Strategy and growth

Strategy and growth

Next phase in our strategic transformation has started
Ambitious new sustainability targets
Systematic alignment of the portfolio to sustainability, transformation, and core processes

Transformation and core processes

Evonik embarked on the next phase of its strategic business transformation in 2022. As part of Next Generation Evonik sustainability is becoming an integral element of important core processes such as portfolio and innovation management, production and technology, and human resources work. This strategic integration paves the way for us to meet our promise to be an enabler of sustainability in a wide range of markets and areas of life. Therefore, we set ourselves ambitious new sustainability targets in the reporting period. These relate, for example, to the transformation of our portfolio and the continuation of our climate strategy for the period 2021 through 2030, in keeping with our commitment to the Science Based Targets initiative (SBTi).

We do not see the multiple crises surrounding us—from Russia’s invasion of Ukraine through rising energy and raw material costs to the ongoing effects of the coronavirus pandemic and deglobalization trends—as a reason to reduce our commitment to greater sustainability. On the contrary, we see our sustainability management as an important basis to safeguard and extend Evonik’s long-term resilience and market success. The focus areas of our transformation in the reporting period are outlined in detail in the special section.

Through our sustainability strategy, we address the UN Sustainable Development Goals (SDGs) of particular relevance for Evonik. This strategy comprises the following elements:

Giving sustainability a firm place in our market proposition and purpose
Integrating sustainability into our strategic management process
Increasing the proportion of attractive growth businesses in our portfolio with a clear focus on sustainability
Foresighted resource management with ambitious environmental targets, including systematically considering the impact of our business along the value chain and on the SDGs
Selective improvement of our sustainability reporting

In view of the transformation requirements made on our business activities, we draw a distinction between market-driven, location-based, and human resources influences. In line with this, our sustainability strategy is focused on three core processes: Next Generation Solutions (market perspective), Next Generation Technologies (asset perspective), and Next Generation Culture (human resources perspective). Between 2021 and 2030, we aim to invest more than €3 billion in the growth of our Next Generation Solutions, in other words, products and solutions whose sustainability profile is above or even significantly above the market reference level. In the same period, we intend to invest €700 million in Next Generation Technologies. These are, in particular, measures at production plants and infrastructure that are geared to our goal of further reducing our CO₂ emissions. The aim of Next Generation Culture is to establish sustainability firmly at all levels of the human resources process—from recruiting through training and continuing professional development to incentive systems and ideas management. The cultural dimension of successful transformation is also reflected in the results of our latest materiality analysis: Four of the 15 topics identified as material are HR-related. Through these three elements of Next Generation Evonik, we are employing our full agility to achieve a business model that balances economic, ecological, and social aspects and thus strengthens our resilience.

Transformation requirements and core processes

New materiality analysis

Our sustainability management is aligned with materiality. In the reporting period, we performed a completely new materiality analysis. Based on the concept of double materiality, 15 material sustainability topics were identified for Evonik. Our analytical approach takes into account the requirements of the revised GRI Universal Standards 2021 as well as the EFRAG working papers ESRG 1 of January 2022 (Double materiality conceptual guidelines for standard-setting) and ESRS (Sustainability material impacts, risks and opportunities). In individual cases, we also took into consideration the requirements of the EFRAG exposure draft of April 2022. A full overview of the conduct of materiality analysis can be found in the chapter headed “Basis of reporting”.

The top three materiality topics identified for Evonik are green energy, portfolio transformation, and circular economy. New topics compared with our materiality analysis 2018 are green energy, cybersecurity, and employee satisfaction. Other changes are outlined in “About this report”. The results of our materiality analysis are grouped in six areas of action, which also provide the basic structure for this report.

Materiality analysis 2022: Top 3 topics

For the sustainability topics identified in our materiality analysis, there is an anonymous complaints mechanism for both employees and external stakeholders. One important tool in this context is our whistleblower hotline.

In the context of our new materiality analysis, we also revised our stakeholder management concept.

Our ongoing project work in 2022 focused on the topics identified as material. Examples are the conclusion of a long-term supply agreement for wind energy, investment in our first industrial-scale production plant for bio-based rhamnolipids, and expansion of our portfolio of additives for mechanical and chemical recycling.

Progress with our transformation in 2022

Evonik has integrated sustainability into the strategic management process (SMP). Quantifiable effects are included in the SMP through the sustainability analysis of our business. In this way, sustainability aspects play a direct and effective part in the management of our operating businesses. In our growth divisions—Specialty Additives, Nutrition & Care, and Smart Materials—we are extending our product portfolio and specifically increasing sales with Next Generation Solutions. For example, the Coating Additives business line (Specialty Additives division) launched its new TEGO® Therm technology in November 2022. Thermal insulation coatings based on TEGO® Therm significantly reduce energy loss from complex, non-insulated surfaces. At the same time, they protect against moisture penetration and thus corrosion. This significantly increases the service lives of, for example, pipes and tanks.

Our contributions to improved sustainability are allocated to four Sustainability Focus Areas (SFAs): fight climate change, drive circularity, safeguard ecosystems, and ensure health & well-being. For each SFA, we show how Evonik reduces its own ecological footprint and the handprint resulting from the use of our products and solutions in the relevant markets. In 2022, we drove forward the quantification of positive and negative environmental influences. This showed both an improvement in our handprint and a further reduction in our footprint.

Sustainability is closely integrated into the management of our innovation portfolio. Our innovative contributions to the transformation of many areas of application include novel membrane technologies and our formulating expertise. Evonik also gains access to innovative technology and new business options through its corporate venture capital activities.

In line with our commitment to SBTi, in 2022, we set new targets for reducing direct and indirect greenhouse gas emissions in our production and processing. Selective investment in Next Generation Technologies will help reduce our scope 1 and 2 emissions by 25 percent between 2021 and 2030. The corresponding measures were identified by a cross-functional team as part of the global project “Evonik Assessment of GHG Emission Reductions” (EAGER).

In the second half of 2022, we began to structure Evonik’s cultural transformation in the sense of a Next Generation Culture, building on a broadly based campaign to strengthen our employer brand. In addition, we started to compile an inventory of present and future sustainability requirements in various occupations. This topic was also taken up in a wide range of events and employee information media.

In view of the increasing relevance of sustainability for corporate management, we integrated further sustainability aspects into our governance framework in the reporting period. That includes ongoing development of our sustainability council and greater alignment between sustainability risks and conventional risk management. Moreover, from 2023 we will be integrating sustainability more closely into the remuneration of the executive board and other executives. This was approved for the executive board remuneration at the annual shareholders’ meeting in 2022. As well as including occupational safety in short-term remuneration as in the past, we will be introducing sustainability targets such as reducing scope 1 and 2 emissions, increasing the proportion of sales from Next Generation Solutions, and employee engagement as an additional component of long-term remuneration.

In 2022, we also specifically enhanced our sustainability reporting, including addressing elements of the upcoming EU reporting standard at an early stage. For instance, the process used for our new materiality analysis already includes the content of the EFRAG working papers and exposure drafts and the GRI Universal Standards 202. Furthermore, our reporting is aligned with the SASB and TCFD. We therefore consider that we are well-prepared for future European and international sustainability reporting requirements.

In order to manage Evonik’s business development with a view to non-financial indicators, we need high-quality sustainability data. In this way, we also tackle the lack of transparency in external reporting. Our sustainability data management project plays an important part in this. The aim is to make sustainability-related data available on one platform as a “single point of truth.” Having successfully completed the preliminary project in 2021, in the reporting period, we continued with our work on automating the sustainability analysis of our business and on the greenhouse gas emission management module. In the coming years, we want to successively add further sustainability-related management and reporting data to this platform.

Sustainable Finance

The transformation of our portfolio and the sustainability alignment of our products and processes are becoming increasingly important for the long-term financing of our business activities. Products and solutions from Evonik play a part in the sustainable transformation of many end markets. Examples are the focus on circularity and climate neutrality for the future. The capital markets recognize our strategic and operational progress towards greater sustainability. For some years now, Evonik has been established among the leaders in renowned sustainability ratings and rankings. In May 2022, the EcoVadis rating agency once again awarded us platinum status for our sustainability performance. That puts Evonik among the top 1 percent of the companies evaluated by EcoVadis in both the chemical industry and in other sectors.

In May 2022, Evonik successfully issued its second green bond—a senior bond with a nominal value of €750 million. “Green” funding is based on our Green Finance Framework. The proceeds of this bond issue will be used principally to extend our Next Generation Solutions.

Sustainability also has a firm place in the management and investment of our pension assets. Since 2014, we have developed ESG criteria for the pension assets held by Evonik Industries AG, which are therefore directly under the control of the company (contractual trust agreement). Since 2019, the Degussa VVaG pension fund has had its own strategy for addressing sustainability risks. We regard sustainability in the investment process as a holistic and evolutionary process. It is applied to both liquid and illiquid investments and fine-tuned as required. Within the organization of the investment vehicle itself, the focus is on governance requirements such as risk management, compliance, and fighting corruption, as well as cybersecurity and diversity. A total of 50 percent of the members of the executive board at the Degussa VVaG pension fund are women.

UN Sustainable Development Goals of relevance for Evonik

The Sustainable Development Goals (SDGs) provide guidance on actively aligning our current business activities to overarching development paths. Evonik supports the realization of the SDGs and has intensively examined its own positive and negative contributions for a number of years. Examples of the positive contributions made by our products and solutions to implementing the SDGs can be found on our website. We have also developed a methodology to identify the SDGs that are especially relevant for the Evonik Group. This approach includes the 169 sub-targets of the 17 SDGs.

An SDG is especially relevant for us if there is a significant positive or negative influence on or by Evonik. To this end, we use a multi-step process to examine and weigh key criteria such as sales, earnings contribution, and inclusion in our growth engines or innovation growth fields. The evaluation also includes the expectations of internal and external stakeholders and the results of our materiality analysis. The SDGs of particular relevance for Evonik are:

In 2022, 52 percent of sales from our chemicals businesses (2021: approx. 50 percent) contributed to SDGs 3, 6, 12, and 13, which are of particular relevance from the viewpoint of the Evonik Group.

Measurability and management

Extensive transparency and soundly based analyses are our response to the growing interest shown by our stakeholders in sustainability. We take into account ecological, social, and economic effects to arrive at a holistic assessment of our sustainability performance. Alongside potential future opportunities and risks for our business, we highlight the cost/benefit effects of Evonik’s activities for society. We see this as an important contribution to the acceptance by society of new technologies and industrial production.

Analysis of the measurability of sustainability

Type of analysis	Questions addressed
Sustainability analysis of our business	What are the strengths and weaknesses of the products in our portfolio with regard to sustainability requirements? What economically viable measures help us reduce the carbon footprint of our products? (Inside-out perspective)
Evonik Carbon Footprint	What is the annual carbon footprint of the entire Evonik Group? (Inside-out perspective)
Life cycle assessments	What are the environmental impacts resulting from the production of our products (cradle-to-gate), including their application by our customers (cradle-to-grave)? (Inside-out perspective)
Analysis to determine which Sustainable Development Goals are relevant for Evonik	Which products and solutions for our customers address the challenges facing society? How do we contribute to meeting the 17 SDGs? (Outside-in perspective)
Impact valuation	What positive and negative impacts do our business activities have on the environment and society? (Outside-in perspective)
Supply chain analysis	From the perspective of our stakeholders, what opportunities and risks are associated with our products in their respective value chains? (Outside-in perspective)

Sustainability analysis of our business

The sustainability analysis of our business is the key tool for the strategic management and ongoing development of our portfolio. The methodology is based on the chemical industry standard for portfolio analysis. The extensive evaluation of these sustainability signals in all three dimensions of sustainability—economic, ecological, and social—gives us insights for the foresighted management of individual products and entire business areas. The results of the analysis are used in our strategic management process.

2021 and 2022 findings
In recent years, we have accelerated the processes used to compile and evaluate data for the Evonik Carbon Footprint (2020) and the impact valuation (2021) so that the results can be presented simultaneously with our financial results at our financial press conference. As a reflection of its strategic importance, we have now synchronized with sustainability analysis of our business with the overall process. From now on, the findings are reported for the current reporting period. To this end, the sustainability analysis 2022 was initially performed on the basis of the business data for 2021 and repeated at the start of 2023 on the basis of the figures for 2022.

For fiscal 2022, we examined 534 PARCs (2021: 507 PARCs), covering the total sales generated by Evonik with chemicals in the fiscal year. The number of PARCs increased year-on-year because we take an increasingly differentiated view of applications and regions. That further enhances the quality of our portfolio overview. The most important findings are:

Evonik generated 91 percent of sales with products and solutions whose sustainability performance was at least in line with the market reference level (leader, driver, or performer category. The figure for 2021 was 91 percent. 43 percent of Evonik’s sales came from Next Generation Solutions. These are products and solutions with a clearly positive sustainability profile that is above or even well above the market reference level (leader and driver categories). In 2021, the proportion was 41 percent. Weak negative market signals were identified for 7 percent of sales (transitioner category), and strong negative signals were identified for 2 percent (challenged category) (2021: 8 percent transitioner, 2 percent challenged). We are addressing these in dialogue with our customers through innovation or active portfolio management.

We want to increase the proportion of sales generated by our Next Generation Solutions from 43 percent at present to over 50 percent by 2030. On a long-term view, we aim to keep the proportion of sales generated with products that are classified as challenged as a result of changes in market conditions, consumer behavior, rising reference levels, or tighter regulation below 5 percent.

Strategy and management

A key tool for the strategic management and development of our portfolio is the sustainability analysis of our business. This gives us important insights into the quality of our portfolio: from determining the proportion of sales generated by our Next Generation Solutions to showing which products we classify as transitioners or challenged. To this end, our method takes into account steadily rising market aspirations. These are shaped by a dynamic competitive environment with changing customer requirements, new technologies, and rising regulatory requirements. Our sustainability analysis enables us to incorporate such factors and the resulting changes in consumer behavior into our strategic management process.

Evonik wants to increase the sales generated with Next Generation Solutions from 43 percent (2022) to over 50 percent by 2030. This is to be achieved, on the one hand, through the ongoing development of existing Next Generation Solutions and, on the other, by aligning our research & development in order to generate additional sales with new Next Generation Solutions. At the same time, we are reducing the proportion of sales from products classified as transitioners or challenged through selective reformulation or withdrawal from specific businesses.

Our special strength is working in close partnership with our customers. Most of our customers are industrial companies that use our products for further processing. The innovative solutions and technologies provided by our businesses offer important additional benefits for our customers compared with competitors in their end-markets.

Evonik strives to be integrated into customers’ value chains where possible. That enables us to align our research & development, production, marketing, and distribution workflows closely to our customers’ requirements. We also seek extensive contact to our stakeholders to enable the timely identification of relevant developments and help us understand their market impact. A global Marketing & Sales Excellence team supports our businesses in customer focus and the customer benefits of what we offer. To achieve that, we make available a wide range of internal analyses, training programs, and sales tools. In addition, research & development alliances help us to address new market trends, mitigate technological and commercial risks, and improve the market penetration of sustainable solutions.

For example, Evonik and Unilever have set up a partnership to market a dishwashing liquid based on biosurfactants. Unilever aims to produce its cleaning agents and detergents without fossil fuels by 2030. One result of this alliance is an investment project at the Slovenská Ľupča site in Slovakia, where Evonik is erecting the world’s first industrial-scale facility to produce rhamnolipid biosurfactants. This triple-digit million euro investment will establish us as a pioneer in this field. Rhamnolipids are a class of fully biodegradable biosurfactants that are produced by fermentation, without the use of petrochemical feedstocks or tropical oils.

Progressive digitalization is also important in leveraging improved collaboration with suppliers and customers. We are selectively driving forward the establishment of digital interfaces and platforms. Examples are CAREtain® for customers in the cosmetics industry, EXPLORE PU for polyurethanes customers, and COATINOTM, a digital lab assistant developed by Evonik specifically for the coatings industry.

We are cooperating with a broad spectrum of industrial partners to encourage the transformation to greater sustainability in our supply chains and end-markets. For example, we are therefore partnering with Linde to offer a fully integrated solution based on our membrane technology to separate either hydrogen or natural gas from pipelines containing a blend of natural gas and hydrogen.

CO₂eq avoided by using Evonik products

Evonik markets a variety of products whose use makes a positive contribution to reducing greenhouse gas emissions compared with conventional alternatives. These include the following six products and system solutions: “green” tire technology, amino acids for animal nutrition, additives for hydraulic fluids, the hydrogen-peroxide-to-propylene-oxide process, POLYVEST® for tires with lower rolling resistance, and metal oxides for lithium-ion batteries1. The amounts stated are avoided over the application life cycle of the products, based on volume sales of the products manufactured by Evonik. The method used to compile the data is the Avoided Emissions Guidance published jointly by the WBCSD and ICCA , which was updated in 2017.

In 2022, the use of these six products resulted in the avoidance of 44.3 million metric tons CO₂eq. We generated sales of €1.8 billion with these products. Since examples of further products were included in 2022, direct comparison with the previous year is not meaningful. Evonik aims to improve the quantification of the benefits of its Next Generation Solutions in customer applications (handprint) in the future.

Sustainability Focus Areas (SFAs)

Our contributions to a sustainable transformation are bundled in four SFAs: fight climate change, drive circularity, safeguard ecosystems, and ensure health & well-being. That sharpens our businesses' awareness of the most important sustainability requirements in their markets and facilitates dialogue with customers on these aspects.

Each SFA addresses specific sustainability requirements and describes our contribution to the Sustainable Development Goals (SDGs). In this context, we examine both positive and negative impacts of Evonik’s business activities. These impacts are examined for each product-application-region combination (PARC) as part of our sustainability analysis.

Fight Climate Change
This SFA bundles all contributions to reducing our scope 1, 2, and 3 emissions, increasing energy efficiency, and the use of renewable energies. We also consider the greenhouse gas emissions avoided along the value chain by using our products.

Drive Circularity
Here, we bundle all contributions from the use of renewable and circular raw materials, the reduction in production waste, and the production of products that enable circular solutions.

Safeguard Ecosystems
This SFA brings together all contributions in connection with Evonik products and solutions that support deforestation-free supply chains and biodiversity. Moreover, it covers environmentally friendly products that do not involve the use of chlorine or solvents and avoid polluting nature with persistent substances.

Ensure Health & Wellbeing
This SFA bundles all contributions made by Evonik products that avoid exposing people to volatile organic compounds (VOCs), microparticles, or dangerous chemicals during the application phase and those that allow access to safe food and water. Further, this SFA describes the contribution made by our solutions for efficient pharmaceutical active ingredients a

In our innovation activities, the four SFAs support selective optimization of business-related processes and products and the ongoing development of new business models. The three clusters at our strategic research unit Creavis—Defossilation, Life Sciences, and Solutions Beyond Chemistry—are also focused on high-growth solutions aligned with our SFAs.

In the coming years, our businesses will be quantifying and improving their handprint in the four SFAs, reducing their footprint, and generally creating additional value with sustainable solutions.