Focus Topics – Social issues

Sustainable purchasing

Impacts, risks, and opportunities

Impacts

Given the complexity of our supply chain and the involvement of thousands of suppliers, negative impacts can occur. Increased environmental and social risks are particularly evident in sectors such as logistics, electronics, and raw material extraction. Social challenges such as health and safety risks, forced labour, child labour, and modern slavery disproportionately affect vulnerable groups of workers, including migrant workers, young employees, women, and trade unionists.

While no specific factories or countries have yet been identified, Zehnder Group’s human rights due diligence has highlighted potential risks within the supply chain. To prevent and mitigate these risks, Zehnder Group applies its Supplier Code of Conduct and regular sustainability audits to ensure compliance with, and continuous improvement of, environmental and social standards.

Despite these challenges, participation in a global supply chain also brings positive effects. In regions with a strong focus on artisanal mining, which carries serious risks, this sector offers opportunities for job creation and related employment and training, as well as economic opportunities.

Risks and opportunities

The introduction of a new supplier invariably brings with it a number of additional risks and vulnerabilities; addressing these requires a considerable investment of resources. The inclusion of social factors in supply chain management adds layers of complexity to procurement processes. Failure to address these risks may result in reputational damage, given the growing expectations of high ethical standards among all stakeholders.

However, Zehnder Group can strengthen its reputation as a responsible business partner by promoting fair working conditions, protecting vulnerable groups, and ensuring transparent corporate governance. The Group can also take advantage of its close, trusting collaborations with established suppliers to reduce risk, ensure product quality, and advance joint sustainability initiatives, encouraging partners to align themselves with sustainability goals in the process.

Management approach

To ensure that suppliers share our commitment to sustainability and are transparent about their environmental and social impacts, Zehnder Group is strengthening relationships with suppliers. Social, environmental, and economic criteria are increasingly integrated into purchasing decisions to improve supply chain transparency. Currently, human rights and environmental due diligence primarily focus on direct suppliers and is applied on a risk-based basis. The intention is to progressively extend coverage to Tier 2 and beyond.

Zehnder Group’s procurement team, led by the CFO and Director Group Procurement, coordinates Group-wide initiatives and embeds sustainability across sourcing, contracting, and supplier management. In close collaboration with the Sustainability Steering Committee, it reports progress and challenges against the company’s sustainability goals. To prepare Zehnder Group’s procurement teams for the ESG challenges that can arise in complex supply chains, the company provides training on sustainability issues. This contributes to the assurance and promotion of responsible procurement.

Supplier Code of Conduct

Our Supplier Code of Conduct is based on global standards, such as the UN Universal Declaration of Human Rights and the ILO, as well as the UNGPs. It is also informed by the findings of our double materiality assessment and human rights due diligence. It establishes clear expectations for suppliers regarding ESG issues and requires them to sign a binding declaration to the Code of Conduct or an equivalent standard.

We strive to build long-term, trusting partnerships that adhere to the Code of Conduct. These partnerships are based on dialogue and cooperation, rather than financial pressure. This includes jointly developing solutions and providing support in implementing sustainable practices when difficulties arise in complying with the Code.

Risk-based screening and audits

Our aim is to audit direct-material suppliers before they are onboarded, when they present higher sustainability risk or uncertainty or are extremely important to our business in size, potential, or dependency. We use a risk-based assessment to identify those suppliers that require further investigation. By combining public country and category risk indices with our own evaluations, we determine where further investigation and more intensive audits are necessary.

The audits cover ESG criteria to ensure that suppliers’ sustainability commitments are consistently implemented. Audit processes are continuously updated to ensure compliance with the latest standards and to continuously improve the initial assessments.

Transparency and engagement

Trusting and cooperative partnerships with suppliers are crucial for transparency in the supply chain, particularly with Tier 2 suppliers where risks can be more difficult to identify. Such partnerships enable Zehnder Group to support its suppliers in improving their environmental responsibility, working conditions, and governance standards, helping Zehnder Group achieve its sustainability goals.

Open communication is vital to identify and resolve significant problems in the supply chain and to ensure transparency. Zehnder Group facilitates this by providing open communication channels for all employees along the value chain. An Integrity Line (further information under Compliance and fair business practices), for example, allows anonymous reports and concerns to be raised. While there have been no reported significant negative effects to date, Zehnder Group remains committed to providing ongoing support and assistance in the event of any issues.

Implementation and outlook

Implementation of the above management approach and policies is structured around one focus area with five defined targets and KPIs.

Targets

Ambition: Ensure suppliers apply the same sustainability ambitions as we do and are transparent about their environmental and social impacts along the value chain

Target: Implement a Zehnder Group supply chain due diligence and risk management standard operating procedure

• Status: The standard operating procedure (SOP) has been completed. It outlines essential processes such as supplier onboarding (including the Supplier Code of Conduct and audits for high-risk or strategically important suppliers), Supplier Code of Conduct signature management, and sustainability risk screening. It also introduces a mechanism for providing suppliers with voluntary sustainability feedback whenever the relevant chapter is applied.
  
  In line with the Ethical Trading Initiative (ETI) framework, the sustainability audit form has been updated and aligned with the nine ETI principles, which also underpin the Supplier Code of Conduct. Some gaps between the principles and current practices remain, and these will be periodically reassessed and addressed where feasible.
• Outlook: The SOP will be implemented across all regions, ensuring a consistent approach to supply chain due diligence and sustainability risk management.

Target: Signed Supplier Code of Conduct by significant direct suppliers

• Status: 86% of in-scope direct material suppliers¹ in EMEA and 34% in North America have signed the Supplier Code of Conduct or confirmed adherence to an equivalent standard. Suppliers were prioritised based on sustainability risk and spend, a methodology that will continue to guide supplier engagement. Those who have not yet signed will be contacted through the established escalation process, while low-risk, low-spend suppliers remain deprioritised. All new direct material suppliers are required to sign the Supplier Code of Conduct as part of the onboarding process, as defined in the Supply Chain Due Diligence SOP.
• Outlook: The target officially concludes in 2025. Going forward, the focus will shift to maintaining compliance, ensuring ongoing adherence to the Supplier Code of Conduct, and integrating the process fully into supplier onboarding and risk management practices.

Target: On-site audit of high-risk suppliers

• Status: The target of conducting 10 on-site sustainability audits of high-risk suppliers has been achieved. Additional audits were carried out using the sustainability chapter of our assessment process, though these suppliers were outside the original target scope. Not all suppliers were compliant. Findings led to voluntary improvement measures, such as clearer grievance mechanisms, climate-risk analysis, energy-mix transparency, and contracts in native languages.
• Outlook: Future audit commitments will depend on the definition of new 2026 targets. A continuation of audits based on country-risk prioritisation is under consideration.

¹ In-scope direct material suppliers are defined as direct material suppliers with a yearly spend of more than EUR 5000.

Metrics

GRI 204: Procurement Practices 2016
Disclosure 204-1 Proportion of spending on local suppliers

GRI 308: Supplier Environmental Assessment 2016
Disclosure 308-1 New suppliers that were screened using environmental criteria

GRI 308: Supplier Environmental Assessment 2016
Disclosure 308-2 Negative environmental impacts in the supply chain and actions taken

GRI 414: Supplier Social Assessment 2016
Disclosure 414-1 New suppliers that were screened using social criteria

GRI 414: Supplier Social Assessment 2016
Disclosure 414-2 Negative social impacts in the supply chain and actions taken

Suppliers that have signed the Supplier Code of Conduct