We Will Be Fully Circular - Sustainability @ Covestro March 2021
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We Will Be Fully Circular Sustainability @ Covestro March 2021 covestro.com ESG @ Covestro │ 2021
Inventor and leader in high-tech material solutions
Covestro at a glance
WHAT WE DO WHAT WE STRIVE FOR
Covestro is among the world’s largest polymer €10.7bn
companies. Business activities are focused on the
manufacture of high-tech polymer materials and Purpose Vision Sales 2020
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
To make the world a
brighter place
We will be
fully circular 16,500
electrical and electronics industries. Other sectors
include sports and leisure, cosmetics and health. Employees (in FTE) 2020
Together with our partners and customers, we are
Values Goals
taking big steps to tackle a fundamental
challenge: Shifting towards a Circular Economy.
#1
To achieve this bold goal, we are innovating
Curious, Financial 2021 and Global producer of PU
efficient ways to close energy and material cycles.
courageous, non-financial 2025 goals
We are pushing boundaries in polymers. colorful
and its derivatives as
well as PC(a)
2 ESG @ Covestro │ 2021 Notes: (a) Based on total combined nameplate capacity for MDI, TDI and polyether polyols at year end 2020 as per Covestro estimates;
PU = Polyurethanes; PC = Polycarbonates
Number one producer globally and inventor of polyurethanes
Polyurethanes (PUR) at a glance
Products Sample applications
Polyurethane rigid foam is an excellent insulation 1.4%
material and adds to high energy efficiency in
cooling units and buildings. Core volume
CAGR in 2015 - 2021(a)
As soft foam polyurethane provides comfort, for
example in mattresses, car seats and upholstery.
Covestro develops and produces the components
For comfortable
cars
For sustainable
houses €5.0bn
of this versatile material.
Sales
2020
Key customer industries: €625m
For cozy For robust
furniture sports equipment EBITDA
2020
3 ESG @ Covestro │ 2021 Notes: Industry position based on total combined nameplate capacity for MDI, TDI and polyether polyols at year end 2019 as per Covestro estimates
(a) Figures adjusted to reflect the transfer of the specialty elastomers business from the PUR segment to the CAS segment as of January 1, 2018
Core volume CAGR impacted by negative year-on-year core volume growth in 2020 as a result of the Coronavirus pandemic.
Number one producer globally and inventor of polycarbonates
Polycarbonates (PCS) at a glance
Products Sample applications
As a true high-tech material, polycarbonate is not 3.5%
only very robust, break-proof and light-weight, but
also offers a high degree of design flexibility. Core volume
CAGR in 2015 - 2020(b)
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.
For trendy
smartphones
For bright
buildings €3.0bn
Sales
This allows for a wide variety of application
2020
possibilities ranging from vehicles to smartphones
and laptops as well as lenses or large roofs.
Key customer industries: €553m
For light-weight For safe
cars medical products EBITDA
2020
4 ESG @ Covestro │ 2021 Notes: Industry position based on nameplate capacity at year end 2019 as per Covestro estimates
Core volume CAGR impacted by negative year-on-year core volume growth in 2020 as a result of the Coronavirus pandemic.
Performance materials for coatings, adhesives and specialties
Coatings, Adhesives, Specialties (CAS) at a glance
Products Sample applications
There is a vast application range of coatings -1.2%
and finishes made of Covestro polyurethane
raw materials. They are used for protection Core volume
and decoration. CAGR in 2015 - 2020(a)
In addition, the company produces pre-products
for adhesives, sealants and elastomers as well as
specialty films.
For long-lasting
cosmetics
For robust
floors €2.0bn
Sales
Coating, Adhesives, Specialties (CAS) also
2020
supplies materials for cosmetics, textiles and
medical goods.
Key customer industries: €341m
For fancy For functional
cars textiles EBITDA
2020
5 ESG @ Covestro │ 2021 Notes: (a) Figures adjusted to reflect the transfer of the specialty elastomers business from the PUR segment to CAS segment as of January 1, 2018
Core volume CAGR impacted by negative year-on-year core volume growth in 2020 as a result of the Coronavirus pandemic.
Setting the path for tomorrow
New Covestro strategy
BECOME THE BEST DRIVE SUSTAINABLE BECOME FULLY
OF WHO WE ARE GROWTH CIRCULAR
Transform the company Address sustainability Accelerate the transition
to exploit its full potential in a profitable way to a fossil-free economy
ADVANCE DIGITALIZATION
EXPAND ‘WE ARE 1’ CULTURE
MILESTONE 2020 MILESTONE 2020 MILESTONE 2020
! LEAP transformation initiated ! Acquisition of RFM(a) announced ! First certified renewable phenol sourced
6 ESG @ Covestro │ 2021 Notes: (a) Announced acquisition of DSM’s Resins and Functional Material (RFM) business subject to regulatory approval
Covestro innovative products tap into attractive new markets
Structural growth drivers
UN SDGs(a) NEEDS SAMPLE APPLICATIONS DEMAND OUTLOOK
Core volume growth
related to climate change:
• Alternative energy sources • Energy consumption
CAGR: ~3%1
• Zero emission concepts
• Offshore wind energy
• Low-energy buildings CAGR: ~20%2
Polyurethanes(b)
~5% CAGR
2020 - 2025e
related to increasing mobility:
• Energy-efficient mobility • Global car production
CAGR: ~1%3
• E-mobility
• Global hybrid & EV prod.
• Autonomous driving CAGR: ~35%4
Polycarbonates
~5% CAGR
2020 - 2025e
related to growing population and prosperity:
• Sustainable fashion • Textile coating market
CAGR: ~2%5
• Food preservation Coatings, Adhesives,
• Covestro relevant market
• Medical applications CAGR: ~4%5 Specialties(c)
CAGR
~4%
2020 - 2025e
related to increasing urbanization:
• Energy-efficient lighting • Luminaire market
CAGR: ~3%6
• Affordable housing
• Luminaire LED
• Public infrastructure CAGR: ~12%7 Covestro industry demand outlook assumes
global GDP CAGR of 3 - 4% in 2020 - 2025e
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 │ 2021 (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
Our innovative polymers contribute to sustainability in daily life
Covestro product applications
Polyurethanes Polycarbonates Coatings, Adhesives, Specialties
Increasing energy efficiency of Enabling electro-mobility with
Waterborne coatings and
buildings through materials and materials for battery housings,
adhesives, replacing solvent
technologies for insulation housings for charging stations
CO2-based polymers used in Bio-based raw materials to
Recycled content grades on a
mattresses saving crude oil, improve CO2 footprint,
virgin performance level
e.g. cardyon® e.g. Baycusan® eco
Use in protective gear and Fully recyclable shoes made
Food preservation along the
medical applications, e.g. drug from thermoplastic PU powder
cool chain
delivery devices and filament
8 ESG @ Covestro │ 2021
Long history of innovations inspired by sustainability
Covestro milestones in sustainability
2007 2016 2021
BMS Energy First Covestro Non-financial
efficiency program 2015 GRI KPI introduced
Supplement 2017
and basis for 2013 Covestro Policies to Board of
decision-making published Management
Introduction of developed and
on climate 2015 approved, 2020 long-term
BMS sustainability Covestro was
relevance: We approach and including a policy New company incentive plan:
help with solutions founded and on Sustainability 2019 vision: absolute CO2e
integration of signed UN
3-P principle Signatory of EU We will be reduction over
2008 2011 Global Compact Circular Plastics fully circular four years
BMS as part of People-Planet-Profit
STRUCTese 2015 Alliance 2020
energy efficiency Bayer is
Pledge to ‘Operation 2019 Initiated
system introduced founding member 2016
Clean Sweep’ and Founding member company
and subsequently of Together for Covestro non-
strive toward of Alliance to End transformation
rolled-out in global Sustainability financial goals
zero pellet loss Plastic Waste centered
production initiative for 2025 around new
published vision of CE
2007 2008 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
2007 2011 2014 2015 2017 2020
2012 First marketed
Light-weight Energy- Microcellular INSQIN® First coating Key chemical
car sunroof efficient ODC- technology for hardener made aniline won polycarbonate
foam with made of
made of BMS technology for 2011 improved a water-based of renewable 2016 from 2019 2021
polycarbonate 2013 polyurethane raw materials renewable phenol of
chlorine Plant in insulating Epoxy resins Production New Prototype
enters mass- production textile coating is launched raw materials attributed bio-
Shanghai properties replaced start of soft polycarbonate based origin insulation
production at introduced in equipped with launched launched foam for the first grades from board
Webasto by PU resins time
pilot plant in eco-friendly in wind components post- developed
Uerdingen and efficient turbine rotor with CO2 in consumer with CO2 as
gas-phase blades Dormagen, recycled feedstock for
phosgenation Germany (PCR) content PU rigid foam
technology launched
9 ESG @ Covestro │ 2021
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: 51% of R&D project expenditures in 2020
100% of our suppliers comply with our sustainability requirements
Achievement: 79% by end of 2020
Reduce specific greenhouse gas emissions by 50% from the benchmark in 2005
Achievement: -46.2% by end of 2020
Ten million people in underserved markets benefit from our solutions
Achievement: 1.1 million people by end of 2020
Extract the maximum benefit from carbon and increase carbon productivity
Achievement: Company vision to become fully circular announced in 2020, corporate goal setting under way
10 ESG @ Covestro │ 2021 Notes: Covestro non-financial targets established in 2016
See 2020 Combined Management Report for further detailsCategorization of material topics determines management approach
Material topics at Covestro
Topics with high stakeholder relevance and Topics with high stakeholder relevance and
WE INNOVATE high impact and influence of Covestro that
require innovation of management approaches
WE MANAGE high impact and influence of Covestro for
which management approaches are in place
Solutions contributing to UN SDGs ENVIRONMENT Environmental impact of own operations ENVIRONMENT
• Sustainable innovation portfolio • Waste
• UN SDG-conform product portfolio • Air quality
• Inclusive business • Water and wastewater
Circular and climate-neutral economy Health and safety SOCIAL
• Alternative raw materials • Product safety
• Renewable energy • Process and plant safety
• Business models • Health and safety of workforce
• Recyclability and end-of-life solutions Responsible business practices
• Greenhouse gas emissions • Compliance
SOCIAL
Corporate culture • Community engagement
• Employer attractiveness • Human rights due diligence
• Diversity, equity and inclusion • Sustainability in sourcing
• Transparency and trust
Responsible governance
WE ADHERE TO • Corporate Governance • Board skills and diversity • Tax transparency
• Board responsibilities and oversight • Board compensation system
11 ESG @ Covestro │ 2021 Notes: UN SDGs = United Nations Sustainable Development GoalsMATERIAL TOPICS
THAT PUSH US TO
INNOVATE
OUR MANAGEMENT APPROACHES
Examples of full list of material topics on p. 11
12 ESG @ Covestro │ 2021Sustainability-driven innovations, innovation-driven sustainability
Material topic Solutions contributing to UN SDGs Sustainable innovation portfolio
R&D o
N 1 target
Non-financial
€262m expenditure
in 2020
By 2025, 80% of project
R&D
1,205 employees expenditures for research
(FTE) in 2020 and development will go
toward areas that
contribute to reaching the
Patent
UN SDGs
• Research & Development activities aligned with the
People Planet Profit principle since 2013
201 applications
in 2020
Achievement: 51% of
• Focus on the UN Sustainable Development Goals R&D project expenditures
(UN SDGs) in 2020
• Capture promising growth opportunities with of 2020 net
sales with new
innovative sustainable solutions ~18% products
(not >5 years)
13 ESG @ Covestro │ 2021Bring product innovations to people in underserved markets
Material topic Solutions contributing to UN SDGs Inclusive business
o
N 4 target
Non-financial
“
Our
Inclusive We want ten million
Solar dryer domes Hygenic sanitation Affordable houses people in underserved
Business markets to benefit from
• Polycarbonate sheets- • Toilets based on • Constructions based on activities our solutions by 2025
based solutions for polyurethane rigid foam polyurethane rigid foam
smallholder farmers (PIR) (PIR)
positively
• Avoid food wastage after • Solutions for fecal sludge • Affordable building material contribute Achievement: 1,100,000
harvest, benefitting farmers management and water with outstanding insulation to 13 out people by end of 2020
economically farms and mechanical properties
• Locations: Thailand, • Locations: India, Malaysia • Locations: Iraq, Malaysia,
of 17
Vietnam, Myanmar, India,
• About 840 units installed
Philippines, India UN SDGs
Indonesia, Cambodia,
• About 80 units installed
Malaysia, Philippines
• About 2,200 units installed
14 ESG @ Covestro │ 2021 Notes: Stated numbers as of 2020
Inclusive Business positively contributes to UN SDGs 1, 2, 3, 4, 6, 8, 9, 10, 11, 12, 13, 16, 17The new vision of Covestro
Material topic Circular and climate neutral economy Business models
“ o
N 5 target
WE WILL BE FULLY CIRCULAR Non-financial
Alternative raw materials Innovative recycling Renewable energy Joint solutions
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
Biomass, CO2, used Energy-efficient Wind and sun: clean Cross-industry announced in 2020,
materials and waste can technologies allow more energy must power the collaboration is needed corporate goal setting
replace fossil resources used products and waste circular economy to bring the circular under way
to be recycled economy forward
15 ESG @ Covestro │ 2021Circular economy (CE) to keep carbon in the loop
Material topic Circular and climate neutral economy Business models
Conceptual illustration Use
End
Global industry challenges of a circular economy
Phase
Energy of
input designed Life Provide a solution for the end of life of any
for recycling
Applications 1 material
Electro
Chemistry Extract target molecules from waste streams and
Customer Waste
products 2 secure continuous access to waste-based
management
& sorting
feedstock as raw material
Bio
based
Covestro New waste Decouple growth from fossil resources and keep
products streams 3 valuable carbon in the loop as long as possible
CO2 Recycling e.g.
Inter- mechanical
mediates Covestro-related industries (PU, PC and others)
Recycling e.g. • Represent less than 10% of global plastic production,
Covestro chemolysis dominated by PE, PET, PP, PVC, PS
feedstock
• Materials mostly not applied in single-use applications
Recycling e.g..
pyrolysis • Offer few established collection streams
Naphtha
• Recycling technologies at early stage except some
Energy mechanical recycling; incineration no preferred option
Oil recovery
Gas • Covestro already commercializes products that contain
Processing steps alternative feedstock (bio-/CO2-/waste-based)
16 ESG @ Covestro │ 2021 Notes: 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 possiblePolymers based on alternative raw materials already commercialized
Material topic Circular and climate neutral economy Alternative raw materials
CO2-based Waste-based Bio-based
▪ 9 products commercialized ▪ 16 products commercialized ▪ 13 products commercialized
▪ 9 running R&D projects ▪ 43 running R&D projects ▪ 25 running R&D projects
Example PUR Example PCS Example CAS
CO2 as raw material Recycled polycarbonates Bio-based car top coat
▪ CO2 replaces up to 20% of crude oil-based ▪ New polycarbonate grades from post-consumer ▪ Enabling customers to optimize the CO2 footprint
feedstock of polyols recycled (PCR) content, e.g. water bottles, CDs of their products
▪ Demo plant of 5kt p.a. at Dormagen site and and auto-motive lighting ▪ New hardener for automotive coatings with
product brand cardyon® launched in 2016 ▪ Open loop recycling system to collect, sort, shred carbon basis up to 70% from renewable raw
▪ Recticel promotes foam mattresses with portions and clean material materials
of oil content replaced by CO2-based chemicals ▪ PCR grades contain up to 75% of recycled ▪ No compromises with regards to protective
▪ Sports flooring producer Polytan installed first content with up to 50% reduced carbon footprint functions and appearance
elastic subfloor using cardyon® as binder ▪ PCR grades are used in various consumer ▪ Collaboration with automotive group Audi and the
electronics applications for a second life coating experts at BASF Coatings
17 ESG @ Covestro │ 2021 Notes: Numbers as of March 2021Turning waste gas from steel factories into valuable polymers
Material topic Circular and climate neutral economy Alternative raw materials
Cross-sector project of 14 partners Pan-European project partners
Carbon4PUR from seven countries, led by Covestro,
funded by the European Union
• Key achievements of this 3.5-year project, initiated in October 2017
̶ Proof of principle of novel polyols from waste CO or CO2 with mixed gases at lab scale
̶ Proof of principle of CO-based rigid foam & Production of polyols based on comm. intermediate Academic and institutional partners:
upscaled to semi-industrial scale (400 kg)
̶ New polyols successfully implemented on a semi-industrial scale in rigid foams for insulation
boards and in waterborne polyurethane dispersions for wood coatings
• Potential for industrial-scale
̶ Potential industrial symbiosis investigated by engineering study in Marseille-Fos
̶ For example, 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 This project was funded by the European Union's
Horizon2020 research and innovation program
under grant agreement No. 768919
18 ESG @ Covestro │ 2021Enabling as well as using wind energy
Material topic Circular and climate neutral economy Renewable energy
Polyurethane-based wind turbine blades ENGIE and Ørsted wind energy supplies
• Covestro, Goldwind and LZ Blades develop world’s first 64-meter • ENGIE power purchase agreement singed in March 2021, covering a
polyurethane (PU) wind turbine blade capacity of 39 MW from 15 newly constructed wind turbines as of April 2021
• Wind turbine blade from the spar cap to the shear web and the shell made • About 45 percent of Covestro Antwerp's electricity demand covered by
entirely of PU infusion resin renewable energy, saving about 39kt of CO2e emissions annually
• Ørsted power purchase agreement signed in December 2019, at this time
• PU resin displays better mechanical properties compared with traditional
world‘s largest corporate supply contract for offshore wind energy
epoxy resin
• Starting in 2025, Ørsted to provide 100 MW of electricity for 10 years from
• Lower viscosity and faster infusion speed of PU resin system can greatly newly built wind farm in North Sea, covering c. 10% of electricity consumed
improve the efficiency of blade production by Covestro in Germany
19 ESG @ Covestro │ 2021Underway to halve specific greenhouse gas emissions
Material topic Circular and climate neutral economy GHG emissions
Specific energy consumption Specific greenhouse gas (GHG) emissions
o
N 3 target
Non-financial
Reduction by 34% Reduction by 46%
By 2025, specific
greenhouse gas
emissions per metric ton
of product manufactured
to be reduced by 50%
• Specific energy consumption improved by 34%; • Specific GHG emissions reduced by 46% from the 2005 benchmark
goal to reduce by 50% until 2030
• Improvement of energy efficiency is key lever to
• STRUCTese energy efficiency system contributed lasting significantly lower our specific GHG emissions (scope 1+2)
Achievement: -46.2% by
reductions of 2.32 mio. MWh of primary energy, or around
• Continued investments in process innovation improve end of 2020 vs 2005
700,000 metric tons of CO2 p.a. since 2008
production efficiency and specific energy use
• Measures in 2020 resulted in savings of 58,000 MWh in
benchmark
primary energy or 12,000 metric tons of CO2 emissions
• STRUCTese compares and bridges Covestro-wide actual
energy consumption with the potential optimum
20 ESG @ Covestro │ 2021Researching a circular polyurethanes economy
Material topic Circular and climate neutral economy End-of-life solutions
Recycling of PU foam
Seeking ways of transition from current
Cross-industry collaboration: PUReSmart
linear lifecycle of polyurethane (PU)
products to a circular economy model
Consortium as an end-to-end
collaboration spanning the entire PU smart Improve sorting abilities to gain clean
reprocessing value chain SORTING material inputs for PU recycling
Target: Recovery over 90% of end-of-
life PU with the goal of converting it into
valuable inputs for new products smart Modify chemolytic process to increase
EU-funded project running 4 years, CHEMOLYSIS quality and quantity of recycled products
started in January 2019, including
9 partners from 6 countries
Covestro is industry partner in the smart Design new molecules to make PU
project consortium, coordinated by the DESIGN re-processable
Belgian company Recticel
21 ESG @ Covestro │ 2021Blockchain to enable traceability of polymers in the automotive sector
Material topic Circular and climate neutral economy End-of-life solutions
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
• Circularise, Porsche, Borealis, Domo Chemicals and Potential applications
Covestro launched blockchain traceability project in • Circularise technology able to trace plastics from raw material to the final car
November 2020 • "Smart Questioning" allows to trace materials and sustainability metrics while
preserving everyone's privacy and protecting confidential information
• By digitizing materials, a digital thread through the • Helping car manufacturers to make better decisions for the next generations of
whole supply chain leads to tracing materials and vehicles and support end-of-life recycling approaches
sustainability metrics like CO₂ footprints or water use • Helping consumers in making sustainable decisions through increased transparency
of a product’s environmental impact
22 ESG @ Covestro │ 2021Global Covestro diversity & inclusion initiatives support UN SDGs
Material topic Corporate culture Diversity, equity and inclusion
Global Covestro
D&I Team
Colleagues Company Community
sponsored by Expand opport-
Board of Management Establish an unities for achieving
Build, engage and 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 • Design inclusive workspaces and office • Establish partnerships with a wider
engagement within our labor markets concepts like in Shanghai, Leverkusen range of (international) colleges /
• Brief recruiting agencies for gender • Support employee resource groups, universities and networks
balance e.g. UNITE, Compass, (e.g. UNITECH)
• Create part-time working and • Global Covestro D&I team
• Consequent posting of open positions cooperation and alignment with
job/top share positions
• Diverse interview panels*
• Facilitate parental leave corporate culture
• Building a diverse STEM workforce • Community engagement and
• Non-traditional and flexible work
pipeline partnership efforts
hours
• Adoption assistance • Operate Inclusive Business, e.g.
• Tuition reimbursement / student temporary housing for refugees
loan relief program • Supplier Diversity Program rollout (US)
23 ESG @ Covestro │ 2021 Notes: 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 expandedMATERIAL TOPICS
THAT WE
MANAGE
WITH EXISTING MANAGEMENT APPROACHES
Examples of full list of material topics on p. 11
24 ESG @ Covestro │ 2021Covestro risk-based water approach expanded
Material topic Environmental impact of own operations Water and wastewater
Growing world population and climate change will lead to
changes in the global water situation:
• Water scarcity may limit water access for manufacturing
Covestro relies on water supply as ~80% of water
Risk companies which may not be sufficient for 100% production usage is once-through cooling water
• Flooding may impede production by destroying transport
routes, supply chains or production facilities Risk-based approach helps to spot risks at an early
stage and to identify potential for improvement
• Analysis of physical water risks conducted for all Covestro
sites Our objective: Further develop the risk-based water
• Site evaluation by occurrence probability and economic loss
Measure approach and establish a global water community
• Implementation of information management system
• “Covestro Water Community” serves as a global platform for
exchange of information and best practices between sites
25 ESG @ Covestro │ 2021Our priority: Nothing we do is worth getting hurt for
Material topic Health and safety Health & safety of workforce / Process & plant safety
Occupational safety Plant & process safety • Continuous improvement of a safe work
Recordable Incident Rate Loss of Primary Containment environment as key component of corporate
RIR(a) Incident Rate, LoPC IR(b) responsibility and corporate culture
• Integrated management system implemented
throughout Covestro to report and process work
1.11
incidents and potential hazards
0.81 Reduction • Active safety and incident awareness and
by 42% prevention campaigns, e.g. CEO Safety Award
awarded for 12th time in 2020 during global
Reduction Covestro Safety Day
by 70% 0.64
• We aim for safe processes and plants that avoid
unacceptable risks to our employees, neighbors
and the environment
0.24 • Long-term we aim to prevent workplace accidents
and occupational illnesses entirely
2005 2020 2013 2020
26 ESG @ Covestro │ 2021 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 employeesTaking a broad view on human rights throughout our value chains
Material topic Responsible business practices Human 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 processes with regards
to potential and actual human rights violations
“
A cross-departmental Human Rights Task Force
established in 2020 drives the implementation of a
comprehensive human rights management system and
reports to the Board of Management twice per year
27 ESG @ Covestro │ 2021Together for Sustainability – compliance along the value chain
Material topic Responsible business practices Sustainability in sourcing
o
N 2 target
Non-financial
All of our suppliers
representing a regular
purchasing volume of
“ This standardized approach for supplier assessment improves sustainability more then €100,000 per
practices within the supply chain while minimizing monitoring and audit efforts year comply with our
sustainability requirements
• Initiative founded in 2011, with 30 members as of March 2021 Achievement: 79% by
• Members use same approach, share assessments and audits results within the initiative: end of 2020
13,800 suppliers (online) assessed and 2,200 on-site supplier audits performed
• 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
28 ESG @ Covestro │ 2021 Notes TfS numbers on assessments, audits and suppliers as of 2020Our priority: We play by the rules
Material topic Responsible business practices Compliance
6 Covestro Policies 11 Corporate Commitments
• Define our mindset, how we want to act
and be perceived To underline our mission as a
Policies sustainable company, we take a
• Corporate level clear stance on key issues and are
• Externally and internally available committed to adhering to standards.
1. UN Sustainable Development
• Define our corporate standards by Goals
Value creation Sustainability establishing organizational structures, 2. Ten Principles of UN Global
Directives our processes/workflows and IT-tools, Compact
on a Management level
3. Responsible Care
• Corporate level, internally available 4. Human Rights
5. Slavery and Human Trafficking
• Assure implementation of the standards (Modern Slavery Act statement)
Innovation People and observance, on employee level 6. Water
Procedures • Legal-entity level, internally available 7. Product Responsibility
8. Corporate Compliance
9. Responsible Lobbying
CFO chairs Group Compliance Committee 10. Responsible Marketing & Sales
HSEQ Compliance 11. Tax Transparency
29 ESG @ Covestro │ 2021 Notes The six Covestro Policies and eleven Covestro Corporate Commitments are published on covestro.comTranslating the RC Global Charter into actionable company directives
Material topic Responsible business practices Compliance
Responsible Care Global Charter Sample to illustrate the implementation of a public charter into
of the International Council of Chemicals Associations Covestro corporate policies and directives
1 A Corporate Leadership Culture that proactively supports safe Policy „HSEQ“, directive „HSEQ Leadership and Commitment“
chemicals management through the global Responsible Care
initiative
Safeguarding People and the Environment by continuously
2 Policy „HSEQ“, directive „HSEQ Leadership and Commitment“,
improving our environmental, health and safety performance; the
directive „Product Stewardship“, directive „Plant and Process Safety“,
security of our facilities, processes and technologies; and by driving
continuous improvement in chemical product safety and stewardship
directive „ Incident Notification and Investigation“,
throughout the supply chain
3 Strengthening Chemicals Management Systems by participating Directive „Product Stewardship“, directive „Covestro Integrated
in the development and implementation of lifecycle-oriented, sound-
Management System for HSEQ“, additionally active contribution in
science and risk-based chemical safety legislation and best
associations like VCI, ACC, CEFIC, PlasticsEurope
practices
Influencing Business Partners to promote the safe management
4
of chemicals within their own operations Directive „Transportation Safety“, directive „Product Stewardship“
Engaging Stakeholders, understanding and responding to their
5 concerns and expectations for safer operations and products and Directive „HSEQ Leadership and Commitment“
communicating openly on our performance and products
6 Contributing to Sustainability through improved performance, Policy „Sustainability “
expanded economic opportunities and the development of innovative
technologies and other solutions to societal challenges
Head of HSEQ Management System commissioned by
Board of Management
30 ESG @ Covestro │ 2021RESPONSIBLE GOVERNANCE
THAT WE
ADHERE TO
31 ESG @ Covestro │ 2021Annually declaring conformity with the GCGC
Material topic Responsible governance Corporate 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
32 ESG @ Covestro │ 2021Board of Management responsible for operational businesses and goals
Material topic Responsible governance Board 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
33 ESG @ Covestro │ 2021 Notes Areas of responsibility as published in the Annual Report 2020Supervisory Board advises and oversees Board of Management
Material topic Responsible governance Board responsibilities and oversight
Shareholder representatives Employee representatives
Dr. Richard Pott Lise Kingo(1) Petra Kronen(2) Irena Küstner(2)
Chair Vice Chair
Presidial Committee, Audit Committee
Chair Presidial Committee
Human Resources Audit Committee
Committee, Chair Human Resources
Nominations Committee
Committee, Chair
Dr. Christine Prof. Dr. Rolf Dr. Ulrich Liman(2) Petra Reinbold-
Bortenlänger Nonnenmacher Knape(3)
Human Resources
Audit Committee Audit Committee, Chair Committee Presidial Committee
Audit Committee
Regine Stachelhaus Patrick W. Thomas Marc Stothfang(2) Frank Werth(3)
Presidial Committee Audit Committee
Human Resources
Committee
Nominations
Committee
34 ESG @ Covestro │ 2021 Notes: (1) Subject to shareholder approval at AGM 2021 on April 16, 2021
(2) Covestro employee
(3) Union representative (German Mining, Chemical and Energy Industrial Union (IG BCE))Supervisory Board – objectives for the composition and diversity concept
Material topic Responsible governance Board skills and diversity
Supervisory Board Supervisory Board
Duties and composition Skills
• Advises and oversees the Board of • At least two members with function-specific knowledge in each of the
Management Gender following areas:
• Activities governed by rules of structure(1) 1. Accounting and/or auditing
procedure (published) 2. Strategy, mergers and acquisitions, capital markets
• Composed of at least 30% women 3. Marketing, sales, supply chain
and at least 30% men(2) 50% women 4. Research and development, innovation
• 75% of members and more than half Supervisory Board 5. Sustainability, circular economy and new technologies
of shareholder representatives are to 6. Digitalization
be independent 50% women 7. Human resources, change management
• Not more than two former members Shareholder 8. Corporate governance, compliance
of the Board of Management representatives
• At least two members with Covestro-relevant experience in industries,
sales markets and/or divisions, e.g. polymer chemistry, production
Supervisory Board
50% women and technology
Membership Employee
representatives
• At least three members should have managerial experience in an
• Co-determined with 12 seats, thereof international enterprise and/or experience serving on other
six shareholder and six employee supervisory boards or supervisory bodies
representatives(2) • The Board shall strive to ensure sufficient diversity among its
• Not serve more than three full terms members
• Not serve beyond AGM following
72nd birthday
35 ESG @ Covestro │ 2021 Notes: Objectives for composition and diversity concept including skill set as published in Annual Report 2020
(1) Subject to shareholder approval at AGM 2021 on April 16, 2021
(2) According to German Stock Corporation Act (AktG)Board of Management is paid for performance
Material topic Responsible governance Board compensation system
Component 2021 determination base and parameters Component 2021 determination base and parameters
• Annual benchmark: horizontally again DAX/MDAX and vertically • Total remuneration capped at € 9.0 million for CEO and
Fixed against all German employees Cap on € 5.5 million for other Board members
compensation • Annual adjustments determined by Supervisory Board in line with the compensation
~30% increase in the consumer price index in Germany
• 2020e values: CEO €1.2m; CFO €0.7m; CCO/CTO €0.6m
• Introduction of new pension plan for all employees: direct
Short-term • Target value: 100% of the respective annual base salary pension promise (defined contribution-oriented plan) based
variable • Key performance indicators, each weighted 1/3: on capital account
Pension
component Core volume growth, liquidity (FOCF), profitability (ROCE) • Personal contribution adjusted to max. 10%, company
• Threshold values fixed for three years (2019-2021) entitlements
contribution adjusted to up to 36% accordingly
~30% • Payout between 0 and 250% of target • Board members offered to transfer into new plan in 2021
• Target value: 130% of respective annual base salary
Long-term • Key performance indicators, linked by multiplication: • Company car / vehicle allowance; driver service
Fringe • Security equipment; health screening examinations; other
variable • Total Shareholder Return (TSR factor)
benefits • Payments upon start of office, if applicable
component • Relative share price development (Outperformance factor)
• Reduction of absolute GHG emissions (CO2 factor)
~40% • Payments made, including fringe benefits, capped to the
• Rolling performance periods of four years, e.g. 2020-2023 Contract value of two years’ compensation
• Payout between 0 and 200% of target termination • Exception: termination for good cause
• Obligation to purchase Covestro shares equivalent in value to 100%
Share of the fixed annual compensation within three years • Indemnity payments of 250% of fixed annual compensation
ownership • Hold shares for the duration of Board membership
Change of • Capped at the compensation for the remainder of the
guidelines • Voluntary disclosure of individual shareholdings in Annual Report control contract term
36 ESG @ Covestro │ 2021 Notes: Shown compensation system for Board of Management subject to shareholder approval at AGM 2021 on April 16, 2021Short-term incentive fully based on profit sharing
Material topic Responsible governance Board 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%
37 ESG @ Covestro │ 2021 Notes: Program description based on German program; program details and eligibility may vary in other countriesLong-term incentive plan linked to TSR and sustainability
Material topic Responsible governance Board compensation system
Key features of incentive plan “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
Ending Share Price + Cumulated Dividends
criterion = TSR Factor
Starting Share Price
2. Outperformance factor as relative payout criterion based on
STOXX Europe 600 Chemicals index Change in
Change in Outperformance
100% + ( Covestro Share - ) =
Index Price Factor
3. Sustainability criterion: reduction of absolute GHG emissions Price
(CO2 equivalents, CO2e), classified in Scope 1 Outperformance
▪ Starting and ending prices for Covestro share and index are Change in annual CO2 emissions (scope 1)
= CO2 Factor
determined by the average closing prices during November and until end of 2024 compared to base year 2020
December before and at the end of the performance period
38 ESG @ Covestro │ 2021 Notes: Shown compensation system for Board of Management subject to shareholder approval at AGM 2021 on April 16, 2021Long-term incentive plan linked to TSR and sustainability
Material topic Responsible governance Board compensation system
Long-term incentive plan until 2020
LTI payout LTI target Outperformance
= x TSR factor x
amount amount factor
Total Shareholder Return:
Ending Share Price + Dividends
Starting Share Price
Long-term incentive plan starting 2021
LTI Payout
amount
=
LTI target
amount
x TSR factor x
( 75% x
Outperformance
factor
+ 25% x
CO2
factor )
Total Shareholder Return:
Ending Share Price + Dividends
Starting Share Price
39 ESG @ Covestro │ 2021 Notes: Shown compensation system for Board of Management subject to shareholder approval at AGM 2021 on April 16, 2021Fully fixed compensation system for Supervisory Board
Material topic Responsible governance Board compensation system
Component Determination 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
• Additional compensation for committee memberships
Fixed compensation
‒ 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
• €1,000 for each personal attendance of a board or committee meeting
Attendance fee
• 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
payable on their compensation and on the reimbursement of their expenses
Reimbursements
• 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
40 ESG @ Covestro │ 2021 Notes: Compensation values unchanged since 2015Committed to tax transparency
Material topic Responsible governance Tax 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
principles • Tax optimization in line with business reasons and needs
• 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
41 ESG @ Covestro │ 2021ESG REPORTING @ COVESTRO 42 ESG @ Covestro │ 2021
Find more information online
Useful links and sources
TOPICS RELATED TO ENVIRONMENT, SOCIAL AND GOVERNANCE
Solutions contributing to UN SDGs Environmental impact of own Operations Responsible governance
• Sustainable innovation portfolio • Air quality • Corporate Governance
• UN SDG conform product portfolio • Waste • Board of Management
• Inclusive business • Water and wastewater • Supervisory Board
Circular and climate-neutral economy Health and safety • Board compensation system
• Alternative raw materials • Health and safety of workforce • Tax transparency
• Renewable energy • Process and plant safety
• Business models • Product safety
• Recyclability and end of life solutions Responsible business practices
• Green house gas emissions • Community engagement
• Compliance
Corporate culture
• Human rights due diligence
• Employer attractiveness
• Sustainability in sourcing
• Diversity, equity and inclusion
• Transparency and trust
• Annual Report 2020 • TCFD disclosure • ESG ratings and indices
• GRI reporting • Covestro non-financial goals • Compliance hotline
43 ESG @ Covestro │ 2021Scores reflect Covestro’s broad engagement in ESG matters
Ratings and index memberships as of February 2021
Rating / Index 2016 2017 2018 2019 2020 Scoring Benchmark
A A A
BBB BBB AAA - CCC in Specialty Chemicals
B- B- B-
A+ - D- Prime Status
80 max. 100 Points
23.3
75 20.0 0 - 100 Points in Specialty Chemicals
74
New methodology(a) (the lower the better)
80
73 max. 100 Points Gold Ranking
Inclusion in FTSE4Good Index(b)
44 ESG @ Covestro │ 2021 Notes: (a) Methodology reversed - the lower the score the better
(b) Since December 2016, reviewed in June 2020Forward-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. 45 ESG @ Covestro │ 2021
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