We monitor the supply chains
Investors and analysts — and legislators and societies as well — are increasingly calling on the automotive industry to ensure greater sustainability throughout the supply chain. The expansion of e-mobility, in particular, is shifting the focus on the upstream value chain. The production of batteries in particular is especially energy-intensive and causes large amounts of CO2 emissions. Batteries also require raw materials such as lithium and cobalt. However, the mining and processing of such materials can potentially result in human rights violations and negative environmental effects, because these materials sometimes come from countries that lack sufficient environmental and social standards.
Daimler is convinced that companies that want to be sustainable must also focus on their supply chain. This is because we procure raw materials indirectly, and components and services directly, from all over the world. Our goal is to combine achieving business success with acting responsibly toward the environment, people, and society — and doing so along the entire value chain. We also expect our direct suppliers to display the same sense of responsibility by complying with environmental and social standards.
Sustainable supply chain management also offers us many opportunities. Our commitment enables us to establish good business practices on markets worldwide and thus make a valuable contribution to respecting and upholding human rights as well as to protecting the environment and the climate. At the same time, our sustainable supply chain management increases our stakeholders’ trust in Daimler as a responsible partner.
We manage our supply chain sustainably
Our vehicles generally contain several thousand parts and components, and our supply chain is therefore complex. It comprises around 60,000 direct suppliers for production and non-production materials, with most of them based in Europe, North America, and Asia. These suppliers in turn have sub-suppliers, and sometimes a supply chain can contain up to seven or eight tier levels, with additional sub-suppliers on each level. With every innovation and every market development, the supply chain dynamically develops further — and this also occurred during the reporting period.
We use a variety of measures and concepts in order to ensure the sustainable management of our supply chain. These include supplier screenings, audits, risk-based due diligence analyses, qualification modules for production material suppliers, and additional workshops with selected service providers. Our goal here is to ensure compliance with social standards and environmental regulations on the one hand and greater transparency in the supply chain on the other.
Our three procurement units — Mercedes-Benz Cars Procurement and Supplier Quality, Global Procurement Trucks and Buses, and International Procurement Services — work together to ensure responsible procurement of materials and services.
The Daimler Supplier Sustainability Standards serve as the guidelines for our sustainable supply chain management system. They define our requirements for working conditions, respecting and upholding human rights, environmental protection, safety, business ethics, and compliance. The Supplier Sustainability Standards focus, among other things, on the following human rights, compliance, and environmental aspects:
- 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
- Fair competition
- Prevention of conflicts of interest
- Maintaining business secrecy
- Environmentally friendly production and products
- Product safety and quality
We demand that our direct suppliers recognize these sustainability standards and communicate them to their employees and to their upstream value chains. We also expect them to check to ensure that the standards are complied with. For this purpose, Mercedes-Benz AG developed a prototype blockchain in a pilot project. This blockchain enables users to forward information and documents such as certificates and codes of conduct along their supply chains transparently and in a traceable manner. Mercedes-Benz Cars & Vans has continued to pursue this approach with a follow-up project since 2020. Once the project has been successfully completed, it will also be possible to adapt this approach to the needs of Daimler Trucks & Buses.
During the year under review, we tightened our sustainability requirements for suppliers even further and revised our contractual terms accordingly. For example, we now require our suppliers to establish processes that ensure the fulfillment of human rights due diligence obligations in accordance with the provisions of the UN Guiding Principles on Business and Human Rights and the relevant OECD guidelines and principles. We also reserve the right to examine and audit these processes. In addition, suppliers are required to inform us of any human rights risks and countermeasures identified. They must also disclose to us upon request any risk hotspots that exist along their supply chain. We have also revised our contractual terms with regard to our specific environmental requirements. For example, direct suppliers that provide production materials to the Mercedes-Benz Cars and Vans division must now disclose certain environmental figures — including their CO2 emissions, energy and water consumption, and the amount of waste they produce, for example.
How we ensure compliance with our standards
We systematically check whether our standards are complied with. The evaluation of new and existing suppliers according to sustainability standards is firmly embedded in the processes of our three procurement units.
International Procurement Services, which is responsible for the procurement of non-production material, evaluates all of the new suppliers in high-risk countries and critical procurement segments to determine if they fulfill social and environmental standards, are ethical in their business operations, and properly handle policies. In addition, the procurement unit engages in a dialog with selected suppliers worldwide and discusses human rights issues. Every year, International Procurement Services evaluates all existing service providers to determine if there is anything conspicuous that would be critical from a social point of view. Moreover, an audit team determines whether the service providers in Germany meet legal and collective bargaining conditions and whether suppliers comply with Daimler’s requirements.
Mercedes-Benz Cars Procurement and Supplier Quality as well as Global Procurement Trucks & Buses (both of which are responsible for the procurement of production material) evaluate all new suppliers on site to determine whether they meet sustainability standards before they are given any orders. During this evaluation, the unit especially asks questions regarding social standards, including working hours, remuneration, and freedom of association. Such examinations are even more thorough in high-risk countries and include a review of child labor as a standard procedure.
We also examine our existing direct suppliers within the framework of risk analyses conducted on a regular basis. Among other things, we conduct annual database research to identify any violations of our sustainability and compliance rules. This is part of our supplier screening process. We make these evaluations so that we can detect violations at an early stage on the basis of up-to-date supplier data. In 2020 we conducted a total of 658 on-site reviews at suppliers of production materials. By way of exception, some of these audits were conducted virtually because of the covid-19 pandemic.
However, we not only analyze social aspects but also check to see whether suppliers have environmental certificates. We also expect our suppliers of production materials to operate with an environmental management system that is certified according to ISO 14001, EMAS or other comparable standards. Depending on the specific risks, this also applies to suppliers of non-production materials, such as painting services. If a supplier does not have a certified environmental management system, the supplier is given two years to set up such a system and have it certified. If this is not done, the supplier may be excluded from receiving new orders.
In order to ensure an effective sustainable supplier management system, we assign high priority to the comparability of the survey results. For this reason, we work with standardized instruments such as the industry-wide sustainability Self-Assessment Questionnaire developed by the European Drive Sustainability initiative. Mercedes Benz Cars & Vans requires all of its suppliers to fill out the Self-Assessment Questionnaire. During the reporting year, Daimler Trucks & Buses also used self-assessment questionnaires to evaluate the sustainability performance of new suppliers and existing suppliers on the basis of risk.
We systematically investigate all reports of violations
If on-site audits or database searches raise doubts regarding a new or existing supplier’s sustainability performance, the responsible procurement unit initiates a more in-depth review. If we become aware of a suspected violation, we first bring together ask the suppliers to respond to the allegations. These questions require suppliers to provide information about their sustainability management system or how they involve their own suppliers. If the results of such surveys indicate insufficient sustainability performance, we instruct the supplier in question to improve the relevant processes. If the supplier does not sufficiently remedy the criticized processes, we make individual decisions regarding the next steps. In especially severe cases, these decisions are made by management bodies. As a last resort, this can cause us to discontinue business with a supplier.
We promote the responsible use of data among our suppliers
Before we commission a service provider who processes personal data, we check whether this company can process the data received in compliance with legal requirements, especially those of the EU’s General Data Protection Regulation (GDPR). The decisive consideration is whether the service provider can demonstrate that it institutes suitable technical and organizational measures for ensuring data security.
We train our suppliers and raise their awareness
A shared understanding of sustainability and know-how regarding the correct implementation of the applicable requirements are prerequisites for successful sustainability management in the supply chain. We have correspondingly sensitized and informed our suppliers for many years by means of appropriate training modules. Wherever suitable, we have also done so as part of our involvement in various associations.
Since 2018, we have been cooperating with the Drive Sustainability initiative on the implementation of measures to make suppliers in various focus countries such as India and Argentina more aware of the importance of sustainability, and we also provide such suppliers with information on this issue. We select the focus countries jointly with the initiative. However, due to the covid-19 pandemic, no physical training modules took place in 2020. Instead, a concept for a new e-learning-program was implemented.
We also developed the Supplier Compliance Awareness Module on the basis of our sustainability standards for the suppliers and our Integrity Code. This module helps suppliers handle possible integrity and compliance-related risks. The Compliance Awareness Module is intended to provide suppliers with an overview of the compliance principles that are currently valid at Daimler and inform them of the company’s expectations. The module contains various case studies concerning our compliance theme fields in order to provide assistance and guidance. 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. All suppliers can access the module at the Daimler Supplier Portal at any time. They can also forward this module to their business partners in the supply chain.
In the area of service providers, we implement additional measures to raise awareness of human rights issues in particular. For example, a cross-functional team from our procurement units meets with suppliers in Good Practice Sharing Workshops, which have also been held online since the spring of 2020. The workshops promote an open and constructive exchange of ideas and experiences among the participants, and they also provide information on what we expect from our business partners.
We are actively involved in automotive associations and initiatives
Daimler has been active for a long time in a variety of automotive and industry associations that address the issue of sustainability in the supply chain. These memberships help us to improve sustainability in complex supply chains by jointly implementing the necessary measures. These 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 — German Business Forum for Sustainable Development: Daimler is the sponsor for human rights issues and a member of the Human Rights & Value Chain cluster.
- German Association of the Automotive Industry (VDA): Daimler also promotes sustainability in the supply chain as a member of the VDA. The VDA is currently working together with its member companies to develop a standardized assessment and exchange mechanism for the evaluation of the sustainability performance of enterprises within automotive supply chains. The goal here is to improve the sustainability of supply chains by means of on-site assessments and their tracking.
- Drive Sustainability: Daimler is the LEAD partner of the European automotive industry initiative Drive Sustainability, which promotes sustainability in the supply chain. The “Automotive Industry Guiding Principles to Enhance Sustainability Performance in the Supply Chain” play an important role here. They provide us with globally recognized minimum social and environmental standards for the supply chain.
- “Automotive industry dialog” of Germany’s National Action Plan on Business and Human Rights (NAP): Daimler takes part in the automotive industry’s NAP dialog. The aim is to work together with representatives of civil society, the science and business communities, associations, and the political sphere to develop solutions for strengthening human rights in supply chains.
We promote human rights within our supply chains
In order to make our supply chains more sustainable, we have to further increase transparency and traceability, as this is the only way we can detect potential human rights risks and negative effects early on. We therefore employ comprehensive measures for fulfilling our human rights-related due diligence obligations.
How we evaluate our supply chains
By means of our due diligence approach, the Human Rights Respect System, we evaluate whether human rights-related due diligence obligations are fulfilled within our supply chain. Within the framework of an advance risk assessment, we have identified 24 raw materials and 27 services whose use, extraction or further processing pose potentially critical human rights risks. This risk assessment is based on a variety of international reference documents, including 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. To assess risks in the services sector, we also use indices that help us focus on countries where human rights are subject to an increased risk.
The procurement units of Mercedes-Benz AG and Daimler Truck AG jointly conduct comprehensive human rights assessments for raw materials that pose an increased risk of human rights violations. Each division supervises the assessment of specific raw materials.
This review process basically consists of three steps:
- We create transparency along the raw material supply chains — especially with regard to certain key components such as battery cells.
- We identify risk hotspots in these supply chains.
- We define and implement measures for the risk hotspots and make sure that they are effective.
By the end of 2020 we had assessed 24 percent of all high-risk raw materials in this way, and thus exceeded our goal of 20 percent. We want to gradually increase this percentage. By the end of 2021, we plan to assess 30 percent of all high-risk raw materials. This figure is set to rise to 70 percent by 2025. By 2028, we want to define appropriate measures for 100 percent of our raw materials that pose an increased risk of human rights violations.
We pursue an approach of “using leverage before withdrawing” with regard to critical raw materials
Daimler does not completely rule out conflict zones and high-risk areas as sources for critical raw materials. Rather, our approach aims to improve the situation on the ground for people and strengthen their rights. In doing so, we are also following the recommendations of NGOs, governments, and other relevant interest groups, who suggest that companies not withdraw from critical countries. In this connection, the principle of “using leverage before withdrawing” is especially important: We want to actively contribute to the protection of people and the environment in our supply chains instead of turning our backs on problems. To do this, we are closely cooperating with relevant stakeholders in raw material supply chains.
Cobalt: Respecting and upholding human rights in the supply chain has top priority for us
Cobalt is an important raw material for the production of batteries for electric cars and commercial vehicles. The world’s largest deposits of this material are found in the Democratic Republic of Congo (DR Congo). Transparency is an essential precondition so that human rights risks can be more effectively identified and counteracted in cooperation with our suppliers.
In 2019 Mercedes-Benz Cars & Vans commissioned a three-year evaluation program, in which the external auditing and consulting company RCS Global audits the cobalt supply chains of the battery cell suppliers in accordance with OECD guidelines. This audit also includes the battery cell suppliers used by both Mercedes-Benz AG and Daimler Trucks & Buses AG. The evaluation considers aspects such as the avoidance of child labor and modern slavery in addition to occupational health and safety, material control, and existing due diligence systems.
In 2018, as part of a pilot project, RCS Global had already audited the cobalt supply chain of one of the battery cell suppliers in accordance with the OECD guidelines and agreed on appropriate corrective measures. The findings were subsequently incorporated into the auditing program for the cobalt supply chains, which Mercedes-Benz Cars & Vans and RCS Global launched in 2019. The program’s primary goals are:
- Transparency and review of the company’s cobalt supply chain from the battery cell supplier to the location of the mine
- Review and improvement of the due diligence management systems and procurement practices of the suppliers in the cobalt supply chain
In the first year, the focus was on achieving transparency and conducting the first audits of the cobalt supply chains. Each stage of the supply chain was then evaluated in succession — from the downstream battery and cathode manufacturers to the refineries, smelters, and mines. This enabled Mercedes-Benz Cars & Vans to depict the supply chain beyond the first tier and to identify the associated risks. If necessary, corresponding corrective action was developed for the supplier in question. The program also monitors whether the action is actually implemented. In addition, the program offers on-site training courses that are tailored to each individual supplier. In this way, the program is intended to help direct and indirect suppliers meet international standards and the expectations of stakeholders with regard to the cobalt due diligence obligations.
Since 2020 the focus has primarily been on risk hotspots. This means that selected suppliers are prioritized for renewed audits and support measures. Mercedes-Benz Cars & Vans has identified more than 120 suppliers and conducted over 60 audits since the program was launched.
The audits did not discover any human rights violations. However, the suppliers often lacked corresponding human rights policies or due diligence systems — against child labor, for example — to prevent such abuses. The suppliers achieved comparatively better results for their health and safety management. A health and safety issue was nevertheless detected at one of the mines. During the reporting year, the subcontractor terminated its supply relationship with the mine in question. It will not be resumed until the situation has improved. We are in contact with the subcontractor regarding this matter.
The large majority of the suppliers were transparent and worked together with the auditors without any hesitation. They provided them with access to information, personnel, and facilities. Following the audits, Mercedes-Benz AG continued to work together with the evaluated suppliers in order to monitor their progress. To this end, it called on every supplier to agree to an individual corrective action.
Mercedes-Benz AG is also relying on effective sustainability standards. Consequently it has made the Standard for Responsible Mining of the Initiative for Responsible Mining Assurance (IRMA) a key criterion for making decisions regarding suppliers in raw material supply chains. In the future, Mercedes-Benz Cars & Vans will require mines of the cobalt and lithium supply chains to be subjected to an IRMA audit before any orders are placed. In the next step, the standard is to be expanded to include additional raw materials — initially these will be other materials for batteries. Daimler Trucks will also only procure battery cells containing cobalt and lithium from certified mining operations in the future. This will initially only pertain to a part of the battery cells for series-produced electric trucks. We are currently determining whether its scope will be expanded.
Daimler fulfills special due diligence for conflict minerals
An enhanced measure of due diligence is required for so-called conflict minerals tin, tantalum, tungsten and gold. These minerals (abbreviation: 3TG) are among the “conflict minerals,” which means that their extraction and trade frequently causes violent conflict in the Democratic Republic of the Congo and neighboring countries. Moreover, the trade with these raw materials can sometimes help to fund armed groups.
Although Daimler is not subject to the regulations of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Regulation (EU) 2017/821 laying down supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas, we nevertheless take our responsibilities as an automaker very seriously and are committed to the responsible procurement of 3TG. Daimler has been a member of the Responsible Minerals Initiative (RMI) since 2018. This cross-sector initiative aims to prevent human rights violations and improve transparency along the entire 3TG supply chain. As an independent third party, the RMI is responsible for an auditing program for due diligence measures at smelters and refineries that process conflict minerals. Because these facilities mix materials from a variety of sources, it is important that the due diligence obligations are met in the supply chain before the materials arrive at the smelters. This is the aim of the RMI’s Responsible Minerals Assurance Process (RMAP).
Mercedes-Benz AG has made compliance with the RMAP requirements mandatory for order placement. Suppliers whose products contain 3TG are requested to submit a report to Mercedes-Benz AG each year. To obtain the data required, we use the standardized Conflict Minerals Reporting Templates of the RMI. If anything unusual is detected, Mercedes-Benz AG contacts its direct suppliers and, if necessary, asks them to remove non-compliant smelters and refineries from the Mercedes-Benz supply chain.
With regard to the raw materials tin and tungsten, which are directly procured in small amounts, Mercedes-Benz Cars & Vans as well as Trucks & Buses also use RMI’s standardized reporting formats and audit protocols. In addition, we closely monitor the direct procurement paths of these two raw materials as part of our HRRS. We are therefore in continuous communication with the affected suppliers and, among other things, use questionnaires to evaluate due diligence activities.
Mica: How we want to improve working conditions in the mines
Mica is a raw material that is used in vehicle paints, for example. Although it is not directly procured by Daimler, it was defined as a potentially critical resource along with 23 other raw materials during a preliminary HRRS risk assessment. That is because the mining of mica has repeatedly been connected with human rights violations, especially child labor in India. In order to address these risks, we reviewed the complete supply chain for mica in 2018 — from the mine to the painting of vehicles in manufacturing plants. In this way, we created transparency across the entire mica and paint supply chain in order to identify any problems that might exist and then define corrective actions. This was done, for example, by a team of quality engineers and human rights experts who audited three mines and three mica processors in India with regard to human rights.
Mercedes-Benz Cars & Vans continues to be in contact with these mica suppliers. Here we discuss how the implementation of the measures is progressing as well as the results of the ongoing audit of the mines by a local partner organization of the supplier. During the reporting year, we repeatedly examined the implementation and progress of the respective measures.
In September 2020 we joined the Responsible Mica Initiative, which promotes the creation of a fair, responsible, and sustainable mica supply chain in India. It aims to completely eliminate child labor and unacceptable working conditions in mica mines by 2022. To make this possible, Daimler AG is working together with other companies, NGOs, sector associations, and government officials to develop standards for responsible working conditions, strengthen local communities, and support the creation of a legal framework for the mica industry.
Daimler has also teamed up with the NGO Terre des Hommes Netherlands for a project in Jharkhand, India, which aims to help children in the vicinity of the mica mines attend school and support their families financially.
Natural rubber: We are cooperating with our suppliers to promote transparency and traceability
In our HRRS we have also defined natural rubber as a high-risk raw material. Because natural rubber is mainly used in tires, we not only ask questions of our own suppliers but also work together closely with initiatives, associations, and our partners in the tire industry. As early as 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. During the reporting year, we cooperated with other tire manufacturers in order to come up with concrete measures. These dialogs showed that the natural rubber supply chain is very complex because it involves many small farmers and dealers. As a result, the tire suppliers have initiated a variety of projects for improving the transparency and traceability of the raw materials. We and our partners regularly discuss how the projects are progressing.
As a leading member of the sector’s Drive Sustainability initiative, we also support the Global Platform for Sustainable Natural Rubber initiative, which promotes a fair, just, and environmentally compatible natural rubber supply chain.
Platinum and palladium: How we identify risks in the supply chain
Platinum and palladium are other raw materials that are prioritized by our HRRS. As a first step, our raw material assessments for platinum and palladium created transparency regarding the products that contain these precious metals as well as their suppliers. We then asked the suppliers to fill out our critical substance questionnaire. Our goal was to identify areas in the supply chain that could be critical from a human rights standpoint as well as to determine the source of the raw materials. In addition, we began a dialog with the suppliers in order to identify the risks in the supply chains of platinum and palladium and define further measures. The assessments and supplier talks had not yet been completed by the end of the reporting period.
We systematically investigate complaints
Our complaint management process enables individuals to draw attention to possible human rights violations at suppliers. In this context, we work together closely with the World Employee Committee. We also investigate specific cases that NGOs bring to our attention.
We systematically follow up on all reports of violations and suspected violations in the supply chain. In cases where we identify a need to take action, we implement the necessary measures. If we become aware of a suspected violation, we first bring together all the available information and ask the suppliers to respond to the allegations. We then assess the facts of each case and take any necessary measures. This may mean that we will work with the supplier in question to solve the problem. However, it may also mean that we will terminate the business relationship with that supplier.
During the year under review, our on-site inspections at direct suppliers to Mercedes-Benz Cars & Vans, Daimler Trucks & Buses, and our International Procurement Services unit uncovered no specific suspected cases of child labor or forced labor, nor were there any indications of violations against the right to collective bargaining or freedom of association.
Climate protection and resource conservation in the supply chain
The consequences of climate change can only be limited if a variety of players pull together all over the world. This is why we also include our supply chain in our climate and environmental protection measures and work in partnership with our suppliers in order to cut emissions and conserve resources.
Protecting the climate and the environment: We are actively involved in raw material initiatives
Raw material initiatives serve as important platforms for making the procurement of raw materials more environmentally and climate-friendly. They provide cross-sector mechanisms such as auditing standards and certification systems that help, among other things, to make it possible to trace the origins of materials. Daimler focuses here on aluminum and steel:
- Aluminium Stewardship Initiative: Daimler joined the Aluminium Stewardship Initiative (ASI) in 2018. In doing so, we are promoting the implementation and spread of an independent certification system for the entire aluminum value chain. The Responsible Aluminium Performance Standard combines ethical, environmental, and social aspects. In the area of resource conservation, it particularly focuses on greenhouse gas emissions, airborne emissions, wastewater, waste, and water. In some bidding procedures, such as those for sheet metal for our European press shops, we already require the suppliers to be certified according to this standard.
- Responsible Steel Initiative: Daimler has been a member of the Responsible Steel Initiative since 2018, because steel accounts for the largest proportion of material used in automobile manufacturing. It is also the world’s largest raw materials industry. The production of steel is responsible for a large proportion of the CO2 emissions generated during the production phase. The Responsible Steel Initiative is developing a certification system that, on the one hand, specifies requirements regarding the transparency of the materials used (e.g. iron ore and coking coal) and, on the other, contains stipulations concerning the responsible use of resources. The requirements in the certification system have been defined cooperatively by a number of stakeholders including Daimler.
We are making the environmental impact of our supply chains transparent
In order to make the environmental impact of our supply chains more transparent, Daimler is also working with organizations such as CDP. In 2020, for example, Mercedes-Benz Cars & Vans took part in the CDP Supply Chain Program for the second time. Daimler Trucks & Buses took part for the first time and included its key truck and bus suppliers in the process. As part of this program, we ask our suppliers to report to us about their environmental impact. CDP provides the corresponding tools for recording, assessing, and publishing environmental data. In 2020 we therefore contacted our main suppliers, who account for around 80 percent of the annual procurement volume of Mercedes-Benz Cars & Vans. More than 90 percent of them took part in the survey. The procurement unit of Daimler Trucks & Buses invited suppliers who account for over 70 percent of the division’s annual procurement volume.
We are promoting climate protection in the supply chain
Through its “Ambition 2039,” Mercedes-Benz AG aims to achieve CO2 neutrality in less than 20 years. In doing so, the company takes into account the entire value chain, including the partners and suppliers. This is because the supplier network of Mercedes-Benz AG plays a crucial role in the attainment of the climate-protection goals: The CO2 emissions in the supply chain of all-electric vehicles are more than twice as high as in that of conventional vehicles with combustion engines, because the production of lithium-ion batteries is very energy-intensive. The Mercedes-Benz EQC (combined electrical consumption: 21.5–20.1 kWh; combined CO2 emissions: 0 g/km)1,2, for example, emits about 16 tons of CO2 in the supply chain. The battery alone accounts for around eight of these tons. Our approach to achieving climate neutrality therefore already begins in the supply chain and we systematically incorporate the supplier network of Mercedes-Benz AG into our efforts.
Mercedes-Benz Cars & Vans pursues a risk-based approach to attaining climate neutrality. In a first step, we investigated which players and which stages of the supply chain produce large amounts of CO2 emissions and pollutants.
In a second step, Mercedes-Benz Cars & Vans defined intermediate goals in the reporting year for the emission of CO2 in its supply chains. The targets were defined as a result of talks with suppliers and with the support of external experts. The focus was especially on materials and components that emit large amounts of CO2 during production, e.g. steel, aluminum, certain types of plastic, and batteries. The specified targets were incorporated as an important criterion into relevant contract awarding processes and the selection of suppliers.
We are working together with suppliers to develop measures for reducing CO2 emissions for the procured production and non-production materials and the supply of goods to the plants (inbound logistics). The aim is to procure only CO2-neutral production materials for Mercedes-Benz AG by 2039 at the latest. In this connection, Mercedes-Benz AG has agreed with two strategic partners to achieve clear targets for battery cells: The companies CATL (Contemporary Amperex Technology Co., Limited) and Farasis Energy have assured us that they will supply battery cells that have been manufactured using electricity from renewable energy sources such as wind, solar, and hydroelectric power. This will reduce the CO2 footprint of the battery as a whole by more than 30 percent. The rest of the supply chain is to be incorporated into this process in the next step. The results of these initiatives also benefit the other business units of Daimler AG.
During the reporting year, Mercedes-Benz AG also sent a letter of intent for the provision of CO2 neutral products to its suppliers. By signing this document, they commit themselves to our climate-protection goals and to supplying Mercedes-Benz AG only with products that are CO2-neutral over their life cycles by 2039 at the latest. On the basis of the annual procurement volume, around 60 percent of the suppliers signed this memorandum of understanding during the reporting year, during the first quarter of 2021, the number has increased to more than 75 percent .
We are committed to resource conservation along the supply chain
Our supply chain also plays an important role in our efforts to conserve resources. Daimler AG wants to decouple resource consumption from economic growth. To achieve this goal, it is relying on the support of its suppliers. With their help, we want to continuously increase the proportion of secondary and renewable materials in our vehicles.
In view of this goal, Mercedes-Benz Cars & Vans has made a risk analysis and identified the materials steel, aluminum, and plastics as especially important. We not only need large volumes of these materials for the production of our vehicles; their extraction and processing also consume large amounts of energy and resources.
As a result, Mercedes-Benz AG defined secondary material targets for these resources for Mercedes-Benz Cars & Vans during the reporting year and incorporated these targets in its awarding criterions requirements. This step was taken on the basis of supplier talks and questionnaires. In addition, Mercedes-Benz AG is working on establishing a circular economy for its drive batteries in order to reduce the negative impact on the environment.
We honor our suppliers’ climate-protection efforts
In the reporting year, Daimler underscored the great importance that climate protection has in its supply chains. It did this with its Daimler Supplier Sustainability Award 2020, which in 2020 honored suppliers for the first time for outstanding sustainability achievements in the categories of climate protection and resource conservation. The award-winners had implemented convincing CO2-reduction measures in their factories or developed innovative energy supply concepts for our own plants and thus made a valuable contribution to climate protection and to the achievement of our Ambition 2039 targets.
How we assess the effectiveness of our management approach
We monitor the progress that we make with our Ambition 2039 targets for cars. One of the reference points that Mercedes-Benz Cars Procurement and Supplier Quality uses for this is the number of suppliers who have signed and returned the letter of intent regarding Ambition 2039. In addition, we will create a tracking system that will enable us to see how CO2 emissions decline over time.
Mercedes-Benz Cars & Vans and Daimler Trucks & Buses also use the CDP Supply Chain Module in order to monitor progress. Thanks to the in-depth dialog and information-sharing with the suppliers, the number of suppliers participating in the program increased further in 2020. In the case of Mercedes-Benz AG, for example, the proportion of suppliers who replied rose from around 80 percent in 2019 to over 90 percent, even though more and more small and medium-size enterprises were addressed in the reporting year.
As part of our Group-wide compliance program, we annually check the effectiveness of our measures for ensuring the integrity and compliance of our suppliers. Each year, the central procurement units confirm the success of the Supplier Integrity Management in the course of the Annual Effectiveness Evaluation. The resulting reports are forwarded to the Integrity, Legal, and Compliance units.
We are continuing to expand the due diligence measures of Daimler AG for human rights as well.
1 The electricity consumption was determined on the basis of Commission Regulation (EC) No. 692/2008. Electricity consumption is dependent on the vehicle configuration.
2 The actual range is also dependent on individual driving style, road and traffic conditions, outside temperature, use of air conditioning/heating systems etc. and may therefore differ.