IRO-1 – Description of the process to identify and assess material impacts, risks, and opportunities

METHODOLOGICAL FRAMEWORK

In 2024, voestalpine identified its material sustainability aspects using the double materiality assessment. voestalpine’s double materiality assessment was carried out in accordance with the methods and steps described in the European Sustainability Reporting Standards (ESRS). In accordance with the principle of double materiality, two perspectives are taken into account in order to systematically record the interactions between the company and its environment:

Impact materiality (inside-out perspective): This perspective looks at the direct and indirect impacts of business activities on people and the environment. It examines the extent to which corporate practices affect people’s well-being, social developments, or nature.

Financial materiality (outside-in perspective): This perspective looks at financial risks and opportunities that may arise from the company’s impacts (e.g., through environmental damage in the upstream value chain) or from dependencies on external factors (such as an increase in water stress at production sites). Financial materiality thus describes how environmental, social, and governance aspects influence a company’s economic performance and stability.

Materiality assessment

The results of the materiality assessment form the basis for the quantitative and qualitative disclosures required in the sustainability report. At the same time, they support strategic planning and operational alignment in relation to the environment, social affairs, and corporate governance.

The double materiality assessment process, which voestalpine carried out for the first time in the business year 2023/24, comprises seven consecutive steps and is in line with ESRS requirements. The process was documented, coordinated internally, and reviewed externally.

Materiality assessment process

The plan is to carry out the entire materiality assessment process every five years moving forward. If there are significant changes within the Group, an early update will take place. Irrespective of this, an annual review will be conducted to determine whether the identified material IROs are still relevant or whether adjustments to the reporting requirements and datapoints are necessary in the sustainability report.

The organizational scope has been specified for the Group’s own business activities in order to identify whether an IRO affects individual business units or the entire Group. No additional material impacts were identified for companies that are not fully consolidated. Due to their financial immateriality, these companies were excluded as sources of material risks or opportunities. Accordingly, the IROs and KPIs in the CSRD report that relate to the company’s own value creation refer to the same scope of consolidation as the financial reporting. If material IROs are identified for these entities in the future, they will be included in the scope of the report.

This does not pertain to specific datapoints that involve non-controlled companies, such as Scope 3 emissions, in accordance with EFRAG IG 2 Value Chain.

Identification of impacts, risks, and opportunities

At the beginning of the process, the corporate context was analyzed. This included a review of business activities, business relationships, upstream and downstream value chains, and affected stakeholders in order to identify the relevant sustainability aspects.

To identify impacts, risks, and opportunities (IROs), voestalpine used, among other things, the list of sustainability aspects defined in ESRSs. All aspects were systematically reviewed to determine whether they are linked to IROs in voestalpine’s own value chain or in the upstream and downstream value chains. Consideration was given to whether risks and opportunities arise from the company’s impacts or dependencies. No priorities were set at this stage.

International corporate due diligence instruments and recognized reporting standards, in particular ESRSs, ISSB standards, and other requirements in accordance with EFRAG implementation guidelines, served as the methodological basis for determining IROs. In addition, publicly available risk lists for transition and physical climate risks were taken into account.

External data sources such as academic studies, market research, and the results of stakeholder surveys were used to substantiate the content.

Stakeholder engagement

The stakeholders involved were selected by the project core team. Prior to this, a discussion was held with voestalpine stakeholder management experts. Based on this, the stakeholders who could potentially be involved were assessed in a workshop in terms of their importance and accessibility. Importance was measured by the level of interest of a stakeholder group in the sustainable development of voestalpine, and the extent of its influence on the company. The importance rating was crucial in determining whether a stakeholder group should be involved, and the accessibility rating determined how this should be achieved.

In order to define the interaction methodology for each stakeholder group, the groups were categorized according to their accessibility. Stakeholder engagement was conducted in two different ways: Through face-to-face interviews and a large-scale anonymous online survey. Both methods have their advantages, which were united by means of their combined application. The online survey reached many people and thus achieved a high level of representation and statistical validity for the evaluation. Various aspects were discussed in detail in interviews with individual stakeholders and their representatives, with a deeper understanding gained of their perspectives and concerns.

In addition, internal information was incorporated, in particular existing risk matrices from the departments and internal company reports.

In the further course of the materiality assessment, an assessment was obtained from stakeholders.

A total of 130 internal and external stakeholders, divided into employee representatives, suppliers, customers, shareholders, investors, and governmental and non-governmental organizations, were included in the assessment.

Assessment of IROs

All identified IROs were assessed in several workshops using the criteria set out in ESRS 1 and the EFRAG implementation guidance for the materiality assessment, as explained below. All relevant internal experts were involved in the assessment process.

Assessment approach for positive and negative impacts:

The severity of positive and negative impacts was evaluated on the basis of specific assessment criteria. The first step was to determine the severity of an impact. This was decided based on the extent of the impact, the scope of the areas or people affected, and irreversibility in the case of negative impacts.

The severity describes the extent of the damage or benefit that an impact has or may have on people and the environment, including irreversible damage and long-term adverse effects on the people or ecosystems involved. In the case of potential impacts, the likelihood of occurrence was also included in the assessment. Likelihood of occurrence is calculated on the basis of historical data, current trends, and scientific forecasts.

For potential human rights-related impacts, the severity of the impacts took precedence over their likelihood of occurrence.

Assessment approach for risks and opportunities:

The materiality of risks and opportunities was also determined using specific assessment criteria. The starting point was the potential extent of the financial impact, which was multiplied by the likelihood of occurrence.

Determination of reporting requirements based on material IROs

Once the IROs were identified and assessed, the sustainability topics material to this sustainability report were classified. To this end, thresholds for the materiality of IROs were defined. IROs that reached or exceeded the defined threshold of 2 (out of 3) were classified as material.

In addition, sustainability aspects were classified as material if they were assessed as relevant by stakeholders or had at least one assigned negative impact with human rights relevance.

Embedding the materiality assessment in governance and Group processes

All decisions within the scope of the materiality assessment were made by consensus in the core team on the basis of the assessments described. A specialized external consulting firm supported the process, ensured compliance with ESRS requirements, and made sure that decisions were based on factual and objective grounds. The final results of the materiality assessment were presented and approved at a Sustainability Board meeting.

The process for identifying, assessing, and managing impacts and risks is aligned with voestalpine’s Group-wide risk management. Group Sustainability and the Internal Audit and Risk Management department work together in this regard: Sustainability risks identified in the materiality assessment are then analyzed by Risk Management in accordance with Group-wide assessment criteria and on an equal footing with other business risks. The results of these assessments are incorporated into the Group risk profile and form the basis for deriving targeted measures to mitigate risks.

Material opportunities identified in the materiality assessment are also incorporated in existing voestalpine management processes—in particular in strategic corporate planning and innovation management. The aim is to systematically exploit these opportunities—for example, by tapping into new market potential, developing sustainable products, or introducing measures to strengthen competitiveness in the long term.

IRO-1 – E1 CLIMATE CHANGE

voestalpine has implemented the following procedures to identify and assess significant climate-related impacts, risks, and opportunities:

Identification of material climate impacts

voestalpine’s activities and plans were reviewed as part of the materiality assessment to identify actual and potential future sources of greenhouse gas emissions and, where applicable, causes of other climate-related impacts by calculating the greenhouse gas footprint for Scope 1, 2 and 3 emissions. Further information on GHG accounting can be found under E1-6.

Due to the energy- and GHG-intensive nature of its activities, the actual material negative impacts of GHG emissions (Scope 1, 2, 3) and direct energy use were identified.

Procedure for identifying and assessing material climate-related risks and opportunities for voestalpine

voestalpine has identified its material climate-related risks and opportunities as part of climate-related scenario analyses. These are described in detail in section ESRS 2 SBM-3 of the General information and are divided into physical and transition climate risks.

The physical climate risks were analyzed on a site-specific basis, while the transition climate risks cover the decarbonization of the entire steel production process. The risks identified in both categories are incorporated into the resilience analysis, which assesses the company’s resilience to these climate-related risks and opportunities.

The risk analyses are initially carried out on a gross basis, i.e., the risks and opportunities are considered in their natural form, namely in the form in which they could affect the business without taking countermeasures into account. The net view is then analyzed, in which the risks and opportunities are reassessed after countermeasures have been implemented. Based on these two aspects, the company’s resilience to climate-related risks and opportunities is determined.

The climate scenarios used in the analyses are consistent with the critical climate-related assumptions in the financial statements (see also B.2. Discretionary decisions and estimation uncertainties for further details).

Physical climate risk analysis

For the physical scenario analysis, which was carried out as part of the EU Taxonomy, various climate scenarios from a simulation-based solution were used. The analysis covered key locations with an asset value of over EUR 10 million, as well as strategic hubs within own operations. This corresponds to coverage of approximately 90% of revenue and 114 locations. The upstream and downstream value chains were not included in the analysis. However, due to the high diversification of suppliers and customer segments, no significant physical climate risks are expected in these areas.

The scenario analysis for physical climate risks was carried out in three steps: First, the risks were identified, then the scenarios were calculated, and finally, adaptation solutions were evaluated and assessed. Risk identification includes the assessment of economic activity and a climate risk assessment to determine which physical climate risks could affect economic activity. The scenario calculation involves physical climate risk assessment based on the latest climate projections and future scenarios in order to analyze the risks in relation to the activity and its lifetime. When determining adaptation solutions, solutions that can reduce physical climate risk are evaluated.

The short and medium-term physical vulnerabilities associated with climate change from natural hazards—such as flooding or low water levels, snow load, drought, storms and strong winds, or temperature fluctuations—were identified and reported as part of the implementation of the EU Taxonomy Regulation. Using a simulation-based solution for identifying, quantifying, and disclosing physical climate risks, detailed climate risk analyses were developed for all relevant operating sites. Physical climate risks were identified, quantified based on the variable likelihood of occurrence, scope, and duration of the risk, and subsequently documented. The methods were based on the representative concentration pathways used by the Intergovernmental Panel on Climate Change (IPCC): RCP 8.5 (=4.8°C warming by 2100), RCP 6.0 (=3 to 4°C by 2100), RCP 4.5 (= 2.6°C by 2100), and RCP 2.6 (= below 2°C target) of the future scenarios, as well as status reports on climate change from the IPCC and key Copernicus services of the European Commission. Heavy rainfall, flooding, and mudslides, for example, have been identified as material acute climate risks for the voestalpine Group. A chronic climate risk stems from, for example, climate-related fluctuations in river levels, which can impair navigability (e.g., on the Danube) and thus cause supply chain problems.

The physical climate risk analysis uses select scenarios to examine risks up to the year 2100. The inclusion of RCP scenarios covers short-, medium-, and long-term time horizons (in accordance with ESRS). Investment cycles in the iron and steel industry are typically long; metallurgical plants (e.g., EAFs) are often in operation for several decades. The use of the select scenarios therefore ensures that all relevant physical risks and opportunities with regard to assets and business activities are taken into account in the analysis.

Based on the results of the physical climate risk assessment, which illustrates the gross view of the risks, adaptation solutions were identified and implemented where necessary. These were defined and implemented at the level of the major sites.

In addition, the voestalpine Group also uses its management systems, such as the environmental management systems certified according to ISO 14001 or EMAS, which are widely implemented in the companies around the globe, to fulfill the DNSH criteria in the Taxonomy Regulation. These systems ensure that environmental impacts are identified and reviewed as to their relevance to a given operating site’s local environment and that any adaptation solutions aimed at impact mitigation are developed as necessary. In particular, these analyses comprise and/or take into account environmental matters such as water (sustainable use and protection of water and marine resources) and biodiversity (protection and restoration of biodiversity and ecosystems). The environmental management systems define how the respective companies can improve their environmental performance, fulfill legal and other obligations, and achieve local environmental targets. In accordance with the Plan-Do-Check-Act approach (PDCA cycle), environmental targets are defined and the necessary measures are derived and implemented:

• Plan:
  Identify and analyze problems or potential for improvement, set targets, and develop a detailed implementation plan
• Do:
  Implement necessary actions in accordance with the implementation plan
• Check:
  Monitor and evaluate the implementation results to determine whether the set targets have been achieved
• Act:
  Derive and implement further actions based on the results of the review

Transition climate risk analysis

In addition to physical climate risks, transition risks and opportunities were also analyzed to assess the resilience of voestalpine’s business model and strategy under various decarbonization pathways and regulatory developments.

The transition climate risk analysis is based on the NGFS scenarios (Network for Greening the Financial System; scenarios; Net Zero 2050 (1.5 °C), Below 2 °C, and Delayed Transition), which are recognized as suitable data sources in ESRSs. voestalpine chose these climate scenarios because they explicitly consider variables for the raw materials industry, including steel, and thus reflect voestalpine’s business model. Within the NGFS dataset, the REMIND-MAgPIE model was used, which is characterized by comprehensive integration of various datasets and detailed regional differentiation.

For the analysis of transition climate risks, voestalpine focused on the “Delayed Transition” scenario. This assumes that global annual emissions will not decrease significantly by 2030, requiring more stringent political measures to limit global warming to 2°C. This scenario was chosen because of the high relevance of the associated transition risks for the steel industry. The other NGFS scenarios are being monitored on an ongoing basis so that we can respond to changing conditions.

Key transition events that are important for the steel industry were systematically examined. These include the development of the CO₂ price, regulatory requirements, the volatility of the energy markets, changing market and customer expectations, and changes in the capital market. The impacts of these factors have been analyzed in detail, documented, and assessed in terms of their relevance to voestalpine’s business model.

The final assessment of the materiality of all identified risks and opportunities was carried out using a materiality matrix containing the aspects of scope of damage and likelihood of occurrence. This assessment was carried out in an interdisciplinary workshop by a team of experts and then validated by specialists from various divisions of the company. To determine the time frame, transition risks were divided into short, medium, and long term: less than one year as short term, one to five years as medium term, five to ten years as long term, and over ten years as very long term. In principle, all risks were assessed on a gross basis. The net assessment was only applied after the countermeasures had been implemented. As outlined in E1-1 with regard to the analysis of bound greenhouse gases, no material assets or business activities have been identified to date that would contradict the objectives of a climate neutral economy.

The materials risks and opportunities are presented and explained in chapter SBM-3 Material impacts, risks, and opportunities and their interaction with strategy and business model.

IRO-1 – E2 POLLUTION

As part of the materiality assessment, plants and sites were reviewed with regard to material air, water, and soil emissions. The focus was particularly on plants that fall under the Industrial Emissions Directive (IED) and those that are subject to reporting requirements under the European Pollutant Release and Transfer Register (E-PRTR). voestalpine has also implemented environmental management systems at production sites that either have a material environmental impact from a Group perspective or make a significant contribution to improving the Group’s overall environmental performance. These systems are described in detail under E2-1. The findings from these environmental management systems were incorporated into the assessment of significant sites and business activities.

For process-related reasons, microplastics are neither used as raw materials in the manufacturing process nor contained in voestalpine’s products. Therefore, they do not represent a material issue.

As part of the materiality assessment, affected communities were included in the stakeholder analysis (e.g., through an online survey, face-to-face interviews) while the environmental management systems were developed and implemented in consultation with authorities, technical experts, and, where appropriate, local representatives. This included identifying both the concerns and the potential impacts of voestalpine on these communities with regard to environmental pollution. Stakeholder feedback was incorporated into the assessment of material impacts, risks, and opportunities.

The following list contains the operating sites and business activities that were identified as material in relation to environmental pollution:

IRO-1 – E3 WATER AND MARINE RESOURCES

The material impacts, risks, and opportunities of voestalpine along the value chain were assessed as part of the materiality assessment, which also evaluated existing dependencies. In addition, the company reviewed its assets and business activities at significant production sites based on the findings of the environmental management systems (see IRO-1 E1 for more information), and a specially conducted water footprint and water scarcity study at key production sites.

The findings were incorporated into the assessment. At the three largest production sites in Linz, Donawitz, and Kapfenberg, it was found that significant amounts of river water are withdrawn for cooling purposes, which could have a negative impact on local ecosystems. A small number of voestalpine Group sites are located in regions affected by water stress. The associated water consumption corresponds to 2% of the total water consumption and is of secondary importance overall for the company’s own activities or the upstream and downstream value chain (see ESRS E3-4 Water consumption).

Furthermore, no areas were identified that are affected by water risks or have a direct connection to oceans or marine resources.

In addition, voestalpine maintains an ongoing dialogue on water-related issues with local residents at its major production sites in the form of personal discussions and surveys. voestalpine also works closely with advocacy groups and governmental and non-governmental organizations to ensure that the concerns of all relevant stakeholders are fully considered and incorporated into decision-making processes.

IRO-1 – E4 BIODIVERSITY AND ECOSYSTEMS

Impacts on biodiversity and ecosystems along the value chain were assessed based on the materiality assessment described in IRO-1. One potentially negative impact on ecosystems was identified in the upstream value chain, which could occur in particular in the production of key raw materials such as iron ore and coal. In addition, dependencies on biodiversity, ecosystems, and ecosystem services were analyzed. The dependency analysis was conducted and evaluated by a panel of internal experts in a series of workshops. The analysis revealed that there are no business processes or activities at relevant sites that have a direct connection to biodiversity and ecosystem services. The aim was to identify the extent to which operational processes depend on biodiversity and ecosystems. The results show that there are currently no significant business activities at the sites examined that are directly functionally dependent on specific ecosystem services or biodiversity.

voestalpine recognizes that its greenhouse gas emissions contribute to climate change, which in turn affects biodiversity. However, as this relationship is global and does not have a direct impact on specific ecosystems or local sites, it cannot be measured directly. While biodiversity loss is a local phenomenon, emissions have a global impact—therefore, the direct impact of climate change on biodiversity loss is not considered a material issue for voestalpine.

The analysis therefore did not identify any physical, transition, or systemic risks related to biodiversity. A resilience analysis with regard to biodiversity is therefore not relevant for voestalpine from the current perspective. However, risks and opportunities are reviewed regularly, and analyses are carried out if the framework conditions change.

As part of the materiality assessment, a stakeholder survey was conducted involving affected communities in the vicinity of the company’s own sites. The survey was conducted through face-to-face interviews and anonymous online surveys with the aim of identifying potential negative impacts on biodiversity. Communities along the upstream value chain were not the target group for the survey. The findings were incorporated into the identification of material topics. At this point in time, no material negative impacts on the communities involved in relation to biodiversity have been identified.

Even though no material negative impacts have been identified in its own operations, voestalpine implements activities to preserve biodiversity in accordance with legal requirements. These are based on various legal provisions, including Directive 2009/147/EC of the European Parliament and of the Council on the conservation of wild birds and Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora.

The company also conducts environmental impact assessments in accordance with Article 1(2)(g) of Directive 2011/92/EU. When operating in third countries, voestalpine complies with the relevant national regulations and international standards such as Performance Standard 6 of the International Finance Corporation (IFC) on biodiversity conservation and the sustainable management of natural resources.

In addition to the activities mentioned above in relation to its own sites, voestalpine has also introduced measures to mitigate negative impacts in the upstream value chain. Further details can be found in chapter E4-3 Actions and resources related to biodiversity and ecosystems.

IRO-1 – E5 RESOURCE USE AND CIRCULAR ECONOMY

In order to identify the impacts, risks, and opportunities associated with resource use and the circular economy along the value chain, voestalpine’s resource inflows, outflows, and waste generated were systematically analyzed and evaluated as part of the materiality assessment. Findings from the environmental management systems were taken into account, as were the recyclability of the products, the material properties of the raw materials used, and the possibilities for reuse.

Resource use and circular economy particularly affect the areas of steel production, the processing of metal products, and the recycling of residual materials. The main resources used are described in detail in E5-4 Resource inflows.

The relevant aspects of the circular economy extend across the entire value chain and include the procurement of raw materials, the return of metal-containing residues to production, and the reduction of material losses. In addition, the recycling of products at the end of their life cycle plays a central role, as voestalpine aims to keep materials in the cycle for as long as possible.

Consultations with key stakeholders were conducted as part of the stakeholder analysis in the context of the materiality assessment. Specific estimates on resource use and circular economy were collected. Feedback from affected communities and other relevant stakeholders, including customers and research institutions, was incorporated into the materiality assessment and taken into account when assessing materiality.

IRO-1 – G1 BUSINESS CONDUCT

As part of the materiality assessment, an internal and external stakeholder survey was conducted to identify the material impacts, risks, and opportunities associated with business conduct. Various criteria were applied in the materiality assessment to identify material impacts, risks, and opportunities in relation to business conduct. These include the location of economic activities, the type of activity carried out, and the corporate sector. Particular attention was paid to locations subject to increased regulatory requirements or specific compliance risks, while industry-specific regulations and market conditions were also systematically included in the assessment.