ESRS E5: Resource Use and Circular Economy

Impacts, Risks, and Opportunities

¹ Time horizon broken down into short-term (S), medium-term (M), and long-term (L).

² Location within the value chain divided into upstream value chain (1), own operations (2), and downstream value chain (3).
For further information, please refer to “Impact, Risk and Opportunity Management.”
For further information, please refer to “Strategy – Interests and Views of Stakeholders.”

Policies and Actions

Our intention is to return products and materials to the value cycle at the end of their life cycle – as a whole, in the form of polymers, or in molecular or other chemical forms. The use of other renewable carbon sources and the intended full transition to regenerative production methods, e.g., with the aid of renewable energy, are complementary steps by Covestro to achieve an entirely circular economy in the future and, on this basis, the company’s climate neutrality.

Looking forward, Covestro’s long-term focus on the circular economy, i.e., consistent with the long-term Scope 3 target for the year 2050, is to be underpinned by specific policies. These are in the process of development and consolidation in order to achieve a specific exit from the use of primary raw materials and transition to sustainable procurement. Material aspects of this approach are already being addressed indirectly via the ESRS E1 policies, especially via action E1 “Reduction of Suppliers’ Scope 1 and Scope 2 Emissions.”

In the short term, Covestro does not anticipate any significant additional operating costs in the transformation to the circular economy. By the year 2035, we will invest approx. €600 million in our own recycling and bio-based technologies. It is still necessary to evaluate additional operating costs and investments in the short and medium term. At present, it is difficult to quantify these investments because of the still high degree of uncertainty regarding the maturity of technologies, regulations, and customer requirements. The investments required are an integral part of resource and allocation planning and dedicated to specific projects.

For further information, please refer to “ESRS E1: Climate Change – Transition Plan for Climate Change Mitigation.”

For further information, including on expenses in the reporting year, see “ESRS E1: Climate Change – MAKE Projects.”

Covestro intends to revise its sustainability targets in the years ahead. This will also include our ambition relating to the circular economy.

In addition, Covestro has been promoting the circular economy through targeted actions for many years. These actions are aimed at reducing fossil resource inflows and outflows as well as production waste in order to cut the overall use of primary raw materials within the entire value chain. The actions described below make a contribution.

Use of Alternative Raw Materials

As a resource-intensive company, we believe that addressing the issue of raw material procurement is an important factor in achieving a steady increase in the use of alternative raw materials compared with the use of fossil-based primary raw materials. This is why alternative raw materials are an essential pillar of our Sustainable Future strategy. We firstly want to produce these raw materials in our own innovative processes and secondly drive their use by pursuing a procurement strategy focused on circular raw materials.

Increasing the Recyclability of our Materials

Our core technical competence is the development and application of complex chemical procedures and processes. In particular, we want to use this expertise to establish innovative chemical and biochemical recycling and production processes for a circular economy. We want to establish specific processes that will allow us to focus on producing from plastic waste the raw materials that Covestro requires. The use of these recycled raw materials in our production processes will lead to products with a lower carbon footprint and increase the recycling rate (increasing the recyclability of our materials). In addition, we also want to use raw materials that were recycled in upstream stages of the value chain. To this end, we use ISCC PLUS-certified raw materials and intermediates. On the whole, chemical recycling processes are an important tool to help Covestro in gradually replacing the use of fossil-based materials and in closing carbon loops. We therefore want to use the circular economy and our climate targets as a way to reduce the environmental footprint of our product portfolio and make it climate-neutral. These processes will be verified continuously by means of a life cycle assessment (LCA), in other words, taking into account effects and contributions throughout the entire life cycle.

Covestro is currently researching recycling processes for its own products and materials in more than 20 projects. Of particular importance for Covestro are processes with which materials can be chemically or enzymatically transformed back into their molecules. The secondary raw materials obtained in this manner are of a comparable quality and have properties similar to conventionally manufactured raw materials, and can therefore be reused to manufacture products and materials.

For further information, please refer to “Sustainable Solutions.”

Market Design for Circular Products

With the Circular Intelligence (CQ) label for specific solutions, we are laying the foundation for a clearly identifiable circular portfolio for the market design for circular products. An important lever we have observed in this regard is the constantly changing regulatory environment, which is leading to higher minimum recycled content in various plastics applications and will be among the factors influencing our circular strategy.

For further information, please refer to “Sustainable Solutions.”

The CQ concept offers the potential for comprehensive implementation throughout Covestro’s entire product portfolio. This would allow it to offer all core products under the CQ label. The concept is used in selected MDI and polycarbonate products at present.

For further information, please refer to: www.covestro.com/en/sustainability/what-drives-us/circular-economy/circular-intelligence

In R&D projects as well as in collaborations, we cooperate closely with recycling companies for generating raw materials to develop the recyclate market and the corresponding availability of raw materials; we integrate experience gathered in this market environment into the product design in customer projects and into appropriate guidelines in the “Design for Recycling.”

For further information, please refer to “Innovation – Strategic Partnerships and Collaborations.”

For further information, please refer to: www.covestro.com/en/sustainability/what-drives-us/circular-economy/innovative-recycling/innovators-for-recycling

Efficient and Safe Handling of Waste

Hazardous and non-hazardous waste is primarily attributable to the use of materials in our production. Where possible, we try to keep our impacts on the environment and society to a minimum. For this reason, and under economic considerations, we endeavor to apply a maximum of efficiency when it comes to the use of materials in our production processes around the world. We observe and evaluate our manufacturing processes on an ongoing basis to minimize material consumption and disposal volumes and reuse materials internally wherever possible. If waste cannot be avoided, reused, or recycled in an economically expedient way, we make a point in our waste management of applying safe disposal methods, separated by type of waste. Some of the waste created by our production processes with a high heating value is burned as fuel to generate steam for our production facilities. There may also be cases where local regulations require us to take waste to landfill. Production fluctuations, building demolition and refurbishment, and land remediation can also influence waste volumes and recycling paths.

These and other rules for handling waste are addressed as part of Covestro’s integrated management system and are therefore subject to Group-wide minimum requirements that also exceed local provisions.

For further information on the integrated management system, please refer to “ESRS E2: Pollution.”

As part of Covestro’s internal Waste to Value initiative, we aim to achieve greater transparency in respect of our waste streams and to collect and share ideas for their improved use. The findings from the initiative are intended to help in the assessment and continuous improvement of recovery and disposal options in order to ensure the responsible handling of waste.

Targets

Efforts toward building a circular economy in the company can be measured by verifying the degree to which we can replace fossil sources of carbon for production with alternative raw materials and produce renewable inorganic compounds to run each of them in loops. This also entails sales of solutions that qualify as circular in the marketplace. We are therefore working to develop suitable targets for Covestro that will increase performance in all areas that are key to the circular economy and will in the long term lead to an absolute reduction in the use of primary raw materials.

Covestro intends to revise its sustainability targets in the years ahead. This will also include our ambition relating to the circular economy.

Moreover, the targets set in the area of climate change mitigation contribute indirectly to the circular economy, e.g., by opting to procure alternative raw materials in order also to reduce Scope 3 emissions.

Metrics

Resource Inflows

Further information on the procurement of raw materials can be found in “Procurement.” Covestro drives the procurement of alternative raw materials. In the reporting year, the inflows of resources used as alternative raw materials within the meaning of the ESRS were analyzed. The resource inflows are managed in our ERP system for this purpose. This allows them to be captured and analyzed with the help of a product life cycle-related system. Mass-based flows are recorded in this process. Technical goods and services are not material and not included. This process involves the use of the following two categories, “biological materials” and “reusable and recycled materials.”

Resource Outflows (Products and Waste)

Covestro analyzed its products with regard to recyclability in the reporting year. We follow a conservative approach by focusing on mechanical recyclability. Products that could be melted down and repelleted or reintegrated into the production process at Covestro’s outlets are considered theoretically mechanically recyclable. The recyclable product portfolio accounted for 15.0% of total resource outflows. If you consider the core business, mechanically recyclable products made up 28.4% of the product portfolio attributable to the core business.

For further information on the core business, please refer to “Company Profile – Business Model.”

We record our waste figures to include all consolidated companies. All nonconsolidated companies in the scope of consolidation were considered in accordance with the rights and obligations of the Covestro Group. Since these metrics are calculated only at the end of the year, they include the group of companies consolidated as it stands at year-end. In this process, we incorporate data from all environmentally relevant Covestro sites, i.e., all production sites and relevant administrative sites. As a rule, the data for waste volumes are measured data. In order to meet the disclosure deadlines, the sites estimate the environmental data for the last weeks of the current fiscal year using established extrapolation methods (e.g., on the basis of operations planning, averages, or data from the prior-year months) to ensure that data reporting is as precise as possible and close to the actual values for the year. If, however, in the course of the following year, we become aware of material deviations based on internally defined thresholds, the figures in question are corrected retroactively. As the data has been recorded for the first time in accordance with the new provisions of the ESRS, it is not possible to draw a comparison with the previous year.

In nearly all countries, the law also stipulates exhaustive reporting on waste volumes and waste streams, a requirement complied with accordingly by Covestro’s sites. In Germany, for example, there are waste-tracking procedures between the source of the waste and its disposal that enable end-to-end traceability of the waste flows. We continue in our aim to keep comparable the waste volumes generated at our sites around the world, but due to local legislation, this is not always possible. In particular the identification and disposal of hazardous waste is subject to local definitions and regulations. It is not possible at present to record all waste volumes in accordance with EU legislation. Around 40% of the total waste volume is currently attributable to sites within the EU, of which 64% is classified as hazardous waste under EU legislation. For the non-EU sites, we estimated the proportion of hazardous waste at 72% of the total waste volume generated outside Europe. The estimate was based on the definitions in local legislation, which we had analyzed to identify major differences to EU legislation; we did not identify any need to make adjustments in this process.

Covestro generates waste mainly in production, for example TDI or BPA residue. In addition, Covestro also produces waste in demolition and construction projects. The volume of this waste can vary widely from year to year. Since we also operate waste water treatment plants, waste is also produced here.

Overall, the composition of waste materials is very diverse.

In the reporting year, the volume of hazardous waste amounted to 177 kt. A total of 74 kt of waste did not undergo any recycling process; this represents a percentage of non-recycled waste of 29%.

¹ A variance between the volume of waste generated and waste disposed of may arise due to the different times the waste is generated or disposed of and any resulting internal temporary storage.

Anticipated financial effects

ESRS E5 Resource Use and Circular Economy in principle also provides for qualitative and quantitative disclosures on anticipated financial effects of material risks and opportunities in connection with resource use and circular economy. In accordance with ESRS 1 Appendix C, Covestro applies the phased-in disclosure requirements in the first year of preparing the Group Sustainability Statement. According to this expedient, the disclosures specified may be omitted in the first year.