Flex : Task Force on Climate-related Financial Disclosures Report

2022 Task Force on Climate-related Financial Disclosures Report

Letter from the Vice President of Sustainability

To our stakeholders,

Climate change presents one of the greatest challenges of our time, bringing ever-growing complexities and disruptions to how businesses across industries, sectors, end-markets, and regions operate. This reality demands proactive action, collaboration, and full transparency to ensure organizations and their stakeholders have a clearer line of sight to potential climate-related risks and the considerable opportunities to take meaningful action.

With 170,000 team members across 100+ facilities in 30 countries, Flex is the diversified manufacturing partner of choice that helps market-leading brands design, build, and deliver great products. We are galvanized by our vision, to become the most trusted global technology, supply chain, and manufacturing solutions partner to improve the world. Sustainability, which includes environmental, social, and governance (ESG), is a cornerstone to realizing this vision. Every level of our organization, spanning the Board of Directors, Chief Executive Officer, Executive Leadership Team, Sustainability Program Office and beyond, is deeply engaged in the company's sustainability strategy and performance, which includes climate action.

In 2021, we announced a commitment to halve our operational emissions by 2030. Additionally, we committed that 100% of our preferred suppliers will set greenhouse gas (GHG) emissions targets by 2030 and a segment of our customers¹ will have science-based targets by 2025. As a member of the Science Based Targets initiative, we have GHG emissions reduction goals throughout the value chain approved in alignment with the Paris Agreement's ambition to limit global temperature rise to 1.5 C. We doubled down on our climate action in 2022 by announcing our most ambitious commitment to date: reaching net zero greenhouse gas emissions by 2040.

For the first time in Flex history, we are releasing a standalone report that spans the Task Force on Climate-related Financial Disclosure's (TCFD) key elements, Governance, Strategy, Risk Management, and Metrics and Targets. This report also details a TCFD-aligned, physical, and qualitative transition climate change scenario analysis, providing corroboration that our efforts to reduce our carbon footprint, increase energy efficiency, and develop low carbon products and services have positioned Flex to successfully minimize risks and maximize opportunities from the low-carbon transition. Leveraging our efforts to reduce greenhouse gas emissions and information yielded from scenario analyses, we plan to develop a CDP and TCFD-aligned transition plan in the coming years that outlines our strategy to achieve a transition to net zero.

Transparency is deeply embedded into the ethos of our continued sustainability journey at Flex. We will continue working toward increasing the resiliency of our infrastructure, operations, and workforce while remaining committed to our purpose: making great products for our customers that create value and improve lives. We strive to keep our stakeholders, including investors, customers, employees, suppliers, and communities, apprised of the potential operational risks brought on by climate change and the opportunities to help advance a low carbon economy.

Kyra Whitten

Vice President, Sustainability

President, Flex Foundation

Flex

1 Commit that 70% of our customers as measured by emissions covering purchased goods and services, capital goods and use of sold products will have science-based targets by 2025.

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Governance

Board oversight

Our Board of Directors oversees and provides policy guidance on our strategic and business planning processes and oversees the conduct of our business by senior management. The Board is fully engaged in Flex's strategic planning process, conducting an in-depth strategy review annually and overseeing progress throughout the year. Risk management oversight is an essential Board responsibility, and our Board's role in risk oversight involves both the full Board and each of its standing committees. The Board as a group is regularly updated on specific risks in the course of its review of corporate strategy and business plans, and as part of reports to the Board by its standing committees. The Board oversees management's systems for identifying and mitigating risks.

Primary responsibility for overseeing climate-related issues resides with the Nominating, Governance and Public Responsibility Committee (NGC) of our Board of Directors (Figure 1). The NGC is responsible for shaping and overseeing the application of the company's environmental, social, and corporate governance (ESG) policies and procedures and oversees Flex's sustainability program. Climate change is addressed within the sustainability program. The NGC reviews and assesses climate-related risks and opportunities, as well progress against goals and targets for addressing climate-related issues. The Audit Committee reviews the Company's policies and practices with respect to risk assessment, risk management, disclosures, and select legal and regulatory matters and compliance policies and programs.

The NGC reports on climate-related issues to the Board of Directors every 6 months. The Board of Directors engages in an annual review of Flex's sustainability program, including our ESG and climate-related efforts, and participates in an annual ESG director education session. Our Board conducts an annual strategic review in which climate-related risks and opportunities are highlighted and directional initiatives are approved. The Board regularly considers climate-related issues when reviewing strategy and major plans of action. The NGC receives regular reports from Company management who review both recent activity and the Company's long-term sustainability strategies, including climate strategies. Additionally, the NGC reviews the Company's annual sustainability report, and regularly reviews and assesses current and emerging climate issues, trends, regulatory developments, and best practices.

Figure 1 Flex's climate-related governance structure

Board of Directors

Board Level

NGC

(Nominating Governance and

Audit Committee

Public Responsibility Committee)

C-Suite

CEO

Strategic Level

ELT (Executive Leadership Team)

PMO

Global Sustainability Team

Sustainability Leadership

OPS

HR

Business

Legal

Facilities

Supply

Finance

Committee

Units

/EHS

Chain

Operation Level

GMs (General

Sustainability Site

Employees

Managers)

Representatives

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Management oversight

At the strategic level, the Executive Leadership Team (ELT) is the highest management level committee responsible for climate-related issues. The ELT is a cross-functional group of senior executives comprised of the Chief Executive Officer, Chief Financial Officer, Chief Human Resources Officer, Executive Vice President, General Counsel, and Supply Chain President of Global Operations and Components, Chief Strategy Officer , the EVP of WW Operations, VP of Marketing, Communications and Sustainability and Head of Global Sustainability. The ELT oversees strategic climate issues and reduction program and reports directly to the CEO. The ELT provides guidance and direction on the integration of sustainability programs, including climate-related matters, across all aspects of our business.

At the operational level, responsibility for climate-related issues has been assigned to the Global Sustainability Team, which is a cross-functional team comprised of a global director and regional leads overseeing the strategy implementation in partnership with operations and supply chain, regulatory compliance, metrics, and communications. The Global Sustainability Team is responsible for coordinating with Corporate Real Estate and Facilities (CREF) and strategy team to set the overall carbon strategy and implementing energy efficiency and carbon reduction initiatives through our global operations. Progress towards

our emissions reduction goal is reviewed regularly by Sustainability in consultation with CREF and periodically with the President of Operations and Components and other members of the ELT. The Global Sustainability Team holds quarterly sessions with the CEO and the ELT to share progress, challenges, and areas to watch. The Global Sustainability Team develops corporate standards and tools, monitors performance, captures customer environmental, social and governance requirements. The team also supports the implementation of our social and environmental management system used to identify, address, mitigate, and control site-level risks, including climate-related risks.

Site-level sustainability matters (including climate issues) for our global network of manufacturing and logistics facilities are overseen by site sustainability teams. Site sustainability teams are led by site general managers (GMs) who have full visibility into site operations and are in the best position to implement site-specific plans including GHG emissions reduction, assessment of climate risks and opportunities, and implementation of climate-related projects.

Site sustainability teams are responsible for the development and administration of site-specific plans, and report monthly to the Global Sustainability Team as well as to senior operations management.

To ensure accountability of climate- related issues and progress, ESG metrics are included in our executive compensation program starting in FY2023. Flex also provides monetary and non-monetary incentives to C-suite and other employees for meeting energy and emissions reduction targets, as well as recognition for reducing emissions through initiatives and challenges.

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Strategy

Flex is the diversified manufacturing partner of choice that helps market- leading brands design, build and deliver innovative products that improve the world. Our purpose is to make great products that create value

and improve people's lives. Our vision is to become the most trusted global technology, supply chain and manufacturing solutions partner to improve the world. Sustainability is a cornerstone to making that vision a reality. Building on 20 years of sustainability investment, our disciplined practices stand strong to help address broader environmental and social challenges, cultivate a workplace that empowers every team member to thrive, lead with integrity and accelerate a more sustainable value chain. We have announced our 2030 sustainability strategy and targets spanning pillars that include the environment, community, health and safety, diversity, equity, and inclusion, customer and supplier engagement, ethics, governance, among others. Sustainability is in our DNA, as it's deeply embedded in our sustainable manufacturing operations.

In our journey to advance sustainable manufacturing, we recognize that our operations require energy consumption, which results in GHG emissions. We are deeply invested in implementing solutions that minimize this consumption and our emissions throughout our operations, with the aim of reducing our global environmental impact. We acknowledge that a reliance on finite energy sources additional to their impact in the environment can be a risk to our business operations and we benefit from diversifying our energy supply in the event of extreme weather events or climate-related impacts. While our business is not energy intensive, investment in renewable energy aligns with our broader emission reduction strategy, reduces our risk exposure and fosters resilience throughout our operations.

To ensure that our climate strategy aligns with the global transition to a low-carbon economy, we joined the Science Based Targets initiative (SBTi), which guides organizations to set GHG emission reduction targets consistent with limiting global warming to 1.5°C above pre-industrial levels. In 2022, Flex announced its commitment to reach net zero GHG emissions by 2040 as part of the company's overall sustainability strategy. By 2021, we achieved a 14% reduction in operational (Scope 1 and Scope 2)

emissions from our baseline year of 20192, 3. We also maintained our position on the global environmental non-profit CDP's

'A List' for water security, acknowledging our transparent, responsible resource management efforts. We received an A- score on our CDP Climate Change disclosure in 2021.

In the spirit of collaborating to advance our shared climate action agenda, our CEO Revathi Advaithi joined the World Economic Forum's Alliance of CEO Climate Leaders, a global CEO community focused on driving action across all sectors and engaging policymakers, to help deliver the transition to a net zero economy.

Scenario analysis

We continue to incorporate climate change into our planning by exploring the resilience of our business strategy under a range of future potential climate change outcomes. In 2022, Flex performed a TCFD-aligned, quantitative physical and qualitative transition climate change scenario analysis. In this assessment, we considered acute and chronic physical risks. We also considered transition risks in all categories identified by the TCFD including policy and legal, technology, market, and reputational risks as well as opportunities from resource efficiency, energy sourcing, new markets, and resilience.

Our time horizons for considering climate-related issues are:

Short-term:3-5 years (2025-2027)

Medium-term:5-10 years (2027-2032)

Long-term:10-25 years (2032-2047)

Climate change impacts for all of these time horizons were considered within the scenario analysis.

Scenario analysis of climate-related physical risks

For each of our 100 manufacturing and logistics facilities, we evaluated present and future exposure to acute and chronic hazards from temperature and precipitation changes, coastal flooding, inland flooding, drought, tropical cyclones4, water stress and wildfire. For each asset, projected modeled average annual losses (MAAL) due to climate change hazards were calculated for each decade from the 2020s to the 2090s. MAAL is the sum of losses due to climate-related expenses, decreased revenue, and/or business interruption and was used to estimate a range of future potential inherent physical risks for each facility.

The scenario analysis was based on publicly available data sets developed using methods that have undergone scientific peer review. For example, we used high-resolution ("downscaled") climate model projections of future temperature and precipitation developed by the U.S. National Aeronautics and Space Administration (NASA)5. We used the Representative Concentration Pathway (RCP)6 scenarios RCP4.5 and RCP8.5 to evaluate our facilities' exposure to climate change risks under a range of potential futures. RCP8.5 represents a higher GHG emissions future with increasing GHG emissions through 2100 and greater physical impacts from climate change, while RCP4.5 represents a future with decreasing GHG emissions after mid- century and lesser physical impacts. RCP4.5 is consistent with global warming of 2.4°C by 2100 (range 1.7-3.2°C) while RCP8.5 is consistent with global warming of about 4°C by 2100 (range 3.2-5.4°C).

Physical risks

The scenario analysis showed that in RCP4.5 and RCP8.5, all 100 Flex logistics and manufacturing facilities are projected to be exposed to future increases in average and extreme temperatures. The scenario analysis indicated rising temperatures can affect our assets and operations through losses in employee productivity, accelerated HVAC system degradation and increases in cooling needs that may increase cooling costs. Extreme heat events

can cause human health impacts as well as disruptions to the

2 Flex 2022 Sustainability Report

3 Flex 2022 Proxy Statement

4 The term "tropical cyclone" describes low pressure weather systems that form over warm tropical waters and includes hurricanes, typhoons, tropical depressions and tropical storms. 5 NASA Earth Exchange Global Daily Downscaled Projections (NEX-GDDP).

6 The RCP scenarios (van Vuuren et al., 2011) were developed for use in the Intergovernmental Panel on Climate Change (IPCC) 5th Assessment Report (IPCC, 2014).

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