Procurement management

[GRI 302-8]

Wood, pulp and chemicals purchasing are handled by three different teams within the Lenzing Group (Wood Procurement, Pulp Trading GmbH, and Global Purchasing). Lenzing aims to minimize purchasing risks such as major price fluctuations and supply bottlenecks through reliable, long-term supply relationships and active supplier management.

Supplier selection and evaluation are based on economic, quality as well as environmental, social, and governance (ESG) criteria.

The most important materials procured are (in order of annual procurement volume): wood, dissolving wood pulp, caustic soda, sulfuric acid, sulfur, carbon disulfide, sulfur dioxide, and magnesium oxide.

Lenzing’s Global Supplier Code of Conduct

All of the Lenzing Group’s suppliers must comply with the Lenzing Global Supplier Code of Conduct. Wood and pulp suppliers additionally comply with its Wood and Pulp Policy. In this policy Lenzing gives preference to suppliers compliant with FSC^® or PEFC standards. Lenzing expects its suppliers to conduct all operations with respect to health and safety at work, labor and human rights, environmental protection, ethics and management practices. To ensure compliance with this Code, suppliers are required to allow Lenzing and/or any of its representatives to have access all their facilities and to all relevant records upon advance notice and to carry out assessments through supplier assessment tools.

Supplier management Active negotiations with suppliers regarding their engagement for sustainability assessment are in progress. In 2022, more than 300 suppliers were assessed on the basis of social and environmental criteria through the EcoVadis tool. This number has doubled comparing to the previous year since Lenzing stepped up its efforts to involve suppliers.

In Germany, a new Supply Chain Due Diligence Act will come into effect in 2023. The European Union (EU) is simultaneously working on an EU-wide Supply Chain Act that requires EU companies to carefully manage social and environmental impacts along their entire value chain. Lenzing is already preparing for the new regulation to ensure compliance and the fulfilment of corporate due diligence obligations along the supply chain with regard to human rights and the environment. A vision and strategy for sustainable procurement are currently being formulated together with a process for the next steps to establish a comprehensive risk management system.

Supplier evaluation

[GRI 308-1]

All suppliers are evaluated for sustainability in the production chain. Lenzing conducts regular audits as well as specific evaluations of both new and established suppliers for sustainability including compliance with environmental and safety standards. Suppliers are interviewed regularly and evaluated under environmental and safety aspects with the support of external experts. A final assessment is then conducted. It affects the overall supplier assessment and constitutes a major criterion for long-term cooperation with suppliers. In 2022, when screening for risk suppliers no Lenzing suppliers were identified as having significant actual and potential negative environmental impacts, however one contractor of the facility in Indonesia was expelled due to incompliance (falsification of certificates).

Lenzing’s most relevant suppliers are those that have an increased risk due to their size and volume. They represent 80 percent of global purchasing volume including dissolving wood pulp but excluding pulpwood. The EcoVadis online tool is used to evaluate these non-wood suppliers. Evaluations of the non-wood suppliers found no violations of environmental, social or ethical standards that could have led to the termination of existing supply contracts in the reporting year. Pulpwood suppliers are evaluated using a due diligence system based on FSC^® Controlled Wood criteria.

Strategic dissolving wood pulp suppliers are evaluated periodically. In 2022, no on-site audits were conducted due to the COVID-19 pandemic. The sustainability performance of pulp suppliers is annually investigated using a comprehensive questionnaire covering aspects such as procurement standards, supply chain and supply areas, engagement and GHG emissions, amongst others. The results of the survey will be used to identify the key sustainability issues and guide Lenzing’s future supplier engagement activities.

All wood suppliers – totaling more than 600 in 2022, half of which are private owners – in all sourcing countries are assessed once a year against FSC^® Controlled Wood and PEFC Controlled Sources criteria. All of the pulp suppliers are certified by the leading forest certification schemes and supply Lenzing with certified or controlled pulp.

In addition, Lenzing assessed the maturity of its own procurement management system and processes to gain a shared understanding of what is needed to further integrate sustainability criteria into its procurement and supplier management processes.

Workshops took place with several departments to reach a common ground on upcoming legal requirements (e.g. German Supply Chain Act) and stakeholder expectations related to supply chain sustainability and due diligence. Based on the results of the maturity review and the internal discussions about future requirements, Lenzing is now developing the next steps to further improve supplier sustainability performance.

Pulpwood and dissolving wood pulp certifications

Lenzing’s wood procurement management system ensures that all wood destined for the production of pulp is sourced from legal and sustainably managed sources. Lenzing demonstrates that the wood sourcing complies with its high standards through verification based on FSC^® and PEFC certification systems (figure 16). More than 99 percent¹ of wood and dissolving wood pulp used by the Lenzing Group is either certified by FSC^® and PEFC or controlled and inspected in line with these standards (figure 16). Wood and pulp procurement faces annual surveillance/recertification audits of the FSC^® and PEFC systems.

The following figures show the certification status of all wood or pulp input into Lenzing’s fiber production, whether obtained directly through its own procurement for in-house dissolving wood pulp mills or indirectly through dissolving wood pulp suppliers. All Lenzing Group production sites are FSC^® CoC (Chain of Custody) certified. The group certification for PEFC CoC currently covers five sites. Purwakarta, Nanjing and Mobile have successfully been added due to growing market interest in certified fibers and customers’ expectations (table below).

PEFC is mainly used for wood sourced from Central Europe, FSC^® certification of forests is not widespread in this region. Therefore, most wood sourced is procured with a PEFC certificate and receives FSC^® Controlled Wood status at Lenzing sites after a due diligence process. The Lenzing site has held the PEFC Chain of Custody certification as its main certificate for more than a decade. Since 2016, this has been complemented by a FSC^® CoC (Chain of Custody) certificate that covers all Lenzing production sites. All wood input to the Lenzing Group is either certified or controlled by the FSC^® certification system (figure “Certification status – FSC^® Mix and FSC^® controlled wood” below).

The decrease in certified wood input and increase of FSC^® Controlled Wood in 2021 and 2022 was due to necessary supply adjustments. On the other hand, for the first time some 100 percent of FSC^® certified pulp entered the supply chain from LD Celulose.

Certification status

Certification status – overall certified and controlled wood

Certification status – FSC® Mix and FSC® controlled wood

Pulp suppliers can hold more than one forest related certificate. Most of the pulp suppliers located in North America also carry certification from the Sustainable Forest Initiative (SFI), which is also a national member of and fully endorsed by the global PEFC certification scheme.

For detailed explanations of the certificates, controlled wood, and the internal due diligence system, please see the “Wood and pulp” focus paper.

Since forestry operations in Central Europe are generally small-scale, many small forest owners harvest wood for additional income and do not participate in a certification process. Therefore, Lenzing needs to procure reliable but limited quantities of such wood other than that certified to FSC^® or PEFC. This category of wood is inspected in line with these standards. Strict forestry laws and enforcement in Central Europe also require all forest owners to pursue sustainable management. The Lenzing Wood and Pulp Policy and Supplier Code of Conduct are part of all wood purchasing activities and are presented to potential suppliers before the start of a business relationship. Deliveries can only be made to Lenzing if these conditions are accepted.

The Lenzing due diligence system for wood and pulp procurement includes regular formal audits. However, ongoing, day-to-day, informal, personal contact between Lenzing’s procurement team and suppliers is even more important. Supplier contracts can be terminated in response to severe sustainability findings. This has happened occasionally in the past when suppliers failed to remedy certain issues. In 2022 no such cases occurred.

¹ See figures “Certification status” for details of the remaining less than 1 %. Part of this is due to the formal process of certifying the new site. A small amount of non-certified wood was used for R&D purposes and was submitted to a due-diligence process according to Lenzing’s Wood and Pulp Policy.