Cakovecki mlinovi d d : Group ČM - Sustainability report for 2023

ČAKOVEČKI MLINOVI INC.

SUSTAINABILITY REPORT

FOR 2023

CONTENTS
SUSTAINABILITY REPORT 2023	3
CONSOLIDATED NON-FINANCIALREPORT	4
THE GROUP'S BUSINESS MODEL	4
ENVIRONMENTAL PROTECTION	6
INTRODUCTION TO THE TAXONOMY REGULATION	8
DEFINITIONS	8
BASICS OF PREPARATION	8
ČAKOVEČKI MLINOVI - CONSOLIDATED DISCLOSURES IN ACCORDANCE WITH
ARTICLE 8 OF THE TAXONOMY REGULATION	9
TAXONOMY-ELIGIBLEECONOMIC ACTIVITIES	9
MINIMUM SAFEGUARDS	10
ACCOUNTING POLICIES AND KEY INDICATORS	11
KPI RELATED TO TURNOVER	11
TURNOVER TEMPLATE FOR THE BUSINESS YEAR 2023	12
KPI RELATED TO CAPITAL EXPENDITURE (CAPEX)	13
CAPITAL EXPENDITURE TEMPLATE (CAPEX) FOR THE FINANCIAL YEAR 2023	14
KPI RELATED TO OPERATING EXPENDITURE (OPEX)	15
OPERATING EXPENDITURE TEMPLATE (OPEX) FOR THE FINANCIAL YEAR 2023	16
RECAPITULATION OF KPI	17
CORPORATE SOCIAL RESPONSIBILITY	18
CORPORATE GOVERNANCE	22

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ČAKOVEČKI MLINOVI D.D.

SUSTAINABILITY REPORT

FOR 2023

CONSOLIDATED NON-FINANCIAL REPORT

The Čakovečki mlinovi Group prepares non-financial statements pursuant to the Accounting Act (OG 78/15, 134/15, 120/16, 116/18, 42/20, 47/20, 114/22, 82/23), the Non-Financial Reporting Directive (2014/95/EU), the Taxonomy Regulation (2020/852) and related delegated regulations and acts, as well as the currently applicable guidelines of the Croatian Financial Services Supervisory Agency for the preparation and publication of ESG relevant information of issuers.

The European Union is introducing the ESG reporting obligation in order to encourage investors to make sustainable investments and to direct issuers towards activities that promote some of the sustainable goals or do not significantly harm them.

Sustainable investment means an investment in an economic activity that:

• contributes to an environmental objective ("E")
• contributes to a social objective ("S")
• does not significantly harm any of those environmental or social objectives and
• invests in companies that follow good governance practices ("G"), in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance.

THE GROUP'S BUSINESS MODEL

Čakovečki mlinovi Group is organized into two strategic business segments:

• Trade, which includes retail and wholesale of food and non-food assortment, and
• Food, which includes the production of flour, bakery products and oils.

Čakovečki mlinovi Inc. manages segments at a strategic level. The Trade business segment is operationally managed by Trgovina Krk Inc. The Food business segment is operationally managed by Čakovečki mlinovi Inc. and Radnik Opatija Inc.

The Group's business strategy - "Dedicated to creating premium products" - encompasses food production on the one hand and the development of a quality retail range on the other.

As shown in the Group's value chain that follows below, in addition to the emphasis on product quality, the management continuously cares about the satisfaction of employees, end consumers and the communities in which the Group operates in a manner that supports the growth of stock value.

More information on the Group's business model is available in the Annual Consolidated Report for 2023 under the Management Report - 1. Basic activity and general data, please see pages 4 - 6.

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Value Chain of the Group

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ENVIRONMENTAL PROTECTION

The Čakovečki mlinovi Group is actively working on the sustainable and responsible management of production and sales locations, processes and technologies that have an impact on the environment and ensure their compliance with laws and regulations.

The Group's environmental policy includes:

• developing new and updating existing general acts (regulations, plans, decisions) in the field of environmental protection
• supervision of the implementation of waste management regulations, identification and elimination of identified deficiencies
• education of workers involved in temporary waste storage in containers
• organization of timely waste removal, and handing it over exclusively to legal entities authorized by the Ministry of Economy and Sustainable Development
• preparation and management of waste data (following waste sheets, logbooks on the course of waste generation), preparation of waste management plans, and delivery to the competent state authorities
• organization and monitoring of the deadlines for measuring emissions from stationary sources (boiler rooms, bakery ovens, dryers, etc.), sampling of wastewater in accordance with water permits and testing of permeability of equipment and devices for cooling and air conditioning at authorized legal entities.
• submission of annual emission reports and calculations of emissions
• daily monitoring of amendments to legislation, professional literature, attending seminars.

The Group's energy emissions and consumption monitoring system enables quality analysis and improvement in the form of their reduction. Emissions are additionally compared with the prescribed emission limit values in accordance with the Regulation on limit values for emissions of pollutants into the air from stationary sources (OG 42/2021).

Greenhouse gas emissions
		Name		Unit of		2023.		2022.		2023./2022.
			measurement
		Carbon dioxide (CO2)		t		1,707.9		1,945.8		(12.2%)
		Carbon monoxide (CO)		t		1.1		1.2		(8.7%)
		Nitrogen dioxide (NO2)		t		5.4		5.7		(5.8%)
		Sulphur dioxide (SO2)		t		0.3		0.4		(12.6%)
		Dust particles (PM10)		t		0.2		0.2		(17.3%)
		Total		t		1,714.9		1,953.3		(12.2%)

The Group emits in the Food segment, greenhouse gases as a byproduct of the combustion of fossil fuels. In 2023, the largest share of 99.6% of emissions was related to carbon dioxide (CO2).

Waste management
		Name		Unit of		2023.		2022.		2023./2022.
			measurement
		Non-hazardous waste 1		t		2,498		2,729		(8.5%)
		Hazardous waste 2		t		6		7		(12.0%)
		Total		t		2,505		2,736		(8.5%)

1 Non-hazardous waste includes paper, glass, plastic, municipal waste. In 2023, there was much less olive oil production, and therefore there was less pomace waste generated compared to 2022.

2 Hazardous waste includes waste batteries, waste oils, paints, varnishes, solvents, pesticides, various chemicals, accumulators, electronic waste.

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The Group manages waste in accordance with the Waste Management Act (OG 84/21, 142/23), the Waste Management Regulation (OG 84/21, 142/23), and maintains all prescribed documentation on waste generation. In 2023, the Group disposed of 2,505 tons of waste through companies authorized for waste disposal, of which 0.2% was hazardous.

Energy and water consumption

Name

Electricity consumption

Consumed natural gas

Extra light fuel oil

Water consumption

Unit of measurement

MWh

MWh

000 l

000 m3

2023.

28,731

11,027

208

44

2022.

30,577

12,386

224

45

2023./2022.

(6.0%)

(11.0%)

(7.0%)

(2.9%)

The main energy source in the operations of both segments of the Group is electricity, while electricity is also highly represented in the Trade segment, and fuel oil and gas in the Food segment.

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INTRODUCTION TO THE TAXONOMY REGULATION

With the adoption of the European Green Deal, the European Union has set the goal of energy neutrality (net- zero goal) by 2050. In this context, the European Commission has developed an extensive sustainable finance program to ensure the achievement of these goals. One of the key steps to encourage investment in sustainable projects is the Taxonomy Regulation (EU) 2020/852.

The Taxonomy Regulation (EU) 2020/852 established a framework to facilitate sustainable investments and sets out the overarching conditions that an economic activity must meet to qualify as environmentally sustainable.

This Regulation requires companies to disclose the proportion of their activities that are taxonomy-eligible and taxonomy-aligned.

DEFINITIONS

An activity is considered eligible under the Taxonomy if it makes a significant contribution to at least one of the following environmental objectives as defined in Article 9. Taxonomy Regulations:

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, and
6. the protection and restoration of biodiversity and ecosystems.

Taxonomy-aligned activities, on the other hand, in addition to eligibility, must also comply with additional criteria that classify them as environmentally sustainable:

• the activity must comply with the substantial contribution criteria established for each of the environmental objectives of the EU Taxonomy
• the activity must not cause significant harm to any other environmental objective of the EU Taxonomy
• the activity must be carried out in accordance with minimum safeguards, ensuring compliance with the Organization for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises and the United Nations (UN) Guiding Principles on Business and Human Rights. The activity should also comply with the principles and rights set out in the eight fundamental conventions set out in the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

A taxonomy-ineligible economic activity is any economic activity that is not described in the delegated acts supplementing the Taxonomy Regulation.

For the 2023 financial year, the EU Taxonomy focuses on climate change compliance (the first two objectives) and eligibility for the other four environmental objectives for the activities described in the Taxonomy Regulation Delegated Act.

BASICS OF PREPARATION

This report assesses the eligibility and, where applicable, the compliance of the economic activities of the Čakovečki mlinovi Group for the financial year 2023, based on the Taxonomy Regulation, the related legislative acts (Delegated Acts) described below, as well as any additional guidelines published since their adoption:

• Climate Delegated Act - sets out a technical screening criterion (TSC) to determine the qualification conditions under which an economic activity contributes significantly to climate change mitigation (Annex 1) or climate change adaptation (Annex 2), and to determine the 'do no significant harm' (DNSH) to other environmental objectives

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• Disclosure Delegated Act - Specifies the content and presentation of the information to be disclosed in relation to environmentally sustainable economic activities and specifies the methodology for carrying out this assessment
• Complementary Delegated Act on Climate - Sets out the Technical Screening Criteria (TSC) and the associated 'do no significant harm' (DNSH) principle for the objectives of Annexes 1 and 2 in relation to natural gas and nuclear energy activities
• Taxonomy Regulation Delegated Act - sets out technical screening criteria to determine the conditions under which an economic activity qualifies as contributing substantially to the sustainable use and protection of water and marine resources, to the transition to a circular economy, to pollution planning and control, or to the protection and restoration of biodiversity and ecosystems, and to determine whether that economic activity causes significant harm to any of the other environmental objectives and to amend the Delegated Regulation Commission (EU) 2021/2178 as regards specific public obligations for those economic activities.

The analysis of economic activities includes the entire portfolio of the Čakovečki mlinovi Group. With the application of four new environmental goals for the fiscal year 2023 and amendments to the existing goals, an increased coverage of business activities and taxonomic acceptability of the Čakovečki mlinovi Group is expected.

ČAKOVEČKI MLINOVI - CONSOLIDATED DISCLOSURES IN ACCORDANCE WITH ARTICLE 8 OF THE TAXONOMY REGULATION

For details and templates, the chapter "Accounting policies and key indicators" can be found below.

TAXONOMY-ELIGIBLE ECONOMIC ACTIVITIES

Section 1.2.2.1 (a) Annex I of the Disclosures Delegated Act

The Čakovečki mlinovi Group generates the largest part of its revenue from the retail and wholesale of food and non-food products. These income activities are not aligned with the eligibility criteria of the EU Taxonomy.

The Čakovečki mlinovi Group reviewed all economic activities that meet the Taxonomy requirements specified in the Climate Delegated Act and the Taxonomy Regulation Delegated Act based on expenditure and investment. Identified expenses that can be aligned with the so-called procurement of outputs (in accordance with Commission Delegated Regulation (EU) 2021/2178). Activities in the following areas are eligible under CapEx and OpEx: transport, construction and real estate and water supply, wastewater removal, waste management and environmental remediation, table of taxonomically acceptable economic activities of Čakovečki mlinovi Group shown below.

In 2023, the following are taxonomically acceptable: 0.19% of revenue, 61.62% of total CapEx and 85.74% of OpEx.

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The table below shows the environmental objective for which the activities qualify as eligible. The templates also give a clear indication of which environmental objective a particular activity is pursuing.

Taxonomically acceptable economic activities of Čakovečki mlinovi Group

	Sector		Eligible activity		Environmental
					objective
	Construction and Real Estate				CCM
	Business		3.2. Renovation of existing buildings		CCA
					CE
			3.3. Demolition and wrecking of buildings and
			other structures		CE
			7.3. Installation, maintenance and repair of		CCM
			energy efficiency equipment		CCA
			7.5. Installation, maintenance and repair of
			instruments and devices for measuring,		CCM
			regulation and controlling energy performance		CCA
			of buildings
			7.7. Acquisition and ownership of buildings		CCM
				CCA
	Water supply; sewerage, waste		5.1. Construction, expansion, and operation of		CCM
	management and remediation		water collection, purification, and supply
			CCA
			systems
	Transport		6.5. Transport by motorbikes, passenger cars		CCM
			and light commercial vehicles		CCA
			6.6. Freight transport services by road		CCM
				CCA
CCM: Climate Change Mitigation
CCA: Climate Change Adaptation
WTR: Water and Marine Resources
CE: Transition to a circular economy
PPC: Pollution Prevention and Control
BIO: Biodiversity and Ecosystems
MINIMUM SAFEGUARDS
Article 18 Taxonomy Regulations

The minimum measures to protect the basis of harmonization with the EU Taxonomy, in accordance with Art. 18 of the Regulation. One includes all the procedures that are carried out to ensure that economic activities are carried out in accordance with:

• the OECD Guidelines for Multinational Enterprises
• the UN Guiding Principles on Business and Human Rights (UNGPs), including the principles and rights set out in the eight fundamental conventions identified in the International Labour Organization's Declaration on Fundamental Principles and Rights at Work
• the International Bill of Human Rights.

The minimum safeguards cover four topics: human rights (including labour and consumer rights), corruption and bribery, taxation and fair competition. The Čakovečki mlinovi Group does not currently assess its activities against the minimum safeguards criteria set out in the Taxonomy, as reporting efforts are focused solely on the assessment of eligibility rather than alignment with these standards.

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