Sustainability in supplier management

Sustainable materials can only be created through sustainable supply chains. That is why we work closely with our suppliers to jointly meet the standards that constitute a truly sustainable value chain.

When selecting potential and existing suppliers, we consider not only economic factors but also sustainability factors. We select and guide suppliers to ensure they operate in accordance with Covestro standards – with regard to labor standards, health and safety, the circular economy, anti-corruption, human rights, product safety, transparency, and environmental protection. For this reason, Covestro has created a Supplier Code of Conduct that outlines the fundamental values of our company. Covestro expects all suppliers to adhere to the principles formulated in the Supplier Code of Conduct and to assume responsibility toward their own employees and business partners, society, and the environment. The Code of Conduct is derived from the principles of the UN Global Compact as well as our Commitment to Respect Human Rights and thus explicitly addresses critical issues such as human trafficking, child and forced labor, as well as health and safety. New and renewed supply agreements contain special clauses requiring suppliers to observe the sustainability requirements contained in the Code of Conduct and give Covestro the right to verify their compliance.

The Supplier Code of Conduct in a Nutshell

Covestro expects suppliers to ensure fair and respectful working conditions and to not permit child labor or forced labor under any circumstances. Discrimination and harassment must be avoided, and appropriate compensation as well as working hours with sufficient rest breaks must be ensured. Freedom of association must be respected and the safety and health of all employees must be given the highest priority through appropriate training, protective equipment, and safe workplaces.

Covestro expects its suppliers to protect people and the environment through appropriate risk assessments and to minimize the environmental impact of their activities. They must comply with all environmental, safety, and quality regulations and contribute to the circular economy. In addition, they should develop sustainable solutions, promote resource efficiency, handle natural resources responsibly, and reduce emissions.

Covestro requires suppliers to practice fair competition without cartel agreements or corruption. Bribery, extortion, and illegal incentives are to be strictly rejected, and intellectual property rights must be respected and protected. IT/OT security must be ensured, foreign trade laws must be complied with, insider trading must be rejected, and conflicts of interest must be transparently disclosed.

Covestro expects all suppliers to establish an effective management system for the systematic identification and management of risks. A complaints procedure for employees and affected parties must be established and the standards must be passed on to their own supply chain. Sustainability performance must be continuously improved and cooperative collaboration is required when addressing violations.

Together for Sustainability

Covestro is a member of "Together for Sustainability" (TfS), a joint initiative of the chemical industry with the goal of standardizing the assessment method for suppliers worldwide. By adopting the criteria of the TfS initiative in the Supplier Code of Conduct, good working conditions and safe work processes in the supply chain are promoted and environmentally and resource-conserving behavior of our suppliers is supported.

As a TfS member, Covestro is responsible for monitoring and assessing the sustainability performance of its suppliers. TfS provides supporting infrastructure for third-party supplier assessments through online assessments and on-site audits. In addition, TfS and the European Chemical Industry Council (Cefic) collaborate on audits for logistics service providers. Cefic uses the SQAS (Safety & Quality Assessment for Sustainability) system. The SQAS assessment reports of a supplier prepared by Cefic are recognized by TfS as equivalent to a TfS audit report.

The TfS assessment process helps us systematically review the sustainability performance of our suppliers. Covestro selects its suppliers to be assessed according to a structured prioritization process. If no current results are available, either an online assessment or an on-site audit is initiated for these suppliers.

Our Approach to Sustainable Supplier Management

For us, sustainability makes a significant contribution to business success, which is why we take various measures to improve sustainability practices in our supply chain:

Creating Awareness

Our expectations in the areas of social, environmental, economic, and management system implementation are defined in our Supplier Code of Conduct. This Code of Conduct is presented to all Covestro suppliers for compliance.

Supplier Nomination

The selection of suppliers for sustainability assessments is based on a combination of country and industry risk as well as strategic importance in accordance with our Corporate Business Targets.

Assessment of Sustainability Performance

The sustainability assessment of our suppliers is conducted using the TfS approach – through online evaluation and on-site audits.

Supplier Development

All assessment and audit results are carefully analyzed and documented. If the defined sustainability requirements are not met, we define concrete improvement measures and corresponding targets together with the suppliers.

Training and Exchange Opportunities

Dialogue and close collaboration are of central importance so that suppliers can successfully implement the sustainability requirements of Covestro. This creates reliable relationships that make it possible to identify obstacles at an early stage. Supplier development is supported by the TfS initiative, a knowledge platform for employees in Procurement and their suppliers, with regular training sessions and the multilingual "TfS Academy".

Supplier Engagement Program (SEP)

In 2022, we launched our Supplier Engagement Program (SEP). The goal is to develop joint measures to achieve long-term net zero emissions in Category 1 "Purchased Goods and Services" of Scope 3 emissions. To this end, we have identified the main sources in this category and, based on a heat map, have begun to engage with the contributing parties. We discuss emission reduction programs and targets together with our suppliers and analyze how these affect our Scope 3 emissions. As part of the SEP, we are in dialogue with suppliers that cover a large portion of our raw material volumes and are actively collecting their feedback on the supplier-specific product carbon footprint (PCF). In addition, the Group Procurement corporate function is promoting the digitalization of procurement processes and systems to improve the efficiency and effectiveness of procurement for Covestro and its suppliers.

Human Rights in the Value Chain

Risk Analysis for Suppliers

As part of its human rights due diligence, Covestro conducts annual supplier risk analyses in accordance with international standards. The risk analysis focuses on direct suppliers; but Covestro also considers the upstream supply chain. We prioritize human rights risks using a combination of country and industry or sector risks based on external sources.