Disclosures Pursuant to Article 8 of Regulation (EU) 2020/852 (Taxonomy Regulation)

The EU Taxonomy Regulation is an instrument of the European Union under the European Green Deal and the Action Plan: Financing Sustainable Growth aimed at making Europe climate-neutral by the year 2050. The EU Taxonomy is intended to help direct investments to the economic activities needed to achieve climate neutrality.

The EU Taxonomy is a classification system that classifies economic activities as environmentally sustainable if specified assessment criteria are met. An economic activity is deemed taxonomy-eligible if it can be assigned to one of the economic activities defined by the EU Taxonomy and can potentially contribute to achieving one of the following six environmental objectives:

• Climate change mitigation (CCM)
• Climate change adaptation (CCA)
• Water and marine resources (WTR)
• Circular economy (CE)
• Pollution prevention and control (PPC)
• Biodiversity and ecosystems (BIO)

A taxonomy-eligible economic activity can moreover be classified as taxonomy-aligned within the meaning of the EU Taxonomy, if it meets all of the additional requirements:

• Complies with the technical screening criteria to make a substantial contribution to the respective environmental objective,
• Complies with the technical screening criteria to avoid doing significant harm to one or more environmental objectives,
• Complies with the minimum safeguards.

Since the Regulation and the complementary delegated acts entered into force, we have reported the share of our Group-wide taxonomy-eligible turnover (sales), capital expenditure (CapEx), and operating expenditure (OpEx) for the “climate change mitigation” and “transition to a circular economy” objectives.

Unfortunately, a large proportion of our portfolio is still not covered by the EU Taxonomy and can therefore not be reported as taxonomy-eligible. For this reason, we can only report a small proportion of our business under the EU Taxonomy. This means that, unfortunately, we are unable to report some activities that make a contribution to climate change mitigation and environmental protection, such as our bio-based aniline.

Taxonomy-Eligible Economic Activities

In order to calculate the financial metrics, we conducted a comprehensive analysis and assessment of our portfolio and business activities in connection with the requirements of the EU Taxonomy. This process identified activities that fall under the environmental objectives of climate change mitigation and transition to a circular economy.

For our core business, we have identified the following economic activities at Group level under the environmental objective of climate change mitigation:

• Activity 3.10 – “Manufacture of hydrogen”
• Activity 3.13 – “Manufacture of chlorine”
• Activity 3.14 – “Manufacture of organic basic chemicals”
• Activity 3.16 – “Manufacture of nitric acid”
• Activity 3.17 – “Manufacture of plastics in primary form”*

In addition, we have identified activities outside our core business as taxonomy-eligible under the following environmental objectives:

Climate Change Mitigation

• Activity 4.9 – “Transmission and distribution of electricity”
• Activity 4.30 – “High-efficiency co-generation of heat/cool and power from fossil gaseous fuels”
• Activity 6.2 – “Freight rail transport”
• Activity 6.5 – “Transport by motorbikes, passenger cars and light commercial vehicles”
• Activity 6.8 – “Inland freight water transport”
• Activity 6.10 – “Sea and coastal freight water transport, vessels for port operations and auxiliary activities”
• Activity 7.1 – “Construction of new buildings”
• Activity 7.2 “Renovation of existing buildings”
• Activity 7.7 – “Acquisition and ownership of buildings”

Activities 4.9 “Transmission and distribution of electricity” and 7.2 “Renovation of existing buildings” were additionally identified as taxonomy-eligible in the reporting year.**

Transition to a Circular Economy

• Activity 3.1 – “Construction of new buildings”
• Activity 3.3 – “Demolition and wrecking of buildings and other structures”
• Activity 3.4 – “Maintenance of roads and motorways”

In the 2024 reporting year, activity 4.1 “Provision of IT/OT data-driven solutions and software” could not again be reported as taxonomy-eligible.

Potentially, economic activity 3.1 – “Construction of new buildings” is also taxonomy-eligible for the environmental objective of “transition to a circular economy.” Taking account of the technical screening criteria (TSCs), new construction projects were reviewed and allocated to the environmental objective of climate change mitigation.

Fundamentally, Covestro does not disclose any taxonomy-eligible activities under the environmental objective of climate change adaptation. There are two reasons for this: Firstly, this is to avoid economic activities already identified under climate change mitigation from being counted twice. Secondly, our business model is primarily aimed at climate change mitigation in the activities covered by the EU Taxonomy.

The economic activities associated with the environmental objectives of “sustainable use and protection of water and marine resources,” “pollution prevention and control,” and “protection and restoration of biodiversity and ecosystems” were assessed by experts with regard to their implementation at Covestro. No need for additions or extensions were identified for fiscal 2024.

Taxonomy-Aligned Economic Activities

The TSCs for all six of the above environmental objectives were in force for fiscal 2024. In addition, compliance with the minimum safeguards pursuant to Article 18 of the Taxonomy Regulation must be examined.

Consequently, the taxonomy-eligible activities identified under the objectives of climate change mitigation and transition to a circular economy could be classified as taxonomy-aligned if they are able to meet all the requirements for attaining taxonomy alignment. That was examined accordingly.

Substantial Contribution

In the year 2024, we checked again whether we can make a substantial contribution to the environmental objectives mentioned. For example, we continue to make a small substantial contribution to the environmental objective of climate change mitigation at selected sites for economic activity 3.10 – “Manufacture of hydrogen.” We are, however, unable to meet the stringent requirements for a material contribution. The reasons include that the benchmarks of production facilities applied by the EU Taxonomy are exceeded or that evidence for the supply chain cannot be provided.

Do No Significant Harm (DNSH)

For an activity to qualify as a substantial contribution to one environmental objective, the EU Taxonomy requires that it does not cause significant harm to the five other environmental objectives.

In connection with the environmental objective of climate change mitigation, a climate risk and vulnerability assessment was conducted in the 2022 reporting year for activity 3.10 – “Manufacture of hydrogen” at site level, using Representative Concentration Pathways RCP 2.6, 4.5, and 8.5. With regard to the environmental objective of “sustainable use and protection of water and marine resources,” a risk assessment was likewise performed in the 2022 reporting year to establish any potential environmental damage at site level. This was not separately repeated for the subsequent reporting years. At the same time, in the year 2022, compliance with the emission values in connection with the best available techniques (BATs) was verified for the sites at which products are manufactured with which we make a substantial contribution to meeting the environmental objective of climate change mitigation. Finally, and also most recently in the year 2022, a check was performed at site level to make sure that no significant harm is done to the environmental objective of protection and restoration of biodiversity and ecosystems. As no appropriate evidence of a substantial contribution could again be provided for the 2024 reporting year, the DNSH analysis described here from fiscal 2022 was not repeated for the reporting year under review.

Taxonomy-eligible products that either do not make a substantial contribution to meeting the environmental objective of climate change mitigation or cause significant harm to at least one environmental objective are not classified as taxonomy-aligned. For example, since the criteria for a substantial contribution to activity 3.10 – “Manufacturing of hydrogen” cannot be fully met and this activity therefore does not qualify for taxonomy alignment, no additional review of the subitems in Appendix C of Annex 1 was conducted.

Minimum Safeguards

Article 18 of the Taxonomy Regulation requires companies to establish processes and procedures to ensure compliance with different rules and regulations on minimum safeguards. They relate in particular to human rights (including labor and consumer rights), corruption and bribery, taxation, and fair competition. There was no specific review of the minimum safeguards under the EU Taxonomy.

Meeting the minimum safeguards is part of Covestro’s culture. This culture, which is founded on existing corporate commitments, on our Code of Conduct for Suppliers, and on various Group-wide regulations, is an integral part of our everyday activities. We have implemented processes and controls to ensure compliance with all legal requirements, international standards, and internal policies. They include our compliance management system and the integrated Management System for Health, Safety, Environment, Energy, and Quality.

Result of the Alignment Check

In fiscal 2024, we did not identify any taxonomy-aligned economic activity associated with the environmental objectives of “climate change mitigation” and “climate change adaptation” and the environmental objectives of “sustainable use and protection of water and marine resources,” “transition to a circular economy,” “pollution prevention and control,” and “protection and restoration of biodiversity and ecosystems.” Since we can only provide evidence of taxonomy eligibility, the focus of determining the metrics is therefore on taxonomy eligibility rather than taxonomy alignment.

Calculation of Taxonomy KPIs

We calculate and report taxonomy KPIs in accordance with Article 10(3) and Article 11(3) of the Taxonomy Regulation. We are required to report the share of turnover, capital expenditure (CapEx), and operating expenditure (OpEx) generated by taxonomy-eligible and (where verifiable) taxonomy-aligned activities. The KPIs are determined with system support in established processes. The KPIs are mainly determined by allocating master data directly to the economic activities. In the case of CapEx and OpEx, this is unfortunately not always possible due to the complexity of the value flows. In these cases, the taxonomy-eligible shares are allocated on the basis of the taxonomy-eligible turnover determined for each economic activity. Validation steps are taken and the data is checked against the figures in the Group’s Consolidated Financial Statements to ensure the data is complete and correct. Controls in our Internal Control System are used to support the underlying systems and processes.

For further information, please refer to “Opportunities and Risks Report – Internal Control System.”

Turnover

In order to determine the turnover generated by Covestro from taxonomy-eligible economic activities, we allocated the relevant Covestro products to these activities. The corresponding turnover (sales) recognized in the Consolidated Income Statement for the reporting year was then calculated for the identified products (numerator) and a ratio derived using the Covestro Group’s sales reported in the Income Statement (denominator). Turnover from activity 4.30 – “High-efficiency co-generation of heat/cool and power from fossil gaseous fuels” and activity 4.9 – “Transmission and distribution of electricity” is determined in the same way.

For further information, please refer to “Covestro Group Consolidated Income Statement.”

Capital Expenditure

In order to determine capital expenditure (CapEx) associated with taxonomy-eligible and/or taxonomy-aligned economic activities as defined in the Taxonomy Regulation, we use the investments in and acquisitions of property, plant and equipment and intangible assets, excluding acquired goodwill, as well as additions of right-of-use assets pursuant to IFRS 16, as reported in the Notes to the Consolidated Financial Statements in this Annual Report (denominator). This must always be used as the basis for determining the proportion of taxonomy-eligible and taxonomy-aligned CapEx relating primarily to additions to noncurrent assets (numerator). CapEx associated with activity 4.30 – “High-efficiency co-generation of heat/cool and power from fossil gaseous fuels” and activity 4.9 – “Transmission and distribution of electricity” is determined accordingly.

For further information, please refer to note 13.1 “Goodwill and Other Intangible Assets” in the Notes to the Consolidated Financial Statements.

For further information, please refer to note 13.2 “Property, Plant, and Equipment” in the Notes to the Consolidated Financial Statements.

The decline in taxonomy-eligible CapEx compared with the previous year was due firstly to an overall decrease in CapEx by the Covestro Group in the reporting year and secondly to the fact that fewer individual projects met the criteria for taxonomy-eligible CapEx.

Operating Expenditure

In order to determine operating expenditure (OpEx) as defined in the Taxonomy Regulation, we use the Covestro Group’s expenditure on maintenance and repairs, renovations, research and development, and short-term leasing costs (nominator). In general, the share of taxonomy-eligible or taxonomy-aligned OpEx must be determined (numerator). The OpEx data determined is gathered exclusively for taxonomy reporting. OpEx associated with activity 4.30 – “High-efficiency co-generation of heat/cool and power from fossil gaseous fuels” and activity 4.9 – “Transmission and distribution of electricity” is determined accordingly.

Reporting of Taxonomy KPIs

The Taxonomy Regulation classifies the chemical industry, for example, as a sector with transitional activities because it operates at a point of transition from fossil-based raw materials toward renewable and alternative raw materials.

Covestro makes a contribution to achieving a circular economy and climate neutrality that is not directly covered by the EU Taxonomy. Our objectives are reflected in particular in our vision of becoming fully circular, from which our Group’s Sustainable Future strategy and our sustainability targets – including a focus on climate neutrality – are derived. The review of sustainability in accordance with this vision and with our sustainability targets relates to Covestro’s entire product portfolio.

For further information, please refer to “Group Sustainability Statement.”

For further information, please refer to “Corporate Strategy – Group Strategy.”

For further information, please refer to “Company Profile.”

The KPIs below were calculated according to the abovementioned methods:

¹ Y – Yes, taxonomy-eligible activity that is taxonomy-aligned with the relevant environmental objective; N – No, taxonomy-eligible activity but not taxonomy-aligned with the relevant environmental objective; N/EL – Taxonomy-non-eligible activity for the respective environmental objective; EL – Taxonomy-eligible activity for the respective environmental objective.

² E – Enabling activity; T – Transitional activity.

³ This activity had not yet been reported as taxonomy-eligible in the previous year. For purposes of comparison, the proportion of taxonomy-eligible turnover for the previous year was determined retrospectively.

¹ Y – Yes, taxonomy-eligible activity that is taxonomy-aligned with the relevant environmental objective; N – No, taxonomy-eligible activity but not taxonomy-aligned with the relevant environmental objective; N/EL – Taxonomy-non-eligible activity for the respective environmental objective;
EL – Taxonomy-eligible activity for the respective environmental objective.

² E – Enabling activity; T – Transitional activity.

¹ Y – Yes, taxonomy-eligible activity that is taxonomy-aligned with the relevant environmental objective; N – No, taxonomy-eligible activity but not taxonomy-aligned with the relevant environmental objective; N/EL – Taxonomy-non-eligible activity for the respective environmental objective; EL – Taxonomy-eligible activity for the respective environmental objective.

² E – Enabling activity; T – Transitional activity.

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Pursuant to Annex V of Commission Delegated Regulation 023/2486 of 27 June 2023, the disclosure requirements for the turnover, CapEx, and OpEx key performance indicators have been expanded. Nonfinancial undertakings are now additionally required to report the magnitude of the taxonomy-eligible and taxonomy-aligned activities for each environmental objective. Activities that materially contribute to more than one objective must be reported for each environmental objective. The corresponding disclosures are shown in the tables below:

Activities covered by separate reporting requirements in the Complementary Climate Delegated Act must be disclosed on the basis of templates. In this context, Covestro has identified activity 4.30 – “High-efficiency co-generation of heat/cool and power from fossil gaseous fuels.” Following completion of the alignment check, Covestro has only taxonomy-eligible activities to report here.

¹ Based on our understanding, the activities presented in template 1 refer to the activities defined in the Complementary Climate Delegated Act.

¹ Climate change mitigation (CCM) and climate change adaptation (CCA).

¹ Climate change mitigation (CCM) and climate change adaptation (CCA).

¹ Climate change mitigation (CCM) and climate change adaptation (CCA).