KGHM Polska Miedź S.A. operates ten installations whose functioning, in accordance with the Act on Environmental Protection, requires integrated permits.

In addition, the Tailings Division holds permits for the operation of the Żelazny Most Tailings Storage Facility, and sector permits required by law. The mines operate on the basis of current sector permits with respect to airborne emissions and waste management.

Metallurgical installations at the Głogów and Legnica Copper Smelters and Refineries as well as the gas-steam blocks in Polkowice and Głogów also hold permits to participate in the CO₂ emissions trading system, as since 2013 KGHM Polska Miedź S.A. has been participating in the obligatory European Union Emissions Trading System (EU ETS).

In 2020, emissions in the previous year (2019) in the amount of 1.297 million tonnes of CO₂ will be settled thanks to freely-acquired rights (around 903 kt of CO₂ for 2019 and from reserve rights) augmented by purchases of rights (EUA – EU emissions rights, and CER – units dedicated to reducing emissions).

It is expected that 2020 emissions at the level of around 1.23 million tonnes of CO₂ will be settled thanks to freely-acquired rights for the Głogów and Legnica Copper Smelters and Refineries as well as rights for the Gas-Steam Blocks in Polkowice and Głogów (in total around 890 kt of CO₂) and reserves of rights from prior years and purchases of rights (EUA and CER) in the amount of around PLN 6.5 million.

The most important planned undertakings related to environmental protection in the near term are as follows:

- the continuation of investments involving the need to adapt the metallurgical installations to BAT conclusions. Advancement of these investments is also related to further reductions in particulates and gas emissions, including arsenic emissions,

- updating the integrated permits for the operated installations,

- overseeing the system for trading CO₂ emissions, along with obtaining rights for these emissions,

- the continuation of a program to promote health and prevent environmental threats, aimed at the people living in the nearest proximity to our metallurgical facilities, and

- construction of the southern quarter of the Żelazny Most tailings storage facility.

ACTIVITIES ASSOCIATED WITH THE MANUFACTURE AND APPLICATION OF CHEMICAL SUBSTANCES

KGHM Polska Miedź S.A., as one of Europe’s leading nonferrous metals producers, applies the principles of responsible management of chemicals introduced by the EU’s REACH and CLP regulations.

The REACH and CLP regulations are aimed at:

- committing enterprises that produce or import chemicals to provide clear descriptions and information on the properties of their substances, as well as to provide information on their use and in respect of whom they may pose a danger.

- controlling the risk of threats to people and the environment represented by hazardous chemicals, by limiting their amounts,

- ensuring that hazardous substances are classified and have been included in the publically-available list on the website of the European Chemicals Agency, and that any product which includes such substances is appropriately labeled and packaged in a manner guaranteeing its safe use, and that consumers and employees are properly informed, and

- ensuring the gradual withdrawal from use of the most hazardous chemicals.

KGHM Polska Miedź S.A. has successfully implemented the REACH system in its activities in order to maintain compliance with the REACH regulations and to ensure the uninterrupted supply of KGHM’s products to its customers, and has made it a part of its daily activities.

As part of the REACH system, the Company has registered all of the substances it has introduced to trading with the European Chemicals Agency. Under the REACH implementation strategy, KGHM became a member of several REACH consortia, which manage the process of registering substances and half-finished products included in the consortia.

KGHM is currently a member of six international REACH substances consortia:

- the Copper REACH consortium,

- the European Precious Metals Federation,

- the Lead REACH consortium,

- the Nickel REACH consortium,

- the Selenium and Tellurium REACH consortium,

- the Copper Compounds REACH consortium.

In 2020, the consortia worked on updating the registration documentation for substances and half-finished products, reflecting the newest results of research and the newest guidelines of the European Chemicals Agency.

Under these consortia activities were carried out with respect to the harmonised classification of copper, lead and silver, procedures for granting lead permits, copper endocrine properties and permissible lead and copper concentrations in the workplace environment. The consortia, together with Eurometaux, commenced an analysis called „EU Strategy on chemicals for sustainable development”, which was presented to the European Commission in October 2020. The goal of this document is to increase safety and to achieve zero polluting emissions for a non-toxic environment, contained in the European Green Deal. The new strategy carries with it many challenges and is being broadly commented on throughout Europe.

In 2020, the Company’s costs incurred from cooperation with the consortia amounted to EUR 79 thousand. The main item was a fee paid to the Copper Consortium, related with updating the registration documentation.

Due to changes in the REACH regulations requirements, the Company updated its substances properties cards, which were then provided to customers.

ACTIVITIES REDUCING THE ENVIRONMENTAL FOOTPRINT OF THE KGHM INTERNATIONAL LTD. GROUP

In 2020, entities of the KGHM INTERNATIONAL LTD. Group also engaged in activities related to environmental protection.

In the case of the Robinson mine (USA), activities were aimed at monitoring air and water quality, waste management and the restoration of mining areas – total expenditures amounted to around PLN 18 million, including just under PLN 3 million due to environmental permits held.

At the Carlota mine in the USA, activities were mainly related to environmental monitoring and preparing for the process of restoration – total expenditures for this purpose amounted to around PLN 6 million.

In the Sudbury Basin mines (Canada) activities focused on environmental monitoring. A total of PLN 3 million was incurred for this purpose.

At the Franke mine (Chile) activities focused on acquiring required permits and environmental monitoring. Total expenditures for this purpose amounted to just under PLN 5 million.

Financial resources for mine decommissioning and restoration of mining areas

Pursuant to laws in force in the United States and Canada, the KGHM INTERNATIONAL LTD. Group is obligated to provide security in the form of blocked cash or guarantees/letters of credit at the amount of the estimated liabilities for decommissioning of mines and technological facilities.

As at 31 December 2020, the value of assets for decommissioning the mines of KGHM INTERNATIONAL LTD. (cash) amounted to PLN 67 million (as at 31 December 2019: PLN 68 million).

In addition, as at 31 December 2020, KGHM Polska Miedź S.A. had issued letters of credit to secure liabilities related to covering the costs of decommissioning mines and restoring mining areas in the amount of PLN 404 million (as at 31 December 2019 – PLN 397 million). Letters of credit issued by KGHM INTERNATIONAL LTD. as at 31 December 2020 amounted to PLN 179 million (as at 31 December 2019 – PLN 202 million).

Companies in Poland

The Polish companies of the Group operate in compliance with environmental laws. Companies which are required to do so hold valid environmental permits, with the exceptions described below.

The company Uzdrowiska Kłodzkie S.A. – Grupa PGU does not possess a water rights permit for the discharge of post-bathing water for Zakład Przyrodoleczniczy in Polanica-Zdrój. Because of this the fee paid by the company for the discharge of post-bathing water is higher by 500%. There is also no water rights permit for the discharge of excess mineral water from the „Pieniawa Józefa I” and „Pieniawa Józefa II” outlets. The discharge of this water to the river is not subject to fees. In order to resolve the formal and legal aspects of this situation, in terms of obtaining legal water rights for the discharge of the aforementioned water to the river, the company is engaged in discussions with the Town Hall, as the owner of the sewage system.

The Company Uzdrowiska Kłodzkie S.A. – Grupa PGU is awaiting the issuance of a water rights permit for the discharge of water following bathing for the unit Zakład Przyrodoleczniczy and the discharge of excess mineral water from the „Górne” outlet in Kudowa-Zdrój. In October 2019, the company appealed the decision received, due to the classification of unutilised mineral water from the „Górne” outlet as industrial effluents. In 2020, a decision was received from the regional water management office Zarząd Zlewni in Nysa of the National Water Management Office (Państwowe Gospodarstwo Wodne Wody Polskie) which the company appealed to the Regional Director of the Water Management Office in Wrocław through the Director of the regional water management office Zarząd Zlewni in Nysa. The

Company is awaiting the final decision of the Regional Director of the Water Management Office in Wrocław.

The discharge of industrial effluents from Mineral Water Bottling Plant no. II in Polanica-Zdrój to the municipal sewage system has not been regulated by law. The Miejski Zakład Komunalny (municipal services office) in Polanica-Zdrój did not respond to the company’s request for the clarification of conditions for the discharge of industrial effluents to the municipal sewage system due to the lack of a signed agreement. The company is considering building a waste treatment plant on the grounds of the bottling plant.

Amongst the Polish companies of the Group, the largest environmental impact comes from the activities of the company „Energetyka” sp. z o.o. In 2020, this company incurred the highest environmental fees. These amounted to PLN 2.8 million and mainly comprised payments for water intake and effluents discharge (PLN 2.4 million) and for emission of contaminants to the atmosphere (approx. PLN 0.4 million). In 2020, monetary fines were imposed on the Company, including: a fine for exceeding permissible amounts of particulates into the atmosphere from the Power Plant in Polkowice in 2018, a fine for the discharge in 2018 of effluents from the effluents treatment plant of Section W-4 in Legnicy to the Pawłówka stream (Białynia) with a breach of the terms of the integrated permit, and a fine for the utilisation of waste in a manner inconsistent with the terms set forth in the integrated permit from the Wojwod of Lower Silesia.

In 2020, the Company carried out investments aimed at 1) adapting existing equipment and installations of the Polkowice Power Plant to the emissions requirements of the IED Directive and BAT Conclusions; 2) modernisation of two steam boilers at the Głogów Unit – adaptation to new conditions and technological processes related to a halt in the incineration of throat gases (the modernisation involves adapting equipment to changes in incineration fuel in the boilers from throat gas to nitrogen-rich natural gas to the extent necessary for reserving steam for the Głogów Copper Smelter and Refinery, the supply of heat for the city of Głogów and increased coverage of the need for power supplied to the Głogów Copper Smelter and Refinery, 3) modernisation of the industrial effluents separation chamber at the Legnica Unit – ensuring uninterrupted production by the Legnica Copper Smelter and Refinery and increasing the efficiency of the industrial effluents treatment plant.

Due to the specific nature of the products manufactured by the company NITROERG S.A. (explosives, initiation systems, fuel additives), it has an impact on the environment. The environmental fees incurred by this company in 2020 amounted to PLN 0.3 million. In April 2020 in the vicinity of Krupski Młyn there occurred a leak of a hazardous substance to the environment, i.e. to the Mała Panew river. As a result of the immediate response taken by NITROERG S.A., the impact of this incident on the environment was

effectively eliminated, as confirmed by the oversight intervention of the Regional Environmental Protection Inspectorate in Wrocław. As a result of the incident, the National Water Management Office PGW Wody Polskie required the Company to pay an increased fee in the amount of PLN 60 thousand. This amount was paid on time.

As part of its proactive environmental investments, in 2020 the company KGHM ZANAM S.A., on the grounds of the plant in Legnica, commenced the operation of a photovoltaic power plant. It is expected that the operations of this investment will result in a substantial reduction of the air pollution generated by this company as a result of the ecological manner of energy generation for its own needs, which had previously been provided by the Legnica Copper Smelter and Refinery.

Following the reporting date, i.e. on 8 February 2021, the subsidiary POL-MIEDŹ TRANS Sp. z o.o. was issued a summons in the form of group proceedings (15 members) on establishing responsibility for the pollution of agricultural fields of the group’s members during the performance of services by the company in the form of the railway transport of copper ore and copper concentrate. The estimated value of the claim is around PLN 150 thousand. The case is at the pre-trial stage.

5.2. ENERGY POLICY OF KGHM POLSKA MIEDŹ S.A.

The primary objective of KGHM Polska Miedź S.A. in respect of energy management and pro-climate activities is to implement rational energy management while ensuring the security of energy supply to the facilities and installations of the Company's production line. The process of implementing the international standard of energy utility management in accordance with the ISO 50001 standard began with the adoption of the Energy Policy of KGHM Polska Miedź S.A. by the President of the Management Board. (28 November 2016). At present, the second edition of the policy, approved on 28 February 2019, is in effect.

It is the ambition of KGHM Polska Miedź S.A. to continually grow the share of renewable energy sources and in-house energy production in covering our energy demand.

The Energy Policy stipulates the most important principles of energy management in KGHM Polska Miedź S.A. By observing these principles, the Company’s management undertakes to:

− ensure resources necessary to achieve the planned energy objectives and outcomes,

− operate in accordance with the law and other energy requirements relating to energy use,

− create desirable attitudes, build awareness and constantly improve the skills of the Company’s employees and partners performing tasks for KGHM Polska Miedź S.A.,

− prevent waste in the area of energy consumption,

− cooperate with partners and suppliers in procurement of material goods and services, with energy efficiency as an important selection criterion.

The principles adopted in the Energy Policy of KGHM Polska Miedź S.A. are observed by all employees of the Company, as well as other persons and entities performing tasks needed for its operation.

As a result of the Energy Policy, the Company pursues activities designed to manage the energy used by KGHM rationally and in compliance with the law, including:

− specification of procedures for the investment and procurement process,

− energy overhauls in KGHM’s Divisions and the Head Office, performed in accordance with the approved methodology,

− actions to achieve the approved energy objectives,

− the implementation of regulations: Legal and other requirements in the field of power generation and evaluation of their conformity for the purposes of the Energy Management System at KGHM Polska Miedź S.A.

ENERGY MANAGEMENT SYSTEM (EMS) IN KGHM POLSKA MIEDŹ S.A. AND ENERGETYKA SP. Z O.O.

In 2017 the Parent Entity and Energetyka Sp. z o.o. implemented an ENERGY MANAGEMENT SYSTEM (EMS), in conformity with PN-EN ISO 50001:2012. The re-certification audit conducted in KGHM Polska Miedź S.A. in September 2020 confirmed that KGHM Polska Miedź S.A. has adapted its Energy Management System to comply with the requirements of the new edition of the standard: PN-EN ISO 50001:2018. The re-certification audit in Energetyka” sp. z o.o. conducted in September 2020 confirmed that the system is undergoing continual improvement, as are the energy results. Based on the auditors’ team findings, it was concluded that the Energy Management System in Energetyka” sp. z o.o. is fit to achieve the planned objectives, and its certificate has been renewed.

As a result of the EMS implementation, the costs of energy audits are avoided, which must be performed pursuant to the Energy Efficiency Act if no certified Energy Management System is in place. Another result of the EMS operation is the possibility to implement a comprehensive improvement of the energy management process and improve KGHM’s energy result, which in 2019 generated energy savings of 72 GWh.

The EMS also reduces the costs of purchase and consumption of power utilities, including the cost of CO₂ emission rights, as a result of lower greenhouse gas emissions. We intend to raise the skills of our human resources, achieve further savings in future years and, most importantly, improve occupational safety

for all of KGHM Polska Miedź S.A.’s employees through implementation of standards and improvement of procedures.

5.3. KGHM POLSKA MIEDŹ S.A. HEALTH PROMOTION AND ENVIRONMENTAL HAZARDS PREVENTION PROGRAM

The purpose of the Program is to provide prophylactic care for the inhabitants of the Copper Basin with a special focus on children and young people through the implementation of tasks such as:

● prophylactic and health trips to mountain or seaside spas as part of the “Green School” program,

● year-long rehabilitation and sports activities at a swimming pool,

● tests monitoring the presence of lead in blood,

● tests monitoring the presence of arsenic in the bodies of the region’s inhabitants,

● environmental education combined with promotion of health.

The “Health Promotion and Environmental Hazards Prevention Program” has been implemented for two years by the KGHM Polska Miedź Foundation in cooperation with an external enterprise.

5.4. SELECTED GRI STANDARDS INDICATORS ILLUSTRATING ACTIVITIES RELATED TO ENVIRONMENTAL PROTECTION IN THE KGHM POLSKA MIEDŹ S.A. GROUP AND KGHM POLSKA MIEDŹ S.A. IN 2020

Selected GRI Standards indicators for 2020 illustrating actions in the area of environmental issues:

G302-1 - Direct and indirect energy consumption by the organization

1	Total consumption of non-renewable raw materials (own or purchased) in Joules or multiples thereof, by type of raw material in 2020	Values (MWh)
1		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Non-renewable	coal	138,417.20	0
	natural gas	238,730.56	0
	heating oil	8,231.48	0
	Diesel fuel	290,394,498.29	0
Total	Total consumption	290,779,877.53	0
2	Total consumption of renewable raw materials (own or purchased) in Joules or multiples thereof, by type of raw material in 2020	Values (MWh)
2		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Renewable	biomass	135.70	0
	Biofuels	6.60	0
	wind energy	560.00	0
	solar energy	300.54	0
	geothermal energy	71.10	0
	Hydro energy	33.30	0
	Other (t)	12.00	0
Total	Total consumption	1,119.24	0
3	Total consumption of energy produced or purchased, by electricity, heat in Joules or multiples thereof in 2020	Values (MWh)
3		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
	electricity	567,801.28	0
	heat (including consumption of steam, consumption of cooling energy)	204,899.78	0
Total	Energy consumption	772,701.06	0

4	Total energy sales: electricity, heat, cooling and steam, in Joules or multiples thereof in 2020	Values (MWh)
4		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
	Total sales of electricity
	Total sales of heat (including: heat in steam, heat in water, cooling energy)
Total	Sales
5	Total energy consumption within the organization in 2020 according to the formula	291,553,697.83	0

G303-3 – Water withdrawal by the Organisation

		2020		2019
		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Water withdrawal by source (m³)	Surface water (total)	9 273 960	-	9 787 124	-
	Groundwater (total)	31 055 637	158 149	33 942 726	176 405
	Seawater (total)	30 714 866	-	25 048 901	-
	Water withdrawn as a result of operations, e.g. mine water (total)	31 034 027	31 031 562	27 186 375	27 186 375
	Freshwater (≤1 000 mg/l total dissolved solids)	2 465	-	-	-
	Other water (>1,000 mg/L total dissolved solid)	31 031 562	31 031 562	27 186 375	27 186 375
	Water from third parties (total)	304 596	11 049 080	246 587	11 301 142
	Fresh water (≤1 000 mg/l of total dissolved substances)	98 145	11 049 080	18 317	11 301 142
	Other water (>1 000 mg/l total dissolved solids)	207 329	-	228 270	-

Total water withdrawal (m³)

Surface water (total) + groundwater (total) + seawater (total) + post-production water (total) + water from other sources (total)

102 383 087

42 238 791

96 211 713

38 663 922

G303-4 – Water (wastewater) discharge by the organisation

		2020		2019
		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Water (wastewater) discharge by destination (m³)	Surface water	41 473 468	24 829 044	37 040 279	19 498 439
	Ground and soil	61 222	-	79 529	-
	Sea	-	-	-	-
	Third-party water	84 836	8 856 278	818 986	10 050 454
Total water (wastewater) discharge (m³)	Surface water + groundwater + seawater + third party water (total)	41 619 526	33 685 322	37 938 794	29 548 893
Water (wastewater) discharge – fresh and other water (m³)	Fresh water (≤1 000 mg/l of total dissolved substances)	16 817 279	8 913 666	18 492 273	10 105 915
	Other water (>1 000 mg/l total dissolved solids)	24 799 629	24 771 656	19 442 978	19 442 978

G303-5 – Water consumption by the organisation

	2020		2019
	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Total water consumption	60 040 901	8 553 469	58 272 919	9 115 029

G304-1– Operational sites adjacent to protected areas and areas of high biodiversity value

	2020
	KGHM Polska Miedź S.A.
Operational sites adjacent to protected areas and areas of high biodiversity value	15

G305-1 – Direct GHG emissions

	2020	2019
	KGHM Polska Miedź S.A.
Direct emissions (ETS + nonETS equivalent) (tCO2e)	1 430 234	1 714 122

G305-2 – Indirect greenhouse gas emissions

Indirect emissions, by source	2020		2019
Indirect emissions, by source	KGHM S.A. Group	KGHM Polska Miedź S.A.	KGHM S.A. Group	KGHM Polska Miedź S.A.
Emissions resulting from electricity purchased for own needs	1 838 716,21	1 614 949,00**	1 946 213,58	1 815 871,13
Emissions resulting from heat purchased for own needs	299 544,54	0**	480 568,78	161 014,64
Emissions resulting from cooling energy or steam purchased for own needs	23 859,30	0**	21 284,06	161 014,64
Total indirect emissions (tCO2e)	2 162 120,05	1 614 949,00**	2 448 066,43	1 976 885,77

** because of the provisions of Polish law associated with the obligation to prepare reports on a detailed breakdown of indirect emissions in Scope 2 by the end of the quarter of the year following the reporting year, detailed data on emission levels associated with the purchased heat, shown separately for the part related to cooling or steam will be known after this Report is published

G306-2 – Total weight of waste by type and disposal method
No.	Total weight of non-hazardous waste and inert waste as well as hazardous waste, by treatment method	Weight of waste in 2020 [tonnes]
		non-hazardous waste and inert waste		hazardous waste
		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
1	Re-use of waste	18,538.72	0	17.28	0
2	Recycling (including organic recycling, e.g. composting)	2,734.81	0	11,437.39	0
3	Recovery (including recovery of energy)	58,055.71	0	12,638.43	0
4	Incineration (or use as fuel)	21.59	0	1,043.08	0

5	Storage in landfills	3,030.30	49.95
6	Dumping in deep wells	0.00	0.00
7	Storage on site	1,232.72	316.34
8	Other	1,768.84	1,162.95
	TOTAL	85,382.68	26,665.42

G307-1 – Monetary value of fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations

Among the evidence confirming the effectiveness of environmental protection initiatives and the reduced impact of the business carried out, there was no non-financial sanction in the KGHM Polska Miedź S.A. Group or in the Parent Entity.

Information on administrative and judicial sanctions imposed on the organization for non-compliance with environmental legislation in 2020
	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Total value of fines for non-compliance with environmental laws and regulations [PLN]	448117	0
Number of non-financial, administrative and judicial sanctions imposed on the organization for non-compliance with environmental legislation, including international declarations / conventions / treaties and national, regional and local laws, as well as voluntary arrangements with regulatory bodies that are considered binding.	2	0

G306-2 - Management of significant waste-related impacts and methods for managing waste

		2020					2019
1	Waste storage by group, in metric tonnes (t)	KGHM Polska Miedź S.A.
		Waste generated	Waste diverted from disposal			Waste directed to disposal	Waste generated	Waste diverted from disposal		Waste directed to disposal
	Group „01” – waste from exploring for, extracting, physical and chemical processing of ore and other minerals	27 948 802	17 887 232			10 061 570	28 144 055	18 012 194		10 131 861
	Group „10” – waste from thermal processes	1 230 983	1 175 548			55 435	1 298 977	1 234 817		64 160
	Other waste	142 253	108 272			33 981	141 435	62 709		78 726
	Total	29 322 038	19 171 052			10 150 986	29 584 467	19 309 720		10 274 747
		2020					2019
2	Waste diverted from disposal by recovery process, in metric tonnes (t)	KGHM Polska Miedź S.A.
		Hazardous waste (all types of recovery)			Non-hazardous waste (all types of recovery)		Hazardous waste (all types of recovery)		Non-hazardous waste (all types of recovery)
	On-site	18 646			18 834 517		19 299		18 397 003
	Off-site	35 259			282 630		49 816		843 602
	Total	53 905			19 117 147		69 115		19 240 605
		2020					2019
3	Waste directed to disposal by recovery process, in metric tonnes (t)	KGHM Polska Miedź S.A.
		Hazardous waste (storage)		Non-hazardous waste (storage)			Hazardous waste (storage)		Non-hazardous waste (storage)
	On-site	82 756		10 052 545			76 234		10 197 644
	Off-site	15 218		467			73		796
	Total	97 974		10 053 012			76 307		10 198 440

SELECTED GRI STANDARDS INDICATORS ILLUSTRATING ACTIVITIES RELATED TO ETHICS IN THE KGHM POLSKA MIEDŹ S.A. GROUP AND IN KGHM POLSKA MIEDŹ S.A. IN 2020

Selected indicators for 2020 and 2019, illustrating actions involving ethics:

G205-3 – Confirmed incidents of corruption and actions taken

Confirmed incidents of corruption completed:		2020		2019
		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group		KGHM Polska Miedź S.A.
dismissed or disciplined		7	0	2		0
contracts with business partners terminated or not renewed due to violations related to corruption	0		0		0	0
Public legal cases regarding corruption brought against the organization or its employees during the reporting period	0		0		0	0
Total		7	0	2		0

SELECTED GRI STANDARDS INDICATORS ILLUSTRATING ACTIVITIES RELATED TO EMPLOYEES IN THE KGHM POLSKA MIEDŹ S.A. GROUP AND W KGHM POLSKA MIEDŹ S.A.

Selected indicators for 2020 and 2019, illustrating actions involving employee issues:

Total number of employees

Total number of employees (persons) as at 31.12 of the given year	2020		2019
	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Total	33 526	18 529*	34 345	18 536*

Total number of newly-hired employees and employee turnover

		Number of employees (persons)		Number of newly-hired employees			Percent of newly-hired employees (persons)
		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group		KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Hires:	2020	33 526	18 529*	2 898		1 022	8,64 %	5,52 %
Hires:	2019	34 345	18 536*	2 519		988	7,33 %	5,33 %
		Number of employees (persons)		turnover (persons)			Percent turnover
		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.		KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Turnover:	2020	33 526	18 529*	3 183	1 031		9,49 %	5,56 %
Turnover:	2019	34 345	18 536*	2 570	952		7,48 %	5,14 %

Number of accidents at work by gender

	2020				2019

	KGHM Polska Miedź S.A. Group		KGHM Polska Miedź S.A.		KGHM Polska Miedź S.A. Group		KGHM Polska Miedź S.A.
	Women	Men	Women	Men	Women	Men	Women	Men
Number of accidents at work (incidents)	64	361	3	210	78	464	4	295
Number of accidents at work (fatal incidents	0	3	0	3	0	3	0	3
Number of accidents at work (serious incidents)	0	4	0	3	0	3	0	2
Number of light accidents (incidents)	64	354	3	204	74	450	0	290
Total number of persons injured in accidents	425		213		531		299

Average number of training hours per year per employee

	2020		2019
	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.	KGHM Polska Miedź S.A. Group	KGHM Polska Miedź S.A.
Total number of training hours	395 309	326 817	575 861	431 949
Total number of employees	33 526	18 529*	34 345	18 536*
Average number of training hours	11,80	17,60	16,77	23,30

* employees for whom KGHM Polska Miedź S.A. is the primary wokplace (total number of employees of KGHM Polska Miedź S.A. as at 31.12.2019 was 18 539, as at 31.12.2020: 18 531 persons.

SELECTED GRI STANDARDS INDICATORS ILLUSTRATING ACTIVITIES RELATED TO SOCIETY IN THE KGHM POLSKA MIEDŹ S.A. GROUP AND KGHM POLSKA MIEDŹ S.A.

Selected indicators for 2020 and 2019, illustrating actions involving social issues:

Donations by the KGHM Polska Miedź Foundation in 2020 to institutions and individuals, by area

AREA	Amount donated [PLN]		Number of projects/ number of individuals
AREA	2020	2019	2020	2019
DONATIONS TO INSTITUTIONS	24 266 233,09	17 763 651,78	389	313
1. HEALTH AND SAFETY	8 314 769,20	3 453 005,00	69	45
1.1. AaCTION „Counteracting COVID-19”	2 419 517,91	-	134	-
2. SCIENCE AND EDUCATION	3 501 217,16	2 422 608,56	51	56
3. SPORT AND RECREATION	1 899 988,51	3 266 227,33	34	88
4. CULTURE AND TRADITIONS	8 130 740,31	8 621 810,89	101	124
DONATIONS TO INDIVIDUALS	703 610,59	1 194 825,18	74	169
1. PROTECTING HEALTH	703 610,59	1 187 691,18	74	168
2. SOCIAL ASSISTANCE	-	7 134,00	-	1
Program to Promote Health and Counteract Threats to the Environment”	127 520,00	1 285 513,00	49	616 (dzieci)
TOTAL DONATIONS (PLN)	25 097 363,68	20 243 989,96	463	482

Szczegółowy wykaz darowizn przyznanych instytucjom prezentowany jest na stronie

http://www.fundacjakghm.pl


SIGNATURES OF ALL MEMBERS OF THE MANAGEMENT BOARD
This report was authorised for issue on 23 March 2021
President of the Management Board		Marcin Chludziński

Vice President

of the Management Board

Adam Bugajczuk

Vice President

of the Management Board

Paweł Gruza

Vice President

of the Management Board

Katarzyna Kreczmańska-Gigol

Vice President

of the Management Board

Radosław Stach