Aspect 4: Respecting human rights

Compliance with human rights is highly important to our Group. This applies both internally within our Company and to our business partners and suppliers as well. To also ensure compliance with human rights outside of our Group, we expressly require our over 30,000 suppliers in more than 80 countries to assume this responsibility as well.

LABOR STANDARDS IN THE SUPPLY CHAIN AND IN THE GROUP

There are still places in the world where human rights are not a given. We may be exposed to country- and supplier-specific risks through our global procurement activities; these include, for instance, the use of child labor or poor local labor and safety conditions. Violations can cause severe damage to those affected, and can also result in reputational loss and negative financial consequences for companies. For further information, please refer to the section “Risk and opportunity management.”

As a responsible company, we have made an express commitment to the UN Guiding Principles on Business and Human Rights adopted by the United Nations Human Rights Council in 2011 (Ruggie Principles). The obligation to respect human rights is anchored in our basic policies – in our Guiding Principles and in the Deutsche Telekom Social Charter, which we updated during the reporting year and developed into the Code of Human Rights & Social Principles. The Board of Management adopted the amended version in November 2017. This update underscores our commitment to protecting human rights and to the goals of the German National Action Plan on Business and Human Rights adopted by the Federal Government in 2016. Additionally, the Code of Human Rights & Social Principles is our commitment to complying with the fundamental principles and standards set forth by the International Labour Organization (ILO) and the Organisation for Economic Co-operation and Development (OECD) as well as with the Universal Declaration of Human Rights and the UN Global Compact. We also require our suppliers to comply with all of our guidelines related to human rights. Within the Group, our primary focus is on safeguarding the right to conclude collective agreements and on guaranteeing diversity and equal opportunity. For further information, please refer to the passages entitled “Collaboration with employees’ representatives/trade unions” and “Diversity and equal opportunity” in this section. 10

The UN Guiding Principles on Business and Human Rights require businesses to systematically identify the impact their operations have on human rights, and to prevent, mitigate, or compensate these where necessary. In order to meet these requirements, we have developed an extensive program to implement the UN Guiding Principles throughout our Group and introduced an ongoing process comprising several interconnected measures and tools. The program includes promoting awareness, a mechanism for lodging complaints, a risk and impact analysis, and reporting.

We mainly use two instruments to review our Code of Human Rights & Social Principles: First, we prepare a Social Performance Report each year. In 2016, all 103 companies surveyed declared in the report that they are in compliance with the requirements of the Code of Human Rights & Social Principles and the report did not record any violations in 2016. The number of surveyed companies increased in 2017 to 122. In addition, in 2017 we also evolved the Social Performance Report into the Human Rights and Social Report, adding questions on the individual points of the Code of Human Rights & Social Principles. We will be publishing the 2017 report on our website in March 2018. We also maintain a central contact point for human rights issues, available at the e-mail address humanrights(at)telekom.de or through an anonymous whistleblower system. We have summarized all relevant contact information on our whistleblower portal Tell me!. We look into all tip-offs received and introduce countermeasures as soon as the information is identified as plausible. In 2017, seven tip-offs relating to human rights issues were received either directly via the portal or via the (anonymous) tip-off system. Not all of these tip-offs were deemed plausible. Whenever necessary, we carry out review processes at our national companies to assess employer-employee relationships. To do so, we collect five human rights-related key performance indicators, such as employee satisfaction, then assess these using a stop light system. For detailed information on employee satisfaction, please refer to the section “Employees.” We also formally review compliance with the Employee Relations Policy each year. The findings are discussed with the regional managers of the respective national companies; if necessary, we agree upon measures such as a Human Rights Impact Assessment, which is designed to assess the actual and potential consequences of corporate activities on human rights and the ability of the organization to prevent, mitigate, or compensate these consequences. We completed such an assessment at T-Systems do Brasil in 2017 and carried out Employee Relations Policy reviews at T-Systems Netherlands and IT Services Hungary in the same year. In addition, we created a special training module on human rights, available for all employees to complete as of January 2018.

More and more, the public expects companies to take responsibility over their entire supply chains and utilize the opportunities they have to influence specific issues. We have been working to improve sustainability throughout our supply chain for many years. We derive our sustainability strategy in procurement from our CR strategy; it is anchored in the purchasing processes used throughout our Group. The heads of the CR and Procurement units are responsible for implementing sustainable procurement practices. They report to the CHRO and the CFO, and an escalation process calls for decisions to be made at Board of Management level in severe cases. The Sustainable Procurement Working Group supports international procurement units in meeting sustainability requirements. Our sustainability principles for procurement are set forth in the Global Procurement Policy; associated Procurement Practices provide specific purchasing instructions for Germany and are considered recommendations for our national companies. We train our employees throughout the Group using an e-learning tool. In addition, a buyer handbook has been available since 2016 to provide an overview of which CR criteria must be considered at which point of the procurement process.

Basic ethical, social, and ecological principles are set forth in our Supplier Code of Conduct, updated in 2017, which is part of our General Terms and Conditions for Purchasing and which must be recognized by all of our suppliers. We give the topic of sustainability a 10 percent weighting in requests for tenders.

We cannot guarantee that all of our suppliers will conform to the principles of our Supplier Code of Conduct. However, we review this compliance regularly to minimize risks and further develop suppliers, working closely with them on these issues. We do so using a four-phase approach: The Supplier Code of Conduct is an integral part of all supplier agreements, and as such is binding for all of our suppliers (phase 1). As the business relationship proceeds, we ask strategically relevant or high-risk suppliers to enter extensive information about their practices in the E-TASC (Electronics Tool for Accountable Supply Chains powered by EcoVadis) information system. We take things a step further in our relationships to certain suppliers that exhibit a higher CR risk and conduct on-site social audits (phase 2). Our focus here is not only on our direct suppliers but also on downstream suppliers as far as possible. We also boost the effectiveness of our audits by collaborating with twelve other companies in the Joint Audit Cooperation (JAC). We completed a total of 89 social audits in 2017 – 26 of these with our direct and 63 with our indirect suppliers. As in previous years, we concentrated our auditing activities on suppliers in Asia, in particular in China and neighboring countries such as India, Malaysia, South Korea, and Thailand, as well as in Brazil, Mexico, and Eastern Europe. Audited suppliers included manufacturers in the areas of IT hardware, software and services as well as networks and devices. 10

We use the information provided by the companies themselves and audit findings to classify and rate suppliers, primarily those that offer several material groups, according to CR criteria (phase 3). In our multi-award winning Supplier Development Program (phase 4) we work together to develop solutions on issues like environmental protection, work hours regulations, or health protection. The success of the program not only has social and ecological benefits, it can also be measured in business terms: For instance, one supplier reduced lost working days by 35 percent. However, better working conditions do not just have a positive impact on employee motivation and increase productivity, they also improve product quality, in turn reducing the number of complaints received about our products. Ecological improvements include, for instance, one supplier’s 36 percent reduction in water consumption. Our suppliers also integrate their sub-contractors in our development program, expanding its impact along our value chain. We added three new suppliers to the program in 2017 to bring the total up to 14. In order to help make the global supply chain for ICT products more sustainable, we are developing our supplier program to become an industry standard; other ICT companies will be able to join the program and also involve their own suppliers. 17

We use the Sustainable Procurement ESG KPI to measure and manage our sustainability performance in procurement. This KPI measures the ratio between the procurement volume we receive from suppliers whose compliance with social and environmental criteria has been verified through self-assessments, E-TASC, or social audits, and our total procurement volume. The share of the procurement volume that has been risk-assessed was 81 percent in 2017. Our goal is to cover at least 80 percent by 2020.