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, Sustainability, Anthony Abbotts. [Operator Instructions] Just as a reminder, this conference call is being recorded. I will now turn over the presentation to your host. Please begin.

Welcome to ROCKWOOL Group's conference call dedicated to ESG topics. My name is Thomas Harder, I'm Director of Group Treasury and Investor Relations of ROCKWOOL International. I'm here together with CEO, Jens Birgersson; SVP, Group Marketing, Communications and Public Affairs, Mirella Vitale; and Group Sustainability Director, Anthony Abbotts. First, we will go through our presentation of today's ESG topic, the ROCKWOOL Sustainability Report for 2020. Afterwards, we will be ready to answer all your good questions. Now we can go to Slide #2. We introduced the ROCKWOOL ESG investor calls in 2019. And today, we hold the first of 4 ESG investor calls planned in 2021. Please proceed to next page. Please go to Slide #3. Let's start with the first point on the agenda. Jens Birgersson, I will now hand over the words to you.

Hello, everyone. I would like -- just like to repeat by explaining that those overriding principles, we try to strap all our efforts into those 3 principles there. So starting off -- and that goes both for our footprint, what we -- our own operations, the impact we have and also the handprint and how we see that and the effects of our products on the planet and society and climate, et cetera. And it is explained in the report, but that does free CapEx because it's important remember that we -- at least you understand how we see it. And the first principle with a finite planet and an ever-growing population, the first principle and the highest priority for us and it also fits with our product is use less energy. On the outside, if you look at the handprint, we are talking about energy efficiency, always do energy efficiency first. And by doing that, reducing resource use and energy use. Whatever you're going to do to supply the rest, you need to use less of it from the finite planet. And there is -- the second principle then is greening the rest. And the most apparent example and action in that area is the renewable energy. The -- if you have saved enough for energy, you need fewer renewable resources to get energy from or you achieve 100% renewable energy footprint quicker by saving a lot of energy and resources [ I believe ]. And then the third item and that kind of spinning in the background and often links into some of the others, that's to address climate hazards in the business. That goes for some of our products that acts from the outside to address -- have some, for example, ROCKFLOOR, our solution to mitigate the effects of flooding, specific climate hazards, but it can also be asset risk, it can be reputational risk and what have you. And for many of you that are investors, I think this whole thinking about the asset risk and a step change in the asset value that you can have in the future can go for building, it can be a certain stock that can suddenly go from gray to pitch black because the sites do move forward. But the whole idea of thinking ahead and addressing hazards also in the light of asset risk. So that's how we think about it. And if you then look at the progress and my colleagues will go through the progress in more detail. And if we go back to the first principle of using less, we have hit our goal for 2022, our interim intermediate goal on water reductions. Water is a bit of a tricky topic to go after because it's so incredibly cheap to reproduce. So you have to do this. Although the savings, the tons of money when you save water is very, very small, but there's a lot about stopping leaks, being more efficient, make sure it doesn't evaporate and collect rainwater. Then we have also done a big step forward on landfill waste where we cut 50%. We are ahead of our curve, so to say. And on the outside of the group, when we're looking for this with using less, we have now launched [ Rockslide ] in another 3 countries. And I think we are quite unique on that. It's actually starting to put a brand label on our products. I would say we are taking it back. And we see a tremendous interest in that. But they have also done a whole lot of actions on CO2 intensity, which deduct I mean the amount of CO2 we emit per ton produced. And we'll get to that number by simply reducing waste and increasing forest fire yield in our operations. So that's the first block, and you will see more things coming into that, but those are some of the results we have had internally and externally. Then we green the rest. We have done quite a bit. I'm satisfied with the progress. We started up biggest electrical melter for stone wool in the world in Norway in December. And there, we shifted a coke fossil fuel melter to green electricity -- electrical melter. So we're very happy with that. That has given a tremendous reduction in CO2 emissions, and it has also enabled what we can increase the rock cycle material, the material we take back into the melter to up cycle into new products. So that's really good, green the rest of the project. And then in Denmark, we ran for biogas because it happens to exist there. We are the only company in the world that can [ do melter ] with gas. And we have now shifted over to biogas and that obviously have reduced our footprint tremendously and then enabled us to produce a renewable energy source to create stone wool, the max stone wool. And then if we then look at addressing climate hazards, the action slides are listed under 1 and 2. There, of course, we are actually focused on those 2 steps. That's how much we do. But over time, the whole aspect of being able to offer circularity for building the material where we are pioneers as we move forward. And also to do a fuel transition, we have a big footprint. And we use fossil fuels of several types and to shift that footprint to do the fuel transition over. That is, in some aspects, also addressing a climate hazard because over time, we know that to meet our long-term goals, we need to get started, we need to develop the technology so we are able to do it. And I feel comfortable on the technologies we have developed in that we now have big size proof points that most of the things we need to do going forward, we are very interested, we can do it practically. Obviously, we do a lot more development and add some new technologies. And there are still challenges, but it's still on those -- success on that so far. And then on safety, I just want to say that you saw that the loss incident ratio, it went up a little bit. But if you look at the whole business, we have kept the number of incidents where people who have -- got hurt in one or the other way and they have to stay home from work a day or more, actually, we are at the same level. We have 1 less incident in 2020. And -- but the ratio goes up because we had fewer work hours due to lower demand. And I'm quite happy with that because I see this as a sign that we managed to go through COVID-19. For the state, we've forgotten it now but for a period, that was -- could have caused stress to the organization that people get stressed from their mistakes, so they get hurt. We are running real industrial operations with heavy equipment and high temperatures. So I'm satisfied that we managed to get through the years without a higher number of stress-related incidents in our factories and in the office. With that, I would like to hand over to Anthony.

Thanks, Jens, and hello, everyone. So if we turn to Slide 5, Jens has already mentioned some of the sustainability highlights from the year, so I'm not going to dwell on this slide. Suffice it to say that we consider 2020 to be a significant year within sustainability. And we say that because of the goals that we have achieved 2 years early. Jens talked a little bit about that. I'll come into that a bit later. Also the science-based target commitment that we made in December and finally, the external recognition that we received on the positive impact of our products. We received a number of awards in the course of the year, a safety award in Poland; the ROCKCYCLE Award in France, to mention a few. And as Jens talked about, our fuel flexible technology in Denmark. So moving from coal first to natural gas and now at the start of the year to biogas. We received the European Business Award for environment there, which we're, of course, very proud of. If we move to Slide 6. So I think one of the highlights of the year was the fact that Trucost, which is part of Standard and Poor's Global, for the second time, classified 100% of our products as being SDG positive, which means that all of our products contribute to supporting the -- reaching the SDG goals in 2030. Our score was top 10 out of 15,000 global companies that have participated in this assessment. And top 10 basically means that our company has one of the largest positive impact when it comes to the geographies that we're located and the particular needs of those geographies. So that match means that we have this significant impact. When you look at our ratings, then you can say that we'll go relatively highly within our industry. Our philosophy remains the same. I think I've mentioned it in the previous ESG call. We'll prioritize those areas that we consider to be material. And that, of course, can mean that we score less well in certain areas because the rating agencies look across the whole ESG spectrum. But what we do, do is we prioritize having an open dialogue with these rating agencies, and we try to address our own disclosure gaps when possible, but also address any misunderstandings that can be at the rating agency side. To mention a couple of those scores there, Sustainalytics, we top 11 out of 126 companies within our sector; within CDP, we're in full conformance with TCFD. However, we're not disclosing some responses simply because of competitive reasons. And we expect to improve our score going forward because of our commitment to Science Based Targets and because of the fact that we now have externally assured sustainability goals. We move to Slide 7. So now we'll look a little bit deeper into our sustainability progress for the year, building on what Jens started in the introduction. Slide 8. I think what's important is to say that whenever we communicate anything on sustainability, that it's incredibly important that it's fact-based. And that means that if you look at our report and read our report, you'll see that there's a significant amount of external references that we use. And we use third parties extensively to develop methodologies to calculate our product impacts. And those methodologies we make publicly available. As I mentioned, I think an important milestone for the year was the fact that we achieved external assurance for 6 of our sustainability goals. That means the performance compared to 2015, but also external assurance for the baseline 2015. We did identify data gaps. We did identify processes that needed to be improved. But the result of that process was that there was no material impact on our performance disclosure. We move to Slide 9. So there are 6 sustainability goals that we have talked about in the last year or so. And now we have added 2 more. So that's the Science Based Targets relating to Scope 1 and 2 and Scope 3, so life cycle emission. And as Jens has talked about, it's been a good year from a goal perspective. I'll dig a little bit deeper into CO2 and circularity. But as Jens mentioned, we have achieved the water intensity goal. It hasn't been easy. Water is cheap. But we got there, which is 2 years ahead of schedule. And more than 70% of our factories have achieved significant improvements in water intensity. And some of those include the factories that are in water-scarce areas, so the factories in Malaysia, India, Russia where we've had a significant improvement. Another goal that I'd mention here would be the energy efficiency in owned office. There were delays in finalizing renovations that were otherwise planned to be finalized in 2020. And that's why you can see that the -- there has been no progress on that goal at least from the -- from achieving the 35% perspective. But there's been a lot going on. And we actually finalized 2 renovations here in the early part of '21, which means that we are now up around 12% improvement. We have another 6 renovations that are currently in progress. So we anticipate a much bigger improvement by the end of '21. Slide 10, which looks at safety and Jens I think has talked a little bit about that. So I won't dwell on that now. Of course, we can take any questions relating to safety afterwards. We move to Slide 11. CO2 intensity, greenhouse gas goals. So we now have 3 sustainability goals relating to CO2 intensity and CO2 equivalence of absolute emissions. The first one, which is our Tier 2 intensity goal, baseline 2015. So we achieved a 9% improvement. So 9% less CO2 per tonne stone wool compared to 2015. And I think that there have been 3 main contributors to that. Jens talked a little bit about our work within energy efficiency, which is, of course, the key pillar for us. The second one relates to technology innovation. So again, for example, the effort that we have had in Denmark by moving from coal to natural gas. And this improvement does, of course, not take into account shifting to biogas, which will give additional improvements, which first took place start '21. And the third reason -- the third key reason for achieving these improvements relate to guarantees, purchase of guarantees of origin. One of them relates to electrical melter in Norway, the second one in relation to sustainability certification in Poland. I think it's important to emphasize in relation to our Science Based Targets that we have set the goals, both the Scope 1, Scope 2 and Scope 3. We talked about in the previous ESG call the difference between the 3 scopes. There was not a requirement from SBTi for us to make a commitment to Scope 3. But we made that commitment, it was important for us. Because from our perspective, in order to measure the carbon intensity of a business, then you need to look at it from a life cycle perspective. You can't just look at it within the fence, within the manufacturing area. You need to look at it life cycle. And that, of course, includes end of life. So that's our philosophy, that's our approach. And of course, going forward, we'll be driving an agenda to reduce emissions across the life cycle. We move to Slide #12. Circularity. Jens again mentioned the fact that we have added 3 additional rock cycle schemes in the course of 2020. So that's in Italy, in U.K. and in Austria. We've increased the amount of volumes of recycled material by 7% compared to last year. And in addition to that, we have met the landfill goal of 40% by 2022. So we hit 50%. And that means that we now have a large number of factories that have a close loop stone wool waste system. So in other words, no stone wool waste leaving the factories. I think that was the main points from a sustainability progress and goal perspective. So now I'll pass over to Mirella to talk about EU policy development.

Good afternoon, everybody. I think since we had our last call, we had spent some time on that call discussing the EU taxonomy and the sort of confusion surrounding that delegated act. So we wanted to sort of recap and give you an update. As you may recall, the draft delegated act taxonomy has reclassified the manufacturing of insulation materials away from the category, which was manufacture of energy efficiency equipment for buildings and transitions it to the manufacture of other low-carbon technologies. And of course, that created some confusion. So together with the Mineral Association and other associations, ROCKWOOL did respond to the consultation process. Some of the letters that I have countersigned have been published. But what happened during that process since we last spoke was that the draft delegated act issued by the EU Commission actually received 46,000 comments. And from those 46,000 comments, the commission has informed us that 1,800 of these were deemed as essential and needed to be revised and input into the new delegated act. Since then, we haven't received a new version. We do expect to receive something pretty soon because the schedule for an approved or a discussed delegated act is still targeted for end of April. The EU taxonomy scheme should come into play still at January 2022. So there's no change to the actual time line. But of course, with such a vast number of comments received and actions to be taken in discussions at member-state level, the discussions are taking longer than we would have expected. But we imagine that we'll see something during the month of April, and we will, of course, update you and inform you. I think that -- if we go to Slide #15. Again, this is a recap of where we left off, the resilience and recovery fund. And here, we're very much talking just about this segment requires that 30% of the funds are dedicated to green transition. And if we take just the grant of that allocation, which equal EUR 312 billion, we can see more and more countries dedicating and ring-fencing a very specific amount to the renovation. We would like to see about a 30% ratio. I know that that's quite ambitious. But when we look at climate targets, we see this as absolutely essential. So while we're very happy to see that the money is being ring-fenced to renovation, we would actually like to see more commitments with regards to the climate target. As you know, the renovation wave caused for a doubling of the renovation rate, which is about 2%. But after first analysis, which was performed by the Building Performance Institute in Europe, they did an analysis of 7 member states commitment to the long-term renovation scheme. And they actually see that most of them are actually quite far away from achieving both the doubling of the renovation rate and actually the targets that would be required to be achieved on the 1.5% trajectory. So far, Finland, France, The Netherlands and Spain have included an objective of reducing greenhouse gas emissions [ 90% ] by reducing the consumption of the buildings. Actually, very few of the plans as of today go into a great amount of detail by how much deep renovation is required to the building envelope. So again, it's good to see the funds dedicated to that segment, but we need to see those funds then enabling cities and people and buildings to achieve the relevant climate goals. Then if we go to Slide 16. Again, this is the talk -- we've been talking about recovery, and we have been primarily focused on the European Union. But of course, recovery is very much a global topic and on the agenda of governments worldwide. So we also wanted to share some global figures that we've been looking at. And here, you'll see the title of the slide, the biggest job potential we've been building. This is actually taken directly from the C40 technical report for a just and green transition where they have taken proxy data from a typical mega city of each continent and showcased what would be the toughest and easiest way to recover economically and environmentally and socially from the crisis caused by the pandemic. From the data that they used in C40, which is also taken from the International Energy Agency sustainable recovery outlook, they -- you will see a standard green recovery scenario where the investments for the green transition take place over the next 5 years, where they believe this green transition will create 52.3 million jobs. Again, this is a standard scenario. If we go to the accelerated scenario, they actually are stating that the jobs created could reach up to 80 million. If we consider -- if we go back and look at the European recovery and repair facility, that actually has to be spent in 3 years, which would be the equivalent of the accelerated scenario that C40 is talking about globally. Out of these jobs, 74% will be created in the building and energy sector. And here, they are grouped together in the report that you will find. But if you dig into the data, it actually states that 10 to 21 job years are created by $1 million invested in renovation of buildings. And you will see from the report itself, the multipliers that they use for construction is 4.8 jobs for building retrofits, 15.2 jobs for construction compared to other energy projects where the ratio of the spend is much heavier on the capital investment, whereas, of course, construction is much more labor-intensive and the multipliers of jobs is much less. And hence, the statement and the claim that the best investment is actually investing in construction in order not only to distribute geographically the funds, but also to create more jobs. Then we move to Slide 17. When we talk about renovation, we cannot avoid talking about fire safe renovation. When we look at the current building starts in Europe, much of the building -- actually, the energy-efficient buildings have concrete and cement facade, which are, of course, fire safe but very inefficient with regards to energy savings. But when you go and take action and renovate the building and add a facade, especially when we're talking high-rise hospitals and schools, it is, of course, essential that you look at the fire safety of the building and you ensure that you are not changing the destination of that building so that actually, it goes from being energy inefficient and fire safe and then energy efficient but, of course, not avoiding the spread of fire. So we advocate for fire safety regulation also to be included in the energy performance of the building, and we keep it very simple where we say, don't take the risk and use only noncombustible insulation and noncombustible materials for your facade. At this moment in time, there's also a lot of discussions about using PV panels on the roof, which makes absolute sense to be using suitable spaces for the installation of PV panels but again, without forgetting that additional dimension of fire safety because having active components on your roof does cause some concerns if the building is not insulated or protected in the correct way. So I think this is it from my side, and I'll pass it over to Anthony.

Thanks, Mirella. So Slide 18, going forward, what can you expect? And we move to Slide 19. Just to round up, I think what you should expect is that we will continue our momentum in '21 in driving positive sustainability performance. And that, of course, is both from a product impact perspective, sort of the handprint, but also from an operational footprint perspective. We expect to continue to work to achieving our interim '22 goals in '21, '22 and expect good progress there. Decarbonization, we will continue with additional conversions that are in the pipeline. We have already communicated those plans from a fuel flexibility perspective, and we will continue with those. And then from a circularity perspective, we will continue strengthening our circular business model, and that will include an increased number of country-specific reclaim waste schemes. So on that note, back over to the operator.

[Operator Instructions] Our first question comes from Laurits Kjaergaard from ABG.

Maybe a first question from my side on the topic that you were discussing, Mirella, very clear in regards to the reclassification of the insulation segments on taxonomy. Could you talk about the definition of your -- in terms of the systems products that you also provide in the market in terms of taxonomy, which you have also gave some input before to, but I would like an update as to the inputs that you're giving. And also in terms of the inputs that you gave to the delegated act from the perspective of your products, could you perhaps enlighten us a little bit to what you were sort of missing from the delegated acts?

Yes. So with regards to our systems divisions, not all our products are actually classified as of now. This is something that is being worked on, on the new draft. But if you take, for example, our cladding material, so cladding today actually does sit in the original classification and has remained in the manufacturing of energy-efficient equipment. And hence, that's why we also push for insulation to be put in that segment because obviously, the cladding by itself without having an insulated building does not achieve the required results that would otherwise be necessary if you're going to achieve a deep renovation. So cladding is very much still in the original classification, again, so our roofing system. So it creates also some confusion with where our products actually fit because, of course, we have cladding, we have roofing systems. And they are considered energy-efficient equipment. But with regards to our other materials, we're still waiting to see the final classification of that and we don't have clarity in that space right now.

That's super. On Page 16 of your ESG report, you write energy efficient as a catalyst for thermal renewable heating systems, such as heat pumps reducing required upfront costs, and you also mentioned the PV panels on this call. In terms of these other types of materials, other types of equipment to use -- to complement insulation, could you talk about how you implement or how you view other similar materials when you are measuring your Scope 3, please?

Scope 3.

When you -- when we're measuring Scope 3, could you just clarify that question again, sorry, Laurits?

So just to get an idea of the total output of your products because this is what you talk about on Page 16 of your report. So just to get an idea of how you interlink insulation with other similar energy-efficient products.

Yes. I mean from a Scope 3 perspective, we don't interlink it, right? I mean when we do our life cycle analysis to calculate Scope 3 emissions, then it's related to the product. So the product before it goes in the building. When it goes in the building, then of course, you need another life cycle assessment to calculate the emissions from that particular building. But when we calculate scope through emissions, it's product specific and it's not related to the system as a whole.

Yes. And then if you're referring to how then we complement with the other materials, obviously, it very much depends on the scheme and the target that is put by the individual countries. So as we have mentioned a couple of times, the renovation scheme in Italy requires you to have a 2-class improvement. So if you're a Class B, you would have to improve 2 energy classes. And then based on the current building design, an energy adviser goes in and decide what is necessary. And we find that very often, the -- in -- especially when we're looking at the Italian market, a PV or an improved heat pump is not sufficient in order to improve those 2 categories and, therefore, a deeper renovation also of the building facade comes into play. In other countries, they're not looking at classes. But for example, France is looking at a 41% reduction in the energy consumption of the building. So it's really something that we look and analyze. I wouldn't even say market to market, it's almost building to building. And hence, there's a lot of energy advisers today involved in making these calculations and, of course, we collaborate with in order to ensure that our customers are able to access these schemes. Does that answer your question?

Yes. And you also collaborate with, for example, the heat pump manufacturers.

We don't collaborate directly, but these energy advisers that are now -- in France, kind of the government has set up a one-stop shop to advise entities. Italy is doing it actually through a consultancy, and it's the consultancy themselves that then sort of work as project managers, you can almost say, and put the building owner or the contracts are in contact with the heating or PV or installation people. So we don't have a direct collaboration, but obviously, through the energy adviser, there is a natural collaboration. Of course, in Denmark, we do have a direct collaboration because BetterHome works in that way on our behalf, but that set up is not very typical outside of Denmark.

Our next question comes from Josefin Johansson from Handelsbanken.

My question, I have two both relating to carbon emissions. And my first one is on Slide 11, we could see that you have had an impression reduction in emissions both in terms of Scope 1 and 2, but also in Scope 3. And my first question is, could any of these numbers be distorted by the pandemic, for example, lowering production? And my second one is, do you expect to -- these kind of big leaps forward going forward as well? Or would you expect it to become a bit more challenging now reducing the final share of these emissions?

So good question. As we've shown on Slide 11, the improvements that we have made in the course of 2020. So energy efficiency, technology innovation, guarantees of origin, they have all had a positive impact on our CO2 intensity goal, and they have also had a positive impact on our Science Based Targets, and that's both Scope 1, 2 and 3. But you're completely right because of the COVID pandemic, then of course, our production volumes have been much lower. And as a result of our production volumes being lower, then we have emitted less. And of course, that does have an impact. As we go forward, then of course, we expect those to increase and that will have a negative impact on CO2 emissions. However, again, that would be, you could say, matched by the continuous focus we have on reducing our CO2 intensity.

And do you believe that the final -- for example, when it comes to life cycle greenhouse gas emissions, do you believe that the final 9% of this 2030 will be a bit more challenging? I mean if you've been sort of picking the low-hanging fruit and now it's the more greater challenges going forward.

Yes. I mean, absolutely. And you could say that there is clearly a risk that we go backwards, that the 11% improvement that we have achieved in Scope 3 emission reductions, that's less -- it's less than 11% next year. There's clearly that risk. It's very much dependent on the growth of our business because what you have to remember is our Science Based Targets are reducing 1/3 of emissions. But on top of those 1/3 of emissions, any emissions that are related to organic growth, they -- those emissions need to be reduced as well.

Our next question comes from Mikael Petersen from SEB.

A question for Mirella. In relation to the figures posted on Slide 15, the numbers that are estimated, is that estimated by ROCKWOOL or what is the source of this?

Yes. So we take the -- it's definitely a calculation made by ROCKWOOL, but it's taken from what is publicly available from the different entities and the different governments. Why we say estimated is because many of them categorize the renovation funds in different places. So of course, we have the long-term renovation scheme, which many of them are primarily focused on residential and not on public buildings. So we actually expect these numbers to be sort of a minimum because we, of course, expect there to be renovation of hospitals, renovation of schools. And these sometimes are falling under the health care budget or under the education budget. So the activity of renovation is placed -- it's a little bit spread out in the different plans that they are submitting to the European Union and hence, it's estimated.

Okay. And then you mentioned the renovation funds. Do you have any estimate of how the split is in these funds in terms of activities?

You mean between residential and...

No. I'm talking about like renovation activities, if it's windows, insulation material, et cetera.

No. Of course, that we don't have and hence, what I was trying to say is that obviously, it's good to see that funds are going into renovation. But then there's a whole sort of awareness that the funds should go into deep renovation in the building envelope and not only on active components. What we can see is -- what we see is promising that we do see targets that are requiring that the buildings are heading towards maybe 0 energy requirements, but there's a big range. As I said, France is targeting a 41% reduction in energy use, whereas we have a country like Spain that is targeting 70% for residential, 33% for commercial buildings. So again, we are still working with local entities to ensure that there's a broader awareness of not only putting funds into renovating -- to renovation per se, but actually ensuring that we reach the climate targets to stay on that 1.5% trajectory.

Okay. And I have a final question for Anthony. When answering the impact from the COVID-19, you said that the production volumes was much lower. Can you try to quantify that?

Yes. I think much lower, I think that's an exaggeration they were lower. And as a result of that, there's -- that has had a positive impact on our CO2 emissions.

Our next question comes from Frans Hoyer from Handelsbanken.

A question on the taxonomy and the 46,000 comments you mentioned. I'm not quite clear on whether the 1,800 that the commission deemed critical. Are you aware if the concerns raised by yourselves and your partners regarding stone wool are in there among the 1,800 piece?

No. Unfortunately, we don't have that visibility. So we have -- as I said, we submitted a consultation. We -- both as ROCKWOOL and as the European manufacturers, but we won't be able to know any further information until a new draft is shared.

Understood.

So it's not an open process after the consultation.

Understood. And the second question on the recycling around -- the way I understand it is that you are 50% -- have achieved a 50% reduction of the waste going to landfill from your own production. And I'm just unclear whether the recycle, the rock cycle, is also about recycling waste from the demolition part of -- when your customers demolish your buildings, are you able to take some of that low material and use that in your production or is that a mere understanding?

Yes. So to clarify, we have these 2 goals. So we have the landfill waste goal, which is 40% by 2022, and we've achieved a 50% reduction. So that is, as you quite rightly say, the production waste leaving our factories, yes? And as I think I said in the presentation, we have now the majority actually of our factories that have a fully closed-loop system when it comes to stone wool. So we -- because the stone wool is inherently recyclable, we're able to simply recycle that wool in the factories without it leaving the factory. So that's the one side. And then the other side, which relates to our rock cycle offering, that is waste that is coming back from market, and that can be waste coming from construction sites in connection with the installation of the wool in the buildings, it can come from renovation and it also can come from demolition sites.

Our next question comes from Brijesh Siya from HSBC.

I have two questions as well. First one is to Anthony. On the landfill, right, so when you are saying we have achieved 50% and it's all production waste, what is kind of stopping us to -- not to go to 100%? Because it's -- as you say, majority is closed loop and -- should we be expecting in near future, we'll have 100% reduction in the landfill today?

Yes. So we have a goal of 85% reduction in total landfill waste from all of our factories globally by 2030. And basically, that 85% is achieving those closed-loop systems. So it requires technology. It requires infrastructure. And of course, we have that objective to achieve that 2030 goal. The fact that we've already achieved a 50% reduction 2 years earlier can mean that we can achieve that goal much earlier than 2030. But the fact that -- the starting point is that we're able to actually recycle this wool and that means that this is possible, which is not possible for many other building materials.

Okay. And now going back to the CO2 reduction, especially the Scope 3 one. So you have achieved 11% reduction. And if I take out the 4% reduction in your volume for 2020, still a meaningful reduction of 7% we can see there. So can you just talk about what role kind of -- where role you have seen those kind of reductions?

What role?

Yes.

Just clarify your question.

So I'm just trying to understand -- yes. So I'm just trying to understand the Scope 3 reduction of 11%. That looks quite substantial number even if you take out the 4% reduction in the volume. So if I -- even if I take out the 4%, it's still a high single-digit reduction. Can you just let us know what role kind of drove that number?

Yes. I mean what you can see is that for our Scope 1 and 2 emissions that we achieved a 10% reduction. So you can see that there is a correlation between Scope 1 and 2 reductions and Scope 3 reductions, which makes a lot of sense because, of course, if you're reducing energy, if you're reducing the amount of resources that you're using in the factory, as Jens started by saying, using less and then greening the rest, then that's also going to have a positive impact on Scope 3. So there's no doubt that the improvements that we have achieved in Scope 1 and 2 have also had a direct impact on the reductions in Scope 3. And then, of course, being able to recycle and not have end-of-life emissions, that also has a positive impact on our Scope 3 emission.

Our next question comes from Cedar Ekblom from Morgan Stanley.

I've got quite a few questions. The first one is, can you give us a number on your absolute emission, CO2 emissions per tonne of stone wool produced? I know you've given us a number on the reduction, but an absolute number would be useful. Secondly, on the point on recyclability, I think it's really interesting that you're saying you can get to 85% reduction in landfill waste from your own production side. Being that the circularity point is one that you've stressed as an important differentiator for your products, can you explain to us -- you said you needed to make some investments for this to happen, how difficult is it really to actually lift that recycling ratio? I would expect that the product you're taking from your own production process is just probably the easiest to recycle in inverted commerce. So how hard is it going to be to actually increase recyclability from demolition waste? And then the last question is for Mirella. I just wanted to understand, it seems like you're optimistic on the outlook for renovation funding. But would it be fair to say that actually the schemes are quite complex at the moment to put into place? You talk about different levels of energy performance that needs to be achieved and different approvals that need to be secured and understanding how different types of actions work together, so upgrading your building envelope and then going for a heat pump or a new condensing boiler. I mean is it that the reality on the ground is that the money is potentially available, but actually getting the money to individuals is quite difficult? And on that point, what are you seeing at a European level in order to speed up access to these programs? And I say that with reference to the U.K. program, which obviously had a lot of sort of fan fare and optimism around that actually it has subsequently been canceled. Basically putting it simply, money is one thing, but how do we actually start to see the money finding its way to individuals? Have you done some work on payback analysis, which could support that actually we are going to see a step change in renovation on the ground rather than just these very high-level policy statements?

Anthony, you first?

That was certainly many questions. So I'll start by answering your first question there on the how many emissions -- how much emissions do we have. I think we mentioned in the last call when we were -- when we announced our Science Based Targets that the split was roughly 2 million tonnes for Scope 1 and 2 and 1 million tonnes for Scope 3. If you look at our sustainability report, Page 29, then you'll see that in 2020, our -- the total direct and indirect greenhouse gas emissions, so Scope 1 and 2, that was 1.85 million tonnes CO2 equivalent; and then Scope 3 was 870,000 CO2 equivalent. So they are the numbers relating to Scope 1, 2 and 3. And then your question relating to recycling of our own production waste, your question was, how easy is it to accelerate this. We have a good momentum. We have achieved now a 50% reduction. We have a goal of 85% by 2030. How difficult it is -- is it to accelerate that process? I mean we have different options when it comes to recycling in our production facilities. We have briquetting plants where we're able to mix our own stone wool or stone wool generated in -- waste generated in the factory with other raw materials and then put that in the melter. We also have the possibility of throwing waste directly in the melter, and that can be both in our fuel flexible technology or in our electrical melter. And depending on the technologies that we have, then there will be different opportunities. I think, Jens, he mentioned at the start, our electrical melter technology in Norway, which is able to reduce the amount of waste generated by that -- at that factory by 99%. So we have different options, and there's a close linkage between the opportunities we have in terms of how much we can recycle and the decarbonization road map that we have. And then I think the third question to Mirella.

Okay. For sure, the renovation of buildings becomes more complex because you have more stakeholders. So compared to a large energy infrastructure project, there's more complexity in terms of the more people that you have to speak to, but also the time that it takes that to actually get a project approved is actually much faster and therefore, the money actually hits the economy in a much easier way in that sense. But if we take -- I mean very much the scheme is very different country to country. But if you take the Italian scheme, and I think we discussed that on previous calls, of course, that one, it kickstarted even before the European renovation funds were being discussed for this specific topic because the Italian government saw a need to kickstart the economy in the fastest way possible and in the most fair way possible in order to ensure that they reached a very broad audience. And so they have the 110% tax benefit where the end user actually doesn't have to put any money upfront because it can be the contract of the bank or a third-party that then takes over the tax credit. And we see that the renovation scheme in Italy is working very well. There's a lot of activity. There is some complexity in getting the permit. And hence, this sort of new profile of energy adviser is coming up in the market, and we see that they are actually the ones that are certified to ensure before -- because if you don't obtain the benefit, if you don't achieve the 2-part improvement, then you can't achieve -- you can't receive the funds. So of course, you need a third-party energy adviser that is assisting the general public. What we have done at ROCKWOOL is actually, we've also sent a set up a facility in our own team where we are guiding people through the process. So you can actually sign up on a ROCKWOOL page. You can join webinars, you can contact our technical support people, and they will handhold people through this process. So we are actually getting involved ourselves in ensuring that the community and people can access the funds. So it's a service that we are offering on the Italian market. We do the same in Poland where we are facilitating connections between the end user and the distributor or the contractor based on our very large installer network, and they again go through on our website, share relevant information about the projects they're thinking of, and we help them through the process. If you take what is happening in France, the white certificate scheme has always been there. The funds that are going into the system are an add-on to the white certificate scheme. That is quite a complex scheme. But what the French government is doing is now setting up these -- through the utility, actually, they are setting up these sort of one-stop shops where, again, the end user can go in and get advice on how to best renovate their homes. Yes. The U.K. scheme I think is though impacted by a series of different matters. For sure, there was some confusion when the scheme was launched. I think they definitely still have some problems with their building codes and regulations, also quality of install, et cetera. But from a ROCKWOOL perspective, obviously, the U.K. is still an interesting market for us in terms of renovation because as we see that the regulations continue to change in favor of science-based insulation following the inquiries that we all know about, we obviously are still -- we still believe that it's a positive market for renovation for us. So all in all, we do see that it is more complex, but we really believe this time that renovation is going to be pushed a lot harder because we can't achieve the goal -- the 1.5% trajectory cannot be reached if the building stock is not renovated. And we also feel the need to distribute the jobs, the money, the economy more equally across the different geographies. And of course, with small, medium enterprises working in construction, we feel that the governments are going to prioritize in that direction this time. I hope that answers your question.

It does. Can I just ask one? I don't know if you've done the analysis. With your teams that you are putting on the ground in Italy and Poland, I don't know if you've done any analysis on paybacks or any work looking at if the funds that have actually been allocated are sufficient. My understanding is that this is a huge opportunity, but it's also a huge cost that's going to come with us. And I just wonder if you've got any information on actual take-ups of these schemes, what we're actually seeing on the ground as it relates to energy renovation rate. Maybe it's too early to get those types of numbers, but is this actually hitting the ground now or are we still in a situation where these schemes need to be refined, more information needs to be made available and actually, probably more funds need to be made available before we really see the impact on renovation rates on the ground?

Yes. So it is a little bit hard to evaluate. But of course, some markets are moving much faster than others. In the markets that I mentioned, Poland, Italy, Germany, France are moving faster than some of the other markets. But actually, Spain has come out with a very ambitious plan now also for renovation, dedicating funds to the scheme. When we talk about paybacks, I think this is actually the really interesting part for us because we traditionally already talk about paybacks when we're talking about the energy-efficient component of the building. But I think in -- especially more than ever today, we need to look at the environmental payback, the societal payback and the economic payback. And I think renovation hits all those 3 areas because there is definitely a positive impact to society at large. Again, it's a labor-intensive workplace when you're working on renovation, the jobs are local, money is spent locally. And after the funds are distributed and the renovation takes place, the asset stays in the hand of the end user. So they're really receiving benefit themselves. The end user feels the benefit of a better house at the end of the day. So I think you have to consider all these multiple benefits when you're calculating the payback. And I feel that is what is being done.

Our final question comes from Xintong Ouyang from On Field Investment Research.

I've got two. The first one is, I am wondering if we can touch a little bit upon on the U.S. because apparently, it seems like Biden wants to propose a climate bill, which will focus on the decarbonization of buildings in the U.S. I was wondering, it would be great if you can provide a little bit of color there, like what you're seeing in the U.S. market, what's the sentiment there? Because it seems like the program will focus a lot on HVAC instead of inflation. And also, if there's actually money flowing into bolt-on decarbonization, how do you think you will be able to compete with the fiberglass insulation producers who have been there for a very long time in terms of capturing the growth that is created by this kind of mechanism?

Yes. Look, I mean, there's no doubt that the U.S. is a very interesting market, and we do see that it is a market that is also moving towards the direction of decarbonizing buildings. It's very difficult to sort of have a generic answer for the U.S. because there's not -- it's not really federally led. So at the end of the day, yes, the high level positioning comes from the Biden administration, but then it really boils down to state and sometimes even city governor level, and there's very different approaches from California to another state. So it's difficult for me to give you a sort of simple answer. We would really have to look at it state-by-state or city-by-city. But of course, we do see, once again, because of the -- driven very heavily by the need to reach the environmental targets and the need to kickstart the economy in a quick way, we do see that buildings are very high on the agenda. But I think the U.S. requires a bit of a detailed breakdown for me to give you an answer. And then the competition with fiberglass, it's always been there. It will continue to be there, and we will continue to position ourselves in the best way possible. And of course, we are confident in our products and therefore, confident that we can compete on the market.

I see. And then do you see any kind of like preliminary draft or whatever from different space regarding building decarbonization at the moment?

Well, I think New York already had a Local Law 97, which actually came out and it was announced in 2019 -- was it 2020? I mean some cities already have decarbonization programs or energy efficiency program. For sure, New York was the first mover, and that was way before the pandemic. So again, the need to renovate buildings and to decarbonize buildings and to reduce energy use in building has been there. And as we were saying before, it's been complex. And therefore, one thing that I can tell you is we see there's been a huge investment gap in the renovation of buildings compared to decarbonizing the electricity grid. And now we see a little bit of a shift coming over because of that need to accelerate both on climate action and on the economy and creating new jobs. As everybody is talking about a green industrial policy or a green jobs economy, we see the renovation of buildings playing a much bigger role going forward. So yes, some cities do already have plans; New York, is already in place; California, very ambitious plans also. And we hope and expect more to follow.

Great. That's very helpful. And then a second one is on the Slide 19. You said that in 2021, you have additional conversions in the pipeline. I know that ROCKWOOL does not usually give like any quantified numbers on that. Just wondering, can you give a couple of examples on the projects that you have in the pipeline, for example, shifting to renewable energies in 2021 or into 2022?

Yes. So I think we have communicated our plans so far, so -- in relation to conversion in Poland. The Danish case, we've given an example of also in Norway. And I think we've also communicated the one in China as well. And they're the ones that we publicly communicated so far. There's more that will come along, but they're the ones that are in the public space at the moment.

And our next question is from Brijesh Siya from HSBC.

Just a follow-up for Anthony, really. It's on the number of countries where you have I think the recycling facility that has gone up to 14%, and the absolute number has increased 7%...

Could you -- sorry, could you speak up a little bit? We're having trouble hearing you.

Sorry. So just on the recycling facilities, you are currently providing on 14%, which is an increase of 3%, but the number kind of has moved up 7%. I assume that you're just probably educating people there around. So should we expect a significant jump in 2021 when these kind of countries accelerate those recycling facilities, but they were taking back the product from the site?

Yes. So of course, we are increasing the number of countries where we're offering rock cycle. And of course, when we offer these comprehensive systems, then we will expect to get more volumes of waste coming back from market. But in terms of how much comes back from market, often, it's very dependent on what conditions are present in that particular market. For example, we are challenged in some markets that landfill prices are low. And therefore, there is quite a low incentive for our customers to use our scheme because it's much cheaper to send the waste to landfill. What's important for us is to signal to the market that we have visibility. We have the possibility of taking back this waste. We can recycle it. And of course, the regulations coming out of the EU in relation to the green deal and the circular action plan, they will also help to support more conducive conditions in the different markets. But there is a big variation in terms of whether it makes financial sense for the contractors and the customers to utilize our service or not. There's a big difference across the different countries. Does that answer your question?

Yes. And just linking that financial, what you call, incentive, do you have any financial incentives to increase that number? I mean does that give any, what you call, cost reduction in your plant if you recycle an existing stone wool other than...

I can take that. It's -- it varies tremendously what the equation is. And when you recycle somewhat, if you take it back from site, it's generally flatter materials. And that means that logistic costs can be higher, and then it depends how much you charge for that. So it's not a clear pattern for saving or improvement. But typically, plus/minus a wash is what we normally can achieve in the market, and there are some markets that were even cheaper to do with up cycle and numbers a bit more expensive. But we don't need to worry so much about it that we kind of say we steer in the one way, we simply try to get back as much as we can because it's a good business model to drive that.

And I will now hand the word back to the speakers for any final comments.

Thank you for participating in today's ESG investor call and do feel free to provide us with your feedback or input to topics you would like us to address. By this, we wish you all a great weekend. Thank you.