Kraton Corporation

Sustainable Procurement Policy

1.    Purpose

Sustainability is an integral part to achieve Kraton’s vision to remain an admired specialty chemical company that delivers exceptional value to shareholders, customers, and employees. We commit to sustainable operations in the interest of all Kraton stakeholders. We believe that long-term value in a resource constrained world can only be achieved by a commitment to safe, compliant, socially- and environmentally sound operations that deliver sustainable, useful, and competitive solutions to our customers. We cannot deliver on our commitments without the commitment and contributions of our key partners.

 

2.    Scope

Kraton’s procurement mission is to facilitate the connection of customer needs with supplier solutions. By extending the value chain to sourcing, we create the opportunity for our suppliers to contribute to Kraton’s sustainable value foundation by supporting business growth, improved productivity, and risk management. Therefore, the need for long-lasting, meaningful relationships with our suppliers is becoming more important.

 

3.    Objective
Responsible Procurement Introduction

This Responsible Procurement policy represents a key part of our commitment to sustainability leadership. It highlights essential elements of our Compliance Standards, Health, Safety, Environment and Security (HSES) Standards as well as Corporate Purchasing Standards that we expect suppliers to comply with.

Kraton is a proud member of Together for Sustainability (TfS), a joint initiative and global network of major chemical companies, delivering the de facto global standard for environmental, social and governance performance of chemical supply chains. The TfS program is based on the United Nation (UN) Global Compact and Responsible Care® principles. Responsible Care is the chemical industry’s world-class health, safety, environmental and security performance initiative designed to ensure the business of chemistry is safe, secure, and sustainable. Sustainable and ethical practice by suppliers is an essential element of UN Global Compact. Kraton has directed its efforts towards seven UN Global Compact Principles in the areas of human rights, labor rights, the environment and anti-corruption. We are actively supporting the achievement of these selected Principles by:

  • Committing to Sustainable Development Goals (SDG) relevant to our business,
  • Being an active member of the American Chemistry Council (ACC) and Conseil Européen des Fédérations de l’Industrie Chimique/European Chemical Industry Council (CEFIC)
  • Signing the Declaration of Support for the Responsible Care Global Charter.

Committing to frameworks such as the UNGC and joining industry sustainability forums such as Together for Sustainability enables Kraton to stay abreast of the developing sustainability agenda, emerging best practices and ensures we are continuously improving.

This Responsible Procurement policy aims to provide clarity and transparency while helping us to drive:

  • Integration of ESG considerations as part of company decision-making that can lead to operational and process efficiencies. This can be achieved through sustainable supply chain management practices to reduce the environmental impact across the value chain and costs.
  • Risk reduction: avoidance of supply chain disruptions driven by non-sustainable business practices (e.g., non-compliance with environmental regulations, child labor).
  • Revenue growth: Additional revenue through innovation and organic growth by providing more sustainable solutions to our customers and in the value chain (i.e., ISCC+ alternatives).
  • Talent attraction and retainment.

Responsible Procurement is overseen by the Sustainability Council, which reports to the Board of Directors. The Council consists of a variety of Kraton’s Functional Leader to benefit from the broadest possible perspective.

 

4.    Policy
Responsible Procurement Policy

Kraton is committed to conducting business in adherence to laws and regulations while driving continuous improvement. Kraton promotes a safe, secure, and healthy workplace for our employees and contractors, protects the environment, upholds the product stewardship and safety of our products, and ensures that we will continue to be a valued member of the communities in which we operate. We strive to be a valued supplier to our customers and a valued customer to our suppliers.

Kraton believes that Responsible Procurement performance is important to our company’s success. We are committed to ensuring our key suppliers comply with our defined Supplier Code of Conduct, and we expect their support in continuously improving our value chain’s sustainability standards.

Our Responsible Procurement policy has the following guiding principles, as detailed in our Supplier Code of Conduct, which we expect to be respected by all our suppliers:

  • Integrity and ethics: We expect our suppliers to conduct business ethically, with integrity and in compliance with the law.
  • Supplied materials: We expect our suppliers to be dedicated to responsible sourcing.
  • Human rights and labor: We expect our suppliers to respect the human rights of their employees and treat them fairly, in accordance with all applicable laws.
  • Health, safety, environment, and security. We are committed to Responsible Care™ management system and expect our suppliers to make similar commitments to continuously improve their environmental, health and safety performance.

To ensure progress on our sustainability journey through continuous improvement, the key elements of our Responsible Procurement policy are embedded in our supplier management process. This process consists of the following steps: supplier selection, onboarding, performance evaluation and improvement.

Supplier selection is based on the supplier’s ability to meet requirements, at a competitive price and in keeping with Kraton’s supply strategy. Within the supplier selection phase, we evaluate supplier risk (compliance risk, country risk, financial risk, and specific procurement risks e.g., inability to supply). It is in this step where we collect the necessary documentation on standards and requirements with specific expectations for each category of suppliers. As an example, WorldCompliance™ Data is checked to screen historical compliance performance.

When a supplier is selected, supplier onboarding takes place according to a specific global procedure. In this phase, we communicate our expectations on supplier performance in general and our sustainability standard more specifically. Our contract templates and standard T&C include our Corporate Social Responsibility (CSR) clause and a reference to Kraton’s Supplier Code of Conduct. With every signed contract and/or placed order, we expect our suppliers to act in compliance with our Supplier Code of Conduct.

The heart of our supplier management process is a reiterative process: Supplier Performance and Improvement. We focus on our key supplier base in this phase to keep this process step manageable from a resource perspective while still ensuring its effectiveness. Procurement will classify suppliers considering:

  • criticality for Kraton’s operation (e.g., difficulty level in switching to another supplier for that good or service, access to unique solutions developed by the supplier or HSES performance of onsite contractors),
  • spend level,
  • supplier’s Corporate Social Responsibility risk by industry or country of operation based on EcoVadis’ Risk assessment and
  • supply relationship’s strategic nature to develop innovative solutions in a partnership.

Kraton expects key suppliers to continuously improve sustainability performance to support our ambitions of enhancing our supply chain sustainability. Therefore, we annually assess our key suppliers’ ability to meet Kraton’s requirements and expectations for improvement. Our Supplier Performance Evaluation process consists of an annual internal survey conducted amongst internal stakeholders who provide feedback on the suppliers’ performance, their operational key performance indicator (KPI) – if applicable – and their daily relationship in general. Procurement assesses the suppliers’ competitiveness, reliability, innovation capability as well as the overall relationship. To determine the suppliers’ sustainability commitment, Kraton may ask them to confirm compliance with CSR principles through the following methods:

  • Third-Party CSR assessments: We may solicit desktop information from a third party, e.g., a data provider on vendor’s compliance and performance concerning CSR principles (EcoVadis).
  • Certifications/statements: We may ask suppliers for certification or statement confirming compliance with CSR principles.
  • Onsite audits: We or an authorized third party acting on our behalf may contact suppliers and ask for permission to verify compliance with CSR principles on site.

For certain specific material suppliers, an additional self-assessment – such as conflict minerals – may be required. If applicable, Kraton conducts supply chain due diligence in accordance with OECD guidance, engaging suppliers who have been identified as providing Kraton with materials that either contain or potentially contain conflict minerals. In addition, Kraton has implemented provisions for new supply contracts for suppliers of certain specific materials to provide supply chain transparency about the source of any conflict minerals. Kraton requires all identified suppliers to provide a valid certificate.
For our wood-based derived raw material suppliers, additional requirements are necessary. To ensure the supply chain’s integrity, the ability to trace back the wood raw material to its original source is preferred. To comply with this demand, we require our wood-based suppliers to pursue independent third-party chain-of-custody certification to globally recognized sustainable forestry certification standards. The use of a particular standard depends upon the region and availability of wood fiber. Today, our supplying mills are certified according to at least one of the following recognized standards: PEFC (Programme for the Endorsement of Forest Certification), FSC® (Forest Stewardship Council®), SFI® (Sustainable Forestry Initiative®)

Our 10 major suppliers are invited to provide multi-tier transparency on the CSR performance of their own supply chain. TfS Tier-N program is a vital instrument to manage our sustainability risk through deep dive, multi-tier TfS Assessments. A considerable part of the sustainability impact is upstream in the supply chain, meaning our suppliers, and again their suppliers, and so on. As a result, we will be in a better position when buying from suppliers with good sustainability performance.

The outcomes of all assessment elements mentioned above are analyzed and brought together in a scorecard. This scorecard is divided in four areas of focus:

  • Customer Support
  • Pillar Metrics
  • Quality and Safety
  • Risk, Sustainability and Compliance

Suppliers who repeatedly fail to meet the defined requirements are identified and a performance improvement plan is developed in mutual agreement. Progress is monitored on a regular basis. In case a supplier fails to demonstrate basic performance and refuses to agree to an improvement plan, business with this supplier will be restricted to the bare minimum and alternative sourcing will be pursued. The intent of this program is not to terminate valued supplier relations. What is important to us is that our suppliers show engagement towards embedding the principles of our Supplier Code of Conduct into their own operations and across their supply chain.

At Kraton, we strive to make a positive difference to our customers, in our jobs and to the world. Aside from the mutually agreed improvement plans on sustainability elements mentioned earlier, we stimulate continuous improvement through:

  • external CSR training programs by TfS Academy or the How-To Guides from the sustainability guidance library by EcoVadis and joint projects on process optimization,
  • development of responsible product innovation and
  • enhancements in Environmental and Social Standards.

 

5.    Procurement Management and Organization

Procurement is integrated into the business units, each managed by a VP Procurement & Supply Chain. This VP is a member of the executive leadership team, which enables alignment of Procurement with the corporate strategy and goals. The Procurement team is regionally organized into four key areas of expertise, or Procurement Pillars, which include: Raw Materials & Energy, Logistics, Capital Investments and Facilities. These areas are led by a Category Manager, who is supported by Purchasing Agents. The Category Managers are subject matter experts in their field, as they understand their supply market and ensure the sourcing strategies reflect, among other matters, the sustainability risks that exist today and might arise in the future. Category Managers are responsible for highlighting supply risk of any kind and for developing risk mitigation plans. All Category Managers and Purchasing Agents receive comprehensive employee training on compliance and key risk areas, such as anti-corruption, anti-bribery, and international trade. Additionally, they receive frequent, in-person training from senior management with greater emphasis on specific jurisdictions and matters. All risk-related activities are reviewed by our Internal Audit department and Risk Management Corporate team.

 

6.    Sustainability Procurement Performance

Kraton’s sustainability targets for 2023 include the following Procurement initiatives which can be divided into two major elements; first one is on extending the coverage of our vendor base and second section is on maintaining and improving with our existing key suppliers:

  • Each year request the appropriate suppliers within the top 80% spend or with a high sustainability risk score, have an EcoVadis scorecard.
  • Each year we set a specific number of TfS audits within our supply base based upon their sustainability risk score.
  • When a Supplier receives an overall EcoVadis score below 45 or is not a part of EcoVadis, Procurement will send the Kraton’s Supplier Code of Conduct link to the Supplier and confirm their receipt of it.
  • If a participating Supplier’s EcoVadis score is below 45 or if there are corrective actions from a TfS audit, Procurement will confirm with the Supplier the corrective actions they are taking to improve.
  • Procurement will work with our supply base to identify opportunities to improve our sustainable footprint.
  • Procurement will request available LCA data from our Raw Material Suppliers identified in the 2022 Scope 3 Evaluation, representing approximatively 80% of our global scope 3 emissions. This will include the PCF as well as the methodology and possible data sets used for the calculations.
  • Reduce single-sourced raw materials by 20% (2023).
  • Procurement will work with logistic providers for data collection on transport related emissions, as part of scope 3.

 

7.    Reporting and Review

Kraton’s corporate sustainability program is developed and governed by the Sustainability Council. The council is presided over by the Chief Sustainability Officer (CSO). The council is comprised of members of the Kraton Leadership Team responsible for Commercial, Operations, Finance, Procurement & Supply Chain, Human Resources, and both VP’s Procurement & Supply Chain.

The purpose of the Council is to oversee and facilitate the development and implementation of Kraton’s corporate global sustainability strategy and ESG plans, including Responsible Procurement, including alignment with various frameworks and standards like the UN Sustainable Development Goals (SDG). Procurement is instrumental in achieving these goals.

The Sustainability Council oversees the tactical execution of the Sustainability Program through the Polymers and Pine Chemicals Sustainability Task Forces. The Sustainability program is focused on Performance management with two objectives. Strategic Sustainability management and Operational Sustainability Management. Strategic Sustainability management means ensuring the long-term sustainability of Kraton and our ability to create value for our stakeholders and to successfully compete in a changing environment. Operational Sustainability Management means managing, measuring, and improving our sustainability performance across Environmental, Social and Governance themes. The Council will measure and monitor the progress, tasks, and initiatives of the Polymers and Pine Chemicals’ Task Forces. The Task Forces are responsible for implementation and tactical execution, including critical resource requirements and oversight for effective execution.

Kraton has developed targets and KPI’s to track our progress and performance. Embedded within this program and in alignment with our membership of Together for Sustainability our ambitions for responsible procurement are to:

  1. Percentage of targeted suppliers that have gone through a CSR assessment
  2. Percentage of targeted suppliers that have gone through a CSR on-site audit
  3. Percentage or number of audited/assessed suppliers engaged in corrective actions or capacity building
  4. Percentage of targeted scope-3 suppliers adopting TfS PCF guideline and committing to SBTi

As the chair of the Sustainability Council the CSO reports to Kraton’s Board of Directors periodically, through the Strategy, Sustainability & Investments (SSI) Committee of the Board, which oversees the sustainability program, receiving reports on at least an annual basis.

 

8.    Revision History

The following table provides a list of the information that has changed from the last version.

Version Changes Made
1.0 Original February 2020
2.0 Reviewed and updated May 2023