Compliance and due diligence

Responsibility embraced

There were once again no compliance violations at SFS during the year under review that resulted in fines or legal proceedings. Furthermore, we have no knowledge of any human rights violations that were committed within the company’s sphere of influence in 2024. That also includes the topic of child labor. The Code of Conduct, which applies to all employees, was updated during the year under review and efforts continued to roll out the Supplier Code of Conduct, which has been mandatory since 2024. The results of the compliance audit conducted revealed shortcomings that have been remedied.

SFS is committed to sustainable and responsible business practices in accordance with the OECD Guidelines. To uphold these principles, we take great care to respect the interests of our company, our employees, society and the environment. Of course, this also implies compliance with applicable laws and regulations. We respect cultural, social, political and legal diversity and expect our business partners and suppliers to do the same.

Our guidelines are set out in the updated SFS Code of Conduct, our Corporate Principles and the Supplier Code of Conduct. They include, among other things, the protection of human rights and the ban on child and forced labor as defined by the International Labour Organization (ILO). SFS does not tolerate child labor and does not cooperate with partners that accept child labor. Our commitment to this is also set forth in our sustainability guidelines.

Responsibility embraced, due diligence obligations fulfilled

By fulfilling our due diligence obligations, we protect our employees, create attractive jobs, meet our responsibilities toward society and safeguard our competitive edge for the long term. As a signatory of the UN Global Compact, SFS is committed to the United Nations Declaration of Human Rights. The risk of human rights violations must be prevented and reduced to the greatest extent possible, both at the company’s own locations and within its entire supply chain. We are therefore increasingly incorporating human diligence into our business processes and have been working with our suppliers since 2023 to conduct regular assessments that include both social and ecological criteria (see Procurement, risk analysis).

Code of Conduct updated

The SFS Group revised and updated its Code of Conduct during the year under review. The new version supersedes the previous version from 2015. The Code is aimed at all management bodies and employees and is a key part of sustainable, positive corporate development. Our Corporate Principles describe the cornerstones of our corporate culture: partnership, commitment, community, success and change. Both documents – which have been translated into more than ten languages – are available to all employees. They lay the basis for SFS’s values and provide specific guidance for our value creators.

Effective compliance system implemented

To ensure compliance with the requirements of the Code of Conduct, SFS has established an effective compliance system. In practice, the system comprises various elements such as guidelines, regular training, new employee onboarding, e-learning campaigns, periodic newsletters, integration of compliance-related issues into internal audits, annual reporting on the Code of Conduct to the Board of Directors and an anonymous, external whistleblowing system for employees and external partners. This system exists alongside other reporting channels and is accessible both internally and to the public. The compliance system focuses on the following eight topics:

• Anti-corruption
• Antitrust law
• Data protection
• Foreign trade compliance
• Human rights
• Information security
• Insider trading
• Protection of personal integrity

The e-learning course entitled “Protection of personal integrity” was revised and relaunched during the year under review. This course aims to convey to employees of the SFS Group the importance of treating others with respect and give them some specific rules of conduct. This mandatory training ensures that everybody throughout the company has a common understanding of what it means to protect personal integrity.

Supplier Code of Conduct mandatory since 2024

By introducing the Supplier Code of Conduct at the end of 2023, SFS underscored the importance of compliance with regulations and social standards along the entire supply chain. We expect our suppliers to conduct themselves in line with the principles of this Code, which is based on the principles of the UN Global Compact and the ILO Declaration on Fundamental Principles and Rights at Work. The Supplier Code of Conduct also meets the requirements of the various supply chain due diligence acts that have been enacted in the EU and Switzerland. Corresponding provisions were also added to contracts with our distribution partners.

Compliance reports examined carefully

During the year under review, 16 compliance reports (PY 36) were submitted to the Group Compliance Officer and the local Compliance Officers. Following careful examination, 14 of those reports (PY 19) were confirmed as being compliance violations and appropriate corrective measures were taken. The violations reported related mainly to unethical conduct and other violations of the Code. None of the violations resulted in a need for provisions, fines or court proceedings. All except two pending cases were investigated locally or with the support of the Group Compliance Officer and appropriate steps were taken. The consequences ranged from warnings under labor law to dismissals, depending on the severity of the violation. Decisions regarding sanctions were made by the local Compliance Officer in consultation with the specialist units or the Group Compliance Officer. There were no reports received through the new anonymous whistleblowing system during the year under review. Other internal reporting channels were used to submit the reports received.

Compliance audit conducted revealed shortcomings

SFS conducted an internal compliance audit at a location in Romania during the year under review. The audit focused on the Code of Conduct and the reporting channels in place for compliance violations. It revealed a few isolated shortcomings: Some employees were not sufficiently knowledgeable about the Code and implementation of the process for reporting conflicts of interest was inadequate. The local management made a note of the recommendations for improvement and implemented appropriate measures. Internal compliance audits are used as an effective tool for identifying opportunities and risks. Further compliance audits will be conducted in other countries again in 2025 as part of the financial audits. The results are included in the annual compliance report submitted to the Board of Directors and are used to develop the compliance system.

No cases of corruption again in the year under review

We have had an anti-corruption policy in force since 2016 and imparted this policy to staff in high-risk positions, in particular, via mandatory e-learning courses. This policy was additionally communicated to new managers and employees in the sales, procurement and finance units during the year under review. We take a clear stand on this topic in our sustainability guidelines as well: “We are not corruptible and do not demand or accept gifts or payments. We do not engage in any unfair action that could influence the decisions of customers, suppliers, competitors or authorities.” Anonymized reports appear in the quarterly compliance newsletter in order to raise employees’ awareness of actual incidents on a regular basis. As in the previous year, there were no confirmed cases of corruption in the reporting year.

ESG risk analysis updated

SFS updated its ESG risk analysis in 2024 based on findings from the TCFD report and the double materiality analysis. Our risk assessment looks at the likelihood of occurrence and the amount of the loss and then classifies these based on predefined threshold values. Substantial strategic or financial risks are avoided or mitigated through proactive risk management. We also actively seize opportunities that align with our strategic objectives and introduce corresponding measures. ESG risks and opportunities with strategic impacts – such as the development of energy and commodity prices, natural disasters, non-achievement of sustainability targets and the increase in regulatory requirements – were incorporated into the business risk analysis. The Management Report summarizes the business risks for the current reporting year.

Dialog with stakeholder groups continued

“We encourage discussions and dialog” – this is a commitment we make in our sustainability guidelines. To ensure that we consider more than merely the internal perspective when assessing both critical issues as well as potential opportunities and risks, we get our external stakeholder groups involved on a regular basis. We offer our stakeholders different platforms for expressing concerns and discussing them with us. That includes regular discussions and events for customers, suppliers, investors and analysts. We also invite media representatives to our conferences and respond to their inquiries in a timely manner. The summary below shows the most important topics addressed in this context in 2024 and how we dealt with them:

Stakeholders: Inclusion in double materiality analysis

SFS performed a double materiality analysis in 2024 in accordance with the requirements of the ESRS. To that end, 131 representatives of relevant stakeholder groups were invited to participate in a survey. 76 stakeholders participated and rated the potentially relevant topics. To identify the new material topics for SFS, the results of the survey were then further analyzed and refined during three internal workshops attended by a total of 30 participants. Inclusion of all relevant stakeholder groups ensures that these topics reflect both the internal company perspective as well as the expectations of our external stakeholders. The detailed results of this analysis will be presented in the 2025 Sustainability Report.

Media: Challenges in the automotive industry

The European automotive industry faced major challenges during the year under review and this had repercussions for Swiss industrial companies as well. Various media outlets reported on the matter and asked SFS for a statement. The reports portrayed us as a company that is capable of responding to fluctuations in individual sectors due to the fact that we serve several different business areas. Some reports also reiterated the measures introduced at the end of October 2023 in order to improve the profitability of the Automotive division in Switzerland. SFS strives to create transparency and win public trust by cooperating with media representatives.

Population and the media: Planned wind turbine in Heerbrugg (Switzerland)

SFS organized a public information event in 2024 to report on the status of the “RhintlWind” project and present the results of the feasibility study. The results of the study confirmed the cost-effectiveness and environmental friendliness of the planned wind turbine and were published in connection with the second participation procedure carried out by the Canton of St. Gallen. The public interest group “IG Gegenwind Au-Heerbrugg” submitted a municipal initiative in August 2024 that proposes a minimum distance between wind turbines and residential buildings. On February 9, 2025, the initiative was passed with 50.1% of votes in its favor. As we would not be able to comply with the prescribed minimum distance of 500 m at the location where the turbine was planned to be built, the project was canceled.

Investors: Negative corporate governance rating from ISS

SFS received nine of ten points in the “Governance Quality Score”, an ESG rating issued by Institutional Shareholder Services (ISS). This result corresponds to a high level of governance risk. Areas where SFS performed poorly related in particular to its independence, the diversity of its Board of Directors as well as the transparency and structure of its compensation system. SFS has analyzed the ISS rating and duly noted the concerns raised. Corporate governance assessments based exclusively on standards defined by rating agencies are not necessarily expedient for all shareholder structures. We conducted individual discussions with investors and addressed the issues highlighted in a transparent way. We are convinced that we have an independent Board of Directors and an appropriate compensation system. The company is working on making ongoing improvements to the level of diversity found in the Board of Directors and Group Executive Board.

Focus on key external ratings

In 2024, SFS was assessed within the scope of the following external ratings or participated in the following assessments: