_56 2023 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN 2 RISK MANAGEMENT Risk factors specific to Michelin, description and related management systems The risks and impacts identified as specific to Michelin have a low probability of occurring. Only the risk of the physical effects of climate change is non-specific and certain to occur. On the other hand, the physical adaptation to climate change is specific to the Group and has been documented in Risk 1. Due to the guidance issued by ESMA and the AMF on the risk factors to be discussed pursuant to the European prospectus regulation, only the main risk and impact factors identified by the Group are discussed in this chapter. Chapters 1, 4 and 5 deal with other risks and impacts corresponding to critical stakeholder expectations and non-specific risks with low net financial, legal or tax impacts. Risk 1 – Physical effects of climate change Risk factors As a global industrial player, the Michelin Group has significant interactions with the natural environment throughout the life cycle of its products and services. These risks expose it to physical risks related to climate change, i.e., to both acute and chronic risks as defined by the Task Force on Climate-Related Financial Disclosures (TCFD). Specific nature of the risk Michelin's global reach, in terms of both its industrial facilities and its supply chain, exposes the Group to climate change consequences that vary according to geographic location. In light of the diverse range of suppliers and the many interdependent factors necessarily involved in the manufacture of its products (infrastructure, energy, availability of labor, transportation systems, etc.), the consequences of climate change can be qualified as systemic. This means that they include external events that are not taken into account in the supply chain or manufacturing business interruption risks already addressed elsewhere (see risks 2 and 4). They could materialize, for example, if staff were to be prevented from reaching their workplaces due to extreme climate events (floods, heat waves, etc.) or if important infrastructure were to be knocked out (roads, ports, electricity, gas and co-generation networks). In addition, the Group is the world's largest purchaser of natural rubber and aims to increase the proportion of sustainable materials in its tires. This implies a greater need for bio-based products which are already exposed to social and geopolitical risks and are increasingly sensitive to the chronic effects of climate change, such as drought and shifting growing conditions. Extreme climate events could severely disrupt supplies, production operations or demand, with major consequences in terms of quantities, diversity of sources and duration. Chronic climate change could have long-term effects on the availability or quality of bio-based resources and on operating conditions in the Group's manufacturing facilities. For more information, see Chapter 4, section 4.1.1.1 of this Universal Registration Document. Governance and risk management response An Environmental Governance body has been set up to provide assurance that environmental risks are understood, tracked and addressed by appropriate action plans. The body is co-chaired by the Executive Vice President, Manufacturing and the Executive Vice President, Research and Development, who are both members of the Group Executive Committee. An internal audit of the risk in 2021 resulted in the deployment in 2022 of a multi-year action plan addressing the main management levers, which is expected to improve coverage of the major risks by 2025. Its main deliverables in 2023 were: ● resources dedicated to the physical risks of climate change allocated to the Corporate Internal Audit, Risk Management, Internal Control and Quality Department; ● a study of the physical risks of climate change in 2030 and 2050 for around 100 facilities, whose findings are currently being reviewed; ● an “Adapting to Physical Climate Risks Policy” approved by the Environmental Governance body in 2023 for publication in early 2024; ● an internal guideline for systematically assessing exposure to the physical risks of climate change for acquisition projects, planned production or logistics facilities and raw materials supplier approvals. Risks concerning natural rubber supplies are covered by a resilience plan, whose main levers continued to be implemented in 2023. Further progress will be driven in the years ahead with initiatives to diversify supply sources and varietal selection and improvement programs, encourage highly resilient agricultural practices, monitor changes in climate and public health conditions in production areas, and use the most efficient materials in our products and services and reduce the carbon footprint of our natural rubber-related operations. More generally, risks arising from the physical impacts of climate change are managed with the support of: ● fast, efficient responses to any risks of disruption to manufacturing operations or the supply chain. A Business Continuity Plan is in place, covering all types of disruptive events, whether climate-related or not; ● a robust, regularly stress-tested crisis management process; ● an internal audit, which identified 36 ecosystems (suppliers, production plants, logistics facilities) within a 100 km radius that are particularly critical to the Group's business; ● a roadmap to define the necessary adaptation plans. In 2024, for example; the physical risks of climate change will continue to be studied and the first major costing of adaptation requirements will be carried out.
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