Essity Annual and Sustainability Report: Climate-Related Risks and Opportunities

Climate change affects Essity and the company continuously maps the risks and opportunities this entails by means of, for example, scenario analyses. The purpose of this is to identify, manage and minimize the risks and to take action. Strengths and opportunities identified are further developed within the scope of the Group’s sustainability work.

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 on page 35. Sustainability issues are discussed on an ongoing basis by Essity’s Executive Management Team and Board of Directors and has also in 2021 comprised a focus area in the work of the Board of Directors. A steering committee has been appointed to ensure that Essity meets the company’s climate targets. The steering committee is led by members of Essity’s Executive Management Team and its tasks include preparing plans to deliver on all Scope 1, 2 and 3 targets.

Targets and key performance indicators

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 ambitious targets and key performance indicators to be achieved in parallel with the continued growth of the company. 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 contributes to business opportunities and cost savings. Essity’s target to reduce carbon emissions was approved by the Science Based Targets initiative for the first time in 2018. For Scope 1 and 2, Essity undertook to reduce greenhouse gas emissions by 25%, and for Scope 3 by 18% by 2030 compared with 2016. In 2021, Essity increased its ambitions for Scope 1 and 2, committing to reducing its Scope 1 and Scope 2 emissions by 35% no later than 2030¹) and to develop plans to achieve net-zero emissions of greenhouse gases by 2050¹). Read more about the Essity’s targets and outcomes on pages 20–21.

Climate-risk analysis

A climate-risk analysis based on the recommendations of the framework of TCFD is completed annually. In 2020, a more in-depth scenario analysis was conducted based on two different climate scenarios. Temperature change was studied from a longterm perspective until 2100. A ten-year perspective was used, until 2030, in order to draw conclusions about the impact this would have for Essity. The analysis was based on the impact of climate change and the impact of changes to legislation. Reporting is conducted based on the recommendations of the framework of the Task Force on Climate-related Financial Disclosures (TCFD). See also page 137 for an index of where more TCFD-related information can be found in the Annual and Sustainability Report.

Scenario 1: Global warming of 1.5°C

Description: Global warming is limited to no more than 1.5°C by 2100²) 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.
• Deforestation leads to a shortage of fresh wood-based fiber, thereby resulting in a raw materials shortage.

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, which also attracts new employees.
• Investments in and development of new business models in addition to green solutions attract more customers and consumers.
• Leading hygiene and health solutions are prioritized.

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 production facilities, 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 impact and setting new standards for the entire industry.
• In 2021, Essity commenced production of pulp from alternative fiber at its facility in Mannheim, Germany. The production facility produces high-quality pulp from wheat straw, using 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 woodbased pulp.
• Reduced resource consumption, efficiency enhancements, altered product specifications and price increases.
• Essity prioritizes emissions-effective transport methods for long-distance transportation. The company 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. 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 were approved by the Science Based Targets initiative in 2018. To ensure that it meets the climate targets, Essity has appointed a steering committee led by members of Essity’s Executive Management Team.
• New offerings, business models and partnerships are under development in Essity that contribute to a more sustainable society and reduce the environmental impact of the company, and of customers and consumers. For example, washable absorbent underwear has been launched that facilitates reuse, the proportion of renewable material has increased in the company’s packaging, and more customers are using Tork PaperCircle®, which is the world’s first recycling service for paper hand towels.
• Essity urges its suppliers to work in a manner that promotes increased sustainability and several of Essity’s major raw material suppliers have their own ambitious sustainability targets that are often approved by Science Based Targets initiative. ■ 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. Awareness of the importance of hygiene and health is increasing globally.
• Essity’s target for sourcing of fresh fiber means that all woodbased fresh fiber is to be FSC™ or PEFC™ certified, meaning sourced from responsibly managed forests that promote the principles of biodiversity and forest conservation.

Scenario 2: Global warming of 4°C

Description: Global warming of 4°C in 2100³), due to the failure to effectively reduce emissions and other negative environmental impacts. Extreme weather become more frequent. 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 disruptions due to extreme weather, which may result in water shortages and excessively high water temperatures, for example.
• Rising insurance costs and costs for reconstruction following extreme weather.
• Increased investments 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, thereby resulting in a raw materials shortage.
• Lower living standards and changed consumption behavior. Opportunities
• Competitive advantages from safeguarded production and sourcing in regions at risk.
• Leading hygiene and health solutions are prioritized.

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 engaged the services of 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.

^{1 In accordance with SBTi’s definitions, where targets for 2030 are referred to as “near-term targets” and for 2050 “long-term targets”.
2 Based on the International Panel for Climate Change (IPCC) scenario (RCP scenario 2.6).
3 Based on the International Panel for Climate Change (IPCC) scenario (RCP scenario 6–8.5).}

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