Sustainability in Supplier Management

Covestro regards adherence to sustainability standards within the supply chain as a crucial factor in value creation and also an important lever for minimizing risks. For this reason, Covestro sets not only economic standards but also social, ethical and ecological standards, as well as those related to corporate responsibility when selecting new suppliers and in our relationships with existing suppliers. These standards are defined in Covestro’s Supplier Code of Conduct, which is available online in 13 languages and provides the basis for collaboration. The Code is derived from the principles of the UN Global Compact and our position on human rights. It is integrated across the Covestro Group into the electronic ordering systems and contracts. Furthermore, relevant new and renewed supply agreements generally contain special clauses requesting suppliers to observe the sustainability requirements contained in the Code of Conduct and entitling Covestro to monitor their compliance.

For more information, see section “Supplier Management” in the GRI Supplement

Covestro has set ambitious and measurable targets through 2025 aimed at systematically promoting sustainability in supplier management. All suppliers must agree to comply with our Code of Conduct by accepting our contracts and orders. Suppliers accounting for a repeat purchasing value exceeding €100,000 per year are also assessed and must comply with Covestro’s sustainability standards by means of meeting the minimum requirements as defined by us in the supplier assessments described below. In the year under review, around 95% of our total purchasing value was attributable to these suppliers. We work closely with our strategically most important suppliers to improve their sustainability performance. We have also incorporated this into our sustainability goals.

Evaluation methods and processes of the TfS initiative

Covestro is a member of Together for Sustainability (TfS), a joint initiative undertaken by the chemical industry that now numbers 22 companies. The nonprofit organization founded in 2011 pursues the goal of establishing a program of global standards for responsibly sourcing goods and services and standardizing supplier evaluation methods worldwide. Covestro supports all TfS criteria concerning the areas of ethics, employee rights, human rights, health and safety, and the environment.

As a member of TfS, Covestro is responsible for monitoring and auditing the sustainability performance of its suppliers. To support this, TfS offers the infrastructure for supplier assessments by third parties using online assessments and on-site audits. The TfS infrastructure enables the results of these assessments to be distributed via an online platform. In the year under review, Covestro played an active role in all TfS work groups in designing and improving the TfS program and the associated evaluation process.

Covestro uses the standardized TfS assessment process to audit how well its suppliers maintain the sustainability standards required by Covestro. Covestro uses a structured prioritization process to select the suppliers to be audited and initiates either an online assessment or an on-site audit for the selected suppliers – provided that there are no current results. In prioritizing the suppliers for these assessments, Covestro considers a combination of country and material risks as well as strategic importance in accordance with Group targets. The risk assessment for country and material groups that we use for our risk analysis is based on recognized external sources.

EcoVadis SAS (EcoVadis), an established external provider accredited by TfS, conducts the online assessments. The goal is to assess the suppliers’ business practices in regard to their sustainable orientation (Corporate Social Responsibility, or CSR). The questionnaire suppliers complete for the online assessment is based on internationally recognized sustainability standards and includes 21 sustainability criteria grouped into the categories environmental protection, working conditions and human rights, fair business practices and sustainable procurement. The questionnaire’s section on sustainable procurement also inquires as to the extent to which the sustainability standards of upstream suppliers are considered.

This questionnaire is dynamically adapted by EcoVadis depending on factors such as the industrial sector, company size and country risk. Suppliers must document the responses provided to the questionnaire by submitting corresponding supporting documents. The CSR analysts at EcoVadis assess supplier responses and supporting documents in consideration of international standards, such as the United Nations Global Compact, and consolidate the data into a scorecard available online that shows results by category. This scorecard provides an overview of identified strengths and improvement areas for the suppliers analyzed, among other details.

External, independent auditors trained and accredited by TfS conduct on-site audits of selected companies – and follow-up audits, if needed – based on the TfS sustainability criteria. For the purpose of monitoring the quality of the audits, the initiating TfS member periodically takes part in audits selected on a random basis and evaluates them using a standardized checklist.

Covestro analyzes and documents the online assessments and on-site audits of our suppliers, and – in the event of noncompliance with our sustainability requirements – jointly defines with suppliers specific improvement measures and corresponding targets. Covestro continuously verifies the implementation of the required improvements.

The following table shows the status of the supplier assessments.

Results of online assessments and on-site audits

At the end of 2018, 80% (previous year: 71%) of our relevant purchasing value was attributable to suppliers whose externally conducted assessments meet our sustainability requirements. Covestro thus exceeded its own intermediate goal of 75%. Furthermore, 75% of our strategically most important suppliers who conducted a repeat assessment in 2018 have improved their results.

In 2018, assessment results considered critical by Covestro were identified for eleven suppliers; in other words, they failed to meet the required minimum result by a significant margin. This corresponds to 1% of all suppliers assessed (previous year: 2%). Covestro responds to such infractions with specific action plans and demands that the suppliers in question implement appropriate corrective measures; follow-up audits are conducted to verify compliance.

As in the previous year, Covestro had no cause to terminate a supplier relationship in the reporting year because the assessment revealed an unsatisfactory performance, or a serious sustainability deficit, e.g. human rights violations like child labor or forced labor.

Training measures and dialog on the issue of sustainability

Covestro maintains an ongoing dialog with its suppliers and supports its procurement specialists in implementing the sustainability requirements by providing Group-wide training. Last year, workshops were held worldwide with our strategic procurement specialists aimed at strengthening cooperation with suppliers in regard to the four strategic principles in Procurement: reliability, sustainability, cost transformation and innovation. Further progress was made on implementing the four strategic principles in 2018. Regional Program Managers were posted in each of the EMLA, NAFTA and APAC regions to promote the establishment and optimization of our sustainability program during the reporting year.

Dialog and close collaboration are essential in enabling suppliers to successfully comply with Covestro’s sustainability requirements. We therefore offer a range of training and dialog opportunities for them as the basis for building reliable relationships that enable us to identify and eliminate any obstacles to collaboration at an early stage.