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Responsible supply chain

With our supplier management endeavors, we aim for compliance with fundamental environmental and social standards in addition to high quality, reliable delivery and competitive prices. Therefore, we have introduced relevant strategies, processes and guidelines to prevent violations of supply chain standards and continuously improving our sustainability performance. Unless stated otherwise, the approaches presented apply to direct suppliers. Furthermore, our supplier management activities include special measures particularly for indirect suppliers working in the area of conflict minerals.

To achieve our sustainability goals, our Group Procurement team is working closely with our suppliers. We aim to create transparency in all our sourcing regions and fully integrate sustainability into all our value chains. To this end, we have defined two key indicators to measure our journey towards increasing this transparency by evaluating the sustainability performance of our relevant suppliers with valid sustainability assessments. Our definition of valid sustainability assessment includes assessments carried out over the last three years and performed by a reliable, approved source. Relevant suppliers either indicate a specific country and industry risk or contribute to a significant percentage of our supplier spend (at least 50%). For the risk evaluation, we previously used the risk data provided by EcoVadis. For the country risk, we have developed our own more comprehensive country risk score in 2022.

In 2022, 46% (2021: 33%) of our relevant suppliers were covered by a valid sustainability assessment; 82% (2021: 74%) of our spend generated from these suppliers were covered by suppliers with a valid sustainability assessment. To achieve comparability of our key indicators over the years, we applied this new country risk score also retrospectively for 2021 data, the starting point of our measurement.

We consider all applicable legal requirements and initiate corresponding measures where necessary. For this purpose, in 2022, we implemented measures to operate compliant with German Supply Chain Due Diligence Act. Among other things, the Head of Corporate Sustainability, Quality and Trade Compliance has been appointed as Human Rights Officer.

Our Supplier Decarbonization Program is a key element of achieving our Science Based Target. Through the program, we aim to reduce greenhouse gas emissions associated with purchased goods and services as well as capital goods.

Risk management process

To ensure security of supply, we select our suppliers based on criteria such as country risk, material risk, supplier risk, and their strategic importance to the business. This process helps our sourcing managers identify potential mitigation actions with relevant suppliers and supports them in making improvements. The approach towards our strategic suppliers which account for approximately 49% of our total supplier spend includes the identification, monitoring and assessment of supply security risks. It comprises four main elements:

  • Supplier Risk Assessments: to capture the overarching risks at the supplier level, considering multiple risk domains.
  • Alert system: to notify our Procurement organization about risk events arising with any of our suppliers.
  • Material Risk Assessments: to identify and mitigate the risks of the materials used in our most significant finished products.
  • Risk Response Tracker: a system to create and monitor risk mitigation activities in inter-disciplinary teams.

We calculate risk factors for suppliers and raw materials by multiplying risk probability and risk impact. We have simplified our risk methodology to focus on the ten most relevant risk categories – including but not limited to economic freedom, social unrest, unfair business practices, and poor labor practices – grouped into three risk domains. We also include criteria for identifying supplier relationships impacted by key sustainability risks, such as mineral sourcing and animal welfare.

Due diligence process for responsible sourcing of minerals

We source and sell products that contain minerals commonly referred to as “3TG” (tin, tungsten, tantalum, gold – collectively also known as conflict minerals). These minerals involve the risk of being extracted, traded, handled, and exported from conflict-affected and high-risk areas where human rights are not always respected and violations thereof need to be prevented.

Our aim is to source materials in a responsible and conflict-free manner and not to contribute to adverse impacts through our activities. Therefore, we have a due diligence program that applies across all our business sectors and is in line with applicable laws and international standards.

In order to continuously improve our due diligence practices, we have a system to store and maintain supplier information across our business sectors. This system supports increased transparency of our supply chain. In addition, we are working on the integration of further control mechanisms into our due diligence framework for high-risk suppliers.

Roles and responsibilities

Group Procurement is responsible for integrating sustainability requirements into the relevant stages of our sourcing and supplier management processes. Our Center of Excellence for Supply Security coordinates the relevant measures, such as updating our guidelines where necessary, examining processes and coordinating our participation in external initiatives.

Our commitment: Guidelines and standards

We expect all our suppliers and service providers to comply with our environmental and social standards, which are primarily derived from the core labor standards of the International Labour Organization (ILO) and the UN Global Compact. We expect our suppliers to ensure that their subcontractors respect the same rules. In the reporting year, we have developed a Supplier Code of Conduct which details our expectations towards suppliers and business partners regarding human rights, health and safety, business integrity, environmental protection, continuous improvement, and management of their respective suppliers more comprehensively. It replaces our Responsible Sourcing Principles as of January 2023.

Our Responsible Minerals Sourcing Charter demonstrates our commitment to responsible sourcing of minerals from conflict-affected and high-risk areas. It applies to all our legal entities and subsidiaries worldwide. The charter complements the requirements set out in our Supplier Code of Conduct.

To ensure that we work based on industry standards and can rely on comparable data analytics and expert analysis, we collaborate with our peer companies in industry initiatives. For example, we are a member of Together for Sustainability (TfS), the Pharma Supply Chain Initiative (PSCI), the Responsible Mica Initiative, and the Responsible Minerals Initiative (RMI). We call on our suppliers to let us or trusted partners conduct assessments or audits to increase our supply chain transparency and identify fields of activity to improve sustainability performance or mitigate infringement risks.

Together for Sustainability supplier assessments and audits

Through the TfS initiative, suppliers are assessed either based on information obtained during audits or based on self-reported and publicly accessible information provided by EcoVadis, an independent rating agency. EcoVadis assesses suppliers from more than 160 countries and 200 sectors across the four categories of Environment, Labor and Human Rights, Ethics, and Sustainable Procurement. On top of the assessments, suppliers are also monitored through a 360-degree news watch. The results are shared among TfS member companies in compliance with all restrictions stipulated by antitrust law.

Through the TfS initiative alone, we have access to more than 1,700 valid scorecards on the assessment of our suppliers, more than 1,100 of which completed a new assessment or re-assessment in 2022. In some cases, these were initiated by us and in other cases by other TfS members.

Mica supply chain

Mica is an important raw material for our effect pigments, which are used in automotive, cosmetic and industrial coatings as well as plastics. We procure the majority of our mica from the Indian states of Jharkhand and Bihar. We have special measures in place to comply with high social and environmental standards in our mica supply chain. By procuring mica from the Indian states of Jharkhand and Bihar, where social and economic factors contribute to poor working conditions, including child labor, we are supporting this region by safeguarding local employment and livelihoods. We source the raw material only from suppliers operating in formal working environments and we monitor compliance with our standards, including the prohibition of child labor.

Our mica suppliers are informed of our standards and have confirmed that they adhere to the principles of our Human Rights Charter as well as the requirements of our Supplier Code of Conduct (formerly Responsible Sourcing Principles). In the event of non-compliance with our standards, we work with suppliers to ensure the appropriate implementation of corrective measures.

We do not tolerate child labor and contractually prohibit our suppliers from employing children. If one of our suppliers were found to be using child labor, we would terminate the business relationship immediately. We are driving initiatives and taking measures to improve the conditions of mica sourcing based on our high standards. We continuously review our monitoring processes to improve their effectiveness.

Auditing our mica supply chain

We have implemented a series of oversight mechanisms using a system that monitors and audits conformity with our social and environmental standards. In addition to visits by our company’s employees, regular inspections are conducted by third parties, who conduct comprehensive announced audits as well as frequent, unannounced verification visits.

Environmental Resources Management (ERM), a leading global provider of environmental, health, safety, risk, and social consulting services, conducts external audits of mines and processing plants, investigating working conditions as well as environmental, health and safety issues. The audit reports document any identified shortcomings in this respect and propose corrective actions. Findings concerning the ventilation of workplaces and fire prevention were successfully addressed. Our employees in Kolkata (India) and Darmstadt (Germany) take action to address any identified issues. If the corrective measures are not respected, we may suspend or even terminate our business relationship.

Since 2013, IGEP Consult, an Indian non-governmental organization, has conducted regular unannounced inspections to review labor standards throughout our supply chain. During these visits, IGEP officials monitor occupational safety and compliance with laws preventing child labor. In 2022, its inspections focused on checking the availability of physical examinations for workers and conducting mock fire drills. Additionally, we regularly optimize the escalation process together with IGEP, which holds bi-weekly review meetings with representatives of our company to assess suppliers. These meetings help to identify any required actions, which our sourcing teams then discuss and implement with our suppliers. As a result, our suppliers have successfully improved the working conditions at these sites.

Evaluating and tracking mica sources

We use a tracking system to help ensure that the mica we purchase is derived from sources qualified by our company. We also use this tracking system to monitor productivity of our mica sources. Based on written records of the daily extraction quantities, we review the volumes of mica reported and supplied to the processing facilities. Furthermore, we use a digital traceability solution to increase transparency in the mica supply chain.

To maintain accuracy, our processes undergo constant review and improvement. We are also evaluating other mica sources in accordance with our quality, social and environmental standards, both in India and other regions. For example, in 2022, we sourced a considerable amount of mica in Brazil, where we have also established oversight mechanisms to monitor and audit adherence to these standards.

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