Regulatory environment

National regulations

This is the package of solutions prepared by the government, whose major task is to support the Polish economy in the face of the COVID-19 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 regulations 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.

On 4 August 2021, the Minister of Climate and the Environment issued 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 2022. Pursuant to the Regulation, the minimum share of electricity from renewable energy sources in the total annual sale of electricity has been retained for 2022, in the amount of 18.50% – 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.

The Act of 23 July 2021 on Amending the Capacity Market Act and Some Other Acts took force on 1 September 2021. The amendment led to major changes for energy offtakers in terms of how rates are calculated and how the capacity fee is charged. It is one of the components of the fee for rendering electricity distribution services. This change entails the introduction of a model in which the fee for all energy offtakers hinges on the individual consumption curve, or the difference between energy consumption in hours of peak demand and consumption during the remaining hours of the day. The enticement to “flatten” the energy consumption curve comes from introducing what are referred to as adjustment factors that adjust the capacity fee rate depending on the energy consumption profile of various offtakers.

Moreover, the Act gives offtakers who own facilities powered from several energy supply points (“ESP”) the option of combining them into one aggregated supply point to designate their overall consumption profile.

JSW’s relatively flat energy consumption profile and the option of aggregating ESPs in the Company’s various mines allow it to apply the most beneficial adjustment factors when calculating the capacity fee charged to JSW.

The Act of 30 March 2021 on amending the act on providing information on the environment, environmental protection, public participation in environmental protection and environmental impact assessments and some other acts took effect in April 2021. The following were introduced under this law: the rights held by parties to proceedings and by ecological organizations were extended in respect of an environmental decision and ensuing decisions, i.e. investment decisions where their issuance requires the securing of an environmental decision to provide the members of the community in question with access to an effective appellate procedure before the authorities that issue environmental decisions and investment decisions, and also to a complaint procedure before administrative courts, giving consideration to the requirements of Article 11 section 1 of the EIA Directive – these amendments have been in effect since 13 May 2021; the repeal of the statutory exemption from the obligation of obtaining a decision on environmental conditions in the event of a single extension of the deadline for a concession to extract hard coal from a deposit solely in the event that the extension of the concession is justified by rational deposit management and without extending the scope of the concession. Amendments in effect as of 20 July 2021.

On 29 March 2021 the Supervisory Board of the Warsaw Stock Exchange ratified the new principles of corporate governance for companies listed on WSE’s Main Market – Code of Best Practice for WSE Listed Companies 2021 („Code of Best Practice 2021”). This is the subsequent version of the collection of corporate governance principles to which companies listed on WSE have been subject since 2002. The Code of Best Practice 2021 took force on 1 July 2021. Companies’ application of the corporate governance principles set forth in the Code of Best Practice 2021 is voluntary; however, providing information regarding their application is one of the duties incumbent upon every public company.

The Act on amending the Act on the Functioning of the Hard Coal Mining Industry and Some Other Acts took force on 1 December 2021. These amendments are extremely important to the Group and the overall hard coal mining sector. The fundamental amendment is embodied by the option for a mining company to transfer free-of-charge a mine or a designated part thereof, engaged in extracting hard coal or conducting mining works in the period from 1 December 2021 to 31 December 2023 for the purpose of winding them up. This transfer may transpire in favor of another company specified in Article 8 section 1 whose core business is, among other things, winding up mines. One of the most important amendments is the modification of Article 11b sections 3 and 4 of the aforementioned act according to which an employee has the right to a miner’s leave of up to four years provided that taking that leave will enable the worker to acquire retirement rights prior to 1 January 2028, while the leave for workers in a coal preparation plant is for up to three years provided that taking that leave will enable the worker to acquire retirement rights prior to 1 January 2027.

The lawmaker has defined equally high social benefits during the period of being exempt from the duty of working related to a miner’s leave or a leave for workers in a coal preparation plant. The lawmaker also regulated the rules for awarding non-recurring cash severance pay and the amount thereof due to eligible persons. At the same time, uniform flat non-recurring cash severance pay has been introduced in the amount of PLN 120,000.00.

European Union regulations

The EU's Critical Raw Materials List, a communication that was prepared by the European Commission for the first time in 2011, is a list of raw materials of strategic importance to the European economy which are threatened by a significant risk of disruption to supplies from third countries. Coking coal has been on this list since 2014 and maintains the status of a raw material essential to European industry.

The current CRM list was published on 3 September 2020, the European Commission as part of the Plan of action for critical raw materials, 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 S.A. becoming a member on 5 November and being an active participant of working groups since.

The 2020 version of the Critical Raw Materials List was expanded from 27 to 30 raw materials. The CRM list is a non-legislative document that does not have influence over EU law-making, and the presence of coking coal on the list does not bring direct benefits to the Company. However, indirectly, recognising coking coal as a critical raw material for the development of the EU economy is exceptionally important.

The European steel industry relines 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, Industrial Strategy, Critical Raw Materials Action Plan and the 2020 CRM list, express and explicitly emphasise the need to support and protect local suppliers that cater to the European market.

The next update of the CRM list will be published in 2023.

The European Commission presented the European Green Deal, its new strategy for growth, in December 2019. The EC has outlined the elements that must be accomplished in order to make the EU economy climate-neutral by 2050. 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, 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 a just, gradual transition.

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 an 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: obligation to disclose a negative emission balance by 2050, reinforcement of laws concerning climate change adaptation, strong cohesion between EU policies and the climate neutrality goal and 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.

The communication on a new industrial strategy for Europe, published in March 2020, 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 are facing strong global demand. Demand for them is expected to double by 2050, especially the critical raw materials, which are essential in electromobility, batteries, renewable energy sources, defence and aviation.

The COVID-19 crisis has shown that Europe is significantly dependent on non-EU suppliers of critical raw materials and that supply disruptions have an adverse impact on industrial value chains and other sectors.

To counteract this, on 5 May 2021 the EC presented an update to the New Industrial Strategy 2020 on creating a stronger single market to foster Europe's recovery from the COVID-19 crisis. The communication is accompanied by three staff working documents: an initial analysis of the EU's strategic dependencies and capacities, together with a detailed review of certain strategic industrial areas and an analysis of the steel sector in terms of the challenges and opportunities it is facing. In its analysis of the energy-intensive sector, the EC states that the industries within it unquestionably require significant R&D investment, the implementation of new technologies. They will have to overcome unprecedented challenges requiring significant investment to achieve green and digital transformation while remaining globally competitive.

The European Commission in July 2021 presented the Fit for 55 package, which includes a range of revisions to regulations key to reducing EU emissions by 55% by 2030. These regulations are intended to implement not only the European Green Deal but also the European climate law. The package includes more than a dozen proposals to revise existing legislation as well as new initiatives. The following are subject to revision: ETS system, Renewable Energy Directive REDII (the target level has been increased, i.e. 40% of energy is to be produced from renewable sources by 2030; specific targets for countries will be proposed for the use of energy from renewable sources in transport, industry, buildings, heating and cooling), Energy Efficiency Directive, Alternative Fuels Infrastructure Regulation (requiring Member States to increase the charging and refuelling capacity of electric and hydrogen cars).

There are also new legislative initiatives in the package, including a proposal to introduce a Carbon Boarder Adjustment Mechanism (CBAM). CBAM will put a price on the CO2 emissions of imported products in order to avoid carbon leakage outside the EU.  The sectors to be covered by CBAM are cement, steel, aluminium, fertilisers and energy. CBAM is designed to operate in parallel with the EU ETS, and from 2026 the allocation of free ETS allowances to CBAM sectors will decrease by 10% each year, eventually replacing the allocation of free allowances in covered sectors.

Another proposal is for a regulation of 15 December 2021 on methane emissions reduction in the energy sector (oil, gas, coal). The Commission assumes that once the new legislation is in place methane emissions from oil, gas and coal will be 80% lower by 2030. Both coking coal and thermal coal mines will be subject to the requirement to measure, report and verify methane emissions, all of which will be monitored by the independent International Methane Emissions Observatory (IMEO), which was launched on 31 October 2021. According to the EC's proposed version of the regulation, the ban on venting ventilation shafts, which would come into force in 2027 according to the legislative proposal, will not cover coking coal mines.

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 the energy-intensive ones. 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 works 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 on-going review of the Industrial Emissions Directive (IED) also addresses the promotion of circular economy in industrial processes, including the inclusion of circular economy practices in future BAT conclusions documents. JSW Group is gradually implementing circular economy rules in its operations by reducing, using and managing waste such as methane, saline water and coke-oven gas through process optimisation and further processing.

The growing EU requirements concerning environmental protection are also reflected in increased 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 through 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, the European Union introduced EU ETS 16 years ago, 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.

As part of the on-going revision of the ETS Directive, the EC is proposing to extend the ETS to the maritime transport sector, with construction and road transport to be covered by a separate scheme (mini-ETS). The revision is intended to align the emission allowance pool with the increased reduction target for ETS sectors of 61% by 2030. The proposal also includes an increase in the innovation fund and modernisation fund. Member States will be required to allocate all ETS proceeds to climate and energy projects.

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.

As part of the Fit for 55 package, the EC presented a legislative proposal in early April 2022 to update and upgrade the Directive. The EC wants to extend the scope of the directive to further industrial installations (such as mineral extraction or battery production) and industrial farms. Work on the revision of the IED in the Parliament and the Council of the Union will take around two years, the legislation will likely enter into force in 2026 and Member States will have 18 months to transpose the directive into national legislation. Best Available Techniques (BAT) will then be developed and, once adopted by the EC, industrial operators will have four years to comply.

EU legal regulations concerning the environment and the use of natural resources are constantly changing and in recent years becoming stricter. In order to comply, JSW Group must verify on an on-going basis whether the technological installations that it uses 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. The on-going revision of the IED will also review the BAT Conclusions to include circular economy practices, placing particular emphasis on the recovery of valuable minerals and raw materials.

The BAT conclusions are directly binding in the EU member states, 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 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation) concerns the formation of the first classification system in the world 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. Based on this, it is possible to determine the extent to which the overall activities of a specific company are sustainable, and it is then possible to assess the environmental sustainability of a financial product or investment portfolio. 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 have to be used by Member States and the European Union, financial market participants offering financial products, financial and non-financial companies subject to non-financial reporting (NFRD non-financial reporting directive) - this applies to large public utility companies with more than 500 employees, covering around 6000 large companies and groups across the EU.

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 cause harm to any of the objectives and be in compliance 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 (water, recycling, pollution, biodiversity) from 1 January 2023.Detailed requirements for reporting are included in a Delegated Act to art. 8 of the Taxonomy.

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 has been in force in the EU as a binding act in its entirety since 10 March 2021 and is therefore 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 the investment 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.

The European Commission, in support of the objectives set out in the European Green Deal, including seeking to create better conditions for sustainable investment in the private sector, among others, is reviewing Directive 2014/95/EU of 22 October 2014 on Non-Financial Reporting. The basis for a new European standard for reporting on sustainability issues will also be developed along with the revision (draft presented in April 2021).

The new reporting obligation and increased environmental disclosure will cover all large companies, groups and listed companies and will require auditing. Subsidiaries will continue to be exempt from reporting if the parent company reports in accordance with EU requirements. The full version of the main European standards for large companies is expected to be issued in a regulation at the end of 2022, with complementary and sectoral requirements published in 2023. The first reports will have to be published in 2024 and will present data for 2023.

The legislative proposal, tabled by the EC on 23 February 2022, intends to promote sustainable and responsible corporate behaviour in global value chains and introduces a sustainability due diligence obligation for companies.

The new Directive will apply, inter alia, to: all EU limited liability companies with significant size and economic power, i.e. with more than 500 employees and a global net turnover of more than EUR 150 million. The Directive will apply to the company's own activities as well as to its subsidiaries and value chains (direct and indirect business counterparties). Once the proposal is adopted, Member States will have two years to transpose the directive into national law.