Volkswagen : Responsible Raw Materials Report

Responsible Raw Materials Report

2023

Kapitelname

01

Foreword

02

General Disclosures

03

Commitment to Initiatives

04

Raw Materials

05

Outlook for 2024

06

Annex

Contents

3 Foreword

5 General Disclosures

 6 Responsible Supply Chain (ReSC) System

 8 Raw Materials Due Diligence ­Management System (RMDDMS)

1. Social, Human Rights and Environmental Risks in Scope
2. Priority Raw Materials
3. Regulatory Frameworks and Guidelines

1. Main Tools of the RMDDMS
2. Supply Chain Grievance Mechanism
3. Limitations
4. Commitment to Initiatives
5. DRIVE Sustainability

1. German sector dialogues on the implementation of the National­
   Action­ Plan for Business and Human­ Rights (NAP)
2. Initiative for Responsible Mining Assurance (IRMA)

1. Responsible Minerals Initiative (RMI)
2. 2023 Highlights

1. Raw Materials
2. Battery Raw Materials

1. Lithium

1. Cobalt

1. Nickel

1. Graphite

35 Conflict Minerals

35 Tin, Tantalum, Tungsten and Gold (3TG)

1. Other Raw Materials

1. Aluminum

1. Copper

1. Leather

1. Mica

1. Platinum Group Metals (PGM)

1. Natural Rubber

1. Rare Earth Elements (REE)

1. Steel

1. Magnesium
2. Cotton

Contents

61 Outlook for 2024

1. Annex
2. List of Abbreviations
3. List of Initiatives and Associations
4. List of 3TG Smelters

73 List of 3TG Countries and territories of origin

Volkswagen Group  Responsible Raw Materials Report 2023

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01	01
→  Foreword
02
General Disclosures
03
Commitment to Initiatives

04

Raw Materials

05

Outlook for 2024

06

Annex

Foreword

01

→  Foreword

02

General Disclosures

03

Commitment to Initiatives

04

Raw Materials

05

Outlook for 2024

06

Annex

Dear readers,

The Volkswagen Group pursues the vision of enabling sustainable mobility for future generations. As one of the world's largest automotive groups, we recognize our duty to make

a difference - to generate meaningful value for both society and the environment.

Our legal, social and environmental responsibilities extend well beyond our Group across all our supply chains. These include more than 63,000 supplier locations in 96 countries around

the world. The holistic approach of our regenerate+ sustainability strategy provides the basis for advancing sustainability together with our partners and stakeholders. Focuses include environmental protection and human rights due diligence.

We take our responsibility for sustainable procurement of raw materials very seriously and are continuously working with indirect suppliers in upstream supply chains - where the challenge is greatest. We identify, assess and address

Foreword

risks through our Responsible Supply Chain System, currently­ covering 18 priority raw materials and their respective supplychains.

We share information across our brands and regions through our Sustainability Procurement Network of more than 110 experts, which serves as a component in managing sustainability in our supply chains. To increase traceability, we work with our business partners and their respective suppliers, based on the requirements of our Code of Conduct. We also collaborate with like-minded stakeholders and companies via cross-­industry initiatives to develop common standards and approaches to sustainability due diligence.

In this report, you will find information on our approach and methodology, the raw materials we have identified as our priority focus and our activities in 2023. It highlights not only our progress in terms of transparency and risk mitigation for raw materials procurement, but also outlines challenges we continue to face in our global, complex and fragmented supply chains.

In 2023, the first year in which the Supply Chain Due Diligence Act came into force, the Volkswagen Group's focus was on full and best possible compliance with the obligations imposed by the law. We have updated our procurement processes and keep monitoring new developments to include new regulations such as the EU Battery Regulation and the EU Deforestation Regulation, but also use our global impact to improve supply chain due diligence.

We hope you find this report informative and invite you to share your feedback through [e-mail]

Dirk Große-Loheide

Member of the Extended Executive Committee,

Group Procurement

Member of the Board, Volkswagen Brand

Volkswagen Group  Responsible Raw Materials Report 2023

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01

Foreword

02

→  General Disclosures

Responsible Supply Chain (ReSC) System

Raw Materials Due Diligence ­Management System

Social, Human Rights and Environmental Risks in Scope

Priority Raw Materials

Regulatory Frameworks and Guidelines

Main Tools of the RMDDMS

Supply Chain Grievance Mechanism

Limitations

03

Commitment to Initiatives

04

Raw Materials

05

Outlook for 2024

06

Annex

02

General

Disclosures

Conflict-AffectedandHigh-RiskAreas

01

Foreword

02

General Disclosures

→  Responsible Supply Chain (ReSC) System

Raw Materials Due Diligence Management­System

Social, Human Rights and Environmental Risks in Scope

Priority Raw Materials

Regulatory Frameworks and Guidelines

Main Tools of the RMDDMS

Supply Chain Grievance Mechanism

Limitations

03

Commitment to Initiatives

04

Raw Materials

05

Outlook for 2024

06

Annex

The Volkswagen Group is one of the largest automotive manufacturers­ globally. In this position we recognize our impact on people and the planet. In order to align our own activities and the activities of the suppliers in our supply chains with leading practice in respecting human rights and the environment, we continue to take proactive steps. Our efforts are part of our broader commitment to fulfilling our legal, social and environmental responsibilities, not only in the ­Volkswagen Group but also in our supply chains.

Our policy on sustainable materials - reflected in our Raw Materials Due Diligence Management System (RMDDMS) - is based on global normative guidelines including the OECD

Due Diligence Guidance for Responsible Supply Chains of Minerals from

(OECD Minerals Guidance). This Guidance provides a five-step framework with detailed recommendations to ensure that the minerals we use are responsibly mined or sourced, respecting human rights and avoiding contributing to conflict.

In accordance with the fifth step of the framework, we therefore publicly report on our supply chain due diligence policies, processes and practices in this Responsible Raw Materials Report 2023.

The report details our approach and covers the raw material-­ specific human rights and environmental supply chain due diligence activities that were implemented in 2023. It provides an overview of the progress we made with our RMDDMS and lists our activities for 18 high-risk raw materials that

we have prioritized for more in-depth risk management. In addition to the 16 raw materials covered in previous years, we have expanded our scope to include cotton and magnesium.

While we continue to face challenges in sourcing raw materials responsibly, such as complex and sometimes opaque raw materials supply chains and varying legal requirements around the world for sustainability standards, we are also taking further steps to improve the effectiveness of our risk management. We know that we need to continue to engage with our suppliers, turn our focus increasingly to risk mitiga- tion, and more effectively assess whether the actions we have taken are driving positive impacts for the people and environments affected by our raw material supply chains.

We are proud of our progress and the fact that this is our fourth time reporting publicly, although we recognize that, for some issues and raw materials, we are in the early stages.

The Responsible Raw Materials Report 2023 is structured as follows: We first present the Volkswagen Group's due diligence approach to supply chains in general and our raw material-specific management system in particular, including governance, scope and main tools used. We then describe the key activities and achievements for our 18 priority raw materials in 2023 and conclude with an outlook to 2024.

Further information on Environmental, Social and Governance (ESG) topics is available on the Group's corporate website and in the 2023 Sustainability Report.

General Disclosures  Responsible Supply Chain (ReSC) System

Responsible Supply Chain (ReSC) System

In 2022, in preparation for the German Supply Chain Due Diligence Act (LkSG), we adapted our management approach in procurement and introduced extensive measures to facilitate compliance. We developed the Volkswagen Group Responsible Supply Chain (ReSC) System as an overarching due diligence approach for our supply chains and integrated the existing Raw Materials Due Diligence Management System into the ReSC System as a deep-dive measure for risks in our upstream supply chain.

The aim of the new holistic approach is to further enhance our management of risks occurring along the Volkswagen Group's supply chains. We aim to respect human rights and avoid and minimize social and environmental risks based on a systematic risk analysis and in close collaboration with our suppliers and business partners.

The approach also intends to help end breaches and continuously improve suppliers' sustainability performance. It includes controls and a disclosure system to ensure transparency.

A grievance mechanism at Group level to provide an early-­ warning risk-awareness system is also in place.

Implementation of the management approach is mandatory and is enshrined in corresponding policies for the Group's brands and controlled companies.

The various procedures and measures that the ReSC System entails are described in detail in our 2023 Sustainability Report (pages 121-127).The Responsible Raw Materials Report 2023 focuses on the Raw Materials Due Diligence Management System.

Volkswagen Group  Responsible Raw Materials Report 2023

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01

Foreword

02

General Disclosures

→  Responsible Supply Chain (ReSC) System

General Disclosures ResponsibleKapitelnameSupply RohstoffbezeichnungChain (ReSC) System

Responsible Supply Chain (ReSC) System

Risk Analysis

Measures

Raw Materials Due Diligence Management­System

Social, Human Rights and Environmental Risks in Scope

Priority Raw Materials

Regulatory Frameworks and Guidelines

Main Tools of the RMDDMS

Supply Chain Grievance Mechanism

Limitations

03

Commitment to Initiatives

04

Raw Materials

05

Outlook for 2024

06

Annex

Risk assessment based

on the nature of the suppliers'

business activities

Probability and severity of

human rights and environmental risks

high

low

low

high

Individual supplier risk

Standard measures

Deep dive

						Human Rights Focus System
high	all suppliers		medium-/		high-risk
		high-risk		suppliers	Analysis	Deep Dive	Measures
	Code of		suppliers
	Conduct for
				Sustainability
	Business		Media
medium	Partners		Screening		Rating
	Supply Chain				Supplier	Raw Materials Due Diligence System
	Grievance				Training
	Mechanism
low
						Assessment	Mitigation	Impact
						evaluation
	+ n tier
Country Risk Filter								Across all tiers

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General Disclosures  Raw Materials Due Diligence Management­System (RMDDMS)

01

Foreword

02

General Disclosures

Responsible Supply Chain (ReSC) System

→  Raw Materials Due Diligence Management­System

Social, Human Rights and Environmental Risks in Scope

Priority Raw Materials

Regulatory Frameworks and Guidelines

Main Tools of the RMDDMS

Supply Chain Grievance Mechanism

Limitations

03

Commitment to Initiatives

04

Raw Materials

05

Outlook for 2024

06

Annex

Raw Materials Due Diligence

­Management System (RMDDMS)

One deep-dive measure of the ReSC System, specifically used to manage risks along raw material supply chains, is the Volkswagen Group's Raw Materials Due Diligence Management System (RMDDMS). The RMDDMS covers the 18 raw materials identified as priority raw materials and their respective supply chains.

The Volkswagen Group's supply chain is extremely com- plex, globally distributed and subject to constant change. It includes more than 63,000 direct supplier sites in more than 96 countries involving thousands of parts made from a wide range of raw materials. One product supply chain can include as many as nine levels and one single car component can have more than 1,000 suppliers. It is therefore essential that we take a risk-based approach and prioritize areas of focus in our due diligence efforts.

The risk-based due diligence provides the steps we should take to identify, prevent and mitigate actual and potential adverse effects in the supply chain. It also ensures that we do not contribute to conflict in our purchasing activities through indirect support to non-state armed groups in the extraction, transport, trade, handling and export of raw materials.

Different supply chains tend to have different levels of risk. Raw material supply chains require special focus, as our abstract risk analysis as part of the ReSC System showed a high exposure to human and environmental risks which are often more systematic and prevalent with indirect suppliers. For prioritized raw materials, the RMDDMS includes further assessments which facilitate the deduction of mitigating and preventive measures for systematic risks as well as a review of the effectiveness of these measures.

Seeking alignment with the five-step framework of the OECD Minerals Guidance, we developed and implemented the RMDDMS in 2020. It is based on the Volkswagen Group

Policy on Sustainable Raw Materials which sets out our commitment to responsible and transparent business practices throughout our raw materials supply chains. The policy outlines our responsibility to respect human rights, the obligation to implement a human rights due diligence process and measures to remediate negative human rights impact.

The Volkswagen Group Policy on Sustainable Raw Materials is being reviewed and will be updated in 2024.

Through the RMDDMS, we aim to improve transparency in our upstream supply chain, assess and identify risks, and engage with suppliers and stakeholders to prevent and mitigate potential negative impact on people and planet.

The graphic below provides a visual depiction of our step-by- step approach to raw material due diligence:

Volkswagen Group  Responsible Raw Materials Report 2023

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Step-by-step approach to raw material due diligence

General Disclosures  Raw Materials Due Diligence Management­

System (RMDDMS)

01

Foreword

02

General Disclosures

Responsible Supply Chain (ReSC) System

→  Raw Materials Due Diligence Management­System

Social, Human Rights and Environmental Risks in Scope

Priority Raw Materials

Regulatory Frameworks and Guidelines

Main Tools of the RMDDMS

Supply Chain Grievance Mechanism

Limitations

03

Commitment to Initiatives

04

Raw Materials

Assessment

01	Identification of 18 priority materials
02	Assignment of sustainability
lead brands for raw materials
03	Identification of affected vehicle parts and
main suppliers to the Volkswagen Group

	Mitigation
A	Approach: direct engagement
with our direct suppliers
04	Supplier engagement to raise awareness
and better understand the risks
05	Risk mitigation measures
B	Engage in cross-industry initiatives
or in-country projects
06	Collaboration on high-risk supply chains
through joint projects and initiatives

Impact Evaluation

07	Internal assessment of how the
RMDDMS is performing
08	Annual reporting on due diligence
efforts in public disclosure

05

Outlook for 2024

06

Annex

RMDDMS Governance

In line with the OECD Minerals Guidance, the RMDDMS is overseen by a senior-level Steering Committee comprised of senior management of the Sustainability function from Procurement across all relevant brands and regions of the Volkswagen Group, including the Head of Global Supplier Risk and Sustainability Management of Volkswagen Group Procurement. The Steering Committee meets quarterly.

The due diligence activities are coordinated through a Working Group comprising representatives from ­Sustainability Manage-

ment in Procurement departments across the Volkswagen Group's brands. Each of the identified priority materials is assigned to a "Brand Lead" to ensure in-depth knowledge and ongoing engagement with relevant suppliers and stakeholders for each of the raw materials. This Brand Lead is a representative from one of the Volkswagen Group's brands and responsible for coordinating and implementing the RMDDMS activities. In the reporting period, the internal capacities for Sustainability­ functions in Procurement were strengthened, both in the Volkswagen Group as well as in the respective brands, and the frequency of Working Group meetings was increased.

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General Disclosures Raw Materials Due Diligence Management­System (RMDDMS)

01

Foreword

02

General Disclosures

Responsible Supply Chain (ReSC) System

→  Raw Materials Due Diligence Management­System

Social, Human Rights and Environmental Risks in Scope

Priority Raw Materials

Regulatory Frameworks and Guidelines

Main Tools of the RMDDMS

Supply Chain Grievance Mechanism

Limitations

03

Commitment to Initiatives

04

RMDDMS Governance

Senior-Level	RMDDMS
Steering Committee
Accountable for all steps according to the
RMDDMS and alignment with global best
practice. Oversees risk analysis and mitigation
measures and their implementation for all
relevant high-risk raw materials.
	Risk Analysis
	(i.e. gather data from suppliers,
Meets quarterly as the	engage­	with stakeholders)

"Group Staff Meeting Sustainability."

Working Group

Representatives or "brand leads" assigned

to each priority raw material

Meets bi-weekly to coordinate RMDDMS

activities across the materials

Raw Materials

05

Outlook for 2024

06

Annex

Senior Management of

­Sustainability from Procurement

Represents all relevant brands and regions

of the Volkswagen Group

Risk mitigation

(i.e. contractual requirements, audits,

on-the-ground projects, training)

Oversee

Feeds into

For more information on the steering bodies see the detailed version in the 2022 Responsible Raw Materials Report (page 6)

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