Sustainability

Stakeholder Engagement

Understanding the views and interests of our internal and external stakeholders is fundamental to developing the Group’s sustainability strategies. Xtep places a high priority on our stakeholders, actively seeking to understand and listen to their expectations regarding our ESG management strategies and practices.

Based on our unique business activities and operations, as well as insights from global industry peers, we have identified eight major stakeholders and established communication methods tailored to address the concerns of each stakeholder group. The following table provides a summary of the key stakeholder groups that we have identified and the communication channels we employ to engage with them:

Double Materiality Assessment

During the year, the Group followed the materiality assessment principles outlined in HKEX ESG Code and Sustainability Accounting Standards Board (“SASB”) standards and conducted a double materiality assessment that considered financial and impact materiality. The assessment process involves assessing the sustainability impact of our actions on the broader world and understanding how sustainability-related issues may influence our business performance. It also examines how these factors could shape our future strategic direction.

The double materiality assessment evaluates impact materiality, which assesses the Group’s impacts on the economy, environment and society, and financial materiality, which assesses ESG topics that could create or erode our enterprise value. The process of the assessment consists of five stages and is summarized as follows:

Materiality topics

Through extensive engagement with our internal and external stakeholders, supported by research and expert interviews, we have identified 23 material issues relevant to Xtep’s business and sustainable development. The material issues we have identified are aligned with our current ESG strategies and targets, further validating that we are focusing on the right areas.

The results revealed that social-related issues were considered more material than environmental, and the top three highest-ranking issues are product quality and safety, employment and welfare and health and safety.

While environmental issues were ranked lower in the assessment, we recognize that environmental issues represent an emerging area of focus for the sportswear industry. As consumer and societal expectations evolve, we acknowledge that maintaining a healthy environment is integral to long-term business success and serving community needs. We will continue progressing in our approach and enhancing transparency in this area.

The double materiality matrix below summarizes the relative importance of the 23 material issues by their financial materiality (Y-axis) and impact materiality (X-axis).

• Product Safety & Quality
  This material topic is closely aligned with Xtep’s core running shoe portfolio and corporate brand strategy, as effective quality control directly impacts the Group’s cost structure, revenue performance and market development opportunities.
  
  The Group implements full-value-chain quality management covering R&D validation, incoming raw material inspection and supplier quality performance assessment. Such controls curtail costs arising from defective scrappage, after-sales returns and product recalls. Superior product quality underpins premium pricing for professional running footwear and facilitates event sponsorship-driven sales growth, delivering enhanced product premium and overall revenue expansion. By contrast, quality defects may trigger consumer complaints, declining distributor orders and reputational damage to the brand.
  
  As a long-term strategic priority, the Group scales up R&D investment and enforces strict supplier quality admission criteria to consolidate market competitiveness in professional running footwear and capture incremental demand across domestic and overseas professional sports consumption markets.
  
  The Group has set a 2030 strategic target of zero major product quality recalls, with this core KPI incorporated into the annual variable remuneration assessment of relevant senior management.


• Employment and Welfare
  This material topic covers manpower management across Xtep’s self-operated factories, headquarters and nationwide retail stores, and directly affects production delivery efficiency and terminal sales performance. The Group offers a comprehensive welfare system including employee mutual aid funds, children care services and flexible leave policies, alongside intelligent payroll management and structured promotion and training systems. These measures effectively reduce employee turnover and lower implicit costs caused by repeated recruitment and new staff adaptation. A stable and skilled workforce ensures on-time order delivery and improves retail sales conversion, driving steady revenue growth, while non-compliant employment practices may lead to regulatory penalties and operational disruptions.
  
  Xtep integrates standardized employment requirements into supplier admission assessments. By maintaining a high-quality employer image, the Group attracts professional talents in R&D and marketing to support its multi-brand and global development strategy.
  
  The Group’s 2030 strategic target is to keep the employee turnover rate (excluding factory piece-rate workers) below 30%, with this core human resource KPI incorporated into the annual variable remuneration assessment of relevant senior management.


• Health and Safety
  This material topic covers operational sites of Xtep’s self-owned factories and cooperative suppliers, where occupational safety management directly determines production costs and supply chain stability. The Group has established the ISO45001 occupational health and safety system, implemented regular workplace safety inspections and arranged annual physical examinations for employees. Proactive safety investment effectively reduces additional expenditures arising from work injury compensation and unplanned production suspension. A sound occupational health and safety system prevents production shutdowns due to regulatory rectification, ensures stable product supply across the value chain and sustains normal channel sales. In contrast, major workplace safety incidents may result in fines and negative public opinion, undermining brand cooperation and corporate reputation.
  
  The Group has set a 2030 strategic target of zero fatal workplace injuries in self-operated factories, with this core occupational health and safety KPI incorporated into the annual variable remuneration assessment of relevant senior management.