Coats

Our Sustainability Strategy

We are three years into our ambitious strategy for Coats. This strategy ‘Pioneering a sustainable future’ focuses on five priority areas where we can accelerate progress, through the targeted investment of capital and resources.

SUSTAINABILITY STRATEGY

Water

Water is a precious resource and is coming under increasing pressure globally. Textile manufacturing uses a lot of water, especially for dyeing processes. To ensure that sufficient water is available for everyone and the natural world, we have to ensure that we use no more than is necessary and use it as efficiently as possible. Not prioritising this would entail risks for business continuity and rising costs.

By 2022 we will reduce the amount of water used per kg of thread produced by 40%

By the end of 2021 we have achieved a 22% reduction

We are proactively ensuring that water reductions happen where water supplies are under most pressure

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We believe that there are emerging technologies that will allow us to move away from using water as our dyeing solvent and heating medium. In 2018 we invested in Twine, a start-up based in Israel, that is developing digital dyeing technology for yarns. During 2021 we have been running trials on their technology in one of our Innovation Hubs.

SUSTAINABILITY STRATEGY

Energy

Climate change is a significant risk issue for our business and we need to reduce our energy demand where possible and decarbonise the energy that we do continue to use.

By 2022 we will reduce the energy use within manufacturing by 7%

By the end of 2021 we have achieved a 6.9% reduction in water

Coats is committed to achieve Net Zero by 2050 as set out under our Science Based Targets.

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Of our total energy usage about 50% is provided in the form of fossil fuels which we burn, while the other 50% is in the form of electricity that we purchase from external providers. Our goal for this is to continue to shift to certified renewable electricity. More than 30% of our total energy used in 2020.

SUSTAINABILITY STRATEGY

Effluent

While we continue to use water in our processes we will generate effluent. It is essential that any water we return to the environment is properly treated to ensure that there is no damage to the water sources that we and our communities rely on.

By 2022 we will build on Coats global standards by complying with the Zero Discharge of Hazardous Chemicals (ZDHC) effluent standards

By the end of 2021, 82% of our effluent is compliant with ZDHC standards

We have been members of the ZDHC programme since 2016

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To support our endeavour for safe discharge of effluent waste water, we continually invest in our ETPs and related infrastructure to ensure all necessary upgrades are accomplished. Since 2015, we have invested over $13m into such projects across our sites.

SUSTAINABILITY STRATEGY

Materials

We have significantly expanded our Coats EcoVerde range of 100% recycled polyester threads and sales are growing rapidly account for 13% of our premium sales. We now have transparency on all types of waste across our units, helping us to see the benefit in reduction of waste generation and increased reuse or recycling of waste. We have initiated pilot projects working downstream with our customers to find ways to minimise packaging.

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By 2022 we will achieve a 25% reduction in waste

By 2020 we reduced our waste by 8%

Coats is committed to shift towards circularity through product innovation and packaging solutions.

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Over the next five years Coats will invest $10m in scaling up the development of green technologies and materials to accelerate the achievement of its goals. We will also repurpose our Innovation Hub – Asia in Shenzhen, China, to focus on the development of bio-materials.

Our Material Issues

We have developed a robust approach to ‘materiality assessment’ in order to focus on what’s important to our business. We use this to identify relevant priorities under each of these themes and to inform our annual CR programme and action plans. The below graph shows our top 25 issues.

Material Issues 2021

In 2021, we updated our global materiality assessment as we do every two years, and a new update will take place early in 2023. In 2021 we also updated our human rights risk assessment to identify the areas of highest risk, both in our own business operations and in those of our supply chain. We have mapped our operations and those of our supply chain to identify particular industry / sectoral risks as well as risks from their geographical location.

To identify particular country risks, we take account of a number of external benchmarks and indices in our risk assessment process, including the UN Human Development Index, ITUC Global Rights Index, Freedom House Freedom in the World Civil Liberties, UNICEF % of children aged 5-14 years engaged in child labour, Minderoo Foundation’s Global Slavery Index and Transparency International’s Corruption Perceptions Index.

Our assessment framework measures the relative importance of particular CR issues both to our business and to our stakeholders, and the chart below illustrates those areas identified as important.

Stakeholder engagement

We take account of stakeholder opinions when we develop our business strategy and our approach to Sustainability…

How we create value for our stakeholders

Responsible business practice is at the core of everything we do. For over two centuries our purpose has remained the provision of good service and the creation of long-term value for all our stakeholders. In order to create this value, it is important to first identify who our stakeholders are and understand what matters to them.

Shareholders

The Board maintains and values regular dialogue with shareholders throughout the year.

The Chairs of the Board Committees engage with shareholders as and when appropriate and in 2021 our new Chair David Gosnell held a series of introductory investor meetings with our key shareholders. Our Senior Independent Director, Nicholas Bull, also joined our Head of Sustainability and Head of Investor Relations on a broad series of meetings with investors to discuss our sustainability agenda, targets and progress. The Board also engaged an external provider to undertake a comprehensive investor audit of both existing and prospective shareholders, in order to understand the effectiveness of our communications and address areas of improvement. The traditional face-to-face methods of interacting with our shareholders were quickly made obsolete in 2020 as the Covid pandemic led to blanket limitations on travel and this trend continued during 2021. We continued to embrace virtual formats for all investor interactions, which included results roadshows, investor conferences as well as ad hoc group calls on specific topics (eg broker arranged ‘fireside chats’). Whilst we do not expect the virtual format to ever fully replace face-to-face interactions, the quantum of investors we have been able to reach around the globe has increased as a result of us fully embracing the virtual format. In addition, we have been able to facilitate wider shareholder access to our Board/ management through this virtual forum.

Regular communication with our shareholders and prospective shareholders remains a key priority. We have continued to proactively engage with our key shareholders to keep them updated on the developments in the business.

As the world begins to normalise post-Covid, and as physical travel begins to return to normal levels, we will look to return to a balance of physical meetings, whilst embracing the new virtual formats that became the norm during 2020 and 2021. This will allow us to leverage the benefits from both physical interaction and the efficiency benefits of virtual interactions. We will continue to engage around all major announcements, and also continue with our increased level of engagement with investors on our sustainability agenda.

Customers

We have been helping to connect and form the fabric of daily life on our planet for over 250 years, and our global footprint provides unrivalled access to markets and customers.

2021 marked the opening of a new chapter with Coats customers. We commissioned our first Net Promoter Score (NPS) survey, a build on previously commissioned research. This research showed that our customers have positive feedback when it comes to quality, customer service and reliability. Our sustainability, innovation and technical service engagement also drives increased satisfaction. In addition to global customer surveys, we have dedicated commercial, sales and marketing teams who connect, collaborate and partner with customers and brands, constantly listening and innovating to help bring their visions to life.

Speed and agility continue to be important to our customers and our ability to adapt and offer solutions to support customers is a critical industry differentiator. Having a global manufacturing and supply chain presence is a key strength for Coats, and has allowed us to be flexible when facing unexpected circumstances such as the temporary closure of our Vietnam site due to Covid. At that time, when our customers were struggling to manufacturing end products, we were able to offer a speedy solution and had products shipped from China to Vietnam.

When it comes to digital, we have spent 2021 refocussing and enhancing the end-to-end digital customer journey, making sure that every channel or touchpoint makes it easy for the customer to get what they want or need from Coats. For example, during the Covid pandemic, we created a digital app called TechConnect that made it easy for our customers to get technical support online. We recently launched a new and enhanced e-commerce platform called ShopCoats that allows our customers to seamlessly place orders with us. We have also recently launched a new best-in-class Seamworks Cloud tool that helps customers calculate their thread usage and cost with minimal effort – reducing cost and wastage. We will continue to enhance and improve customer end-to-end experience through future digital applications.

Suppliers

Our suppliers do not just supply components, products and services to us, but are true partners in our full process and aligned to our requirements on compliance, quality, sustainability and innovation ethos.

Our long-term partnerships with our suppliers remain a key element to our business performance, where they offer additional value in our manufacturing and innovation process. The Board maintains a close alignment with our management of our key suppliers and their operating subsidiaries, where we review the performance and alignment to our joint goals and objectives. Key areas of attention remain the alignment to our Modern Slavery Statement in our Supplier Code of Conduct. We continue to audit and work with our suppliers to maintain this level of commitment and address any issues or concerns on an ongoing basis. This has been especially challenging during the current pandemic, but we have maintained the audits and checks to ensure adherence.

Our suppliers remain positive about our focus on compliance within our Code of Conduct and support our reviews, enabling us all to continue to develop a strong and interlinked mode of working. The standardised process offers a deep understanding of Coats’ approach and expectations, and sets a strong base for understanding our working relationships while the audit process ensures continued alignment. With the development of our sustainability approach, suppliers remain close to our evolution and remain a committed partner in this regard.

We will continue developing our close links with our supplier partners and engage with them through our audit process and more to ensure we maintain the close alignment and relationship. We continue to introduce measures to demonstrate this performance and utilise these as the basis for progressive and positive discussions, where our suppliers contribute strongly to our overall partnership relationship.

Employees

Our 18,000 plus workforce is at the heart of making our business a success and we recognise that listening to and engaging with our employees is essential to our continued success.

Fran Philip, Non-Executive Director and Board representative for workforce engagement continued her role in 2021 and was able to carry out a combination of in person and virtual meetings. She met with representative groups from all our regions, continued her six-monthly calls with senior representatives of the regions and attended our quarterly Diversity, Equity and Inclusion Network calls with a range of people from across the Company. Fran shared what she had learnt with the Board in September and December. As well as hearing from Fran the Board also had a presentation on the employee feedback from the Your Voice Matters survey – our employee engagement survey which took place in May – and our Health and Safety survey which took place in September.

The themes from Fran’s meetings showed that employees continue to praise Coats for its handling of Covid. In particular they felt safe within our premises and felt that by supporting employee families and local communities, we were doing more than other companies. The feedback also showed that there are opportunities for more employee recognition.

In 2022 Fran will continue her virtual meetings and plans to meet with representatives from every region during the year as well as continuing to meet twice per half with senior representatives of the regions and attending the quarterly Diversity, Equity and Inclusion Network calls. Covid permitting, Fran will increase the number of in person meetings she holds.

Communities

We operate in 50 countries across six continents and seek to understand and respect the needs of the communities in which we operate and to work together with them to our mutual benefit.

There is an obvious overlap between our employees and the communities in which we operate, and hence a common interest, but beyond that we share the local environment and resources with our neighbouring communities. For these reasons Coats needs to work in partnership with these communities. The Board fully recognises this need and supports the efforts of the Company to work constructively with communities, but does not have a lot of direct contact with community groups, especially as travel has continued to be constrained during 2021. After a difficult year in 2020 where many community activities had to be curtailed and the remaining activities were mainly focused on pandemicrelated support. The Company has managed to significantly increase its activities in 2021 and return to a broader range of activities centred around our core concerns of education, health and wellbeing and textiles, with pandemic-related activities around education, and health and wellbeing being at the core of this. In total over 200 programmes were undertaken in 2021, which is more than three times what we achieved in 2020. The number of participants in these activities has also grown by more than five times compared to 2020. Because of the continued pandemic controls, much of this work has taken place remotely or with Covid protocols in place. The Board reviews these programmes and is supportive of the actions undertaken.

While the global impacts of the pandemic might have diminished in 2021 there were still serious waves of infection in a number of countries in which we operate, requiring continued community engagement activities with this focus, and we expect that this pattern will continue as different countries are affected by new variants or periodic flare-ups. Being able to respond quickly and in a way that is appropriate to the circumstances will continue to be necessary. We have also recognised that the financial and mental hardship caused by the pandemic will continue even after the immediate impacts of infections wane, and activities focussed on these areas will be required for the future. We have seen that these kinds of engagement build strong links with our communities. Working in partnership with our value chain is an emerging opportunity, especially the opportunities of working closely with customers and brands to deliver joint projects in shared communities.

We have seen in 2021 that our engagement focus areas continue to be relevant to our communities and we anticipate continuing to build on the successes from 2021 with increased activities and greater participation from our employees. Sharing ideas between units is important because while local situations are never exactly replicated we have seen greater commonality due to the pandemic. The global team managing our community programme has and will continue to build greater internal transparency and sharing of ideas. We anticipate that there will be additional opportunities to develop broader partnership projects during 2022 and the Board is highly supportive of this approach. The Board continues to be strongly committed to proactive engagement with our communities and more details of our activities can be found in our Sustainability Report online.

Environment

Coats is working proactively with customers and suppliers to help them to improve the sustainability of their products, and to minimise the environmental impact of our industry

During 2021 the Board has continued to increase its engagement regarding environmental matters. Climate change continues to be the highest priority issue here, but effluent treatment and continued innovation in new, more ecological, products are also high on the Board agenda. Apart from Board discussions members of the Board have contributed directly to activities with an environmental focus. The Chair and CEO both attended the World Climate Summit held in Glasgow in parallel to COP26 and our CEO participated in two panel discussions during those events. The Board advocate for ESG, Nicholas Bull, also attended over 20 dedicated sustainability meetings with investors and potential investors at which environmental issues were a major area of discussion. We published our third Sustainability Report which detailed the progress towards our ambitious targets for 2022 and 2024 and included our second Communication on Progress (COP) as Participants of the United Nations Global Compact, which detailed activities supporting the environmentally-focussed Sustainable Development Goals that Coats aspires to contribute to. Having signed up to the Science Based Targets programme under the more challenging Business Ambition for 1.5°C target at the beginning of 2021 we have developed our proposed targets and these have now been validated by Science Based Targets initiative.

We have to take urgent action to ensure that we are doing what we can to reduce and mitigate the climate emergency. This will protect our business interests and provide opportunities for growth while also contributing to reduce the risk of catastrophic climate change. We see that, not just in terms of climate change, protecting the environment is not only a matter of behaving ethically and responsibly but also a means to enhance and grow our business, delivering better outcomes to all our stakeholders. Increasingly we need to look at the full life-cycle impact of our operations and the products that we produce and develop long-term strategies as a result.

Having focussed on the development of our 1.5°C pathway targets in 2021 we are going to develop net-zero pathway targets during 2022. Moving forward in the delivery of our 1.5°C targets will involve the Board in reviewing and approving projects aimed at transitioning to renewable electricity. We will also focus on delivering our effluent target for 2022 and review and agree the next horizon targets for effluent quality. We will also be focussing on the plans to deliver the new commitments announced in 2021 and detailed in the Working Responsibly section on pages 26-45.