Sustainability Statement – General Information

Sustainability at Covestro

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. The fact that a sustainability component has been embedded in our management system should also be considered in this context.

• 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 the topics and issues of great 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 should 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

Sustainability Management

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

Covestro’s Sustainability Targets

We have embedded sustainability-related factors in our company’s 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. To this end, the direct and indirect GHG emissions (Scope 1 and Scope 2), measured in terms of CO₂ equivalents, of the main sites have been 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. As from the year 2022, 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 applies to all Covestro employees worldwide, including the Board of Management; any exceptions are essentially due to collective bargaining arrangements.

• See “Employee Compensation.”
• See “Management System.”

In addition, we have 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 compensation systems of the Board of Management and Supervisory Board and the sustainability components included in the Board of Management’s short-term and long-term variable compensation are described in detail in Covestro AG’s compensation report.

• See Compensation Report.

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. In the reporting year, we therefore added another absolute reduction target for our Scope 3 GHG emissions to our goal of climate neutrality for our Scope 1 and Scope 2 GHG emissions. We report on details of our sustainability targets and progress toward meeting them in the appropriate sections of the sustainability 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 material 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.

• See “Promotion of Equal Participation of Women and Men in Leadership Positions.”

Monitoring

Sustainability is a core element of our Group strategy with an impact on our business activities. Oversight of sustainability at Covestro begins with the company’s highest governing body, the Supervisory Board, whose Sustainability Committee 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. 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 environmental, social, and governance (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. The following topics were added to the agenda of the Sustainability Committee in the reporting year: “Progress of the circular economy and climate program and of the cross-functional Human Rights Office,” “Developments in the European Union (EU) on chemicals control legislation,” and “Enhancement of the sustainability component of the Board of Management’s long-term variable compensation by adding social criteria.”

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

Since sustainability is so important for our company, the entire Board of Management deals with sustainability, while line responsibility lies with our Chief Executive Officer (CEO). 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 featured, for example, the circular economy and climate program, the donation policy for fiscal 2023, developments in the EU on chemicals control legislation, and progress of the cross-functional Human Rights Office.

A central governance body for environmental, social, and governance (ESG Governance Body, ESG GoB) 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. When the corporate Group Innovation & Sustainability (GIS) function was established in September 2023, this body was merged with the Innovation Governance Body that existed previously. The objective of the new Sustainability & Innovation Governance Body (SI GoB) is to develop recommended actions for sustainability transformation, identify resources for research and development, and to manage the innovation portfolio for relevant stakeholders. The body 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 body, and the Head of the corporate GIS 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 our sustainability agenda. Until September 2023, the ESG GoB held regular meetings at which it dealt with issues such as the circular economy and climate program, the EU’s future chemicals control legislation, and changes to sustainability reporting, including the EU’s Corporate Sustainability Reporting Directive (CSRD). The body also discussed further progress in terms of our product portfolio sustainability assessment. At the SI GoB’s inaugural meeting, the topics discussed included progress toward meeting the target of reducing Scope 3 GHG emissions and enhancing the sustainability component of the Board of Management’s long-term variable compensation by adding social criteria.

The head of the corporate GIS function, who also acts as Chief Sustainability Officer (CSO), reports to the CEO. Alongside business-related R&D in the business entities centered on sustainability, the circular economy, and digital transformation, GIS develops the sustainability strategy and drives cross-functional sustainability projects and programs in the company. GIS coordinates Covestro’s sustainability activities and supports the other corporate functions and business entities in implementing them in operations. Furthermore, the corporate GIS function represents Covestro’s interests outside the company.

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 “Human Rights.”
• See “Material Sustainability Topics in Fiscal 2023.”

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

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 “Business Conduct (Compliance).”
• See “Human Rights.”

We use our involvement with associations to share our expertise on certain topics where there are specific legal issues. In terms of lobbying, we have laid down clear and binding rules for our engagement in the political arena. We have undertaken not to make direct donations to political parties, party-affiliated institutions, persons holding or standing for political office – regardless of the country. We have published this voluntary commitment on our website. The associations of which we are a member make donations under their own responsibility – always with due regard to the legal provisions, in particular laws governing political parties. Likewise, our employees may make private donations under their own responsibility and without our influence.

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