Management
Sustainability
Doing business sustainably is a major factor in Covestro’s success. This requires us to integrate sustainability principles into all of our business activities, while at the same time ensuring adequate focus on the issues of greatest relevance to us and our stakeholders. Sustainability issues are therefore also integral to corporate governance.
Management and governance
The Sustainability function advises the other corporate functions by sharing its extensive technical expertise on topics such as life cycle assessment (LCA), human rights, and the United Nations Sustainable Development Goals (SDGs). A network of sustainability officers guarantees access to this expertise for all corporate functions and all regions in which we operate.
Occupational health and safety and environmental protection are monitored using a Group-wide management system. Support is provided by a centralized team of experts with global responsibility for these issues.
A holistic review of the issues of sustainability as well as health, safety, environment, energy, and quality (HSEQ) is conducted by the Board of Management. The company’s management sets quantitative targets, monitors success on the basis of performance indicators, sets priorities, and adjusts the allocation of resources when necessary.
Our principles are anchored in publicly available corporate policies. They provide concrete specifications on the important issues of value creation, sustainability, innovation, people, HSEQ, and compliance. The framework for our activities in these policies is described more specifically and in greater detail in directives. Directives are binding for employees throughout the Group and are available to all staff in an in-house database. Compliance with the directives is verified using annual internal audits. In addition, issues and action plans as well as target attainment are monitored in a management review. Global and local procedures for the relevant processes ensure that the content of corporate policies and directives is implemented in all operating units.
Binding ethical and legal principles are anchored in our compliance directive, which includes important guidelines on fair and respectful working conditions and on fighting corruption, among other topics. Covestro has implemented a reporting process so that employees can report potential compliance violations anonymously. Targeted communication measures and employee training sessions ensure that the contents of the compliance directive are understood throughout the organization.
Material sustainability topics
Covestro coordinates its sustainability activities across the Group and focuses on topics of particular significance. We regularly conduct a materiality assessment to identify and prioritize the most important sustainability topics for the Group. This year, we established a new materiality assessment process to further strengthen the link between sustainability and our strategy and risk management activities. This closer connection with the existing processes of other corporate functions increases the relevance of the results and fosters their systematic use.
Results of the materiality assessment
The process of determining the material topics in the reporting year involved the compilation of a long list, including sustainability topics from external and internal sources, and an assessment of their relevance to Covestro. It also took feedback and opinions of external and internal stakeholder into account. To identify the material sustainability topics for Covestro, we applied the three dimensions of materiality: “business relevance,” “stakeholder relevance,” and “impact.” The topics were combined into thematic areas for the first time in the reporting year and broken down into four categories (Innovate, Manage, Observe, Acknowledge) to reflect the activities appropriate to the topics to be derived for Covestro. The breakdown into categories helps combine familiar and new topics in the materiality assessment, since the action required differs depending on the management approaches in place. The material topics and their classification have been reviewed and approved by the Board of Management. They are reviewed annually and, if necessary, modified in line with the latest developments. The comprehensive materiality analysis described here is scheduled to take place every three to four years.
Material sustainability topics in the “Innovate” category
The material topics in the “Innovate” category are highly relevant to our business and for stakeholders, and provide opportunities for direct influence by Covestro. New management approaches must be defined and established for these topics of future relevance.
“Circular and Climate Neutral Economy” topics have become increasingly important in the public debate. Their growing relevance is also reflected in Covestro’s vision: We will be fully circular. Specific action items in our Group-wide circular economy program were identified for implementation and approved by the Board of Management.
“Solutions Contributing to SDGs” is another cluster whose increase in relevance we have observed. We have been aligning our innovation activities more strongly with the UN SDGs since the year 2017. In the reporting year, we began systematically evaluating our research and development (R&D) projects for their contribution to the SDGs. A total of 96% of R&D project costs incurred have already been assessed, and 51% of them exceed the threshold we have defined. We consolidate our activities in the material topic of inclusive business in a program under which we aim to meet needs in what are known as underserved markets. Our collaborative approach ensures that we offer scalable solutions intended to reach as many people as possible.
Corporate culture continues to be a key factor in our company’s focus on sustainability. Covestro targets innovative solutions to advance topics of relevance to employees now and in the future. Where necessary, we establish suitable indicators of progress for this purpose.
Material sustainability topics in the “Manage” category
The “Manage” category comprises the material topics that are highly relevant to our business and for stakeholders, and provide opportunities for direct influence by Covestro and where Covestro already has robust management approaches in place. The management approaches associated with these topics are continually reviewed and improved further as needed.
In the reporting year, we reviewed and restructured the organization of the HSEQ corporate function. The “Environmental Impact of Own Operations” cluster is a core element of our integrated HSEQ management system.
As a company in the chemical industry, we have a special responsibility with respect to health and safety. We intend to manage this responsibility with our integrated HSEQ management system.
Covestro combines the following topics under the umbrella of “Responsible Business Practices”: “Community engagement,” “Compliance,” “Human rights due diligence,” “Sustainability in sourcing,” and “Transparency and trust.”
To document our commitment to sustainable finance and advance this, and to enhance our attractiveness for sustainability-oriented investors, we focus on a number of different strategic sustainability rankings.
Material sustainability topics in the “Observe” and “Acknowledge” categories
In addition to the key topics in the “Innovate” and “Manage” categories, additional topics were identified that could become more important for Covestro in the future.
Financial instruments linked to sustainable performance provide interesting opportunities for Covestro. The use of these instruments allows the company’s sustainable development to have a direct impact on financing and its costs. In the reporting year, Covestro already entered into two financing agreements that link changes in its sustainability rating to financing costs. Covestro continually observes whether other financial instruments can be linked meaningfully to sustainability aspects.
“Biodiversity” is a significant topic for our stakeholders, and we expressly acknowledge the societal importance of this issue. Our commitment to a circular economy and the associated increase in the use of biobased raw materials will make the topic of biodiversity more and more important for Covestro in the future.
Optimizing business practices
Continually maintaining and enhancing our sophisticated management systems is a key priority in ensuring societal acceptance of our ongoing business activity (license to operate). Based on our continual improvement process, we reviewed and redesigned our existing HSEQ management systems during the reporting year. A particular focal point in fiscal 2020 continued to be the topic of “Human rights due diligence.” We also updated our methodology for systematically assessing our water risks in the reporting year and now consider not only physical but also regulatory risks at our production sites.
Public recognition
Our sustainability activities relating to environment, social, and governance (ESG) are regularly evaluated by third-party organizations such as rating agencies. Sustainability ratings are not only a decision-making basis for institutional investors and customers, but also help us to continually review our sustainability activities and supplement them as needed. We have identified four strategic ratings and actively engage with the agencies. In the year 2020, Covestro received special recognition from the rating agency ISS ESG, which again awarded us Prime status with an overall score of B–. This puts Covestro among the best 10% of rated companies in the chemical industry. Additionally, Covestro was ranked above average once more by another rating agency, Sustainalytics, placing third out of 120 specialty chemical companies assessed. In the year 2019, the international rating agency EcoVadis gave us its top Gold rating, we also retained the previous year’s A rating from MSCI ESG Research, one of the world’s largest provider of sustainability analyses and ESG ratings. In addition to the above-named ratings, we also qualified to remain listed in the important FTSE4Good Series.
Assessments by rating agencies
We consider the results in these ratings and the inclusion in sustainability indices as an indication of our environmental, social, and governance performance. The details of these ratings also show us how we can continue to improve.
Sustainability targets
In the year 2016, we set targets for key nonfinancial topics. We report in detail on our progress in the relevant sections:
- Our project portfolio for research and development should be aligned with the SDGs. By the year 2025, 80% of project expenditures for research and development are to be used in areas that contribute to reaching these goals. In the year 2020, 51% of R&D project costs met this target.
- All of our suppliers with regular purchasing volumes of more than €100,000 per year are expected to comply with our sustainability requirements by the year 2025. During the year 2020, 79% of relevant suppliers met our sustainability requirements (previous year: 81%).
- Specific greenhouse gas emissions per metric ton of product manufactured are to be reduced by 50% from the 2005 benchmark by the year 2025. By the end of the year 2020, we achieved a reduction of 46.2% (previous year: 46.1%).
- We want 10 million people in underserved markets to benefit from our solutions by the year 2025. The goal is to improve their standard of living primarily through affordable housing, sanitation, and food security. By the end of the year 2020, our solutions had already reached 1.1 million people (previous year: 0.7 million people).
- We intend to create more value and increase our carbon productivity by using fewer carbon-based fossil resources. Except for our efforts toward improving energy efficiency in our production processes, we also consider our circular economy activities to be a key factor in this regard.
Stakeholder dialogue
We have a close and collaborative relationship with our stakeholders. They assess our company not only from a legal standpoint, but also according to whether we do business in a sustainable and ethical manner. In order to identify material sustainability topics, we continually analyze the interests, expectations, and needs of our major stakeholders and incorporate the results into our target plan and our opportunity and risk management activities.
An open and continuous exchange with our regional, national, and global stakeholders is the foundation for mutual understanding and societal acceptance of Covestro’s decisions. At the same time, these discussions provide new inspiration and important recommendations.
The following chart provides an overview of our key stakeholder groups and the relevant dialogue formats.
Covestro’s transparent dialogue with important stakeholders
Depending on the topic and its relevance, Covestro’s departments identify and prioritize major stakeholders and select the appropriate dialogue format and frequency of contact in each case. Covestro has been using various digital dialogue formats (for example, for the Annual General Meeting as well as employee and customer events) to ensure that we stay in touch with our stakeholders during the coronavirus pandemic.
Contribution to the United Nations Sustainable Development Goals (SDGs)
The SDGs are significant in their entirety for developing and improving living conditions worldwide. For this reason, it is important to us to maintain our focus on all SDGs and their relevant subgoals. In our opinion, all the SDGs are equally important, are closely interconnected, and influence each other. Our objective is to contribute to the attainment of all of these goals or to maximize our influence on them. The SDGs serve primarily as a source of inspiration for innovation and as indicators for the future direction of the company.
We have conducted a detailed analysis on the SDGs and our contributions, taking a close look at the top-level SDGs and their subgoals – under additional consideration of the UN’s guidelines on interpreting the SDGs. We found that Covestro already makes substantial positive contributions to all 17 SDGs and many subgoals. The majority of these relate to products in our core business that, during their use phase, help conserve large amounts of energy. Additional contributions stem from our own production activities, our business practices, our community engagement, and solutions for underserved markets (the inclusive business segment).
In order to increase our contributions in the future, we are aligning our R&D portfolio with the SDGs, and the further operationalization of this goal was again a focal point of this reporting year.
In addition to evaluating the positive contributions to the SDGs that Covestro is already making, the analysis aimed to identify requirements that Covestro could face. By these types of requirements we mean topics that, from the perspective of stakeholders, could potentially be seen as having a negative impact on individual SDGs if there was any inactivity or neglect. For example, we are aware that our production is associated with high energy requirements. For this reason, we have set ourselves the target of reducing specific greenhouse gas emissions in our production by 50% until the year 2025 from the 2005 benchmark. To this end, we have initiated many activities that will reduce energy usage in our production and cut greenhouse gas emissions. Moreover, some of our products contribute to saving energy during the usage phase. In many cases, more energy is saved during usage than was used in their production – for example, in building insulation.
As a chemical industry player, Covestro has a particular responsibility – of which we are continually aware. For this reason, we ensure that the challenges we have identified are systematically addressed and continuously monitored. In this way, we want to ensure that we make positive contributions to the SDGs, including and especially in challenging areas – e.g., in areas where we currently have a low profile – or that our activities are at least neutral.
Current Covestro contribution to the SDGs (Covestro internal study 2017; R&D projects updated in the year under review)1
1 The impact of the contributions is comparable only within individual areas of activity.
2 Evaluation of R&D projects by project budget and estimated SDG contribution.