Governance

Škoda Auto acts responsibly and openly to ensure that it is perceived as a successful and transparent company by its employees, business partners, customers, and the public at large. To keep its promise, the Company actively develops and maintains corporate governance practices, demands the integrity of its employees, ensures compliance with relevant rules and regulations, effectively manages risks, and promotes a corporate culture based on the principles of integrity and compliance.

The principles of integrity and compliance are also an integral part of the Corporate Strategy and Sustainability Strategy, and a key priority at the Company. For this reason, the Board of Management at Škoda Auto has voluntarily committed to respecting and advocating such principles, and involves them in all strategic decisions. They are also applied at all subsidiaries and affiliates.

To ensure adherence to the principles of integrity and compliance, Škoda Auto began introducing measures in 2019 as part of the Together4Integrity programme. These measures were implemented in all relevant areas of business, including HR processes, relations with business partners, the sphere of product and environment, legal affairs, and Company governance processes.

The Together4Integrity programme was brought to an end at the Group in the middle of 2023. This, however, does not affect the obligation to implement and ensure the continua functioning of the measures defined in that programme. The responsibility in question has now shifted to the individual companies in the Group and their corresponding functions.

Business Conduct ensures that the business works in a responsible, qualified, and transparent way. It safeguards proper management and supervision structures and defines the distribution of rights and duties among stakeholders in the Company, such as shareholders, executive management, Company bodies, employees, business partners, and customers. Generally speaking, it is a set of legal and executive methods and procedures that commit Škoda Auto to maintain a balanced relationship between the Company and its stakeholders.

Code of Conduct

A Code of Conduct, which defines fundamental ethical standards for the entire Škoda Auto Group, was developed and adopted by the Company, subsidiaries, and affiliates. The Code of Conduct clearly defines the Company’s general standards of employee conduct. It applies to all employees, serves as a guide for day-to-day conduct, and forms the basis of all Company decisions. This document is built upon common values, statutory requirements, and internal regulations and provides orientation, guidance, and auxiliary instructions in adhering to existing rules and regulations at work.

Moreover, there is a Code of Conduct for business partners in place for the Group as a whole. Its principles are now anchored in relevant contractual arrangements with business partners.

Together with the Code of Conduct, the Škoda Auto Board of Management and Group management have adopted voluntary commitments to the principles of integrity and compliance. Management takes the principles of integrity and compliance, an integral part of the Corporate Strategy and the Sustainability strategy, into consideration in its decision- making. The Corporate Strategy is supported by specific key performance indicators that enable regular monitoring and evaluation of the corporate culture at the Company.

The Board of Management at the Company actively supports and communicates adherence to the principles of the Code of Conduct.

Code of Conduct training

A system of regular employee training is in place to promote matters relating to the corporate culture. The Code of Conduct, as a fundamental document, is binding for all employees. Each and every employee is under obligation to complete the Code of Conduct training at least once every two years. Training is provided to administration staff by way of e-learning, while production workers attend training in person. Training familiarises employees with the principles of conduct and the rules adopted by the Group, examples of conduct, and contact points that can be reached in case of doubts or when in need of support. Škoda Auto monitors the percentage of trained employees, evaluates the results of the training process and feedback from employees, and has escalation procedures in place if required. Ninety-nine per cent of employees have taken the training, nearly achieving the target figure of 100%.

Human Rights

The Company’s approach follows the UN Guiding Principles on Business and Human Rights, which further refer to the Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the OECD Guidelines for Multinational Enterprises.

Škoda Auto respects its commitment to adhere to the relevant international treaties and declarations in the sphere of human rights. It respects, protects, and enforces all applicable regulations for the protection of human rights and children’s rights as a fundamental and general requirement worldwide. Likewise, it continually improves its own processes and systems and introduces specific measures to assert its leading position in the automotive industry when it comes to human rights.

The Company applies internal principles and procedures so as to prevent any violation of human rights. Škoda Auto strongly rejects the use of child labour, forced or compulsory labour, and all forms of modern slavery and human trafficking. This policy applies not only to the Company’s internal operations, but also to the conduct of its business partners, as set out in the Code of Conduct, which is in line with the relevant international standards.

The Company updated its relevant internal regulations and processes in 2023 to account for the new German Supply Chain Due Diligence Act (LkSG), as a result of which the Company had to adopt a range of relevant measures, particularly in relation to protecting human rights and the environment. The issue at hand was also handled by providing tailored training sessions and internal communication. At the same time, Company employees were informed of the obligation to report cases in which they suspect a violation of the law. In the years to come, further measures will be introduced in line with the risks identified.

Integrity and Compliance Management System

Škoda Auto is well aware that it can only achieve sustainable success and earn the trust of stakeholders by working with integrity, complying with global statutory provisions, upholding its voluntary commitments and ethical principles, supporting the issues of corporate culture and diversity, and taking responsibility for the protection of human rights.

The sustainable management of matters relating to integrity and compliance at the Company is provided for by what is known as the organisation for integrity and compliance Group Guideline 31: Organisation of Governance Functions. The organisation of integrity and compliance is managed at the Company by the Head of the Department of Governance, Risk & Compliance.

To ensure that issues of integrity and compliance are properly managed and supported at Škoda Auto, the Company introduced an effective Integrity & Compliance Management System in line with Group-wide principles, valid laws, and internal regulations. This system draws on the aims and measures defined by the Company and is regularly updated to account for the latest requirements. The idea of the system is to ensure that management at Škoda Auto, its employees, and any relevant third parties adhere to the principles of integrity and compliance that ensue from legal and ethical rules relating to areas such as economic competition, the prevention of corruption, sustainable relations with business partners, finances and tax, environmental protection, and relations with employees, which also encompasses the promotion of equal opportunities.

The Integrity and Compliance Management System as such is divided into seven elements:

— culture and values in integrity and compliance;
— objectives in integrity and compliance;
— risks in integrity and compliance;
— programme and processes in integrity and compliance;
— organisation in integrity and compliance;
— communication and training in integrity and compliance;
— and monitoring and improvement in integrity and compliance.

The system also comprises principles relating to preventing corruption, money laundering, and terrorist financing, as well as material gifts and invitations, sponsorship and financial donations, in-depth controls of business partners, and avoiding conflicts of interest.

Škoda Auto actively provides regular and clear communication and training aimed at specific target groups so as to support cultural change and conduct in accordance with regulations. These initiatives are carried out through effective and accessible channels and procedures available throughout the organisation.

You will find more information on integrity and compliance here.

The Risk Management System – a three-line model

Škoda Auto introduced a three-line model to identify, report, and mitigate risks in the sphere of compliance and to investigate any complaints about unlawful behaviour or behaviour that is contrary to the Code of Conduct and other internal guidelines and regulations. All positions responsible for ensuring all relevant business processes represent the first line. The second line consists of the departments responsible for the Integrity and Compliance Management System, including the Department of Governance, Risk & Compliance, and the Department of Legal Affairs. These departments are responsible for setting rules, and they play a preventive role, also providing support to the first line. Their preventive role involves carrying out the appropriate risk analyses to detect and prevent conduct which might be contrary to Company rules. The third line is Internal Audit, which is responsible for checking that processes are properly undertaken by representatives of the first line. Internal Audit undertakes this check as part of its auditing activities in planned and extraordinary audits throughout the year.

Company whistleblowing systems

The Company provides employees of the Company and of the Group, and indeed outside parties, with a discrete and reliable way of drawing attention to possible breaches of valid legal regulations and/or internal regulations (also anonymously).

For this reason, the Central Whistleblowing System for Companies and Brands of the Volkswagen Group has been in operation at the Company for several years now to deal with reports of serious violations of legal regulations which could significantly harm the Company’s reputation or financial interests or which could seriously violate the Company’s fundamental ethical values. Now, however, the system has been expanded to take account of the option of whistleblowing in line with the principles of Act No. 171/2023 Sb. on the protection of whistleblowers. Both these systems are administered by the Department of Governance, Risk & Compliance.

The protection of individuals who report any case of unethical conduct is set and managed in internal regulations which define the whistleblowing system as such. At the same time, first-line managers are obliged to report any breach of valid legal and/or internal regulations or Company rules that they come across.

As far as personal problems are concerned, and over and above the whistleblowing systems in place, employees have the opportunity to directly file a personal complaint with the organisational unit for Social Relations and HR Compliance/Human Resource Planning or with any relevant HR department as part of disciplinary procedures. Such complaints are addressed separately.

The Company’s whistleblowing systems are accompanied by the internal process of reporting in the sphere of integrity and compliance. For the most critical and most urgent matters, there is a special process at the Group level known as “hot topic reporting”. This process is employed for the internal reporting and monitoring of any cases of violation of the principles of integrity and compliance.

Škoda Auto introduced the Group Policy to ensure sustainable development in its relations with suppliers. This policy defines the procedures involved in incorporating environmental and social standards, and requirements for compliance with them in business relations in the form of a Code of Conduct for Business Partners. These requirements are contractually binding.

Emphasis on fair treatment of business partners and compliance with competition law are further important aspects helping to create a level playing field for all stakeholders and promoting integrity in business relations.

Monitoring and ensuring compliance with the set standards is carried out using two tools: the Sustainability Rating and Investigating Suspicions of Breach of the Code of Conduct for Business Partners.

Sustainability Rating (S-Rating)

Back in 2019, Škoda Auto introduced a rating of the sustainability of its suppliers – the “S-Rating” – an effective way to ensure that suppliers comply with the set standards. This rating has become an integral part of the process of finding suppliers and awarding contracts.

The S-Rating draws on the Code of Conduct for Business Partners. The rating is based on the results of a self-assessment questionnaire (SAQ), possibly accompanied by an on-site inspection (supplier audit). Škoda Auto does not initiate nor continue cooperation with suppliers that have an insufficient rating.

The rating is given to individual enterprises with 10 or more employees. Companies and locations with fewer than 10 employees can apply for an exemption to the obligation to obtain an S-Rating.

A check of compliance with regulations (Business Partner Due Diligence, BPDD) is carried out at selected business partners in parallel with the S-Rating. This inspection, based on an assessment of risks, encompasses an anti-corruption inspection and a check of integrity and is another step on the road to transparency and responsibility.

The process of assigning an S-Rating and the check of due diligence work in the same way throughout the VW Group. The result of the evaluation applies to all brands in the Volkswagen Group.

Breach of the Code of Conduct for Business Partners

In addition to preventive measures (S-Rating), an internal process known as the Supply Chain Grievance Mechanism (SCGM) is activated when suspicions arise regarding a breach of sustainability requirements. Any sign or indication (taken, for example, from the whistleblowing system or the media) that arouses fears of possible violation of the Code of Conduct for Business Partners is immediately and thoroughly checked. If wrongdoing is proven, corrective measures are set or other repercussions drawn.

When it comes to sustainability, Škoda Auto simultaneously enforces active and effective improvement in the results of its suppliers and takes steps to improve and adapt its own processes to meet the latest standards of a responsible business.

Sustainability in supplier relations – the Group management concept

When awarding contracts, Škoda Auto follows a three- pronged approach to establishing sustainable supply chains, focusing on decarbonisation, human rights, combating corruption, and responsibly awarding contracts for the procurement of raw materials. The Company’s approach stresses the measurement of performance across these key areas of sustainability. In order to achieve the very best results, Škoda Auto demands transparency in relations with all its suppliers, including those that reach beyond Tier 1.

Prevention: Contracts and specifications contain requirements on sustainability, with the greatest emphasis placed on the Code of Conduct for Business Partners. Suppliers must undergo training, and awareness of sustainable practices is being raised.

Reaction: The risks and impacts identified can be dealt with using a variety of measures. These include a standardised internal process for evaluating violations by individual suppliers and implementing the action plans taken from on- site inspections. The primary aim is to remedy, to prevent future violations, and to actively improve the performance of suppliers in terms of sustainability.

Detection: Sustainability risks in the supply chain are systematically analysed and assessed. The principles of sustainability are firmly anchored in strategic decisions when awarding key contracts throughout the Group. To assess the performance of potential suppliers, a self-assessment tool is used, along with audits conducted on-site (S-Rating).

Preventing and Detecting Corruption

Škoda Auto introduced an effective system of avoiding conflict of interests and corruption that serves to protect the Company itself and its employees. Moreover, binding internal rules and processes concerning accepting and providing gifts have been put in place as preventive measures.

The principles of preventing conflict of interest and corruption are defined in internal regulations. One part of the Code of Conduct relates to the prohibition of corruption. A structured system of training in adhering to regulations in this area is also in place. Škoda Auto organises specific training on the issue of corruption, which is mandatory for all administrative personnel. Every employee must complete this training once every two years.

Anti-corruption training is a component of the basic set of training at the Group. Škoda Auto uses a risk-based approach in designing particular training. Anti-corruption training was prepared on the basis of an internal assessment of risks and covers specific preventive measures in this area. More than 95% of employees have undergone this training. While the Company aims to reach 100%, achievement of this target is affected by the natural employee fluctuation.

A system of preventing and detecting risks associated with corruption and bribery has also been established at the Company. Škoda Auto has not encountered any signs that this system would be insufficient, and it has implemented measures and processes all along the value chain.

Not one case of corruption was identified at Škoda Auto in 2023.

Political Influence and Advocacy Activities

As a vehicle manufacturer and software supplier, Škoda Auto works within a highly regulated environment. For this reason, it is in regular contact with representatives of local, regional, national, and international political representatives. The Company and its representatives always act in accordance with valid international, European, and national legislation, internal standards, and the Škoda Auto and Volkswagen Group Code of Conduct.

In representing its interests, the Company proceeds through an authorised employee (External Affairs Department) or through the membership of a relevant association. Activity in the advisory bodies of public authorities and in academic institutions is also a matter of course. Škoda Auto promotes its own interests and those of the companies which it directly controls in relation to key issues, European legislation, and foreign markets, in accordance with a “one-voice policy”. This one-voice policy is set out by Group guidelines implemented into internal rules at Škoda Auto. The Company’s interests are represented in European institutions by the Volkswagen Group, which is why Škoda Auto itself is not entered in the EU Transparency Register. To date, the Czech Republic does not have a transparency register in which it could be entered.

Internal rules at Škoda Auto prohibit the provision of financial or other gifts, except courtesy gifts, to politically active persons and political parties. For this reason, the Company did not provide any such gift in 2023.

The External Affairs Department is responsible for communication with political representatives, namely the leading members of state administration, elected members of Parliament, European Union representatives, representatives of international organisations, and third- country representatives. This falls within the area of People and Culture, headed by Member of the Board Mrs. Maren Gräf. The expenses which the Company spends on representing its interests consist of the wage costs of the External Affairs Department and membership fees to the relevant associations. The Company paid approx. CZK 1.4 million on such fees in 2023, all in line with the payment rules of the respective associations (see below for a list of associations). Škoda Auto was not represented by any third party during the reporting period. Nor did any member of an administrative, management, or supervisory body hold a comparable position in public administration within a three-year period preceding his or her appointment.

Promoting Company interests – current issues

The decarbonisation of industry and transport

In collaboration with the KOVO Unions and the Government of the Czech Republic, the Company is making efforts to achieve successful decarbonisation of industrial production and transport without negative external impacts on the socioeconomic environment in the Czech Republic. Škoda Auto plays an active part in reducing transport emissions, in particular by selling low- and zero-emission passenger cars (electrification of the fleet) and by construction of internal charging infrastructure. Plans for the decarbonisation of production and transport are fully in compliance with the climate and environmental targets of the European Union and the Czech Republic. Decarbonisation and lowering the environmental impact is not merely a legislative goal at the Company, but part of its DNA, projected in its GreenFuture Strategy and Next Level Škoda Strategy 2030. The Company was involved in updating the National Action Plan of the Czech Republic for Clean Mobility.

State aid – examples

Škoda Auto receives state aid in accordance with European and national legislation and makes sure that all set conditions are met. In 2023, the Company was involved in 16 projects co-financed by national and European public programs in areas such as electromobility, urban mobility, Industry 4.0, 3D printing, environmental protection, and upskilling students and employees. The Company received decisions on the provision of grants in 2023 totalling CZK 47.77 million for 13 projects.

Production

One example of a project receiving state aid is an investment incentive to produce the Enyaq electric vehicle and its variants. Škoda Auto met the conditions of the project set out by law in 2020 and applied aid in the form of income tax credit for legal persons up to the sum of CZK 383.6 million in 2023. Of this, CZK 73.5 million were claimed in 2023.

Research, development, and industrial innovation

The Company actively participates in five long-term projects involving cooperation between research and application. It cooperates with Czech universities, research centres, and other partners on issues such as electromobility, reducing CO₂, optimising the use of raw materials with the help of digitisation, and 3D printing. Škoda Auto also collaborates with European universities and research institutes on projects that are supported by European programs; for example, battery diagnostics, the use of AI, and energy management.

Involvement in EIT Urban Mobility, the aim of which is to promote positive changes in the way people move around towns and cities which are better for life, allowed the Company to sign up for projects aimed at transforming urban mobility, such as shared charging car parks and new types of charging points.

Education and integration

Students and teachers at the Škoda Auto Secondary Vocational School of Engineering are the principal target group of projects subsidised by the programmes of Erasmus+. These projects focus on sharing experiences and tried-and-trusted procedures in education in the EU and foreign exchange programmes for students and teachers.

Potential projects under assessment

The Company regularly assesses the eligibility of using public aid for projects aimed at making savings on energy and water, the development of electromobility, reducing CO₂ emissions, Industry 4.0, research and development or reskilling/upskilling employees.

Membership of associations relevant to promoting interests
— Alliance for an Emission-Free Future
— Czech Automotive Industry Association – AutoSAP
— Czech–Israeli Mutual Chamber of Commerce
— Czech–German Chamber of Commerce and Industry
— Czech Gas Association
— E-mobility Platform
— Chamber of Commerce of the Czech Republic
— Car Importers Association
— Confederation of Industry of the Czech Republic

Membership of the advisory bodies of public authorities
— Coordination Group of the Ministry of Industry and Trade for the National Action Plan for Clean Mobility
— Council for Competitiveness of the Central Bohemian Region
— Government Research, Development, and Innovation Council
— Regional Council of Economic and Social Agreement (Tripartite) of the Hradec Králové Region
— Regional Council of Economic and Social Agreement (Tripartite) of the Central Bohemian Region

Representation in academic institutions
— Czech Technical University in Prague
— 42 Prague
— VSB – Technical University of Ostrava
— Czech University of Life Sciences, Prague
— Jan Evangelista Purkyně University in Ústí nad Labem
— Technical University of Liberec
— Academic Council of the University of Economics, Prague
— Škoda Auto University
— National Centre for Industry 4.0
— National Centre of Competence for Industrial 3D Printing

Business Conduct

Supplier Relations Management