We are committed to honest, respectful and ethical conduct

Being a large, global company, Alfa Laval’s ethical and transparent way of doing business is vital to the success of the company. Its four Business Principles — Caring, Committed, Transparency and Planet — describe how it must act within society while achieving Alfa Laval’s business goals.

Committed

The Business Principles apply to all companies in the Alfa Laval Group and apply to all employees, including temporary employees and consultants. They also guide the relationships with business partners, such as suppliers and customers.

In 2021, the revised, and updated set of Business Principles was launched, including a new set of guidelines with concrete examples for how they should be implemented in everyday work life for everyone at Alfa Laval.

Alfa Laval’s Business Principles incorporate the ‘Protect, Respect and Remedy’ concept of the United Nations Guiding Principles on Business and Human Rights, the OECD Guidelines for multi-national enterprises and the concepts in the UK Modern Slavery Act. The Business Principles are approved by the Alfa Laval Board.

Through a mandatory bi-yearly training in the Business Principles, awareness and knowledge on the Business Principles are secured.

The updated Business Principles

The Business Principles state that as an employee you should ‘Apply the Business Principles in your daily work’ and as a manager ‘Lead by example’ and ‘Ensure that your team is trained regularly’.

Caring

We care about every individual’s rights and opportunities including their safety and well-being. We are a global company, and we firmly believe that diversity maximizes the potential of every employee and we care about every individual’s rights and opportunities.

The Business Principle covers:
– Human rights
– Inclusion and diversity
– Health and safety
– Freedom of association
– Child and forced labour
– Working conditions

Committed

We are committed to ethical conduct within our organization and in all external business relationships. High ethical standards guide our behaviour, and honesty, integrity and respect for others are values that we live and work by.

The Business Principle covers:
– Anti-bribery and anti-corruption
– Non-complicity
– Conflict of interest
– Fair competition
– Export control and trade sanctions
– Political contributions

Transparency

We engage in open dialogue with all our stakeholders to develop business relationships built on trust. Trust also requires that we are careful not to reveal or communicate confidential information.

The Business Principle covers:
– Protection of personal data
– Confidential information
– Accounting and verification
– Company assets

Planet

We are in a unique position because our products make a significant contribution to reducing the environmental impact of industrial processes. We also have a responsibility to continuously reduce our environmental impact in all areas of our value chain.

The Business Principle covers:
– Environmental impact
– Continuous improvement
– Precautionary principle

Compliance with laws, regulations and Alfa Laval Business Principles

It is important for Alfa Laval to conduct its business with honesty, integrity, and respect for others. This means that Alfa Laval not only follows its Business Principles and the applicable laws and regulations in the countries in which it operates, but is also determined to follow the highest ethical standards of business conduct. Alfa Laval carefully monitors the development of international legislation, social standards, and voluntary initiatives, including anti-bribery, anti-corruption, and conflict of interest.

During 2022, Alfa Laval reinforced and continued the development of a compliance and ethics programme, which includes the Alfa Laval Business Principles, governing documents, and compliance framework. The governing documents are policies, directives, and procedures. Adherence to the governing documents is mandatory for all employees in the Alfa Laval Group. The compliance framework is a set of standards that are to be implemented by local companies.

Governance

During 2022, the development of the three lines of defence concept continued. This is a model to secure compliance and a good working environment, identify gaps and secure that remedial actions are taken on discovered deficiencies. The concept is used to ensure good governance and secure compliance across the company. The first line is managers at a global level, and the second line is corporate functions, which represent oversight functions. The third line of defence are internal audits, external auditors, and external regulators.

The way the three lines of defence are set up is so that the second line creates compliance demands, checks and controls called Minimal Internal Control Requirements (MICR). These requirements are sent to the first line of defence. The first line of defence is responsible for answering the requirements by explaining how they act to comply. This information is collected by the second line of defence and analysed and used as a tool for risk assessment. Based on this risk assessment, internal audit programmes are compiled. Internal audits then challenge both the first and second line of defence by making sure that the first line of defence is compliant and that the second line of defence use controls that are effective. Securing compliance is thus made both by acting on deficiencies in the first line or by keeping ­governing documents created by the second line of defence updated.

The Risk and Compliance Board is the corporate oversight body. This board is appointed by Group Management to be responsible for reviewing the effectiveness of risk management and compliance processes within the company. The Board secures identification, assessment, mitigation, and monitoring of enterprise-wide risks. They also ensure implementation and administration of the company’s policies, directives, and ethical programmes, including the Business Principles.

All managers are responsible for ensuring compliance with Alfa Laval’s policies, including the ABAC Policy and the implementation of local guidelines. Line managers are continuously trained to keep up their awareness of the latest developments in Alfa Laval corporate policies and global compliance programmes.

Reporting breaches

Alfa Laval encourages its people to report any concern about actual or potential violation of the Business Principles or the law, and any unethical conduct. A company-wide whistleblowing system which is called Speak up!, enables both internal and external stake­holders to report suspected breaches anonymously. Alfa Laval’s whistleblowing system is a secure and efficient tool that enables employees to combat fraud and uphold the good reputation of the company. The system complies with the EU data privacy regulation (GDPR) as well as EU Whistleblower Protection Directive.

During 2022, Alfa Laval focused on further developing the work with the EU whistleblower directive. Informing people about Alfa Laval’s whistleblowing system and encouraging people to report has been an important part of the work. In some countries, Alfa Laval have established a hotline for Whistle-blower Support, along with a web-based supporting system.

Anti-bribery and anti-corruption

Alfa Laval has zero-tolerance for any form of bribery and corruption. The international scope of Alfa Laval’s sales organization means that Alfa Laval is active in several countries where there is a high risk of corruption. One of many tools used by Alfa Laval in assessing risk is Transparency International.

Corruption Perception Index. Alfa Laval’s Anti-Bribery and Anti-­Corruption (ABAC) policy outlines the expectations the company has on all employees. Alfa Laval has built its work with anti-bribery and anti-corruption based on the six steps outlined in the UK Bribery Act, and is based on the ‘prevent, detect and correct’ methodology. Risk assessments are made on a global level. No public legal cases regarding corruption have been brought against the organization or its employees during the reporting period.

Training in focus

Proportion of employees trained in anti-corruption:

89%
Group Management

84%
White collars

56%
Blue collars

The anti-corruption training is an e-learning that can be taken by all employees. In addition to this training, class-room trainings are held based on risk assessments and on demand from the organization. In these trainings the participants get the chance to get deeper knowledge and involve in discussion on the subject.

For 2022, the percentage of white collars having taken the training went down two percentage points. This is not in accordance with the target on trainings (see p. 58). The reason for this are two larger acquisitions during the year, adding to the number of white collars in the organization. Work to get these new employees trained in the subject is ongoing.

Responsible Trading

In 2022, compliance with Responsible Trading requirement of Business Principles came up as the top priority. Alfa Laval put significant effort in securing full compliance in a complex and rapidly changing environment of trade restrictions and sanctions.

Top level commitment
– Group ABAC Policy
– Risk Compliance Board
– Corporate self-assessment

Risk assessment
– Enterprise Risk Management
– Risk assessment in supply chain

Proportionate procedures
– Risk management actions
– Supplier contracts include ABAC clause

Communication & training
– ABAC information available on the intranet
– ABAC training for employees
– ABAC training for suppliers

Due diligence
– Third parties screening, compliance screening
– Due diligence on mergers and acquisitions

Monitoring & review
– Group ABAC Policy
– Risk Compliance Board
– Corporate self-assessment

Responsible sourcing

When sourcing materials and resources, Alfa Laval has a responsibility to ensure it meets the company’s ethical standards and its suppliers must be in line with Alfa Laval’s sustainability commitments.

A global supply chain with strong regional presence

Alfa Laval has more than 40 production sites and distribution centres in Europe, Asia and America. Its global sourcing organization defines the strategy for supply and supplier management, while the responsibility for the sourcing of products and services is executed locally. We are organized around eight commodities: raw ­material, casting & forging, machining & process, electric & ­components, proprietary parts, indirect production, machinery ­& equipment, and indirect & services. We define1) a supplier as any business, company, corporation, person, or other entity that sells, or seeks to sell, any kind of goods or services to Alfa Laval, including the supplier’s employees, agents, and other representatives.

Responsible sourcing

The foundation of the sourcing process is the Alfa Laval Business Principles. Implementation and follow up of Alfa Laval’s Business Principles for Suppliers Policy is carried out throughout our sourcing organization, where the Alfa Laval Supplier Risk and Compliance Council plays an integral role in following up results and enabling continuous improvements. Our current sustainable sourcing programme steering committee sets sourcing focus areas for deliveries to Alfa Laval’s sustainability agenda.

To have a responsible and sustainable value chain, collaboration with suppliers is needed. Through clear expectations, risk management and a structured way of working with mitigation and follow-up, risk exposure is reduced. Through increased knowledge about sustainability risks, it is possible to become more proactive and to work together with suppliers towards sustainable business growth and innovation.

Expectations

The Alfa Laval Business Principles for Suppliers Policy together with our supplier agreements, form the basis of our sustainability expectations on our supplier base. Suppliers are expected to acknowledge the policy and they are accountable for following and fully incorporating the Business Principles into their supply chain.

Sustainability is an objective for our strategic supplier programmes and in all our commodity strategies. During 2022, climate action was a sustainability focus area for the sourcing organization. Alfa Laval has a responsibility to not only help our customers reduce emissions, but also make the same effort ourselves and achieve the same targets we expect of our suppliers.​

Evaluation

Alfa Laval’s sourcing process outlines how we select and evaluate potential suppliers across our organization. It is important for Alfa Laval to not only onboard suppliers that can deliver to our expectations but also share our sustainability ambitions. In order to evaluate new suppliers and to ensure we know who we do business with, we use evaluation tools such as questionnaires, evaluations of sustainability programmes and if required, audits.

Risk analysis and mitigation

For us, risk management means understanding and mitigating supply chain risks. To identify risk focus areas, the sourcing organization uses macro risk trend reports, external insights for critical risk indicators, for example anti-corruption, environmental and working conditions indexes, and internal data and insights. Performed audits and supplier dialogues will give valuable input into the improvement of the risk screening process.

A supplier risk assessment includes an initial screening to ensure prioritization of the suppliers with the highest risk of breaches of the Business Principles.

Depending on the characteristics of an identified risk, the sourcing team will mitigate the risk in different ways. Mitigation activities are individually developed with a case-by-case approach supported by Alfa Laval Supplier Risk and Compliance Council and an action plan including a close follow-up programme.

Assessing supplier risk

The following three areas guide our risk assessment of suppliers

Country risk

Risk related to human rights breaches or bribery/corruption in the country where the supplier is based.

Product & production process risk

Risk related to occupational health and safety or environmental impacts associated with supplier production processes.

Governance & policies

Risk based on analyses and screenings of the supplier’s available documentation of policies and governance.

Follow-up

Alfa Laval has a robust follow-up programme including business reviews of sub-commodity strategies, workshops for suppliers, a supplier award for best sustainability practices, to mention a few. We also have an audit programme where Alfa Laval’s internally certified auditor performs different audits with our suppliers. Suppliers’ overall capabilities to deliver products and material according to Alfa Laval requirements are assessed, specific manufacturing processes are audited and there are Business Principles audits for suppliers. The Business Principles audits are sustainability audits including areas like environment, health and safety, human and labour rights, and social practices at the supplier.

Alfa Laval’s sourcing organization has two sustainability KPIs, Business Principles audits and climate projects. After two years of travel restrictions due to Covid, the number of on-site audits increased again in 2022 and our auditors conducted a total of 74 Business Principles audits to assess suppliers’ social and environmental performance and compliance with our Business Principles, mainly in China, India and Mexico.

Corrective action

If non-compliance is found through a supplier evaluation activity, a reported incident, a risk analysis or a follow-up activity such as an audit, the agreed improvement action plan is handled by the supplier responsible. Suppliers with serious breaches get a limited time to implement the necessary improvements with the support of an effective supplier development programme, while the case is escalated and monitored. If an approved supplier does not fulfill Alfa Laval´s expectations on performance or compliance after assistance from Alfa Laval, an escalation to the Supplier Risk Council is done. An escalation will, if not solved, lead to a decision to put business on hold or even phase out and terminate the agreement between Alfa Laval and the supplier.

Alfa Laval follows up all Business Principles audit cases of identified potential or actual negative impacts with an improvement action plan. The Business Principles audits highlight six critical areas: child labour, young labour, forced labour, freedom of association, health and safety, fire protection and environment. Deviations in any of these areas require immediate correction, both from new and established suppliers.

The most common deviations in recent years have been in the areas of health and safety, overtime/low payment, emergency preparedness and environmental protection.

Continuous improvement

Alfa Laval’s work with its supply chain is continuously improved to ensure alignment with new sustainability requirements and legislation as well as developing good practices, and we recognize the need to work with our development areas. Several responsible sourcing development projects are ongoing and related to process and system development, data collection, report development, communication and more. For latest updates, please refer to AlfaLaval.com.

US Dodd-Frank Act

The US Dodd-Frank Act requires US companies to conduct due diligence to ensure that the minerals used in their products are not sourced from mines that finance armed groups guilty of human rights violations. Since 2013, Alfa Laval has been following the company-wide policy on conflict minerals available on www.alfalaval.com. A supplier assessment platform is used to increase transparency and visibility in order to identify suppliers that require an assessment. In 2022, Alfa Laval assessed and initiated dialogue with 432 suppliers to ensure compliance.

Modern Slavery Act

Forced labour and human trafficking are severe global issues. Alfa Laval has zero tolerance of these violations within its organization and supply chain. Modern slavery is included in learning programmes for employees and suppliers, as well as in the monitoring, auditing, and follow-up activities with suppliers. Read more in Alfa Laval’s Modern Slavery Act Statement, available on our website.

Supplier sustainability awards

To acknowledge and reward suppliers who demonstrate a strong commitment to sustainability, Alfa Laval established the supplier sustainability award in 2021. It goes to suppliers who have made substantial and tangible improvements in one or several sustainability areas or created new ways of working. The purpose of the award is to encourage collaboration between Alfa Laval and its suppliers, and to incentivize them to work more with sustainability. It is a global initiative, with the previous winners coming from Sweden and India.

Safety workshops with suppliers

Throughout 2021 and 2022, the Supplier Risk & Compliance organization – at times in collaboration with external experts – arranged a series of safety workshops and events with suppliers. ­Alfa Laval has an internal ‘I care’ programme which we use as a basis for a safety workshop with suppliers. The purpose of the workshop is to increase supplier competence and to help create a safety culture beyond Alfa Laval.

Remote audits
In 2022, Supplier Risk & Compliance initiated remote audits, to enable audits in areas under travel restrictions. Following the success of ­the pilot, the Supplier Risk & Compliance organization intends to use remote audits as a supplementary to on-site audits, or for ­follow-up audits.

Digital Audit, Different Way

In March 2022, the supplier risk and compliance lead in China received an audit request to verify the compliance of a potential supplier in a new project. However, the supplier was in a remote location, while the Covid situation in China meant that there were restrictions on travelling.

A digital audit was therefore conducted for the first time at Alfa Laval. This minimized the risks related to Covid during the audit. Following the pilot, digital audits can now supplement on-site audits, especially for the follow-ups, as this saves travelling times and costs.

‘I care’ in Mexico

Following a successful pilot in 2021, in October 2022, a live online ‘I care’ learning event was arranged for suppliers together with external learning providers in Mexico. The event builds on Alfa Laval’s ‘I care’ messages and shows suppliers that safety is important to the company. It was organized by Risk and Compliance Lead US/Mexico. The objective is to improve Mexican suppliers’ knowledge of Safety NOMs (Mexico Official Norms), minimise supplier deviations related to industrial safety, improve suppliers’ contingency plans and accident prevention at Mexican suppliers.