Reporting in accordance with the EU Taxonomy Regulation

Methodology for determining the taxonomy KPIs requiring publication

The EU Taxonomy Regulation and the corresponding Delegated Acts contain wording and requirements which, even taking into account the supplementary publications of the EU Commission and the "EU Platform on Sustainable Finance", are subject to interpretation and for which clarifications have not yet been published in every case. The most significant interpretive issues arising in this context are presented below.

Taxonomy-eligible economic activities of the Group

To check the taxonomy eligibility of an economic activity, the Group applies an end-product oriented approach for manufacturing-related activities. This means that the end product must result from one of the economic activities specified in the Delegated Act in order to qualify as being taxonomy-eligible. In the case of organic basic chemicals, the corresponding economic activities only qualify as taxonomy-eligible in the interpretation of the Group if the manufacturing activities of the named chemical products involve a significant transformation process. In our interpretation, products that are merely passed on for sale, repackaged or mixed do not qualify as taxonomy-eligible within the meaning of the EU Taxonomy Regulation.

In the course of implementing the EU Taxonomy requirements, the Group’s business model underwent a comprehensive analysis. The Group’s core business activities are not mentioned in the economic activities set forth by the Delegated Act. Consequently, taxonomy-eligible activities were only identified to a very small extent in conjunction with the production of energy-efficient building equipment in the Electronics business sector. By contrast, neither the manufacture nor the distribution of pharmaceutical products or the distribution of specialty chemicals, which form the core of the business activities of the Life Science and Electronics business sectors, qualify as application areas of the EU Taxonomy Regulation for the first two environmental objectives. Furthermore, ancillary activities that are operationally necessary for our core business also do not qualify as independent taxonomy-eligible economic activities. This applies, for example, to the acquisition or construction of production buildings, the transport of our products to our customers as well as to research and development activities that cannot be allocated to a taxonomy-eligible economic activity for the first two environmental objectives “climate change mitigation” and “climate change adaptation”.

With respect to capital expenditure, the EU Taxonomy Regulation differentiates between three categories of capital expenditure:

• Capital expenditure that relates to assets or processes associated with taxonomy-aligned economic activities (Category A),
• Capital expenditure that is part of a plan to expand taxonomy-aligned economic activities or to transform taxonomy-eligible economic activities into taxonomy-aligned economic activities (Category B), and
• Capital expenditure related to the acquisition of products from taxonomy-eligible economic activities and individual measures that carry out the target activities in a low-carbon manner or reduce greenhouse gas emissions (Category C).

Because the Group only engages in taxonomy-eligible economic activities in the area of manufacturing energy-efficient building equipment to a very small extent owing to its business model, it has no significant capital expenditure in category A. Furthermore, the Group has no capital expenditure in category B since it does not prepare any capital spending plans to transform the taxonomy-eligible economic activities for the first two environmental objectives “climate change mitigation” and “climate change adaptation” into taxonomy-aligned economic activities. This is attributable to the fact that there are hardly any taxonomy-eligible activities due to the business model of the Group.

Consequently, the Group only has capital expenditure for the first two environmental objectives resulting from the acquisition of products classified as taxonomy-eligible economic activities or are attributable to qualifying individual measures (Category C). In order to be taxonomy-eligible, this capital expenditure must correspond to one of the economic activities named in the Delegated Acts and be implemented and operational within 18 months. In the Group, such capital expenditure exists especially in connection with

• transport by motorbikes, passenger cars and light commercial vehicles (activity 6.5)
• construction and real estate (activities 7.2 to 7.7).

In order to exclude double counting, capital spending on products from taxonomy-aligned economic activities and individual measures that have already been checked under category A are only included under category A. Against this background, capital expenditure for production buildings, for example, is only subject to a taxonomy-eligibility check under category A, while capital expenditure for administrative buildings is included under category C.

Taxonomy alignment of the economic activities of the Group

In order to check the taxonomy alignment of the taxonomy-eligible economic activities, the relevant regulations for the technical screening criteria under which certain economic activities qualify as contributing substantially to the environmental objective as well as for determining whether the activity causes no significant harm to any of the other environmental objectives were systematically analyzed. The basis for this was the Delegated Acts on the EU Taxonomy, which were used for the identification of taxonomy-eligible economic activities. In these, corresponding requirements are defined for the respective economic activities, which must be fulfilled for a classification as taxonomy-aligned. For this purpose, interviews were conducted with business and project managers and physical climate risk analyses were carried out at the sites. Furthermore, operating permits, product data sheets, environmental product declarations, energy performance certificates and internal training documents were inspected, among other things.

Minimum safeguards

The minimum protection frameworks include the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, the fundamental conventions of the International Labour Organization, and the International Bill of Human Rights. The requirements profile of the frameworks was systematized and compared with internal documents. This included an analysis of the Code of Conduct, work instructions, guidelines and training documents. Compliance with the due diligence process required by the framework in the area of human rights is ensured with respect to the individual business activities. Risk analyses are carried out with regard to the minimum protection requirements and appropriate measures are derived from these.

Taxonomy KPIs

Net sales

The KPI net sales represents the ratio of net sales from taxonomy-eligible or taxonomy-aligned economic activities in a fiscal year to the total net sales of the same fiscal year. The definition of relevant net sales for the purposes of the EU Taxonomy Regulation corresponds to the definition of net sales in the consolidated financial statements (see Note (9) “Net sales" in the Notes to the Consolidated Financial Statements).

Capital expenditure

The share of capital expenditure on assets or processes associated with economic activities classified as taxonomy-eligible or taxonomy-aligned is determined as follows: Share of total capital expenditure that is taxonomy-eligible or taxonomy-aligned divided by total capital expenditure according to the EU Taxonomy Regulation. In the Group and within the meaning of the EU Taxonomy Regulation, capital expenditure in the reporting period comprises additions to property, plant and equipment (IAS 16), rights of use from leases (IFRS 16), and intangible assets (IAS 38) with the exception of goodwill. Apart from the additions, advance payments for the named assets are also included. The denominator also includes additions to property, plant and equipment and intangible assets resulting from business combinations. The additions can be seen in the changes in property, plant and equipment and intangible assets disclosed in the consolidated financial statements (see Note (20) “Property, Plant and Equipment” and Note (19) “Other Intangible Assets” in the Notes to the Consolidated Financial Statements)

Operating expenditure

The share of operating expenditure for assets or processes associated with economic activities classified as taxonomy-eligible or taxonomy-aligned is determined as follows: Share of total operating expenditure that is taxonomy-eligible or taxonomy-aligned divided by total operating expenditure according to the EU Taxonomy Regulation. Operating expenditure relevant within the scope of reporting under the EU Taxonomy Regulation includes direct, non-capitalized research and development costs, low-value leases, building renovations, maintenance and repair, and all other direct internal and external expenses related to the day-to-day maintenance of property, plant and equipment that are necessary to ensure the continuous and effective functioning of these assets.

Fossil gas-related activities

The Group operates a gas turbine and a co-generation unit to generate electricity and heat from fossil gaseous fuels. The unit serves to generate our own power and heat. The activities in the area of electricity generation from fossil gaseous fuels as well as the operation of co-generation units with fossil gaseous fuels are not significant in the Group. Additional activities in the field of nuclear energy and fossil gas are not performed.