Supplier Sustainable Development

To further develop partnerships in the supply chain based on responsible business behavior, we are engaging our suppliers and trading partners in our endeavor to foster sustainable development.

Our approach

We believe sustainable supply chains ensure the well-being of the people and environments we procure from, as we seek to grow our business through ethical and legal business practices. We are therefore committed to leveraging our purchasing power to benefit those partners whose values align most closely with ours. Furthermore, the rise of supply chain transparency legislation points to the increasing mandate that a company must be aware of the economic, environmental, and social dimensions of its supply chain, and that it must proactively monitor and manage those dimensions.

Our activities

Our global supply chain is large and complex, which poses a challenge in terms of sustainability management. Global procurement volumes with external vendors, excluding inventory, correspond to approximately 41% of total sales, making the company’s procurement strategy highly relevant to achieving our financial and sustainability targets. The number of active suppliers for goods and services is approximately 16,800, with spend focused in Europe (40%), Asia (23%), and the Americas (14%).

To ensure our suppliers contribute to social and environmental well-being, dormakaba focuses on five areas:

1. Identifying supply chain risks
2. Supplier off-site assessments
3. Supplier on-site audits
4. Training of internal and external stakeholders
5. Procedures in the event of non-participation or non-compliance

Identifying supply chain risks

dormakaba has defined a target group for sustainability assessments based on identified sustainability risk factors – such as origin country and the material content of the goods procured or potential labor risks for outsourced services. A material content risk assessment is focused on potential hazardous materials outlined by the European Union’s REACH regulations and RoHS Directive or conflict minerals. Suppliers over a certain procurement threshold were taken into consideration as part of the categorization work.

To determine sustainability risk factors on a country level, an impact assessment and hotspot analysis were used as a baseline. The hotspot analysis identified the following sustainability topics as being of the greatest relevance in the supply chain: (1) Energy and Emissions; (2) Human Rights; (3) Child Labor and Forced Labor; (4) Materials; (5) Responsible Tax Practices; (6) Freedom of Association; and (7) Circular Economy. For these high-impact topics, any supplier from countries listed as high-risk was included in the sustainability target group for assessment. The high-risk group includes 1,972 suppliers from our Tier 1 base, both for direct (e.g., material goods) and indirect (e.g., services) spend. The target group was updated at the end of FY 22/23 based on the latest available full-year data from the procurement information systems at the time the re-evaluation took place (FY 21/22).

Supplier categorization for sustainability assessment

Supplier off-site assessments

Since 2019, we have been working together with EcoVadis, a leading provider monitoring sustainability in global supply chains, to reduce supplier risk and support supplier development. The assessment covers 21 sustainability criteria across four areas (environment, labor and human rights, ethics, sustainable procurement).

Since the launch of our collaboration with EcoVadis, 31.7% of our high-risk suppliers have been assessed. 825 high-priority corrective actions have been requested and 9% of these have been closed. Furthermore, in FY 23/24 a total of six business relationships were terminated and five suppliers were blocked from new business.

In FY 23/24, we engaged 544 high-risk suppliers and asked them to participate in the EcoVadis assessment (versus the 500 targeted suppliers). The positive participation rate was 30%. Of all suppliers with a completed rating as at 30 June 2024, 60% landed in the score band of “good” or above. However, 34% had only partial performance, with scores lower than 45. And an additional 6% were considered to have insufficient performance.

Overall score distribution*

Since the start of our cooperation with EcoVadis, 43% of assessed suppliers have undergone a follow-up reassessment. We found that 64% of the reassessed suppliers in FY 23/24 improved their score, with an overall improvement of 4.2 score points. Among those that improved, the average supplier improvements per pillar were:

• Environment: +5.2 points
• Labor and Human Rights: +4.3 points
• Ethics: +3.1 points
• Sustainable Procurement: +3.9 points

The majority of reassessed suppliers (51%) exhibited good performance, with an additional 31% considered to have advanced performance. The proportion of suppliers with partial performance decreased from 21% to 16%. We will continue to support our business partners to improve their rating in the future.

Supplier on-site audits

To examine our suppliers’ situation on-site, we developed a standard audit questionnaire that covers topics related to quality management. It includes checks on, sustainability topics such as internal Code of Conduct (CoC), the dormakaba Supplier Code of Conduct, labor, health and safety, and environmental standards. Auditors are asked to check documentation on-site related to:

• Workers’ ages and identity records
• Receipt of wages
• Training and communication on internal CoCs
• Signing of the dormakaba SCoC
• Hazardous materials storage and worker training on safe handling
• Injury rates
• Development of water, energy, and waste metrics over recent years

As on-site audits require immense effort and cost, we have introduced a risk assessment process that takes into account the potential risk of specific locations, products, and performance. This risk assessment results in a score ranking, indicating the frequency of auditing required for the relevant supplier.

In FY 23/24, our own quality team conducted on-site audits for 11 suppliers in China. There were no findings of non-conformance regarding sustainability criteria.

We pay particular attention to suppliers performing subcontracted work, as we have noted that there is a higher risk of human rights impacts and poor labor conditions. We therefore organize on-site audits for such subcontractors that are conducted by a neutral third party, ELEVATE. These on-site audits include a workers’ sentiment survey that enables the supplier’s workforce to voice their concerns and communicate their sentiments towards the management of specific topics, such as working hours, health and safety, and discrimination. Any concerns voiced in the survey or during the interviews are taken into consideration in the design of remedial actions.

During FY 23/24, we conducted six audits on subcontractors: three initial audits in Taiwan, two closure audits in China, and one initial audit in Malaysia. Major findings at some of the subcontractors undergoing an initial audit included retention of passports, workers not being allowed to be interviewed by the auditor, wages being retained, excessive working hours, and health and safety hazards. For those with Zero Tolerance findings, all orders were stopped until the finding was corrected. For example, in the case of passport retention, we stopped business immediately until the passports were released back to the workers and safe storage was provided. Thereafter, our local team worked together with the subcontractor and ELEVATE to agree on a set of additional corrective measures. Depending on the severity of the other findings, a closure audit will take place within three to twelve months to verify the remediation of the violations and the continued improvement.

Regarding the two closure audits, considerable improvements with regard to age verification, formalization of the working relationship, some health and safety findings, annual leave, and delayed payment of wages were verified. However, other findings from the initial audits – such as inconsistencies in the payroll and attendance systems, access to grievance channels, and other health and safety findings – remained open. We will continue working with the subcontractors to improve their systems and processes, and close the findings that remain open.

With a view to safeguarding the interests and well-being of workers, we refrain from immediately exiting business relationships with suppliers where non-conformances have been found, with the exception of Zero Tolerance findings. Instead, we take the time and the effort to work with suppliers to close the findings. We believe that this course of action ensures better protection of the interests and well-being of workers, vulnerable groups, and local communities than an immediate exit from the business relationship.

Procedures in the event of non-participation or non-compliance

We have procedures and process flows in place for auditing and corrective action plans in terms of the sustainability performance of suppliers. We integrate a sustainable development clause into contracts for new suppliers and for existing suppliers when it is time for contract renewals. Our sustainability contractual clause establishes and describes the suppliers’ obligation to participate in and pay for off-site assessments and/or on-site audits, and to commit to and implement an improvement plan if performance is below our defined benchmarks.

In addition, at the beginning of the supplier relationship, the supplier is presented with the dormakaba SCoC for signing. Suppliers refusing to sign the SCoC or who do not have their own of equal quality are blocked.

If a supplier is invited to participate in the EcoVadis off-site assessment, further actions are determined by their assessment score. For suppliers with bronze, silver, gold, or platinum level, reassessments are required in two to five years. For suppliers with partial performance, an annual reassessment is required, and an improvement plan is defined within the EcoVadis system.

Refusal to participate in an off-site assessment qualifies a supplier for an on-site audit. Likewise, suppliers whose off-site assessment score is insufficient are shortlisted for an on-site audit. These on-site audits are conducted by a third-party company called ELEVATE. A corrective action plan is defined in the course of the on-site audit, with a one-year implementation deadline. Suppliers are blocked or placed in active elimination for lack of implementation.

A Responsible Procurement Steering Committee meets regularly to take decisions on a case-by-case basis for special circumstances, such as when dealing with monopoly suppliers, quality checks of suppliers’ internal Code of Conduct, acceptance of sustainability assessments provided by companies other than EcoVadis, and monitoring and evaluation of suppliers listed as blocked or in active elimination due to inadequate sustainability performance.

Sustainability trainings for suppliers and employees

Our procurement employees play a critical role in achieving our goals related to Supplier Sustainable Development. Their understanding of sustainability and our processes related to EcoVadis and other sustainability-related information requests is vital. For this reason, employees working together with suppliers participate in training programs that prepare them for sustainability- and assessment-related conversations with partners. In FY 23/24, 142 colleagues from procurement completed trainings on the Responsible Minerals Sourcing and on the Sustainability Procurement Directive. This represents 58% of the procurement function.

Furthermore, to contribute to sustainable development, we want to help our suppliers to improve their own sustainability performance. Therefore, we set a target to engage 90% of our assessed suppliers with priority findings in sustainability trainings by 2027. We launched the program in FY 23/24 and sent out invitations to 221 suppliers with high-priority corrective actions to complete training on sustainability topics. This supplier training program includes four learning plans: environment, climate change and greenhouse gas emissions, labor, and health and safety. Suppliers are recommended specific training based on gaps in their sustainability performance. They are also able to access the whole suite of training modules available on the platform at no cost.

Due diligence on conflict minerals

Outlook

During the next financial year, a key element of our supply chain due diligence will be the continued integration of sustainability requirements in supplier qualification processes. Furthermore, we will continue to invite at least 500 suppliers to complete our supplier assessments via EcoVadis throughout the year.

Additionally, in FY 24/25, further suppliers assessed by EcoVadis with high-priority findings will be invited to participate in our sustainability training sessions.

We will also continue to focus on the sourcing of materials with sustainable, certified alternatives. Our aim is to ensure that at least 50% of our paper, cardboard, and wood purchases come from responsibly managed forests based on the Forest Stewardship Council or a similar standard. Additionally, we will start switching plastic packaging to biological alternatives with the aim of transforming 33% of the purchasing base in FY 24/25.

What's more, we will extend our collaboration with Assent Compliance and begin requesting Conflict Minerals Reporting Templates and Extended Minerals Reporting Templates for suppliers delivering to Germany to increase transparency and data quality.

Finally, we will continue to engage our metal suppliers in order to increase the recycled content in their products to the targeted thresholds.