Ladies and gentlemen, welcome to the Rockwool ESG Investor Call. Today I am pleased to present CFO Kim Junge Andersen, SVP Group Marketing Communications and Public Affairs Mirella Vitale, Group Sustainability Director Anthony Abbotts. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question-and-answer session. As a reminder, this conference call is being recorded. I will now turn the presentation over to your hosts. Please begin.
Thank you very much. Hello everybody. So this will be our fifth ESG call today, so a year after our first ESG call back in September 2019. Next slide. Today the topic is TCFD, so our disclosures relating to climate-related issues. Next slide. What I'll do is to walk through a little bit on what TCFD is. I'm sure many of you are aware of what it is, the governance around it, and then dig a little bit deeper into what our key material climate risks and climate opportunities are. We will talk a little bit about our taxonomy eligibility, and then Mirella will take over and talk about the opportunities related to the EU renovation wave. Next slide.
If we start with the background, the Task Force on Climate-Related Financial Disclosures created by the Financial Stability Board back in 2015 to develop consistent climate-related financial risk disclosures for the use for companies, banks, investors, etc. As of February 2020, there was support for TCFD from over 1,000 organizations representing a market capitalization of over $12 trillion, and Rockwool has publicly supported the Task Force on Climate-Related Financial Disclosures recommendations since 2019, and we comprehensively report in accordance with TCFD through the Carbon Disclosure Project. Next slide. All climate-related issues at Rockwool are overseen by the Executive Board headed by the Board Chair. A wide array of climate-related issues are addressed. For example, the Board monitors progress against goals and targets, as well as reviewing and guiding strategy and risk management for addressing climate-related issues.
Managing the risk process is part of the CFO's area of responsibility and includes providing regular updates to the Audit Committee and the Board of Directors. Next slide. We have identified three material climate risks. The first one, which I'll touch on now, is regulatory. The second one, technological, and the third one, physical climate risks. If we look at regulatory risks, then that particularly relates to the emissions trading scheme in the EU. All Rockwool's European factories were included in the EU ETS phase III, so that was in the period 2013- 2020. And in that period, we did not need to buy any additional CO2 allowances throughout that phase. As in the previous phase, the mineral wool sector is included in the EU Carbon Leakage List for the period 2020- 2030, and that reduces the risk of needing to purchase additional allowances.
Our decarbonization efforts will reduce this need even further. Next slide. If we look at our second material climate risk relating to our technological process, while our process is energy intensive, we're developing innovative technologies in order to significantly decarbonize. And we have talked about some of these in previous ESG calls. So examples include the installation in Norway of the largest electrical melter producing stone wool globally, which reduces CO2 emissions by 80% compared to the conventional coal burning furnace it will replace. In Denmark, through the development of an innovative fuel-flexible melting technology, we will achieve 70% reduction in CO2 emissions by 2030 compared to 1990. And it's important to underline there that that 70% reduction is both in terms of absolute emissions and in terms of carbon intensity. And we are working on accelerating this plan, and you will hear more on this topic in due time.
As we have mentioned on previous calls, we are exploiting the inherent recyclability of stone wool by offering reclaimed waste schemes in increasing number of countries, and on top of minimizing the use of virgin materials and the generation of waste, recycling also contributes to the reduction of CO2 emissions. This means limited end-of-life emissions as our material does not end in waste incineration plants. Next slide. The third material climate-related risk relates to physical risks, and here we have identified in particular two physical risks, one relating to flooding and one relating to water scarcity. If we take flooding first, our insurance company Allianz has assessed that the risk of flooding at the majority of our production facilities is to be highly unlikely.
There is, however, a higher risk at one of our factories in Germany, which is located near a large river, and to a lesser extent at our factories in Canada, the U.S., and China. The most recent case of flooding in the group is from 2018 at our factory in Grand Forks, British Columbia, where there was limited business or financial impact. In connection with the construction of a new line in Germany, we have made extra investments to elevate the site slightly to mitigate risk of flooding on the production floor. With regards to water scarcity, four factories in Russia, India, and Malaysia have been deemed by a third party to be located in potentially highly or extremely highly water-stressed areas.
In each case, the factory's overall water consumption has been assessed not to be materially relevant when compared to the overall availability of water in the basin where each factory is located. However, in line with the group's sustainability goal on improving water efficiency by 20% by 2030 compared to 2015, we will, of course, continue to closely monitor and drive improvements in these four factories. Next slide. If we turn now to climate-related opportunities, I will touch on solutions within climate mitigation and our Taxonomy eligibility, and then Mirella will take over to focus on the commercial opportunities represented by the EU's Renovation Wave. C40, a network of the world's megacities committed to addressing climate change, has identified three particular challenges that cities are facing as a result of climate change. The first, more frequent and severe heat waves. The second, flooding.
The third, storms or more intensive rainfall. There's an increase in pressure on the ecological status of Europe's surface waters. A large proportion of Europe's surface water has, for example, failed to achieve good ecological status, which was otherwise an EU goal for 2020. The current legislation, such as the Water Framework Directive, the Floods Directive, the Urban Wastewater Treatment Directive, are therefore being increasingly seen as insufficient and unlikely to be revised as part of the Green Deal. Rockflow addresses many of these challenges. The product removes, in a controlled way, large amounts of rainfall, reducing the risk of flooding. It protects the sewage system from potential overflow, which is a major contributor of surface water contamination, and it makes the rainwater available in the cities, helping to address water shortage. Next slide. We turn to taxonomy eligibility.
The EU-wide classification system, or taxonomy, provides businesses and investors with a common language to identify those economic activities which are considered to be environmentally sustainable. The idea of the taxonomy system is that it will enable investors to refocus their investments on more sustainable technologies and businesses. Based on our own internal assessment, we have calculated that 95% of the revenue from our insulation business is taxonomy eligible. The insulation business represents 75% of our total revenue. With regards to CapEx, we have estimated that 85% of our total CapEx is allocated to these taxonomy eligible products. It is important to note that taxonomy rules are still maturing, and criteria for taxonomy eligibility within the categories of climate change adaptation, transition to a circular economy, and protecting water resources and biodiversity have yet to be set.
As 100% of our products are classified as being SDG positive, we anticipate that a large share of the remaining revenue generated from our systems business, which represents 25% of our total revenue, will be taxonomy eligible. Just to cover the definition of what taxonomy eligibility is, as you may or may not be aware of, there are definitions within one category relating to climate change around which products are seen to have a positive impact on climate change, and part of those criteria relate also to insulation products, and that is why we have been able to achieve such a high taxonomy eligibility level, but happy to take additional questions on that afterwards. If we move on to the Renovation Wave, over to you, Mirella. Yes, thank you, Anthony.
So we thought, obviously, after the communication from the President of the Commission and the State of the Union at the EU, that we would give an update on where we are with the Renovation Wave and the EU budget. And I think you can expect over the next calls we'll go into more details, but I imagine that renovation will be a red thread in part of our communication over the next year. So if you take how the budget has actually been divided, and probably most of you have this information already, but the original EU budget that was already agreed for 2021- 2027 already held very ambitious climate action.
So the EU Green Deal was not something that was new to the post-coronavirus pandemic, but of course, it's positive for us and very positive for the whole of Europe to see that the focus of the additional funds that have been placed are highly focused on next-generation green recovery. So right now, we have the original approved budget of just over EUR 1 trillion, and now we have EUR 1.8 trillion that are going to be funneled into the member states. The new part of the budget, which is the next-generation EU, which is the equivalent of the EUR 750 billion that you can see on the third column, there's a lot of discussion of where the money will come from. Ursula von der Leyen spoke about green bonds and how the money is going to be paid back. That is still under discussion. Of course, we follow that very closely.
There's discussion of implementing an EU tax on single-use plastics, and we will come back to that over the next calls with more details on what that means for Rockwool. Then, as you already know, a part of these funds are in loans, but a considerable amount of the money is also being channeled through grants. So therefore, it requires no direct payback from the market. One thing that hasn't clearly been understood is, as I was saying, the original budget already included a lot of green transition. So it's 30% of the total budget that is actually going to be reserved for green investments, and as a minimum, 37% of the new recovery facility that is being implemented. And again, these are minimum amounts, so there's no requirement for the member states to just stick to 30% or 37%.
There's also an opportunity to go for much higher and more ambitious targets. So then, if we go to the next slide, of course, the first change that has already been made on the targets is that the EU has now agreed to go with a 55% emissions target reduction. You would have heard the President speak about a letter from 170 CEOs across the world. You would have understood through our communication that Rockwool was a signing of that letter. So this is something that we are supportive of and we are very much in favor of. If you look at the pie chart on the right, what we're saying here is, in order to achieve the emission reduction by 2030, the EU Commission needs to focus on certain flagship projects.
So far to date, where Europe has been lagging behind is actually the investment in building renovation and renovation rates. You'll see that the new legislation talks about at least doubling the EU renovation rate, but actually, to achieve the targets of a 55% reduction in emissions, we would be looking at something more in line with three times the renovation rate that would be required. What does this mean for Rockwool? Of course, it's exciting to see that the Renovation Wave is a flagship project for the EU, and it has actually been called the Lighthouse Project. But we also expect to see an update on the Energy Efficiency Directive and the Energy Performance of Buildings Directive. Because, of course, it's not renovation for the sake of renovation, but it's actually deep renovation to ensure that we are improving the overall building performance.
In that sense, of course, Rockwool has a task to communicate that it's also not only about energy savings. There's multiple benefits towards deep renovation, and that is with regards to health, acoustics, moisture, and of course, fire safety, which is always a relevant topic. If we go to the next slide, then we're looking at how the money is being divided and what the timeline is for this to fall into place. So whereas the money from the European Union is expected to be available from the first half of 2021, because final approval of how the money will be allocated actually takes place in January, we already see that some countries are moving, which is also permitted by the EU funds.
So if you're already implementing actions right now that are helping the recovery and that are in line with the EU facilities, then you will be able to claim funds for actions that you've already taken since the pandemic has started. So we discussed last time that Italy has already gone in with a very ambitious renovation plan, offering a 110% bonus. And then we're happy to see that France has also come out with a communication with a clear amount that is ring-fenced towards the renovation of buildings. And this becomes very important for us, so we would like to see, rather than just high-level numbers that are dedicated to recovery, but actually seeing that there's a very specific amount of money that is ring-fenced towards the renovation of buildings.
In this sense, of course, for Rockwool's point of view, so this is not a Commission target, but it's a Rockwool target, seeing as the buildings account for a third of all emissions in the European Union, we would believe that it would be fair to see that a third of the funds are also channeled towards the renovation of the buildings themselves. The timeline for this is member states can start to submit their plans already as of October, and some of them are already doing that in a very fast and efficient way, right down to the project level already. But actually, plans have to be submitted and approved and validated by the EU Commission by April 21.
So in that sense, we will continue to update you as we have more information about how the different member states are participating and offering their schemes towards this project. The important thing is to say that we do believe it requires schemes. We know that renovation projects are a little bit more complex than large infrastructure projects, but we're confident with the EU Commission's constant focus on the Renovation Wave that it will be a positive outcome. Also important to note that there are funds dedicated to the Farm to Fork Strategy, which of course impacts our Grodan business, but also the Reskill and Upskill project that is being implemented by the European Commission, where they specifically also mention the lack of craftsmen and skilled workforce for the construction industry.
So even though, again, not directly within the Renovation Wave, there are significant other projects that will impact the construction industry positively as a whole. So with that, I think we have closed our session of presentation, and we can open up for the Q&A.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad now. We will start with two questions per participant. Please respect this. Our first question comes from the line of Lauritz Keergaard from ABG. Please go ahead. Your line is open.
Thank you, Anthony and Mirella, for the presentation. I guess my first question is where Mirella left off in terms of the great signals from the EU Commission this week relating to your products and deep renovations. I have to ask, though, these are many positives.
Do you see any risks associated with the funding of these initiatives and also the ability of Rockwool to be able to deliver their products for this influx on demand, which is my first question?
Hello, it's Jens here, the CEO. I'll take this one. So I think the money's there. I don't see a big risk of that. And then, of course, but we see one challenge along the way. So this is good news. We don't know when it's going to start to happen, how quickly, because that's policy, it's practical policy, and that's a challenge. But I see basically two risks to just moderate this so you don't believe all of this flows straight to Rockwool. I don't want you to go away with that belief. There are two challenges.
First of all, there is no one, no country that has been on three times the renovation rate, and it's many buildings, it's many projects, it's small projects, it's mid and small-sized contractors that do it. And to have all that big money that exists, one day someone needs to pay it back, but that's not now, to get all of that money to all these projects and to aggregate it so you can allocate it in semi-big chunks and then deploy it, that is a big challenge. The other challenge is to do these projects well, to execute them well. And that's an issue about obviously using the right materials and doing high-quality work, but the fact that doing renovation can be challenging.
For example, in France, we have seen a tremendous growth because there are two segments primarily that the money flows through the white certificates. That is a very intelligent scheme. That is loft insulation, granulate, small pieces of stone wool or glass wool to insulate the loft. The other is between the basement and the ground floor. Those are two relatively simple applications. When you get into external wall insulation, renovating maybe historic houses with a lot of detail, you get into those projects, and it's quite difficult. As always, when I talk about renovation to bring up the energy efficiency, you need to understand what you want to achieve. I think there is also a need for that people are practical.
So that instead of bringing every building up to the highest, highest gold standard of energy efficiency, which you do with the new building, I think when you renovate, you need to look at how many steps in energy efficiency do you improve it at what cost. So you put the level well so that you can leverage the true constraints here, which is not the money, but execution and finding the projects. So I think some countries will do this really well, and I think some countries will battle to get the practical handiwork of that plan. I hope that moderated the expectation. But fundamentally, good direction, okay?
That's great. I think my second question will be a follow-up question then, Jens, on that very detailed explanation.
You mentioned that no country has been on these three times renovation rates as sort of maybe a challenge for the next 10-odd years for the EU. I mean, is there more comfortability now that with all these initiatives, will it be enough just to pump money into the system? Or how do you see them solving this issue? I think I might, of course, be wrong on the 3%. I mean, I can't think of a country, and I don't sit with a table, but maybe there is some country that has pulled it off. But it is not easy. I mean, the rate has been 0.5%-1%. But I think there is one difference now. If you look at, A, calculating energy efficiency in itself, there is no harmonized way of doing it across the EU. That is difficult.
The other is to execute the projects. Then depending on the energy price, the payback is quite long. We're not talking two, three years. We're talking environmental payback, the climate payback, and money payback that is all acceptable, more than acceptable on the climate side. It's the biggest action we can take. But the monetary payback with energy prices is a bit longer. I think that what's different now is that instead of trying to sit and calculate with fine-tuned money calculations, say it's a payback eight years, nine and a half years, 12 years, whatever, you say, "Sum those three up.
Damn it, we need to get it done." And I think that's the important thing, that you can get out of the fine-tuned super calculations and realize if you renovate 90,000 homes in this country per year and we reach roughly this improvement, it's going to have this CO2 effect and this energy effect. And then you get out of all this super complicated, deeper motivation of each project. And I think that's the good thing here, because now you have the 55%, you have the money, and I'm sure some very clever policymakers and entrepreneurs will start to get this right in a few places. I think the conviction is key here.
Yeah.
And the important thing to add is that we believe that it requires national schemes. And so that is why we're working with the different member states.
Obviously, the EU sets the framework, but in order to drive the projects towards renovation, then it has to be managed at a national level. That's super.
Thank you very much for taking my two questions.
Our next question comes from the line of Brijesh Siya from HSBC. Please go ahead. Your line is open.
Thank you. Good morning, everybody. I have two as well. So probably the first one is on Green Deal and EU Renovation Fund. Now, you talk about member states submitting their plans during October and so. But how confident are you in terms of any of those plans being materialized in 2021 or in 2022? What kind of expectation do you have for 2021 and 2022?
Yes. So of course, as Jens was saying, in order to meet the ambitious target for emissions reduction, buildings have to be considered into the national mix.
We are confident that the renovation plans are going to be executed and presented by the member states. We also see the economic value for countries to do so because of the local job creation and because of the support that it gives the SMEs throughout a country. There's a lot of geographical spread in the construction industry. For countries to implement the renovation plans, they're actually impacting in a positive way the community at large. Of course, the challenge remains the fact that what the EU calls the shovel-ready projects are not necessarily easily accessible when we're talking in particular about residential renovation. It becomes easier when we're talking about public buildings because, of course, the cities themselves can go with very ambitious renovation plans of schools, of hospitals, and public structures. We already see that they are moving in this direction.
Of course, we see some preliminary plans from member states where they are very much focused on renovating hospitals and schools, etc. We are confident that this is going to improve. But as Jens said, are we going to reach the at least doubling rate? I think that's going to take some time before we see those figures. I hope I understood your question because it was a little bit loose on the microphone.
Yeah.
Yeah. That's more about whether you will see any growth from renovation in 2021 or early 2022. That's kind of the precise question I was looking for an answer. And probably the second one is on your plan for decarbonizing your own production facilities. Now, you talk about Denmark. You have the technology where you could reduce your carbon reduction by 70%. What's your plan in terms of rolling that out across group-wide?
I know previously you talked about having green supply as well when you're trying to move to electrical melter. So any plans around and what's your current status?
Yeah. So as you know, our current plan is related to our target, the 2030, of improving the carbon intensity group-wise by 20%. So that's ton CO2, ton product, 20% compared to 2015. And that's currently our target. And we have an interim target for 2022 of 10%. And we're on track to meet that target. At the same time, we're, of course, aware that our understanding of science is developing, and that's why we have written publicly that we are currently looking at those targets seriously and reviewing whether we need to accelerate our ambitions regarding decarbonization.
As you rightly point out, we have this fuel-flexible technology in a number of our sites, one of which is in Denmark, which has meant that we can convert to natural gas. That has given us quite a reduction. We're, of course, interested in looking to see how we can improve that reduction. Then, of course, we have the electrical melter in Norway, which is a pilot project. We will learn a lot from that project in being able to produce stone wool with a large electrical melter. The learnings from that project, we can use elsewhere.
Okay. I'll let that answer your question.
Our next question comes from the line of Mikael Petersen from SEB. Please go ahead.
Hi. Thank you for taking my question, and thank you for a great presentation. My question is regarding the taxonomy.
You say that 95% of the insulation division is eligible. Can you try to explain what the remaining 5% is, and then in relation to the systems division, how much of that is eligible in terms of taxonomy?
Sure, so if we take the insulation business first, 95% of our revenue from the insulation business is taxonomy eligible. That means that we have calculated that 5% is not taxonomy eligible. The vast majority of that 5% is from traded goods, so they're not insulation products. They're from traded goods, for example, a tech company, rendering products, that kind of thing, so they're the products that are not taxonomy eligible, and then, of course, we have 25% of our revenue from systems, and as I mentioned, I think in the presentation, the criteria around these product groups is still being matured, so they're not in place yet.
Therefore, it is impossible for us to know to what extent those products will be taxonomy eligible. But of course, we are very optimistic because of the positive impacts that products like Grodan, Rockfon, Lapinus have on areas like climate, water scarcity, circularity, and that kind of thing.
But Anthony, just to clarify that, an insulation bat is okay. Absolutely. Every bat we sell, we sell 100 billion packages a year or something. Every bat in there is 100% eligible.
Yeah. It's just the auxiliary. It's the stuff around partners.
Exactly. Exactly. Membranes and stuff.
And that's the key messa
ge.
Okay. Thank you.
That answers the question. Yeah. To me, it's the systems division in terms of the Rockfon and Rockpanel that has an insulation effect and therefore is categorized as eligible. So that was just what I was trying to get more clarification.
But if it's correctly understood that you have not included the systems division because you do not have the right guidelines for categorizing this, or how should I understand it?
That's correct. We're waiting for better guidance in order that we can make those calculations.
Okay. Thank you. And then to my second question, you know, EUR 185 billion per year that should be invested within building renovation, have you seen any indication of the split of that? Because it's a very wide category. It goes from heating to windows to solar panels. Have you seen any split of how much it goes into insulation?
No. Not yet. So the member state plans specifically just for the Renovation Wave will be submitted during the month of October. And there'll be this six-month period for validation that they actually meet the right target.
So we know from the schemes that have been working in France and in other countries up to date, we don't have the exact split, but we know where sort of insulation fits into the picture. With regard to if you take the Italian system that is there right now, every building has to improve by two energy steps. So if you're a G, you have to go up two steps. If you're a C, then you would actually have to go up to a Class A. And for most of the buildings that we see, it will require actually an action to take place on the building facade because the buildings are not insulated at all. So we don't have those numbers yet. But I think, as I said, this will be the red thread over the next year, and we'll come back with more information as it progresses.
Okay. Thank you very much.
Our next question comes from the line of Cedar Ekblom from Morgan Stanley. Please go ahead. Your line is open.
Thanks very much. I've got two questions on the taxonomy. These might be a little bit difficult to answer because I appreciate that the rules are still maturing, as you said. The first question is, the products that you produce that you believe are going to be taxonomy eligible are produced in facilities which are CO2 emitting. Have you had any discussions with the relevant regulators to try and understand how those two competing interests as it relates to climate change would actually work under the taxonomy?
Then the other question is, have you had any discussions with ESG-focused investors that are invested in your stock in terms of how they are thinking the taxonomy could affect sort of access to capital for companies that have good taxonomy credentials and those that don't? I don't know if those questions are too hard to answer based on where we are in this process. Thank you.
I think they're very interesting questions, Cedar. I mean, let's take the first question because I think the first question is alluding to this Do No Significant Harm criteria. So based on the criteria today, there are certain product categories that are taxonomy eligible. And then you have this Do No Significant Harm criteria, which means that those products can potentially fall out of the taxonomy eligibility categorization if they're defined as being doing significant harm.
Our understanding is that there are no clear guidance around this definition. But we feel confident that once those rules are set, that we will be able to fulfill them. We don't see any challenges with that. You mentioned the fact that we're emitting CO2 emissions when we're producing our products. Of course, at the same time, we're saving over 100 times the amount of CO2 emissions from the products that we're producing. I don't see an issue with that. We, of course, have to wait to see the final guidance from the EU, which I believe they're working on still now. You probably know more about that than we do.
I can maybe say, Anthony, that the sort of construction product regulation does have the scheme to analyze the life cycle assessment of a product.
So I think it's covered in a different area where they're looking at life cycle assessment and then the environmental performance declarations that look at the sort of end-of-life use of a product, etc., where all of the cradle-to-grave emissions of the products are considered. So I think that they are regulated and they are taken into account, but not in particular within the taxonomy eligibility, which is focused on the product itself.
Absolutely. I think it's a very good point because you could say that sometimes there can be a tendency to narrowly focus on the emissions coming from the manufacturing phase. But you, of course, need to look at the whole life cycle to get that good understanding of actually what that carbon impact of producing those products is.
And then your second question was relating to, I think, if I interpret it correctly, how taxonomy eligibility can influence ESG funds and what stocks they include in their portfolios going forward. Is that correctly understood?
Correlated to that, but also just have you had any real-world discussion? So we can obviously hypothesize what this may or may not do, which is an interesting discussion in itself. But have you had any interactions with any ESG funds invested in your stock where they've actually said, "We are looking at the taxonomy. We are thinking about how this could direct investment"? It's just quite difficult to understand what the impact of the taxonomy could actually be at its early days. So maybe it's too difficult a question to actually answer yet.
I mean, of course, we're talking with many different actors in the field to try to understand this landscape because it's dynamic and it's moving. But so far, we haven't had those specific questions around taxonomy eligibility.
Perfect. Okay. Thanks so much. I remind you that if you want to ask a question, you will have to press 01 on your telephone keypad. Our next question comes from the line of Josefin Johansson from Handelsbanken Capital Markets.
Yes. Hello. Thank you for a good presentation. My first question relates to taxonomy again. Just when you say taxonomy eligible, do you mean that your products are in the taxonomy, or do you also mean that they are actually aligned with the criteria that are currently set in the draft that we have right now of the taxonomy? And then my second question relates to the emissions trading system.
You said that you haven't had to buy any emission rights so far. But given that the amount of reallocation is going to be reduced each year and they increase that rate as well, do you think that you will have to buy them in the coming future? And do you have any estimates of how that would impact your business? Thank you.
Yeah. So if we take the first question about taxonomy eligibility, as you may be aware of, within the climate change category, there are clear thresholds for different product types to what extent they meet the taxonomy eligibility requirements. And as we talked about earlier, our insulation products, there are clear thresholds defined in the technical guidance document from the EU. And based on those thresholds, our calculation is that the vast majority of our insulation products are taxonomy eligible.
Okay.
They would be aligned
with the taxonomy?
Yeah. Just because eligibility to me is just that you include it and then alignment is if you're actually proving to be meeting that threshold. But thank you. That clarifies that.
I think the question is, do we meet the requirements?
The answer is yes. The answer is yes. Just a comment from me here, speaking on the whole vocabulary, taxonomy eligibility, it's a little bit weird. But that means that we meet it. And taxonomy can mean a lot of other things in biology and botany, but here it means a good thing. So it's a new vocabulary to learn that we all have started to learn now. But this means the products are good to go and meet the requirements. Yes. Absolutely. Is that a clear answer for you?
Yeah. And then also, have you reviewed the taxonomy? Yes.
I got your question. Your question is to what extent we will be impacted financially in the period 2020- 2030? In other words, will we be running out of allowances in that period of time? First of all, it's important to say that the mineral sector has been defined as having a carbon leakage risk. That automatically means that we are allocated far more free allowances than we would otherwise have been allocated. The second thing to remember is that we are decarbonizing. Because we're decarbonizing, we're reducing our CO2 emission, which means that we also need less allowances. Then there are more technical parameters that influence our allocation. For example, the EU is currently finalizing the mineral benchmark. In other words, the 10% most efficient plants in the sector. That benchmark will also influence the allocation.
But based on our assessment, based on our current stock of allowances, then our assessment is that we will not be impacted short-term or medium-term by the current EU ETS s ystem.
Okay. Thank you.
That answer your question?
Yes, it did. Thank you.
Our next question comes from the line of Sitang Ouyang from Oldfield. Please go ahead. Your line is open.
Hello. Hi. Good morning. Thank you for taking my question. So my first question is on the financing for small residential and renovation projects. I understand that before there was this application for a fund called Renovation Resilience Fund on the EU level, but it wasn't mentioned in the draft of the Commission's Renovation Wave document. So I'm just wondering, on the ground, what are you seeing? What is the lobbying process at the moment?
What is going to happen for this centralized fund to actually cancel the financing problem for smaller renovation projects?
Yeah, so I think that our activity and our communication in the markets doesn't really change, but I think that, as I was mentioning, the fund is a European fund, but it's distributed to the member states, and then the member states will actually be responsible for how and what is allocated to renovation and how that's going to be spread on the market. Right now, as I was mentioning, what we sort of lobby and position for is that if you have a greenhouse gas emissions target, then we would hope to see that the amount of money that is ring-fenced towards renovation is equal to the share of the emissions that it produces.
What we're saying is if a third of all emissions in the EU market are from buildings, then a third of the funds should go to renovation. Of course, we see very large amounts of money going to the member states. Right now, apart from France, which has declared specifically, "We are going to give 7 billion EUR to renovation," we don't have that detailed. Right now, our position is trying to understand exactly how much is going to be dedicated to renovation. Here again, where we talk about the challenges that Jens was mentioning, there are a lot of projects, a lot of stakeholders, but also a lot of need to renovate buildings. Of course, it's more complex because you're not dealing with one large infrastructure project. Our expectation is that public buildings will move faster.
But we hope to see that the member states will come up with schemes that allow the finances to reach also the smaller communities and the smaller SMEs that are working within construction. But we don't have those details yet.
All right. Great. That's clear. Thanks. And then my second question is on the other challenge you were mentioning before is the quality of the renovation work. So I'm just wondering, on Rockwool side, do you have any schemes or is there planning to actually help train the construction workers to make sure that, for example, when it comes to external wall renovation, the work is carried out properly and with good quality?
Yeah. So we do actually have a lot of online programs and schemes where we try to upskill the workforce. We have installation videos.
We actually also give in many countries. We are hosting webinars where we then give certificates. Again, it's different market to market. In sort of Denmark, we have a company called BetterHome that actually certifies construction companies. So it's a third-party validation and thereby not a Rockwool validation because we don't necessarily go out and validate the construction companies ourselves, but rather have third companies do it on sort of behalf of the industry. But of course, we do see it's an issue. But by having schemes that are government-managed and that require documentation sent in for achieving the energy efficiency target, then we tend to see that the companies that are able to deliver are the ones that are already holding those certifications. So we hope to see that continue, that the schemes will require that the workforce are skilled.
But there is a lack of skilled workers in the market. That's for sure. Craftsmen has been sort of a fading industry for a lot of the market. And that's why we're enthusiastic about the fact you would have heard Ursula von der Leyen mention this sort of international Bauhaus where we can upskill construction workers, architects who share ideas, and this whole sort of design and construction innovation center, which is both in the very high level from the design concept all the way to actually upskilling the workforce.
And this is of some interest because there is a limit to how many people we need in the offices that work with what we do today. Artificial intelligence come on.
And this can actually give a push where people get, again, a new kind of runway for doing these types of work because there's many, many years for this has to happen. So we could hope that some people now will not take a bachelor of economics where many of those jobs can be replaced. Instead, they go for something in this field, and they will have a very good career. I see.
All right. Great. Thank you.
Our next question comes from the line of Frans Høyer from Handelsbanken. Please go ahead. Your line is open.
Thank you very much. I'm trying to get a grip on what your sense of the impact of this on Rockwool's revenues in 2021 and 2022 might be. If we look at the EUR 700 million for renovation, how much of that would actually filter through to insulation material at exact prices?
And the second question there would be around stone wool and its competitiveness in renovation versus the other types of products out there.
So Frans, Jens, I have to disappoint you on that. I mean, first of all, at the moment, we don't know much about how it will be allocated. Something will be allocated, and you don't reach the goal without insulating the wall. Physics makes sure that so there will be amounts of money going into renovation where you insulate. We don't guide for 2021 at all yet. We typically do that in February. We are just getting through this year. And what are the factors we see? And I did speak about that on the last analyst call. First of all, we see kind of this K-shaped recovery, rich people getting richer, and then certain segments getting really poorer. You have airlines, restaurants, a lot of services.
It's really suffering, so we see this, and what the mix in terms of depression on the overall economy that would give, but our assumption is that underlying you will not recover 2019 level next year in the overall economy because there are such large groups that for such long time they're speeding up, so that's the fundamental, and then we have the counterbalance of this one where the speed of it, we are not too worried about that it will happen because it's such an enormous amount of money, and to meet the 55% goal, even a lower goal, we know that's something we've done, and we have some indicator countries like Italy and France that have done really good work in this area already, so we are confident about that, but then the timing, what quarter, what year? A, we don't guide in that period now.
But B, it's still very fluid. But it's, of course, good for our industry. In terms of competitiveness, there, I think stone wool is going to do pretty well in many ways because we are on track to reducing the CO2 per ton stone wool. And if you produce a ton of stone wool now, it's, of course, heavier. It's already on a 10 CO2 per ton compared to plastic foam. I have a circular product. I have a product that doesn't lose in performance over the years. So provided the quality of this renovation is kept up and you look into circularity and the CO2 footprint that is improving all the time for us, you might have seen in the sustainability report the massive reductions we've done in Denmark, both per ton and total emissions.
After Christmas now, we will declare how far we're actually going to take it in Denmark. It's very far. I think stonewool will do really, really well in comparison. I'm convinced of that. I'm not worried about that we will not have a fair share in the renovation. Then are we doing a lot better than the others or the same or a little bit worse? I will say we do at least the same or better.
That's helpful. Thank you very much, Jens.
Our next question comes from the line of Christian Jensen from Danske Bank. Please go ahead. Your line is open.
Yes, thank you. I'm just curious if you've made the calculation in terms of how much the skilled labor workforce will have to increase if the renovation rate doubles or triples. Yeah.
No, we sort of have average numbers across Europe, but we haven't made the precise calculation, and of course, it differs very much from market to market, but that's a very good point, but we haven't made that specific calculation,
but let's say like this. We have a very accurate or very accurate average by country. How many jobs a million investor generates? Do you remember the number on average? What's it? I can't remember the number. 10 jobs a million.
No, it's 18, I think. We're close.
18. It's an average, but it varies by country due to productivity, but then the other aspect is that you have the new build, and in the choice between new build and renovation, we have seen that contractors like to do new build. They are more free to roam.
And then you have a potential that has never happened, but potential productivity improvement on the new build by doing more prefab off-site modular construction that you bring to site. But so far, the new build productivity has really never improved. So the equation will be we know roughly by country how many new jobs are generated per $1 million invested in an average renovation. And then it's a question on the new building permits, how many people will be busy there. And then long shot, I mean, it hasn't happened in the last 30 years, that you will see a productivity improvement on the new build. People have had hopes for that with BIM and this and that. And I will say my best bet for productivity improvement on that side would be prefab off-site. So that's the equation. But we haven't done it.
So I think we might get smarter on that when we know that there's certain countries will get these many billions into renovation, roughly into these segments, how many jobs are needed. And then we can go back and check how bad will the constraint be on the labor side.
But obviously, what I'm asking you is, is it even realistic to triple the renovation rate? I mean, wouldn't labor be such a bottleneck that it will take a long time to even get close to a tripling?
I think it's a valid concern. So the EU said up to at least double. But it's a calculation towards the target that would say it would need to be at least three times as much. But you're right. It is a concern. And it is something that we are looking into.
But I also believe that with the current situation in the market, then we maybe see a new sort of flux of people looking for different types of employment.
Sure. Sure. All right. Great. Thank you.
Our last question is a follow-up question from Lauritz Keergaard from ABD. Please go ahead. Your line is open.
Thank you very much. I just had one follow-up question here.
Anthony, when you mentioned on page seven in your slides about the recycling, which we've previously discussed in one of your ESG calls, and I know this is on the top of agenda for Jens also, could you talk about just the recycling aspect from your end user's perspective, how Rockwool is working on more recycling once the product has been installed and it's at the end of its life cycle, how to recycle it back into the system, how you're working with that, please?
Absolutely. So I mean, number one is our material is inherently recyclable. So that's a cool start, right? And as a result of that, we set the goal, as we have talked about previously, to increase the amount of take-back systems that we have to 30 countries. So offering that service in 30 countries. And we're up to 11 now.
Our interim goal was 15 in 2022. So we're bringing new countries on board all the time. And of course, when we're offering this service, we're interested in getting more volumes back. And that's coming both from construction sites, and it's coming from renovation sites, and it's coming from demolition sites. And just adding to the points that Jens made earlier, it's extremely important that we're able to offer this service because there is a concern from the commission that because we're going to double or triple the renovation rate, that suddenly we're generating a lot of waste in connection with that renovation. And the fact that we can offer a service where we're able to recycle, then that's a positive. But as you know, we've been offering this service, and we've been taking wool back in a number of countries. We've had it in Denmark since 2011.
We're expanding our service in Germany and Holland in the next couple of years. And of course, we're pushing to increase volumes coming back. But at the same time, there needs to be conducive regulations and a legislative framework that supports that. I mean, we still have challenges in some countries where the landfill prices are low, and therefore there's no incentive to use our service. There can also be problems in crossing borders, getting this waste across borders. But I think the commission is listening because they can see that helping to facilitate the recycling of material such as our own, that will benefit the whole economy and also have that decarbonizing effect.
Is that number of how much stonewool has been recycled into your products being made today and how much it was 10 years ago and how much you expect it to be in 10 years?
I mean, at the moment, we're talking around 160,000 tons of stonewool that is being recycled. That's currently the number, and that increased. I can't remember the number. It's around 20% compared to the previous year, so it's increasing, and of course, we're interested in that trajectory continuing,
but it's important to say in that context also that we are already of the stonewool we have today, about 26% of the weight is waste flows from other industries today, so once you have kind of gone through the pain of being able to bring non-virgin material in, you basically have an incineration license, you could say. We are already up to a quarter of all the material we use are materials we recycle for others, so it's already quite a big amount.
Did you say it was 20% up from last year, Anthony? Yeah, so there's two numbers there.
So the number that Jens came with, that's the annual average recycled content that we have in our material. Obviously, that varies according to which geography it is. And then in terms of the improvement we have had in terms of recycling our own stonewool from the market, I can't remember the figure, but it's around 20% improvement compared to the year before. We have it in the sustainability report.
Okay. Thank you very much.
Ladies and gentlemen, we will now close the Q&A session. I will ow turn over to your hosts for any final remarks. Please begin.
I maybe just want to make one final. Thanks for your time. It's really good questions. It's very good for us if some of you give your feedback, Frans and Mirella, if there are specific focus areas.
Don't hesitate to drop an email so that we put these on the right topics. And in some of these topics, we might be moving too fast. For example, this taxonomy aspect, it takes a while to understand. I don't understand all of it yet, but we want two elements of this. Obviously, show our direction, but we also want to add a little bit of value for some of you that we maybe throw some light on some areas where we have people like Anthony working all the time. So don't be afraid of giving some feedback on where you want more focus. Otherwise, of course, we have an agenda. We will come up with topics without the feedback, but we appreciate some feedback.
Okay. So we haven't set the topic yet for the next call. So you're welcome to contact us and give us some input. Yeah.
So thanks a lot, everyone. Thank you. Have a good weekend.