Supply Chain Management

The Business Management Board (DGE) is responsible for defining policies, guidelines and standards on processes related to supplier management, including environmental, social and governance aspects, which are applied by the business areas.

Copel periodically reviews its documents related to supply chain management, such as draft notices (services and materials) and contracts, Code of Conduct, Supplier Manual, Critical Supplier Identification Methodologies, and Internal Tender Regulations (as required by Federal Law No. 13,303/2016. The review work is carried out by multidisciplinary teams from various departments (management, legal, compliance, business areas), which are formalized in specific working groups. The Internal Tender Regulation requires the standardization of documents related to the contracting process, in the items:

• “Art. 28. Copel and its subsidiaries shall seek to standardize draft notices and contracts”; and
• “Art. 31. The use of draft notices and standardized contracts by the bidding and contracting areas is mandatory, except for justification that demonstrates their inapplicability to the specific case and expressly indicates the divergent provisions of the standardized documents.”

Copel’s supply chain management strategy is guided by the corporate Supply Policy and Copel’s Strategic Planning.

The strategic objectives are translated into procedures and management practices, linked to three macro processes:

• Selection and Qualification of Suppliers;
• Development and Relationship with Suppliers; and
• Evaluation and Monitoring of Suppliers.

Additionally, Supplier Management is carried out in line with the corporate strategies defined and approved by the Board of Directors – CAD. Among the CAD Guidelines directly related to the issue of suppliers, the following stand out:

• Have discipline in capital allocation and technical rigor in asset management, planning and project execution;
• Achieve efficiency standards of the best companies in the sector, promoting innovation, investment in technology and optimization of the workforce;
• Consolidate the culture of safety, health and quality of life.

This alignment even extends to the best practices in the market and acting with socio-environmental responsibility and with a strong focus on sustainability.

Training for Buyers or Stakeholders:

Copel periodically conducts training for buyers and other parties involved in the contract, on issues related to ESG aspects. Training is provided on the legal aspects of the hiring process and on socio-environmental aspects. For example, in 2022, training was provided on Due Diligence in Human Rights, a practice that is being implemented in all the Company’s activities, in accordance with NAC 030373 Human Rights – Protection and Diligence.

Integrity and Compliance:

Copel’s Integrity Program provides for the sending and evaluation of an Integrity Questionnaire to individuals or legal entities that have or intend to maintain a commercial relationship with Copel in the following transactions:

• Forming partnerships or contracting suppliers for new business, in accordance with the provisions of NPC 0201 – Procurement Policy;
• Sponsorships pursuant to provisions of NPC 0309 – Sponsorship Policy;
• Agreement, in accordance with the provisions of NAC 030906 – Agreement Management; and
• Mergers, acquisitions or divestments.

Based on the evaluation of the supplier’s or partner’s responses, the Company’s Compliance area classifies the degree of integrity risk and informs the Company’s area interested in contracting about actions and/or recommendations of the partner’s risks.

Exclusion of suppliers from the contracting process:

Copel, in accordance with Federal Law No. 13,303/2016 and Federal Law No. 14,133/2021, requires that participants in the bidding process provide proof of minimum qualification related to ESG, such as legal, fiscal and labor, economic-financial, and technical compliance. In technical qualification, the requirements are specific for each type of material or service to be contracted, such as: for contracting products or services that have an environmental or social impact, certifications or certificates from the competent authorities are required, which must attest that the product or service is supplied/provided within the required socio-environmental parameters. In addition, in the technical qualification, certificates of technical capacity are required, provided by other companies, which affirm the experience and quality of the services or products object of the contract.

In this phase of qualification of participants in the hiring process, if a company does not have any of the items required in these qualification documents related to ESG, it is excluded from the process and cannot be hired for that object being hired.

Suppliers with the best ESG performance:

In accordance with federal law 13,303/2016 and federal law 14,133/2021, Copel may use various forms of judgment by participants in the contracting process, one of which, known as technique and price, allows weights to be assigned to criteria different technical aspects, among these ESG criteria. So, the process ranks the participants in 2 ways, technical ranking and price ranking. The definition of which participant is the best is stipulated by a specific rule in the public notice of the process, with percentages being generally assigned to each classification, which result in a weighted final value. The best participant, who has all qualification items in compliance, is the winner of the process.

Social and environmental risks, included in the operational risk category, are those related to the impacts of Copel’s operations on society and the environment, which may generate regulatory and financial liabilities and affect the Company’s reputation. This risk is also related to environmental and social impacts on Copel’s operations, such as the effects of severe weather, dam rupture, scarcity of natural resources, mobilization of communities or health crises, which may affect the performance of operations and services provided, causing losses to Copel.

In compliance with the legislation, and in order to guide and establish responsibilities for the areas responsible in the Company and for suppliers, in all hiring, it is evaluated the need to prepare a matrix of risks and responsibilities, which considers, in addition to strategic aspects related to the purpose of the hiring, aspects of social and environmental responsibility, provided for in the Sustainability Policy, Environmental Policy, Human Rights Policy and other corporate policies of Copel.

The results obtained with the application of the Risks and Responsibilities Matrix serve as guidance for the identification of the major points of attention in the execution of the contract and the severity of their materialization.

Among the risks related to the supply chain, the following stand out: accidents with employees; accidents or damages to the population; installations and precarious work conditions.

Especially in the economic-social dimension, there are risks related to Copel’s economic-financial dependence, legal obligations, tax, social and labor charges, and salaries and additional payments.

The risks related to the environment involve non-compliance with environmental legislation, inadequate origin of inputs and deficiency in waste treatment. Copel seeks to mitigate these risks by determining strict contracting rules, reaffirming its commitment to sustainable development.

In order to direct management actions with its suppliers more efficiently, Copel identifies those whose inputs or services are considered critical for the Company.

“Critical suppliers” are considered those whose supplies made to Copel pose a significant risk to the Company, from the perspective of a possible disruption of supply, as well as those with greater risk in economic, environmental, social and governance aspects.

Suppliers are evaluated according to the degree of risk of disruption and the degree of impact on Copel, considering legal, financial, environmental, occupational health and safety, population safety, image, customer and customer perception aspects. society, and processes. Those whose risk is considered significant are classified as critical suppliers.

Due to the high number of suppliers and considering the peculiarities of contracting each object, Copel established criteria for identifying and classifying critical supplies, in order to define management metrics that guarantee the availability of goods or services classified as such. The criteria for identifying and classifying critical suppliers take into account at least one of the criticality conditions listed below: market availability, economic and financial dimension (value), social dimension and environmental dimension.

The definition of appropriate strategies for each of the criticality criteria allows for the development and evolution of supplier management and, consequently, of its supply chain.

Critical Supplier Identification Methodology:

The methodology lists the products and services by object whose discontinuity of supply represents risks of significant impact on the development of its operational and business activities, and the evaluation criteria vary according to the specificity of each business (distribution, generation and transmission of electric energy).
For the identification of critical suppliers in ESG criteria, we have the following premises:

• Environmental: an analysis is carried out of all types of contracts carried out by the Company, in order to list those products and services that have the greatest impact related to the emission of greenhouse gases.
• Social: an analysis is carried out of all types of contracts carried out by the Company, in order to list those products and services that have the greatest impact related to working conditions.
• Governance: an annual survey is carried out with all suppliers with active contracts with the Company, in order to identify and assess integrity risks in commercial relationships with third parties.

After identifying the critical products and services for the Company, risk mitigation actions are carried out through the creation of contractual provisions (clauses on specific requirements and inspections).

Copel evaluates its suppliers in relation to contractual obligations. The documentary inspection is carried out by the Documental Inspector, who is an employee formally designated to assist the Contract Manager in monitoring, controlling and inspecting the obligations related to the documents required in the contract.

The contracts signed by Copel with its suppliers require the presentation of certificates and other documents that at least prove the contracted company’s tax compliance. In addition, depending on the specificity of the contracted product or service, it is required to present specific certificates and documents, of a social, labor, and environmental nature, such as, for example, when contracting services with assignment of outsourced labor, the monthly proof of payment for outsourced employees, as well as, when contracting a waste disposal service, presentation of the official disposal certificate is required (in accordance with local legislation).

Copel uses a digital platform for posting documents by contractors, with the aim of controlling, monitoring and auditing the documents presented, referring to labor, social security, land, safety and occupational medicine obligations.

The supervision of the provision of services or delivery of products is carried out by the Operational Inspector, who is an employee formally designated to assist the Contract Manager in monitoring and inspecting the physical execution of the object of the contract (provision of services, execution of works, contractual milestones , quantity and quality of equipment/materials used, etc). The inspection terms are described in the contracts according to the specific needs of each contracted object.

Document inspections and inspections in the workplace serve as a subsidy for evaluating suppliers, called the Supplier Performance Index (IDF), whose assumptions are determined by each business, aiming to contemplate the most appropriate evaluation criteria for each.

In the case of Copel Distribuição, the criteria of quality, punctuality, compliance, work safety, production of service units, sustainable management, supplier registrations, and degree of relationship are evaluated.

In the case of Copel Geração e Transmissão, health and safety criteria are evaluated (quality of Personal Protective Equipment – ​​PPE; quality of delivery and unloading equipment; quality of tools and equipment used; quality of uniforms and presentation of professionals; and organization of the work environment), competence and commitment (training and commitment of the workforce; quality of service supervision (agent); rework; time management; relationship quality; and quality of inputs and materials employed), and customer service requirements (knowledge of the notice and contract; invoice; documentation; and packaging and labeling).

Based on the results of the Supplier Performance Index (IDF), Copel promotes the development of its suppliers. Deficiencies common to all suppliers are identified, which serve as a basis for carrying out specific workshops and training. For suppliers with low performance in any item, feedback is provided with a recommendation for improvement for the remainder of the contract execution. In addition, Copel’s contracts have an administrative sanctions clause, which provides for the application of formal warnings for non-compliance with contractual provisions. In the event of repeated non-compliance, or in the event of non-compliance with clauses considered serious, the sanctions are staggered with financial fines, which may, in extreme cases, lead to contractual termination.

*No suppliers were identified in need of implementing action plans for improvement.

Copel’s business partners are informed about the anti-corruption measures adopted by the Company, as well as its policies and rules, by means of the Supplier’s Manual, which accompanies the Term of Awareness and Commitment, both sent by electronic message to those responsible for the contracted companies.