Carel Industries

CAREL's corporate governance structure, based on the traditional administration and control system, comprises the following bodies:

• Audit, risk and sustainability committee the board of directors ("BoD"), which oversees the parent's running and has set up the audit, risk and sustainability committee ("ARSC") and the remuneration committee;

• the board of statutory auditors, which has oversight duties;

• the shareholders' meeting, at which shareholders resolve on all matters reserved to them by the law or by-laws.

CARED has applied diversity criteria (including for gender) in the composition of its board of directors, with due regard for the key objective of ensuring adequate expertise and professionalism among its members.

In their meeting on 18 April 2024, the shareholders resolved, inter alia, on the renewal of the board of directors. On 6 March 2024 and taking into account the results of the self-assessment process, the board of directors expressed its guidance on the composition of the new board, including the hope that, in presenting the lists, the shareholders would maintain a similar quality level of the board in terms of expertise and experience, considering the characteristics, including gender, of the candidates. It also highlighted the opportunity for the shareholders to assess the potential inclusion of individuals with management experience in listed companies or companies comparable to CAREL in terms of size, complexity, internationalism and/or business, with a view to further enriching the range of the board members' backgrounds, professionalism and expertise.

Given the company's structure and size, as well as its ownership structure and list voting mechanism provided for by the by-laws, which guarantees transparent elections and a balanced composition of the board of directors, in its meeting of 26 February 2025, the board of directors did not deem it necessary to adopt specific diversity policies and/or practices with respect to the composition of the boards of directors and statutory auditors and the age, gender and educational and professional background of the various members.

The current composition of the board of directors complies with the provisions on gender quotas for the company bodies of listed companies. Specifically, at least two fifths of the board of directors is comprised of directors of the less represented gender, in compliance with the provisions on gender balance in the company bodies of listed companies.

Moreover, the members of the current board of directors have a broad range of specialised skills, including experience in technical and general management of companies operating in related sectors, relevant to the group's activities and geographical presence, ICT and digital transformation, strategic consulting with a focus on lean manufacturing and the management of software services companies.

The composition of the board of directors, its committees and the board of statutory auditors is presented below:

TABLE 2: COMPOSITION OF THE BOARD OF DIRECTORS, ITS COMMITTEES AND THE BOARD OF STATUTORY AUDITORS

Role of governance bodies in managing sustainability issues

The group has set up specific bodies and roles to monitor impacts, risks and opportunities. The BoD defines the strategies of the parent and the group in line with the pursuit of sustainable success and monitors their implementation. It also establishes the most appropriate corporate governance system for the company's business and the pursuit of its strategies, taking into account the degree of autonomy offered by the regulation. If necessary, it assesses and promotes the appropriate amendments, submitting them to the approval of the shareholders when they fall under their remit. The BoD defines the nature and level of risk in line with the group's strategic objectives, considering all aspects relevant to its sustainable success. Furthermore, it approves the commitment policies, the annual sustainability statement and the long-term sustainability plan. In 2025, the BoD reviewed the double materiality assessment carried out for sustainability reporting purposes. In addition to the tasks assigned to the board of directors, sustainability is also part of the annual self-assessment process, in which members are invited to assess whether, during their term of office, they organised initiatives aimed at providing adequate knowledge of the sector in which the parent operates and of its trends and evolution, also with a view to sustainable development.

In order to promote and implement sustainable development policies internally, in 2021, the BoD appointed a entrusted a board member, the sustainability executive director, with specific sustainability operating powers:

• define policies for the group's sustainability vision and strategy with the chief executive officer; • design a sustainability governance system with the chief executive officer; • establish the periodic improvement objectives with the chief executive officer and check regularly that they are met; • support the integration of the sustainability activities into the business plan in accordance with the parent's code of ethics and the code of corporate governance together with the chief executive officer and the dedicated internal units (such as the ESG team and the legal affairs and compliance office); • identify tools and methods to measure the creation of value over the medium to long term once the sustainability plan has been implemented; • periodically check the group's sustainability status; • provide regular reports to the BoD on sustainability issues; • participate in the meetings of the audit, risk and sustainability committee, when invited to do so, to report on the progress of the activities underway and scheduled, the sustainability risks and related organisational structure; • participate in the meetings of the remuneration committee, when invited to do so, to define the ESG objectives in the remuneration policies; • monitor compliance with the relevant regulations, changes in such regulations and national and international best practices; • supervise the preparation of the sustainability statement; • define and coordinate the stakeholder engagement policies and channels (including the company website) in terms of their sustainability in compliance with the defined strategy; • manage the group's reputation and stakeholders' assessments of its sustainability policies.

The highest level of responsibility in relation to sustainability issues, including climate change, is entrusted to the ARSC set up by the parent's board of directors. The ARSC carries out relevant investigations in order to support the BoD in performing assessments related to internal controls and risk management and in approving the sustainability statement pursuant to Legislative decree no. 125/2024. It also assists the BoD in overseeing sustainable development issues, including climate change, through inquiries, assessments and decisions regarding the management of risks related to adverse events which have come to the BoD's attention, including environmental, social and governance risks. Moreover, it assists the BoD with its research, consulting and advisory functions, in performing assessments and making decisions about sustainability, also monitoring the performance of group activities and dynamics with stakeholders, defining and suggesting guidelines about sustainability and monitoring compliance with codes of conduct adopted by the group and its subsidiaries. Lastly, it ensures that amendments to laws and regulations pertaining to sustainability are suitably understood and assessed in terms of the potential impact on business, assigning specific tasks and responsibilities for their implementation. It monitors international sustainability initiatives and keeps the board of directors up to date, in order to consolidate the group's international reputation. Periodically, the ARSC reports to the BoD on the activities within its remit. The ARSC regularly liaises with the ESG team, guaranteeing consistency throughout activities underway, developments in the sustainability plan and the results achieved.

The ARSC regularly liaises with the ESG team, guaranteeing consistency throughout activities underway, developments in the sustainability plan and the results achieved.

Indeed, CAREL has an inter-departmental ESG team, which integrates sustainability management into all the group's areas. The team, which is led by the CFO, reports directly to the CEO and the sustainability executive director and supports the BoD in the creation of targets and initiatives to be included in the long-term sustainability plan, in addition to monitoring the progress towards achieving such goals. In addition to liaising periodically with the ARSC, the ESG Team also meets periodically with the senior management for updates on the sustainability plan and on ESG issues in general (including regulatory developments and ratings).

Furthermore, the ESG team: • is responsible for coordinating all sustainability activities: it prepares the sustainability statement and disseminates a sustainability culture throughout the group; • engages with stakeholders and responds to requests from sustainability rating agencies and socially responsible investors (SRI); • handles sustainability-related impacts, risks and opportunities, including those associated with climate change, in collaboration with the competent functions, and helps the different internal areas to identify areas of improvement, thus contributing to the creation of sustainable success.

Thanks to the diverse skills of the team members (i.e., the HSE manager, the HR controller, the IR manager, the head of financial consolidated statements, the head of corporate communication, the HVAC/R corporate business manager and the general services manager), sustainability matters are addressed and managed from different perspectives, considering all sustainability-related impacts, risks and opportunities. The BoD draws on the expertise and knowledge of the ESG team to address sustainability issues. Between the end of 2023 and 2024, the ESG team brought the following topics to the BoD's attention: the group's decarbonisation plan and the gender equality certification (UNI/PdR 125:2022) for the parent.

The group's remuneration policy for 2024, subject to the shareholders' approval, has been designed with the aim of maintaining, in line with the past, a responsible operating approach, oriented towards the principles of expertise, performance and sustainability. The parent's ongoing commitment to these objective, in particular, assigns increasingly significant weight not only to traditional targets related to the business' financial performance but also to ESG parameters, linked to the assessment of the impact of the group's activities on the environment, social aspects and governance.

CAREL's remuneration policy hinges on the following principles: equality, diversity and inclusion, competitiveness, sustainability and transparency.

The pursuit of a better pay mix balance continued in 2024, which is consistent with the long-term sustainability vision. The remuneration policy provides for ESG indicators for both the short-term (MBO) and long-term incentive (LTI) schemes, with measurable and quantitative targets.

Specifically, in the case of the MBO schemes, at least 30% of the nominal amount of the award is tied to achievement of specific internal sustainability indicators, as assessed by the remuneration committee with the support of the HR department. The individual ESG targets are generally assigned in relation to a beneficiary's role, responsibilities and/or specific strategic projects/activities. In 2024, the individual ESG performance targets assigned to the chief executive officer and key management personnel were: CAREL production sites' emission reduction and gender equality certification.

The 2024-2028 LTI (Long Term Incentive) schemes provide that 30% of the nominal amount of the awards is tied to a sustainability target, which is the mathematical average of two indicators used to measure the parent's ESG commitments. Specifically, 15% of the award is linked to the decarbonisation plan (reduction of GHG emissions from CAREL's production sites in line with the decarbonisation strategy and the emission reduction targets approved by SBTi), while 15% is linked to the reduction of the gender pay gap of the parents' white collars.

CAREL has an internal measurement tool to quantify the risk, in terms of potential damage to its business, associated with each component used as an input for the production of its products. The Group uses this tool to assess the economic impact of any supply disruptions, taking into account the economic importance of each component and the turnover that the products containing it are able to generate.

The procurement strategy is differentiated depending on the supplier's segment, considering impact criteria and difficulty in replacing or restoring supply. CAREL establishes relationships and escalation mechanisms with senior management of strategic suppliers and periodically evaluates the supplier relationship through strategic alignment meetings. Strategic suppliers are those which are high impact and difficult to replace. For its medium-impact suppliers that are difficult to replace (bottleneck suppliers), CAREL implements multi-sourcing policies and monitors that the supplier's production capacity can meet the group's future demand curve. The management of critical suppliers also includes monitoring their financial soundness and the vendor rating tool used to assess delivery and quality performance.

A company's ability to effectively manage business risks safeguards its value over time and promotes its long-term sustainability. Drawing on national and international best practices, the CAREL Group has developed an internal control and risk management system which is an integral part of the group's corporate governance. It establishes specific rules, procedures and organisational responsibilities for the correct identification and management of business risks, to ensure that the group operates in line with the board of directors' objectives.

The system allows the identification, measurement, management and monitoring of the key risks and ensures the reliability, accuracy and timeliness of reporting. It also helps to ensure that the group operates in line with its targets, including from a medium to long term sustainability viewpoint - in economic, equity, financial and environmental, social and governance (ESG) terms. It contributes to protecting the group's assets, the efficiency and effectiveness of its processes and ensures compliance with the relevant regulations and respect for human rights and the environment.

The group's integrated risk management model identifies all types of risks that could impede the group's achievement of its strategic objectives or damage its reputation.

Risk management in the CAREL Group includes risk identification, assessment, control and monitoring, and reporting using qualitative and/or quantitative procedures.

RISK IDENTIFICATION • Identification by management of the risk universe, i.e., those risks that may have a potential impact on the business strategies and objectives by defining the group's risk model.

RISK ASSESSMENT • Risk assessment by management using assessment tools and in accordance with the impact and probability of the adverse event. • The impact of risks was assessed both quantitatively (economic/financial) and qualitatively (reputational, regulatory and procedural compliance), with an additional focus on ESG and HSE impacts. The inherent risk, i.e., the maximum level of risk that could be assumed with no control activities, was initially assessed in accordance with these two criteria. The subsequent assessment of the mitigation actions implemented by CAREL on a risk-by-risk basis helped identify the residual risk, i.e., after the application of all prevention and protection measures.

RISK CONTROL AND MONITORING • Management's definition of the risk response strategy and activities based on the risk assessment (e.g., eliminate/mitigate, transfer, monitor, accept). • Periodic monitoring of the risk portfolio to assess trends and check the operational effectiveness of the response strategies identified.

REPORTING • Continuous communication flows of business processes and systems which use periodic reporting to protect against risks.

The model is considered when strategic decisions are taken and in key decision-making processes and covers both internal and external risks. Specifically, internal risks are managed by classifying risks into four different categories: financial, strategic, operational and compliance.

The comprehensive and detailed list of risks and impacts affecting the CAREL Group is mapped within the Enterprise Risk Management (ERM) risk register. In order to promote the integration of risk assessment into the decision-making process at several company levels, thereby creating and fostering a common culture of risk management throughout the group, the ERM model envisages the involvement of management as a whole and of some specific individuals.

Specifically, risk management within the CAREL Group involves several parties/units, all linked by an accurate information flow system: the chief executive officer, the audit, risk and sustainability committee, the risk manager, the internal audit unit and process owners.

The internal audit unit provides independent assurance about the adequacy and effective operations of the internal control and risk management system. To this end, each year, the unit prepares an action plan which, after discussion with the internal audit manager and the audit, risk and sustainability committee, is approved by the board of directors. The scope of the activities includes operational and compliance audits on the parent's and group companies' processes according to the priorities and critical issues identified during the risk assessment carried out at the beginning of the year, when the plan was being prepared, which, indeed, is aimed at defining the planning of internal audit activities using a risk-based approach.

The aim of the audit activities is to check, on the one hand, that the operations of the companies are in line with the applicable procedures and, on the other, that the procedures are periodically updated and made available to the various bodies. As of 2022, the inclusion of sustainability matters within audit activities was planned and approved. Specifically, surveys were conducted to increase the knowledge, awareness and dissemination of the sustainability plan approved by the parent's board of directors, as well as the reporting process for non-financial information.

During the year, four audits were conducted on the parent's processes and two audits on the group's foreign companies, in addition to several follow-up activities related to the audits carried out in previous years. The audit activities in 2024 focused on certain aspects relating to the parent's HSE, ICT/ICS, Marketing (with specific focus on the risks of market evolution and innovation) and Procurement areas and processes. The group companies audited in 2024 were subject to a general review of the procedures governing the current main processes. Specific activities were also carried out in order to check compliance with corporate principles and values, focusing, in particular, on the content set out in the group's policies and other relevant documentation including, inter alia and where applicable, the anti-corruption procedure, the human rights policy, the Code of Ethics and the 231 model.

The CAREL Group has always been known for advanced control systems and innovative solutions for the heating, ventilation, air conditioning and refrigeration (HVAC/R) sector. Its high efficiency solutions are a certainty for environmental protection thanks to their optimised and integrated control systems, which allow for significant energy savings and, in turn, a smaller environmental impact.

The areas of application of CAREL Group products and services are listed in the "Activities and markets" section of the management report.

DOWNSTREAM VALUE CHAIN

CAREL's main customers have traditionally been Original Equipment Manufacturers (OEMs), manufacturers of complete units for applications in the HVAC/R markets, which account for a significant share of the group's overall turnover; however, in recent years, the group has developed significant business relations with other types of customers, particularly designers, contractors, end users and distributors, which it serves through an extensive logistics network based on specialised external carriers.

Over the years, the group has created a network of partnerships with customers (co-development) to achieve a better understanding of their needs, promote innovation and maximise the length of their relationship for the supply of components, enhancing the customer lifetime value.

UPSTREAM VALUE CHAIN

The CAREL Group's supplier base is very broad and diversified and consists of suppliers of materials, components and products and a wide range of service providers. These are mainly global distributors and, to a lesser extent, manufacturers of electronic components and small to medium-sized manufacturers of materials, mechanical, electro-mechanical components and finished goods.

The main purchasing categories are electronic components (e.g., semiconductors, PCBs, resistors, capacitors, etc.) and electromechanical components (e.g. transformers, switches, circuit breakers, etc.), mechanical components (both plastic and metal) and finished products which are then resold (e.g. supervisors, displays, sensors, accessories, etc.).

The procurement strategy is differentiated depending on the supplier's segment, considering impact criteria and difficulty in replacing or restoring supply. CAREL establishes relationships and escalation mechanisms with senior management of strategic suppliers and periodically evaluates the supplier relationship through strategic alignment meetings. Strategic suppliers are those which are high impact and difficult to replace. For its medium-impact suppliers that are difficult to replace (bottleneck suppliers), CAREL implements multi-sourcing policies and monitors that the supplier's production capacity can meet the group's future demand curve. The management of critical suppliers also includes monitoring their financial soundness and the vendor rating tool used to assess delivery and quality performance.

The CAREL Group's ongoing engagement and the active involvement of internal and external stakeholders demonstrate its accountability to the social and economic context in which it operates. Furthermore, they enable it to identify and share the main development and market trends, considering both the risks and the opportunities arising from the evolution of the HVAC/R industry, downstream, and the electronics industry, upstream. Its focus on the quality stakeholder engagement, provided for in the code of ethics and designed to ensure an understanding of stakeholder expectations and needs, translates into a proactive, ongoing dialogue with all its stakeholders. The group recognises that stakeholder engagement is fundamental to understanding the impacts, both positive and negative, that its operations may generate and to act to enhance or mitigate them, but that it also represents an opportunity for mutual growth and enrichment, thus contributing to the creation of long-term sustainable value.

For this reason, stakeholders are continuously informed about the group's activities through the engagement tools and channels summarised below:

TABLE 1: TOOLS AND CHANNELS FOR STAKEHOLDER ENGAGEMENT

Continuous dialogue with stakeholders enables the group to integrate their concerns into its commitment policies, strategy and business model, ensuring that they are aligned with their interests and expectations.

Specifically, CAREL takes stakeholders' interests into consideration both to assess the impact of its own operations on them and to integrate these interests into its sustainability strategy. To this end, the materiality assessment in 2022 involved the direct engagement of internal and external stakeholders, while the materiality assessment activities performed in 2024 involved a work group composed of corporate functions representing several key stakeholders, ensuring an inclusive analysis of their interests. In addition, suppliers are actively involved through the sustainability assessment conducted in the phase-in stage, allowing CAREL to better understand the impacts of its procurement choices.

Stakeholder interests are also considered when the corporate strategy is defined, as demonstrated by the process of constructing the 2025-2028 sustainability plan, which is a tool that reinforces the existing strategy, whose objectives and initiatives were developed taking into account feedback from sustainability rating agencies, which reflect the priorities of different stakeholder categories.

The ESG team, which is also in charge of promoting dialogue with stakeholders, brings stakeholder concerns and possible impacts on the group's sustainability strategy to the attention of the audit, risk and sustainability committee, the executive committee and the sustainability executive director (who report to the board of directors).

Product and process innovation is a key success factor that has contributed to the group's growth in recent years and will be strategic for its future development. The group has always put R&D at the centre of its business to retain its leadership position in the HVAC/R market, ensure its competitive edge and roll out technologically innovative solutions to provide its customers with new products, solutions and/or services that respond to and incorporate technological innovations. The intrinsic nature of these products and services and their development means that the group has to constantly upgrade them along with their performance and characteristics and the reliability of its technology.

The strategy that drives product innovation within the group relies on environmental sustainability as its main target. This strategy has been pursued for some years through two different but converging paths: on the one hand, maximising energy efficiency with increasingly smart and interconnected products and, on the other, the use of natural refrigerant gases and fluids with a low environmental impact, thus encouraging end users' energy transition. This is particularly important since approximately 32% of the energy consumed every year in Europe refers to the group's main uses and traditional refrigerant gases (HFCs) which, if released into the atmosphere, can produce a greenhouse effect thousands of times more harmful than that created by carbon dioxide.

In addition to these two paths, which have guided CAREL's strategy for several years, there is a third area, in which the group is progressively intensifying its efforts: increased product circularity. This objective is pursued through studies and analyses aimed, on the one hand, at increasing the use of recycled material and, on the other, at increasing the life span of products, promoting their disassembly, reuse and recycling at the end of their life cycle.

In order to effectively promote innovation, the group recognises the central role of its people as the main driver of progress and innovation. With this in mind, the main challenge for CAREL is to be an appealing hub for talent, able to attract and retain the best resources. For this reason, like in previous years, CAREL places the people who make up its workforce at the centre of its actions, paying particular attention to understanding their needs and developing their talents, and promoting a work environment that fosters professional and personal growth. Our people are a cornerstone of our strategy and are a key driver of sustainable development.

CAREL's strategy thus brings with it significant positive impacts in terms of contributing to socio-economic development through the creation of secure jobs, fostering labour inclusion, and promoting the creativity and innovation of human resources and developing their transversal and technical skills. At the same time, the strategy is articulated in guidelines aimed at managing and mitigating the potential negative impacts associated with conducting a business activity.

The CAREL culture code is a fundamental part of the strategy and aims to propose a strong and shared corporate identity, foster cohesion between people and alignment towards the achievement of the strategic goals. CAREL's approach therefore focuses on the active involvement of its people, ensuring that their interests are integrated into the corporate strategy; only in this way can a solid and lasting relationship be built, where the well-being of employees is the key to long-term sustainable success.

In the second half of 2024, CAREL conducted a materiality assessment, updating the assessment carried out in 2022 (including a stakeholder engagement process which involved internal and external stakeholders) and adopting a methodological approach in line with the principles contained in Commission Delegated Regulation (EU) 2023/2772, issued on 31 July 2023 and set out in the ESRS.

The double materiality assessment was conducted through the identification and subsequent assessment of impacts, risks and opportunities (IROs), including those connected with CAREL's own operations and the upstream and downstream value chain, including through its products and services, as well as through its business relationships.

The outcome of the double materiality assessment was the identification of the topics and sub-topics that exceeded the impact materiality threshold and/or the financial materiality threshold; this assessment is therefore the basis for the identification of the material topical standards, which are therefore reported on in this sustainability statement.

A description of the double materiality assessment conducted by CAREL in 2024 is provided below:

UNDERSTANDING THE CONTEXT

The analysis of the company context, business model, business relationships and value chain was conducted through a study of the activities, markets served and products and services offered by CAREL, key stakeholders and the nature of the group's business relationships. This process also included the mapping of the value chain, which highlighted the main activities carried out by the various group companies, their geographical areas of operation and the actors in the group's value chain, upstream and downstream, including, where known, those beyond tier 1 suppliers (e.g., raw material extractors and smelters). Gaining an understanding of the context was also based on the results of the analysis of emerging and developing regulations related to climate change, carried out in 2023 as part of the climate risk assessment.

IDENTIFYING IMPACTS, RISKS AND OPPORTUNITIES

Identifying impacts

The existence of impacts was examined for each "sub-topic" and "sub-sub-topic" provided by the ESRS, considering not only the Group's own operations but also, where known, the upstream and downstream value chain operations (as shown by the value chain mapping). To identify impacts in the upstream and downstream value chain, the impact of the entire life cycle of the products/services purchased and sold by the group (e.g., extraction of raw materials, disposal of finished products by the end user, etc.) was considered.

The impacts identified in the 2022 materiality assessment, performed with the direct involvement of the stakeholders through interactive workshops and online questionnaires, were considered as the starting point. Additional impacts were also identified, related either to emerging sustainability topics or to segments of the value chain that had not been considered in the 2022 materiality assessment.

Identifying risks and opportunities

The identification of financial risks related to sustainability matters was based on the risks contained in the Group's ERM risk register, which also includes ESG risks, including the physical and climate risks and transition risks identified by the qualitative-quantitative analysis of climate scenarios described in the "Analysis of climate risks and opportunities" section. Some of the identified risks are generated in the group's upstream or downstream value chain and have an economic, financial, operational and/or reputational impact on CAREL. When identifying risks, consideration was also given to risks arising from identified potential negative impacts which could expose the group to risks of penalties and/or could trigger consequences of a reputational nature and/or higher costs, as well as in relation to the environmental and social resources that CAREL needs, directly or indirectly, to operate, and which could negatively impact its continuity, profitability and/or financial stability.

The above-mentioned qualitative-quantitative analysis of the climate scenarios also gives rise to the opportunities considered in the analysis. To date, most sustainability matters are considered to be a source of risk for the group, as any opportunities arising from mitigation actions taken in response to certain risks were not considered opportunities for the purposes of this analysis.

ASSESSMENT OF IMPACT MATERIALITY AND FINANCIAL MATERIALITY

The impact and financial materiality assessment involved a work group composed of corporate departments - most of them members of the ESG team - with expertise in the areas being assessed and representing the interests of several key stakeholders.

Assessment of impacts

The assessment of impacts, based on the assessments obtained from the stakeholder engagement activities conducted for the purposes of the 2022 materiality assessment, took into account the following two dimensions:

• Severity/Benefit, which considers the following aspects: – Scale: how grave the negative impact is or how beneficial the positive impact is for people or the environment; – Scope: how widespread the negative or positive impacts are; – [In the case of negative impacts] Irremediable character: whether and to what extent the negative impacts can be remediated.

• [In the case of potential impacts] likelihood of occurrence.

Both dimensions were assessed using a scale from 1 to 5.

The impact assessment was then obtained by multiplying the likelihood of occurrence by the severity, and a value between 1 and 25 was obtained. This range was subdivided into four levels, called tiers (consistent with the Group ERM), with tier 1 representing the highest, and thus the most material level, and tier 4 the lowest, and thus the least material level.

The assessment of potential impacts did not take mitigation actions into account. The management of these impacts, including mitigation actions, is in fact part of the policies, actions and targets, extensively described in the chapters on the topics. In this way, a comprehensive understanding is provided, both of the impacts resulting from the group's operations and its value chain net of mitigation measures, and of how the group is addressing these impacts.

Potential negative human rights impacts were assessed by prioritising severity over likelihood of occurrence.

Assessment of risks and opportunities

The assessment of risks and opportunities was based on the group's ERM and, with respect to climate risks and opportunities, the qualitative-quantitative analysis of climate scenarios, described in the "Analysis of climate risks and opportunities" section. Risk assessments were performed using assessment tools and in accordance with the impact and likelihood of adverse events. These assessments are being reviewed by the work group to confirm their validity.

DETERMINING THE MATERIALITY THRESHOLDS

Materiality thresholds were defined for financial materiality and impact materiality, i.e., the thresholds above which IROs are considered material.

In line with the choices made for the purposes of the ERM, a materiality threshold was defined for financial materiality at tier 2, so risks and opportunities in tiers 1 and 2 were considered material. This is because risks classified as tier 1 represent risks that exceed the "risk tolerance", i.e., the theoretical level of risk that the group is unable and/or unwilling to bear, because the occurrence of such a risk would threaten its continuity. Risks that exceed the "risk appetite", i.e., the level of risk that the group is willing to take in pursuit of its strategic objectives, are placed in tier 2. Risks classified as lower level are business risks that the group is able to bear without them significantly affecting its operations.

A materiality threshold was defined for financial materiality at tier 3, so risks and opportunities in tiers 1, 2 and 3 were considered material. This more conservative approach makes it possible to take into account not only impacts that are quite severe and have a medium likelihood of occurrence, but also impacts that may have, on the one hand, a very limited likelihood of occurrence but high severity, and on the other hand, impacts with a low severity but a high likelihood of occurrence.

The outcomes of the financial and impact materiality assessments were consolidated to obtain the list of material sustainability topics, which were then used to define the content of this sustainability statement. From a conservative perspective, a sustainability topic is considered material if it is material from the financial materiality perspective, the impact materiality perspective, or both. A topic or sub-topic was considered material if at least one IRO within it was found to be material.

The table below presents the impacts, risks and opportunities assessed as material for each of the sustainability matters identified as material as a result of the materiality assessment.

Each topic chapter describes the policies, actions (current and future) and targets that enable the group to manage and monitor material IROs and their current and expected effects, while the "Group sustainability strategy" section describes the associated strategy.

TABLE 5: RELEVANT IMPACTS, RISKS AND OPPORTUNITIES

[The table continues with the complete material impacts, risks and opportunities as extracted from the document]

Transition plan for climate change mitigation

Overview and governance

CAREL is aware of the urgent need to mitigate the effects of climate change. In response to the growing challenges related to climate change, in line with European commitments and the objectives of the Paris Agreement, CAREL has adopted its own climate transition plan, which is part of the group's broader strategic path to transform its business model in line with a low-carbon economy.

The group's transition plan defines emission reduction targets validated by the Science Based Targets initiative (SBTi), with a time horizon to 2033. It has identified specific decarbonisation levers to achieve them, along with concrete actions that, through process and product innovation, aim to progressively reduce the environmental impact of the group's activities, both in terms of emissions from its own operations (i.e., Scope 1 and 2 emissions) and emissions generated along the entire value chain (i.e., Scope 3 emissions).

Over the coming years, in alignment with ongoing regulatory developments, CAREL intends to expand its Plan to incorporate the achievement of Net Zero targets by 2050, aiming - through its strategic approach and business model - to contribute not only to limiting global warming to 1.5°C in accordance with the Paris Agreement but also to the attainment of climate neutrality by 2050, a key policy priority for the European Union.

The board of directors and supervisory bodies have approved the technical and financial aspects of the Transition Plan prepared to achieve the near-term targets to 2033. The Plan has now become part of the Group's future development strategies, laying the foundation for a longer-term commitment with the intention of achieving even more ambitious goals by 2050. The integration of the Transition Plan with the company's development strategies is also demonstrated by the connection between the financial development plan underpinning the transition plan and the annual authorisation process for the corporate investment plan.

The degree of achievement of the targets identified in the sustainability plan will allow the group to monitor its performance in relation to the impacts, risks and opportunities identified and the actions planned to manage them. Between the end of 2023 and the beginning of 2024, CAREL also defined its climate transition plan, identifying near-term emission reduction targets, validated in early 2025 by the Science-Based Target iniative (SBTi), in order to align the group's strategic path with the broader international climate objectives.

Alignment with Paris Agreement and SBTi validation

In early 2024, the Group officially undertook to set Near-Term targets in line with the SBTi criteria. The Science Based Target initiative (SBTi) is a climate-action organisation that enables companies and financial institutions worldwide to play their part in combating the climate crisis. The organisation develops standards, tools and guidance which allow companies to set greenhouse gas (GHG) emissions reductions targets in line with what is needed to keep global heating within 1.5°C compared to pre-industrial levels and reach net zero by 2050 at the latest.

Between the end of 2024 and the beginning of 2025, the Group was involved in the "Target Validation" process by SBTi, which validated the Group's near-term targets.

The group is not excluded from the EU Paris-aligned Benchmarks in accordance with the exclusion criteria stated in Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Standards Regulation).

Emission reduction targets

The targets presented were identified and validated using the tools provided by SBTi, and are therefore based on robust scientific data:

1. Carel Industries S.p.A. commits to reducing absolute Scope 1 and 2 emissions by 54.6% by 2033 from the base year 2023

2. Carel Industries S.p.A. commits to reducing absolute Scope 3 emissions from the purchased goods and services (category 1), fuel and energy-related activities (category 3), upstream and downstream transportation and distribution (categories 4 and 9), employee commuting (category 7) and use of sold products (category 11) by 32.5% by 2033 from the base year 2023

The Scope 1 and 2 (market-based) reduction target is aligned to limiting the increase in the global average temperature to 1.5°C above pre-industrial levels, in line with the Paris Agreement, while the Scope 3 target is aligned to limiting global warming to well below 2°C above pre-industrial levels.

The CAREL Group's emission reduction targets refer to the cross-sector decarbonisation pathway.

Decarbonisation levers

The main decarbonisation levers identified for the abatement of Scope 1 and 2 emissions include:

• The electrification of heating systems
• The renewal of the car fleet
• The purchase of an increasing share of certified renewable electricity
• The expansion of photovoltaic installations

Scope 3 emissions, which account for more than 99% of the group's carbon footprint, will be reduced first and foremost by reinforcing the business strategy that the group has been pursuing for several years now, i.e.:

• The commitment to energy efficiency in CAREL products
• The reduction - or elimination where possible - of the use of traditional refrigerant gases in favour of solutions with a lower environmental impact
• Increase the share of recycled materials used
• Steer incoming and outgoing transport activities towards modes with a lower environmental impact, such as switching from air to sea transport wherever possible

Emissions from the use of CAREL products over their entire lifetime account for 97.41% of the group's carbon footprint. CAREL is aware that its ability to reduce these emissions is profoundly linked both to greater product energy efficiency (which it has based its strategy on for several years now) and to the overall energy mix.

CapEx and investment commitments

In order to implement the plan and achieve the decarbonisation targets, the group has estimated an average annual expenditure of €530 thousand for the 2024-2033 period, which it will adjust depending on its annual financial resources.

Locked-in emissions and energy mix considerations

In order to obtain a forecast of the trend in emissions from the use of its products, CAREL referred to the trends forecast in the climate scenarios provided by the IEA about the evolution of the energy mix at a global level, to which it added the group's business growth estimates.

Scope 1 and 2 emissions are not assessed as locked-in, given the group's energy consumption. Being the sum of Scope 1, 2 (market-based) and Scope 3 emissions.

With respect to Scope 3, potential locked-in emissions are strictly dependent on the global energy mix. The IEA scenarios (NZE, STEPS, APS) show a significant change in the global energy mix, leading to a decrease in the CO2 intensity in electricity generation and, consequently, in the emissions resulting from the use of CAREL products.

Integration with remuneration and incentive schemes

In 2024, the individual ESG performance targets assigned to the chief executive officer and key management personnel were: CAREL production sites' emission reduction and gender equality certification.

The 2024-2028 LTI (Long Term Incentive) schemes provide that 30% of the nominal amount of the awards is tied to a sustainability target, which is the mathematical average of two indicators used to measure the parent's ESG commitments. Specifically, 15% of the award is linked to the decarbonisation plan (reduction of GHG emissions from CAREL's production sites in line with the decarbonisation strategy and the emission reduction targets approved by SBTi), while 15% is linked to the reduction of the gender pay gap of the parents' white collars.

Policies related to climate change mitigation and adaptation

Carel Industries addresses climate change mitigation and adaptation primarily through its Climate Transition Plan and associated governance processes, rather than through a standalone climate policy explicitly named in the excerpts.

Climate Transition Plan

The company has developed a climate transition plan between the end of 2023 and beginning of 2024, which defines emission reduction targets validated by the Science Based Targets initiative (SBTi).

Scope:

• Covers own operations (Scope 1 and 2 emissions)
• Extends across the value chain (Scope 3 emissions, which account for more than 99% of the group's carbon footprint)
• Includes products and services throughout their lifecycle

Approval and oversight:

• The Board of Directors and supervisory bodies have approved the technical and financial aspects of the Transition Plan
• The Plan has become part of the Group's future development strategies
• Integration demonstrated by connection between the financial development plan and annual corporate investment plan authorization process

Key content and principles:

• Emission reduction targets to 2033 validated by SBTi:
  • Reducing absolute Scope 1 and 2 emissions by 54.6% by 2033 from base year 2023
  • Reducing absolute Scope 3 emissions (categories 1, 3, 4, 7, 9, 11) by 32.5% by 2033 from base year 2023
• Main decarbonisation levers include:
  • Electrification of heating systems
  • Renewal of car fleet
  • Purchase of certified renewable electricity
  • Expansion of photovoltaic installations
  • Energy efficiency in products
  • Reduction/elimination of traditional refrigerant gases
  • Increased use of recycled materials
  • Lower-impact transport modes
• Estimated average annual expenditure of €530 thousand for 2024-2033 period
• Alignment with Paris Agreement objective to limit global warming to 1.5°C
• Intention to achieve Net Zero targets by 2050

Link to international standards:

• Targets validated by the Science Based Targets initiative (SBTi)
• Aligned with Paris Agreement commitments
• Scope 1 and 2 target aligned to 1.5°C pathway
• Scope 3 target aligned to well below 2°C pathway
• Contributes to EU climate neutrality by 2050 objective
• Not excluded from EU Paris-aligned Benchmarks per Commission Delegated Regulation (EU) 2020/1818

Monitoring:

• The degree of achievement of targets identified in the sustainability plan will allow monitoring of performance in relation to impacts, risks and opportunities
• Decarbonisation levers and specific actions integrated into the 2025-2028 sustainability plan
• Annual refresh of climate risk and opportunity assessment procedures

Related Policies

While not explicitly detailed in the climate change section, the company references other policies that support climate-related objectives:

• Health, safety and environmental policy (mentioned in connection with pollution management)
• Gender equality policy and Human rights policy (mentioned in workforce-related disclosures)

The excerpts indicate that climate considerations are integrated into the group's risk management system (ERM) and due diligence processes, with climate transition integrated into the broader sustainability plan approved by governance bodies.

Actions and resources in relation to climate change policies

Carel Industries has established specific targets in its sustainability plan to support climate change mitigation, aligned with SBTi commitments. The following actions are planned for the short to medium term (by 2027-2028):

1. Reduce natural gas consumption

Action: Reduce natural gas consumption at Carel Industries, Enginia, Recuperator, HygroMatik and Carel USA sites by 80% by 2028.

• Scope: Own operations (specified production sites)
• Time horizon: 2028 (short-term)
• Baseline: 325,000 scm of natural gas consumed (2023)
• Monitoring KPI: Scm of natural gas consumed
• Expected outcome: Reduction of Scope 1 emissions, contributing to achievement of SBTi target
• Link to policy: Environmental policy commitments

2. Replace diesel cars in company fleet

Action: Replace 70% of the diesel cars in the parent's fleet (6 pooled, 5 assigned) with low-emission vehicles by 2027.

• Scope: Own operations (company fleet)
• Time horizon: 2027 (short-term)
• Baseline: 0% (2024)
• Monitoring KPI: % of cars replaced out of total diesel cars in the company fleet
• Expected outcome: Reduction of Scope 1 emissions, contributing to achievement of SBTi target
• Link to policy: Environmental policy commitments

3. Achieve 100% certified renewable electricity

Action: Achieve 100% of electricity purchased by production sites as certified renewable (through the purchase of energy allocation certificates) by 2028.

• Scope: Own operations (production sites)
• Time horizon: 2028 (short-term)
• Baseline: 91% (2024)
• Monitoring KPI: % of electricity purchased by production sites that is certified as renewable
• Expected outcome: Reduction of Scope 2 emissions, contributing to achievement of SBTi target
• Link to policy: Environmental policy commitments

4. Extend ISO 14001 certification coverage

Action: Have 57% of the group's production sites covered by an ISO 14001-certified environmental management system by 2028.

• Scope: Own operations (production sites)
• Time horizon: 2028 (short-term)
• Baseline: 29% (2024)
• Monitoring KPI: % of sites covered by a certified environmental management system
• Expected outcome: Monitor and manage environmental impacts, minimise GHG and pollutant emissions, optimise natural resource use and improve waste management
• Link to policy: Environmental policy commitments

5. Extend ISO 50001 certification coverage

Action: Have 43% of the group's production sites covered by an ISO 50001-certified energy management system by 2028.

• Scope: Own operations (production sites)
• Time horizon: 2028 (short-term)
• Baseline: 14% (2024)
• Monitoring KPI: % of sites covered by a certified energy management system
• Expected outcome: Greater energy efficiency of buildings and all production processes

Resources allocated: No specific financial or non-financial resources (capex, opex, headcount, partnerships) are quantified in the disclosed excerpts.

Targets related to climate change mitigation and adaptation

SBTi-Validated Near-Term Targets (2033)

Carel Industries S.p.A. has committed to science-based targets validated by the Science Based Targets initiative (SBTi) in early 2025:

Target 1: Scope 1 and 2 Emissions Reduction

• Target metric: Absolute Scope 1 and 2 GHG emissions
• Target value: 54.6% reduction
• Target year: 2033
• Baseline year: 2023
• Baseline value: 5,703.07 tCO2eq (Scope 1: 3,590.02 tCO2eq; Scope 2 market-based: 2,113.05 tCO2eq)
• Scope: Own operations
• Type: Absolute
• Validation: SBTi-validated, aligned to limiting global temperature increase to 1.5°C above pre-industrial levels
• Progress to date (2024): Scope 1 and 2 emissions reduced to 3,161.17 tCO2eq (Scope 1: 2,113.22 tCO2eq; Scope 2 market-based: 1,047.95 tCO2eq), representing a 24.10% reduction from baseline year 2023

Target 2: Scope 3 Emissions Reduction

• Target metric: Absolute Scope 3 GHG emissions from purchased goods and services (category 1), fuel and energy-related activities (category 3), upstream and downstream transportation and distribution (categories 4 and 9), employee commuting (category 7), and use of sold products (category 11)
• Target value: 32.5% reduction
• Target year: 2033
• Baseline year: 2023
• Baseline value: 4,553,009 tCO2eq (70% of total Scope 3 emissions)
• Scope: Value chain (upstream and downstream)
• Type: Absolute
• Validation: SBTi-validated, aligned to limiting global warming to well below 2°C above pre-industrial levels
• Progress to date (2024): Scope 3 emissions totalled 6,108,800.77 tCO2eq (including category 11: 5,948,091.67 tCO2eq representing 97.41% of total emissions)

Future Operational Targets (2025-2028)

The group has also defined supporting targets in its sustainability plan:

Financial Resources: The group has estimated an average annual expenditure of €530 thousand for the 2024-2033 period to implement the climate transition plan and achieve the decarbonisation targets.

Energy consumption and mix

Total energy consumption (2024)

26,053.57 MWh (25,650.06 MWh in 2023)

Disaggregated energy consumption and mix

Energy production (self-generation)

Energy intensity

• Energy intensity per revenue (high climate impact sectors): 57.06 MWh/€m (based on €449.6m revenue from high climate impact activities)
• Energy intensity per surface area: 0.21 MWh/m² (133.06 kWh/m², down 1.49% from 2023)
• Energy intensity per employee: 9.45 MWh/employee

Scope and methodology

The scope includes all group entities. The 2024 data includes companies acquired during 2023 (Eurotec and Kiona subgroup), which were not included in the 2023 reporting boundary. Energy consumption is mainly attributable to production sites (70% of direct and 93% of indirect consumption).

Conversion factors from DEFRA 2024 were used (net calorific value). Purchased renewable electricity includes GO (Guarantees of Origin) in Italy, Germany and Croatia, REC (Renewable Energy Certificates) in the US, and i-REC (International Renewable Energy Certificates) in China, totalling 13,869.30 MWh (86.46% of purchased electricity).

Biofuel content: Petrol and diesel purchased at stations contain a portion of biofuel in accordance with regulations in some countries, but the percentage of renewable fuel cannot currently be quantified.

2023 figures were recalculated using net calorific value to ensure comparability.

Gross Scopes 1, 2, 3 and Total GHG emissions

Scope 1 and 2 Emissions

The group's Scope 1 and Scope 2 emissions for 2024 and 2023 are presented below:

Scope 1 breakdown by emission source (2024):

Biogenic emissions (out of scope) related to Scope 1 amount to 73.43 tCO2eq in 2024. These derive from petrol and diesel purchased at petrol stations containing a portion of biofuel.

Scope 2 breakdown by geographical area (market-based, 2024):

Scope 3 Emissions

The group's Scope 3 emissions by category for 2024 and 2023:

Categories not calculated (not applicable): 8 (Upstream leased assets), 10 (Processing of sold products), 13 (Downstream leased assets), 14 (Franchises), 15 (Investments).

Total GHG Emissions

GHG Emissions Intensity

Energy intensity: 57.06 MWh/€m (total energy consumption from high climate impact sectors / net revenue).

Emissions intensity (market-based):

• Per revenue: 10,836.36 tCO2eq/million€ (total GHG emissions / net revenue of €578,536 thousand)
• Per employee: 1.15 tCO2eq/employee (Scope 1+2 market-based / total employees and non-employee workers); -25.52% vs 2023
• Per surface area: 0.0248 tCO2eq/m² (Scope 1+2 market-based / gross surface area); -17.26% vs 2023

SBTi Targets and Base Year

Base year: 2023

Near-term targets (validated by SBTi):

• Scope 1+2 (market-based): Reduce absolute emissions by 54.6% by 2033 from base year 2023 (base value: 4,165 tCO2eq; target year 2033: 1,891 tCO2eq)
• Scope 3 (categories 1, 3, 4, 7, 9, 11): Reduce absolute emissions by 32.5% by 2033 from base year 2023 (base value: 4,553,009 tCO2eq; target year 2033: 3,073,281 tCO2eq)

Methodology and Scope Notes

Scope 1: Conversion factors from DEFRA 2024. Includes CO2, CH4, N2O and HFC. Covers emissions from stationary combustion (natural gas, heating), mobile combustion (company fleet, logistics vehicles), and fugitive emissions (refrigerant leakage). No Scope 1 emissions covered by regulated emissions trading schemes (e.g. EU ETS).

Scope 2:

• Location-based: Terna 2019 factors.
• Market-based: European residual mix 2023 (AIB 2024) where available, otherwise Terna 2019.
• In 2024, 86.46% of purchased electricity was certified renewable (GO in Italy/Germany/Croatia, REC in US, i-REC in China).
• Emission factors do not include GHG other than CO2 and do not identify the percentage of biogenic CO2.

Scope 3:

• Category 1 (Purchased goods): Average-data method based on weight of goods purchased (Ecoinvent IPCC 2021 factors).
• Category 1 (Purchased services): Spend-based method (DEFRA factors).
• Category 2: Spend-based method (DEFRA factors).
• Category 3: Average-data method covering upstream fuel/electricity extraction, refining, transport, and T&D losses (DEFRA 2024).
• Categories 4 & 9 (Transportation): Distance-based method including Well-to-Tank (WTT) emissions (DEFRA 2024). Inbound, intragroup, and outbound logistics by non-owned means in category 4; outbound logistics by customer in category 9.
• Category 5 (Waste): Waste type-specific method (DEFRA 2024). Note: 2023 and 2024 not comparable due to significant changes in DEFRA 2024 emission factors.
• Category 6 (Business travel): Distance-based method for air and rail travel, including WTT (DEFRA 2024). For companies without data, average values estimated.
• Category 7 (Employee commuting): Distance-based method based on employee survey, including WTT (DEFRA 2024). Non-respondents estimated using sample averages.
• Category 11 (Use of sold products): Energy consumption over product lifetime (5-10 years) calculated considering power, usage hours, and energy source (electricity and/or gas). Emission factors: IEA 2021 (electricity), DEFRA 2024 (natural gas). Accounts for 97.41% of total group carbon footprint (Scope 1+2+3). Updated methodology in 2024 aligned with SBTi requirements; 2023 figure recalculated.
• Category 12 (End-of-life): Waste type-specific method (DEFRA 2024). Assumes 20% average recycling rate for electronic products (global WEEE rate).

Scope 3 data accuracy:

• High accuracy: Categories 1 (goods), 3, 11 (based on primary or highly reliable data).
• Average accuracy: Categories 4, 5, 6, 7, 9 (partial primary data, extended to 100%).
• Low accuracy: Categories 1 (services), 2, 12 (spend-based or higher uncertainty in emission factors).

Reporting boundary: Covers all group companies. 2024 data includes companies acquired in 2023 (Eurotec, Kiona subgroup); 2023 baseline recalculated where material.

Financial control = operational control for Scope 1 and 2 purposes. No Scope 1 or 2 emissions from associates, joint ventures or unconsolidated subsidiaries.

Regulated emissions: None. Carel is not excluded from EU Paris-aligned Benchmarks per Climate Benchmark Standards Regulation (EU) 2020/1818.

Anticipated financial effects from material physical and transition risks and potential climate-related opportunities

Phase-in exemption

The group adopts phase-in provisions for the reporting of E1-9 disclosure obligations.

Transition risks and opportunities

In order to identify and assess the risks and opportunities associated with transitioning to a low-carbon economy, CAREL relied on transition climate scenarios, which provide several plausible assumptions about the likely timeline of climate policy development and technology adoption to limit greenhouse gas emissions, changes in the energy mix, market dynamics, and other factors to achieve a climate-friendly economy. The climate scenarios' assumptions were analysed to identify the possible effects of these developments on the group's assets and activities in the short-, medium- and long-term.

Scenarios used

The scenarios covered by the transition risk analysis include:

• The IEA's (International Energy Agency) Net Zero Emissions by 2050 Scenario: a normative scenario that shows a pathway for the global energy sector to achieve net zero CO2 emissions by 2050, limiting the global temperature rise to 1.5°C compared to pre-industrial levels by 2100;
• IEA's Announced Pledge Scenario (APS): an exploratory scenario that assumes that all climate commitments made by governments and companies around the world, as well as long-term net-zero targets, will be met in full and on time;
• IEA's Stated Policies Scenario (STEPS): an exploratory scenario that provides a more conservative benchmark for the future, by not taking for granted that governments will reach all announced goals.

In addition to analysing climate scenarios, reports and studies from authoritative international organisations (including, inter alia, the IEA reports "The future of cooling" and "The future of heat pumps") were also examined in order to integrate the specific features of the industry and the target market in which the group operates. In order to adequately map the risk deriving from climate regulation, current and pending regulations were also examined, focusing on those impacting the HVAC/R sector.

Methodology

While transition risks were analysed at group level, physical risks were considered by individual production site/commercial subsidiary (considering their actual location). The different approach is due to the fact that physical risks vary by geographical area, while transition risks are usually applicable on a global scale (with a few exceptions, such as the risks arising from current/emerging regulations).

The results of the qualitative-quantitative analysis of climate scenarios were duly combined and subsequently integrated within the ERM risk register. Therefore, in line with the integrated risk management model, management assessed the climate-related risks identified in accordance with the impact and likelihood of adverse event criteria. By intersecting impact and likelihood of occurrence, CAREL assessed the significance of climate change risks against its risk appetite, and classified them by priority. Based on the established priority, which reflects the assessment of the residual risk significance, management defined response strategies and actions, focusing, in particular, on the most significant risks.

Main transition risks identified

Below is a list of the main risks deemed significant for CAREL and their financial, operational and reputational implications.

TABLE 3: TRANSITION RISKS RELATED TO CLIMATE CHANGE

[Note: The referenced Table 3 was not included in the provided excerpts]

Physical risks

Physical risks resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organisations, such as damage to assets and impacts from supply chain disruption.

The analysis of physical risks has not been conducted on the supply chain; however, a business interruption triggered by an extreme weather event affecting the production sites of strategic suppliers could lead to the non-supply of materials to CAREL, with consequent slowdowns and/or disruptions to the group's own operations.

Climate-related opportunities

As part of the transition to a lower-carbon economy, the efforts to mitigate and adapt to climate change also produce opportunities for organisations, for example, through resource efficiency and cost savings, the adoption of low-emission energy sources, the development of new products and services, access to new markets, and building resilience along the supply chain, which is essential in a context of rapid and constant change.

Forward-looking approach

The group will continue to identify and assess the new risks and opportunities related to climate change as they materialise, by refreshing its procedures annually in order to increasingly raise awareness about climate issues.

Note on financial statement assumptions

No climate-related assumptions have been made in the financial statements.

Policies related to pollution

Carel Industries addresses pollution through its broader environmental policy framework and supplier requirements.

Environmental Policy (Environment, Health and Safety Policy)

• Approval and oversight: Approved by the Board of Directors in 2018
• Scope: Binding for employees, managers, collaborators (e.g., consultants, agents) and company representatives of the CAREL Group companies, as well as main stakeholders who act in the name and on behalf of group companies. Extends to suppliers and customers as fundamental to the development of the parent and the group
• Key principles on pollution:
  • Guarantee the quality of work by promptly identifying potential risks using a system to prevent pollution, environmental incidents and environmental emergencies
  • Promote optimised use of raw materials and reduction of waste
  • Encourage the use of recyclable materials
  • Optimise the management of waste generated, especially hazardous waste
  • Consider environmental protection when designing and developing systems, products and processes, to assess the potential impact over their life cycle
• Links to international standards: References the international standard UNI EN ISO 14001 on Environmental Management Systems and the laws, regulations and guidelines of each country in which CAREL operates
• Public availability: Published on the company intranet and website
• Implementation monitoring:
  • Employee training as fundamental tool for implementation, including mandatory training during onboarding phase and regular training afterwards
  • Implementation of ISO 14001-certified environmental management systems at CAREL Industries, HygroMatik, Recuperator and CAREL Suzhou
  • All group personnel responsible for implementation, starting with full involvement of senior management
  • Management handled both centrally through instructions from the parent and at the level of individual subsidiaries and operating sites
  • All production sites with significant emissions or subject to environmental authorisation implement specific procedures to periodically carry out analyses of extraction chimneys to verify compliance with regulatory limits
  • The parent implements procedures for chemical analysis and sampling of wastewater to check compliance with regulatory limits for discharge into sewerage system
  • Periodic emergency simulations, including tests for handling environmental emergencies (e.g., acid or chemical spills)

Suppliers' Code of Conduct

• Scope: All suppliers and their collaborators, subcontractors and other parties working on their behalf
• Key principles on pollution:
  • Suppliers must act in accordance with applicable laws and regulations and do their utmost to protect the environment
  • Obtain and maintain all environmental authorisations and approvals to carry out regulated activities
  • Identify, label and manage chemicals, wastes and other materials hazardous to humans or the environment, ensuring their safe handling, transport, storage, use, recycling or reuse and disposal, in compliance with applicable regulations
  • Implement initiatives to improve environmental performance, such as waste reuse, recycling and reduction programmes
  • Use resources necessary for production cycle responsibly, through production processes that aim to reduce waste of natural resources and promote recycling and reuse
  • Procure supplies locally as far as possible
  • Minimise waste production through practices such as reuse and recycling of materials and promotion of circular economy
• Implementation monitoring: Suppliers requested to indicate in sustainability self-assessment whether they are engaged in programmes to reduce waste and packaging, with higher scores given to those implementing this initiative

Targets related to pollution

Carel Industries does not disclose specific quantified targets related to pollution (E2-3) in the sustainability statement excerpts provided.

The company has defined climate-related targets (E1-4) validated by the Science Based Targets initiative (SBTi), and various operational targets related to environmental management systems (ISO 14001 coverage target: 57% of production sites by 2028, baseline 2024: 29%). However, these are not pollution-specific targets as required by ESRS E2-3.

The excerpts reference:

• Pollution management in own operations and supply chain
• Management of hazardous substances contained in products
• "Pollution-related future initiatives and targets" as a section heading

But no specific quantified targets for pollution reduction (e.g., air emissions, water pollution, soil contamination, substances of concern) are disclosed with target values, baseline years, or target years.

Pollution of air, water and soil

Air Pollutants

In 2024, all group production sites with significant emissions or subject to environmental authorisation implemented a specific procedure to periodically carry out analyses of extraction chimneys to verify compliance with regulatory limits. All analyses are conducted annually by accredited third-party laboratories.

Atmospheric emissions are monitored in the manner and timing prescribed by environmental authorisations issued by competent local authorities, which require point sampling one or more times a year. Since production processes are characterised by identical and repetitive activities over time, the associated atmospheric emissions are characterised by regularity in extent and type of pollutants throughout the year. Annual emissions are calculated based on point sampling and hours worked at individual sites.

Table 15: Air Pollutants (kg)

The VOCs value increased in 2024 as some production sites which individually have low levels of emissions or are not subject to analysis in accordance with legislative requirements (Enginia and Recuperator) were included in the reporting boundary. Significant improvements were achieved with emissions related to particulate matter (-25.83%) and hazardous air pollutants (-41.46%).

For some pollutants, some values were below the detection threshold. In this case, the worst-case scenario is assumed in order to ensure compliance with regulatory limits. This means that in some cases, the reported emissions are higher than actual ones.

No significant emissions of fluorinated gases from normal usage of air-conditioning systems were recorded.

Water and Soil Pollution

With respect to water pollution, the parent has implemented a procedure for carrying out chemical analysis and sampling of wastewater from the laboratory where humidifier tests are carried out, in order to check compliance with regulatory limits for discharge into the sewerage system. This procedure makes it possible to prevent potential negative impacts related to the release of agents and substances into the environment through discharges.

All production sites with significant emissions or subject to environmental authorisation carry out periodic emergency simulations, which include tests for handling environmental emergencies (e.g., acid or chemical spills).

In 2024, there were no accidents with environmental consequences, nor pollution incidents that led to penalties or compensation with subsequent mitigation and/or remediation actions.

Substances of concern and substances of very high concern

Monitoring and management approach

CAREL products use materials and components, especially electronics, which can sometimes contain hazardous substances with different levels of risk (carcinogenicity, mutagenicity, bioaccumulability, etc.). One example is lead, an element that was formerly commonly used in solder alloys used in the production of electronic boards, the use of which has now been severely restricted.

In order to minimise the risk of the presence of these hazardous substances in products placed on the market, CAREL issued the product and service compliance policy in 2023. The policy's ultimate objective is to ensure that the group companies' product or service development processes include criteria and procedures that guarantee the highest quality and compliance with laws and international standards, taking into account the different phases of the product life cycle (transport, installation, use, maintenance, disposal) and the service conditions agreed with customers.

REACH compliance

REACH is an EU regulation (no. 1907/2006 and subsequent amendments) that covers the registration, evaluation, authorisation and restriction of chemicals depending on their potential impact on both human health and the environment. Its objective is to raise stakeholders' awareness about the risks and potential dangers of using and being exposed to these chemical substances. The substances of very high concern (SVHC) are relevant to CAREL as its business sector partially depends on these substances and, therefore, it is subject to many REACH authorisation levels. Another objective of REACH authorisation is to guarantee that the SVHC will be gradually phased out by less hazardous substances or technologies, when this is possible in technical and financial terms.

In addition, CAREL is compliant with EU Directive 2011/65/EU (RoHS) and the Commission Delegated Directive (EU) 2015/863 of 31 March 2015 (and amendments) on the restriction of the use of certain hazardous substances in electrical and electronic equipment.

Supplier management

The suppliers' code of conduct requires suppliers to adequately manage, measure and control all activities that are potentially harmful to human health or the environment to prevent the release of any substance into the environment. Suppliers must equip themselves with tools to prevent and reduce accidental spills and leaks into the environment. Specifically, suppliers using hazardous substances are required to adopt safety programmes to manage and maintain all production processes and therefore appropriate measures for the handling, storage and transport of hazardous substances in compliance with applicable safety standards and legal requirements, as well as to address their potential impact during all stages of the production process. Suppliers are also required to make available, when requested, the safety data sheets of any hazardous substances used.

Monitoring process

The group's dedicated chemicals compliance team regularly checks implementation of the procedures required by the regulation using the REACH compliance statements of its producers. The purpose of monitoring the compliance of the raw materials used in CAREL's business against the updated SVHC Candidate List of the REACH Regulation and the hazardous substances restricted by the RoHS Directive is to classify raw materials as purchasable and usable in products, based on information on compliance with the above legislation. Purchases of raw materials, whose manufacturers and/or suppliers did not provide the required information on time, are temporarily suspended until the updated documentation is provided. For raw materials whose obsolescence or non-compliance with the REACH Regulation and RoHS Directive is declared by the manufacturer and/or supplier, deapplication is necessary, thereby preventing these materials from entering the production cycle.

As part of CAREL's internal chemical safety process, all suppliers must prove that they have implemented a process to manage hazardous substances in accordance with the above EU legislation. Furthermore, as part of the approval process for purchasing materials, CAREL regularly requests and assesses the documentation which certifies compliance and the possible presence of hazardous substances in materials, in order to use them within products as components or to resell them as such. Conformity information on materials, gathered from the regular verification process vis-à-vis the supply chain and the approval process for new raw materials, contributes to creating the database used to issue the statements requested by customers (as required by the REACH Regulation) on the CAREL Group's products.

Compliance with other regulations

In addition to European legislation, CAREL has addressed the compliance of its products with the Californian regulation, Proposition 65, which regulates the use of toxic or cancer-causing substances. The products that Carel Industries supplies to customers do not contain chemical substances listed in Proposition 65 at a concentration liable to cause exposure levels exceeding the "safe harbor levels" or other safety levels. Therefore, it is not required to include a warning label on its products. In 2023 and 2024, CAREL continued to monitor Proposition 65 to identify the new chemicals added to the list published by the Office of Environmental Health Hazard Assessment (OEHHA).

Since 2021, CAREL has also adopted the regulation promulgated by the US EPA (Environmental Protection Agency) named "Toxic Substances Control Act (TSCA section 6(h))". This regulation covers the manufacture, import, use and disposal of specific chemicals. Section 6(h) of TSCA gives EPA the authority to prohibit or restrict, for a particular use or above a certain concentration, the manufacture, processing, commercial distribution, use or disposal of a chemical if it is defined as hazardous to human health or the environment. Specifically, under this section, the EPA shall take accelerated regulatory action on PBT chemicals, i.e., chemicals that meet the legal criteria for persistent, bioaccumulative and toxic (PBT) chemicals.

In 2024, a recordkeeping process, as required by TSCA section 8(a)(7), was started in order to collect information on any PFAS substances used in the components of CAREL's products, so that CAREL and its customers could report this data to the EPA via the Central Data Exchange (CDX).

Note: No quantitative data on total amounts of substances of concern or substances of very high concern (in tonnes) are disclosed.

Policies related to water and marine resources

Carel Industries does not disclose a specific named policy dedicated to water and marine resources in the provided excerpts.

The excerpts indicate that:

• ESRS E3-1 requirements related to water and marine resources are addressed in sections titled "Water resource management in internal operations" and "Water resource management in the value chain"
• Indicator number 8 from Table 2 of Annex 1 (which relates to dedicated policies under ESRS E3-1 paragraph 13) is marked as "Not Applicable"
• Sustainable oceans and seas (ESRS E3-1 paragraph 14, Indicator number 12) is noted as "Not material for CAREL"

While the company addresses water resource management practices in its operations and value chain, no specific policy name, scope, governance structure, or policy content is disclosed in the excerpts provided.

Actions and resources related to water

Water resource management in internal operations and value chain

Carel Industries has disclosed limited specific water-related actions primarily focused on product water efficiency during the use phase.

Strategic LCA study on isothermal humidifiers

Action name and description: Strategic LCA study on isothermal humidifiers with the aim of obtaining EPD certification to understand environmental impacts, including water consumption, and subsequently improve circularity and efficiency.

Scope: Own operations (product design)

Time horizon: 2024-2025 (implementation phase)

Resources allocated: Not quantified

Expected outcomes: Understanding of environmental impacts including water consumption of isothermal humidifiers; ability to improve product circularity and efficiency

Link to policy/target: Links to Target #9 (60% of product categories assessed through LCAs by 2028, including isothermal and adiabatic humidifier ranges)

Humidifier water efficiency projects

Action name and description: Humidifier water efficiency projects to reduce water consumption during product operation.

Scope: Downstream value chain (product use phase)

Time horizon:

• Technical and economic feasibility study: 2025
• Technical development phase: 2026-2028

Resources allocated: Financial resources for implementation will be defined after feasibility analysis scheduled for 2025 (not yet quantified)

Expected outcomes:

• Water efficiency of isothermal humidifiers over 90% by 2028 (Target #10, baseline 2024: 85%)
• Reduce water consumption from use of CAREL products

Link to policy/target: Links to Target #10 and environmental policy commitment to environmental protection and natural resource safeguarding

Water consumption

Water withdrawal and consumption

The group's water withdrawals, carried out under licence from public authorities, are mainly related to sanitation use rather than industrial processes. The parent also has a research laboratory dedicated to humidification, which uses water to perform product tests.

Starting from 2020, consumption of all the group companies has been monitored, including with reference to any water-stressed areas where they are located using the WRI Acqueduct tool.

Table: Water withdrawal and consumption (m³)

Breakdown by location and source

In 2024, 85% of water withdrawals is attributable to the production sites and is directly related to the number of people and hours worked. The withdrawals attributable to water-stressed areas amounted to 5,663 m³, representing approximately 21% of total withdrawals.

Water recycling and reuse

An innovative rainwater collection and reuse project was implemented at the parent's headquarters in 2023. A new building was constructed with a tank to collect rainwater, which is then used for all non-drinking water services. A similar initiative was implemented at the Chinese production site, which is located in a high water-stress area, where a rainwater harvesting tank was set up for irrigation purposes. Thanks to the two projects, about 150 m³ of water was collected and reused in 2024.

Methodology notes

• Water-stress areas are defined as those areas with an extremely high water stress percentage (greater than 80%). Source: WRI Acqueduct.
• For most of the group's sites, data on water withdrawals are collected by reading bills. In some cases, when direct measurement is not possible, the figure was estimated by considering the average withdrawals of sites with similar activities (estimated withdrawals represent about 5% of the total).
• The data on water consumption, relevant only for production sites, were estimated starting from the water withdrawals, based on checks of the meter.
• In 2024, the CAREL Group did not store water.
• The number of people includes employees and non-employee workers.
• No water discharge data is disclosed.

Policies related to resource use and circular economy

Carel Industries does not disclose specific named policies related to resource use and circular economy in the excerpts provided.

The excerpts reference the company's engagement with circular economy topics through:

• Monitoring of Life Cycle Assessment (LCA) as a business organisation and product design tool related to circular economy policies
• Participation in industry associations and work groups addressing sustainability and natural refrigerants
• Monitoring of current and emerging legislation relevant to the sector, including Ecodesign of Sustainable Products Regulation (ESPR)

However, no formal policy document, policy name, governance structure, scope, or implementation monitoring specific to resource use and circular economy (as required by ESRS E5-1) is disclosed in these excerpts. The company appears to address circular economy considerations through operational practices and regulatory compliance monitoring rather than through a dedicated policy framework.

Actions and resources related to circular economy

Strategic LCA study on isothermal humidifiers (2024-2025)

Action description: The parent company has conducted a strategic LCA (Life Cycle Assessment) study on its isothermal humidifiers with the aim of obtaining EPD certification, in order to understand the environmental impacts, including water consumption, of these products and to be able to subsequently improve their circularity and efficiency.

Scope: Own operations / downstream value chain (product design)

Time horizon: Medium-term (2024-2025)

Resources allocated: Not quantified

Expected outcomes:

• Obtain EPD certification
• Understand environmental impacts including water consumption
• Improve product circularity and efficiency
• Target: Have 60% of the group's product categories assessed through LCAs by 2028, including one or more assessments of the isothermal and adiabatic humidifier ranges (base year 2023: 8%)

Link to targets: Linked to target #9 in Table 18: Water Management Targets (60% of product categories assessed through LCAs by 2028)

Humidifier water efficiency projects (2025-2028)

Action description: Technical and economic feasibility study into the group's humidifier water efficiency projects planned for 2025, to be followed by a technical development phase between 2026 and 2028.

Scope: Own operations / downstream value chain (product design)

Time horizon:

• Short-term: Feasibility study (2025)
• Medium-term: Technical development phase (2026-2028)

Resources allocated: Financial resources for the implementation of the project's technical development phase will be defined after the feasibility analysis scheduled for 2025 (not yet quantified)

Expected outcomes:

• Improve water efficiency of isothermal humidifiers to over 90% by 2028 (base year 2024: 85%)
• Reduce water consumption resulting from the use of CAREL products

Link to targets: Linked to target #10 in Table 18: Water Management Targets (water efficiency of isothermal humidifiers of over 90% by 2028)

Supply chain engagement on resource efficiency

Action description: Involvement of supply chain by promoting efficient use of water resources through the suppliers' code of conduct. The code requires suppliers to commit to using resources responsibly, through production processes that aim to reduce waste of natural resources (with particular attention to conservation of energy and water resources) and that promote recycling and reuse. Suppliers are required to implement initiatives to improve environmental performance, such as water consumption reduction, reuse and recycling programmes.

Scope: Upstream value chain (suppliers)

Time horizon: Ongoing

Resources allocated: Not quantified

Expected outcomes:

• Suppliers implement water consumption reduction, reuse and recycling programmes
• Prevention and reduction of accidental spills and leaks into the environment
• In sustainability self-assessment, higher scores given to suppliers that implement water reduction initiatives

Link to policy: Linked to suppliers' code of conduct requirements on resource management

E5-4 – Resource Inflows

In 2024, CAREL purchased a total of about 14,976 tonnes of materials for its production activities. Of these, some 2,719 tonnes (18.16%) are biological materials (e.g., paper and cardboard, wood, cotton).

There is no overlap between the categories of reused and recycled materials in the inflow of materials.

Packaging Materials Analysis

In order to analyse the impact of CAREL product packaging and identify areas for improvement, the characteristics of the parent's packaging were assessed in 2024:

• 55% of total packaging purchased is made up of cardboard, which has a certified origin and is on average 68% comprised of recycled material
• All paper and wood used are of certified origin (FSC or PEFC)
• Paper contains 50% recycled material on average
• Plastic accounts for less than 2% by weight of total packaging and has an average 8% recycled component

An analysis of the Carel Adriatic, Carel Sud America, Carel USA and Carel Electronic Suzhou production sites shows similar trends to the parent:

• 100% of paper, cardboard and wood purchased being FSC- or PEFC-certified
• Purchased cardboard always contains a proportion of recycled material (between 50% and 68%)
• Paper contains 50% recycled material on average
• Plastic packaging varies from less than 1% at Carel Sud America and Carel Adriatic to around 3% at Carel USA and Carel Suzhou

Main Purchasing Categories

The main purchasing categories include:

• Electronic components (e.g., microprocessors, resistors, capacitors, etc.)
• Electromechanical components (e.g. transformers, switches, circuit breakers, etc.)
• Mechanical components (both plastic and metal)
• Finished products which are then resold (e.g. supervisors, displays, sensors, accessories, etc.)
• Packaging materials
• Plant and machinery

Methodology Notes

Data on purchased materials have been extracted from a company management system. Data for the Alfaco, Arion, Enginia, HygroMatik, Klingenburg, Recuperator and Senva sites were estimated. For the purposes of this assessment, it was assumed that 100% of the products belonging to the paper and cardboard, wood and textiles categories are of biological origin.

Considering all materials for which no data are available to be non-biological and non-recycled, it is estimated that at group level:

• The percentage of biological materials from the sustainable supply chain is about 7%
• The percentage of secondary reused or recycled components is less than 2% (about 203 tonnes)

Resource outflows

Product design and circularity

In line with its policy's objective to include environmental protection aspects in product design and development, assessing the potential impact throughout the entire life cycle, the Group has started to perform LCAs (Life Cycle Assessments) to gain an understanding of the different impacts generated by products throughout their life cycle, including those arising from the consumption of raw materials, in order to then make informed decisions aimed at reducing these impacts.

In 2022, an LCA was conducted on an inverter - one of CAREL's main products - in order to assess, in particular, the potential environmental benefits and impacts of this inverter using a cradle to grave approach. The LCA covered aspects relating to the extraction of raw materials, the production of the various electrical components, the production phase of the inverter and the use and end-of-life phases.

In 2024, the group commenced two new LCAs to be completed in 2025, covering two ranges of isothermal humidifiers and a heat recovery unit. The new sustainability plan also provides for additional LCAs to be performed between 2025 and 2026 on valves and controls, adiabatic humidifiers, electrical panels and dampers.

Ecodesign and recyclability initiatives

The sustainability plan includes a feasibility study to assess the use of recycled material in products and packaging. The analysis, which will be conducted between 2025 and 2026 by the parent, aims to obtain baseline values in order to then be able to identify specific targets for increasing the amount of recycled material used in the plastics, aluminium and packaging macro-categories. This initiative, combined with the LCAs carried out and planned at Carel Industries, Enginia and Recuperator, forms the basis of ecodesign, i.e., an approach to product design and development that takes into account various elements such as the environmental impact of the materials used, recycling and repairability of products in order to extend their useful life.

The analysis will also make it possible to develop internal rates of the disassembly, repairability and remanufacturability of products, to be used as a basis for the continuous improvement of their environmental impact, measurable through the definition of specific targets.

Packaging

With respect to packaging, CAREL's objective is to decrease its environmental impact, maintain the level of FSC- or PEFC-certified material, increase the volume of recycled material used in packaging and steadily decrease the use of both non-recyclable and recycled plastic.

According to analysis of the parent's packaging characteristics, 55% of the total packaging purchased is made up of cardboard which, in addition to its certified origin, is on average 68% comprised of recycled material. All paper and wood used are also of certified origin, with paper accounting for 50% of recycled material. Finally, plastic, which is a residual element as it accounts for less than 2% by weight of the total, has an average 8% recycled component.

An analysis of the Carel Adriatic, Carel Sud America, Carel USA and Carel Electronic Suzhou production sites shows similar trends to the parent, with 100% of paper, cardboard and wood purchased being FSC- or PEFC-certified. Purchased cardboard always contains a proportion of recycled material (between 50% and 68%) as does paper (50% on average). The proportion of plastic packaging varies from less than 1% at Carel Sud America and Carel Adriatic to around 3% at Carel USA and Carel Suzhou.

Starting from 2025, in line with the guidelines and procedures adopted, the parent and Carel Adriatic sites will be required to avoid the use of plastic in packaging, except when this is not feasible for technical reasons.

Waste

Waste management approach

Carel Industries promotes proper waste management as part of its policy and the implementation of an environmental management system, from waste generated at the production departments or offices to storage at the sites' temporary storage facilities and disposal at external storage and treatment facilities. Although the policy does not expressly state the priority to avoid or minimise waste to be treated, the group is committed to reducing its total waste output generated by production activities and to achieving maximum efficiency in waste management and disposal to increase the volume of recycled waste.

Once a year, the parent collects and analyses data on waste produced by the group's production sites and warehouses in order to calculate the impact of waste management. It does this by contacting each site to obtain data on:

• the types of waste generated, i.e., the materials composing it (e.g., paper, plastic, WEEE, etc.) and any hazardous characteristics, which are determined by the production process generating the waste;
• the quantities produced of each type of waste;
• end-of-life destination and recycling rates.

For the entire boundary considered, information on the types and quantities of waste generated is collected directly from company management systems or data storage systems, while data on end-of-life destination and treatment are requested directly from the waste management companies to which the waste is consigned.

Total waste generated in 2024

In 2024, CAREL generated a total of about 2,235 tonnes of waste. Of this, 2,086 tonnes of waste was sent for recycling, while 148 tonnes (less than 7% of the total) was directed to other recovery or disposal operations.

Waste generated by type and disposal method (2024)

The composition of waste is directly related to the types of products produced in the various sites. The main categories are metals (ferrous and non-ferrous, 45% of the total); paper and cardboard (17%), plastics (16%) and wood (11%), the latter being mostly related to packaging waste from incoming materials. These categories account for almost 90% of the total waste. They are followed (in smaller percentages) by special waste related to specific activities (e.g., construction materials, oils, etc.); mixed waste (such as mixed or multi-layered packaging); washing or process water; batteries and WEEE of various sizes (from small components and cables to complete machinery).

The analysis also showed that just over 4% (about 89 tonnes) of the total waste generated was hazardous waste, much of which is nevertheless directed to recycling.

Waste diverted from disposal and directed to disposal (2024)

Waste reduction initiatives

In 2023, the waste delivery service was revised in collaboration with the relevant providers, asking them to improve separation and sending for recycling and incineration rather than to the landfill.

In 2024, the group consolidated the project launched in 2022 aimed at improving the separation of plastic waste coming from the production activities. Thanks to the separation of plastic waste into three separate streams, it was possible to improve the process for some particular plastics (such as reels and sticks) and reduce the proportion of mixed packaging at the parent. In 2024, the group improved the sorting process again leading to an increase in the plastic component and a decrease of the mixed component (respectively, 38% and 62% of the total packaging waste) and a further valorisation of the reels and sticks component (11% of the packaging waste produced).

The new sustainability plan also includes a zero paper project. This project aims to significantly reduce printing paper waste through various initiatives that will be implemented between 2025 and 2027 and will act on multiple fronts:

• reducing the weight of paper used at the parent;
• completely eliminating non-mandatory transport documents for transport from the parent to the Vescovana hub;
• implementing a digital system at the parent (and conducting a pilot at the Chinese and Croatian sites) to eliminate paper work orders.

Policies related to own workforce

Carel Industries has adopted several policies related to its own workforce to ensure that its practices do not cause or contribute to significant negative impacts. The board of directors is responsible for supervising the implementation of these policies, while day-to-day responsibility for implementing each of the commitments lies with the Human Resources and HSE Departments. The legal department and the supervisory body (SB) are responsible for checking compliance with these commitments.

During the onboarding process, all group companies' employees who use a digitised personnel management solution receive specific e-learning training about these policies, which are also available on the company website. Furthermore, business partners and other third parties are informed and asked to comply with these policies through clauses in the general terms and conditions of purchase and sale agreements and in contracts.

Human Rights Policy

Scope: This policy is binding for CAREL Group companies in all geographical areas in which they operate, as well as for its business partners and suppliers and all main stakeholders. The main stakeholders include all those persons acting in the name and on behalf of associates, subsidiaries and investees in all geographical areas in which CAREL operates.

Governance: The board of directors is responsible for supervising implementation. Day-to-day responsibility lies with the Human Resources and HSE Departments. The legal department and the supervisory body (SB) are responsible for checking compliance.

Key content/principles:

• Rejection of any form of child labour, forced labour, harassment or discrimination
• Promotion and protection of work-related health and safety
• Encouraging the professional development and growth of each employee, through the promotion of principles of equity and inclusion
• Recognition of proper working conditions (including adequate wages and decent working hours) and freedom of association
• Respect for the privacy of personal information

International standards: In adopting this Policy, Carel defines its principles in accordance with:

• The United Nations International Bill of Human Rights, including the UN Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights
• The Declaration on Fundamental Principles and Rights at Work of the International Labour Organisation (ILO) and related conventions
• The European Convention on Human Rights
• Legislative decree no. 231/2001

Public availability: Available on the company website

Monitoring: All group companies' employees who use a digitised personnel management solution receive specific e-learning training during onboarding. The legal department and supervisory body check compliance.

Diversity Policy

Scope: This policy is binding for all employees, managers, collaborators (e.g., consultants, agents), company representatives and representatives, employees and collaborators of companies belonging to the CAREL Group, as well as the main stakeholders, including significant suppliers.

Governance: The board of directors is responsible for supervising implementation. Day-to-day responsibility lies with the Human Resources and HSE Departments. The legal department and supervisory body (SB) are responsible for checking compliance.

Key content/principles:

• Non-discrimination: the group does not tolerate harassment or insults or any type of discrimination due to racial and ethnic origin, colour, sex, sexual orientation, gender identity, disability, age, religion and political opinion
• Equal opportunities: the group promotes the professional development of each employee, inspired by the principles of fairness and equal opportunities in the face of any kind of diversity
• Inclusion: the group encourages inclusion and integration of individuals, focusing on their personal capabilities, avoiding any form of discrimination based on mental or physical limitations
• Work-life balance: the group promotes a working environment based on trust, dialogue, mutual respect and well-being, recognising the different needs related to its employees' life stages

International standards: The CAREL Group is guided by the same regulatory references and international principles on human rights and labour as those stated in the Human Rights Policy.

Public availability: Available on the company website

Monitoring: All group companies' employees who use a digitised personnel management solution receive specific e-learning training during onboarding.

Gender Equality Policy

Scope: Applies to Carel Industries (the parent company). The policy was adopted in 2024 as part of the broader project to implement a gender equality management system that complies with the UNI/Pdr 125:2022 reference practice.

Governance: Management is responsible for implementation, supported by the steering committee on equal opportunities.

Key content/principles: The policy addresses the following processes:

• Recruitment and selection: recruitment policies and plans to ensure fairness and meritocracy, promoting diversity and providing training on gender equality, bias and stereotypes
• Training and professional development (career management): development and career opportunities based on responsibility, skills and results, promoting inclusive leadership styles
• Remuneration: the remuneration policy respects the principles of equal opportunities, enhancement of people's skills and professionalism, fairness and non-discrimination
• Parenting: Carel Industries is committed to protecting, supporting and valuing parenthood, with solutions such as reversible part-time, solidarity leave bank and contributions towards childcare and education
• Inclusiveness and work-life balance: CAREL is committed to developing an inclusive working environment that fosters diversity, gender equality, women's empowerment and protects the psychological and physical well-being of those who work with the group

International standards: Not explicitly stated for this policy.

Public availability: Available on the company website

Monitoring: Training on the Gender Equality Policy is planned for 2025.

Health, Safety and Environmental Policy (Environmental Policy)

Scope: All group personnel are responsible for implementation of the commitments expressed in the policy, starting with the full involvement of senior management. The policy is binding for the employees, managers, collaborators (e.g., consultants, agents) and company representatives of the CAREL Group companies, as well as the main stakeholders, i.e., those parties that act in the name and on behalf of group companies within the scope of their remit and, in particular, in their relationships with the CAREL Group.

Governance: The board of directors approved the policy in 2018. The management of operations and the implementation of the principles outlined in the policy is handled both centrally, through instructions from the parent, and at the level of the individual subsidiaries and operating sites.

Key content/principles: The policy defines the principles and commitments adopted by the parent and its subsidiaries, directly or indirectly, to reduce their impacts on the environment and territory, including health and safety aspects. It promotes the optimised use of raw materials and reduction of waste, encourages the use of recyclable materials, and commits to optimising the management of waste generated.

International standards: In adopting the policy, the CAREL Group made reference to:

• The international standard UNI EN ISO 14001 on Environmental Management Systems
• The laws, regulations and guidelines of each country in which CAREL operates

Public availability: The policy was made available to recipients and other relevant parties through publication on the company intranet and website.

Monitoring: CAREL recognises employee training as a fundamental tool for implementation and is committed to its dissemination, including through mandatory training during the onboarding phase and regular training afterwards.

Future initiatives

Carel has planned several initiatives related to workforce policies:

• Adaptation of the due diligence process on human rights: by 2028, to address negative impacts on human rights and the environment with regard to own operations and the value chain, in line with the EU Corporate Sustainability Due Diligence Directive
• Update of the human rights policy: by 2025, to formalise its commitment to combating human trafficking, describe its position on the employment of migrant workers and describe measures to remedy possible violations
• Development of a training and awareness-raising plan on diversity, inclusion and human rights: to increase the percentage of employees involved in training activities on diversity, inclusion and human rights, monitored annually until 2028

Taking action on material impacts on own workforce

Training and professional development of employees

Lean Academy

An online training path available to all those with access to the Parent's Learning Management System (LMS), which promotes Lean principles and a "lean" philosophy. The Lean Academy is based on four levels called belts based on the classic structure of Lean Six Sigma courses. The goal is to create a training programme to share a reference framework for aspects related to the ongoing improvement and adaptability of the business from an employee development standpoint. To date, the "White Belt" and "Yellow Belt" paths have been activated.

Resources allocated:

• OpEx of approximately €20 thousand per year to purchase training services, included in the budgeting process for each year of the plan

LinkedIn Learning platform

Pilot project launched in 2024, involving 300 users in several group companies (Carel Industries, Carel USA, Carel Electronic, Carel APAC, Carel Sud America and Carel Adriatic) for a duration of nine months, offering both technical training content and content to strengthen soft skills. The initiative, involving several geographical regions, provided around 4,000 additional training hours.

Resources allocated:

• OpEx of approximately €55 thousand in 2026 and 2027 to purchase the LinkedIn Learning platform, included in the budgeting process for each year of the plan

Time horizon:

• Continuing in coming years with continuous monitoring of training hours provided per user

Project 'i'

Launched in 2024, this project aims to raise employees' awareness of the group's various departments and, by organising events, to showcase vacant positions, sponsoring internal mobility and offering employees opportunities for growth in roles outside their departments. In 2024, the Parent organised three PATH Finder events open to all its white collar employees. Employees can always view current job openings on the group's intranet page.

Time horizon:

• Continuing in 2025 with further events planned to maintain high engagement and offer new possibilities for professional development

Future targets for training and professional development

TABLE 29: TRAINING AND SKILLS DEVELOPMENT TARGETS

Expected outcomes:

• Increasing the number of training hours allows for skills development

Occupational health and safety

Health and safety training

The Parent provided approximately 3,000 hours on health and safety during the year, involving almost 270 people. The various activities promoted by the HSE department have highlighted the benefits of adopting structured safety systems not only for health and safety purposes but also in the area of environmental impact aspects, thus promoting an overall improvement in working areas.

Carel held specific orientation training initiatives for employees providing training on the actions that the group is taking in terms of decarbonisation and reduction of specific impacts of its products and processes and making them aware of achievements, ongoing actions and medium-term targets.

Company doctor

In 2024, in compliance with the ruling legislation, the Italian group companies maintained an employee healthcare protocol with the company doctor. The protocol regards all workers (employees and non-employees), with specific medical check-ups based on the activities they perform and the related risk level.

Resources allocated:

• Annual OpEx of €50 thousand of the Parent

Scope:

• Italian group companies
• All workers (employees and non-employees)

Activities:

• The company doctor carried out a general inspection, accompanied by the prevention and protection service manager, the trade union representatives and the main heads of operations
• The designated prevention system officers participated in the periodic meeting required by Legislative decree no. 81/2008
• The doctor gives workers general advice about healthy eating and physical exercise to improve their health
• Surveillance activities to monitor medical prescriptions and identify suitable work positions
• Promotion of psychological and physical well-being of group employees outside the work context

Expected outcomes:

• In 2024, the severity ratio was 0.43, indicative of very minor events resulting in limited average time off work
• There were 18 minor work-related accidents in 2024: 15 involving employees and 3 involving non-employee workers

Equal treatment and opportunities

Whistleblowing training

Following changes made in 2023, specific e-learning training on the whistleblowing procedure was developed and provided in 2024, with the aim of increasing employee awareness.

Anti-corruption training

100% of functions at corruption and bribery risk were involved in anti-corruption training programmes. The members of the administrative, management and supervisory bodies participate in regular in-person training on anti-corruption topics as part of the training on the 231 model.

Characteristics of the undertaking's employees

Total headcount

At 31 December 2024, the group had 2,592 employees (2023: 2,660) and approximately 164 non-employees (2023: 150).

Total employees by gender (31 December 2024):

Total employees by age bracket (31 December 2024):

Total employees by country (31 December 2024):

Note: Figures are provided for countries with 50 or more employees, accounting for at least 10% of the total employees.

Headcount by region

Geographical breakdown shows that just under half of the employees are employed in Western Europe (55%), approximately 16% in Eastern Europe, Middle East and Africa, roughly 15% in APAC and the remaining 13% in North and South America.

Headcount by employment contract type

Total number of employees by contract type, broken down by gender (31 December 2024):

Total number of employees by contract type, broken down by region (31 December 2024):

Permanent contracts represent 86% of total employees.

Headcount by employment type

In 2024, the group agreed part-time contracts for 3% of the total workforce, the majority of whom were women.

Employee turnover

In 2024, 331 employees left the group for a turnover rate of 13%.

Collective bargaining coverage

In 2024, 57% (alternatively stated as 58% in another section) of the group's employees were covered by collective bargaining agreements.

Coverage rate of collective bargaining and social dialogue:

Non-employee workers

Non-employees numbered approximately 164 in 2024. They are mainly employed in production and logistics and warehouse activities. The variation in their number is tied to changes in the work load.

Adequate wages

All group employees receive a wage above or in line with the national minimum wage. Less than 2% of the employees are paid a salary equal to the national minimum wage in their country, the remainder receives a salary above it.

Work-related accidents

There were 18 minor work-related accidents in 2024: 15 involving employees and 3 involving non-employee workers.

Work-related accidents and rate of recordable work-related accidents:

In 2024, the severity ratio was 0.43.

Remuneration

The ratio of the annual total remuneration of the highest paid individual to the median annual total remuneration for all group employees (excluding the highest paid individual) is 26:1 at 31 December 2024.

Characteristics of non-employees in the undertaking's own workforce

Non-employee workers count and methodology

According to the disclosure, health and safety training and medical check-ups conducted by the company doctor covered both employees and non-employee workers, as required by law.

In 2024, 3 work-related accidents involved non-employee workers at the group's sites. These injuries led to time off work or a temporary reduction in work hours.

Counting methodology

The document states: "The number of people includes employees and non-employee workers" when referring to water consumption calculations (footnote 117). This indicates that non-employee workers are counted by headcount.

Breakdown by type

The disclosure references non-employee workers in the context of:

• Self-employed workers (mentioned as potential recipients of the whistleblowing procedure)
• Collaborators of external companies that supply goods or services
• Freelancers and consultants
• Volunteers and trainees

However, no quantitative breakdown by these categories is provided.

Multi-year comparison

No multi-year data for non-employee workers is disclosed. The only 2024 figure provided is:

• 3 work-related accidents involving non-employee workers (2024)
• Footnote 152 states: "In 2024, no non-employee worker were injured at the group's sites" - this appears contradictory to the 3 accidents mentioned elsewhere.

Scope and coverage

Non-employee workers are included in:

• Health and safety training programs
• Company doctor medical check-ups and healthcare protocols
• Whistleblowing procedure coverage
• Health and safety incident reporting

The disclosure does not provide:

• Total headcount of non-employee workers
• Breakdown by type of non-employee worker
• Breakdown by gender, region, or work location
• FTE equivalent figures

Collective bargaining coverage and social dialogue

Overall coverage

In 2024, 58% of the group's employees were covered by collective bargaining agreements while the remainder are hired with company or individual contracts in line with the local regulations and market practices, the group's code of ethics and its human rights, diversity and HSE policies.

The unionisation rate at group level remained very low, proving that "direct" industrial relations, i.e., without the arbitration of an internal or external trade union representative, are often preferred, especially at local level and when permitted by the ruling regulations.

Geographic breakdown

TABLE 28: COVERAGE RATE OF COLLECTIVE BARGAINING AND SOCIAL DIALOGUE

Collective agreements and social dialogue arrangements

During 2024, an internal labour agreement was finalised at CAREL Adriatic, the group's Croatian site, supplementing those already in force in Italy at Carel Industries and Recuperator.

Free association in trade unions has always been guaranteed at all the group's sites, in order to safeguard the right of the individual as per the main international conventions and various national regulations. In order to ensure that industrial relations in the group are carried out in a transparent and positive way, the group provides that relations and negotiations with the trade unions are handled directly by each group company.

European Works Council

At present, CAREL does not have any agreements with its employees for representation by a European Works Council (EWC), a Societas Europaea (SE) Works Council, or a Societas Cooperativa Europaea (SCE) Works Council.

Phase-in provisions

The group adopts phase-in provisions for the reporting of S1-8 for non-EEA countries.

Diversity metrics

Age band distribution of workforce

Note: Employee figures refer to the number of people at the end of the reporting period.

Gender split at top management

No gender split data disclosed for top management or board of directors.

Adequate wages

Benchmark used

Carel Industries benchmarks adequate wages against the national minimum wage. The company states:

"The group is committed to providing adequate wages by guaranteeing the current national minimum wage at least, as described in the group's human rights policy."

The company does not disclose use of a living wage benchmark (e.g., Fair Wage Network, WageIndicator, Anker Methodology, or similar). The assessment is based solely on compliance with national minimum wage requirements in each country of operation.

Coverage

100% of group employees receive a wage above or in line with the national minimum wage:

"All group employees receive a wage above or in line with the national minimum wage and, therefore, are paid an adequate wage, in line with applicable benchmarks. Specifically, less than 2% of the employees are paid a salary equal to the national minimum wage in their country, the remainder receives a salary above it."

• ~98% of employees: paid above national minimum wage
• <2% of employees: paid equal to national minimum wage
• 0%: paid below national minimum wage

Geographic scope

Global coverage across all group operations. No geographic exclusions disclosed.

Targets and commitments

No specific targets or commitments disclosed related to adequate wages or living wage implementation.

Remuneration policy principles

The company's broader remuneration approach is guided by:

• Equality, diversity and inclusion
• Sustainability
• Competitiveness
• Transparency

The remuneration package includes:

• Wide range of benefits (supplementary policies, healthcare, disability coverage, extra parental leave, company cars, well-being systems)
• Short-term incentive plans (MBO) and long-term incentive plans (LTI) for senior management and key resources
• Performance-based compensation linked to both operational and sustainable development targets

The company conducts "structured checks on its own remuneration practices against the reference market, especially for its key resources, assisted by consulting companies that specialise in remuneration analysis and benchmarking."

Pay ratio

The ratio of annual total remuneration of the highest paid individual to the median annual total remuneration for all group employees (excluding the highest paid individual) is 26:1.

Methodology

No specific methodology disclosed for assessing adequacy of wages beyond national minimum wage compliance. No mention of living wage calculation methodology, frequency of reassessment, or whether contractor wages are included in the assessment.

Social protection

Disclosure scope and phase-in provision

The group adopts phase-in provisions for the reporting of S1-11 (Social protection).

Social protection coverage

The group provides supplementary social protection benefits to employees beyond statutory requirements. At the Parent company level, a supplementary contract provides more favourable conditions to all employees compared to the national employment contract, covering issues such as daily and weekly flexible work hours, part-time work and parental leave.

The group guarantees work hours in line with the maximum number established by applicable regulations and ensures that workers' needs are met throughout the employment relationship (e.g., maternity leave, paternity leave, sick leave or carers' leave).

Supplementary company agreement (Italy - Parent)

In March 2022, the Parent renewed the supplementary company agreement (second-level bargaining) for the three-year period 2022-2024. The agreement focuses on:

• Parental leave eligibility criteria
• Advances on post-employment benefits
• Contributions to the cost of crèches and pre-schools and to school costs
• Supplement to allowances for optional maternity leave
• Full tax exemption on the entire performance bonus paid to employees

In early 2024, a company agreement offering greater flexibility and improved treatment compared to the collective bargaining agreement was renewed, including at Recuperator (Italian group company). The collective incentives, benefits and well-being initiatives apply to both permanent and temporary employees.

Employee benefits

The group sites offer a range of benefits aimed at improving the well-being of employees, available to full-time employees and/or employees with temporary contracts. Main benefits include:

• Supplementary policies
• Healthcare
• Disability coverage
• Extra parental leave in addition to legal requirements
• Company cars
• Other well-being systems

No quantitative coverage metrics (percentages of employees covered by type of social protection) are disclosed in the excerpts provided.

Training and skills development metrics

Overall training hours

In 2024, the group provided more than 42,000 training hours, representing an average of 16 hours per employee.

Training hours by gender

Not disclosed.

Training hours by employee category

Not disclosed.

Performance and career development review coverage

In 2024, 785 employees were covered by the performance review process.

Percentage coverage by gender not disclosed.

Total investment in training

The group estimated OpEx of approximately €55,000 in 2026 and 2027 for the LinkedIn Learning platform.

Additional training hours provided through LinkedIn Learning pilot project (300 users, nine months duration): approximately 4,000 hours.

Future targets

• Target 13: Expand the number of group employees involved in the performance review process by 30% by 2028 (baseline: 785 employees in 2024)
• Target 14: Increase the total number of training hours provided at group companies by 2% per year by 2028 (baseline: 42,112 hours in 2024)

Health and safety metrics

Coverage of health and safety management system

100% of employees at production sites are covered by the company's health and safety management system. In 2024, 30% of the group's production sites (representing 50% of the total surface area) are ISO 45001:2018 certified, covering 58% of the personnel at such sites.

Overall, 45% of group employees and 55% of non-employee workers are covered by an occupational health and safety management system certified in accordance with ISO 45001:2018 audited by a third party.

Fatalities

There were no fatal injuries during 2024, continuing the trend of previous years.

Work-related accidents and rates

In 2024, 18 minor events were reported in the workplace (15 involving employees and 3 involving non-employee workers), which led to their time off work or a temporary reduction in their work hours. There was an increase of 37% in the injury frequency rate (employees and other workers) compared to a 3% increase in the total number of hours worked by group employees.

Work-related ill health

Two of the parent's employees applied for occupational disease compensation during the year.

Days lost

Absence from work was very limited as represented by the severity index of 0.44 (severity index = total days lost/hours worked normalised per 10,000). The severity ratio in 2024 was 0.43.

Methodology note: The rate of recordable work-related accidents is calculated as (number of recordable work-related accidents/total number of hours worked) × 1,000,000. The injury severity rate is calculated as (number of days lost due to work-related injuries/total number of hours worked) × 10,000.

Work-life balance metrics

Scope and phase-in provisions

The group adopts phase-in provisions for the reporting of S1-15 metrics.

Policies and commitments

Carel Industries' human rights and diversity policy includes a commitment to work-life balance: "the group promotes a working environment based on trust, dialogue, mutual respect and well-being, recognising the different needs related to its employees' life stages and agreeing personalised solutions to reconcile work and home life."

The Parent has a supplementary contract that provides more favourable conditions to all its employees compared to the national employment contract, covering issues such as daily and weekly flexible work hours, part-time work and parental leave when children are born.

In March 2022, the Parent renewed the supplementary company agreement for the three-year period 2022-2024. The agreement continues to focus on the eligibility criteria for parental leave, advances on post-employment benefits, contributions to the cost of crèches and pre-schools and to school costs and a supplement to allowances for optional maternity leave.

Gender equality policy - parenting commitments

Through the gender equality policy adopted in 2024, Carel Industries commits to:

• Parenting: Carel Industries is committed to protecting, supporting and valuing parenthood, with solutions such as reversible part-time, solidarity leave bank and contributions towards childcare and education.

A parenting policy was also defined, which summarises the Parent's existing initiatives for its employees.

Part-time work arrangements

In 2024, CAREL agreed part-time contracts for 3% of the total workforce, the majority of whom were women.

Quantitative metrics

No quantitative metrics on family-related leave entitlement, take-up rates, or return-to-work rates are disclosed in the provided excerpts.

Compensation metrics (ESRS S1-16)

Pay gap

In 2024, the gender pay gap was 41%.

CAREL analysed this gap by focusing on countries where more than 10% of the group's workforce and at least 50 employees are located:

CAREL performed another analysis on GPG by employee category:

The disparity is mainly due to the low rate of women in CAREL's sector. This is reflected in the percentage of women, in particular white collar workers, in the group and, more generally, the considerable difficulty in finding engineers or candidates with STEM qualifications and the limited number of female candidates to fill managerial and executive positions.

Remuneration ratio

The ratio of the annual total remuneration of the highest paid individual to the median annual total remuneration for all group employees (excluding the highest paid individual) is 26:1.

Methodology

The gender pay gap figures are calculated in accordance with DR S1-16 on the total group reporting boundary taking into account fixed and variable remuneration (MBO and LTI) at target and hourly averages of employees. The figures are not comparable in terms of the reporting scope and calculation method with those published in the 2023 non-financial statement.

For the remuneration ratio, the calculation includes the target fixed and variable salary items (LTI and MBO) of the employees in force at 31 December 2024, while for the individual with the highest remuneration the variables were considered at the actual value.

Incidents, complaints and severe human rights impacts

The company identifies risks related to incidents of discrimination, including harassment, based on gender identity, ethnic origin, sexual orientation, disability, age, religion and political opinions in the group's workforce. These incidents could arise due to lack of attention to equal opportunities and equal treatment, generating distress among employees.

The company also identifies risks related to potential violations of human rights (diversity, equity, inclusion) policies, procedures, code of ethics or external regulations, which could expose the group to possible penalties, reputational damage and negative impacts on the business. This includes risks related to child labour and forced labour.

Metrics

The company references ESRS S1-17 in its materiality assessment and policy framework but does not disclose specific quantitative data on:

• Number of incidents of discrimination or harassment
• Number of complaints filed through grievance mechanisms
• Number of severe human rights impacts
• Total amount of fines, penalties or compensation
• Status of complaints (open/resolved/under investigation)

The excerpts indicate that the company has established a whistleblowing procedure and internal controls over sustainability reporting, including an ERM risk register that identifies these risks. However, no actual incident data, complaint numbers, or financial penalties are reported for the reporting period.

Policies related to value chain workers

Carel Industries has disclosed the following policies related to value chain workers:

The human rights policy

• Link to international standards: The policy is referenced in connection with UNGPs on Business and Human Rights principles and OECD guidelines, as well as fundamental International Labor Organisation Conventions 1 to 8
• Public availability: Referenced in the CSRD sustainability statement cross-references

Suppliers' code of conduct

• Scope: Applies to suppliers in the value chain
• Public availability: Referenced in multiple sections including G1: Business Conduct - Supply chain and S2: Workers in the Value Chain - Commitment policies

The conflict minerals policy

• Content: Addresses due diligence on conflict minerals in the value chain
• Public availability: Referenced under S2: Workers in the Value Chain - Commitment policies

Taking action on material impacts on value chain workers

Management of relationships with suppliers

Scope: Upstream value chain (suppliers)

Time horizon: Medium-term

Objective: Dissemination, management and oversight of good environmental and social practices in the supply chain through supplier engagement activities (e.g., sharing of the Suppliers' code of conduct, implementation of training activities, start-up of partnerships, etc.)

Link to policy: Suppliers' code of conduct, Code of ethics

Key initiatives and resources allocated:

1. Ensure that suppliers representing 95% of direct procurement sign the suppliers' code of conduct by 2026

   • Base year: 2024 | Baseline: 9%
   • KPI: % of direct procurement from suppliers that have signed the suppliers' code of conduct

2. Mapping the sustainability risk of all direct material suppliers, using the EcoVadis IQPlus tool, by 2025

   • Base year: 2024 | Baseline: 0% (new project)
   • KPI: % of direct material suppliers subjected to sustainability risk mapping

3. Carry out a "light" ESG assessment of 95% of direct material supplies, using the EcoVadis tool, by 2026

   • Base year: 2024 | Baseline: 49% (via the self-assessment document)
   • KPI: % of costs for direct material suppliers covered by the "light" ESG assessment
   • This assessment will replace the sustainability self-assessment document currently used

4. Physical ESG audits at selected suppliers (planned)

   • Selection based on results obtained in the mapping and assessment phases
   • See target 23 in table 41 (not included in excerpts)

5. Specific training of purchasing function personnel on ESG issues

   • Timeline: 2025-2026
   • Target: All purchasing personnel at Carel Industries
   • Objective: Optimise implementation of the due diligence process

6. External supplier training on ESG issues

   • Timeline: 2026-2027
   • Target: Selected suppliers based on evidence gathered in the due diligence process
   • Objective: Disseminate good environmental and social practices throughout the supply chain
   • Suppliers and issues to be determined based on supply chain risk mapping

7. Introduction of a sustainable procurement MBO

   • Timeline: By 2026
   • Target: Procurement personnel
   • Objective: Promote more sustainable procurement

Total resources allocated (for initiatives 4, 5, and 6):

• CapEx: Approximately €80 thousand for supplier document management software implementation
• OpEx: Approximately €500 thousand for:
  • Subscription to EcoVadis services
  • External on-site consulting and audit services
• Annual CapEx and OpEx will be included in the budgeting process for each year of the plan

Ongoing engagement tools with suppliers:

• Ongoing dialogue and transfer of good practices and skills
• Definition and agreement of standards
• Regular visits to production sites
• Certification and auditing of suppliers (CAREL supplier audit check-list)
• Liaising with quality control personnel
• Order management software
• Vendor evaluation procedure

Expected outcomes: These activities will facilitate the selection of suppliers that adopt social and environmental best practices, thereby reducing the risk of inadequate supplier management leading to possible penalties, reputational damage and adverse business impacts for the group. They will also promote the dissemination of good social and environmental practices throughout the supply chain.

Whistleblower reporting channel for workers in the value chain

Link to policy: Whistleblowing procedure

Objective: Provide a channel for value chain workers to raise concerns related to human rights issues and incidents connected to upstream and downstream value chain

Policies related to consumers and end-users

Carel Industries has assessed ESRS S4-1 (Policies related to consumers and end-users) as not material for the company.

According to the materiality assessment table, this disclosure requirement (referenced as Indicator number 9 and 11 in Table #3 and Table #1 of Annex 1) did not meet the materiality thresholds established by the company.

As a result, no specific policies related to consumers and end-users are disclosed under this disclosure requirement.

Business conduct policies and corporate culture

Carel Industries has implemented comprehensive business conduct policies and procedures to ensure ethics, integrity, and compliance across the group. The company's corporate culture is embodied in four key instruments: the Organisational, management and control model (the "231 model"), the code of ethics, the anti-corruption procedure, and the whistleblowing policy.

Code of Ethics

Policy name: Code of Ethics

Scope: The code of ethics is binding on all group companies and all their corporate officers, employees and collaborators. CAREL also requires all its main stakeholders (such as associates, investees, key suppliers, etc.) to abide by the general principles when acting independently and in their relations with CAREL.

Governance and oversight: The board of directors is responsible for supervising the implementation of these policies, while the supervisory body (SB) is responsible for checking compliance with these commitments.

Key principles:

• Legality: Compliance with national and international laws and by-laws
• Morality: Acting with moral integrity, honesty, probity, transparency and accountability
• Dignity and equality: Respecting the dignity and rights of every individual without discrimination based on gender, age, culture, religion or any other factor
• Professionalism: Carrying out duties with utmost commitment and diligence

Public availability: Available on the parent's website: https://www.CAREL.it/legal-notice

Link to international standards: The code is an integral part of the parent's 231 model and sets principles in accordance with the Italian Civil Code and contracts.

Monitoring implementation: The code sets out that violation may constitute a breach of contract and/or disciplinary rules. In 2024, the code of ethics was revised to ensure language that respects the principle of gender equality.

Anti-Corruption Procedure

Policy name: Anti-Corruption Procedure

Scope: The procedure applies to the parent and all its subsidiaries. It is also communicated to other investees to promote a culture of compliance.

Governance and oversight: The effective application is monitored by the internal audit functions and, in Italy, by the SB. The legal affairs and compliance function monitors the actual adoption and is responsible for launching and coordinating training activities. The SB reports to the corporate bodies on a six-monthly basis.

Key principles: The procedure is inspired by the principles and rules of conduct set out in the parent's code of ethics and incorporates the principles, provisions and requirements applicable to anti-corruption of Legislative decree no. 231/01.

Link to international standards: The procedure is in line with:

• Italian Criminal Code
• Foreign Corrupt Practices Act (FCPA)
• UK Bribery Act
• OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
• UN Convention against Corruption

Monitoring implementation: The internal audit function conducts sample-based checks on business partners and internal functions operating in key risk areas. The SB performs duties autonomously and independently with autonomous spending powers. In the 2022-2024 three-year period, there were no convictions for violations of anti-corruption and anti-bribery laws, nor proven cases of corruption or bribery.

Whistleblowing Procedure

Policy name: Whistleblowing Procedure

Scope: The procedure applies to the entire group and is aimed at: group employees (permanent or temporary), self-employed workers, collaborators of external companies that supply goods or services, freelancers, consultants, volunteers, trainees, people with roles of administration, management, control or supervision.

Governance and oversight: The SB is responsible for maintaining the whistleblower reporting channel. The control functions monitor the effectiveness, regulatory compliance, dissemination and implementation.

Key content: The procedure aims to ensure full protection and confidentiality for those who report crimes or irregularities, including violations of the code of ethics and the human rights, diversity and gender equality policies, including discriminatory behaviour.

Public availability: The procedure is referenced in the legal notice section of the website and the "contact us" section contains the link to access the Convercent platform (https://www.CAREL.it/whistleblowing).

Link to international standards: Full compliance with Italian and European legislation (Law no. 179 of 2017, Law no. 53/2021, Legislative decree no. 24/2023 and Directive (EU) 2019/1937). In 2023, the board of directors approved an updated version bringing it into line with Legislative decree no. 24 of 10 March 2023.

Reporting channels: By postal service, orally, and via the electronic web platform "Convercent".

Monitoring implementation: Upon receipt of a report, the SB carries out an initial admissibility screening. If the report proves verifiable, an investigation is commenced. At the conclusion, the SB prepares a report and verifies the actual adoption of appropriate remedies. In 2024, one incident of suspected discrimination was reported, which was verified and found not to be the case.

Organisational, Management and Control Model (231 Model)

Policy name: Organisational, Management and Control Model ("231 model")

Scope: Adopted by the parent and Recuperator S.p.A. pursuant to Legislative decree no. 231/01. The code of ethics is an integral part of this model.

Governance and oversight: The board of directors is responsible for supervising implementation. The supervisory body (SB) is responsible for checking compliance.

Key content: The model consists of a general part and several special parts, designed using an analysis of the areas where predicate crimes could be committed.

Public availability: Available on the parent's website: https://www.CAREL.it/legal-notice

Link to international standards: Based on Legislative decree no. 231/01, the reference Italian legislation regarding corporate criminal liability.

Monitoring implementation: An update of the 231 model and some of its special parts was carried out in accordance with the board of directors' resolution of 12 May 2023.

Suppliers' Code of Conduct

Policy name: Suppliers' Code of Conduct

Scope: Applies to all CAREL suppliers which, in turn, must ensure that their suppliers (CAREL's subcontractors) and any other third party working on their behalf act in full compliance with the code.

Governance and oversight: The implementation is the responsibility of the supply chain department.

Key principles: The code covers three macro-areas:

• Ethical and responsible business (compliance with legal requirements, product safety, conflict of interest, confidentiality, anti-corruption, economic responsibility)
• Protection of employees and human rights (regularity of contracts, health and safety, non-discrimination, prohibition of forced and child labour, remuneration, collective bargaining, conflict minerals)
• Care for the environment and communities (environmental regulations compliance, hazardous substances management, waste management, resource efficiency, biodiversity, respect for local communities)

Public availability: Published on CAREL's website to be available to candidate suppliers.

Link to international standards: CAREL adheres to the Ten Principles of the United Nations Global Compact and is inspired by the values of the International Labour Standards enshrined in the core conventions of the International Labour Organisation (ILO).

Monitoring implementation: Since 2022, compliance with and signing of the suppliers' code of conduct has been a mandatory step in the approval of new component and product suppliers for the group's five long-established production plants. As of 2023, extended to the parent's service providers. Since 2022, the code (or equivalent document) has been signed by 215 suppliers.

Human Rights Policy

Policy name: Human Rights Policy

Scope: The policy requires that business partners act in accordance with principles of fairness, integrity and respect for the human rights of all workers. The group encourages its business partners and their suppliers throughout the supply chain to adopt the principles described in this policy.

Key content: CAREL reserves the right to terminate any relationship with those business partners/suppliers that violate the principles set out in the policy. The policy defines principles in accordance with the United Nations International Charter of Human Rights, the Declaration on Fundamental Principles and Rights at Work and the European Convention on Human Rights.

Monitoring implementation: The policy guarantees the current national minimum wage at least. All group employees receive a wage above or in line with the national minimum wage. Plans to update the policy by 2025 to formalise commitment to combating human trafficking, describe position on employment of migrant workers and describe measures to remedy possible violations.

Environmental, Health and Safety Policy

Policy name: Environment, Health and Safety Policy ("Environmental Policy")

Scope: The policy defines the principles and commitments adopted by the parent and its subsidiaries, directly or indirectly. It is binding for the employees, managers, collaborators (e.g., consultants, agents) and company representatives of the CAREL Group companies, as well as the main stakeholders.

Governance and oversight: Approved by the board of directors in 2018. All group personnel are responsible for implementation, starting with the full involvement of senior management. Management of operations and implementation is handled both centrally, through instructions from the parent, and at the level of individual subsidiaries and operating sites.

Key principles related to climate change:

• Reduce energy consumption through energy efficiency improvement and renewable energy use
• Monitor GHG emissions and implement reduction measures
• Promote sustainable design and development of products and processes
• Compliance with ISO 14001 and ISO 50001 standards

Monitoring implementation: Some production sites are certified in accordance with ISO 14001:2018 and ISO 50001:2018. The group shares the policy with suppliers and customers as they are fundamental to the development of the parent and group.

Conflict Minerals Policy

Policy name: Conflict Minerals Policy

Scope: Applies to Carel Industries and Italian group companies. The policy requires all suppliers of components containing 3TGs to apply reasonable due diligence throughout the supply chain.

Governance and oversight: The person responsible for implementation is the Group Head of Purchasing and Logistics.

Key content: CAREL undertakes not to knowingly purchase components that contain minerals from conflict zones and from plants located in conflict regions that are not conflict-free certified. All suppliers of components containing 3TGs shall escalate this requirement up the supply chain to determine the origin of the specified minerals.

Link to international standards: The group voluntarily complies with the Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas OECD framework, which confirms compliance with the US Dodd-Frank Wall Street Reform Act.

Monitoring implementation: CAREL has implemented an annual due diligence process on the procurement of components containing 3TGs. The parent set up an internal committee - the controversial sourcing committee - which decides on actions to be taken on negligent suppliers. In 2020, the group joined the Responsible Minerals Initiative (RMI).

Diversity Policy

Policy name: Diversity Policy

Scope: Referenced in relation to diversity management and gender equality.

Key content: The policy addresses diversity, equity and inclusion principles.

Monitoring implementation: Risk assessment conducted to identify potential violations of human rights (diversity, equity, inclusion) policies.

Gender Equality Policy

Policy name: Gender Equality Policy

Scope: Referenced alongside human rights and diversity policies.

Key content: Addresses gender equality principles and protection against gender-based discrimination.

Monitoring implementation: Employees and non-employee workers can raise concerns about violations through whistleblower reporting channels. In 2024, the code of ethics was revised to ensure language that respects the principle of gender equality.

Prevention and detection of corruption and bribery

Carel Industries has established multiple policies and procedures to prevent and detect corruption and bribery across its operations.

Code of Ethics

Scope:

• Binding on all group companies and all their corporate officers, employees and collaborators
• CAREL requires all its main stakeholders (associates, investees, key suppliers, etc.) to abide by the general principles when acting independently and in their relations with CAREL
• The code is an integral part of the parent's 231 model

Key content and principles:

• Legality: Compliance with national and international laws is a core principle; all bound parties must operate in compliance with applicable laws
• Morality: Honesty, probity, transparency and accountability are required, ensuring clear and complete communications
• Dignity and equality: Respecting the dignity and rights of every individual without discrimination; harassment or any form of offence is not tolerated
• Professionalism: All individuals shall carry out their duties with professionalism and diligence
• Sets out policy commitments on protection of the environment, health and safety in the workplace, intellectual property and social responsibility

Governance:

• Approved by the parent company
• The board of directors is responsible for supervising the implementation of these policies
• The supervisory body (SB) is responsible for checking compliance with these commitments

Public availability:

• Available on the parent's website: https://www.CAREL.it/legal-notice

Stakeholder communication:

• Business partners and other third parties are informed of and asked to comply with the code of ethics through clauses in general terms and conditions of purchase and sale agreements and in contracts

Updates:

• In 2024, the code of ethics was revised to ensure language that respects the principle of gender equality

231 Model

Scope:

• Applies to the parent and group companies
• The code of ethics is an integral part of the 231 model

Governance:

• An update of the 231 model and some of its special parts was carried out in accordance with the board of directors' resolution of 12 May 2023
• The board of directors is responsible for supervising the implementation
• The supervisory body (SB) is responsible for checking compliance

Public availability:

• Available on the parent's website: https://www.CAREL.it/legal-notice

Stakeholder communication:

• Business partners and other third parties are informed of and asked to comply with the 231 model through clauses in general terms and conditions of purchase and sale agreements and in contracts

Anti-Corruption Procedure

Scope:

• Applies to the parent and all its subsidiaries
• Also communicated to other investees to promote a culture of compliance and optimize information flows

Key content and principles:

• Inspired by the principles and rules of conduct set out in the parent's code of ethics
• Incorporates the principles, provisions and requirements applicable to anti-corruption of Legislative decree no. 231/01 (regulations on administrative liability of entities)

Links to international standards:

• In line with principles of the Italian Criminal Code and the most stringent international regulations:
  • Foreign Corrupt Practices Act (FCPA)
  • UK Bribery Act
  • OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions
  • UN Convention against Corruption

Governance:

• The SB has approved and disseminated the anti-corruption procedure at group level
• The board of directors is responsible for supervising implementation
• The supervisory body (SB) is responsible for checking compliance

Public availability:

• Available on the parent's website: https://www.CAREL.it/legal-notice

Stakeholder communication:

• Business partners and other third parties are informed of and asked to comply with the anti-corruption policy through clauses in general terms and conditions of purchase and sale agreements and in contracts

Whistleblowing Procedure

Scope:

• Available to all group companies' employees
• Employees can access the Convercent platform

Monitoring and implementation:

• Specific e-learning training on the whistleblowing procedure was developed and provided in 2024 to increase employee awareness
• All group employees who use a digitalised personnel management solution receive specific e-learning training when hired
• Training is repeated annually or when significant changes to relevant documents are made
• A short test is administered upon completion of training to assess knowledge of the content

Limitation:

• CAREL currently lacks a system that ensures (i) the availability of a whistleblower reporting channel in the workplace for value chain workers and (ii) that these workers are aware of the channel's existence

Training and Monitoring

Employee training:

• All group companies' employees who use a digitalised personnel management solution receive specific e-learning training when hired on the 231 model, code of ethics, anti-corruption policy and whistleblowing procedure
• Training is repeated annually or when significant changes are made
• A short test is administered to assess knowledge
• For senior and junior management personnel whose activities are relevant to the 231 model, more specific in-person training is provided in addition to basic training
• Specific e-learning training on the whistleblowing procedure was developed and provided in 2024

Training coverage:

• 100% of functions at corruption and bribery risk were involved in anti-corruption training programmes
• Members of the administrative, management and supervisory bodies participate in regular in-person training on anti-corruption topics as part of training on the 231 model

Incidents of corruption or bribery

Confirmed incidents

In the 2022-2024 three-year period, there were no convictions for violations of anti-corruption and anti-bribery laws, nor were there any proven cases of corruption or bribery.

Convictions and fines

No convictions or fines were recorded in 2024 for violations of anti-corruption and anti-bribery laws.

Legal actions

There were no legal actions for anti-competitive behaviour or antitrust or monopoly violations, either in or out of court in the three-year period.

Investigation and speak-up mechanisms

The effective application of the group's anti-corruption procedure is monitored by the internal audit functions and, in Italy, also by the Supervisory Body (SB), each according to their respective powers and responsibilities. They also manage any violation thereof.

Based on the action plan approved by the board of directors, the internal audit function conducts sample-based checks on business partners and internal functions operating in key risk areas, acting independently and evaluating the actual effectiveness of the safeguards in place. It reports the outcome of its checks to the corporate bodies, the legal affairs and compliance function and the SB.

On a six-monthly basis and in the most appropriate form, the SB reports to the corporate bodies, highlighting any weaknesses or critical concerns in internal controls, any violations identified and detailing any corrective measures adopted or recommended.

CAREL has adopted a whistleblowing procedure which applies to the entire group, with which it aims to ensure full protection and confidentiality for those who report crimes or irregularities, whether proven or even suspected, including violations of the code of ethics and the human rights, diversity and gender equality policies.

Reports can be made using one of the following channels: by postal service, orally and via the electronic web platform called "Convercent", CAREL's specific whistleblower reporting channel (accessible via https://www.CAREL.it/whistleblowing). The procedure guarantees that the identity of the whistleblower and any other information from which their identity might be inferred may not be disclosed without their express consent. Reports can also be made anonymously.

Upon receipt of a report, the SB carries out an initial admissibility screening to determine whether the report is complete and verifiable. If the report proves verifiable, an investigation is commenced to establish the grounds, seriousness and possible urgency of the events reported. CAREL applies appropriate disciplinary measures to the individual responsible for the events reported, as well as to any person who violates the measures designed to protect the whistleblower. In the event that the individual responsible is a third party, the parent reserves the right to apply penalties or even immediately terminate the contract.

Political influence and lobbying activities

Political engagement approach

CAREL engages with bodies and institutions (local bodies, public administration, regulators, sector associations) through meetings with representatives of local institutions to understand local bodies' interests and ensure compliance with local regulations.

Through involvement in international organisations and associations, the company promotes innovative regulations for sustainable development and the energy transition. This engagement is categorized as having positive, current impacts on the business, with medium-term time horizons.

Trade association memberships

CAREL participates in various trade associations to understand market trends and monitor emerging regulations impacting the HVAC/R sector.

Key trade association memberships include:

• AHRI (Air-Conditioning, Heating, and Refrigeration Institute)
• Eurovent (European Industry Association for Indoor Climate, Process Cooling, and Food Cold Chain Technologies)
• ASSOCOLD (member since 2024, part of Anima, includes all major Italian companies active in the sector of components and systems for commercial refrigeration)

The company also participated in the "Progetto Referigerazione Sostenibile" work group aimed at reaching the widest possible audience, including those not strictly related to the sector (institutions, citizens, press, schools, etc.), on issues of sustainability, respect for the environment and the use of natural refrigerants in commercial refrigeration.

The issues discussed by members of the associations in which CAREL participates mainly relate to climate risks arising from legislative changes aimed at promoting the transition to a low-carbon economy. Additionally, they address business opportunities resulting from the development of products aligned with national and international decarbonisation policies, which enable end users to reduce their energy consumption and minimise or eliminate the use of highly impactful refrigerant gases.

Political contributions

In 2024, the group did not make any financial or in-kind political contributions either directly or indirectly.

Lobbying expenditure

No specific lobbying expenditure data was disclosed for 2024.

EU Transparency Register

CAREL is included in the EU's Transparency Register with registration number #274714449276-70.

Governance oversight

There were no representatives responsible in the administrative, management and supervisory bodies for the oversight of the related lobbying activities. There are no members of the administrative, management and supervisory bodies who held a comparable position in public administration in the two years preceding such appointment in the current reporting period.