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Information on the activities that are eligible and non-eligible to the Taxonomy of sustainable investments

European taxonomy

The European taxonomy for sustainable activities was instituted with EU Regulation 2020/852 in order to define a unique criterion for the classification of sustainable economic activities from an environmental viewpoint. The European Union aims to provide companies, investors and policy managers with appropriate definitions for environmentally-sustainable activities, useful on the one hand to achieve the objectives set out in the Green Deal, directing their investments, and on the other to offer greater security to investors and companies in their green investment choices. With its investments in the gas networks aimed at making them carriers of renewable gases, in electronic meters, in energy efficiency and the ever greater reduction of potential grid losses, Italgas helps pursue that energy transition process necessary to achieve the European Green Deal objectives, while at the same time ensuring the stability of energy systems

EU Regulation 2020/852 defines an activity as environmentally-sustainable if it makes a substantial contribution to achieving one of the following six objectives:

  • climate change mitigation;
  • climate change adaptation;
  • the sustainable use and protection of water and marine resources;
  • the transition to a circular economy;
  • pollution prevention and control;
  • the protection and restoration of biodiversity and ecosystems.

In particular, the Taxonomy, as it is defined today, establishes that an activity shall be:

  • eligible, if it comes under the list envisaged by the Regulation;
  • aligned, if in addition to making a significant contribution towards the adaptation and mitigation of climate change, in compliance with the technical examination criteria defined by the Commission, it also does not have negative effects on the remaining objectives (Do No Significant Harm – DNSH) in respect of the minimum guarantees of safeguarding the protection of employment and human rights.

To date, the European Union has published delegated acts relating only to i) climate change mitigation and ii) climate change adaptation.

Starting 2022, and therefore applicable already from the 2021 financial statements, non-financial companies required to publish non-financial information in accordance with Article 19 bis or Article 29 bis of Directive 2013/34/EU are required to report the portion of turnover, capital expenditure and operating expenses considered Taxonomy-eligible and non-eligible. Italgas is subject to this obligation. At present, the definition of eligible activities is only disclosed in respect of the two objectives of climate change mitigation and climate change adaptation. For FY 2021, moreover, reporting relative to alignment with the Taxonomy is not mandatory.

For the other four objectives, the relevant delegated acts are expected for 2022, with application from 2023 and therefore applicable to the 2022 results.

The data reported in this section therefore satisfies the reporting obligation.

Main assumptions

To define the portion of turnover, operating expenses and capital expenditure deriving from activities that are eligible or aligned with the taxonomy, for lack of a consolidated, shared practice on a sector level and in light of possible different technical interpretations of the EU Delegated Regulations 2021/2139 and 2021/2178 that supplemented Regulation 2020/852, Italgas has defined a standard of internal criteria. It therefore follows that the resulting values, expressing the best assumptions presently available for the Group, could be subject to future updates in view of changes or updates of the reference regulations or the emerging of new shared standards.

It is also specified that the portion of activities that are non-eligible includes all activities not described in Delegated Regulation EU 2021/2139, as well as defined in Delegated Regulation EU 2021/2178, regardless of whether or not these activities make a significant contribution towards mitigating climate change or adapting to climate change.

Area considered

The mapping of activities considered the scope made up of Italgas S.p.A. and its subsidiaries, going into detail of the individual activities carried out. The NACE code associated with the operating company has not been considered as a restriction for inclusion or exclusion, given that, in the case of Italgas and its subsidiaries, the NACE code in most cases reflects the core business and does not necessarily reflect the details required by the Taxonomy. For the definition of eligible activity, consistency was therefore considered with the definition of the activities included in the delegated acts.

Together with the process of defining eligible and non-eligible activities to the Taxonomy for current reporting purposes, Italgas has already started to assess and identify the actions necessary and aimed at defining the activities for Taxonomy to also comply with the disclosure obligations for 2023, also in the presence of possible changes or updates to regulations by the European Union or emerging of new shared standards.

Materiality

No minimum materiality thresholds have been defined for the inclusion/exclusion of individual activities.

Reporting principle

As the operator of a distribution network, Italgas acts to create the best possible conditions to guarantee that its network is “enabled” to the distribution of hydrogen and/or other renewable gases. It is not, however, responsible for the production of such gases nor for the definition of blending thresholds, which are activities carried out by other subjects. In considering the activities, it has been assessed how far the Company can act to facilitate and make possible, during the plan time frame, the distribution of other gases apart from methane.

Eligible activities

In accordance with Delegated Regulation 2021/2139, which supplements Regulation 2020/852, the analysis carried out by Italgas has led to the identification of eligible activities falling under the following descriptions:

  • (4.14) Renewable gas and low carbon emission gas distribution and transmission networks in respect of the gas distribution business;
  • (7.5) Installation, maintenance and repair of metering, regulation and energy performance control devices and instruments of buildings in respect of metering;
  • (7.3) Installation, maintenance and repair of energy efficiency devices for all energy efficiency activities;
  • (7.6) Installation, maintenance and repair of renewable energy technologies;
  • (3.10) Manufacture of hydrogen;
  • (4.11) Storage of thermal energy;
  • (5.1) Construction, expansion and management of water collection, treatment and supply systems;
  • (5.2) Renewal of water collection, treatment and supply systems in respect of the drinking water sale and distribution companies;
  • (4.1) Production of electricity by means of solar-photovoltaic technology;
  • (4.15) Distribution of district heating/district cooling;
  • (8.1) Data processing, hosting and connected activities;
  • (8.2) Data-driven solutions for GHG emissions reductions;
  • (9.1) Close to market research, development and innovation;
  • (9.3) Professional services related to energy performance of buildings;

Calculation method

The procedure continued with the assessment of activities for next steps. If an activity can be considered both in light of climate mitigation and climate adaptation, the main aim was assessed for which this activity was implemented and the main impacts, thereby guaranteeing no duplication of data.

The accounting standards underlying the determination of the portions of turnover, capital expenditure and operative expense eligible, are the same used to prepare the consolidated financial statements, as explained in the Notes and are consistent with Regulation 2020/852 and the Delegated Regulations of Taxonomy made available by the European Commission.

Turnover eligible to the taxonomy

The portion of turnover eligible to the taxonomy, in compliance with paragraph 1.1.1 of Annex 1 to Regulation 2020/852, is calculated as the sum of revenues derived from products or services associated with activities eligible to the taxonomy, proportionally to the total net revenues of the group recorded in compliance with International Accounting Standard (IAS) no. 1, paragraph (82: (a)), shown in the Notes to the Consolidated Financial Statements in section 27.

More specifically, the eligible turnover includes the part share of the remuneration of the gas metering service, relative to the installation, maintenance and repair of digital meters. For the gas distribution activity, the following has been calculated: i) the part share of the RAB and related revenues connected with investments in the network suitable for the distribution of renewable and low-carbon gases including all requalification of the distribution network and its extensions, carried out with materials suitable for the new renewable gases and ii) the portion of turnover relating to activities involving the detection of leaks, the repair of existing gas pipelines and other elements of the network, aimed at reducing methane leaks. Revenues deriving from activities relating to the ESCOs and water service have also been included, consistently with the taxonomy criteria.

The portion of turnover (revenues, net of the items relative to Service concession agreements) considered ineligible includes all activities not coming under the previous points.

Operating expenses eligible to the taxonomy

The portion of admissible operating expenses (OPEX) is calculated as the ratio of operating costs related to activities or processes admissible to the Taxonomy proportionally to the operating expenses incurred (considered equal to 26.2% of the total operating expenses), in compliance with the provisions of subsection 1.1.2 of Annex 1 to Regulation 2020/852 and are explained in the Notes to the Consolidated Financial Statements in section 28.

The activities to which these expenses refer are those described in the previous section, in addition to the operating expenses related to real estate services and ICT.

Capital expenditure eligible to the taxonomy

The portion of admissible capital expenses (CAPEX), in compliance with paragraph 1.1.2 of Annex 1 to Regulation 2020/852, is calculated as the ratio of investments in activities or processes eligible to the taxonomy with respect to the increases in tangible and intangible assets in 2021, considered before amortisation/depreciation, impairment and any value adjustment, including those resulting from the recalculation and reduction in value and excluding changes in fair value. As indicated in Delegated Regulation 2021/2178, the increase in assets also includes the increases in tangible and intangible assets deriving from business combinations. CAPEX is booked in accordance with IAS 16 (73: (e) (i) and (iii)), IAS 38 (118: (e) (i)), and IFRS 16 (53: (h)) and are shown in the Notes to the Consolidated Financial Statements in sections 13 and 14 as well as in the Integrated Annual Report in section 4.3.

In particular, the admissible CAPEX includes all investments related to the installation, maintenance and repair of digital meters. For the gas distribution activity, the following has been included: i) the investments made in the network for the distribution of renewable and low-carbon gases, including all requalification of the distribution network and its extensions, carried out with materials suitable for the new renewable gases and ii) the portion of investments relating to activities involving the detection of leaks, the repair of existing gas pipelines and other elements of the network, aimed at reducing methane leaks. The CAPEX relative to the ESCOs, the water service, real estate and ICT were also included in line with the taxonomy criteria.

Turnover is reported, along with CAPEX and OPEX associated with the eligible activities. No information is supplied in respect of other KPIs, apart from that required by the Delegated Regulation (EU) 2021/2178.

(€ million) U.o.m. eligiblenon-eligible
Revenues % 25% 75%
OPEN % 82% 18%
CAPEX % 86% 14%

“Information on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)” Table

In 2020, the Group began improving its strategy for the fight against climate change, taking inspiration from the Financial Stability Board TCFD (Task Force on Climate-related Financial Disclosures) recommendations, which aim principally to guide the companies in providing their stakeholders with clear and comparable information on the risks and opportunities connected with climate change.

The contents of the table given below have been organised on the basis of four themed areas concerned by the TCFD recommendation: governance, strategy, risk management and metrics and objectives with a view to providing a clearer disclosure on such matters.

TCFD RecommendationsDisclosure
GOVERNANCE (organisation’s governance model in connection with the risks and opportunities associated with climate change)
a) Supervision of the Board of Directors
on the risks and opportunities associated
with climate change
The Italgas Group has a specific governance model on sustainability topics, also with a view to
monitoring the impacts of climate change on corporate operations. Thanks to the involvement of
top management in all strategic sustainability choices and the Italgas governance model, matters
relating to climate change are taken into account when defining the Group’s strategic and sustainability
plan, in risk management policies, in defining the organisation’s performance objectives
and actions for their monitoring, etc. The Board of Directors, the Sustainability Committee and the
Control, Risk and Related Party Transactions Committee are periodically informed as to aspects
relating to climate change and the related initiatives; finally, at least once a quarter, the Board of
Directors is informed about climate-altering emissions performance and the level of achievement
of GHG targets, which are reported on in the Consolidated Half-Year Report, the Consolidated First
and Third Quarter Results and the Integrated Annual Report.
b) Role played by the management in
assessing and managing the risks and
opportunities associated with climate
change
STRATEGY (current or potential impacts of the risks and opportunities associated with climate change on the organisation’s business, strategy and financial planning)
a) Risks and opportunities associated
with climate change that the organisation
has identified in the short-, medium- and
long-term
As reported in the table of the paragraph entitled “Risk Management” in this document, Italgas
considers, in connection with the risks relating to climate change, both physical risks and risks of
transition, assessing the relevant impact.
Italgas puts sustainability firmly at the heart of its development model, a guiding element in defining
strategic and operative choices to guarantee long-term growth. In the Strategic Plan, Italgas
defines a macro-comprehensive scenario that includes contexts and trends of the Energy and
Environmental Policies (decarbonisation – Paris Agreement, renewal sources, energy efficiency,
sustainable mobility, power to gas and green gas) and presents its own Sustainability Plan. The
Group’s strategy is developed consistently with the United Nations Sustainable Development
Goals.

The definition of the Strategy is also influenced by the internal monthly information, collection and
reporting process on current and forecast GHG emissions and other matters relating to climate
change (e.g. energy consumption), in which the data and main trends in consumption, scope 1, 2
and 3 emissions are analysed, through the use of specific KPIs, which make it possible to assess
the effectiveness of the initiatives brought into play by the Group companies in terms of energy
efficiency and the reduction of climate-altering emissions, in line with the objectives included in
the 2021-2027 Strategic Plan.

In recent years, Italgas’ corporate strategy has been increasingly influenced by climate change
matters and various initiatives have been developed with a view to reducing GHG emissions (e.g.
leak detection using Picarro technology, conversion of the corporate fleet to methane gas, green
gas initiatives, energy efficiency of the plants, etc.).

In the short-term, the main elements impacting the development of Italgas’ strategy are the
regulatory aspects of climate change like the European policy objectives, whilst in the short-/medium-
term, the technological aspects, such as, for example, the digitisation of assets as a factor
enabling the distribution of renewable and low carbon emission gases.

Italgas’ strategy is outlined in the 2021-2027 Strategic Plan, which also highlights and considers
elements such as:
| the role of gas in the decarbonisation process;
| the digital transformation and technological innovation that allow Italgas to also play a key role in
the energy transition.
b) Impacts of the risks and opportunities
associated with climate change on the
organisation’s business, strategy and
financial planning
c) Resilience of the strategy of the
organisation, taking into account different
climate-related scenarios, including a
scenario of 2°C or less.
RISK MANAGEMENT (how the organisation identifies, assesses and manages risks associated with climate change)
a) Organisation’s processes to identify
and assess risks associated with climate
change

The process of identifying, managing and monitoring risks and opportunities associated with climate change comes under the scope of the Enterprise Risk Management model described above.

Risk reporting is shared/discussed with top management and the Control, Risk and Related Party Transactions Committee of Italgas, the Board of Statutory Auditors and the Supervisory Body to allow for assessments of the effectiveness of the Internal Control and Risk Management System.

With reference to the risks connected with climate change and the related management methods, special reference is made to the risks of “Climate Change” described in the table given in the paragraph on “Risk Management” in this document.
b) The organisation’s processes to
manage risks associated with climate
change
c) How the processes of identifying,
assessing and managing the risks associated
with climate are integrated into the organisation’s overall risk management
METRICS AND TARGETS (metrics and targets used by the organisation to assess and manage the relevant risks and opportunities associated with climate change)
a) Metrics used by the organisation to assess the risks and opportunities asso- ciated with climate change in line with its risk management process and strategyItalgas shows its commitment to aspects relating to climate change through the careful monitoring of its energy consumptions and emissions and the implementation of specific initiatives aimed at reducing greenhouse gas emissions and increasing its energy efficiency performance and the search for and reduction of fugitive emissions. Italgas monitors the following GHG tCO2 eq) emissions:

|  Direct emissions (Scope 1): deriving from the civil consumption of gas, from industrial consumption of gas for preheating, from fuel consumptions for vehicles and grid losses (“fugitive emissions”);

|  Indirect emissions (Scope 2): deriving from the consumption of electricity purchase and district heating;

|  other Indirect Emissions (Scope 3) deriving from business travel, outsourced activities (supply chain) and emissions relating to the production of energy purchased and consumed (fuel side, emissions linked to their extraction, production and transport; electricity side, emissions relating to the extraction, production and transport of the fuels used for generation and emissions relating to losses for transmission and distribution).

The Group has undertaken to reduce its CO2 equivalent emissions by 30% by 2027 as compared with 202064.
b) Scope 1, 2 and 3 greenhouse gas (GHG) emissions and related risks
c) Targets used by the organisation to manage the risks and opportunities associated with climate change and performance with respect to the targets