Workers in the value chain
We aim to meet our legal, social, and environmental responsibilities not only within the Group but also in our supply chain.
MATERIAL IMPACTS AND RISKS AND THEIR INTERACTION WITH STRATEGY AND BUSINESS MODEL
The Volkswagen Group’s upstream and downstream value chain is taken into account when identifying material impacts, risks and opportunities in the materiality assessment. The complexity of the upstream and downstream value chain means that there is a certain lack of transparency regarding actual impacts on workers in the value chain. The assessment of these impacts has therefore been based on conservative assumptions. Detailed information is provided in the “General information on the procedure for and results of the double materiality assessment” chapter.
The materiality assessment showed that the workforce of direct and indirect suppliers in the upstream and downstream value chain are or may be materially affected by positive and negative impacts. This applies in particular to the workforce in the upstream value chain. Suppliers also include joint ventures that also act as suppliers.
Suppliers from the upstream value chain include producers of components for automotive production, machinery, tools and equipment, and also producers of raw materials. Recycling service providers, for example, are classified as suppliers in the downstream value chain. Suppliers that cannot be clearly attributed to the upstream value chain or the downstream value chain are also taken into account. These include, for example, IT service providers, construction companies, canteen service providers and cleaning service providers.
In the context of the responsible supply chain system (ReSC system) policy and incorporated actions, such as the raw materials due diligence management system (RMDDMS) and the human rights focus system (HRFS), and various audits of suppliers, the Volkswagen Group has developed an understanding of how workers with particular characteristics, those working in particular contexts, or those undertaking particular activities may be more greatly affected by impacts. In individual cases, this includes young workers and migrant workers, for example. These findings have been incorporated into the materiality assessment.
Impacts in the area of working conditions in the value chain
The Volkswagen Group’s materiality assessment identified an actual positive impact on the working conditions of workers in the upstream and downstream value chain whereby the impact in the immediate business environment, e.g. on direct suppliers and their contractual partners, is estimated to be higher. The positive impact may already be visible in the form of better working conditions and is based on the dissemination of the Volkswagen Group’s sustainability requirements, event-related or risk-based controls, and other actions.
The positive impact arises as a result of factors such as the use of the Code of Conduct for Business Partners, which focuses on working conditions and is intended to ensure that direct suppliers take relevant sustainability topics into account. As a result, the workers may benefit from improved working conditions, such as compliance with occupational safety requirements and health protection.
In addition to the Code of Conduct for Business Partners, there are projects such as Cobalt for Development that support workers, including artisanal smallholders who work in the raw material production region in the Democratic Republic of the Congo. Working conditions can be improved, for example, by running training on occupational safety and health and by providing protective work clothing. Workers, such as smallholders who work in rubber processing in Indonesia, are also particularly affected by the positive impact. Training can enable smallholders to secure an adequate living by learning efficient ways to improve agricultural quality and cultivation methods.
Furthermore, the Volkswagen Group’s materiality assessment identified an actual and potential negative impact for suppliers in the upstream and downstream value chain that may take effect over a medium-term time horizon. In individual cases, direct suppliers might not have adhered to the requirements of the Code of Conduct for Business Partners. This may be expressed in the form of insufficient action on occupational safety, unsafe working conditions, or low wages.
The following examples describe two regions and sectors particularly affected by this impact. The social standard audits identified that excessive overtime was frequent and widespread, especially in the procurement market in China. Furthermore, an internal analysis identified a high risk of insufficient compliance with the Volkswagen Group’s requirements on occupational health and safety in the logistics sector. Furthermore, an internal analysis identified a high risk of insufficient compliance with the Volkswagen Group’s requirements on occupational health and safety in the logistics sector.
Impact in the area of equal treatment and equal opportunities for workers in the value chain
The Volkswagen Group’s materiality assessment identified an actual positive impact on the equal treatment of and equal opportunities for workers in the upstream and downstream value chain. If suppliers in the upstream and downstream value chain comply with and disseminate sustainability requirements and conduct risk-based and ad hoc supplier audits to check compliance with requirements, this can help to promote equal treatment and equal opportunities. This impact may be noticeable for workers in the upstream and downstream value chain in the form of non-discriminatory pay.
Impacts in the area of other work-related rights of workers in the value chain
In the context of the materiality assessment, the Volkswagen Group has identified actual positive impacts on groups potentially affected by child and forced labor and the observance of other labor-related rights in individual cases in the upstream and downstream value chain. This strengthens the rights of rights holders, for example, to avoid child labor and forced labor. Actions that contribute to this include complying with and disseminating sustainability requirements from the Code of Conduct for Business Partners and conducting risk-based and ad hoc supplier audits on compliance with the requirements. This promotes compliance with other work-related rights, primarily by direct suppliers. Moreover, as part of a mica mining project, alternative income sources are created for parents to ensure that families can generate enough income and children can attend school instead of working.
In addition, the materiality assessment identified an actual negative impact in the upstream and downstream value chain. This arises when suppliers do not adhere to the requirements of the Code of Conduct for Business Partners in individual cases. The focus in this case is on areas such as battery supply chains, where human rights violations such as child labor or forced labor may arise.
Financial risk of employment relationships in the value chain
The materiality assessment identified the material medium-term financial risk of not taking sufficient account of human rights in the Volkswagen Group’s upstream and downstream value chain. This has a particular impact on the employment relationships in the value chain. The risk results from the possibility that human rights considerations are insufficiently addressed within the value chain. One possible risk is that child labor may occur in the battery supply chain. This may lead to violations of applicable law or associated reporting procedures and may result in possible fines or compensation payments for the Volkswagen Group. Another possible consequence is the restriction of market access (import bans), which may result in volume losses. Any subsequent discovery of violations may also lead to recalls and considerable reworking costs for vehicles that have already been delivered. In addition, reputational damage is to be expected.
Interaction with the strategy and business model
The impacts identified in the materiality assessment and the financial risk have an effect on the Group’s value chain. The topic of value chain workers is taken into account at an overarching level in the Group’s sustainability strategy regenerate+. The focus is on creating responsible and sustainable supply chains. In the area of procurement, we launched a comprehensive review of the strategy program, whose aims include strengthening sustainability and implementing regenerate+.
The Volkswagen Group responds to negative impacts in the areas of working conditions and other work-related rights. Preventive actions within the ReSC system have an impact here, including confirmation of the Code of Conduct for Business Partners, the sustainability rating (S-Rating), training courses for suppliers, and the HRFS, as do mitigation and remedial action such as the supply chain grievance mechanism (SCGM) and supplier audits. These actions also address risk in the area of other work-related rights and apply to direct suppliers and, in some cases, to indirect suppliers – as also shown in the ReSC system chart in “Policy: Workers in the value chain”.
In order also to be able to address negative impacts lower down the supply chain (indirect suppliers), the Volkswagen Group has identified 18 high-risk raw materials. A management system, the RMDDMS, was put in place for this and is used to identify sustainability risks, take appropriate action to mitigate them and create transparency in the relevant supply chains.
The measures may lead to the prevention of breaches of the Volkswagen Group’s sustainability requirements with regard to working conditions and other work-related rights, such as working time, adequate wages and occupational safety. This leads to workers in the upstream and downstream value chain having their rights strengthened and being able to demand remedial action in the event of noncompliance.
These measures are allowing the Volkswagen Group to promote positive impacts in the areas of working conditions, equal treatment and equal opportunities and other work-related rights. Other components of the actions that may have a positive impact include projects and cooperation in multi-stakeholder initiatives, such as the NAP industry dialogue, Responsible Business Alliance (RBA), the living wage HRFS focus topic and the industry dialogue working groups. A detailed description and explanation of all actions in this action area is provided in “Actions: Workers in the value chain”.
POLICY: WORKERS IN THE VALUE CHAIN
Respect for human rights is of paramount importance to the Volkswagen Group. We are convinced that sustainable economic activity is only possible by acting ethically and with integrity. Within the framework of our entrepreneurial activities, we are fully committed to upholding our responsibility regarding human rights.
In order to live up to these human-rights and environmental obligations, especially with regard to workers in the value chain, the Volkswagen Group developed the ReSC system management policy in Procurement. This begins before a contractual relationship is entered into, i.e. before the negotiation of specific delivery times and purchase prices. The implementation of the due diligence obligations enshrined in it extends to all direct suppliers of the Volkswagen Group in both the upstream and the downstream value chain.1 Depending on the situation and the risk, it also encompasses indirect suppliers.
The policy has the aim of avoiding and minimizing potential and actual negative impacts on workers along the Volkswagen Group’s supply chain based on a risk analysis. It is also intended to help to identify and put an end to breaches and continuously improve suppliers’ sustainability performance.
At the same time, it is possible to react to actual negative impacts on the aforementioned working conditions and other work-related rights (child labor, forced labor, adequate housing, and water and sanitation) of value chain workers. At the same time, this is intended to reduce the financial risk for Volkswagen AG caused by actual negative impacts on work-related rights of value chain workers.
Furthermore, positive impacts on working conditions, other work-related rights, and equal treatment and equal opportunities (gender equality and equal pay for work of equal value, employment and inclusion of persons with disabilities, measures against violence and harassment, and diversity) of value chain workers are to be achieved.
The ReSC system includes the following elements, which build on each other:
Risk analysis: A regular risk analysis is used to identify potential negative impacts on workers at supplier level. The processes for analyzing risk represent the first step of the ReSC system. Based on the risk class determined for certain business models and countries, the supplier is assigned a package of actions to prevent and mitigate the potential negative impacts identified to enable it to be eligible for the award of contracts. A detailed description of the risk analysis is provided in “Actions: Workers in the value chain”.
Standard actions: These preventive and reactive actions include confirmation of the Code of Conduct for Business Partners by direct suppliers, the SCGM, media screening, the S-Rating, and training for suppliers and employees.
Deep-dive actions: These include the HRFS, the RMDDMS, and collaboration with external partners to progress the sustainability policy in the supply chain.
Responsible supply chain system (ReSC system)
The Volkswagen Group respects and promotes the regulations on protecting human rights worldwide as fundamental and universally valid requirements. The Group rejects all forms of child or forced labor, modern slavery or human trafficking. On this basis, we have set out expectations of our business partners’ conduct with respect to key human rights in the Code of Conduct for Business Partners. It also includes environmental, social and compliance standards as well as the obligation to comply with current labor, health and safety laws and with the conventions of the International Labour Organization (ILO), in particular with respect to fundamental rights at work, including provisions on precarious work. To extend the requirements of the Code of Conduct for Business Partners further down the supply chain, the Volkswagen Group also requires its suppliers to pass these requirements on to their direct business partners.
The requirements of the Code of Conduct for Business Partners are based on documents including the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the Fundamental Conventions of the International Labour Organization (ILO), the UN Universal Declaration of Human Rights, the Ten Principles of the United Nations Global Compact, and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. However, the Code of Conduct is not just based on international standards, but also objectives, rules and policies of the Volkswagen Group.
Checks are carried out on an ad hoc basis to determine whether the Code of Conduct for Business Partners is compliant with the international standards and frameworks listed above. Any adjustments are made as required. The confirmation of the Code of Conduct for Business Partners by direct suppliers is integrated into the ReSC system as a standard action, which means that corresponding principles in the context of the management policy are anchored here.
We take the view that continuous dialog between the stakeholders and the Volkswagen Group on principles and implementation issues is important. For businesses, it is often challenging to obtain accurate and objective information enabling a comprehensive assessment of human-rights situations. In order to achieve further progress, we therefore seek cooperation and dialog with relevant national and international players – for example, through multi-stakeholder initiatives. In addition, we are also in continuous communication with internal stakeholders such as the Sustainability Procurement Network2, when it comes to issues such as the further development, adjustment, or review of the methodology for supplier sustainability assessment or the ReSC system. Information obtained from industry and supply chain initiatives and internationally recognized standards are also built into the system’s continuous development and taken into account in shaping the due diligence obligations. For instance, the views of stakeholders were considered in developing the ReSC system, such as by means of external studies. Examples of sector and multi-stakeholder initiatives through which the views of value chain workers are taken into account are described in “Processes: engaging with value chain workers”.
Processes that facilitate remedial action for value chain workers who have been harmed by actual negative impacts are also defined in the context of the ReSC system.
The supply chain grievance mechanism (SCGM) was implemented as part of the ReSC system to systematically process reports of risks or violations. It is used to process hints of violations of the Code of Conduct for Business Partners by the Volkswagen Group’s direct or indirect suppliers. Part of this may also include the definition of (remedial) actions once the facts of the case have been established and the corresponding conclusions have been made. The mechanism is available via the channels of the Volkswagen Group’s whistleblower system and is open to all potentially affected stakeholders.
In addition, risk-based and ad-hoc on-site audits of suppliers are carried out as part of the ReSC system. If sustainability risks or violations are identified, an action plan is developed depending on the overall result of the audit, and the action plan’s implementation is monitored. Detailed information on this is provided in “Actions related to value chain workers”.
More information on the existing remediation processes and available channels for value chain workers to lodge complaints can be found in “Processes to remediate negative impacts and channels for value chain workers to raise concerns”.
During the reporting year, there were violations of the human rights protected by the Lieferkettensorgfaltspflichtengesetz (LkSG – German Supply Chain Due Diligence Act) with regard to supplier workers in the upstream and downstream value chain. These can also be based on hintsreceived by the relevant investigation office in the previous year, but for which a violation was only identified during the reporting year. This also means that there are cases of severe human rights violations within the meaning of the ESRS. Since the LkSG is based on the United Nations Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work and the OECD Guidelines for Multinational Enterprises, it can therefore be assumed that the violations against protected legal interests of the LkSG correspond to violations of these frameworks in this respect. Where human rights violations are concerned, the LkSG protects against forced labor and slavery, disregard for occupational safety and health, the withholding of an adequate wage, disregard for the freedom of association and the use of security forces in the context of human rights violations.
Responsibility for the overarching policy rests with the related board level management functions. The Group Management Board Member for Brand Group Core is ultimately responsible for Group Procurement and therefore also for the ReSC system. The Group Procurement Sustainability department at Volkswagen AG conducts the operational management of sustainability topics in the supply chains.
The ReSC system is reviewed by Group Procurement Sustainability in coordination with the members of the Sustainability Procurement Network, Group Compliance and Group Legal, and recommendations for action are developed.
Implementation of the policy is mandatory and is enshrined in a Group policy for Group controlled companies. Sampling of companies is carried out annually to determine whether the ReSC system has been implemented in local policies.
The structures and processes needed to implement the ReSC system are set out in Group policies and process documentation. These are available internally to the individuals responsible for implementing the ReSC system. Relevant information such as the Code of Conduct for Business Partners is also made publicly available for value chain workers who may be affected, including in the form of external reporting formats.
PROCESSES FOR ENGAGING WITH VALUE CHAIN WORKERS
The Volkswagen Group uses various formats to incorporate the views of value chain workers when fulfilling its human rights due diligence obligations in order to be able to respond appropriately to material negative and positive impacts. The Head of Group Procurement Sustainability has overarching operational responsibility for implementing the formats and integrating the findings in the company’s approach.3
Communication formats with representatives of value chain workers
Multi-stakeholder initiatives and local projects: By participating in multi-stakeholder initiatives and local projects, the Volkswagen Group gains insights into value chain workers’ views. For instance, the Volkswagen Group is a member of the National Action Plan (NAP) automotive industry dialogue and the Responsible Mica Initiative (RMI), and a project partner of Cobalt for Development and the Responsible Lithium Partnership. At regular working group meetings, the Volkswagen Group works with other members and partners, including representatives of value chain workers such as NGOs or trade union associations, on topics including audit standards and catalogs of actions for improved implementation of due diligence obligations and improved working and living conditions. The results are taken into account in the ReSC system. The views of value chain workers are therefore incorporated into the risk analysis and action development stages of the Volkswagen Group’s due diligence process in different ways depending on the initiative. The Cobalt for Development initiative involves regular dialog to assess effectiveness.
External events: The Volkswagen Group is a member of the UN Global Compact (UNGC). In this context, in 2024 representatives of the Group took part in the “Living Wages Roundtable Conference – Implementing Responsible Purchasing Practices along the Supply Chain”, in which the representatives of value chain workers such as NGOs, trade union representatives and the Asia Floor Wage Alliance represented the views of value chain workers through talks and dialog formats. In the reporting year, the Volkswagen Group additionally took part in the Sorgfaltspflichten im Transportbereich – Wege zur Umsetzung (Due Diligence in the Transport Sector: Implementation Options) conference initiated by the NGO Südwind. In this format, solutions for improving working conditions were discussed with company representatives, trade unions and the Federal Office for Economic Affairs and Export Control (BAFA). The findings from these communication formats are incorporated into the further development of the due diligence processes, particularly at the level of developing actions.
Communication formats with value chain workers
Significant examples of communication formats with value chain workers can be found below:
CASCADE project: Since 2021, Porsche AG has been responsible for the coordination and implementation of the CASCADE project to create capacity in the Jambi province in central Sumatra (Indonesia) as part of the RMDDMS, having initiated this project in collaboration with global tire manufacturer Michelin. In cooperation with local NGOs and rubber processing businesses, the project develops and implements measures to improve working conditions and promote the use of environmental and social practices. Workers’ views were also incorporated through an initial risk analysis. The effectiveness of the cooperation is checked by obtaining views from the farmers affected through interviews and questionnaires. The findings from these communication formats are incorporated into the further development of the due diligence processes, particularly at the level of developing actions.
Audit formats: Using supplier audits, the views of value chain workers are directly included in the fulfillment of due diligence obligations in the form of surveys (interviews). To protect suppliers’ workers, they are selected at random and assessments are treated anonymously. The surveys of suppliers’ workers are used to identify violations or risks as part of the audit, and an action plan is developed based on the deviations identified in the audit. As the results of the interviews can directly impact the action plans, the surveys of suppliers’ workers are seen as an effective way of incorporating the views of workers in the value chain.
Findings from the audit are also incorporated into the further development of the risk management system and the risk analysis and the development of appropriate measures. The audit formats include the RSCI audit standard of the Responsible Supply Chain Initiative e. V. (RSCI), and Volkswagen-specific standards such as VOC audits (S-Rating), the social standard audits, which are primarily used in the HRFS, and raw materials audits. Further information on this is provided in “Processes: Engaging with value chain workers”.
Supply chain grievance mechanism (SCGM): Volkswagen has also established a mechanism that enables value chain workers (including vulnerable groups) to report their interests and problems at any time. The mechanism is open to all potentially affected stakeholders, such as suppliers’ workers and their representatives, trade unions or civil society players, NGOs or representatives of communities in the vicinity of production sites. The SCGM is used to process reports on breaches of the Code of Conduct for Business Partners by the Volkswagen Group’s direct or indirect suppliers and can be accessed via the whistleblower system’s channels. If risks or breaches are identified, appropriate actions are introduced. Multi-stakeholder initiative working groups (e.g. the Drive Sustainability initiative) and interdisciplinary working groups address the effectiveness of grievance mechanisms in general. Participating in the working groups means that the supply chain grievance mechanism team’s experts can identify optimization requirements for the working groups. In some cases, relevant stakeholders such as NGOs, as representatives of value chain workers, are also involved as dialog partners. More information on the existing remediation processes and available channels for value chain workers to lodge complaints can be found in “Processes: Remedy and complaint channels”.
PROCESSES TO REMEDIATE NEGATIVE IMPACTS AND CHANNELS FOR VALUE CHAIN WORKERS TO RAISE CONCERNS
The whistleblower system serves as a central complaint procedure for the Volkswagen Group. The Central Investigation Office in Wolfsburg is responsible for coordinating the Group-wide whistleblower system. The Volkswagen Group whistleblower system’s principles, reporting channels and procedures are described in detail in the “Business conduct” chapter.
Employees, business partners and their employees, customers and other third parties can, at any time, report information on potential breaches of the rules (which include violations of applicable law or even the Group’s own Code of Conduct) in the company’s own business area or in the upstream and downstream value chain – including serious risks and human-rights and environmental violations. They may make such reports anonymously if they so choose.
Possible reporting channels and further information on the whistleblower system – for example, the rules of procedure – are publicly accessible on the Volkswagen Group website. Information on the whistleblower system is also made available to business partners through the Code of Conduct for Business Partners, which requires business partners to provide their employees with unhindered access to the whistleblower system implemented by the Volkswagen Group and to ask their own suppliers to do the same.
In addition to this complaint channel operated by the Volkswagen Group itself, external grievance mechanisms are also available. These are described in the “Employees and non-employees” chapter.
Approaches and procedures for implementing remedial action
When a complaint is received through the reporting channels managed by the whistleblower system, the first step is to document it. If the complaint concerns a situation in the Group’s own business area without any employee misconduct, the whistleblower system will immediately forward the complaint to the relevant body within the Group that, based on the complaint’s subject matter, is responsible for handling the complaint.
The whistleblower system’s Central Investigation Office forwards potential human-rights and environmental violations or risks or breaches of the Code of Conduct for Business Partners by direct or indirect suppliers to the SCGM for further investigation. The hintsare logged in an internal IT system and the handling of these cases is documented.
The processing of hintsin the SCGM up to their closure is uniformly described in a binding process manual and is managed by the Group. Reports are processed together with the companies and relevant regions of the Volkswagen Group. Violationsidentified are categorized by their severity in accordance with the process. Depending on the categorization of theviolation, appropriate measures are then introduced. If risks are identified at indirect suppliers, actions are also initiated, for example an audit to identify possibleviolations. This requires the assistance of the direct supplier with whom a contractual relationship exists. If there are serious violations, it is possible to temporarily block suppliers from eligibility for the award of new contracts or to terminate the business relationship with them.
The effectiveness of remedial actions is selectively reviewed on a case-by-case basis. Where, for example, actions are defined in collaboration with the supplier, they are logged and made available to everyone involved. The effectiveness of and compliance with the agreement will be reviewed in due course by making inquiries after the actions have been taken. Another option is to interview the supplier’s workers after the case has been closed, possibly as part of a re-audit.
The violationsor risks identified in audits are not opened as cases in the SCGM. If audits identify sustainability risks or violations, an action plan is developed depending on the overall result of the audit or the risks or violationsthe audit identifies, and the action plan’s implementation is monitored. Evidence of the implementation of the actions is needed to obtain a positive S-Rating and thus be eligible for the award of contracts. Detailed information on this is provided in “Actions: Workers in the value chain”.
Effectiveness test and value chain workers’ trust in the processes
The whistleblower system’s effectiveness is tested. Further information on this is provided in the “Employees and non-employees” chapter. Moreover, multi-stakeholder initiative working groups (e.g. the Drive Sustainability initiative) and interdisciplinary working groups address the effectiveness of grievance mechanisms in general. In some cases, relevant stakeholders such as NGOs, as representatives of value chain workers, are also involved as dialog partners. The working groups’ findings may help the SCGM team’s experts to identify the SCGM’s potential optimization requirements.
At the present time, there are no actions aimed at analyzing whether workers in the value chain are aware of and trust the structures and processes of the SCGM.
The publicly available rules of procedure for the Volkswagen Group’s grievance mechanism stipulate that the Volkswagen Group must protect whistleblowers or complainants who cooperate in investigations to the best of their knowledge and belief from discrimination and reprisals, as far as the Group is able to. The option of making an anonymous report for the protection of the complainant is also intended to contribute to this. The processing of the hintsand any follow-up questions was also confidential and anonymous, if this is requested.
ACTIONS: WORKERS IN THE VALUE CHAIN
This section covers the sustainability matters specified in ESRS 1 that were identified as material in the materiality assessment: With regard to working conditions for value chain workers, this includes working time, adequate wages, social dialogue, freedom of association, including the existence of work councils, collective bargaining and health and safety. With regard to equal treatment and opportunities for all, the topics of gender equality and equal pay for work of equal value, employment and inclusion of persons with disabilities, measures against violence and harassment, and diversity are material aspects. Furthermore, reference is made to other work-related rights, with the topics of child labor, forced labor, adequate housing, and water and sanitation taken into account here.
Responsible supply chain system
Due to the diversity of its products, the Volkswagen Group’s supply chain is extremely complex, globally distributed and subject to constant change. It includes more than 66,000 supplier sites in more than 95 countries around the world. The activities may have potential negative impacts on the environment and on people in the supply chain. At the same time, the size of the Volkswagen Group in the market also means there are opportunities to achieve environmental and social improvements in its suppliers’ countries and sites.
For the Countries in which Volkswagen has direct suppliers metric, all the Volkswagen Group’s direct suppliers that were reported by the Group companies to the procurement data warehouse in the reporting year are taken into account. A supplier site in each case refers to the site of a direct supplier.
In the 2024 reporting year, the Volkswagen Group took standard and deep-dive actions in the ReSC system in order to minimize and eliminate material potential and actual negative impacts on the workers of direct and indirect suppliers in the upstream and downstream value chain. In addition, actions were taken to achieve positive impacts on these workers and manage the material financial risk arising for the Volkswagen Group if actual negative impacts on other work-related rights such as child labor or forced labor occur. The standard actions are taken for all direct and, in some cases, also indirect suppliers. Deep-dive actions look at high-risk topics and raw materials to address negative and positive impacts that also occur in particular further down the supply chain. The findings from the work on deep-dive actions can also result in the adjustment of standard actions for direct suppliers.
Actions that are used to manage the actual negative impact on other work-related rights of workers can also help to minimize the identified financial risks. It may be possible to reduce the financial risk arising as a result of possible reputational damage or penalties in the event of infringements of the law through management of these impacts. External developments – for example, local legislation such as the LKSG – were taken into account when assessing the financial risk. The risk is monitored in the Volkswagen Group’s internal control system.
The internal functions that are involved in implementing the ReSC system’s actions comprise, in particular, Group Procurement Sustainability and procurement sustainability representatives from selected companies (Sustainability Procurement Network). More than 140 experts worldwide are involved in the Sustainability Procurement Network.
All value chain workers who are involved in a regular communication format between the Group companies are taken into account when calculating the number of experts involved in the Sustainability Procurement Network.
Risk analysis for determining necessary and appropriate actions
The regular risk analysis as part of the ReSC system is used to identify potential negative impacts on workers at a specific supplier. The processes for analyzing risk represent the first step of the ReSC system. The analysis is made on the basis of the suppliers’ business models and takes account of internal and external data on human-rights and environmental risks. Based on the assessment of these risks, each supplier is assigned a low, medium, or high sustainability risk. This indicator is used as a guide to assess the degree to which identified negative impacts on workers at the relevant supplier may occur. For suppliers with a low sustainability risk, a country risk score is also applied. If the supplier’s production site has an increased country risk, it is upgraded to the medium risk category. Based on the risk classification, the supplier is assigned a package of measures to prevent and mitigate the impacts identified. Suppliers with a high risk classification, for example, go through the S-Rating process, while suppliers with a medium risk classification or higher are included in the media screening. Regardless of the supplier’s risk classification, other measures such as acknowledging the Code of Conduct for Business Partners and the SCGM apply. A description of the actions is provided below.
Standard actions as the foundation of the Responsible Supply Chain System
Confirmation of the Code of Conduct for Business Partners
Before submitting a quote, direct suppliers must generally confirm that they acknowledge the sustainability requirements in the Code of Conduct for Business Partners. They must consent to this again after twelve months if they wish to submit new quotes. The Code of Conduct for Business Partners is also a component of the agreements under which contracts are awarded. In order to extend the requirements of the Code of Conduct for Business Partners further down the supply chain, we also require suppliers to pass the requirements on to their direct business partners. All material sustainability matters regarding working conditions, equal treatment and equal opportunities, and other work-related rights of value chain workers are enshrined in it. Suppliers confirming that they comply with corresponding sustainability requirements and pass them on to relevant business partners should enable continuous application of the requirements along the upstream and downstream value chain. This should reduce potential negative impacts on working conditions and also promote positive impacts on working conditions, equal treatment and equal opportunities, and other work-related rights of value chain workers.
Supply chain grievance mechanism
The supply chain grievance mechanism (SCGM) is a continuous measure used to process hinzs on violationsof the Code of Conduct for Business Partners by the Volkswagen Group’s direct or indirect suppliers. As part of the SCGM, necessary, case-specific appropriate actions to eliminate identifiedviolations, depending on the severity and type of the violations, are identified. These actions are intended to establish an opportunity for value chain workers in the upstream and downstream value chain who are affected by actual negative impacts on working conditions or other work-related rights to be provided with a remedy. The effectiveness of the mechanism and remedial actions is monitored. Further information on this is provided in “Processes:Remedy and complaint channels”.
In the reporting year, 213 reports of violationswere dealt with.
The metric on hints from the supply chain grievance mechanism takes all hintsrecorded in the system in the reporting year into account. The plausibility of the hintshas not yet been proven at this stage of the process.
Media screening
Group Procurement Sustainability carries out continuous and risk-based media screening of relevant suppliers4 using a software tool. If the tool identifies indications of possible breaches of the Code of Conduct for Business Partners by suppliers in the upstream and downstream value chain, these are reviewed and, if necessary, processed in the SCGM. The media screening can identify potential breaches even if there is no direct report in the whistleblower system or no findings are made in supplier audits. This enables these cases to be processed by the SCGM and, where necessary, remedial action to be taken. In 2024, more than 39,500 direct suppliers were part of the media screening. Their share of the total procurement volume in the reporting year was 89%.
The metric on direct suppliers in the media screening indicates the total number of all direct suppliers that were part of the media screening in the reporting year. The media screening covers suppliers who are classified as high or medium risk according to the risk analysis. Detailed information on this is provided in the section “Risk analysis for determining necessary and appropriate actions”. The metric is measured using an external service provider’s software tool. The metric on the sales revenue percentage of direct suppliers in the media screening in total procurement volume indicates the percentage of the total purchasing volume accounted for by direct suppliers that were in the media screening in the reporting year.
Sustainability rating
The sustainability rating (S-Rating) has been an established process 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 relevant company size to be verified. Use of the S-Rating is intended to promote the integration of responsible corporate practices at direct suppliers, reveal potential for improvement and create incentives to comply with the sustainability requirements so that they are eligible for the award of contracts. This process is designed to mitigate or prevent potential and actual negative impacts on the working conditions of workers in the supply chain.
The result of the S-Rating is divided into three rating categories: Suppliers with an A or B rating meet requirements of the Volkswagen Group to a sufficient degree, meaning they have a positive S-Rating and are eligible for the award of contracts. If a supplier does not meet the requirements for compliance with sustainability standards (C rating), it is fundamentally not eligible for the award of contracts. This means there is a direct incentive for suppliers to improve their sustainability performance.
The screening for the S-Rating, which involves both risk-based and ad-hoc audits, takes place before new contract awards via a multistage process. Suppliers who are classified as high risk according to the risk analysis that evaluates the areas of environment, social aspects and integrity are taken into account here. Detailed information on this is provided in the section on “Risk analysis for determining necessary and appropriate actions”. The review of the level of compliance with the sustainability requirements, pursuant to the Code of Conduct for Business Partners, is carried out through various tools, such as a standardized self-assessment questionnaire (SAQ) and, risk-based, by audits. The SAQ is mandatory for all supplier sites in the scope of the S-Rating with ten or more workers. The number of direct suppliers who had completed the SAQ was 14,953 in 2023 and the proportion of new suppliers5 with a completed SAQ was 26%. In the 2024 reporting year, 19,094 direct suppliers completed the SAQ, and the proportion of new suppliers was 20%.
Suppliers have the opportunity to improve their SAQ result by providing further information. Improvements were recorded for 9,357 direct suppliers on the basis of the SAQ in 2023, and for 8,093 direct suppliers in 2024.
In addition, suppliers’ sustainability performance is assessed on a risk basis by means of audits. If suppliers pass this audit with less than 100%, they are given improvement measures. If the rating achieved is below 80%, these actions are recorded in an action plan. The implementation of the plan is agreed with the supplier and monitored. Depending on the measure, the supplier has to implement the plan within six months at the latest. If the supplier receives an audit rating of less than 60%, another audit is conducted after the action plan is implemented. The audit findings impact the S-Rating category and, as a consequence, may lead to a C rating. Suppliers with a C rating cease to be eligible for the award of contracts. A total of 89 audits were conducted worldwide in 2023 in connection with the S-Rating, and 85 audits were conducted in 2024. In the reporting year, where necessary, actions were initiated at supplier level in line with the process.
The implementation of corrective actions in connection with the S-Rating audits is intended to provide a remedy for those affected by actual negative impacts on working conditions or other work-related rights in the value chain. This creates the opportunity to simultaneously promote positive impacts on working conditions, equal treatment and equal opportunities, and other work-related rights of value chain workers by checking compliance with the audit’s requirements and demanding compliance where necessary.
By the end of the reporting year, we had 14,709 S-Ratings for suppliers. Of these suppliers, 14,682 have a positive S-Rating (A and B rating).6 28 suppliers were rated C and are not currently eligible for the award of contracts. Suppliers who do not meet the requirements for compliance with the sustainability standards of the Volkswagen Group are also not eligible for the award of contracts.
The metric on direct suppliers with completed SAQ indicates the number of direct suppliers that had completed the SAQ and been finally assessed. Completed SAQs are taken into account if they have been submitted to the Volkswagen Group by the reporting date in the reporting year, irrespective of whether they were completed in the reporting year or one of the previous years. The metric on the proportion of new suppliers with a completed SAQ indicates the proportion of direct suppliers with a completed SAQ that were assessed by the SAQ for the first time in the reporting year.
The metric on improvements in suppliers based on the SAQ indicates the number of direct suppliers that improved their SAQ score by at least one point by filling in the questionnaire again.
The metric on the number of on-site audits carried out in connection with the S-Rating indicates the absolute number of all audits initiated through the S-Rating process carried out in the reporting year.
The metric on existing direct supplier S-Ratings indicates the absolute number of direct suppliers for which an S-Rating was available in the reporting year. The “of which direct suppliers with a positive S-Rating (A and B rating)” metric indicates the proportion of suppliers that achieved an A or B rating. The “of which direct suppliers with a C rating” metric indicates the absolute number of direct suppliers with a C rating.
Sustainability training for procurement employees
Continuously and systematically training procurement employees is a central component of the Volkswagen Group’s strategy and essential for the improvement of sustainability among suppliers in the upstream value chain. For all procurement employees, the topic of sustainability is an established part of the skills profile. Defined procurement employees need to be trained in the relevant processes (e.g. S-Rating) or receive introductory training on human rights due diligence. This is intended to enable employees to implement processes with the aim of, for example, also identifying potential negative impacts on the working conditions of suppliers’ workers and auditing the mitigation of these potential impacts at suppliers. In 2024, the training we provided on the topic of sustainability was used by procurement staff worldwide a total of 5,129 times.
The metric Procurement staff participation in training on the topic of sustainability indicates the absolute number of Volkswagen Group buyers who have completed the training courses on sustainability in full.
Sustainability training for suppliers
To enable continuous supplier development, we invite direct suppliers to attend sustainability training courses and workshops on specific topics at selected sites or online and also offer web-based training. A total of 9,818 suppliers were trained accordingly in the reporting year. Deep-dive human rights training for suppliers has also been available since 2021. The training includes the legally required aspects, such as training on child labor, forced labor or discrimination. Since 2023, the training has been systematically rolled out to primarily direct suppliers with a high sustainability risk. We pressed ahead with further relevant activities in 2024. In addition to the training courses, the Volkswagen Group provides an e-learning module on sustainability for current suppliers in eight languages. Training courses enable suppliers to develop relevant expertise to identify, prevent, reduce, or avoid potential negative impacts on their own workers’ working conditions.
The metric on direct suppliers who have received training on the topic of sustainability indicates the absolute number of suppliers who have taken part in a training course on the topic of sustainability in the 2024 reporting year. If a supplier has participated in a web-based training course or on-site supplier training in the reporting year and has completed at least 50% of the training time, the supplier is taken into account when calculating the metric. Training courses completed by both existing and potential direct suppliers are included.
Deep-dive actions as further elements of the Responsible Supply Chain System
Human rights focus system
In the sustainable supplier management, the Volkswagen Group is also involved in protecting groups of people who may be affected by negative impacts along the upstream and downstream supply chain. In order to achieve more impact here, we introduced the human rights focus system (HRFS). We use the HRFS to identify topics that may be associated with human rights and environmental risks. These topics require more in-depth analysis and are continuously addressed. The tools and actions implemented in the HRFS are intended to minimize and stop identified negative impacts on value chain workers. In addition, the aim is to promote positive impacts on these workers. The actions are described in more detail below.
As part of the HRFS, in-depth social standard audits were conducted in 2024 to support an analysis of relevant topics in greater depth. The focus of these risk-based and ad hoc audits was primarily the workers’ rights of suppliers’ workers. The relevance of a supplier for the performance of a social standard audit was determined by an external service provider in 2022 by conducting a risk analysis and identifying increased human-rights risks. In order to increase the primarily direct suppliers’ social sustainability, we tied new contract awards to the findings of these audits in a pilot phase. If sustainability risks or breaches are identified through on-site screening, the supplier is asked to draw up an action plan and provide evidence to the auditor that the actions have been taken. In the reporting year, this approach was implemented accordingly and the implementation of action plans was consequently initiated. The social standard audits are thus used as a tool to provide a remedy for those affected by actual negative impacts on working conditions or other work-related rights. At the same time, the aim is to promote positive impacts on working conditions, equal treatment and equal opportunities (gender equality, and equal pay for work of equal value, and measures against violence and harassment in the workplace), and other work-related rights of value chain workers by checking compliance with requirements for suppliers in this area and improving compliance where necessary.
The social standard audits increasingly identified excessive overtime as an actual negative impact, especially in the procurement market in China. In addition to eliminating risks and breaches through the audit’s action plan, the Volkswagen Group has set itself the goal of examining the topic in a structured way and developing appropriate actions to mitigate the identified negative impact. In this context, the Volkswagen Group engages in the NAP automotive industry dialog. As other companies in the automotive industry have also identified comparable impacts in their value chain, this underlines the need for a joint approach. The working group on reducing overtime in China, for example, was therefore initiated in connection with the industry dialog in 2024. Based on interviews with various interest groups, such as local NGOs, and the analysis of statutory regulations, guidelines for companies are currently being drawn up to reduce overtime in supplier businesses. This cooperation and the future use of the guidelines developed are intended to reduce negative impacts on the working conditions of value chain workers. The plan is to finish the guidelines in 2025 and then take them into account for the Volkswagen Group’s procurement processes.
To identify further relevant issues associated with human-rights and environmental risks and requiring a more in-depth analysis, we assess aggregate internal data from the SCGM and the audits together with external data from studies and NGOs in an analysis as a rule, the plan is to carry this out every two to three years. In 2023, we identified three focus topics using this method: forced labor, living wages and supplier management. The topics are addressed in collaboration with the Audi and MAN brands and Porsche AG.
In the next step, the root causes of the respective issues were investigated in a structured way in order to develop and implement suitable actions. An action toolbox has been developed to help to define actions. This is intended to provide the working group on the HRFS with guidance on what type of actions may be suitable and appropriate if the actions do not result directly from analysis of the topic. The basic approach for dealing with focus topics always starts with a structured investigation of the causes in order to develop and then implement measures based on the findings. The individual topics are dealt with as follows:
Forced labor: An internal working group has been tasked with creating solutions to develop suitable preventive and remedial actions on forced labor, in particular in the upstream value chain. In 2024, various multi-stakeholder initiatives were analyzed to this end in order to find suitable partners for developing and implementing preventive and remedial actions. In this context, the Volkswagen Group decided to become a member of the Responsible Business Alliance (RBA). To combat forced labor, the RBA offers a range of tools, including IT-supported mapping for comprehensive risk analyses, an initiative with a focus on worker rights and combating forced labor, and targeted training modules for suppliers. The current plan is for the initiative’s tools to be implemented in the Volkswagen Group’s procurement processes from 2025. The implementation of tools and actions against forced labor, which are to be made accessible by the RBA, and the implementation of improvement actions for our own procurement and due diligence processes, are intended to create the opportunity to provide future remedial action for value chain workers affected by forced labor.
Living wage: The Code of Conduct for Business Partners requires suppliers to pay their workers an adequate wage. An adequate wage is at least the minimum wage set by applicable law and is otherwise determined by the law of the place of employment. This wage should, if possible, cover the basic needs of workers and enable a decent standard of living for workers and their families. This includes adequate food, clothing, and shelter, as well as continuous improvement of living conditions. In 2024, an internal working group developed a calculation method for living wages for direct suppliers within the Group. Analysis was also conducted to identify the sector- or country-specific risks that hinder the implementation of a living wage. The findings from the analysis are to be progressively integrated into standard procurement processes through suitable actions – for example, calculating the living wage since 2024 as the minimum threshold for pay. This is intended to minimize potential negative impacts on the working conditions of direct suppliers’ workers by helping to ensure the direct supplier can make appropriate wage payments.
Supplier management: In 2023, an internal analysis was carried out in an internal working group to determine which sectors are particularly at risk of not implementing the Volkswagen Group’s sustainability requirements further down the supply chain effectively and comprehensively. The logistics industry was determined to be a high-risk sector. For this reason, this working group is now increasingly focusing on working conditions in the logistics sector and intends to advance this topic by means of stakeholder engagement as part of the preparation for a roundtable of the NAP automotive industry dialog.
As part of the “improving working conditions in the logistics sector” working group initiated there in 2024 to improve working conditions in the logistics sector, discussions take place several times a year to identify suitable preventive and remedial actions in the logistics sector. The aim is to develop improvement actions for our own grievance mechanisms and reviewing our own due diligence processes. Regular cooperation is planned by the start of 2025. There are also plans for a discussion on implementing the actions. This cooperation and the implementation of improvement actions for our own due diligence processes are intended to minimize potential negative impacts on the working conditions of value chain workers. Following the round table in January 2025, it will be determined which of the actions developed there will be integrated into procurement processes.
Raw materials due diligence management system
With regard to the responsible sourcing of raw materials, the Volkswagen Group implements the five steps of the OECD Due Diligence Guidance for Responsible Business Conduct and the requirements of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas on an ongoing basis. In 2020, we implemented the RMDDMS based on the OECD guidance. It serves to identify, assess and avoid actual and potential human rights risks in the upstream raw material supply chains and to develop and implement mitigation actions. In total, the management system currently covers 18 raw materials. These include the battery raw materials cobalt, lithium, nickel and graphite, the conflict minerals tin, tungsten, tantalum and gold (3TG), and aluminum, copper, leather, mica, steel, natural rubber, platinum group metals, rare earths, cotton and magnesium. By adopting this risk-based approach, the Volkswagen Group prioritizes its activities on the basis of the severity and likelihood of occurrence of the relevant sustainability risks and the ability of the Company to influence them. In doing so, we consider that sustainability risks may vary between raw materials. We also systematically use our Group structure for developing and implementing specific prevention and mitigation measures, whose effectiveness we audit. Corresponding action toolboxes are used to help select appropriate actions. Depending on the previous analysis of the cause of a negative impact, corresponding actions are chosen or, if necessary, additional actions are developed. New report structures and toolboxes have been developed, and existing tools, such as the SCGM, have been integrated in the management system. Depending on the results of the due diligence process, the measures are adapted and improved on an ongoing basis. This approach is intended to identify and mitigate or prevent potential negative impacts on value chain workers’ working conditions, particularly at indirect suppliers.
In 2024, audits were an important tool in the RMDDMS for assessing risks in the upstream supply chains and identifying suitable actions. Due to the complexity and large number of suppliers, particularly in the battery supply chain, the Volkswagen Group conducts various types of risk-based and ad hoc audits to audit suppliers’ sustainability performance. On-site audits are carried out on both direct and indirect suppliers, and can identify both gaps in suppliers’ sustainability performance and negative impacts on workers at the sites. Direct suppliers must close the gaps and reduce the negative impacts, even when audits are performed on indirect suppliers. All audits at direct suppliers carried out on behalf of the Volkswagen Group are accompanied by an action plan. The auditor assesses the effectiveness of the actions taken in re-audits (in a desktop review or another on-site audit). The audit program is risk-based and covers the upstream value chain, from the battery supplier to mine sites. The audit criteria are based on the OECD Guidelines for Multinational Enterprises. The audit verifies whether the supplier has set up a relevant management system to identify, prevent, or mitigate negative impacts on workers. In the reporting year, this approach was put into practice and, where necessary, corresponding actions were initiated at supplier level. The remedial process in these audits is intended to provide a remedy for those affected by actual negative impacts on working conditions (working time and health protection) or other work-related rights (child labor, forced labor, access to water and sanitation). At the same time, this is intended to promote positive impacts on value chain workers when suppliers’ sustainability performance is audited and, if necessary, improved.
In the raw materials audits, the Volkswagen Group also uses, for example, the audit standard developed by the Initiative for Responsible Mining Assurance (IRMA). This enables an independent audit of mines in the mining industry in terms of protecting human rights, including health protection measures, occupational safety and environmental protection. When developing the audit standards, stakeholders (e.g. NGOs or trade union spokespersons) were publicly consulted.
In connection with the RMDDMS, the Volkswagen Group is also involved in various initiatives and on-site projects – both cross-industry and with regard to specific raw materials – in order to achieve potential and actual positive impacts for value chain workers.
Cobalt for Development: In the Cobalt for Development project in the Democratic Republic of the Congo, the Volkswagen Group works with project partners to improve working and living conditions for small-scale cobalt miners and their communities. The cooperation in the pilot project, which has so far been open-ended, aims to strengthen compliance with laws and improve health and safety conditions and social well-being for people locally. The aim is to promote a positive impact on working conditions of artisanal, small-scale miners, for example by training them in occupational health and safety and providing protective work clothing.
CASCADE project: Since 2021, Porsche AG has been responsible for the coordination and implementation of the CASCADE project to create capacity in the Jambi province in central Sumatra (Indonesia) as part of the RMDDMS, having initiated this project in collaboration with the global tire manufacturer Michelin. The program, which was initially set up for four years, includes training courses for more than 1,000 local smallholders to help them improve their livelihood by improving their cultivation practice, enabling them to increase their yields and income. This is intended to promote positive impacts on these workers by enabling them to generate an income that allows them to cover their basic needs and finance an adequate living.
Responsible Mica Initiative (RMI): In 2020, on behalf of the Volkswagen Group, Porsche AG joined the Responsible Mica Initiative, a multistakeholder initiative to promote transparency and better working conditions in mica mining and processing in India and Madagascar. The initiative particularly aims to empower people in the local villages to eliminate child labor and improve their livelihood within a lawful and legal mica supply chain. To achieve this, alternative sources of income for parents were created in the 2024 reporting year so that their children do not have to work (e.g. from pottery). At the same time, the initiative funded the construction of schools and provision of teachers. In addition, communities were linked to Indian government funding projects, which can supplement the income of local families. Identifying alternative sources of income for financing livelihoods without the use of child labor is intended to promote positive impacts on the groups of persons concerned. The cooperation in the RMI is to be continued.
In the 2024 reporting year, steps were taken to adapt the RMDDMS to evolving regulatory requirements – for example, the EU Battery Regulation (EUBR) and the EU Deforestation Regulation (EUDR). In this context, internal working groups analyzed the legal requirements to develop policies to further develop the due diligence system. Internal procedures and documentation systems for actions were also adapted, and the management system’s targets were specified. Existing key metrics for priority raw materials were reviewed and, where necessary, adjusted, and new metrics for additional raw materials were also developed.
Effectiveness test for actions
The effectiveness of the ReSC system’s standard actions is reviewed once a year using the input-output-outcome-impact methodology.7 As far as possible, one or more measurement indicators were defined for the standard actions for every measurement category. These are gathered and documented.
Within the ReSC system’s deep-dive actions, further mechanisms are in turn implemented to test the effectiveness of actions: The aim of both the HRFS and RMDDMA is for an action to be considered effective if it can also actually improve the situation of people, protect the environment, or contribute to these goals.
Measurement of the effectiveness of the actions in question is a fundamental component of the HRFS. An action is effective if it can also actually improve the situation of people or protection of the environment or contribute to this. An action is also effective if it achieves a reduction in the risk and the Volkswagen Group’s causal contribution. This depends on the action’s objective. The timetable and indicators for the effectiveness test must be worked out specifically for each action. The same applies to the RMDDMS – a timetable and success indicators for each action are drawn up and tracked from the action selection stage onwards. The results of the effectiveness test can be incorporated into the risk analysis for the 18 raw materials in the following year.
In the case of actions that go beyond standard and deep-dive actions and are set specifically for a supplier as part of the supplier audit or the SCGM and implemented by the supplier, the implementation and effectiveness of the specific action is audited by the auditor or case handler in the SCGM. This is done, for example, in a desktop review or a repeat on-site audit.
TARGETS: MANAGING MATERIAL NEGATIVE IMPACTS, ADVANCING POSITIVE IMPACTS, AND MANAGING MA-TERIAL RISKS
The ReSC system aims to avoid or minimize potential and actual negative impacts on workers along the Volkswagen Group’s supply chain. The policy’s processes should also help to end breaches and continuously improve suppliers’ sustainability performance. Moreover, the actions within the ReSC system directly serve to implement the Group sustainability strategy regenerate+, which aims to structure its supply chain responsibly, minimize negative impacts, and provide positive input for all business partners.
In order to measure progress on strategy implementation in connection with the management policy, we have set ourselves the relative target of, in terms of sales revenue, more than 95% of our direct suppliers8 having a positive S-Rating (A or B rating) by 2040. As an intermediate target, we aim to achieve 85% in 2025.
A positive S-Rating is intended to show that, by meeting the minimum criteria of the S-Rating, a direct supplier fulfills the requirements for being able to reduce or avoid potential negative impacts on its own workers’ working conditions and eliminate actual negative impacts on working conditions and other work-related rights. In addition, the implementation of the minimum standards is intended to promote positive impacts on working conditions, equal treatment and equal opportunities, and other work-related rights.
The methodology described in the S-Rating is used as the basis for the target, with the degree of compliance with the sustainability requirements by suppliers being calculated through a multistage process. This comprises an initial risk analysis, a standardized self-assessment questionnaire (SAQ version 5.0) and risk-based supplier audits. When determining a supplier’s risk exposure, an assessment of the relevant country risk is also undertaken with the aid of a specialized service provider, so that local conditions in which impacts may occur are taken into account.
When the strategy was being developed, the objective for the proportion of suppliers with a positive S-Rating was formulated by an interdisciplinary working group. Value chain workers are not involved, either directly or indirectly through representatives, in the formulation of objectives, the pursuit of objectives, or the determination of findings or improvement opportunities. Since the target was set, no changes have been made to the target itself or to the underlying methodology.
Target achievement is continuously reviewed and monitored as part of the Group TOP 10 program. In 2023, the proportion of sales revenue contributed by direct suppliers with a positive S-Rating (A and B rating) amounted to 79% of the total procurement volume. In the 2024 reporting year, the proportion of sales revenue amounted to 83% of the total procurement volume. The progress on target achievement has to date been in line with the original plan. As part of the Group TOP 10 program’s status monitoring, an analysis is made of trends and material changes concerning target achievement. No significant changes in target achievement versus the planning were identified.
1 This includes joint ventures that also act as suppliers to the Volkswagen Group. Furthermore, temporary employment agencies and self-employed people are included if they are used as part of Group procurement processes. Suppliers in the downstream value chain include recycling companies. However, authorized dealerships and customers are not included and are not covered by the ReSC system.
2 Network of procurement sustainability representatives from selected companies for regular communication on topics and strategic development of the ReSC system
3 The Vice President Procurement Strategy, Capacity and Process Management of Porsche AG has overarching operational responsibility for participation in the Responsible Mica Initiative (RMI) and the integration of findings into the company’s approach.
4 The relevance of a supplier for media screening results from factors including the procurement volume or the risk exposure derived from the type of product or service.
5 Direct suppliers who were assessed for the first time in the reporting year.
6 Change in methodology: scope widened to B ratings since previous year.
7 For each standard action within an impact chain, the resources deployed are examined, along with the quantifiable steps through which performance achieves impact, the type of impact achieved by performance and, as far as possible, whether a change in the target group can be recognized through performance.
8 Relevant suppliers of the Volkswagen Group are taken into account here. The relevance of a supplier for the S rating results from factors such as the size of the company or the risk exposure derived from the type of product or service.