For the disclosures under ESRS 2.21-23, we have used the option to present them by reference; the corresponding disclosures can be found in the “Declaration on Corporate Governance” and are identified accordingly there.
At Covestro, the relevant expert functions are responsible for the operational monitoring and control of material impacts, risks, and opportunities. They continually report on current developments within their organizational structure to the responsible member of the Board of Management.
The objective of the central Sustainability & Innovation Governance Body (SI GoB) is to develop recommended actions for sustainability transformation, identify resources for research and development, and manage the innovation portfolio for relevant internal stakeholders. The body, which is staffed with top-level executives from the business entities and relevant corporate functions, meets four times a year. The Chief Executive Officer (CEO) chairs the body, while the head of the corporate GIS function, who also acts as Chief Sustainability Officer (CSO), is responsible for organizing and managing the body and reports to the CEO.
Alongside business-related R&D in the business entities centered on sustainability, the circular economy, climate neutrality, and digital transformation, GIS develops the sustainability strategy and drives cross-functional sustainability projects and programs in the company. GIS coordinates Covestro’s sustainability activities and supports the other corporate functions and business entities in implementing them in operations.
GIS also supports communication with external stakeholders such as authorities, associations, and the general public, and represents Covestro’s interests in these areas.
The Supervisory Board, and in particular its Sustainability Committee, are regularly given the latest information by the Board of Management about developments in the area of sustainability. These reports ensure that the Supervisory Board can fulfill the role and responsibility assigned to it, including in relation to sustainability matters and any associated impacts, risks, and opportunities.
The Board of Management’s decisions are aimed at sustainably increasing the company’s enterprise value and achieving the corporate objectives. The purpose, vision, mission, and strategy are adopted for this purpose. The Board of Management is also responsible for approving all transactions that go beyond the ordinary course of business or are of strategic importance, including decisions on investments, acquisitions, and divestitures. In this context, the Board of Management deals on an ad hoc basis with specific impacts, risks, and opportunities as well as the associated policies, actions, metrics, and targets. In weighing up these kinds of transactions, it considers not only economic factors, but also potential impacts on people and the environment. Through selected ESG criteria, the management system, for example, has already been aligned with sustainability and, in particular, with impacts in connection with greenhouse gas emissions.
In fiscal 2024, critical adjustments were made to the Group’s Sustainable Future strategy. In this process, the Board of Management firstly took account of the impacts, risks, and opportunities connected to our vision of becoming fully circular; i.e., in particular in relation to the circular economy and climate neutrality; secondly, a workforce that is fit for the future is now also firmly established as an enabler in addition to the strong corporate culture.
Group-wide risk management is likewise aimed at safeguarding the continued existence of the company, taking account of the strategy, legal framework, and developments. The risk portfolio considered there is interlinked with material sustainability topics and the associated financial risks and opportunities.
All decisions are made on the premise that we comply with applicable laws and stand by our corporate commitments, including in connection with industry agreements. Against this backdrop, no compromises are made in the management of impacts, risks, and opportunities.
In the course of approving the results of the double materiality assessment, the Board of Management received information on all the material impacts, risks, and opportunities disclosed in the Group Sustainability Statement. In fiscal 2024, the Supervisory Board’s Sustainability Committee was informed firstly about the degree of implementation of the Corporate Sustainability Reporting Directive (CSRD) at Covestro and secondly about the results of the double materiality assessment.
In accordance with our strategy and vision, we have integrated a sustainability component in both the short-term and long-term variable compensation of the members of the Board of Management and of employees.
The payment of the short-term variable compensation (short-term incentive, STI) for fiscal 2024 is based on four equally weighted criteria: profitable growth, liquidity, profitability, and sustainability. This means that short-term variable compensation is directly linked to the Covestro Group’s success. The sustainability component is determined by the direct and indirect Scope 1 and Scope 2 GHG emissions (CO2 equivalents) of the main sites. The sustainability component accounts for a share of 25%. The targets for this component are derived from Covestro’s target of making its operations climate-neutral by the year 2035, i.e., reducing its own emissions (Scope 1) and the emissions from external energy sources (Scope 2) to net zero.
The Prisma share-based compensation program for long-term variable compensation (long-term incentive, LTI) takes into account the performance of Covestro shares, including dividends (total shareholder return) and outperformance against the STOXX Europe 600 Chemicals* index over a period of four years. For Prisma tranches from fiscal 2021, the LTI plan was expanded to also include a sustainability component. The target for the sustainability component is the reduction target for annual Scope 1 and Scope 2 GHG emissions (CO2 equivalents); it has since the year 2022 been based on the target of making Covestro’s operations climate-neutral by the year 2035. The LTI plan applies to members of Covestro’s Board of Management and the company’s senior executives. When the plan was introduced, the weighting of the sustainability component was set at 25%. Two additional sustainability criteria relating to social matters were added for the Prisma tranches starting in and after 2024. The two new sustainability criteria relating to the “Social” aspect, the participation rate in the regularly held employee survey and the recordable incident rate (RIR), which measures the number of recordable incidents against the hours worked by all employees and contractor employees of the Covestro Group worldwide, will only be reflected in the payout from the 2024–2027 Prisma tranche, which will be determined in the year 2027. Each sustainability criterion, including the emissions criterion, was weighted at 10%, resulting in a total of 30% for the sustainability criteria.
The sustainability component for short-term variable compensation, which is based on a reduction in GHG emissions, accounts for a share of 25%. This corresponds to the weighting for the target compensation, because the Supervisory Board’s decision to set the payment for fiscal 2024 at a value of 40% means that partial amounts for the individual criteria cannot be calculated. The payout of the Prisma 2021–2024 tranche represents a share of 33.8% of the total payout based on the climate-related sustainability component. In total, this results in the following shares of compensation awarded and due for fiscal 2024 on the basis of climate-related considerations.
| Share of compensation relating to GHG reduction targets in the reporting year | ||||
|---|---|---|---|---|
| Dr. Markus Steilemann (Chief Executive Officer) | Christian Baier (Chief Financial Officer)1 | Dr. Thorsten Dreier (Chief Technology Officer and Labor Director)1 | Sucheta Govil (Chief Commercial Officer) | |
| Share of compensation that is linked to climate-related considerations, in % |
22.7 | 7.1 | 9.2 | 22.6 |
1 Due to their appointment to the Board of Management in the year 2023, Christian Baier and Dr. Thorsten Dreier had no or only a significantly lower entitlement to payment from the 2021–2024 Prisma tranche than the other two Board of Management members.
Board of Management compensation is determined by the Supervisory Board in accordance with Section 87 (1) of the German Stock Corporation Act (AktG). The Human Resources Committee assists the Supervisory Board in this process by making recommendations regarding the Board of Management’s compensation system that are in turn discussed and voted on by the Supervisory Board as a whole. Additionally, the Human Resources Committee conducts the groundwork for regular reviews by the Supervisory Board of the compensation system and compensation amounts for Board of Management members. If required, it recommends that the Supervisory Board make changes to the compensation system.
The compensation of the Supervisory Board is in line with the provisions of the Articles of Incorporation, which were approved by the Annual General Meeting (AGM). In accordance with the recommendations of the German Corporate Governance Code, the members of the Supervisory Board receive only fixed compensation.
The compensation systems for the Board of Management and the Supervisory Board are described in detail in the Compensation Report of Covestro AG.
For the disclosures under ESRS 2.34 and ESRS 2.36, we have used the option to present them by reference; the corresponding disclosures can be found in the “Group-wide Opportunity and Risk Management” section and are identified accordingly there.
In accordance with ESRS 2.30-33, we submit a summary of the information on the due diligence process provided in our Sustainability Statement. Our aim is to facilitate a clear understanding of our due diligence process. The table below is intended as a navigation aid; it shows where the application of the most important aspects and steps of this process can be found in our Statement.
| Statement on due diligence | |
|---|---|
| Core elements of due diligence | Paragraphs in the Group Sustainability Statement |
| a) Embedding due diligence in governance, strategy and business model |
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| b) Engaging with affected stakeholders in all key steps of the due diligence |
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| c) Identifying and assessing adverse impacts |
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| Statement on due diligence | |
|---|---|
| Core elements of due diligence | Paragraphs in the Group Sustainability Statement |
| d) Taking actions to address those adverse impacts |
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| e) Tracking the effectiveness of these efforts and communicating |
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