Workers in the Value Chain (S2)

Our business model is based on scientific research and responsible entrepreneurship. For us, they are the key to technological progress. We source numerous raw materials, packaging materials, technical products, components, and services from all over the world. Accordingly, we depend on the stability and reliability of our suppliers and supply chains. The objectives of our supplier management are compliance with human rights and environmental due diligence obligations through suitable policies, processes, and actions. We aim to act ethically responsible in our own business practices as well as in our supply chain to minimize human rights violations and abuses.

We expect the same commitment from our suppliers and have defined this in our Supplier Code of Conduct. Should human rights violations or breaches of labor standards occur in the supply chain, we apply remedial actions specifically targeted at our suppliers and expect the deviations to be addressed promptly and effectively.

Our main impacts, risks and opportunities in relation to workers in the value chain (S2 SBM-3)

As part of the materiality analysis, we identified negative impacts and risks of our business activities on workers, particularly in the upstream value chain. The type of our business activities, business relationships and geographical circumstances were taken into account in the assessment and identification. Based on this, an understanding of the underlying value chain was gained, including the underlying products and services. Based on this approach, negative impacts and risks were identified as material in all three business sectors (Life Science, Healthcare and Electronics).

Workers in our upstream value chain

Our company operates in complex global supply chains. In many cases several supplier levels exist between us and the sources of the raw materials used in our products. Workers who may be particularly affected by human rights violations in the upstream value chain include:

• Workers who extract, process and transport conflict minerals such as tin, tungsten, tantalum, and gold in mines. These minerals carry the risk of being extracted and sold from conflict-affected and high-risk areas. According to the European regulation, conflict-affected and high-risk areas means areas in a state of armed conflict or fragile post-conflict. Or it could mean areas witnessing weak or non-existent governance and security, such as failed states, including widespread and systematic violations of international law and human rights abuse.
• Workers in the mica supply chain. This raw material is primarily mined in India, particularly in the states of Rajasthan and Bihar.
• Workers in the logistics sector, especially in the transportation of goods. Employees are confronted with problems such as precarious working conditions, a lack of health and safety protection, mistreatment and discrimination.

Workers from the aforementioned groups are particularly susceptible to negative effects. This includes people who do not have a good command of language in the workplace, meaning they have difficulty understanding safety instructions and/or communicating effectively with colleagues, for example. Workers with physical or mental challenges may also be more susceptible to injury or accidents in the workplace. Women can be discriminated against and treated unequally in the workplace, affecting their access to safe working conditions, fair promotion opportunities, and adequate health and safety resources.

In the conflict minerals supply chain and in the mica supply chain and logistics industries, the potential negative impacts of indirect tier-n suppliers are both widespread and systematic. Due to the nature of our business activities, potential negative impacts on working conditions, equal treatment and opportunities and other work-related rights in the upstream value chain cannot be ruled out.

For example, mica is an important raw material for our effect pigments, which are used in the automotive, cosmetics and plastics industries. We source the majority of our mica from the Indian states of Rajasthan and Bihar, where people often work in hazardous conditions during mica mining. There is also a considerable risk of child labor and unsafe working conditions. The lack of formal employment structures and official supervision further exacerbates this problem.

The identified material risk of a pandemic (S2-R-01) arises from external factors and therefore not from any impacts or dependencies on workers in the value chain. Workers in our upstream value chain are just as affected by our identified risk as those working in our downstream value chain, such as distributors or agents. Workers working in the operations of a joint venture or workers in our downstream value chain are not impacted by our material impacts. Workers who work on our site and fall into the category of ‘non-employees’ (for example self-employed workers or workers provided by a third party) belong to our own workforce. They are covered by the ESRS under S1.

Our policies related to workers in the value chain (S2-1)

As an international company, we have the responsibility to respect human rights worldwide. We want to ensure that no human rights violations occur at our subsidiaries, suppliers, or business partners. We also aim to work toward improving the respective circumstances if human rights violations are identified. In doing so, we are fulfilling our due diligence obligations and complying with legal obligations, such as the German Supply Chain Due Diligence Act (LkSG). In the event of inconsistencies between our Group-wide standards and national laws, we try to act in accordance with whichever standard is stricter while respecting compliance with the laws in the countries in which we operate. In doing so, we contribute to achieving the UN Sustainable Development Goals (SDGs).

Our policies, in particular our Supplier Code of Conduct, are based on the following principles:

• a zero-tolerance policy toward all forms of child and forced labor, modern slavery and human trafficking,
• the rejection and prohibition of discrimination,
• the right to form employee representative bodies and engage in collective bargaining,
• compliance with national legislation on working hours, remuneration, minimum wage and social benefits or if there are no national regulations, with the international standards of the ILO,
• taking action to prevent accidents and work-related illnesses as far as possible.

Our policies aim to address the impacts and risks for employees in the upstream value chain. The policies related to our workers in the value chain are regularly monitored and updated.

We are committed to respecting international standards on human rights such as the OECD Guideline für Multinational Enterprises and the International Labour Organization Declaration (ILO) on Fundamental Principles and Rights at Work. Our Human Rights Charter is based on the United Nations Guiding Principle on Business and Human Rights. We do not engage directly with workers in the value chain. We work with other companies in industry initiatives to ensure that we operate according to industry standards and can rely on comparative data and expert analyses. For example, we are a founding member of the multi-stakeholder group Responsible Mica Initiative (RMI). The RMI initiative aims to reduce human rights risks in the mica supply chain. In addition to the interests of companies, the interests of value chain workers are also considered in order to improve working conditions and eliminate child labor and forced labor.

If we discover that a human rights or environmental violation has occurred in our supply chain, we will immediately take appropriate action to end these violations. We may terminate our commercial relationship with a supplier if it fails to comply with our human rights regulations. Our actions include investigating the infringement case and the particular supply chain situation. The responsible role contacts the supplier about the (potential) case to ask for a formal statement about the reported allegation. Depending on the willingness of the supplier to end the violation, the discussion results are documented and followed up, or an escalation process is initiated as defined in our Remedial Actions Guideline. Concrete actions in the follow-up process, which includes agreeing on a corrective action plan (CAPA) with the supplier, for example, are determined by the severity of the case. The follow-up or escalation activities are conducted with the help of contributions by departments for example Procurement, as well as human rights experts and business risk owners.

In the reporting year, we received four reported cases of complaints. None of these cases were confirmed as human rights violations in which the UN Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work and its follow-up measures, or the OECD Guidelines for Multinational Enterprises were not adhered to, and in which employees in the value chain were involved. Cases of human rights violations from our supply chain can be reported to us via our compliant channels through our web-based compliance hotline, by phone or via e-mail. Our center of expertise within Group Procurement documents, tracks and handles the investigation and the closing of the cases. The Human Rights Officer is informed accordingly. The aim of our grievance mechanism is to gain knowledge of risks and violations relating to human rights and certain environmental aspects at the earliest possible stage in order to take effective preventive and remedial actions and avert potential harm to the persons affected. Should the investigation confirm human rights or certain environmental risks or violations at suppliers, suitable subsequent actions such as audits and corrective action plans are initiated. The complaint procedure is closed if it has been ascertained with sufficient certainty that there were no human rights risks or violations.

We have defined clear responsibilities for the implementation of and compliance with our human rights due diligence, including clear responsibilities for monitoring risk management. Our Human Rights Officer is responsible for monitoring human rights and environmental due diligence. As we consider the fulfillment of due diligence obligations as a cross-sectoral task, in addition to our Human Rights Officer, topic managers in the respective functions, business sectors and local units are also responsible for their operational implementation. In addition, external experts are consulted for certain topics and tasks. Overall responsibility for respecting human rights lies with our Executive Board. In our Human Rights Policy Statement on Compliance with Human Rights and Environmental Due Diligence Obligations we clearly state that we take zero tolerance approach to any form of child labor and forced labor. This statement is also part of our Supplier Code of Conduct, in which we outline our expectations to our suppliers and business partners with regard to human rights.

Our process for engaging with workers in value chain in relation to the impacts on them (S2-2)

We do not yet have processes in place to directly engage with workers in the value chain and their representatives about material actual/potential impacts and risks affecting them.

Our processes for addressing negative impacts and channels through which workers in the value chain can raise concerns (S2-3)

As a globally active company, we cannot rule out negative impacts on people and the environment in our supply chain. Our aim is to protect (potentially) affected persons and to prevent, end or at least minimize adverse human rights impacts. We have established standardized processes for this purpose. These processes include our supplier selection process, remedial actions in accordance with our respective guideline, our human rights risk management, our complaints mechanism and due diligence process for conflict minerals. Through these processes we are able to identify and address risks appropriately and avoid and mitigate negative effects on workers in the value chain. If a human rights violation occurs in our supply chain, the range of actions is diverse and depends on the identified violation and root cause of the violation.

Our supplier selection process

Compliance with human rights and environmental expectations is taken into account when selecting suppliers. These criteria are part of the supplier selection strategy. We are currently working on adapting our standard operating procedures accordingly, and training employees in the Sourcing department on these changes. Our expectations are communicated to the supplier both during the tender process and during contract negotiations. We obtain confirmation of compliance with our Supplier Code of Conduct from all suppliers with a defined risk profile comprising country risk and industry risk before said supplier is included in our enterprise resource planning systems and receives a purchase order. If we discover that a violation of a human rights or environmental obligation has occurred along our supply chain, we immediately initiate appropriate actions. For example, corrective and remedial action plans are defined with suppliers in accordance with our "Remedial Actions Guideline", which must be fulfilled within a specified period of time. In addition, we ask our suppliers to have assessments or audits carried out by us or by trusted partner companies and have also integrated this requirement into contracts. To ensure that we comply with industry standards, we work together with other 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 (RMI) and the Responsible Minerals Initiative (RMI).

Our risk management process

In order to identify human rights and environmental risks, we conduct a risk analysis of suppliers on an annual basis or ad hoc if required. Firstly, we determine the abstract risks of our direct suppliers using country and industry indices calculated based on external data, taking into account the scope of our business activities with the respective supplier. In a second step, specific human rights and environmental risks are considered. In the concrete risk analysis, either those suppliers identified as "relevant" in the abstract part or those in a high-risk supply chain or suppliers that are considered high-risk according to internal findings are assessed. By doing so, we also want to be able to take changes in our supply chain into account and respond to newly acquired knowledge.

The results of the risk analysis are continuously evaluated and integrated into our internal decision-making and business processes. Risk analysis forms the basis for appropriate preventive or corrective actions within our own operations and as well as our direct suppliers.

Our remedial actions

The Remedial Actions Guideline provides guidance and assistance on the actions to be taken to end a human rights or environmental violation or to mitigate an identified concrete risk. The first part focuses on cases arising from assessments and audits. Suppliers who do not successfully pass an audit are required to implement appropriate corrective and preventive actions within a defined time frame via a CAPA plan. In addition, they must complete our training on the Supplier Code of Conduct. The second section lists actions for cases about which we are informed via our compliance hotline or media coverage, for example. A process has been defined for this purpose, which involves suppliers being contacted about reported cases and having to comment on them. The supplier is also requested to submit an action plan to end the infringement immediately. The effectiveness of the plan is assessed on the basis of the evidence provided by the supplier regarding the implementation of actions. If necessary, actions must be adjusted.

Our complaint mechanism

Potential violations of human rights, legal provisions and environmental concerns can be reported via our Group-wide whistleblower and complaints system. A central component of this is our Compliance Hotline, which we have set up in collaboration with a third-party provider. Both our employees and workers in the value chain can report suspected cases in more than 40 languages via this system: free of charge and anonymously, either by telephone or via a web-based application. The channels can be accessed via our external website Compliance-Hotline. All reports are treated confidentially and are checked and processed according to a clear and transparent process. The responsible persons for the investigation are independent and autonomous. Group Compliance accepts complaints received via the aforementioned channels and passes them on within the Group to the specialist departments responsible for processing. The respective Group functions are responsible for complaints that concern the business activity of the Group. The respective Center of Expertise within Group Procurement is responsible for possible violations in the supply chain. If the investigation confirms human rights or certain environmental risks or violations in our company or at our suppliers, appropriate follow-up measures (preventive and remedial actions) are initiated in accordance with our Remedial Actions Guideline. At the same time, we regard the reports as an opportunity to review our internal processes and structures and improve them where necessary. The human rights and environmental whistleblowing procedures contain a description of our compliance process and are available on the website in the following languages: English, German, Chinese, French, Hindi, Japanese, Korean, Portuguese and Spanish. The complaints system is described in our Supplier Code of Conduct. Furthermore, we outline in our supplier code of conduct that our suppliers shall have a grievance mechanism or respective complaints procedure in line with effectiveness criteria of the United Nations Guiding Principles on Business and Human Rights or other applicable laws. They shall encourage and enable their employees to report concerns or illegal activities. Suppliers shall follow up on concerns and take corrective actions if needed. The grievance mechanism or complaints procedure also needs to be made available and actively communicated to external rights holders. Additionally, our suppliers with low human rights scores have to conduct a training on our Supplier Code of Conduct, which specifically includes information about our complaint system.

Our grievance system meets all established effectiveness criteria for non-judicial grievance mechanisms, as set out in the UN Guiding Principles on Business and Human Rights: it is legitimate, accessible, predictable, fair, and transparent. We are working on reviewing the effectiveness of our complaints system and improving it accordingly.

Our due diligence process for responsible mineral sourcing

Our supplier management includes separate actions for tier-n-suppliers (indirect suppliers) in the area of conflict minerals. Our due diligence process is aligned with international standards. It involves establishing a strong management system, identifying, and assessing risks through tools such as the Conflict Minerals Reporting Template (CMRT), and designing tailored risk mitigation strategies. In the event of concrete indications that our principles for suppliers are not being adhered to, the supplier is audited. In line with our position in the supply chain, a risk management plan is implemented in collaboration with upstream suppliers if a risk is identified.

The measurable risk reduction must be tailored to the respective supplier and the context of its activities and include qualitative and/or quantitative indicators to measure the improvement. The supplier must implement the actions within a specified period. During this period, a temporary suspension of trading may be considered. If the supplier is unable to successfully mitigate the risk or we are of the opinion that the risk mitigation is not sufficient, we have the option of terminating the business relationship. An audit will be carried out at the supplier's premises to check whether the risk reduction was successful.

Neither workers nor their representatives are directly involved in the risk reduction process. The reference is more likely to be via their employers, as they have to take corrective action in the event of any negative effects. If we receive a complaint about a human rights violation through our complaint channels, the cases are documented and investigated. The complaint procedure is closed when it has been ascertained with sufficient certainty that no human rights risks or violations have occurred. All information is processed in due consideration of the principle of confidentiality. This applies in particular to personal data. The identity of the complainant is preserved and only used internally to the extent necessary. We use the means available to protect the complainants against potential discrimination and reprisals they may face for raising a complaint.

Our initiatives and actions regarding workers in the value chain (S2-4)

In order to fulfill our human rights due diligence obligations, we have implemented a variety of measures as described in the following. The aim is to protect (potentially) affected workers and to prevent, end, or at least minimize adverse impacts on human rights. Unless otherwise stated, all actions are to be regarded as continuous and have no fixed closing date.

In 2024, no significant operating expenditures (OpEx) or capital expenditures (CapEx) were allocated to the initiatives mentioned below in relation to workers in the value chain. For 2025, we also do not intend to allocate any significant OpEx or CapEx.

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 2,695 valid scorecards on the assessment of our suppliers, almost 2,587 of which completed a new assessment or re-assessment in 2024. These were either initiated by us or in other cases by other TfS members.

In 2024, we continued our collaboration with member companies in TfS workstreams. We contributed to several best practice sharing and collaboration formats such as the TfS Talks as well as TfS Coordinator Roundtable. The TfS academy offers training courses for employees of member companies. The module on human rights due diligence covers topics such as child labor, forced labor, human trafficking, discrimination and harassment.

We use this leverage to enforce sustainability standards and requirements in supplier contracts to ensure compliance with ethical practices and environmental responsibility. We pool our knowledge and resources in a global network to drive systematic improvements in the supply chain.

Training on the Code of Conduct for suppliers with a low human rights rating

Since January 1, 2023, a specific contractual clause has been applied to all new contracts, through which we enshrine the obligation to comply with our Supplier Code of Conduct. Suppliers with an identified risk profile or a low score on human rights issues must undertake training on our Supplier Code of Conduct. This involves using an interactive e-learning tool that we have developed based on the content of the Code in various language formats. The training can also be carried out as part of an existing action plan. All remedial actions and training initiatives of suppliers with a score below the threshold are documented for continuous monitoring of the supplier. By documenting this, we aim to ensure that the implemented measures are driving continuous improvement of our supplier’s performance. If the supplier does not fulfill the requirement, appropriate escalation levels are used.

Membership of the Responsible Minerals Initiative

To address the complexity of our supply chains, we are a member of the Responsible Minerals Initiative. The Responsible Minerals Initiative provides us with various tools and resources enabling us to make sourcing decisions that ensure compliance with regulations and support the responsible sourcing of minerals from conflict-affected and high-risk areas. For example, we have access to a database for checking smelters and their audit assessments in accordance with the Responsible Minerals Assurance Process (RMAP) standard. In accordance with these standards, the risk analysis of suppliers also includes human rights aspects. Based on this information, we can identify conflict mineral suppliers with a critical assessment at an early stage. The effectiveness of this initiative is proven by the fact that the tools of the Responsible Minerals Initiative provide us with a better overview and access to information about conflict minerals suppliers.

Membership of the Responsible Mica Initiative

We are a founding member of the Responsible Mica Initiative. Since 2017, we have held the presidency of the organization. Through this cross-industry alliance of stakeholders, the initiative aims to eliminate child labor and unacceptable working conditions in the mica supply chain.

In the reporting year, we continued to support the initiative's work to improve working standards, by conducting audits, for example. We have also worked with our members to improve the living conditions of local people.

Improving the living conditions of mica workers

Sourcing mica from the Indian states of Jharkhand and Bihar, where social and economic factors contribute to poor working conditions, including child labor, enables us to support this region by safeguarding local employment and livelihoods. Therefore, we have contractually agreed a monthly wage of 17,500 Indian rupees with our suppliers for the workers in the mines and factories. In 2023, the workers in processing units and mines in our supply chain already received the aforementioned fixed salary, independent of mica volumes harvested or processed. This wage is a living wage that contributes to a decent standard of living for workers and their families while helping to eliminate the root cause of child labor. We continue to monitor the maintenance of this living wage. Moreover, we are working to improve the living conditions of families in the mica mining areas. Since 2012, we have been funding three schools in Jharkhand, India, which currently have around 490 students, as well as five vocational training centers, all of which are run by our local partner, the non-governmental organization IGEP. In addition to our support for education, we are also helping to improve access to healthcare. For example, we fully fund a health center operated by IGEP in Sapahi, Bihar, which serves around 20,000 residents of the region.

External audits in the mica supply chain

Environmental Resources Management (ERM), a leading international environmental, health, safety, risk and social consultancy, conducts annual audits at our mica suppliers covering mines and processing units. It examines working conditions as well as environmental, health and safety aspects. The audit reports document all findings identified and recommend corrective actions. Our employees in Calcutta (India) and Darmstadt take action to address any identified findings. If the actions are not respected, we may suspend or even terminate our business relationship.

In addition, our partner IGEP has been carrying out regular unannounced visits since 2013: IGEP monitors occupational safety and compliance with laws to combat child labor. In 2024, its inspections focused on medical check-ups for workers and conducting mock fire drills. We regularly optimize the escalation process together with IGEP. Supplier assessments are carried out in meetings every third week with representatives of our company. These meetings help to identify any required actions, which our sourcing teams then discuss and implement with our suppliers. Our employees in Kolkata and Darmstadt take action to address any identified issues. As a result, our suppliers have successfully improved the working conditions at these sites. If the corrective actions are not respected, we may suspend or even terminate our business relationship.

Evaluating and tracking mica sources

We use a digital traceability system to help ensure that the mica we purchase is derived from mica sources qualified by our company and audited accordingly by ERM and IGEP as described above, focusing on working conditions as well as environmental, health and safety aspects. Based on written records of the daily extraction quantities, we review the volumes of mica reported and supplied to the processing facilities. The effectiveness of this initiative is proven by the fact that we only source mica volumes from mines that fulfill due diligence requirements.

Supplier diversity

In the United States, we have a supplier diversity program, not only to comply with local legislation, but also to optimize our corporate culture. The focus on raising awareness of companies that are managed by women, members of minority groups or people with disabilities, and to incorporate them into the supplier selection process wherever possible. To do this, we use a supplier locator tool, which helps us to identify and potentially allow us to contract with small and diverse suppliers. We raise awareness among our procurement staff through internal as well as third-party training sessions. We recently expanded our internal reporting capabilities through our third-party provider supplier database. Year-on-year reports indicate that we increased the proportion of spend with suppliers classified as small and diverse. Our program initially focused on indirect spend categories and the healthcare business; since then, we have also expanded reporting to include the Life Science and Electronics business sectors.

To increase supply resilience, we identify and monitor relevant suppliers against criteria such as financial, operational and ESG related risks, and their strategic importance to the business. This approach supports our category sourcing teams to identify potential mitigation actions with impacted suppliers and supports them in making improvements. As part of our comprehensive procurement risk management approach, which is based on various external data sources and indices, we also monitor potential global events (e.g., geopolitical, climate, natural catastrophes, military conflicts, etc.). In the case of an identified risk, our sourcing teams work closely with our businesses to take the necessary action, for example, creating a contingency plan with our suppliers.

Ensuring ethical labor practices: Our commitment to SDG 8.7

We demonstrate our commitment to Goal 8 "decent work and economic growth" of the 17 UN Sustainable Development Goals through our initiatives, taking immediate and effective actions to contribute to the elimination of forced labor, end modern slavery and human trafficking, prohibit and eliminate the worst forms of child labor, including conscription and the use of child soldiers, and end all forms of child labor by 2025. We have an ongoing commitment to help establish and maintain fair and ethical labor practices in our operations and throughout the supply chain. By adhering to stringent ethical and social standards, regularly reviewing compliance, and engaging with suppliers to ensure ethical practices, our approach facilitates continued improvement in eradicating forced labor, modern slavery, human trafficking, and child labor. This commitment to human rights due diligence and responsible supply chain standards aligns with the aim of SDG target 8.7 and contributes to the company's ongoing dedication to ensuring fair and ethical labor practices within its operations and across its supply chains.

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 actions, such as updating our guidelines where necessary, examining processes and coordinating our participation in external initiatives to collaborate with peers and further stakeholders about human rights due diligence in our supply chain, for example. We use internal communication channels and training to regularly inform and update Category Sourcing teams responsible for selecting and contracting suppliers. These updates include our guidelines and sustainability requirements, including human rights requirements affecting workers in the value chain as set out in our Supplier Code of Conduct.

We have defined clear roles for the governance of the due diligence process for conflict minerals. The Conflict Minerals Project Lead oversees the governance process, leads the project teams, and updates senior management. The Business Sector Conflict Minerals Lead oversees supplier reporting and participates in due diligence activities, for example, by monitoring conflict mineral supplier assessments, including human rights aspects for workers in the value chain via the RMI Facility database at an early stage. The procurement team engages in risk mitigation and ensures compliance with sourcing expectations. They are also responsible for gathering supplier information and managing supplier relationship.

Group Procurement has overall responsibility for sourcing mica. The Head of Corporate Responsibility, Surface Solutions, is the central contact for topics related to mica sourcing. He defines business requirements, executes audits and reviews outcomes to manage corrective actions that affect working conditions for mica workers, for example. Our procurement unit is in direct contact with suppliers to reiterate the importance we place on ethical, social and environmental standards. Our Head of Product Compliance, Surface Solutions heads mica advocacy efforts and serves as the President of the Responsible Mica Initiative.

Our targets in relation to workers in the value chain (S2-5)

We have set ourselves the following quantitative targets: