Governance

The Role of the Administrative, Management, and Supervisory Bodies

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.

For further information, please refer to the “Declaration on Corporate Governance.”

Information Provided to and Sustainability Matters Addressed by the Undertaking’s Administrative, Management and Supervisory Bodies

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.

For further information, please refer to “Report of the Supervisory⁠ ⁠Board” in Capital Market.

For further information, please refer to the “Declaration on Corporate Governance.”

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 to this end. 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 ⁠2025, 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 and achieving net-zero emissions. Secondly, innovation is now also firmly established as a key enabler in addition to the strong corporate culture and a workforce that is fit for the future.

For further information, please refer to “Corporate Strategy – Group Strategy.”

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.

For further information, please refer to “Opportunities and Risks Report – Risk Management System.”

For further information, please refer to “Impact, Risk and Opportunity Management.”

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 ⁠2025, the Supervisory Board’s Sustainability Committee was informed firstly about developments in the European and national regulatory environment and their potential effects on the Group Sustainability Statement and secondly about the results of the double materiality assessment.

Integration of Sustainability-Related Performance in Incentive Schemes

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.

Short-Term Variable Compensation

The payment of the short-term variable compensation (short-term incentive, STI) for fiscal⁠ ⁠2025 is based on the following 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 all environmentally relevant sites. The sustainability component is part of the medium-term component – weighted at 50% – of the short-term variable compensation, where it accounts for 25%, resulting in an overall share of 12.5%. 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.

For further information, please refer to “ESRS E1: Climate Change.”

Long-Term Variable Compensation

Up to the 2024⁠–⁠2027 tranche, the Prisma compensation program for long-term variable compensation (long-term incentive, LTI) took 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. Due to the takeover offer by ADNOC International Germany Holding AG, the share-based metrics for the 2025⁠–⁠2028 performance period have been replaced by Covestro value added, a key financial performance indicator that measures whether the company generates a return in excess of the capital charge. Since fiscal⁠ ⁠2021, the LTI plan has also had 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%. The two sustainability criteria relating to the “Social” aspect were added in the year⁠ ⁠2024: 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. Each sustainability criterion, including the emissions criterion, was weighted at 10%, resulting in a total of 30% for the sustainability criteria.

Share of Compensation Attributable to Sustainability-Related Performance

For the sustainability component of short-term variable compensation, which is based on a reduction in GHG emissions, no share can be calculated for fiscal⁠ ⁠2025, as the required minimum thresholds for the relevant metrics were not reached and therefore no short-term variable compensation is paid. The payout of the Prisma 2022⁠–⁠2025 tranche represents a share of 28% 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 ⁠2025 on the basis of climate-related considerations.

¹ A similar calculation for Ms. Sucheta Govil (Chief Commercial Officer until July⁠ ⁠2025) arrived at a share of 18.5%.

² Due to their appointment to the Board of Management in the years⁠ ⁠2023 and⁠ ⁠2025, Christian Baier and Monique Buch were not entitled to any payout from the 2022−2025 Prisma tranche. Dr.⁠ ⁠Thorsten Dreier had a lower entitlement from this tranche because of his appointment to the Board of Management in the year⁠ ⁠2023.

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.

Compensation of the Supervisory Board

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 further information, please refer to “Compensation Report.”

Risk Management and Internal Controls Over Sustainability Reporting

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.

For further information, please refer to “Opportunities and Risks Report – Group-wide Opportunity and Risk Management.”

Statement on Due Diligence

To underscore our direction as a sustainably operating company, we take clear positions on key topics and commit to complying with standards in our corporate commitments. Our corporate commitments are compiled on the basis of internal and/or external expertise and approved by the member of the Board of Management responsible. By providing the option for download, we make our corporate commitments available to all employees, business partners, and other relevant parties. We review them regularly and continually update their contents. An overview of our current corporate commitments can be found on our website.

For further information, please refer to: www.covestro.com/en/sustainability/documents-and-downloads/policies-and-commitments

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.