Recognizing risks, taking targeted action
For Daimler, respect for human rights is a fundamental component of responsible corporate governance. We are committed to ensuring that human rights are respected and upheld in all of our Group companies and by our suppliers.
Focusing on human rights
Public interest in compliance with human rights in the automotive industry is increasing. One important reason for this development involves the new challenges associated with the expansion of electric mobility. More specifically, there are concerns that the raw materials needed to manufacture electric vehicles might possibly be obtained under conditions that are critical in terms of human rights. We at Daimler have noticed a continuing interest in human rights on the part of investors, which indicates to us that corporate activities related to human rights are having an increasing influence on investment decisions. Legislation related to compliance with human rights is also being expanded. It is conceivable that new laws governing human rights due diligence obligations could be adopted in Germany after the federal government’s National Action Plan on Business and Human Rights comes to an end in 2020. At the EU level, it is possible that corresponding legislative initiatives on human rights could be advanced when Germany assumes the Presidency of the European Council.
Respect for human rights is a key component of our sustainable business strategy and our understanding of integrity and ethical behavior. The nature of critical human rights issues varies among regions and suppliers and also depends on the raw materials, services, and supply chains in question. For this reason, when implementing our approach to respecting and upholding human rights, we not only take into account our own plants and facilities but also include risk-based analyses of the entire supply chain.
How we respect and uphold human rights
The lead responsibility for the controlling of human rights issues lies with the Integrity and Legal Affairs executive division of Daimler AG. The member of the Board of Management responsible for Integrity and Legal Affairs works with the procurement units on ensuring human rights compliance and also receives regular information and the corresponding reports on human rights activities from the Chief Compliance Officer and from specialist units in the Social Compliance and Corporate Responsibility Management departments. Relevant procurement units also provide information on their respective human rights compliance measures to the Procurement Council and the Board of Management members directly responsible for the units in question. This is supplemented by regular reports submitted jointly to the entire Board of Management and the Group Sustainability Board by all of the participating specialist units. Cross-functional teams work together closely on the development and implementation of suitable preventive activities and countermeasures. The teams consist of human rights and compliance experts, as well as staff from the operational procurement units and, if necessary, from other specialist units as well. The relevant specialist units are responsible for implementing and monitoring the measures developed in each case.
Guidelines and international frame of reference
The following standards and guidelines in particular serve as the key frame of reference for our human rights regulations and our conduct in this regard:
- The UN Global Compact
- The UN Guiding Principles on Business and Human Rights
- The International Bill of Human Rights, including the relevant provisions from the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights
- Germany’s National Action Plan on Business and Human Rights
- The Core Labor Standards of the International Labour Organization
The human rights issues we focus on and which have been derived from these frames of reference to enable us to fulfill our due diligence obligations are contained in our Integrity Code and the Daimler Supplier Sustainability Standards.
The Daimler Supplier Sustainability Standards define our requirements with regard to working conditions, human rights, environmental protection, safety, business ethics, and compliance, and are also part of our general terms and conditions. We demand that our direct suppliers commit themselves to observing our sustainability standards, communicating them to their employees and to their upstream value chains, and then checking to ensure that the standards are complied with. The Supplier Sustainability Standards identify the following human rights aspects as focal topics:
- Free choice of employment
- Condemnation of child labor
- Equal opportunity and a ban on discrimination
- Freedom of association and the right to engage in collective bargaining
- Health management and occupational safety
- Fair remuneration, working times, and social benefits
The Supplier Sustainability Standards also refer to all the other valid and internationally recognized human rights.
Systematically addressing human rights risks
To ensure that human rights are respected and protected, Daimler has developed a due diligence approach called the Daimler Human Rights Respect System (HRRS). It aims to protect the human rights of our own employees and to ensure that human rights are respected at our direct suppliers (Tier 1) and at risk-relevant points of the supply chain beyond Tier 1. Through our systematic approach to ensuring respect and protection for human rights, we aim to be the benchmark for the automotive and mobility services sectors.
The HRRS, which orients itself to our Group-wide Compliance Management System (CMS), utilizes a risk-based approach in its focus on Group companies including our production locations and our supply chain. In the spring of 2019, we established a new Social Compliance department. This department is responsible for leading the implementation of our HRRS and to this end utilizes tried-and-tested methods and processes from our Compliance Management System. Plans call for the HRRS at Daimler AG Group companies to be gradually integrated into the Group-wide CMS. Within the framework of the HRRS, we are also developing a separate due diligence approach for ensuring compliance with human rights in the supply chain. This approach is based on a foundation of proven compliance management systems.
As a proactive risk management system, the HRRS is designed to identify and avoid systemic risks and possible negative effects of our business activities on human rights early on. The HRRS thus primarily protects third parties, i.e. rights-holders, and is aimed at exerting its effect along our supply chain as well. As a result, the HRRS also involves consultation and discussions with rights-holders, for example our employees and their representatives, and external third parties such as civic organizations or local residents. The HRRS consists of four steps that are to be applied to Group companies including our production locations and the supply chain.
External stakeholders are regularly involved as we continue to enhance the HRRS step by step. Among other things, we hold talks with international NGOs concerning the human rights risks arising from the extraction of certain raw materials and we also organize the annual “Daimler Sustainability Dialogue”.
Comprehensive risk analyses
Within the framework of the Upfront Risk Assessment, which is part of the separate due diligence approach for our supply chains, we have identified 24 raw materials and 27 services whose extraction and further processing/provision (services)pose potential risks to human rights. Various international reference documents serve as the basis for these risk assessments. With regard to raw materials, we use the “Child and Forced Labor List” from the US Department of Labor, for example. Extraction and mining methods, and the countries where raw materials are located, all play an important role in our analyses. With regard to services, we make use of the Corruption Perception Index published by Transparency International. This list is compiled on the basis of an assumption that countries which display a high risk of corruption are also more likely to pose a risk in terms of human rights. To discover possible risks at our Group companies, we also classify them systematically in accordance with their business models and the human rights situation in their countries.
Identification of human rights risks at Group companies
With regard to Group companies, the risk assessment in the course of their integration into the Daimler CMS envisages the regular classification of the Group companies, initially on the basis of predefined criteria such as the risks associated with specific countries and specific business operations. Here we take into account fundamental human rights standards such as those defined in the Universal Declaration of Human Rights and those formulated by the International Labour Organization (ILO). We plan to use the reviews as a basis for performing a more detailed annual analysis with the help of a human rights survey conducted by the Group. To this end, we launched a pilot project in 2019 that initially includes seven Group companies. We want to use the knowledge gained from the project to expand our systematic risk analysis, which will then be performed at all remaining Group companies. We use this analysis to define risk-specific sets of measures, which we offer to the respective Group companies.
Consistent complaint management
Employees and external third parties can use various channels to report suspected human rights violations and obtain “access to remedy” as defined by the third pillar of the UN Guiding Principles on Business and Human Rights. These channels include our whistleblower system BPO (Business Practices Office) and the World Employee Committee.
The complaint management process also enables individuals to draw attention to possible human rights violations at suppliers. In this context, we work together closely with the World Employee Committee. If we become aware of a suspected violation, we bring together all the available information and request the suppliers to respond to the allegations. We then assess the facts of the case and take the necessary measures. This can cause us to terminate the business relationship. Depending on the situation, it can make sense to work together with the supplier in order to improve the situation on site.
According to our analyses, there were no concrete suspicious cases of child labor, forced labor, or violations against the right to collective bargaining or freedom of association within the Daimler Group in 2019. The Group systematically investigates individual notifications and suspected violations in the supply chain, including the use of child labor for the extraction of raw materials. In cases where we have identified a need for action, we implement the necessary measures – also in cooperation with our partners.
In order to be able to identify problems, we also investigate concrete cases that NGOs have directly communicated to us.
Measures for the protection of human rights
Creating transparency, raising awareness, investigation: We implement a variety of measures worldwide in order to ensure that human rights are respected and upheld as correctly as possible. It is clear that we can’t solve human rights challenges on our own, but only in cooperation with employees, suppliers, business partners, and governments.
Human rights training and workshops
Our Integrity Code provides our employees with information about human rights and raises their awareness of the corresponding risks. The rules contained in the Code are binding for all employees at Daimler AG and for all employees at the Group companies controlled by Daimler. Depending on the area of work, the onboarding process for new employees may include mandatory training courses containing corresponding information. During the reporting year, we have, among other things, held a training course that raises awareness of human rights among the regional heads of the Group’s global security organization.
Raising awareness among suppliers and sales partners
During the reporting period we developed the “Supplier Compliance Awareness Module” on the basis of the sustainability standards for the suppliers and our Integrity Code. This module helps suppliers address possible integrity- and compliance-related risks. In addition, it clearly stipulates what we expect of the suppliers when it comes to integrity and provides information about legal requirements and ethical standards. The module is provided to all suppliers via the Daimler Supplier Portal, where they can use it at any time. Suppliers can also forward this module to their business partners in the supply chain.
This module also contains provisions similar to those that can be found in the general “Compliance Awareness Module” for sales partners, which was introduced in 2016 and is designed to draw their attention to current compliance requirements. Human rights constitutes one of the eleven compliance-related topics featured in this module.
You can find specific information about the qualification of our suppliers in the chapter Sustainable supply chain management.
Open and constructive communication with suppliers
In the services sector, we conduct awareness-raising measures for human rights. To do so, a cross-functional team from the procurement unit meets with suppliers in “Good Practice Sharing Workshops”. This format employs an open and constructive sharing of experiences between the suppliers as well as the clear communication of our expectations towards them. In 2019 we held a “Good Practice Workshop” with seven suppliers of International Procurement Services. These suppliers came from a variety of business areas. In the run-up to the workshop, all of the suppliers received a questionnaire that enabled them to evaluate their status with regard to human rights. The results served as the basis for the joint discussions. At the workshop, the suppliers also raised the topic of possibilities for improvement and defined appropriate measures.
Social standards for contracts for work and services
The awarding and performance of contracts for work and services are subject to standards that extend beyond existing legislation in many areas. These standards define our requirements with regard to occupational health and safety, accommodation, remuneration, use of temporary workers, commissioning of subcontractors, and the prevention of illegal false self-employment. These social principles are relevant to all orders that exceed a period of two months and are actually carried out on the business premises of Daimler AG in Germany. All relevant contractors or service providers must sign a declaration that they comply with these standards. Only if they fulfill this prerequisite can they receive purchase orders. An auditing team from Procurement determines whether the standards are being complied with in Germany.
Membership in automotive associations and initiatives
Daimler is active in a variety of associations and initiatives that address the issue of human rights. They include the following:
- UN Global Compact: Daimler is a member of the LEAD group and takes part in two action platforms (Decent Work in Global Supply Chains and Reporting)
- German Global Compact Network: Daimler is the sponsor for human rights issues and a member of the steering committee
- econsense – Forum for sustainable development: Daimler is the sponsor for human rights issues and a member of the Supply Chains working group
In addition, Daimler initiated the “Human Rights Roundtable of the Automotive Industry”, which it has also hosted on several occasions. This roundtable brought together representatives of the automotive industry with political representatives. It mainly addressed the challenges that the automotive industry faces in the implementation of its human rights due diligence obligations. Their goal is the joint development and implementation of standards.
Raw material initiatives as important platforms
Daimler pursues a risk-based approach. This means that we endeavor to create as much transparency as possible about the upstream value-added stages of raw material supply chains that have a high risk of human rights violations. In this way we want to identify areas that are critical to human rights and to define and implement targeted measures.
In addition to our own measures, we are also active in raw materials initiatives that complement the impact of our activities to promote the responsible procurement of raw materials and can amplify them. The focus of these initiatives is the responsible use of cobalt, steel, and aluminum. With these goals in mind, we are active in the Responsible Minerals Initiative, the Responsible Steel Initiative, the Aluminium Stewardship Initiative, and other organizations. Through targeted cooperation with relevant stakeholders in raw material supply chains, we want to contribute to improving working conditions and preventing human rights violations in raw material mining operations. These initiatives serve as important platforms that also make available sophisticated instruments to enable the traceability of the origin of materials such as cobalt, steel, and aluminum.
Monitoring selected raw material chains
In order to produce vehicles, we need certain raw materials that can, in some circumstances, be mined or processed under conditions that could be critical from a human rights standpoint. That is why the supervision of these supply chains has a high priority for us. Within the framework of the HRRS, we are therefore striving to recognize and prevent such risks and negative effects early on. By the end of 2020, therefore, 20 percent of all high-risk raw materials are to be reviewed, and by 2025 it should be 70 percent.
Cobalt is a special area of focus for our sustainability management activities because of the potential human rights risks associated with its supply chain. Demand for cobalt will initially continue to increase due to the expanding electrification of vehicle fleets. Following a pilot project launched in 2018, we commissioned an external auditing firm in 2019 for a three-year program. The company’s task is to audit the cobalt supply chains of the battery cell suppliers of Mercedes-Benz AG at the time the commission was issued. These audits will be conducted to determine if the supply chains meet the OECD standards. In the first year of the program, the aim is to gradually audit the cobalt supply chains of our battery cell suppliers. The audits cover both downstream suppliers (from the battery manufacturers to the refineries) and upstream suppliers (from the refineries to the mines). We employ such audits in order to evaluate suppliers and identify high-risk areas and the potential for improvement.
A large proportion of the downstream suppliers were already audited in 2019. However, some audits still need to be performed at cathode manufacturers, additional refineries, and, above all, smelters and mines. Initial results from the evaluations show that the audited companies still have problems establishing due diligence systems in accordance with OECD standards. These systems help to ensure that human rights are duly respected. The audited companies perform much better with regard to material control. If an audit discovered a need for improvement, specific Corrective Action Plans were developed together with the supplier, i.e. a list of corrective measures that the supplier in question has to implement. The supplier has a certain amount of time to do this, which varies depending on the severity of the discovered deficiencies. We continuously monitor implementation of these measures. Among other things, they help to improve the due diligence process. Several suppliers were already working on the implementation of such improvement plans during the reporting year, while we are currently coordinating such plans with other suppliers. If a supplier does not accept the improvement plan, we will contact the company that is the next highest in the supply chain in order to have the plan accepted and implemented. Since there is no direct contractual relationship in this case, we have no legal basis for enforcing the plan.
Over the long-term, we focus on capacity building measures for suppliers. Our aim here is to support suppliers enhance their ability to prevent human rights violations.
The supply chain of mica, which is used in vehicle paints and is therefore not directly obtained by Daimler, has been identified as a critical material by the HRRS. That is because the mining of mica has repeatedly been connected with child labor in India. For this reason we reviewed the complete supply chain for mica in 2018 – from the mine to the painting of Mercedes-Benz vehicles in manufacturing plants. A team of quality engineers and human rights experts for example audited three mines and three mica processors in India in order to determine whether these facilities comply with standards for protecting human rights. The overall objective of the project was to create transparency across the entire mica and paint supply chain in order to identify problems that might exist and then define corrective measures. In the course of the audits, we have worked towards the exclusion of a sub-supplier of our direct supplier from the paint supply chain.
We remain in contact with the mica supplier with whom the audits were carried out in 2018. Among other things, we discuss the implementation of the measures that were initiated as a result of the audit and also confer about the ongoing audit of the mine by a local partner organization of the supplier. During the reporting year, we repeatedly examined the implementation and progress of the measures.
The HRRS has defined natural rubber as one of the focus materials subject to a supply chain analysis. Because natural rubber is used mainly in tires, we not only conduct our own supplier surveys and inquiries but also concentrate in particular on our cooperation with associations and initiatives as well as with our partners in the tire industry. In 2019 we held talks with our key tire manufacturers in order to identify risks in the supply chain and use this as a basis for deriving appropriate measures. As a leading member of the sector’s “Drive Sustainability” initiative, we also support the “Global Platform for Sustainable Natural Rubber.”
Further social auditing of suppliers in procurement
The evaluation of new suppliers according to social standards is firmly embedded in the processes of our three procurement units. For example, International Procurement Services, which is responsible for the procurement of non-production material, evaluates all of the new suppliers in high-risk countries and socially critical procurement segments. Mercedes-Benz Cars Procurement and Supplier Quality conducts a potential analysis of all new suppliers. This analysis also addresses working times, remuneration, and freedom of association. Global Procurement Trucks & Buses has procurement employees conduct on-site assessments of all new suppliers to also see how they comply with social standards. We use regular database research and other measures to discover any violations of our sustainability and compliance rules by our current suppliers. We systematically follow up all reports of violations.
How we assess the effectiveness of our management approach
During the reporting period, the regular assessment of our measures has caused us to adjust our management approach in a variety of ways. In 2019 we created the Social Compliance department in order to further systematize existing measures and improve their integration into the business processes. This department is part of the executive division Integrity and Legal Affairs. It is now responsible for controlling implementation of the HRRS.
Plans call for the HRRS for Daimler AG Group companies to be fully integrated into the Group-wide Compliance Management System. The department is also enhancing the separate due diligence approach for human rights in the supply chain. In doing so, it is first reviewing the previous measures.
Due to its importance, we made human rights one of the key focal topics of our sustainable business strategy during the reporting year. To this end, we provided measurable targets and key figures for our human rights approach. We regularly review how the approach is progressing and report the results to the Group Sustainability Board and the Board of Management.
During the further development of our management approach to human rights, we also incorporated the feedback from our stakeholders at the human rights working group of the “Daimler Sustainability Dialogue.” At this annual event, we discuss and evaluate our progress as well as the challenges that arise during the implementation of our management approach.