EU Taxonomy

GENERAL INFORMATION ON THE TAXONOMY

Since January 1, 2022, listed companies in the EU must classify their economic activities in accordance with the EU Taxonomy Regulation and publish the results thereof in their consolidated non-financial statements or in their consolidated non-financial report (pursuant to the requirements of Section 267a and Section 243b Austrian Commercial Code). All economic activities are to be classified as to their environmental sustainability. When classifying its economic activities, voestalpine at times refers to the FAQs on the application of the EU taxonomy published in the EU Official Journal on October 20, 2023.

Assessment of compliance with the taxonomy regulations is carried out in a multi-stage process in which it is first determined whether an economic activity is taxonomy-eligible (i.e. in principle covered by the Taxonomy Regulation), and subsequently whether it is also taxonomy-compliant. Economic activities of a company that are not covered by the Taxonomy Regulation are not taxonomy-eligible.

The taxonomy-eligible economic activities must make a significant contribution to at least one of the environmental objectives listed below in order for them to be classified as taxonomy-compliant. In addition, they must not significantly impair the achievement of other environmental goals (Do No Significant Harm; DNSH) and minimum social protection criteria must be met (minimum safeguards), e.g., with respect to occupational safety and human rights.

The EU Regulation identifies six environmental objectives:

a. Climate change mitigation
b. Climate change adaptation
c. Sustainable use and protection of water and marine resources
d. Transition to a circular economy
e. Pollution prevention and control
f. Protection and restoration of biodiversity and ecosystems

In implementing the Regulation, voestalpine classified all of its economic activities as related to the “climate change mitigation” objective. This also prevents activities from being counted twice.

IMPLEMENTATION OF TAXONOMY ELIGIBILITY IN THE voestalpine GROUP

The assessment of voestalpine’s economic activities with regard to their taxonomy eligibility had already been carried out in the 2021/22 business year. Environmental goals 3 to 6 were also analyzed and evaluated with regard to their taxonomy eligibility as part of this year’s reporting.

A project team comprising personnel from the Group’s Finance, Investor Relations, Environment, and Corporate Responsibility departments along with experts from each division was set up to this end. External experts were also consulted, including technical experts and scientific experts. In addition, clarifying interpretations and statements from European industry associations, such as the rail industry association UNIFE, were taken into account in the assessment.

The implementation process included reviewing the taxonomy eligibility of all Group entities. This analysis identified economic activities of the voestalpine Group as taxonomy-eligible and allocated them to the following categories under the climate change mitigation objective:

• 3.9. Manufacture of iron and steel
  The voestalpine Group engages in steel production based on the blast furnace route in Linz, Austria (Steel Division), and in Donawitz, Austria (Metal Engineering Division). The High Performance Metals Division engages in steel production based on electric arc technology at a total of three plants in Europe (Kapfenberg, Austria; Wetzlar, Germany; and Uddeholms, Sweden) and one in South America (Sumare, Brazil).
• 3.18. Manufacture of automotive and mobility components
  voestalpine acts as a supplier to some well-known automobile manufacturers. With its Automotive Components business unit, the Metal Forming Division offers the complete range of pressed parts in the exterior body part segment as well as highly innovative structural parts, hot-formed parts, laser-welded blanks and complex assemblies with a focus on lightweight solutions at more than a dozen sites worldwide, e.g., in Linz (Austria), Bunschoten (Netherlands), Shenyang (China), Cartersville (USA), Dettingen and Schwäbisch Gmünd (Germany). The Tubes & Sections business unit manufactures tubes, profiles, and components that are also supplied to the automotive industry.
• 6.2. Freight rail transport
  The voestalpine Group operates a rail transportation entity that uses the European railway network in Linz, Austria (Steel Division).
• 6.14. Infrastructure for rail transport
  Worldwide, the voestalpine Group produces material components for railway infrastructure (Metal Engineering Division). These components include rails, turnout systems (from components to pre-assembled complete systems including drives, locking systems, and monitoring equipment), diagnostic and monitoring systems, as well as railway infrastructure services (logistics, rail treatments, rail welding, rail grinding, recycling, etc.).

DETERMINATION OF TAXONOMY COMPLIANCE

The underlying technical assessment criteria must be fulfilled in order for an economic activity to be classified as “environmentally sustainable” under the taxonomy regulations. These are quantifiable guidelines (environmental targets) on how an activity should be assessed in terms of its contribution to the respective environmental target. The Taxonomy Regulation specifies this significant contribution to the respective environmental objective and also defines whether these economic activities cause significant harm to any of the relevant environmental objectives. The DNSH criteria (Do No Significant Harm) must therefore also be observed in addition to the significant contribution criterion. This review must provide evidence that a given economic activity does not undermine the other environmental objectives.

voestalpine makes comprehensive contributions to climate change mitigation. As far as the business activities related to the production and downstream processing of steel as well as the transportation of freight by rail are concerned: They are generally deemed to contribute substantially to climate action as long as they fulfill the technical assessment criteria pursuant to Category 3.9 and/or 6.2 or are lower than the predefined CO₂ limits on emissions. As far as the business activities of voestalpine Railway Systems are concerned, they are generally deemed to make a substantial contribution to climate change mitigation as long as they fulfill the technical assessment criteria set forth in that category. The services of voestalpine Railway Systems fulfill the requirement that they are suitable for the use of trains with no direct CO₂ exhaust emissions. Services for rail tracks that are only intended for the transportation of fossil fuels are not included.

A comprehensive DNSH conformity assessment was carried out for the relevant economic activities (3.9, 3.18, 6.2, 6.14).

The review of the DNSH criterion regarding the EU environmental objective “climate change adaptation” was conducted using a simulation-based software tool for identifying, quantifying, and disclosing physical climate risks to the relevant operating sites. A detailed climate risk and vulnerability analysis was performed for all relevant sites based upon this. The representative concentration pathways RCP 2.6, RCP 4.5, RCP 6.0 and RCP 8.5 of the future scenarios used by the Intergovernmental Panel on Climate Change (IPCC), the assessment reports on climate change by the IPCC and central Copernicus services of the European Commission are used as the methodological basis. Adaptation solutions were determined as necessary and implemented based on the findings of this climate risk and vulnerability assessment.

In addition, the voestalpine Group also uses its management systems, such as the environmental management systems certified according to ISO 14001 or EMAS, which are widely implemented in the companies worldwide, to fulfill the DNSH criteria. These systems ensure that environmental impacts are identified and reviewed as to their relevance to a given operating site’s environment and that any adaptation solutions aimed at impact mitigation are developed as necessary.

In particular, these analyses comprise and/or take into account environmental matters such as water (sustainable use and protection of water and marine resources) and biodiversity (protection and restoration of biodiversity and ecosystems).

In order to prevent and reduce environmental pollution, the voestalpine Group has created processes in its companies that ensure the production, use and marketing of substances in accordance with national laws and European legislation on chemicals.

Substances with properties of very high concern are only used if no other technically and economically suitable alternative substances or technologies are available on the market. If such a replacement is not yet possible, these substances are used under controlled conditions.

The Group-wide review of the DNSH compliance criteria came to the conclusion that these are already met to a very high degree at the sites carrying out the relevant economic activities. Non-compliant sub-areas were excluded from the calculation of the relevant key figures. Appropriate measures have been introduced to increase the degree of fulfillment on a continuous basis. The dynamic development of EU Taxonomy Regulations may lead to adjustments to economic activities and adaptations to the assessment criteria in the future.

MINIMUM SAFEGUARDS

All economic activities that contribute substantially to at least one of the six environmental objectives, do not adversely affect another objective, and fulfill the (social) minimum safeguard requirement are recognized as being environmentally sustainable. In accordance with Article 18 of the EU Taxonomy Regulation, the minimum protection review is also the final review stage for taxonomy compliance. This serves to ensure that a given economic activity also fulfills international human rights standards as well as rules and regulations regarding issues such as bribery, corruption, taxation, and fair competition. The standards specified in Article 18 identify four core topics in regards to which compliance with minimum safeguards is defined.

The following guidelines and standards must be complied with:

• OECD Guidelines for Multinational Enterprises
• UN Guiding Principles (UNGPs) on Business and Human Rights
• ILO Declaration on Fundamental Principles and Rights at Work (“ILO Core Conventions on Labor”)
• International Charter of Human Rights

The Platform on Sustainable Finance (PSF) takes up the following central issues as they apply to social minimum safeguards:

• Human rights (incl. rights of workers)
• Avoidance of bribery and corruption
• Taxation
• Fair competition

voestalpine has already surveyed the aforementioned topics on a Group-wide basis in the past. This is also reported in detail in this CR-Report. For more information on human rights, please see the chapter of the same name. Issues pertaining to the rights of workers and employees are taken up in the “Human Resources” chapter, among others.

For information on fair competition and taxation, please see the subsections “Compliance” and “Taxes”. No legal violations of the above points were identified in the reporting period.

SIGNIFICANT CHANGES FROM THE PREVIOUS YEAR

Publication of the delegated act on environmental objectives 3 to 6

The European Commission published two delegated acts on the EU Taxonomy Regulation (Regulation EU 2020/852) on June 13, 2023. The new technical assessment criteria for the four non-climate-related environmental objectives of the EU taxonomy are central to this (see also 13.8.1 “General information on the Taxonomy Regulation”). In addition, new economic activities that were not previously included in the Taxonomy Regulation were added for the two climate targets “climate change mitigation” and “climate change adaptation”.

Economic activity 3.18 Manufacture of automotive and mobility components

New economic activities were added to the Climate Law Act at the same time as the technical assessment criteria for environmental targets 3 to 6 were published. voestalpine initiated a screening process to identify relevant economic activities after the new non-climate-related environmental targets came into force. The economic activity 3.18 “Manufacture of automotive and mobility components” was identified as significant. With this economic activity, suppliers to the automotive industry are now included in the taxonomy. Following a Group-wide screening, a process was started with the companies concerned to collect the key taxonomy-eligible figures. As part of this survey, only the taxonomy eligibility is reported in the current business year. Disclosure of taxonomy compliance takes place in the following business year, as provided for in Regulation 2023/3850.

CapEx Plan

voestalpine has developed an ambitious phased plan for green steel production with greentec steel. As part of the first stage of the phased plan, one green electricity-powered electric arc furnace (EAF) will be built in Linz and one in Donawitz. This will make it possible to produce around 2.5 million tons of CO₂-reduced steel each year from 2027 following the ramp-up. The greentec steel flagship project is also included in the CapEx plan. The individual processes within the scope of future EAF production are to be regarded as independent production units, which will be integrated into the existing plant configurations at the Linz and Donawitz sites. Taxonomy compliance within the context of economic activity 3.9 “Manufacture of iron and steel” can also be determined for electric arc furnaces as an independent production unit with the corresponding technical evaluation criteria under the environmental objective of climate change mitigation. The tracking and coding of sales must be ensured and double counting must be avoided. In the course of the preparation of the CapEx plan, which began in the business year and is expected to run for five years, the total amount of capital was estimated at EUR 1.5 billion. In the current business year, the CapEx plan was classified as taxonomy-compliant at an amount of EUR 64.3 million.

Change in economic activities

Due to the clarification of Regulation 2023/3850, which specifies that assembled stationary track material is to be subsumed under economic activity 6.14 “Rail transport infrastructure”, the classification of rail production was updated from 3.9 “Manufacture of iron and steel” to 6.14. The rail production could thus be evaluated as taxonomy-eligible and subsequently also as taxonomy-compliant.

RESULTS OF THE KPIS

The following summarizes the performance indicators of revenue, investment and operating expenses from taxonomy-eligible economic activities of voestalpine for each environmental target.

Taxonomy-Eligible/Taxonomy-Compliant Revenue

Pursuant to the EU Taxonomy Regulation, revenue as per IAS 1.82(a) must be used to determine the taxonomy-eligible revenue. The revenue figures equate to the revenue shown in the Consolidated Income Statement of the Annual Report 2023/24 and thus are used as the denominator in the following table to determine taxonomy eligibility. The numerator comprises revenue from contracts with customers for the purposes of IFRS 15 that were generated with economic activities covered by the EU Taxonomy Regulation. The current review for compliance in the 2023/24 business year resulted in 26.6% taxonomy-compliant revenue, which is mainly attributable to revenue from the “Rail infrastructure” 6.14 segment and the economic activity 3.9 “Manufacture of iron and steel” using electric arc processes. voestalpine’s taxonomy-compliant revenue amounted to EUR 4,429.7 million. For the economic activity 3.18 “Manufacture of automotive and mobility components”, taxonomy-eligible revenue of EUR 1,777.4 million was calculated for the first time in the current business year. This leads to the following classification for the voestalpine Group:

Taxonomy eligibility by economic activity

Taxonomy compliance by economic activity

Taxonomy-Eligible/Compliant Capital Expenditure (CapEx)

Additions to assets—including additions from business combinations to property, plant and equipment; intangible assets; and right-of-use assets under leases—were utilized as the basis for determining the taxonomy-eligible CapEx. Investments via joint ventures, investments in financial instruments as well as additions to goodwill were not considered. Due to the clarification of FAQ 2023/305 point 31, which stipulates that capital expenditure should only be recognized when it is recognized in accordance with the relevant accounting standards, the additions to advance payments made were excluded from the additions to the CapEx KPI. When the underlying property, plant and equipment/intangible assets are capitalized, the advance payments made on the respective asset are reclassified and also allocated to the additions to the CapEx KPI. The change in approach may result in a shift between the business years. The difference between the capital expenditure used here in the denominator and the data published in the “Operating segments” section of the 2023/24 Annual Report relates to goodwill additions and the above-mentioned change in advance payments made. The numerator includes capital expenditure generated by economic activities covered by the EU Taxonomy Regulation. In the area of investment expenditure, the taxonomy-compliant share is 23.3% (EUR 258.8 million). This leads to the following classification for the voestalpine Group:

Taxonomy eligibility by economic activity

Taxonomy compliance by economic activity

The taxonomy-compliant eligible CapEx of EUR 258.8 million is made up of additions to property, plant and equipment and intangible assets of EUR 252.8 million and the change in advance payments of EUR EUR 6.0 million. There are no additions to property, plant and equipment and intangible assets from business combinations. The total CapEx of EUR 1,112.8 million is made up of additions to property, plant and equipment and intangible assets of EUR 1,208.9 million, additions to property, plant and equipment and intangible assets from business combinations of EUR 20.7 million and the change in advance payments of EUR –116.8 million.

Taxonomy-Eligible/Compliant Operating Expenditures (OpEx)

Unlike the revenue and the capital expenditure, the figure for the operating expenditure cannot be taken directly from the Annual Report 2023/24. This is because only a few expense categories are relevant to the determination of the denominator for the operating expenditure. These include building renovation measures, maintenance and repair of property, plant and equipment, research and development expenses, training expenses in the course of tax-compliant business activities for employees and current leasing expenses. The numerator includes operating expenses generated by economic activities covered by the EU Taxonomy Regulation. Operating expenses from taxonomy-compliant economic activities amount to EUR 269.8 million. This corresponds to 26.3% of operating expenses according to the Taxonomy Regulation. This leads to the following classification for the voestalpine Group:

Taxonomy eligibility by economic activity

Taxonomy compliance by economic activity

The taxonomy-compliant eligible OpEx of EUR 269.8 million is made up of expenses for research and development of EUR 39.8 million, building renovation measures of EUR 13.1 million, current leasing of EUR 3.1 million, maintenance and repair of property, plant and equipment of EUR 202.9 million and staff training of EUR 10.9 million. The total OpEx of EUR1,027.8 million is made up of expenses for research and development amounting to EUR 213.9 million, building renovation measures amounting to EUR 45.2 million, current leasing amounting to EUR 8.0 million, maintenance and repair of property, plant and equipment amounting to EUR 723.8 million and staff training amounting to EUR 36.9 million.

FURTHER INFORMATION IN THE CONTEXT OF TAXONOMY REPORTING

The voestalpine Group has been involved in the international “Science Based Target Initiative” since 2022. Associated activities have led the Group to define internal greenhouse gas (GHG) emissions reduction targets that conform to the Paris Agreement on Climate Change.

voestalpine’s greentec steel serves to pursue an ambitious step-by-step plan for the decarbonization of steelmaking in the long term. This will involve a reduction in CO₂ emissions by 30% in a first step by 2029. To this end, both the Steel Division and the Metal Engineering Division are replacing the existing blast furnace route in part with hybrid electric arc technology. The latter will make it possible to produce high-quality, CO₂-neutral steel products in future. The voestalpine Group is also conducting intensive research into breakthrough technologies at the same time. One example of this is the H2FUTURE^® pilot plant, which is being used to research the industrial production of green hydrogen in order to gradually increase the use of this promising energy source in steel production. Other research projects are dedicated to the storage and reuse of unavoidable residual emissions. For more information thereon, see the “Product Sustainability” chapter.