External Sustainability Audits Program Manual Version 1.0, April 2013

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External Sustainability Audits Program Manual

Version 1.0, April 2013

Sustainability in the Supply Chain

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Table of content

1 Program Background

2 Audit Process

4 Further Information

3 Audit Scope and Checklist

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Our goal is to balance people, the environment and value creation

Planet

Sustainability

Value-oriented action

Responsibility for people Responsibility for climate and environment

Source: Siemens Sustainability Office

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Our sustainability program:

Initiatives, “walk the talk” and alliances

Initiatives Walk the talk Alliances

'Planet'

Nachhaltigkeit

We turn our approach to sustainability into concrete business

opportunities

We are committed to embedding sustain-ability throughout our organization and

operations

To achieve our sustainability targets, we work

with all relevant stakeholders

Sustainability

Sustainability – our guiding principle

Siemens values: excellent – innovative - responsible

Source: Siemens Sustainability Office

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CompliancePerformance

Standards for Suppliers Know-How Transfer & Capacity Building Supplier Sustainability Workshops*

Web-based training for suppliers*

Communication & Information (e.g. brochures, websites) Supplier Development

Active development Self optimization

Reduce volume/phase-out

Globally binding standards applicable to all Siemens suppliers

Based on the principles of UN Global Compact and ILO Conventions

Assessing Risks & Detecting Issues External Sustainability Audits

Supplier quality audits with Sustainability module Sustainability Self Assessments

Risk Evaluation with Sustainability criteria

Contractual Commitment & Policies Commitment through Corporate Responsibility contract clause and declaration, Conditions of Purchase

Supplier Qualification Process

Siemens-wide mandatory standards and processes

Comprehensive program for Sustainability in the Supply Chain is in place

Code of Conduct for Siemens

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Sustainability Audits are conducted to identify &

mitigate sustainability related risks at the suppliers

Goals & Benefits for the Supplier

Risk awareness for Siemens and suppliers Identification of strengths/ weaknesses and enabling continuous improvement

Active mitigation of sustainability related risks Supplier gets support by Siemens and external experts for performance improvement

Improved relationship to Siemens and other customers

Taking an active approach to ensure requirement fulfillment and legal compliance.

Audit Scope

Check adherence to the Code of Conduct for Siemens Suppliers (based on UN Global Compact principles, ILO conventions) and local legislation

Supplier Scope

Suppliers with identified potential risk related to sustainability

Strategically important suppliers

Execution

Audits conducted by international qualified auditing companies Intertek and SGS.

Sustainability Audits

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Requirements

Legal compliance

To comply with applicable legal system(s) Prohibition of corruption and bribery To tolerate no form of corruption and bribery

Respect for basic human rights of employees To promote equal opportunities; no discrimination

Prohibition of child labor

Employ no workers under the age of 15 Health and Safety of employees

To take responsibility for the health and safety of employees

Environmental protection

To minimize environmental pollution and make continuous improvements in environmental protection

Supply Chain (2^nd tier suppliers)

To promote among its suppliers compliance with the Code of Conduct

See:www.siemens.com/scm/code-of-conduct

The Audit Scope is based on the requirements of the

Code of Conduct for Siemens Suppliers

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Table of content

1 Program Background

2 Audit Process

4 Further Information

3 Audit Scope and Checklist

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Risk-based system of interlinked detection modules is in place

Company-wide defined threshold Minor findings with development measures

Minor deviations to the CoC¹⁾ requirements ²⁾ yellow

Company-wide defined threshold KO-criteria

Red

Company-wide defined threshold Risk Evaluation

(Sustainability)

No findings Regular supplier

quality audit

No findings Corporate

Responsibility Self Assessment

green Criteria

Management decision for External Sustainability Audit

Reported breach of CoC¹⁾with high indicated risk Internal strategy

decisions Media Reports, other sources

External Sustainability

Audit

‘Red’ result & no measure definition (3 months) or

‘Red’ result & agreed corrective actions are overdue (2 months)

Clearing by Corporate Procurement

and Compliance Clearing by Sector

Procurement

1) Code of Conduct for Siemens Suppliers 2) Definition of measures

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Process

Audit scope suppliers

Follow up audit

High Performance Suppliers

Phase-out

Initial audit

External Sustainability Audit program ensures continuous improvement and sustainable implementation of defined corrective actions

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3 2

4

5

External Sustainability Audits checks compliance and fosters continuous improvement

Steps

1 Nomination of Suppliers for External Sustainability Audis

2 Initial audit / Full Re-audit is a full scope audit checking all criteria of the Code of Conduct for Siemens Suppliers. A Corrective Action Plan (CAP) is generated based on the findings in the audit.

3 The scope of the follow-up is determined by the defined Corrective Action Plan. Depending on the findings, the follow-up should at the latest be executed 9 months after the initial audit.

Besides this, defined critical findings require immediate action and are treated individually with Siemens Management and the Supplier.

If the follow-up is failed twice, the supplier is required to perform a full re-audit within 6 months of the last follow-up audit. (step 2)

4 If no corrective actions are defined in a initial/re-audit or all corrective actions are closed in a follow-up the supplier is no longer in the External Sustainability Audit program.

Generally an audit is not conducted earlier then 2 years after last audit unless there are indications of non- conformance.

5 If a supplier does not manage to close all corrective actions within follow up audits and re-audit, 2^ndlevel escalation is conducted to decide on next steps (e.g.

phasing out the Supplier)

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External Sustainability Audits follow a standard procedure

Opening Meeting

Commenced with factory

management and related factory staff Request to review the business license Explanation of audit objectives scope, methodology and audit process Interview with top management about policies and Code of Conduct for

Siemens Supplier topics

Factory inspection

Collect records and relevant documents Cross check

between records / documents and the actual situation Taking photos if necessary

Employee Interview

Selection of

interviewee by audit provider

Conduct interview in a separate room provided by the supplier without factory

management

Review of Records

Assess compliance to the Code of Conduct for

Siemens Suppliers by reviewing the documentation Cross check of the evidences collected during the audit Summarize audit findings and complete the audit summary

Closing Meeting

Must held with factory

management Discussion about findings not in compliance with the Code of Conduct for Siemens Suppliers Confirmation of the corrective action plan

Signature by factory management and audit provider

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Table of content

1 Program Background

2 Audit Process

4 Further Information

3 Audit Scope and Checklist

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Violations against the Code of Conduct are classified following a consistent rating system

The Code of Conduct is verified following a checklist of around 300 questions

A Non-compliance is a specific breach of legal requirements or code, against which the supplier site is audited.

Each finding is categorized, describing the urgency of correction

Minor

An occasional or isolated problem.

An issue which presents a low risk to workers/ those on-site.

A policy issue or misunderstanding without evidence of a material breach

Major

A breach which represents a danger to workers/ those on-site.

A material breach of a code requirement/ law. A systematic violation of a code requirement/ law.

Critical

An issue which presents imminent risk to workers’ safety/risk to life and limb or constitutes a significant breach of workers’ human rights,

A major non-compliance that has not been addressed or for which no significant improvement has been made by the time of a follow up audit, in spite of supplier commitment to resolve the issue.

An attempt to pervert the course of the audit through fraud, coercion, deception or interference.

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External Sustainability Audits Content of audit checklist

1. Legal Compliance and Prohibition of Corruption and Bribery

Intention

The supplier needs to comply with the laws of the applicable legal system(s)

No toleration of and no engagement in any form of corruption or bribery, including any payment or other form of benefit conferred on any government official for the purpose of influencing decision making in violation of law.

Requirement

(Examples)

Regular training in respect of important compliance issues Written instructions and guidelines

Regular review of compliance programs or process, regular updating and information provided to employees

Nominated Ombudsman

Control

(Examples)

Management interviews Document review

Verification by checking contact data

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External Sustainability Audits Content of audit checklist

2. Management Systems

Intention

The facility should establish an effective management system which clearly defines and documents policy and procedures to ensure compliance with applicable laws and program requirements.

The facility should have a method of measuring the program’s effectiveness and a way of assessing its suppliers and subcontractors or their commitment to social compliance.

Requirement

(Examples)

Risk assessment related to social and environmental issues

Policies, goals, procedures and responsibilities related to social and environmental issues

Measures taken and resources allocated to ensure compliance (training, communication etc)

Internal verification of compliance and achievement of goals by monitoring and management reviews

Control

(Examples)

Document review

Employee interviews on policy awareness

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External Sustainability Audits Content of audit checklist

3. Forced Labor

Intention

Forced, bonded, indentured, or trafficked labor or involuntary prison labor must not be used.

Also not allowed are any other activities that restrict freedom of movement, such as retaining worker-identification documents and monetary deposits, moving about the workplace, forced overtime, or being prevented from leaving at the end of the shift.

Requirement

(Examples)

Policies against forced labor available and employees trained Company does not lodge ID cards

Workers are free to leave their jobs, the factory premises and dormitories No coercion by security staff

Overtime working is voluntary

Control

(Examples)

Document review Employee interviews Management interviews Employment records

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External Sustainability Audits Content of audit checklist

4. Harassment & Abuse

Intention

Employees are to be treated with respect and dignity as laid out in clearly understood disciplinary procedures that forbid acts of bullying, the threat of

physical abuse, sexual or other harassment, verbal abuse, monetary deductions, or other forms of intimidation of any kind.

Requirement

(Examples)

Fair disciplinary procedures and written rules communicated Wage deductions within legal regulations

Channels for reporting harassment and abuse are effective and communicated to workers

Control

(Examples)

Verification of disciplinary procedures and cross check with employee interviews

Employee, HR and management interviews checks on wage related records

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External Sustainability Audits Content of audit checklist

5. Discrimination

Intention

Companies should not engage in any form of employee discrimination in hiring, compensation, access to training, promotion, termination, or retirement based on race, caste, national origin, religion, age, disability, gender, marital status, sexual orientation, union membership, disease, pregnancy, or political affiliation

Requirement

(Examples)

Equal pay; written description of qualification required for each position Recruitment and promotion based on qualification

Effective channels to report discrimination confidentially

No pregnancy test or other tests that could be used as discriminatory elements (e.g. HIV)

Control

(Examples)

Document review Employee interviews Management interviews Employment records

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External Sustainability Audits Content of audit checklist

6. Hours of work

Intention

Regular and overtime hours should comply with the legal limitations of the country or collective agreement with accurate and complete record-keeping.

Employees should not be requested to work overtime on a regular basis and total hours should strive to be aligned with international-benchmark industry standards with ongoing continuous improvement.

Employees are provided at least one day off following six consecutive days worked.

Requirement

(Examples)

Site introduces effective tools for productivity development and provide support to working hour reduction

Process and system in place to check hours worked Appropriate meal breaks

Control

(Examples)

Plausibility check of production planning records and time records Time records

Employee interviews

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External Sustainability Audits Content of audit checklist

7. Wages and Compensation

Intention

Wages, overtime pay, benefits and paid leave are provided to employees and at least meet or exceed legal minimum requirements and/ or collective-bargaining agreements (if applicable) with accurate and complete record-keeping.

Employees should receive documentation with detailed wage information with each payment.

Requirement

(Examples)

Site maintains complete and consistent payrolls and monitors the payment Benefits such as maternity leave, annual leave, social insurance as per law

Site does not employ part-time workers or workers on a semi-permanent contract to avoid allowances

Overtime pay according to legal provisions

Control

(Examples)

Basic data, e.g. rates payable, number of hours worked,

pay period, deductions are checked for at least the last 12 month Comparison of work contracts and time records

Payrolls and employee interviews

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External Sustainability Audits Content of audit checklist

8. Freedom of Association

Intention

The facility should adopt an open attitude towards the activities of unions,

employee representatives, or worker councils and give employees access to the workplace for the purposes of such activities without fear of reprisal.

Employees have the right to join or form trade unions and to bargain collectively in accordance with local laws without prior authorization from management.

Requirement

(Examples)

No discrimination against workers representative

Meetings with worker representatives and management Management must not interfere in union activities

Control

(Examples)

Check on complaint process and complaint mechanism and its effectivity

Interview with employee representative Minutes of meetings

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External Sustainability Audits Content of audit checklist

9. Child Labor

Intention

Child labor is a violation of fundamental human rights and companies should not hire employees under the age established by law, or age 15 if there is no law.

Special protections shall be in place for young employees under the age of 18.

Requirement

(Examples)

No overtime for young workers and consideration of legal requirements for protection of young workers

No child labor

Written policy and knowledge of local legislation at management level Effective recruitment procedure to detect worker’s age before employment

Control

(Examples)

Employment records

Knowledge check of HR/management representative on legislation Check availability of ID copies

Remediation procedure for child labor according to local law

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External Sustainability Audits Content of audit checklist

10. Health and Safety

Intention

The workplace environment should be comfortable with safe and clean conditions like adequate controls to manage emergency preparedness.

Residential facilities provided to employees should contain adequate living space, be clean and well maintained.

Requirement

(Examples)

Working conditions: sufficient lightning, acceptable noise level, air quality, temperature

Hygiene canteens and food preparation areas, hygiene and sufficient toilets Safety of chemicals: safely stored, hazardous chemicals inventory, training of workers handling with chemicals

Control

(Examples)

Site observation Visit of dormitories

Employee interviews to check the implementation level Document review

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External Sustainability Audits Content of audit checklist

11. Environment

Intention

The facility should be aware of the potential environmental impacts of its site and establish an effective environmental management system to better understand and comply with all environmental laws, regulations, and permits as they relate to solid- waste, hazardous-waste, wastewater, storm-water, and air emissions.

Requirement

(Examples)

Site has a system to track compliance of environmental laws Measures for continuous reduction or avoidance of pollution

Product related environmental issues: Incidents and measures to ensure compliance

Control

(Examples)

documentation from municipalities to confirm with law Site observation

investment plans

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External Sustainability Audits Content of audit checklist

12. Supply Chain

Intention

Suppliers are expected not only to comply with the Code of Conduct for Siemens Suppliers in their own organization but also to ensure in turn that their

subcontractors adhere to the international standards summarized in the Code of Conduct for Siemens Suppliers

Requirement

(Examples)

Company has to encourage its suppliers to comply with the code of conduct

Supplier has to take actions, if a violation against the code of conduct is identified at sub suppliers

Control

(Examples)

Management interviews

Supplier contracts and supplier monitoring systems Documentation on actions

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Table of content

1 Program Background

2 Audit Process

4 Further Information

3 Audit Scope and Checklist

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Contact

Siemens AG

Wittelsbacherplatz 2 80333 Munich

Germany

www.siemens.com

[email protected]

Further Information

Sustainability at Siemens

http://www.siemens.com/sustainability

Public reporting on Supplier Audits Siemens Sustainability Report

http://www.siemens.com/sustainability/en/core- topics/suppliers/facts-figures/index.htm

Supply Chain Management at Siemens http://www.siemens.com/scm