TCFD Reference Table

Sustainable Development Goal (SDG) 13 of the United Nations is ascribed a high level of priority at Knorr-Bremse and is operationalized by the Knorr-Bremse Climate Strategy 2030, which was approved in 2019 by the Executive Board. The Executive Board monitors implementation of the climate strategy and approves comprehensive investments to this end. Climate-related topics were on the agenda of the Executive Board several times in 2022.

The Knorr-Bremse Supervisory Board serves in a monitoring capacity for the sustainability and climate strategy as well as the implementation thereof. In 2022, the work of the Supervisory Board focused on the critical appraisal of the new Knorr-Bremse remuneration system, including climate-related aspects, and the expansion of the climate targets in line with the requirements of the Science Based Targets initiative, including Scope 3 targets. Furthermore, the Supervisory Board regularly dealt with the Knorr-Bremse Risk Report in detail, at least once a year as well as on an ad hoc basis.

The new remuneration system for management levels 0–2 (Executive Board, senior management, regional managing directors and heads of division) sets incentives for achieving our sustainability targets. Implemented for the first time in the 2022 fiscal year, 20% of the short-term variable remuneration (short-term incentive) is now linked to the achievement of sustainability targets, including performance indicators in connection with the climate strategy.

• Sustainability Management
• 2022 Annual Report, “Sustainability Strategy and Organization”, page 40
• 2022 CDP Climate Change response: “Governance” (C1)

The company’s senior management is involved in the system for managing risks and opportunities. An essential component of regular risk reporting is a summary Group risk report. This is discussed and adopted in the Risk Committee. The participants in the Risk Committee are the heads of finance with regional responsibility, the heads of other governance functions and the global quality managers. The Group risk report is then presented to the Knorr-Bremse Group’s Executive Board at quarterly intervals and explained and discussed at the relevant Executive Board meeting. The Sustainability department is responsible for the further development and coordination of the climate strategy, as well as for integrating climate-related risk and opportunity management into the existing risk processes. The Sustainability department regularly reports directly to the CFO and to the ESG board.

The ESG Board is the key body that discusses and defines the sustainability and climate strategy at Knorr-Bremse. It comprises two members of the Executive Board, a representative of the senior management from each of the two divisions and of each of Knorr-Bremse’s Americas and Asia-Pacific regions, the Chair of Knorr-Bremse Global Care e. V. and the Head of the Sustainability department.

In autumn 2021, a cross-functional working group was established to implement the TCFD recommendations. The working group is made up of representatives from the Strategy, Risk Management, Procurement, Production and Sustainability departments, as well as representatives of the America and Asia-Pacific regions. In particular, the working group dealt with a TCFD gap analysis and a qualitative scenario analysis.

• Sustainability Management
• 2022 Annual Report, “Sustainability Strategy and Organization”, page 40
• 2022 CDP Climate Change response: “Governance” (C1)

In its planning, Knorr-Bremse defines short-term (0–1 years), medium-term (1–3 years) and long-term (3–5 years) timelines. Additionally, in autumn 2021, Knorr-Bremse carried out a comprehensive qualitative scenario analysis for the years 2030 and 2050.

The findings of the analysis supplement the regular risk management approach. The analysis focused on climate-related risks and opportunities along the value chain, both upstream and downstream, on the basis of the two following scenarios:

The net-zero-emissions (NZE) scenario for 2050 of the International Energy Agency (IEA) was primarily chosen to represent the transition risks resulting from a 1.5°C global warming scenario. The RCP 6.0 scenario of the Intergovernmental Panel on Climate Change (IPCC) was primarily chosen to represent the physical risks resulting from a 2.7°C global warming scenario. Knorr-Bremse’s selection of scenarios is therefore in accordance with the current and expected external requirements of the TCFD and the Corporate Sustainability Reporting Directive (CSRD). Additionally, the transition risk scenario is in accordance with Knorr-Bremse’s ambition to contribute to the limitation of global warming to 1.5°C through its own climate strategy. As part of the analysis, a distinction is made between the RVS and CVS divisions. The analysis focuses on material business activities in the supply chain, in the company’s own operations and in the customer markets in order to identify risks and opportunities that arise from the scenarios and that have the potential to have a significant financial effect for Knorr-Bremse.

The following tables summarize the relevant types of identified risks and opportunities as well as their financial effects for Knorr-Bremse:

• Climate Protection
• 2022 Annual Report, “Climate protection”, page 42
• 2022 Annual Report, “EU Taxonomy”, page 56
• 2022 CDP Climate Change response: “Risk and Opportunities” (C2), “Business Strategy” (C3)

Knorr-Bremse considers its climate strategy to be an essential contribution to limiting transition risks. The strategy was approved in 2019: it pursues the objective of halving Knorr-Bremse’s market-based Scope 1 and Scope 2 emissions by 2030 compared to the reference year 2018. The transformation plan is built upon three levers: CO₂ and energy efficiency, generation of its own renewable energy and purchasing renewable energy.

• Climate Protection
• 2022 Annual Report, “Climate protection”, page 42
• 2022 CDP Climate Change response: “Business Strategy” (C3)

Knorr-Bremse has defined 14 risk categories within the framework of its risk management. These categories have been mapped to the physical and transition risk types defined pursuant to the TCFD.

For example, in the “legal and regulatory” category, physical risks are allocated to force majeure and regulatory risks are allocated to environmental legislation, while technological risks are allocated to pricing in the “purchasing/procurement” category.

The so-called risk owner at the locations – the person responsible for the process of identifying risks and furthering mitigation measures – and the risk management teams of the divisional units of Knorr-Bremse classify risks as “low,” “medium” or “high” according to their expected financial impact. Risks of € 0–€ 10 million are classified as “low,” while risks of greater than € 50 million are classified as “high.” In this context, all net risks evaluated at greater than € 5 million are classified as substantial and, accordingly, are forwarded to the central risk management department at Knorr-Bremse. Additionally, risks for the Group as a whole are reported directly to the central risk management team by the respective Group departments, including the Sustainability department.

• Management of Sustainability-Related Risks and Opportunities
• 2022 Annual Report, “Report on Risks, Opportunities and Expected Developments”, page 83
• 2022 CDP Climate Change response: “Risks and Opportunities” (C2)

In all, the risk management process comprises six stages, from identification through evaluation, mitigation and aggregation to reporting and monitoring. When climate-related risks and opportunities are assessed, company management determines how to deal with them in consideration of the costs and benefits.

If risks are identified (including climate-related risks), operational measures are implemented to limit the risk to a tolerable level. By aggregating individual risks within the existing risk categories, Knorr-Bremse gains a comprehensive view of the risk situation of the organization as well as each divisional unit and local site. In addition to regular risk reporting, ad hoc risk reporting is part of Knorr-Bremse’s risk management. Divisional risk reports are consolidated centrally and reported to the Executive Board on a quarterly basis. Knorr-Bremse ensures diligent risk monitoring by continuously assessing risks as well as external audits of the risk management system by the Risk Committee.

• Management of Sustainability-Related Risks and Opportunities
• 2022 Annual Report, “Report on Risks, Opportunities and Expected Developments”, page 83
• 2022 CDP Climate Change response: “Risks and Opportunities” (C2)

The climate-related risks and opportunities identified from the climate scenarios were included in the Knorr-Bremse Risk Report.

• 2022 Annual Report, “Report on Risks, Opportunities and Expected Developments”, page 83
• 2022 CDP Climate Change response: “Risks and Opportunities” (C2)

Knorr-Bremse has published initial estimates of the potential financial effects of climate change as part of its 2022 CDP climate reporting.

CO₂ emissions are the central key figure in managing the decarbonization of Knorr-Bremse. Knorr-Bremse accounts for the emissions in scopes according to the Greenhouse Gas Protocol Standard.

• Climate Protection
• 2022 Annual Report, “Climate Protection”, page 42
• 2022 CDP Climate Change response: “Risk and Opportunities” (C2), “Business Strategy” (C3), “Targets and Performance” (C4), “Emission Methodology” (C5), “Emissions Data” (C6), “Emissions Breakdown” (C7)

In 2022, Knorr-Bremse’s carbon footprint was as follows:

• Scope 1: 38,000 metric tons of CO₂
• Scope 2: 12,000 metric tons of CO₂ (market-based accounting) and 122,000 metric tons of CO₂ (location-based accounting)
• Scope 3: ~28,400,000 metric tons of CO₂e

The Scope 3 emissions are made up of the categories that are relevant to Knorr-Bremse, which are Scope 3.1 Purchased Goods and Services, Scope 3.4 Upstream Transportation and Distribution, Scope 3.9 Downstream Transportation and Distribution; and Scope 3.11 Use of Sold Products as well as the categories Scope 3.3 Fuel- and Energy-Related Activities, Scope 3.6 Business Travel and Scope 3.7 Employee Commuting.

• Climate Protection
• 2022 Annual Report, “Climate Protection”, page 42
• 2022 CDP Climate Change response: “Risk and Opportunities” (C2), “Business Strategy” (C3), “Targets and Performance” (C4), “Emission Methodology” (C5), “Emissions Data” (C6), “Emissions Breakdown” (C7)

To be in line with the current status of climate science with regard to limiting global warming to no more than 1.5 °C, Knorr-Bremse has set itself the target of reducing the absolute CO₂ emissions of the global locations and the fleet (Scope 1 and Scope 2) by 50% by the year 2030. This means an absolute reduction of CO₂ emissions of 4.2% per year compared to the reference year 2018. By 2022, Knorr-Bremse had achieved a reduction of ~69%, primarily through the purchase of electricity from renewable energy sources as well as through increased energy efficiency.

In addition, we extended Knorr-Bremse’s climate goals to the value chain at the beginning of 2023 and set an ambitious reduction target: By 2030, we intend to reduce emissions of the upstream and downstream value chain (Scope 3) that are related to our business activities by 25% compared with the base year of 2021. We focus in particular on emissions from the Scope 3 categories 3.1 Purchased Good and Services, 3.4 Upstream Transportation and Distribution and 3.11 Use of Sold Products.

• Climate Protection
• 2022 Annual Report, “Climate Protection”, page 42
• 2022 CDP Climate Change response: “Risk and Opportunities” (C2), “Business Strategy” (C3), “Targets and Performance” (C4), “Emission Methodology” (C5), “Emissions Data” (C6), “Emissions Breakdown” (C7)