Sustainable Procurement at Deutsche Telekom Group.

1. Sustainable Procurement at Deutsche Telekom Group. March 2010

2. Compliance to human rights and social environmental standards • Diversity of suppliers Suppliers CR-Strategy.Corporate Responsibility at Deutsche Telekom has various functions. • Corporate values (new principles) • Code of Conduct • Social Charter • Anti-Fraud • Compliance • Risk management • Data protection • Diversity policy Governance • Customer satisfaction • Service portfolio • Customer data protection • Products and services adjusted to the Nneeds • Applications for special needs Customers • Qualification • Retirement provision • Employee satisfaction • Diversity • Employee dialogue • Health care • Work-life balance • Mobile working • Corporate volunteering • Charitable contributions Employees • Waste management • Recycling • Effective disposal • Fleet • Reduction of carbon dioxide emisions • Reductions in product manufacture and processing activities Environment & Climate • Social engagement/Corporate Citizenship • Innovations • social -cultural impacts of new products • Expanding communi-cations solutions Society • Sustainable investment • Evaluation by rating agencies Finance Market

3. What Do We Mean by Sustainable Procurement? Sustainable Procurement is the process through which DT buys products and services by taking into account: • Economical aspects: best value for money considerations such as price, quality, availability, functionality etc. • Environmental aspects: the effects on the environment that the product and/or service has over its entire Life Cycle including end of life management. • Social aspects: impacts on issues such as poverty elimination, international equity in the distribution of resources, labour conditions and human rights.

4. Problems in our Supply Chains.Central problems in our supply chains according to conducted Social Audits and NGO-reports: • Child Labour and War Financing in DRC*: in the extraction of minerals for the ICT industry, e.g. Coltan. • Discrimination of women, minorities or migrants, e.g. conducting pregnancy tests before employment. The forms of discrimination are different, often related to social economic backgrounds and difficult to prove. • Excessive Overtime: following the National Chinese Labour Law is the absolute exception. Partly more than 60 hours overtime a month is normal. In extreme cases overtime may exceed even 100 hours a month with only one day off. • Forced Labour: e.g. forced overtime work, partly confiscation of passports, inadequate provisions for labour agencies etc. • Inadequate Payment: in countries like China the regional minimum wage often does not cover the basic needs (Living wage). Partly even the minimum wage is not paid. Sometimes unreasonable deductions for food and accommodation or punitive deductions from the saleries are made. • Obstruction of Workers Councils or Trade Unions: e.g. by threat, intimidation or discrimination of trade unionists and members of workers councils. • Inacceptable Dormitories: partly 12 and more persons in one room, no daylight, no privac or intimacy, less than 2 sqm per person, mould on the walls, partly unacceptable and unhealthy food. • Neglection of Occupational Health and Safety: no working fire extinguishers, insufficient fire drills, missing sign posting of escape routes, insufficient protection clothes (e.g. in stores), insufficient protection in handling hazardous substances. * Democratic Republic of Congo

5. Development of Sustainability within DTAG ProcurementOn the way to Sustainability 2.0 Sustainability Development 2012 4 • Business StrategySustainability 2.0 • Sustainability is a winning strategy against competition • All procurement decisions are systematically checked on their impact on sustainability • Vision of world class CR procurement strategy and activity 2009 3 • Strategic Management Approach • Online-training for purchasers • Stakeholder Dialogue • Integration in „daily business”: • Increased integration within procurement guidelines • Pre-qualification SAQ • Supplier selection and Supplier-scorecard • Sustainability campaign 2006 2 • Differentiation • Sustainable Procurement Strategy • Foundation of SPWG • First Social Audits • Initiation of E-TASC* • Supplier Dialog • Sustainability implemented in Procurement Guidelines and General Terms & Conditions • Innovation & Product-development and opportunities 2003 1 • Recognition • Social Charter • Suppliers are obliged to be compliant with our Social Charter Years * E-TASC = Electronic Tools for Accountable Supply Chains, Online Tool for Supplier Self Assessment on Sustainability Performance

6. Value Driver Sustainability.Significant value by sustainable supply chain management: Market Leaderby Increased Competitive Advantage Cost Saving Profitability Brand Value Share Value • Reputation and trust • Supporting brand building and its values • Stabilizing business • Employee satisfaction • Customer satisfaction • Stabilizing long term oriented investor relations • Increasing DT share in sustainable funds(Socially responsible investment) • Securing business models and their social acceptance • Creating new business opportunities (driving innovations) • Minimizing risks, incl. regulatory risks • Avoiding lawsuits • Reducing assurance costs • Reducing production costs through innovative product specification

7. Sustainable Procurement Strategy. Common approach of CR and procurement guarantees broad integration of sustainability into the procurement processes and guidelines. Suppliers Purchasers & Employees Sustainable Procurement Strategy Strategy Sustainable Procurement Process Tools for Supplier Evaluation Sustainable Procurement Working Group (SPWG) Responsibilities Tools Sustainable Investors Customers & NGOs

8. Sustainability along the Supply Chain. Sustainability addresses all relevant sourcing/supplier management processes to avoid CR related supply chain risks and to utilize respective opportunities. Procurement Process Sustainability Aspects Tools and Sources • Avoidance of CR related Supply Chain Risks • Basic Supplier CR Information • Basic Supplier CR Compliance • Basic Supplier CR Commitment • Supplier Questionnaire Prequalification of Suppliers • Sustainable Specifications • Mandatory Sustainability Requirements • Additional Sustainability Criteria (e.g. energy…) • Provisioning of Transparency on CR-issues • E-TASC • Audit results Supplier-Selection • CR Risk-Score • CR Compliance • CR Commitment • Supplier-Scorecard • Other sources (e.g. Media, NGO-Reports) • Escalation process Supplier-Evaluation • Eco-Efficiency • Green Product Innovation/Joint Development • Joint Marketing on “green” Products & Services • Workshops with suppliers • Supplier agreements on Sustainability targets • Supplier Relationship and Cooperation Supplier Development 8

9. The Sustainable Procurement Strategy is: • an integrated part of the procurement strategy and policies • fully implemented under the procurement guidelines • an important criteria on supplier selection, supplier evaluation and supplier development Core Elements of the Sustainable Procurement Strategy: • Compliance is a must: The basic requirements stated in the Social Charter are mandatory. • Standardized Supplier Self Assesments : Self Assessment Questionnaires for pre-qualification and E-TASC • Standardized processes: Clear roles and responsibilities between corporate responsibility and procurement • Knowledge is key: Focus on purchasers and suppliers • Sustainability is a chance: Promoting of innovative solutions Primary reference points Core Elements of the Sustainable Procurement Strategy.

10. Stakeholder Involvement is Key.How Deutsche Telekom addresses the issue of sustainable procurement? Stakeholders Tools Targets Purchasers/ Employees Stakeholder Dialogue Day 2008 and 2009 • Online training for purchasers • Internal communication • Internal rules and guideline • Creation of awareness for sustainable procurement • Increased employer reputation Suppliers • Supplier Self Assessments • Supplier audits • Workshops with suppliers • Supplier development • Reduction of CR related risks • Increased CR awareness of suppliers • Promotion of innovations Investors • Investor conferences • CR-Reporting • SRI Questionnaires • Improvement of Social Rating • Improved attractivity for sustainability-oriented investors Customers/NGOs • Sustainability campaign • Stakeholder dialogue • Follow-up of NGO reports • Reduction of reputation risks • Creation of brand value • Competitive advantages

11. Sustainability provides opportunities for Procurement.Sustainability drives Procurement Engineering and value based Procurement. • Supply Chain Security: Factory based sustainability approach along the supply chain helps to make bottlenecks in the supply chain transparent and to recognize possible threats of the supply chain at an early stage. (Example: Earthquake Taiwan) • Cost Transparency: Sustainability helps to provide information on production chains for a better under-standing on cost structures, cost changes and recognition of chances and risks in global supply chains. • Improved Productivity and Quality: Higher labour standards may help to develop especially for suppliers in low-cost countries to increase productivity and quality (Nike Example Mexico). • Discussing Specifications: Internal customers partly complain on limited influence of procurement on specifications, neglecting significant saving potentials by e.g. lower energy consumption or longer life cycles. • Value Creation: The value of a product is not only based on its functionality but increasingly on the way of production and recycling. The understanding of the link between procurement decisions and sales opens a new potential for value creation. • Innovative Products and Services: Sustainability provides chances for procurement to use market knowledge and supplier relations to support the development of innovative products and solutions. • Employer Reputation and Customer Satisfaction: Sustainablity helps to attract best talents to procurement, increasse customer satisfaction by innovative solutions and may positively influence the reputation of procurement internally and externally. 11

12. The Sustainable Procurement Working Group.The driver for sustainable procurement within Deutsche Telekom. Ensure sufficient consideration of sustainability within procurement. Development and tracking of KPIs for sustainable procurement Within Deutsche Telekom Outside Deutsche Telekom • External communication of sustainable procurement for suppliers, NGOs and sustainable investors • To gather information on the sustainability performance of suppliers • Workshops with suppliers on sustainable procurement subjects • Audit and compliance monitoring • Promotion of sustainable procurement within Deutsche Telekom • Development of standards for sustainable procurement • Internal communication on sustainable procurement issues • First point of contact and escalation body for sustainable procurement issues Sustainable Procurement Working Group (SPWG) as joint working group of Procurement and Corporate Responsibility

13. Sustainable Procurement Working Group (SPWG).Composition. • Dr. Heinz-Gerd Peters [CR/Head of Sustainable Development & Environment] • Dr. Ignacio Campino [Board Representative Sustainability & Climate Change] • Antonio Veloso [CR/Expert Supply Chain] • Anke Schweitzer [CPS] • André Kokoska [CPS] • Andreas Kröhling [Procurement Operations] • N.N. [TMUK, representing NT Procurement Function ] • Rainer Langenbucher [T-Home, representing IT ISS Procurement function] • Brigitte Pekeler [T-Systems, representing IT HW SW Procurement function] • Marcus Hülsey [TMO, representing Terminal Procurement function] • Dennis Neinaber [TMNL , representing Marketing/Indirect Procurement Function]

14. Sustainable Asset Management (SAM) Investments in sustainable Supply Chains pay off.Enhancing Corporate Value by Sustainable Procurement. DT was regularly awarded by leading SRI rating agencies: „Gold Class for Deutsche Telekom in SAM‘s YearBook 2010“ Oekom Research „Deutsche Telekom ‚Prime Investment‘ „

15. Sustainable Supply Chain Management at Deutsche Telekom. Result: We really have to take responsibility for our value chain. • We know our responsibilities: In 2009 Deutsche Telekom purchased goods and services from 81 countries, many of which are developing or emerging countries. The overall purchasing volume reached 20.4 billion €. • Group-wide sustainable supplier management: enables the focused and systematic management of chances and risks, resulting from a worldwide network of suppliers and sub-suppliers. • We are actively engaged: Deutsche Telekom influences the conditions for production at it‘s suppliers and sub-suppliers worldwide. Deutsche Telekom is actively working within international organisations for fair working conditions and high quality standards. • We aim to be on the leading edge in „Sustainable Supply Chains“: We work actively on the concepts for Sustainability 2.0 within Deutsche Telekom procurement and it‘s implementation. It is our target to be recognised by our competitors, social rating agencies, NGOs and in the public as world class with respect to sustainable procurement. • Growing overall importance of sustainability issues: high influence on procurement and increased involvement or procurement within sustainability issues. • Sustainabilty provides many chances for procurement: It helps to create value by provising information on a better understanding and planning of our value chains.

16. Many thanksfor your attention.

17. Meeting (SPWG, Procurement, Supplier) Escalation Process for Sustainable Procurement.Consequent escalation in case of non-compliance to sustainability requirements. SPWG CR Request External Indication of Supplier Non-compliances Supplier is not fulfilling DT-request SPWG informs Procurement (Supplier Manager) Supplier Decision on DTAG Request Full support on DT request -> „supportive“ Fullfiling DT request -> „compliant“ Committment from supplier, incl. statement and/or action plan if required GCL*/FHoP** to decide on consequences and measurement plan Acceptable solution SAP System Review SPWG Supplier still refuses DT request -> „not asupportive“ SAP marking of suppliers being not supportive or compliant to DTAG CR requests Not accepted Escalation to GCL/FHoP Acceptable solution Supplier still refuses DT request -> „not alligned“ Escalation up to CPO*** Level *Global category leader **Function head of procurement ***Chief procurement officer

18. SPWG Standard Escalation-Process Naming of “non-compliant” suppliers to procurement DT Master Supplier List of suppliers to be addressed by E-TASC Status Report on the E-TASC Invitation Process, provided within TPC DT Supplier Manager Information of suppliers on E-TASC requirements and verification of contact data. Provisioning of feedback. Corporate Admin E-TASC Supplier E-TASC Invitation E-TASC Invitation Process Deutsche Telekom.

19. Online Trainings Tool for Sustainable Procurement.We already qualifyed 500 employees within procurement.

20. E-TASC: The Sustainability Tool for the ICT Industry. Acommon web-based supplier sustainability self-assessment tool www.e-tasc.com

21. E-TASC: Advantages for DT and its Suppliers.Reduced Transaction Costs by Standardisation. Benefits for Deutsche Telekom • CR risks are identified at an early stage and therefore any detected risk can be properly managed and action plans can be implemented. • One standardized questionnaire for the ICT industry makes comparison of suppliers possible and reduces the transaction costs. • The system allows an automated risk evaluation based on the answers provided by the supplier in the SAQ • The ICT industry wide approach helps to share the costs to develop and to run a sustainability system. • Suppliers are able to demonstrate their own Corporate Responsibility status to other clients/interested parties in a secure manner. • Information held in the system is owned by the respective company and can be made available to other companies, reducing requests for other lengthy prequalification. • “One” standard self assessment questionnaire in the future used by all the ICT industry instead of individual company self assessment questionnaires will reduce transaction costs. • Suppliers can benefit from best practice examples provided by the system. Benefits for our Suppliers • Full Subscriber: 1,000 – 30,000 US-$, depending on revenues. All facilities are covered • Partial Subscriber: 470 $ for each facility. 2 Membership Options

22. Process for Auditing of “High Risk” Suppliers. Evidence for high risk E-TASC Business Audit Preparation DT Audit Team: Briefing of procurement and suppliers Risk based Audit Planning Process Conducting the Audit DT Audit Team: Conducting Audit, Pre-Assessment Report SPWG Evaluation, decision on conducting a social audit of the supplier Social Audit (Process should not exceed 3 months) - Draft Audit Report DT Audit Team:Findings & Recommendations Feedback of the Supplier Supplier: Feedback and suggestion for corrective action plan No Audit Intranet (TPC) Provisioning of Audit Reports and corrective action plans for purchasers Corrective Action Plan DT Audit Team /Supplier: Agreement onfinal Audit report and corrective actions DT Audit Team Follow-up and verification of implementation of corrective actions Closing of the audit Master Supplier List

23. Primary reference points Social Charter for the Deutsche Telekom Group.We expect Commitment to Social Standards and Principles. • Acknowledges and respects the cultural, social, political and judicial diversity of all nations and societies • Recognizes the basic right of freedom of association • Forbids all forms of forced labour • Seeks to eliminate exploitive child labour • Rejects all forms of discrimination and promotes equal opportunities and diversity of employees • Respects the right to adequate remuneration and work contracts • Adheres to the different countries’ national regulations on working hours and regular paid holiday • Employee training in order to ensure and sustain a high level of performance and to guarantee high-quality services • Compliance with minimum standards for health and safety protection

24. Supplier Evaluation: The Supplier Scorecard.Structure of the evaluation criteria. (under development) Dimensions for Supplier Evaluation 1 2 3 4 5 6 Commercials & Contracts Logistics Quality Innovation & Technology KeyFinancials Sustainability • Price level & market conformity • Contract negotiations • Rfx quality and Rfx process • Communication & transparency • Supplier-performance • Logistic processes • Management of invoices • Customer satisfaction & services • Incident & management of complaints • Penalties • Technology & proactivity • Innovation & creativity • Strategic importance and collaboration • tbd • Corporate responsibility (CR) Compliance • Corporate Responsibility (CR) Commitment • Sustainability Risk according to E-TASC score Key Per-formance Indicators (KPI) Procurement Risk Assessment under development • Pricing • Price position within competition • ... • Delivery in time • Completeness of delivery • ... • Management Escalations • Quality assurance • ... • International standards • Financial KPIs • Energy & resource efficiency • Child labour avoidance KPI Attributes (Examples) Internal View External View Internal & External Operation mode • Top suppliers should be evaluated two times a year • Evaluation by Procurement (Commercials & Contracts, Logistics) and IT (Quality, Technology & Innovation). • Core Financials, Evaluation by Procurement Risk Management. • Sustainability, Evaluation by the Sustainable Procurement Working Group (SPWG)

25. Supplier Evaluation.Sustainability is one out of six criteria within the Supplier Scorecard. Internal and external Sources: Including Supplier Self Assessments, E-TASC (if available), Audit Reports, NGO Reports, Press Releases, Rating Agencies, other Sources External Sources Supplier Questionaire, E-TASC Score 50% Weight CR-Compliance • Freely chosen employment • Child labour avoidance • Working hours • Wages & benefits • Human right treatment • Non-discrimination • Freedom of association • Occupational health and safety • Emergency readiness • Avoidance of physical demanding work • Safety of working equipment • Dormitories & Canteens • Pollution and waste prevention • Energy and resource efficiency • Usage of restricted and prohibited substances • Business ethics • Mandatory CR certificates 25% WeightCR-Commitment • Proactive eco efficiency • Carbon footprint • Sustainable product development • Social ratings • CR-approach • CR certificates (Non mandatory) • Common CR Initiatives • Cooperation with NGOs • Based on the Supplier Self Assessment via E-TASC as long as this information is available 25% Weight E-TASC Risk Score (if available) 25

26. Sustainable Procurement ProcessesSustainability criteria for bid evaluation • Supplier related Criteria • Supplier based risk score (E-TASC-Score) • Labour standards at suppliers (SA8000, OHSAS18001) • Ecological commitment of suppliers (IT, Logistics, Networks, Terminals) Product/Service related Criteria • Marketing & Indirect • Energy consumption • Carbon Footprint (e.g. Logistics) • Use of natural resources (e.g. paper) • Employee qualification (manpower) • Social impact (e.g. marketing/content) • Child protection (Content) • Hazardous substances (LCC) • Terminals (Com & IT) • Energy consumption/CO2-Balance • Environmental packaging • Durability & recyclability • Extendability • Used materials • Ergonomic aspects • Radiation (SAR) • Data protection • Disabled friendliness • Networks • Energy consumption • Carbon Footprint • Usage of natural resources • Hazardous substances • Recyclability