Clariant’s holistic approach to creating value for all stakeholders is underpinned by its established five-pillar strategy, overall objectives, and financial targets. The 2017 revision of the prioritization of material topics related to performance, people, and planet provides additional guidance for strategy execution in the Business Areas that are supported by the Clariant Excellence program.

1. Long-term value creation

Clariant has a long-term and holistic approach to value creation. While paying close attention to the financial aspects of business, Clariant also takes non-financial aspects into account in order to create added value for customers, employees, shareholders, and the environment. Focusing on core topics such as customer loyalty, talent development, and innovation allows Clariant to set the course for future financial performance early on. This integrated view is crucial to further accelerate Clariant’s profitable growth strategy.

2. Materiality assessment to focus on the essentials

To determine which levers offer the highest potential for value creation in the long run, Clariant conducted a comprehensive materiality assessment in 2017. Both external and internal stakeholders were asked which topics they deem most relevant for future value creation for the company. This prioritization of topics related to performance, people, and planet will help Clariant further develop its integrated management approach.

Materiality was evaluated in two dimensions, with stakeholders providing feedback on the relevance of each topic for Clariant from their perspective, and senior managers across the company assessing the importance of the topics for value creation by Clariant. The latter assessment included the potential influence of each issue on strategy development and achievement, market positioning and growth opportunities, risk management, compliance, and reputation management. Through considering the risks and opportunities linked to Clariant’s external impacts, the process indirectly took Clariant’s potential effects on various aspects of sustainable development into account.

2.1. An inclusive approach

The assessment was based on two internationally recognized frameworks: the International Integrated Reporting framework issued by the International Integrated Reporting Council (IIRC) and the sustainability reporting standards of the Global Reporting Initiative (GRI). As a first step, economic, environmental, and social topics that are included in frameworks such as GRI, IIRC, SASB, UN Global Compact, and UN Sustainable Development Goals, as well as Clariant’s previously determined material topics and topics defined by peers, were compiled. The resulting initial list of more than 400 topics was then consolidated to a list of less than 50 topics.

Secondly, a total of 283 external stakeholders including customers, investors, non-governmental organizations, sustainability experts, scientists, and suppliers, in addition to 106 employees and 64 management representatives, were invited to assess these topics. Clariant carefully defined a set of selection criteria to ensure a balanced representation of interests. In addition, stakeholders were approached by the closest person of contact at Clariant to encourage participation and bring forward well-informed opinions. Management and stakeholder surveys were conducted worldwide, with the latter being offered in English, German, Spanish, Portuguese, and Mandarin.

2.2. Broad response, focused results

Overall, the response rate was 52%, with 131 external stakeholders, 69 employees, and 36 managers participating. Of the 131 external stakeholders, 74 customers responded to the survey. The outcome was evaluated and validated by senior management during a workshop.

The results are summarized in the new Clariant Materiality Matrix FIGURE 001, which shows topics considered moderately to highly relevant. The matrix depicts the relevance of the topics from the stakeholder point of view on the vertical axis and relevance for value creation by Clariant on the horizontal axis. The topics are categorized in three areas: Cultivate, Advance, and Focus. Focus topics are considered to be at the core of Clariant’s ability to create long-term value. For topics in the Advance area, Clariant recognizes a need for further development in order to better meet company and stakeholder expectations. Topics in the Cultivate area are crucial for successfully creating value in the future.

001 CLARIANT MATERIALITY MATRIX

Information on material topics can be found throughout the Integrated Report, especially in the chapter Review of Results, with additional information provided in the online GRI Report.

Focus topics are further illustrated by dedicated stories: Innovation and Technological Advances: Growing ambitions, Boosting innovations, Delivering solutions; Product Stewardship and Sustainable Chemistry: Promising results, Ensuring trust; Customer Relationships: Marketing advances, Building connections; Occupational Health, Safety, and Well-Being: Empowering change; Environmental Protection and Resources: Driving sustainability; Growth and Profitability: Increasing profitability, The Voice of China becoming more important; Talent Attraction and Development: Transforming journeys

3. Sustainable Development Goals

Clariant appreciates the adoption of the 2030 Agenda for Sustainable Development by the United Nations member states in September 2015. The Agenda, including its 17 Sustainable Development Goals (SDGs), marks a milestone on the path to a more sustainable future. The universally accepted goals are highly relevant for the chemical industry and Clariant is committed to contributing to their realization. The SDGs are in many ways congruent with Clariant’s sustainability objectives, strategy, and values.

Sustainability for Clariant is a journey – a continuous effort to steer the company’s activities and product portfolio to contribute positively to global sustainable development. Examples of Clariant’s contributions to the SDGs are the 2025 environmental targets (chapter Planet), the company’s efforts to promote health and safety in the workplace (chapter Occupational Health, Safety, and Well-being), and the extensive work done through the Portfolio Value Program (PVP) to screen the product portfolio for sustainability and bring forward more sustainable products and EcoTain® products (chapter Product Stewardship/Sustainable Chemistry). These initiatives contribute to several of the SDGs, such as SDG 12 »Responsible Consumption and Production«, SDG 8 »Decent Work and Economic Growth«, and SDG 6 »Clean Water and Sanitation«, given that they have wide sustainability contributions to value chains, communities, or society. Further examples are provided in more detail in this report, such as offering products with reduced Volatile Organic Compounds (VOC) (chapter Driving Sustainability), the research and development work done in a new greenhouse supporting sustainable crop protection (chapter Growing Ambitions), and the setup of our sunliquid® plant in Romania, supporting clean energy and climate change mitigation objectives. (chapter Idea to Market)

Clariant has come a long way, evidenced by the inclusion in the renowned Dow Jones Sustainability Index for the fifth year in a row and by the Silver Class Distinction in the RobecoSam Yearbook 2018. However, Clariant recognizes the opportunity offered by the SDGs to share a common framework of action and language when communicating with stakeholders and reporting on sustainability objectives, impact, and performance. Clariant thus plans to further increase transparency on the alignment of its strategy with the SDGs and to regularly report on the progress made toward achieving them.

002 CLARIANT SUPPORTS THE SUSTAINABLE DEVELOPMENT GOALS

Source: United Nations Department of Public Information

»Sustainable growth requires relentless focus on costs while developing differentiating capabilities and organizing for growth.«

Harald Dialer Head of Clariant Excellence

003 THE FIVE-PILLAR STRATEGY

4. Five-pillar strategy to provide guidance

The five-pillar strategy FIGURE 003 summarizes Clariant’s approach to long-term value creation for its stakeholders: the two strategic pillars of innovation and sustainability, complemented by repositioning the portfolio, intensifying growth, and increasing profitability.

Each of Clariant’s Business Units has specific strategies that align with the five pillars, detailing the measures and guidance that help the unit achieve its targets. To support the monitoring and execution of strategy across the company, the Executive Committee conducts an Annual Performance Cycle. A formal Strategy Review in September includes stress-testing the assumptions underlying the three-year Business Unit Strategy Cycle, and precedes the annual Objective Discussion for the following year. Business Reviews are conducted every quarter to ensure performance meets expectations and supportive actions are discussed and decided upon where required.

5. Overall objectives and financial targets for achieving Clariant’s vision

To fulfill its vision to become the globally leading company for specialty chemicals and deliver above-average value creation for all stakeholders, Clariant has defined central financial targets and overall objectives. The prioritization of topics related to performance, people, and planet resulting from the materiality assessment helps Clariant further develop its integrated management approach. Clariant will use the insights gained as a core input for its Strategic Management Process Cycle 2018 – 2021.

5.1 Profitability as a central metric

A key financial topic where a quantitative, mid-term target has been set is profitability. Clariant is committed to achieving an EBITDA margin before exceptional items of 16 – 19% in the medium term FIGURE 004. The company has made continuous progress in that direction over the past few years, and increased its EBITDA margin by 10 basis points to 15.3% again in 2017, exceeding the previous year. (chapter Performance)

004 FROM AVERAGE TO THE TOP – ADVANCING INTO THE TOP TIER IN SPECIALTY CHEMICALS

¹ before exceptional items

5.2. Qualitative financial and non-financial aspirations

In order to advance the company into the top tier in specialty chemicals, financial targets also include achieving return on invested capital (ROIC) above the peer group average, organic growth above global GDP growth rate, and strong cash flow generation.

Overall objectives are articulated in more qualitative terms and relate to Clariant’s different stakeholder groups:

• Clariant wants to be a publicly listed company with a broad shareholder base, reliable long-term anchor shareholders, and a high reputation for above-industry average profitability, growth, and Total Return to Shareholders (TRS).
• Clariant strives to serve markets with future perspectives and strong growth rates and to focus on businesses with competitive position and purchasing power.
• Clariant aspires to be known as a powerhouse for R&D and innovation and to increase value by applying sustainability.
• Clariant aspires to be a preferred employer.

6. Clariant Excellence strengthens value creation

Clariant Excellence (CLNX), the company’s Business Excellence program, supports the Business Units in their strategy execution. Along with People Excellence (chapter Leadership and Employees), the program comprises Clariant Innovation Excellence (CIX), Commercial Excellence (CCE), and Operational Excellence (COX), which includes related initiatives such as Clariant Supply Chain System (CSS), Procurement Excellence (CPX), Production System (CPS), and Lean Service Organization (LSO). These linked initiatives are driving value from EBIT improvements and cash flow from additional growth.

In total 1245 CLNX improvement projects delivered additional net benefits of CHF 162 million in 2017. How CLNX supports systematic value creation along the entire value chain — from ideation for new products, services, or business models to defining commercial strategy to ultimately ensuring effective and efficient production and delivery of finished goods to our customers — is discussed in more detail in the chapter »A Strong Engine for Value Creation«.

005 NET BENEFIT BY CLARIANT EXCELLENCE in CHF m