Materiality assessment

02.1

Materiality assessment process

GRI 3-1 Material topics

Central to Hager Group’s commitment of reporting in accordance with the GRI standard is the thorough identification of material topics, ensuring that our efforts are directed towards addressing the most significant economic, environmental and social impacts of our operations, including human rights.

Guided by the GRI 3 guidelines, the methodology of Hager Group can be summarised in four main steps: understanding, identification, assessment, and finalisation and validation.

02.1.1

Understanding the company context

The understanding phase is about recognising the most important aspects of the company to place them in the context of sustainability reporting necessities.

02.1.1.1

Company overview

Hager Group has reviewed its entire business landscape, encompassing its various sectors of activity, value chain dynamics and key drivers of value creation. This comprehensive assessment extends to its downstream and upstream activities, ensuring a holistic perspective. Encompassing all domains the company ensures alignment with its strategic priorities. This step is not conducted in depth for the reporting period, as the information available from the 2022 assessments could be reused.

02.1.1.2

Stakeholder engagement

Stakeholder mapping and engagement play a pivotal role in comprehending the operational landscape of the company, ensuring that the concerns of all affected stakeholders, whether positive or negative, are integrated into the materiality analysis process.

Hager Group engages in open and continuous dialogue with each of its stakeholders. In particular, the CSR department takes into account feedback, ratings, and evaluations from stakeholders of the group’s E3 strategy and programmes. This feedback is integrated into the drawing up of the Sustainability Strategy and new improvement plans.

Hager Group stakeholder engagement approach

GRI 2-29 General disclosures

Customers

How we create value

Our approach to business is customer centric. We regularly engage in discussions with customers to explore Hager Group’s products and services, focusing on how we can meet their requirements. This includes considerations for enhancing sustainability, improving efficiency, and lowering greenhouse gas emissions. Our team of experts provides guidance and fosters trustworthy relationships throughout these interactions.

Engagement

• Customer fairs
• Customer service
• Key account manager relationships
• Customer requests
• Sustainability partnerships

Suppliers

How we create value

We rely on strong, dependable partnerships with our suppliers to sustain our operations. Collaborating as partners, we strive to generate mutual benefits, promote ongoing innovation and enhance sustainability throughout the entirety of our supply chain.

Engagement

• Supplier Relationship Management
• Providing training and engaging in special projects on sustainability performance
• On-site audits

Employees and social partners

How we create value

The group is committed to all its employees, empowering people across generations and regions, and offers equal opportunities. The group motivates its employees and promotes involvement by leveraging diversity, supporting professional development, and ensuring a safe and healthy working environment.

Engagement

• Annual development interviews
• Annual employee engagement survey “Tell Us”
• Learning and development opportunities
• Collective bargaining associations
• Dialogue with Hager SE European Works Council Europe, the representative body for all Hager Group employees in Europe
• Hager Awards, open to all employees, it recognises and rewards innovations that drive sustainable progress across our value chain

Government and civil society

How we create value

We interact with governments and civil society groups globally concerning a diverse range of policies and regulations. We provide policymakers with insights into how our products and technologies support the transition to a low-carbon society, aiming to drive the international conversation on climate change and sustainability forward. For instance, we advocate for increased investment in electrical distribution grids as a crucial measure for decarbonising energy systems, transportation, industrial processes, and urban infrastructure.

Engagement

• Meetings with regulators to understand their priorities
• Engagement with government agencies and other stakeholders to demonstrate the value of our products and solutions
• Participation in international initiatives to address global issues such as climate change

Community

How we create value

We prioritise the well-being of the communities where we operate and aim to make a positive difference to our surroundings. Our community involvement comprises consulting and engaging in discussions with representatives from local community organisations. This engagement may become more extensive during specific business endeavours, such as planning the development of new sites. Additionally, we may contribute to community initiatives and charitable causes through donations and volunteer efforts.

Engagement

• Strategic corporate partnerships via the Peter und Luise Hager Foundation
• Donations and volunteering
• Direct dialogue with community representatives

ESG ratings as a proxy for stakeholder expectations

ESG ratings are a source of insights on stakeholder expectations and valued by customers and financial partners.

We have prioritised those that are most significant to our stakeholders and then aligned with our priorities. Our ambition is to achieve leadership scores in these ratings, and it is expected that our disclosure level will continue to increase as our ESG (Environment, Social and Governance) strategy matures. For the year 2023, Hager Group involved more stakeholders (mostly via proxies) in the Double Materiality Assessment as opposed to what was done in 2022.

We have also reassessed our engagement strategy. Table 2-2 explains the different assessment criteria used for our engagement strategy. In this reporting cycle, stakeholders are categorised as either users or affected stakeholders as outlined in ESRS (European Sustainability Reporting Standards), and as external or internal. A comprehensive stakeholder engagement strategy is then devised to facilitate open and ongoing dialogue with stakeholders either directly or using proxies. This engagement spans the entirety of the double materiality assessment process, fostering collaboration and mitigating misalignment.

Stakeholder Mapping Criteria

02.1.2

Identification of relevant topics

In the identification phase, the list of sustainability matters to be assessed was defined. In this phase, we employed a structured three-step approach. Initially, we compiled a comprehensive list of topics pertinent to Hager Group. Subsequently, we conducted a value chain heat mapping exercise to gain a broad overview of where significant impacts within Hager Group’s value chain were anticipated. Finally, we conducted a thorough analysis of all pertinent impacts, risks, and opportunities (IROs) related to sustainability topics. The assessment conducted in the second step served as the foundation for structuring our analysis. However, we relied on desk research and interviews to identify IROs and verify their alignment with the estimations made in the value chain heat map.

02.1.2.1

Creation of a list of sustainability matters

At first, Hager Group adopted a funnelling approach to ensure all pertinent sustainability matters applicable to the organisation’s operations and value chain were taken into consideration. Initially, a comprehensive inventory of topics spanning three distinct categories; sector-agnostic, sector-specific and entity-specific was compiled (see Table 2-2 below).

References to identify our relevant sustainability topics

The initial exhaustive list comprised over 400 entries; it was subsequently streamlined into 21 sustainability topics. These topics were then aligned with Hager Group’s sustainability strategy, E3, ensuring seamless alignment with the company’s overarching goals. The list of sustainability matters was lengthened for the 2023 DMA to add granularity to the assessment and better match the requirements of the ESRS.

Hager Group Relevant Sustainability topics

02.1.2.2

Value chain heatmap

Hager Group conducted a value chain mapping to get a first high level assessment of where to expect the biggest impacts (see Table 2-3 below). This first assessment can help determine where to focus efforts and resources in case they are limited. This year, the exercise was kept lean and results from the previous year’s assessment were used, and slightly modified to reflect the changes in the list of sustainability matters. Following the next value chain heat mapping is a more in depth assessment to verify and validate these initial indications in our Impact, Risks, and Opportunities analysis.

Hager Group Value chain heatmap

02.1.2.3

Identification of impacts, risks and opportunities

In this step, we conducted a comprehensive assessment of both actual and potential impacts, risks, and opportunities (IROs). The primary objective was to verify whether the sections of the value chain exhibited similar impacts as projected in the value chain heat mapping exercise. Additionally, this step involved identifying the key IROs, which would serve as the scoring foundation during the assessment phase. The identification of impacts, risks and opportunities (IROs) took place in a two-step approach.

02.1.2.3.1

Desk research

To begin with, desk research was conducted to identify the potential impacts, risks, and opportunities that could be linked to the 21 sustainability matters in Hager Group’s value chain and own operations. This desk research led to the identification of numerous potential IROs, which although relating to some extent to Hager Group’s activities, remained relatively high level. They served as the basis for the interviews with our experts.

02.1.2.3.2

Expert interviews

In a second step, expert interviews were conducted to fine-tune the list of IROs and get inputs on their severity/magnitude and likelihood. The IROs identified through desk-research were used as a basis for conversations with the experts. This means that the IROs were shown to the experts, who were expected to challenge them and add them, if necessary, to the list. In addition, the experts were asked questions on the severity/magnitude and likelihood of those IROs. The questions on severity/magnitude were not necessarily directly asked and were in some cases simply implied.

A total of thirteen interviews were conducted, in which one or two experts shared their knowledge on selected topics. Experts were chosen based on their sustainability matter(s) competency. In some cases, experts were only asked to discuss one sustainability matter, and in other cases, they shared their knowledge on more than one.

02.1.3

Impact assessment

Having identified a comprehensive list of sustainability matters and their associated impacts, risks, and opportunities, the next step was to assess the materiality of the entire 21 sustainability topics in Hager Group’s operations and its value chain. A scoring process was used to identify and prioritise the material topics from an inside-out and an outside-in perspective.

02.1.3.1

Impact materiality (inside-out)

To assess the materiality of the 21 sustainability matters in terms of their impact, a comprehensive evaluation was undertaken. Each matter was examined individually, considering both potential and actual positive and negative impacts across Hager Group’s upstream and downstream value chain, as well as its internal operations.

The impacts identified in the assessment phase were synthesised and categorised into positive and negative, then further segmented across the three stages of the value chain (upstream, internal operations, downstream). Subsequently, determination was made regarding whether an identified impact could potentially infringe upon human rights. In such instances, the severity of the impact was priori tised over its likelihood, with an automatic likelihood score of 4 assigned, in line with GRI-3 guidelines³.

Further evaluation involved distinguishing between actual, potential, or both. “Both” was selected when the impacts identified contain both proven/existing impacts and impacts that could occur. The time horizon of each impact was also considered, indicating whether it would affect individuals and the environment in the short, medium, or long term.

With the elements established, the assessment proceeded, focusing on severity and likelihood. Likelihood referred to the probability of occurrences related to the identified issues within the sustainability domain, while severity encompassed three sub-criteria: scale, scope, and irremediable character. Scale assessed the gravity or potential severity of the impact, scope measured its breadth or potential reach (such as the number of individuals affected), and irremediable character indicated the challenge or potential impossibility of mitigating or rectifying the resulting harm. Each criterion was scored on a scale from 1 to 4, with 4 indicating the highest severity or likelihood (see Table 2-4 below). To give more credibility to the assessment, additional desk research was conducted to guide the scoring of the different dimensions. This way, the scoring was based on the inputs from the interviews as well as on desk research. These scores were then aggregated to derive an overall score, calculated using the following equation:

Financial Materiality Scoring Criteria

The threshold for impact materiality was set at 2,6, which means that every sustainability matter that would receive a score from 2,6 or above for its connected impacts was considered as material from an impact materiality perspective. It is worth noting that the scoring approach provides up to six “scores” for one sustainability matter. It is the highest of those six scores that determine the impact materiality of the sustainability matter. Finally, a qualitative explanation of the assessment was provided to justify the overall score.

02.1.3.2

Financial materiality (outside-in)

To assess the financial materiality of the 21 sustainability matters, each was individually scrutinised based on their potential financial impact and the likelihood of those impacts materialising. Unlike impact materiality, financial materiality does not differentiate between various stages of the value chain, as the financial effects are anticipated to directly affect Hager Group.

Initially, risks and opportunities identified during the assessment phase (refer to section 1.2.3: Identification of impacts, risks, and opportunities) were summarised and categorised into three clusters: operational, regulatory, and reputational. “Operational” encompasses risks that could impede Hager Group’s activities (e.g., supply chain disruption due to extreme weather events) as well as opportunities that could enhance operational efficiency. The “regulatory” category pertains to potential regulatory developments necessitating adjustments to practices or processes. Regulations predominantly pose financial risks rather than opportunities. Lastly, “reputational” encompasses actions that could bolster or harm Hager Group’s reputation, potentially resulting in financial gains or losses.

After summarising and clustering risks and opportunities, their time horizon was assessed to ascertain when they might influence the company’s development, financial position, cash flows, access to finances, and cost of capital (i.e., short, mid, or long-term).

To evaluate topics from an outside-in perspective, two primary criteria were used: the potential magnitude of financial effects and likelihood. Likelihood measured the probability of financial risk occurrences within the sustainability topic, while potential magnitude delineated the scale of the financial effect (e.g., production loss due to resource shortage). Each criterion was scored on a scale of 1 to 4, with 4 indicating the highest magnitude or likelihood (see Table 2-5 below). To give more credibility to the assessment, additional desk research was conducted to guide the scoring of the different dimensions. This way, the scoring was based on the inputs from the interviews as well as on desk research. These scores were then aggregated to determine the overall score, calculated using the following equation:

The threshold for financial materiality was set at 2,2, which means that every sustainability matter that would receive a score from 2,2 or above for its connected financial risks and/or opportunities was considered as material from a financial materiality perspective. Finally, a qualitative explanation of the assessment was provided to justify the overall score.

Financial Materiality Scoring Criteria

Double Materiality Assessment Matrix

02.1.4

Finalisation and validation

The figure below highlights the outcome of the double materiality assessment of the sustainability topics relevant to Hager Group. It highlights both the impact and financial risk/opportunities identified for each of the 21 topics.

Impacts and financial risks / opportunities of 21 sustainability topics

02.2

Material topics

GRI 3-2 Material topics

To prioritise the effort by the organisation a threshold is set by Hager Group. The topics where the overall score is equal to or above the threshold in any of the four criteria, is considered material. The four criteria are: positive or negative impact materiality, positive or negative financial materiality. For the impact materiality, the threshold is kept at 2,6 (overall score) and for financial materiality, the threshold is kept at 2,2 (overall score).

The overall assessment resulted in 10 of the 21 topics as material for Hager Group operations, its value chain and downstream activities with respect to its impact on the economy, environment and people, including their human rights.

In our ongoing endeavour to enhance the granularity of our assessment and align with ESRS topic standards, particularly in anticipation of the forthcoming mandatory CSRD requirement, we have made a few adjustments to our listed sustainability and material topics. While most of the material topics remain consistent with those reported in previous years, there have been some modifications. This year, energy, resource use and circularity, and substances of concern and very high concern have replaced the previously identified general pollution, biodiversity and ecosystems, responsible sourcing and cyber security. Despite these changes we continue to act upon the most significant IROs of these topics, based on insights from a previous assessment. This can be exemplified through our initiatives such as conducting a detailed assessment of our operational impact on biodiversity and integrating our supplier into the SPHERA supply chain due diligence software.

GRI 3-3 Material topics

The materiality of these sustainability matters: water, biodiversity, and cybersecurity have shifted compared to last year’s double materiality results due to different reasons. Our group’s double materiality assessment has been significantly enhanced by integrating additional informative elements such as a biodiversity footprint analysis⁴ and a water risk assessment.

By incorporating these measures, we have gained a more holistic understanding of both internal and external factors impacting our business. The inclusion of a biodiversity footprint allows us to quantify and evaluate our ecological impact, providing insights into how our operations intersect with and influence natural ecosystems. Additionally, the water risk assessment provides invaluable insights into the vulnerabilities and resilience of our water supply chains and operations. Understanding water-related risks enables us to proactively mitigate potential disruptions, ensure sustainable water usage, and safeguard against reputational and regulatory challenges. These two new elements have helped us better assess our impact on these issues and the respective financial risks and opportunities that come with them.

02.3

Key learnings

While the process of identifying material topics and developing strategies to manage associated Impact-Risk-Opportunities (IROs) is ongoing, Hager Group consistently strives to differentiate itself by pioneering innovative solutions and challenging its conventional practices. This dedication extends to bringing significant changes in its product development and health and safety practices. Moreover, Hager Group is dedicated to enhancing diversity and inclusion across all its operations, continuously identifying and implementing improvements in this crucial area.

Resource Use and Circularity and Product Sustainability are part of Hager Group’s Blue Planet Commitment (BPC). This entails a strategic focus on minimising resource consumption, optimising material usage, and promoting circular practices throughout the product lifecycle. By implementing product lifecycle assessment, eco-design principles, optimising its resource use, and the use of environmentally friendly material, Hager Group strives to develop products that meet the highest standards of sustainability, ensuring they deliver long-term value to customers while minimising environmental footprint.

Hager Group prioritises the health and safety of its employees, it is the cornerstone of its sustainability efforts. The company recognises the need for a centralised occupational health and safety pillar to ensure consistency, encourage collective learning and develop measures to enhance health and safety. It is now a top management priority within the group, and action plans have already been initiated. These plans will allow us, by 2025, to shift from the dependent stage of the Bradley Curve to the independent stage thanks to the following: a H&S organisation & governance structure at group level, comprehensive communication on safety policies and standards to all stakeholders, encouraging Behaviour Based Safety (BBS) and managing identified safety risks.

GRI 403 – OH&S

Top four expectations

The Double Materiality Matrix presents the findings of the analysis, which can be condensed into four overarching megatrends, these megatrends are aligned with the group's strategy as described below:

As per GRI-3 assessment step “In the case of potential negative human rights impacts, the severity of the impact takes precedence over its likelihood.”

Refer to chapter 4 for more information regarding how we manage biodiversity and water topics.