SSAB Sustainability-Linked Finance Framework

Second-Party Opinion

Evaluation Summary

Sustainalytics is of the opinion that the SSAB Sustainability-Linked Finance Framework aligns with the Sustainability-Linked Bond Principles 2020. This assessment is based on the following:

  • Selection of Key Performance Indicator (KPI) SSAB Sustainability-Linked Finance Framework includes one KPI: absolute Scope 1 and 2 GHG emissions (see Table 1). Sustainalytics considers the KPI chosen to be very strong based on its relevance to SSAB's business, scope of its applicability, and its clear and consistent definition.

  • Calibration of Sustainability Performance Target (SPT) Sustainalytics considers the SPT to be aligned with the issuer's sustainability strategy.

    Sustainalytics further considers the SPT to be highly ambitious based on performance against the issuer's historical performance as well as performance against peers and external contextual benchmarks.

  • Bond Characteristics SSAB AB will link the financial/structural characteristics of the bond/loan to the achievement of the SPT. Should the Company fail to achieve the SPT, a financial penalty shall be applied in the form of a coupon rate step-up or an increase in the bond redemption price at maturity. If the Company achieves the SPT, there will be no impact on the coupon rate or the redemption price.

  • Reporting SSAB AB commits to report on an annual basis on its performance on the KPI as part of a Sustainability-Linked Finance Progress Report, which will be available on its website. SSAB AB commits to disclose relevant information that affect the KPI performance, such as any re-calculation of the baseline for the KPI, re-assessments of the KPI and/or restatement of the SPT and/or pro-forma adjustments of baselines or KPI scope. The reporting commitments are aligned with the SLBP.

  • Verification SSAB AB commits to have external limited assurance conducted on its KPI performance at the communicated SPT deadline, which is aligned with market expectations.

Overview of KPI and SPT

Evaluation Date Issuer LocationMay 28, 2021 Stockholm, Sweden

The SPT contribute to the following SDGs:

KPI

Baseline

SPT (2032)

Strength of the

KPI

Ambitiousness of SPT

Absolute Scope 1 and 2 GHG emissions

2018

Reduction of absolute Scope 1 and 2

GHG emissions by 35% by 2032

Very Strong

Highly Ambitious

Second-Party Opinion: SSAB Sustainability-Linked Finance Framework

2

Table of Contents

Scope of Work and Limitations .................................................................................................................................. 3

Introduction ............................................................................................................................................................... 4

Sustainalytics' Opinion............................................................................................................................................... 5

Section 1: Sustainalytics' Opinion on the Alignment ofSSAB AB'sSustainability-Linked Notes with the

Sustainability-Linked Bond Principles ........................................................................................................................ 5

Selection of Key Performance Indicator (KPI) ......................................................................................................... 5

Calibration of Sustainability Performance Target SPT) ......................................................................................... 6

Bond Characteristics ................................................................................................................................................. 8

Reporting .................................................................................................................................................................... 8

Verification ................................................................................................................................................................. 9

Section 2: Assessment of SSAB AB's Sustainability Strategy ................................................................................. 10

Section 3: Impact of the SPT chosen ....................................................................................................................... 11

Conclusion ............................................................................................................................................................... 12

Appendix 1 ............................................................................................................................................................... 13

Scope of Work and Limitations

SSAB AB has engaged Sustainalytics to review the SSAB Sustainability-Linked Finance Framework and provide an opinion on the alignment of the notes with the Sustainability-Linked Bond Principles (SLBP).1

Sustainalytics' Second-Party Opinion reflects Sustainalytics' independent2 opinion on the alignment of the reviewed SLB Framework with the Sustainability-Linked Bond Principles 2020, as administered by ICMA.

As part of this engagement, Sustainalytics exchanges information with various members of SSAB AB's management team to understand the sustainability impact of their business processes and SPT, as well as reporting and verification processes of aspects of the SLB Framework. SSAB AB's representatives have confirmed that:

  • (1) They understand it is the sole responsibility of issuer to ensure that the information provided is complete, accurate or up to date;

  • (2) They have provided Sustainalytics with all relevant information; and

  • (3) Any provided material information has been duly disclosed in a timely manner.

Sustainalytics also reviewed relevant public documents and non-public information. This document contains Sustainalytics' opinion of SSAB's Sustainable Finance Framework and should be read in conjunction with the Framework. Any update of the present Second-Party Opinion will be conducted according to the agreed engagement conditions between Sustainalytics and SSAB AB. Sustainalytics' Second-Party Opinion, while reflecting on the alignment of the Framework with market standards, is no guarantee of alignment nor warrants any alignment with future versions of relevant market standards. Furthermore, Sustainalytics' Second-Party Opinion addresses the anticipated SPT of KPI but does not measure the KPI performance. The measurement and reporting of the KPI is the responsibility of the issuer. No information provided by Sustainalytics under the present Second-Party Opinion shall be considered as being a statement, representation, warrant or argument either in favor or against, the truthfulness, reliability or completeness of any facts or statements and related surrounding circumstances that SSAB AB has made available to Sustainalytics for the purpose of this Second-Party Opinion.

The Second-Party Opinion is valid for issuances aligned with the respective Framework for which the Second-Party Opinion was written and aligned with the methodology to calculate the KPI performance outlined in the Second-Party Opinion up to 24 months or until one of the following occurs:

  • (1) A material change to the external benchmarks3 against which targets were set;

  • (2) A material corporate action (such as material M&A or change in business activity) which has a bearing on the achievement of the SLBs or the materiality of the KPI.

For inquiries, contact the Sustainable Finance Solutions project team:

Given Mawodzeka (Amsterdam)

Enrico Tessadro (Amsterdam)

Project Manager

Client Relations

given.mawodzeka@sustainalytics.com

susfinance.emea@sustainalytics.com

(+31) 20 205 0000

(+44) 20 3880 0193

Jhankrut Shah (Amsterdam)

Flora Mile (Amsterdam)

Project Support

Project Support

jhankrut.shah@sustainalytics.com

flora.mile@sustainalytics.com

1 The Sustainability Linked Bond Principles (SLBP) were launched by ICMA in June 2020. They are administered by the ICMA and are available at:https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/June-2020/Sustainability-Linked-Bond-PrinciplesJune-2020-100620.pdf

2 When operating multiple lines of business that serve a variety of client types, objective research is a cornerstone of Sustainalytics and ensuring analyst independence is paramount to producing objective, actionable research. Sustainalytics has therefore put in place a robust conflict management framework that specifically addresses the need for analyst independence, consistency of process, structural separation of commercial and research (and engagement) teams, data protection and systems separation. Last but not the least, analyst compensation is not directly tied to specific commercial outcomes. One of Sustainalytics' hallmarks is integrity, another is transparency.

3 Benchmarks refers to science based benchmarks

Introduction

Founded in 1978, SSAB is a Nordic and US-based steel company with production facilities in Sweden, Finland and the US. The company produces Advanced High-Strength Steels (AHSS) and Quenched & Tempered Steels (Q&T), strip, plate and tube products, as well as construction solutions. SSAB is structured across three steel divisions: SSAB Special Steels, SSAB Europe and SSAB Americas, and two subsidiaries: Tibnor and Ruukki Construction. The company primarily serves customers from heavy transport, construction, automotive, construction machinery, energy, and other sectors. SSAB has approximately 14,000 employees in over 50 countries and is listed on Nasdaq Stockholm and a secondary listing on Nasdaq Helsinki.

SSAB AB (SSAB) intends to issue Sustainability-Linked Bonds (SLBs), and loans where the coupon rate of the bond and/or loan is tied to the achievement of the Sustainability Performance Target for the KPI related to direct (Scope 1), and indirect (Scope 2) emissions reduction.

SSAB has engaged Sustainalytics to review the SLB Framework and provide an opinion on the alignment of the Sustainability-Linked Finance Framework with the Sustainability-Linked Bond Principles (SLBP).4

The KPI and SPT used by SSAB are defined in Tables 1 and 2 below.

Table 1: KPI Definitions

KPI

Definition

Absolute scope 1 and 2 GHG emissions

The KPI measures direct greenhouse gas emissions from facilities owned or controlled by SSAB (Scope 1) and greenhouse gas emissions from the electricity, heat or steam purchased from third parties (Scope 2).

The formulation of the KPI is consistent with the Absolute Contraction Approach (ACA), a target-setting method used by the Science Based Targets initiative.

The determination of the GHG inventory boundary and modelling of the emissions is aligned with the GHG Protocol's Corporate Accounting and Reporting Standards.

Table 2: SPT and Past Performance

KPI

2018 (baseline)

2019

SPT 2032

Absolute scope 1 and 2 GHG emissions (tCO2e)

11,819,605 11,554,787

Reduction of absolute Scope 1 and 2 GHG emissions by 35% by 2032

4 The Sustainability Linked Bond Principles (SLBP) were launched by ICMA in June 2020. They are administered by the ICMA and are available at:https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/sustainability-linked-bond-principles-slbp/

Second-Party Opinion: SSAB Sustainability-Linked Finance Framework

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Sustainalytics' Opinion

Section 1: Sustainalytics' Opinion on the Alignment of SSAB Sustainability-Linked Finance Framework with the Sustainability-Linked Bond Principles.

Sustainalytics is of the opinion that the Sustainability-Linked Finance Framework align with the five core components of the Sustainability-Linked Bond Principles 2020 (SLBP).

Selection of Key Performance Indicator (KPI)

Relevance and Materiality of KPI

Sustainalytics in its assessment of materiality and relevance considers i) whether an indicator speaks to a material impact of the issuer's business on environmental or social issues, and ii) to what portion of impact the KPI is applicable.

Sustainalytics considers the KPI to be material and relevant given that steel production is resource intensive and generates significant CO2 emissions from use of fossil fuels and coking coal in blast furnaces.

  • Sustainalytics risk rating of the Company and the Steel Industry Report identifies "Carbon - Own Operations" as a highly material ESG issue.5 Additionally, the Sustainability Accounting Standards Board (SASB) identifies GHG emissions as material for iron and steel producers and therefore, a relevant topic to track and disclose.6 SSAB's primary focus is on ore-based steelmaking and the use of blast furnaces in the smelting process amplifies the exposure to higher GHG emissions compared to those involved primarily in the mining of iron ore, or scrap-based steel producers.

  • In Sweden and Finland, SSAB's blast furnaces are among the largest sources of carbon dioxide emissions in each country.9 In 2019, SSAB conducted a materiality assessment of ESG concerns and GHG emissions had the highest significance for both SSAB and for its stakeholders. SSAB's annual report states that SSAB's operations account for 10% of Sweden's and 7% of Finland's CO2 emissions.9 Around 90% of SSAB's direct CO2 emissions are generated by iron ore-based steel production at the sites in Luleå, Oxelösund and Raahe, through the blast furnaces. Of this 90% of SSAB's direct CO2 emissions, 98% are related to metallurgical processes, i.e., to the use of coke and coal as reducing agents.9 Reducing CO2 emissions is a strategic imperative for SSAB and its stakeholders including the governments of Sweden and Finland. The KPI speaks directly to this material issue and is considered of high relevance.

  • Scope 1 and 2 emissions represent the majority of SSAB's emissions, accounting for approximately 68% of its total Scope 1, 2 and 3 emissions. Sustainalytics notes that the KPI does not cover Scope 3 emissions (measuring ~32% of the total) attributable to processing of goods and services sold and purchased by the Company.7 While these remain an important source of emissions for SSAB, Sustainalytics recognizes the steps taken by SSAB in forming value-chain partnerships with ore suppliers and customers to reduce these emissions.

Based on the above, Sustainalytics is of the opinion that the KPI chosen by SSAB is material and relevant because it speaks directly to a material environmental issue for both company and country with a wide scope of impact to total operations.

  • 5 Sustainalytics, "Industry Report - Steel", (2020)

  • 6 SASB, "Iron and Steel Producers Standard (2018)", at:https://www.sasb.org/wp-content/uploads/2018/11/Iron_Steel_Producers_Standard_2018.pdf

7 SBTi target validation criteria requires Scope 3 targets to be set only when scope 3 emissions are over 40% of total emissions.

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SSAB AB published this content on 09 May 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 May 2022 07:11:07 UTC.