With our supplier management endeavors, we aim for compliance with fundamental environmental and social standards in addition to high quality, reliable delivery and competitive prices. Therefore, we have introduced relevant strategies, processes and guidelines to prevent violations of supply chain standards and continuously improving our sustainability performance. Unless stated otherwise, the approaches presented apply to tier-1 suppliers, i.e. direct suppliers. Furthermore, our supplier management activities include special measures particularly for tier-n suppliers, i.e. indirect suppliers, working in the area of conflict minerals.
To achieve our sustainability goals, our Procurement team is working closely with our suppliers. We aim to create transparency in all our sourcing regions and fully integrate sustainability into all our value chains. To this end, we have defined two key indicators to measure our journey towards increasing this transparency by reviewing the sustainability performance of our relevant suppliers based on valid sustainability assessments. Our definition of valid sustainability assessment includes assessments carried out over the last three years and performed by a reliable, approved source. In accordance with our risk management approach, we define relevant suppliers as suppliers, which either indicate a specific country and/or industry risk or contribute to a significant percentage of our supplier spend (at least 50%). For the country risk evaluation, we have developed our own comprehensive country risk score.
In 2023, 66% (2022: 46%) of our relevant suppliers were covered by a valid sustainability assessment; 94% (2022: 82%) of our spend attributable to these suppliers was covered by suppliers with a valid sustainability assessment.
We consider all applicable legal requirements, such as the German Supply Chain Due Diligence Act, and initiate corresponding measures where necessary. Among other things and in conjunction with the implementation of the German Supply Chain Due Diligence Act, we have implemented a risk management approach focusing on human rights and environmental risks along our supply chain. This risk assessment is conducted annually and ad-hoc when required.
Risk management process
To ensure security of supply, we select our suppliers based on criteria such as country risk, material risk, supplier risk, and their strategic importance to the business. This process helps our Category Sourcing teams to identify potential mitigation actions with relevant suppliers and supports them in making improvements. Our risk management approach comprises four main elements:
- Supplier Risk Assessments: to capture the overarching risks at the supplier level we consider multiple risk domains.
- Alert system: to notify our Procurement organization about risk events arising with any of our suppliers.
- Material Risk Assessments: to identify and mitigate the risks of the materials used in our most significant finished products. This element focuses on our business sector Life Science. In 2023 we conducted assessments for more than 2,500 of our critical materials.
- Risk Response Tracker: a system to create and monitor risk mitigation activities in inter-disciplinary teams.
We calculate risk factors for suppliers and raw materials by multiplying risk probability and risk impact according to current human rights risk standards. We also include criteria for identifying supplier relationships impacted by key sustainability risks, such as mineral sourcing and animal welfare.
Due diligence process for responsible sourcing of minerals
We source and sell products that contain minerals commonly referred to as “3TG” (tin, tungsten, tantalum, gold – collectively also known as conflict minerals). These minerals involve the risk of being extracted, traded, handled, and exported from conflict-affected and high-risk areas (CAHRAs) where human rights are not always respected and violations thereof need to be prevented.
Our aim is to source materials in a responsible and conflict-free manner and not to contribute to adverse impacts through our activities. Therefore, we have a due diligence program that applies across all our business sectors and takes into account applicable laws and international standards. Additionally, we have engaged an external auditing firm to carry out an independent assessment in 2023 in order to verify our compliance with regard to the requirements of the EU Conflict Minerals Regulation (EU) 2017/821.
As part of our continuous improvement efforts, we worked on the recommendations from the audit and refined our procedures. Additionally, we established a supply chain traceability system that further increases our supply chain transparency. For our tin imports, which make up the majority of our conflict minerals imports, additional control mechanisms were implemented. These mechanisms include supply chain mapping, information on the country of origin of the mineral, request of audit reports from smelters and refiners, and the revision of agreements, including audit rights, with our suppliers. After careful analysis of the potential risks, no specific risks could be identified that would have required the development of an action plan. We remain in constant contact with our suppliers, industry colleagues and cross-company collaborations to improve the transparency and effectiveness of the framework.
Roles and responsibilities
Procurement is responsible for integrating sustainability requirements into the relevant stages of our sourcing and supplier management processes. Our Center of Excellence for Sustainability coordinates the relevant measures, such as updating our guidelines where necessary, examining processes and coordinating our participation in external initiatives.
Our commitment: Guidelines and standards
We expect all our suppliers and service providers to comply with our environmental and social standards, which are primarily derived from the core labor standards of the International Labour Organization (ILO) and the UN Global Compact. We expect our suppliers to ensure that their subcontractors respect the same rules. For this purpose, our Supplier Code of Conduct details our expectations towards suppliers and business partners regarding human rights, health and safety, business integrity, environmental protection, continuous improvement, and management of their respective suppliers.
Our Responsible Minerals Sourcing Charter demonstrates our commitment to responsible sourcing of minerals from conflict-affected and high-risk areas. It applies to all our legal entities and subsidiaries worldwide. The charter complements the requirements set out in our Supplier Code of Conduct.
To ensure that we work on the basis of industry standards and can rely on comparable data analytics and expert analysis, we collaborate with our peer companies in industry initiatives. For example, we are a member of Together for Sustainability (TfS), the Pharma Supply Chain Initiative (PSCI), the Responsible Mica Initiative, and the Responsible Minerals Initiative (RMI). We call on our suppliers to allow us or trusted partners to conduct assessments or audits to increase the transparency of our supply chain and identify fields of activity to improve sustainability performance or mitigate infringement risks.
Together for Sustainability supplier assessments and audits
Through the TfS initiative, suppliers are assessed either based on information obtained during audits or based on self-reported and publicly accessible information provided by EcoVadis, an independent rating agency. EcoVadis assesses suppliers from more than 175 countries and more than 200 sectors across the four categories of Environment, Labor and Human Rights, Ethics, and Sustainable Procurement. On top of the assessments, suppliers are also monitored through a 360-degree news watch. The results are shared among TfS member companies in compliance with all restrictions stipulated by antitrust law.
Through the TfS initiative alone, we have access to 1,860 valid scorecards on the assessment of our suppliers (2022: 1,700), almost 1,790 of which completed a new assessment or re-assessment in 2023 (2022: 1,100). In some cases, these were initiated by us and in other cases by other TfS members.
Supplier Decarbonization Program
Our Supplier Decarbonization Program is a key element of achieving our Science Based Target. Through this ten-year program that was defined as part of the decarbonization strategy in 2021, we aim to reduce greenhouse gas emissions associated with purchased goods and services as well as capital goods.
In order to manage the large quantities of data on the CO2 emissions of our suppliers, we have an automated carbon accounting tool in place to which we continuously add new functionalities. We offer our suppliers access to solutions to reduce their Scope 2 emissions. In addition, we joined the Energize program as a new sponsor. Energize is a collective initiative by a group of industry-leading pharmaceutical and fine chemical companies that have committed themselves to engaging their suppliers to support the adoption of renewable energy and reduce greenhouse gas emissions within their common supply chains. We offer all our suppliers the opportunity to join the program for free and to find out more about renewable electricity options leading to reduced Scope 2 emissions.
Mica supply chain
Mica is an important raw material for our effect pigments, which are used in automotive, cosmetic and industrial coatings as well as plastics. We procure the majority of our mica from the Indian states of Jharkhand and Bihar. We have special measures in place to comply with high social and environmental standards in our mica supply chain.
Our mica suppliers are informed of our standards and have confirmed that they adhere to the principles of our Human Rights Charter as well as the requirements of our Supplier Code of Conduct. In the event of non-compliance with our standards, we work with suppliers to ensure the appropriate implementation of corrective measures.
We do not tolerate child labor and contractually prohibit our suppliers from employing children. If one of our suppliers were found to be using child labor, we would terminate the business relationship immediately. We are driving initiatives and taking measures to improve the conditions of mica sourcing based on our high standards. For example, we have contractually agreed with our suppliers to pay at least a living wage to mine workers and workers in the processing units. Furthermore, we continuously review our monitoring processes to improve their effectiveness.
Auditing our mica supply chain
We have implemented a series of oversight mechanisms using a system that monitors and audits conformity with our social and environmental standards. In addition to visits by our company’s employees, regular inspections are conducted by third parties, who conduct comprehensive announced audits as well as frequent, unannounced monitoring.
Environmental Resources Management (ERM), a leading global provider of environmental, health, safety, risk, and social consulting services, conducts external audits of mines and processing plants, investigating working conditions as well as environmental, health and safety issues. The audit reports document any identified shortcomings in this respect and propose corrective actions. Findings concerning safety of electrical installations and installing proper emergency exit signs were successfully addressed. Our employees in Kolkata, India, and Darmstadt, Germany, take action to address any identified issues. If the corrective measures are not respected, we may suspend or even terminate our business relationship.
Since 2013, IGEP Consult, an Indian non-governmental organization, has conducted regular unannounced monitoring to review labor standards throughout our supply chain. During these visits, IGEP officials monitor occupational safety and compliance with laws preventing child labor. In 2023, its inspections focused on checking the availability of physical examinations for workers and conducting mock fire drills. Additionally, we regularly optimize the escalation process together with IGEP, which holds bi-weekly review meetings with representatives of our company to assess suppliers. These meetings help to identify any required actions, which our sourcing teams then discuss and implement with our suppliers. As a result, our suppliers have successfully improved the working conditions at these sites.
Evaluating and tracking mica sources
We use a tracking system to help ensure that the mica we purchase is derived from sources qualified by our company. We also use this tracking system to monitor the productivity of our mica sources. Based on written records of the daily extraction quantities, we review the volumes of mica reported and supplied to the processing facilities. Furthermore, we use a digital traceability solution to increase transparency in the mica supply chain.
To maintain accuracy, our processes undergo constant review and improvement. We are also evaluating other mica sources in accordance with our quality, social and environmental standards, both in India and other regions. For example, we source a considerable amount of mica from Brazil. To monitor our suppliers’ adherence to these standards, we have conducted an audit through a third party.