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Sustainability in the Supply Chain

Good cooperation with all suppliers is the foundation of our value chain. ZF actively maintains these partnerships and expects its business partners to respect and promote values such as environmental protection, quality and human rights.

As a globally active technology enterprise with its main emphasis on mobility, ZF produces at more than 160 locations. To procure the necessary production materials, ZF maintains a global network of around 60,000 suppliers – from small family-owned businesses up to large groups of companies.

Globally uniform procurement standards and specifications for our suppliers are essential in order to guarantee the high quality and delivery reliability of our products and to ensure that our values are maintained throughout the value chain.

To ensure responsible procurement practices, the Group has appointed a cross-functional Sourcing Decision Board (SDB). It is the highest decision-making sourcing body at ZF and ensures that the selected suppliers equally fulfill environmental, social, quality, technical, logistics and pricing requirements. Target conflicts are also solved within the SDB.

Social and Ecological Standards in the Supply Chain

All new and existing suppliers are required to endorse ZF Business Partner Principles. They represent the key values that are indispensable for ZF. Compliance with national and international laws and regulations at all locations worldwide is considered the minimum requirement. The BPP also conform to various principles and conventions, such as the principles of the UN Global Compact, the OECD Guidelines for Multinational Enterprises, the Universal Declaration of Human Rights, the UN Guiding Principles on Business and Human Rights and relevant conventions of the International Labour Organization.

More precisely, these principles contain guidelines specifying fundamental requirements for collaboration with ZF’s business partners. They address topics such as human rights, labor standards, occupational safety and health, environmental protection, business ethics and compliance. In particular, business partners are expected to reject any form of slavery, forced labor or child labor. ZF also expects them to respect freedom of association and the right to form interest groups, to provide fair and appropriate remuneration and working times in accordance with applicable law and to promote the qualification of their employees. The BPP also expect suppliers to ensure that these values are respected in their supply chains.

In Germany, external service providers must sign an additional declaration of compliance to collective agreements guaranteeing fair wages, normal working hours and the rejection of unregistered labor and tax evasion. This declaration also applies to subcontractors engaged by ZF and includes the provision that ZF may check compliance at any time.

Due Diligence

As part of the new approval and when selecting suppliers, ZF requires potential, new and existing suppliers to carry out a self-assessment based on the topics of the Business Partner Principles. For this purpose, ZF uses a self-assessment questionnaire on the topic of sustainability, the Sustainability Criterion. It covers the topics of carbon footprint, human rights and compliance as well as environment, health and safety (EHS).

ZF has also implemented a comprehensive internal risk analysis process for compliance risks. The objective is to identify, assess and counteract compliance-related risks as early and effectively as possible. Detailed information can be found in the Annual Report.

Risk assessment and management

ZF uses a risk management process to systematically analyze and evaluate its supply chain with regard to compliance with social and environmental standards and to identify risks early on.

It helped us to identify suppliers with a potential risk of violating sustainability standards. To achieve transparency and obtain the required information, we therefore request that these suppliers complete the Self-Assessment Questionnaire via NQC Ltd. After verification of the questionnaire, ZF supplements the result with additional information on the sustainability performance of the suppliers using its own systems. This results in an internal risk assessment for the supplier location.

We have also initiated a pilot project with 800 strategic suppliers that aims to improve the sustainability assessment of all suppliers. This takes standards into account such as SA 8000 for Human Rights & Labor or ISO 37001 for Anti-Bribery Management Systems, along with non-financial information that is required to be published under the provisions of the CSR Directive Implementation Act.

We take indications of possible violations in our supply chain very seriously. In addition to the contact channels in regular business transactions, ZF has established an electronic report system for this purpose: The ZF Trustline is available to all employees and business partners who wish to anonymously report suspicion of serious misconduct in relation to guidelines, regulations or laws.

Conflict Minerals

Gold, coltan, cassiterite, wolframite and its derivatives such as tantalum, tin or tungsten are referred to as conflict minerals because mining and trading of these minerals in the Democratic Republic of the Congo and adjacent countries also serve to finance armed conflicts. However, they are indispensable for numerous products ‒ also at ZF. Although ZF is not subject to the regulations of the “Dodd-Frank Act” (Sec. 1502) and EU Regulation 2017/821 laying down supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores and gold originating from conflict-affected and high-risk areas, we take our responsibility seriously and commit ourselves to responsible 3TG procurement.

To this end, ZF requested that all relevant suppliers of production materials disclose the origin of their resources.

Decarbonization

In order to strengthen all sustainability-relevant activities within the supplier base, ZF Materials Management has also set up a team for sustainability in the supply chain. In 2021, this team developed a decarbonization roadmap based on the goal of achieving climate neutrality by 2040. The corresponding expectations were already communicated to the suppliers at the digital Global Supplier Summit in 2020. In addition, individual information letters were sent to each supplier.

On this basis, ZF launched 2021 a new campaign in order to identify the ten suppliers causing the largest amounts of greenhouse gases (based on the CO2 equivalents or CO2e) for each product category. Subsequently, the maturity level of the individual suppliers was considered in terms of their respective climate management, use of recycled materials and energy efficiency. Suppliers with a below-average valuation agreed with ZF on selected measures, with the focus being on CO2e reduction.

Furthermore, product-related environmental protection aspects are addressed in the Supplier Quality Directive (QD83) and the annual Conflict Minerals Report. These documents also apply to subcontractors and cover guidelines such as the EU Chemicals Regulation (Registration, Evaluation, Authorisation and Restriction of Chemicals or REACH) as well as logistics and packaging specifications.