NOKIAN TYRES - CORPORATE SUSTAINABILITY REPORT 2019 Corporate Sustainability Rep

Corporate Sustainability Report 2019 (pdf)

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CORPORATE SUSTAINABILITY REPORT 2019 YRITYSVASTUURAPORTTI 2019 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 2 REPORT 2019 PRINCIPLES CONTENT Corporate sustainability report 2019 Nokian Tyres in a nutshell . . . . . . . . . . . . . . . . . . . . . . 3 Greetings from our CEO . . . . . . . . . . . . . . . . . . . . . . . 4 This is what we are proud of. . . . . . . . . . . . . . . . . . . . 5 Fundamentals Managing sustainability . . . . . . . . . . . . . . . . . . . . . . . . 7 Our sustainability road map . . . . . . . . . . . . . . . . . . . . 11 Nokian Tyres' value chain. . . . . . . . . . . . . . . . . . . . . . . 13 Nokian Tyres as a part of society . . . . . . . . . . . . . . . 14 Climate and the environment Our goal is to manage the environmental impacts . . . . . . . . . . . . . . . . . . . 20 Energy, emissions, water and waste. . . . . . . . . . . . 22 Risks and opportunities in line with the TCFD. . . 29 Microplastics and tire road-wear particles . . . . . . 30 Recycling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 People One company, one purpose, one global team. . . 35 Human rights and safety are the base of our people operations . . . . . . . . . . . . . . . . . . . . . . . . 36 Our people . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Our way of working. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Products Improving road safety is a priority. . . . . . . . . . . . . . 45 Lower rolling resistance less CO2 emissions . . . 47 Renewable raw materials. . . . . . . . . . . . . . . . . . . . . . 48 Supply chain We track the sustainability of our suppliers. . . . . 50 Sustainable sourcing of natural rubber. . . . . . . . . . 51 Human rights in the supply chain . . . . . . . . . . . . . . 52 Reporting principles . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Performance in figures. . . . . . . . . . . . . . . . . . . . . . . . 55 GRI + UNGC content index . . . . . . . . . . . . . . . . . . . . 60 Independent assurance report . . . . . . . . . . . . . . . . 64 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 3 REPORT 2019 PRINCIPLES NOKIAN TYRES IN A NUTSHELL Nokian Tyres develops and manufactures premium tires for people who value safety, sustainability, and innovative products. We offer peace of mind in all conditions and instill our Scandinavian heritage in every tire that we make. Our company designs tires for passenger cars, trucks, and heavy machinery and our Vianor chain provides tire and car services. In 2019, the company's net sales were approximately EUR 1.6 billion and it employed some 4,700 people. Nokian Tyres is listed on Nasdaq Helsinki. You can read about the company's ownership structure here. A global company In 2019, Nokian Tyres' products were sold in 61 countries. Our primary brand is Nokian Hakkapeliitta. Our growth is supported by the branded distribution network, which includes the Vianor and Vianor Partner chains, Nokian Tyres Authorized Dealers (NAD) network, and the N-Tyre network. At the end of 2019, the Vianor network included a total of 1,170 service centers in 19 countries. The NAD network operated in 27 countries with 2,182 stores. The N-Tyre network covered 133 stores in Russia, Kazakhstan, and Belarus. Nokian Tyres has three factories: one in Finland, one in Russia, and one in United States, which was opened in October 2019 and where the commercial production commenced in January 2020. Nokian Tyres has its own sales companies in Finland, Sweden, Norway, Russia, Ukraine, Kazakhstan, Germany, Switzerland, the Czech Republic, Poland, Belarus, Canada, the United States, and China. We have obtained quality and environmental certifications for our production facilities in Finland and Russia as well as for the Swedish sales company. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 4 REPORT 2019 PRINCIPLES WE ARE COMMITTED TO REDUCING CLIMATE CHANGE Sustainability has never been more important than it is now, as climate change increasingly dominates discussions. Nokian Tyres is committed to helping save the world's winters for tomorrow's generations: in 2019, we set stricter targets for reducing greenhouse gas emissions. In 2019, we assessed the risks and opportunities of climaterelated changes aligned with the recommendations of TCFD. In 2019, we further strengthened our commitment to sustainability. `Leader in sustainability' was added as a differentiator in our strategy. We are committed to the UN Global Compact, and joined the General Platform for Sustainable Natural Rubber and set our own strict targets to combat global warming as a part of the Science Based Targets initiative. We were again included in the DJSI World and the more strictly defined DJSI Europe, which means we are among the top 10% of the most sustainable listed companies in the world. Safety is a top priority Improving safety in the workplace has been one of our key targets for several years. So I am very proud to state that following a lot of dedication and hard work, we have managed to significantly decrease accidents at the workplace. Our Lost Time Injury Frequency dropped to 4.3. In Heavy Tyres, we had no lost-time injuries for over a year. We are also committed to ensuring the safety of our partner and supplier employees around the world. Auditing our rubber processor plants has been an important way of improving the labor rights of the workers. Being a leader in sustainability means admitting when you fall short of goals. This year, our VOC (volatile organic compounds) emissions increased at our Finnish factory. We are actively working to resolve this. In 2019, we assessed the risks and opportunities of climate-related changes, aligned with the recommendations of Task Force on Climate-related Financial Disclosures. Our work continues, and we are currently defining new sustainability goals for beyond 2020. They will be ambitious, as leadership in sustainability entails. We want to be seen as the sustainability benchmark in the industry creating added value for people, the economy, and the environment. Hille Korhonen President & CEO NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 5 REPORT 2019 PRINCIPLES THIS IS WHAT WE ARE PROUD OF LEADER IN S U S TA I N A B I L I T Y We were again included in the Dow Jones Sustainability Index, and rose to the Silver Class in the RobecoSAM Sustainability Yearbook 2019. LESS ACCIDENTS Our injury frequency rate LTIF dropped 51% from last year. S U S TA I N A B L E NATURAL RUBBER We have audited 90% of our major rubber processing partners. LESS CO2 EMISSIONS We have reduced CO2 emissions from production by 44% in six years. RECYCLING 100% of production waste was recycled in Finland. WE CARE Our team did over 800 hours of community work in the US. MORE SOLAR ENERGY We installed solar panels in the parking lot of our new US factory. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 6 REPORT 2019 PRINCIPLES F U N D A M E N TA L S Management of sustainability at Nokian Tyres is based on our values of team spirit, entrepreneurship, and inventiveness. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 7 REPORT 2019 PRINCIPLES MANAGING SUSTAINABILITY For Nokian Tyres, sustainability means sustainable product development, safe and eco-friendly products, and high standards of quality in everything that we do. Management of sustainability at Nokian Tyres is based on our values of team spirit, entrepreneurship, and inventiveness. Sustainability is an essential part of our daily work and leadership. Through sustainable business practices and financial success, we can offer security, work and well-being for our personnel and contribute to the well-being of local communities, while also considering investors, customers, and other stakeholders. Read more about our stakeholders. Nokian Tyres' business is guided by the ethical principles presented in the board-approved Code of Conduct, which was revised in 2018. The document describes the operating culture at Nokian Tyres, generally accepted courses of action, and our commitment to working in accordance with the legislation and regulations. The purpose of the Code of Conduct is to assist people in making the ethically right decisions in their daily work throughout the Nokian Tyres organization, and we expect all to adhere to it. Starting from 2018, taking an eLearning-course on all aspects of the Code of Conduct and the anti-corruption guidelines has been required from all our personnel, including top management. By the end of 2019, 93% of our personnel had completed it. Read more about how we manage sustainability at Nokian Tyres. The graph "Sustainability management at Nokian Tyres" describes the most important standards and policies that guide our work in sustainability (page 10). The UN's 17 Sustainable Development Goals (SDGs) are created to promote prosperity while protecting the environment. In 2018, we determined seven SDG's, which are important for Nokian Tyres. These goals provide a tool to examine sustainable business in the long term. We have integrated these SDG's into the chart "Nokian Tyres' sustainability goals for 2020 and their progress" (page 8). LEADERSHIP OF NOKIAN TYRES' CORPORATE SUSTAINABLITY Strategy, targets and follow-up BOARD OF DIRECTORS Action plans and day-to-day leadership of sustainability GROUP'S MANAGEMENT TEAM VP, SUSTAINABILITY & QUALITY Sustainability workgroup Safety management workgroup Environmental workgroup Energy efficiency workgroup Department safety workgroups ALL UNITS AND SUPERVISORS PERSONNEL Sustainable purchasing workgroup NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 8 REPORT 2019 PRINCIPLES NOKIAN TYRES' SUSTAINABILITY GOALS FOR 2020 AND THEIR PROGRESS Area of sustainability MANAGING SUSTAINABILITY Goal · We will improve our Dow Jones Sustainability Index assessment. Progress in 2019 · We were again selected to Dow Jones' DJSI World sustainability index and to the more strictly defined DJSI Europe index. · We rose to the Silver Class in the RobecoSAM Sustainability Yearbook 2019. PRODUCTS PEOPLE ENVIRONMENT ECONOMY SUPPLY CHAIN · Reducing the rolling resistance of the product range by 7% from 2013 to 2020, thereby creating a decrease of 500 million kg in CO2 emissions from traffic. · Each new product generation will have a lower rolling resistance compared to the previous one. · We reached the goal already in 2017. In 2019, the rolling resistance remained on the level of 2018: 8.3% lower compared to 2013 (8.2% in 2018). · We have launched new products with a lower rolling resistance than the previous products. · Occupational health and safety: A 70% improvement in the LTIF injury frequency rate tracking from 2015 to 2020. · Everyone gets to go home healthy every day. · Energy efficient production: decreasing energy consumption annually by 1% from 2016 to 2020. · A 20% reduction in CO2 emissions from production (kg CO2 kg product) from 2013 to 2020 (scope 1 and scope 2). · Reducing the use of municipal water by 25% compared to the 2013 baseline (m3/product ton). · Utilizing 100% of production waste and taking no production waste to landfills; Finland 2016, Russia 2020. · Zero environmental accidents. · Our financial target is to earn good returns for our shareholders: dividend above 50% of net earnings. · All of our raw material suppliers will have conducted a sustainability selfassessment in 2017. · We will have audited all of our major rubber processor partners (at least 80% of our natural rubber purchasing volume) by 2020. · At least two thirds of our raw material suppliers will have ISO 14001 certification in 2020. · The LTIF injury frequency improved and was 4.3 in 2019 (13,9 in 2015). This is a 69% improvement compared to 2015. · No severe accidents occurred in the Group during the year. · In 2019, Nokian Heavy Tyres achieved a milestone in industrial safety: a year with zero occupational accidents leading to absences. · No reduction in 2019. Energy consumption in production increased by 0.4% from the previous year. However, the total energy reduction was 10.4% between 2016 and 2019. · The actual reduction of CO2 emissions from production was 44% in 2013-2019. · In 2019, the consumption of municipal water was approximately 38% lower than in 2013, which means that the target was met and exceeded. · In Nokia, Finland, 100% of production waste was recycled (100% in 2018) and the recycling rate was 90% in Vsevolozhsk, Russia. (88% in 2018). · No environmental accidents occurred in 2019. · In 2019, we set our strict Science Based Targets to lower greenhouse gas emissions in line with climate science. The proposal is in the validation process. · In 2019, we paid a divident of EUR 1.58 per share (EUR 1.56 in 2018), which was 73.9% of our net earnings (2018: 96.7%). · 89.6% of our raw material suppliers have responded to the sustainability self-assessment survey (86.8% in 2018). · We achieved our goal of auditing at least 80% of our major rubber processor partners. By the end of 2019, we had audited 90%. · In 2019, 73.3% of our raw material suppliers had ISO 14001 certification (72% in 2018). NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 9 REPORT 2019 PRINCIPLES Handling issues As part of our Code of Conduct, we have a reporting procedure that instructs all of our employees to report any identified or suspected internal or external misuse or violation. In reporting a suspected misuse or violation, the person is advised to contact either his/her supervisor, Internal Audit, Legal & Compliance, or the HR unit. We strongly encourage our personnel to report any potential violations of ethical guidelines and laws, so that we can investigate and handle each case. It is also possible to make a report through the Whistleblow channel. The same channel is available to external stakeholders by email at whistleblow@nokiantyres.com. Our Whistleblowing process was updated in December 2018 and additional administrative improvements were implemented during 2019. Nokian Tyres' Whistleblowing committee was formed in 2019. The committee consists of persons responsible for internal audit, legal affairs, and HR matters within the Nokian Tyres group. The Chief Audit Executive coordinates the Whistleblowing process as well as handling of any compliance breaches found during the investigations or in other related processes at the Group level. All material findings and general statistics are reported to The Audit Committee of the Board of Directors. In 2019, altogether 7 suspected misconducts were reported on the official channel or raised to the Group's awareness via other channels. Three of the cases resulted in internal disciplinary actions and/or demanded clarifying the local practices. One issue is still under investigation. In three cases, no misconduct has been identified. Materiality assessment In 2018, we conducted a sustainability assessment together with our most important internal and external stakeholders. They defined their individual material topics, risks, and opportunities pertaining to Nokian Tyres' sustainability efforts. After analyzing the results of the assessment with our sustainability experts, nine topics were selected as material. Our aim is to conduct a materiality assessment every three years. Read more about our nine material topics. The defined material topics relate to three themes that are covered in this report: · Sustainable natural rubber · Road safety · Climate change: reducing greenhouse gas emissions Sustainable natural rubber Natural rubber is one of the key raw materials of tires. In 2017, the EU declared natural rubber as one of the critical raw materials in terms of both economic importance and supply risk. The increasing global demand for natural rubber causes increased pressure on the relatively limited geographical area in which rubber trees grow: mainly in Southeast Asia and some parts of Africa. Nokian Tyres takes part in initiatives on natural rubber sustainability and, in 2019, we joined the General Platform for Sustainable Natural Rubber (GPSNR). Nokian Tyres is also committed to finding indicators for better managing human rights in the supply chain. In 2019, our procurement unit created a classification model for Nokian Tyres' suppliers to help us assess the sustainability in our supply chain. Read more: Human rights in the supply chain. Road safety Product safety is the most important special area of sustainability with regard to our company as well as our customers and end users. We put constant effort in the development and functional testing of tires' safety characteristics. Extreme weather phenomena caused by climate change and varying road conditions increase the importance of safe tires and drive the demand for all-season and all-weather tires. As a leading manufacturer of studded and non-studded winter tires, Nokian Tyres has called for a mandatory ice grip marking for winter tires. In northern conditions, ice grip is the most important property for winter tires. Until 2019, the markings only included a wet grip rating. As the result of years of work, the ice grip marking is now being included into the EU Tyre Label. The ice grip test is currently undergoing standardization at the International Organization for Standardization (ISO). The new label will enter into force in May 2021. Read more: Improving road safety is a priority. Climate change: reducing greenhouse gas emissions The most significant environmental impacts during the use of a tire are caused by the vehicle's fuel consumption. Lower fuel consumption reduces the greenhouse gases (GHG) released into the air. Tires with low rolling resistance can save fuel, thereby reducing CO2 emissions. Through determined product development efforts, we have managed to reduce the rolling resistance of our tires by 8% on average compared to the levels of 2013. Read more: Lower rolling resistance less CO2 emissions. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 10 REPORT 2019 PRINCIPLES We calculate the GHG emissions from our operations annually, including emissions from the transport of raw materials to us, and reduce them systematically as planned. An EU directive requires corporations to carry out energy audits and other energyefficiency measures. By increasing the proportion of renewable energy sources, we can reduce our GHG emissions from energy consumption. The biomass boiler plant has significantly reduced our GHG emissions in Nokia, Finland. In 2019, we started installing solar panels at our US factory. Most greenhouse gas emissions connected to tires, however, are outside of our direct influence. Production of tire raw materials causes roughly four times more CO2 emissions than the production of tires. Approximately 90% of a tires' CO2 emissions are created during its use. In 2019, we have included scope 3 emissions in our sustainability report and our aim is to start encouraging our raw material suppliers to lower their CO2 emissions, too. This would lower CO2 emissions across the entire supply chain. SUSTAINABILITY MANAGEMENT AT NOKIAN TYRES Sustainability is a part of our company's culture, strategy and goals. The management of sustainability is based on our values of team spirit, entrepreneurship and inventiveness. Our Sustainability Management is guided by Nokian Tyres Code of Conduct, Whistleblowing and policies such as Environment, Safety and Quality Policy, Group Treasury Policy, Group Credit Policy, Procurement Policy, Disclosure Policy, Data Protection Policy, and equality- and diversity policies based on local regulations. AREAS OF SUSTAINABILITY MANAGEMENT Products / R&D We develop and manufacture ecofriendly, safe and high-quality tires that reach their destination safely even under demanding conditions. People We are committed to acting in the manner required by the UN's Guiding Principles for Business and Human Rights, and to following the International Labour Organization's (ILO) Declaration on Fundamental Principles and Rights at Work. We respect human rights and treat all individuals equally. Economy Through profitable growth, we enable the further development of our operations and ensure financial security, work and well-being for our stakeholders. Environment We are committed to act in a way that does not harm the environment or people. Procurement We are committed to sustainable procurement and further developing sustainability in our supply chain. ESSENTIAL STANDARDS, GROUP POLICIES AND PROCEDURES RELATED TO SUSTAINABILITY Tire/vehicle safety regulations, such as United Nations tyre regulations, various tire labelling (consumer information) regulations and standards, such as EU Tyre Labelling regulation, chemical regulation, Nokian Tyres tire testing policy, UN Global Compact. Policies and procedures related to safety, well-being, hiring, induction, people reviews and competence development, human rights and equality (global policy during 2020). ISO 45001, Travel Policy, Data Protection Policy, UN Global Compact. Stock exchange rules, IFRS, Corporate Governance, risk management, UN Global Compact. ISO 14001, IATF 16949, Environmental Management, Chemical Safety Management, Responsible Care program, Science Based Targets, UN Global Compact. Procurement policy, Supplier Code of Conduct, ISO 9001, ISO 14001, UN Global Compact. LOCAL GUIDELINES AND PROCEDURES NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 11 REPORT 2019 PRINCIPLES SUSTAINABILITY ROAD MAP We want Nokian Tyres to be seen as a sustainability benchmark in the industry, creating added value for people, the economy, and the environment. In 2015, we made the Nokian Tyres Sustainability Road Map to guide our work on sustainability. The road map defines seven areas of sustainability and their related projects. The projects are led by the Corporate Sustainability working group, which is headed by the Environmental and Responsibility Manager. 2 OTHER ENVIRONMENTAL ACTIONS · Compliance · Water efficiency · Materials efficiency 1 · US factory ramp-up CLIMATE ACTIONS · Climate risks and adaptation · Product development and R&D · Energy efficiency · Energy mix (renewable and non-renewable) 4 S UP P LY CHAI N · Risk management · Natural rubber sourcing 3 PEOPLE · Occupational Health & Safety · Human rights · Development of sustainability culture NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 12 REPORT 2019 PRINCIPLES OUR VALUES GUIDE US Inventiveness We always find solutions and opportunities. Entrepreneurship We take ownership to reach our ambitious goals. Team Spirit We succeed together. 5 PRODUCTS AND SERVICES · Materials · Microplastics · Services 6 FINANCE, C O R P O R AT E GOVERNANCE · Governance & Compliance · Board agenda · Risk management · Value creation for the society 7 C O M M U N I C AT I O N & STAKEHOLDER ENGAGEMENT · Reporting · Investor relations · Climate-related topics · Vianor communication NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 13 REPORT 2019 PRINCIPLES NOKIAN TYRES VALUE CHAIN A tire is a global product whose value chain extends throughout the world. We bring value to our stakeholders not only as an employer and tax-payers, but as a valued business partner, member of the community, and provider of safety. We have included the ten principles of the UN Global Compact initiative in the graph to show our impact along the value chain. RECYCLING 9 End-of-life tires can be shredded or granulated to replace rock materials in road construction and civil engineering applications, for example. Bus and truck tires can be also retreaded 24 times. Another way is to combust used tires for energy. We are exploring possibilities of using recycled carbon black in our products. (UNGC 8, 9) CONSUMERS 8 The users of our tires are the most important link in our value chain. Approximately 90% of a tire's carbon footprint is generated during its use, which means that our product development efforts for reducing their environmental impacts are measured during their use by consumers. (UNGC 10) 1 RAW MATERIALS The main raw material groups in tire manufacturing are synthetic rubber, fillers, chemicals, reinforcing materials, and natural rubber. We use more than a hundred different raw material suppliers and they are all committed to our Supplier Code of Conduct. We have conducted sustainability audits in natural rubber processing factories since 2016. (UNGC 1, 2, 4, 5, 10) 2 TRANSPORTATION OF RAW MATERIALS Most of the raw materials for tires are transported by sea to large ports in Europe from where they are shipped to Finland, Russia and now also US. (UNGC 10) 3 SUBCONTRACTORS We work globally with several subcontractors in various fields, such as construction, security, cleaning, and logistics. In 2019, we developed a new classification model to evaluate the sustainability risks of our suppliers. All new suppliers are categorized according to the model beginning 2020. (UNGC 1, 2, 10) WHOLESALERS 7 Nokian Tyres' products are sold globally via our branded distribution network, Vianor and Vianor Partner chains, as well as through car dealerships and tire stores. We offer our partners higher earnings potential selling our products. (UNGC 10) TRANSPORTATION OF TIRES 6 We used to deliver tires to large wholesalers, nowadays distribution is divided more into smaller product lots and smaller warehouses. (UNGC 10) 4 GROUP FUNCTIONS We produce tires in three countries: Finland, Russia and starting from 2020, US. In addition, we have sales companies in our key markets. (UNGC 110) 5 SOCIETY Our impact is directly seen in our factory locations as a locally significant job creator and a permanent part of the surrounding community. Our purchases, salaries, and taxes, as well as the dividends to shareholders contribute to wellbeing throughout the world. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 14 REPORT 2019 PRINCIPLES NOKIAN TYRES AS A PART OF SOCIETY Nokian Tyres' objective is to create value for its various stakeholders, such as shareholders, customers, consumers, and our personnel. We want to meet the stakeholder expectations. Through sustainable business practices and financial success, we can offer security, work and well-being for our personnel and contribute to the well-being of local communities. You can read more about our financial targets and key figures in our Financial Review 2019. Nokian Tyres contributes to society and communities as a responsible employer and through the fair payment of salaries and taxes. We directly employ some 4,700 people around the world. When we include all of our subcontractors, our role as a job creator becomes even more significant. Our tire factories are significant employers. The salaries and taxes that we pay support the structures of society and improve the quality of life for thousands of people. The Group's tax rate in 2019 was -18.7% (18.4% in 2018). The adjusted tax rate excluding a tax refund of EUR 113.7 million concerning the tax disputes from 2007-2011 was 15%. The tax rate is positively affected by tax incentives in Russia, which are valid until approximately 2022. The estimated INCOME TAX EXPENSE Region M 2019 Nordic countries Russia and Asia Other Europe North America Other countries -93* 27.8 -1.8 -0.8 4.7 *Tax expense was 20,7 M excluding a tax refund of 113.7 M operational tax rate is expected to be at the level of 18% for 2020. In its decision-making and administration, Nokian Tyres adheres to the Finnish Limited Liability Companies Act, the Finnish Securities Markets Act and the rules issued by Nasdaq Helsinki Ltd, Nokian Tyres' Articles of Association, and the Finnish Corporate Governance Code 2020 for listed companies. Nokian Tyres complies with the code without exceptions. The code is published at www.cgfinland.fi/en/. We are included in the OMX GES Sustainability Finland GI index, which provides transparent, objective and reliable information for making responsible investments. The companies are selected for the index based on their compliance with the requirements that focus on the management of environmental, social, and corporate governance (ESG). For the third consecutive year, we were also included in OUR AMBITIONS Nordic countries: We are the market leader in selected segments in the Nordic countries Russia: We are the market leader in selected segments in Russia Central Europe: We increase our sales by 50% in Central Europe in five years North America: We double our sales in North America in five years All major winter tire markets: Our tires are available on all major winter tire markets. Vianor: Targeting +3% EBITDA of Nokian Tyres-owned Vianor by the end of 2019. This target was reached in 2018. Heavy Tyres: We increase the sales of Heavy Tyres by 50% in four years. FINANCIAL TARGETS 20192021 Growing faster than the market: Above 5% CAGR with comparable currencies Healthy profitability: EBIT at the level of 22% Good returns for our shareholders: Dividend above 50% of net earnings NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 15 REPORT 2019 PRINCIPLES GENERATION OF ADDED VALUE CUSTOMERS Sales MEUR 1,595.8 SUPPLIERS Cost of goods, materials, and services purchased MEUR 691.6 ADDED VALUE MEUR 904.3 DISTRIBUTION OF ADDED VALUE EMPLOYEES Wages and salaries MEUR 232.2 PUBLIC SECTOR Direct taxes MEUR 63.1 SHAREHOLDERS Dividends MEUR 218.1 GROSS INVESTMENTS MEUR 299.6 FINANCIAL INSTITUTIONS Net Financing Payments MEUR 4.9 ECONOMIC VALUE RETAINED IN THE COMPANY MEUR 212.6 the prestigious Dow Jones Sustainability Index. We are also included in the STOXX Global ESG Leaders and FTSE4Good indices. In May 2019, Nokian Tyres signed a loan agreement linked to sustainability with the Finnish OP Corporate Bank. The margin of the EUR 100 million loan will increase or decrease dependent on Nokian Tyres meeting three sustainability key performance indicators: 1. Commitment to the indicators defined according to the Science Based Targets initiative, which has been created to lower greenhouse gas emissions. 2.Auditing the human and labor rights in natural rubber processing plants. 3.Reducing workplace accidents. Concrete targets linked to financing help the financiers to have a meaningful discussion on sustainability and support the progress of these targets together with clients. Nokian Tyres has a Disclosure Policy that describes the key processes related to Nokian Tyres' external communications as well as the main principles that Nokian Tyres follows when communicating with the capital markets and media. You can read about our communication principles here. Risk management Nokian Tyres has adopted a risk management policy, approved by the Board of Directors, which supports the achievement of strategic goals and ensures the business continuity. The Group's risk management policy focuses on managing both the risks pertaining to business opportunities and the risks affecting the achievement of the Group's goals in the changing operating environment. At Nokian Tyres, Corporate Risk Management (CRM) also includes the sustainability aspects. Nokian Tyres detailed the overall business risks and risk management in the Corporate Governance Statement. For the first time, climate changerelated factors were included in the risks. For example, the following risks could potentially have an impact on Nokian Tyres' development: · Nokian Tyres is subject to risks related to consumer confidence and macroeconomic and geopolitical conditions. Political uncertainties may cause serious disruption and additional trade barriers and affect the company's sales and credit risk. Economic downturns may increase trade customers' payment problems and Nokian Tyres may need to recognize impairment of trade receivables. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 16 REPORT 2019 PRINCIPLES · The tire wholesale and retail landscape is evolving to meet changing consumer needs. New technologies are fueling this with increasing digitalization. Failure to adapt to the changes in the sales channel could have an adverse effect on Nokian Tyres' financial performance. · Nokian Tyres' success is dependent on its ability to innovate and develop new products and services that appeal to its customers and consumers. Despite extensive testing of its products, product quality issues and failure to meet demands of performance and safety could harm Nokian Tyres' reputation and have an adverse effect on its financial performance. · Nokian Tyres' production facilities are located in Finland, Russia, and the United States. Any unexpected production or delivery breaks at these facilities would have a negative impact on the company's business. Interruptions in logistics could have a significant impact on peak season sales. · Significant fluctuations in raw material prices may impact margins. Nokian Tyres sources natural rubber from producers in countries such as Indonesia and Malaysia. Although Nokian Tyres has policies such as the Supplier Code of Conduct and established processes to monitor the working conditions, it cannot fully control the actions of its suppliers. The violation of laws, regulations or standards by raw material producers, or their divergence from practices generally accepted as ethical in the European Union or the international community, could have a material adverse effect on Nokian Tyres' reputation. · Tire industry can be subject to risks caused by climate change, such as changes in consumer tire preferences, regulatory changes or the impact of extreme weather events on natural rubber producers. Nokian Tyres is committed to reducing GHG emissions from its operations in order to combat climate change. Nokian Tyres calculates the GHG emissions from its operations annually and reduces them systematically. More detailed analysis on Nokian Tyres' climate change related risks and opportunities has been provided in Nokian Tyres' Non-Financial Reporting Statement for 2019. · Foreign exchange risk consists of transaction risk and translation risk. The most significant currency risks arise from the Russian ruble, the Swedish and Norwegian krona, and the US and Canadian dollar. Approximately 60% of the Group's sales are generated outside of the euro-zone. Tire industry can be subject to risks caused by climate change, such as changes in consumer tire preferences, regulatory changes or impact of extreme weather events on natural rubber producers. · In May 2017, the Finnish Financial Supervisory Authority filed a request for investigation with the National Bureau of Investigation regarding possible securities market offences. In March 2019, the police moved the suspicions of securities markets offences to consideration of charges. The suspects have denied any involvement in criminal activity. Nokian Tyres' risk analysis also pays special attention to corporate social responsibility risks, the most significant of which are related to the company's brand image and product quality. Analyses and projects related to information security, data protection, and customer information are continuously a special focus area. A global company with local impacts Corporate philanthropy is our company's way of giving back to our community locally, regionally, nationally, and internationally. Donating our time, products, services, and money to charities and nonprofits helps us to build trust with our communities, consumers, and other companies as well as to improve our employee engagement. Our mission is to offer peace of mind in all conditions. Our approach to philanthropy mirrors our mission, entrepreneurial and inventive company culture, and sustainable way of doing business. We do not support any governmental, political, or religious entities. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 17 REPORT 2019 PRINCIPLES In 2019, the Dayton factory's launch team performed over 800 combined hours of community service in the first month of its training program. We offer our resources to projects based on the following three categories: 1. ROAD SAFETY It is our responsibility to promote safe and smooth transportation. 2. LOCAL COMMUNITIES We focus on supporting special community and environment projects in the areas where we operate. 3. INVENTIVENESS & ENTREPRENEURSHIP For improving the equal opportunities for youth, we support entrepreneurial and inventive projects with educational institutions of various levels, in line with our company culture, the Hakkapeliitta Spirit. In 2019, we continued to support the Safety on the road education for local school children in Nokia, Finland, and donated books for safety education. We also continued our local support for the global FIA Action for Road Safety in Finland, where it is organized by Finnish AKK under the name of "Turvassa tiellä" ("Safe on the road"). In the beginning of 2019, we organized an Eco Challenge in Russia and emptied illegal tire dumps. As a result of joint efforts by Nokian Tyres and the Foundation of Environmental Management, 500 metric tons of used tires have been transferred to recycling facilities since the launch of the Eco Challenge. The aim of the project was to increase public awareness of tire disposal, as the recycling rate in Russia is still low. In 2018, Nokian Tyres set up a donations committee in Dayton, Tennessee, where the company's first US factory was being constructed. The company also has donations committees in Nashville and in Colchester. In 2019, the Nashville committee made a donation to, among other things, the Tennessee State University's scholarship fund, in order to support educational efforts at the Nashville-based school. The committee also contributed funds and food to United Way's Give Thanks food drive, which fed families in need for the Thanksgiving holiday. In 2019, the factory's launch team performed over 800 combined hours of community service during the first month of its training program. The company also announced the Nokian Tyres Road to Sustainable Success, a three-pronged community outreach program that supports local education in Southeast Tennessee, provides scholarships for high-achieving students, and advocates for sustainability in the region. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 18 REPORT 2019 PRINCIPLES Partnerships and sponsoring Nokian Tyres locally assists and supports organizations and events that suit the company culture and brand. We continuously work with various organizations in places where we employ people. Our long-term partnership with the International Orienteering Federation continues also in 2020. Our agreement provides us with high visibility during the annual World Orienteering Championships and World Cup events. Nokian Tyres also actively participated in the World Orienteering Day promoting the sustainable outdoor activity. Nokian Tyres became the title sponsor for the first ever Finnish IRONMAN race. The Nokian Tyres IRONMAN 70.3 Finland event took place in Lahti, Finland on June 30, 2018. This high-energy sport matches our values that promote mobility and an active lifestyle while supporting the company's brand visibility in Finland as well as internationally. Succeeding under exceptionally demanding conditions through cleverness and relentlessness is also something found in the Swamp Soccer World Championships, which takes place annually in Hyrynsalmi, Finland. Nokian Tyres has been the title sponsor of the championships for more than 10 years. In 2019, Nokian Tyres served for the first time as a major sponsor of the Colorado Classic, a premier women's cycling race in the U.S. The event was celebrating its first year as a standalone women's race after previously hosting a men's competition as well. In December, Nokian Tyres sponsored the Birds of Prey FIS Ski World Cup event, which took place in Beaver Creek, Colorado. Nokian Tyres and POWDR Corp ski resorts began their collaboration in 2017 and have enjoyed two seasons in partnership together. While hosting product launch events at POWDR resorts, the co-operation has also enabled us to educate resort guests about tire and road safety. In 2019, Nokian Tyres also sponsored the ski marathon TOKSOVO CUP in the Leningrad region in Russia. During the event, all visitors were offered a chance to get their tire tread depth measured and given recommendations about the need to change tires. Nokian Tyres became the title sponsor for the first ever Finnish IRONMAN race. The high-energy sport triathlon matches our values that promote mobility and an active lifestyle. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 19 REPORT 2019 PRINCIPLES CLIMATE AND THE ENVIRONMENT We are committed to saving winters for the future generations. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 20 REPORT 2019 PRINCIPLES OUR GOAL IS TO MANAGE THE ENVIRONMENTAL IMPACTS Nokian Tyres has uncompromising respect for the environmental and safety aspects, as well as for ensuring high quality and a good customer experience throughout our operations. We consider the product's entire life cycle and all of its functions in terms of environmental responsibility. In 2019, we included climate-change related risks and possibilities into our sustainability report. The work was conducted according to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Nokian Tyres is also committed to setting Science Based Targets in order to further reduce greenhouse gas emissions. In February 2020, these SBT's were sent for approval. Our environmental and quality targets are specified in the company's Environmental, quality and sustainability strategies, which are drawn up for a period of five years. The Vice President for Quality & Sustainability is involved in drawing up the strategy along with the Environmental and Responsibility Manager. Working together with environmental experts, the Environmental and Responsibility Manager prepares an annual environmental program for the factories. The program specifies the detailed targets, actions, schedules, and responsible persons for the goals presented in the strategy. In addition, individual units have their own projects for developing the operations and processes. KEY MEASURES IN 2019 Object STATUTORY REQUIREMENTS VOC EMISSIONS Target in 2019 Implementation according to the Nokian Tyres' environmental permits and legislation at the factories. Compliance with the VOC-directive at the Nokia factory, finding new solutions for achieving target level. ENERGY CLIMATE Implementing energy saving actions. Decrease in energy usage by 1%/metric ton of production at the factories. Setting Science Based Targets for approval. CHEMICAL SAFETY MATERIALS DEVELOPMENT INCREASING ENVIRONMENTAL AWARENESS AMONG THE PERSONNEL BUILDING PROJECTS Two factory audits by chemical specialists, concentrating on the use and storage of chemicals. Ensuring that no Substances of Very High Concern as referred to in REACH are contained in the products. Regular trainings and environmental communication. US factory and Spanish testing center: assuring chemical and environmental safety. Status in 2019 Implemented. VOC emissions in relation to production increased approximately by 51% compared to the previous year in Nokia, Finland, and are thus above the level required by the EU VOC Directive. The increase is partially due to moving the retreading unit away from Nokia to Sastamala, which changed the balance in the calculations. However, in internal analysis the increase was found to be larger than should be expected. VOC gathering system will be checked, corrective actions taken and after that, a new measurement will be organized in March 2020 to confirm the result. Target not achieved. Energy consumption increased 0.4% from the previous year. Targets were set and sent for validation to the Science Based Targets initiative in February 2020. Implemented. Implemented. Implemented. Implemented. Target in 2020 Implementation according to the Nokian Tyres' environmental permits and legislation at the factories. Compliance with VOC-directive at the Nokia factory, finding new solutions for achieving target level. Implementing energy saving actions. Decrease in energy usage by 1%/metric ton of production at the factories. Approval of the Science Based Targets and drawing up an implementation plan. Two factory audits by chemical specialists, concentrating on the use and storage of chemicals. Ensuring that no Substances of Very High Concern as referred to in REACH are contained in the products. Regular trainings and environmental communication. US factory and Spanish testing center: assuring chemical and environmental safety in the production phase. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 21 REPORT 2019 PRINCIPLES The development of environmental aspects and quality is reviewed monthly at the management meetings. You can read more about managing sustainability in Nokian Tyres from our website. Control of chemicals Control of chemicals aims at ensuring the safest possible use of chemicals for our employees, the environment and end users. Our company meets all of the requirements of the European (the REACH and CLP regulations) and local legislation concerning chemicals. We do not use carcinogenic chemicals or SVHC chemicals (Substances of Very High Concern) as per the EU's REACH regulation in our production. Our products do not contain any conflict minerals. Moreover, all of our products meet the EU REACH requirements concerning PAHs (Polycyclic aromatic hydrocarbons). We also intend to ensure that no products sold in the Vianor service centers now or in the future contain any such chemicals. No auxiliary chemicals are taken into use at the Nokia factory before our chemical control team has issued a departmentspecific usage permit for the substance in question. The purpose of this practice is to harmonize the use of chemicals throughout the company and, whenever possible, to replace harmful chemicals with safer ones. The same procedure will be taken into use at the Vsevolozhsk and Dayton factories in 2020. We require all of our chemicals suppliers to provide us with chemical safety data sheets (SDS) in compliance with the valid legislation prior to the purchasing of chemicals. The SDSs of the chemicals that we use are registered in a database that all employees can access. We also organize regular trainings on chemicals for our employees. Audits Regular audits are an important part of our efforts related to environment, safety, and quality. Their purpose is to ensure eco-friendliness in production and a safe working environment that meets high standards of quality. The audits aim to verify that our operation complies with the legislation, Environment, Safety, and Quality policy, and the instructions in the activity management system. We carry out internal environmental and quality audits according to an annual plan, so that each area of the activity management system is audited at least once every three years. We draw up the annual plan on the basis of a five-year plan, taking into account the findings of the previous audits. In production, we audit the environmental aspects and chemical safety through regular safety walks at individual departments, and once every six months, through inspection rounds by chemicals experts. Audits include the audits carried out by our customers and partners, such as automotive industry representatives. An external auditor performs an audit once a year in order to assess our activities' compliance with the relevant standards. Legal and regulatory compliance is supervised by the authorities and insurance companies annually or as required. Permits and complaint mechanics Our production facilities have valid environmental permits as well as chemical handling and storage permits. These permits and other environmental and safety activities are supervised by several authorities according to the local laws. We immediately notify the authorities of any disruptions, accidents, and major deviations from permit requirements. We actively monitor the trends in environmental and safety regulations within the EU and in all of the countries where we operate: Finland, Russia, and the US. We also anticipate the effects of pending regulations on our operations. We document the annual environmental impacts of our tire factories and report them to the local authorities as required in each country. We record feedback into a register and take the necessary corrective actions. In 2019, all the received complaints concerned odor. You can read more about our complaint mechanism here. Environmental costs In addition to personnel and technology, we allocate financial resources to environmental responsibility. During the fiscal period, our environmental management costs amounted to approximately EUR 415,000. Other environmental costs amounted to approximately EUR 1,400,000. This figure includes the expenses and investments that are related to air, soil, and water protection and waste management. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 22 REPORT 2019 PRINCIPLES ENERGY, EMISSIONS, WATER AND WASTE The environmental impacts from tire production include odor, dust emissions, noise, waste, and solvent emissions (VOC emissions). The most significant of these impacts are the VOC emissions and locally odor. We constantly strive to reduce these impacts in the best possible ways: we improve our operations and find efficiencies, and correct identified deviations. In accordance with our Environmental, Safety, and Quality Policy, we aim for zero defects in our activities within these areas. All the statistics can be found also on the Performance in figures section. ENERGY We purchase energy for our factory in Finland from an external supplier. The required energy can be divided into electricity, heating and steam. In 2019, only electricity produced with nuclear energy was bought for the factory in Nokia, Finland. As the energy sources for heating and steam generation, we use biomass and natural gas. The biomass power plant that supplies our factory in Finland reduces the use of fossil fuels in favor of local energy sources in the region. In Nokia, Finland, about 42% of all used energy is produced with renewable energy sources. Our Energy efficiency workgroup continued its activities in 2019. Unfortunately we did not achieve our target of reducing our yearly energy consumption by 1% per production ton. The energy consumption increased 0.4% from the previous year. However, the target of reducing energy consumption by 3% was already exceeded in 2018, and the total reduction was 10.4% between 2016 and 2018. ENERGY INTENSITY GJ/production t 15 12 9 6 3 0 2017 2018 2019 Nokia Vsevolozhsk Nokia EMISSIONS Solvent emissions 60 t/a VOCs Particle emissions 1,4 t/a CO2 190 scope 1+2 kg CO2 eq/production (t) Noise <50 dB INPUT Energy 620 TJ Municipal water 67,000 m3 River Nokianvirta 6,552,200 m3 Raw materials 55,300 t PRODUCTS Tires and 51,800 t materials WASTE Landfill 0 t Utilized 5,400 t Hazardous 190 t Water into the 89,000 m3 sewage Water into the 6,531,000 m3 Nokianvirta river Vsevolozhsk EMISSIONS Solvent emissions 80 t/a VOCs Particle emissions 13 t/a CO2 530 scope 1+2 kg CO2 eq/production (t) Noise < 50 dB INPUT Energy 1,500 TJ Municipal water 281,000 m3 Raw materials 160,800 t PRODUCTS Tires 150,800 t WASTE Landfill 1,100 t Utilized 10,000 t Hazardous 1,000 t Water into the 281,000 m3 sewage Storm water 76,300 m3 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 23 REPORT 2019 PRINCIPLES EMISSIONS Emissions from energy production An independent company annually measures the nitrogen and sulfur emissions from energy production at our factory in Russia. Our nitrogen and sulfur emissions are below the set emission limits. Carbon dioxide (CO2) We calculate our tire production's greenhouse gas (GHG) emissions from raw material purchasing to the disposal of the product in compliance with the ISO 14064 standard. Our Russian factory uses its own power station for generating most of the energy it needs. Therefore, the factory's direct GHG emissions exceed those of the factory in Finland. We are seeking a 20% reduction in CO2 emissions by 2020, and a 30% reduction by 2030. The point of reference comprises our 2013 Scope 1 and Scope 2 emissions in relation to production. The actual reduction from 2013 was 44% in 2019, which means that we met and exceeded the target. In 2019, our location-based scope 2 emissions were approximately 46,300 tons CO2 eq. The emission calculation is based on Finland's and Russian's average emissions intensity of grids. Market-based scope 2 emissions were approximately 24,700 tons CO2 eq. In Nokia, the emission calculation is based on the suppliers certificate of the actual energy sources used. In Russia, emission calculation is based on emission factors of purchased electricity. Nokian Tyres wants to contribute to tackling climate change by setting ambitious science-based climate targets. In May 2018, Nokian Tyres joined the Science Based Targets initiative with the aim of setting more precise targets that are assessed and validated by an external organization. Nokian Tyres reached its previously set targets to reduce CO2 emissions well ahead of schedule. The new climate goals will be linked to the company's value chain as well as the environmental impacts of products. The company aims to achieve validation for its Science Based Targets by May 2020. Previously, scope 3 emissions had been partly included in our CO2 emission calculations. In 2018, we started screening downstream emissions and, in 2019, we calculated our scope 3 emissions as required by the Science Based Targets initiative. Year 2018 was chosen as the base year. DIRECT GREENHOUSE GAS EMISSIONS, SCOPE 1 CO2 eq t 80,08000000 70,07000000 60,06000000 50,05000000 40,04000000 30,03000000 20,02000000 10,01000000 00 2017 2018 2019 Nokia Vsevolozhsk INDIRECT GREENHOUSE GAS EMISSIONS, SCOPE 2 (MARKET BASED) CO2 eq t 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2017 2018 2019 Nokia Vsevolozhsk INDIRECT GREENHOUSE GAS EMISSIONS, SCOPE 3 Category Purchased good and servces Capital goods Fuel and energy related activities Upstream transportation and distribution Waste generated in operations Business Travel Employee commuting Leased Assets Downstream transportation and distrubution Processing of sold products Use of sold products End-of-life treatment of sold products Franchises Investments Total n.a = not applicable Emissions t CO2 ekv. 462,600 n.a 8,900 20,700 1,700 1,500 1,800 500 44,300 n.a 5,415,400 3,200 60 n.a 5,960,660 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 24 REPORT 2019 PRINCIPLES VOC EMISSIONS t 100 80 60 40 20 0 2017 2018 2019 Nokia Vsevolozhsk Volatile organic compounds, VOCs Solvents or volatile organic compounds (VOCs) form our most significant emissions into air. As the legislation concerning VOC emissions is country-specific, our calculation and reporting of VOC emissions varies by country. In Finland, we follow the EU VOC Directive, which stipulates that emissions are calculated based on the used solvents. We use solvents in our factory only in the production of heavy tires (also known as industrial tires) and retreading materials for the purpose of improving adhesion. The VOCs from retreading material production and the assembly of heavy tires are collected and conveyed to a catalytic incineration plant. In the summer of 2019, the retreading unit was moved from Nokia, Finland to Sastamala and is now operated by a subcontractor. In Sastamala, we have an incinerator for solvent emissions. However, collecting solvent emissions from the production of heavy tires poses a challenge. In the production of heavy tires, it is not possible to seal the emission sources in such a way that all emissions could be collected and conveyed for incineration. In Finland, we aim to comply with the total emission limit of the EU VOC Directive, which is 25% of the solvents used. In 2019, the total solvent emissions were 49% of used solvents. VOC emissions in relation to production increased approximately 51% compared to previous year in Nokia, Finland, and are thus above the level required by the EU VOC Directive. The increase is partially due to moving the retreading unit away from Nokia to Sastamala, which changed the balance in the calculations. In internal analysis the level was still found to be larger than expected, and a new measurement will be organized in March 2020 to confirm the result. VOC emissions from the retreading production in Sastamala, Finland, were 4,45 tons, which is 18.2% of the use of solvents. No solvents are used in tire manufacture at our Russian factory. According to the local legislation, emissions are calculated based on usage of raw materials. VOC emissions are generated due to the raw materials used in the processes. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 25 REPORT 2019 PRINCIPLES Our factories have introduced new odor control equipment that represent the best available technology (BAT). Odor According to the surveys that we have commissioned the odor emissions are momentary. The mastication process for softening natural rubber causes discharges of compounds during the precipitation and dehydration phases of rubber milk that results in an unpleasant odor in the near surroundings. We use droplet separators for reducing the odors from mastication. Our factories have introduced new odor control equipment that represent the best available technology (BAT). In Vsevolozhsk, the technology covers all the mixing lines, whereas in Nokia the technology is being implemented gradually. We have also managed to lower the number of separate mastication processes, thereby reducing the related odors. Some odors are generated during the tire curing process. The quantity of the curing fumes released in the process is directly proportional to the amount of cured rubber. The concentrations of individual substances in the fumes are very small. In 2019, we were contacted once concerning odor emissions from our Finnish retreading unit. In August 2019, the operations of our retreading unit were transferred from Nokia to Sastamala, Finland. We have received two complaints of both odor and noise from local residents in Sastamala and are working on finding a solution to the problems. Particle emissions (dust) Particle emissions are caused by the processing of powdery chemicals in our compound mixing department. The mixing equipment is fitted with effective ventilation and dust collection devices, and the best separation rates achieved by water cleaners exceed 99%. We measure particle emissions with particle concentration and differential pressure gauges. In addition, outside experts carry out regular concentration measurements. The measured particle concentrations have complied with the permit limits at both of our factories. The dust that passes through the filter system mainly causes an aesthetic inconvenience and poses no harm to the environment or health. Noise Our production facilities have noise limits subject to their environmental permits. We regularly track and measure noise emissions. According to the measurements, we are below the noise limits. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 26 REPORT 2019 PRINCIPLES Water and wastewater Our tire manufacturing processes use large quantities of cooling water. In Nokia, we take cooling water from the nearby Nokianvirta river and discharge it back into the river after use. The Russian factory uses municipal tap water for cooling and then conveys it to a wastewater treatment plant. The cooling water has no contact with production chemicals at any stage and, therefore, does not become contaminated. In Nokia and Vsevolozhsk, we take annual samples from the cooling water and from the wastewater conveyed to the municipal treatment plant in order to verify the water quality. Both the wastewater conveyed into the municipal sewage system and the cooling waters has been practically clean. Our goal is to reduce the consumption of municipal water by 25% by 2020 compared to the 2013 baseline. In 2019, our consumption of municipal water (m3/ton of products) was approximately 38% lower than in 2013. WASTE Waste is generated both in our actual production and in the support functions. The generated waste can be roughly divided into three categories: landfill waste or non-recyclable waste, recyclable waste, and hazardous waste. We weigh all production waste and record the department-specific volumes on a daily basis. For other types of waste, we prepare reports monthly or annually. Information on waste disposal methods and quantities are provided by the waste disposal contractors. We sort the generated waste at our factories in accordance with separate waste management instructions. Most of the production waste is taken directly to reutilization. We store hazardous waste separately at the collection points in containers that carry warning labels. Materials Our production uses high-quality raw materials that contribute to the safety and high quality of our tires. We are continuously exploring the utilization of recycled materials but, in general, recycled materials contain impurities that would degrade our products' safety characteristics. This is why we primarily use virgin raw materials in our production. Nokia Vsevolozhsk Nokia Vsevolozhsk Nokia Vsevolozhsk AMOUNT OF WASTES, NOKIA AND VSEVOLOZHSK t 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 89 88 100 100 2017 Utilization, % Land lling, t Utilized wastes, t 2018 90 100 2019 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 27 REPORT 2019 PRINCIPLES WASTES BY DISPOSAL METHOD, NOKIA Reuse 8.2% Recycling 73.8% Composting 1.9% Recovery as energy 16.1% Landfill 0% WASTES BY DISPOSAL METHOD, VSEVOLOZHSK Reuse 5.1% Recycling 76.4% Composting 0.0% Recovery as energy 8.5% Incineration (mass burn) 0.2% Landfill 9.8% Recyclable waste The reutilization rate of our production waste has been growing for years. Scrap tires, or tires that do not meet our high standards of quality, are taken to recycling directly from production. Non-vulcanized scrap rubber is generated in the production stages preceding vulcanization or curing. These materials' reuse applications include impact padding, conveyor belts, and other rubber products that have less strict material requirements than tires. Other generated recyclable waste categories include combustible waste, plastics, scrap iron and steel, wood, paper, biodegradable waste, cardboard, glass, and electrical and electronic equipment. Landfill waste Mixed waste that cannot be utilized or recycled is taken to a landfill. We aim to further reduce the amount of landfill waste by sending the waste that we generate to recycling and reutilization. Our goal for 2020 is that no waste generated in production is taken to a landfill. In 2019, 100% of factory waste in Nokia and 90% in Vsevolozhsk was sent to reutilization, so we are heading in the right direction. Scrap tires, or tires that do not meet our high standards of quality, are taken to recycling directly from production. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 28 REPORT 2019 PRINCIPLES HAZARDOUS WASTES BY DISPOSAL METHOD, NOKIA Recycling 17.5% Incineration (mass burn) 0% Recovery as energy 82.5% Landfill 0% HAZARDOUS WASTES BY DISPOSAL METHOD, VSEVOLOZHSK Recycling 1.3% Incineration (mass burn) 2.4% Recovery as energy 25.1% Landfill 71.2% HAZARDOUS WASTES kg/t 8 7 6 5 4 3 2 1 0 2017 2018 2019 Nokia Vsevolozhsk Hazardous waste We take all hazardous waste to an authorized processing plant. Roughly a third of this waste is seal oil from compound mixing machines, whose consumption is directly proportional to the manufactured rubber compound volumes. All hazardous waste generated in our Nokia factory is utilized as energy or as raw materials. Other locations Our sales companies and Vianor stores always comply with the local regulations. We sort the waste and deliver it for reuse whenever technologically and economically feasible. The most significant environmental impacts of our locations come from waste and energy consumption. In connection with our group's energy-efficiency audits, we carried out energy efficiency assessments in one Vianor service center and at Nokian Heavy Tyres during 2019. Furthermore, our sales companies and Vianor service centers pay attention to the efficiency of product transports. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 29 REPORT 2019 PRINCIPLES RISKS AND OPPORTUNITIES IN LINE WITH THE TCFD In April 2019, the Quality and Sustainability Department organized a dedicated crossfunctional workshop on climate changerelated business risks and opportunities. The aim of the workshop was to identify top three climate risks for Nokian Tyres in each of the sub categories: physical, regulatory, market, technology and reputational risks. This was conducted along the recommendations of Task Force on ClimateRelated Financial Disclosures. The workshop was facilitated by environmental experts. CLIMATE-CHANGE REL ATED RISKS Risk group REGULATORY Sub category Emerging regulation Examples of concrete risks Deforestation-related regulation, mostly concerning natural rubber Further green labelling Stricter expectations to oversight PHYSICAL Extreme weather events Disruptions in logistics TECHNOLOGICAL MARKET AND REPUTATION Extreme temperatures Climate-related demands for new tire technology Materials technology Market changes Reputational risk Contamination of raw materials Requirements for non-renewable material replacements Shift from car ownership to mobility-as-a-service i.e. changing customer base Deforestation scandals (natural rubber) CLIMATE-CHANGE REL ATED OPPORTUNITIES Opportunity Sub category group INNOVATION Raw materials Recycling Examples of concrete opportunities Innovations with renewable materials Recycling system for tires still missing in many countries, Scandinavian system can be used as an example Climate-friendly tech Lower rolling resistance PRODUCT RANGE Energy-efficient production Competitive advantage EU trial labelling for sustainable tires Industrial (heavy) tires Existing focus on sustainable natural rubber, for instance sustainability audits since 2016 Expertise to provide climatefriendly solutions ENGAGEMENT Consumers Policy makers Increased preparedness for new regulations or incentives Shareholders/stakeholders NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 30 REPORT 2019 PRINCIPLES MICROPLASTICS AND TIRE ROAD-WEAR PARTICLES Plastic waste in the oceans and other bodies of water is an environmental problem that is currently being intensively researched. Some publications have brought up tires, or particles from tire and road construction materials, as one of the largest sources of microplastics ending up in oceans and other bodies of water. Tires use rubber rather than plastic. However, plastic and rubber are both polymers. When looking at micro-polymers instead of only plastics, wear particles from tire and road materials are one of the sources of micro-polymers ending up in the ocean. Many publications include the dust created during tires' contact with the road i.e. wear particles from the tire and road surface under microplastics. Roughly one half of the particles come from the tire and the other half from the road surface. Typically, most of these particles are fairly heavy and land on the roadside, compacting into the soil instead of being carried into a body of water. Some particles, however, are flushed off the road and its surroundings into ditches, sewage systems and, further, into bodies of water. A study in the vicinity of the river Seine concluded that some 18% of particles ended up in bodies of water and a further 2% were carried into estuaries (Unice, Weeber, Abramson et al., Characterizing export of land-based microplastics to the estuary, 2018). When discussing microplastics ending up in the oceans, there are two types of sources: primary and secondary. Primary sources release microplastic particles directly into the oceans, whereas secondary sources release them as a result of the disintegration of larger plastic pieces. According to a report compiled by the EU (European Parliament: Microplastics: sources, effects and solutions, 2018), the largest group of primary sources consists of the small particles released from the washing waters of synthetic textiles, such as fleece clothing. Wear particles from tire and road materials are the second largest primary source. Together, these primary sources form 1531% of the microplastics in the oceans. Wear particles from tire and road materials are one of the sources of micro-polymers ending up in the ocean. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 31 REPORT 2019 PRINCIPLES Secondary sources include larger plastic items, such as bottles and fishing nets that are ground into microplastics over time. These are estimated to form the majority, or 6981%, of the sources of microplastics in the oceans. Additional research is required Nokian Tyres is actively following the studies on this topic and participates in external international studies ordered by ETRMA and other organizations. Reliable field and laboratory tests for understanding the nature, routes of entry, and harmful impacts of the particles are required because many of the current estimates are based on mathematical models and calculations. As a founding member of Finnish Tyre Recycling Ltd, Nokian Tyres is also involved in a research project that aims to produce information regarding possible sources of microplastics in the operating environment and locations of tire recycling facilities. The project will be executed by Apila Group Oy, and it will take place between May 1, 2019 and March 31, 2021. In the project, sediment and water samples will be collected from the vicinity of roads and water catchment areas during different times of the year. The sampling will be performed by an independent expert. A method developed by Apila Group Oy Ab will be used for identifying and calculating microplastics originating from tires. One important aspect of reducing the harmful impacts of driving is how we can prevent particle emissions from traffic or control them by improving the infrastructure. Such areas for improvement could include sewer systems, ditch embankments, or water purification. Reliable field and laboratory tests for understanding the nature, routes of entry, and harmful impacts of the particles are required. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 32 REPORT 2019 PRINCIPLES RECYCLING Tire retreading allows the operator to save money, resources, and the environment. A good tire carcass can easily be retreaded two times, which cuts tire costs by approximately 30%. The retreading unit offers retreading for trucks and buses as well as for heavy machinery. CO2 emissions are generated during tire production as well as while driving. Retreading has a significant impact on the carbon footprint of tires: manufacturing a new tire results in approximately 220 kg of CO2 emissions, whereas the figure for retreading is only approximately 40 kg. Furthermore, each retreading operation saves 40 kg of rubber and 70 liters of oil per tire when compared to new tires. Where do tires end up after use? Approximately 3.3 million metric tons of used tires are discarded each year in Europe. Luckily for the environment, discarded tires are not worthless and can serve various purposes when reused or recycled. Among other things, the tires can be used in noise barriers along motorways, or as an elastic base material in horseback riding arenas. In the last few years, experiments with rubber pieces from old tires as water filtering material have given good results. Used rubber from tires seems to work well as an absorber of heavy metals from water used in mines, for instance. The recycling rate of tires in Finland is high compared to many other countries. In Finland, nearly 100% of tires are recycled. In all of Europe, for example, the figure is 95%. The rest of the tires are taken to landfills. The recycling rate of our tires was 77% of our total sales in 2019. In Russia, the tire recycling rate is low. According to the local legislation, in 2019, our tire recycling had to be equivalent to 25% of our total sales in Russia, and we met that target. Another way to utilize recycled tires is to combust them for energy, as the heating value of tires is close to that of oil. The use of recycled tires as an energy source has been growing for years and, today, approximately half of the tires recycled in Europe are used in waste-to-energy applications. In 1995, Nokian Tyres and other companies in the tire industry established the Finnish Tyre Recycling Ltd in order to promote the centralized collection and utilization of tires nationally. As one of the original founders, we are involved in their work of looking for new ways to recycle and utilize tires. SOLAR PANELS PROVIDE RENEWABLE E NE RGY I N DAYTO N In October 2019, Nokian Tyres celebrated the opening of its US factory in Dayton, Tennessee. Commercial production of tires began in early 2020. As part of the sustainability efforts, the factory will be partially powered by solar energy. Solar panels are installed in the parking lot, thus providing shield from the sunshine for the vehicles. The solar array will generate 3 megawatts of electricity to be utilized at the facility. Sustainability was taken into account already in the construction phase of the factory. The air conditioning, cooling and water systems all represent the latest technology and are designed to save energy and the environment. This also applies to the modern machinery in the factory. Safety was a top priority in the construction phase as well as in starting the production and running the daily process. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 33 REPORT 2019 PRINCIPLES FROM RAW Used tires can be Shredded or granulated to replace rock MATERIALS TO END-OF-LIFE TIRES The outset of Nokian Tyres' environmental protection is the life cycle approach. We materials in road construction. Used in noise barriers along motorways. Half of the tires recycled in Europe are used in waste-to-energy applications. END-OF-LIFE TIRES Nearly 100% recycled in Finland. 95% in the rest of Europe 25% in Russia Nokian Tyres was the first tire company to eliminate the use of harmful RAW MATERIALS oils in its tire compounds. 30% synthetic rubber 20% natural rubber 35% fillers 8% softeners 3% vulcanizers 4% other chemicals take responsibility for the environmental Lower rolling impacts of our activities and products resistance of a tire Accounts for 90% throughout their life cycle. Most of the environmental impacts during a tire's life cycle are generated during its use. The life cycle ends, when the tire is crushed and used for instance as construction material. means less CO2 emissions. of a tire's carbon footprint. The effects of tire and road wear particles (TRWP) are being researched. OUR TIRE'S LIFE CYCLE Sustainability audits at natural rubber processing factories since 2016 USE OF TIRE ATION OF RAW MATERIALS PURCHASING TRANSPORTATION Haulage % truck 22% train 22% ship 56% OF TIRES Mainly by boat and partly by trucks and train Factories in Finland, Russia and US. Production accounts for 2% of the carbon footprint of a tire TRANSPORT PRODUCTION Haulage % truck 5% train 2% ship 93% NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 34 REPORT 2019 PRINCIPLES PEOPLE We want to empower our people to actively participate and collaborate, to take ownership of their work, and responsibility for everyone's safety. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 35 REPORT 2019 PRINCIPLES ONE COMPANY, ONE PURPOSE, ONE GLOBAL TEAM In 2019, we continued changing our way of working towards an energizing working culture and shared values. One of our strategic differentiators is high-performing engaged teams. This means empowering our people to actively participate and collaborate, to take both ownership of their work and responsibility for everyone's safety. Renewed people processes Our people management system, Workday, enables us to harmonize our people processes promoting the equal treatment of employees across our organization. In 2019, we renewed several people processes: 1. Onboarding. To create a more positive employee experience, our onboarding process was further developed and integrated as part of Workday. It includes a survey for follow-up. 2.Performance Review. Renewed global process was implemented in Workday and trainings were organized for conducting reviews. 3.Annual salary review. Annual Salary review, which follows the performance review, was done globally for the first time in Workday. This ensures transparency and equal treatment. 4.Competence evaluations. At Vianor, we utilized Workday in evaluating the technical competences of service center employees. 5.People planning. People planning is part of the annual planning process. It is based on future competence and position needs and was implemented in Workday. 6.Recruitment. In recruitment, we focused on developing a good candidate experience. We have renewed the Careers section on our web site. Local process development has been the main focus area. KEY MEASURES IN 2019 Improved occupational safety: reduced the number of workplace injuries by 51% compared to the 2018 level. Our LTIF was 4.3 (8.3 in 2018). Renewed our short and long-term incentive plans for 2019 and onwards Harmonized global people processes Organized training on Code of Conduct: 93% of personnel completed the course A total of 92.2% of our personnel took part in a People Review (82.2% in 2018) TARGETS FOR 2020 Development of a global Human Rights policy, management and processes Strengthening the energizing and flexible working culture with pilot feedbacks and pulse survey Further development of value-based leadership culture with trainings and pulse survey A total of 95.0% of our personnel will take part in the People Review. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 36 REPORT 2019 PRINCIPLES HUMAN RIGHTS AND SAFETY ARE THE BASE OF OUR PEOPLE OPERATIONS Fairness and respecting human rights are the principles in all our operations, whether we are dealing with our personnel or other stakeholders. We want to ensure the psychological and physical safety of our employees. We advance an inclusive and equal working culture and empower our people to be active members in our organization. In internal assessments we have recognized four human rights related risk areas: · Right to health · Right to privacy · Right to life · Right to enjoy just and favorable conditions of work Our Code of Conduct and the related policies and instructions were updated, and they entered into force in December 2018. Since every employee needs to adhere to the Code, we launched an online training for all the personnel. The management team follows the number of people who have conducted the eLearning course. We treat our employees fairly and respectfully. We are committed to acting in the manner required by the UN's Guiding Principles for Business and Human Rights, and to following the International Labour Organization's (ILO) Declaration on Fundamental Principles and Rights at Work. We have joined the UN's Global Compact initiative as a supporting member and follow the ethical principles of the initiative. We value diversity and do not allow any form of discrimination, harassment, or bullying at the workplace. Everyone is responsible for acting fairly and for creating an inclusive, inspiring work atmosphere. Everyone has the freedom of expression, but everyone is also responsible for not insulting others. Active participation at different levels of the organization and respecting every employee's right of participation are parts of our working culture. Contracts of employment are drawn up in writing and in adherence with the local legislation. We also annually conduct annual market analysis on salaries. Everyone is responsible for acting fairly and for creating an inclusive, inspiring work atmosphere. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 37 REPORT 2019 PRINCIPLES We have identified diverse safety cultures, meaning that the ownership of safety varies according to operating countries. Safety is a choice we make every day Our goal is to promote occupational health and minimize the number of occupational accidents. Occupational health and safety are an integral part of our daily management and operations. During 2019, we organized a safety campaign to globally communicate our slogan "Safety is a choice", meaning that everyone is responsible for safety: adhering to occupational safety guidelines, observing defects and shortcomings, and reporting and removing hazards. We have identified three safety sectors: · Technology. Technical separation of people from energy sources, such as electricity or steam · Process. Processes guiding us to do the right thing · Thinking. Safety in one's own thinking and actions In order to avoid hazardous situations, we emphasize preventing occupational accidents. We have identified diverse safety cultures, meaning that the ownership of safety varies according to operating countries. That is why we have invested in communicating our safety thinking globally. We have trained our own managers to train their own teams in safe working. We have found this approach to be more efficient than having employees trained by separate trainers. Developing a safe working culture is a continuous project. Our goal for 2019 was to reduce the number of workplace injuries by 35% compared to the 2018 level. The result was a 51% reduction. During 2019, Nokian Tyres continued updating the risk assessments for all workplaces and tasks. Opening of the US factory required major safety trainings. We encourage our employees to make safety observations and carry out safety actions with the goal of 2 safety actions per employee on average this resulted in over 14,000 safety observations in 2019. This amounts to 2.9 actions per employee. The data privacy work (GDPR) continued by specifying and further developing the required documentation and processes, for example by updating the Nokian Tyres privacy statements and further increasing the awareness within the company by organizing workshops to assess where data is being stored and how it is dealt with. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 38 REPORT 2019 PRINCIPLES A TYPICAL PROBLEM IS TAKING UNNECESSARY RISKS Safety often fails in organizations because people have not been empowered to make the right choices. Our improvement in safety is the result of a couple of years of hard work. The main priority has been involving all employees: safety belongs to all of us, from machine operators to top-level management. A typical problem is taking unnecessary risks without stopping to think. "I'll just fix this quickly, I don't need to do the safety locking" - and an accident happens. In April, we addressed this issue by launching the campaign "Safety is a Choice". By the end of September, the Heavy Tyres unit had spent one year with zero occupational accidents leading to absence. All the hard work bore fruit: in 2019, our LTIF dropped to 4.3. I encourage all units to spontaneously reward safety actions. This encourages others to improve, too. Jukka Rikkinen Head of Safety ACCIDENT FREQUENCY* Lost time incident frequency (LTIF) Nokian Tyres Finland Nokian Tyres Russia Vianor The ratio of all listed companies 2015 22.3 3.0 23.9 13.9 2016 20.2 3.0 15.2 11.2 2017 8.6 3.2 12.6 7.5 Recordable accident frequency (rec. F) Nokian Tyres Finland Nokian Tyres Russia Vianor The ratio of all listed companies 24.1 3.0 18.7 13.2 12.6 3.9 19.5 11.2 Recordable accidents Nokian Tyres Finland Nokian Tyres Russia Vianor The ratio of all listed companies 42 24 8 11 59 62 109 97 * Levypyörä (acquired in August 2019) will be included in the safety figures as of 2020. 2018 5.3 5.0 15.0 8.3 8.7 5.3 21.6 11.6 18 16 72 106 2019 3.7 2.0 7.8 4.3 8.3 4.0 13.9 8.2 18 12 48 82 ABSENTEEISM BY COMPANY Sick absences % (total) Nokian Tyres Finland Nokian Nokian Tyres (FI) Heavy Tyres NT Tyre Machinery 2.6 4.2 7.7 Nokian Tyres Russia OOO OOO Nokian Shina Nokian Tyres 3.7 5.5 Nordic Wheels Vianor Nordic Vianor Holding Oy Vianor Oy Vianor AB Vianor AS 1.1 0.8 6.8 4.2 5.6 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 39 REPORT 2019 PRINCIPLES OUR PEOPLE Our goal is to be a globally attractive employer that is known for its sustainability, leadership, and international working community with teams around the world. We employ some 4,700 people with different skills and backgrounds. At the end of 2019, we employed a total of 4,730 (-0.8%) own employees. This was the second year when the end-year headcount reporting was based on the data in our global people management system, Workday. We report the number of all employees including also those on a long leave of absence. The external workforce is mainly used for ad hoc workforce needs. At the end of 2019, we had 43 external workers, most of them working in Finland. During 2019, we employed a total of 1,170 seasonal employees at Vianor. 51.4% of our employees are covered by collective bargaining (52.9% in 2018). Acquisition brought 100 new employees In August 2019, Nokian Tyres acquired Levypyörä Oy, a Finnish manufacturer of machine tool rims. The acquisition brought us approximately 100 new employees serving both installation and aftermarket customers in the forestry, agricultural, and earthmoving sectors. The integration project started in August, and key processes in IT, Finance, and HR have been integrated with Nokian Tyres. The work continues in 2020. As an example, the yearly performance management processes and rewarding practices will be integrated as of January 1, 2020. Harmonization and improving occupational safety will continue throughout 2020. NUMBER OF WORKFORCE* Own employees Permanent Nordic 2,675 2,419 Central and Russia Eastern and CIS Europe 1,554 187 1,483 174 North America 287 286 The rest of the world 27 16 Total 4,730 4,378 NEW EMPLOYEE HIRES AND EMPLOYEE TURNOVER* Nordic Central and Russia Eastern and CIS Europe North America The rest of the world Total number of new employees New employee hires rate (total), % Total number of terminated employees (fixed terms not included) Turnover rate (total), % 330 109 7.0 2.3 247 111 5.2 2.4 32 127 1 0.7 2.7 0.0 27 52 0 0.6 1.1 0.0 Total 599 12.7 437 9.3 * Detailed statistics on page 58. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 40 REPORT 2019 PRINCIPLES Temporary lay-offs continued during the remainder of the year. Employee cooperation negotiations in Finland Nokian Tyres conducted employee cooperation negotiations in September October 2019, with the aim of adjusting the number of personnel at the Nokia production facility to meet the currently known and anticipated demand. The negotiations concerned employees in passenger car tire production and maintenance as well as production-related test activities at Nokian Tyres' factory in Finland. Employee cooperation negotiations concerned a total of 500 people. As a result, 41 employees were made redundant. Of these, 11 employments terminated through retirement and other agreed arrangements. Temporary lay-offs continued during the remainder of the year, and will continue for up to a maximum of 90 days in 2020. We offer support to the persons who were made redundant through personalized outplacement coaching and training. EMPLOYEES PER EMPLOYEE CATEGORY* Central and The rest Russia Eastern North of the Nordic and CIS Europe America world Number of individuals within the top management Number of white collar employees Number of blue collar employees 16 1,087 1,572 1 454 1,099 1 1 0 183 123 23 3 163 4 * Detailed statistics on page 59. Total 19 1,870 2,841 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 41 REPORT 2019 PRINCIPLES OUR WAY OF WORKING Internal job rotation, on-the-job learning, and training solutions are used to support personnel development. Personal People Reviews have a key role in personnel development. The People Reviews focus on managing performance and personal goals and development. In 2019, a total of 92.2% of our personnel took part in a People Review (82.2% in 2018). In 2019, we renewed our employee survey Drive! to make it more agile and focused. Themes in the survey were energizing the team, collaboration & participation, safety and general leadership and company topics. The results were discussed in renewed participative workshops and managers were trained to facilitate team discussions. The survey results show strong overall improvement. The response rate was 87.5% (2018: 86.2%). Cooperation with other teams has improved significantly across all personnel groups and this also has a clear positive correlation with engagement. 80% of employees are willing to recommend our company as an employer, which is higher than in companies in general. The feeling of fair rewarding has improved. However, it is still below the external benchmark driven by production employees in Finland. Striving towards our company values and objectives has decreased; it is now 83% and below the benchmark, which leaves room for improvement. Managerial work in our company is generally at a very good level. The closest managerial topics, trust in staff and acknowledgement of good work, have strongly improved and are both clearly above the benchmark. In 2020, we continue to develop our operations in accordance with the results. RESULTS OF THE DRIVE! PERSONNEL SURVEY (ENGAGEMENT INDEX) Nokian Tyres plc Passenger Car Tyre Production, Nokia Passenger Car Tyre Production, Dayton Nokian Tyres North America Nokian Tyres Central Europe Nokian Tyres Russia & Asia Nokian Heavy Tyres Vianor and Nordics Global Functions 2017 75.5 68.8 80.6 84.5 73.9 68.9 77.6 78.3 PEOPLE REVIEWS (REALIZATION, %) Nokian Tyres Group, % 2015 82.8 2016 86.0 2017 83.4 2018 75.5 70.2 74.8 82.8 73.1 73.3 79.0 78.0 2018 82.2 2019 76.9 71.0 89.3 78.1 73.8 74.8 72.7 81.5 77.3 2019 92.2 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 42 REPORT 2019 PRINCIPLES Pay for performance The Global Total Rewards Philosophy and Guideline was created by our Management Team and Board of Directors during 2018, and it was communicated to all employees in 2019. The objective of the Guideline is to align and harmonize our rewarding practices globally. The Guideline is designed to ensure the fair and equal treatment of our employees, as well as to allow countries and units to provide locally competitive pay to attract, retain, and motivate the best talent. It is based on work complexity assessments, consistent goal setting, and benchmarking of rewarding practices in relevant markets. Along with the Total Rewards Guideline, we renewed our short and long-term incentive plans for 2019 and onwards. As long-term incentives, we have two share plans that are intended to align the goals of our shareholders and key personnel in order to commit key personnel to the company and its strategic targets, as well as to increase the value of the company. We have a profit-sharing plan for the employees not eligible to participate in the share plans. With these plans, all Nokian Tyres employees are rewarded for the company's overall performance. As short-term incentives, there are several different plans in use and all employees are eligible for some of them. These plans are designed to drive the company's strategy and reward for the achievement of stretching performance goals. Plans are based on performance criteria for the group, business area/unit, team and/or individual. One aspect of overall rewarding includes non-monetary compensation, which has a clear impact on employee engagement. We are focusing on things such as managerial work and leadership approach, competence development, career opportunities, and working culture, as they are important elements contributing to commitment and long careers. We have made a significant progress during the past three years, and we will focus on stabilizing our renewed rewarding process. For instance, we are planning to start auditing our benefits globally in order to increase their transparency and consistency. OUR REWARDING PHILOSOPHY At Nokian Tyres, we want to drive, recognize and reward high performance and value based behavior to ensure successful long-term execution of our strategy Strategic Performance & value based Competitive Transparent & consistent Ensure successful execution of Nokian Tyres strategy Drive and reward group, business unit, team and individual performance and customer & value based behavior Attract, motivate and retain talent by offering competitive total reward packages Strive for transparency and consistency in reward program design, implementation and communication NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 43 REPORT 2019 PRINCIPLES AMERICAN EMPLOYEES TRAINED IN RUSSIA Opening the US factory was a stateof-the-art project for Nokian Tyres on a global level. 48 US factory team members were sent to Russia and Finland for intensive trainings organized by the company's Russian and Finnish specialists. The project helped with Nokian Tyres' aim at building one global team as friendships across borders were formed during the training. It was a valuable learning experience on how to accumulate, manage and share knowledge and best practices. Extensive training project included topics such as diversity management, intercultural communications, and safety. A cross-cultural project like this required preparing all materials in English and arranging courses, mentors, and interpreters. The Drive! 2019 survey provided proof for the project's success: engagement index at US factory was 89.3, being on a very high level inside the Group. Developing on the job Our people development philosophy supports our employees' development with an internal job rotation, on-the-job learning, and various development solutions following the 702010 principle: 70% of the development through learning on the job, 20% through learning from others, and 10% through training. To bring the company's strategy closer to every employee, we have created an eLearning solution known as the "Strategy Learning Journey". It gives an overview of Nokian Tyres' strategy and the way we operate to achieve our goals. It is followed by a Team Challenge game, which helps teams discuss how to achieve our goals. Global collaboration wherever you are We launched our new digital collaboration hub in October and organized multiple trainings for all white collar employees. We improved information and knowledge sharing globally and started to organize regular Leaders calls & Check Point information events. Leaders calls are online info sessions targeted towards Nokian Tyres' key leaders, arranged quarterly after our results are published. These information events cover key figures and strategy implementation status with focus areas for the forthcoming quarter. Check points are internal information sharing events arranged quarterly online to discuss results, strategy and topical matters for all Nokian Tyres people. Energizing workspaces and flexible working time Flexible working time and dynamic workspaces are important in developing an energizing work culture at Nokian Tyres. New activity-based workspace pilot was taken into use in 2019. Flexible working time pilots also continued and were extended during 2019. Teams received coaching on the new working and leadership culture as well as new working time practices. Pilots were followed up with surveys and received very positive feedback. The satisfaction in flexible working time was 4.4 in scale 15. Also, 97% felt that workspaces support their various needs during their working day (in 2018, the result was 32%). Developing our leadership An energizing, inclusive and participating working culture will demand continuous leadership development. We coach our leaders to enable teams' success, and organized leadership workshops in 2019: · Leaders' training was piloted in three modules: enabling success, encouraging growth, and involving to inspire. · The workshop "Being a Global Leader" gathered global function leaders to discuss strategy, collaboration, and agile working culture. · Global Leading Change concept implementation was continued in 2019 with manager workshops. · More lean methods together with digital collaboration tools were adapted in the Heavy Tyres unit. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 44 REPORT 2019 PRINCIPLES PRODUCTS A tire needs to save fuel, be produced in an environmentally safe way, reduce road wear and noise and look good. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 45 REPORT 2019 PRINCIPLES IMPROVING ROAD SAFETY IS A PRIORITY Nokian Tyres improves the safety of its products through continuous product development and testing. We have improved the eco-friendliness of our tires through lowering their rolling resistance. This reduces the fuel consumption of the car and cuts down on CO2 emissions. Safety is our first priority, both on the road and in production. Nokian Tyres was the first tire company to eliminate the use of harmful oils in its tire compounds, and the world's first tire manufacturer to have fully introduced low PAH content oils in its production. Roughly speaking, tire development is divided into three parts: · material and rubber compound development · structural development · tread pattern development. Tires are developed by combining the best raw materials, components best suited for each purpose, durable, high-performance structural solutions, and the best tread for the conditions of use. In terms of technical characteristics, a car tire is an extremely demanding product that needs to ensure that the driver retains control of the vehicle under all conditions. At the same time, the tire needs to save fuel, be produced in an environmentally safe way, reduce road wear and noise and look good. Our leadership and product development are guided by our ethical guidelines, the Environmental, safety and quality policy, and testing policies. We also comply with several requirements concerning noise, studs, chemicals, testing, and tire markings, among other things. You can read more about managing sustainability in product development here. KEY MEASURES IN 2019 We reduced the rolling resistance of our tires by on average 8.3% when compared to 2013 (8.2% in 2018). In 2019, Nordic winter tires that deliver high ice grip amounted to 53% of our entire winter tire range (53% in 2018). The proportion of tires that are in the rolling resistance category A, B, or C was 92% (91% in 2018). Of our summer tire products, 100% were in the wet grip category A, B, or C (100% in 2018). Our premium tires with low rolling resistance and high wet grip correspond to categories A, B, and C of the EU tyre label. The share of ABC tires was 65.1% of all our tires with EU labeling (66.6% in 2018). TARGETS FOR 2020 We are in the process of setting new sustainability targets for the years beyond 2020, and will be setting a new target for measuring the development of the rolling resistance. We are investigating the possibility of using recycled carbon black in our tires. Of our summer tire products, 100% will remain in the wet grip category A, B, or C. We increase bio-oil contents in our rubber compounds. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 46 REPORT 2019 PRINCIPLES The Ivalo Testing Center "White Hell" in Finnish Lapland is where Nokian Tyres tests its winter tires rigorously on snow, ice, and slush. Our tires go through strict testing As a tire manufacturer, we must ensure that the tires that we develop, produce, and market are verifiably safe to use, and that they meet the quality requirements and expectations of our customers and end users. We ensure the technical quality of our products by testing and studying each raw material used in tire manufacturing and by continuously improving our rubber compounds. We also use process controls during production for ensuring the quality of tires. Each finished tire passes through production quality control, which includes the tire's force variation, out-of-round and run-on measurement as well as a visual inspection. When starting to ship a new product, we use our strict quality requirements for ensuring compliance. Safety is connected to understanding and managing the risks related to tires. We track the safety of our tires throughout the product life cycle. During product development, our tires go through wear and performance testing, for example. At Nokian Tyres' test tracks in Nokia, Ivalo, and soon also Spain, we test tire behavior on wet and dry asphalt, ice, snow and slush, uphills and downhills as well as corners and straightaways. The tires are tested during acceleration and braking, in aquaplaning conditions, and on the handling track. The handling test is probably the most important an experienced driver remains the best indicator of tire quality. The testing for each product takes into account its purpose and market area. Safety is always the number one priority for Nokian Tyres. However, depending on the market area, we also need to take into account the weather conditions, the driving surface, and other factors. Product responsibility includes product safety, quality, and compliance. It covers our processes from research and product development to testing, production, and procurement, as well as all of the stages and functions of our supply chain. Our product responsibility also includes product marketing and communication to consumers. Our group has not had any major product recalls in more than 19 years. Furthermore, Nokian Tyres has not been involved in any legal proceedings regarding product liability. You can read more of our procedure in case of fault here. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 47 REPORT 2019 PRINCIPLES LOWER ROLLING RESISTANCE LESS CO2 EMISSIONS The use of fossil fuels accounts for most of human-generated carbon emissions. Carbon dioxide, CO2, is the most significant greenhouse gas generated by traffic. When a tire rolls against the road surface, energy is lost due mainly to heat build-up; this is referred to as the rolling resistance. The higher the rolling resistance is, the higher the fuel consumption and CO2 emissions will be. Fuel consumption during driving is the single most significant environmental impact over a tire's service life. In 2015, we set a goal for 2020 to reduce the rolling resistance of our product range by 7% on average when compared to the 2013 baseline. We reached this goal clearly ahead of schedule in 2017. In 2019, we reduced the rolling resistance further, reaching a reduction of 8.3% on average compared to 2013. Tires with low rolling resistance may save more than 0.6 liters of fuel per 100 kilometers, and thus reduce CO2 emissions. As the auto industry is going through a radical realignment, the design of tires is also shifting towards the demands of electric vehicles or EV's. The lower the rolling resistance, the further the EV can go without recharging the battery. The level of lower rolling resistance tires has settled to around a 90% share of the class A, B, and C tires. The EU tyre label reports fuel efficiency on a scale from A to G. At the moment, class C is the most common fuel economy rating for Nokian Tyres' passenger car tires according to the EU tyre label. We aim to further develop lowering the rolling resistance of tires. In 2019, the Nokian Tyres research team started working on a concept tire which helps us better understand how to reduce the rolling resistance. The score of the best A-level tires is 6.5 in the EU tyre label system. With the new solutions in compounding and construction design, the rolling resistance of the concept tire can be lowered close to a score of 5. In the end, eco-friendliness in traffic comes down to a very simple fact: the driver has all the power to make a positive impact. Approximately 90% of a tire's carbon footprint is created during its use. A wise choice of tires, the right tire pressure, and a careful driving style significantly reduce the CO2 emissions from driving. A wise choice of tires, the right tire pressure, and a careful driving style significantly reduce the CO2 emissions from driving. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 48 REPORT 2019 PRINCIPLES RENEWABLE RAW MATERIALS Alternative raw materials can be roughly divided into recycled raw materials and bio-based raw materials. The aim of both categories is to replace fossil-based raw materials and to enable more sustainable tire manufacturing. Renewable raw materials are used for improving tires' properties and performance by modifying the compound property balance at varying temperatures. The use of new raw materials requires a great deal of product development efforts and testing in order to find the best combination of properties for a tire. In materials development, the use of renewable materials must not alter a tire's safety characteristics. Fillers are one of the main raw material groups in a tire. The amount of fillers is around 30% of the tire, meaning that, in theory, it should be possible to increase the bio-based portion of the tire significantly by substituting fossil-based fillers with ones from renewable sources. There are several bio-filler research programs ongoing, but at this time it is difficult to forecast which one of these will produce sustainable material solutions for the future. The global research of bioelastomers is active, but their commercial availability is still limited in tire industry. Nokian Tyres has an active role in this constantly evolving research and industrialization process. We are already using bio-oils in our rubber compounds and we continue to research them and to work on increasing the amount of bio-oil contents in our rubber compounds. Guayule - a European source of natural rubber? Guayule-based natural rubber is one of the active initiatives that Nokian Tyres is working on. We are currently testing the suitability of different guayule varieties to be cultivated in central Spain, near our new testing center in Santa Cruz de la Zarza. As guayule originates from the desert, it can survive in very dry and poor soil conditions. It is a plant that does not exploit areas of any other vegetation or food production, on the contrary, it makes use of wastelands. Nokian Tyres is collaborating with local farmers, universities, research institutes, and companies in Spain. Guayule is an opportunity not only for Nokian Tyres but also for the local agriculture and industry. Currently, natural rubber that is used in tires comes from rubber trees (Hevea Brasiliensis), which are growing in areas around the equator. This results in long logistics chains for tire manufacturers located in the north, which is bad for the environment and also costly. If guayule succeeds as an alternative source for natural rubber, it will shorten the transporting distance and reduce the CO2 emissions. Conservation of natural vegetation in tropical areas would be another environmental benefit. The substantial use of toxic pesticides on rubber plantations in Southeast Asia is a problem for the environment. Also, the South American leaf blight (Microcyclus Ulei) poses problems for the cultivation. The majority of the rubber trees in Asia are clones of varieties highly vulnerable to this disease. Guayule, however, grows in dry areas, and no major plant diseases have thus far been identified as potential problems. It is also hypoallergenic, unlike the normal Hevea rubber. This is a relief for many people working in the rubber industry, logistics, and trade. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS SUPPLY CHAIN REPORTING 49 REPORT 2019 PRINCIPLES SUPP LY CH A I N Sourcing natural rubber in a sustainable way is considered the most critical stage in a tire company's supply chain. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS SUPPLY CHAIN REPORTING 50 REPORT 2019 PRINCIPLES WE TRACK THE SUSTAINABILITY OF OUR SUPPLIERS The life cycle of our tires begins in a tropical forest, probably on a small farm in Malaysia or Indonesia, filled with natural rubber trees. Natural rubber is a renewable resource and one of the main ingredients of tires. Sourcing natural rubber in a sustainable way is considered to be the most critical stage in a tire company's supply chain. Our supply chain consists of approximately 2,000 suppliers, including slightly more than 100 raw material suppliers. Most of our supply chain suppliers are located around our factory areas (Nokia, Finland, Vsevolozhsk, Russia, and Dayton, US) and raw material suppliers are located globally. The monetary value of the payments made to suppliers in our supply chain is approximately MEUR 600700. The work of Nokian Tyres' procurement unit is guided by the Group's procurement policy, which establishes the general principles of sustainable procurement. As a participant in the UN Global Compact initiative, we follow the UNGC's ethical principles as well as our own. We require that all our raw material suppliers to adhere to our Supplier Code of Conduct, which expects the suppliers to commit to human rights and prohibits discrimination and the use of child labor or forced labor, among other things. All raw material suppliers must, at a minimum, have an ISO 9001-certified quality management system in place. In addition, we prefer suppliers with an ISO 14001-certified environmental management system. We track the sustainability of our raw material suppliers by conducting third-party sustainability audits, and by requiring a supplier sustainability self-assessment from all our new suppliers that are critical in terms of sustainability. Furthermore, our purchasing personnel conduct smaller-scale supplier visits that include an assessment of the working conditions. New tool for assessing supplier In 2019, Nokian Tyres' procurement team developed a new classification model for assessing our suppliers globally, excluding the suppliers of sales companies and our own Vianor chain. The new model was implemented in the fall of 2019 and it includes all the new suppliers. During 2020, the assessment model will be expanded to also include existing suppliers. The assessment has four different categories: quality, sustainability, business/strategic criticality and safety at work. All new critical suppliers must respond to the Sustainability Self-Assessment Questionnaire, and a risk mitigation plan is created according to the assessment result. KEY MEASURES IN 2019 We exceeded our target for sustainability audits. By the end of 2019, we had audited all our major rubber processors, covering 90% of our natural rubber purchasing volume. 89.6% of our raw material suppliers have responded to the sustainability self-asses- ment survey. 73.3% of our raw material suppliers have ISO 14001 certification. We created a classification model that helps us to recognize suppliers that are critical in terms of sustainability. TARGETS FOR 2020 The new classification model will be expanded to include existing suppliers as well. We will extend our sustainability audits to include other raw material categories of the supply chain besides natural rubber procurement. We will create a new policy for sustainable natural rubber procurement. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS SUPPLY CHAIN REPORTING 51 REPORT 2019 PRINCIPLES SUSTAINABLE SOURCING OF NATURAL RUBBER Natural rubber is one of the main ingredients for tires. It is the livelihood of hundreds of thousands of families living in countries where the local legislation and working conditions have not been fully developed. Natural rubber is cultivated in forests, often on small farms. Most of the natural rubber that we use comes from Malaysia and Indonesia. Traceability remains problematic as the supply chain is fragmented. There are approximately 36 million farmers of natural rubber who collect the milky latex or cup lumps and sell them to local dealers. They collect them from several farmers and then sell the latex forward to processing plants. More than 85% of the world's natural rubber is produced on farms smaller than two hectares in size whose daily output may be just a couple of kilograms of latex. Processing plants purify the natural rubber, process it as specified, pack it for further use, and sell it to the global traders or customers. Nokian Tyres exclusively purchases rubber, which is being processed in the plants our company has approved. Nokian Tyres considers cooperation with the industry and other stakeholders to be vital in improving these conditions. The tire industry has made a joint effort to move towards sustainable natural rubber, also as concerns labor rights. In 2019, Nokian Tyres joined the Global Platform for Sustainable Natural Rubber (GPSNR), which is a platform established by WWF, several other nonprofit organizations, rubber traders and processors, and large tire manufacturers. GPSNR strives to increase the supply and uptake of sustainable natural rubber in the global marketplace. Members of the platform will develop sustainable natural rubber standards, mechanisms and guidance on the implementation, monitoring, and verification of sustainable natural rubber commitments from companies. Teppo Huovila, VP, Quality & Sustainability, presents the batches of natural rubber imported to Nokian Tyres' factories mainly from Malaysia and Indonesia. Nokian Tyres has conducted sustainability audits to the processing plants since 2016. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS SUPPLY CHAIN REPORTING 52 REPORT 2019 PRINCIPLES HUMAN RIGHTS IN THE SUPPLY CHAIN NOKIAN TYRES HAS RECOGNIZED TEN HUMAN RIGHTS-RELATED RISKS IN THE SUPPLY CHAIN: Right to privacy Right to a family life Right to health Right to life Right not to be subjected to slavery, servitude or forced labor Right to freedom of movement Right of protection of the family and the right to marry Right to enjoy just and favorable conditions of work Right to an adequate standard of living Right to education The human rights assessment has been done to all 32 human rights listed in the UN's document "Relationship between businesses and human rights", which was used as a normative. The rights to health, right to privacy and right to family life have been defined as being exposed to the most evident risks. In order to improve supply chain sustainability, we started a partnership with an external auditor already in 2016. Our separate sustainability auditing process has been developed together with a consulting company, and it is based on Nokian Tyres' Supplier Code of Conduct and principles that comply with the UN Global Compact goals. We have set a goal to audit all of our major rubber processor partners by 2020, comprising at least 80% of our natural rubber purchasing volume. The audits enable the processing companies to improve their occupational safety and develop their operations further. All the audits performed between 2016 and the end of 2019 cover 90% of our natural rubber purchasing volume, which means we have exceeded our target. One supplier was banned because of non-compliance with Nokian Tyres' requirements. After the audits, we always initiate corrective programs to address the shortcomings identified in the process. The most common problem remains the same in most of the places: the recruitment of foreign workers. Foreign workers are recruited through a recruitment agency network, and the amount of recruitment costs to the employee can be significant: up to a year's salary. As the agencies are often approved by local governments, it is difficult to improve the process. However, we require our suppliers to improve also on this issue. The suppliers keep requesting support from the local officials, but the progress is slow. Another common problem is the language and contents of the employment contracts. The contract is not necessarily available in the employees' mother tongue, or the translated content differs from the original. During 2019, we organized seven sustainability audits. The most common problems were: · Supplier recruits foreign workers through recruitment agency network and the amount of recruitment costs is approximately 8 months to 1-year salary. Even though the suppliers use local government approved recruitment agencies, the recruitment costs for the employee remain very high. · The employee contracts are only in local or English language. Especially immigrant workers do not always understand what they sign. After the audit results from Nokian Tyres, most suppliers have introduced several different language versions of employment contracts. This shows that many things can be improved once an external party reviews the processes and indicates improvements. In December 2019, we conducted two reaudits. The results showed improvements in the following areas: · One company had organized training on discrimination, harassment, fair treatment and first aid. Previously none of the employees had received training on any of the topics. · The other company had implemented hazardous waste management system and since 2018 organizes an environmental performance monitoring twice a year. · The company had also installed a box for feedback. Letters from 3 employees were received and reviewed by the management. In 2019, management organized training on how to use the box to increase awareness. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 53 REPORT 2019 PRINCIPLES REPORTING PRINCIPLES Stakeholder inclusiveness In order to achieve the goals outlined in Nokian Tyres' long-term business strategy and to determine our sustainability goals, we have conducted surveys among our five stakeholder groups: customers, employees, subcontractors and suppliers, authorities, and the media. In 2018, Nokian Tyres conducted a sustainability survey, where the most important stakeholder groups defined their individual material topics and risks and opportunities in terms of Nokian Tyres' sustainability. The survey was conducted in eight countries, online and as personal interviews. The surveys are usually conducted every three years. Sustainability context "Leader in sustainability" is one of the six differentiators in the Nokian Tyres' strategy. When developing the functions that affect our social, economic and environmental responsibility, we want to go beyond the minimum requirements of the legislation and applicable standards. This report has been prepared in accordance with the GRI Standards 2016: Core option. This report is also Nokian Tyres' Communication on Progress (CoP) report, which complies with the UN Global Compact (UNGC) requirements. The ten principles of the UNGC are bridged in the GRI Index and our value chain. The Sustainable Development Goals (SDG's) are combined with the Nokian Tyres sustainability goals for 2020 and their progress in 2019. Materiality As a result of the sustainability survey in 2018, nine material topics were formed. In the 2019 report, these topics have been identified to represent three current themes: sustainable natural rubber, road safety, and climate change: reducing greenhouse gas emissions. As a result of our on-going materiality analysis and an internal climatechange workshop, this report covers topics raised by peers, stakeholders, and competitors; these include items such as microplastics and the effects of climate change. In the 2019 report, our material topics have been identified to represent three current themes: sustainable natural rubber, road safety, and climate change: reducing greenhouse gas emissions. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 54 REPORT 2019 PRINCIPLES Completeness Our nine material topics are: 1 Responsibility in material choices and promoting the circular economy 2 Continuous development of the road safety of tires 3 Fighting global warming: reducing the rolling resistance of tires 4 Reducing greenhouse gas emissions from all operations Use of renewable energy and improving energy efficiency 5 Human rights in the supply chain 6 Risk management and good governance 7 Responsible and ethical purchasing policies 8 High level of safety and health at work 9 Profitable growth and indirect economic impacts. We report our impacts on a year-to-year basis, but we also address impacts in the long term: we conducted a climate change workshop aligned with the recommendations of TCFD and included the results in this report. Accuracy The majority of the reported environmental data is based on measurements, with the exception of VOC and CO2 emissions. VOC emissions are a combination of measurements provided by an external consultancy and our calculations. CO2 emissions calculations are based on energy consumption measurements or estimations, and the calculations are made using general emission factors. In 2019, the emission calculation of the location-based scope 2 emission calculation is based on Finland's and Russian's average emissions intensity of grids. In Nokia, the market-based emission calculation is based on the suppliers certificate of the actual energy sources used. In Russia, emission calculation is based on emission factors of purchased electricity. Information regarding waste disposal methods and quantities is provided by the waste disposal contactors. Social data concerning our employees and top management is compiled via our HR system Workday. Safety data is compiled via our OHS system Keto. The majority of the disclosures for economic responsibility are based on our company's financial statements, which are prepared and presented in accordance with the IFRS standards. The scope of GRI environmental responsibility is divided between our factories in Finland and Russia. The disclosures of the new factory in Dayton, Tennessee, US, will be presented in the next report, as the production begins in 2020. The scope of GRI social disclosures is Group-wide, excluding the subcontractors. In the social responsibility disclosures, the figures for the Nokian Tyres' equity-owned Vianor chain are combined to cover all of the entities in the chain, but the disclosures are calculated according to the same principles as in the previous reports. The reporting covers all the functions of Nokian Tyres plc, excluding the environmental responsibility disclosures and supply chain disclosures of the Vianor service centers. Balance In the report, we consistently follow previously set indicators, be they favorable or unfavorable. The emphasis has been put on topics that are material to our business. Clarity and timeliness We publish our Corporate Sustainability Report annually on our website. In 2018, the stakeholders raised a proposition to simplify and compact the Corporate Sustainability Report. This has been our guideline for the 2019 report, and we have clarified the topics material to Nokian Tyres' sustainability under the current themes and edited the content accordingly. Comparability As the disclosures for our Group's environmental responsibility are mainly compiled and calculated according to the same methods as in our earlier reports, this year's results are comparable to the previous years'. Nokian Tyres is currently setting up new sustainability targets for the years beyond 2020, which may affect the way we report on certain disclosures and topics in the future. Reliability The contents of the Corporate Sustainability Report for the 2019 reporting period have been verified by an independent third party. The assurance was commissioned by the executive management of Nokian Tyres plc. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 55 REPORT 2019 PRINCIPLES PERFORMANCE IN FIGURES CLIMATE AND ENVIRONMENT Emissions into the air Direct greenhouse gas emissions, Scope 1, CO2 eq t Nokia Vsevolozhsk Indirect greenhouse gas emissions (market based), Scope 2, CO2 eq t Nokia Vsevolozhsk Indirect greenhouse gas emissions (location based), Scope 2, CO2 eq t Nokia Vsevolozhsk Others (own Vianor, warehouses, sales companies) Greenhouse gas emissions intensity ratio Scope 1 + Scope 2/production tonne, CO2 eq t/t Nokia Vsevolozhsk Indirect greenhouse gas emissions, Scope 3, t CO2 ekv. Purchased good and servces Capital goods Fuel and energy related activities Upstream transportation and distribution Waste generated in operations Business Travel Employee commuting Leased Assets Downstream transportation and distrubution Use of sold products End-of-life treatment of sold products Franchises Investments Total n.a = not applicable 2017 612 71,522 33,269 12,177 18,144 27,569 0.66 0.55 2018 2019 610 71,646 467 64,475 33,653 13,895 9,345 15,386 19,157 30,863 12,026 34,280 11,297 0.63 0.53 0.19 0.53 462,600 n.a 8,900 20,700 1,700 1,500 1,800 500 44,300 5,415,400 3,200 60 n.a 5,960,660 NOx and SOx emissions, Vsevolozhsk, t NOx SOx VOC emissions, t Nokia Vsevolozhsk Energy use Energy consumption within the organisation, TJ Nokia Vsevolozhsk Energy intensity, GJ/production t Nokia Vsevolozhsk Water Cooling water, Nokia, 1,000 m3 Withdrawal, Nokianvirta river Discharge, Nokianvirta river Total water withdrawal, municipal water, 1,000 m3 Nokia Vsevolozhsk Water discharge, sewage, m3 Nokia Vsevolozhsk Raw materials Renewable raw materials, kt Nokia Vsevolozhsk Non-renewable raw materials, kt Nokia Vsevolozhsk Percentage of materials used that are recycled input materials, % Nokia Vsevolozhsk 2017 2018 70.9 0.8 53.7 63.1 66.6 0.8 41.0 62.2 2019 42.1 1.8 60.5 80.4 613 1,563 643 1,605 11.8 10.2 12.1 10.0 624 1,510 12.1 10.0 7,367 7,271 7,588 7,548 6,552 6,530 62.8 276.5 61.0 303.2 67.4 287.7 158,866 100,921 89,020 242,678 272,089 280,998 11.1 38.1 12.2 38.8 41.8 125.2 44.9 131.8 6.8 6.7 8.0 8.5 12.0 39.4 43.2 121.4 5.6 8.7 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 56 REPORT 2019 PRINCIPLES PERFORMANCE IN FIGURES Waste Hazardous wastes, kg/t Nokia Vsevolozhsk Hazardous wastes by disposal method, Nokia, % Recycling Incineration (mass burn) Recovery as energy Landfill Hazardous wastes by disposal method, Vsevolozhsk, % Recycling Incineration (mass burn) Recovery as energy Landfill Wastes by disposal method, Nokia, % Reuse Recycling Composting Recovery as energy Landfill Wastes by disposal method, Vsevolozhsk, % Reuse Recycling Composting Recovery as energy Incineration (mass burn) Landfill 2017 2018 4.2 7.8 21.5 0 78.5 0 1.2 26.4 29 43.4 8.4 79.1 0.9 11.6 0 11.8 70.5 0 3.3 3 11.3 3.3 7.4 17.5 0 82.5 0 2.2 10.3 31.1 56.2 7.9 74.8 2.5 14.8 0 8.7 75.7 0 3.5 1.2 10.9 2019 3.7 6.3 17.5 0 82.5 0 1.3 2.4 25.1 71.2 8.2 73.8 1.9 16.1 0 5.1 76.4 0.0 8.5 0.2 9.8 2017 2018 Total waste by disposal method, Nokia + Vsevolozhsk* Reuse t 1,611 % 10.8 Recycling t 10,884 % 73.1 Composting t 42 % 0.3 Recovery as energy t 862 % 5.8 Incineration (mass burn) t 317 % 2.1 Landfill t 1,180 % 7.9 * Information of waste disposal methods are provided by the waste disposal contractors. 1,330 8.4 11,898 75.4 131 0.8 1,162 7.4 122 0.8 1,132 7.2 2019 1,003 6.1 12,435 75.5 103 0.6 1,812 11 23 0.1 1,085 6.6 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 57 REPORT 2019 PRINCIPLES PERFORMANCE IN FIGURES PEOPLE RESULT OF DRIVE! PERSONNEL SURVEY (ENGAGEMENT INDEX) ACCIDENT FREQUENCY* Nokian Tyres plc Passenger Car Tyre Production, Nokia Passenger Car Tyre Production, Dayton Nokian Tyres North America Nokian Tyres Central Europe Nokian Tyres Russia & Asia Nokian Heavy Tyres Vianor and Nordics Global Functions PEOPLE REVIEWS (REALIZATION, %) Nokian Tyres Group, % ABSENTEEISM BY COMPANY Sick absences % (total) 2015 82.8 2016 86.0 2017 75.5 68.8 80.6 84.5 73.9 68.9 77.6 78.3 2017 83.4 2018 75.5 70.2 74.8 82.8 73.1 73.3 79.0 78.0 2018 82.2 2019 76.9 71.0 89.3 78.1 73.8 74.8 72.7 81.5 77.3 Lost time incident frequency (LTIF) Nokian Tyres Finland Nokian Tyres Russia Vianor The ratio of all listed companies Recordable accident frequency (rec. F) Nokian Tyres Finland Nokian Tyres Russia Vianor The ratio of all listed companies 2015 22.3 3.0 23.9 13.9 2016 20.2 3.0 15.2 11.2 24.1 3.0 18.7 13.2 2017 8.6 3.2 12.6 7.5 12.6 3.9 19.5 11.2 2019 92.2 Recordable accidents Nokian Tyres Finland Nokian Tyres Russia Vianor The ratio of all listed companies 42 24 8 11 59 62 109 97 * Levypyörä (acquired in August 2019) will be included in the safety figures as of 2020. 2018 5.3 5.0 15.0 8.3 8.7 5.3 21.6 11.6 18 16 72 106 2019 3.7 2.0 7.8 4.3 8.3 4.0 13.9 8.2 18 12 48 82 Nokian Tyres Finland Nokian Nokian Tyres (FI) Heavy Tyres NT Tyre Machinery 2.6 4.2 7.7 Nokian Tyres Russia OOO OOO Nokian Shina Nokian Tyres 3.7 5.5 Nordic Wheels Vianor Nordic Vianor Holding Oy Vianor Oy Vianor AB Vianor AS 1.1 0.8 6.8 4.2 5.6 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 58 REPORT 2019 PRINCIPLES PERFORMANCE IN FIGURES TOTAL NUMBER AND RATE OF NEW EMPLOYEE HIRES AND EMPLOYEE TURNOVER BY GENDER, AGE GROUP, AND REGION Total number of new employees Number of women Number of men Number of under 30 years old Number of 3050 years old Number of over 50 years old New employee hires rate (Total), % Percentage of women, % Percentage of men, % Percentage of under 30 years old, % Percentage of 3050 years old, % Percentage of over 50 years old, % Nordic Russia and CIS Central and Eastern North The rest of Europe America the world 330 109 32 127 1 51 37 20 24 0 279 72 12 103 1 85 59 6 38 0 191 49 23 66 1 54 1 3 23 0 7.0 2.3 0.7 2.7 0.0 1.1 0.8 0.4 0.5 0.0 5.9 1.5 0.3 2.2 0.0 1.8 1.3 0.1 0.8 0.0 4.1 1.0 0.5 1.4 0.0 1.1 0.0 0.1 0.5 0.0 Total 599 132 467 188 330 81 12.7 2.8 9.9 4.0 7.0 1.7 Nordic Russia and CIS Central and Eastern North The rest of Europe America the world Total number of terminated employees (fixed terms not included) 247 111 27 52 0 Number of women 36 30 14 9 0 Number of men 211 81 13 43 0 Number of under 30 years old 54 50 4 20 0 Number of 3050 years old 146 58 20 23 0 Number of over 50 years old 49 3 3 11 0 Turnover rate (Total), % 5.2 2.4 0.6 1.1 0.0 Percentage of women, % 0.8 0.6 0.3 0.2 0.0 Percentage of men, % 4.5 1.7 0.3 0.9 0.0 Percentage of under 30 years old, % 1.1 1.1 0.1 0.4 0.0 Percentage of 3050 years old, % 3.1 1.2 0.4 0.5 0.0 Percentage of over 50 years old, % 1.0 0.1 0.1 0.2 0.0 Total 437 89 348 128 247 66 9.3 1.9 7.4 2.7 5.2 1.4 TOTAL WORKFORCE BY EMPLOYMENT TYPE, EMPLOYMENT CONTRACT AND REGION, BROKEN DOWN BY GENDER Total workforce on 31.12.2019 Women Men Nordic Russia and CIS Central and Eastern North The rest of Europe America the world 2,705 1,561 187 293 27 408 226 71 45 8 2,297 1,335 116 248 19 Total 4,773 758 4,015 Total number of own employees Women Men 2,675 408 2,267 1,554 219 1,335 187 71 116 287 42 245 27 4,730 8 748 19 3,982 Number of supervised workers Women Men 30 7 0 6 0 7 0 3 30 0 0 3 0 43 0 10 0 33 Total number of seasonal employments in Vianor during 2019 1,170 0 0 0 0 1,170 Permanent Full-time, % Part-time, % Women, % Men, % 2,419 97.9 2.1 15.4 84.6 1,483 100.0 0.0 12.2 87.8 174 95.1 4.9 34.6 65.4 286 97.9 2.1 14.4 85.6 16 100.0 0.0 25.0 75.0 4,378 98.5 1.5 15.2 84.2 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 59 REPORT 2019 PRINCIPLES PERFORMANCE IN FIGURES COMPOSITION OF GOVERNANCE BODIES AND BREAKDOWN OF EMPLOYEES PER EMPLOYEE CATEGORY ACCORDING TO GENDER AND AGE GROUP Number of individuals within the top management Number of women Number of men Percentage of women, % Percentage of men, % Number of under 30 years old Number of 3050 years old Number of over 50 years old Percentage of under 30 years old, % Percentage of 3050 years old, % Percentage of over 50 years old, % Number of white collars Number of women Number of men Percentage of women, % Percentage of men, % Number of under 30 years old Number of 3050 years old Number of over 50 years old Percentage of under 30 years old, % Percentage of 3050 years old, % Percentage of over 50 years old, % Number of blue collars Number of women Number of men Percentage of women, % Percentage of men, % Number of under 30 years old Number of 3050 years old Number of over 50 years old Percentage of under 30 years old, % Percentage of 3050 years old, % Percentage of over 50 years old, % Nordic Russia and CIS Central and Eastern North The rest of Europe America the world Total 16 6 10 37.5 62.5 0 7 9 0.0 43.8 56.2 1,087 256 831 23.6 76.4 78 688 321 7.2 63.3 29.5 1,572 147 1,425 9.4 90.6 416 805 351 26.5 51.2 22.3 1 0 1 0.0 100.0 0 1 0 0.0 100.0 0.0 454 144 310 31.7 68.3 88 344 22 19.4 75.8 4.8 1,099 75 1,024 6.8 93.2 348 714 37 31.6 65.0 3.4 1 0 1 0.0 100.0 0 0 1 0.0 0.0 100.0 183 68 115 37.2 62.8 30 127 26 16.4 69.4 14.2 3 3 0 100.0 0.0 0 2 1 0.0 75.0 25.0 1 0 1 0.0 100.0 0 0 1 0.0 0.0 100.0 123 27 96 22.0 78.0 14 69 40 11.4 56.1 32.5 163 16 147 9.8 90.2 50 78 35 30.6 47.9 21.5 0 0 0 0.0 0.0 0 0 0 0.0 0.0 0.0 23 6 17 26.0 74.0 2 17 4 8.7 74.0 17.3 4 2 2 50.0 50.0 2 2 0 50.0 50.0 0.0 19 6 13 31.6 68.4 0 8 11 0.0 42.1 57.9 1,870 501 1,369 26.8 73.2 212 1,245 413 11.3 66.6 22.1 2,841 243 2,598 8.6 93.8 816 1,601 424 28.7 56.3 15.0 Composition of the Board Number of women Number of men Percentage of women, % Percentage of men, % Number of under 30 years old Number of 3050 years old Number of over 50 years old Percentage of under 30 years old, % Percentage of 3050 years old, % Percentage of over 50 years old, % PRODUCTS LOWERING OF ROLLING RESISTANCE COMPARED TO 2013, %, IN AVERAGE NT passenger car tires with EU labeling 2017 7.0 2018 8.2 SUPPLY CHAIN Percentage of Nokian Tyres' raw material suppliers with ISO 14001 certification Percentage of Nokian Tyres' raw material suppliers who answered the sustainability self-assessment survey 2017 71.0 85.0 2018 72.0 86.8 8 2 6 25.0 75.0 0 2 6 0.0 25.0 75.0 2019 8.3 2019 73.3 89.6 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 60 REPORT 2019 PRINCIPLES GRI + UNGC CONTENT INDEX GRI Standard GRI 102: General disclosures Organizational profile 1021 1022 1023 Name of the organization Activities, brands, products, and services Location of headquarters 1024 1025 1026 1027 1028 1029 10210 10211 10212 10213 Strategy 10214 Ethics 10216 Governance 10218 10220 10221 10222 10223 Location of operations Ownership and legal form Markets served Scale of the organization Information on employees and other workers Supply chain Significant changes to the organization and its supply chain Precautionary Principle or approach External initiatives Membership of associations Statement from senior decision-maker Values, principles, standards, and norms of behavior Governance structure Executive-level responsibility for economic, environmental, and social topics Consulting stakeholders on economic, environmental, and social topics Composition of the highest governance body and its committees Chair of the highest governance body Location UNGC Disclosure 3 3 3 3 3 3 3940 50 3, 6 1, 2, 4, 5, 10 2021 7 1415 www.nokiantyres.com/company/sustainability/fundamentals/ our-stakeholders-and-memberships/ Nokian Tyres plc Pirkkalaistie 7 37100 Nokia Finland No significant changes. 4 7, 910, 12 10 www.nokiantyres.com/company/investors/ corporate-governance/ www.nokiantyres.com/company/investors/ corporate-governance/the-groups-management-team/ www.nokiantyres.com/company/sustainability/fundamentals/ materiality-analysis-of-nokian-tyres/ www.nokiantyres.com/company/investors/ corporate-governance/board-of-directors/ www.nokiantyres.com/company/investors/ corporate-governance/board-of-directors/ Annual General Meeting NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 61 REPORT 2019 PRINCIPLES GRI Standard 10224 Nominating and selecting the highest governance body 10225 10226 10227 10230 Conflicts of interest Role of the highest governance body in setting purpose, values and strategy Collective knowledge of highest governance body Effectiveness of risk management processes 10235 10236 Remuneration policies Process for determining remuneration Stakeholder engagement 10240 List of stakeholder groups 10241 10242 Collective bargaining agreements Identifying and selecting stakeholders 10243 10244 Approach to stakeholder engagement Key topics and concerns raised 10245 10246 10247 10248 10249 10250 10251 10252 10253 10254 10255 10256 Entitites included in the consolidated financial statements Defining report content and topic Boundaries List of material topics Restatements of information Changes in reporting Reporting period Date of the most recent report Reporting cycle Contact point for questions regarding the report Claims of reporting in accordance with the GRI Standards GRI content index External assurance Management approach 1031 1032 1033 Explanation of the material topic and its Boundary The management approach and its components Evaluation of the management approach Location UNGC www.nokiantyres.com/company/investors/ corporate-governance/annual-general-meeting/ Financial Review 2019 www.nokiantyres.com/company/investors/ corporate-governance/board-of-directors/board-cg/ Financial review 2019 www.nokiantyres.com/company/investors/corporategovernance/mechanisms-of-internal-control--internal-auditand-risk-management/ www.nokiantyres.com/company/investors/ salaries-and-remunerations/ www.nokiantyres.com/company/investors/ salaries-and-remunerations/ www.nokiantyres.com/company/sustainability/fundamentals/ our-stakeholders-and-memberships/ 39 www.nokiantyres.com/company/sustainability/fundamentals/ our-stakeholders-and-memberships/ 910 www.nokiantyres.com/company/sustainability/fundamentals/ our-stakeholders-and-memberships/ Financial review 2019 5354 54 39, 5354 5354 60 64 5354 7, 910 www.nokiantyres.com/company/sustainability/fundamentals/ managing-sustainability/ Disclosure No changes. January 1, 2019 - December 31, 2019 February 28, 2020 Annually media@nokiantyres.com NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 62 REPORT 2019 PRINCIPLES GRI Standard Location GRI 200: Economic Standard Series Economic performance 2011 2012 Direct economic value generated and distributed Financial implications and other risks and opportunities due to climate change. 14 16, 29 Anti-corruption 2052 Communication and training about anti-corruption policies and procedures 7 GRI 300: Environmental Standard Series Materials 3011 3012 Materials used by weight or volume Recycled input materials used Energy 3021 3023 Energy consumption within the organization Energy intensity Water 3031 Water withdrawal by source Emissions 3051 3052 3053 3054 3055 3057 Direct (Scope 1) GHG emissions Energy indirect (Scope 2) GHG emissions Other indirect (Scope 3) GHG emissions GHG emissions intensity Reduction of GHG emissions Nitrogen oxides (NOX), sulfur oxides (SOX), and other significant air emissions Effluents and Waste 3061 3062 Water discharge by quality and destination Waste by type and disposal method Environmental compliance 3071 Non-compliance with environmental laws and regulations 55 27, 55 22 22 22 23 23 23 55 23 55 26 27 20, 24 UNGC Disclosure 10 7, 8 7, 8 8 8, 9 7, 8 8 8 NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 63 REPORT 2019 PRINCIPLES GRI Standard Location GRI 400: Social Standard Series Employment 4011 New employee hires and employee turnover 39, 58 Occupational Health and Safety 4032 Types of injury and rates of injury, occupational diseases, lost days, and 38 absenteeism, and number of work-related fatalities Training and Education 4042 4043 Programs for upgrading employee skills and transition assistance programs 41 Percentage of employees receiving regular performance and career 41 development reviews Diversity and Equal Opportunity 4051 Diversity of governance bodies and employees 59 www.nokiantyres.com/company/investors/ corporate-governance/board-of-directors/ diversity-policy-for-the-board-of-directors/ Human Rights Assessment 4121 4122 Operations that have been subject to human rights reviews or impact 52 assessments Employee training on human rights policies or procedures 7 Supplier Social Assessment 4142 Negative social impacts in the supply chain and actions taken 5152 Public Policy 4151 Political contributions 16 Customer Health and Safety 4161 Assessment of the health and safety impacts of product and service categories 4546 Company and industry specific GRI NT1 Extent of mitigation of the environmental impacts of products and services 4548 NT2 Reducing the rolling resistance of tires 47, 59 UNGC Disclosure 6 6 6 1, 2 1, 2 1, 2 10 7 New sustainability goals for beyond 2020 are under evaluation. They will determine also the company specific GRI's set in the report of 2018. 7, 8 New sustainability goals for beyond 2020 are under evaluation. They will determine also the company specific GRI's set in the report of 2018. NOKIAN TYRES PLC CORPORATE SUSTAINABILITY F U N D A M E N TA L S CLIMATE AND THE ENVIRONMENT PEOPLE PRODUCTS S U P P LY C H A I N REPORTING 64 REPORT 2019 PRINCIPLES INDEPENDENT ASSURANCE REPORT Translated from the original Report in Finnish language To the Management of Nokian Tyres plc At the request of the Management of Nokian Tyres plc (hereafter Nokian Tyres) we have performed a limited assurance engagement on the corporate responsibility information for the reporting period 1.1.31.12.2019 presented in Nokian Tyres' Corporate Sustainability Report 2019 (hereafter sustainability information). Management's responsibility The Management of Nokian Tyres is responsible for the preparation and presentation of the corporate responsibility information in accordance with the GRI Sustainability Reporting Standards, and Nokian Tyres' internal reporting guidelines (hereafter the reporting principles). Assurance Provider's responsibility It is our responsibility to present an independent conclusion on the sustainability information based on our work performed. We do not accept nor assume responsibility to anyone else except to Nokian Tyres for our work, for the assurance report and for the conclusions that we have reached. We have conducted the assurance engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3000 `Assurance Engagements Other than Audits or Reviews of Historical Financial Information'. The ISAE 3000 standard requires compliance with ethical requirements as well as planning and performing the assurance engagement to obtain limited assurance on whether the corporate responsibility information has been prepared, in all material respects, in accordance with the reporting principles. Assurance Provider's independence and quality assurance We comply with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the IESBA (International Ethics Standards Board for Accountants). We apply ISQC 1 (International Standard on Quality Control) and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Limitations of the engagement In a limited assurance engagement, the evidence gathering procedures are more limited than in a reasonable assurance engagement, and therefore less assurance is obtained than in a reasonable assurance engagement. The procedures selected depend on the Assurance Provider's judgment, including an assessment of the risks that the corporate responsibility information would not, in all material respects, comply with the reporting principles. We have planned and performed our engagement to obtain sufficient and appropriate evidence on which to base our conclusion. We have performed, among others, the following procedures: a. An update of our knowledge and understanding of Nokian Tyres' material sustainability reporting topics, organization and activities, b. An assessment of suitability and application of the reporting principles regarding the stakeholders' needs for information, c. Interviews with senior management to understand Nokian Tyres' corporate responsibility leadership, d. Interviews with personnel responsible for gathering and consolidation of the corporate responsibility information to understand the systems, processes and controls related to gathering and consolidating the information, e. Reviewing sustainability data from internal and external sources and checking the data to reporting information on a sample basis, f. Performing recalculation of information and reviewing the underlying data which is the basis of narrative disclosures related to the data, g. Visited Nokia and Vsevolozhsk sites and reviewed reporting practices. Our assurance report should be read in conjunction with the inherent limitations of accuracy and completeness for sustainability information. This independent assurance report should not be used on its own as a basis for interpreting Nokian Tyres' performance in relation to its principles of sustainability information. Conclusion Based on our work described in this report, nothing has come to our attention that causes us to believe that the sustainability information has not been prepared, in all material respects, in accordance with the reporting principles, or that the information is not reliable, in all material respects, based on the reporting principles. Helsinki, 24 February 2020 Ernst & Young Oy Terhi Mäkinen Partner, Authorized Public Accountant Jani Alenius Leader of Climate Change and Sustainability Services www.nokiantyres.com

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NOKIAN TYRES - CORPORATE SUSTAINABILITY REPORT 2019

Nokian Tyres Corporate Sustainability Report 2019

Corporate Sustainability Report 2019 (pdf)