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IMERYS S.A.

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Imerys : Prospectus - Bond Issue — PDF (815.17 KB)

05/04/2021 | 05:19am EDT

Imerys

Sustainability Linked Bond Second Opinion

26th March, 2021

Imerys is a global supplier of industry mineral-based specialty products

headquartered in Paris, France. The company has strong corporate sustainability management, including the use of Science Based Targets (SBTs). Imerys is exposed to both transition and physical climate risks. The company has mining and processing sites in all regions and is as such exposed to a range of near-term natural hazard risks and chronic climate change risks. The company is aware of risks and has taken steps to address these. For example, an interdisciplinary climate change working group was established in 2020 which will assess climate change related risks and opportunities using scenario analysis. The company has integrated climate risk and sustainability considerations into the operations of business areas, investments, and M&A activities, and has started comprehensive sustainability assessments of their products. CICERO Green is encouraged that Imerys intends that these assessments will impact product strategy.

Shades of Green by annual revenue 2020

1% 9%

21%

69%

Included in the overall shading is an assessment of the governance structure of the sustainability linked bond framework. CICERO Shades of Green finds the governance procedures in Imerys' framework to be Excellent.

SUSTAINABITLIY LINKED BOND PRINCIPLES

Based on this review, this Framework is found in alignment with the principles.

Figure 1: Shading of Imerys 2020 revenue from product segments, not considering eliminations from internal sales.

A Shade of Green has been allocated to approximately one third of Imerys revenue. The Medium Green Shade has been allocated to the 9 % of revenue from the Renewable Energy market segment and products related to improving the sustainability of building materials. The Light Green Shade has been allocated to 21 % of revenue. Revenue from the filtration & life sciences market as well as revenue related to products that reduce the weight of plastics used in vehicles and mineral applications for paints have been rated Light Green. The Light Green applications for paints replace either biocides or chemicals with higher emissions or environmental impacts. The Yellow shade1 has been allocated to 69 % of revenue, reflecting that there is not enough information to conclude that end-usesdirectly contribute to the low carbon transition, and that a share of products likely support business

1 We allocate a shade of green, yellow or red to revenues depending on how well they are aligned with a low-carbon, climate resilient future, see Terms and Methodology section

'Second Opinion' on Imerys' SLB Framework

1

as usual economic activities. For example, Imerys produces refractory linings and insulation materials to protect furnaces and boilers in industrial processes, additives for rubber for tires, medical rubber and cables. Within the Yellow shaded revenue, there are also number of potential green applications that should be separated out for a more complete assessment. For example, Imerys produces components for the production of silicon used in solar panels. The Red Shading has been allocated to the 1 % of revenue from oil and gas applications, as these smaller revenue streams represent high emission markets with a risk of lock in.

CICERO Green assesses the KPI to reduce Scope 1 and 2 emissions intensity (over revenue) to be material, and of high strategic significance to Imerys' current and future operations. It is key to reduce the direct environmental impacts of energy and emission intensive mining operations (these represent 6.2% of total global energy consumption) as well as mineral transformation (e.g lime production). A KPI that focus mainly on reducing direct emissions from the company's operations does not fully capture the company's largest potential impacts. About half of Imerys total emissions are Scope 3. Low carbon enabling activities could increase direct emissions (for example carbon intensive mineral application dedicated to EV batteries) while reductions of direct emissions in energy intensive activities could lock-inhigh emission value chains. A relative KPI enables consideration of group performance, despite the heterogeneity in emission intensity of products. However, a relative KPI does not ensure an actual reduction in total emissions. Imerys has informed us that they are exposed to both cyclical volatility in specific markets, along with the structural decline of certain mature markets. Imerys will continue to report annually on absolute emissions allowing investors to track progress.

The SPTs of reducing emissions intensity in line with a 2°C-trajectory, is considered by CICERO Green to

be ambitious. The SPT has been approved by the Science Based Target initiative, which is considered best- practice. The climate change targets for businesses operating within the industry mineral segment vary widely and it is therefore difficult to compare the ambition level of Imerys SPTs towards their peers. Investors should be aware that emissions were more than 6% higher in 2018 (base year) than the years 2014-20172. Imerys will not use carbon offsets to reach their target. However, Imerys could meet the target by purchasing renewable electricity certificates and Power Purchase Agreements (PPAs) as means to reduce Scope 2 emissions. The strategies to achieve the SPT are focusing on improving energy efficiency, increasing the use of renewable energy, and reducing process emissions. Process emissions (representing 13% of Imerys Scope 1 & 2 emissions) result from release of CO2 from the transformation of the raw material itself and cannot be reduced via energy efficiency or fuel switching. It will require a technology that captures the CO2 in the flue gas, like carbon capture and storage (CCS) which is currently not a mature technology. However, Imerys carries out several R&D activities to reduce process emissions, and some of them can be expected to result in emissions reductions also within the coming years. Imerys has confirmed that they will report on the process emissions separately, so that progress can be observed.

CICERO Green finds Imerys reporting and verification in line with the Sustainability-Linked Bond Principles administered by ICMA (SLBP) and is encouraged that Imerys will report on progress towards a wide range of climate and sustainability metrics within the annual Universal Registration Document.

CICERO Green has not reviewed to what degree the variation in the financial characteristics of an SLB is commensurate and meaningful. Investors are encouraged to review the terms sheets in detail and conduct their own assessment of the financial characteristics of the SLBs.

Imerys SLB Framework will facilitate a continuation of the company's shift towards lower carbon

investments and operations. The Framework is supported at the corporate level by excellent environmental governance and transparent reporting to investors. However, the KPI does not fully address climate risk via Scope 3 emissions and the target could be met by purchasing renewable electricity certificates and PPAs. Imerys has additional corporate targets that address suppliers and scope 3 emissions.

2 The driver of the increase of emissions was acquisition activities by Imerys

'Second Opinion' on Imerys' SLB Framework

2

Contents

  1. Terms and methodology ___________________________________________________________________ 4
  2. Assessment of Imerys activities and environmental governance __________________________________ 5

Company Description .............................................................................................................................................

5

Background information on the mineral sector ........................................................................................................

5

Sector Risk Exposure .............................................................................................................................................

6

Governance Assessment........................................................................................................................................

6

Imerys emissions ....................................................................................................................................................

7

Assessment of Imery's revenues ............................................................................................................................

9

Imerys investments plans .....................................................................................................................................

10

3

Imerys Sustainability Linked Bond Framework________________________________________________ 12

Description of the Sustainability Linked Bond Framework.....................................................................................

12

Selection of Key Performance Indicators (KPIs) ............................................................................................

12

Calibration of Sustainability Performance Targets (SPTs) .............................................................................

12

Bond Characteristics......................................................................................................................................

13

Reporting .......................................................................................................................................................

13

Verification.....................................................................................................................................................

13

Assessment of Imerys' SLB framework.................................................................................................................

14

Comments on target-setting...........................................................................................................................

15

Comments on Bond Characteristics, Reporting and Verification ....................................................................

18

Comments on methodology choices including benchmarks and baselines ....................................................

19

Appendix 1: Summary of Imerys sustainability management ____________________________________________ 21

Appendix 2: Referenced Documents List ___________________________________________________________ 24

Appendix 3: About CICERO Shades of Green _______________________________________________________ 25

'Second Opinion' on Imerys' SLB Framework

3

1 Terms and methodology

This note provides CICERO Shades of Green's (CICERO Green) second opinion of the client's framework dated March 2021. This second opinion remains relevant to all sustainability linked bonds and/or loans issued under this framework for the duration of three years from publication of this second opinion, as long as the framework remains unchanged. Any amendments or updates to the framework require a revised second opinion. CICERO Green encourages the client to make this second opinion publicly available. If any part of the second opinion is quoted, the full report must be made available.

The second opinion is based on a review of the framework and documentation of the client's policies and processes, as well as information gathered during meetings, teleconferences and email correspondence.

The structure of Sustainability Linked Bonds (SLBs) linking financial returns with environmental performance can provide security of environmental impacts. However, SLB's can vary widely in terms of environmental robustness depending on what KPIs are selected and how they are measured. We provide transparency on 1) The relevance, materiality and reliability of selected KPIs. 2) The rationale and level of ambition of the proposed Sustainability Performance Targets. 3) The relevance of selected benchmarks and baselines, as well as transparency on how well the strategy outlined to achieve them fits with a low carbon and climate resilient future. By considering these factors, we provide context to consider the ambition level of the SLB. Please note that CICERO Green does not evaluate any financial aspects of transaction, including to what degree the variation in the financial characteristics of an SLB is commensurate and meaningful.

Incorporated into the sustainability-linked bond assessment is our company climate risk assessment approach. We allocate a shade of green, yellow or red (see figure below) to revenues depending on how well they are aligned with a low-carbon, climate resilient future.

A governance assessment is embedded in our methodology, which considers corporate-level targets and policies that can give insight to the direction of the company and its ability to implement the SLB. While companies from all sectors can design a robust SLB, transparency on how a company is engaged in a transition to green can give important context to investors about how the SLB fits with a corporate sustainability strategy. We assign an overall governance grade: Fair, Good or Excellent. Please note this is not a substitute for a full evaluation of the governance of the issuing institution, and does not cover, e.g., corruption.

'Second Opinion' on Imerys' SLB Framework

4

2 Assessment of Imerys activities and environmental governance

Company Description

Imerys is a global supplier of mineral-based specialty products for different industrial sectors, headquartered in Paris, France. The group has ca 16,400 employees in 40 countries. The revenues in 2020 were €3.8 billion, with 48% generated in Europe, Middle East and Africa, 29% in the Americas, and 23% in Asia Pacific. Annual capital expenditure is between €300 million and €350 million.

Imerys operates 240 industrial sites including 102 mines, mostly open pit. In addition to owning their own mines, Imerys also sources some of their raw material. The raw minerals3 are processed or synthesized by Imerys to develop the properties required for their end-use applications. The main customer market is construction with 32%, followed by the consumer market with 23% and industry market with 13%. Imerys has two main segments:

  • Performance minerals segment. Performance minerals are used as functional additives, and customers are within plastics, rubber and paints; paper and board; ceramics; filtration; mobile energy; food and beverage, and health and personal care markets.
  • The High Temperature Materials & Solutions segment. The minerals in this segment are to facilitate a manufacturing process typically working with high temperatures. Customers are within iron and steel, refractory, foundry, thermal, metal flow, abrasives, and building and infrastructure.

Background information on the mineral sector

Industry minerals are irreplaceable in many everyday products, by adding value to a range of products. Industry minerals belong in the non-energy extractive sector and are extracted and further processed before used as additives in different products. Most common raw materials that are extracted (mined) include, among others, bauxite, calcium carbonate, diatomite, talc, alumina, and graphite.

Mining operations can be energy intensive and is estimated to 6.2% of total global energy consumption. Mineral transformation processes will in many cases be energy intensive and can emit large quantities of GHG, among others when embedded CO2 is released during transformation, like for lime production. Other minerals require chemical and physical transformation, that might be chemical as well as energy intensive, like soda ash and glass manufacturing. Costs and availability are important elements of consideration when choosing an appropriate mix of energy sources, as well as the social and reputational implications of the chosen energy sources, the viability of energy sources, and the management of the availability of energy over the entire mine life.

3 Examples of minerals are Andalousite, Bauxite, Bentonite, Carbonate, Feldspar, Kaolin, Lime, Talc, Wollastonite, Ball Clay, Chamotte, Diatomite, Perlite, Graphite, Mica, and others.

'Second Opinion' on Imerys' SLB Framework

5

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Imerys SA published this content on 04 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 May 2021 09:18:04 UTC.


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Sales 2020 3 764 M 4 463 M 4 463 M
Net income 2020 106 M 125 M 125 M
Net Debt 2020 1 441 M 1 709 M 1 709 M
P/E ratio 2020 33,4x
Yield 2020 3,90%
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EV / Sales 2020 1,29x
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Nbr of Employees -
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Average target price 50,55 €
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Alessandro Dazza Chief Executive Officer
SÚbastien Thierry Rouge Chief Financial Officer
Patrick Kron Chairman
Aldo Cardoso Independent Director
Marion Guillou Independent Director
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