Impact, risk and opportunity management

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

This sustainability report is based on the double materiality assessment in accordance with ESRS requirements. Through this materiality assessment, we identify those sustainability topics that are most significant for our company and our stakeholders. As part of this assessment, we consider both the impacts of our operations on the environment and society (inside-out perspective) and the financial risks and opportunities caused by external influences on our business model (outside-in perspective). In this report, we discuss all topics that we have classified as material on the basis of one or both perspectives.

To identify the material sustainability topics for thyssenkrupp, we have performed a multistage assessment process, which is described below and is based on ESRS requirements. An expert team from Corporate Function Sustainability was responsible for execution and coordination.

Definition of the scope and stakeholders

The first step in the double materiality assessment was to systematically define the scope of consolidation used in financial reporting and the upstream and downstream value chain in accordance with ESRS requirements. This enabled us to be certain that the assessment covered all relevant business activities and countries, as well as our products and services. Further information on the definition of the scope of consolidation and the value chain can be found in the subsection headed “BP-1 – General basis for preparation of the sustainability report” earlier in this section. We also consulted internal information and documents such as thyssenkrupp’s annual report for the previous fiscal year, our environmental data reports, the findings of supply chain assessments, ESG benchmarking studies and our risk inventory as sources for identifying potentially material topics. In addition, we took guidance from sustainability reporting standards such as those issued by the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) and International Sustainability Standards Board (ISSB), the Sustainable Development Goals (SDGs) and the ESG ratings that are relevant for thyssenkrupp.

We then identified the material stakeholder groups for thyssenkrupp’s operations (further information can be found in the subsection headed “SBM-2 Interests and views of stakeholders” in this section). Their interests and views were considered solely by consulting internal representatives and actively involving them in the subsequent process. These are ESG specialists at group and segment level who, on the basis of their expertise and extensive dialog with the stakeholders in the course of their work for their organizational units, can take a substantiated and differentiated approach to representing the respective stakeholder’s perspectives.

Identification of impacts, risks and opportunities

In the next step, a topic list was compiled from the aforementioned information sources. This list covers all sustainability matters that must be included in the double materiality assessment in accordance with ESRS requirements, especially ESRS 2 Appendix A. The goal is to systematically identify the impacts, risks and opportunities of our operations and assess these during the subsequent process.

The expert team responsible for project management identified and defined the relevant topics and the potential impacts, risks and opportunities derived on this basis. The topic list was then discussed with the representatives of the key stakeholder groups and validated. In this way, we aimed to ensure that our extensive internal expertise was involved, the topic list was complete and the impacts, risks and opportunities derived from the list were presented consistently.

We divided the impacts, risks and opportunities into two categories: on/for society and on/for the environment. In doing so, we considered both our own operations and those in the upstream and downstream value chain, as well as the short-, medium- and long-term time horizons. We additionally considered whether the impacts and dependencies identified might trigger financial risks. A distinction was also made between positive or negative, actual or potential impacts. The assessment was based on a gross approach that did not include any assessment of company-specific mitigation or control measures. The inherent elements of the operational status quo may be included in the gross approach if they are inevitably associated with regulatory or industry-wide requirements.

Also included were findings from the groupwide process on compliance with human rights and environmental due diligence obligations (further information on this process can be found in the section headed “ESRS S2 Workers in the value chain”). These were used mainly to assess existing risks in the value chain and substantiate the relevance of the corresponding topics for the materiality assessment.

We identified the impacts, risks and opportunities for the group as a whole. Where there were significant differences between the impacts, risks and opportunities for individual segments, the corresponding topics were considered on a disaggregated basis to ensure transparent and differentiated assessment later in the process. Following assessment, we used a sales-based aggregation threshold – which we defined as 40% – to determine materiality at the group or segment level. This was aimed at ensuring that segment-specific topics were identified, assessed and reported appropriately.

Assessment of impacts, risks and opportunities

A standardized groupwide assessment methodology was defined for assessing potential impacts, risks and opportunities. The assessment of the impacts was aligned with the dimensions defined in ESRS 1. In assessing the positive impacts, the scale and scope were considered; the irremediable character was additionally included for negative impacts. Impacts were also assessed in terms of the probability of their occurrence.

A positive or negative impact at group level is classified as actual if at least one specific case – an incident or confirmed event – is known to have occurred. If there has been no confirmed case, the impact is classified as potential. In the assessment, we also focused particularly on the potential negative impacts on human rights and weighted the severity of an impact primarily against the probability of its occurrence.

The risks and opportunities were assessed in terms of their potential financial scale and the probability of their occurrence and categorized by type. In the course of analyzing the impacts, risks and opportunities, each assessment dimension was systematically ranked on a scale of 1 to 4, which in turn was underpinned by a definition.

To ensure a common understanding of the assessment process and methodology, we prepared a structured assessment guideline that was provided to all those involved in the project and explained in detail at a number of information events.

The ESG specialists at group and segment level represented the relevant stakeholder groups and adopted their views in the course of the assessment process. Their materiality assessment was based on, for example, sustainability strategies, project-specific insights and collaboration with stakeholders such as municipal administrations. As well as their specialist expertise, they also contributed their deep understanding of the organizational structures and regional requirements that influence our groupwide activities.

Aggregation and validation of materiality assessments

After concluding the identification and assessment of the impacts, risks and opportunities, the findings were consolidated to determine the double materiality of the sustainability topics. Here, we consolidated the findings of the preceding steps in the assessment. A threshold was defined for classifying the topics within the sustainability matrix. This laid the foundation for transparent and comprehensible decisions on the inclusion or exclusion of the topics. In defining the threshold, we examined the distribution of the assessed impacts, risks and opportunities across the scale and defined the materiality threshold as seven. The threshold was calculated on the basis of the aggregated assessments produced using the four-stage scale. It was considered appropriate because it is below the mean of the maximum possible value of 16 and thus enables objective differentiation between material and non-material aspects. For the sustainability reporting, the impacts, risks and opportunities identified as material were then allocated to the corresponding topic clusters and relevant ESRS disclosure requirements. As soon as a single impact, risk or opportunity was assessed as material, the corresponding topic was defined as material.

To ensure the quality and transparency of the double materiality assessment, clear decision-making processes and internal control mechanisms were introduced. These measures are aimed at ensuring that the identified impacts, risks and opportunities are presented fully and accurately in the sustainability report. In addition, the findings of the assessment were discussed and validated with the stakeholder representatives.

The final results of the double materiality assessment and the resulting reporting obligations were then presented to the Executive Board for its approval. Via the regular meetings of the Audit Committee, the Supervisory Board was involved in the sustainability reporting in accordance with the CSRD and the findings of the double materiality assessment.

In the context of the double materiality assessment, it was ensured that the definition of the thresholds for financial materiality in the underlying risk methodology is aligned with the assessment standards established in the risk management system and that it was therefore possible to include CSRD-relevant risks as a matter of course in the company’s regular risk management process. In order to include CSRD-relevant risks in the regular risk management process, we expanded our risk catalog for the first risk inventory performed in this reporting year to include the topical ESRS requirements that were already applied in the double materiality assessment. The results of the materiality assessment are examined for their relevance to the risk inventory and are discussed with the risk managers. The risk managers for the businesses record or update the results in the context of the regular risk inventory, taking account of any control measures that have already been implemented. In this way, we aim to ensure a consistent and standardized groupwide risk management process. The refinement of our processes is a central element of our improvement strategy.

The double materiality assessment described above was already performed for the first time in fiscal year 2023 / 2024. For the reporting year, we again reviewed the findings in consultation with the internal stakeholder group representatives and obtained confirmation of their validity from the Executive Board of thyssenkrupp AG. Future reviews and refinements of the assessment process are planned in the context of annual reporting. In particular, it will be examined whether methodological changes, new regulatory requirements or changes to company-specific framework conditions necessitate a review of the materiality assessment. As this year’s report represents the first time that thyssenkrupp has applied CSRD requirements, we are also unable to document any changes compared with previous reporting periods.

ESRS 2 IRO-1 E1 – Analysis of climate-related impacts, risks and opportunities

In order to identify and assess actual and potential impacts, risks and opportunities in connection with climate change, thyssenkrupp applied the LEAP (locate, evaluate, assess, prepare) approach as part of the materiality assessment. This structured process covers four phases: the localization of interfaces to nature within the company’s own operations and along the upstream and downstream value chain; the assessment of relevant dependencies and impacts; the estimation of material risks and opportunities; and reporting of the findings.

In the first phase, the following topic areas were assessed: climate change adaptation, climate change mitigation and energy. The assessment was performed at the aggregated level.

The methods, assumptions and tools we used to identify and assess impacts, risks and opportunities are aligned with the process disclosed in subsection “ESRS 2 IRO-1.” As a result, the topics of climate change adaptation, climate change mitigation and energy were classified groupwide as material. This assessment was confirmed by scenario analyses of transition and physical climate risks. The transition analysis is based on a company-specific combined net-zero 2050 scenario (IEA, IPCC, EU 1.5TECH) and delivers a qualitative assessment of potential political, technological and economic transition events along the value chain in respect of the probability of their occurrence and level of impact. The physical analysis is based on climate projections from the CMIP6 model set, taking account of various emission and development pathways (including SSP5-8.5) and combining site-specific vulnerability and risk indicators in order to assess the acute and chronic climate risks to thyssenkrupp’s own operations for different time horizons. Further information can be found in the section headed “ESRS E1 Climate change.” In the course of the double materiality analysis assessment, analysis of the environmental data recorded showed that topic area ESRS E1-7 must be classified as not material. This was based primarily on the lack of reportable activities relating to the removal of greenhouse gases and to the negligible scope of carbon credit retirement.

ESRS 2 IRO-1 E2 – Analysis of pollution-related impacts, risks and opportunities

As part of the materiality assessment, thyssenkrupp applied a structured LEAP approach in order to systematically identify and assess actual and potential pollution-related impacts, risks and opportunities. This structured process covers four phases: the localization of interfaces to nature within the company’s own operations and along the upstream and downstream value chain; the assessment of relevant dependencies and impacts; the estimation of material risks and opportunities; and reporting of the findings.

In the first phase, the following topic areas were assessed: emissions to the air, water and soil, microplastics, substances of concern and dependencies of ecosystem services that aid the mitigation of pollution-related impacts. The assessment was performed on a disaggregated basis for all topic areas except emissions to the air.

The methods, assumptions and tools we used to identify and assess impacts, risks and opportunities are aligned with the process disclosed in subsection “ESRS 2 IRO-1.” As a result, the emissions to the air and soil were classified groupwide as material. Emissions to water were identified as material only for the Steel Europe segment. Further information can be found in the section headed “ESRS E2 Pollution.”

ESRS 2 IRO-1 E3 – Analysis of water and marine resources-related impacts, risks and opportunities

thyssenkrupp applied a structured LEAP approach in order to systematically identify and assess actual and potential water and marine resources-related impacts, risks and opportunities. This approach covers four phases: the localization of interfaces to nature within the company’s own operations and along the upstream and downstream value chain; the assessment of dependencies and impacts, especially in respect of pollution, withdrawals and use; the estimation of potential financial and environmental risks and opportunities; and reporting of the findings.

In the first phase, the following topic areas were assessed: water consumption and withdrawals, water discharge, water discharge into oceans and the extraction and use of marine resources, including the associated economic activities. It was performed on a disaggregated basis for all topics except marine resources.

The analysis showed that the impacts and risks in connection with water withdrawals and consumption must be classified as material for thyssenkrupp. The topic of water discharge was identified as material only for Steel Europe.

ESRS 2 IRO-1 E4 – Analysis of biodiversity and ecosystem-related impacts, risks and opportunities

As part of the materiality assessment, thyssenkrupp also applied a structured LEAP approach here in order to systematically identify and assess actual and potential biodiversity and ecosystem-related impacts, risks and opportunities. This approach covers four phases: the localization of interfaces to nature within the company’s own operations and along the upstream and downstream value chain; the assessment of biodiversity-related dependencies and impacts; the estimation of material risks and opportunities; and reporting of the findings.

In the first phase, the following topic areas were assessed: the contribution to drivers of biodiversity loss, their impacts on the state of species and condition of ecosystems, and the impacts and dependencies of ecosystem services. The assessment was performed primarily on an aggregated basis. The analysis showed that the impacts, risks and opportunities in connection with biodiversity must be classified as not material for thyssenkrupp AG. For the company’s own operations, this analysis was confirmed by a supplementary site-related biodiversity analysis: Using a geodata-based tool, the company’s sites were investigated for possible dependencies of ecosystem services (e.g., pollination, water purification, the provision of habitats) and for potential impacts on biodiversity. The assessment was based on global criteria such as the Biodiversity Intactness Index, water stress, soil quality, land use, functional connectivity and pollination potential. It also considered systemic risks such as the potential detriment to endangered species and the cumulative impact on biodiversity-sensitive areas. The analysis showed that only a few sites were in or close to such areas and just a small number of these were classified as potentially relevant on the basis of the indicators. This estimation of relevance took account of both local environmental conditions and the economic activities performed at each site. However, it does not establish the existence of any actual detriments. Overall, the analysis did not indicate any material biodiversity-related dependencies or impacts.

ESRS 2 IRO-1 E5 – Analysis of material resource use and circular economy-related impacts, risks and opportunities

As part of the materiality assessment, thyssenkrupp performed a structured analysis based on the LEAP approach with the goal of identifying and assessing actual and potential impacts, risks and opportunities relating to resource use and circular economy. This process covers the localization of interfaces to nature within our own operations and along the upstream and downstream value chain; the assessment of dependencies and impacts; the estimation of material risks and opportunities; and reporting of the findings.

The assessment focused on three key topic areas: resources inflows, including resource use, especially in respect of the circularity of the materials used, resource use optimization and differentiation between renewable and non-renewable resources; resource outflows resulting from the manufacture and sale of products and the provision of services; waste, including the treatment of hazardous and non-hazardous waste. The assessment was performed on a disaggregated basis for all topic areas.

The analysis also took account of a large number of aspects, including the businesses associated with resource use, the material impacts and risks of an unchanged business model, the opportunities in connection with a circular economic system and the stages of the value chain with a particular concentration of resource use and negative impacts. The analysis showed that there were material impacts and opportunities for thyssenkrupp AG in connection with resource use, circular economy and waste.

IRO-2 – Disclosure requirements in ESRS covered by the undertaking’s sustainability report

The following index lists all the ESRS disclosure requirements we considered in preparing the sustainability report on the basis of the findings of the double materiality assessment. Using this table, the information relating to the respective ESRS disclosure requirements can be located in the report.

The following table lists all datapoints that derive from other EU legislation in accordance with ESRS 2 Appendix B. It shows where these datapoints can be found in our sustainability report, which were classified as “not material” or “not relevant” and for which the phase-in option is being applied.