Notes to the Consolidated Financial Statements of the Covestro Group – Notes to the Statement of Financial Position

20. Other Provisions

The following table shows the changes in the individual provision categories in fiscal 2023:

Taxes

Provisions for taxes comprised provisions for other types of non-income taxes amounting to €1 million (previous year: €2 million).

Environmental Protection

Provisions for environmental protection mainly relate to the rehabilitation of contaminated land and recultivation of landfills as well as water protection measures at sites in the United States and Spain.

Restructuring

As of December 31, 2023, provisions for restructuring included €4 million (previous year: €1 million) for severance payments.

Personnel

Personnel-related provisions are mainly those recorded for short-term and long-term variable compensation and other personnel-related provisions.

Long-term Incentive Programs

The Covestro Group’s long-term incentive programs entail commitments offered collectively to different groups of employees. As a general rule, all obligations from long-term compensation programs are covered by provisions. As of the reporting date, their amount corresponds to the fair value of the entitlement earned of the respective commitments to the employee groups. All resulting valuation adjustments are recognized in profit or loss.

The Board of Management, senior executives, and other managerial employees at Covestro are entitled to participate in the Prisma long-term, share-based compensation program. A percentage of the employee’s annual base salary – based on his/her position – is defined as a target for variable payments (Prisma target opportunity). The payout is calculated by multiplying the Prisma target opportunity by the total shareholder return (total of Covestro’s closing stock price* and all of the dividends distributed in the relevant performance period divided by the opening stock price) and the performance of Covestro’s stock relative to the STOXX Europe 600 Chemicals index^**. In 2021, Prisma was expanded to include a sustainability component that encompasses Covestro’s target for reducing annual greenhouse gas emissions [CO₂ equivalents] at the Scope 1 emissions level. For the tranche beginning in fiscal 2023, Scope 2 emissions were added to the sustainability component.

• See Comepensation Report, section “Long-Term Variable Compensation” for more information on the LTI sustainability component.

The payout is capped at 200% of the Prisma target opportunity. If Covestro’s stock were to significantly underperform the STOXX Europe 600 Chemicals index (e.g., if the stock price declined while the index increased in value), Prisma target attainment could amount to zero, in which case there would be no payout. The target achievement for the 2019–2022 tranche amounted to 27.0% and was distributed in the amount of €7 million, mainly in January 2023.

The net expense for all long-term incentive programs amounted to €57 million (previous year: €9 million), of which €1 million (previous year: €5 million) was attributable to the Covestment share-based participation program, explained in greater detail in the following section.

The fair value of the Prisma share-based incentive program recognized in the provision amounted to €87 million as of December 31, 2023 (previous year: €39 million). The fair value was calculated using the Monte Carlo simulation method on the basis of the following key parameters pertaining to the reporting date:

Share-Based Participation Program (Covestment)

The Covestment share-based participation program was suspended for all Group companies in 2023. Because of local rules in the United States, employees there could still acquire shares under the 2022 Covestment program in the year 2023. Employees were able to invest a fixed amount of their compensation in Covestro shares, which Covestro supplemented through an employer subsidy. The discount granted on the subscription amount in the United States in the year 2023 was 30%. The total amount for acquiring shares was limited to USD 4,000.

Approximately 50,500 shares were purchased by employees at a weighted average share price of €44.87 under the Covestment program in fiscal 2023. The purchased shares are subject to a vesting period of at least one year from the subscription date.