Annual Report 2014 | Suomeksi |

Supplier assessment: Environment, labour practices and human rights

EN32, LA14 and HR10 Percentage of new suppliers that were screened using environmental criteria,  labour practices and human rights criteria

We expect our business partners to act responsibly and to comply with the Fortum Code of Conduct and Fortum Supplier Code of Conduct. In 2014, approximately half of our total volume of purchases was purchased from suppliers operating in Europe, mostly in Finland, Sweden and Poland. 15% of Fortum’s purchases, excluding the Russia Division's purchases, came from risk countries. When the Russia Division's local purchases are included, our purchases from risk countries accounted for 50% of the total volume of purchases.

Fortum's Supplier Code of Conduct is implemented in all of Fortum's operating countries and it is included in all purchase agreements exceeding EUR 50,000. With the Supplier Code of Conduct, Fortum aims to ensure, among other things, that the supplier provides safe working conditions for its employees, complies with rules and regulations, and reduces the environmental impacts caused by its operations.

We assess the level of operations of our business partners through pre-selection and supplier audits. Pre-selection includes a supplier questionnaire and verification of credit. We use the supplier questionnaire to identify general and sustainability-related practices, and it covers issues related to labour practices, human rights, health and safety, and environment. The supplier questionnaire also helps to identify high-risk suppliers and the need for any further actions. The questionnaire also helps suppliers to understand our expectations for compliance with the Supplier Code of Conduct.

We perform pre-selection when the volume of the purchase exceeds EUR 50,000 and, in the case of a Nordic supplier, EUR 100,000. Majority of our purchases is from the Nordic countries and remain below EUR 100,000. In 2014, Fortum conducted pre-selection on 150 (2013: 200) suppliers and it covered 7% of the new suppliers. This figure does not include the Russia Division's suppliers, as they have their own pre-selection.

The Russia Division conducts the pre-selection in accordance with Russian procurement law, and bidding is open to all companies. In the Russian operations, we set supplier requirements for business principles and ethics, and we pay special attention to anti-corruption and conflicts of interest. Participating in bidding requires the potential suppliers to also endorse their commitment to compliance with Fortum’s Supplier Code of Conduct.

Fortum is a member of the Bettercoal initiative, and uses the Bettercoal Code and tools in assessing the sustainability of the coal supply chain.

We started the sustainability-related supplier audits in 2012 and we have aimed to increase the number of audits every year. In the audit, we assess the supplier's compliance with the requirements in Fortum's Supplier Code of Conduct. Audits are always done on-site and they include a production inspection, employee interviews and a review of documents and records. If non-compliances are found, the supplier

makes a plan for corrective actions and we monitor the implementation of it. The suppliers we select to be audited are from risk countries or they have a significant supply contract. In 2014, we conducted a total of 14 (2013: 13) audits of suppliers operating in risk and in non-risk countries in Bulgaria, China, Poland, Czech Republic, Sweden and Russia. The most significant non-compliances identified in the audits were related to occupational safety, overtime hours, working hours of young workers, and management of the suppliers’ own subcontractors

The joint venture Fortum Värme conducted a total of nine audits of its own suppliers of biofuel and its biggest contractors.

Our goal in 2015 is to audit 15 suppliers or contractors. The joint venture Fortum Värme has set its own goal of ten audits. Our goal is also to update the supplier selection criteria to be based on a systematic comprehensive risk assessment and to take into use a simplified, lighter auditing model. The lighter

model will enable also the buyer to verify a supplier’s practices.

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LA15 and HR11 Significant actual and
potential negative impacts for labour
practices and human rights in the supply
chain and actions taken

The majority of our purchases are from countries, where the local regulation related to labour practices is strong and well implemented. In 2014, excluding the Russia Division's suppliers, we had 125 suppliers operating in risk countries and, when included, 1,448 suppliers. Our risk country classification is based on the ILO Decent Work Agenda, the Human Development Index of the United Nations and the Corruption Perceptions Index by Transparency International. Violations related to labour practices and human rights

are more probable in risk countries than in no-risk countries.

In terms of reviewing labour practices, the focus is on health and safety issues and on compliance with working hours and remuneration legislation. In human rights, the elimination of child and forced labour and discrimination are important, as is freedom of association. If non-compliances are found, we require the supplier to make a plan for corrective actions and we monitor the implementation of it.

In 2014, we conducted a total of 14 (2013:13) audits of suppliers, around 70% of which operate in risk countries. Out of the audited suppliers, we found non-compliances related to labour practices with seven (50%) of them. The majority of the non-compliances were related to health and safety, but there were non-compliances related to working hours legislation as well. Out of the audited suppliers, we found non-compliances related to human rights with three (21%) of them. The observed non-compliances were related to the working hours of young employees. Young employees are above

the minimum age, but under 18 years. Suppliers with observed non-compliances have provided corrective action plans and we are monitoring the implementation of them.

The joint venture Fortum Värme conducted a total of nine audits of its own suppliers of biofuel and its biggest contractors.



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