Novartis : The report

Reporting Criteria for Novartis in Society Integrated Report (NiS) 2022

Basis for Reporting

This document provides definitions and methodologies for key environmental, social and governance (ESG) performance indicators in the Novartis in Society (NiS) Integrated Report 2022. Our ESG reporting covers the January 1 to December 31, 2022, reporting period.

The Novartis in Society Integrated Report is prepared in alignment with the Integrated Reporting Framework (published by the IFRS Foundation) and the Task Force on Climate-related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB) and the latest non-financial standards published by the Global Reporting Initiative (GRI).

For disclosures relevant to our sustainability-linked bond, we follow the terms and conditions as outlined within the Final Listing Prospectus, dated September 21, 2020, for the "Patients reached with strategic innovative therapies" and "Patients reached through flagship programs" ESG performance metrics.

In addition, we take certain other internal principles and guidelines into account, including the Novartis Code of Ethics. We also have established procedures for gathering, collecting, and aggregating data for the ESG performance metrics.

We apply a financial control boundary and have detailed the scope of our reporting by metric in the sections below. All Novartis legal entities within the Novartis Group consolidated financial statements are in scope for the ESG performance metrics unless otherwise indicated.

We aim to fully integrate any acquired entities or businesses into our ESG performance metrics data collection.

Document updated on January 31, 2023

Reporting Frequency

We gather data internally on a monthly, quarterly, or annual basis, depending on the type of metric, and report publicly on an annual basis in the Novartis in Society Integrated Report.

Data sources and systems

Our objective is to gather and report reliable and robust data. Our data reporting systems are evolving, and we continue to work to align data recording and reporting methods across our business units. Data sources and systems for each ESG performance metric are outlined in the tables below.

Misstatements and Corrections

We make every effort to capture all information as accurately as possible. Any data that is subsequently found to be materially in error or where conversion factors may have changed, will be clearly indicated. Materiality is assessed based on judgment of what we believe would impact our readers. This data will then be restated for purposes of baselines and trend analysis. We continue to work and invest on enhancing our ESG data systems and governance to improve the quality of our data going forward.

Verification / Assurance

Independent limited assurance is provided by KPMG over data for the current reporting year 2022 on the performance indicators on pages 81-84 of the Novartis in Society Integrated Report. The limited assurance report is issued in accordance with International Standards of Assurance Engagements ISAE 3000 and ISAE 3410 and published as part of the Novartis in Society Integrated Report.

Group Finance

Patient health and safety

ESG Category	Metric, Methodology, Definition	Assumptions, Calculation, Data	Scope and Exclusions
		collection
GxP Audits	Audits conducted by Novartis' quality auditors at	Data is collected via the internal database	Includes Novartis quality audits completed
	GxP suppliers to Novartis (external audits) or at	AQWA.	during the reporting year, excludes any
	facilities owned by Novartis (internal audits).		other type of audits such as financial or
	Unit of measure: number of completed audits		compliance audits.
Regulatory Authorities	Inspections performed by various health	Data is collected as soon as feasible via	Includes all inspections performed and
	authorities.	internal database AQWA.	completed by various authorities at facilities
	FDA inspections are a part of the total inspections		owned by Novartis during the reporting
	and relate to inspections conducted by the US		year.
	Federal Drug Administration.
	Unit of measure: number of completed inspections

Recalls	Recalls are counted each time Novartis completed
	a recall. A recall can be triggered by various
	stakeholders.
	FDA recalls are a part of the total recalls and relate
	to recalls performed in the US market.
	Unit of measure: number of recalls

Data is collected via the internal database AQWA.

Recalls include any type of Novartis' product recalls (mandatory, requested, voluntary) either commercial or in connection with a clinical trial. A recall can affect various countries.

Group Finance

Supply chain

ESG Category	Metric, Methodology, Definition	Assumptions, Calculation, Data	Scope and Exclusions
		collection

Suppliers risk-	Number of suppliers assessed:
assessed by 3rd Party	As part of onboarding of suppliers or existing
Risk Management	suppliers of new products, services, and sites are
(TPRM)	subject to a TPRM risk-assessment. The
	respective business owner fills out a questionnaire
	and based on the answers provided, a TPRM risk
	assessment is triggered according to an embedded
	risk matrix (type of spend and country)
	Unit of measure: number of risk assessments performed and
	closed on suppliers
	The assessments are done using these risk areas:
	anti- bribery, animal welfare, health/safety &
	environment, information security & data privacy,
	labour rights and quality GmP (up to November
	2022).
	Unit of measure: number of risk assessments performed and
	closed on suppliers by risk area
	Actions taken:
	Depending on the outcome of the risk assessment
	an audit of the supplier might be triggered. In
	some cases, the risk assessment result requires
	remedial actions to be agreed and if not possible -
	the supplier engagement ceases.
	Unit of measure: number of actions taken by type of action

The total number of risk- assessed suppliers is aggregated in the supplier onboarding system whereby one supplier can trigger more than one assessment depending on the risk areas involved. The same applies for new sites or new products of an existing supplier.

Not all suppliers trigger a detailed risk assessment. The trigger is based on the outcome of the suppliers' onboarding questionnaire.

TPRM assessments do not include the GxP audits.

Group Finance

People

ESG Category	Metric, Methodology, Definition	Assumptions, Calculation, Data	Scope and Exclusions
		collection

Headcount and FTE	Headcount reflects the total number of employees
	on Novartis payroll systems.
	Full-time equivalent adjusts headcount for
	employees working less than 100%.
	Management level is defined by the Global Job
	Family Architecture and Novartis Top Leaders.
	Unit of measure: number of headcount and FTE at the end of the
	reporting period

Data is collected via the various payroll systems and central HR system HR Core.

All employees on a payroll for a Novartis legal entity that is within the Group's consolidation scope. It does not include external employees, third party contractors working for external service providers or employees on unpaid leave.

Training and learning	Annual training hours completed by Novartis	Data is collected via the internal learning /	It includes all training hours that represent
	internal employees.	training platform HR Core and the training	a completed course during the reporting
	Unit of measure: number of training hours completed during the	dashboard.	year.
	reporting year
Nationalities	Number of nationalities employed by Novartis and	Management is defined by Global Job Level	It represents the number of nationalities as
representation	nationalities represented in Novartis' management	Architecture and Novartis Top Leaders.	registered in the internal payroll registries
	Unit of measure: number of nationalities employed	Nationalities are collected via the central HR	during employees' onboarding (primary
		System HR Core.	nationality). Double nationalities are not
			counted.

Employee	Employees represented by an employee
representative body re- representative body or covered by a collective
presentation	bargaining agreement in percent of total
	employees on non-management level.

Unit of measure: percentage of non-management employees represented by an employee representative body or covered by a collective bargaining agreement

Data collected by means of a survey by the People & Organization function.

Generally, it includes only employees of non-management level.

Turnover	Number of employees leaving Novartis during the
	reporting period.
	We distinguish between voluntary turnover or non-
	voluntary turnover (including redundancies,
	divestments, retirements, and deaths).

The rate of turnover is measured as the number of employees who left Novartis during the reporting period divided

by the average number of employees (13 months average).

The calculation includes permanent employees and excludes temporary employees.

Group Finance