www.se.com Schneider Electric Universal Registration Document 2021 256 Chapter 3 – How we manage risk at Schneider Electric 1. Event triggered risks 1.3 Strengthening of chemical and resource-related regulations in the Electric and Electronic Equipment space Risk description Schneider Electric’s plants and products are subject to strict environmental laws and regulations. Many countries have increased legal requirements for the use of chemicals and resources, both in manufacturing processes and in the bill of materials of products. Key Product Environmental regulations were strengthened in 2019, especially those specific to Electric and Electronic Equipment (EEE): RoHS (restriction of hazardous substances in electrical and electronic equipment) and WEEE (waste electrical and electronic equipment). RoHS bans ten chemical substances used in many product categories sold by Schneider Electric: this may require substitutions and may represent a considerable risk of non-compliance. WEEE concerns the Group Extended Producer Responsibility and obliges an active role in the framework of products end life, particularly in terms of financing the collection channels. In 2021, Toxic Substances Control Act (TSCA) introduced restrictions on additional substances. Regulations could phase out specific chemical substances or resources too quickly, with no suitable alternative being found in a scalable manner. In relation with Mergers and Acquisitions (M&A) Schneider Electric needs to critically assess environmental risks of all acquired companies’ product portfolios to ensure strict environmental compliance of all their products, in every market where they are traded. In addition, as described in Note 21 (see “Notes to the consolidated financial statements”, section 5 of chapter 5, page 381), provisions of EUR 350 million are set aside to cover environmental risks. These provisions are primarily funded to cover clean-up costs related to sites (not potential penalties). The estimation of the expected future outflows is based on reports from independent experts. French “Duty of Care” and country-specific initiatives (e.g., China) have reaffirmed the expectations towards engaging suppliers in environmental de-risking efforts. Local regulations could force a percentage of recycled content in some product categories, where neither the relevant recycled resources may be available, nor the product certified or accepted – with recycled content – by IEC, NEMA, or any other electrical standards. Risk monitoring and management The Group’s Integrated Management System (IMS), which covers safety, energy, quality, and environment, continues to be deployed across all industrial sites and major commercial offices. Environmental and Safety compliance audits, conducted by third- party consultants or internal specialists, take place periodically across countries. Offer Creation Process (OCP) is strict, and each step and deliverable embed EcoDesign ambitions and principles: selection of resources, identification of critical substances, life cycle assessment, and then production of REACH and RoHS reports. The Group’s community of EcoDesign business partners train the R&D teams in all new and upcoming environmental regulations and assist them with precise guidance. Schneider Electric has been part of taskforces on the circular economy, playing leadership roles in multi-stakeholder dialogues in Europe, China, and the USA, to discuss opportunities and hurdles: regulations, environmental impacts, protection of customers’ interests, and job creation. Schneider Electric is active in France’s Circular Economy Roadmap and engaged in China with MIIT on circular economy. The Group engages in discussions on circular economy relating to its sector with FIEEC, Gimélec, IGNES, ORGALIM, and other various circles. 1.4 Corruption linked to B2B and project business Risk description The exposure of the Group to corruption risk has been increasing for several years, due to the expansion of the Group’s activities in new economies, especially in Asia and Africa, through organic growth, and mergers and acquisitions. The business model of the Group relies on a large ecosystem of partners, including more than 52,000 suppliers throughout the world representing a procurement volume in excess of EUR 12 billion, and also, resellers and distributors. This ecosystem may represent a risk for the Group, being accountable for activities performed on its behalf, and in regards to potential conflicts of interest or unethical solicitations. In addition, the Group is participating in complex projects involving a large range of partners in sectors at risk, such as oil and gas, and with end-users from the public sector in countries at risk. Over the past years, the increase of law enforcement by public authorities, higher press coverage of fines imposed on companies, and new regulations requiring a strong compliance program have significantly changed the potential impact of corruption risks. Risk monitoring and management To mitigate this risk, Schneider Electric has built a dedicated Group Compliance Team, composed of corporate compliance counsels and regional compliance officers. Since August 2020, a new Ethics & Compliance department has been created, overseeing – among others – the Fraud Examination Team. 3.4 Key risks