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MarketScreener Homepage  >  Equities  >  Xetra  >  Covestro AG    1COV   DE0006062144

COVESTRO AG

(1COV)
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Covestro : 2020 ESG Investor Presentation November 2020

11/16/2020 | 09:03am EST

We Will Be Fully Circular

Sustainability @ Covestro November 2020

covestro.com

Inventor and leader in high-tech material solutions

Covestro at a glance

WHAT WE DO

Covestro is among the world's largest polymer companies. Business activities are focused on the manufacture of high-tech polymer materials and the development of innovative solutions for products used in many areas of daily life.

The main segments served are the automotive, construction, wood processing and furniture, and electrical and electronics industries. Other sectors include sports and leisure, cosmetics and health.

Together with our partners and customers, we are taking big steps to tackle a fundamental challenge: Shifting towards a Circular Economy.

To achieve this bold goal, we are innovating efficient ways to close energy and material cycles. We are pushing boundaries in polymers.

WHAT WE STRIVE FOR

PurposeVision

To make the world a

We will be

brighter place

fully circular

ValuesGoals

Curious,

Financial 2020 and

courageous,

non-financial 2025 goals

colorful

€12.4bn

Sales 2019

17,200

Employees (in FTE) 2019

#1

Global producer of PU and its derivatives as well as PC(a)

2

ESG @ Covestro │ 2020

Notes:

(a) Based on total combined nameplate capacity for MDI, TDI and polyether polyols at year end 2019 as per Covestro estimates;

PU = Polyurethanes; PC = Polycarbonates

Number one producer globally and inventor of polyurethanes

Polyurethanes (PUR) at a glance

Products

Polyurethane rigid foam is an excellent insulation material and adds to high energy efficiency in cooling units and buildings.

As soft foam polyurethane provides comfort, for example in mattresses, car seats and upholstery.

Covestro develops and produces the components of this versatile material.

Key customer industries:

Sample applications

For comfortable

For sustainable

cars

houses

For cozy

For robust

furniture

sports equipment

3.1%

Core volume

CAGR in 2015 - 2019(a)

€5.8bn

Sales 2019

€648m

EBITDA 2019

3ESG @ Covestro │ 2020Notes: Industry position based on total combined nameplate capacity for MDI, TDI and polyether polyols at year end 2019 as per Covestro estimates

(a) Adjusted 2017 figures to reflect the transfer of the specialty elastomers business from the Polyurethanes segment to the CAS segment as of January 1, 2018

Number one producer globally and inventor of polycarbonates

Polycarbonates (PCS) at a glance

Products

As a true high-tech material, polycarbonate is not only very robust, break-proof and light-weight, but also offers a high degree of design flexibility.

Polycarbonate is available in all colors ranging from crystal clear to deep black. It is an excellent substitute for traditional material such as glass or metal.

This allows for a wide variety of application possibilities ranging from vehicles to smartphones and laptops as well as lenses or large roofs.

Key customer industries:

Sample applications

For trendy

For bright

smartphones

buildings

For light-weight

For safe

cars

medical products

5.2%

Core volume

CAGR in 2015 - 2019(b)

€3.5bn

Sales 2019

€536m

EBITDA 2019

4

ESG @ Covestro │ 2020

Notes:

Industry position based on nameplate capacity at year end 2019 as per Covestro estimates

Performance materials for coatings, adhesives and specialties

Coatings, Adhesives, Specialties (CAS) at a glance

Products

There is a vast application range of coatings and finishes made of Covestro polyurethane raw materials. They are used for protection and decoration.

In addition, the company produces pre-products for adhesives and sealants as well as for specialty films and elastomers.

Coating, Adhesives, Specialties (CAS) also supplies materials for cosmetics, textiles and medical goods.

Key customer industries:

Sample applications

For long-lasting

For robust

cosmetics

floors

For fancy

For functional

cars

textiles

2.1%

Core volume

CAGR in 2015 - 2019(b)

€2.4bn

Sales 2019

€469m

EBITDA 2019

5

ESG @ Covestro │ 2020

Notes:

(a) All figures adjusted to reflect the transfer of the specialty elastomers business from the Polyurethanes segment to CAS segment as of January 1, 2018

Our innovative polymers contribute to sustainability in daily life

Covestro product applications

Polyurethanes

Increasing energy efficiency of buildings through materials and technologies for insulation

CO2-based polymers used in mattresses saving crude oil, e.g. cardyon®

Food preservation along the cool chain

Polycarbonates

Enabling electro-mobility with materials for battery housings, housings for charging stations

Recycled content grades on a virgin performance level

Use in protective gear and medical applications, e.g. drug delivery devices

Coatings, Adhesives, Specialties

Waterborne coatings and adhesives, replacing solvent

Bio-based raw materials to improve CO2 footprint, e.g. Baycusan® eco

Fully recyclable shoes made from thermoplastic PU powder and filament

6ESG @ Covestro │ 2020

Covestro innovative products tap into attractive new markets

Structural growth drivers

UN SDGs(a)

NEEDS

related to climate change:

Alternative energy sources

Zero emission concepts

Low-energy buildings

related to increasing mobility:

Energy-efficient mobility

E-mobility

Autonomous driving

related to growing population and prosperity:

SAMPLE APPLICATIONS

Energy consumption

CAGR: ~3%1

Offshore wind energy

CAGR: ~19.5%2

Global car production

CAGR: ~1.2%3

Global hybrid & EV prod.

CAGR: ~35%4

DEMAND OUTLOOK

Core volume growth

Polyurethanes(b)

~4% CAGR 2019-2024

Polycarbonates

~4% CAGR 2019-2024

related to increasing urbanization:

Sustainable fashion

Food preservation

Medical applications

Energy-efficient lighting

Affordable housing

Public infrastructure

Textile coating market

CAGR: ~2.2%5

Covestro relevant market

CAGR: ~3.6%5

Luminaire market

CAGR: ~3%6

Luminaire LED

CAGR: ~12%7

Coatings, Adhesives,

Specialties(c)

~4% CAGR 2019-2024

Covestro industry demand outlook assumes global GDP CAGR of 2 - 3% in 2019 - 2024e

Notes:

(a) Most impacted goals out of 17 Sustainable Development Goals, set by the United Nations' "2030 Agenda for Sustainable Development"; (b) Comprises MDI, TDI and polyether polyols;

7

ESG @ Covestro │ 2020

(c) Shows PU raw materials industry demand in coatings, adhesives, sealants (excl. architectural/textiles coatings /solvent-borne polyacrylates); plus TPU, elastomers and PC/TPU films

1)

Covestro estimates for 2020-2025, based on BP, Energy Outlook, 2017 for 2015-2020 based on million tons oil equivalent; 2) GWEC, Global Wind Executive Council: Annual-Wind-

Report 2019 for 2020-2025; 3) LMC, Aug 2020, for years 2019-2023 4) LMC, Aug 2020, for years 2018-2023; 5) Covestro estimates for 2019-2023; 6) Covestro estimates for 2020-2025;

7)

Covestro estimates based on LEDinside report H2 Y2020 (CAGR 2018-24) and Global Luminaires and Lighting Market Analysis and Forecast 2016, PennWell for 2015-2022

Long history of innovations inspired by sustainability

Covestro milestones in sustainability

2007

BMS Energy

efficiency program

and basis for

decision-making

on climate

relevance: We

help with solutions

2008

2011

BMS as part of

STRUCTese

Bayer is

energy efficiency

founding member

system introduced

of Together for

and subsequently

Sustainability

rolled-out in global

initiative

production

2016

First Covestro

2015 GRI

2017

Supplement

2013

Covestro Policies

published

developed and

Introduction of

2015

2020

approved,

BMS sustainability

Covestro was

including a policy

New company

approach and

founded and

on Sustainability

2019

vision:

integration of

signed UN

3-P principle

Signatory of EU

We will be

Global Compact

People-Planet-Profit

Circular Plastics

fully circular

2015

Alliance

Pledge to 'Operation

2019

2016

Clean Sweep' and

Founding member

Covestro non-

strive toward

of Alliance to End

financial goals

zero pellet loss

Plastic Waste

for 2025

published

2007

2008

2009

2010

2011

2007

2011

Light-weight

Energy-

car sunroof

efficient ODC-

made of BMS

technology for

2011

polycarbonate

chlorine

Plant in

enters mass-

production

Shanghai

production at

introduced in

equipped with

Webasto

pilot plant in

eco-friendly

Uerdingen

and efficient

gas-phase

phosgenation

technology

2012

2013

2014

2015

2016

2017

2018

2012

2014

2017

Microcellular

INSQIN®

2015

Key chemical

foam with

technology for

aniline won

First coating

improved

2013

a water-based

2016

from

hardener made

polyurethane

renewable

insulating

Epoxy resins

of renewable

Production

properties

textile coating

start of foam

raw materials

replaced

raw materials

launched

launched

components

for the first

by PU resins

is launched

with CO2 in

time

in wind

turbine rotor

Dormagen,

Germany

blades

2019

2020

2020

First marketed

polycarbonate

2019

made of

phenol of

New

attributed bio-

polycarbonate

based origin

grades from

post-

consumer

recycled

(PCR) content

launched

8

ESG @ Covestro │ 2020

Notes:

BMS: Bayer MaterialScience, today Covestro

UN SDG: United Nations Sustainable Development Goals

GRI: Global Reporting Initiative

On track to achieve our ambitious non-financial targets

Covestro non-financial targets for 2025

80% of project expenditures for R&D go toward areas that contribute to UN SDGs

Achievement: Global evaluation process established; first status to be reported in Annual Report 2020

100% of our suppliers comply with our sustainability requirements

Achievement: 81% by end of 2019

Reduce specific greenhouse gas emissions by 50% from the benchmark in 2005

Achievement: -46.1% by end of 2019

Ten million people in underserved markets benefit from our solutions

Achievement: 650,000 people by end of 2019

Extract the maximum benefit from carbon and increase carbon productivity

Achievement: new company vision announced in 2020, corporate goal setting under way

9

ESG @ Covestro │ 2020

Notes:

Covestro non-financial targets established in 2016

See 2019 Combined Management Report for further details

Categorization of material topics determines management approach

Material topics at Covestro

Topics with high stakeholder relevance and

WE INNOVATE high impact and influence of Covestro that require innovation of management approaches

Solutions contributing to UN SDGs

  • Sustainable innovation portfolio
  • UN SDG conform product portfolio
  • Social business

Circular and climate-neutral economy

  • Alternative raw materials
  • Business models
  • Green house gas emissions
  • Recyclability and end of life solutions
  • Renewable energy

Corporate culture

  • Employer attractiveness
  • Equality, diversity and inclusion

Topics with high stakeholder relevance and

WE MANAGE high impact and influence of Covestro for which management approaches are in place

Environmental impact of own Operations

  • Air quality
  • Waste
  • Water and wastewater

Health and safety

  • Health and safety of workforce
  • Process and plant safety
  • Product safety

Responsible business practices

  • Community engagement
  • Compliance
  • Human rights due diligence
  • Sustainability in sourcing
  • Transparency and trust

WE ADHERE TO

Responsible governance

Board skills and diversity

Tax transparency

Corporate Governance

Board responsibilities and oversight

Board compensation system

10

ESG @ Covestro │ 2020

Notes: UN SDGs = United Nations Sustainable Development Goals

MATERIAL TOPICS

THAT PUSH US TO

INNOVATE

OUR MANAGEMENT APPROACHES

Examples of full list of material topics on p. 10

11ESG @ Covestro │ 2020

Sustainability-driven innovations, innovation-driven sustainability

Material topic Solutions contributing to UN SDGsSustainable innovation portfolio

  • Research & Development activities aligned with the People Planet Profit principle since 2013
  • Focus on the UN Sustainable Development Goals (UN SDGs)
  • Capture promising growth opportunities with innovative sustainable solutions

R&D

€266m expenditure in 2019

1,217 R&D

employees

(FTE) in 2019

Patent

284 applications in 2019

of 2019 net

~17% sales with new products

(not >5 years)

No1Non-financial target

By 2025, 80% of project expenditures for research and development will go toward areas that contribute to reaching the UN SDGs

Achievement: Global evaluation process established; first status to be reported in Annual Report 2020

12ESG @ Covestro │ 2020

Bring product innovations to people in underserved markets

Material topic Solutions contributing to UN SDGsSocial business

No4Non-financial target

Solar dryer domes

  • Polycarbonate sheets- based solutions for smallholder farmers
  • Avoid food wastage after harvest, benefitting farmers economically
  • Locations: Thailand, Vietnam, Myanmar, India, Indonesia, Cambodia, Malaysia, Philippines
  • About 1,500 units installed

Hygenic sanitation

  • Toilets based on polyurethane rigid foam (PIR)
  • Community and school toilets as the next step
  • Locations: India, Malaysia
  • About 170 units installed

Affordable houses

  • Constructions based on polyurethane rigid foam (PIR)
  • Affordable building material with outstanding insulation and mechanical properties
  • Locations: Iraq, Malaysia, Philippines, India
  • About 80 units installed

"Our Inclusive Business activities positively contribute to 13 out

of 17

UN SDGs

We want ten million people in underserved markets to benefit from our solutions by 2025

Achievement: 650,000 people by end of 2019

13

ESG @ Covestro │ 2020

Notes:

Stated numbers as of 2019

Inclusive Business positively contributes to UN SDGs 1, 2, 3, 4, 6, 8, 9, 10, 11, 12, 13, 16, 17

The new vision of Covestro

Material topic Circular and climate neutral economyBusiness models

  • WE WILL BE FULLY CIRCULAR

Alternative raw materials

Innovative recycling

Renewable energy

Joint solutions

Biomass, CO2, used

Energy-efficient

Wind and sun: clean

Cross-industry

materials and waste can

technologies allow more

energy must power the

collaboration is needed

replace fossil resources

used products and waste

circular economy

to bring the circular

to be recycled

economy forward

14ESG @ Covestro │ 2020

No5Non-financial target

Our goal is to extract the maximum benefit from carbon. Increasing carbon productivity enables us to create more value with fewer carbon-based fossil resources

Achievement: new company vision announced in 2020, corporate goal setting under way

Circular economy (CE) to keep carbon in the loop

Material topic Circular and climate neutral economyBusiness models

Conceptual illustration

Use

End

Phase

of

Energy

designed

Life

input

Applications

for recycling

Electro

Global industry challenges of a circular economy

Provide a solution for the end of life of any

1 material

Extract target molecules from waste streams and

Chemistry

Customer

products

Bio

based

Covestro

products

CO2

Inter-

Recycling e.g.

mechanical

mediates

Recycling e.g.

Covestro

chemolysis

feedstock

Recycling e.g..

Naphtha

pyrolysis

Oil

Energy

recovery

Gas

Waste

management

& sorting

New waste

streams

Processing steps

2 secure continuous access to waste-based feedstock as raw material

3

Decouple growth from fossil resources and keep

valuable carbon in the loop as long as possible

Covestro-related industries (PU, PC and others)

  • Represent less than 10% of global plastic production, dominated by PE, PET, PP, PVC, PS
  • Materials mostly not applied in single-use applications
  • Offer few established collection streams
  • Recycling technologies at early stage except some mechanical recycling; incineration no preferred option
  • Covestro already commercializes products that contain alternative feedstock (bio-/CO2-/waste-based)

15ESG @ Covestro │ 2020Notes: Shown recycling technologies and energy recovery are illustrative examples only

Covestro definition of circular economy: holistic focus on end-of-life solutions and independence from fossil sources, keeping carbon in the productive loop as long as possible

Polymers based on alternative raw materials already commercialized

Material topic Circular and climate neutral economyAlternative raw materials

CO2-based

Waste-based

6 products commercialized

12 products commercialized

6 running R&D projects

19 running R&D projects

Bio-based

  • 13 products commercialized
  • 40 running R&D projects

Example PUR

CO2 as raw material

  • CO2 replaces up to 20% of crude oil-based feedstock of polyols
  • New production plant at Dormagen site and product brand cardyon® launched
  • Recticel promotes foam mattresses with more than one-seventh of oil content replaced by CO2- based chemicals
  • Sports flooring producer Polytan installed first elastic subfloor using cardyon® as binder

Example PCS

Recycled polycarbonates

  • New polycarbonate grades from post-consumer recycled (PCR) content, e.g. water bottles, CDs and auto-motive lighting
  • Closed loop recycling system to collect, sort, shred and clean material
  • Recycled granules are finally compounded with virgin resins
  • PCR grades are used in various electrical applications for a second life

Example CAS

Bio-based car top coat

  • Enabling customers to optimize the CO2 footprint of their products
  • New hardener for automotive coatings with carbon basis up to 70% from renewable raw materials
  • No compromises with regards to protective functions and appearance
  • Collaboration with automotive group Audi and the coating experts at BASF Coatings

16

ESG @ Covestro │ 2020

Notes:

Numbers as of 2019

Turning waste gas from steel factories into valuable polymers

Material topic Circular and climate neutral economyAlternative raw materials

Cross-sector project of 14 partners

Carbon4PUR

from seven countries, led by Covestro,

funded by the European Union.

  • Key objectives of this 3-year project, initiated in October 2017:
    • Reduce carbon footprint of polyurethane intermediates by 20-60% compared to today's polyurethane products manufactured from crude oil
    • Save 70% of process energy compared to conventional chemical processes
    • For the first time, provide higher value novel polyols from waste CO or CO2 for the production of new, sustainable polyurethane applications (rigid foam and coatings) as an example of high value polymers
  • Industrial-scale :Carbon in form of mixed waste gases from the ArcelorMittal plant in Fos-sur-Mer, France, could undergo catalytic transformations in the nearby Covestro plant to become a chemical feedstock for polyols
  • Project results expected in 1H 2021

Pan-European project partners

Academic and institutional partners:

17ESG @ Covestro │ 2020

Enabling as well as using wind energy

Material topic Circular and climate neutral economyRenewable energy

Polyurethane-based wind turbine blades

Ørsted wind energy supply

  • Covestro, Goldwind and LZ Blades develop world's first 64-meter polyurethane (PU) wind turbine blade
  • Wind turbine blade from the spar cap to the shear web and the shell made entirely of PU infusion resin
  • PU resin displays better mechanical properties compared with traditional epoxy resin;
  • Lower viscosity and faster infusion speed of PU resin system can greatly improve the efficiency of blade production
  • At this time world's largest corporate supply contract for offshore wind energy entered by Covestro and Ørsted in December 2019
  • Starting in 2025, Ørsted to provide 100 MW of electricity for 10 years
  • Newly built wind farm in North Sea, implemented without public funding
  • Supply to cover c. 10% of electricity consumed by Covestro in Germany

18ESG @ Covestro │ 2020

Underway to halve specific greenhouse gas emissions

Material topic Circular and climate neutral economyGHG emissions

Specific energy consumption

Specific greenhouse gas (GHG) emissions

Reduction by 36%

Reduction by 46%

No3Non-financial target

By 2025, specific greenhouse gas emissions per metric ton of product manufactured to be reduced by 50%

  • Specific energy consumption improved by 36%; goal to reduce by 50% until 2030
  • STRUCTese energy efficiency system contributed lasting reductions of 2.22 mio. MWh of primary energy since 2008
  • STRUCTese compares and bridges Covestro-wide actual energy consumption with the potential optimum
  • 2019 examples: Optimized polycarbonate plant in Map Ta Phut, Thailand, cuts steam usage by c.15,000 MWh; Optimized chlorine plant in Baytown, USA, lowers electricity requirement by c. 20,000 MWh
  • Specific GHG emissions reduced by 46%
  • Improvement of energy efficiency is key lever to significantly lower our specific GHG emissions (scope 1+2)
  • Continued investments in process innovation improve production efficiency and specific energy use

from the 2005 benchmark

Achievement: -46.1% by end of 2019 vs 2005 benchmark

19ESG @ Covestro │ 2020

Researching a circular polyurethanes economy

Material topic Circular and climate neutral economy End-of-lifesolutions

Seeking ways of transition from current linear lifecycle of polyurethane (PU) products to a circular economy model

Consortium as an end-to-end collaboration spanning the entire PU reprocessing value chain

Target: Recovery over 90% of end-of- life PU with the goal of converting it into valuable inputs for new products

EU-funded project running 4 years, started in January 2019, including 9 partners from 6 countries

Covestro is industry partner in the project consortium, coordinated by the Belgian company Recticel

Recycling of PU foam

Cross-industry collaboration: PUReSmart

smart

Improve sorting abilities to gain clean

SORTING

material inputs for PU recycling

smart

Modify chemolytic process to increase

CHEMOLYSIS

quality and quantity of recycled products

smart

Design new molecules to make PU

DESIGN

re-processable

20ESG @ Covestro │ 2020

Blockchain to enable traceability of polymers in the automotive sector

Material topic Circular and climate neutral economy End-of-lifesolutions

  • Circularise, Porsche, Borealis, Domo Chemicals and Covestro launched blockchain traceability project in November 2020
  • By digitizing materials, a digital thread through the whole supply chain leads to tracing materials and sustainability metrics like CO footprints or water use

Mission

  • Trace polymers from raw materials to consumer application

Challenge

  • Overcome inherent complexity of the supply chains and multitude of suppliers
  • Establish transparency while granting trust, privacy and confidentiality

Solution in development

  • Creating blockchains - batches of materials are digitized on the blockchain, creating a digital copy called digital twin
  • Digital twin carries all relevant information of the batch, such as its environmental footprint and origin, resulting in a digital thread along the supply chain
  • Verification of product claims is granted through third party auditing
  • All supply chain parties update the digital twin mimicking the physical supply chain and reflecting the manufacturing processes

Potential applications

  • Circularise technology able to trace plastics from raw material to the final car
  • "Smart Questioning" allows to trace materials and sustainability metrics while preserving everyone's privacy and protecting confidential information
  • Helping car manufacturers to make better decisions for the next generations of vehicles and support end-of-life recycling approaches
  • Helping consumers in making sustainable decisions through increased transparency of a product's environmental impact

21ESG @ Covestro │ 2020

Global Covestro diversity & inclusion initiatives support UN SDGs

Material topic Corporate cultureEquality, diversity and inclusion

Global Covestro

D&I Team

Colleagues

Company

Community

sponsored by

Expand opport-

Board of Management

Build, engage and

Establish an

unities for achieving

inclusive, supportive

business objectives

develop a strong,

work environment and

through community

diverse workforce

culture for

engagement and

everyone

customer

interactions

  • Cross generational and multi-national engagement within our labor markets
  • Brief recruiting agencies for gender balance
  • Consequent posting of open positions
  • Diverse interview panels*
  • Building a diverse STEM workforce pipeline
  • Design inclusive workspaces and office concepts like in Shanghai, Leverkusen
  • Support employee resource groups, e.g. UNITE, Compass,
  • Create part-time working and job/top share positions
  • Facilitate parental leave
  • Non-traditionaland flexible work hours
  • Adoption assistance
  • Tuition reimbursement / student loan relief program
  • Establish partnerships with a wider range of (international) colleges / universities and networks (e.g.
    UNITECH)
  • Global Covestro D&I team cooperation and alignment with corporate culture
  • Community engagement and partnership efforts
  • Operate Inclusive Business, e.g. temporary housing for refugees
  • Supplier Diversity Program rollout (US)

22ESG @ Covestro │ 2020Notes: D&I = Diversity and inclusion; STEM = Science, technology, engineering and mathematics * Difference in generation, gender, culture and cross-unit/function/region

Not all examples apply to all Covestro countries as efforts are currently in the process to be expanded

MATERIAL TOPICS

THAT WE

MANAGE

WITH EXISTING MANAGEMENT APPROACHES

Examples of full list of material topics on p. 10

23ESG @ Covestro │ 2020

Covestro risk-based water approach in development

Material topic Environmental impact of own operationsWater and wastewater

Risk

Measure

Growing world population and climate change will lead to changes in the global water situation:

  • Water scarcity may limit water access for manufacturing companies which may not be sufficient for 100% production
  • Flooding may impede production by destroying transport routes, supply chains or production facilities
  • Initial analysis for water stress and flooding risks conducted for all Covestro sites
  • Site evaluation by occurrence probability and economic loss
  • Implementation of information management system
  • Best practice sharing between sites

Covestro relies on water supply, ~80% of water usage is cooling water

Risk-based approach improves management of water-related aspects

Our objective: develop a holistic corporate water approach across all sites

24ESG @ Covestro │ 2020

Our priority: Nothing we do is worth getting hurt for

Material topic Health and safetyHealth & safety of workforce / Process & plant safety

Occupational safety

Recordable Incident Rate RIR(a)

0.81

Reduction

by 64%

0.29

2005

2019

Plant & process safety

Loss of Primary Containment Incident Rate, LoPC IR(b)

1.11

Reduction

by 41%

0.66

2013

2019

  • Continuous improvement of a safe work environment as key component of corporate responsibility and corporate culture
  • Integrated management system implemented throughout Covestro to report and process work incidents and potential hazards
  • Active safety and incident awareness and prevention campaigns, e.g. CEO Safety Award awarded for 12th time in 2020 during global Covestro Safety Day
  • We aim for safe processes and plants that avoid unacceptable risks to our employees, neighbors and the environment
  • Long-termwe aim to prevent workplace accidents and occupational illnesses entirely

25

ESG @ Covestro │ 2020

Notes:

(a) Number of incidents recordable after Occupational Safety & Health Administration (OSHA)-regularities per 200,000 hours

worked by Covestro employees

(b) Number of LoPC (Loss of Primary Containment) incidents per 200,000 hours worked by operational employees

Taking a broad view on human rights throughout our value chains

Material topic Responsible business practicesHuman rights due diligence

Covestro promotes and respects

Covestro is publicly committed

Covestro is taking responsibility for

human rights

to respect human rights

human rights along the value chain

Human rights are the basis for how we deal with

Public Corporate Commitments on

Our Supplier Code of Conduct defines

people and form the foundation of our social

Human Rights

expectations to our suppliers to adhere to our

responsibility

Ten Principles of UN Global Compact

sustainability requirements

Human rights are important to our employees,

Slavery and Human Trafficking

We employ a sustainability standard for our

investors, customers and communities

(Modern Slavery Act Statement)

supply base through the industry initiative

Together for Sustainability (TfS)

  • Human Rights Due Diligence requires Covestro to continuously monitor and evaluate our processes with regards to potential and actual human rights violations

"A cross-functional Covestro task force drives the implementation of a comprehensive Human Rights Management System

26

ESG @ Covestro │ 2020 Human Rights @ Covestro

Together for Sustainability - compliance along the value chain

Material topic Responsible business practicesSustainability in sourcing

    • This standardized approach for supplier assessment improves sustainability practices within the supply chain while minimizing monitoring and audit efforts
  • Initiative founded in 2011, with 26 members as of June 2020
  • Members use same approach, share assessments and audits results within the initiative: >12,200 assessments and 2,030 supplier audits for >1,700 suppliers
  • EcoVadis responsible for high-quality,third-party sustainability assessments and on-site audits, with criteria are based on GRI, UN Global Compact, and ISO 26000 global standards
  • Covestro uses TfS methodology as one approach towards suppliers as well as customers

27

ESG @ Covestro │ 2020

Notes

TfS numbers on assessments, audits and suppliers as of 2019

No2Non-financial target

All of our suppliers representing a regular purchasing volume of more then €100,000 per year comply with our sustainability requirements

Achievement: 81% by end of 2019

Our priority: We play by the rules

Material topic Responsible business practicesCompliance

6 Covestro Policies

Value creation

Sustainability

Innovation People

HSEQ Compliance

Define our mindset, how we want to act

and be perceived

Policies

Corporate level

Externally and internally available

Define our corporate standards by

establishing organizational structures,

Directives

our processes/workflows and IT-tools,

on a Management level

Corporate level, internally available

Assure implementation of the standards

and observance, on employee level

Procedures

Legal-entity level, internally available

CFO chairs Group Compliance Committee

11 Corporate Commitments

To underline our mission as a sustainable company, we take a clear stance on key issues and are committed to adhering to standards.

  1. UN Sustainable Development Goals
  2. Ten Principles of UN Global Compact
  3. Responsible Care
  4. Human Rights
  5. Slavery and Human Trafficking (Modern Slavery Act statement)
  6. Water
  7. Handling Products Responsibly
  8. Corporate Compliance
  9. Responsible Lobbying
  10. Responsible Marketing & Sales
  11. Tax Transparency

28

ESG @ Covestro │ 2020

Notes

The six Covestro Policies and eleven Covestro Corporate Commitments are published on covestro.com

Translating the RC Global Charter into actionable company directives

Material topic Responsible business practicesCompliance

Responsible Care Global Charter

of the International Council of Chemicals Associations

  1. A Corporate Leadership Culture that proactively supports safe chemicals management through the global Responsible Care initiative
  2. Safeguarding People and the Environment by continuously improving our environmental, health and safety performance; the security of our facilities, processes and technologies; and by driving continuous improvement in chemical product safety and stewardship throughout the supply chain
  3. Strengthening Chemicals Management Systems by participating in the development and implementation of lifecycle-oriented,sound- science and risk-basedchemical safety legislation and best practices
  4. Influencing Business Partners to promote the safe management of chemicals within their own operations
    Engaging Stakeholders, understanding and responding to their
  5. concerns and expectations for safer operations and products and communicating openly on our performance and products
  6. Contributing to Sustainability through improved performance, expanded economic opportunities and the development of innovative technologies and other solutions to societal challenges

29ESG @ Covestro │ 2020

Sample to illustrate the implementation of a public charter into Covestro corporate policies and directives

Policy "HSEQ", directive "HSEQ Leadership and Commitment"

Policy "HSEQ", directive "HSEQ Leadership and Commitment", directive "Product Stewardship", directive "Plant and Process Safety", directive " Incident Notification and Investigation",

Directive "Product Stewardship", directive "Covestro Integrated Management System for HSEQ", additionally active contribution in associations like VCI, ACC, CEFIC, PlasticsEurope

Directive "Transportation Safety", directive "Product Stewardship"

Directive "HSEQ Leadership and Commitment"

Policy "Sustainability "

Head of HSEQ Management System commissioned by Board of Management

RESPONSIBLE GOVERNANCE

THAT WE

ADHERE TO

30ESG @ Covestro │ 2020

Annually declaring conformity with the GCGC

Material topic Responsible governanceCorporate Governance

Responsible governance

The German Corporate Governance Code (GCGC) reflects material legal requirements for responsible governance

Covestro annually declares and publishes conformity with the

GCGC

In compliance with all principles and recommendations of the GCGC since company IPO in 2015

Detailed corporate governance report as an integral part of the annual report

31ESG @ Covestro │ 2020

Board of Management responsible for operational businesses and goals

Material topic Responsible governanceBoard responsibilities and oversight

Dr. Markus Steilemann

Sucheta Govil

Dr. Klaus Schäfer

Dr. Thomas Toepfer

Chief Executive Officer

Chief Commercial Officer

Chief Technology Officer

Chief Financial Officer

Areas or responsibility:

Areas or responsibility:

Areas or responsibility:

Areas or responsibility:

Communications

Polyurethanes

Global Project Engineering

Accounting

Corporate Audit

Polycarbonates

Health, Safety, Environment &

Controlling

Human Resources

Coatings, Adhesives,

Quality

Finance

Strategy

Specialties

Production & Technology

Information Technology

Sustainability

Central Marketing

Procurement

Investor Relations

Innovation Management &

Site Management NRW

Law, Intellectual Property &

Commercial Services

Site Management Baytown

Compliance

• Supply Chain Center EMLA

Site Management Shanghai

Portfolio Development

• Supply Chain Center NAFTA

Taxes

• Supply Chain Center APAC

32ESG @ Covestro │ 2020

Supervisory Board advises and oversees Board of Management

Material topic Responsible governanceBoard responsibilities and oversight

Shareholder representatives, elected by the AGM 2020

Employee representatives

Dr. Richard Pott Chair

Presidial Committee,

Chair

Human Resources

Committee, Chair

Nominations

Committee, Chair

Dr. Christine

Bortenlänger

Audit Committee

Regine Stachelhaus

Presidial Committee

Human Resources

Committee

Nominations

Committee

Ferdinando Falco Beccalli

Nominations

Committee

Prof. Dr. Rolf

Nonnenmacher

Audit Committee, Chair

Patrick W. Thomas

Audit Committee

Petra Kronen(1)

Irena Küstner(1)

Vice Chair

Presidial Committee

Audit Committee

Audit Committee

Human Resources

Committee

Dr. Ulrich Liman(1)

Petra Reinbold-

Knape(2)

Human Resources

Committee

Presidial Committee

Audit Committee

Marc Stothfang(1)

Frank Werth(2)

33

ESG @ Covestro │ 2020

Notes:

(1) Covestro employee

(2) Union representative (German Mining, Chemical and Energy Industrial Union (IG BCE))

Supervisory Board - objectives for the composition and diversity concept

Material topic Responsible governanceBoard skills and diversity

Supervisory Board

Duties and composition

  • Advises and oversees the Board of Management
  • Activities governed by rules of procedure (published)
  • Composed of at least 30% women and at least 30% men(1)
  • 75% of members and more than half of shareholder representatives are to be independent
  • Not more than two former members of the Board of Management

Supervisory Board

Membership

  • Co-determinedwith 12 seats, thereof six shareholder and six employee representatives(1)
  • Not serve more than three full terms
  • Not serve beyond AGM following 72nd birthday

Gender

structure

42% women

Supervisory Board

33% women

Shareholder

representatives

50% women

Employee

representatives

Supervisory Board

Skills

  • At least two members with function-specific knowledge in each of the following areas:
    1. Accounting and/or auditing
    2. Strategy, mergers and acquisitions, capital markets
    3. Marketing, sales, supply chain
    4. Research and development, innovation
    5. Technology, digitalization
    6. Human resources, change management
    7. Corporate governance, compliance
  • At least two members with Covestro-relevant experience in industries, sales markets and/or divisions, e.g. polymer chemistry, production and technology
  • At least three members should have managerial experience in an international enterprise and/or experience serving on other supervisory boards or supervisory bodies
  • The Board shall strive to ensure sufficient diversity among its members

34

ESG @ Covestro │ 2020

Notes:

Objectives for composition and diversity concept including skill set as published in Annual Report 2019

(1) According to German Stock Corporation Act (AktG)

Board of Management is paid for performance

Material topic Responsible governanceBoard compensation system

Component

2020 determination base and parameters

Fixed

• Annual benchmark: horizontally again DAX/MDAX and vertically

against all German employees

compensation

• Annual adjustments determined by Supervisory Board in line with the

~30%

increase in the consumer price index in Germany

• 2020e values: CEO €1.2m; CFO €0.7m; CCO/CTO €0.6m

Short-term

• Target value: 100% of the respective annual base salary

variable

• Key performance indicators, each weighted 1/3:

component

Core volume growth, liquidity (FOCF), profitability (ROCE)

• Threshold values fixed for three years (2019-2021)

~30%

• Payout between 0 and 250% of target

• Target value: 130% of respective annual base salary

Long-term

• Key performance indicators, linked by multiplication:

variable

• Total Shareholder Return (TSR)

component

• Relative share price development in relation to STOXX Europe

600 Chemicals index

~40%

• Rolling performance periods of four years, e.g. 2020-2023

• Payout between 0 and 200% of target

• Obligation to purchase Covestro shares equivalent in value to 65% of

Share

the gross annual base pay within three years and to hold them for

ownership

the duration of Board membership

guidelines

• Intended increase to 100% of gross base pay for future Board

contracts (already applying to CCO and CFO)

Component

2020 determination base and parameters

• Capped at the 1.9-fold of the target compensation

Cap on

• Target compensation: Annual base salary plus target

compensation

values for the variable components plus company pension

expenditures

• Contribution-based entitlement

• Board member's max. personal contribution: 9% of the

Pension

respective fixed compensation above the social security

contribution ceiling

entitlements

• Company contribution of up to 33% of the respective fixed

compensation above the ceiling (6% basis plus three times

the personal contribution)

Fringe

• Company car / vehicle allowance; driver service

• Security equipment; health screening examinations; other

benefits

• Payments upon start of office, if applicable

Contract

Payments made, including fringe benefits, capped to the

value of two years' compensation

termination

Exception: termination for cause

Change of

Indemnity payments of 250% of fixed annual compensation

Capped at the lower of (i) three years' compensation or (ii)

control

compensation for the remainder of the contract term

35ESG @ Covestro │ 2020

Short-term incentive fully based on profit sharing

Material topic Responsible governanceBoard compensation system

Management bonus based on Profit Sharing Plan (PSP)

  • Target value (i.e. 100%) related to respective annual base salary
  • Key performance indicators, each weighted 1/3: Core volume growth, liquidity (FOCF), profitability (ROCE)
  • Threshold values fixed for three years (2019-2021)
  • Attainment between 0 and 300% of individual targets, total payout capped at 250%
  • Supervisory Board reserves the right to cancel PSP for a given year if ROCE is below WACC (ROCE over WACC < 0pp)

Core Volume Growth

FOCF ( in € million)

ROCE above WACC

Value

1.5%

4.0%

6.5%

9.0%

Value

400

800

1,200

1,600

Value

0%p

8%p

16%p

24%p

Payout

0%

100%

200%

300%

Payout

0%

100%

200%

300%

Payout

0%

100%

200%

300%

36

ESG @ Covestro │ 2020

Notes:

Program description based on German program; program details and eligibility may vary in other countries

Long-term incentive based on total shareholder return

Material topic Responsible governanceBoard compensation system

Key features of "Prisma"

Cash settled plan with four-year performance periods

Globally consistent program for all eligible employees

Target amount based on fixed percentage of annual base salary

Payout (capped at 200% of target) based on:

1. TSR (Total Shareholder Return) as absolute performance

criterion

Ending Share Price + Cumulated Dividends

Starting Share Price

= TSR Factor

2. Outperformance factor as relative payout criterion based on

STOXX Europe 600 Chemicals index

Starting and ending prices for Covestro share and index are

determined by the average closing prices during November &

December before and at the end of the performance period

Intention to include a sustainability-related KPI for members of the

Board of Management starting 2021

Change in

Change in

Outperformance

100% + ( Covestro Share -

)

=

Index Price

Factor

Price

Outperformance

Prisma Payout

Prisma

TSR

Outperformance

=

Target

x (

x

)

Amount

Factor

Factor

Payout percentage

37ESG @ Covestro │ 2020

Fully fixed compensation system for Supervisory Board

Material topic Responsible governanceBoard compensation system

ComponentDetermination base and parameters

• Fixed annual compensation of €100,000

• Chairperson's fixed annual compensation of €300,000, also covering committee memberships

• Vice chairperson's fixed annual compensation of €150,000, also covering committee memberships

Fixed compensation

• Additional compensation for committee memberships

‒ Audit Committee: €50,000 for the chairperson and €25,000 for all other members

100%

‒ Other committees: €30,000 for the chairpersons and €20,000 for all other members

‒ Nominations Committee: No additional compensation

‒ In case of multiple committee memberships, compensation limited to the two functions with the

highest compensation

Attendance fee

• €1,000 for each personal attendance of a board or committee meeting

• In case of multiple meetings on one day, only one attendance fee is paid

• Reimbursement of expenses incurred through the exercise of their office, including value-added tax

Reimbursements

payable on their compensation and on the reimbursement of their expenses

• The Company has purchased liability insurance for the members of the Supervisory Board to cover

the personal liability arising from their activities as members of the Supervisory Board

38

ESG @ Covestro │ 2020

Notes: Compensation values unchanged since 2015

Committed to tax transparency

Material topic Responsible governanceTax transparency

• Zero tolerance regarding any non-compliance, foremost tax fraud

Covestro

• Tax payments in line with respective value creation in each country and territory

tax

• Tax optimization in line with business reasons and needs

principles

    • Cooperative approach with tax authorities
  • Covestro and its affiliated companies believe that it is their obligation to pay the amount of tax legally due in any country and/or territory, in accordance with the rules set by the respective governments
  • Appropriate tax payments is one core element of Covestro's corporate social responsibility
  • Tax payments by Covestro provide essential revenues for governments needed to fulfill their social, economic and societal tasks
  • Covestro complies with all relevant tax regulations as well as filing, documentation, disclosure and approval requirements in all countries and territories it operates in

39ESG @ Covestro │ 2020

ESG REPORTING @ COVESTRO

40ESG @ Covestro │ 2020

Find more information online

Useful links and sources

TOPICS RELATED TO ENVIRONMENT, SOCIAL AND GOVERNANCE

Solutions contributing to UN SDGs

Sustainable innovation portfolio

UN SDG conform product portfolio

Social business

Circular and climate-neutral economy

Alternative raw materials

Business models

Green house gas emissions

  • Recyclability and end of life solutions

Renewable energy

Corporate culture

Employer attractiveness

Equality, diversity and inclusion

Environmental impact of own Operations

Responsible governance

Air quality

Corporate Governance

Waste

Board of Management

Water and wastewater

Supervisory Board

Health and safety

Board compensation system

Health and safety of workforce

Tax transparency

Process and plant safety

Product safety

Responsible business practices

Community engagement

Compliance

Human rights due diligence

Sustainability in sourcing

Transparency and trust

Annual Report 2019

TCFD disclosure

ESG ratings and indices

GRI reporting

Covestro non-financial goals

Compliance hotline

41ESG @ Covestro │ 2020

Scores reflect Covestro's broad engagement in ESG matters

Ratings and index memberships as of June 2020

Rating / Index

2016

2017 2018

2019

2020

Scoring

Benchmark

A

A

A

AAA - CCC

in Specialty Chemicals

BBB

BBB

B-

B-

B-

A+ - D-

Prime Status

80

max. 100 Points

23.3

75

0 - 100 Points

in Specialty Chemicals

74

20.0

New methodology(a)

(the lower the better)

80

73

max. 100 Points

Gold Ranking

Inclusion in FTSE4Good Index(b)

42

ESG @ Covestro │ 2020

Notes:

(a) Methodology reversed - the lower the score the better

(b) Since December 2016, reviewed in June 2020

Forward-looking statements

This presentation may contain forward-looking statements based on current assumptions and forecasts made by Covestro AG.

Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation, development or performance of the company and the estimates given here. These factors include those discussed in Covestro's public reports which are available on the Covestro website at www.covestro.com.

Covestro assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.

43ESG @ Covestro │ 2020

Disclaimer

Covestro AG published this content on 13 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 November 2020 14:02:00 UTC


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Sales 2020 10 687 M 12 963 M 12 963 M
Net income 2020 382 M 464 M 464 M
Net Debt 2020 613 M 743 M 743 M
P/E ratio 2020 26,9x
Yield 2020 2,41%
Capitalization 10 626 M 12 834 M 12 890 M
EV / Sales 2020 1,05x
EV / Sales 2021 1,01x
Nbr of Employees 16 626
Free-Float 92,8%
Chart COVESTRO AG
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Technical analysis trends COVESTRO AG
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 21
Average target price 57,12 €
Last Close Price 55,04 €
Spread / Highest target 29,0%
Spread / Average Target 3,79%
Spread / Lowest Target -23,7%
EPS Revisions
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NameTitle
Markus Steilemann Chief Executive Officer
Richard Pott Chairman-Supervisory Board
Thomas Toepfer Chief Financial Officer & Labor Director
Klaus Schäfer Chief Technology Officer
Petra Kronen Vice Chairman-Supervisory Board
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