Climate-related risks and opportunities
Climate change affects Essity. The company identifies the risks and opportunities this entails, by means of, for example, scenario analyses. This helps to identify, manage and minimize the risks and to thus take the correct and necessary actions and also estimate and reduce the negative financial impact. Essity also strives to identify opportunities and further develop the company’s strengths in its sustainability work to achieve competitive advantages.
Reporting based on the recommendations of the framework of the Task Force on Climate-related Financial Disclosures (TCFD). See also the TCFD Index for an index of where more TCFD-related information can be found in the Annual and Sustainability Report.
Strategy and governance
The identification and assessment of climate-related risks and opportunities are part of Essity’s strategy process. Climate risks and opportunities are evaluated in each business unit and in a centrally coordinated internal expert group that represents key functional competencies for climate-related topics in Essity.
Responsibility for managing climate risks follows the company’s delegation scheme, which is described in the chapter Risks and risk management. Sustainability issues are discussed on an ongoing basis by Essity’s Board of Directors and in 2020 comprised a focus area in the work of the Board of Directors.
Targets and KPIs
For many years Essity has worked with sustainability throughout the value chain: from responsible raw material sourcing, more efficient production with a smaller climate footprint, and sustainable solutions to customers and consumers. The sustainability work has been broken down into several targets and KPIs as Essity takes the approach that if you measure it, it will get done. The targets are ambitious and the company will also continue to grow. This places demands on the need to make a transition and on new production methods and circular business models, which is a challenge but if handled correctly also offers business opportunities and cost savings. Essity’s targets to reduce carbon emissions were approved by the Science Based Targets initiative in 2018. For Scope 1 and 2, Essity has undertaken to reduce greenhouse gas emissions by 25%, and for Scope 3 by 18% by 2030 compared with 2016.
Essity has appointed a steering committee to ensure that it meets the climate targets. This committee is led by members of Essity’s Executive Management Team and its task is to prepare plans for delivering on all Scope 1, 2 and 3 targets.
Read more about the Essity’s targets and outcomes.
Climate-risk analysis
A climate-risk analysis based on the recommendations of the framework of TCFD was completed in 2020. The analysis uses two different climate scenarios. Temperature change was studied from a long-term perspective until 2100. A ten-year perspective was used, until 2030, in order to draw conclusions about the impact on Essity. The analysis was based on the impact of climate change and the impact of changes to legislation.
Process
Scenario 1: Global warming of 2°C
Description: Global warming is limited to no more than 2°C by 2100 through collaboration between governments, industries, companies and individuals pushing for tougher legislation, green innovation and rising demand for environmentally friendly products and services. Carbon emissions are strictly limited and carbon tax is extended, which promotes processes with low carbon emissions and greater use of circular material and products.
Risks
- Increased investment costs in innovation, production and distribution are needed due to tougher legislation for manufacturing processes, energy sources and material use
- Higher costs for goods sold due to price increases on raw materials, rising energy prices, higher distribution costs as well as higher carbon taxes and restrictions on carbon emissions
- Changed consumption patterns
Opportunities
- Competitive advantages through Essity’s long-term and robust efforts to achieve lower resource use, innovative green production methods and lower carbon emissions
- Changed consumption patterns in the form of increased demand for sustainable solutions with a smaller climate footprint, rewarding companies with a strong sustainability profile
- Investments in and development of new business models and green solutions attract more customers and consumers
- Leading hygiene and health solutions are a priority
Actions
- Investment decisions consider both financial and environmental impact. Investments are made in state-of-the-art technology, improving process efficiency and reducing carbon emissions. Through “Industry 4.0” and the development of smart plants, Essity is achieving more efficient production, shorter lead times, higher quality and lower environmental impact.
- Essity researches and invests in several ground-breaking ideas in sustainable technology in its manufacturing processes with the aim of reducing the company’s environmental footprint and setting new standards for the entire industry.
- In 2021, Essity will start up production of pulp from alternative fiber at its facility in Mannheim, Germany. The plant will produce high-quality pulp from wheat straw that will use less water, energy and chemicals as well as reducing carbon emissions. This will also offer Essity access to a new source of raw materials, which may over time reduce the company’s exposure to wood-based pulp.
- Reduced resource consumption, efficiency enhancements, altered product specifications and price increases
- Essity prioritizes, if possible, emissions-effective transport methods for long-distance transportation. Essity has a strong focus on and prioritizes vehicle types that meet the requirements of the latest environmental and emissions classes combined with the most up-to-date alternatives, such as CNG fuel and electric trucks. Moreover, Essity participates in various local projects and partnerships with customers and suppliers to jointly reduce carbon emissions from transportation.
- The targets for carbon emission reductions are approved by the Science Based Targets initiative. To ensure that it meets the climate targets, Essity has appointed a steering committee led by members of Essity’s Executive Management Team.
- Essity provides clear communication about how important and integrated sustainability work is within the company and the sustainability targets it is striving to fulfill.
- New offerings and business models are under development in Essity that contribute to a more sustainable society and reduce the environmental footprint of both the company and customers and consumers. For example, washable absorbent underwear has been launched, the proportion of renewable material has increased in our packaging, and more customers are using Tork PaperCircle®, which is the world’s first recycling service for paper hand towels.
- Essity strives to increase the use of recycled and renewable material in packaging and products.
- Essity offers leading hygiene and health solutions to improve people’s well-being all over the world. When people fulfill the most basic needs for food and shelter, the next priority is hygiene and health. Increased awareness globally of the importance of hygiene and health.
Scenario 2: Global warming of 4°C
Description: Global warming of 4°C in 2100, due to the failure to effectively reduce emissions and other negative environmental impacts. Extreme weather increasingly common. Sea levels continue to rise, desertification and deforestation continues. Access to key resources such as raw materials, energy, water and food declines, resulting in greater volatility and uncertainty for prices and food security.
Risks
- Production disruption due to extreme weather
- Rising insurance costs and costs for reconstruction
- Increased investment required to safeguard stable production and supply chain
- Significantly higher cost for sold goods as resource scarcity leads to higher prices for raw materials, energy, water and distribution
- Deforestation leads to a shortage of fresh wood-based fiber
- Lower living standards and changed consumption behavior
Opportunities
- Competitive advantages from reliable production and sourcing in regions at risk
- Leading hygiene and health solutions are a priority
Actions
- Essity has contingency plans in place in high-risk countries and is continuously working to safeguard production and sourcing of input goods.
- All of Essity’s production facilities and associated distribution centers (regardless of their location) are obligated to follow Essity’s loss-prevention policies, not only for fire, explosion, and machinery breakdowns but also for climate-related risks. In addition to contingency plans, this may involve tangible measures such as reinforcements for roofs and doors against wind, shut-off valves for gas in the event of an earthquake, or various customizations to keep rapidly rising water outside of a plant or warehouse. Essity has also employed external consultants to model the company’s exposure to natural catastrophes where possible and is working with loss-prevention activities.
- Reduced resource consumption, efficiency enhancements, altered product specifications and price increases
- Essity’s target for sourcing of fresh fiber means all wood-based fresh fiber is to be FSC® or PEFC™ certified, meaning from responsibly managed forests that uphold the principles of biodiversity and forest conservation.
- See also actions under Scenario 1.