Responsible supply chain management

Concept

Sustainability in the supply chain is firmly established at the c.ompany

Taking sustainability aspects in the supply chain into account is an important aspect of acting responsibly. In addition to economic aspects, impacts on the environment and society are also taken into consideration in the procurement process. The Lufthansa Group thus aims to avoid negative effects on the environment and violations of human rights in its supply chain. To meet the standards that it sets for the sustainability of its own products and services, the Lufthansa Group relies on close collaboration with suppliers who share and implement these standards. This also forms part of the Lufthansa Group’s Code of Conduct, which is available on the Lufthansa Group website.

In 2023, the annual purchasing volume involving external suppliers amounted to around EUR 19bn. The Lufthansa Group works with suppliers in almost 170 countries worldwide. The goods and services which it purchases are spread across 333 product groups. Besides the procurement of aircraft and fuels, the purchasing portfolio includes goods and services such as catering, aircraft seats, vehicles, uniforms, insurance policies and ground handling services.

Group procurement policy includes obligation to social and environmental responsibility

The obligation to assume social and environmental responsibility is a key element of the Group procurement policy. This policy is to be understood as mandatory for all procurement units at the Group companies, for the procurement process and for all employees responsible for procurement activities.

Mandatory procurement policy training established

Affected employees are able to attend procurement policy training, which is mandatory for specific individuals. This training is intended to develop and preserve employees’ knowledge and skills in relation to sustainable procurement. They are automatically required to repeat it every two years. In 2023, 99% of the defined function-related group of participants successfully completed this training.

Supplier Code of Conduct expresses the Lufthansa Group’s expectations

The Lufthansa Group’s expectations of its suppliers in terms of social, environmental and ethical responsibility are summarised in the Lufthansa Group Supplier Code of Conduct. It is accessible on the Lufthansa Group website.

Human rights- and environment-related obligations are part of supplier contracts

By continuously including obligations in contracts with suppliers, the Lufthansa Group endeavours to ensure responsible practices by its direct suppliers in order to meet its own standards for corporate responsibility and prevent risks. The obligations incorporated into contracts with suppliers include the following:

• Compliance with the ten principles of the UN Global Compact
• Compliance with all five basic principles of the International Labour Organization (ILO)
• To provide contractual services while taking into account the protected legal positions under the German Corporate Due Diligence in Supply Chains Act (LkSG)
• Participating in training on a risk-dependent basis
• To inform the Lufthansa Group of risks identified and measures initiated
• To provide support in the event of preventive and remedial action
• To inform suppliers and employees of the Lufthansa Group grievance mechanism
• To grant the right to conduct audits
• To grant the right to terminate the contractual relationship in the event that these contractual obligations are breached

The supplier risk management system also takes into consideration requirements under the German Corporate Due Diligence in Supply Chains Act (LkSG)

To enable an appropriate and effective risk management system for the various centrally managed existing suppliers, of which there are more than 30,000, the Lufthansa Group uses an IT application designed to make it possible to identify potential human rights- and environment-related risks and violations. This application helps to minimise or terminate risks identified in the process by means of appropriate measures. This approach is also consistent with the requirements of the German Corporate Due Diligence in Supply Chains Act.

In order to identify human rights, environmental, compliance and financial risks within the supply chain even before a contract is awarded and to ensure compliance with the Group’s standards, the Lufthansa Group has established a supplier review process. If the initial assessment indicates that a supplier falls within a medium or high risk category, for example due to the country of origin or product group, an in-depth review will be carried out, including external sources, if necessary. The review process helps the Company to identify potential risks even before a contract is concluded, determine what risk reduction measures are required or, as a last resort, prevent cooperation with the supplier in question.

Procedure for reporting risks and violations established

Third parties can confidentially lodge complaints and reports on human rights- and environment-related risks or violations and compliance breaches by suppliers via an electronic whistle-blower system or the external ombudsperson for the Lufthansa Group. Moreover, in their contracts, suppliers of the Lufthansa Group are requested to inform their own suppliers and their suppliers’ employees about the Lufthansa Group’s reporting channels. The Lufthansa Group’s rules of procedure on handling reports are available on the Lufthansa Group website. Further information may be found in the chapter ↗ Business ethics and compliance / Respect for human rights

The Lufthansa Group’s procurement management system is confirmed by EcoVadis

In order to demonstrate its sustainability and responsibility towards its business partners, the Lufthansa Group participates in EcoVadis, a sustainability assessment platform for global supply chains. In November 2022, the Lufthansa Group’s commitment was reconfirmed for a further year when it received “Silver Status”. Its procurement processes are rated higher in the EcoVadis rating system than those of comparable companies.

Organisational foundations and responsibilities

The procurement units in the Lufthansa Group are organised into a uniform reporting line. They report to the Executive Board member for Fleet & Technology. Reporting lines are based on responsibilities for different product groups and Group companies. Defining product groups is intended to optimise their function by pooling know-how.

The central Processes and Governance, Procurement Systems and Strategy departments report to the Lufthansa Group’s purchasing management function. These departments pool and handle purchasing-specific issues on behalf of the Group as a whole and deal with sustainability matters in the purchasing processes within the scope of environmental, social and governance issues.

Through the process-oriented matrix organisation Lufthansa Group seeks to make it easier to establish sustainability standards, since standardised processes and IT systems are increasingly being used.

Targets

Human rights, environmental- and compliance risks in the supply chain are to be minimised

Responsibility is an integral part of the Lufthansa Group’s corporate culture and the Lufthansa Group aims for its suppliers to likewise comply fully with current law, guidelines and regulations concerning fair competition, integrity and responsible practices. This includes protection of basic human rights and environmental concerns which fall within the scope of the German Corporate Due Diligence in Supply Chains Act. In this way, the Lufthansa Group seeks to fulfil its due diligence requirements and to avoid entering into business relationships with persons or companies that do not meet these standards. The purpose of the Lufthansa Group risk management system for purchasing processes is to identify potential human rights, environmental and compliance risks and violations in the supply chain in order to prevent, minimise or terminate these by means of appropriate and effective measures.

Transparency is to be established regarding direct suppliers’ carbon emissions

Transparency is to be established in relation to direct suppliers’ carbon emissions with the aim of contributing to climate protection and achieving the emissions goals set by the Lufthansa Group. On this basis, the plan is that appropriate measures to reduce carbon emissions will also be identified in the supply chain in the future.

Measures

Risk management system updated

The software introduced in the reporting year helps with identifying risk-exposed suppliers so that further action can be taken. Additional information is also taken into consideration, such as the degree of influence over the supplier in question. The allocation and follow-up of preventive and remedial action in relation to direct suppliers and compliance with due diligence requirements in relation to indirect suppliers are also managed via this system. The software used is based on artificial intelligence technologies and fulfils the requirements of the German Corporate Due Diligence in Supply Chains Act.

Target oriented portfolio of measures implemented for use in case of identified risks

In the event that the system introduced for risk identification detects a specific risk in relation to a supplier, suitable measures can be selected according to a defined logic, based on risk categories. This is carried out by a central team of experts in the procurement function. Measures will subsequently be agreed with the supplier in consultation with the responsible purchasers.

Adjusted procurement processes are intended to strengthen the incorporation of human rights and environmental issues in the procurement process

In the reporting year, aspects relating to sustainable procurement were added to the procurement processes. Through this, sustainability criteria are now to be taken into account in the tender specification right at the beginning of the procurement process. A list of criteria has been created for practical implementation. Sustainability criteria have also been included in the bid assessment process.

Requirements in line with international ESG standards and the German Corporate Due Diligence in Supply Chains Act are incorporated into the Lufthansa Group’s standard supplier contract

The inclusion of the obligation to assume social and environmental responsibility in supplier contracts forms part of the target agreement for the category managers and the procurement managers in the Group companies and the central functions. The relevant standard contractual clauses have been adjusted in line with the requirements of the German Corporate Due Diligence in Supply Chains Act and must be included in all new contracts and in the event of any contract amendments.

Supplier Code of Conduct is revised

The Supplier Code of Conduct was revised in the reporting year and now also includes the requirements of the German Corporate Due Diligence in Supply Chains Act. It sets out what the Lufthansa Group expects of its suppliers and is accessible on the Lufthansa Group website.

New training raises awareness of human rights

A deep understanding of human rights is critical for the Lufthansa Group. With this in mind, an online training course on this topic was developed in 2023. Aimed at employees in the Lufthansa Group procurement function and suppliers’ staff, this training provides information on legal frameworks and international standards. It also sets out specific practical examples of how to identify and defuse potential human rights risks. For suppliers’ employees, this training has been included in the portfolio as a preventive or risk-mitigating measure, depending on the applicable risk classification.

Expanded information formats enhance the development of knowledge on social and environmental responsibility

In the reporting year, existing dialogue and information formats were continued and expanded. These are intended for employees in the procurement function in particular. For instance, the Central Procurement department set up weekly consultation hours for employees, giving them an opportunity to discuss and obtain answers to questions and issues relating to the implementation of human rights and environmental aspects in the Lufthansa Group’s supply chain.

In addition, cross-sector dialogues and discussions with the business community are used in the procurement function to develop knowledge and experience. In 2023, for example, the Lufthansa Group took part in events including the Peer Learning Group Human Rights of the UN Global Compact’s Germany network and the econsense Human Rights & Value Chain cluster.

Moreover, coordinators have been appointed to cover the impact of the German Corporate Due Diligence in Supply Chains Act on the individual product group areas and companies within the Group. A network has thus been established which is intended to ensure that suppliers and purchasers can discuss and agree measures directly. The coordinators are kept informed of the LkSG (German Corporate Due Diligence in Supply Chains Act) implementation activities within the Lufthansa Group and serve as multipliers with regard to the purchasers. Mandatory information events on the German Corporate Due Diligence in Supply Chains Act have been introduced for representatives of the subsidiaries whose procurement activities are not centrally managed.

Transparency regarding carbon emissions in the direct supply chain helps to identify opportunities to reduce them

In the reporting year, a spend-based calculation of direct suppliers’ carbon emissions was implemented using a software. For selected product categories, emissions were also calculated on the basis of consumption data. The plan for the next step is to analyse the results to develop measures to reduce indirect carbon emissions in the supply chain.

Performance indicator

The Lufthansa Group will analyse suitable indicators in line with its targets and implement these in 2024.