2019Report by the Managing Board

Planet

We take our global environmental and social responsibilities very seriously. These extend beyond our own operations to include those of our suppliers, customers and end-users. We fulfill our environmental responsibilities through our portfolio of Brighter Living Solutions, our Safety, Health & Environmental (SHE) policy, and our position on issues such as product stewardship and biodiversity. We focus on:

• Improving our own environmental footprint

• Enabling our customers to do the same through innovative solutions

• Advocating on our key environmental topics

Our Brighter Living Solutions — solutions that are better than the mainstream reference solution for people and/or the planet — account for 63% of our net sales.

Our operations network spans more than 110 commercial production facilities in over 40 countries. Our operational approach is led by the DSM Responsible Care Plan, described below, and supports the Sustainable Development Goals (SDGs), especially SDG 7 (Affordable and Clean Energy), SDG 12 (Responsible Consumption and Production) and SDG 13 (Climate Action), among others. Our approach also addresses several topics from our Materiality matrix:

• Climate & Energy

• Resources & Circularity

• Water security

• Biodiversity

• Product stewardship

DSM Responsible Care Plan 2019–2021

In 2019, we brought the DSM Responsible Care Plan (DRCP) in line with Strategy 2021. The DRCP defines our ambitions, targets and actions in the fields of safety, health, environmental footprint, value chain sustainability, climate adaptation and security.

Our key environmental targets for the updated DSM Responsible Care Plan 2019–2021 are our Science-Based Targets, comprising a greenhouse gas (GHG) scope 1 + 2 emission absolute reduction of 30% and a GHG scope 3 intensity reduction of 28% by 2030 versus our 2016 baseline. These were reviewed and approved by the Science Based Targets initiative in early 2019, for more information, see the company website. Our scope 1 + 2 target is supported by our renewable electricity target — 75% of purchased electricity to be sourced from renewables by 2030 — and our annual average energy efficiency improvement of at least 1% through until 2030, and our scope 3 target is supported by the CO2REDUCE program.

Our additional targets are:

• Water: water risk assessments — 100% completed and more than 90% of high-risk actions closed in 2020

• Water: maintain or improve our water consumption efficiency

• Other emissions to air: show continued reduction in volatile organic compounds (VOC) — resulting in a reduction in our emissions intensity of more than 50% by 2021 compared to 2015

We also set ourselves the ambition to develop the following key plans during this DSM Responsible Care Plan period:

• Climate adaptation heatmaps covering the physical risks of our material sites, by the end of 2020

• Water and waste reduction roadmaps in order to set quantifiable, context-based reduction targets in the next DRCP

• An action plan for all products containing substances of high concern at a concentration higher than 0.1% by the end of 2020 (excluding those products defined as 'essential for life')

For more detailed information about our Planet performance, see 'Sustainability statements — Planet'. See also 'How we create value for our stakeholders' and 'Stakeholder Engagement'.

Climate & Energy

In 2015, the Paris Agreement first established a common ambition to take urgent action on GHG emissions to limit average temperature increases to well below 2°C. Later in 2018, the Intergovernmental Panel on Climate Change (IPCC) provided a clear and compelling case to redouble efforts to limit the warming to 1.5°C by 2100. Meeting the 1.5°C ambition will require emissions of carbon dioxide to reach net-zero by 2050, which involves rapidly accelerating the rate of emission reduction over the coming decade.

We were one of the first companies to align our efforts with the latest science as presented in the IPCC Special Report 'Global Warming of 1.5°C' by setting a long-term pathway to reach net-zero GHG emissions across our operations and value chains by 2050. Our Science Based Targets are our foundation to achieve this goal, supported by our ambitions on renewable electricity and energy efficiency, and through working intensively with our key suppliers through our CO2REDUCE program.

In support of our ambition to substantially reduce our carbon footprint, we have introduced new measures which we apply to all growth projects. Starting from 2019, business growth projects must either be GHG-neutral or else be compensated for within the same business. In addition, to encourage investments in low-carbon and carbon-free technologies, we use an internal carbon price of €50/t CO₂eq in the valuations of key investment projects and in the Profit and Loss statements of the business groups for internal management reporting. This increases the visibility of, and encourages accountability for, the impact of carbon on the business.

As a complement to our efforts on climate change mitigation, we also work on an integrated strategy of climate adaptation measures to improve the resilience of our assets and supply chains against potential physical impacts of climate change.

The climate action agenda brings together our key climate actions addressing the three pillars of improve, enable and advocate. The progress of the agenda, including the implementation of the Taskforce on Climate-Related Disclosures (TFCD) recommendations, and the GHG reduction program are managed and actively reviewed by the Executive Committee several times a year. Concrete actions within the agenda are owned by individual Executive Committee members. Through the agenda, we ensure that the business opportunities relate to mitigation and adaptation, and the identified transition and physical risks of climate change are addressed. Our climate change strategy received an A^- rating from CDP in 2019.

In order to achieve the targeted absolute GHG reduction by 2030, we have started a dedicated program to help our key locations implement appropriate energy transition and energy efficiency measures. We identify GHG emission reduction opportunities using performance diagnostics that are carried out at all our main contributing sites. These opportunities range from relatively easy-to-implement modifications in operations and maintenance using Best Available Technologies, to transitioning to renewable energy sources. The identified opportunities are analyzed and ranked, and the projects are implemented based on their impact. A dedicated corporate budget is available to our business groups for the execution of these GHG reduction projects.

Scope 1 + 2 GHG emissions

Our scope 1 + 2 market-based GHG emissions improved compared to 2018, with total emissions of 1.17 million tons CO₂eq in 2019. Our baseline GHG emissions figure of 2016 of 1.50 million tons CO₂eq was increased to 1.57 million tons CO₂eq, due to the inclusion of nine acquired sites in our reporting scope in the period 2017–2019. Our GHG efficiency (year-on-year) improved further to 12.7% in 2019.

1. 2016 baseline was increased due to the inclusion of nine acquired sites

The absolute reduction in scope 1 + 2 GHG emissions was 25% compared to the corrected baseline of 2016. We estimate that of the 25% absolute reduction in scope 1 + 2 GHG emissions compared to baseline 2016, 17% is due to structural improvements. This was mainly due to an increase in purchased renewable electricity, the implementation of significant GHG reduction measures, such as the start-up of the biomass plant in Sisseln (Switzerland), and the closure of our less efficient power plant in Jiangshan (Jiangsu Province, China). Absolute GHG emissions are also impacted by business and portfolio variations, and external factors such as grid emission factors.

Energy transition

Our energy efficiency improvement (on primary energy) was 2.3% versus 2018, above our target of an average annual improvement of 1%. This result was due to product portfolio changes and the implementation of improvement projects at our key sites.

We implemented a range of reduction proposals from the business groups, encompassing projects for saving heat, fuel and electricity with an expected total of GHG improvement potential of approximately 30 kt in GHG reductions and 2% of energy efficiency savings annually. Projects executed in 2019 include a project in Belvidere (New Jersey, USA) where we replaced a large chiller installation with a state-of-the-art version with much lower energy consumption that uses a GHG-neutral refrigerant. Further steps to reduce our energy consumption at this site are ongoing. In a project at Jiangshan (Jiangsu Province, China) we installed a membrane filtration system to concentrate a product solution, thereby significantly reducing the amount of steam needed for further concentration.

Renewable energy

We are a member of the Climate Group's RE100, comprising leading companies that have committed to sourcing 100% of their electricity from renewable sources at the earliest possible opportunity. Our commitment is to source 75% of our electricity from renewable sources by 2030 and 100% at the earliest possible opportunity.

In 2019, we continued to make good progress toward our target of purchased renewable electricity. The percentage of purchased electricity from renewable sources increased globally from 41% in 2018 to 50% in 2019, resulting in a ~60kt CO₂eq reduction for the year. In the Netherlands, our portfolio of agreements continued to provide 100% purchased electricity from wind parks to all locations. At our DSM Nutritional Products manufacturing sites in Switzerland, approximately 50% of the electricity currently comes from hydropower. Following the first Power Purchase Agreement in the US, which provides electricity from wind power, we completed another Agreement in 2019 that will become operational in 2022 to provide solar-powered electricity. The production from the first Agreement combined with pre-production renewable energy certificates (RECs) from both Agreements resulted in around 69% coverage of purchased electricity from renewable resources in North America in 2019, from an estimated 40% in 2018.

We also look for opportunities to replace heat from fossil fuels on our premises. The biomass cogeneration plant at our DSM Nutritional Products site in Sisseln (Switzerland) replaced the site's old natural gas-fired cogeneration plant and is the first major success in this area. Our partners, ENGIE and EWZ, own, operate and maintain the biomass plant, which started production early 2019. This milestone was celebrated at the grand opening in April, which was attended by representatives from all partners and the local authorities. The replacement results in 50 kt CO₂eq reduction per year (of which about 80% is for us and 20% for the other partners).

Scope 3 GHG emissions

Our absolute scope 3 GHG emissions amounted to 11.6 million tons of CO₂eq in 2019, which is 0.3 million tons higher than 2018. The largest change in 2019 compared to 2018 was caused by an increase of emissions in the category Purchased goods & services. This was attributable to updated emission factors and changes in product mix.

The 2019 figures were calculated using updated product emission factors. Updated values and changed assumptions due to improved insights and supplier-specific situations resulted in adjusted emission values. The main scope 3 categories in the 2019 figures remain Purchased goods and services and End-of-life-treatment of sold products.

Science Based Targets

Our new Science Based Target for scope 3 is an intensity reduction target of 28% per unit of product in 2030 versus the base year of 2016. The categories in scope for this Target are Purchased goods and services, Upstream transportation and distribution and Waste generated in operations. To track the progress toward this intensity target, a detailed tracking process was developed and will be fully implemented in 2020.

A recalculation of the emissions for 2016 (the baseline year for the Science Based Target) was made using improved insights and updates of the most relevant emission factors according to our defined standard. This recalculation covers the categories in scope for the Target and will be used solely for reporting performance against the Science Based Target. Emissions for the year 2017 are not recalculated.

Progress on the Science Based Target for scope 3 will not be reported for 2019 because the baseline has only just been set, and any progress toward, or movement away from, our target will be incidental. However, progress on structuring supplier engagements has been significant and the processes are in place to advise, track and report on improvements.

CO2REDUCE supplier engagement program

Emissions related to Purchased goods & services are the largest contributor to our scope 3 emissions. A company-wide supplier engagement program called CO2REDUCE was designed and initiated at the end of 2018, involving multiple key suppliers. The program aims to generate deeper insights into the emission performance of our supplier base, identify the GHG reduction options at key suppliers, and support the collaboration needed to enable these initiatives. This helps to reduce the transition risks in our supply chain. This program was activated, accelerated and extended to the suppliers and products that contribute the highest GHG emissions in our value chain. Our Supplier Engagement Rating on climate was given an A rating by CDP in 2019.

CO2REDUCE lessons learned and new supplier insights resulted in an increased understanding of supplier emission performance for key categories in our scope 3 emissions. With the scope 3 target in place and the experience gained in 2019, we were able to increase our focus on key steps in the program.

Firstly, good insight into supplier performance with respect to GHG emissions is an important aid to identify strategic procurement initiatives to lower the carbon emissions portfolio. The first reduction options are emerging, and supplier GHG performance has been integrated into the procurement strategies of some key categories. Supplier collaboration projects with key suppliers aimed at realizing emission reduction projects are underway. Running projects show several options to reduce GHG emissions through supplier selection, efficiency improvements and the use of renewable energy. One example is suppliers sourcing renewable electricity based on best practices we shared with them.

Secondly, the increased understanding gained in 2019 enabled each of our businesses to develop roadmaps for the reduction of their scope 3 emissions. These roadmaps help focus our efforts to realize the ambitious Science Based Target for scope 3 and consist of a pipeline of multiple additional projects, supplier engagement initiatives, and sourcing strategies to fulfill our sustainability ambitions.

Finally, we also develop products for the circular and bio-based economy that contribute to further reducing our scope 3 emissions. See 'Stakeholder engagement' and 'Resources & Circularity' below.

Climate Adaptation

As an essential complement to our efforts to cut emissions, we also apply an integrated strategy of climate adaptation measures. For example, to improve the resilience of our assets and supply chains against potential physical impacts of climate change, we are developing our physical risk assessment. This involves mapping high-risk areas and major sites for emerging hazards and long-term impacts using different time horizons and climate scenarios.

Avoided emissions

Brighter Living Solutions can have benefits at any stage in the value chain. 'Avoided emissions' refers to the emissions-related environmental benefits that occur downstream in the use phase of our products. While avoided emissions do not count toward our own Science Based Targets, they result in reduced emissions for our customers and end-users.

For example, DSM Engineering Plastics supplies products for food packaging films requiring effective oxygen barrier properties and high puncture resistance. These films play an important role in reducing food waste by protecting food during transport, retail and consumer use, and extending shelf life. Reducing food waste diminishes the burden on the food production system, leading to significant avoided emissions. Products sold in this segment in 2019 contributed to an estimated avoided emission of 27,500 kt CO₂eq.

As another example, our powder coating resins can be used to replace solvent-borne coatings in many applications, allowing faster and more efficient curing, at lower temperatures, with less waste. Powder coatings also remove the need for solvents, leading to further reductions in GHG and other emissions. In 2019, sales of powder coatings avoided GHG emissions of approximately 520 kt CO₂eq.

Other emissions to air

Our reporting on Other emissions to air focuses on VOCs, as these are the most significant emissions in this area. We continue to report our NO_x and SO₂ emissions in the Sustainability statements and via the company website; however, these emissions are not material due to improvement actions executed in the past. Our target is to continuously reduce our Volatile Organic Compounds (VOC) emissions, resulting in a more than 50% efficiency improvement by 2021 — an increase on our previous aspiration of 40% for the three emissions by 2020. In 2019, we saw a large improvement in our VOC efficiency, mainly due to the start-up of a VOC treatment plant in Jiangshan (Jiangsu Province, China).

Resources & Circularity

With the global population having doubled over the past 50 years, resource extraction has tripled, putting pressure on the Earth's finite resources. At the same time, the Circularity Gap Report 2019 finds that the global economy is only 9% circular — in other words, just 9% of the 92.8 billion tons of minerals, fossil fuels, metals and biomass that enter the economy are re-used annually, and the trend is negative — the gap is not closing. That is why we are committed to securing the future availability of natural resources and unlocking more value from the limited resources available. By working closely together with our value chain, we continue to develop closed-loop, circular solutions. As part of our Resources & Circularity approach, we aim to improve our own impact through resource efficiency improvements and measures, to enable our customers to deliver sustainable and circular solutions, and to advocate for the transition to a circular, bio-based economy.

We enable our customers to transition toward a circular & bio-based economy by focusing on five drivers:

• Reduce the use of critical resources throughout the value chain

• Replace scarce, hazardous, and potentially harmful resources with safe and renewable alternatives

• Extend the lifetime of products by means of improved durability or shelf-life

• Design for recyclability

• Recover waste streams by viewing waste as a resource

Renewable & secondary raw materials

Circularity includes replacing finite fossil resources with regenerative, renewable resources, as well as secondary (recycled) materials. The use of such sustainable resources is an essential step in securing future resource availability, but can also have environmental benefits in reducing the carbon footprint.

The renewable raw materials we use include waste from agriculture, yeasts and enzymes, carbohydrates and natural oils, and acids. In 2019, the share of our spend on renewable raw materials increased from 14.3% in 2018 to 14.7%. The percentage increase is due to an increase in spend on glycerol, maltodextrin, and other carbohydrates.

We have a strong track record of sustainable innovations and pioneering in bio-based solutions. This year, our businesses again made a big step forward in driving the transition toward a circular and bio-based economy.

One example is DSM Engineering Plastics, which announced ambitious plans to introduce bio- and recycled-based alternatives for its entire portfolio, to be completed by 2030. In addition to existing bio-based grades including EcoPaXX® and ForTii®Eco, we launched bio-based versions of both Arnitel® and Stanyl® grades in 2019. Arnitel® is a thermoplastic elastomer (TPE) with high temperature resistance and is mainly used to replace rubber in automotive, electronics and other industries. Stanyl® is a high-temperature-resistant polyamide and the only aliphatic polyamide in its class. The bio-based grades of Arnitel® and Stanyl®, launched in 2019, deliver the same functional and regulatory qualities as the conventional grades and do not require any special handling equipment or different processing steps. In this way, we are offering our customers the chance to choose a sustainable future where they can reduce their environmental impact without compromising their products or processes. Similarly, both DSM Resins & Functional Materials and DSM Dyneema have also set their own circular and bio-based ambitions. For more information, see 'Materials'.

An example of the use of secondary raw materials is Akulon® RePurposed. We use discarded fishing nets to produce this recycled-based polyamide. The nets are collected, cleaned and sorted along the coastlines of India, contributing to cleaner oceans, litter-free beaches and jobs for local communities. The polyamide is used in high-end applications in the sports and leisure segment (such as surfboard accessories).

In the coming months and years, we will work with more parties within the value chain — including our suppliers, customers, collaborative partners and even competitors — to lead the transition toward more circular and sustainable materials.

See also our position paper on Sustainable Biomass on the company website.

Waste

Our definition of waste recycled is the percentage of total process-related waste that is recycled or, if this is not possible, incinerated off-site with heat recovery. We pay careful attention to meeting local waste management legislation. We aim to maintain our percentage of recycled waste in the range of 80–90%, which was achieved in 2019.

Besides measuring our percentage of recycled waste, we also pay attention to reducing our total amount of process-related waste. In 2019, our total process-related waste efficiency improvement was 2.8%. The overall increase in process-related waste is due to the inclusion in our reporting of new acquisitions, which are not included in the efficiency calculations. We also managed to reduce our total amount of hazardous waste to landfill by 12%, mainly due to improvement activities at our site in Piura (Peru). The significant decrease in non-process related waste from 27 kt in 2018 to 5 kt in 2019 was due to a large demolition project conducted in 2018, whereby a large volume of waste was sent for land reclamation. These effects did not occur in 2019.

Water security

Water is essential to life. It is also essential to the viability of our business, and we recognize that this precious resource will come under increasing pressure in the face of climate change and growing global demand. We are committed to measuring, tracking and continually improving our water stewardship as well as our position as a global sustainability leader within the chemical sector. As part of this commitment, we are a signatory of the CEO Water Mandate, a UN Global Compact initiative that mobilizes business leaders to advance water stewardship, sanitation, and the Sustainable Development Goals, in partnership with governments, peer institutions, civil society, and others.

We recognize water management as integral to our risk mitigation and environmental impact reduction strategies. We believe that water risks are local by nature, and therefore focus on local water risk assessments and thorough follow-up of these. In 2019, we received a B rating from CDP for our water governance and management strategy. In 2019, we completed water risk assessments at our new material water sites and we worked further on mitigating actions in our high-risk areas. The main water risks identified related to water quality and limitations in local infrastructure. Current risk exposure to water scarcity was identified as limited in the regions where we operate. A longer-term water risk horizon will be considered in conjunction with the physical risk assessments scheduled for 2020.

Our water consumption efficiency improved by 4.0% versus 2018. This is partly due to the water-related benefits from our energy efficiency improvement projects, such as steam usage or chilling and cooling improvement projects. Our water pollution reduction programs aim to reduce total water pollution, mainly by cutting Chemical Oxygen Demand (COD). Total COD was stable at 2.1 kt in 2019. We are also investing in improving our water treatment facilities.

Biodiversity

Biodiversity and healthy ecosystems are key conditions for a sustainable world. Each year, we identify and monitor the protected areas in the vicinity of our sites and the impact that our activities have on these. In 2019, we further clarified our metric 'Sites in or adjacent to protected areas', resulting in a decrease in this metric. The clarification is that protected areas are formally recognized as such (for example, through national legislation or Ramsar sites), and that sites must directly border a protected area. Being in the vicinity of one of these areas does not equate to directly bordering it. We also improved our reporting, which informed us that of the reported sites near high biodiversity, 3% of our sites are in, or contain portions of a registered protected area. For more information, see our position paper on Biodiversity on the company website.

Product stewardship

Product stewardship is an important pillar of our sustainability strategy. We minimize and control possible SHE risks that could be caused by the substances used in our products throughout the value chain. The use of certain chemicals can lead to health and environmental risks. We believe that minimizing these risks goes together with the creation of a circular economy, which is a key part of Strategy 2021. Central to our vision on product stewardship is a risk-based approach and the use of safer alternatives whenever feasible, and always when required. For our innovation portfolio, 'safe by design' is the leading principle in the development of new and better products and processes.

Last year, we started assessing our full product portfolio to fulfill our ambition to have an action plan for all products that contain more than 0.1% Substances of Very High Concern by 2020. Substances in products that are considered 'essential for life' (i.e., that have a proven beneficial nutritional or pharmaceutical effect when used at the officially recommended dose) are excluded from this assessment.

An important source of information on health and environmental hazards and risks of chemicals is the database generated with the implementation of REACH in Europe a decade ago. The quality of data that has been submitted in good faith by industry was recently questioned by the authorities. The European chemical industry association consequently started a program to improve the quality of the REACH dossiers. We were among the first companies to sign the Declaration of Intent, and we started the re-evaluation of the dossiers in which we are the lead registrant.

For more information on product stewardship, see the company website.