ESRS S1 Own Workforce

ESRS 2 SBM-3 – Material Impacts, Risks and Opportunities and Their Interaction with Strategy and Business Model

Material Impacts, Risks, and Opportunities

Within the scope of our materiality assessment, we identified five material impacts, risks and opportunities (IROs) related to our own workforce:

• Promotion of employees’ professional development
• Employee dissatisfaction due to lack of co-determination
• Employee satisfaction through co-determination
• Promotion of diversity in the workforce
• Financial opportunity through appeal as an employer

In order to successfully implement Vonovia’s business strategy and model in all business areas (see ESRS 2 SBM-1), a broad-based workforce comprising highly skilled employees is a must.

The actual positive impact of “promotion of employees’ professional development” relates to Vonovia’s own operations and involves creating long-term career opportunities by offering various training and career paths as well as further training opportunities for Vonovia’s employees. Well-trained employees in both the technical trades and in commercial positions for our core business of property management and rental, as well as for the construction and renovation of residential properties, are crucial for our business model, especially in light of innovations in business operations with regard to the energy and heating revolution, and new regulatory requirements. Training and skills requirements are also emerging due to social megatrends, such as new construction to alleviate the shortage of housing, measures to optimize our housing stock through modernization and senior-friendly conversion, as well as the need to reduce CO₂ emissions in our portfolio. Therefore, we continuously take measures to expand the training opportunities open to our employees and adapt them to reflect new circumstances. This means that Vonovia can use its actions to make a key contribution to the positive impacts. This impact is directly linked to our strategy. We have thus established a comprehensive training and development approach as a central component of our HR strategy. First, our efforts serve to increase expertise and knowledge as well as to foster an exchange of experience among employees, which gives them more opportunities for advancement. Second, employees are more satisfied and stay with the company longer. This makes Vonovia more attractive as an employer overall. What is more, our customers benefit from improved service quality thanks to better trained employees. We currently expect to see an impact on our business model, strategy and value chain in the short term.

The actual negative impact associated with “employee dissatisfaction due to lack of co-determination” and the positive impact associated with ”employee satisfaction through co-determination” relate to our own operations. If representation channels or feedback formats for employees are insufficient, opportunities for employee engagement are limited, making it more difficult for them to influence their own working conditions or employee rights. This can result in general dissatisfaction among employees and a higher staff turnover rate and thus negatively impact our business model, given the current general shortage of skilled workers. On the other hand, satisfied employees who can exercise sufficient participation rights within in the company result in lower staff turnover. This makes retaining skilled employees essential for our business model. If social dialogue in the workforce, as well as general information for, and representation of, the workforce regarding employee rights, are strengthened by works council members and regular survey formats, employee satisfaction can be increased and staff turnover counteracted. Vonovia has identified the risk of dissatisfaction due to a lack of co-determination opportunities within its own workforce and thus the importance of co-determination within its own ranks. This is why co-determination is prioritized as a topic in the overarching HR strategy, and why opportunities for social dialogue are firmly established in the corresponding works council structures and in various annual feedback formats. With this in mind, we take measures on an ongoing basis to give our employees opportunities for co-determination and to expand these further.

On the one hand, underestimating or not doing enough to promote employee participation formats, opportunities to have a say and an appreciative and transparent feedback culture can have a direct impact on our employees, e.g., in the form of lower motivation and higher levels of staff turnover. On the other hand, a sufficient range of different employee engagement formats, opportunities to have a say and an appreciative and transparent feedback culture can have a direct impact on our employees, e.g., in the form of increased motivation and efficiency. This means that Vonovia can use its actions to exert a significant influence over both the negative and positive effects of any resulting dissatisfaction/satisfaction among our employees. This impact, whatever its direction, can result either from a lack of co-determination opportunities at Vonovia or from the fact that there are sufficient opportunities for co-determination. The adverse and positive impacts are directly linked to our strategy, as they are directly integrated into our HR strategy through the strong establishment of our works council structures and the focus on employee retention as a key component. Through these measures, as well as measures to grant our employees opportunities and formats for co-determination, employee satisfaction can be positively influenced. We currently expect both the positive and negative impacts, to have an effect on our business model, strategy and value chain in the short term.

The actual positive impact “Promotion of diversity in the workforce” relates to our own operations. We employ staff from various professional and age groups, with varying lengths of service, with different sexual orientations, affiliations, backgrounds and religions, and employees with and without disabilities. Thus, we see diversity as an important part of our corporate culture and have made it a firm component of our corporate mission statement. Vonovia’s various business areas, spanning different countries and urban areas, thus call for a diverse workforce, both professionally and personally, and comprehensive diversity management. This makes promoting these very aspects essential for our business model. As a result, we take measures on an ongoing basis, for example to ensure equal pay for equal work, in order to promote diversity and equal opportunities. This means that diversity contributes to our company’s success and has been even more of a priority as an independent component of our HR strategy since the end of the previous fiscal year, as well as in the current fiscal year. Proactive moves to promote a corporate culture that is free from discrimination, internal diversity targets and the public communication of related actions and measures have a direct impact on our employees, e.g., in the form of a positive team and corporate climate. This bolsters employee satisfaction, encourages stronger identification with the employer brand and translates into lower staff turnover. Promoting diversity and positioning ourselves as an attractive employer will become even more important going forward as the shortage of skilled workers becomes more pronounced, as these very workers are crucial to the continuation of our rental business and the associated service quality. Our HR strategy and the related measures are thus directly aimed at promoting diversity in the workforce and, more generally, at strengthening loyalty to the company. As a result, the positive impact is directly linked to our business strategy and the measures developed as a result are, in turn, explicitly integrated into our HR strategy. This means that Vonovia can make a key contribution to this positive impact through its measures to promote diversity. We currently expect to see an impact on our business model, strategy and value chain in the short term.

If a successful HR strategy can be implemented, the impacts described above will produce a significant financial opportunity associated with a high level of appeal as an employer. This is reflected, among other things, in lower transaction costs due to staff turnover and in the long-term retention of existing employees. Against the backdrop of the shortage of skilled workers, a higher degree of appeal as an employer can, in turn, have a positive impact on the implementation of a company’s own business strategy and the further development of innovative business models.

Our ”financial opportunity through employer attractiveness” relates to our own business operations. By securing jobs in the long term and creating fair working conditions, Vonovia stands out as an attractive employer. Positioning ourselves as an attractive employer means that we are able to retain employees, as we compete with other companies on the labor market. At the same time, a differentiated and efficient recruitment strategy as well as measures to strengthen the employer brand and reputation can have a positive impact on the recruitment of new skilled employees. This can increase the level of professionalism and innovation potential in the workforce, improve service quality and feed into higher levels of customer satisfaction as a result. This financial opportunity is, in turn, associated with higher revenue expectations. By taking the measures described above, Vonovia can help to reduce staff turnover and, in doing so, reduce transaction costs by increasing employee satisfaction and making them more likely to stay with our company. Vonovia can also boost its own innovative strength and competitive standing by recruiting additional qualified specialists. As a result, we expect to see a positive impact on our financial position, financial performance and cash flows. By continuing to successfully offer our customers state-of-the-art and target group-specific services as well as affordable and climate-friendly homes in the future, we can contribute to Vonovia’s stable organic business growth in the medium term. The period spanning the current or following reporting year is too short to allow us to pinpoint any major positive financial effects on Vonovia’s financial position owing to the company’s increased appeal as an employer.

No significant changes were made to our measures to address our material impacts or our material opportunity in the fiscal year under review, and no such changes are currently planned.

Resilience of Our Business Model

In order to assess the resilience of our business model in terms of its ability to cope with the material impact of the shortage of skilled workers on Vonovia’s business activities by increasing our attractiveness as an employer, we regularly monitor the development of our key performance indicator “employee satisfaction,” as a subindicator of the SPI using partial and comprehensive annual surveys (for more details on the SPI model, please refer to ESRS 2 GOV-3; for information on the targets, see S1-5). The development of this key indicator shows that employee satisfaction at Vonovia remains at a constant level (details on the development of the SPI indicators can be found in S1-5). As part of the half-yearly analysis of our corporate risks carried out by Risk Management, the shortage of skilled workers is listed as a risk with regard to our own workforce, although the amount of loss is currently estimated to be low, as is the probability of occurrence. We can therefore conclude that our current measures strengthen the resilience of our business model with regard to the workforce, and ensure that no material risks emerge for our business model.

Target Groups

All individuals in Vonovia’s workforce who could be affected by the company’s material impacts are covered by the disclosures made in accordance with ESRS 2 and are therefore included in them. This also includes current business areas as well as the discontinued Care segment.

Vonovia’s employees can be split into two categories: employees working in the technical trades and employees with commercial and administrative roles. Only individuals employed by Vonovia are included in the analysis of the workforce affected by those impacts that have been identified as material. Self-employed workers, non-salaried employees and workers provided by third-party companies may be involved in Vonovia’s core business in Germany in both a commercial/administrative and technical/trades-
based role. However, our strategic concepts and measures in response to the impacts are primarily applicable to our in-house employees who are directly employed by Vonovia. As they have fixed employment contracts with Vonovia, they are legally bound by our employment agreements and conditions and have access to our company user infrastructure.

The impacts described, on the one hand, from the general shortage of skilled workers and on the other, from potentially insufficient equal treatment, and affect the two groups of employees as follows: Tasks that are central to our value chain – from caretaker work and green space maintenance to the implementation of modernization work – are largely carried out by our own technical and trades employees. Across all industries, there is a trend toward fewer young people opting to complete an apprenticeship or pursuing a career in the skilled trades. This trend is also having an impact on trades in the construction and modernization sector in the form of an ever-shorter supply of skilled workers. Despite a targeted insourcing strategy aimed at ensuring the availability of skilled tradespeople and technical workers on construction sites, the shortage of skilled workers is having a significant impact on Vonovia’s ability to recruit up-and-coming young talents in the skilled trades. According to the micro census, around 30% of the population having worked in 2021 will exceed the retirement age by 2036. We will therefore only be able to prevent quality restrictions, mounting workloads and, as a result, dissatisfied employees who end up leaving the company, if we manage to position ourselves as an attractive employer. We can achieve this by systematically approaching motivated potential candidates and arousing their interest in a position with Vonovia through targeted measures. Internal high-potential candidates are identified by their manager as part of the annual appraisal process (annual appraisal including performance and potential assessment). Once the assessments have been validated in the context of HR retreats, selected employees are then invited to participate in programs, such as the Female Leadership Program.

Our commercial and administrative employees work in particular in administration, customer service and portfolio management in our business areas. As we place particular emphasis on fast and reliable customer service, we have our own customer service centers in Essen, Dresden and Berlin, where over 1,000 employees deal with our customers’ concerns on a daily basis and in several languages. These areas of activity are also being impacted by demographic change, meaning that we expect to see a shortage of qualified staff here, too, in the future.

The material negative impact that has been identified in relation to “employee dissatisfaction due to lack of co-determination” can be due to both systemic and company-specific factors.

• Systemic: A systemic lack of co-determination and the resulting dissatisfaction can be caused by limited statutory requirements for the representation of interests or the enforcement of employee rights, meaning that the company cannot achieve the satisfactory co-determination of working conditions for its own employees.
• Individual: Failure to give appropriate regard to employee perspectives on the part of the direct management level or the management of the Group as a whole, as well as deprioritization of the interests of the company’s own employees in the Group’s business activities (including, for example, possible failure to safeguard freedom of association as well as a potentially inadequate feedback culture regarding working conditions in the Group as a whole or in parts of the Group).

The positive impact of promotion of employees’ professional development results from the creation of new jobs, occupations and trainee careers due to innovations in business operations (energy and heating revolution) as well as strategic collaborations and partnerships to attract new talent and trainees. These activities relate, in particular, to the trades and technical areas, such as the installation of photovoltaic modules, the expansion of the energy business, and energy and building technology, but also to commercial staff. In the commercial workforce, for example, new positions need to be created in the areas of sustainability and reporting, scheduling of measures as part of the “Optimize Apartments” program, and recycling and waste management, and employees need to be recruited or trained accordingly. At the same time, we see it as our responsibility to prepare young, talented individuals for their future careers in a whole range of occupational areas to the best of our abilities and, at the same time, convince them to stay with the company.

The diversity of our workforce is favored by the supraregional administration, management, new construction and conversion of properties in various regions of Germany, Austria, and Sweden. All of the different occupations at Vonovia and the employees working in these areas represent a wide range of different social, economic, cultural and ethnic backgrounds as well as religious, gender and political identities, which Vonovia continues to promote through its open and tolerant corporate culture. In order to enhance this shared culture of diversity, we also take diversity criteria into account when recruiting new staff. At the same time, we communicate our measures to support diversity to the public. This impact affects Vonovia’s entire workforce, although the trades/technical segment predominantly comprises male employees. Achieving a more balanced gender split – particularly, but not exclusively, in technical occupations – has therefore been firmly established as a component of Vonovia’s HR strategy.

Vonovia has identified employee satisfaction through co-determination as another positive impact. In general, growing social and capital market demands on companies with regard to employee engagement are resulting in more complex requirements and needs on the part of Vonovia’s workforce. There is also a need for more extensive co-determination opportunities due to the increasing competition faced when it comes to recruiting skilled workers (employee market). Vonovia offers various engagement formats and opportunities to have a say, as well as promoting an appreciative and transparent feedback culture, in order to meet these requirements and contribute to our HR strategy of retaining employees and fostering employee loyalty, which can only be successful if employees are highly satisfied.

The various activities in Vonovia’s fields of business – such as modernization, development and construction activities, technical upgrades of energy and heating systems, but also the Care segment – are faced with the same shortage of skilled workers that every industry is confronted with. At the same time, rising costs further upstream for materials and commodities that are urgently needed in the construction and modernization industry, disrupted supply chains, less favorable subsidy conditions or lengthy approval and project procedures for construction projects are other factors that can have a negative impact on working conditions such as remuneration, the social benefits on offer, job security and the general working atmosphere for employees. Securing existing jobs with appropriate remuneration that is competitive in the industry, and creating a positive working environment, for example by establishing an open feedback culture and granting co-determination opportunities, can open up a significant financial opportunity for the company: Effective measures to boost the appeal as an employer (also through further training and qualification formats, work-life balance measures, a transparent remuneration policy and modern employee benefits) have the potential to allow Vonovia to keep existing employees with the company in the long term and further increase the success of our recruitment strategy when it comes to attracting potential employees, while at the same time promoting innovation potential within the company in the long term. This contributes to the development of a forward-looking, robust HR strategy that can be used to develop a sustainable approach to the above-mentioned risks.

As part of the transition plans to reduce any negative impact on the environment and achieve environmentally friendly and greenhouse gas-neutral activities, there is an opportunity for Vonovia’s employees to explore new (training) occupations, fields of activity and training areas. Our measures to achieve a greenhouse gas-neutral housing stock by 2045 include the refurbishment of building structures/envelopes and the installation of photovoltaic modules and heat pumps, which require the appropriate technical expertise in the trades for installation and maintenance. Commercial employees also require expertise in areas such as sustainability strategy, innovation management, digitalization, occupational safety and HR, which will also call for corresponding changes to existing job profiles and the creation of new functions.

The transition plans could, however, have an impact in terms of increased risk potential for the employees concerned in connection with their work with or on new technologies. Ambitious transition plans combined with a shortage of skilled workers in the areas concerned could also create a heavy workload for employees in these areas.

In the latest version of our Declaration of Respect for Human Rights, which was approved by the responsible Compliance unit in the spring of 2024 and has entered into force, we specifically highlight the relevance of global human rights standards to us. This Declaration also applies to our subsidiaries. Neither we, nor any of our partners, tolerate forced or child labor under any circumstances. We also make sure to comply with all relevant legislation in Germany, Austria and Sweden. We make sure that all changes to the law are reflected in our processes. Our Code of Conduct provides clear expectations for how the company and its employees are expected to behave.

We strive for full transparency in our compliance with human rights and all relevant standards along the entire supply chain. Our stakeholders, too, increasingly expect this transparency – from raw material extraction to sales. We therefore oblige external partners and service providers to comply with the following requirements:

• The Business Partner Code
• The General Terms and Conditions of Purchasing
• Vonovia SE’s general terms and conditions for building services
• Vonovia SE’s general terms and conditions for planning services
• Individual agreements as part of our structured supplier management

In the context of the overall statutory framework set out above and thanks to the precautions taken, no cases of forced labor or child labor have come to light at any of our business locations in Germany, Austria or Sweden, or in any area of activity within our value chain. Given the preventive measures taken, we do not anticipate any elevated risk of forced labor or child labor.

Vonovia has identified employee dissatisfaction due to lack of co-determination as a material negative impact. Employees working in the Care segment have been identified as a particularly vulnerable group within the company, as these employees are not included in the annual employee satisfaction survey.

Vonovia has only identified one material opportunity (and no material risk): the financial opportunity to position itself as an employer with appeal. This does not affect any specific group of people within Vonovia’s workforce, but represents a financial opportunity for the company in connection with the entire workforce. The implications of the shortage of skilled workers, which can result directly from a lack of attractiveness as an employer, also do not depend on any specific group of people, but rather affect Vonovia’s workforce as a whole due to its systematic spread across all industries and occupational areas.