Upstream Value Chain

Material impacts, risks and opportunities

Promoting appropriate working conditions and preventing reputational damage

Our business model depends on suppliers and their employees. In some sectors and regions, however, particularly in risk areas, supply-chain employees might encounter challenges such as a lack of equal opportunity, unfair wages, unstable jobs, a lack of work-life balance, and insufficient occupational health and safety protection in the workplace.

WACKER uses the tools described under “Actions,” such as supplier training, communication of our values via the Supplier Code of Conduct and regular reviews, to have a positive impact on working conditions at our suppliers and upstream suppliers and secure jobs, with appropriate working hours and fair pay, in the medium to long term. Doing so reduces our financial risk from reputational damage, potential fines or the cost of legal disputes.

Production downtimes due to accidents

Whenever chemical raw materials are handled, there is an increased risk of workplace accidents and health restrictions. This is also the case for our direct suppliers. For WACKER, this means a potential financial risk due to possible production downtimes at the supplier’s end and increased costs due to switching supplier at short notice. This is why we pay particular attention to the implementation of safety precautions in our training courses and inspection rounds and why we check ourselves that these precautions are put into practice.

Child and forced labor

As a global company, we also have business activities in regions associated with an elevated risk of severe human rights violations such as child labor or forced labor at our supplier sites. This can result in reputational damage as well. We use regular reviews, assessments and social audits as part of our endeavor to address this risk early on, to prevent potential human rights violations and take action immediately in suspected cases.

Impact on our business model and our strategy

One of the safeguards we implement in response to potential adverse impacts on workers in the value chain is that we avoid single sourcing, i.e. relying on a single supplier. This allows us to minimize our risk and also plan improvement measures at suppliers better with regard to timing.

Strategy and governance

Even if the influence we exert over our suppliers is limited, we have designed our procurement practices to help promote fair and adequate working conditions for the employees of our suppliers over the long term. To ensure that our high standards in terms of integrity, quality and confidentiality are met, we reserve the right to conduct visits and audits. A transparent supply chain is intended to enable suppliers and upstream suppliers to uphold the same standards. Long-term partnerships help us to promote adequate working conditions. WACKER can address social and labor law issues and enforce improvements to create an adequate working environment. Ethical procurement at WACKER includes fair wages, regulated working hours, safe working conditions and a ban on child and forced labor. This is managed specifically by a dedicated strategic team in Procurement that reports to the head of Procurement.

Actions – direct suppliers

Supplier assessments

As part of our membership of the Together for Sustainability (TfS) initiative, we monitor compliance with environmental and social standards among all our key suppliers and all those direct suppliers that our risk analyses have identified as at increased risk of violations in their business operations. Our risk analysis is based on the MVO checker recommended as suitable by the German government. The characteristics we take into account are supplier status, procurement volume, country, region and product category. Conflict or high risk areas, referred to as hot spots, are integrated too and can be adapted on a yearly basis or as needed.

As of the year-end 2024 reporting date, a total of 970 suppliers have valid EcoVadis assessments, with 65 percent of suppliers having improved their rating compared to the previous assessment. The average EcoVadis score across all of WACKER’s suppliers was 59 points.

WACKER expects all its key suppliers to demonstrate a positive sustainability performance at regular intervals (at least every three years). These defined key suppliers cover almost 80 percent of our entire global procurement volume. Their sustainability performance must be demonstrated in the form of an EcoVadis assessment with a minimum score of 46 and/or a TfS audit with no major findings. The areas we look at as part of our review include sustainability management, environmental practices, labor and human rights, ethics and sustainable procurement.

All of our key suppliers must fulfill these minimum requirements by 2030. This target is action-related and we follow up on our targets in monthly management reports. We communicate the targets, or achievement of suppliers’ own targets, to our suppliers in individual meetings, supplier days or in the Annual Report.

Remedies and improvements

If supplier evaluations identify potential for improvement, the respective purchaser identifies the remedies to be taken and documents them with all the relevant deadlines in a tailored watchlist.

Risk-based remedies that might be considered include:

• (Repeat) assessment and/or TfS audit
• Holding escalation talks with suppliers and internally with the business divisions/stakeholders
• Drawing up and accepting a plan for improvement, including specific remedies, for the supplier
• Stopping contracts temporarily
• Threatening termination of the business relationship as an ultimatum

See ESRS G1 – Business Conduct for a description of the fundamental approach we take here.

The remedies are intended to ensure that any suspicion of human rights violations are reported and uncovered in good time. We use talks or repeat audits with the respective suppliers to monitor their progress and status. Results and remedies are documented and tracked in an internal WACKER dashboard.

We established an improvement rate of 60 percent under the TfS initiative and measure this using the EcoVadis assessment (improvement of the score as part of a reassessment). At 65 percent in 2024, we exceeded this target value. From 2025 onward, we will focus on suppliers with a poorer result in their assessments and audits. We have defined new targets for this that provide for achieving an improvement rate of 70 percent in assessments and, in cases involving TfS audits with major deviations, making progress in following up on these findings in 25 percent of cases/resolving them completely in 28 percent of cases. This puts our targets above the TfS average.

Supplier evaluations are validated by a dedicated unit within the Procurement department. The head of Procurement & Logistics is responsible for approving the evaluations and reports directly to the Executive Board. Procurement is supported by human rights officers who regularly conduct spot checks and can provide advice. The Procurement department also reports to our Human Rights Committee, in which we discuss proposals for improvement together.

Furthermore, we expect all our key suppliers to commit to our Supplier Code of Conduct. New suppliers must evidence a management system under ISO 9001 (quality), ISO 14001 (environment) or comparable certificates (e.g. GMP: Good Manufacturing Practice).

Training and upskilling/reskilling

In order to help suppliers with improvements and with implementing sustainable practices, we regularly invite our direct suppliers to the TfS Academy to learn about specific topics, and we assess their attendance once a year. Our training courses and upskilling/reskilling focus on occupational safety and health in particular.

Actions – indirect suppliers

We advocate the prevention of human rights violations in the procurement of raw materials even beyond our direct suppliers, particularly when it comes to conflict minerals or palm (kernel) oil.

Conflict-free minerals

To rule out serious problems and incidents relating to human rights in the case of our indirect suppliers as well, our direct suppliers conduct an inspection of their source mines at least once a year for the four defined conflict minerals: gold, tin, tantalum and tungsten.

The Responsible Minerals Initiative (RMI) has designed a CMRT form to this end. This form enables transparent transfer of information from a material’s country of origin through the smelter and refiners.

As regards the period under review, we have no evidence suggesting that our materials come from non-compliant mines.

Palm (kernel) oil

Palm (kernel) oil is facing criticism for its association with frequent violations of human rights and environmental protection guidelines during its recovery. Even though WACKER does not procure large quantities of palm (kernel) oil derivatives, we strive to obtain this renewable raw material from sustainable, certified sources. We use palm (kernel) oil in the form of various fatty acids/alcohols or their derivatives.

The RSPO (Roundtable on Sustainable Palm Oil) initiative campaigns for sustainable practices in the global palm oil industry. Certified producers must demonstrate that they have a material-flow control system in place and commit to complying with human rights standards, to reducing emissions and to refraining from clearing forests for plantations and from planting in peatlands. We obtained RSPO certification for the first time in 2021 and increasingly use RSPO-certified raw materials. We aim to use 100-percent certified palm (kernel) oil by 2030. Raw materials with very low quantities of palm (kernel) oil are excluded from this. We report on our progress annually through an ACOP (Annual Communication on Progress).

Effectiveness and findings of our assessments and audits

We can easily track how effective our actions are by using the results of our TfS assessments and audits and our supplier discussions. These results are also part of our general supplier assessments and are communicated directly to the suppliers.

We do not have full insight into compliance with human rights and working conditions in our supply chain. However, findings from our main suppliers and the suppliers identified by the risk analysis do not currently show any signs of human rights violations, including child or forced labor. This applies to our downstream value chain, too. Nor are we aware of any cases of non-compliance with the UN Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work or the OECD Guidelines for Multinational Enterprises involving workers in the value chain, either in the upstream or downstream value chains.

Process for engaging with value chain workers

The TfS Protocol for social audits, which we consider to be the standard for the chemical industry, calls for interviews with supplier employees. The auditor spontaneously chooses a sample of workers present on the day of the audit with preference given to production employees to prevent influence beforehand. The interview questions focus on issues such as working conditions, occupational health and safety and wage criteria. Negative comments may impact the overall score and may be included in the audit report as a negative finding. The remedies we described above then come into play. These audits take place regularly every three years at least or more often in the event of any abnormalities. We have access to 66 valid audits and initiated 39 audits ourselves in 2024.

We also use our annual supplier days to provide information and obtain feedback.

Value chain workers can raise their concerns at any time using our whistleblower system. The whistleblower system can be found on the WACKER website and is explicitly mentioned in the Supplier Code of Conduct. We also survey awareness of these channels in employee interviews. These interviews only take place with the auditor, but interviewees have the option of consulting an advisory party, e.g. in the form of an employee representative. This increases employee confidence in the interview approach.

For a detailed description, including information on protecting individuals, see the ESRS G1 – Business Conduct section.