LANXESS Aktiengesellschaft (LXS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the LANXESS Conference Call. I would now like to turn the conference over to André Simon, Head of Investor Relations. Please go ahead.

Yes. Thank you very much, Ophilia. A warm welcome from Cologne and many thanks for joining our first CEO Sustainability Meeting. Our CEO, Matthias Zachert, will present our ESG strategy and activities. Afterwards, you will have the chance to ask questions in our Q&A session. Please take notice of our safe harbor statement. And with that, I'm happy to hand over to Matthias. Please go ahead.

Thank you so much, André, and welcome to all participants on the conference call on ESG. It's the first CEO call we are doing on this, however, not the first time that we are speaking about ESG. As a matter of fact, we went out with ESG targets and follow-up communications already a few years ago. Let me start with the agenda on Page 3 and 4. I will briefly address LANXESS where we stand on this on behalf of the management board. I will then go into details as far as ESG clear topics are concerned, noteworthy, environments, social targets, governance approach. I will finish with sustainability ratings and reportings that all of you are most likely studying all the time. And finally, before the question session, I conclude. I move to Page #5, and I would like to address how I personally look at ESG. And here, clearly, my heart beats for both. First of all, for my family, I'm a father of 4 kids. They're all young, 7, Clara; 10 Elizabeth; 12, Louis; and 13 Hans. I don't want that my children ask me in 10 years, "Daddy, what have you done?" So in 10 years, I would clearly like to show them that while being at the helm of LANXESS, LANXESS was one of the companies that most aggressively reduced CO2 emissions and on all aspects as far as ESG is concerned, delivered. But my heart also beats for LANXESS. LANXESS has 15,000 employees, and I know they are looking up for improvement. They want to be proud for working with the company that goes for ambitious targets. And eventually, I also think that this is a competitive, compelling business advantage when you implement CO2 reductions faster than competition because eventually, CO2 emissions will have a price. And if you have to pay no price or even get credits, you are clearly in a beneficial situation. So this is why our heart beats for ESG targets. And this is not only the view of myself, it's shared in the entire management board and shared in the global LANXESS' leadership team. Let me turn your attention to Page #6. I think all of you are very familiar with the sustainable development goals that have been issued several years ago. And if you look at them, we highlight the area where LANXESS products have a direct impact and as a matter of fact, direct impact of 7 of these SDGs. On Page #7, we've highlighted a few. So if you look into that category, clean water, drinking water is something that we contribute to. We have several products playing into this area. The Lewatit products often for tea drinkers known as the BRITA Filter, water purification system for consumer, our products make this product possible. And therefore, this is just one area where we add to purification and clean water. But also in the category of responsible consumption, we are having several products that are exactly in this category like pigments to enable notably polymer recycling. So the pigments is being dispersed in the polymer and then through the pigment, you can see what kind of polymer category you are using. So this makes the, after the use of the products, the recycling feasible. And I'm pretty sure that most of you know that we are pretty strong on disinfection, not only animal, but also, to a certain extent, human disinfection, but clearly, disinfection here is something where we focus on animal disinfection. Globally, we are a leader here and good animal disinfection is good for mankind. So with this, ladies and gentlemen, I move to a general overview on Page 8, initiatives that we support and of course, transparency that we follow in terms of reporting standards. And here, I think most of these initiatives being shown on the upper part of the slide are known to you, The Global Goals, we've addressed already; ILO standards for working framework is known to you. We are committed to ILO since years. WBCSD is a think tank, we are a member of, and Together for Sustainability, for instance, concerned, we are even a founding member. Therefore, initiatives like these are known in the company for many, many years. What we also embark on is to comply with SASB, TCFD, GRI. So these are transparency standards that are more and more clarifying their way to the different regions in the world. We, of course, at this point in time, follow all of them. We will see what kind of standards will emerge as the leading standards. And once this is the case, of course, we want to be fully on top of these standards most likely, hopefully, I would say, on rankings as well. Let's come now to LANXESS-specific approach on ESG. And here, I definitely would like to start with climate because this is one target that we early on addressed. I would say, we started with this several years ago, but as far as clear targets and communication is concerned, we made that public in 2019 onwards. So if you look at our track record here, of course, we have data that are quite hard and I would say, in a nearly [indiscernible] status, and then we look back to when LANXESS was created, 2004. So we don't use 1990 as reference date. We use as a reference date when LANXESS was set up and when it was brought to the markets. When we communicated our climate targets in 2019, we started off with a base of 3.2 million tons of CO2 emissions for Scope 1 and Scope 2. And therefore, you see clearly that from date of spin, 2004 to summer '19 or December '18, we reduced already our emissions by 50%, which is a lot compared to benchmark. I know there are some out there in the market who now say this is all because of the divestiture of rubber. And in order to clarify this wrong assumption, I take the liberty today to give more granularity on divestitures and acquisitions. Rubber was a polluter, clearly as far as CO2 emissions are concerned, but rubber, when we exited it, rubber reduced our CO2 footprint by 1.8 million tons, not more. When we acquired Chemtura, we added 400,000 CO2 tons because definitely Chemtura is a business that is not as pollutive as a polymer production. So net-net, we reduced compared to starting base through big M&A and divestitures, our footprint by 1.4 million. Out of this, you can conclude that the reduction of 50% was predominantly strongly driven by CO2 reduction measures. And this focus on CO2 reduction measures will clearly lead to technology improvements, innovations, focus on just knocking that down further will reduce CO2 emissions also in the years to come. And we don't shy away from now annual improvements. Like visible, when we reported 2019 our financial numbers, just within 1 year, we reduced again CO2 emissions by more than 200,000 tons. And the journey continued 12 months afterwards through, of course, specific measures, but then, of course, corona impacting production, and therefore, artificially, I would say, CO2 emissions went down over proportionally by something like 200,000 tons. So if we would have reported stable volume, still 200,000, 250,000 of reductions would have been visible because we take CO2 reductions seriously in this group. If we look at our targets for 2040, we are basically 10 years ahead of the industrial peer group. We want to turn climate neutral by 2040. Industry in Europe is at 2050. If you look at the 2030 target, we clearly state that the 1.6 million tons, which would be a massive reduction versus starting base, 2004, this 1.6 million tons, we think we can do with everything that is in our hands, i.e., focus, focus, focus, technology improvements that we already have detected, but then, of course, needs to implement respectively. Going beyond the 1.6 million tons, we need green electricity, which, of course, in Continental Europe currently is pursued aggressively. And with this in place, and of course, at affordable prices, we think that climate neutrality is something in reach by 2040 for our company. If we benchmark these data versus the European Union regulation or German industry trajectory, you clearly see here with the red curve, we take it serious. We take it very seriously. Our ESG approach, or here, our climate approach is based on a 3-pillar strategy. So at corporate level, at group level, globally, we follow the major impact project. I will address a few to you in a second because here we really make a difference. The second pillar to our approach is to decouple emissions while growing. We are doing this through setting CO2 targets to all business units. And basically, everybody needs to grow, but at the same point in time, needs to improve technology in order to reduce CO2 whilst growing. And of course, we further strengthened technology and innovation platforms to make further steps in the right direction. Now ladies and gentlemen, let me come to the impact projects. And here, we give color starting from Page 12 onwards. I think here, one of the very big projects that we are executing, and here, the first step has been accomplished already in April this year, is the reduction of our nitrous oxides in our plant in Antwerp. Through the production of caprolactam, if you don't use innovative technology, you ultimately have nitrous oxides that are going into the sky. Nitrous oxides is 300 times -- would have an effect of 300x higher than CO2. So whatever you reduce here really contributes to climate's improvement. I would like to say that LANXESS here worked on technology improvements already years ago. By now, we have own patents in place for catalytic reduction, but also thermal reduction. So we basically have on nitrous oxides as we are one of the caprolactam producers in the world. We have 2 technologies that we developed with our own engineers. We partnered here with external engineers, but the patent is in our own hands. And with this technology improvements, we basically have reduced now in our big plants in Belgium, 150 kilotons of CO2 equivalents on a pro forma basis already this year. So you will see that next year when we report CO2 reduction again. And the second plant -- and the second investment will be finished by 2023. Here, some engineering and technology improvements still needed to be done, but this is now up and running, and we will -- therefore, we are convinced that we will be able to implement this technology improvement by 2023 and then on a pro forma basis, another 300 kilotons of emissions equivalents will be reduced. I would clearly like to highlight to all of you who are participating to this conference calls worldwide, and I know that Europe, the United States is on the call, even from Asia we have participants. Having said this, we know that any caprolactam plants in Asia is basically according to the knowledge that we have, not on this technology yet. With this, I clearly would like to stress what we are doing here in Europe is best in class. And therefore, if we close, if we should in the future close plants in Europe and let them -- let the molecules be produced in Asia or elsewhere, you will have emissions that are 300x higher than what we, for instance, have now in place in 2023 at Antwerp because here, we will go to 0 emission once this second investment is up and running. I think this shows you very clearly that with technology improvement, you can contribute substantially to climate improvement. I turn your attention to Page #13. Here we go for CO2 neutral reduction in India. And in India, this is clearly something that is feasible through whatever you do to replace coal. Anything on renewables is a massive improvement. And in India, we basically do this through renewable energy like solar or wind, but also with a switch to biomass. Like in Antwerp where we take EUR 10 million into our hands to make this technology improvement, in India, we are currently investing EUR 10 million to EUR 15 million. We will have a first reduction on this in our Jhagadia site this year. It's basically being implemented as we speak. It knocks down CO2 by 20 kilotons, and the bigger step is going to come in '24 with further implementation on all of our Indian sites, not only Jhagadia, but also in Nagda. And I think 150 to 200 kilotons, again, is a very nice big step in the right direction. With this, ladies and gentlemen, I move to Page #14. When you talk about climate and CO2 targets, and here we talk about not specific or relative, which is often used, but absolute CO2 targets. I'll come back to this later. I think absolute CO2 targets are far more important than relevant/specific targets defined on [indiscernible] because only if all of us are reducing CO2 in absolute terms, the planet will be in a safer position. So therefore, we very much focus on absolute targets. And in order to advance here, we've basically set a second pillar of our climate strategy that organic growth with business units has to happen, but not at the discount of CO2. So any business units will get support on investments and R&D, but volumes have to be achieved whilst keeping CO2 in our target range and to basically compensate any volume growth or even improve. And I come in a moment to some smaller projects, which are basically a result out of this strategic direction. So organic growth should be compensated through specific projects, innovations, process optimizations, but also for acquisitions. I stressed that to the credit rating agencies, I think in the last 2 annual reviews that we did, in acquisitions, strategic -- you make your analysis, but basically 2 years, 2.5 years ago, we decided in our management board already that any acquisitions will be screened for CO2 emissions. We did not have this in our strategic analysis before, but in summer 2019, we decided that any acquisition, in the due diligence, will also -- will not only be analyzed from a value chain perspective, financial perspective, synergy perspective, market leadership, but what we entered into the strategic analysis was the CO2 intensity of the business. And as a matter of fact, out of this, we stepped away in a variety of due diligence processes when we detected that CO2 intensity was simply too high. So any project we are considering or have considered in the last 2, 2.5 years, we are fitting with our CO2 strategy. And this also holds true for the recent acquisitions that we did. And I would share and -- like to share with you that also on the divestment side, we followed this approach. So for instance, when we divested last year our Currenta stake to MIRA or the bigger banking group, Macquarie, we negotiated into the contracts with MIRA that the coal energy plants in North Rhine-Westphalia will be switched away from coal towards lower emissions and eventually green electricity. And we negotiated in this contract that this will be without charge to LANXESS. And as a matter of fact, MIRA contractually committed to this. So from '23/'24 onwards, you would see, for instance, that our bigger plant, the second biggest plant in Germany, Uerdingen, will be for LANXESS coal-free and we don't pay a penny, but our CO2 reductions are fulfilled. So on the buying side, but also on the divestiture side, when we see CO2 can be improved or we can achieve and support our targets, we go for it. Page 15 shows you smaller projects. And clearly, I would like to convey to you how this started. And I was surprised by this myself. When we worked on CO2 reductions in 2018/'19, everything starts with transparency. You need to have CO2 emissions by production sites. And this is basically quite intensive analysis. It took us something like 12, 18 months. And on the basis of this, once we knew what kind of emissions are here and there, that we could, of course, then decide on targets and projects. And when we communicated globally, publicly, in 2019, our future targets, we suddenly saw that in many business units, engineers, chemical engineers, production heads, et cetera, came up with projects and said, "Hey, Board, Management Board, we have an idea. We've found a project here, found a project there. And with little money, we can contribute to our global targets." So projects on CO2 reductions were mushrooming. And here, listing up just a few. In Leverkusen, some great engineer brought up the idea to use digitization in the phosphorus production process. With this, basically, we optimize steam consumption, lower CO2 emissions by 4 kilotons on an annual basis. And Antwerp, some great guys collaborated with other chemical companies in the chemical parks. Again, optimization in the energy process, CO2 reductions of 10 kilo tons on an annual basis. And we are open to this. So we basically we give energy and CO2 project priority in the group. Everybody knows this because also internally, we have CO2 prices embedded in our investment process. So automatically, we incentivize energy reduction and CO2. And if you go back to the annual reduction that we achieved on CO2, this is basically an incentive scheme to ignite this process. So with this, ladies and gentlemen, I think you've seen in the climate strategy, first of all, our track record on an annual basis. We don't need to shy away from any benchmark here. You see our projects, the 3-pillar strategy. But now let's come to our products. Our products are also enabler for climate protection that we have the contribution to e-mobility is known to the capital markets. I start with light weight, our polyamides and our PBT products are leaders in ensuring lightweight mobility trends. We are doing this. We also -- especially PBT is a product being heavily used in battery and charging infrastructure. Water purification, I've talked about our ion exchange resins business. What you see here on the picture is the BRITA Filter that is used on a brand name basis or on a no trademark basis elsewhere. We are contributing to renewable energies. If you want to have wind mills, if you want to have turbines on or offshore, please understand that the turbines are rotating. Without our lubricants, they would all blow up. Therefore, our lubricants here are essential in the production of renewable energies. With this, ladies and gentlemen, I turn your attention to Page #17. And here, we address Scope 3 emissions. They are important as well, as important as Scope 1 and Scope 2. What we started in our company was basically in 2018 -- I mean, we were pursuing CO2 reductions before, but on -- from 2018 onwards, we did it in a very rigorous and methodical approach with really bottom-up plant-by-plant analysis. So this took us 12, 18 months, as I said before, to get it right on Scope 1, Scope 2 transparency. First of all, you need to gather the data, then you have the transparency. Based on the transparency, you can then decide on projects and targets. I think we did that in a very logical and methodological approach. The same now we want to do on Scope 3. Of course, here, it's a broader approach. You need to collaborate with partners. And therefore, this will take time, but we would take the same approach here on Scope 3, like we have done for Scope 1 and Scope 2, i.e., gathering data, gathering data together with partners. And then once you have the data and the transparency, you can then decide on projects and on targets we are striving for. So this process has started and let us work on this. Ladies and gentlemen, with this, I come to the second point that we would like to address, and this is about water. After we addressed climate and CO2 targets, we basically didn't pause. We then started to develop -- gather data and develop transparency on water, water consumption. And of course, here, then to define based on the transparency, water improvements. And let me address the following. Of course, on water, especially sites have to be monitored tightly where you have factual water stress or water scarcity. We found out that 90% of our water withdrawal is at sites without water scarcity, doesn't mean that we were putting down our pens -- pencils. Also here, we define targets. But most importantly, the 4 water sites where we had water stress, we needed to find a measure to reduce the water consumption. And based on this and after another 12 months of getting engineers to look at the problems, we came out and defined a global target to reduce water consumption by 2% on an annual basis despite organic growth. We were happy to find projects that enable us to, however, reduce at the 4 sites where water is scarce to reduce through technology improvements, our consumption by 15% until end of 2023. And once we did this analysis, get the transparency, get the data in place, of course, you can then send out your engineers and your brains in order to find improvements. And therefore, on water, we also made the right steps in the right direction. Ladies and gentlemen, let's come now to circular economy, Page 21. LANXESS explores here a new circular model. No discussion. This is something that will accelerate in the years to come. Circular economy will transform entire value chains. And of course, here, you have to have an open ecosystem. It will not suffice to do this on your own. You have to establish cross-industry partnerships, alliances, not only in the own industry like chemicals, you have to talk to your supplier, you have to talk to your customer, you need to team up. In a stubborn approach, you get nowhere. You need to get brains together. LANXESS supports the transition with dedicated projects and initiatives. But let's be factual, this is something that is more challenging, it would take more years, and we are here in the starting position. Let me come to Page #22. First of all, let's get a grip on what is possible. Of course, classical is the reuse-and-repair approach, and even chemicals can be reduced. Very much our work is definitely for the last few years, especially at the regulatory and political level, mechanical recycling, i.e., decompositioning without changing the chemical structure of the material. However, and I think this is something that more and more [indiscernible] surface because of the magnitude of opportunity is chemical recycling. So eventually, the material, especially for polymer, for any kind of polymer, this might be a major solution. The materials or polymers are broken down into the chemical building blocks. And of course, through this, they can reenter into the chemical value chain. It is done through various means. You can talk here, you find about in literature, but also in the chemical recycling process as of today, this is real life, this is real world, you can do it through pyrolysis you can do it through hydrolysis, you can do it through solvents, but this is something where I think technology will pave its way. And again, we need to talk here about alliances, partnerships and teams up. We started working on all of this. Page 23 shows you that in all 3 areas, reuse/repair, mechanical recycling, chemical recycling, we are working on specific projects. Lewatit, for instance, is helping in the reuse/repair area. In chemical recycling, we are with 2 polymers in the game. If you look at Durethan ECO, it's the trade name we have established. We basically produce polyamide here with waste glass fibers. We also work on producing polyamide, fully bio-based with raw material. Tepex, we are also here having nice projects on the mechanical recycling and with chemical recycling, we have a few projects. We just listed 2 in sulfuric acids and also green cyclohexane. But as I stressed before, circular economy is a longer journey, it's accelerating as we speak. Our company is at the beginning. This would take time, and it will definitely, I stress it again, it will need innovation. We need to find technology improvements, and it doesn't work without collaboration. This means open mindset is needed to bring ecosystems together, and I'm pretty sure if this works, technology improvements are likely here. Now environment. I think we addressed climate, water, circular economy, let's come to social targets and approach. At our company, we clearly have strong commitments towards diversity and inclusion. As far as KPIs are concerned, we still have work for improvement to say the least. When I started in LANXESS at 2014 and I addressed diversity, I get at the management team for the first time, there were -- there was no female Board member. And in the global leadership team, I mean the top 40 executives reporting to the management Board, there was 1 female leader. This has changed by now. We have now in the top leadership team of the company, and this is now defined by basically 25 people, we've now 4 female leaders, 2 in the group functions or corporate functions and for 2, 3 years, we have now 2 female leaders running real business units globally. And since January last year, we have a female Board member. So a radical improvement versus 2014. But if you look at general middle management, we moved up from something like 15% to 20%. There's room for improvement going forward. First level below board, we have now 15%. It's a massive improvement versus starting base of 2014, but it can be higher even though the chemical industry tends to have a lower ratio currently compared to other industry. But again, as I said before, we started the journey at 2014/'15 and have accelerated. This will continue. Why am I convinced that we can continue with this? Because if you want to staff in the top management, in a broader way through more diversity, you need to fill the base. And therefore, what we have clearly said when we hire people, when we hire people from universities, from schools, et cetera, our average ratio has to be higher, clearly higher than the current management ratio is. So what we currently do is to have at least 30% of female and 40% of non-German participants in our corporate talent programs. We would view them once a year with the entire management board and basically take decisions then from the talent to move them up into middle and upper management. But of course, you need to also work on opening up in other regards. So opening up another regard means working conditions. And I think if you here want to be attracting diversity and inclusion, you need to think about flexible working conditions as well, which we are doing. So I think on these social directions, we are on track. It takes time, but we are ready to improve further. Let me come to Page 26 to other social principles that we are reviewing. And here what is dear to the process industry, and it's also dear to our hearts, let's start with the safety, and this is to avoid accidents. Safety is important because as a process industry, of course, we are producing a lot, and it's labor-intensive in various areas. And the claim that we bring to our workforce is any person, any LANXESS employee coming healthy to work at LANXESS should leave LANXESS healthy. This has to be the target. And therefore, we have to avoid accidents. And we basically can show you here with data, I would say a very good track record year-on-year. We gave ourselves -- several years ago when we started with the so-called Xact initiative. So it's a team that globally rolls our best practices. Small team, we have a regional leader, and we are trying to bring best practices to any sites across the world when we have detected that's something is scalable. Of course, we have a yearly CEO safety awards that is globally communicated. And I think what we have achieved over the last 6, 7 years, is quite remarkable. We measure ourselves according to MAQ or LTIFR is also the name that is being known in the literature on the industry. If you look at the data that we have had and the target that we gave ourselves for 2025, I'm very proud that we achieved this already in the last year despite corona impacts. Of course, we now want to keep it or improve it further. And therefore, this is something we follow with commitment, dedication and it's an indicator that is shared in the leadership team on an ongoing basis and reviewed on a monthly basis. Next to safety, which is important. Of course, we follow further social principles, we rigorously stick to. It's a no-brainer that we have commitments to the ILO convention and principles for work. Of course, we are fostering occupational health and safety for our employees. And believe it or not, I'm happy to share, we have created our own platform that was the result of our digitization initiative a few years ago. And here, this platform enabled it to offer various health and prevention measures to our employees. And I'm -- I was positively surprised to see that this was highly appreciated and we have high traction on this when it comes to participation by our workforce. The chemical industry and our company is known for fair compensation and benefit models. And what I'm pretty proud of is our training or apprentice ratio. If you look at the industry, you've normally in Germany, at least in good industries and chemical industry's definitely good industry in this regard, there is 6% of apprentices compared to the German workforce. This is somewhat best in class. We are at 8%. So we are clearly here a leader in developing young talents. And I'm believing in this, and I'm fostering this because we have in Continental Europe and also North America, a geographic -- or demographic sorry, a demographic problem. So my belief is if you don't foster employee qualification, you run into issues 3, 4, 5 years down the road. And therefore, we are very focused on this, and we are very focused on employee qualification. Of course, I finished with clearly stating that despite the massive changes we did on costs through cost cutting or portfolio management, you never heard noise and strikes or anything because we have a strong collaboration with works council and labor unions. So ladies and gentlemen, with this, I would like to turn to Page #28, addressing governance. Various of the initiatives that I have stated on the several slides before have been done in the organization by departments. We've reviewed that in the management board, et cetera. But last year, we came to the conclusion in our strategic review, which we do annually for basically 3 days and then we stop, then we have another 2 days and then we finish with a final day in the second half of the year, so it's intensive work. And lastly, in our strategic cycle, we said let's have an overall arching structure with which we address sustainability. And we basically gave responsibility to every board member on specific sustainable topics, targets. And this is being addressed through climate energy targets. And Hubert Fink is here running this subcommittee. He's also following up as a member of the Board, health, safety, environment target. Value chain, as I referenced before, circularity, product stewardship is taken care of by Anno Borkowsky; People and governance by Stephanie Coßmann, Board member; stakeholder expectations, reporting standards, this I notably refer to taxonomy, which will come under the green deal, it's being addressed by Michael Pontzen, the CFO; and I take the full responsibility on the Sustainability Committee. It's a committee that meets once a quarter for at least half a day, if not an entire day, and we basically track milestones, action items, targets where we stand vis-a-vis targets, new projects but also new regulations because we clearly acknowledge that notably in all regions, but Europe being a prime leader here, regulatory -- the regulatory framework is changing, new laws are being discussed, issues, and we monitor that on a quarterly basis so that we are fully aware on what is happening and that we rather be at the front end of the race and not at the end because when you are at the end, you are bitten by the dogs. And that's what we don't want to have. So with this, I turn your attention next to governance model towards compensation of management, I take that very seriously because as a CEO, I take the liberty on telling you how I look at teams. You can get through -- if you are really focusing on something, I think you normally reach something you can convince through motivation, transparency, communication, focus, you can basically reach something like 80%, 85% of your leadership team. You can most likely win over 60%, 70% of your broad employee base. It's hard to always get 100%. On the leadership under the management side, there might still be people around that are potentially 10 years older than I am and say, "Oh, why should I care about CEO too, I don't bother." I cannot rule out. I hope not that -- I hope that we don't have somebody like this in our leadership team, but I cannot rule it out. I cannot look into everybody's brain. But the one thing I've learned in my last 20, 25 years in the industry, with the compensation, it sometimes the external motivation. If you are not intrinsically motivated, this sometimes is the right signal, the right carrot in order to get the entire management on board for sustainability. And that's the reason why we introduced this into not only the management board's remuneration, our shareholders voted on this at our recent AGM with roundabout 94%, 95% support. So we included this in the variable compensation with 1/3, which is a lot that was the feedback from some investors, but we were pretty, I would say, aggressive in this regard. And what shareholders could not see is that in the meantime, this was individually discussed with the top leadership team of the company and included in any individual contracts. And again, with absolute, and I stressed it again, these are absolute CO2 reductions. And I stress it again, for me, absolute CO2 reduction is vital because if everybody improves relative CO2 per ton that could still lead to absolute CO2 increase because of volume growth. And therefore, I think absolute CO2 reduction is needed because only with absolute CO2 reductions, you improve climate. And if everybody does that worldwide, we solve the problem. So on the next Page, 30, we give you an overview on our compensation. This is now detailed. I will not address it one by one. It's on our Internet page. It's in our reporting. So we have other topics in the compensation that is important to shareholders like clawbacks, total compensation being capped. But again, this has been put to the AGM. So we're not go into further details. Ladies and gentlemen, with this, I turn your attention to sustainability ratings and reporting. And I'm happy that rating providers honor our performance. From my Investor Relations team, I got the feedback that MSCI is of high importance to investors. And I think here in the last 12, 15 months, we have a clear track record, moving the company from BBB to single A and I was nearly jumping on the table when I heard this Monday that we were upgraded to AA. So MSCI is clearly rewarding our improvements, state its convincing climate strategy, further improvements on chemical safety, water stress, et cetera. With ISS, we are in a prime status, also improved from C to B minus. We hope we can move up further. CDP. We are -- here often mentioned, especially in the German media as one of the top performers in the German industry. And as far as Dow Jones Sustainability Index is concerned, I'm very proud that from 2014/'15, when we were in the 15 position. I think in 2015, we were #17. But on an annual basis, we improved last year, eventually, we got the top position in Europe and the second position in the world. I think all indices and ratings go in the right direction and the efforts and performance and speeds of focus on ESG is being rewarded. Of course, there are other rating providers that most of you are tracking. And of course, we are looking at them as well and look at their feedback in order to further improve. Page 33, we understand that transparency is key. So we have developed over the last 2, 3 years, several new documents. I think the company was known for its investor fact book where we describe businesses, market positions, value chains, la, la, la. We have now opened a new factsheet and data factsheet on ESG. It's on our Internet, you can access it. We have a public stated equity story on ESG, and you will have found out that on our Internet. We have a lot of background papers where you can clearly see our approach on climate, water and you can scan them and note them down easily. I've tested this myself and was enthusiastic. Ladies and gentlemen, with this, I come to concluding this presentation. I would clearly say pursuing ESG is important to me personally for the reasons I've mentioned. I want to be in this regard a family father that does his best for his kids. It's important for me as CEO to move the company in this direction, but it's not finishing with my conviction. My board is behind this. We all consider this is important to the future of our company. So we have decided on aggressive CO2 reductions. We have decided on high-impact projects, and we put money behind it. But we have also clear targets for water consumption and again, with clear focused projects. We tie the remuneration of the Board and the entire leadership team to this, and I stress it again on absolute CO2 reductions. I think it's being honored by external agencies, rating organization. And as far as EU taxonomy is concerned, this is something that we will comply with already in our annual report '21. This is a result of a decision we took in the Sustainability Committee. So the entire organization is working to -- on this to make it happen. And I'm happy that this work has already led to first data results so that we have transparency. Some of you know that taxonomy, the European taxonomy focuses on sectors contributing over 93% to European Scope 1 CO2 emissions. So this is the clear focus. The 93% of the polluters or products that are polluting, our analysis has shown, and this is positive, that in the LANXESS portfolio, only 6% of our products need to file for taxonomy. Roundabout 94% is not associated to this focus of the taxonomy. This is quite important, and this was a -- when we started with the work and looked at that, we're convinced that we have not a big exposure, but we wanted to have the data and the analysis. And therefore, up to now, only 6% needs to file, all others don't need to because they are in simply product categories that are not worrisome. And where we stand on the 6%, we are currently running the analysis. We think, in most of the cases, where we have to file under the 6%, we are in a good comparable competitive advantage, look at caprolactam for instance, that I mentioned before. So ladies and gentlemen, let me finish on Page 36. Sustainability is clearly core in our strategy. I think we have measurable benefits for the company, for customers, society that we can offer through following our strategy. And of course, we are supporting economy with activities, but also with the products we produce, some of them would be used by yourself, potentially, you don't know it as of today. And with this, ladies and gentlemen, I close the presentation and open up the call for your questions.

[Operator Instructions]

Can we get the first question, please?

Yes. We're currently waiting for people to register.

Okay.

Where are the questions?

So we can start the question now.

And the first question is from Andrew Stott, UBS.

Thank you for the comprehensive presentation. There's a couple of things I wanted to tackle. And the first one is more specific to LANXESS, which is the Slide 22. I just wonder if you could better prioritize or earmark what is most commercialized -- or sorry, most -- the most ability to commercialize or get [indiscernible] of those particular product categories that you mentioned, the Durethan, polyamide 6 recycling, you've mentioned the green cyclohexane and 2 or 3 others. So just in terms of when we might see some of those processes effectively brought to market. And then if there's any sort of scaling we can do in a revenue sense. So just trying to bring those to the real world, that would be fantastic. And then this is more a comment on the end. Matthias, you mentioned that you aim for the annual report to get to the taxonomy disclosure. It's almost like -- I don't know this is a question or feedback, but many other companies are telling us that actually, at the moment, the definitions are not narrow enough from the EU and that there's a real struggle about committing to that timetable. So I just wonder why you're confident on getting there.

Well, Andrew, a very valid question, and you're hitting the right points. Page #22 shows you the circular economy, the ways to achieve circularity. And I think the most challenging one is definitely not the chemical molecules, but the ones that are in the polymer area. And here, if you look at our portfolio, we have 2 areas where you have polymeric combinations of products, this is the Durethan, so polyamide value chain and the polymer additives. And here, we need to look at the products. I give you the example, polymer additives, 50% -- sorry, the polyamides. Where do polyamides go to? 50% is automotive exposure. Now if you look at automotive exposure, polyamide is not the key polymer being used by the automotive industry. There are others like PP or PE that are simply in the focus of the recycling attention. And if we want to close the loop here, we need to work with the recycling industry. And eventually, we need also that the regulator imposes to the automotive industry that not 60% of the molecules -- sorry, of the automotive -- of the car are being recycled, but rather 100% because then our polyamides will enter as engineering materials back into the process. And with the chemical recycling, we think we can then do it. So therefore, I think we are at the starting bits for the engineering materials, and it will take most likely several years until we will have a full closed loop. I see the likelihood of commercial models for the supplier industry earlier. This can come in the next 2 to 3 years. But if we want to close the entire circle, I think it will be a work that all of us together for the next 5 to 10 years. And this would be definitely faster for the big polymers like polypropylene and polyethylene until you address the niche polymers, and polyamide eventually is compared to PP and PE niche polymer. So that's my feedback on Slide 22. Now on the annual report, you are fully right. I mean the European Union is still in the process on deciding on targets in the years to come. Basically, the legislation approach definition, et cetera, is on taxonomy is in development until summer next year. But 2 of the parameters that the European Union has prioritized are known. And with these regulations and with these targets, even though you only have to comply with them '22, '23 onwards, with these 2 regulations that have passed the endorsement, et cetera, you can embark on them and report. So I cannot tell you what will come in the next 12 months, but on everything that has been cleared and decided on, of course, you can take the liberty to report, and we are doing this.

The next question is from Martin Roediger, Kepler Cheuvreux.

Regarding the patents for the technology in caprolactam reduce CO2 emissions, is that a certain kind of business model, i.e., would you think about selling that technology to other parties, i.e., in Asia or the U.S.? Or wouldn't you go for that because that would strengthen your competitors?

Well, this is a valid question. As a matter of fact, we are now testing this technology in Antwerp. It's running. And the technology result is there. So we are happy. On the second plant, we still have to do fine tuning, but everything that we know today, I mean, we've tested it intensively. We think that this will work. So the 2 technologies that we have are strong. We have patents. At this point in time, I've only myself spoken to 1 other company, and I offered help. But they said they have also on their side found rooms to reduce the respective emissions. But we will see. I mean, the more regulation you will have in Europe, especially then, if you come to potentially regional approaches on CO2, this might be something that people will ask us to license out. And then eventually, this is something that we are open to because it's good for the planet. It's good for the world, but it would not come for free. We would definitely then go for licensing out, but we are open to do that. No discussion about that. But the big couple plants are in China, Asia, they are no longer here in Europe. So the technology, I think, is one that will be known and used with the big players. There are 2 big -- 3 big players in Europe. I think they all have found ways to reduce CO2. We are definitely a good technology owner, but regulations need to move up in other places of the world. And then I think our technology will have a price tag.

The next question is from Sam Perry, Crédit Suisse.

Just on M&A, you said businesses are only acquired if emissions fit your climate neutral strategy. How much weighting do you give this criteria versus sort of financial metrics? I mean, would target still be considered if they didn't have great sustainability metrics that you could see a way to bring them in line? Equally, if maybe financial metrics didn't stack up but they were amazing on sustainability, would that also be considered?

Very valid question, Sam, and I can only give you blunt answers to 2 projects. I had a company approaching me in, I think it was 2018, and the CEO came to me and basically said, "Hey, we are not big enough, but we are a leader in businesses that we operate, and we think we would be under the umbrella of LANXESS, we would be a good contribution. So let's make a share deal." I looked at the market positions, I looked at the leadership they had, and that was simply fantastic. Margins were great and valuation was because they were not so high on the agenda of global investors, valuation was okay. We found synergies. And then I asked my team to work on it. And working on it means extensive work. I want to know everything in terms of sites, outside analysis, value chain roles, et cetera. And everything was a perfect fit, but when I saw the CO2 bill, it was too high, and that brought the project to a complete end. The company had, according to our outside analysis, a few million tons of emissions located in a region that from our point of view are not under scrutiny today. But when we do investments, we always look at 5, 10 years' horizon. And our assumption was, especially with the coal intensity on the energy side and then also with the production process, which was very, very CO2 intensive, we basically came to the conclusion that for the next 3, 4 years, we might have party time, but then we pay the bill and we stop the project period. Now I give you a different example. With Emerald, the acquisition we just did, when we entered into the process in -- it was November last year, our outside analysis gave us a CO2 price tech of 800,000 tons to potentially even 900,000 tons. And based on this, when we did our strategic review in the Management Board, we basically said outstanding products, outstanding consumer product access, very good leadership position, but CO2 was red. And therefore, we will look warm in the process, but then we saw the sites, then we got the data, and then we basically figured out that we are here onboarding. According to the analysis, we didn't do due diligence. Of course, after closure, we need to look further into the sites. Instead of having something like 1 million tons, it rather was in the area of 200,000 to 250,000 tons with rooms to make technology improvement because the private equity did not do big CO2 reduction projects at all. Energy projects, we are not that much followed according to what we saw. And therefore, we saw clearly the possibility to -- through technology improvements to get this business, which was already with 200 kilotons, good, okay, to further make improvements here and then we felt far better at the end of the due diligence and therefore, all indicators after the deal were on green. And then we were clean and went ahead. So this is simply what I can explain all of strategic reviews. So CO2 intensity is a go/no-go decision, very clearly in any acquisition that we contemplate.

The next question is from Markus Mayer, Baader-Helvea.

I have 2 questions, if I may. The first one is on the step BASF recently did to invest in a huge wind park to get access to green electricity. Is this also an option for you? That would be my first question. And the second one is on the 14th of July, there's the carbon border adjustment mechanism decision for Europe. What impact do you expect for LANXESS on this decision?

Yes. Well, thank you for your question. On the first one, BASF, we -- of course, we have looked at this. I haven't spoken to Martin about this, but I don't know how he gets the network in place from the north towards his sites. I think this is an appropriate measure that you can consider contemplate doing in order to get green electricity. And therefore, we are looking at this ourselves. I don't see today that this would be #1 priority for us. We currently try to upgrade our technology wherever possible to go for CO2 reduction because the more you reduce CO2 on Scope 1, Scope 2 on existing means, the less you have to care about potential compensation measures. So our view is that the governments after 2030 will have for the projects and pressure that is coming will open up on green electricity wherever possible. But as much as possible until 2030, we want to reduce very significantly with our projects Scope 1 and of course, through all other means address Scope 2. Now on CB, carbon border adjustment tax, we looked at that. And if you look into the products that are flagged, basically, by and large, we are not impacted at all. The one product that we have to analyze is raw material, ammonia, that we need to look at. This is one product or the sole product in our entire value chain that is being addressed in this first step. And then, of course, we have to see what follows in the years to come. But at this point in time, as I stated, the only one where we have to look at and that we need to follow up is ammonia.

[Operator Instructions] And the next question is from Georgina Iwamoto, Goldman Sachs.

I have got 2 questions. The first one is about green electricity. You mentioned that the availability of affordable green electricity is going to be important for reaching net 0 emission. And we saw one of your neighboring competitors in Germany recently announced an investment in a wind farm. And their reasoning for that asset exposure was that they think that availability of green electricity will be scarce. So what is LANXESS doing to secure access to green electricity over the medium to long term? And then my second question is, given that you've highlighted the importance of the circular economy, does net 0 for LANXESS mean eliminating the use of fossil fuels as a raw material by 2040?

Well, on the first one, I've tried to explain that in our big parks, and here, we are talking about Leverkusen, Dormagen is no longer a big industry park on our shoulders due to exiting here the respective chemicals like rubber. So the big parks that we still operate within Germany are Krefeld and Leverkusen. Leverkusen, we have more than 3,500 people and 2 big business units. And then Krefeld, we have 1 big business unit and a few smaller ones with roundabout 2,000 people. So these 2 chemical parks are the ones that are high on our agenda as far as energy are concerned. And as I've explained to you before and you can double check this with MIRA or the Australian bank, Macquarie, we have contractually agreed with our energy partner to turn green. So I think a farsighted M&A deal, we have clearly reduced this exposure through selling Currenta and the respective obligation in the contract. As far as your second question is concerned on circular economy, I cannot tell you today what solutions we are going to bring to turn fossil-free in 2040. I think it's something that we will work on as far as our small polymer polyamide is concerned. The big issue and problem or salvation on circular economy will definitely come in the isocyanates and addressing PP and PE.

If I could just follow up actually on the Currenta contract. I may have misunderstood, I thought that it was removing the use of coal rather than actually being kind of a renewable based electricity.

Well, the agreement is definitely to switch off coal. And then in the second step to go for either for LDG -- sorry, for gas and then turning green. If green is then through renewable or through hydrogen, which, of course, only qualifies if it's green too, we will see. But the commitment is clearly with our partner that in the first step, it's coal off and then in phases to go for gas and then for green.

And there are no further questions at this time. So I hand back to Matthias Zachert for closing comments.

Well, I'm thankful for your participation. Normally, we keep presentations to investors globally spick and span and short in 5 to 10 minutes. We understood from hearing the Investor Days that this is groundwork on ESG. I hope we could provide this groundwork to you. Of course, we will follow up with investors on their desire, how often and what granularity level you would like to see this. The only thing that I would like to convey to you we go fully broad on ESG on our Internet. You can follow our development here. We will always address especially climate targets on an annual basis in a transparent way. But if there's more that you need, let us know. I can only reiterate again, we take that very, very serious and would like to show respective data on our development going forward. With this, we finish the call. We wish you a good summer break and good energy, positive vibrations going forward. Take good care. Bye-bye from Cologne. Bye-bye from LANXESS.

Ladies and gentlemen, this concludes the LANXESS Conference Call. Thank you for joining, and have a pleasant day. Goodbye.