For the impact assessment, we assessed impacts using all the criteria specified in the ESRS. Accordingly, negative impacts occur when the company causes harm to society and/or the environment through its direct or indirect business activities. We consider positive impacts as activities that go well beyond compliance with laws and generate clear added value for the environment and/or society. For the assessment we considered whether the impact is actual or potential and evaluated the severity based on scale and scope, as well as the likelihood of potential impacts. Additionally for negative impacts we considered whether the impact was of irremediable character.
We conducted the assessment along our entire value chain for all our business sectors, taking into account our portfolios of products and services, our assets, our diverse business relationship and our geographical location. To determine which of the sustainability matters are material for reporting purposes, we assessed individually each of the impacts identified as actual or potential and gave them a quantitative threshold. Impacts rated as significant or substantial/critical are considered material for reporting purposes.
In order to determine financial materiality, we assessed the risks and opportunities with regard to their likelihood of occurrence and the potential magnitude of the financial effects in accordance with the ESRS requirements. For the magnitude of a risk or opportunity we assessed five categories with their effect on EBITDA pre and/or operating cash flow: immaterial, minor, moderate, significant, or critical. For the likelihood, we determined the categories highly improbable, improbable, possible, likely, or more likely than not. The total financial impact was calculated by multiplying the magnitude by the likelihood. We aligned the assessment criteria with our Group Risk Management and took into account their risk matrix. To set the threshold, we considered every sub-(sub-) topic including its underlying risks and opportunities and its respective quantitative assessment results. The threshold for financial materiality corresponding to that of Group Risk Management was set for all sub-(sub-)topics whose risks and opportunities were assessed as having a magnitude of significant or critical. When assessing IROs, a gross approach was applied, meaning that no mitigation measures were taken into consideration.
To identify our material IROs, we conducted a double materiality analysis. The process can be described in the following steps:
- Step 1 – List of sustainability topics and identification of IROs: We created a list of topics based on the sustainability matters listed in ESRS 1 AR 16 and compared them with our sustainability topics from the 2023 materiality analysis. To compile the list of IROs, we conducted additional research in the SASB standards and further databases. We assigned each IRO to the appropriate ESRS sub-(sub-)topic. For risks, including physical and transition risks and opportunities, we additionally considered risk assessments, for example in the risk report, risk tables and the TCFD risk report. We conducted the assessment for our entire value chain, also taking into account country-specific features.
- Step 2 – Mapping the value chain: Due to the differing nature of our business sectors’ business models, the value chain stages were identified for each business sector in order to gain an overview of the whole value chain. Based on that, we identified business activities and related industries. We then derived the underlying ESRS sectors and industries in referring to the ESRS SEC 1 sector classification standard. Where possible, we also indicated dependencies on countries, geographic regions and sites, e. g. in connection with pollution.
- Step 3 –List and involvement of relevant stakeholders: We identified and classified our internal and external stakeholders. Based on their involvement in the overall assessment process of the materiality analysis, we divided them into two groups: Internal experts of the Group functions, such as Procurement, Human Resources, and the Financial departments (Risk Management, Financial Reporting, Controlling), as well as experts from the three business sectors were involved in the detailed identification, validation, and evaluation of the IROs in their respective field of expertise. Further external and internal stakeholders were involved in validating the results via questionnaires. We considered nature as a silent stakeholder when assessing IROs regarding the respective topics, for example biodiversity. During the process, no direct consultations with affected communities took place.
- Step 4 – Description of IROs: We then analyzed whether IROs exist for the identified business activities and the underlying industries of the value chain. We also reviewed our business activities for impacts, risks and opportunities in connection with pollution, water and marine resources as well as resource use and circular economy. An unbiased approach was applied throughout the process. New insights, which originated either from internal topic experts or from other stakeholders, were included and taken into account in all steps of the approach as needed.
- Step 5 – Assessment of IROs: As described in step 3, the identified IROs were evaluated by internal experts in their respective area of expertise on the basis of aligned quantified assessment criteria along the value chain. The results of the impact assessment were validated by involving internal and external stakeholders to ensure that the results align with stakeholder perspectives.
- Step 6 – Final review and approval: Finally, the results of the impact and financial materiality assessment were validated. This included various quality controls, such as checks and validations by the management of the business sectors. Finally, the Group’s Sustainability Board (MSB) approved the results.
Our process to identify and assess climate-related impacts, risks, and opportunities
Our approach to identifying and evaluating climate-related impacts, risks, and opportunities consists of several key steps:
- Identification of Critical Sites: We began by shortlisting our most significant sites for our global operations, also considering their total insured value.
- GHG Inventory Analysis: We used our existing internal analysis to evaluate emissions across our operations, helping us understand the sources and magnitudes of our emissions.
- Physical Risks Identification: We then conducted a comprehensive assessment of climate-related physical risks by identifying potential hazards such as floods, heatwaves, and windstorms, particularly under the high-emission climate scenario (4.0°C). This involved evaluating the exposure and sensitivity of our assets and activities to these hazards.
- Transition Risks and Opportunities: We assessed climate-related transition risks and opportunities within our operations and value chain by identifying key transition drivers related to a 1.5°C climate scenario. We then evaluated how our activities and financials might be exposed to these variables, with related quantifications of gross transition risks or opportunities.
- Risk Assessment: We analyzed historical data, scientific research, and expert opinions to determine the probability and characteristics of potential catastrophic events in specific areas. For relevant risks, we evaluated their potential impacts both with and without mitigation actions, considering, for instance, strategic investments in renewable energy and enhancing energy efficiency.
- Exposure Analysis: We identified and quantified the assets that could be at risk due to climate events, for example, buildings, infrastructure, inventory, and other physical or financial assets.
- Vulnerability Analysis: We assessed the vulnerability of exposed assets, to understand how different asset types respond to hazards and to estimate their susceptibility to damage or loss.
- Event Simulation: We simulated the potential impact of events by combining hazard characteristics, such as intensity and duration, with asset vulnerability to estimate possible losses.
- Loss Estimation: We calculated expected losses in terms of financial impact, including property damage, business interruption, liability claims, and other relevant factors.
Assessment of Climate-Related Hazards
Our company utilizes Climate Risk Assessment (CRA) methodology and models of an external provider to quantify both physical and transition risks and opportunities across various time horizons. For physical hazards, these are linked to the expected lifetime of assets, strategic planning, and capital allocation. Our identification of climate-related hazards and assessment of exposure and sensitivity are informed by high-emission climate scenarios and relevant regional climate projections. This process involves detailed analysis using climate models to evaluate the potential frequency and severity of hazards. We systematically assess the exposure and sensitivity of our assets and business activities by considering geographic, operational, and temporal factors:
- Likelihood: Evaluating the probability of occurrence for each identified hazard based on historical data and climate models.
- Magnitude: Assessing the potential severity of each hazard and its scale of impact on our operations and assets.
- Duration: Considering the expected duration of each hazard to understand potential long-term impacts on our business.
- Geospatial Coordinates: Incorporating geospatial data to analyze specific locations of our operations and supply chains, identifying vulnerabilities based on geographic exposure to climate-related hazards.
This structured approach enables us to systematically assess whether our assets and business activities may be exposed to these hazards. Our analysis of physical climate-related risks is based on geospatial coordinates specific to our locations, allowing for a detailed assessment of vulnerabilities.
In general, material risks and opportunities derive from impacts, dependencies or other factors, such as exposure to climate hazards or regulatory changes that address systemic risks. Therefore, we assessed whether financial risks and opportunities arise from the identified material impacts. Moreover, we also assessed and considered risks and opportunities that are not directly connected to an impact.
The risk assessment follows predefined approaches for quantitative and qualitative assessments. Sustainability risks are treated in the same way as other risk types according to their magnitude and likelihood of occurrence. Depending on the magnitude and likelihood, subsequent prioritization is possible following the categories such as significant or critical. Accordingly, risks that are rated as significant or critical in terms of their magnitude have an impact on EBITDA pre and/or operating cashflow above € 100 million.
According to our Group Risk Management, all business sectors are required to ensure an adequate level of local risk management. This includes regular and continuous efforts to identify, assess, monitor, and control local risks. The business sectors are instructed to analyze the risks in an aggregated manner that enables a realistic overview of our overall risk profile. Our opportunities are identified as part of the strategy development or forecasting processes. We then evaluate the potential, taking opportunities and risks into account and using scenarios to obtain a holistic view of possible developments.
The materiality analysis considers our entire value chain, i.e. our upstream and downstream value chain as well as own business. As described in step 1, the data sources for our list of sustainability topics are derived from the materiality analysis 2023 and other sources. According to the topic-specific requirements of E4, a preliminary analysis using the IBAT tool has shown that we have own sites near key biodiversity areas. However, the data does not allow any conclusions about our actual impact on biodiversity in these areas. A detailed list of the sites, as well as further information can be found under E4-SBM-3.
The materiality analysis process has evolved in the reporting period to incorporate a more structured stakeholder engagement approach, including identifying and classifying stakeholders. The analysis explicitly follows a double materiality approach, considering both our company's impacts on the environment and society and the financial implications of sustainability matters for our company. Furthermore, the assessment employs standardized criteria for evaluating IROs. For risks and opportunities, criteria were aligned with Group Risk Management.
The materiality analysis was last modified in preparation for 2024. Alongside the alignment with ESRS requirements, this involved a comprehensive review of previously identified sustainability topics as well as the integration of new insights, e.g., from stakeholders. The materiality analysis will be reviewed annually, with the next scheduled review planned for the first half of 2025.