Governance of sustainability

[ESRS 2 GOV-1; ESRS G1 ESRS 2 GOV-1; GRI 2-12, 2-13, 2-17, 405-1]

Governance structure for sustainability

The Corporate Sustainability department reports directly to the Chief Executive Officer (CEO) of the Managing Board. In addition, an internal Managing Board level ESG committee has been established to accelerate the sustainability agenda in the company, with meetings held on a quarterly basis. Regular alignments on various topics take place with different functions to drive the integration of environmental, social and governance concerns into the company’s business strategy and operations. General information on corporate governance and the composition of the company’s bodies can be found in the Lenzing Group’s Annual Report 2024 (Corporate Governance Report). The works council is also represented in the Supervisory Board.

Sustainability organization

Expertise of board members

All specialist areas (sector-, product-, market- and sustainability-specific) as well as specific subject knowledge (including sustainable innovations, renewable raw materials, climate and energy, circular economy and recycling, biodiversity, water management, transparency, business ethics, fair labor practices, equity, diversity and inclusion) are covered by the composition of the Supervisory Board and the Managing Board. ESG committee meetings are seen as a way of advancing the collective knowledge, skills, and experience of Lenzing’s Managing Board on sustainable development.

At Lenzing, the Managing and supervisory Boards have access to sustainability-related expertise through the corporate sustainability department, which serves as the centre of excellence regarding sustainability matters and is complemented by subject matter experts from other departments. The specific knowledge of all experts is linked to the identified material topics. This guarantees that the leadership is well-equipped to oversee and manage sustainability matters effectively and that Lenzing’s material risks and opportunities can be addressed accordingly. By aligning the sustainability efforts with the material topics, Lenzing is not only mitigating risks but also leveraging opportunities to create long-term business value.

The role of the administrative, management and supervisory bodies related to business conduct

Lenzing’s mission of compliance

Lenzing is a global company and acts in a compliant manner. The Compliance Management System is an integral part of the Lenzing Group’s reporting system. The compliance function aims to advise and support all Lenzing employees, executives and managers through preventive risk-oriented measures and consistent detection and response processes, ultimately protecting them from the negative consequences of violations of laws and values.

Lenzing’s compliance organization is transnational and composed of international experts led by the Group Compliance Officer, who reports directly to the Managing Board and the Supervisory Board. The Austrian Corporate Governance Code (ÖCGK) defines specific duties for the Managing Board, Supervisory Board and auditors. The overall responsibility for compliance lies with the Managing Board – it must ensure compliance with legal provisions and work towards their observance within the company (§ 15 ÖCGK). In addition, it must inform the Supervisory Board regularly, comprehensively and promptly about all issues relevant to the company and report at least once a year on precautions taken to combat corruption (§ 18a ÖCGK). Lenzing expects its employees to comply with its rules of conduct. They are also asked to be alert, examine carefully and report anything that can be improved or any violation of rules and values that is detected.

The Managing Board, Supervisory Board and Lenzing’s employees take part in mandatory compliance training and are therefore well informed about business conduct matters. For more information about training, please see the “Compliance training” section (G1-3) in the “G1 Business Conduct” chapter.

Composition and diversity of board members

Boards’ responsibilities in managing impacts, risks and opportunities

The Managing Board is tasked with steering the company’s strategic direction and operational management. This includes overseeing the implementation of policies and procedures to manage material impacts, risks and opportunities. Each member has specific areas of responsibility. The Supervisory Board provides additional oversight and ensures that the Managing Board is managing the company’s risks and opportunities effectively. Regarding the management of ESG-relevant topics, the two ESG committees play an integral role in exercising oversight on the management processes. For example, both the Managing and Supervisory Boards were involved in the double materiality process and reviewed the results.

In the Managing Board, Lenzing’s CEO Rohit Aggarwal is formally responsible for sustainability. For information on members of the Supervisory Board ESG committee, please see the “Working procedures of the Supervisory Board” section in the Corporate Governance report.

Controls and procedures for the management of impacts, risks, and opportunities

The double materiality process, which informs the sustainability reporting, has to be updated annually. The updates are based on the input and analysis from experts in their various fields. Actions are taken and targets are set for different material topics, if deemed necessary. For information on target setting and the general target governance process, please see the “Sustainability targets, measures and progress” section in this chapter. For information on the management of risks and opportunities, please see the “Risk management objectives” section in the risk report. Most of the material ESG risks and opportunities are already part of the risk management system, and relevant new risks will be added successively.

ESG committees

[ESRS 2 GOV-2; GRI 2-12, 2-14, 2-18]

Sustainability is a core value proposition to customers, and a business and innovation driver for the Lenzing Group. The company is increasingly leveraging its sustainability work by positioning itself using net-benefit products (e.g. LENZING™ ECOVERO™), key ratings (for investors) and benchmarking tools at the wider industry level. To support these efforts, a Managing Board level ESG committee has been installed to accelerate implementation of the sustainability agenda by aligning across functions, and is responsible for the sustainability strategy and execution of ESG topics. This committee meets once per quarter. The key objectives are to formulate and execute the company’s sustainability vision, strategy and ESG benchmarks and tools. The ESG committee (figure “Managing Board ESG Committee structure”) consists of the Managing Board and heads of different functions, who review the progress of the sustainability targets, evaluate the effectiveness of Lenzing’s approach to managing all aspects of sustainability, including risks and opportunities, and make long-term strategic decisions. The corporate sustainability department leads and is an integral part of the committee. It works closely with several functions to ensure the integration of sustainability aspects in various business processes, respond to stakeholder needs and expectations, and prepare the organization to be future-fit.

In 2023, the Supervisory Board established an ESG committee in order to exercise oversight over ESG topics in relation to strategy, sustainable business success and transformation. This committee is intended to support the Executive Board, the full Supervisory Board, the Audit Committee and the Strategy, Growth and Innovation Committee on issues relating to non-financial reporting and strategic ESG topics. The committee meetings are intended to take place at least twice a year.

In these meetings the committee members are informed by the VP Corporate Sustainability, who is formally responsible for the Corporate Sustainability Department at the Lenzing Group, and heads of other relevant functions about material impacts, risks and opportunities. Furthermore, they are presented with topics such as climate, product footprint, diversity, equity & inclusion, ESG-governance, and non-financial reporting in these periodic meetings. Many material topics and additional relevant information are covered such as drivers, potential gaps, required actions, targets, upcoming regulations and stakeholder demands. Due to this holistic view, trade-offs also emerge in the discussion and decisions are made accordingly.

In 2024, the Managing Board and Supervisory Board addressed the following topics during the ESG-committee meetings:

• Customer engagement (e.g. climate mitigation)
• Sustainability target updates
• ESG strategy, governance and regulations
• Facility Social Labor Module (FSLM) (own workforce insights)
• Diversity, Equity and Inclusion, Employee Resource Groups (ERG)
• Life Cycle Assessment (LCA) and climate footprint (sustainable innovations)
• Biodiversity approach and action plan
• Industry ratings and benchmarks, such as the Carbon Disclosure Project (CDP) (water, supplier engagement/sourcing, climate change)
• Non-financial reporting according to ESRS/CSRD
• Double materiality
• EU Taxonomy approach

Managing Board ESG Committee structure

For information on the frequency of alignment of the administrative, management and supervisory bodies, please see the “Sustainability organization” figure in the “Governance structure for sustainability” section of this chapter.

Board remuneration linked to sustainability performance

[ESRS 2 GOV-3. ESRS E1 ESRS 2 GOV-3; GRI 2-19 b]

The Remuneration Policy of Lenzing AG for the performance-based remuneration of the Managing Board is linked to both financial performance and non-financial sustainability criteria (ESG), which further promote the integration of sustainability in the business strategy. Therefore, in addition to the existing criteria, the long-term incentive (LTI), which is a variable performance bonus, has been expanded to include sustainability targets for Managing Board members. Further information can be found in the remuneration reports (the report for 2024 will be available from March 20, 2025 onwards).

The proportion of variable remuneration dependent on sustainability-related targets and/or impacts is for the Chairperson of the Managing Board 6 to 10 percent and Member 4 to 7 percent. The remuneration of the Managing Board is approved and updated by the Remuneration Committee of the Supervisory Board.

Specific targets and their metrics connected to the Board’s LTI remuneration for different three-year tranches are as follows:

• “ZDHC lyocell” target: “To achieve ‘aspirational’ MMCF level for ZDHC wastewater and responsible production guidelines at Lenzing lyocell facilities by 2028”
• “Wastewater” target: “To improve the Lenzing Group’s specific wastewater emissions (COD) by 20 percent by 2024 (baseline 2014)”
• Linked remuneration target relating to the “Previous near-term science-based target”: “Lenzing reduces 40 percent of specific GHG emissions per ton of pulp and fiber sold by 2024”, as well as “Lenzing reduces 45 percent of specific GHG emissions per ton of pulp and fiber produced by 2026”.
• Measure of “Equity, Diversity and Inclusion” target: “Lenzing increases its proportion of women to 22.5 percent in all positions graded 5a and above by 2025”
• Measure of “Equity, Diversity and Inclusion” target: “Lenzing achieves an improvement averaging three percentage points across the seven categories, including the Inclusion Index, in the global Health Climate Survey by 2026”

Climate-related performance

The climate-related performance has been assessed against the “Previous near-term science-based target”, one of the GHG emission reduction targets reported under E1-4; more specifically, the linked remuneration target: “Lenzing reduces 40 percent of specific GHG emissions per ton of pulp and fiber sold by 2024”, as well as “Lenzing reduces 45 percent of specific GHG emissions per ton of pulp and fiber produced by 2026”.

In 2024, one Managing Board member was entitled to remuneration linked to a climate-related target/performance indicator. The percentage share of the remuneration in 2024, based on the 2022 tranche, amounted to 2.3 percent of this member’s total remuneration.

Statement on due diligence

[ESRS 2 GOV-4]

Risk management and internal controls over sustainability reporting

[ESRS 2 GOV-5; GRI 2-12]

The Sustainability Report process falls under the co-ownership of Corporate Sustainability and Corporate Communications. Lenzing is currently working on a formal sustainability reporting process document that also addresses the topic of internal controls. The sustainability reporting process focuses on the steps that are necessary to generate sustainability reporting and excludes processes that lie within other departments (e.g. data quality).

Lenzing’s Enterprise Risk Management (ERM) system encompasses a holistic approach integrating sustainability reporting. The system includes a Monte Carlo simulation for risk and opportunity analysis (for quantitative assessment), integration of ESG-related risks and opportunities, and climate-related risk assessments in line with TCFD recommendations. The ERM process involves half-yearly risk interviews with relevant internal stakeholders at the Group and site levels, risk aggregation, as well as risk reporting to the Board and the Audit Committee of the Supervisory Board.

Lenzing’s ERM approach is inspired by the COSO™ ERM framework and combines top-down and bottom-up methodologies. Top-down analysis involves coordination with the Managing Board (to identify top risks and assumptions. Bottom-up analysis includes risk interviews with Site and Corporate Function Risk Managers. Risks are evaluated based on their frequency and financial impact, using quantitative and qualitative assessments. The risk prioritisation methodology, when it comes to risk-based strategic investment planning, includes the Risk of Non-Investment (RoNI) assessment, considering factors such as health and safety, environment, business interruption, legal, and reputation.

Sustainability reporting is exposed to the risk of misstatement due to human error or incomplete data. Lenzing has implemented a number of controls to manage this risk:

• Sustainability reporting requirements check by core project team
• Experts from Corporate Sustainability review the chapters relating to their topics, perform cross-checks of other chapters (dual-control principle), proofread German/English versions (dual-control principle), and cross-check content created for the website and media content (dual-control principle)
• The Managing Board ESG committee reviews and approves the most important content for disclosure. The Supervisory Board ESG committee reviews the final draft, and gives recommendation for report approval and sign-off to the audit committee
• Lenzing’s external auditor provides limited assurance on the sustainability reporting (please see the limited assurance statement in the “Independent Assurance Report on the Non-financial Reporting according to §§ 243b and 267a UGB” section in the annex).

The results of the half-yearly ERM process are integrated into relevant internal functions and processes through a structured Group-wide ERM strategy and process. This includes the roles and responsibilities defined for Corporate Risk Management, Site and Corporate Function Risk Managers, and other stakeholders, with cross-functional collaboration to maintain a holistic view of risks and opportunities. In addition, risks are assigned to risk owners, who are responsible for identifying and assessing risks and for defining and implementing appropriate risk mitigation measures and strategies. The ERM strategy, process and organization are defined in the Lenzing Group’s ERM procedure, which is implemented throughout the organization and the subject of periodic training.

The findings from the risk assessment are reported twice a year to the Managing Board and the Audit Committee of the Supervisory Board. The risk report summarises the top risks, mitigation measures, and overall risk position of the Lenzing Group.