Assurance report of the independent auditor
To: the Annual General Meeting of Shareholders and the Supervisory Board of Koninklijke DSM N.V.
We have audited the sustainability information in the sections 'Letter from the CEO', 'DSM and the Sustainable Development Goals', 'Report by the Managing Board, consisting of Strategy 2018, Purpose, Strategy 2021, How we create value for our stakeholders, Stakeholders, People, Planet and the 'Sustainability Statements', as included in the Integrated Annual Report for the year 2018 (hereafter: the Sustainability Information) of Koninklijke DSM N.V. (hereafter: Royal DSM), based in Heerlen, the Netherlands. An audit engagement is aimed at obtaining reasonable assurance.
In our opinion, the Sustainability Information is prepared, in all material respects, in accordance with the GRI Sustainability Reporting Standards and Royal DSM's internally developed supplemental reporting criteria as disclosed in the section Non-financial reporting policy of the Integrated Annual Report.
Basis for our opinion
We have performed our audit on the Sustainability Information in accordance with Dutch law, including Dutch Standard 3810N 'Assurance-opdrachten inzake maatschappelijke verslagen' (Assurance engagements relating to sustainability reports), which is a specified Dutch standard that is based on the International Standard on Assurance Engagements (ISAE) 3000 'Assurance Engagements Other than Audits or Reviews of Historical Financial Information'.
Our responsibilities under those standards are further described in the 'Our responsibilities for the audit of the Sustainability Information' section of our report.
We are independent of Royal DSM in accordance with the 'Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten' (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the 'Verordening gedrags- en beroepsregels accountants' (VGBA, Dutch Code of Ethics).
We believe that the assurance evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
The Sustainability information needs to be read and understood together with the reporting criteria. Royal DSM is solely responsible for selecting and applying these reporting criteria, taking into account applicable law and regulations related to reporting.
The reporting criteria used for the preparation of the sustainability information are the Sustainability Reporting Standards of the Global Reporting Initiative (GRI) and Royal DSM's internally developed supplemental reporting criteria as disclosed in the section Non-financial reporting policy of the Integrated Annual Report.
The GRI sustainability standards are the most widely adopted global standards for sustainability reporting and are used by DSM for reporting publicly on its economic, environmental and social sustainability indicators.
Scope of the group audit
Royal DSM is the parent company of a group of reporting entities (hereafter: entities). The Sustainability Information incorporates the consolidated information of this group of entities.
Our group audit procedures consisted of audit procedures at corporate, business group and at local entity level. Our selection of entities in scope of our assurance procedures is primarily based on the local entity's individual contribution to the consolidated Sustainability Information. Furthermore, our selection of entities considered relevant reporting risks and geographical spread.
By performing our procedures at corporate, business group and local entity level, we have been able to obtain sufficient and appropriate assurance evidence about Royal DSM's reported Sustainability Information to provide an opinion about the Sustainability Information.
Our key assurance matter
Key assurance matters are those matters that, in our professional judgment, were of most significance in our audit of the Sustainability Information. We have communicated the key assurance matter to the Managing Board and Supervisory Board. The key assurance matter is not a comprehensive reflection of all matters discussed.
This assurance matter was addressed in the context of our audit of the Sustainability Information within the scope of our engagement as a whole and in forming our conclusion respectively conclusion thereon, and we do not provide a separate opinion on the key assurance matter.
The sustainability indicator on DSM's solutions labelled as Brighter Living Solutions was determined to be a key assurance matter as the assessment is inherently subject to assumptions and management judgement, whereas the determination of other important sustainability indicators on Safety, Health and Environment and Human Resources do require such judgement to a lesser extent.
Brighter Living Solutions
Royal DSM reports on Brighter Living Solutions ("BLS”) which are products and services that have specific environmental or social benefits compared to mainstream reference solutions. The KPI is defined as revenues from BLS as a percentage of total sales of Royal DSM. BLS was significant to our audit since we identified that it serves as a material indicator for Royal DSM to report on the environmental and social impact of its solutions and because the assessment of solutions to qualify as BLS is inherently subject to assumptions and judgement.
We evaluated the reporting process, internal controls and the applicable definitions and criteria. We interviewed several staff members to understand the application of these definitions and criteria and we challenged the underlying evidence, such as the life cycle assessments and expert opinions for solutions classified as BLS and assessed the calculation of the BLS percentage. Finally, we assessed whether the criteria, assumptions and definitions are sufficiently explained in the Integrated Annual Report and on the website of Royal DSM.
We consider that the definitions and criteria for BLS as described in Royal DSM's internally developed supplemental reporting criteria in the Non-financial reporting policy are applied and that the assumptions are adequately explained. We also consider the disclosure on BLS as being proportionate.
In previous years no reasonable assurance, but limited assurance has been provided on the Sustainability Information.
Limitations to the scope of our audit
The Sustainability Information includes prospective information such as ambitions, strategy, plans, expectations and estimates. Inherently the actual future results are uncertain. We do not provide any assurance on the assumptions and achievability of prospective information included in the aforementioned sections of Royal DSM's Integrated Annual Report.
Responsibilities of the Managing Board for the Sustainability Information
The Managing Board of Royal DSM is responsible for the preparation of the Sustainability Information in accordance with the GRI Sustainability Reporting Standards and Royal DSM's internally developed supplemental reporting criteria as disclosed in the section Non-financial reporting policy, including the identification of stakeholders and the definition of material matters. The choices made by the Managing Board regarding the scope of the sustainability information and the reporting policy are summarized in the section 'Non-financial reporting policy' of the Integrated Annual Report.
The Managing Board is also responsible for such internal control as it determines is necessary to enable the preparation of the Sustainability Information that is free from material misstatement, whether due to fraud or error.
The Supervisory Board is, amongst other things, responsible for overseeing Royal DSM's sustainability reporting process.
Our responsibilities for the audit of the Sustainability Information
Our responsibility is to plan and perform the assurance engagement in a manner that allows us to obtain sufficient and appropriate assurance evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud.
Misstatements can arise from fraud or errors and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of the Sustainability Information. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We apply the 'Nadere voorschriften kwaliteitssystemen' (Regulations on quality management systems) 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.
We have exercised professional judgement and have maintained professional skepticism throughout the audit, in accordance with the Dutch Standard 3810N, ethical requirements and independence requirements.
Our audit engagement included among others:
- Performing an analysis of the external environment and obtaining an understanding of relevant social themes and issues, and the characteristics of Royal DSM;
- Evaluating the appropriateness of the reporting criteria used, their consistent application and related disclosures in the Sustainability Information. This includes the evaluation of the results of the stakeholders' dialogue and the reasonableness of estimates made by management;
- Obtaining an understanding of the systems and processes for collecting, reporting and consolidating the sustainability information, including obtaining an understanding of internal control relevant to our audit, but not for the purpose of expressing an opinion on the effectiveness of Royal DSM's internal control;
- Evaluating the procedures performed by the internal audit department;
- Identifying and assessing the risks if the Sustainability Information is misleading or unbalanced, or contains material misstatements, whether due to errors or fraud. Designing and performing further audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk that the sustainability information is misleading or unbalanced, or the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from errors. Fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. These further procedures include among others:
- Interviewing management and relevant staff at corporate, business and local entity level responsible for the sustainability strategy, policy and results;
- Interviewing relevant staff responsible for providing the information for, carrying out internal control procedures on, and consolidating the data in the sustainability information;
- Determining the nature and extent of the audit procedures for the group components and locations. For this, the nature, extent and/or risk profile of these components are decisive. Based thereon we selected the components and locations to visit. The visits and remote reviews to 7 production sites in 6 countries are aimed at, on a local level, validating source data and evaluating the design, implementation and operation of controls and validation procedures;
- Obtaining assurance information that the sustainability information reconciles with underlying records of the company;
- Evaluating relevant internal and external documentation, on a test basis, to determine the reliability of the information in the sustainability information; and
- Performing an analytical review of the data and trends.
- Reconciling the relevant financial information with the financial statements;
- Evaluating the consistency of the sustainability information with the information in the annual report which is not included in the scope of our audit;
- Evaluating the overall presentation, structure and content of the sustainability information;
- To consider whether the sustainability information as a whole, including the disclosures, reflects the purpose of the reporting criteria used.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant findings, including any significant findings in internal control that we identify during our audit.
Amstelveen, 7 March 2019
KPMG Accountants N.V.
E.H.W. Weusten RA