Hello to everyone and welcome to the conference call on ESG topics and the ROCKWOOL Sustainability Report 2023. My name is Kim Junge Andersen, I'm the CFO of ROCKWOOL A/S. Today I'm pleased to present CEO Jens Birgersson and SVP Group Marketing Communications and Public Affairs Mirella Vitale. For the first part of this call, all participants will be in a listening-only mode. As a reminder, this conference call is being recorded. First we will go through our presentation of today's ESG topics, the ROCKWOOL Sustainability Report 2023, after which we'll be ready to answer all your questions. Mirella, I now hand over the word to you.
Okay, thank you Kim. If we go to Slide 2, the agenda. We have a lot to go through this afternoon, so we will talk briefly about our progress on our sustainability goals, spend a little bit more time talking about our decarbonization plans and our trajectory towards the 2050 goals. We'll look at our performance in the ESG rating schemes and how we're getting ready for the new reporting requirements. We'll take some time to review EU policies and how these are potential sustainable business drivers for ROCKWOOL. If we go to Slide 3, where you can see our sustainability goals. As you would have seen already in the financial announcement that Kim and Jens presented, we're progressing very well in all areas and have in fact exceeded all our intermediate 2022 goals.
Our primary focus is on the short to medium term and on achieving our 2034 goals, but of course this is a means and a stepping stone for us to reach our long-term 2050 goals. If we go to Slide 4, we have for many years supported Europe's transformation to a climate-neutral, competitive, and sustainable economy by 2050, but we wanted to have a clearly defined pathway to achieving those goals according to a final and defined definition of net zero. This has now fallen into place both in the EU and with the science-based targets, so it was a natural step for us in 2023 to make that commitment towards net zero for our greenhouse gas emissions in Scope 1, 2, and 3 by 2050. If we go to the next slide and one more, Slide 6.
In ROCKWOOL's case, reaching our 2050 goals, electrifying our melting process is where we will have the greatest impact. Compared to the 2019 baseline where we started from, we reduced our absolute greenhouse gas Scope 1 and 2 emissions by 4% and our Scope 3 emissions by 1%. Due to the nature of our business, however, it is important for us to underline that our decarbonization trajectory towards our 2050 ambition will not be linear, just as it will not be linear to 2034. There will be ups and downs in our progress. However, thanks to our continued focus on conversions to low-carbon melting technology and the commissioning of factories based on electrical melting, we will have significant positive impacts on carbon emissions to report over the next few years.
Our newly opened facility in China, for example, started operations using electric melting technology and we expect will reduce annual CO2 emissions by more than 60% compared to the decommissioned factory it replaces. Furthermore, our manufacturing facility in Mississippi successfully transitioned to natural gas, so today both our U.S. factories are running on natural gas. If we go to Slide 6. As I mentioned, electrifying our melting process is what drives the biggest impact in our decarbonization and is the main lever to achieving our targets to 2050. We're deploying our technology both in existing factories and in our new-built factories. In addition to Norway, where we reduced our CO2 emissions by 70%, we're currently in the process of electrifying France, Germany, Netherlands, Romania, and Switzerland.
Where electric melting is not an option due to an inadequate supply of low-carbon electricity, we've developed a unique fuel-flexible melting technology so that we can use biogas or natural gas in addition to coal. This technology is already being used in our factories in Denmark, for example, where this fuel technology was actually developed. If we go to slide seven, I think it must be understood. Sorry, Slide 8. Slide 8. That electrifying our existing and building new electricity factories is not as straightforward as it would seem. There are many external factors that influence our decisions, not only on how, but when and where to convert or to build. In fact, in any given location where we're considering to convert an existing or build a new factory, we have to ensure, first of all, that the grid can actually handle.
That the transmission lines that we need are in place in order to get the low-carbon electricity to our location. Obviously we also have to look at the cost and how long it takes to get the grid connected. I would say, and this is not only for our industry but for heavy and energy-intensive industries in general, that getting connected to the electrical grid is probably the most underestimated challenge towards electrification goals right now in the business. It should also be underlined that off-the-shelf large-scale electrical melting technologies don't exist today. So what we are using in ROCKWOOL is, of course, proprietary technology. We can move to Slide 9.
Where I'm happy to say that yesterday we actually announced the purchase of 100 hectares of land in Walla Walla County, Washington State, where the intention is to build a state-of-the-art manufacturing facility, again featuring our proprietary electrical melting technology. Right now we have not confirmed any timeline for the new facility, but this would be Rockwool's fifth North American manufacturing facility and would support our growing demand and expansion plans for the company's products in Western United States. Slide 10. In 2020 we increased our ambition by committing to science-based targets with two additional goals to reduce absolute greenhouse gas emissions. These two goals, approved and verified by SBTi, are to reduce absolute Scope 1 and 2 greenhouse gas emissions by 38% and absolute Scope 3 greenhouse gas emissions by 20%. Both by 2034 with a baseline of 2019.
These goals are in line with the SBTi well below 2-degree scenarios and we continue to focus and prioritize these goals. At this time we're unable to commit to a linear year-on-year reduction trajectory to 1.5 degrees, but that does not change our long-term commitment and our ambition to reach those 2050 goals. So again, due to the nature of our industry, our trajectory cannot be calculated so easily year-on-year, but the end goal remains unaltered. If we go then into our next section where we'd like to talk a little bit about rating schemes and the new reporting requirements, we jump to Slide 12. Obviously there's a substantial amount of new reporting requirements falling into place in the EU for EU-headquartered companies. The most significant and probably the most important one is the CSRD.
So it will require a lot of new reporting and data collection, but it will also, we hope, help provide a more level playing field when it comes to actually the ESG ratings. So if we jump directly to Slide 14, let's look at how we're actually performing in the ESG rating schemes. At present we're rated by four different schemes. The Carbon Disclosure Project, where ROCKWOOL ranks as an A-minus. This is the second highest level with regards to climate change disclosure. If you compare us to our competitors or industry peers, we actually compare on par. Carbon disclosure is, of course, primarily focused on air emissions, but they are now introducing a new segment to require disclosure on water, which we are currently evaluating and we hope to disclose further on that in the coming months. We're also ranked by MSCI, Morgan Stanley Capital International.
Rockwool ranks as a double-A leader. Again, among the 104 companies within the building industry that are evaluated by them, Rockwool is on par with most of our key competitors. We're also ranked by Sustainalytics, where we're assessed as having a medium ESG risk. Here we actually rank slightly below our competitors. Again, the ESG ratings, value and weight different things. And here I think the focus is a little bit higher on the S, where Rockwool compares slightly lower compared to some of our key competitors. Whereas if you look at ISS ESG rankings, Rockwool ranks a B with a prime status. And when you look into the details of this ranking, we actually rank ahead of our primary competitors in this rating scheme. So I think we really understand the value of the rating schemes.
We disclose, but everyone can probably agree that there's very different methodologies and understanding and weighting systems behind each of these rating schemes. So this leads me to my next slide, where, as I said, there are many ESG ratings and other sustainability ranking schemes or platforms in the market, but it is important to recognize that it's not a precise science. Nothing is harmonized right now. In some cases companies have the flexibility to decide what to disclose. That is why you see some companies ranking very high on one scheme and significantly lower in others.
Not only are the methodologies evolving within the scheme, but from one year to the other, which is of course fine, but it does require an extra effort for us to sort of add to the new methodology, reassess what we are doing, and be able to present new data to each of these schemes. So far we see that the European Parliament and the European Council are looking at creating a scheme and have already signed a provisional agreement to guarantee transparency and integrity of environmental, social, and governance rating schemes. And again, we're looking forward to a more harmonized approach across the European Union. Then if we jump into the reporting, governance and preparation for CSRD. Of course, as I said, there are substantial new reporting requirements falling into place.
The aim of the EU CSRD is to drive positive change, which of course we welcome, by ensuring that companies disclose information about the impacts of their activities on people in the environment. Here you will not be able to select what you disclose, but there will be some mandatory disclosures. ROCKWOOL has been working towards the reporting deadlines and we feel very well prepared to be able to adhere to what we need to for the next reporting year. If we go to the next slide, where we look briefly at the CSRD. The reporting requirements begin for this year, for the reporting and for our next reporting. There are a list of several specific parameters and topics on which we will have to report. Some of these are new and some we are already reporting on them.
Again, also clear to be understood that what we have today in the CSRD is industry agnostic. So there's no specific reporting for a given industry. We all report on the same parameters. But we do expect the new sector-specific reporting systems to be in place by 2026. And in the sector-specific, I should also mention that ROCKWOOL is going to fall into the same category as glass and ceramics. So not in the same category as steel and cement and some of the other heavy industries. If we go to the next slide where we look at double materiality, an assessment was carried out in ROCKWOOL between June and September 2023 in preparation for the European Sustainability Reporting Standards.
More than 50 sustainability topics were assessed and reviewed both by ROCKWOOL and our external auditor, meaning that the impacts as well as the risks and opportunities were scored from both an impact materiality perspective and a financial materiality perspective. The DMA will structure our 2024 sustainability report and that will be combined with our financial statements next year. So we'll issue one report. And we will reference to 15 primary sustainability topics and what this means in practice that we'll be moving from 25 indicators that are now audited externally to 85 indicators. Then we touch upon EU Taxonomy. It's a core part of the EU Sustainable Finance Strategy. It's a regulation that provides the first uniform and credible standard and a common language that allows economic parties to align their activities with the transition to low carbon and sustainable pathways. And of course we continue towards that trajectory.
We understand that sustainable finance and ESG reporting are fundamental for the EU Green Deal approach. And again, the ambition of all these policies is to create that level playing field and increase transparency across businesses and across their value chain. Still, there are some gray areas to be defined, but we continue to align our activities and our customer offering to the sustainable finance taxonomy. We're very pleased that the addition of circularity requirements for building, construction, and renovation are coming into play because we really believe this can support the growth of the secondary materials market that will enable us to boost our circularity objectives. Social and human rights. If we go to the next slide. We are, we reconfirm and are committed to human rights across all the key international standards, Universal Declaration of Human Rights. Conventions, United Nations Guiding Principles.
We have a very solid structure in place. We have a human rights committee where both Kim and myself represent the group management together with our head of HR and other members of management across our business units. We have a process in place and procedures where we are continuously auditing and looking at new ways to improve further. And we're also establishing training and awareness initiatives across the group to ensure that all our policies are upheld. Then we go to sort of the final segment of this presentation where we're looking at the sustainable business drivers from a regulatory and policy perspective. So if we move to the next slide. Obviously ROCKWOOL doesn't operate in a vacuum. So that was the reason we wanted to touch on how policy and regulatory framework shapes our sustainability agenda and our impact in the market.
It's important to say that the EU climate and energy policy broadly supports our decarbonization strategy and we don't expect that to change despite the fact of voices of some growing opposition within the EU. Buildings and energy efficiency continue to be a major area of focus both for the policymakers, which is increasing demand for ROCKWOOL solutions for residential and industrial. Then the sustainable product policy developments at an EU level are heading in the right direction for us, but we would like to see more done in particular with regards to a circular economy aspect for the built environment specifically. If we go to the next slide, you will see these are the current focus areas.
There's a plethora of EU regulation coming into place, but this is where our current focus is because these policies are either in the final negotiation phase or in the consultation phases. There's more. This is not exhaustive, but it gives a good overview of what we're looking at today. And of course we add one element, which is a national policy, so not managed at EU level, which is a fire safety policy, but continues to be very important for ROCKWOOL and our positioning in the market. But for the sake of today's meeting, if we go to the next slide, I've highlighted here where I'm going to zoom in and focus for this session. But of course anybody is welcome to reach out to us and ask questions on how we expect the other policies to develop and support our business going forward.
So we can jump to the next slide. Building renovation. We've actually had this on the agenda a few times in these sessions. We continue to say that the Energy Performance of Buildings Directive will drive up the renovation rates. Of course we look forward to and are working towards the implementation in the markets. Financial incentives and mechanisms do exist. There's the Recovery and Resilience Facility funding, which is still active and still available. There's the Social Climate Fund, which will kick in as of 2027. But we also see at a national level, sometimes even at a city level, new financial schemes and mechanisms coming into place. This proposal forms part of the EU Commission's work for Fit for 55. And it grows the insulation market as a whole.
But our products are well positioned to take their fair share of the market and in some cases potentially even more than their fair share. In particular when we're looking at the growing need and the obligation to have PV panels placed on roofs, we believe and see an opportunity for our non-combustible materials to really move into the market and play a very big role in ensuring the safety of those buildings. If we go to our next slide where we talk about energy efficiency. This is and always was recognized as a key element of the EU Green Deal and it continues to keep a high level of political support.
I would say that it actually became even more important at the EU level with the RE Power EU Plan, where the need to reduce dependence on the importation of fossil fuels really came into play, in particular due to the war in Russia and Ukraine. The EU has pushed for energy efficiency not only in the EU, but is actually driving this agenda globally. So for the first time we actually saw that at the COP28 there was not only a pledge on renewables, but actually a pledge on renewables and energy efficiency. As part of this pledge, 118 countries signed the commitment to double average annual energy efficiency improvement rates from 2%-4% until 2030. They also agreed to establish energy efficiency first as the first fuel principle at the core of their policymaking, planning, and investment decisions. Again, this is very promising.
We're really happy to see that energy efficiency is traveling outside of the EU. We could already see signs in some of the U.S. states and cities, but it's all down to implementation at the end. Working with key stakeholders within the markets to ensure that they have full implementation plans to achieve those goals. In addition, there's the Industrial Emissions Directive where it's actually requiring industries to focus on their resource efficiency and on circular economy. So we also see the possibility to boost stone wool as we believe when they specify best available techniques, they will focus on having non-combustible solutions in the industrial technical insulation space. Also important to underline that the policy does include a focus on addressing energy poverty, which aligns perfectly with our purpose to be able to provide affordable and safe housing to all. We go to our next slide. Fire safety.
Of course fire safety policy creates an additional demand for non-combustible insulation, whether it's stone wool or other products that they put on the façade. The recent happenings in Valencia show that this is really a reality today. It does happen. There are fire risks. In fact we know that as a result of the Valencia fire, more and more countries are looking at how many buildings they have with combustible façades and what the potential risks are and what it would take to actually remediate to these risks. So our position on façades, on ventilated façades or on ETHICS continues to be the same. When you have a high-rise building and a high-risk building, you have the option of a non-combustible façade solution so there's no reason to take that risk. It's either combustible or non-combustible.
The non-combustible linear option is always the one that should be preferred in these situations. We go to the circular economy action. ROCKWOOL prioritizes circularity and so does the industry, but we can only have a fully circular approach across our entire value chain if the right incentives and policy measures are actually in place. The challenge we face right now in the EU is a lack of harmonization. It's very, very different from country to country. We need a higher level of ambition, not only in the EU, but in the member states. But above all, I think the other key factor that is holding sort of this back is that there's no clear definitions of recyclability, recycled content, and other key concepts.
So we need from our side, we believe we need a stronger focus on reducing the use of virgin materials in the construction products in the first place. These problems, of course, make it more difficult for us to deliver on our circularity ambitions and to further expand our Rockc ycle program. Again, this is not only geographic expansion, but also expanding the uptake of Rockc ycle within specific countries. In 2020, the Circular Economy Action Plan did promise to address construction and demolition waste, but it actually was not delivered at that time. But now we have a revision of the Waste Framework Directive where we do see that they are trying to address the challenges of construction and demolition waste. Right now, construction and demolition waste accounts for one third of all waste generated in the EU.
If the renovation rates go up as they are expected to go up, we will, of course, see this number increase. This means that the EU should get ahead of this issue and ensure that the Waste Framework Directive incentivizes the truly circular approach and rewards companies with higher performance on durability, recyclability, and companies that have the possibility of reducing virgin material use. Again, all elements where ROCKWOOL products and offering falls nicely into place. Finally, when we're looking at this current package of EU regulation, we have the EU Rules on Green Claims and Empowering Consumers. This will require full substantiation of all sustainability claims by businesses, including documentation. ROCKWOOL products perform very well on all key sustainability criteria, including durability, recyclability, recycled content, and water consumption, all to be considered key elements of the sustainability pathway to 2050. So we embrace these new rules.
We're not concerned that we're not able to provide the documentation or the substantiation that is needed. In fact, we believe that these rules should help build consumer confidence in sustainability labeling, and we believe it will actually further boost the uptake of stone wool compared to synthetic or fuel-based alternatives. The EU rules also increasingly focus on reducing the use of substances of concern, including flame retardants. So again, with the upcoming additional restrictions on flame retardants that we expect on this clear labeling and new substantiation of sustainable products, we believe that stone wool has an advantage compared to other insulation alternatives.
Also, and finally, the safe and sustainable by design and essential use concepts are likely to shape the policy on flame retardants and will help further position stone wool over the combustible alternatives, as every product containing flame retardants will have to clearly claim that they are and will not be able to be labeled as safe and sustainable by design. So that comes to an end of what we have to present today, but we open up for Q&A.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you please limit yourself to two questions. At this time, we will pause momentarily to assemble our roster. The first question today comes from Brijesh Siya from HSBC. Please go ahead.
Hi. Good afternoon. I have two. The first one is on the recycling. So you have expanded the recycling to, I believe, 22 if you include Russia then. Then why is that number down 13% year-on-year? I believe it's an easy one and you are expanding your capacity there even though the volume is down; it should ideally kind of move up. So just wanted to understand a little bit more about why on a basis that number is down almost 13% in terms of waste collection and recycling. And the second one was on your carbon intensity. So Scope 1 carbon intensity looks similar. It hasn't changed on a year-on-year basis. But the Scope 2 emission has, in fact, gone up. Can you just explain why that is?
Okay. Let me see if I've understood. Your first question is why are recycling content or are the recycling that we have taken back into the factories has reduced? Is that what you're asking?
Yeah. It's the volume. It's the volume of the recycled content you have done.
Yeah. So basically it is availability of those materials coming back into the factories and us being able to take in those secondary raw materials into the factory. If there's no incentive for a particular country to actually bring back the material and landfill is still the cheaper alternative, then of course that's what they'll do. I think one of the things that we're pushing in the European Union is that if a product can be recycled, then recycling that product must be made mandatory. Today that is not the case. Just because you have a product that can be recycled doesn't necessarily oblige the end user to recycle it. And so I think that's also why we see that volumes are decreasing.
Because when you see transportation costs going up, then that incentive for the construction side or the construction company to actually bring it back to the factories, of course, decreases. So that's why you will see that it's been going down. Then I think your other question.
Just ask because.
Yeah. Go ahead.
I'm just asking a supplementary on it. So in that case, your target of 30 by 2030 clearly hinges on regulation. Without that, is there anything in ROCKWOOL's side that can help you kind of increase that intake?
Yeah. I mean, I think we are in some countries where schemes are in place. We are facilitating the work for some of our customers where we're actually taking the material, we're cleaning it, making sure that it's ready to go back into the factory. We take care of the waste handling where we have the possibility to do it and where we also have the authorization to do it. Again, there's no harmonized approach. So in some countries, you need a very specific area in your factory to work with waste, regardless of what type of waste it is. So of course we are, and we're doing that in the countries where that's a possibility. But of course, where we don't have factories, it becomes a little bit more complicated to actually have a system where we help the customer.
It is part of our plans to always offer it and put it on the table. Where you see the countries where we're offering recycling and we are, in fact, helping the customer bring the products back and doing everything we can to ensure that the volumes are increasing. Your second question, Briges, I think I have to ask you to repeat, please.
No, I was asking about why there was an increase in Scope 2 emission intensity.
Scope 2 emission intensity, but I don't think we did. I think we had a decrease in Scope 2. Let me look at my numbers correctly here. Because I believe we decreased our yeah. Let me have a look at the numbers.
Yeah.
Briges, what number do you refer to?
Yeah. We reduced it by 4%.
I was referring to the. I was probably referring to the. It's in the backside of the sustainability. I was looking at the location-based, the other one, the direct one. CO2 intensity, Scope 2 per tonne of stone wool as an index. It has moved from 52 to 67.
Okay. Because we reduced our absolute greenhouse gas emissions in Scope 1 and 2 by 4%. When you're talking by intensity, it's the CO2 per ton stone wool. Yeah. And it's just based on our production output. So that's why you saw with less production output, then you will, of course, see an increase in the intensity.
Sorry. I didn't get that. So you're saying that?
We need to check the.
I was asked.
We need to check the number. We're just going to dial it up.
Okay. Fine.
We'll come back to you on that one. We'll continue to move along on the questions and then we'll come back to you on that one.
Fair enough. Thank you.
As a reminder, if you have a question, please press star then one to be joined into the question queue. Press star then one to enter the question queue. There are no further questions at this time, which concludes our question and answer session. I would like to turn the conference back over to management for a closing remark.
Thank you very much. Just as an invitation, you are welcome to send us questions afterwards also with your more technical team. That's why we have put this deck together. Thank you for today, for Mirella, for making the presentation. Thank everybody for attending the session today. Wish you a very good day and coming good weekend.