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Risks Related to Regulatory Environment & Overall Statutory Framework

Changes in the regulatory environment and in the overall statutory framework could give rise to risks for all of Vonovia’s business segments. At present, 2 (2022: 2) key amber risks have been identified.

In Germany, the regulations governing the handling and identification of toxic materials are to be tightened up through a specific amendment to the German Hazardous Substances Ordinance (Gefahrstoffverordnung). Any amendment will have an impact on all of Vonovia’s technical processes (including small-scale repairs, vacant apartment refurbishment, major maintenance measures, modernization). Regarding the process involved in the refurbishment of vacant apartments, an initial rough quantification has been carried out, although this process has still to be completed for all of the other technical processes. The risk associated with an “Amendment to the Hazardous Substances Ordinance” was therefore subjected to a qualitative assessment as an initial step, and was found to be associated with a significant loss amount and a probability of occurrence of 60–95%. A project involving all of the specialist departments involved has been launched to ensure the definitive quantitative assessment of this risk in relation to all of Vonovia’s technical processes in 2024. A final assessment of the risk will depend on the specific content of the proposed legislation.

Changes to, or the application of, legal provisions that are beyond Vonovia’s control, and inadequate documentation of management decisions can lead to legal disputes and give rise to the risk of material implications. The total number of legal disputes ongoing at Vonovia is small. In addition to cases related to the core Rental business, such as announced modernization projects or the appropriateness of ancillary expense bills, these include other operating, labor law and corporate law disputes, some of which are material, particularly in connection with transactions. At the end of the 2023 reporting period, the amber risk with an impact on profit and loss associated with “Material impact of legal disputes” was assessed as having an expected loss amount of € 150–375 million (2022: € 40–150 million) and an expected probability of occurrence of 5–39% (2022: 5–39%). The increased amount of loss in 2023 as against the prior-year assessment is due to the additional inclusion of a legal dispute with a social insurance provider. In a quest to limit this risk, internal and external experts are analyzing the individual scenarios and the current situation on an ongoing basis, and the Legal department is involved in all key management decisions.

The two amber regulatory risks identified in 2022, namely ”unfavorable carbon tax” and “unfavorable exchange rate developments” were downgraded to green in 2023.

The risk associated with an ”unfavorable carbon tax” has changed to a ”substantial increase in the CO2 price”. As the expected increase in the CO2 price is now largely reflected in the company’s updated plans, the assessment of the probability of occurrence was reduced from 60–95% to 40–59%, and the assessment of the potential amount of loss was reduced from € 40–150 million to € 5–40 million.

The risk “unfavorable exchange rate developments” was downgraded from amber to green given what is already a weak Swedish krona. With an unchanged potential amount of loss of € 40–150 million, the expected probability of occurrence of a further negative trend was reduced from 40–59% to 5-39%.