Regulatory environment

As representative of heavy and energy-intensive industry, JSW Group is subject to both domestic and EU regulations.

Given the nature of JSW's operations, the most important national legal acts are the Law on Entrepreneurs and the Geological and Mining Law, which regulates issues related to the ownership of mines, performance and supervision of geological and mining works, responsibility for damages resulting from mine operations. Taking into account initiatives that are being undertaken in Europe and around the world as regards climate policy, legal acts intended to minimise the negative impact of mining enterprises on the natural environment are becoming increasingly important.

The following legal aspects should be taken into account when considering the regulatory environment of significance to the operation of JSW and JSW Group in 2020.

National regulations

Act on extraordinary measures to prevent, counteract and combat COVID-19, other infectious diseases and related crises, and certain other acts.

Legislative changes were introduced in 2020 aimed at limiting the negative effects of force majeure in the form of an epidemic threat. A state of epidemic threat was in effect in Poland between 14 March 2020 and 19 March 2020. A state of epidemic was then announced on 19 March 2020 and was in place for the remainder of 2020.

The first major act regulating the pandemic reality was the Act on extraordinary measures to prevent, counteract and combat COVID-19, other infectious diseases and related crises, enacted on 2 March 2020 and updated many times throughout 2020. Of great importance to JSW Group’s operations was the introduction of permissions for employers to order their employees to temporarily perform the work specified in their employment contracts away from the workplace (remote work) in order to counteract COVID-19.

Furthermore, the President of the Council of Ministers received authorisation (after notifying the minister competent for economic affairs) to issue orders to businesses. These orders could be issued in the form of an administrative decision and were immediately enforceable upon delivery or announcement and required no justification.

One of the major changes influencing economic activity was also the introduction of the possibility to modify contracts that were subject to the provisions of the Public Procurement Law in connection with COVID-19 influencing the ability to perform them. Also of importance to JSW Group was the introduction of a regulation stating that during the state of epidemic threat, state of epidemic and in the 30-day period thereafter, the prolongation fee did not apply in the event of postponed payment deadlines or payments in instalments to the Social Insurance Institution (ZUS).

This is the package of solutions prepared by the government, whose major task is to support the Polish economy in the face of the coronavirus pandemic. It relies on five fundamental pillars: protection of jobs and employee safety, business funding, health protection, strengthening of the financial system and public investments. The aid package offers solutions for both businesses and employees. The regulations included in the package include a range of aid solutions in the form of legislative acts addressed to specific industries in the economy that have suffered the most.

The aid solutions used by the Parent Company and the subsidiaries are described here.

On 27 August 2020, the Climate Minister issue the Regulation on modification of the quantitative share of the sum total of electricity under redeemed certificates of origin confirming generation of electricity from renewable energy sources in 2021. Pursuant to the Regulation, the minimum share of electricity from renewable energy sources in the total annual sale of electricity has been retained for 2021, in the amount of 19.5% – for electricity generated from agricultural biogas before the effective date of chapter 4 of the Act or from renewable energy sources other than agricultural biogas or the paid substitution fee; 0.50% – for electricity generated from agricultural biogas after the effective date of chapter 4 of the act or equivalent quantity of electricity under the redeemed certificates of origin of agricultural biogas, or the substitution fee paid.

EU regulatory environment 2021

In December 2019, the European Commission presented the European Green Deal, a new strategy for growth that can make Europe climate-neutral by 2050 and is intended to stimulate the economy through ecological technologies, sustainable industry and transport and emission reductions. The EC has outlined elements that must be accomplished in order to make the EU economy climate-neutral. This primarily includes the efficient and rational use of resources, while acting to protect biodiversity, reduce pollution and transition to circular economy.

The policy areas addressed by the Green Deal include sustainable industry and support for innovations, investment in eco-friendly technologies, sustainable mobility and clean energy. In order to achieve these objectives, the EU industry needs pioneers in climate and resources that will develop, by 2030, the first commercial applications of disruptive technologies in key branches of industry. The most important areas include clean hydrogen, fuel cells and other alternative fuels, energy warehousing and CO2 capture, storage and utilisation. All of these activities are intended to support the EU's ambition of becoming a leader in accomplishing sustainable-future targets and ensuring a fair and gradual transition.

The communication on a new industrial strategy for Europe, published in March 2020 in line with the European Green Deal, outlines the European Commission's objectives in supporting economic growth and wellness in Europe. The European industry is a global leader in multiple sectors, accounting for 20% of the EU's total value added and providing jobs to 35 million people across the EU. The strategy lays out the main factors driving the industrial transition in Europe, including an increase in Europe's industrial and strategic autonomy by securing supplies of critical raw materials with the help of the Critical Raw Materials Action Plan and also through supporting innovations and investments. The EC wants to support companies in cross-border sales and implement top-notch digital solutions on a large scale. The industrial transition bears the risk of dependence on non-energy raw materials that are largely imported from outside of the EU and which feature strong global demand. Demand for them is expected to double by 2050, especially critical raw materials, which are essential in electromobility, batteries, renewable energy sources, defence and aviation. In order to engage in efforts to increase the EU's independence from their imports, the EC announced in the Industrial Strategy that it would publish a Critical Raw Materials Action Plan.

The EU's Critical Raw Materials List is a communication that was first prepared by the European Commission in 2011. It is updated every three years and contains strategic raw materials that are essential for the development of a low-emission economy in Europe. Coking coal was included in the CRM list for the first time in 2014 and remains on it thus far. The 2020 version of the Critical Raw Materials List was expanded from 27 to 30 raw materials.

On 3 September 2020, the European Commission published an updated CRM list as part of the Critical Raw Materials Action Plan, entitled "Critical Raw Materials Resilience: Charting a Path towards greater Security and Sustainability," which sets out a plan of action for the coming years with regard to raw materials, including the formation of the European Raw Materials Alliance (ERMA). ERMA was formed on 29 September 2020, with JSW becoming a member on 5 November and being an active participant of working groups since.

The European steel industry relies on safe, sustainable and attractively priced supplies of strategic raw materials. A lack of sufficient internal sources of supply means that the European Union and its manufacturing sector are almost entirely dependent on the import of both iron ore and coking coal. Importing these materials unfortunately has downsides that include emissions from sea transport, delivery times and uncertainty caused by unpredictable weather events. For this reason, the EC's documents, Critical Raw Materials Action Plan and 2020 CRM list, express and clearly underline the need to support and protect local suppliers that cater to the European market.

The Circular Economy Action Plan was published by the European Commission together with the Industrial Strategy because the transition to a sustainable economic system is an inherent part of it. The EC wants to strengthen the capacity to further promote circular economy in industrial processes, especially if they are energy-intensive. This is to be achieved by facilitating and streamlining industrial symbiosis, i.e. the transformation of a by-product of one industry into a raw material in another industry. JSW Group is leading the work on projects that aim to bring innovative carbon-related products to the market, with applications in the chemicals industry. The battery or hydrogen sectors are designated by the EC as some of the priorities where a new approach to resource optimisation will be deployed the fastest. This mainly deals with the ethical procurement of raw materials and supply security.

The growing EU requirements concerning environmental protection are also reflected in growing restrictions and legal regulations related to reductions in particulate matter and greenhouse gas emissions.

JSW Group is constantly monitoring the legal requirements concerning environmental protection and implementing investments ensuring compliance with all environmental requirements. Conscious and responsible action based on the highest environmental standards and consequence in compliance with environmental requirements are a priority.

One of the EU's priority objectives is to counter climate changes, including by reducing the use of natural energy resources, introducing modern and efficient energy production technologies, reducing CO2 emissions, decreasing energy consumption and increasing the significance of renewable energy. To reach these goals, 16 years ago the European Union introduced EU ETS, which is a system of trade caps introducing a limit on the total emissions of certain greenhouse gases emitted by more than 11 000 power plants and manufacturing facilities in EU member states, Iceland, Liechtenstein, Norway and Switzerland. Approx. 45% of all emissions in the EU are covered by this system.

The Directive is the EU's principal instrument regulating the emission of pollutants from industrial installations, and its main objective is to achieve an optimal level of protection for the environment and human health by reducing harmful industrial emissions across the EU with the use of Best Available Techniques (BAT). The Directive is based on several pillars, including an integrated approach, use of best available techniques, flexibility, inspections and public participation.

The Directive is currently under review, and a proposed update will be presented by the European Commission by the end of 2021.

JSW Group must comply with EU legal regulations concerning the environment and the use of natural resources that are constantly changing and becoming stricter in recent years.

In order to comply, JSW Group must verify on an on-going basis whether its technological installations meet the requirements specified in the IED Directive. Installations with integrated permits must comply with requirements arising from BAT conclusions, which constitute an implementing decision by the European Commission and result directly from the IED Directive.

BAT conclusions are directly binding in EU member states, are applicable to all facilities in a given industry within the European Union, and are aimed at determining the levels of pollution emissions and at ensuring that emission limits reflect the proportions between benefits and costs.

The modernisation of infrastructure at coking plants (coking batteries, installations for treatment and efficient use of coke oven gas) - aside from renewing the production potential of JSW Group's plants - is also intended to reduce their impact on the environment.

Regulation of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation) aims to establish the world’s first classification system for sustainable economic activities.

Economic activity is assessed in terms of compliance with the criteria specified in the taxonomy and whether or not it is environmentally sustainable. Activity is marked using the European classification system NACE, the Polish equivalent of which is PKD. The taxonomy applies to environmental issues only, i.e. it does not address social or governance issues. The EC will prepare delegated acts pertaining to the compliance of activity with the specific environmental targets specified in art. 9 of the regulation.

The classification system will be mandatory for use by member states, the European Union, financial market participants that offer financial products, financial and non-financial companies subject to non-financial reporting (Non-Financial Reporting Directive - NFRD).

Environmentally sustainable activity will have to meet the following conditions: contribute substantially to the achievement of one of the six objectives of the regulation (listed in art. 9 of the regulation), not hinder any of the objectives and comply with rules specified in the ILO conventions.

Provisions concerning the environmental objectives of climate change mitigation and climate change adaptation are applicable from 1 January 2022, while the other four environmental objectives (art. 9) from 1 January 2023.

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (SFDR) entered into force on 10 march 2021 and functions in the EU as a fully binding act, therefore it is directly applicable in each member state. This means that the act became a part of the national legal system, with direct effects on financial market participants and financial advisers.

SFDR is applicable to investment products and portfolio advisory and management services and regulates information obligations for financial market entities.  The regulation imposes new obligations on financial institutions, including banks, as regards transparency and the disclosure of approach to risk management for sustainable development as part of investment activities and decisions taken by the entity.

Implementing acts to the regulation are also directly applicable. These provide detail on the Regulatory Technical Standards (RTS). These standards specify two types of disclosures required of financial institutions - at the level of the financial institution and at the product level.

As one of the key elements of the European Green Deal, the European Climate Law contains the EU's commitment to become climate-neutral by 2050, along with the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030 compared to levels in 1990.

The agreement on the climate law also introduces elements such as: the obligation to disclose a negative emissions balance by 2050, reinforcement of laws concerning climate change adaptation, strong cohesion between EU policies and the climate neutrality goal and the obligation to enter into discussions with representatives of various sectors in order to prepare sectoral action plans that define the path to reach climate neutrality in various branches of the economy.

After formal approval of a preliminary agreement of 22 April 2021 by the European Parliament and the Council, the climate law will be published in the EU Official Journal and will enter into force.