Sustainability in the Supply Chain

The KION Group has consolidated procurement into a centrally managed global organization that supports the activities of both the Industrial Trucks and Services (ITS) and Supply Chain Solutions (SCS) segments. As part of the CTO function1, this global procurement organization aims to create value through category expertise and optimized geographic sourcing, leverage global synergies and local flexibility, and build a sustainable, scalable procurement base. The goal is to achieve excellent management of supplier relationships and a collaborative partnership with other KION divisions.

In order to achieve optimal results, reduce risks in the supply chain, and drive strategic growth and cost savings, KION is currently developing and implementing global tasks and responsibilities, objectives, models, mandates, departmental KPIs, decision-making bodies, committees, interfaces, and escalation models in procurement. The result of these efforts is a targeted, global procurement organization that supports the entire KION Group and thus every single subsidiary. One of the main tasks of this organization is supply chain management, and to do this sustainably it requires a suitable governance structure, a high level of process standardization, good data quality, and appropriate and implementable guidelines that apply to every business and legal entity in the KION Group.

Ideally, the global procurement organization should involve all functional units of the KION Group in the implementation of sustainability within the supply chain. In order to highlight the importance of the issue within KION and therefore across all organizations, the Group measures the effectiveness of the sustainability strategy using sustainability KPIs. These KPIs also play a major role in the supplier relationship and inform procurement decisions.

The KION Group’s supply chain management thus designs and manages the flow of materials and information throughout the entire value creation process based not only on business criteria but also in terms of sustainability. The aim is to make all important processes, from the procurement of the required materials to the completion of the end products and their delivery to the customer, both socially responsible and environmentally friendly. However, the global procurement organization is exclusively concerned with the procurement of the required materials (procurement) and the associated supplier management within these processes and procedures. Other areas of the KION Group and its subsidiaries are responsible for the subsequent stages from completion of the end product through to delivery to the customer.

The Group’s goals are not only to optimize products and services in terms of the resources used, but also to ensure that the various parts of the value chain live up to certain defined standards of human dignity, working conditions, and environmental compatibility. To this end, the KION Group is currently setting up an information and analysis system that records relevant data and information for effective supply chain management with regard to the main purchasing and material items.

Principles of supplier conduct

The KION Group has laid down specific requirements and rules of conduct for responsible procurement in the KION Group Code of Compliance and in the Principles of Supplier Conduct and obliges its suppliers to observe these requirements when entering into business agreements with KION Group companies. The Principles of Supplier Conduct contain clear environmental and ethical guidelines with regard to environmental, labor, and human rights standards and are available in three languages according to the most important procurement markets.

The KION Group’s General Terms and Conditions for Purchasing as well as individually agreed contracts also specify in detail how obligations, applicable laws, and the KION Group’s Principles of Supplier Conduct are to be complied with, and how transparency is to be ensured throughout the entire supply chain. All these regulations are binding for the entire KION Group with all its legal entities and are regularly checked to ensure that they are up-to-date and complete.

Three-level ESG Evaluation Program

For an objective and robust assessment of the sustainability risks and performance of its key suppliers, the KION Group has implemented a three-level ESG (environmental, social, and corporate governance) evaluation program utilizing the expert software-as-a-service (SaaS) platforms of EcoVadis and IntegrityNext. In 2022, KION began conducting an industry and country risk analysis for all suppliers who produce materials for production (“direct procurement suppliers”) and have an annual revenue greater than 100,000 euros with the KION Group, using the EcoVadis IQ platform, to determine their sustainability-related risk profile (phase 1). The second level of the evaluation program uses the IntegrityNext platform to determine the maturity of direct procurement suppliers in terms of their compliance with human and labor rights and environmental protection requirements with the aid of a self-assessment questionnaire (phase 2). The third and most rigorous assessment is performed using the EcoVadis supplier assessment. For this level, suppliers are asked to undergo a sustainability assessment (phase 3). This multi-level assessment approach verifies suppliers’ compliance with specific standards in the areas of HSE, anti-corruption and anti-bribery, product-related environmental protection, and upstream supply chain monitoring. It also and above all verifies suppliers’ compliance with human rights, employee rights, and employment standards.

New suppliers are asked about their sustainability assessment as part of the supplier onboarding process and go through the above three-level ESG evaluation program. Existing suppliers are checked regularly (annually). The KION Group’s aim is to increase transparency in the sustainability performance of its suppliers and to manage risks and opportunities related to the sustainability of the supply chain in a more targeted manner.

If supplier weaknesses are identified, preventive and improvement measures are initiated and progress is reviewed through the EcoVadis platform, among other measures. The results of the improvement measures are evaluated in a subsequent assessment.

Percentage of Linde MH direct procurement spending on Tier 1 suppliers covered by phase 1 of the global ESG risk assessment (EcoVadis IQ):
20222 2021 2020

Between 2020 and 2022, supplier audits and the implementation of effective controls were made particularly difficult by the restrictions imposed worldwide as a result of the coronavirus pandemic. With the exception of a few countries, these restrictions are expected to be significantly reduced in the course of 2023, so more on-site inspections and checks of the supply chain should be possible. Through the ongoing implementation and use of this program, the KION Group is able to efficiently manage risks and opportunities in its global supplier base for all legal entities, reduce duplicate solutions locally, and enable the highest level of synergies across the entire Group.

Number of Linde MH suppliers reviewed/assessed who have taken corrective action:
2022 2021 2020
18 6 0
Number of Linde MH suppliers reviewed/assessed who have improved their rating/score:
2022 2021 2020
126 92 69

In July 2023, the KION Group made a commitment to the targets of the SBTi (Science Based Target initiative). This means that the continuous reduction of CO2 emissions within KION supply chains is now a binding target and CO2 reduction and net-zero requirements are to be incorporated into supplier relationships and the tactical design of the supply chain. The global procurement organization is developing and implementing the methods, processes, and strategies required to achieve this target.

Diversity in the Supply Chain

Just as the Group benefits from the diversity of its workforce, it is convinced that a diverse pool of suppliers is equally important: A diverse supplier base can bring fresh new perspectives to the range of products and services that the Group offers. The KION Group therefore intentionally adds highly capable small and diverse suppliers (companies that are nationally certified as meeting the requirement to be considered small and underrepresented, or that are owned and operated by women, minorities, or military service veterans). The KION Group is working on establishing strong, mutually beneficial relationships with these businesses and the communities they represent. In addition, the KION Group strives to grow the relationship with business leaders, community organizations, and trade associations that represent the interests of diverse businesses.

German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG)

KION GROUP AG took the requirements of the 2021 German Act on Corporate Due Diligence Obligations in Supply Chains (Lieferkettensorgfaltspflichtengesetz, LkSG) as an opportunity to look deeper into the supplier evaluation and assessment program across all regions for direct and indirect procurement categories. The result of this examination is the three-level ESG evaluation program described above. The new supplier evaluation processes have been supplemented with additional sustainability requirements.

A key element of the 2021 German Act on Corporate Due Diligence Obligations in Supply Chains is the training of in-house employees on the subject of human and environmental rights in the supply chain. In this regard, procurement (KION) employees have completed training on the measures that the KION Group takes to ensure that suppliers comply with human rights, labor rights, employment standards, and environmental protection requirements. Further training and coverage tracking are planned for 2023 as part of the comprehensive, three-level ESG evaluation program and active sustainability initiatives.

Conflict Minerals and Conflict Areas

The KION Group’s strategy strives to balance economic, environmental, and social aspects. The global procurement organization’s top priority is to comply with all international laws and regulations while exceeding customer expectations. While not required to report on conflict minerals under the relevant European Union regulations, the Group recognizes the regulations and is working to include conflict minerals and conflict areas in the model for assessing and improving aspects the sustainable supply chain. In order to improve transparency on these issues in the supply chain, the KION Group has included the standardized Conflict Minerals Reporting Template (CMRT) in its General Terms and Conditions for Purchasing. KION has also decided to work with the SaaS platform provider Assent. Assent’s compliance portal is used by more than 200 companies, and enables KION to analyze product-specific supplier data as well as integrate smelters or refiners into an industry-recognized audit/evaluation program.

The Group-wide Conflict Minerals Standard entered into force in 2023 in accordance with the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the European Conflict Minerals Regulation (EU) 2017/821, and the US Dodd-Frank Act. The KION Group has clearly formulated its own commitment with this standard. Its expectations of its global suppliers with regard to conflict minerals are set out in the KION Principles of Supplier Conduct. This standard applies to all KION Group companies worldwide and to all employees, in particular those involved in the development and procurement of goods and services for the KION Group or one of its companies.

[1] In pursuing a cross-brand and cross-regional development approach, the KION Group is aiming to achieve uniform standards and global coordination of technical activities. Functions such as research and development, procurement, quality, and sustainability management have been bundled and are part of the KION GROUP AG Executive Board portfolio of the Chief Technology Officer (CTO).
[2] ESG evaluation (phase 1 and 2) only in place since 2022.