Based on the ambition defined in 2020 of being a climate resilient company, Lenzing enhanced the process of implementing TCFD (Task-Force on Climate-Related Financial Disclosures) recommendations in 2021 by defining board and top-level management responsibilities for all identified climate related risks and opportunities.
The TCFD’s recommendations provide guidance to companies on integrating climate risks and opportunities into financial and non-financial reports and eventually aligning climate risks with enterprise risk management. The TCFD issues their recommendations in four areas: (1) governance, (2) strategy, (3) risk management, and (4) metric and targets. Lenzing focused on risk management, metrics and targets in its 2020 analysis.
There are two different categories of risks underlying the TCFD recommendations: on the one hand, there are political, legal, technological and market risks, known as “transition risks”. On the other, there are acute and chronic risks, known as “physical risks”. Transitional risks arise from transitioning to a low-carbon economy (e.g. regulatory changes), whereas physical risks are environmental risks leading to negative acute or chronic impacts on a company (e.g. water scarcity or extreme weather events). The group-wide TCFD assessment process implemented in 2020 has been further developed with the goal of identifying, prioritizing, quantifying and mitigating climate change risks and seizing opportunities in Lenzing’s operations and in its supply chain. To manage climate-related risks and opportunities, Lenzing established a high-level ESG committee with the Managing Board and heads of functions such as sustainability, business management, strategy, investor relations, controlling, and risk management.
Relevant risks and opportunities for Lenzing were qualitatively evaluated by using scenario analysis for short-term (1–2 years), mid-term (2–5 years), and long-term (5–30 years) consequences in order to estimate their potential financial impact and probability of occurrence. Lenzing then derived a KPI scorecard with indicators and targets on the key climate-related risks and opportunities based on the TCFD recommendation for metrics and targets.
In addition to implementing TCFD recommendations, Lenzing’s significant efforts in disclosing climate, water and forest related risks and opportunities to the CDP platform that was finally honored by an “AAA” rating in 2021.
Beside the disclosure of climate related risks and opportunities to external (rating) organizations, Lenzing’s focus is on the full integration of ESG topics in the Enterprise Risk Management Process.
The following table describes key climate risks and opportunities 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 CDP Climate.
Characterization |
Risk/opportunity description |
Lenzing’s response |
|---|---|---|
Transition risks |
Emerging regulations on carbon pricing |
|
Increasing regulation, especially on green taxation and carbon pricing, constitute a relevant risk for Lenzing. In the countries where Lenzing operates, carbon intensive processes and regulations on greenhouse gas emissions have already been implemented (energy efficiency improvements, regulated emission allowances) and stricter regulations that would increase the costs of greenhouse gas emissions are under development. |
Lenzing is implementing stringent energy efficiency measures in order to reduce its potential exposure to green taxation. In 2019, Lenzing set a science-based target to reduce its greenhouse gas emissions (Scope 1, 2 and 3) by 50 percent per ton of pulp and fibers sold by 2030 (compared to a 2017 baseline). Lenzing is therefore mitigating the risks from emerging carbon pricing regulations. Lenzing is pursuing the vision of becoming the first net-zero player by 2050 through its decarbonization strategy. |
|
Increased biomass costs |
||
Wood is the Group’s most important natural resource for manufacturing bio-based fibers. Despite its sustainable sourcing policy and backward-integrated production, wood prices are at risk of increasing due to climate change, growing global biomass demand, and alternative land use. Growing competition for land use and natural resources is affecting long-term structural biomass prices. |
In order to mitigate the risk of increasing biomass costs and improve supply chain security, Lenzing is building a modern dissolving wood pulp plant (DWP) with integrated plantation and forest operations in Brazil. The new plant will improve the Group’s cost position, as it is designed to be sustainable and will set a milestone in Lenzing’s strategy to achieve carbon neutrality. |
|
Reputational risk in the textile sector |
||
The textile industry, where Lenzing’s products are commonly used, is being scrutinized for its sometimes unsustainable and resource-intensive raw material consumption and production processes. Polyester and conventional cotton in particular face structural issues that could lead to negative media coverage and further stigmatize the sector, which could, in turn, influence the Group’s revenue. |
Lenzing responds to potential negative media coverage of the fashion and textile industry by proactively disclosing information on its business practices and environmental footprint. Lenzing works through certain communication channels to underline its contributions to a low-carbon economy and the net benefits created by its speciality products compared to average industry-standard products in the market. |
|
Physical risks |
Chronic physical climate risks |
|
Climate models indicate that rising global mean temperatures will lead to increased chronic climate hazards. The Group’s operations and supply chain will increasingly be impacted by extreme weather events, water scarcity, and other physical hazards. Increasing work-related heat stress could cause reduced work capacity, lower labor productivity and decreased economic output for Lenzing. |
Lenzing’s Group Policy for Safety, Health, and Environment (SHE) outlines a clear roadmap to ensure no accidents cause harm or damage to people or the environment. Lenzing is conducting case studies to mitigate the potential implications of rising mean temperatures for labor productivity including details of technical, organizational, and personal impacts. |
|
Transition opportunities |
Increased demand for low-emission products and product innovation |
|
As consumer needs and preferences shift toward low-emission products, the development and expansion of low-emission goods and services is expected to have substantial growth potential. Lenzing applies life cycle-based thinking, sustainable sourcing, efficient use of biomass, and partnerships with stakeholders along the value chain in order to contribute to more sustainable consumption and production patterns. All these factors mean that Lenzing’s products offer net benefits. |
Lenzing has embarked on an ambitious growth strategy to benefit from expected higher demand for responsibly resourced/low-emission products. Lenzing plans to invest more than EUR 1 billion in new lyocell fiber production and dissolving wood pulp facilities in the coming years. The investment plans will help Lenzing to further reduce its Group-wide carbon emissions and enhance the security of the Group’s raw material supply. Sustainability will be the key driver of construction and operation in all projects. Lenzing is also evaluating each innovation for sustainability improvements. |
|
Decarbonization strategy de-risks operations |
||
The Lenzing Group considers rapid decarbonization to be a major business opportunity to de-risk its operations, build resilience, launch products with less climate impact, and harvest energy efficiency gains. Lenzing will substantially reduce its greenhouse gas emissions in the coming years through a number of corresponding measures (decarbonization strategy) and science-based targets (50 percent reduction of greenhouse gas emissions per ton of product by 2030 compared to 2017). Furthermore, Lenzing aims to reach net-zero greenhouse gas emissions by 2050. |
Lenzing’s science-based target has been approved by the science-based target initiative, making Lenzing the first wood-based cellulosic fiber producer to have an approved science-based target. Lenzing’s decarbonization strategy is based on reducing its emissions, not offsetting them. To reach the target, Lenzing set up a cross-functional steering committee to make necessary decisions under the leadership of the Group’s CEO. Lenzing’s greenhouse gas abatement activities will involve a series of measures to reduce carbon emissions both within its operational boundaries and along its supply chain. |
|
