BorsodChem Zrt.’s Report on Greenhouse Gas Emissions in 2024

1. Introduction

BorsodChem Zrt. (hereinafter as: Company or BC) compiles the inventory of its corporate greenhouse gas emissions (hereinafter as: GHG Inventory) and publishes its GHG Report year by year to inform transparently its investors, customers and other internal and external stakeholders of the Company’s environmental performance and GHG emissions, in accordance with the commitments made in our Sustainability Policy and Strategy. In addition, accounting of our GHG emissions supports the monitoring, measurement and further development of our GHG reduction projects defined in our Strategy.

Our Company has prepared its complete voluntary Greenhouse Gas Inventory, covering Scope 1, Scope 2 and Scope 3 emission categories, for the first time for the financial year 2021, which was also defined as the base year of the inventory.

Our Company presents its inventory of greenhouse gas emissions in 2024 through this GHG Report.

For the preparation of BorsodChem Zrt.’s GHG Inventory and GHG Report, the Sustainability Group of BorsodChem Zrt. is responsible.

Our GHG Inventory and Report has been prepared in accordance with the requirements established in the Greenhouse Gas Protocol “Corporate Accounting and Reporting Standard” and MSZ EN ISO 14064-1:2019 „Greenhouse Gases. Part 1: Specification with guidance at the organisation level for quantification and reporting of greenhouse gas emissions and removals” (ISO 14064-1:2018) standard.

The calculation of Scope 3 emissions is based on the Greenhouse Gas Protocol “Corporate Value Chain (Scope 3) Accounting and Reporting Standard” and the World Business Council for Sustainable Development (WBCSD) ”Guidance for Accounting and Reporting Corporate GHG Emissions in the Chemical Sector Value Chain”. The Scope 3 emissions are calculated by category in accordance with the guidelines of the GHG Protocol Standard (at least “minimum boundaries“).

Our Greenhouse Gas Inventory has "limited assurance" verification conducted by an independent third party according to the MSZ EN ISO 14064-3:2019 standard regarding its compliance with the Greenhouse Gas Protocol “Corporate Accounting and Reporting Standard” and the Greenhouse Gas Protocol “Corporate Value Chain (Scope 3) Accounting and Reporting Standard”.

2. ​​​Descriptive information

2.1. Description of the Company

BorsodChem Zrt., as a member of the Chinese Wanhua Chemical Group, due to its continuous renewal and innovations, is a leading manufacturer of plastic raw materials, organic and inorganic chemicals in Europe. Our products – MDI (methylene diphenyl diisocyanate), TDI (toluene diisocyanate), PVC products and special chemicals – provide raw materials for various industries, such as vehicle, building, footwear and clothing, furniture, pharmaceutical and rubber industry.

BorsodChem Zrt.’s headquarters and the centre of its production activities are in Kazincbarcika, Hungary. Our site is located on approximately 450 hectares in the administrative area of Kazincbarcika, Berente and to a lesser extent, Múcsony.

In addition, we operate a research and development centre in Gödöllő, Hungary, and we manage a part of our commercial activities from our office in Budapest, as well as sales offices, branches and subsidiaries outside Hungary.

2.2. Chosen consolidation approach

BorsodChem applies the operational control approach to account for its GHG emissions.

2.3. Organisational boundaries

Management of BorsodChem Zrt. has decided to fully assess the GHG emissions of its facilities operating at its sites in Hungary. Accordingly, organisations included in the GHG Inventory:

• Its own facilities are located at BorsodChem Zrt.’s sites in Hungary (Kazincbarcika, Berente, Múcsony, Gödöllő, Budapest), and
• the subsidiaries operating in Hungary over which BorsodChem Zrt. has 100% operational control, including activities from the establishment of operational regulations to the implementation of investments, developments and energy efficiency-enhancing projects.

Emissions of offices, branches and subsidiaries operating outside Hungary are not accounted in the GHG Inventory.

Emissions from the manufacturing and sale of products generated from BorsodChem Zrt.’s production activities in Hungary are taken into account in our GHG Inventory.

In our GHG inventory, we take into account sources of emissions – facilities, subsidiaries – with emissions exceeding 1% of our total emissions.

Subsidiaries involved in our GHG Inventory 2024:

[1] Polimer Szolgáltató Kft. is a subsidiary with not significant (<1%) emissions.

Changes in organisational boundaries compared to the base year:

BC Therm Kft., involved in our GHG inventory of the base year as an individual subsidiary, merged into BC-Erőmű Kft. as of 1 October 2021, and BC-Erőmű Kft. merged into the BC Power Energiatermelő II. Kft. as of 30 September 2023.

2.4. Relevant greenhouse gases

Greenhouse gases considered in the Company’s 2022 GHG Inventory:

• Carbon dioxide (CO2)
• Methane (CH4)
• Dinitrogen oxide (N2O)
• Hydrofluorocarbon gases (HFC)
• Sulphur-hexafluoride (SF6)

NF3 and perfluorocarbon compounds (PFCs) are not used at our Company.

2.5. Materiality of emission categories

Our indirect Scope 3 emissions are accounted for in the following categories:

• Category 3.1: Purchased goods and services
• Category 3.2: Capital goods
• Category 3.3: Fuel and energy-related activities
• Category 3.4: Upstream transportation and distribution
• Category 3.5: Waste generated in operations
• Category 3.6: Business travel
• Category 3.7: Employee commuting
• Category 3.9: Downstream transportation and distribution
• Category 3.11: Use of sold products
• Category 3.12: End-of-life treatment of sold products

2.6. Emission categories excluded

The following categories are excluded from our GHG Inventory:

• Category 3.8: Upstream leased assets
  There are no significant stationary sources of emissions at the sites of BorsodChem Zrt. that are not fully owned by the Company. BorsodChem Zrt. operates leased vehicles and rents external storage capacities. Emissions from the use of leased vehicles are accounted for as Scope 1 emissions. Regarding the emissions from the energy consumption of the rented tanks and warehouses, we do not have data from the lessors; however, according to our experts' estimation, it is not a significant source of emissions (<1%) compared to our total emissions.
• Category 3.10: Processing of sold products
  BorsodChem Zrt. mainly produces intermediate products. Due to the large number of users and fields of application, the emissions generated during the processing of the sold products cannot be monitored with a reasonable expenditure, and it does not provide reliable data. Accordingly, following the WBCSD guidance for accounting and reporting Scope 3 emissions, which says that “chemical companies are not required to report Scope 3, category 10 emissions, since reliable figures are difficult to obtain, due to the diverse application and customer structure”, we do not report this category.
• Category 3.13: Downstream leased assets
  There are also companies at BorsodChem Zrt.'s site in Kazincbarcika that are not directly related to our activities, but rent land and sometimes real estate from our company. Since BorsodChem has no influence on their operation, we do not account for their emissions in this Scope 3 category in our GHG Inventory.
• Category 3.14: Franchises
  BorsodChem does not own or operate franchises, so this category is not relevant for us.
• Category 3.15: Investments
  BorsodChem has no investments with significant emissions (>1% compared to total emissions).

2.7. Base year

BorsodChem Zrt. has determined the financial year 2021 as the base year of its complete GHG Inventory – covering Scope 1, Scope 2 and Scope 3 emissions – taking into account the following aspects:

Our Company has defined the year 2021 as the base year for following up on the results of GHG reduction programs and activities specified in the Action Plan, which is part of our Sustainability Strategy disclosed in 2022.

Due to the pandemic, the year 2020 did not reflect the GHG emissions of normal operating conditions. In 2021, the economic situation and production level stabilised for BorsodChem.

2.8. Base year emissions recalculation policy

The base year emissions are recalculated in the event of any changes that, individually or collectively, have a substantial impact on the calculation of the 2021 GHG Inventory, defined as baseline.

A change of more than 10% in the base year's total emission is considered substantial.

The base year emissions are recalculated in the event of the following changes:

• In case of structural changes in the organisational boundaries that, individually or collectively, have a substantial impact on the base year emissions (e.g. merger, acquisition, sale, outsourcing of activities, relocation).
• In case of changes in the emission categories included in the GHG Inventory.
• In case of substantial changes in emission calculation methodologies.
• In case of improvement in the accuracy of emission factors and activity data, which together have a substantial impact on the base year emissions.
• In case a significant calculation error or a number of cumulative errors are discovered that collectively have a substantial impact on the base year emissions.

During the compilation of the GHG Inventory 2024, there were no significant changes disclosed due to which it would be reasonable to recalculate the base year inventory. Merger of the BC-Erőmű Kft. into the BC Power Energiatermelő II. Kft (chapter 2.3) resulted in no change in the scope of the inventory. Cumulated effects from changes in the emission factors, as well as calculation errors discovered (<1%), do not reach the 10% limit of substantial change defined in our recalculation policy.

3. GHG Emissions - 2024

[2]Methane: Methane is generated during the waste and wastewater treatment activities of our company. Biogas with a high methane content generated in our wastewater treatment activity is burnt and recycled as heat. Thus, direct methane emissions from the activity are not typical. The amount of methane produced during the decomposition of waste placed in landfills is negligible.

[3]N2O, CH4, HFC and SF6 emissions were converted to CO2 equivalents using Global Warming Potential (GWP) values applicable according to the current regulations for official reports. In the absence of official regulations (methane), we used the more recent value.

*Weighted GWP calculated from the individual GWP values of the given refrigerants.

Uncertainty:

For Scope 1 and Scope 2 emissions, uncertainty assessment is based on quantitative evaluation of activity data and emission factors in accordance with MSZ EN ISO 14064-1:2019 standard.

For Scope 3 emissions, assessment of uncertainty is based on subjective evaluation of data quality of the direct emission data, activity data and emission factors, in accordance with the criteria (Technology, Time, Geography, Completeness and Reliability) specified in Chapter 7.3 of the GHG Protocol Scope 3 standard.

4. Biogenic CO2 emissions

Emissions from burning biogas: 272 tonnes CO2e.

Biogas with a high methane content is generated in wastewater treatment activities at our Company, the whole volume of which is burnt. Major part of the generated biogas is burnt in combustion unit – instead of natural gas – and recycled as heat, while the unused biogas is flared.

Emissions arising from the burning of biogas are accounted for under Scope 1 emissions in „Category 1.1: Direct emissions from stationary combustion” as emerging emissions.

5. Avoided emissions

Our avoided emissions from burning biogas: 2,462 tonnes CO2e.

Our avoided emissions from the combustion with a high methane content are listed as informative data in our GHG Report, but we do not account for the resulting emission savings in our GHG Inventory.

During the calculation of avoided emissions, we take into account the emissions of methane and carbon dioxide content of the generated biogas if they are released into the atmosphere, as well as the amount of CO2 generated during the combustion of natural gas if used instead of biogas.

6. Description of methodologies, data sources

7. Changes in GHG emissions compared to the Base year

The decrease in our GHG emissions in 2024 compared to the base year can partly be attributed to the fact that utilization of our capacities and the volume of our sold products increased in 2024 compared to the year 2023; however, totally lagged behind the volumes of the base year.

Growth in our Scope 1 emissions was the result of the operation of our new weak nitric acid plant (WNA II), HPM plant and MNB (mono nitrobenzene) - Aniline plant that were launched in the period 2021-2023, as well as our new natural gas-fired combined heat and electricity power plant put into operation in 2023 to supply the increased electricity and steam demand from self-production.

On the contrary, our Scope 2 emissions decreased significantly, as due to the increase in self-produced electricity and steam, there was a decrease in the volume of purchased electricity, and our increased steam demand is supplied from our own source.

The GHG emission intensity per 1 ton of key products was 7,7% lower than the intensity in the base year, which reflects the results of our new investments, energy and GHG saving projects implemented between 2021 and 2024.

Within the Scope 1 emissions, our N2O emissions increased compared to the base year due to an increase in capacity utilisation of our nitric acid plants; however, the emissions per 1 tonne of product decreased by approximately 6%, which is attributable to our new weak nitric acid plant launched in autumn 2021. The plant is equipped with technology that results in nearly 90% less N2O emissions than our old nitric acid plant (WNA I). As a result, we could avoid emission of 65-70 tonnes N2O (17-18 thousand tCO2e) per year.

To the decrease of emissions from the use of the Company-owned vehicles („Mobile combustion”) was significantly contributed to by our new, high-performance, Czech-origin Effishunter 1000 locomotive, put into operation in spring 2023, the fuel consumption of which is nearly 20% lower than that of our older vehicles. Partly this is the reason that total diesel oil consumption of our locomotives and lifting machines used for material transport within the site decreased by around 30% compared to the base year, which considering also the upstream emissions of used diesel oil, resulted in 300 tonnes CO2e reduction in 2024.

The decrease in total GHG emissions is mainly attributable to the start-up of our new MNB-Aniline Plant in 2023. As a result of the local supply of the main raw material for MDI production, the emissions arising from the exploitation and processing of purchased goods (category 3.1) as well as their transportation (category 3.4) decreased significantly, resulting in approximately 420 thousand tonnes CO2e emission savings per year.