We Will Be Fully Circular
Sustainability @ Covestro November 2020
covestro.com
Inventor and leader in high-tech material solutions
Covestro at a glance
WHAT WE DO
Covestro is among the world's largest polymer companies. Business activities are focused on the manufacture of high-tech polymer materials and the development of innovative solutions for products used in many areas of daily life.
The main segments served are the automotive, construction, wood processing and furniture, and electrical and electronics industries. Other sectors include sports and leisure, cosmetics and health.
Together with our partners and customers, we are taking big steps to tackle a fundamental challenge: Shifting towards a Circular Economy.
To achieve this bold goal, we are innovating efficient ways to close energy and material cycles. We are pushing boundaries in polymers.
WHAT WE STRIVE FOR
PurposeVision
To make the world a | We will be | |
brighter place | fully circular | |
ValuesGoals
Curious, | Financial 2020 and |
courageous, | non-financial 2025 goals |
colorful |
€12.4bn
Sales 2019
17,200
Employees (in FTE) 2019
#1
Global producer of PU and its derivatives as well as PC(a)
2 | ESG @ Covestro │ 2020 | Notes: | (a) Based on total combined nameplate capacity for MDI, TDI and polyether polyols at year end 2019 as per Covestro estimates; |
PU = Polyurethanes; PC = Polycarbonates |
Number one producer globally and inventor of polyurethanes
Polyurethanes (PUR) at a glance
Products
Polyurethane rigid foam is an excellent insulation material and adds to high energy efficiency in cooling units and buildings.
As soft foam polyurethane provides comfort, for example in mattresses, car seats and upholstery.
Covestro develops and produces the components of this versatile material.
Key customer industries:
Sample applications
For comfortable | For sustainable | ||
cars | houses | ||
For cozy | For robust |
furniture | sports equipment |
3.1%
Core volume
CAGR in 2015 - 2019(a)
€5.8bn
Sales 2019
€648m
EBITDA 2019
3ESG @ Covestro │ 2020Notes: Industry position based on total combined nameplate capacity for MDI, TDI and polyether polyols at year end 2019 as per Covestro estimates
(a) Adjusted 2017 figures to reflect the transfer of the specialty elastomers business from the Polyurethanes segment to the CAS segment as of January 1, 2018
Number one producer globally and inventor of polycarbonates
Polycarbonates (PCS) at a glance
Products
As a true high-tech material, polycarbonate is not only very robust, break-proof and light-weight, but also offers a high degree of design flexibility.
Polycarbonate is available in all colors ranging from crystal clear to deep black. It is an excellent substitute for traditional material such as glass or metal.
This allows for a wide variety of application possibilities ranging from vehicles to smartphones and laptops as well as lenses or large roofs.
Key customer industries:
Sample applications
For trendy | For bright | ||
smartphones | buildings | ||
For light-weight | For safe |
cars | medical products |
5.2%
Core volume
CAGR in 2015 - 2019(b)
€3.5bn
Sales 2019
€536m
EBITDA 2019
4 | ESG @ Covestro │ 2020 | Notes: | Industry position based on nameplate capacity at year end 2019 as per Covestro estimates |
Performance materials for coatings, adhesives and specialties
Coatings, Adhesives, Specialties (CAS) at a glance
Products
There is a vast application range of coatings and finishes made of Covestro polyurethane raw materials. They are used for protection and decoration.
In addition, the company produces pre-products for adhesives and sealants as well as for specialty films and elastomers.
Coating, Adhesives, Specialties (CAS) also supplies materials for cosmetics, textiles and medical goods.
Key customer industries:
Sample applications
For long-lasting | For robust | ||
cosmetics | floors | ||
For fancy | For functional |
cars | textiles |
2.1%
Core volume
CAGR in 2015 - 2019(b)
€2.4bn
Sales 2019
€469m
EBITDA 2019
5 | ESG @ Covestro │ 2020 | Notes: | (a) All figures adjusted to reflect the transfer of the specialty elastomers business from the Polyurethanes segment to CAS segment as of January 1, 2018 |
Our innovative polymers contribute to sustainability in daily life
Covestro product applications
Polyurethanes
Increasing energy efficiency of buildings through materials and technologies for insulation
CO2-based polymers used in mattresses saving crude oil, e.g. cardyon®
Food preservation along the cool chain
Polycarbonates
Enabling electro-mobility with materials for battery housings, housings for charging stations
Recycled content grades on a virgin performance level
Use in protective gear and medical applications, e.g. drug delivery devices
Coatings, Adhesives, Specialties
Waterborne coatings and adhesives, replacing solvent
Bio-based raw materials to improve CO2 footprint, e.g. Baycusan® eco
Fully recyclable shoes made from thermoplastic PU powder and filament
6ESG @ Covestro │ 2020
Covestro innovative products tap into attractive new markets
Structural growth drivers
UN SDGs(a) | NEEDS |
related to climate change:
• Alternative energy sources
• Zero emission concepts
• Low-energy buildings
related to increasing mobility:
• Energy-efficient mobility
• E-mobility
• Autonomous driving
related to growing population and prosperity:
SAMPLE APPLICATIONS
• | Energy consumption | ||
CAGR: ~3%1 | |||
• | Offshore wind energy | ||
CAGR: ~19.5%2 | |||
• | Global car production | ||
CAGR: ~1.2%3 | |||
• Global hybrid & EV prod. | |||
CAGR: ~35%4 | |||
DEMAND OUTLOOK
Core volume growth
Polyurethanes(b)
~4% CAGR 2019-2024
Polycarbonates
~4% CAGR 2019-2024
related to increasing urbanization:
• Sustainable fashion
• Food preservation
• Medical applications
• Energy-efficient lighting
• Affordable housing
• Public infrastructure
• | Textile coating market | ||
CAGR: ~2.2%5 | |||
• | Covestro relevant market | ||
CAGR: ~3.6%5 | |||
• | Luminaire market | ||
CAGR: ~3%6 | |||
• | Luminaire LED | ||
CAGR: ~12%7 |
Coatings, Adhesives,
Specialties(c)
~4% CAGR 2019-2024
Covestro industry demand outlook assumes global GDP CAGR of 2 - 3% in 2019 - 2024e
Notes: | (a) Most impacted goals out of 17 Sustainable Development Goals, set by the United Nations' "2030 Agenda for Sustainable Development"; (b) Comprises MDI, TDI and polyether polyols; | ||
7 | ESG @ Covestro │ 2020 | (c) Shows PU raw materials industry demand in coatings, adhesives, sealants (excl. architectural/textiles coatings /solvent-borne polyacrylates); plus TPU, elastomers and PC/TPU films | |
1) | Covestro estimates for 2020-2025, based on BP, Energy Outlook, 2017 for 2015-2020 based on million tons oil equivalent; 2) GWEC, Global Wind Executive Council: Annual-Wind- | ||
Report 2019 for 2020-2025; 3) LMC, Aug 2020, for years 2019-2023 4) LMC, Aug 2020, for years 2018-2023; 5) Covestro estimates for 2019-2023; 6) Covestro estimates for 2020-2025; | |||
7) | Covestro estimates based on LEDinside report H2 Y2020 (CAGR 2018-24) and Global Luminaires and Lighting Market Analysis and Forecast 2016, PennWell for 2015-2022 |
Long history of innovations inspired by sustainability
Covestro milestones in sustainability
2007 | ||
BMS Energy | ||
efficiency program | ||
and basis for | ||
decision-making | ||
on climate | ||
relevance: We | ||
help with solutions | ||
2008 | 2011 | |
BMS as part of | ||
STRUCTese | ||
Bayer is | ||
energy efficiency | ||
founding member | ||
system introduced | ||
of Together for | ||
and subsequently | ||
Sustainability | ||
rolled-out in global | ||
initiative | ||
production | ||
2016 | ||||||||
First Covestro | ||||||||
2015 GRI | 2017 | |||||||
Supplement | ||||||||
2013 | Covestro Policies | |||||||
published | ||||||||
developed and | ||||||||
Introduction of | 2015 | 2020 | ||||||
approved, | ||||||||
BMS sustainability | ||||||||
Covestro was | including a policy | New company | ||||||
approach and | ||||||||
founded and | on Sustainability | 2019 | vision: | |||||
integration of | ||||||||
signed UN | ||||||||
3-P principle | Signatory of EU | We will be | ||||||
Global Compact | ||||||||
People-Planet-Profit | Circular Plastics | fully circular | ||||||
2015 | Alliance | |||||||
Pledge to 'Operation | 2019 | |||||||
2016 | ||||||||
Clean Sweep' and | Founding member | |||||||
Covestro non- | ||||||||
strive toward | of Alliance to End | |||||||
financial goals | ||||||||
zero pellet loss | Plastic Waste | |||||||
for 2025 | ||||||||
published | ||||||||
2007 | 2008 | 2009 | 2010 | 2011 | ||
2007 | 2011 | |||||
Light-weight | Energy- | |||||
car sunroof | efficient ODC- | |||||
made of BMS | technology for | 2011 | ||||
polycarbonate | chlorine | Plant in | ||||
enters mass- | production | Shanghai | ||||
production at | introduced in | equipped with | ||||
Webasto | pilot plant in | eco-friendly | ||||
Uerdingen | and efficient | |||||
gas-phase | ||||||
phosgenation | ||||||
technology | ||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | ||||
2012 | ||||||||||
2014 | 2017 | |||||||||
Microcellular | INSQIN® | 2015 | Key chemical | |||||||
foam with | technology for | aniline won | ||||||||
First coating | ||||||||||
improved | 2013 | a water-based | 2016 | from | ||||||
hardener made | ||||||||||
polyurethane | renewable | |||||||||
insulating | Epoxy resins | of renewable | Production | |||||||
properties | textile coating | start of foam | raw materials | |||||||
replaced | raw materials | |||||||||
launched | launched | components | for the first | |||||||
by PU resins | is launched | |||||||||
with CO2 in | time | |||||||||
in wind | ||||||||||
turbine rotor | Dormagen, | |||||||||
Germany | ||||||||||
blades | ||||||||||
2019 | 2020 |
2020 | |
First marketed | |
polycarbonate | |
2019 | made of |
phenol of | |
New | |
attributed bio- | |
polycarbonate | |
based origin | |
grades from | |
post- | |
consumer | |
recycled | |
(PCR) content | |
launched |
8 | ESG @ Covestro │ 2020 | Notes: | BMS: Bayer MaterialScience, today Covestro |
UN SDG: United Nations Sustainable Development Goals
GRI: Global Reporting Initiative
On track to achieve our ambitious non-financial targets
Covestro non-financial targets for 2025
80% of project expenditures for R&D go toward areas that contribute to UN SDGs
Achievement: Global evaluation process established; first status to be reported in Annual Report 2020
100% of our suppliers comply with our sustainability requirements
Achievement: 81% by end of 2019
Reduce specific greenhouse gas emissions by 50% from the benchmark in 2005
Achievement: -46.1% by end of 2019
Ten million people in underserved markets benefit from our solutions
Achievement: 650,000 people by end of 2019
Extract the maximum benefit from carbon and increase carbon productivity
Achievement: new company vision announced in 2020, corporate goal setting under way
9 | ESG @ Covestro │ 2020 | Notes: | Covestro non-financial targets established in 2016 |
See 2019 Combined Management Report for further details |
Categorization of material topics determines management approach
Material topics at Covestro
Topics with high stakeholder relevance and
WE INNOVATE high impact and influence of Covestro that require innovation of management approaches
Solutions contributing to UN SDGs
- Sustainable innovation portfolio
- UN SDG conform product portfolio
- Social business
Circular and climate-neutral economy
- Alternative raw materials
- Business models
- Green house gas emissions
- Recyclability and end of life solutions
- Renewable energy
Corporate culture
- Employer attractiveness
- Equality, diversity and inclusion
Topics with high stakeholder relevance and
WE MANAGE high impact and influence of Covestro for which management approaches are in place
Environmental impact of own Operations
- Air quality
- Waste
- Water and wastewater
Health and safety
- Health and safety of workforce
- Process and plant safety
- Product safety
Responsible business practices
- Community engagement
- Compliance
- Human rights due diligence
- Sustainability in sourcing
- Transparency and trust
WE ADHERE TO | Responsible governance | • | Board skills and diversity | • Tax transparency | |||
• | Corporate Governance | ||||||
• | Board responsibilities and oversight | • | Board compensation system | ||||
10 | ESG @ Covestro │ 2020 | Notes: UN SDGs = United Nations Sustainable Development Goals |
MATERIAL TOPICS
THAT PUSH US TO
INNOVATE
OUR MANAGEMENT APPROACHES
Examples of full list of material topics on p. 10
11ESG @ Covestro │ 2020
Sustainability-driven innovations, innovation-driven sustainability
Material topic Solutions contributing to UN SDGsSustainable innovation portfolio
- Research & Development activities aligned with the People Planet Profit principle since 2013
- Focus on the UN Sustainable Development Goals (UN SDGs)
- Capture promising growth opportunities with innovative sustainable solutions
R&D
€266m expenditure in 2019
1,217 R&D
employees
(FTE) in 2019
Patent
284 applications in 2019
of 2019 net
~17% sales with new products
(not >5 years)
No1Non-financial target
By 2025, 80% of project expenditures for research and development will go toward areas that contribute to reaching the UN SDGs
Achievement: Global evaluation process established; first status to be reported in Annual Report 2020
12ESG @ Covestro │ 2020
Bring product innovations to people in underserved markets
Material topic Solutions contributing to UN SDGsSocial business
No4Non-financial target
Solar dryer domes
- Polycarbonate sheets- based solutions for smallholder farmers
- Avoid food wastage after harvest, benefitting farmers economically
- Locations: Thailand, Vietnam, Myanmar, India, Indonesia, Cambodia, Malaysia, Philippines
- About 1,500 units installed
Hygenic sanitation
- Toilets based on polyurethane rigid foam (PIR)
- Community and school toilets as the next step
- Locations: India, Malaysia
- About 170 units installed
Affordable houses
- Constructions based on polyurethane rigid foam (PIR)
- Affordable building material with outstanding insulation and mechanical properties
- Locations: Iraq, Malaysia, Philippines, India
- About 80 units installed
"Our Inclusive Business activities positively contribute to 13 out
of 17
UN SDGs
We want ten million people in underserved markets to benefit from our solutions by 2025
Achievement: 650,000 people by end of 2019
13 | ESG @ Covestro │ 2020 | Notes: | Stated numbers as of 2019 |
Inclusive Business positively contributes to UN SDGs 1, 2, 3, 4, 6, 8, 9, 10, 11, 12, 13, 16, 17 |
The new vision of Covestro
Material topic Circular and climate neutral economyBusiness models
- WE WILL BE FULLY CIRCULAR
Alternative raw materials | Innovative recycling | Renewable energy | Joint solutions | |||
Biomass, CO2, used | Energy-efficient | Wind and sun: clean | Cross-industry | |||
materials and waste can | technologies allow more | energy must power the | collaboration is needed | |||
replace fossil resources | used products and waste | circular economy | to bring the circular | |||
to be recycled | economy forward | |||||
14ESG @ Covestro │ 2020
No5Non-financial target
Our goal is to extract the maximum benefit from carbon. Increasing carbon productivity enables us to create more value with fewer carbon-based fossil resources
Achievement: new company vision announced in 2020, corporate goal setting under way
Circular economy (CE) to keep carbon in the loop
Material topic Circular and climate neutral economyBusiness models
Conceptual illustration | Use | End | |
Phase | |||
of | |||
Energy | |||
designed | Life | ||
input | Applications | ||
for recycling | |||
Electro
Global industry challenges of a circular economy
Provide a solution for the end of life of any
1 material
Extract target molecules from waste streams and
Chemistry | Customer |
products | |
Bio | |
based | Covestro |
products |
CO2 | Inter- | Recycling e.g. | |
mechanical | |||
mediates | |||
Recycling e.g. | |||
Covestro | chemolysis | ||
feedstock | |||
Recycling e.g.. | |||
Naphtha | pyrolysis | ||
Oil | Energy | ||
recovery | |||
Gas |
Waste
management
& sorting
New waste
streams
Processing steps
2 secure continuous access to waste-based feedstock as raw material
3 | Decouple growth from fossil resources and keep |
valuable carbon in the loop as long as possible | |
Covestro-related industries (PU, PC and others)
- Represent less than 10% of global plastic production, dominated by PE, PET, PP, PVC, PS
- Materials mostly not applied in single-use applications
- Offer few established collection streams
- Recycling technologies at early stage except some mechanical recycling; incineration no preferred option
- Covestro already commercializes products that contain alternative feedstock (bio-/CO2-/waste-based)
15ESG @ Covestro │ 2020Notes: Shown recycling technologies and energy recovery are illustrative examples only
Covestro definition of circular economy: holistic focus on end-of-life solutions and independence from fossil sources, keeping carbon in the productive loop as long as possible
Polymers based on alternative raw materials already commercialized
Material topic Circular and climate neutral economyAlternative raw materials
CO2-based | Waste-based | |||
▪ | 6 products commercialized | ▪ | 12 products commercialized | |
▪ | 6 running R&D projects | ▪ | 19 running R&D projects | |
Bio-based
- 13 products commercialized
- 40 running R&D projects
Example PUR
CO2 as raw material
- CO2 replaces up to 20% of crude oil-based feedstock of polyols
- New production plant at Dormagen site and product brand cardyon® launched
- Recticel promotes foam mattresses with more than one-seventh of oil content replaced by CO2- based chemicals
- Sports flooring producer Polytan installed first elastic subfloor using cardyon® as binder
Example PCS
Recycled polycarbonates
- New polycarbonate grades from post-consumer recycled (PCR) content, e.g. water bottles, CDs and auto-motive lighting
- Closed loop recycling system to collect, sort, shred and clean material
- Recycled granules are finally compounded with virgin resins
- PCR grades are used in various electrical applications for a second life
Example CAS
Bio-based car top coat
- Enabling customers to optimize the CO2 footprint of their products
- New hardener for automotive coatings with carbon basis up to 70% from renewable raw materials
- No compromises with regards to protective functions and appearance
- Collaboration with automotive group Audi and the coating experts at BASF Coatings
16 | ESG @ Covestro │ 2020 | Notes: | Numbers as of 2019 |
Turning waste gas from steel factories into valuable polymers
Material topic Circular and climate neutral economyAlternative raw materials
Cross-sector project of 14 partners | ||
Carbon4PUR | from seven countries, led by Covestro, | |
funded by the European Union. | ||
- Key objectives of this 3-year project, initiated in October 2017:
- Reduce carbon footprint of polyurethane intermediates by 20-60% compared to today's polyurethane products manufactured from crude oil
- Save 70% of process energy compared to conventional chemical processes
- For the first time, provide higher value novel polyols from waste CO or CO2 for the production of new, sustainable polyurethane applications (rigid foam and coatings) as an example of high value polymers
- Industrial-scale :Carbon in form of mixed waste gases from the ArcelorMittal plant in Fos-sur-Mer, France, could undergo catalytic transformations in the nearby Covestro plant to become a chemical feedstock for polyols
- Project results expected in 1H 2021
Pan-European project partners
Academic and institutional partners:
17ESG @ Covestro │ 2020
Enabling as well as using wind energy
Material topic Circular and climate neutral economyRenewable energy
Polyurethane-based wind turbine blades | Ørsted wind energy supply | |
- Covestro, Goldwind and LZ Blades develop world's first 64-meter polyurethane (PU) wind turbine blade
- Wind turbine blade from the spar cap to the shear web and the shell made entirely of PU infusion resin
- PU resin displays better mechanical properties compared with traditional epoxy resin;
- Lower viscosity and faster infusion speed of PU resin system can greatly improve the efficiency of blade production
- At this time world's largest corporate supply contract for offshore wind energy entered by Covestro and Ørsted in December 2019
- Starting in 2025, Ørsted to provide 100 MW of electricity for 10 years
- Newly built wind farm in North Sea, implemented without public funding
- Supply to cover c. 10% of electricity consumed by Covestro in Germany
18ESG @ Covestro │ 2020
Underway to halve specific greenhouse gas emissions
Material topic Circular and climate neutral economyGHG emissions
Specific energy consumption | Specific greenhouse gas (GHG) emissions | |
Reduction by 36%
Reduction by 46%
No3Non-financial target
By 2025, specific greenhouse gas emissions per metric ton of product manufactured to be reduced by 50%
- Specific energy consumption improved by 36%; goal to reduce by 50% until 2030
- STRUCTese energy efficiency system contributed lasting reductions of 2.22 mio. MWh of primary energy since 2008
- STRUCTese compares and bridges Covestro-wide actual energy consumption with the potential optimum
- 2019 examples: Optimized polycarbonate plant in Map Ta Phut, Thailand, cuts steam usage by c.15,000 MWh; Optimized chlorine plant in Baytown, USA, lowers electricity requirement by c. 20,000 MWh
- Specific GHG emissions reduced by 46%
- Improvement of energy efficiency is key lever to significantly lower our specific GHG emissions (scope 1+2)
- Continued investments in process innovation improve production efficiency and specific energy use
from the 2005 benchmark
Achievement: -46.1% by end of 2019 vs 2005 benchmark
19ESG @ Covestro │ 2020
Researching a circular polyurethanes economy
Material topic Circular and climate neutral economy End-of-lifesolutions
Seeking ways of transition from current linear lifecycle of polyurethane (PU) products to a circular economy model
Consortium as an end-to-end collaboration spanning the entire PU reprocessing value chain
Target: Recovery over 90% of end-of- life PU with the goal of converting it into valuable inputs for new products
EU-funded project running 4 years, started in January 2019, including 9 partners from 6 countries
Covestro is industry partner in the project consortium, coordinated by the Belgian company Recticel
Recycling of PU foam
Cross-industry collaboration: PUReSmart
smart | Improve sorting abilities to gain clean |
SORTING | material inputs for PU recycling |
smart | Modify chemolytic process to increase |
CHEMOLYSIS | quality and quantity of recycled products |
smart | Design new molecules to make PU |
DESIGN | re-processable |
20ESG @ Covestro │ 2020
Blockchain to enable traceability of polymers in the automotive sector
Material topic Circular and climate neutral economy End-of-lifesolutions
- Circularise, Porsche, Borealis, Domo Chemicals and Covestro launched blockchain traceability project in November 2020
- By digitizing materials, a digital thread through the whole supply chain leads to tracing materials and sustainability metrics like CO₂ footprints or water use
Mission
- Trace polymers from raw materials to consumer application
Challenge
- Overcome inherent complexity of the supply chains and multitude of suppliers
- Establish transparency while granting trust, privacy and confidentiality
Solution in development
- Creating blockchains - batches of materials are digitized on the blockchain, creating a digital copy called digital twin
- Digital twin carries all relevant information of the batch, such as its environmental footprint and origin, resulting in a digital thread along the supply chain
- Verification of product claims is granted through third party auditing
- All supply chain parties update the digital twin mimicking the physical supply chain and reflecting the manufacturing processes
Potential applications
- Circularise technology able to trace plastics from raw material to the final car
- "Smart Questioning" allows to trace materials and sustainability metrics while preserving everyone's privacy and protecting confidential information
- Helping car manufacturers to make better decisions for the next generations of vehicles and support end-of-life recycling approaches
- Helping consumers in making sustainable decisions through increased transparency of a product's environmental impact
21ESG @ Covestro │ 2020
Global Covestro diversity & inclusion initiatives support UN SDGs
Material topic Corporate cultureEquality, diversity and inclusion
Global Covestro | |||
D&I Team | Colleagues | Company | Community |
sponsored by | |||
Expand opport- | |||
Board of Management | |||
Build, engage and | Establish an | unities for achieving | |
inclusive, supportive | business objectives | ||
develop a strong, | |||
work environment and | through community | ||
diverse workforce | |||
culture for | engagement and | ||
everyone | customer | ||
interactions |
- Cross generational and multi-national engagement within our labor markets
- Brief recruiting agencies for gender balance
- Consequent posting of open positions
- Diverse interview panels*
- Building a diverse STEM workforce pipeline
- Design inclusive workspaces and office concepts like in Shanghai, Leverkusen
- Support employee resource groups, e.g. UNITE, Compass,
- Create part-time working and job/top share positions
- Facilitate parental leave
- Non-traditionaland flexible work hours
- Adoption assistance
- Tuition reimbursement / student loan relief program
-
Establish partnerships with a wider range of (international) colleges / universities and networks (e.g.
UNITECH) - Global Covestro D&I team cooperation and alignment with corporate culture
- Community engagement and partnership efforts
- Operate Inclusive Business, e.g. temporary housing for refugees
- Supplier Diversity Program rollout (US)
22ESG @ Covestro │ 2020Notes: D&I = Diversity and inclusion; STEM = Science, technology, engineering and mathematics * Difference in generation, gender, culture and cross-unit/function/region
Not all examples apply to all Covestro countries as efforts are currently in the process to be expanded
MATERIAL TOPICS
THAT WE
MANAGE
WITH EXISTING MANAGEMENT APPROACHES
Examples of full list of material topics on p. 10
23ESG @ Covestro │ 2020
Covestro risk-based water approach in development
Material topic Environmental impact of own operationsWater and wastewater
Risk
Measure
Growing world population and climate change will lead to changes in the global water situation:
- Water scarcity may limit water access for manufacturing companies which may not be sufficient for 100% production
- Flooding may impede production by destroying transport routes, supply chains or production facilities
- Initial analysis for water stress and flooding risks conducted for all Covestro sites
- Site evaluation by occurrence probability and economic loss
- Implementation of information management system
- Best practice sharing between sites
Covestro relies on water supply, ~80% of water usage is cooling water
Risk-based approach improves management of water-related aspects
Our objective: develop a holistic corporate water approach across all sites
24ESG @ Covestro │ 2020
Our priority: Nothing we do is worth getting hurt for
Material topic Health and safetyHealth & safety of workforce / Process & plant safety
Occupational safety
Recordable Incident Rate RIR(a)
0.81 | |
Reduction | |
by 64% | |
0.29 | |
2005 | 2019 |
Plant & process safety
Loss of Primary Containment Incident Rate, LoPC IR(b)
1.11 | |
Reduction | |
by 41% | |
0.66 | |
2013 | 2019 |
- Continuous improvement of a safe work environment as key component of corporate responsibility and corporate culture
- Integrated management system implemented throughout Covestro to report and process work incidents and potential hazards
- Active safety and incident awareness and prevention campaigns, e.g. CEO Safety Award awarded for 12th time in 2020 during global Covestro Safety Day
- We aim for safe processes and plants that avoid unacceptable risks to our employees, neighbors and the environment
- Long-termwe aim to prevent workplace accidents and occupational illnesses entirely
25 | ESG @ Covestro │ 2020 |
Notes: | (a) Number of incidents recordable after Occupational Safety & Health Administration (OSHA)-regularities per 200,000 hours |
worked by Covestro employees | |
(b) Number of LoPC (Loss of Primary Containment) incidents per 200,000 hours worked by operational employees |
Taking a broad view on human rights throughout our value chains
Material topic Responsible business practicesHuman rights due diligence
Covestro promotes and respects | Covestro is publicly committed | Covestro is taking responsibility for | |||
human rights | to respect human rights | human rights along the value chain | |||
• Human rights are the basis for how we deal with | Public Corporate Commitments on | • Our Supplier Code of Conduct defines | |||
people and form the foundation of our social | • | Human Rights | expectations to our suppliers to adhere to our | ||
responsibility | • Ten Principles of UN Global Compact | sustainability requirements | |||
• Human rights are important to our employees, | • | Slavery and Human Trafficking | • We employ a sustainability standard for our | ||
investors, customers and communities | (Modern Slavery Act Statement) | supply base through the industry initiative | |||
Together for Sustainability (TfS) | |||||
- Human Rights Due Diligence requires Covestro to continuously monitor and evaluate our processes with regards to potential and actual human rights violations
"A cross-functional Covestro task force drives the implementation of a comprehensive Human Rights Management System
26 | ESG @ Covestro │ 2020 Human Rights @ Covestro |
Together for Sustainability - compliance along the value chain
Material topic Responsible business practicesSustainability in sourcing
- This standardized approach for supplier assessment improves sustainability practices within the supply chain while minimizing monitoring and audit efforts
- Initiative founded in 2011, with 26 members as of June 2020
- Members use same approach, share assessments and audits results within the initiative: >12,200 assessments and 2,030 supplier audits for >1,700 suppliers
- EcoVadis responsible for high-quality,third-party sustainability assessments and on-site audits, with criteria are based on GRI, UN Global Compact, and ISO 26000 global standards
- Covestro uses TfS methodology as one approach towards suppliers as well as customers
27 | ESG @ Covestro │ 2020 | Notes | TfS numbers on assessments, audits and suppliers as of 2019 |
No2Non-financial target
All of our suppliers representing a regular purchasing volume of more then €100,000 per year comply with our sustainability requirements
Achievement: 81% by end of 2019
Our priority: We play by the rules
Material topic Responsible business practicesCompliance
6 Covestro Policies
Value creation | Sustainability |
Innovation People
HSEQ Compliance
• Define our mindset, how we want to act
and be perceived | |||
Policies | • | Corporate level | |
• Externally and internally available | |||
• Define our corporate standards by | |||
establishing organizational structures, | |||
Directives | our processes/workflows and IT-tools, | ||
on a Management level | |||
• Corporate level, internally available | |||
• Assure implementation of the standards | |||
and observance, on employee level | |||
Procedures | • | Legal-entity level, internally available | |
CFO chairs Group Compliance Committee
11 Corporate Commitments
To underline our mission as a sustainable company, we take a clear stance on key issues and are committed to adhering to standards.
- UN Sustainable Development Goals
- Ten Principles of UN Global Compact
- Responsible Care
- Human Rights
- Slavery and Human Trafficking (Modern Slavery Act statement)
- Water
- Handling Products Responsibly
- Corporate Compliance
- Responsible Lobbying
- Responsible Marketing & Sales
- Tax Transparency
28 | ESG @ Covestro │ 2020 | Notes | The six Covestro Policies and eleven Covestro Corporate Commitments are published on covestro.com |
Translating the RC Global Charter into actionable company directives
Material topic Responsible business practicesCompliance
Responsible Care Global Charter
of the International Council of Chemicals Associations
- A Corporate Leadership Culture that proactively supports safe chemicals management through the global Responsible Care initiative
- Safeguarding People and the Environment by continuously improving our environmental, health and safety performance; the security of our facilities, processes and technologies; and by driving continuous improvement in chemical product safety and stewardship throughout the supply chain
- Strengthening Chemicals Management Systems by participating in the development and implementation of lifecycle-oriented,sound- science and risk-basedchemical safety legislation and best practices
-
Influencing Business Partners to promote the safe management of chemicals within their own operations
Engaging Stakeholders, understanding and responding to their - concerns and expectations for safer operations and products and communicating openly on our performance and products
- Contributing to Sustainability through improved performance, expanded economic opportunities and the development of innovative technologies and other solutions to societal challenges
29ESG @ Covestro │ 2020
Sample to illustrate the implementation of a public charter into Covestro corporate policies and directives
Policy "HSEQ", directive "HSEQ Leadership and Commitment"
Policy "HSEQ", directive "HSEQ Leadership and Commitment", directive "Product Stewardship", directive "Plant and Process Safety", directive " Incident Notification and Investigation",
Directive "Product Stewardship", directive "Covestro Integrated Management System for HSEQ", additionally active contribution in associations like VCI, ACC, CEFIC, PlasticsEurope
Directive "Transportation Safety", directive "Product Stewardship"
Directive "HSEQ Leadership and Commitment"
Policy "Sustainability "
Head of HSEQ Management System commissioned by Board of Management
RESPONSIBLE GOVERNANCE
THAT WE
ADHERE TO
30ESG @ Covestro │ 2020
Annually declaring conformity with the GCGC
Material topic Responsible governanceCorporate Governance
Responsible governance
• The German Corporate Governance Code (GCGC) reflects material legal requirements for responsible governance
• Covestro annually declares and publishes conformity with the
GCGC
• In compliance with all principles and recommendations of the GCGC since company IPO in 2015
• Detailed corporate governance report as an integral part of the annual report
31ESG @ Covestro │ 2020
Board of Management responsible for operational businesses and goals
Material topic Responsible governanceBoard responsibilities and oversight
Dr. Markus Steilemann | Sucheta Govil | Dr. Klaus Schäfer | Dr. Thomas Toepfer | ||||||
Chief Executive Officer | Chief Commercial Officer | Chief Technology Officer | Chief Financial Officer | ||||||
Areas or responsibility: | Areas or responsibility: | Areas or responsibility: | Areas or responsibility: | ||||||
• | Communications | • | Polyurethanes | • | Global Project Engineering | • | Accounting | ||
• | Corporate Audit | • | Polycarbonates | • | Health, Safety, Environment & | • | Controlling | ||
• | Human Resources | • | Coatings, Adhesives, | Quality | • | Finance | |||
• | Strategy | Specialties | • | Production & Technology | • | Information Technology | |||
• | Sustainability | • | Central Marketing | • | Procurement | • | Investor Relations | ||
• | Innovation Management & | • | Site Management NRW | • | Law, Intellectual Property & | ||||
Commercial Services | • | Site Management Baytown | Compliance | ||||||
• Supply Chain Center EMLA | • | Site Management Shanghai | • | Portfolio Development | |||||
• Supply Chain Center NAFTA | • | Taxes |
• Supply Chain Center APAC
32ESG @ Covestro │ 2020
Supervisory Board advises and oversees Board of Management
Material topic Responsible governanceBoard responsibilities and oversight
Shareholder representatives, elected by the AGM 2020 | Employee representatives | |
Dr. Richard Pott Chair
Presidial Committee,
Chair
Human Resources
Committee, Chair
Nominations
Committee, Chair
Dr. Christine
Bortenlänger
Audit Committee
Regine Stachelhaus
Presidial Committee
Human Resources
Committee
Nominations
Committee
Ferdinando Falco Beccalli
Nominations
Committee
Prof. Dr. Rolf
Nonnenmacher
Audit Committee, Chair
Patrick W. Thomas
Audit Committee
Petra Kronen(1) | Irena Küstner(1) | |
Vice Chair | ||
Presidial Committee | Audit Committee | |
Audit Committee | ||
Human Resources | ||
Committee | ||
Dr. Ulrich Liman(1) | Petra Reinbold- | |
Knape(2) |
Human Resources | |
Committee | Presidial Committee |
Audit Committee |
Marc Stothfang(1) | Frank Werth(2) | |
33 | ESG @ Covestro │ 2020 | Notes: | (1) Covestro employee |
(2) Union representative (German Mining, Chemical and Energy Industrial Union (IG BCE)) |
Supervisory Board - objectives for the composition and diversity concept
Material topic Responsible governanceBoard skills and diversity
Supervisory Board
Duties and composition
- Advises and oversees the Board of Management
- Activities governed by rules of procedure (published)
- Composed of at least 30% women and at least 30% men(1)
- 75% of members and more than half of shareholder representatives are to be independent
- Not more than two former members of the Board of Management
Supervisory Board
Membership
- Co-determinedwith 12 seats, thereof six shareholder and six employee representatives(1)
- Not serve more than three full terms
- Not serve beyond AGM following 72nd birthday
Gender
structure
42% women
Supervisory Board
33% women
Shareholder
representatives
50% women
Employee
representatives
Supervisory Board
Skills
- At least two members with function-specific knowledge in each of the following areas:
- Accounting and/or auditing
- Strategy, mergers and acquisitions, capital markets
- Marketing, sales, supply chain
- Research and development, innovation
- Technology, digitalization
- Human resources, change management
- Corporate governance, compliance
- At least two members with Covestro-relevant experience in industries, sales markets and/or divisions, e.g. polymer chemistry, production and technology
- At least three members should have managerial experience in an international enterprise and/or experience serving on other supervisory boards or supervisory bodies
- The Board shall strive to ensure sufficient diversity among its members
34 | ESG @ Covestro │ 2020 | Notes: | Objectives for composition and diversity concept including skill set as published in Annual Report 2019 |
(1) According to German Stock Corporation Act (AktG) |
Board of Management is paid for performance
Material topic Responsible governanceBoard compensation system
Component | 2020 determination base and parameters |
Fixed | • Annual benchmark: horizontally again DAX/MDAX and vertically |
against all German employees | |
compensation | |
• Annual adjustments determined by Supervisory Board in line with the | |
~30% | increase in the consumer price index in Germany |
• 2020e values: CEO €1.2m; CFO €0.7m; CCO/CTO €0.6m | |
Short-term | • Target value: 100% of the respective annual base salary |
variable | • Key performance indicators, each weighted 1/3: |
component | Core volume growth, liquidity (FOCF), profitability (ROCE) |
• Threshold values fixed for three years (2019-2021) | |
~30% | |
• Payout between 0 and 250% of target | |
• Target value: 130% of respective annual base salary | |
Long-term | • Key performance indicators, linked by multiplication: |
variable | • Total Shareholder Return (TSR) |
component | • Relative share price development in relation to STOXX Europe |
600 Chemicals index | |
~40% | |
• Rolling performance periods of four years, e.g. 2020-2023 | |
• Payout between 0 and 200% of target | |
• Obligation to purchase Covestro shares equivalent in value to 65% of | |
Share | the gross annual base pay within three years and to hold them for |
ownership | the duration of Board membership |
guidelines | • Intended increase to 100% of gross base pay for future Board |
contracts (already applying to CCO and CFO) | |
Component | 2020 determination base and parameters | |
• Capped at the 1.9-fold of the target compensation | ||
Cap on | • Target compensation: Annual base salary plus target | |
compensation | values for the variable components plus company pension | |
expenditures | ||
• Contribution-based entitlement | ||
• Board member's max. personal contribution: 9% of the | ||
Pension | respective fixed compensation above the social security | |
contribution ceiling | ||
entitlements | ||
• Company contribution of up to 33% of the respective fixed | ||
compensation above the ceiling (6% basis plus three times | ||
the personal contribution) | ||
Fringe | • Company car / vehicle allowance; driver service | |
• Security equipment; health screening examinations; other | ||
benefits | ||
• Payments upon start of office, if applicable | ||
Contract | • | Payments made, including fringe benefits, capped to the |
value of two years' compensation | ||
termination | ||
• | Exception: termination for cause |
Change of | • | Indemnity payments of 250% of fixed annual compensation |
• | Capped at the lower of (i) three years' compensation or (ii) | |
control | ||
compensation for the remainder of the contract term | ||
35ESG @ Covestro │ 2020
Short-term incentive fully based on profit sharing
Material topic Responsible governanceBoard compensation system
Management bonus based on Profit Sharing Plan (PSP)
- Target value (i.e. 100%) related to respective annual base salary
- Key performance indicators, each weighted 1/3: Core volume growth, liquidity (FOCF), profitability (ROCE)
- Threshold values fixed for three years (2019-2021)
- Attainment between 0 and 300% of individual targets, total payout capped at 250%
- Supervisory Board reserves the right to cancel PSP for a given year if ROCE is below WACC (ROCE over WACC < 0pp)
Core Volume Growth | FOCF ( in € million) | ROCE above WACC | ||||||||||||||||
Value | 1.5% | 4.0% | 6.5% | 9.0% | Value | 400 | 800 | 1,200 | 1,600 | Value | 0%p | 8%p | 16%p | 24%p | ||||
Payout | 0% | 100% | 200% | 300% | Payout | 0% | 100% | 200% | 300% | Payout | 0% | 100% | 200% | 300% | ||||
36 | ESG @ Covestro │ 2020 | Notes: | Program description based on German program; program details and eligibility may vary in other countries |
Long-term incentive based on total shareholder return
Material topic Responsible governanceBoard compensation system
Key features of "Prisma"
▪ Cash settled plan with four-year performance periods |
▪ Globally consistent program for all eligible employees |
▪ Target amount based on fixed percentage of annual base salary |
▪ Payout (capped at 200% of target) based on: |
1. TSR (Total Shareholder Return) as absolute performance |
criterion |
Ending Share Price + Cumulated Dividends
Starting Share Price
= TSR Factor
2. Outperformance factor as relative payout criterion based on |
STOXX Europe 600 Chemicals index |
▪ Starting and ending prices for Covestro share and index are |
determined by the average closing prices during November & |
December before and at the end of the performance period |
▪ Intention to include a sustainability-related KPI for members of the |
Board of Management starting 2021 |
Change in | Change in | Outperformance | ||
100% + ( Covestro Share - | ) | = | ||
Index Price | Factor | |||
Price |
Outperformance
Prisma Payout | Prisma | TSR | Outperformance | ||||
= | Target | x ( | x | ) | |||
Amount | Factor | Factor | |||||
Payout percentage
37ESG @ Covestro │ 2020
Fully fixed compensation system for Supervisory Board
Material topic Responsible governanceBoard compensation system
ComponentDetermination base and parameters
• Fixed annual compensation of €100,000 | |
• Chairperson's fixed annual compensation of €300,000, also covering committee memberships | |
• Vice chairperson's fixed annual compensation of €150,000, also covering committee memberships | |
Fixed compensation | • Additional compensation for committee memberships |
‒ Audit Committee: €50,000 for the chairperson and €25,000 for all other members | |
100% | |
‒ Other committees: €30,000 for the chairpersons and €20,000 for all other members | |
‒ Nominations Committee: No additional compensation | |
‒ In case of multiple committee memberships, compensation limited to the two functions with the | |
highest compensation | |
Attendance fee | • €1,000 for each personal attendance of a board or committee meeting |
• In case of multiple meetings on one day, only one attendance fee is paid | |
• Reimbursement of expenses incurred through the exercise of their office, including value-added tax | |
Reimbursements | payable on their compensation and on the reimbursement of their expenses |
• The Company has purchased liability insurance for the members of the Supervisory Board to cover | |
the personal liability arising from their activities as members of the Supervisory Board | |
38 | ESG @ Covestro │ 2020 | Notes: Compensation values unchanged since 2015 |
Committed to tax transparency
Material topic Responsible governanceTax transparency
• Zero tolerance regarding any non-compliance, foremost tax fraud | |
Covestro | • Tax payments in line with respective value creation in each country and territory |
tax | |
• Tax optimization in line with business reasons and needs | |
principles |
- Cooperative approach with tax authorities
- Covestro and its affiliated companies believe that it is their obligation to pay the amount of tax legally due in any country and/or territory, in accordance with the rules set by the respective governments
- Appropriate tax payments is one core element of Covestro's corporate social responsibility
- Tax payments by Covestro provide essential revenues for governments needed to fulfill their social, economic and societal tasks
- Covestro complies with all relevant tax regulations as well as filing, documentation, disclosure and approval requirements in all countries and territories it operates in
39ESG @ Covestro │ 2020
ESG REPORTING @ COVESTRO
40ESG @ Covestro │ 2020
Find more information online
Useful links and sources
TOPICS RELATED TO ENVIRONMENT, SOCIAL AND GOVERNANCE
Solutions contributing to UN SDGs
• Sustainable innovation portfolio
• UN SDG conform product portfolio
• Social business
Circular and climate-neutral economy
• Alternative raw materials
• Business models
• Green house gas emissions
- Recyclability and end of life solutions
• Renewable energy
Corporate culture
• Employer attractiveness
• Equality, diversity and inclusion
Environmental impact of own Operations | Responsible governance | ||
• | Air quality | • | Corporate Governance |
• | Waste | • | Board of Management |
• | Water and wastewater | • | Supervisory Board |
Health and safety | • | Board compensation system | |
• Health and safety of workforce | • | Tax transparency | |
• Process and plant safety | |||
• | Product safety |
Responsible business practices
• Community engagement
• Compliance
• Human rights due diligence
• Sustainability in sourcing
• Transparency and trust
• | Annual Report 2019 | • | TCFD disclosure | • | ESG ratings and indices |
• | GRI reporting | • | Covestro non-financial goals | • | Compliance hotline |
41ESG @ Covestro │ 2020
Scores reflect Covestro's broad engagement in ESG matters
Ratings and index memberships as of June 2020
Rating / Index | 2016 | 2017 2018 | 2019 | 2020 | Scoring | Benchmark | ||||
A | A | A | AAA - CCC | in Specialty Chemicals | ||||||
BBB | BBB | |||||||||
B- | B- | B- | A+ - D- | Prime Status | ||||||
80 | max. 100 Points | |||||||||
23.3 | ||||||||||
75 | 0 - 100 Points | in Specialty Chemicals | ||||||||
74 | 20.0 | |||||||||
New methodology(a) | (the lower the better) | |||||||||
80 | ||||||||||
73 | max. 100 Points | Gold Ranking |
Inclusion in FTSE4Good Index(b)
42 | ESG @ Covestro │ 2020 | Notes: | (a) Methodology reversed - the lower the score the better |
(b) Since December 2016, reviewed in June 2020 |
Forward-looking statements
This presentation may contain forward-looking statements based on current assumptions and forecasts made by Covestro AG.
Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Covestro's public reports which are available on the Covestro website at www.covestro.com.
Covestro assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.
43ESG @ Covestro │ 2020
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Covestro AG published this content on 13 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 November 2020 14:02:00 UTC