IKEA Sustainability Report FY21, Study Guides, Projects, Research of Business

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© Inter IKEA Systems B.V. 2022

IKEA

Sustainability

Report FY

Introduction

Introduction letter Page 3 The IKEA business in FY21 Page 4 FY21 sustainability highlights Page 5

Becoming People & Planet Positive Page 6

FY21 global trends and challenges Page 7

Healthy & sustainable living Page 8 FY21 summary of progress Page 9 FY21 key activities Page 10

Transforming into a circular business Page 15 FY21 summary of progress Page 16 FY21 key activities Page 17

Becoming climate positive Page 20 FY21 summary of progress Page 23 FY21 key activities Page 24

Regenerating resources, protecting ecosystems, and improving biodiversity Page 27 FY21 summary of progress Page 28 FY21 key activities Page 29

Fair & equal Page 39 FY21 summary of progress Page 40 FY21 key activities Page 41

IWAY – the IKEA supplier code of conduct Page 49 Stakeholder engagement Page 51 Sustainability governance Page 52 SDG index Page 53

About this report

This report summarises our performance compared to the IKEA sustainability strategy, People & Planet Positive, during FY21. It covers the entire IKEA value chain and franchise system and provides an update on activities and the ongoing work to measure progress. The IKEA Sustainability Report is issued by Inter IKEA Group.^1

The reporting period follows the financial year 2021 (FY21), which runs from 1 September 2020 to 31 August

The IKEA business is defined as the business activities performed by all entities operating under the IKEA Brand. “We” in this report refers to the IKEA business. The IKEA value chain includes sourcing and extracting raw materials, manufacturing, transporting of products, retail activities in stores, customer travel to stores, product use in customers’ homes and product end-of-life.

To ensure the long-term growth and development of the IKEA business, we use a franchise system. This provides financial stability while allowing franchisees to challenge, test and explore new markets and ideas. Together, we continue to develop the IKEA brand.

In this report

(^1) Inter IKEA Group consists of Inter IKEA Holding B.V. and all its subsidiaries. An overview of all Inter IKEA Holding subsidiaries can be found here.

This is a simplified overview of the IKEA franchise system and value chain. Find more details. In total, there are 12 IKEA franchisees in 61 markets. Inter IKEA Group includes the IKEA franchisor, range, supply and manufacturing. The IKEA sustainability agenda is set and governed by the Strategic Sustainability Council with the Inter IKEA Group CEO as chair. Read more about our sustainability governance on page 52.

The IKEA business in FY

One brand – many companies

8,000 more co-workers compared to FY

With nearly 900 home furnishing suppliers in more than 50 countries and over 100 global food suppliers

2,400 new products launched in FY

Compared to EUR 39.6 billion in FY

73% increase in e-commerce sales compared to FY (26% online sales, 3% services, 71% store sales)^2

545 sales locations, 458 stores in 61 markets 13 new IKEA stores opened around the world 42 new meeting points

225, IKEA co-workers

1,600+ IKEA suppliers and partners^1

9, products in the IKEA range

5 billion visits to IKEA websites

775 million visits to IKEA stores

41.9 billion IKEA retail sales (in EUR)^3

(^1) We work with more than 1,600 suppliers for home furnishing, transport, logistics and distribution services, components, and food. (^2) Find more business performance details in our FY21 "Year in review". (^3) Excluding sales taxes, including sales of IKEA products, food and services by IKEA franchisees.

Ingka Group 32 markets

Al-Futtaim 4 markets

Dairy Farm 4 markets

Miklatorg 4 markets

IKANO Group 4 markets Sarton 3 markets

Al-Homaizi 3 markets

House Market 3 markets

Al-Sulaiman 2 markets MAPA Falabella 1 market

Northern Birch 1 market

Inter IKEA Group IKEA franchisees

IKEA product suppliers

IKEA service providers IKEA of Sweden develops and designs the overall IKEA product range IKEA Marketing & Communication develops and designs communication content

IKEA Industry a strategic IKEA manufacturer

IKEA Supply sources and distributesthe IKEA product range

Inter IKEA Systems owner of the IKEA Concept and worldwide franchisor

Inspiring and enabling customers to save energy and money with SOLHETTA, our next generation of LED bulbs that are more affordable and, on average, 35% more energy efficient compared to our previous LED bulbs (page 10).

Enabling customers to have cleaner air at home with affordable indoor air purifiers, FÖRNUFTIG and STARKVIND (page 11).

Enabling customers to save water with more water-efficient taps and by developing a water recycling shower solution (page 12).

Offering more plant-based food choices with VÄRLDSKLOK, a plant-based mince for home cooking (page 13).

Decreasing our climate footprint, in absolute terms, compared to our FY baseline by 1.6 million tonnes of CO 2 eq, a reduction of 5.8%^1 (page 22).

Replacing virgin fossil-based polyester with recycled, reducing the climate footprint from polyester by around 45%^2 (page 36).

Moving closer to 100% renewable energy across the value chain (page 23):

• Achieving 100% renewable electricity in 10 additional IKEA markets
• Achieving 100% renewable electricity for all IKEA factories, and component packaging and distribution units, globally. - Accelerate the transition to 100% renewable electricity with a new programme for 1,600 direct suppliers

Sharing a guide on how to measure air pollution across value chains with other companies at COP26. Read more.

Continuing our journey towards only sourcing renewable or recycled materials by 2030 – reaching 56% renewable and 17% recycled materials^3 (page 16).

Setting a new goal and supporting actions to phase out the remaining plastics in our consumer packaging by 2028 (page 19).

Launching a new interactive circular product design tool based on what we learned from assessing the 9, products in the IKEA range (page 17).

Offering circular ways to enable customers to prolong the lifespans of IKEA products, including refurbishment, buy-back activities, and providing more than 18 million spare parts (page 18).

Establishing a new forest positive agenda for 2030 aiming to enhance biodiversity, support livelihoods and mitigate climate change (page 30).

Continuing to use only wood and cotton from more sustainable sources – 99.5% of the wood used for IKEA products is either Forest Stewardship Council®- certified (FSC®) or recycled (page 29).

Setting a new goal: at least one-third recycled wood in IKEA products by 2030 (page 29). Today, 14% of total wood used is recycled.

Joining the Science Based Targets Network Corporate Engagement Program to help shape science-based targets for nature and renewing our nearly 20-year partnership with WWF (page 32).

Sharing learnings from our unique restoration of the rainforest and its ecosystems in Borneo with researchers from around the world (page 31).

Promoting decent work through implementing the next generation of IWAY, the IKEA way for responsibly procuring products, services, materials and components (page 49).

Empowering co-workers to benefit from the technological transformations (page 41).

Protecting migrant workers’ rights together with the International Organization for Migration (IOM) (page 45).

Setting new social guidelines, together with others, to protect the working conditions of truck drivers (page 48).

Submitted an action pledge in support of the UN initiative designating 2021 as the International Year for the Elimination of Child Labour (page 47).

Developing a new framework for responsible wage practices (page 42).

Healthy & sustainable living Becoming climate positive

Regenerating resources, protecting Transforming into a circular business ecosystems, and improving biodiversity Fair & equal

(^1) The effects of the pandemic make the footprint in relation to last year difficult to compare and, as expected, our footprint increased compared to FY20 because sales increased. (^2) Based on industry standards and current research collected in the Quantis World Apparel & Life Cycle Assessment Database (WALDB). (^3) In FY21, the scope of these figures expanded and now includes packaging. This makes the figures difficult to compare with FY20.

FY21 sustainability highlights

FY21 global trends and challenges

Healthy and sustainable living is perceived as too expensive A global study conducted in FY21 found that people around the world express a strong desire to live healthier and more sustainable lives, but almost half of the respondents say it’s too expensive.^1 Consumers expect businesses to develop more affordable

and long-lasting products that are good for people and the environment. We’re working to make healthy and more sustainable living inspirational, affordable and accessible for the many people. One example of our efforts is how we’re using the advantage of being one of the world’s largest food providers to make healthy and sustainable food more affordable and desirable for the many people (page 13).

Urgent action is needed to limit climate change to 1.5°C Around the world, people are increasingly experiencing the effects of climate change through severe weather and natural disasters like heatwaves, floods and wildfires.^2 This has raised the importance of drastic emission reductions – halving emissions in absolute terms by 2030 – in order to limit global warming to 1.5°C, which is our best opportunity to limit the effects of climate change. The IKEA business remains committed to the Paris Agreement and to leading with science- based facts and goals (page 20).

(^1) GlobeScan and IKEA, “Healthy & Sustainable Living Global Consumer Insights”, 2021 (^2) Intergovernmental Panel on Climate Change (IPCC), "Sixth Assessment Report" 2021 (^3) Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), “Global Assessment Report on Biodiversity and Ecosystem Services“, 2019 (^4) World Bank Blogs, “Updated estimates of the impact of COVID-19 on global poverty: Turning the corner on the pandemic in 2021?”, 2021

Our sustainability strategy is reviewed annually to secure alignment with the total IKEA strategic landscape and external developments. This includes assessing the changing realities within our three key challenges: unsustainable consumption, climate change (including biodiversity loss), and inequality. This year, we didn't revise our strategy after review because the topics identified as needing action or attention are already included. To keep ourselves on track to reach our goals, and to keep an outside-in perspective, we receive ongoing input from stakeholders, key scientific reports, advisory boards, sustainability council meetings, and partnerships. This supports us to identify and address trends within our major challenges, revise our plans and raise ambition levels wherever possible. In FY21, we identified the following trends within our major challenges:

Biodiversity is rapidly declining Global biodiversity is declining faster than at any other time in human history,^3 and this is almost exclusively due to human activities including land use change, pollution and climate change. We’re contributing to developing frameworks and have started a programme to accelerate action from all stakeholders. These include actions connected to SBTN's targets for nature, of which we've been an early supporter (page 32).

Supply chains are disrupted, impacting the use of biofuels in ocean shipping Supply chains worldwide continue to face huge challenges due to the COVID- pandemic, impacting the transport sector, raw material sourcing, and production. During FY21, the use of sustainable biofuels didn't progress as we'd expected. This was mainly due to the turbulence in the transport industry and constant network changes, followed by high costs caused by supply chain challenges. Despite this temporary setback, the IKEA business has been an early supporter of efforts to reach zero-carbon shipping. Read more in the IKEA Climate Report.

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! Global food systems need to transform The way food is sourced, supplied and consumed affects all aspects of global sustainability. Improving food systems can enable and accelerate the work toward achieving all UN SDGs, in every country, by

In FY21, the first-ever UN Food Systems Summit took place with the aim to accelerate actions to transform global food systems. The IKEA business supported the summit and is taking action across the range, supply chain and business operations to address many of the challenges (page 14).

Inequality is rising and vulnerable groups are increasingly impacted The COVID-19 pandemic and the acceleration of climate change caused extreme poverty rates to increase last year for the first time in a generation.2, 4^ There was also an increase in child labour and inequality, 4 exacerbated by the pandemic. The IKEA business remains committed to taking responsibility along our full value chain, leading with our human rights agenda (page 46) and our children's rights roadmap (page 47).

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

Healthy & sustainable living

Commitments and goals

Inspiring and enabling people to live healthier, more sustainable lives We will develop and promote products, services and home furnishing solutions that inspire and enable people to reduce their impact on the environment and/or improve their health. We will raise awareness and share knowledge on how to live a healthier, more sustainable life at home. Our focus is on energy, air, water, waste, and food.

Promoting circular and sustainable consumption We will offer products and solutions designed from the beginning to be circular, have low environmental impact, and be made of renewable and/or recycled materials. We will promote healthier, more sustainable behaviours such as preventing and reducing food-related waste, eating more plant-based and nutritious food, and acquiring, caring for, and passing on products in circular ways.

Creating a movement in society around better everyday living We will work to make healthy and sustainable living the norm by inspiring and enabling more sustainable behaviours in society. This includes, for example, how we use marketing and communication to shape demand. By advocating for policies and regulations that support a healthier, more sustainable society, we strive to use our influence for the benefit of the many.

Our ambition for 2030 is to inspire and enable more than 1 billion people to live a better everyday life within the boundaries of the planet.

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

FY21 key activities

Developing even better bulbs During the year, we introduced SOLHETTA LED bulbs, which last about 25,000 hours and are – on average – more affordable and 35% more energy efficient than previous IKEA LED bulbs.^2 That means customers can save money on the up-front cost and their electricity bill. When used for three hours a day, a SOLHETTA LED bulb will only need to be replaced every 20 years, which means less waste too. The energy efficiency of the IKEA lighting range has, on average, improved by 45% between FY16 and FY21. This has been mainly driven by greatly improving the energy efficiency of our already energy efficient LED bulbs. In FY21, we sold 69. million LED bulbs.

Energy

We continue our work to enable people to be more energy efficient at home.

Testing new energy services In September 2021, STRÖMMA electricity subscription was introduced in Sweden, enabling customers to power their homes with electricity from renewable sources.^4 The testing of new energy services could continue to broaden the cleaner energy offer, with the aim of creating a scalable solution for other IKEA markets to adopt.

Bringing our solar panel offer to more homes At the end of FY21, the IKEA home solar offer (including installation) was available in 11 markets. In total, we supported our customers in saving more than EUR 11.7 million on energy costs. We estimate customers who've purchased IKEA home solar panels in FY21 will save approximately 187,000 tonnes of CO 2 eq over the lifetime of the panels. By 2025, the goal is to have solar panels available in 32 IKEA markets.^3

(^1) CLASP, "A Lighting Challenge for the World", 2017 (^2) Specifically, when compared to LEDARE and RYET which made up 80% of IKEA LED bulb sales before SOLHETTA launched. (^3) Operated by the franchisee Ingka Group. (^4) IKEA retail in Sweden is operated by the franchisee Ingka Group, which conducts this energy service test.

Lighting accounts for about 15% of global electricity consumption.^1 Improving the energy efficiency of lighting sources plays a vital role in decreasing the climate footprint of homes.

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

An affordable air quality sensor for the home In July, we launched VINDRIKTNING air quality sensor to enable customers to measure, understand, and react to the air quality in their homes. The sensor detects PM2.5 particles that can come from many sources, including cooking, sprays, and open fireplaces.^1 A light indicates three levels of air quality: green (good), yellow (ok), and red (not good).

Air

Clean indoor air is an important factor for health. Developing affordable and high performing solutions to help people purify the air in their homes is an example of how IKEA can make a positive difference.

While products that improve air quality at home are valuable, we’re also working on solutions that can create long-term positive change, focusing on the root causes and not only treating the symptoms.

Read more about how we’re working to create cleaner air.

(^1) PM2.5 are small inhalable particles that measure 0.1-2.5 micrometres.

Affordable air purifiers for the home In November 2020, our first air purifier for the home, FÖRNUFTIG, launched in China. It can filter out approximately 99.5% of smaller airborne particles, including PM2.5 particles, dust, and pollen. It absorbs various gaseous pollutants such as formaldehyde and other volatile organic compounds (VOCs), while also reducing unpleasant odours. In October 2021, we launched our first smart air purifier, STARKVIND, which can be connected to the IKEA Home smart system. All STARKVIND models have a built-in air quality sensor and can automatically adjust the fan speed based on the amount of PM2.5 detected.

The VINDRIKTNING sensor checks the air quality by detecting STARKVIND air purifier is designed for indoor use. It’s optimised for rooms up to 20m^2_. particles (PM2.5) in the home._

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

Food commitments for positive change In FY21, we announced food commitments for 2025 to inspire healthier and more sustainable choices. By adding options that are delicious, nutritious, responsibly produced and affordable to our packaged food offer, restaurants and bistros, we see an opportunity to have a positive impact. When it comes to the climate footprint of an individual, choosing plant-based foods makes a positive impact. A plant-based diet with high nutritional quality can also be a healthier choice.^1 A consumer survey from 2020 shows a significant number of meat eaters (41%) would be willing to switch to plant-based alternatives if they tasted equally as good and had the same price and nutritional value.^2 We see this as an opportunity and will continue our work in this area.

Goals for 2025 3

• 50% of main meals offered in our restaurants will be plant-based.
• 80% of main meals offered in the restaurants will be non-red meat.
• 80% of all packaged food offered will be plant- based.
• 80% of all main meals offered in the restaurants will meet our internal criteria for healthier food.3,

Until we have the digital system in place to measure the entire IKEA food range, we will not be able to confirm whether the goals have been achieved.

(^1) The Lancet, “Food in the Anthropocene: the EAT–Lancet Commission on healthy diets from sustainable food systems”, 2019 (^2) GlobeScan, “Study Finds People Want to Make Healthy and Sustainable Living Choices but Do Not Know Where to Start”, 2020 (^3) Progress on the previously reported food goal for 2022 "1 in 5 main meals and snack sold should be healthier" is excluded from this report because we

4 restructured our nutrition profiling agenda in FY21 (page 14) making the categories we used to measure this target no longer valid. The IKEA Food Nutrition Profiling System (IFNPS) classifies foods or beverages as healthier if they have a better nutritional composition compared to equivalent foods from a similar product category. There are three levels of classification in the system: “Green” is the best, followed by “Yellow” and “Red”. “Healthier” means products have been classified as better than "Red" i.e., “Green” or “Yellow”. (^5) This was achieved through a food waste measurement solution that uses a smart scale: a tool to measure the production of food waste in IKEA restaurants, bistros and Swedish Food Markets around the world.

More sustainable food

Throughout FY21, we continued our work to improve and expand our plant-based food offer. For information about food in our supply chain, see page 34.

In FY21, HUVUDROLL plant ball was introduced. The ingredients of the plant ball have only 4% of the climate footprint of the ingredients in the IKEA meatball. It was created with the goal of tasting like meat without being made of meat. Read more.

During the year, we introduced VÄRLDSKLOK plant-based mince. It’s a versatile meat-free mince option that can be used to make many dishes at home.

We introduced LÄTTLAGAT ready meals. They’re convenient, nutritious, and tasty frozen meals that are available in different varieties, including a plant ball option.

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

Championing food waste reduction In FY21, we reached a waste reduction of 46% compared to baseline (FY17). We are on track towards our goal to cut food production waste by 50% by the end of 2022 in all IKEA stores globally.^5

Taking part and taking action at the first UN Food Systems Summit Last year, the first-ever UN Food Systems Summit took place, raising awareness of the role of the food system in meeting the UN Sustainable Development Goals (SDGs). The IKEA business took part in a series of CEO consultations running up to the event, culminating in the signing of a shared Business Declaration for Food Systems Transformation. We also joined several coalitions on the topics of healthy diets, living income in global food value chains, and soil health.

Supporting the WBCSD to drive private sector progress Inter IKEA Group has begun working with the World Business Council for Sustainable Development’s (WBCSD) Healthy People, Healthy Business project. The project is building a coalition to identify private sector priorities and opportunities to drive progress on health promotion and disease prevention. The four focus areas include: employee health and wellbeing, resilient and accessible healthcare, healthy lifestyles, and planetary health.

(^1) The IKEA Food Nutrition Profiling System (IFNPS) classifies foods or beverages as healthier if they have a better nutritional composition compared to equivalent foods from a similar product category. There are three levels of classification in the system: “Green” is the best, followed by “Yellow” and “Red”. “Healthier” means products have been classified as better than Red i.e., “Green” or “Yellow”.

(^2) IKEA Canada is operated by the franchisee Ingka Group. (^3) IKEA Indonesia is operated by the franchisee Dairy Farm.

New food classification system helps us improve our food offer In May 2021, we launched a science-based classification system for our food. The IKEA Food Nutrition Profiling System (IFNPS)^1 enables us to accelerate the transition of our food offer to a healthier one. It provides a coherent set of nutrition criteria for the entire IKEA food range, including individual food items, snacks and meals. It focuses on tracking the factors that are most closely associated with lifestyle diseases, including energy (kcal), saturated fat, sugars, salt and fibre. Read more about IFNPS.

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

IKEA Indonesia^3 collaborated with Indonesian Children Care for the Environment (ICCFTE),in partnership with the Greeneration Foundation and the Swedish Embassy to create an e-book for children that aims to increase awareness of the impact of food and food waste. The e-book is available on the Greeneration Foundation’s website. Read more.

In March, IKEA Canada^2 released The ScrapsBook, a free e-book containing 50 food scrap-based recipes from chefs around North America. It’s designed to help people avoid food waste and get inspired to make the most of their groceries. Read more and get the e-book.

Transforming into a circular business

is a systemic change that impacts

every aspect of what we do at IKEA. It

encompasses how and where we meet

customers, how and what products

and services we develop, how and

what materials we source, and how we

continue to develop our entire value

chain.

In FY21, we continued on track in our work with circular product development to secure that all our products will eventually be circular. This is essential in our shift to being a circular business. We also continued to share our circular product design insights and tools to inspire and share learnings with others (page 17).

This past year, we began acting on the circular product development roadmaps we developed in FY20. Those roadmaps – based on the findings from our assessment of the circular fulfilment rates of the more than 9,500 articles in the IKEA range

• outline how we can make sure all our products are developed according to our circular design principles by 2030. Each product is developed based on a selection of relevant circular capabilities for its intended use. In FY21, we continued to develop more circular products by increasing the circular capabilities of the lowest scoring products to 36% (FY20: 28.6%) and maintaining full circular capability of 100% in the highest scoring products. This performance keeps us on track for our 2030 goal.

To enable customers to acquire, care for, and pass on products in circular ways, we’ve been testing offers for customers to prolong product life. A

roadmap for what circular services to offer and how to launch them globally will be reviewed by our Strategic Sustainability Council in spring 2022. Our 2030 ambition to only use renewable or recycled materials is very challenging and calls for innovative solutions throughout our entire value chain.^1 In FY21, we continued to focus on developing new capabilities – such as reverse logistics and remanufacturing – and improving the sustainability of the materials we’ve identified as having the most impact on our circularity goals, such as polyester (page 36).

In FY21, 55.8% of the materials we sourced were renewable and 17.3% were recycled. We’ve adjusted the scope of our reporting for these figures – by including packaging – to improve our measurement methods, better reflect our progress, and provide actionable insights. Because of this, these figures

are not directly comparable with FY20 (60% renewable, 10% recycled).

We continue to engage with many stakeholders in conversation and advocacy for the circular economy. In September, the Ellen MacArthur Foundation (EMF) published the Circular Economy Glossary, the result of a close collaboration with the IKEA business (page 18). This common set of definitions and terms is essential to accelerating the transition to a circular economy.

Read more about our circular ambitions.

(^1) Wood is an important material to consider in our work toward a circular business because most of the IKEA range is based on wood. We want carbon to be stored in our wood-based products for as long as possible. Find out more on page 29.

FY21 summary of progress

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

Designing circular products

For us, products are material banks for the future

• once they can no longer be used they become secondary raw materials for new products through recycling. That’s why we’re working to design products to last as long as possible and keep the value of their materials beyond their lifespan.^1

Take a (more sustainable) seat During the year, we’ve applied circular design thinking to improve the quality, durability and circular capability of several IKEA seating products. By using more spring support, the amount of foam has been reduced by nearly 38% in KIVIK, UPPLAND, PÄRUP, and GRÖNLID, and we continue to introduce more renewable polyol content in the remaining foam used. We’ve also increased the amount of recycled polyester in these product families to support the improvement of their overall sustainability. (page 36).

Sharing circular design insights and methods to inspire and accelerate change In September 2021, we shared our method for assessing how circular a product is by launching an easy-to-use interactive tool that lets people measure the circular capabilities of any product, whether it’s from IKEA or not. The tool shares the circular product design insights we’ve gained so far, while also enabling users to learn more about circularity in general. And, it can be used by everyone, including designers, companies, and consumers who want to assess home furnishing products they already own. Our Circular Product Design Guide is also publicly available. Our design principles consider circularity from the beginning, resulting in products that can be repurposed, repaired, reused, resold, and eventually recycled.

(^1) Product lifespan is the time between when a product is produced and when it gets recycled. We base product lifespan estimates on intended product use in expected conditions to fulfil customer needs – this includes reuse, repair and refurbishment. (^2) Compared to the standard industry method for denim production.

FY21 key activities

In FY21, we started working with Sahaas Zero Waste, a recycling company in India. This collaboration is focused on collecting Ocean Bound Plastic (OBP) that can be used in IKEA products, such as the GURLI throw, which is now made of 100% OBP.

Old jeans get new life with KLIPPAN In partnership with MUD Jeans, we developed a KLIPPAN sofa cover from recycled denim. Each cover contains 40% recycled denim (about two pairs of jeans), which lowers the cover's carbon footprint by 67% and saves 27,000 litres of water during production.^2 Read more. Though this sofa cover is a limited collection, the insights from the collaboration will inform future IKEA work with recycled denim.

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

(^1) CEN is the European Committee for Standardization. It’s an association that brings together the national standardisation bodies of 34 European countries.

Leading the work to set standards for the furniture circularity In June, a representative from the IKEA business was appointed convenor for Technical Committee 207 (TC207- WG10), a project run by the European Committee for Standardization (CEN)^1 to develop requirements and methods for European furniture standard that will be adopted by CEN.

Working with UNEP to support businesses to go circular In 2021, the United Nations Environment Programme (UNEP) launched a series of briefs that translate the influential Global Environment Outlook (GEO) report into comprehensive guides for a business audience. The IKEA business contributed to the report titled “The Role of Business in Moving from Linear to Circular Economies”.

Supporting EU Green Deal policymakers Over the past year, the IKEA business has actively shared its experience of the process of transforming into a circular and climate positive business with EU policymakers as they set out various legislative and non-legislative proposals. For example, to support the Circular Economy Action Plan, we engaged on the topics of eco-design, textile strategy, and other policies enabling a circular business. There are more than 70 initiatives under discussion in the European Green Deal (EU Green Deal). Read more about our support of the EU Green Deal.

The IKEA business ships an average of 4 billion packages every year (about 40 million m^3 ), which means we can have a big impact by using more sustainable packaging. Today, all our corrugated cardboard is FSC-certified and, since 2015, non- sustainable packaging materials like expanded polystyrene (EPS) are banned (with the exception of appliances).

In FY21, we introduced a Packaging Direction that covers the total IKEA value chain and is valid up to 2025. We reduced the share of plastic packaging to 9% in FY21 (2010: 12%). Our goal is to phase out plastic in our consumer packaging by 2028, and as of 2025 all new products in our home furnishing range will be launched without plastic packaging. Read more.

More sustainable pallets During the year, we introduced a new paper foot construction for our pallets that’s 20% stronger, uses 30% less material, and costs 30% less. The

pallet feet have been introduced in China and Europe and will be rolled out across the entire IKEA supply chain in the coming year.

New packaging innovation accelerator programme The IKEA business has initiated a programme to tackle the challenges of creating sustainable packaging and is now scouting for potential start-ups to participate.

More sustainable food packaging Food packaging has specific functional needs and regulations that must be met, making it more complex to work with. In FY21, we launched the IKEA Sustainable Food Packaging Principles, which will help us develop more sustainable food packaging solutions. It focuses on using circular materials, using less material, and increasing transport efficiency, all while keeping food safe.

Improving packaging throughout our business

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY

Becoming climate positive

Our strategic goals

To become climate positive, we must first reduce the climate footprint of the total IKEA value chain in line with the 1.5°C target – including halving emissions by 2030 and reaching net-zero by 2050 at the latest.

To reduce our climate footprint we have set the following strategic goals, in order of priority (details on next page):

1. Drastically reducing GHG emissions across the IKEA value chain, **in absolute terms.

2. Removing and storing carbon from the atmosphere through** **forestry, agriculture and products within our value chain.
3. Going beyond IKEA by taking an extended responsibility for** the climate footprint of our customers, suppliers and sourcing areas.

We will achieve our climate positive commitment without using carbon offsets, as we firmly believe that we need to address the root causes of our climate footprint within our own value chain or in connection to our customers, suppliers and sourcing areas. Only by doing so can we transform into a sustainable business.

By 2030, IKEA is committed to becoming climate positive by reducing more greenhouse gas (GHG) emissions than the IKEA value chain emits, while growing the IKEA business. This is how we contribute to limiting the global temperature increase to 1.5°C by the end of the century.

Healthy & sustainable living - Transforming into a circular business - Becoming climate positive - Regenerating resources - Fair & equal - IWAY