Investor Presentaiton

BOARD OF DIRECTORS' REPORT EU Taxonomy disclosure EU Taxonomy is a classification system for environmentally sustainable economic activities. It is a framework to redirect investments towards more sustainable activities through six environmental objectives, Do No Significant Harm (DNSH) criteria, minimum social safeguards, and the detailed technical screening criteria. KONE discloses information according to the Non-Financial Reporting Directive (NFRD) on the environmentally sustainable economic activities as defined in the EU Taxonomy. At this stage, only economic activities with the most significant need and potential to make substantial contribution to climate change mitigation and adaptation have been included within the scope of the Climate Delegated Act. The majority of KONE's business, i.e. the manufacturing, maintenance and modernization of elevators and escalators, does not currently fall within the scope of the Taxonomy because it is not among the most high-emitting industries. Nonetheless, KONE has identified certain taxonomy eligible and aligned activities within its business. KONE has reviewed the supplementary guidance provided by the EU Commission in December 2022. However, our interpretation on eligibility and alignment relies predominantly on the Taxonomy Regulation and Climate Delegated Act as KONE's Taxonomy disclosure preparation has been ongoing throughout the year. We support more sustainable urban environments and buildings with our energy-efficient and innovative offering and the use of healthy, functional, and sustainable materials. Furthermore, we have set ambitious science-based targets for significant reductions in our greenhouse gas (GHG) emissions by the year 2030. Read more about KONE's environmental sustainability in the section 'Non-financial information' of this report. Minimum Social Safeguards KONE has reviewed the Minimum Safeguards with respect to human rights, bribery and corruption, taxation and fair competition, which are laid out in the EU Taxonomy Regulation, as well as the final report on Minimum Safeguards published by the EU Platform on Sustainable Finance. Based on this review, KONE has determined its activities to be aligned. KONE's Code of Conduct, Human Rights Policy and other related policies set out the principles and standards expected from KONE employees, KONE companies, suppliers, distributors and other business partners. KONE is committed to respecting and endorsing internationally recognized labor and human rights standards. KONE has a human rights due diligence process, consisting of impact assessments, third-party due diligence, supplier screenings and internal assessments and surveys. Read more about human rights, bribery and anti-corruption in the section 'Non-financial information' of this report. Taxonomy-eligible and aligned turnover In the 2021 disclosure, we determined that manufacture of elevators with a regenerative drive could be considered Taxonomy-eligible based on the description of economic activity 3.5 'Manufacture of energy efficiency equipment for buildings' in Annex I. Following re-evaluation, the economic activity description for 3.6 'Manufacture of other low carbon technologies' was found to be more suitable for the activity. Thus, manufacture of elevators with regenerative drive has been recategorized under 3.6. The change of calculation method, as well as recategorization of the activity have resulted in higher reported turnover compared to the 2021 disclosure. When descending with a heavily loaded car or ascending with a lightly loaded car, elevators can recover energy by converting the stored mechanical energy into electrical energy in the motor, which acts as a generator. Elevators equipped with a regenerative drive can push the generated energy back into the electrical grid of the building, where it can be used by other building appliances, such as HVAC. While the regenerated energy varies according to the building type, the saving can potentially amount to 20-40% of the elevator consumption in mid-rise buildings, thereby demonstrating substantial lifecycle GHG emission savings compared to the best performing alternative solution available on the market, such as modern elevator drive technology without the ability to feed electricity back to the building network. The best available elevator technologies have been studied by EU Commission in 2019 as part of the Ecodesign Directive review. KONE has conducted third-party verified lifecycle assessments for its elevators which include carbon handprint data, as recommended in the elevator product category rules and EU Commission's general recommendations. The lifecycle GHG emission savings are calculated according to ISO standards. KONE has evaluated the DNSH criteria for economic activity 3.6 and has found its activities to be compliant. The pollution prevention and control DNSH criteria requires that 'the activity does not lead to the manufacture, placing on the market or use of substances, whether on their own, in mixtures or in an article, meeting the criteria laid down in Article 57 of Regulation (EC) 1907/2006 and identified in accordance with Article 59(1) of that Regulation, except where their use has been proven to be essential for the society'. KONE has systematic practices and code of conducts with environmental annex requiring that the substances, materials, components, parts, sub-assemblies, assemblies, products, labels affixed to products or used in the manufacturing of the products and their components do not contain harmful, hazardous or restricted substances as per required by EU Commission. Certain elevator components contain lead which is listed in REACH Candidate list. The use of lead is essential from a safety perspective, as the purpose of the elevator's safety relevant components like electrification and lead-acid battery is to ensure the safety of the passengers when the elevator is in use, also during possible power breaks. As stated above, KONE also fulfils the minimum social safeguards criteria. Consequently, elevators manufactured with a regenerative drive are considered as a Taxonomy- aligned activity. In addition to elevators and escalators, KONE's offering includes automatic building doors, and we have identified certain aspects of automatic door business as Taxonomy- eligible. The description of the economic activity 3.5 'Manufacture of energy efficiency equipment for buildings' includes NACE code C25.12, which comprises the manufacture of metal doors, windows and their frames, shutters and gates as well as metal room partitions for floor attachment. KONE's revenue related to manufacture of sliding doors, swing doors, revolving doors, turnstiles, overhead doors, roller shutters, high speed doors, garage doors and gates falls within this scope and is considered Taxonomy- eligible. The installation, maintenance, and repair of these door/gate solutions is also considered Taxonomy-eligible based on the description of activity 7.3 'Installation, maintenance and repair of energy efficiency equipment'. The revenue related to the manufacture, installation, maintenance and repair of doors that fulfils the substantial contribution criteria for activities 3.5 and 7.3 is not material; thus Taxonomy-alignment has not been pursued. 21 KONE ANNUAL REVIEW 2022