5.1.5EU Taxonomy Disclosure

The following disclosures are excluded from auditor assurance.

At this point, EU regulation is effective for objectives on climate change mitigation and climate change adaptation, with further delegated acts to be published at a later stage. SBM Offshore is strongly committed to facilitating the Energy Transition. This is evidenced by the Material Topics of Energy Transition, Emissions and Innovation. Objectives and performance for these topics are explained in sections 2.1.7 , 2.1.9 and 2.1.10. The following disclosures are excluded from independent auditor assurance.

EU Taxonomy Eligibility

The evaluation of the eligibility of SBM Offshore’s business activities has been conducted on the basis of the Taxonomy and Delegated Regulation (Annex I – KPIs of non-financial undertakings) and its definition of the denominator and numerator of the 3 KPIs, which are Turnover, CAPEX and OPEX. It was performed through a methodological approach consisting of:

1. extracting the total denominator for the 3 KPIs from the financial reporting and consolidation system used to prepare 2022 IFRS consolidated financial statements,
2. identifying those activities that might fall within the list of economic activities covered in ‘Delegated Acts’,
3. documenting and assessing for each of those economic activities their ’eligibility’ for the first two environmental objectives: ’Climate Change Mitigation’ and ’Climate Change Adaptation’ included in the EU taxonomy, in order to determine the numerator of each of the 3 KPIs.

• Turnover considered for this analysis covers all the business activities of SBM Offshore as at December 31, 2022 and the denominator can be reconciled with the 2022 IFRS Total revenue recognized pursuant to IAS1 and disclosed in note 4.3.2 of the consolidated financial statements. It consists of the Revenues from Turnkey and Lease and Operate activities. A considerable part of this business relates to services to the industry of oil and gas extraction. Even if this part of SBM Offshore’s business is addressing the net-zero path – e.g. through decarbonization and digitalization – it cannot be considered eligible for the EU Taxonomy as it is today. The only eligible part of the Turnover therefore relates to SBM Offshore’s renewable energy products and services (EU Taxonomy activity: Manufacture of renewable energy technologies).
• CAPEX consists of additions to tangible and intangible assets during the financial year 2022 considered before depreciation, amortization and any re-measurements recognized by SBM Offshore pursuant to IAS16, IFRS16 and IAS38. The denominator can be reconciled with the sum of the lines ’Additions’ disclosed in notes 4.3.13 and 4.3.14 of the consolidated financial statements. The majority of CAPEX is associated with services to the industry of oil and gas extraction and is therefore non-eligible for the EU Taxonomy – even if part of the CAPEX improves the energy efficiency and emissions profiles of these activities. The eligible part of CAPEX comes mainly from capitalized cost of the Wave Energy Converter, explained in section 2.1.9 and sustainability investments in offices (EU Taxonomy activities: Close to market research, development and innovation and installation, maintenance and repair of energy-efficient equipment).
• OPEX, according to the EU Taxonomy, is determined by the direct non-capitalized costs of research and development, building renovation measures, short-term leases, maintenance and repair and any other direct expenditures relating to the day-to-day servicing of assets of property, plant and equipment by the undertaking or third-party outsources that are necessary to ensure the continued and effective functioning of such assets (EU Taxonomy activity: Close to market research, development and innovation).

The economic activities identified currently contribute to one environmental objective being climate change mitigations, but would they contribute to several environmental objectives than the numerator would only take into account the allocation of revenues and expenditures to one environmental objective so that double counting is avoided.

Maintenance and repair costs covering operating leased FPSOs is a service provided by SBM Offshore to its lessees. These expenses are direct ’cost of sales’ (reported as such in the Consolidated Income Statement under IFRS) related to services already included in Turnover KPI as revenue from contracts with customers. To avoid double counting, these ’cost of sales’ are therefore not included in the OPEX KPI.

The eligible part of OPEX relates mainly to R&D activities into non-carbon solutions as explained in section 2.1.9. Other items are non-capitalized investments into increased energy efficiency of office buildings.

Table 1 provides the basis for the numerator and denominator of EU Taxonomy eligibility and alignment for respectively Turnover, CAPEX and OPEX, whereas Table 2 shows the actual KPI related to the EU Taxonomy eligible activities.

Table 1 − KPI definitions

There is no CAPEX or OPEX related to the purchase of output from Taxonomy-aligned economic activities and to individual measures enabling the target activities to become low-carbon or to lead to greenhouse gas reductions as well as individual building renovation measures included in numerator of CAPEX or OPEX.

Table 2 − EU Taxonomy Eligibility

The key changes between 2022 and 2021 are explained by an increase in overall turnover reducing the relative eligible turnover. Increases in eligible CAPEX and OPEX improved the absolute and relative KPI's for eligible activities.

EU Taxonomy ALIGNMENT

The above-mentioned activities have been screened for alignment with the EU Taxonomy along the following topics:

1. Significant contribution to environmental objectives
2. Do No Significant Harm Principles (DNSH)
3. Minimum Social Safeguards (MSS)

Significant contribution to environmental objectives

As per Taxonomy − Annex 1 − Climate Change Mitigation – the activity 'Manufacture of renewable energy technologies' is mentioned to comply, stating ‘The economic activity manufactures renewable energy technologies’.

For the associated R&D activities (Close to market research, development and innovation) – SBM Offshore considered the following relevant as the R&D:

• Provides for products dedicated to one or more economic activities defined in Annex 1 – Climate Change Mitigation.
• Enables renewable energy solutions to meet the criteria for substantial contribution to climate change mitigation, while doing no significant harm to other environmental objectives. This has been assumed for the R&D that enables and improves products currently under construction and/or with turnover – i.e. Floating Offshore Wind and Wave Energy.
• Delivers products that allow new energy solutions to substantially improve their technological and economic feasibility in order to facilitate their scaling up.
• Is focused on the development of equally low- or lower-emission products at lower cost. This is the case as SBM Offshore is investing in leaner versions of Floating Offshore Wind and Wave Energy Converters that have zero mechanical parts, hence lowering the cost of maintenance and failure offshore.
• Enables activities for which SBM Offshore or its clients already have permits from competent authorities – i.e. the Floating Offshore Wind project and the Wave Energy Converter demonstrator currently under construction.

The activity ‘installation, maintenance and repair of energy efficient equipment’ (Activity 7.3) has a significant contribution due to installation of low water and energy use kitchen and sanitary water fittings, which comply with technical specifications set out in Appendix E of Annex 1, Climate Change Delegated Act.

Do No Significant Harm Principles (DNSH)

For the manufacture of renewable energy technologies, SBM Offshore has assessed the DNSH principles of its eligible activities, analyzing impacts and mitigations for Climate Change Adaptation, Water and Marine Resources, Biodiversity and Ecosystems, Transition to Circular Economy and Pollution Prevention and Control. Whilst SBM Offshore feels confident it meets the requirements for alignment, action needs to be taken to further engage with clients and the supply chain to fully understand the quality of mitigating measures for pollution; for example, the certification of sourced products to meet certain requirements under Pollution Prevention.

As the ‘Close to market research, development and innovation’ activity is looking to improve the technologies currently deployed in FOW and WEC projects, SBM Offshore assumes this activity meets the DNSH principles, and is aiming to align any EU Taxonomy-eligible products currently in R&D stages.

For the activity 'Installation, maintenance and repair of energy efficient equipment', SBM Offshore has accepted non-alignment at this stage, due to the complexity of the assessment compared to the materiality of the topic. CAPEX in this field represents a small portion of the subsequent KPI, at the same time, procurement is done with reputable suppliers, leading to a low risk of doing significant harm to the topics mentioned above.

Minimum Social Safeguards (MSS)

There are no convictions or ongoing cases in 2022. SBM Offshore has policies, processes and systems in place that focus on compliance with human rights, labor rights, taxation, fair competition and anti-corruption. This is explained further in sections 2.1.1, 2.1.3 , 5.2.4 and on SBM Offshore's ESG website. As part of EU Taxonomy alignment, an assessment has been conducted of these processes on:

1. The embedding of responsible business conduct in policies, management systems and due diligence processes.
2. The management of adverse impacts.
3. The process of grievance, remediation and follow-up.

Further work will be needed to further document the processes, as explained under 'Future'. Table 3 provides the basis for the numerator and denominator of EU Taxonomy alignment for, respectively, Turnover, CAPEX and OPEX, whereas tables 4-6 show the complete KPI disclosure the EU Taxonomy. For comparability with the previous year, refer to table 2.

FUTURE

SBM Offshore takes pride in being able to demonstrate eligibility and partial alignment on its activities, due to strong policies, systems, processes and capabilities. SBM Offshore welcomes technical guidance to further grow its sustainable business and manage targets for the energy transition. Expectation is that maturation is needed – internally and externally – to completely validate and audit the alignment to the Taxonomy. Therefore SBM Offshore will manage a 'CAPEX plan' to ensure alignment, within a period of five years, of its eligible activities as explained above. The following actions will be key, with an associated budget estimate of US$300,000:

• Executing climate change risk and vulnerability assessment for all eligible activities
• Embedding regulatory compliance against EU Taxonomy on projects – mainly assessing and documenting on Do No Significant Harm principles, most notably:
  • Circularity
  • Biodiversity mitigations
  • Demonstrating ‘no harmful substances’ being brought to market via eligible activities
• Training for EU Taxonomy on R&D & project staff
• Reporting and IT implementation

The CAPEX plan aims either to expand the undertaking's Taxonomy-aligned economic activities or to upgrade Taxonomy-eligible economic activities to render them Taxonomy-aligned. The plan is disclosed above and approved by the management body.

Table 3 − EU Taxonomy Alignment

Table 4 − EU Taxonomy Alignment − Turnover

• ¹ Climate Change Mitigation
• ² Climate Change Adaptation
• ³ Circular Economy
• ⁴ Water & Marine Resources
• ⁵ Pollution
• ⁶ Biodiversity & Ecosystems
• ⁷ Y = considered aligned with DNSH, N = considered not yet aligned with DNSH

Table 5 − EU Taxonomy Alignment − CAPEX

• ¹ Climate Change Mitigation
• ² Climate Change Adaptation
• ³ Circular Economy
• ⁴ Water & Marine Resources
• ⁵ Pollution
• ⁶ Biodiversity & Ecosystems
• ⁷ Y = considered aligned with DNSH, N = considered not yet aligned with DNSH

Table 6 − EU Taxonomy Alignment − OPEX

• ¹ Climate Change Mitigation
• ² Climate Change Adaptation
• ³ Circular Economy
• ⁴ Water & Marine Resources
• ⁵ Pollution
• ⁶ Biodiversity & Ecosystems
• ⁷ Y = considered aligned with DNSH, N = considered not yet aligned with DNSH