Imerys : S&P Global Ratings - Second Party Opinion (Novembre 2023)

Powered by legacy Shades of Green

to assess whether any absolute reductions are related to climate performance improvements vs. exogenous factors such as volume decreases or economic recessions.

Imerys' SPTs are more ambitious than its specialty mineral peers' Scope 1 and 2 emissions goals. Similar companies have set well-below2℃ (rather than 1.5℃) targets, excluded more emissions from their target scopes, continued to use intensity targets, or not yet set climate targets.

Imerys has developed a clear strategy to achieve its SPTs, including estimation of potential emissions reductions it

can achieve from different measures. Its plans to increase its renewable energy use, electrify processes, substitute waste- based biomass meeting EU Renewable Energy Directive II (RED II) requirements for fossil fuels, and mitigate emissions from chemical reactions in mineral processing through carbon capture and storage (CCS) are particularly well-aligned with a low carbon future.

Weaknesses

Imerys' KPI only covers its Scope 1 and 2 emissions, or 33% of its total estimated climate impact, making it possible for Imerys to achieve its SPTs while increasing its overall climate footprint if Scope 3 emissions are not effectively mitigated. While we still consider the KPI material, it is a weakness of the framework that Scope 3 emissions, or 66% of Imerys' total estimated climate impact, are not included in a complementary SPT. Despite the strong ambition of the SPTs as aligned with a 1.5℃ trajectory through 2030 for Scope 1 and 2 emissions, we do not consider the SPTs- on their own as the basis for potential financial effects in the context of Imerys' sustainability-linkedframework- as aligned with science- based net zero scenarios or Paris Agreement goals with significant Scope 3 emissions excluded. We view Imerys' company- level validated SBT for reducing its absolute Scope 3 emissions in line with a 1.5℃ pathway through 2030 as highly positive and a mitigating factor to this weakness at framework level if the SBT is achieved, and we are encouraged by Imerys' commitment to improve its Scope 3 emissions data collection and calculations for potential inclusion in future frameworks.

Pitfalls

Some elements of Imerys' plan to achieve its SPTs have clear lock-in risks. While fuel switching from coal to natural gas and energy efficiency measures for fossil fuel powered equipment may drive emissions reductions in the near term, they can lock in significant climate impacts longer term from continued fossil fuel use. As this risk must be carefully managed, we are encouraged by Imerys' plans to assess whether conventional natural gas use can be avoided and whether electrification or fuel switching to biomass may be possible before energy efficiency measures are implemented.

Imerys has not yet set longer-term climate targets, making its post-2030 emissions trajectory uncertain. While its nearer-termtargets are positive, both its overall climate strategy and SPTs would be strengthened by a net zero by 2050 commitment and proposed implementation measures. This kind of analysis on how to reach an ambitious longer-termgoal could, for example, identify investments through 2030 with the high lock-inrisks mentioned above that may need to be avoided or areas such as innovation needed for process emissions reductions that may need to be strengthened.

Powered by legacy Shades of Green

Shading of Imerys' revenues and planned investments

Source: Shades of Green analysis using Imerys' financial data from 2022 and projections for 2024.

Figure 1: Shading of revenue and planned investments for Imerys

Among Imerys' 2022 revenues, 10% were assigned a Medium Green, 16% were Light Green, 74% were Yellow, and

<1% were Red.1 Revenues from battery input materials supporting decarbonizing the transport sector and products related to improving the sustainability of building materials were assigned Medium Green, while Light Green revenues were associated with diverse products that likely reduce emissions or local pollution relative to conventional alternatives but still entail some climate and environmental risks that need to be managed. A Yellow shade was allocated to revenues from end uses representing business-as-usual climate and environmental impacts or product segments where data were insufficient for assessment. Red shading was assigned to products with oil and gas applications associated with high emissions and lock-in risks.

Of Imerys' planned investments for 2024, 3% received a Medium Green, 9% received a Light Green, and 88% were

Yellow. Medium Green elements that represent positive contributions to a low carbon future include planned investments in critical battery material production, additional mineral recovery from what would otherwise be considered wastes, and diverse decarbonization strategy measures. A Light Green shading was assigned to energy efficiency investments with some lock-in and rebound effect risks, maintenance with environmental co-benefits, and water, air, and waste management that are often related to regulatory compliance. Yellow aspects include business-as-usual planned investments in maintenance, IT, and automation as well as activities with higher climate and environmental risks include mining exploration and land acquisition as well as mining and tunnelling activities.

1 Our analysis is based on product groupings and descriptions by Imerys, and we have not assessed every product within the revenue streams. Within all revenue streams, there could be products that should be shaded differently.

Powered by legacy Shades of Green

Contents

3 Terms and methodology __________________________________________________________________ 24 Appendix 1: Referenced Documents List _________________________________________________________ 26 Appendix 2: About Shades of Green _____________________________________________________________ 27

Powered by legacy Shades of Green

1 Imerys' environmental management and sustainability-linked bond framework

Company Description

Imerys is a global supplier of mineral-based specialty products for different industrial sectors headquartered in Paris, France. Its revenues in 2022 were €4.3 billion, with 47% generated in Europe, Middle East and Africa, 32% in the Americas, and 21% in Asia Pacific. The group has around 14,000 employees and is publicly traded on the Euronext Paris exchange.

Imerys operates 210 industrial sites including 83 mines, mostly open pit, in 42 countries. In addition to owning its own mines, Imerys also sources some of its raw material. The raw minerals2 are processed or synthesized by Imerys to develop the properties required for its end-use applications. The main customer market is construction

• infrastructure (37%), followed by the consumer market (19%), automotive and transportation, energy and electronics, and industry and equipment (12% each), and paper (8%). Within this diverse portfolio, some products help facilitate the green transition, such as battery materials for use in electric vehicles, while others are associated with business-as-usual activities or have higher climate and environmental risks, such as products used oil and gas applications.

Imerys has two main segments:

• Performance minerals segment: Performance minerals are used as functional additives, and customers are within plastics, rubber and paints, adhesives, board and packaging, ceramics and building products, filtration and life sciences, and green energy.
• High temperature materials & solutions segment: The minerals in this segment serve customers within refractory, abrasives, and construction and infrastructure.

The framework reviewed in this second party opinion is an update to Imerys' previous sustainability-linked bond framework published in 2021, under which it has issued €300 million.

Governance Assessment

Imerys' sustainability strategy and management remains strong and has continued to improve since the previous framework. The company has undertaken robust materiality analysis to update its targets and implementation plans for key issues through 2030. This included a commitment to more ambitious and comprehensive climate goals since the prior framework, shifting Imerys to absolute emissions reductions across Scopes 1, 2 and 3 and a 1.5℃ pathway validated by the Science Based Targets initiative (SBTi). The company does not yet have a longer-term net zero target.

2 Examples of minerals are andalusite, bauxite, bentonite, calcium carbonates, feldspars, kaolin, lime, talc, wollastonite, ball clay, chamotte, diatomite, perlite, lithium, graphite, mica, zeolite, high quality quartz, and others.

Powered by legacy Shades of Green

Other updates since the previous framework are that Imerys has further formalized its sustainability and climate governance structures and processes, clarifying responsibilities, oversight, and incentives for achieving these goals. It has strong transition and physical climate risk assessment and management procedures for its operations that integrate climate scenario analyses, but these do not yet extend to its value chain. The company has continued its work to assess its product portfolio for environmental risks and shift towards greener opportunities.

In its supply chain, Imerys demonstrates good management of sustainability risks through code of conduct requirements, initial screening, ongoing assessment, and engagement, such as encouraging suppliers to set their own climate targets. More quantitative sustainability performance requirements for suppliers could further enhance its approach. Social considerations including health and safety, working conditions, and human rights are incorporated in value chains and operations, with policies referencing international standards in these areas.

Imerys provides good transparency in its public reporting and follows a number of robust external standards, including Taskforce on Climate-related Financial Disclosures (TCFD) guidance, a positive update since the previous framework.

The overall assessment of Imerys' governance structure and processes gives it a rating of Excellent.

Powered by legacy Shades of Green

Sector Risk Exposure

Physical climate risks. More extreme precipitation leading to increased environmental contamination from mining operations and tailings, rising sea levels and storms surges impairing low-lying coastal operations, and extreme weather events disrupting supply chains are physical climate risks highly relevant to the mining and mineral processing sector. The severity of this risk is highly dependent on the type and location of the mine or manufacturing plant, and detailed location and sector-based analysis should be conducted. The value chains of companies like Imerys, both downstream and upstream, are likely exposed to disruptions from extreme weather - mainly through transportation routes.

Transition risks. New and tightened carbon pricing policies and border tax adjustment policies could constitute both a transitional risk and opportunity for companies like Imerys, as could shifting consumer preferences. The lock-in of energy- and carbon-intensive processes that could become uncompetitive can also constitute a transition risk. Companies like Imerys sell to a range of sectors, some with high transition risks, and are therefore exposed to the risk of reduced demand for some products.

Environmental risks. Companies like Imerys operating mines all over the world are associated with different degrees of environmental risks, including deforestation, loss of biodiversity, and pollution (mainly soil and water pollution) from mining operations. The different level of environmental regulation in the countries where companies like Imerys operate requires that such entities have management routines to ensure compliance with accepted international environmental management when regulation is less stringent.

Social risks. Companies like Imerys could pose a risk to the health and safety of the employees as well as surrounding communities if local pollution is not managed effectively. There is also potential for corruption and human rights violations in these companies' supply chains, including risks of violations of workers' rights. Companies like Imerys might also face the risk of being engaged in legal proceedings, if some of its minerals are to be contaminated, having an impact on the consumer's health. For example, North American talc entities have been included in a mass tort litigation regarding potential health hazards from a product that includes talc.

Environmental strategies and policies

Climate Emissions & Energy Use

Imerys' mining and mineral processing operations are associated with Scope 1 emissions (1,478 ktCO2e as of 2022) from both fuel combustion and chemical reactions, while its Scope 2 emissions (702 ktCO2e) come from purchased electricity and steam consumption. Together, Scope 1 and 2 account for around 33% of Imerys' total climate footprint. Its Scope 3 emissions (4,696 ktCO2e as of 2022) mainly come from the purchase of goods and services such as raw materials and mining subcontractors (40.0% of Scope 3 emissions) followed by transportation and distribution (33.6%) and fuel and energy activities not covered by Scope 1 and 2 (12.3%).

To reduce its climate impact, in 2022 Imerys updated and validated its Science Based Targets (SBTs) to align with a 1.5℃ pathway and reduce absolute emissions, an increase in ambition from its previous 2℃ targets that were on an intensity basis relative to revenues. By 2030, Imerys will seek to reduce its Scope 1 and 2 emissions by 42% and its Scope 3 emissions3 by 25%, both from a 2021 base year. The company informs us it may set a long-term

3 Imerys' Scope 3 SBT covers 87% of its total Scope 3 emissions, including from its purchased goods and services, capital goods, fuel and energy related activities, upstream and downstream transportation and distribution, waste generated in operations, business travel, employee commuting, and investments.

Powered by legacy Shades of Green

(e.g., 2050) target in the coming years, but for now is focused on achieving these 2030 targets. Imerys reduced its absolute emissions by approximately 10% in 2022 from 2021, which it attributes to energy efficiency measures, renewable energy increases, and declines in production and sales volumes, with some contribution from biofuel substitution and increased accuracy of Scope 2 market-based measurement.

To achieve its previous and updated climate targets, Imerys is focused on improving energy efficiency such as through its I-Nergize program prioritizing its top energy consuming sites, switching from fossil fuels to waste- based biomass, increasing renewable energy procurement and process electrification, and investing in R&D to reduce other process emissions. To reduce its Scope 3 emissions, Imerys is engaging with its suppliers to set their own SBTs, increasing its use of recycled raw materials and intermodal transport, reducing waste and pursuing circular economy initiatives, and undertaking internal training. Since the previous SPO, Imerys has expanded and formalized its internal climate governance, including through the development of a Climate Change Steering Committee, Climate Change Project Committee, and specific workstreams to oversee and implement these measures.

Imerys' energy use of over 7.8 million MWh as of 2022 includes electricity (30.6% of total energy use, 2.2% of which is renewable), steam (2%, 39.5% of which is renewable), natural gas (36.9%), other fossil fuels (27.9%), and biofuels (2.6%). It procures renewable energy, including solar, hydro, and wind power, through a variety of mechanisms, including on-site and off-site power purchase agreements (PPAs), renewable energy certificates (RECs), lease agreements, and direct investments in small scale projects. Imerys informs us it expects the majority of its sourcing going forward to be through PPAs and will only use RECs as a last resort. It has launched a global PPA project prioritizing this procurement option and establishing criteria on quality, additionality, and other environmental impacts such as biodiversity. In 2022, Imerys reduced both its total energy and electricity consumption by 12%, primarily through efficiency measures, though it informs us it does not consider this a representative year due to the global energy crisis.

Other Environmental Initiatives

In 2022, Imerys established additional 2025 environmental targets on key topics such as:

• Assessing the maturity level of 100% of sites against its environmental management system (EMS) requirements.
• Ensuring 100% of major sites comply with reporting requirements on water management and mineral resources efficiency. Water resources are currently covered by Imerys' EMS, with a focus on regulatory requirements and discharge incident investigations and corrective actions.
• Meeting its act4nature4 commitments and conducting biodiversity audits on 20 priority sites. This builds on Imerys' global biodiversity roadmap, scientific partnership with UMS Patrimoine Naturel, and other collaborations with universities and NGOs on this topic.

Imerys is also undertaking a sustainability assessment of its product portfolio through its SustainAgility program. By 2025, it seeks to have evaluated 75% of its portfolio by revenue (55% as of 2022) and ensure that at least 75% of new products are scored highly enough to be considered "solutions" (achieved in 2022). The assessment includes climate, other environmental, and social criteria based on the World Business Council for Sustainable Development's Portfolio Sustainability Assessment framework. Scoring is based on the net economic value created vs. potentially harmful environmental impacts as well as the level of sustainability benefits or challenges based on public data or stakeholder reviews.

Supply Chain Engagement

4 Act4nature is an initiative developed by Entreprises pour l'Environnement (EpE) focusing on scientific expertise and environmental strategy, biodiversity loss prevention, R&D, and stakeholder engagement.

Powered by legacy Shades of Green

Imerys has established a Code of Business Conduct and Ethics that applies to both its operations as well as suppliers and covers topics such as health and safety, human rights, environmental protection, and sustainable development. It has developed additional supplier requirements in its Environmental, Social and Governance Standards that have high-level commitments on environmental stewardship, climate change, and social and governance issues.

To ensure suppliers adhere to these policies, Imerys assesses suppliers during onboarding through due diligence processes based on level of risk and potential spend and ongoing assessment through a sustainability rating scheme. Imerys achieved 53% coverage under its sustainability rating scheme for suppliers in 2022 and is targeting 75% by 2025. If any concerns arise, Imerys follows up through supplier formal and informal assessments and internal and external audits and, if needed, timebound corrective action plans.

To manage its social risks in both operations and supply chain, Imerys has established a Duty of Care program to confirm its ongoing alignment with the EU Taxonomy minimum safeguards. It is also committed to international standards such as the International Bill of Human Rights, the Guidelines of the Organisation for Economic Cooperation and Development (OECD), the provisions of the fundamental conventions of the International Labor Organization (ILO), the U.N. Guiding Principles on Business and Human Rights.

Physical Risk

As part of its regular risk assessment processes, Imerys uses scenario analysis to evaluate acute and chronic physical climate risks to its global assets and facilities. This assessment is undertaken at site level and does not yet extend to its value chain. Imerys has selected Intergovernmental Panel on Climate Change (IPCC) Representative Concentration Pathways (RCPs) 2.6, 4.5, and 8.5 using 2030, 2040, and 2050 time horizons. It has identified increasingly frequent flooding, hurricanes and tropical cyclones, and water scarcity as key risks. Risk mitigation measures include loss prevention engineering to protect assets from extreme events and the development of a Water Management Plan. Imerys also considers physical risks in its capital expenditure project selection process and due diligence reviews for potential acquisitions.

Reporting

Imerys provides annual public reporting in alignment with external standards including the Global Reporting Initiative (GRI), CDP climate disclosures, for which it scored a B rating as of 2022, and the Sustainability Accounting Standards Board (SASB). It is a member of the UN Global Compact and as of its reporting for 2021 began providing disclosures in alignment with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCDF).

Sustainability-linked bond framework

Based on this review, this framework is found to be aligned with the Sustainability-Linked Bond Principles. For full details on the issuer's framework, please refer to the sustainability-linked bond framework dated 2023.

Selection of key performance indicators (KPIs)

Summary information about Imerys' KPI is provided below:

• KPI 1: Absolute Scope 1 and 2 greenhouse gas emissions (tonnes CO2 equivalent)

Imerys selected this KPI because it views climate emissions reduction as a critical environmental challenge facing the industrial minerals industry. It is the basis of measurement for the company's broader Scope 1 and 2 climate targets that are a key element of its sustainability strategy. According to Imerys, it views the KPI as highly strategic given that any change in production activities will impact these emissions and it seeks to decouple its growth from