Sustainability governance

The purpose of sustainability governance at Essity is to guarantee the Group’s commitments to its stakeholders, including customers, employees, shareholders, suppliers, creditors, decision-makers and representatives of the community. These commitments are expressed in the company’s business objectives and strategies. Through an active dialogue with our stakeholder groups, we can ensure that Essity’s priorities and methods are relevant over time.

Economic value creation is based on the premise that maintaining financially sound business operations is dependent on these operations being environmentally and socially sound. Economic strength and stability is a prerequisite for environmental investments and socially responsible decisions that generate long-term financial growth. Essity’s objective is to achieve maximum value for its shareholders and other stakeholders, such as employees, customers and society, with minimum adverse effects. Essity has a number of policies and management systems in place to achieve and maintain its economic value creation.

Essity’s overall social management approach is to assess how the company, through it operations, impacts and interacts with people and to develop stra-tegies for establishing good relations with relevant stakeholders. Essity’s main steering document in terms of social responsibility, the Essity Code of Conduct, defines areas where the company can successfully contribute to social sustainability in the Group’s operations, and for various stakeholders along the supply chain. In the markets where we operate, Essity generates social value for individuals and society through our products and solutions for hygiene and health.

Essity’s overall environmental management approach is to enhance the operations’ positive contribution to the environment, while minimizing their negative environmental impact.

Sustainability governance

Essity’s Executive Management Team bears the overall responsibility for the control of Essity’s business in the field of sustainability. Essity has a Group function in charge of sustainability, led by the Senior Vice President Sustainability, who reports to the CEO and is a member of the Executive Management Team. Apart from social and environmental affairs, the function is also responsible for the Group’s Public Affairs and its Compliance & Ethics function. In close collaboration with the Business Unit Presidents, the approved strategy and objectives are broken down into specific targets and activities to ensure delivery of the Group’s objectives and business plans. Responsibility for implementation rests with the operational organization.

The Compliance Council is responsible for ensuring an effective compliance framework and program and securing a systematic approach to implementation of this. This Council oversees the introduction of, and compliance with, Essity’s Code of Conduct and other Group policies, including the UN framework for human rights. The Council comprises Essity’s Senior Vice President HR, Senior Vice President Group Sustainability (Chairman) and General Counsel. The Head of Compliance & Ethics function reports to the Council but is not a member. Essity’s CEO, the head of the internal audit function and the business area presidents participate in meetings when invited.

A number of committees and networks operate horizontally across the Group’s different business units to guarantee a consistent approach.

The Environmental Committee draft proposals for policies and principles for governing the sustainability work as well as objectives and action programs at Group level. The committee coordinates and follows up the Group’s initiatives and objectives in the environmental area. The committee includes members of all business units and representatives from all regions where the company has significant operations.

The Public Affairs Committee leads and coordinates the work in prioritized areas related to strategy, positioning and external advocacy activities.

Water management network: Proposes the Group’s targets for reductions in emissions and water usage. The network also analyzes the impact of the EU’s Water Framework Directive on Essity’s operations.

Fiber network: Disseminates information on responsible forest management throughout the organization, and coordinates the Group’s position and activities in relation to the FSC.

Resource Management Systems (RMS) network: Compiles information and makes calculations and presentations relating to resource use and environmental data.

Chemicals management network: Leads and supports development for harmonized chemical procedures and proposes group policies, priorities and objectives.

Energy network: Identifies cost-efficient solutions and synergies in connection with energy sourcing. The network also handles emissions trading.

Health and safety network: Establishes global goals and guidelines for health and safety, including definitions and procedures for accident reporting.

Supplier Code of Conduct network: Identifies ethical and social supply chain risks.

Monitoring

In addition to being reviewed by the company’s external auditors, its operations are subject to external reviews and monitoring by, among others, the Swedish Financial Supervisory Autho-rity and Nasdaq Stockholm. Life cycle assessments are another example of third-party assessments. Essity’s own control systems include segregation of duties in critical processes and defined management responsibilities with regard to internal control. There is also a separate internal audit function at Essity that works to evaluate and improve the effectiveness of Essity’s governance processes, risk management and internal control. Essity’s internal audit organization contributes to the maintenance of high standards of business practice and is involved in the monitoring of Code of Conduct compliance through, for example, audits. To support its work, the internal audit unit has a number of stee-ring documents and policies.

Regulatory frameworks and positioning

The regulations most relevant to Essity concern emission rights trading, energy efficiency, waste management, the Industry Emission Directive (IED), general product safety, medical devices, materials for food contact, chemical substances, cosmetics, biocide products and electronics. Essity monitors the development of all relevant regulations and ensures the environmental and human safety of all its products.

Essity has established so-called position papers that elaborate on our views on the following areas: animal testing, flushable products, genetically modified organisms (GMO), palm oil, wood fiber and triclosan (biocide). The position papers are available at www.essity.com/sustainability.

Human rights

Responsibility for the area of human rights rests with the Compliance & Ethics function. Essity’s approach to human rights is based on the United Nation’s Guiding Principles on Business and Human Rights (UNGP). The UNGP stipulates that as part of their commitment to respect human rights, companies must exercise due diligence in understanding and managing the actual and potential negative impact on human rights. Together with the non-profit organization BSR, Essity has identified and mapped out risks and the impact in relation to human rights through a Group-wide assessment process. The risks were graded not by the impact on business but the impact on the rights holder. The assessment revealed three salient issues:

• Labor-related risks, including occupational health and safety, discrimination, forced labor and right to equal work for equal pay in Essity’s direct and indirect operation (supply chain).
• Land rights risks associated with the sourcing of timber, fiber, and pulp – especially where indigenous communities are present.
• Risks related to water use by Essity’s operations located in water-stressed regions that may infringe on the rights of local communities to water and sanitation.

Since then, this method was replicated at the business area and function level. The business area in Latin America was the first to implement an equivalent assessment and subsequent action plan for risks deemed to be most relevant to their business environment. An equivalent mapping process was also carried out by the sourcing department in various sourcing categories.