Social Aspects

2020 was dominated by the COVID-19 pandemic. Our major challenges regarding social sustainability aspects were:

A. To protect our PUMA staff members and their jobs

B. To work with our business partners, particularly our suppliers, to help them maintain social protection for their staff

C. To ensure the physical and mental wellbeing of our direct and indirect employees

Our highlights in 2020 included:

• Diversified tools for factory workers to voice their opinions; capturing more than 17,500 workers’ feedback concerning improvement via a mobile APP survey – a 224% increase – with 99.9% resolution of substantial issues
• Zero fatal accidents at PUMA and its direct suppliers for the third year in a row
• Accelerated pace towards shared industry compliance-assessment tools; increase in the percentage of converted external compliance reports from 43% to 54%
• 490 audit reports from 406 suppliers despite travel restrictions and partial lockdowns
• Closer engagement with suppliers through frequent and open dialog including quarterly surveys and webinars

Human Rights

Relates to United Nations Sustainable Development Goals 3, 5, 8 and 10

Examples of the 10FOR25 human rights targets:
Target 1: Train 100,000 direct and indirect staff on women empowerment
Target 2: Map subcontractors and T2 suppliers for human rights risks
Target 3: 25,000 hours of community engagement globally per year

KPIs:

• Percentage of worker complaints resolved
• Number of factories with an A, B+, B-, C or D grade
• Number of T2 suppliers and subcontractors included in our risk mapping
• Number of zero-tolerance issues prevailing at year end
• Number of employee hours spent on community engagement (KPI shared with HR)
• Number of workers trained on women empowerment

PUMA’s sustainability policies are aligned with the United Nations’ Declaration of Human Rights, the International Labor Organization’s Core Labor Conventions, and the ten principles of the United Nations Global Compact. The observance of human rights was part of our first Code of Conduct developed in 1993 and has guided our business ethics ever since. In 2019, we established a Responsible Purchasing Policy and a related training program to ensure our sourcing practices are aligned with our Code of Conduct. In 2020, we focused on keeping our suppliers in business and safeguarding workers’ health, employment, and income through several measures including:

1. Order and Production Management

• Minimizing order cancellations; 0.35% of orders were canceled in 2020
• The canceled orders were not yet in production, we compensated for raw material liabilities
• Agreeing on order delays with our customers during the difficult lockdown period
• Extending our production lead times by 19% on average to facilitate more flexibility along the supply chain

2. Financing and Payments

• Expanding our PUMA Vendor Financing Program with an increase in supplier participation from 21% in 2019 to 30% in 2020. Average usage of the program in 2019 was 10% (USD 196m) of the invoice volume with eligible vendors, which increased to 31% in 2020 (USD 587m)
• Extending payment terms for our suppliers and our customers
• Paying all orders in full and on time
• No late-delivery penalties

3. Guidance and Best-Practices Sharing

Our Sustainability team held three virtual meetings with our suppliers to share best practices and guidelines on social distancing, hygiene measures, and on-time and full payment to workers. Close to 700 people from more than 300 factories attended each session.

Cancellations (%)	FTW	APP	ACC	Total
Full Year 2020	0.43%	0.34%	0.10%	0.35%

In previous years, we had conducted human rights risk assessments at the corporate and the supply chain level and communicated the results in our 2016 and 2017 Annual Reports. The most salient risks to human rights are forced or bonded labor in our supply chain and, at the farm level, child labor.

It has been the long-standing practice of PUMA to continuously and rigorously monitor our supply chain and conduct human rights due diligence on all of our suppliers globally, including those in major production hubs such as Vietnam, Bangladesh and China. When we became aware of the report by the Australian Strategic Policy Institute (ASPI), we appreciated it as an opportunity to further review our supply chain. As a result of the assessments, we could find no evidence supporting the allegations.

Due to the COVID-19 pandemic, we postponed our activities to eliminate recruitment fees in Taiwan to 2021.

Our Community Engagement Program also has been affected severely by the pandemic. Nevertheless, the efforts of our employees to create positive impact locally by supporting social, health, and environmental causes continued where possible and we were able to donate 19,000 community hours in 2020.

SOCIAL COMPLIANCE

Compliance with our Vendor Code of Conduct remains the foundation of our human rights due diligence process. Since 1999, all direct PUMA suppliers have been frequently audited for compliance with ILO Core Labor Standards, internationally accepted Health and Safety provisions, and basic environmental standards. In recent years, we have also included our most relevant material and component suppliers in our audit program.

Each year, we collect between 300 and 500 audit or assessment reports issued by PUMA’s Compliance team, the ILO Better Work Program, our industry peers, or independent experts accredited by the Social and Labor Convergence Program (SLCP).

Despite travel restrictions and partial lockdowns, in 2020 we were able to collect 490 audit reports from 406 suppliers. Four percent of our T1 suppliers failed to meet our requirements. If the company in question was an active PUMA supplier, we worked together to improve the situation. A pass grade was awarded to 89% of companies subjected to a second audit. Seven factories did not manage to sufficiently improve their performance and were consequently removed from our active supplier factory base. Applicants that failed their first audits were not taken on as suppliers.

Our Social and Labor Compliance Program has been accredited by the Fair Labor Association since 2007 and was re-accredited most recently in 2019.

To avoid duplication and prevent auditing fatigue, in 2020 we increased the percentage of shared assessments to 54%, from 43% in 2019. As part of our commitment to the Industry Summit and the Social and Labor Convergence Program, we will further increase our adoption of SLCP-based assessments to at least 50% in 2022. We believe that SLCP is an ideal tool for building long-term relationships with suppliers and supporting them to own their social and labor data.

We employ a team of compliance experts spread across all our major sourcing regions. They regularly visit and audit our core manufacturing partners. We also work with external compliance auditors and with the International Labor Organization’s Better Work Program. Each PUMA supplier factory has to undergo one mandatory compliance audit per year and all issues identified need to be remedied as part of a corrective-action plan.

Number of factories audited	2020			2019		2018
	T1	T2		T1	T2	T1	T2
A (Pass)	82	5		107	10	82	15
B+ (Pass)	116	26		126	17	148	29
B- (Pass)	125	35		121	10	128	42
C (Fail)	11	2		19	2	17	7
D (Fail)	4			4	0	5	0
Total	338	68		377	39	380	93
	406			418		473
Pass/Fail (%)	96/4	97/3		94/6	95/5	94/6	91/9

The extensive nature of the SLCP verified data set has helped to identify additional issues for remediation, which explains why the number of factories with A and B+ grades decreased. We noticed improvements in occupational health and safety, risk management and transparency. Reducing overtime and increasing social security coverage remains a focus of our efforts.

Beyond auditing, we track social key performance indicators such as average payments vs. minimum wage payments, overtime hours or coverage by collective bargaining agreements. Those data are discussed under the Fair Wages target.

We operate multiple worker voice channels. If workers are not satisfied with the responses offered by factories via their respective internal grievance system, we encourage the use of the PUMA Hotline to raise complaints or request consultations. Phone numbers and email addresses for this hotline are published on our Code of Conduct posters displayed at every factory globally. We also use WeChat, Zalo, Facebook, and other social media to connect with workers and have established more formalized compliance and human resources apps at selected core suppliers.

In 2020, a total of 101 complaint issues were raised to PUMA’s feedback system across six countries, 44% more than during the previous year. Our team resolved 99% of them. Also, we received 1,021 feedback requests from workers through the MicroBenefits Program in China and Vietnam and the Amader Kotha Helpline in Bangladesh. Initially established as a project by the Alliance for Bangladesh Worker Safety following the Rana Plaza tragedy, the hotline provides a safe, timely, and effective communication channel for the purpose of identifying and resolving safety and other concerns of workers of PUMA’s Bangladesh suppliers. Last year, workers raised 703 issues concerning safety, compensation, abuse, etc., a 123% increase year-over-year. Calls related to COVID-19 represented almost half of the total calls received between March and July 2020. Using the app-based technology provided by MicroBenefits in China and Vietnam, we covered more than 30,000 workers from 20 core suppliers. In 2020, we received and resolved 318 grievances or queries from those apps.

We also received five third-party complaints from external organizations related to PUMA’s manufacturing partners. They focused on freedom of association, fair compensation, and discrimination. Four complaints were resolved by year end, one is still under follow-up due to the fact that we received it late in the year.

Workers’ complaints	2020	2019	2018
Total received – external channels	1021
Total received – PUMA Hotline	101	70	55
Total confirmed	984	61	44
Resolved	983	61	44
Not resolved	1	0	0
Resolved (%)	99.9%	100%	100%

All issues identified during our auditing and hotline activities are classified as zero-tolerance issues (such as child labor or forced labor), critical issues, or other issues.

As the name implies, zero-tolerance issues lead to the immediate failure of an audit. If these issues are reported for a new factory, the factory will not be allowed to produce PUMA goods. Established suppliers must remedy all zero-tolerance issues immediately by conducting a root-cause analysis and implementing preventive measures to avoid the issue from reoccurring in the future. As a last resort, business relationships will be terminated if the factory fails to cooperate. Other issues also are followed up by our Compliance team.

During 2020, we identified and were able to remedy four zero-tolerance issues (workers’ compensation below legal requirement, failure to renew business license).

Country	2020	2019	2018	Total
Bangladesh	4	0	0
Cambodia	0	0	1
China	0	1	1
Indonesia	0	1	1
Vietnam	0	1	2
Total	4	3	5

Despite the challenges we were facing, in 2020 PUMA continued to be a committed partner of Better Work. Established as a partnership between the UN’s International Labor Organization and the International Finance Corporation, a member of the World Bank Group, Better Work brings governments, global brands, factory owners, unions, and workers together to improve working conditions in the garment industry and the competitiveness of the sector. By ensuring its suppliers participate in the program, PUMA supports factory ownership and long-term solutions built on effective worker-management dialog, efficient management systems, and a commitment to ongoing learning and improvement. PUMA collaborates on national and policy-level issues, using its voice to support positive change in the apparel sector more broadly. We look forward to continuing to work together to help make the global garment industry more resilient and responsible.

TARA RANGARAJAN
Head of Communications, Brand Engagement, and Americas, Better Work

Fair Income

Target description:

• Carry out fair-wage assessments including mapping of a specific wage ladder for top five sourcing countries to help improve their wage levels and practices
• Ensure bank transfer payment to workers by all core suppliers by 2022
• Ensure effective and freely elected worker representation at all core T1 suppliers through collaboration with other brands

Relates to United Nations Sustainable Development Goals 1, 2 and 10

KPIs:

• Percentage of average wages compared to minimum wage
• Percentage of workers with permanent contracts
• Percentage of workers with social insurance coverage
• Percentage of workers paid via bank transfer
• Percentage of factories with freely elected worker representation
• Percentage of factories with collective bargaining agreements
• Number of countries with fair wage assessments over the last five years

For the definition of fair wages, PUMA follows the requirements for compensation set out in the Code of Conduct published by the Fair Labor Association (FLA):

Every worker has a right to compensation for a regular work week that is sufficient to meet the worker’s basic needs and provide some discretionary income. Employers shall pay at least the minimum wage or the appropriate prevailing wage, whichever is higher, comply with all legal requirements on wages, and provide any benefits required by law or contract. Where compensation does not meet workers’ basic needs and provide some discretionary income, each employer shall work with the FLA to take appropriate actions that seek to progressively realize a level of compensation that does.

https://www.fairlabor.org/our-work/labor-standards

The Fair Wage Network conducted wage assessments in Bangladesh and Cambodia and evaluated the wage systems of selected factories across 12 dimensions, focusing on five major areas: legal compliance, wage levels, wage adjustments, pay systems, and social dialog and communication.

https://fair-wage.com/12-dimensions/

As part of our efforts to ensure fair wage practices at the factories of our suppliers, we have defined the full payment of minimum wage as a zero-tolerance issue. This means that to be taken on as or to remain active PUMA suppliers, companies have to pay minimum wages in full compliance with local regulations. Provisions around payment of overtime hours and social insurance also are clearly articulated in the PUMA Code of Conduct and are scrutinized regularly based on our Compliance Audit Program.

For other dimensions of fair wages, we had asked the Fair Wage Network to conduct formal fair wage assessments at our core suppliers based in Bangladesh (2018) and Cambodia (2019). We had planned to expand these efforts to Indonesia in 2020 but postponed them to a time after the COVID-19 pandemic.

Sub-targets	Baseline 2020	Target 2025
Bank transfer payment (% of core T1 and T2 suppliers)	90%	100%
Percentage of core T1 factories with freely elected worker representation	33%	100%
Fair wage assessments (mapping of a specific wage ladder for top five sourcing countries)	2 out of 5	5 out of 5

The formal fair wage assessments revealed generally high levels of performance in the following areas:

Payment of wages:	Wages were found to be paid regularly and in full
Minimum wage:	Starting wage level at least at or above the minimum wage
Wage costs:	General increase in wage costs over the last three years which confirms moderate wage improvements

In Bangladesh, areas that require improvement include the lack of social dialog on income to ensure wages cover workers’ expenses. While social dialog on wages has been identified as performing high in Cambodia, further efforts should be made for workers to access the necessary information on minimum wage.

Also, we will expand the use of the Fair Labor Association’s Fair Wage Dashboard to gauge wages based on diverse benchmarks (minimum wage, average wage, living wage) aligned with other FLA members.

Table T.07 confirms that most of our core suppliers pay basic wages that exceed minimum wage significantly, 13% on average. Adding overtime and bonus payments, this figure increases to 54.7%, a reduction from previous years which can be attributed to the financial implications of the COVID-19 pandemic and a reduction of average overtime from 7.1 to 5.4 hours per week. Social insurance coverage increased by 2% to 95.6% and the percentage of permanent workers was raised from 69.1% to 74.4%.

2020	SOUTH ASIA			SOUTHEAST ASIA					EMEA	2020	2019	2018
KPI	Bangladesh	India	Pakistan	China	Cambodia	Indonesia	Philippines	Vietnam	Turkey	Average	Average	Average
Gross wage paid above minimum wage excluding overtime and bonuses (%)	14.8	13.9	34.5	7.0	8.8	4.9	0.0	31.7	1.6	13.0	17.6	20.9
Gross wage paid above minimum wage including overtime and bonuses (%)	51.1	13.9	39.9	168.3	55.5	31.9	19.4	89.3	22.8	54.7	73.1	83.7
Workers covered by social insurance (%)	100.0	100.0	99.9	69.1	100.0	91.0	100.0	100.0	100.0	95.6	93.6	95.3
Overtime (hours per week)	10.5	0.0	0.0	14.6	4.5	4.6	6.1	5.4	3.2	5.4	7.1	6.1
Workers covered by a collective bargaining agreement (%)	0.0	0.0	0.0	94.1	48.3	0.0	0.0	100.0	0.0	26.9	25.4	26.7
Female workers (%)	41.6	45.0	8.8	61.2	83.7	80.1	70.8	79.8	58.6	58.8	59.4	56.0
Permanent workers (%)	100.0	100.0	99.9	29.4	44.0	62.3	88.2	45.6	100.0	74.4	69.1	68.0
Annual turnover rate (%)	34.8	7.7	21.8	55.2	46.5	28.8	8.5	42.0	24.2	29.9	38.2	36.8
Injury rate (%)	0.4	0.9	0.0	0.6	0.2	0.2	0.7	0.2	0.2	0.4	0.5	0.6
Number of suppliers	8	1	2	17	6	3	2	18	1	58	59	50

*Data received from 58 PUMA core suppliers representing 81.4% of 2020 production volume; reporting period for data collection: November 2019 – October 2020