Impacts, risks and opportunities

STRABAG already last year adopted the principles of double materiality as set out in ESRS 1, restructuring its process for determining the material topics. Based on the sustainability topics specified by ESRS (including sub-topics and sub-sub-topics), STRABAG identified and assessed not only the company’s impacts on the environment, society and the economy (“inside-out” or impact materiality) but also those impacts that affect the company (“outside-in” or financial materiality), particularly in the context of increasing sustainability-related regulation. For the 2024 financial year, STRABAG was able to build on this basis and validate the results from the previous year, taking into consideration external and internal events, with a focus on the additional engagement with external stakeholders. No site-specific analyses or consultations were carried out with affected communities for the issues E2: Pollution and E3: Water and Marine Resources, as these are currently considered immaterial.

The materiality assessment was coordinated by the SID function “Sustainability – Governance, Reporting & Data” and conducted together with experts from other corporate entities who, through their role within the Group, possess the relevant expertise on a given topic. In view of STRABAG’s decentralised structure, the engagement with internal stakeholders from our central divisions, central staff divisions and operating divisions is crucial for taking into consideration business- or activity-specific factors as well as the business relationships that arise along our broad value chain. Impacts, risks and opportunities were identified and assessed in terms of their materiality for STRABAG using internal corporate knowledge as well as industry reports and other scholarly publications. The expert knowledge and industry reports made it possible to identify risks specific to the construction industry as well as opportunities representing an important basis for discussion when conducting the assessment.

Interactive, topic-specific workshops on conducting the materiality assessment were organised to help identify points of contact with an ESRS topic, sub-topic or sub-sub-topic and to identify and assess corresponding impacts, risks and opportunities. The workshops also included the identification of dependencies between the individual impacts, risks and opportunities. This made it possible to identify material risks and opportunities arising especially from the increasing regulation of sustainability aspects.

In line with ESRS requirements, all identified impacts were assessed in terms of their scale, scope, remediability and likelihood of occurrence. These parameters were evaluated using the following intensity rankings:

• Scale: 0–5
• Scope: 0–5
• Remediability: 0–5
• Likelihood of occurrence: low, high, very high

Each identified impact was assigned a value for each parameter, allowing for prioritisation based on the total score. A threshold value of 8 was set for negative impacts, while a lower threshold value of 6 was applied to positive impacts, as the parameter of remediability does not apply here. The materiality of a given impact is determined by a high or very high likelihood of occurrence and an exceedance of the defined threshold value. Impacts that meet these criteria are included in the reporting. If negative human rights impacts were identified, their severity was given priority over likelihood of occurrence. The assessment of impacts was primarily based on industry reports as well as on internal corporate statistics.

Identified risks and opportunities at STRABAG were assessed in terms of their influence on business relationships, availability of resources and likelihood of occurrence:

• Influence on business relationships: 1–4
• Availability of resources: 1–4
• Likelihood of occurrence: low, high, very high

A risk or opportunity was considered material and included in the reporting if it reached a maximum value of 3 in either of the two parameters “influence on business relationships” or “availability of resources”. This accounts for scenarios where one factor alone could present a material risk, even if the other factor does not indicate a recognisable risk. Monetary valuation was possible for only a few risks, particularly those with criminal law implications. The methodology for the evaluation of financial risks and opportunities will be further developed with the establishment of an ESG risk management framework, although the existing evaluation methodology already allows for the prioritisation of risks, providing insights into potential risk hotspots. There is no prioritisation of ESG risks over other identified risk categories (see Risk management).

The results of the materiality assessment were shared during several internal events. The internal dissemination of the results, along with corresponding feedback opportunities, helped ensure that the entire value chain was represented in the materiality assessment. Specific topics that emerged as particularly debatable during the internal analysis were brought into the stakeholder dialogue. Several group discussions were held to gather further perspectives and opinions. The results obtained from the analysis up to that point were tested for plausibility by querying and discussing touchpoints, challenges and opportunities related to the topics that were raised.

The SID function “Sustainability – Governance, Reporting & Data” compared the internal assessments made up to that point with the inputs from external stakeholders to distinguish between relevant and less relevant aspects of the topics. The consolidated results of this process were presented to and approved by the CEO and CFO. As part of the reporting obligations, the results of the materiality assessment are validated annually to account for any internal or external events, incorporate them into the assessment and ensure the monitoring of impacts, risks and opportunities.

The materiality assessment is also at the heart of Group-wide ESG risk management, which is currently under development. A key task in this regard is the long-term integration of various existing risk processes within the Group, including climate risk analyses, human rights risk analyses and compliance risk analyses. These are described in more detail below.

The materiality assessment has allowed STRABAG to identify and assess the impacts, risks and opportunities related to climate change mitigation, climate change adaptation and energy. In 2023, an ESG risk management project was launched to assess STRABAG SE’s business model for its vulnerability to climate-related physical and transition risks.

The climate risk analysis conducted in 2024 offers a broader perspective by identifying specific risks and opportunities for STRABAG as a result of climate change. Analysing physical risks (e.g. extreme weather events) and transition risks (e.g. legal requirements) helps to identify relevant climate-related factors that influence both the business strategy – which is regularly reviewed for short-, medium- and long-term risks – and long-term value creation.

STRABAG SE’s resilience to climate risks depends on a variety of factors. The consistent implementation of the actions defined in the climate transition plan up to 2040 will help to strengthen resilience in the long term. The climate risk analysis did not reveal any risks that could jeopardise the continued existence of the company.

Physical climate risk analysis

Material activities along the upstream and downstream value chain were evaluated as part of the project to assess the climate-related physical risks. STRABAG’s actual and potential vulnerability was analysed on the basis of the short-, medium- and long-term exposure.

To carry out a meaningful analysis of the physical climate impacts on the company, a selective sample of relevant site locations was taken along the upstream and downstream value chains. The upstream value chain was covered by analysing suppliers and their site locations, as well as the risk exposures of the relevant building materials. The analysed sites are predominantly located in Central and Eastern Europe, as a significant proportion of the project and construction materials production business and, consequently, the primary supply sites are located here. For STRABAG, the completed construction projects analysed in the physical climate risk analysis cover both its own business activities as well as the downstream value chain.

The first step was to identify objects of investigation belonging to the areas of business activities, own assets and value chain. These were then analysed based on factors such as the economic output generated per Group country, the expenditure volumes per externally sourced construction materials and the Group’s own construction material production volume. This analysis was supported by experts within the Group. The aim was to define representative locations for the clusters that hold strategic and financial relevance and which reflect the broadest possible coverage of the Group’s activities. The site selection focused on values from the 2023 financial year, which were validated in workshops with internal expert groups. The first risk assessment was conducted in 2024, with key findings approved by the Management Board as the highest governance body. The maturity of the climate risk analysis will continue to be developed to establish a robust basis for well-informed investment decisions in the future.

In a second step, the selected site coordinates were transferred into climate analysis software in order to evaluate the exposure values for each defined climate-related hazard based on the chosen climate scenario from RCP8.5 to SSP5-8.5. These mandatory climate scenarios describe global conditions in which emissions continue to rise at current rates without policy changes, leading to global temperature increase of about 4 °C by the year 2100.

The software, provided by a consulting firm, is based on climate projections that combine global and regional models derived from climate models provided by the CORDEX initiative. A few other indicators come from external databases such as the Aqueduct global platform for water stress, coastal and riverine flooding or the CATNAT natural disasters platform. The damage functions are based on climate-related hazards and their corresponding indicators, derived from publicly available climate databases such as Copernicus, WIR, ESGF, CATNAT and Arup.

In the final step of the physical climate risk analysis, the sensitivity of the site locations examined was assessed together with experts from selected divisions and central divisions. The likelihood, magnitude, duration and geospatial coordinates were taken into consideration. Similarly, the exposure of STRABAG’s activities and supply chains to these values was analysed across three time horizons.

The risks and opportunities relevant to STRABAG were qualitatively assessed using scenario analysis for short-term (until 2030), medium-term (until 2040) and long-term (until 2085) time horizons to estimate their potential impact on the entire value chain and their likelihood of occurrence. The short- and medium-term time horizons are aligned with the Group’s Strategy 2030: People. Planet. Progress. and the 2040 climate neutrality target. Long-term impacts were derived with regard to asset lifespans. No material climate risks were excluded from the risk analysis.

The following table describes the identified material physical climate risks that pose potential risks for the company along the entire value chain.

Transition climate risk analysis

During the analysis of the climate-related impacts on the company, relevant events were identified arising from the transition to a 1.5 °C-compliant economy, society and policies. These events impact the business activities and assets along STRABAG’s upstream and downstream value chains. The exposure to these impacts was analysed as a next step, followed by an assessment of the resulting implications for short-, medium- and long-term time horizons. The upstream value chain was included by considering the increased raw material and energy costs. The downstream value chain was analysed, among other things, taking into consideration risks such as changes in consumer behaviour and uncertainty regarding market signals.

The first step was to apply the International Energy Agency’s NZE transition scenario (Net Zero Emissions by 2050), which describes how to achieve the 1.5 °C temperature target by 2050 and outlines the underlying assumptions, such as the rapid introduction of efficient technologies and sustainable energy supply systems. These were examined by STRABAG to assess the related impacts. Specifically, STRABAG analysed its business activities, assets and supply chain with regard to their exposure to the following transition events:

• CO₂e targets of the main building material suppliers
• higher renewable energy demand and the associated risks to supply security and costs
• price developments for fossil fuels
• prices for emission-intensive industries, which can be predicted by the Carbon Border Adjustment Mechanism (CABM) and the European Union Emissions Trading System (EU ETS)

In a second step, relevance was discussed together with experts and a consulting firm to then describe the Group’s vulnerability to these risks and opportunities. This included determining whether there was a touchpoint in the value chain and what impacts would be expected as a result. When assessing vulnerability to transition events, operating and central departments were specifically included to ensure the greatest possible coverage of the affected value chain. As not all departments in the Group were involved, there are potential gaps in the results, which the Group hopes to close over the coming reporting years.

The table below shows the selected transition events, their impacts, the likelihood of occurrence and the scale of the potential material risks aggregated over three time horizons (2030, 2040 and 2050). No material climate risks were excluded from the risk analysis.

The climate scenario analyses that were conducted confirm the high resilience of STRABAG’s business model to material climate risks. The Group’s broad positioning has proven to be an important factor for success over the years that has contributed significantly to this resilience. The company’s Strategy 2030 and the transition plan through 2040 focus on climate-friendly innovations, particularly with regard to the circular economy and renewable energies, as a way of taking advantage of growth opportunities. Despite potential risks, the financial opportunities predominate, with ESG governance to ensure continuous monitoring.

STRABAG worked intensely on addressing the topic of biodiversity in 2024. A materiality assessment was conducted with the involvement of internal stakeholders to identify and assess impacts, risks and opportunities as well as dependencies related to biodiversity. A survey of specific site locations and of the production or procurement of raw materials with negative or potentially negative impacts on affected communities has not yet been carried out for this reporting cycle.

Transition risks identified in the materiality assessment primarily concern changes in regulatory frameworks that are expected in the future. These include but are not limited to stricter standards for the materials used, which could result in new procurement measures. In addition, climate-related scarcity of resources such as timber is leading to rising raw material costs and possible supply bottlenecks. The growing demand for sand, gravel, timber and water is intensifying this effect, further driving up construction costs. Regulations, such as the European Deforestation Regulation (EUDR), are also contributing to increased investment costs, due to the stricter requirements, and influencing the selection of suppliers.

Conversely, these changing framework conditions also present new opportunities for STRABAG. The use of renewable raw materials and sustainable building materials opens up new business areas, particularly with regard to renaturation and the reversal of soil sealing.

At present, no material physical risks related to biodiversity have been identified in the materiality assessment, although interfaces do exist with other environmental topics such as climate change and resource availability. These interfaces arise from the mutual interaction of topics that can cause damage to mining sites and local ecosystems, such as the frequency of extreme weather events caused by climate change.

The materiality assessment also identified systemic risks that impact the company at a higher level. These include risks such as the degradation of ecosystems, climate change and biodiversity loss, which can have both direct and indirect impacts on STRABAG’s entire value chain. The downstream value chain, particularly with regard to construction projects and infrastructure development, is closely linked to biodiversity, as the implementation of compensatory and protective measures during the construction phase often has long-term effects on the surrounding area, thus securing the local ecological foundations.

In addition to conducting the double materiality assessment at the Group level, site-specific risks are also considered using monitoring tools such as the WWF Risk Filter and the Integrated Biodiversity Assessment Tool (IBAT). This structured approach makes it possible to identify site-specific challenges and systemic risks and, if necessary, develop specific guidelines for regions or projects located in ecosystem-sensitive areas. Further details can be found in the Biodiversity chapter in the section Actions and projects.

The methodology for the human rights risk analysis was thoroughly revised and refined in the 2024 financial year. New sources, originating from the handouts of Germany’s Federal Office for Economic Affairs and Export Control (BAFA), were included in the data for risk assessment. A methodology was developed for analysing human rights and environmental risks in our own business area and in the supply chain in order to identify potential negative impacts on people and their natural livelihoods through country and industry risks. The prioritised human rights and environmental risks are compared with existing actions at the STRABAG Group’s divisions and adapted as needed. Specification and prioritisation are based on likelihood of occurrence and severity. These appropriateness criteria were also included in the risk assessment as part of the revision of the methodology. The risk assessment focuses on particularly vulnerable groups of people. The vulnerable groups of people that were identified include, for example, employees and workers at subcontractors, workers performing manual and physical labour, especially those with language barriers, low-income persons who are unaware of their rights, and children.

In the construction industry, workers on construction sites are exposed to increased risks, for example when handling large and heavy machinery, working at height and below ground, and performing potentially physically demanding tasks. Construction activities that modify existing systems can have potentially negative impacts on the natural foundations of local communities, for example through dust formation during the construction phase. Inequality in employment may occur during personnel recruitment and development, as well as in the way people are spoken to and treated because of their gender, disability or social or ethnic origin. These risks can be found in our core European markets as well as in our international markets. The prevalence of employment agencies and the unauthorised subcontracting of orders are factors that increase the risk of forced labour in STRABAG SE’s non-European areas of activity, both in construction and in the service sector. There are no STRABAG companies that show a significantly increased risk of child labour. Awareness of these possible risks, the actions derived, and the implemented policies should permanently minimise the likelihood of these risks occurring. Our Group Directives do not include a definition of vulnerable groups, as the directives apply to all persons equally.

The risk assessment procedure is described in the appendix Business Compliance Risk Analysis as part of the overarching Business Compliance Management System. The determination of the risk areas is based on STRABAG’s business activities as an internationally active construction group and is confirmed by many years of experience and industry knowledge. Specific risk areas were defined with the support of the operating management, the central staff divisions Internal Audit, Contract Management and Legal (CML) and Bau-, Rechen- und Verwaltungszentrum (BRVZ), along with the Business Compliance (BC) department (part of the Corporate Responsibility Office).

As part of the risk analysis, all divisions, central divisions and central staff divisions are subject to an assessment of the corruption risk, among other things, and are re-evaluated at regular intervals based on ongoing incident reports. At the procedural level, the risk analysis is based on the ongoing incident reports and periodic surveys among the respective entities on risk trends within their field of activity. These surveys are conducted through the annual Management Business Compliance Reporting.