Focus Topics – Social Issues

Sustainable purchasing 

Impacts, risks, and opportunities

Impacts

In our complex supply chain, involving thousands of suppliers, potential negative impacts are inherent. These impacts, beyond the environmental considerations, include significant social risks such as health and safety concerns, forced labour, child labour, and modern slavery across the supply chain. Sectors such as logistics, electronics, and raw material extraction are particularly prone to such risks, which are systemic and widespread.

Certain worker groups are more vulnerable to negative impacts, including migrant workers, young workers, women, and trade unionists. While no specific factories or countries have been identified, Zehnder’s Human Rights Due Diligence highlighted potential human rights violations that might likely occur in the supply chain. These risks are being addressed through Zehnder’s Supplier Code of Conduct and sustainability audits.

Despite these challenges, participating in a global supply chain also creates positive impacts, such as job creation, upskilling opportunities, and employment in regions where artisanal mining is prevalent. While the risks associated with mining are severe, this sector also provides economic opportunities for local communities.

Risks and opportunities

Managing social issues within the supply chain introduces new complexities to procurement processes. Each new supplier brings additional risks and vulnerabilities, requiring substantial resources to mitigate. Failing to address these risks could lead to reputational damage, as both consumers and stakeholders increasingly expect high ethical standards in business practices.

Conversely, by promoting fair labour practices, protecting vulnerable groups, and fostering transparent governance, Zehnder can enhance its reputation as a fair and ethical business partner. There is also an opportunity to collaborate closely with large, established suppliers to reduce risks, secure premium products, and drive sustainability initiatives. Through trust-based partnerships, Zehnder can encourage suppliers to align with its sustainability targets, improving both social and environmental outcomes across the value chain.

Management approach

By strengthening supplier relationships and improving supply chain transparency, we aim to uphold the highest ethical standards in procurement, addressing social, environmental, and economic concerns. This includes actively collaborating with suppliers to reduce their Scope 1 and 2 emissions, which directly impact our Scope 3 purchased goods emissions.

Zehnder’s procurement team, guided by the CFO and COOs, play a critical role in implementing sustainable procurement practices. This team coordinates company-wide efforts, ensuring that sustainability principles are integrated into every stage of the procurement process. The procurement team also works closely with the Sustainability Steering Committee, reporting on progress and challenges in meeting the company’s sustainability goals. Furthermore, continuous capacity building in sustainability topics for the procurement team remains a priority to ensure they are equipped to address complex social issues within the supply chain.

Supplier Code of Conduct

Our Supplier Code of Conduct is central to our approach towards managing social issues within the supply chain. Based on global standards such as the UN Universal Declaration of Human Rights, the ILO, and the UNGC, the Supplier Code of Conduct sets clear expectations for suppliers concerning environmental, social, and governance matters. In 2024, the Supplier Code of Conduct was updated to reflect insights from our Double Materiality Assessment and the Human Rights Due Diligence. We require suppliers to sign a binding commitment to the Supplier Code of Conduct or an equivalent standard.

We take a cooperative approach with our suppliers, focusing on long-term partnerships built on trust. Instead of applying financial pressure, we encourage dialogue and collaboration to ensure that suppliers can meet the requirements of the Supplier Code of Conduct. If a supplier hesitates to sign up to the Code, we work together to find mutually beneficial solutions, helping them implement sustainable practices either on their own initiative or by aligning with our standards.

Moving forward, we will focus on verifying that suppliers not only sign the Supplier Code of Conduct but also actively comply with and implement its standards. This includes close collaboration with key suppliers, including those further down the supply chain (tier 2 suppliers), to drive meaningful change.

Risk-based screening and audits

To ensure that resources are used efficiently, Zehnder employs a risk-based screening process that prioritises suppliers with the highest potential risks. This process involves evaluating countries and purchasing categories based on publicly available risk indices and internal assessments. Suppliers scoring highly in both categories are prioritised for further investigation and, if necessary, more intensive audits.

The aim is to audit relevant¹ and strategic² direct material suppliers before establishing a business relationship. These audits include environmental, social, and governance criteria, ensuring that supplier commitments to sustainability are rigorously applied. In addition, we are expanding our auditing processes to ensure ongoing compliance and continuous improvement beyond the initial assessments.

Transparency and engagement

Transparency in the supply chain is critical to achieving our sustainability goals. Zehnder seeks to build trust-based relationships with key suppliers, helping them improve their environmental stewardship, labour practices, and governance standards. This collaborative approach is crucial for fostering greater supply chain transparency, especially with our tier 2 suppliers, where risks may be harder to detect.

To promote responsible procurement, Zehnder provides training to procurement teams on sustainability topics. This ensures that our teams are well prepared to manage the environmental, social, and governance issues that arise within complex supply chains.

Zehnder also maintains open channels for value chain workers to raise concerns, such as the Integrity Line (more details under Compliance and fair business practices), which allows for anonymous reporting. While no significant negative impacts have been identified to date, Zehnder remains committed to providing or contributing to remedies should any material issues arise within the supply chain.

¹Higher sustainability risk exposure or uncertainties

²Supplier size, potential, and dependency

Implementation and outlook

To implement the above management approach and policies, we set an ambition which is underpinned by five targets and monitored via specific 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: Set up a Zehnder supply chain due diligence and risk management standard operating procedure (SOP)

• Status: The development of the supply chain due diligence and risk management SOP is nearing completion. Final content adjustments are underway to ensure the SOP aligns with local operational processes, with approval expected soon. Procedures include initial screening of new suppliers, sustainability audits and Supplier Code of Conduct.
• Outlook: Following the SOP rollout, our focus will be on implementing the SOP to ensure compliance across the organisation. Subsequently, we will shift our attention to assessing how to implement the Ethical Trading Initiative guide to buying responsibly in 2025, reinforcing a comprehensive and responsible procurement strategy across the organisation.

Target: Signed Supplier Code of Conduct by significant direct suppliers

• Status: 45% of our direct material suppliers in scope¹ have signed the Supplier Code of Conduct or comply with an equivalent standard. The implementation is progressing faster in EMEA than in Asia-Pacific and North America. In 2024, the Supplier Code of Conduct was revised to align with the results of the Double Materiality Assessment, and this updated version will now be used for new supplier agreements.
• Outlook: In 2025, we aim to get the remaining medium- and high-risk direct material suppliers identified in EMEA and North America to sign the Supplier Code of Conduct.

Target: On-site audit of high-risk suppliers

• Status: Based on an individual assessment, our suppliers are subject to sustainability audits. Depending on the results, suppliers can receive improvement measures either mandatory or voluntary. In 2024, we evaluated the current audit procedures against and identified untapped potential in the voluntary improvement measures, deciding to make it mandatory for the auditor to propose them to supplier, regardless of the audit results. This updated procedure will be a part of the SOP. The goal of conducting 15 audits on medium- and high-risk suppliers has been successfully achieved. All suppliers passed with an acceptable score.
• Outlook: Our target is to conduct on-site audits for 10 medium- and high-risk suppliers over the course of 2025. Moreover, the new procedure for improvement measures will be implemented as part of the SOP.

Target: Build capacity for sustainability knowledge

• Status: Building internal capacity is a key aspect of our strategy. We provide targeted training to ensure all procurement team members are knowledgeable about sustainability-related material topics. The goal of providing a full day of training for all group procurement teams on the human rights risks identified as most likely to occur in our Human Rights Due Diligence has been met.
• Outlook: Group Procurement will follow a train-the-trainer concept for 2025 to enable localised application. Additionally, we will integrate the training with the rollout and implementation of the SOP.

Target: Onboard Supplier Ethical Data Exchange platform of high-risk suppliers

• Status: In November 2023, we started the onboarding of our high-risk suppliers onto the Supplier Ethical Data Exchange (SEDEX) risk assessment platform. In 2024, we started to address the objectives in addition through our audit process together with our internal sustainability questionnaire. By the end of 2024, our high-risk suppliers in scope were covered by audit, our own questionnaire, or SEDEX.
• Outlook: Going forward, any newly identified high-risk supplier will be managed in accordance with our established protocols, which include either an audit, a sustainability platform, or our own internal questionnaire. Moreover, we will continue to support and encourage suppliers in their advancement across any platform that supports their sustainability efforts.

¹In scope direct material suppliers are defined as direct material suppliers with a yearly spend of more than EUR 5,000.

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