Risk and opportunity assessment
[E1 ESRS 2 SBM-3 19a, 19b]
The Task Force on Climate-related Financial Disclosures (TCFD) assessment procedure was implemented at Lenzing for the first time in 2020. After adopting a TCFD risk assessment procedure based on an external Software-as-a-Service solution in 2024, the evaluation has been further refined in the reporting year to include most recent emission pathway narratives for quantification of climate change-related risks in Lenzing’s operations and its value chain. The analysis covered effects on short-, medium- and long-term time frames and took into consideration different emission scenarios to capture drivers of physical and transitional risks. The following table “Risk and opportunity assessment – climate scenario characteristics” summarizes the scenarios’ narratives and assumptions.
NGFS climate scenario |
Current Policies |
NDCs |
Net Zero 2050 |
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Associated Shared Socio-economic pathways (SSP) |
SSP3-7.0 |
SSP2-4.5 |
SSP1-2.6 |
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Global temperature rise (by 2100) |
3.0 °C |
2.3 °C |
1.4 °C |
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Policy narrative |
Only currently implemented policies are preserved, leading to high physical risks. |
Includes all pledged country targets even if not yet backed up by implemented effective policies. |
Limits global warming to <1.5 °C through stringent climate policies and innovation, reaching global net-zero GHG emissions around 2050. |
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Policy reaction |
None (current policies) |
Aligned with Nationally Determined Contributions (NDCs) |
Immediate and smooth |
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Technology change |
Slow |
Slow |
Fast |
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Carbon dioxide removal |
Low |
Low-medium |
Medium-high |
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Regional variation |
Low |
Medium |
Medium |
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Global carbon price (2030, 2050) |
$ 13 |
$ 107 |
$ 244 |
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Global sustainable purchasing trend – % share of population purchasing sustainably (2030) |
37% |
38% |
52% |
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Assessment outcome
[E1 ESRS 2 SBM-3 18, 19c]
Outcomes of the quantified risks are summarized in the table “Projected Climate Risk Potential”. They are presented qualitatively in low-, medium- and high-risk categories in line with the internal Enterprise Risk Management (ERM) framework and the double materiality approach.
Time horizon (years) |
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Risk category1 |
Current Policies |
NDCs |
Net Zero 2050 |
Result description |
Key assumptions |
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Transitional risks |
Policy |
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In a Net Zero 2050 scenario, the transition to a low-carbon economy would involve more stringent carbon regulations, reflected globally in carbon prices to keep temperatures below 1.5 °C. This would result in a greater policy risk for Lenzing. |
The policy model contains carbon pricing data per country and sector which is then applied to each country and scope of emissions. Upstream impacts relate to costs of carbon pricing, while downstream impacts affect revenue (as reflected in higher product prices). |
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Technology |
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In a Net Zero 2050 scenario, the transition to green assets needs to occur faster across the globe to keep temperatures below 1.5 °C, thereby causing greater potential technology impairment risk for Lenzing in the short term. |
Technology risk is based on machinery assets held by Lenzing and its’ dependencies on fossil fuel and depreciation rates. |
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Consumer sentiment |
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In a Net Zero 2050 scenario, the shift to a low-carbon economy would lead to a contraction in some of the sectors that Lenzing serves, thereby reducing Lenzing’s customer base and hence overall demand. |
The Consumer Demand model covers not only consumer demand for products, but also the macro demand of business sectors for Lenzing’s products. A generalised sector split to the demand model still needs improvement to better reflect B2B relations of Lenzing. |
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Liability |
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Liability risk for Lenzing is minimal as their sector and location is less likely to be subject to litigation and emissions intensity is close to the sector average. |
Liability risk is based on Lenzing’s sector, location, market share and emissions intensity compared to sector average. |
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Investor sentiment |
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Investor risk for Lenzing is minimal as its emissions intensity is close to the sector average. |
Investor risk is based on Lenzing’s cost of capital and the emissions intensity of Lenzing compared to the sector average. |
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Reputation |
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In a Current Policies scenario, global action on climate change slows and high-emitting industries are therefore increasingly targeted by consumer activism. |
The reputation model shows impacts in terms of reduced demand for products, as activism and boycotts increase. |
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Physical risks |
Facility disruption & Supply risk |
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The increasing severity and frequency of heatwave events is potentially the largest driver of revenue loss at Lenzing facilities. |
The facility disruption model applies vulnerability curves, showing operational days lost and time to recover, of different climatic events to each facility based on their facility type. A value per day of disruption is then generated for each facility to calculate the overall revenue loss and assets damage costs. |
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Color code |
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Low risk |
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Medium risk |
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High risk |
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The following table, “Transition risks, physical risks and transition opportunities”, outlines key climate-related risks and opportunities identified in the Lenzing ERM system and provides details of Lenzing’s response and mitigation measures. A TCFD index in the “Annex” of this report shows the link between the TCFD recommendations, the contents of this report and other external publications such as the CDP Climate Change questionnaire.
Characterization |
Risk/opportunity description |
Lenzing’s response |
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Transition risks |
Emerging regulations on carbon pricing |
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Emerging regulations, especially on green taxation and carbon pricing, constitute relevant risks to Lenzing. In the countries where Lenzing has carbon intensive processes, regulations on GHG emissions have already been implemented (energy efficiency improvements, regulated emission allowances). More stringent regulations that could increase the costs of GHG emissions are under development. A qualitative impact assessment, including a detailed description of this risk, is provided in the climate risk analysis under the “policy” category in table “Projected Climate Risk Potential”. |
Lenzing’s risk response strategy aims to reduce its exposure to potential green taxation by implementing stringent measures to reduce GHG emissions and by proactively managing its technology portfolio. Lenzing’s SBTs were updated in 2023 to align with the 1.5 °C pathway and aim to reduce total GHG emissions by 42 percent in Scope 1 and 2 and by 25 percent in Scope 3 by 2030, compared to a 2021 baseline. Therefore, the company is mitigating risks associated with emerging carbon pricing regulations. Lenzing also has a validated long-term science-based net-zero target, committing to a 90 percent absolute reduction of Scope 1, 2 and 3 emissions by 2050, based on the same baseline. |
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Increased biomass costs |
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Wood is the Group’s most important natural resource for manufacturing regenerated cellulose fibers. Despite Lenzing’s sustainable sourcing policy and backward-integrated production, wood prices are at risk of increasing due to climate change, rising global biomass demand and alternative land use. Growing competition for land use and natural resources is affecting long-term structural biomass prices. The risk of increased biomass costs is not fully reflected in the results of the climate risk analysis as the risk model was limited to a few wood species relevant to Lenzing, such as spruce and pine. |
Lenzing has already taken various measures to mitigate this risk, with supplier diversification serving as the key risk mitigation approach. By procuring wood from a broader range of countries or less risk exposed wood species (such as pine), Lenzing minimizes the risk of supply chain disruption that may occur in a single sourcing region. In 2022, Lenzing also started producing dissolving wood pulp at its new pulp mill in Brazil. This mill is supplied by Lenzing’s own FSC® certified plantation (License codes: FSC-C175509, FSC-C165948) located next to the mill. Consequently, Lenzing’s pulp mills are not exclusively dependent on European wood supplies. To further reduce long-term residual risk, Lenzing endorses sustainable forest management to improve forest resilience to the negative impacts of climate change. Lenzing also invests in selected conservation projects to strengthen forest resilience. |
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Reputational risk in the textile sector |
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The textile industry, where Lenzing’s products are commonly used, is under scrutiny for its sometimes unsustainable and resource-intensive raw material consumption and production processes. This could lead to negative media coverage and further stigmatize the sector, which may, in turn, affect the Group’s revenue. A qualitative impact analysis for Lenzing resulting from the reputational risk in the textile sector is reflected in the results of the climate risk analysis in the “Reputation” section and to a lesser extent in the “Consumer sentiment” category in table “Projected Climate Risk Potential”. |
Lenzing has various targets to address important sustainability impacts and continuously improves its environmental footprint. Lenzing proactively and transparently discloses information on its business practices and environmental footprint to respond to potential negative media coverage of the fashion and textile industry. Through its communication channels, Lenzing underlines its contributions to a low-carbon economy and the net-benefits created by its specialty products compared to generic products on the market. |
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Physical risks |
Chronic physical climate risks |
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Climate models indicate that rising global mean temperatures will lead to an increase in chronic physical climate hazards. The Lenzing Group’s operations and supply chain could be increasingly affected by extreme weather events, water scarcity or other physical hazards of varying severity. From a supply chain perspective, climate change impacts such as heavy rainfall or forest fires could disrupt Lenzing’s key pulp supplies or affect the new pulp plant in Brazil. This could lead to shortages of high-quality pulp and bottlenecks in fiber production. Climate-change-induced disruptions such as heat stress could lead to more frequent pest outbreaks, droughts and rising winter temperatures. These conditions could disrupt wood suppliers’ planned harvest schedules and pose risks to Lenzing’s wood supply, especially for European pulp mills. For Lenzing’s own production facilities, water scarcity could limit water withdrawals from the Ager river at the Lenzing site during extended dry periods, especially in the summer. This would reduce production capacity. The effects of climate-related physical risks on Lenzing’s own production facilities as well as on Lenzing’s supply chain including a number of key suppliers, were taken into account in the climate risk analysis presented in table “Projected Climate Risk Potential”. |
All identified risks from disruption in the supply chain for raw materials, chemicals and energy needed for pulp and fiber production are managed by Lenzing. This is performed through comprehensive supplier diversification and holistic inventory and resource management. In addition, Lenzing has initiated the “Safe Supply” project. This includes around 300 initiatives for alternative suppliers and supply routes for important raw materials and chemicals. The effects of heavy rainfalls and potential flooding caused by climate change at affected locations are mitigated through flood protection and evacuation plans. These plans are based on flood risk assessments. Possible water shortages due to prolonged dry periods at affected production sites are addressed through targeted measures in water efficiency, reuse, recycling and conservation. |
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Transition opportunities |
Increased demand for low-carbon products and product innovation |
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As consumer needs and preferences shift toward low-carbon products, the development and expansion of low-carbon goods and services is expected to offer substantial growth potential. Lenzing applies life-cycle thinking, sustainable sourcing, efficient biomass use and partnerships with stakeholders along the value chain in order to contribute to more sustainable consumption and production patterns. Taken together, these factors mean that Lenzing’s products offer net-benefits. |
In order to benefit from the expected higher demand for responsibly produced and low-carbon products, Lenzing has embarked on an ambitious growth strategy. In 2022, Lenzing commissioned a new lyocell fiber plant in Thailand and a new pulp plant in Brazil as well as the conversion of the Indonesian site to LENZING™ ECOVERO™ viscose fibers with lower emissions. This conversion led to EU Ecolabel certification. The site also switched to modal fiber production. In 2023, the Nanjing (China) site shifted from coal to natural gas-based energy and a new biomass power plant in Heiligenkreuz (Austria) was also acquired. Lenzing makes an important contribution to reducing GHG emissions and to strengthening the Group’s low-carbon product portfolio. |
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Decarbonization strategy de-risks operations |
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The Lenzing Group considers rapid decarbonization as a major business opportunity to de-risk its operations, build resilience, launch products with lower climate impact and realize energy efficiency gains. Lenzing will substantially reduce its GHG emissions in the coming years through a set of measures under its decarbonization strategy and SBTs. Furthermore, Lenzing aims to reach net-zero GHG emissions by 2050. |
Lenzing’s SBTs are approved by the Science Based Targets initiative (SBTi), making Lenzing one of the first regenerated cellulose fiber producers with approved SBTs. Lenzing’s decarbonization strategy is based on reducing its emissions rather than offsetting them. To reach these targets, Lenzing set up a cross-functional steering committee under the leadership of the Managing Board to make necessary decisions. Lenzing’s GHG abatement activities will involve a series of measures to reduce carbon emissions both within its operational boundaries and along its supply chain. |
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