Affected Communities

The Volkswagen Group bears great responsibility towards society, the environment, and its partners. In our approach, we also take into account communities who could be directly or indirectly affected by the Group’s activities. Protecting these communities and involving them in our activities form a central part of our responsible and sustainable form of corporate governance.

MATERIAL IMPACT AND ITS INTERACTION WITH STRATEGY AND THE BUSINESS MODEL

The reporting year marked the first time that the materiality assessment identified a negative impact related to the economic, social and cultural rights of communities along the supply chain. The Volkswagen Group understands that it is responsible for identifying impacts on affected communities in raw material-related supply chains and for taking appropriate action to counteract negative developments or promote positive ones – depending on the nature of the impact.

The interaction between the strategy and business model, the management policy (Responsible Supply Chain System – ReSC System), and the actions and procedures creates a structured framework for managing the actions identified in this chapter in the context of impacts on affected communities in supply chains related to raw materials. The potential management options vary depending on the area of influence within the supply chain and are, in part, limited by restricted access to upstream stages. Nevertheless, the elements named form the basis for the risk-based handling of the relevant impact in this chapter.

Under the ReSC System, requirements for business partners are formulated, addressing issues including the protection of affected communities. The Code of Conduct for Business Partners contains binding regulations such as the prohibition of forced evictions, respect for humane living conditions and the rights of indigenous peoples. These requirements form part of the basic contractual relationship with our suppliers and are systematically checked and evaluated as part of the ReSC System.

In addition to this, the Responsible Raw Material Policy references the right of indigenous communities to Free, Prior and Informed Consent (FPIC) in relation to activities that could potentially impact their rights and also refers to the involvement of indigenous groups in stakeholder processes. The policy serves as a strategic orientation framework, providing guidance on dealing with human rights risks in raw Materials supply chains.

Other elements, such as risk analysis, the Supply Chain Grievance mechanism, the Human Rights Focus System (HRFS) and the Raw Material Due Diligence Management System (RMDDMS) help to identify, evaluate and respond to human rights aspects that may affect communities. Among other things, these systems enable incidents to be recorded, evaluations to be carried out, and actions to be developed in relation to human rights aspects in the supply chain.

The aforementioned tools are mutually complementary and address the impact on affected communities described in this chapter. To avoid any repetitions in content, we refer to an in-depth description of the actions in the “Sustainability in the Supply Chain” chapter. The perspective outlined below supplements the actions described there, adding information on the specific relevance of the identified negative impact on affected communities and the involvement of relevant stakeholder groups, particularly indigenous communities and local players. The focus remains on suppliers’ compliance with sustainability requirements. However, additional approaches to involve affected communities have been implemented in individual projects linked to critical raw materials. These projects aim to address risks related to human rights and the environment in raw materials-producing regions and involve local players – including indigenous communities – in dialogue formats and the development of actions. The results of this involvement are incorporated into the further development of project-related actions.

The Volkswagen Group generally develops targets where there is a connection to its strategies. No measurable outcome-oriented targets in accordance with the requirements of ESRS have been defined in relation to the economic, social and cultural rights of communities.

During the materiality assessment, communities in regions that produce raw materials were identified as being affected in particular. The analysis is based on the Raw Materials Due Diligence Management System (RMDDMS), which focuses on human rights and environmental risks linked to critical raw materials. For this reason, the focus is on the upstream value chain, particularly communities who are affected by the activities of suppliers or sub-contractors in mining and production regions. Beyond these, the following types of communities were also taken into account:

• Communities along the upstream supply chain, for instance in mining regions in Chile, South Africa, Indonesia, India and Madagascar.

• Communities at either end of the value chain, for example in raw material mining regions or regions where disposal takes place, who could be affected by pollution or social impacts.

• Indigenous communities whose rights and living standards could be adversely affected by land use, water consumption or other interventions.

• Local communities whose lived realities may be influenced by infrastructure, employment, social programs or dialogue formats.

These communities are not part of the Volkswagen Group’s own operations but are indirectly affected by business relationships and the upstream supply chain.

The whistleblower system serves as a central complaint procedure for the Volkswagen Group. It is coordinated by the Central Investigation Office in Wolfsburg. Its principles, reporting channels and procedures are described in detail under “Protection of whistleblowers” in the chapter “Business Conduct Information”.

In the year under review, there were no violations of the human rights protected by the Lieferkettensorgfaltspflichtengesetz (LkSG – German Supply Chain Due Diligence Act) relating to affected communities in the upstream and downstream supply chain. As such, there are also no cases regarded as serious human rights violations as defined by ESRS S3, since the LkSG is based on the United Nations Guiding Principles on Business and Human Rights, the International Labour Organisation (ILO) Declaration on Fundamental Principles and Rights at Work and the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises.

To reinforce the rights and improve the living standards of affected communities, the Volkswagen Group is involved in local and international initiatives.

The goal of running projects in regions that produce raw materials is to address negative human rights and environmental impacts and improve the living conditions of the affected communities. Targeted actions are applied with the aim of reducing negative impacts, addressing structural challenges and empowering local stakeholders in their capacity to act.

Affected communities are involved via multi-stakeholder platforms, local partnerships and dialogue formats, enabling the perspectives of indigenous groups, civil organizations and local authorities in particular to be taken into account. The results of this involvement – and especially the results of the projects described in the following – are incorporated into the further development of the respective project actions and focus areas. While isolated efforts are linked to the in-house due diligence process, for instance under the ReSC System, this does not take place on a systematic basis. Affected communities are engaged as part of the ReSC System. Group Procurement Sustainability at Volkswagen AG is responsible for this at an operational level. Strategic management is embedded in the ReSC System and is supported by an overarching governance structure within the Group. Feedback from dialogue formats in individual projects is documented and incorporated into the further development of actions.

Wherever possible, the perspectives of vulnerable groups are taken into account in the projects described, for instance through the involvement of local non-governmental organization (NGOs) or civil society organizations. Consideration of specific groups, such as indigenous communities, is included in the project descriptions. The perspectives of individual groups within communities (for example, women and girls) are not currently systematically recorded on a comprehensive scale.

During the materiality assessment, a material negative impact on affected communities was identified in regions that produce raw materials. These relate, in particular, to environmental and social aspects that may arise as a result of activities in the upstream supply chain, such as water consumption, land use or living conditions in mining areas. Even if there is no direct business relationship with individual mines, the following regions were categorized as being particularly relevant due to their structural risk situation and their importance for critical raw materials. The communities based in these regions – including indigenous groups and local populations – are the focus of any project actions that aim to address negative impacts, empower local stakeholders, and respond to human rights and environmental challenges in the context of raw material extraction. The following Volkswagen Group projects make a particularly relevant contribution to this:

Responsible Lithium Partnership (Chile)

As part of the Responsible Lithium Partnership multi-stakeholder project, the Volkswagen Group became involved in the sustainable sourcing of water in Salar de Atacama– a region with a sensitive ecosystem and water scarcity. The goal was to utilize dialogue and collective action in order to avoid conflicts over water resources and reinforce the rights of the local population. Relevant stakeholders – who included indigenous communities, local civil society, NGOs, representatives from academia, businesses, authorities, and mining companies – were engaged systematically via Mesa Multiactor, a platform coordinated by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ – German Society for International Cooperation). This has been facilitating ongoing dialogue between 22 local stakeholders since 2021.

The region of Salar de Atacama is an important location for the mining of lithium, a raw material of central importance for electric mobility. Due to the water-intensive extraction methods and sensitive environmental conditions, there are potential negative impacts for indigenous communities, particularly in relation to access to water resources. In light of these circumstances, the region was classified as particularly relevant during the materiality assessment. The project aims to involve affected communities in dialogue processes at an early stage and work with local stakeholders to develop solutions to any challenges identified.

In addition, at the start of the reporting year, an international stakeholder event was held in Berlin, which encouraged exchanges between project partners and civil organizations and highlighted best practices for the implementation of due diligence requirements in the deep supply chain. Representatives from the affected communities in Chile also took part in this event, both as panelists and participants. The actions implemented include a water cadastre, hydrological mapping, environmental initiatives and a gray water recycling system at a local school. The results of this engagement with stakeholders were integrated directly into the analysis of risks and related to raw materials and the development of actions as part of the in-house due diligence process in the RMDDMS. The effectiveness was evaluated by GIZ. Following successful development work, the project was transferred to a locally embedded structure as planned. Local stakeholders exhibit a high degree of engagement and are continuing to work hard to implement the initiated actions.

From Volkswagen’s perspective, the project’s central target of safeguarding and boosting local engagement was achieved. The project therefore continues to make an important contribution to sustainable development in the region.

Marikana Coalition (South Africa)

Via its brand Scania, the Volkswagen Group supports the Marikana Coalition, an educational and social project in a region of South Africa that is dominated by platinum group metals (PGM) mining. The Marikana region is affected by the extraction of platinum group metals, which are a feature of global supply chains for the automotive industry. The communities based in this area are particularly impacted by the social and economic consequences of mining. The project addresses structural challenges in a region that is indirectly linked to global raw material streams.

The goal is to open up new prospects away from mining for children and young people living in a structurally disadvantaged mining region. A youth center has been set up in a former mining building and offers educational services, careers advice and social support. The center is run by local, trained staff and provides a safe haven for young people. The initiative contributes to the reinforcement of social infrastructure and the strengthening of rights of communities who are directly affected by mining activities. At present, the project is due to run until the end of the reporting year, with the option of an extension. The Marikana Coalition is managed by a steering committee, who reviews progress and project outcomes on a quarterly basis.

Nickel project (Indonesia)

As a founding member of a local partnership project, the Volkswagen Group is involved in improving environmental and social standards in the Indonesian nickel sector, particularly in the mining regions in Halmahera. The identified region is important for the extraction of nickel, which is used, among other things, for the batteries in electric vehicles. Due to the environmental sensitivity and social challenges prevalent in the mining and processing regions, the region was identified as a priority for partnership-based commitment. Actions are centered around the affected communities, even though there is no direct supply relationship with a specific mine. The goal is to protect biodiversity, improve living standards, and preserve water quality in mining regions.

As part of the preparations for the project, a comprehensive study was carried out to identify key environmental and social challenges along with potential conflicts of interest. Local NGOs were involved in this process so that the perspectives of affected communities could be factored in to an appropriate extent. The results formed the basis for defining the boundaries of the project and identifying priority action areas. Working in collaboration with local stakeholders, NGOs and businesses, the aim is to develop and implement actions specifically to address ESG risks. One of the central elements here is a new stakeholder forum, which is intended to safeguard ongoing dialogue with local stakeholders with the goal of achieving transparency and the effective involvement of relevant groups.

The initiative forms part of a comprehensive commitment to the promotion of responsible raw material extraction and the reinforcement of affected communities’ rights. The project has a three-year term and will run until late 2028. As part of the project’s ramp-up, a policy for measuring effectiveness is currently under development aimed at systematically recording and evaluating the effectiveness of planned actions and initiatives with regard to the intended improvements for affected communities. The policy is being developed in close consultation with local partners and NGOs to ensure that relevant indicators and methodologies reflect the actual needs and perspectives of communities. The results are due to serve as a basis for evaluating project outcomes in future.

Responsible Mica Initiative (India, Madagascar)

Structural challenges, such as poverty and an increased risk of child labor, have been recognized in regions where Mica is produced, such as India and Madagascar. These challenges are regarded as particularly sensitive across the entire industry and were classed as potentially relevant for human rights risks during the materiality assessment. Since mica is used as a raw material within the Group, the Volkswagen Group takes a precautionary approach and is involved in the Responsible Mica Initiative (RMI) to help to improve the situation at a local level. The initiative actively engages with local communities and civil organizations to address the structural causes of child labor. Actions in this area include access to education, the promotion of alternative sources of income for parents, and integration with state support programs. These activities aim to reinforce the resilience of the local community and create long-term development prospects. The RMI’s Community Empowerment Program was launched in 2018. It has been receiving financial support since 2020 under Porsche’s membership in the RMI. The project itself is an ongoing project with a long-term horizon and, at present, no planned end date. The current phase of the project is running until December 2027. Following a critical appraisal, the project is then due to continue, if necessary, with required adjustments. The RMI’s latest strategy plan extends until the year 2030.

As a member of this initiative, the Volkswagen Group is pursuing the goal of helping to improve living standards in mica mining regions. The Group provides the initiative with financial and strategic support and contributes to the development of actions and the standardization of processes and audit standards across the industry. The Volkswagen Group has yet to define any of its own quantified targets; the initiative sets its own specific targets. As a representative of the Group, Dr. Ing. h.c. F. Porsche AG is actively involved in various RMI working groups, enabling it to influence its strategic direction and objectives.

To review the effectiveness of supported actions, the Volkswagen Group uses regular impact assessments, which are commissioned by the RMI and are available to the public. The latest assessment of the Community Empowerment Program covers the period from 2021 to 2024. The results are integrated into the internal evaluation of human rights risks and into the development of actions to improve the supply chain.