Climate Risk Management and TCFD

Transition risks are generally defined as risks that arise from non-alignment between the strategy and management of an organization, or an investor and a changing regulatory, political, or social environment in which they operate. Transition risks are part of the risks present in the Risk Register. CEZ Group’s strategy takes into account and responds to the regulátory environment of the European Union and its expected development. A key element is the EU’s climate targets, contained in particular in the 2019 European Green Deal, which includes, among other things, a stricter greenhouse gas emission reduction target and the complete decarbonization of Europe. One of the tools for achieving climate targets that has a significant impact on CEZ Group is the emission allowance market in Europe. The increased effort toward decarbonization provides a long-term growth stimulus for the market price of CO2 allowances – putting significant economic pressure on older, less efficient coal power plants and heating plants, as well as generally on facilities with costs tied to emission allowance prices. Assets of the MINING segment and coal-fired and gas-fired assets of CEZ Group are most significantly impacted by these trends. CEZ Group’s stratégy has expected these developments for a long time. Therefore, actions and strategic procedures have been implemented on an ongoing basis with a view to minimizing negative impacts of these factors on the value of CEZ Group and at the same time to use the opportunities for CEZ Group related to these trends to the maximum possible extent.

The impacts and risks of climate change, as well as a number of other factors, are evaluated using various estimates and accounting assumptions, as required under applicable legislation or adopted accounting standards, described in the Notes to the Consolidated Financial Statements as at December 31, 2024, Note 1.1.

In 2022, CEZ Group analyzed its most important energy facilities, covering 98% of Scope 1 and 2 emissions, in three climate change scenarios RCP2.6–RCP8.5 on the main types of physical risks. In 2023, the portfolio of assessed locations was expanded to more than 1,000 locations, and an assessment was carried out according to the RCP4.5 scenario for the 2040 horizon. The assessment was conducted using a regional climate risk model and scoring of all risks defined in Annex A of Commission Delegated Regulation (EU) 2021/2139 against the RCP4.5 scenarios. In addition, CEZ Group assessed the impact of climate change in variant scenarios on the generation of photovoltaic and wind power plants in existing locations and at installation companies within CEZ Group. This effect on the average generation in the assessed horizon of 2023-2050 is considered negligible or low.

In 2024, CEZ Group, in cooperation with the CRIF platform, conducted a detailed assessment of climate risks for 1,500 individual locations (operated or planned) across the sectors and economic activities (excluding GasNet Group) in the same scope of assessed risks as in the previous year. The assessment was carried out using the regional climate risk model and scoring of all risks to climate change adaptation against the RCP4.5 and RCP8.5 scenarios for the year 2050. The climate risks were reviewed not only from the perspective of assessing the exposure of sites, but also validated with data providers in order to verify the sensitivity of technologies and implement adaptation actions based on the results of data collection for CEZ Group companies. Conclusions and findings from the climate risk assessment are submitted to the Risk Management Section and included in the Risk Register.

When analyzing the results of the RCP4.5 and RCP8.5 scenarios for the horizons 2040 and 2050, it was found that the difference between the results of the RCP4.5 and RCP8.5 scenarios for CEZ Group locations was minor. This confirmed the 2022 findings, on the basis of which subsequent analyses were carried out only for selected scenarios. The differences between the RCP4.5 and RCP8.5 scenarios are present in the parameters “Changing precipitation and its types”, whose values increase significantly in the RCP8.5 scenario, and “Cold waves/frost”, where the values were lower in comparison. None of these risks identified a material impact on the functioning of the locations. The regional representation of the locations with identified increased risk and the scope of risk management follows the locations of operation of CEZ Group, i.e., primarily in Czech Republic, and the activities carried out with a high level of risk management associated with distribution activities.

The assessment resulted in the identification of the following significant climate risks:

• Cold waves
• Changing temperatures, and
• Changing precipitation patterns

For the risks of cold waves, changing temperatures, and changing precipitation, appropriate adaptation measures are in place. Flood risk is considered more challenging to adapt to. The risk of cooling water shortages was not identified as significant, as stated in the Report, in the Water Resources chapter.

Based on the parameters of the material risks of the DMA process, climate risks are not assessed as material risks for CEZ Group. However, the risks will continue to be monitored, assessed, and periodically reviewed.