Mercedes-Benz Group AG

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The German Stock Corporation Act prescribes a dual (two-tier) management system for Mercedes-Benz Group AG, strictly separating the Board of Management, which manages the company, from the Supervisory Board, which monitors and advises it. As of 31 December 2024, the Board of Management had eight members (37.5% women, 62.5% men) and the Supervisory Board 20 members under the German Co-determination Act, half elected by shareholders and half by employees, with 50% of seats held by workers' representatives and 40% women. The report describes independence (100% of shareholder representatives independent under DCGK, CSRD and ESRS; 50% of all Supervisory Board members independent), diversity and competency profiles, and sustainability expertise. Both bodies determine members' sustainability-related expertise via mandates, CVs and self-disclosures and draw on internal experts (the Group Sustainability Committee, Sustainability Competence Office and Advisory Board for Integrity and Sustainability) and external experts.

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The Board of Management's management task includes establishing appropriate internal control, risk, compliance management and internal audit systems, which also address sustainability issues. The Supervisory Board has anchored the cross-departmental control and coordination function for sustainability within the Board of Management's Integrity, Governance & Sustainability division. The Group Sustainability Committee (GSC) meets quarterly and informs the Board of Management and Supervisory Board at least twice a year on strategically relevant sustainability topics, including significant impacts, risks and opportunities. The Group Risk Management Committee (GRMC) informs the Board of Management about material risks and opportunities, including sustainability-related ones. The Supervisory Board is informed about the Group's risk situation at least quarterly and examines at least annually the key sustainability-related risks and opportunities from the materiality assessment. During the reporting year, the GSC, Board of Management and Supervisory Board were informed about all sustainability-related material impacts, risks and opportunities.

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The Supervisory Board has implemented a sustainability performance criterion in the Board of Management's remuneration. In addition to financial targets, variable remuneration for the Board of Management and executives of management levels one to three and parts of level four includes short-term transformation targets for CO2 emissions (related to the use phase of products), safety innovations and stakeholder engagement, as well as long-term sustainability targets for the proportionate unit sales of plug-in hybrids (PHEV) and all-electric vehicles (BEV), review of high-risk production materials, and diversity and inclusion. Variable remuneration also includes non-financial targets relating to customers, employees and integrity. The Supervisory Board decides on the remuneration system for Board of Management members and presents it at the Annual General Meeting in case of material changes, at least every four years. Executive remuneration is set by the Board of Management while the Supervisory Board ensures consistent incentives. The remuneration system is described, including climate-related considerations, in the remuneration report.

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Mercedes-Benz Group provides a statement on due diligence mapping the core elements of the due diligence process to the relevant paragraphs in the Sustainability Statement and the corresponding disclosure requirements. The five core elements are: a) embedding due diligence in governance, strategy and business model (mapped to ESRS 2 GOV-2, GOV-3 and SBM-3); b) engaging with affected stakeholders in all key steps of the due diligence process (mapped to GOV-2, SBM-2, IRO-1 and various policy-related requirements); c) identifying and assessing adverse impacts (mapped to IRO-1 and SBM-3); d) taking action to address those adverse impacts (mapped to action-related requirements across environmental, social and governance information); and e) tracking the effectiveness of these efforts and communication (mapped to metrics- and targets-related requirements). The table directs readers to the General information, Environmental, Social and Governance information chapters where each element is addressed in detail.

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The Mercedes-Benz Group's Corporate Audit department supports compliance with relevant laws, regulations and internal guidelines by reviewing internal controls and processes. To reduce the risk of misrepresentation in sustainability reporting, the Group has implemented actions including process descriptions, procedural instructions and training for employees responsible for data collection and reporting; internal audits and reviews; and regulatory requirements on how estimates are collected. The main risks identified for sustainability reporting include non-compliance with regulatory sustainability standards and regulations, misinformation or omissions in reporting, incorrect data collection and processing, and inaccuracies and inconsistencies in reporting estimated values. These risks were identified using the process for identifying significant risks and opportunities. The Group checks reported information using a multi-stage process, from data collection at company level through to approval by responsible functions. Sustainability reporting goes through the same regulatory process as financial reporting, including approvals from top management committees up to the Supervisory Board, and is shared with employee representatives via the Works Council before publication.

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The Mercedes-Benz Group acts on the basis of a sustainable business strategy adopted by the Board of Management with the involvement of the Supervisory Board, taking into account regulatory requirements, stakeholder expectations and global trends along its entire value chain. Basic information on the business strategy, business model and value chain is in the Corporate Profile chapter under Business model. In the reporting year, the Group used a comprehensive, multi-stage analysis process to revise its strategic sustainability topics, considering the perspectives of all relevant stakeholder groups: customers, investors, employees, business partners, NGOs and society. This resulted in six sustainability focus areas essential for the environment, society and the company: Decarbonization (including the 'Ambition 2039' goal of a net carbon-neutral new vehicle fleet by 2039), Resource Use and Circularity, People (via the 'Sustainable People Plan'), Human Rights (addressed through the Human Rights Respect System), Digital Trust, and Traffic Safety. The Group sees electrification of its vehicles as the most important lever for decarbonization.

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The Mercedes-Benz Group attaches great importance to exchange with its stakeholders, which helps it understand their concerns, view its sustainability commitment from different perspectives and identify new trends. Stakeholders are people or groups affected by, having expectations of, or being the target group of the reporting. Primary stakeholders are customers, investors, employees, business partners and society as a whole, with regular exchange also with NGOs, associations, trade unions, the media, analysts, municipalities, residents of locations, science and politics. The Group has defined clear responsibilities, communication channels and dialogue formats, coordinated by the Integrity, Governance & Sustainability division. Formats include annual Sustainability Dialogues (held since 2008 and during 2024 in Dresden, New Delhi, Beijing and New York), stakeholder surveys, an ESG Conference, an employee survey and the Advisory Board for Integrity and Sustainability. The Group involved stakeholders in determining material impacts, risks and opportunities and took their interests into account when refocusing its strategic sustainability topics; the Board of Management and Supervisory Board exchange directly with the Advisory Board.

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For the reporting year, the Mercedes-Benz Group conducted its materiality assessment in accordance with CSRD guidelines and ESRS requirements for the first time, and refocused its strategic sustainability priorities in 2024, examining the resilience of its strategy and business model to current and future challenges. The assessment resulted in material impacts, risks and opportunities across all ESRS topics, with direction of effect indicated (actual/potential negative or positive impact, risk or opportunity). Examples include climate change consequences along the value chain, CO2 emissions, pollution (air, water, ground contamination, substances of concern, microplastics), reduced water availability, impairment of biological diversity, resource consumption and waste; for own workforce, qualification, remuneration, health and safety and potential child/forced labour; for workers in the value chain, human rights matters; for affected communities, water, land and indigenous rights; for consumers, traffic safety and cyberattacks; and for business conduct, compliance, corruption and decarbonization-related impacts. In 2024 there were no material current financial effects from these risks and opportunities on profitability, liquidity, capital resources or financial position, and no significant risk of material adjustment to assets and liabilities was identified for 2025.

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For the 2024 financial year, the Mercedes-Benz Group conducted a methodologically redesigned materiality assessment in accordance with CSRD and ESRS requirements to identify material sustainability-related impacts, risks and opportunities, managed by the Sustainability Competence Office (SCO) with the involvement of all relevant departments and important external stakeholders. The assessment covers the consolidated Group, including the Mercedes-Benz Cars, Mercedes-Benz Vans and Mercedes-Benz Mobility divisions, and the entire value chain (upstream, own business activities, downstream). The framework is based on a list of ESRS topics supplemented by company-specific topics derived from primary and secondary data (scientific studies, NGO reports, ESG ratings, frameworks such as SASB, GRI and UN SDGs). Impacts were qualitatively assessed using a three-level scale (low/medium/high) for severity and likelihood over short-, medium- and long-term horizons. Risks and opportunities were assessed quantitatively (e.g. via EBIT in the risk management system) or qualitatively, with a materiality threshold aligned with impacts. Results were validated with selected stakeholders, and newly identified short- and medium-term material risks and opportunities were transferred to the risk management system. Special considerations applied for climate, environmental pollution, water, resource use and biodiversity, including scenario analyses (IEA NZE and STEPS, IPCC SSP scenarios, ENCORE/TNFD for biodiversity).

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The disclosure requirements covered in the Sustainability Statement are shown in the appendix List of disclosure requirements, with information provided by reference outside the statement disclosed accordingly. Based on the materiality assessment, all eleven topical ESRS standards were assessed as material for the Mercedes-Benz Group: the five environmental standards E1 (Climate change), E2 (Pollution), E3 (Water and marine resources), E4 (Biodiversity and ecosystems) and E5 (Resource use and circular economy); the four social standards S1 (Own workforce), S2 (Workers in the value chain), S3 (Affected communities) and S4 (Consumers and end-users); and the governance standard G1 (Business conduct), alongside the cross-cutting ESRS 2 General disclosures. For each material ESG topic, subtopic or sub-subtopic for which at least one material impact, risk or opportunity was identified, the Group discloses the sustainability information required by the ESRS. The process and results of the materiality assessment were presented to the Group Sustainability Committee and reported to the Board of Management and Supervisory Board.