EU Taxonomy

The European Union’s Taxonomy Regulation 2020/852 (EU Taxonomy), and particularly its delegated acts, are the basis for various current and future initiatives by the European Union (EU) to facilitate sustainable financial reporting. As a company required to submit a nonfinancial statement, Covestro must, in accordance with Article 8(1) of the Taxonomy Regulation, disclose information about how and the extent to which our activities are associated with economic activities which qualify as environmentally sustainable economic activities based on the Taxonomy Regulation. The Taxonomy Regulation introduces key performance indicators (KPIs) to enable and improve performance measurement. In fiscal 2021, our report includes information in line with the Taxonomy Regulation and its delegated acts, two of which were published at the reporting date. One delegated act defines technical screening criteria for determining activities that contribute substantially to the environmental objectives of climate change mitigation and adaptation. The other delegated act spells out the content and presentation of the information to be disclosed.

We have elected to exercise the exemptions permitted in fiscal 2021. These allow us to initially only report on our taxonomy-eligible economic activities in connection with the aforementioned environmental objectives. Reporting on our taxonomy-aligned activities is not required. Some legal concepts in the EU Taxonomy have not been defined conclusively, which has led to uncertainty regarding their interpretation.

Taxonomy-Eligible Economic Activities

In fiscal 2021, we identified the following taxonomy-eligible economic activities as defined in Article 3 of the Taxonomy Regulation relating to the environmental objectives of climate change mitigation and adaptation:

• Manufacture of hydrogen
• Manufacture of chlorine
• Manufacture of organic base chemicals
• Manufacture of nitric acid
• Manufacture of plastics in primary form

Some activities in our portfolio are not covered by the taxonomy (e.g., the manufacture of isocyanates such as MDI, TDI, etc.)

Calculation of Taxonomy KPIs

We calculate taxonomy KPIs and report on the nature of our taxonomy-eligible economic activities in accordance with Article 10(3) and Article 11(3) of Regulation (EU) 2020/852. The KPIs we are required to report the share of turnover, capital expenditure (CapEx), and operating expenditure (OpEx) that are generated by taxonomy-eligible activities. The way in which we define and document these KPIs and run the data queries for the calculations prevents double-counting amounts when allocating turnover, CapEx, and OpEx to our economic activities. Where data could not be definitively allocated, we apply suitable allocation models to appropriately reflect them in the KPI calculation. Controls in our internal control system are used to support accurate calculation of the taxonomy KPIs reported and the underlying processes.

In accordance with section 1.2.3. of Annex 1 of the delegated act specifying the content and presentation of information to be disclosed, we have elected not to report on the activities of joint ventures.

Turnover

The EU Taxonomy defines turnover as net sales of goods or services, including intangible goods. The share of turnover generated from taxonomy-eligible economic activities is divided by net sales. 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 for the fiscal 2021 was then calculated for the identified products and a ratio derived using Covestro’s sales reported in the Income Statement (denominator).

Capital Expenditure

Covestro’s capital expenditure (CapEx) as defined in the EU Taxonomy includes acquisitions of property, plant and equipment and intangible assets during the fiscal year under review before depreciation/amortization/impairment losses and remeasurement, including those arising from remeasurement and impairment losses for the relevant fiscal year without changes in fair value. This also includes all property, plant and equipment, and intangible assets resulting from business combinations. The taxonomy-eligible CapEx relates to assets or processes associated with taxonomy-eligible economic activities, or that are part of a plan to expand taxonomy-aligned economic activities or to develop taxonomy-eligible into taxonomy-aligned economic activities, or that relate to the acquisition of products from taxonomy-eligible economic activities and individual measures that enable target activities to be conducted in a low-carbon manner or reduce emissions of greenhouse gases.

Covestro uses the investments in and acquisitions of property, plant and equipment and intangible assets as reported in the Notes to the Consolidated Financial Statements in the Annual Report 2021 (denominator). Of these, the share of taxonomy-eligible CapEx must be determined (numerator). To this end, the products identified as originating from taxonomy-eligible economic activities were allocated to the corresponding CapEx. In addition, individual expenditures from the acquisition of products from taxonomy-eligible economic activities and individual measures implemented to reduce greenhouse gas (GHG) emissions are taken into account. For this KPI, we calculated the ratio of various taxonomy-eligible CapEx to investments in and acquisitions of property, plant and equipment and intangible assets for Covestro as reported in the Annual Report.

Operating Expenditure

Operating expenditure (OpEx) as defined in the EU Taxonomy comprises direct, uncapitalized costs relating to research and development, building renovation projects, short-term leases, maintenance and repairs, and all other expenses directly related to the daily maintenance of assets classified as property, plant and equipment that are necessary for ensuring the Group’s functioning. The taxonomy-eligible operating expenditure relates to assets or processes associated with taxonomy-eligible economic activities, or that are part of a plan to expand taxonomy-aligned economic activities or to develop taxonomy-eligible into taxonomy-aligned economic activities, or that relate to the acquisition of products from taxonomy-eligible economic activities and individual measures that enable target activities to be conducted in a low-carbon manner or reduce emissions of greenhouse gases, or to individual building renovation projects.

Covestro uses its expenditure on maintenance and repairs, renovations, research and development, and short-term leasing costs (denominator). Of these, the share of taxonomy-eligible OpEx must be determined (numerator). To this end, the products identified as originating from taxonomy-eligible economic activities were allocated to the corresponding OpEx. In addition, individual operating expenses from the acquisition of products from taxonomy-eligible economic activities and individual measures implemented to reduce GHG emissions and renovate buildings were taken into account. This ratio is calculated exclusively for taxonomy reporting.

Reporting of Taxonomy KPIs

The KPIs below were calculated according to the aforementioned methods: