EU taxonomy disclosure

The Taxonomy Regulation establishes the framework for the EU taxonomy by setting out four conditions that an economic activity must meet in order to qualify as environmentally sustainable. A qualifying activity must:

1. Contribute substantially to one or more of six environmental objectives, being:

• Climate change mitigation
• Climate change adaptation
• Sustainable use and protection of water and marine resources
• Transition to a circular economy
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems

2. Do no significant harm to any of the other environmental objectives

3. Be carried out in compliance with minimum (social) safeguards

4. Comply with technical screening criteria. The technical screening criteria specify the performance requirements for any economic activity that determine under what conditions that activity makes a substantial contribution to a given environmental objective and does not significantly harm the other objectives

For the financial year 2022, equal to the financial year 2021, two of the six objectives listed above have been further detailed out and are applicable for reporting: climate change mitigation and climate change adaptation. Companies are required to report on the proportion of turnover (revenues), capital expenditures (CapEx) and operating expenditures (OpEx) that is associated with environmentally sustainable economic activities, and to what extent these activities are aligned (i.e. contributing to one or more environmental objectives).

The key performance indicators relevant under EU taxonomy are Turnover, CapEx and OpEx. For the purpose of the calculation of eligible activities, the following financial information has been derived from AkzoNobel’s Consolidated financial statements:

• Turnover under EU taxonomy is equal to consolidated external revenues as reported in our Consolidated statement of income, amounting to €10,846 million
• CapEx under EU taxonomy is the sum of additions in property, plant and equipment, intangible assets and right-of-use assets from both investments and acquisitions resulting from business combinations, amounting to €1,053 million. CapEx as included in the Consolidated financial statements excludes the impact from right-of-use assets, as well as the impact from acquisitions resulting from business combinations. Additions to right-of-use assets are included in the movement schedule on right-of-use assets as included in Note 13 of the Consolidated financial statements. The impact from acquisitions is included in the movement schedules on Intangibles and Property, plant and equipment as included in Note 11 and Note 12 respectively
• OpEx is calculated in accordance with the EU taxonomy as direct non-capitalized costs incurred for the day-to-day servicing of assets, consisting of research and development costs, short-term leases, maintenance and repair costs and other similar costs, amounting to €371 million. This definition differs from OpEx as included in our Consolidated statement of income

AkzoNobel’s core activity, manufacturing paints and coatings, is currently not defined as an eligible activity for EU taxonomy, and hence no technical screening criteria have been developed to measure alignment to the environmental objectives. As a consequence, eligible activities are limited in 2022 and mainly related to supporting CapEx on sustainable solutions for production sites, consisting of investments in green electricity solutions, on-site waste water treatment systems and construction of production buildings and warehouses.

For the determination of eligible CapEx and OpEx, we’ve performed the following activities in 2022:

• Reviewed AkzoNobel’s activities and pre-identified potential eligible activities
• Provided trainings to personnel involved in data-gathering, explaining key characteristics of the EU taxonomy guidelines and potential eligible activities
• Performed a detailed analysis of the individual taxonomy-eligible economic activities in cooperation with key Finance and Sustainability personnel
• Set up a multi-disciplinary team in charge of supporting and answering questions from personnel involved in data-gathering, as well as reviewing the reported data at a central level
• Consulted with external experts and peers to ensure a correct and consistent interpretation of the legal requirements

The outcomes of the EU taxonomy assessment for 2022 in relation to eligibility to the climate change mitigation and climate change adaptation environmental objectives resulted in no eligible Turnover and an insignificant amount for CapEx (and related OpEx) related to investments in waste water treatment systems and solar panels. The reported amount for CapEx is eligible in relation to the climate change mitigation objective. Considering the insignificance of eligible CapEx, alignment of CapEx to environmental objectives has not been further assessed. Please find below the template disclosure table as included in Annex II of the Delegated Act.

The non-eligibility of our activities is determined by the limited scope of the EU taxonomy for 2022 and 2021. Despite this inherent non-eligibility, we continue to focus our efforts towards sustainable solutions (see Sustainable solutions) and we’ve made progress towards our ambition of 50% carbon emission reduction by 2030 (see Climate change).