Strategy
Purpose and Vision
Our environment again changed substantially in the past reporting year, and uncertainties such as geopolitical developments, and the volatile economy posed fresh challenges. Furthermore, advancing climate change, increasing environmental pollution, the growing global population, rising urbanization, and new forms of mobility, or the transition to renewable energies are issues requiring global solutions. Covestro faces these challenges, thus combining profitability with sustainability. The goal is to realize Covestro’s purpose: “to make the world a brighter place.”
Our aim is to provide solutions to global challenges with our high-performance polymer materials. In pursuing it, we rely on technologies that reduce energy usage and emissions in our production processes. The products and solutions we develop are replacing traditional materials such as glass and metal, which are manufactured less sustainably or have a less sustainable life cycle. We are convinced that our long-term strategy of pursuing a circular economy will bring us closer to achieving our purpose.
Building on our purpose, the implementation of our vision of becoming fully circular forms the basis of our Group’s Sustainable Future strategy. Our vision sets a clear direction for our company’s future development.
Purpose, vision, and strategy
Our corporate values and corporate culture are major factors in putting our purpose, vision, and strategy into action.
Group Strategy
Strategic Goals and Activities
Our overarching goals derived from our purpose and our vision set the course for our Group’s Sustainable Future strategy, which incorporates the changing external and internal dynamics, such as shifts in climate policy, in markets, and in digital transformation. Our Group strategy comprises three strategic chapters: We want to “Become the best of who we are,” while we “Drive sustainable growth,” and “Become fully circular.” Our strategy is based on a solid foundation; its implementation is being enabled by the acceleration of Covestro’s digital transformation and expansion of our “We Are 1” culture.
The Group’s Sustainable Future strategy
“Become the Best of Who We Are”
“Become the best of who we are” is the first strategic chapter to transform our company in the best possible way to exploit its full potential, thus creating the basis for sustainable and profitable growth. The first strategic chapter is driven by a clear understanding of our business: We deliver a broad portfolio of standard and specialty products and, at the same time, stand out with our strong innovation, research, and development capability. In this context, we focus even more on the factors that make our core business a success.
Our customers are our top priority. We optimize processes that make our customers successful, improve workflows within our organization, and concentrate entirely on the needs of our customers. Depending on each customer’s focus, we deliver high-quality standard products fast, or assist with our technical expertise in improving or developing (specialty) products.
In fiscal 2021, we launched a global transformation program to implement the first strategic chapter. This program realigns structures, processes, and control mechanisms to position our company to the best extent possible. The measures under the transformation program began in fiscal 2021 and implementation was largely completed in the year 2023. Our organization, workflows, and responsibilities had, however, already been restructured in the year 2021. For example, we now structure our business into standard products (Performance Materials) and specialty products (Solutions & Specialties). Furthermore, the program aimed to bundle central aspects of certain areas of competence, with the primary objective of profitably furthering our business with a view to sustainability and the circular economy.
Another important core element of the first strategic chapter is the Customer Centricity concept, with which we intend to focus even more on the needs of our customers. At Covestro, Customer Centricity is based on three pillars:
- Knowing the Customer: We need to know our customers so well that we understand exactly what added value we can provide for their business activities.
- Thinking Customer First: Every single function in our organization must be focused on what our customers need.
- Co-Creating Customer Value: We must join forces with our customers to create added value in the marketplace. By remaining focused on the entire value chain, we maintain close contact with our customers, partners, and suppliers.
One example of successful collaboration in terms of customer centricity is our detailed support for BMW in the development of an innovative front module concept for the BMW iX electric vehicle.
Additionally, we are streamlining processes and procedures as part of our Sales Force Effectiveness initiative. This aims to enable our sales team to dedicate more time to supporting customers and collaborating on developing innovative solutions. We consistently monitor and assess customer satisfaction through the Net Promoter Score (NPS), reflecting our customers’ willingness to recommend Covestro.
“Drive Sustainable Growth”
“Driving sustainable growth” – and therefore bringing together sustainability and economic success – is part of the second strategic chapter of our Group strategy. With this in mind, we align our processes and products consistently with customer needs and market requirements. To ensure that our portfolio is fit for the future, we invest in market segments that are attractive and sustainable for the long term. The focus of all activities that promote organic and inorganic growth, i.e., investments, acquisitions, research and development (R&D) activities, and our strategic venture capital initiative (Covestro Venture Capital, COVeC), is already heavily geared toward sustainability. Another area that is increasingly gaining importance is digital research and development.
The most important elements include managing and steering the product portfolio toward greater sustainability and circularity. A product sustainability assessment method is currently being developed to manage our portfolio.
In order to generate value with the capital invested, we are analyzing and managing our investment portfolio according to profitability and sustainability criteria. We support investment projects with a return on capital employed (ROCE) above certain thresholds that generate the lowest possible GHG emissions or even bring about a reduction.
Moreover, we work continuously toward achieving faster and more cost-effective plant construction to increase the efficient use of our investment capital without sacrificing the reliability or safety of our facilities. Against this backdrop, we continually expand our global network of partners specializing in plant construction, equipment, and services; optimize in-house processes and the use of resources; and increasingly use completed construction projects as a blueprint for future projects. An example of implementing this approach is the expansion of our production capacities for polycarbonate films at our site in Map Ta Phut, Thailand.
We also revised the way in which we process our investment projects and developed new approaches to planning and implementing projects much more in line with demand. Existing methods, processes, and skills were adapted and revised in this context. Thanks to new, leaner processes – with fewer formal requirements and more discretion for the project teams to take decisions – the planning time for low-complexity projects can in future be cut by at least two months.
“Become Fully Circular”
The third strategic chapter comprises measures to allow Covestro to “become fully circular.” As part of that, we intend to accelerate transformation to a climate-neutral and resource-conserving economy. We see this orientation as an opportunity for Covestro to add solutions to global challenges – our circular products – along the entire value chain. Under our global Circular Economy strategy program, which pools activities for implementing a comprehensive global structure, as well as through other Group-wide strategic initiatives, we continue to drive the realization of circular economy activities at Covestro. In the reporting year under review, our focus was on developing a target for reducing Scope 3 greenhouse gas emissions that is closely aligned with achieving a circular economy. To this end, we consider both the upstream and the downstream value chain while anticipating changes in the availability of raw materials, pending regulatory impacts, and corresponding shifts in market demand. These insights are to serve as a basis for, among other things, preparing and updating business development at Covestro in areas such as innovation, investment planning, procurement, marketing, and sales. As early as in the year 2022, Covestro developed a program to transform the production sites to achieve climate neutrality and published sustainability targets for reducing CO2 emissions.
We also want to drive the circular economy by developing and using innovative recycling options. In this context, we consider chemical recycling particularly promising as an effective tool for reclaiming considerable quantities of feedstocks for reuse. It is suitable primarily for materials and waste that cannot be mechanically recycled due to their properties or when the recycling process must produce like-new materials.
We are aware that shifting our production activities and our product portfolio to circular economy is a major, long-term undertaking that we cannot accomplish alone. For this reason, we continue to redouble our efforts to establish collaborative partnerships and networks with our customers, suppliers, research institutes, and other solution providers throughout the value cycle.
Digitalization and Corporate Culture
Our Sustainable Future strategy rests on a solid foundation, with digitalization and our “We Are 1” corporate culture as key elements. We are focused on tackling digital transformation and the associated opportunities by implementing an extensive range of measures along the entire value chain, in the corporate functions, and at all points of contact with our customers. This involves Covestro promoting the use of digital technologies and leveraging the potential of artificial intelligence. At the same time, Covestro encourages an open climate at work that spurs employees to question existing concepts and develop new approaches for our business.
The digital transformation of our business aims to generate competitive advantages for Covestro. This includes expanding our digital R&D activities and collaborations with major corporations such as Google. Insights provided by data science additionally support the corporate functions in profitably deploying algorithms and machine learning. We drive the development and implementation of our digital products and business models.
We have embedded our “We Are 1” culture firmly in our company to fully leverage internal potential and meet our corporate goals. The key here is our employees who bring this culture to life. We work consistently on developing our corporate culture and simplifying implementation by deriving specific measures from our four cultural dimensions.
Segment Strategy
Performance Materials Segment Strategy
The Performance Materials segment comprises mainly polyurethanes and polycarbonates product groups. The segment’s standardized products are marketed to outside customers and also transferred to the Solutions & Specialties segment, where many of the products are further processed or sold with additional, customer-focused services. Intersegment transactions are conducted at arm’s length and reported separately as intersegment sales.
The Performance Materials segment exclusively manufactures standardized products, aiming mainly to increase efficiency through cost management, high plant availability, and process innovations. One future focal point will be sustainable products, such as renewable toluylene diisocyanate (TDI) and climate-neutral diphenylmethane diisocyanate (MDI).
In line with global megatrends, demand for polyurethanes is expected to grow sharply in the medium to long term. This trend may benefit our company, as we manufacture the precursors for flexible and rigid foams required for the production of polyurethanes. Strategically important sectors include the construction industry and the furniture industry, where we already occupy a strong position, which we want to expand further at least in line with the market. Global efforts to meet the United Nations Sustainable Development Goals (SDGs) are also reflected in short- and long-term demand for our products. For instance, growing calls for energy-efficient living space are expected to increase long-term demand for particularly effective insulation solutions in the construction industry.
The market for standardized polycarbonates is, however, very likely to grow only minimally in the coming years because of a current lack of impetus for increased demand from sectors such as the construction and consumer goods industries. We are therefore working toward passing a growing proportion of our polycarbonate volume on to the Solutions & Specialties segment for further processing and sale in high-growth markets, such as electromobility and 5G infrastructure.
The Performance Materials segment is home to most of our production facilities, and as such is key to implementing our circularity strategy. The focus here is on steps such as continually optimizing our production facilities, procuring and using sustainable energy, procuring alternative raw materials, and developing more sustainable product solutions, e.g., for MDI and TDI. The use of alternative raw materials enables us to produce these diisocyanates with a smaller carbon footprint, which is demonstrated and certified by way of mass balancing and the ISCC PLUS certification for end products of some of our production sites, e.g., Dormagen (Germany) (TDI) und Krefeld-Uerdingen (Germany) (MDI).
Solutions & Specialties Segment Strategy
The Solutions & Specialties segment covers a broad range of customer-specific solutions and specialty products in the following business entities: specialty polycarbonates (Engineering Plastics), precursors for coatings and adhesives (Coatings & Adhesives), polyurethane specialties and solutions (Tailored Urethanes), Thermoplastic Polyurethane, high-quality films (Specialty Films), and specialty elastomers (Elastomers).
We continually update our product portfolio to generate further growth in the Solutions & Specialties segment with a particular focus on sophisticated, sustainable solutions for which there is strong demand in promising applications. These include smart homes, medical technology, holography, and materials for electric vehicles and wind turbines.
The continual development of innovative products and applications with significant customer benefit is therefore a central element of our segment strategy. Other crucial factors for the success of our growth strategy in this segment are the respect and appreciation of our customers for our strong technological competence, standing apart from the competition based on our global leadership in consulting on application technology and carrying out complex projects for customers. In addition, our expertise in chemical formulations and compounding, the efficient expansion of our capacities, customer-focused product development, and the continual improvement of our customer-centric pull supply chain play a critical role in ensuring success in this segment.