Covestro

The role of administrative, management and supervisory bodies

Board of Management

The Board of Management of Covestro AG runs the company on its own responsibility with the goal of sustainably increasing the company's enterprise value, and determines and pursues its corporate objectives. It also defines the company's portfolio, allocates resources, and decides on both the financial and nonfinancial steering and reporting of the Covestro Group. Moreover, the Board of Management defines the long-term goals and strategy for the Group and sets forth the principles and policies for the resulting corporate policies.

Board of Management Composition:

• Dr. Markus Steilemann - Chief Executive Officer (CEO): His area of responsibility includes the Corporate Strategy; Group Innovation & Sustainability; Corporate Audit; Human Resources; and Communications functions.
• Christian Baier - Chief Financial Officer (CFO): He is responsible for the areas of Accounting; Controlling; Finance & Insurance; Information Technology & Digitalization; Investor Relations; Law, Intellectual Property & Compliance; Portfolio Development; and Taxes. He is also responsible for country-specific topics in the United States and China.
• Dr. Thorsten Dreier - Chief Technology Officer (CTO): He is responsible for the corporate Process Technology; Engineering; Group Procurement; and Group Health, Safety, Environment, and Reliability functions and coordinates the rollout of, and compliance with, global processes and standards and the rollout of initiatives in Covestro's production network. He is also the company's Labor Director.
• Sucheta Govil - Chief Commercial Officer (CCO): She is in charge of the seven business entities, including all business-related processes and areas of production, from procurement and application technology to sales. In addition, she is responsible for the three regional Supply Chain & Logistics units, which handle internal and external supply chains worldwide.

Supervisory Board

The Supervisory Board oversees and advises the Board of Management. The Supervisory Board has 12 members, half of whom are shareholder representatives and half employee representatives pursuant to the German Codetermination Act. The Chair of the Supervisory Board is Dr. Richard Pott. Petra Kronen was the Deputy Chair of the Supervisory Board until December 31, 2024.

Supervisory Board Role in Sustainability: During the reporting period, the Supervisory Board of Covestro AG performed its duties with due care in accordance with the law, the Articles of Incorporation, and the rules of procedure. During fiscal 2024, it monitored the conduct of the company's business by the Board of Management with regular frequency based on detailed written and oral reports received from the Board of Management, and also acted in an advisory capacity.

The Supervisory Board was kept regularly and fully informed about the company's intended business strategy, corporate planning (including financial, investment, and human resources planning), profitability, the state of the business, and the situation of the company and the Group (including the risk situation, risk management, and the compliance situation).

Committee Structure

The Supervisory Board had five permanent committees:

1. Presidial Committee
2. Audit Committee - Monitored the accounting and financial reporting process and the appropriateness and effectiveness of the internal control system, the risk management system, and the internal audit system, including sustainability-related aspects
3. Human Resources Committee
4. Nominations Committee
5. Sustainability Committee - The main topics of its deliberations were the circular economy, the pursuit of the Scope 1, Scope 2, and Scope 3 targets, and the implementation of the Corporate Sustainability Reporting Directive (CSRD)

Sustainability Committee Activities in 2024:

• February 16, 2024: Dealt with review of sustainability-related parts of the Group Management Report and recommended approval of the nonfinancial Group statement for 2023. Reviewed status of key implementation measures for Scope 3 targets.
• May 25, 2024: Established overview of regulatory risks and opportunities arising from regulatory environment. Discussed human rights due diligence and reviewed progress toward meeting Scope 1 and Scope 2 targets.
• September 23: Implementation of CSRD at Covestro and circular economy projects. Discussed status of CSRD implementation, sustainability reporting process, and double materiality assessment.
• November 22: Reviewed double materiality assessment, current status of CSRD implementation, and sustainability reporting process. Discussed physical climate risks and potential impacts of climate change on Covestro's business.

Governance Integration

The discussions between the Supervisory Board and Board of Management were always constructive and were conducted in the spirit of openness and trust. The Supervisory Board was always directly involved in decisions of material importance to the company. It discussed in detail the business trends described in the reports from the Board of Management and the prospects for the development of the Covestro Group as a whole, the individual segments, and the regions.

Integration of sustainability-related performance in incentive schemes

Roles covered

The sustainability-related performance incentive schemes cover:

• Members of the Board of Management
• The company's senior executives
• Employees (broader management)

Short-Term Incentive (STI)

Scope and structure

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.

Sustainability KPI

The sustainability component is determined by the direct and indirect Scope 1 and Scope 2 GHG emissions (CO2 equivalents) of the main sites. 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.

Weighting

The sustainability component accounts for a share of 25% of the STI.

Payout for fiscal 2024

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.

Long-Term Incentive (LTI)

Programme name and structure

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.

Sustainability component introduction

When the plan was introduced, the weighting of the sustainability component was set at 25%.

Sustainability KPIs and weighting

For tranches starting before 2024:

• GHG emissions (Scope 1 and Scope 2): The sustainability component encompasses Covestro's target for reducing annual greenhouse gas emissions [CO2 equivalents]. For the tranche beginning in fiscal 2023, Scope 2 emissions were added to the sustainability component.

For tranches starting in and after 2024 (Prisma 2024–2027): Two additional sustainability criteria relating to social matters were added:

1. Participation rate in the regularly held employee survey
2. 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.

Performance period

The two new sustainability criteria relating to the "Social" aspect will only be reflected in the payout from the 2024–2027 Prisma tranche, which will be determined in the year 2027.

Payout cap

The payout is capped at 200% of the Prisma target opportunity.

Share of compensation attributable to sustainability-related performance in fiscal 2024

STI sustainability share

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.

LTI sustainability share

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.

Share of compensation relating to GHG reduction targets by Board of Management member

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.

Governance

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.

Supervisory Board compensation

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.

Strategy, business model and value chain

Business Model

Covestro is one of the leading global suppliers of high-tech polymer materials and application solutions developed for these materials. The company delivers a broad portfolio of products. In its core business, Covestro produces precursors for polyurethane foams and the high-performance plastic polycarbonate as well as precursors for coatings, adhesives, sealants, and specialty products, including films. Other noncore precursors in Covestro's product portfolio include chlorine and by-products like styrene.

The company's materials are used in many areas of modern life. Covestro offers its customers innovative and sustainable solutions that enable improved performance and help reduce carbon footprints. Our products are used in many applications ranging from insulation for refrigerators and entire buildings, through laptop and smartphone cases, to medical technology. They are also used to produce scratch-resistant and fast-drying vehicle coatings, film coverings for personal identification cards, and medical equipment.

Key Industries Served:

• Automotive and transportation
• Construction
• Furniture and wood processing
• Electrical, electronics, and household appliances
• Sports and leisure
• Health
• Chemical industry

Corporate Strategy - Sustainable Future

Purpose and Vision: Covestro's purpose, "To make the world a brighter place," remains the foundation of our actions. In an environment shaped by geopolitical tensions, volatile markets, and economic challenges, Covestro is rigorously determined in the pursuit of its vision of becoming fully circular. This vision forms the basis of our Group's Sustainable Future strategy and is aligned with the global challenges we have to face: Advancing climate change, rising environmental pollution, the growth of the global population, increasing urbanization, as well as new forms of mobility and the transition to renewable energies.

Strategy Update 2024: The world is constantly changing, and staying ahead requires agility and foresight. That's why, in 2020, Covestro launched its corporate strategy "Sustainable Future", designed to guide us toward our overarching goals, even in times of transformation. This year, we revisited and updated our strategy to ensure it remains aligned with global developments and our vision for a sustainable tomorrow.

While the core direction remains unchanged – positioning Covestro optimally, driving sustainable growth, and achieving climate neutrality and a circular economy – we have made key adjustments. These include an even sharper focus on our customers, a clear commitment to climate neutrality, and a more precise path to sustainable growth. We have also highlighted new enablers for success: artificial intelligence, a strong corporate culture, and a future-ready workforce.

At the heart of this updated strategy lies the customer perspective, embedded in every aspect of our approach under the motto: "You are never more than 10 meters away from a Covestro product." This reflects our commitment to being a reliable partner, expanding our portfolio, and delivering solutions tailored to customer needs.

Strategic Pillars:

1. Unlocking our full Potential: We want to become the best of who we are. Central to this: improving plant availability, enhancing cost efficiency, and expanding high-margin business areas.

2. Driving sustainable Growth: Combining sustainability and economic success. To achieve this, we are expanding our portfolio both organically and inorganically. Another core element: developing innovative technologies and processes that set new sustainability standards.

3. A fully circular future: To become fully circular, we are analyzing our value chains, anticipating changes in areas such as procurement, and driving forward innovative recycling technologies. At the same time, we are focusing on strong partnerships to jointly shape sustainable solutions.

4. On the Path to Climate Neutrality: Our transformation toward climate neutrality prepares us for the future: We are focusing on energy efficiency, sustainable production processes, climate-neutral energy sources, and moving away from fossil fuels. Target: operational climate neutrality by 2035 and complete climate neutrality by 2050.

Value Chain

Segments and Business Entities:

Covestro is divided into two reportable segments: Performance Materials (PM) and Solutions & Specialties (S & S). While the Performance Materials segment forms one separate business entity, the Solutions & Specialties segment is made up of six business entities.

Performance Materials: The Performance Materials segment forms a separate business entity comprising the development, production, and supply of high-performance materials such as polyurethanes and polycarbonates, as well as base chemicals. This includes diphenylmethane diisocyanate (MDI), toluene diisocyanate (TDI), long-chain polyols, and polycarbonate resins, among others. These materials are used in sectors such as the furniture and wood processing industry, the construction industry as well as the automotive and transportation industry. The focus in the Performance Materials segment is on reliably delivering standard products at competitive cost.

Solutions & Specialties: The Solutions & Specialties segment combines Covestro's solutions and specialties business; it has six business entities: Engineering Plastics; Coatings & Adhesives; Tailored Urethanes; Thermoplastic Polyurethanes; Specialty Films; and Elastomers. In this segment, Covestro combines sophisticated products with a high pace of innovation, complementing its offering with application technology services and customer-specific system solutions.

Global Presence: Covestro operates production and research and development (R&D) sites for various product groups throughout the world. The company has 46 production sites and 13 R&D sites in the EMLA, NA, and APAC regions.

Intangible Resources:

• Innovative capital: Through targeted investment in research and development, we create the basis for new products and applications to accelerate the transition to the circular economy
• Human capital: Skills, expertise, and motivation of our employees, who are crucial to our company's success
• Structural capital: Procedures, methods, processes, and systems that support the attainment of our corporate targets
• Relational capital: Based on trust and long-term collaboration with customers, suppliers, and other partners in the value chain

Customer Focus: A regular exchange of information and transparent communication are a solid foundation for sustainable partnerships, and we regularly measure the satisfaction of our customers, for example, using the Net Promoter Score (NPS). In the 2024 fiscal year, the Net Promoter Score serves Covestro as a measure of customer satisfaction (ranges from –100 to +100), achieving a score of +42.

Interests and views of stakeholders

Distinction between affected stakeholders and users of sustainability information

We distinguish between the stakeholder groups that might potentially be affected by the impacts of our business activities and relationships and the users of our sustainability reporting. Depending on the topic and its relevance, we identify and prioritize our stakeholders and select the appropriate dialogue format and frequency of contact in each case. The exchange may take place directly or indirectly.

Key stakeholder groups identified

An open and continuous exchange with our regional, national, and global stakeholders is the foundation for mutual understanding and societal acceptance of Covestro's decisions. Our stakeholders include:

• Capital market representatives
• Customers and their workers
• Our employees
• Suppliers and their workers
• The public and local communities
• Persons in vulnerable situations
• Nongovernmental organizations
• Associations
• Science
• Regulators and public authorities

We view nature as a silent stakeholder that is represented by science or nongovernmental organizations, for example.

Stakeholder engagement channels and frequency

Key concerns and views raised by stakeholders

Internal representatives of relevant stakeholder groups were involved at various points of the materiality assessment, e.g., in identifying and assessing impacts, risks, and opportunities. In this context, relevant stakeholder groups include especially those that might potentially be affected by the impacts of our business activities and relationships. The internal representatives of these groups are usually in contact with members of the stakeholder groups in the course of their day-to-day work.

Discussions with those stakeholders with which we have a close and collaborative relationship may provide us with new inspiration and important recommendations. They assess our company not only from a legal standpoint, but also according to whether we do business in a sustainable and ethical manner.

Integration into strategy and business model

In order to identify material sustainability matters, we continuously analyze the interests, expectations, and needs of our stakeholders and incorporate the results into:

• Our materiality assessment
• Our sustainability agenda
• Our human rights management system
• Our opportunity and risk management activities throughout the Group

Information from the Board of Management and/or the Supervisory Board on certain interests of the affected stakeholder groups in respect of sustainability-related impacts is provided via the reporting line. Material impacts may therefore result in material risks, which in turn are discussed along the designated reporting lines as part of the Group risk management process. Impacts, risks, and opportunities in connection with sustainability issues are discussed on an ad hoc basis by the relevant committees such as the Sustainability & Innovation Governance Body (SI GoB).

Engagement with employees and workers' representatives

Covestro cultivates good relationships with its workers' representatives and unions so that all issues concerning HR policy, working conditions, and change processes can always be resolved by management and labor in a collaborative manner.

Human rights commitment

As part of our social responsibility, we regard respect for human rights as fundamental for our business activities. Covestro is a member of the United Nations Global Compact and is committed to respecting and safeguarding human rights on the basis of the United Nations (UN) Universal Declaration of Human Rights, the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy of the International Labour Organization (ILO), and the UN Guiding Principles on Business and Human Rights.

The Board of Management has appointed the head of the Group Quality department within the Group Innovation & Sustainability function as Group Human Rights Officer. This role reports directly to the Board of Management and is responsible for monitoring Covestro's human rights risk management processes.

Material impacts, risks and opportunities and their interaction with strategy and business model

Overview

Covestro's sustainability reporting covers eight of the matters specified in ESRS 1 AR16 as well as the entity-specific topic of "Sustainable Solutions." The company reports on the impacts, risks, and opportunities identified as material during the double materiality assessment in tabular format at the beginning of each relevant chapter.

These tables contain:

• A brief description of the material impacts, risks, and opportunities
• Their allocation to the respective relevant sub-topics and sub-sub-topics
• Information on the point in the value chain where the impacts and risks have been identified
• Whether they are positive or negative as well as actual or potential impacts
• The time horizon for which the impacts, risks, and opportunities have been classified as material
• Which policies and actions are used to counter them
• Whether specific targets have been set

Material Impacts, Risks and Opportunities by Topic

ESRS E1: Climate Change

Climate change adaptation

• Risk (Medium to Long-term, Own operations): Physical climate risks may have financial effects as a result of damage to assets and business disruptions at sites of Covestro. This affects financial position and financial performance.

Climate change mitigation

• Impact - potential negative (Medium to Long-term, Upstream): Due to the production, storage, and use of renewable energy and the related electrification in the upstream value chain, Covestro is directly linked to potential negative impacts on the environment. These activities often involve extracting minerals like lithium for batteries and rare earth elements for wind turbines, leading to habitat destruction, soil erosion, and water pollution. Affected stakeholders include local communities, persons in vulnerable situations, and nature.

• Impact - potential negative (Medium to Long-term, Downstream): Covestro contributes to a potential negative impact on biodiversity loss as the downstream transportation, processing, and usage of goods increase greenhouse gas emissions and contribute to climate change. Affected stakeholders are local communities, persons in vulnerable situations, and nature. Actions: Sale of products based on alternative raw materials; reduction of suppliers' Scope 1 and Scope 2 emissions; MAKE projects; further actions. Target: Net-zero Scope 3 GHG emissions.

• Impact - actual negative (Short to Long-term, Upstream): Covestro is directly linked to the undertaking's own operations, products, or services in the upstream value chains through its business relationships and the GHG emissions created as a result. This is reflected in Scope 3 upstream emissions, e.g., in the categories Scope 3.1 Purchased goods and products or Scope 3.4 Upstream transportation and distribution. An actual negative impact from climate change resulting from increased levels of GHG emissions indirectly induces effects on health, resources for livelihood or living space, such as: extreme weather events, changed weather patterns, sea level rise, and related social and geopolitical conflicts. Affected stakeholders are local communities, persons in vulnerable situations, and nature. Policies: CO2 roadmap; HSEQ management system. Actions: Sale of products based on alternative raw materials; reduction of suppliers' Scope 1 and Scope 2 emissions; MAKE projects; further actions. Target: Net-zero Scope 3 GHG emissions.

• Impact - actual negative (Short to Long-term, Own operations): Covestro contributes to climate change through GHG emissions from own operations (Scope 1 and Scope 2). This negatively impacts nature and indirectly impacts local communities. Policies: CO2 roadmap; HSEQ management system. Actions: More sustainable production processes, electricity from renewable sources; climate-neutral steam. Target: Net-zero Scope 1 and Scope 2 GHG emissions.

Energy

• Impact - potential positive (Short to Long-term, Upstream): Covestro contributes to reducing GHG emissions through its intention to purchase more renewable energies for its own business activities and in this way make a contribution to the potential positive impacts in the upstream value chain. This affects nature and local communities. Policies: CO2 roadmap; HSEQ management system. Actions: Electricity from renewable sources; climate-neutral steam. Target: Net-zero Scope 1 and Scope 2 GHG emissions.

• Impact - actual negative (Short to Long-term, Upstream): The operation of our production facilities requires large amounts of energy, which we primarily procure from external sources in the form of electricity and steam generated from fossil fuels. This process leads to the release of a wide range of environmentally harmful gases, including carbon dioxide (CO2). They have an actual negative impact on climate change. Affected stakeholders are local communities, persons in vulnerable situations, and nature. Policies: CO2 roadmap; HSEQ management system. Actions: Electricity from renewable sources; climate-neutral steam, more sustainable production processes. Targets: Net-zero Scope 1 and Scope 2 GHG emissions, energy efficiency target.

ESRS E2: Pollution

Pollution of air

• Impact - potential negative (Short to Long-term, Own operations): The failure of systems in place for emission prevention, measurement, and control has the potential to adversely impact human health or the environment: Covestro contributes to a potential negative impact on human health due to non-climate related emissions caused by its own operations in case there is an incident involving the use of chlorine and phosgene. Affected stakeholders are local communities, persons in vulnerable situations, and nature. Policies: HSEQ management system. Actions: Environmental performance, internal audits, individual local actions.

• Impact - actual negative (Short to Long-term, Upstream): Covestro's upstream value chain contributes to air pollution by driving demand for products from mining, extraction, and material production industries. Covestro is linked to the demand through its procurement activities. This results in emissions like particulate matter, VOCs, NOx, and SOx. This results in negative impacts on nature. Policies: ESRS S2: Supplier Code of Conduct. Actions: ESRS S2: Supplier assessments, training.

• Impact - actual negative (Short to Long-term, Own operations): Due to non-climate related emissions caused by our production in regular operation at our production sites, Covestro contributes to a negative impact on air pollution as these emissions contribute to the release of substances such as CO, NOx, SOx, and VOC. These emissions occur in our own operations and can lead to pollution-related issues with negative effects on animals, plants, and other living organisms (due to e.g., eutrophication or acid rain), or negative effects on the inanimate environment. This has negative impacts on nature. Policies: HSEQ management system. Actions: Environmental performance, internal audits, individual local actions.

Pollution of water

• Impact - potential negative (Short to Medium-term, Upstream): Due to the production of raw materials, refined materials, and intermediates from our upstream value chain, Covestro is directly linked to a potential negative impact on the pollution of water as water discharges containing pollutants which could alter water quality and may contribute to pollution-related issues, negative human health effects, limited access to clean water for local communities, negative effects on animals, plants, and other living organisms, aquatic ecosystems, biodiversity (due to, e.g., eutrophication or acid rain). Affected stakeholders are local communities, persons in vulnerable situations, and nature. Policies: HSEQ management system; ESRS S2: Supplier Code of Conduct. Actions: ESRS S2: Supplier assessments, training.

• Impact - potential negative (Medium to Long-term, Own operations): Covestro contributes to a potential negative impact on water resources as the production and processing of chemical and hazardous materials can lead to the release of harmful substances into nearby water bodies. Affected stakeholders are persons in vulnerable situations, local communities, and nature. Policies: HSEQ management system. Actions: Environmental performance, internal audits, individual local actions.

• Impact - potential negative (Short to Medium-term, Downstream): Due to the production of consumer products from our downstream value chain, Covestro is linked to a potential negative impact on the pollution of water as water discharges containing pollutants which could alter water quality and may contribute to pollution-related issues, negative human health effects, limited access to clean water for local communities, negative effects on animals, plants, and other living organisms, aquatic ecosystems, biodiversity (due to, e.g., eutrophication or acid rain). Affected stakeholders are local communities, persons in vulnerable situations, and nature. Policies: HSEQ management system.

• Impact - actual negative (Short to Medium-term, Upstream): Covestro contributes to an actual negative impact in the upstream operations and value chain activities, including the production, runoff, and potential spills of raw materials and chemicals, which negatively impact water quality. In case of an incident, these actions can lead to water pollution, indirectly affecting human health, access to clean water, aquatic life, ecosystems, and biodiversity. Pollutants from mining, extraction industries, and industrial sites can cause issues such as eutrophication and acid rain. Affected stakeholders include local communities, persons in vulnerable situations, and nature. Policies: HSEQ management system; ESRS S2: Supplier Code of Conduct. Actions: ESRS S2: Supplier assessments, training.

• Impact - actual negative (Short to Medium-term, Own operations): Due to emissions from our production in regular operations at our production sites, Covestro contributes to an actual negative impact on the pollution of water. These emissions include nitrogen, phosphor, TOC, heavy metals, and inorganic salts, which can contribute to pollution-related issues, indirect negative human health effects, negative effects on animals, plants, and other living organisms, aquatic ecosystems, biodiversity (due to, e.g., eutrophication or acid rain), and negative effects on the inanimate environment. Affected stakeholder is nature. Policies: HSEQ management system. Actions: Environmental performance, internal audits, individual local actions.

Pollution of soil

• Risk (Short to Medium-term, Own operations): Covestro recognizes environmental provisions, mainly in connection with the remediation of contaminated soil sites and the recultivation of landfill at sites in the United States and Spain. This affects financial position, financial performance, cash flows, access to financial resources, or cost of capital.

Substances of concern and substances of very high concern

• Impact - potential negative (Medium to Long-term, Downstream): The transportation and use of Covestro products that are or contain substances of concern (SoC) or substances of very high concern (SVHC) in the downstream value chain by direct or indirect customers is linked to a potential negative impact. Despite compliance with all legislation, the use of SoCs/SVHCs in downstream production processes and during transport could lead to employees being exposed to these substances and to the contamination of air, water, and soil by the production processes and the associated waste disposal, which will indirectly lead to health and environmental problems in the long term. In the case of an incident or incorrect handling by downstream entities, these substances may contaminate air, water, and soil, as well as emissions discharged from the site, and this may lead to various health and environmental problems. Affected stakeholders are employees and other workers, local communities, and persons in vulnerable situations in the proximity of production sites, as well as nature. Policies: HSEQ management system, ESRS S2: Group "Product Stewardship" policy. Actions: ESRS S2: Risk assessments, information, product surveillance.

• Risk (Medium-term, Own operations): Business and reputation loss could arise due to discussed and planned regulatory restrictions and legislative actions at global, U.S., and EU level on PFAS (per- and polyfluoroalkyl substances). This affects financial position, financial performance, cash flows, access to financial resources, or cost of capital. Policies: HSEQ management system, ESRS S2: Group"Product Stewardship" policy, Risk management system ("Group-Wide Opportunities and Risk Management"). Actions: Association activities, internal interdisciplinary working group.

Microplastics

• Impact - potential negative (Medium to Long-term, Own operations): Due to incidental leakage in our own operations, Covestro contributes to a potential negative impact on the environment as microplastics could be emitted into nature. This occurs during our production, use, and disposal processes. If remediation measures are incomplete, there is a potential risk of harm to nature. Affected stakeholders are local communities and nature. Policies: HSEQ management system. Actions: Operation Clean Sweep® (OCS).

ESRS E3: Water and Marine Resources

Water withdrawals

• Impact - potential negative (Short to Medium-term, Upstream): Due to the production of raw materials, refined materials, and intermediates, Covestro is linked to a potential negative impact on water scarcity due to water withdrawal as this may lead for example to decreased availability of drinking water or reduced groundwater levels. Affected stakeholders are persons in vulnerable situations, local communities, and nature. Policies: HSEQ management system, ESRS S2; Supplier Code of Conduct.

• Impact - potential negative (Medium to Long-term, Own operations): The unsustainable withdrawal of water in water-scarce areas could lead to reduced agricultural productivity and potential conflicts over limited water resources affecting access to food and water. Covestro contributes to this potential negative impact with its own operations in areas with water stress. The unsustainable use of water resources impacts local communities and their access to food and water. Affected stakeholders are persons in vulnerable situations, local communities, and nature. Policies: Risk-based water program; HSEQ management system. Actions: Covestro Water Program.

• Impact - potential negative (Short to Medium-term, Downstream): Due to water withdrawal in our downstream value chain, Covestro is linked to a potential negative impact on water scarcity as it can lead to decreased availability of drinking water, reduced flow rates/water levels affecting aquatic ecosystems, decreased groundwater levels resulting in decreased availability of drinking water, subsidence depending on geological setting leading to infrastructure damage, saltwater intrusion near coastal areas, and decreased dilution capacity leading to poor water quality. Affected stakeholders are persons in vulnerable situations, local communities, and nature. Policies: HSEQ management system.

ESRS E4: Biodiversity and Ecosystems

The material impacts, risks and opportunities identified relate to climate change and pollution as direct impact drivers on biodiversity:

• Impact - potential negative (Medium to Long-term, Upstream): Due to the production, storage, and use of renewable energy and the related electrification in the upstream value chain, Covestro is directly linked to potential negative impacts on the environment. These activities often involve extracting minerals like lithium for batteries and rare earth elements for wind turbines, leading to habitat destruction, soil erosion, and water pollution. Affected stakeholders include local communities, persons in vulnerable situations, and nature.

• Impact - potential negative (Medium to Long-term, Downstream): Covestro contributes to a potential negative impact on biodiversity loss as the downstream transportation, processing, and usage of goods increase greenhouse gas emissions and contribute to climate change. Affected stakeholders are local communities, persons in vulnerable situations, and nature. Actions: ESRS E1: Sale of products based on alternative raw materials; reduction of suppliers' Scope 1 and Scope 2 emissions; MAKE projects; further actions. Target: ESRS E1: Net-zero Scope 3 GHG emissions.

• Impact - actual negative (Short to Long-term, Upstream): Covestro is directly linked to the undertaking's own operations, products, or services in the upstream value chains through its business relationships and the GHG emissions created as a result. This is reflected in Scope 3 upstream emissions, e.g. in Scope 3.1 Purchased goods and products or Scope 3.4 Upstream transportation and distribution. An actual negative impact from climate change indirectly induces effects on health, resources for livelihood or living space resulting from increased levels of GHG emissions, such as: extreme weather events, changed weather patterns, sea level rise etc. and related social and geopolitical conflicts. Affected stakeholders are local communities, persons in vulnerable situations, and nature. Actions: ESRS E1: Sale of products based on alternative raw materials; reduction of suppliers' Scope 1 and Scope 2 emissions; MAKE projects; further actions. Target: ESRS E1: Net-zero Scope 3 GHG emissions.

Pollution-related impacts (water and air pollution) are also identified as material for biodiversity, as detailed in the ESRS E2 section above.

ESRS E5: Resource Use and Circular Economy

Resource inflows

• Risk (Medium-term, Upstream & Own operations): The focus on resource efficiency and the reuse and recycling of materials and products to increase circularity and thereby lower the environmental footprint of the products allows for cost reductions of existing and new products and thus secures competitiveness and growth in the market while also gaining access to new business opportunities. This affects financial position, financial performance, cash flows, access to financial resources. Policies: Sustainable Future strategy, ESRS E1: CO2 roadmap. Actions: Multiple levers and aspects of the circular economy strategy. Targets: Circularity share.

• Opportunity (Medium-term, Downstream): The focus on resource efficiency and the reuse and recycling of materials and products to increase circularity and thereby lower the environmental footprint of the products allows for cost reductions of existing and new products and thus secures competitiveness and growth in the market while also gaining access to new business opportunities. This affects financial position, financial performance, cash flows, access to financial resources. Policies: Sustainable Future strategy, ESRS E1: CO2 roadmap. Actions: Multiple levers and aspects of the circular economy strategy. Targets: Circularity share.

Resource outflows

• Impact - potential negative (Medium to Long-term, Own operations): The accumulation, disposal, or discharge of waste from our own operations could negatively impact the environment. Affected stakeholders include local communities and nature. Policies: HSEQ management system. Actions: Waste management, individual local actions.

• Impact - potential negative (Medium to Long-term, Downstream): Due to the large quantities of waste that could be generated from use and end-of-life treatment of our products in the downstream value chain, Covestro is linked to a potential negative impact. Affected stakeholders include local communities and nature. Policies: HSEQ management system. Actions: Shift from linear to circular models, Sustainable Solutions.

Waste

• Impact - actual negative (Short to Medium-term, Own operations): Covestro contributes to a negative impact on the environment due to waste generated from our own operations. Affected stakeholder is nature. Policies: HSEQ management system. Actions: Waste management, individual local actions.

ESRS S1: Own Workforce

Working Conditions - Adequate wages

• Impact - actual positive (Short to Medium-term, Own operations): Covestro contributes to a positive actual impact as we pay all our workers fair and reasonable compensation, based on a minimum wage analysis, including all employee benefits (social security, health insurance, retirement plans). Affected stakeholders are own employees. Policies: HR management; global programs.

Working Conditions - Health and safety

• Impact - potential negative (Short to Medium-term, Own operations): Covestro contributes to a potential negative impact on the health and safety of its own workers through working conditions which could impact physical and mental health. Affected stakeholder is own employees. Policies: HSEQ management system; global programs. Actions: Extensive health & safety actions. Targets: Recordable incident rate (RIR).

• Risk (Short to Medium-term, Own operations): Incidents and work-related injuries have adverse financial effects such as increased insurance premiums, costs for treatment and replacement of employees, workers' compensation claims, potential legal costs, etc. This affects financial performance. Policies: HSEQ management system; global programs. Actions: Extensive health & safety actions. Targets: Recordable incident rate (RIR).

Equal treatment and opportunities - Gender equality and equal pay for work of equal value

• Impact - actual positive (Short to Medium-term, Own operations): Covestro contributes to an actual positive impact on equal treatment and opportunities as we have processes in place for ensuring equal pay for work of equal value, irrespective of gender, race, or ethnicity. Affected stakeholder is own employees. Policies: Code of Conduct; Diversity & Inclusion Policy. Actions: Systematic gender pay gap analysis.

Equal treatment and opportunities - Diversity

• Impact - actual positive (Short to Medium-term, Own operations): Covestro contributes to an actual positive impact by pursuing a strategy to increase diversity in the organization. Affected stakeholder is own employees. Policies: Diversity & Inclusion Policy; global programs.

Other work-related rights - Child labour

• Impact - potential negative (Short to Medium-term, Own operations): Covestro contributes to a potential negative impact on the abolition of child labour if the minimum age requirements in the recruitment process in individual countries were not fully complied with. Affected stakeholder is own employees. Policies: Code of Conduct; global programs.

Other work-related rights - Forced labour

• Impact - potential negative (Short to Medium-term, Own operations): Covestro contributes to a potential negative impact on the elimination of forced labour if for example employment contracts or work permits are not handled correctly. Affected stakeholder is own employees. Policies: Code of Conduct; global programs.

ESRS S2: Workers in the Value Chain

Working Conditions - Health and safety

• Impact - potential negative (Short to Medium-term, Upstream & Downstream): Covestro is linked to potential negative impacts on the health and safety of workers in the value chain through unsafe working conditions, e.g., during transportation and during the manufacture of our products by customers. Affected stakeholders are workers in the value chain. Policies: Corporate Commitment to Respect Human Rights; Supplier Code of Conduct; Group "Product Stewardship" policy. Actions: Supplier assessments; training; product stewardship actions; transport & logistics safety.

• Risk (Short to Medium-term, Upstream): Violations of human rights standards and health and safety standards in the supply chain can lead to reputational damage and business loss. This affects financial position, financial performance. Policies: Corporate Commitment to Respect Human Rights; Supplier Code of Conduct. Actions: Supplier assessments; training. Targets: Percentage of supplier spend assessed by EcoVadis or through TfS audits.

Other work-related rights - Child labour

• Impact - potential negative (Short to Medium-term, Upstream): Covestro is linked to potential negative impacts on the abolition of child labour in case minimum age requirements in suppliers' recruitment processes are not complied with. Affected stakeholders are workers in the value chain. Policies: Corporate Commitment to Respect Human Rights; Supplier Code of Conduct. Actions: Supplier assessments; training.

Other work-related rights - Forced labour

• Impact - potential negative (Short to Medium-term, Upstream): Covestro is linked to potential negative impacts on the elimination of forced labour if suppliers do not handle employment contracts or work permits correctly. Affected stakeholders are workers in the value chain. Policies: Corporate Commitment to Respect Human Rights; Supplier Code of Conduct. Actions: Supplier assessments; training.

ESRS G1: Business Conduct

Protection of whistleblowers

• Impact - potential negative (Short to Medium-term, Upstream, Own operations, Downstream): Covestro contributes to and is linked to a potential negative impact on workers' access to remedy as a result of issues with the functioning of the whistleblower tool in relation to awareness, accessibility, quality, and processing complaints. Affected stakeholders are own employees, workers in the value chain, local communities. Policies: Code of Conduct; whistleblowing system. Actions: Communication and training.

Entity-Specific: Sustainable Solutions

• Opportunity (Short to Long-term, Own operations & Downstream): Covestro can take advantage of the opportunity to leverage its Sustainable Solutions approach for obtaining a competitive advantage by enabling the company's customers to build more sustainable products and solutions. This affects financial position, financial performance, cash flows. Policies: Sustainable Future strategy. Actions: R&D; digital technologies & AI; collaboration. Targets: Percentage of R&D-based innovation revenue based on Sustainable Solutions.

Linkages to Strategy and Business Model

Covestro's sustainability targets contribute to achieving the SDGs and pursue an approach that covers the entire product life cycle while reflecting material sustainability matters and the associated impacts, risks, and opportunities. The company continuously observes developments outside the company and develops its sustainability targets.

The company's goal of transforming to climate neutrality is intended to prepare it for the future, mitigate the material impacts and risks identified, and actively take advantage of opportunities by manufacturing products in a climate-neutral manner. This transition will help launch climate-friendly products on the market and meet specific climate targets.

The focus on resource efficiency and the reuse and recycling of materials and products to increase circularity and thereby lower the environmental footprint of the products allows for cost reductions of existing and new products and thus secures competitiveness and growth in the market while also gaining access to new business opportunities.

Covestro's Sustainable Solutions approach enables the company's customers to build more sustainable products and solutions, providing a competitive advantage.

Interaction with Business Operations

The relevant expert functions are responsible for monitoring and controlling material impacts, risks, and opportunities. They report on current developments within their organizational structure to the responsible member of the Board of Management. The Board of Management is responsible for managing the company and in this context defines the long-term targets and strategies for Covestro. The Board of Management also has a duty to approve the results of the double materiality assessment to identify and assess the impacts, risks, and opportunities material for Covestro. The Supervisory Board oversees and advises the Board of Management on these matters. The Sustainability Committee has a special responsibility in advising on and overseeing the targets and strategies that the Board of Management has to define in connection with environmental, social, and governance matters.

As part of its sustainability management, Covestro has developed controls and procedures for managing the impacts, risks, and opportunities. Regular materiality assessments help Covestro identify and assess the key sustainability topics and their impacts, risks, and opportunities, thereby ensuring that they are up to date.

The management monitors progress, sets priorities, and, where necessary, adjusts the allocation of resources in relation to the material impacts, risks, and opportunities within the meaning of the ESRS. In this context, the Board of Management sets long-term targets, which it reviews regularly. The Supervisory Board and its committees, in particular the Audit Committee and the Sustainability Committee, monitor progress and advise the Board of Management in this regard. At the operational level, special bodies and functions and risk owners are responsible for implementing and monitoring actions, e.g., the Sustainability & Innovation Governance Body (SI GoB) for sustainability topics, the Group Human Rights Officer and the Human Rights Office for human rights. The CEO chairs the SI GoB and is therefore directly involved.

Resilience

Covestro has developed a comprehensive approach to identify, assess and manage climate-related risks. In the reporting year, Covestro performed a physical climate risk analysis for 47 sites for the short-term time horizon through the year 2030, for the medium-term time horizon through the year 2040, and for the long-term time horizon through the year 2050. The high-emission scenario SSP5-8.5 based on the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) was chosen for the assessment; this gives the greatest weight to the physical risks and is therefore considered to be the worst-case scenario.

The analysis covers all 28 risks described by ESRS E1, including both acute and chronic risks. The geospatial coordinates of the sites were used to obtain site-specific climate projections or to calculate distances to regions affected by certain hazards. The climate risk analysis conducted did not provide any indications that assets may be impaired or their useful lives have to be adjusted.

Covestro also considers climate-related transition risks and opportunities as part of established Group-wide opportunity and risk management. The assessment did not identify any material transition risks and opportunities with regard to the sustainability matters of "climate change adaptation," "climate change mitigation," and "energy." In the overall context, however, a material opportunity arose in connection with resource use and circular economy.

For water-related risks, Covestro initiated and has continuously refined a global risk assessment covering water availability, quality, and accessibility at all production sites. Areas with water stress were determined using the latest available data of the Aqueduct Water Risk Atlas of the World Resources Institute (WRI). In 2023, Covestro began the roll-out of a new context-based Covestro Water Program that aims to address water risks strategically and systematically, to be completed by 2030.

Financial Effects Disclosure

ESRS 2 generally requires qualitative and quantitative disclosures on the anticipated financial effects of material risks and opportunities. In accordance with ESRS 1 appendix C, Covestro applies the phased-in disclosure requirements in the first year of preparing the Group Sustainability Statement. According to this expedient, the disclosures specified may be omitted in the first year.

Description of the process to identify and assess material impacts, risks and opportunities

Overview

By identifying material sustainability matters and the associated impacts on people and the environment, risks, and opportunities, we create the basis for Covestro's global sustainability activities and for the definition of the focus areas for our sustainability management.

Methodology

Regularly conducted materiality assessments help us to identify and assess the sustainability matters, as well as their related impacts, risks, and opportunities, that are most important to the company and potentially affected stakeholder groups. We perform both comprehensive materiality assessments every three to five years and annual reviews, an abridged process with reduced scope and effort. In the reporting year, a comprehensive materiality assessment was conducted in accordance with European Sustainability Reporting Standards (ESRS), taking account of "EFRAG IG 1: Materiality Assessment Implementation Guidance."

The comprehensive materiality assessment conducted in the reporting year followed on from the process used in previous years. For example, compared with the year 2023, a greater degree of detail was applied in identifying and assessing impacts, risks, and opportunities, in order to meet the requirements of ESRS.

In addition, the findings of the human-rights-related risk analysis were integrated into the impact assessment. Likewise, existing risks in Group-wide risk management in relation to sustainability matters are considered as a basis for financial materiality.

Scope of Assessment

The Group perspective was considered by conducting a double materiality assessment that covered the companies included in the scope of consolidation used in financial reporting. In addition to the consolidated subsidiaries, joint operations, equity-accounted associates, financially immaterial subsidiaries, and immaterial associates were assessed with regard to their specific (potential) impacts, risks, and opportunities, e.g., on the basis of their business activities, location, or number of employees. All our own business activities were considered in direct connection with our products and for the upstream and downstream value chains. All material suppliers and customers were taken into account for the latter.

Process Steps

The double materiality assessment started by establishing the context of the company on the basis of information on its business activities and the value chain that had already been reported.

In order to identify and assess the impacts, risks, and opportunities, the entire value chain was examined – from the extraction of raw materials (upstream value chain) through the manufacture of Covestro's products (own business activities) to the end of the final product life cycle (downstream value chain). We supplemented the topics named in ESRS 1 AR 16 with entity-specific topics, e.g., derived from previous materiality assessments, or with industry-specific topics. This list of topics included environmental, social, and governance topics. In addition, topic-specific inputs into the process were considered.

Relevant stakeholder groups were identified, especially those that might be affected by the impacts of our business activities, as were our formats for exchanging information with these groups. Their views and interests were taken into account with the help of internal representatives, especially for identifying and assessing impacts.

We identified potential and actual, positive and negative impacts for each topic, taking into account whether we have caused or contributed to these impacts, or whether they are connected with our business activities and/or products. For the impacts identified, if applicable, risks and current financial effects and opportunities connected directly with these impacts were determined. Lastly, if not already considered adequately, we identified further risks and current financial impacts and opportunities in connection with the respective topics.

Time Horizons

Short-, medium-, and long-term time horizons were applied in identifying the relevant impacts, risks, and opportunities. We took a gross approach to the overall process, i.e., prior to implementing entity-specific mitigation or control actions.

Assessment Criteria

The assessment of the identified impacts, risks, and opportunities complied with the requirements of ESRS 1 or the recommendations of "EFRAG IG 1: Materiality Assessment Implementation Guidance" and was based on the severity and likelihood of occurrence in the case of potential negative impacts on people, including human rights and the environment. The severity was based on scale, scope, and irremediability of the impacts. Actual negative impacts were determined on the basis of their severity. The materiality of actual positive impacts was based on scale and scope; for potential positive impacts, it was based on scale, scope, and likelihood. In the case of (potential) negative impacts on human rights, only the severity was considered. The financial materiality of risks and opportunities was assessed based on the potential magnitude of the financial effects and the likelihood of occurrence.

Materiality Threshold

Impacts, risks, and opportunities were considered material, if they had a rating of more than 3.5 on a scale from 1 to 5. Actual financial effects were assessed as material, irrespective of size.

Topic-Specific Methodologies

Climate Change

When the double materiality assessment was conducted, the focus was on actual and potential impacts on emissions of GHG gases within the company's own business activity as well as in the upstream or downstream value chain. When identifying and assessing the impacts, risks, and opportunities, the same assumptions about future developments and their influence on our GHG emissions were considered that had also been used when setting our reduction targets.

In the reporting year, Covestro performed a physical climate risk analysis for 47 sites for the short-term time horizon through the year 2030, for the medium-term time horizon through the year 2040, and for the long-term time horizon through the year 2050. This selection of time horizons combines the need to investigate physical risks over extended periods to capture the impacts of climate change with the practice of using shorter, foreseeable time periods for strategic planning and capital allocation plans.

The high-emission scenario SSP5-8.5 based on the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) was chosen for the assessment; this gives the greatest weight to the physical risks and is therefore considered to be the worst-case scenario.

The geospatial coordinates of the sites were used to obtain site-specific climate projections or to calculate distances to regions affected by certain hazards. The projections and distances were then compared with predefined, science-based thresholds for each risk. If the threshold for a risk at a site was exceeded, the facilities and business activities at this site were considered vulnerable to the respective risk. Depending on the risk, its magnitude, duration, likelihood of occurrence, or extent was used to assess exposure.

The physical climate risks in the upstream and downstream value chain were identified and assessed on the basis of qualitative assumptions derived from the high-emission scenario SSP5-8.5. No material risks were identified in this analysis.

In addition, we consider climate-related transition risks and opportunities as part of established Group-wide opportunity and risk management. These are opportunities and risks that may arise from climate-related transition events in the areas of policy and legal, technology, market, and reputation. The time horizons defined in ESRS 1.77 were considered in this process. The identification and assessment of the transition events was based on qualitative assumptions on the basis of the 1.5°C Net Zero Emissions by 2050 scenario of the International Energy Agency (IEA).

Pollution, Water, and Waste

As part of the double materiality assessment, we considered our business activities and plausibility-checked the results for the most significant regions, in particular the production sites there. Specifically, the Dormagen (Germany), Leverkusen (Germany), and Krefeld-Uerdingen (Germany) sites in the EMLA region, the Baytown, Texas (United States) site in the NA region, and the Shanghai (China) site in the APAC region were selected, since they are our largest production sites in the respective regions. These sites are the most significant, e.g., in relation to production volume, resource use, number of own workers in production, or the type of their work. This approach allowed us to identify and assess not only the (potential) environmental impacts relevant to the Group as a whole, but also regional focus areas, without resorting to a detailed assessment of individual sites. Since the potential impacts on people and the environment and the contribution to business performance are greatest at these sites, and other sites in the regions perform similar activities, mostly to a smaller extent, they are well suited to representing the respective regions and the other sites. Our methodology is based on the informed opinions of our professional experts, who made a holistic assessment. In this process, the regional experts consulted also acted as general counsel for local communities.

Biodiversity and Ecosystems

During the double materiality assessment, we looked at our business activities and plausibility-checked the results for the most significant production sites. The impacts and dependencies relating to biodiversity were assessed using the Exploring Natural Capital Opportunities, Risks, and Exposure (ENCORE) database. ENCORE is a database that assesses the impacts and dependencies of biodiversity at sector level. In its Locate Evaluate Assess Prepare (LEAP) approach, the Task Force on Nature-related Financial Disclosures (TNFD) describes it specifically as a tool for this purpose. The analysis revealed emissions of toxic soil and water pollutants in connection with our production as the only potentially significant impact. It was concluded on the basis of this analysis that no specific actions are required to mitigate the impact on biodiversity and that appropriate actions are covered by the climate change (ESRS E1) and pollution (ESRS E2) matters. The analysis is to be reviewed annually.

Integration with Risk Management

The identification, assessment, and monitoring of impacts on people and the environment have been harmonized with the risk assessment method in the human rights management system. The latter one is based on the UN Guiding Principles on Business and Human Rights and on the OECD (Organisation for Economic Co-operation and Development) Guidelines for Multinational Enterprises.

When identifying risks and opportunities, the risks and opportunities in Group-wide risk management, especially those that required disclosure under risk management rules and were sustainability-related, were used as a basis. Any risks and opportunities identified in addition were assessed under the same requirements. For risks and opportunities assessed as material that went beyond Group-wide risk management, a decision was taken with the experts responsible on a case-by-case basis whether to refer them to Group-wide risk management. This ensures that reportable risks and opportunities related to sustainability from Group-wide risk management are taken into account in the double materiality assessment so that non-financial reporting complements traditional financial reporting within the meaning of the ESRS.

Internal Controls

The process controls introduced for the double materiality assessment are aimed at ensuring that the impacts, risks, and opportunities identified are complete and correct, including how they are presented in the Sustainability Statement. The experts and representatives of stakeholder groups selected are intended to help ensure that the assessments are appropriate and balanced. The relevant professional experts are responsible for identifying and assessing impacts, risks, and opportunities. A central team of experts from the corporate GIS function has the project management responsibility for conducting the double materiality assessment. Once all the assessments have been reviewed by the experts and are deemed to be appropriate for the reporting year, a validation is performed. This process includes, e.g., validating whether material impacts, risks, and opportunities apply equally to all parts of the value chain. Internal representatives of stakeholder groups may be involved here. Upon conclusion of the calibration, the outcome is approved by the Chief Sustainability Officer and then reviewed and approved by the Board of Management.

Determination of Materiality for Disclosure

For the Group Sustainability Statement, all information was classified as material if the corresponding topic or subtopic was assessed as material in the double materiality assessment due to the associated impacts, risks, and opportunities. If no targets were defined for a material matter in particular, this is noted in the corresponding section. Within the meaning of the materiality of information about performance indicators in accordance with ESRS 1.34, information was classified as relevant if it was necessary to understanding the reported sustainability topics or could play a significant role in taking decisions in respect of the interests and views of stakeholders considered in the double materiality assessment.

Transition plan for climate change mitigation

Scope of the transition plan

Covestro's transition plan covers all environmentally relevant sites globally for Scope 1 and Scope 2 emissions, and upstream and downstream processes in the value chain for Scope 3 emissions.

The plan addresses emissions from the company's own production (Scope 1), emissions from the use of energy produced outside the company (Scope 2), and emissions from upstream and downstream processes in the value chain (Scope 3). The four relevant Scope 3 categories considered are: "Purchased goods and services," "Fuel- and energy-related activities," "Upstream transportation and distribution," and "End-of-life treatment of sold products."

Target years and reduction milestones

Scope 1 and Scope 2 targets:

• Baseline year: 2020 (5.6 million metric tons of CO2 equivalents)
• 2030 interim target: 60% reduction to 2.2 million metric tons of CO2 equivalents (excluding compensation actions)
• 2035 net-zero target: Net-zero emissions at all environmentally relevant sites, corresponding to a gross reduction of 91.1% to 94.6% compared with baseline year 2020. Residual emissions of 0.3 to 0.5 million metric tons of CO2 equivalents are anticipated

In the baseline year 2020, Scope 1 emissions accounted for 22% and Scope 2 emissions (market-based) for 78% of combined Scope 1 and Scope 2 emissions. In the reporting year, the ratio was 21% Scope 1 to 79% Scope 2.

Scope 3 targets:

• Baseline year: 2021*
• 2035 interim target: Reduction of 10.0 million metric tons of CO2 equivalents (equivalent to 30%) compared with baseline year 2021 (excluding compensation actions)
• 2050 net-zero target: Net-zero Scope 3 emissions. Residual emissions of 5% to 10% are anticipated

*The baseline year figure already includes some growth-related emissions projected up to the year 2035.

In the base year 2021, Scope 3 emissions accounted for 80% of Covestro's total emissions. This figure was 79% in the reporting year.

Covestro pursues a growth strategy and assumes that annual Scope 3 GHG emissions will gradually increase by 3.6 million metric tons of CO2 equivalents by the year 2035.

Alignment with 1.5°C / Paris Agreement and SBTi validation status

The Scope 1 and Scope 2 targets were developed using the methodology of the Science Based Targets initiative (SBTi) and exceed its requirements. Covestro is aiming for a 60% reduction by 2030, while the Science Based Targets initiative specifies 42% by 2030.

The long-term Scope 3 reduction target to be met by 2050 is in principle also in line with SBTi requirements to achieve net-zero emissions by 2050 at the latest and aimed at limiting global warming to 1.5°C.

The Science Based Targets initiative is in the process of developing industry-specific reduction pathways. Since no reduction pathways or interim targets have been published yet for the chemical industry, it is not possible at present to assess the Scope 3 interim target for the year 2035 in accordance with the SBTi framework. The interim target for 2035 does not correspond to the cross-sector SBTi framework.

Covestro's climate targets have not been certified by the Science Based Targets initiative at this stage.

The time horizons conform to international and European ambitions to limit global warming to the 1.5°C required under the Paris Agreement.

Key decarbonization levers

For Scope 1 and Scope 2 emissions (three levers):

1. More sustainable production processes (expected contribution: 1.1 million metric tons of CO2 equivalents reduction)

   • Optimizing production processes for more sustainable and energy-efficient manufacturing
   • Implementation of state-of-the-art, climate-friendly technologies in new and expanded capacities
   • High heat recovery rates and future-oriented infrastructure

2. Electricity from renewable sources (expected contribution: 1.3 million metric tons of CO2 equivalents reduction)

   • Significantly increasing the proportion of electricity from renewable sources
   • Using innovative collaborative models and technologies
   • Power purchase agreements and power certificates (e.g., Guarantees of Origin in Europe)
   • Existing agreements in Belgium, China, and Germany; new agreements concluded in the reporting year for sites in the United States and Tarragona, Spain

3. Climate-neutral steam (expected contribution: 1.8 million metric tons of CO2 equivalents reduction)

   • Greater use of climate-neutral steam
   • Changing the supply of process heat

External factors (e.g., Germany's target of 80% renewable energy by 2030, coal phase-out) are expected to contribute an annual reduction of 0.7 million metric tons of CO2 equivalents by 2035.

For Scope 3 emissions (four levers):

1. Reduction of suppliers' Scope 1 and Scope 2 emissions (expected contribution: 5.7 million metric tons of CO2 equivalents)

   • Active dialogue with suppliers
   • Long-term supply agreements for chemically recycled raw materials (e.g., with Encina Development Group LLC in 2024)
   • Key short-term action areas include electrification, improved efficiency, and carbon capture and storage (CCS) in suppliers' manufacturing processes

2. Sale of products based on alternative raw materials (expected contribution: 1.9 million metric tons of CO2 equivalents)

   • CQ (Circular Intelligence) label for circular solutions
   • CQ products contain at least 25% alternative, non-fossil raw materials
   • Mass balance approach certified by ISCC PLUS for several sites

3. MAKE projects (expected contribution: 1.3 million metric tons of CO2 equivalents)

   • Investment projects for the manufacture by Covestro of alternative raw materials with a small carbon footprint
   • Examples include production of bio-based aniline, recycling technologies (e.g., Evocycle CQ technology for mattress recycling)

4. Further actions (expected contribution: 1.0 million metric tons of CO2 equivalents)

   • Increased recycling rates
   • Changes in logistics (e.g., use of electric trucks)
   • Changes in primary energy generation
   • Acceleration of innovation processes through digital R&D and artificial intelligence

CapEx and investment commitments

Scope 1 and Scope 2:

• Anticipated investments of €250 million to €600 million for more sustainable production processes by 2035
• Greater energy efficiency expected to cut operating expenses by €50 million to €100 million per year
• Higher annual operating costs for procurement of renewable energy in a low three-digit million euro amount are anticipated
• In fiscal 2024, Covestro invested €33 million in actions connected with the CO2 roadmap, equivalent to 3.8% of investments in property, plant, and equipment
  • Of this amount, €6 million was attributable to taxonomy-eligible economic activities
• No significant operating expenditures (OpEx) were made in the reporting year for these actions, and no significant OpEx is planned for future fiscal years

Scope 3:

• By 2035, Covestro will invest approximately €600 million in its own recycling and bio-based technologies (MAKE projects)
• In fiscal 2024, Covestro invested €4 million in MAKE projects, accounting for 0.4% of investments in property, plant, and equipment
  • Of this amount, €1 million was attributable to taxonomy-eligible economic activities
• In the short term, no significant additional operating costs are anticipated for achieving Scope 3 targets
• Additional operating costs and investments in the short and medium term still need to be evaluated; difficult to quantify at present due to uncertainty regarding maturity of technologies, regulations, and customer requirements
• No significant OpEx was made in fiscal 2024 to reduce suppliers' Scope 1 and Scope 2 emissions or in connection with the sale of products based on alternative raw materials and other actions

The investments required are an integral part of resource and allocation planning and dedicated to specific projects.

Locked-in emissions and stranded assets

Covestro sees no risks to target achievement from locked-in emissions. The company can use existing facilities to make products with sustainable properties. The transition to alternative energy supply sources is established across the industry. Integration of climate-neutral raw materials in production is taking place, particularly by applying the mass balance approach, which allows increasing integration of climate-neutral and circular raw materials into the existing asset structure.

No significant investments were made in fossil fuel-based energy production facilities in fiscal 2024.

According to a self-assessment, Covestro fulfilled all requirements in principle to be included in the EU Paris-aligned Benchmarks (PABs) in fiscal 2024. The company was neither involved in activities requiring exclusion, nor were relevant sales above defined thresholds generated by activities requiring exclusion.

Use of carbon credits and removals

In terms of potential residual emissions in the future (those that are technically unavoidable), the use of technical and natural CO2 sinks, or compensation actions to potentially balance all GHG emissions (Scope 1, Scope 2, and Scope 3) are currently being evaluated.

Covestro currently sells carbon certificates to third parties and, in accordance with the GHG Protocol, does not use these volumes as offsets.

In fiscal 2024, the Covestro Group did not implement any projects to reduce and/or store greenhouse gases within its own operating activities. It did not contribute to any such projects in the upstream and downstream value chain, and no climate change mitigation projects outside the company's own value chain were financed by the purchase of carbon credits.

If compensation actions are taken in relation to Scope 1 and Scope 2 GHG emissions in the future, they will be disclosed in accordance with the GHG Protocol.

Governance and monitoring

The targets and actions for achieving net-zero emissions were approved by the Board of Management and presented to the Supervisory Board.

Since publication of the Scope 1 and Scope 2 targets in 2022, actions for achieving net-zero emissions have been defined in the CO2 roadmap. Progress is assessed and reported regularly to the Board of Management. The CO2 roadmap is reviewed annually, updated, and discussed with the Chief Technology Officer.

Since announcement of the Scope 3 targets at the start of 2024, implementation bodies have been established to operationalize the transitional plans in consultation with various corporate functions. These bodies, consisting of managerial employees from Group Innovation & Sustainability, Process Technology, Group Procurement, Controlling, Group Health, Safety, Environment and Reliability, and Strategy functions as well as from the business entities, discuss and allocate resources for implementation of the transition plan.

A structured process guarantees continuous monitoring of progress, prompt response to changes, and goal-oriented management of efforts to reduce Scope 1 and Scope 2 emissions:

1. Quarterly evaluation of changes in Scope 1 and Scope 2 GHG emissions for the current fiscal year
2. Detailed annual forecast up to the year 2035 as part of strategic planning cycle
3. Review and adjustment of policies and actions if significant variances between forecast and targets occur

A similar process for Scope 3 emissions is being developed.

The Scope 1 and Scope 2 emissions of Covestro's main sites have been integrated into the management system. From fiscal 2025, it will also include the Scope 1 and Scope 2 emissions of all Covestro's environmentally relevant sites.

Paris-aligned Benchmarks exclusion criteria

According to a self-assessment, Covestro AG fulfilled all requirements in principle to be included in the EU Paris-aligned Benchmarks (PABs) in fiscal 2024. In the reporting year, Covestro was neither involved in activities that would require exclusion, nor were relevant sales above the defined thresholds generated by activities that would require exclusion. The review was performed on the basis of the exclusion criteria in accordance with Article 12 of Delegated Regulation (EU) 2020/1818. Moreover, Covestro was not informed of any exclusion from PABs.

Additional information

Energy efficiency target: By 2030, Covestro aims to improve its energy efficiency (total energy usage in MWh in relation to production volume in metric tons) at all environmentally relevant sites by 20% compared with 2020 levels. Energy efficiency amounted to 0.97 MWh per metric ton in the base year 2020. An improvement of 12.8% has been achieved since then.

Examples of specific actions in the reporting year:

• Installation of plant units with improved catalysts at Baytown (Texas, United States) and Shanghai (China) sites to reduce nitrogen oxide emissions, achieving a significant reduction of around 160,000 metric tons of CO2 equivalents annually from 2025
• Conclusion of further agreements worldwide for purchase of electricity from renewable sources, including for sites in the United States and Tarragona (Spain)
• Use of power purchase agreements and power certificates
• Long-term supply agreement with Encina Development Group LLC for chemically recycled raw materials

Alignment with strategy: Alignment with climate neutrality and the circular economy is a core element of Covestro's corporate strategy. Ambitious reduction targets for emissions from own production facilities, purchased energy sources, and upstream and downstream value chains are key elements. Associated investment, savings potential, and additional operating costs are included in regular internal planning processes.

Assumptions: When setting reduction targets, assumptions were made regarding future developments and their influence on emissions and reduction options. Both effects of the company's own business growth and external effects (regulatory changes, development of Germany's energy mix) were included.

Covestro pursues a growth strategy. It is not expected to have a significant impact on annual Scope 1 and Scope 2 GHG emissions through 2035. For Scope 3, growth-related increases are factored into the baseline.

The pace of decline in Scope 3 emissions is expected to increase from 2030 because technological innovations for industrial-scale applications are still at an early development stage and will not be available until the end of the decade. Regulatory trends are also expected to drive demand for alternative solutions from 2030.

Taxonomy alignment: For fiscal 2024, Covestro is not reporting any economic activities as taxonomy-aligned within the meaning of EU Regulation 2020/852 and associated delegated acts. Many activities in the portfolio are not covered by the taxonomy at present (e.g., manufacture of diisocyanates such as MDI and TDI). Only a small proportion of Covestro's portfolio is potentially taxonomy-aligned. Expenditures for achieving GHG reduction targets will simultaneously result in an increase in the proportion of taxonomy-aligned activities.

Policies related to climate change mitigation and adaptation

Health, Safety, Environment and Energy, and Quality (HSEQ) Policy

Scope:

• Global (addresses material impacts globally)

Key content / principles:

• The material impacts identified in the areas of climate change mitigation and energy are addressed under this corporate policy
• Operationalized through the CO2 roadmap and integrated HSEQ management system
• The CO2 roadmap forms the basis for prioritizing specific GHG reduction actions and is used to address and analyze direct and indirect sources of emissions in accordance with the Greenhouse Gas Protocol (GHG Protocol)
• Prioritization on the global level is based on GHG avoidance costs, both for Covestro's own investments and for the procurement of renewable or climate-neutral energy and alternative raw materials

Public availability:

• Published in the Policy Booklet on the company website at www.covestro.com/en/sustainability/documents-and-downloads/policies-and-commitments

Implementation and monitoring:

• Actions to reduce emissions are identified in close collaboration between sites, relevant corporate functions (such as Group Innovation & Sustainability, Group Procurement, and Logistics), and the business entities
• Their joint task lies in developing and implementing new and more sustainable process technologies, energy efficiency projects, and procurement strategies
• Following central prioritization by implementation bodies, selected technical actions and procurement measures are considered in the annual resource and allocation planning that is approved by the Board of Management
• Implementation bodies consisting of managerial employees from various corporate functions (Group Innovation & Sustainability, Process Technology, Group Procurement, Controlling, Group Health, Safety, Environment and Reliability, and Strategy functions as well as from the business entities) discuss and allocate resources for the implementation of the transition plan

Climate Change Adaptation

Covestro has not developed Group-wide policies or actions that require the use of significant resources for climate change adaptation. Although the climate risk analysis identified a material gross risk in connection with the sustainability matter of climate change adaptation, the company does not see any need to develop Group-wide policies. Individual actions for selected sites are assessed on the basis of the resilience analysis.

Actions and resources in relation to climate change policies

Policy Framework and Governance

Covestro's climate change policies are operationalized through:

• CO2 roadmap: Forms the basis for prioritizing specific GHG reduction actions, fundamentally used to address and analyze direct and indirect sources of emissions in accordance with the GHG Protocol
• Integrated HSEQ management system: Operationalizes the global corporate policy for material impacts in climate change mitigation and energy
• Prioritization approach: Based on GHG avoidance costs, both for own investments and for procurement of renewable or climate-neutral energy and alternative raw materials

Governance and resource allocation: Actions are identified in close collaboration between sites, corporate functions (Group Innovation & Sustainability, Group Procurement, Logistics), and business entities. Cross-functional teams from Procurement, Controlling, Group Health, Safety, Environment and Reliability, and Strategy functions discuss and allocate resources for implementation of the transition plan. Following central prioritization, selected technical actions and procurement measures are considered in annual resource and allocation planning approved by the Board of Management.

Actions for Reaching the Scope 1 and Scope 2 Net-Zero Target

Energy Efficiency and Process Improvements

Nitrogen oxide emissions reduction projects

• Scope: Own operations (Baytown, Texas, United States and Shanghai, China sites)
• Action: Installation of plant units with improved catalysts
• Expected outcome: Significant reduction of around 160,000 metric tons of CO2 equivalents each year from 2025

Overall CO2 Roadmap Investments (2024)

Total investment in CO2 roadmap actions:

• Total resources allocated: €33 million in reporting year (2024)
• As percentage of capex: 3.8% of investments in property, plant, and equipment in fiscal year
• Taxonomy-eligible portion: €6 million attributable to taxonomy-eligible economic activities
• Scope: Addresses significantly broader range of economic activities than currently covered by the Taxonomy Regulation

Electricity from Renewable Sources

Renewable energy procurement programme

• Action: Transition to renewable energy as important lever on road to climate neutrality; developing new supply plans and signing purchase contracts for renewable energy, particularly electricity
• Approach: Innovative collaborative models and technologies
• Scope: Downstream value chain (energy procurement)
• Time horizon: Long-term (future goal to meet all energy needs with renewable energy)
• Progress in 2024: In addition to existing agreements in Belgium, China, and Germany, concluded further agreements worldwide (e.g., for sites in United States)

Actions Related to Climate Adaptation

Site-level adaptation measures

• Context: Based on physical climate risk analysis for 47 sites (August-September 2024) identifying 11 potentially material physical risks for 2030, 2040, and 2050 under SSP5-8.5 scenario
• Risks addressed: Heat stress, water stress, sea level rise, heatwave, tornado, tropical cyclone, storm, drought, flood, heavy precipitation, and subsidence
• Approach: Individual actions for selected sites assessed on basis of resilience analysis; no need for Group-wide policies or actions requiring significant resources
• Measures: Construction and organizational measures suitable for mitigating chronic and acute risks; planning and assessing further measures for specific risks (heat stress, water stress, sea level rise, tropical cyclone, storm, flood, subsidence, heat wave)

Scope 3 Actions

The document references "Actions for Reaching the Scope 3 Net-Zero Target" but detailed content is not provided in the excerpts.

Strategic Technologies and Approaches

Climate neutrality pathways (under development and internal positioning):

• Carbon capture and storage (CCS)
• Carbon capture and usage (CCU)
• Mass balancing
• Carbon compensation

These technologies are considered in joint development and implementation of new and more sustainable process technologies, energy efficiency projects, and procurement strategies.

Targets related to climate change mitigation and adaptation

Climate Change Mitigation Targets

Scope 1 and Scope 2 GHG Emissions Target

Target metric: Net-zero GHG emissions (Scope 1 and Scope 2) at all environmentally relevant sites

Target value: Net-zero emissions (corresponds to a reduction in gross emissions by 91.1% to 94.6%)

• Residual emissions assumption: 0.3 to 0.5 million metric tons of CO₂ equivalents

Target year: 2035

Interim target: 60% reduction by 2030

Baseline year: 2020

Baseline value: 5.6 million metric tons of CO₂ equivalents (21% Scope 1 emissions, 79% Scope 2 emissions)

Interim target value (2030): Reduction to 2.2 million metric tons of CO₂ equivalents (excluding compensation actions)

Scope: All environmentally relevant sites (own operations)

Type: Absolute reduction target

Science-based validation: Targets developed using Science Based Targets initiative (SBTi) methodology and exceed SBTi requirements (60% reduction vs. SBTi's 42% by 2030). Not yet certified by SBTi.

Progress to date: Not explicitly quantified in reporting year metrics

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Scope 3 GHG Emissions Target

Target metric: Reduction of GHG emissions from upstream and downstream processes in the value chain (Scope 3)

Target value: Reduction of 10 million metric tons of CO₂ equivalents (equivalent to 30% reduction)

Target year: 2035 (interim target)

Long-term target: Net-zero Scope 3 GHG emissions by 2050

Baseline year: 2021

Baseline value: Not explicitly stated in absolute terms; Scope 3 accounted for 80% of total emissions in 2021, 79% in reporting year

Scope: Four relevant categories: "Purchased goods and services," "Fuel- and energy-related activities," "Upstream transportation and distribution," and "End-of-life treatment of sold products"

Type: Absolute reduction target

Growth adjustment: Assumes annual Scope 3 GHG emissions will gradually increase by 3.6 million metric tons of CO₂ equivalents by 2035 due to growth strategy

Science-based validation: Long-term 2050 target aligned with SBTi requirements to achieve net-zero by 2050. Interim 2035 target does not correspond to cross-sector SBTi framework (industry-specific pathways not yet published for chemical sector). Not yet certified by SBTi.

Progress to date: Not explicitly quantified in reporting year metrics

Breakdown of reduction levers for 10 million metric ton target:

• Reduction of suppliers' Scope 1 and Scope 2 emissions: 5.7 million metric tons
• Sale of products based on alternative raw materials: 1.9 million metric tons
• MAKE projects (own investments in recycling/bio-based technologies): 1.3 million metric tons
• Other reductions (e.g., logistics, primary energy generation): 1.0 million metric tons

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Energy Efficiency Target

Target metric: Energy efficiency improvement (total energy usage in MWh in relation to production volume in metric tons)

Target value: 20% improvement

Target year: 2030

Baseline year: 2020

Baseline value: 0.97 MWh per metric ton

Scope: All environmentally relevant sites

Type: Intensity-based target

Progress to date: 12.8% improvement achieved as of reporting year (2024)

Relationship to climate targets: This is a sub-target of the Scope 1 and Scope 2 reduction targets

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Investment and Cost Implications

Scope 1 and Scope 2:

• Investments anticipated: €250 million to €600 million by 2035 for more sustainable production processes
• Operating cost savings from energy efficiency: €50 million to €100 million annually
• Additional operating costs for renewable energy procurement: Low three-digit million euro amount annually

Scope 3:

• Investments in MAKE projects: Approximately €600 million by 2035
• Short-term additional operating costs: Not significant
• Medium to long-term costs: Still being evaluated due to uncertainty regarding technology maturity, regulations, and customer requirements

Energy consumption and mix

Scope and methodology

Energy consumption data covers all environmentally relevant Covestro sites (all production sites and relevant administrative sites) for all consolidated companies. Energy volumes include primary energy used in production and self-generation of electricity and steam, as well as additionally acquired quantities of electricity, steam, cooling, and process heat (secondary energy). Sites use local emission factors where available; otherwise, standard values from the German Federal Ministry for Economic Affairs and Energy are applied. Renewable energy is reported only where specifically assigned to Covestro through contractual instruments (e.g., specific energy purchase agreements or Guarantees of Origin). If the "renewable energy" attribute cannot be reliably proven, these volumes are recorded as non-renewable energy.

Energy consumption and mix by source (MWh)

¹ Calculation of the share of nuclear energy based on statistical information from the Energy Institute ("2024 Energy Institute Statistical Review of World Energy").

² Due to the legal deadline set by Section 42 of the German Energy Industry Act (EnWG) for making an individual fuel mix disclosure, which occurs only after the preparation of the Annual Report 2024, approximately 257,000 MWh that have not yet been canceled at the time of preparing the Annual Report can only be duly canceled by the legal deadline at Germany's Federal Environment Agency in 2025. This guarantees that, as a minimum, the total volume of electricity from renewable sources for North Rhine-Westphalia has been achieved.

³ Ratio of total energy consumption to sales in high climate impact sectors (Covestro Group sales as disclosed in the income statement).

Self-generation

In fiscal 2024, Covestro generated a total of 5,832,000 MWh of electricity and steam from nonrenewable sources. Electricity and steam generated from renewable sources in the same period was approximately 300 MWh.

Energy efficiency

Energy efficiency (energy usage as a ratio of production volume) is currently 0.85 MWh per metric ton, representing an improvement of 12.8% compared with the baseline year of 2020 (0.97 MWh per metric ton).

Market-based instruments and renewable energy proportion

In the reporting year, the proportion of all contractual instruments with "green" attributes in total energy usage was 7%. Market-based instruments (specific purchasing contracts for electricity from renewable sources or separately purchased certificates such as Guarantees of Origin) are used at almost all major production sites.

Gross Scopes 1, 2, 3 and Total GHG emissions

Scope 1, Scope 2 and Total GHG emissions (Scope 1+2)

Covestro reports greenhouse gas emissions (CO₂ equivalents) in accordance with the GHG Protocol. For fiscal 2024, the emissions reported relate to all environmentally relevant sites (previous year: main production sites responsible for more than 95% of energy usage).

Scope 1 sub-breakdown: Not disclosed in detail.

Methodology note: Covestro reports Scope 2 emissions using both the location-based and market-based methods. The market-based approach considers specific electricity procurement contracts (including renewable energy Power Purchase Agreements). The sustainability component in the management system and short-term variable compensation for fiscal 2024 was based on Scope 1 and Scope 2 GHG emissions (CO₂ equivalents) of main production sites. From fiscal 2025 onwards, this will include Scope 1 and Scope 2 GHG emissions of all environmentally relevant sites.

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Scope 3 GHG emissions

Covestro has set a Scope 3 intermediate reduction target for the year 2035: –10 million metric tons of CO₂ equivalents (–30% compared to the base year of 2021). The four relevant categories are: Purchased goods and services (Cat. 1), Fuel- and energy-related activities (Cat. 3), Upstream transportation and distribution (Cat. 4), and End-of-life treatment of sold products (Cat. 12).

Detailed Scope 3 emissions by category are not disclosed in the excerpts provided. The report states that upstream GHG emissions in connection with the procurement of raw materials account for the majority of Covestro's indirect GHG emissions (Scope 3). The Supplier Engagement Program (SEP) targets category 1 (Purchased goods and services) for reduction measures.

Covestro acknowledges that the method of calculating the "End-of-life treatment of sold products" (Cat. 12) is subject to greater uncertainty than other metrics, as the breakdown of end-of-life treatment methods for each region is based on data from external studies.

Total Scope 3 emissions for 2024: Not disclosed in the excerpts.

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Total GHG emissions (Scope 1 + 2 + 3)

Total GHG emissions (all Scopes) for 2024: Not disclosed in the excerpts.

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GHG intensity

GHG intensity metric: Not disclosed in the excerpts.

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Regulated emissions (EU ETS)

Regulated emissions (e.g. EU ETS): Not separately disclosed in the excerpts.

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Biogenic CO₂ emissions

Biogenic CO₂ emissions: Not disclosed in the excerpts.

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Baseline and target year data

Covestro has set the following climate targets:

• Scope 1 and Scope 2: Operational climate neutrality (net-zero) by 2035.
• Scope 3: Intermediate reduction target for 2035: –10 million metric tons CO₂eq (–30% compared to base year 2021).

The Scope 3 reduction target covers four relevant categories (Cat. 1, 3, 4, 12) and already includes some growth-related emissions projected up to 2035.

Baseline year (Scope 3): 2021.

Target year: 2035 (for both Scope 1+2 net-zero and Scope 3 intermediate reduction).

Historical and baseline emissions for Scope 3 are not disclosed in the excerpts.

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Scope notes

• Covestro reports Scope 1 and Scope 2 emissions for all environmentally relevant sites (2024 onwards), previously for main production sites (>95% of energy usage).
• Scope 2 emissions are reported using both location-based and market-based methods. The market-based method reflects specific electricity procurement contracts, including renewable energy PPAs.
• Scope 3 reporting is partial: only four of the 15 GHG Protocol categories are included in the reduction target (Cat. 1, 3, 4, 12). Detailed emissions by category are not disclosed in the excerpts.
• The "End-of-life treatment of sold products" (Cat. 12) calculation is subject to greater uncertainty due to the use of external regional studies for assumptions on end-of-life treatment methods.
• The sustainability component in the management system for 2024 was based on Scope 1 and Scope 2 emissions of main production sites; from 2025 onwards, it will be based on all environmentally relevant sites.
• Covestro's climate targets are not limited to specific products, services, or customer categories. The Scope 3 target excludes suppliers with purchasing volumes below €1 million.

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Note: The excerpts provided do not contain detailed Scope 3 emissions data by category, total Scope 3 emissions, total GHG emissions (Scope 1+2+3), GHG intensity metrics, regulated emissions (e.g. EU ETS), or biogenic CO₂ emissions. The above reflects the information available in the excerpts.

Policies related to pollution

Not disclosed.

The provided excerpts contain only an index/table of contents showing that E2-1 (Policies related to pollution) is addressed in a section titled "ESRS E2: Pollution – Policies and Actions" elsewhere in the sustainability statement. However, the actual policy content for this disclosure requirement is not included in the excerpts provided.

Pollution of air, water and soil

Metrics

Covestro records emissions into air, water, and soil for all consolidated companies. All non-consolidated companies in the scope of consolidation were examined to determine whether Covestro has operational control as defined by ESRS. Metrics include data from all environmentally relevant Covestro sites (all production sites and relevant administrative sites). Sites estimate environmental data for the last weeks of the fiscal year using established extrapolation methods (based on operations planning, averages, or prior-year data).

Depending on local legislation and operating licenses, emissions into air, water, and soil are subject to different measuring specifications. Substances may be measured continuously in some facilities but only in selected years in others. Measured data is calculated for the facility's annual run time. Measurements are carried out by Covestro and third parties. Reported emissions include emissions caused by environmental incidents with unplanned discharges.

The quantities reported are also used in reporting to local authorities.

Emissions into the air and water

Emissions into the air and water (consolidated values in metric tons):

Note: This table contains only consolidated values for emissions into the air and water that exceed the threshold values defined in Annex II of Regulation (EC) No. 166/2006 (European Pollutant Release and Transfer Register - E-PRTR). In the 2024 reporting year, there were no emissions into the soil above the thresholds.

Microplastics

The quantity of microplastics leaving Covestro as product is recorded in a system-based approach using sales data. Given the lack of standardized measurement methods for emissions of microplastics, the quantity emitted into the environment can only be estimated. Covestro uses information on emission events reported by sites in a central database. Generally only emissions arising within production steps for which Covestro is responsible are considered. Covestro's sphere of influence ends when products are transferred to logistics companies.

The quantity of microplastics that left the company as product amounted to 1.6 million metric tons in the fiscal year. No emission volumes were determined that have an influence on the metric presented in million metric tons.

Substances of concern and substances of very high concern

Total quantity of substances of concern (SoCs) and substances of very high concern (SVHCs) in the reporting period:

External procurement and sales volumes and the exact composition – including hazard classification of individual components at the reporting date – are documented in IT systems. Quantities shown were recorded in a system-based approach. To determine quantities generated and used, data from process orders or reduction in inventories of relevant materials compared to the previous reporting date are used. Due to the complex system and process landscape, specific micro quantities are not captured by the system-based calculation methods, relating exclusively to quantities with no influence on figures presented in kilotons. Volumes of emissions are likewise negligible and therefore not included.

Allocation of substances of concern to main hazard classes: Includes substances in each hazard class which can be allocated to one of the hazard classes in accordance with the definition of SoC. As some substances have more than one classification (assigned to several hazard classes), some substances may be included more than once, meaning the sum of individual quantities may be larger than the total quantity. (Note: Specific allocation breakdown table not included in excerpts.)

Substances of concern and substances of very high concern

Policies and Actions

Covestro uses chemical substances to manufacture products as starting materials for further processing in the value chain. Our products are used and transformed industrially in downstream processes. Their safe use and the provision of information to our customers are governed by law.

The reactivity and suitability of the substances are essential to achieving the desired product properties. The chemical substances used may result in properties which, in the context of sustainability reporting in accordance with ESRS, lead to classification as substances of concern (SoC) or substances of very high concern (SVHC). These properties also result in a potential negative impact in the downstream supply chain on people and the environment if employees are exposed to hazardous substances or if air, water, and soil are contaminated. Our actions to counter this potential negative impact are described in "ESRS S2: Workers in the Value Chain" under "Product Stewardship." The actions and policies described there comprehensively consider product-related hazards. This covers both the potential impacts of the substances of concern and substances of very high concern mentioned here and other potential hazards.

Apart from the above, Covestro does not have any dedicated policies to substitute and minimize the use of substances of concern and to phase out substances of very high concern, not even for essential societal purposes and in consumer products. This does not affect individual actions and optimization initiatives.

We identified a material risk for per- and polyfluoroalkyl substances (PFAS). PFAS are in the focus of public debate on account of their potential negative impacts on people and the environment. Covestro may be affected through the procurement of plant components and raw materials. We monitor the regulatory debate on PFAS and support proportionate, implementable, and enforceable regulations based on robust scientific results and a reliable risk assessment. To this end, we get involved in appropriate association activities and have established an internal interdisciplinary working group on this matter.

We include in our safety data sheets in the EU any PFAS that are classified as SVHC in accordance with REACH and are contained in our products at a concentration of more than 0.1% by weight.

Targets

In the future, we aim to produce and market more sustainable products. In this connection, it is essential to use SoCs or SVHCs on the basis of legal requirements. As described in "ESRS S2: Workers in the Value Chain" and in this section, we work continuously to provide information on the safe handling and use of our products in the value chain. Covestro does not set itself any specific targets for the procurement, use, manufacture, and placing on the market of SoCs and SVHCs in our production and products.

Metrics

The quantities shown below were recorded in a system-based approach. External procurement and sales volumes and the exact composition – including the hazard classification of the individual components at the reporting date – of our products and raw materials are documented in our IT systems. For the raw materials supplied externally, our internal information contains all the details on their composition available to us. The metrics reported here have been collated according to the best of our knowledge. To determine the quantities generated and used, we rely on the data from process orders or determine the reduction in inventories of the relevant materials compared to the previous reporting date. The metrics reflect SoCs/SVHCs carried in our inventory. This may lead to SoCs/SVHCs produced in situ not being recorded if they have been used up completely in the same production process and are not carried in our inventory. Due to the complex system and process landscape in the Group, specific micro quantities are not captured by the system-based calculation methods. They relate exclusively to quantities that have no influence on the figures presented in kilotons below. The volumes of emissions are likewise negligible and are therefore not included in the volumes reported.

The information contained in the table headed "Total quantity of substances of concern (SoCs) and substances of very high concern (SVHCs) in the reporting period" refer to the aggregate quantity of all quantities generated or used or procured by Covestro in the reporting period and to the quantities that left our facilities in the form of products, or parts of products.

"Allocation of substances of concern to the main hazard classes" includes exactly those substances in each hazard class which can be allocated to one of the hazard classes in accordance with the definition of SoC. As there are substances with more than one classification, i.e., they can be assigned to several hazard classes, some substances may be included more than once. As a result, the sum of the individual quantities may be larger than the total quantity.

Total quantity of substances of concern (SoCs) and substances of very high concern (SVHCs) in the reporting period

Allocation of substances of concern to the main hazard classes

Policies related to water and marine resources

Covestro's disclosure indicates that E3-1 (Policies related to water and marine resources) is addressed in the section "ESRS E3: Water and Marine Resources – Policies and Actions" and references to the "Water Program" are made in the index.

However, the provided excerpts do not contain the actual policy content from these referenced sections. The excerpts only show:

• Index references indicating that ESRS E3-1 disclosures are located in specific sections of the Group Sustainability Statement
• Data point listings that reference "Water Program" and "Sustainable oceans and seas" elements
• Cross-references showing ESRS E3-1 datapoint 9 relates to "Water and Marine Resources – Water Program"
• ESRS E3-1 datapoint 13 relates to "Dedicated policy" within the Water Program
• ESRS E3-1 datapoint 14 relates to "Sustainable oceans and seas"

The substantive policy details, including policy name(s), scope, governance, content, public availability, linkages to international standards, and monitoring mechanisms are not included in the provided excerpts. To complete this extraction, the actual content from the sections "ESRS E3: Water and Marine Resources – Policies and Actions" and "ESRS E3: Water and Marine Resources – Water Program" would be required.

Water consumption

Water withdrawal

Overall water withdrawal by the Group amounted to 247 million m³ in the reporting year (2024).

The majority of the total volume of water used by Covestro is once-through cooling water. This water is used only for cooling and does not come into contact with products. After use, the cooling water is normally returned to its original source. Other quantities are disposed of as wastewater, which is discharged with or without treatment, depending on the wastewater quality. The remaining quantity is used by Covestro. Typically, this includes evaporation losses from cooling towers or the water contained in products.

Water stress areas

Sites in current areas with water stress account for 7% of total water withdrawal.

Areas with water stress were determined using the latest available data of the Aqueduct Water Risk Atlas of the World Resources Institute (WRI). In addition to physical risks such as water stress, the water risk assessment also includes potential regulatory risks at production sites.

Water Program

In 2023, Covestro began the roll-out of a new context-based Covestro Water Program that aims to address water risks strategically and systematically. This program concentrates specifically on sites that are currently located in areas with water stress or could be located in such areas in the future, based on data from the World Resources Institute (WRI). The Program is to be rolled out by 2030.

Data scope and methodology

Metrics are recorded to include all consolidated companies. All nonconsolidated companies in the scope of consolidation were considered in accordance with the rights and obligations of the Covestro Group. Data includes all environmentally relevant Covestro sites, i.e., all production sites and relevant administrative sites. Sites estimate environmental data for the last weeks of the current fiscal year using established extrapolation methods (e.g., on the basis of operations planning, averages, or data from the prior-year months). Material deviations based on internally defined thresholds are corrected retroactively if identified in the following year.

Targets related to circular economy

Covestro states that it is working to develop suitable targets that will increase performance in all areas that are key to the circular economy and will in the long term lead to an absolute reduction in the use of primary raw materials.

The company explicitly states:

"Covestro intends to revise its sustainability targets in the years ahead. This will also include our ambition relating to the circular economy."

No quantified targets related to resource use and circular economy are disclosed in the reporting year. The company describes its ambition to:

• Increase the degree to which fossil sources of carbon for production can be replaced with alternative raw materials
• Produce renewable inorganic compounds to run in loops
• Increase sales of solutions that qualify as circular in the marketplace
• Achieve an absolute reduction in the use of primary raw materials in the long term

The company notes that targets set in the area of climate change mitigation contribute indirectly to the circular economy, e.g., by opting to procure alternative raw materials in order to also reduce Scope 3 emissions.

Current performance (2024)

• Biological materials: 30,979 t (0.3% of total weight of products used)
• Secondary reused or recycled materials: 6,975 t (0.1% of total weight of products used)
• Total weight of products used: 9,947,341 t

ESRS E5-4: Resource Inflows

Overview

Covestro analyzed resource inflows of alternative raw materials during the reporting year. The resource inflows are managed in the company's ERP system, allowing them to be captured and analyzed with the help of a product life cycle-related system. Mass-based flows are recorded in this process. Technical goods and services are not material and not included.

Two categories are tracked: "biological materials" and "reusable and recycled materials."

Resource Inflows Table (2024)

Data Quality and Methodology

As this data has been recorded for the first time in accordance with the new provisions of the ESRS, it is not possible to draw a comparison with the previous year. The company follows a conservative approach in its reporting and uses established extrapolation methods for year-end data where necessary.

Context

Covestro drives the procurement of alternative raw materials as part of its circular economy strategy. The company uses ISCC PLUS-certified raw materials and intermediates that are recycled in upstream stages of the value chain. The use of alternative raw materials is an essential pillar of Covestro's Sustainable Future strategy, aimed at gradually replacing fossil-based materials and closing carbon loops.

Resource outflows

CQ Solutions and Mass Balance Approach

Covestro offers CQ solutions as CO₂-reduced variants of products. These mass-balanced products are based on certified renewable or recycled feedstocks allocated via the mass balance approach. The share of alternative raw materials that can be allocated to CQ products ranges between 25% and 100% of the organic mass, excluding inorganic materials such as additives.

Bio-based and Recycled Materials

Bio-based Aniline Pilot Plant: In fiscal 2024, Covestro inaugurated the world's first pilot plant for bio-based aniline in Leverkugen, Germany. This groundbreaking process produces aniline entirely from plant biomass instead of petroleum, significantly reducing the carbon footprint.

Bio-circular MDI: Bio-circular attributed MDI contains approximately 60% ISCC PLUS certified feedstock. The carbon footprint of bio-circular MDI is up to 99% lower than conventional MDI based on fossil raw materials (exact percentage depends on the amount of allocated raw material).

Polycarbonate from Bio-waste: The Makrolon® RE polycarbonate is derived from bio-waste attributed via mass balancing. Compared to fossil-based alternatives, this material has a carbon footprint during production (cradle to gate) that is reduced by around 80%.

Chemical Recycling and Circularity Initiatives

BioBTX Investment: Covestro invested in BioBTX to support construction of the world's first demonstration plant for ICCP technology in the Netherlands. This technology can process mixed plastic and organic waste to produce chemical building blocks like benzene, toluene, and xylene, with capacity to handle 20 kilotons of plastic waste annually.

Automotive Recycling Collaboration: Covestro, Neste, and Borealis completed a closed-loop system for the automotive industry through chemical recycling of car tires, enabling production of high-quality plastics for automotive applications.

Product Applications Supporting Circularity

Thermoplastic Polyurethane (TPU): A new 120,000 metric tons per year TPU plant is under construction in Zhuhai, China, supporting applications in automotive, footwear, and other industries.

Polycarbonate Copolymers: A new production facility in Antwerp, Belgium uses innovative solvent-free melt process technology, producing polycarbonates with adjustable properties for various applications including composite resins for solar panel frames and materials for electric vehicle batteries.

Design for Circularity

Covestro's DirectCoating technology enables seamless production from injection molding to coating in one tool for automotive applications, lowering carbon footprint. The company also develops monomaterial electronic displays ideal for integration into smart surfaces, supporting easier recyclability.

Policies related to own workforce

Covestro has established several policies governing its own workforce, aligned with international human rights standards and labour conventions.

Corporate Commitment to Respect Human Rights (Human Rights Policy Statement)

Scope: All employees

Key content and principles:

• Describes Covestro's human rights strategy and due diligence obligations
• Zero-tolerance policy on child labor, forced labor, modern slavery, and human trafficking
• Based on comprehensive due diligence process to safeguard human rights in business activities

Links to international standards:

• UN Guiding Principles on Business and Human Rights
• International Bill of Human Rights (Universal Declaration of Human Rights and related Covenants)
• International Labour Organisation's Declaration on Fundamental Rights and Principles at Work and core conventions
• OECD Guidelines for Multinational Enterprises

Governance:

• Approved by the entire Board of Management
• Responsibility lies with the Chief Executive Officer
• Head of Group Quality within the Group Innovation & Sustainability function appointed as Group Human Rights Officer, reporting directly to the Board of Management, responsible for monitoring human rights risk management processes

Public availability: Published on Covestro's website and internal intranet

Monitoring: Comprehensive due diligence process established; material impacts may result in material risks discussed via designated reporting lines as part of Group risk management process

Code of Conduct

Scope: All employees

Key content and principles:

• Principles of fairness and respect at work
• Commitment to safeguarding human rights, particularly fair working conditions
• Prevention and mitigation of discrimination

Links to international standards:

• United Nations Global Compact membership
• UN Universal Declaration of Human Rights
• Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy of the International Labour Organization (ILO)
• UN Guiding Principles on Business and Human Rights

Public availability: Available on website and intranet; part of information package for new employees

Fairness and Respect at Work Policy

Scope: All employees worldwide

Key content and principles:

• Establishes framework for fair and respectful working environment
• Aims to prevent discrimination and harassment
• Defines harassment as unwanted, intimidating, insulting, or hostile behavior creating negative working environment
• Includes bullying and mobbing as forms of harassment
• Core elements: treating each other with respect; open communication without fear of reprisal; fair processes in recruitment, promotion, development; increasing awareness through training

Governance: Based on global directive with local corporate commitments at company level

Monitoring:

• Mandatory web-based training for entire workforce worldwide since 2024
• "Compliance Telegram" publishes reported and confirmed breaches
• Grievance mechanism available for reporting discrimination
• Effectiveness tracked through ENGAGE employee survey responses

Group "Occupational Health and Safety" Policy

Scope: Own operations and value chain (referenced in relation to workers in value chain)

Key content and principles:

• Part of integrated Health, Safety, Environment, Energy and Quality (HSEQ) management system
• Addresses workplace accident prevention
• Covers health and safety management

Monitoring:

• Regular determination of accident rates
• Annual environmental performance assessment
• Internal audits, self-assessments, and external certifications
• Global process and workflow descriptions

Group "Transport & Logistics Safety" Policy

Scope: Transport and logistics operations in value chain

Key content: Referenced as part of policies addressing health and safety in value chain

Group "Product Stewardship" Policy

Scope: Product safety throughout value chain

Key content and principles:

• Safe and compliant use of products
• Product surveillance and reporting
• Information collection and analysis in global information system

Monitoring: Product surveillance, incident reporting, compliance reviews

Corporate Compliance Policy

Scope: All own workers worldwide

Key content and principles:

• Group-wide code of conduct with fundamental principles and rules
• Covers whistleblower protection
• Mandates against violations of rules
• Management prohibited from instructing employees otherwise

Public availability: Published on intranet and website; part of new employee information package

Governance:

• Board of Management clearly states compliance requirements
• Local Compliance Officer appointed for each country
• Chief Compliance Officer reports regularly to Supervisory Board and Board of Management

Monitoring:

• Compliance management system with internal control system
• Global compliance SpeakUp! line (hotline and online form)
• Training for all new employees
• Monthly Compliance Telegram on intranet

Other Referenced Commitments

Inclusiveness Agreement (Germany): Referenced as additional statement of commitment alongside global Fairness and Respect at Work policy

Additional Policy Elements:

• Policies on compensation, benefits, and working time arrangements
• Central works agreements with workers' representatives
• Internal rules governing working time

All policies are integrated into Covestro's overall commitment to international standards including the UN Global Compact, ILO fundamental conventions, and human rights frameworks.

Taking action on material impacts on own workforce

Training and Transformation

Expedition C

• Description: Global internal training initiative preparing employees for transformation topics including AI, sustainability, and circular economy
• Scope: Own operations (global workforce)
• Purpose: Equips employees with skills to leverage AI effectively; prepares employees for gradual shift toward sustainability; enables active involvement in transformation process through internal expert knowledge sharing and dialogue
• Outcomes: Engagement values remained at high level since July 2023, significantly above cross-industry benchmarks
• Link to policy: Supports people strategy and strategic "Sustainable Future" alignment

Health and Safety Actions

Workplace Safety Program

• Description: Comprehensive preventive and remedial measures for workplace safety
• Scope: Own operations, focused on production environment (higher risk areas)
• Key components:
  • Continuous monitoring of accident rates
  • Cause-effect analyses
  • Organization of Safety Days
  • Awareness campaigns
  • Active employee involvement in safety inspections
  • Regular safety training sessions
  • Systematic hazard assessments and risk evaluations
  • Feedback mechanisms for employees to report safety concerns
  • Thorough incident investigation processes
• Target groups: Particular focus on persons in vulnerable situations handling chemicals and machinery in production environment
• Link to policy: Integrated HSEQ management system and Occupational Health and Safety policy using PDCA cycle

Workplace Health Management

• Description: Two-component approach to employee health
• Scope: Own operations (global)
• Components:
  1. Environmental prevention: Creating health-promoting working conditions and work environments
  2. Behavioral prevention: Strengthening individual health resources and potential of employees
• Resources (non-financial): Network of local resources including first-aiders, medical officers, and medical services adapted to local requirements; emergency systems at sites with trained emergency personnel
• Link to policy: HSEQ policy and Occupational Health and Safety policy

Employee Engagement and Feedback

ENGAGE Employee Survey

• Description: Employee survey mechanism providing feedback on decision-making and identifying action areas
• Scope: Own operations (global)
• Process: Results shared by managers at team level with actions defined; feedback published globally on intranet; results discussed with workers' representatives in Germany
• Outcomes: Engagement values consistently at high level since July 2023, significantly above cross-industry benchmarks
• Topics covered: Health and wellbeing, diversity, equal treatment and opportunities, pay equity, transparent promotion processes
• Impact on actions: Led to introduction of "Expedition C" global training initiative
• Link to policy: Supports people strategy development through iterative process

Idea Management Platform

• Description: Platform enabling employees to provide suggestions for improvements
• Scope: Own operations
• Link to policy: Continuous improvement under HSEQ management system

Codetermination and Worker Representation

Workers' Representative Engagement (Germany)

• Description: Information and participation processes through codetermination bodies
• Scope: Germany operations
• Structure: Local and translocal codetermination bodies including local works councils, General Works Council, Group Works Council and competent committees, (Group) Managerial Employees' Committee
• Process: Status of people strategy implementation tracked; ENGAGE survey findings and action areas presented and discussed
• Link to policy: People strategy implementation monitoring

Risk Mitigation Approach

Integrated Management System

• Description: Continuous monitoring and improvement based on PDCA cycle
• Scope: Own operations (global)
• Process: Takes external developments and requirements into account; regular reviews and feedback loops
• Link to policy: HSEQ management system ensuring continuous improvement

Characteristics of the undertaking's employees

Workforce Overview

As of December 31, 2024, the Covestro Group comprised 55 (previous year: 57) consolidated companies in three regions in addition to Covestro AG, and employed 17,503 FTE (previous year: 17,516), counted in full-time equivalents (FTEs). This corresponds to a total number of own employees of 18,021.

Regional Distribution

Note: The number of permanent or temporary employees is stated in full-time equivalents (FTEs). Part-time employees are included on a pro-rated basis in line with their contractual working hours. Board of Management members, employees in vocational training, and interns are not included in this metric because of their special employment relationship.

Corporate Culture

"We Are 1" Culture: Our strong corporate culture is the starting point for the success of our 'Sustainable Future' strategy. What feeds my optimism above all are our employees, with their know-how, their commitment and the very special spirit that is based on our culture and values. In the future, we will promote agile cooperation in the company even more strongly and make sure that skills and talents are used in a tailor-made way.

Employee Development: At the same time, we encourage and empower everyone to take advantage of the immense opportunities offered by digitization and artificial intelligence, because this opens up sensational new possibilities for us everywhere.

Training and AI: Equipping our global workforce with the skills to leverage AI effectively is a crucial step. For example, our internal training initiative, "Expedition C," lays the foundation for that. With AI, we can test new ideas quickly and cost-effectively, and are not afraid to discontinue projects that don't deliver value.

Key Tools for Employee Engagement

3 Key Tools to engage employees at Covestro have been implemented to ensure alignment with the company's sustainability and business objectives.

Characteristics of non-employees in the undertaking's own workforce

Overview

Covestro employs non-employee workers as part of its own workforce, primarily consisting of self-employed workers (contractors) who are mainly deployed for maintenance and repair work.

Measurement Methodology

The company tracks work-related accidents and health metrics for contractor employees, using headcount methodology. Contractor employees are defined as individuals engaged by Covestro whose accidents occurred on one of the company premises.

Health and Safety Metrics for Non-Employee Workers

In the year 2024, Covestro recorded the following work-related accidents and health metrics for contractor employees:

Note: The recordable incident rate (RIR) measures the number of recordable incidents against the hours worked by all employees and contractor employees of the Covestro Group worldwide.

Disclosure Scope

In accordance with ESRS 1 Appendix C, Covestro applies the phased-in disclosure requirements on the characteristics of non-employee workers in the undertaking's own workforce in the first year of preparing the Group Sustainability Statement. According to this expedient, certain detailed disclosures (such as total headcount by type, gender breakdown, geographic breakdown, and contract type breakdown) may be omitted in the first year.

The health and safety metrics include all fully consolidated companies, provided that they are part of the consolidation scope.

Collective bargaining coverage and social dialogue

Coverage of collective bargaining agreements

Not disclosed.

Coverage by workers' representatives and social dialogue arrangements

Covestro cultivates good relationships with its workers' representatives and unions so that all issues concerning HR policy, working conditions, and change processes can always be resolved by management and labor in a collaborative manner.

Social dialogue bodies

Germany:

• General Works Council of Covestro
• Group Works Council of Covestro
• Economic Committee and Joint Committee of the General Works Council
• Local works councils at sites (Leverkusen, Uerdingen, Brunsbüttel)
• (Group) Managerial Employees' Committee

The German Economic Committee and Joint Committee meet at least ten times a year. Ad-hoc meetings are arranged on request.

European Level:

• Covestro-European Forum (confirmed by membership of Marc Stothfang, member of Supervisory Board since February 2017)

United States: Covestro is legally required to discuss any topics concerning working conditions with the workers' representatives. Workers' representatives raise topics for discussion at ad-hoc meetings and negotiate possible solutions and/or improvements.

China: Annual conference with trade union representatives, which is consultative by nature. Discussions held on an ad-hoc basis as required.

Supervisory Board composition

The Supervisory Board includes employee representatives in accordance with German codetermination law, including:

• Petra Kronen (Vice Chair until December 2024): Chair of the General Works Council of Covestro, Member of the Group Works Council of Covestro
• Irena Küstner: Chair of the Works Council of Covestro at the Leverkusen site, Chair of the Group Works Council of Covestro, Vice Chair of the General Works Council of Covestro
• Frank Löllgen: North Rhine District Secretary of the German Mining, Chemical and Energy Industrial Union (IGBCE)
• Petra Reinbold-Knape (until April 2024): Secretary for IGBCE
• Regine Stachelhaus: Member of the Works Council of Covestro at the Brunsbüttel site
• Marc Stothfang: Member of Covestro-European Forum

Engagement processes

Covestro actively applies social partnership between management and employee representatives within employee codetermination processes. Insights gained from discussions with workers' representatives are taken into account in the review and assessment of strategy and business model.

At local level, engagement includes:

• Town hall meetings organized at each site at least once a year
• Round tables between management teams and employees from different levels
• Information and advisory processes with constructive cooperation

Global framework agreements

There is no global framework agreement with employee representatives on child and forced labor, since there are local corporate commitments at company level.

Diversity metrics

Gender split at top management level

Employees broken down by gender and management level in the year 2024

¹ Direct reports to the Board of Management with management responsibilities as of December 31, 2024. ² Direct reports to management level 1 with management responsibilities as of December 31, 2024.

Note: No employees who identify with other gender options were represented at the management levels disclosed.

Targets for proportion of women in management levels

Proportion of women in the first two management levels below the Board of Management

¹ Direct reports to the Board of Management with management responsibilities. ² Direct reports to management level 1 with management responsibilities.

Targets in numbers of employees

¹ Direct reports to the Board of Management with management responsibilities. ² Direct reports to management level 1 with management responsibilities.

Age band distribution of total workforce

In Covestro's global workforce:

• Under 30 years: 1,994 persons
• 30 to 50 years: 10,309 persons
• Over 50 years: 5,718 employees

Adequate wages

Benchmark used

Covestro uses an external living wage benchmark provided by the Wage Indicator Foundation, a non-profit organization that reviews and sets living wages worldwide on a yearly basis.

The company states: "When paying our employees, we exceed the minimum wage level legally applicable in the respective countries and pay at least a living wage, which is reviewed and set worldwide by the non-profit organization Wage Indicator Foundation on a yearly basis."

Coverage

100% of employees receive at least a living wage: "Adequate wages are therefore paid to all employees of Covestro."

Geographic scope

Global ("worldwide").

Methodology

Covestro:

• Obtains external data on minimum and living wages from the Wage Indicator Foundation
• Uses this data "to ascertain the global adequacy of our employees' compensation"
• Reviews living wage benchmarks annually
• Conducts regular salary comparison analyses to track effectiveness

Targets

No specific time-bound targets are disclosed. The company states: "There are currently no targets for the matter of 'Adequate Wages.' However, we continuously use externally provided data on adequate wages on an annual basis, which can be used to derive possible action areas. There is no need to take any action at present since adequate wages are guaranteed everywhere."

Positive impact approach

Covestro characterizes adequate wages as achieving an "actual positive impact" through "a comprehensive and transparent package, meeting important parameters such as market-based compensation, benefits, individual development opportunities, and a good working environment."

The company positions adequate wages as critical to "position itself as an attractive employer" with the aim of "positive retention with the company worldwide, at all employee levels, and to successfully compete for skilled workers and talent."

Social protection

Covestro provides retirement benefits for most of its employees, either directly or by contributing to privately or publicly administered funds. Benefits vary according to the legal, tax, and economic conditions of each country and are generally based on employee compensation and years of service. The obligations relate both to existing retirees' pensions and to pension entitlements of future retirees.

Pension schemes

Funded pension plans exist for employees in various countries.

Major pension plans in Germany:

• Bayer-Pensionskasse VVaG (closed to new members since January 1, 2005): Covers retirement, surviving dependents', and disability pensions. Financed with contributions from active members and employers.

• Rheinische Pensionskasse VVaG (granted pension entitlements between January 1, 2005 and December 31, 2020; closed to new members since January 1, 2021): Future pension payments based on contributions and return on plan assets with a guaranteed interest rate.

Maternity and parental leave

Temporary employment contracts are often entered into to provide cover for longer-term absences, e.g., as a result of parental leave or due to other temporary staff limitations. There are also country-specific temporary early retirement schemes.

Scope

Pension arrangements are country-specific and benefit coverage varies according to legal, tax, and economic conditions of each country.

Note: No quantitative metrics on percentage of employees covered by social protection against loss of income from major life events (sickness, unemployment, employment injury, parental leave, retirement) are disclosed. No breakdown by country, employee group, or type of scheme (public vs private) is provided.

Health and safety metrics

Work-related accidents

Coverage and methodology

The integrated management system for health and safety applies to all employees Group-wide. The data covers all fully consolidated companies and includes own workers (excluding self-employed workers/contractors), including interns and employees in vocational training. Contractor data includes self-employed workers whose accidents occurred on Covestro company premises.

In occupational health reporting, Covestro distinguishes between work-related ill health (with identifiable causes, included in RIR) and recognized occupational diseases (resulting from long-term exposure, not included in RIR). The notified illnesses are those known to the company; records may not be complete due to legal restrictions.

Compensation metrics

Pay gap

Covestro discloses a gender pay gap of 6.0%. This figure represents the unadjusted difference in average earnings between female and male employees, expressed as a percentage of the average earnings of male employees.

The data was collected through standardized queries of compensation data from payroll systems, taking into account different types of employment and countries of operation. The company notes that the unadjusted metric is impacted by different factors, such as type of work, hierarchy level, professional experience, different histories of employment, and geographies.

Covestro also conducts internal analyses in which the influence of variables including country, internal contract level, length of service on particular contract level, and professional group are eliminated. These analyses indicate that the pay gap is significantly smaller when these factors are taken into account, though specific adjusted figures are not disclosed.

Remuneration ratio

The ratio of total annual compensation of Covestro's highest-paid individual to the median of total annual compensation of all employees is 58.9:1.

Methodology

The gender pay gap data was captured through standardized queries of compensation data from payroll systems across all countries where Covestro operates. The calculation covers all temporary and permanent employees. The company emphasizes its commitment to equal pay for equal work and uses this data to develop appropriate actions for continuous convergence in pay equity.

Incidents, complaints and severe human rights impacts

Discrimination and Harassment Incidents

Covestro has established a global directive on fairness and respect at work that applies to the entire workforce worldwide. The directive aims to prevent discrimination and harassment and is embedded in Covestro's Code of Conduct and commitment to safeguarding human rights.

Since 2024, the entire workforce worldwide has been obliged to complete web-based training on fairness and respect at work. Employees can use the company's grievance mechanism to report instances of discrimination.

All suspected cases are recorded in a central database and evaluated for the reporting year. The evaluation is carried out on the basis of confirmed cases categorized as "Discrimination" as well as the total number of confirmed and unconfirmed cases categorized as "Labor rights."

Child and Forced Labour Incidents

Covestro's corporate commitment to respect human rights includes a zero-tolerance policy on child labor, forced labor, modern slavery, and human trafficking. This commitment is approved by the entire Board of Management and applies to all employees.

Complaints and incidents related to child and forced labor (2024):

• Number of complaints relating to child and forced labor received through internal grievance mechanism: 0
• Number of grievances received by National Contact Points for Responsible Business Conduct under OECD Guidelines: 0
• Total fines, penalties, and compensation payments for incidents and complaints relating to child and forced labor: €0

Human Rights Impacts

There were no concrete indications of human rights abuses within the Covestro organization in the reporting year 2024.

There were no indications of human rights abuses within Covestro's supply chain in the reporting year 2024.

Covestro saw no reason to terminate a supplier relationship in the reporting year or in the previous year solely on account of an externally determined result or a serious sustainability deficit.

None of the supplier assessments conducted revealed any indication of child or forced labor.

Grievance Mechanism

Covestro has established a global compliance SpeakUp! line (hotline and online form), operated by external service providers, which allows employees and third parties to confidentially and anonymously report suspected illegal or unethical conduct related to Covestro or its suppliers.

All suspected cases are recorded in a central database. Confirmed violations are evaluated, and organizational, disciplinary, or legal measures are taken if necessary.

Compliance incidents are regularly reported by the Chief Compliance Officer to the Supervisory Board, the Board of Management, and the business entities' management teams. A monthly Compliance Telegram is published on the intranet providing transparency on incidents and developments.

Methodology Notes

The evaluation of suspected cases is carried out on the basis of confirmed cases categorized as "Discrimination" as well as the total number of confirmed and unconfirmed cases categorized as "Labor rights." The principles for conducting internal compliance investigations include protection of the whistleblower, confidentiality, the rights of those affected, the independence of the compliance organization, and the lawfulness of all investigative measures.

Policies related to value chain workers

Covestro addresses policies related to value chain workers primarily through its commitment to human rights and its Supplier Code of Conduct.

Corporate Commitment to Respect Human Rights

Scope:

• All workers in the value chain
• Own operations and value chain

Key principles and content:

• Respect for human rights is regarded as fundamental for business activities
• Based on the United Nations (UN) Universal Declaration of Human Rights
• Based on the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy of the International Labour Organization (ILO)
• Based on the UN Guiding Principles on Business and Human Rights

Links to international standards:

• United Nations Global Compact (member)
• UN Universal Declaration of Human Rights
• ILO Tripartite Declaration of Principles
• UN Guiding Principles on Business and Human Rights

Governance:

• The Board of Management has appointed the head of the Group Quality department within the Group Innovation & Sustainability function as Group Human Rights Officer
• The Group Human Rights Officer reports directly to the Board of Management and is responsible for monitoring Covestro's human rights risk management processes

Public availability:

• Published in the Human Rights Policy Statement
• Available on Covestro's website or on internal intranet

Supplier Code of Conduct

Scope:

• Applies to existing and new suppliers
• Suppliers are expected to implement these standards in their own upstream supply chains

Key principles and content:

• Sets forth sustainability principles and expectations from partners along the value chain
• Based on principles of the United Nations Global Compact
• Based on corporate commitment to respect human rights
• Explicitly addresses critical matters such as human trafficking, child and forced labor, and health and safety
• Covers labor standards, health and safety, circular economy, anti-corruption, human rights, product safety, transparency, and environmental protection
• Includes criteria of the Together for Sustainability (TfS) initiative to foster good working conditions and safe workflows in the supply chain

Links to international standards:

• United Nations Global Compact principles
• Together for Sustainability (TfS) criteria
• Fundamental International Labour Organisation Conventions 1 to 8
• OECD Guidelines for Multinational Enterprises

Governance:

• Updated in the reporting year and published following approval by the Chief Procurement Officer (CPO)
• CPO is the risk owner for procurement-related issues in Group-wide risk management
• Two members of the corporate Group Procurement function support the cross-functional Human Rights Office

Public availability:

• Available online in 13 languages
• Published at www.covestro.com/en/company/procurement/sustainability-in-procurement/supplier-code-of-conduct

Implementation and monitoring:

• New and renewed supply agreements contain special clauses requesting suppliers to observe the sustainability requirements contained in the Code of Conduct
• Covestro is entitled to review suppliers' compliance
• All suppliers must agree to comply with the Code of Conduct when accepting terms and conditions of contracts and orders
• Annual supplier risk analyses conducted as part of human rights due diligence
• Online assessments conducted by EcoVadis SAS (external provider accredited by TfS)
• On-site audits conducted by external, independent auditors trained and accredited by TfS or Cefic
• Results from online assessments and on-site audits available to TfS members on an online platform
• Number of supplier evaluations and overall results reviewed regularly and reported to the CTO
• Questionnaires sent to suppliers potentially at risk to identify specific areas for improvement
• Information systematically documented in Covestro's system for effective tracking and administration

Due diligence:

• Human rights due diligence takes account of relevant laws such as the German Act on Corporate Due Diligence Obligations for the Prevention of Human Rights Violations in Supply Chains
• Risk analysis focuses on direct suppliers but also considers the upstream supply chain
• Human rights risks prioritized using combination of country and industry/sector risks based on external sources
• Risk assessment based on external sources for country and material groups

Additional policies referenced

Corporate Compliance Policy:

• Contains Group-wide code of conduct with fundamental principles and rules for all own workers
• Covers whistleblower protection and anonymous reporting channels
• Part of information package for new employees
• Published on intranet and website

Grievance mechanism:

• Global compliance SpeakUp! line (hotline and online form) operated by external service providers
• Allows employees and third parties to confidentially and anonymously report suspected illegal or unethical conduct related to Covestro or its suppliers
• Suspected human rights abuses in the supply chain can be reported via this mechanism
• Operating procedure for the Group's grievance mechanism published on website
• Cases investigated according to set procedure based on involvement of (potentially) affected stakeholders
• Implements requirements of EU Directive 2019/1937
• Principles include: protection of whistleblower, confidentiality, rights of those affected, independence of compliance organization, lawfulness of investigative measures

Targets:

• By 2025: 100% of target-relevant suppliers expected to comply with sustainability requirements
• Target-relevant suppliers: suppliers with regular purchasing volumes of more than €1 million per year or belonging to corporate group reaching aggregate purchasing volume of more than €1 million
• Minimum result of 45% in supplier evaluations required
• As of reporting year: 82% coverage of total purchasing volume (previous year: 84%)

Taking action on material impacts on value chain workers

Supplier Code of Conduct

Scope: Upstream value chain
Description: Updated in 2024 and published following approval by the Chief Procurement Officer (CPO). Available online in 13 languages and applicable to existing and new suppliers. Based on UN Global Compact principles and corporate commitment to respect human rights. Explicitly addresses human trafficking, child and forced labor, and health and safety. New and renewed supply agreements contain special clauses requesting suppliers to observe sustainability requirements and entitle Covestro to review compliance.

Supplier Screening and Assessment (Together for Sustainability)

Scope: Upstream value chain
Description: Member of Together for Sustainability (TfS) initiative. Uses standardized TfS assessment process to evaluate supplier sustainability standards through online assessments and on-site audits. SQAS (Safety & Quality Assessment for Sustainability) reports by Cefic recognized as equivalent to TfS audit reports.
Metrics (2024):

• Total supplier assessments: 1,615 (56 on-site audits)
• Assessments meeting sustainability requirements: 1,386
• Target-relevant suppliers meeting requirements: 79%
• Target-relevant suppliers improved on repeat assessment: 63%
• Critical assessment results: 1 target-relevant supplier
• No indication of child or forced labor found
• No supplier relationships terminated due to sustainability deficits

Preventive and Remedial Measures for High-Risk Suppliers

Scope: Upstream value chain
Description: Targeted actions for suppliers with specific or potential human rights risk including:

• Targeted human rights training
• Contractual obligations
• Online assessments or on-site audits
• Supplier dialogues based on dialogue guideline with questions on all material matters
• Actions published in guidebook for supplier managers with support materials

Supplier Engagement Program (SEP)

Scope: Upstream value chain
Time horizon: Long-term (launched 2022, net-zero target) Description: Aimed at developing joint measures to achieve net-zero emissions in Scope 3 category 1 "Purchased goods and services". Identified main emission sources based on heatmap and initiated discussions with suppliers covering most raw materials. Actively gathering supplier feedback on product carbon footprint (PCF).

Procurement Digitalization

Scope: Upstream value chain
Description: Digitalization of procurement processes and systems to improve purchasing efficiency and effectiveness for Covestro and suppliers.

Training and Dialogue Opportunities

Scope: Upstream value chain
Description:

• Company-wide training on sustainability in fiscal 2024
• Region- and country-specific training on evaluation methods and processes
• Function-wide training events on human rights for corporate Group Procurement employees
• TfS Academy knowledge-sharing platform providing courses in several languages for procurement employees and suppliers

Transport & Logistics Safety

Scope: Downstream value chain
Policy: Group "Transport & Logistics Safety" policy
Description: Defines obligations and responsibilities for safe transport and logistics operations. Overall responsibility lies with corporate Supply Chain & Logistics function. Key actions include:

• Selecting logistics service providers based on security and quality checks
• Assessing transport risks and risk management
• Monitoring accident rates and cause-effect analyses
• PDCA cycle for continuous improvement

Customer Sites - Health and Safety

Scope: Downstream value chain
Policy: Group "Occupational Health and Safety" policy
Description: Strategies and policies to counter potential negative impacts on health and safety of workers at customer sites. Continuous monitoring of accident rates and cause-effect analyses.

Product Stewardship

Scope: Downstream value chain
Policy: Group "Product Stewardship" policy
Description: Risk assessments, information provision, and product surveillance to address health risks from use of Covestro products as raw materials with hazardous chemicals. Ensures safety measures and information are provided to direct customers including safety data sheets.

Links to policies:

• Corporate commitment to respect human rights
• Supplier Code of Conduct
• Group "Occupational Health and Safety" policy
• Group "Transport & Logistics Safety" policy
• Group "Product Stewardship" policy

Target: Suppliers comply with sustainability requirements (79% of target-relevant suppliers met requirements in 2024; target: improvement year-on-year)

Policies related to affected communities

Covestro has identified ESRS S3-1 datapoint 16 (Human rights policy commitments) and datapoint 17 (Non-respect of UNGPs on Business and Human Rights, ILO principles or and OECD guidelines) as non-material datapoints.

No specific policies related to affected communities are disclosed in the provided excerpts. The company's materiality assessment determined that policies specifically addressing affected communities are not material for disclosure purposes.

The excerpts reference a general commitment to human rights frameworks (UNGPs, ILO principles, OECD guidelines) in the context of workers and value chain, but do not provide details on policies specifically targeting affected communities as a stakeholder group.

Business conduct policies and corporate culture

Covestro discloses multiple policies related to business conduct, embedded in its integrated governance and sustainability framework.

Corporate Compliance Policy

Policy name: Corporate Compliance Policy

Scope: All employees Group-wide (all own workers worldwide)

Key content/principles:

• Establishes a Group-wide code of conduct with fundamental principles and rules
• Covers whistleblower protection
• Provides information on how to report concerns anonymously
• Mandates zero-tolerance policy on child labor, forced labor, modern slavery, and human trafficking
• Covers compliance topics including anti-corruption, anti-bribery, fair competition
• Prohibits any business activities that would violate Covestro's rules
• Management staff is prohibited from instructing employees to act against these rules
• Forms part of information package distributed to new employees

Governance:

• Approved by the entire Board of Management
• Chief Compliance Officer reports regularly to the Supervisory Board, Board of Management, and business entities' management teams
• Local Compliance Officers appointed for each country where Covestro has employees
• Responsibility for implementation: Head of the corporate Human Resources function (for certain aspects)

Public availability: Published on the intranet and on Covestro's website (www.covestro.com/en/sustainability/documents-and-downloads/policies-and-commitments)

International standards linkage:

• Aligned with United Nations Global Compact (UNGC)
• Based on UN Guiding Principles on Business and Human Rights
• References International Labour Organization (ILO) Declaration on Fundamental Rights and Principles at Work
• In line with UN Universal Declaration of Human Rights
• References OECD Guidelines for Multinational Enterprises
• Implements requirements of EU Directive 2019/1937 (whistleblower protection)

Monitoring/implementation:

• Global compliance SpeakUp! Line (hotline and online form) operated by external service providers
• All suspected cases recorded in a central database
• Confirmed violations evaluated with organizational, disciplinary, or legal measures taken if necessary
• Effectiveness of hotline reviewed annually by the Global Compliance Office
• Monthly Compliance Telegram published on intranet providing transparency on incidents
• Web-based training for all new employees on compliance
• Internal control system to ensure compliance rules are followed

Supplier Code of Conduct

Policy name: Supplier Code of Conduct

Scope: All existing and new suppliers; expectations extend to suppliers' own upstream supply chains

Key content/principles:

• Based on principles of United Nations Global Compact
• Based on Covestro's corporate commitment to respect human rights
• Explicitly addresses human trafficking, child and forced labor, and health and safety
• Covers labor standards, health and safety, circular economy, anti-corruption, human rights, product safety, transparency, and environmental protection
• Incorporates criteria of the Together for Sustainability (TfS) initiative

Governance:

• Updated in the reporting year and published following approval by the Chief Procurement Officer (CPO)
• CPO is the risk owner for procurement-related issues in Group-wide risk management
• Two members of corporate Group Procurement function support the cross-functional Human Rights Office
• Status of target attainment reported internally on regular basis; CPO reports directly to Chief Technology Officer (CTO)

Public availability: Available online in 13 languages; published on Covestro website (www.covestro.com/en/company/procurement/sustainability-in-procurement/supplier-code-of-conduct); integrated into electronic ordering system

International standards linkage:

• United Nations Global Compact principles
• UN Guiding Principles on Business and Human Rights
• Universal Declaration of Human Rights
• Fundamental International Labour Organisation Conventions
• OECD Guidelines for Multinational Enterprises
• Together for Sustainability (TfS) initiative standards

Monitoring/implementation:

• New and renewed supply agreements contain special clauses requesting suppliers to observe sustainability requirements
• Covestro entitled to review compliance
• All suppliers must agree to comply when accepting terms and conditions of contracts and orders
• Annual supplier risk analyses conducted as part of human rights due diligence
• Online assessments conducted by EcoVadis (external provider accredited by TfS)
• On-site audits conducted by external independent auditors trained and accredited by TfS or Cefic
• Results from online assessments and on-site audits available on online platform for continuous monitoring
• Target: 100% of target-relevant suppliers to comply with sustainability requirements by 2025 (achieving minimum result of 45%)
• As of fiscal 2024: 79% of target-relevant suppliers met sustainability requirements (571 suppliers)
• In 2024: 1,615 supplier assessments performed (56 as on-site audits)
• In event of noncompliance, Covestro works with suppliers to define specific improvement measures and targets
• Questionnaires sent to potentially at-risk suppliers
• Information systematically documented in Covestro's system
• Right reserved to terminate supplier relationships in case of serious sustainability deficits

Human Rights Policy Statement (Corporate Commitment to Respect Human Rights)

Policy name: Human Rights Policy Statement / Corporate Commitment to Respect Human Rights

Scope: All employees; applies to all workers in the value chain

Key content/principles:

• Describes Covestro's human rights strategy to exercise proper regard for due diligence obligations
• Zero-tolerance policy on child labor, forced labor, modern slavery, and human trafficking
• Based on comprehensive due diligence process to safeguard human rights in business activities

Governance:

• Approved by the entire Board of Management
• Responsibility lies with Chief Executive Officer
• Head of Group Quality department within Group Innovation & Sustainability function appointed as Group Human Rights Officer
• Group Human Rights Officer reports directly to Board of Management
• Responsible for monitoring Covestro's human rights risk management processes

Public availability: Published on Covestro's website

International standards linkage:

• UN Guiding Principles on Business and Human Rights
• International Bill of Human Rights (Universal Declaration of Human Rights and two Covenants that implement it)
• International Labour Organisation's Declaration on Fundamental Rights and Principles at Work and core conventions
• OECD Guidelines for Multinational Enterprises
• In accordance with applicable national laws on human rights due diligence (e.g., German Act on Corporate Due Diligence Obligations)

Monitoring/implementation:

• Comprehensive due diligence process established based on UN Guiding Principles and OECD Guidelines
• Annual supplier risk analyses conducted focusing on direct suppliers and considering upstream supply chain
• Prioritization of human rights risks using combination of country and industry/sector risks based on external sources
• Grievance mechanism available for reporting suspected human rights abuses
• Cases of potential human rights abuses investigated according to set procedure involving (potentially) affected stakeholders
• Operating procedure for grievance mechanism published on website
• If Covestro has directly caused a human rights violation, committed to working quickly to stop or change responsible business activities
• No indications of human rights abuses within Covestro organization or supply chain in reporting year

Fairness and Respect at Work Policy

Policy name: Fairness and Respect at Work

Scope: All employees Group-wide

Key content/principles:

• Establishes framework for fair and respectful working environment
• Aims to prevent discrimination and harassment
• Defines harassment as unwanted, intimidating, insulting, or hostile behavior creating negative working environment
• Covers grounds for discrimination: race, color, religion, sex (including pregnancy), national origin, age, disability, genetic information, veteran status, sexual orientation, gender identity/gender expression
• Core elements include: treating each other with respect; communicating openly about concerns without fear of reprisal; ensuring fair processes in recruitment, promotion, and development; increasing awareness and providing training
• Essential prerequisite for innovative performance, business success, and diversity, equity, and inclusion

Governance:

• Responsibility for Group-wide policy lies with Head of corporate Human Resources function
• Embedded in Covestro's Code of Conduct
• Forms part of commitment to safeguarding human rights, particularly with respect to fair working conditions
• Local procedures complement or adapt grounds for discrimination based on national specifics

Public availability: Not explicitly stated; based on global directive with local procedures

International standards linkage:

• Part of commitment to safeguarding human rights
• Supports fair working conditions

Monitoring/implementation:

• Since 2024, entire workforce worldwide obliged to complete web-based training on fairness and respect at work
• "Compliance Telegram" publishes reported and confirmed breaches of principles
• Employees can use company's grievance mechanism to report instances of discrimination
• Prevention and mitigation of discrimination forms part of Code of Conduct
• Corporate targets and ambitions driven by employee resource groups and diversity committees
• Additional statements of commitment exist (e.g., inclusiveness agreement in Germany)

Group "Occupational Health and Safety" Policy

Policy name: Group "Occupational Health and Safety" Policy

Scope: All employees; also applies to workers in the value chain (suppliers and customers)

Key content/principles:

• Foremost occupational health vision: "zero incidents" - applies Group-wide to all Covestro companies, both workers and self-employed workers (contractors)
• Part of integrated Health, Safety, Environment, Energy and Quality (HSEQ) management system
• Addresses environmental impacts associated with business activities
• Covers preventive actions including: identifying risks through systematic assessments; assessing risks by evaluating probability and potential impacts; establishing feedback mechanisms for employees to report safety concerns; investigating incidents
• Ensures care, treatment, and recuperation for harmed employees

Governance:

• Not explicitly stated for this specific policy; part of broader HSEQ management system
• Specific indicators defined annually within scope of "HSEQ Operations Objectives" and discussed with Chief Technology Officer

Public availability: Not explicitly stated

International standards linkage:

• Work-related injuries and illnesses recorded in accordance with definitions laid down in Regulation (EU) 2023/2772 Annex II Table 2

Monitoring/implementation:

• Continuous monitoring of accident rates
• Cause-effect analyses
• Organization of Safety Days
• Awareness campaigns
• Health management policies and network structures for local needs alignment
• Integrated Information Management System (IIMS) used to record hazards, accidents, and incidents
• Internal and external audits performed regularly
• Health surveys conducted
• Network of local resources (first-aiders, medical officers, medical services) adapted to local requirements
• Emergency systems established at sites
• Active employee involvement through participation in safety actions and regular safety inspections
• Training sessions for employees

Group "Product Stewardship" Policy

Policy name: Group "Product Stewardship" Policy

Scope: All operations; extends to downstream value chain (customers)

Key content/principles:

• Aims to ensure products are safe for end users
• Compliance with global chemical control regulations essential for ability to market chemicals and chemical products
• Particular importance for products for vulnerable groups (e.g., children) or applications covered by specific legislation
• Information on safe handling of products provided to customers with specific training

Governance:

• Global regulations for the Group contain rules and guidance
• Process for product recalls governed

Public availability: Not explicitly stated

International standards linkage:

• Compliance with global chemical control regulations

Monitoring/implementation:

• Information about safe and compliant use of products continually collected, documented, and analyzed in global information system
• Processes used to review effectiveness of product stewardship actions
• Product surveillance and reporting on product-related and compliance incidents
• No material incidents of noncompliance with regulations or voluntary codes in fiscal 2024
• No product recalls in reporting period

Group "Transport & Logistics Safety" Policy

Policy name: Group "Transport & Logistics Safety" Policy

Scope: Transport and logistics workers in the value chain

Key content/principles:

• Addresses safety in transport and logistics operations
• Part of actions for suppliers with specific or potential human rights risk

Governance:

• Not explicitly detailed in excerpts

Public availability: Not explicitly stated

International standards linkage:

• European Chemical Industry Council (Cefic) SQAS (Safety & Quality Assessment for Sustainability) system used
• SQAS reports recognized by Together for Sustainability (TfS) as equivalent to TfS audit report

Monitoring/implementation:

• Security and quality checks
• Assessing transport risks
• TfS and Cefic collaborate in auditing logistics service providers using SQAS system

Corporate Culture: "We are 1"

Description: Covestro emphasizes its strong "We are 1" corporate culture as a foundational element of business conduct and strategy implementation.

Key elements:

• Strong corporate culture is starting point for success of "Sustainable Future" strategy
• Based on employee engagement and encourages cooperation and commitment
• Enabler and key success factor alongside digital transformation, artificial intelligence, and future-ready workforce
• Major factor in putting purpose, vision, and strategy into action
• Compensation structure standardized for all Covestro employees in line with "We are 1" culture
• Variable compensation based on uniform system and identical criteria for Board of Management and all participating employees
• ADNOC (prospective partner) values Covestro's unique "We are 1" corporate culture

Governance:

• Board of Management states clearly in Corporate Compliance Policy that management staff prohibited from instructing employees to act against rules
• Management continuously fosters compliance culture by drawing employees' attention to compliance topics
• Board of Management involved in diversity target-setting process

Monitoring:

• Employee engagement regularly measured through ENGAGE survey (conducted three times a year)
• Engagement values consistently remained at high level since July 2023, significantly above cross-industry benchmarks
• On average, approx. 25,000 individual comments in free text submitted per survey worldwide
• Comments analyzed by topic using artificial intelligence
• Feedback provided to employees at various levels on how ENGAGE findings impact decision-making
• Results primarily shared by managers at team level with actions defined
• At corporate governance level, feedback on decision-making impact published globally on intranet
• ENGAGE survey includes questions on: health and wellbeing, diversity, equal treatment and opportunities, fair pay
• Question on faith in suitable actions if serious misconduct experienced: positive responses above cross-industry benchmarks
• Participation rate in employee survey added as sustainability criterion in long-term incentive plan (Prisma) for tranches starting 2024

Summary

Covestro has established a comprehensive framework of business conduct policies that are deeply integrated with its corporate culture and sustainability strategy. The policies cover core areas including compliance, human rights, supplier conduct, diversity and respect, health and safety, and product stewardship. All policies are explicitly linked to major international standards (UN Guiding Principles, OECD Guidelines, ILO Conventions, UN Global Compact). The company has implemented robust governance structures with clear responsibility assignments, regular monitoring through multiple channels (including employee surveys, supplier assessments, and compliance reporting), and transparent grievance mechanisms. The "We are 1" corporate culture serves as the foundation for policy implementation across the organization.

Management of relationships with suppliers

Supplier Engagement Program

With our Supplier Engagement Program, we are driving the reduction of scope-3-emissions by collaborating with suppliers to develop measures for a net-zero strategy. We are engaging up to 99% of our key suppliers in climate action initiatives.

Supply Chain Digitalization

Additionally, we are digitizing our procurement processes and systems to make purchasing more efficient and effective for both us and our suppliers.

Partnership Approach

Covestro places great importance on strong relationships with customers, suppliers, and partners across the value chain. Through transparent communication, open dialogue, and industry-specific teams, we build trust and strengthen sustainable partnerships.

7 Strong Business Entities ensure optimal alignment of all activities with market demands and customer needs.

Strategic Partnerships

Circular Economy Collaborations:

• Henkel Partnership: Henkel and Covestro are advancing engineered wood adhesives with bio-based raw materials. Using the mass balance approach, over 60 percent of certain adhesive components are derived from renewable resources.
• Deutsche Telekom Partnership: Covestro collaborated with Deutsche Telekom to produce the housing for the TV box and remote control of their MagentaTV One product using Makrolon® RE, a polycarbonate derived from bio-waste attributed via mass balancing.
• Carlisle Partnership: To enhance energy efficiency in buildings, Covestro supplies bio-circular MDI for insulation panels to Carlisle. With a CO2 reduction potential of up to 99 percent compared to conventional, oil-based products.

Raw Material Partnerships:

• Encina Partnership: Starting at the end of 2027, Encina, a producer of ISCC PLUS-certified circular chemicals, will supply Covestro with chemically recycled raw materials. These materials enable the production of more sustainable products with a reduced carbon footprint.

Innovation Partnerships:

• BioBTX Investment: Strategic partnership supporting the construction of the world's first demonstration plant for innovative recycling technology that can process 20 kilotons of plastic waste annually.
• Team Sonnenwagen Sponsorship: For six years, Covestro has supported the Aachen-based team as the main sponsor, but this collaboration is much more than sponsorship: It is a partnership of equals. The upcoming Sonnenwagen 5 will feature at least 7 Covestro materials.

Incidents of corruption or bribery

Disclosure approach

Covestro states in its List of Disclosures Required by ESRS (page 146) that the following ESRS G1-4 datapoints are classified as "Non-material datapoint":

• ESRS G1-4, 24 (a): Fines for violation of anti-corruption and anti-bribery laws
• ESRS G1-4, 24 (b): Standards of anti corruption and anti-bribery

This classification indicates that Covestro has assessed these disclosures as not material to the company's sustainability reporting under the double materiality assessment conducted for the 2024 reporting year.

Grievance mechanism and investigations

Covestro operates a global compliance SpeakUp! line (hotline and online form) operated by external service providers, which allows employees and third parties to confidentially and anonymously report suspected illegal or unethical conduct related to Covestro or its suppliers. The company has established processes for investigating suspected compliance cases, with all cases recorded in a central database. Confirmed violations are evaluated, and organizational, disciplinary, or legal measures are taken if necessary.

Compliance incidents are regularly reported by the Chief Compliance Officer to the Supervisory Board, the Board of Management, and the business entities' management teams. A monthly Compliance Telegram is published on the intranet providing an overview of incidents.

The Supervisory Board's Audit Committee "obtained information on an ongoing basis on enhancements to the compliance management system (particularly regarding anti-corruption measures), the handling of suspected compliance violations, progress in significant litigation, new legal and regulatory risks."

Quantitative metrics

No specific numbers of confirmed incidents of corruption or bribery, convictions, fines paid, employees disciplined, or contracts terminated due to corruption or bribery are disclosed in the 2024 Annual Report or Group Sustainability Statement.

Payment practices

Supplier Finance Arrangements

As of December 31, 2024, there are outstanding liabilities to 70 suppliers that are part of a supplier finance arrangement, amounting to a total of €93 million and thus accounting for approximately 4.4% of the total reported trade payables (€2,101 million). Of this amount, the suppliers in question have already received €85 million.

Payment Terms for Supplier Finance Arrangement Liabilities

The periods for the payment terms of SFA liabilities outstanding as of the reporting date:

Trade Accounts Payable Not Covered by Supplier Finance Arrangements

The periods for the payment terms of trade accounts payable not covered by a supplier finance arrangement also range from 0 to 360 days. This breakdown reflects the diversity of supplier relationships, although the focus is on standard market payment terms.

Credit Management

The Covestro Group limits credit risk exposure from trade accounts receivable by stipulating the shortest payment terms possible. Customer limits are set, regularly monitored, and exceeded only in agreement with Credit Management.

Receivables of €19 million (previous year: €17 million) are secured mainly by letters of credit.