Sourcing of materials

GRI disclosure 2–6

Supply chain

Swatch Group works with carefully selected suppliers, mainly from Switzerland and Europe, to source raw materials and some components. It also sources certain materials and components from suppliers based in East Asia.

Depending on the material, the country of origin or the country of production, Swatch Group faces environmental and social challenges. Adverse impacts need to be avoided or minimized across the entire supply chain.

Using clear specifications (Supplier Code of Conduct) and extensive on-site supplier audits, regular checks are carried out to ensure that suppliers are actually complying with the strict requirements.

Audits of suppliers are carried out based on risk, and a separate organization has been set up in East Asia for this purpose. The supplier risk assessment is currently being revised. In the future, audits will also be carried out at selected Swiss and European suppliers, using the Supplier Code of Conduct as a basis.

The Code is based on internationally recognized human rights and on the United Nations Guiding Principles on Business and Human Rights (UNGPs).

A detailed review of the supply chain is being carried out for the first time for the 2023 financial year, based on the Swiss Ordinance on Due Diligence and Transparency in relation to Minerals and Metals from Conflict-Affected Areas and Child Labor. 1

Supplier Code of Conduct (SCoC)

The Supplier Code of Conduct applies to Swatch Group and its subsidiaries, as well as to suppliers and sub-suppliers of Swatch Group and its subsidiaries that supply products or services to Swatch Group companies.

The code is based on principles that are recognized in the industry and internationally, such as the United Nations Universal Declaration of Human Rights, the United Nations Guiding Principles on Business and Human Rights (UNGPs), the international labor standards of the International Labor Organization (ILO), the ILO’s code of practice for safety and health, the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, the 2019 Code of Practices of the Responsible Jewellery Council (RJC), the RJC’s 2017 Chain of Custody standard, the Social Accountability International SA 8000 standard, the OHSAS 18001 standard and anti-bribery guidance (ISO 37001).
The SCoC is periodically updated to take account of changes in legislation, regulations and Swatch Group guidelines.

↗ For more information about auditing suppliers, please see the "Supplier Audits" chapter, page 117 of the Sustainability Report.

In addition, it will follow the stricter standard whenever national legislation differs from the Group’s high environmental and health and safety standards. Where there are inconsistencies between national legislation and Swatch Group’s strict standards, the Group will respect the law while endeavoring to meet the more stringent standards.

With the aim of protecting particularly at-risk groups of people, the Code of Conduct includes sections on combating discrimination, safeguarding people against bullying and abuse, preventing forced and compulsory labor, and preventing child labor, as well as on the rights of indigenous people.

All employees can access the Code of Conduct online. Sustainability officers are responsible for training and providing information to employees in the individual Group companies. All procurement departments received training in 2022, and they are responsible for providing information and ensuring compliance with the SCoC in the supply chains.

Violations of the SCoC can be reported to the email address noted in the document. These are then be dealt with by the responsible internal departments.

The Swatch Group Executive Group Management Board approved the Code of Conduct.

GRI Disclosure 308-1, 308–2, 414–1, 414–2

Supplier Audits

Swatch Group FEPS (Far East Procurement Services) continuously verifies that suppliers and their facilities adhere to the Swatch Group Supplier Code of Conduct and applicable laws and regulations. Our supplier audit tools have been updated in the year to align with the new Swatch Group Supplier Code of Conduct launched in 2022. All production facilities of direct suppliers and designated tier-2 suppliers are required to undergo two independent audits: responsible sourcing (RS audit) audit focus on assessing performance of labor and human rights, health and safety, environmental protection, and business ethics; quality assurance (QA audit) audit focus on verifying quality management system and facilities’ quality assurance processes.

By the end of 2023 (09/30/2023), a total of 138 Asian facilities from 123 suppliers had been qualified through audits or by sharing equivalent audit reports. In the reporting period (10/01/2022 to 09/30/2023), 110 supplier facilities were assessed by independent third-party auditing firms appointed by Swatch Group. Among them, 17 facilities were audited for the first time. A total of 128 audits were carried out in the period under review.

GRI Disclosure 301-1

Minerals and metals from conflict-affected areas

With regard to minerals and metals from conflict-affected and high-risk areas, the imported and processed amounts of the materials defined by the Swiss Ordinance on Due Diligence and Transparency in relation to Minerals and Metals from Conflict-Affected Areas and Child Labor (DDTrO) have been recorded and analyzed. Swatch Group does not source many of these specified minerals and metals, and only in small quantities where it does. The threshold is only exceeded in the case of tungsten and gold. However, a traceability and documentation process has been implemented to demonstrate that these materials do not come from conflict-affected or high-risk areas.

Gold is sourced either in its raw state, as a semi-finished product or in powder form (tariff number 7108). We only ever source traceable gold, exclusively from official and certified industrial mines in the US, Canada or Australia. All of the gold sourced in 2023 under tariff number 7108 comes from Australian mines. Carbon footprint was also taken into account when selecting mines.
The tungsten used is sourced in powder form (tariff number 8101 10 00) via European suppliers and is produced from fully recycled base material.

Alongside Swiss legislation (DDTrO 1 and Art. 964 CO 2), the following international guidelines and standards were used as a basis:

OECD Due Diligence Guidance for Responsible Business Conduct 3
OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas 4
Practical actions for companies to identify and address the worst forms of child labor in mineral supply chains 5

GRI Discloser 408-1

Child Labor

Swatch Group has a zero-tolerance policy when it comes to child labor.

Strategy and management system

Swatch Group adheres to the OECD Due Diligence Guidance for Responsible Business Conduct (published on May 30, 2018), ILO Conventions 138 and 182 on child labor and the ILO-IOE Child Labor Guidance Tool for Business (published on December 15, 2015), and applies the rules and guidelines mentioned.

Swatch Group has set out its policy commitment regarding child labor in its Supplier Code of Conduct (SCoC). The SCoC applies to Swatch Group, its companies, suppliers to Swatch Group companies and their subsidiaries. It also applies to affiliated companies and to subcontractors that supply goods or services to Swatch Group companies or for use in Swatch Group or in connection with its products. The SCoC is published on the Swatch Group website and issued to all direct suppliers.

Suppliers are obliged to carry out periodic evaluations of their facilities and operating processes, as well as those of their subcontractors that supply goods or services ultimately intended for use in connection with Swatch Group company products, in order to ensure compliance with the SCoC and the applicable laws.

↗ For more information on "Child Labor" see pages 113 to 115 of the Sustainability Report.

GRI disclosure 204–1

Local suppliers

Since being founded, Swatch Group has been committed to Swissness throughout the Swiss watch industry and has pursued the goal of being 100% Swiss made since the launch of the Swatch brand in 1983. This dedicated commitment to a production site in Switzerland and local sourcing contributes significantly to the preservation and further development of the Swiss watchmaking tradition and art.

↗ For more information, see chapter "Recovery and preservation of arts and artisanship" on p. 106 of the Sustainability Report.

In addition, the short distances between the individual production sites mean that comparatively few GHG emissions are generated through transport in the supply chain. This is not only true of the classic watch components: also batteries and microchips are manufactured locally in Switzerland thanks to the company’s own production sites. In most other industries they are imported by air freight from Asia. The many years of investment in Swiss development and production facilities have also enabled Swatch Group to launch the Swiss smartwatch Tissot T-Touch Connect Solar, for which the SwAlps operating system was also developed entirely in-house in Switzerland.

For watches, the percentage of local value creation, based on the applicable regulation on Swissness, is between 60% and 100%.

In order to avoid unnecessary transport emissions and support local suppliers worldwide, and to enable an efficient sourcing process, the country subsidiaries and distribution companies source products from producers in the region wherever possible.

Thanks to the worldwide network of service centers, watches can be repaired by local employees in a customer-friendly manner and without long transport routes.

↗ For more information on "Customer Service" see page 79 of the Sustainability Report.

GRI Disclosure 302-2

Precious Metal Sourcing

Swatch Group uses different precious metals, primarily gold, silver, palladium and platinum, with gold accounting for the largest proportion by far. Primary gold is sourced exclusively from official and certified industrial mines in the US, Canada and Australia. In addition, the group has an in-house closed-loop gold processing system with a group-owned foundry to reuse production residues internally. A relatively small part of the gold used is recycled by certified Swiss gold foundries or purchased as components from suppliers.

Recycled gold from external sources is avoided as traceability back to the mine is not achievable. Full traceability can be achieved with the Swatch Group sourcing strategy, which involves direct delivery from the mine to the refinery and on to the Group’s own gold processing facility, as well as the use of gold from internal processes.

↗ For further details, see chapter “Minerals and metals from conflict-affected areas” on p. 111 of the Sustainability Report.

Primary gold

Traceable primary gold is sourced exclusively from official and certified industrial mines in the US, Canada and Australia, where the highest legal standards apply and where the mines are operated under extremely strict conditions set by the authorities and regularly monitored by them. The supply chain is kept as short as possible, through direct delivery from the mine to the refineries and then on to the in-house gold processing by Swatch Group. Sourcing gold from other regions and / or small-scale and artisanal mines where lower standards apply or where there are residual risks that non-traceable gold could enter the supply chain is not an option for Swatch Group. This clear and simple sourcing policy has proved to be very effective.

Countries of origin for primary gold in the year under review

	2023	2022	2021
Australia	100%	100%	88%
US	0%	0%	12%
Canada	0%	0%	0%

_{Sourcing period: October 1–September 30.}

Analyzing gold origins

Traceability of raw materials and precious metals and the possibility of detecting any manipulations are key to validating the origins of gold.

Since 2013, Swatch Group’s most important primary gold supplier has been using a method that enables impurities in the obtained gold doré to be analyzed on the basis of 15 elements and their interactions. This method allows the concentrations of the individual elements to be recorded and over the years a database has been established. The refinery in Switzerland carries out an WD-XRF analysis before the material is melted. The analysis results are saved in a database and the levels of elements and their reciprocal interactions are checked.

This method enables the origins of gold to be tested, since some chemical elements are only present in certain regions while others are always present.

By this analysis, raw materials from various regions can be identified.

Each delivery of gold doré that will be used to produce primary fine gold for Swatch Group is analyzed to verify whether the country of origin is the uS, Canada or Australia. no irregularities have been observed to date.

Gold recycled internally

The investments made in recent years in the Group’s foundry and refining facilities have fully internalized gold processing.

After their manufacture, alloys are turned into semi-finished products or finished components, and production residues from these processes are recycled internally. Swatch Group therefore controls the complete gold processing chain internally according to a clearly defined process.

Nivarox-FAR plays a key role in this respect, as it processes Swatch Group’s gold production stocks in a closed and controlled cycle. Production residues can therefore be reused in the Group’s own foundry. Nivarox-FAR has the necessary federal authorization both as a foundry and as a commercial assayer (sworn assayer) and is certified according to the Responsible Jewellery Council Code of Practice and Chain of Custody (RJC CoP and CoC).

The proportion of recycled gold varies. When the production flow requires additional coverage with primary gold, the proportion of recycled gold tends to decrease.

Gold recycled externally

A small portion of gold chips and scrap is recycled by a few external processors, depending on internal capacity.

Swatch Group only works with selected established long-term foundries that can demonstrate not only legal compliance according to all the provisions of the financial market supervisory authority, but also certified membership in the Responsible Jewellery Council (RJC) and / or the London Bullion Market Association (LBMA), and can guarantee through recognized certification that the precious metals delivered originate from ethically sound sources and conflict-free regions.

Gold in purchased components

Wherever possible, suppliers of components use semi-finished products sourced from Swatch Group. If this is not possible, the supplier is required to be RJC-certified.

In the year under review, 99.8% of the gold used was sourced in accordance with Swatch Group’s strict requirements. The remaining 0.2% was primarily sourced from Swiss and some European and Japanese suppliers that are not RJC-certified (with Japanese suppliers used for electronic systems only). The aim is to ensure that, in the future, this remaining proportion will also be sourced in accordance with Group’s strict guidelines.

LIMITED ASSURANCE REPORT ON SELECTED SOURCING DISCLOSURES

Based on the work we performed, nothing has come to our attention that causes us to believe that the selected sourcing disclosures as disclosed on the pages 112 and 120 to 121 in the Sustainability Report 2023 of The Swatch Group AG for the period ended 31 December 2023 are not prepared, in all material respects, in accordance with the reporting Criteria as disclosed in the “Minerals and metals from conflict affected areas” section and in the “Sourcing” section in the Sustainability Report 2023. (PricewaterhouseCoopers AG)