4 _219 2023 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN 4 NON-FINANCIAL STATEMENT Sustainable Development Report The initial valuation, whose methodology is described below, was performed on the basis of volumes in 2019, which was chosen as a baseline because it was the last year before the health crisis. The production facilities covered by the valuation are the same as in the scope of reporting for the environmental indicators, as described in the Scope of the Report section above. For the 2024 forecast, the scope also included the Camso, Fenner and Multistrada acquisitions. The valuation method used is based on the OECD definition of valuing “avoidance costs”, with input from ISO 14007: Environmental management – Guidelines for determining environmental costs and benefits and ISO 14008: Monetary valuation of environmental impacts and related environmental aspects. It is based on determining the euro cost, per tonne or cubic meter of reduction, of the solutions implemented or scheduled to be implemented to reduce emissions, use or withdrawals of the selected externalities. The value of these externalities is then calculated by applying the unit cost to the total volume of current emissions, use or withdrawals. The cost calculations for the solution always include the necessary capital expenditure. They also include operating expenses when (i) additional consumables must be purchased after VOC-generating organic solvents have been replaced by aqueous solutions; and (ii) additional treatment products must be purchased when wastewater or effluent is reused. This valuation method is limited by the fact that it is based on the cost of eliminating volumes that are reducible using known solutions. There remains the unknown potential cost of disposing of the residual volumes, whose disposal generally costs the most or requires technologies that do not yet exist and whose cost is unknown (and which could cost more or less than existing technologies). To offset this limitation, which could cause us to underestimate the cost of negative externalities, the following conservative approaches have been factored into the calculation method: ● The assumption is that the solutions implemented or scheduled to be implemented would reduce the amounts emitted, used or withdrawn over the depreciation period for the corresponding purchased equipment, i.e. 12 years; ● We increased the cost of certain capital expenditure outlays (e.g., by 20% when valuing water withdrawals). ● The calculations are cross-checked against outside benchmarks to confirm that the unit externality costs determined by our generic method rank at the top of the range calculated according to these outside methods. In the end, the unit costs used to value the three externalities are: ● for water, €2.40 per cu.m, as determined by the method; ● for VOCs: €2,100 per tonne, based on the outside benchmark, which was higher than the calculation from the method; ● For CO2: updating the avoidance cost calculation resulted in a cost of €120 per tonne for 2023, the same as the prior year. The outside benchmarks used for cross-checking were as follows: ● CO2: (i) the prices applied by leading corporations in their internal carbon fees; (ii) the price indicated in Delft University’s Environmental Prices Handbook 2017 (Environmental prices for average atmospheric emissions in the Netherlands – “central” carbon dioxide price); and (iii) carbon quota prices on the European market; ● VOCs: the price indicated in Delft University’s Environmental Prices Handbook 2017 (Environmental prices for average atmospheric emissions in the Netherlands – “central” volatile organic compounds price); ● Water: the initially calculated cost was compared to what it would have been had we applied the three methods used by 19 companies that answered yes to the question “Does your company use an internal price on water?” on the CDP 2020 Water Security questionnaire and were attributed an A (18 companies) or A- (1 company) score. To take the monetary measurement of its externalities to the next level, in March 2021, Michelin joined the Value Balancing Alliance (VBA), an organization of multinational companies from a variety of industries that is developing and testing a methodology capable of translating environmental, social and economic impacts into comparable financial data. In 2023, the total cost of valued externalities excluding recent acquisitions (€451 million including Multistrada) was down 11.5% year-on-year and down 23.6% from the 2019 baseline.
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