Sustainability in Supplier Management

Covestro regards adherence to sustainability standards within the supply chain as a fundamental 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 environmental standards, as well as those related to corporate responsibility when selecting new suppliers and in our relationships with existing suppliers. All required 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, new and renewed supply agreements in particular generally contain special clauses requesting suppliers to adhere to the sustainability requirements contained in the Code of Conduct and entitling Covestro to verify their compliance.

Covestro has set ambitious and measurable targets through 2025 aimed at systematically promoting sustainability in supplier management. All suppliers must comply with our code of conduct, which they commit to by accepting the conditions of our purchase orders or contracts. Relevant suppliers accounting for a repeat purchasing value exceeding €100,000 per year are also assessed. They comply with Covestro’s sustainability requirements by meeting the minimum result 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 the aforementioned relevant suppliers. In addition, 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 Together for Sustainability (TfS) initiative

Covestro is a member of Together for Sustainability AISBL, a joint initiative undertaken by the chemical industry that now numbers 22 companies. The nonprofit organization was founded in 2011 and pursues the goal of establishing a program of global standards for responsibly sourcing goods and services and standardizing supplier assessment methods worldwide. Covestro supports all criteria by the TfS initiative 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 results of these supplier assessments can be shared via an online platform. In the year under review, Covestro once again played an active role in all TfS work groups in designing and improving the TfS program and the associated assessment process.

A standardized TfS assessment process evaluates how well suppliers maintain the required sustainability standards. Covestro uses a structured prioritization process to select the suppliers to be evaluated and initiates either an online assessment or an on-site audit for these suppliers – provided that there are no current results. In prioritizing the suppliers for these assessments, Covestro considers a combination of country and material risks. 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. It evaluates suppliers’ business practices with regard to their sustainable orientation. 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, labor and human rights, ethics, and sustainable procurement. The questionnaire’s section on sustainable procurement also inquires on the extent to which the sustainability standards of upstream suppliers are considered.

The 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 with corresponding supporting documents. The EcoVadis analysts 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 information including a detailed overview of identified strengths and improvement areas as well as a weighted overall result for the suppliers analyzed.

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 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, 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 2019, 81% (previous year: 80%) of our relevant purchasing value was attributable to suppliers whose externally determined results* meet our sustainability requirements. Furthermore, 56% of our strategically most important suppliers who conducted a repeat assessment in 2019 have improved over their previous results.

In 2019, assessment results considered critical by Covestro were identified for nine 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: 1%). 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. None of the audits conducted revealed any indication of child or forced labor.

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.

Sustainability training and dialogue

For Covestro, it is important for our own procurement staff, in particular, to have a comprehensive understanding of the significance of sustainability in the supply chain. Awareness was raised among employees again in 2019 in company-wide sustainability training plus region- and country-specific training on assessment methods and processes.

We continued promoting the implementation of four strategic principles in procurement (reliability, sustainability, cost transformation and innovation) in 2019. In addition, Regional Program Managers were posted in each of the EMLA, NAFTA and APAC regions in the previous year. They work to promote the permanent establishment and optimization of our sustainability program.

Dialogue and close collaboration are essential in enabling suppliers to successfully comply with Covestro’s sustainability requirements. We therefore offer our suppliers a range of opportunities for training and dialogue. This provides the foundation for building reliable relationships and enables us to identify and eliminate issues at an early stage. Continually improving our suppliers’ sustainability performance is a priority for Covestro and is supported by the TfS initiative, which regularly organizes supplier days and promotes further training, among other activities. TfS provides a wide range of information materials and various online training courses on its website.