Covestro Group at a Glance

Sustainability

Covestro is fully committed to sustainability, as shown in our purpose “to make the world a brighter place.” This is underscored by our vision, “We will be fully circular,” as well as by the Group’s Sustainable Future strategy, which has “Drive Sustainable Growth” and “Become Fully Circular” as strategic chapters. We set sustainability targets as early as in fiscal 2016 and continually adapt these targets in line with our strategy and vision. We announced in the year 2022 that we would reach net-zero emissions* by the year 2035 in our own production and in the provision and use of energy produced outside the company at all environmentally relevant sites. Moreover, a sustainability component, measured against selected ESG criteria, was laid down in the management system in the reporting year.

• See “Covestro’s Sustainability Targets.”
• See “Management System.”

We integrate sustainability into our business activities, while at the same time ensuring that we deal with related topics and issues of greatest relevance to us and our stakeholders. In addition to our responsibility for the environment, we also want to fulfill our social responsibility within society in accordance with our purpose. This is why we strive to add value at the social, environmental, and economic levels. Our decisions and our actions take into account the three dimensions of sustainability: people, planet, and profit (PPP). This is to ensure that every decision, every action we take, and the resulting consequences are considered holistically, that is, throughout the entire value cycle.

Sustainability approach of people, planet, and profit in the value cycle

United Nations Sustainable Development Goals (SDGs)

Against the backdrop of our commitment to sustainability, the SDGs are critically important to us as a guideline for improving living conditions worldwide. The SDGs serve primarily as a source of direction and inspiration for innovation and as a guide for the future positioning of the company.

• Additional information is available at: www.covestro.com/en/sustainability/service-downloads/policies-commitments

Covestro already makes positive contributions to all 17 SDGs and many sub-goals. The majority of these relate to products in our core business that, for example, help conserve large amounts of energy during their use phase or are used in other sustainable applications. Additional contributions stem from production activities, workflows, and our business practices, from our social engagement, and from solutions for underserved markets (the inclusive business segment). In addition to evaluating the positive contributions to the SDGs that Covestro is already making, we believe that any analysis of SDGs must also aim to identify potential additional requirements that Covestro could face. By this, 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. We are aligning our research and development (R&D) portfolio to the SDGs to increase our contributions further.

Covestro’s contributions to the SDGs

Materiality Assessment

We identify material sustainability topics to create a foundation for Covestro’s worldwide sustainability efforts and define focal points for our sustainability management activities. Specific targets, measures, and management approaches for the respective material sustainability topics are specified in the detailed information of the relevant chapters of the Group Management Report.

Materiality Assessment Process

Regularly conducted materiality assessments help us to identify and prioritize the sustainability topics most important to the company. We perform both comprehensive materiality assessments every three to four years and annual reviews, an abridged process with reduced scope and effort. The most recent comprehensive materiality assessment was conducted in the fiscal year 2020. In fiscals 2021 and 2022, we reviewed all material topics and modified them as necessary in line with the latest developments. Both comprehensive and annual reviews are conducted in four steps: identify, assess, validate, implement. In the reporting year, we took account of the revised Global Reporting Initiative (GRI) Standards and from now on report “in accordance with GRI.” The amendments to the GRI Standards led to stakeholder relevance, the third materiality dimension that was previously considered, being dropped from explicit consideration; it will instead be dealt with along with the remaining materiality dimensions. This did not affect the assessment of material sustainability topics.

Steps in the materiality assessment process

Identify

We complete a comprehensive analysis every three to four years to identify the material sustainability topics that could be significant for Covestro and compile an extensive list of topics from internal and external sources. At the annual review, we assess the previous year’s material issues using an abridged process and adapt them or add new issues.

Assess

For both the comprehensive materiality assessment and annual reviews, an internal committee of experts assesses the material sustainability topics for their relevance to Covestro; this process takes feedback and opinions of external and internal stakeholders into account. To identify the material sustainability topics for Covestro, we apply the two dimensions of materiality: “business relevance” and “impact of Covestro’s activities on the respective sustainability aspects.” Rated on a scale from “not relevant” to “highly relevant,” business relevance takes account not only of the possible or real financial impact of a sustainability aspect on the company, but also issues that receive a lot of attention from the Board of Management, strategic topics, or opportunities and risks. When assessing the “impact of Covestro’s activities on the respective sustainability aspects,” likewise rated on a scale from “not relevant” to “highly relevant,” probability, scale and severity, duration and irremediability, and opportunities and risks for people and the environment are considered. Sustainability topics are considered material if they have at least medium relevance in one of the two materiality dimensions.

Validate

The internal committee of experts, which is involved in the review of the material sustainability topics, confirms the result of the materiality assessment. The material topics and their assessment are reviewed and acknowledged annually by the Chief Sustainability Officer (CSO) and the Board of Management.

Implement

The material sustainability topics are handled and managed by the topic owners from the respective expert functions according to the need for action identified. This includes a review of nonfinancial opportunities and risks as part of risk management.

• See “Opportunities and Risks Report.”

Details of the material sustainability topics and the corresponding management approaches are provided in the nonfinancial section of the Group Management Report.

• See “Nonfinancial Group Statement.”

In the reporting year, the annual review was conducted by a committee of experts consisting of employees from the corporate functions (including, but not limited to, Strategy; Portfolio Development; Investor Relations; Group Health, Safety and Environment; Sustainability & Public Affairs) and from Risk Management, as well as topic owners. This group was tasked with responsibilities including bringing in the views of stakeholders from inside and outside the company. In addition, a global network of employees whose work interfaces with the area of sustainability was surveyed on possible topics to be included for review in the materiality assessment. The feedback was taken into account by the committee of experts when it identified and evaluated the material sustainability topics.

Material Sustainability Topics in Fiscal 2022

The committee of experts confirmed the material sustainability topics identified in the previous year, also taking into account recent external developments, such as the energy crisis. Moreover, the material sustainability topics were aligned more closely with the Sustainable Future strategy.

Materiality matrix

The previous year’s topics (“Recyclability & end-of-life solutions,” “New business models,” and “Alternative raw materials”) were consolidated under the “Circular economy” topic. We devote our expertise in chemical processes to supporting the development of recycling processes for used materials for plastics production. Covestro aims to use alternative raw materials to switch the fossil raw materials we use in production to renewable. Through our activities in these areas, we develop innovative action areas for implementing our vision of becoming fully circular.

• See “Circular Economy.”
• See “Innovation.”

The material sustainability topic of “Climate neutrality” combines the Scope 1, Scope 2, and Scope 3 “GHG emissions” and “Renewable energy,” which reflect the aspects of the goal we published in the reporting year to become climate-neutral by the year 2035 in our own production (Scope 1 emissions) and in the provision and use of energy produced outside the company (Scope 2 emissions) at all environmentally relevant sites. In addition to energy efficiency measures for the manufacture of our products, renewable energy will continue to be used as part of our efforts. Innovative approaches will be required in particular for reducing our Scope 3 GHG emissions. We want to announce a reduction target for our Scope 3 GHG emissions in fiscal 2023.

• See “Climate Neutrality.”

The material sustainability topic of “Sustainable products and product stewardship” combines the previous year’s topics of “Sustainable product portfolio” and “Product stewardship”; it is of particular importance for the implementation of our Sustainable Future strategy. For us, a sustainable product portfolio plays a key role in fulfilling our purpose of becoming fully circular and making our contribution to climate neutrality. To us, the safe handling of our products is the prerequisite to making our product portfolio sustainable.

• See “Sustainable Products and Product Stewardship.”

Our “Sustainable R&D-based innovation portfolio” forms the basis for a sustainable product portfolio. Since the year 2017, we have aligned innovation more closely with the SDGs as a way of driving sustainable product development. Covestro’s goal is to devote 80% of its R&D costs by 2025 to projects that contribute to achieving the SDGs.

• See “Innovation.”

“Diversity, equity, and inclusion,” which are elements of our “We Are 1” culture and therefore part of the foundation of our Group strategy, play an important role in the company’s sustainability position. The topic’s relevance to our business has increased year-on-year as a result. We therefore continue to pursue innovative solutions to topics that concern our employees.

• See “Promoting Diversity, Equity, and Inclusion.”

The business relevance of the material sustainability topic of “Health and safety” increased in the reporting year in view of our accident statistics. As a chemical company, we bear a special responsibility for the health and safety of our stakeholders. Safety is a fundamental principle of our actions. The topic, which combines the sub-topics of “Workplace health and safety” and “Process and plant safety,” is an integral part of our integrated Health, Safety, Environment, Energy, and Quality (HSEQ) management system. We strive to eliminate workplace incidents and accidents and operate our plants safely to protect people and the environment.

• See “Health and Safety.”
• See “Integrated Management System for Health, Safety, Environment, Energy, and Quality.”

For the material sustainability topic of “Human rights,” we have likewise established an effective management system to contribute to respect for human rights in all the Covestro Group’s activities and throughout global supply chains and value chains, and to prevent potential human rights violations. We expect the business relevance of this topic to continue to increase.

• See “Human Rights.”

Our commitment to sustainability also includes our suppliers. We promote “Sustainability in the supply chain” with social, ethical, and environmental standards for new and existing suppliers. We have set ourselves the goal of having 100% of our suppliers with regular purchasing volumes of more than €1 million comply with our sustainability requirements by the year 2025. The assessments of our suppliers in this regard are an integral part of our processes.

• See “Sustainability in the Supply Chain.”

We consolidate our activities around the sustainability topic of “Inclusive business” in a program under which we aim to meet needs in what are known as underserved markets. Although we continue to pursue the aim to have 10 million people in underserved markets benefit from our solutions by the year 2025, the topic’s significance to us declined in the course of the fiscal year in relation to other material sustainability topics.

• See “Inclusive Business.”

The topic of “Air quality, water, and waste” is an integral part of our integrated HSEQ management system. Aspects associated with this topic (emissions into the air, waste, and wastewater) are integral to our management and business processes. Emissions are included in the collection of data throughout the Group and in environmental impact assessments. We strive to reduce waste streams by disposing of waste by type and implementing economically feasible recycling processes. We view water and wastewater holistically with regard to water usage and quality as well as wastewater volumes and possible plastic waste in the world’s oceans.

• See “Environmental Impact of Own Operations.”
• See “Integrated Management System for Health, Safety, Environment, Energy, and Quality.”

The material sustainability topic of “Employer attractiveness” is highly relevant to our business. Against the backdrop of growing skills shortages, we continue to drive our efforts to win qualified expert staff and retain them for the long term.

• See “Place to Be' Action Area.”

Our commitment to sustainability is also reflected in our financing activities. With our material sustainability topic of “Sustainability in finance,” we firstly want to increase our attractiveness for investors interested in sustainability; secondly, financial instruments linked to sustainable performance offer attractive possibilities for obtaining sustainable capital. Already, important financial instruments are linked to the performance of relevant strategic sustainability rankings and have a direct impact on our cost of financing.

• See “Sustainable Finance.”
• See “Financial Position.”

The material sustainability topics of “Corporate Governance” and “Compliance” form the foundation of our business practices. Both topics are embedded in our organization’s processes and workflows.

• See “Compliance.”

We anticipate that the material sustainability topic of “Biodiversity” will gain in business relevance in the future. Contributing factors will be our commitment to a circular economy and environmental protection and the associated increase in the use of biobased raw materials. In connection with our alternative raw materials, we have begun to have sites certified under the ISCC PLUS system. International Sustainability and Carbon Certification (ISCC ) is a recognized system for the sustainability certification of biomass and bioenergy. The standard, which covers all stages of the value chain, is recognized worldwide. It is a supply chain standard and therefore also includes requirements for producers of these alternative raw materials.

• See “Circular Economy.”

Although “Transparency and trust” was no longer explicitly considered a material sustainability topic in the fiscal year under review, internal and external stakeholder expectations were nevertheless addressed with different activities.

While we want to contribute to sustainable development through our “Social engagement and donations” activities, this topic has not been treated as a material sustainability topic since the reporting year. Our work continues, however, and we report on it on our website and through social media channels.

Sustainability Management

Covestro’s Sustainability Targets

We have already embedded sustainability-related factors in our management system in order to further drive the implementation of our Sustainable Future strategy. Since fiscal 2022, we have measured our business success partly on the basis of selected environmental criteria. In the year 2022, the direct and indirect GHG emissions, measured in terms of CO₂ equivalents, of the main sites were to this end integrated into the management system. In future, we also want to include social and governance criteria to cover all three of the environmental, social, and governance aspects. This sustainability component – one of a total of four – is relevant for the Covestro Profit Sharing Plan (Covestro PSP), our short-term variable compensation program, which as from the year 2022 applies to all Covestro employees worldwide, including the Board of Management; any exceptions are essentially due to collective bargaining arrangements.

• See “Management System.”

In addition, back in 2021, we introduced a sustainability component – one of a total of three – into Prisma, our long-term variable compensation system for the Board of Management and eligible senior management employees.

• See Compensation Report, section “Long-Term Variable Compensation.”

The approach that we apply to our sustainability targets aims to cover the entire product life cycle, including social, environmental, and economic aspects. Our sustainability targets contribute to achieving the SDGs and reflect the aims of some of our material sustainability topics. We continually observe developments outside the company and develop our sustainability targets in line with our vision and corporate strategy. As a result, we announced our climate neutrality goal in the reporting year. We report on details of our sustainability targets and progress toward meeting them in the appropriate sections of the Group Management Report:

Covestro’s sustainability targets

Apart from the above, we pursue other sustainability goals and ambitions:

• Our production processes are intended to use 100% alternative raw materials and thus contribute to our pursuit of a circular economy and to reducing our Scope 3 GHG emissions.

• See “Circular Economy.”

• We aim to cut the specific primary energy usage by at least 50% at all environmentally relevant production sites by the year 2030. This is an important milestone of our energy efficiency measures. Meeting this target will therefore also make an important contribution to climate neutrality on our part.

• See “Climate Neutrality.”

• By the year 2029, we want women to account for at least 40% of the workforce in all employee categories and in this way promote diversity and equity for all genders at all levels.

• See “Employees.”

• The above ambition is underpinned further by the target for the proportion of women in the first two management levels below the Board of Management for the period through June 30, 2027. This target replaces our previous target to deploy at least 30% women in the first two management levels below the Board of Management by June 30, 2022. Due to the change in general conditions and the impact this had on the composition of our management structure, we did not meet this target, even though we increased the proportion of women in the Covestro Group by 2022.

• See “Declaration on Corporate Governance.”

Monitoring

Sustainability is a core element of our Group strategy with an increasing impact on our business activities. Oversight of sustainability at Covestro begins with the company’s highest governing body, the Supervisory Board, whose Sustainability Committee was established in the year 2021. It advises the Supervisory Board, some committees, and the Board of Management in particular on issues of sustainable corporate governance and on the company’s activities relating to environmental, social, and governance criteria. Shareholders and employees are equally represented on the Sustainability Committee, with two representatives each. As of December 31, 2022, the proportion of women was 25%. The committee is chaired by Lise Kingo, a Supervisory Board member with proven expertise in the area of sustainability. As part of its function, the Sustainability Committee supports, monitors, and issues recommendations on the Board of Management’s ESG strategies, targets, and initiatives, including the environmental, social, societal, ethical, and circular economy aspects of Covestro’s business along the entire value chain. The Sustainability Committee helps the Audit Committee examine sustainability-related statements ahead of the audit of the Group’s nonfinancial statement. Furthermore, it advises the Human Resources Committee on setting ESG targets for Board of Management compensation.

• Additional information is available at: https://www.covestro.com/en/company/management/supervisory-board
• See Capital Market, section “Report of the Supervisory Board.”

Even though responsibility for sustainability has been assigned to our CEO, this area is dealt with by the Board of Management as a whole. The management monitors progress, sets priorities, and, where necessary, adjusts the allocation of resources. The meetings of the Board of Management, which are regularly convened, addressed a number of different sustainability focus areas in the course of the fiscal year. The agenda included, for example, the targets to cut Scope 1 and Scope 2 GHG emissions announced at the beginning of 2022, progress in the drafting of reduction targets for Scope 3 GHG emissions, regulatory developments such as the EU Taxonomy Regulation, the German Act on Corporate Due Diligence Obligations for the Prevention of Human Rights Violations in Supply Chains, and the assessment of our investment portfolio according to sustainability criteria.

A central governance body for environmental, social, and governance (ESG) issues was set up in the year 2021 to ensure continual progress and the permanent integration of our sustainability-related activities into all corporate functions. The ESG Governance Body (ESG GoB) is staffed with top-level executives from the business entities and relevant corporate functions. Depending on the topic, additional internal and external guests may be invited to participate. The Chief Executive Officer (CEO) chairs the committee, and the Head of the corporate Sustainability and Public Affairs (S & PA) function is tasked with organization and management.

The committee is responsible for Group-wide sustainability issues, oversees mission-critical projects and activities related to sustainability, and possesses the corresponding decision-making powers. In addition, in-depth discussions are held throughout the Group to identify important issues and trends and to promote the implementation of sustainability-related activities in the corporate functions and business entities. The goal here is to manage sustainability issues consistently and holistically and to accelerate the implementation of the sustainability agenda. At regular meetings held in the reporting year, the issues discussed by the ESG GoB included the targets for Scope 1 and Scope 2 GHG emissions announced at the beginning of the year 2022, possible reduction targets in relation to Scope 3 GHG emissions and the circular economy, rating performance, and the strategic focus of ratings. Other topics of discussion were progress of the portfolio sustainability assessment, mass balancing, and donations in response to the humanitarian crisis in Ukraine.

Composition of the ESG Governance Body (ESG GoB)

The head of the corporate S & PA function, who also acts as Chief Sustainability Officer (CSO), reports to the CEO. As a corporate function, S & PA defines the sustainability strategy and spearheads general sustainability projects and programs in the company. In addition, S & PA coordinates Covestro’s sustainability activities and supports the other corporate functions and business entities in implementing them in operations. Furthermore, it represents Covestro’s interests outside the company.

The corporate function, which consists of several central departments, is responsible for circular economy, climate and energy, sustainable product portfolio management, stakeholder engagement, and social issues. The departments are supported by additional regional experts who pursue an integrated sustainability and interest agenda while taking into account regional requirements. The central departments report to the CSO. 

Stakeholder Dialogue

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. 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 materiality analysis, our sustainability agenda, our human rights management system, and our opportunity and risk management activities throughout the Group.

• See “Material Sustainability Topics in Fiscal 2022”
• See “Human Rights.”

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, we identify and prioritize our stakeholders and select the appropriate dialogue format and frequency of contact in each case. We have a number of different channels available to facilitate our dialogue.

Our sales and procurement employees, for example, use various digital and personal channels to stay in touch with our customers and suppliers.

• See “Procurement.”
• See “Marketing and Sales.”

In addition, site-specific functions look after the interests of local communities in the proximity of our sites. To report suspected or potential human rights violations in the supply chain, we also use our existing whistleblower tool, which consists of a worldwide hotline and an online tool.

• See “Human Rights.”
• See “Compliance.”

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 the company stays in touch with stakeholders during the ongoing coronavirus pandemic.

Sustainability in Finance

The issue of sustainability is gaining in importance for global financial markets and investors and is becoming increasingly relevant for investment decisions. 

• See “Material Sustainability Topics in Fiscal 2022.”

This trend is boosted at the global level by specific legal requirements and initiatives relating to climate and environmental protection. The European Commission’s Green Deal, for example, includes measures and instruments for the financial market. Since this means that sustainability is increasingly turning into a success factor for competitiveness on the capital market, our capital market communications regularly report on our strategy, goals, as well as concrete initiatives and progress in the area of sustainability.

• See “Stakeholder Dialogue.”

Sustainable Finance

We investigated innovative sustainable finance solutions at an early stage. As early as in the year 2020, we obtained a syndicated revolving credit facility. Some of the terms of this line of credit are linked to our performance in the ESG rating that is currently issued by Sustainalytics. In October 2022, we issued our first Schuldschein loan, whose financing costs are likewise based on the performance of an ESG rating.

We moreover extended our commitment in the reporting year by staking out a framework for sustainable finance. This Green Financing Framework enables green bonds to be issued where the funds raised are tied to sustainable investments that we can use, e.g., to (re)finance products or projects with a clear benefit for the environment. The framework’s conformity to the Green Bond Principles of the International Capital Markets Association (ICMA) has been confirmed by the independent ESG rating agency ISS ESG. In November 2022, on the basis of the Green Financing Framework, we issued our first green euro bond with a total volume of €500 million on the capital markets. This step underscores or strong commitment to sustainability. All the proceeds from the bond issue are to be used to fund projects that contribute to the circular economy and originate in areas such as renewable energy, energy efficiency, and sustainable building.

• See “Material Sustainability Topics in Fiscal 2022.”
• See “Financial Position.”

External Ratings

The recognition and assessment of our sustainability performance by rating agencies creates additional transparency and confirms that we are successfully implementing our strategic focus on sustainability. We recalibrated our rating strategy in the reporting year and now actively participate only in ratings that add significant value for our stakeholders and the company.

• Additional information is available at: www.covestro.com/en/sustainability/what-drives-us/rating-and-indices

We took part in the following ESG ratings in the year under review: CDP Climate, EcoVadis, MSCI ESG, and Sustainalytics. Covestro was again part of the CDP Climate initiative to enhance climate protection transparency for investors and markets. As in the year 2021, the Group was awarded an “A–” rating. Since we are a member of the Together for Sustainability (TfS) initiative, our sustainability management was again assessed by the rating agency EcoVadis and given Gold status. At MSCI ESG, one of the global leading providers of sustainability analyses and ESG ratings, our rating improved to "AA," from "A" in the previous year. Covestro is one of the leading companies in the Sustainalytics ESG rating, where it was honored as an ESG Industry Top Rated Company.

Covestro was also included again in the FTSE4Good Index Series of the global index provider FTSE Russell.

Ratings by external ESG rating agencies

• Additional information is available at: www.covestro.com/en/sustainability/what-drives-us/rating-and-indices