Responsibility in the value chain

Social and ecological standards in the value chain

Part of GNFK StartSocial and environmental issues such as working conditions, fair wages, freedom of association, occupational health and safety, and environmental protection in the supply chain are part of many national laws and internationally recognized policies. As a global family business, the Schaeffler Group supports these efforts and aims at ensuring compliance with these aspects in its supply chain. In its Supplier Code of Conduct (SCoC), Schaeffler has formulated minimum requirements for suppliers based on the principles of the United Nations Global Compact and the core labor standards of the International Labour Organization (ILO).

On May 1, 2019, Schaeffler created the new central function Purchasing & Supplier Management Sustainability in order to manage the topic centrally and promote it throughout the group.

The Schaeffler Group Corporate Supplier Code of Conduct is available at: www.schaeffler.com/supplier-code-of-conduct

All new suppliers for the Schaeffler Group are required to accept the CoC and SCoC in writing. Supplier screening also provides the necessary emphasis. Existing suppliers who have neither implemented a certified environmental or occupational health and safety management system nor accept the SCoC/CoC are rated down by one level by Purchasing in the supplier evaluation. This procedure decreases their chances in the selection process for new projects or procurement volumes. The supplier information refers to the direct (Tier 1) suppliers of the Schaeffler Group.

In 2019, 86¹⁾ new suppliers of production material were checked for Schaeffler’s supplier portfolio by way of an initial assessment. Applicants previously had to accept the SCoC, thus committing to the values it defines. On-site assessments were then carried out. Integral parts of this assessment are production tours during which questions are asked about production-related aspects of occupational health and safety and environmental protection. At the end of 2019, the questionnaires were expanded to include social aspects.

If a company does not accept the SCoC or is not ready to cooperate to address critical issues directly by taking immediate action, the approval process is stopped. Applicants who fail to adequately meet the requirements of the questionnaire during on-site assessments will need to identify appropriate actions following a root cause analysis.

No serious negative environmental or social impacts in the supply chain were identified in the year under review.

The activities planned for the systematic development of sustainability in the supply chain include the use of questionnaires which are provided in cooperation with a platform service provider. If required, on-site audits and assessments at selected suppliers follow.Part of GNFK End

Part of GNFK StartThe Schaeffler Group works closely with its production material suppliers regarding the materials and substances used (“Material Compliance”). The Material Compliance department supports the Purchasing department by continuously evaluating the requirements that are relevant for Schaeffler and determining criteria to be taken into account when choosing suppliers. These include all material requirements from legislation, public standards, and customer requirements with regard to:

• Chemical substances
• Preparations
• Packaging and materials in manufacturing processes and products
• Transporting the products

This also involves responsibly procuring raw materials such as tin, tungsten, tantalum, and gold, whose extraction in some countries contributes to financing armed conflicts or human rights violations. Schaeffler uses the “Reasonable Country of Origin Inquiries” (RCOI) procedure to ascertain from which regions sub-tier suppliers source components with critical materials and, where appropriate, initiate targeted supply chain actions. Compared to the previous year, the response rate²⁾ of the suppliers surveyed fell slightly to 93.8%^{3) 4)} (prior year: 94.3%)⁴⁾. 100%⁵⁾ of the smelters reported in Schaeffler’s pre-supply chain that are located in affected countries under the RCOI are certified by the “Responsible Minerals Initiative⁵⁾”. Material compliance implementation is based on an audited management process that is included in the Material Compliance Management guideline. The progress is determined and monitored continuously.

Customers are able to request Schaeffler’s Conflict Minerals Report. With further improvements to the material compliance process, the company will meet the OECD guidelines for the responsible use of minerals from conflict and high-risk areas by 2021, and thus also the EU requirements in a timely manner. As an important prerequisite for this, a Conflict Minerals Policy was adopted by the Executive Board in 2019 and made available online.

The Conflict Minerals Policy is available at: www.schaeffler.com/en/conflict-minerals-policy

Initiatives and industry solutions for responsible supply chains

In national and international initiatives and associations, Schaeffler participates in standardizing content, processes, and measures to improve sustainability in supply chains. Schaeffler is a member of the “Sustainability in the Supply Chain” working group, an initiative of the German Association of the Automotive Industry (VDA), in addition to other groups. In this context, Schaeffler significantly contributed to standardizing the industry-wide sustainability questionnaire and sustainability protocol for sustainability-related supplier inspections. Schaeffler extended its own questionnaire for new suppliers with additional social questions.

Human rights

Part of GNFK StartAs a global family business with a strong foundation based on its values, respect for human rights is an indispensable part of corporate responsibility for the Schaeffler Group.

The company rejects any form of human rights violations such as child and forced labor or discrimination based on race, color, or gender. This claim applies to all Schaeffler locations as well as to all business partners and goes beyond compliance with local legal provisions. The company management commits to the “UN Guiding Principles for Business and Human Rights”, the ten principles of the “UN Global Compact”, the German government’s National Action Plan for Business and Human Rights (NAP), the “Dodd-Frank Act” and the “Modern Slavery Act”.

The requirement to respect and uphold human rights is part of the current group-wide Code of Conduct and the Schaeffler Group’s Supplier Code of Conduct. They are aimed at every employee at the company and selected business partners, such as suppliers of production and non-production materials. Responsibility for human rights issues rests with the Sustainability department under the HR function. If necessary, it will also report on human rights issues as part of Schaeffler AG’s internal risk reporting. Any violations of human rights topics can be reported through the Schaeffler Group’s global compliance whistleblowing system. No violations of human rights⁶⁾ were reported via the system in 2019.

The employees and managers at the Schaeffler Group are trained on the Code of Conduct, which demands respect for human rights (see compliance training). Elements for managing risks associated with human rights violations are developed and coordinated by the Sustainability department.

To implement the NAP, the Schaeffler Group is in contact with the German Federal Foreign Office and the German Federal Ministry of Labor and Social Affairs. Schaeffler’s goal is to meet the so far voluntary EU requirements of the NAP by 2020 by continuing to develop the human rights due diligence process on time.Part of GNFK End

Compliance with international disclosure requirements

The “Modern Slavery Act”, which was passed in the U.K. in 2015, calls for companies to demonstrate their commitment to protecting human rights along their value chain. The Schaeffler Group maintains business relations with the U.K. and is therefore impacted by this disclosure requirement. A corresponding statement is published for Schaeffler (UK) Ltd.

The “Modern Slavery Statement” from Schaeffler (UK) Ltd. is available at: www.schaeffler.co.uk

1) Completed in 2019.

2) Response rate of relevant suppliers surveyed on the use of conflict minerals as defined under the Responsible Minerals Initiative.

3) 2019 value checked in interim status in December 2019.

4) Survey period from March to February of the following year.

5) Risk areas as defined in the RCOI.

6) Contraventions of the prohibition on forced labor and child labor and cases of discrimination by origin, skin color, or gender.