5.4 Results of the environmental policy

Assessing and managing climate change risks and opportunities is an integral part of ERGO Hestia’s strategy.

• The ERGO Hestia Group Management Board oversees analytical activities related to climate change. All related relevant and strategic matters are dealt with by the Management Board or one of its committees/teams.
• The Management Board in collaboration with the Risk Department and the Sustainability Director are involved in the operation of a risk management system established to identify and reduce all risks relating to the ERGO Hestia Group’s activities, including risks and opportunities related to climate change.
• ERGO Hestia’s Management Board has appointed:

1. 1. Risk Management Committee – a collegiate body that oversees the Company’s risk management processes and advises the Management Board on the risk management process. The rules of operation of the Committee are set out in the Rules of Procedure; and
   2. Environmental Management Team to ensure the efficient functioning of the environmental management system at ERGO Hestia. The rules for the functioning of the Environmental Management Team are set out in Order No. WS 1/2020.

• The positioning of the risk management function within ERGO Hestia’s organisational structure ensures that it has adequate operational independence (an independent organisational unit within the line supervised by the Vice-President of the Management Board for Finance and Organisation).
• The person overseeing the risk management function is the Director of the Risk Department. The Director’s responsibilities include overseeing the performance of the Company’s risk management activities, including risks related to inter alia overseeing the Company’s overall risk position and the early identification of significant risk factors.

• The Company performs ongoing monitoring of the risks in the business environment in accordance with the PESTEL methodology, understood as a cross-section of political, economic, social, technological, environmental and legislative conditions which may affect its operations.
• An up-to-date list of environmental risks and opportunities for ERGO Hestia is maintained by the Director responsible for Sustainability.
• Risks are assessed by the Environmental Management Team.
• The list of risks and opportunities is reviewed at least once a year during the review of risk management processes.

• The evolution towards ESG accelerated significantly in 2021. This is a result of changes in the business regulatory environment across the European Union which primarily impacts financial institutions, including life insurance companies. Accordingly, ESG, climate risks and non-financial disclosures have been the subject of many conferences, debates, training sessions and publications at ERGO Hestia.
• The individual business units within ERGO Hestia are responsible for their activities both with regard to insurance, investments and operational aspects of ESG.
• We offer targeted training programmes to upskill our employees and develop their ESG competences.
• They are tailored to individual business operations and regions, include training on the practical implementation of our underwriting guidelines and provide information on current sustainability topics.
• Training is designed for managers, underwriters, account managers, business analysts and interns in business units.

Our holistic strategic approach to environmental and climate protection covers both business-related activities (i.e., insurance, investments and own emissions from operational processes) and corporate responsibility measures. Measures are aimed at mitigating the effects of climate change and supporting transition.

Aware of its responsibility and impact as an investor, the company introduced new Responsible Investment Guidelines in 2021. The integration of ESG (environmental, including climate, social and governance) criteria into the investment guidelines is an integral part of the investment strategy. This means that we take ESG criteria into account when making investment decisions.

ESG factors, including the approach to climate change, are an important pillar of the company’s development and business strategy. The strategic commitments and projects include the following:

• We monitor Carbon Intensity in the insurance and investment portfolio for greenhouse gas emissions;
• We are implementing measures to achieve climate neutrality and limit the global temperature increase to below 2°C (including CO₂ emission reduction);
• We are developing products and services which support the environment and climate change reduction and integrate ESG factors into the risk and investment assessment process;
• We support environmental initiatives, raise awareness and share practices.

Since 2015, the Munich Re/ERGO Group (including ERGO Hestia) has been pursuing:

• its climate commitment and can thus achieve climate neutrality in its business operations. The Group compensates for unavoidable CO₂ emissions by purchasing certificates (carbon offset);
• In line with the strategy, the Group will further compensate for unavoidable CO₂ emissions by purchasing certificates (carbon offset).

• The Company invests in accordance with the prudent investor principle as set out in Article 276 of the Act of 11 September 2015 on insurance and reinsurance activity (Journal of Laws of 2021, item 1130).
• The Company does not distinguish a separate category of risks for sustainability but views them as one aspect of the individual risks. Sustainability risks interact with the individual risks through different transmission channels and can have a significant impact on them.
• The Company takes into account all relevant risks in its investment decision-making process, including, as far as possible, with particular reference to the availability of information published by financial market participants, risks to sustainability.

Environmental risks, including climate risks, are identified on the basis of relevant direct and indirect environmental aspects; and analysis of insurance, investment, operational and business portfolio data. As a result of the analysis, environmental objectives are set to minimise the emergence of a risk or to maximise the emergence of an opportunity and its appropriate use in environmental management. As part of the sensitivity analysis carried out, a scenario was analysed taking into account climate change which could result in a natural disaster.

• The climate change risk management process is integrated into the risk management system. The Company does not consider climate change risk as a separate category but views it as one aspect of the risks in each category.
• Climate change risks interact with individual risk categories through different transmission channels and can have a significant impact on them.
• In the identification of climate risks, according to the classification adopted among others by the Task Force on Climate-related Financial Disclosures at the initiative of the Financial Stability Board, we distinguish between physical risk and transition risk associated with the transition to a low-carbon economy.
• All relevant risks, including those related to climate change, are appropriately addressed in the risk reports provided to management.

We have identified 12 generally applicable ESG factors that are taken into account in our assessment of insurance business risks and investment transactions.

The ESG factors apply to corporate liability, reinsurance and investments in relation to:

1. natural resources and biodiversity,
2. pollution,
3. greenhouse gas emissions,
4. the political environment and public perception,
5. human rights,
6. working conditions,
7. cultural heritage,
8. resettlement of people,
9. community health and safety,
10. responsible and careful planning and evaluation,
11. compliance,
12. consultation and transparency.

The Munich Re/ERGO Group, including ERGO Hestia, has taken a holistic approach and set ambitious decarbonisation and climate neutrality targets for its investments, transactions and reinsurance (i.e., insurance portfolio) and its own emissions from operational processes. Information on climate reduction commitments, targets, tackling climate change, including efforts towards climate neutrality, and directions for change can be found in the Munich Re Group Strategy Ambition 2025.