Peab : Corporate Govenance Report 2021

Corporate governance report 2021

Peab is a Swedish public limited liability company listed on Nasdaq Stockholm, Large Cap. Peab's corporate governance rests on the Swedish Company Act, the Swedish Code of Corporate Governance (www.bolagsstyrning.se), Nasdaq Stockholm's regulations for issuers as well as Peab's articles of association, Code of Conduct, policies, and other internal regulations that the Board of Directors have adopted. This report is presented by the Board of Peab AB but it is not a part of the formal financial reports.

Shareholders, Annual General Meeting, the nomination procedure and diversity policy

All shareholders can use their right to vote at the Annual General Meeting (AGM) which is Peab's highest decision-making organ.

The process of nominating members of the Board of Directors and the auditor to the AGM follows the nomination procedure established at the previous AGM. In order to create diversity and breadth in the Board regarding experience, expertise and background, the Nomination Committee applied the following diversity policy when nominating Board members to the 2021 AGM (consistent with wording in the Swedish Code of Corporate Governance, p 4.1): The Board should have a composition appropriate for the company's operations, phase of development and other relevant circumstances. Board members elected by the shareholders' meeting should collectively exhibit diversity and breadth of qualifications, experience and background. The company should strive for gender balance on the Board." Since the AMG 2021 half of the members of the Board elected by the AGM are female and half are male.

The AGM was held on May 6, 2021. In order to hinder the spread of COVID-19 the AGM was held solely through postal voting without the physical presence of shareholders, representatives or outsiders according to paragraph 22 of the law (2020:198) concerning temporary exemptions to facilitate carrying out company and association general meetings. A total of 220 shareholders, representing more than 77 percent of the total number of votes in the company, participated in the postal vote. The AGM decided that Peab's Nomination Committee would until the AMG 2022 consist of a representative for each of the three shareholders with the largest number of votes according to the share register per September 30, 2021 as well asthe Chairman of the Board of the company. The three shareholders per September 30, 2021 have appointed the following representatives to the Nomination Committee:

• • Ekhaga Utveckling AB - Anders Sundström

• • Mats Paulsson with family - Anders Sundström

• • AB Axel Granlund - Ulf Liljedahl

Anders Runevad is a member of Peab's Nomination Committee in his role as Chairman of the Board of Peab. The Nomination Committee has appointed Ulf Liljedahl as Chairman of the Nomination Committee.

The Board of Directors and its work

Peab's Board of Directors is ultimately responsible for the business. According to Peab's articles of association the Board of Directors must be made up of no fewer than five and no more than nine members in addition to the statutory employee representatives. The members of the Board of Directors are elected annually by the AGM. It was decided at the 2021 AGM that the Board of Directors would consist of eight members. Göran Grosskopf and Mats Paulsson declined reelection due to age. The following persons were elected as members of the Board of Directors:

• • Karl Axel Granlund, reelected

• • Magdalena Gerger, newly elected

• • Liselott Kilaas, reelected

• • Kerstin Lindell, reelected

• • Fredrik Paulsson, reelected

• • Malin Persson, reelected

• • Anders Runevad, reelected

• • Lars Sköld, reelected

Remuneration Council Crisis management Ethical Council Sponsoring Council Investment group Tender Council Development Council

Board meetings, attendance 2021

AGM elected members

Göran Grosskopf *

Independent in relation to the com-pany and executive management

Yes

Mats Paulsson *

No

Magdalena Gerger ** Karl-Axel Granlund Kerstin Lindell

Yes Yes Yes

Fredrik Paulsson Malin Persson

No Yes

Anders Runevad Lars Sköld Liselott Kilaas

Yes Yes Yes

Maria Doberck, ordinary *** Patrik Svensson, ordinary Kim Thomsen, ordinary

Egon Waldemarsson, ordinary *** Torsten Centerdal, deputy Cecilia Krusing, deputy

C - Chairman M - Member

*Resigned in connection with the AGM 2021 **Became a member in connection with the AGM 2021

Independent in relation to the major shareholdersAttend-ance Board meetings

Audit Committee

No

3/3

M (until 210506)

No

3/3

Yes Yes Yes

5/5 8/8 8/8

M (from 210506)M

No Yes

8/8 8/8

Yes Yes Yes

8/8 8/8 8/8

C M

2/2

8/8

8/8

6/8

7/8

8/8

***Egon Waldemarsson resigned aſter the Board meeting on August 25, 2021 and was replaced by Maria Doberck.

Anders Runevad was appointed Chairman of the Board by the AGM. The members of the Board of Directors elected by the shareholders are compensated as members of the Board and, where applicable, as members of committees in accordance with the decisions taken by the AGM. Boardmember compensation is reported in note 9 in the Annual Report.

The following employee representatives were appointed by the employee unions at the 2021 AGM: Patrik Svensson, Kim Thomsen and Egon Waldemarsson (members), Torsten Centerdal and Cecilia Krusing (deputies). Egon Waldemarsson resigned in the autumn of 2021 and was replaced by Maria Doberck.

The Board of Directors held eight meetings in 2021, of which five were ordinary Board meetings (including the constitutional meeting) and three additional Board meetings.

Members of executive management have given reports at the Board meetings. The respective principle company accountant has been present at each ordinary Board meeting. The Board's work follows the work program adopted by the Board of Directors. The Board evaluates its work on an annual basis and to evaluate the nominations to the 2021 AGM the Chairman of the Board produced and compiled an inquiry which all the Board members and deputies answered. Regarding the evaluation of the Chairman of the Board, the Chairman of the Nomination Committee has approved the inquiry's contents and compiled it. The result of the evaluation was reported at a Board meeting and Nomination Committee meeting in preparation for nomination.

Information about the Board members is presented on page 144 and is included through this reference in the Corporate governance report.

Presence

Audit Committee

1/1

3/3

4/4

4/4 4/4

The Audit Committee

PresenceRemu-neration Committee

Remu-neration Committee

PresenceFinance Committee

Finance Committee

C (until 210506) M (until 210506)

C (until

1/1

210506) 3/3

1/1

M

2/2

M 6/6

M (from 210506)

1/1

M 6/6

C (from 210506)C (from

1/1

210506) 3/3

Employee representatives

Members during 2021, aſter the AGM and constitutional Board meeting:

• • Lars Sköld, Chairman

• • Magdalena Gerger

• • Kerstin Lindell

• • Liselott Kilaas

The Audit Committee prepares the work of the Board of Directors by monitoring and ensuring the quality of company financial reports and maintains regular contact with the company accountant regarding the scope and focus of the auditing as well as their view of company risks. In addition, the Audit Committee monitors what other services besides auditing are performed by the company accountants, it evaluates the auditing work and informs the Nomination Committee about the evaluation. It also assists the Nomination Committee in proposals of auditors and remuneration for auditing work. Representatives of executive management give reports on relevant issues at Audit Committee meetings. The Audit Committee met four times in 2021. The principle company accountant participated in the relevant sections of three of these meetings. The Audit Committee regularly reports to the Board of Directors.

The Finance Committee

Members during 2021, aſter the AGM and constitutional Board meeting:

• • Anders Runevad, Chairman

• • Karl-Axel Granlund

• • Fredrik Paulsson

The Finance Committee has the mandate to make decisions in between Board meetings on financial matters such as currency, interest and investment positions in accordance with the Finance Policy established by the Board. Within the framework established by the Board the Finance Committee also makes decisions regarding some company acquisitions, individual investments in property and tenders. Representatives of executive management give reports on relevant issues at Finance Committee meetings. The Finance Committee met six times during 2021. The Finance Committee regularly reports to the Board of Directors.

The Remuneration Committee

Members during 2021, aſter the AGM and constitutional Board meeting:

• • Anders Runevad, Chairman

• • Karl-Axel Granlund

• • Fredrik Paulsson

The Remuneration Committee prepares decisions by the Board concerning remuneration principles, salaries and other employment terms for senior officers, and monitors and evaluates ongoing, and during the year terminated, programs for variable remuneration for senior officers. The Remuneration Committee also monitors and evaluates application of the Remuneration Policy established annually by the AGM as well as current remuneration structures and remuneration levels in the Group. The Remuneration Committee makes proposals to the Board of Directors regarding the CEO's salary and other terms, according to the Remuneration Policy established annually by the AGM. The Remuneration Committee also decides the salaries and other terms for other senior officers based on proposals from the CEO. Representatives of executive management give reports on relevant issues at Remuneration Committee meetings. The Remuneration Committee met twice in 2021. The Remuneration Committee regularly reports to the Board of Directors.

Remuneration to executive management

The 2021 AGM approved the Remuneration Policy for executive management. The Remuneration Policy is available on Peab's website,www.peab.com. Information about salaries and other remuneration to the CEO and members of executive management can be found in note 9 in the Annual Report, and on our website.

Incentive program

Peab has no outstanding share or share related incentive programs for the Board of Directors or executive management.

Auditors

Under Peab's articles of association one or two auditors are elected by the AGM. At the AGM in 2021 Ernst & Young AB was elected the company auditor with the authorized public accountant Jonas Svensson as principle company accountant until the end of the AGM 2022.

In addition to auditing, the accountant has only provided services for Peab in the form of accounting and tax advisement and certain analyses in connection with acquisitions and divestments as well as expertise in sustainability reporting.

Executive management

The President and CEO leads the company according to the framework established by the Board of Directors and is responsible for the administration and control of the Group. During 2021 executive management consisted of the President and CEO, the CFO, the COO, the CCO, the CSO and the BA Managers of Construction, Civil Engineering and Project Development, in total eight persons.

Executive management meetings are held once a month and focus on managing the business, following up the business plan and strategic matters. Heads of Group staff teams and other officers are called to attend meetings as needed.

Information about the President and CEO and other member of executive management is presented on page 145 and is included through this reference in the Corporate governance report.

Business areas

Group operations are run in four business areas: Construction, Civil Engineering, Industry and Project Development. The business areas Construction, Civil Engineering and Project Development have a management team led by the BA Manager and consisting otherwise of operational managers and managers of support functions in the business areas. The BA Managers are responsible for running operations in the line organization by delegating responsibility and authorizations. BA Managers are responsible for ensuring that their business units in the Group maintain good internal control and follow relevant policies as well as other adopted documents, processes and tools.

Operations in Business Area Industry are more diversified than the other business areas and are run by the MDs for the five major companies in the business area who then report individually to an appointed member in executive management. Each MD in the companies in Business Area Industry is responsible for ensuring their companies maintain good internal control and follow relevant policies as well as other adopted documents, processes and tools.

Group functions

The Group functions support both executive management and operations in the business areas, strategically and in day-to-day operations.

Business management

Executive management adopts comprehensive goals and strategies for the business in the Group business plan. As of 2021 Peab has adopted three financial targets and six non-financial targets. The Group's business plan is broken down and is processed in the various business areas, regions and companies that establish their own business plans.

To provide support for a cross-functional workflow within the Group executive management has delegated some work and decisions to a number of councils and groups consisting of representatives for different group functions and, in certain cases, representatives of business area management. Every council or group has a specific mandate and decision-making process, and they all report to executive management.

An important part of corporate governance in Peab's decentralized organization is the Group's core values: Down-to-earth, Developing, Personal and Reliable. Peab's Code of Conduct and many of the Group's internal regulations and guidelines are built on these core values. Communication of, and teaching, these core values is continuous and structured.

PEAB ANNUAL AND SUSTAINABILITY REPORT 2021

141

Internal control and governing

The purpose of the governance and internal control process is to provide the Board, management and other stakeholders with a reasonable assurance that Peab's goals are met regarding business management concerning an appropriate and efficient organization and management of the organization. Reliable internal and external reporting as well as following applicable laws, regulations and other rules are intrinsic parts of the process.

Peab's Board of Directors is responsible for ensuring that there are efficient procedures and systems for Group steering and control of financial reporting. The principles of this process are established in the Policy for Internal Governance and Control and are based on COSO's (Committee of Sponsoring Organizations of the Treadway Commission) framework for internal control and are described below.

Control environment

The control environment is founded on Peab's core values: Down-to-earth, Developing, Personal and Reliable and comprises our organization's structure, internal regulations and steering documents, delegation and limitation of responsibility, competence recruitment and monitoring internal governance and control. The Board is ultimately responsible for the general governance of Peab and control over the risks that accompany the business. Executive management is responsible for developing and implementing Peab's internal governance and control structure in operations, including our organization's structure, responsibility delegation and mandates, competence recruitment and follow-up. The Board, executive management and other senior officers should in word, deed and decision be models of integrity and ethics, follow Peab's core values and, in general, walk the talk.

Information and communication

Executive management is responsible for communicating, in a way that is relevant and clear to our organization, Peab's goals and risk levels as well as how internal governance and control works. This is done through different information and communication forums like Peab's intranet, Peab's business management system and documented reporting channels regarding financial information.

Risk analysis

Risk analyses are carried out based on the established goals in different sections and levels of Peab's business. Risk analysis on an operational and project level is performed according to the process described in Peab's business management system. An overriding risk analysis that includes risk management of every identified material risk is performed annually in each business area and thereaſter by executive management, aſter which it is reported to the Board. A detailed description of risks and risk management in Peab is found in the section Risks and risk management.

Control activities

Each year the Board adopts the Board's working program, instructions for the CEO and Board committees, Peab's Code of Conduct, Finance Policy, Information Policy, Policy for Internal Governance and Control and related party policy. The AGM annually adopts the Remuneration Policy.

The other main control activities take place in daily operations based on each individual employee's responsibility for self-monitoring related to their position, defined work method, processes and steering documents that are available through Peab's business management system and Peab's intranet.

An example of steering documents are those concerning decision-making authorization for any kind of major decision, which includes requirements for special approval by executive management or a body appointed by executive management to handle the acquisition or divestment of property, operations and other major investments as well as the tender process, with predefined levels for each position. The principles for appointing board members and signatories in Group companies are adopted by executive managment.

Peab has a whistle-blowing system that is open for both employees and other stakeholders that makes it possible for the reporter to remain anonymous.

Monitoring

The Board regularly monitors and evaluates how effective Peab's internal governance and control structure is through the information the Board receives from executive management and Board committees. Every ordinary board meeting reviews Peab's financial situation and position as well as a reconciliation of financial targets. Review and follow-up of non-financial targets follows a special schedule at the ordinary board meetings. Before a board meeting members receive extensive financial reports regarding Peab's development. A corresponding review is made by executive management and business area management. An evaluation regarding steering and control of financial reporting is performed at the first ordinary board meeting of the Board of Directors aſter the end of the financial year.

The Board of Directors has for the business year 2021 assessed the need for an internal auditing department and concluded the established control structure in Peab ensures sufficient management and control of the Group. At this time there is therefore no need for an internal auditing function in the company.

Other mandatory information in accordance with chapter 6, section 6 of the Annual Accounts Act

• • Direct and indirect shareholdings in the company that represent at least a tenth of the number of votes of all the shares in the company are presented in the Board of Directors' report under The Peab share.

• • There are no limits in articles of association regarding how many votes individual shareholders can have at the AGM, which is also made clear in the Board of Directors' report under The Peab share.

• • The articles of association stipulate that the appointment of Board members takes place at the company's AGM. The articles of association do not contain any stipulations regarding the dismissal of Board members or changes in the articles of association.

• • Authorization of the Board by the AGM to decide on new issues of Peab shares is presented in the Board of Directors' report under The Peab share.

• • Authorization of the Board by the AGM to decide on the purchase of own shares is presented in the Board of Directors' report under Holdings of own shares.

Deviations from the code

Peab has chosen to make the following deviations from the code.

Code rule 9:2

The Chairman of the Board may chair the Remuneration Committee.

Other members elected by the AGM must be independent in relation to the company and executive management.

Deviation

Mats Paulsson, who was a member of the Remuneration Committee until the AGM 2021, was not independent in relation to the company and executive management. Fredrik Paulsson, who became a member of the Remuneration Committee at the Board meeting following the election aſter the AGM 2021, is not independent in relation to the company and executive management.

Explanation of the deviation

Remuneration to senior officers is an important parameter for Peab's development and thus for its shareholders and other stakeholders. The Board wished to take advantage of the long and unique experience in matters of compensation for senior officers that founder and former CEO of Peab, Mats Paulsson, has. Even aſter Mats Paulsson's resignation from the Remuneration Committee for reasons of age, continuity and connection to the largest shareholder remains important. Together with Mats Paulsson, Fredrik Paulsson represents the largest shareholder and therefore it is the opinion of the Board that Fredrik Paulsson should be a member of the Remuneration Committee. During this entire period the majority of the members of the Remuneration Committee were independent in relation to the company and executive management and this is believed to guarantee the objectivity and independence of the Remuneration Committee.

Peab has not otherwise deviated from the code.