Annual Report 2022

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The European Green Deal presented by the European Commission in 2019 contains the goal of reducing net greenhouse gas emissions in the European Union to zero by 2050. A central component of this is the EU taxonomy, a classification system for defining “environmentally sustainable” economic activities. The aim is to classify economic activities across the EU in terms of their contribution to six defined environmental objectives on the basis of defined requirements, in order to steer capital flows toward sustainable investments: (1) “Climate change mitigation,” (2) “Climate change adaptation,” (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.”

Reporting on “environmentally sustainable” economic activities

The EU taxonomy requires companies to report on their taxonomy-aligned, i.e., environmentally sustainable, economic activities according to EU criteria, as part of the non-financial statement. While the reporting requirements for fiscal year 2022, as in the previous year, are limited to the two climate-related objectives (1) and (2), the corresponding shares of taxonomy-aligned economic activities in relation to sales, capital expenditure (CapEx), and operating expenses (OpEx) have to be disclosed for the first time, in addition to the shares of taxonomy-eligible economic activities.

Taxonomy-eligible economic activities are those that comply with the respective activity description according to the EU taxonomy, irrespective of the fulfillment of the technical screening criteria. Economic activities are taxonomy-aligned if they meet the taxonomy criteria of the associated activities by means of making a significant contribution to the respective environmental objective (compliance with the technical screening criteria), do no significant harm (“DNSH”) to the other environmental objectives, and comply with the minimum safeguards outlined by the EU taxonomy. The following disclosures are based on the current interpretation of the EU taxonomy, which was considered dynamic at the time this non-financial statement was prepared.

The delegated acts published to date in connection with the EU taxonomy on the two climate-related objectives “Climate change mitigation” and “Climate change adaptation” only cover a limited number of sectors and economic activities. For the climate-related objectives (1) and (2), the taxonomy regulation currently focuses primarily on the sectors responsible for the largest emissions of CO2 within Europe. For companies in the global apparel market and their primary economic activities, on the other hand, there are not yet any binding taxonomy criteria for the two climate-related objectives. Therefore, the economic activities of HUGO BOSS and thus the sales of these activities as well as CapEx and OpEx in connection with these activities are not yet covered by the taxonomy to a large extent and are therefore mainly to be classified as taxonomy-non-eligible for fiscal year 2022, as was already the case in the prior year.

However, among the economic activities listed in the delegated acts already in force for the two climate-related objectives, there are those that, although not revenue-generating, are generally relevant for HUGO BOSS as they concern the Company’s basic infrastructure such as real estate or facilities for the Company’s own energy generation. The activities relevant to HUGO BOSS were identified as part of a cross-divisional project to implement the requirements of the EU taxonomy. This was based on the overview of activities listed in the annexes to the delegated acts on the two climate-related objectives.

Taxonomy-eligible and taxonomy-aligned turnover

For the primary economic activities of HUGO BOSS there are no binding taxonomy criteria for the two climate-related objectives. The Company therefore reports the shares of taxonomy-eligible and taxonomy-aligned sales in fiscal year 2022 as 0%, as in the previous year.

Taxonomy-eligible and taxonomy-aligned capital expenditure (CapEx)

In determining the taxonomy-eligible and-aligned CapEx, data from Group Controlling and Group Accounting as well as inquiries at relevant Group companies were used to allocate the investment projects to the corresponding activities in the first step. The following taxonomy-eligible activities related to the environmental objective (1) “Climate change mitigation”, whose respective CapEx amounts exceed the threshold of EUR 419 thousand (0.1% of the ”denominator" presented below) defined by HUGO BOSS, are financially material for the Company in fiscal year 2022:

  • 7.1: “New construction of buildings” (Annex I of the delegated acts on climate-related objectives): Construction of the new Company day care center at the Company’s headquarters in Metzingen (Germany)
  • 7.7: “Acquisition and ownership of buildings”: Renovation and expansion of a building (including electrical and air-conditioning installation) for commissioning as an additional production hall at the production site in Izmir (Turkey).

Taxonomy-eligible activities related to the environmental objective (2) “Climate change adaptation ” were not identified. Subsequently, the taxonomy alignment was assessed for the economic activities identified. The technical screening criteria specified by the EU taxonomy were used to analyze the extent to which the respective investment projects make a significant contribution to climate change mitigation.

When renovating as well as planning and constructing new Company buildings, HUGO BOSS generally pays close attention to reducing energy-related emissions by means of energy supply systems and energy-efficient technologies. HUGO BOSS strives to have all new Company buildings awarded sustainability certificates. For the sustainable construction of its Company day care center in Metzingen (Germany), for example, the Company strives for a platinum certificate from the DGNB (German Sustainable Building Council). Among other things, sustainable materials were used in the construction while also LED lighting and a photovoltaic system were implemented. However, the installation of mechanical ventilation and cooling, which was done against the backdrop of the COVID-19 pandemic, resulted in the Company day care center not meeting the technical screening criterion set by the EU taxonomy in terms of primary energy demand requirements. Consequently, the CapEx attributable to this project has to be classified as not taxonomy aligned. Similarly, the renovation and expansion work at the additional production hall in Izmir (Turkey) in 2022, the construction of which took place before December 31, 2020, is to be classified as not taxonomy aligned, as it was not possible to provide the evidence required by the EU taxonomy for the corresponding technical screening criterion, in particular due to the lack of national or regional reference values for the primary energy demand. Nevertheless, the Izmir production site has already been certified in accordance with the international standards ISO 14001 (environmental management) and ISO 50001 (energy management) since 2014. For example, HUGO BOSS obtains all of its energy there from renewable sources, including a photovoltaic system that went into operation in 2022.

HUGO BOSS has carried out an analysis of physical climate risks for its most important Company locations, which meets both the requirements of the EU taxonomy and the requirements of the Task Force on Climate Related Financial Disclosures (TCFD). The two construction projects to be considered as part of the alignment assessment were also included. The system-based analysis is based on the reference scenarios of the Intergovernmental Panel on Climate Change (IPCC). No significant short- to medium-term physical climate risks were identified for the two buildings mentioned above, so there is no significant harm (“DNSH”) to the environmental objective of “climate change adaptation.” Therefore, from the Company’s point of view, adaptation measures are not necessary at present.

A review of the other DNSH criteria required for activities 7.1 and 7.7 was waived based on a cost-benefit consideration as full taxonomy compliance could not be achieved for the two construction projects anyway due to lack of compliance with the technical screening criteria.

Compliance with the social minimum standards, which comprise the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the ILO Core Labor Standards and the International Bill of Human Rights, was reviewed at Group level. HUGO BOSS complies with all of the standards defined therein. Combined Non-Financial Statement, Respect for Human Rights

In total, the taxonomy-eligible CapEx for 2022 in relation to the total CapEx incurred in the past fiscal year of EUR 419 million (“denominator”) amounts to 2% (2021: 1% with a denominator of EUR 257 million). The share of taxonomy-aligned CapEx, again in relation to the denominator, amounts to 0% (2021: no reporting requirement). In accordance with the taxonomy regulation, the CapEx to be used in determining the denominator mainly comprises additions to property, plant and equipment and intangible assets before depreciation, amortization, and revaluations, as well as right-of-use asset additions from long-term leases. The amount shown can be reconciled to the disclosures made in the Combined Management Report under Financial Position and in the Consolidated Financial Statements under Note 9.

Taxonomy-eligible and taxonomy-aligned operating expenses (OpEx)

The OpEx to be used in calculating the denominator according to the definition of the EU taxonomy essentially comprise direct costs relating to research and development, building renovation measures, short-term leasing, maintenance, and repair. The majority of the OpEx of HUGO BOSS, such as sales and marketing expenses, general administrative expenses, or logistics expenses, are therefore not included in this definition. For fiscal year 2022, the denominator amounts to EUR 116 million (2021: EUR 87 million). The calculation was also based on data from Group Controlling and Group Accounting. In relation to its total OpEx in fiscal year 2022 of EUR 1,921 million (reconcilable to the operating expenses presented in the consolidated income statement; 2021: EUR 1,493 million), HUGO BOSS classifies these OpEx as immaterial. Consequently, in accordance with the specifications in Annex I of the delegated acts on Article 8 of the EU taxonomy, a determination of the taxonomy-eligible and taxonomy-aligned OpEx is waived also for fiscal year 2022 and the share is consequently reported at 0% in each case.

For additional information on the taxonomy-eligible and taxonomy-aligned proportions of sales, CapEx, and OpEx, please refer to the section "Additional Disclosures on the EU Taxonomy.” Additional Information, Additional Disclosures on the EU Taxonomy

Outlook for fiscal year 2023

In the event that technical screening criteria are available also for the remaining four environmental objectives for fiscal year 2023 and are to be applied accordingly, HUGO BOSS expects to report, in the coming year in particular, on the environmental objective (4) “Transition to a circular economy,” which is particularly relevant for the luxury and premium apparel industry.