Management of relationships with suppliers

Material impacts and their interaction with strategy and business model

Interaction with strategy and business model

The Volkswagen Group has set the target of being able to demonstrate by 2040 that, in terms of sales revenue, over 95% of relevant direct suppliers have a positive Sustainability Rating (S-Rating). The framework for this is provided by the Group sustainability strategy regenerate+, which aims to design the Volkswagen Group’s supply chain responsibly, minimize risks and make a positive contribution for all partners.

The impacts identified in the materiality assessment have an influence on the Group’s business model, strategy and value chain.

The Volkswagen Group uses a variety of supplier relationship management actions to respond to the way in which its material impacts affect its business model, strategy and value chain. These enable the positive impact to be maintained and reinforced, particularly through the Code of Conduct for Business Partners, specifications and the S-Rating.

Policies, actions and targets: Management of relationships with suppliers

As one of the world’s largest automotive manufacturers, the Volkswagen Group bears great responsibility toward its stakeholders. We not only recognize our responsibility but also strive to have a positive impact. The holistic approach of the Group sustainability strategy regenerate+ provides the basis for advancing sustainability in conjunction with stakeholders.

Responsible Supply Chain System

With the Responsible Supply Chain System (ReSC-System), we have established a comprehensive management system designed to identify human rights and environmental aspects in the supply chain at an early stage and address them systematically. It follows a risk-based management approach and is implemented even before a contractual relationship is established, that is, before delivery times and purchase prices are negotiated. This policy aims to avoid or minimize negative impacts, enhance positive impacts and continuously improve the sustainability performance of suppliers. The ReSC-System and its components are described in detail in the “Sustainability in the Supply Chain” chapter, under the section entitled “Management policy: Responsible Supply Chain System”.

The foundation of the ReSC-System is based on the following standard measures:

Risk analysis in accordance with the Responsible Supply Chain System

The risk analysis is the first step in the ReSC-System. It is based on the suppliers’ respective business models as well as on internal and external data sources on human rights and environmental risks. Based on this assessment, suppliers are assigned risk classes (low, medium, high). Based on this risk classification, the supplier is assigned a package of actions to prevent and mitigate the impacts identified.

Business Partner Due Diligence Process

Activities for verifying the integrity of business partners are described in detail in this chapter under “Actions: Corruption and bribery”.

Commissioning deliveries and services is the responsibility of the respective procurement organization of the brands and companies and must be mapped and coordinated in the Group committees and systems in accordance with applicable regulations.

Code of Conduct for Business Partners

The Code of Conduct for Business Partners is a key action to promote fair business conduct at the Volkswagen Group. The Group creates transparency and reliability by setting clear expectations for the conduct of business partners with respect to human rights, environmental, social, and compliance standards. This reinforces trust in business partnerships and ensures their long-term stability.

Further information on the Code of Conduct for Business Partners is provided in the chapter on “Sustainability in the Supply Chain”, under the section entitled “Standard actions as the foundation of the Responsible Supply Chain System”.

Specifications

In addition to the Code of Conduct for Business Partners, there are further product-specific requirements for suppliers. These are set out in the specifications and stipulate the way in which certain products must be manufactured. The requirements of the specifications include, for example, achieving maximum transparency in the supply chains for cobalt, nickel, lithium and natural graphite used in battery cells.

For new vehicle projects, the Volkswagen Group intends to make CO₂ emissions a technical feature for relevant components in the future. This means that suppliers are given binding CO₂ targets, compliance with which must be proved on request. Only suppliers who manufacture products in accordance with the requirements of the specifications are considered eligible for the award of contracts.

The specifications are regarded as an ongoing action.

Sustainability Rating

The Sustainability Rating (S-Rating) has been an established Group-wide instrument in the Volkswagen Group since 2019. This standardized Group tool allows the degree of compliance with the Volkswagen sustainability requirements by direct suppliers with a high sustainability risk and corresponding company size to be verified. The Volkswagen Group has set the target of being able to demonstrate by 2040 that, in terms of sales revenue, over 95% of relevant direct suppliers have a positive S-Rating. The framework for this is provided by regenerate+. One of the aims of the strategy is to design the Volkswagen Group’s supply chain responsibly, minimize risks and make a positive contribution for all partners. This also includes being able to report that 95% of suppliers have a certified environmental management system, such as ISO 14001 or EMAS.

The Volkswagen Group has set an intermediate target that the sales revenue share of the relevant direct suppliers with a positive S-Rating must represent 85% of the total procurement volume by 2025. The proportion of relevant direct suppliers with a positive S-rating in the reporting year was 87%, exceeding the defined target. Target achievement is continuously reviewed and monitored as part of the Group’s Top 10 program.