Telefónica Deutschland : Non Financial Group Report 2023 - englisch

Contents

Separate Non-Financial Group Report pp. 02-67

Process of preparing the Separate Non-Financial Group Report

In preparing the Separate Non-Financial Group Report 2023, the Telefónica Deutschland Group followed the requirements as per Section 289c HGB.

The Telefónica Deutschland Group performed a materiality analysis in 2023 to determine which topics were material to this report. Here, it voluntarily orientated the materiality analysis to the European Sustainability Reporting Standards (ESRS 1) of the Corporate Sustainability Reporting Directive (CSRD). In accordance with future requirements, a double materiality assessment was conducted. This encompasses the material topics in terms of the significance to the company (financial materiality, outside-in) and the impacts of its business activities (materiality of the impact on people or the environment, inside- out). As a result, 17 sustainability aspects were identified as being material to the company.

To determine which topics are material to the Telefónica Deutschland Group, the scope of the materiality assessment was first defined and the stakeholders who are relevant to the assessment were identified. The potentially material topics were preselected on the basis ofthe European Sustainability Reporting Standards(ESRS1para.AR16(listoftopicstobeconsidered))and the Telefónica Deutschland Group's Responsible Business Plan 2025. Internal topic experts then evaluated one or more specific ESG topics from among the 23 preselected topics. The severity and probability of occurrence were assessed to determine the impacts on people and the environment (inside-out) throughout the value chain (upstream and downstream value chain and own business activities), while the extent and probability were assessed in order to determine the financial opportunities and risks for the Telefónica Deutschland Group's business (outside- in). This was followed by a second assessment stage performed by senior management employees who have a cross-functional understanding of the specific interests and expectations of the stakeholders with regard to ESG topics. The resultant material sustainability topics were then analysed and discussed within the company, and approved by the Management Board, with the Supervisory Board being notified of this.

The material topics as per the German Commercial Code (HGB) This year's Separate Non-FinancialGroup Report will be the last to be prepared in accordance with the requirements as per Section 289c HGB, which is why this report presents the topics identified by the single materiality analysis used until now. These topics were validated for the financial year 2023 and approved by the Management Board. With the additional double materiality assessment based on the CSRD, those sustainability aspects that have combined relevance to both perspectives are likewise presented in the Separate Non-FinancialGroup Report. As such, this Separate Non-FinancialGroup Report features 13 material topics regarding which the defined threshold was reached from both an outside-inand an inside-outperspective. In comparison to the previous material topics, the topics of "Resource use and circular economy", "Affected communities" and "Sustainable investments" are to be presented as material in this Separate Non-FinancialGroup Report. The topics described in this report can be found in the table below. The topics "Workers in the value chain", "Other work-relatedrights", "Anti-competitivebehaviour and political engagement or lobbying" and "Promotion of digital access and digital skills" are handled from an outside- in perspective in the CR Report 2023 due to their materiality classification falling below the defined threshold.

To structure this report better, the material topics were allocated to the three overarching environmental, social and governance (ESG) aspects which are to be reported on and were combined according to the logic of the European Sustainability Reporting Standards (ESRS).

The topics of "Data protection and information security" as well as "Sustainable investments" were identified as material entity- specific sustainability aspects in addition to the ESRS topics. These entity-specific topics are highly relevant to the business of the Telefónica Deutschland Group. Likewise, the company's activities have relevant impacts on these fields: data protection and information security affect the Telefónica Deutschland Group's core business. As a result of the ever-increasing importance of ESG topics in the company's financing strategy, sustainable investments are reported on in a dedicated section for the first time.

The topic of "Human rights and social standards along the supply chain", which was introduced as being material to the Telefónica Deutschland Group in 2022, remains highly relevant to the company and is disclosed in the Separate Non-Financial Group Report. A detailed explanation of how human rights are respected and protected throughout the value chain is given in the Telefónica Deutschland Group's CR Report 2023.

Determination of the material non-financial risks

Based on the analysis of the business relevance of the identified non-financial topics, risk scenarios were developed, taking into account the probability of occurrence and their potential to have a detrimental impact. In line with the criteria of established risk management,theTelefónica Deutschland Group performed a net assessment of the risks. A detailed description of the processes can be found in the "Risk and opportunity management" section of the 2023 Combined Management Report .

Based on the probability of occurrence already determined, a conservative approach was adopted in which risks were considered with a probability of occurrence deemed to be "likely" or "highly likely". The potential for the risks to have a detrimental impact on the relevant aspects was determined on the basis of the criteria relating to the severity of the impacts on an aspect, the number of people actually or potentially affected and the possibility of restoring the original condition before the impact occurred. In this risk assessment, the Telefónica Deutschland Group analysed the potential for a material risk pursuant to Section 289c HGB in the areas of consumers and end-users and information security (in gross terms). Thanks to extensive management approaches and measures, the Telefónica Deutschland Group does not register any material net risk (see "Consumers and end-users" and "Data protection and information security" sections).

BASIC PRINCIPLE AND CHALLENGES

Governance for responsible corporate management secures sustainable value creation

In the interests of governance for responsible corporate management, the Telefónica Deutschland Group keeps an eye on the impacts that all of its business activities have on people and the environment. The goal is to guarantee this all along the value chain and at all the company levels. Technological innovations are to be used to solve societal challenges and promote sustainable development. Through governance for responsible corporate management, the Telefónica Deutschland Group wishes to contribute to making market economy mechanisms work and to boosting people's faith in businesses and digitalisation.

The Telefónica Deutschland Group's Business Principles serve asthefoundationforits actions.Theydocumentits understanding of governance for responsible corporate management on the basis of ethical principles, corporate standards and behaviour patterns. These are derived from the three fundamental values of integrity, reliability and transparency and act as a binding code of conduct that sets benchmarks for our involvement in business life. The Telefónica Deutschland Group wishes to be a company which is trusted by its customers, employees, suppliers, shareholders and society. It is therefore the Group's primary aspiration to present the principles which govern its actions to its stakeholders clearly and unequivocally. To ensure that all the employees including the Management Board have a thorough understanding of these Business Principles, they are given regular and mandatory training in adhering to the principles.

The reporting and due diligence obligations for companies are subject to ongoing changes, for example in relation to the European Union's Green Deal, the EU Taxonomy Regulation, the new Corporate Sustainability Reporting Directive and the recently adopted EU pay transparency directive, both of which must now be transposed into national law, and supply chain sustainability (cf. the German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) and the EU's supply chain directive). The Telefónica Deutschland Group is preparing comprehensively for these new requirements.

PROCESSES AND MANAGEMENT

Clear governance structures

The Management Board and Supervisory Board of Telefónica Deutschland Holding AG are committed to observing the principles of transparent corporate governance and regularly concern themselves with the requirements of the German Corporate Governance Code (GCGC). The Management Board runs the company on its own responsibility and in the interests of the company with the aim of achieving sustainable value creation. The Management Board is supervised in this and offered advice by the Supervisory Board. All measures and decisions of fundamental significance to the company are executed on the basis of close consultation between the Management Board and the Supervisory Board. The Management Board and Supervisory Board provide information on this in Telefónica Deutschland Holding AG's Management Declaration .

Corporate responsibility and sustainability are an integral part of the Telefónica Deutschland Group's business mindset and activities. The company therefore attaches importance to transparent reporting regarding its sustainability performance. The material non-financial topics for the Telefónica Deutschland Group are reviewed and approved by the Management Board annually and are presented to the Supervisory Board for its information.

The impacts on people, society and the environment are also considered when determining materiality (see "Determination of the material non-financialtopics and risks" section). Likewise, the implementation status of the human rights due diligence obligations is presented to the Management Board annually as part of the report to the Management Board by the Human Rights and Environment Committee (see the "Human rights and social standards along the supply chain" section).

Responsible Business Plan as a tool to steer sustainability management

The Telefónica Deutschland Group's sustainability strategy is approved by the Management Board. It is an integral part of the corporate strategy and is additionally based on the global sustainability strategy of the Telefónica, S.A. Group. The Telefónica Deutschland Group has established clear governance

structures and processes in order to put the guiding principles and requirements into day-to-day practice. The Responsible Business Plan 2025 (RBP 2025) "Digital.Sustainable.Connected." is the key tool when it comes to sustainability management. It serves as the framework for the sustainability targets and activities of the departments and company sites. With the RBP 2025 the company wishes to continue to responsibly shape sustainable digitalisation and the transformation of the economy and society in the future.

The Corporate Responsibility & Sustainability (CR&S) directorate is responsible for managing the sustainability activities of all the departments and company sites. It develops the sustainability strategy, monitors achievement of the CR goals and plans new measures together with the departments. The CR&S directorate also draws on the management systems embedded in the company, which are in accordance with the standards ISO 50001 (energy management), ISO 14001 (environmental management) and ISO 9001 (quality management), for the purposes of goal formulation and a continuous improvement process.

The CR&S directorate is assigned to the Management Board division Legal & Corporate Affairs of Telefónica Deutschland Holding AG and reports directly to the Management Board. The Supervisory Board is integrated into the creation of the Separate Non-Financial Group Reportforthe fulfilment ofthe requirements pursuant to Section 315b in conjunction with Section 289c of the German Commercial Code (HGB). The Supervisory Board discusses the findings of the audit of the Separate Non-Financial Group Report and the related performance indicators with the auditors and decides on the release of the separate non-financial group report after its own assessment.

The Management Board and the works council receive an annual report on the implementation of human rights and environment- related due diligence obligations in the past financial year and on the latest human rights developments within the company, in politics and in society. The Management Board bears responsibility for human rights being upheld. The Human Rights Officer appointed on 1 January 2023 is responsible for monitoring risk management and the human rights due diligence system. She is supported by the interdisciplinary Human Rights and Environment Committee.

The company's own guidelines, standards and rules of procedure have a key role to play in sustainability management. The Telefónica Deutschland Group uses them to embed fundamental environmental, social and compliance-related standards within its processes, specify the requirements it has of its stakeholders and establish tools that facilitate voluntary commitment and control. In its Declaration of Principles , the Telefónica Deutschland Group commits to respecting and protecting human rights, while its Human Rights Policy specifies the company's obligations in this regard (more information on this in the "Human rights and social standards along the supply chain" section).

The Telefónica Deutschland Group requires ethical, environmental and social standards to be met as a binding code of conduct for involvement in the business world. The Business Principles were comprehensively revised in the previous year to ensure that they continue to take into account the latest market and societal requirements. All the employees are given regular mandatory training on the Business Principles. In the past three years up to the end of the reporting year 2023, 95.1 % of the employees were given training on the Business Principles and human rights. This represents an increase compared to the three-year figure reported in the previous year (2022: 84.3 %). After the code of conduct was revised, the training was adapted at the end of 2022. In addition, the focus is now also more keenly on ESG topics, giving everyone a part to play in jointly advancing the company's sustainable transformation (see also the "Business conduct" section).

T 01

Governance

1 Proportion based on number of employees of Telefónica Deutschland Group excluding employees on sabbatical, external consultants and temporary employees (staff count: 7,435; previous year: 7,181). The calculation includes the completed training units of the last three years. For 2023 this means 7,068 completed training units between 1 January 2021 and 31 December 2023.

Bonus system offers incentives for sustainable conduct

The Telefónica Deutschland Group uses management bonuses as an incentive for the achievement of its company targets. Since 2019 it has intentionally linked bonus payments for the Management Board, executives and certain experts to the company's performance with regard to its sustainability targets. In addition to financial performance indicators, which have a weighting of 80 % and are audited with reasonable assurance, there are therefore also non-financial criteria with a weighting of 20 % and audited with limited assurance. The latter include boosting customer satisfaction, strengthening the Group's reputation, reducing carbon emissions and increasing the proportion of women in management positions. The Telefónica Deutschland Group's targets for 2023 are the same as the previous year's performance indicators and their weightings remain unchanged too. Specifically, the following criteria are included:

• The Net Promoter Score (NPS) measures the customers' willingness to recommend their service provider. This makes up 5 % of the bonus.
• The company's reduction of direct and indirect greenhouse gas emissions is calculated using the Greenhouse Gas Protocol. Scope 1 and 2 greenhouse gas emissions make up 5 % of the bonus.
• The NPS gap measures the difference between the NPS of the Telefónica Deutschland Group and that of the top competitor. This accounts for 4 % of the bonus.
• The RepTrak measures the company's reputation. It makes up 3 % of the bonus.
• The proportion of women in top management positions (appointment to senior management) serves as the performance indicator for gender equality. It accounts for 3 % of the bonus.

1. 01
   Variable remuneration is linked to sustainability targets:

80 %

Financial targets

20 %

Non-financial targets (ESG)

• 5 % - customer satisfaction measured by the Net Promoter Score (NPS)
• 5 % - direct and indirect greenhouse gas emissions (Scopes 1 and 2)
• 4 % - customer satisfaction compared with the NPS gap as the difference to the top rating among the competitors
• 3 % - company's reputation measured by the RepTrak Pulse, which measures stakeholder loyalty
• 3 % - proportion of women in top management positions

All the employees who are eligible for bonuses have the same targets, weightings and payout curves in relation to the Telefónica Deutschland Group's corporate goals. Information on the procedure for determining Management Board remuneration and disclosures regarding the remuneration of Telefónica Deutschland Group employees can be found in the Remuneration Report .

STRATEGIC PRIORITIES

Evaluating political and societal requirements

The CR&S directorate regularly maintains contact with the individual departments and also exchanges information within the context of internal steering bodies such as the CR&S Committee, the Energy Committee, the Data Protection Forum, the Health Forum and the Human Rights and Environment Committee. In this context, the general strategies are discussed, potential risks are evaluated, progress is established and projects and measures are assessed. The results are reported to the Management Board. When it comes to overarching specialist and Group-wide issues relevant to sustainability, the Telefónica Deutschland Group regularly confers with the Telefónica, S.A. Group.

The Telefónica Deutschland Group's clear ambitions and commitments in the Responsible Business Plan 2025, which serves as a central steering instrument for its sustainability management, guided its actions in 2023. Concrete CR targets for the ambitions and commitments are established together with the departments annually and cleared by the Telefónica Deutschland Group Management Board, the highest management level. The targets are integrated into the management processes and are made quantifiable via meaningful key performance indicators (KPIs). Achievement of the CR goals is regularly reviewed together with the senior management of the departments involved. The target attainment level is additionally reported to the Management Board every six months.

BASIC PRINCIPLE AND CHALLENGES

Digitalisation as a climate protection opportunity

According to a Bitkom study1, digital technologies have the potential to reduce carbon emissions in Germany by a fifth, thereby indirectly helping to achieve the national climate targets. This potential needs to be exploited in particular in the areas of energy infrastructure, mobility, industry and agriculture. The telecommunications industry can play a key part in combating climate change and in the decarbonisation of the economy and in so doing help to make society's basis for life sustainable. For example, the energy sector cannot successfully manage the energy transition without digitalisation. Electricity grid operators and energy utilities are having to increasingly oversee decentralised renewable energy sources and manage current flows. Only through connectivity do electricity grids become smart grids that allow electricity generation and consumption to be managed efficiently.

However, as connectivity increases, there will also inevitably be an increase in the volume of data transmitted via the networks as well as in the energy consumption related to this. At around 98 %, network technology accounted for the largest share of electricity consumption at the Telefónica Deutschland Group in the reportingyear. Increasingthe energyefficiencyofits networks and data centres is therefore a top priority forTelefónica Deutschland. A three-yearenergy conservation programme was initiated in 2023. It has the aim of reducing energy consumption by around 20 %, provided the network load remains steady, by the end of 2025 compared to the reference year 2021. The basis here is AI- assisted network standby technology, network modernisation and cloudification. Back in 2016 the mobile communications industry was the first sector in the world to commit to supporting the United Nations' Sustainable Development Goals (SDGs). In the UN's 2030 Agenda, goal number 13 focuses on climate change.

The industry is therefore implementing a variety of measures to combat climate change and its impacts.

The Telefónica Deutschland Group's Spanish parent company has committed itself to joining the United Nations in combating climate change and has to this end formulated energy and climate targets for the years 2025, 2030 and 2040. The Group is also part of the Business Ambition for 1.5 °C action alliance. These targets are based on the 1.5-degree scenario of the Paris Agreement and include Scope 1, 2 and 3 emissions: all emissions are to be reduced to net zero by 2040, including those in the Group's own value chain. Telefónica, S.A. is the first telecommunications company to have had its targets validated by the Science Based Targets initiative (SBTi). This means the targets of the Telefónica Deutschland Group have likewise been validated and the Group's programmes and measures are contributing to the target of 1.5 degrees being achieved.

Within the Telefónica Deutschland Group, handling climate change has already been integrated into the areas of corporate governance, strategy, risks and goals. It relies on a variety of elements to save energy and reduce greenhouse gas emissions: it invests in energy-efficient technology, uses green electricity, promotes low-pollutant mobility and is increasingly offering its customers more sustainable products and services. With the help of the Telefónica Deutschland Group's infrastructure and services, businesses and people can realise their sustainable digital business models and play a part in this.

Target of net zero emissions throughout the value chain by 2040

The assumption of responsibility for the climate and the environment is a basic principle of the Telefónica Deutschland Group. This responsibility is at the very heart of its climate strategy, with which it aligns itself closely in the Group-wide