Procurement and supply chain

Art. 964a ff. Code of Obligations

Concept and due diligence
Arbonia takes its responsibility very seriously with regard to upholding human rights and preventing child labour within its own scope of business and in relation to business partners. A new policy targeting more sustainable procurement was developed in 2023. This policy aims to bring Arbonia’s strategic and operational procurement practices in line with the most important international standards, the UN Children’s Rights and Business Atlas, the German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) and the Swiss Ordinance on Due Diligence and Transparency in relation to Minerals and Metals from Conflict- Affected Areas and Child Labour (VSoTr), as well as outlining the steps required to implement these principles. This policy is intended to ensure that Arbonia’s procurement processes are sustainable, ethical and transparent.

As part of a risk analysis relating to the LkSG and the Swiss Code of Obligations, the due diligence process was expanded in the reporting period to include suppliers with a purchasing volume of more than CHF 0.5 million. The risk analysis also incorporates an assessment based on product groups. Suppliers from countries with an elevated risk in relation to human freedom, child labour risk and slavery risk are checked regardless of the purchasing volume. When assigning product groups and countries to risk categories, Arbonia follows internationally recognised standards such as the UN Children’s Rights and Business Atlas.

Measures including evaluation of effectiveness
Arbonia has developed a Supplier Code of Conduct which has been approved by Group Management. The document is to be successively extended to all suppliers if possible and is already part of most orders. In this document, our suppliers expressly commit themselves to the Universal Declaration of Human Rights of the United Nations, the UN Convention on the Elimination of All Forms of Discrimination Against Women and the UN Convention on the Rights of the Child.

Arbonia uses external key figures when assessing the suppliers and combines these with internally generated data to produce an overall evaluation. Since the 2022 financial year, we have primarily been using ratings from EcoVadis for this purpose. In 2023, we were able to cover around 70% of the purchasing volume of the German companies or around 50% of the purchasing volume of all Group companies with EcoVadis or comparable ratings. Suppliers without an external rating have to guarantee in a suitable way – for example, with a code of conduct – that human rights are respected and that child labour and forced labour in particular are prevented.

Material risks and how they are handled (own scope of business and, where applicable, business relationships)
The main material risks are liability risks as well as a reputational risk in the event of misconduct by direct/indirect suppliers. Linked to this is the risk of a lack of transparency on the part of our suppliers. These risks may occur in connection with transportation and logistics issues, where the risks can include climate-related interruptions to the supply chain and delivery delays. More generally, there is also a risk of increasing procurement costs.

Key performance indicators
Key performance indicators include the number of suppliers for which we have ratings and the number of suppliers which have a code of conduct.

A more sustainable supply chain brings a multitude of advantages for Arbonia. It creates innovation and drives the development of new management and production methods forwards. In addition, it improves reputation, strengthens customer relationships and increases the interest of investors. Furthermore, a more sustainable supply chain provides business benefits, since it improves the monitoring of costs and resources and can thus lead to savings.

As a corporate group, we are continuously raising awareness of ecological and social factors in direct and indirect purchasing. For this purpose, we are working on a company-wide standard for supplier assessment according to ESG criteria and are providing staff in our purchasing departments with training on sustainable supply chains. Nevertheless, negative effects can also occur due to risks within the supply chain. This concerns ecological aspects such as Scope 3 emissions as well as human rights violations. We are conscious of this challenge and strive for greater transparency and compliance with due diligence obligations in relation to our suppliers.

In the reporting year, our procurement activities were affected by geopolitical events as well as volatile energy and material prices. In this respect, Arbonia has intensified its efforts to cover all requirements relating to value creation. The context of procurement and supply chain not only comprises all direct materials that enter inventory through purchasing and procurement, but also indirect materials such as tools and equipment, consultation and rent.

We preferably work with suppliers from the EU or the EEA; ideally with companies from countries in which Arbonia is active with production sites. In the reporting year, 78% of the purchasing volume was procured from local suppliers; i.e. from countries where we have our own production sites. This improves our ability to monitor production means compared to a partnership with suppliers from remote regions.

The topic of procurement and supply chain at Arbonia comprises, on the one hand, procurement management for the most commonly used materials and semi-finished goods – in other words, wood, steel, glass and aluminium. On the other hand, the assessment of suppliers according to ecological and social criteria is also a part of this. At the same time, respect for human rights in the supply chain is of vital importance. Since more than 95% of materials used are sourced from suppliers in Europe, a high standard is enshrined in law for the majority of the procurement volume.

As a corporate group, we are continuously raising awareness of ecological and social factors in direct and indirect purchasing. For this purpose, we are providing staff in our purchasing departments with training in the form of Ecovadis Academy modules on sustainable supply chains. At the same time, we are working on a company-wide standard for supplier assessment according to ESG criteria. In a first step, all direct suppliers will be checked and prioritised according to the sales volume. As soon as this process is established, indirect suppliers will also follow according to the same assessment criteria. When assessing the suppliers, Arbonia is increasingly collecting external key figures (e.g. solvency, risk indicators, ESG ratings) as well and combining these with the internally generated data to produce an overall evaluation. In the reporting year, we primarily used ratings from EcoVadis for this purpose. The scope was extended to include suppliers with an annual purchasing volume of more than CHF 0.5 million. As a result, we were able to cover around 70% of the total purchasing volume in Germany or 50 % of the global purchasing volume with EcoVadis or comparable ratings.

Suppliers from countries with an increased risk in relation to violations of human rights, child labour and slavery are under observation regardless of the purchasing volume. However, these make up less than 1.5% of the global purchasing volume. Suppliers without an external certificate have to guarantee in a suitable way – for example, with a code of conduct – that human rights are respected and that child labour and forced labour in particular are prevented.

We at Arbonia also underwent an evaluation by EcoVadis ourselves in the reporting year. The progress we have made is demonstrated by our increased score and the “Committed” label we achieved. The focal points of the evaluation criteria changed in the reporting year and significantly more companies applied for a rating. This is why we did not achieve a bronze rating this year, despite improving our score. With this in mind, Arbonia will step up its efforts.

In Germany, the Bundestag passed the Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) in June 2021, which provides a legal framework for the responsibility of companies along the entire supply chain. This is relevant for all Arbonia companies active in Germany. They are evaluating the specific impacts of the new legislation and initiating corresponding compliance measures. The companies active in Switzerland have also initiated a comparable process to determine the implications of the counterproposal to the corporate responsibility initiative, the provisions of which came into force on 1 January 2022 and are applied for the first time in the 2023 financial year.

Climate Division

Increased demands – new measures

Intensified procurement of more sustainable products is a matter of course for the entire Climate Division. The pilot project for procuring decarbonised steel (with Green Steel certificate) for the production of steel panel radiators at the Plattling (D) site was successfully implemented. The division is currently focused on a concerted approach between sales and marketing for a green steel panel radiator strategy.

In respect to waste management, the Corbetta (IT) site has concluded a formal agreement with the suppliers to formalise all aspects of the process (disposal licenses, information on the type, volume and costs of the waste, etc.). At the Dilsen (BE) site, it was possible to reduce the number of lorries used through consistent optimisation of logistics and logistics partners. Sabiana has launched programmes for different products for which the packaging has a great effect on costs and disposal. For example, the company is trying with its suppliers to introduce reusable containers, replace conventional wooden pallets with pallets made of corrugated board and reduce waste with component packages.

Clear responsibilities regarding Procurement and supply chain

In close coordination with customers and the marketing and sales departments, products are to be developed that can be manufactured more sustainably. The main goal of Sabiana remains certification in accordance with ISO standard 14000, which assesses the effects of the supply chain on the environment. For this purpose, the company assigns clear responsibilities, creates regular exchange formats and develops a status report including key performance indicators. Furthermore, the company launched a project in the reporting year to evaluate its own supply chain in relation to sustainability aspects. A new platform (CERVED) is being implemented for this purpose. Progress reports relating to various sustainability topics are being produced in line with the internal supply chain guidelines. The first 50 suppliers are to be evaluated using the platform over the course of 2024. The company is aiming to evaluate 150 suppliers by 2026.

Doors Division

The companies of the division are focusing on consistent certificates of origin for wood, among other things. At RWD Schlatter, a new timber trade regulation specifies a PEFC share of 80%; for FSC-certified wood, the share is 20%. At Invado, 100% of the wooden panels are made of raw material of European origin (EUTR documents). Complete monitoring of the chemicals used is also important. In this way, the division avoids toxic substances and replaces them with less problematic materials. Additionally, the division is gradually changing over to packaging materials made from renewable raw materials such as cardboard and paper and is increasingly eliminating plastic or polystyrene. At RWD Schlatter, residual material from Sonitus mid-layers is used as an intermediate layer for transport. Furthermore, as of this year, Arbonia Doors AG in western Switzerland is FSC® and PEFC-certified.

Measures in supplier management and in logistics

On the customer side as well, audits are increasingly being carried out to determine whether the Doors Division complies with sustainability criteria. For example, the customers of Invado regularly check what materials the company uses to manufacture doors and frames and where the raw materials come from. For this reason, the division prefers to work with suppliers who have proven themselves for years. At the same time, initiatives for avoiding or recycling production waste are becoming more and more important. Ultimately, conserving resources also has a positive effect on profitability. For this purpose, the division carries out internal as well as external audits in the areas of quality, social issues and energy efficiency. The expansion of a strategic category management system is also continuing for this reason. This system continually collects and evaluates market information in order to react to potential risks in the supply chain early on.