Management of Relationships with Suppliers

As part of VISION 2030, CEZ Group has newly set the strategic target of implementing actions to support ESG criteria in its relationships with suppliers.

CEZ Group is committed to applying the principles of sustainability and due diligence throughout its value chain, including ensuring the protection of human rights and environmental protection within its supply chain. Deepening sustainability and due diligence in the supply chain is considered an essential part of CEZ Group‘s governance, existing policies, and processes, including the risk management system, which is also reflected in the management of its relations with suppliers. Commitments in this area are governed by the Sustainable Supply Chain Policy, which sets out the rules and conditions of contractual relationships with suppliers.

In accordance with CEZ Group‘s Code of Conduct, we strive to establish business relationships primarily with partners who act in accordance with the principles of sustainable business, have a good reputation, respect corporate values, and comply with legal regulations, including ESG regulations, International Labor Organization and United Nations conventions, and other rules set forth in the Code of Conduct. CEZ Group suppliers also require their business partners comply with these principles and rules.

CEZ Group‘s Commitment to Ethical Conduct includes rules and related requirements for suppliers to comply with ethical and legal standards, regulates the possibility of monitoring their compliance, and sets sanctions in case of a violations. The Commitment to Ethical Conduct is part of the concluded contracts.

The criteria for s supplier selection are described in CEZ Group’s Code of Conduct, which, among other things, states that the supplier in particular:

• Does not allow dangerous or inhuman working conditions, conditions going against the protection of human rights, including forced labor, prohibited penalties, discrimination and unequal treatment, employment of children or people younger than the minimum legal age;
• Does not tolerate violations of labor law rules or acceptable living conditions, including minimum wages, maximum working hours, mandatory breaks at work, freedom of association, social dialog and collective bargaining, prohibition of employment of people without a work permit;
• Complies with applicable standards and norms in the field of sustainability and environmental protection, taking into account the principles of the environmental management system;
• Regularly checks and prevents, or eliminate and corrects, potential or identified compliance deficiencies, and provides the necessary cooperation to CEZ Group companies to fulfill due diligence obligations within the value chain, especially the supply chain, including meeting the established ESG targets, related risk management, and reporting.

In tenders, CZE Group examines a number of parameters (e.g., financial stability, ISO certification, references, business activities of the tenderer in risky countries, impacts of international sanctions, etc.), including reputational risks, risks associated with violations of laws, etc. The geographical aspect is considered as well, with the majority of direct suppliers of ČEZ, a. s., being based in the EU, which, thanks to the guarantees of the rule of law, minimizes the risk of human rights violations. The definition of geographical areas that may be risky from this perspective is based on internationally recognized metrics (e.g. Transparency International and OECD). Sectoral risk is also considered where the risk group may include value chain workers involved, for instance, in the extraction of metals or minerals or workers who are particularly vulnerable, whether due to their inherent characteristics or specific context (e.g. young workers, women, or members of minorities).

Depending on the nature and purpose of the procurement, the principles of social and environmental responsibility and benefits of innovation are taken into account when setting conditions, evaluating tenders, and selecting contractors. Regarding the requirements for suppliers in the social area, the most common aspects are:

• Employment opportunities (e.g., education support, gaining experience, and upskilling),
• Social inclusion (e.g., support for social enterprises, employment of vulnerable groups),
• Decent working conditions (e.g., equal pay, work-life balance, occupational health and safety conditions, valid employment contracts),
• Local sourcing (e.g., support for SMEs, meeting financial commitments on time),
• Ethical purchasing (e.g., Fair Trade products, evaluation of offers not only according to the lowest price, fair relations in the supply chain).

Where the nature of contracts allows it, some public tenders are awarded under the so-called reserved public contracts regime. In these cases, only entities employing at least 50% of their workforce with disabilities in sheltered workplaces may submit bids. CEZ Group also takes a responsible approach to public tenders from the perspective of environmental protection, sustainable development, the life cycle of supplies, and impacts on biodiversity. For relevant public tenders, bidders are required to provide a certificate of compliance with environmental criteria.

For selected public tenders, responsible procurement requirements are reflected directly in the evaluation of bids and are then included in the final framework agreements or commercial contracts. If non-compliance is detected, the framework agreement or contract may be terminated. The same applies to difficult and complex tenders for nuclear power plants. In these cases, the selection criteria are subject to specific technical, legal, security, and environmental requirements.

The basic goods that CEZ Group purchases include:

• Fuels: nuclear fuel, natural gas, biomass, brown and hard coal, heating oils,
• Material supplies: materials, machinery and equipment, spare parts, fuel, operating materials, office supplies, forms, information technology, furniture and equipment, passenger cars, trucks, and other specific material inputs necessary for operation,
• Performance and services: capital construction, reconstruction and modernization, service, repairs, technical assistance, and other services.

Regarding environmental protection and social aspects, CEZ Group monitors selected activities of its suppliers for these purposes. All CEZ Group facilities with ISO 14001 EMS certification maintain registers of environmental aspects of their suppliers and perform related EMS audits. In addition, CEZ Group implemented a certified anti-bribery management system according to ISO 37001 in the area of procurement. The ČEZ, a. s., Internal Audit Section continuously focuses on activities related to procurement and managing relationships with suppliers in its regular audits. These audits check the functionality of the procurement processes and the effectiveness of control mechanisms, both in ČEZ, a. s., and its subsidiaries.

CEZ Group is committed to transparent and responsible payment practices that are in accordance with business terms and conditions and contractual provisions. CEZ Group acts responsibly toward its suppliers and in accordance with its obligations, aiming to prevent late payments. Payment terms are in line with legal regulations stipulating a standard maturity of up to 30 days.

Commitment to Ethical Conduct