EU Taxonomy and its Implementation at Vossloh

As part of the European Green Deal climate action initiative, the EU Commission aims to achieve the transition to a modern, resource-efficient and competitive economy and climate neutrality by 2050. A central component of this is the EU Taxonomy Regulation, a classification system for defining environmentally sustainable economic activities. The regulation, which went into effect July 12, 2020, defines six environmental objectives:

1. Climate change mitigation
2. Climate change adaptation
3. The sustainable use and protection of water and marine resources
4. The transition to a circular economy
5. Pollution prevention and control
6. The protection and restoration of biodiversity and ecosystems

According to the EU taxonomy, economic activities are environmentally sustainable if they

• make a significant contribution to achieving one or more of the six environmental objectives listed (Substantial Contribution),
• do no significant harm (DNSH) to the achievement of the five other EU environmental objectives, and
• Comply with minimum requirements for occupational safety and human rights (minimum safeguards).

The regulations differentiate between taxonomy-eligible and taxonomy-aligned activities. If activities can be assigned to the taxonomy criteria, they are taxonomy-eligible, regardless of whether the technical evaluation criteria are met. Activities are taxonomy-aligned if the taxonomy-eligible activities also meet the criteria.

In accordance with the EU Taxonomy Regulation, Vossloh reports below on the share of sales revenues, capital expenditure (CapEx) and operating expenses (OpEx) of taxonomy-eligible and non-taxonomy-eligible economic activities.

Reporting for the 2023 financial year is carried out in accordance with the Taxonomy Regulation in the version dated June 18, 2020, the technical assessment criteria of the delegated act on the Taxonomy Regulation of June 4, 2021 for environmental objectives 1 (climate change mitigation) and 2 (climate change adaptation) and the delegated act of June 27, 2023. The latter adds further sectors and economic activities to the taxonomy that contribute significantly to environmental objectives 3 (sustainable use and protection of water and marine resources), 4 (transition to a circular economy), 5 (pollution prevention and control) and 6 (protection and restoration of biodiversity and ecosystems). When analyzing the activities, Vossloh focused primarily on their material contribution to the environmental goal of “climate protection“. No activities were identified that have a significant impact on environmental goals 2 to 6.

The analysis of all activities of the Core Components, Customized Modules and Lifecycle Solutions divisions revealed that all of Vossloh‘s business activities can be assigned to category “6.14 Rail infrastructure“ of the Delegated Regulation. According to the regulation, this category includes the construction, modernization, operation and maintenance of railroad lines as well as the manufacture and installation of track material.

For economic activities to be classified as environmentally sustainable, they must meet the technical assessment criteria for taxonomy conformity. The taxonomy-eligible activities were analyzed and the shares of taxonomy-aligned sales revenues, CapEx and OpEx were determined as follows:

• Substantial contribution: Compliance with the technical evaluation criteria was checked individually for the activities of each business unit.
• Do no significant harm (DNSH): The DNSH criteria mainly relate to compliance with legal requirements and, in the case of the “transition to a circular economy“ objective, to fundamental aspects of business activity. Against this background, an assessment of DNSH compliance at business unit level was regularly appropriate.
• Minimum safeguards: A Group-wide approach to ensuring compliance with the minimum safeguards was implemented here, which enables these requirements to be tracked properly and seamlessly.

Vossloh‘s business activities are generally considered to make a substantial contribution to climate protection if they meet the technical assessment criteria set out in the “rail transport infrastructure“ category. According to the regulation, Vossloh‘s activities are only considered to make a substantial contribution to climate protection if they are carried out on electrified rail lines or on lines for which there is a plan for electrification – even if the electrification of the rail infrastructure is not within Vossloh‘s sphere of influence. This does not include rail lines that are only intended for the transportation of fossil fuels.

Next, the activities classified as climate change mitigation had to be assessed to determine whether they had a significant negative impact on one or more of the above-mentioned environmental objectives (DNSH criteria). With regard to the DNSH criteria for the EU environmental objective “adaptation to climate change“, there is no evidence that the physical impacts of climate change have a significant adverse effect on Vossloh‘s economic activities.

The criteria for the EU environmental goal “Sustainable use and protection of water and marine resources“ essentially refer to legal and official requirements that Vossloh is obliged to comply with. Many of Vossloh‘s business activities do not use water as a resource at all, for example the milling of rails and switches, welding services, logistics activities or assembly work. Otherwise, the resource is used in Vossloh‘s factories primarily for the surface treatment of products, as a coolant in manufacturing processes and for the production of concrete ties. Contaminated wastewater is treated in the company‘s own wastewater treatment plants so that it at least meets the discharge standards of the public water supply.

With regard to the environmental goal of “transitioning to a circular economy“, Vossloh products meet the requirements for durability and longevity, as most components are designed for a very long service life and are recyclable and recoverable at the end of their useful life. In addition, the service portfolio of the Lifecycle Solutions division contributes to extending the service life of rails and switches.

Vossloh also meets the requirements relating to the EU environmental goal of “preventing and reducing pollution“. A large number of Vossloh products and services contribute to the reduction of noise and vibrations on the track (see also the “Track-related noise and vibrations” section on page 89).

Regarding the EU “Protect and restore biodiversity and ecosystems” environmental objective, environmental impact assessments (EIA) and comparable reviews are conducted by Vossloh where such a requirement exists. Vossloh is generally not subject to the EIA obligation when manufacturing products. Finally, by boosting track availability and enabling greater traffic through this land use, Vossloh is helping to minimize the land required for the construction of rail infrastructure, thereby contributing to the preservation of biodiversity.

Sales revenues from taxonomy-aligned business activities exceeded the previous year‘s figure by 13.5 %. The increase is primarily attributable to the Switch Systems business unit. In addition, the Tie Technologies and Rail Services business units were also able to significantly increase their sales revenues. The share of taxonomy-aligned sales revenues fell marginally by 1 percentage point.

Capital expenditure (CapEx) for taxonomy-aligned activities was 28.8 % higher than in the previous year. The increase is primarily attributable to the Fastening Systems, Switch Systems and Rail Services business units. The share of taxonomy-aligned capital expenditure remained unchanged at 54 %.

Operating expenses (OpEx) for taxonomy-aligned activities increased by 33.8 % compared to the previous year. The increase is due in particular to higher maintenance and repair expenses. At 65 %, the share of taxonomy-aligned operating expenses remained at the previous year‘s level.

Sales revenues are defined as net sales revenues in accordance with IFRS, as reported in the income statement, and therefore only relate to fully consolidated subsidiaries. The share of environmentally sustainable sales revenues is calculated by dividing the taxonomy-aligned net sales revenues by the total Group sales revenues. Further information on sales revenues can be found on page 129 et seq. of the annual report 2023.