Material Impacts, Risks and Opportunities
Process for identification and assessment
A climate-related risk analysis carried out in the year under review examined impacts on climate change, particularly those caused by WACKER’s current and future greenhouse gas emissions, and acute and chronic physical climate risks in terms of WACKER’s own operations as well as its upstream and downstream value chains.
Assessment of the impacts on climate change, particularly due to greenhouse gases, is covered by the materiality assessment under ESRS 2 – General Disclosures and described in the following in greater detail.
The physical climate risk scenario analysis was conducted based on the IPCC’s RCP/SSP scenarios (SSP1-2.6, SSP2-4.5 and SSP5-8.5). The underlying assumptions are consistent with those applied to our financial statement. The IPCC’s RCP 8.5 negative scenario (business-as-usual/worst-case scenario, increase in temperature of between 2.0 and 5.0 degrees Celsius in 2100) maps the maximum risk in terms of acute and chronic physical climate risks. The analysis examines possible risks (including those that fall under the categories of temperature, water, wind and soil) at site level in each case, taking into account various climate scenarios and timeframes (short, medium and long term) that match the useful lives of our facilities. The risks identified here were then assessed by comparing them with the actual local circumstances. In addition to production outages and related losses of earnings, the assessment took account of any precautionary measures already implemented and the likelihood of such events occurring. WACKER has not identified any material physical climate risk at present.
To assess transition risks, WACKER uses the International Renewable Energy Agency (IRENA) 1.5 degrees Celsius scenario since this scenario primarily focuses on the energy transition and the increased use of renewable energy sources. Due to WACKER’s high energy use, its success depends very heavily on the availability of electricity at competitive prices. The IRENA scenario used (target path < 2 degrees Celsius by 2050) remains an ambitious path in the process of transformation toward renewable energy sources, linking it directly to the company’s economic success. Transition risks and opportunities generally arise from evolving market conditions, new climate-friendly technologies, additional political requirements and changes in social expectations. Since these factors have a global impact in a globalized economy and for an international company, the scenario analysis of the transition climate risks was not from a site perspective, but instead from a global one.
A timeframe up to 2050 was defined for the detailed analysis in line with the IRENA scenario. An analysis conducted by experts defined the “Market and Technology Shifts,” “Reputation” and “Policy and Legal” categories in line with guidelines issued by the Task Force on Climate-related Financial Disclosures (TCFD) as areas with climate impact to be taken into account. The following subtopics were identified:
- Market and technology shifts: Growing demand for carbon-efficient management, adapting the product portfolio, changing the energy supply over to renewable sources and transitioning toward new climate-friendly technologies
- Reputation: Increase in stakeholder expectations
- Policy and legal: Impacts of an increase in national and international regulatory requirements
The risks and opportunities identified in the process were then assessed for materiality. They are described in detail below, or we refer to our risk management report as well.
Material impacts
WACKER is associated with the following climate-related impacts:
Sustainable products and solutions
The transition to climate neutrality requires new technologies and materials to be able to put global megatrends such as renewable energy, smart construction, digitalization and e-mobility into practice. By providing versatile products in these fields, WACKER helps to cut greenhouse gases. We make polysilicon available for photovoltaics and semiconductors, for example, playing a role in the energy transition and digitalization. Furthermore, we use our products to address efficient construction techniques. We support the mobility transition with various products like silicones, which support the thermal management of electric motors. Our aim is to tailor our product portfolio to the above megatrends to facilitate the transition to climate neutrality by working together with our upstream and downstream value chains.
Release of fossil greenhouse gas emissions through chemical production
Due to its energy intensity and the use of fossil raw materials, the manufacturing of chemical products involves the release of greenhouse gases. This contributes to climate change. As WACKER is a chemicals manufacturer, its production sites emit greenhouse gases, which have an impact on climate change. This includes both direct emissions from our production processes (Scope 1) as well as indirect emissions from the consumption of purchased energy (Scope 2) and the upstream and downstream value chains (Scope 3). This also applies to other companies along our value chain. We have set ourselves the target of constantly reducing our impacts on climate change and achieving net zero in 2045.
Material risks
As an integral part of our analysis of physical and transition climate risks, we review the short-, medium- and long-term resilience of our strategy and our business model once a year against climate risks, taking IRENA’s 1.5 °C scenario into account. If necessary, we devise policies, actions and any required investment plans to tackle the implications identified. The description below of material climate risks includes specific resilience assessments and measures.
Physical climate risks
A climate-related risk analysis carried out in the year under review examined acute and chronic physical climate risks in terms of WACKER’s own operations as well as its upstream and downstream value chains. WACKER has not identified any material physical climate risk at present.
Transition climate risks
Transition climate risks arise from the transition to a low-carbon and climate-resilient economy. They include political, legal and technological risks as well as market and reputational risks. The following material transition risks were identified:
- Ever more regulations
As climate change progresses, we expect increasing regulatory measures in the medium term, particularly in Europe, that have the potential to considerably influence the competitiveness and product portfolio of WACKER and of its customers. In the long term, they could have a medium to large impact on WACKER’s earnings. Because of the risk, we pay attention to climate-related influencing factors when monitoring the regulatory environment. We also take account of prospective climate-related regulations in our choice of actions and when making key business decisions. - Availability of energy at competitive prices
Climate change is driving the transition toward renewable energy. Subject to the initial energy system, speed of implementation and the political framework, this transition may incur considerable additional cost. For an energy-intensive and global company like WACKER, energy costs are a significant competitive factor. In the medium to long term, they could have a large impact on WACKER’s earnings. WACKER tackles this risk by continuously improving the energy efficiency of its processes and by procuring energy from a variety of sources. - Loss of business due to customer demands
In the long term, greater customer requirements could lead to a loss of business if WACKER were unable to fulfill them. In the medium to long term, they could have a medium to large impact on WACKER’s earnings. WACKER counters this risk by staying in regular contact with its customers to identify corresponding trends in good time, while also working on continuously improving the climate impacts of its products to fulfill future customer requirements.
In light of the resilience measures described above, we believe that we are well prepared, with regard to the transition risks that have been identified, for the transition to a low-carbon and climate-resilient economy.
Material opportunities
Sustainable products and solutions
WACKER has a variety of products that contribute positively to conserving natural resources and cutting greenhouse gases. We see the potential for higher market share and sales through products that contribute to the transition toward an economy with low levels of greenhouse gases. As a result of the energy transition in particular, we anticipate a growing need for polysilicon as a raw material for photovoltaic modules to support the increased expansion of renewable energy.
WACKER is working intensively on continuously improving the climate impacts of its products. This enables us to fulfill growing customer requirements, enabling us to ensure our own competitiveness in the long term.
Please also see the risk management report for details of the impacts and actions as well as our risk analysis in relation to our strategy.
