Interview: Paul Severin & Sébastien Knus, Head of Investor Relations Lenzing AG
How do you define sustainability for your company? What areas does it include?
Sustainability is – and has been – the dominant topic of our times. We regard it as part of our strategic principles and of our responsibility vis-à-vis the future generations to face and handle the challenges connected to it. Climate protection and sustainable operations are therefore fixed components of our strategy, drivers of innovation, and increasingly also integrated in our core business. Within the framework of its sustainability strategy, Lenzing has defined areas of operation where it sets itself specific goals, e.g. the reduction of CO2 emissions and the protection and conservation of forests. In doing so, we also directly contribute to some of the Sustainable Development Goals (SDGs) from the United Nations.
What is your business model based on?
Our business is based on the notion of a recycling economy. We source timber from certified and controlled forestry and turn it into cellulose fibre that is processed in a closed cycle or at very high rates of reclamation. This fibre is biodegradable at the end of its lifecycle and can be composted, and as such can become part of the ecosystem again.
That being said, it is not enough to rest on the inherent climate advantage with which a business model hinging on wood-based fibre comes. Therefore, we go a step further by drastically reducing the emissions from fossil fuels in our own production and in the supply chain and by developing new technologies that facilitate further decarbonisation.
How do you see your role in the industry in this project?
We are a total pioneer with our ambitious climate goals towards a carbon-free future in the manufacturing industry and in particular in the fibre sector. Our significant investments in Thailand and Brazil as well as on the existing production sites illustrate our responsibility and our conviction that shareholder value can be boosted in a targeted fashion by sustainability investments.
The product innovations made by Lenzing such as the LENZING™ ECOVERO™ fibres, our CO2-neutral TENCEL™ fibres, and our TENCEL™ x REFIBRA™ lyocell fibres are crucially driven by the topic of sustainability. They enable our customers and partners along the value chain to reach their sustainability goals and to give consumers worldwide a natural choice.
You have divested your stake in Hygiene Austria. What was your motive?
Lenzing AG and Palmers Textil AG have cooperated closely in recent weeks with the goal of clarifying the accusations that had been levied in connection with Hygiene Austria LP GmbH. We have also had a constructive dialogue about it with the sustainability team of Erste Asset Management and concluded that we had to decisive steps not the least due to the picture that had come across in public. And we did take those steps, together with Palmers Textil AG: on the basis of a specification sheet, the two owners agreed to transfer the stake held by Lenzing to Palmers. Initially Lenzing would forego a fair purchase price in order to ensure continued operations in line with the articles of association. The investment was fully written off in Q1 2021.
Lenzing is characterised by strong values and an internationally acknowledged process and governance system. However, mistakes were made in connection with Hygiene Austria and its implementation. Following consultation with the supervisory board, the Lenzing executive board has gained important insights from this situation.
What role do dialogues with sustainable investors play in your decision-making process?
Sustainable investors come with a holistic view on companies that we welcome. We are in regular exchange and constructive dialogue with our investors. Sustainability can also increase shareholder value. Therefore, our interests basically align. The interest of sustainable investors in Lenzing is considerable and growing on the back of our strategic focus on the topic and our excellent rating in the area. For example, in 2020 Lenzing subjected itself to the rating by the charity organisation CDP for the first time and was the only newcomer to immediately receive a ranking on the A list of the Climate and Forest category.
The EU has set itself the goal of becoming climate-neutral by 2050. How does the EU Taxonomy affect your strategic plans?
The EU’s goal to achieve climate neutrality by 2050 is in line with our vision of a CO2-free future. The criteria of the Taxonomy Regulation are part of our sustainability strategy and will thus continue to enter our decision-making process for our strategic investments in the future.
In addition to engagement, voting is another important tool for shareholders in exercising their rights. Have you noticed an increase in ESG shareholder motions in recent years?
No, we have not noticed such an increase, but sustainability is of course a topic at our AGMs. For example, this year we introduced the sustainability strategy and our roadmap to achieve the climate goals to the participating shareholders and shareholder’s representatives. This year’s AGM also decided on guidelines for the remuneration of the members of the executive board. The remuneration policy of Lenzing AG for the multi-year performance-based pay of the executive board is from now on therefore not only based on financial performance criteria, but also on non-financial sustainability criteria (ESG) which further support the sustainable corporate strategy of Lenzing AG.
Where do you see Lenzing five years from now?
Lenzing is going to increase its share of special fibres in terms of total fibre sales output significantly beyond the targeted 75% by as early as 2023 on the back of the implemented lyocell project in Thailand and the investments made in China and Indonesia. This, in turn, is an important step towards achieving our EBITDA target of EUR 800mn by 2024.
Five years from now, Lenzing will have achieved its medium-term strategic goals and completed its shift towards a provider of sustainably produced special fibres. The new lyocell plant in Thailand and the cellulose plant in Brazil will be well-established and contribute significantly to the company’s success.
At the point, Lenzing will also have implemented the majority of its sustainability and climate goals, it will be well on its way to a CO2-free future and thus have taken another great step. We will continue to set ourselves ambitious goals in order to master the big challenges of our times, and we will jointly drive systemic change along the various supply chains together with our partners. At Lenzing, we have looked beyond fibres for the past 80 years and take responsibility for the coming generations. We will keep the promise of our brand also in the future.
Commentary from the sustainability team:
At the beginning of March, we excluded Lenzing from the investable universe for our ethical-sustainable funds due to the developments at Hygiene Austria, where Lenzing was a strategic investor. We regretted this decision because to EAM, Lenzing is a star pupil in terms of ESG aspects. Lenzing has taken clear steps vis-à-vis Hygiene Austria. A new management was appointed, and a tender for a new HR service provider was invited.
The existing investment management of Lenzing was restructured in order to avoid similar events in the future. Walter Hatak, Head of Responsible Investments at Erste AM: “The criteria of exclusion triggered by the cooperation with Hygiene Austria have now lapsed, which means that the company will be re-admitted to the investable universe of our ethical-sustainable funds at our next regular update in June.”
For more information on the goals and implementation of the sustainability strategy “Naturally positive” please read the sustainability report of the Lenzing Group or visit https://www.lenzing.com/sustainability.
Prognoses are no reliable indicator for future performance.