Covestro Group at a Glance – Climate Neutrality

Strategy, Management, and Implementation

Strategy

Covestro’s business activities are energy-intensive. In addition to focusing on the circular economy, our strategic alignment toward sustainability in particular therefore also comprises a consistent commitment to climate neutrality. Our long-term corporate vision of becoming fully circular can only be successful if, at the same time, total greenhouse gas (GHG) emissions are continually reduced in order to contribute to achieving a climate-neutral economy.

In accordance with the Intergovernmental Panel on Climate Change (IPCC) and the United Nations Framework Convention on Climate Change (UNFCCC), we understand and support climate neutrality as society’s collective goal of attaining net zero GHG emissions by the year 2050. This means that anthropogenic emissions can be removed by the planet through its natural ability to absorb them and as a result no longer impact on the climate.

For this reason, Covestro has set itself the goal of reaching net-zero GHG emissions* by the year 2035 in its own production activities and from the provision and use of energy produced outside the company at all environmentally relevant sites, while working on solutions to reduce emissions along the value chain. In addition to reducing emissions by implementing energy efficiency measures, steps to achieve this goal include the use of sustainable production processes and climate-neutral sources of energy in the supply of electricity from renewable sources and steam.

*Achievement of net-zero GHG emissions is defined as a balance between anthropogenic production of GHG emissions (caused by the company’s own production activities and by the provision and use of energy produced outside the company) and anthropogenic reduction of GHG emissions.

OUR CLIMATE NEUTRALITY GOAL

STATUS 2022
compared to 2020 levels

–11.8%

GHG emissions¹
(–0.66 million metric tons)

2021: –2.8% (–0.16 million metric tons)

By the year 2035, we want to reach net-zero GHG emissions in our own production (Scope 1) and from the provision and use of energy produced outside the company (Scope 2) at all environmentally relevant sites.

¹ GHG emissions (Scope 1 and Scope 2), measured as millions of metric tons of CO₂ equivalents and portfolio-adjusted based on the GHG Protocol financial control approach; global warming potential (GWP) factors correspond to the IPCC’s Fifth Assessment Report.

Against the political backdrop of the “Fit for 55” package currently being negotiated in the European Union and the Inflation Reduction Act passed into law in the United States in the reporting year, we are confident that the rapid creation of climate-neutral and circular business models in line with our goals can be expected and will receive the relevant support.

Management

Covestro’s climate ambition is strategically rooted in its climate program. Under this program, which is led by the corporate Sustainability & Public Affairs function, the measures for reaching net-zero emissions are formulated in the form of a CO₂ roadmap; progress is assessed and regularly reported to the Board of Management. Fiscal 2020 is used as the base year. The CO₂ roadmap was compiled in the year 2021 and approved by the Board of Management in the reporting year in order to align Covestro’s existing target for reducing GHG emissions with the corporate vision and regulatory requirements. The CO₂ roadmap forms the basis for prioritizing specific GHG reduction measures and will fundamentally be used to address and analyze direct and indirect sources of emissions in accordance with the Greenhouse Gas Protocol (GHG Protocol). Measures to reduce emissions are identified in close collaboration between our sites and the relevant corporate functions.

Since the year 2022, a sustainability component, measured against selected ESG criteria, has been laid down in the management system to create incentives for meeting our climate neutrality goal. In the year 2022, the sustainability component was determined by direct and indirect GHG emissions (Scope 1 and Scope 2) of the main sites.

• See “Management System.”

Implementation

Since Covestro pursues a growth strategy, we expect Scope 1 and Scope 2 GHG emissions to increase by 1.0 million metric tons of CO₂ equivalents per year by the year 2035. This will be offset by external factors, which are anticipated to have a positive impact of 0.7 million metric tons of CO₂ equivalents per year on our climate neutrality. This includes, for example, Germany’s target to reach a renewable energy share of 80% in the German power mix by the year 2030 and Germany’s plans to phase out coal.

We have defined three action areas to reach our net-zero goal. We are planning to optimize our production processes to facilitate the sustainable and energy-efficient manufacture of our products. We also intend to raise significantly the proportion of electricity from renewable sources we procure and will in future make greater use of steam as a renewable source of energy. With a view to reducing the GHG emissions of purchased raw materials, measures such as transitioning to alternative raw materials are being investigated. In terms of possible residual emissions in the future, i.e., those that are technically unavoidable, the use of technical and natural CO₂ sinks, or compensatory measures to potentially balance all GHG emissions (Scope 1, Scope 2, and Scope 3) are currently being evaluated.

To enable the company to reach net-zero emissions, Covestro anticipates investments of between €250 million and €600 million by the year 2030. Greater energy efficiency is expected to cut operating expenses by €50 million to €100 million a year. Conversely, on the road to net-zero emissions, Covestro is anticipating higher annual operating costs in a low three-digit million euro amount. These cost assumptions are based on past experience that prices for fossil-based sources of energy are lower than for renewable energy. A matrix for assessing profitability of new investment projects and their effects on Scope 1 and Scope 2 GHG emissions is used to make decisions.

We are actively committed, in all regions in which Covestro operates, to driving political activities to accelerate the industrial transformation toward climate neutrality. On the basis of an analysis of the political support for transforming the chemical industry, we believe that the current political framework will not have any negative effect on reaching our reduction targets. The analysis was published in 2022 by the Low-Carbon Emitting Technologies initiative of the World Economic Forum (WEF), in which Covestro actively participates. The Russian war against Ukraine is not expected to have any impact on target attainment either.

Action areas toward reaching the net-zero goal

million metric tons of CO₂ equivalents per year; apart from the figures for the year 2020, all figures are expected values

Along with governments, nongovernmental organizations, and other private-sector companies, Covestro supports the implementation of the results of the 21st UN Climate Change Conference, which took place in Paris in the year 2015. For instance, Covestro participates in the German Chemical Industry Association’s (Verband der Chemischen Industrie, VCI) NRW Energy4Climate and Chemistry4Climate initiatives to proactively develop solutions to master the challenges posed by climate change and bring about the industrial transformation necessary to do so.

More Sustainable Production Processes

We will continue to invest in expanding existing and building new production capacities in the future, while committing to using state-of-the-art climate-friendly technologies in accordance with our vision. At the same time, we make transparent the impact of our investment projects on our carbon footprint and also incorporate it into profitability analyses that are submitted to the Board of Management as a basis for decisions. The projects of our long-term investment planning have already been included in formulating the climate targets and the associated roadmap.

For example, we use innovative catalyst technologies in isocyanate production to reduce GHG emissions.

Alongside that, a separate capital expenditure (CapEx) category for emission reduction projects was established as part of capital allocation to ensure adequate prioritization. Proprietary Covestro software was integrated into our systems in the reporting year to allow us to predict our GHG emissions. This tool supplements our regular reporting under the GHG Protocol on Scope 1 and Scope 2 GHG emissions. In the year 2023, this function is to be expanded to include Scope 3 GHG emissions.

Electricity from Renewable Sources

In addition to more efficient energy usage in our production processes, the transition to renewable energy is an important lever on the road to climate neutrality. In the future, Covestro therefore intends to meet all of its energy needs with renewable energy. Actions we have taken toward this goal include developing new supply plans and signing purchase contracts for renewable energy, particularly electricity. Alongside existing agreements to procure electricity from renewable sources for our sites in Antwerp (Belgium) and in the German state of North Rhine-Westphalia, we entered into additional agreements worldwide in the reporting year. In fiscal 2022, Covestro purchased around 740 GWh of electricity from renewable sources, making use of special power purchase agreements and power certificates (e.g., certificates of origin in Europe) as a way to underpin our strategic alignment toward sustainability. Likewise, this is intended to contribute to shrinking the carbon footprint of production, our products, and our customers’ applications.

Climate-Neutral Steam

To further drive the shift toward more sustainable sources of energy (in relation to Scope 2 emissions), we will above all apply innovative collaborative models and technologies. The signing of a joint declaration of intent with the operator of the production sites in the German state of North Rhine-Westphalia – Currenta GmbH & Co. OHG, Leverkusen (Germany) (Currenta) – in the reporting year marks the first step along this path. Currenta and Covestro want to complete a feasibility study by June 30, 2023 to investigate more closely two potential locations for installing heat pumps: the chlorine electrolysis facility, which was expanded in the year 2021, and the MDI facility at Covestro’s Krefeld-Uerdingen (Germany) site. Both facilities make important precursors.

Furthermore, we are evaluating options for using biogenic and renewable sources of energy to supply process heat to our sites. These technologies can contribute substantially to reducing GHG emissions in the future, e.g., by using hydrogen and its derivatives for generating energy and as a production input in CO₂ conversion in the chemical industry.