Double materiality analysis

[ESRS 2 IRO-1, ESRS E2 ESRS 2 IRO-1, ESRS E3 ESRS 2 IRO-1, ESRS E5 ESRS 2 IRO-1, Sustainable innovations ESRS 2 IRO-1, Transparency ESRS 2 IRO-1; GRI 3-1]

Lenzing carried out a double materiality analysis for the first time in 2021. On the basis of this analysis a new materiality analysis was conducted in 2024. As Lenzing reports under ESRS for the reporting year of 2024, the scope and requirements have increased and new topic areas had to be included.

Research and information sources

Starting with the compilation of a so-called longlist, Lenzing conducted a comprehensive examination of activities within its own business operations and value chain. The primary focus was on assessing impacts, risks, and opportunities (IRO), considering impacts the company has on the environment/social/governance (ESG) topics and the impact the ESG topics have on the company (double materiality). Lenzing identified and assessed IROs in 94 sub-topics from ESRS, along with two additional sustainability issues for further assessment. For instance, the superficial ESRS topic of “E1 Climate change” implies the sub-topics of climate change adaptation, climate change mitigation and energy. The input sub-topic level for the IRO assessment encompassed knowledge about the sustainability issue, stakeholder needs, and value chain research.

Internal data collection involved drawing information from existing sources, as the materiality analysis was conducted in 2021, and internal expert knowledge. For environmental impacts, a so-called context analysis is performed annually at Lenzing’s production sites to screen assets and activities, which also informs the context analysis carried out at the global level.

The context analysis and the other parts of the environmental management system and process informs the double materiality analysis. At the product level, LCA is the primary tool used for assessing cradle-to-gate impacts within direct and indirect operations, i.e. own pulp and fiber production and upstream supply chains. This not only supports substantiation of product-related environmental claims but also enables identification of areas for improvement such as pulp production (including recycling) or key chemicals. The procedure is supported by the environmental data collection process relating to in-house operations, including energy use and GHG emissions, other air emissions, water use, effluents, the discharge of priority substances of concern and waste as well as the increasing collection of primary data (e.g. on water use) from suppliers (while the focus was initially on pulp suppliers, primary data is now also being requested from important chemical suppliers). This systematic collection of data from Lenzing’s own production and its suppliers is performed on demand and feeds into the continuous updates of LCA calculations for Lenzing’s products. The research is further supported by Lenzing’s chemical management system and the chemicals inventory. Water risk assessment at the corporate level is carried out by collecting contextualized qualitative and quantitative information on the supply chain and Lenzing’s own production using the WRI Aqueduct Water Risk Atlas and WWF Water Risk Filter. These data and tools not only support evaluation of the current water situation and identification of areas at water risk for specific locations, including regions of high water stress (with Lenzing’s Prachinburi, Thailand site being located in such an area), but also provide insight into future scenarios, such as those induced by the effects of climate change on water availability and quality. The activity is a continuous annual process and was again conducted in the reporting year.

For more information on data collection and impact assessment regarding business conduct and social topics (S1-S4), please see the “Impact, risk and opportunity management” section in the corresponding chapters.

External data collection involved consulting scientific papers, engaging with NGOs, and reviewing industry reports.

Additionally, Lenzing’s risk management team provided expertise in assessing risks and opportunities. Most ESG risks and opportunities were already part of Lenzing’s risk management system and therefore Lenzing’s risk management process. For a description of the risk management process, please see the “Risk management and internal controls over sustainability reporting” section in this chapter. The risks and opportunities that were additionally identified will be integrated successively into the risk management system. At the moment, impacts are not part of the risk management process.

General approach

In general, Lenzing strived to use a conservative approach for its first ESRS double materiality analysis. For environmental impacts, stemming from Lenzing’s business relationships involving topics that Lenzing is unaware of (e.g. water pollution in the downstream value chain), the assessment was based on value chain data from the industry. An example of environmental impacts stemming from business relationships that Lenzing is aware of is connected to its wood suppliers. In this case, the environmental impacts are well known.

When considering environmental impacts and environmental related risks, in terms of its own operations Lenzing focused on its production sites, which give rise to a greater risk of adverse impacts than offices due to their intrinsic nature.

For the assessment of social impacts on workers in the value chain, Lenzing sees scope for improvement.

Lenzing considered the connections between impacts, risks and opportunities. Any risks and opportunities considered relevant were assigned to the risk and opportunity assessment.

Assessment

Impact assessment

The evaluation of impacts’ severity involved applying the following factors: scale, scope (both for all impacts), remediability (for negative impacts) and likelihood (for potential impacts), with the impacts classified as follows:

positive/negative
actual/potential
direct/indirect
short-term (under one year)/medium-term (one to five years)/or long-term (more than five years)

All factors (scale, scope, remediability, likelihood) ranged from zero to five, with five considered the highest level (e.g. not recoverable/irreversible when measuring remediability). Severity was assessed by the topic experts according to scale, scope, and remediability. Scale measured the magnitude of the impact on the relevant ESG topic. Scope considered the geographic reach of environmental impacts and the number of people affected in the event of social impacts. Remediability, applicable to negative impacts only, evaluated how difficult it was to reverse the impact. Likelihood measured the frequency of potential impacts, from once in ten years to several times in one month.

For an impact to be considered material, three rules were applied: 1. If any of the values of scope, scale, remediability or likelihood is a five, the assessed impact is automatically material. 2. If the severity (scale, scope, remediability; between 0 and 5) is above the materiality threshold of 3.7, the assessed impact is material. 3. For “potential” impacts, the likelihood was also taken into consideration in the form of a severity/likelihood matrix. For a certain value pair, the impact is material. For human rights topics another matrix was used, in which severity takes precedence over likelihood.

To validate the results, the assessment was reviewed on two workshop days, including by experts from Corporate Sustainability and relevant departments. Every impact evaluation was explained by experts, and reflected and discussed in the group to achieve a mutual agreement and interpretation of the results.

A harmonization and quality check were then carried out based on a number of criteria to ensure a solid assessment, which was and will be successively integrated during the next iterative updates of the materiality process. The criteria were as follows: the assessed impact had to be clearly described. The business context of the impact had to be demonstrated. No impact was considered more than once.

Risk and opportunity assessment

The following scales were used in relation to Lenzing’s ESG risks and opportunities and their financial impact at the sub-topic level: on a scale of one to four (with four being the highest, at over EUR 3 million) the magnitude of the financial impact from the risk/opportunity on Lenzing. On a scale of one to five, the likelihood of occurrence (with five representing highest likelihood). The assigned time horizons are identical to those of the impact assessment. The nature of the impacts was attributed to the following categories: financial/manufacturing/natural/intellectual/human/social & relationship. A financial impact/likelihood matrix was defined to determine materiality.

The assessment was substantially supported by a Lenzing risk expert who helped to harmonize the approach based on knowledge, data and guidance.

In 2024, Lenzing updated its climate-related risk assessment and conducted a nature-related risk assessment according to TNFD for the first time. For more information on the climate-related risk assessment according to TCFD and the nature-related risk assessment according to TNFD, please see the corresponding sections in this chapter.

The above-mentioned approach for the risk and opportunity assessment was chosen to find a qualitative way to evaluate Lenzing’s heterogeneous ESG risks. Usually, risks in Lenzing’s risk management system are assessed quantitatively with the Monte Carlo method. However, in Lenzing’s risk management system, ESG risks are either assessed qualitatively or quantitatively using different methods depending on their nature, the availability of data, and requirements from different standards and ratings, e.g. TCFD and CDP.

Stakeholder interests

Throughout the year, Lenzing maintains a continuous dialog with its stakeholders. For information on Lenzing’s stakeholders, please see the “Partnering for systemic change” section in this chapter.

The frequency of involvement varies depending on the topic and Lenzing site. For example, consultation with affected communities about environmental topics, such as noise and odor, varies greatly from site to site, especially the Lenzing sites with high proximity to affected communities such as Nanjing (China), Lenzing (Austria) and Purwakarta (Indonesia), which are consulted on a regular basis.

To gather further input, both internal (including the Managing Board and heads of various departments and relevant experts) and external stakeholders (suppliers, customers, NGOs, the Supervisory Board, investors and academia) participated in a survey. The continuous dialog and the results of the survey were used in the double materiality analysis for informing and prioritizing Lenzing’s material topics.

Material topics

Building upon the assessment in the previous phase, three areas were defined: material topics for the reporting year; a waiting list (threshold 3.5-3.7) of non-material topics which need a closer look in the future; and non-material topics. The Supervisory Board as well as the Managing Board showed great interest, and were presented with the results of the double materiality analysis by the VP Corporate Sustainability.

For further information on the updated materiality analysis, please see the “Materiality analysis” focus paper.

Climate-related risk assessment according to TCFD

[ESRS E1 ESRS 2 IRO-1]

In 2020, Lenzing implemented the Task Force on Climate-Related Financial Disclosures (TCFD) approach for the assessment of climate-related risks and opportunities. To improve this risk assessment and ensure compliance with the evolving regulations, a follow-up project was initiated in 2024 to update the climate risk assessment. A particular focus was to include the financial quantification of climate change across both transition and physical risks.

The purpose of this assessment is to provide additional guidance for risks handled within Lenzing’s ERM system and prepare for preventing, mitigating, and addressing risks based on the current understanding and availability of data. While this assessment was extensive, comprehensive data was not yet available for all geographies, and some key ingredients (e.g. some wood species) were not modelled. Therefore, the goal of this assessment is to provide directional guidance rather than a precise financial quantification of the risks.

It should be noted that climate risk quantification is inherently uncertain given the wide range of future possibilities and the rapidly evolving political and regulatory environments. In addition, it requires extensive data across the entire value chain. Further enhancements will be made iteratively over the coming years to improve the assessment focusing on the whole value chain, markets and raw materials.

The project was supported by Risilience, a specialist third-party Sustainability Intelligence provider that enables compliance with TCFD recommendations and ESRS requirements. The digital risk tool models assets and business activities in Lenzing’s value chain and own operations that have been screened during earlier double materiality analyses. The Risilience tool covers both physical and transition risks of different categories with dedicated models. The tool quantifies impacts from extreme weather events and effects of chronic climate change on procurement, production, and distribution, including sales. These effects particularly comprise but are not limited to potential disruptions and asset damage in the company’s operations and the supply chain, as well as shifts in governmental policies and consumer patterns that would impact both Lenzing’s reputation and demand for Lenzing’s products.

The current risk assessment includes Lenzing’s scope 1, 2 and 3 GHG emissions from its own operations, most important suppliers and distributors. The key raw material for Lenzing captured is currently spruce in European forests. In the future, as the data develops and models iterate, additional wood species (specifically beech and eucalyptus) will be added, and the list of risks analysed will expand to include risks such as forest fires. The risk scenario simulation model considers systemic interdependencies across different aspects; thus, the interpretation of results and underlying mechanisms is complex.

Climate-related physical and transitional risks have been assessed using different climate scenarios, including hazards and corresponding effects on ecosystems, markets and society. Assets and business activities as well as financial parameters and Lenzing’s GHG emissions profile (scope 1, 2 and 3) are modelled as a digital twin in the supporting tool. The software enables Lenzing to run simulations of extreme weather events (climate-related hazards) according to five emission pathways based on IPCCs Shared Socioeconomic Pathways (SSPs) and evaluates the potential impacts on cash-flow, including revenue and cost impacts, for the digital twin of Lenzing. Hence, future projections of the Group’s GHG emissions and corresponding earnings value at risk (“EV@Risk”) provide quantified values reflecting the potential risk for different physical and transitional risk categories and emission pathways. The emission pathways range from low- (SSP1-1.9) to high-emission (SSP5-8.5) scenarios and include the hazards of heatwaves, freezes, droughts as well as flooding and windstorm events.

Physical risks are derived from the effects of these events on the company’s operations due to operational disruption and damage to assets as well as the value chain due to disruptions in material supply. Transition risks describe the impacts of transitioning to a low-carbon economy according to the five SSPs and include the effects of policy and legal aspects, such as carbon pricing and potential litigation for GHG emissions, technology and investor developments regarding renewable energy assets, and company reputation and consumer demand. The two extreme climate scenarios for high emission levels (SSP5-8.5, “No Policy”) as well as the “Paris Ambition” low-emission scenario (SSP1-1.9) were particularly considered for the assessment of physical and transition risks, respectively. The results of these two scenarios and a “Stated Policy” scenario (SSP2-4.5), as well as their characteristics are described in detail in tables “Risk and opportunity assessment - climate scenario characteristics” climate scenario characteristics and “Projected Climate Risk Potential” in the “E1 Climate change” chapter.

The exposure of screened assets and activities to climate-related hazards and corresponding physical/transition risks is mainly defined by the geographic location, while sensitivity depends on the local situation of assets and is described by the parameters of the software model. The Risilience tool simulates hazardous events according to different pathways over the short- (five years), medium- (ten years) and long-term (20 years), and assesses the impacts and anticipated financial effects. Each physical hazard event is specified with a certain likelihood, magnitude and duration as well as the time to recover operations in part and in full. This is complemented by defined raw material and market dependencies, as well as their relation to the Group’s cashflow and revenue that enables monetary quantification from simulated impacts. Thus, the quantified results of both physical and transition risks provide insights into the level of exposure and the sensitivity of assets and business activities.

Lenzing updated its climate change-related risk assessment procedure according TCFD in the reporting year, with the support of the third-party software provider Risilience and its academic partner, the Centre for Risk Studies at the University of Cambridge Judge Business School, to model transition and physical risks, together with potential directional impacts on future cash flows. The corresponding digital software tool links company-specific financial and emissions data with background data on climate change-related hazards and effects to quantify potential risks in the transitional and physical risk categories. However, in this first analysis, which was supported by software and external data, several limitations of the model were identified that come with some uncertainty regarding the quantified results. Upon further refinement and updates of background data where possible, the quantified risks are presented in a qualitative way only. See table “Transition risks, physical risks, and transition opportunities” in the “E1 Climate change” chapter for results of the recent TCFD process, corresponding scenario and risk category descriptions, and the connection to specific climate change-related risks embedded in the internal ERM approach.

Nature-related risk assessment according to TNFD

[ESRS E4 ESRS 2 IRO-1, GRI 304-2]

An initial resilience analysis based on the Locate, Evaluate, Assess, Prepare (LEAP) approach¹ of the Taskforce on Nature-related Financial Disclosure (TNFD) was carried out in the reporting year as part of the Biodiversity Approach and Action Plan. Three climate scenarios² were selected to assess Lenzing’s business model and strategy, as described in the assessment according to TCFD above, in terms of their resilience to the associated physical, transition and systemic risks.

Key assumptions: The initial resilience analysis did not assume planetary ecosystems collapse taking place in short and medium scenarios. Also, the analysis did not incorporate detailed modeling of ecosystem scenarios due to their limited availability. Expansion of the analysis in this direction and possible increase in wood supply chain coverage is expected in the next reporting period.

This analysis focused on all of Lenzing’s own production sites (nine locations in total covering Austria, the Czech Republic, United Kingdom, China, USA, Thailand, Indonesia, Brazil) as well as the wood supply chain in Austria and the Czech Republic (both countries together providing about 70-80 percent of the wood supply for Lenzing’s own pulp mills in Europe). The following time horizons were employed: short-term (zero to one year), mid-term (one to five years) and long-term (five to thirty years). While no stakeholders participated in the first year of assessment, Lenzing aims to increase their involvement in the upcoming phases.

In Austria and the Czech Republic, Lenzing’s operations are dependent on wood supply from healthy forest ecosystems, with possible risks from climate change, over-harvesting, pests and disease. In Brazil, Lenzing manages its own eucalyptus plantations, reducing its dependency on external suppliers but still facing risks from environmental degradation. Water dependency (part of climate physical risks) is also critical, with potential disruptions in supply and quality impacting production. Transitional risks related to regulations are low in the short term but may increase on the mid-term horizon. Physical risks are moderate initially, but are likely to escalate over time, particularly in high-emission scenarios, possibly leading to challenges in the availability and price of wood and water supplies.

Lenzing’s operations in all countries are reliant on local water resources and may be exposed to various natural hazards. Considering generic regional risks, water stress and natural hazards risks were assessed for the sites.

Lenzing’s business model and strategy reflect a comprehensive approach to sustainability and resilience. The company is well-prepared to address transitional risks due to its proactive sustainability practices and regulatory compliance, such as sourcing wood from certified forests and responsible water use. However, systemic risks from ecosystem disruptions and inconsistent environmental governance in some countries pose significant challenges, potentially affecting the supply and quality of raw materials. To mitigate wood scarcity and price fluctuations, Lenzing manages its own eucalyptus plantations and collaborates with forest certification organizations. Physical risks from natural hazards, such as floods and droughts, are also critical, with no direct mitigation measures available, necessitating robust contingency planning. In the short term, these risks are moderate but show early signs of stress, and become more pronounced over the mid-term. In the long term, systemic and physical risks could escalate significantly, especially under high GHG emission scenarios, highlighting the need for ongoing adaptive strategies to ensure long-term sustainability and resilience.

Results in detail

The Lenzing Group uses two different types of forestry for its wood sourcing, depending on the global region: sustainable and multi-functional forest management is applied in the Northern hemisphere by Lenzing’s wood and pulp suppliers in Europe and North America. Plantation forestry with high sustainability standards is conducted mainly in the Southern hemisphere by Lenzing’s pulp supplier in South Africa and by the own pulp plant in Indianópolis (Brazil). In Lenzing’s joint venture project, LD Celulose, with Dexco (formerly Duratex) in Brazil, wood is sourced from Forest Stewardship Council^® (FSC^®)-certified plantations of currently more than 90,000 hectares (FSC-C175509). Plantation forestry can reduce deforestation pressure on natural (primary) forest areas by providing wood at very high yields per unit area as an alternative to sourcing it from natural forests. Only 3 percent of the global forest area are plantations, but they contribute about 33 percent of the timber produced³. FSC^® certification entails management criteria to protect biodiversity⁴, as determined in detail in the national standards.

Lenzing’s impacts and dependencies: Forestry

Wood is the most important raw material for Lenzing. The main source of potential impact on biodiversity and ecosystems from the Lenzing Group’s operations and supply chain is therefore connected to land use by forestry. Lenzing also mainly depends on biodiversity and the proper functioning of healthy forest ecosystems that provide the raw material of wood. Negative effects on biodiversity can arise from over-intensified utilization of forests. On the other hand, the positive effects of sustainable forest management on biodiversity and ecosystems are well known⁵ and can be further explored and implemented.

Regarding the essential resource water, it can be stated that forests are generally part of the natural water cycle. Semi-natural forests do not require irrigation. Plantations of LD Celulose and those of Lenzing’s suppliers are situated in areas with sufficient rainfall, which is a legal requirement for establishing plantations in the respective countries. Therefore, it can be assumed that groundwater levels are not significantly affected and salinity levels in soils are not increased due to wood sourcing in Lenzing’s sphere of influence.

In the case of semi-natural forests, it can be assumed that impacts on native species and on biodiversity will be long lasting, and changes proceed slowly, since many areas have been managed in this way for several forest generations. An internal case study from 2022 commissioned by Lenzing on Austrian forests in conjunction with the Austrian environmental NGOs umbrella organization Umweltdachverband has pointed out that there are numerous species living in managed beech forests in Austria, among them also red-list species, which have adapted to the management practices. The study concluded that reversing these semi-natural forests to completely natural forests (stopping all management) could potentially harm these species. For a summary of the findings, see the “Biodiversity and ecosystems” focus paper.

The introduction of invasive alien species, whether accidental or intentional, can have significant impacts on ecosystems. This can occur directly when the invasive species competes for resources with native species, or indirectly, if the invasive species carries new pathogens. Lenzing does not use any invasive alien species in its plantations in Brazil, as these plantations are FSC^®-certified (FSC-C175509), and does not source from plantations that do. There are strong international precautions regarding the introduction of alien species, and transport of plant material, which could potentially carry invasive species, to prevent such introductions. Fort its supply chain, Lenzing relies on these regulations.

Additional potential impacts on water, soil, and air can arise from production facility emissions or from transportation. For more information, please see the chapters “E2 Pollution”, and “E3 Water and marine resources”.

At the end of the value chain of textile and nonwoven products, biodiversity impacts can arise from non-degradable materials entering the environment, if those products are not correctly disposed of. For more information on biodegradability of Lenzing’s fibers, please see the “E5 Resource use and circular economy” chapter.

For more information on mitigation of nature-related risks, please see the “Actions” section of the “E4 Biodiversity and ecosystems” chapter.

Lenzing’s potential impacts: Biodiversity sensitive areas

For the Biodiversity Sensitive and Protected Areas within the vicinity of Lenzing’s production sites (extending up to 10 km from the sites and 30 km downstream), no documented significant impact on the ecological status of these areas or on any threatened species is attributable to Lenzing’s operations. Information on “Biodiversity sensitive areas and protected sites near Lenzing production sites” can be found in the section of the same name in the annex.

Compliance related assessment

[ESRS G1 ESRS 2 IRO-1]

In the process of identifying material impacts, risks and opportunities, the materiality was evaluated based on metrics such as the number of reported cases, confirmed incidents as well as stakeholder interests. For example, the evaluation of the topics protection of whistleblowers and the prevention and detection of corruption topics was influenced heavily by Lenzing’s stakeholders, such as investors, reflecting their high interest in the topic.

1 Guidance on the identification and assessment of nature-related issues: the LEAP approach – TNFD

2 SSP1-1.9, SSP2-4.5 and SSP5-8.5. For a description see https://www.dkrz.de/en/communication/climate-simulations/cmip6-en/the-ssp-scenarios

3 Bousfield et al., Nature Geoscience 16(2023), 1145-50 https://www.nature.com/articles/s41561-023-01323-y

4 https://anz.fsc.org/biodiversity-habitat-protection

5 Kunz 2017: Artenschutz durch Habitatmanagement. chapter 6.2 Wiley-VCH