Independent audits of social and environmental responsibility

As previously mentioned, risk management at Pirelli is enterprise-wide and includes the identification, analysis and monitoring of environmental, social and financial risks that are directly or indirectly associated with the Company, such as sustainability of the supply chain. Ad hoc assessments are also carried out before entering a specific market, in order to assess any political, financial, environmental and social risks, including those connected with respect of human and labour rights.

Together with constant co-ordination and monitoring at the corporate level, compliance with Pirelli economic, social (especially human rights and labour rights) and environmental sustainability rules is constantly assessed in periodic audits commissioned from specialised independent firms. Special attention is dedicated to the sustainability of Pirelli and supplier sites in “countries of concern” (as defined by EIRIS).

The Auditors conduct their audits on the basis of a checklist of sustainability parameters derived from the SA8000® standard (the reference tool officially adopted by the Group for the management of social responsibility since 2004), from the Social Responsibility for Occupational Health, Safety and Rights, and Environment, from the Group Ethical Code and the Group Code of Conduct (which is focused on anti-corruption).

With reference to Pirelli own sites, in 2011 the company commissioned new, independent audits at its production sites located in Argentina, Venezuela, Brazil, China, Egypt, Turkey and Romania. In 2008 audits were conducted at Company sites located in Turkey, Brazil, Venezuela, Argentina, Egypt, China, Romania, Colombia, Mexico and Chile. All managers at the affiliates involved in the audits have been adequately trained about the audit aims and procedures by the delegated headquarters functions: Sustainability and Industrial Relations.

The audits, each of which lasts an average of at least three days in the field, have included extensive interviews of workers, management and labour representatives.

Although the instances of non-compliance revealed by the audits were not serious, they were addressed in recovery plans agreed with the concerned suppliers by Pirelli local and central management.

With reference to Suppliers’ sustainability at their sites, fifty-six audits were conducted between the end of 2010 and the beginning of 2011, while 72 audits were conducted between the end of 2009 and the beginning of 2010. The audits involved suppliers operating in the emerging countries where Pirelli has a presence (Brazil, Argentina, Egypt, China, Romania, Turkey, and Venezuela) or suppliers from which it purchases raw materials, such as suppliers in Indonesia, India, Malaysia and Thailand. Among the western countries where Pirelli operates, audits were conducted of suppliers in Italy, England and Germany.

The Purchasing Managers and the Sustainability Managers that coordinated local audits of suppliers performed by third party were adequately trained and informed about the audit aims and procedures by the delegated headquarters functions: in this case, Sustainability and Procurement.

The instances of non-compliance that were most frequently encountered at suppliers and in countries “of concern” involved the adequacy and level of implementation of safety and environment management systems, in response to which were agreed compliance plans setting out the necessary remedial measures.

For more information about these audits, please see the “Suppliers” section elsewhere in this report.

As from 2012 the Internal Audit function will be directly involved in the process of monitoring undertaken recovery plans following audits – both at Pirelli sites and by suppliers.

The Pirelli Internal Audit function is exquisitely independent insofar as it reports to the Pirelli Internal Control, Risks and Corporate Governance Committee, which is comprised solely of independent directors.