5.5 Climate change

At Nedap, we acknowledge that we need to act to prevent further global warming. As an organization with a long-term perspective, we consider the impact of our business activities on future generations. As such, we want to contribute to a livable planet for generations to come. In addition, we want our solutions to contribute to the long-term success of our customers and their markets. We consider it our responsibility to help customers make their business models more responsible. Our commitment to combatting climate change is reflected in our long-standing commitment to achieving net-zero Scope 1 and 2 GHG emissions, as well our transition plan for Scope 3 GHG emissions. We are taking action to reduce GHG emissions within our operations and the supply chain, such as maximizing our use of renewable energy and working with our business partners and end-consumers to reduce energy consumption. We acknowledge challenges, such as electrical grid congestion in the Netherlands, while planning actions to address them. 

As part of the DMA, we also assessed the impact of climate change on our business and the value chain (upstream and downstream). We determined that our assets are not significantly at risk from the physical impacts of climate change. As stated in subsection 5.3.2 Material impacts, risks and opportunities in section 5.3 Material sustainability matters, we did identify transition risks related to climate change. Specifically, we identified a reputational risk, where Nedap loses its relevance to stakeholders, and a value chain influence risk, where diminished influence in our value chain threatens the achievability of our sustainability ambitions. We also identified opportunities to help combat climate change. Building resilience to climate change therefore involves effectively managing these transitional risks.

As part of our resilience analysis, we also assessed whether our existing net-zero Scope 1 and 2 targets and actions are sufficient for building resilience, concluding that they are. Nedap will therefore continue to focus on climate mitigation actions.

5.5.1 Transition plan for climate change mitigation

In 2024, Nedap committed to setting near-term science-based GHG emissions reductions targets with the Science Based Targets initiative (SBTi), which is the first step in obtaining SBTi validated targets. Our targets are developed in line with science-based criteria of the SBTi and disclosed as such. In 2025, we will formally start the validation of the targets by SBTi.

At present, we have not identified any material locked-in GHG emissions from our key assets (buildings, vehicles and machinery) that would hinder our progress toward the stated targets, nor do we expect to in the future. There are locked-in GHG emissions from the products we sell, but these GHG emissions do not jeopardize our reduction targets. That is because the majority of our GHG emissions occur during the use phase of our products.

Our transition plan to reduce GHG emissions is aligned with Nedap's overarching strategic objectives, as outlined in our sustainability policy, and it is explicitly integrated into the budgeting process for our business units. The transition plan has been formally approved by both the Board of Directors and the Supervisory Board.

We are not excluded from the EU Paris-aligned Benchmark.

Transition plan for Scope 1 and 2

Since 2020, Nedap has been committed to reducing the environmental impact of its own operations, mitigating climate change and becoming as self-sufficient as possible. Our sustainability strategy aligns with our corporate strategy and, among other things, outlines our key decarbonization levers. These include improving the environmental sustainability of our buildings, installing solar panels, purchasing exclusively renewable energy and phasing out fossil-fuel-powered vehicles.

Our GHG emissions reduction targets are scientifically grounded and based on the Paris Climate Agreement goal to limit global warming to 1.5°C and achieve climate neutrality by 2050. Our targets we set are detailed in subsection 5.5.4 Targets related to climate change mitigation. We describe the key decarbonization levers of our transition plan and operational expenditures in detail in subsection 5.5.3 Actions and resources in relation to climate change policies, and subsection 5.5.4 Targets related to climate change mitigation. These sections include the concrete actions and resources committed to achieving our goals.

Transition plan for Scope 3

For Scope 3 GHG emissions, our primary focus is on reducing product GHG emissions during the use phase by our (end-) customers (Scope 3, Category 11 of the GHG Protocol), which accounts for the majority of our Scope 3 GHG emissions. We have set an ambitious target to reduce the intensity-based GHG emissions (metric tons of CO₂ equivalent (tCO₂e) per EUR of added value) by 7% per year, starting from 2020. The added value is the added value as disclosed in the consolidated profit and loss statement.

We will translate this Nedap-wide target into actions by integrating energy-saving features such as sleep mode to reduce power consumption and utilizing more energy-efficient components to optimize the duty cycle of hardware products. At the portfolio level, we will evaluate whether we have to phase out less efficient products to achieve our Nedap-wide target. This is part of the annual budgeting process with the business units, involving the allocation of resources (OpEx and CapEx) to this transition plan.

Progress on the implementation

We report on our progress in section 2.3 Progress on our sustainable impact. In addition, we provide data on Nedap's actual energy use and GHG emissions in subsection 5.5.5 Energy consumption and subsection 5.5.6 Gross Scopes 1, 2 and 3, and total GHG emissions.

5.5.2 Policies related to climate change mitigation

At Nedap, we are committed to minimizing GHG emissions from our operations and in our value chain. Our sustainability policy, established in 2022, consists of four focus areas: our employees, our operations, our products and our customers. The key contents of our sustainability policy are incorporated by reference and elaborated upon in section 1.5 Sustainability. In relation to this topical standard, the policy addresses GHG emissions from our operations and our products, as well as the sustainability of our customers' business models. In 2024, we aligned our sustainability policy with the material sustainability matters identified through our double materiality assessment. As such, the policy addresses the interests and needs of our stakeholders. The policy is yet to be published on our website.

Our transition plan aligns with our sustainability policy. The Board of Directors has determined the actions in our transition plan to achieve our GHG emissions targets and help mitigate climate change. To reduce our Scope 1 and 2 GHG emissions, we focus on the following:

• Improving our buildings
  We upgrade our buildings to enhance their sustainability, focusing on improved insulation and the installation of heat pumps and solar panels. Our goal is to achieve net-zero Scope 1 and 2 emissions by 2030.

• Renewable energy
  Since 2014, we have used exclusively renewable electricity for our office in Groenlo. We are now concentrating our efforts on transitioning our leased buildings to renewable energy contracts, ensuring that all our facilities align with our commitment to achieving net-zero Scope 1 and 2 GHG emissions by 2030. The data centers we use to host our SaaS solutions are all powered by renewable electricity.

• Phasing out fossil fuel vehicles
  We are on track to phase out fossil fuel vehicles by 2030, as we plan to purchase exclusively electric vehicles from 2025 onwards.

To reduce our Scope 3 GHG emissions, we focus on the following:

• Reduction of use phase GHG emissions
  The use phase of our products at our (end-)customers accounts for the majority of our Scope 3 GHG emissions, therefore we are implementing measures to reduce the energy consumption of our products.

• Reduction of production GHG emissions
  We focus on designing products with a lower impact on the production phase GHG emissions.

We focus on continuous improvement and regularly review and refine our approach, ensuring we meet both external requirements and our own high standards.

5.5.3 Actions and resources in relation to climate change policies

Actions for our own operations

Our Scope 1 GHG emissions result primarily from the consumption of natural gas and the use of fossil-fuel-based vehicles. Therefore, the decarbonization levers for our Scope 1 GHG emissions include reducing the consumption of natural gas and transitioning to non-fossil-fuel-based vehicles. In 2024, we took the following actions at Nedap N.V. to implement our sustainability policy and mitigate climate change:

• Electrification of our vehicles
  We signed a contract stating that from 2025 onwards, we will exclusively lease electric cars.

• Building improvements
  We improved building insulation, added triple glazing and renovated roofs.

• Additional solar panels
  We expanded the number of solar panels across our facilities to increase our renewable energy generation capacity.

Scope 2 GHG emissions arise from the purchase of non-renewable energy. The following actions are planned to address GHG emissions in both Scope 1 and 2:

• Renewable energy contracts for new leases
  When an office lease contract for one of our subsidiaries expires, we will only enter into new contracts for buildings that source 100% renewable energy.

• Maximizing use of solar panels
  The objective is to install the maximum number of solar panels on the roofs of our facilities.

• Consider battery-based technologies
  To avoid grid congestion and drawing excessive energy from the grid.

• Installation of heat pumps
  To move away from natural gas heating.

In addition, by the end of 2024, we completed the draft version of our long-term plan to make the Nedap Campus (buildings and terrain) more sustainable. Moreover, in all renovation projects, we will prioritize using sustainable, recycled and biobased materials to lower the carbon footprint of construction activities.

For Scope 1 actions, we have invested €0.3 million to upgrade the building insulation and install additional solar panels.
No significant additional financial resources were required for Scope 2 actions, as our current leases already cover building costs. There may be a marginal increase in energy costs upon transitioning to renewable energy, however renewable energy prices are not expected to differ significantly from current prices. 

The successful implementation of these actions has already resulted in a GHG emissions reduction in Scope 1 and Scope 2 of 79 tCO₂e, both expected to decrease toward zero GHG emissions by 2030. Our actions will also result in increased energy efficiency across our operations. Details are included in subsection 5.5.4 Targets related to climate change mitigation and adaptation. By eliminating the use of natural gas, electrifying our operations and transitioning to electric vehicles, we will achieve zero GHG emissions for Scope 1. Our transition to renewable energy sources for leased buildings will mitigate our Scope 2 GHG emissions (market-based approach).

Future resources needed to achieve net-zero GHG emissions are primarily related to phasing out fossil-fuel-powered vehicles. At the same time, we are shifting from purchasing cars to leasing them. Consequently, there will be no material increase in CapEx or OpEx compared to fossil-fuel-powered vehicles.

We have various options for transitioning from natural gas to electricity in our operations, ranging from purchasing or leasing additional heat pumps to implementing additional infrastructural solutions to store heat for later use. Typically, these solutions involve a trade-off between CapEx and OpEx. An increase in CapEx leads to lower operational costs and vice versa. Infrastructural investments will increase the value of fixed assets on the balance sheet and result in higher depreciation expenses, whereas investments in heat pumps will require significantly lower CapEx but result in higher operating costs. We are collecting and evaluating input on these various options and expect to make an informed decision in 2025.

Actions for our products

Nedap is committed to reducing Scope 3 GHG emissions, with a focus on reducing product GHG emissions during the use phase (Scope 3, Category 11 of the GHG protocol). The business units may develop their own approach based on the nature of their operations. However, we recommend and guide the key markets in using the following decarbonization levers: 

Sourcing less energy-consuming electronics
This lever focuses on the upstream part of the value chain and involves close collaboration with suppliers and the procurement teams responsible for sourcing components. Key stakeholders include suppliers of electronics and the internal procurement and sustainability teams.

Introducing sleep modes and duty cycle interventions
This lever impacts the downstream part of the value chain, affecting product use by customers. Key stakeholders include the Research and Development, product development and software engineering teams, as well as the end-users who interact with the products.

Portfolio management, phasing out high-GHG emissions products that do not provide proportional value
This lever applies to the downstream part of the value chain and involves managing the products available to customers, phasing out high-GHG emissions products that do not provide proportional customer value. Key stakeholders include the portfolio management and product development teams, marketing and customers who are affected by product changes.

Business strategy and portfolio shift
Our business strategy leads to a shift toward recurring business models, primarily related to software solutions. With that, our portfolio is shifting toward a relatively higher share of solutions with lower or no use phase GHG emissions, while also adding more value derived from sustainable practices.

These decarbonization levers provide flexibility, allowing each business unit to tailor its strategy for the short-, medium-, and long-term horizon and determine its actions for achieving GHG reductions, while ensuring alignment with the company’s overall sustainability objectives.

These actions have led to a reduction in intensity-based GHG emissions of 204 tCO₂e per 1M EUR added value in 2024 compared to our base year 2020, and we expect to achieve our target of 430 tCO₂e per 1M EUR added value by 2030.

We have not incurred, nor do we foresee, significant separately identifiable CapEx or OpEx for Scope 3 actions as part of our efforts to align with SBTi targets. The most important Scope 3 actions relate to product improvements. At Nedap, this is a continuous process aimed at keeping products up to date from a technical, financial and environmental perspective. The resources associated with the achievement of SBTi targets are primarily related to (re)designing products to improve their energy efficiency. Because product improvement is an ongoing process at Nedap, the resources allocated for energy efficiency represent only a minor portion of the total.

5.5.4 Targets related to climate change mitigation

Scope 1 and 2 targets

Our target is to achieve net-zero GHG emissions for Scope 1 and 2 by 2030. While not yet validated by SBTi, our targets are aligned with SBTi, ensuring they are based on the latest climate science and consistent with the goal of limiting global warming to 1.5°C. To achieve our Scope 1 and 2 GHG emissions targets, we must reduce gross GHG emissions by 95%. These targets are aligned with the expectations of our stakeholders (employees, customers and (local) government) to reduce GHG emissions in line with the Paris Agreement.

Our base year is 2020, with a baseline value of GHG emissions of 854 metric tons of CO₂e, including all GHG emissions from Scope 1 and 2. The Scope 2 GHG emissions and target are calculated using market-based GHG emission factors. We deliberately selected 2020 as our base year. Although 2020 was the first year of the COVID-19 pandemic, our 2020 values accurately reflect Nedap's typical operations, GHG emissions sources and activity levels, allowing for meaningful comparison of GHG emissions reductions over time. As such, we believe our base year is consistent with the recommendations and guidance from SBTi. 

The breakdown of the Scope 1 and 2 GHG emissions is as follows:

The Scope 1 and 2 decarbonization levers detailed in subsection 5.5.3 Actions and resources in relation to climate change policies will help us to achieve net-zero GHG emissions for our operations. For our subsidiaries, we strongly advocate the policy of not purchasing fossil-fuel-powered vehicles. For our European locations, we anticipate a seamless transition to electric vehicles, given the extensive charging infrastructure available. However, we recognize that some international locations, such as our offices in the United States of America, may encounter challenges in the adoption of electric vehicles due to limited charging infrastructure. In these instances, where a complete transition to electric vehicles may not yet be feasible, any residual GHG emissions from fossil-fuel-powered vehicles will be monitored and compensated through certified GHG removal initiatives. This ensures that even in regions with infrastructure limitations, we remain committed to achieving our net-zero targets by addressing and mitigating all residual GHG emissions.

Scope 3 targets

Using the guidance of the SBTi, we have set an ambitious reduction target for our Scope 3 GHG emissions, which is yet to be validated by the SBTi. Because our business is growing, we have chosen to set an intensity-based target. The intensity-based target for Scope 3 GHG emissions mandated by SBTi is a 7% annual compounded reduction of the GHG emissions per EUR of added value, starting from the base year 2020 to our target year 2030. This means our target value in 2030 is 48.4% of the 2020 value, a reduction of 51.6%. This aligns with a target of well below 2°C. It is also consistent with the expectation of our stakeholders (employees, customers and (local) government) to reduce GHG emissions in line with the Paris Agreement.

Addressing the largest GHG emissions sources is critical to making meaningful reductions. Consistent with SBTi, we must set a target that covers at least 67% of our total Scope 3 GHG emissions. The product GHG emissions during the use phase (Scope 3, Category 11) account for over 67% of the total, therefore we have set a target for this specific category. The base year of 2020 accurately reflects Nedap's typical operations, GHG emissions sources and activity levels, allowing for meaningful comparison of GHG emissions reductions over time. There are no external factors that may lead to adaptations of the GHG emissions calculated for this category.

The breakdown of the categories within Scope 3 for 2024, detailed in subsection Gross Scopes 1, 2 and 3, and total GHG emissions, demonstrates the absolute and relative contribution.

Per SBTi guidelines, we have set an intensity-based target for Scope 3, Category 11 GHG emissions. Therefore, an absolute target is not applicable.

When combined, the Scope 3 decarbonization levers outlined in this Sustainability statement will enable us to reach the 2030 intensity-based target. This is taking into account the individual growth strategies we foresee for software and hardware.

5.5.5 Energy consumption and mix

The data collection process and calculation of energy consumption are fully aligned with the GHG protocol. The primary source of the data is the invoices provided by electricity companies or the landlords from whom we rent our offices. We apply the same parameters as those used for our Scope 1 and 2 GHG emissions. To categorize energy consumption into different categories, we utilize various methods. For purchased renewable and nuclear energy, we apply the market-based approach, accounting only for energy that is verifiable. This ensures a conservative and accurate determination of renewable energy consumption.

The energy consumption for the reporting year 2024 is as follows.

Our 2024 consumption data show a further decline in our reliance on fossil sources (both natural gas for heating our buildings, as well as fossil fuels) and a slight increase in energy consumption related to our use of heat pumps and electric cars, half of which was self-generated through the installation of additional solar panels.

5.5.6 Gross Scopes 1, 2 and 3, and total GHG emissions

This subsection focuses on reporting our total gross GHG emissions for Scope 1, 2 and 3. Scope 1 covers direct GHG emissions from our own operations, such as fuel use for company-owned vehicles and natural gas for heating. Scope 2 includes indirect GHG emissions from purchased electricity, heat and steam. Scope 3 encompasses GHG emissions from our entire value chain, including supplier activities, product use and end-of-life disposal. We take a comprehensive approach to data collection and conducting life cycle analyses of our portfolio, aimed at ensuring transparency and accuracy in our GHG emissions reporting. 

Nedap employs a centralized approach for calculating GHG emissions across Scope 1, 2 and 3. All subsidiaries report their activity data using a standardized format to the group, where the GHG emissions are calculated on a consolidated basis. Under this approach, Nedap reports direct GHG emissions (Scope 1) from any activities or facilities it manages and controls, including energy systems such as natural gas heating systems. Activities where Nedap does not directly manage the GHG emissions source, but consumes or purchases energy (e.g., electricity, steam or heating), are classified as Scope 2 GHG emissions.

For Scope 1 and 2 GHG emissions from combustion, GHG emission factors (EFs) are applied using the tank-to-wheel (TTW) approach. We prioritize the use of market-based EFs or EFs published by the countries in which Nedap operates. If a country does not provide specific EFs, we obtain suitable factors from alternative sources. For Scope 3, life cycle EFs are used, which include not only the combusting of the fuel, but also all other GHG emissions that occur during the fuel life cycle.

For the calculation of Scope 3 Category 11 GHG emissions, we have used estimations for lifespan, duty cycles and power consumption by using input from internal subject matter experts, product specification information, sales information in product databases and business partner inquiries. We had to estimate the Scope 3 Category 12 GHG emissions, as they are included in Scope 3 Category 1 within the LCA software we use to calculate our GHG emissions. For the estimation, we used the ratio between the Category 1 and Category 12 GHG emissions from previous versions of the LCA, where this information was available.

Nedap gross total GHG emissions for 2024

Nedap calculates and reports both its location-based and market-based Scope 2 GHG emissions. In Scope 2 reporting, the location-based method calculates GHG emissions based on the average GHG intensity of the local grid, while the market-based method reflects GHG emissions from the specific energy purchased, such as renewable energy contracts. Nedap's market-based GHG emissions are significantly lower than the location-based GHG emissions because we primarily use renewable electricity.

Targets are set in line with SBTi and are expressed in tCO₂e per 1M EUR of added value.

Our 2024 Scope 1 GHG emissions show a further decline in our reliance on fossil sources (both natural gas for heating our buildings, as well as fossil fuels) and a slight increase in Scope 2 GHG emissions related to our use of heat pumps and electric cars, half of which was self-generated through the installation of additional solar panels.

For our Scope 3 GHG emissions, we see a decline driven by GHG emissions in Scope 3 Category 1, which declined, both due to lower product sales as well as a reduction in inventory used for sales (i.e., no purchases were needed for the goods sold) and GHG emissions in Scope 3 Category 11, which declined due to lower hardware sales.

GHG intensity based on net revenue

Based on our net revenue of €251.6 million (as disclosed in our financial statements), our location-based GHG emissions intensity is 0.727 metric tons of CO₂e per €1,000 revenue and our market-based GHG emissions intensity is 0.723 metric tons of CO₂e per €1,000 revenue (2023: revenue €262.4 million, location-based 0.835 tCO₂e per €1,000 and market-based 0.830 tCO₂e per €1,000).

5.5.7 EU Taxonomy disclosures

Over the past years, the European Parliament and the European Commission have worked on regulations for non-financial reporting (EU regulation 2020/852, also known as the Taxonomy Regulation (the 'Taxonomy')).

This regulation establishes a framework to facilitate sustainable investment. The Taxonomy is essentially a classification of economic activities based on their contribution to achieving specific climate and environmental objectives. The aim of the Taxonomy is to enhance transparency and comparability. Tying in with the climate targets from the Paris Climate Agreement, the Taxonomy establishes the following environmental objectives:

1. Climate change mitigation.

2. Climate change adaption.

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.

Similar to prior years, the Taxonomy’s criteria were assessed for Nedap's activities. This assessment encompassed validating all relevant technical screening criteria and 'Do No Significant Harm' (DNSH) requirements against the said activities. The current financial year introduced an expansion in the Taxonomy’s scope: whereas 2023 introduced eligibility assessments for the environmental objectives 3 through 6 the current financial year includes validating alignment against the Taxonomy’s scope as well. This development reflects the EU’s ongoing commitment to broadening the ambit of its sustainability framework, ensuring a more holistic approach to environmental governance.

Climate change objectives

An economic activity is classed as an economic activity that substantially contributes to climate change mitigation if, in line with the long-term temperature target from the Paris Agreement, it substantially contributes to the stabilization of concentrations of greenhouse gases in the atmosphere at a level where hazardous anthropogenic disruption of the climate system is prevented, by preventing or reducing GHG emissions or increasing GHG removal, including through process or product innovation. Making a building climate-neutral is an example of such an activity.

An economic activity is classed as an economic activity that substantially contributes to climate change adaptation if it involves solutions that substantially reduce the (risk of) adverse effects of the current climate and the expected future climate on that economic activity. Or if that activity directly facilitates other activities that contribute substantially toward achieving one or several of the objectives. Earthquake-proofing or flood-proofing a building is an example of such an activity.

Besides contributing to countering or dealing with climate change, the activity must not do significant harm to the other defined environmental objectives. Certain minimum safeguards must also be in place to guarantee compliance with the OECD guidelines for multinational enterprises and the UN’s guiding principles on business and human rights, including the principles and rights described in the eight fundamental conventions in the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work and in the International Bill of Rights.

Environmental objectives

The four environmental objectives collectively aim to establish sustainable ecosystems by integrating responsible water management, waste minimization, pollution reduction and biodiversity conservation, ensuring a holistic approach to environmental sustainability and ecosystem resilience. Contribution to one or more environmental objectives must not do significant harm to any of the other environmental or climate change objectives.

Scope of the Taxonomy

The rationale behind the selection of activities currently identified in the EU Taxonomy is primarily based on their potential to contribute significantly to the European Union’s climate and environmental objectives, particularly in the context of the European Green Deal and the bloc’s commitments to the Paris Agreement. These activities are identified for key sectors where substantial sustainable impact can be made. The focus is on sectors that either have high potential to reduce GHG emissions, are crucial for adaptation to climate change, or are vital for protecting water and marine resources, transitioning to a circular economy, preventing pollution and preserving biodiversity and ecosystems.

The activities that the European Commission has identified mainly concern industries other than the sectors in which Nedap operates, i.e., industries with a greater GHG emission reduction and environmental contribution potential. This is the reason for having a relatively low eligibility percentage, compared to companies that fall within the defined sectors.

Relevance to Nedap in 2024

Climate change

The focus areas that the EU has designated for reporting on environmentally sustainable economic activities were initially found mainly, albeit not exclusively, in sectors in which Nedap does not operate, such as forestry, construction, heavy industry, energy generation, water supply, waste processing and transport. In 2023 eligible activities in various sectors were added, notably in the automotive and aviation industry. These activities have to report on alignment in 2024. The information and communications sector remained the most relevant Taxonomy domain for Nedap. This sector can substantially contribute to preventing climate change by developing data-driven solutions that are used primarily to provide data and analyses that enable reduction of GHG emissions. Hosted solutions in energy-efficient data centers can also contribute if the operations of a data center meet the defined energy-efficiency standards.

The following activities are considered the most relevant for Nedap from a Taxonomy point of view:

• 6.5  Transport by motorbikes, passenger cars and light commercial vehicles.

• 7.X  Renovation of existing buildings, installation, maintenance and repair of energy-efficiency equipment, installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings).

• 8.1  Data processing, hosting and related activities.

Activities related to numbers 6 and 7 involve buying goods or services that meet environmental standards. They also include actions that make the main activities more environmentally friendly or reduce the company's own GHG emissions. Activity 8 focuses on offering environmentally friendly products and services to customers.

While the regulation highlights specific manufacturing activities that can contribute to climate change mitigation, such as 3.5 'Manufacture of energy-efficient equipment for buildings' and 3.6 'Manufacture of other low carbon technologies', Nedap's involvement in these areas is not in manufacturing itself. Instead, the company focuses on researching, designing, developing, marketing and selling products within these categories. The actual production process of these products is entrusted to specialized Electronic Manufacturing Service companies, which makes Nedap not eligible under said manufacturing activities of the Taxonomy. This approach allows Nedap to concentrate on its core competencies while leveraging the expertise of our manufacturing partners.

Environment

Environmental objectives are currently targeted at activities relating to water leakage control, waste treatment, pharmaceutical products, nature conservation & restoration and sustainable manufacturing (and related services). Only the last category, defined in detail in Annex II ‘Transition to a circular economy’ of the Technical Screening Criteria, encompasses economic activities that Nedap performs. 

In the context of the Taxonomy, Nedap is positioned to potentially contribute to a circular economy through the following identified activities:

• 1.2  Manufacture of electrical and electronic equipment.

• 5.1  Repair, refurbishment and remanufacturing.

• 5.5  Product-as-a-service and other circular use and result-oriented service models.

Revenue of activity 5.5 is realized through data centers (Climate Change Mitigation activity 8.1). To avoid double counting it is not being reported on as a circular activity.

Revenue

Climate change

Activity 8.1 is a climate change mitigation (CCM) economic activity, the three environmental activities contribute to a circular economy (CE). The Taxonomy classes CCM8.1 as a transition activity that contributes to climate change mitigation if it is performed through data centers ('The storage, manipulation, management, movement, control, display, switching, interchange, transmission or processing of data through data centers, including edge computing (decentralized data processing)'). These data centers' GHG emissions must be aligned with best practices in the sector or industry.

The revenue that Nedap generates from software subscriptions (licenses) and services (€100,193k in 2024, note 14 of the consolidated financial statements) which is largely (€92,104k) made up of economic activities performed through data centers, is an important activity for the company since most of its recurring revenue is generated through these data centers. The data centers that Nedap uses the most all meet the European code of conduct for energy efficiency in data centers, demonstrating a major part of the alignment criteria. Energy efficiency cannot be established for a small percentage of data center revenue (less than 10%) related to hosting by Amazon Web Services (AWS) and Microsoft (Azure), as these providers' facilities are not always individually identifiable to Nedap. This makes it difficult to establish how well these services provided to Nedap adhere to environmental standards. Both AWS and Azure have, however, committed to transitioning to 100% renewable energy by 2025. 

For the part (€92,104k) of the activity that is eligible to be screened against the technical screening criteria defined in the Taxonomy, it was concluded that alignment could not be established for this activity due to the absence of auditable compliance with Global Warming Potential criteria of refrigerants used in the data centers' cooling systems. Reference is made to the paragraph Reclassification of 2023 figures for further clarification.

The activity does not significantly harm climate change adaptation, sustainable use and protection of water and marine resources, pollution, biodiversity and the transition to a circular economy.

This was assessed by validating all technical screening criteria against compliance with the DNSH criteria:

• No significant harm is done to climate change adaptation, which was the outcome of an assessment of climate related hazards.

• The sustainable use and protection of water and marine resources was assessed against the criteria relevant to this objective, and confirmation was received from those centers that align with this criterium.

• Regarding the transition to a circular economy no significant harm was established by validating the certification requirements as stated in Directive 2009/125/EC, the absence of restricted substances as per Directive 2011/65/EU and the waste management plan that is in place that ensures maximal recycling at end of life electrical and electronic equipment.

Nedap has also established compliance with the minimum safeguards as required by the EU. Compliance involves establishing adequate human rights due diligence processes, implementing anti-corruption measures, ensuring tax governance and compliance, and promoting awareness of competition laws among employees. Details of the aforementioned can be found in section 3.1 Business integrity, subsections Code of Conduct, Anti-bribery and anti-corruption, Nedap compliance training, Human rights and other fundamental rights and Taxation and in section 3.2 Risk management and internal controls, subsections Tax control framework and Risk table. This adherence is in line with the criteria outlined for EU companies, ensuring we do not fall into non-compliance by violating labor laws, engaging in corrupt practices, mismanaging tax responsibilities, or breaching competition laws.

The remainder of the revenue (€159,502k, as detailed in note 14 Products, Systems and Installations in the consolidated financial statements) stems from activities that have not been classified by the European Parliament as directly contributing to climate mitigation or adaptation. Many manufactured products are considered eligible for climate objectives only if their primary aim is to reduce GHG emissions. While Nedap's range of energy-efficient products does support the reduction of GHG emissions in many customers' operations, this is not their primary intended purpose. 

Nedap continuously conducts life cycle assessments for all of its hardware products, having further refined the assessment for its product groups in 2024 (see section 1.5 Sustainability and subsection Our Products in section 2.3 Progress on our sustainable impact). The activities performed using Nedap products are intended to, among other things, reduce waste streams at retailers, boost food efficiency at agricultural companies and prevent the use of chemicals in water purification. In Nedap's view, they contribute to facilitating its customers in transitioning to a more sustainable organization and society. Information on how our customers use these products, which would be needed to be able to establish a demonstrable contribution toward one or several of the EU-defined environmental objectives, is currently not reliably available. Nedap's contribution toward customers' sustainability objectives is, therefore, captured in qualitative terms. Revenue from products, systems and installations has, therefore, not been designated as a Taxonomy-eligible activity contributing to climate change mitigation or adaptation.

Environment

Upon evaluating the three activities identified for potential contribution by Nedap, it was concluded that activity 1.2 'Manufacture of Electrical and Electronic Equipment', has the most relevance to Nedap under environmental objectives as repair activities (activity 5.1) are of limited size and product-as-a-service offerings (activity 5.5) are included in climate change mitigation activities due to the fact that these activities are predominantly related to software-based solutions. The hardware component plays a minimal role within these activities. 

Activity 1.2 'Manufacture of Electrical and Electronic Equipment' encompasses the manufacturing of Nedap's products that have not been outsourced to third parties. These products are not related to low carbon technologies or energy-efficient equipment and therefore do not qualify under climate change mitigation criteria. The manufacturing of said products is, however, an activity that could potentially contribute to circular objectives and is thus included here.

Although activity 5.1 'Repair, refurbishment and remanufacturing' is insignificant in terms of revenue generation it does contribute to circular objectives. Nedap's products are built to last, with a robust design and extensive durability testing prior to delivery. Only very limited number of products return to Nedap for repair. If they do, Nedap's excellent warranty policies entitle customers in most cases to a repair, refurbishment or replacement.

Nedap's activities covered by aforesaid Taxonomy eligible activities do not meet the alignment criteria, as defined by the EU. In absence of an Ecolabel the Taxonomy requires, amongst others, the availability of independent certified repairers and recyclability that relies on a specific standard (EN 45555:2019). This standard currently adversely impacts the longevity of the intended use of Nedap's products. Nedap will be assessing the actions necessary for potential future compliance with these requirements as part of the company’s sustainability ambitions and targets.

Capital and operating expenditure

All the listed Taxonomy categories relevant to Nedap involved capital expenditure in 2024. This expenditure, along with the associated operating expenditure, is presented in the tables at the end of this section. 

Capital expenditure

Eligible investments in fixed assets are related to hosting activities, the electrification of Nedap's fleet of vehicles, the reduction of fossil energy consumption in our buildings and the manufacturing of electronic equipment. The eligible CapEx for manufacturing activities classified under CE 1.2 includes investments in buildings, machines and measuring and testing equipment at our own manufacturing facilities. Aligned activities are for the purchase of solar panels at our headquarters and electrical car charging facilities at employees' homes. Nedap offers a home charging point for every employee with a PHEV or fully electric company car.

Contrasting with the significant renovations conducted in earlier years, our ongoing efforts to decarbonize the buildings at our Groenlo Campus have encountered an unanticipated setback in recent years. The inability of regional and national grid operators to upgrade our power connection creates additional challenges in achieving our net-zero ambition. Increased green electricity is vital for our continued investments in vehicle charging facilities and the scaling down of fossil energy consumption at our facilities. Pending an expanded electricity capacity, the planned initiatives to reduce our Scope 1 GHG emissions had to be partially (and temporarily) deferred.

Ineligible investments include investments in the modernization of facilities and workplaces at our sites, most right-of-use leases, molds and dies and capitalized development costs for activities that are not part of activities eligible under the Taxonomy.

Operating expenditure

The operating costs to be assessed under the Taxonomy are direct non-capitalized costs relating to research and development, building renovations, short-term rentals, maintenance and repairs, and all other direct expenditures relating to the day-to-day maintenance of tangible fixed assets and equipment by the company or a third party engaged for these purposes, which are needed to guarantee the continuous and effective functioning of such assets. Given that Nedap has been investing in greening its buildings and other assets for years, those assets are relatively new and involve limited operational costs. These are mainly operating costs for maintenance of Nedap's fleet of vehicles, and costs relating to the correct (continued) functioning of installations and manufacturing equipment in the various buildings on Nedap's Campus. Buildings of subsidiaries are all leased assets and the correct and effective functioning of these does not come with additional operating expenditure for Nedap.

Based on the accounting policies cited in the consolidated financial statements, the percentages listed have been calculated as the revenue (detailed in note 14 of the consolidated financial statements), investments in fixed assets (detailed in notes 1 and 2 of the consolidated financial statements), and operating costs that qualify under the Taxonomy, as part of the total revenue, investments in fixed assets, and the total aforementioned direct non-capitalized operating costs.

Nedap has made an effort to include all eligible activities in its disclosures. Only when an activity is deemed of limited size and importance to Nedap it is not being reported on.

Reclassification of 2023 figures

Given the absence of unequivocal supplier declarations in 2023, Nedap relied on information obtained through conversations, greening plans disclosed on data centers' websites and audit reports that were made available by data centers used for the activities classified under 8.1 'data processing, hosting and related activities'. This information suggested alignment with the Taxonomy criteria, notably by complying with the European code of conduct for energy efficiency. CapEx plans to replace existing chilling installations were part of these discussions. In 2024 it was established that the pace at which the global warming potential (GWP) of refrigerants used in the data center cooling systems will be brought down to systems not exceeding that of difluoromethane (with a GWP of 675) is not (yet) publicly disclosed, although plans exist to start naming those facilities that are aligned with the regulation. Until then, the CapEx plan could potentially exceed the timing criteria defined for said plans. Although this does not necessarily mean that the CapEx plans disqualify for alignment with the Taxonomy criteria, it is currently not possible to evidence this without further disclosures from these data centers. Nedap has therefore decided to present this activity as a non-aligned activity, whilst reclassifying it’s 2023 comparative figures.

A further reclassification is applied to the investment in electric vehicles. Although the investment meets all the criteria for substantial contribution to climate change mitigation, in depth analysis of the DNSH criteria on pollution prevention and control indicate that external rolling noise requirements that require tires to be in the highest populated class potentially disqualifies the investment in electric cars from alignment. Nedap assessed this criterium in 2023 in the spirit of the law as not significantly harming any of the environmental criteria (prioritizing energy efficiency and grip safety over a limited reduction in noise levels) but acknowledges that, being unable to retrieve all tire specifications of investments in electric vehicles in 2023 and based on the criteria in Regulation (EU) 2070/740, a reclassification is considered appropriate to present the information more reliably in line with the formal text of the Taxonomy. 

Conclusion

Given that the EU primarily focuses on sectors other than the ones in which Nedap operates, i.e., sectors with greater contribution potential, the share of Taxonomy-eligible activities could stay limited. We are committed to enhancing our positive contribution and reducing any negative impacts across all markets we serve. This commitment often extends beyond the range of activities identified by EU legislation, which might not align with the core of our business. We are focused on delivering sustainable and advantageous solutions, even in areas not expressly emphasized by current governmental policies. Our dedication encompasses a broad spectrum of sustainable goals, including those that might fall outside the activities specified by the EU.

Taxonomy disclosures

Nuclear and fossil gas related activities: