Klöckner : Sustainability Reporting 2023

Sustainability reporting

of Klöckner & Co SE

Sustainability reporting 2023 of Klöckner & Co SE	1
Employees action area	19
Responsible Conduct action area	25
Environment action area	31
Digitalization action area	36
Customers action area	38
Independent Auditor's Limited Assurance Report	46

KLÖCKNER & CO SE ANNUAL REPORT 2023

Facts 2023

Introduction of	Lost Time Injury
			Frequency
		5.7
and
			(target value for 2023 of 5.9)

Calculation and management of product emissions (Product Carbon Footprint)

Group-wide electricity consumption from renewable sources

96%

Winner German Sustainability Award

in the category "Transformation Field Climate"

Reduced Scope 1 & 2 emissions by 52% compared to SBTi baseline year 2019

CO2 emissions

42 Tto 2 Tto 7,165 Tto

Scope 1 emissions	Scope 2 emissions	Scope 3 emissions
	("market-based")

>1,500 >19,300

children and young people supported	digital learning units completed
through social projects	at the Kloeckner Academy

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Klöckner & Co SE sustainability reporting 2023

Klöckner & Co is one of the largest producer-independent distributors of steel and metal products worldwide. As we are not tied to any particular steel producer, customers benefit from our centrally coordinated procurement and wide range of national and international sourcing options from around 40 key suppliers across the globe. These include the world's largest steel producers. Responsible conduct plays a central role in relation to our business model and our self-perception as a tradition-rich company. For us, responsibility means aligning all our business activities with good ethics, social responsibility, environmental stewardship and commercial success. This ethos is enshrined on our Group-wide Klöckner & Co values. These ensure that we share a common understanding for our conduct on a day-to-day basis. Sustainability along the steel value chain is an issue of special importance and is a core element of our "Klöckner & Co 2025: Leveraging Strengths" strategy. As a distributor and important link in the value chain, we see it as our duty to continuously improve processes in order to minimize the negative and maximize the positive impacts of our business activities. A key driver in communicating our sustainable transformation both internally and externally is our purpose statement: "We partner with customers and suppliers to deliver innovative metal solutions for a sustainable tomorrow." This guides us in our day-to-day work. It provides direction for our employees and showcases to our customers and business partners what they can count on. In condensed form, it is expressed in our slogan, "Your partner for a sustainable tomorrow."

Our approximately 6,400 employees apply their skills and enthusiasm to meeting our customers' needs. We provide customers with an end-to-end solution from procurement through logistics to processing, including individual delivery and 24-hour service - processes we are increasingly digitalizing and automating. For example, we use a variety of digital tools and applications to enable us to provide our customers and business partners with an even broader spectrum of steel and metal products as well as services. Through our distribution and logistics network with some 150 distribution and service locations in Europe and North America, we serve over 85,000 customers. Concentrated mainly in the construction industry, machinery and mechanical engineering, the transportation industry and other metal transforming companies, our customer base consists primarily of small to medium-sized steel and metal consumers (for more in-depth information about Klöckner & Co's business model, see page 33 of the management report).

Sustainability strategy

We embrace our responsibility for the environment, safety and our community. This commitment must be reflected in all our actions and decisions. Safety standards ensure a working environment that protects our employees. For an authentic presentation of our position as a company, we report transparently on integrity matters in each action area. We demonstrate accountability and commitment to our decisions and actions, and are dedicated to a culture of dealing openly with failures.

We view our dedicated sustainability strategy from an overarching environmental, social and governance (ESG) perspective and purposefully integrate that view. Social responsibility and reliable corporate governance are integral elements here alongside environmental aspects.

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We believe that innovation, technology and new business models will especially enable the steel and metal industry's successful transformation to sustainability. As part of our Group strategy, we are consequently working as a pioneer of a sustainable steel industry to establish innovative business models by creating a comprehensive portfolio of sustainable customer solutions. By expanding our product and service portfolio, we are seizing the strategic opportunity to integrate the attractive new business area of sustainable solutions into our business model. We see this transformation as a unique growth opportunity - not just in the future, but already today.

Under our Nexigen® umbrella brand, we have focused our sustainable product and service portfolio across the Group, providing transparent, CO2-reduced solutions in the categories of materials, processing, logistics, circularity (closed-loop) solutions and comprehensive Sustainability Advisory Services for sustainable customer solutions. In this way, we are already helping customers to source CO2-reduced steel and metal products, while our smart software solutions give them visibility into the carbon footprint of the products they buy. To provide our customers with optimum support in establishing sustainable value chains, we have introduced rating scales for our CO2-reduced steel, stainless steel and aluminum products. These scales are rooted in international, science-based standards and categorize the CO2-reduced materials according to their certified emissions along the entire value chain from resource extraction to production and processing, or cradle to Klöckner exit gate. They serve customers as a guide and a comparison tool for determining the carbon footprint of end products. Through partnerships, we already offer our customers CO2-reduced steel and metal products today.

Categorization for carbon steel, in kg CO2e per ton of steel.

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In addition, we provide customers with an individual Product Carbon Footprint (PCF) for almost every item in our product portfolio. This allows customers to reliably, transparently and easily verify the carbon footprint of a product purchased from Klöckner & Co. With the Nexigen® PCF Algorithm, we have developed an innovative tool whose automated PCF calculation methodology is certified by TÜV SÜD. The Nexigen® PCF Algorithm's methodology for calculating the PCF follows the internationally recognized Greenhouse Gas Protocol and ISO 14067, ref. 14040 and 14044, and, in accordance with those standards, calculates the product's cradle-to- customer entry gate emissions. As a result, customers have information about the carbon footprint of their materials, thus enabling them to make more sustainable product decisions.

With the introduction of Nexigen® Data Services for the active management of product carbon emissions, we have made a further major step towards decarbonizing the steel and metal industry. This digital technology solution will enable customers to view, at a glance, the cradle-to-customer entry gate carbon emission history of all products so far sourced through Klöckner & Co, and automatically receive suggestions for alternative CO2-reduced products, and thus potential for reductions compared to past orders. The use of open blockchain technology ensures a high level of data integrity and seamless transparency along the entire value chain.

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In recognition of our contribution to the decarbonization of the steel industry, we won the prestigious German Sustainability Award 2023 in the Climate Transformation category. This shows the importance of the transformation that Klöckner & Co is contributing to drive as an externally acclaimed pioneer of a sustainable steel industry.

In addition to the strategic opportunities we see in the sustainable transformation of the steel industry, we are meeting our responsibility to reduce our own emissions and those of our upstream and downstream value chains. Therefore, we have designated the reduction of carbon emissions as a non-financial target for variable remuneration of the Management Board, the entire first management level below the Group Management Board and additional executives at levels two and three.

Our net zero carbon targets have been recognized by the Science Based Targets initiative (SBTi) as science- based targets in the standard validation process. Klöckner & Co has thus committed to reducing Scope 1 and 2 emissions and directly influenceable Scope 3 emissions to net zero by 2040 and emissions in the entire value chain by 2050. Our path to net zero is based on the following science-based medium- and long-term carbon reduction targets:

*) Scope 3 emissions under direct influence: Fuel and energy-related activities (3.3) [not included in Scope 1 and 2]; waste generated in operations (3.5); business travel (3.6); employee commuting (3.7); downstream transportation and distribution (3.9).

**) Scope 3 emissions not under direct influence: Purchased goods and services (3.1); capital goods (3.2); upstream transportation and distribution (3.4).

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Our corporate goal is the verifiable reduction of emissions from our business activities. As this is a continuous, long-term process, in addition to our reduction measures, we offset all of our Scope 1 and 2 carbon emissions, without taking them into account against our reduction targets.

For us, the dimensions of sustainability also include social responsibility and reliable governance in addition to environmental factors. This is because, for Klöckner & Co, responsible conduct based on ethical convictions paves the way for long-term business success and hence also for sustainability. We shape the social dimension in partnership with our employees, suppliers and customers, and with the involvement of the surrounding community. Occupational health and safety is a priority in our Company. In particular, we are committed to protecting the health of our employees. To that end, we have created the Safety 1st and Kloeckner Cares initiatives. As part of our social commitment, we provide targeted support for educational programs in the community.

We are committed to reliable governance, for example by creating transparency and demonstrating commitment. Responsibility and sustainable value creation are at the forefront of our business management and control. This enables us to build trust among business partners, employees, investors at home and abroad, and the general public.

Sustainability management

As a tradition-rich company, Klöckner & Co considers it its duty to ensure its own future viability by means of long-term, strategic goals. In this process, responsibility for internal and external stakeholders plays an important role that follows from the size and international presence of our business activities. To shape these relationships in the long term and in a responsible manner for the benefit of all, we combine all relevant activities in a Group-wide sustainability management system. The CEO is functionally responsible for the area of sustainability. Responsibility for sustainability management, coordinating all sustainability activities and compiling the Group non-financial report lies with the Corporate Strategic Sustainability Department. The teams established under the internal Sustainability and Human Rights Committee consist of managers from the corporate departments Strategic Sustainability, Investor Relations, Legal & Compliance, Group HR/Communication, Risk Management, Logistics, Procurement and the Group's key sustainability stakeholders. These interdisciplinary and cross-functional teams determine the main pillars of the sustainability strategy and, regarding the implementation of sustainability initiatives, coordinate their activities closely with the respective segments and their departments within the Klöckner & Co SE Group.

Sustainability Committee determines main pillars of sustainability strategy

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Commitment to sustainability and fairness

As a pioneer of a sustainable steel industry, we have signed up to various standards and initiatives Group-wide that demonstrate our ambitious commitment. By pursuing a holistic approach, we aim to actively drive the transformation of the economy and society through the sustainable strategic orientation of our business. Our voluntary commitments demonstrate our ambition and responsibility. For example, we are a supporter of Race To Zero, Business Ambition for 1.5°C and Fair Company. In addition, we contribute towards the achievement of the Sustainable Development Goals.

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Group non-financial report

This sustainability reporting for 2023 includes the Group non-financial report of Klöckner & Co SE in accordance with Section 315b of the German Commercial Code (HGB), the EU Taxonomy Regulation (EU) 2020/852 of the European Parliament and of the Council and the delegated acts adopted in this respect, as well as the interpretation presented in the section titled "EU Taxonomy" of the Separate Group non-financial report. In the Group non-financial report, we present the non-financial issues of major relevance to our business activities together with the impact of those activities on aspects comprising environmental matters, employee matters, respect for human rights as well as anti-corruption and bribery. This includes the chapters on the areas of action regarding Employees, Responsible Conduct and Environment. In addition, we provide transparent reporting on our broader engagement with regard to sustainability in the chapters on the areas of action Digitalization and Customer Satisfaction. We report on social matters in the social commitment section of the Responsible Conduct chapter. The reporting period for the Group non-financial report is the fiscal year 2023. Unless otherwise specified, the information covers all fully consolidated companies of the Klöckner & Co SE Group. No framework was used in the preparation of the Group non-financial report, as we do not require a framework in order to present the relevant information in a structured and rigorous manner. We base our climate reporting on the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD). From the coming 2024 reporting year, we will carry out our non-financial reporting in accordance with the Corporate Social Responsibility Directive (CSRD) on the basis of the European Sustainability Reporting Standards (ESRS).

PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft was engaged to provide a limited assurance review of our sustainability report, which contains the Group non-financial report, for the period January 1, 2023 to December 31, 2023. With the exception of the cross-references to the Group management report and the consolidated financial statements of Klöckner & Co SE, all cross-references are for informational purposes only. They are not part of the Group non-financial report and are therefore not subject to the limited assurance engagement.

Materiality analysis

The topics to be included in the Group non-financial report are specified and formulated within the context of our sustainability management. Our definition of sustainability comprises all the areas that contribute to securing the long-term success - i.e. the future viability - of Klöckner & Co. We review the reporting topics on an ongoing basis in order to ensure that we are advancing the key issues that are material to a sustainable, forward-looking strategy in a dynamic market environment. In 2020, we conducted a detailed materiality analysis. The prioritization of the issues reflects their business relevance (net assets, financial position and results of operations, innovation and reputation) as well as the impacts of our business activities and the upstream supply chain on the environment and on society. Those topics were categorized as material under double materiality within the German Commercial Code. The aggregate results were coordinated with the CEO to ensure comprehensive and integrated reporting for the Group. The topics deemed material are the focus areas of this report.

In preparation for the implementation of the CSRD framework and based on the revisions to the draft guidelines, which are subject to change, we carried out an initial systematic double materiality analysis in the reporting year, taking into account the requirements in ESRS 1 and the Klöckner & Co-specific value chain, and reviewed it internally with the Sustainability Committee.