Europe

The ESG Interview: Reducing Emissions Throughout the Product Lifecycle

Rockwool Group Sustainability Officer Anthony Abbotts explains how the insulation producer expects to meet its science-based targets and the evolving expectations of investors.

When your core product is widely recognised as part of the solution to climate change, you might be tempted not to place too high a priority on the pursuit of lower greenhouse gas emissions. But that’s not how they see things at Denmark’s Rockwool Group, a leading manufacturer of building insulation and related products.

In early December, Copenhagen-listed Rockwool announced it had agreed an emissions reduction programme with the Science-based Targets initiative (SBTi), becoming one of the few energy-intensive companies to do so.

Rockwool committed to cut its factory greenhouse gas emissions by 38% and non-factory lifecycle greenhouse gas emissions by 20% by 2034 from their 2019 levels. This means the firm will reduce its overall greenhouse gas emissions by one million tonnes per year by 2034.

These absolute emission reduction targets equate to a one-third reduction of lifecycle (i.e. Scope 1, 2, and 3) greenhouse gas emissions by 2034, while ensuring a continued reduction in the carbon intensity (carbon emitted per tonne produced) of the firm’s production processes.

The firm has already calculated that the building insulation it sold in 2019 will, over its lifetime, save 100 times the carbon emitted in its production, including emissions resulting from extraction and transport of raw materials and fuels.

“We are already a net carbon negative company,” said CEO Jens Birgersson, announcing the new targets. “Though not many companies can make that claim, we also know it’s not enough, which is why we have committed to this ambitious decarbonisation pathway. By demonstrating that an energy-intensive manufacturing company can achieve these targets, we hope to inspire others to take actions to help create a greener, more sustainable future”.

Transparent conversation

The energy-intensive manufacturing process referenced by Birgersson is a key driver of Rockwool’s decision to publicly commit to externally monitored emissions reduction targets.

“We’re an energy-intensive company,” says Anthony Abbotts, Group Sustainability Officer at Rockwool. “We melt stone at temperatures around 1500 degrees centigrade in order to produce non-combustible products. Only around 80 of the 500 or so firms with verified science-based targets (SBTs) can be considered energy intensive. It is an enormous challenge for a company like us to make this shift.”

The firm’s history as a rigorously fact-based organisation, the success of which has long depended on efficient use of energy inputs, is also an important factor in its approach to reducing emissions, as is the growing significance attached to ESG risks and opportunities among Rockwool’s investor base.

“We felt it was important to have that open, transparent conversation with the investor and analyst community about what we’re doing within ESG,” says Abbotts.

Rockwool’s SBTs are not its first initiative intended to reduce emissions. The firm, which derives around 75% of its revenues from insulation products, has been reporting to CDP since 2009. In 2016, responding to the Paris Climate Agreement, Rockwool set carbon intensity goals, aiming for a 20% improvement in efficiency by 2030, with an interim target in 2022. These goals – all still on track – were part of a broader commitment to alter the firm’s product and operational impacts in support of 10 of the 17 United Nations Sustainability Development Goals.

“As our understanding of the climate emergency has evolved, we have recognised we need to raise the bar, and accelerate our decarbonisation ambition and trajectory,” says Abbotts.

To this end, Rockwool took the decision earlier this year to commit to being publicly benchmarked by SBTi. a non-profit partnership between the United Nations Global Compact, World Wide Fund for Nature, World Resources Institute and CDP, which helps firms to set and meet climate-related targets.

Message to stakeholders

Around 1,000 companies across 50 sectors, with a combined market capitalisation of more than US$15 trillion, have pledged to align with the goals of the Paris Agreement via SBTi’s science-based greenhouse reduction targets. Approximately half have agreed to specific targets and frameworks for achieving reductions. In September, SBTi launched a specific framework and validation service for the finance sector, with almost 60 institutions committed to setting targets.

For Rockwool, a key part of the decision to commit to targets set by SBTi was the message it sends to stakeholders, including investors. “We signed up to SBTi because we believe it is the most credible internationally recognised organisation within carbon reduction target setting. It’s important to have a credible third party standing behind the targets we are setting, when we communicate on our progress,” says Abbotts.

Reporting on its SBTs will add to an ever-deepening flow of communication between Rockwool and its investors on ESG-related issues. “The investor community in general has recently shown far more interest in the ESG area, so we have responded by being more proactive in our communications. We’ve had dedicated quarterly ESG investor calls since September 2019, becoming the first company in Denmark to do this and probably also the first in the Nordics,” he says.

On December 14, the firm held a dedicated call for investors and analysts to explain its decision to commit to SBTs and intends to provide quarterly ESG updates throughout 2021. Abbotts says it’s becoming more evident that investors are ‘digging into the weeds’ to understand the science and its business implications. “The questions we’re being asked show that investors are becoming increasingly educated on the ESG area,” he says.

Rising information expectations

But Abbotts admits that communication on sustainability performance is a complex and at times frustrating business, partly due to the evolving and inconsistent nature of ESG metrics, scores and reporting frameworks. Like many other companies, Rockwool has had to take the rough with the smooth when it comes to third-party assessments of its ESG credentials, whilst also adapting to new disclosure standards and rising information expectations.

The firm has been reporting in line with the Task Force on Climate-Related Financial Disclosures (TCFD) since CDP aligned with its recommendations and welcomes its focus on both the opportunities and risks arising from the transition a low-carbon economy. Rockwool has also conducted an assessment of its alignment with the EU Taxonomy Regulation, calculating that 95% of its insulation business revenue falls are eligible for investment by sustainable funds, subject to the finalisation of its draft delegated acts.

“These are good tools for us to get across the value of our business to the investor community,” says Abbotts.

Reporting in compliance with new regulatory requirements is an accepted part of the landscape, but the variations in analyses and rankings based on those disclosures is another matter. ESG ratings and scores from third-party data providers can vary, especially if they attempt to wrap a range of inputs into a single overall number, using methodologies that are not always transparent.

“ESG is not a standardised area, especially in terms of scores and ratings,” says Abbotts. “It would be great if we got high scores in all our ratings. We will focus on what’s material and if that has a negative effect on our ratings, so be it.”

Never the twain?

In terms of Rockwool’s direct communication with investors, Abbotts says there is scope for improvement and evolution. Having separated out its sustainability-related communication with investors from its core financials, both in terms of reports and analyst calls, alignment may grow closer in the coming years.

“We’ve chosen so far to report our broad sustainability progress along with our financial results in our annual report, while reporting more in-depth on sustainability progress in our sustainability report. Originally, our sustainability report was published in August, and financials were released in February. Over time, those releases have got closer together,” says Abbotts. Rockwool currently reports sustainability in March, and publishes its annual report in February.

Rockwool’s annual sustainability report goes well beyond progress on emissions reductions, covering a wide range of initiatives across the 39 countries in which it has a presence. These include investments in local communities as well as efforts to leverage the circularity of its core stone wool-based products, touching on actions to reduce use of resources beyond energy, including water. When such activities have such a profound impact on business model, the line between sustainability and financial reporting becomes blurred.

“We have had internal conversations about going down the integrated reporting route. For now, it’s important for us to separate the two reports, although they are an integral part of the same conversation. Our concern has been that if we put our sustainability communication into our annual report our messaging would become diluted,” says Abbotts, allowing that the timing of the reports may be brought further in synch, “to send that clear signal to the market that sustainability is an integral part of the business model”.

Secrets of successful target-setting

For Abbotts, there are four criteria for success in setting SBTs. The first is the culture of the business. “Because carbon and energy efficiency is such an integral part of our business model, it is natural for our top management to talk about these subjects,” he says.

Second is the ability to produce robust data. “Otherwise, it will be very difficult to measure your progress and to get a third-party organisation like SBTi to support your target setting,” adds Abbotts, noting that Rockwool’s CDP and other existing sustainability reporting processes supported the generation of CO2 emission data for SBT purposes. “There’s always room for improvement. We identify data gaps that we need to address over time, like any company,” he says.

The third element is management support and commitment. The steering committee for the internal strategic project on SBTs included four members of the executive management team, including Rockwool’s CEO and another member who is now chairman of the board. “This means the project is well anchored within the top of the organisation,” says Abbotts.

The final ingredient has been collaboration with SBTi, which Abbotts commends for producing detailed guidance for companies and responding to the detail questions raised during the target-setting process.

“New territory”

The three planks of Rockwool’s approach to meeting its SBTs are reassuringly familiar to anyone looking to reduce their own carbon footprint: become more energy efficient; invest in new technology; and recycle more. Of course, it gets more complex when your business involves heating rocks on an industrial scale.

In many respects, increasing energy efficiency is a matter of ramping up existing practice, making incremental improvements to existing processes and rigorously ensuring that good practice is built into new factories and retrofitted into existing ones.

More of a quantum leap perhaps is the investments Rockwool is making in new technologies. Two stand out. First, is the switch to melting facilities that are powered by electricity rather than fossil fuels, starting with a pilot electrical melter sited in Moss, Norway, the biggest yet built to produce stone wool.

“We’re moving into new territory,” says Abbotts. “We benefited from support from the Norwegian state fund (Enova) and will learn a lot from this project, which we will be able to apply in our other factories around the world. The electric melter in Moss will reduce our Scope 1 and 2 emissions by 80% at that facility.”

Rockwool has also developed a fuel flexible technology which enabled the firm to convert from coal to natural gas in Denmark in 2020. “That was a big breakthrough that took several years and many engineering hours”, adds Abbotts. “At the start of 2021 in Denmark, owing to the availability of CO2-neutral biogas, we will convert from natural gas to biogas.” Other existing facilities will convert from coal in 2021 and new ones will use gas.

Recycling and upcycling

Finally, Rockwool is continually upping its game with respect to circularity. Stone wool is inherently recyclable, but it still requires effort and process both to recycle bring wool back from the market to be recycled in Rockwool’s factories as well as to recycle wool waste generated in the production process. “We’re also able to reduce the carbon intensity of the factories by recycling and upcycling waste material from other industries. The vast majority of the raw materials we use in our production is stone, but we also use waste materials,” says Abbotts.

This emphasis on circularity reflects Rockwool’s focus on the full lifecycle of its operations, not just its production and distribution processes.

“Because we’re able to recycle, we’re able to have minimal end-of-life emissions. Our material is not ending up in incineration and generating CO2. The majority of our emissions are in 1 and 2, but that does not mean to say we’re not going to focus on also reducing Scope 3 emissions. When you’re trying to judge the ambition of the emissions targets of companies, you need to look at all three scopes,” asserts Abbotts.

“You need to be as ambitious as possible across the whole lifecycle because that’s the only way we’re going to achieve the goals of the Paris Climate Agreement.”

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