Assurance report of the independent auditor
To: the Annual General Meeting of Shareholders and the Supervisory Board of Koninklijke DSM N.V.
Report on the audit of the sustainability information 2022 included in the Integrated Annual Report
We have audited the non-financial information in the sections ‘Key data’, ’Co-CEO letter, ‘Our approach to the Sustainable Development Goals’, ‘Sustainable Portfolio Steering’, ‘Food System Commitments’, ‘Report by the Managing Board, consisting of the chapters Purpose, Strategy, Case studies, Stakeholders, People and Planet’, the ‘Non-financial reporting policy’, the ‘Sustainability Statements’ (excluding section ‘2. EU Taxonomy’ of the ‘Notes to the Sustainability statements’) and the ‘Sustainability tables’, as included in the Integrated Annual Report for 2022 (hereafter: the ‘sustainability information’) of Koninklijke DSM N.V. (hereafter ‘Royal DSM’), based in Heerlen, the Netherlands. An audit is aimed at obtaining a reasonable level of assurance.
In our opinion, the sustainability information presents, in all material respects, a reliable and adequate view of:
- the policy and business operations with regard to sustainability; and
- the thereto related events and achievements in 2022;
in accordance with the GRI Standards and Royal DSM’s internally developed supplemental reporting criteria as disclosed in the section ‘Non-financial reporting policy’ included in the chapter ‘Reporting policies’ 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 this standard 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). Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
The sustainability information is prepared in accordance with the Sustainability Reporting Standards of the Global Reporting Initiative (GRI Standards) and Royal DSM’s internally developed supplemental reporting criteria as disclosed in the section ‘Non-financial reporting policy’ included in the chapter ‘Reporting policies’ of the Integrated Annual Report. The GRI Standards used are listed in the GRI Content Index.
The absence of an established practice on which to draw, to evaluate and measure non-financial information allows for different, but acceptable, measurement techniques and can affect comparability between entities and over time.
Consequently, the sustainability information needs to be read and understood together with the reporting criteria used.
Based on our professional judgement we determined materiality levels for each relevant part of the sustainability information as included in the Integrated Annual Report. When evaluating our materiality levels, we have taken into account quantitative and qualitative considerations as well as the relevance of information for both stakeholders and Royal DSM.
Scope of the group audit
Royal DSM is the head of a group of components. The sustainability information incorporates the consolidated information of this group of components to the extent as disclosed in the ‘Non-financial reporting policy’ of the Integrated Annual Report.
Our group audit procedures consisted of audit procedures at corporate and component level. Our selection of components in scope of our audit procedures is primarily based on the component’s individual contribution to the consolidated sustainability information. Furthermore, our selection of components considered relevant reporting risks and geographical spread.
By performing our audit procedures at corporate and component level, we have been able to obtain sufficient and appropriate audit evidence about Royal DSM’s reported sustainability information to provide an opinion about the sustainability information.
Our key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the sustainability information. We have communicated the key audit matter to the Managing Board and the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
These key audit matters were addressed in the context of our audit of the sustainability information as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The sustainability indicator on Royal DSM’s solutions labeled as Brighter Living Solutions+ and performance on DSM’s Food System Commitments were determined to be key audit matters as these assessments are inherently subject to assumptions and management judgement, whereas the determination of other important sustainability indicators on Safety, Health and Environment and Human Resources require such judgement to a lesser extent.
Brighter Living Solutions+
Royal DSM reports on Brighter Living Solutions+ ("BLS+”), which is a categorization of products and services that have specific environmental or social benefits, whilst not having any urgent, significant and measurable negative impacts, assessed based on DSM’s sustainable portfolio steering (SPS) methodology.
The indicator is defined as net sales from BLS+ as a percentage of total net 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 uncertainties as a result of estimates, assumptions and judgement.
We obtained an understanding of the reporting process, the applicable definitions and applied reporting criteria (based on the SPS methodology), performed walkthrough procedures and evaluated the design and implementation of relevant internal controls. We inquired Royal DSM’s staff members involved in the BLS+ assessment process and inspected internal documentation to understand the application of these definitions and applied reporting criteria. We challenged underlying evidence, such as product sustainability assessment questionnaires, life cycle assessments and expert opinions for solutions classified as BLS+ and assessed the calculation of the BLS+ percentage. Finally, we assessed whether the reporting criteria, estimates, assumptions and definitions are adequately disclosed in the Integrated Annual Report.
We consider that the definitions and criteria for BLS+ as described in Royal DSM’s internally developed supplemental reporting criteria as disclosed in the section ‘Non-financial reporting policy’ included in the chapter ‘Reporting policies’ of the Integrated Annual Report have been appropriately applied and that the estimates and assumptions are adequately explained. We also consider the disclosure on BLS+ in the Integrated Annual Report as being adequate.
Food System Commitments
Royal DSM reports for the first time on a set of new performance indicators related to Food System Commitments (“FSCs”). The FSCs are seven quantifiable commitments on the environmental or societal impact in global food systems of Royal DSM together with its partners in its value chain. The FSCs, grouped in the areas Health for People, Health for Planet, Healthy Livelihoods and Basic commitments, are explained in the ‘Food Systems Commitments’ section of the Integrated Annual Report. The FSCs are defined as listed below:
- Help close the micronutrient gap of 800 million vulnerable people by 2030
- Support the immunity of half a billion people by 2030
- Enable double-digit on-farm livestock emission reduction by 2030
- Reach 150 million people with nutritious, sustainable plant-based protein foods by 2030
- Support the livelihoods of 500,000 smallholder farmers across the value chain together with our partners by 2030
- Deforestation-free in our primary supply chains by 2030
- Good workforce nutrition by 2030
The performance indicators related to the FSCs are significant to our audit since we identified that they serve as material indicators for Royal DSM to report on their societal reach and impact on global food systems. Also, this is the first year that Royal DSM is reporting on these commitments and the assessment of commitment is inherently subject to uncertainties as a result of estimates, assumptions and judgement.
For each FSC we obtained an understanding of the reporting process, applicable definitions, applied reporting criteria and methodologies, performed walkthrough procedures and evaluated the design and implementation of relevant internal controls. We inquired Royal DSM’s staff members involved in the FSC reporting process and inspected internal documentation to understand the application of these definitions, applied reporting criteria and methodologies. Methodologies were supported with individual assessments of applied estimates and assumptions per FSC, which we consider to be critical in validating the (external) reference sources applied for each FSC. We challenged underlying evidence, such as sales volume and spend data, market studies and external (scientific) research on relevant topics, such as but not limited to: greenhouse gas emissions (e.g. methane), intake dosages, crop yield factors, lives reached overlap factors, attendance statistics for educational webinars and certifications related to deforestation programs. We assessed external sources used for its relevance and reliability, and we made use of external confirmations where considered appropriate. Finally, we assessed whether the reporting criteria, estimates, assumptions and definitions are adequately disclosed in the Integrated Annual Report.
We consider that the definitions and criteria for the performance indicators related to FSCs as described in Royal DSM’s internally developed methodology documents and reporting criteria as disclosed in the section ‘Non-financial reporting policy’ included in the chapter ‘Reporting policies’ of the Integrated Annual Report have been appropriately applied and that the estimates and assumptions are adequately explained. We also consider the disclosure on the performance indicators, related to FSCs, in the Integrated Annual Report as being adequate.
Limitations to the scope of our audit
The sustainability information includes prospective information such as ambitions, strategy, plans, expectations and estimates.
Inherent to this prospective information, the actual future results are uncertain. We do not provide any assurance on the assumptions and achievability of prospective information included in the sustainability information.
References to external sources or websites in the Integrated Annual Report are not part of the sustainability information as audited by us. Therefore, we do not provide assurance on this information.
Our opinion is not modified in respect to these matters.
Responsibilities of the Managing Board and the Supervisory Board for the sustainability information
The Managing Board of Royal DSM is responsible for the preparation of reliable and adequate sustainability information in accordance with the reporting criteria as included in the section ‘reporting criteria’, including the identification of stakeholders and the definition of material matters.
The Management Board is also responsible for selecting and applying the reporting criteria and for determining that these reporting criteria are suitable for the legitimate information needs of stakeholders, taking into account applicable law and regulations related to reporting.
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.
Furthermore, the Managing Board is responsible for such internal control as it determines is necessary to enable the preparation of the sustainability information that is free from material misstatements, whether due to error or fraud.
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 our audit engagement in a manner that allows us to obtain sufficient and appropriate audit 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 misstatements due to error or fraud during our audit.
Misstatements can arise from errors or fraud 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 for 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 other relevant 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 included among others:
- Performing an analysis of the external environment and obtaining an understanding of relevant sustainability 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 of Royal DSM;
- 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 Royal DSM’s Corporate Operational 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 included among others:
- Inquiry with management and relevant staff of Royal DSM at corporate and component level responsible for the sustainability strategy, policies and results;
- Inquiry with relevant staff of Royal DSM 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 at corporate and component level. For this, the nature, size and/or risk profile of these components were decisive. Based thereon we selected the components to visit. The (remote) visits to production sites in the China, USA, Brazil and the Netherlands were aimed at, on a component level, validating source data and evaluating the design, implementation and operation of controls and validation procedures. In view of restrictions on the movement of people across borders, for affected countries in the Covid-19 pandemic where travelling to affected countries was not practicable, we conducted our visits remotely for those components;
- Obtaining audit evidence that the sustainability information reconciles with underlying records of Royal DSM;
- 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
- Evaluating the consistency of the sustainability information with the information in the Integrated Annual Report which is not included in the scope of our audit;
- Evaluating the overall presentation and content of the sustainability information; and
- Considering 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, 1 March 2023
KPMG Accountants N.V.
P.J. Groenland – van der Linden RA