Covestro

The role of administrative, management and supervisory bodies

Board of Management

The Board of Management of Covestro AG runs the company on its own responsibility with the goal of sustainably increasing the company's enterprise value, and determines and pursues its corporate objectives. It also defines the company's portfolio, allocates resources, and decides on both the financial and nonfinancial steering and reporting of the Covestro Group. Moreover, the Board of Management defines the long-term goals and strategy for the Group and sets forth the principles and policies for the resulting corporate policies.

Board of Management Composition:

• Dr. Markus Steilemann - Chief Executive Officer (CEO): His area of responsibility includes the Corporate Strategy; Group Innovation & Sustainability; Corporate Audit; Human Resources; and Communications functions.
• Christian Baier - Chief Financial Officer (CFO): He is responsible for the areas of Accounting; Controlling; Finance & Insurance; Information Technology & Digitalization; Investor Relations; Law, Intellectual Property & Compliance; Portfolio Development; and Taxes. He is also responsible for country-specific topics in the United States and China.
• Dr. Thorsten Dreier - Chief Technology Officer (CTO): He is responsible for the corporate Process Technology; Engineering; Group Procurement; and Group Health, Safety, Environment, and Reliability functions and coordinates the rollout of, and compliance with, global processes and standards and the rollout of initiatives in Covestro's production network. He is also the company's Labor Director.
• Sucheta Govil - Chief Commercial Officer (CCO): She is in charge of the seven business entities, including all business-related processes and areas of production, from procurement and application technology to sales. In addition, she is responsible for the three regional Supply Chain & Logistics units, which handle internal and external supply chains worldwide.

Supervisory Board

The Supervisory Board oversees and advises the Board of Management. The Supervisory Board has 12 members, half of whom are shareholder representatives and half employee representatives pursuant to the German Codetermination Act. The Chair of the Supervisory Board is Dr. Richard Pott. Petra Kronen was the Deputy Chair of the Supervisory Board until December 31, 2024.

Supervisory Board Role in Sustainability: During the reporting period, the Supervisory Board of Covestro AG performed its duties with due care in accordance with the law, the Articles of Incorporation, and the rules of procedure. During fiscal 2024, it monitored the conduct of the company's business by the Board of Management with regular frequency based on detailed written and oral reports received from the Board of Management, and also acted in an advisory capacity.

The Supervisory Board was kept regularly and fully informed about the company's intended business strategy, corporate planning (including financial, investment, and human resources planning), profitability, the state of the business, and the situation of the company and the Group (including the risk situation, risk management, and the compliance situation).

Committee Structure

The Supervisory Board had five permanent committees:

1. Presidial Committee
2. Audit Committee - Monitored the accounting and financial reporting process and the appropriateness and effectiveness of the internal control system, the risk management system, and the internal audit system, including sustainability-related aspects
3. Human Resources Committee
4. Nominations Committee
5. Sustainability Committee - The main topics of its deliberations were the circular economy, the pursuit of the Scope 1, Scope 2, and Scope 3 targets, and the implementation of the Corporate Sustainability Reporting Directive (CSRD)

Sustainability Committee Activities in 2024:

• February 16, 2024: Dealt with review of sustainability-related parts of the Group Management Report and recommended approval of the nonfinancial Group statement for 2023. Reviewed status of key implementation measures for Scope 3 targets.
• May 25, 2024: Established overview of regulatory risks and opportunities arising from regulatory environment. Discussed human rights due diligence and reviewed progress toward meeting Scope 1 and Scope 2 targets.
• September 23: Implementation of CSRD at Covestro and circular economy projects. Discussed status of CSRD implementation, sustainability reporting process, and double materiality assessment.
• November 22: Reviewed double materiality assessment, current status of CSRD implementation, and sustainability reporting process. Discussed physical climate risks and potential impacts of climate change on Covestro's business.

Governance Integration

The discussions between the Supervisory Board and Board of Management were always constructive and were conducted in the spirit of openness and trust. The Supervisory Board was always directly involved in decisions of material importance to the company. It discussed in detail the business trends described in the reports from the Board of Management and the prospects for the development of the Covestro Group as a whole, the individual segments, and the regions.

Strategy, business model and value chain

Business Model

Covestro is one of the leading global suppliers of high-tech polymer materials and application solutions developed for these materials. The company delivers a broad portfolio of products. In its core business, Covestro produces precursors for polyurethane foams and the high-performance plastic polycarbonate as well as precursors for coatings, adhesives, sealants, and specialty products, including films. Other noncore precursors in Covestro's product portfolio include chlorine and by-products like styrene.

The company's materials are used in many areas of modern life. Covestro offers its customers innovative and sustainable solutions that enable improved performance and help reduce carbon footprints. Our products are used in many applications ranging from insulation for refrigerators and entire buildings, through laptop and smartphone cases, to medical technology. They are also used to produce scratch-resistant and fast-drying vehicle coatings, film coverings for personal identification cards, and medical equipment.

Key Industries Served:

• Automotive and transportation
• Construction
• Furniture and wood processing
• Electrical, electronics, and household appliances
• Sports and leisure
• Health
• Chemical industry

Corporate Strategy - Sustainable Future

Purpose and Vision: Covestro's purpose, "To make the world a brighter place," remains the foundation of our actions. In an environment shaped by geopolitical tensions, volatile markets, and economic challenges, Covestro is rigorously determined in the pursuit of its vision of becoming fully circular. This vision forms the basis of our Group's Sustainable Future strategy and is aligned with the global challenges we have to face: Advancing climate change, rising environmental pollution, the growth of the global population, increasing urbanization, as well as new forms of mobility and the transition to renewable energies.

Strategy Update 2024: The world is constantly changing, and staying ahead requires agility and foresight. That's why, in 2020, Covestro launched its corporate strategy "Sustainable Future", designed to guide us toward our overarching goals, even in times of transformation. This year, we revisited and updated our strategy to ensure it remains aligned with global developments and our vision for a sustainable tomorrow.

While the core direction remains unchanged – positioning Covestro optimally, driving sustainable growth, and achieving climate neutrality and a circular economy – we have made key adjustments. These include an even sharper focus on our customers, a clear commitment to climate neutrality, and a more precise path to sustainable growth. We have also highlighted new enablers for success: artificial intelligence, a strong corporate culture, and a future-ready workforce.

At the heart of this updated strategy lies the customer perspective, embedded in every aspect of our approach under the motto: "You are never more than 10 meters away from a Covestro product." This reflects our commitment to being a reliable partner, expanding our portfolio, and delivering solutions tailored to customer needs.

Strategic Pillars:

1. Unlocking our full Potential: We want to become the best of who we are. Central to this: improving plant availability, enhancing cost efficiency, and expanding high-margin business areas.

2. Driving sustainable Growth: Combining sustainability and economic success. To achieve this, we are expanding our portfolio both organically and inorganically. Another core element: developing innovative technologies and processes that set new sustainability standards.

3. A fully circular future: To become fully circular, we are analyzing our value chains, anticipating changes in areas such as procurement, and driving forward innovative recycling technologies. At the same time, we are focusing on strong partnerships to jointly shape sustainable solutions.

4. On the Path to Climate Neutrality: Our transformation toward climate neutrality prepares us for the future: We are focusing on energy efficiency, sustainable production processes, climate-neutral energy sources, and moving away from fossil fuels. Target: operational climate neutrality by 2035 and complete climate neutrality by 2050.

Value Chain

Segments and Business Entities:

Covestro is divided into two reportable segments: Performance Materials (PM) and Solutions & Specialties (S & S). While the Performance Materials segment forms one separate business entity, the Solutions & Specialties segment is made up of six business entities.

Performance Materials: The Performance Materials segment forms a separate business entity comprising the development, production, and supply of high-performance materials such as polyurethanes and polycarbonates, as well as base chemicals. This includes diphenylmethane diisocyanate (MDI), toluene diisocyanate (TDI), long-chain polyols, and polycarbonate resins, among others. These materials are used in sectors such as the furniture and wood processing industry, the construction industry as well as the automotive and transportation industry. The focus in the Performance Materials segment is on reliably delivering standard products at competitive cost.

Solutions & Specialties: The Solutions & Specialties segment combines Covestro's solutions and specialties business; it has six business entities: Engineering Plastics; Coatings & Adhesives; Tailored Urethanes; Thermoplastic Polyurethanes; Specialty Films; and Elastomers. In this segment, Covestro combines sophisticated products with a high pace of innovation, complementing its offering with application technology services and customer-specific system solutions.

Global Presence: Covestro operates production and research and development (R&D) sites for various product groups throughout the world. The company has 46 production sites and 13 R&D sites in the EMLA, NA, and APAC regions.

Intangible Resources:

• Innovative capital: Through targeted investment in research and development, we create the basis for new products and applications to accelerate the transition to the circular economy
• Human capital: Skills, expertise, and motivation of our employees, who are crucial to our company's success
• Structural capital: Procedures, methods, processes, and systems that support the attainment of our corporate targets
• Relational capital: Based on trust and long-term collaboration with customers, suppliers, and other partners in the value chain

Customer Focus: A regular exchange of information and transparent communication are a solid foundation for sustainable partnerships, and we regularly measure the satisfaction of our customers, for example, using the Net Promoter Score (NPS). In the 2024 fiscal year, the Net Promoter Score serves Covestro as a measure of customer satisfaction (ranges from –100 to +100), achieving a score of +42.

Gross Scopes 1, 2, 3 and Total GHG emissions

Scope 1 and 2 Emissions

2024 Performance: Greenhouse gas emissions (CO2 equivalents) from Scope 1 and Scope 2 at main production sites (responsible for more than 95% of our energy usage): 4.7 million metric tons in 2024, compared to 4.9 million metric tons in 2023, representing a 4.1% reduction.

Climate Targets

Operational Climate Neutrality by 2035: Our transformation toward climate neutrality prepares us for the future: We are focusing on energy efficiency, sustainable production processes, climate-neutral energy sources, and moving away from fossil fuels.

Complete Climate Neutrality by 2050: Target for complete climate neutrality across all scopes.

Scope 3 Reduction Strategy

Four Key Levers to reach scope-3-reduction target:

1. Reducing Scope 1 and 2 emissions with suppliers
2. Selling products based on alternative raw materials
3. Sustainable in-house investments (MAKE projects)
4. Initiatives in areas such as recycling, logistics, energy, and innovation

Energy and Climate Initiatives

Renewable Energy:

• 11 Power Purchase Agreements signed by end of 2024
• 7 percent share of renewable sources in total energy consumption
• 300 MWh self-generated electricity and steam from renewable sources

Energy Efficiency:

• Target: 20 percent improved energy efficiency by 2030
• 16,000 tons per year less CO2 emissions at main production site in Tarragona, Spain, through power purchase agreement with bp

Supply Chain Engagement

With our Supplier Engagement Program, we are driving the reduction of scope-3-emissions by collaborating with suppliers to develop measures for a net-zero strategy. We are engaging up to 99% of our key suppliers in climate action initiatives.

Substances of concern and substances of very high concern

Policies and Actions

Covestro uses chemical substances to manufacture products as starting materials for further processing in the value chain. Our products are used and transformed industrially in downstream processes. Their safe use and the provision of information to our customers are governed by law.

The reactivity and suitability of the substances are essential to achieving the desired product properties. The chemical substances used may result in properties which, in the context of sustainability reporting in accordance with ESRS, lead to classification as substances of concern (SoC) or substances of very high concern (SVHC). These properties also result in a potential negative impact in the downstream supply chain on people and the environment if employees are exposed to hazardous substances or if air, water, and soil are contaminated. Our actions to counter this potential negative impact are described in "ESRS S2: Workers in the Value Chain" under "Product Stewardship." The actions and policies described there comprehensively consider product-related hazards. This covers both the potential impacts of the substances of concern and substances of very high concern mentioned here and other potential hazards.

Apart from the above, Covestro does not have any dedicated policies to substitute and minimize the use of substances of concern and to phase out substances of very high concern, not even for essential societal purposes and in consumer products. This does not affect individual actions and optimization initiatives.

We identified a material risk for per- and polyfluoroalkyl substances (PFAS). PFAS are in the focus of public debate on account of their potential negative impacts on people and the environment. Covestro may be affected through the procurement of plant components and raw materials. We monitor the regulatory debate on PFAS and support proportionate, implementable, and enforceable regulations based on robust scientific results and a reliable risk assessment. To this end, we get involved in appropriate association activities and have established an internal interdisciplinary working group on this matter.

We include in our safety data sheets in the EU any PFAS that are classified as SVHC in accordance with REACH and are contained in our products at a concentration of more than 0.1% by weight.

Targets

In the future, we aim to produce and market more sustainable products. In this connection, it is essential to use SoCs or SVHCs on the basis of legal requirements. As described in "ESRS S2: Workers in the Value Chain" and in this section, we work continuously to provide information on the safe handling and use of our products in the value chain. Covestro does not set itself any specific targets for the procurement, use, manufacture, and placing on the market of SoCs and SVHCs in our production and products.

Metrics

The quantities shown below were recorded in a system-based approach. External procurement and sales volumes and the exact composition – including the hazard classification of the individual components at the reporting date – of our products and raw materials are documented in our IT systems. For the raw materials supplied externally, our internal information contains all the details on their composition available to us. The metrics reported here have been collated according to the best of our knowledge. To determine the quantities generated and used, we rely on the data from process orders or determine the reduction in inventories of the relevant materials compared to the previous reporting date. The metrics reflect SoCs/SVHCs carried in our inventory. This may lead to SoCs/SVHCs produced in situ not being recorded if they have been used up completely in the same production process and are not carried in our inventory. Due to the complex system and process landscape in the Group, specific micro quantities are not captured by the system-based calculation methods. They relate exclusively to quantities that have no influence on the figures presented in kilotons below. The volumes of emissions are likewise negligible and are therefore not included in the volumes reported.

The information contained in the table headed "Total quantity of substances of concern (SoCs) and substances of very high concern (SVHCs) in the reporting period" refer to the aggregate quantity of all quantities generated or used or procured by Covestro in the reporting period and to the quantities that left our facilities in the form of products, or parts of products.

"Allocation of substances of concern to the main hazard classes" includes exactly those substances in each hazard class which can be allocated to one of the hazard classes in accordance with the definition of SoC. As there are substances with more than one classification, i.e., they can be assigned to several hazard classes, some substances may be included more than once. As a result, the sum of the individual quantities may be larger than the total quantity.

Total quantity of substances of concern (SoCs) and substances of very high concern (SVHCs) in the reporting period

Allocation of substances of concern to the main hazard classes

ESRS E5-4: Resource Inflows

Overview

Covestro analyzed resource inflows of alternative raw materials during the reporting year. The resource inflows are managed in the company's ERP system, allowing them to be captured and analyzed with the help of a product life cycle-related system. Mass-based flows are recorded in this process. Technical goods and services are not material and not included.

Two categories are tracked: "biological materials" and "reusable and recycled materials."

Resource Inflows Table (2024)

Data Quality and Methodology

As this data has been recorded for the first time in accordance with the new provisions of the ESRS, it is not possible to draw a comparison with the previous year. The company follows a conservative approach in its reporting and uses established extrapolation methods for year-end data where necessary.

Context

Covestro drives the procurement of alternative raw materials as part of its circular economy strategy. The company uses ISCC PLUS-certified raw materials and intermediates that are recycled in upstream stages of the value chain. The use of alternative raw materials is an essential pillar of Covestro's Sustainable Future strategy, aimed at gradually replacing fossil-based materials and closing carbon loops.

Resource outflows

CQ Solutions and Mass Balance Approach

Covestro offers CQ solutions as CO₂-reduced variants of products. These mass-balanced products are based on certified renewable or recycled feedstocks allocated via the mass balance approach. The share of alternative raw materials that can be allocated to CQ products ranges between 25% and 100% of the organic mass, excluding inorganic materials such as additives.

Bio-based and Recycled Materials

Bio-based Aniline Pilot Plant: In fiscal 2024, Covestro inaugurated the world's first pilot plant for bio-based aniline in Leverkugen, Germany. This groundbreaking process produces aniline entirely from plant biomass instead of petroleum, significantly reducing the carbon footprint.

Bio-circular MDI: Bio-circular attributed MDI contains approximately 60% ISCC PLUS certified feedstock. The carbon footprint of bio-circular MDI is up to 99% lower than conventional MDI based on fossil raw materials (exact percentage depends on the amount of allocated raw material).

Polycarbonate from Bio-waste: The Makrolon® RE polycarbonate is derived from bio-waste attributed via mass balancing. Compared to fossil-based alternatives, this material has a carbon footprint during production (cradle to gate) that is reduced by around 80%.

Chemical Recycling and Circularity Initiatives

BioBTX Investment: Covestro invested in BioBTX to support construction of the world's first demonstration plant for ICCP technology in the Netherlands. This technology can process mixed plastic and organic waste to produce chemical building blocks like benzene, toluene, and xylene, with capacity to handle 20 kilotons of plastic waste annually.

Automotive Recycling Collaboration: Covestro, Neste, and Borealis completed a closed-loop system for the automotive industry through chemical recycling of car tires, enabling production of high-quality plastics for automotive applications.

Product Applications Supporting Circularity

Thermoplastic Polyurethane (TPU): A new 120,000 metric tons per year TPU plant is under construction in Zhuhai, China, supporting applications in automotive, footwear, and other industries.

Polycarbonate Copolymers: A new production facility in Antwerp, Belgium uses innovative solvent-free melt process technology, producing polycarbonates with adjustable properties for various applications including composite resins for solar panel frames and materials for electric vehicle batteries.

Design for Circularity

Covestro's DirectCoating technology enables seamless production from injection molding to coating in one tool for automotive applications, lowering carbon footprint. The company also develops monomaterial electronic displays ideal for integration into smart surfaces, supporting easier recyclability.

Characteristics of the undertaking's employees

Workforce Overview

As of December 31, 2024, the Covestro Group comprised 55 (previous year: 57) consolidated companies in three regions in addition to Covestro AG, and employed 17,503 FTE (previous year: 17,516), counted in full-time equivalents (FTEs). This corresponds to a total number of own employees of 18,021.

Regional Distribution

Note: The number of permanent or temporary employees is stated in full-time equivalents (FTEs). Part-time employees are included on a pro-rated basis in line with their contractual working hours. Board of Management members, employees in vocational training, and interns are not included in this metric because of their special employment relationship.

Corporate Culture

"We Are 1" Culture: Our strong corporate culture is the starting point for the success of our 'Sustainable Future' strategy. What feeds my optimism above all are our employees, with their know-how, their commitment and the very special spirit that is based on our culture and values. In the future, we will promote agile cooperation in the company even more strongly and make sure that skills and talents are used in a tailor-made way.

Employee Development: At the same time, we encourage and empower everyone to take advantage of the immense opportunities offered by digitization and artificial intelligence, because this opens up sensational new possibilities for us everywhere.

Training and AI: Equipping our global workforce with the skills to leverage AI effectively is a crucial step. For example, our internal training initiative, "Expedition C," lays the foundation for that. With AI, we can test new ideas quickly and cost-effectively, and are not afraid to discontinue projects that don't deliver value.

Key Tools for Employee Engagement

3 Key Tools to engage employees at Covestro have been implemented to ensure alignment with the company's sustainability and business objectives.

Management of relationships with suppliers

Supplier Engagement Program

With our Supplier Engagement Program, we are driving the reduction of scope-3-emissions by collaborating with suppliers to develop measures for a net-zero strategy. We are engaging up to 99% of our key suppliers in climate action initiatives.

Supply Chain Digitalization

Additionally, we are digitizing our procurement processes and systems to make purchasing more efficient and effective for both us and our suppliers.

Partnership Approach

Covestro places great importance on strong relationships with customers, suppliers, and partners across the value chain. Through transparent communication, open dialogue, and industry-specific teams, we build trust and strengthen sustainable partnerships.

7 Strong Business Entities ensure optimal alignment of all activities with market demands and customer needs.

Strategic Partnerships

Circular Economy Collaborations:

• Henkel Partnership: Henkel and Covestro are advancing engineered wood adhesives with bio-based raw materials. Using the mass balance approach, over 60 percent of certain adhesive components are derived from renewable resources.
• Deutsche Telekom Partnership: Covestro collaborated with Deutsche Telekom to produce the housing for the TV box and remote control of their MagentaTV One product using Makrolon® RE, a polycarbonate derived from bio-waste attributed via mass balancing.
• Carlisle Partnership: To enhance energy efficiency in buildings, Covestro supplies bio-circular MDI for insulation panels to Carlisle. With a CO2 reduction potential of up to 99 percent compared to conventional, oil-based products.

Raw Material Partnerships:

• Encina Partnership: Starting at the end of 2027, Encina, a producer of ISCC PLUS-certified circular chemicals, will supply Covestro with chemically recycled raw materials. These materials enable the production of more sustainable products with a reduced carbon footprint.

Innovation Partnerships:

• BioBTX Investment: Strategic partnership supporting the construction of the world's first demonstration plant for innovative recycling technology that can process 20 kilotons of plastic waste annually.
• Team Sonnenwagen Sponsorship: For six years, Covestro has supported the Aachen-based team as the main sponsor, but this collaboration is much more than sponsorship: It is a partnership of equals. The upcoming Sonnenwagen 5 will feature at least 7 Covestro materials.