Annual Report 2023


Innovation as a driver of greater sustainability in line with our corporate vision of becoming fully circular is a core element of our Group strategy and an integral partuelof our identity. Our understanding of innovation is broadly defined: We base our actions on the SDGs and do not rely on traditional research and development (R&D) alone, but also on the great potential for creativity throughout the company. We encourage all employees to promote innovation at Covestro.

We work at all levels in close partnership with the Chief Executive Officer (CEO), who is responsible for Innovation. The aim is to maintain and reinforce our position in the global arena by developing new products, refining established ones, and optimizing manufacturing and processing procedures. Likewise, application areas, business models, and business processes are subject to ongoing review.

Covestro has split innovation activities into three core areas: In the first core area, we conduct business-related R&D in the business entities, focusing on specific, short- and medium-term R&D issues. As for the second area, the corporate Group Innovation & Sustainability function mainly deals with medium- and long-term sustainability, circular economy, and digital transformation issues. Issues of strategic importance, such as chemical recycling or applications of alternative raw materials for our product portfolio, are promoted on what we refer to as innovation platforms. Group Innovation & Sustainability is also responsible for the third core area, which entails providing a globally harmonized R&D infrastructure and supporting the business entities in research and development.

The corporate Process Technology function acts firstly by improving existing production processes with R&D projects that have a short- or medium-term focus and secondly by promoting process developments related to sustainability, the circular economy, and digitalization, many of which are medium- to long-term in nature. Group-wide steering committees chaired by the CEO network and coordinate the three core innovation areas. To ensure that innovation topics are coordinated with sustainability and digitalization topics, the head of the corporate Group Innovation & Sustainability function is a member of the relevant cross-functional steering committees, such as the ESG Governance Body (ESG GoB) or its successor, the Sustainability & Innovation Governance Body (SI GoB).

Innovation Management

By managing innovation across functions throughout the Group, we ensure that our ongoing and planned activities always satisfy the needs of our user and consumer industries. Covestro uses a wide variety of tools to achieve this: For example, we use a standardized method to assess every R&D project and incorporate the resulting findings into ongoing and future projects. The global, digital platform “idea.lounge” is available for discussing and working on new, creative ideas from all parts of the company. Apart from that platform, an additional digital platform called “Covestro Ideenmanagement” (Idea Management) is available to employees in Germany and is used to manage all suggestions for improvement throughout the company. Furthermore, innovation management covers the systematic establishment and control of local and global alliances for acquiring skills that are strategically relevant and complementary to Covestro.

In fiscal 2023, our total R&D expenditure amounted to €374 million (previous year: €361 million). This mainly went toward developing new application solutions for our products and optimizing products and process technologies. As of December 31, 2023, 1,338 employees* (previous year: 1,477) worked in research and development, most of them at the three major R&D sites in Leverkusen (Germany), Pittsburgh, Pennsylvania (United States), and Shanghai (China).

* The number of permanent or temporary employees is stated in full-time equivalents (FTEs). Part-time employees are included on a pro-rated basis in line with their contractual working hours. The figures do not include employees in vocational training. Prior-year figures are shown in brackets.

Strategic Partnerships and Collaborations

Research and Teaching

Covestro wants to increase the efficiency of its research with in-house activities and strategic collaboration with industrial and scientific partners. Alliances and collaboration in large, publicly funded consortia characterize our partnerships with research facilities and universities as well as with companies along the value chain.

The Three Most Important Alliances with Universities

The QuinCAT – Quick Incubation in Catalysis incubator at RWTH Aachen University, which is subsidized by the German state of North Rhine-Westphalia and supported by Covestro, was successfully brought into operation in the year 2023. The incubator will be a place for developing ideas involving chemicals to enable the establishment of a company as a second step. Covestro provides consulting on this process, and will be represented by our CEO on the steering committee when it convenes. The group of young researchers on enzyme catalysis, or NEnzy for short, deals in particular with the biodegradability of plastics and wastewater purification in plastics production.

Open Innovation and Joint Projects with Partners along the Value Chain

To transition to a circular economy, we need the involvement of our suppliers and customers. In pursuit of this, Covestro firstly taps into existing ecosystems, following an open innovation approach by providing or taking part in cooperation platforms. Secondly, in real-life projects, recycling technologies are transitioned from research to industrialization.

Since fiscal 2023, we have worked with partners from research and industry on LUCRA, a project subsidized by the European Union (EU) to convert organic waste and residue materials into succinic acid. Succinic acid, one of the most important base chemicals, is used by Covestro, e.g., in the manufacture of isocyanates.

Through the Hubs4Circularity knowledge community, another initiative supported by the EU, we are collaborating with a number of European partners on implementing circular concepts with a regional reach. The community intends to contribute to harnessing insights from existing initiatives and concepts and transferring them to other projects. The creation of a joint knowledge base will accelerate the implementation of circular concepts such as industrial symbiosis, where by-products can be used as raw materials, for example. Covestro’s contributions include, e.g., findings from the CIRCULAR FOAM project. By collaborating on Hubs4Circularity, we get insights into how circular economic models can be designed in the future.

With partners in the network around the RAPID Manufacturing Institute, New York (United States), we are working on more efficient processes for the chemical industry. The Institute enjoys an excellent reputation for optimizing production processes that are relevant to Covestro – especially energy-intensive processes.

In China, Covestro has established itself as operator of an open-innovation platform in Shanghai. As part of the regional government’s Group Open Innovation initiative, it provides access to a comprehensive network of 34 major companies in total, a large number of startups, as well as small and medium-sized enterprises with activities in areas such as medical applications or handheld electronics.

To meet growing demand for greater supply chain transparency, many of our customers are developing solutions such as digital product passports (DPPs), and our materials will be part of these DPPs. The information and datasets of the materials we sell will be exchanged with customers using digital software solutions. To generate this data for DPPs, we will also need materials data from our suppliers. This is why Covestro is working on digital platforms and policies not only on the customer side, but also on the supplier side. We are piloting the development of DPPs with key customers and in projects to improve the future ability to track and trace materials and contents using digital software solutions in each phase of the product lifecycle.

Digital Innovation

Covestro is committed to driving the digital transformation in all business areas and functions, tapping into the associated potential in the process. The digital transformation comprises several action areas, ranging from the application of modern digital technologies through qualified data generation down to ways of working and cross-functional collaboration among employees. Empowering employees for the topic of digital transformation in these action areas is an important building block, which is also reflected in a transformation program for the workforce worldwide.

Beyond the internal processes, there is also a need to progress all stages of the chemical and plastics industry’s value chain with a particular view to sustainability. In the year 2023, Covestro established a cloud-based application that digitalizes product-specific lifecycle assessment (LCA). It will allow Covestro not only to speed up calculations, but also indicate where greenhouse gas (GHG) emissions – and specifically the product-specific carbon footprint – can be reduced. The calculation method was certified by TÜV Rheinland Energy GmbH, Cologne (Germany), in the reporting year. This gives Covestro an innovative software solution for conducting LCAs on its products. The data calculated will be validated by the end of the year 2024 so that the data for sales products will be available to customers in stages throughout the year 2024.

By increasingly improving the integration of digital solutions, especially artificial intelligence (AI), at Covestro, the internal processes can continuously be enhanced. One example of how opportunities created by AI can benefit administrative functions has been implemented in connection with liquidity risk management. On the basis of past and current data and with the help of machine learning, it was possible to improve forecasts of our short-term operating cash flows. The data is processed fully automatically in this context. The improved forecast accuracy allowed us to reduce the liquidity buffer maintained for short-term operational management considerably in the reporting year. Since the beginning of 2023, Covestro has also been driving the implementation of generative AI. Our Covestro Virtual Assistant already gives hundreds of employees central access to the first AI developments for different cases of application, ranging from the simple use of large language models (LLMs) in a secure environment to special applications in Procurement and for corporate policies.

For our data-centric R&D approach at Covestro, the use of powerful data-science methods is of critical importance. The combination of domain knowledge in material chemistry, customer focus, and predictive data modeling led to a number of outstanding digital products. Some help our customers, e.g., to select the right wording for certain material properties, while others allow easy access to complex optical materials data.

Our cooperation with Google Ireland Ltd., Dublin (Ireland), selected startups, and top universities for the development of quantum algorithms for computational chemistry continued with resolute determination. In addition to assessing current quantum hardware, dedicated research results were developed and published in some cases.

Covestro makes extensive use of simulations in all areas of research and development as well as in process technology to research, develop, and optimize materials and processes as efficiently as possible. The methods used cover the whole spectrum, from atomic to macroscopic scales. The calculations run locally on state-of-the-art mainframe computers in Leverkusen (Germany). In addition, elastic cloud computing resources are deployed to increase the flexibility of the computing power and cushion peak loads. with a particular focus on application cases from the circular economy and new materials research. Our realistic simulation of polyurethane foam processing is already used very successfully in customer projects for polyurethane application development and to ensure rapid formulation approval for machine trials.

The data-centric R&D approach described above requires high-quality data from all R&D-relevant process steps in laboratories and technology centers. To get a steadily increasing volume of high-quality data, we have for years worked toward the goal of fully digitalizing the R&D processes. In the past year, we pushed the rollout of digitalized laboratory processes in all key research and development centers in Germany, China, and the United States, whose data can in turn be stored on our global R&D knowledge platform.

Moreover, the establishment of a Group-wide team is aimed at continuing to drive digitalization in the production facilities. In addition to identifying value-creating application cases and projects, there is particular focus on harnessing synergies to accelerate the digitalization in a cost-efficient manner. This is facilitated by the use of harmonized infrastructure and cloud services. One example is more effective presentation of current energy usage in the facilities of the German sites. This allows better control of energy usage and helps to further optimize the energy efficiency of process methods.

Process Technology Innovations

Another key driver of innovation at Covestro is process technology. The designated corporate function is responsible for process technology in Covestro’s production activities and supports operations in the segments. The key targets are to optimize existing production processes, develop new process technologies, implement leading technologies in the process design for new production facilities, and take the production processes of newly developed products to industrial scale.

The optimization of existing production processes is a key element in meeting our sustainability target of becoming climate-neutral by the year 2035. One example is the chlor-alkali production facility at our site in Tarragona (Spain), which was successfully brought into operation in the year 2023. This is where oxygen depolarized cathode technology is now used for the first time on a large industrial scale.

Another contribution to reducing emissions is the improved process integration at the site in Krefeld-Uerdingen (Germany), which has led to lower steam consumption. Also, an improvement of the design in chlorine production at the Brunsbüttel (Germany) site has achieved a considerable reduction in energy usage.

Another significant element in meeting our sustainability targets is to reduce waste streams, something that has been achieved in our HDI production in Shanghai (China).

Thanks to digitalization, production facilities can be controlled more predictively. For example, the catalyst volume used in the production of Desmodur® N 3900 at the Dormagen (Germany) site has been reduced. The use of digital simulations, such as the operating training simulator (OTS) in Tarragona (Spain), to train the operating team helped ensure that our new facility was brought into operation efficiently and safely.

Statistical analysis of the process and product quality data resulted in further optimization of polycarbonate compounding at Engineering Plastics, which meant that downtime and the volume of rejects due to quality problems were reduced and capacity was increased.

The development of new production processes to help us achieve circularity also brought success in other respects. For example, research is conducted into innovative recycling technologies in order to close the raw material cycle. At laboratory scale, feasibility was demonstrated for the chemical and thermal decomposition of plastics into individual components for MDI-based rigid foams and polycarbonates. Moreover, a flexible foam sample was produced from fully recycled polyol and fully recycled toluene diisocyanate (TDI) for the first time. Both raw materials were obtained at Covestro’s pilot plant in Leverkusen (Germany).

The development of bio-based raw materials is another important building block for the vision of becoming fully circular. For example, industry-relevant quantities of biobased hexamethylenediamine (HMDA), an important precursor for manufacturing coating raw materials, were produced in a pilot plant. This development is being undertaken in cooperation with the US-based Genomatica, San Diego, California (United States). Moreover, the process for the production of bio-based aniline as part of a publicly subsidized project was progressed from laboratory scale to pilot scale and successfully brought into operation.

To enable these and other innovations, Covestro remains committed to investing in the expansion of its research infrastructure. For example, to improve processes, a pilot plant for polycarbonate is under construction at the site in Antwerp (Belgium), while a miniplant for modified isocyanates and a new technology center opened its doors in Leverkusen (Germany). Measuring over 1,300 m2, this center has room for high-viscosity technology and other circular-economy and process-optimization projects. Another pilot plant for polycarbonate is being planned in Leverkusen (Germany), with a focus on chemical recycling of the plastic.

Product Innovations

In Covestro’s two segments, Performance Materials and Solutions & Specialties, product innovations are under way for a number of industries, in particular our main customer industries.

Automotive and Transportation Industry

The automotive and transportation industry continues to transition to an electrified and autonomous future. We want to be actively involved in shaping and driving this transition with customer-centric innovations. Thanks to Makrolon® Ai – a polycarbonate with very high optical purity – engineers benefit from enhanced creative freedom. The Makrolon® Ai display technology has glass-like transparency and enables maximum functional integration with human-machine interface (HMI) systems and other integrated sensors.

Among the trends we are observing in vehicle interiors is the introduction of new patterns for vehicle surfaces by original equipment manufacturers. Above all natural materials and surfaces with an authentic look and feel are trending – such as wood grains, fabric-like woven textures and textiles, cork, and stone. To allow designers to create these surfaces with polycarbonates that can be backlit, Covestro has developed a dedicated material that can balance the stiffness of glass and the ductility of polycarbonate while retaining the transparency effect; this material is Makroblend® OM 845G.

Furniture and Wood Processing Industry

Covestro is also continuously developing new, more sustainable product innovations for the furniture and wood processing industry. Not only is this a way of driving our vision of becoming fully circular, it also enables our customers and partners to manufacture more sustainable products.

One example is Arfinio®, which was launched on the market in October 2022. It allows reaction injection molding (RIM) to be used to process aliphatic polyurethanes. This enables manufacturers to produce seamless shapes without sheets and establish new combinations of beneficial properties in this process, ranging from mechanical resistance, light stability, and repairability down to low product weight, quick production, and improved design freedom. Covestro and its partner Arcesso Dynamics won the “Best of the Best” award for Arfinio® in May 2023. This international award organized annually by Koelnmesse and Red Dot honors outstanding design achievements that set new industry standards in form, function, and sustainability.

Moreover, our partnership with Sinomax and The Vita Group led to a new generation of polyurethane foams made partially from our TDI Desmodur® CQ, which is produced from renewable raw materials. Covestro’s TDI is manufactured from ISCC PLUS-certified raw materials, which means that Sinomax and The Vita Group do not need to change any of their proven formulations, equipment, and processes.

Covestro’s Evocycle® CQ initiative is another step that brings us closer to the climate-friendly mattress. For the first time, we successfully recovered both polyether and toluene diamine (TDA), a precursor of TDI, from old mattresses. Through chemical recycling, we bring them back into the value chain to create high-quality renewed polyurethane foam that also delivers top performance. We have developed a pilot plant for this purpose as a way to transform and expand chemical recycling into an efficient industrial process.

Construction Industry

For the construction industry, our work is centered on our core application – rigid polyurethane foams. Used as an insulation material, it makes an important contribution to the energy efficiency of buildings. MDI CQ is a key material that we provide for the production of polyurethane (PU) insulation boards and sandwich panels, among other products. Thanks to the use of alternative raw materials based on plant waste, its production is climate neutral. PU insulation boards have proven their value for many years as highly efficient elements and sustainable construction materials in the thermal insulation of buildings. The heating or cooling requirements of buildings can be reduced by up to 70% through the use of PU insulation.

Electrical, Electronics, and Household Appliances Industry

In our activities for the electrical, electronics and household appliances industry, new materials were developed in the reporting year, again with a focus on sustainability.

Makrolon® RE polycarbonate is an innovative product solution that helps important customers to meet their sustainability targets without compromising on performance. One of the biggest challenges in the manufacture of the next generation of wired devices was to reduce the carbon footprint of the material while maintaining good infrared transparency. The carbon footprint of the Makrolon® RE grade selected, made of more than 87% renewable raw materials, is more than 89% smaller than that of conventional polycarbonates. The polycarbonate, which is ISCC PLUS-certified, is made from raw materials based on organic waste and residual materials, which replace fossil raw materials.

Covestro has launched a new range of Platilon® TPU films for smart skin patch applications. Smart skin patches with integrated electronics allow vital parameters to be monitored. Not only can the new TPU films be printed with standard inks, they also show good printability with silver-based inks. Printability with silver-based inks is important as they ensure good conductivity and allow sensor technology to be integrated more reliably. Additionally, the new TPU film grades can be equipped with a stiffer polypropylene carrier, which provides stability throughout the conversion process, especially during curing.

The polyurethane composite solar panel frame, jointly developed by Covestro and its partners, adds a new solution to the selection of frame materials for photovoltaic (PV) modules. The integrated solution, which uses Baydur®, made of a glass-fiber-reinforced polyurethane pultrusion composite and a waterborne polyurethane coating, gives photovoltaic module manufacturers a new material option as an alternative to aluminum alloy frames. As a result of the load-specific glass-fiber reinforcement, its axial tensile strength is more than seven times that of a typical aluminum alloy. It is also strongly resistant to salt mist corrosion and chemical corrosion.

Other Industries

Covestro’s polycarbonate (PC) films are also leading the company toward the circular economy in the area of ID documents. Covestro’s partly mechanically recycled PC film contributes to sustainability in the identity security market segment. The new Makrofol® ID357 white PC film offers properties, quality, and performance similar to Covestro’s conventional Makrofol® ID white PC film. It is used, e.g., for inlay solutions in ID documents. Linxens, a leading provider of secure component-based solutions for security and identification, will utilize Makrofol® ID357 in its latest document inlay solution.

Covestro’s innovative solutions are also represented in the sportswear market. The aliphatic expanded thermoplastic polyurethanes (ETPUs) of the Desmopan® CQ range are robust, elastic, flexible, scratch-resistant, and sustainable. They allow manufacturers to create applications with biobased content and give them freedom of design and the means to combine functionality and comfort. Covestro has entered into a partnership with the leading manufacturer of foam molding, Alpha (Guangdong) Hi-tech Material Co., Ltd., Guangdong (China), to break new ground in midsole foam solutions for the footwear industry. In addition, a number of Covestro’s TPU films, fibers, fleece fabrics, and partly biobased materials of the Desmopan® range meet the stringent criteria for bluesign certification. The origin of the raw materials is transparently traced and all processing steps are taken into account in the assessment.

The organization International PUR has developed a new technical solution based on mechanically upcycled core foam waste from Baynat® automotive headliner production. Instead of wasting the scrap from Baynat® headliner production, innovative ways of recycling and upgrading this precious raw material into high-quality applications such as prototypes and production support tools present a new opportunity for customers. This valuable and cost-efficient material can replace aluminum and conserve other resources while also reducing waste that arises during CNC processing of tools.

Covestro’s Makrolon® 3638 is a new ultra-durable polycarbonate used in healthcare and life sciences applications. Ranging from drug delivery devices and wearable devices to single-use containers for biopharmaceutical manufacturing – they all have one thing in common: They must be tough and durable and able to withstand everyday use while maintaining their structural integrity. Since Makrolon® 3638 polycarbonate supports both closed- and open-loop recycling, it is a good fit for circular business models and, due to its attributed bio-circular content, can contribute to an improved carbon footprint.

Covestro has also developed a new type of MDI polyester prepolymer (Desmodur® MD1657) of low hardness. The target is to support our customers in the mining industry to transition from TDI prepolymers (PTMEG) to MDI polyester systems by providing a two-component system that performs better and is less demanding with regards to health and safety precautions (MOCA-free). TDI PTMEG systems are often used to manufacture mining sieves because they react less sensitively to the production parameters. The Desmodur® MD1657 system enables customers using the TDI PTMEG systems to keep their plant (normally two-component machines) and switch to a product that poses fewer health and safety challenges in the manufacture of parts with better properties for use in mining sieves.

Decovery® CQ 6010 is a partially bio-based, highly breathable solution from Covestro for paper and board food packaging. It can be used to replace packaging laminated with plastics such as polyethylene or with aluminum, and this results in significantly improved recyclability. A reduction in CO2 emissions by up to 34% and a verifiable bio-based content of up to 37% make the product a sustainable alternative to conventional solutions.

Circular Economy
A renewable economic system in which resource input, waste production, emissions, and energy consumption are minimized based on long-lasting and closed material and energy cycles.
HDI/Hexamethylene Diisocyanate
A chemical compound from the class of aliphatic isocyanates, primarily used in polyurethane coating systems.
MDI/Diphenylmethane Diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams.
The 17 United Nations Sustainable Development Goals were ratified by all UN member states and entered into force on January 1, 2016. Their objective is to combat global poverty, protect the planet, and secure peace and prosperity for all.
TDI/Toluylene Diisocyanate
A chemical compound from the class of aromatic isocyanates, primarily used in polyurethane foams and coating systems.

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