Reporting on EU Taxonomy

EU Taxonomy 2021 statement

The European Commission’s action plan on financing sustainable growth led to the creation of an EU classification system for sustainable activities, being an EU taxonomy. As a listed non-financial company with more than 500 employees, Galapagos is in scope of the European Regulation 2020/852 of 18 June 2020¹ (the ‘EU Taxonomy Regulation’). For the reporting in 2021, Galapagos has to disclose the proportion of its 2021 turnover, capital expenditures (‘CapEx’), and operating expenses (‘OpEx’) eligible under the EU Taxonomy on sustainable activities. In the future eligibility to the EU Taxonomy will need to be complemented with disclosure on the alignment with the EU Taxonomy.

The EU Taxonomy Regulation introduces a classification system for environmentally sustainable activities and an activity is deemed environmentally sustainable if it meets all of the following overarching criteria:

• substantially contributing to at least one of the six environmental objectives of the EU Taxonomy Regulation: (i) climate change mitigation; (ii) climate change adaptation; (iii) sustainable use and protection of water and marine resources; (iv) transition to a circular economy, (v) pollution prevention and control; and (vi) protection and restoration of biodiversity and ecosystems;
• not significantly harming any of these environmental objectives;
• complying with minimum safeguards; and
• complying with certain scientifically based technical screening criteria (‘TSCs’) established by the EU Commission.

The EU has published a catalog of economic activities that can be considered as Taxonomy-eligible activities for the first two environmental objectives, climate mitigation and climate adaptation by means of using NACE² codes. This EU Taxonomy Climate Delegated Act³ covers the TSCs in relation to these two forgoing environmental objectives for more than 100 activities within different sectors.

Following analysis of the EU Taxonomy legal framework⁴ and applying the NACE codes, we do not consider our core business activities, being discovering, developing and commercializing innovative medicines, to be in scope of the EU Taxonomy Regulation’s technical annexes on climate change mitigation and climate change adaptation. Our core economic activities qualify as EU Taxonomy non-eligible activities.

For the determination of turnover, CapEx and OpEx during this analysis, we use the reported data in the consolidated financial statements included in this report:

• Turnover covers all business activities of Galapagos at 31 December 2021 and the denominator can be reconciled with the 2021 IFRS Total revenue recognized pursuant to €484.8 million and disclosed in note 6, being the revenues from commercial and collaboration activities.
• CapEx consists of additions to tangible and intangible assets during the financial year 2021 considered before depreciation, amortization and any re-measurements recognized by Galapagos pursuant to IAS 38. The denominator can be reconciled with the sum of the lines ‘Additions’ disclosed in notes 13 and 14 (total €63.4 million) of the consolidated financial statements. The majority of CapEx is associated with building costs of new office spaces in Belgium and the Netherlands, and is therefore non-eligible for the EU Taxonomy.
• OpEx, according to the EU Taxonomy, is determined by the direct non-capitalized costs of research and development, building renovation measures, short-term leases, maintenance and repair and any other direct expenditures relating to the day-to-day servicing of assets of property, plant and equipment by the undertaking or third-party outsources that are necessary to ensure the continued and effective functioning of such assets. The majority of OpEx is associated with our R&D expenditure.

Based on available data and the assessment of requirements, we have no eligible activities to report. Taxonomy eligible Turnover, CapEx and OpEx is 0%, and it is 100% Taxonomy not eligible. The “non-eligibility” under the EU Taxonomy refers to the fact that our activities currently remain outside of the scope of the economic activities for which TSCs have been developed under the Delegated Regulations. We want to clarify that revenues, CapEx and OpEx currently considered non-eligible under the EU Taxonomy Regulation should not be interpreted as an indication of our performance in pursuing or achieving certain corporate sustainability objectives or our “greenness”.

We note that the required disclosures under the EU Taxonomy Regulation will keep evolving and that we will continue to consider its impact as well as future reporting obligations.