Rockwool A/S (ROCKB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the ROCKWOOL ESG Investor Call. Today, I'm pleased to present CEO, Jens Birgersson; SVP Group Marketing, Communications and Public Affairs, Mirella Vitale; and Director of Sustainability, Anthony Abbotts. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the presentation over to your host. Please begin.

Okay. Good afternoon, everybody. This is Mirella here. We're trying this in a slightly new way from remote locations. So please, somebody stop me if the sound is unclear at a certain point. But if we go to Slide #2, we will see our ESG meeting calendar. This is, of course, the last time we meet in 2020. It's been a challenging year and an interesting year for all of us, but we're very pleased to confirm that we will be continuing with our ECG calls throughout 2021. The dates have already been established and should be unchanged. And we ask you to reserve the date because we very much look forward to sharing more information with you on a continuous basis throughout next year. Then if we move to Slide #3, the agenda for this call is for us to give you a little bit of background of what has taken us here to where we are today, then we will give a brief background as to what the Science Based Target initiative is all about, who's behind them and where they all started, then Anthony will give you some detailed insights into the ROCKWOOL science-based targets as well as an overview of the 3 pillars that are the foundation for our decarbonization targets that have been announced during last week. And then we will do our best to stay on time today and leave you all ample time for a Q&A session. If we jump directly to Slide #5, as I said, we wanted to give a background as to why we are here today and what brought us here. The Paris climate agreement that, I'm sure you all know everything about it, was the sort of turning point for the climate agenda because it was the first legally binding international treaty on climate change. Of course, there had been many actions before that. But it's -- this was the first time that actually the signing parties agreed to a legally binding commitment. It was signed in -- on December 12, 2015. So exactly 5 years ago, but it actually didn't enter into force 'til almost 1 year later. It actually entered into force on November -- in November 2016. The main goal of the Paris Agreement is to limit global warming to a well-below-2 degrees scenario or even preferably to 1.5 degrees. And it's compared to preindustrial levels. There is a lot of discussion about what exactly preindustrial levels means and when is the cutoff date for defining that. Initially, the date had been defined between 1850 and the 1900, but the economists actually argue that it is much more precise if you go back to 1800. Because until the year 1800, there actually had been no sign of global economic development in the world. But then after the invention of the steam engine in the United Kingdom, that's when global economic development really took off. Up until then, there had been virtually no growth in the planet. So what is considered to be human activity that has impacted the climate, the date that economists are now arguing for are between 1780 and 1800. So there's still some discussions and depending on where that -- where they land on according to industrial levels will also define what target we actually reach in 2030 and 2050. The 2030 agenda was then adopted by all the members of the United Nations at the end of 2015. It's very often confused with the Paris climate agreement, but it is slightly different. The Paris climate agreement is exactly that. It's about lowering greenhouse gas emissions and focuses only on the climate, whereas agenda 2030 is very much a blueprint for global prosperity. And it's actually about driving economic growth, but driving economic growth while maintaining a sustainable future and making sure that we preserve our oceans, forests and biodiversities. So they're not exactly the same thing. Even though they're very often interchanged as the same, they actually have different focus areas. So that's what took us to where we are today. If we go to Slide #6, ROCKWOOL still has and maintains our own sustainable goals. There is no change to those. We keep our fixed goals and they will be reported in our next sustainability report that will be issued early in Q1 next year. Actually, for next year, the way we measure our goals will actually have external assurance. We continue to have a commitment to drive the increased positive contribution of our products in society, while at the same time driving down the impact of our operations. And this will continue. Nothing has changed here. It's just enhanced and reinforced by the science-based targets that we will communicate. So we continue to measure up our own sustainable goals towards the sustainable development goals issued by the United Nations. If we go to Slide #7, this slide you've seen several times. It is just a reminder that already today, ROCKWOOL is a net-negative carbon company. Over the lifetime of its use, our building insulations sold in 2019 will save 100x the carbon emitted in the production process. So this continues to be a focus area for us. We will continue to reduce the carbon footprint of our production and at the same time explore ways of improving our product performance, and we are making progress in both areas and continue to focus on those areas. But we just felt it was an important reminder that already today, while we are working hard to improve our operations, our products work hard for us and actually already lowered the emissions in society. As the Renovation Wave in the EU announces that having insulation and energy efficiency is the most cost-effective way of lowering greenhouse gas emissions, and you'll see that the insulation products are paid back within 6 months of their being installed. So this is, again, just a reminder that already as we are today, we are a net negative carbon company. Then moving on to Slide #8, there's been a lot of sort of discussion about the EU taxonomy eligibility. 95% of our insulation business is taxonomy eligible. The background of where we are today, there have been 2 delegated acts for the taxonomy on climate change mitigation and climate change adaptation that have been published by the commission. They're actually open for consultation right now as we speak. And this delegated act should be adopted and signed off in its first draft around by the 31st of December this year, but will actually go into force from the 1st of January 2022. There's no change to our eligibility in the U -- EU taxonomy as we are considered a product and a manufacturer, which is delivering substantial contribution to climate change and mitigation by improving energy efficiency. Right now, our products are included in Section 3.5 as a manufacturer of low-carbon technology. There is, of course, as I said, a consultation process where we are actually discussing the fact that we would feel better placed within 3. -- Section 3.4, which is about the manufacturing of energy-efficient equipment for building, considering that cladding and roof building materials are already included in that segment. Again, this doesn't change the fact that we are today EU taxonomy eligible, but we just feel that it would be clearer and more fitting that we would fit into Section 3.4, but also within 3.5. Our products continue to be eligible for the EU taxonomy of the standard. And of course, anything different would be a clash to what is already communicated by the EU Green Deal and the Renovation Wave, where there is a very high focus on ensuring the deep renovation of buildings to achieve the greenhouse gas emission of the EU. And the news that we have just from Friday last week was that the vetoes have finally been lifted from both Poland and Hungary. So the 55% target is again confirmed and on the table for that 2030 ambition in the European Union and again, where Renovation Wave already plays a very significant part of that 2030 agenda. So with that, I will pass it over to Anthony, and he will go through the science-based targets.

Thanks, Mirella. So Slide 9, I'll start by talking about the Science Based Target initiative, so the organization behind Science Based Targets, and then I'll move on to talking about our specific science-based targets that we have committed to. If we move to Slide 10, so the Science Based Target initiative, nonprofit organization, supporting companies to set climate-related targets aligned with the latest climate science. SBTi consists of 4 main organizations: CDP, previously known as Carbon Disclosure Project; the United Nations Global Compact; World Resources Institute; and the World Wildlife Fund. And then there are a number of funders behind the organization. The main ones, IKEA Foundation We Mean Business, which is a nonprofit organization working with leading organizations within climate change. One of the partners of We Mean Business is with Climate Leaders Group, of which ROCKWOOL is a member; and then the UPS Foundation. The SBTi organization came out of the Paris agreement that Mirella was talking about back in 2015, and we feel that it's the most credible organization when it comes to greenhouse gas target-setting. The organization has developed a huge amount of guidance material to explain the background for Science Based Targets and to support companies like ourselves in setting targets and explains what qualifies as a verifiable science-based target. From submission to approval, it takes 30 working days, where the submission is assessed by a dedicated SBTi technical team. If we move to Slide 11, so according to this slide, over 1,000 companies have made a commitment to setting science-based targets. I was actually in on the Science Based Target website this morning. It's now up to 1,106. And of those, 542 companies have approved verified science-based targets. So 542 companies globally, which, of course, is a vast minority of the companies that are in this world. And then when you look at the percentage of those companies, those 542 that have approved verified targets, then max 15% of those are energy-intensive companies like ourselves. So we're talking about around 80 companies that are energy intensive, which puts into perspective the ambition level that we, as a company have when it comes to decarbonization. We are part of the building products sector category according to SBTi. An example of a company within the construction materials sector would be the cement company, LafargeHolcim. If we move now to Slide 12, then we'll dig now into the specific science-based targets that ROCKWOOL has committed to. And if we move to Slide 13, we would like to start by sharing with you a video of our SBT commitment. If you have problems viewing this video, then you can go in to ad.com after the call and watch the video. It's worth the effort. So please operator, play the video. [Presentation]

So I hope all of you managed to see that video. Again, if you didn't, then you can go into ad.com. We turn to Slide #14. So what targets have ROCKWOOL set? First of all, we will reduce our absolute Scope 1 and Scope 2 greenhouse gas emissions by 38% by 2034 over baseline 2019, and we will reduce our Scope 3 emissions by 20% within the same time line. So if you look at our Scope 1 and 2 emissions, 38%, that's equivalent to an annual linear reduction of 2.5%. Our Scope 3 emissions target is equivalent to 1.3% annual linear reduction. A reduction of any emissions coming from organic growth will be on top of this. The targets together equate to an ambitious 1/3 reduction of ROCKWOOL's life cycle greenhouse gas emissions by 2034. And here, it's important to highlight life cycle emissions. One cannot judge the ambition level of any company's decarbonization commitment before seeing it in a life cycle perspective. For example, some companies have the vast majority of their emissions in Scope 3. Now there was an interesting article, for example further, this morning in [Foreign Language], which focused on the importance of Scope 3 emissions. It's also important to emphasize that our decarbonization trajectory is consistent with SBTi's definition of a net 0 carbon trajectory. Whilst we will, of course, be focusing on achieving these science-based targets, we will continue, at the same time, to focus on reducing our carbon intensity, carbon emitted per tonne produced of our production. And that means that we will focus on also meeting the goals that we set back in 2016 of 10% improvement in carbon intensity by 2022 and 20% improvement by 2030. We move to Slide 15. So the targets for Scope 1, 2 and 3 together, will achieve an annual reduction by 2034 in life cycle emissions of 1 million tonnes. So by 2034, we've reduced our life cycle emission footprint by 1 million tonnes. That's equivalent to 200,000 passenger cars not driven in 1 year. Now let's put that into perspective because when we look at the impact from our products, and Mirella has already mentioned that we're a net carbon-negative company. When you look at the impact from our products, then we're actually saving 3 million tonnes per year. 3 million tonnes per year. So that's equivalent to 600,000 passenger cars that are not driven in 1 year, and that's already happening today. We move to Slide #16. And this is just to make sure that everybody has understood the difference between Scope 1, 2 and 3. These definitions based on the greenhouse gas protocol. And again, important to underline the importance of focusing on the whole life cycle when estimating any -- the carbon intensity of the company. So Scope 1, all direct emissions. So that's basically the emissions coming from the factories, for example, through fuel combustion. Scope 2 emissions, they're related to the emissions from the generation of the electricity that is consumed in those factories. And then Scope 3 emissions are all the remaining emissions in the life cycle. So they can be upstream emissions from the supply chain, and they can be downstream emissions towards end of life. They're the 3 Scopes. If we move to Slide #17, now we talk about the how. And in order to achieve the science-based target of 38% reduction for Scope 1 and 2 emissions, we will be using predominantly 3 key pillars or levers if we move to Slide #18, and those are: energy efficiency, an area that we have been focusing on and practicing for decades; technology innovation, with particular focus on our furnace development; and thirdly, circularity of further development of our strong circular business model and thereby exploiting the inherent recyclability of stone wool. Together, Scope 1 and 2 emissions are equivalent to approximately 2 million-tonne Co2 equivalent. We move to Slide #19. Mirella was already talking about earlier the importance of energy efficiency and the fact that it's a prerequisite for us to get to achieve the Paris Climate Agreement's goals in 2050. And of course, we will be walking the talk here in driving improved energy efficiency in our factories. And that will be both in terms of normal operation, but also in connection with new factories and retrofits of existing factories. So our focus will continually be to reduce the energy intensity of our production and also the carbon intensity of our production. We move to Slide 20. The second pillar, technology innovation. And here, there are, in particular, 2 types of technology that we'll be focusing on, the first in relation to large-scale electrical melting. We've talked about in previous ESG calls the pilot that we are installing -- the pilot electrical melter that we're installing in Moss in the southern part of Norway. It's something that we'll be starting production here later this week. Here, we're going to be reducing carbon emissions at that factory by 80%. So that's one of the technologies we're going to be looking at, particularly relevant in countries where the electricity grid is already low carbon. Second technology is fuel -- our fuel-flexible technology that we have spent years and many engineer hours in developing. This technology allows us to shift from coal to less carbon-intensive energy. If we look at Denmark, we first converted from coal to natural gas and then from the 1st of January next year to biogas, and that will result in us meeting the Danish goal of 30% improvement in CO2 emissions compared to 1990, well before 2030. We will also be converting other factories that are using this fuel-flexible technology. We will do it -- be doing that in Poland in '21, and we'll be starting up our new facility in the United States on natural gas rather than coal. If we move to the Slide 21, our third decarbonization pillar is relating to Scope 1 and 2 emissions that is circularity. We've talked at previous ESG calls about the importance at European level, at least, of achieving carbon neutrality by 2050 through circularity measures on the line. And I've said 50% of the carbon reductions need to come from circularity measures. And we're seeing increasingly focus in the draft regulations that are being developed in the EU Green Deal, in the Renovation Wave, increasing focus on circularity. Our circular business model contributes to a less carbon-intensive production in 2 main ways: firstly, through recycling and upcycling waste from other industries, thereby substituting virgin stone and also through the recycling of stone wool material flows either generated in the factory or from take-back systems in the market. And going forward, we will be focusing on increasing this impact. We move to Slide 22. So that was Scope 1 and 2 emissions, 2 million tonnes and the 3 pillars that we'll be focusing on to drive our decarbonization agenda. When we look at Scope 3 emissions, which is equivalent to approximately 1 million tonnes, then we will be focusing on upstream emissions, i.e., the supply chain. And the reason for our focus on upstream emissions, one of the main reasons is that there are limited end-of-life emissions from incineration associated with our products unlike other materials. So our focus on recycling will continue to maintain that situation of having relatively low end-of-life emissions. So when we look at our focus on upstream emissions, that focus will be particularly on 2 areas; first of all, through the electrification of our factories. We're going to be able to remove upstream emissions associated with cokeries, so the facilities that are producing the coke that we're using in some of our facilities, and then we will be working with our suppliers to reduce the carbon intensity of the materials that we purchase. And through those efforts, we will aim to meet the science-based target of 20% reduction by 2034. That was the final slide of the presentation. So back to you, the operator, and we can start the questions.

[Operator Instructions] Our first question is from Claus Almer of Nordea. [Operator Instructions]

This is Claus Almer. I just have one question. Coming back to the taxonomy issue, so to speak, whether you are in Section 3.4 or 3.5, as I understood your comments, it actually doesn't matter. We don't see any impact whether you are in 3.4 or in 3.5. Can you confirm that? And if that's the case, why is it that there's a lot of interest or a lot of focus on whether you are one or the other? And why do you focus on whether you would be 3.4 or 3.5? That will be the question.

Yes. Yes. We only respond to that because we get the questions. We assume that you as an analyst worry that we are not in there, and therefore, we answer. So it's important we are in there, but we haven't been worried about it. I think I said last time we had a call, that when you go into all these scenarios for how to reach the Paris Agreement or get well below or below 2 degrees C, you cannot do it without any efficiency insulation. So we are not very worried. But since some of you are worried since this is still a drop, together with other insulation manufacturing, we, of course, if it's better for everyone that it's in one section, then it's in there. But the key thing is we are in there now, and we will be in there. I'm absolutely confident.

Sure. And have you got a better understanding on what it would take to qualify as being a superior solution alternatives, which I guess is the selection criteria in 3.5?

Anthony, I could actually not hear the question, Anthony. Could you take that?

Yes. So the -- I think the question from Claus was in -- under Section 3.5, there is a kind of a requirement that you need to compare to the best-performing alternative technologies on the market. And our understanding at the moment, Claus, is that there are no guidelines that exist on actually measuring that. So that's not something that we're able to answer at this stage. And that's why this whole area of taxonomy is maturing, right?

So if I can just add to that, there is a screening criteria, which involves comparison to the best-performing alternative technology available on the market. But as Anthony says, those parameters and guidelines have not been specified as of yet. And so it's very unclear what that means.

Our next question is from Josefin Johansson of Handelsbanken.

Yes. Thank you for an interesting call. My first question would be sort of starting off from the one you spoke about before, is how would stone wool compare in terms of just focusing on emissions -- reducing emissions compared to, for example, cell foam or cellulose? That's my first question. And then my second question will be from what sense the majority of your Scope 3 emissions, is this raw materials? So do the science-based target, do they cover all of your Scope 3 or are there certain aspects of Scope 3 that you included in that target?

Okay. If I take the second question first, so regarding the Scope 3 emissions, so our science-based target covers the whole of our Scope 3 emissions. So all emissions upstream, all emissions downstream.

And what would you see as the largest...

Was that your question, Josefin?

Yes. Or what would say is another part of that?

As I -- yes. As I mentioned in the presentation, the -- our main emissions -- the vast majority of our emissions are upstream, and that's where we will be focusing on reducing our emissions.

And that would be sourcing materials or...

So that will be in relation to fuels. So of course, electrification and moving away from coal will automatically reduce Scope 3 emissions, upstream. And then the materials that we purchase, that will mean that we'll be working with our suppliers to get the less carbon-intensive material.

Okay. And you want me to repeat my first question, or?

Okay. Yes. The first question, again, yes?

Yes. So how do stone wool compare to other alternatives just focusing on emissions -- reducing emissions, for example, comparing to cell foam or cellulose and just focus on the emission savings and nothing else?

I mean I think that our general comment would be that we are just as good, if not better, in reducing life cycle emissions. We've already talked about the fact that we are net carbon negative. So we have an enormous positive saving from our products, and that puts us in a good position.

Okay. But no numbers that is now available, like number comparisons?

We've had -- maybe it's hard to go through the table because it depends how you manufacture those materials. But there is one quite big difference at least between stone wool and foam. We use energy, of course, when we melt, and that will take all [ the green energy amounts ]. But what you have with the foams is that half of -- if you take a ton of foam, say that the total Scope 1, 2 and 3 is about 2, is about a factor 5 times 1. And half of it sits from the time at least the kind of foam manufacturing. So a much heavier Scope 3 balance on the foam end of line. And that's why we also put -- where we felt to get a sense of comparison to set the goal on Scope 1, 2 and 3, so that you would include both upstream and downstream inside the fence on the electricity.

Our next question is from Kristian Johansen of Danske Bank.

So just again on the taxonomy, you say that there -- your view is no different from being in Section 3.4 versus Section 3.5 and you're going into it because we have been worried. So personally, one of the reasons I've been worried is that we have this technical screen criteria, which says you need to demonstrate superiority versus the best-performing alternative product available in the market. And then you say you don't know exactly what is meant by this, but that still leaves me worried then. I mean, if you don't know exactly what this means, why should I not be worried that it means you need to demonstrate the priority versus foam of last quarter?

As I said...

If I could I maybe jump in, this is Mirella.

Go ahead, Mirella.

Sorry. So, I just wanted to say that also, it -- I mean, we -- you could put the same question for 3.4. 3.4 talks about external cladding and roofing systems. Again, in our mind, external cladding includes insulation and a roofing system includes insulation. Otherwise, we don't understand how the cladding system or the roofing system would contribute to the energy performance of the building. Again, that definition has not been made yet, but we would have to presume that in order to achieve what is laid out by the EU directive for energy performance of buildings, cladding without insulation would not enable that building to achieve that performance. So again, it's -- we're waiting for exactly those criteria for the screening to be more clearly defined. Kim, I don't know what you wanted to add.

Maybe on the volume cycle, when you look at -- if you take the steps on the manufacturing and then you also introduced the circularity, which also has a huge impact in the overall equation, stone wool is quite unique in that prospect. So for that reason, we don't worry. I don't think that they're going to, through taxonomy, say that you can't use foam and you can't choose glass wool and you can't use stone wool. These are all very useful technologies and you can talk about degrees of differences and features. So I don't think the EU will sit and again come up with a definition of raw material disappears from -- due to taxonomy. The main thing is to save energy, save CO2 and then within those segments, of course, we want to have the best possible footprint we can have, and we will start to be putting in place here. We feel confident that we will be extremely well positioned.

All right. I understand that. So -- I mean, do you have any expectation on when you will have some better clarity on this technical clean criteria? Because I mean, I think, [indiscernible] is creating the concern.

I mean, the EU -- Anthony and Mirella, do you know how long this process runs?

I mean the consultation process runs until the end of this year. We are speaking to all the relevant offices, DG Energy in the EU, where also, as Anthony mentioned, together with other insulation manufacturers trying to get more clarity on the definition. So the expectation is that we would get a little bit more clarity towards the end of the year. But also the EU commissioners that we're speaking to give us the same comfort that we are trying to give you that we are included, and there is no change. So again, the expectation is, if the consultation runs on time, we would have information before the end of this year. Otherwise, my expectation would be January latest.

Okay. And do you have any flavor on why insulation was removed from Section 3.4?

Again, I really don't think that it was purposely removed. I think that, again, generic terms such as cladding that we see all the time that cladding is confused with the external facade and insulation, the same as roofing on -- it's just very generic ways of communicating it. I don't think that there's sort of any purpose for intention to remove insulation.

I mean, something we have?

Just think of it as a complete clash.

Sorry, Mirella.

Sorry, I was just going to say, Anthony, would be a complete clash with the European Renovation Wave.

I mean, something we have heard, Mirella, is that one of the reasons for moving into Section 3.5 was because there was a concern that the requirements in Section 3.4 were actually too strict. So they wanted the possibility of other materials being able to also qualify in 3.5. And that's, again, confirms that we're simply not worried about this. It's moved by the commission to allow for more materials to be included in the taxonomy definition.

Our next question is from Mikael Petersen of SEB.

This question is regarding the retrofits of your current factories in Europe. You mentioned you switched the source in Denmark and in Norway, but can you try to quantify how many of the current coal plant or source from coal are able to change to gas as the primary energy source?

Yes. I mean, we don't disclose -- sorry, Jens. Do you want to answer that?

No. [ Go ahead ].

Yes. I was just going to say, we don't disclose how many lines that we have of the different -- using the different energy sources, but there are a number of lines where we are able to convert from coal to natural gas.

Okay. And my second question is regarding the Norwegian electric melter. The technology you used there, is that something you have patent on? Or is it something that's available for the competitors as well?

Electrical melters are available, [indiscernible] our own variant of it. You can have different ways of protecting the technology, sometimes through patents and contesting their own patents. We just keep secrets. So it's a little know-how. If I take it together, if you want to make a more high-performing or to push the boundaries a bit more and we do a lot of that work outside. So it's a mix of these 2 things.

Our next question is from Xintong Ouyang of On Field Investment Research.

The first one is on your 2016 targets for 2022 for the carbon intensity. If I look at 2019, you reduced by around 4%. It means that for the next -- including 2020, we will have to reduce by 6%. This seems like to be an acceleration. So I'm just wondering, apart from the shifting of energy sources, are there any other measures that will help you to achieve this accelerated pace?

So Anthony here. So regarding the goals that we set in 2016, baseline 2015, achieving by 2030, intimate -- intermittent goal in 2022. So you quite rightly point out that last year, we had achieved a 4% improvement, but we are on track to meeting the 10% improvement by 2022. And in terms of what levers we have to improve our carbon intensity, so they were the 3 levers that I mentioned in the presentation. So the technology innovation, which was the one, but the other 2, which are, of course, also vitally important, continuing our focus on energy efficiency. And energy efficiency improvements come from many different kinds of activities. It's incremental. It's -- there's not one quick fix. It's dedicated work over a long time period, but we'll be continuing to be serious about driving that agenda. And then the third agenda, the third pillar, was the circularity focus. So looking to see how we can, through the recyclability of our stone wool, improve the carbon intensity of our factories.

And just to give an example, in Denmark, in the ones that we've gone over to gas, we did that this year. And now from 1st of January, we go to biogas, and that will have an impact. And the change we do in Norway, we are starting up now, as we speak. So I mean, we have been building for a while. So the investments have gone in, but we are still in our starting up, and then we start to see the effect from next year and the year after. So it's not that we haven't worked on it. It's just a sum of these are binary. We need to switch the machine on.

Perfect. That's clear. And then my second question is just...

But it follows our plan and we don't plan to lose our target.

Okay. Great. That's clear. And then my second question will be on the circularity itself as the third pillar. I'm just wondering, what kind of, like, financial impact you would have if you increase the recycled raw materials in your production process? Like how much cost you'll be able to save versus virgin materials? And then also based on, say, your interactions with your ESG investors, how would they perceive firms with high circularity and also firms with low circularity, do you think? What kind of, like, difference in attitudes that you're seeing from them?

I'm sorry. I could not -- my line is very poor. Anthony, can you repeat the question? Or Mirella or Anthony, you take the question?

So the first question, which is perhaps a question you can answer, Jens, was relating to the cost benefits of being able to recycle more material in our factories. I think that was my understanding of the first question. So maybe you could take that one, Jens?

Yes. I would say this. Obviously, it's nice to run a factory of earthly materials straight from the mine. It's a bit more complicated. You need to guard the process more and you need to be more alert to stay within the quality front because it's certainly more difficult, but it's not -- when you sum it all up, most of these efforts or changes, they don't drastically change the cost position. Sometimes you might have a disadvantage for a while, and then you learn it and then you have a slight disadvantage. And so I think the bigger effects are more things like you have a country and then you go on to electricity, that's not the case in Norway. But you go on to electricity and then maybe the electricity price goes into different league than, say, normal electricity than [indiscernible] or coke. So we have some of these more commodity changes and also in some countries, the electrical motor might be expensive if you go from electrical. But generally, our experience is we have been quite good at kind of moving without moving the cost position kind of too much up or down. And then the benefit of making the move is that the requirements from customers is increasingly going the way that they don't want to just send their own factory or their own move to the landfill. So we have since several years for some -- with the some of the car manufacturers taking their own product back and I'm -- and I'm involved in a couple of these days when that's one of the really important discussions before we start to discuss the new supply. So I think that customer awareness is increasing all the time, especially the same with Nordics. And then it's also that, depending on what technology you apply, for example in Norway, the way they set up that electrical melter, they are made, so that it's very, very easy to use old materials, waste flows from other industry or stone or [indiscernible]. So we try to think of that when we design the newest technology, that it works for recycling. And then on the time [indiscernible] and if you take, for example, the cost development curve for the melter in [ Ranson ], we have managed to improve all that because of equipment run every year since we built it 5, 10 years back. And I think that's already what we see with gas, and I'm sure we see it in the [indiscernible].

So I'm going to quickly -- Anthony here. So I'm going to quickly answer your second question because I realize it -- from a time perspective that we're running out of time, and there's a couple more questions that we need to take -- but from a circularity perspective, whether there's an interest from our ESG community on circularity then I would say it's growing. There is an increasing acknowledgment that being a truly sustainable business, you need to have a circular business model. We need to move away from a linear business model to a circular business model. And when you see the increasing costs associated with landfill across the -- across Europe, for example, and the increasing regulations that are focusing on take-back systems, then clearly, there is a need for companies like ourselves to move in that direction. But of course, we're also seeing it from the customer side as well. And there are a number of markets where we have customers that are asking and requesting for services for take-back systems.

Our next question is from Laurits Kjaergaard of ABG.

A few questions from my side. First of all, concerning the Polish factory that you mentioned on Slide 20, could you just talk about which Polish factory it is? How you chose it? And why not going straight to electric melting technology?

Shall I say that, Jens?

Yes. Thank you.

Yes. So thanks for your question, Laurits. So the facility in question is in Cigacice and the reason that we have chosen that particular line for the conversion is because it has the fuel-flexible technology, so where we're able to convert from coal to natural gas.

This is the one in the western part of Poland, right?

Yes, the one that you visited. Yes.

Yes. That's right.

Okay. And when is it...

I'll -- well just one more comment on that, and it has a certain market. But if you look at the electrical melting in Poland, it's not very green yet, and this is quite a quick transition we can make during this. And then we feel it makes sense to go on to gas and get the CO2 footprint down, but that doesn't prevent later on that we'll take further steps. But this is similar to what we did for that technology in [indiscernible] in 2020.

And what is the time line? When will it start being in -- well, when will you start investing in it?

Just you know, we are investing in that. And I -- to be honest, it's not a huge investment point. I mean, that we would...

Yes. But is it shut down at the moment then in terms of...

Our -- no, our [indiscernible], we built stock for that, and we come back and talk with other factories. So as long as we have a bit of overcapacity, we take care of that. In Norway, maybe the trading [indiscernible] are bigger. But in Poland, we can do with that relatively easily since we have several mines in Poland.

That's very clear. And then maybe a question, ESG-related to Anthony and Mirella, in terms of, again, on Page 20, you mentioned the smart electric reduction of 80% in carbon emissions. Could you split that in Scope 1 and 2 and perhaps even 3? And what are the reductions for the other initiatives, for example, going to the biogas that -- or the fuel-flexible technologies?

Yes. So if we look at Moss, when we say 80% reduction, we're only talking about Scope 1 and 2. And I don't have the split between Scope 1 and 2, but it's -- the majority is Scope 1 and then Scope 2, yes? So that's the 80%. And then when we look at fuel-flexible technology, so if we're converting from coal to natural gas, for example, then we're talking about an improvement of around 30%. And then, of course, if we're converting then from natural gas to biogas, then we're getting down to almost 0, yes.

So 0%. And if we talk about -- one of your other analysts, they asked about the CO2 emissions and energy efficiency on Page 6, which obviously are a little bit ambitious still. And these -- you mentioned, I think, Mirella, these are being audited by our auditor, I guess. Is there any fear here that they could perhaps do different calculations that you're doing at the moment?

Different calculations? How do you mean, Laurits?

So if they would change any of the historical data. So for example, you mentioned 4% in 2019, is there any risk in audits that could go in and question that number?

I mean there will always be that risk because that's the auditor's job to question, but we don't see any issues or any challenges in our baseline. We're pretty sure that they'll result in the same figures as ours that we've achieved that 4% reduction. But of course, it's in the nature of auditors to ask critical question.

I think it's important to say that we are not -- we didn't arrive at these numbers. We try to calculate the same. Things happen as we run the business, and we need to have also room to grow. So we have a number of parallel efforts, and then we can tune a little bit how much we do. When it comes to calculating the emissions and that, there was much less guidance on how to do it back in 2015 and 2016, and then we started doing it. We try really to do it. So it makes sense to us and checked it, and we have also already many of the calculations verified, good people on the outside that can help us do it. But there is one material trend when you do this. If you want to understand it yourself, the sustainability department becomes much more heavy on mathematics and physics and calculations than just talking about the result. And we have gone quite far on that side and really tried to document how we calculate. So if there were to be an audit, then we make some certain change, at least you will understand very well what it is. But I think that as we normally are a little bit conservative, I hope that would be the outcome. But since we do all of this ourselves and use some outside consultants [ basically for output ], we felt it's good that we can audit them so that we get the question mark out of the way.

Maybe just a quick comment from my side. If, in the future, you would consider doing some sort of bridge until 2034 in terms of the initiatives that you're talking about, not necessarily concretely that might be quite acceptable by the financial markets if there would be something that we could look at.

I know that. And we obviously have that bridge. And we acknowledge it, but then we get so much into a long-term forecast of investments and all the rest. And we want to keep a bit of flexibility in how we approach it. And some of the decisions are also availability driven, availability of electricity in countries. You need a high-voltage connection with quite some MBAs to it into the plant. And it's also, to some extent, driven by what technology we choose and also the type of ground and benefits from that by doing some of the investments. So therefore we have to announce that we don't communicate our bridge. But once we are a couple of years eased into this, you're going to see the type of measures we have. We also have some additional ones we -- that we haven't tested yet, but we are working on testing. So we also want to enhance the different technologies we are planning. But I understand that you would like to see the bridge. But I can tell you, we have one, and at the same time, we allow ourselves for further R&D [ analysis ] and failures along the way.

Our last question comes from Cedar Ekblom of Morgan Stanley.

I'd like to dig into some of the CapEx implications to move your facilities away from coal towards gas or electrification. Can you give us some expectation of the CapEx associated with that maybe in total over the next 9 years or so? And on an annualized basis, how we think about the phasing of that CapEx? And then can you also...

Cedar, Jens just replied on that.

On the CapEx number?

Yes.

I didn't get that. Sorry. Well, if you could repeat the answer, that would be really helpful. And then the other part of the question is, can you give us some guidance on -- I know you're not giving any details, but it's helpful to have the details just to try and understand the percentage of your asset base that you see moving to gas, the percentage of the asset base that you see moving to an electric-based system because it's quite -- I mean, it's helpful to have a long-term target, and we appreciate that. But the details around driving to that is really useful for us understanding.

And I have to disappoint to you also as we have done so many times about the CapEx forecast. We don't make that. And we won't improve by first meeting 2022, and then keep going and then you're going to see along the way as we can announce when we actually do things and also when we improve some technologies and that will progress that way. And then of course, to say exactly where we go to gas and therefore, it also came over that, that overall plan, we don't feel we are ready to communicate at this stage. That doesn't mean we haven't done a lot of detail work, and we feel comfortable with that we're going to hit this target.

Can you maybe give us some guidance on the facilities that you have already earmarked for the conversion? So fine, you don't want to give us CapEx for the entire transition, but you've got...

You can say like this, over time, but not all of it by 2034, we want to get out of coking coal, yes? So -- and then -- but the first is not to get onto the trajectory and deliver on the target and then keep going. And so that's as much as I can say today, unfortunately. But as a direction, of course, we want to keep reducing our CO2 footprint and also Scope 3, keep going on that. And to start with one improvement that we can comment to that well below 2 or 3 trajectory.

Have you provided CapEx on the transition of your Moss facility in Norway? I don't know if you've given a number or that you've moved clearly from Norway...

Yes. I think we did, didn't we [ all ]?

Yes. The one in Norway, we have already explained. This is a pilot project for us. We did spend EUR 35 million in investment. And then we obtained EUR 10 million grant from the Norwegian government, i.e., a net of EUR 25 million. And we've also said previously that the conversion from this fuel-fix operations [indiscernible] it to gas only costs a few million euro. And that's a similar type of investment we see in Poland next year.

And are those numbers fully transitioned both of those assets? Or is it only a portion of the footprint of that asset? So in Norway, that EUR 25 million net, will the entire facility be on the electric melting technology? Or is it a selection of lines within that asset?

In Norway, there's just one line, and that will be on electricity.

I appreciate you guys aren't giving the detail, but it's useful to understand how much these things cost and how to think about the phasing of the spend, but hopefully, we'll get that over time.

Ladies and gentlemen, we will now close the Q&A session. I will now turn over to your host for any final remarks.

So on behalf of the team here, also in Sweden and in Italy, thanks for another good, constructive call. Thanks for some good questions, and we wish you all a Merry Christmas when you get that far. Thank you.

Stay safe and Happy Christmas to all of you.

Thank you.