Development of Material Sustainability Topics

Carbon neutrality

Our ambition
As set out in our sustainability ambition, we strive to be 100% carbon-neutral along our entire value chain with regard to products, operations and supply by 2050 at the latest, together with our partners along the value chain.

Concept
The transformation toward carbon neutrality is to be achieved in four steps and in particular through the use of renewable energy, the development of new technologies, and increases in efficiency:

• Since 2020: zero emissions from externally sourced electricity in global production through a complete switch to renewable energy, including through special electricity supply agreements (power purchase agreements) and the purchase of energy attribute certificates
• From 2022: carbon neutrality of the allocated business with zero-tailpipe-emission vehicles
• Corporate target by 2040: carbon neutrality of all our own production processes
• Corporate target by 2050: carbon neutrality along the entire value chain

The targets have been validated by the Science Based Targets initiative (SBTi). On the basis of the method used, the linear derivations for 2030 from the targets for 2040 and 2050 were confirmed as being compliant with the Paris climate agreement.

Results of the concept
As a key performance indicator for the implementation of our concept with respect to carbon neutrality, we consider our own CO2 emissions in accordance with Scope 1 and 2 of the Greenhouse Gas (GHG) Protocol. These include direct CO2 emissions from fossil fuels (Scope 1 of the GHG Protocol) and indirect CO2 emissions from purchased electricity, steam and heat (Scope 2 of the GHG Protocol). Our own CO2 emissions amounted to 0.99 million metric tons in fiscal 2020 (PY: 3.22 million metric tons). The previous year’s figure is not comparable due to a change in the method for calculating Scope 2 emissions from a location-based method to a market-based method in accordance with the GHG Protocol. In fiscal 2020, Continental switched all externally sourced electricity at the relevant production and research and development locations to 100% renewable energy as planned (RE100 project) and adapted its calculation method accordingly. This means that there are no longer any CO2 emissions associated with externally purchased electricity at the relevant production and research and development locations. This led to an overall reduction in own CO2 emissions of almost 70%. To a lesser extent, the decline in production related to the COVID-19 pandemic also contributed to a reduction in energy consumption and the associated CO2 emissions.

1 Definitions in accordance with the GHG Protocol. CO2 emission factors correspond to CO2 equivalents (CO2e).
2 Includes the relevant production and research and development locations.
3 CO2 emissions from fleet consumption are only partially and not systematically included.
4 Calculated using the market-based calculation method of the GHG Protocol. Where contract-specific emission factors were not available, the standard emission factors from Defra (November 2019) were used.
5 Calculated using the location-based calculation method of the GHG Protocol.
6 Figures for 2020 and 2019 not comparable due to the implementation of the RE100 project and the associated change in the method for calculating Scope 2 emissions from a location-based method to a market-based method in accordance with the GHG Protocol.

For more information on carbon neutrality, including reporting on indirect CO2 emissions along the value chain (Scope 3 of the GHG Protocol), see the integrated sustainability report at www.continental-sustainability.com/downloads.

Emission-free mobility and industries

Our ambition
As set out in our sustainability ambition, we strive for 100% emission-free mobility and industry by 2050 at the latest, together with our partners along the value chain. “Emission-free” refers to zero emissions of greenhouse gases and nitrogen oxides (NOx), for example, but does not include harmless emissions such as water vapor, non-toxic biodegradable particulate emissions or minimal noise emissions.

Concept
With technological solutions, Continental is shaping the transformation toward emission-free mobility and emission-free industries. In doing so, we rely both on new product developments and on the further development of the existing product portfolio. Emission-free mobility includes, for example: electrified drive systems, lightweight design solutions, automated driving solutions, new transport concepts, and rolling-resistance-optimized tires.

For more information on this topic, see the Strategy of the Continental Group section on pages 47 and 48, the Research and Development section on pages 52 and 53, and the report on risks and opportunities starting on page 99 of this annual report.

Results of the concept
We consider our allocated business with zero-tailpipe-emission vehicles to be a key performance indicator for the implementation of our concept with respect to emission-free mobility and industries. The new key performance indicator introduced in fiscal 2020 expresses the paradigm shift from more efficient mobility to emissionfree mobility and comprised €0.83 billion of consolidated sales. It refers to business with vehicles without drive emissions that can be clearly allocated via the vehicle manufacturer, the vehicle platform or the product specification, for example. Additionally, there are also business activities that cannot be clearly allocated to emission-free vehicles and are therefore not reported. This currently includes a major part of the replacement business, for example. The new key performance indicator replaces the previous key performance indicator “percentage of products that demonstrably contribute to energy efficiency or to the reduction of pollutant or carbon dioxide emissions.”

1 Definition: allocated business with zero-tailpipe-emission vehicles measures both pure business and attributable business, e.g. in the case of combined vehicle platforms. The figure includes the entire business with products for vehicles transporting goods and people.
2 The calculation was also based on external data sources and internal planning data. In the tire trade organization business (e.g. Vergölst) and business with car dealerships, there is no allocation at the individual customer level.

For more information on emission-free mobility and industries, see the integrated sustainability report at www.continental-sustainability.com/downloads.

Circular economy

Our ambition
As set out in our sustainability ambition, we strive for 100% closed resource and product cycles by 2050 at the latest, together with our partners along the value chain.

Concept
Continental is realizing the transformation toward a circular economy by means of numerous initiatives and projects, which are managed at various levels within the Continental Group. Examples include the use of recycled materials, the retreading of tires, the reduced use of plastics, as well as operational waste management.

For operational waste management, we have set ourselves the following target:

• Corporate target by the end of 2030: increase in the waste recycling quota to 95%. The waste recycling quota measures the proportion of waste that has been sent for material recycling, thermal recovery or any other form of recycling or reuse.

Results of the concept
We currently consider the waste recycling quota to be a key performance indicator for the circular economy. In fiscal 2020, this was at 81% (PY: 80%) and therefore on a par with the previous year.

A specially developed, corporate-wide awareness and participation campaign on resource conservation and waste prevention, which was initially rolled out as planned at the start of fiscal 2020, had to be suspended after a short time as a result of the COVID-19 pandemic.

1 Definition: proportion of waste that has been sent for material recycling, thermal recovery or any other form of recycling or reuse.
2 Includes the relevant production and research and development locations.

For more information on the circular economy, see the integrated sustainability report at www.continental-sustainability.com/downloads.

Responsible value chain

Our ambition
As set out in our sustainability ambition, we strive for 100% responsible business partnerships and sourcing by 2050 at the latest, together with our partners along the value chain.

Concept
Our understanding of a responsible value chain refers to our supply chain and customer relationships and to our own locations.
The transformation toward a fully and universally responsible value chain begins with concrete requirements that we already set out for our direct suppliers: in our Business Partner Code of Conduct, as well as in our sourcing policy for the purchase of sustainable natural rubber, we define the fundamental requirements for our suppliers, and for their suppliers in turn, including with regard to human rights, working conditions, environmental protection and anti-corruption. Violations of our regulations can also be reported via the Compliance & Anti-Corruption Hotline, which is available around the clock and worldwide. In the event that violations of our binding regulations are identified, we demand improvements and reserve the right to terminate the business relationship. We assess our suppliers with the help of self-assessment questionnaires via the generally accepted sustainability platforms for our industries, EcoVadis and NQC. Before even establishing a business relationship, we also check potential new suppliers and service providers by means of self-assessments as well as on-site audits, which may also include sustainability topics (such as fire protection and occupational safety).

Responsible sourcing is the responsibility of the relevant purchasing organizations, which are established at Continental by business area and product group with teams in the various countries. In fiscal 2020, a corporate purchasing network was established, which regularly deals with responsible sourcing topics as well.

We describe the transformation toward a fully and universally responsible value chain with regard to our own locations in the following sections on good working conditions and green and safe factories in particular.

We continue to develop our approach further in dialog with external stakeholders and support the development of industry-wide standards, for example through our active participation in industry dialog with the German government on human rights in the automotive industry and through the Global Platform for Sustainable Natural Rubber (GPSNR).

Results of the concept
In fiscal 2020, we assessed our sourcing processes with regard to management capacities for the implementation of human rights due diligence, and from this we derived necessary measures together in the corporate purchasing network. The measurement is performed on the basis of a recognized external tool for self-assessment from the German Global Compact Network.

In the prioritized area of activity for the sourcing of sustainable natural rubber, the piloted approaches for traceability have been further expanded upon as part of the Rubberway project and collaboration with the German Society for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit – GIZ) in Indonesia. With regard to other critical raw materials in our supply chain, we have also – specially for conflict minerals as well as cobalt – reorganized management and reporting and firmly established processes, roles and responsibilities within the company.

The total number of valid available self-assessment questionnaires completed by suppliers via the two sustainability platforms EcoVadis and NQC is used as a key performance indicator for the implementation of our concept with respect to the responsible value chain. As at December 31, 2020, valid self-assessment questionnaires from 696 suppliers (PY: 670) were available. This corresponds to a completion rate of 59% of suppliers selected for this process (PY: 57%).

1 Based on the self-assessment questionnaires completed by suppliers via the sustainability platforms EcoVadis and NQC. In fiscal 2020, a change was made to the definition of validity with regard to supplier self-assessment questionnaires by Continental. This will always last for two years, irrespective of the platform used.
2 Figures for 2020 and 2019 only comparable to a limited extent due to a change in definition.

For more information on the responsible value chain, see the integrated sustainability report at www.continental-sustainability.com/downloads.

Good working conditions

Our ambition
As set out in our sustainability ambition, we provide inspiring, healthy and fair working conditions.

Concept
Continental’s Code of Conduct sets out the cornerstones for good working conditions as the basis of our global collaboration, including human rights and fair working conditions. Employees regularly receive training on the Code of Conduct.

In order to meet our future staffing requirements in terms of both quality and quantity, our vision is to become one of the most attractive and progressive employers. The strategic goals of HR work are therefore focused on efficiently and effectively bringing together the right people and positions (Industrialize Best Fit) and at the same time shaping the transition to digitalization, new technologies and new forms of collaboration (Enable Transformation & Leadership). Strategic workforce planning, suitable talent selection and development (in particular in the areas of software and IT) on the basis of comprehensive diagnostics, the promotion of employee diversity and lifelong learning, the further development of the management culture and the flexibilization of working hours are therefore essential strategic HR activities.

According to a preliminary analysis, up to 30,000 jobs worldwide are expected to be affected by changes under the Transformation 2019–2029 structural program over the next 10 years. We are preparing the employees affected for the technological changes and associated professional and personal challenges that they will face through structured retraining measures that are conducive to employment.

Those responsible for the projects’ implementation are the HR functions at the group sector and business area level, which work together in a global network. A special network of country coordinators for working relationships is also part of this organization.

Results of the concept
With the adoption of remote working back in fiscal 2016, we laid a central foundation on which to successfully combat the challenges associated with the COVID-19 pandemic in fiscal 2020 and enable employees to work from home.

We use the Sustainable Engagement index from our annual employee survey OUR BASICS Live as a key performance indicator for the implementation of our concept with respect to good working conditions. The index measures employee approval on topics such as whether they personally back the company values and whether they are proud to work for Continental. In fiscal 2020, the Sustainable Engagement index was 82% (PY: 81%) and therefore on a par with the previous year. Other key performance indicators are the sickness rate and the unforced fluctuation rate. The sickness rate measures sickness-related absence relative to contractually agreed working times, and the unforced fluctuation rate measures the voluntary departure of employees from the company relative to the average number of employees. In 2020, the sickness rate was up slightly compared with the previous year at 3.5% (PY: 3.4%), while the unforced fluctuation rate was down at 4.6% (PY: 6.0%). The decrease applies to all regions.

Information about personnel expenses in fiscal 2020 (i.e. wages and salaries, social security contributions and pension and postemployment benefit costs), can be found in Note 9 of the notes to the consolidated financial statements. Employee benefits such as pensions, post-employment benefits and long-term bonus payments are broken down in Note 28 of the notes to the consolidated financial statements.

1 Definition: sickness-related absence relative to contractually agreed working times.
2 Excluding temporary staff (i.e. permanent staff only).
3 Definition: voluntary departure of employees from the company relative to the average number of employees.
4 In fiscal 2020, the key performance indicator was renamed. This was previously called “unforced fluctuation.”

For more information on good working conditions, see the integrated sustainability report at www.continental-sustainability.com/downloads.

Green and safe factories

Our ambition
As set out in our sustainability ambition, we conduct our business processes in a safe and responsible manner based on systematic management and protecting people and the environment.

Concept
Our company policy for environment, safety and health protection (ESH) defines corporate-wide guidelines for green and safe factories. On this basis, ESH targets for the Continental Group are in place: all persons in our company are to be protected against accidents and work-related sickness, and health is to be actively promoted. CO2 emissions, energy use, water consumption and waste generation at the locations are to be reduced, and the waste recycling quota and energy efficiency at the locations increased.

Local management systems are used to drive the implementation of these corporate targets. The concrete organizational and technical guidelines for local management systems can be found in the relevant ESH management manuals.

The Environment and Safety & Health group functions are responsible for the related strategic, corporate-wide ESH management process, and are supplemented by corresponding ESH functions in the individual business areas. Operational environment, safety and health protection on site is the responsibility of location management and is coordinated by local ESH managers in each case.

Results of the concept
As a key performance indicator for the implementation of our concept with respect to green and safe factories, we use the corporatewide employee coverage quota with regard to certified local management systems in the areas of the environment, energy and occupational safety. On this basis, the majority of our employees throughout the Continental Group were covered by certified management systems as at December 31, 2020. The environmental management system certification covered 82% of employees (PY: 82%), the energy management system certification covered 51% of employees (PY: 49%), and the safety and health management system certification covered 69% of employees (PY: 69%). The accident rate – i.e. the number of accidents per million working hours – is also used as a key performance indicator with respect to green and safe factories. The accident rate improved to 2.9 accidents per million working hours in fiscal 2020 (PY: 3.0 accidents per million working hours).

In order to address the COVID-19 pandemic, the existing corporate-wide pandemic preparedness plan (“pandemic plan”) was activated in fiscal 2020, which contributed to pandemic-proof production. An emergency organizational system was set up at company level under the leadership of the Group Security group function, which incorporates the relevant corporate functions. Regional crisis teams were also established at country level. In addition, we launched medical counseling and mental health programs for our employees and their families, such as a global hotline. Another measure was the establishment of three production lines for the manufacture of surgical masks.

1 Definition: number of accidents during working hours per million paid working hours. Counted from more than one lost day, i.e. with at least one lost day beyond the day of the accident.
2 Excluding temporary staff (i.e. permanent staff only) and way-to-work accidents.
3 Excluding Continental Tire Sales (approx. 2% of the total workforce).

For more information on green and safe factories, see the integrated sustainability report at www.continental-sustainability.com/downloads.

Benchmark in quality

Our ambition
As set out in our sustainability ambition, we are recognized by our customers and society as being a benchmark in quality by ensuring safe and sustainable products.

Concept
The decisive factor in becoming a benchmark in quality is a qualityoriented company culture. Our quality policy sets out guidelines for product and process quality at Continental. Product recalls, product liability claims and proceedings as a result of quality defects represent a business risk. We want to avoid this business risk due to the resulting losses of sales, costs, and loss of customer and market acceptance. Detailed reporting in this respect is included in the report on risks and opportunities starting on page 99.

Local management systems on site are used to support the implementation of these corporate targets. The concrete organizational and technical guidelines for local management systems can be found in the relevant quality management manuals.

The Total Quality Management (TQM) group function as well as the quality functions at various levels in the Continental Group, which work together in a global network, are responsible for the strategic, corporate-wide quality management process.

Results of the concept
As a key performance indicator for the implementation of our concept with respect to benchmark in quality, we use the corporatewide employee coverage quota with regard to certified local quality management systems. The majority of our employees throughout the Continental Group, namely 91%, were covered by certified quality management systems as at December 31, 2020 (PY: 86%). The number of new field quality events also represents a key performance indicator with respect to benchmark in quality, which we newly defined in 2020 and are reporting on externally for the first time. A field quality event is a risk-minimizing measure for a product manufactured and/or sold by Continental on the basis of a safety-related defect and/or non-compliance with regulations that was initiated by Continental, a customer and/or an authority. As at December 31, 2020, 18 new field quality events had been identified.

Information about the scope of warranty and product liability claims in fiscal 2020 can be found in Note 36 (Litigation and Compensation Claims) of the notes to the consolidated financial statements, on pages 209 and 210.

1 Definition: a field quality event is a risk-minimizing measure for a product manufactured and/or sold by Continental based on a safety-related defect and/or non-compliance with regulations that was initiated by Continental, a customer and/or an authority.

For more information on benchmark in quality, see the integrated sustainability report at www.continental-sustainability.com/downloads.

Sustainable management practice

Our ambition
As set out in our sustainability ambition, we implement effective management processes, fair business practices and responsible corporate governance with a balanced view of different perspectives.

Concept
Continental AG’s Corporate Governance Principles are intended to help achieve responsible, value-driven management within the company and the Continental Group.

To prevent corruption and antitrust violations in particular, the Executive Board has established the global compliance organization together with the Compliance group function and regional subfunctions. This structure is supplemented by compliance coordinators in the countries and at the locations. The fundamental principles of compliance management are set out in the corporate-wide compliance handbook. Continental has a compliance management system, which is based on a comprehensive analysis of potential compliance risks for the core areas of antitrust law and corruption prevention.

We are also committed to promoting employee diversity, which we understand as internationality, a balanced gender ratio, and a range of experiences and age categories. We have set ourselves the corporate-wide target of increasing the share of female executives and senior executives. We intend to achieve this in particular by promoting cultural change in the organization through the expansion of women’s networks and the holding of diversity workshops and specific events:

• Corporate target by 2020: share of female executives and senior executives of 16%
• Corporate target by 2025: share of female executives and senior executives of 25%

For more information on sustainable management practice, see the corporate governance report starting on page 12 of this annual report. For more information on compliance, see the detailed compliance report on page 22 of this annual report, as well as the report on risks and opportunities starting on page 99. For more information on our diversity concept, see the corporate governance report starting on page 21 of this annual report.

Results of the concept
The design, implementation and effectiveness of the compliance management system was confirmed by an independent auditor in fiscal 2016 in accordance with the IDW PS 980 audit standard.

A key performance indicator for the implementation of our concept with respect to sustainable management practice is gender diversity, which measures the share of female executives and senior executives. As at December 31, 2020, Continental had increased its share of female executives and senior executives to 16.1% (PY: 15.8%) and therefore successfully met its corporate target of 16% for fiscal 2020.

1 In fiscal 2020, the key performance indicator was renamed. This was previously called “proportion of women in management positions.”

For more information on sustainable management practice, see the integrated sustainability report at www.continental-sustainability.com/downloads.

Information on the development of other key sustainability topics
Information on the development of topics that have been identified as being relevant to the sustainable development of the business, but according to an internal analysis were not classified as being relevant to reporting for the combined non-financial statement, can be found in the locations specified below:

• Innovation and digitalization: the Research and Development section on pages 52 and 53 of this annual report and in the integrated sustainability report
• Safe mobility: the Research and Development section on pages 52 and 53 of this annual report and in the integrated sustainability report
• Long-term value creation: the Corporate Management section on pages 49 and 50 of this annual report and in the integrated sustainability report
• Corporate citizenship: in the integrated sustainability report

The integrated sustainability report is available online at www.continental-sustainability.com/downloads.