CLIENT CASE STUDY: PFLEIDERER


The fact that Pfleiderer is committed to sustainability was also underlined recently by the ESG rating provider Sustainalytics, which assigned a ‘low risk’ status to the wood panel producer in March 2022. The agency differentiates three ESG risk rating categories for investors: negligible (0–10), low (10–20), medium (20-30), high (30–40) and severe (40+). With a score of 13.1, Pfleiderer commands the third position amongst the 135 companies in the building products industry ranked by Sustainalytics. It is also placed in the sixth percentile amongst more than 14,000 companies worldwide currently rated by agency. “We are proud of these strong results for our debut ESG rating by Sustainalytics,” says Herold. “The outcome is a clear recognition of our efforts to promote a circular wood ecosystem, which has been at the heart of our business for many decades, as well as to become a net zero-carbon business.”


Evaluating ESG policies and processes But why has the company decided to solicit an ESG rating in the first place? After all, Pfleiderer had already defined KPIs for its sustainable finance strategy prior to issuing its sustainability-linked bond, as outlined above. These KPIs were classified as “ambitious, relevant and material for the issuer’s business model” by the ESG rating agency, the Institutional Shareholder Services. So, why engage in another certification process which binds resources in company treasurer Linker’s small team? As Linker manages relationships with banks, investors and rating agencies, he also coordinated the ESG rating process. “We wanted to obtain further independent


signed by our board. For evaluating our social performance, Sustainalytics looked at diversity and anti-discrimination policies while assessing governance, including (for example) if and how whistleblower systems are put in place,” Linker explains. According to Linker, there were no surprises in the rating process. However, he admits that


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validation of our achievements in the area of sustainability,” he explains. “First, this reassures our bond investors that we are on the right track when it comes to ESG. Second, the process also helped us internally to understand policy and reporting requirements even better.” The rating process began at the end of 2021 and took approximately three months, Linker recalls. In each of the three ESG dimensions the agency looks at policies, processes and reporting. “With respect to environmental risks, this, for example included reviewing our waste, water and CO2


policies that were Figure 2: Pfleiderer’s sustainability KPIs MATERIALS


Increase the proportion of post-consumer recycled wood used to 50% by 2025


Maintain at 100% the share of forest-derived materials from suppliers verified as operating in alignment with FSC and PEFC requirements


At least 10% of chipboard products (by volume) will be manufactured using bio-based resins by 2025


Source: Pfleiderer’s ESG Framework Report 2021 CLIMATE


Reduce Scope 1 and Scope 2 greenhouse gas emissions by 21% by 2025


Reduce the indirect greenhouse gas emissions intensity relating to purchased chemical products used in our wood-based panels by 21% by 2025


PEOPLE


Reduce accidents involving employees and contractors; achieve a lost time accident (LTA) rate of 0.5 by 2025


Expand human capital management to diversify the pipeline of potential recruits, retain skilled employees, and improve career opportunities


the process helped to reveal minor gaps that still existed with respect to monitoring ESG processes: “One of the lessons learnt was that certain internal KPIs, such as employee training, need to be better documented.” To ramp up sustainability reporting and simplify internal data exchange, Pfleiderer plans to invest in new software tools over the next couple of months. This is also happening against the backdrop of upcoming ESG regulation in Germany and Europe.


Regulation ahead Germany, for example, passed a supply chain act in June 2021 which stipulates that companies will be responsible for complying with human rights and environmental requirements in their supply chains. Companies with more than 3,000 employees will be subject to the law from January 2023, and those with more than 1,000 employees must comply with these requirements from January 2024. Herold says: “We feel comfortable with respect to this new law, as we are only sourcing from certified forests in Germany and recycled materials. Our wood travels a maximum of 250km to be processed in one of our five production plants.” Furthermore, he adds, Pfleiderer already has certification and audit processes in place to ensure its suppliers adhere to standards for responsible forest management: “The wood industry in Germany is already very much regulated.”


A new challenge for the company will be to fulfil the reporting requirements under the EU taxonomy and the associated Corporate Sustainability Reporting Directive (CSRD) regulation, says Linker. The new directive will require companies with more than 250 employees, a net turnover of more than €40m and a balance sheet of more than €20m (two of three criteria fulfilled) to disclose data on their sustainability performance. It will therefore impact Pfleiderer as well. Although this rule won’t come into force


until 2024, for the financial year 2023 and onwards, a first set of sustainability reporting standards is expected to be published by mid-2022. “We have already started a project to ensure that we have processes in place to meet the requirements in time,” Linker says. When the reporting standards are published, the company wants to be prepared – to prove that sustainability really is part of its DNA.


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