Management of Relationships with Suppliers

In the area of ESG, risks, impacts, and opportunities are systematically monitored, including their reporting, and this also encompasses the supply chain of selected CEZ Group companies. As described in more detail in the CEZ Group Sustainable Supply Chain Policy, the integration of CEZ Group‘s sustainability targets across the value chain is crucial, which is also reflected in contractual relationships with suppliers.

In accordance with the CEZ Group Code of Conduct, CEZ Group strives 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 Labour Organization and United Nations conventions, and other rules set forth in the Code of Conduct. CEZ Group requires compliance with these principles and rules from its suppliers and contractual partners.

For this purpose, CEZ Group defined rules of conduct, including anti-corruption measures, for its suppliers by means of its Commitment to Ethical Conduct, which contains rules and related requirements for compliance with ethical and legal standards by suppliers, governs the possibility of monitoring compliance with these rules by CEZ Group companies, and establishes sanctions in case of violations of accepted obligations on the part of the supplier. The Commitment to Ethical Conduct forms part of the contracts concluded, and when entering into a contractual relationship with a CEZ Group company, suppliers undertake to comply with it upon signing the contract.

Under VISION 2030, CEZ Group has newly set a strategic target to implement measures to promote ESG sustainability criteria in the supply chain. CEZ Group‘s target is to behave in accordance with 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. This target is not evaluated using quantitative indicators.

Key actions:

• In this area, CEZ Group has implemented the Sustainable Supply Chain project under the leadership of the Head of the Procurement Department. Furthermore, CEZ Group declared its aim to participate in industry and/or group initiatives focused on managing related risks in the supply chain so as to strengthen and fulfill due diligence requirements.
• Compliance with legal standards, including in the areas of sustainability, public procurement, and prevention of late payments, as well as special regulations related to CEZ Group’s activities (including cyber and nuclear security, critical infrastructure, etc.), which is reflected in the management of relationships with suppliers.
• Requiring and monitoring compliance with ethical rules, sustainability, and responsible behavior, as set out in the CEZ Group Code of Conduct and the Commitment to Ethical Conduct. Violation of the Commitment to Ethical Conduct by the supplier is grounds for potential termination of the business relationship.
• Implementation of supplier audits (desk audits and on-site audits) focused on compliance or supply quality (including EMS or OHS). Compliance monitoring for selected suppliers is also established. Qualification (audit) and evaluation of suppliers also takes place for suppliers of safety-critical products and services. Such suppliers are subject to initial and follow-up audits carried out by ČEZ, a. s., a license holder pursuant to Section 9 of Act No. 263/2016 Coll., Atomic Energy Act.
• Implementation of a certified anti-bribery management system pursuant to The Certified Anti-Bribery Management System pursuant to ISO 37001:2016 since 2021 in the area of procurement.
• Considering environmental and social criteria when selecting suppliers (through the ESG supplier questionnaire, EMS supplier questionnaire, relevant certification, or binding criteria in the field of responsible public procurement).
• Regularly updating related targets, policies, and actions regarding supplier management in the area of sustainability, i.e., sustainable supply chain (SSC) measures, including: analysis of ESG risk of suppliers and follow-up actions, ESG questionnaire survey of the SSC and follow-up actions, feedback for suppliers including their ESG scoring and corrective actions, stakeholder dialogue with suppliers and follow-up actions, other actions in line with due diligence requirements, including the promotion of responsible public procurement criteria.

The Sustainable Supply Chain Department ensures regular implementation of selected measures in the area of SSC management and at the same time prepares proposals for additional actions to be implemented. This department also ensures related communication with suppliers. Given the importance of activities related to procurement and managing relationships, the Internal Audit Department of ČEZ, a. s., continuously focuses on them in its regular audits. The audits examine both the functionality of the procurement processes and efficiency of the control mechanisms in place. These audits review purchases for ČEZ, a. s., and purchases of CEZ Group companies to which the Procurement Department provides its services, as well as purchases made by CEZ Group on their own. 

The basis for selecting a supplier is described in the CEZ Group Code of Conduct. Selection of suppliers considers, for example, whether the supplier adheres to the principles of sustainable business within its value chain, applies policies and procedures compliant with ESG, and follows best practices, including disclosure requirements under applicable laws. In particular, such a supplier:

• does not allow dangerous or inhuman working conditions, conditions that violate the protection of human rights, including forced labor, prohibited disciplinary practices, discrimination and unequal treatment, employment of children or persons below the minimum permissible age; 
• does not tolerate violations of labor law or inadequate living conditions, including non-compliance with minimum wage requirements, maximum working hours, mandatory rest periods and breaks, the right to freedom of association, social dialogue and collective bargaining, prohibition of employment of persons without a valid 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 monitors, prevents, and where appropriate eliminates or remedies imminent or identified compliance deficiencies, and provides CEZ Group companies with the necessary cooperation to fulfill due diligence obligations within the value chain, in particular the supply chain, including the achievement of defined ESG targets, related risk management, and reporting.

CEZ Group approaches public procurement responsibly, including with regard to environmental protection, climate change, sustainable development, the life cycle of supplies, and impacts on biodiversity. Examples include the exclusive use of recycled packaging, environmentally responsible requirements for cleaning services, measures to reduce energy consumption, and other environmentally friendly solutions. For relevant public procurement procedures, tenderers are required to submit certification demonstrating compliance with environmental criteria, including the relevant ISO certifications (e.g., ISO 14001 EMS).

Selected supplier activities are monitored for the purposes of environmental protection and the management of social aspects. All CEZ Group sites certified under ISO 14001 EMS maintain registers of suppliers’ environmental aspects, and related EMS audits and controls are carried out.

The procurement activities of the CEZ Group include in particular:

• fuels (e.g., nuclear fuel, natural gas, biomass, lignite and hard coal, heating oils),
• tangible supplies (e.g., machinery and equipment, spare parts, fuels, materials, operating supplies, and other tangible inputs necessary for operation),
• works and services (e.g., investment construction projects, refurbishments and modernization, servicing, repairs and maintenance, technical assistance, and other services).

Within tendering procedures, a range of parameters is assessed (e.g., financial stability, ISO certification, references, the bidder’s business activities in high-risk countries, impacts of international sanctions) including reputational risks, risks related to breaches of legal requirements, and others.

Depending on the nature and purpose of the procurement, the CEZ Group takes into account the principles of social and environmental responsibility, as well as benefits of innovation, when defining procurement conditions, evaluating tenders, and selecting suppliers. With regard to social requirements imposed on suppliers, the most commonly assessed aspects include:

• employment opportunities (e.g., education support, gaining experience, and upskilling),
• social inclusion (e.g., support for social enterprises, employment of persons from disadvantaged groups),
• decent working conditions (e.g., equal pay, work-life balance, health and safety conditions at work, valid employment contracts),
• local sourcing (e.g., support for small and medium-sized enterprises, proper and timely fulfillment of financial commitments),
• ethical purchasing practices (e.g., Fair Trade products, evaluation of tenders based not solely on the lowest price, fair relations within the supply chain).

For selected public procurement procedures, requirements for responsible procurement and related ESG criteria are directly reflected in the evaluation of tenderers‘ bids and then are incorporated into framework agreements or commercial contracts. Where non-compliance with such requirements is identified on the part of a supplier, the framework agreement or contract can be terminated. The same approach applies to complex and highly sophisticated tenders for nuclear power plants, where the selection criteria are subject to highly specific technical, legal, safety, and environmental requirements.

Where the nature of the procurement allows, a portion of public contract is awarded under the regime of so-called reserved public contracts. In such cases, tenders may be submitted exclusively by suppliers employing at least 50% of persons with disabilities, calculated from the total number of their employees, in protected workplaces.

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

For further details, visit the Sustainable Supply Chain website: Sustainable supply chain | Skupina ČEZ