Compliance Management System

The objective in setting up and continuously developing the Compliance Management System is to prevent, detect and respond to compliance violations against the interests of the company, to avoid liability risks and damage to the company’s reputation, to advise and safeguard the company’s management, executives and employees, and to increase efficiency by coordinating existing compliance activities.

The structure of the Compliance Management System corresponds to the following systematics (figure “Elements of the Lenzing Compliance Management System”):

Elements of the Lenzing Compliance Management System

Compliance is based on the corporate values of the Lenzing Group and its measures promote integrity within the company. Formal structures, such as the assignment of responsibilities, ongoing monitoring and structures for communication, evaluation and documentation are essential components of the Compliance Management System.

The ongoing compliance program is based on the following pillars:

• Measures to prevent misconduct
• Measures to detect compliance risks and weaknesses
• Measures to respond to misconduct and identified weaknesses in order to avoid them in future.

The Compliance Management System was subjected to an internal audit in the first half of 2021, in which improvements were analyzed and measures developed. At the meetings of the Supervisory Board’s Audit Committee on September 8, 2021 and November 17, 2021, the Compliance Officer reported on the content, objectives and status of the compliance organization, the structure of the Compliance Management System, training, internal and external investigations and various compliance measures (communication, surveys) in a separate agenda item.

Preventive measures

Lenzing Global Code of Business Conduct

Compliance measures and business ethics are crucial for Lenzing to comply with a multitude of legal regulations and standards at various sites and countries around the world. Lenzing attaches great value to the integrity and legally compliant behavior of all employees and business partners. Therefore, Lenzing has anchored its principles for compliant behavior in the Lenzing Global Code of Business Conduct. It serves as a guideline, orientation aid and advisor at the same time, so that all employees know how to react appropriately and in compliance with the rules in every situation. At the same time, it points out to Lenzing employees that violations of the Code of Conduct have serious consequences (civil, criminal, administrative criminal and/or disciplinary consequences, up to and including termination of employment). The Lenzing Global Code of Business Conduct is available to all employees in the Group languages on the intranet (“Lenzing Connect”) and is also accessible to external stakeholders on the company website. It is supplemented by the Global Supplier Code of Conduct which outlines Lenzing’s expectations for supplier conduct with respect to safety and health at work, labor and human rights, environmental protection, ethics and management practices. An overview of other publicly available policies to which Lenzing has committed can be found here.

Lenzing’s internal rules and principles

Besides the Lenzing Global Code of Business Conduct, there are additional internal rules and principles of conduct (known as directives) that help to ensure that daily actions are in line with the applicable legal frameworks and Lenzing’s demand for integrity from each individual employee. Directives define rules of conduct that are binding for all employees of the Lenzing Group. Classifying a document as a directive always implicates the decision that non-conformance with the content of the directive may incur penalties and, in the worst case, layoffs. Important directives include, amongst others, the Anti-Bribery and Corruption Directive, the Antitrust Directive, the Whistleblower Directive, the Issuer Compliance Directive, the Anti Money Laundering Directive and Know-How Protection Directive.

Anti-Bribery and Corruption Directive (ABC Directive)

The Anti-Bribery and Corruption Directive (“ABC Directive”) supplements Lenzing’s Global Code of Business Conduct by providing global minimum standards to ensure that Lenzing’s activities are conducted ethically and with integrity. The goal of this directive is to ensure that all relevant anti-bribery and corruption regulations are known and observed across the Lenzing Group. The directive applies to all operations and activities in compliance with all applicable anti-corruption laws, including the Austrian Criminal Code, the United Kingdom Bribery Act 2010 and the US Foreign Corrupt Practices Act. It clearly defines what bribery, corruption and acceleration payments mean and provides guidelines on what is considered acceptable behavior. Receiving and giving gifts, as well as accepting and giving hospitality or invitations, require – depending on the monetary value – specific approval within the Compliance Register Tool. Country-specific limits have been defined for all legal entities.

Antitrust Directive

Lenzing does not tolerate or participate in any business conduct, transaction or activity that violates the antitrust and competition laws applicable to it. The company respects applicable trade laws and restrictions as imposed by the United Nations or other national or supranational bodies or governments. To ensure that all relevant antitrust regulations are known and adhered to within the Lenzing Group, Lenzing’s internal Antitrust Directive serves as a supplement to the Lenzing Global Code of Business Conduct. It applies to all business activities and operations in accordance with applicable competition law. The directive was revised in the reporting year to make it more comprehensible in terms of appearance and language. It informs all employees how to behave correctly when dealing with business partners and shows which activities may pose an increased risk of antitrust violations. Furthermore, this directive helps to promote trust in business dealings, preserve Lenzing’s reputation and avoid or reduce costs, risks and damages resulting from a violation of antitrust law.

Whistleblower Directive

The purpose of Lenzing’s Whistleblower Directive is to encourage all employees to speak up in good faith against potential violations of laws, the Global Code of Business Conduct or Lenzing’s internal rules and principles. The directive aims to provide all employees with more concrete guidance and information on how to report compliance concerns about actual or potential rule violations. It emphasizes that for reports which were made in good faith (i.e. with a reasonable suspicion that a potential violation has occurred, is occurring, or is likely to occur), the parties involved are protected from subsequent punishment, discrimination, retaliation, disadvantage, harassment or termination for making reports. Lenzing takes all concerns raised under the Whistle­blower Directive seriously and defines clear processes in this directive on how reports are handled internally, who is involved in any necessary investigations, and what the consequences are for identified violations.

Issuer Compliance Directive

The Issuer Compliance Directive of Lenzing AG was updated during the reporting year. This directive regulates the principles for the disclosure of information within the company, organizational measures to prevent the improper use or disclosure of compliance-relevant information or insider information as well as the special reporting obligations for trading in securities for executives and persons closely related to these executives.

The directive supplements and clarifies the existing legal obligations to prevent insider trading and proprietary trading by executives (“directors’ dealings”) for listed companies. The aim of this directive is to familiarize all employees of Lenzing AG as well as the members of the executive bodies with the essential obligations that pertain to them and make it easier for them to comply with the legal regulations via rules of conduct.

Anti Money Laundering Directive (AML Directive)

The objective of the Anti Money Laundering Directive is to guarantee that all relevant anti money laundering and counter terrorism provisions are known in the Lenzing Group and are complied with. It applies to all business actions and activities in accordance with the applicable legislation. The directive was originally introduced in 2020. In 2021, preparations were made for an update by choosing a suitable tool for a new KYC (Know Your Counterpart) system. In the course of the update, the directive and included processes will be adapted to the new system. The KYC check will confirm that new customers and suppliers actually exist and their funds are derived from legitimate business activities.

Know-How Protection Directive

Specialization and innovative strength are key factors for the worldwide success of Lenzing. In today’s economy, information and know-how as a result of R&D investments, creativity and business initiatives have become the most important factors for developing and maintaining competitive advantages. Lenzing’s know-how is a central asset that must be preserved and protected using all the protective measures at Lenzing’s disposal. The protection of know-how relates not only to Lenzing’s leadership in technology, but also extends to its many different activities worldwide, including business secrets. Every employee is a key factor in Lenzing’s future know-how protection program and is directly affected by the know-how protection process described in this directive.

Compliance trainings

Understanding rules and regulations is a fundamental requirement for “correct” behavior. Hence the eLearning program was continuously expanded during the reporting year to efficiently convey the most important content of the compliance directives to the relevant target groups. New employees receive welcome folders and onboarding training on the Global Code of Business Conduct and on the topics of “Bribery and Corruption” and “Issuer Compliance”. In addition, every employee receives training on data protection, whistleblowing and know-how protection in the form of eLearning. Training on anti-bribery and anti-corruption as well as whistleblowing was rolled out at the group level during the reporting period. Roughly 906 employees (approx. 12 percent of the total workforce) completed the training on anti-bribery and corruption, while some 2,940 employees (approx. 38 percent of the total workforce) completed training on whistleblowing.⁶⁶ Due to COVID-19, this training took place primarily via eLearning program and online meetings. The roll-out of an eLearning program on antitrust law began in the third quarter of 2021 in the Asian region. Additionally, compliance workshops with IT, HR and Corporate Communications took place in the reporting year. The Managing Board received compliance training in the fourth quarter of 2021.

Detective measures

Whistleblower system

Timely notification of unlawful conduct and/or ethical misconduct is important to take precautionary measures to prevent or reduce financial loss or reputational damage. In this context, all employees – and other stakeholders – are the primary and most valuable source of information. They in particular are able to support Lenzing in identifying violations of its Global Code of Business Conduct or directives.

In order to enable all employees and other stakeholders to report concerns in connection with topics such as corruption, bribes, conflicts of interest, antitrust laws and capital market law, an online-based whistleblower system was established in 2017. Grievances can be reported in-house in person, by phone or email, e.g. to supervisors, the works council or the Group Compliance Officer. In addition, the BKMS^® whistleblower system (“Tell us”) is freely accessible for everyone on the webpage to express any concerns anonymously (available in all languages relevant to production sites: English, German, Czech, Chinese, Indonesian, Thai, Portuguese). Reporting an incident does not only relate to Lenzing’s employees, but also to customers, suppliers, and other third parties around the world. Reported incidents are assessed by lawyers (if necessary in cooperation with local partners), and forwarded to the Group Compliance Officer or to the Local Compliance Officer. Recommendations on the further examination or termination of the investigation are provided. Concerns can be reported anonymously and without fear of retaliation worldwide thanks to this system. The professional handling of the information protects both the whistleblower and the person affected. Nine reports were filed during the reporting period (six of them via a designated mailbox that has been set up), which were processed in a targeted manner in accordance with the internal Investigation Directive. The Audit Committee is informed about the incidents reported once a year.

Company-wide anonymous survey on the culture of integrity

In December 2021, Group Compliance conducted an anonymous survey of all employees to assess the current status of the integrity and compliance culture at Lenzing. The scientifically supervised survey provides an external benchmark for governance and compliance performance in the short and long term. Lenzing will derive targeted measures for compliance activities, such as awareness campaigns, training and communication for both managers and employees from the results. In due course, it will be possible to monitor whether these measures lead to the desired success.

Responsive measures

Legal complaints and investigations

Compliance violations via the whistleblower system are collected in the Legal, IP and Compliance department. As in previous years, no significant cases of corruption were reported at Lenzing in 2021. There were no public complaints in connection with corruption brought against the company or its employees during the reporting period. Moreover, there were no legal actions pending or completed during the reporting period regarding anti-competitive behavior or violations of anti-trust and monopoly legislation in which the Lenzing Group has been identified as a participant. A statement on the allegations concerning Hygiene Austria LP GmbH is provided below.

Hygiene Austria LP GmbH

On March 1, 2021, a house search took place at Hygiene Austria LP GmbH, a non-controlled joint venture established by Lenzing and Palmers Textil AG in the second quarter of 2020 to secure the availability of protective masks in Austria. On becoming aware of the allegations relating to Hygiene Austria LP GmbH, Lenzing also launched its own internal investigations. From day one, Lenzing fully cooperated with the relevant authorities.

Accompanied by appropriate requirements for an orderly going concern, Lenzing transferred its shares in Hygiene Austria LP GmbH to Palmers Textil AG. In order to ensure the continuation of the business of Hygiene Austria LP GmbH, Lenzing waived a corresponding purchase price (see the press release from Lenzing AG dated April 2, 2021). In the meantime, the investment has been fully written off.

Social and environmental compliance

InConflicts of interest and production-related circumstances, such as noise, unpleasant odors, and environmental pollution, can result in disputes with local residents. Procedures are in place at all sites to ensure that complaints are handled fairly and impartially. All complaints are reviewed monthly and reported directly to the Lenzing Group’s senior management teams. Complaints were registered at the sites in Lenzing (Austria), Purwakarta (Indonesia), Nanjing (China), Paskov (Czech Republic), and Indianópolis (Brazil) in 2021, and appropriate remedial measures were taken following the investigation and review process. In Brazil, a resident’s complaint led to a legal dispute that is still ongoing.

While Lenzing companies/subsidiaries have always placed compliance to national and local laws, regulations and policies as fundamental principle and any related issues are treated and resolved with utmost priority, three minor administrative penalties (fines amounting to 203,000 RMB) were imposed on Lenzing’s site in Nanjing (China), in the reporting year.

The issues were in connection with the disposal and storage of waste and the management of pollutant data. All were immediately rectified to the local authorities’ satisfaction. At the site in Paskov (Czech Republic), an administrative proceeding is currently ongoing in connection with the Czech Environmental Inspectorate. In Brazil, a preliminary injunction against the release of effluents was issued by local authorities. The appeal against the injunction was successful.