ESG elements analysed during suppliers assessment, selection, qualification and audit phases

Pirelli uses the same ESG performance approach through the entire process of interacting with the supplier, although in different ways according to the intensity of interaction that characterises each specific procedural step.

Beginning with the assessment phase, Pirelli suppliers are assessed according to their awareness, management and performance system in regard to:

  • human rights compliance with a focus on:
    • ban of child labour;
    • non discrimination;
    • ban of forced or compulsory labour;
    • protection of freedom of association and free bargaining;
  • respect for the rights of indigenous populations and the local community;
  • rejection of corporal punishment, mental and physical coercion, and verbal abuse;
  • compliance with the laws and industry standards concerning working hours and assurance that wages are sufficient to cover the basic needs of personnel;
  • monitoring occupational health and safety performance and improvement targets;
  • zero tolerance for any type of corruption in any form or way, in any jurisdiction;
  • assessing and reducing the environmental impact of their own products and services throughout their entire life cycle;
  • responsible use of environmental resources in view of continuous improvement;
  • capability to impose the foregoing principles, values and policies on any subcontractors and sub-suppliers, regularly monitoring their actual compliance with this obligation.

During initial assessment of the possible suppliers of the good or service sought on the market, the adequately informed buyer is able to get an initial impression of whether the potential supplier complies or not with the product and ESG requirements. This makes it possible to eliminate potential future suppliers that are clearly in possible violation of Pirelli expectations.

For those suppliers proceed to the qualification phase, Pirelli requires that they use the dedicated web portal available in their local language.

By accessing it, the supplier views and simultaneously accepts the Pirelli economic, social, environment and business ethics policies.

The first step entails compilation of a questionnaire on ESG issues, where certain questions are “disqualifying”.

This means that an inadequate response to them will prevent a positive conclusion to the qualification process, since they involve minimum requirements that are necessary to become a Pirelli supplier.

These questions require that the potential supplier attest that its firm:

  • checks workers’ ages before hiring them, and it ascertains that all of its employees satisfy the minimum legal working age;
  • all workers have written employment agreements and work on a volountary basis;
  • respect the workers’ right to free association and participation in trade union activities;
  • wages and salaries comply with minimum legal standards, if defined;
  • disciplinary practices, if there are any, comply with the provisions of law;
  • statutory and contractual provisions applying to working hours, overtime and rest periods are complied with and enforced.

According to the merchandise category for which the supplier has initiated the qualification procedure, a particularly detailed questionnaire must be filled out, to which the supplier must attach quality, health and safety certifications, document its own approach to responsible management by attaching policies and codes. The rate of incidence of occupational accidents is investigated, while compliance with the aforementioned labour laws and the existence of labour lawsuits must be certified.

Filling out the questionnaire is one of the essential conditions required for qualification. The rating relative to ESG elements has an incidence of 33% in the final rating of candidate suppliers.

The portal has also been designed to support the realisation of communication, awareness raising and training campaigns for suppliers, for which sustainability is an essential element.

The Sustainability and Business Ethics Clause is included in all supply contracts during the contractual phase.

With regard to the contractual stage, from 2008 the sustainability clauses have been introduced systematically in contracts and orders for the purchase of goods and/or services and/or works, both with private suppliers and with the Public Administration (or institutes/enterprises under public control) or NGOs, worldwide. In 2012 the clauses were improved in the drive to achieve greater syntactical simplicity, although while maintaining the pivotal elements of social and environmental responsibility and business ethics currently present, and also the facility for verification by Pirelli by means of audits.

In particular, the clauses:

  • call for awareness, on the part of our suppliers, of the principles, commitments and values set down in the Pirelli sustainability documents, namely “The Values and Ethical Code”, the “Code of Conduct”, and the “Social Responsibility Policy for Occupational Health, Safety and Rights, and Environment”, published and accessible on the Web, which enshrine the principles on the basis of which Pirelli manages its activities and contractual or non-contractual relations with third parties;
  • require that Suppliers confirm their commitment to:
    • not using or supporting the use of child labour and forced labour;
    • ensuring equal opportunities and freedom of association, promoting the development of each individual;
    • opposing the use of corporal punishment, mental and physical coercion, and verbal abuse;
    • compliyng with the laws and industry standards concerning working hours and ensuring that waves are sufficient to cover the basic needs of personnel;
    • establishing and maintaining the necessary procedures to evaluate and select suppliers and sub-suppliers on the basis of their commitments to social and environmental responsibility;
    • not tolerating any type or bribery in any form or manner and in any legal jurisdiction, even where such practices are effectively permitted, tolerated, or not subject to prosecution;
    • assessing and reducing the environmental impact of their own products and services throughout their entire life cycle;
    • using resources responsibly with the aim of achieving sustainable development in compliance with the principles of respect for the environment and the rights of future generations;
    • imposing the foregoing principles, values and policies on any subcontractors and subsuppliers, regularly monitoring the effective respect of this obligation.

On the basis of these sustainability clauses Pirelli is entitled to conduct audits at any time it deems fit, either directly or through third parties, to assess the supplier’s effective compliance with the obligations it has assumed (detailed informationof audit performed activities is given further ahead in this heading).

The sustainability clauses have been translated into 24 languages in order to ensure the utmost clarity and transparency for suppliers in terms of the contractual obligations they enter into, not only in their relations with the company but also at their own facility and in their relations with their own suppliers.

To provide maximum protection, the Group’s suppliers are provided with the Whistleblowing Procedure (ethics@pirelli.com), expressly indicated in the clauses and available for reporting, absolutely confidentially, any violation or suspected violation they become aware of in relations with Pirelli and with reference to the contents of the “Values and Ethical Code”, “Code of Conduct” and the “Social Responsibility Policy for Occupational Health, Safety and Rights, and Environment” of the Group. With reference to the number of concerns raised by Group suppliers at the time of writing none have been received. It is not objectively possible to confirm with absolute certainty that no Whistleblowing reports were received from suppliers because several concerns were raised anonymously, as specified in the heading “Group Whistleblowing Procedure” in the first chapter of this report. Moreover, there is no evidence of Whistleblowing reports in regard to violations by suppliers used by the Group. In addition, each purchase contract gives the name of the contact buyer so that the counterparty always has access to a company channel to use to transmit any feedback. According to the issue raised, the contact buyer will then forward the report to the right interlocutor or function.

The supplier is monitored by using the Vendor Rating procedure, aimed at defining the quality level of supplies, the quality of the commercial relationship, the technical-scientific collaboration and performance in relation to occupational safety, the environment, and social responsibility by means of on-site audits and periodic monitoring the progress of the actions set down in any improvement plans signed with the supplier. The results of the Vendor Rating are reviewed periodically and commented on by the Purchasing Department at the time of meetings organized with the suppliers, in order to identify any corrective or performance improvement actions required.

The Vendor Rating covers all the goods and geographical purchasing areas and utilized as an integral part of commercial negotiations.

The suppliers’ sustainability audit activity is discussed in the following section.