TCFD Report – Climate reporting

Risks identified

In 2024, the SFS Group carried out a climate-based scenario analysis for the first time. The findings gained from this analysis are helping to expand our established approach for assessing climate-related risks. The additional evaluation of transition and physical risks in particular provided valuable information that supports our strategic focus.

Governance

This report meets the requirements laid down in the Swiss Federal Council’s ordinance on mandatory climate disclosures and follows the requirements set out by the Task Force on Climate-related Financial Disclosures (TCFD). It explains how the impacts of climate change are integrated and factored into our corporate governance. The structures necessary for this are described in the Corporate Governance Report.

Scenario analysis provides important findings

The Board of Directors continuously monitors the achievement of climate targets, reviews the progress made with the help of the ESG KPI and approves additional optimization measures where necessary.

It uses the findings from the scenario analysis, which was introduced in 2024 and is based on the results of the double materiality analysis, in order to incorporate the impacts of climate change into ESG risk management. The Board of Directors oversees financial decisions such as acquisitions and capital expenditure with the aim of ensuring that such financial expenditure is compatible with our climate targets.

Involvement of all stakeholders

The Group Executive Board is responsible for the implementation of the climate strategies and the quarterly reporting to the Board of Directors. Involving the relevant stakeholders (see “Compliance and due diligence” section: Dialog with stakeholder groups continued) ensures that the decision-making framework meets changing expectations and takes into consideration both short-term and long-term climate impacts.

Strategy

Management of climate-related opportunities and risks

SFS carries out climate scenario analyses and double materiality analyses in order to identify potential climate risks and the resulting business opportunities as well as to prioritize their potential financial influence. Qualitative and quantitative methods guarantee an in-depth decision-making process and alignment with strategic objectives.

Time frames and strategic measures

Time horizon	Strategic measure
Short–term (0–2 years)	Focus on immediate risks such as raw material availability and energy price volatility, which are part of ongoing business operations.
Mid–term (2–5 years)	Implementation of energy efficiency measures and increased use of renewable energy to achieve 2030 targets. Commitment to reducing direct emissions (Scope 1 and 2), measured in tons of CO₂ equivalents per value-added Swiss franc, by at least 90% by 2030 compared to 2020.
Long-term (>5 years–2050)	Scope 3 emissions should be reduced by ≥90% by 2040, measured in tons of CO₂ equivalents per value-added Swiss franc.

An overview of the types of risks and opportunities

Transition risks

Market risks: Changing consumer behavior and increasing demand for sustainable solutions
Regulatory risks: Rising carbon prices, stricter emissions standards, regulatory costs and climate-related damage
Technological risks: Challenges in the launch of low-emission technologies

Reputational risks

Changes in consumer preferences as well as negative stakeholder feedback due to growing ESG expectations represent reputational risks for SFS. Reputational risk has been assessed in qualitative terms within the double materiality analysis and is not part of the scenario-based risk analysis.

Physical risks

Acute weather events: Sudden events such as floods and storms
Chronic weather events: Long-term changes, such as changes in the precipitation pattern

Opportunities

Operational efficiency through energy and resource optimization: Improving resource efficiency will reduce energy requirements and costs, and will also improve environmental performance
Resilience: Reduced exposure to climate-related damage under ambitious climate protection scenarios (e.g. 1.5 °C Paris Agreement)
Changing customer demand: Expansion of the market for sustainable solutions and products

Climate-related risks are gradually being integrated into our financial planning through the introduction of additional KPIs. This enables the assessment of sustainable capital expenditure and ESG-oriented sales to be refined. At present, the scenario analysis assesses the transition and physical risks with a focus on financially significant risks and regulatory trends. Opportunities such as investments in energy efficiency and low-carbon products are prioritized according to their benefits and their strategic relevance.

Scenario analysis for transition risks

In 2024, the SFS Group carried out a scenario analysis to assess the impacts of transition risks on the company. Within this analysis, several scientifically substantiated climate scenarios were used that are summarized in internationally recognized scenarios. These were not developed by us, but are based on globally established models. The underlying data was obtained from a tool developed by the World Business Council for Sustainable Development (WBCSD). The SFS Group analyzed the financial and operational impacts on the company on the basis on the following general scenarios:

Scenario 1: (BAU) operations are conducted as before. Business-As-Usual (BAU)/SSP¹ 5-8.5 (4.3°C)	Szenario 2: (WB2C) operations are adapted in order to minimize global warming to considerably lower than 2 °C. Well Below 2°C (WB2C)/SSP¹ 1-2.6 (1.6°C)	Szenario 3: (NZE) operations are adapted in order to produce net-zero emissions. Net Zero Emissions (NZE)/SSP¹ 1-1.9 (1.5°C)
This scenario assumes minimal climate protection measures and reflects current regulatory actions. No significant demand for lower-carbon products is expected. Regulatory measures to support renewable energy, circular economy initiatives, improved energy efficiency standards for electric motors, and mandatory energy audits are not implemented across all regions.	This scenario represents moderate climate protection efforts with increasing demand for lower-carbon products and gradual political progress in energy transition technologies.	This ambitious scenario depicts rapid decarbonization through globally aggressive climate protection measures. Regulatory actions include strong support for carbon capture, transport, and utilization, as well as hydrogen, circular economy initiatives, and strict energy efficiency standards.

1Shared Socioeconomic Pathways: Scenarios that specifically consider socioeconomic factors.

Data sources and methodology

Internal Data	External Data
Data on our greenhouse gas emissions and financial data from 2023 were used to assess the potential impacts of climate-related opportunities and risks.	External data from publicly available research projects (e.g., World Business Council for Sustainable Development) were used to evaluate opportunities and transition risks, while data from our insurance provider were used to assess physical risks.

This comprehensive method allowed us to identify transition opportunities and risks in various regions and in so doing factor in medium- and long-term developments under different climate scenarios. During the scenario analysis, we made the following observations:

Findings from the scenario analysis

Risks	BAU	WB2C	NZE
Impact of Carbon Pricing The findings from the different scenarios, except for the BAU scenario, underline the necessity of ramping up the transition to energy-efficient, low-carbon operation. Through proactive management, such as investments in renewable energy, electrification, and carbon offsetting, SFS can mitigate the financial impact of rising carbon prices and contribute to decarbonization.	There is no or a negligible carbon price and only minimal incentives for decarbonization. This also means that there are no risks that need to be considered in this context.	Rising carbon prices with noticeable impacts on business performance. Initial incentives for lower-carbon solutions emerge.	The highest projected carbon costs lead to significant capital expenditures and strong impacts on operating profit (EBIT). The greatest incentives for low-carbon solutions arise.
Climate Damage and Regulatory Costs Climate damage and regulatory costs were analyzed in relation to SFS’s CO₂ footprint, providing a framework for assessing potential business impacts. Regions with higher emission profiles were identified as particularly high-risk.	Low to no climate protection efforts lead to permanent and irreversible damage, with long-term high cost projections.	Increasing climate protection efforts significantly reduce the costs of climate-related damages.	Initial regulatory costs are higher than in other scenarios but decrease in the medium term, making them the lowest in the long run. Highlights the benefits of ambitious climate targets and offers the greatest potential to minimize climate damage.

Opportunities	BAU	WB2C	NZE
Sustainable Solutions Demand The demand forecasts for sustainable solutions provide key insights into changing market interests, allowing us to align our strategy accordingly. To assess the impact on SFS, we analyzed the projected demand increase in various regions in relation to market presence and revenue share. This helped identify regions with the highest growth potential for sustainable products and solutions.	Demand for sustainable solutions remains consistently low.	Significantly increased demand for sustainable solutions leads to corresponding market growth.	This scenario also focuses on energy efficiency, decarbonization through renewable energy, and systemic solutions like carbon capture and storage. This broader approach results in slightly lower demand for sustainable products than in the WB2C scenario but allows for a more versatile and potentially accelerated implementation of climate goals.

Cost Savings through Energy Efficiency and Renewable Energy (Upstream) To support SFS’s goal of increasing self-generated energy, an analysis was conducted on renewable energy capacity and final energy demand. This assessment evaluated projected growth in key regions relative to our energy consumption, providing valuable insights for achieving our energy targets. The analysis also highlights cost-saving potential, as energy is a critical input for SFS’s production.	Since the BAU scenario includes no explicit policy- or market-driven incentives for energy efficiency and renewable energy, no reliable modeling could be conducted. Based on current developments, efficiency gains and the expansion of renewable energy are expected to continue only to a limited extent.	The highest availability of renewable energy and energy efficiency measures at the level of the NZE scenario lead to significant cost savings and aggressive decarbonization of the energy supply. However, overall energy demand is slightly higher than in the NZE scenario.	In addition to renewable energy, this scenario focuses on efficiency improvements and technologies for achieving a negative emissions balance. These measures reduce overall energy demand, allowing ambitious climate targets to be met with a lower share of renewable energy than in the WB2C scenario.

Physical risk analysis

The SFS Group carried out a risk analysis within the BAU scenario in order to assess how extreme climate change would impact operations. All of the regions with production facilities were analyzed with respect to risks such as precipitation, weather conditions that facilitate fires, drought, cold stress and heat stress. Each region was assessed using a seven-point scale ranging from “very low” to “extreme”. Risks were considered as relevant if 50% of the locations were assessed as “medium” or above. The time frames for physical risks were adjusted to the transition risks in order to ensure a consistent climate risk assessment.

The physical risks vary according to the time period. In the medium term, precipitation is a moderate risk, which could negatively impact water availability and infrastructure. Weather conditions that facilitate fires is considered a very low long-term risk, with drought likewise constituting a minor problem in the long term. Cold stress is deemed to be a moderate risk in the medium term, potentially causing business disruptions and increased heating requirements. In the long term, heat stress represents a moderate risk that could impact energy consumption and productivity.

The findings illustrate the potential challenges in different regions and support the development of a climate strategy and the prioritization of mitigation measures. Although the identified physical risks are relevant for the company, they are considered manageable at this moment in time. Continuous monitoring will enable the SFS Group to respond to new and changing risks.

Sensitivity analysis of climate risk

Climate change-related risks and opportunities	Risk Onset	Impact Severity BAU	Impact Severity WB2C	Impact Severity NZE
Transition Risks
Carbon Price	Short-Term		High	High
Climate Damages/Policy Cost	Long-term	High	High	Low
Climate change-related opportunities
Changed consumer behavior	Long-term	Low	High	High
Cost savings through energy efficiency and renewable energy (Upstream)	Long-term	Low	High	High
Physical Risks
Precipitation	Medium-term	Medium
Fire Weather	Long-term	Very Low
Drought	Long-term	Low
Cold-Stress	Medium-term	Medium
Heat Stress	Long-term	Medium

Mapping of the supply chain and significant locations

As part of the mapping of the supply chain, the significant regions were identified based on emissions intensity, physical risks and transition risks. This approach enables us to focus our efforts on the regions that have the greatest potential to mitigate climate-related risks and make use of sustainable opportunities for growth. Heavily affected regions such as China, the EU and the UK are given preference here for climate protection measures and investments.

Tools and methods used

SFS uses a variety of instruments such as CDP, IntegrityNext, EcoVadis, ISO 14001 and the WWF Water Risk Filter as well as external advisors and involves its stakeholders in order to guarantee holistic environmental risk assessments. The findings from these assessments are incorporated into our risk management process to improve decision-making.

Risk management

Management and mitigation of climate-related risks

SFS manages climate-related risks by means of four main measures:

Decarbonization efforts: Promoting energy efficiency and the use of renewable energies
Diversifying the supply chain: Reducing reliance on climate-sensitive regions, based on the local-for-local strategy
Insurance coverage: Taking out appropriate insurance policies to protect against catastrophic losses caused by severe physical risks
Operational resilience: Strengthening the resilience of our facilities and processes, especially in heavily impacted regions where SFS has a high presence or business activity, such as China, the EU and the UK

Based on the results of the scenario analyses and the double materiality analysis, identified risks are prioritized according to their financial materiality.

Integration into the strategic planning process

Climate-related risks are integrated into our strategic planning and decision-making processes in order to ensure that they are consistent with our corporate and sustainability targets. This integration is supported by the following measures:

Cross-functional and cross-departmental collaboration
Monitoring by the Board of Directors
The measurement of key performance indicators (KPIs)

Measures for continuous improvement

We strive to continuously optimize our risk management in the following ways:

Regularly updating the decision-making framework
Using insights from the past and exchanges with partners
Using the latest information digitalization technologies

Key figures and targets

Managing climate-related key figures is of enormous importance to SFS. In accordance with international frameworks such as the TCFD, these key figures support the implementation of our decarbonization strategy. The key figures and targets serve as the basis for measuring our progress, assessing risks and opportunities, and ensuring accountability in the achievement of our sustainability targets.

Gauging climate-related risks and opportunities

In order to comprehensively assess and manage climate-related risks and opportunities, we compile and measure the following key figures:

Measurement of greenhouse gas emissions (GHG): Scope 1, 2 and 3 (see About this report)
Corresponding targets (see Energy and emissions) These are intensity-based targets that will be supplemented by short- and long-term science-based targets and validated by the SBTi by the end of 2025.
Measurement of energy consumption as well as corresponding targets (see Energy and emissions)

Progress and accountability

Detailed information about our climate targets, the progress made in the financial year, and climate-related measures is provided in the Energy and emissions section.

Conclusion and outlook

The listed key figures and targets have been integrated into the main strategic objectives of the SFS Group in order to ensure that sustainability initiatives promote long-term growth and resilience. These efforts are supported by our commitment to transparency and are reflected in the regular disclosures to our stakeholders as well as compliance with TCFD recommendations. As of financial year 2025, SFS will report in accordance with the European Sustainability Reporting Standards (ESRS).