Koncar Elektroindustrija d d : 29.6.2022. Report of the KONČAR Group according to the 2021 EU Taxonomy

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Vrijednosnica : KOEI-R-A

ISIN: HRKOEIRA0009

LEI: 74780000H0SHMRAW0I15

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Zagreb, 29 June 2022

Subjects: Report of the KONČAR Group according to the 2021 EU Taxonomy

Inn accordance with Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (hereinafter: the Taxonomy Regulation) and enclosures thereto, Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 supplementing the Taxonomy Regulation, KONČAR Group, hereby publishes key performance indicators of the KONČAR Group for 2021 in connection with services linked to economic activities that are deemed sustainable.

The KONČAR Group reports indicators for economic activities included in the 2021 EU Taxonomy separately for the 2021 financial year and the indicators are also integrated into the Sustainability Report for 2021 of the KONČAR Group.

Končar - Electrical Industry Inc.

THE EUROPEAN UNION TAXONOMY REGULATION AND

TAXONOMY KEY PERFORMANCE INDICATOR REPORT OF KONČAR GROUP

1. Introduction

With the 2030 Climate Target Plan, the European Union proposes to raise the EU's ambition on reducing greenhouse gas emissions to at least 55% below 1990 levels by 2030, with the goal of becoming climate-neutral by 2050.

In order to deliver the 2030 Climate Target Plan, the European Commission has put forward a number of proposals to reduce net greenhouse gas emissions through climate, energy, transport and tax policies.

The realization of such ambitious plans requires significant investments in all segments of economic activities, and the wider community. Given that there was no uniform framework that would facilitate identification of activities and investments that contribute to sustainable development, the European Parliament and the Council of the European Union adopted the Taxonomy Regulation in 20201 and additional delegated acts that together form the EU's taxonomy system of climate- sustainable activities. By defining environmentally eligible and aligned activities, the taxonomy system enables increased transparency of sustainability information, helps identify activities that significantly contribute to environmental objectives, and establishes a framework that facilitates financing and redirects cash flows to sustainable technologies and undertakings. This allows access to new sources of financing in the global capital market and reduces unfair competition from undertakings that use sustainable development for the purpose greenwashing.

Pursuant to the Taxonomy Regulation, for the purposes of establishing the degree to which an investment is environmentally sustainable, an economic activity shall qualify as environmentally sustainable where it meets four basic criteria:

• the activity contributes substantially to one or more of the environmental objectives set out in Article 9 of the Taxonomy Regulation,
• does not significantly harm any of the environmental objectives,
• is carried out in compliance with the minimum safeguards laid down,
• complies with technical screening criteria that have been established, i.e. with science-based criteria of technical screening.

1Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088

The Regulation defines the environmental objectives:

• climate change mitigation;
• climate change adaptation;
• the sustainable use and protection of water and marine resources;
• the transition to a circular economy;
• pollution prevention and control;
• the protection and restoration of biodiversity and ecosystems.

In the first year of application and pursuant to Article 8 of the Taxonomy Regulation, any undertaking which is subject to an obligation to publish non-financial information shall include in its non-financial statement or consolidated non-financial statement information on three indicators associated with environmental objectives climate change mitigation and climate change adaptation. The reported key performance indicators pertain to:

• the proportion of turnover derived from products or services associated with economic activities that qualify as environmentally sustainable under the provisions of the Taxonomy,
• the proportion of capital expenditure related to assets or operations associated with economic activities that qualify as environmentally sustainable under the provisions of the Taxonomy,
• and the proportion of operating expenditure related to assets or processes associated with economic activities that qualify as environmentally sustainable under the provisions of the Taxonomy.

2. The assessment of taxonomy-eligible activities for KONČAR Group

KONČAR Group's report on the requirements set out by the Taxonomy Regulation and delegated acts is based primarily on activities classified in line with the NACE2 classification.

The main business segments of KONČAR Group are manufacture of equipment for energy generation, manufacture of renewable energy technologies, energy transmission and distribution, rail solutions and infrastructure, and digital solutions and platforms.

2NACE (Nomenclature of Economic Activities) is the European statistical classification of economic activities. NACE groups organizations according to their business activities and is used to ensure comparability of statical data collected across the Union.

In line with the NACE classification and for the purposes of the report prescribed by the Taxonomy Regulation ("Report"), products and services analysed in order to identify taxonomy-eligible activities are classified into 6 basic sectors:

• Sector 3 Manufacturing
• Sector 4 Energy
• Sector 5 Water supply; sewerage, waste management and remediation activities
• Sector 6 Transport
• Sector 7 Construction and real estate
• Sector 8 Information and communication

For the purposes of the Report, with the support of expert consultants, a detailed analysis of the production portfolio was conducted in all Group companies, with participation of professional functions in manufacturing, research and development, and finance.

The Management Board of KONČAR - Electrical Industry Inc. has reviewed and adopted the Report and, in cooperation with the professional functions in charge of strategy implementation and activities in the field of sustainable development, agreed on a roadmap of activities in this area.

In all manufacturing activities, the objective is to work towards manufacturing processes that will create quality and long-lasting products with revitalization and reuse capabilities. The methodology of manufacturing processes should be such that the optimal amount of environmentally eligible resources is used to their maximum capacity. Rational use of basic resources (water, gas, electricity) further contributes to sustainable manufacturing.

New product development that advances the reduction of environmental pollution and supports energy savings remains one of the most important objectives, which are outlined by the adopted business strategy.

2.1. Taxonomy-eligible economic activities

Consolidated income that meets the requirements of the eligible economic activities for 2021 amounts to HRK 1,008.9 million, or 29% of the total income generated from the sales of products and services in 2021. The most significant part of income from taxonomy-eligible economic activities pertains to the group of activities related to the manufacture of low-carbon technologies for transport (rail vehicles), activities related to the transmission and distribution of electricity and activities in the development of digital solutions and platforms.

The list of activities from which sales income was generated in 2021 is given in the table below:

		Income in
Activities		HRK
by sector	Name of activity	thousand
3.1	Manufacture of renewable energy technologies	5,555
3.3	Manufacture of low carbon technologies for transport	443,646
4.3	Electricity generation from wind power	17,971
4.5	Electricity generation from hydropower	75,378
4.8	Electricity generation from bioenergy	2,278
4.9	Transmission and distribution of electricity	296,626
	Collection and transport of non-hazardous waste in source
5.5	segregated fractions	9,850
6.14	Infrastructure for rail transport	47,691
	Installation, maintenance and repair of energy efficiency
7.6	equipment	246
7.7	Acquisition and ownership of buildings	24,957
8.1	Data processing, hosting and related activities	351
8.2	Data-driven solutions for GHG emissions reductions	1,786
8.4	Computer programming, consultancy and related activities	82,578
	Total numerator	1,008,913
	Total denominator	3,477,453
	Proportion of taxonomy-eligible economic activities	29%

KONČAR Group generates a significant part of income from an activity classified under C27.11 NACE group - Manufacture of electric motors, generators and transformers, which does not meet any of taxonomy-eligible criteria of environmentally sustainable economic activities3. Manufactured transformers, generators and electric motors do not have a significant adverse environmental impact, particularly if they are installed in devices for the generation of energy from renewable

sources (the percentage of such installation is currently not monitored at KONČAR Group level).

However, as they form part of the finished product, they do not in themselves fall within the scope of the taxonomy reporting, therefore this activity is not a taxonomy-eligible activity for KONČAR Group.

On the other hand, these devices enable our end-customers operating in other sectors to make their activities taxonomy-eligible and ultimately aligned with the Taxonomy Regulation.

3 Commission delegated regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the

European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives