� Annual report 2023 Contents Management's review * Annual reporting in 2023 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 4 Overview Strategic ambitions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 6 Performance highlights � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 7 Letter to our stakeholders � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 9 Our footprint � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 14 Outlook Financial and ESG outlook 2024 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 16 Financial targets and policies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 18 Strategy and business Renewable energy market � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 20 Strategic aspiration and growth platform � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 22 Executing our strategy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 24 Business model � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 28 A call to action to foster a fast and sustainable build-out � � � � � � � � � � � � 29 Risks and risk management � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 34 Results Follow-up on 2023 guidance � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 39 Results � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 40 Five-year summary � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 44 Fourth quarter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 45 Quarterly summary, 2022-2023 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 50 Corporate governance Governance framework � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 52 Board of Directors � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 54 Group Executive Team � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 58 Summary of our remuneration report � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 61 Shareholder information � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 62 Sustainability statements * Preparing for the Corporate Sustainability Reporting Directive � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 66 General Creating value through sustainability � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 68 General basis for preparation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 69 Double materiality assessment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 70 Double materiality assessment outcome � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 71 Double materiality assessment methodology � � � � � � � � � � � � � � � � � � � � � � � � 77 Interests and views of our stakeholders � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 79 Environment Taxonomy-aligned KPIs (incl. voluntary disclosures) � � � � � � � � � � � � � � � � � � � 81 Climate change � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 87 Biodiversity and ecosystems � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 102 Resource use and circular economy � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 107 Social Own workforce � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 112 Workers in the value chain � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 120 Affected communities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 123 Governance Business conduct � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 127 Appendix Disclosure requirements and incorporation by reference � � � � � � � � � � � 132 Statement on sustainability due diligence � � � � � � � � � � � � � � � � � � � � � � � � � � � 135 Data points that derive from other EU legislation � � � � � � � � � � � � � � � � � � � 136 Calculation factors � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 138 Alignment with TCFD recommendations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 139 Alignment with TNFD recommendations � � � � � � � � � � � � � � � � � � � � � � � � � � � � 140 Additional data points below materiality thresholds � � � � � � � � � � � � � � � 141 Financial statements Consolidated financial statements Consolidated statement of income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 144 Consolidated statement of comprehensive income � � � � � � � � � � � 144 Consolidated balance sheet � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 145 Consolidated statement of shareholders' equity � � � � � � � � � � � � � � 146 Consolidated statement of cash flows � � � � � � � � � � � � � � � � � � � � � � � � � � 147 Notes Parent company financial statements Income statement � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 233 Balance sheet � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 233 Statement of changes in equity � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 234 Notes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 235 Management's statement, auditor's reports, and glossary Statement by the Executive Board and the Board of Directors � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 243 Independent Auditor's Reports � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 244 Independent limited assurance report on selected ESG data in the Sustainability statements � � � � � � � � � � � 249 Glossary � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 251 * Our management report consists of two parts: the management's review and the sustainability statements. 2 ØRSTED ANNUAL REPORT 2023 Management's review → Hornsea 2, the North Sea, the UK 3 ØRSTED ANNUAL REPORT 2023 Annual reporting in 2023 From 2024, the ‘Corporate Sustainability Reporting Directive’ (CSRD), a new EU directive, will require companies to report on their environmental and social impact activities. To meet these requirements, a set of European Sustainability Reporting Standards (ESRS) have been adopted by the EU. In 2023, we decided to develop the ‘Sustainability statements’, a new section in our annual report for 2023. The sustainability statements have been pre- pared with reference to the ESRS. In 2023, our aim was to adapt as much as possible of the fundamental structure of the standards and to integrate it with the other parts of the annual report in the best way possible. We have done this by using the ‘Incorpora- tion by reference’ option. As a result of the new section, we will no longer publish separate ESG performance or sustainability reports. Furthermore, our statutory corporate governance report has been incorporated into the governance section of the annual report. The cover photo is from our offshore wind farm Hornsea 2 in the North Sea Hornsea 2 is operated and maintained from our East Coast Hub in Grimsby, the UK, which supports a workforce of over 600 people. The wind farm spans an area of 462 square kilometres (178 square miles) and powers over 1.4 million UK homes with renewable energy. → See more at orsted.com Get an overview of all of our reporting material by downloading our reports and investor presentations. In our remuneration report, you will get a transparent and comprehensive overview of the remuneration of our Executive Board and our Board of Directors. In our green bond impact report, you will get an insight into our green bond portfolio and the sustainability impact from our projects financed with green bonds. Outstanding green bonds and green hybrid bonds currently account for more than 88 % of Ørsted's total portfolio of bonds and hybrid capital. → See our reports at orsted.com Preparing for the Corporate Sustainability Reporting Directive (CSRD) in our annual report 4 ØRSTED ANNUAL REPORT 2023 [](https://orsted.com)[](https://orsted.com/remuneration2023)[](https://orsted.com/greenbonds2023)[](https://orsted.com) Overview 6 Strategic ambitions 7 Performance highlights 9 Letter to our stakeholders 14 Our footprint → Ørsted has taken final investment decision and is ready to build the 920 MW Greater Changhua 2b and 4 offshore wind farms in Taiwan – marking a major step forward in Asia Pacific's decarbonisation journey. Onshore work and component fabrication is underway, with the project set for completion by the end of 2025. 5 Management's reviewØRSTED ANNUAL REPORT 2023 Installed renewable capacity by 2030 Gross capacity, GW Offshore P2X Onshore Bioenergy 24.1 Installed and under construction 35-38 2030 ambition 1 See page 91 in section ‘Climate change’ for details on the new set of interim 2030 targets currently undergoing SBTi's validation process. 2 The targeted range is not a hurdle rate, and, consequently, some projects might deviate from the targeted range. Strategic ambitions 14 % Average ROCE 2024-2030 Dividend pause in 2023-2025 Dividends are paused for the financial years 2023-2025. Target to reinstate dividend pay- ments thereafter. 150-300 bps Targeted range for spread to WACC 2 at time of bid/FID (whichever comes first) for individual projects We exclusively deploy green and sustainable long-term financing, and all projects are taxonomy-aligned� 40 : 60 women : men Gender balance in our total workforce by 2030 Net-positive biodiversity impact On all new renewable energy projects commissioned no later than 2030 Ban on landfilling → Zero wind turbine blades to landfill → Zero solar panels to landfill Group EBITDA (excl. new partnerships and cancellation fees) DKKbn 24.0 39-43 2023 2030 8 % CAGR ↓ More on our strategy on pages 22-23. Science-based 2040 net-zero target, validated by SBTi CHG emissions intensity, CO 2 e/kWh Scope 1-3 (excl. natural gas sales) 322 75 <2.9 147 80 2022 2023 20402018 2030 -99 %-7 7 % Science- based targets 1 // // 6 Management's review | Overview ØRSTED ANNUAL REPORT 2023 Performance highlights Follow up on outlook announced for 2023 ↓ More on our 2023 guidance follow-up on page 39. EBITDA realised DKKbn Guidance (1 Feb.): 20-23 With EBITDA excluding new partnerships and cancellation fees totalling DKK 24.0 billion, earnings came in above our original guidance of DKK 20-23 billion. 24.0 38.5 Investments realised DKKbn Guidance (1 Feb.): 50-54, (10 Aug.): 44-48, (1 Nov.): 40-44 Investments were lower than expected at the beginning of the year, primarily due to timing related to our US and Taiwanese portfolios and the decision to cease the development of Ocean Wind 1 and 2. 2023 38.5 2021 39.3 2022 37. 4 Cash flow and balance sheet Gross investments DKKbn Our gross investments reached DKK 38.5 billion and was driven by our construction of wind and solar assets. 38.5 ROCE was -14.2 % for the year. Adjusted for impairments and cancellation fees, ROCE amounted to 12.9 % in 2023\. Profit for the year was DKK -20.2 billion. Profit for the year excluding cancellation fees (DKK -9.6 billion) and impairments after tax (DKK -25.4 billion) amounted to DKK 14.9 billion. Our net debt increased to DKK 47.4 billion. The credit metric funds from operations (FFO) relative to adjusted net debt amounted to 29 % in 2023\. Profits and return Excl. new partnerships and cancellation fees New partnerships Excl. impairments and cancellation fees Cancellation fees Operating profit (EBITDA) DKKbn EBITDA totalled DKK 18.7 billion. EBITDA excluding cancellation fees (DKK -9.6 billion) and new partnerships (DKK 4.3 billion) amounted to DKK 24.0 billion. 18.7 2023 18.7 2021 2022 24.3 32.1 -14 .2 % 17 % 12.9 % 14.9 15 % Return on capital employed (ROCE) % 2023 2022 2021 Profit for the year DKKbn -20.2 15.0 10.9 2023 2022 2021 2023 2022 2021 47. 4 30.6 24.3 Interest-bearing net debt DKKbn 2023 2022 2021 29 % 43 % 26 % Credit metric (FFO/adjusted net debt) % 24.0 4.3 -9.6 7 Management's review | Overview ØRSTED ANNUAL REPORT 2023 Environment Social 2.8 3.1 in 2022/3.0 in 2021 Safety Total recordable injury rate (TRIR) We saw a further improvement in our safety performance in 2023. Nationality and gender Diversity in the Board of Directors and the Group Executive Team (all members). In 2024, we will hold our first interna- tional election for employee-elected board members. 34:66 33:67 in 2022/31:69 in 2021 Gender balance (women:men) The gender balance in our total workforce was improved in 2023, with 41 % of all new hires being women. Employee satisfaction Index 0-100, 2021/2022/2023 In 2023, our employee satisfaction survey, People Matter, showed a high satisfaction and motivation score of 76, placing us in the top quartile of our benchmark peer group. 7676 77 Governance Installed renewable capacity GW Installed renewable capacity increased by 4 % to 15.7 GW in 2023, mainly due to the commis- sioning of the onshore wind farms Sunflower Wind, Lisheen 3, Ballykeel, and Les Dix Huit and 80 % of the solar farm Old 300. ↓ 49 % Greenhouse gas emissions (scope 3), million tonnes, CO 2 e Our scope 3 greenhouse gas emissions were reduced by 49 %, mainly due to a 47 % decrease in natural gas sales and a 94 % decrease in emissions from commissioning of renewable assets as only four onshore sites reached COD in 2023. The greenhouse gas intensity from our heat and power generation and other operating activities (scope 1 and 2) was 38 g CO 2 e/kWh. Including scope 3 (excl. natural gas), the greenhouse gas intensity was 80 g CO 2 e/kWh. The decrease was driven by the lower generation and coal usage at our CHP plants, fewer projects reaching COD, and higher wind and solar generation. 8038 14760 16558 2023 2022 2021 Greenhouse gas emissions intensity CO 2 e/kWh Scope 1-2 Scope 1-3 (excl. natural gas sales) 15.1 15.7 13 20232021 2022 41 % Women 59 % Men ↓ See more in our ‘Corporate governance’ section. 50 % Danish 50 % Other 8 Management's review | Overview ØRSTED ANNUAL REPORT 2023 Looking ahead to deliver on our updated ambition ↑ Mads Nipper and Thomas Thune Andersen. Letter to our stakeholders Despite a year with strong underlying business pro- gress, 2023 marked a year with substantial challenges for Ørsted. In the autumn of 2023, we took the tough but necessary decision to cease development of our Ocean Wind 1 offshore wind project in the US in the form it was awarded by the New Jersey Board of Public Utilities. In the wake of the COVID-19 pandemic and Russia's invasion of Ukraine, Ocean Wind 1 had been faced with a variety of challenges, such as higher costs of capital (US risk-free rate increasing by approx. 300 bps from the award in 2019), cost inflation, supply chain challenges, and slow permitting. As explained in our interim financial report for the first nine months of 2023, the decision to cease the development was taken after additional supplier delays further impacted the project schedule, which led to an additional significant delay to the project. In addition, we had updated our view on certain assumptions, including tax credit monetisation and the timing and likelihood of final construction permits. Finally, continued increases to long-dated US interest rates had further deteriorated the business case. In addition to the impairments we recognised in the third quarter on Ocean Wind 1 and other of our US projects, the decision to cease development of Ocean Wind 1 resulted in significant costs for terminating contracts, driven by high commitments prior to reach- ing final investment decision (FID). We have reviewed our Ocean Wind 1 project and are implementing the learnings into our operating model to reduce risks in the development and execution of projects, with a particular focus on monitoring of and updates on project execution, including risk reviews with the Group Executive Team and the Board of Directors, structured external reviews for select projects, internal peer assessments, contingency planning, and monitoring of suppliers. Furthermore, we will prioritise inflation protection in offtake arrangements in future projects. 9 Management's review | OverviewØRSTED ANNUAL REPORT 2023 We will continue our work to manage future break- away profiles by scrutinising financial commitments before taking final investment decision (FID) to avoid high capital commitments relative to project maturity and by ensuring greater flexibility on project time- lines and commissioning dates as well as phasing of CAPEX. We will use the breadth of our execution portfolio and our deep, industry-leading capabilities to ensure greater resilience to external shocks or supply chain weaknesses across the portfolio. Our fundamental strategic choices on technologies and regions are unchanged. We aim to be the world leader in Offshore and a regional player in Onshore and P2X in Europe and the US. However, we have revisited our portfolio to prioritise growth options with the high- est potential for value creation. In the US, our offshore wind portfolio will primarily be focused towards the North-East Atlantic, and to reduce development costs, we are exiting several offshore markets (e.g. Norway, Spain, and Portugal), deprioritising development activities in Japan, and plan for a leaner development within floating offshore wind and P2X.As a result of this, we have updated our ambition for installed renew- able capacity to 35-38 GW by 2030, which is more than a doubling of our current installed capacity. By 2026, we expect to have an installed capacity of 23 GW. For Offshore, the 2026 contribution will be based on projects already under construction or awarded (assuming rebid award to Sunrise Wind), whereas the Onshore contribution will come from a mix of projects under construction and in our pipeline. We will go beyond decarbonising energy systems and proactively enhance nature through biodiversity initiatives to deliver a sustainable build-out, which is net-positive to society. We are confident we can deliver on this commitment as our underlying business of operating assets remains strong as reflected in our underlying financial performance, which was above our initial guidance. Capital structure The costs related to terminating our Ocean Wind 1 project as well as lower forward power prices, further supply chain delays and costs to mitigate this, increas- ing capital expenditures (per MW) and OPEX due to cost inflation and supply chain bottlenecks have negatively impacted our credit metric (FFO/adjusted net debt) projections in 2023\. Therefore, we have taken and will continue to take measures to ensure a robust balance sheet, supporting long-term growth and capital struc- ture resilience towards 2030\. Besides reducing our growth ambition, and thereby reducing capital expenditures and project development costs, we have decided to pause dividends for the finan- cial years 2023-2025 and will accelerate our divestment programme. In addition, we have set a target to reduce our fixed costs by DKK 1 billion by 2026 compared to 2023, on a like-for-like basis, by simplifying our organisa- tion and increasing our efficiency. We have updated our financial targets to reflect our new strategic ambition for installed capacity by 2030\. We maintain our targeted value creation of 150-300 bps spread to WACC when we bid in tenders or take FIDs. Based on the GW ambition and value creation target, we expect our EBITDA to increase to approx. DKK 39-43 billion in 2030, corresponding to an annual growth (CAGR) of 8 %. Additionally, we expect to achieve a return on capital employed (ROCE) of 14 % on average towards 2030. In 2026, we expect EBITDA to reach approx. DKK 30-34 billion. To enable our build-out, we have a DKK 270 bil- lion investment programme towards 2030, of which we expect to use approx. DKK 130 billion by 2026. To support this programme, we expect farm-downs and divestments to contribute with proceeds of approx. DKK 115 billion towards 2030, of which DKK 70-80 billion is expected in 2024-2026. In 2023, we recycled capital of DKK 8 billion by divesting the remaining 25 % of the offshore wind farm London Array to funds managed by Schroders Greencoat and farming down 50 % of Gode Wind 3 in Germany to funds managed by Glennmont Partners from Nuveen. We have identified a portfolio of assets, which we aim to farm down or divest in 2024 and the coming years. As of now, we have selected Cathay Life Insurance as preferred bidder for the acquisition of a 50 % ownership stake in Greater Changhua 4. Strategic and operational progress remains strong While our current situation has required adjustments to our growth trajectory, our traction and underlying momentum remained strong in 2023. Our large port- folio of renewable assets continued to grow within both Offshore and Onshore with several projects reaching COD and FID. Our renewable share of heat and power generation amounted to 93 %. In 2023, we advanced three large offshore wind projects with a total capacity of 4.5 GW to FID, one in the UK, the US, and APAC, respectively. In the UK, we reached a significant milestone when our offshore wind farm Hornsea 3 reached FID. With a capacity of 2.9 GW, it will be the world's single largest offshore wind farm. Hornsea 3 will provide low-cost renewable energy for the UK and deliver thousands of high-quality jobs and billions of pounds of investment in the UK's offshore wind supply chain. Additionally, we received development consent for Hornsea 4 In the UK, we reached a significant milestone when our offshore wind farm Hornsea 3 reached FID� With a capacity of 2�9 GW, it will be the world's single largest offshore wind farm� 10 Management's review | OverviewØRSTED ANNUAL REPORT 2023 from the British authorities, enabling us to continue the development of the project. The possible future addition would create an offshore wind cluster in excess of 7 GW. In APAC, another important achievement was reached with the FID of our 0.9 GW offshore wind farms Greater Changhua 2b and 4. We expect completion of the wind farms by the end of 2025. Additionally, we are finalising Greater Changhua 1 and 2a, which are Taiwan's first large-scale offshore wind farms. The last four of the 111 turbines will be installed in the spring of 2024 with subsequent COD in Q2 2024. With a total capacity of more than 1.8 GW, these wind farms represent a significant contribution to Taiwan's transition to new energy sources and its decarbonisa- tion journey. The US is still an important region for us, and in November, we took FID on our offshore wind farm Revolution Wind, which we own in a 50/50 partnership with Eversource. The 0.7 GW wind farm has an attrac- tive forward-looking value creation and will power more than 350,000 homes across Rhode Island and Connecticut. At South Fork in New York, we are in the final stages of constructing what will be New York's first offshore wind farm. We expect COD in Q1 2024. In January 2024, we signed an agreement with Eversource to acquire their 50 % share of Sunrise Wind. The acquisition is subject to the successful award of Sunrise Wind in the ongoing New York 4 solicitation for offshore wind capacity, signing of an OREC contract with New York's energy agency, NYSERDA, entry into long-form acquisition agreements, receipt of construc- tion and operations plan (COP) approval, and relevant regulatory approvals. If the project is not successful in the solicitation, the existing OREC contract for Sunrise Wind will be cancelled per the state's requirements, and our 50/50 joint venture with Eversource will remain in place. In that scenario, the joint venture will evaluate its next steps. In Germany, our offshore wind farms Gode Wind 3 and Borkum Riffgrund 3 are progressing according to plan with CODs in 2024 and 2025, respectively. The wind farms will have a total capacity of 1.2 GW once completed. We continue to explore new value-creating oppor- tunities for offshore wind. In Ireland, we entered into a partnership with ESB, the leading utility company in the country, to jointly develop an Irish offshore wind portfolio. Furthermore, we were granted a 1.6 GW electricity business license (EBL) by the Korean Ministry of Trade, Industry & Energy for an offshore wind project located 70 km off the coast of Incheon City. Our Onshore business continues to grow. In 2023, four projects with a total capacity of 0.6 GW reached COD, and we added several new assets to our portfolio. In the US, we completed the onshore wind farm Sunflower Wind in Kansas, and in Arizona, we began the construction of Eleven Mile Solar Center, a solar and battery energy storage system (BESS) with Selected events March 920 MW FID on offshore wind farms Greater Changhua 2b and 4 (920 MW), Taiwan. COD expected in 2025 May Construction commenced on carbon capture project, Kalundborg CO 2 Hub, Denmark August Divestment completed of remaining 25 % of the UK offshore wind farm London Array to funds managed by Schroders Greencoat September 201 MW Completion of onshore wind farm Sunflower Wind (201 MW), Kansas, the US Acquisition of Eversource's share of uncon- tracted offshore wind seabeds, including Lease Area 500 in the US November Development of US offshore wind projects Ocean Wind 1 and Ocean Wind 2 ceased Impairments on US projects, primarily relating to Ocean Wind 1 FID on US offshore wind farm Revolution Wind, Rhode Island (704 MW) Implementation of changes to executive management: Daniel Lerup (CFO) and Richard Hunter (COO) stepped down Grant of 1.6 GW electricity business license for Incheon offshore wind project in Korea December 50 % Completion of divestment of 50 % of German offshore wind farm Gode Wind 3 to funds managed by Glennmont Partners from Nuveen Partnership with Breakthrough Energy Catalyst, the European Commission, and the European Investment Bank on FlagshipONE in Sweden. Breakthrough Energy Catalyst acquired 15 % equity share of the project FID on Garreenleen Solar Farm, first phase (81 MW AC ), Ireland 2.9 GW FID on UK offshore wind farm Hornsea 3 (2.9 GW). COD expected in 2027 January Agreement signed to acquire Eversource's 50 % share of Sunrise Wind (924 MW), New York February 35-38 GW Updated capacity target for 2030 11 Management's review | OverviewØRSTED ANNUAL REPORT 2023 expected completion in 2024\. In Texas, the construction of our 471 MW AC Mockingbird Solar Center is going as plan-ned, with COD expected in the second half of 2024\. We continue to develop our European onshore renew- ables portfolio. In the UK, we entered our first solar project in 2023, One Earth Solar Farm, a 740 MW AC solar project with associated battery storage. If built, it will be one of the largest solar farms in the country. Addi- tionally, we took FID on phase one of Garreenleen, our first solar project in Ireland, and in January 2024, the onshore wind farm Farranrory in Tipperary reached FID. We secured contracts for both projects in the Irish Government's third onshore auction. Lastly, we entered a partnership with renewable energy developer Terra Solar to develop a portfolio of Irish solar projects with a capacity of up to 400 MW AC . In our P2X business, the construction of our Flagship- One project has started. It is the largest e-methanol project under construction in Europe, and we expect it to start production in 2025\. To support this innovative project, Breakthrough Energy Catalyst will acquire a 15 % equity interest in FlagshipONE and provide a grant, subject to the fulfilment of funding conditions. In addition, FlagshipONE is also expected to receive a grant from Horizon Europe and a quasi-equity investment from EIB through InvestEU. In December, we embarked on the construction of the two carbon capture and storage (CCS) facilities in our project Ørsted Kalundborg CO 2 Hub, which has been awarded a 20-year contract by the Danish Energy ↑ Offshore wind farm construction in progress in the North Sea, Germany. Agency (DEA). During 2025, the Asnæs and Avedøre combined heat and power plants will begin to capture and store biogenic carbon. Financial results EBITDA totalled DKK 18.7 billion in 2023 compared to DKK 32.1 billion in 2022. EBITDA excluding new partnerships and cancellation fees amounted to DKK24.0 billion, an increase of DKK 3.0 billion com- pared to 2022 and above our guidance of DKK 20-23 billion. Earnings in 2023 were impacted by a provision of DKK9.6 billion for cancellation fees related to ceasing the development of the Ocean Wind 1 project. EBITDA from new partnerships in 2023 contributed with DKK 4.3 billion and was related to the divestment of London Array and the 50 % farm-down of Gode Wind 3. Earnings from sites in operation in Offshore more than doubled to DKK 20.2 billion in 2023 due to ramp-up of generation at Greater Changhua 1 and 2a and Hornsea 2, and as the negative effects from hedges in 2022 were not repeated in 2023\. Earnings from Onshore decreased due to lower-than-expected power prices and wind speeds and availability issues at some of our assets in the US. Similarly, earnings in Bioenergy & Other decreased due to lower power prices and lower optimisation opportu- nities related to gas storages and sourcing contracts. In 2023, we recognised impairments of DKK 26.8 billion, with the majority (DKK 19.9 billion) relating to Ocean Wind 1. 12 Management's review | OverviewØRSTED ANNUAL REPORT 2023 ROCE was -14.2 % for the year. Adjusted for impairments and cancellation fees, ROCE amounted to 12.9 % in 2023\. Profit for the year amounted to DKK -20.2 billion. Excluding impairments (after tax) and cancellation fees, profit for the year was DKK 14.9 billion. Employees and safety We value our employees at Ørsted, and we are pleased that our employee satisfaction measured in our annual employee survey showed 76 in 2023, which is at level with last year and within the top 25 % percentile of our external benchmark. Equally important is our strong safety culture, which is anchored in our organisation. In 2023, we further reduced our total recordable injury rate (TRIR) to 2.8, down from 3.1 last year. We are very pleased with this development and will continue to focus on reducing it even further. As part of our ambition to reduce our fixed costs and increase our efficiency, we will be reducing a number of positions in the organisation and unfortunately also see Mads Nipper Group President and CEO Thomas Thune Andersen Chair of the Board of Directors redundancies. We are committed to carrying through these redundancies in a fair and respectful manner. Maintaining and improving the motivation and well- being of our remaining employees remain a key priority to us. Looking ahead The year 2023 turned out to be a challenging year for the renewable industry in general and for Ørsted in particular. And while the pressures on the renew- able industry continue, we have seen positive initia- tives from politicians and governments to support a sustainable and viable build-out of the industry. In Europe, the Net-Zero Industry Act proposed by the European Commission and the shared Action Agenda agreed by the North Sea countries and the European Commission are signs of this and supplement the US Inflation Reduction Act from 2022. However, the pace with which it is moving forward needs to be accelerated. In the offshore industry, awarded prices must reflect the higher cost and interest levels across markets. Recently, the UK government significantly increased the maximum CfD level for the upcoming auction in 2024, and in New York, we saw higher PPA prices in the state's third offshore wind solicitation round. These are positive signs for the industry. Focusing solely on concession payments as key decision crite- ria in auctions risks putting additional pressure on the supply chain and leaves limited room for investing in scaling manufacturing capacity. For offshore wind, regaining momentum is crucial to realise the strong value proposition it offers for socie- ties and its key role in the renewable energy transition. We continue to engage stakeholders and partners to jointly overcome challenges to create a renewable, secure, and affordable energy system. We are dedicated to restoring our capital structure, and we will work disciplined towards our long-term growth ambition for 2030 through prioritised growth options with the highest potential for value creation. We have learned from this year's challenges, and we are adapting our operating model to further strengthen our ability to shape and lead our industry. We remain optimistic about the future of the renewa- ble energy industry. The global ambitions for renewa- ble energy have never been higher. Most recently, we saw this at COP28 where more than 130 governments agreed to work together to triple the world's renewa- ble energy capacity by 2030\. We are confident we can be a key contributor in accelerating the renewable build-out in the years to come. We have learned from this year's challenges, and we are adapting our operating model to further strengthen our ability to shape and lead our industry� 13 Management's review | OverviewØRSTED ANNUAL REPORT 2023 Renewable capacity Consisting of 15.7 GW in operation (installed), 8.3 GW under construction (FID'ed), and 3.7 GW awarded. In addition, we have substantiated pipelines of 16 GW in Offshore and 11 GW in Onshore. See page 92 ‘Overview by business unit’ for more information. 27.8 GW Denmark 3.0 GW Offshore CHP plants Sales of energy P2X France 0.1 GW Onshore Solar PV Sweden 0.1 GW Offshore P2X Sales of energy United Kingdom 8.6 GW Offshore Onshore Solar PV Storage United States of America 7. 5 GW Offshore Onshore Solar PV Storage P2X The Netherlands 0.8 GW Offshore P2X Germany 2.6 GW Offshore Onshore Solar PV Taiwan 1.9 GW Offshore Korea Offshore Australia Offshore Poland 2.8 GW Offshore Ireland 0.5 GW Onshore Solar PV Our footprint Capacity GW United States of America 1.8 3.2 2.1 0.3 Offshore Onshore Solar PV Storage Capacity In operation Under construction Awarded United Kingdom and Ireland 8.5 0.5 0.1 Offshore Onshore Solar PV APAC 1.9Offshore Continental Europe 7.0 0.2 0.1 2.8 3.4 Offshore Onshore P2X CHP, power CHP, heat Spain Onshore 14 Management's review | OverviewØRSTED ANNUAL REPORT 2023 Outlook 16 Financial and ESG outlook 2024 18 Financial targets and policies → In 2023, we became the first energy company to join the Global Offshore Wind Alliance, committing to accelerating offshore wind deployment globally and contributing to the alliance's ambitious targets. 15 Management's reviewØRSTED ANNUAL REPORT 2023 Financial and ESG outlook 2024 Group EBITDA guidance Our EBITDA guidance does not include earnings from new partnership agreements and also excludes impact from potential changes in cancellation fees relating to ceasing the development of Ocean Wind 1. Operating profit (EBITDA) excluding new partnership agreements and cancellation fees is expected to be DKK 23-26 billion in 2024. As in previous years, we could see offsetting effects between the business units compared to our direc- tional guidance. Offshore – lower Earnings from sites are expected to increase in 2024 compared to 2023: · Ramp-up of generation from Greater Changhua 1 and 2a, South Fork, and Gode Wind 3. · Total power generation expected to increase by approx. 15 %. · Inflation adjustment on ROC and CfD farms, partly offset by lower prices on merchant assets and a step down in subsidy level for our older German assets. · Partly offset by lower positive impact from reversal of temporary IFRS 9 adjustments. Earnings from existing partnerships are expected to decrease compared to 2023, mainly driven by: · positive effects from wake and warranty provisions in 2023 not expected to be repeated in 2024 · higher costs related to M&A activities. ‘Other, including project development’ in Offshore is expected to increase compared to 2023, mainly due to: · internal costs related to the close-down of the Ocean Wind 1 project being expensed · a higher share of costs being expensed rather than capitalised (no increase in underlying cost base). Onshore – significantly higher Earnings in Onshore (excluding new partnership agree- ments) are expected to increase compared to 2023. The positive impact on EBITDA in 2024 is driven by: · ramp-up of generation from the wind part of Helena Energy Center, Eleven Mile, Old 300, Sunflower Wind, and Mockingbird · higher expected availability in the US · total power generation expecting to increase by approx. 30 % · partly offset by slightly lower prices · project development and general costs expected to be in line with 2023. Guidance on 2024 EBITDA without new partnerships and cancellation fees DKKbn 2023 2024 Offshore 24.0 ~1. 5 Sites Existing partnerships OnshoreOther, incl. DEVEX Bioenergy & Other ~1.0 ~1. 5 ~1.0 ~0.5 23-26 Onshore Bio & Other Outlook 2024 2023 Realised 2024 Guidance Financial outlook, DKK billion EBITDA (without new partnerships, excl. cancellation fees) 24.0 23-26 Offshore 19.1 Lower Onshore 3.0 Significantly higher Bioenergy & Other 1.5 Significantly higher Gross investments 38.5 48-52 ESG outlook Greenhouse gas emissions intensity (scope 1, 2), CO 2 e/kWh 38 Lower Greenhouse gas emissions intensity (scope 1-3 excl. natural gas sales), g CO 2 e/kWh 80 Higher Greenhouse gas emissions from natural gas sales (scope 3), million tonnes CO 2 e 3.9 Higher Gender balance – gender with lowest representation (female) 34 Higher Our EBITDA guidance for the Group is the prevailing guidance, whereas the directional earnings development per business unit (and components) serves as a means to support this. Higher and lower indicate the direction of the business unit's earn- ings relative to the results for 2023. 16 Management's review | Outlook ØRSTED ANNUAL REPORT 2023 § Forward-looking statements The annual report contains forward-looking statements, which include projections of our short\- and long-term financial performance and targets as well as our financial policies. These statements are by nature uncertain and associated with risk. Many factors may cause the actual development to differ materially from our expectations. These factors include, but are not limited to, changes in temperature, wind conditions, wake and blockage effects, precipitation levels, the development in power, coal, carbon, gas, oil, currency, inflation rates, and interest rate markets, the ability to uphold hedge accounting, changes in legislation, regulations, or standards, the renegotiation of contracts, changes in the competitive environment in our markets, reliability of supply, and market volatility and disruptions from geopolitical tensions. Read more about the risks in the chapter on ‘Risks and risk management’ and in note 6 ‘Risk management’ in the financial statements. Furthermore, the proceeds we can realise from our anticipated farm-downs and divest- ments as part of the measures we take to support a robust capital structure are subject to uncertainty. Bioenergy & Other – significantly higher Earnings from CHP plants (including ancillary services) and ‘Gas Markets & Infrastructure’ are expected to increase compared to 2023. The positive impact on EBITDA in 2024 is driven by: · earnings from our CHP plants, which are expected to increase as 2023 were negatively impacted by the high costs of biomass and coal relative to the market price of power. This was partly offset by lower prices and market spreads in 2024 · earnings from our offshore oil and gas pipelines in ‘Gas Markets & Infrastructure’, which are expected to increase due to the anticipated re-opening of the Tyra gas field (not owned by Ørsted) in April. Gross investments Gross investments for 2024 are expected to amount to DKK 48-52 billion, mainly driven by: · Offshore (Greater Changhua 2b and 4, Revolution Wind, Sunrise Wind, South Fork, Hornsea 3, Borkum Riffgrund 3, Gode Wind 3, and Baltica 2) · Onshore (Mockingbird, Eleven Mile, and projects from our substantiated pipeline in both the US and Europe). Our gross investments guidance for 2024 assumes that we acquire full ownership of Sunrise Wind in H1 2024. Uncertainties, prices, and hedges The most significant uncertainty to the operating profit in 2024 is the power generation, which depends on wind conditions, ramp-up of new wind and solar assets, asset availability, timing of possible farm-downs, and the attractiveness of spreads on our CHP plants. Our wind and solar PV assets are largely subject to prices that are indexed to inflation or are fixed nominal, implying a high degree of revenue certainty, setting aside the above-mentioned volume risk. This means that we know the price (or minimum price) per generated MWh for most wind farms in Denmark, the Netherlands, the US, and Germany and for the CfD wind farms in the UK. For our British ROC wind farms, we also know the subsidy per generated MWh, which we will receive in addition to the market price. In 2024, 81 % of our expected revenue from our wind and solar PV assets will be inflation-indexed or fixed nominal. The remaining 19 % will be exposed to fluc- tuations in power prices. Our hedging approach is to hedge up to 70 % of this remaining merchant exposure. For 2024, we have hedged approx. 60 % of this, leaving Ørsted with an unhedged price exposure of 8 % from generation from our wind and solar PV assets. See note 6.2 ‘Energy price risks’. High gas and power price volatility could impact earn- ings for the year through optimisation possibilities of our gas storage and sourcing contracts as well as higher balancing and intermittency costs. In addition, a delay in the reopening of the Tyra gas field could adversely impact earnings from our gas activities. Greenhouse gas emissions The greenhouse gas emissions intensity for scope 1 and 2 is expected to decrease in 2024 due to higher renewable generation, and as we expect to cease coal-based power generation in August. However, as all scope 3 emissions from renewable assets are included from COD, we expect the scope 1-3 emissions to increase as more of our renewable assets reach COD in 2024. Due to the anticipated reopening of the Tyra gas field in April, we expect more gas delivered under our con- tract with The Danish Underground Consortium (DUC). Therefore, we expect an increase in our scope 3 emis- sions from natural gas sales. 17 Management's review | OutlookØRSTED ANNUAL REPORT 2023 Financial targets and policies Capital Markets Update On 6 February 2024, we have updated our strategic growth ambition and financial targets and policies. The updated targets and policies are presented below. Financial targets We have three key financial targets to support our self-funded build-out of approx. 35-38 GW of renew- able capacity by 2030. The financial targets cover (see details in the table to the left): · spread to WACC on investments · EBITDA · ROCE. Financial policies and capital allocation The Board of Directors has decided to pause dividend payments for the financial years 2023-2025. Here- after, the target is to reinstate dividend payments. To ensure we have financial robustness and the strength to operate in the international energy and financial markets, we target a solid investment grade rating with all three major ratings agencies. This includes an FFO/adjusted interest-bearing net debt credit metric above 30 %. We will continue to invest our capital according to the following principles, in order of priority, to ensure a robust balance sheet to support a fully self-funded business plan to 2030: · We target FFO / adjusted interest-bearing debt above 30 %. · We target to reinstate dividend payments for the financial year 2026. · We will invest in value-creating growth opportunities. Financial targets Target Year Fully loaded unlevered lifecycle spread to WACC at the time of bid/FID 1 150-300 bps Continuous Group EBITDA excluding new partnerships and cancellation fees DKK 30-34 bn In 2026 DKK 39-43 bn In 2030 Average return on capital employed (ROCE) ~14 % 2024-2030 Financial policies Target Rating Solid investment grade with Moody's/S&P/Fitch Capital structure Above 30 % FFO/adjusted net debt Dividend policy No dividend payments for the financial years 2023-2025. Target to reinstate dividend from the financial year 2026. 1 Targeted range for spread to WACC at time of bid/FID (whichever comes first) for individual projects. The targeted range is not a hurdle rate, and consequently, there could be projects that deviate from the targeted range. Forward-looking statements are described on page 17. 18 Management's review | Outlook ØRSTED ANNUAL REPORT 2023 20 Renewable energy market 22 Strategic aspiration and growth platform 24 Executing our strategy 28 Business model 29 A call to action to foster a fast and sustainable build-out 34 Risks and risk management Strategy and business → 2023 saw us expand our Irish solar portfolio, partnering with renewable energy developer Terra Solar to develop a pipeline of projects that now total over 600 MW AC . We also took final investment decision on phase one of Garreenleen Solar Farm, marking our first solar investment in Ireland. Located outside of Carlow town, this 81 MW AC solar development project is expected to be operational by 2026. 19 Management's reviewØRSTED ANNUAL REPORT 2023 Renewable energy market The outlook for the renewable energy market is promis- ing. By 2050, it is expected that almost 70 % will come from wind and solar PV alone (IEA). This shift is sup- ported by increasingly larger renewable energy projects and a significant scale-up of transmission infrastructure connecting several markets. At the COP28 climate change conference in Dubai, more than 130 governments, including the European Union, agreed to work together to triple the world's installed renewable energy capacity by 2030. Towards 2030, we are anticipating exponential growth in the renewable energy market, with total combined capacity (offshore wind, onshore wind, solar PV, and energy storage) reaching more than 4,200 GW, excluding China (BNEF). Offshore wind is expected to increase by a combined average growth rate (CAGR) of 21 %. In 2024, we are anticipating up to 40 GW of offshore wind capacity to be auctioned. Forecasts for onshore renewables (wind, solar PV, and energy storage) indicate a CAGR of approx. 12 %, and global targets to meet forecasted demand for P2X now exceed 260 GW of installed electrolyser capacity by 2030\. However, reaching the 2030 ambition will require significant acceleration by the industry and governments through a doubling of the current rate of investment, scaling up through a mix of technologies, and addressing current barriers within the industry. Across the renewables market, we are seeing posi- tive signs of these ambitions, such as rising political momentum, increased support for offtake agree- ments, new sources of demand, and improved system integration and flexibility management. In September, the European Union updated its Renewa- ble Energy Directive to reach 42.5 % renewable energy consumption by 2030, requiring a massive increase in installed renewable capacity. Following this, the Euro- pean Commission presented a European Wind Power Action Plan in 2023 to help maintain a healthy and competitive wind energy supply chain. Additionally, the European Commission proposed a Net-Zero Industry Act to strengthen the European manufacturing capac- ity of net-zero technologies and overcome barriers to scaling up the capacity. Some initiatives are already on the table, which will provide significant opportunities for the renewable energy sector. However, to reach the ambition, the pace in which it is being moved forward needs to be accelerated. In November, the North Sea countries and the European Commission agreed on a shared Action Agenda to coor- dinate offshore auctions in the North Sea to increase the predictability of demand in the wind power supply chain, which will help facilitate investment in new capacity. In the UK, the government has further enhanced its commitment to the British Energy Security Strategy established in 2022 by announcing its 2023 Energy Security Plan (ESP). For the renewables industry, a key element is the contract for difference (CfD) auctions, which are now held annually. Furthermore, the govern- ment significantly increased the administrative strike price for the upcoming auction in 2024. This is a strong signal from the government, recognising the true cost of delivering offshore wind at scale in the current sup- ply chain constrained environment. In the US, we have seen positive support through the Inflation Reduction Act (IRA), which was put forward in 2022. The IRA provides USD 0.4-1.2 trillion in funding for investments in climate and renewable energy. However, while offshore wind projects commissioned towards the end of the decade will benefit from the IRA as intended, projects with earlier construction and commission schedules are experiencing challenges in qualifying for the support for domestic content due to the short-term lack of an established US supply chain, which is a prereq- uisite for getting the highest levels of support. Offshore wind industry Offshore wind remains a high growth industry and an important part of the global energy transition. As the only variable baseload power generation technology, 1 Estimated electrolyser capacity required to meet forecasted renewable H2 demand of 21 Mtpa, based on IEA's Announced Pledges Scenario (APS) H2 balance. Regional split indicates location of expected demand (which may differ from supply) and is based on internal estimates applied to IEA data. Source: BNEF (2022, 2023). ~x2.5 ~260 <1 ~3,840 ~1, 570 Offshore wind Installed capacity (excl. China) GW P2X Electrolyser capacity GW 1 Onshore renewables Installed capacity (excl. China) GW APAC ~28 Americas ~15 Europe ~90 ~x6 2023 2030 35 133 3 32 2022 2030 Rest of world ~1,000 APAC ~800 Americas ~870 Europe ~1,160 ~400 ~330 ~340 ~500 2022 2030 Rest of world, incl. APAC 130 Americas 52 Europe 78 20 Management's review | Strategy and business ØRSTED ANNUAL REPORT 2023 the benefits from offshore wind include high availabil- ity factors, the ability to serve land-constrained com- munities, and the continuous improvement of technol- ogy. It serves as a crucial lever for governments and industry to reach their renewable energy targets. The importance of offshore wind and its fundamental value proposition have never been stronger; however, several industry challenges must first be addressed to realise the required build-out. Over the last years, we have seen rising LCoE levels due to changing macroeconomic factors and sup- ply chain challenges. While there have been some price increases to power purchase agreements (PPA) and inflation-indexed agreements in certain markets, awarded prices do not yet reflect the higher cost and interest rate levels across all markets. Where prices are not reflective, the developers behind many of the awarded projects are seeking to renegotiate offtake agreements. If unsuccessful, projects may ultimately be terminated. While there has been increased align- ment on expectations, the conditions to date have challenged developers to move forward with projects. In the current market, the gigawatts auctioned by governments does not meet the demand from devel- opers. As a consequence, some governments choose to conduct auctions based on concession payments as the key decision criteria. To compensate for the upfront payments, developers must put additional pressure on the supply chain, which leaves limited room to invest in scaling manufacturing capacity. Moreover, it limits pro- ject-specific solutions that create a positive impact on biodiversity, advance social sustainability, and stimu- late innovation and system integration. Navigating and shaping the future of renewable energy The current market conditions require a new approach and joint industry action. At Ørsted, we are working to navigate and shape the future of renewable energy by engaging the right stakeholders and partners to jointly overcome challenges and create a secure and affordable renewable energy system. Close collabo- ration between governments and industry has been critical for the industry's maturation to date. For offshore wind, regaining momentum is of mutual interest to realise the strong value proposition it offers for societies and its key role in the green energy transition. Therefore, among our initiatives, we have developed a seven-point plan as an advice for governments and the industry to build momentum and navigate the challenges facing the offshore wind industry. The seven points are to: 1 acknowledge the challenges and mobilise politi- cal commitment to overcome them to instil market confidence and attract capital 2 build a bridge from development to operation for existing projects to enable the all-important ‘next wave’ of projects to drive industry investment 3 bring volumes to market and create foresight for demand to unlock supply chain growth Political initiatives Governments are implementing initiatives to meet ambitious future energy targets EU Net-zero Industry Act Strengthen the European manufacturing capacity of net-zero technologies DK / BE / NL / DE / NO / FR / IR / SE / LU / EU North Sea Action Agenda Integrated energy system by 2050, a sustainable and resilient supply chain in Europe, and a better balance between energy and nature in the North Sea UK Energy Security Plan Compliment British Energy Security Plan from 2022 UK FuelEU Maritime and ReFuel EU Require heavy transport energy consumers to decar- bonise their energy supply with a minimum obligation for green fuels, such as e-methanol and e-ammonia POLICIES AND LEGISLATION IN 2023 EU Renewable Energy Directive Sets an overall renewable energy target of at least 42.5 % binding at EU level by 2030, aiming for 45 %. US Inflation Reduction Act Tax credits to incentivise investment in renewable energy, P2X, and energy storage in the US UK British Energy Security Strategy Up to 50 GW installed offshore wind capacity by 2030 DK / BE / NL / DE Esbjerg declaration (North Sea) 65 GW installed offshore wind capacity by 2030 20 GW renewable hydrogen production capacity by 2030 150 GW installed offshore wind capacity by 2050 TW Offshore wind capacity build-out target 20 GW installed offshore wind capacity by 2035 KR Green New Deal 12 GW installed offshore wind capacity by 2030 European Wind Power Action Plan Help maintain a healthy and competitive wind energy supply chain SELECTED TARGETS AND INITIATIVES IN PREVIOUS YEARS 4 design tenders for sustainable industry growth to de-risk the build-out for both developers and energy consumers 5 introduce strong non-price criteria to ensure delivery and value creation while addressing long-term structural barriers to offshore wind build-out 6 ensure predictable, transparent, and fast per- mitting without compromising on environmen- tal or social sustainability 7 enable and empower a global and sustainable industry by carefully balancing domestic indus- trial policies with the needs for a level playing field and the potential synergies of global sup- ply chains. We believe that governments and industry can work together to weather the current challenges and facilitate future offshore wind deployment. 21 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 Strategic aspiration and growth platform Growth platform Offshore wind Onshore wind Solar PV Energy storage Renewable P2X Our aspiration is not about gigawatt capacity. Rather, it means reaching leading positions across five pillars: 1) to be one of the world's largest green electricity producers, 2) to be one of the world's larg- est and most value-creating deployers of capital to the green energy transformation, 3) to be the world's leading talent platform in renewable energy, 4) to be a globally recognised sustainability leader, and 5) to be a core contributor and catalyst for change towards reaching our vision of a world that runs entirely on green energy. As with the rest of the industry, we have felt the impact of market challenges over the past few years. This was made especially clear in August when we announced anticipated impairments on our US off- shore wind portfolio, in particular attributable to supply chain challenges as well as lack of favourable progress on tax credit guidance and increased interest rates. We have learnt from these challenges and are adapt- ing to changing market conditions. Our fundamental strategic choices on technologies and regions are unchanged. We aim to be the world leader in offshore wind and a regional player in onshore renewables and P2X in Europe and the US. However, we have accelerated an adaption of our operating model to better match our rapid expansion into the US and Taiwan and the broader market con- ditions. We have strengthened our risk processes and expanded regular reviews by senior executives and the Board of Directors. Based on our portfolio review and given our financial position, we have revised our GW ambition for installed renewable energy capacity. Our ambition is to reach 35-38 GW by 2030, which is more than double our current installed capacity of 15.7 GW. We aim to reach an installed capacity of 23 GW by 2026. Our vision is to help create a world that runs entirely on green energy. Vision Let's create a world that runs entirely on green energy 22 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 In offshore wind, we aim to remain a global leader in Europe, the Americas, and APAC, working towards our 2030 ambition of 20-22 GW. In the US, we have refo- cused our portfolio towards the Northeast Atlantic, and to reduce development costs, we are exiting several markets (e.g. Norway, Spain, and Portugal), deprioritising development activities in Japan, and planning for a leaner development within floating wind. Towards 2026, the growth contribution will largely be based on projects already under construc- tion or awarded. In onshore renewables, we are growing our platform across the US and Europe, working towards our 2030 ambition of 11-13 GW. Towards 2026, the contribu- tion will come from a mix of projects under construc- tion and in the pipeline. In the US, we are prioritising projects in select energy markets with an eye towards maximising value creation, while we focus on four core markets in Europe (Germany, Spain, the UK, and Ireland). In P2X, we plan for a more lean development and are working towards our 2030 ambition of ~1 GW, with projects in development in the US and Scandinavia. To enable the build-out, we plan to invest DKK 270 bil- lion in 2024-2030, of which we plan to invest DKK 130 billion trough to 2026\. The investments will be distrib- uted between technologies with approx. 70 % within offshore, 25 % within onshore, and 5 % within P2X and Bioenergy. 2030 ambition (~20-22, ~11-13, ~1, ~2) 2023 (8.9, 4.8, 0, 2.1) 15.7 35-38 GW Our growth platform Gross installed capacity GW Offshore Onshore P2X Bioenergy Europe Americas APAC Strong growth platform onshore renewables New growth platform other (incl. P2X) Global leader offshore wind >2 We are also taking action to enhance our capability set. We remain confident in our industry-leading scale, execution abilities, and commercial capabilities, but we want to make sure we stay ahead of competition. To enhance our competitiveness, we are adapting our operating model to fit the more unpredictable market and to increase the effectiveness of our organisation. We are also working on improving our revenue capa- bilities to take advantage of more and more auctions becoming merchant. We will continue to collaborate on developing robust integrated solutions with our strategic partners, including leading the structural shift towards corpo- rate demand at scale to deliver electrons at the right place, at the right time, and with the right profile. These efforts are important steps to continue to be a leader within renewable energy. Despite the current industry headwinds, we believe the future of renewables is bright, and we remain fully confident that we can ensure consistent value creation in the years to come while driving forward the green energy transformation. The financial targets and policies and the sustaina- bility ambitions supporting our strategic ambition are highlighted on pages 6 ‘Strategic ambitions’ and 18 ‘Financial targets and policies’. 23 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 Executing our strategy ↑ Looking up at Hornsea 2 offshore wind farm in the North Sea, the UK. Across our business, we have made considerable stra- tegic progress during 2023\. In the following sections, we have outlined some of our concrete achievements in the past year. Offshore wind In 2023, we took final investment decisions (FIDs) on three development projects, one in each of our three regions: Europe, the US, and APAC, and we further advanced construction of three projects in the regions. We formed valuable partnerships that will help us accelerate the development of offshore wind on the Irish coast and began the deployment of floating off- shore wind technologies in Scotland. We are the world leader in offshore wind, having devel- oped around a quarter of the global capacity installed, excluding China. We have played a key role in maturing the industry and have built more offshore wind farms worldwide than any other company. By the end of 2023, we had 8.9 GW of capacity installed, 6.7 GW of capacity under construction, and a further 3.7 GW of capacity awarded, resulting in a total capacity of 19.2 GW. Our commitment to offshore wind is highlighted by our status as the first energy company to join the Global Offshore Wind Alliance (GOWA) to accelerate offshore wind deployment and create a global community of action, consisting of governments and companies. Another important milestone has been reached through a pioneering sustainability partner- ship between Ørsted and Vestas, both recognised as global leaders in renewable energy. Under this part- nership, we commit to source low-carbon steel wind turbine towers and blades made from recycled mate- rials from Vestas for all joint offshore wind projects, advancing the agenda for net-zero wind farms. Strategic progress and expansion of our portfolio In the UK, a significant milestone was achieved, as our offshore wind farm Hornsea 3 reached FID. With a capacity of around 2.9 GW, the wind farm will become the world's single largest offshore wind farm. Hornsea 3 will provide low-cost, green energy for the UK and deliver thousands of high-quality jobs and billions of pounds of investment in the UK's offshore wind supply chain. For Hornsea 4, we received development consent from the British authorities to continue the develop- ment of the project. The possible future addition would create an offshore wind cluster in excess of 7 GW, making it the largest offshore wind zone in the world. In Asia Pacific, we took FID on Greater Changhua 2b and 4 with expected CODs in 2025\. Additionally, we are finalising the construction of Taiwan's first large- scale offshore wind farms, Greater Changhua 1 and 2a. The final four of the 111 turbines are expected to be installed in the spring of 2024, and the wind farm will then reach COD, expectedly in Q2 2024. 24 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 With a total capacity of more than 1.8 GW, these con- struction projects represent a significant contribution to Taiwan's transition to new energy sources and its decarbonisation journey. In the US, we took FID on the 704 MW Revolution Wind project, which we own in a 50/50 partnership with Eversource Energy. Onshore construction has started, and offshore construction will start in 2024, with the completion of the project expected in 2025\. Construction of our German portfolio is progressing. We have finalised installation of foundations for our offshore wind farm Gode Wind 3, and at Borkum Riffgrund 3, the installation of foundations has com- menced. The wind farms have expected CODs in 2024 and 2025, respectively. Once completed, the wind farms will have a total capacity of 1.2 GW. At our 130 MW South Fork project in the US, we have installed the first turbines which will send power directly to Long Island, New York. When fully com- plete, the project will consist of 12 turbines and gen- erate enough renewable energy to power 70,000 US households. Furthermore, we acquired Eversource's 50 % stake in Lease Area 500 adjacent to the associ- ated operational assets, and we now own 100 % of the area. German portfolio 1,166 MW Greater Changhua 1 and 2a 900 MW Greater Changhua 2b and 4 920 MW Baltica 3 1,255 MW Hornsea 3 2,852 MW Baltica 2 1,498 MW Sunrise Wind 924 MW Revolution Wind 704 MW South Fork 130 MW Offshore wind build-out plan Gross renewable capacity ~60 GW Opportunity pipeline 2 ~16 GW Substantiated pipeline 1 19.2 GW Installed capacity \+ decided + awarded 8.9 GW Installed capacity 15.5 GW Installed capacity \+ decided capacity 20 -22 GW 2030 ambition 1 Projects that have reached a level of maturity, such as secured exclusivity through a lease, secured consent or environmental impact assessment (EIA), or established partnerships but not yet taken final investment decision (FID). 2 Refers to early stage projects, which we are actively pursuing through tenders. In Ireland, we have entered into a partnership with ESB, the leading utility company in the country, to jointly develop an Irish offshore wind portfolio. With a mari- time area more than ten times the size of its landmass, Ireland is well-positioned to grow a strong offshore sector. The partnership also encompasses an agree- ment to explore opportunities from renewable hydro- gen produced from the projects in the longer term. The first of the offshore wind projects is expected to compete in the next Irish offshore wind auction. In Korea, we have been granted a 1.6 GW electricity business license (EBL) by the Korean Ministry of Trade, Industry & Energy for an offshore wind project located 70 km off the coast of Incheon City. The license grants us exclusive development rights for the Incheon off- shore wind project, which is set to become the largest in Korea on completion, with a capacity to provide renew- able energy to over one million Korean households. In January 2024, we signed an agreement with Eversource to acquire their 50 % share of Sunrise Wind. The acquisition is subject to the successful award of Sunrise Wind in the ongoing New York 4 solicitation for offshore wind capacity, signing of an OREC contract with New York's energy agency, NYSERDA, entry into long- form acquisition agreements, receipt of construction and operations plan (COP) approval, and relevant regulatory approvals. If the project is not successful in the solicitation, the existing OREC contract for Sunrise Wind will be cancelled per the state's requirements, and our 50/50 joint venture with Eversource will remain in place. In that scenario, the joint venture will evaluate its next steps. 25 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 In the rapidly developing Polish market, we are actively progressing Baltica 2 towards FID later this year, together with our partner PGE. In parallel, we are working collaboratively on the reconfiguration and revised schedule of Baltica 3. Ceasing development of Ocean Wind 1 and 2 In the US, we took the decision to cease the develop- ment of the Ocean Wind 1 project, in the form it was awarded by the NJ BPU. The decision was a conse- quence of additional supplier delays, leading to sig- nificant project delays, which, together with a lower anticipated probability of qualifying for tax credits and increasing interest rates, significantly deteriorated the value of the project. We also decided to cease the development of the adjacent Ocean Wind 2 project as currently awarded by the NJ BPU. As the OREC we have been awarded for our Skipjack project in Maryland no longer can ensure an investable project, we have decided to withdraw the OREC. In total, the three projects amounted to a capacity of 3.2 GW. Farm-downs During 2023, we reached an agreement with funds managed by Schroders Greencoat, a world-renowned specialist asset manager for renewable energy infra- structure assets, to sell our remaining 25 % minority stake in the offshore wind farm London Array in the UK. In addition, we concluded an agreement with Glennmont Partners of Nuveen, an infrastructure fund manager, to farm down 50 % of our shares in Gode Wind 3. Following a competitive divestment process, we selected Cathay Life Insurance, Taiwan's leading insurance company, as the preferred bidder for the acquisition of a 50 % ownership stake in our offshore wind farm Greater Changhua 4 in Taiwan. The dia- logue with Cathay Life Insurance is progressing well, and the transaction is expected to close in 2024. Onshore renewables In 2023, we added three projects to our assets under construction, and four of our projects reached COD, totalling a capacity of 0.6 GW. By the end of 2023, we had 4.8 GW capacity installed and 1.6 GW capacity under construction. To reach our ambition of 11-13 GW installed onshore capacity by 2030, we will need to add an additional 4-7 GW to our capacity. The additional capacity will be based on our substantiated pipeline of around 11 GW and other opportunities that may arise. Strategic progress and expansion of our portfolio In the US, we now have 15 operational onshore wind farms. In 2023, our 201 MW onshore wind farm Sunflower Wind, located in Kansas, became fully oper- ational, making it our latest edition to our growing US onshore portfolio. Sunflower Wind will be capable of providing renewable energy to more than 70,000 US households. 1 Projects that have reached a level of maturity (e.g., reached site control stage), but not yet taken final investment decision (FID). 2 Early development activities initiated. 3 Farranrory (43.2 MW) was FID'ed in January 2024. Garreenleen 81 MW Farranrory 3 43 MW German wind and solar farms 71 MW Eleven Mile 600 MW Mockingbird 471 MW The solar part of Helena Energy Center 250 MW Old 300 (remaining 20 %) 73 MW Onshore wind build-out plan Gross renewable capacity ~18 GW Opportunity pipeline 2 ~11 GW Substantiated pipeline 1 6.4 GW Installed capacity \+ decided capacity 4.8 GW Installed capacity 11-13 GW 2030 ambition French wind farms 33 MW 26 Management's review | Strategy and business ØRSTED ANNUAL REPORT 2023 We are constructing several solar PV farms in the US, further adding to our portfolio. In Texas, the con- struction of our 471 MW AC Mockingbird Solar Center is going as planned, with the installation of modules commencing and COD expected in the second half of 2024\. In Arizona, construction has begun on our com- bined Eleven Mile solar PV and storage project, with capacities of 300 MW AC and 300 MW, respectively. The project is expected to reach COD in Q2 2024. For the two solar projects Old 300 and the solar part of Helena Energy Center, we have been experiencing detainment of module shipments in 2022 and part of 2023\. However, for the solar part of Helena Energy Center, most of the modules have now been cleared from US customs and delivered to the sites. For Old 300, 80 % of the capacity has been commissioned. We expect the solar part of Helena Energy Center to reach COD in Q2 2024 and Old 300 to reach COD in Q3 2024. In 2023, we entered into one of the largest solar PV pro- jects in the UK, One Earth Solar Farm, with a capacity of 740 MW AC with associated battery storage. If built, it will be one of the largest solar farms in the country. If constructed, the solar farm in Nottinghamshire will generate enough renewable electricity to power up to 200,000 UK homes. Together with our co-developer PS Renewables, we are aiming for COD before 2030. Additionally, we acquired Garreenleen, one of the largest solar projects in Ireland. With a capacity of 160 MW AC , Garreenleen will be able to power up to 56,000 Irish homes annually. In December, we took FID on the first phase of the project (81 MW AC ). In January 2024, we took FID on Farranrory (43.2 MW). We secured contracts for both projects in the Irish government's third onshore action. We expect COD on both projects in 2026. Phase two of Garreenleen (79 MW AC ) is expected to be completed in 2027. In Germany, we began construction of our wind farm Bahren West 1 (50 MW) in September. Additionally, we entered into a partnership with renewable energy developer Terra Solar, headquar- tered in Dublin, to develop a portfolio of Irish solar projects with a capacity of up to 400 MW AC . During 2023, we signed several offtake contracts, including our first PPA with Google in the US, a 150 MW power purchase agreement spanning a 15-year period. The contract covers more than half of the capacity of our 268 MW Helena Wind Farm located in Texas, the US, and was commissioned in mid-2022. With this agreement, we have entered into PPAs with the tech companies Google, Amazon, and Meta in both Europe and the US as well as with Microsoft in the US. Evolving technologies In addition to offshore and onshore renewable technologies, we continue to explore possibilities within P2X and carbon capture. Strategic progress and expansion of our P2X portfolio During 2023, we entered a new era of sustainable shipping by breaking ground on FlagshipONE, Europe's largest e-methanol project, located in Northern Sweden. We expect the project to start production in 2025. Breakthrough Energy Catalyst will acquire a 15 % equity interest in FlagshipONE and provide a grant, subject to the fulfilment of funding conditions. Breakthrough Energy Catalyst is a first-of-its-kind model, bringing together government partners and leading organisations from across the private sector to fund and scale emerging climate technologies. With the funding supporting the project, we will seek to sign long-term offtake agreements, creating a new model for the shipping industry to purchase fuel, which will be needed for future projects to secure the capital required to scale the production of green fuels. In addition, FlagshipONE is also expected to receive a grant from Horizon Europe and a quasi-equity investment from EIB through InvestEU. In the US, we were awarded funding from the Department of Energy (DoE) as one of seven core industry participants in the US HyVelocity Hydrogen Hub. The vision of the HyVelocity Hub, which has been awarded USD 1.2 billion, is to create the nation's larg- est renewable hydrogen hub along the Gulf Coast. Our share of the funding is approx. USD 143 million. Pioneering carbon capture In December, we embarked on the construction of the two carbon capture and storage (CCS) facilities in our project Ørsted Kalundborg CO 2 Hub. It is expected that the project, which was awarded a 20-year contract by The Danish Energy Agency (DEA) in May 2023, will pave the way for capturing and storing 430,000 tonnes of biogenic carbon dioxide, setting a transformative precedent for our carbon reduction efforts. The project includes the installation of carbon capture technology at our wood chip-fired Asnæs Power Station in Western ↑ Sorne wind farm, Donegal, Ireland. Zealand in Denmark. In addition, we will install CCS technology at the straw-fired boiler at Avedøre Power Station in the Greater Copenhagen area in Denmark. In direct support to the project, Microsoft has agreed to purchase 2.76 million tonnes of high-quality, durable carbon removal over 11 years from the capture and storage of biogenic carbon. This represents one of the world's largest carbon removal offtake agreements by volume to date. 27 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 P a r t n e r s h i p s Energy products Key resources Financial capital — natural and human resources innovation culture — relational capital Value created Society — customers employees — shareholders Develop Secure our pipeline through grid access and permits Build Select suppliers and contractors and adhere to local content promises Operate Ensure high availability and balance power to the grid Own Manage and optimise our portfolio of assets and partnerships F o r m J V s a n d / o r s e c u r e o f f t a k e a g r e e m e n t s f o r e l e c t r o n s a n d m o l e c u l e s F a r m d o w n a s s e t s a n d s e c u r e t a x e q u i t y f u n d i n g D e l i v e r o n C P P A s a n d O & M a g r e e m e n t s F o r m J V s a n d s e c u r e C P P A s Business model Our core activities We create value by developing, constructing, operating, and owning renewable assets and by providing sustainable energy products to our customers. 28 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 A call to action to foster a fast and sustainable build-out Renewable energy is the cornerstone in the fight against climate change The global transition to renewable energy is the most important step we can take to counter climate change. Fossil-based energy continues to make up 74 % of global carbon emissions, and any remaining hope of keeping the rise in the global temperature to 1.5 °C hinges on immediate action to transform our energy systems at a speed and scale we have not seen before – more precisely, we need to triple global renewable energy capacity by 2030, as more than 130 governments recently pledged to do at COP28. To make this happen, we need far more action than current stated policies and commitments. And with the current challenges facing parts of the renewable energy sector, we risk further delays. Delays that we do not have the time for. We must find a way to build renewable energy now – and to do so, we must also build it right. How sustainability can help accelerate a successful energy transition towards 2030 The global renewable energy build-out will be the largest infrastructure project ever undertaken. It also represents an extraordinary opportunity to create positive value for both climate, nature, and wider society. In addition to decarbonising our energy sys- tems, renewable energy provides clean, affordable, and reliable energy, it improves air quality and health, and it strengthens energy security. And, when done sustainably, we can use it to take even further action for our climate and nature and boost local jobs, supply chains, and socio-economic development. We need a new, shared vision for how we deliver renewable energy. A vision that accelerates the energy transition in a way that supports our nature and societies as well as a resilient renewable energy industry. Only then can we deliver the transition at the pace and scale we so urgently need. However, the build-out of renewable energy is cur- rently facing implementation challenges, not least related to supply chain bottlenecks and concerns over impacts to nature and communities. A sustainable approach is not just a desirable goal we can achieve if we chose to pursue it – it is essential to address these challenges. Building in balance with nature and people is therefore not only the right thing to do but fundamental to enable a transition at pace and scale. Let's take a closer look at three examples of how a sustainable approach can help tackle some of the key challenges facing the build-out – while delivering a lasting positive impact on wider society. It can help strengthen supply chain resilience and play a role in decarbonising carbon emission intensive sectors Resilient renewable energy supply chains are essen- tial to deliver a rapid transition, but bottlenecks and material scarcities are slowing progress in many mar- kets. We can reduce some of these pressures medium- to long-term through a strategic use of decarbonisation and circularity efforts. By considering material mix, increasing recycling and reusing, and innovating for low-emission solutions, we can reduce the demand for virgin materials and alleviate capacity pressures while also diversifying suppliers. Moreover, by driving decarbonisation efforts through- out the supply chain, the renewable energy sector can make additional contributions to global climate targets. Our supply chains are dependent on carbon emission intensive sectors such as steel and shipping, which account for 7 % and 3 % of global emissions, respectively, and reducing emissions from these is therefore critical to limit global heating. By collab- orating with our suppliers and other industries that share the same supply chains, we can help incentivise and drive demand for net-zero solutions. At Ørsted, we work to do this through our science-based net- zero 2040 target validated by the SBTi. It can support the co-use of land and ocean and help revive nature The space required for the build-out will be significant, raising the need to find suitable areas at land and ocean where renewable energy can coexist with other users and nature. How we plan and manage the use of space is therefore of huge importance, and to be granted access to build renewables, we need to site thoughtfully. That is, in ways that respect other users, maximise space efficiency, and minimise environmental impacts. This is of particular importance as we are not only fighting a global climate crisis but also a biodiversity crisis. These two are often portrayed as being conflicting agendas, competing for space. However, they are in fact deeply interconnected, and we can take action to make them mutually supportive. As such, the build- out brings a unique potential to unite action on the two biggest crises of our time if we integrate action on nature protection, restoration, and enhancement into how we build and operate renewable energy. At Ørsted, we have set the ambition that all new renew- able energy projects we commission from 2030 onwards should deliver a net-positive biodiversity impact, and we have built an innovative and business-inclusive approach to get us there. 29 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 It can facilitate community support and deliver a positive impact on people A clear majority of the world's population supports renewable energy. However, for the communities living close to renewable energy projects, support is some- times replaced by concerns. To maintain the pace and scale of the build-out, it is crucial that we engage and consult with impacted communities to understand their needs and priorities and ensure they benefit from the energy transition too. In addition, renewable energy is, or will become, a new industry in many parts of the world. We can build it up in a way that generates millions of well-paid jobs. According to the International Energy Agency (IEA), the transition towards net-zero will lead to an estimated increase in energy sector jobs of 14 million by 2030. We can also use it to boost local supply chains and actively deliver and share benefits with communities through initiatives such as local job and training opportunities or co-ownership of assets. Realising this potential is a core part of how we want to drive the build-out at Ørsted, and we work hard to identify and integrate local jobs, training, and community engagement opportunities into our project delivery. Here is how we can do it – a call to action It is clear that if we are to deliver an energy transition at the pace and scale needed to meet the Paris Agreement, we must build sustainably. This will take ambitious action and enhanced collaboration. We therefore encourage all relevant actors to come together now – to use our voice and respective capabilities to facilitate and push for a sustainable build-out. Policy makers: The starting point is for policymakers to further include environmental and social perspectives beyond price into renewable energy deployment where this is not yet the case. Focusing only on price incentivises developers to solely optimise for the minimal cost of energy, undermining efforts to avoid and mitigate sustainability impact and resulting in a missed oppor- tunity for the wider societal value creation the sector can deliver. By incorporating supplementary criteria on societal value in tenders, governments can effec- tively incentivise such efforts – and simultaneously increase acceptance for the energy transition. The renewable energy industry: A critical step towards rewarding societal value cre- ation is the development of industry standards and measurement frameworks. This will also enable a more transparent and level playing field for which the industry can compete. At Ørsted, we are using our expertise to support this, and we have already made great strides for carbon, creating an industry life cycle assessment (LCA) model for offshore wind together with The Carbon Trust and 11 energy peers to meas- ure and compare carbon emission footprints. We are also collaborating with the Science Based Targets Network (SBTN) to develop a measurement frame- work for biodiversity and with a range of partners, including the Haas School of Business at the Univer- sity of California, Berkeley, and the Capitals Coalition, to define how to measure and track social impact that matters to our communities. Further joining forces on this with peers will be a powerful accelerator for suc- cess for the industry. ↑ 3D-printed reefs. Other industries: With a strong and collective demand pool across industries that share materials, we can more effec- tively incentivise investments in the sustainable solutions we all need. The First Movers Coalition is a great example of this. Here, we are building demand for decarbonised steel and concrete across indus- tries, creating incentives and opportunities for new low-emission technologies, partnerships, and ecosys- tems along the way. We can expand this approach to many more areas, using our combined power to drive real and fast transformation across supply chains. NGOs and academia: Finally, as an industry, we must continue to work together with NGOs and academia to join forces on advancing research and innovation. By combining our capabilities, we can accelerate learnings on measures and solutions and more strongly advocate for a build- out that is done right and done fast. Let's do it right, now Achieving the renewable energy build-out at the pace and scale needed will be a massive undertaking unlike anything we have done before. We have much work ahead of us, and while the road is far from easy, collectively, we can choose to act now to facilitate the energy transition we so urgently need – in harmony with nature and people. The good news is that we know what is needed and have most of the solutions ready; now we need accelerated action and will to scale a fast and sustainable build-out. Let's do it right, now. 30 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 Our approach to sustainability Sustainability is integral to how we operate as a business. On the following pages, we zoom in on focus areas currently guiding our approach and work. For detailed information on our sustainability efforts, including ambitions, actions, and performance data, please see the ‘Sustainability statements’ section. Creating value through sustainability Throughout everything we do, we are guided by how and where we can create the most value for both society and our business. We believe being clear on this is crucial to credibly set and deliver on ambitions as well as to direct efforts and resources to where we have the biggest potential for impact. From a societal perspective, we are guided by how we can best use our position, capabilities, and reach to address our key impacts as a renewable energy developer, including those where we must either mitigate negative impacts or are in a unique position to deliver positive value. From a business perspective, it is about using sustain- ability to help strengthen our resilience and ability to compete in a world with both increasing stakeholder expectations and challenges. We work strategically with sustainability to open new doors to customers, partnerships, and commercial opportunities. We em- ploy it to optimise our resource use and secure access to critical materials, new technologies, and talent. And we use it to attract financing and to develop resilient projects that can proactively address stake- holder expectations, avoid delays, and meet permit- ting and regulatory requirements. Combined, these considerations have led to the formulation of our four strategic focus areas: Science- aligned climate action; Green energy that revives nature; A green transformation that works for people; and Governance that enables the right decisions – and underlying priorities, see page 33. Together, the four areas respond to our material sustainability risks and opportunities. Climate change, resource use and circular economy, workers in the value chain, and affected communities (topics E1, E5, S2, and S3 according to the European Sustainability Reporting Standards (ESRS)) are assessed to be our most material sustainability matters, followed by biodiversity and ecosystems, own workforce, and business conduct (ESRS E4, S1, and G1). To read more about how we have identified these through a double materiality assessment, see the ‘General’ section in the sustainability statements on pages 68-79. Delivering on sustainability – moving from target to action It is the actions we take in the real world – the impact that we have on the ground – which matter the most. In recent years, we have committed to ambitious, and often long-term, targets. Translating these into tangible action today is a key focus of our work to demonstrate continuous progress and avoid long-term commitments failing to make a short-term impact. In 2023, we have again taken action to progress across our four focus areas. See selected highlights to the right. Science-aligned climate action Launched partnerships together with our strategic partners to reduce emissions from the key elements of an offshore wind farm, including towers, blades, and foundations. As the world's largest offshore wind devel- oper, we play a key role in incentivising investments in low-emission solutions. These solutions will not only benefit the climate but also our customers and business as it will help us meet future demands for net-zero solutions and future-proof our oper- ating model in the medium\- to long-term. Green energy that revives nature Made important progress towards our net-positive biodiversity ambition, success- fully testing our biodiversity measurement framework, which will help us measure biodiversity losses and gains at our assets, and initiating exciting new pilots to further innovate solutions, including our BioReef project in Denmark and our prairie restora- tion project in the US. These projects are a cornerstone of our approach as we are still learning and exploring along the way on how to best meet our commitment. A green transformation that works for people As a testament to our aspiration to deliver a build-out that works for people, we took the first steps towards measuring the total economic value (TEV) of our jobs and skills-building efforts. This will be an impor- tant tool going forward to demonstrate the value we can create for society. Launched Ørsted's first Youth Panel com- prised of eight young climate action leaders outside of Ørsted. By bringing them together with Ørsted's top decision-makers and inte- grating their perspectives into our corporate discussions centered around our sustainabil- ity agenda, the panel will serve as a plat- form for mutual learning and exchange to strengthen our sustainability efforts. Governance that enables the right decisions Launched a series of new initiatives to make our offices even more sustainable, introducing improved waste sorting as well as updated and more inclusive facilities, including spiritual and baby care rooms. Selected 2023 highlights across our focus areas 31 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 [](https://orsted.com/en/who-we-are/sustainability/climate/decarbonisation-of-supply-chain-and-natural-gas-wholesale/taking-action-towards-net-zero-wind-farms)[](https://orsted.com/en/who-we-are/sustainability/nature/net-positive-biodiversity-impact/working-with-wwf-for-ocean-biodiversity/bioreef)[](https://orsted.com/en/who-we-are/sustainability/nature/net-positive-biodiversity-impact/working-with-wwf-for-ocean-biodiversity/bioreef)[](https://orsted.com/en/who-we-are/sustainability/nature/net-positive-biodiversity-impact/boosting-biodiversity-on-land#restoring)[](https://orsted.com/en/who-we-are/sustainability/nature/net-positive-biodiversity-impact/boosting-biodiversity-on-land#restoring) Further embedding sustainability across our business Finally, to deliver on our sustainability ambitions, we need a systematic integration of sustainability across our business and decision-making processes to con- sider and address sustainability risks and opportuni- ties at the right times and in the right places. Last year, we made the strategic decision that all our future assets should be aligned with the EU taxonomy. Based on the taxonomy, we have now defined a sus- tainability standard for all Ørsted assets, and we are working to integrate performance requirements into our asset project model and relevant decision gates to ensure that all assets we build are taxonomy-aligned. We have also defined annual wheels for sustainability involvement for our Board of Directors and top man- agement committees, including our Group Executive Team, Sustainability Committee, and Audit & Risk Committee, and we have integrated sustainability metrics into our bi-annual portfolio review to inform our leadership of how their decisions impact our abil- ity to meet our 2040 net-zero target. Going forward, we will continue this work along with an increased focus on building sustainability compe- tences across the entire organisation, including for our top management and Board of Directors, to ensure we have the right expertise and understanding of sustain- ability at all levels. Altogether, at Ørsted, we work to push the renewable energy transition forward, by being a leading voice for a resilient and sustainable renewable energy industry and by demonstrating how renewable energy, when done right, can create transformational value for both society and business. ↑ Seagrass in the North Sea. © Dutch Maritime Productions 32 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 E S G ENVIRONMENT SOCIAL GOVERNANCE A green transformation that works for people Governance that enables the right decisions Science-aligned climate action Green energy that revives nature · Respect human rights and the rights of indigenous peoples · Support equity, diversity, and inclusion in the workplace · Ensure health, safety, and satisfaction of employees · Ensure safety of contractors · Develop skills and talent for the renewable energy sector · Support local communities · Promote and enable responsible business conduct · Conduct proper due diligence of suppliers and partners · Embed sustainability throughout our business · Advocate and engage for a sustainable industry · Deliver net-positive biodiversity impact from new renewable energy projects commissioned from 2030 onwards · Transition to circular resource use · Continue to use 100 % certified sustainable wooden biomass · Scale renewable energy deployment · Decarbonise own operations by 2025 · Decarbonise our supply chains by 2040 · Mobilise sustainable financing ESRS S1 Own workforce, page 112 ESRS S2 Workers in the value chain, page 120 ESRS S3 Affected communities, page 123 ESRS G1 Business conduct, page 127 Responsible tax practices: Note 4.1 ‘Approach to taxes’ in the financial statements EU taxonomy, page 81 ESRS E1 Climate change, page 87 Sustainable finance: Note 5.1 ‘Interest-bearing net debt and FFO’ in the financial statements, and our green bond impact report We scale our green energy business while delivering science-aligned emissions re- ductions, thereby enabling our customers to also take climate action We work to ensure that each of our energy projects contributes positively to a thriving nature We focus our efforts on making the green energy transition just and inclusive To deliver on our sustainability goals, we con\- tinuously work to integrate sustainability and integrity into processes and decision-making across our organisation Overview of our strategic sustainability focus areas PRIORITIES PRIORITIESPRIORITIES READ MORE READ MOREREAD MORE APPROACH APPROACHAPPROACH ESRS E4 Biodiversity and ecosystems, page 102 ESRS E5 Resource use and circular economy, page 107 33 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 [](https://orsted.com/greenbonds2023) High HighLow 4 12 3 56 Risks and risk management Risks are a natural and integral part of our business activities, and our risk profile changes continuously. We aim to mitigate our risks and reduce them to an acceptable level through risk management. How we assess risk Each year, we perform a risk assessment with the overall objective of identifying our most significant business, sustainability, and legal risks. All business segments, regions, and selected staff functions identify and prioritise business risks. An assessment is made of the potential financial impact of individual risks, and whether they are of a short-term (0-2 years), a medium-term (2-5 years), a long-term (5\+ years), or a recurring nature. All our risks are then consolidated and evaluated at Group level. Business risks are defined as incidents that, with some likelihood, will materialise and cause a negative impact on our earnings and costs and hence impact our credit rating and value. Many of our risks are inter- dependent, and movements in the macroeconomic environment will likely impact multiple business risks. The top six business risks identified are shown to the right where they are illustrated based on their poten- tial impact (post-risk mitigation) on our value and credit metrics over the next years. You can read more about these risks on the following pages. When we invest in new assets and activities or divest assets, the consolidated risks associated with our portfolio change. Therefore, we assess the impact of a given decision on the portfolio upfront and work systematically with risks. How we manage risk The Board of Directors oversees our risk management in general and have delegated the oversight of our financial and business-related risks to the Audit & Risk Committee. The responsibility for each of the individ- ual risks identified as part of the annual risk assessment rests with a member of the Group Executive Team. The purpose of our risk management is to identify and quantify our risks and decide how best to manage and mitigate them on an ongoing basis. In recent years, we have seen substantial adverse impacts on our business from financial risks and risks in relation to the development and construction of assets. This has led us to start implementing a new framework for governing our financial risks. Further- more, we are implementing the learnings from our review of the Ocean Wind 1 project into the govern- ance of our operating model to reduce risks in the development and execution of projects, with a par- ticular focus on monitoring of and updates on project execution including risk reviews with the Group Exec- utive Team and the Board of Directors, structured external reviews for select projects, internal peer assessments, contingency planning (including more proactive contracting for back-up supply chain capacity), and monitoring of suppliers (including from site visits to track manufacturing progress). Further- more, we will prioritise inflation protection in offtake arrangements in future projects. We will continue our work to manage future breakaway profiles by scrutinising financial com- mitments before taking final investment decision (FID) to avoid high capital commitments relative to project maturity, and by ensuring greater flexibility on project timelines and commissioning dates as well as phasing of CAPEX. Besides business risks (incl. financial risks), we also manage risks in connection with legal compliance and sustainability risks, both at a strategic and operational level. Development in risks in 2023 We have introduced ‘Farm-downs and partnerships’ as a new top six risk in 2023 and have seen changes in the relative importance of our top risks from last year. ‘Supply chain and cost inflation’ is now assessed to be our largest risk. Throughout the year, we have seen bottlenecks in several parts of our supply chain, lead- ing to increased costs and risk of delayed projects. Quantification of risks is based on a scenario where the risk occurs with 10 % probability (P90). Our Internal Audit function has examined the process for identifying and measuring the accompanying portfolio risks. Top 6 business risks Effect on our value and credit metric Change in risk quadrant from 2022 1 (#3 in 2022) Supply chain and cost inflation 2 (#1 in 2022) Inflation, interest rate, and currency risks 3 (New in 2023) Farm-downs and partnerships 4 (#2 in 2022) Power prices and energy markets 5 (#6 in 2022) Cybersecurity 6 (#5 in 2022) Competition Impact on FFO/adjusted net debt Impact on value ↑ ↓ ↑ 34 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 Such delays were the main driver behind the deteri- oration of our Ocean Wind 1 project, which led us to cease its development. Furthermore, the financial position of several suppliers in the market is stretched. ‘Inflation, interest rate, and currency risks’ is now assessed to be our second-largest risk. During the year, we have continued to see increasing inflation and interest rates across our markets. Higher interest rates have had an adverse impact on our WACCs and a negative effect on the NPVs of our projects, leading to impairments on our US portfolio. ‘Farm-downs and partnerships’ is placed as our third-largest risk. Higher interest rates and increased global geopolitical uncertainty are negatively impacting investor demand for renewable assets. Furthermore, the recent challenges in the offshore industry have led to multiple renewables companies rebalancing their investments and looking to divest parts of their portfolio, which might increase the sup- ply of renewable assets to potential investors. ‘Power prices and energy markets’ has moved down and is assessed as our fourth-largest risk in 2023. During 2023, energy prices have stabilised at a lower level compared to 2022, resulting in a partial reversal of cash posted for collateral and a reduction of our negative hedge reserve. The combination of lower hedge levels (in accordance with our new energy hedge framework), lower power prices, and fewer trades on exchanges subject to collateral have led to a reduction of this risk. ‘Cybersecurity’ has moved up as our fifth-largest risk. The geopolitical development over the past years has shown that cyberattacks remain a threat to our oper- ations. It is of the utmost importance that we protect our infrastructure and systems from malicious attacks. Furthermore, we can see that the demand for cyber- security professionals continue to rise and currently outpace availability. ‘Competition’ remains in our top six risks but has dropped to our sixth-largest risk, mainly because other risks have increased in magnitude. Extreme events In addition to our ordinary business risks, we are exposed to risks which have a very small probability of occurring, but which could potentially impact our finances or reputation substantially. These risks include but are not limited to: · fatal injuries · direct or indirect consequences of war and geo- political activity, which may lead to loss of production or assets or disrupt the financial and energy markets through extreme price movements and volatility · strong hurricanes, typhoons, hailstorms, arctic blasts, or earthquakes, especially in Taiwan and the US, which may lead to the partial loss of offshore and on- shore wind farms, solar farms, and storage assets · broken pipes at the Nybro Gas Treatment Plant in Denmark, which may lead to personal injury and damage to the environment · breakdowns at power stations that may lead to personal injury and partial loss of assets. Sustainability-related risks Climate and sustainability-related risks present finan- cial risk to the global economy as well as a risk to our planet as we know it. In Ørsted, climate and sustain- ability-related risks and opportunities are directly linked to our green vision and strategy, and we address them as an integral part of our daily business. For several years, we have reported on climate- related risks and opportunities as recommended by the Task Force on Climate-related Financial Disclosures (TCFD). This year, the climate change section in our new sus- tainability statements and the strategy and govern- ance sections in the management’s review cover all relevant TCFD disclosures. A full overview of our TCFD disclosures can be seen on page 139. In the sustainability statements, we have included a double materiality assessment (DMA). For impacts deemed significant or crucial, we have disclosed our mitigating actions. To read more, see page 70. Lastly, during 2023, we have assessed whether our taxonomy-eligible activities are taxonomy-aligned by determining if they: 1) contribute substantially to climate change mitigation, 2) do no significant harm to the other environmental objectives, and 3) com- ply with the minimum safeguards. Our assessment showed that all our eligible activities were aligned. ↑ Load-out of blades, South Fork, Connecticut, the US. 35 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 1\. Supply chain and cost inflation Description As a global renewable energy developer, we are exposed to risks related to cost inflation, supply chain bottlenecks, the performance of our suppliers, and our suppliers' financial positions. Among other things, we are exposed to highly volatile prices, which are influenced by high global demand with widespread application in various sectors. As the industry continuously grows with new techno- logical developments and enters new markets, we are exposed to potential bottlenecks in parts of the supply chain if there is no regional supply chain or only a limited number of suppliers capable of meeting future demands. We are also exposed to counterparty risks if one of our suppliers should default or deliver unsatisfactory products. Furthermore, we are exposed to risks, such as import restrictions and price increases related to trade restrictions. Potential impact The inability of our suppliers to deliver on agreed schedules, lack of available production capacity or transportation and installations vessels, and sudden inflation in key materials could result in project delays and budget overruns as well as cancellation of projects. Mitigating actions We enter into volume agreements and source wind turbines from key suppliers in a timely manner to reduce uncertainty, and we have entered into long-term vessel supply contracts. Based on the learnings from our US projects, we are currently adjusting our operating model to strengthen the focus on suppliers and introduce more flexibility and alternatives in our project plans and installation schedules. To mitigate cost inflation risks, we have implemented a hedging programme for steel and other commodities, which will be rolled out to our asset projects. Our process for vetting new suppliers is thorough, and we have strict credit risk policies in place to manage credit and counterparty risks. 2\. Inflation, interest rate, and currency risks Description Our inflation, interest rate, and currency risks are related to volatility in the macroeconomic environment where we operate. Changes to inflation rates, interest rates, and foreign exchange rates all have an impact on the value of our assets. We are exposed to inflation both directly through the real return but also indirectly through cost inflation and higher interest rates. Approx. 45 % of our revenue in 2024-2030 is inflation-indexed and expected to follow the develop- ment in consumer prices, thereby protecting the real value of our assets and equity. However, for assets and in markets where we don't have inflation-indexed PPAs or subsidies, we are exposed to inflation risks where an increase in inflation will adversely impact the expected real value of our revenue. Potential impact Fluctuations in interest rates, inflation, and foreign exchange rates may adversely impact our earnings and the value of our assets. Mitigating actions We actively incentivise investing in assets and entering into contracts with inflation-indexed revenue streams to mitigate cost inflation, and we match our debt with our assets per currency and the same payment structures (modified duration). Hence, our European fixed nominal subsidies are being offset by EUR-denominated fixed- rate debt. In contrast, we have entered into inflation swaps for part of our inflation-indexed revenue in the UK to match our nominal GBP debt. In new markets, we execute interest rate swaps to lock in interest rates before financing is secured. Our currency exposure is managed by hedging more in the near years and less in the later years over a five- year horizon. Read more about inflation and interest rate risks in note 6.3 ‘Inflation and interest rate risks’ and about currency risks in note 6.4 ‘Currency risks’. 3\. Farm-downs and partnerships Description The partnership strategy in Ørsted continues to be a cornerstone in managing financial planning and reaching our strategic ambition, with a sizeable number of farm-downs and joint venture partnerships expected in the coming years. This entails risks related to delays, lower proceeds, the lack of potential buyers, regulatory and contractual restrictions, and the macroeconomic environment. Potential impact Failure to complete future farm-downs of projects or delays could lead to an adverse impact on our credit rating and value. Furthermore, increasing interest rates could have a negative impact on investment capacity and on the value extracted from partnerships. Mitigating actions We have years of experience in handling all aspects of divestment and partnership processes with a strong track record of creating value through our partnership model. Our highly experienced team is capable of not only managing the equity transaction; it also takes lead on structuring the financing package together with or on behalf of the partners. We continuously engage with current and future investors and partners to help secure demand for our portfolio of assets. 4\. Power prices and energy markets Description Power price risks primarily originate from the sale of our renewable power generation in the UK, the US, and north-western Europe. Our CHP plants constitute a spread risk due to the difference between prices of the power generated and the fuel consumed (i.e., biomass, coal, gas, and carbon dioxide allowances). We are also exposed to second-order risks arising from power price hedges not fully matching our actual revenue exposure (i.e. position, intermittency, and regula- tory risks). Furthermore, we are exposed to liquidity risks where we are required to post collateral at exchanges if our positions are ‘out of the money’ (which was the case when the energy prices soared throughout 2022). Lastly, we are exposed to risks related to government interven- tion (i.e. price caps, taxation of windfall profits, etc.). Potential impact Fluctuations in energy prices and energy policies can have an adverse effect on our earnings or liquidity. Mitigating actions Approx. 80 % of our expected revenue from generation of power from renewable offshore and onshore assets in 2024-2030 has no exposure to power price risk as the price is either regulated through subsidies or contracted through CPPAs. This significantly reduces our exposure towards volatility in power prices. We manage the remaining 20 % of our exposure through a hedge framework, under which we hedge up to 70 % of the power production volume in the first two years. The 70 % is set based on an assessment about uncertainties related to power generation volumes. The hedge level is based on a holistic assessment of the risk profile of the combined offshore and onshore assets as well as the balance between market, credit, and liquidity risks. Read more about our risk framework and energy price risks in notes 6.1 ‘Risk framework’ and 6.2 ‘Energy price risks’. 36 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 6\. Competition Description Global renewable energy markets are expected to grow rapidly over the next decade within all the technologies where we are present. Key drivers for this growth are ambitious government policies and targets and the push from corporates for the green transition. The growth prospect is attracting significant interest from existing and new players. In offshore wind, the competitive auction and tender mechanics being implemented across the various regions and markets are becoming more competitive and diversified. While the mature European markets increasingly want innovation and system integration (e.g. storage and renewable hydrogen) to play an increasingly important role in auctions and tenders, developing markets in Europe, the US, and Asia Pacific often emphasise costs and job creation as determination criteria. Similarly in Onshore, we see solar PV continuing to gain market shares relative to onshore wind due to cost reductions. As demand hours shift with growing solar penetration, solar PV projects lose market value, and combined solar PV and storage solutions become necessary to capitalise on higher pricing hours. Potential impact There is a risk that we will not win the targeted capacity in the auctions and tenders in which we participate, or that our value creation from the projects we win ends up being lower than targeted, which might increase pressure on our credit rating metric and our value. Mitigating actions To ensure our competitive edge, we continue to utilise portfolio-scale advantages and knowhow gained from previously executed projects to develop supply chain solutions and reduce costs and risks. Over the last year, we have performed a strategic review of all our assets and regions and are firmer in prioritising the auctions and tenders in which we participate, which limits our DEVEX spent before taking final investment descision. Further- more, we have and will continue to enter into strategic partnerships to strengthen our position in all the regions where we operate. Legal compliance Description Risks associated with legal compliance are assessed based on financial and reputational significance and probability. Our most significant risks are 1) tax law, 2) financial regulation, and 3) tender law. (1) We operate in tax regimes with different tax rules and rates, and our tax affairs span over corporate tax compliance, transfer pricing, and indirect taxes. (2) We are subject to several financial regulations, such as REMIT, MAR, EMIR, Dodd Frank, MiFID, SFTR, and AML1\. The financial regulations are relevant for a large part of our activities. (3) Many of our purchases of goods, services, and work in the EU are subject to EU and local tender rules. Potential impact Failure to comply with the above-mentioned rules and regulations may result in severe legal sanctions, such as imprisonment, fines, and damage claims, but will also impact sourcing processes and subsequently increase the risk of project delays. Mitigating initiatives (1) We have implemented a comprehensive tax control framework and a mandatory compliance framework, including transfer pricing documentation, in line with OECD recommendations and local requirements. This has been prepared on a contemporary basis to mitigate our tax risks. (2) We have implemented comprehensive policies, procedures, training, and controls for relevant parts of our business to ensure compliance with financial regulations. (3) To ensure compliance with tender laws, our legal team carries out training courses for procure- ment teams in basic tender law and practical courses on how to apply the standard tender documents. The legal team also works closely together with the procurement team on major tenders. 5. Cybersecurity Description The cybersecurity risks are a product of individuals, groups, and nations actively working to harm and profit off of Ørsted. As a global renewable energy major, we are exposed to several different cyberat- tack threats: ransomware attacks, data exfiltration attacks, cyber-physical impact attacks, and more. Our adversaries' capacities and capabilities are con- stantly improving, and we must strive to stay ahead. Furthermore, the energy crisis and the ongoing war in Ukraine have resulted in an increased cyber threat in a geopolitical context where Russian hackers have been known to target energy grids and assets. Potential impact Minor digital risk events, such as viruses and attempted break-ins, are everyday risks without significant impact. However, major cyberattacks or events may impact all or part of our assets or, in the event of a ransomware attack, have an impact on our financial position. Mitigation initiatives We face different types of cyber risks. Some are related to our assets and some to our systems. Thus, we mitigate cyber risks with several different initiatives, which are continuously assessed and prioritised based on our strategic cybersecurity risk assessment with the aim of lowering our risk exposure. At our operating assets, we have deployed production cyber defences to enhance protection against onsite and offsite attacks. In addition, we have a top-level information and cybersecurity management system and framework supported by our global governance model. We also have regular trainings and roll-out of new security measures as they are approved. This way, our cyber capability is continuously improved in order to identify, protect, detect, respond, and recover across the enterprise and production sites. 37 Management's review | Strategy and businessØRSTED ANNUAL REPORT 2023 Results 39 Follow-up on 2023 guidance 40 Results 44 Five-year summary 45 Fourth quarter 50 Quarterly summary, 2022-2023 → The northern gannet, Morus bassanus, is a seabird native to the coasts of the Atlantic Ocean. Breeding in Western Europe and Northeastern North America, it is the largest seabird in the northern Atlantic. The northern gannet hunts for fish and therefore benefits from Ørsted's work on restoring marine biodiversity in the North Sea where the population of fish is increasing. 38 Management's reviewØRSTED ANNUAL REPORT 2023 Follow-up on 2023 guidance Full-year EBITDA Operating profit (EBITDA) excluding new partnerships and cancellation fees totalled DKK 24.0 billion com- pared to our expectations at the beginning of the year of DKK 20-23 billion. Earnings in Offshore ended up higher than expected, mainly due to a partial reversal of negative temporary IFRS 9 adjustments in 2022 together with good per- formance by our power trading activities. We also had lower balancing costs due to power prices decreas- ing at a faster pace than expected. Furthermore, we decided to reduce our project development activities as a result of the adverse developments on our US portfolio, and we had a positive impact from reversal of wake and warranty provisions. This was only partly offset by the divestment of London Array, which was not included in our guidance and resulted in lower site earnings. Earnings in Onshore ended up significantly lower than expected due to lower power prices, lower wind speeds, and lower availability due to outages at a number of our assets. Earnings from our CHP plants were lower than expected due to much lower power prices than anticipated. This led to lower condensing power generation and negative accounting effects from the first-in, first-out principle. This was only partly offset by a compen- sation from Energinet related to their order in 2022, but recognised in 2023, when we had to continue or resume operations of three power station units. In ‘Gas Markets & Infrastructure’, we achieved higher earnings from our gas storage activities than expected. Q4 EBITDA Earnings came in higher than expected in our interim report for the first nine months, primarily due to higher wind speeds for offshore assets, the wake and war- ranty provision reversals, the compensation from Energinet, and higher earnings on our gas activities. EBITDA excluding new partnerships and cancellation fees DKKbn Sites ~ 8.5 1.8 0.5 0.2 1.7 0.6 Existing partnerships ~ 1.0 ~ 1.0 ~ 0.0 ~ -3.0 -0.7 -1.7 ~ -3.0 Other, incl. DEVEX 2022 21.1 Offshore Offshore Onshore Onshore CHP plants CHP plants Other Onshore Onshore Sites Gas markets Gas markets 2023 Expected 2023 Existing partnerships Other, incl. DEVEX ~ 20-23 24.0 Bio & Other Bio & Other 39 Management's review | Results ØRSTED ANNUAL REPORT 2023 Results Financial results Revenue Power generation from offshore and onshore assets increased by 5 % and totalled 31.1 TWh in 2023\. The increase was due to ramp-up of generation from Horn- sea 2 and Greater Changhua 1 and 2a, our onshore assets Old 300, Ford Ridge, and Sunflower Wind, and the wind part of Helena Energy Center. The ramp-up of generation was partly offset by lower availabil- ity, the farm-down of Hornsea 2 in Q3 2022, and the divestment of London Array in Q3 2023\. Heat generation increased by 3 %, mainly due to colder weather, whereas thermal power genera- tion decreased by 26 %, mainly due to less attractive spreads for power condensing generation. Our renewable share of generation amounted to 93 %, 2 percentage points higher than last year, driven by higher generation from offshore assets due to ramp- up at Greater Changhua 1 and 2a and Hornsea 2. This was partly offset by the farm-down of 50 % of Hornsea 2 in Q3 2022. Revenue amounted to DKK 79.3 billion. The decrease of 31 % relative to 2022 was primarily due to the significantly lower power and gas prices across all markets as well as lower power and gas volumes sold. EBITDA Operating profit (EBITDA) for the year amounted to DKK 18.7 billion, DKK 13.3 billion lower than in 2022. In 2023, we had cancellation fees of DKK 9.6 billion related to our decision to cease the develop- ment of Ocean Wind 1. In both years, we had sig- nificant effects from gains on farm-downs. In 2023, we divested our ownership share of London Array and farmed down 50 % of Gode Wind 3, whereas we farmed down 50 % of Borkum Riffgrund 3 and Horn- sea 2 in 2022\. EBITDA excluding new partnerships and cancellation fees was DKK 3.0 billion higher than in 2022 and amounted to DKK 24.0 billion. For further information on our provision for cancellation fees, see note 3.10 ‘Provision and contingent liabilities’ in the financial statements. EBITDA from offshore sites amounted to DKK 20.2 billion, an increase of DKK 10.3 billion compared to last year. The increase was mainly due to ramp-up of generation from Hornsea 2 and Greater Changhua 1 and 2a in 2023, higher prices on the inflation-indexed CfD and ROC wind farms, lower balancing and BSUoS costs, good performance from our power trading activities, slightly higher wind speeds, and a significant negative impact from hedges in 2022 which was not repeated in 2023. EBITDA excluding new partnerships and cancellation fees DKKbn Other Onshore CHP plants -4.6 Gas & Other -2.5 0.2 Sites 10.3 Existing partnerships -0.4 -0.7 Other, incl. DEVEX 0.7 2023 24.0 2022 21.1 Offshore Bio & Other Financial results DKKm 2023 2022 % Revenue 79,255 114,417 (31 %) EBITDA 18,717 32,057 (42 %) New partnerships 4,324 10,993 (61 %) Cancellation fees (9,621) - n.a. EBITDA excl. new partnerships and cancellation fees 24,014 21,064 14 % Depreciation and amortisation (9,795) (9,754) 0 % Impairment losses (26,775) (2,529) 959 % Operating profit (loss) (EBIT) (17,853) 19,7 74 n.a. Gain (loss) on divestment of enterprises 234 331 (29 %) Financial items, net (1,443) (2,536) (43 %) Profit before tax (19,026) 17,609 n.a. Tax on profit (loss) for the year (1,156) (2,613) (56 %) Tax rate (6 %) 15 % (21 %p) Profit (loss) for the year (20,182) 14,996 n.a. Onshore 40 Management's review | Results ØRSTED ANNUAL REPORT 2023 This was partly offset by a negative impact on our merchant exposure due to declining prices after having lowered our hedge ratios for 2023 at a time when prices were higher than the realised levels in the period. EBITDA from existing partnerships amounted to DKK 0.9 billion in 2023, mainly from adjustment of wake and warranty provisions. This was partly off- set by a reduction in earnings from our construction agreement on Greater Changhua 1, due to higher costs and later commissioning of the wind turbines. In 2022, we had positive earnings from a reversal of DKK 0.5 billion of the DKK 0.8 billion warranty provision related to the cable protection system issues at some of our offshore wind farms towards our partners, recognised in 2021, and from an adjustment to wake loss provisions in our German portfolio. EBITDA from our onshore business amounted to DKK 3.0 billion in 2023, DKK 0.7 billion lower than in 2022. Ramp-up of generation from new assets was more than offset by lower prices in the US and in the UK and Ireland and by lower generation in the US driven by lower availability due to outages at a number of our assets and lower wind speeds. EBITDA from our CHP plants amounted to DKK 1.2 bil- lion in 2023, a decrease of DKK 4.6 billion compared to the same period last year. The decrease was mainly due to very high power prices and favourable spreads for power condensing generation in 2022 not being repeated in 2023. In addition, earnings from power gen- eration were negatively impacted by the high costs of biomass and coal relative to the market prices in 2023, as the cost is measured using the first-in, first-out (FIFO) principle. The fuel we used during 2023 was bought last year at higher price levels. The opposite was the case in 2022\. The negative impacts were partly offset by a compensation from Energinet related to their order in 2022 when we had to continue or resume operations of three power station units. EBITDA from our gas business totalled DKK 0.6 billion in 2023, DKK 2.6 billion lower than last year. The decrease was driven by strong earnings in 2022, when we were able to lock in gains from optimising the offtake flexibil- ity in some of our sourcing contracts and storages, which was partly offset by our decision to unwind gas hedges related to the Gazprom Export contract. Impairment Due to adverse impacts relating to the supply chain and increased interest rates, combined with a lower anticipated probability of getting additional tax cred- its, a lower expected value from monetising these, and the timing and likelihood of obtaining final construction permits for Ocean Wind 1 as well as a change in OREC assumptions for Sunrise Wind, we recognised impair- ment losses of DKK 26.8 billion in 2023\. The majority of these (DKK 19.9 billion) related to our US offshore project Ocean Wind 1. See note 3.2 ‘Impairments’ in the financial statements for further information. EBIT EBIT decreased by DKK 37.6 billion to DKK -17.9 billion in 2023, primarily due to impairment losses and can- cellation fees. EBIT excluding impairments and cancel- lation fees amounted to DKK 18.5 billion in 2023. This was a decrease of DKK 3.8 billion compared to 2022 but an increase of DKK 2.9 billion excluding earnings from new partnerships. Financial income and expenses Net financial income and expenses amounted to DKK -1.4 billion compared to DKK -2.5 billion in 2022. The lower net expenses were mainly due to a gain of DKK 2.4 billion from ineffectiveness on interest rate swaps driven by less funding needs in the US after our decision to cease Ocean Wind 1, partly offset by neg- ative exchange rate adjustments related to internal loans in 2023 versus positive adjustments in 2022, nei- ther of which had impact on cash flow and NIBD. Tax and tax rate Tax on profit for the year amounted to DKK 1.2 billion, DKK 1.5 billion lower than last year. The tax rate was -6 % and was affected by non-taxable gains on London Array and Gode Wind 3, unrecognised deferred tax assets related to impairment losses and cancellation fees on our US portfolio, and a reversal of a recognised deferred tax liability in the US related to the tax equity partnership for Ocean Wind 1. Profit for the year Profit for the year totalled DKK -20.2 billion, DKK 35.2 billion lower than 2022\. The decrease was mainly due to impairment losses and cancellation fees. Profit for the year excluding impairment losses (after tax) and cancellation fees amounted to DKK 14.9 billion. EBITDA EBITDA DKKbn Offshore 76 % Onshore 16 % Bioenergy & Other 8 % 2023 ↔ 18.7 2022 → 32.1 New partnerships New partnerships DKK 18�7 bn Cancellation fees 41 Management's review | Results ØRSTED ANNUAL REPORT 2023 Cash flows and net debt Cash flows from operating activities Cash flows from operating activities totalled DKK 28.5 billion in 2023 compared to DKK 11.9 billion in 2022. During 2023, we released DKK 9.5 billion, net, in varia- tion margin payments on unrealised hedges (‘Change in variation margin’) and initial margin payments at clearing houses (part of ‘Change in other working capital’) as a result of falling and less volatile power and gas prices. In 2022, we tied up DKK 6.9 billion. The development was driven by: · the variation margin payments, which were a cash inflow of DKK 7.1 billion versus a cash outflow of 10.3 billion in 2022 · the initial margin payments, which were a cash inflow of DKK 2.4 billion versus a cash inflow of DKK 3.5 billion in 2022 · in 2022, we issued parent company guarantees (PCG) in total of EUR 1 billion to reduce our initial margin payments and, to some extent, variation margin payments. The PCG were only partly utilised at the end of 2023\. In 2023, we had a net cash outflow from work in pro- gress of DKK 0.7 billion, mainly from construction work at Greater Changhua 1 and the Hornsea 3 offshore transmission asset, partly offset by the divestment of the remaining 50 % of the offshore transmission asset at Hornsea 2 and milestone payments from partners in Gode Wind 3. In 2022, we had a net cash inflow of DKK 4.3 billion, mainly from the divestment of the first 50 % of the off- shore transmission asset at Hornsea 2 to our partner and receipt of milestone payments from partners in Borkum Riffgrund 3. This was partly offset by construc- tion work at Greater Changhua 1. In 2023, we received tax equity contributions from part- ners for Sunflower Wind and South Fork, and in 2022, we received tax equity contributions for the wind part of Helena Energy Center and Old 300, phase 1. This led to a cash inflow from tax equity contributions in 2023, net of the reversal of tax credits recognised in EBITDA, compared to a net cash outflow last year. Furthermore, ‘Change in other working capital’ was positively impacted by lower receivables and the lower value of gas at storage due to the falling prices in 2023 in addition to the aforementioned release of initial margin payments. In 2022, the positive effect in ‘Change in other working capital’ from lower initial margins was partly offset by higher fuel inventories and lower payables. Investments and divestments Gross investments amounted to DKK 38.5 billion in 2023\. The main investments were: · offshore wind farms (DKK 28.6 billion), including Greater Changhua 1, 2a, 2b, and 4 in Taiwan, our portfolio of US and German projects, and Hornsea 3 · onshore wind and solar farms (DKK 9.1 billion), including the construction of Eleven Mile, Mockingbird, Sunflower Wind, the solar part of Helena Energy Center, and our portfolio of European projects. Cash flows and net debt DKKm 2023 2022 % Cash flows from operating activities 28,532 11,924 139 % EBITDA 18,717 32,057 (42 %) Reversal of gain (loss) on divestment of assets (5,745) (10,885) (47 %) Change in derivatives, excl. variation margin (2,812) 1,645 n.a. Change in variation margin 7,086 (10,332) n.a. Change in provisions 8,454 (1,935) n.a. Other items 287 (278) n.a. Interest expense, net 1,384 (563) n.a. Paid tax (2,717) (1,263) 115 % Change in work in progress (722) 4,271 n.a. Change in tax equity partner liabilities 374 (353) n.a. Change in other working capital 4,226 (440) n.a. Gross investments (38,509) (37,447) 3 % Divestments 1,542 25,636 (94 %) Free cash flow (8,435) 113 n.a. Net interest-bearing debt at 1 January 30,571 24,280 26 % Free cash flow 8,435 (113) n.a. Dividends and hybrid coupons paid 6,613 6,052 9 % Addition of leasing obligations, net 978 1,598 (39 %) Repurchase of hybrid capital, net 699 (1,747) n.a. Exchange rate adjustments, etc. 83 501 (83 %) Net interest-bearing debt at 31 December 47,379 30,571 55 % Gain (loss) on sale of assets is part of EBITDA but is presented as part of the ‘divestment’ cash flow. The EBITDA effect is thus reversed in the specification of cash flows from operating activities. Key ratios DKKm, % 2023 2022 % ROCE, % (14.2) 16.8 (31 %p) Adjusted net debt, DKKm 59,056 42,075 40 % FFO/adjusted net debt, % 28.6 42.7 (14 %p) ROCE and FFO/adjusted net debt is specified in notes 2 ‘Return on capital employed’ and 5.1 ‘Interest-bearing net debt and FFO’. 42 Management's review | Results ØRSTED ANNUAL REPORT 2023 In 2023, ‘Divestments’ amounted to DKK 1.5 billion and was related to our divestment of London Array and our 50 % farm-down of Gode Wind 3 and to our acquisition of Eversource's 50 % ownership share of Lease Area 500 and PSEG's 25 % equity stake in Ocean Wind 1, both in the US. As the two US acquisitions are with non-controlling shareholders, they are not included in ‘Gross investments’ but as part of ‘Divest- ments’. In 2022, divestments amounted to DKK 25.6 billion and were mainly related to the 50 % farm- downs of Hornsea 2 and Borkum Riffgrund 3. Interest-bearing net debt Interest-bearing net debt totalled DKK 47.4 billion at the end of 2023 against DKK 30.6 billion at the end of 2022. The increase was mainly due to dividend pay- ments of DKK 6.6 billion and a negative free cash flow of DKK 8.4 billion. Equity and capital employed Equity Equity was DKK 77.8 billion at the end of 2023 against DKK 95.5 billion at the end of 2022\. The change in equity was primarily due to the impairment losses of DKK 25.4 billion, net of tax, and cancellation fees of DKK 9.6 billion, whereas the post-tax hedging and currency translation reserve increased by DKK 16.2 billion to DKK -10.3 billion at the end of 2023. Capital employed Capital employed was DKK 125.2 billion at the end of 2023 against DKK 126.1 billion at the end of 2022, with impairment losses and cancellation fees more or less offseting new investments. Financial ratios Return on capital employed (ROCE) Return on capital employed (ROCE) was -14.2 % in 2023. The decrease of 31 percentage points compared to last year was attributable to a lower EBIT due to the impairment losses and cancellation fees. ROCE adjusted for impairment losses and cancellation fees in 2023 was 12.9 %. Credit metric (FFO/adjusted net debt) The funds from operations (FFO)/adjusted net debt credit metric was 28.6 % in 2023 against 42.7 % in 2022. The decrease was due to lower FFO and higher NIBD. ESG results Renewable share of heat and power generation The renewable share of heat and power generation amounted to 93 % in 2023, 2 percentage points higher than last year. The increase was primarily due to an increased share of offshore wind generation. Greenhouse gas emissions Our greenhouse gas emissions from heat and power generation (scope 1 and 2) decreased by 37 % com- pared to 2022 to 1.6 million tonnes in 2023\. This was primarily due to the decrease in the use of coal at our CHP plants. Greenhouse gas emissions from our supply chain and sales activities (scope 3) were 49 % lower than in 2022, primarily due to a 47 % reduction in natural gas sales, lower emissions related to capital goods as we only commissioned four onshore sites in 2023, and lower emissions related to transport of fuels and sale of power. Our scope 1 and 2 greenhouse gas intensity decreased to 38 g CO 2 e/kWh in 2023 against 60 g CO 2 e/kWh in 2022. The decrease was a result of a 37 % decrease in scope 1 and 2 emissions (numerator) in combination with a nearly unchanged total heat and power gener- ation (denominator). Our scope 1-3 greenhouse gas intensity (excluding natural gas sales) decreased to 80 g CO 2 e/kWh in 2023 against 147 g CO 2 e/kWh in 2022. The decrease was a result of the lower scope 1 emissions and lower emissions related to capital goods, fuels, and power sales (numerator) in combination with an unchanged total heat and power generation (denominator). Safety In 2023, we had 73 total recordable injuries (TRIs), of which 50 injuries were related to contractors' employ- ees. In total, this was a decrease of five injuries com- pared to 2022\. The number of hours worked was 25.8 million hours, an increase of 4 % compared to 2022\. The total recordable injury rate (TRIR) decreased to 2.8 in 2023 from 3.1 in 2022. Taxonomy-aligned KPIs The taxonomy-aligned share of revenue was 86 %, EBITDA was 95 %, gross investments was 99 %, and OPEX was 79 % in 2023\. The taxonomy-aligned part of revenue increased by 17 percentage points due to a substantial decline in revenue from our non- eligible natural gas and power sales activities. The taxonomy-aligned part of EBITDA increased by 10 percentage points due to a substantial decline in earnings from our non\- eligible natural gas sales and fossil-based CHP generation activities. Read more about our EU taxonomy-aligned KPIs in the environment section in our sustaina- bility statements for 2023. Revenue 86 % EBITDA 95 % Gross investments 99 % OPEX 79 % 43 Management's review | ResultsØRSTED ANNUAL REPORT 2023 Five-year summary 1 In 2023, we changed our accounting policy on recognition of revenue from the settlement of failed own-use contracts related to power. The change only impacts revenue and cost of sales with no impact on EBITDA. The comparisons for 2022 have been adjusted, but 2019-2021 numbers are not adjusted. The related power volumes in 2022 and 2023 have consequently been netted. See more in note 1.2 ‘Basis of preparation’. 2 For 2021-2019, these business drivers are for US only. Financial statements DKKm 2023 2022 2021 2020 2019 Income statement Revenue 1 79,255 114,417 77,673 50,151 70,398 EBITDA 18,717 32,057 24,296 16,598 19,020 Offshore 13,817 19,569 18,021 14,451 14,503 Sites, O&M, and PPAs 20,207 9,940 13,059 15,177 13,092 Construction agreements and divestment gains 5,218 12,277 7,535 1,593 3,765 Cancellation fees (9,621) - - - - Other, incl. project development (1,987) (2,648) (2,573) (2,319) (2,354) Onshore 2,970 3,644 1,349 1,112 801 Bioenergy & Other 1,523 8,619 4,747 824 3,551 Other activities 407 225 179 210 166 Depreciation and amortisation (9,795) (9,754) (7,972) (7,588) (6,864) Impairment (26,775) (2,529) (129) - (568) Operating profit (loss) (EBIT) (17,853) 19,774 16,195 9,010 11,588 Gain (loss) on divestment of enterprises 234 331 (742) 10,831 (63) Net financial income and expenses (1,443) (2,536) (2,166) (2,524) (1,135) Profit (loss) before tax (19,026) 17,609 13,277 17,324 10,392 Ta x (1,156) (2,613) (2,390) (1,776) (3,101) Profit (loss) for the year (20,182) 14,996 10,887 15,537 7,235 Balance sheet Assets 281,136 314,142 270,385 196,719 192,860 Equity 77,791 95,532 85,137 97,329 89,562 Shareholders in Ørsted A/S 56,782 71,743 64,072 81,376 73,082 Hybrid capital 19,103 19,793 17,984 13,232 13,232 Non-controlling interests 1,906 3,996 3,081 2,721 3,248 Interest-bearing net debt 47,379 30,571 24,280 12,343 17,230 Capital employed 125,170 126,103 109,416 109,672 106,792 Additions to property, plant, and equipment 37,954 33,662 43,941 28,442 22,440 Cash flows Cash flows from operating activities 28,532 11,924 12,148 16,466 13,079 Gross investments (38,509) (37,447) (39,307) (26,967) (23,305) Divestments 1,542 25,636 21,519 19,039 3,329 Free cash flow (8,435) 113 (5,640) 8,538 (6,897) Financial ratios Return on capital employed (ROCE), % (14.2) 16.8 14.8 8.3 12.2 FFO/adjusted net debt, % 28.6 42.7 26.3 65.0 31.0 Number of outstanding shares, 31 December, '000 420,381 420,209 420,175 420,068 419,985 Share price, 31 December, DKK 374 631 835 1,244 689 Market capitalisation, 31 December, DKKbn 157 265 351 522 290 Earnings per share (EPS), DKK (50.1) 34.6 24.3 38.8 12.8 Dividend yield, % - 2.1 1.5 0.9 1.5 Business drivers 2023 2022 2021 2020 2019 Offshore Decided and installed capacity, GW 15.5 11.1 10.9 9.9 9.9 Installed capacity, GW 8.9 8.9 7.6 7.6 6.8 Generation capacity, GW 5.0 4.7 4.0 4.4 3.6 Wind speed, m/s 9.8 9.5 9.1 10.0 9.2 Load factor, % 43 42 39 45 42 Availability, % 93 94 94 94 93 Power generation, GWh 17,761 16,483 13,808 15,248 11,965 Power sales, GWh 21,448 23,194 25,020 29,152 27,615 Onshore Decided and installed capacity, GW 6.4 6.2 4.7 3.4 2.1 Installed capacity, GW 4.8 4.2 3.4 1.7 1.0 Wind speed 2 , m/s 7.2 7.4 7.4 7.6 7.3 Load factor 2 , wind, % 36 40 42 45 45 Load factor 2 , solar PV, % 24 25 24 - - Availability 2 , wind, % 88 93 96 96 98 Availability 2 , solar PV, % 98 98 96 - - Power generation, GWh 13,374 13,146 8,352 5,738 3,513 Bioenergy & Other Degree days, number 2,585 2,548 2,820 2,432 2,399 Heat generation, GWh 6,587 6,368 7,907 6,671 8,312 Power generation, GWh 4,437 6,012 6,890 4,438 4,640 Power sales, GWh 2,627 5,399 8,797 11,623 14,700 Gas sales, GWh 16,880 31,637 61,349 90,347 124,951 ESG statements Employees (FTE), end of year, number 8,905 8,027 6,836 6,179 6,526 Total recordable injury rate (TRIR) 2.8 3.1 3.0 3.6 4.9 Fatalities, number - - - - 1 Renewable share of heat and power generation, % 93 91 90 90 86 GHG emission (scope 1 & 2), million tonnes 1.6 2.5 2.1 1.9 1.9 GHG intensity (scope 1 & 2), g CO 2 e/kWh 38 60 58 58 65 GHG intensity (scope 1-3 excl. natural gas), g CO 2 e/kWh 80 147 165 162 214 GHG emissions (scope 3), million tonnes 5.6 11.0 18.2 25.3 34.6 44 Management's review | Results ØRSTED ANNUAL REPORT 2023 Onshore Financial performance – Group EBITDA Operating profit (EBITDA) for the fourth quarter amounted to DKK -0.7 billion, DKK 7.4 billion lower than in Q4 2022. In Q4 2023, the decision to cease development of Ocean Wind 1 led to cancellation fees of DKK 9.6 billion. Furthermore, we farmed down 50 % of Gode Wind 3. Adjusted for new partnerships and cancellation fees, EBITDA was DKK 2.0 billion above Q4 2022 and amounted to DKK 8.6 billion. Earnings from Offshore sites amounted to DKK 7.2 billion, an increase of DKK 3.4 billion compared to the same period last year. The increase was mainly due to higher wind speeds, ramp-up of generation from Greater Changhua 1 and 2a, lower BSUoS and bal- ancing costs, and a significant negative impact from hedges in Q4 2022 which was not repeated in Q4 2023\. This was only partly offset by the divestment of London Array. EBITDA from existing partnerships increased by DKK 1.4 billion and amounted to DKK 0.4 billion in Q4 2023, mainly related to adjustment of wake and war- ranty provisions. In Q4 2022, we had negative earnings due to delays with commissioning of the wind turbines at Greater Changhua 1 and higher costs for the pro- ject, which reduced earnings under the construction agreement. Fourth quarter Financial performance DKKm Q4 2023 Q4 2022 % Revenue 21,530 30,256 (29 %) EBITDA (686) 6,696 n.a. New partnerships 317 77 312 % Cancellation fees (9,621) - n.a. EBITDA excl. new partnerships and cancellation fees 8,618 6,619 30 % Depreciation and amortisation (2,366) (2,792) (15 %) Impairment loss 1,647 (2,529) n.a. Operating profit (loss) (EBIT) (1,405) 1,375 n.a. Gain (loss) on divestment of enterprises (44) 32 n.a. Financial items, net 2,001 (985) n.a. Profit (loss) before tax 557 460 21 % Ta x (841) (789) 7 % Tax rate 151 % 172 % (21 %p) Profit (loss) for the period (284) (329) (14 %) EBITDA excluding new partnerships and cancellation fees DKKbn Other Onshore CHP plants -0.9 Gas & Other -1.3 -0.2 Sites 3.4 Existing partnerships 1.2 -0.3 Other, incl. DEVEX 0.1 Q4 2023 8.6 Q4 2022 6.6 Offshore Bio & Other EBITDA from our Onshore business amounted to DKK 0.5 billion and was DKK 0.3 billion lower than in Q4 2022\. Ramp-up of generation from new assets was more than offset by lower availability and sig- nificantly lower prices in Q4 2023\. EBITDA from our CHP plants amounted to DKK 0.8 billion in Q4 2023, a decrease of DKK 0.9 billion com- pared to the same period last year. The decrease was mainly due to very high power prices and favourable spreads for power condensing generation in Q4 2022, which were not repeated this year. In addition, earn- ings were negatively impacted by accounting FIFO effects. The negative impacts were partly offset by a compensation from Energinet related to their order in 2022 when we had to continue or resume operations of three power station units. EBITDA from our gas business totalled DKK 0.6 billion in Q4 2023, DKK 1.5 billion lower than in the same period last year. The decrease was driven by a lower positive effect from gas at storage in Q4 2023 than in Q4 2022, and the release of a provision in Q4 2022 related to the close-down of our B2B business in the UK. 45 Management's review | ResultsØRSTED ANNUAL REPORT 2023 Impairment losses Impairment losses in Q4 2023 had a positive effect of DKK 1.6 billion driven by a decrease in the US long-dated interest rate from 30 September to 31 December 2023, which lowered our WACCs. Cash flows from operating activities Cash flows from operating activities totalled DKK 6.2 billion in Q4 2023 compared to DKK 20.9 billion in Q4 2022. During Q4 2023, we released DKK 3.0 billion, net, in variation margin payments on unrealised hedges (‘Change in derivatives’) and initial margin payments at clearing houses (part of ‘Change in other working capital’), whereas we released DKK 17.4 billion in Q4 2022: · The variation margin payments were a cash inflow of DKK 2.7 billion versus a cash inflow of DKK 8.7 billion in Q4 2022. · The initial margin payments were a cash inflow of DKK 0.3 billion versus a cash inflow of DKK 8.7 bil- lion in Q4 2022. In Q4 2023, we had a net cash outflow from work in progress of DKK 1.8 billion, mainly related to the construction of the Hornsea 2 and Hornsea 3 off- shore transmission assets as well as construction work related to Greater Changhua 1 and Borkum Riffgrund 3, partly offset by received milestone payments at Gode Wind 3. In Q4 2022, we had a net cash inflow of DKK 1.8 billion, mainly related to milestone payments at Greater Changhua 1 and Borkum Riffgrund 3. In Q4 2023, we did not receive any significant tax equity contributions, while we received tax equity contribution for phase 1 of Old 300 in Q4 2022. Investments and divestments Gross investments amounted to DKK 13.0 billion in Q4 2023\. The main investments were: · offshore wind farms (DKK 9.7 billion), including Greater Changhua 2b and 4 in Taiwan, our portfolio of US and German projects, and Hornsea 3 · onshore wind and solar farms (DKK 3.0 billion), including the construction of Eleven Mile, Mockingbird, the solar part of Helena Energy Center, and our portfolio of European projects. In Q4 2023, divestments amounted to DKK 1.9 billion and were mainly related to the 50 % farm-down of Gode Wind 3. Cash flows and net debt DKKm Q4 2023 Q4 2022 % Cash flows from operating activities 6,170 20,915 (70 %) EBITDA (686) 6,696 n.a. Reversal of gain (loss) on divestment of assets (692) 57 n.a. Change in derivatives, excl. variation margin (4,202) (6,543) (36 %) Change in variation margin 2,690 8,658 (69 %) Change in provisions 8,330 (668) n.a. Other items 354 (98) n.a. Interest expenses, net 2,259 (54) n.a. Paid tax (587) (28) 1996 % Change in work in progress (1,761) 1,830 n.a. Change in tax equity partner liabilities (527) 251 n.a. Change in other working capital 992 10,814 (91 %) Gross investments (13,039) (9,826) 33 % Divestments 1,861 983 89 % Free cash flow (5,008) 12,072 n.a. Net interest-bearing debt, beginning of period 42,892 45,701 (6 %) Free cash flow 5,008 (12,072) n.a. Dividends and hybrid coupon paid 440 228 93 % Addition to lease obligations, net 13 582 (98 %) Issuance of hybrid capital, net - (1,747) n.a. Exchange rate adjustments, etc. (974) (2,121) (54 %) Net interest-bearing debt, end of period 47,379 30,571 55 % 46 Management's review | Results ØRSTED ANNUAL REPORT 2023 Offshore Financial results for Q4 2023 Power generation increased by 11 % to 6.0 TWh in Q4 2023\. The increase was due to higher wind speeds and ramp-up at Greater Changhua 1 and 2a. This was only partly offset by lower availability. Wind speeds amounted to a portfolio average of 11.5 m/s, which was higher than in Q4 2022 (10.7 m/s) and slightly higher than the normal wind speeds ex- pected in the fourth quarter (11.4 m/s). Availability ended at 92 %, which was 3 percentage points lower than in the same period last year. This was mainly due to scheduled outages and component replacements at Walney Extension and Gode Wind 1. Revenue decreased by 18 % and amounted to DKK 16.1 billion. Revenue from offshore wind farms in operation decreased by 22 % to DKK 8.4 billion, mainly driven by lower prices. Revenue from power sales decreased by 14 % to DKK 6.8 billion, due to significantly lower power prices and lower volumes sold. EBITDA decreased by DKK 4.7 billion and amounted to DKK -2.6 billion. EBITDA from ‘Sites, O&M, and PPAs’ increased by DKK 3.4 billion and amounted to DKK 7.2 billion in Q4 2023\. The increase was due to higher wind speeds (DKK 0.2 billion), ramp-up of generation at Greater Changhua 1 and 2a, lower balancing and BSUoS costs, and a neutral effect from hedges in Q4 2023 vs a large negative contribution from hedges in Q4 2022. This was only partly offset by the divestment of London Array in Q3 2023\. EBITDA from partnerships amounted to DKK 0.7 bil- lion in Q4 2023 and mainly related to the farm-down of Gode Wind 3 and minor changes in our wake and warranty provisions. In Q4 2022, we had negative earnings due to delays with commissioning of the wind turbines at Greater Changhua 1 and higher costs for the project, which reduced earnings under the con- struction agreement. EBITDA was negatively impacted by DKK 9.6 billion from cancellation fees related to our decision to cease the development of the Ocean Wind 1 project. EBITDA from other activities, including project devel- opment, amounted to DKK -0.8 billion, slightly lower than Q4 2022\. Results Q4 2023 Q4 2022 % 2023 2022 % Business drivers Decided (FID'ed) and installed capacity, GW 15.5 11.1 40 % 15.5 11.1 40 % Installed capacity, GW 8.9 8.9 0 % 8.9 8.9 0 % Generation capacity, GW 5.0 4.7 7 % 5.0 4.7 7 % Wind speed, m/s 11.5 10.7 7 % 9.8 9.5 3 % Load factor, % 56 54 2 %p 43 42 1 %p Availability, % 92 95 (3 %p) 93 94 (1 %p) Power generation, GWh 6,011 5,411 11 % 17,761 16,483 8 % Denmark 623 634 (2 %) 1,970 2,084 (5 %) The United Kingdom 3,434 3,631 (5 %) 10,887 10,989 (1 %) Germany 733 626 17 % 2,076 1,949 7 % The Netherlands 490 401 22 % 1,449 1,259 15 % APAC 705 85 729 % 1,291 92 1,303 % The US 26 34 (24 %) 88 110 (20 %) Power sales, GWh 6,244 7,645 (18 %) 21,448 23,194 (8 %) Power price, LEBA UK 117 210 (44 %) 116 252 (54 %) British pound 8.6 8.6 1 % 8.6 8.7 (2 %) Financial performance, DKKm Revenue 16,058 19,499 (18 %) 58,427 69,261 (16 %) Sites, O&M, and PPAs 8,425 10,767 (22 %) 23,304 23,349 (0 %) Power sales 6,729 7,787 (14 %) 27,495 34,142 (19 %) Construction agreements 784 916 (14 %) 6,589 11,640 (43 %) Other 120 30 300 % 1,039 131 693 % EBITDA (2,611) 2,094 n.a. 13,817 19,569 (29 %) Sites, O&M, and PPAs 7,164 3,746 91 % 20,207 9,940 103 % Construction agreements and divestment gains 676 (715) n.a. 5,218 12,277 (57 %) Cancellation fees (9,621) - n.a. (9,621) - n.a. Other, incl. project development (830) (937) (11 %) (1,987) (2,648) (25 %) Depreciation (1,628) (1,994) (18 %) (6,815) (7,006) (3 %) Impairment losses 1,462 (2,529) n.a. (25,526) (2,529) 909 % EBIT (2,777) (2,429) 14 % (18,524) 10,034 n.a. Cash flow from operating activities 6,005 17,728 (66 %) 21,209 5,272 302 % Gross investments (9,690) (7,926) 22 % (28,613) (26,710) 7 % Divestments 1,790 1,034 73 % 1,500 25,451 (94 %) Free cash flow (1,895) 10,836 n.a. (5,904) 4,013 n.a. Capital employed 83,574 89,941 (7 %) 83,574 89,941 (7 %) 47 Management's review | Results ØRSTED ANNUAL REPORT 2023 Onshore Financial results for Q4 2023 Power generation from our operating onshore assets decreased by 1 % compared to Q4 2022 and amounted to 3.4 TWh. The decrease was due to lower availability and lower wind speeds, partly offset by ramp-up of generation at Sunflower Wind. The availa- bility in the US was lower, mainly due to Western Trail going offline in August because of an unplanned trans- mission line outage. Western Trail was back online in the middle of December. Revenue decreased by 21 % compared to Q4 2022 and amounted to DKK 0.6 billion. The decrease was mainly due to lower prices across the portfolio and a 5 % lower USD rate than in Q4 2022. EBITDA for Q4 2023 amounted to DKK 0.5 billion, which was DKK 0.3 billion lower than Q4 2022. The decrease was due to high earnings in Q4 2022, when we benefitted from the higher power prices in Ireland and the US. In the US, the effect was mostly from ramp-up generation from assets under construc- tion (PPAs do not start until COD). Furthermore, some of our PPAs have upside sharing structures, which allow for capture of additional revenue in periods of high pricing compared to traditional PPAs. In 2023, we have reclassified costs related to our operating assets from ‘Other including project devel- opment’ to ‘Sites’ to align with our methodology in Offshore (no impact on total Onshore EBITDA). Results Q4 2023 Q4 2022 % 2023 2022 % Business drivers Decided (FID'ed) and installed capac- ity, GW 6.4 6.2 2 % 6.4 6.2 2 % Installed capacity, GW 4.8 4.2 15 % 4.8 4.2 15 % Wind speed, m/s 7.6 7.7 (1 %) 7.2 7.4 (3 %) Load factor, wind, % 36 40 (4 %p) 36 40 (4 %p) Load factor, solar PV, % 17 17 0 %p 24 25 (1 %p) Availability, wind, % 85 91 (6 %p) 88 93 (5 %p) Availability, solar PV, % 98 99 (1 %p) 98 98 0 %p Power generation, GWh 3,376 3,425 (1 %) 13,374 13,146 2 % US wind 2,640 2,711 (3 %) 10,124 10,389 (3 %) US solar PV 391 388 1 % 2,131 1,920 11 % Europe, wind and solar PV 344 326 6 % 1,119 837 34 % US dollar 6.9 7.3 (5 %) 6.9 7.1 (3 %) Financial performance, DKKm Revenue 598 758 (21 %) 2,620 3,014 (13 %) EBITDA 525 852 (38 %) 2,970 3,644 (18 %) Sites 394 420 (6 %) 1,256 2,097 (40 %) Tax credits and tax attributes 590 712 (17 %) 2,567 2,556 0 % Other, including project development (460) (280) 64 % (854) (1,009) (15 %) Depreciation (498) (448) 11 % (1,957) (1,644) 19 % Impairment losses 507 - n.a. (927) - n.a. EBIT 534 404 32 % 86 2,000 (96 %) Cash flow from operating activities (11) 1,039 n.a. 609 2,509 (76 %) Gross investments (3,024) (1,856) 63 % (9,069) (10,396) (13 %) Divestments 3 13 (79 %) 5 56 (91 %) Free cash flow (3,032) (804) 277 % (8,455) (7,831) 8 % Capital employed 35,634 28,463 25 % 35,634 28,463 25 % 48 Management's review | Results ØRSTED ANNUAL REPORT 2023 Bioenergy & Other Financial results for Q4 2023 Heat generation increased by 16 % in Q4 2023 due to colder weather, and power generation decreased by 26 %, mainly due to less attractive spreads for power condensing generation. Gas sales and power sales decreased by 25 % and 30 %, respectively, due to a gradual phase-out of our remaining UK B2B activities. Revenue decreased by 49 % compared to Q4 2022 and amounted to DKK 5.2 billion. The decrease was driven by significantly lower gas and power sales, lower power generation, and lower prices. EBITDA amounted to DKK 1.4 billion compared to DKK 3.6 billion in Q4 2022. EBITDA from ‘CHP plants’ was DKK 0.8 billion, DKK 0.9 billion lower than in Q4 2022. This was due to the lower generation and market-based spreads men- tioned above. In addition, earnings from power gener- ation were negatively impacted by the high costs of biomass and coal relative to the market prices in Q4 2023 as the cost is measured using the first-in, first-out (FIFO) principle. The fuel we have been using during Q4 2023 was bought last year at the higher price levels. The opposite was the case in Q4 2022\. The negative impacts were partly offset by a compensation from Energinet related to their order in 2022 when we had to continue or resume operations of three power sta- tion units until June 2024. EBITDA from ‘Gas Markets & Infrastructure’ decreased by DKK 1.5 billion relative to Q4 2022 to DKK 0.6 bil- lion. The decrease was driven by a lower positive effect from gas at storage in Q4 2023 than in Q4 2022 and the release of a provision in Q4 2022 related to the close-down of our B2B business in the UK. Results Q4 2023 Q4 2022 % 2023 2022 % Business drivers Degree days 966 861 12 % 2,585 2,548 1 % Heat generation, GWh 2,385 2,064 16 % 6,587 6,368 3 % Power generation, GWh 1,042 1,409 (26 %) 4,437 6,012 (26 %) Gas sales, GWh 3,041 4,048 (25 %) 16,880 31,637 (47 %) Power sales, GWh 628 904 (31 %) 2,627 5,399 (51 %) Gas price, TTF, EUR/MWh 43.3 94.4 (54 %) 41.4 120.5 (66 %) Power price, DK, EUR/MWh 91.1 176.2 (48 %) 89.3 213.7 (58 %) Green dark spread, DK, EUR/MWh (5.4) 23.3 n.a. (25.8) 39.5 n.a. Wood pellet spread, DK, EUR/MWh (0.5) (6.2) (92 %) 4.3 54.4 (92 %) Financial performance, DKKm Revenue 5,235 10,251 (49 %) 19,230 46,243 (58 %) EBITDA 1,434 3,609 (60 %) 1,523 8,619 (82 %) CHP plants 836 1,718 (51 %) 1,218 5,851 (79 %) Gas Markets & Infrastructure 589 2,073 (72 %) 558 3,117 (82 %) Other, incl. project development 9 (182) n.a. (253) (349) (28 %) Depreciation (180) (287) (37 %) (759) (859) (12 %) Impairment losses (322) - n.a. (322) - n.a. EBIT 932 3,322 (72 %) 442 7,760 (94 %) Cash flow from operating activities 358 738 (51 %) 2,550 2,622 (3 %) Gross investments (374) (25) 1,396 % (727) (267) 172 % Divestments 64 (4) n.a. 61 (4) n.a. Free cash flow 48 709 (93 %) 1,884 2,351 (20 %) Capital employed 4,655 5,211 (11 %) 4,655 5,211 (11 %) 49 Management's review | Results ØRSTED ANNUAL REPORT 2023 Quarterly summary, 2022–2023 Financial statements DKKm 2023 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Income statement Revenue 1 21,530 17,441 14,565 25,719 30,256 31,039 23,362 29,760 EBITDA (686) 9,173 3,320 6,910 6,696 12,317 3,615 9,429 Offshore (2,611) 8,037 2,979 5,412 2,094 9,652 1,904 5,919 Sites, O&M, and PPAs 7,164 4,050 3,135 5,859 3,746 467 2,031 3,698 Construction agreements and divestment gains 676 4,245 340 (42) (715) 9,765 601 2,620 Cancellation fees (9,621) - - - - - - - Other, incl. project development (830) (258) (496) (405) (937) (580) (728) (399) Onshore 525 819 792 834 852 867 1,075 850 Bioenergy & Other 1,434 155 (583) 517 3,609 1,849 647 2,514 Other activities/eliminations (34) 162 132 147 141 (51) (11) 146 Depreciation and amortisation (2,366) (2,537) (2,454) (2,438) (2,792) (2,530) (2,304) (2,128) Impairment 1,647 (28,422) - - (2,529) - - - Operating profit (loss) (1,405) (21,786) 866 4,472 1,375 9,787 1,311 7,301 Gain (loss) on divestment of enterprises (44) (50) 159 169 32 124 67 108 Net financial income and expenses 2,001 (128) (1,797) (1,519) (985) (217) (486) (848) Profit (loss) before tax 557 (21,955) (763) 3,135 460 9,695 893 6,561 Ta x (841) (607) 225 67 (789) (340) (624) (860) Profit (loss) for the period (284) (22,562) (538) 3,202 (329) 9,355 269 5,701 Balance sheet Assets 281,136 286,782 296,466 306,644 314,142 359,758 320,722 285,087 Equity 77,791 78,361 103,548 102,826 95,532 53,777 61,276 76,719 Shareholders in Ørsted A/S 56,782 57,304 82,379 78,551 71,743 32,413 40,091 55,704 Hybrid capital 19,103 19,103 19,103 19,793 19,793 17,984 17,984 17,984 Non-controlling interests 1,906 1,954 2,066 4,482 3,996 3,380 3,201 3,031 Interest-bearing net debt 47,379 42,892 43,924 35,261 30,571 45,701 41,449 30,026 Capital employed 125,170 121,253 147,471 138,087 126,103 99,478 102,725 106,745 Additions to property, plant, and equipment 12,064 10,988 6,963 7,939 9,912 9,899 8,724 5,127 Cash flows Cash flows from operating activities 6,170 9,796 2,447 10,119 20,915 (11,309) 2,355 (37) Gross investments (13,039) (9,204) (7,498) (8,768) (9,826) (14,417) (6,372) (6,832) Divestments 1,861 1,735 (2,038) (16) 983 22,459 267 1,927 Free cash flow (5,008) 2,327 (7,089) 1,335 12,072 (3,267) (3,750) (4,942) Financial ratios Return on capital employed (ROCE), % LTM (14.2) (13.7) 13.2 13.8 16.8 24.4 14.8 19.0 FFO/adjusted net debt, % LTM 28.6 20.9 17.7 37.4 42.7 35.3 39.0 37.5 Number of outstanding shares, end of period, '000 420,381 420,381 420,381 420,381 420,381 420,381 420,381 420,381 Share price, end of period, DKK 374 385 645 583 631 608 742 849 Market capitalisation, end of period, DKKbn 157 162 271 245 265 255 312 357 Earnings per share (EPS), DKK (1.6) (53.8) (1.4) 6.7 1.2 22.3 0.3 13.2 1 in 2023, we changed our accounting policy on recognition of revenue from the settlement of failed own-use contracts related to power. The change only impacts revenue and cost of sales with no impact on EBITDA. The comparisons for 2022 have been adjusted. The related power volumes in 2022 and 2023 have consequently been netted. See more in note 1.2 ‘Basis of preparation’. Business drivers 2023 2022 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Offshore Decided (FID'ed) and installed capacity, GW 15.5 12.0 12.0 12.0 11.1 11.1 11.1 11.1 Installed capacity, GW 8.9 8.9 8.9 8.9 8.9 8.9 7.6 7.6 Generation capacity, GW 5.0 5.0 4.9 4.7 4.7 5.3 4.8 4.2 Wind speed, m/s 11.5 8.6 8.1 10.9 10.7 7.7 8.4 11.3 Load factor, % 56 33 29 53 54 28 35 54 Availability, % 92 93 91 95 95 91 94 95 Power generation, GWh 6,011 3,544 3,044 5,162 5,411 3,246 3,324 4,502 Power sales, GWh 6,244 3,948 4,158 7,098 7,645 3,483 5,258 6,808 Onshore Decided (FID'ed) and installed capacity, GW 6.4 6.2 6.2 6.2 6.2 5.1 4.9 4.7 Installed capacity, GW 4.8 4.8 4.6 4.5 4.2 4.2 4.0 3.6 Wind speed, m/s 7.6 6.2 6.7 8.1 7.7 6.0 7.8 7.9 Load factor, wind, % 36 27 35 45 40 28 47 47 Load factor, solar PV, % 17 32 30 16 17 32 31 21 Availability, wind, % 85 85 92 91 91 92 92 96 Availability, solar PV, % 98 98 98 99 99 96 99 99 Power generation, GWh 3,376 2,927 3,321 3,750 3,425 2,723 3,795 3,203 Bioenergy & Other Degree days, number 966 53 409 1,157 861 98 448 1,141 Heat generation, GWh 2,385 234 790 3,178 2,064 239 823 3,243 Power generation, GWh 1,042 781 917 1,697 1,409 1,363 1,102 2,138 Power sales, GWh 628 566 556 877 904 1,339 1,466 1,690 Gas sales, GWh 3,041 5,355 4,016 4,468 4,048 5,706 8,891 12,993 ESG statements Employees, end of period, number 8,905 8,906 8,661 8,422 8,027 7,681 7,292 7,016 Total recordable injury rate (TRIR) 2.8 2.9 2.6 2.7 3.1 3.3 2.8 1.3 Fatalities, number - - - - - - - - Renewable share of heat and power generation, % 95 94 97 89 88 89 93 92 GHG emissions (scope 1 & 2), million tonnes 0.4 0.3 0.2 0.7 0.8 0.7 0.4 0.6 GHG intensity (scope 1 & 2), g CO 2 e/kWh 25 46 24 52 62 88 49 48 GHG intensity (scope 1-3, excl. natural gas), g CO 2 e/kWh 62 94 77 90 110 330 112 100 GHG emissions (scope 3), million tonnes 1.2 1.6 1.3 1.5 1.5 3.1 2.6 3.7 50 Management's review | Results ØRSTED ANNUAL REPORT 2023 Corporate Governance 52 Governance framework 54 Board of Directors 58 Group Executive Team 61 Summary of our remuneration report 62 Shareholder information → Together with our partner Eversource, we celebrated the sail away of the first American-built offshore substation, setting sail from a Texas port to the South Fork project site and marking a significant step in the US offshore wind industry. More than 350 US workers across Texas and Kansas supported the construction of the offshore substation. 51 Management's reviewØRSTED ANNUAL REPORT 2023 Governance framework The overall and strategic management of the com- pany is anchored in a board of non-executive directors. As a publicly listed company, Ørsted shall provide a statement on how we address the recommendations on Corporate Governance issued by the Danish Com- mittee on Corporate Governance. Our statement can be found (here). In 2023, we decided not to webcast our annual general meeting and therefore only partly complied with Recommendation 1.2.1 as accounted for in our 2023 corporate governance statement. Besides this, we comply with all recommendations. Going forward, we have decided to webcast general meetings. Shareholders and general meetings The Danish State is our majority shareholder with a 50.1 % ownership share. The Danish State exer- cises its ownership interest in Ørsted in accordance with the ordinary governance setup in Danish com- panies. The Danish State's ownership policy (only in Danish) is available on: fm.dk/udgivelser/2015/april/ statens-ejerskabspolitik/. The shareholders of Ørsted exercise their right to vote at the general meeting through a one-share-one-vote principle. The general meeting adopts decisions in accordance with the ordinary Danish rules. Due to our majority ownership by the Danish State, we have a bespoke quorum requirement, as proposals to amend our articles of association or dissolve the company require that the Danish State participates in the gen- eral meeting and supports the proposals. The general meeting appoints a board of non-executive directors (the Board of Directors), who, together with the executive directors appointed by the board, are responsible for the management of the company. Board of Directors The Board of the Directors is, together with the execu- tive directors appointed by the board, responsible for the management of the company. In 2022, our general meeting approved to expand our scheme for employee-elected board members to cover employees globally, and we will hold our first international election in Q1 2024. Our Board of Direc- tors currently comprises twelve members, eight mem- bers elected by the general meeting and four mem- bers elected by the employees. The Board of Directors is responsible for the overall strategic management of the company. The Board of Directors lays down the company's strategy and makes decisions concerning major investments and divestments, the capital base, key policies, control and audit matters, risk management, and significant operational issues. You can see the most important tasks in 2023 on the next page. Our governance model Board of Directors Shareholders and general meeting Nomination & Remuneration Committee Audit & Risk Committee Internal Audit The Board of Directors monitors and oversees pro- gress related to our sustainability strategy and that our sustainability targets are achieved, including our ambitious net-zero carbon reduction targets for scope 1-3 emissions. ESG and sustainability priorities are an integral part of the decision-making governance of the Board of Directors, and an update on our sustainability targets and progress is presented to them annually. The Board of Directors annually reviews the required competences for its composition. In 2023, the ESG competence was further detailed to bring it in line with the EU Corporate Sustainability Reporting Directive (CSRD). The list of required competences can be found on orsted.com/competences-overview. We have a diverse Board of Directors. With three female board members out of the eight elected by the general meeting, we have a 37.5 % female representation, which is an equal representation under Danish law. The age of our board members spans from 48 to 69 years old among board members elected by the general meeting and from 29 to 56 years old among board members elected by the employees. Our board members have different educational backgrounds within finance, economics, geophysics, and engineer- ing and professional experience from the energy or other industries, private equity, private investments, and academia. A description of the individual board Investment Committee Executive Risk Committee Sustainability Committee QHSE Committee Compliance Committee Cyber Security Committee Group Executive Team 52 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 [](http://orsted.com/corporate-governance-reports)[](http://fm.dk/udgivelser/2015/april/statens-ejerskabspolitik/)[](http://fm.dk/udgivelser/2015/april/statens-ejerskabspolitik/)[](https://orsted.com/competences-overview) members, including their other executive positions, independence, and how the individual board members contribute to the required competences, can be found in the following pages. Their meeting attendance dur- ing 2023 can be found above. The Board of Directors evaluates its performance annually. The 2023 board evaluation was conducted by distributing a customised online survey to all mem- bers of the Board of Directors and the Group Execu- tive Team, and findings were subsequently discussed at a board meeting. The overall score was satisfac- tory, although slightly lower than 2022. In 2022, the Board of Directors identified two overriding themes regarding the division of responsibilities between the Board of Directors and the Executive Board and the information to the Board of Directors regarding talent management and succession. Since the evaluation, various initiatives have been launched to address the findings, and in the 2023 board evaluation, the gen- eral feedback was that progress had been made. The general meeting determines the remuneration for the members of the Board of Directors for the finan- cial year in which the general meeting is held. In the separate remuneration report, you can read more about the remuneration of the Board of Directors. Below, you can find a link to the remuneration report and a link to our statutory report on data ethics, pre- pared in accordance with the Danish Financial State- ments Act, section 99 d. → orsted.com/remuneration2023 orsted.com/data-ethics2023 Important tasks 2023 – managed by the Board of Directors Investments, acquisitions, and divestments Final investment decision on the offshore wind projects Hornsea 3, Revolution Wind, and Greater Changhua 2b and 4. Decision to cease development of the Ocean Wind 1 and 2 offshore wind projects. Build-out of our offshore wind portfolio, including bids into tenders in the US and Germany, the acquisition of the remaining 50 % share of Lease Area 500 from Eversource, and entry into an agreement with ESB to jointly develop an Irish offshore wind portfolio. Divestment of the remaining 25 % share of the London Array Offshore Wind Farm to funds managed by Schroders Greencoat, divestment of 50 % of the offshore wind farm Gode Wind 3 to Glennmont Partners, and divestment of the Hornsea 2 transmission assets to Diamond Transmission Corporation Limited and HICL Infrastructure PLC. Other tasks Decision to replace the CFO and COO, including the appointment of an interim CFO and interim COO. Oversight of risk review, portfolio review, strategic review, and actions to improve capital structure. Strategy review to present progress and strategic updates as part of the Capital Markets Day in June 2023. Issuance of green senior bonds to finance our global build-out of renewable energy and green growth ambition and refinancing of hybrid capital. Oversight of financial results and guidance, including impairments on our US offshore wind portfolio. Discussion of sustainability differentation and board governance with regards to ESG and sustainability. Oversight and discussion of the development of our sustainability statements, including preparing for EU's Corporate Sustainability Reporting Directive (CSRD). Oversight of the results from the 2023 employee satisfaction survey, including the focus areas identified by the Group Executive Team. Meeting attendance Board of Directors Audit & Risk Committee Nomination & Remuneration Committee Board members Ordinary Extraordinary Ordinary Extraordinary Thomas Thune Andersen 7/0 9/0 3/0 Lene Skole 7/0 8/1 3/0 Annica Bresky 1 6/0 7/1 Andrew Brown 1 6/0 7/1 Jørgen Kildahl 7/0 9/0 6/0 4/0 Julia King 2 7/0 8/1 2/0 Peter Korsholm 7/0 7/2 6/0 4/0 Dieter Wemmer 7/0 7/2 6/0 4/0 Benny Gøbel 7/0 9/0 Leticia Francisca Torres Mandiola 7/0 9/0 Alice Florence Marion Vallienne 6/1 9/0 Anne Cathrine Collet Yde 7/0 9/0 The numbers indicate how many meetings in 2023 the members have attended or not attended, respectively, during the year. 1 Joined the Board of Directors on 7 March 2023. 2 Joined the Nomination & Remuneration Committee on 7 March 2023. 53 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 [](https://orsted.com/remuneration2023)[](https://orsted.com/en/who-we-are/our-organisation/corporate-governance/data-ethics-report) Thomas Thune Andersen *1955, Denmark He/him Elected by the general meeting Independent 2014 Joined as Chair 2023 Most recently re-elected 2024 Current election period expires Experience Extensive international leadership experience from leading positions in A.P. Moller - Maersk and non- executive director ships in listed and privately held companies within the energy, critical infrastructure, and other sectors. Executive functions in other enterprises Chair VKR Holding A/S, Lloyds Register Group Limited, and Lloyds Register Foundation. Member BW Group Ltd and IMI plc (Senior Inde- pendent Director). Board committee memberships in other enterprises Remuneration Committee of Lloyds Register Group Limited, Nomination Committee of Lloyds Register Foundation, Nomination Committee, Remuneration Committee, and the Audit Committee of IMI plc, and Nomination Committee of VKR Holding A/S. Other positions Member of the Danish Committee on Corporate Governance, Commissioner of the Energy Transition Commission (ETC), member of the Community of Chairpersons of the World Economic Forum (WEF), and member of Friends of Ocean Action of WEF. Competences Management: General · Risk · Project · Stakeholder Other: Safety · Energy sector ESG: Environmental · Social · Governance Board of Directors Lene Skole *1959, Denmark She/her Elected by the general meeting Independent 2015 Joined as Deputy Chair 2023 Most recently re-elected 2024 Current election period expires Experience Highly experienced in managing listed companies from her previous position as CFO of Coloplast and current position as CEO of Lundbeckfonden where she serves as a non-executive director of the portfolio companies of Lundbeckfonden. Executive functions in other enterprises CEO Lundbeckfonden and Lundbeckfond Invest A/S. Chair LFI Equity A/S. 1 Deputy Chair ALK-Abelló A/S 1 , H. Lundbeck A/S 1 , Falck A/S 1 , and Nordea Bank Abp. Board committee memberships in other enterprises Member of the Audit Committee and member of the Remuneration Committee of Falck A/S, member of the Nomination & Remuneration Committee and Scientific Committee of ALK-Abelló A/S, member of the Nomination & Remuneration Committee and Scientific Committee of H. Lundbeck A/S, and mem- ber of the Audit Committee of Nordea Bank Abp. Other positions Deputy Chair of the Danish Committee on Foundation Governance. Competences Management: General · Financial · Risk · Stakeholder Other: Safety · Investor and capital market relation- ships ESG: Environmental · Social · Governance 1 Board positions included in the position as CEO of the Lundbeck Foundation. Annica Bresky *1975, Sweden She/her Elected by the general meeting Independent 2023 Joined 2024 Current election period expires Experience Extensive industrial and leadership experience from global listed companies within the forestry, paper, and packaging industry, from positions as President and CEO of Stora Enso, and as CEO of Holmen Iggesund Paperboard. A deep knowledge of sustain- ability transformation and policy development in the EU and globally. Other positions Member of the Executive Committee of the World Business Council for Sustainable Development (WBCSD) and member of the Royal Swedish Academy of Engineering Sciences (IVA). Competences Management: General · Financial · Risk · Project · Stakeholder Other: Safety · IT and digitalisation · Investor and capital market relationships · Innovation ESG: Environmental · Social · Governance Andrew Brown *1962, Great Britain He/him Elected by the general meeting Not independent (interim COO of Ørsted) 2023 Joined 2024 Current election period expires Experience Extensive international executive experience from leading positions in large global organisations, operations, and projects with both Shell (ExCom) and Galp (CEO), and from his current position as interim COO of Ørsted. Also, non-executive experience as Vice Chair of SBM Offshore. Other positions Advisor of ZeroAvia Inc. and Vice President & Honorary Secretary of the council of the Energy Institute (EI). Competences Management: General · Project · Stakeholder Other: Safety · Investor and capital market rela- tionships ESG: Environmental · Social · Governance 54 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 Jørgen Kildahl *1963, Norway He/him Elected by the general meeting Independent 2018 Joined 2023 Most recently re-elected 2024 Current election period expires Experience Strong international background in renewable energy and a profound knowledge of how the energy ecosystems work from previous positions as Executive Vice President of Statkraft and member of the Board of Management of E.ON SE. Executive functions in other enterprises Member Scatec ASA and Alpiq AG. Board committee memberships in other enterprises Member of the Audit Committee of Scatec ASA and the Audit Committee of Alpiq AG. Other positions Senior Advisor and member of the Energy Invest- ment Committee of Energy Infrastructure Partners, Switzerland. Competences Management: General · Risk · Project · Stakeholder Other: Safety · IT and digitalisation · Investor and capital market relationships ESG: Environmental · Social · Governance Julia King The Baroness Brown of Cambridge *1954, Great Britain She/her Elected by the general meeting Independent 2021 Joined 2023 Most recently re-elected 2024 Current election period expires Experience Strong international background within engineering in both industry and academia, including Rolls-Royce plc, Cambridge University, and Imperial College. A deep knowledge of renewable energy and govern- ment policy perspectives from positions, among oth- ers, as member of the Committee on Climate Change and non-executive director of the Green Investment Bank. Executive functions in other enterprises Chair The Carbon Trust, STEM Learning Ltd, and Frontier IP Group Plc. Non-executive director Ceres Power Holdings Plc (Senior Independent Director). Board committee memberships in other enterprises Chair of ESG Committee and member of Remunera- tion Committee and Nomination Committee of Ceres Power Holdings Plc and member of Remuneration Committee of Frontier IP Group Plc. Other positions Crossbench Peer in the UK House of Lords, Chair of the House of Lords Science and Technology Select Committee, and Chair of the Adaptation Committee of the Committee on Climate Change. Competences Management: General · Financial · Project · Stakeholder Other: Safety · IT and digitalisation · Innovation ESG: Environmental · Social · Governance Peter Korsholm *1971, Denmark He/him Elected by the general meeting Independent 2017 Joined 2023 Most recently re-elected 2024 Current election period expires Experience Extensive M&A experience from his time as Partner and Head of EQT Partners Denmark and from private investments. Also experience with financial reporting, risk management, and capital markets from CFO position at AAK AB. Executive functions in other enterprises CEO DSVM Invest A/S, DSV Miljø Group A/S, Togula ApS, and Totalleveranser Sverige AB. Chair Flügger group A/S, Nymølle Stenindustrier A/S, Totalleveranser Sverige AB, Lion Danmark I ApS, two wholly-owned subsidiaries of Lion Danmark I ApS (Lomax Group), and Too Good to Go Holding ApS. Member DSVM Invest A/S and eight wholly-owned subsidiaries of DSVM Invest A/S, BCHG Holding A/S, and two-wholly owned subsidiaries of BCHG Holding A/S, and Projektselskabet Teglbuen A/S. Other positions Chair of Investment Committee of Zoscales Partners. Competences Management: General · Financial · Risk · Stakeholder Other: Investor and capital market relationships ESG: Environmental · Governance Dieter Wemmer *1957, Swi t ze r la n d He/him Elected by the general meeting Independent 2018 Joined 2023 Most recently re-elected 2024 Current election period expires Experience Highly experienced in capital markets, invest- ments, and risk management from leading positions within the finance sector, including as CFO of Allianz. Executive functions in other enterprises Chair Marco Holding, plc and one wholly-owned subsidiary of Marco Holding, plc. Member UBS Group AG and UBS AG. Board committee memberships in other enterprises Member of the Audit Committee and Compensa- tion Committee of USB Group AG and UBS AG. Competences Management: General · Financial · Risk · Stake- holder Other: IT and digitalisation · Investor and capital market relationships ESG: Social · Governance 55 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 Benny Gøbel *1967, Denmark He/him Elected by the employees Not independent 2011 Joined 2022 Most recently re-elected 2024 Current election period expires Experience Benny Gøbel has worked in Ørsted since 2005. Position Senior Mechanical Specialist, EPCO & IT. Competences Other: Energy sector Leticia Francisca Torres Mandiola *1994, Chile She/her Elected by the employees Not independent 2022 Joined 2024 Current election period expires Experience Leticia Francisca Torres Mandiola has worked in Ørsted since 2018. Position Senior Business Developer, P2X. Competences Other: Energy sector · IT and digitalisation · Innovation Alice Florence Marion Vallienne *1994, France She/her Elected by the employees Not independent 2022 Joined 2024 Current election period expires Experience Alice Florence Marion Vallienne has worked in Ørsted since 2018. Position Head of Ventures Portfolio. Competences Management: Financial · Risk · Project Other: Safety · Energy sector · IT and digitalisation · Innovation ESG: Social Anne Cathrine Collet Yde *1983, Denmark She/her Elected by the employees Not independent 2022 Joined 2024 Current election period expires Experience Anne Cathrine Collet Yde has worked in Ørsted since 2 017. Position Global HR Business Partner, People & Development. Competences Management: Project · Stakeholder Other: Safety ESG: Social 56 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 The Board of Directors has established two commit- tees, consisting of members appointed by and among the members of the Board of Directors: The Audit & Risk Committee and the Nomination & Remuneration Committee. Audit & Risk Committee Dieter Wemmer (Chair), Jørgen Kildahl, and Peter Korsholm are the members of the committee. The committee reports to the Board of Directors. The tasks of the committee include overseeing the integrity of the financial and sustainability reporting (including key accounting estimates and judgements), funding, liquidity and capital structure development, financial and business-related risks, compliance with statutory and other requirements from public author- ities, internal controls, nomination of external audi- tors, and IT security in operational and administrative areas as well as cybersecurity. Moreover, the commit- tee approves the framework governing the work of the company's external and internal auditors (includ- ing limits for non-audit services), evaluates the exter- nal auditors' independence and qualifications, and monitors the company's whistleblower scheme. In 2023, the committee reviewed impairments on our property, plant, and equipment with a high attention to our US offshore wind projects, the development and partial implementation of a new, holistic risk manage- ment framework addressing lessons learnt in current and previous years, and prepared for the EU Corporate Board committees Sustainability Reporting Directive (CSRD). Furthermore, the committee conducted an audit tender with effect from 2025, continued to assess the claim made by the Danish Tax Agency requiring double Danish taxation of certain of our British offshore wind farms, and lastly, reviewed the progress in IT security. Our Internal Audit function reports to the committee and is independent of our administrative manage- ment structures. Internal Audit enhances and protects the organisational value by providing risk-based and objective assurance, advice, and insight. The focus for Internal Audit is to audit and advise on our core pro- cesses, governance, risk management, control pro- cesses, and IT security. The Chair of the Audit & Risk Committee is responsi- ble for managing our whistleblower scheme. Internal Audit receives and handles any reports submitted. Our employees and other associates may report serious offences, such as cases of bribery, fraud, and other inappropriate or illegal conduct, to our whistleblower scheme or through our management system. In 2023, 18 substantiated cases of inappropriate or unlawful behaviour were reported through our whistleblower scheme. Nine cases related to good business con- duct policy violations, while six cases concerned the workplace environment, one case concerned IT secu- rity, and two cases were classified as ‘other’. None of the reported cases were critical to our business, nor caused adjustments to our financial results. One case required a police report. Whistleblower cases are taken very seriously, and we continuously enhance the awareness of good business conduct through education and awareness campaigns to minimise future similar cases. You can read more about the Audit & Risk Committee and the terms of reference for the committee on orsted.com/audit-risk-committee. Nomination & Remuneration Committee Thomas Thune Andersen (Chair), Lene Skole, and Julia King are the members of the committee. The committee assists the Board of Directors in mat- ters regarding the composition, remuneration, and performance of the Board of Directors and the Group Executive Team. In 2023, the committee discussed the need for replac- ing the CFO and COO, including the appointment of an interim CFO and interim COO, and the appointment of Varun Sivaram as a new member of the Group Exec- utive Team, replacing Neil O'Donovan. The committee also reviewed an amendment of the short-term incentive scheme (STI) for the wider man- agement team by implementing similar changes as the amendment introduced in 2022 for the Executive Board where the weight of shared KPIs was increased, including an explicit link to our sustainability ambitions. You can read more about the Nomination & Remuneration Committee and the terms of reference for the committee on orsted.com/ nomination-remuneration-committee. 57 Management's review | Corporate governanceØRSTED ANNUAL REPORT 2023 [](https://orsted.com/audit-risk-committee)[](https://orsted.com/nomination-remuneration-committee)[](https://orsted.com/nomination-remuneration-committee) Group Executive Team Rasmus Errboe Interim CFO, Executive Board Per Mejnert Kristensen President of Region APAC Varun Sivaram Head of Strategy, Innovation, Portfolio & Partnerships Mads Nipper Group President and CEO, Executive Board Henriette Fenger Ellekrog CHRO, Executive Board Andrew Brown Interim COO and Member of the Board of Directors Olivia Breese Interim CEO of Region Europe and Head of P2X Anders Zoëga Hansen Head of Legal David Hardy CEO of Region Americas Ingrid Reumert Head of Global Stakeholder Relations The Board of Directors appoints the Executive Board, consisting of the Group President and CEO, the CFO, and the Chief HR Officer (CHRO), who undertake the day-to-day management of Ørsted through the Group Executive Team. In November 2023, Daniel Lerup (CFO) and Richard Hunter (COO) stepped down and left Ørsted with immediate effect, and Rasmus Errboe was appointed interim CFO. Andrew Brown was appointed interim COO, expectedly until end of March 2024. While he has taken on the dual role as board member and interim COO, measures have been put in place to avoid conflicts of interests. Mads Nipper (Group President and CEO), Rasmus Errboe (interim CFO), and Henriette Fenger Ellekrog (CHRO) constitute the members of the Executive Board of Ørsted A/S. The Executive Board has established a Group Exec- utive Team consisting of ten members, including the members of the Executive Board, which undertake the day-to-day management. The Group Executive Team comprises David Hardy (CEO of Region Americas), Per Mejnert Kristensen (President of Region APAC), Olivia Breese (interim CEO of Region Europe and Head of P2X), Andrew Brown (interim COO), Varun Sivaram (Head of Strategy, Innovation, Portfolio & Partnerships), Ingrid Reumert (Head of Global Stakeholder Relations), and Anders Zoëga Hansen (Head of Legal). In our Executive Board, we have a female representa- tion of 33.3 %. We have no people managers reporting to the Executive Board who are employed by the same legal entity as the Executive Board, and the average number of full-time employees in Ørsted A/S did not in 2023 exceed 50\. Therefore, we have not set a target to increase gender diversity among ‘other managerial levels’ as defined under Danish law. We describe the remuneration of the Executive Board in the separate remuneration report. You can also find information about the members of the Executive Board on page 60. The ten members of the Group Executive Team undertake the day-to-day management. 58 Management's review | Corporate governanceØRSTED ANNUAL REPORT 2023 Management committees The Group Executive Team is supported by specialist committees with members appointed by the Group Executive Team. The specialist committees are the Investment Committee, the Executive Risk Commit- tee, the Sustainability Committee, the QHSE Commit- tee, the Compliance Committee, and the Cyber Secu- rity Committee. More information about the manage- ment committees can be found to the right. Group Executive Team's sustainability commitment The Group Executive Team sets the strategic direction on sustainability. They are involved in all major decisions and are updated regularly on progress. The Group Executive Team is accountable for approving and implementing our portfolio of sustainability prior- ities and targets and assigns accountability for them at executive level. Moreover, they present proposals for sustainability targets to the Board of Directors for approval. Internal controls environment We have established internal control systems throughout the organisation to ensure identification and mitigation of risks to financial and sustainability reporting by setting up targets, policies, manuals, pro- cedures, and internal controls. We continuously moni- tor our financial and sustainability reporting processes and controls and optimise them as needed. We carry out an annual risk assessment for identifying the risks of material misstatements in the financial and sustainability reporting based on materiality, the complexity of processes, and the probability of errors and omissions. To ensure that our internal control framework is effec- tive, we have established a plan running until the end of 2024 where we will evaluate the processes for all material areas within financial and sustainability reporting, including reassessment of existing controls and identification of additional controls within the processes. We continuously monitor and test the inter- nal controls on financial and sustainability reporting to ensure their operating effectiveness. We have established the same governance for finan- cial and sustainability reporting. The Audit & Risk Committee monitors our financial and sustainabil- ity reporting process, including a review of the risk assessment, the internal controls, and their operating effectiveness. We are committed to ensuring the accuracy of our financial and sustainability reporting. Our financial reporting are audited by an independent audit firm elected at the annual general meeting. Our sustaina- bility data is subject to limited assurance by the same independent auditor. All observations in the external auditor's long-form report and management letter are addressed by action plans with allocation of respon- sibilities and deadlines, and we regularly follow up on and review them. Investment Committee The committee reviews investments, M&A pro- jects, and certain other transactions. Investment decisions and other transactions of an unusual nature or above certain thresholds must be approved by the Board of Directors. The committee consists of the Group Executive Team, the Chief Risk Officer, the head of Treasury & Capital Planning, and the head of Portfolio. The Investment Committee is chaired by the CEO and meets continuously during the year. Executive Risk Committee The committee serves as an advisory body for the CFO on risk management-related topics. A key purpose of the committee is to ensure align- ment of market, liquidity, and credit risk policies with our strategy and risk appetite. Furthermore, the committee serves as a forum for discussing, deciding, and setting the direction for items related to risk management. In addition to the CFO, the committee consists of the Chief Risk Officer and the heads of Internal Audit, Mer- chant Risk, and the US and European Trading & Revenue functions. The Executive Risk Commit- tee is chaired by the CFO and meets continuously during the year. Sustainability Committee The committee oversees that we live up to our sustainability commitment. It approves our dou- ble materiality assessment and ESG data set, provides recommendations, and monitors perfor- mance of our work with sustainability priorities, including progress on targets. The committee is cross-functional with represen- tatives from Sustainability, Finance, QHSE, EPCO (engineering, procurement, construction, and oper- ations), and HR. The Sustainability Committee is chaired by the CFO and meets six times a year. QHSE Committee The committee oversees that we live up to our QHSE (quality, health, safety, and environment) priorities, and it reviews our QHSE strategy and policy. In addition, the committee reviews our integrated management system, ‘way we work’, conducts the management review as required by our ISO certifications, and monitors the perfor- mance of our QHSE programmes to ensure com- pliance with legal and regulatory requirements as well as agreed international standards. The committee's members are the COO, the Chief Procurement Officer, and the heads of Global Stakeholder Relations, Bioenergy, P2X, and Region Europe. The QHSE committee is chaired by the head of QHSE and meets six times a year. Compliance Committee The committee oversees compliance with laws, rules, standards, and internal codes of conduct within our group-wide legal compliance areas. The committee is cross-functional and consists of the CEO, CFO, CHRO, and compliance officers appointed for all business areas and shared func- tions. The Compliance Committee is chaired by the CEO and meets at least twice times a year. Cyber Security Committee The committee is responsible for overseeing and guiding our cybersecurity within strategy, global risk tolerance, investment choices, and support for significant global initiatives and oversees compliance and implementation of cyber regula- tion, NIS2 in particular. The committee is cross-functional and consists of the CFO, COO, Chief Information Security Officer, Chief Information Officer, and the Head of Global Operations. The Cyber Security Committee is chaired by the CFO and meets four times a year. Management committees appointed by the Group Executive Team 59 Management's review | Corporate governanceØRSTED ANNUAL REPORT 2023 Mads Nipper *1966, Denmark He/him Group President, Chief Executive Officer (CEO), and member of the Executive Board (registered as manager of Ørsted A/S with the Danish Business Authority) Education MSc in International Business, University of Aarhus (1991) Professional experience 2021: Ørsted, Group President and Chief Executive Officer (CEO) 2014 – 2020: Grundfos A/S, CEO and Group President 1991 – 2014: LEGO System A/S, most recently as Chief Marketing Officer and Executive Vice President as well as a member of the Management Board Executive functions in other enterprises Deputy Chair: FLSmidth & Co. A/S and one wholly-owned subsidiary hereof. Henriette Fenger Ellekrog *1966, Denmark She/her Executive Vice President, Chief HR Officer (CHRO) and member of the Executive Board (registered as manager of Ørsted A/S with the Danish Business Authority) Education MA, (cand.ling.merc), Copenhagen Business School (1992) Professional experience 2022: Ørsted, member of the Executive Board 2019: Ørsted, Chief HR Officer (CHRO) 2014 – 2019: Danske Bank A/S, most recently as Chief HR Officer 2007 – 2014: SAS AB, most recently as Deputy CEO, EVP, HR & Communication 1998 – 2007: TDC A/S, most recently as Senior Executive Vice President, Chief of Staff, Member of the Executive Management Team 19 92 – 19 98 : Peptech (Europe) A/S and Mercuri Urval A/S: Various positions Executive positions in other enterprises Board member: NV Bekaert SA (member of the Nomination & Remuneration Committee). Board committee memberships in other enterprises Special Committee for Diversity in the Confederation of Danish Industries (DI). Rasmus Errboe *1979, Denmark He/him Interim Chief Financial Officer (CFO) and member of the Executive Board (registered as manager of Ørsted A/S with the Danish Business Authority) Education MA (Law), University of Copenhagen (2006), MBA, University of San Diego (2011) Professional experience 2023: Ørsted, interim Chief Financial Officer (CFO) and member of the Executive Board 2022: Ørsted, Executive Vice President and CEO of Region Europe (member of Ørsted's Group Executive Team) 2012 – 2022: Ørsted, most recently Senior Vice President, Head of Continental Europe, Offshore 2006-2012: Kromann Reumert, law firm, most recently as Attorney-at-Law 60 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 Summary of our remuneration report The overall objective of the remuneration policy is to attract and retain qualified members of the Board of Directors and the Executive Board. The policy includes remuneration elements that support our strategy, long-term interests, and sustainability. Remuneration policy (extract) The overall objective of our remuneration policy is to support the Ørsted Group's strategy, long-term interests, and sustainability. To attain this objective, the policy is designed to attract and retain qualified members of the Board of Directors and the Executive Board and to guide the priorities of the Executive Board. The remuneration should be competitive but not market-leading compared to the remuneration in other major listed Danish companies with inter- national activities. The full remuneration policy is available at orsted.com/remuneration2023. Remuneration of the Board of Directors The members of the Board of Directors receive a fixed fee each year. The Chair and the members of the com- mittees also receive a multiple of the fixed fee for the extra work performed in these roles. The members' travel costs are covered by the company. The mem- bers are not entitled to severance payments. The fees did not increase in 2023. Remuneration of the Executive Board Besides a fixed salary, the Executive Board partici- pates in a variable short-term incentive scheme (STI), which consists of 70 % shared financial, ESG, and strategic KPIs aligned with our strategic targets: Financial: EBITDA ESG: CDP climate score, relative scope 1 and 2 emissions, employee satisfaction, gender diversity, and safety Strategic ambitions: progress on strategic journey towards 2030 ambition The remaining 30 % of the STI consists of individual business and leadership targets. Furthermore, the Executive Board is eligible to participate in a long-term share-based incentive scheme (LTI), which consists of 100 % TSR performance benchmarked against ten industry peers. Remuneration in 2023 The remuneration awarded to our Executive Board in 2023 was in line with our remuneration policy. The Executive Board's shared STI score ended at 39 %. In the LTI, which vested in April 2023, Ørsted was ranked as the last when benchmarked on total share- holder return (TSR) against ten comparable energy companies. As a result, no shares were settled at the end of the performance and vesting period. For more information, please see the full remuneration report. Remuneration awarded (DKK '000) 2023 2022 Board of Directors Fixed annual fee 1 6,907 6,807 Executive Board: 2 Fixed remuneration Fixed base salary 27,849 30,632 Benefits, incl. social security 858 859 Variable remuneration Cash-based inventive scheme (STI) 3,712 6,455 Share-based inventive scheme (LTI) 3 2,719 6,463 Ordinary remuneration 35,138 44,409 Garden leave period 7,071 11,405 Severance pay 6,210 9,270 Total remuneration 55,325 71,891 Remuneration awarded The table shows the total remuneration awarded to members of the Board of Directors and the Executive Board in aggregate from 2022 to 2023. For remuneration expensed, see note 2.7 ‘Employee costs’ of the consolidated financial statements. 1 Based on an ordinary board fee of DKK 0.4 million, equal to last year's fee. 2 In 2023, Executive Board members included former CFO Daniel Lerup. In 2022, Executive Board members included former CFOs Daniel Lerup and Marianne Wiinholt and former CCO Martin Neubert. 3 The remuneration from the share-based incentive programme (LTI) reflects the market value of the scheme in the year when it was granted. STI Short-term incentive scheme, components LTI Long-term incentive scheme, components 30 % ESG 30 % Financial 10 % Strategic ambitions 30 % Business & leadership (individual target) TSR performance vs industry peers 100 % 61 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 [](https://orsted.com/remuneration2023)[](https://orsted.com/remuneration2023) 0 1.000.000 2.000.000 3.000.000 4.000.000 5.000.000 6.000.000 200 300 400 500 600 700 800 Shareholder information 2023 was a turbulent year for the Ørsted share. The lowest traded share price was DKK 253 on 1 Novem- ber. The share partially rebounded towards the end of the year and ended at DKK 374 on 29 December. Price development for the Ørsted share in 2023 The Ørsted share yielded a total loss of 39 % in 2023, a decrease in the share price of 41 %, and dividends of DKK 13.5 per share. The share price of comparable European utility companies increased by 10 % (15 % total return), and the OMX C25 cap increased by 7 % (11 % total return) in 2023\. The highest traded share price of the year was DKK 705 on 17 January, while the year's lowest traded price of DKK 253 was on 1 November. The Ørsted share closed 2023 at DKK 374, corresponding to a market value of DKK 157 billion at the end of the year. The average daily turnover on Nasdaq Copenhagen was 671,952 shares in 2023\. The trading volume increased by 35 % compared to 2022. Share capital Ørsted's share capital is divided into 420 million shares, enjoying the same voting and dividend rights. The company's share capital remained unchanged in 2023\. At the end of 2023, the company held a total of 151 thousand treasury shares, which will be used to cover incentive schemes. Composition of shareholders At the end of the year, the number of shareholders had increased by 13 % to 133,213, and the majority (65 %) is held by Danish owners. The figure on the next page shows the composition of our shareholders by country. Approx. 3 % of the share capital is owned by Danish retail investors. Annual general meeting and dividends The annual general meeting will be held on 5 March 2024\. The Board of Directors has decided to pause dividend payments for the years 2023-2025\. Here- after, the intension is to reinstate dividend payments. In 2023, dividends of DKK 13.5 per share were paid for the 2022 financial year. Share data 2023 2022 2021 2020 2019 Earnings per share, DKK (50.1) 34.6 24.3 38.8 12.8 Proposed dividend per share, DKK - 13.5 12.5 11.5 10.5 Dividend yield, % - 2.1 1.5 0.9 1.5 Share price, year-end, DKK 374 631 835 1,244 689 Share price, high, DKK 704 898 1,400 1,273 691 Share price, low, DKK 253 575 790 574 428 Market capitalisation, year-end, DKKbn 157 265 351 522 290 Average trading per day, thousands of shares 671,952 496,899 549,778 516,919 447,567 Share price development 2023 Ørsted share price compared to peers (indexed) OMXC25 Index rebased Ørsted MSCI EU Utilities Index rebased PX volume 800 700 6,000,000 5,000,000 500 600 4,000,000 400 3,000,000 300 2,000,000 200 1,000,000 0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. VolumesShare price Share information ISIN DK 0060094928220 Share classes 1 Nominal value DKK 10 per share Exchange Nasdaq OMX Copenhagen Ticker ORSTED Registered share 98.9 % Number of shares 420,381,080 shares Number of treasury shares 150,784 shares 62 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 Investor relations To achieve a fair pricing of our shares and corporate bonds, we seek to ensure a high level of transparency and stability in our financial communication. In addi- tion, our management and our Investor Relations function engage in regular dialogues with investors and analysts. The dialogues take the form of quarterly conference calls, roadshows, conferences, capital markets days, and regular meetings with individual or groups of investors and analysts. The dialogues are subject to certain restrictions prior to the publication of our financial reporting. In 2023, we had over 650 meetings with the financial market, participated in 35 investor events, and had 40 travel days. Ørsted is covered by 33 equity analysts and 10 bond analysts. Their recommendations and consensus esti- mates for Ørsted's future financial performance are available at orsted.com/en/investors. On this site, you can also download our annual and interim reports, our remuneration report, our investor presentations, and a wide range of other data. Shareholders as of 31 December 2023 Share capital and/or voting share % Selected company announcements in 2023 Denmark 65 % Danish State (majority shareholder) 50.1 % Retail investors 3 % Andel A.M.B. A 5 % Danish institutional investors 7 % North America 9 % United Kingdom 10 % Others 16 % 31 March Ørsted takes final investment decision and is ready to build Greater Changhua 2b and 4 offshore wind farms. 15 May Ørsted awarded contract for capturing and storing 430,000 tonnes of biogenic CO 2 . 6 June Ørsted commits to reuse or recycle all solar panels. 7 June Ørsted confirms ambition of ~50 GW renewable capacity by 2030 and strong financial outlook. 8 June Ørsted becomes world's first energy company to issue blue bonds. 17 August Ørsted completes divestment of 25 % of London Array Offshore Wind Farm. 29 August Ørsted announces anticipated impairments on its US portfolio, continues to progress projects. 29 September Ørsted completes 201 MW onshore wind farm Sunflower Wind in Kansas, the US. 17 October Ørsted divests 50 % stake of Gode Wind 3 in Germany. 1 November Ørsted ceases development of Ocean Wind 1 and Ocean Wind 2, takes final invest- ment decision on Revolution Wind, and recog- nises impairment losses of DKK 28.4 billion. 14 November Ørsted implements changes to executive management where, by mutual agreement, Daniel Lerup (CFO) and Richard Hunter (COO) are stepping down and leaving Ørsted with immediate effect. 30 November Ørsted secures 1.6 GW electricity business license for offshore wind project off the coast of Incheon, Korea. 1 December Ørsted partners with Breakthrough Energy Catalyst, the European Commission, and the European Investment Bank for FlagshipONE. 4 December Ørsted begins construction of Denmark's first carbon capture project. 5 December Ørsted takes final investment decision on its first Irish solar farm. 20 December Ørsted takes final investment decision on Hornsea 3 Offshore Wind Farm. Financial calendar 2024 7 February Annual report 2023 5 March Annual general meeting Interim reports: 2 May The first quarter of 2024 15 August The first half-year of 2024 5 November The first nine months of 2024 63 Management's review | Corporate governance ØRSTED ANNUAL REPORT 2023 [](https://orsted.com/en/investors) → The Atlantic puffin: one of the North Sea's most distinctive and vulnerable bird species. Sustainability statements 64 Sustainability statementsØRSTED ANNUAL REPORT 2023 ↑ This is Leah. Leah works out of our West coast hub in Barrow, UK, as a wind turbine technician. Danish Financial Statement Act The reporting requirements related to our general sustaina- bility performance and specific efforts related to increased diversity in management as defined by sections 99a, 99b, and 107d of the Danish Financial Statements Act are fulfilled in our sustainability statements. Contents Sustainability statements Preparing for the Corporate Sustainability Reporting Directive � � � � � � � 66 General ESRS 2 Creating value through sustainability � � � � � � � � � � � � � � � � � � � � � � � � 68 ESRS 2 General basis for preparation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 69 ESRS 2 Double materiality assessment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 70 Double materiality assessment outcome � � � � � � � � � � � � � � � � � � � � 71 Double materiality assessment methodology � � � � � � � � � � � � � � � 77 Interests and views of our stakeholders � � � � � � � � � � � � � � � � � � � � � � 79 Environment Taxonomy-aligned KPIs (incl. voluntary disclosures) � � � � � � � � � � � � � � � � � � � � 81 ESRS E1 Climate change � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 87 ESRS E4 Biodiversity and ecosystems � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 102 ESRS E5 Resource use and circular economy � � � � � � � � � � � � � � � � � � � � � � � � � 107 Social ESRS S1 Own workforce � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 112 ESRS S2 Workers in the value chain � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 120 ESRS S3 Affected communities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 123 Governance ESRS G1 Business conduct � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 127 Appendix ESRS 2 Disclosure requirements and incorporation by reference � � 132 ESRS 2 Statement on sustainability due diligence � � � � � � � � � � � � � � � � � � 135 ESRS 2 Data points that derive from other EU legislation � � � � � � � � � � 136 Calculation factors � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 138 Alignment with TCFD recommendations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 139 Alignment with TNFD recommendations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 140 Additional data points below materiality thresholds � � � � � � � � � � � � � � � � � 141 65 Sustainability statementsØRSTED ANNUAL REPORT 2023 2018 2006 2024 2019 2021 2023 2015 Preparing for the Corporate Sustainability Reporting Directive We welcome the new EU Corporate Sustainability Reporting Directive (CSRD) and the underlying European Sustainability Reporting Standards (ESRS). We believe that this EU directive and the standards will not only ensure a more balanced, transparent, and consistent disclosure of sustainability information, but also catalyse strengthened sustainability govern- ance and management. Reporting on sustainable finance In 2015, the responsibility of ESG accounting and reporting was moved to our financial organisation to ensure that our ESG accounting, controlling, and reporting teams work in alignment with our financial teams when it comes to processes, deadlines, tools, documentation templates, and reporting products. Furthermore, the teams work in close collaboration with our Global Sustainability team. This reporting set-up has brought us to a position where we are well suited to implement the new EU CSRD and underlying reporting standards. In spring 2022, our Sustainability Committee initiated an ESG development project with the aim of preparing us for the new sustainable finance reporting require- ments, including the CSRD, PAI indicators for our inves- tors, and reasonable assurance for our ESG reporting. New sustainability statements Reporting on the CSRD in 2024 is a huge task. There- fore, we have decided to front-load the work by devel- oping new sustainability statements for the annual report 2023\. The sustainability statements are pre- pared with reference to the ESRS. Our aim has been to implement as much of the fundamentalstructure in the standards as possible in 2023, and to integrate it in the best way possible with the other parts of our annual report. We have done this by using the ‘incor- poration by reference’ option. You can find a full over- view of the ESRS structure and where to find the differ- ent disclosures in the section ‘Disclosure requirements and incorporation by reference’ in the appendix. Our double materiality assessment (DMA) has been performed with reference to the draft ESRS from November 2022, with some choices to limit the complete DMA scope (see DMA outcome on page 71). We will continue the development of the DMA towards full CSRD compliance in 2024. In our previous ESG performance reports, we have reported on a set of energy-related Ørsted\- specific data points, which are not included in the ESRS. We have included these data points in section E1 on climate change in the sustainability statements and Our ESG reporting timeline Responsibility of ESG accounting and reporting was moved to finance We implemented our ESG reporting in the financial reporting processes, tools, and reports. First annual ESG performance report We published our first annual ESG performance report built on the financial reporting platform. Ørsted's first stand-alone sustainability report Full implementation of the CSRD in the sustainability statements First interim ESG performance report In Q1 2019, we published our first interim ESG performance report. Since 2019, we have published interim ESG performance reports every quarter together with the financial interim reports. Pre-implementation of the taxonomy reporting In our interim report for H1 2021, we published our first EU taxonomy reporting and included a voluntary EBITDA tax- onomy indicator in addition to the man- datory taxonomy reporting indicators. New sustainability statements in the annual report 2023 We merged content from three stand- alone reports from 2022 into the sustain- ability statements. Rasmus Errboe Interim CFO Head of the Sustainability Committee regard this data as material entity-specific informa- tion this year. We expect some of the data points to be included in future sector-specific additions to the ESRS. A few data points from our previous ESG performance reports have been assessed to be below the DMA materiality thresholds. We have made these data points available in the appendix, as they are asked for by certain ESG ratings and stakeholders. We wish you a pleasant reading! We are very happy and proud to present our new sus- tainability statements. We believe they are a value\- adding addition to our annual report, and we hope that you find them easy to navigate and interesting to read – and that you will find the sustainability information you are looking for. 66 Sustainability statementsØRSTED ANNUAL REPORT 2023 General 68 Creating value through sustainability 69 ESRS 2 General basis for preparation 70 ESRS 2 Double materiality assessment Double materiality assessment outcome Double materiality assessment methodology Interests and views of our stakeholders → We partnered with WWF on a marine restoration project in the Danish North Sea as part of our efforts to help create new marine habitats, enhance ocean biodiversity, and improve water quality. The BioReef project aims to promote the recovery of once- common biogenic reefs of European flat oysters and horse mussels in the wild waters of the North Sea to support healthy marine ecosystems. 67 Sustainability statementsØRSTED ANNUAL REPORT 2023 E S G Creating value through sustainability We have four strategic sustainability focus areas – climate, nature, people, and governance – each with underlying priorities. Together, the four areas respond to our material sustainability impacts, risks, and opportunities. And they support our efforts to deliver a fast build-out at scale that works for both the planet and people while laying the foundation for a resilient business. On the following pages, we unfold how we identify impacts and risks through a double materiality assess- ment. For detailed information on each topic, including policies, actions, targets, and performance data, please see the topical sections under ‘Environment’, ‘Social’ and ‘Governance’. For more information on how sustainability can help accelerate a fast build-out at scale, please refer to the ‘Management's review’ on page 29. Sustainability is integral to how we operate as a business. Throughout everything we do, we are guided by how and where we can create the most value for both society and our business. ENVIRONMENT SOCIAL GOVERNANCE Science-aligned climate action A green transformation that works for people Governance that enables the right decisions Green energy that revives nature We work to ensure that each of our energy projects contributes positively to a thriving nature We scale our green energy business while delivering science-aligned carbon emissions reductions, thereby enabling our customers to also take climate action We focus our efforts on making the green energy transition just and inclusive To deliver on our sustainability goals, we continuously work to integrate sustainability and integrity into pro- cesses and decision-making across our organisation · Scale renewable energy deployment · Decarbonise own operations by 2025 · Decarbonise our supply chains by 2040 · Mobilise sustainable financing · Deliver net-positive biodiversity impact from new renewable energy projects commissioned from 2030 onwards · Transition to circular resource use · Continue to use 100 % certified sustainable wooden biomass · Respect human rights and the rights of Indigenous Peoples · Support equity, diversity, and inclusion in the workplace · Ensure health, safety, and satisfaction of employees · Ensure safety of contractors · Develop skills and talent for the renewable energy sector · Support local communities · Promote and enable responsible business conduct · Conduct proper due diligence of suppliers and partners · Embed sustainability throughout our business · Advocate and engage for a sustainable industry ESRS E4 Biodiversity and ecosystems, page 102 ESRS E5 Resource use and circular economy, page 107 EU taxonomy, page 81 ESRS E1 Climate change, page 87 ESRS S1 Own workforce, page 112 ESRS S2 Workers in the value chain, page 120 ESRS S3 Affected communities, page 123 ESRS G1 Business conduct, page 127 Responsible tax practices: Note 4.1 ‘Approach to taxes’ in the financial statements Sustainable finance: Note 5.1 ‘Interest-bearing net debt and FFO’ in the financial statements, and our green bond impact report APPROACH PRIORITIES READ MORE APPROACH PRIORITIES READ MORE APPROACH PRIORITIES READ MORE 68 Sustainability statements | General | ESRS 2 ØRSTED ANNUAL REPORT 2023 [](https://orsted.com/greenbonds2023) Management’s review Strategy and business Corporate governance Sustainability statements General Environment Social Governance Appendix ESRS 2 General basis for preparation Frameworks and data selection The sustainability statements are prepared with reference to the ESRS issued by the European Financial Reporting Advisory Group (EFRAG). All the data points included in the E, S, and G sections have been assessed as material according to our double materiality assessment (DMA). Please see the pages below for information on our DMA's limitations to scope and our methodology. All greenhouse gas data points (GHG scope 1-3) are reported based on the Greenhouse Gas Protocol. Measurement basis The accounting policies have been applied consist- ently in the financial year and for comparative figures. Calculation factors used are listed in the appendix together with references. Consolidation The data is consolidated according to the same princi- ples as the financial statements. Thus, the consolidated quantitative ESG data comprises the parent company Ørsted A/S and subsidiaries controlled by Ørsted A/S. Joint operations are also included with Ørsted's pro- portionate share. Associates and joint ventures are not included in the consolidated ESG data points. Consolidation of all quantitative ESG data follows the principles above, unless otherwise specified in the accounting policy placed next to each reported data point in the tables in sections E, S, and G. How to read the sustainability statements Our management report consists of two parts: the management's review and the sustainability statements. The latter reports on some disclosure requirements from the ESRS. However, our actual reporting on data and information is not yet aligned with the CSRD and the underlying ESRS requirements. Our sustainability state- ments are structured into four overall sections: ‘General’, ‘ Environment’, ‘Social’, and ‘Governance’. We have chosen to incorporate some of the strategy and corporate governance disclosures from the cross-cutting standard ESRS 2 in the management’s review as we believe this information is best read in close connection with the financial review and overview of our activities. Information on where in the annual report we have reported on ESRS disclosure requirements can be found on page 132. Key accounting estimates and judgements We use assessments and estimates for the reporting of some data points, e.g. our taxonomy KPIs and scope 3 emissions. We regularly reassess our use of estimates and judgements based on experience, the develop- ment of ESG reporting, and a number of other factors. Changes in estimates are recognised in the period in which the estimate in question is revised. In addition, we make judgements when we apply the accounting policies. For further information on the key estimates, judgements, and assumptions applied, please refer to the pages with quantitative ESG data tables. Threshold for restatements For adjustments to financial numbers, we follow the financial statements. For adjustments to ESG data, we make a judgement as to whether we should restate numbers. We clearly indicate where we have restated data. External review All quantitative data points in the tables in sections E, S, G, and in the appendix marked with a blue eye icon ( ), are covered by the ESG review (limited assurance) performed by our auditor PwC. Please see the audi- tor's limited assurance report on page 249. 69 Sustainability statements | General | ESRS 2ØRSTED ANNUAL REPORT 2023 As a key element of our work to prepare for the CSRD reporting, we have conducted a double materiality assessment (DMA) with reference to the draft ESRS from November 2022\. To do this, we have built on the approach we have pre- viously taken to assess the materiality of sustainability- related matters. This approach has previously used two dimensions to assess materiality: (1) ‘stakeholder importance’, which represented impacts to our sur- roundings, and (2) ‘strategic importance’, which repre- sented impacts on our business from the outside. We have conducted our first DMA this year to capture learnings that will help us to improve our methodology next year. We applied the limited guidance available from EFRAG, combined with our own interpretation of the standards, and developed a step-by-step process, scoring matrices, and a model for aggregation and prioritisation. Our starting point was the impact assessment (inside- out) of Ørsted's impacts on the environment and society, which buildson how we have previously identified and assessed the sustainability-related impacts of our own operations and value chain. We have also conducted a financial assessment (outside-in) of the sustainability- related risks we are exposed to as a business. Where possible, we quantified the effects of those matters and supplemented with qualitative assessments. Due to our previous work with assessing sustainability- related impacts and the complexity in quantifying sustainability-related risks to our business, our efforts this year were concentrated mostly on the impact assessment. As the ESRS principles on double materiality and assessment requirements are extensive, we decided to limit the number and groups of stakeholders involved in assessing our sustainability-related impacts and risks to internal subject-matter experts only. To verify and calibrate the results of our new DMA, we also performed a light update of our former materiality assessment using the approach we have taken annually since 2013\. This assessment served as a proxy for direct involvement of external stake- holders in the DMA as it informs us about the interests and views of stakeholders relevant to our business. In 2024, we will further refine our DMA process and methodology based on the final ESRS and guidance. Matrix showing our material and immaterial ESRS topics. → Page 71 Our value chain and interaction with our most material impacts and risks. → Page 72 Tables specifying all our material impacts and risks. → Pages 73-76 Description of methodologies, assumptions, and process steps. → Pages 77-78 Interests and views of stakeholders. → Page 79 Topical sections specifying our response to our material impacts and risks, including policies, actions, targets and metrics. → Pages 87-130 We are convinced that the outcome presented below is a true and fair picture of our impacts and risks, but we also acknowledge that our methodology has limi- tations. Consequently, we will be further developing our DMA based on the final implementation guidance published by EFRAG in 2024\. The following pages provide detailed information on the results of our double materiality assessment and the process we have applied. ESRS 2 Double materiality assessment Introduction Read more Planet and society Financial materiality (outside-in) Double materiality approach Ørsted Impact materiality (inside-out) 70 Sustainability statements | General | ESRS 2 ØRSTED ANNUAL REPORT 2023 CrucialSignificant IMPACT MATERIALITY Minimal / Informative / Important Significant / Crucial FINANCIAL MATERIALITY Minimal / Informative / Important FINANCIALLY MATERIAL TOPICS IMMATERIAL TOPICS Pollution (E2) Water and marine resources (E3) Consumers and end-users (S4) IMPACT MATERIAL TOPICS IMPACT AND FINANCIALLY MATERIAL TOPICS Climate change (E1) Workers in the value chain (S2) Affected communities (S3) Resource use and circular economy (E5) Biodiversity and ecosystems (E4) Outcome We have identified our impacts on the environment and society (impact materiality assessment) as well as the sustainability-related risks that we are exposed to (financial materiality assessment). The outcome is aggregated per ESRS topic, showing that E1, E5, S3, and S2 are our most material sustainability matters. The environmental impacts and risks we have within E1 and E5 are closely linked to our strategic efforts to deliver a fast build-out of renewable energy. The deployment of new renewable capacity mitigates climate impacts but also requires significant amounts of natural resources such as steel with indirect nega- tive impacts on the climate and the environment. The build-out also affects people and societies, which is reflected in the impacts and risks we have within S2 and S3. We focus our efforts on making the energy transition just and inclusive, including for people working across the renewable energy supply chains, and in a way that brings benefits to local communities. Read more The next page illustrates where our material impacts (crucial) and our material risks occur across our full value chain. Brief descriptions of our material impacts and risks are included on the pages that follow. More information on how we respond to the effects of our impacts and risks can be found within the ‘Environ- ment’, ‘Social’, and ‘Governance’ sections. Double materiality assessment outcome Our DMA approach in brief All assessed impacts and risks have been mapped to their relevant topical ESRS standard. The highest scored impact or risk within a topic determines the placement in the DMA matrix. In case of multiple topics placed within the same square, the topics are listed in chronological order. The following main considerations have been applied: Positive/ negative impacts Both positive and negative impacts have been assessed. Actual/ potential impacts Impacts have been identified as actual or potential. Most impacts assessed were actual. Risks/ opportunities Sustainability-related risks were assessed, while opportunities were not assessed in 2023. Own operations/ value chain Impacts and risks were assessed for our own operations, and for the value chain where relevant and possible. Residual impact/ risk Assessments have included mit- igation actions that are already part of our daily operations to reduce or mitigate any negative impacts or risks. This means the ESRS topics are plotted based on residual impact and risk. EFRAG published a draft ‘Implementation Guidance’ in December 2023, which we will take into account to refine our DMA methodology in 2024, including a review of our residual impact/risk approach. Note: Our full DMA methodology can be found on pages 77-78. Own workforce (S1) Business conduct (G1) 71 Sustainability statements | General | ESRS 2ØRSTED ANNUAL REPORT 2023 Supply chain / upstream Own operations Downstream Energy products and services Materials for renewable energy assets Manufacturing renewable energy components Fuel and energy products Mining of minerals and metals Animal habitats RecyclingPolitical engagement Supplier management Whistleblower Onshore wind farms and onshore renewables construction Offshore wind farm construction Resource extraction and processing Offshore wind farms Hydrogen and green fuels Crew transport and service vessels Ørsted workplace Career stairs Energy storage Employees Solar farms Farm-downs Delivering on our partner agreements Gas and power sales Society Transpor t vehicles Cargo vessel transport Power stations Supply chain workers Non-exhaustive illustration Affected communities Value chain overview — showing where our material sustainability-related impacts (crucial) and our material sustainability-related risks occur across our full value chain Positive impacts Renewable energy deployment Local jobs and educa- tional opportunities Negative impacts Use of virgin materials Natural resources exploitation and land- use change Habitat loss from land degradation Sustainability-related risks Transition climate- related risk Physical climate- related risks Availability of materials and components Supplier misconduct related to human rights Local community interests and concerns Indigenous Peoples' consent 72 Sustainability statements | General | ESRS 2ØRSTED ANNUAL REPORT 2023 Material sustainability-related impacts and risks The following tables list the sustainability-related impacts and risks we have identified and assessed as material as a result of our double materiality assessment process. As shown in the matrix on page 71, seven out of the ten ESRS topics are material to Ørsted. Each material ESRS topic is presented in the following tables, where we specify the sub-topics that our material impacts and risks relate to, e.g. climate change mitigation, climate change adaptation, and energy. In addition, we indicate in the tables whether the impacts and risks are in our own operations (OO) or value chain (VC). We also show whether our impacts are positive or negative. Impacts are actual impacts unless stated that they are potential impacts. Brief descriptions of the material impacts and risks are included in the tables. More information on how we respond to the effects of our impacts and risks is included in the topical sections under ‘ Environment’, ‘Social’, and ‘Governance’. This year, our scoring of impacts and risks has included mitigation actions that are already part of our daily operations to reduce or mitigate any negative impacts or risks. Therefore, the impacts and risks listed in the tables show a residual impact or risk. In 2024, we will further refine our DMA process and methodology based on the new EFRAG guidance. E1 Climate change ENVIRONMENT Material impact or risk Description Climate change mitigation Positive impact (OO) Renewable energy deployment. Renewable energy is one of the key technologies needed to decarbonise society and succeed in limiting global heating to 1.5 °C. Negative impact (VC) GHG emissions from the renew- able energy supply chain, reg- ular power sales, and down- stream GHG emissions from natural gas sales. Supply chain emissions from manufacturing and installing our renewable energy assets and from use of sold products (natural gas sales) and fuel and energy-related activities (fossil fuels at CHP plants and regular power sales). We respond to this impact through our strategic targets and our actions to decarbonise our value chain. Risk (OO) Transition climate risk related to potential lack of politi- cal support for the continued renewable energy build-out. A 1.5 ˚C-aligned global phase-out of fossil fuels or a tax on GHG emissions is not a risk to our business model. On the contrary, the transition risk to us relates to potential insufficient political and regulatory support to mitigate climate change and to the continued renewable energy build-out, which may lead to uncertainty in investment conditions for future projects. We are actively engaged in climate-related advocacy, calling our stakeholders to action for activities that will accelerate the renewable energy build-out. Climate change adaptation Risk (OO) Physical chronic and acute climate-related risks. Chronic: Dependency of renewable energy generation on natural resources, such as wind patterns, may lead to uncertainty in production estimates. Acute: Increase in the severity and frequency of extreme weather events may result in extended temporary shutdowns and an increase in repair needs. We assess the resilience of all new assets towards the occurrence of climate-related hazards. Energy Negative impact (OO) Energy consumption, mainly at CHP plants. Energy used in our daily operations, including energy derived from fossil\- based fuels leading to GHG emissions. We respond to this impact through our strategic targets and our actions to decarbonise our operations. (OO) Own operations (VC) Value chain Please see our topical sections for more information on our response to our impacts and risks. 73 Sustainability statements | General | ESRS 2 ØRSTED ANNUAL REPORT 2023 ENVIRONMENTENVIRONMENT E4 Biodiversity and ecosystems E5 Resource use and circular economy Material impact or risk Description Direct impact drivers on biodiversity loss Negative impact (VC) Natural resources exploitation and land-use change from mining of minerals and metals. Almost all resources used in our supply chain, and subsequently in our renewable energy assets, are virgin materials that are mined and pro- cessed. Extraction and refinement of these materials can have adverse impacts on biodiversity. We are actively working towards managing our value chain impacts. Impacts on the extent and condition of ecosystems and the state of species Negative impact (VC) Habitat loss from land degra- dation caused by mining of minerals and metals. Habitat loss and ecotoxicity from run-off of mining leading to land degra- dation, which may result in an indirect impact causing a decrease in species population size (and potentially causing extinction risk). We are actively working towards managing our value chain impacts. Negative impact (OO) Disturbances to habitats and displacement or loss of species. Disturbances to habitats due to construction and operation of renewable energy assets. Construction and operation of renewable energy projects can impact habitats due to ground preparation and the presence of infrastructure and can adversely impact certain species. We scope these impacts and take appropriate avoidance, reduction, and mitigation action to manage them. Positive impact (OO) Biodiversity restoration, research, and innovation initiatives. We conduct habitat and ecosystem restoration efforts, including maxi- mising positive impacts on wider supportive ecosystems (e.g. salt marsh). We conduct species restoration efforts, research on habitats and species, and innovation (e.g. biodiversity monitoring and tracking). Material impact or risk Description Resource inflows, including resource use Negative impact (VC) Use of virgin materials in our supply chain. Almost all resources used in our supply chain, and subsequently in our renewable energy assets, and energy products for our CHP plants are virgin materials that are mined, processed, and transported. Extraction of these materials can have adverse social and environmental impacts. We work with partners and take action to maximise reuse and recycling through circularity levers. Risk (VC) Availability of materials and components. An accelerated increase in the demand for renewables coupled with ine- lastic supply chains would require rapid maturation of sustainable solu- tions (e.g. reuse and recycling of materials for main components and use of low-emission materials). We take measures to, for example, reduce and optimise resource usage, and prolong the lifetime of our assets. Resource outflows related to products and services Negative impact (OO) Waste generation during opera- tion and decommissioning. Our assets have an expected life time of approx. 20-35 years, and up to approx. 90 % of the total material volumes used in these assets can be recycled at their end of life. There is still potential to increase the overall recyclability of renewable energy assets, so that the value of all materials can be kept at end of life. We actively investigate opportunities for repair- ing, refurbishing, and reusing key components. (OO) Own operations (VC) Value chain Please see our topical sections for more information on our response to our impacts and risks. 74 Sustainability statements | General | ESRS 2 ØRSTED ANNUAL REPORT 2023 SOCIAL S1 Own workforce Material impact or risk Description Working conditions Positive impact Secure employment and flexible workplace for our employees. We ensure employees are part of a safe and fair working environment with transparent and compliant employment terms and benefits. Employees are part of a flexible workplace, and are empowered to balance work and private life in alignment with their people leaders. Equal treatment and opportunities for all Positive impact Diversity resulting in innovative thinking and approaches. We commit to providing equal opportunities irrespective of ethnic back- ground, race, religion, age, gender, disability, sexual orientation, outlook, or social status. We have a global inclusion network with dedicated channels to support equality and inclusion. Positive impact Career progression through training and development. We offer plenty of development opportunities through access to challeng- ing assignments and experts within a wide range of professional fields. All employees have regular development conversations to support contin- uous development. Positive impact Recruiting and advancing women and under-represented groups, and working to ensure that they stay in Ørsted. We aim to recruit and keep female employees in Ørsted to promote gender equality and mitigate the gender pay and management gap. We are cre- ating targeted initiatives to support representation of under\- represented or marginalised groups in leadership and management. Positive impact Inclusive culture where people with disabilities can thrive. We ensure that employees with disabilities feel like they belong and can thrive, with an aim of creating an inclusive culture and destigmatising disability. SOCIAL S2 Workers in the value chain Material impact or risk Description Working conditions Negative impact Excessive working hours for supply chain workers. To the extent supply chain workers are subject to excessive working hours, it can potentially lead to health issues. We therefore evaluate working hours performance when conducting supplier assessments. Other work-related rights Negative impact Forced labour, e.g. debt bondage and withholding of passports. Supply chain workers can end up in debt bondage if they have to pay recruitment fees, and they can end up in forced labour if their identification documents are withheld. Additionally, specific state-imposed forced labour risks have have been reported in the solar PV supply chain. We therefore have particular focus on forced labour and supply chain traceability in our due diligence approach. Risk Suppliers' breach of contractual agreements on human rights commitments. Expansion of operations into high-risk geographies may increase the likeli- hood of suppliers breaching contractual human rights commitments, which may lead to reputational damage and affect the ability to proceed with project plans. We therefore use country risk as a screening and assessment parameter in our due diligence approach. Please see our topical sections for more information on our response to our impacts and risks. 75 Sustainability statements | General | ESRS 2 ØRSTED ANNUAL REPORT 2023 SOCIAL GOVERNANCE S3 Affected communities G1 Business conduct Material impact or risk Description Particular rights of Indigenous communities Negative impact (OO) Indigenous rights may be disrespected in the development stage of our renewable energy assets. Related to some of our offshore wind developments, some Native American tribes with traditional/cultural connections to the seabed have expressed dissatisfaction with the consultation process utilised by the federal govern- ment. We are engaging with affected Indigenous Peoples on the matter. Negative potential impact (VC) Indigenous rights may be disrespected by suppliers in our value chain. Suppliers and other actors further down in the value chain (e.g. mining) may fail to obtain free, prior, and informed consent from affected Indigenous Peoples, which could potentially be linked to the development of our assets. To take care of affected communities, we have implemented a variety of actions and initiatives, including human rights impact assessments and efforts for responsible sourcing of minerals and metals. Risk (OO) Consent of Indigenous communities. Authorities not fully complying with the process for engaging with Indig- enous communities in order to obtain free, prior, and informed consent in future projects may lead to public opposition or lawsuits, which may cause additional costs and affect the ability to proceed with project plans. Communities' economic, social, and cultural rights Positive impact (OO) Local jobs and educational opportunities. Communities can benefit from socio-economic impacts in terms of crea- tion of local jobs and educational opportunities when renewable energy assets are constructed near them. We aim for positive impacts for affected communities to materialise through various actions. Positive impact (OO) Biodiversity restoration work replenishing local fisheries' stock and land-based biodiversity. Our biodiversity restoration work holds the potential to positively impact local fisheries' stock and land-based biodiversity. Negative potential impact (VC) Air, water, and soil pollution may pose a danger to local communities' health. Air, soil, and water contamination from mining may have adverse health effects on local communities, e.g. from toxic minerals from mining leaking into local groundwater, resulting in unsafe drinking water and bioaccumu- lation of such minerals in the plants or animals communities consume. Risk (OO) Balancing the global pace for deployment of renewable energy with local community interests and concerns. Local opposition – if not managed early in our projects – may result in delays in project work and costs associated with community lawsuits. Our commitment to engage with communities and uphold human rights is outlined in our global human rights policy, stakeholder engagement policy, and just transition policy. Material impact or risk Description Corporate culture Positive impact (OO) Healthy corporate culture driving the company towards shared goals. Our five guiding principles of integrity, passion, team, results, and safety help drive Ørsted towards shared goals. Working with these principles is part of our way of operating, promoting a healthy corporate culture. Protection of whistleblowers Positive impact (OO) Protection of whistleblowers through anti-retaliation policies and procedures. Our protection of whistleblowers encourages and enables all stakehold- ers to speak up. At Ørsted, we do more than required by law regarding the protection of whistleblowers and take a proactive approach to mitigating risks and negative impacts. Political engagement Positive impact (OO) Constructive political engage- ment through lobbying. Our lobbying activities and other means of political influence have positive societal and environmental effects resulting from changes in legislation. Management of relationships with suppliers Positive impact (OO) Good management of sup- pliers, ensuring compliance with our code of conduct. We are committed to continuous improvements in our relationships with suppliers and business partners. Our work is underscored by regular updates to our internal risk scoring and the incorporation of evolving standards into our screening tools. As we navigate the dynamic landscape of due diligence, our goal is to not only meet but exceed the highest standards of integrity, transparency, and ethical conduct. (OO) Own operations (VC) Value chain Please see our topical sections for more information on our response to our impacts and risks. 76 Sustainability statements | General | ESRS 2 ØRSTED ANNUAL REPORT 2023 Double materiality assessment methodology We developed our methodology with reference to the principles in the draft ESRS from November 2022 and available guidelines. Learnings from the 2023 process, dialogue with peers, and network and industry associa- tion meetings together with the final ESRS and newest guidance will help refine the process to ensure full alignment with the DMA-related requirements in 2024. Methodologies and assumptions Scope For our own operations, we identified and assessed impacts on people and the environment as well as potential risks to our business, focusing on specific activities where impacts are not relevant across tech- nologies. Furthermore, we assessed our value chain impacts and risks for most topics, primarily focusing on our upstream activities. Value chain assessments were based on internal knowledge and mainly focused on our first-tier suppliers. This was especially true when identifying and assessing impacts related to ‘Workers in the value chain’ (ESRS S2). In our impact assessment, we considered both positive and negative impacts as well as actual and potential impacts related to sustainability matters. In our finan- cial assessment, we assessed potential sustainability\- related risks that could trigger a negative financial impact on our business. We excluded assessing opportunities as part of our DMA this year. However, our business opportunities are directly connected to climate change mitigation and described in the strategy section. Moreover, ESRS S4 was excluded deliberately due to our business model. Stakeholder engagement For our DMA, we engaged internal subject-matter experts from both the business lines and Group func- tions. This year, we have not included direct consul- tation with affected stakeholders to understand how they may be impacted by our business activities, nor have we directly consulted external stakeholders to review the outcome of our DMA. However, as a valid proxy, we have included insights from our external affairs colleagues who, through continuous dialogue with our key stakeholders, have a good overview of the interests and views of stakeholders. In addition, our continuous engagement activities in the communities in which we are present are a solid basis for assessing the impacts and risks most material to us. Scoring Impacts As per the ESRS guidance, three parameters of ‘scale’, ‘scope’, and ‘irremediable character’ have been used in the scoring of the ‘severity’ of our actual impacts: 1 When scoring ‘scale’, we assessed how great the impact is on the environment or people, after con- sideration of mitigation actions already in place. 2 When scoring ‘scope’, we assessed how widespread the impact is based on parameters such as percent- age of sites, employees, or financial spend that the impact relates to. 3 When scoring ‘irremediable character’, we assessed how difficult it is to reverse the damage in terms of cost and time horizon. For potential impacts, an additional parameter of ‘likelihood’ was scored. For negative actual impacts, each of the three dimen- sions above were scored and weighted equally for sever- ity. For negative potential impacts, ‘severity’ and ‘likeli- hood’ were weighted 50/50. For positive actual impacts, ‘scale’ and ‘scope’ were scored and weighted equally for severity. For positive potential impacts, ‘likelihood’ was also considered as for negative potential impacts. Risks When scoring risks, we assessed the potential magni- tude of financial effects based on different triggers, including EBITDA, CAPEX, and OPEX, which consti- tuted half of the score, and likelihood of occurrence, which constituted the other half. Assessments have included risk mitigation actions already in place. We assessed the nature of these effects in different scenarios with assumptions based on input parameters from subject-matter experts. The potential magnitude of financial effects was scored as ‘low’, ‘medium’, or ‘high’. Likelihood of occurrence was scored as ‘low’, ‘medium’, or ‘high’ using relevant time horizons of short-, mid-, or long-term. We partially modelled the risks using the risk assessment tool that we use for business risks. However, quantification in monetary terms was sup- plemented with qualitative assessments to a high degree, due to the complexity of defining exact values for potential sustainability risk scenarios. Thresholds Our Sustainability Committee has set the materiality thresholds at ‘significant’. This means that impacts and risks scored as ‘significant’ or above, and their associated ESRS topic, are deemed material. Process We defined process steps for conducting the DMA for impact materiality and financial materiality, respec- tively. The impact assessment was our starting point, and once we had the preliminary results, we initiated the financial assessment. We followed the five key steps below as further elaborated on the next page. 1 Engagement of stakeholders 2 Scoping of impacts/risks 3 Assessment of individual impacts/risks 4 Calibration of material impacts/risks 5 Stakeholder and management review 77 Sustainability statements | General | ESRS 2ØRSTED ANNUAL REPORT 2023 Process steps Impact materiality Process steps Financial materiality Our work with mapping our sustainability-related impacts builds on the approach we have used for over a decade to assess the materiality of sustainability-related matters, as well as recent studies, benchmark reports, and internal projects. The following steps were conducted: 1\. Engagement of stakeholders We unfolded the ten topics in the ESRS and identified subject-matter experts in the business and Group functions with insights into the topics and deep knowledge of our day-to-day work with each area. Several onboarding sessions helped to get a common understanding of the new regu- lation and objectives of the double materiality assessment. 2\. Scoping of impacts As preparation for the materiality assess- ment workshops, we consulted relevant internal information (e.g. internal impact reports, previous materiality assessments, and stakeholder find- ings) to scope and pre-define impacts per ESRS sub-topic and sub-sub-topics. 3\. Assessment of individual impacts We conducted interactive impact materi- ality assessment workshops for each ESRS topic. Participants adjusted the pre-defined impacts where relevant and added additional impacts, As part of our efforts to prepare for the CSRD, we delimited our financial materiality assessment and focused on potential financial risks. In con- trast to the business risks covered in the ‘Risks and risk management’ section, we only consider risks that relate to sustainability matters in the financial materiality assessment. The following steps were conducted: 1\. Engagement of stakeholders We engaged relevant stakeholders to ensure appropriate consideration of sustainabil- ity risks. These included internal subject\- matter experts in the business and Group functions, as well as teams responsible for corporate risk assessment. 2\. Scoping of risks Results from the impact materiality assessment, supplemented with additional inter- nal resources, formed the basis for scoping sus- tainability risks within the context of financial materiality. 3\. Assessment of individual risks The initially identified risks were verified and supplemented with additional possible sustainability risks through a series of meetings between topical subject-matter experts, ESG experts, and teams responsible for corporate risk then scored all impacts (negative and positive) within our own operations and for the value chain according to the developed scoring methodol- ogy. Scoring rationales were documented, and relevant reference documents were captured. In total, 120 impacts were identified and scored. 4\. Calibration of material impacts All workshop input was transferred to a tool to aggregate scores and calculate the ‘degree of materiality’ split into five levels. Workshop participants were consulted again for validation of the preliminary results, and if needed, the provided rationales for adjustments were documented. Further calibration across topics took place before finalising the impact assessment. 5\. Stakeholder and management review Consolidated overviews of the sustainability- related impacts were presented to and discussed with internal stakeholders and management. Finally, the determined materiality threshold yielded a final list of 25 material impacts that were assessed as ‘significant’ or above. assessment. Throughout this process, the initial magnitude and likelihood properties of each potential risk were evaluated and documented. Based on these meetings, we formulated scenar- ios to capture the financial effects of the identified sustainability risks. 4\. Calibration of material risks The aggregated 20 sustainability- related financial risk scenarios were subsequently cate gorised following our scoring methodology approach. Additional resources were used to verify and calibrate the results. These included internal stakeholders and information from the business risk assessment, as well as external studies and benchmark reports. 5\. Stakeholder and management review Consolidated overviews of the sustainability-related risks were presented to and discussed with internal stakeholders and management. The scoring and respective materi- ality threshold yielded a final list of six financially material risks related to sustainability matters that were assessed as ‘significant’ or above. 78 Sustainability statements | General | ESRS 2ØRSTED ANNUAL REPORT 2023 How engagement is organised Purpose of engagements Examples of outcomes from the engagements Employees · Employment relations and occupational health and safety representation · Inclusion networks · Employee-elected board members · Personal development dialogues · Surveys and workplace assessments · Including employees' perceptions and experiences · Contributing to a sustainable workplace and working life · Internal policy updates · Improvement and action plans · Communications from management · Global initiatives and campaigns Corporate customers · Customer support and guidance · Periodic reviews · Business partner due diligence · Building trust · Providing sustainable solutions · Enabling customers to achieve their targets · Product/service improvements · Adaptation of marketing strategies Suppliers · Supplier due diligence · Workshops and industry collaborations · Human rights and on-site assessments · Compliance with our code of conduct · Promoting responsible sourcing, incl. of minerals and metals · Protecting human and labour rights of workers · Ensuring a respectful working environment · Decarbonising our supply chain · Streamlined supplier expectations · Supplier improvement plans · Informed selection of suppliers · Test pilots and early offtake agreements on low-carbon solutions Investors · ESG ratings · Investor calls, questionnaires, and emails · Periodic investor updates · Capital markets days · Understanding expectations to sustainability · Attracting responsible investors · Enhancing transparency · ESG rating improvement plans · Responses to investor queries · Adapted internal communication on sustainability practices Governments, policymakers, and regulators · Direct dialogue with policymakers · Answering public consultations · White papers, programmes, and studies · Ensuring regulatory compliance · Promoting a sustainable build-out · Addressing climate-related transition risks and opportunities · Aligning business model and strategy · Value creation and risk mitigation from compliance Civic and non-profit organisations · Collaboration on community projects · Partnerships with NGOs · Contributions to research projects · Contributing to local initiatives · Addressing concerns of communities · Pooling efforts to decarbonise our supply chain · Site-specific initiatives on e.g. biodiversity or community development · Alignment of projects with best practice Industry and sustainability associations · Joint initiatives and programmes · Inputs into strategic directions · Workshops and knowledge sharing · Enabling the build-out of renewable energy · Enabling the industry to engage policymakers · Developing industry standards on sustainability · Working to decarbonise hard-to-abate materials · Understanding views of value chain workers' representatives · Alignment on sustainability practices and measurement standards · Design of value chain workers initiatives Local communities · Public meetings and consultations · Community liaison officers and project staff · Partnerships for community benefits · Addressing community concerns, questions, and feedback · Building trust and community support · Ensuring community benefits · Design of community benefits · Support of local projects Interests and views of stakeholders Stakeholder engagement Our stakeholder engagement policy underscores our commitment to actively listen to and engage with our stakeholders. Through ongoing dialogue, we strive to understand their positions, concerns, and expecta- tions. This continuous interaction informs our sustain- ability efforts, projects, and processes, allowing us to align with the interests and views expressed by stake- holders. The insights gained from these continuous dialogues serve to inform our due diligence processes and double materiality assessment. Guided by principles of openness, transparency, and integrity, our stakeholder engagement policy adheres to international norms and codes, including the United Nations Guiding Principles on Business and Human Rights, the United Nations Declaration on the Rights of Indigenous Peoples, and the International Finance Corporation's Performance Standards on Social and Environmental Sustainability. We ensure that the views and interests of affected stakeholders regarding our sustainability-related impacts are regularly communicated to our Sus- tainability Committee through periodic committee meetings. 79 Sustainability statements | General | ESRS 2ØRSTED ANNUAL REPORT 2023 Environment 81 Taxonomy-aligned KPIs (incl. voluntary disclosures) 87 ESRS E1 Climate change 102 ESRS E4 Biodiversity and ecosystems 107 ESRS E5 Resource use and circular economy → In an industry-first initiative, we commissioned three nearshore artificial nesting structures specially designed to house black-legged kittiwake, a vulnerable species of seabird, off the East Suffolk coastline. The structures have been installed as part of innovative plans to compensate for the impacts that Hornsea 3 Offshore Wind Farm could potentially have on the species. 80 Sustainability statementsØRSTED ANNUAL REPORT 2023 Taxonomy-aligned revenue (turnover) Our taxonomy-aligned share of revenue in 2023 was 86 %, an increase of 17 percentage points compared to 2022. This was primarily due to lower non- eligible revenue from our gas sales, driven by lower gas volumes sold and lower prices. Taxonomy-aligned CAPEX Our taxonomy-aligned share of CAPEX in 2023 remained at 99 % and is primarily related to our wind and solar farms and storage facilities. Taxonomy-aligned OPEX Our taxonomy-aligned OPEX was 79 %, a decrease of 1 percentage point compared to 2022. Taxonomy-aligned EBITDA (voluntary) Our taxonomy-aligned share of EBITDA in 2023 was 95 %, an increase of 10 percentage points compared to 2022. This was due to significantly decreased non-eligible earnings from our gas sales and fossil- based generation at our CHP plants. Data point Unit 2023 2022 Δ Revenue (turnover) 1 DKKm 79,255 114,417 4 (31 %) Taxonomy-aligned revenue % 86 69 4 17 %p Taxonomy-aligned revenue adjusted for green bond financing % 85 67 4 18 %p Taxonomy-non-eligible revenue % 14 31 4 (17 %p) Gas sales % 8 18 4 (10 %p) Fossil-based generation 2 % 3 5 4 (2 %p) Other activities 3 % 3 8 4 (5 %p) CAPEX 1 DKKm 37,973 35,595 7 % Taxonomy-aligned CAPEX % 99 5 99 0 %p Taxonomy-aligned CAPEX adjusted for green bond financing % 98 99 (1) %p Taxonomy-non-eligible CAPEX % 1 1 0 %p OPEX 1 DKKm 2,368 1,720 6 38 % Taxonomy-aligned OPEX % 79 80 (1) %p Taxonomy-non-eligible OPEX % 21 20 1 %p EBITDA 1 DKKm 18,717 32,057 (42 %) Taxonomy-aligned EBITDA (voluntary) % 95 85 10 %p Electricity generation using solar PV technology (4.1) and storage of electricity (4.10) % 4 2 2 %p Electricity generation from wind power (4.3) % 86 71 15 %p Cogeneration of heat and power from bioenergy (4.20) % 5 12 (7 %p) Taxonomy-non-eligible EBITDA (voluntary) % 5 15 (10 %p) Gas sales % 3 8 (5 %p) Fossil-based generation 2 % 1 6 (5 %p) Other activities 3 % 1 1 0 %p Taxonomy-aligned KPIs Incl� voluntary disclosures 1 Revenue, CAPEX (additions), OPEX (other external expenses), and EBITDA are included in the audited consolidated financial statements 2023. 2 Includes revenue/EBITDA from natural gas-based heat and power generation at our CHP plants, which amounts to less than 1 %. 3 ‘Other activities’ primarily consist of non-eligible power sales (incl. end customer sales), oil distribution, and gas trading. 4 2022 revenue has been adjusted according to the change in acc- ount ing policy for presentation of revenue (see financial note ‘1.2 Basis of preparation’), resulting in an adjustment of 2022 tax- onomy revenue KPIs (%). 5 This ratio is applied to gross investments (DKK 38,509 million – see financial note 3.0) to calculate taxonomy-aligned gross investments. 6 2022 OPEX is restated with a maintenance and repair estimation. § Accounting policies Taxonomy-aligned revenue (turnover) This is the revenue associated with taxonomy- aligned economic activities as a proportion of our total revenue. It is adjusted for green bonds by excluding the revenue from our taxonomy\- aligned assets financed with green bonds from the taxonomy-aligned revenue (numerator) and the total revenue (denominator). Taxonomy-aligned CAPEX This is the CAPEX related to assets or processes associated with taxonomy-aligned economic activities as a proportion of our CAPEX that is accounted for based on IAS 16 (73: (e)(i) and (iii)), IAS 38 (118: (e)(i)), and IFRS 16 (53: (h)). Carbon emission allowances and goodwill have been excluded. It is adjusted for green bonds by excluding the CAPEX financed with green bond proceeds from the taxonomy-aligned CAPEX (numerator) and the total CAPEX (denominator). Taxonomy-aligned OPEX This is the maintenance and repair OPEX related to our assets or processes associated with taxonomy-aligned economic activities as a proportion of the maintenance and repair OPEX of our ‘Other external expenses’. We have updated our accounting policy to include esti- mates of the maintenance and repair costs of ‘other external expenses’ using a Group-level factor based on maintenance and repair costs for each business segment. Taxonomy-aligned EBITDA (voluntary) This is the EBITDA associated with taxonomy\- aligned economic activities as a proportion of our total EBITDA. We have included taxonomy\- aligned EBITDA as a voluntary disclosure as it better reflects our business as our gas and power sales business has a large revenue but a small earnings margin, while other areas have a higher margin. Taxonomy-non-eligible KPIs Revenue, CAPEX, OPEX, and EBITDA associ- ated with taxonomy-non-eligible activities (not included in the delegated acts) have been determined. Taxonomy-non-eligible revenue and EBITDA are classified into gas sales, fossil- based generation, and other activities. Sustainability statements | Environment ØRSTED ANNUAL REPORT 202381 Taxonomy-aligned turnover Quantitative breakdown of taxonomy- aligned turnover The primary sources of turnover contributing to the numerator of the turnover KPI in 2023 are taxonomy- aligned turnover from the generation and sale of power (DKK 42,098 million), government grants (DKK 10,178 million), and the construction of offshore wind farms (DKK 6,737 million). Code (2) Turnover 2023 (DKKm) (3) Proportion of turnover 2023 (%) (4) Substantial contribution Does not significantly harm (DNSH) Minimum safeguards (17) Taxonomy- aligned proportion of turnover, 2022 (%) (18) Category (enabling activity) (19) Category (transi- tional activity) (20)Economic activities (1) Climate change mitigation (5) Climate change adapta- tion (6) Water (7) Pollution (8) Circular economy (9) Bio- diversity (10) Climate change mitigation (11) Climate change adaptation (12) Water (13) Pollution (14) Circular economy (15) Bio- diversity (16) A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy-aligned) Electricity generation using solar PV technology CCM 4.1 619 1 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y n.a. n.a. Y Y Y 0 % 2 - - Electricity generation from wind power CCM 4.3 59,127 75 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y n.a. Y Y Y 59 % 2 - - Storage of electricity CCM 4.10 25 0 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y n.a. Y Y Y 0 % 2 E - Cogeneration of heat and power from bioenergy CCM 4.20 8,308 10 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y Y n.a. Y Y 9 % 2 - - Turnover of environmentally sustainable activities (taxonomy-aligned) (A.1) 68,079 86 % 86 % 0 % - - - - n.a. Y Y Y Y Y Y 69 % 2 - - Of which, enabling 25 0 % 0 % 0 % - - - - n.a. Y Y n.a. Y Y Y 0 % 2 E - Of which, transitional - - - - - - - - - - - - - - - - - - A.2 Taxonomy-eligible but not environmentally sustainable activities Turnover of taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned) (A.2) - - - - - - - - - - - - - - - - - - Turnover of taxonomy-eligible activities (A.1 + A.2) 68,079 86 % 86 % 0 % - - - - - - - - - - - 69 % 2 - - B. TAXONOMY-NON-ELIGIBLE ACTIVITIES Turnover of taxonomy-non-eligible activities (B) 11,176 14 % TOTAL (A \+ B) 79,255 100 % CCM Climate change mitigation Y Yes (taxonomy-eligible and taxonomy-aligned activity with the relevant environmental objective) N No (taxonomy-eligible but not taxonomy-aligned activity with the relevant environmental objective) N/EL Not eligible (taxonomy-non-eligible activity for the relevant environmental objective) 1 We have not assessed our taxonomy-eligible activities against the substantial contribution criteria for climate change adaptation, as the primary objective of our activities is to contribute to climate change mitigation. 2 2022 revenue has been adjusted according to the change in acc- ounting policy for presentation of revenue (see note 1.2 ‘Basis of preparation’ in the financial statements), resulting in an adjustment of 2022 taxonomy revenue KPIs (%). Sustainability statements | Environment ØRSTED ANNUAL REPORT 202382 Taxonomy-aligned CAPEX Quantitative breakdown of taxonomy-aligned CAPEX The primary sources of CAPEX contributing to the numerator of the CAPEX KPI in 2023 are additions from property, plant, and equipment (PPE) in Offshore, Onshore, and partly in Bioenergy (DKK 37,503 million). CAPEX plan for manufacture of hydrogen (3.10) We have a CAPEX plan for P2X (activity 3.10, manu- facture of hydrogen), which includes ensuring taxonomy-alignment of the activity upon operation of our P2X facilities. The CAPEX incurred for manufacture of hydrogen in 2023 (DKK 552 million) is part of this CAPEX plan. For more information on the taxonomy\- alignment assessment of the activity, see our account- ing policies regarding substantial contribution on p.88. Code (2) CAPEX 2023 (DKKm) (3) Proportion of CAPEX 2023 (%) (4) Substantial contribution Does not significantly harm (DNSH) Minimum safeguards (17) Taxonomy- aligned proportion of CAPEX, 2022 (%) (18) Category (enabling activity) (19) Category (transi- tional activity) (20)Economic activities (1) Climate change mitigation (5) Climate change adapta- tion (6) Water (7) Pollution (8) Circular economy (9) Bio- diversity (10) Climate change mitigation (11) Climate change adaptation (12) Water (13) Pollution (14) Circular economy (15) Bio- diversity (16) A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy-aligned) Manufacture of hydrogen CCM 3.10 552 1 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y Y n.a. Y Y 0 % - - Electricity generation using solar PV technology CCM 4.1 4,401 12 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y n.a. n.a. Y Y Y 5 % - - Electricity generation from wind power CCM 4.3 29,004 76 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y n.a. Y Y Y 93 % - - Storage of electricity CCM 4.10 2,880 8 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y n.a. Y Y Y - E - Cogeneration of heat and power from bioenergy CCM 4.20 676 2 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y Y n.a. Y Y 1 % - - CAPEX of environmentally sustainable activities (tax- onomy-aligned) (A.1) 37,513 99 % 99 % 0 % - - - - n.a. Y Y Y Y Y Y 99 % - - Of which, enabling 2,880 8 % 8 % 0 % - - - - n.a. Y Y n.a. Y Y Y - E - Of which, transitional - - - - - - - - - - - - - - - - - - A.2 Taxonomy-eligible but not environmentally sustainable activities CAPEX of taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned) (A.2) - - - - - - - - - - - - - - - - - - CAPEX of taxonomy-eligible activities (A.1 + A.2) 37,513 99 % 99 % 0 % - - - - - - - - - - - 99 % - - B. TAXONOMY-NON-ELIGIBLE ACTIVITIES CAPEX of taxonomy-non-eligible activities (B) 460 1 % TOTAL (A \+ B) 37,973 100 % CCM Climate change mitigation Y Yes (taxonomy-eligible and taxonomy-aligned activity with the relevant environmental objective) N No (taxonomy-eligible but not taxonomy-aligned activity with the relevant environmental objective) N/EL Not eligible (taxonomy-non-eligible activity for the relevant environmental objective) 1 We have not assessed our taxonomy-eligible activities against the substantial contribution criteria for climate change adaptation, as the primary objective of our activities is to contribute to climate change mitigation. Sustainability statements | Environment ØRSTED ANNUAL REPORT 202383 Taxonomy-aligned OPEX Code (2) OPEX 2023 (DKKm) (3) Proportion of OPEX 2023 (%) (4) Substantial contribution Does not significantly harm (DNSH) Minimum safeguards (17) Taxonomy- aligned proportion of OPEX, 2022 (%) (18) Category (enabling activity) (19) Category (transi- tional activity) (20)Economic activities (1) Climate change mitigation (5) Climate change adapta- tion (6) Water (7) Pollution (8) Circular economy (9) Bio- diversity (10) Climate change mitigation (11) Climate change adaptation (12) Water (13) Pollution (14) Circular economy (15) Bio- diversity (16) A. TAXONOMY-ELIGIBLE ACTIVITIES A.1 Environmentally sustainable activities (taxonomy-aligned) Electricity generation using solar PV technology CCM 4.1 66 3 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y n.a. n.a. Y Y Y 2 % - - Electricity generation from wind power CCM 4.3 1,498 63 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y n.a. Y Y Y 70 % - - Storage of electricity CCM 4.10 1 0 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y n.a. Y Y Y 0 % E - Cogeneration of heat and power from bioenergy CCM 4.20 297 13 % Y N 1 N/EL N/EL N/EL N/EL n.a. Y Y Y n.a. Y Y 8 % - - OPEX of environmentally sustainable activities (taxonomy-aligned) (A.1) 1,862 79 % 79 % 0 % - - - - n.a. Y Y Y Y Y Y 80 % - - Of which, enabling 1 0 % 0 % 0 % - - - - n.a. Y Y n.a. Y Y Y 0 % E - Of which, transitional - - - - - - - - - - - - - - - - - - A.2 Taxonomy-eligible but not environmentally sustainable activities OPEX of taxonomy-eligible but not environmentally sustainable activities (not taxonomy-aligned) (A.2) - - - - - - - - - - - - - - - - - - OPEX of taxonomy-eligible activities (A.1 + A.2) 1,862 79 % 79 % 0 % - - - - - - - - - - - 80 % - - B. TAXONOMY-NON-ELIGIBLE ACTIVITIES OPEX of taxonomy-non-eligible activities (B) 506 21 % TOTAL (A \+ B) 2,368 100 % Quantitative breakdown of taxonomy-aligned OPEX The sources of OPEX contributing to the numerator of the OPEX KPI in 2023 are from the estimated main- tenance and repair costs of ‘other external expenses’ in Offshore (DKK 1,060 million), in Onshore (DKK 504 million), and partly in Bioenergy (DKK 297 million). Maintenance and repair OPEX estimation We have calculated an estimation of the maintenance and repair costs of ‘other external expenses’ using a Group-level factor based on maintenance and repair costs for each business segment. CCM Climate change mitigation Y Yes (taxonomy-eligible and taxonomy-aligned activity with the relevant environmental objective) N No (taxonomy-eligible but not taxonomy-aligned activity with the relevant environmental objective) N/EL Not eligible (taxonomy-non-eligible activity for the relevant environmental objective) 1 We have not assessed our taxonomy-eligible activities against the substantial contribution criteria for climate change adaptation, as the primary objective of our activities is to contribute to climate change mitigation. Sustainability statements | Environment ØRSTED ANNUAL REPORT 202384 § Accounting policies Taxonomy-eligible activities We have identified our taxonomy-eligible activities by screening the economic activi- ties in the Climate Delegated Act (Commis- sion Delegated Regulation (EU) 2021/2139), the Complementary Climate Delegated Act (Commission Delegated Regulation (EU) 2022/1214), the Environmental Delegated Act (Commission Delegated Regulation (EU) 2023/2486), and the amendments to the Climate Delegated Act (Commission Delegated Regulation (EU) 2023/2485). Five activities in the Climate Delegated Act have been identified as eligible for Ørsted: · Manufacture of hydrogen (3.10) · Electricity generation using solar PV technology (4.1) · Electricity generation from wind power (4.3) · Storage of electricity (4.10) · Cogeneration of heat/cool and power from bioenergy (4.20) Taxonomy-aligned activities Regulation (EU) 2020/852, article 3, sets out criteria which an economic activity must meet to qualify as environmentally sustainable (taxonomy-aligned): · Substantially contribute to one or more of the six environmental objectives. · Do no significant harm (DNSH) to the other five objectives. · Comply with minimum safeguards covering social and governance standards. · Comply with the technical screening criteria (TSC) for the environmental objectives. Taxonomy-alignment of our eligible activi- tes has subsequently been assessed against annex I of the Climate Delegated Act. The TSC for the environmental objectives have been assessed per activity. Minimum safeguards have been assessed on Group level. Substantial contribution Climate change mitigation We have assessed and documented whether our taxonomy-eligible activities fulfil the substantial contribution criteria to climate change mitigation. For activity 3.10, our manufactured hydrogen will meet the life cycle greenhouse gas (GHG) emission savings requirement in article 25(2) and annex V to Directive (EU) 2018/2001. The calculation of life cycle GHG emission savings follows the methodology referred to in article 28(5) of Directive (EU) 2018/2001, and the quantification methodology has been verified by an independent third party. The quantified life cycle GHG emission savings are subject to final verification by an independent third party upon the asset's operation, expectedly during 2025. For activities 4.1, 4.3, and 4.10, our solar and wind farms and storage facilities automati- cally fulfil the substantial contribution criteria to climate change mitigation as we generate electricity using solar PV technology and wind power, and as we construct and operate elec- tricity storage facilities. For activity 4.20, the sustainable biomass used at our combined heat and power (CHP) plants complies with the criteria in article 29, paragraphs 2-7 of Directive (EU) 2018/2001 and with the GHG emission savings criteria. Climate change adaptation We have not assessed our taxonomy-eligible activities against the substantial contribution criteria for climate change adaptation, as the primary objective of our activities is to con- tribute to climate change mitigation. Do no significant harm (DNSH) Climate change adaptation We have assessed and documented how asset resilience towards different chronic and extreme climate hazards and their future development, as projected by IPCC, is an integrated part of our project development and have confirmed that our assets are resil- ient and able to withstand projected climate changes during the assets' lifetime. It is assessed that all relevant eligible activi- ties comply with the criteria set out in appen- dix A to annex I of the Climate Dele gated Act. Sustainable use and protection of water and marine resources We are legally required to conduct environ- mental impact assessments (EIAs) as part of all our projects to ensure that potential impacts on water and marine resources are avoided, mitigated, and addressed appro- priately. During this process, we consider environmental degradation risks related to preserving water quality and avoiding water stress. We have internal processes on legal compliance and water to ensure all assets live up to the requirements. In addition, we have a water policy, establishing our approach to responsible water management. For activity 4.3, we work to ensure that con- struction of offshore wind does not hamper the achievement of good environmental sta- tus as set out in Directive 2008/56/EC, taking measures to prevent or mitigate impacts in relation to the directive's descriptor 11 (noise/ energy). It is assessed that all relevant eligible activi- ties comply with the criteria set out in appen- dix B to annex I of the Climate Delegated Act. Transition to a circular economy Renewable assets are built of highly durable materials. To ensure reuse and recycling of materials where feasible, we have a resource management policy and internal waste man- agement processes in place. To ensure we fur- ther transition to a circular economy, we have implemented a strategic approach focused on: (i) using fewer virgin resources, (ii) using resources better and longer, and (iii) recirculat- ing resources upon end of life. For each tax onomy activity, we also have cir- cular economy initiatives in place. Pollution prevention and control We are legally required to conduct EIAs to ensure that potential pollution impacts are avoided, mitigated, and addressed appro- priately, and that pollution requirements are integrated into our environmental permit con- ditions. We have internal processes in place to fulfil these legal requirements. For activities 3.10 and 4.20, it has been assessed that emissions are within or lower than the emission levels associated with the best available techniques (BAT-AEL) ranges set out in relevant best available techniques (BAT) conclusions. No significant cross-media effects have been identified. It is assessed that all relevant eligible activi- ties comply with the criteria set out in appen- dix C to annex I of the Climate Delegated Act. Protection and restoration of biodiversity and ecosystems We are legally required to conduct EIAs as part of all our projects to ensure potential impacts on biodiversity and ecosystems are avoided, mitigated, and addressed appropri- ately. Our ‘Offshore wind biodiversity policy’ and internal processes ensure all our assets live up to the requirements. We have also committed to ensure that all new renewable energy projects we commission from 2030 onwards deliver a net-positive biodiversity impact, which we aim to achieve through our biodiversity efforts. For activity 4.3, we work to ensure that the construction of offshore wind does not ham- per the achievement of good environmental status as set out in Directive 2008/56/EC, taking appropriate measures to prevent or mitigate impacts in relation to the directive's descriptors 1 (biodiversity) and 6 (seabed integrity). It is assessed that all relevant eligible activi- ties comply with the criteria set out in appen- dix D to annex I of the Climate Delegated Act. Minimum safeguards Our ‘Human rights policy’ sets out our com- mitment to respect human rights and lives up to the UN Guiding Principles on Business and Human Rights and OECD's guidelines for mul- tinational enterprises, including the principles of the Declaration of the International Labour Organization on Fundamental Principles and Rights at Work and the International Bill of Human Rights, both in our own operations and supply chain. Together with our good governance practices and policies, our systematic due diligence approach ensures we have robust minimum safeguards in place on human rights, corrup- tion, taxation, and fair competition. Taxonomy KPIs Our accounting policies for the taxonomy KPIs are based on our interpretation of the Disclosures Delegated Act annex I (Commis- sion Delegated Regulation (EU) 2021/4987) and available guidelines from the European Commission. Linkage principle The revenue, CAPEX, OPEX, and EBITDA associated with our taxonomy-aligned activ- ities have been determined. In allocating the financial numbers to the numerator, a ‘linkage principle’ has been applied, stipulating that any revenue, CAPEX, OPEX, or EBITDA that can be justifiably linked to an identified tax- onomy-aligned activity can be classified as taxonomy-aligned and thereby included in the numerator of the respective KPI. Double counting We have avoided double counting across economic activities in the allocation of the numerator for revenue, CAPEX, OPEX, and EBITDA by using activity-specific factors to allocate the financials across our taxonomy activities. The factors are either 100 %, 0 %, or a value in between where we have used proxies to split the financial numbers into taxonomy- aligned or non-eligible activities. Here, the factors cannot sum to more than 100 %, which eliminates the possibility of dou- ble counting the resulting financial numbers. Proxies Where the financial numbers are not appro- priately split into the correct activity in the financial account set-up, proxies have been used to split the numbers. Two proxies have been used: 1) The ratio of purchased power volumes from renewable versus non-renewable assets – applied to revenue and EBITDA from balanc- ing activities. 2) Bioenergy's share of renewable energy generation – applied to revenue, EBITDA, CAPEX, and OPEX related to the CHP plants. For more details on our taxonomy-aligned KPIs, see our accounting policies on p. 81. Sustainability statements | Environment ØRSTED ANNUAL REPORT 202385 Climate scenario analysis As our vision is to create a world that runs entirely on green energy, climate-related risks and opportunities are directly linked to our business model and strategy. It is therefore embedded in our operations to assess the climate resilience of our business by looking at climate- related transition and physical risks and opportunities, in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Climate-related transition risks and opportunities are an integrated aspect of the business cases for our investments in new assets and activities, and we con- tinuously monitor political, technological, market, and reputational developments. Similarly, in the design and construction phases of our assets, we carry out climate risk assessments to assess acute and chronic weather developments, taking into account extreme weather conditions and events that could physically affect our assets. In addition, our greenhouse gas (GHG) reduction targets follow scenarios from the Science Based Targets initiative's (SBTi) 1.5 °C sector- specific pathway for the power industry. In 2023, our assessment of physical climate risks included two dimensions: design safeguards and busi- ness case risks. The assessment of design safeguards entails a climate risk assessment to affirm the physical resilience of our assets in the face of climate change, particularly during extreme weather events. In addi- tion, the business case risk assessment evaluates how revenue streams, and the overall value of assets, might be impacted, e.g. if the wind speed is projected to change at an asset location. Our analysis focused on all operational assets, both offshore and onshore, with capacities exceeding 10 MW across all markets, representing the vast major- ity of our climate risk exposure. The analysis utilised the latest climate projection data, downscaled to regional and asset-level granularity, based on the IPCC SSP5-8.5 scenario, which is typically considered a ‘worst-case scenario’. Our findings reconfirm that all our assets are structur- ally secured against climate change through a set of design safeguards and mitigation actions. From a busi- ness case perspective, the most significant climate risk for our portfolio is changing wind patterns and, to a lesser extent, changes in air temperature, as these factors have the highest potential impact on the over- all energy production of our assets. The 2023 analy- sis indicates only a minor change in asset value com- pared to projections based on historical climate data. We have several mitigation actions in place to reduce this risk, and the current impact is considered insignifi- cant to our business cases. However, we acknowledge the need for further investigation going forward as we strive to reduce uncertainties associated with our assessments. We will continue to develop our meth- odology to ensure we are capturing our exposure to climate risk as accurately as possible, while further exploring ways to integrate climate change considera- tions into our existing processes. Classification of climate-related hazards, cf. the TCFD classification and the EU taxonomy's Climate Delegated Act Temperature-related ✓ Changing temperature (air, freshwater, marine water) ✓ Heat stress ✓ Temperature variability × Permafrost thawing ✓ Heat wave ✓ Cold wave/frost ✓ Wildfire Water-related ✓ Changing precipitation patterns and types (rain, hail, snow/ice) ✓ Precipitation or hydrological variability ✓ Ocean acidification ✓ Saline intrusion ✓ Sea level rise ✓ Water stress ✓ Drought ✓ Heavy precipitation (rain, hail, snow/ice) ✓ Flood (coastal, fluvial, pluvial, groundwater) × Glacial lake outburst Wind-related ✓ Changing wind patterns ✓ Cyclone, hurricane, typhoon ✓ Storm (including blizzards, dust, and sandstorms) ✓ Tornado Solid mass-related ✓ Coastal erosion ✓ Soil degradation ✓ Soil erosion ✓ Solifluction × Avalanche ✓ Landslide ✓ Subsidence CHRONIC ACUTE ✓ Hazard included in assessment × Hazard not relevant to include due to geographical location of assets Sustainability statements | Environment ØRSTED ANNUAL REPORT 202386 | ESRS E1 ESRS E1 Climate change Decarbonisation of our operations and value chain Our aspiration is to run a business that creates a last- ing positive impact on the environment. This aspira- tion drives our determination to deliver renewable energy solutions that not only generate green energy but also reduce emissions throughout the manufac- turing, transportation, installation, and operation of our renewable energy assets. In doing so, we actively contribute to the transition to an urgently needed net-zero economy. Addressing climate change is in the core of our business model and strategy, with our sustainability commitment and industry-leading science-based 2040 net-zero target as the catalysts behind our efforts to address climate change mitigation and adaptation, energy efficiency, and renewable energy deployment. Our sustainability commitment and science-based net-zero target are anchored in our Sustainability Committee, chaired by the Chief Financial Officer. Accountability lies with our Head of Global Stake- holder Relations and Chief Operating Officer. We are also actively calling our stakeholders to action for activities that will accelerate the renewable energy build-out in line with the goals of the Paris Agreement. We believe there is a need for more transparency around climate-related advocacy to help clear the path towards faster deployment of renewable energy. Our first climate advocacy report therefore features an assessment of our most important industry associ- ations in terms of their alignment with the 1.5 °C Paris Agreement goal, their promotion of renewable energy, and their stance on the phase-out of fossil fuels. With the report, we aim to emphasise our efforts to acceler- ate a renewable energy build-out that pursues emis- sions reductions, protects nature, and creates a transi- tion that is equitable for all. Our approach and policies As a long-standing industry leader in sustainability, we recognise that, alongside our positive impact from scaling renewable energy deployment, we have a key role in reducing possible negative impacts, such as emissions from the extraction and manufacturing of materials and main components needed for the suc- cessful transition towards renewable energy sources. We are committed to not only measuring and track- ing greenhouse gas emissions, but also actively working towards their reduction. Our approach for our own operations includes phasing out coal in 2024\. To address possible negative impacts in our value chain, we actively engage and partner with suppliers Positive impacts CRUCIAL 1 Renewable energy deployment (OO) Negative impacts SIGNIFICANT 2 GHG emissions from the renewable energy supply chain, regular power sales, and downstream GHG emissions from natural gas sales (VC) 3 Energy consumption, mainly at CHP plants (OO) Risks 4 Transition climate risk related to potential lack of political support for the continued renewable energy build-out (OO) 5 Physical chronic and acute climate\- related risks (OO) Our material impacts and risks 1 2 2 3 4 5 (OO) Own operations (VC) Value chain Sustainability statements | Environment ØRSTED ANNUAL REPORT 202387 | ESRS E1 [](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-sustainability-commitment)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-sustainability-commitment) to mature low-emission solutions for our continued renewables build-out. Renewable energy deployment We invest in the development, construction, and operation of renewable energy assets, which include offshore and onshore wind farms, solar farms, bat- tery storage, carbon capture and storage (CCS), bio- mass-fuelled CHP plants, and Power-to-X (P2X) for renewable hydrogen and e-fuels. While investments in wind and solar directly contribute to the increase in renewable energy generation capacity, bioenergy serves as an alternative to fossil fuels, P2X enables non-electric applications (e.g. transport and chem- icals) and helps to reduce emissions from hard-to- abate sectors, and CCS enables permanent storage of carbon underground. Together, these technologies play a key role in building sustainable global energy systems. Science-aligned climate action To align our core business activities with our sustain- ability ambition, we have adopted a science-based target to reach net-zero emissions by 2040, which has been formally validated by the Science Based Targets initiative (SBTi). This overarching target is supported by a suite of near-term and long-term decarbonisation targets across our full value chain. In addition to tracking and monitoring our company-wide emissions reduction progress, we utilise the climate targets internally to anchor our strategic initiatives. These include, for example, decarbonisation of our supply chains for materials and components. To contribute to the global net-zero goal in the most impactful way, we are committed to go beyond reducing our own emissions and to contribute to climate action outside our value chain. We finance and develop our own high-quality nature-based projects in addition to reducing our emissions – not instead of doing so. We are on track to phase out coal in 2024 and to reduce our scope 1-2 emissions intensity by 98 % by 2025 – two near-term milestones towards our sci- ence based 2040 net-zero target. We also continue our financial commitment to nature-based projects and the implementation of our own quality consider- ations, which include proven additionality and posi- tive impacts for local communities and biodiversity. By 2025, we will have taken final investment decision on a portfolio of projects which over their lifetime will deliver a volume of certified carbon credits exceeding the residual 2 % of our future scope 1-2 emissions. However, the actual delivery of carbon credits from these projects will be delayed a few years compared to our initial expectations. We have decided to phase out our use of the wording ‘carbon-neutral company by 2025’ when describing the impact of carbon credits. Since 2020, when we made the commitment to become a carbon-neutral company, the consensus on carbon-neutral claims has changed. While back then, such claims proved use- ful for incentivising and increasing the ambitions of corporate climate action, we now have the SBTi Net- Zero Standard to guide how companies can take the actions urgently needed to meet the 1.5 °C goal of the Paris Agreement. Our approach to carbon credits reflects what the SBTi refers to as ‘beyond value chain mitigation’ in its Net-Zero Standard. In line with this direction set by the SBTi, we will therefore no longer use the wording ‘carbon\- neutral’ to describe our progress in decarbonis- ing our operations and energy generation (scope 1-2). Supply chain decarbonisation The majority of our upstream value chain emissions come from hard-to-abate sectors like steel, shipping, and heavy manufacturing. We have therefore identi- fied and deployed several strategic levers to reduce emissions from our supply chains: · Tracking and measuring carbon progress through the development of an in-house model for life cycle assessments (LCAs). The model is currently used to calculate the total carbon footprint of our new off- shore wind farms and will be further developed to cover onshore wind, solar PV technologies, and the more recent technologies in our portfolio. Addition- ally, to enhance the transparency and comparabil- ity of data for our stakeholders, we are contributing to the development of a standardized LCA method- ology together with other energy developers. · Engaging with suppliers on the integration of decar- bonisation strategies in their operations. Decar- bonisation is at the core of our supplier relationship management. We actively engage key suppliers, who account for more than half of our total pro- curement spend and encompass some of the most carbon-intensive segments of our supply chains. This includes the adoption of science-based targets, transparent climate reporting to CDP, and covering electricity consumption with renewable electricity. · Entering into offtake agreements for low-emission products essential to the energy transition. We con- tribute towards the scaling of new technologies by reducing uncertainties for suppliers and further incentivising their investments in low-emission technologies. · Engaging in cross-sector collaborations to drive demand for ground-breaking technologies. Together with other sustainability leaders we pool our purchasing powers to drive demand for tech- nologies needed to decarbonise materials in our operation. We have co-founded cross-industry ini- tiatives such as the Climate Group's SteelZero and the World Economic Forum's First Movers Coalition, where we commit to offtake volumes of near-zero emissions materials from 2030. Actions Own operations During 2023, we have taken the following steps: · We have deployed 0.6 GW of new renewable capacity from onshore wind power and solar power, reaching a total of 15.7 GW installed renewable capacity. · We have begun the construction of two CCS facili- ties designed to capture and store carbon emissions from the biomass-fired Asnæs and Avedøre power stations. This project represents Denmark's first full- scale carbon capture project. For more information, see our strategy section. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 202388 | ESRS E1 · We have allocated 99 % of our capital expendi- tures (CAPEX) towards environmentally sustain- able investments aligned with the EU taxonomy. For more information, see the EU taxonomy section. · We have signed a second contract with ESVAGT for a methanol-powered service operation vessel, marking a significant milestone in our efforts to decarbonise offshore wind operations. · We no longer acquire, or lease, vehicles powered by fossil fuels, and 65 % of our vehicle fleet is currently electric, an increase from 51 % in 2022. · We continued to advance our portfolio of nature- based carbon removal projects by planting approxi- mately 40 million propagules in Gambia, equivalent to around 4,000 ha, thereby contributing further to the restoration of vital ecosystems and mitigating climate change. · To address physical risks resulting from climate change and their potential impact on our assets, we assess the resilience of all new assets towards the occurrence of climate-related hazards. For more information, see the EU taxonomy and climate sce- nario analysis sections. Future actions: · We will continue to deploy renewable energy and drive down emissions across scope 1-2. · In 2025, more than 99 % of our energy generation will come from renewable sources, and in 2030, our ambition is to reach 35-38 GW installed renewable capacity. · We are making the preparations and are on track to phase out coal-based energy generation before 2025. · In 2024, the world's first green fuel vessel for off- shore wind operations will launch off the UK East Coast, as a result of the agreement between Ørsted and ESVAGT. · We will continue to phase out our fossil-fuelled vehicles, and by the end of 2025, our entire light vehicle fleet will be electric. · During 2025, the Asnæs and Avedøre power stations will begin to capture and store biogenic carbon. · We are committed to further enhancing our port- folio of nature-based carbon removal projects and are actively involved in the development of new initiatives in Africa and Southeast Asia, in collab- oration with Danish NGOs and local community organisations. Value chain During 2023, we have taken the following steps: · Together with the Carbon Trust and eleven energy developers, we have launched a joint industry programme to develop the first industry-backed method for calculating the life cycle carbon foot- print of offshore wind farms. This common method- ology will help increase transparency for govern- ments, investors, and suppliers and enable compa- rability across developers and assets. · We have begun integrating our climate expecta- tions into key supplier contracts, including CDP reporting, science-based target setting, and cover- ing electricity consumption with renewable elec- tricity. These requirements apply to suppliers in a number of high-impact categories, which collec- tively contribute significantly to our supply chain emissions and procurement spend. · We have procured low-carbon copper for the export cable scope for the world's single largest wind farm, Hornsea 3 in the UK. By choosing low-carbon copper, we have reduced the emissions from the export cable scope by approximately 50 %. · We have formed an industry-leading partnership with wind turbine supplier Vestas, including an early offtake agreement. We pledge to procure 25 % low-emission steel turbine towers for all joint pro- jects, and, when available, blades made with recy- cled materials. · We have signed a long-term large-scale supply agreement with Dillinger, our key steel manufacturer for foundations, which in part has enabled Dillinger to invest in a low-emission steel production route (DRI-EAF). This investment will reduce Dillinger's company emissions by 55 % in 2030\. · To increase the collective demand signal for near- zero steel, we have joined the First Mover Coalition's Near-Zero Steel 2030 Challenge. The initiative builds on our near-zero steel commitments and aims to accelerate investments in near-zero steel by mapping suppliers' and companies' existing plans and connect- ing buyers with future suppliers of near-zero steel. Future actions: · We will strive for a common standard to measure the life cycle carbon footprint of offshore wind farms, fostering comparability and amplifying trans- parency of embodied emissions. · We will continue to develop tools to support our suppliers in their green transformations as we enhance the incorporation of sustainability in our sourcing processes. From 2024, we will also start engaging with suppliers on biodiversity, circularity, the carbon footprint of their products, and on their climate engagement of their own supply chains. · We will continue to seek out partnerships with key strategic suppliers to further incentivise invest- ments in low-emission technologies. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 202389 | ESRS E1 Scope 3 Scope 3Scope 1-2 Transport vehicles Company cars <0.5 kt Employee commute 13 kt Supply chain 2 (521 kt in total) Emissions come from manufacturing and transporting renewable energy components and from mining and transporting coal. Construction (168 kt in total) The main individual emis- sion source is the pur- chased equipment and components to install onshore renewable energy assets. Energy generation (1,539 kt in total) Emissions mainly come from burning coal at power stations. We will have phased out the use of coal in 2024. Operations (33 kt in total) Emissions mainly come from fuel used for the vessels we charter dur- ing the operation and maintenance of offshore wind farms. Administration (86 kt in total) Some emissions, e.g. from company cars, result directly from our daily business administration (scope 1). The majority are indirectly linked to our activities, such as the emissions from the production of the electricity we buy for our own consumption (scope 2), and the goods and services we buy (scope 3). Energy sales (4,742 kt in total) Emissions mainly come from wholesale buying and selling of natural gas. Decarbonising our full value chain 2023 data¹ (1 kt = 1,000 tonnes of CO 2 equivalents) Resource extraction and processing (e.g. steel and concrete) Components for renewable energy assets (86 kt) Fuel for power stations Sustainable biomass/gas/ coal (phased out in 2024)/oil Cargo vessel transport Crew transport and service vessels 32 kt Offshore wind farms Hydrogen and green fuels Equipment and components 163 kt Onshore renewables construction 5 kt Offshore wind farm construction 0 kt Power stations 1,539 kt Onshore wind farms Solar farms Energy storage Service vehicles 1 kt Buildings <1 kt Heating and power Waste 3 kt Goods and services 52 kt Work-related travel 18 kt Power sales 880 kt Gas sales 3,862 kt 1 Our carbon emissions accounting follows the Greenhouse Gas Protocol. This illustration shows the main sources of emissions per category. For our detailed emissions accounting, please see our greenhouse gas (GHG) emissions and intensity tables on pages 100 -101. 2 Supply chain emissions from energy sales activities are accounted for under the ‘Energy sales’ category. Production Sustainability statements | Environment ØRSTED ANNUAL REPORT 202390 | ESRS E1 Targets In 2021, Ørsted set a 2040 reduction target for scope 1-3 emissions and became the first energy company with a science-based net-zero target. As of today, we are on track to meet our near-term scope 1-2 intensity target, and we have already met our 2032 absolute scope 3 emissions target. To continue providing clarity on the near-term direction of our decarbonisation efforts, we have devel- oped a portfolio of new near-term targets that outline our 2030 ambitions on the same KPIs that we already use for our 2040 targets. These new targets outline the pathway for our near-term efforts to decarbonise our value chain, while also putting a cap on emissions from natural gas sales based on the substantive reductions we have already achieved. Our new 2030 targets have been submitted to the SBTi and are currently undergoing their formal target validation process. The SBTi expressed that they welcome our more ambitious 2030 decarbonisation targets, which provide a greater visibility on the pathway towards our science-based 2040 net-zero target. Share of renewable energy generation % 2022 20252006 2023 91 99 17 93 Installed renewable capacity GW //2021 2022 2023 2030 13.0 15.1 15.7 35-38 ~ 2 Biomass ~ 1 Power-to-X Onshore renewables 11-13 Offshore wind 20-22 Scope 1-3 greenhouse gas emissions intensity (excl. natural gas sales) g CO 2 e/kWh 2021 2022 20302023 20402018 // Science-based targets 322 165 75 147 <2.9 80 -7 7 % -99 % Scope 3 greenhouse gas emissions from natural gas sales Mt CO 2 e 2021 2022 20302023 20402018 // //// Science-based targets 24 14 8 7 <2.4 4 - 67 % -90 % Scope 1-2 greenhouse gas emissions intensity g CO 2 e/kWh 2018 2021 20252022 20302023 20402006 // // Science-based targets 462 136 58 10 60 6 38 <1 -98 % -99 % -10 0 % Net-zero 2040 SBTi target We are committed to continue driving the global transi- tion to renewable energy sources. We are on track to reach our target of 99 % renewable energy generation by 2025. Our commitment is reinforced by our strategic ambition to enhance our renewable energy capacity, aiming to reach a gross installed capacity of 35-38 GW by 2030\. For more information on our ambition for installed renewable capac- ity, please refer to the ‘Strategy and business’ section. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 202391 | ESRS E1 Overview by business unit Data point Unit Offshore Onshore Bioenergy & Other Other activities / eliminations 2023 2022 Δ Installed renewable capacity MW 8,871 4,785 2,075 - 15,731 15,121 4 % Offshore wind power MW 8,871 - - - 8,871 8,871 0 % Onshore wind power MW - 3,717 - - 3,717 3,464 7 % Solar PV power MW - 1,028 - - 1,028 671 53 % Battery storage MW - 40 21 - 61 61 0 % Biomass-based thermal heat MW - - 2,054 - 2,054 2,054 0 % Decided (FID'ed) renewable capacity MW 6,672 1,579 - 72 8,323 4,340 92 % Awarded and contracted renewable capacity MW 3,677 43 - - 3,720 11,157 (67 %) Sum of installed, FID’d, and awarded/contracted capacity MW 19,220 6,407 2,075 72 27,774 30,618 (9 %) Power generation capacity MW 4,986 4,725 2,800 - 12,511 11,327 10 % Heat generation capacity, thermal MW - - 3,353 - 3,353 3,353 0 % Power generation GWh 17,761 13,374 4,437 - 35,572 35,641 (0 %) Heat generation GWh - - 6,587 - 6,587 6,368 3 % Share of renewable energy generation % 100 100 73 - 93 91 2 %p Greenhouse gas emissions (scope 1 and 2) Thousand tonnes CO 2 e 32 1 1,552 1 1,586 2,511 (37 %) Greenhouse gas emissions (scope 3) Thousand tonnes CO 2 e 213 121 5,256 41 5,631 10,983 (49 %) Greenhouse gas emissions (scope 3: use of sold products ) 1 Thousand tonnes CO 2 e - - 3,862 - 3,862 7,309 (47 %) Greenhouse gas intensity (scope 1 and 2) g CO 2 e/kWh 2 0 141 - 38 60 (37 %) Greenhouse gas intensity (scope 1, 2, and 3) 2 g CO 2 e/kWh 14 9 267 - 80 147 (46 %) 1 Scope 3 emissions from wholesale buying and selling of natural gas. 2 Excludes scope 3 emissions from use of sold products (natural gas sales). Sustainability statements | Environment ØRSTED ANNUAL REPORT 202392 | ESRS E1 Overview by country Data point Unit Denmark The UK Germany The Netherlands The US Taiwan Poland Other countries 2023 2022 Δ Installed renewable capacity MW 3,061 5,795 1,383 752 4,299 45 - 396 15,731 15,121 4 % Offshore wind power MW 1,006 5,692 1,346 752 30 45 - - 8,871 8,871 0 % Onshore wind power MW - 83 27 - 3,215 - - 392 3,717 3,464 7 % Solar PV power MW - - 10 - 1,014 - - 4 1,028 671 53 % Battery storage MW 1 20 - - 40 - - - 61 61 0 % Biomass-based thermal heat MW 2,054 - - - - - - - 2,054 2,054 0 % Decided (FID'ed) renewable capacity MW 2 2,852 1,237 - 2,228 1,820 - 184 8,323 4,340 92 % Offshore wind power MW - 2,852 1,166 - 834 1,820 - - 6,672 2,196 204 % Onshore wind power MW - - 67 - - - - 33 100 321 (69 %) Solar PV power MW - - 4 - 1,094 - - 81 1,179 1,451 (19 %) Battery storage MW - - - - 300 - - - 300 300 0 % Power-to-X MW 2 - - - - - - 70 72 72 0 % Awarded and contracted renewable capacity MW - - - - 924 - 2,753 43 3,720 11,157 (67 %) Sum of installed, FID'ed, and awarded/contracted capacity MW 3,063 8,647 2,620 752 7,451 1,865 2,753 623 27,774 30,618 (9 %) Power generation capacity MW 3,361 2,908 705 376 4,249 516 - 396 12,511 11,327 10 % Offshore wind power MW 561 2,830 673 376 30 516 - - 4,986 4,672 7 % Onshore wind power MW - 78 22 - 3,215 - - 392 3,707 3,454 7 % Solar PVpower MW - - 10 - 1,004 - - 4 1,018 661 54 % Thermal power MW 2,800 - - - - - - - 2,800 2,540 10 % Heat generation capacity, thermal MW 3,353 - - - - - - - 3,353 3,353 0 % Power generation GWh 6,405 11,037 2,145 1,449 12,343 1,291 - 902 35,572 35,641 (0 %) Heat generation GWh 6,587 - - - - - - - 6,587 6,368 3 % Share of renewable energy generation % 77 100 100 100 100 100 - 100 93 91 2 %p Greenhouse gas emissions (scope 1 and 2) Thousand tonnes CO 2 e 1,555 17 6 2 2 4 - 0 1,586 2,511 (37 %) Greenhouse gas intensity (scope 1 and 2) g CO 2 e/kWh 120 2 3 1 0 3 - 0 38 60 (37 %) Sustainability statements | Environment ØRSTED ANNUAL REPORT 202393 | ESRS E1 Data point Unit Target 2023 2022 Δ Installed renewable capacity MW ~35-38 GW (2030) 15,731 15,121 610 Offshore, wind power MW ~20-22 GW (2030) 8,871 8,871 - Onshore MW ~11-13 GW (2030) 4,785 4,175 610 Wind power MW 3,717 3,464 253 Solar PV power 1 MW 1,028 671 357 Battery storage 1 MW 40 40 - Bioenergy 2 MW ~2 GW (2030) 2,075 2,075 - P2X MW ~1 GW (2030) - - - Decided (FID'ed) renewable capacity MW 8,323 4,340 3,983 Offshore, wind power MW 6,672 2,196 4,476 Onshore MW 1,579 2,072 (493) Wind power MW 100 321 (221) Solar PV power 1 MW 1,179 1,451 (272) Battery storage 1 MW 300 300 - P2X MW 72 72 - Awarded and contracted renewable capacity 3 MW 3,720 11,157 (7,437) Offshore, wind power MW 3,677 11,157 (7,480) Onshore, wind power MW 43 - 43 Sum of installed and FID'ed renewable capacity MW 24,054 19,461 4,593 Sum of installed, FID'ed, and awarded/contracted MW 27,774 30,618 (2,844) Additions for the last 12 months Installed capacity Decided (FID'ed) capacity Awarded offshore and contracted (onshore) capacity Q1 2023 Q2 2023 Q3 2023 Q4 2023 Old 300, solar PV (357 MW, ~80 % of total capacity) Baltica 2+, offshore wind (210 MW) Sunflower Wind, onshore wind (201 MW) Hornsea 3, offshore wind (2,852 MW) Garreenleen (Phase 1), solar PV (81 MW) Greater Changhua 2b and 4, offshore wind (920 MW) Lisheen 3, onshore wind (29 MW) Farranrory, onshore wind (43 MW) Ballykeel, onshore wind (16 MW) Les Ramonieres, onshore wind (15 MW) Les Dix Huit, onshore wind (7 MW) Garreenleen (Phase 1), solar PV (81 MW) Revolution Wind, offshore wind (704 MW) St. Wendel, onshore wind (17 MW) Amberg Süd, solar PV (4 MW) Renewable capacity Business drivers § Accounting policies Installed renewable capacity The installed renewable capacity is calcu- lated as renewable gross capacity installed by Ørsted accumulated over time. We include all capacities after commercial operation date (COD) has been reached, and where we had an ownership share and an EPC (engineering, procurement, and construction) role in the pro- ject. Capacities from acquisitions are added to the installed capacity. For installed renewable thermal capacity, we use the heat capacity, as heat is the primary outcome of thermal energy generation, and as bioconversions of the com- bined heat and power plants are driven by heat contracts. Decided (FID'ed) renewable capacity Decided (FID'ed) capacity is renewable capacity where a final investment decision (FID) has been made. Awarded and contracted renewable capacity The awarded renewable capacity is based on the capacities which have been awarded to Ørsted in auctions and tenders. The contracted renewable capacity is the capacity for which Ørsted has signed a contract or power purchase agreement (PPA) concerning a new renewable energy asset. We include the full capacity if more than 50 % of PPAs or offtake is secured. We only include awarded/contracted capacity for projects that we expect to develop. In 2023, we took final investment decisions (FIDs) on three offshore wind farms in each of our three regions: the offshore wind farm Hornsea 3 (2.9 GW) in the UK, the offshore wind farms Greater Changhua 2b and 4 (0.9 GW) in Taiwan, and the offshore wind farm Revo- lution Wind (0.7 GW) in the US. We have ceased development of our offshore wind projects Ocean Wind 1 and Ocean Wind 2 in the US. We have also decided to withdraw the Offshore Wind Renewable Energy Certificate (OREC) for our offshore wind project Skipjack in the US. In total, the three US projects amounted to a capacity of 3.2 GW, which we have removed from our awarded capacity. 1 Both the solar PV and battery storage capacities are measured in megawatts of alternating current (MW AC ). 2 Including thermal heat capacity from biomass and battery capacity not in Onshore (21 MW). 3 We have removed Ballinrea (65 MW) from our contracted renewable capacity. Sustainability statements | Environment ØRSTED ANNUAL REPORT 202394 | ESRS E1 Data point Unit 2023 2022 Δ Power generation capacity MW 12,511 11,327 1,184 Offshore wind MW 4,986 4,672 314 Denmark MW 561 561 - The UK MW 2,830 2,988 (158) Germany MW 673 673 - The Netherlands MW 376 376 - Taiwan MW 516 44 472 The US MW 30 30 - Onshore wind MW 3,707 3,454 253 The US MW 3,215 3,014 201 Ireland MW 351 322 29 The UK MW 78 62 16 France MW 41 34 7 Germany MW 22 22 - Solar PV MW 1,018 661 357 The US MW 1,004 647 357 France MW 4 4 - Germany MW 10 10 - Thermal, Denmark (CHP plants) MW 2,800 2,540 260 Heat generation capacity, thermal MW 3,353 3,353 - Based on biomass MW 2,032 2,032 - Based on coal MW 1,300 1,300 - Based on natural gas MW 1,617 1,617 - Heat generation capacity, electric MW 225 25 200 Power generation capacity, thermal MW 2,800 2,540 260 Based on biomass MW 1,228 1,228 - Based on coal MW 991 991 - Based on natural gas MW 951 951 - Based on oil MW 734 474 260 Generation capacity Business drivers § Accounting policies Power generation capacity Power generation capacity for an offshore wind farm is calculated and included from the time when the individual wind turbine has passed a 240-hour test. Power generation capacities for onshore wind and solar farms are included after commercial operation date (COD) has been reached. The offshore wind farms Gun- fleet Sands 1 & 2 and Walney 1 & 2 have been consolidated according to ownership interest. Other wind farms, solar farms, and combined heat and power (CHP) plants have been finan- cially consolidated. Heat and power generation capacity, thermal Thermal heat and power generation capacity is a measure of the maximum capability to gener- ate heat and power. The capacity may change over time with plant modifications. For each CHP plant, the capacity is given for generation with the primary fuel mix. Overload is not included. CHP plants which have been taken out of primary operation and put on standby are not included. Fuel-specific thermal heat and power genera- tion capacities measure the maximum capac- ity using the specified fuel as primary fuel at the multi-fuel plants. They cannot be added to total thermal capacity, as they are defined individually for each fuel type for our multi-fuel plants. All fuels cannot be used at the same time. Therefore, the total sum amounts to more than 100 %. Our power generation capacity increased by 10 % to 12,511 MW in 2023\. Offshore wind power generation capacity increased by 314 MW, primarily due to the ramp-up of our offshore wind farms Greater Changhua 1 and 2a in Taiwan. Onshore wind power generation capacity increased by 253 MW, primarily due to the commissioning of the onshore wind farm Sunflower Wind (201 MW) in the US. Solar PV power generation capacity increased by 357 MW AC due to the partial commissioning of the solar farm Old 300 in the US. Thermal power generation capacity (based on oil) increased by 260 MW in 2023 due to an extra unit at Kyndby Peak Load Plant being temporarily back in operation. Heat generation capacity (electric) increased by 200 MW, as four new electric boilers were commissioned at Studstrup Power Station in February 2023. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 202395 | ESRS E1 Data point Unit 2023 2022 Δ Offshore wind Wind speed m/s 9.8 9.5 3 % Wind speed, normal wind year m/s 9.9 9.7 2 % Availability % 93 94 (1 %p) Load factor % 43 42 1 %p Onshore wind Wind speed m/s 7.2 7.4 (3 %) Wind speed, normal wind year m/s 7.4 7.3 1 % Availability % 88 93 (5 %p) Load factor % 36 40 (4 %p) Solar PV Availability % 98 98 0 %p Load factor % 24 25 (1 %p) Other Degree days, Denmark Number 2,585 2,548 1 % Energy business drivers Business drivers § Accounting policies Wind speeds Wind speeds for the areas where Ørsted's offshore and onshore wind farms are located are provided to Ørsted by an external supplier. Wind speeds are weighted on the basis of the capacity of the individual wind farms and con- solidated to an Ørsted total for offshore and onshore, respectively. ‘Normal wind speed’ is a historical wind speed average (over a minimum 20-year period). Availability Availability is calculated as the ratio of actual production to the possible production, which is the sum of lost production and actual produc- tion in a given period. The production-based availability (PBA) is impacted by grid and wind turbine outages, which are technical produc- tion losses. PBA is not impacted by market\- requested shutdowns and wind farm curtail- ments as these are due to external factors. Load factor The load factor is calculated as the ratio between actual generation over a period rel- ative to potential generation, which is possi- ble by continuously exploiting the maximum capacity over the same period. The load factor is commercially adjusted. This means that the offshore wind farm has been financially com- pensated by the transmission system operators when it is available for generation, but the out- put cannot be supplied to the grid due to main- tenance or grid interruptions. New offshore wind turbines are included in the calculations of availability and load factor once they have passed a 240-hour test. Onshore wind turbines are included once they have passed commer- cial operation date (COD). Degree days The number of degree days expresses the dif- ference between an average indoor tempera- ture of 17 °C and the outside mean temperature for a given period. It helps compare the heat demand for a given year with a normal year. Offshore wind Offshore wind speeds in 2023 were 3 % higher than in 2022, but 1 % below a normal wind year. Availability in 2023 was 1 percentage point lower than in 2022\. The higher wind speeds resulted in a 1 percentage point increase of the load factor in 2023\. Onshore wind Onshore wind speeds in 2023 were 3 % lower than in 2022 and 3 % lower than in a normal wind year. Avail- ability was 5 percentage points lower in 2023 than in 2022. The lower wind speeds and availability resulted in a 4 percentage point lower load factor in 2023. Solar PV Availability in 2023 was at the same level as in 2022, but the load factor decreased by 1 percentage point. Other The number of degree days in 2023 was 1 % higher than in 2022, indicating that the weather in 2023 was slightly colder than in 2022. In Q4 2023, the number of degree days was 12 % higher than in Q4 2022, which means that the weather at the end of 2023 was much colder than in 2022. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 202396 | ESRS E1 Data point Unit 2023 2022 Δ Power generation GWh 35,572 35,641 (0 %) Offshore wind GWh 17,761 16,483 8 % Denmark GWh 1,970 2,084 (5 %) The UK GWh 10,887 10,989 (1 %) Germany GWh 2,076 1,949 7 % The Netherlands GWh 1,449 1,259 15 % The US GWh 88 110 (20 %) Taiwan GWh 1,291 92 1,303 % Onshore wind GWh 11,228 11,225 0 % The US GWh 10,124 10,389 (3 %) Ireland GWh 809 761 6 % France GWh 89 18 394 % Germany GWh 58 13 346 % The UK GWh 148 44 236 % Solar PV GWh 2,146 1,921 12 % The US GWh 2,131 1,920 11 % Germany GWh 11 - - France GWh 4 1 300 % Thermal GWh 4,437 6,012 (26 %) Heat generation GWh 6,587 6,368 3 % Total heat and power generation GWh 42,159 42,009 0 % Of which, wind and solar PV power generation GWh 31,135 29,629 5 % Of which, thermal heat and power generation GWh 11,024 12,380 (11 %) Of which, thermal heat and power generation % 26 29 (3 %p) Energy generation and sales Business drivers § Accounting policies Power generation Power generation from wind and solar farms is determined as generation sold. The offshore wind farms Gunfleet Sands 1 & 2 and Walney 1 & 2 have been consolidated according to owner- ship interest. Other wind farms, solar farms, and combined heat and power (CHP) plants have been financially consolidated. Thermal power generation is determined as net generation sold, based on settlements from the official Danish production database. Data for generation from foreign facilities is provided by the operators. Heat generation Heat (including steam) generation is measured as net output sold to heat customers. Gas and power sales Sales of gas and power are calculated as physi- cal sales to retail and wholesale customers and exchanges. Sales are based on readings from Ørsted's trading systems. Internal sales to our combined heat and power (CHP) plants are not included in the statement. Offshore wind power generation increased by 8 % to 17.8 TWh in 2023 due to higher generation capacity and higher wind speeds in 2023 compared to 2022. Gas sales GWh 16,880 31,637 (47 %) Power sales GWh 21,448 23,194 1 (8 %) Green power to end customers 2 GWh 881 2,294 (62 %) Regular power to end customers 3 GWh 1,567 2,500 (37 %) Power wholesale GWh 19,000 18,400 1 3 % 1 2022 wholesale power volumes have been adjusted according to the change in accounting policy for presentation of revenue see note 1.2 ‘Basis of preparation’ in the financial statements. 2 Power sold with renewable certificates. 3 Power sold without renewable certificates. Onshore wind power generation was 11.2 TWh in 2023, as in 2022. The increase in generation at our European onshore wind farms was offset by decreased generation at several of our US onshore wind farms. Solar PV generation increased by 12 % to 2.1 TWh due to increased generation at our solar farm Old 300\. Thermal power generation decreased by 26 % in 2023, primarily driven by lower condensing generation due to lower power prices and market spreads compared to 2022. Heat generation was 3 % higher in 2023 compared to 2022 due to colder weather in 2023, especially in Q4 2023\. Gas sales decreased significantly by 47 % to 16.9 TWh in 2023. This was primarily due to lower UK sourcing volumes, mainly due to the phasing out of our UK B2B activities as well as expired contracts. It was also due to Gazprom Export's suspension of its gas supplies to Ørsted on 1 June 2022 and Ørsted's subsequent termi- nation of the supply contract during Q1 2023. Power sales decreased by 8 % to 21.4 TWh in 2023 due to a 62 % and 37 % decrease in green and regular power to end customers, respectively. This was pri- marily driven by the phasing out of our UK B2B busi- ness. The decrease was partly offset by a 3 % increase in wholesale power to 19.0 TWh, primarily driven by the 50 % farm-down of the fully operational offshore wind farm Hornsea 2 in Q3 2022, resulting in increased power volumes sold on behalf of our partners. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 202397 | ESRS E1 The share of our renewable heat and power genera- tion increased by 2 percentage points to 93 % in 2023\. The 2 percentage point increase in the renewable energy share was due to the 3 percentage point increase in offshore wind power generation and the 1 percentage point increase in other renewable energy sources (certified renewable power for heat boilers), partly offset by a 2 percentage point decrease in the share of sustainable biomass-based generation. The increase in offshore wind power generation was primarily due to the ramp-up of our offshore wind farms Greater Changhua 1 and 2a in Taiwan and higher wind speeds in 2023 compared to 2022. The share of sustainable biomass-based generation decreased by 2 percentage points. This was due to a temporary switch from biomass to coal usage at Studstrup Power Station from the autumn of 2022 until Q2 2023 following a fire in the wood pellet silo, and lower biomass-based con- densing generation driven by lower market spreads. This was partly offset by higher heat demand and thereby higher biomass-based generation in Q4 2023\. The 1 percentage point increase in other renewable energy sources was driven by heat generation from the new electric boilers at the Studstrup Power Sta- tion using sourced green power. The share of coal-based generation decreased by 2 percentage points, mainly driven by lower coal-based condensing driven by significantly lower power spot prices, hence reduced spreads. Share of renewable energy generation Business drivers § Accounting policies Share of renewable energy generation The renewable energy share of our heat and power generation is calculated on the basis of the energy sources used and the energy generated at the different assets. For combined heat and power (CHP) plants, the share of the specific fuel (e.g. sustainable biomass) is calculated relative to the total fuel consumption for a given plant or unit within a given time period. The specific fuel share is then multiplied by the total heat and power generation for the specific plant or unit in the specific period. The result is the fuel-based generation for the individual plant or unit, for example the sustain- able biomass-based generation of heat and power from the CHP plant unit within a given time period. The percentage shares of the individual energy sources are calculated by dividing the generation from the individual energy source by the total generation. The following energy sources and fuels are considered to be renewable energy: wind, solar PV, sustainable biomass, biogas, and power sourced with renewable energy certi- ficates. The following energy sources are considered to be fossil energy sources: coal, natural gas, and oil. Data point Unit Target 2023 2022 Δ Total heat and power generation % 100 100 0 %p From offshore wind % 42 39 3 %p From onshore wind % 27 27 0 %p From solar PV % 5 5 0 %p From sustainable biomass % 18 20 (2 %p) From other renewable energy sources % 1 0 1 %p From coal % 6 8 (2 %p) From natural gas % 1 1 0 %p From other fossil energy sources % 0 0 0 %p Share of renewable energy generation % 99 (2025) 93 91 2 %p Offshore % 100 100 0 %p Onshore % 100 100 0 %p Bioenergy & Other % 73 68 5 %p Total heat and power generation by energy source 2023 % Offshore wind 42 Onshore wind 27 Sustainable biomass 18 Coal 6 Solar PV 5 Natural gas 1 Other*1 * Other renewable and fossil energy sources 2023 2022 93 91 Share of renewable energy generation % Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 202398 | ESRS E1 Data point Unit Target 2023 2022 Δ Direct energy consumption (GHG, scope 1) GWh 14,936 18,859 (21 %) Fuels used in thermal heat and power generation GWh 14,764 18,649 (21 %) Sustainable biomass GWh 10,074 11,258 (11 %) Coal GWh 0 (2025) 1 3,782 6,677 (43 %) Natural gas GWh 746 289 158 % Oil GWh 162 425 (62 %) Other energy usage (oil, gas, and diesel for vessels and vehicles) GWh 172 210 (18 %) Coal used in thermal heat and power generation Thousand tonnes 0 (2025) 1 546 996 (45 %) Certified sustainable wooden biomass sourced 2 % 100 100 0 %p Indirect energy consumption (GHG, scope 2) GWh 632 308 105 % Power sourced for own consumption GWh 618 293 111 % Own power consumption covered by renewable energy certificates % 100 (ongoing) 3 100 100 0 %p Heat sourced for own consumption GWh 14 15 (7 %) Total direct and indirect energy consumption GWh 15,568 19,167 (19 %) Green share of total direct and indirect energy consumption % 69 60 9 %p Internal energy savings, accumulated from 2018 GWh 52 46 13 % Electric vehicles in the company vehicle fleet % 100 (2025) 65 51 14 %p § Accounting policies Direct energy consumption (GHG, scope 1) Direct energy consumption includes all energy consumption, including energy consumption that leads to scope 1 GHG emissions. Energy consumption includes all fuels used at combined heat and power (CHP) plants (lower caloric values) and other energy usage (oil, natural gas, and diesel). Certified sustainable wooden biomass sourced Certified sustainable wooden biomass sourced is calculated as the amount of certified sus- tainable wooden biomass sourced divided by the total amount of sourced wooden biomass, i.e. wood pellets and wood chips, delivered to individual CHP plants within the reporting period. Certified sustainable wooden biomass must be certified within at least one of the claim categories accepted by the Danish indus- try agreement on certified biomass. Accepted claim categories are: FSC100 %, FSC Mix, PEFC 100 %, and SBP-compliant. Indirect energy consumption (GHG, scope 2) Heat and power purchased and consumed by Ørsted are reported for CHP plants, other facilities, and administrative buildings. Heat and power consumption excludes consumption of own generated heat and power at our CHP plants. For consumption related to administra- tion and other processes, we calculate direct consumption on the basis of invoices. Green share of total direct and indirect energy consumption The green share is calculated as renewable energy sourced (biomass and certified green power) for own consumption divided by total energy sourced for own consumption. Internal energy savings The scope of the energy savings covers both heat and power consumption and process opti- misation savings at our CHP plants (i.e. fuel sav- ings, GHG scope 1). Projects are included when they are fully implemented and operational. Electric vehicles in the company vehicle fleet Ørsted is a member of the Climate Group's EV100 initiative. The statement is prepared on the basis of the EV100 guidelines. 1 Our target is to phase out coal before 2025. The Danish authorities have ordered us to continue and resume the operation of three of our power station units which use coal and oil until 31 August 2024. 2 We are committed to use 100 % certified sustainable wooden biomass. 3 Our target is to have our own power consumption 100 % covered by renewable energy certificates. The total fuel consumption used for heat and power generation decreased by 21 % in 2023 compared to 2022, driven by the 11 % decrease in thermal heat and power generation. Fuel consumption decreased more than thermal generation because of lower condensing generation in 2023 compared to 2022\. Condensing generation (power generation only) has lower fuel effi- ciency than combined heat and power generation. The consumption of sustainable biomass decreased by 11 %, primarily due to the switch from sustainable biomass to coal-based generation at Studstrup Power Station following a fire in the wood pellet silo in the autumn of 2022. In Q2 2023, we switched back to sustainable biomass at Studstrup Power Station. In addition, there has been lower biomass condensing in 2023 due to lower power prices. The consumption of coal decreased by 43 %, mainly due to lower coal-based condensing driven by signifi- cantly lower power spot prices in 2023, hence reduced spreads. Natural gas consumption increased by 158 % in 2023, mainly driven by lower gas prices and improved spreads compared to 2022. Energy consumption Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 202399 | ESRS E1 Greenhouse gas (GHG) emissions Scope 1, 2, and 3 Scope 1 Scope 1 greenhouse gas (GHG) emissions decreased by 37 % from 2022 to 2023\. The main driver was the 43 % decrease in the use of coal, partly offset by the 158 % increase in the use of natural gas. In 2023, fossil fuel-based heat and power generation was accountable for 97 % of the total scope 1 emis- sions. Fuel for vessels are the main contributor to the remaining 3 %. Scope 2 Location-based scope 2 emissions increased by 107 % from 2022 to 2023\. The main source of location-based scope 2 emissions was power purchased for the gener- ation of heat in electric boilers at our CHP plants. All power purchased and consumed by Ørsted is certified green power. Therefore, our market-based scope 2 GHG emissions from power consumption amounted to zero tonnes carbon dioxide equivalents, and the remaining one thousand tonnes carbon dioxide equivalents came from our heat consumption. Scope 3 Scope 3 greenhouse gas emissions decreased by 49 % from 2022 to 2023, primarily driven by the 47 % reduction in scope 3 emissions from natural gas sales ( category 11). Data point Unit Target 2023 2022 Δ Direct GHG emissions (scope 1) Total scope 1 GHG emissions Thousand tonnes CO 2 e 1,585 2,510 (37 %) Covered by the EU Emissions Trading System % 96 97 (1 %p) Indirect GHG emissions (scope 2) Location-based Thousand tonnes CO 2 e 93 45 107 % Market-based Thousand tonnes CO 2 e 1 1 0 % Indirect GHG emissions (scope 3) Thousand tonnes CO 2 e 5,631 10,983 (49 %) C1: purchased goods and services Thousand tonnes CO 2 e 328 350 (6 %) C2: capital goods Thousand tonnes CO 2 e 91 1,456 (94 %) C3: fuel- and energy-related activities Thousand tonnes CO 2 e 1,314 1,836 (28 %) C4: upstream transportation and distribution Thousand tonnes CO 2 e 0 1 (100 %) C5: waste generated in operations Thousand tonnes CO 2 e 3 2 50 % C6: business travel Thousand tonnes CO 2 e 18 15 20 % C7: employee commuting Thousand tonnes CO 2 e 13 11 18 % C9: downstream transport and distribution Thousand tonnes CO 2 e 2 3 (33 %) C11: use of sold products Thousand tonnes CO 2 e 67 % (2030), 90 % (2040) 1 3,862 7,309 (47 %) Total GHG emissions (location-based) 2 Thousand tonnes CO 2 e 7,309 13,538 (46 %) Total GHG emissions (market-based) 3 Thousand tonnes CO 2 e 7,217 13,494 (47 %) Scope 1, 2, and 3 (excl. natural gas sales) Thousand tonnes CO 2 e 3,355 6,185 (46 %) Scope 3 (excl. natural gas sales) Thousand tonnes CO 2 e 1,769 3,674 (52 %) GHG emissions outside of scope 1-3 Direct biogenic carbon emissions 4 Thousand tonnes CO 2 e 3,544 3,961 (11 %) Scope 3 emissions from capital goods (category 2) decreased by 94 % as we only commissioned four onshore wind farms (totalling 253 MW) in 2023, whereas we commissioned more wind farms in 2022, including the offshore wind farm Hornsea 2 (1,320 MW). The scope 3 impact from the partly-commissioned solar farm Old 300 will be reported when the solar farm is fully commissioned, expectedly in 2024\. Scope 3 emissions from fuel- and energy-related activ- ities (category 3) decreased by 28 % due to the 37 % reduction in regular power sales to end customers and the 21 % reduction in fuel consumption at the CHP plants in 2023. GHG emissions outside of scope 1-3 Direct biogenic carbon emissions were 11 % lower in 2023 than in 2022 as a result of the 11 % reduction in the use of sustainable biomass as fuel. 1 Our targets to reduce scope 3 emissions from sold products by 67 % in 2030 and 90 % in 2040 relate to wholesale buying and selling of natural gas from the base year 2018. 2 Total GHG emissions including scope 2 GHG emissions measured using the location-based method. 3 Total GHG emissions including scope 2 GHG emissions measured using the market-based method. 4 According to the GHG Protocol, the carbon emissions from burning biomass are net-zero for scope 1 direct emissions, since the amount of carbon absorbed by the biomass during the growth phase is equivalent to the amount of carbon released through combustion. Sustainability statements | Environment ØRSTED ANNUAL REPORT 2023100 | ESRS E1 GHG intensity (scope 1 and 2) Our GHG intensity (scope 1 and 2) of energy genera- tion decreased by 37 % in 2023 compared to 2022. The decrease was the result of a 37 % decrease in scope 1 emissions due to lower coal consumption (numerator) and unchanged total heat and power generation (denominator). The GHG emissions intensity of revenue was reduced by 9 %, and the GHG emissions intensity of EBITDA increased by 9 % following the 37 % reduction in GHG emissions (denominator), the 31 % reduction in reve- nue, and the 42 % reduction in EBITDA (denominators). Greenhouse gas (GHG) emissions GHG intensity Data point Unit Target 2023 2022 Δ GHG intensity (scope 1 and 2) g CO 2 e/kWh GHG intensity, energy generation g CO 2 e/kWh 10 (2025), 6 (2030), 1 (2040) 38 60 (37 %) Offshore g CO 2 e/kWh 2 2 0 % Onshore g CO 2 e/kWh 0 0 - Bioenergy & Other g CO 2 e/kWh 141 200 (30 %) GHG intensity, revenue g CO 2 e/DKK 20 22 (9 %) GHG intensity, EBITDA g CO 2 e/DKK 85 78 9 % GHG intensity (scope 1, 2, and 3) g CO 2 e/kWh 75 (2030), 2.9 (2040) 1 80 147 (46 %) § Accounting policies Direct GHG emissions (scope 1) Scope 1 emissions are reported based on the Greenhouse Gas (GHG) Protocol and cover all direct emissions of greenhouse gases from Ørsted: carbon dioxide, methane, nitrous oxide, and sulphur hexafluoride. The direct carbon emissions from the combined heat and power plants are determined based on the fuel quan- tities used in accordance with the EU Emissions Trading System (ETS). Carbon dioxide and other greenhouse gas emissions outside the EU ETS scheme are primarily calculated as energy consumption multiplied by emission factors. Indirect GHG emissions (scope 2) Scope 2 emissions are reported based on the GHG Protocol and include indirect GHG emis- sions from the generation of power, heat, and steam purchased and consumed by Ørsted. Scope 2 emissions are primarily calculated as the power volumes purchased multiplied by country-specific emission factors. Loca- tion-based emissions are calculated based on average country-specific emission factors. Market-based emissions take into account renewable power purchased and assume that regular power is delivered as residual power. Indirect GHG emissions (scope 3) Scope 3 emissions are reported based on the GHG Protocol, where the scope 3 inventory is split into 15 subcategories (C1-C15): C1 is categorised spend data multiplied by rele- vant spend-category-specific emission factors. C2 includes upstream GHG emissions (cradle to operations) from acquired and installed wind and solar farms in the month when the wind or solar farm has reached commercial operation date (COD). C3 is calculated based on actual fuel con- sumption and power sales to end customers multiplied by relevant emission factors. We use separate emission factors for green and regular power sales. C4 only includes fuel for helicopter trans- port. Emissions from other transport types are included in the emission factors we use for purchased goods and services. C5 is calculated based on actual waste data multiplied by relevant emission factors. C6 is calculated based on mileage allowances for employee travel in own cars and GHG emissions from plane travel provided by our travel agent. C7 is calculated based on estimates of the dis- tance travelled and travel type (e.g. car or train). C9 is calculated based on volumes of residual products, estimated distances transported, and relevant emission factors for transport. C11 is calculated based on actual sales of gas to both end customers and wholesalers as reported in our ESG consolidation system. The different types of gas sold have specific upstream and downstream emission factors. The subcategories C8, C10, and C12-C15 are not relevant for Ørsted. GHG emissions outside of scope 1-3 Carbon emissions from burning biomass are net-zero for scope 1 emissions, according to the GHG Protocol, as the amount of carbon absorbed by the biomass during the growth phase is equivalent to the amount of carbon released through combustion. To ensure full transparency of all our activities, we document these emissions separately from the scopes, as recommended by the GHG Protocol. The direct biogenic carbon emissions are calculated by multiplying the volume of used biomass with the corresponding carbon emission factors. GHG intensity (scope 1 and 2) This is calculated as total scope 1 and scope 2 (market-based) emissions divided by total heat and power generation, revenue, and EBITDA, respectively. GHG intensity (scope 1, 2, and 3) This is calculated as total scope 1, scope 2 (market-based), and scope 3 (excluding natural gas sales) emissions divided by total heat and power generation. 1 Our GHG intensity (scope 1, 2, and 3) targets exclude scope 3 emissions from use of sold products (natural gas sales). GHG intensity (scope 1, 2, and 3) Scope 1, 2, and 3 GHG intensity (excluding emissions from natural gas sales) decreased by 46 % from 2022 to 2023. The decrease was mainly driven by the 37 % reduction in scope 1 and the 52 % reduction in scope 3 emissions, excluding natural gas sales (numerator), in addition to an unchanged total heat and power gener- ation (denominator). Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 2023101 | ESRS E1 ESRS E4 Biodiversity and ecosystems Energy projects with net-positive biodiversity impact Our approach and policies Our nature is under increasing pressure, and biodiver- sity loss presents a potentially devastating threat to society. We depend on diverse, healthy ecosystems for the air we breathe, the food we eat, our economic prosperity, limiting climate change, and protecting those communities most at risk. At Ørsted, we believe that the renewable energy transition can be part of a solution to the biodiversity crisis, provided we do it right. Achieving this requires that we first and foremost identify and proactively address the potential adverse effects that the build- out itself has on wildlife, habitats, and ecosystems. As we continue our renewable energy build-out, we are determined to leave nature as a whole in a better state than we found it. Therefore, our ambition is to take direct action to be able to achieve a net-positive biodiversity impact in projects commissioned from 2030 onwards. We strive to optimise how we work with and integrate biodiversity protection and restora- tion into the way we develop, construct, and operate renewable energy projects. We have established an offshore wind biodiversity policy addressing direct impacts from our operations on biodiversity, ecosystem protection, and sustainable ocean practices. With accountability lying with the Head of Global Stakeholder Relations, the policy sets out the principles that underpin our efforts to protect the natural environment in the areas where we con- struct and operate offshore wind farms. We will develop our biodiversity policy further to encompass all renewable energy technologies, both onshore and offshore. The revised policy is expected to be finalised in 2024. As we develop, construct, and operate more renew- able energy assets, we follow four core principles to effectively manage our impacts on biodiversity and work towards achieving a net-positive biodiversity impact for future projects: 1 Science-based decarbonisation Our biodiversity policy recognises the significant threat that climate change poses to biodiversity. To address the interconnected challenges of bio- diversity loss and climate change, we must shift away from fossil fuels and set science-based decarbonisation targets across the value chain (see section E1 on climate change). Positive impacts SIGNIFICANT 1 Biodiversity restoration, research, and innovation initiatives (OO) Negative impacts CRUCIAL 2 Natural resources exploitation and land-use change from mining of minerals and metals (VC) 3 Habitat loss from land degradation caused by mining of minerals and metals (VC) SIGNIFICANT 4 Disturbances to habitats and displacement or loss of species (OO) Our material impacts and risks 1 2 3 4 (OO) Own operations (VC) Value chain Sustainability statements | Environment ØRSTED ANNUAL REPORT 2023102 | ESRS E4 [](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-biodiversity)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-biodiversity) 2 Avoid and mitigate negative impacts based on the best available science We follow the mitigation hierarchy, emphasising avoidance, minimisation, and mitigation of impacts on biodiversity. Additionally, we prioritise reduction of any residual negative impacts. We ensure this through environmental and social impact assess- ments and studies, and through implementation of technologies for impact management, mitigation, and reduction. We actively expand our knowledge in these areas by addressing knowledge gaps and uncertainties to ensure we can deploy solutions that are based on the best available science, local expert knowledge, and the latest effective techno- logical advancements. 3 Set targets and deliver positive impacts To deliver on our 2030 ambition of achieving net\- positive biodiversity impact, we depend on appro- priate measurement and reporting frameworks. Our goal is to establish clear targets with specific, transparent, and recognised metrics. We are involved in the Science Based Targets Network's (SBTN) Corporate Engagement Program and have become Early Adopters of the Taskforce on Nature-related Financial Disclosures (TNFD), contributing to the development of a standardised methodology for assessing corporate-level impacts on nature. 4 Holistic sustainability action We adopt a holistic approach, addressing ecologi- cal, climate, and social sustainability. This includes implementing the mitigation hierarchy, including delivering ecosystem-wide restoration projects where feasible, resource circularity (see section E5 on resource use and circular economy), and support- ing local communities (see section S3 on affected communities). 2023 actions During the year, we have taken significant steps towards our 2030 ambition by following our four prin- ciples for a biodiversity-positive energy transition: 1 Science-based decarbonisation · See section E1 on climate change. 2 Avoid and mitigate negative impacts based on the best available science · As part of the ecological compensation meas- ures for our offshore wind farm Hornsea 3, we have started the work of providing artificial nesting structures for the kittiwake bird species along the east coast of England. The offshore artificial nest- ing structures are the first of their kind, and we are working on new and innovative designs for future structures. These nesting structures are needed to support this important and vulnerable species and will enable Hornsea 3 to be built and generate renewable electricity. · We have progressed research studies on critical environmental topics. For instance, we have devel- oped a bat and bird monitoring guidance docu- ment to support protection of vulnerable bat and bird species in the acceleration of the offshore wind industry. 3 Set targets and deliver positive impacts · We have continued the development of a measure- ment framework to assess biodiversity net gains and losses at our assets, utilising data from five operational assets for practical testing. In 2023, we successfully piloted this framework across renewable projects to evaluate its effectiveness in being able to report overall biodiversity impacts for future projects. The aim of the framework is to ensure consistency, transparency, and informed decision-making by having a standardised method- ology with reliable data. · We have become Early Adopters of the TNFD Recommendations, and in 2023, we made our first TNFD-aligned disclosures. For more information, see our TNFD reference table in the appendix. ↑ Sunflower Wind, located in Marion County, Kansas. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 2023103 | ESRS E4 In addition, we have continued a strong collaboration with TNFD, SBTN, and other key stakeholders, aimed at facilitating the development of an industry stand- ard. As part of these efforts, we have aligned our data collection approach to ensure our readiness for active participation once global frameworks are established. This will hopefully contribute to a higher level of comparability and credibility of biodiversity measure- ments in the renewable energy sector. 4 Holistic sustainability action · On World Ocean Day, we became the first energy company in the world to issue blue bonds, with the aim of raising blue financing to increase investments that specifically target offshore biodiversity and sustainable shipping. This allows us to further incen- tivise biodiversity action as part of offshore wind development. · We have released a white paper titled ‘Uniting action on climate and biodiversity.’ This paper high- lights the crucial role renewable energy plays in addressing both the climate and biodiversity crises. It emphasises the necessity of incorporating biodi- versity considerations into renewable energy expan- sion and outlines the essential steps for achieving this goal. The paper is a call to action to policy- makers and civil society to drive further progress in this field and build this into the development of future renewable targets. · We have taken steps to contribute to saving the cod stock in the Baltic Sea through a collaboration with BalticWaters and the ReCod project. The pro- ject involves releasing cod larvae in places where the cod previously spawned. The aim is to improve the survival rate of cod and at the same time collect valuable data on how the cod stock can be strengthened in the Baltic Sea. · In collaboration with The Nature Conservancy, we have set out to protect almost 1,000 acres of threatened native prairie at our Mockingbird Solar Center in northeast Texas, US. Prairies are valuable, productive ecosystems that provide numerous benefits, from flood prevention and water filtration to carbon storage. Native prairies provide habitat for populations of birds, monarch butterflies, bees, and other pollinators. · We have launched the BioReef marine restoration project in collaboration with WWF and DTU Aqua to contribute to ocean biodiversity in the Danish North Sea. The project aims to develop methods to establish biogenic reefs of European flat oysters and horse mussels. We hope that learnings from BioReef will inform best practices for global bivalve reef restoration. · We have initiated a biodiversity initiative near our onshore wind farm Sunflower Wind in Kansas, US, together with The Conservation Fund and The Nature Conservancy. This initiative will support habitat protection and restoration of up to 3,000 acres of tallgrass prairie near the wind farm. · We have launched a new research project at Anholt Offshore Wind Farm in Denmark together with the Technical University of Denmark (DTU), with the pur- pose of growing less carbon-intensive foods while contributing to a healthier marine environment. · We continued our previously launched biodiversity pilot projects, including our large-scale restoration project in the Humber Estuary in the UK, our ReCoral project in Taiwan, our 3D-printed reef pro- ject in Denmark, and rewilding of ocean biodiversity through our partnership with ARK Nature. Future actions In the short term, we aim to integrate our biodiver- sity ambition and measurement framework into all upcoming renewable energy projects that will be commissioned from 2030 onwards, covering offshore wind, onshore wind, solar power, and P2X, alongside ongoing monitoring of our current and upcoming bio- diversity initiatives. In the future, we intend to ensure that every renew- able energy project we commission delivers a net- positive impact through effective avoidance, minimi- sation, mitigation, and where required, offsetting of biodiversity impacts. We also aim to establish precise science-based and measurable biodiversity targets for our direct impacts. We will strive to fully integrate our biodiversity ambition into all facets of our business. We have also begun the work of identifying our key impacts on biodiversity in our upstream value chain, e.g. by identifying which materials have the greatest impact on biodiversity. Going forward, we will work towards mapping out these impacts to a country level and cooperating with our suppliers on mitigating impacts on biodiversity. Targets Through our 2030 ambition, we work on being able to establish specific bio\- diversity targets. Substantial progress has been achieved through our bio\- diversity pilot projects and our develop- ment of a measurement framework, which has enhanced our understanding of how to improve biodiversity at the asset level. Our biodiversity efforts, ambition, and approach are influenced by various factors, including the EU's biodiversity strategy for 2030, the Global Bio\- diversity Framework, SBTN, TNFD, the EU Align project, and national legislation in the countries where we operate. We ensure alignment with these frameworks, and new regulations guide our continued development and engagement with biodiversity. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 2023104 | ESRS E4 Data point Type of protection Unit 2023 Offshore The UK Overlaps with protected areas Overlaps with key biodiversity areas Area of Outstanding Natural Beauty, Heritage Coast, Marine Con- servation Zone, Marine Protected Area (OSPAR), National Nature Reserve, Ramsar Site, Site of Special Scientific Interest Number 44 Number 28 Denmark Overlaps with protected areas Overlaps with key biodiversity areas Baltic Sea Protected Area (HELCOM), Marine Protected Area (OSPAR), Ramsar Site, Special Areas of Conservation (Habitats Directive), Spe- cial Protection Area (Birds Directive) Number 7 Number 8 Germany Overlaps with protected areas Overlaps with key biodiversity areas Landscape Protection Area, Marine Protected Area (OSPAR), National Park, Nature Reserve, Sites of Community Importance, Special Areas of Conservation (Habitats Directive), Special Protection Area (Birds Directive), Special Protection Area (OSPAR) Number 6 Number 2 The Netherlands Overlaps with protected areas Overlaps with key biodiversity areas Areas of Conservation, Marine Protected Area (OSPAR), Nature Con- servation Act, Ramsar Site, Special Areas of Conservation (Habitats Directive), Special Protection Area (Birds Directive) Number 2 Number 3 The US Overlaps with protected areas Overlaps with key biodiversity areas Easement, Private Conservation Number Number 3 3 Onshore Ireland Overlaps with protected areas Overlaps with key biodiversity areas Area of Outstanding Natural Beauty, Area of Special Scientific Inter- est, Ramsar Site Number Number 54 9 The US Overlaps with protected areas Overlaps with key biodiversity areas Habitat Area, National Wildlife Refuge, Private Conservation, Reserve Program, Wildlife Management Area Number Number 11 1 Biodiversity Protected areas § Accounting policies The biodiversity data covers offshore and onshore wind farms and solar farms. For offshore wind farms, a buffer zone of 25 km is applied, whereas for onshore wind and solar farms, the buffer zone is 10 km. These buffers have been determined based on best practice rooted in science, and to recognise relevant interactions with protected areas for nature conservation or key biodiversity areas. The figures are reported gross, i.e. we include 100 % of the number of areas irrespective of our ownership share. Data is initially recognised from commercial operation date (COD). In some markets, we install transmission assets for offshore wind farms, which include onshore and offshore export cables and substations. However, these usually have to be divested near to or at commissioning of the wind farm, as required by national legislation. Therefore, the data for export cables represents trans- mission assets not yet divested on some wind farms and does not include onshore parts of offshore wind farms. Protected areas Protected areas and areas of high biodiversity value (key biodiversity areas) follow the Global Reporting Initiative (GRI) Standards, disclosure 304-1. This includes the list of protected areas described, such as IUCN protected area man- agement categories, the Ramsar Convention, and national legislation. The data points are the cumulative number of protected areas for nature conservation or key biodiversity areas, respectively, with which our operational sites interact. In 2022, we changed our data source for our report- ing on biodiversity-protected areas to the Integrated Biodiversity Assessment Tool (IBAT). In 2023, we have combined the information from IBAT with additional biodiversity data collected during a biodiversity risk assessment. The change in the buffer zones applied in 2023 signif- icantly increased the figures reported compared to previous years' reporting. In 2023, we have included our onshore assets in our reporting as well, meaning that we have now added onshore assets in Ireland and the US. Our wind farms in the APAC region do not currently overlap with any protected areas for nature conserva- tion or key biodiversity areas. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 2023105 | ESRS E4 Biodiversity Endangered species Data point Unit Critically endangered Endangered Vulnerable Near- threatened Offshore, 2023 The UK Number 11 12 61 50 Denmark Number 7 9 53 41 Germany Number 6 5 18 10 The Netherlands Number 7 8 38 21 The US Number 8 28 56 32 Onshore, 2023 Ireland Number 10 17 44 36 The US Number 18 28 45 46 § Accounting policies Biodiversity data covers all of our operational assets, both offshore and onshore, and includes the protected areas described in the table about protected areas. The overlap with species ranges has been assessed using a buffer of 25 km for offshore assets and 10 km for onshore assets. These buffers have been determined based on best practice rooted in science, and to recognise relevant interactions with any species in prox- imity to our operations. The reporting considers these total asset footprints for completeness. The figures are reported gross, i.e. we include 100 % of the number of areas irrespective of our ownership share. Data is initially recognised from commercial operation date (COD). Endangered Red List species This data point follows the Global Reporting Initiative (GRI) Standards, disclosure 304-4, and lists the number of threatened species. We report by level of extinction risk according to the International Union for Conservation of Nature's (IUCN) ‘Red List of Threatened Species’ – an inventory of the global conservation status of plant and animal species. As outlined in our offshore wind biodiversity policy, we carry out detailed environmental consenting pro- cesses and ongoing environmental monitoring in com- pliance with local regulations on protection of nature conservation to ensure species are considered care- fully. We have similar processes for all our onshore operations as well, which will be defined more clearly in our updated biodiversity policy in 2024\. Our assets in the APAC region do not currently overlap with any protected or known areas of critical impor- tance for vulnerable species. In 2023, we have included our onshore assets and have split our reporting into country levels to gain a clearer picture of specific overlaps. We have moved away from reporting across groups of vertebrates and instead report the collective number of IUCN Red List species at a country level. The change in the buffer zones applied in 2023 signif- icantly increased the figures reported compared to previous years' reporting. In 2023, our onshore wind farm Sunflower Wind (201 MW) went into operation, as well as the three smaller onshore wind farms Lisheen 3, Les Dix Huit, and Ballykeel. Sunflower Wind is in proximity to the Flint Hills in central Kansas, a native tallgrass prairie, which is an important habitat to many key species, including the greater prairie chicken, upland sandpiper, Henlow's sparrow, and many other species of grassland birds. To mitigate any possible impacts that Sunflower Wind may have on these species, we have launched a partner ship with The Nature Conservancy and The Conservation Fund to protect and restore native tall- grass prairie within the Flint Hills, protecting a key habitat for many species found here. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 2023106 | ESRS E4 ESRS E5 Resource use and circular economy Circular resource use Our approach and policies We are reliant on significant amounts of critical raw materials to meet the scale and pace needed for the renewable energy build-out. However, renewable energy supply chains are under pressure, and bottle- necks and material scarcities are already defining the pace of the energy transition in many markets. We can reduce some of these pressures through circu- larity efforts. By considering the provenance and mix of materials and increasing recycling and reusing, we can reduce the demand for virgin materials and reduce volatilities in our supply chain while minimising neg- ative impacts throughout the value chain, including carbon emissions. The dominant share of our upstream carbon emissions comes from the extraction and processing of materials for our assets (approximately 75 %) – steel alone accounts for approximately 50 %. By incorporating circular principles across our business we can reduce carbon emissions to help reach our science-based net- zero target while ensuring responsible waste manage- ment. We mainly work across three circularity levers: 1 Circular design and materials We take measures to reduce and optimise resource usage by rethinking the design of our new renew- able energy assets. We want to engage with key suppliers to promote the use of recycled and recyclable materials, particularly in high-impact categories like steel. 2 Operations and late-life strategies We strive to maximise the value of our compo- nents and assets. We investigate opportunities for repairing, refurbishing, and reusing key components to prolong their lifetime, and we aim to extend the operational lifetime of our wind farms by up to 10 years, beyond the expected lifetime. 3 Resource recovery and recycling Our ambition is to ensure that all materials, when they reach their end-of-life stage, can be effectively recovered and recycled into new supply chains. Negative impacts CRUCIAL 1 Use of virgin materials in our supply chain (VC) SIGNIFICANT 2 Waste generation during operation and decommissioning (OO) Risks 3 Availability of materials and components (VC) Our material impacts and risks 1 2 3 (OO) Own operations (VC) Value chain Sustainability statements | Environment ØRSTED ANNUAL REPORT 2023107 | ESRS E5 To support the promotion of circularity and waste management in our business, we have a resource management policy covering all Ørsted activities and locations. The objective of the policy is to address our aim of minimising the use of virgin resources and to provide the direction for sustainable sourcing of resources. Accountability for our circularity efforts lies with our Chief Operating Officer. 2023 actions During the year, we have taken significant steps by launching partnerships and initiatives for circularity and sustainable resource management, of which the most prominent are: 1 Design and supply chain · We have partnered with Vestas and pledged to procure a minimum of 25 % wind turbine towers produced using scrap steel for all joint future off- shore projects. These new towers will reduce the carbon footprint from offshore turbine towers with approximately 25 %. We have also pledged to pro- cure blades made from recycled materials at all future joint offshore wind farms, when commercially available. This new blade technology addresses the industry's biggest circularity challenge, namely the many blades in operation today that need to be recycled at their end of life. With this pledge, we help scale the technology further. · Our co-founded industry-wide recycling project DecomBlades has achieved a significant develop- ment by extracting and processing glass fibres from old wind turbine blades. The extracted fibres maintain a quality that enables their reuse in the manufacturing of new blades. This breakthrough represents a crucial step in mitigating our industry's largest waste problem and advancing towards a more sustainable and resource-efficient future. 2 Operations and late-life strategies · We have joined the Coalition for Wind Industry Cir- cularity (CWIC) to contribute to the establishment of a circular supply chain focused on reusing and refurbishing old wind turbine components. The ini- tiative aims to collaborate with industry peers and supply chain partners to develop capabilities for refurbishing and reusing wind turbine parts in the UK. Emphasising reuse and refurbishment can allevi- ate pressure on supply chains, decrease the carbon footprint of wind farms, and offer socio-economic benefits through the generation of new jobs. · We have formed a partnership with Renewable Parts, a specialist in supply chains and refurbishment within the wind energy industry. Through the optimi- sation of maintenance and parts supply, specifically by refurbishing our offshore wind turbines, our goal is to decrease costs, enhance availability levels of materials, and reduce the overall carbon footprint of wind farms. 3 Resource recovery and recycling · We have entered a partnership with SOLARCYCLE, a technology-based solar recycling company, to handle the processing and recycling of end-of-life solar modules sourced from our projects throughout the US. This collaboration not only helps us divert materials from landfills but also ensures the recov- ery of high-value materials crucial to the green energy transition. By reintroducing these materials into our supply chain, we are actively contributing to a more sustainable and circular approach to managing solar technology waste. · Our commitment to achieving 100 % reuse and recycling of solar panels within our US portfolio has now been expanded to encompass our entire global portfolio. By proactively making this commitment, we are laying the groundwork for the early develop- ment of capabilities and the maturation of recycling markets. · We have entered into a partnership with Plaswire in Northern Ireland with the aim of maturing recyling solutions for onshore wind farms. In a pilot project initiated at our onshore wind farms Owenreagh 1 and 2, three blades were recycled by shredding and remoulding their materials for the produc- tion of construction materials. Beyond material reutilisation, this partnership is supposed to gen- erate employment opportunities within the local communities. · In 2023, we were part of DNV's pilot programme ReWind, a digital tool designed to evaluate mate- rial breakdown and circularity rates in decom- missioned wind farms. We are confident that this industry-leading platform will assist us in accurately calculating the residual value of our assets and optimising the circularity of our projects. Future actions · Moving forward, we will start engaging our key suppliers on circularity as part of our procurement processes with the goal of incentivising more circu- lar methods in our supply chain. Acknowledging the complexity of circularity in the renewable energy industry, we will continue to seek out industry- wide and cross-sector collaborations to achieve increased circularity. · As described in the ‘Strategy and business’ section, we have ceased development of our offshore wind projects Ocean Wind 1 and 2 in the US. We are closely assessing whether and how components that have been fabricated for those projects can be reused or repurposed to preserve their material and financial value. This includes evaluating opportu- nities such as reusing components in other Ørsted projects, or selling them for reuse or refurbishment to our suppliers or other developers in the industry. Sustainable use of biomass Our approach and policies We are committed to sourcing sustainable wooden biomass verified by independent third-party bodies. Biomass plays an important role in the Danish energy system, delivering efficient energy with a remarkable yield of up to 90 % when integrated into district heat- ing. Furthermore, it serves as an alternative energy source during periods of suboptimal solar and wind conditions. While biomass is a renewable source, we recognise the need for responsible utilisation of bio- mass to ensure the preservation of its climate benefits. Our wooden biomass only originates from well- managed production forests with an ongoing refor- estation effort. We only procure wood pellets and chips from residues and low-grade wood, typically sourced from sawdust, regular forest thinning, har- vesting residues, or diseased trees. Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 2023108 | ESRS E5 [](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-resource-management)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-resource-management) With our biomass efforts, we adhere to the UNEP Convention on Biological Diversity, FOREST EUROPE, and relevant certification schemes (FSC®, PEFC, and SBP). We also intend to capture the biogenic carbon emissions from biomass incineration. Read more in the ‘Strategy and business’ section. ↑ At work at our hydrogen test facility in Avedøre, Denmark. 2023 actions · We operate five combined heat and power (CHP) plants fuelled by biomass, providing dis- trict heating and electricity to approximately 400,000 households. · In 2023, 94 % of our total biomass consumption came from wooden biomass, of which 100 % Targets We have a commitment to continue to use 100 % certified sustainable wooden biomass. We commit to either reuse, recycle, or recover all of the wind turbine blades in our global portfolio of onshore and offshore wind farms. Similarly, we commit to reuse or recycle all solar panels from our global portfolio of solar farms. was certified sustainable wooden biomass, inde- pendently verified by FSC®, PEFC, or SBP, ensuring the origin of the biomass on an annual basis. In addi- tion to the certification requirements, we maintain ongoing engagement with our biomass suppliers to ensure they align with our sustainability standards. · The remaining 6 % of our biomass came from residual straw sourced from Danish agriculture. While straw biomass lacks a specific certification scheme, our supplied straw is sourced as a waste product from local farms, preventing the disposal of the resource. Future actions In the future, we anticipate a reduction in our bio- mass usage as other renewable energy sources are expected to increase. Nevertheless, biomass will most likely continue to play a role in the Danish energy sys- tem, serving as a storable energy solution to comple- ment solar and wind, as well as being employed in P2X to produce renewable hydrogen. Responsible sourcing of minerals and metals Our renewable energy assets rely on various metals, including rare earth elements for wind turbine mag- nets, copper for transmission cables, and lithium for batteries. We have implemented activities to promote responsible supply chains for the key metals that fuel the renewable energy transition. For more information about our sourcing of minerals and metals, see section S2 on workers in the value chain. Ban on landfilling → Zero wind turbine blades to landfill → Zero solar panels to landfill Sustainability statements | EnvironmentØRSTED ANNUAL REPORT 2023109 | ESRS E5 The increase in hazardous waste from 2022 to 2023 was mainly due to increased amounts of sludge from the treatment of wastewater at the oil terminal in Fredericia in Denmark and oil waste from a change of oil products used during start-up at one of our CHP plants. The 36 % increase in non-hazardous waste was primar- ily due to increased ashes from the CHP plants. In 2023, two wind turbine blades were taken down and put in temporary storage for future recovery. We started to send some of the wind turbine blades from the temporary storage to recovery. Waste § Accounting policies Waste by type and disposal method The Global Reporting Initiative (GRI) Standards, disclosures 306-3, 306-4, and 306-5, have been used as guidance in developing the reported data points. Waste is generally reported on the basis of invoices received from waste recipients, sup- plemented with plant-specific measurement methods for commercial facilities, including construction activities. Part of the oil-contaminated wastewater from the North Sea oil pipeline has been treated as waste and therefore reported as waste and not wastewater. Waste treated at the Renescience plant, which converts household waste into biogas, recyclables, and waste fuel, is included as well as ashes from the combined heat and power (CHP) plants. Residual products, e.g. gypsum from the CHPs, which are not handled as waste but sold as products, are not included. Soil from excavation projects is not included. Wind turbine blades taken down include all blades taken down due to decommisioning, repowering, or malfunctioning during their operational lifetime. Data point Unit Target 2023 2022 Δ Hazardous waste Thousand tonnes 3 2 50 % Diverted from disposal 1 Thousand tonnes 1 1 0 % Directed to disposal 2 Thousand tonnes 2 1 100 % Non-hazardous waste Thousand tonnes 118 87 36 % Diverted from disposal 1 Thousand tonnes 101 64 58 % Directed to disposal 2 Thousand tonnes 17 23 (26 %) Total waste Thousand tonnes 121 89 36 % Diverted from disposal 1 % 84 72 12 %p Directed to disposal 2 % 16 28 (12 %p) Wind turbine blades taken down Number 2 12 (83 %) Of which, put in temporary storage Number 2 11 (82 %) Of which, directed to landfill Number 0 (ongoing) 3 0 1 (100 %) 1 Reuse, recycling, composting, and recovery. 2 Energy recovery, incineration, and landfill. 3 Effective from 2021, our target is to not landfill any wind turbine blades from our wind farms in operation and upon decommissioning. Total amount of waste diverted from disposal % 2023 2022 84 72 Sustainability statements | Environment ØRSTED ANNUAL REPORT 2023110 | ESRS E5 Social 112 ESRS S1 Own workforce 120 ESRS S2 Workers in the value chain 123 ESRS S3 Affected communities → We are dedicated to being an active partner in the communities where we develop, build, operate, and own renewable energy assets. For it to be a just transition, these communities need to play a part in shaping it and to share in the benefits it can generate – from jobs to economic opportunities and incentives. 111 Sustainability statementsØRSTED ANNUAL REPORT 2023 ESRS S1 Own workforce Human and labour rights Our approach and policies We see human rights as fundamental principles for protecting people's dignity and ensuring freedom and respect both in our own operations, in the companies we work with, and in the communities we are part of. Our commitment to upholding human rights, including labour rights and local communities' rights, is outlined in our sustainability commitment, global human rights policy, stakeholder engagement policy, just transition policy, and code of conduct for business partners. All our policies have been approved by the Board of Directors and are governed by our Sustainability Committee, chaired by the Chief Financial Officer. All employees, contractors, suppliers, and business partners, as well as the communities affected by our operations, are covered by the policies. We respect key international human and labour rights standards included in the International Bill of Human Rights and the International Labour Organization's (ILO) Declaration on Fundamental Principles and Rights at Work. Our policy on human rights explicitly highlights our dedication to ensuring freedom of asso- ciation, the right to collective bargaining, elimination of forced or compulsory labour, effective abolition of child labour, and elimination of discrimination in employment and occupation, among other critical issues. In our work with human rights, we are guided by the authoritative global frameworks, UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. We firmly believe that these principles are integral to fostering a just transition to green energy. Therefore, it is our priority to ensure that adequate management systems are in place to identify, prevent, mitigate, and remedy any potential adverse human rights impacts, whether they are related to our own workforce, value chain workers, or affected communities. In cases where we identify potential adverse human rights impacts, we are committed to promptly and effectively providing and enabling remedies. Our grievance and remediation approach includes addressing any adverse human rights impacts on individuals, workers, and communities that we have caused or contributed to. Furthermore, we are dedicated to safeguarding the labour conditions of our employees through social protection. This encompasses support for circum- stances such as sickness, unemployment, employment injury, parental leave, and retirement. Positive impacts SIGNIFICANT 1 Secure employment and flexible workplace for our employees 2 Diversity resulting in innovative thinking and approaches 3 Career progression through training and development 4 Recruiting and advancing women and under-represented groups, and working to ensure that they stay in Ørsted 5 Inclusive culture where people with disabilities can thrive Our material impacts and risks 3 2 14 5 112 Sustainability statements | Social ØRSTED ANNUAL REPORT 2023 | ESRS S1 [](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-sustainability-commitment)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-human-rights-policy)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-human-rights-policy)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-stakeholder-engagement)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-just-transition)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-just-transition)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-code-of-conduct-for-business-partners) We have established a global minimum standard of benefits for caregivers, irrespective of gender or marital status. In addition, we offer various other paid or unpaid family-related leaves, according to country provision and collective bargaining agreements, such as marriage leave, compassionate leave, childcare leave, and nursing care leave. We have a commitment to offer immediate assistance and financial security to employees facing severe illness, with a focus on facilitating a timely return to work. Aligned with local practices, our basic insurance for unemployment and disability ensures equitable com- pensation. Retirement benefits are incorporated in our overall remuneration package, and, unless local laws dictate otherwise, all employees are enrolled in a pension scheme through their employment at Ørsted. Actions · We actively monitor compliance with internationally recognised human rights standards by continuously collecting information and engaging with our business partners to ensure timely identification and remedy of potential violations. · We conduct regular human rights impact assess- ments of our own operations, supply chain, and projects. The assessments involve interviews with employees, document and policy reviews, and discussions with rightsholders, stakeholders, and experts. These assessments guide the development and implementation of mitigating action plans, and we continually monitor their progress. · To foster a sustainable, safe, and inclusive working environment where all employees can thrive, we are in the final stages of developing a new global labour and employment rights policy. This policy aims to enhance transparency for our employees by articulating our commitment to actively safeguarding labour, employment, and human rights standards within our own workforce. · We have launched a new internal global policy on parental leave with the purpose of supporting and including all types of family structures, irrespective of gender or marital status. Health and safety Our approach and policies At Ørsted, we prioritise and protect the physical, social, and psychological safety of everyone in the workplace. We believe that personal health and well- being are fundamental drivers for living a balanced life where people can realise their potential. There- fore, it is fundamental to our operations that we have a robust health and safety management system in place and that we foster a culture that promotes our employees' health and safety. We have established a policy for quality, health, safety, and environment (QHSE), setting the standards for how we protect and ensure the well-being of our employees and the sustainability of our operations. The policy covers all our employees and facilities, with account- ability lying with our Head of QHSE. We aim to incor- porate quality, health, safety, and environment in all our decisions and actions, and we have implemented workplace accident prevention procedures to ensure the safety and well-being of our employees. We comply with various ISO standards, including ISO 9001 (quality management system), 14001 (environmental management system), and 45001 (occupational health and safety management system), to maintain a robust management system that aligns with international best practices. Additionally, we have an internal policy on mental well-being for all employees, with a focus on en- hancing the mental well-being of our workforce, mitigating mental strain, such as work-related stress and anxiety, and providing guidance to employees and leaders on addressing these concerns. We have a range of support systems and offer our employees a health insurance, including access to psychologists and other mental health professionals and crisis counsellors as well as support on topics such as stress, relationships, family issues, and lifestyle management. Accountability for our well-being lies with the Chief Human Resources Officer. Actions · We are continuously working to preserve our robust health and safety record while expanding our business activities. This entails continuing preventive and mitigating efforts such as safety days, internal audits, inspections, personal risk dialogues, emergency drills, and safety trainings. · To foster a workplace where everyone feels em- powered to voice their thoughts, share innovative ideas, and express themselves freely, we have launched a series of dynamic psychological safety workshops. The objective of these workshops is to cultivate a shared understanding and provide practical techniques for nurturing psychological safety, with the ultimate goal of fostering an open, creative, and inclusive culture. · We continue to explore approaches to support our employees in leading fulfilling lives, both within and outside the workplace. This includes promoting greater flexibility in working conditions, employee benefits, revaluating expectations regarding the definition of a typical workweek, and upgrading office facilities. · We have rolled out a Fitness & Health for Frontliners project, which is an initiative designed to enhance the physical well-being of our workforce, boost their work ability, and proactively manage issues such as musculoskeletal concerns. The project includes a fitness testing protocol, upgrades to our on-site training facilities, the introduction of tailored physical exercise programmes, and optimisation of physical demands and ergonomics. Diversity and inclusion Our approach and policies At Ørsted, we recognise that diversity drives innovation and is essential for a thriving workplace. To support this, we have established a global diversity and inclu- sion policy covering all Ørsted employees, including executive and managerial positions, and with account- ability lying with our Chief Human Resources Officer. The policy is centred on three key pillars: 1 Providing equal opportunities for all employees, emphasising recognition and respect for all individuals. 113 Sustainability statements | SocialØRSTED ANNUAL REPORT 2023 | ESRS S1 [](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-qhse)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-qhse)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-global-diversity-inclusion-and-non-discrimination-policies)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-global-diversity-inclusion-and-non-discrimination-policies) 2 Acknowledging that diversity and inclusion are essential for our success in the global market. 3 Aspiring to make Ørsted a positive force for social sustainability across all our locations. We aim to create an inclusive environment at all mana- gerial levels to attract and retain talented people from all backgrounds and cultures. We are dedicated to offer- ing equal opportunities regardless of ethnic background, race, religion, age, gender, disability, sexual orientation, outlook, or social status. For all employees across Ørsted, we have set an ambition of having an equal gender distribution by 2030, i.e. at least 40 % women and 60 % men. We are committed to diversity in top management, and we are working towards increasing the share of women in executive and managerial positions through talent programmes and leadership training. We have also established an internal policy on bullying, discrimination, and harassment outlining our commit- ment to providing an inclusive working environment with equal opportunities. Accountability for this policy lies with our Chief Human Resources Officer. Together, our policies describe commitments related to initiatives for people from vulnerable groups, such as inclusive recruitment and promotion, coaching, mentoring, and sponsorships. We adopted the UN's LGBTI Standards of Conduct for Business in 2018, and we aim to support equal rights for the LGBTQ+ community. Actions · We have introduced an internal ‘global accessibility toolkit’ to assist employees and people leaders in enhancing the accessibility of our workplace for everyone. This toolkit offers guidance on physical accessibility, technology accessibility, and everyday behaviours that foster an inclusive environment for employees with disabilities. · We have continued working towards increasing the share of women in executive and managerial posi- tions through targeted development programmes for female talents and our ‘Female Spotlight Initi- ative’, which prepares talented women for senior leadership positions. · We have implemented a new training programme that educates participants on creating an equitable and inclusive workplace. This programme includes quarterly trainings and a self-learning platform for continuous development. · We have continued our work with Ørsted IN, a global hub for our inclusion networks with dedicated chan- nels for anyone identifying with a specific group or serving as an ally supporting equality and inclusion. These networks provide psychologically safe com- munities for members to share ideas, seek advice, and learn about inclusion of diversity. Current active networks include Race and Ethnicity IN, Gender IN, Disability IN, LGBTQ+ IN, and 50\+ IN, each working towards fostering inclusivity within Ørsted. · We are committed to equal pay and have a constant focus on ensuring equal pay for equal positions and competences when hiring or promot- ing employees. To raise awareness, we conduct an annual gender pay gap report for all the countries where we operate with more than 250 employees. For more information, please see table ‘Gender pay gap‘ on page 118. Training and skills Our approach and policies At Ørsted, we are committed to cultivating and ex- panding a skilled workforce that can drive the global green energy transition. We firmly believe that for employees to thrive, perform effectively, and experi- ence growth, it is essential for them to comprehend their role within the organisation and be aware of future opportunities that may arise. We believe that we learn most effectively from expe- rience and through interactions with other people. In Ørsted, we have implemented the 70:20:10 learning model, meaning that approximately 70 % of our learning and development comes from experience, 20 % comes from working with others, and 10 % comes from training. Actions · We are working on enhancing Ørsted's career pathways to empower employees to take owner- ship of their career progression, supported by their leaders. Our goal is to facilitate competence growth and ensure fair access to career develop- ment opportunities. · We have implemented a global career map designed to assist employees in driving their own development by outlining pathways for career ful- filment. This map also serves as a shared framework for discussing aspirations with people leaders. · We have hosted career pathway webinars for employees and people leaders. These sessions aim to encourage better ownership of career develop- ment by utilising various tools, such as career cards. These cards contain descriptions of the generic key competences required in each job, aiding employees in comparing roles across Ørsted. · To live out our 70:20:10 learning model, we offer and encourage our employees to use a variety of solu- tions, including catalogues and tools for on-the-job learning, mentoring programmes, knowledge sharing, courses, workshops, e-learnings, and much more. Engaging with our own workforce We are committed to creating a culture where everyone feels psychologically safe to voice important matters. This includes encouragement to freely express views, also to colleagues in higher hierarchical positions. To support this, we conduct an annual People Matter (satisfaction and motivation) survey globally, providing insights into employees' perceptions of Ørsted as a workplace, daily work experiences, relationships with people leaders and senior management, and other fac- tors impacting their working life. Survey results serve as a valuable foundation for initiating dialogue and identifying actions to further improve our workplace. Additionally, we have established an easily accessible site on our company intranet that outlines various options for employee representation on both global and local levels. These include alternative channels for employees to voice their opinions, such as HR business partners, reporting systems, a whistleblower hotline, works councils, employment relations repre- sentatives, and personal development dialogues. 114 Sustainability statements | SocialØRSTED ANNUAL REPORT 2023 | ESRS S1 Remediation and channels to raise concerns Access to remedy helps ensure fairness, justice, and protection for individuals and communities. It allows people to seek recourse and find a solution when they believe that their rights have been violated, pro- moting a more equitable and fairer workplace. If any employee feels they have experienced an instance of bullying, discrimination, or harassment, they are encouraged to seek support. Employees can also make an official report to their HR contact or utilise Ørsted´s global whistleblower hotline. For more infor- mation on our whistleblower hotline and how we pro- tect whistleblowers against retaliation, see section G1 on business conduct. We take proactive steps to ensure that our employees are aware of and reminded about the grievance mech- anisms available. This awareness is built into various aspects of our employee experience, including: · Code of conduct training: As part of our training programme, we include specific modules on our grievance and complaints handling policy. · Internal information campaigns: We regularly communicate with our employees through various internal channels, including emails, newsletters, and our intranet, to remind them about the availability of grievance channels and encour- age their use. We are dedicated to ensuring that our employees not only have access to these channels but also have the knowledge, confidence, and psychological safety to utilise them when necessary. Ørsted as an organi- sation has the responsibility to take all reported cases seriously and provide fair outcomes for investigated cases that take all parties' needs into consideration. We also maintain secure and confidential records of reports and outcomes. Gender balance people leaders %, women/men 2030 33/67 40/60 31/69 2023 2022 Senior directors and above %, women/men 2030 22/78 40/60 22/78 2023 2022 Targets Gender balance total workforce %, women/men 2030 34/66 40/60 33/67 2023 2022 Employee satisfaction in top 25 % compared to external benchmark group (Index 0-100) Ørsted Ennova benchmark top 25 % Ennova benchmark 20222021 20232022 20252023 Total recordable injury rate (TRIR) Injuries per million hours worked 8 6 4 2 0 100 75 50 25 0 2.5 3.1 2.8 77/76/74 76/77/74 76/76/73 115 Sustainability statements | Social ØRSTED ANNUAL REPORT 2023 | ESRS S1 People Data point Unit Target 2023 2022 Δ Number of employees Total number of employees (as of 31 December) FTEs 8,905 8,027 11 % Denmark FTEs 4,354 4,220 3 % The UK FTEs 1,311 1,253 5 % The US FTEs 746 643 16 % Malaysia FTEs 769 574 34 % Poland FTEs 776 519 50 % Germany FTEs 385 331 16 % Taiwan FTEs 193 185 4 % Other FTEs 371 1 302 23 % Average number of employees during the year FTEs 8,666 7,428 17 % Sickness absence % 2.1 2.2 (0.1 %p) Turnover Total employee turnover rate % 9.6 11.7 (2.1 %p) Voluntary employee turnover rate % 7.2 8.8 (1.6 %p) Employee satisfaction survey results Employee satisfaction Index 0-100 Top 25 % 2 76 76 0 Employee loyalty Index 0-100 84 85 (1) Employees experiencing stress % 13.7 13.5 0.2 %p Employees experiencing bullying, harassment, threats, or violence % 2.7 2.5 0.2 %p 1 FTE distribution in other countries in 2023: the Netherlands (114), Ireland (105), France (70), Singapore (22), Korea (21), Japan (19), Sweden (11), and Spain (9). 2 Our target is to have an employee satisfaction survey result in the top 25 percentile compared to an external benchmark group. § Accounting policies Number of employees Employee data is recognised based on records from the Group's ordinary registration systems. The number of employees is determined as the number of employees at the end of each month converted to full-time equivalents (FTEs). Employees who have been made redundant are recognised until the expiry of their notice period, regardless of whether they have been released from all or some of their duties during their notice period. Sickness absence Sickness absence is calculated as the ratio between the number of sick days and the planned number of annual working days. Turnover The employee turnover rate is calculated as the number of permanent employees who have left the company relative to the average number of permanent employees in the financial year. Employee satisfaction survey results Ørsted conducts a comprehensive employee satisfaction survey once a year. With a few exceptions, all Ørsted employees are invited to participate in the survey. The following employees are omitted from the survey results: employees who joined the company shortly before the employee satisfaction survey, employees who resigned shortly after the employee satisfaction survey, interns, consultants, advisors, and external temporary workers who do not have an employment contract with Ørsted. The number of employees was 11 % higher at the end of 2023 compared to 2022\. The main contributors to the absolute increase in number of full-time equivalents (FTEs) were Poland, Malaysia, Denmark, and the US. Ørsted's total turnover rate decreased by 2.1 percent- age points to 9.6 % in 2023\. The voluntary turnover rate decreased by 1.6 percentage points to 7.2 % in 2023. The score for employee satisfaction in the yearly employee survey was 76, which is at the same level as last year. The score is above the Ennova benchmark of 73, and in line with our Ennova benchmark top 25 % target. 116 Sustainability statements | SocialØRSTED ANNUAL REPORT 2023 | ESRS S1 Group Executive Team and Board of Directors 1 CEO pay ratio based on awarded remuneration. More details on CEO pay ratio based on awarded (and expensed) remuneration can be found in the remuneration report 2023. 2 For more information on the remuneration of the Group Executive Team and Board of Directors, see note 2.7 ‘Employee costs‘ in the financial statements. 3 Our Executive Board has ESG targets related to our CDP climate score, GHG emissions intensity (scope 1 and 2), employee satisfaction, gender diversity targets, and safety (TRIR). You can find more details in our remuneration report 2023 and in the ‘Corporate Governance’ section. § Accounting policies Average seniority Average seniority is calculated as the average number of years the Group Executive Team (GET) members have been part of the GET. Remuneration The CEO pay ratio is calculated as the ratio between the CEO's total awarded remunera- tion (fixed salary, including personal benefits, such as a company car, free telephone, etc., a variable salary, and share-based payment at grant value) and the average FTE salary. The remuneration of the GET is the total remuneration of the Executive Board and the other members of the GET. Board of Directors In this section, the Board of Directors only covers the members elected at the annual general meeting (AGM), with the exception of remuneration for the Board of Directors, which also includes members elected by the employees. For independents, we follow the Recommen\- dations on Corporate Governance. Gender with lowest representation is reported under ‘Gender diversity’. Pursuant to Section 99b of the Danish Financial Statements Act, the table above reports the number of individuals and gender composition in the three highest management levels. The parent company Ørsted A/S falls below the employee threshold of 50 employees. For information on policies and actions taken on diversity in the Ørsted Group please see page 113. Board of Directors Members Number 8 8 0 Danish Number 3 4 (1) Non-Danish Number 5 4 1 Average age Years 61 63 (2) Average seniority Years 4 5 (1) Independent board members % 88 88 0 %p Board meetings Number 16 13 3 Attendance % 94 96 (2 %p) Remuneration of the Board of Directors 2 DKK thousand 6,907 6,807 1 % Nomination & Remuneration Committee Members Number 3 3 0 Meetings Number 3 6 (3) Attendance % 100 89 11 %p Audit & Risk Committee Members Number 3 3 0 Meetings Number 10 8 2 Attendance % 100 96 4 %p Overview regarding gender diversity pursuant to Section 99b of the Danish Financial Statements Act 2023 The Board of Directors Total number of members elected by the general meeting 8 Underrepresented gender (percentage) 37.5 % Target (percentage) and year to meet target — no target as Ørsted A/S has equal representation on the Board of Directors - Other managerial levels — the Executive Board and people managers employed by Ørsted A/S reporting to the Executive Board Total number of members 3 Underrepresented gender 33.3 % Target (percentage) and year to meet target — no target. In the recent financial year, Ørsted A/S had an average number of full-time employees below 50. Furthermore, Ørsted A/S has equal representation on “other managerial levels”. - Data point Unit 2023 2022 Δ Group Executive Team Members Number 10 11 (1) Danish Number 6 7 (1) Non-Danish Number 4 4 0 Average age Years 50 48 2 Average seniority Years 1 1 0 CEO pay ratio 1 Ratio 21 27 (22 %) Remuneration of the Group Executive Team 2 DKK million 134 103 30 % Incentivised pay directly ascribed to ESG targets 3 % 30 30 0 %p 117 Sustainability statements | Social ØRSTED ANNUAL REPORT 2023 | ESRS S1 Gender diversity and pay gap Data point Unit Target 2023 2022 Δ Board of Directors, Ørsted A/S, members Number 8 8 0 % Gender with lowest representation (female) % 38 38 0 % p Group Executive Team, members Number 10 11 (9 %) Gender with lowest representation (female) % 30 27 3 %p Senior directors and above Number 175 170 3 % Gender with lowest representation (female) % 40 (2030) 22 22 0 %p People leaders Number 1,053 938 12 % Gender with lowest representation (female) % 40 (2030) 33 31 2 %p All employees Number 8,905 8,027 11 % Gender with lowest representation (female) % 40 (2030) 34 33 1 %p § Accounting policies Board of Directors Consists of members elected at the annual general meeting. Board members elected by the employees are not included in the data. Group Executive Team (GET) Consists of the CEO, CFO, Chief HR Officer, CEOs of Region Europe, Region Americas, and Region APAC, Head of Strategy, Innovation, Portfolio, Partnerships & M&A, Head of P2X, Head of EPCO & IT, Head of Legal, and Head of Global Stakeholder Relations. Senior directors and above Consists of the GET, our senior vice presidents, our vice presidents, and our senior directors. People leaders People leaders are defined as all people with direct reports (responsibilities for staff). All employees All employees by gender represent the gender distribution of the total workforce in Ørsted. The reporting covers contractually employed employees in all Ørsted companies. The num- ber of employees is determined as the number of employees at the end of the financial year converted to full-time equivalents. Gender pay Our gender pay reporting is inspired by the mandatory gender pay reporting requirements in the UK. Countries with more than 250 FTEs per country are included in the statement. The salaries are reviewed annually and come into effect on 1 June. Countries with more than 250 FTEs on that day are included in the year's reporting. The gender pay gap shows the pay gap between men and women without adjusting for other factors impacting pay levels (e.g. career level and work experience). Definitions Gender pay gap: The difference between the average earnings of women and men expressed as a percentage. Gender bonus pay gap: The difference between the average bonus payments of women and men expressed as a percentage. Gender bonus distribution: The percentage of men and women in the workforce who receive bonuses. We have equal representation for our Board of Directors. We have a gender diversity target of at least 40 % women across Ørsted by 2030. The target is tracked at three levels: senior directors and above, people leaders, and all employees. We are committed to equal pay and have a constant focus on ensuring equal pay for equal positions and competences in relation to all aspects of the salary- relevant processes from hiring to promotion. The presented 2023 gender pay data is based on data from Denmark (54 %), Germany (5 %), Malaysia (9 %), Poland (8%), the UK (16 %), and the US (8 %). The median gender pay gap remains unchanged in 2023 compared to 2022, while the bonus pay gap has increased by 3 percentage points compared to 2022. Both the proportion of women and men receiving bonus increased by 5 percentage points to 30 % and 33 %, respectively, in 2023. The differences in pay and bonus between men and women are highly impacted by differences in gender mix across levels in the organisation, where there is a trend towards the share of women not increasing at the same pace in the higher-level leadership positions as we see in the remaining part of the organisation. Gender pay gap Gender pay gap, median % 10 10 0 %p Gender bonus pay gap, median % 34 31 3 %p Gender bonus distribution Proportion of women receiving bonus % 30 25 5 %p Proportion of men receiving bonus % 33 28 5 %p 118 Sustainability statements | Social ØRSTED ANNUAL REPORT 2023 | ESRS S1 Safety Data point Unit Target 2023 2022 Δ Total recordable injuries (TRIs) Number 73 78 (6 %) Own employees Number 23 26 (12 %) Contractor employees Number 50 52 (4 %) Lost-time injuries (LTIs) Number 36 40 (10 %) Own employees Number 12 16 (25 %) Contractor employees Number 24 24 0 % Hours worked Million hours worked 25.8 24.8 4 % Own employees Million hours worked 14.5 12.3 18 % Contractor employees Million hours worked 11.3 12.5 (10 %) Total recordable injury rate (TRIR) Injuries per million hours worked 2.5 (2025) 2.8 3.1 (10 %) Own employees Injuries per million hours worked 1.6 2.1 (24 %) Contractor employees Injuries per million hours worked 4.4 4.2 5 % Lost-time injury frequency (LTIF) Injuries per million hours worked 1.4 1.6 (13 %) Own employees Injuries per million hours worked 0.8 1.3 (38 %) Contractor employees Injuries per million hours worked 2.1 1.9 11 % Fatalities Number 0 0 0 % Permanent disability cases Number 0 0 0 % § Accounting policies The scoping and consolidation of safety data deviate from our general basis for preparation. This means that irrespective of our owner- ship share, we include 100 % of injuries, hours worked, etc. from all operations where Ørsted is responsible for HSE safety, including the safety of our contractors. The lost-time injury frequency (LTIF) is cal- culated as the number of lost-time injuries per one million hours worked. The number of hours worked is based on 1,667 working hours annually per full-time equivalent and monthly records of the number of employees converted into full-time equivalents. For suppliers, the actual number of hours worked is recognised on the basis of data provided by the suppliers, access control systems at locations, or esti- mates. LTIF includes lost-time injuries defined as injuries that result in an incapacity to work for one or more calendar days in addition to the day of the incident. Total recordable injury rate (TRIR) is calculated in the same way as LTIF, but in addition to lost- time injuries, TRIR also includes injuries where the injured person is able to perform restricted work the day after the accident as well as inju- ries where the injured person has received medi- cal treatment. Permanent disability cases are injuries resulting in irreversible damage with permanent impair- ment which is not expected to improve. Fatalities are the number of employees who lost their lives as a result of a work-related incident. Fatalities are included in both LTIs and TRIs. Both safety injury rates (TRIR and LTIF) were reduced in 2023 compared to 2022. In 2023, our total number of recordable injuries was reduced by five injuries: three injuries among own employees and two injuries among contractor employees. The total number of lost-time injuries (LTIs) decreased by four injuries, all among own employees. The total amount of hours worked in 2023 was 4 % higher than in 2022. Consequently, the total recordable injury rate (TRIR) was 2.8, which was 10 % lower than in 2022. The lost-time injury frequency (LTIF) was 1.4 in 2023, which was 13 % lower than in 2022. To ensure the health and safety of our employees and contractors, we continue to constantly monitor our safety performance and implement relevant and effective actions where and when needed. 119 Sustainability statements | SocialØRSTED ANNUAL REPORT 2023 | ESRS S1 ESRS S2 Workers in the value chain Human and labour rights Our approach and policies The green energy build-out impacts the lives of many, including people working across renewable energy supply chains. To support a just energy transition, we expect the companies we work with to run their business and supply chains in compliance with national laws and with respect for international labour and human rights standards. We need to make sure that we respect labour and human rights in everything we do and that we reduce the risk of people in our value chain being adversely impacted. At Ørsted, we want to support a just transition through the creation of decent jobs in the renewable energy industry. This means jobs providing employees with decent wages, secure employment, safe working conditions, and a working environment where they are free to express their concerns and their right to organ- ise in trade unions is protected. Our commitment to upholding human rights, including labour rights, is outlined in our sustainability com- mitment, global human rights policy, stakeholder engagement policy, just transition policy, and code of conduct for business partners. For more informa- tion on our policies and how they address human and labour rights impacts, see section S1 on our own work- force. For more information on our code of conduct, see section G1 on business conduct. Actions We aim at contributing to the creation of decent jobs in the renewable energy sector through our workforce development programmes and active engagement with value chain workers and trade unions. To take care of our value chain workers, we carry out a variety of actions and initiatives: · We are collaborating with industry partners, asso- ciations, and unions to define quality standards for offshore wind jobs, creating opportunities for skilled workers and building an open, accessible sector. · We are actively involved in preparing workers for the demands of the industry. This involves training programmes for wind turbine technicians and apprenticeships targeted at young and seasoned professionals, with the goal of ensuring that they meet the highest standards for renewable energy development. Negative impacts SIGNIFICANT 1 Excessive working hours for supply chain workers 2 Forced labour, e.g. debt bondage and withholding of passports Risks 3 Suppliers' breach of contractual agreements on human rights commitments Our material impacts and risks 1 2 3 120 Sustainability statements | Social ØRSTED ANNUAL REPORT 2023 | ESRS S2 · To reinforce the monitoring of supplier performance, we have conducted human rights training with a focus on bullying, discrimination, and harassment for our Marine Inspection Team and expect to per- form similar trainings for our QHSE site represent- atives going forward. These teams have frequent on-site presence during the execution of contracts with our suppliers. · We have continued our work with industry peers to improve the rights and welfare of migrant workers in our supply chains, which is central to responsible business conduct and a just transition. As a first step, the companies drafted a set of principles and guidelines in consultation with suppliers and civil society organisations. The aim is to improve accom- modation and transport for migrant workers, drive the employer pays principle, and implement effec- tive grievance mechanisms. The next step is to pilot the principles and guidelines in fabrication yards in Singapore. · We have initiated a Respectful Working Environment campaign aimed at strategic vessel suppliers, with the aim of mitigating the risk of bullying and harassment in our offshore logistics supply chain. A key element of the campaign is to guide our suppliers on how to prevent, mitigate, and manage cases of bullying, discrimination, and harassment on board our con- tracted vessels. The format of the campaign not only raises awareness but also ensures that our offshore logistics suppliers are equipped with the necessary policies and procedures to foster a safe and respectful working environment for all crew members. Responsible sourcing of minerals and metals Our approach and policies Our renewable energy assets are dependent on metals, including rare earth elements for wind turbine magnets, copper for transportation cables, and lith- ium for batteries. A significant share of these metals is mined in countries where the likelihood of adverse impacts on human and labour rights is high, and we must therefore do everything we can to avoid harmful effects. Therefore, we have a specific focus on striving to respect and protect the rights of workers and communities involved in the minerals and metals supply chain. Our efforts within sourcing of minerals and metals focus on the responsible supply chain of metals, acknowledging the challenges inherent in the mining industry's long and complex supply chains. We focus on ten key metals with the highest risk of adverse social and environmental impacts, operating through three strategic pillars: 1 Supplier engagement We work closely with key suppliers, aligning with the OECD due diligence guidance on responsible mining. This involves assessing suppliers' manage- ment systems and supply chain risks and imple- menting response strategies. 2 Supply chain transparency Addressing the challenge of transparency, we collaborate with first-tier suppliers and industry partners, exploring technological solutions to enhance traceability of supply chains for metals. 3 Industry partnerships Engaging with multi-stakeholder initiatives such as the Initiative for Responsible Mining Assurance (IRMA) and the International Responsible Business Conduct (IRBC) Agreement for the Renewable Energy Sector, we leverage partnerships to work on shared solutions to industry-wide impacts and risks. Actions In 2023, we continued our engagement with suppliers and industry associations, reinforcing our efforts of mapping our supply chains and enhancing our influ- ence to mitigate social and environmental risks within our minerals and metals supply chain. Key initiatives include: 1 Continued engagement with IRMA Building on our membership since the end of 2022 as the first renewable energy company, we actively participated in the Buyers Group alongside leaders in the automotive, electronics, and gemstone indus- tries. This collaborative effort aims to collectively promote responsible supply chains of minerals and metals and advocate for ethical mining practices. 2 Advancements in transparency We have started a pilot project applying block- chain technology to enhance the transparency of copper usage at one of our UK wind farms. Also, we have agreed with a supplier to initiate reporting on the origin of steel used in foundations for upcoming projects, a significant step towards increased transparency. 3 Signing the IRBC for the Renewable Energy Sector We joined forces with other wind developers, industry partners, civil society, and governmental stakeholders to address and mitigate risks and impacts on people and the environment in the operations and supply chains of the renewable energy sector. The aim of the agreement is to promote international responsible business conduct (IRBC), including collaborating with trade unions to address impacts on workers in our minerals and metals supply chain. As part of our ongoing commitment to transparency and accountability, we plan to evaluate the results of our blockchain pilot in 2024, exploring potential applications to other suppliers and metals. Moving forward, we will also explore the reporting of the origin of steel for foundations and wind turbines with selected suppliers. 121 Sustainability statements | SocialØRSTED ANNUAL REPORT 2023 | ESRS S2 Engaging with value chain workers In our regular supplier assessments, we actively engage with supply chain workers to obtain insights into labour conditions and the implementation of specific suppliers' management systems. As the pri- mary form of engagement, we conduct worker inter- views during on-site assessments. These assessments are performed for selected high-risk suppliers with a high presence of manual labour and are conducted through our regular supplier assessments, described in section G1 on business conduct. Through these interviews, we strive to gain insights into the perspectives of workers who may be parti- cularly vulnerable and marginalised, e.g. migrant workers and minorities. These interviews inform our ongoing collaboration with suppliers, guiding poten- tial improvement activities that the supplier must work to implement in close partnership with Ørsted. We maintain a strong collaboration with trade unions and civic and non-governmental organisations in the regions where we operate, aiming to foster a diverse and inclusive workforce throughout our value chain. An example is our landmark project labour agreement with North America's Building Trades Unions (NABTU) – the National Offshore Wind Agreement (NOWA). Through NOWA, we have implemented diversity targets, local training programmes, and performance monitoring for workforce diversity across all of Ørsted's contractors and subcontractors involved in offshore wind farm construction in the US. This agree- ment also establishes project-specific workforce equity committees, which prioritise the recruitment and retention of individuals from communities of colour, women, gender-nonconforming individuals, and local environmental justice communities. Remediation and channels to raise concerns Our approach to addressing concerns and grievances within our value chain is built on the principles of transparency, trust, and effective remediation that is proportionate to the grievance that has occurred. We are committed and continuously work to strengthen our processes for providing or helping to provide appropriate remediation to harmed workers in situa- tions where we have identified that we have caused or contributed to a negative impact. Furthermore, through our code of conduct for business partners, we set clear expectations to our suppliers, emphasising the establishment of accessible grievance mechanisms for workers, rightsholders, and stakehold- ers. During our supplier due diligence procedure, we assess suppliers' management systems with a specific focus on their ability to meet these requirements. In cases where we identify shortcomings, we collaborate with our suppliers to develop improvement plans. Additionally, workers in the supply chain have free access to and are encouraged to make use of the Ørsted whistleblower hotline to confidentially report any inappropriate or illegal conduct. For more informa- tion on our code of conduct, whistleblower hotline, and how we protect whistleblowers against retalia- tion, see section G1 on business conduct. ↑ On board our service operation vessel Wind of Change. 122 Sustainability statements | SocialØRSTED ANNUAL REPORT 2023 | ESRS S2 (OO) Own operations (VC) Value chain ESRS S3 Affected communities Communities' rights Our approach and policies To succeed in creating a world that runs entirely on green energy, we must ensure an energy build-out that brings benefits to people and local communities while avoiding or mitigating any potential adverse social or human rights impacts. Accordingly, we acknowledge that the success of our business also relies on meaningful engagement with affected com- munities to foster local support and collaboration. By engaging communities in our projects and building them while being mindful of social impacts, we gain valuable insights into community needs, priorities, and local knowledge. These insights help ensure that our projects are not only environmentally sustainable but also socially sustainable. Our approach to managing our impacts on affected communities aims to avoid, mitigate, and remedy neg- ative impacts and to create lasting positive impacts for affected communities. A key element of our approach is the recognition that our social impacts go beyond local content. We aim for positive impacts for affected communities to also materialise through biodiversity actions and local decarbonisation efforts, improving local air quality and public health. We believe the industry should define a framework to measure what a people-positive project looks like, and we are currently taking the lead to achieve this. Our social value creation for affected communities cen- tres on providing job opportunities and fostering skills development, innovation, and local supply chain growth. Due to our ambition to deliver a just and equitable tran- sition, we are also actively exploring how to increase the participation and inclusion of especially disadvantaged groups in our engagement and benefit-sharing actions. Additionally, we are exploring deeper ways of strength- ening community engagement, for example by offering co-ownership of our assets. Our commitment to uphold human rights of everyone and engage with communities is outlined in our sus- tainability commitment, global human rights policy, stakeholder engagement policy, just transition policy, and code of conduct for business partners. For more information on our policies and how they address human rights impacts, see section S1 on our own work- force. For more information on our code of conduct, see section G1 on business conduct. Positive impacts CRUCIAL 1 Local jobs and educational opportunities (OO) SIGNIFICANT 2 Biodiversity restoration work replenishing local fisheries' stock and land-based biodiversity (OO) Negative impacts SIGNIFICANT 3 Indigenous rights may be disrespected in the development stage of our renewable energy assets (OO) 4 Indigenous rights may be disrespected by suppliers in our value chain (VC), potential impact 5 Air, water, and soil pollution may pose a danger to local communities' health (VC), potential impact Risks 6 Balancing the global pace for deployment of renewable energy with local community interests and concerns (OO) 7 Consent of Indigenous communities (OO) Our material impacts and risks 1 2 4 5 6 3 7 123 Sustainability statements | Social ØRSTED ANNUAL REPORT 2023 | ESRS S3 Specifically, our code of conduct and policies on human rights and stakeholder engagement highlight our dedication to: · respecting Indigenous Peoples, minorities, and other vulnerable groups in line with international law and standards as described in the UN Declaration on the Rights of Indigenous Peoples, including the princi- ples of free, prior, and informed consent (FPIC) · respecting land rights of legitimate tenure rights holders as set out in the UN Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests · ensuring the safety and protection of human rights, environmental, or Indigenous defenders · engaging in early dialogue with local communities to understand their perspectives on our projects and the local impacts · mandating that our business partners take meas- ures to protect environmental and human rights defenders and other interested parties who lawfully exercise their freedom of speech. Actions We strive to construct projects with minimal negative impact on communities. Our current initiatives lay the foundation for integrating this approach across our business functions, markets, and asset projects. We work to go above the minimum regulatory require- ments, believing that these actions are essential for securing and sustaining the social licence necessary for advancing renewable energy development. To take care of affected communities, we have imple- mented a variety of actions and initiatives: Internal integration of standardised processes for monitoring and managing potential adverse human rights and social impacts We are working towards establishing a consistent approach across our company for assessing and addressing human rights risks concerning local com- munities throughout the entire lifespan of a renewable energy project. Our initial focus involves the develop- ment and implementation of a global framework, comprised of three tools: 1 Social and human rights impact assessments We have initiated the development of global guid- ance for asset-level social and human rights impact assessments. The purpose of the guidance is to create a standardised approach for conducting assessments before the construction of every new project, identifying and addressing potential human rights and social risks. 2 Company-wide framework for managing community-level grievances We have initiated the development of a global standard for community feedback and grievance management. This will facilitate systematic tracking and response to community feedback and griev- ances and help us prevent or mitigate material nega- tive impacts throughout the life cycle of an asset. 3 Internal community engagement guidelines We are developing corporate-level guidelines to serve as a universal reference for adhering to international best practice standards on community engagement. Emphasising principles such as free, prior, and informed consent (FPIC), these guidelines will have the aim of ensuring our commitment to ethical and respectful engagement, especially with Indigenous Peoples. Creating positive impact · We continued to work towards further increasing our positive social impacts on local socio-economic development, equity and inclusion, environmental sustainability, and community empowerment through initiatives such as apprenticeship programmes, com- munity benefit funds, local supplier development, sponsorships, and partnerships. · An example is our efforts in Korea, where we are developing co-prosperity programmes for the Incheon and Ongjin County communities after extensive consultation with affected stakeholders. The programmes will guide our relationship with the local communities going forward and include com- mitments to create a profit-sharing scheme with the local communities. They also include commitments to improve island community well-being by creat- ing new business opportunities and promoting wind farm tourism as an additional source of livelihood. Communicating our impacts · Pursuant to the UK Modern Slavery Act, we release a modern slavery act statement on an annual basis, addressing our modern slavery, human trafficking, and other human rights risks. Developing impact strategy and targets · We have initiated a new partnership with the Haas School of Business at the University of California, Berkeley, focusing on defining the foundational elements for measuring the people-positivity of renewable energy projects. Engaging with affected communities We acknowledge the importance of engaging with affected communities to understand and address actual and potential impacts on them. Engagement occurs at various stages of the project development, construction, and operation through community liaison officers and project staff, employing different types and frequencies of interaction, such as public meetings and consultations, ensuring a dynamic and responsive approach to community needs. Our engagement approach is responsive to local social contexts, tailored to specific projects and areas. Our community liaison officers often come from the communities we engage with, helping us gain a profound understanding of the local contexts. When we develop new energy projects, we consider it our responsibility to assess the impact on local communities, and we consistently adhere to local regulations and guidelines in order to evaluate these projects' effects on the communities in which they are constructed. Therefore, we engage in early dialogue with local stakeholders to understand their perspec- tives on the project and its local impact. 124 Sustainability statements | SocialØRSTED ANNUAL REPORT 2023 | ESRS S3 After due consideration of the expectations and opportunities within our project's area of operations, we will assess and implement community initiatives in compliance with applicable laws and tender rules. We recognise the importance of gaining insight into the perspectives of vulnerable or marginalised com- munities. We have actively engaged with Indigenous communities in connection with projects both in the US and Australia. We try to begin conversations early in the development process, aligning with Indigenous Peoples' expectations and wishes. Our goal is to secure free, prior, and informed consent (FPIC) for projects impacting Indigenous lands or territories, respecting their cultural, intellectual, religious, and spiritual property. Remediation and channels to raise concerns We work actively to improve our abilities to address and remedy negative impacts on communities affected by our operations. Through engagement via community liaison officers, we are able to actively collect feedback and grievances at the local asset level, particularly during the execution phase. We employ various methods, including hosting town halls and open forums and setting up post boxes to collect and address concerns on an ongoing basis. Also, our whistleblower hotline allows all individuals in affected communities to confidentially report in- appropriate or illegal conduct. For more information on our whistleblower hotline and how we protect whistleblowers against retaliation, see section G1 on business conduct. We have implemented tailored solutions for different markets to address concerns from local communities and provide remedy. Notably, in instances where fishers have been adversely affected during the construction and operation of our offshore wind farms, we have taken measures to provide proportional remedies. Going forward, our efforts to establish a common standard for community feedback and griev- ance management will strengthen and systematise our processes for receiving, addressing, resolving, and providing remedy to affected communities where necessary. ↑ Our offshore wind farm technicians preparing for a day out on the turbines in Taichung, Taiwan. 125 Sustainability statements | SocialØRSTED ANNUAL REPORT 2023 | ESRS S3 Governance 127 ESRS G1 Business conduct → At Ørsted, we are not just committed to renewable energy. We are also dedicated to being a great place to work. Our team in Taiwan continues to thrive; for the third consecutive year, Ørsted was voted Asia's best employer. Serving as our Asia-Pacific hub, our Taipei office now comprises over 200 colleagues from diverse backgrounds, with a working environment built on inclusivity, trust, and respect. 126 Sustainability statementsØRSTED ANNUAL REPORT 2023 (OO) Own operations (VC) Value chain Business conduct policies and corporate culture At Ørsted, we face financial, technical, commercial, and ethical challenges on a daily basis, both as a busi- ness and as individuals. Through our good business conduct policy, we strive to uphold a healthy corporate culture with a high level of integrity, providing guidance to all employees on the expected behaviour at Ørsted and in interactions with stakeholders. The policy addresses topics such as bribery, facilitation payments, sponsorships and donations, political contributions, entertainment, and conflicts of interest. It is overseen by our Head of Legal and our Compliance Committee, chaired by the CEO, which has the overall responsibility for monitoring compliance. Our commitment to business integrity is carried through the whistleblower hotline, which serves both internal and external stakeholders. Our promise to protect whistleblowers against retaliation is outlined in our policy on good business conduct. If whistleblowers choose to remain anonymous, neither Ørsted nor our web service provider can track or identify the reporting individuals. In addition, we have established a standard operating procedure to ensure that allegations are rigorously and objectively investigated. In our organisation, certain functions pose elevated risks for corruption and bribery due to their involvement in critical financial transactions, interactions with external stakeholders, and sensitivity to regulatory and ethical compliance. These high-risk functions include Procurement, Partnerships & M&A, Asset Projects, and Regulatory & Public Affairs. In particular, to promote the accelerated build-out of renewable energy and the goals of the Paris Agreement, our Regulatory & Public Affairs function actively engages policymakers through lobbying and advocacy efforts. We prioritise the implementation of robust anti- corruption and anti-bribery measures in the specific functions mentioned above to mitigate risks and ensure the highest standards of integrity and compliance. To ensure employee awareness and effective commu- nication of our policies and measures, we conduct peri- odic global awareness campaigns and have the docu- ments readily accessible online. Also, all employees are required to participate in an e-learning course on busi- ness conduct as part of their onboarding process, and the course must be repeated every second year. The training covers a wide range of topics, providing a good understanding of our policy on good business conduct, including anti-corruption and ethical guidelines. ESRS G1 Business conduct Positive impacts SIGNIFICANT 1 Healthy corporate culture driving the company towards shared goals (OO) 2 Protection of whistleblowers through anti-retaliation policies and procedures (OO) 3 Constructive political engagement through lobbying (OO) 4 Good management of suppliers, ensuring compliance with our code of conduct (OO) Our material impacts and risks 1 2 3 4 127 Sustainability statements | GovernanceØRSTED ANNUAL REPORT 2023 | ESRS G1 [](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-good-business-conduct)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-good-business-conduct) Prevention and detection of corruption and bribery We have released our anti-bribery and corruption position, emphasising a zero-tolerance policy on bribery and corruption and describing our processes for identifying and managing bribery and corruption risks in our own operations. To ensure that our suppliers live up to our policy on good business conduct, we conduct know-your-counterparty (KYC) screenings. The KYC process involves screening for anti-bribery and anti-corruption compliance, sanctions, government watch lists, and adverse media coverage. For high-risk partnerships, such as M&As, joint ventures, and similar, we perform a comprehensive partner due diligence, which also encompasses sustainability, credit- worthiness, and branding assessments. Through the KYC process, we conduct thorough inves- tigations of our business partners to prevent, detect, and address allegations or incidents of corruption and bribery within Ørsted. Our policies regarding sponsor- ships, donations, gifts, and entertainment are rigor- ously enforced and monitored through an online tool. In addition to our policy on good business conduct, KYC process, trainings, whistleblower hotline, and supplier due diligence, our Internal Audit team conducts regular audits to assess the effectiveness of our anti-corruption and anti-bribery measures. Internal Audit acts as an autonomous function, reporting directly to the Audit & Risk Committee, and is not involved in day-to-day management affairs. This separation aims to ensure impartiality and integrity of investigations. Additionally, we prepare an annual internal fraud risk report, which analyses potential corruption and bribery risks within Ørsted. This report aids in our ongoing efforts to prevent and address such incidents. Management of relationships with suppliers We believe in collaborative partnerships, expecting business partners to actively participate in risk assess- ments, inspections, monitoring, and reporting. Our Responsible Business Partners Programme engages and collaborates with suppliers and business partners on improving their adherence to our social, environ- mental, and ethical expectations. Our work is based on a systematic and risk-based due diligence process used to assess partners' and suppliers' adherence to our code of conduct for business partners. The code of conduct is an integral part of our cor- porate strategy and agreements with our business partners, covering all suppliers, joint venture part- ners, and counterparties. We ensure a strong commit- ment to our code of conduct by incorporating it into all contracts with our business partners and suppliers. In addition to the principles of our code of conduct, we have commenced the incorporation of climate requirements into contractual agreements with key suppliers, which entails reporting to the Carbon Dis- closure Project (CDP), setting science-based climate targets, and covering electricity consumption with renewable electricity. Our strategy to manage relationships with our suppli- ers is guided by a deep understanding of the potential sustainability risks within our supply chain. To evaluate performance and identify any gaps or adverse impacts, we employ a combination of risk screenings, extended risk screenings, and code of conduct assessments, which may occur both before and after contract signing. This process evaluates suppliers' adherence to our code of conduct and integrates with our global procurement system, encompassing four key steps for real progress and continuous improvement: 1 Commitment Upon entering a contract with Ørsted, suppliers sign and thereby commit to our code of conduct. 2 Risk screening Based on country risk, category risk, and spend, we prioritise business partners for further engagement. 3 Assessment We evaluate whether business partners adhere to the expectations in our code of conduct, reviewing relevant management systems and practices. 4 Improvement In cases where gaps are identified, we collaborate with business partners to devise an improvement plan followed by regular touch points to ensure the effective implementation of the plan. In cases where we identify that business partners intention- ally fail or repeatedly neglect the improvement plans, we reserve the right to terminate business relationships with the partner in question. In 2023, we evaluated our due diligence approach, and in 2024, we will implement an updated pro- cess focusing on assessing high-risk suppliers prior to contract signing independent of the risk of the project location. This commitment to continuous improve- ment is underscored by regular updates to our internal risk scoring and the incorporation of evolving stand- ards into our screening tools. As we navigate the dynamic landscape of due diligence, our goal is to meet the highest standards of integrity, transparency, and ethical conduct. 128 Sustainability statements | GovernanceØRSTED ANNUAL REPORT 2023 | ESRS G1 [](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-good-business-conduct)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-good-business-conduct)[](https://orsted.com/en/who-we-are/sustainability/our-approach/policies-and-positions#policies-code-of-conduct-for-business-partners) The Chair of the Audit & Risk Committee is responsible for managing our whistleblower scheme. Internal Audit receives and handles any reports submitted. Our employees and other associates may report serious offences, such as cases of bribery, fraud, and other inappropriate or illegal conduct through our whistleblower scheme or our management system. In 2023, 18 substantiated cases of inappropriate or unlawful behaviour were reported through our whistleblower scheme. Nine cases related to good business conduct policy violations, while six cases concerned the workplace environment, one case concerned IT security, and two cases were classified as ‘other’. None of the reported cases were critical to our business or caused adjustments to our financial results. One case required a police report. Whistleblower cases and good business conduct § Accounting policies Whistleblower cases Ørsted's whistleblower hotline is available for internal and external reporting of suspected cases of inappropriate or illegal behaviour. Whistleblower cases are received and handled by the Internal Audit function, which also re\- ceives similar reports through the management system and from compliance officers. All reports are managed in accordance with the guidelines for the handling of whistle\- blower reports approved by the Audit & Risk Committee, which is ultimately responsible for the whistleblower scheme. Only cases which are closed during the financial year, and which have been reported to the Audit & Risk Com- mittee as fully or partially substantiated, are reported. Course in good business conduct The number of employees who have completed a course in good business conduct is calculated as the proportion of employees who, as of 31 December, have completed an e-learning course in good business conduct relative to the number of employees invited to take the course. Data point Unit 2023 2022 Δ Whistleblower cases Substantiated whistleblower cases Number 18 8 10 Cases transferred to the police Number 1 1 0 Good business conduct Employees who have completed a course in good business conduct % 87 84 3 %p 129 Sustainability statements | Governance ØRSTED ANNUAL REPORT 2023 | ESRS G1 The number of risk screenings increased by 10 % to 363 compared to 2022\. The number of extended risk screenings decreased by 22 % to 62 due to a large number of recurring suppliers having been previously assessed. Procurement spend that is risk-screened decreased by 7 percentage points to 78 % in 2023, mainly because there has been some spend in 2023 on suppliers risk- screened before 2022 who are not in scope of our 2023 reporting. The number of know-your-counterparty (KYC) screen- ings, focusing on suppliers' integrity and legal compli- ance, increased by 2 % in 2023\. The increase reflects Supply chain due diligence § Accounting policies The number of supplier risk screenings and due diligence activities conducted is determined by the time schedule of the individual construction projects and the procurement priorities from year to year. Risk screenings The Responsible Business Partners Programme (RPP) team applies a risk-based due diligence framework to identify areas within our code of conduct (CoC) for business partners where sup- pliers need to improve adherence to the code. Risk screenings are conducted by the RPP team on all new sourcing contracts above DKK 3 million based on country and category risk. Based on the risk screening evaluation, the RPP team conducts extended risk screen- ings of selected contracts with additional risk parameters, including labour characteristics related to e.g. migrant workers' and seafarers' rights. Screenings and extended screenings also take place for suppliers of coal and sustainable biomass as well as top-spend suppliers. Risk- screened procurement spend is also calculated annually. The Business Ethics Compliance (BEC) team conducts know-your-counterparty (KYC) screenings of all new suppliers and business partners to ensure legal compliance. Due diligence activities conducted Due diligence activities are carried out by our RPP, Health, Safety & Environment (HSE), and Marine Inspection teams based on the results of individual screenings and risk assessments. The activities are conducted either as desktop assessments or inspections or as on-site assess- ments or physical inspections, which often include a visit to the production facilities by Ørsted or a third party. Assessments also include potential suppliers (i.e. no signed contracts yet) as part of the tender process. Data point Unit 2023 2022 Δ Risk screenings Risk screenings (all contracts above DKK 3 million) Number 363 331 10 % Extended risk screenings Number 62 79 (22 %) Procurement spend that is risk-screened % 78 85 (7 %p) Know-your-counterparty (KYC) screenings Number 1,456 1,421 2 % Due diligence activities conducted Code of conduct (CoC) desktop assessments Number 54 47 15 % Code of conduct (CoC) site assessments Number 9 3 200 % Health, safety, and environment (HSE) desktop assessments Number 130 166 (22 %) Health, safety, and environment (HSE) site assessments Number 117 94 1 24 % Desktop vessel inspections Number 61 91 (33 %) Physical vessel inspections Number 404 353 14 % 1 The number of ‘Health, safety, and environment (HSE) site assess- ments’ 2022 has been restated following a systems review. the additional focus on KYC-screening compliance during 2023 and is in line with expectations. The number of code of conduct (CoC) desktop assess- ments increased by 15 % in 2023, primarily due to the introduction of new suppliers in countries associated with higher CoC risks. The number of CoC site assess- ments increased to 9 in 2023 from 3 in 2022 due to an increased number of supplier pre-qualifications as well as the introduction of new high-risk category suppliers in high-risk markets. The number of health, safety, and environment (HSE) desktop assessments decreased by 22 % in 2023 due to the implementation of new sourcing and supplier selection processes. The number of site assessments increased by 24 % in 2023 due to a stronger focus on supplier performance on site. The number of desktop vessel inspections decreased by 33 % in 2023 due to a slowdown of project activities in APAC, where the majority of desktop assessments were performed. The number of physical vessel inspec- tions increased by 14 % in 2023 due to an increase in project activities in the US Northeast and in Germany, where we have commenced the construction of our offshore wind farms Gode Wind 3 and Borkum Riffgrund 3. The results from the assessments are managed throughout the different programmes, and improve- ment plans are developed and implemented in collab- oration with the suppliers. 130 Sustainability statements | GovernanceØRSTED ANNUAL REPORT 2023 | ESRS G1 Appendix 132 Disclosure requirements and incorporation by reference 135 Statement on sustainability due diligence 136 ESRS data points from other EU legislation 138 Calculation factors 139 Alignment with TCFD recommendations 140 Alignment with TNFD recommendations 141 Additional data points below materiality thresholds Sustainability statements131 ØRSTED ANNUAL REPORT 2023 Cross-cutting standards Disclosure requirement Section/ report Page Additional information ESRS 2 · General disclosures BP-1 General basis for preparation of the sustainability statement SUS 69 BP-2 Disclosures in relation to specific circumstances SUS 69 Datapoints that derive from other EU legislation SUS 136 GOV-1 The role of the administrative, management and supervisory bodies MR 52-60 GOV-2 Information provided to and sustainability matters addressed by the undertaking’s administrative, management and supervisory bodies MR 57; 59 Audit & Risk Committee; Sustainability Committee GOV-3 Integration of sustainability-related performance in incentive schemes REM 6-7 Performance of the Executive Board GOV-4 Statement on sustainability due diligence SUS 135 GOV-5 Risk management and internal controls over sustainability reporting MR 59 Internal controls environment SBM-1 Strategy, business model and value chain (products, markets, customers) MR 20-28 Strategy and business Strategy, business model and value chain (headcount by country) FS 197 Country-by-country key figures Strategy, business model and value chain (breakdown of revenue) FS 155 Note 2.1 Segment information SBM-2 Interests and views of stakeholders SUS 79 SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model SUS 68; 72-76 IRO-1 Description of the process to identify and assess material impacts, risks and opportunities SUS 77-78 IRO-2 Disclosure requirements in ESRS covered by the undertaking’s sustainability statement SUS 132-135 The following tables list all of the ESRS disclosure require- ments in ESRS 2 and the seven topical standards which are material to Ørsted and which have guided the preparation of our sustainability statements. We have omitted all the disclosure requirements in the topical standards E2, E3, and S4 as these are below our materiality thresholds. The tables can be used to navigate to information relating to a specific disclosure requirement in the sustainability statements. The tables also show where we have placed information relating to a specific disclosure requirement that lies out- side of the sustainability statements and is ‘incorporated by reference’ to either the management’s review or the financial statements within this annual report, or to the remuneration report published as a separate report. In cases where we do not yet have any information related to a disclosure requirement, no reference is made. Disclosure requirements and incorporation by reference SUS Sustainability statements MR Management’s review REM Remuneration report FS Financial statements ESRS 2 132 Sustainability statements | AppendixØRSTED ANNUAL REPORT 2023 [](https://orsted.com/remuneration2023) Environmental standards Disclosure requirement Section/ report Page Additional information ESRS E4 · Biodiversity and ecosystems E4-1 Transition plan and consideration of biodiversity and ecosystems in strategy and business model SUS 102-104 ESRS 2, SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model SUS 74; 102 ESRS 2, IRO-1 Description of processes to identify and assess material biodiversity and ecosystem-related impacts, risks, dependencies and opportunities - - E4-2 Policies related to biodiversity and ecosystem SUS 102-103 E4-3 Actions and resources related to biodiversity and ecosystems SUS 103-104 E4-4 Targets related to biodiversity and ecosystems SUS 104 E4-5 Impact metrics related to biodiversity and ecosystems change SUS 105-106 E4-6 Anticipated financial effects from biodiversity and ecosystems-related risks and opportunities - - - ESRS E5 · Resource use and circular economy ESRS 2, IRO-1 Description of the processes to identify and assess material resource use and circular economy-related impacts, risks and opportunities - - E5-1 Policies related to resource use and circular economy SUS 107-109 E5-2 Actions and resources related to resource use and circular economy SUS 108-109 E5-3 Targets related to resource use and circular economy SUS 109 E5-4 Resource inflows - - E5-5 Resource outflows SUS 110 E5-6 Anticipated financial effects from material resource use and circular economy-related risks and opportunities - - Environmental standards Disclosure requirement Section/ report Page Additional information ESRS E1 · Climate change ESRS 2, GOV-3 Integration of sustainability-related performance in incentive schemes REM 6-7 Performance of the Executive Board E1-1 Transition plan for climate change mitigation SUS 87-89; 91 ESRS 2, SBM-3 Material impacts, risks and opportunities, and their interaction with strategy and business model SUS 73; 87-88 ESRS 2, IRO-1 Description of the processes to identify and assess material climate- related impacts, risks and opportunities - - E1-2 Policies related to climate change mitigation and adaptation SUS 87-88 E1-3 Actions and resources in relation to climate change policies SUS 88-89 E1-4 Targets related to climate change mitigation and adaptation SUS 91 E1-5 Energy consumption and mix SUS 99 E1-6 Gross Scopes 1, 2, 3 and total GHG emissions SUS 100 E1-7 GHG removals and GHG mitigation projects financed through carbon credits - - E1-8 Internal carbon pricing - - E1-9 Anticipated financial effects from material physical and transition risks and potential climate-related opportunities - - SUS Sustainability statements MR Management’s review REM Remuneration report FS Financial statements 133 Sustainability statements | Appendix ØRSTED ANNUAL REPORT 2023 Social standards Disclosure requirement Section/ report Page Additional information ESRS S1 · Own workforce ESRS 2, SBM-2 Interests and views of stakeholders SUS 79 ESRS 2, SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model SUS 75; 112-114 S1-1 Policies related to own workforce SUS 112-114 S1-2 Processes for engaging with own workers and workers’ representatives about impacts SUS 114 Engaging with our own workforce S1-3 Processes to remediate negative impacts and channels for own workers to raise concerns SUS 115 Remediation and channels to raise concerns S1-4 Taking action on material impacts on own workforce, and approaches to mitigating material risks and pursuing material opportunities related to own workforce, and effectiveness of those actions SUS 113-114 S1-5 Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities SUS 115 S1-6 Characteristics of the undertaking’s employees SUS 116 S1-7 Characteristics of non-employee workers in the undertaking’s own workforce - - S1-8 Collective bargaining coverage and social dialogue - - S1-9 Diversity metrics SUS 117-118 S1-10 Adequate wages - - S1-11 Social protection SUS 112 S1-12 Persons with disabilities - - S1-13 Training and skills development metrics - - S1-14 Health and safety metrics SUS 119 S1-15 Work-life balance metrics SUS 113 Only qualitative info S1-16 Compensation metrics (pay gap and total compensation) SUS 117-118 S1-17 Incidents, complaints and severe human rights impacts - - Social standards Disclosure requirement Section/ report Page Additional information ESRS S2 · Workers in the value chain ESRS 2, SBM-2 Interests and views of stakeholders SUS 79 ESRS 2, SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model SUS 75; 120-121 S2-1 Policies related to value chain workers SUS 120-121 S2-2 Processes for engaging with value chain workers about impacts SUS 122 Engaging with value chain workers S2-3 Processes to remediate negative impacts and channels for value chain workers to raise concerns SUS 122 Remediation and channels to raise concerns S2-4 Taking action on material impacts on value chain workers, and approaches to managing material risks and pursuing material opportunities related to value chain workers, and effectiveness of those actions SUS 120-121 S2-5 Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities - - ESRS S3 · Affected communities ESRS 2, SBM-2 Interests and views of stakeholders SUS 79 ESRS 2, SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model SUS 76; 123-124 S3-1 Policies related to affected communities SUS 123-124 S3-2 Processes for engaging with affected communities about impacts SUS 124 Engaging with affected communities S3-3 Processes to remediate negative impacts and channels for affected communities to raise concerns SUS 125 Remediation and channels to raise concerns S3-4 Taking action on material impacts on affected communities, and approaches to managing material risks and pursuing material opportunities related to affected communities, and effectiveness of those actions SUS 124 S3-5 Targets related to managing material negative impacts, advancing positive impacts, and managing material risks and opportunities - - SUS Sustainability statements MR Management’s review REM Remuneration report FS Financial statements 134 Sustainability statements | Appendix ØRSTED ANNUAL REPORT 2023 Governance standards Disclosure requirement Section/ report Page Additional information ESRS G1 · Business conduct ESRS 2, GOV-1 The role of the administrative, supervisory and management bodies MR 52-60 ESRS 2, IRO-1 Description of the processes to identify and assess material impacts, risks and opportunities - - G1-1 Business conduct policies and corporate culture SUS 127 G1-2 Management of relationships with suppliers SUS 128 G1-3 Prevention and detection of corruption and bribery SUS 128 G1-4 Incidents of corruption or bribery SUS - G1-5 Political influence and lobbying activites SUS - G1-6 Payment practices SUS - SUS Sustainability statements MR Management’s review REM Remuneration report FS Financial statements ESRS 2 Statement on sustainability due diligence The above table provides a mapping to where in our sustainability statements we provide informa- tion about our due diligence process, including how we apply the main aspects and steps of our due diligence process. Core elements of due diligence Sections in the sustainability statements Page a) Embedding due diligence in governance, strategy and business model Governance 127-128 b) Engaging with affected stakeholders in all key steps of the due diligence General Social Governance 79 112-115, 120-125 127-128 c) Identifying and assessing adverse impacts Social Governance 112-115, 120-122, 123-125 127-128 d) Taking actions to address those adverse impacts Social Governance 113, 121-125 127-128 e) Tracking the effectiveness of these efforts and communicating Social Governance 113, 121-122, 124 127-128 135 Sustainability statements | Appendix ØRSTED ANNUAL REPORT 2023 Disclosure requirement Data point SFDR reference Pillar 3 reference Benchmark regulation reference EU Climate Law reference Section Page ESRS 2 GOV-1 21 (d) Board's gender diversity x x Sustainability statements Management’s review 118 52 ESRS 2 GOV-1 21 (e) Percentage of board members who are independent x Sustainability statements 117 ESRS 2 GOV-4 30 Statement on due diligence x Sustainability statements 135 ESRS 2 SBM-1 40 (d) i Involvement in activities related to fossil fuel activities x x x Sustainability statements 81 ESRS 2 SBM-1 40 (d) ii Involvement in activities related to chemical production x x Not relevant ESRS 2 SBM-1 40 (d) iii Involvement in activities related to controversial weapons x x Not relevant ESRS 2 SBM-1 40 (d) iv Involvement in activities related to cultivation and production of tobacco x Not relevant ESRS E1-1 14 Transition plan to reach climate neutrality by 2050 x Sustainability statements 87-89 ESRS E1-1 16 (g) Undertakings excluded from Paris-aligned Benchmarks x x Not relevant ESRS E1-4 34 GHG emission reduction targets x x x Sustainability statements 91 ESRS E1-5 38 Energy consumption from fossil sources disaggregated by sources (only high climate impact sectors) x Not relevant ESRS E1-5 37 Energy consumption and mix x Sustainability statements 99 ESRS E1-5 40-43 Energy intensity associated with activities in high climate impact sectors x Not relevant ESRS E1-6 44 Gross Scope 1, 2, 3 and Total GHG emissions x x x Sustainability statements 100 ESRS E1-6 53-55 Gross GHG emissions intensity x x x Not stated ESRS E1-7 56 GHG removals and carbon credits x Not stated ESRS E1-9 66 Exposure of the benchmark portfolio to climate-related physical risks x Sustainability statements 86 ESRS E1-9 66 (a); 66 (c) Disaggregation of monetary amounts by acute and chronic physical risk; Location of significant assets at material physical risk x Not stated ESRS E1-9 67 (c) Breakdown of the carrying value of its real estate assets by energy-efficiency classes x Not stated ESRS E1-9 69 Degree of exposure of the portfolio to climate-related opportunities x Management’s review 20-35 ESRS E2-4 28 Amount of each pollutant listed in Annex II of the E-PRTR Regulation emitted to air, water and soil x Not material ESRS E3-1 9 Water and marine resources x Not material ESRS E3-1 13 Dedicated policy x Not material ESRS E3-1 14 Sustainable oceans and seas x Not material ESRS E3-4 28 (c) Total water recycled and reused x Not material ESRS E3-4 29 Total water consumption in m 3 per net revenue on own operations x Not material ESRS 2- SBM 3 - E4 16 (a) i x Sustainability statements 105 ESRS 2- SBM 3 - E4 16 (b) x Not stated ESRS 2- SBM 3 - E4 16 (c) x Sustainability statements 106 Datapoints that derive from other EU legislation The table below includes all of the datapoints that derive from other EU legislation as listed in ESRS 2 appendix B, indicating where the data points can be found in our report and which data points are assessed as ‘Not material’. ESRS 2 136 Sustainability statements | AppendixØRSTED ANNUAL REPORT 2023 Sustainability statements | Appendix Disclosure requirement Data point SFDR reference Pillar 3 reference Benchmark regulation reference EU Climate Law reference Section Page ESRS E4-2 24 (b) Sustainable land / agriculture practices or policies x Sustainability statements 108-109 ESRS E4-2 24 (c) Sustainable oceans / seas practices or policies x Sustainability statements 102 ESRS E4-2 24 (d) Policies to address deforestation x Sustainability statements 108-109 ESRS E5-5 37 (d) Non-recycled waste x Sustainability statements 110 ESRS E5-5 39 Hazardous waste and radioactive waste x Sustainability statements 110 ESRS 2- SBM3 - S1 14 (f) Risk of incidents of forced labour x Not stated ESRS 2- SBM3 - S1 14 (g) Risk of incidents of child labour x Not stated ESRS S1-1 20 Human rights policy commitments x Sustainability statements 112-113 ESRS S1-1 21 Due diligence policies on issues addressed by the fundamental International Labor Organisation Conventions 1 to 8 x Sustainability statements 112-113 ESRS S1-1 22 Processes and measures for preventing trafficking in human beings x Sustainability statements 112-113 ESRS S1-1 23 Workplace accident prevention policy or management system x Sustainability statements 113 ESRS S1-3 32 (c) Grievance/complaints handling mechanisms x Sustainability statements 112, 115 ESRS S1-14 88 (b) and (c) Number of fatalities and number and rate of work-related accidents x x Sustainability statements 119 ESRS S1-14 88 (e) Number of days lost to injuries, accidents, fatalities or illness x Not stated ESRS S1-16 97 (a) Unadjusted gender pay gap x x Sustainability statements 118 ESRS S1-16 97 (b) Excessive CEO pay ratio x Sustainability statements 117 ESRS S1-17 103 (a) Incidents of discrimination x Not stated ESRS S1-17 104 (a) Non-respect of UNGPs on Business and Human Rights and OECD x x Not stated ESRS 2- SBM3 – S2 11 (b) Significant risk of child labour or forced labour in the value chain x Not stated ESRS S2-1 17 Human rights policy commitments x Sustainability statements 112-113, 120-122 ESRS S2-1 18 Policies related to value chain workers x Sustainability statements 112-113, 120-122, 128 ESRS S2-1 19 Non-respect of UNGPs on Business and Human Rights principles and OECD guidelines x x Not stated ESRS S2-1 19 Due diligence policies on issues addressed by the fundamental International Labor Organisation Conventions 1 to 8 x Sustainability statements 112-113, 120-122, 128 ESRS S2-4 36 Human rights issues and incidents connected to its upstream and downstream value chain x Not stated ESRS S3-1 16 Human rights policy commitments x Sustainability statements 112-113, 123-125 ESRS S3-1 17 Non-respect of UNGPs on Business and Human Rights, ILO principles or and OECD guidelines x x Not stated ESRS S3-4 36 Human rights issues and incidents x Not stated ESRS S4-1 16 Policies related to consumers and end-users x Not material ESRS S4-1 17 Non-respect of UNGPs on Business and Human Rights and OECD guidelines x x Not material ESRS S4-4 35 Human rights issues and incidents x Not material ESRS G1-1 §10 (b) United Nations Convention against Corruption x Not relevant ESRS G1-1 §10 (d) Protection of whistle- blowers x Not relevant ESRS G1-4 §24 (a) Fines for violation of anti-corruption and anti-bribery laws x x Not stated ESRS G1-4 §24 (b) Standards of anti- corruption and anti-bribery x Not stated 137 Sustainability statements | Appendix ØRSTED ANNUAL REPORT 2023 Calculation factors 2023 Page reference Data point Factor Comment Reference Publication name p. 100 Scope 1 emissions Global warming potential of greenhouse gases CH 4 , N 2 O, SF 6 Intergovernmental Panel on Climate Change (IPCC) Climate Change 2021, The Physical Science Basis p. 100 Scope 1 emissions Carbon emissions from fossil fuels at CHP plants Coal, oil, natural gas Danish Energy Agency Standardfaktorer for brændværdier og CO 2 -emissioner (Standard factors for calorific value and carbon emissions), 2022 p. 100 Scope 1 emissions Carbon emissions from fossil fuels outside CHP plants Diesel, petrol, fuel oil, jet fuel American Petroleum Institute (API) Compendium of greenhouse gas emission methodologies for the oil and natural gas industry, 2009 p. 100 Scope 2 emissions Carbon emissions from power purchased In Denmark EnerginetDK, 2022 Generel deklaration og Miljødeklaration, 2021 (General declaration and environmental declaration, 2021) p. 100 Scope 2 emissions Carbon emissions from power purchased In other European countries Association of Issuing Bodies (AIB) European Residual Mixes, 2022 (2021 data) p. 100 Scope 2 emissions Carbon emissions from power purchased In countries outside Europe Institute for Global Environmental Strategies (IGES) US Environmental Protection Agency (EPA) List of grid emission factors, 2022 US EPA 2023 (eGRID2021 data) p. 100 Biogenic emissions Biogenic emissions from combustion of biomass GHG emissions outside of scope 1-3, biomass and biogas UK Department for Environment, Food & Rural Affairs (DEFRA) UK government GHG conversion factors for company reporting, 2022 p. 100 Scope 3 emissions Use of sold products. Fuel\- and energy-related activities Emissions from end use of gas. Upstream supply chain for fuels UK Department for Environment, Food & Rural Affairs (DEFRA) UK government GHG conversion factors for company reporting, 2022 p. 100 Scope 3 emissions Capital goods Wind farms, onshore Siemens Environmental Product Declaration: a clean energy solution – from cradle to grave. Onshore wind power plant employing SWT-2.3-108 p. 100 Scope 3 emissions Purchased goods and services Supply chain emission factors depend on product categories US Environmental Protection Agency (EPA) Supply Chain Greenhouse Gas Emission Factors, USD 2018 p. 100 Scope 3 emissions Business travel in private car Assumptions: ‘average car’, ‘unknown fuel type’ UK Department for Environment, Food & Rural Affairs (DEFRA) UK government GHG conversion factors for company reporting, 2022 p. 141 Avoided emissions from green bond proceeds Carbon emissions from average fossil-fuel mix Average of coal, gas, and oil (countries and US states) International Energy Agency (IEA) US Environmental Protection Agency (EPA) IEA Emissions Factors 2022 (2020 data) US EPA 2023 (eGRID2020 data) p. 141 Water stress Baseline water stress Measured at site level, baseline water stress is the ratio of total water withdrawals to available renewable supply World Resources Institute (WRI) Aqueduct Water Risk Atlas v3.0, 2019 Note: The table shows references for calculation factors used in the 2023 data set. 138 Sustainability statements | Appendix ØRSTED ANNUAL REPORT 2023 Alignment with TCFD recommendations Theme Recommended disclosures Annual report section/Ørsted report Section Page Governance a) Describe the board’s oversight of climate-related risks and opportunities Management’s review Corporate governance 52-61 b) Describe management’s role in assessing and managing climate-related risks and opportunities Management’s review Remuneration report Corporate governance Remuneration of the Executive Board 52-61 6-7 Strategy a) Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term Management’s review Sustainability statements Sustainability statements Strategy and business Double materiality assessment Environment: Climate change 20-38 70-76 87-101 b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning Management’s review Sustainability statements Sustainability statements Strategy and business Environment: Climate scenario analysis Environment: Climate change 20-38 86 87-101 c) Describe the resilience of the organisation’s strategy, taking into consideration different climate- related scenarios, including a 2 °C or lower scenario Sustainability statements Sustainability statements Environment: Climate scenario analysis Environment: Climate change 86 87-101 Risk management a) Describe the organisation’s processes for identifying and assessing climate-related risks Management’s review Sustainability statements Sustainability statements Risks and risk management Double materiality assessment methodology Environment: Climate scenario analysis 34-37 77-78 86 b) Describe the organisation’s processes for managing climate-related risks Management’s review Sustainability statements Sustainability statements Risks and risk management Double materiality assessment methodology Environment: Climate scenario analysis 34-37 77-78 86 c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management Management’s review Sustainability statements Sustainability statements Risks and risk management Double materiality assessment methodology Environment: Climate scenario analysis 34-37 77-78 86 Metrics and targets a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process Management’s review Management’s review Sustainability statements Overview: Strategic ambitions Overview: Performance highlights: Environment Environment: Climate change 6 8 87-101 b) Disclose scope 1, scope 2, and, if appropriate, scope 3 greenhouse gas (GHG) emissions and the related risks Management’s review Management’s review Sustainability statements Overview: Strategic ambitions Overview: Performance highlights: Environment Environment: Climate change 6 8 87-101 c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets Management’s review Sustainability statements Overview: Strategic ambitions Environment: Climate change: Targets 6 91 139 Sustainability statements | Appendix ØRSTED ANNUAL REPORT 2023 Alignment with TNFD recommendations Theme Recommended disclosures Annual report section/Ørsted report Section Page Governance a) Describe the board’s oversight of nature-related dependencies, impacts, risks and opportunities Management’s review Corporate governance 52-61 b) Describe management’s role in assessing and managing nature-related dependencies, impacts, risks and opportunities. Management’s review Corporate governance 52-61 c) Describe the organisation’s human rights policies and engagement activities, and oversight by the board and management, with respect to Indigenous Peoples, Local Communities, affected and other stakeholders, in the organisation’s assessment of, and response to, nature-related dependencies, impacts, risks and opportunities. Sustainability statements Sustainability statements Sustainability statements Interests and views of stakeholders Environment: Biodiversity and ecosystems Social: Affected communities 79 102-106 123-125 Strategy a) Describe the nature-related dependencies, impacts, risks and opportunities the organisation has identified over the short, medium and long term. Management’s review Sustainability statements Sustainability statements Strategy and business Double materiality assessment Environment 20-38 70-79 81-110 b) Describe the effect nature-related dependencies, impacts, risks and opportunities have had on the organisation’s business model, value chain, strategy and financial planning, as well as any transition plans or analysis in place. Management’s review Sustainability statements Strategy and business Environment 20-38 81-110 c) Describe the resilience of the organisation’s strategy to nature-related risks and opportunities, taking into consideration different scenarios. Management’s review Sustainability statements Risks and risk management Environment 34-37 81-110 d) Disclose the locations of assets and/or activities in the organisation’s direct operations and, where possible, upstream and downstream value chain(s) that meet the criteria for priority locations. Management’s review Sustainability statements Overview: Our footprint Environment: Biodiversity and ecosystems 14 102-106 Risk and impact management a) i. Describe the organisation’s processes for identifying, assessing and prioritising nature-related dependencies, impacts, risks and opportunities in its direct operations. ii. Describe the organisation’s processes for identifying, assessing and prioritising nature-related dependencies, impacts, risks and opportunities in its upstream and downstream value chain(s). Management’s review Management’s review Sustainability statements Sustainability statements Corporate governance Risks and risk management Double materiality assessment Governance: Business conduct 52-61 34-37 70-79 127-130 b) Describe the organisation’s processes for monitoring nature-related dependencies, impacts, risks and opportunities. Management’s review Sustainability statements Sustainability statements Risks and risk management Double materiality assessment Environment: Biodiversity and ecosystems 34-37 70-79 102-106 c) Describe how processes for identifying, assessing, prioritising and monitoring nature-related risks are integrated into and inform the organisation’s overall risk management processes. Management’s review Sustainability statements Risks and risk management Double materiality assessment 34-37 70-79 Metrics and targets a) Disclose the metrics used by the organisation to assess and manage material nature-related risks and opportunities in line with its strategy and risk management process. Management’s review Sustainability statements Overview: Strategic ambitions Environment 6 81-110 b) Disclose the metrics used by the organisation to assess and manage dependencies and impacts on nature. Management’s review Sustainability statements Overview: Strategic ambitions Environment 6 81-110 c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets Management’s review Sustainability statements Overview: Strategic ambitions Environment 6 81-110 140 Sustainability statements | Appendix ØRSTED ANNUAL REPORT 2023 Additional data points below materiality thresholds Data point Unit 2023 2022 Δ Water withdrawal Total volume of water withdrawn Thousand m 3 767,643 1,021,206 (25 %) Surface water Thousand m 3 753 708 6 % Groundwater Thousand m 3 285 205 39 % Seawater Thousand m 3 765,226 1,018,828 (25 %) Produced water Thousand m 3 467 422 11 % Third-party water Thousand m 3 912 1,043 (13%) Freshwater withdrawal intensity 1 m 3 /GWh 46 47 (2 %) Water withdrawal from water-stressed areas From areas with low stress levels % 2 0 2 %p From areas with low to medium stress levels % 45 55 (10 %p) From areas with medium to high stress levels % 49 45 4 %p From areas with high stress levels % 0 0 0 %p From areas with extremely high stress levels % 4 0 4 %p Wastewater discharge by destination Total volume of water discharge Thousand m 3 766,920 1,019,827 (25 %) Surface water Thousand m 3 226 91 148 % Groundwater Thousand m 3 0 0 - Seawater Thousand m 3 765,425 1,018,690 (25 %) Third-party water Thousand m 3 1,269 1,046 21 % Third-party water sent for use in other organisations (sold water) Thousand m 3 496 452 10 % Water consumption Thousand m 3 723 1,379 (48 %) Other air emissions: nitrogen oxides (NO x ) and sulphur dioxide (SO 2 ) Nitrogen oxides emissions Tonnes 1,572 1,892 (17 %) Sulphur dioxide emissions Tonnes 576 780 (26 %) Nitrogen oxides emissions intensity g NO x /kWh 0.14 0.15 (7 %) Sulphur dioxide emissions intensity g SO 2 / kWh 0.05 0.06 (17 %) Environmental incidents Massive environmental incidents Number 0 0 - Major environmental incidents Number 3 2 50 % Green bond impact report data points Unit 2023 2022 Δ Total avoided emissions from green bond proceeds Million tonnes CO 2 e 5.9 4.2 40 % Avoided emissions from projects in operation Million tonnes CO 2 e 2.8 1.4 100 % Potential avoided emissions from projects under construction Million tonnes CO 2 e 3.1 2.8 11 % § Accounting policies The water category definitions are based on GRI 303: Water and effluents (2018). Water withdrawal This includes all water resources that Ørsted either withdraws directly from groundwater or consumes from waterworks. This includes: – Withdrawal for process use (boilers, flue gas cleaning, fly ash management, etc.) – Withdrawal for conversion to steam or hot water and resale to business partners – Withdrawal for offices and other buildings The total volume of water withdrawal is meas- ured based on meter readings or invoices from suppliers. Surface water and seawater is used for cooling at the combined heat and power (CHP) plants. Produced water is water extracted as part of the processing of wood chips and used instead of third-party water. Freshwater withdrawal intensity Freshwater withdrawal intensity is calculated as freshwater withdrawal (surface water, groundwater, and third-party water) per unit heat and power generation. Water stress Water stress is measured at site level. The methodology used to assess water stress is WRI’s Aqueduct Water Risk Atlas. The calcu- lated output is Ørsted’s total withdrawal of water from water-stressed areas. Only ground- water and third-party water is included. Wastewater discharge Wastewater includes all planned and unplanned discharges of water from Ørsted. For facilities, wastewater discharges are recorded based on meter readings. Where wastewater is removed by road tanker, discharges are based on invoices. For offices and warehouses, wastewater dis- charges are presumed to be equivalent to water consumption. Water consumption Water consumption is calculated as water with- drawal minus wastewater discharges Other air emissions: nitrogen oxides (NO x ) and sulphur dioxide (SO 2 ) NO x and SO 2 emissions are only reported for CHPs. NO x and SO 2 emissions from other com- bustions are not included. NO x and SO 2 are primarily measured by continuous measure- ment, but may also be based on plant-specific emission factors. Environmental incidents An environmental incident is an unintended incident which has a negative impact on the environment. We report environmental inci- dents using operational scopes, such as safety incidents. We register all environmental incidents at facilities where we are responsi- ble for operations in terms of environmental management. The materiality of an incident is determined on the basis of an assessment of the extent of, the dispersion to, and the impact on the environ- ment. On this basis, all environmental inci- dents are categorised on a scale from 1 (slight impact) to 5 (massive impact). Actual incidents in categories 4 (major impact) and 5 (massive impact) are reported. Avoided emissions from green bond proceeds Avoided emissions from allocated green bond proceeds are calculated on the assumption that the generation from wind and solar farms replaces an equal quantity of power generated using fossil fuels. Emissions from operation of these renewable assets are assumed to be zero. The avoided emissions from green bond pro- ceeds are calculated as the wind or solar farm’s generation multiplied by an emission factor – the average emissions of electricity produced from fossil fuels at the specific geographical local of the asset. The emissions factor takes into account the weighted mix of oil, coal, and natural gas. The annual energy generation from projects in operation and projects under construction, as well as the resulting avoided emissions, are total figures for the projects (not adjusted for Ørsted’s ownership share). 1 Our freshwater withdrawal intensity target is 32 m 3 /GWh by 2025. 141 Sustainability statements | AppendixØRSTED ANNUAL REPORT 2023 Consolidated financial statements 1 January – 31 December 2023 → Western Trail, located in Wilbarger and Baylor counties, Texas, the US. 142 Financial statementsØRSTED ANNUAL REPORT 2023 Notes 1. Basis of reporting 1.1 Significant changes and events . . . . . . . . . . . . . . . . . . . . . . . . . . 149 1.2 Basis of preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 2. Return on capital employed 2.1 Segment information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 2.2 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 2.3 Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 2.4 Government grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 2.5 Research and development expenditures . . . . . . . . . . . . . . . 160 2.6 Other operating income and expenses . . . . . . . . . . . . . . . . . . 161 2.7 Employee costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 2.8 Share-based payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 3\. Capital employed 3.1 Intangible assets, and property, plant, and equipment . . 166 3.2 Impairments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 3.3 Acquisition of enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 3.4 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 3.5 Contract assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 3.6 Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 3.7 Supply chain finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 3.8 Other receivables and other payables . . . . . . . . . . . . . . . . . . . 178 3.9 Tax equity liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 3.10 Provisions and contingent liabilities . . . . . . . . . . . . . . . . . . . . . . 180 3.11 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 4. Ta x 4.1 Approach to taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 4.2 Tax on profit (loss) for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 4.3 Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 0 4.4 Our tax footprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 5\. Capital structure 5.1 Interest-bearing net debt and FFO . . . . . . . . . . . . . . . . . . . . . . . 199 5.2 Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 5.3 Hybrid capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 5.4 Liquidity reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 5.5 Maturity analysis of financial liabilities . . . . . . . . . . . . . . . . . . 207 5.6 Financial income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 208 6. Risk management 6.1 Risk framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 6.2 Energy price risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 6.3 Inflation and interest rate risks . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 6.4 Currency risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 6.5 Credit risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 6.6 Fair value measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 6.7 Energy trading portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 6.8 Categories of financial instruments . . . . . . . . . . . . . . . . . . . . . . 224 6.9 Sensitivity analysis of financial instruments . . . . . . . . . . . . . 225 7. Other notes 7.1 Related-party transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 7.2 Auditor's fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 7.3 Non-IFRS financial measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 7.4 Company overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 7.5 Events after the reporting period . . . . . . . . . . . . . . . . . . . . . . . . 231 Contents Financial statements Consolidated financial statements Consolidated statement of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Consolidated statement of comprehensive income � � � � � � � � � � � 144 Consolidated balance sheet � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � 145 Consolidated statement of shareholders' equity � � � � � � � � � � � � � � 146 Consolidated statement of cash flows � � � � � � � � � � � � � � � � � � � � � � � � � � 147 143 Financial statementsØRSTED ANNUAL REPORT 2023 Consolidated statement of income 1 January – 31 December Note DKKm 2023 2022 2.2, 2.4 Revenue 79,255 114,417 2.3 Cost of sales (46,624) (79,303) Other external expenses (7,406) (7,049) 2.7, 2.8 Employee costs (6,374) (5,278) Share of profit (loss) in associates and joint ventures (55) 114 2.6 Other operating income 10,329 14,119 2.6 Other operating expenses (10,408) (4,963) Operating profit (loss) before depreciation, amortisation, and impairment losses (EBITDA) 18,717 32,057 3.1 Amortisation and depreciation on intangible assets, and property, plant, and equipment (9,795) (9,754) 3.1, 3.2 Impairment losses on intangible assets, and property, plant, and equipment (26,775) (2,529) Operating profit (loss) (EBIT) (17,853) 19,774 Gain (loss) on divestment of enterprises 234 331 Share of profit (loss) in associates and joint ventures 36 40 5.6 Financial income 12,379 15,514 5.6 Financial expenses (13,822) (18,050) Profit (loss) before tax (19,026) 17,609 4.2 Tax on profit (loss) for the year (1,156) (2,613) Profit (loss) for the year (20,182) 14,996 Profit (loss) for the year is attributable to: Shareholders in Ørsted A/S (21,059) 14,549 Interests and costs, hybrid capital owners of Ørsted A/S 553 577 Non-controlling interests 324 (130) 5.2 Earnings per share (DKK) (50.1) 34.6 5.2 Diluted earnings per share (DKK) (50.1) 34.6 5.2 Proposed dividend per share (DKK) - 13.5 Consolidated statement of comprehensive income 1 January – 31 December Note DKKm 2023 2022 Profit (loss) for the year (20,182) 14,996 Other comprehensive income: Cash flow hedging: 6 Value adjustments for the year 25,017 (23,521) 5.2 Value adjustments transferred to income statement (4,143) 24,395 5.2 Value adjustments transferred to balance sheet - (116) Exchange rate adjustments: Exchange rate adjustments relating to net investments in foreign enterprises 548 (3,747) 6.4 Value adjustment of net investment hedges (328) 738 5.2 Value adjustments and hedges transferred to income statement (295) 676 Tax: Tax on hedging instruments (4,576) (902) Tax on exchange rate adjustments 10 666 Other: Share of other comprehensive income from associated companies, after tax 6 26 Other comprehensive income 16,239 (1,785) Total comprehensive income (3,943) 13,211 Comprehensive income for the year is attributable to: Shareholders in Ørsted A/S (4,837) 12,886 Interest payments and costs, hybrid capital owners of Ørsted A/S 553 577 Non-controlling interests 341 (252) Total comprehensive income (3,943) 13,211 Other comprehensive income All items in ‘Other comprehensive income’ may be recycled to the income statement. Cash flow hedging Value adjustments for the year for cash flow hedging amounting to DKK 25,017 million mainly consist of gains related to the hedging of power and, to a lesser extent, gains related to the hedging of gas. The gain of DKK 4,143 million transferred to the income statement mainly consists of gains related to the hedging of power. Exchange rate adjustments In 2023, foreign exchange gains relating to net investments in foreign enterprises amounting to DKK 548 million were primarily attributable to an increase of 3 % in the GBP exchange rate, partly countered by a decrease of 3 % in the USD exchange rate and a decrease of 3 % in the NTD exchange rate. A part of the net investment was hedged. 144 Financial statementsØRSTED ANNUAL REPORT 2023 Consolidated balance sheet 31 December Note Assets DKKm 2023 2022 3.1 Intangible assets 3,426 4,029 3.1 Land and buildings 7,777 7,980 3.1 Production assets 121,643 119,211 3.1 Fixtures and fittings, tools, and equipment 2,042 1,543 3.1 Property, plant, and equipment under construction 48,307 48,931 3.1 Property, plant, and equipment 179,769 177,665 Investments in associates and joint ventures 960 772 Receivables from associates and joint ventures 77 - Other securities and equity investments 167 182 6 Derivatives 1,356 1,804 4.3 Deferred tax 8,192 13,719 3.8 Other receivables 3,134 3,243 Other non-current assets 13,886 19,720 Non-current assets 197,081 201,414 3.4 Inventories 10,539 14,103 6 Derivatives 10,473 23,433 3.5 Contract assets 802 408 3.6 Trade receivables 11,107 12,701 3.8 Other receivables 10,530 20,289 Receivables from associates and joint ventures 74 - Income tax 483 419 5.4 Securities 29,902 25,197 5.4 Cash 10,145 16,178 Current assets 84,055 112,728 Assets 281,136 314,142 Note Equity and liabilities DKKm 2023 2022 5.2 Share capital 4,204 4,204 5.2 Reserves (10,251) (26,467) Retained earnings 62,829 88,331 5.2 Proposed dividends - 5,675 5.2 Equity attributable to shareholders in Ørsted A/S 56,782 71,743 5.3 Hybrid capital 19,103 19,793 3.11 Non-controlling interests 1,906 3,996 Equity 77,791 95,532 4.3 Deferred tax 3,439 7,414 3.10 Provisions 16,908 19,121 5.5 Lease liabilities 7,618 7,697 5.1 Bond and bank debt 79,236 60,451 6 Derivatives 13,763 24,121 3.5 Contract liabilities 3,297 3,085 3.9 Tax equity liabilities 13,610 14,490 3.8 Other payables 6,273 7,363 Non-current liabilities 144,144 143,742 3.10 Provisions 15,955 585 5.5 Lease liabilities 808 569 5.1 Bond and bank debt 384 2,830 6 Derivatives 8,449 33,438 3.5 Contract liabilities 2,785 2,269 Trade payables 14,915 20,641 3.9 Tax equity liabilities 3,397 1,903 3.8 Other payables 6,225 7,518 Income tax 6,283 5,115 Current liabilities 59,201 74,868 Liabilities 203,345 218,610 Equity and liabilities 281,136 314,142 145 Financial statementsØRSTED ANNUAL REPORT 2023 Consolidated statement of shareholders' equity 1 January – 31 December DKKm 2023 2022 Share capital Reserves 1 Retained earnings Proposed dividends Shareholders in Ørsted A/S Hybrid capital Non- controlling interests To t a l Group Share capital Reserves 1 Retained earnings Proposed dividends Shareholders in Ørsted A/S Hybrid capital Non- controlling interests To t a l Group Equity at 1 January 4,204 (26,467) 88,331 5,675 71,743 19,793 3,996 95,532 4,204 (24,778) 79,391 5,255 64,072 17,984 3,081 85,137 Comprehensive income for the year: Profit (loss) for the year - - (21,059) - (21,059) 553 324 (20,182) - - 14,549 - 14,549 577 (130) 14,996 Other comprehensive income: Cash flow hedging - 20,874 - - 20,874 - - 20,874 - 758 - - 758 - - 758 Exchange rate adjustments - (92) - - (92) - 17 (75) - (2,211) - - (2,211) - (122) (2,333) Tax on other comprehensive income - (4,566) - - (4,566) - - (4,566) - (236) - - (236) - - (236) Share of other comprehensive income of associated companies, after tax - - 6 - 6 - - 6 - - 26 - 26 - - 26 Total comprehensive income - 16,216 (21,053) - (4,837) 553 341 (3,943) - (1,689) 14,575 - 12,886 577 (252) 13,211 Coupon payments, hybrid capital - - - - - (546) - (546) - - - - - (529) - (529) Tax, hybrid capital - - - - - 2 - 2 - - - - - 13 - 13 Additions, hybrid capital - - - - - - - - - - - - - 3,693 - 3,693 Disposals, hybrid capital - - - - - (699) - (699) - - - - - (1,945) - (1,945) Proposed dividends - - - - - - - - - - (5,675) 5,675 - - - - Dividends paid - - 2 (5,675) (5,673) - (413) (6,086) - - 3 (5,255) (5,252) - (294) (5,546) Additions, non-controlling interests - - - - - - 537 537 - - - - - - 1,461 1,461 Acquisitions, non-controlling interests - - (4,477) - (4,477) - (2,555) (7,032) - - - - - - - - Other changes - - 26 - 26 - - 26 - - 37 - 37 - - 37 Equity at 31 December 4,204 (10,251) 62,829 - 56,782 19,103 1,906 77,791 4,204 (26,467) 88,331 5,675 71,743 19,793 3,996 95,532 1 See note 5.2 ‘Equity’ for more information on reserves. 146 Financial statementsØRSTED ANNUAL REPORT 2023 Consolidated statement of cash flows 1 January – 31 December Note DKKm 2023 2022 Operating profit (loss) before depreciation, amortisation, and impairment losses (EBITDA) 18,717 32,057 Reversal of gain (loss) on divestment of assets (5,745) (10,885) Change in derivatives 4,274 (8,687) Change in provisions 8,454 (1,935) Other items 287 (278) Change in inventories 3,656 1,419 Change in contract assets and liabilities 461 (1,303) Change in trade receivables 1,522 (2,875) Change in other receivables 3,834 2,742 Change in trade payables (5,309) 3,886 Change in tax equity liabilities 374 (353) Change in other payables (660) (38) Interest received and similar items 8,278 7,985 Interest paid and similar items (6,894) (8,548) 4.4 Income tax paid (2,717) (1,263) Cash flows from operating activities 28,532 11,924 Purchase of intangible assets, and property, plant, and equipment (38,203) (33,004) Sale of intangible assets, and property, plant, and equipment 8,189 24,052 3.3 Acquisition of enterprises - (3,406) Divestment of enterprises (3) 99 Purchase of other equity investments (124) 16 Purchase of securities (18,285) (9,414) Sale/maturation of securities 13,935 3,780 Change in other non-current assets (13) (4) Transactions with associates and joint ventures (247) (54) Dividends received and capital reductions 19 23 Cash flows from investing activities (34,732) (17,912) Supplementary statements Our supplementary statements of gross and net investment appear from note 3.0 ‘Capital employed’ and free cash flows (FCF) from note 2.1 ‘Segment information’. Gross investments by segment DKKm Gross investments DKKm Specification of ‘Cash flows from investing activities’ (DKK 34,732 million) to ‘Gross investments’ (DKK 38,509 million) is disclosed in note 3.0 ‘Capital employed’. Offshore Onshore Bioenergy & Other 28,613 9,069 727 38,5092023 37, 4 47 2022 39,307 2021 26,967 2020 23,305 2019 147 Financial statementsØRSTED ANNUAL REPORT 2023 Consolidated statement of cash flows – continued 1 January – 31 December Note DKKm 2023 2022 Proceeds from raising loans 17,584 37,090 Instalments on loans (1,580) (21,482) Instalments on leases (712) (582) Coupon payments on hybrid capital (546) (529) Repurchase of hybrid capital (699) (1,945) Proceeds from issuance of hybrid capital - 3,693 Dividends paid to shareholders in Ørsted A/S (5,673) (5,252) 3.11 Transactions with non-controlling interests (7,061) 1,170 Net proceeds from tax equity partners (182) (523) Collateral posted in relation to trading of derivatives (21,829) (48,885) Collateral released in relation to trading of derivatives 19,515 52,143 Restricted cash and other changes 1,448 (1,113) Cash flows from financing activities 265 13,785 Total net change in cash and cash equivalents (5,935) 7,797 5.4 Cash and cash equivalents at 1 January 16,175 8,614 Total net change in cash and cash equivalents (5,935) 7,797 Exchange rate adjustments of cash and cash equivalents (96) (236) 5.4 Cash and cash equivalents at 31 December 10,144 16,175 § Accounting policies ‘Cash flows from operating activities’ are deter- mined using the indirect method as operating profit (loss) before depreciation, amortisation, and impairment losses adjusted for changes in operating items without cash flow effect. Trade payables relating to purchases of intangible assets, and property, plant, and equipment are not recognised in ‘Change in trade payables’. ‘Change in tax equity liabilities’ relates to cash contributions from tax equity partners and repayment hereof through production tax credits (PTCs), investment tax credits (ITCs), and other tax attributes to tax equity partners. See also note 3.9 ‘Tax equity liabilities’. ‘Cash flows from investing activities’ comprise payments in connection with the purchase and sale of non-current assets and enterprises as well as the purchase and sale of securities that are not recognised as cash and cash equivalents. ‘Cash flows from financing activities’ comprise changes in the size or composition of equity and loans, including instalments on leases and net proceeds related to interest-bearing tax equity liabilities. Proceeds from the raising of short- term repo loans are presented net. Cash flows in currencies other than the func- tional currency are translated at the average exchange rates for the month in question, unless these differ significantly from the rates at the transaction date. 148 Financial statementsØRSTED ANNUAL REPORT 2023 Basis of reporting Note 1 For a detailed discussion about Ørsted's performance and financial position, please refer to the management's review. 1 As these acquisitions are with non- controlling interests, they are not included in cash flow from investing activities, but as cash flow from financing activities in our statutory cash flow statement. Impairment and cancellation fees US offshore and onshore projects Due to adverse impacts relating to our sup- ply chain and increased interest rates, com- bined with a lower anticipated probability of getting additional tax credits, a lower expected value from monetising these, and the timing and likelihood of obtaining final construction permits for Ocean Wind 1 as well as a change in OREC assumptions for Sunrise Wind, we have recognised impair- ment losses of DKK 26.8 billion in 2023. The majority of the impairment loss relates to our US offshore projects Ocean Wind 1 (DKK 19.9 billion), Sunrise Wind (DKK 2.1 bil- lion), and Revolution Wind (DKK 2.7 billion). See note 3.2 ‘Impairments’. Decision to cease development of Ocean Wind 1 and Ocean Wind 2 On 31 October, we decided to cease development of Ocean Wind 1 and Ocean Wind 2. In addition to the impairment loss recognised on Ocean Wind 1, we have recognised a provision relating to the expected contract cancellation fees not already covered by the impairment loss. The provision reflects our expectation to reuse the export cables for another project. Besides this, we have not assumed reuse or sale of other contracts. The total provision was DKK 15.0 billion at the end of 2023 and was recognised as ‘Onerous contracts’. See note 3.10 ‘Provisions and contingent liabilities’. Accounting policies Change in accounting policy From gross to net presentation of reve- nue and cost of sales from power trading activities. We have changed our accounting policy for presentation of revenue and related costs from the settlement of failed own- use power contracts. These are contracts settled with delivery of physical power where the purpose of entering into them are hedging or optimisation of our revenue. Previously, we recognised revenue and the cost of sales on a gross basis when these contracts were settled. See note 1.2 ‘Basis of preparation’. Divestments Hornsea 2 offshore transmission asset In July, we completed the divestment of our 50 % share of the Hornsea 2 offshore transmission asset in the UK. The transac- tion resulted in proceeds of DKK 5 billion. See note 2.2 ‘Revenue’ and note 3.4 ‘Inventories’. London Array In August, we completed the divestment of our remaining 25 % ownership share in the London Array Offshore Wind Farm in the UK. The transaction resulted in proceeds of DKK 6.1 billion. See note 2.6 ‘Other operating income and expenses’ and note 3.1 ‘ Intangible assets, and property, plant, and equipment’. Gode Wind 3 In December, we completed the divestment of our offshore wind farm Gode Wind 3 in Germany. The transaction resulted in proceeds of DKK 2 billion. See note 2.6 ‘Other operating income and expenses’ and note 3.1 ‘ Intangible assets, and property, plant, and equipment’. Acquisitions Lease Area 500 1 In September, we completed the acquisition of Eversource's 50 % interest in Lease Area 500 in north-eastern USA, which was an uncontracted federal offshore lease area owned jointly by Ørsted and Eversource. See note 3.11 ‘Non-controlling interests’. Ocean wind 1 1 In July, we completed the acquisition of the Public Service Enterprise Group's (PSEG) 25 % equity stake in the offshore wind energy project Ocean Wind 1. The acquisi- tion provided Ørsted with 100 % ownership of Ocean Wind 1. See note 3.11 ‘Non-controlling interests’. Significant changes and events Note 1.1 The financial position and performance of Ørsted was particularly affected by the following events and transactions during 2023. 149 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes This section provides an overall description of the accounting policies applied in our consolidated financial statements as well as the European Single Electronic Format (ESEF) reporting requirements. We provide a more detailed description of the accounting policies applied in the specific notes. Key accounting estimates and judgements as well as new and amended IFRS standards and interpreta- tions are discussed in detail later in this note. Accounting policies The consolidated financial statements have been prepared in accordance with the IFRS Accounting Standards as adopted by the EU and further require- ments in the Danish Financial Statements Act (Årsregnskabsloven). The accounting policies have been applied con- sistently in the financial year and for comparative figures, except for one change in accounting policy – see below. Change in accounting policy From gross to net presentation of revenue and cost of sales from power trading activities. We have changed our accounting policy regard- ing presentation of revenue and related costs from the settlement of failed own-use power contracts. These are contracts settled with delivery of physical power where the purpose of entering into them are hedging or optimisation of our revenue. Previously, we recognised revenue and the cost of sales on a gross basis when these contracts were settled. As the gross presentation does not reflect the magnitude of the Group's power trading activities, we have changed the presentation to a net presentation of revenue and related costs. It is management's view that such presentation better reflects the power trading activities. The change only impacts revenue and the cost of sales in the Offshore segment, and thus our EBITDA is not impacted. The 2022 comparisons have been adjusted accordingly. The impact on our 2023 and 2022 numbers is illustrated in the table to the right. Measurement basis The consolidated financial statements have been pre- pared on historical cost basis, except for derivatives, gas in non-Danish storage facilities, financial instru- ments in the trading portfolio, and carbon emission allowances in the trading portfolio, which are meas- ured at market value. Consolidation The consolidated financial statements comprise the financial statements of Ørsted A/S (the parent com- pany) and subsidiaries controlled by Ørsted A/S. See more in note 7.4 ‘Company overview’. Basis of preparation Note 1.2 The consolidated financial statements have been pre- pared as a consolidation of the parent company's and the individual subsidiaries' financial statements, which have been prepared in accordance with the Group's accounting policies. Intra-group income, expenses, shareholdings, balances, and dividends as well as realised and unrealised gains and losses arising from intra-group transactions are eliminated in our consolidated financial statements. Unrealised gains and losses resulting from transactions with associates and joint ventures are eliminated to the extent of our ownership interest. Enterprises are accounted for as associates if we hold or have the ability to exercise, directly or indirectly, 20-50 % of the voting rights and do not exercise control. However, we carry out a specific assessment of our ability to exercise influence, including our ability to influence financial and operational decisions and thus our return. Enterprises that satisfy the criteria for joint control are accounted for as investments in joint ventures, unless the nature of the joint arrangement is considered a joint operation. Our shares in joint operations are recognised in the consolidated balance sheet through recognition of the Group's own assets, liabilities, income, and expenses. The proportionate share of realised and unrealised gains and losses arising from intra-group transactions between fully consolidated enterprises and joint oper- ations is eliminated. 2023 Previous accounting policy Change New accounting policyRevenue 188,482 (9,227) 79,255Cost of sales 255,851 (9,227) 46,6242022 Reported Change AdjustedRevenue 1132,277 (17,860) 114,417Cost of sales 297,163 (17,860) 79,303 The table illustrates the change in accounting policy regarding presentation of revenue and related costs from settlement of failed own-use contracts. 1 The line item ‘Sale of power’ is impacted in note 2.2 ‘Revenue’. 2 The line item ‘Power including certificates’ is impacted in note 2.3 ‘Cost of sales’. 150 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Foreign currency translation The financial statements are presented in million Danish kroner (DKKm), unless otherwise stated. Exchange differences arising between the exchange rate on the transaction date and on the date of pay- ment are recognised in profit (loss) for the year as financial income or expenses. Foreign currency transactions are translated into the functional currency defined for each entity, using the exchange rates prevailing at the transaction date. Receivables, payables, and other monetary items in foreign currencies are translated at the exchange rates on the balance sheet date. The difference between the exchange rate on the balance sheet date and on the date at which the receivable or pay- able arose is recognised in profit (loss) for the year as financial income or expenses. Financial statements of foreign subsidiaries, joint oper- ations, associates, and joint ventures are translated into DKK at monthly average exchange rates insofar as these do not deviate materially from the actual exchange rates at the transaction dates. Balance sheet items are translated at the exchange rates on the balance sheet date. All exchange differences are recognised in profit (loss) for the year, except for exchange differences arising on: · translation of the opening equity of these entities at the exchange rates on the balance sheet date · translation of the statements of comprehensive income of these enterprises from ‘the average-for- the-month exchange rates’ to ‘the exchange rates on the balance sheet date’ · translation of balances accounted for as part of the total net investment · translation of the portion of loans and derivatives that has been entered into to hedge the net invest- ment in an enterprise, and that provides an effec- tive hedge against corresponding foreign exchange gains (losses) on the net investment. The above types of exchange differences are recog- nised in ‘Other comprehensive income’. Such exchange rate adjustments are divided between the equity of the parent company and the equity of the non- controlling interests. On full or partial divestment of the net investment, the accumulated exchange rate adjustments are recognised as follows: · Disposal resulting in loss of control: The accumulated exchange rate adjustments, including any associated hedges, are recognised in the profit (loss) for the year if a foreign exchange gain (loss) is realised by the selling enterprise. Any foreign exchange gain (loss) is transferred to the item in which the gain (loss) from the disposal is rec- ognised. The part of the foreign currency translation reserve that relates to non-controlling interests is not transferred to profit (loss) for the year. · Disposal not resulting in loss of control: A proportionate share of the foreign currency trans- lation reserve is transferred from the parent com- pany shareholders' share of equity to the minority shareholders' share of equity. Repayment of balances that are considered part of the net investment does not constitute a partial disposal of the subsidiary. iXBRL reporting We are required to file our annual report in the European Single Electronic Format (‘ESEF’) using the XHTML format and to tag the consolidated financial statements, including notes, using the Inline eXtensible Business Reporting Language (iXBRL). The iXBRL tags comply with the ESEF taxonomy. Where a financial statement line item is not defined in the ESEF taxon- omy, an extension to the taxonomy has been created. The annual report submitted to the Danish Financial Supervisory Authority consists of the XHTML docu- ment together with certain technical files, all included in a ZIP file named Orsted-2023-12-31-en.zip. Non-IFRS financial measures We present financial measures in the consolidated financial statements to describe the Group's finan- cial performance, financial position, and cash flows. We use these financial measures as we believe they provide valuable information to our stakeholders and management. The financial measures should not be considered a replacement for the performance measures as defined under IFRS, but rather as supplementary information. The financial measures may not be comparable to similar titled measures presented by other companies, as the definitions and calculations may be different. The financial measures most commonly presented in the Ørsted annual report are: · EBITDA and EBITDA excluding new partnerships and cancellation fees · funds from operations (FFO) · adjusted interest-bearing net debt · free cash flow (FCF) · ROCE. Our definitions of the financial measures are included in note 7.3 ‘Non-IFRS financial measures’. Basis of preparation Note 1.2 – continued 151 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Implementation of new and changed accounting standards and interpretations The International Accounting Standards Board (IASB) has issued amended standards that are effective for the first time in 2023\. None of them required a change in our accounting policies. New standards and interpretations IASB has issued new or amended accounting stand- ards and interpretations that have not yet become effective and have consequently not been imple- mented in the consolidated financial statements for 2023\. Ørsted expects to adopt the accounting stand- ards and interpretations as they become mandatory, except for the early implementation of the new dis- closures to IAS 7 and IFRS 7 ‘Supplier Finance Arrange- ments’. See note 3.7 ‘Supply chain finance’. The new or amended standards or interpretations are not expected to have a significant impact on our con- solidated financial statements. Key accounting estimates and judgements The use of reasonable estimates and judgements is an essential part of the preparation of the consolidated financial statements. Given the uncertainties inherent in our business activi- ties, we make a number of estimates and judgements. The estimates and judgements are based on assump- tions concerning future developments, which affect our application of accounting policies and the reported amounts of our assets, liabilities, sales, costs, cash flows, hedge reserves, and related disclosures. Actual amounts may differ from the amounts estimated and judgements made, as more detailed information becomes available. We regularly reassess these estimates and judge- ments based on, among other things, historical expe- rience, the current situation in the financial markets, and a number of other relevant factors, e.g. the updates in annual estimated production. Changes in estimates are recognised in the period in which the estimate in question is revised. Accounting estimates, judgements, and assumptions which may entail a risk of material adjustments in subsequent years are listed in the table above. In addition, we make judgements when we apply the accounting policies. Reference is made to the specific notes for further information on the key accounting estimates and judgements as well as the assumptions applied. Basis of preparation Note 1.2 – continued Note Key accounting estimates and judgements Estimate/judgement Potential impact from accounting estimates and judgementsVariable selling prices related to divestments of offshore wind farms and offshore transmission assets Estimate2.6 Other operating income and expensesConsolidation method for partnerships JudgementClassification of divestments Judgement 3.2 Impairments Key assumptions in impairment tests Estimate 3.9 Tax equity liabilities Recognition of tax equity partnerships Estimate/judgement 3.10 Provisions and contingent liabilities Assumptions for provisions Estimate4.2 Tax on profit (loss) for the year Recognition of income taxes Estimate Valuation of long-term power purchase agreements Estimate/judgement6.1 Risk frameworkHedge accounting Estimate/judgement ↑ Key accounting estimates and judgements and their level of potential impact on the consolidated financial statements. The impact relates to objectivity and business practice. Very objective/market-conforming Objective/partially conforming Partially subjective/partially distinctive Subjective/distinctive to Ørsted 152 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Return on capital employed (ROCE) is a key ratio showing how profitable our business activities are. Our target is an average ROCE of approx. 14 % for the Group for the 2024-2030 period. Return on capital employed was -14.2 % in 2023. Adjusted for impairment losses and cancellation fees, ROCE amounted to 12.9 % in 2023. See note 2.1 ‘Segment information’. Return on capital employed Note 2 Return on capital employed % Return on capital employed totalled -14.2 % in 2023 against 16.8 % in 2022. EBITDA and EBIT DKKbn -14.2 14.8 8.3 12.2 16.8 EBITDA 18�7 EBIT -17�9 EBIT DKKm Impairment losses -26,775 Remaining EBIT 18,543Cancellation fees -9,621 EBIT of DKK -17,853 million in 2023 -14.2 % 32.1 19.0 11.6 24.3 16.6 2023 2022 2021 2020 2019 19.8 16.2 9.0 2019 2020 20222021 2023 153 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Segment information Note 2.1 Geographical distribution Geographical revenue is broken down, as far as possi- ble, by the customer's geographical location based on supply point. A significant part of our sales takes place via power exchanges and gas hubs in Europe, whose physical locations do not reflect the geographical locations of our customers. When breaking down these sales by geographical location, we use the physical locations of the exchange or hub since we do not know the physical location of our customers in all cases. No single customer accounted for more than 10 % of our consolidated revenue in 2023 or 2022. Non-current assets are broken down geographically, based on the physical locations of the assets. Offshore DKKmRevenue 58,427EBITDA 13,817Gross investments 28,613 Primary activities Development, construction, ownership, and operation of offshore wind farms in the UK, Europe, the US, and Taiwan as well as develop- ment of renewable hydrogen and green fuels in Europe and on the US Gulf Coast. Onshore DKKmRevenue 2,620EBITDA 2,970Gross investments 9,069 Primary activities Development, construction, ownership, and operation of onshore wind and solar farms in the US and in Europe, including integrated storage. Bioenergy & Other DKKmRevenue 19,230EBITDA 1,523Gross investments 727 Primary activities Generation of heat and power and delivery of ancillary services from CHP plants in Denmark, optimisation of our gas portfolio, and of our Danish and Swedish B2B customers. § Accounting policies Our operating segments are consistent with our internal reporting to our chief operating decision-maker, the Group Executive Team. The operating segments are managed primar- ily on the basis of EBITDA and investments. Financial income, financial expenses, and tax are allocated to the operating segments, while we manage them at Group level. Segment income and segment expenses are those items that, in our internal management reporting, are directly attributable to individual segments or can be indirectly allocated to indi- vidual segments on a reliable basis. Revenue DKKm 2023 (2022) Total 79,255 (114,417) UK TW DE Other DK US NL IR 45,694 (45,017) 4,093 (7,614) 659 (937) 2,192 (2,619) 17,149 (38,471) 1,042 (5,439) 7,516 (13,237) 910 (1,083) Revenue, intangible assets, and property, plant, and equipment are presented based on the locations of our customers and assets as well as the exchanges on which we trade. Intangible assets and property, plant, and equipment DKKm 2023 (2022) Total 183,195 (181,694) 69,144 (68,352)US 11,137 (12,182)DK 1,594 (1,357)FR 28,755 (24,476)TW 4,335 (4,722)NL 43,747 (48,963)UK 4,451 (5,017)IR 739 (5)Other 16,996 (15,141)DE 2,297 (1,479)PL 154 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes The column ‘Other activities/eliminations’ primarily covers the elimination of inter-segment transactions. It also includes income and costs, assets and liabilities, investment activity, taxes, etc., handled at Group level. 1 Including the elimination of other activities, the total elimination of intra-group revenue amounts to DKK -4,896 million, which primarily relates to our Shared Functions services as well as our B2B business activities. Other 2023 income statementBioenergyReportableactivities/DKKm Offshore Onshore& Othersegmentseliminations To t a lExternal revenue 57,062 2,643 19,525 79,230 25 79,255Intra-group revenue 1,365 (23) (295) 1,047 (1,047) 1-Revenue 58,427 2,620 19,230 80,277 (1,022) 79,255Cost of sales (31,773) (129) (15,024) (46,926) 302 (46,624)Employee costs and other external expenses (9,712) (2,460) (2,730) (14,902) 1,122 (13,780)Gain (loss) on disposal of non-current assets 5,751 - (6) 5,745 - 5,745Additional other operating income and expenses (8,829) 2,948 52 (5,829) 5 (5,824)Share of profit (loss) in associates and joint ventures (47) (9) 1 (55) - (55)EBITDA 13,817 2,970 1,523 18,310 407 18,717Depreciation and amortisation (6,815) (1,957) (759) (9,531) (264) (9,795)Impairment losses (25,526) (927) (322) (26,775) - (26,775)Operating profit (loss) (EBIT) (18,524) 86 442 (17,996) 143 (17,853)Key ratiosIntangible assets, and property, plant, and equipment 111,188 62,626 8,132 181,946 1,249 183,195Equity investments and non-current receivables 770 143 92 1,005 167 1,172Net working capital, capital expenditures (3,285) (1,001) (256) (4,542) - (4,542)Net working capital, work in progress 1,705 - - 1,705 - 1,705Net working capital, tax equity (1,365) (14,446) - (15,811) - (15,811)Net working capital, other items 4,513 461 870 5,844 1,950 7,794Derivatives, net (3,645) (6,311) (738) (10,694) 311 (10,383)Decommissioning obligations (8,840) (2,062) (2,075) (12,977) - (12,977)Other provisions (16,865) (2) (1,022) (17,889) (1,997) (19,886)Tax, net 2,187 (3,787) (348) (1,948) 901 (1,047)Other receivables and other payables, net (2,789) 13 . (2,776) (1,274) (4,050)Capital employed at 31 December 83,574 35,634 4,655 123,863 1,307 125,170Return on capital employed (ROCE), % (14.2)Cash flows from operating activities 21,209 609 2,550 24,368 4,164 28,532Gross investments (28,613) (9,069) (727) (38,409) (100) (38,509)Divestments 1,500 5 61 1,566 (24) 1,542Free cash flow (FCF) (5,904) (8,455) 1,884 (12,475) 4,040 (8,435) Segment information Note 2.1 – continued 155 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes The column ‘Other activities/eliminations’ primarily covers the elimination of inter-segment transactions. It also includes income and costs, assets and liabilities, investment activity, taxes, etc., handled at Group level. 1 Including the elimination of other activities, the total elimination of intra-group revenue amounts to DKK -7,296 million, which primarily relates to our Shared Functions services as well as our B2B business activities. Other 2022 income statementBioenergyReportableactivities/DKKm Offshore Onshore& Othersegmentseliminations To t a lExternal revenue 61,110 3,014 50,279 114,403 14 114,417Intra-group revenue 8,151 - (4,036) 4,115 (4,115) 1-Revenue 69,261 3,014 46,243 118,518 (4,101) 114,417Cost of sales (48,538) (57) (34,748) (83,343) 4,040 (79,303)Employee costs and other external expenses (8,410) (1,831) (2,370) (12,611) 284 (12,327)Gain (loss) on disposal of non-current assets 10,864 43 (22) 10,885 - 10,885Additional other operating income and expenses (3,716) 2,472 (487) (1,731) 2 (1,729)Share of profit (loss) in associates and joint ventures 108 3 3 114 - 114EBITDA 19,569 3,644 8,619 31,832 225 32,057Depreciation and amortisation (7,006) (1,644) (859) (9,509) (245) (9,754)Impairment losses (2,529) - - (2,529) - (2,529)Operating profit (loss) (EBIT) 10,034 2,000 7,760 19,794 (20) 19,774Key ratiosIntangible assets, and property, plant, and equipment 114,130 57,320 8,868 180,318 1,376 181,694Equity investments and non-current receivables 605 100 124 829 167 996Net working capital, capital expenditures (5,050) (572) (43) (5,665) - (5,665)Net working capital, work in progress 1,430 41 - 1,471 - 1,471Net working capital, tax equity - (15,157) - (15,157) - (15,157)Net working capital, other items 9,093 85 873 10,051 1,877 11,928Derivatives, net (25,914) (7,604) 99 (33,419) 1,097 (32,322)Decommissioning obligations (10,233) (1,769) (2,074) (14,076) - (14,076)Other provisions (1,910) (39) (1,520) (3,469) (2,161) (5,630)Tax, net 5,598 (3,938) (1,119) 541 1,068 1,609Other receivables and other payables, net 2,192 (4) 3 2,191 (936) 1,255Capital employed at 31 December 89,941 28,463 5,211 123,615 2,488 126,103Return on capital employed (ROCE), % 16.8Cash flows from operating activities 5,272 2,509 2,622 10,403 1,521 11,924Gross investments (26,710) (10,396) (267) (37,373) (74) (37,447)Divestments 25,451 56 (4) 25,503 133 25,636Free cash flow (FCF) 4,013 (7,831) 2,351 (1,467) 1,580 113 Segment information Note 2.1 – continued 156 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Revenue Note 2.2 Other Other RevenueBioenergyactivities/2023 Bioenergyactivities/2022 DKKm Offshore Onshore& Othereliminations total Offshore Onshore& Othereliminations totalGeneration of power 10,585 2,171 6,306 - 19,062 15,149 2,121 12,701 - 29,971Sale of power 25,329 3 395 (288) 25,439 34,392 - 5,936 (4,099) 36,229Revenue from construction of wind farms and transmission assets 6,589 148 - - 6,737 11,640 - - - 11,640Generation and sale of heat and steam - - 3,776 - 3,776 - - 3,002 - 3,002Sale of gas - - 6,296 - 6,296 - - 20,954 - 20,954Distribution and transmission - - 309 (1) 308 - - 277 (5) 272O&M and other services 4,045 163 942 (733) 4,417 2,403 31 733 (45) 3,122Total revenue from customers 46,548 2,485 18,024 (1,022) 66,035 63,584 2,152 43,603 (4,149) 105,190Government grants 9,518 296 364 - 10,178 4,831 862 493 - 6,186Miscellaneous revenue 2,361 (161) 842 - 3,042 846 - 2,147 48 3,041Total revenue 58,427 2,620 19,230 (1,022) 79,255 69,261 3,014 46,243 (4,101) 114,417Timing of revenue recognition from customersAt a point in time 34,657 2,485 10,722 (1,022) 46,842 48,833 2,152 26,564 (4,149) 73,400Over time 11,891 - 7,302 - 19,193 14,751 - 17,039 - 31,790Total revenue from customers 46,548 2,485 18,024 (1,022) 66,035 63,584 2,152 43,603 (4,149) 105,190Revenue from sale of goods and servicesRevenue from sale of goods 54,602 2,585 18,736 (303) 75,620 66,984 3,001 45,837 (4,044) 111,778Revenue from sale of services 3,825 35 494 (719) 3,635 2,277 13 406 (57) 2,639Total revenue 58,427 2,620 19,230 (1,023) 79,255 69,261 3,014 46,243 (4,101) 114,417 Revenue The timing of transfer of goods or services to customers is catego- rised as follows: ‘At a point in time’ mainly comprises: · sale of power or gas in the market, e.g. Nord Pool, TTF, NBP, and ERCOT · sale of transmission assets from offshore wind farms. ‘Over time’ mainly comprises: · construction agreements for wind farms and transmission assets · long-term contracts with customers to deliver power, heat, or gas. Backlog Order backlog for the construction of wind farms and offshore trans- mission assets is remaining revenue on construction agreements to be recognised in future years. The overview does not include revenue from contracts with customers to deliver gas, heat, and power, or our operations and maintenance agree- ments. For these types of goods and services, we recognise the revenue that corresponds directly to the value transferred to the customer. Order backlogDKKm 2023 202231 December 6,538 5,989Within one year 99 % 43 %In more than one year 1 % 57 % Revenue for the year decreased by 31 % to DKK 79,255 million in 2023\. The decrease was primarily driven by significantly lower power and gas prices across all mar- kets as well as lower volumes of gas and power sold. Revenue from construction agreements was DKK 6,737 million, mainly relating to the construc- tion of Borkum Riffgrund 3 for partners and the divestment of the Hornsea 2 transmission asset. In 2022, revenue from construction agreements mainly related to the farm-down of 50 % of the Hornsea 2 offshore transmission asset and the contruction of Greater Changhua 1 for partners. Income from government grants increased in 2023 due to power prices being below subsidy prices, leading to a higher subsidy per MWh produced. On 1 January 2023, we changed our accounting policy with respect to presentation of revenue and related costs from the settlement of failed own-use power contracts. See more in note 1.2 ‘Basis of preparation’. 157 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Revenue Note 2.2 – continued § Accounting policies Revenue is measured based on the consider- ation specified in a contract with a customer (transaction price) and excludes amounts collected on behalf of third parties, i.e. VAT. We recognise revenue when we transfer con- trol over a product or service to a customer or a partner. If a part of the transaction price is variable, i.e. bonus payments, incentive payments for unmissed deadlines, etc., the variable con- sideration is recognised in revenue when it is highly probable that the revenue will not be reversed in subsequent periods. We adjust the transaction price for the time value of money if the payments exceed twelve months. Generation of power Generation of power is the sale of power produced at our own wind farms, solar farms, and power stations as well as the sale of ancillary services. We recognise revenue as the power is produced, since this is when delivery to the customers occurs. Fees for having CPH plants on standby or ready to increase or decrease the generation of power to balance the demand and supply in the system is considered one performance obligation fulfilled over time. The consideration for the power is due when the actual power is delivered to the customer. Sale of power Sale of power includes revenue from the sale of power sourced from other producers. This includes the sale of power sourced from investor power purchase agreements, third- party balancing contracts, exchanges, and other sales contracts. The sale is recognised when the power is delivered to the grid. Sales contracts for a fixed amount of power at a variable price, or where we are exclusive suppliers to the customer at a variable price, are considered one performance obligation with multiple deliveries to be satisfied over time. For such contracts and for long-term agreements on selling power at a fixed price, we recognise revenue in the amount up to which we have a right to invoice. The consideration for the power is due when the actual power is delivered to the customer. Revenue from construction of wind farms Revenue from construction of wind farms includes development and construction. The construction agreements cover the construction phase from design to delivery of an operational asset. The agreement con- sists of two performance obligations: · Wind farms. · Offshore transmission assets, if applicable. The construction agreements cover our partners' shares of the construction of the wind farm and offshore transmission assets, if applicable. If our contracts include multi- ple performance obligations, the transac- tion price will be allocated to each perfor- mance obligation based on the stand-alone selling prices. Where these are not directly observable, they are estimated based on the expected cost-plus margin. We recognise revenue over time, using an input method to measure progress towards complete satisfaction of the performance obligation because the customer gains control of the wind farm during the construc- tion process. The input method reflects the ongoing transfer of control. The consideration for the construction of an offshore wind farm consists of a fixed fee and a relatively minor variable fee, depending on when the wind farm can be put into opera- tion. The consideration for an offshore trans- mission asset is a fixed fee. After signing the construction agreement, we carry out an assessment determining when the wind farm is expected to be com- pleted. We calculate the size of the variable payment on this basis. We only recognise the variable fee when it is highly probable that a subsequent reversal will not take place. Our partner pays the fixed consideration based on a payment schedule. The payment schedule is determined and based on the expected progress of the construction and transfer of control to the customer. Generation and sale of heat and steam Heat is sold under long-term heat contracts and recognised when the heat is delivered to our customer. The individual heat customer has made a prepayment to finance the majority of our CAPEX associated with the biomass con- version of the CHP plant. The prepayment is recognised as a contract liability, and it is also recognised as revenue in step with the transfer of heat to the customer. Payment for the sale of heat consists of fixed costs associated with operations and mainte- nance of a CHP plant, fuel costs for the gen- eration of heat, and a financial return. The consideration is due when delivered. Sale of gas Sale of gas is our gas sourced from other producers, and it is recognised when the gas is transferred to our buyer. The transfer of control occurs either when the gas is injected into the distribution system or delivered to the customer. Sales contracts for a fixed amount of gas at a variable price, or where we are exclusive sup- pliers to the customer at a variable price, are considered one performance obligation with multiple deliveries to be satisfied over time. For such contracts, we recognise revenue in the amount up to which we have a right to invoice. Some long-term gas sales contracts include clauses which give the right to rene- gotiate the fixed sales prices. Expectations for the outcomes of renegotiations are not included in revenue before we know the out- come of the individual renegotiations. The consideration for the gas is due when the gas is injected into the distribution system or delivered to the customer. Distribution and transmission Fees for distribution and transmission of oil is recognised when the oil is delivered to the buyer, or when the capacity is made available. Revenue is calculated as the amount to which we are entitled when the service is delivered to the customer, and consideration is payable when invoiced. O&M and other services Revenue from providing services is recog- nised over time as our customers simulta- neously receive and consume the benefits provided. For fixed-priced contracts, revenue is recog- nised based on the actual service rendered at the end of the reporting period as a pro- portion of the total services to be rendered. This is determined based on the actual labour hours spent relative to the total labour hours expected. Fixed-price contracts are invoiced on a monthly basis, and consideration is payable when invoiced. Variable fee services are due after the services are rendered. 158 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Cost of sales Note 2.3 Other Other Cost of salesBioenergyactivities/2023 Bioenergyactivities/2022 DKKm Offshore Onshore& Othereliminations total Offshore Onshore& Othereliminations totalPower including certificates 23,500 - 686 (134) 24,052 36,902 - 6,172 (4,014) 39,060Costs of construction of wind farms and trans-mission assets 6,527 53 - - 6,580 9,570 - - - 9,570Biomass - - 3,753 - 3,753 - - 3,323 - 3,323Coal - - 2,017 (7) 2,010 - - 2,955 - 2,955Gas - - 5,640 (1) 5,639 - - 19,676 - 19,676Distribution and transmission costs 1,527 37 1,408 (59) 2,913 2,066 27 1,507 (50) 3,550Other cost of sales 219 39 1,520 (101) 1,677 - 30 1,115 24 1,169To t a l 31,773 129 15,024 (302) 46,624 48,538 57 34,748 (4,040) 79,303 Cost of sales decreased by 41 % to DKK 46,624 million in 2023. The decrease was primarily due to the lower power and gas prices as well as the lower power and gas volumes sold across all markets. ‘Costs of construction of wind farms and transmission assets’ was DKK 6,580 million, mainly relating to the construction of Borkum Riffgrund 3 for partners and the divestment of the remaining 50 % of the Hornsea 2 off- shore transmission asset to an Ofgem-appointed buyer. In 2022, ‘Costs of construction of wind farms and transmission assets’ was DKK 9,570 million, mainly relating to the construction of Greater Changhua 1 for partners and the farm-down of the first 50 % of the offshore transmission asset at Hornsea 2 to partners. On 1 January 2023, we changed our accounting policy with respect to presentation of revenue and related costs from the settlement of failed own-use power contracts. See more in note 1.2 ‘Basis of preparation’. § Accounting policies Ørsted constructs offshore transmission assets in the UK which are required to be divested to third parties due to EU unbundling regulations. The construction costs are presented as inven- tories and transferred to cost of sales when the asset is divested to either a farm-down partner or to the buyer appointed by Ofgem. 159 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Government grants Note 2.4 Research and development expenditures Note 2.5 Government grants DKKm 2023 2022Government grants recognised in profit (loss) for the year under revenue 10,178 6,186Government grants recognised in profit (loss) for the year under other operating income 26 28Government grants recognised in the balance sheet (26) (28)Government grants recognised for the year 10,178 6,186 Energinet, the transmission system operator in Denmark, administers subsidies for environmentally sustainable power generation, including biomass and offshore wind farms. We treat the subsidies as a government grant, as it is paid by the Danish state. In the UK, we receive subsidies under two schemes: contracts for difference (CfD) and the Renewable Obligation scheme (renewable obligation certificate (ROC) regime). The Burbo Bank Extension, Walney Extension, and Hornsea 1 offshore wind farms are under the CfD regime, while our other UK wind farms are entitled to ROCs. We treat the payments from the schemes as government grants. Feed-in tariffs from our Irish, French, Dutch, and German wind farms are also recognised as govern- ment grants. Expensed research and development expenditures 2023Bioenergy DKKm Offshore 1Onshore& Other To t a lResearch 239 - - 239Development 1,606 460 1 2,067To t a l 1,845 460 1 2,306 Expensed research and development expenditures 2022DKKmResearch 122 - - 122Development 1,736 266 10 2,012To t a l 1,858 266 10 2,134 1 In 2023, development expenditures in Offshore include P2X development costs of DKK 338 million (2022: DKK 159 million). § Accounting policies Government grants comprise grants for environmentally sustainable power generation, grants for the funding of development projects, investment grants, etc. Government grants are recognised when there is reason- able assurance that the grants will be received. As grants for power generation are intended as a com- pensation for the price of power, we systematically rec- ognise the grants under revenue in step with the power generation and thus the related revenue. § Accounting policies Research costs are costs incurred to find new or improve existing technologies (e.g. improving offshore foundations, optimising the blade stability and performance of wind farms, and developing new ways of converting renewable electrons to renewable molecules and synthetic fuels). Research costs are recognised in the income statement as incurred. Development costs primarly comprise salaries (presented in Note 2.7 ‘Employee costs’) as well as internal and external costs, which can be directly or indirectly attributed to design and development of offshore and onshore wind farms, solar farms, P2X production facilities, and energy storage facilities. Development costs are expensed until the capitalisation criteria are met. Development costs incurred after that are capitalised as ‘Property, plant, and equipment under construction’ (see note 3.1 ‘Intangible assets, and property, plant and equipment’). For subsidies in the US, see note 3.9 ‘Tax equity liabilities’. Income from government grants increased in 2023 due to power prices being below subsidy prices, leading to a higher subsidy per MWh produced. 160 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Other operating income and expenses Note 2.6 Other operating incomeDKKm 2023 2022Gain on divestment of assets 5,895 11,018Insurance compensation 116 -US tax credits and tax attributes 2,577 2,556Other compensation 800 175Miscellaneous operating income 941 370To t a l 10,329 14,119 Other operating expensesDKKm 2023 2022Cancellation fees 9,621 -Ineffective hedges, etc. 512 4,591 Loss on divestment of assets 150 133Miscellaneous operating expenses 125 239To t a l 10,408 4,963 Other operating income In 2023, ‘Other operating income’ was DKK 10,329 million, which was DKK 3,790 million lower than in 2022. In 2023, ‘Gain on divestment of assets’ primarily related to the divestment of London Array, the 50 % farm-down of Gode Wind 3, and other minor adjust- ments to finalised projects. In 2022, ‘Gain on divest- ments of assets’ related to the 50 % farm-downs of Hornsea 2 and Borkum Riffgrund 3. ‘Other compensation’ was primarily compensations regarding outages and curtailments from TenneT, the German grid operator, and compensations from US operating asset performance guarantees. ‘Miscellaneous operating income’ primarily related to adjustment of provisions toward partners. Other operating expenses ‘Cancellation fees’ amounted to DKK 9,621 million and related to the decision to cease the development of Ocean Wind 1. Costs related to fulfilling and cancelling contracts on Ocean Wind 1 were recognised as ‘Cancellation fees’ when the obligation arose, and to the extent these exceeded the provision for onerous contracts made as part of the impairment losses recognised in our interim report for the first nine months of 2023\. Adjustments to this provision will be recognised in ‘Other operating expenses’ as ‘Cancellation fees’. See note 3.10 ‘Provisions and contingent liabilities’ for more information about the cancellation fees and pro- visions made in relation to this. ‘Ineffective hedges’ in 2023 mainly related to hedges, which we cannot document as being ‘effective’ from a hedge accounting perspective. In 2022, we also had volume-ineffective hedges. § Accounting policies Gains from farm-downs of ownership interests in wind farms are recognised on the divestment date as other operating income. Gains from future construction of the partner's share of the wind farm are recognised over time in the income statement in step with construction. See notes 2.2 ‘Revenue’ and 3.5 ‘Contract assets and liabilities’. The accounting policies for the income from ‘US tax credits and tax attributes’ are described in note 3.9 ‘Tax equity liabilities’. Losses from our market trading activities are pre- sented as other operating expenses under ‘Ineffecive hedges, etc.’. Divestment of ownership interests in our offshore wind farms When we divest an ownership interest in an off- shore wind farm to a partner, we typically also enter into agreements on the construction and future operation of the offshore wind farm. Contracts in connection with a divestment are typically agreements on: · the sale of shares (divestment of assets) (SPA) · the future construction of the offshore wind farm (construction agreements or construction man- agement agreements, if not in operation) · the future operation of the offshore wind farm (O&M agreements). Key accounting estimate Variable selling price related to divest- ments of offshore wind farms and offshore transmission assets When we divest an ownership interest in an off- shore wind farm and an offshore transmission asset to a partner, we consider all terms and activities in the contracts in order to determine the trans- action price. If the consideration includes a variable amount, we estimate the consideration to which we are entitled in exchange for transferring the asset, the wind farm, and the transmission asset to our partner. The variable considerations are estimated at contract inception based on future outcome of events, e.g.: · the divestment price of the offshore transmission asset through a competitive tender process · the impact on production from future wind farms · the winning bid of the tender revenue stream through a competitive tender process. We consider ‘the most likely amount’ to provide the most appropriate estimate of the expected variable consideration. Key accounting judgement Classification of divestment When we divest ownership interests in an offshore wind farm, we carry out an individual assessment, determining whether the divestment qualifies as a divestment of an enterprise or a divestment of assets. We have typically assessed that the off- shore wind farms do not constitute an enterprise, as no employees are transferred, and processes are transferred to a limited extent only. Consolidation method for partnerships On establishment of partnerships and in connec- tion with any restructuring of existing partnerships, we assess whether the structure is a joint arrange- ment under shared control. For joint arrangements, we subsequently assess whether they are joint ventures or joint operations. In assessing joint operations, we look at: · the corporate form of the operation · whether we are only entitled to the net profit (loss) or to income and expenses resulting from the operation. In addition, the fact that the parties buy or are assigned all output, for example the power gener- ated, will lead to the structure being considered a joint operation if we have joint control. 161 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Employee costs Note 2.7 1 The Executive Board in 2023 consisted of: Mads Nipper, Rasmus Errboe (joined on 14 November 2023), Daniel Lerup (left on 14 November 2023), and Henriette Fenger Ellekrog. The decrease is due to the change in composition of the executive board. 2 Other members of the Group Executive Team in 2023 were: Olivia Breese, Andrew Brown (joined on 14 November 2023), Rasmus Errboe (until 14 November 2023 when he joined the Executive Board), Anders Zoëga Hansen, David Hardy, Richard Hunter (left on 14 November 2023), Per Mejnert Kristensen, Neil O'Donovan (left on 31 July 2023), Ingrid Reumert, and Varun Sivaram (joined on 1 August 2023). The increase is due to number of members increasing from three in 2022 to seven at the end of 2023. 3 The expensed remuneration for Mads Nipper includes an expense related to the cancellation of two LTI grants due to not meeting the shareholding requirement. Despite his increase in shareholding, the total value of his shares was not sufficient to satisfy the build-up of the shareholding requirement for continued participation in the share program. In accordance with IFRS 2, the 2023 and future expense related to the two grants from 2021 and 2022 have been accelerated, and DKK 4.5 million have been expensed and reported as share-based remuneration to Mads in 2023 despite him not receiving any remuneration from the two grants. 4 Including DKK 1,373 thousand related to share-based payments as, in accordance with the programme terms, Daniel Lerup kept his rights to the 2021, 2022, and 2023 grants. 5 Including DKK 3,147 thousand related to share-based payments as, in accordance with the programme terms, Martin Neubert kept his rights to the 2020, 2021, and 2022 grants. As Martin has entered into a new position in 2023 during the notice period, we have the right to offset his new salary. Employee costsDKKm 2023 2022Wages, salaries, and remuneration 6,550 5,510Share-based payment 32 32Pensions 536 430Other social security costs 268 233Other employee costs 185 92Employee costs before transfer to assets 7,571 6,297Transfer to assets (1,197) (1,019)Total employee costs 6,374 5,278 Salaries and remuneration for the Group Executive Team Other members of theand the Board of Directors Executive Board 1Group Executive Team 2Board of Directors Tota lDKK 000 2023 2022 2023 2022 2023 2022 2023 2022Fixed salary 27,849 30,632 36,278 20,337 6,907 6,807 71,034 57,776Short-term cash-based incentive scheme 3,711 6,454 5,046 4,402 - - 8,757 10,856Share-based payment 6,27033,989 4,622 2,338 - - 10,892 6,327Pension, incl. social security and benefits 858 860 7,650 4,521 - - 8,508 5,381Salary in notice period 8,443414,553 512,850 693 - - 21,293 15,246Severance payment 6,210 9,270 14,309 4,793 - - 20,519 14,063To t a l 53,341 65,758 80,755 37,084 6,907 6,807 141,003 109,649 Pension plans and number of employees Pension plans are defined-contribution plans that do not commit Ørsted beyond the amounts contributed. In 2023, our average number of employees was 8,666 (2022: 7,428). Remuneration of the Group Executive Team The remuneration of the Group Executive Team is based on a fixed salary, including personal benefits, such as a company car, free telephone, etc., a variable salary, and share-based payment. The non-executive members of the Group Executive Team also receive a pension. The members of the Board of Directors are paid a fixed remuneration only for their work in Ørsted. In addition, Ørsted reimburses any travel expenses. For more details on the remuneration of the Executive Board, please refer to the remuneration report orsted.com/remuneration2023. 162 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes [](https://orsted.com/remuneration2023) § Accounting policies The share programme is classified as an equity- based programme as the programme is settled in shares. The market value of the PSUs and the estimated number of PSUs granted are meas- ured at the time of granting and recognised: · in the income statement under employee costs over the vesting period · as an offset in the balance sheet under equity over the vesting period. The valuation of the PSUs and the estimate of the number of PSUs expected to be granted are carried out as a probability simulation based on Ørsted's expected total shareholder return relative to ten comparable European energy companies. The expectations are factored into the market value and are not adjusted subsequently. The participants are compensated for any dividend payments by receiving additional PSUs. The highest rate (200 %) will be triggered if Ørsted's results, measured as the total return to shareholders, outperform those of the comparable companies. For each lower ranking, the number of shares granted will fall by 20 percentage points. If, for example, Ørsted ranks third, the participants will be entitled to 160 % of the target. If Ørsted ranks 11 in the comparison, no shares will be granted to the participants. The right to shares is con- ditional upon continued employment. Retention share programme The target group for the share-based retention agree- ments will typically be employees responsible for vital, long-term projects. The use of these share-based retention agreements will be limited to 25 concurrent agreements with an individual time frame of up to five years. Members of the Executive Board (CEO, CFO, and Chief HR Officer) cannot be granted such retention agreements. The number of retention share units (RSUs) to be granted will be determined on the basis of the price of Ørsted's shares at the time of the grant and will be limited to an amount corresponding to a maximum of six months' base pay for the employee in question. At vesting, each RSU will entitle the employee to one Ørsted share free of charge. However, the total value of the shares to be received at vesting will be capped at a maximum of twelve months' base pay for the employee in question. Share-based payment Note 2.8 Executive share programme The Group Executive Team and a number of other senior executives participate in the share programme (approx. 150). As a condition for the granting of perfor- mance share units (PSUs), the participant must own a number of shares in Ørsted corresponding to a por- tion of the individual participant's annual fixed salary. The portion depends on the employee category, and it makes up 75 % of our CEO's fixed salary. See the table above for more information. The participants in the pro- gramme must invest in Ørsted shares prior to the first granting. A build-up period for the shareholding require- ments of up to five years is allowed. If the particip ants fulfil the shareholding requirement at the time of grant- ing, they will be granted a number of PSUs each year, representing a value of 15-20 % (15-40 % in the US) of the annual fixed salary on the date of granting. The granted PSUs have a vesting period of approxi- mately three years. Then, each PSU entitles the holder, without payment, to receive a number of shares cor- responding to 0-200 % of the number of PSUs granted. The vesting is conditional upon continued employ- ment. Assuming no share price development since the grant, the value would correspond to 0-30 % or 0-40 % (0-80 % in the US) of the fixed salary on the date of grant. The final number of shares for each par- ticipant will be determined on the basis of the total shareholder return delivered by Ørsted, benchmarked against ten comparable European energy companies. Required number of locked-up shares relative to fixed salaryCEO 75 % of fixed salaryCFO, Chief HR Officer 50 % of fixed salaryOther members of the Group Executive Team 25 % – 50 % of fixed salaryOther participants 15 % – 25 % of fixed salary The figure shows the shareholding requirement in percentage of the participants' fixed salary. A build-up period of up to five years is allowed. Market value of PSUs and key assumptions Time of Time of Time of for valuation in executive share programme granting 2023 granting 2022 granting 2021Market value of 1 PSU 729 909 1,246Key assumptionsShare price 583 835 1,025Average volatility rate 30.6 % 30.2 % 28.8 %Volatility, Ørsted 36.2 % 34.8 % 29.6 %Risk-free interest rate 2.5 % 0.9 % 0.1 %Expected term at time of granting 3 years 3 years 3 years 163 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Share-based payment Note 2.8 – continued Development in maximum number of outstanding shares '000Maximum number of outstanding shares at 1 January 36 24 160 13 233 234Compensation for dividends paid (2020, 2021, and 2022 programmes) - 1 4 - 5 4Transfer between categories (9) (14) 23 - - -Exercised (2020 programme) 1 (7) (5) (53) - (65) -Exercised (2019 programme) - - - - - (84)Granted (2023 programme) 8 24 135 - 167 -Granted (2022 programme) - - - - - 101Cancelled (2023 programme) - (4) (28) - (32) -Cancelled (2022 programme) (9)3- (5) (14) (1)Cancelled (2021 programme) (5)3- (2) - (7) (6)Cancelled (2020 programme) - - - - - (11)Share retention programme - (1) - (6) (7) (4)Maximum number of outstanding shares at 31 December 14 25 234 7 280 233DKKmMarket value of share programme at the time of granting 6 11 103 5 125 114Maximum market value of share programme at 31 December 5 9 88 3 105 147 1 At vesting, Ørsted did not outperform any of the 10 competitors, and, as a result, no shares were granted to the participants. 2 Members as of 31 Dec. 2023 are included in this category. 3 Cancellation of Mads Nipper's LTI grants for 2021 and 2022. Despite his increase in shareholding, the total value of his shares was not sufficient to satisfy the build-up of the shareholding requirement for continued participation in the share programme, and consequently, the awarded PSUs were cancelled. Maximum number of outstanding shares at 31 DecemberMarket value '000Other members2023 in of shares at Years Executiveof the Group SeniorOther% of share granting until expiry as Time of granting Board 2Executive Team 2executivesemployees 2023 2022capitalDKKmof 20231 April 2020 - - - - - 63 - - -1 April 2021 3 4 40 - 47 53 0.01 % 29 0.31 April 2022 4 7 78 - 89 102 0.02 % 41 1.31 April 2023 7 13 116 - 136 - 0.03 % 50 2.3Share retention programme - 1 - 7 8 15 0.00 % 5Maximum number of outstanding shares at 31 December 14 25 234 7 280 233 0.06 % 125 The maximum market value of the share programme at 31 December is based on the assumption that the participants receive the maximum number of shares (i.e. 200 % of the granted PSUs/RSUs). This requires Ørsted to deliver the highest shareholder return, benchmarked against ten comparable companies. The share price at the time of exercising in 2023 was DKK 583. 164 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Our capital employed primarily relates to production assets, including assets under construction. We monitor investment projects closely, as a large part of our value is created in the development and construction phases. Capital employed by segment 1 % 2023 Offshore 67 % Gross investments by segment 2 % 2023 Offshore 74 % Onshore 29 % Onshore 24 % Bioenergy & Other 4 % Bioenergy & Other 2 % Capital employed DKKm 2023 2022 Intangible assets, and property, plant, and equipment 183,195 181,694 Equity investments and non-current receivables 1,172 996 Net working capital, capital expenditures (4,542) (5,665) Net working capital, work in progress 3 1,705 1,471 Net working capital, tax equity (15,811) (15,157) Net working capital, other items 7,794 11,928 Derivatives, net (10,383) (32,322) Decommissioning obligations (12,977) (14,076) Other provisions (19,886) (5,630) Tax, net (1,047) 1,609 Other receivables and other payables, net (4,050) 1,255 Total capital employed 125,170 126,103 Gross and net investments DKKm 2023 2022 Cash flows from investing activities (34,732) (17,912) Dividends received and capital reductions reversed (19) (23) Purchase and sale of securities, reversed 4,350) 5,634 Loans to associates and joint ventures, reversed 78 - Sale of non-current assets, reversed (8,186) (24,175) Interest-bearing debt in acquired enterprises - (972) Restricted cash in acquired enterprises - 1 Gross investments (38,509) (37,447) Transactions with non-controlling interests in connection with divestments and acquisitions (6,644) 1,461 Sale of non-current assets 8,186 24,175 Divestments 1,542 25,636 Net investments (36,967) (11,811) Capital employed Note 3 1 Capital employed by segment is based on capital employed for reportable segments of DKK 123,863 million. 2 Gross investments by segment is based on gross investments for reportable segments of DKK 38,410 million. 3 ‘Net working capital, work in progress’ consists of inventories related to transmission assets, construction agreements, and construction management agreements in connection with the construction of transmission assets and offshore wind farms for partners as well as related trade payables. 165 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Intangible assets, and property, plant, and equipment Note 3.1 Fixtures and Property, plant, Intangible assets, and property, plant, and equipmentIntangible Land and Production fittings, tools, and equipment Property, plant, DKKmassetsbuildingsassetsand equipmentunder constructionand equipmentCost at 1 January 2023 5,707 10,747 179,094 3,076 52,088 245,005Exchange rate adjustments 9 (47) 159 (23) (1,551) (1,462)Additions 19 551 349 889 36,164 37,953Disposals (580) (114) (5,125) - (1,477) (6,716)Adjustment of decommissioning obligations - - (1,803) - 539 (1,264)Reclassified assets 22 16 16,430 98 (16,566) (22)Cost at 31 December 2023 5,177 11,153 189,104 4,040 69,197 273,494Depreciation and amortisation at 1 January 2023 (973) (2,767) (59,102) (1,533) - (63,402)Exchange rate adjustments - (6) (586) (2) . (594)Depreciation and amortisation (59) (614) (8,661) (459) - (9,734)Disposals (16) 41 2,710 - - 2,751Depreciation and amortisation at 31 December 2023 (1,048) (3,346) (65,639) (1,994) - (70,979)Impairment losses at 1 January 2023 (705) - (781) - (3,157) (3,938)Exchange rate adjustments 2 - 17 - 438 455Impairment losses and reversals - (30) (1,058) (4) (18,190) (19,282) 1Disposals - - - - 19 19Impairment losses at 31 December 2023 (703) (30) (1,822) (4) (20,890) (22,746)Carrying amount at 31 December 2023 3,426 7,777 121,643 2,042 48,307 179,769 Production assets by segment % 2023 DKK 121,643 million Offshore Onshore Bioenergy & Other 61 % 34 % 5 % Property, plant, and equipment under construction by segment % 2023 DKK 48,307 million Offshore Onshore Bioenergy & Other 67 % 31 % 2 % Intangible assets Intangible assets consist of goodwill of DKK 1,847 million (2022: DKK 1,843 million), carbon emission allowances of DKK 871 million (2022 DKK 1,464 million), other rights of DKK 626 million (2022: DKK 614 million), completed development projects of DKK 61 million (2022: DKK 28 million), and development projects in progress of DKK 21 million (2022: DKK 80 million). Recognised goodwill primarily relates to Onshore Europe. 1 We recognised total impairment losses of DKK 26,775 million for the year. Of that amount, DKK 19,282 million are recog- nised under ‘Property, plant, and equipment’ and DKK 7,493 million under ‘Provisions’ as ‘Onerous contracts’. See note 3.2 ‘Impairments’ and note 3.10 ‘Provisions and contingent liabili- ties’ for more information. 166 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Fixtures and Property, plant, Intangible assets, and property, plant, and equipmentIntangible Land and Production fittings, tools, and equipment Property, plant, DKKmassetsbuildingsassetsand equipmentunder constructionand equipmentCost at 1 January 2022 3,243 10,311 148,309 1,858 57,852 218,330Exchange rate adjustments (10) (18) (2,019) (62) (555) (2,654)Additions 1,314 720 1,728 1,240 29,394 33,082Additions on acquisition of enterprises 1,886 53 1,179 7 1,103 2,342Disposals (726) (484) (9,634) (12) (1,136) (11,266)Adjustment of decommissioning obligations - - 4,398 - 503 4,901Reclassified assets - 165 34,993 45 (35,203) -Reclassified from assets classified as held for sale - - 140 - 130 270Cost at 31 December 2022 5,707 10,747 179,094 3,076 52,088 245,005Depreciation and amortisation at 1 January 2022 (999) (2,245) (51,906) (1,254) - (55,405)Exchange rate adjustments 1 32 1,278 13 - 1,323Depreciation and amortisation (36) (607) (8,814) (297) - (9,718)Disposals 61 53 340 5 - 398Depreciation and amortisation at 31 December 2022 (973) (2,767) (59,102) (1,533) - (63,402)Impairment losses at 1 January 2022 (701) - (785) - (744) (1,529)Exchange rate adjustments (2) - 4 - 53 57Impairment losses and reversals - - - - (2,529) (2,529)Disposals (2) - - - 63 63Impairment losses at 31 December 2022 (705) - (781) - (3,157) (3,938)Carrying amount at 31 December 2022 4,029 7,980 119,211 1,543 48,931 177,665 Intangible assets, and property, plant, and equipment Note 3.1 – continued Production assets by segment % 2022 DKK 119,211 million Offshore Onshore Bioenergy & Other 60 % 35 % 5 % Property, plant, and equipment under construction by segment % 2022 DKK 48,931 million Offshore Onshore Bioenergy & Other 79 % 20 % 1 % 167 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Fixtures and Lease assetsfittings, tools, and Property, plant, DKKm Land and buildings Production assetsequipmentand equipmentCarrying amount at 1 January 2023 6,409 43 1,157 7,609Exchange rate adjustments (45) 1 (32) (76)Additions 137 4 814 955Disposals (67) - - (67)Impairment (30) - - (30)Depreciation (523) (21) (372) (916)Carrying amount at 31 December 2023 5,881 27 1,567 7,475 Lease assetsDKKmCarrying amount at 1 January 2022 6,628 104 255 6,987Exchange rate adjustments 40 - (42) (2)Additions 635 8 1,171 1,814Additions on acquisition of enterprises 53 - - 53Disposals (431) - (7) (438)Depreciation (516) (69) (220) (805)Carrying amount at 31 December 2022 6,409 43 1,157 7,609 Contractual obligations by segmentDKKm 0-1 year 1-5 years 5-10 years 2023 2022Offshore 38,714 47,298 3 86,015 74,806Onshore 8,282 2,655 - 10,937 13,078Bioenergy & Other 1,528 746 - 2,274 178To t a l 48,524 50,699 3 99,226 88,062 Overview of contracts entered into where delivery had not taken place at 31 December 2023. The obligations are measured at nominal value. Leases We mainly lease office buildings, service and installa- tion vessels, seabeds related to offshore wind farms, and plots of land related to onshore wind farms, solar farms, and battery storage facilities. Seabed leases include variable lease payments, which depend on the number of megawatt hours generated. However, we have typically agreed on minimum lease payments for the seabeds, and these minimum pay- ments are included in the lease liabilities. Expenses for the year relating to variable lease pay- ments not included in lease liabilities were DKK 717 million in 2023 (2022: DKK 609 million). Interests on lease debt expensed in profit (loss) were DKK 308 mil- lion in 2023 (2022: DKK 256 million). Total cash outflow for leases were DKK 1,737 million in 2023 (2022: DKK 1,447 million). We have not entered into lease liabilities which have not been commenced per 31 December 2023 and con- sequently not included in the balance sheet. For a maturity analysis of lease liabilities, we refer to note 5.5 ‘Maturity analysis of financial liabilities’. Contractual obligations Our contractual obligations for property, plant, and equipment at 31 December 2023 mainly related to wind turbines, foundations, and cables, etc., for the construc- tion of offshore wind farms (primarily Borkum Riffgrund 3, Gode Wind 3, Greater Changhua 2b and 4, Hornsea 3, Revolution Wind, South Fork, and Sunrise Wind). The obligations in Onshore mainly related to purchases of wind turbines and solar PV modules. Useful livesBattery storage 15 yearsBuildings 20-50 yearsFixtures and fittings, tools, and equipment 3-10 yearsGas transportation systems (marine pipelines) 20-40 yearsOffshore wind farms 20-30 yearsOnshore wind farms 24-30 yearsProduction assets, power (thermal), and district heating 20-25 yearsSolar farms 35 yearsGoodwill Indefinite Intangible assets, and property, plant, and equipment Note 3.1 – continued 168 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Intangible assets, and property, plant, and equipment Note 3.1 – continued § Accounting policies Intangible assets Rights are measured at cost less accumulated amortisation and impairment losses. Rights are amortised on a straight-line basis over their estimated future useful lives, which are 5-20 years. Goodwill represents the excess of the cost of an acquisition over the fair value of the identi- fiable net assets of the acquired company. The carrying amount of goodwill is allocated to the Group's cash-generating units, which are the operating segments at the acquisition date. Goodwill is not tax deductable. Annual impairment tests are carried out for goodwill and other intangible assets with indefinite useful lives. Property, plant, and equipment Property, plant, and equipment which is not a lease is measured at cost less accumulated depreciation and impairment losses. Cost of property, plant, and equipment is depreci- ated by using the straight-line method, the diminishing-balance method, or the reducing- fraction method. The diminishing-balance method and the reducing-fraction method result in decreasing depreciation over the useful life. These methods are used for some of our offshore wind farms. The residual values, useful lives, and meth- ods of depreciation of property, plant, and equipment are reviewed at the end of each financial year and adjusted prospectively, if appropriate. Costs comprise purchase price and any costs directly attributable to the acquisition until the date the asset is available for use. The costs of self-constructed assets comprise direct and indirect costs of materials, compo- nents, sub-suppliers, and labour. Borrowing costs relating to both specific and general borrowing directly attributable to assets under construction with a lengthy construc- tion period are recognised in costs during the construction period. Costs are increased by the present value of the estimated obliga- tions for demolition and decommissioning of assets to the extent that the obligations are recognised as provisions. Subsequent costs, for example in connection with replacement of parts of an item of prop- erty, plant, and equipment, are recognised in the carrying amount of the asset in question when it is probable that future economic bene- fits will flow to the Group from the expenses incurred. Any residual value of the replaced parts is recognised in the income statement as loss on disposal of non- current assets. Other repair and maintenance expenses are recog- nised in profit (loss) for the year as incurred. Leases Our lease assets are classified alongside our owned assets of similar type under property, plant, and equipment. Initially, we measure a lease asset at cost, being the initial amount of the lease liability. We depreciate our lease assets over the lease term. The depreciation method used is the straight-line method for all our lease assets, except for seabed leases where the depreciation method is aligned with the depreciation method for the related offshore wind farm. Therefore, seabed lease assets are depreciated using either the straight-line method or the reducing-fraction method. Our lease liabilities are initially measured at the net present value of the in-substance fixed lease payments for the use of a lease asset. If, at inception of the lease, we are rea- sonably certain about exercising an option to extend a lease, we will include the lease payments in the option period when calculat- ing the lease liability. We measure the lease asset to the value of the lease liability at initial recognition. Contracts may contain both lease and non- lease components. We allocate the consider- ation in a contract to the lease and non-lease components based on their relative stand- alone prices. We account for non-lease com- ponents in accordance with the accounting policy applicable for such items. Non-lease components comprise building services and operating costs of leased vessels, etc. Variable lease expenses are recognised in other external expenses in the period when the condition triggering those payments occurs. Interests of lease liabilities are recog- nised in financial expenses. Each lease payment is separated into repay- ment of the lease liability and payment of interests of the lease liability. Debt repay- ments are classified as cash flows from financing activities, and payment of interests are classified as cash flows from operating activities. 169 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Impairments Note 3.2 CGUs in Offshore The cash-generating units (CGUs) are made up of individual offshore wind farms or seabeds, each of which generates cash flows for the segment independently of each other. Significant CGUs Europe: Baltica 2, Baltica 3, Borkum Riffgrund 1, Borkum Riffgrund 2, Borkum Riffgrund 3, Borssele 1 & 2, Gode Wind 1, Gode Wind 2, Gode Wind 3, Hornsea 1, Hornsea 2, Hornsea 3, Race Bank, Walney, and Walney Extension. The US: Block Island, Revolution Wind, Skipjack Wind (seabed), South Fork, Sunrise Wind, and Ocean Wind 1 (seabed). APAC: Greater Changhua 1 and 2a and Greater Changhua 2b and 4. CGUs in Onshore The CGUs are made up of individual onshore wind and solar farms, each of which generates cash flows for the segment independently of each other. Significant CGUs The US: Amazon, Eleven Mile, Ford Ridge, Hay- stack, Helena Energy Center, Lincoln Land Wind, Lockett, Muscle Shoals, Old 300, Permian Energy Center, Sage Draw Wind, Sunflower Wind, Tahoka Wind, Western Trail, and Willow Springs Wind. Europe: Portfolio of projects. CGUs in Bioenergy & Other The Danish CHP plants constitute a single CGU, as overall production planning is for the entire Danish portfolio. In addition, the Danish offshore gas pipeline system is deemed to constitute an independent CGU. Significant CGUs Central CHP plants (including goodwill) and the offshore gas pipeline system. Impairment losses on segment levelDKKm 2023 2022Offshore 25,526 2,529Onshore 927 -Bioenergy & Other 322 -Total impairment losses 26,775 2,529 WACC levels%Base discount rate applied for the US 5.50 – 7.00 % The base discount rate after tax applied for the value-in-use calcula- tion is determined per CGU. On 29 August 2023, we announced anticipated impair- ments on our US portfolio due to adverse impacts related to the supply chain, lack of favourable pro- gress in investment tax credit (ITC) guidance, and increased interest rates. Following this, we recognised impairment losses of DKK 28.4 billion in our interim financial report for the first nine months of 2023\. We have updated our impairment calculations as of 31 December 2023. Management has taken the above-mentioned impacts and other related risks and inherent uncertainties into consideration when estimating the future cash flows for the value-in-use calculations of our cash-generating units (CGUs). Based on this, our impairment tests prepared in Q4 2023 have resulted in a reversal of impairment losses of DKK 1.6 billion, mainly driven by a decrease in the US long-dated interest rate from 30 September to 31 December 2023, which lowered our WACCs. Thus, we have recognised total impairment losses of DKK 26.8 billion in 2023\. In 2022, we recognised impairment losses of DKK 2.5 billion related to Sunrise Wind. Ceasing development of Ocean Wind 1 On 31 October, we decided to cease the development of Ocean Wind 1 in the form it was awarded by the New Jersey Board of Public Utilities. In the wake of the COVID-19 pandemic and Russia's invasion of Ukraine, Ocean Wind 1 had been faced with a variety of chal- lenges, such as higher costs of capital (US risk-free rate increasing by approx. 300 bps from the award in 2019), cost inflation, supply chain challenges, and slow permitting. As explained in our interim financial report for the first nine months of 2023, the decision to cease the devel- opment was taken after additional supplier delays further impacted the project schedule, which led to an additional significant delay to the project. In addi- tion, we had updated our view on certain assump- tions, including tax credit monetisation and the timing and likelihood of final construction permits. Finally, continued increases to long-dated US interest rates had further deteriorated the business case. We also ceased the development of Ocean Wind 2, which did not lead to an impairment as the carrying amount was insignificant. Costs related to fulfilling and cancelling contracts were recognised as ‘Other operating expenses’ when the obligation arose and to the extent these exceeded the provision for onerous contracts made as part of the impairment losses recognised in our interim report for the first nine months of 2023\. See note 3.10 ‘Provi- sions and contingent liabilities’ for more information about the cancellation fees and the provisions made in relation to this. Impairment test The circumstances and assumptions with the most significant impairment impact and high involvement of estimates and uncertainties are described in the following sections. 170 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Impairments Note 3.2 – continued Supply chain (including revenue and OPEX) The Ocean Wind 1, Sunrise Wind, and Revolution Wind projects have been adversely impacted by supply chain bottlenecks on top of the cost inflation experi- enced in recent years. In late August, we concluded that risks remained in the suppliers' ability to deliver on their commitments and contracted schedules, in part due to worldwide vessel scarcity. These risks could create knock-on effects, requiring future remo- bilisations to finish installation as well as potentially delayed revenues, extra costs, and other business case implications. At 31 December 2023, these risks are still present, and assumptions and estimates in relation to these risks have been reassessed and taken into consideration in our impairment calculations. Further, our impairment tests are based on a probability\- weighted assess- ment of the likelihood of these and other supply chain impacts. While we are taking mitigating actions to the extent possible, we continue to see risks, especially regarding vessel availability. The effect from changes in supplier-related assump- tions, including derived impacts on revenue and OPEX, has led to an impairment loss of DKK 17.8 bil- lion and relates to our US offshore projects. The main part relates to Ocean Wind 1. Furthermore, we now assume a new installation approach with a longer timeline for Revolution Wind and Sunrise Wind. Investment tax credit guidance The 2022 Inflation Reduction Act (IRA) reaffirmed the existing 30 % ITC for all US offshore projects. The IRA also made two additional 10 % ITC bonus credits available to projects meeting ‘domestic con- tent’ and ‘energy community’ criteria. Projects can qualify for one or both ITC bonus credits. The US treasury has provided preliminary guidance on how ‘energy community’ and ‘domestic content’ requirements will be defined and implemented by the Internal Revenue Service (IRS), and which exemptions to the requirements may be allowed. Estimation uncertainty and sensitivity analyses Due to the impairments recognised, estimation uncertainty exists on the assets impaired. The assumptions with major uncertainties include investment tax credits, interest rates, OREC levels, and the supply chain. The sensitivity analyses presented in the table show the related impact on impairment losses when a change in a given assumption increases or decreases the ‘value-in-use’ for our CGUs. The analyses are performed with all other assumptions unchanged. We have included sensitivity analyses of impairment effects if WACC levels or assumptions related to ITC bonus credits change. The high probabilities for Revolution Wind and Sunrise Wind qualifying for the additional 10 % ITC bonus credits are based on our assessment that the onshore substations are located on brownfield sites as defined by the current ‘energy community’ guidance. If WACC had increased by 50 basis points in the impairment test of e.g. Revolution Wind as of 31 December 2023, the impairment loss would have been DKK 0.6 billion higher. If we had not included the probability-weighted additional 10 % ITC bonus credits in the impairment test of e.g. Revolution Wind as of 31 December 2023, the impairment loss would have been DKK 1.0 billion higher. Impairment breakdown on balance sheet The total impairment losses are recognised with DKK 19,282 million under ‘Property, plant, and equipment’ and DKK 7,493 million under ‘Provisions’ as ‘Onerous contracts’. ITC bonus credits Sensitivity impactassumed in impairment testsDKK billion40 % ITC bonus credits, CGUsImpairment Recoverable ITC bonus Probability No ITC 100 % +50 bps -50 bps DKKmlossesamountcreditsweightingbonus creditsprobabilityWAC CWAC COcean Wind 1 19,875 n.a. n.a. n.a. n.a n.a n.a n.aSunrise Wind 2,069 2,006 10 % 95 % (1.4) 0.1 (0.7) 0.7Revolution Wind 2,706 3,723 10 % 95 % (1.0) 0.1 (0.6) 0.6South Fork 554 2,993 10 % 0 % n.a n.a (0.2) 0.2Block Island 322 1,304 n.a n.a n.a n.a 0.0 0.0Offshore 25,526 10,026Onshore 927 2,667 n.a n.a n.a n.a. (0.3) 0.3Bioenergy & Other 322 n.a.To t a l 26,775 12,693 171 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Impairments Note 3.2 – continued In our impairment testing, we have assumed a 95 % probability of achieving an additional 10 % ITC bonus credit for Revolution Wind and Sunrise Wind due to the brownfield status of both sites under the current ‘energy community’ guidance. These assumptions are unchanged compared to our expectations as of 30 Sep- tember 2023 and 31 December 2022\. However, for Ocean Wind 1, we reduced the probability of achieving an additional 10 % ITC bonus credit from 95 % at the end of 2022 to 15 % as of 30 September 2023\. As at 31 December 2023, Ocean Wind 1 is terminated, and the probability of achieving ITC is no longer relevant. For the impairment testing in September, we changed our tax credit monetisation assumptions as a result of the deterioration of the business cases and our understanding of market conditions for third-party tax monetisation of US offshore wind ITCs. These changes, which were kept in December, had a negative impact on the recoverable amounts. The effect from the change in assumptions related to achieving and monetising ITCs for offshore projects is included in the impairment loss with DKK 4.7 billion. Sunrise Wind OREC price In 2019, Sunrise Wind signed a 25-year OREC purchase- and-sale agreement with the New York State Energy Research and Development Authority (NYSERDA), with an OREC strike price at USD 110 per MWh. In June 2023, we submitted a petition to the state of New York to increase the OREC price by 27 % to USD 140 per MWh due to significant cost and inflation increases since the agreement was entered into. This petition was denied by the state on 12 October 2023. Following the rejected petition and the outcome of the New York 3 tender in October, the state of New York commenced a new solicitation for capacity with bid deadline on 25 January 2024. Together with our partner, we decided to rebid our Sunrise Wind project at a bid price level reflecting the current component and financing costs. As a consequence of participating in the solicitation, the OREC awarded in 2019 is no longer valid, meaning that we will have a merchant project if we do not get an award. In our impairment test for Q4 2023, we have assumed a 75 % probability of achieving an award, whereas we assumed a 50 % probability of an award in the impairment test prepared in Q3 2023\. The higher applied probability weighting is based on the evaluation criteria of the request for proposal (RFP), the size of the solicitation, a competitor analysis, and the price level we submitted. If we get an award, the impairment loss will be reduced by approx. DKK 1.8 billion. If we do not get an award, the impairment loss will be approx. DKK 5.5 billion higher. These sensitivity analyses are performed with § Accounting policies For the purpose of assessing impairment losses, ‘Intangible assets’, and ‘Property, plant, and equip- ment’ are grouped at the level for which there are separately identifiable cash flows (cash-generating units (CGUs)). CGUs are assessed for impairment whenever events or circumstances indicate that the carrying amount of an asset or CGU may not be recoverable. If any indication of impairment exists, an estimate of the asset's or CGU's recoverable amount is made. The value of a CGU is impaired if the net book value exceeds the recoverable amount, which is the higher of the estimated value-in-use and the fair value less costs of disposal. Value-in-use calcu- lations are based on management's expectations to future cash flows from financial forecasts and business plans and include a number of assump- tions and estimates. Fair value less costs of dis- posal is used for seabeds and is based on a multiple analysis and discounted cash flow models, if a business case is available. Estimating expected cash flows involves a number of assumptions and estimates. In the US, key esti- mates and assumptions for the forecast periods are CAPEX (including knock-on effects from supplier delays, etc.), inflation, terms of conditions in new power purchase agreements, possible renegotia- tions of existing ORECs (which do not have inflation indexation), eligibility for bonus ITCs, and tax equity arrangements or alternative ways of monetising the ITCs. All these key estimates and assumptions are determined specifically for each CGU. The discount rate applied when calculating value- in-use takes general risks into account and is based on the weighted average cost of capital (WACC) after tax, whereas the estimated future cash flows are adjusted for risks specific to the asset. Estimated future cash flows are discounted using a nominal post-tax discount rate. Impairment losses are recognised in the income statement and, except in the case of goodwill, reversed if there has been a change in the estimates used to determine the CGU's recoverable amount. Reversal of an impairment loss is recognised as income in the income statement net of deprecia- tion if no impairment loss had been recognised for the CGU. 172 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Key accounting estimate Key assumptions in impairment tests Value-in-use calculations are based on manage- ment's expectations to future cash flows from financial budgets and forecasts and include a number of assumptions and estimates. These assumptions include construction sched- ules, estimates of future market conditions, CAPEX, market prices of energy and commodi- ties, inflation, discount rates, useful lives of the projects, tax incentives, including the ability to qualify for tax credits from the US Inflation Reduction Act, etc. The market prices applied are based on avail- able forward prices for a period of up to five years and our best estimate of long-term prices for the remainder of the period. As goodwill relates to greenfield onshore wind and solar development in Europe, an assump- tion included in the value-in-use calculations for goodwill is the ability to develop new sites. This assumption is based on current and future build-out plans for renewable energy in Europe. While there are inherent uncertainties in the assumptions, the assumptions reflect man- agement's best estimate over the lives of the Group's CGUs. all other assumptions unchanged. The outcome of the solicitation is expected in March. Increasing interest rates The US long-dated interest rate has increased signifi- cantly during the last couple of years and took another increase of approx. 75 bps from 30 June to 30 Septem- ber 2023, after which it decreased approx. 50 bps from 30 September to 31 December 2023\. The effect from the increase and subsequent decrease in the interest rate was asymmetrical, as we terminated the Ocean Wind 1 project on 31 October 2023\. The net effect of the change in interest rate assumptions was an impairment of DKK 4.4 billion after reversing losses of DKK 1.9 billion compared to the recognised impair- ment loss in our interim financial report for the first nine months of 2023\. These impairment losses relate to our US offshore and onshore projects. Seabed value of Ocean Wind 1 and Skipjack Wind When estimating the recoverable amount of the sea- beds related to Ocean Wind 1 and Skipjack Wind, we have used the approach ‘fair value less costs of dis- posal’ (FVLCD) to determine if the carrying amounts exceed the recoverable amounts. We have used multiple analysis and discounted cash flow models where a business case is available to estimate the recoverable amount of the seabeds. These valuations are subject to significant uncertain- ties. There are limited transactions for seabeds in the market and limited auctions reflecting what a third party could obtain as a PPA (OREC) price in a re-bid or new tender under the current component and financ- ing costs. Our assessments include comparisons with current merchant prices, such as the winning prices in the New York 3 round, multiples from the 2022 NY Bight Bureau of Ocean Energy Management (BOEM) lease auction, and other relevant lease sales in the US, such as in North Carolina and California. The fair value measurements are categorised as level 3 of the fair value hierarchy. Potential consequences of further adverse development In addition to the sensitivities described, further adverse developments may lead us to cease develop- ment of or reconfigure projects currently under devel- opment. Besides impairing the capitalised value of these projects, ceasing to develop projects could lead to compensation to suppliers or other stakeholders for cancelling contracts. Costs related to cancel- ling contracts will be recognised as ‘Other operating expenses’ in our income statement (part of EBITDA) when the obligation arises, and to the extent these exceed already recognised onerous contracts. Impairment losses relating to intangible assets We have not recognised any material impairment losses to goodwill or other intangible assets in 2023\. Goodwill primarily relates to Onshore Europe. Impairments Note 3.2 – continued 173 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Acquisition of enterprises Note 3.3 Cash flows used for acquisitionsDKKm 2023 2022Fair value at time of acquisition:Other intangible assets than goodwill - 167Property, plant, and equipment - 2,342Joint ventures - 339Contract assets and liabilities, net - (76)Trade receivables - 135Other receivables - 73Receivables from associates and joint ventures - 174Cash - 432Interest-bearing debt, excl. lease liabilities - (437)Provisions - (10)Derivatives - -Deferred tax - (525)Other liabilities - (234)Net assets acquired - 2,380Goodwill - 1,718Purchase price - 4,098Cash, available and acquired - (432)Contingent consideration - -Accrued purchase price - (260)Cash flow used for acquisition of enterprises - 3,406Purchase price - 4,091Adjustments for cash - (432)Adjustments for interest-bearing debt - 437Adjustments for other debt and net working capital items - (65)Adjustments for cash, debt, and net working capital items in JVs - 1,118Enterprise value - 5,149 We had no acquisition of enterprises during 2023. On 19 September 2022, we acquired Ostwind, a German and French onshore wind platform. The acqui- sition of Ostwind constituted Ørsted's entry into the sizeable and growing German and French onshore markets and substantially expanded Ørsted's onshore footprint in Europe. During 2023, the opening balances for Ostwind have been finalised without any adjustments to the provi- sional opening balances. § Accounting policies Acquisition of enterprises is recognised using the acquisition method. Under this method, assets and liabilities as well as contingent lia- bilities of the acquired enterprise are measured at fair value on the date of acquisition. The fair values of production assets and assets under construction are normally determined using an income approach where they are valued at present value based on the expected cash flows they can generate, including any non-separable power purchase agreements, and on income, such as production tax credits. The fair value of derivatives is determined using our normal approach for such items, which is based on market prices or expectations for prices over the term of the derivatives. The fair values of other assets and liabilities are valued using the approach we find most rele- vant for the individual item, which can be either a market approach, an income approach, or a cost approach. An acquired enterprise is included in the con- solidated financial statements from the date of acquisition, which is the date when we obtain control. When an acquired enterprise has entered into a power purchase agreement classified as a derivative, the fair value of the agreement will be included in the opening balance. Post\- acquisition, this fair value is recognised as an adjustment to revenue over the duration of the contract, based on the fair value calculation at the time of the acquisition. 174 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Inventories Note 3.4 Inventories DKKm 2023 2022Offshore transmission assets 3,944 5,119Biomass 928 778Coal 566 1,169Gas 2,167 4,557Oil 339 354Green certificates 2,371 2,053Carbon emission allowances (purchased) 213 49Other 11 24Total inventories 10,539 14,103Inventories recognised as an expense in ‘Cost of sales’ during the year 9,626 15,427 Inventories measured at fair value are disclosed in note 6.6 ‘Fair value measurement’. ‘Offshore transmission assets’ relates to the Hornsea 3 transmission asset. The remaining 50 % of the Hornsea 2 transmission asset was divested in 2023. ‘Gas’ primarily relates to our gas trade activities. ‘Green certificates’ are primarily renewable obliga- tion certificates (ROCs), which are issued to renewable energy power generators in the UK. § Accounting policies Offshore transmission assets are recognised as inventory until divestment and measured at cost. The costs comprise costs of materials used in construction, site labour costs, costs of renting equipment as well as indirect produc- tion costs, such as employee costs. Gas storage in non-Danish facilities are man- aged on a fair value basis, and therefore, the gas in these storage facilities is recognised at fair value less costs to sell. Changes in the fair value less costs to sell are recognised in cost of sales in the period of the change. Gas in Danish storage facilities are recognised at cost, determined as a weighted average of the previous month's purchase price, including transport costs. Purchased carbon emission allowances are measured at market value. Green certificates, which we earn by generat- ing power using renewable energy sources, are recognised in inventories in step with our gen- eration. We measure green certificates (earned and bought) at cost using the first-in, first-out (FIFO) principle. Other inventories are measured at cost, deter- mined on a first-in, first-out basis (e.g. for coal and biomass) or by net realisable value, if net realisable value is lower. Inventories are written down to the lower of net realisable value and cost price. For offshore transmission assets, it is the expected final transfer value announced by Ofgem. The net realisable value is the sum (discounted) which the inventories are expected to generate through a normal sale. 175 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Contract assets and liabilities Note 3.5 Contract assets and contract liabilities primarily related to: · the construction of offshore wind farms with part- ners, with each party typically owning 50 % of the offshore wind farm · prepayments from heat customers. Our contract assets primarily related to the construc- tion of Greater Changhua 1. At the end of 2023, current contract liabilities related to the construction of Borkum Riffgrund 3 and Gode Wind 3. Non-current contract liabilities primarily related to prepayments from heat customers. At the end of 2022, contract liabilities related to the construction of Borkum Riffgrund 3. § Accounting policies We recognise a contract asset when we per- form a service or transfer goods in advance of receiving consideration, and the consideration is conditional. When the consideration is uncon- ditional, and the goods or services are deliv- ered, we recognise a receivable. A right to con- sideration is unconditional if only the passage of time is required before the payment is due. Contract assets are measured at the transac- tion price of the goods delivered or services performed less invoicing on account. We recognise a contract liability when the invoicing on account and expected losses exceed the transaction price of the goods or services transferred to our customer. Revenue from contracts with customers DKKm 2023 2022Revenue included in contract liabilities at the beginning of the year (6) 21Revenue from performance obligations satisfied in previous years (592) (471)Contract balancesDKKmContract assetsCurrent contract assets 802 408Total contract assets 802 408Contract liabilitiesNon-current contract liabilities 3,297 3,085Current contract liabilities 2,785 2,269Total contract liabilities 6,082 5,354 The table shows the amount of our revenue relating to contract liabilities carried forward (as prepayments and deferred revenue) and the amount relating to performance obligations satisfied in a prior year (e.g. re negotiations or constraints on variable considerations that are not recognised until they are highly probable). 176 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Trade receivables Note 3.6 Trade receivables DKKm 2023 2022Trade receivables, not due 10,480 11,025Trade receivables, 1-30 days overdue 291 892Trade receivables, more than 30 days overdue 358 835Trade receivables, write-downs (22) (51)Total trade receivables 11,107 12,701 We continuously perform credit ratings of our cus- tomers. For customers with a general credit risk, a write-down of 0-1 % is carried out on initial recognition. In 2023, we have written-down a loan given to sup- port US suppliers in the amount of DKK 571 million, which we do not expect to recover after the termina- tion of Ocean Wind 1 and 2. Except for this, we have not made any write-downs of receivables in 2023 or 2022\. Reversal of write-downs was DKK 29 million. § Accounting policies We keep our receivables until maturity, and therefore, they are measured at amortised cost. Write-downs are carried out from initial recognition of our receivables. The write-down is calculated as the difference between the carrying amount of the receiv- able and the net present value of expected future cash flows from the receivable. The discount rate used is the effective interest rate for the individual receivable or the individual portfolio. We apply the simplified approach to the write-down of trade receivables, which permits calculating the write-down as the full loss during the entire term of the receivable. We have entered into supply chain finance agreements with a limited number of suppliers. This provides the supplier with the possibility of requesting the partici- pating bank to pay the invoice before our due date. We expect that more of our suppliers will make use of supply chain finance in the future. ‘Trade payables’, to which supplier financing is offered, retain their classification in our balance sheet. Liabilities that are part of supply chain finance are due 120-180 days after invoice date. Comparable liabilities that are not part of supply chain finance are due up to 90 days after invoice date. 2023 2022Of which is paid Of which is paid Supply chain finance – liabilities paid by supplier finance banksRecognised in by supplier Recognised in by supplier DKKmbalance sheetfinance banksbalance sheetfinance banksTrade payables 14,915 1,571 20,641 482 Supply chain finance Note 3.7 177 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Other receivables and other payables Note 3.8 Other receivablesDKKm 2023 2022Receivables from the divestment of assets and enterprises 1,472 7,644Receivables from the divestment of equity investments to non-controlling interests 735 713Collateral provided 14,773 5,888Cash, not available for use 481 2,471VAT and other indirect tax receivables 1,640 1,392Prepayments 1,265 870Deposits 308 624Other 2,990 3,930Total other receivables 13,664 23,532Of which, working capital 6,739 9,896Of which, other capital employed 1,847 7,876Of which, interest-bearing net debt 5,078 5,760 Other payablesDKKmM&A related liabilities 2,753 4,203Payables related to the divestment of assets 22,900 2,904Accrued interest 3,097 2,358Collateral received 3287 1,184Salary-related items payable 844 671VAT and other indirect taxes payable 535 593Other deferred income 104 345Other 1,978 2,623Total other payables 12,498 14,881Of which, working capital 3,306 3,384Of which, other capital employed 5,854 6,574Of which, interest-bearing net debt 3,338 4,923 1 The collateral provided by the Group is receivables from banks in connection with hedging activities. 2 Mainly related to the divestment of a portfolio of four onshore projects. 3 The collateral received by the Group is cash received from banks in connection with the hedging of derivatives. 178 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Tax equity liabilities Note 3.9 In the US, we have fifteen operational wind and solar farms with tax equity partners. During 2023, we com- missioned the onshore wind farm Sunflower, and we received a tax equity contribution from our partner for this project. We also received a tax equity contri- bution related to our offshore wind farm South Fork, which is still under construction. Description of tax equity partnerships Tax equity partnerships are characterised by a tax equity partner, who contributes an upfront payment as part of the initial project investment and gener- ally does not have an operational role in the project. The partner receives a contractually agreed return on the contribution. In order to ‘repay’ the initial contri- bution and the return, a disproportionate share of the production tax credits (PTCs) or the investment tax credits (ITCs) and other tax attributes (accelerated tax depreciation and other taxable results) are allocated to the partner during the first part of the project's lifetime. The partner also receives some cash pay- ment-based percentages specified in the partnership agreements. Once the partner receives the agreed return, the agreement flips, and the partner is typi- cally entitled to a minor part of the cash distributions from the project, unless we repurchase this right from them, which is highly likely. § Accounting policies Due to the operational and financial nature of the tax equity partnerships, we normally have the power to affect relevant activites and make deci- sions for the projects as the managing partner in the agreements. Therefore, we normally fully con- solidate companies that have tax equity partners. The tax equity contribution generally has the char- acteristics of a liability as the initial contribution is repaid, including an agreed return, and the partner does not share in the risks of the project in the same way as a shareholder. As such, the contribution is accounted for as a lia- bility and measured at amortised cost. The liability is based on the expected method of repayment and is divided into: · a net working capital element to be repaid through PTCs/ITCs and other tax attributes · an interest-bearing debt element expected to be repaid through cash distributions. The partner's agreed return is expensed as a finan- cial expense and is recognised as an increase of the tax equity liability. PTCs, ITCs and other tax attributes transferred to the tax equity partner are recognised as other operating income. PTCs are recognised in the periods earned, while ITCs and other tax attributes are recognised on a straight- line basis over the estimated contractual length of the partnership. In addition to the above, we recognise a liability for the expected purchase price for the partner's post-flip rights to cash distributions. This liabil- ity is recognised at fair value, and adjustments are expensed as a financial item. This recognition reflects the intention and high likelihood that we will purchase the partner's post-flip rights, and they are part of the financial costs of the arrangement. Key accounting judgement Recognition of tax equity partnerships On formation of a tax equity partnership, we assess the appropriate recognition of the partner's contri- bution as well as the method of recognition for the elements used to repay the partner, such as PTCs, ITCs, and tax attributes. When assessing the recognition of the partner's contribution, we look at: · the expected flows of PTCs/ITCs, tax attributes, and cash payments to the partner · the rights and obligations of both us and the tax equity partner. The deferral of the income related to tax attributes and the recognition of the contribution as working capital or interest-bearing debt are affected by our expectation to the size, method, and timing of repayments. Government support in the US In the US, PTCs, ITCs, and other tax attributes are used to incentivise investment in renewable energy assets – similar to subsidies in other countries. Tax equity liabilitiesDKKm 2023 2022Balance at 1 January 16,393 14,564Contribution received from tax equity partners 2,942 1,945Additions from acquisitions - 643Tax attributes and PTCs/ITCs recognised in other operating income (2,531) (2,521)Cash paid to tax equity partners (219) (301)Tax equity partners' contractual return 965 1,134Exchange rate adjustments (543) 929Balance at 31 December 17,007 16,393Of which, working capital 15,811 15,157Of which, interest-bearing debt 1,196 1,236 179 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Provisions and contingent liabilities Note 3.10 2023 2022Decom- Decom- ProvisionsmissioningOnerous OthermissioningOnerous OtherDKKmobligationscontractsprovisions To ta lobligationscontractsprovisions To ta lProvisions at 1 January 14,076 280 5,350 19,706 8,851 866 6,171 15,888Exchange rate adjustments 62 (675) 11 (602) (203) (5) (41) (249)Used during the year (30) (4,206) (824) (5,060) - (304) (1,078) (1,382)Provisions reversed during the year - - (1,447) (1,447) - (300) (1,359) (1,659)Provisions made during the year 526 20,246 1,150 21,922 832 1 1,662 2,495Disposals (349) - (12) (361) (376) - - (376)Additions on acquisition of enterprises - - - - 33 - - 33Divestment of enterprises - - - - - - (5) (5)Change in estimates (1,790) - - (1,790) 4,087 - - 4,087Transferred to or from assets and liabilities classified as held for sale - - - - 414 - - 414Interest element of provisions 482 9 4 495 438 22 - 460Total provisions at 31 December 12,977 15,654 4,232 32,863 14,076 280 5,350 19,706Falling due as follows:In 0-1 year 250 15,007 698 15,955 217 31 337 585In 1-5 years 1,499 536 3,350 5,385 1,798 154 4,632 6,584After 5 years 11,228 111 184 11,523 12,061 95 381 12,537 Decommissioning obligations by segmentDKKm 0-5 years 5-10 years 10-20 years After 20 years 2023 2022Offshore 1,160 2,544 2,833 2,303 8,840 10,233Onshore - - 42 2,020 2,062 1,769Bioenergy & Other 589 260 204 1,022 2,075 2,074To t a l 1,749 2,804 3,079 5,345 12,977 14,076 Decommissioning obligations Decommissioning obligations comprise estimated expenses relating to decommissioning and disposal of our offshore wind, onshore wind, and solar farms, the restoration of seabeds, the decommissioning of our CHP plants, the Nybro gas plant, and our oil and gas pipes. We are obliged to decommission our wind and solar farms and restore the surroundings. When we construct offshore wind farms in cooperation with partners, they are liable for their share of the decom- missioning costs. Therefore, we have only included the decommissioning obligations associated with our ownership interest in the offshore wind farms. Other provisions Other provisions comprise primarily: · offshore partnership provisions, including warranty obligations · obligations in relation to the divestment of our oil and gas business in 2017 · obligations in respect of our own carbon emissions · other contractual obligations. 180 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Provisions and contingent liabilities Note 3.10 – continued Onerous contracts Onerous contracts primarily relate to ceasing the development of Ocean Wind 1 where we have a provi- sion of DKK 15 billion at the end of 2023\. The provision relates to cancellation fees on contracts and has been recognised in two steps. First, as an onerous contract provision as part of the impairment of Ocean Wind 1 in the interim financial report for the first nine months of 2023 (CAPEX pro- vision), net of investments incurred on the project up until it was terminated on 1 November. Secondly, a further provision was recognised at year- end (‘Other operating expenses’ provision) to cover cancellation fees not covered by the provision on 30 September 2023. As a result, a total of DKK 9.6 billion was recognised in ‘Other operating expenses’, with the remaining amount being recognised in ‘Impairment losses on intangible assets, and property, plant and equipment’. ‘Used during the year’ primarily relates to CAPEX spent on construction of Ocean Wind 1 until the termination of the project and other costs associated with terminating the project. ‘Used during the year’ also relates to CAPEX spent on the construction of Sunrise Wind. When measuring the provision for ‘Onerous contracts’ related to the cancellation fees, we have assessed the contracts related to the Ocean Wind 1 project. This assessment has included an evaluation of the contractual terms, including whether the contracts will be terminated for cause or convenience, and the expected costs of fulfilling or cancelling the contracts. The most significant contracts relate to the construc- tion and installation of wind turbine generators, export cable systems, fabrication and construction of pipes and foundations, offshore and onshore substations, and other contractual agreements for transportation, mobilisation, and installation of components. The assessment also includes an evaluation of the possibilities of reusing or selling certain project devel- opment assets and reselling the seabed lease to a third party. We expect to reuse the export cables for another offshore wind farm project, which is reflected in the provision. The measurement of the total provision is impacted by significant estimates and judgements and depends on negotiations with subcontractors and contractual partners. As of 31 December 2023, we have only agreed on settlement of a small portion of the contracts' value. While the recognised provision is management's best estimate, the outcome could deviate materially. § Accounting policies Provisions are recognised when the following criteria are fulfilled: · We have a legal or constructive obligation as a result of an earlier event. · The settlement of the obligation is expected to result in an outflow of resources. · The obligation can be measured reliably. Decommissioning obligations are measured at the present value of the future liability in respect of decommissioning as expected at the balance sheet date. The present value of the provision and changes in estimate are recognised as part of the cost of property, plant, and equipment and depreciated together with the associated asset. The addition of interest on provisions is recognised in the income statement under financial expenses. For onerous contracts, a provision is made when the expected income to be derived from a contract is lower than the unavoidable cost of meeting our obligations under the contract. Provisions concerning carbon emissions are recog- nised when our actual emissions exceed our hold- ing of carbon emission allowances. Key accounting estimate Assumptions for provisions We continually assess our provisions recognised to cover contractual obligations and claims raised against Ørsted. Timing, probabilities, amounts, etc., which have a bearing on our provisions' estimates, are updated quarterly based on our expectations. Estimates of provisions are based on our expectations of, for example: · timing and scope of obligation · future cost level · legal assessment. If deemed material, non-current provisions are discounted using either the structural risk-free interest rate or the incremental borrowing rate. The structural risk-free interest rate is used for decommissioning liabilities and onerous contracts. It is calculated as the sum of real return (gross domestic product growth rate), inflation, and infla- tion premium for other risks. Separate structural risk-free interest rates are calculated for Europe, the UK, the US, and Taiwan. The outcome of our contractual obligations and claims may depend on future events, which are uncertain by nature. Key assumptions in estimating cancellation fees Measuring the provision for ‘Onerous contracts’ related to cancellation fees for Ocean Wind 1 involves a number of assumptions and significant estimates and judgements. On contract level, we have assessed the contractual terms and obliga- tions, including the expexted costs of fulfilling or cancelling the contracts. The assessment also includes an evaluation of the possibilities of reus- ing or selling certain project development assets and reselling of the seabed lease to a third party. To a high degree, the estimation of the total provi- sion depends on negotiations with subcontractors and contractual partners, which impact the settle- ment of the individual contracts. The measuring and estimation of the total provision for ‘Onerous contracts’ is based on management's expectations and best estimate of total costs. 181 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Contingent liabilities Liability to pay compensation In case of any environmental accidents or other types of damage caused by our gas and oil transport, the companies Ørsted Salg & Service A/S and Danish Oil Pipe A/S are liable to pay compensation according to legislation. This also applies if there is no proof of negligence (strict liability). We have taken out insur- ance to cover any such claims. Secondary liability As part of the divestment of our oil and gas business in 2017, we assumed a secondary liability regarding the decommissioning of offshore installations. Litigation We are party to a number of court cases and legal disputes. In our assessment, none of these will sig- nificantly impact Ørsted's financial position, neither individually nor collectively. We have been party to actions relating to the Danish competition authorities' claim that the former Elsam A/S and Elsam Kraft A/S (‘Elsam’), now part of Ørsted, charged excessive prices in the Danish wholesale power market in the period 1 July 2003 to 31 December 2006. There are no longer any outstanding cases with the competition authorities claiming Elsam infringed competition law, but in connection with the former cases, some energy trading companies, some of their customers, and others have filed claims for damages, which are still pending. The biggest claim was filed in 2007 before the Copenhagen Maritime & Com- mercial Court, amounting to approx. DKK 4.4 billion with addition of litigation interest. The case is at the moment under preparation for the Maritime & Commercial Court. Ørsted is involved in ongoing transfer pricing dis- putes. For further information, we refer to section 4.1 ‘Approach to taxes’. Change of control Some of our activities are subject to consents, permits, and licences granted by public authorities. We may be faced with a claim for acceptance of any transfer, possibly with additional terms and conditions, if the Danish state holds less than 50 % of the share capi- tal or voting rights in Ørsted A/S. Read more in note 5.1 ‘Interest-bearing net debt and FFO’. Provisions and contingent liabilities Note 3.10 – continued 182 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes § Accounting policies Transactions with non-controlling interests are accounted for as transactions with the shareholder base. Gains and losses on the divestment of equity investments to non-controlling interests are recognised in equity when the divestment does not result in a loss of control. Net assets acquired are not revalued on the acquisition of non-controlling interests. Any difference between the carrying amount and the acquisition or selling price is recognised in equity. Non-controlling interests Note 3.11 Gunfleet Sands Walney (UK) Offshore Ocean Wind Holding Ltd. GroupWindfarms Ltd.JV HoldCo LLCNon-controlling interests DKKm2023 2022 2023 2022 2023 2022Statement of comprehensive incomeRevenue 564 518 1,462 1,348 - -EBITDA 318 317 775 608 - 2Profit (loss) for the year 65 70 215 76 - (21)Total comprehensive income 93 4 298 (113) - 2Profit (loss) for the year attributable to non-controlling interests 32 35 108 38 - (5)Balance sheetNon-current assets 1,378 1,582 3,778 4,424 - 8,234Current assets 205 171 338 364 - 444Non-current liabilities 538 607 1,072 1,352 - 310Current liabilities 135 58 235 290 - 908Carrying amount of non-controlling interests 454 543 1,402 1,570 - 1,843Statement of cash flowsCash flows from operating activities 360 246 597 544 - 93Cash flows from investing activities (61) - (8) (29) - (5,710)Cash flows from financing activities (275) (261) (647) (413) - 5,838– of which, dividends paid to non-controlling interests (135) (128) (278) (166) - - Transactions with non-controlling interestsDKKm 2023 2022Transactions with non-controlling interestsDividends paid to non-controlling interests (413) (294)Acquisition of non-controlling interests (7,032) -Divestment of equity investments to non-controlling interests (153) 3Other capital transactions with non-controlling interests 537 1,461Total transactions, cf. statement of cash flows (7,061) 1,170Divestment of equity investments to non-controlling interestsChanges in receivables relating to the acquisition and divestment of non-controlling interests (7,185) 3Cash selling price, total (7,185) 3 In the table, we provide financial information for subsidiaries with significant non-controlling interests. The amounts stated are the consolidated accounting figures of the individual enterprises or groups, determined according to our accounting policies. Amounts are stated before intra-group eliminations. Subsidiaries with significant Non-controlling Registered non-controlling interests 1interestofficeGunfleet Sands Holding Ltd 49.9 % London, UKWalney (UK) Offshore Windfarms Ltd 49.9 % London, UK 1 Entities are fully consolidated. In 2023, we acquired the remaining 25 % equity stake in Ocean Wind JV HoldCo LLC. The acquisition provided Ørsted with 100 % owner- ship of Ocean Wind JV HoldCo LLC. Hence, financial information is only provided for 2022. In 2023, we also acquired the remaining 50 % equity stakes in Bay State Wind LLC and BSW Projectco LLC (Lease Area 500), respectively. Subsidiaries with immaterial non-controlling interests. 183 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes 2023 DKKm Profit (loss) before tax Ta x Tax in % Tax equity, deferred tax liability - 874 n.a. Gain (loss) on divestment of enterprises and assets 4,654 - 0 % Impairment (26,775) 1,326 5 % Cancellation fees (9,621) - 0 % Other adjustments - (794) n.a. Remaining business 12,716 (2,562) 20 % Effective tax for the year (19,026) (1,156) (6) % ‘Other adjustments’ include changes in tax rates, movements in uncertain tax positions, tax concerning previous years, and unrecognised tax losses. Impairment and cancellation fees are primarily related to the termination of the Ocean Wind 1 project. The Group's taxes reflect our business operations and applicable tax legislation in the countries where we operate. Tax Note 4 Development in current and deferred tax asset and liabilities (tax, net), 2022-2023 DKKm Tax, net asset Tax on profit (loss) for the year Tax on other comprehensive income Corporate taxes paid Other effects Corporate income tax paid by segment, 2023 DKKm Offshore Onshore Bioenergy & Other Ørsted A/S and other activities Total 1,609 (1,047) 2,717 (4,566) (1,156) 349 960 1,204 358 195 2,717 2.7 bn Corporate income tax paid by the Group in 2023 totalled DKK 2,717 mil- lion against DKK 1,263 million in 2022. 2.9 bn Current corporate income tax in 2023 totalled DKK 2,876 million against DKK 2,906 million in 2022. 7.9 b n Our total tax contribution in 2023 totalled DKK 7,887 million against DKK 6,500 million in 2022. -6 % Effective tax rate for the Group for 2023 was -6 % against 15 % in 2022. 184 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes At Ørsted, we want to provide user-friendly and trans- parent information about our global tax positions. We are committed to paying the right amount of tax, at the right time, in the right place – in accordance with the tax laws of the countries where we operate. We seek to comply not only with the letter of the law but also with the underlying tax policy intent. We believe that taxes are a core part of our corporate social responsibility. We are committed to conducting our business in a way that contributes to the United Nations' Sustainable Development Goals (SDGs). Taxes are a key contribu- tion to the SDGs, in particular target 16.6 on the devel- opment of effective, accountable, and transparent institutions. For more details on our approach to taxes, we refer to our tax policy, which can be found here: orsted.com/tax-policy. Transparency and sustainability We continue to report with inspiration from the GRI (Global Reporting Initiative) 207: Tax standard when presenting our approach to and reporting of tax. The purpose of our transparency initiatives is to create certainty around our tax positions for our stakehold- ers, such as investors and the local communities where we pay our taxes, and where we operate. In line with our tax policy, we engage constructively in national and international dialogue with govern- ments, business groups, and civil society to support the development of effective tax systems, legisla- tion, and administration. We believe that by providing relevant and constructive input, we can contribute to an informed discussion around taxes and tax policy. The purpose of our engagement is to promote the development of tax regimes that support the green transformation. During 2023, we have submitted two responses to public consultations by the OECD on Pillar 2 as well as offered our perspectives in a panel debate arranged by OECD on simplification of the Pillar 2 rules. Fur- ther, we have provided our responses on several public consultations in the US pertaining to the implemen- tation of and guidance to the Inflation Reduction Act. To promote responsible tax practices, we are engag- ing with CSR Europe on developing a European index for responsible tax practices. Further, we participated in several panel debates, including at the Danish peo- ple's meeting, ‘Folkemødet’, in Denmark, with a view to promoting responsible tax practices. In connection with the national implementation of the European revenue cap, we have engaged in discus- sions with the governments in Denmark, Germany, and the Netherlands, offering our industry insights on the workings of the power markets as well as hedging profiles of large integrated energy companies. Similarly, we have participated in discussions with the UK government in respect of the adoption and implementation of the UK Electricity Generator Levy, referred to as windfall taxes. Due to declining power prices, the windfall tax regimes have not impacted us significantly. By engaging with civil society and gathering input on, for example, how we share information, we believe we can contribute to increasing the public's confidence in the corporate tax system. As a testament to our progressive and transparent approach to tax we have, besides being Fair Tax Mark accreditated for the second year running, achieved an overall tax compliance risk management rating of ‘low’ by HM Revenue & Customs (the UK) in the Business Risk Review (BRR+). Pillar 2 In December 2021, OECD released the Pillar 2 model rules to reform international corporate taxation. The key purpose of these rules is to ensure that large multinational groups (defined by having a global revenue exceeding EUR 750 million) are subject to a minimum effective tax rate of 15 %. The rules will have to be implemented in national legislation in all individual countries that decide to adopt them. Many countries, including Denmark where the ulti- mate parent company of the Ørsted Group is head- quartered, have already implemented the rules. UN SDG (no. 16) We are transparent about our approach to tax. We actively participate in the development of effective, accounta- ble, and transparent legislation by our engagement with the OECD on Pillar 2. We endorse the B Team Responsible Tax Principles. The B Team is a group of business leaders, working to redefine the culture of accountability in business, for companies, communities, and future gen- erations by creating and cascading new norms of corporate leadership that can build a better world. ISRS 4400 AUP on application of GRI 207: Tax We have drawn inspiration from the GRI 207: Tax standard when presenting our approach to and reporting of tax. The leadership team has been provided with a statement (ISRS 4400 – Agreed Upon Procedures/AUP) from our auditors on our application of GRI 207: Tax. The Fair Tax Mark accreditation scheme seeks to encourage and recognise busi- nesses that pay the right amount of cor- poration tax at the right time and in the right place. We seek to pay tax respon- sibly and transparently and are proud to have qualified for the Fair Tax Mark in 2022 and again in 2023. Approach to taxes Note 4.1 185 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes [](https://orsted.com/tax-policy) Approach to taxes Note 4.1 – continued Based on initial analysis of our 2023 figures and 2024 forecast, we expect to benefit from the temporary safe harbour rules in all of the jurisdictions where we operate. Tax governance Taxes are overseen by the Board of Directors, and within the Board, the Chair of the Audit & Risk Committee is accountable for our tax policy. The responsibility for tax risk management lies with the CFO and is overseen by the Audit & Risk Committee. The day-to-day tax man- agement is handled by a centralised global tax team. Our tax function is involved in the planning, imple- mentation, and documentation of all significant busi- ness decisions and processes to ensure a coordinated assessment of all tax compliance and risks. The tax function also regularly monitors and updates tax risks and related controls. Complying with tax rules can be complex, as the interpretation of legislation and case law may not always be clear cut and may change over time, giving rise to tax risks. We have implemented a governance framework, which ensures appropriate processes and organisational structures to identify, assess, monitor, and manage tax risks at different levels of the Group. We manage our tax risks by preventing unnecessary disputes, which we strive to achieve through strong technical positions, thorough documentation and explanations of our positions, robust compliance pro- cedures, and by engaging in up-front dialogues with tax authorities. We define a tax risk as any consequence relating to the application of our tax policy, day-to-day opera- tions, compliance, or external reporting that impacts the business in the form of cash liabilities, financial reporting misstatements, or reputational damage. We continuously update our tax control framework to ensure that we are aligned with business objectives and stakeholder expectations. We have a standardised review process in place, and our controls are continuously reviewed, assessed, and, where applicable, substituted by automated processes. Tax decisions in relation to matters which are subject to approval by the Group Executive Team or the Board of Directors are approved by the Head of Tax. Our tax risk management work includes considering uncertain tax positions, e.g. when we have taken a position where there is an uncertainty created by a comparison of the wording of the law, the expressed policy intent or lack thereof, or fluctuating or diver- gent application by tax authorities or judicial systems in the countries where we operate. Occasionally, a multinational enterprise like Ørsted faces potential double taxation. This occurs when two or more tax jurisdictions seek to tax the same business income. We believe that profit should only be taxed once, and where the value is created in line with the position of the OECD. In response to the tax risks connected to cross- border activities, including the controversies described in this section, we have made tax-related provisions in accordance with IAS 12, IAS 37, and relevant interpre- tation, such as IFRIC 23. The provisions have been cal- culated based on differences in tax rates and statistical risks of suffering economic or legal double taxation. Tax planning and use of tax incentives We only use business structures that are driven by commercial considerations and aligned with our business activities. We do not use so-called secrecy jurisdictions or tax havens to avoid taxes. If we estab- lish an entity in a low or nil-rate jurisdiction, it will be for substantive and commercial reasons. This is the case with our Isle of Man entity, which holds a licence to develop and build a local offshore wind farm providing renewable energy to the Isle of Man, and with our Singapore entity, which provides technical and administrative services to wind farm projects. To remain competitive, we make use of incentives and tax relief implemented by governments where we have commercial substance, and our business activi- ties are the intended beneficiaries of such incentives and relief. The tax function uses risk and opportunities analyses to provide strong business case assessment and forecast tax data. We therefore include the expected outcome of such opportunities in our long- term planning and decisions, and we seek to get certainty on the available incentives and tax reliefs in our planning activities. 186 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Tax controversies During 2023, the Danish Tax Agency has opened fur- ther enquiries on development services in relation to non-Danish wind farms. To date, Ørsted Wind Power A/S has received final administrative decisions from the Danish Tax Agency in relation to the development of the offshore wind farms Hornsea 1, Walney Extension, Race Bank, and Borssele 1 & 2. We have also received an information request in relation to the offshore wind farm Hornsea 2. In all its decisions, the Danish Tax Agency claims that Ørsted Wind Power A/S has not acted at arm's length terms when charging fees for technical devel- opment services provided to the project companies. The Danish Tax Agency claims that the full value of expected, future cash flows related to the offshore wind farms should be taxed in Denmark. Up until 31 December 2023, the Danish Tax Agency has increased Ørsted Wind Power A/S's tax payments to Denmark with DKK 8.9 billion for the income years 2015-2017. The amount, which is excluding any inter- est, is detailed per wind farm in the table below. The table illustrates the tax payable to Denmark per wind farm, should the Danish Tax Agency's posi- tion prevail, and the expected corresponding adjust- ments. The Danish tax would be payable upfront, plus interests since the original decisions, and the corresponding adjustments would crystalise over the remaining lifetime of the wind farms. As described in our key accounting estimates on page 189, we have made provisions for uncertain tax posi- tions according to IFRIC 23. In relation to these trans- fer pricing disputes, we have used a weighted average of several different scenarios, where the base case is that we will win the cases, but a number of scenarios include different adjustments resulting in increased tax payable to Denmark. The scenarios with addi- tional tax payable to Denmark assumes correspond- ing adjustments. Approach to taxes Note 4.1 – continued Decisions made by the Danish Tax AgencyWalney DKKmExtension Hornsea 1 Race Bank Borssele 1 & 2 Tot a lPotential additional Danish tax payment excluding any interest 2,949 2,337 2,488 1,088 8,862Tax value of potential corresponding adjustment 2,651 2,294 2,236 1,180 8,361Likely timing of settlement of potential tax in Denmark, if the Danish Tax Agency prevails 1st half of 2025 1st half of 2025 TBD 1TBD 1 1 Timing of settlement is likely to follow the same process and timeline as for Walney Extension and Hornsea 1. Hornsea 1 and Walney Extension tax audit timeline 2016 2017 2019 202220212015 2018 2020 2023 Arbitration start Final assessment from Danish Tax Agen cy Mutual agreement procedures initia- tion (MAP) Appeal to the Danish National Tax Tribunal Advance pricing agreement (APA) application Danish Tax Agency terminates APA and initiate transfer pricing audit Tax controversies timeline Tax controversies related to the development services provided from Danish entities to our projects outside of Denmark take multiple years to settle. The dispute con- cerning Hornsea 1 and Walney Extension has currently been ongoing for more than eight years from initiation of an advanced pricing agreement, which failed when the Danish Tax Agency chose to terminate negotiations with the British tax authorites (HM Revenue & Customs) and instead intiated an audit. The next step is for the cases to be settled in arbitration, which we expect to happen in the latter half of 2024. Above, we have sum- marised the timeline for Hornsea 1 and Walney Exten- sion. Also, we have included a status of the other pro- jects where a transfer pricing audit has started. Race Bank We have appealed the administrative decision to the Danish Tax Tribunal. We continue to consider our further options, including an elaborated appeal to the Danish Tax Tribunal, a direct appeal to the court system, or a request for a MAP under the double tax agreement between Denmark and the UK. Borssele 1 & 2 We have appealed the administrative decision to the Danish Tax Tribunal. We continue to consider our further options, including an elaborated appeal to the Danish Tax Tribunal, a direct appeal to the court system, or a request for a MAP under the double tax agreement between Denmark, the Netherlands, and the EU Arbitration Convention. Hornsea 2 The Danish Tax Agency issued an information request in October 2023\. Discussions are on-going. In Denmark, the deadline for issuing a draft administrative decision is on 1 May 2024. Closed audits The Danish Tax Agency has closed the audits of Burbo Bank Extension and Borkum Riffgrund 2 without adjustments. 187 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Income tax Tax on profit (loss) was DKK 1,156 million in 2023 against DKK 2,613 million in 2022\. The effective tax rate was -6 % in 2023 against 15 % in 2022. The effective tax rate was primarily affected by the largely tax-exempt divestments of the offshore wind farms Gode Wind 3 and London Array, the non\- recognition of deferred tax assets in connection with the termination of the Ocean Wind 1 project, and the recognition of deferred tax liabilities in connection with capitalisation of project costs in the US where we have entered into tax equity agreements on the following projects: Sunflower Wind Sparta Solar Old 300 And from the final build-up recognition of deferred tax liabilities on: South Fork Wind See more regarding tax equity partnerships in notes 3.9 ‘Tax equity liabilities’ and 4.3 ‘Deferred tax’. Tax on profit (loss) for the year Note 4.2 § Accounting policies Tax for the year consists of current tax, changes in deferred tax, and adjustments in respect of previous years. Tax on profit (loss) for the year is recognised in the income statement. Tax relat- ing to other items is recognised in other com- prehensive income. Our uncertain tax positions are measured by using either of the following two methods, depending on which method we expect to bet- ter predict the resolution of the uncertainty: · The most-likely-outcome method is applied in cases where there are only two possible outcomes. · The weighted-average method is used in cases where there are more than two possible outcomes. Our uncertain tax positions are recognised under ‘Income tax’ or ‘Deferred tax’, depending on how the realisation of the tax position will affect the financial statement. We have adopted the narrow-scope amend- ments to IAS 12, ‘Income taxes’, which provide temporary relief from accounting for deferred taxes arising from the implementation of the Pillar 2 model rules. 2023 2022Effective tax rate DKKm, %DKK million % DKK million %Tax on profit (loss) for the year can be explained as follows:Calculated 22 % tax on profit (loss) before tax 4,186 22 (3,874) 22Adjustments of calculated tax in foreign subsidiaries in relation to 22 % 825 4 348 (2)Tax effect of:Non-taxable income and non-deductible costs, net 1,519 8 2,243 (13)Unrecognised tax assets (8,084) (43) (651) 4Tax equity contributions 874 5 (354) 2Movements in uncertain tax positions (251) (1) 10 -Changes in tax rates (21) - 29 -Adjustment of tax concerning previous years (204) (1) (364) 2Effective tax for the year (1,156) (6) (2,613) 15 Further, the deferred tax liability previously recognised on Ocean Wind 1 has been reversed in connection with the ceasing of that project. The adjustment of tax concerning previous years primarily relates to tax in France regarding our Ostwind activities. The effective tax rate in 2022 was primarily affected by the largely tax-exempt divestments of the offshore wind farms Hornsea 2 and Borkum Riffgrund 3 and the recognition of a deferred tax liability in connec- tion with tax equity partnerships in the US related to Helena Energy Center, Old 300, the North-East cluster, and Ocean Wind 1. 188 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Tax on profit (loss) for the year Note 4.2 – continued Key accounting estimate Estimates regarding recognition of income taxes We are subject to income taxes in all the coun- tries where we operate. Significant judgement and estimates are required in determining the worldwide income taxes and income tax assets and liabilities, including provisions for uncertain tax positions. While conducting business around the world, tax and transfer pricing disputes with tax authorities may occur due to the complex nature of the tax rules related to the business. Judgement is applied to assess the possible outcome of such disputes. We apply the meth- ods prescribed in IFRIC 23 ‘Uncertainty over Income Tax Treatments’ when making provi- sions for uncertain tax positions, and the provi- sions made are based on different scenarios of possible outcomes. We consider the provisions made to be adequate. The actual obligation may deviate and might lead to tax in excess of the uncertain tax provisions included. This depends on the result of litigations and settle- ments with the relevant tax authorities. Ongoing tax disputes, primarily related to transfer pricing cases, are included as part of ‘Income tax’ and ‘Deferred tax’. Estimates in respect of transfer pricing cases depend, among others, on whether corresponding adjustments can be obtained in the relevant jurisdictions, and, in terms of disputes regarding project companies with partners, whether com- pensation can be obtained from these partners. Any expected compensation from partners is included as part of ‘Other receivables’. Income taxDKKm 2023 2022Tax on profit (loss) for the year (1,156) (2,613)Tax on other comprehensive income (4,566) (236)Tax on hybrid capital related to equity 2 13Total tax for the year (5,720) (2,836)Tax on profit (loss) for the year can be broken down as follows:Current tax (2,876) (2,906)Deferred tax 1,207 868Changes in tax rates (21) 29Uncertain tax positions (251) 10Tax on hybrid capital 115 104Tax equity 874 (354)Adjustment of tax concerning previous years (204) (364)Tax on profit (loss) for the year (1,156) (2,613)Tax on other comprehensive income can be broken down as follows:Current tax (1,262) 60Deferred tax (3,304) (296)Tax on other comprehensive income (4,566) (236) Tax on profit (loss) for the year and other comprehensive income In 2023, total tax for the year was DKK 5,720 million, consisting of tax on profit (loss) for the year, tax on other comprehensive income, and tax on hybrid capi- tal related to equity. Current tax Current tax is the tax incurred by Ørsted on profit for the year. This differs from taxes paid because of pay- ments or refunds regarding prior years and residual payments for the current year. Because of the high level of investments and the sub- sequent deferrals of payable tax as a consequence of accelerated tax depreciation, our current tax is gener- ally lower than the statutory corporate tax rates dur- ing construction and the initial years after first power from a wind farm. Pillar 2 We are assessing our exposure to the Pillar 2 legislation. Our initial assessment indicates the average effective tax rate based on the accounting profit being minimum 15 % and within the safe harbour rules exemption. 189 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Deferred tax Note 4.3 Significant movements in deferred tax assets and liabilities Assets ↑ Tax loss carryforwards due to the accelerated depreciation for tax purposes. Difference between tax and accounting treatment of financial instruments. ↓ Adjustments to previous year's tax returns in Denmark. Utilisation of tax loss carryforwards in Denmark and the UK and surrender of consortium relief in the UK. Deferred tax transferred to current tax in Denmark because of the net gains on hedges. De-recognition of tax loss carry\- forwards. Liabilities ↑ Recognition of tax liabilities in con- nection with tax equity partnerships related to Old 300, Sparta Solar, and Sunflower and the termination of Ocean Wind 1 in our US portfolio. ↓ Adjustment related to Haystack and Muscle Shoals due to impairments for accounting purposes. Divestment of London Array and Gode Wind 3. BioenergyOther activities/ Net deferred tax for 2023 primarily consist of Offshore Onshore& Othereliminations AssetsRecognition of tax loss carryforwardsFinancial instrumentsLiabilitiesTax equity structuresAccelerated tax depreciation compared to accounting depreciationAcquistions Deferred tax 2023BioenergyOther activities/ Deferred tax DKKm Offshore Onshore& Othereliminations at 31 DecemberDeferred tax, assets 10,038 64 41 (1,951) 8,192Deferred tax, liabilities 1,748 3,760 148 (2,217) 3,439Unrecognised tax assets 9,691 109 33 40 9,873Deferred tax 2022DKKmDeferred tax, assets 14,554 61 1,457 (2,353) 13,719Deferred tax, liabilities 3,471 3,915 2,496 (2,468) 7,414Unrecognised tax assets 895 83 100 - 1,078 The table shows the reconciliation of deferred tax to the balance sheet by segment. The unrecognised tax asset is primarily due to ring-fenced tax losses and other losses not meeting the criteria for recognition under IAS 12. These primarily relate to losses in connection with the termination of the Ocean Wind 1 project. There is no expiry of our unrecognised tax assets. No provision for withholding tax on dividends has been included as the amounts where a concrete dividend distribution is planned are considered immaterial in 2023. ‘Other activities/eliminations’ primarily consist of eliminations between segments. 190 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Deferred tax Note 4.3 – continued Development in deferred tax assets and liabilities, 2023Deferred tax balances Deferred tax balances DKKmat 1 January, net Movementsat 31 December, net Assets LiabilitiesIntangible assets (38) (150) (188) 18 206Property, plant, and equipment (6,134) 4,485 (1,649) 4,709 6,358Other non-current assets 16 (318) (302) 5 307Current assets - (1) (1) 1 2Decommissioning obligations 2,101 105 2,206 2,212 6Other non-current liabilities 415 (34) 381 625 244Current liabilities 3,373 (3,742) (369) 3 372Tax loss carryforwards 6,572 (1,897) 4,675 4,675 -Offset (4,056) (4,056)To t a l 6,305 (1,552) 4,753 8,192 3,439 Development in deferred tax assets and liabilities, 2022DKKmIntangible assets (40) 2 (38) 1 39Property, plant, and equipment (8,198) 2,064 (6,134) 4,001 10,135Other non-current assets (8) 24 16 30 14Current assets (50) 50 - 1 1Decommissioning obligations 1,350 751 2,101 2,101 -Other non-current liabilities 4,666 (4,251) 415 499 84Current liabilities 3,937 (564) 3,373 3,373 -Tax loss carryforwards 6,008 564 6,572 6,572 -Offset (2,859) (2,859)To t a l 7,665 (1,360) 6,305 13,719 7,414 For tax purposes, depreciation of fixed assets is typically accelerated compared with accounting purposes. As the accelerated depreciation is larger than our taxable profits when we make large investments, our tax loss carryforwards increase when more wind farms enter into operation. The tax loss carryforwards are either offset against deferred tax liabilities on the same wind farm or jurisdiction or offset against expected future profits from the very same wind farm or jurisdiction. Our decommissioning liability increases as we expand operations. In most tax jurisdictions, the cost is not tax-deductible before it incurs. 191 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes § Accounting policies Deferred tax is recognised in respect of all tempo- rary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred tax is not recognised in respect of tempo- rary differences relating to: · the acquisition of joint operations, including licence interests · other items where differences arise at the time of acquisition, affecting neither the profit (loss) for the year nor the taxable income. However, this does not include differences arising in connection with company acquisitions. Except for right-of- use assets, lease liabilities, decommissioning, restoration, and similar liabilities where the corresponding amounts are recognised as part of the costs of the related assets. Differences arising in connection with company acquisitions are recognised. Deferred tax is measured depending on how we plan to use the assets and settle the liabilities. We offset tax assets and liabilities when the tax assets can be offset against tax liabilities in the year in which the deferred tax assets are expected to be used. Intra-group gains and losses are elimi- nated when calculating deferred tax. In countries where taxes can be offset between companies due to joint taxation schemes, we have netted within a tax jurisdiction. Where no such possibility is feasible, the deferred tax is included in the gross amount on a company-by-company level. Tax losses carried forward in jurisdictions where we have a history of losses are recognised based on other convincing evidence of future profits. The other convincing evidence is based on our long-term forecast model approved by the Board of Directors. Adjustments to unrecognised tax assets are recognised in profit (loss) or other comprehensive income depending on the underlying source of the adjustment. Deferred tax is measured based on the tax rules and rates applying when the deferred tax becomes current tax. Changes in deferred tax because of changes in tax rates are recognised in profit (loss) for the year. Deferred tax (net liabilities) related to tax equity structures are recognised as a tax expense in the income statement when the tax equity partnership agreement is effective, and we start to or have capitalised the corresponding assets. The liability recognised is the amount that we expect to take over once the contribution from the equity partner is repaid, and the tax equity structure flips. US tax equity partnerships We have entered into several tax equity partner- ship agreements in the US. The expected value of the deferred tax liability related to property, plant, and equipment at the flip date in the tax equity partnership agreement is included in our accounts when the tax equity partnership agreement is effective, and we start to or have capitalised the corresponding assets. The deferred tax liability from existing tax equity partnerships will gradually be reduced based on accounting depreciation after the flip date. See more regarding tax equity partnerships in note 3.9 ‘Tax equity liabilities’. Deferred tax Note 4.3 – continued Net deferred tax and accumulated investments, 2023 DKKbn Net deferred tax balance Accumulated net investments The figure shows the net deferred tax assets (+) or liabilities (-) at country level as well as total net accumulated investments in each country. The distribution of net investments is affected by the sale of assets constructed by Ørsted in Denmark for operations outside Denmark where Ørsted only has part ownership. Jurisdictions not yet material are excluded from the overview. DK 3.3 37. 3 1.9 71.5 UK 0.2 5.7 NL -2.0 94.6 US 1.2 29.6 TW 1.0 25.2 DE -0.6 5.6 IE 0.0 2.3 PL -0.2 0.9 FR 192 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Our tax footprint is an effect of how and where we conduct our business. Local corporate taxes paid We have made significant investments in offshore wind farms in the UK, Germany, the Netherlands, the US, and Taiwan, resulting in the accumulation of large tax assets in recent years. Historically, we have not paid significant taxes in these countries besides the UK. This is changing as our offshore wind farms are being commissioned and generating positive taxable income, resulting currently in paid taxes in more countries. Our tax footprint Note 4.4 Payments, corporate taxes DKKm Current year Previous years DK 59 MY 34 UK 1,466 TW 134 PL 29 DE NL FR Other 428 331 190 46 Total 2,717 → As our business matures, we start to incur corporate taxes in the countries where we operate. Taxes in Denmark of DKK 1 billion regarding the current year was paid on 1 February 2024. We are also continuously investing in the US. We do, however, not expect to pay material corporate taxes in the US in the near future due to the commercial structures in the US and the significant amount of tax assets not recognised in connection with the termina- tion of the Ocean Wind 1 project. The funding in the US is carried out applying the US tax equity set-up, which effectively means that tax attributes are trans- ferred to the tax equity partner as repayment and return on investment. See more regarding tax equity partnerships in note 3.9 ‘Tax equity liabilities’. 193 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes A wind farm life cycle We operate in several countries (see our global foot- print in the ‘Management's review’). The design of the individual tax regime in each jurisdiction impacts the tax over the life cycle of our investments and thereby the timing of our tax payments. A wind farm life cycle begins with the development phase. This includes opportunity screening, if applicable, bid preparation, and obtaining land rights, grid connection, and permits. The latter activities are further matured if an invest- ment decision is made, and the construction phase commences, which includes construction of the wind farm. During both phases, product, people, and prop- erty taxes are borne or collected (see our total tax contribution section). When the wind farm is commissioned and put into operation, income and positive cash flows are gener- ated. In many cases, the effect of tax incentives results in a deferral of taxable income compared to profit before tax for accounting purposes. Conversely, once the deferral ends, the taxable income related to the wind farm will exceed the accounting profit. For this reason, the applicable corporate tax rate and the cash tax paid will always differ, but accumulated over the lifetime of the wind farm, they will be very simi- lar.Also, in some of the jurisdictions where we operate, there are mandatory or voluntary tax groupings. This means that we will only pay tax on the consolidated result of all our activities in that country. As a result, con- tinued significant investments in such a country may fur- ther defer the time when we pay taxes in that country. Our tax footprint Note 4.4 – continued Cash flow 0 Profit (loss) before tax Project phases Development ~2-6 years Construction ~2-4 years Operation ~25-30 years Consents and permits Site investigations Capital investment Asset construction Staff and contractors Revenue Operating expenses Profit Late-life development Decommissioning Indirect taxes Employment taxes Indirect taxes Employment taxes Corporate income taxes Indirect taxes Employment taxes Corporate income taxes Indirect taxes Employment taxes Wind farm life cycle example Taxable income Development activities result in negative cash flows in the beginning of the project life cycle. During construction, the capital employed accelerates materially. Positive income begins when the project enters into operation. Some corporate income taxes may be paid during develop- ment if internal development services are provided between tax jurisdictions. Also, corporate income taxes may be paid during late-life development subject to deductibility of decommissioning costs and joint taxation legislation. 194 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Total tax contribution The total tax contribution represents our cash tax payments to government revenues, including amounts paid through an agent. Tax does not result in a return of value to Ørsted for a right or asset used in the business. Taxes borne by us are those that represent a direct cost and are reflected in the financial result. Taxes borne are charged to the profit and loss account. Taxes collected are those which are generated by our operations, but do not constitute a tax liability for Ørsted. Ørsted generates the commercial activ- ity that gives rise to the taxes and then collects and administers them on behalf of the tax authorities in the countries where we operate. Country-by-country reporting To increase transparency, we present key figures on tax jurisdiction levels on the following pages. Our country-by-country reporting content widely follows the GRI 207: Tax standard. To ensure internal coher- ence throughout the annual report, corporate income tax is calculated based on IFRS accounting stand- ards instead of GRI methodology. The tax incentives provided on green investments defer our tax pay- ments, resulting in a difference between profit (loss) in the financial statements and taxable income during the life cycle of a wind farm. This is applicable in most of the countries where we operate. Total global taxes paid in 2023 Profit taxes These include taxes on company profits that are borne (such as corporate income tax or withholding taxes ultimately borne by the group on a consolidated level) and collected (such as withholding tax on payments to third parties). People taxes Taxes on employment, both borne and collected (including income tax and social security tax payments). Product taxes Indirect taxes on the production and consumption of goods and services, including net VAT and sales tax, custom duties, windfall taxes, and insurance premium tax. Net VAT in countries in a net refund posi- tion is excluded in the total tax contri- bution, as it is considered a repayment of tax already paid within the year. Included are also planet taxes, which are insignificant for this summary. Property taxes Taxes on the ownership, sale, transfer, or occupancy of property. Our tax footprint Note 4.4 – continued Total 7,887 Collected 4,596 Borne 3,291 3,504 787 2,717 2,422 2,127 295 1,682 1,682 279 279 Total tax contribution DKKm Profit People Product Property 195 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Our tax footprint Note 4.4 – continued Property 279 Profit 2,717 787 People 295 2,127 Product 1,682 3,291 4,596 Taxes by tax type DKKm Taxes borne Taxes collected Total tax contribution DKKm Our ’Total tax contribution’ in 2023 was DKK 7,887 million against DKK 6,500 million in 2022. The increase primarily relates to profit taxes regarding previous years in the Netherlands and France as well as profit taxes from increased activities, primarily in Europe and Taiwan. Product taxes decreased due the discontinuation of our B2B business in the UK and refunds received in relation to investments in Germany, Taiwan, and other countries as well. Taxes by country DKKm Taxes borne Taxes collected Denmark 95 3,602 Sweden 2 148 United Kingdom 1,599 279 United States of America 270 244 The Netherlands 339 29 Germany 428 46 Singapore 4 0 France 190 0 South Korea 3 1 Poland 111 27 Ireland 46 55 Malaysia 58 39 Spain 1 0 Taiwan 143 126 Japan 2 0 196 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Our tax footprint Note 4.4 – continued Country-by-country Number of Revenue from intra-Property, plant, and key figures, 2023employeesTotal employeeRevenue from group transactions with equipment, and Balance of intra-Corporate income tax DKKmFTEs remuneration1third-party sales other tax jurisdictionsinventorycompany debtpaid on a cash basisDenmark 4,354 4,094 62,884 6,361 15,898 65,249 59The UK 1,311 1,106 10,169 16,784 48,072 56,535 1,466Poland 776 321 47 625 2,297 - 29Malaysia 769 221 11 528 11 - 34The US 746 1,051 2,027 139 69,139 31,678 23Germany 385 308 1,721 1,827 15,953 17,371 428Taiwan 193 139 1,042 36 28,755 23,218 134The Netherlands 114 86 32 1,035 4,335 4,616 331Ireland 105 93 659 39 4,219 1,023 11France 70 33 209 - 895 - 190Singapore 22 27 40 81 4 - 4Korea 21 33 - 31 - 154 3Japan 19 30 - 21 - 77 2Sweden 11 7 413 3 716 14 2Spain 9 6 1 - 14 94 1Vietnam - 5 - 2 - 9 -Belgium - 10 - - - - -Norway - 1 - 2 - - -Australia - - - - - - -To t a l 8,905 7,571 79,255 27,514 190,308 200,038 2,717 Current tax explanation Calculated local Non-taxable income Current tax on hybrid on country level, 2023Profit (loss) corporate tax on profit and non-deductible Unrecognised capital and other DKKmbefore tax(loss) before taxcosts, nettax assets Deferred taxadjustments Current taxDenmark 7,785 (1,648) 253 - 1,743 (115) 233The UK 10,758 (2,521) 1,058 (123) (587) - (2,173)Poland 97 (28) - (1) 1 - (28)Malaysia 177 (42) - - - - (42)The US (37,530) 9,382 73 (7,947) (1,508) - -Germany 1,165 (349) 30 79 (93) - (333)Taiwan (997) 276 19 - (594) - (299)The Netherlands 395 (99) - - (48) - (147)Ireland (495) (26) 86 - (101) - (41)France 79 (20) - - (14) - (34)Singapore 30 (5) - - - - (5)Korea (191) 18 - (20) - - (2)Japan (35) 16 - (21) - - (5)Sweden (112) 23 - (17) (6) - -Spain (73) 16 - (16) - - -Vietnam (6) 1 - (1) - - -Belgium (12) 3 - (3) - - -Norway (54) 12 - (12) - - -Australia (7) 2 - (2) - - -To t a l (19,026) 5,011 1,519 (8,084) (1,207) (115) (2,876) Country-by-country key figures The table shows the reporting of financial, economic, and tax-related information for each jurisdiction where we operate. This information can be compared with our total tax contribution. Our tax contributions reflect that some of our development and construction activities have been based in Denmark, and that our operations in the coming years are beginning to ramp up in markets that have been developed. Also, our presence and the corresponding tax position is affected by hedging, which is primarily handled centrally in Denmark. Withholding taxes are reported under the country where the payment is made. The windfall taxes that came into effect in December 2022 have resulted in additional tax payments of DKK 3.3 million. Current tax explanation on country level The table shows our profit (loss) before tax in tax jurisdictions and the journey to current tax. Current tax for Denmark is impacted by effects from hedges. Also, the table shows the effect from the impairment of our Ocean Wind 1 project in the US. As we do not fulfil the recognition requirements in IAS 12, the deferred tax asset associated with the impairment is not recognised. If our tax postion changes in the US, we may recognise the tax asset in future years. See more in the section ‘Accounting policies’ in note 4.3 ‘Deferred tax’. 1 Including employee costs transferred to assets. 197 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Capital structure Note 5 Capital structure To ensure we have the financial strength to operate in the international energy and capital markets and secure financing on attractive terms, we target a solid investment grade rating with all three major rating agencies. This includes an FFO/adjusted interest-bearing net debt credit metric above 30 %. Financing policy The aim of our financing policy is to minimise liquidity and refinancing risks while minimising financing costs and matching the currency com- position of our debt with our revenue. We obtain funding in different markets and with different maturities. Our debt is primarily con- solidated in the parent company where cash resources are made available to the Group com- panies via an internal bank. Cash management and liquidity reserve A group-wide cash management set-up ensures optimal allocation of cash in relation to our day- to-day operations and investment programme. We target a liquidity reserve that ensures ade- quate coverage of our use of liquidity on a rolling 12 month forward-looking basis to limit the com- pany's sensitivity to unforeseen developments, including unrest in the financial markets. Equity and interest-bearing net debt DKKbn Interest-bearing asset Interest-bearing debt Hybrid capital Equity attributable to shareholders in Ørsted A/S Non-controlling interests 2022 47.1 / 77.7 / 19.8 / 71.7 / 4.0 126.1 billion 2023 45.2 / 92.6 / 19.1 / 56.8 / 1.9 125.2 billion An appropriate capital structure is important to ensure we have the ability to raise new debt with attractive terms. The costs related to terminating our Ocean Wind 1 project as well as lower forward power prices, further supply chain delays and costs to mitigate this, increasing capital expenditures (per MW) and OPEX due to cost inflation and supply chain bottlenecks have negatively impacted our credit metric (FFO/adjusted net debt) projections in 2023. Therefore, we have taken and will continue to take measures to ensure a robust balance sheet supporting long-term growth and capital structure resilience towards 2030. In February 2023, we issued three green bonds with a total nominal value of EUR 2,000 million (DKK 14,885 million). In June 2023, we issued a EUR 100 million (DKK 745 million) blue bond. The net proceeds from the issuance will be allocated to invest- ments in offshore biodiversity. 28.6 % Funds from operations (FFO) relative to adjusted interest-bearing net debt amounted to 28.6 % at 31 December 2023 against 42.7 % at 31 December 2022. 47. 4 b n Our interest-bearing net debt totalled DKK 47,379 million at 31 December 2023 against DKK 30,571 million at 31 Decem- ber 2022. 90.7 bn Our liquidity reserve totalled DKK 90,665 million at 31 December 2023 against DKK 97,784 million at 31 December 2022. 198 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Interest-bearing net debt and FFO Note 5.1 Interest-bearing debt and interest-bearing assetsDKKm 2023 2022Interest-bearing debt:Bank debt 9,031 8,913Bond debt 70,589 54,368Total bond and bank debt 79,620 63,281Tax equity liability (see note 3.9) 1,196 1,236Lease liability 8,426 8,266Other interest-bearing debt:Debt in connection with divestments 2,900 2,904Debt from receiving collateral under credit support annexes 286 1,196Other interest-bearing debt 153 824Total interest-bearing debt 92,581 77,707Interest-bearing assets:Securities 29,902 25,197Cash 10,145 16,178Receivables from associates and joint ventures 77 -Cash, not available for use 481 2,471Other interest-bearing receivables:Receivables from placing collateral under credit support annexes 3,854 2,449Receivables in connection with divestments 735 713Other receivables 8 128Total interest-bearing assets 45,202 47,136Total interest-bearing net debt at 31 December 47,379 30,57150 % of hybrid capital 9,552 9,897Other interest-bearing debt, add back (3,339) (4,924)Other interest-bearing receivables, add back 4,597 3,290Cash and securities not available for distribution, excluding repo loans 867 3,241Total adjusted interest-bearing net debt 59,056 42,075 Funds from operations (FFO)DKKm 2023 2022EBITDA 18,717 32,057Change in provisions and other adjustments 8,742 (2,213)Change in derivatives 4,274 (8,687)Variation margin (add back) (7,086) 10,332Reversal of gain (loss) on divestment of assets (5,745) (10,885)Income tax paid (2,717) (1,263)Interest and similar items, received/paid 1,385 (563)Reversal of interest expenses transferred to assets (453) (586)50 % of coupon payments on hybrid capital (273) (264)Dividends received and capital reductions 19 23Funds from operations (FFO) 16,863 17,951 Funds from operations (FFO)/adjusted interest-bearing net debt% 2024 2023 2022Funds from operations (FFO) 16,863 17,951Total adjusted interest-bearing net debt 59,056 42,075Funds from operations (FFO)/adjusted interest-bearing net debt 28.6 % 42.7 %Target Above 30 % ~25.0 % ~25.0 % FFO/adjusted interest-bearing net debt was 28.6 % compared with 42.7 % in 2022. The decrease in ‘FFO/adjusted interest-bearing net debt’ is mainly due to an increase in adjusted interest-bearing net debt of DKK 17.0 billion. ‘Interest-bearing net debt’ totalled DKK 47,379 million compared with DKK 30,571 million in 2022. 199 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Interest-bearing net debt Interest-bearing net debt totalled DKK 47,379 million at the end of 2023, an increase of DKK 16,808 million relative to 2022. The increase in interest- bearing net debt consists of an increase in interest-bearing debt of DKK 14,874 million and a decrease in interest\- bearing assets of DKK 1,934 million. In February, we issued three new green senior bonds in the amount of EUR 2,000 million (DKK 14,885 million): · EUR 700 million (DKK 5,210 million), 3.625 % interest, maturing in March 2026 · EUR 600 million (DKK 4,465 million), 3.750 % interest, maturing in March 2030 · EUR 700 million (DKK 5,210 million), 4.125 % interest, maturing in March 2035. In June, we also issued a EUR 100 million (DKK 745 million) blue senior bond with maturity in June 2028 and a fixed interest rate of 3.625 %. The net proceeds from the issuance will be allocated to investments in offshore biodiversity. Rating We have a corporate credit rating of BBB+/Baa1/BBB+ from Standard & Poor's, Moody's, and Fitch. Following our announcement regarding impairment of our US portfolio on 29 August 2023, Moody's changed their outlook from stable to negative in September 2023, and Standard & Poor's and Fitch followed in November 2023. If our ratings should be downgraded by one notch to BBB/Baa2/BBB following clarification by the rating agencies, it will not impact Ørsted's business activities. ‘FFO/adjusted interest-bearing net debt’ was 28.6 % in 2023. Market value of bond and bank debt The market value of our bond and bank debt amounted to DKK 68,671 million and DKK 8,711 million, respectively, at 31 December 2023 (2022: DKK 53,358 million and DKK 8,483 million, respec- tively). The market value of issued bonds has been determined as the market value at 31 December (level 1 – quoted prices). The market value of bank loans has been deter- mined as the present value of expected future instal- ments and interest payments using the Group's current interest rate on loans as the discount rate (level 2 – observable inputs). Due to the level of interest rates being lower at the time of issuance, the market value of our bond and bank debt is below the carrying amount. Loan arrangements and credit facilities At 31 December 2023, we had bank loan obligations totalling DKK 5,030 million (2022: DKK 5,880 million) to the European Investment Bank and Nordic Invest- ment Bank. The loans offered by these multilateral financial institutions cofund specific energy projects with maturities exceeding those normally available in the commercial banking market. Furthermore, we had non-cancellable credit facilities and undrawn loan agreements of DKK 51,159 mil- lion at 31 December 2023 (2022: DKK 57,179 million) with a number of Scandinavian, international, and Taiwanese banks. See note 5.4 ‘Liquidity reserve’ for further details. In connection with these loan arrangements and credit facilities, we may be met with demands for cancellation and repayment of any drawn amount in the event of shareholders other than a group con- sisting of the Danish state and Danish power dis- tribution companies controlling more than 50 % of the share capital or voting rights in Ørsted A/S. Our financing agreements are not subject to any other unusual terms or conditions. Interest-bearing net debt and FFO Note 5.1 – continued Changes in interest-bearing debtDKKm 2023 2022Interest-bearing debt at 1 January 77,707 60,358Cash transactions:Proceeds from raising loans 17,584 37,090Instalments on loans (1,580) (21,482)Instalments on leases (712) (582)Change in other interest-bearing debt and tax equity liability (1,625) 1,291Non-cash transactions:Raising lease debt, etc. 872 1,316Bank loans acquired in a business combination - 437Foreign exchange adjustments, amortisation, etc. 335 (721)Interest-bearing debt at 31 December 92,581 77,707 200 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes § Accounting policies Bond debt, bank debt, and other payables are recognised at inception at market value (typically proceeds received) net of transac- tion costs incurred. In subsequent periods, the liabilities are measured at amortised cost, so that the difference between the cost (proceeds) and the nominal value is recognised in profit (loss) for the year as interest expenses over the term of the loan, using the effective interest rate method. Financial liabilities are classified as current, unless the Group has an unconditional right to defer settlement of the liability to at least one year after the balance sheet date. Interest-bearing net debt and FFO Note 5.1 – continued Senior bonds issued at Outstanding amount 31 December 2023Type of Million, currencyfinancingCoupon (%) Time of issue Maturing Quoted inCurrency DKK EUR Green 600 4,473 2.250 June 2022 June 2028 LuxembourgEUR Green 750 5,591 1.500 Nov. 2017 Nov. 2029 LondonEUR Green 900 6,709 3.250 Sep. 2022 Sep. 2031 LuxembourgEUR Green 750 5,591 2.875 June 2022 June 2033 LuxembourgEUR Green 700 5,218 3.625 Feb. 2023 March 2026 LuxembourgEUR Blue 100 745 3.625 June 2023 June 2028 LuxembourgEUR Green 600 4,473 3.750 Feb. 2023 March 2030 LuxembourgEUR Green 700 5,218 4.125 Feb. 2023 March 2035 LuxembourgGBP Green 350 3,011 2.125 May 2019 May 2027 LuxembourgGBP - 750 6,452 4.875 Jan. 2012 Jan. 2032 LondonGBP Green 300 2,581 2.500 May 2019 May 2033 LuxembourgGBP Green 250 12,151 CPI+0.375 May 2019 May 2034 LuxembourgGBP Green 375 3,226 5.125 Sep. 2022 Sep. 2034 LuxembourgGBP - 500 4,301 5.750 Apr. 2010 Apr. 2040 LondonGBP Green 575 4,947 5.375 Sep. 2022 Sep. 2042 LuxembourgNTD Green 4,000 880 0.920 Nov. 2019 Nov. 2026 TaipeiNTD Green 4,000 880 0.600 Nov. 2020 Nov. 2027 TaipeiNTD Green 3,000 660 0.700 Nov. 2020 Nov. 2030 TaipeiNTD Green 8,000 1,759 1.500 Nov. 2019 Nov. 2034 TaipeiNTD Green 8,000 1,759 0.980 Nov. 2020 Nov. 2040 Taipei 1 Issued principal is indexed to an outstanding amount of GBP 309 million corresponding to DKK 2,654 million at 31 December 2023. In addition to senior bonds, we have issued a number of hybrid bonds, see note 5.3 ‘Hybrid capital’. . Maturity profile of issued senior bonds and bank debt DKK billion Issued bonds Bank debt 2024 0.4 2028 5.2 2034 7.6 2026 9.5 2030 6.4 2025 0.0 2029 10.8 2033 8.2 2035+ 16.2 2027 3.9 2031 6.7 2032 6.5 201 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Share capital Ørsted's share capital is DKK 4,203,810,800 (2022: 4,204 million), divided into shares of DKK 10. The share capital is unchanged from last year. No shares are subject to special rights or restrictions on voting rights. All shares are fully paid up. Treasury shares To secure our share programme, we have acquired treasury shares in accordance with the authorisation approved by the general meeting. The total portfolio of treasury shares consists of 150,784 shares at 31 December 2023 (2022: 154,344), corresponding to less than 0.1 % of the share capital. Dividends The Board of Directors recommends that dividends of DKK 0 million (2022: DKK 5,675 million) be paid for the financial year, corresponding to DKK 0 per share (2022: DKK 13.50 per share). Owners in Ørsted The Danish state is the principal shareholder with an ownership interest of 50.1 %. In addition, Andel have an ownership interest above 5 %. See note 16 ‘Owner- ship information’ in the parent company's financial statements. Equity Note 5.2 Earnings per shareDKKm 2023 2022Profit (loss) for the year (20,182) 14,996Interest and costs, hybrid capital owners of Ørsted A/S (553) (577)Non-controlling interests (324) 130Ørsted's share of profit (loss) for the year (21,059) 14,549(’000)Average number of outstanding shares 420,227 420,209Dilutive effect of share programme 280 233Average number of outstanding shares, diluted 420,507 420,442(DKK)Earnings per share (50.1)34.6Diluted earnings per share(50.1)34.6 The graph shows the proposed dividends compared to the closing price for an Ørsted share on the last trading day of the year. Dividend yield % 1.5 2023 0 2022 2.1 2021 202 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Equity Note 5.2 – continued Hedging reserve 1Reserves 2023Foreign currency Hedging of net Hedging of Hedging of Hedging of Hedging of To t a l DKKmtranslation reserveinvestmentsrevenuedivestmentsinterest production assetsreservesReserves at 1 January (725) (1,178) (26,694) - 2,130 - (26,467)Exchange rate adjustments 531 - - - - - 531Value adjustments of hedging - (328) 24,950 (41) 108 - 24,689Value adjustments transferred to:Revenue - - (2,437) - - - (2,437)Other operating income – gain on divestment of assets (80) 21 - (44) - - (103)Other operating expenses - - 512 - - - 512Financial income and expenses - (236) 134 - (2,308) - (2,410)Tax:Tax on hedging and currency adjustments (110) 120 (5,080) 20 484 - (4,566)Movement for the year 341 (423) 18,079 (65) (1,716) - 16,216Total reserves including tax at 31 December (384) (1,601) (8,615) (65) 414 - (10,251)Total reserves excluding tax at 31 December (1,093) (2,053) (9,827) (85) 530 - (12,528) Reserves 2022DKKmReserves at 1 January 1,475 (1,833) (24,585) (460) 574 51 (24,778)Exchange rate adjustments (3,625) - - - - - (3,625)Value adjustments of hedging - 738 (29,935) 3,786 2,578 50 (22,783)Value adjustments transferred to:Revenue - - 11,730 - - - 11,730Other operating income – gain on divestment of assets 574 102 11,970 (3,197) - - 9,449Other operating expenses - - 4,475 - - 4,475Financial income and expenses - - - - (583) - (583)Property, plant, and equipment - - - - - (116) (116)Tax:Tax on hedging and currency adjustments 851 (185) (349) (129) (439) 15 (236)Movement for the year (2,200) 655 (2,109) 460 1,556 (51) (1,689)Total reserves including tax at 31 December (725) (1,178) (26,694) - 2,130 - (26,467)Total reserves excluding tax at 31 December (1,544) (1,510) (33,000) - 2,731 - (33,323) Foreign currency translation reserve The foreign currency translation reserve comprises: · exchange rate adjustments arising on translation of the financial statements of foreign entities with a currency that is not the Group's presentation currency · exchange rate adjustments relating to loans that form part of our net investment in such entities · exchange rate adjustments relating to hedging transactions on our net investment in such entities. On realisation or partial realisation of the net investment, the exchange rate adjustments are recognised in profit (loss) for the year if a foreign exchange gain (loss) is realised by the divested entity. The foreign exchange gain (loss) is transferred to the item where the gain (loss) is recognised. Hedging of revenue Hedging of revenue includes hedging of energy, currency, and inflation risks associated with revenue. Share premium reserve Retained earnings include the share premium reserve of DKK 21,279 million (2022: 21,279 million), representing the excess of the amount of subscribed-for share capital over the nominal value of these shares in connection with capital injections. 1 Costs of hedging related to basis spread on currency swaps and option premiums included in the hedging reserve amount to DKK 6 million (2022: 10 million). 203 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes We have issued hybrid capital which is subordinate to our other creditors. The purpose of issuing hybrid capital is to strengthen our capital base and fund our investments. We have issued EUR hybrid bonds with a total nominal value of EUR 2,100 million and GBP 425 million, respectively, equivalent to DKK 19,310 million (2022: EUR 2,194 million and GBP 425 million, respectively, equivalent to DKK 19,877 million). For all our hybrid bonds, we have the right to defer coupon payments and ultimately decide not to pay them at maturity. Deferred coupon payments become payable, however, if we decide to pay divi- dends to our shareholders or pay coupon payments on other hybrid bonds. As a consequence of the special terms regarding the hybrid bonds, these are classified as equity, and therefore coupon payments are recognised in equity. Hybrid capital Note 5.3 Hybrid bonds Green due in 3017 Green due in 3019 Green due in 3021 Green due in 3022 Green due in 3021Type Subordinated Subordinated Subordinated Subordinated SubordinatedCarrying amount DKK 3,668 million DKK 4,416 million DKK 3,697 million DKK 3,692 million DKK 3,630 millionFinancial classification Equity Equity Equity Equity EquityNotional amount EUR 500 million (DKK 3,727 million) EUR 600 million (DKK 4,473 million) EUR 500 milllion (DKK 3,727 million) EUR 500 milllion (DKK 3,727 million) GBP 425 million (DKK 3,656 million)Issued November 2017 December 2019 February 2021 December 2022 February 2021Maturing November 3017 December 3019 February 3021 December 3022 February 3021Quoted in Luxembourg Luxembourg Luxembourg Luxembourg LuxembourgFirst redemption at par 24 November 2024 9 December 2027 18 February 2031 8 December 2028 18 February 2033Coupon for the first Seven years fixed at 2.25 0 % p.a. Eight years fixed at 1.75 0 % p.a. Ten years fixed at 1.50 0 % p.a. Six years fixed at 5.250 % p.a. 12 years fixed at 2.500 % p.a.Coupon in subsequent period is adjusted every +1.899 % points from 2024, +2.149 % points +1.952 % points from 2027, +2.020 % points +1.860 % points from 2031 and +2.610 % points +2.619 % points from 2028, +2.869 % points Adjusted every five years with the five-year five years with the five-year euro swapfrom 2029, and +2.899 % points from 2044from 2032, and +2.952 % points from 2047from 2051from 2033, and +3.619 % points from 2048benchmark gilt +2.136 % points from 2033 and +2.886 % points from 2053Deferral of interest payment Optional Optional Optional Optional Optional § Accounting policies Hybrid capital comprises issued bonds that qualify for treat- ment in accordance with the rules on compound financial instruments due to the special characteristics of the bonds. The notional amount, which constitutes a liability, is recognised at present value, and equity has been increased by the differ- ence between the net proceeds received and the present value of the discounted liability. The carrying amount of the liability component amounted to nil on initial recognition as the only payment obligation is the repayment of the nominal value in 1,000 years. Coupon payments are accounted for as dividends, which are recognised directly in equity at the time the payment obligation arises. This is because the coupon is discretionary, and therefore any deferred coupon lapses upon maturity of the hybrid capital. Coupon payments are recognised in the statement of cash flows within financing activities. On redemption of hybrid capital, the payment will be distributed between liability and equity, applying the same ratio as when the hybrid capital was issued. This means that the difference between the payment on redemption and the net proceeds received on issue is recognised directly in equity, as the liability portion of the existing hybrid issues will be nil during the first part of the life of the hybrid capital. 204 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Liquidity reserve Liquidity reserve at 31 December 2023 amounted to DKK 90.7 billion (31 December 2022: DKK 97.8 billion). The change in liquidity reserve is due to a decrease in cash and undrawn credit facilities of DKK 6,033 million and DKK 6,174 million, respectively. Partly countered by an increase in available securities of DKK 5,088 million. Collateral and margin postings When we trade in derivatives to execute our hedging strategy, we have two alternatives: · Trading where the market value is settled on an ongoing basis through receipt or placement of collateral. · Trading where we accept the credit risk that will occur if we gain on the transaction. We are trading under both types of agreements to increase the number of counterparties with whom we are engaging to achieve the most optimal price. To mitigate and limit the potential negative impact on our cash position from temporary fluctuations in market prices, we actively manage the volume of trades between trading with and without collateral arrangements. As of 31 December 2023, 12 % (2022: 31 %) of our power and gas trades and 88 % (2022: 86 %) of our currency, inflation, and interest rate hedges had daily margin settlements. To limit cash impact, we also provide non-cash collateral as parent company and bank guarantees, where possible. At the end of December 2023, we had covered EUR 0.5 billion in collateral for initial margins and variation margins on energy hedges through a parent company guarantee. Our collateral and margin payments related to trad- ing with derivatives and collateral related to insurance liabilities and escrow accounts have decreased from DKK 17.3 billion at 31 December 2022 to DKK 7.9 billion at 31 December 2023\. The decrease was primarily driven by the large decrease in power and gas prices. During the year, collateral payments related to vari- ation and initial margins decreased by DKK 2.5 billion and DKK 7.1 billion, respectively, and amounted to DKK 3.9 billion at 31 December 2023\. Initial margin and variation margin relate to energy hedges, and the credit support annex (CSA) relates to currency, inflation, and interest rate hedges. Other collateral mainly relates to insurance liabilities and escrow accounts. Further securities can be placed as collateral in repo transactions as part of our cash management. Liquidity reserve Note 5.4 Liquidity reserve DKKbn Cash Securities, available Undrawn, non-cancellable credit facilities Collateral and margin postings DKKbn Initial margin Variation margin Credit support annex Other collateral Dec. 2023 90.7 Dec. 2022 97.8 Dec. 2023 7.9 Dec. 2022 17.3 205 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes § Accounting policies Securities comprise bonds that are monitored, measured, and reported at market value on an ongoing basis in conformity with the Group's investment policy. Changes in market value are recognised in profit (loss) for the year as financial income and expenses. Purchase and sale of securities are recognised at the settle- ment date. For listed securities, market value equals the market price, and for unlisted securities, market value is estimated based on generally accepted valuation methods and market data. Divested securities where repurchase agree- ments (repo transactions) have been made at the time of sale are recognised in the balance sheet at the settlement date as if the securities were still held. The amount received is recog- nised as a liability, and the difference between the selling price and the purchase price is rec- ognised in profit (loss) for the year over the term as interest. The return on the securities is recog- nised in profit (loss) for the year. Liquidity reserve Note 5.4 – continued Cash, cash equivalents, and securities Securities are a key element in our liquidity reserve, and therefore, investments are mainly made in liquid AAA-rated Danish mortgage bonds and, to a lesser extent, in other bonds. Most of the securities qualify for repo transactions with the Danish central bank, ‘Danmarks Nationalbank’. ‘Securities not available for use’ comprise securities pledged as collateral for: · insurance-related provisions: DKK 387 million at 31 December 2023 (2022: DKK 381 million) · trading in financial instruments: DKK 0 million at 31 December 2023 (2022: DKK 388 million). At 31 December 2023, we had received cash collateral in the amount of DKK 286 million (2022: DKK 1,194 million) concerning the positive market value of derivatives. ‘Cash not available for use’ comprises: · collateral for power purchase agreements and trading with financial instruments: DKK 421 million (2022: DKK 366 million) · collateral for insurance-related provisions: DKK 41 million (2022: DKK 38 million) · payables for the purchase of gas that has not yet been settled, placed on a restricted account: DKK 0 million (2022: DKK 2,029 million) · collateral for other transactions: DKK 19 million (2022: DKK 38 million). Cash and cash equivalents, securitiesDKKm 2023 2022Cash, cf. balance sheet 10,145 16,178Bank overdrafts that are part of the ongoing cash management (1) (3)Total cash and cash equivalents at 31 December, cf. statement of cash flows 10,144 16,175Cash can be specified as follows:Cash cf. balance sheet 10,145 16,178Cash, not available for use 481 2,471Securities can be specified as follows:Securities, available 29,515 24,428Securities, not available for use 387 769Total securities at 31 December 29,902 25,197 The table shows our cash and securities divided into available and not available for use. Overview of securitiesDKKm Fixed rate Floating rate 2023 Fixed rate Floating rate 2022Maturities0-2 years 3,064 12,032 15,096 37 12,278 12,3152-5 years 371 8,287 8,658 961 6,025 6,986After 5 years 2,583 3,565 6,148 1,666 4,230 5,896Total carrying amount 6,018 23,884 29,902 2,664 22,533 25,197 The table shows our securities split into maturities and fixed or floating interest rates. The overview includes interest rate swaps used to manage the interest rate risk on the securities. 206 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Maturity analysis of financial liabilities Note 5.5 Maturity analysis of financial liabilities 2023DKKm 2024 2025 2026-2027 After 2027 2023Bank loans and issued bonds: Notional amount 408 - 13,388 66,165 79,961 Interest payments 2,485 2,480 4,762 15,380 25,107Trade payables 14,915 - - - 14,915Lease liabilities 1,009 844 1,552 8,634 12,039Tax equity debt 153 213 443 681 1,490Other non-derivative payables 4,090 1,730 808 11,390 18,018Derivatives 7,611 3,445 4,015 7,404 22,475Total payment obligations 30,671 8,712 24,968 109,654 174,005 Maturity analysis of financial liabilities 2022DKKm 2023 2024 2025-2026 After 2026 2022Bank loans and issued bonds: Notional amount 3,087 53 1,487 59,077 63,704 Interest payments 1,883 1,880 3,741 14,721 22,225Trade payables 20,641 - - - 20,641Lease liabilities 817 664 1,288 9,182 11,951Tax equity debt 150 158 343 845 1,496Other non-derivative payables 8,019 1,543 489 12,810 22,861Derivatives 32,636 13,442 6,059 11,288 63,425Total payment obligations 67,233 17,740 13,407 107,923 206,303 The Group's cash needs in respect of its financial loans and borrowings are shown in the table. The maturity analysis was determined on 31 December. The maturity analysis is based on undiscounted cash flows, including estimated interest payments. Interest payments are based on market conditions and interest rate hedging entered into on 31 December. The maturity analysis does not include hybrid capital classified as equity. At 31 December 2023, we had issued hybrid capital with a notional amount totalling DKK 19,310 million due after 2027. 207 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Financial income and expenses Note 5.6 § Accounting policies Market value adjustments of interest rate and currency derivatives that have not been entered into for hedging purposes are pre- sented as financial income or expenses. The accounting policy for the tax equity part- ner's contractual return is described in note 3.9 ‘Tax equity liabilities’. Net financial income and expenses 1DKKm 2023 2022Interest expenses, net (1,764) (1,895)Interest expenses, leasing (308) (256)Interest element of provisions, etc. (662) (613)Tax equity partner's contractual return (965) (1,134)Value adjustments of derivatives, net 1,850 1,593Capital gains/losses on securities at market value, net 489 (1,556)Exchange rate adjustments, net (140) 1,343Other financial income and expenses 57 (18)Net financial income and expenses (1,443) (2,536) Financial income and expenses 2DKKm 2023 2022Interest income from cash, etc. 926 211Interest income from securities at market value 716 157Capital gains on securities at market value 489 34Foreign exchange gains 4,674 8,226Value adjustments of derivatives 5,548 6,885Other financial income 26 1Total financial income 12,379 15,514Interest expenses relating to loans and borrowings, etc. (4,167) (2,848)Interest expenses transferred to assets 453 585Interest expenses, leasing (308) (256)Interest element of provisions (257) (513)Tax equity partner's contractual returns (965) (1,134)Capital losses on securities at market value - (1,596)Foreign exchange losses (5,042) (7,323)Value adjustments of derivatives (3,470) (4,800)Other financial expenses (66) (165)Total financial expenses (13,822) (18,050)Net financial income and expenses (1,443) (2,536) 1 The table shows net financial income and expenses, corresponding to our internal reporting. ‘Value adjustments of derivatives, net’ and ‘Capital gains/losses on securities at market value, net’ were both impacted by the signifi- cant increase in interest rates in 2022 as we use interest rate swaps to adjust the maturity of our bond portfolio and thereby reduce the interest rate risk of our bond portfolio. In 2023, ‘Value adjust- ments of derivatives, net’ is affected by a gain of DKK 2,399 million due to hedge ineffectiveness, mainly driven by less funding needed in the US after the termination of Ocean Wind 1. ‘Exchange rate adjustments, net’ are mainly affected by inter-com- pany balances between entities with different functional currencies and do not impact the statement of cash flows or interest-bearing net debt. Negative ‘Exchange rate adjustments, net’ in 2023 were mostly driven by the increase in GBP/DKK exchange rate. The GBP/ DKK rate decreased significantly in 2022, which led to positive exchange rate adjustments for that period. 2 Exchange rate adjustments of currency hedging are recognised in revenue and cost of sales with a loss of DKK 451 million (2022: a loss of DKK 349 million). Borrowing costs transferred to property, plant, and equipment under construction are calculated as the weighted average effective interest rate for general borrowing. This amounted to 3.4 % in 2023 (2022: 3.1 %). 208 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Risk management Note 6 Revenue composition of offshore and onshore assets 2024-2030 20 % Merchant revenue 35 % Fixed nominal revenue 45 % Inflation-indexed revenue For the period 2024-2030, approximately 80 % of our expected revenue from our wind and solar PV assets are fixed price inflation- indexed or fixed nominal. The remaining 20 % is exposed to fluctuations in power prices. Energy exposure 2024-2026 2 DKKbn Before hedging After hedging Outright power 34.5 14.2 -0.4 0.0 Gas and oil 6.6 5.9 Spread (power) 2 Energy exposure before hedging does not include revenue from inflation-indexed and fixed nominal prices as these do not contain any energy exposure. Our outright power exposure has decreased in 2023 due to the decrease in power prices. Currency exposure 2024-2028 1 DKKbn Before hedging After hedging 1 For USD and NTD, we manage our risk to a natural time spread between front-end capital expenditures and long-term revenue. For USD, we have hedged more than our current exposures in 2024-2028 due to a combination of hedges to be rolled further out in time and large changes to the exposures following the decision not to build Ocean Wind 1 and 2. We do not deem EUR to constitute a risk as we expect Denmark to maintain its fixed exchange-rate policy. GBP 32.1 11.6 15.5 -4.8 USD 4.3 3.2 NTD We are exposed to financial risks in the form of mar- ket, credit, and liquidity risks as part of our business, hedging, and trading activities. Through our risk management, we monitor and proactively manage the risks according to our risk appetite. In this note, we describe the origination, governance, and management of market and credit risks. The man- agement of liquidity risk can be found in note 5. Our financial market risks relate to energy prices, com- modity prices related to CAPEX, currency exchange rates, interest rates, and inflation. Although not a finan- cial risk, changes to our expected volumes produced or sold can increase or decrease the impact of these risks. The composition of the expected revenue from our off- shore and onshore assets for 2024-2030 (shown to the right) illustrates the relative size of the risks. Furthermore, our cash flows denominated in foreign currencies are exposed to changes in the value of foreign currencies against Danish kroner. ~ 45 % inflation- indexed revenue ~45 % of our revenue from offshore and onshore assets are fixed price-indexed to inflation, mainly from ROC and CfD subsi- dies in the UK and Poland. ~ 35 % fixed nominal revenue ~35 % of our revenue from offshore and onshore assets are fixed in nominal terms, mainly from fixed-price subsidies and CPPAs in Continental Europe, Taiwan, and the US as well as hedges swapping inflation- indexed cash flows to fixed. ~ 20 % merchant revenue ~20 % of our revenue from offshore and onshore assets are exposed to merchant power prices, mainly from the period after expiry of subsidies or CPPAs. DKK -9.9 billion The value of our hedging instruments (mainly power) that will impact EBITDA in the future amounts to a loss of DKK 9.9 billion at 31 December 2023 (2022: DKK 33.0 billion) 209 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes The overall objective of our financial risk manage- ment is to: · increase the predictability of our short-term income and construction costs · protect our current and future investment capacity by stabilising key rating metrics like FFO/NIBD · protect the long-term real value of the shareholders' investment in Ørsted. The governance for managing market, credit, and liquidity risks are based on the three lines of defence model: · The first line of defence is responsible for all risks we take on through our business, hedging, and trading activities. · The second line of defence is Risk Management, which oversees the activities of the first line, challenges, monitors, and reports risk exposures, and mandate compliance. · The third line of defence is Internal Audit. The mandates for first line are established during the business planning processes and evaluated according to our risk appetite. An example is deciding on the target hedge level for price exposures from intermittent power production as described in note 6.2 ‘Energy price risks‘. In our financial risk management processes, finan - cial risks are quantified and assessed against our risk appetite – alongside decisions on suitable risk mitigation measures. Our biggest business risks and associated risk mitigation measures are presented in the ‘Risk and risk management’ section in the ‘Management's review’. The Board of Directors overseas our risk manage - ment through the Audit & Risk Committee and approves associated frameworks, mandates, and limits per risk factor. See the ‘Corporate governance’ section in the ‘Management's review’ for governance around our committees. We govern the accounting treatment and effec - tiveness of hedges by applying hedge accounting on energy, commodity, currency, interest rate, and inflation hedging. Risk framework Note 6.1 § Accounting policies Hedge accounting We apply hedge accounting to our energy, com- modity, currency, interest, and inflation hedges. Almost all of the hedging instruments we use fully match the market risk of the exposure we hedge. The UK power exposure, for example, is hedged using UK power swaps or futures. Thus, the main source of ineffectiveness is related to the volume and timing of the actual production versus the settlement of the hedge. This difference in timing is referred to as volume risk and is described in more detail on the next page. To the extent that a risk needs to be hedged, and if there is no fully effective instrument available in the market, analyses are performed of the expected effectiveness of the hedging instrument before the hedging transaction is concluded. In this case, the ratio between the hedged risk and the hedging instrument may deviate from the one-to- one principle and will be determined as the ratio which most effectively hedges the desired risk. When we conclude a hedging transaction, and each time we present financial statements thereafter, we assess the correlation between the hedged exposure and the hedging instrument. The effective change in market value of the hedging instrument is recognised as a hedge of future cash flows in other comprehensive income in the hedging reserve. If the hedged cash flows are no longer expected to be realised, the in-full or partially accumulated value change is transferred to profit (loss) for the year. Ineffective hedges related to energy and com- modity exposures are recognised in other operating expenses. Ineffectiveness related to other hedges are recognised in financial income or expenses. On realisation of the hedged cash flow, the result- ing gains or losses are transferred from equity and recognised in the same item as the hedged item. However, on hedging of proceeds from future loans, the resulting gain or loss is transferred from equity over the term of the loan. For currency swaps, the basis spread is accounted for according to the cost of the hedging model. Key accounting estimate Valuation of long-term power purchase agreements When we measure our power purchase agree- ments at fair value, we use estimates of non- observable prices, such as: · production forecasts · forecasted long-term power prices and exchange rates · forecasted inflation expectations. Hedge accounting Hedge effectiveness is measured using forecasted production as well as estimates regarding energy prices, intermittency, interest, currency, and infla- tion. For periods where we are close to fully hedged, volume overhedging is possible if the forecasted production does not materialise, which will lead to recognition of ineffectiveness. Key accounting judgement Valuation of long-term power purchase agreements We measure our power purchase agreements at fair value, but they cannot always be measured against quoted prices in active markets due to the long duration of the contracts. We therefore use elements of judgement when measuring the fair value, and we aim to limit the use of subjective estimates and base the fair values on external information, including external pricing and bench- mark services. Hedge accounting Judgements are used to consider whether fore- casted transactions are highly probable expo- sures as hedged items in a hedge relationship, e.g. expected production from wind farms, and judge- ment is applied as to whether the hedge instru- ments applied in the hedge relationships identified are effective. 210 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes 0 1,000 2,000 3,000 4,000 2021 2022 2023 2024 Forward ratesHistorical rates 2025 0 1,000 2,000 3,000 4,000 2021 2022 2023 2024 Forward ratesHistorical rates 2025 Our main energy price risk stems from our intermit- tent power production from wind and solar PV assets. By nature, this is exposed to volume uncertainty, primarily driven by weather, price uncertainty, and the often negative correlation between the two. We are also exposed to other energy prices through our CHP plants and gas business. Intermittent Offshore and Onshore power production Around 20 % of revenue from our power production in Offshore and Onshore in 2024-2026 is exposed to power prices. A large part of our income in Onshore comes from PTCs or ITCs related to power generation or investments in the US (see note 3.9 ‘Tax equity liabilities’). The tax credits are not exposed to a price risk. However, there is a price risk associated with the power produced, which we mainly reduce by entering into CPPAs. The current CPPAs cover approx. 73 % of the expected generation for the period 2024-2026\. In general, the CPPAs are structured with a minimum price per MWh and a mechanism where we retain most of the upside from high power prices. To mitigate our residual exposure to power price risks, we mainly use fixed-volume hedges. As both the value, volume produced, and the actual hourly production profile delivered by our assets differ from the fixed-volume hedges we use, we account for this in our hedging policy and strategies. The correlation between volumes produced and power prices is often negative, which is referred to as volume risk. A dynamic hedging approach is used to hedge up to 70 % of the residual power price exposure within a two-year horizon. This hedging level significantly reduces the risk of being overhedged while providing an adequate risk reduction. We may hedge beyond the two-year horizon if the price level is commercially attractive. Energy price risks Note 6.2 1 2 Volume risk Volume risk Fixed-volume hedges The graph shows the historic development in monthly average spot power prices for the past three years and the forward rates for 2024 and 2025 as of 31 December 2023. The graph covers our main markets where we are exposed to power prices. 1 Average of DK1 and DK2. 2 Average of north and west. The grey area illustrates the volume risk where our actual production is either above or below the fixed volume in our hedges. When the additional value of the production (volume x market price) in area 1 does not match the missing value of the production in area 2, our actual production will not fully match our fixed-volume hedges. Due to the large share of renewable capacity, high production causes lower prices and vice versa. Development in power prices, DKK DK 1 UK US (ERCOT) 2 Volume Actual production profile Flat profile in fixed- volume hedges Time 211 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Power generation at our CHP plants Our combined heat and power (CHP) plants consist of biomass- and fossil-fuelled plants in Denmark. The profitability of power generation is determined by the difference between the selling price of power and the purchase price of fuel and, for other fuels than bio- mass, carbon emission allowances. If the spreads are attractive, we provide condensing power generation in addition to CHP generation. The total net risk asso- ciated with power from CHP generation for the period 2024-2026 is DKK 5.9 billion after hedging, covering both heat-bound and condensing base generation. We are not exposed to price risks related to heat generation. Gas sales The price risk associated with sale of gas stems from differences in the sale and purchase prices. To the extent we purchase gas at a fixed price, we aim to use hedges to swap the purchase into a variable price. When we both have a variable purchase and sales price, our margin becomes fixed. The main risk after hedging is related to contracts where the purchase price is fixed, but where the volumes delivered to us depend on our suppliers' actual production. Energy price risks Note 6.2 – continued § Principles for estimating exposures Exposure is calculated as the expected production (or net purchase/sale) times the forward price for the respective years. The graph shows our power exposure towards power prices in different markets before hedges for the period 2024-2026. Power price exposure before hedges for 2024-2026 split on markets DKKbn UK 15.4 US 10.0 Other 9.1 Risk after hedging Our energy exposure after hedging for the years 2024- 2026 can be summarised as shown in the table. Effect of price changeRisk after hedgingDKKbn+10 % -10 %Power: 14.2 sell position +1.4 -1.4Spread (power): 5.9 +0.6 -0.6 A 10 % increase in the power price will result in a gain of DKK 1.4 billion over the period 2024-2026, all else remaining unchanged. Gas and oil activities have a limited risk after hedging of DKK 0.0 billion for the period 2024-2026\. Composition of revenue from generation of power in Offshore and Onshore Merchant exposure (after hedges) Fixed-volume hedges As generated CPPAs Guaranteed minimum price with potential upside Fixed-price subsidy 2024 2025 The graph shows the split of the expected revenue from generation of power in Offshore and Onshore in 2024 and 2025. The revenue from inflation-indexed or fixed nominal (covered by the three blue components in the graph) is 81 % and 81 %, respectively compared to the 80 % from inflation-indexed or fixed nominal from 2024-2030 shown in section 6.0. 212 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Energy price risks Note 6.2 – continued 2024 2025 After 2025 Maturity analysis Market valueExpected transfers to EBITDA/CAPEXEnergy price cash flow hedge accounting 2023Contractual Recognised in DKKmprincipal amount2024 2025 After 2025 Asset Liability comprehensive incomeEBITDA impactPower swaps and futures (sell position) 12,923 4,905 3,688 4,330 3,611 (14,348) (5,112) 762 (1,041) (4.833)Power options (buy position) 171 - 171 - - - (72) (71) (1) -Gas swaps and options (sell position) 1,165 456 648 61 172 (314) (896) (761) (62) (73)Oil futures (buy position) 8 8 - - - - (1) (1) - - Energy price cash flow hedge accounting 2022DKKm 2023 2024 After 2024 2023 2024 After 2024EBITDA impactPower swaps and futures (sell position) 32,300 8,480 7,856 15,964 6,291 (39,641) (27,779) (8,435) (6,649) (12,695)Power options (buy position) 1,071 - 922 149 22 - (91) - (88) (3)Gas swaps and options (sell position) 1,171 312 387 472 396 (1,596) (1,915) (672) (907) (336)Carbon emission allowances (sell pos.) 46 46 - - - - (35) (35) - -Oil futures (buy position) 15 9 6 - - - 2 1 1 - 2023 2022Contracts accounted for at fair value through profit or loss (EBITDA)ContractualMarketContractualMarketDKKmprincipal amountvalueprincipal amountvalueEnergy Oil swaps and options (buy position) 166 (492) 507 (803)Power swaps (buy position) 245 2,126 3,264 3,872Power options (sell position) 2,279 (67) 7,821 (1,894)Gas swaps and options (sell position) 1,528 2,395 3,416 2,920Other (sell position) 175 - 69 - In 2023, we recognised ineffective hedges in the amount of DKK -512 million (2022: DKK -4,475 million) in other operating expenses, of which volume-related ineffectiveness related to Offshore amounted to DKK -418 million (2022: DKK -3,771 million), inflation- indexed related ineffectiveness amounted to DKK +105 million (2022: DKK -658 million), and other ineffectiveness amounted to DKK -199 million (2022: DKK -46 million). 213 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Inflation and interest rate risks Note 6.3 Inflation-indexed revenue in 2024-2030 is partly offset by inflation-indexed operational costs Inflation-indexed revenue and hedges Operational costs 1 ~50 % matched 1 Operational costs are comprised of OPEX, COGS, and DEVEX after deduction of income from PTCs. Approximately 80 % of our revenue from offshore and onshore assets for the period 2024-2030 stems from either fixed nominal or inflation-indexed con- tracts. The long duration of these cash flows exposes us towards changes in interest rates and inflation, particularly for assets where the fixed nominal price received is constant regardless of interest rate, infla- tion, or merchant price level. We have seen this first-hand during 2023 when in- creases from both interest rates and inflation affected our portfolio, particularly our fixed nominal assets in the US through rising interest rates, affecting the cost of capital and inflation through higher CAPEX and dilution of the value of our ORECs (PPAs). Our risk framework builds on the important central assumption that shareholders prefer exposure to inflation-indexed cash flows over nominal cash flows, as this protects the real value of their investment. We apply an asset and liability management frame- work for handling interest rate and inflation risk. The objective is to manage the shareholders' real value by ensuring that fixed rate debt is matched with fixed nominal cash flows. Inflation risk We actively incentivise assets with inflation-indexed revenue streams in business decisions to mitigate our cost-inflation risk. Our cost inflation mainly stems from OPEX, COGS, DEVEX, and CAPEX, which to a large extent increase with inflation. In addition, CAPEX is exposed to the price development in a number of commodities, most significantly steel. When the com- modity adjustment mechanisms in our CAPEX con- tracts are based on financially tradeable indices, we aim to hedge the risk. Operational costs are assessed together with the inflation-indexed revenue to reduce the net risk. 12 0 2 4 6 8 10 -2 2021 2022 2023 -2 0 2 4 6 8 10 12 2021 2022 2023 Development in inflation and interest rates % USD 10-year interest rate EUR 10-year interest rate UK CPI annual rate NTD 10-year interest rate GBP 10-year interest rate The graph shows the historic development in interest and inflation rates for the past three years. The graph covers our main markets where we are exposed to interest and inflation. 214 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Interest rate risk We actively match our debt with our assets per cur- rency and modified duration. Modified duration of both assets and debt is the change in value in response to a 1 percentage point change in interest rates. As a rule of thumb, modified duration is matched within ±2 per- centage points. For example, the fixed nominal cash flows from our Taiwanese projects with an average of 8.4 % in modified duration are matched with fixed-rate NTD debt with roughly 9.0 % modified duration. For assets in operation and under construction, 95 % of the lifetime present value of fixed nominal cash flow, excluding CAPEX, is matched with corresponding fixed-rate senior and hybrid debt. Part of this matching has been done by entering into inflation swaps on our inflation-indexed CfD and ROC revenue in the UK to match our fixed-rate debt. As our portfolio of awarded assets mature, we can execute interest rate swaps to lock in the interest rates before funding is secured. A total of 25 % of the lifetime present value of fixed nominal cash flows, excluding CAPEX, on our awarded pre-construction offshore assets are matched with interest rate swaps. Finally, when we farm down part of an offshore asset, we normally hedge part of the interest, inflation, and currency risks related to the divestment proceeds. Inflation and interest rate risks Note 6.3 – continued Fixed-rate debt used to protect fixed nominal cash flows against interest rate increases Fixed-rate debt and hybrids Assets in operation and under construction 1 ~95 % matched Interest rate hedging for awarded assets to increase as they progress towards construction Interest rate swaps Awarded assets (pre-construction) 2 ~25 % matched For assets in operation and under construction, approximately 95 % of the fixed nominal cash flows are matched with a fixed interest rate on our debt and hybrid portfolio. 1 Lifetime present value of fixed nominal cash flows, excluding CAPEX. Assets under construction include the Borkum Riffgrund 3, Gode Wind 3, Greater Changhua 1 and 2a and South Fork Wind offshore wind farms. For awarded assets where construction has not started, approximately 25 % of the fixed nominal cash flows are matched with interest rate swaps. 2 Awarded assets (pre-construction) include Greater Changhua 2b and 4, Revolution Wind, and Sunrise Wind. 215 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Inflation and interest rate risks Note 6.3 – continued 2024 2025 After 2025 Maturity analysis Market valueExpected transfers to income statementCash flow hedge accountingRecognised in 2023 Contractual comprehensive DKKmprincipal amount2024-27 2028-33 After 2033 Asset Liability incomeEBITDA impactInflation swap (pay variable/receive fixed – UK), revenue 22,883 6,409 12,818 3,656 - (3,125) (3,414) (202) (204) (3,008)Interest rate swap (pay fixed/receive variable – NTD), divestment 4,776 4,776 - - - (85) (85) (85) - -Financial items impactInterest rate swap (pay fixed/receive variable – USD), future loan issuance 3,036 - - 3,036 - (142) 530 - - 530Interest rate swap (pay fixed/receive variable – NTD), future loan issuance 2,639 - - 2,639 - (6) - - - - Cash flow hedge accounting2022 DKKm 2023-26 2027-32 After 2032 2023 2024 After 2024EBITDA impactInflation swap (pay var/receive fixed – UK), revenue 22,295 6,244 9,681 6,370 - (3,070) (3,366) - (202) (3,164)Financial items impactInterest rate swap (pay fixed/receive var – USD), future loan issuance 15,678 - - 15,678 478 (3) 2,727 49 189 2,489 2023 2022Contracts accounted for at fair value through profit or loss (financial items) ContractualMarketContractualMarketDKKmprincipal amountvalueprincipal amountvalueInterest rate swaps (pay fixed/receive variable) 21,806 (369) 8,902 1,103 Interest rate swaps are used to adjust the maturity of our bond portfolio. The year 2023 includes ineeffective USD interest rate swaps with a contractual principal amount of DKK 12,148 million. We hedge our UK inflation risk related to revenue from ROC and CfD subsidies. Furthermore, we hedge the interest and inflation risk related to divestments. All the inflation risks that we hedge are separately identifiable in the underlying contract. We hedge the interest on expected USD (since 2020) and NTD (since 2023) debt issuance (USD and NTD interest risk). The size of the expected USD issuance has been reduced and postponed to 2025 or 2026 due to less funding needed after the termination of Ocean Wind 1\. Due to a reduction in the expected funding, we have recognised ineffectiveness of DKK 2,344 million (gain) (2022: ineffectiveness gain of DKK 529 million) related to the US interest rate hedges in financial income and DKK 6 million (expense) related to the Taiwanese interest rate hedges in financial expenses. Further, we had an early redemption of an EIB loan, resulting in recognised ineffetiveness of DKK 41 million (2022: DKK 0 million) in financial expenses. 216 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes 1,000 25 800 900 24 700 23 600 22 500 21 20 500 600 700 800 900 1,000 2021 2022 2023 2024 Forward ratesHistorical rates 2025 2021 Historical rates Forward rates 20232022 2024 2025 Our cash flows consist of multiple different currencies, which expose us to fluctuations in currency exchange rates. Our main currency exposures are GBP, USD, and NTD. While our exposure to EUR is also significant, we do not deem EUR to constitute a risk as we expect Denmark to maintain its fixed exchange-rate policy. For GBP, our significant earnings from assets in oper- ation and expected farm-downs are larger than our planned CAPEX, resulting in a net-positive GBP expo- sure, both short\- and long-term. The net exposure was lowered in 2023 by the inclusion of more planned GBP CAPEX following FID for Hornsea 3. A 10 % increase in the GBP/DKK exchange rate will result in a gain of DKK 1.2 billion over the period 2024-2028, all else remaining unchanged. For USD, our portfolio of offshore and onshore develop- ment and operating assets translate to a short- to medium-term negative USD exposure. However, on a longer time horizon, revenue from assets result in a net positive USD exposure. Our general approach to managing currency risks is to use structural risk management tools, such as local currency sourcing contracts, netting income and expenses in the same currency, issuing local currency debt to naturally balance our portfolio, and prioritis- ing local currency costs to match revenue in our asset projects to minimise the need for hedging. The currency denomination of debt issuance is aimed at optimising the currency composition of net debt with that of forecasted FFO to ensure stability in FFO/ NIBD against adverse movements in exchange rates. Debt can be particularly effective in new markets to mitigate the time-spread risk since the proceeds from the debt issuance can be used to fund and hedge construction costs, while the debt repayment profile can be sculpted to match future revenue. The residual currency risk after netting of exposures and debt are managed via financial derivatives accord- ing to our desired risk appetite. Our overall hedge hori- zon is five years, covering only highly certain cash flows to avoid hedge ineffectiveness. For energy price risks in foreign currencies, we do not hedge the exchange rate risk until the energy exposure has been hedged. For cash flows that relate to subsidised GBP income from our UK offshore wind farms less operating expenses, we hedge on a declining level over a five-year rolling hori- zon. The target is to hedge 100 % in year 1, declining by 20 percentage points each year to 20 % in year 5. Our currency exposure from production, sales, invest- ments, and divestments after hedging for the years 2024-2028 can be summarised as shown in the table. Effect of price changeRisk after hedgingDKKbn+10 % -10 %GBP: 11.6 sell position +1.2 -1.2USD: 4.8 buy position -0.5 +0.5NTD: 3.2 sell position +0.3 -0.3 Currency risks Note 6.4 GBP exposures 1 DKKbn Before hedging After hedging Development in currency rates 2 GBP/DKK USD/DKK NTD/DKK 2024 6.5 -1.1 2026 5.9 2.7 2025 5.5 -2.2 2027 3.9 2.4 2028 10.3 9.8 1 The graph shows our GBP exposure before and after hedges from divestments and investments, green certificates, and hedged energy. 2 The graph shows the historic development in spot currency rates for the past three years and the forward rates for 2024 and 2025 as of 31 December 2023. 217 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Currency risks Note 6.4 – continued 2024 2025 After 2025 Maturity analysis Market valueExpected transfers to income statementCurrency cash flow hedge accounting 2023Contractual Recognised in DKKmprincipal amount2024 2025 After 2025 Asset Liability comprehensive incomeEBITDA impactGBP forwards and cross-currency swaps 24,191 5,961 6,115 12,115 131 (481) (331) (218) (33) (80)USD forwards 3 3 - - - - - - - -Currency cash flow hedge accounting 2022DKKm 2023 2024 After 2024 2023 2024 After 2024EBITDA impactGBP forwards and cross-currency swaps 24,199 2,953 7,416 13,830 151 - 182 (109) 29 262USD forwards 3 - 3 - - (21) 2 1 1 -Impact on other line itemsGBP forwards (Interest payments) 553 553 - - 32 - 4 4 - - The GBP exchange rate for hedges impacting EBITDA in 2024 and 2025 is hedged at an average of GBP/DKK 8.3 and 8.2, respectively. Ineffectiveness from currency cash flow hedges in 2023 amounts to a loss of DKK -134 million (2022: DKK 189 million) recognised in financial items. 2023 2022Contracts accounted for at fair value through profit or loss (financial items)ContractualMarketContractualMarketDKKmprincipal amountvalueprincipal amountvalueCurrencyForward exchange contracts 24,504 (54) 30,549 27 The table shows cash management positions which are not hedge accounted. The positions consist of EUR and, to a lesser extent, GBP and USD. 218 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Hedging of net investments in foreign subsidiaries Our foreign subsidiaries entail currency risks. We hedge these currency risks by raising loans in foreign curren- cies and by entering into forward exchange contracts, currency swaps, and options. On 31 December 2023, the accumulated exchange rate adjustments totalled DKK -3,146 million (2022: DKK -3,054 million), divided between the exchange rate adjustment of the net investment of DKK -1,093 million (2022: DKK -1,544 million) and the hedging thereof of DKK -2,053 million (2022: DKK -1,510 million). Currency risks Note 6.4 – continued Hedging of net investments in foreign subsidiariesOf which, Hedged Accumulated exchange DKKm Net non-controlling amount rate adjustments Currency 2023investmentinterestsin currency Net positionin equityGBP 70,682 (1,876) (31,197) 37,609 (3,075)EUR 37,602 - - 37,602 9USD 22,809 - (20,045) 2,764 (301)NTD 25,778 - (5,937) 19,841 131Other 3,853 - - 3,853 90To t a l 160,724 (1,876) (57,179) 101,669 (3,146) Currency 2022GBP 54,674 (2,132) (34,536) 18,006 (3,806)EUR 35,004 - - 35,004 (49)USD 29,881 (1,839) (21,916) 6,126 617NTD 14,884 - (6,122) 8,762 288Other 1,892 - - 1,892 (104)To t a l 136,335 (3,971) (62,574) 69,790 (3,054) Maturity analysis Market valueNet investment hedges 2023Contractual DKKmprincipal amount2024 2025 After 2025 Asset LiabilityGBP issued senior bonds 26,669 - - 26,669 - -GBP forwards and cross-currency swaps 4,528 774 1,131 2,623 7 -USD bank loans 1,332 - - 1,332 - -USD forwards and cross-currency swaps 18,713 4,926 3,934 9,853 657 -NTD issued senior bonds 5,937 - - 5,937 - - Net investment hedges 2022DKKm2023 2024 After 2024GBP issued senior bonds 25,983 - - 25,983 - -GBP forwards and cross-currency swaps 8,553 4,895 - 3,658 92 -USD bank loans 5,194 - - 5,194 - -USD forwards and cross-currency swaps 16,722 3,114 8,919 4,689 - (676)NTD issued senior bonds and forwards 6,122 - - 6,122 - - § Accounting policies Hedging of net investments in foreign subsidiaries Changes in the market value of currency derivatives and currency adjustment of loans that are classified as net investment hedges in foreign subsidiaries or associates are recognised in the consolidated financial statements directly in equity within a separate foreign currency translation reserve. Ineffectiveness from net investment hedges in 2023 amounts to a gain of DKK 236 million (2022: DKK 0 million), recognised in financial items. The ineffectiveness is caused by the impairments on our US activities. The net position expresses the accounting exposure. If, for example, the GBP/DKK exchange rate increased by 10 % on 31 December 2023, equity would have increased by DKK 3,761 million, corresponding to 10 % of DKK 37,609 million. 219 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes We are exposed to credit risks from our hedging activi- ties, construction activities, and all other activities where a counterparty's failure to meet their obliga- tions may cause a loss. A large part of our credit risk is towards major international energy companies, sup- pliers, and banks. Where possible, the underlying con- tracts include minimum credit rating clauses, netting provisions, and other risk-mitigating clauses. We mitigate our credit risks mainly by: · having minimum rating requirements · monitoring the credit worthiness on the ongoing basis to be able to react in due time · requiring that collateral be furnished or credit security put in place. Mitigating our credit risks is not always commercially possible and can be omitted if deemed necessary and balanced. For the most significant counterparties, an internal rating is assigned in connection with estab- lishing credit limits. The rating is based on information from external credit rating agencies, publicly available information, credit risk information systems, and our own analyses. In 2023, we have expensed a loan given to our US sup- pliers in the amount of DKK 571 million, which we do not expect to recover after the termination of Ocean Wind 1 and 2. Apart from this, we have not made any significant impairments on receivables in 2022 or 2023. Credit risks Note 6.5 Credit quality of the Group's counterparties 1DKKm 2023 2022AAA/Aaa 27,301 23,351AA/Aa 7,518 2,568A/A 10,501 23,551BBB/Baa 9,020 15,665Other 9,198 16,649Total credit exposure 63,538 81,784 1 The figures do not reflect our actual credit exposure, as the positions are calculated before offsetting our debt to such counterparties. Offsetting of financial assetsTradeTradeDKKm Derivativesreceivables 2023 Derivativesreceivables 2022Financial assets 17,775 21,728 39,503 43,507 121,693 165,200Financial liabilities, offset (6,911) (16,849) (23,760) (22,232) (114,438) (136,670)Financial assets in the balance sheet 10,864 4,879 15,743 21,275 7,255 28,530Amounts not offset in the balance sheet:Liabilities with offsetting rights (2,529) - (2,529) (7,094) - (7,094)Collateral received (468) - (468) (4,515) - (4,515)Net 7,867 4,879 12,746 9,666 7,255 16,921 Offsetting of financial liabilitiesDKKmFinancial liabilities 17,864 20,981 38,845 60,891 121,661 182,552Financial assets, offset (6,911) (16,849) (23,760) (22,232) (114,438) (136,670)Financial liabilities in the balance sheet 10,953 4,132 15,085 38,659 7,223 45,882Amounts not offset in the balance sheet:Assets with offsetting rights (2,529) - (2,529) (7,094) - (7,094)Collateral provided (4,214) - (4,214) (2,744) - (2,744)Net 4,210 4,132 8,342 28,821 7,223 36,044 A large part of the gross assets and liabilities can be offset due to the nature in trading activities where energy is both purchased and sold with a limited number of participants in the energy markets. In addition, the high energy prices increase the gross values to be netted, especially in 2022. § Accounting policies We only offset positive and negative values if we are entitled to and intend to settle several financial instruments net. 220 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes We measure our securities and derivatives at fair value. A number of our derivatives, mainly power purchase agreements, are measured based on unobservable inputs due to the long duration of the contracts. The most significant non-observable inputs are the long-term US power prices (mainly ERCOT) and the German power prices. Valuation principles and process In order to minimise the use of subjective estimates or modifications of parameters and calculation models, it is our policy to determine fair value based on the external information that most accurately reflects the market values. We use pricing services and benchmark services to increase the data quality. Market values are determined by the Risk Management function. We use external price providers to ensure a high qual- ity in our price curves. Where prices are not available, we model the prices based on our prior experience and best estimates. Where relevant and possible, we validate our price curves against third-party data. Fair value hierarchy Market values based on quoted prices comprise quoted securities and derivatives that are traded in active markets. The market values of derivatives traded in an active market is often settled on a daily basis, thereby minimising the market value presented on the balance sheet. Market values based on observable inputs comprise derivatives where valuation models with observable inputs are used to measure fair value. Fair value measurement Note 6.6 Fair value hierarchy of financial instrumentsObservable Non-observable Observable Non-observable DKKmQuoted prices input input Quoted prices input input Assets(level 1)(level 2)(level 3) 2023(level 1)(level 2)(level 3) 2022Gas inventory 1,513 - - 1,513 3,442 - - 3,442Total inventory 1,513 - - 1,513 3,442 - - 3,442Bonds - 29,902 - 29,902 - 25,197 - 25,197Total securities - 29,902 - 29,902 - 25,197 - 25,197Energy derivatives 4,484 5,701 559 10,744 14,474 7,241 563 22,278Currency derivatives - 749 - 749 - 1,378 - 1,378Interest and inflation derivatives - 336 - 336 - 1,581 - 1,581Total derivative assets 4,484 6,786 559 11,829 14,474 10,200 563 25,237LiabilitiesEnergy derivatives 5,149 4,424 8,087 17,660 12,871 24,592 15,250 52,713Currency derivatives - 489 - 489 - 1,773 - 1,773Interest and inflation derivatives - 4,063 - 4,063 - 3,073 - 3,073Total derivative liabilities 5,149 8,976 8,087 22,212 12,871 29,438 15,250 57,559 All assets and liabilities measured at market value are measured on a recurring basis. Market values based on non-observable inputs mainly comprise long-term power purchase agreements (CPPAs) that lock the power price of the expected power generation over a period of up to 10-20 years. Due to the long duration of these CPPAs, power prices are not observable for a large part of the duration. The most significant non-observable inputs are based on US power prices (mainly ERCOT) and German power prices. Estimating as-produced power prices Since our CPPAs are normally settled on the actual production, and the power prices available in the mar- ket are based on a constant production (flat profile), we take into account that our expected production is not constant, and thus our CPPAs will not be settled against a flat profile price (see description of volume risk in note 6.2). For the majority of our markets, the flat profile power price can be observed for a maximum of four to six years in the market, after which an active market no longer exists. 221 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Valuation techniques and significant unobservable inputs We use a discounted cash flow model for the valua- tion of power derivatives. The US power purchase agreements give exposure to the long-term US power prices, mainly in the ERCOT, SPP, and MISO regions. The power price is observable for the first four to six years. For the following four to six years, the power price is estimated based on observable inputs (gas prices and heat rates). For the subsequent period, the power price is non- observable and estimated by extrapolating the power price towards the U.S. Energy Information Administration's long-term power price forecast, assuming similar sea- sonality as in previous periods. As only a minor part of the contract period is within the period when power prices are non-observable, we classify the contracts as based on observable input. In Germany and other countries where we have long- term PPA contracts, the power price is observable for up to five years. When power prices are no longer observable in the market, we have estimated the power price by extrapolating the last year with an observable power price, taking expected inflation and seasonality into account. Fair value measurement Note 6.6 – continued § Accounting policies When the fair value at ‘initiation recognition’ differs from the transaction price, and the fair value is not purely based on observable prices, the difference between the fair value at initial recognition and the transaction price is deferred and recognised over the lifetime of the PPA. Derivatives valued on the basis of unobservable inputDKKm 2023 2022Market value at 1 January (14,687) (7,448)Value adjustments through profit or loss (31) (322)Value adjustments through other comprehensive income 3,766 (6,476)Sales/redemptions 1,366 1,190Purchases/issues 750 (497)Transferred from quoted prices and observable input - (1,773)Transferred to quoted prices and observable input 1, 308 639Market value at 31 December (7,528) (14,687) Unobservable input per commodity priceDKKmUS ERCOT power prices (5,261) (5,580)German power prices (1,484) (5,642)US MISO power prices (737) (1,263)Other power prices (37) (2,132)Gas prices (9) (70)To t a l (7,528) (14,687) The main unobservable inputs are US power prices and German power prices. Power price (DKK/MWh) Sensitivity (DKKm)Overview of significant unobservable inputs and WeightedMonthlyMonthlysensitivitiesaverageminimummaximum +25 % -25 %Intermittency-adjusted power priceUS ERCOT (2024-2033) 297 81 971 (3,303) 3,634Germany (2025-2035) 440 332 654 (1,256) 1,256US MISO (2024-2033) 302 149 422 (530) 520US SPP (2024-2035) 189 128 358 (436) 583Ireland (2024-2042) 524 389 808 (69) 69 The table shows the significant unobservable inputs used in the fair value measurements categorised as level 3 of the fair value hierarchy, together with a sensitivity analysis as at 31 December 2023. If intermittency-adjusted power prices in Germany as of 31 December 2023 increased/decreased by 25 %, the market value would decrease/ increase by DKK 1,256 million. Acquired CPPAs The initial negative fair value from long-term CPPAs acquired in a business combination is recognised as revenue in profit or loss in the future period to which the market value relates. This effectively increases or decreases the revenue from the contract price to the forward price at the closing date. In 2023, we have recognised an income of DKK 197 million (2022: DKK 228 million) related to the initial fair value from CPPAs. The total amount of initial fair value as of 31 December 2023 amounts to a loss of DKK 1,243 million (2022: loss of DKK 1,497 million), which will be recognised as revenue in a future period. 222 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes 300 200 250 150 100 50 0 20232022 Trading portfolio The purpose of our trading portfolio is to: · optimise hedging execution · contribute to increased market insight · profit from short-term fluctuations in energy prices. The energy trading portfolio receives the exposure from our assets and takes that exposure into the external market in the most efficient way possible, given the mandates shown to the left. The overview of the Group's energy trading portfolio to the left is the net of the internal exposures received from the assets and the external trades in line with internal risk management. The trading portfolio primarily consists of positions in power and gas. The trading portfolio constitutes a smaller part of our total portfolio of derivatives, and the associated risk is limited. Energy trading portfolio Note 6.7 2023 2022 Overview of the Group's energy trading portfolio 1Contractual Unrealised Contractual UnrealisedDKKm principal amountgain/(loss) principal amount gain/(loss)Power swaps (sell position) 3,305 (492) 4,683 (7,854)Power options (buy position) 5,906 1,406 3,060 8,680Gas swaps and options (sell position) 2,138 (312) 3,601 (774)Oil swaps and options (buy position) 156 (137) 498 (204)Other (sell position) 175 13 74 (50) Trading mandates 2VaR limit in 2023: Stress limit in 2023: DKK 100 millionDKK 400 million Maximum open positions in trading portfolioVaR indicates the largest loss in one trading day Stress indicates the largest daily loss we risk · Max. 6 TWh of powerat a probability of 95 %. VaR is based on data sustaining with the given portfolio. Stress is · Max. 9.5 TWh of gasfor the past 45 trading days, with the heaviest based on data from 1 January 2006 to the · Max. 1 million boe of oilweighting being assigned to the most recent present day.· Max. 1.5 million tonnes of carbon emissionstrading days.· Max. 0.5 million tonnes of coal and biomass Daily positions in the trading portfolio, market trading mandates 3 DKKm Board of Directors' mandate Value at risk (VaR) 1 The contractual principal amount has been determined as the net position per derivative type. The risks associated with our options are smaller than for our swaps. The market value mostly consists of received exposure from our assets with settlement at maturity, whereas part of the external trade is settled on a daily basis and included with the settled margin. 2 Trading activities are carried out under mandates approved by the Board of Directors. The mandates comprise a value-at-risk (VaR) mandate and a stress mandate as well as a limit for the maximum positions measured in energy units per product (power, gas, etc.). 3 The graph shows the daily VaR position for the period 2022-2023. VaR reached DKK 280 million on 9 March 2022, causing a passive breach of the Board of Directors' mandate of DKK 100 million due to the Russian invasion of Ukraine and the large reduction in gas sup- plies to Europe, causing the European energy prices to spike. In 2022, there were further passive breaches in August due to Russian gas sup- ply cuts and in September-November due to a halt of gas through the Nord Stream 1 and 2 pipelines after the explosions in September. § Accounting policies Market value adjustments of physical and financial contracts relating to energy that are entered into with the purpose of generating gains from short-term price changes are recognised as revenue. 223 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Financial instruments are used for various purposes. The purpose determines the category, and whether the value adjustment of the instrument should be recognised in the profit (loss) for the year or as part of the hedging reserve in equity. The fair value of financial instruments measured at amortised cost is identical to the carrying amount with the exception of bank loans and issued bonds where the market value is stated in note 5.1 ‘Interest - bearing net debt and FFO’. Categories of financial instruments Note 6.8 Categories of financial instrumentsDKKm 2023 2022Energy, currency, and interest derivatives 7,251 17,775Securities 29,902 25,197Financial assets measured at fair value via the income statement 37,153 42,972Energy derivatives 3,783 6,709Currency derivatives 795 275Interest and inflation derivatives - 478Derivatives (assets) used as hedging instruments 4,578 7,462Trade receivables 11,107 12,701Other accounts receivable 7,200 9,459Cash 10,626 18,649Financial assets measured at amortised cost 28,933 40,809Energy, currency, and interest derivatives 3,712 12,551Financial liabilities measured at fair value via the income statement 3,712 12,551Energy derivatives 14,661 41,237Currency derivatives 481 697Interest and inflation derivatives 3,358 3,073Derivatives (liabilities) used as hedging instruments 18,500 45,007Bank loans and issued bonds 79,620 63,281Trade payables 14,915 20,641Other accounts payable 8,591 11,310Financial liabilities measured at amortised cost 103,126 95,232 The table shows our financial instruments divided into categories. The categories indicate how the financial instruments are recognised in the financial statement. 224 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes The sensitivity analysis in the table shows the effect of market value changes, assuming a relative price change at 31 December. The effect on profit (loss) before tax comprises finan- cial instruments that remained open at the balance sheet date, and which have an effect on profit (loss) in the current financial year. Effect on equity before tax comprises financial instru- ments that remained open at the balance sheet date, and which are value-adjusted directly in equity. Financial instruments include derivatives as well as receivables and payables in foreign currencies. The illustrated sensitivities only comprise the impact of our financial instruments. If the hedged exposure had been included in the sensi- tivity analysis, the effect of a price change would have been reduced or offset entirely. Net investments and associated hedging of net invest- ments in foreign subsidiaries are not included in the table, as the effects of the sum of the investments and the hedging are considered to be neutral to changes in currencies. A 10 % increase in the currencies hedged in connec- tion with net investments would reduce equity by DKK 5,718 million (2022: DKK 6,257 million). Sensitivity analysis of financial instruments Note 6.9 31 December 2023 31 December 2022 Sensitivity analysis of financial instruments Price Effect on profit Effect on equity Effect on profit Effect on equity DKKm change(loss) before taxbefore tax(loss) before taxbefore taxPower 25 % (277) (8,119) (1,791) (14,382)-25 % 562 8,263 1,794 14,402Gas 25 % (588) (127) (764) 177-25 % 588 127 764 (177)Oil 25 % (360) 260 (533) 277-25 % 360 (158) 608 (6)GBP 10 % 817 (2,965) (2,430) (4,727)-10 % (817) 2,965 2,430 4,727USD 10 % (2,070) (662) (947) (853)-10 % 2,070 662 947 853NTD 10 % (386) (9) (743) --10 % 386 9 743 -EUR 1 % (212) (15) (899) (125)-1 % 212 15 899 125Inflation 1 % point - (2,059) - (2,162)Interest 1 % point 620 920 (332) 1,224 225 ØRSTED ANNUAL REPORT 2023 Financial statements | Notes Other notes Note 7 Related-party transactions Note 7.1 Related parties that have control over the Group comprise the Danish state, represented by the Danish Ministry of Finance. Other related parties are the Group's associates and joint ventures, members of the Board of Directors and the Executive Board, and other senior executives. See note 7.4 ‘Company overview’ for an overview of our joint ventures and associates. Related-party transactions are made on arm's length terms. Intra-group transactions have been eliminated in the consolidated financial statements. The remuneration and share programmes for the Group Executive Team and the Board of Directors are described in notes 2.7 ‘Employee costs’ and 2.8 ‘Share- based payment’. We use the exemption set out in IAS 24.25 concerning entities in which the Danish state is a related party, and therefore transactions with government-related companies are not disclosed. There were no other related-party transactions during the period. Joint venturesDKKm 2023 2022Dividends received 86 70Capital transactions, net (222) (92)Sales of goods and services 64 -Receivables 9 - AssociatesDKKmCapital transactions, net (54) (37)Sale of goods and services - 14Purchase of goods and services (186) (180)Receivables - -Payables (25) (44) ØRSTED ANNUAL REPORT 2023226 Financial statements | Notes Auditor's fees Note 7.2 PwC is Ørsted's auditor appointed by the annual general meeting. PwC audits the consolidated financial statements of Ørsted and our subsidiaries' statutory financial statements in all the countries where we are represented. It is our policy that the annual fee for non-audit services provided by our statutory auditor cannot exceed the annual fee for statutory audit services measured at Group level. The cap may be exceeded subject to approval by the Audit & Risk Committee. ‘Other assurance engagements’ primarily included reviews of ESG data, assurance services related to the issuance of bonds, audit of special regulatory financial statements, and assurance services related to other reporting to third parties. ‘Tax and VAT advice’ primarily included advice in connection with tax due diligence, transfer pricing advice, and advice in connection with the preparation and review of tax returns. ‘Other services’ included other consultancy services, primarily related to vendor due diligence and regres- sion testing. Fees for services other than statutory audit supplied by PwC Denmark to Ørsted amounted to DKK 8 mil- lion (2022: DKK 7 million) and consisted of assurance services related to the issuance of bonds, due diligence, regression testing, review of ESG data, and other gen- eral accounting, tax, and transfer pricing advice. Auditor's feesDKKm 2023 2022Audit and audit-related feesStatutory audit 37 30Other assurance engagements 5 4Non-audit servicesTax and VAT advice 2 3Other services 4 3Total fees to PwC 48 40Fee for non-audit services in percent of statutory audit fee 28 % 31 %PwC Denmark non-audit service ratio 74 % 69 % The non-audit services provided by the Group auditor in Denmark cannot exceed 70 %. The ‘PwC Denmark non-audit service ratio’ includes an assurance service related to a contemplated bond issuance for which we have received an exemption from the Danish Business Authorities. The ‘PwC Denmark non-audit service ratio’, excluding this exempted service, constitues 55 % for 2023. ØRSTED ANNUAL REPORT 2023227 Financial statements | Notes Non-IFRS financial measures Note 7.3 We present financial measures in the consolidated financial statements to describe the Group's financial performance and cash flows. We use these financial measures as we believe they provide valuable infor- mation to our stakeholders and management. The financial measures should not be considered a replacement for the performance measures as defined under IFRS but rather as supplementary information. The financial ratios are an overview of our financial performance and operational efficiency based on common ratio types relevant to Ørsted. Our definitions of the financial measures and reason- ing for using them are shown in the table. Description Reason for the use of the measurements EBITDA Reflecting ‘Earnings before interest, taxes, depreciation, amortisation, and impairments’. Measurement for our core operational performance. Given our capital-intensitive port- folio of assets, our primary operations are best measured by excluding depreciation and financing costs. Ørsted guides externally on this non-IFRS measure. Net interest-bearing debt (NIBD) Equals interest-bearing debt to be repaid in cash, including Issued bonds, bank debt and lease liabilities, less securities, cash, and other interest-bearing assets. Measurement of the sum of our interest-bearing assets and liabilites. Thus, important for mangement to monitor in order to ensure adequate debt levels. Gross investments Gross investments reflect our total investments in assets and enterprises. It com- prises cash flows from investing activities, excluding dividends received from asso- ciates, joint ventures, and equity investments, purchase and sale of securities, loans to joint ventures and joint operations, and divestments of assets and enterprises. To this is added acquired debt and restricted cash in connection with acquisitions. Measurement used to monitor the net interest-bearing debt impact of our investment activities in assets and enterprises. Ørsted guides externally on this non-IFRS measure. Net investments Net investments are gross investments less divestments of assets and enterprises, the selling price for non-controlling interests, and subsequent capital injections from non-controlling interests. Furthermore, interest-bearing debt transferred in connection with a divestment is deducted. Measurement to monitor the net interest-bearing debt impact of our investment activities in assets and enterprises, net of divestments. Funds from operations (FFO) EBITDA adjusted for gain (loss) on divestment of assets; variation margin, change in provisions and other adjustments; income tax paid; interest and similar items, received or paid, including capitalised interest expenses; 50 % of coupon payments on hybrid capital; dividends received, and capital reductions. Measurement used to monitor our funds, directly and indirectly, generated from our operations. Funds from operations is the numerator in our rating metric. Adjusted interest-bearing net debt Adjusted interest-bearing net debt is interest-bearing net debt plus: · cash and securities not available for distribution (excluding repo loans) · 50 % of hybrid capital · Other interest-bearing debt (add back) · Other interest-bearing receivables (add back) Measurement used as an indicator of our interest-bearing net debt in a format compara- ble to the ones used by rating agencies. Net interest-bearing debt is the denominator in our rating metric. FFO to adjusted interest-bearing net debt FFO Adjusted interest-bearing net debt Measurement used to monitor our ability to generate funds from our operations which can serve our interest-bearing debt. It is the metric used by rating agencies when assessing their rating of Ørsted. Free cash flow (FCF) Free cash flows are cash flows from operating activities and divestments less gross investments. Measurement used as an indicator to see if we can self-fund our growth. Capital employed Capital employed are all assets and liabilities, except for equity and interest- bearing net debt. Measurement used to monitor the capital tied within the business which is utilised for the primary activities of generating profits. ØRSTED ANNUAL REPORT 2023228 Financial statements | Notes Non-IFRS financial measures Note 7.3 – continued Description Reason for the use of the measurements Return on capital employed (ROCE) EBIT Average capital employed Common measurement to monitor the return generated on the capital invested within the company over the duration of the year passed. Proposed dividend per share (DPS) Total proposed dividend Number of shares at year end Common formula to monitor the proposed dividend per share issued. Dividend yield Dividend per share (proposed) Share price on the last trading day of the year Measurement to indicate the return obtained solely from dividends. Average number of shares 1 Number of days × Number of days ∑ i=1 = X1 Common formula to calculate the average number of shares issued during the year. Net working capital Net working capital is inventories, contract assets (net), trade receivables, and other current operating assets less trade payables, other current operating liabilities, and working capital elements of tax equity balances. Common measurement to monitor the capital invested in short-term operating facilities. Other definitions (IFRS financial measure) Profit (loss) per share Shareholder's share of the profit (loss) for the period Average number of shares Common measurement to indicate the profit to which each share is entitled. Diluted profit (loss) per share Shareholder's share of the profit (loss) for the period Average number of shares, including dilutive effect of free shares Common measurement to indicate the profit to which each share is entitled, including any dilutive effects arising from free shares. ØRSTED ANNUAL REPORT 2023229 Financial statements | Notes Company overview Note 7.4 Segment/company Country Type 1Ownership interestParent CompanyØrsted A/S DenmarkOffshoreAnholt Havvindmøllepark I/SDenmark JO 50 %Borkum Riffgrund 1 Windpark A/S GmbH & Co. oHG Germany JO 50 %Borkum Riffgrund 2 Offshore Wind Farm GmbH & Co. oHG Germany JO 50 %Borssele Windfarm C.V. The Netherlands JO 50 %Breesea Ltd2The UK JO 50 %Gode Wind 1 Offshore Wind Farm GmbH & Co. oHG Germany JO 50 %Gode Wind 2 Offshore Wind Farm P/S GmbH Germany JO 50 %Gode Wind 3 GmbH & Co. oHG2Germany JO 50 %Greater Changhua Offshore Wind Farm NW Ltd. Taiwan S 100 %Greater Changhua Offshore Wind Farm SE Ltd22Taiwan JO 50 %Greater Changhua Offshore Wind Farm SW Ltd2 Taiwan S 100 %Hornsea 1 Limited 2The UK JO 50 %Ocean Wind LLCThe US S 100 %Orsted Borssele Holding B.V. The Netherlands S 100 %Orsted Hornsea 1 Holdings Limited The UK S 100 %Orsted Hornsea Project Three (UK) Ltd The UK S 100 %Orsted Hornsea Two Holdings Ltd The UK S 100 %Orsted North America Inc The US S 100 %Orsted Power (UK) Ltd The UK S 100 %Orsted Race Bank (Holding) Ltd The UK S 100 %Orsted Taiwan Ltd Taiwan S 100 %Orsted Walney Extension Holdings Limited The UK S 100 %Orsted West of Duddon Sands (UK) Ltd The UK S 100 %Race Bank Wind Farm Limited 2The UK JO 50 %Revolution Wind, LLC 2The US JO 50 %Sonningmay Wind Limited 2The UK JO 50 %Soundmark Wind Limited 2The UK JO 50 %South Fork, LLC2The US JO 50 %Walney (UK) Offshore Windfarms Limited The UK S 50 %West Of Duddon Sands The UK JO 50 %Ørsted Horns Rev 2 A/S Denmark S 100 %Ørsted Wind Power A/SDenmark S 100 %Ørsted Wind Power Holding A/S3Denmark S 100 % Segment/company Country Type 1Ownership interestOnshore2W Permian Solar, LLC The US S 100 %Eleven Mile Solar Center, LLC The US S 100 %Haystack Wind Project, LLC The US S 100 %Helena Wind, LLC The US S 100 %Lincoln Land, LLC The US S 100 %Mockingbird Solar Center, LLC The US S 100 %Muscle Shoals Solar, LLC The US S 100 %Old 300 Solar Center, LLC The US S 100 %Orsted Onshore Ireland Green Energy Limited Ireland S 100 %Sage Draw Wind, LLC The US S 100 %Sparta Solar, LLC The US S 100 %Sunflower Energy, LLC The US S 100 %Tahoka Wind, LLC The US S 100 %Western Trail Wind, LLC The US S 100 %Ørsted Onshore Holding A/S3Denmark S 100 %Bioenergy & OtherØrsted Bioenergy & Thermal Power A/S 3Denmark S 100 %Ørsted Salg & Service A/S 3Denmark S 100 %Shared FunctionsØrsted North America Holding A/S Denmark S 100 %Ørsted Wind Power TW Holding A/S Denmark S 100 % 1 S = subsidiary, JO = joint operation. 2 The company is owned through a company which is not owned 100 % by Ørsted. The disclosed ownership interest is Ørsted's ultimate ownership interest in the company. 3 Subsidiaries owned directly by Ørsted A/S. Companies without significant activities are not included in the list. A full comprehensive list of companies is available at: https://orsted.com/company-overview ØRSTED ANNUAL REPORT 2023230 Financial statements | Notes [](https://orsted.com/companyoverview2023) Events after the reporting period Note 7.5 Sunrise Wind In 2024, Ørsted signed an agreement to acquire Ever- source's 50 % share of Sunrise Wind. The acquisition is subject to the successful award of Sunrise Wind in the state of New York solicitation for offshore wind capac- ity. The acquisition would give Ørsted 100 % owner- ship of Sunrise Wind. ØRSTED ANNUAL REPORT 2023231 Financial statements | Notes Parent company financial statements 233 Income statement 233 Balance sheet 234 Statement of changes in equity 235 Notes 1 Basis of reporting 2 Employee costs 3 Financial income and expenses 4 Tax on profit (loss) for the year and deferred tax 5 Distribution of net profit 6 Property, plant, and equipment 7 Investments in subsidiaries 8 Receivables from subsidiaries 9 Derivatives 10 Securities 11 Loans and borrowings 12 Other provisions 13 Related-party transactions 14 Contingent liabilities 15 Auditor's fees 16 Ownership information → Ørsted donated almost 1,000 acres of land adjacent to Mockingbird Solar Center to The Nature Conservancy to protect native prairie in north-east Texas. Less than one percent of the original tallgrass prairies of Texas survive today, and less than five percent remain nationally. Our joint conservation effort will be the largest preservation effort on record for this type of native prairie and Ørsted's first biodiversity initiative in the US. ØRSTED ANNUAL REPORT 2023232 Financial statements | Parent company financial statements | Notes Income statement 1 January – 31 December Balance sheet 31 December Note Income statement DKKm 2023 2022 Revenue 259 229 2 Employee costs (59) (82) External expenses (172) (243) Operating profit (loss) before depreciation, amorti- sation, and impaiment losses (EBITDA) 28 (96) Amortisation, depreciation, and impairment losses on property, plant, and equipment (113) (112) Operating profit (loss) (EBIT) (85) (208) Gain (loss) on divestment of enterprises 791 (224) 3 Financial income 21,262 23,126 3 Financial expenses (15,114) (19,673) Profit (loss) before tax 6,854 3,021 4 Tax on profit (loss) for the year (1,240) 344 5 Profit (loss) for the year 5,614 3,365 Note Assets DKKm 2023 2022 6 Land and buildings 569 712 6 Property, plant, and equipment 569 712 7 Investments in subsidiaries 50,864 51,276 8 Receivables from subsidiaries 194,064 163,616 4 Deferred tax 246 33 Other receivables 13 14 Financial assets 245,187 214,939 Non-current assets 245,756 215,651 Receivables from subsidiaries 42,635 28,542 9 Derivatives 5,092 6,661 Other receivables 4,379 2,702 Income tax - 56 Receivables 52,106 37,961 10 Securities 29,514 24,428 Cash 4,324 8,840 Current assets 85,944 71,229 Assets 331,700 286,880 Note Equity and liabilities DKKm 2023 2022 Share capital 4,204 4,204 Reserves 414 2,130 Retained earnings 51,597 46,530 Proposed dividends - 5,675 Equity attributable to shareholders in Ørsted A/S 56,215 58,539 11 Hybrid capital 19,103 19,793 Equity 75,318 78,332 12 Other provisions 1,771 1,949 11 Lease liabilities 514 659 11 Bond and bank debt 69,695 54,033 Non-current liabilities 71,980 56,641 12 Other provisions 8 22 Lease liabilities 115 107 Bond and bank debt 1,281 1,547 9 Derivatives 4,781 5,564 Trade payables 107 64 Payables to subsidiaries 175,457 142,297 Other payables 1,887 2,306 Income tax 766 - Current liabilities 184,402 151,907 Liabilities 256,382 208,548 Equity and liabilities 331,700 286,880 ØRSTED ANNUAL REPORT 2023233 Financial statements | Parent company financial statements | Notes Statement of changes in equity 1 January – 31 December Statement of changes in equity DKKm Share capital Hedging reserve Retained earnings Proposed dividends Shareholders in Ørsted A/S Hybrid capital Tot a l Equity at 1 January 2023 4,204 2,130 46,530 5,675 58,539 19,793 78,332 Profit (loss) for the year - - 5,061 - 5,061 553 5,614 Dividends paid - - 2 (5,675) (5,673) - (5,673) Value adjustments of hedging instruments - 108 - - 108 - 108 Value adjustments transferred to financial income and expenses - (2,308) - - (2,308) - (2,308) Tax on changes in equity - 484 - - 484 2 486 Coupon payments, hybrid capital - - - - - (546) (546) Disposals, hybrid capital - - - - - (699) (699) Share-based payments - - 4 - 4 - 4 Changes in equity in 2023 - (1,716) 5,067 (5,675) (2,324) (690) (3,014) Equity at 31 December 2023 4,204 414 51,597 - 56,215 19,103 75,318 Equity at 1 January 2022 4,204 573 49,411 5,255 59,443 17,984 77,427 Profit (loss) for the year - - 2,788 - 2,788 577 3,365 Dividends paid - - 2 (5,255) (5,253) - (5,253) Proposed dividends - - (5,675) 5,675 - - - Value adjustments of hedging instruments - 2,578 - - 2,578 - 2,578 Value adjustments transferred to financial income and expenses - (583) - - (583) - (583) Tax on changes in equity - (438) - - (438) 13 (425) Coupon payments, hybrid capital - - - - - (529) (529) Additions, hybrid capital - - - - - 3,693 3,693 Disposals, hybrid capital - - - - - (1,945) (1,945) Share-based payments - - 4 - 4 - 4 Changes in equity in 2022 - 1,557 (2,881) 420 (904) 1,809 905 Equity at 31 December 2022 4,204 2,130 46,530 5,675 58,539 19,793 78,332 ØRSTED ANNUAL REPORT 2023234 Financial statements | Parent company financial statements | Notes Key accounting estimate In connection with the preparation of the financial statements, a number of accounting estimates have been made that affect the profit (loss) and balance sheet. Estimates are regularly reassessed by the management on the basis of historical experience and other relevant factors. Impairment test If there is any indication that the carrying amount is lower than our future earnings in a company, we test for impairment as described in the consolidated financial statements. The future earnings of the company (recoverable amount) are calculated based on assumptions concerning significant estimates. Basis of reporting Note 1 Accounting policies The parent company financial statements have been prepared in accordance with the provisions of the Danish Financial Statements Act (‘Årsregnskabsloven’) (reporting class D). The accounting policies remain unchanged from previous year. Unless otherwise stated, the financial statements are presented in Danish kroner (DKK). The parent company accounting policies are con- sistent with the accounting policies described for the consolidated financial statements, with the following exceptions. Foreign currency translation We recognise exchange rate adjustments of receiv- ables from and payables to subsidiaries as financial income and expenses in the income statement when the balances are accounted for as part of the total net investment in foreign enterprises. Likewise, we recognise foreign exchange gains and losses on loans and derivatives in the income statement as financial income and expenses when they have been entered into hedge net investment in the foreign enterprises. Revenue Rental income comprises income from commercial leases and is recognised over the term of the lease. Income from services is recognised when delivery has taken place. Dividends from investments Dividends from subsidiaries and associates are recog- nised in the income statement for the financial year in which the dividends are approved at the annual general meeting. If the dividends exceed the total income after takeover, the dividends are recognised as a reduction of the cost of the investment under assets. Investments We measure our investments in subsidiaries and associates at cost. If there is any indication that the value of a company is lower than our future earnings in the company, impairment testing of the company is carried out as described in the consolidated finan- cial statements. The carrying amount is written down to the recoverable amount whenever the carrying amount exceeds the future earnings in the company (recoverable amount). If we have a legal or constructive obligation to cover a deficit in subsidiaries and associates, we recognise a provision for this. Tax Ørsted A/S is taxed jointly with its Danish subsidiaries. The jointly taxed companies are part of joint taxa- tion with the parent company as the management company. Subsidiaries are included in the joint taxation from the date they are consolidated in the consolidated finan- cial statements and up to the date on which they are no longer consolidated. Current tax for 2023 is recognised by the individual, jointly taxed companies. Statement of cash flows We do not prepare a separate statement of cash flows for the parent company. Reference is made to the con- solidated statement of cash flows on pages 147-148. ØRSTED ANNUAL REPORT 2023235 Financial statements | Parent company financial statements | Notes Employee costs Note 2 Financial income and expenses Note 3 Notes 2.7 ‘Employee costs’ and 2.8 ‘Share-based payment’ to the consolidated financial statements describe the remuneration of the Executive Board and the Board of Directors as well as the share-based payment, termination, and bonus scheme for the Executive Board and details on the remuneration of the Board of Directors. The parent company had an average of nine employees in 2023 (2022: eight employees). Remuneration of the Board of Directors totals DKK 7 million (2022: DKK 7 million). Employee costs DKKm 2023 2022 Wages and salaries 47 70 Share-based payment 4 4 Pensions and social costs 1 1 Remuneration 7 7 Total employee costs 59 82 Salaries and remuneration of the Executive Board DKK ’000 Fixed salary 27,849 30,632 Cash-based incentive scheme 3,711 6,454 Share-based payment 6,270 3,989 Pension, incl. social security and benefits 858 860 Salary in notice period 8,443 14,553 Severance payment 6,210 9,270 To t a l 53,341 65,758 Financial income and expenses DKKm 2023 2022 Interest income from cash, etc. 528 104 Interest income from subsidiaries 10,516 4,006 Interest income from securities at market value 707 150 Reversal impairment of investments in subsidiaries - 165 Foreign exchange gains 1,356 3,531 Value adjustments of derivatives 8,142 11,109 Dividends received 13 4,061 Total financial income 21,262 23,126 Interest expenses relating to loans and borrowings (2,759) (1,824) Interest expenses, leases (18) (20) Interest expenses to subsidiaries (5,413) (765) Impairment of investments in subsidiaries - (39) Capital losses on securities at market value - (1,574) Foreign exchange losses (1,427) (5,664) Value adjustments of derivatives (5,321) (9,592) Other financial expenses (176) (195) Total financial expenses (15,114) (19,673) Net financial income and expenses 6,148 3,453 ØRSTED ANNUAL REPORT 2023236 Financial statements | Parent company financial statements | Notes Tax on profit (loss) for the year and deferred tax Note 4 Distribution of net profit Note 5 Income tax DKKm 2023 2022 Tax on profit (loss) for the year (1,240) 344 Tax on changes in equity 486 (425) Total tax for the year (754) (81) Tax on profit (loss) for the year can be broken down as follows: Current tax (1,261) 470 Adjustments to deferred tax 39 (170) Adjustments to current tax in respect of prior years (192) 1 Adjustments to deferred tax in respect of prior years 174 43 Tax on profit (loss) for the year (1,240) 344 Development in deferred tax DKKm Deferred tax at 1 January (33) (160) Adjustments for the year recognised in profit (loss) for the year (39) 170 Adjustments to deferred tax in respect of prior years (174) (43) Deferred tax at 31 December (246) (33) Specification of deferred tax DKKm Property, plant and equipment 125 157 Other current assets (1) (3) Non-current liabilities (301) (144) Tax loss carryforwards (69) (43) Deferred tax, asset 246 33 Deferred tax, liability - - Distribution of net profit DKKm 2023 2022 Profit (loss) for the year is attributable to: Shareholders in Ørsted A/S, proposed dividends for the financial year - 5,675 Shareholders in Ørsted A/S, retained earnings 5,061 (2,887) Interest payments and costs, hybrid capital owners of Ørsted A/S 553 577 Profit (loss) for the year 5,614 3,365 ØRSTED ANNUAL REPORT 2023237 Financial statements | Parent company financial statements | Notes Property, plant, and equipment Note 6 Investments in subsidiaries Note 7 We have entered into leases for office premises, primarily in Gentofte, Denmark (expiring in 2028). We have entered into operating leases with subsidiaries for sublease of office premises. In 2023, an amount of DKK 147 million was recognised (2022: DKK 95 million) in profit (loss) for the year in respect of rental income. We have tested investments in subsidiaries for impair- ment by comparing the expected future income from the individual subsidiaries with their carrying amounts. The impairment test in 2023 did not give rise to any impairment of investments in subsidiaries. In 2022, the ‘Additions’ related to capital injections in Ørsted Salg & Service A/S. Property, plant, and equipment: Land and buildings DKKm 2023 2022 Cost at 1 January 1,153 1,120 Additions - 33 Disposals (39) - Cost at 31 December 1,114 1,153 Depreciation and amortisation at 1 January (441) (329) Depreciation and amortisation (113) (112) Disposals 9 - Depreciation and amortisation at 31 December (545) (441) Carrying amount at 31 December 569 712 Value of leased assets 569 712 Investments in subsidiaries DKKm 2023 2022 Cost at 1 January 51,809 36,809 Additions - 15,000 Disposals (412) - Cost at 31 December 51,397 51,809 Value adjustments at 1 January (533) (659) Impairment losses/reversals - 126 Value adjustments at 31 December (533) (533) Carrying amount at 31 December 50,864 51,276 Note 7.4 ‘Company overview of the consolidated financial statements’ contains an overview of subsidiaries, etc. ØRSTED ANNUAL REPORT 2023238 Financial statements | Parent company financial statements | Notes Receivables from subsidiaries Note 8 Derivatives Note 9 Ørsted A/S has assumed the subsidiaries' currency risks via forward exchange contracts, which have subsequently been hedged in the market. Further- more, hedging contracts have been concluded to hedge the currency risk associated with investments in subsidiaries in foreign currencies. We have also entered into a number of interest rate swaps to manage our interest rate risk. The company has ‘fair value’ hedged loans and receiv- ables in GBP and USD. The value of the ‘fair value’ hedge offset in the income statement amounted to DKK -162 million (2022: DKK -879 million). Derivatives at the end of December 2023 mature as follows: 2024: DKK 177 million, 2025: DKK 370 million, after 2025: DKK -236 million (2022: 2023: DKK -651 million, 2024: DKK 89 million, after 2024: DKK 1,659 million). All derivatives are classified based on observable inputs in the ‘fair value’ hierarchy. Non-current receivables from subsidiaries DKKm 2023 2022 Cost at 1 January 163,616 107,894 Additions 50,485 84,638 Disposals (20,037) (28,916) Cost at 31 December 194,064 163,616 Overview of derivative positions DKKm 2023 2022 Contractual principal amount Market value Contractual principal amount Market value Interest derivatives 25,141 (517) 22,185 1,578 Currency derivatives 39,213 828 47,318 (481) To t a l 64,354 311 69,503 1,097 Assets 5,092 6,661 Equity and liabilities (4,781) (5,564) See note 6.1 ‘Risk framework’ to the consolidated financial statements and the chapter on ‘Risks and risk management’ in the ‘Management's review on pages 34-37 for more details on risk and risk management. ØRSTED ANNUAL REPORT 2023239 Financial statements | Parent company financial statements | Notes Securities Note 10 Loans and borrowings Note 11 On 31 December 2023, we had issued hybrid capital with a total notional amount of DKK 19,310 million (2022: DKK 19,877 million). The hybrid bonds have a 1,000-year term and expire as follows: DKK 3,727 mil- lion in 3017, DKK 4,473 million in 3019, DKK 7,383 mil- lion in 3021, and DKK 3,727 million in 3022, respectively. The long-term portion of lease debt amounted to DKK 514 million at 31 December 2023 (2022: DKK 659 million), of which DKK 28 million (2022: DKK 208 million) fall due in more than five years. The long-term portion of bank loans and issued bonds amounted to DKK 69,695 million at 31 December 2023 (2022: DKK 54,033 million), of which DKK 56,769 million (2022: DKK 50,930 million) fall due in more than five years. Other provisions Note 12 We have made provisions for non-current liabilities totalling DKK 1,779 million (2022: DKK 1,971 million), of which DKK 8 million fall due within 1 year, and DKK 1,771 million fall due in 1-5 years. The provisions mainly concern the divestment of our oil and gas business in 2017 and the sale of our Danish power distribution, residential customer, and city light businesses to SEAS-NVE (now Andel) in 2020\. Related-party transactions Note 13 Related parties are the Board of Directors, the Executive Board, Ørsted A/S's subsidiaries, and the Danish state. Remuneration of the Board of Directors and the Executive Board is disclosed in notes 2.7 ‘Employee costs’ and 2.8 ‘Share-based payment’ in the consoli- dated financial statements. Our related-party transactions are made on arm's length terms. Securities are a key element in our financial resources, and therefore investments are primarily made in liquid AAA-rated Danish mortgage bonds and, to a lesser extent, in other bonds. Most of the securities qualify for repo transactions in the Danish central bank, ‘ Danmarks Nationalbank’. All securities are classified based on observable inputs in the fair value hierarchy. Securities DKKm 2023 2022 Securities, available for use 29,514 24,428 Total securities 29,514 24,428 ØRSTED ANNUAL REPORT 2023240 Financial statements | Parent company financial statements | Notes Contingent liabilities Note 14 Auditor's fees Note 15 Ownership information Note 16 ‘Other assurance engagements’ primarily included assurance services related to the issuance of bonds. Guarantees Ørsted A/S has provided guarantees in connection with participation by subsidiaries and subsidiaries' joint operations and joint ventures in the construc- tion and operation of offshore wind farms and natural gas installations as well as guarantees in respect of leases, energy trading activities, purchase, sale, and supply agreements, decommissioning obligations, farm-downs and other M&A transactions as well as secondary liability on decommissioning of offshore installations related to the divestment of the oil and gas business, etc. Ørsted A/S acts as guarantor or surety provider with primary liability for bank liabilities in certain subsidiaries, including guarantees in favour of banks and investors covering credit facilities established and bonds issued in Taiwan. Furthermore, in support of the ratings of Ørsted Salg & Service A/S by Moody's and Ørsted Wind Power TW Holding A/S by Taiwan Ratings, Ørsted A/S has pro- vided general guarantees covering all obligations and liabilities undertaken in the ordinary course of business by these two entities. Indemnities Ørsted A/S is taxed jointly with the Danish compa- nies in the Ørsted Group. As management company, Ørsted A/S has unlimited as well as joint and several liability together with the other jointly taxed compa- nies for Danish income taxes and withholding taxes on dividends, interest, and royalties related to the jointly taxed companies. Litigation Ørsted is involved in ongoing transfer pricing dis- putes. For further information, we refer to section 4.1 ‘Approach to taxes’ to the consolidated financial statements. Ørsted A/S is not a party to any litiga- tion proceedings or legal disputes that could have an effect on the company's financial position, either individually or collectively. Auditor's fees DKKm 2023 2022 Statutory audit 4 4 Other assurance engangements 3 3 Total fees to PwC 7 7 Ownership information 31 December 2023 Registered office Ownership interests Voting share The Danish state represented by the Danish Ministry of Finance Copenhagen K, Denmark 50.12 % 50.74 % Andel A.M.B.A. Svinninge, Denmark 5.01 % 5.07 % The table shows the shareholders with ownership interests and voting shares of at least 5 %. The difference between ownership interests and voting shares is because voting rights of Ørsted’s treasury shares cannot be exercised. ØRSTED ANNUAL REPORT 2023241 Financial statements | Parent company financial statements | Notes Management's statement, auditor's reports, and glossary 243 Statement by the Executive Board and the Board of Directors 244 Independent Auditor's Reports 249 Independent limited assurance report on selected ESG data in the Sustainability statements 251 Glossary → Ireland's offshore wind footprint continues to grow. This year, we partnered with ESB, Ireland's leading utility, in a landmark deal to develop up to 5 GW of renewable energy. With a maritime area more than ten times the size of its landmass, Ireland is ideally positioned to grow a strong and vibrant offshore sector, which will help decarbonise the Irish electricity system and enable future renewable energy exports to Europe. ØRSTED ANNUAL REPORT 2023242 Financial statements | Management’s statement, auditor’s reports, and glossary Statement by the Executive Board and the Board of Directors The Board of Directors and the Executive Board have today considered and adopted the annual report of Ørsted A/S for the financial year 1 January – 31 December 2023. The consolidated financial statements have been prepared in accordance with IFRS Accounting Standards as adopted by the EU and further require- ments in the Danish Financial Statements Act, and the parent company financial statements have been prepared in accordance with the Danish Financial Statements Act. The Management's Report has been prepared in accordance with the Danish Finan- cial Statements Act and Article 8 of Regulation (EU) 2020/852 (EU Taxonomy Regulation). In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group's and the parent company's assets, liabilities and financial position at 31 December 2023, and of the results of the Group's and the parent company's operations and the consolidated cash flows for the financial year 1 January – 31 December 2023. In our opinion, the Management's Review included in the Management's Report represents a true and fair account of the development in the Group's and the parent company's operations and financial circumstances, of the results for the year and of the financial position of the Group and the parent com- pany as well as a description of the most significant risks and elements of uncertainty facing the Group and the parent company. In our opinion, the Sustainability statements included in the Management's Report represents a reasonable, fair, and balanced representation of the Group's sus- tainability performance and are prepared in accord- ance with the stated accounting policies. In our opinion, the annual report of Ørsted A/S for the financial year 1 January – 31 December 2023 with the file name: Orsted-2023-12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation. We recommend that the annual report is adopted at the annual general meeting. Skærbæk, 7 February 2024 Executive Board: Mads Nipper Group President and CEO Rasmus Errboe Interim CFO Henriette Fenger Ellekrog Chief HR Officer Board of Directors: Thomas Thune Andersen Chair Andrew Brown Peter Korsholm Leticia Francisca Torres Mandiola* Lene Skole Deputy Chair Jørgen Kildahl Dieter Wemmer Alice Florence Marion Vallienne* Annica Bresky Julia King, the Baroness Brown of Cambridge Benny Gøbel* Anne Cathrine Collet Yde* * Board member elected by the employees ØRSTED ANNUAL REPORT 2023243 Financial statements | Management’s statement, auditor’s reports, and glossary Independent Auditor's Reports To the shareholders of Ørsted A/S Report on the audit of the Financial Statements Our opinion In our opinion, the Consolidated Financial Statements give a true and fair view of the Group's financial posi- tion at 31 December 2023 and of the results of the Group's operations and cash flows for the financial year 1 January to 31 December 2023 in accordance with IFRS Accounting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act. Moreover, in our opinion, the Parent Company Financial Statements give a true and fair view of the Parent Com- pany's financial position at 31 December 2023 and of the results of the Parent Company's operations for the financial year 1 January to 31 December 2023 in accordance with the Danish Financial Statements Act. Our opinion is consistent with our Auditor's Long-form Report to the Audit & Risk Committee and the Board of Directors. What we have audited The Consolidated Financial Statements of Ørsted A/S for the financial year 1 January to 31 December 2023, pages 142-231 and 242-243, comprise the consoli- dated income statement, the consolidated statement of comprehensive income, the consolidated bal- ance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, and the notes to the consolidated financial statements, including material accounting policy information. The Parent Company Financial Statements of Ørsted A/S for the financial year 1 January to 31 December 2023, pages 232-243, comprise the income statement, the balance sheet, the statement of changes in equity, and the notes, including material accounting policy information. Collectively referred to as the ‘Financial Statements’. Basis for opinion We conducted our audit in accordance with Interna- tional Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsi- bilities under those standards and requirements are further described in the Auditor's responsibilities for the audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Account- ants' International Code of Ethics for Professional Accountants (IESBA Code) and the additional ethical requirements applicable in Denmark. We have also fulfilled our other ethical responsibilities in accord- ance with these requirements and the IESBA Code. To the best of our knowledge and belief, prohibited non-audit services referred to in Article 5(1) of Regula- tion (EU) No 537/2014 were not provided. Appointment We were first appointed auditors of Ørsted A/S on 19 April 2010 for the financial year 2010. We have been reappointed annually by shareholder resolution for a total uninterrupted period of engagement of 14 years, including the financial year 2023\. We were reappointed at the annual general meeting on 7 March 2023. Key audit matters Key audit matters are those matters that, in our pro- fessional judgement, were of most significance in our audit of the Financial Statements for 2023. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. ØRSTED ANNUAL REPORT 2023244 Financial statements | Management’s statement, auditor’s reports, and glossary Provisions for onerous contracts Key audit matter How our audit addressed the key audit matter On 31 October 2023, Ørsted decided to cease the development of Ocean Wind 1 and recognised a provision for the onerous con- tracts related to the development project, taking into consideration Ørsteds contractual obligations and the expected outcome of the cancellation of these contracts. The provision is based on Management's assessment of the individual contractual obligations, including termination and compensation clauses, assumptions for cash outflow, as well as cash inflow from sale or reuse of parts of the project. This requires significant estimates and judgements in assessing the potential scenarios and cash flows. We focused on this area because impact on the profit for the year is significant, and because the provisions for contractual obliga- tions are considered complex non-routine transactions and require significant judgements in determining the assumptions applied in the significant estimates. Refer to notes 1.2 and 3.10 in the consolidated financial statements. As part of our audit, we read the accounting memorandum prepared, assessed the process applied and competencies involved to identify and review relevant contracts for contractual obligations, read con- tracts on a sample basis, and obtained relevant formal confirmations from Ørsted's internal lawyers. Furthermore, we challenged the judgements and assumptions applied by Management when calculating the provision. Finally, we assessed the appropriateness of the related disclosures of these matters in the Consolidated Financial Statements. Impairment of non-current assets Key audit matter How our audit addressed the key audit matter During 2023, Management identified impairment indicators for a number of production and development assets (non-current assets) due to, amongst others, the adverse impacts related to the supply chain, increased interest rates, as well as the ability to obtain invest- ment tax credit (ITC) for the US portfolio. On this basis, Management has prepared impairment tests resulting in impairment losses recognised for production and development assets; mainly related to the US offshore wind farm portfolio. The impairment tests are based on Management's assumptions of expected cash inflows and outflows for the individual cash- generating units (CGUs), and these cash flows are discounted using the relevant discount rates (value-in-use impairment models). This requires significant estimates and judgements amongst others related to the future power prices, expected government subsidy schemes, impact of the supply chain challenges, cost prices, and discount rates (WACC). Furthermore, some value-in-use models are based on probability-weighted scenarios due to amongst other rebids for offshore renewable energy certificates (ORECs) as well as expected outcome of the supply chain challenges. For impairment tests related to the seabeds for Ocean Wind 1 and Skipjack Wind, Management has applied fair value less cost to sell calculations, which are based on multiple analyses supported by discounted cash flow calculations where required data and assump- tions are available. We focused on this area because impact on the profit for the year is significant and because the impairment tests of non-current assets are considered complex non-routine transactions and require sig- nificant, judgements in determining the assumptions applied in the significant estimates. Refer to notes 1.2 and 3.1-3.2 in the consolidated financial statements. As part of our audit, we challenged the impairment indicator assess- ments performed by Management. We considered the appropriate- ness of the CGUs defined by Management and the methodology used by Management to assess the carrying amount of non-current assets assigned to CGUs. We carried out risk assessment procedures in order to obtain an understanding of IT systems, business processes, and relevant controls regarding data and assumptions used in the impairment models. For the controls, we assessed whether they were designed and implemented to effectively address the risk of material mis- statement. For selected controls that we planned to rely on, we tested whether they were performed on a consistent basis. We challenged the impairment models prepared by Management and tested the mathematical accuracy of the relevant value-in-use and fair value less cost to sell models, challenged the data and significant assumptions applied in relation to future selling prices, supply chain challenges, interest rates, as well as the ability to obtain investment tax credits (ITC). Also, we reconciled the carrying amounts to the accounting records. In assessing the discounting rates (WACCs) and the overall methodol- ogy applied, we involved our valuation specialists. Finally, we assessed the appropriateness of the related disclosures of these matters in the Consolidated Financial Statement, including the sensitivity analysis expressing the significant estimation uncertainty related to the valuation of the CGUs. ØRSTED ANNUAL REPORT 2023245 Financial statements | Management’s statement, auditor’s reports, and glossary Valuation of derivative financial instruments and documentation of hedge accounting Key audit matter How our audit addressed the key audit matter Ørsted applies hedge accounting for derivative financial instruments used for hedging of: · energy prices, currency and inflation risks associated with revenue (energy hedges) · commodity price and currency risks associated with the construction of wind farms · interest rate risk associated with loans and divestments. We focused on this area because the valuation of the derivative financial instruments (hedging instruments) and assessment of hedge relationships and hedge effectiveness are complex and require signifi- cant judgements and estimates. On this basis, the valuation of the derivative financial instruments and the application of hedge accounting was a matter of most significance in our audit. Refer to notes 1.2 and 6.1-6.9 in the consolidated financial statements. We carried out risk assessment procedures in order to obtain an understanding of IT systems, business processes, and relevant con- trols regarding derivative financial instruments and hedge account- ing. For the controls, we assessed whether they were designed and implemented to effectively address the risk of material misstate- ment. For selected controls that we planned to rely on, we tested whether they were performed on a consistent basis. In this connection, we assessed and obtained an understanding of the exposures subject to hedging, the hedging instruments applied, the hedge relationships, including the methods, data and assump- tions applied for documentation of the fair value of hedging instru- ments, and hedge effectiveness. We challenged the accounting treatment applied by Management, including in relation to the hedging instruments used and the hedge reserve recognised in the consolidated statement of comprehensive income by reviewing Management's IFRS 9 hedge documentation, including underlying memos and calculations. We challenged the significant data, assumptions, and models applied by Management when assessing the value of the hedging instruments, the hedge relationships, and hedge effectiveness by assessing and testing the main data, significant assumptions, and models applied. As part of our audit, we tested the valuation of the derivative finan- cial instruments and the documentation of hedge effectiveness of energy, commodity, interest rates, and related foreign exchange risk hedges. In assessing the valuation of the derivative financial instruments and application of hedge accounting, we involved our financial instrument specialists. We assessed and tested the appropriateness of the related disclo- sures provided in the Consolidated Financial Statements. Income taxes Key audit matter How our audit addressed the key audit matter Ørsted is subject to income taxes in the countries where they operate. Significant judgements and estimates are required in deter- mining the income taxes and in measuring income tax assets and liabilities, including uncertain tax positions. We focused on this area because Management makes significant judgments and estimates when calculating and assessing the income taxes due to the complex nature of the tax rules related to the business activities conducted in different tax jurisdictions. Furthermore, Management makes estimates when measuring the tax assets, including when and to which extent these can be utilised in the future, and when measuring tax liabilities, including assessing deferred taxes in tax equity partnerships. Additionally, Ørsted is a party in tax and transfer pricing disputes where Management assesses the possible outcomes and con- sequently recognise provisions for these uncertain tax positions. Ørsted has received administrative decisions from the Danish Tax Agency entailing additional tax payments and related interests, which Management disputes and has appealed to the relevant authorities. Furthermore, tax cases are ongoing regarding corre- sponding tax adjustments. On this basis, income taxes were a matter of most significance in our audit. Refer to notes 1.2 and 4.1-4.3 in the consolidated financial statements. As part of our audit, we evaluated the assumptions applied by Man- agement in determining the recognition and measurement of income taxes and deferred taxes, including those related to tax equity part- nerships, while taking into account relevant correspondence with tax authorities and external advisors. We assessed Management's judgements and estimates of tax balances and carrying amounts as well as the related applied tax rates when calculating these. We also assessed the reasonableness of the main data and assumptions used to calculate the taxable income forecasts underlying the recognition and recoverability of the deferred tax assets relating to tax losses carried forward. We evaluated and tested Ørsted's processes for recording, assessing, and continually reassessing provisions for uncertain tax positions. During our audit of uncertain tax positions, we obtained and reviewed the correspondence with relevant tax authorities to consider the completeness of the tax disputes and the related provisions. We assessed the measurement of the provisions and challenged the assumptions used, including the possibility of obtaining corresponding tax adjustments, compensations from partners, and the likelihood of different outcomes. In addition, we assessed relevant opinions obtained by Management from third parties related to the tax dis- putes, and we evaluated the disclosures provided by Management in the consolidated financial statements. In assessing income taxes, we involved our tax specialists. ØRSTED ANNUAL REPORT 2023246 Financial statements | Management’s statement, auditor’s reports, and glossary Statement on Management's Report Management is responsible for Management's Report, pages 3-141. Our opinion on the Financial Statements does not cover Management's Report, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial State- ments, our responsibility is to read Management's Report and, in doing so, consider whether Manage- ment's Report is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Moreover, we considered whether Management's Report includes the disclosures required by the Danish Financial Statements Act and Article 8 of Regulation (EU) 2020/852 (EU Taxonomy Regulation). Based on the work we have performed, in our view, Management's Report is in accordance with the Con- solidated Financial Statements and the Parent Com- pany Financial Statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act and the disclosure require- ments of Article 8 of Regulation (EU) 2020/852 (EU Taxonomy Regulation). We did not identify any mate- rial misstatement in Management's Report. Management's responsibilities for the Financial Statements Management is responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with IFRS Accounting Standards as adopted by the EU and further require- ments in the Danish Financial Statements Act and for the preparation of parent company financial state- ments that give a true and fair view in accordance with the Danish Financial Statements Act, and for such internal control as Management determines is neces- sary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of account- ing unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Auditor's responsibilities for the audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain profes- sional scepticism throughout the audit. We also: · identify and assess the risks of material misstate- ment of the Financial Statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collu- sion, forgery, intentional omissions, misrepresenta- tions, or the override of internal control · obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effective- ness of the Group's and the Parent Company's inter- nal control · evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management · conclude on the appropriateness of Management's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern · evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that gives a true and fair view · obtain sufficient appropriate audit evidence regard- ing the financial information of the entities or business activities within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with govern- ance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in inter- nal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied. ØRSTED ANNUAL REPORT 2023247 Financial statements | Management’s statement, auditor’s reports, and glossary From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter. Report on compliance with the ESEF Regulation As part of our audit of the Financial Statements we per- formed procedures to express an opinion on whether the annual report of Ørsted A/S for the financial year 1 January to 31 December 2023 with the filename Orsted-2023-12-31-en.zip is prepared, in all material respects, in compliance with the Commission Dele- gated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements including notes. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: · the preparing of the annual report in XHTML format · the selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for all financial information required to be tagged using judgement where necessary · ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements pre- sented in human-readable format · for such internal control as Management determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all mate- rial respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor's judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: · testing whether the annual report is prepared in XHTML format · obtaining an understanding of the company's iXBRL tagging process and of internal control over the tagging process · evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements including notes · evaluating the appropriateness of the company's use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identified · evaluating the use of anchoring of extension ele- ments to elements in the ESEF taxonomy · reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report of Ørsted A/S for the financial year 1 January to 31 December 2023 with the file name Orsted-2023-12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Hellerup, 7 February 2024 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR No 3377 1231 Anders Stig Lauritsen State Authorised Public Accountant mne32800 Thomas Wraae Holm State Authorised Public Accountant mne30141 ØRSTED ANNUAL REPORT 2023248 Financial statements | Management’s statement, auditor’s reports, and glossary Independent limited assurance report on selected ESG data in the Sustainability statements To the stakeholders of Ørsted A/S Ørsted A/S engaged us to provide limited assurance on selected ESG data as described below for the period 1 January – 31 December 2023 as stated on pages 81-130 and 141 in tables marked with a ‘blue eye icon’ ( ) (the ‘Selected ESG Data’). Our conclusion Based on the procedures we performed and the evi- dence we obtained, nothing came to our attention that causes us not to believe that the Selected ESG Data in tables marked with a ‘blue eye icon’ ( ) for the period 1 January – 31 December 2023 for Ørsted A/S are prepared, in all material respects, in accordance with the applied accounting policies developed by Ørsted A/S as stated on pages 81-130 and 141 (the ‘Accounting policies’). This conclusion is to be read in the context of what we state in the remainder of our report. What we are assuring The scope of our work was limited to assurance over the Selected ESG Data as defined in the first para- graph of our report. Regarding reporting on article 8 of Regulation (EU) 2020/852 (EU Taxonomy Regulation) on pages 81-85 we only provide limited assurance on whether the included data have been stated in accordance with the EU Taxonomy related accounting policies as stated on pages 81 and 85, and not whether the data are in compliance with the EU regulation. We express limited assurance in our conclusion. Professional standards applied and level of assurance We performed a limited assurance engagement in accordance with International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engage- ments other than Audits and Reviews of Historical Financial Information’ and, in respect of the green- house gas emissions, in accordance with International Standard on Assurance Engagements 3410 ‘Assur- ance engagements on greenhouse gas statements’. The quantification of greenhouse gas emissions is subject to inherent uncertainty because of incomplete scientific knowledge used to determine the emissions factors and the values needed to combine emissions of different gasses. A limited assurance engagement is substantially less in scope than a reasonable assurance engagement in relation to both the risk assessment procedures, including an understanding of internal control, and the procedures performed in response to the assessed risks; consequently, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. Our independence and quality control We have complied with the independence require- ments and other ethical requirements in the Inter- national Ethics Standards Board for Accountants' International Code of Ethics for Professional Account- ants (IESBA Code), which is founded on fundamental principles of integrity, objectivity, professional com- petence and due care, confidentiality and profes- sional behavior, and ethical requirements applicable in Denmark. PricewaterhouseCoopers applies International Standard on Quality Management 1, ISQM 1, which requires the firm to design, implement and operate a system of quality management including policies or procedures regarding compliance with ethical require- ments, professional standards, and applicable legal and regulatory requirements. Our work was carried out by an independent multi- disciplinary team with experience in sustainability reporting and assurance. Understanding reporting and measurement methodologies The Selected ESG Data needs to be read and under- stood together with the accounting policies. The accounting policies used for the preparation of the Selected ESG Data are the applied accounting policies developed by Ørsted A/S which Management is solely responsible for selecting and applying. The absence of a significant body of established practice on which to draw to evaluate and measure ESG data allows for different, but acceptable, meas- urement techniques and can affect comparability between entities and over time. Work performed We are required to plan and perform our work in order to consider the risk of material misstatement of the Selected ESG Data. In doing so and based on our professional judgement, we: · evaluated the appropriateness of the account- ing policies used, their consistent application and related disclosures · made inquiries and conducted interviews with Group functions with responsibility for management and reporting of the Selected ESG Data to assess ØRSTED ANNUAL REPORT 2023249 Financial statements | Management’s statement, auditor’s reports, and glossary reporting and consolidation processes, use of com- pany-wide systems, and controls performed · checked the Selected ESG Data on a sample basis to underlying documentation and evaluated the appropriateness of quantification methods and compliance with the accounting policies for prepar- ing the Selected ESG Data · performed analytical review and trend explanation of the Selected ESG Data · considered the disclosure and presentation of the Selected ESG Data · evaluated the obtained evidence. Management's responsibilities Management of Ørsted A/S is responsible for: · designing, implementing, and maintaining internal control over information relevant to the preparation of Selected ESG Data that are free from material misstatement, whether due to fraud or error · establishing objective accounting policies for pre- paring the Selected ESG Data · measuring and reporting the information in the Selected ESG Data based on the accounting policies · the content of the Selected ESG Data. Our responsibility We are responsible for: · planning and performing the engagement to obtain limited assurance about whether the Selected ESG Data for the period 1 January – 31 December 2023 are prepared, in all material respects, in accordance with the accounting policies · forming an independent conclusion, based on the procedures performed and the evidence obtained · reporting our conclusion to the stakeholders of Ørsted A/S. Hellerup, 7 February 2024 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no. 3377 1231 Anders Stig Lauritsen State Authorised Public Accountant mne32800 Thomas Wraae Holm State Authorised Public Accountant mne30141 ØRSTED ANNUAL REPORT 2023250 Financial statements | Management’s statement, auditor’s reports, and glossary Availability Availability is calculated as the ratio of actual production to the possible production, which is the sum of lost production and actual produc- tion in a given period. The production-based availability (PBA) is impacted by grid and wind turbine outages, which are technical produc- tion losses. PBA is not impacted by market requested shutdowns and wind farm curtail- ments, as this is deemed not to be reflective of site performance, but due to external factors. Avoided emissions The amount other sources of energy would have emitted if we had not generated energy from renewable sources. Awarded capacity Offshore capacity that we have been awarded in auctions and tenders, but where we have yet to sign a PPA and take final investment decision. Blockage effect The blockage effect arises from the wind slow- ing down as it approaches the wind turbines. BSUoS tariffs Costs related to the day-to-day operation of the transmission system imposed on generators and suppliers. Carbon emission allowances Carbon emission allowances subject to the European Union Emissions Trading Scheme (EU ETS). CfD A contract for difference is a subsidy that guar- antees the difference between the market ref- erence price and the exercise price won. Commissioning/COD When our assets are in operation, and the legal liability has been transferred from the supplier to us. Contracted capacity Onshore capacity where we have signed PPAs covering more than 50 % of the asset's capac- ity, but where we have not yet taken final investment decision. CSRD Corporate Sustainability Reporting Directive. Decided (FID) and installed capacity Installed generation capacity plus capacity for assets where a final investment decision has been made. Degree days Number of degrees in absolute figures in differ- ence between the average temperature and the official Danish indoor temperature of 17 °C. DMA Double materiality assessment. EPC Engineering, procurement, and construction. The part of our business which handles the con- struction and installation of assets. ESRS European Sustainability Reporting Standards. FID Final investment decision. When the Board of Directors approves major investments for con- struction assets. Generation capacity Ørsted's ownership of the asset. Offshore wind turbines are included when each turbine has passed the 240-hour test. Onshore capacities are included after COD of the entire asset. Green certificates Certificate awarded to producers of environ- ment-friendly power as a supplement to the market price of power in the given price area. Green dark spread (GDS) Represents the contribution margin per MWh of power generated at a coal-fired CHP plant with a given efficiency. It is determined as the difference between the market price of power and the cost of the coal (including associated freight costs) and carbon emission allowances used to generate the power. Ineffective hedges When we hedge our exposure with an instru- ment that is not 100 % correlated with the exposure, we may see ineffectiveness in our hedging (i.e. results from such hedges should be recognised in the P&L immediately). Installed capacity Installed capacity where the asset has been completed and has passed a final test. Investment tax credits (ITCs) Federal tax credit based on qualifying renew- able investment costs. Load factor The ratio between the actual power genera- tion in a given period relative to the potential generation which is possible by continuously exploiting the maximum capacity over the same period. Offshore transmission assets Connect offshore generation to the onshore grid and typically include the offshore power transmission infrastructure, an onshore substa- tion, and the electrical equipment relating to the operation of the substation. Overhedging When our hedged volumes are higher than our actual generation, we are overhedged. This is normally caused by lower wind speeds and lead to financial losses if market prices are above our hedged prices. Partnership income Income originating from our partners' purchase of ownership interests in the offshore wind farms. Includes both the gain in connection with the farm-down and the subsequent construc- tion of the wind farm. Power purchase agreement (PPA) An agreement between us and a buyer/seller to purchase/sell the power we generate, which includes all commercial terms (price, delivery, volumes, etc.). Production tax credit (PTC) Federal tax credit based on eligible power generation in the US. ROCs Renewable obligation certificates issued by Ofgem in the UK to operators of accredited generating stations for the eligible renewable energy they generate. Operators can trade ROCs with other parties. Tax equ ity An arrangement where an investor obtains rights to federal tax credits and other tax attrib- utes in exchange for a cash contribution. TCFD Task Force on Climate-Related Financial Disclosures. TEC Transmission entry capacity (TEC) defines a generator's maximum contractual level of transmission access in MW. TNUoS tariffs Costs related to the use of the transmission networks in the UK based on TEC. TRIR In addition to lost-time injuries, the total record- able injury rate (TRIR) also includes injuries where the injured person is able to perform restricted work the day after the accident as well as accidents where the injured person has received medical treatment. Wake effect Wake within wind farms and between neigh- bouring wind farms. There is a wake after each wind turbine where the wind slows down. As the wind flow continues, the wake spreads, and the wind speed recovers. Wind speed Shows the wind speed at Ørsted's wind farms. The wind measurements are weighted on the basis of our generation capacity and can be compared to a normal wind period. Glossary ØRSTED ANNUAL REPORT 2023251 Financial statements | Management’s statement, auditor’s reports, and glossary Ørsted A/S Kraftværksvej 53 DK-7000 Fredericia Tel.: +45 99 55 11 11 CVR no. 36213728 orsted.com Media Relations Martin Barlebo Tel.: +45 99 55 95 52 Investor Relations Rasmus Keglberg Hærvig Tel.: +45 99 55 90 95 Design and layout e-Types with The Agency, Ørsted Images All images by Ørsted Publication 7 February 2024 Annual reportAuditor's report on audited financial statementsParsePort XBRL Converter2023-01-012023-12-312022-01-012022-12-31W9NG6WMZIYEU8VEDOG48Reporting class D36213728OpinionBasis for OpinionW9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31W9NG6WMZIYEU8VEDOG482022-01-012022-12-31W9NG6WMZIYEU8VEDOG482023-12-31W9NG6WMZIYEU8VEDOG482022-12-31W9NG6WMZIYEU8VEDOG482022-12-31ifrs-full:IssuedCapitalMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31ifrs-full:IssuedCapitalMemberW9NG6WMZIYEU8VEDOG482023-12-31ifrs-full:IssuedCapitalMemberW9NG6WMZIYEU8VEDOG482022-12-31ifrs-full:OtherReservesMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31ifrs-full:OtherReservesMemberW9NG6WMZIYEU8VEDOG482023-12-31ifrs-full:OtherReservesMemberW9NG6WMZIYEU8VEDOG482022-12-31ifrs-full:RetainedEarningsMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31ifrs-full:RetainedEarningsMemberW9NG6WMZIYEU8VEDOG482023-12-31ifrs-full:RetainedEarningsMemberW9NG6WMZIYEU8VEDOG482022-12-31ORS:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwnersRecognisedInEquityMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31ORS:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwnersRecognisedInEquityMemberW9NG6WMZIYEU8VEDOG482023-12-31ORS:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwnersRecognisedInEquityMemberW9NG6WMZIYEU8VEDOG482022-12-31ifrs-full:EquityAttributableToOwnersOfParentMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31ifrs-full:EquityAttributableToOwnersOfParentMemberW9NG6WMZIYEU8VEDOG482023-12-31ifrs-full:EquityAttributableToOwnersOfParentMemberW9NG6WMZIYEU8VEDOG482022-12-31ORS:HybridCapitalMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31ORS:HybridCapitalMemberW9NG6WMZIYEU8VEDOG482023-12-31ORS:HybridCapitalMemberW9NG6WMZIYEU8VEDOG482022-12-31ifrs-full:NoncontrollingInterestsMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31ifrs-full:NoncontrollingInterestsMemberW9NG6WMZIYEU8VEDOG482023-12-31ifrs-full:NoncontrollingInterestsMemberW9NG6WMZIYEU8VEDOG482021-12-31ifrs-full:IssuedCapitalMemberW9NG6WMZIYEU8VEDOG482022-01-012022-12-31ifrs-full:IssuedCapitalMemberW9NG6WMZIYEU8VEDOG482021-12-31ifrs-full:OtherReservesMemberW9NG6WMZIYEU8VEDOG482022-01-012022-12-31ifrs-full:OtherReservesMemberW9NG6WMZIYEU8VEDOG482021-12-31ifrs-full:RetainedEarningsMemberW9NG6WMZIYEU8VEDOG482022-01-012022-12-31ifrs-full:RetainedEarningsMemberW9NG6WMZIYEU8VEDOG482021-12-31ORS:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwnersRecognisedInEquityMemberW9NG6WMZIYEU8VEDOG482022-01-012022-12-31ORS:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwnersRecognisedInEquityMemberW9NG6WMZIYEU8VEDOG482021-12-31ifrs-full:EquityAttributableToOwnersOfParentMemberW9NG6WMZIYEU8VEDOG482022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMemberW9NG6WMZIYEU8VEDOG482021-12-31ORS:HybridCapitalMemberW9NG6WMZIYEU8VEDOG482022-01-012022-12-31ORS:HybridCapitalMemberW9NG6WMZIYEU8VEDOG482021-12-31ifrs-full:NoncontrollingInterestsMemberW9NG6WMZIYEU8VEDOG482022-01-012022-12-31ifrs-full:NoncontrollingInterestsMemberW9NG6WMZIYEU8VEDOG482021-12-31W9NG6WMZIYEU8VEDOG482023-12-31cmn:ConsolidatedMemberW9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember1W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember2W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember3W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember1W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember2W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember3W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember4W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember5W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember6W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember7W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember8W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember9W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember10W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember11W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember12W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember1W9NG6WMZIYEU8VEDOG482023-01-012023-12-31cmn:ConsolidatedMember2W9NG6WMZIYEU8VEDOG482022-01-012022-12-31cmn:ConsolidatedMemberiso4217:DKKiso4217:DKKxbrli:sharesxbrli:pure