Henkel AG & Co KgaA ESG Rating AA September 2015 Nation: Germany Exchange: Deutsche Börse Xetra Sector (s): Household Products ISIN: DE0006048408 Ticker: HEN DE http://www.henkel.com/ ESG Report This report has been prepared to determine the ESG compliance status of the company based on IdealRatings methodology and not to be used for specific professional advice.
Henkel AG & Co. KGaA Inside This Report 1. Company Description 2. Company Summary 3. Company Peers 4. Environment 5. Social 6. Governance 7. Comments: Legal Proceedings 8. ESG Screening brief Company Peers: Company Name Ticker Unilever N.V. UNA NL Procter & Gamble Co PG US L'Oreal SA OR FR Reckitt Benckiser Group RB US Colgate-Palmolive CL US Company Description Henkel AG & Co. KGaA is a Germany-based manufacturing company founded in 1876 by Fritiz Henkel. It is organized into three business units: Laundry & Home Care, Beauty Care and Adhesive Technologies. A product from the Laundry & Home Care business unit is what started the Henkel business. The Beauty Care business unit is operating in the branded consumer goods business area with hair cosmetics, body care, skin care and oral care, as well as the professional hair salon business area. The Adhesive Technologies business unit provides solutions for adhesives, sealants and functional coatings in two business segments: Industry, and Consumers, Craftsmen and Building. Its brands portfolio includes names like Persil, Purex, Pril, Pritt and Schwarzkopf. Industry Drivers To address environmental sustainability challenges, companies in the household sector are increasingly encouraged to focus on the life cycle perspective of the goods they produce. An assessment of such attempts to understand impacts and where the changes to the products could be performed is important. From social and governance perspectives, companies in the household products sector are required to commit to the promise they have labeled on their packages, and provide a suitable and responsible marketing campaign. Their transparency levels should be high since they deal with customers directly. 2
Sector Related ESG Aspects: Environment Management Waste Management Water Resource Management Others: Product Innovation Social Community Human Capital Supply Chain Management Governance Anti-Corruption Reporting and Transparency Exclusion Criteria Business Involvement Countries of Concern IdealRatings reviewed the most recent released reports and credible news sources for Henkel AG & Co KgaA Overall Rating Comment: The company showed exceptional performance and high transparency. This is further backed by many accolades and mentions from various ethical stakeholders. Environmentally, the multinational corporation has been taking noticeable strides in the direction of its targets and goals in becoming greener. Henkel vows to advocate the protection of basic human rights. This is further emphasized by the fact that the company is a UN Global Compact signatory. 3
Environment Score: 77 v Management Henkel's management systems externally certified at the site level where, at the end of 2014, 90percent of their production volume came from sites certified to ISO 14001, the internationally recognized standard for environmental management systems. These management systems include grievance mechanisms, communication channels and other 4
procedures for reporting concerns or seeking advice in addition to environmental risk and impact assessments. Henkel ensures minimum environmental standards in their contracts with suppliers and has a tracking and reporting system for their standardized environmental performance metrics. The corporation relies on its self-developed Henkel Sustainability#Master matrix as a means of life-cycle assessments to determine the sustainability of a product. v Waste Management Henkel has achieved a 15-percent reduction in the waste footprint per production unit; this could be because of the noticeable reduction in using petrochemical raw material. It also uses, where it can, readily biodegradable raw materials Wastewater reduction seems to be a very material aspect for Henkel and there are continuous efforts to reduce the level of wastewater pollution by their production sites. Henkel strongly concentrates on further developing the measurement methods for both waste reduction, in general, and Wastewater reduction, in particular. v Water Resource Management As mentioned before, wastewater is an aspect Henkel constantly focuses on Viersen-Dülken plant in Germany, which produces hair-coloring products, introduced an intelligent biomonitoring system which uses chemical and bio-logical analyses to assure the environmental safety of the neighbouring surface waters. A 15-percent reduction in the water consumption per production unit has been reached, a target relative to base year 2010. v Others: Product Innovation Henkel integrates its sustainability strategy within its product innovation focusing on environmental improvement in terms of remove harmful substances from the production phase, using less raw materials or, where possible, renewable raw materials including less packaging. Social Score: 100 v Human capital Being a signatory of the UN Global Compact, Henkel has committed itself to abide by certain human capital aspects that included applying a non-discrimination policy, respecting human rights, and avoiding forced and child labor. Henkel is an equal opportunity employer. It is highly diverse with employees with 124 different nationalities, as per 2014 figures; seven of the 16 Supervisory Board members being women, and proportion of female employees averaging around 33 percent. 5
A diverse workforce necessitates training to match the ever-shifting demands of the markets and to keep with global and technological advancement. Henkel provides training and professional development to all employees. All business units carried out safety training and the results were clear as the accidents rate dropped around 25 percent relative to base year 2010. v Community To further spread the message of sustainability, Henkel employs a Sustainability Ambassador program and a (Y)OUR MOVE campaign. The Ambassador program was first established in 2012 to train employees on the topic who then visit schools to educate children about sustainability and how they can make a difference. The campaign encourages employees to contribute to a sustainable society in their lives. The company has several community-related programs that includes providing health, food and education access. For example, In Egypt the Pril brand has been contributing 5 percent from each bottle sold to the local food back (EFB) since 2008. Moreover, every year Henkel donates to the Fritz Henkel Stiftung foundation, which is funnelled towards various initiatives providing shelter to the homeless, raising awareness to prevent child abuse helping in the fight against Ebola. 6
v Supply Chain Management As part of Henkel's supplier management activities, supplier performance in regard to sustainability is a main selection criterion where the standards cover the topics of safety, health, quality, fair competition and the environment. This is further emphasized through training programs given to suppliers. Henkel works with independent audit companies to audit compliance. However, the company has no programs to support increase supplier diversity Governance Score: 74.5 v Reporting and Transparency Henkel seems to be quite transparent choosing to include its stakeholders in discussions about future opportunities and challenges. In terms of reporting and transparency, the company has a remuneration and nomination committee and disseminates directors' remuneration details on an annual basis. Moreover, the roles of the Chairman and CEO are separate to enhance the overall integrity of the company. As for the accountability aspect, the company has whistle-blowing procedures to report any ethical concerns. In addition to this, it conducts audits on a regular basis. To further enhance their transparency and credibility, Henkel may want to consider employing an external body assuring and verifying sustainability reporting. 7
v Anti-Corruption Henkel is an UN Global Compact Signatory, which means it works against corruption in all its forms. This is evident in that Henkel s compliance culture involves binding rules and specific instructions on how to handle possible tricky situations, the continuous monitoring and improvement and the company's focus on compliance training where in 2014 more than 12,000 employees globally attended seminars regarding compliance. Furthermore, the company has formal whistle-blowing procedures; a compliance hotline run by an independent external provider. v Business Ethics The main downfalls against Henkel are its legal proceedings cases: Davidson v. Henkel was a lawsuit pertaining to the deferred compensation plans Henkel provides to its employees where they failed to protect participants from adverse tax consequences and, as a result, were sued by one of the aforementioned employees. A decision by a Michigan federal trial court has been recently reached implicating the corporation by granting the plaintiffs' motion for partial summary judgment. The corporation is also involved in a patent lawsuit under the name of H.B. Fuller Company v. Henkel Corporation. The lawsuit is still ongoing, till this report s issue date. Henkel Corporation could also consider integrating a responsible marketing statement within its codes and standards. Exclusion Criteria: v Countries of Concern: There is a representative office of Henkel Russia. 8
ESG Screening: IdealRatings ESG rulebook has set a score out of 100 for each category; Environment, Social, and Governance. Based on the screening, scoring and rating is assigned to the company as per the below scoring system. Moreover exclusion criteria are applied on business involvements of companies in the following controversial activities that include: fossil fuel, nuclear power, controversial weapons, Genetically Modified Organisms (GMO), alcohol, tobacco, firearms, pork etc. IdealRatings Scoring System Rating Score AAA 270-300 AA 240-270 A 210-240 BBB 180-210 BB 150-180 B 120-150 CCC 90-120 CC 0-90 9
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