Croda International : TCFD ARA2022

Non-financial disclosure

Task Force on Climate-related

Financial Disclosures (TCFD)

Croda has long recognised the scale of the climate emergency, which we believe creates both opportunities and risks to our future growth. We develop innovative products which help our customers to reduce their own carbon footprint and we set stretching climate related targets as part of our Climate Positive Commitment to 2030 (page 12).

On pages 60 to 68 of this report we summarise material climate related disclosures consistent with the four pillars and 11 disclosures proposed by the TCFD, including the 'Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures" released in October

2021. We also reference links to further information which can be found in our Annual Report, Sustainability Report (SR) and online factsheets to support compliance. We cross refer to our Sustainability Report throughout this TCFD section as that report offers us additional space to explain our strategic Climate Positive commitment, illustrate this through case studies (SR pages 22-27) and explain our targets, metrics and progress in more detail (SR pages 36-39). We continue to work to remain aligned with evolving climate and non-financial disclosure requirements as required by the Listing Rules.

Governance

			Next steps and
			timeframes
		What we have	supporting further
	How we comply	done in 2022	improvement
a) Describe the	As one of the three pillars of our Commitment (page 12),	Board considered sustainability	Consider sustainability
Board's oversight	climate risks and opportunities are core to our overall	strategy and targets including	competence and
of climate related	strategy and as such the Board considers climate related	sustainability of innovation	experience as a criteria
issues as part of its annual review of the strategy described	technology platforms (pages 75).	for Non-Executive
risks and
on page 81. The Board is accountable for all risks,	As part of a focus in 2022 on	Director appointments
opportunities
including those relating to climate and reviews these	sustainability (page 81) the Board	in 2023.
	annually. It receives a quarterly report from the Chief	undertook a review of corporate level
	Sustainability Officer (page 78) which considers progress	risks and opportunities associated	Deliver climate
	against climate targets, including the risks to delivering	with climate, considered future	education for the
	these in the highlights and lowlights sections of the report.	compliance with rapidly changing	Board.
	The Board approves significant capital expenditure and	reporting frameworks and progress
	acquisition proposals and has oversight of the innovation	towards delivering 2030 targets.
	strategy, considering how these align with our climate and	Review of major capital expenditure
	decarbonisation goals.	considered the impact of new
	The Remuneration Committee agrees climate related	technology on our net zero carbon
	performance objectives which are incorporated into senior	ambition (Dahej case study on
	leadership remuneration (page 107).	page 81).
	The Board guides the leadership values we look for in	The Audit Committee considered the
	Croda to ensure we build future leadership capabilities to	results of the FRC's review covering
	include sustainability and decarbonisation know-how.	TCFD disclosures and climate in the
		2021 Annual Report (page 99).

1. Describe management's role in assessing and managing climate related risks

The Board delegates responsibility for running the business to the Chief Executive, which includes responsibility for managing climate related issues. A sub-committee of the Executive, the Sustainability Committee, meets at least quarterly (page 87) chaired by the Chief Sustainability Officer, who is supported in this role by an internal centre of excellence, the Group Sustainability team. The Committee comprises senior leaders (including an executive sponsor for Climate Positive, the President of Global Operations, Mark Robinson) from across the business, each of whom has a responsibility to identify further strategic opportunities, understand the risks posed in delivery of the strategy, monitor progress towards declared targets and to develop and coordinate group wide engagement with our sustainability targets.

Our global Sustainability Professionals Network and local sustainability champions facilitate best practice sharing throughout the organisation and are supported by the Group Sustainability team. Our organisation structure is included on page 17 of the Sustainability Report.

Through our risk management framework (page 52) climate related risks are captured, assessed, mitigated and owned at the appropriate level of the organisation.

Created our global Sustainability Professionals Network, described on page 14 of our Sustainability Report.

Sustainability champions supported the development of decarbonisation roadmaps for every Croda location.

Invited all Croda employees to regional carbon summit webinars, presenting an update on our decarbonisation progress and initiatives and answering questions.

More completely define the role of sustainability champions in cascading communication on climate throughout the organisation.

Review the terms of reference and composition of the Sustainability Committee in the light of Croda's strategy to become a pure play Consumer Care and Life Sciences company.

60 Croda International Plc Annual Report and Accounts 2022

Strategic report

Strategy

		Next steps and
	What we have	timeframes supporting
How we comply	done in 2022	further improvement

1. Describe the climate related risks and opportunities the organisation has identified over the short, medium and long term

Our definition of short, medium and long-term time horizons is included on page 63 and are aligned with our strategic commitments to 2030, with milestones for delivery set for 2024.

Climate related, physical and transitional risks and opportunities are assessed using our global risk framework, described on page 53 of this report. They include increased raw material costs, carbon pricing, emerging regulation and the effects on our people and working environment. The four most impactful climate related risks, and how these were selected, are described in more detail on page 66 of this report, together with a summary of other less impactful risk themes identified from our bottom-up risk registers.

The Sustainability Committee reviewed all climate related risks identified from our bottom-up risk registers, and engaged the global operations team in discussion of these risks, identifying actions for further improvement and clarity.

Using the bottom-up risk themes identified in 2022, we will undertake a detailed review of all risk assessments with the risk owners to align assessments globally and to challenge the mitigating controls identified at local level.

1. Describe the impact of climate related risks and opportunities on the organisation's businesses, strategy
   and financial planning

Delivery of climate related commitments identified in our Climate Positive strategy form a core part of our overall business strategy and as such the impact of not delivering our climate related objectives is significant. We reflect this in our principal business risks on page 56. The financial impact of the four highest risks in our register is described in more detail on pages 66 to 68 of this report.

We include a GHG emissions metric in a revolving credit facility (RCF), with carbon emission targets in the seven year agreement aligning with our 2030 Climate positive commitments (SR page 24). Savings are reinvested into the decarbonisation capital expenditure programme.

Since 2020 we have applied an internal shadow carbon price to capital investment to help to prioritise projects that will reduce scope 1 and 2 emissions (SR page 24). All capital projects over £100k are required to complete a sustainability impact assessment. The impact of increased capital cost on impairment and useful economic life is considered on page 164.

Since 2021 carbon budgets have been presented annually alongside the financial budgets at regional and sector level, which consider the impact of the short and long-term site decarbonisation plans.

A full review of the impact of climate change on fixed asset useful economic lives was completed in 2022, which concluded no material changes were required (page 164).

All sites have now defined a 'decarbonisation roadmap' (see page 24 of the Sustainability Report for more details) which will be used to direct future capital and development plans.

Shadow carbon price was increased from £55/tonne to £124/tonne in line with the UK Government's Green Book, highlighting the increasing importance of taking action to avoid exposure to the cost of carbon (see page 24 of the Sustainability Report for more details).

Sector teams will finalise 2030 decarbonisation roadmaps to include scope 3 emissions, enabling the sectors to make portfolio management decisions incorporating carbon footprint data, which will inform the development of the next generation of low carbon products.

1. Describe the resilience of the organisation's strategy, taking into consideration different climate related scenarios

Supported by external consultants, Accenture, we undertake detailed climate scenario analysis (CSA) of the most impactful climate related risks identified against three future climate related scenarios to assess our resilience to these risks. Under each scenario we consider impact across six, five year time periods, which is significantly in excess of our strategic planning horizon but is in line with our commitment to be net zero and our SBT targets.

Our methodology is described in more detail on page 63.

In 2022 the Sustainability Committee reviewed the climate related risks to confirm those with the highest impact, for which scenario analysis was repeated (page 66).

Baseline assessments and all scenarios were updated to reflect the divestment of the PTIC business. Although some changes were identified we concluded these would not materially impact our Climate Positive strategy.

Begin developing net zero roadmaps based on technology platforms, in addition to the individual site level roadmaps, to support the transformation and future preparedness of our business to grow.

Croda International Plc Annual Report and Accounts 2022

61

Non-financial disclosure continued

Task Force on Climate-related Financial Disclosures (TCFD) continued

Risk management

			Next steps and
		What we have	timeframes supporting
	How we comply	done in 2022	further improvement
a) Describe the	The process for identifying climate related risks, assessing	Regulations are changing rapidly	Consider the implications
organisation's	both their impact and likelihood, is fully embedded as part	at present and we have worked	of the International
processes for	of our global risk management process which is described	with external consultants to	Sustainability Standards
on page 53. New and emerging risks and opportunities can	identify those which are relevant	Board (ISSB) and the EU
identifying and
be identified at a local level (mainly physical risks) or by the	to Croda to enable us to assess	Corporate Sustainability
assessing climate
Sustainability Committee (emerging risks requiring action to	the opportunities and risks	Reporting Directive (EU)
related risks	be driven globally, or requiring more granular analysis). We	relating to the changes.	2022/2464 (CSRD) on
	have used the TCFD framework to support our assessment		our reporting requirements,
	of climate related risks.		and whether these offer
			future opportunities
	Impact and likelihood scoring for all risks uses the 6 point		and risks.
	scoring methodology defined in the Group risk framework.
			Complete a gap analysis of
	Emerging risks and opportunities include those resulting		our global footprint against
	from the rapidly evolving climate and sustainability		emerging and current
	regulation. In both cases a business owner is identified,		climate regulation to
	and the risk is assessed for both impact and likelihood		identify emerging risks.
	using the global risk framework. As the impact of emerging
	risks on specific sites or regions is understood, local
	business owners are identified, and the risks are moved to
	local risk ownership to drive mitigating actions.

1. and c) Describe the organisation's processes for identifying and managing climate related risks, and how these are integrated into the organisation's overall risk management

Our group risk framework, described on page 53, includes risk/opportunity areas across six categories and 17 subcategories, against which risk owners identify local interpretations. Sub-categories most relevant to climate include growth (organic and inorganic), innovation, production, sourcing, supply chain, and external environment, which incorporate the risks and opportunities referred to in appendix 1 of Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures June 2017.

Whole Group transitional and emerging risks and opportunities are currently identified by the Sustainability Committee through the 'sustainability risk register'. When fully defined, these risks are migrated into the appropriate local risk register and transferred to local ownership. This includes risks identified through scenario analysis.

Local physical climate related risks (both acute and chronic) are already embedded and managed in local risk registers with local owners and mitigation actions defined.

During 2022 the Risk Committee (page 53) received a presentation from the Chief Sustainability Officer on management of climate related risks as part of a focus review of sustainability risks.

In addition, the Sustainability Committee undertook a full review of the local climate related risks, identifying some regional inconsistencies which will be addressed in 2023.

We recruited a Group ESG Reporting Manager (SR page

1. to work with the pillar owners and sites to further embed risks, mitigating actions and controls.

Work with most material sites to ensure that mitigating actions are embedded in

site plans.

Address regional inconsistencies in local risk registers relating to physical climate risks.

Ensure that risks to the delivery of site level carbon roadmaps are identified in the local risk registers where they are owned and managed.

62 Croda International Plc Annual Report and Accounts 2022

Strategic report

Climate scenario analysis (CSA) methodology

The CSA was conducted using a standard methodology in line with the TCFD's guidance. Climate scenarios defined primarily by the Network for Greening the Financial Systems (NGFS) and supplemented with comparable Shared Socioeconomic Pathways (SSP) and Orbitas Finance scenarios, were used to model the potential climate related risks and opportunities that Croda may be exposed to, which were identified through our risk assessment process described in more detail on pages 62 and 66 of this report.

Three climate scenarios

	Orderly	Disorderly	Hot House World
Description	Assumes climate policies are introduced	Assumes uneven commitment to climate	Assumes the drive for economic and
	early and become gradually more	policies with some countries making	social development is coupled with
	stringent. There is increased international	relatively good progress while others fall	increased emissions due to continued
	coordination and commitment to	short of expectations. Disorderly	consumption of fossil fuels and the
	achieving development goals that reduce	scenarios exhibit higher transition risks	adoption of resource and energy intensive
	inequality across and within countries.	due to coordinated policies being delayed	lifestyles around the world. Climate
	Consumption is generally oriented toward	to latter half of the century and medium-	policies are implemented in some
	low material growth as well as lower	term and immediate progress being	jurisdictions, but global efforts are
	resource and energy intensity.	divergent across countries and sectors.	insufficient to halt significant warming.
NGFS	Net Zero 2050	Delayed Transition, Divergent Net Zero	Current Policies
scenarios
SSP	SSP 1-2.6	SSP 2-4.5	SSP 5-8.5
scenarios
Orbitas	Co-ordinated Projects	-	BAU Projections
scenarios
Estimated	1.5-2°C	2-3°C	3°C+
2100 warming

Three time horizons:

Short-term: to end 2025, this is aligned with our time horizon used in our viability assessment (page 59) with our interim sustainability milestones focused on delivery by or ahead of this date.

Medium-term: to end 2030, this is aligned to our Commitment to be Climate, Land and People Positive by 2030.

Long-term: to end 2050, this is aligned to our Commitment to be net zero by 2050.

Six time points:

The assessment considered six time points, each five years apart, from 2025 to 2050, with 2030 reflecting our medium-term timeframe.

Defining financial impact materiality:

Risk impact is assessed using the same six point financial impact scale used in our group risk framework and is colour coded as follows:

Risk impact score	Financial impact
1-2	Opportunity - Minor Impact

Building the scenarios:

The 2021 CSA model was used as a starting point with several steps taken to refine and refresh the analysis. The starting basis was updated to use actual financial and process data for 2021, re-baselined to remove the contribution of the majority Performance Technologies and Industrial Chemicals business divested in June 2022 and include the climate footprint of businesses acquired in 2021. Multi-disciplinary workshop groups were convened to review the assumptions for forecasting our growth (using financial assumptions used in our strategic forecasting process), and our demands for each of raw materials, energy and people. The baseline for our energy estimates and site water use are taken from our non-financial reporting system, Sphera, which is fed with quarterly actual data from all our sites globally.

Modelled in conjunction with external scenario data from the NGFS, Orbitas Finance and SSP to forecast and quantify the potential levels of climate related financial risk in line with Croda's risk matrix, the results of our 2022 assessment are shared on pages 67 and 68.

For each transitional risk we also considered the impact under the assumption that Croda continues to operate as today (business as usual) and secondly that currently planned mitigating actions to meet our verified science based targets are successfully implemented. This clearly illustrates the significance of the mitigating steps Croda is taking.

3-4	Low - Moderate Impact
5-6	High - Critical Impact

Croda climate scenario analysis has been conducted at an organisational level, however regions or sites that have material contributions to the overall risks have been identified, affording the opportunity to account for any dominant locations in the assumptions used.

Croda International Plc Annual Report and Accounts 2022

63

Non-financial disclosure continued

Task Force on Climate-related Financial Disclosures (TCFD) continued

Metrics and targets

						Next steps and timeframes
					What we have	supporting further
	How we comply			done in 2022	improvement
a) Disclose the	Our sustainability strategy (page 22) defines strategic	A detailed description of the	Develop dashboards to next
metrics used by	targets and milestones for 2030, progress towards which is	targets and our performance	level of detail to make metrics
the organisation	reported quarterly to the Executive and Board. The metrics	against these in 2022 is	and targets more transparent
used to assess progress, and a description of the targets	included in our Sustainability	at regional and sector levels in
to assess
are presented in more detail in our Sustainability Report on	Report on pages 36, 39	addition to Board and
climate related
pages 36, 39 and 40, and cover the following:	and 40.	Executive level reports.
risks and
opportunities in	•	Reducing emissions	•	Environmental Stewardship	As part of our due diligence	Complete detailed assessment
line with its	•	Carbon cover	•	Responsible Business	around the divestment of the	of our current metrics against
strategy and risk	•	Sustainable innovation	•	Quality Assurance	majority of the Performance	TCFD and emerging ISSB
management	•	Sustainable sourcing			Technologies and Industrial	recommendations.
		Chemicals business in June
process		and supplier partnerships
		2022 we rebaselined all
					relevant sustainability metrics
	Emissions metrics are recorded in our Sphera system by	back to our baseline year of
	all Croda locations globally and this is the single source	2018 and reviewed our 2030
	of data for reporting of these metrics. We include the	targets (see case study in our
	'reducing emissions' metric in our key metrics on	Sustainability Report page 40).
	page 48 and these are externally verified by Avieco	In every case we decided to
	(part of Accenture).			maintain or increase the level
					our target ambition.
	The Remuneration Committee includes sustainability targets
	in the Performance Share Plan for senior executives	Increased the shadow carbon
	currently relating to 10% of the award. In 2022 the targets	price applied to capital
	selected related to reduction of scope 1 and 2 emissions,	expenditure proposals from
	aligned with our external commitment to achieve a SBT	£55/tonne to £124/tonne in
	in line with a 1.5°C pathway and the development of	line with UK Government
	decarbonisation roadmaps (page 107).	recommendation.

1. Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas emissions and the related risks

Scope 1, 2 and 3 greenhouse gas emissions and our calculation methodology are disclosed on page 65. These are verified by Avieco (part of Accenture). Their formal independent verification statement is available at www.croda.com/carbonverification, which includes a summary of the calculation methodologies used.

Our chosen calculation of carbon intensity is not industry standard and uses 'value add' as a measure of profit. This allows us to demonstrate how we are decoupling economic growth from environmental impact.

Developed corporate scope 3 dashboards to increase transparency of emissions data.

Initiated carbon accounting to provide sectors with product carbon footprint data for the majority of our product portfolio.

Develop net zero roadmaps based on technology platforms rather than individual site level to support the transformation and future preparedness of our business.

1. Describe the targets used by the organisation to manage climate related risks and opportunities and performance against targets

We have set strategic targets and milestones for 2030 as described in section a) above. Progress towards meeting these targets is reported quarterly to the Executive and Board. All targets are absolute and are described in more detail on pages 36, 39 and 40 of our Sustainability Report.

A detailed description of the targets and our progress towards these in 2022 is included in our Sustainability Report pages 36, 39 and 40.

A full non-financial data pack has been developed and is available on our website at www.croda.com/sustainability.

All non-financial metrics to be captured in Sphera in time for 2023 annual reporting, and to be fully linked to TCFD Appendices A1 and A2.

Develop drill down reporting dashboards to ensure target delivery status is transparent across the Group.

Achieve limited assurance of Climate Positive KPI's for 2023.

64 Croda International Plc Annual Report and Accounts 2022