We are aware that the transition to a climate-neutral economy could be slowed down by locked-in GHG emissions. Regarding Scope 1 and 2, certain processes cannot be converted to electricity yet. For Scope 3 downstream, the locked-in emissions depend on how the market will evolve in the coming years, in particular on the share of BEVs (Battery Electric Vehicle). However, it is important to point out that the higher the share of BEVs, the harder it is to reach the target set for Scope 3 upstream. We are developing plans to reduce emissions from downstream ICEs, and in particular, we are evaluating various technologies, including alternative fuels.

Our risk management approach is an important business driver and it is integral to the achievement of the Group’s long-term business plan. As a relevant factor for long-term value creation, we consider it pivotal to manage risks related to climate change. The fight against climate change and the preservation of the environment are becoming crucial around the world and these concerns have resulted in rapidly evolving climate and environmental regulations emitted across international markets.

Following the structure described in the “Risk Management Process and Internal Control Systems” section of this Report, at the first line of control, the Risk Owner and FLTs are responsible for identifying, assessing, and mitigating risks and for the establishment and maintenance of a risk management system across our business functions. Until December 2023, our CFO, who is a member of the FLT, was in charge of the risk management function that is involved, among other risks, in the assessment, monitoring and management of environmental and climate-related risks. Since December 2023, this role has been assigned to the Chief of Internal Audit, Risk and Compliance Officer. Operating areas represent the first line of defense, they identify climate-related risks and, in collaboration with the central function of risk management, those risks are assessed, monitored and managed at corporate level.

Through the Scenario Analysis and benchmark activities we were able to define our impacts, risks and opportunities.

Climate Scenario Analysis

In 2022, to strengthen our resilience strategy, we conducted a Climate Scenario Analysis of our prospective climate change risks, both physical and transitional, for our plants in Maranello and Modena and for our value chain following the most up-to-date methodologies available internationally, covering the 2030 to 2050 time-horizon. In 2024, the assumptions of this analysis remained unchanged. The choice of the scenarios for physical and transitional risks is based on EU and international guidelines (i.e. EU Taxonomy and TCFD respectively), on climate literature, availability of impact studies and likelihood of scenarios. We used the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC) scenarios along with the Swiss RE, Moody’s Analytics, and Wood Mackenzie international databases.

More specifically, for physical risks, the Representative Concentration Pathways (RCP) correspond to defined emissions and global warming levels. Each RCP scenario is modeled by the scientific community in terms of physical impacts. In particular, we have considered the RCP 8.5, RCP 4.5 and RCP 2.6 scenarios:

• The RCP8.5 scenario is the most extreme of the business-as-usual scenarios. It forecasts an increase above 4°C by 2100. This scenario can translate into reality if the world adopts no mitigation policy. High economic and population growth rates (SSP5) favor this scenario. This scenario triggers most of the climate “points of non-return” and hence, its consequences are difficult to model;
• The RCP4.5 scenario is the most probable given current pledges by countries. It forecasts an increase in temperature between 2 to 3°C by the end of the century, well above the limits of Paris 2015 and Kyoto Protocol. Pledges as of October 2022 lead to an increase of 2.5°C by 2100, as calculated by the United Nations; and
• The RCP2.6 scenario is a Paris/Kyoto one and foresees emissions approximately at the same levels of today (below 1.5°C by 2100 ).

Each climate scenario is characterized by different levels of greenhouse gas concentrations. Specifically, we considered a pessimistic scenario (RCP 8.5), an intermediate scenario (RCP 4.5) and a more optimistic scenario (RCP 2.6) to assess the various situations we might face.

For the analysis of physical risks, we considered three different time horizons:

• short term – from 0 to 2 years
• medium term – from 2 to 5 years
• long term – from 5 to 8 years (the value eight is an indicative value, for specific risks that we already consider, the time horizon could be longer).

All of these risks have to be explored into our risk tables, strategic planning horizons and capital allocation plans.

For the analysis, we considered the geospatial coordinates of our Maranello and Modena plants to understand their exposure to physical events. In particular, precipitation, wind and temperature logs from the local weather grid were analyzed to evaluate present trends and build reliable inferences on possible future trends. A detailed analysis of local sources such as the Modena/Maranello Civil Protection, ARPAE and newspapers allowed to build an “event history” database and contributed to the overall risk mapping.

Through the Scenario Analysis we also analyzed the physical and transitional risks of our suppliers, taking into consideration their location.