Outokumpu Oyj (OUT1V) Earnings Call Transcript & Summary

Hello all, and welcome to follow Outokumpu's first ever ESG webcast. My name is Linda Hakkila, and I'm the Head of Investor Relations here at Outokumpu. Before we start talking about the agenda, I would like to say that the event was arranged by taking into account all the COVID-19 precautions. At Outokumpu, safety is always a priority for us. In today's event, we will give you an extensive update on the important environmental, social and governance topics. And we will also talk about our journey towards carbon neutrality. We have 3 main speakers today. We have Stefan Erdmann, our Chief Technology Officer and Group Sustainability; and Stefan will talk about what ESG means for Outokumpu. Then we have Juha Erkkilä, Vice President, Group Sustainability; and Juha will guide us through the ongoing and upcoming ESG actions. Then last but not least, we have Hannah Stratmann, our Supplier Sustainability Manager. Hannah will talk about sustainability in our raw material procurement and also about her recent trip to Brazil. Today, we will first start with our presentations. And after that, we are happy to take your questions through the conference call lines. And before we start with the presentations, I would like to remind you about the disclaimer as we might be making forward-looking statements. And now without any further comments, I would like to hand over to Stefan.

Thank you very much, Linda, for the introduction. Ladies and gentlemen, it's a great pleasure to stand here today with my colleagues, Hannah Stratmann and Juha Erkkilä. Six months ago, Outokumpu presented on the Capital Markets Day in May, our revised environmental, social and governance strategy. We committed ourselves again to the Science-Based Targets approach. And we wanted to reduce our carbon emissions as the first company in stainless steel to limit global warming to less than 1.5 degrees Celsius. At that point of time, we stated that we will get back to you with a detailed look on our sustainability strategy, the sustainability elements and the decarbonization road map. Today, we will not only present our planned measures and this detailed road map, we will also show you what Outokumpu has been able to achieve during the last 6 months. But before we start with the presentation, I would like to share with you a short video. Outokumpu has been selected by Reuters news agency as one of the forerunners in the stainless steel industry for carbon emission reduction. During the United Nations Climate Conference in Scotland in November this year, those selected forerunners were discussing in the event called Vision 2045, how these strongly committed industries for carbon neutrality can maximize their collaboration and their effectiveness in moving towards this important goal? Let us take a look why this is important -- this collaboration is important and what this means for Outokumpu? [Presentation]

When we talk about emission reduction in our steel industry, we have to talk about efficiency, and we have to talk about recycling. If those 2 things are going hand-in-hand, we can achieve highest emission reduction ambitions. Looking at this picture that you see here, it's one of the key arguments why Outokumpu can commit to such commitments. Here, you can see efficiency display. This is our Tornio mill in Northern Finland. Our fully integrated mill is not just a combination of our ferrochrome production and the stainless steel production. It is also the largest material recycler in Europe, with more than 90% recycled content and continuous process improvements, we were able to reduce our energy intensity and create new records on that during the last 6 months. But more about this later in Juha's presentation. Let's look now again at Outokumpu's ambition where we started and what ESG means for us as a company. We at Outokumpu believe that it's important to act with full commitment to CO2 reduction. We owe this to our people, we owe this to our children, and we owe this to the next generations. Therefore, we are committed to Science-Based Targets approach. And with that, we will be a key supplier of lowest emission stainless steel products in future. Our recycled content is one of the drivers for these emissions. As it is shown on the right side of the slide, it's more than 90%. Our ability to source more than 75% -- here 76% shown on the slide on the bottom of our electricity from low-carbon sources is a second very important driver for low emissions. But also the integration of ferrochrome -- of our ferrochrome business with the only chrome mine in Europe is not only an enabler for higher efficiency, it is also a stability for raw material responsibility. Another major cornerstone for sustainability at Outokumpu is safety. We want to see every of our employee returning back home safe after the work. Therefore, our achievement of 70% less total incidents is one of the big achievements towards our ultimate goal of 0 work-related accidents. As said before, Outokumpu announced in May this year that we are committing to the most stringent path forward regarding carbon emission reduction. We are striving towards carbon neutrality, and we want to ensure global warming to be limited by maximum 1.5-degree Celsius. But one might ask, why is that important? Why do we have to take this effort? If we are doing these challenging reductions within our industries, if every industry will do the same challenging reductions that we will talk about now doing this presentation, we will still see devastating pictures of flooding, of dryness because the global temperature, which is, at the moment, less than 1.2 degrees above pre-industrial average will still raise to 1.5 degrees Celsius. The limitation of global warming to 1.5 degrees Celsius will require cuts in all of the 3 scopes of the emissions. Scope 1, the direct emissions. These are the emissions coming from our own processes. Scope 2, the indirect emissions coming from electricity. And Scope 3, these are the value chain emissions, oftentimes, the largest amount of emission, and they are coming from previous processes before they come to our site. Some companies focus on Scope 1 emissions, the direct emissions. But we at Outokumpu believe we can just efficiently tackle global warming by focusing on all 3 scopes. And with that, reduce the overall emissions, the total emissions and commit to lower global warming. The baseline that we talk -- that we set for the upcoming challenge for the next 10 years, we -- the baseline amounts to 1.7 tonnes of CO2 per tonne crude steel. These 1.7 tonnes include our ferrochrome production, by the way. This brings us with a 30% reduction until 2030 to a level of about 1.2 tonnes CO2 per tonne crude steel, which makes it then since the beginning of the commitment to SBTi in 2017 with a baseline according to it to a 42% reduction of total carbon emissions. We will see later in the presentation how we will meet this challenging goal by end of 2030. But at Outokumpu, we are not just focusing on environment when we talk about ESG or sustainability. Besides the environmental ambitions, we are also addressing activities on the social and on the government side. I talked already about safety at Outokumpu. Safety and compliance are the highest priorities for our organization. We also live the standards of safety and compliance within our value chain. We, therefore, just finalized a human rights risk assessment for our organization and the value chain. How do we impact our value chain? What do we leave behind and how do we support our communities? These questions have to be answered. And some of them are also driving our corporate social responsibility activities that Outokumpu supports in the everyday life in order to demonstrate our core values, like collaboration, being a trustful partner or our interest to increase recycling activities also in our communities. We are also very proud at Outokumpu of our workforce diversity and the respect for each other, independently of our color or our heritage. In the last 6 months, we also achieved major improvements from the government's perspective. In summer this year, we implemented the ESG advisory council. It's a council which would guide us as leadership with industry sustainability experts out of the industry to get valuable input and feedback about our measures, our actions that we took. We further put an organizational improvement and governance in place to focus on sustainability in our supply chains in our sourcing activities. Hannah will talk about it later in her presentation. And we are in the process of retraining all our employees on Code of Conduct and competition law. And last but not least, as it is shown here, as the last bullet point on the right side, we implemented a carbon cost in all our technical projects investment but also R&D. When I talk about R&D, we also have to talk about new innovations, stainless steel products that enable the world that lasts forever. Product innovation that we as stainless steel producers create that enable our customers and consumers to make the planet cleaner and greener. We must realize today that for many decarbonization trends, we need stainless steel. Electric vehicles, for example, they will require different drivetrains. Nonmagnetic motor shafts are just one example for the application of stainless steel, hydrogen tanks to store in future the massive amount of hydrogen that we need or electric fuel cells, fuel cells, which use hydrogen to create energy also require stainless steel. But also outside of hydrogen and carbon emission, important applications for stainless steel are required. Just look at global transportation about shipping across the globe, which is a basic need for most of our industries, we need to make these ships greener, we have to enable greener shipping. And for that, we, for example, need flu gas cleaning or ballast water treatment facilities for the ships. Finally, stainless steel is probably more than before visible in a lot of applications in this special time in this pandemic. Air purifiers or other clean applications are requiring stainless steel. With this, I would like to hand over to Juha Erkkilä, who will explain in more detail our activities, our achievements and our carbon reduction road map for the next 10 years.

Good afternoon, everyone, and thank you, Stefan, for the inspiring introduction there. And I'm really excited to talk to you about the ESG journey that Outokumpu embarked on 6 months ago. And to give you an overview as to what have been the main achievements during the last 6 months, starting off with environmental pieces, but looking into the social and governance aspects as well. Now if I would take a quick snapshot of the main activities within the 6 months and starting off with the environmental ones, we have been updating our climate ambition towards the 1.5-degree climate targets. We have finalized them, going through all the processes within our company to see what activities are needed. And we have been -- we have submitted them to the Science-Based Targets initiative. And actually, today, we got the approval for our targets that are now aligned with the well below 2 degree scenario, but again, in line with the business ambition of 1.5 degrees for which we are now working on the sectoral decarbonization approach together with SBTi having an own expert within the expert advisory group defining that scenario for the steel industry. We have also secured a long-term supply for wind power, our 10-year deal covering the electricity needed in our Kemi mine, increasing again our low-carbon electricity mix, which is one of the key elements of our low footprint. On the social side, we have conducted the Organizational Health Index survey, the OHI within the whole company, and the results are now being gone through. And we have, this year, started the Diversity and Inclusion initiative in Americas, ensuring that each and every gender and ethnicity has equal opportunities within Outokumpu. And this same initiative will be rolled out on a Group level globally next year. We have also stood up for COVID, maintained production in all of our facilities, but also we have established vaccination centers in our production facilities in Germany and U.S., where not only the employees but also the families of the employees have been able to get the vaccinations. On the governance side, we have had a strong year in regards to doing policy reviews. One particular reason was that we committed to the United Nations Guiding Principles on business and human rights, and we needed to ensure that all of our policies are then aligned with these principles. And this, of course, meant as one of the things that our supplier requirements were updated and supplier Code of Conduct is now being prepared. And at the time being, one of the supply requirements is that the suppliers are complying with Outokumpu's Code of Conduct. Then we have also established a leadership pipeline program, which is to support and empower our employees and, of course, to even further strengthen the leadership capabilities within our organization through these tough COVID times. Now diving deeper into the environmental piece and mainly the emission reductions and what are our plans according to that. Here, we have a more detailed split-down of all of our current emissions, all of the data is from 2020. And you can see that the size of the pie is actually a reflection of the actual volume of the emission on different scopes. So Scope 1 covering some 1.2 million tonnes of CO2, and that is further split down into half of it coming from the usage of coke, which we are using to reduce chromite ore into ferrochrome in our ferrochrome production facilities. And chromite is a substantially more stable oxide than, for instance, an iron ore is. And therefore, hydrogen, as an example, is not capable to reduce chromite. And therefore, coal is needed in that process. The process itself is an electrically run furnace. So it's not to supply heat or power to it, but it's to basically drive the reaction of reducing the chromite. And those furnaces are fully closed furnaces. Meaning that the -- they are not emitting CO2, but the CO gas is actually taken out from it, which we are then almost fully utilizing within our own operations, for instance, at the hot rolling mill as a heating fuel, at the cold rolling mill and at the steel melt shop and also at the ferrochrome plant. Some of the CO gas is also sold externally, for instance, the power plant and those emissions are then covered in our Scope 3 emissions as it is a downstream emission from our process. Then you can see that 1/3 roughly of the Scope 1 emissions is the use of natural gas. And then the remaining 14% is from different fuels such as propane, light fuel oil and the others would represent electrodes and some of it from the carbon embedded in some of the alloying elements that we are using. Then on the Scope 2 side, which is totaling to some 660,000 tonnes of CO2, roughly 18% of that is coming from the ferrochrome production that is taking place in Finland, where the electricity emission factor is substantially smaller than what it is in many other places. And then the 82% is the remaining electricity in the rest of the processes. So bearing in mind that all the ferrochrome emissions are included in our Scope 1 and 2 emissions, not only the stainless steel part. And why this is a key piece? It's because, as you can see from the Scope 3, it's substantially larger than what our own emissions are. In fact, it's more than double of our Scope 1 emissions. And bearing in mind that we have more than 90% of recycled content and still this small quantity of primary raw materials is creating quite an enormous footprint. And for this reason, we deem it extremely important that the supply chain is taken into consideration when developing climate targets because otherwise, we would be neglecting a massive part of the footprint that is contributing into the total carbon footprint of stainless steel produced. So more than half is coming from different nickel sources, nickel metal and ferronickel, 14% lime and [ dough ] lime and other derivatives. Then about a quarter is different raw materials such as molybdenum, manganese, silicon and some micro alloying elements and then services such as dust treatments, waste treatments, all that is covering some one quarter of the Scope 3 emissions. And then the balance is transportation, both internally and downstream. Then as we now know the levers what is really creating the emissions, then we can also take a quite robust and program like approach to really look at how to then reduce these emissions. And what we have done is an extensive analysis that covered 93% of our current emissions. And what we can see as a result is this kind of a marginal abatement cost curve, which is a huge exercise, including all of those different individual numbers that you see there on the graph is representing one single emission reduction project. So you can see there's about 20 of them overall. And the width of that bar is basically representing the emission reduction potential of the said project. And then the highs or the y-axis is giving them the financial efficiency as to what should the price of CO2 be for this project to be basically financially feasible. And what is striking to notice here is that you can actually find 1.75 million tonnes of emissions with a carbon price less than EUR60 a tonne, which we are using as an internal carbon price, we update this on an annual basis, and we have been using this from the beginning of the year. And obviously, next year, we will be revised as the price has gone substantially higher. And then what is also interesting to note is that we also looked at some of the hydrogen projects as an example, where we could utilize hydrogen as a heating fuel because it can replace LNG, for instance, as a heating fuel. But those financial efficiency figures would not fit here at all. They were way, way higher, and they have been excluded. So what we can see here is a number of projects that are within the realms of realizing. And of course, doing all these projects, that would cut our emissions by 40% already. And what I need to note as well is that efficiency improvement projects are not included in this graph. So typically, these kind of projects would have emission reduction potentials of hundreds or maybe thousands of tonnes of CO2, which are, of course, very significant and meaningful for our journey, but they would create quite a bit of traffic there on the left-hand side because typically, they are financially very efficient. And also, they provide little CO2 savings. Then looking more detailed into what lies behind this marginal abatement cost curve, starting off with the Scope 1 emissions. And there, we have realized up to 0.4 million tonnes, so 400,000 tonnes of CO2 emission reduction potential with an average cost of EUR40 a tonne for CO2. And what is the main contributor there? You remember from the pie diagram, what was giving half of the Scope 1 emissions. And there, we are looking at making a significant replacement of fossil coke with the biocoke derived from forestry residues. And this would be, of course, a substantial transitional step providing us a lower carbon footprint. Then replacing fossil-based fuels with lower emission alternatives, this could be done quite swiftly, for instance, with the usage of biogas and perhaps also other heating fuels that have a lower footprint. This could be, for instance, changing to a different fuel type, with simply a smaller emission factor. Then doing continuous investments in the process efficiency, such as I mentioned, that there's a lot of these energy efficiency activities on each of the sites. For example, the Krefeld waste heat utilization, which was announced a week ago. These kind of projects, that one, in particular, had CO2 reduction potential of several thousands of tonnes of CO2. These all add up given that we have a vast number of different lines where these kind of activities can be done. And what is noteworthy is that we can achieve this with close to operational cost parity. And we have set aside a earmarked EUR160 million of CapEx for the investments needed on this one. Then for the Scope 2 emissions here, the 3 main levers is, of course, directly purchasing more and more low-carbon electricity. That's a very straightforward one. And then acquiring guarantees of origin for the amount that we could not directly purchase. And then, of course, investing into renewable electricity. This might be in forms of creating new energy resources for our needs. And of course, constantly, we need to reduce our electricity consumption. A good example of that is the electric arc furnace model done in Tornio for the digital manufacturing, where we created a model for the operator to specifically know exactly how many kilowatt hours to put into the smelt, ensuring that we are not wasting any electricity. And of course, that is generating benefits not only in consuming too much electricity, but also that you don't get yield losses, you don't overshoot with temperatures and you get the faster process times. And all this, again, is adding up to thousands of tonnes of CO2 reduction. And what we can note as in general for the Scope 2 is that about 800,000 tonnes is the identified reduction potential with an average cost of EUR5 a tonne for the abatement, and that would mean a EUR5 million to EUR6 million annual cost increase. Then for the Scope 3, which you might remember, that was the biggest pie of the mall. And there, the ferronickel has the largest impact, that was very clear, 55% of the whole 2.5 million tonnes. So it is crucial to identify the main low carbon emission suppliers. So of course, there's a big variety of suppliers with the different footprints. And these differences, they can be tenfold higher or even higher than that. So there is a very, very big scatter. And what we have now done is that we have agreed on a multiyear contract with the ferronickel supplier who has 50% lower CO2 emissions compared to the industry average. And with industry average, I refer to the nickel LCA study that says that ferronickel has a footprint of roughly 13 tonnes of CO2 per tonne of ferronickel. Then, of course, we have our own activities that we can do to reduce our Scope 3 emissions. One is to utilize more of our own side streams, which we do currently as well. We have metal collection from the slack. We are collecting the dust back from different treatment facilities. But there is room for optimization here to ensure that all the dust scales, slag and sludges are creating valuable input feed for us in the best possible way. And since transportation is, of course, a big part of the Scope 3 emissions, we are all the time looking at different ways of reducing that. And a good example from this is the new LNG vessels that the lung ship has ordered for the Tornio line -- the Tornio terminals in line to reduce substantially the vessel emissions for that transportation. And in our own transportation, road to rail projects are done in increasing amounts also [indiscernible]. And here, we have earmarked a CapEx number of EUR140 million for Scope 3 reduction, and this basically means that we would be able to increase the recycled materials in our process. Then looking at our technical journey towards the carbon neutrality and what has been done, what is in the plan and what lies ahead in the future? So we have actually, during the last quarter compared to last year, we have reduced already our energy efficiency by 10%, which is a massive amount in 1 year. Yes, granted, there has been a volume benefit in this year, which always supports the energy efficiency. However, that kind of increase is not only substantiated by volume increases, but that has also had our own activities behind it, such as the digital manufacturing, which has worked on a lot of the different processes in Tornio, where we are using now more and more data to drive our processes rather than gut feelings and experience, which, of course, is a crucial component for steel making, but to optimize the process entirely, their digital tools have proven very, very suitable. We have done biocoke trials in our own usage. We have realized even up to 100% replacement in some of the processes. We have done substantial amount of over-alloying reduction. And that has provided not only cost savings, which have accounted for more than EUR20 million on an annual basis, but also a substantial reduction in CO2 emissions. To give you an example, the reductions there with ferrosilicon and other alloying elements, we have realized 80,000 tonnes of CO2 emission reduction, which is a very, very substantial amount. And we have internally developed a means of assessing the CO2 impact of individual projects. Stefan mentioned that we are using this for investments. Yes, that's correct. And we are not only using it for large scale investments, but we are using it for all kinds of investments, whether it's a new motor or a new bearing. If it's giving us energy efficiency gains or yield gains, it's always giving us gains in CO2 impact. And now we have the means to actually quantify that and apply it in our investment procedures internally. And at the time being, we have more than 160 of these different projects in our system, meaning that we have a solid pipeline of projects coming constantly, ranging from a few tonnes of CO2 to several tens of thousands of tonnes of CO2. So there's a big variety of different projects lined up. Then improving energy efficiency and reducing direct emissions, this is very much what we are focusing on now to go forward with. And this means that reducing fossil coke and reducing fossil fuels or altering the source of the fuel in order to reduce emissions throughout our processes. We need to maintain a high share of low-carbon electricity and only increase this constantly on the different areas where we are active. And as mentioned, the Scope 3, so the raw material side is a crucial part, and we need to utilize the information of the individual carbon dioxide emissions of the suppliers of the said raw materials so that it will [ in fact ] our purchase decisions as well that we are steering our footprint in the value chain as well. And then we are looking at doing more and more alternative heating trials. Just to remind that we have already won induction line followed with an electric furnace in Fagersta. And this is something very much that we are looking at as an opportunity for coil based products as well. And heat recovery projects are something that are coming up more and more. The one in Krefeld was announced just lately, but there's quite a few of them -- them to follow, which is part of the normal energy management systems and energy efficiency improvements that we would like to consider with. Then, of course, we want to ensure that our customers know that what kind of carbon footprint are they getting with the products that they purchase from us. And therefore, we are working on the product carbon footprint. We are starting off now -- well, to give you a picture, we have already the EPD, so environmental product declarations on our website, which give the product group specific CO2 footprint. So hot-rolled steels, cold-rolled steels, rebar, long products. But now we are looking at the grade-specific CO2 emission factors for each of the grades. And then the follow-up from there is to do a coil-specific carbon dioxide footprint for each and every coil. And this is now something that we are very much looking at. Then in the future, which is now providing us the means to go to the carbon neutrality, now the tools here up to -- in plan are basically sufficient to take us to the 2030 target pretty much. But then looking at 2030 and beyond, how do you reach the carbon neutrality? Then we are looking at the carbon emission-free ferrochrome processes, for instance, we have specifically 4 identified processes that we are now looking at quite heavily into. And of course, all of them are not existent in commercial scale, but in very much lab scale, and that's where the focus is now on, and we will update you accordingly once we make improvement on that. Then 0 carbon emission heating technology. This could be hydrogen heating, but has some constraints at the time being as said and the electrical heating sources and different induction heating technologies. Then the carbon capture technology is something that we are looking at in quite a few of them, actually, more on the carbon capture and utilization front, meaning that producing products out of either the CO gas that we get from the ferrochrome furnaces or the CO2 gas that is then CO gas combusted in following processes. Then improving the side stream utilization is, of course, a crucial component in order to maintain the high recycled content and even improve it further. And of course, as a key piece is the large-scale biocoke utilization in order to avoid fossil coke emissions. Then going into the more social topics. In safety, we have had a very solid performance and ever decreasing trend from 2016 to 2021. We've shown a 70% decrease in total recordable incidents. And also on the LTIs, we have done a very good development over the years. And what is really driving this is that we have a constantly improving safety procedures like the behavior-based safety approach. And of course, on top of training all our people, we are investing every year about EUR18 million on improvements of environment, health and safety. And this is, of course, on top of the normal expenditure. Then not only safety is important at Outokumpu, but also the health and well-being of our employees. And for -- to give a few examples of this, we have basically provided E-bikes for employees in Finland. We have started the leadership pipeline program within the organization, ensuring that we have people cultivating themselves and developing also professionally. And we have provided the means for over 500 summer trainees in Finland and Sweden to take the opportunity to get to know the steel industry. And we are quite actively working with external universities. For example, in Finland, we joined an R&D program called Towards Carbon Neutral Metals, which consists of several different universities, industries and all aiming towards reducing the emission footprint of different metal production in Finland. And in Germany, we have done a 3-year collaboration with Fraunhofer Institute to look at the different pickling methods, for instance, to get rid of hydrofluoric acid, which is one of the substances that we would rather avoid having in production. Then in our supply chain, we have had a lot of activity this year. We have instated a new Supplier Sustainability Manager, Hannah, who will be talking to you after me. And we have done a lot of activities on this front with the lead of Hannah. We have, for instance, done the supplier requirements update during the year. It has been communicated to our key suppliers. And of course, this is linked to the embedment of United Nations Guiding Principles in our policies. And that has included also the fact that we have done a human rights risk assessments looking not only into our own operations, but throughout our value chains, what are the major human rights risks that we see, what are the most salient risks and then the action plans to follow from that. And these measures are then implemented during next year. Now sustainability has been embedded in our organization very deeply. And now we have increased the governance around it. Stefan mentioned the ESG advisory council, that has now convened 2 times and shared the best practices of the industries and giving us cross-industry understanding as well as to how these things could be done in a better way and how is it done elsewhere. We have done a Code of Conduct revision, together with all the policy revisions, and this has been now trained and -- or will be trained during the year to all of our employees. And internally, we have established an ESG core team. This has representatives from different stakeholders throughout the company where we are discussing the current ESG topics and giving recommendations throughout the organization for the respective leadership teams to ensure that we are doing the right things. And finally, on the governance side, we completed our materiality analysis that was finalized during Q3 this year. And this was a double materiality analysis, meaning that we took a look at the main stakeholders of Outokumpu external stakeholders that is and also the internal input from Outokumpu operations to really give us the focus on what we should focus with our sustainability work. And the results were abundantly clear. Emission and footprint reduction was by far the biggest priority that we should focus on. You can see that it's right there on the top right. And the other 3 key focus areas were circular economy and waste management, innovative technologies and then sustainable supply chain management. And all these 4 key focus areas. The others are something that we need to have as a sustainability enabler or address them locally. But all these 4 key focus areas are really condensing down to the United Nations Sustainable Development goals that are there on the right-hand side. And out of which the 17th, partnerships for the goals, is a very key new piece that we have as a sustainable development goal. And that means that we are tying in the value chain more and more into our core business. And out of that, I have my colleague, Hannah here to tell you more about that. So thank you, and welcome, Hannah.

Thank you very much, Juha, and welcome also online. My name is Hannah Stratmann, and I'm the Supplier Sustainability Manager in Outokumpu. This is a very new position to strengthen our path forward on the sustainability strategy. And you have seen a lot about the implications about Outokumpu's strategy, and I'm going to talk about the implications for raw material procurement. So in raw material procurement, we are aiming at a 40% CO2 reduction in major raw materials by 2030. So this is our share to contribute to the 1.5-degree target. To do that, we need to have strategic alliances with responsible key suppliers. As Juha mentioned, we really need to focus on the suppliers that can help us on this path forward and to see what are their goals in CO2 reductions. But that's not the only thing. We are also talking about responsibility and respect for human rights. And when we talk about that, we do not want to look at our direct contract partners only, but also beyond them. So we are looking into a transparent and monitored supply chain, all the way back to the origin of the material. And how are we getting there? So we have 5 high priority initiatives for 2021 and 2022. The first one is the supplier sustainability assessment, the scorecard and how we prioritize on-site audits, and we will look a little bit more into that. Then we have a document review, supplier onboarding. And as Juha also mentioned, we are going to develop a new supplier code of conduct. And then the third area is the CO2 emissions tracking. So to be able to include supplier-specific CO2 emissions in our decision-making, we need to know them, by product and by supplier. And then you also have already heard a lot about the United Nations Guiding Principles on business and human rights. So the UNGP, we as Outokumpu, have committed to them. And of course, that means that we in raw materials also need to integrate them into our processes. And that is very much linked to the fifth initiative, the ESG incident management. And I will talk a little bit more about this process, even with a real life example. But let's first look at supplier relationship management and how we are implementing sustainability in all its paces. So it starts on the left upper side with the supplier onboarding. There, we need to make sure that our suppliers commit to our supplier requirements, which we have amended to include more elements related to sustainability. We also want them to comply with our code of conduct and then in the future with the supplier code of conduct. We check for human rights risks in our supply chain and also for sanctions and other compliance issues. Then in the active relationship with the supplier, we have something totally new for us, and that is the EcoVadis ratings. A few weeks ago, we partnered with EcoVadis, which is an independent company doing sustainability assessments. So we do get these assessment reports of our suppliers, and we integrate them into our supplier scorecard. So where we previously had more traditional elements, procurement performance, quality, logistics and technology, we now have a sustainability rating as the base. And then the results, the qualitative results from the EcoVadis rating and the supplier scorecard together are taken with regular risk and sanction screenings that we do throughout the relationship. And all of these elements together give us the priority for visits and on-site audits. And then again, from all the activities, we will definitely find improvement ideas, actions, how we can improve in all areas of sustainability, and we will communicate them and follow them up with our raw material suppliers. And on the right bottom corner, you see something that I would like to highlight here. So the ESG incident management process is a 3-step process that kicks in whenever something is happening in our supply chain. And even if it is just an allegation, we register the case in our database that is relatively quickly done. And then we go into the investigation phase. This can take quite a while, and it depends very much on the case and the allegation how it looks like. But at the end, the target is always to take action together with our suppliers to improve if an allegation is found to be true. So let's look at one example and where actually the process itself was born. Earlier this year, Finnwatch published a report where it criticized our supplier Vale and Outokumpu. And in this report, there were also recommendations for Outokumpu made by Finnwatch. The first one was the commitment to the United Nations Guiding Principles because we didn't have that at that point in time. We have committed. And so the first recommendation is already turned into practice. And the UNGP, they ask for identification of risks associated with Outokumpu's own operations, but also with the value chain. So this is the second part and that we also already did. Now the next step on this journey is the action plan to address the identified risks. And then aside of these 3 more governance-related recommendations, there was the one to assure that Vale keeps its commitments made to the indigenous peoples in the final settlement that they are currently discussing. So this discussion between Vale and the indigenous peoples is still going on. But nevertheless, we wanted in our investigation to go to Brazil. So the investigation went like that -- that due to the complexity of the case, we engaged external professionals, namely Enact, and they conducted desktop study and stakeholder mapping as a preparation for the field work in Brazil. And then we went to Brazil, so it was myself and the professionals from Enact, and we met with Vale, the Xikrin and several institutions. It was actually a week packed with meetings. And on the 2 pictures, you see us discussing with the Xikrin indigenous peoples to hear their opinion about the whole process, to learn about their lives, their problems. And I can say this was a really intense 2 days of interesting discussions, and I'm very, very glad that we did this. And we also got very positive feedback. They actually invited us back. And one of the persons working for the associations together with the indigenous peoples, he is in that business for 15 years, and he actually said, this was the first time that a customer from Europe showed up there and showed interest in the indigenous peoples directly. The fourth part of the investigation was and is continuous communication with Finnwatch. So we keep the contact here and update them about what we are doing. But let's look a little bit more at the fieldwork targets. So the first target was to directly engage with stakeholders because that's also what UNGP is asking for. And that we definitely did. And then we wanted to identify human rights impacts on the indigenous peoples alleged by Finnwatch. We wanted to determine the reliability of Vale's risk management and assess the risks to Outokumpu in this specific supply chain. And the last bullet point I want to highlight. The target was also to derive a framework for integrating human rights into Outokumpu supply chain management. So what was the outcome? The outcome is actually guiding our path forward. And I can happily say that the necessary information to fulfill the field work targets could be obtained to a very large extent. We met almost everyone we wanted to meet and gained a lot of information. And the way forward is outlined on a high level, and we already discussed it with Vale while still being there. The next steps are to consolidate all the information and detail the way forward and then continue the engagement with both Vale and the other stakeholders, meaning the indigenous peoples. They actually invited us to come into their village next time, and I really hope that this will be possible. And then again, this last point of developing a framework that supports anticipation of potential human rights infringements. That is key because we do not want to react to cases popping up. We want to be able to proactively see if something is getting out of hand and to react before something is really happening. And with that, I would like to hand over to Stefan.

Thank you very much, Hannah. Ladies and gentlemen, this brings us to the closing of the presentation. We started this webcast with a short video, and we talked about United Nations Sustainability Development goals and their importance. Carbon emission reductions that enable us to limit global warming to less than 1.5 degrees Celsius are as important for Outokumpu as water conservation, safety, diversity, employee recognition, employee motivation, supply chain responsibility, as we just heard from Hannah and highest compliance standards. Our progress towards our targets for environmental, social and governance are recognized globally. The EcoVadis platinum award is just one example of those achievements. But more than that, we are proud that our workforce is extremely motivated by our commitment for sustainability. Larger projects, such as shown in the carbon abatement cost curve, as Juha showed you earlier, are obviously important for our path forward to meet our targets until 2030 and beyond. However, as he also pointed out, the number of additional projects, additional efficiency improvement process project, especially that are driven by our people across the globe, another important engine of efficiency improvement. Outokumpu is what it is because of our people, because of our ingenuity, because of our experience, our commitment and our passion in stainless steel. With our work, we are not able, as you saw it, to just reduce our carbon footprint and contribute to the limitation of global warming, we are also able to enable our customers and end consumers to create products out of sustainable stainless steel. We will continue to execute our activities going forward in all 3 areas: one, environmental, with our efforts on reducing our carbon emissions and increasing our efficiency; second, on social with our activities in safety, but also enabling diversity in workforce as well as driving motivation of our workforce. And finally, on governance, with clear focus on compliance, on human rights in our whole value chain and through transparent processes. You were hopefully able during this presentation to get an understanding for our ambitious carbon reduction road map. This is significantly different than some other industries that are relying mainly on one major technology to give them the [ apparent ] or the reduction potential for carbon emissions. Outokumpu, however, has a solid decarbonization strategy that is structured, affordable and most important, feasible. With our indicated path forward, as you hopefully got throughout this presentation, we will not only be able to meet the committed SBTi targets, we are also aiming to have sufficient carbon allowances until end of this decade. Thank you very much for your interest in Outokumpu's ESG activities and for attending this presentation. And with that, I would hand over to the operator to post questions.

And our first question comes from the line of Anssi Kiviniemi OF SEB.

It's Anssi from SEB. 3 questions from my side. I will take them one by one, if that's okay. First of all, the EUR300 million CapEx, I think that was for 10 years, right? Kind of how should we think about the timing of the CapEx, which projects will be coming in the next 5 years and which projects are more or less longer-term? Kind of how front end or back-end loaded is the CapEx plan that you currently have? That's the first one.

Thank you very much for the first question. I will take this. You rightfully said that EUR300 million. That's correct. It's the lower end of the range that we stated in the Capital Markets Day, obviously, coming out of the carbon abatement exercise and checking all the activities that we had. It is a little bit difficult to say whether it's front-end loaded or back-end loaded. We will distribute it most likely equally throughout the years. There are some major investment projects that we also distribute over the years. So to answer your questions, it's not back-end loaded. It's not front-end loaded. We will distribute it quite evenly throughout the whole years. And by the way, because most of those investments are -- or half of it as you saw is related to Scope 1 emission reduction, half approximately to Scope 3, and when I -- when you remember the last comment that I did on the carbon allowances, we will not meet that if we would back end load the decade.

Okay. Then the second question on Scope 3 reduction targets. You are basically assuming that you can do a procurement with same cost, even though, in a way, you are sourcing premium products that have less CO2 footprint in them. So kind of how does this work? And could you open up a bit on kind of your thoughts on how this works in reality?

Would you like me to take this? Of course, we cannot go very much into details of our sourcing practices. The estimations that we have done so far led us to these assumptions. So I think this is what we, at this point in time, can say about that topic.

To add to that, I would also point out that we have also the means of looking at the recycled content, for instance, which will reduce in effect the need for primary raw materials. And of course, there are some new means of primary raw materials that might actually be secondary sources.

Great. Then the last one is on biocoke basically replacing coke. Could you talk a little bit more about it. I mean, what's the availability? How do you aim to source it from who and kind of more elaboration would be highly appreciated.

Yes, I can take this one. So we have been now working with the idea of biocoke for a bit more than a year. We have looked into the availabilities on different places on where we could get the biomass needed for it. And now we are looking at the different means of producing it and how to do it in a large-scale and also at the same time, looking at the recipes on how to manufacture it so that it meets our production needs. And as I said, we have done some trials in our processes already with good experience until now. And we will keep on doing these experiments until we know for sure that how and what kind of biocoke do we specifically need. But there is, let's say, robust plans behind this already.

Next question comes from the line of Tristan Gresser of Exane BNP Paribas.

Just one on green steel demand. Can you talk a little bit about where you're seeing in the market from customers' perspective, if there is any interest from several end markets to procure stainless steel with a lower carbon footprint? And given that you're going to unlock quite significant future saving in the next decades, are you looking to launch, let's say, a commercial offering of low-carbon steel product, maybe we'll put up the balance sheet approach or something else. Any color there that would be greatly appreciated.

That's an interesting question. I think it's really spot on this question on the market evaluation and so on. I can just say that we see, obviously, from some sectors, a significant interest in greener products, especially from the automotive market, but it also, as I realized through discussions in the appliances market, there is significant interest from that side as well to supply greener products and ideally also for labeling these kind of products in the right way. That's the basic driver also for what Juha was talking about product carbon footprint. You have to give the end consumer and our customers before that an ability to build their products, their production lines and so on based on the lower carbon footprint. And the next question -- the second part of the question that you had is also extremely valid. We, however, tend to say, we first like to have a solid plan in place that is creating this robust carbon emission reduction tool in front of us. And then we take then the second step to do the marketing around it. It's -- we are, at the moment, in the situation that we are locking down this kind of reduction plan. And then we are, at the same time, looking at the second point that you are alluding to. And I'm pretty sure that you will get from us an update in not-too-distant future.

All right. That's really helpful. And maybe just one follow-up a bit, reversing the question there. On your raw material procurement side, the nickel provider you work with. Is there also -- I mean, you're looking at nickel as a lower carbon footprint, are you essentially paying a premium for that? Or do you see there is enough availability, so that's not really an issue. But do you see on the raw material side, something similar that could develop in sort of more premium to pay?

Well, as I said earlier, we cannot disclose anything about premiums and prices. But what I can say is that we are actively coming together with our suppliers and discussing what ideas they have about carbon reductions. We are also discussing a lot about how we can find synergies, so not only in isolation, each company for itself, but also together, is there a way to reduce emissions as a team?

[Operator Instructions] We currently have one further question in the queue. That's from the line of Harri Taittonen of Nordea.

Just sort of mentioned that you sort of said in the end about the carbon allowances after -- to 2030. I mean, how good visibility do you have to the kind of the development or the likely development of the effective allowances? Just if you can elaborate on that one, please?

It's a really good question, I have to say. And I can say as much as probably we both know, we have assurance, obviously, until 2025. We -- there are different scenarios afterwards. But based on our allowances position and the plans that we have linked also to the very first question, when do we expect to do certain investments, certain energy efficiency improvement projects, sourcing optimization. And all these coming together, we said the total would then give us the opportunity to aim towards this ability to avoid any additional allowances at the end of the decade.

Right. Understood. Okay. And then another one, if I may. I think you've been talking earlier on this sort of -- well, the EU decision-making on the carbon adjustment tax and what scopes are taken into the equation there? And can of you lobby for the sort of influencing towards taking into account all the 3 scopes. But I mean, is there any update? Or what -- can you kind of give some color on that process and where we are there in terms of working with the EU and they are kind of likely decisions on taking into account scope 1, 2 and 3?

Yes. That's a great question. And as you know, CBAM or carbon border adjustment mechanism was part of the Fit 455 proposal coming in July. And now it was basically written in a way that it only reflects on Scope 1 emissions on imported goods. However, it also did mention the possibility of including so-called input emissions that is input material emissions going into the product that is being imported. And that basically would provide the possibility of having the Scope 3 emissions embedded, which, as you could see, even from our pie charts that the Scope 3 is by far the biggest. And in our case, it's even a little bit misleading because the Scope 1 and 2 are influenced by the ferrochrome production, which would not be the case with other stainless manufacturers. So basically, if I look at the ISSF figures, only 14% on an average is the Scope 1 emissions of stainless steel footprint. And if you have a policy that is addressing only 14% of the problem, to me, does not look like an excellent policy. And what is now ongoing is that the member states are now basically formulating their opinions on the proposal on the CBAM, and that's what we are now following up that what's happening.

[Operator Instructions] Okay. There seems to be no further questions on the phones at this time. So I'll hand back to our speakers.

Thank you very much, operator. Thank you very much, ladies and gentlemen, for this attending -- for attending this call. It was a great pleasure for us to explain our environmental, social and governance road map in more detail than compared to what we did in May this year. With that, I would like to close this event and would like to wish you all stay safe in these difficult times of the pandemic. And hopefully, you will have a nice rest of the December and happy holidays. Thank you very much.