NTT Group Sustainability Report 2022Ensuring the positive coexistenceof nature and humanityCEO Messa.
2023-07-04
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2022 SUSTAINABILITY REPORTCATERPILLARS ENVIRONMENTAL,SOCIAL AND GOVERNANCE APPROACHApril 28,2023CONTENTSExecutive Summary2 Chairman&CEO Letter3 Sustainability Disclosure Milestones4 2022 Sustainability Highlights5 2030 Goals&Progress7 Chief Sustainability Officer Message Supporting a Lower-Carbon Future9 Our Role in the Energy Transition10 Helping Our Customers Build a Better,More Sustainable World 14 Supporting a Circular Economy18 Understanding Our Scope 3 Emissions20 Reducing Carbon in Our OperationsReturning People Home Safely22 Employee Safety23 Customer SafetyThe Power of Everyone25 Developing Our People&Their Potential27 Health&Well-Being28 Employee ExperienceOur Values in Action30 Corporate Governance31 Shareholder Engagement34 Ethics&Integrity35 Political Engagement 36 Risk Management37 Responsible Sourcing38 Human Rights39 Beyond Caterpillar:Investing in Our CommunitiesReporting42 About This Report43 ESG Data&Endnotes49 Independent Assurance Statement 51 Prioritization&Management of ESG Issues52 SASB Index53 GRI Index65 Forward-Looking Statements CORPORATE PROFILEWith 2022 sales and revenues of$59.4 billion,Caterpillar Inc.is the worlds leading manufacturer of construction and mining equipment,off-highway diesel and natural gas engines,industrial gas turbines and diesel-electric locomotives.For nearly 100 years,weve been helping customers build a better,more sustainable world and are committed and contributing to a reduced-carbon future.Our innovative products and services,backed by our global dealer network,provide exceptional value that helps customers succeed.Caterpillar does business on every continent,principally operating through three primary segments Construction Industries,Resource Industries and Energy&Transportation and providing financing and related services through our Financial Products segment.|Caterpillar 2022 Sustainability Report 1 CHAIRMAN&CEO LETTER With nearly a century of sustainable innovation,Caterpillar has a legacy of providing products and services that continually improve the quality of life and the environment by helping our customers fulfill societys need for infrastructure in a sustainable way.The world is transitioning toward a lower-carbon future,and Caterpillar supports efforts to mitigate climate change.We are making significant progress to reduce greenhouse gas(GHG)emissions from our operations,and our customers rely on Caterpillar to provide a diverse portfolio of products,services and solutions that lower GHG emissions,improve efficiency and productivity,and deliver energy flexibility.As a leading global equipment and services provider,we believe the energy transition expands opportunities for profitable growth in a variety of ways.For example,we are helping our customers meet accelerating mined commodity demand and our products and services help address rising global energy demand for renewables and many traditional forms of energy.The growing momentum of the energy transition will also require significant global infrastructure investment while expanding Caterpillars services opportunities.Caterpillar has been a technology leader for nearly a century,and we continue to invest to meet the needs of our diverse global customer base.We are increasing our investments in autonomy,alternative fuels,connectivity and digital,and electrification(AACE).We will continue to invest more in AACE as we work with our customers to help them achieve their sustainability objectives.You can read about our expanded portfolio of fully electric,fuel-flexible and fuel-efficient products in this report.We continue to be transparent about our goals,progress and innovations and remain committed to demonstrating shareholder responsiveness.This is illustrated through the publication of our inaugural Task Force on Climate-related Financial Disclosures(TCFD)report and disclosure of our Scope 3 use of sold products emissions.Our commitment to a reduced-carbon future extends to our public policy efforts as we advocate for a thoughtful approach to identifying and advancing policies that support our customers during the energy transition.More information is available in our 2022 Lobbying Report:The Purpose of Engagement,which we plan to issue annually.Caterpillars Values in Action are the foundation for our work,guiding us on our sustainability journey.Through the Caterpillar Foundation,we have engaged in sustainable infrastructure programs,workforce development and disaster relief in 40 countries.We were proud to celebrate the Foundations 70th anniversary of helping build resilient communities.We believe the energy transition and growing global energy demand present significant growth opportunities for Caterpillar.Our global team,together with the Cat dealer network,is committed to enabling a reduced-carbon future as we advance the products,services and solutions that help our customers build a better,more sustainable world.Jim UmplebyChairman&CEOEXECUTIVE SUMMARY|Caterpillar 2022 Sustainability Report 2 SUSTAINABILITY DISCLOSURE MILESTONESCaterpillar committed to its shareholders to provide three new disclosures in 2023.In addition to these commitments,in response to shareholder engagement gathered throughout last year,we provided an additional,new lobbying report to further enhance transparency through our disclosures.Task Force on Climate-related Financial Disclosures(TCFD)The TCFD Report aligns with the 11 recommended disclosures of the TCFD and summarizes how we govern our strategy to address climate-related risks and opportunities and support customers in the energy transition.Scope 3 Greenhouse Gas(GHG)EmissionsThis report includes our first disclosure of Scope 3 emissions data for Category 11,use of sold products.ESG Incorporated into Incentive Plan for Executive OfficersAs described in our 2023 Proxy Statement,we incorporated environmental,social and governance(ESG)into our 2022 incentive plan for executive officers.Lobbying Report:The Purpose of EngagementThe lobbying report provides greater transparency and disclosure of our advocacy efforts and political engagements,including Climate Lobbying,as well as a description of the oversight and management of these activities.EXECUTIVE SUMMARY|Caterpillar 2022 Sustainability Report 3 2022 SUSTAINABILITY HIGHLIGHTS33%reduction in Scope 1 2 greenhouse gas emissions from 201817%Employee Resource Groups(ERGs)building community,belonging and experiences to support development14improvement in recordable injury frequency from 2018nearly$900M invested by the Caterpillar Foundation over the last 70 years100%of new products introduced reduced waste,improved design for rebuild/remanufacturing,lowered emissions or improved efficiency from the previous generation140M lbs of material taken back through Cat RemanAll data represents 2022,unless otherwise noted.Successful demonstration of first battery electric793 large mining truck prototype,complementing our innovative portfolio of products and services designed to help our customers achieve their climate-related goals EXECUTIVE SUMMARY|Caterpillar 2022 Sustainability Report 4 2030 GOALS&PROGRESS Operations Energy&Emissions Operations Water Operations Waste GOAL:We have set a science-based Scope 1 and 2 goal to reduce absolute greenhouse gas emissions from our operations by 30%from 2018 to 2030.GOAL:Implement water management strategies at 100%of facilities located in water high-risk areas by 2030.GOAL:Reduce landfill intensity by 50%from 2018 to 2030.33%reduction in absolute greenhouse gas(GHG)emissions from 201814cilities achieved goal of water strategy implementation36%reduction in landfill intensity from 2018Progress:Implementing energy/GHG reduction initiatives at our facilities Improving operational efficiency of our global footprint Reduced our direct(Scope 1)emissions by nearly 21%from our 2018 base yearProgress:Continued progress in our second year of implementing water management strategies at our facilities in water high-risk areas While 14%of our impacted facilities have implemented all 9 of the required management elements,over 40%of all management elements have been completed by in-scope facilitiesProgress:Increased the percent of non-metals recycled at our facilities by 34%in 2022 from our baseline year of 2018 In addition to reducing the landfill intensity of our operations,we have also reduced our overall waste(recycled and landfilled materials)intensity by 16%compared to our 2018 base year by focusing on waste reduction,recycling and improved operational efficiencyEXECUTIVE SUMMARY|Caterpillar 2022 Sustainability Report 5 2030 GOALS&PROGRESS CONTINUED Product Emissions&Energy Efficiency Remanufacturing Employee Health&Safety Customer SafetyGOAL:100%of Caterpillars new products through 2030 will be more sustainable than the previous generation through collaborating with customers,reduced waste,improved design for rebuild/remanufacturing,lower emissions or improved efficiency.GOAL:Increase sales and revenues from remanufacturing offerings by 25%from 2018 to 2030.GOAL:We aspire to prevent all injuries and will further our industry-leading safety results by reducing recordable injury frequency(RIF)by 50%from 2018 to 2030.GOAL:Provide leadership in the safety of people who work in,on and around our products100%new products introduced in 2022 were more sustainable than previous generations19%increase in sales and revenues from remanufactured products from 201817%improvement in recordable injury frequency from 2018Progress:All of the more than 50 new products in 2022 satisfied the goal criteria Reduced emissions with four battery electric machine prototypes:the Cat 301.9 mini excavator,320 medium excavator,950 GC medium wheel loader and 906 compact wheel loader Improved fuel efficiency through products such as Progress Rails first hybrid intermediate power EMD GT38H locomotives,to be delivered in 2023 Delivered performance and eliminated exhaust emissions with the R1700 XE battery electric underground loader and mobile MEC500 chargerProgress:140 million pounds of material taken back for remanufacturing through Cat Reman1 Cat Reman1 introduced 28%more remanufactured products in 2022 than in 2021 to support sustainability and total cost of ownership initiatives Remanufacturing produces 65-87%less GHG process emissions as compared to manufacturing new parts21.Data does not include Progress Rail,Solar Turbines,Caterpillar Energy Solutions and Caterpillar Defense.2.Represents U.S.environmental impacts comparing“gate-to-gate”remanufacturing and manufacturing processes for engines and components.Based on 2018 external study of Cat engines,alternators and turbochargers.Does not include impacts elsewhere in our value chain.Progress:Engaged our employees in developing solutions to improve their own daily work and send everyone home safely every day Amplified focus on new hire safety training and mentorship to manage risk Implemented a Safety Dashboard that provides robust,real-time safety data for the benefit of employees and leaders informing their safety focus with facts and dataProgress:Provided safety counseling for 10,500 customer employees Supported 150 customers in multiple industries to develop leaders and improve safety culture Developed common master disconnect for future Cat machines and gensets to increase speed and consistency to lock machine during maintenance or emergency incidentEXECUTIVE SUMMARY|Caterpillar 2022 Sustainability Report 6 CHIEF SUSTAINABILITY OFFICER MESSAGE Building a better,more sustainable worldIt has been my privilege to spend the last two decades collaborating with Caterpillar teams to advance and expand products,services and solutions for our customers.We continue to further our commitment to sustainability,a journey that has included making it one of Our Values in Action as part of our Code of Conduct and formalizing it as a key area of focus in our enterprise strategy.In 2023,I was honored to become Caterpillars Chief Sustainability Officer,along with my position as senior vice president of Caterpillars Large Power Systems Division.This is an exciting time to step into the role as we continue to support our customers on their sustainability journey.Innovation and integration are two of the things we do best at Caterpillar.We are leveraging these strengths to provide innovative products,technologies and services that help our customers meet their climate-related objectives.Additionally,we are supporting our customers throughout the energy transition as they build a better,more sustainable world.In support of our long-standing commitment to sustainability,we continuously strive for increased transparency.This year,we will begin disclosing our Scope 3 use of sold products emissions.We have also aligned with the TCFD framework as another step in identifying,analyzing and managing our climate-related opportunities and risks.This complements the robust risk management strategy we have in place and supports the strategic choices we are making today to create profitable growth for tomorrow.Supporting a lower-carbon future,returning people home safely,demonstrating Our Values in Action and reporting for increased transparency are the key topics highlighted in our 2022 Sustainability Report.I invite you to read about the actions we are taking to continue to build on our legacy of providing products and services that advance sustainable progress and improve standards of living.Dr.Lou Balmer-MillarChief Sustainability OfficerAWARDS&RECOGNITIONBusinessDow Jones Sustainability North America Indices 23 years S&P Global 2022 Sustainability Yearbook Newsweek Americas Most Responsible Companies 2023(#294)Most Trusted Companies(#7)Interbrand Best Global Brands(#83)Wall Street Journal Best Managed Companies of 2022(#29)Barrons 2023 100 Most Sustainable U.S.Companies(#74)WorkplaceForbes Magazine Worlds Best Employers 2022(#116)Americas Best Employers 2022(#289)Americas Best Employers by State 2022 Best Employers for Veterans 2022(#83)Global 2000,2022(#139)Mexicos Best Employers(#6)Human Rights Campaign Foundation Corporate Equality Index 2022(75%)Equidad MX 2023,top major Mexican businesses and multinationals for LGBT workplace inclusion,Caterpillar Nuevo Laredo Fortune MagazineWorlds Most Admired Companies(#102)Fortune 500(#78)Financial TimesEuropes Diversity Leaders(#610)5 Stars AwardBest Company To Work For in Brazil,“Large”CategoryUnited Way WorldwideGlobal Corporate Leadership ProgramEXECUTIVE SUMMARY|Caterpillar 2022 Sustainability Report 7 Supporting a Lower-Carbon FutureCaterpillar supports the goals of the Paris Agreement to limit global temperature rise,and we are committed and contributing to a reduced-carbon future.We demonstrate our commitment in many ways,including through significant progress in reducing GHG emissions from our operations.We are helping our customers achieve their climate-related goals by continuing to invest in new products,technologies and services that facilitate fuel flexibility,increased operational efficiency and reduced emissions.We updated our enterprise strategy to include sustainability as a strategic focus area,together with operational excellence,expanded offerings and services given the opportunities presented by the energy transition and our work to help our customers achieve their climate-related objectives.2022 Highlights25 years of mining autonomously with over 5 billion tonnes of material moved and about 30%improvement in productivity19%increase in sales and revenues from remanufactured products from 2018Transforming Tucson Proving Ground into a working mine site of the future|Caterpillar 2022 Sustainability Report 8 OUR ROLE IN THE ENERGY TRANSITIONThe energy transition is one of the worlds challenges,but one that presents numerous opportunities.This is especially true for Caterpillar,as we develop products and services designed to support the energy transition and growing energy demand.Building InfrastructureOur construction equipment helps build the infrastructure for the energy transition.Our mining equipment supports the increased demand in critical materials,such as copper,lithium,nickel and cobalt,required for electric vehicles,battery storage,wind and solar power,and grid modernization and stability.Optimizing Natural GasNatural gas is expected to play an important role in the transition to renewable energy.Our reciprocating engines and gas turbines are widely used across the globe in upstream natural gas production and transmission.Increasing Alternative FuelsWe offer machines and engines that are capable of operating on alternative fuels such as hydrogen,biogas,hydrotreated vegetable oil(HVO)and biodiesel,while continuing to develop technologies for the future.Enhancing Energy Reliability Increasing renewable power in electric grids creates opportunities for distributed power generation.Customers utilize our reciprocating engine generator sets and gas turbines to support electric grid stability.Read our CLIMATE&ENERGY STATEMENTSUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 9 HELPING OUR CUSTOMERS BUILD A BETTER,MORE SUSTAINABLE WORLD Now more than ever,our customers rely on us to provide diverse products,services and technology that help lower GHG emissions,improve efficiency and productivity and deliver energy flexibility.We are here to support our customers needs in their sustainability journey.Over the past 20 years,we have invested more than$30 billion in R&D to deliver best-in-class innovation,including autonomy,alternative fuels,connectivity and digital,and electrification(AACE)technologies.We integrate the energy technologies developed by our Energy&Transportation(E&T)segment into machines manufactured by our Resource Industries(RI)and Construction Industries(CI)segments,providing an advantage to our customers as we help them achieve their objectives.Going forward,we will continue to invest in these areas as we work with customers to help further their sustainability objectives.Autonomous TechnologyCaterpillar leads the industry in autonomy.We have the largest autonomous truck fleet in the world,with over 580 machines and more launching every year.Autonomy drives operations consistency for our customers resulting in zero reported lost-time injuries,productivity improvement of up to 30%over staffed fleets,enhancing fuel efficiency,and reducing associated GHG emissions.Today,our autonomous portfolio goes beyond haul trucks to include water trucks,drills,dozers,wheel loaders and underground loaders all of which can be operated remotely from thousands of miles away.Using expertise gained from Caterpillars collaboration with customer Rio Tinto to develop the Cat 789 at its Gudai-Darri iron ore mine in Western Australia,Caterpillar introduced the fully autonomous Cat 777G water solutions truck in 2022.The 777G integrates a truck,tank and water delivery system with Cat technology to help manage the site with enhanced safety and productivity while using less water to control dust at mining and quarry sites.Alternative Fuels Fuel choice is one way that customers can reduce lifecycle GHG emissions today.Many Caterpillar products operate on lower-carbon intensity fuels,including biodiesel,renewable diesel and biogas.These fuels reduce lifecycle GHG emissions in the fuel value chain;GHG emissions at the tailpipe are essentially the same as traditional fuels.For example,all Caterpillar diesel engines can operate on 100%HVO.This includes the Cat C-Series engines a Swedish commercial and industrial equipment supplier uses to power its mining and construction equipment.In 2022,the supplier completed testing its range of machines to confirm they can operate with HVO without modifications to the engines or the fuel tanks.25 YEARS OF MINING AUTONOMOUSLY5B tonnes moved25 sites14 customers0 lost-time injuries30%productivity improvement202M kilometers of autonomous driving3 continents with 24/7 operationsSUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 10 The vessel will be equipped with 961 kWh of battery capacity,supplied by Caterpillar to help enable zero-exhaust emissions when operating solely on battery power in both farming operations and port departure and entry.Caterpillar Marine also will provide the complete integration of the hybrid propulsion system,reducing the number of installed diesel engines from two to one.In addition,Caterpillar engines operating on natural gas blended with up to 100%hydrogen are being demonstrated in power generation projects today;turbines can operate on up to 100%hydrogen.These and other projects are helping to demonstrate the viability of potential fuel sources like hydrogen while the infrastructure to support availability of renewable hydrogen is being developed.In the maritime industry,were committed to supporting our customers climate-related objectives through methanol-powered solutions,which are efficient,cost-effective,and meet Caterpillar fuel standards.Accordingly,Caterpillar Marine joined the Green Maritime Methanol consortium in 2022,teaming up with other companies to streamline the adoption of methanol as a maritime transport fuel.Green methanol,an important candidate as a future fuel for the shipping industry,is easily stored aboard ships and can provide lower carbon intensity.Caterpillars investment in lean burn natural gas technology,microgrid controls,and energy storage has provided our customers flexibility to utilize alternative energy technologies and the opportunity for customers to reduce their carbon footprint.Exploration drilling has historically been powered by diesel or dynamic gas blending(DGB)technology,which consumes diesel and natural gas.Now with a fully integrated solution,Caterpillar can provide customers with a 100%natural gas solution,combining the best from its lean burn engines and microgrid technologies.Drilling rigs powered by Cat natural gas generators,such as the G3512,paired with an energy storage system provide customers with the same industry leading responsiveness experienced with Cat diesel engines.The benefits include a reduction of up to 80%nitric oxide,11%CO2,and up to 30%engine runtime.With the ability to run on field gas,this gas hybrid solution can reduce the need for flaring while creating a fuel cost savings of up to 85%and reducing operational GHG emissions.ConnectivityFor more than 20 years,Caterpillar has been connecting machines and using telematics to create machine insights.The data from 1.4 million connected assets helps customers operate their fleets more efficiently to optimize productivity and conserve resources such as fuel.2030 Goal 100%of new Caterpillar products through 2030 will be more sustainable than the previous generation through collaborating with customers,reduced waste,improved design for rebuild/remanufacturing,lower emissions or improved efficiency.100%new products introduced in 2022 were more sustainable than previous generationsWhen in search of ways to sustainably provide seafood in the future,it makes sense to do so in a manner that minimizes the operations environmental footprint.This is why California-based Pacific6 Enterprises has turned to Caterpillar Marine to pilot a parallel battery hybrid propulsion system for a first-of-its-kind aquaculture farming vessel.Powered by a Cat C18 engine,this next-generation hybrid architecture boat will leverage proven electrical systems and integrated components from Caterpillars construction and mining product lines.SUSTAINABLY POWERING AN INDUSTRY PIONEER AT SEASUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 11 Caterpillar designed batteries can power a variety of industrial applications.Numerous products using electrification are currently in development,including 48V,300V,and 600V batteries and four battery electric machine prototypes the 301.9 mini excavator,320 medium excavator,950 GC medium wheel loader and 906 compact wheel loader.The machines are powered by Cat battery prototypes and include an onboard AC charger.The lithium-ion battery range features a modular design that offers flexible configurations across multiple applications.The batteries are engineered to be scalable to industry and customer performance needs and maximize sustainability throughout their lifecycle,including recycle and reuse at the end of life.Regulatory Compliance In addition to investments in new technologies to support the energy transition,were committed to ensuring traditionally powered machines and equipment are as efficient as possible and compliant with stringent emissions regulations.Caterpillar provides U.S.Environmental Protection Agency(EPA)Tier 4 Final,European Union(EU)Stage V or equivalent products in North America,Europe,and select regions around the world.These products provide up to a 90%reduction in emissions(nitrogen oxides and particulate matter)compared to U.S.EPA Tier 3 or EU Stage IIIA emission standards.Product improvements in each segment provide customers with cost-saving benefits of improved fuel efficiency and fuel flexibility.Modular offerings allow customization of products to optimize technology.To learn about more product highlights and recent announcements,see our sustainability news.BIG PROJECT,BIG BENEFITSA large-scale project high in the Austrian Alps demonstrates the role of Cat construction machines in supporting the energy transition.The Kuhtai Dam project is Europes largest current construction site,carries a$1 billion price tag and spans two 3,000-meter-high mountains.When complete in 2026,the dam will store more than 33 million cubic meters of water that will power a hydroelectric plant to provide a significant amount of renewable energy for the region.Its a job for which Cat machines are uniquely suited,based on prior deployments at high altitudes and in even colder mining conditions.Caterpillar and Cat dealer Zeppelin worked closely with the customer to cover every detail and special need:from ensuring that all 16 new machines arrived at the site in a timely manner to modifying the equipment to accommodate the mountainous terrain to deploying fast fueling technology.We added to our software portfolio in 2022 with the acquisition of Tangent Energy Solutions,which provides customers turnkey solutions for reducing energy costs,monetizing electric grid support,and providing resiliency for customer operations.Tangent Energys proprietary software solutions monitor patterns from grid and client facilities,analyze opportunities in energy markets,and dispatch resources to maximize returns without disrupting normal business operations.Electrification Caterpillar is committed to delivering robust electrified products and solutions for our customers.We are gaining valuable experience from our initial introductions of battery-powered equipment and the additional battery-powered machines and chargers under development will help our customers achieve their climate-related objectives.Electric drivetrains and hybrid powertrains employ an electric drive transmission with power components to improve energy efficiency and productivity.The Cat D11 XE dozer,for example,harnesses the power and efficiency of an electric drive.The dozers electric drive system provides constant power to the ground with continuous pushing and greater maneuverability,leading to faster cycle times and improved fuel efficiency compared to previous models.For mining customers,the electric Cat R1700 XE LHD offers 100ttery electric propulsion,producing zero-exhaust emissions and significantly less heat than a reciprocating engine powered model for underground mining operations.The new underground LHD supports customers seeking reduced-carbon opportunities.SUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 12 WHERE THE FUTURE OF MINING IS NOW In support of the energy transition,Caterpillar is investing to transform our Tucson Proving Ground,located in Green Valley,Arizona,into a working,sustainable“mine site of the future”by installing and utilizing a variety of renewable energy sources.The objective is to implement the same sustainability solutions that mining companies will use at their own operations and learn firsthand what it takes to run an electrified mine site and effectively support customers through the energy transition.The transformation of the Tucson Proving Ground allows us to better demonstrate our energy transition commitments and serve as an advisor to customers as we navigate the integration of new technologies together.The site will leverage a variety of renewable power sources,including wind and solar,capable of powering the facility and its products as they become electrified.In addition,the transformation of the facility will serve as a learning platform for optimizing charging and energy management integration.BATTERY ELECTRIC MINING TRUCK ACCELERATED DEVELOPMENT STRATEGY Caterpillar demonstrated its first battery electric 793 large mining truck prototype in 2022 as part of a growing portfolio of innovative electrified solutions with support from key mining customers participating in Caterpillars Early Learner program.The program focuses on accelerating the development and validation of Cat battery electric trucks at participating customers sites.This approach supports the climate-related objectives of the programs participants,including BHP,Freeport-McMoRan,Newmont Corporation,Rio Tinto and Teck Resources Limited.A primary objective of the program is for Caterpillar to collaborate more closely with customers as the industry undergoes transformational change through the energy transition.PROTOTYPE2022 Machine technical feasibility Validate technical assumptionsEARLY LEARNER2024 Product and technology validation Refine requirements Process developmentPILOT2025 Fleet optimization Validate production intent Infrastructure learningsPRODUCTION2027 Full production capabilities Site integrationSUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 13 SUPPORTING A CIRCULAR ECONOMYCaterpillar products are built to be rebuilt.They are designed to withstand heavy-duty operating conditions and to be restored and used for multiple lifecycles,reducing the need for raw materials and associated GHG emissions.Designing products and components to be used throughout multiple service lifecycles is the essence of our remanufacturing approach across multiple products and brands.RemanufacturingGoalIncrease sales and revenues from remanufacturing offerings by 25%from 2018 to 2030.19%increase in sales and revenues from remanufactured products from 2018Data includes remanufacturing offerings provided by Cat Reman,Progress Rail,Solar Turbines,Caterpillar Energy Solutions and Caterpillar Defense.Cat Reman Product LifecycleSUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 14 In March 1973,Caterpillar established itself as the first company in the United States(U.S.)with its own diesel truck engine remanufacturing plant and released the first direct injection truck engine from its assembly line.Prior to that,an aging diesel truck engine in the United States was usually replaced with a new one after it passed the 120,000-mile mark.That changed,thanks to Caterpillar.In the years following,the Cat Reman product line expanded to encompass most of the industries Caterpillar serves today.Less energy and material are needed because we dont have to harvest and assemble all the raw material required for new.Were starting with core parts that can be reused not manufacturing a completely new part.Rather,the remanufacturing process uses the existing resource to build it back to like-new condition.Through Cat Reman:1 140Mpounds of material taken back in 202289%end-of-life eligible returns collected2Sustainability Benefits of Remanufacturing:3 65-87%less greenhouse gas process emissions 80-90%less new materials used4 65-87%less process energy use 1.Data does not include Progress Rail,Solar Turbines,Caterpillar Energy Solutions,and Caterpillar Defense.2.Represents Cat Reman customers end-of-life components(“core”)returned to Caterpillar by dealers,as a percentage of core returned plus unreturned core eligible for credit no later than 2022.3.Represents U.S.environmental impacts comparing“gate-to-gate”remanufacturing and manufacturing processes for engines and components.Based on 2018 external study of Cat engines,alternators and turbochargers.Does not include impacts elsewhere in our value chain.4.By weight.SUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 15 Solar Turbines Solar Turbines remanufactures turbine components to support the overhaul business.Through advanced remanufacturing processes,components are returned to like-new condition.Once components have been certified,they are used in major assemblies and integrated into the overhaul engine exchange fleet.This allows customers to exchange their engines in days rather than months of downtime.A similar process is used to remanufacture our gas compressor components.The exchange equipment is tested and certified to the same performance and emission specifications as new equipment and may receive the latest enhancements and design improvements,as required.Solar continues to expand remanufacturing capabilities and invest in condition-based engineering,which allows for more finite determination of remaining useful life.Condition-based engineering improves remanufactured content and extends overhaul cycles while ensuring quality at every step.The company has made significant investments in internal repair and remanufacturing capability.Additionally,Solar partners with its suppliers to remanufacture and extend the life of various turbomachinery components.As a result,Solars remanufactured content has grown steadily over the years and provides significant support to overhauled turbomachinery equipment worldwide.The company also continues to invest in facilities around the world to expand capabilities with the goal of reducing transportation and providing a faster customer response.Cat Reman Cat equipment is built to last.It is designed to withstand heavy-duty operating conditions and to be restored and used for multiple lifecycles.Cat Reman gives materials a new life,delivers sustainability benefits to our customers and helps Caterpillar contribute to the circular economy.Caterpillar has been remanufacturing for 50 years of our nearly 100 years in business.Today,remanufacturing is at the heart of our strategy to help customers build a better,more sustainable world.When a component reaches the end of its initial serviceable life,a dealer can return the used component,or core,to Caterpillar.That core is cleaned,inspected,salvaged and remanufactured to original factory quality and performance specifications.This includes any relevant engineering updates.Cat Reman uses state-of-the art salvage techniques,strict reuse guidelines,and advanced remanufacturing processes and quality controls to ensure that remanufactured products provide like-new performance,coupled with a same-as-new warranty.That means when a customer purchases a Cat Reman product,theyre getting an affordable,accessible product that performs like new and one they can say supports a circular economy.Their total cost of ownership can be lower,too,after a qualifying core return and core deposit refund.1We work together throughout our primary segments CI,RI and E&T to expand the enterprises offerings to our customers,lower their costs and provide quick turnarounds.Remanufacturing is a true“win-win”for both our customers and the company.Progress Rail Progress Rail extends the use of existing locomotives by providing rebuild,overhaul and repower options.These modernization programs upgrade electrical and mechanical systems and other components to extend locomotive life by 10 years or more with appropriate maintenance.We also offer reconditioning or repair services for freight cars and a wide range of components,ensuring value-added returns are available for customers and reducing annual maintenance costs.When locomotives and railcars finally reach the end of their usable lives,they can be recycled for other uses through Progress Rails scrap management services.We also provide rail take-up and inspection services,including grading of previously used rail that is then recycled,repurposed for other non-rail uses,or relayed into track.In 2022,Progress Rail processed about 70,000 gross tons of material from its scrap management services.1.Terms and core acceptance criteria apply SUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 16 Cat Certified Rebuild In the same spirit as Cat Reman,Cat Certified Rebuild programs increase the lifespan of equipment by providing customers with product updates at a fraction of the cost of buying a new machine,enabling us to extend the life of materials.A complete Cat Certified Rebuild includes more than 350 tests and inspections,automatic replacement or reconditioning of approximately 7,000 parts,and a like-new machine warranty.Trained dealer service professionals perform rebuild work using genuine parts while incorporating the latest engineering updates.Caterpillar provides information,data,training and service tools to help dealers decide which parts to reuse to achieve the expected longevity of rebuilt components.Since 1985,Caterpillar and Cat dealers have rebuilt more than 43,000 machines,powertrains and components.Caterpillar Energy Solutions X-Change The X-Change program is a parts replacement program for medium and large MWM and Cat branded engines and a great example of circular economy principles.By remanufacturing and selling X-Change parts,engines and gensets,customers benefit from quick and cost-effective overhauls and repair services,maximizing uptime.The replaced parts that reached the initial serviceable lifetime are returned to Caterpillar Energy Solutions where they are cleaned,disassembled,inspected and remanufactured to like-new condition.Technology updates that could potentially reduce emissions and increase efficiency and reliability are included.Caterpillar Defense Supporting U.S.and allied military forces and governmental agencies worldwide,Caterpillar Defense responds to each operations individual needs for machines,engines,power generation,services and support,offering solutions that extend the lifecycle of products.Through the U.S.Military Service Life Extension Program(SLEP),Cat dealers give machines a complete second lifecycle at a fraction of new replacement cost.Caterpillar trained and qualified technicians conduct repairs on military bases and customize replacement parts for local needs.SUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 17 UNDERSTANDING OUR SCOPE 3 EMISSIONSCaterpillar is contributing to a reduced-carbon future by investing in new products,technologies and solutions to help our customers meet their climate-related objectives.We have committed that 100%of our new products through 2030 will be more sustainable than the previous generation.Caterpillar will continue to support our diverse range of global customers while executing our strategy for long-term profitable growth.Caterpillar is represented by durable,reliable and innovative products.Many of our products are built to be rebuilt and our remanufacturing options deliver multiple sustainability benefits.By returning components at the end of their initial serviceable lives to like-new condition,we reduce waste and minimize the need for the raw material,energy and water to produce new parts.Caterpillar utilizes guidance from the GHG Protocol to calculate Scope 3 GHG emissions.Our Scope 3 emissions are estimated to be more than 95%of the companys total Scope 1,2 and 3 GHG emissions inventory.1 Given the companys large,global customer base covering a diverse set of industries,including construction and mining equipment,off-highway diesel and natural gas engines,industrial gas turbines,diesel-electric locomotives,and others,Category 11 use of sold products is our largest Scope 3 category.The remaining fourteen categories of estimated Scope 3 emissions are either not relevant or are immaterial,representing collectively less than 5%of our total Scope 3 emissions.The five-year trend of Caterpillars estimated Scope 3 use of sold products emissions illustrates annual emissions at the enterprise level and by primary business segment CI,RI and E&T as well as the enterprise sales and revenues trend and emissions intensity(MT CO2e divided by enterprise sales and revenues).Most of Caterpillars emissions come from products with high-power output,high fuel consumption,high runtime and long product life.In some cases,product life extends decades through service life extension activities including rebuilds,remanufacturing and overhauls.Scope 3 Use of Sold Products GHG Emissions2 SUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 18 The impact of macroeconomic conditions on global markets,including the COVID-19 pandemic,had an effect on enterprise emissions due to product mix changes and lower unit volume shipped in 2020 and 2021.Caterpillars sales and revenues reflect strong growth from 2020 through 2022,however,emissions remained essentially flat during this period,primarily due to product mix and volume changes across our portfolio.The resulting product mix change is dependent on market and customer trends,especially in certain emissions-intensive industries that changed significantly since 2019.As of the date of this report,Scope 3 use of sold products emissions are expected to increase in 2023 based on customer demand,as well as anticipated shifts in product mix and customer and business trends.Caterpillar has been a technology leader for nearly a century.We have significant experience developing innovative technologies through consistent R&D investments intended to allow us to maintain technology leadership.Caterpillar remains committed to helping our customers achieve their climate-related objectives and providing long-term profitable growth for our shareholders.Today,for example,all gas turbines offered by Caterpillar can operate on hydrogen blends and some of these turbines can operate on 100%hydrogen.We also offer reciprocating generator sets capable of operating on hydrogen blends and the Cat G3516H gas generator set can be configured to use 100%hydrogen.Our products can use an increasingly wide range of fuels,including renewable fuels,biodiesels,biogas,hydrogen blends and HVO.We also continue to invest in power sources that offer lower emissions without sacrificing performance.To support our customers climate-related objectives,Caterpillar offers modern engines and drive trains equipped with the latest technologies that improve fuel efficiency,reduce emissions and translate into cost savings for our customers.Caterpillar is also committed to delivering robust electrified products and solutions for our customers.We are gaining valuable experience from our initial introductions of battery-powered equipment and additional battery-powered machines and chargers under development will help our customers achieve their climate-related objectives.Built on proven technology,the lithium-ion battery range features a modular design that offers flexible configurations across multiple applications.The batteries are engineered to be scalable to industry and customer performance needs and maximize sustainability throughout their lifecycle,including recycle and reuse at the end of life.Caterpillar demonstrated our first battery electric 793 large mining truck prototype,operated fully loaded at its rated capacity in a live demonstration with key mining customers in November 2022.Our electric Cat R1700 XE LHD offers 100ttery electric propulsion,producing zero-exhaust emissions for underground mining operations.Our CI segment is expanding its product portfolio and displayed four battery-powered electric machines in October 2022.Our E&T segment has initiated numerous sustainability innovations covering a range of technologies through both organic and inorganic growth and development,including the acquisition of CarbonPoint Solutions,which provides customers access to carbon capture solutions.Caterpillar also offers Cat Energy Storage System,or ESS,a rapidly deployable electric power solution to help customers integrate multiple power sources on a worksite.Cat ESS can provide grid stabilization,transient assist and renewable energy storage.Learn more about Caterpillars sustainability-related product innovations and solutions.Now more than ever,our customers rely on us to provide diverse products,services and technology that help lower GHG emissions,improve efficiency and productivity and deliver energy flexibility.The opportunities presented by the energy transition and our work to help our customers achieve their climate-related objectives led us to add sustainability as a focus area of Caterpillars enterprise strategy.We have committed that 100%of our new products through 2030 will be more sustainable than the previous generation.Caterpillar will continue to support our diverse range of global customers while executing our strategy for long-term profitable growth.SUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 19 REDUCING CARBON IN OUR OPERATIONSWe work to reduce GHG emissions in our operations while also minimizing water use and waste generation.Environmentally efficient operations align with our strategy for operational excellence across the enterprise.Guided by our enterprise sustainability goals,we have demonstrated progress and are committed to reaching our targets.Caterpillar manages hundreds of facilities worldwide and some of these operations,especially our manufacturing sites,are energy intensive.To reduce our energy consumption and our GHG emissions,we are improving energy efficiency,investing in renewable power generation technologies,and considering new solutions.Likewise,we are making other environmental improvements to conserve water by implementing best management practices,notably at facilities located in water-stressed regions,and managing waste through improved recycling and waste minimization activities.Our enterprise energy management team builds awareness,encourages action and develops improvements in energy efficiency and renewable power generation.These solutions include installing renewable energy technologies,such as photovoltaics(PV)or microgrid installations that combine PV with battery storage to supplement and offset electricity generated with diesel fuel at off-grid locations.One significant contribution to alternative energy consumption is the operation of combined heat and power(CHP)systems to power several manufacturing facilities.The energy management team evaluates opportunities for replication of CHP,PV and microgrids at other locations.We continue to assess new ways to upgrade systems and make facilities more efficient.An example of energy innovation can be found at our facility in Lafayette,Indiana,which conducts endurance testing for many Cat products.Testing runs 24 hours a day to provide valuable data insights to improve our products,and the process produces large amounts of energy.Rather than waste this energy,our team at the facility has utilized Cat gensets to harness the energy and use it for supplemental facility power.This change is estimated to have resulted in more than 114,000 metric tons of CO2e emissions avoided over the last five years.In addition to contributing to Caterpillars goal to reduce absolute GHG emissions from our operations by 30%from 2018 to 2030,this change has saved the facility more than$8.5 million.EHS Management System We maintain high standards for environmental,health and safety(EHS)throughout the company.Caterpillars EHS Management System,documented in our EHS assurance manual,establishes foundational requirements and best management practices for all workplaces globally,including majority-owned subsidiaries and majority-owned joint ventures.Our facilities assess compliance with our requirements annually,and our EHS assessment team reviews those assessments while conducting more in-depth audits of select facilities each year.Beyond meeting standard expectations,facilities implement initiatives to enhance safety,decrease energy use and increase productivity.As facilities evaluate potential environmental initiatives,they also consider annual investment required,total anticipated cost savings and average pay-back period.We invite facilities to report emissions reduction activities through internal awards and recognition processes.OperationsGoalsWe have set a science-based Scope 1 and 2 goal to reduce absolute greenhouse gas emissions from our operations by 30%from 2018 to 2030.33%reduction in absolute GHG emissions from 2018Implement water management strategies at 100%of facilities located in water high-risk areas by 2030.14cilities achieved the goal of water strategy implementation Reduce landfill intensity by 50%from 2018 to 2030.36%reduction in landfill intensity from 2018SUPPORTING A LOWER-CARBON FUTURE|Caterpillar 2022 Sustainability Report 20 Returning People Home SafelyThe safety and well-being of those who work in our facilities and those who work in,on and around our Caterpillar products is of the utmost importance for Caterpillar and one of the hallmarks of our operational excellence.2022 Highlights17%improvement in recordable injury frequency from 2018Strengthening Caterpillars safety-focused cultureSupporting customers,dealers and suppliers in their journey toward safety excellence|Caterpillar 2022 Sustainability Report 21 EMPLOYEE SAFETY We relentlessly strive to ensure our workforce returns home safely every day.We contribute toward a global environment where people can live safe,healthy and productive lives.Safety is forefront in our strategic goals and metrics,with visible commitment and support of leadership.We believe the best way to drive a culture of safety excellence is to create an environment where each person and team is accountable for their own safety and the safety of those around them.Additionally,we nurture a culture of learning in which we continually enhance safety through training and experiences.Creating Accountability for Everyone We believe safety is both management and employee led.From practical expertise,our employees can create and champion their own safety improvements.We provide every employee,especially newly hired employees,with knowledge to perform their job safely,and leaders regularly receive training on safety compliance and setting an example for a strong safety culture.These actions help us manage risk while creating a culture focused on learning,speaking up and protecting those around us.We track enterprise metrics and targets as well as individual business unit goals.Common enterprise targets create structure and accountability,while business unit strategies focus on safety culture to create opportunities for innovation.We drive clear accountability with our EHS management system,that establishes expectations worldwide.Safety PerformanceWe improved our recordable injury frequency(RIF)rate by 17%from our 2018 base year,although our performance declined by 7%in 2022 from 2021.This performance came on the heels of the pandemic and during a period of rapid growth in our operations that included hiring a significant number of new employees.While we are proud of our progress,we are also deeply saddened that an employee suffered a fatal workplace injury at one of our facilities during the year.This incident highlights that safety must always remain our focus and further strengthens our safety resolve.Setting the Bar Higher As we pursue our 2030 goal,business unit leaders are engaged in our safety vision.We are strengthening Caterpillars safety focused culture,further enhanced by encouraging employee involvement in partnering with leaders to develop safety solutions.Feedback,problem solving dialogue and initiatives foster increased trust and collective ownership.Providing safety learning opportunities for our leaders,safety professionals and employees enhances our efforts.Our goal is challenging but is vitally important as we focus on the safety of our employees.IMPROVING ERGONOMICS IN INDIAAt our Caterpillar India Private Limited facility in Thiruvallur,a team including engineering,safety and management worked alongside our shop floor employees to improve ergonomics throughout the assembly processes.Through a variety of lifting tables and devices,we eliminated high-risk lifting activities.We also developed a governance dashboard to confirm the improvements are sustained.As a result,ergonomic risk decreased,efficiency improved and employees were engaged in enhancing the safety of their area.MAKING ELECTRIC DRIVES,SAFELYIntroducing electric drives to construction machinery brings challenges in fire control,storage and emergency response.To support safe implementation,a cross-functional team from safety,purchasing,quality,logistics,operations and engineering developed a safety manual to guide the manufacturing process.The manual was developed using industry best practices,and the team conducted a pilot to enhance its effectiveness.GoalWe aspire to prevent all injuries and will further our industry-leading safety results by reducing RIF by 50%from 2018 to 2030.17%improvement in recordable injury frequency from 2018RETURNING PEOPLE HOME SAFELY|Caterpillar 2022 Sustainability Report 22 CUSTOMER SAFETY Caterpillars commitment to safety goes beyond our employees and facilities.Caterpillar Safety Services provides coaching to customers at every stage in their journey toward safety excellence and change enablement.This team supports our dealers,suppliers and customers using cultural assessment tools,continuous improvement processes,risk management technology and a wealth of industry-focused safety resources.Human-Centered Change ManagementCompanies across the globe recognize the need for change management,and integrating it into their operating philosophies.A successful,people-centered change management process results in more engagement of the workforce,increased commitment to the cause,and enhanced performance.Customer Safety 2030GoalProvide leadership in the safety of people who work in,on and around our products.SAFETY GOES TO THE FRONT LINEEven companies with high safety performance must focus on continuous improvement.That is why a global leader in the construction and maintenance of transport infrastructure turned to Caterpillar Safety Services to enhance its safety culture.With the help of experts from Caterpillar Safety Services,the organization launched a Journey to Goal Zero as a corporate-wide safety program involving 5,000 employees.The approach was simple:make safety everyones responsibility.Through cross-functional rapid improvement workshops,they turned over control of safety to employees in the field,asking them to rebuild safety processes from the ground up based on their frontline knowledge.The other significant change:using positive recognitionrather than focusing on whats wrongto measure performance.On the other side of the transformation was an empowered team that began to take continuous improvement into their own handsprecisely what needed to happen to move from average to excellent.RETURNING PEOPLE HOME SAFELY|Caterpillar 2022 Sustainability Report 23 The Power of EveryoneAt Caterpillar,we believe in The Power of Everyone as a source of innovation and competitive advantage.Our people come from across the globe,with diverse backgrounds,experiences and perspectives united by Our Values in Action.Our employees care deeply about our mission and purpose and play an important role in helping our customers build a better,more sustainable world.2022 HighlightsOver 5,000 employees participated in professional development sessions on topics ranging from career development to thriving on a global team to inclusive leadershipMore than 2.1 million training course completionsNearly 42%of 2022 front-line leaders graduated from our refreshed by-invitation leadership development program|Caterpillar 2022 Sustainability Report 24 DEVELOPING OUR PEOPLE&THEIR POTENTIAL Starting on day one,we encourage employees to focus on continuous learning so they can develop their skills and grow their career.We offer meaningful work in an inclusive environment with rewarding opportunities,growth and development throughout every phase in an employees career.We provide a variety of opportunities for learning and development because our employees learn in different ways:Upskilling via formal classroom/virtual learning to build skills and capabilities so employees can continue to problem solve,innovate and meet the changing needs of our customers.Experiential learning to create opportunities for employees to learn by doing,with real-time space to learn,fail and grow.Mentoring to accelerate interpersonal and professional development by pairing employees up with someone more experienced.In 2022,over 5,000 employees participated in professional development sessions on topics ranging from career development to thriving on a global team to inclusive leadership.With over 2.1 million course completions,our learning offerings continued to be an important resource for employees to grow their skills.We hire high school,college and graduate students into roles that provide in-person or hybrid experiential learning opportunities to enhance their skills and develop hands-on knowledge of our business:Hired over 2,000 early-career employees from 150 colleges and universities around the world.Hosted nearly 500 U.S.-based interns virtually and in person at the Edwards Demonstration Center in Edwards,Illinois,to grow business acumen and teach them about Caterpillar and the rewarding career opportunities we provide.Half of the early career hires at Cat Digital are former interns.We lay a strong foundation for the employee experience starting with the onboarding process.Our Strategic Procurement and Planning Division created a program to help new employees in the division define what success looks like for them.Through access to learning programs and networking opportunities,these employees have tools to help them perform today and upskill for the future.We support employee development through our 14 Employee Resource Groups(ERGs),where members have access to personal and professional growth opportunities.Our employees are also active in many external professional partnerships,technical societies and organizations focused on networking and growing skills.Weve nearly doubled year-over-year hiring in professional affiliations like the Society of Women Engineers,Society of Hispanic Professional Engineers,National Society of Black Engineers and the Thurgood Marshall College Fund.Our goal to grow services was the focus of two development courses.Over 2,000 attendees across the enterprise participated in the Commercial Acumen Program,enhancing our marketing,sales and product support employees understanding of our business segments with a focus on services growth.Our CI segment introduced a six-week Services Learning Accelerator program to give employees a deeper understanding of how they can support our growth goals.The Electric Power Division is helping employees develop a customer-centric mindset.More than 225 employees are building competency in consultative sales and embracing an owners mindset through a new sales excellence curriculum.The investment is helping grow services and adapt to a changing energy landscape.THE POWER OF EVERYONE|Caterpillar 2022 Sustainability Report 25 Nearly 10,000 employees completed a new career planning and development course,where they learned how to discover career aspirations,hold meaningful career discussions with their manager and set development goals.We also launched a personalized digital platform,available in 60 languages to provide enrolled employees with coaching on personal and professional goals.To ready a new generation of leaders,we refreshed our by-invitation leadership development programs for front-line,mid-level and executive leaders.Our programs focus on helping leaders develop skills like coaching,change management,effective communications,giving feedback,creating psychological safety and building an inclusive culture.Our front-line leadership program focuses on core skills critical to developing leadership capability.Based on real-life challenges and opportunities,nearly 42%of front-line leaders completed a structured,four-month training that included on-demand and on-the-job exercises to maximize capability building.Our success depends on having a pipeline of skilled talent at all levels of the organization.Through rigorous selection processes and relevant development,we ensure a deep bench of capable talent now and in the future.POSITIVE EMPLOYEE&LABOR RELATIONSAt Caterpillar,we respect freedom of association and where we have unions,works councils and other forms of employee representation,we always strive to have respectful,values based labor-management relationships.We also collectively bargain,inform and consult in good faith,fully complying with all country labor-management laws and standards.Additionally,we understand and respect that there are also employees who may prefer or choose not to be represented,and we have the same direct and positive relationship with them.Most important and through Our Values in Action,regardless of whether represented or non-represented,we foster a positive employee relations environment built on trust,confidence and respect.THE POWER OF EVERYONE|Caterpillar 2022 Sustainability Report 26 HEALTH&WELL-BEINGOur success as a company begins with our people.Thats why Caterpillars Total Rewards package is designed to keep our employees performing at their best at work,home and in their communities.Our Total Health offerings nurture our whole selves,including programs for our physical,emotional and financial well-being,as well as opportunities to promote social health and a sense of purpose.Our Total Health Highlights campaigns increase knowledge of important health issues and encourage adopting healthy behaviors.Helpful resources are published online and delivered through our“Total Health Champions,”a global network of over 100 employee volunteers who share their passion for wellness.This team coordinates programs and events that emphasize the importance of good health,including quarterly health education and awareness campaigns customized to our employees needs.Our monthly U.S.financial health webinar series covers topics that help our employees budget,save,plan and invest for their futures.We also offered a Retirewise four-part series that provided hands-on ways our employees can get and stay on track financially.Our Total Rewards Package Promotes Overall Well-BeingOur commitment to health and well-being includes our employees and their families.We offer a variety of benefits to both our full and part-time global workforce that extends to employees spouses,same-sex domestic partners and dependents.Benefits vary by country,but may include:Health care coverage,including medical,prescription drug,dental,vision,and preventive exams and testing Tax-savings accounts,including flexible spending accounts,health savings accounts and commuter/parking/transit accounts Parental and adoption leave and infertility benefits Life and disability insurance Retirement savings plans Time-off benefits,including vacation,holidays and paid volunteer time Additional voluntary benefits,such as accident insurance,legal services and identify theft Employee Assistance Program2X employee participation in our monthly U.S.financial health webinars compared to 202120,000 people accessed our Total Health website,which contains resources on physical and mental well-being related topicsOver 20,000 employees across the globe attended at least one of 360 training sessions through our Employee Assistance Program on mental well-being related topicsTHE POWER OF EVERYONE|Caterpillar 2022 Sustainability Report 27 EMPLOYEE EXPERIENCE At Caterpillar,we are committed to continuous improvement.We believe feedback plays a big role in helping us improve,and we prioritize listening and taking action to create a culture where employees can do their best work.We care about the employee experience and seek to make it better.Each year,every employee is invited to participate in the confidential Employee Insights survey and provide their feedback and perspectives.We made important changes to our employee listening programs.The enhancements give leaders the insights they need to make better decisions about how to lead their teams and ways to effectively influence business outcomes through people.We know there are moments that matter throughout an employees career.Gathering insights from our new hires help us understand the onboarding experience.We gauge whether they feel welcome,have a sense of belonging and connection to the organizations mission,have the tools and resources to enable them to do their job,and are proud to work here.Diversity&InclusionAt Caterpillar,we are committed to fostering a diverse workforce and an inclusive environment,and believe that diversity and inclusion(D&I)is a journey,not a destination.We are proud of our progress and remain committed to continually working to ensure our workplace is diverse and representative of the countries in which we operate and the customers we serve around the globe.We continue to take action to ensure an inclusive environment where all employees have opportunities for personal and professional development and are welcome to learn,connect and foster a sense of belonging.82%response rate2022 ANNUAL EMPLOYEE INSIGHTS SURVEY SNAPSHOTOur employees say our greatest strength is providing challenging and meaningful work.Scores were at or above the benchmark on all survey questions.Maintained the progress weve made over the past four years on the Inclusion Index scores.Visit our D&I Webpage and read our D&I Report to learn more.THE CATERPILLAR AFRICAN AMERICAN NETWORK CELEBRATES 20 YEARSCAAN has had a significant impact on our company,our culture and our community.While they were recruiting,mentoring,developing support systems and creating a sense of community for Black employees,they were also creating the prototype or roadmap for others to follow and do the same.”Cheryl Johnson Chief Human Resources Officer Caterpillars first ERG,the Caterpillar African American Network(CAAN),was formed in 2002 and became the blueprint for Caterpillars 13 other ERGs.THE POWER OF EVERYONE|Caterpillar 2022 Sustainability Report 28 Our Values in ActionA robust governance framework and responsible business practices create long-term value for our shareholders,strengthens board and management accountability and builds trust in the company and our brand.2022 HighlightsCaterpillar Foundation invested$42.3 million in 2022 and celebrated 70 years of helping improve the lives of people around the worldPublished the 2022 Lobbying Report:The Purpose of Engagement to provide greater transparency and disclosure of Caterpillars advocacy efforts and political engagements100%of Caterpillars priority suppliers completed a Supplier Code of Conduct self-assessment in 2022|Caterpillar 2022 Sustainability Report 29 CORPORATE GOVERNANCE Our board of directors has direct oversight of our climate and sustainability efforts.Recognizing the increasing complexity and stakeholder interest in climate,sustainability,and other ESG issues,in 2022,the board created the Sustainability&other Public Policy Committee(SPPC)to oversee all the public policy matters previously overseen by the Public Policy and Governance Committee.In addition,the SPPC has explicit oversight over sustainability,social and other public policy matters,including those related to the environment,climate change,human rights and lobbying.Managements sustainability governance includes our CEO and all executive officers who report directly to the CEO,including the Chief Sustainability Officer.Additional information about Caterpillars corporate governance policies and procedures can be found in the governance section of our corporate website.OUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 30 SHAREHOLDER ENGAGEMENT Caterpillar values the diverse perspectives and input of our shareholders.Through regular,ongoing shareholder engagement,we hear their interest in how Caterpillar is addressing and reporting on climate change,as well as how our company is contributing to a reduced-carbon future.We have responded to shareholder feedback,for example,by disclosing our Scope 3 use of sold products emissions and by disclosing our inaugural TCFD report.2022 Lobbying Report:The Purpose of Engagement As a responsible corporate citizen,Caterpillar participates in the public policy process,advocating for a broad range of issues that advance our strategy and purpose while providing value to shareholders and other stakeholders.From energy transition to infrastructure investments to skilled workforce development and more,we focus on policy areas that help our customers build a better,more sustainable world.Caterpillars shareholders have demonstrated interest in more transparency and a better understanding of our political engagement strategy.We value their input and diverse perspectives and are implementing a number of key changes based on shareholder feedback.Our Values in Action,governing laws and strategy for profitable growth continue to guide how we act and manage,whom we engage with and our areas of focus.Caterpillar published its inaugural lobbying report,The Purpose of Engagement,in February 2023.The report provides greater transparency and disclosure of the companys U.S.political engagement strategy,including a description of the governance oversight and management of these activities.The report also outlines climate lobbying efforts focused on supporting Caterpillars customers during the energy transition,Caterpillars relationships with U.S.trade and industry associations,employee engagement in advocacy initiatives and Caterpillar Inc.Political Action Committee governance.Report on Climate Policy At Caterpillars 2022 Annual Meeting of Shareholders,our board of directors recommended a vote in favor of and our shareholders approved a shareholder proposal requesting a report on climate policy.(See Caterpillars 2022 Proxy,pages 52-54,to read the full proposal).Our companys report is set forth below.Climate ActionCaterpillar is committed and contributing to a reduced carbon future.We demonstrate our commitment in many ways,including through significant progress in reducing greenhouse gas emissions from our operations and by continuing to invest in new products,technologies and services to help our customers meet their climate-related objectives.We will continue to support our diverse range of global customers while executing our strategy for long-term profitable growth.The opportunities presented by the energy transition and our work to help our customers achieve their climate-related objectives led us to include sustainability as a focus area of Caterpillars enterprise strategy.We are demonstrating shareholder responsiveness by making further enhancements to our climate disclosures.We continue to execute our strategy for the benefit of our customers,employees,shareholders and other stakeholders.Caterpillars shareholders have demonstrated interest in more transparency and a better understanding of our political engagement strategy.We value their input and diverse perspectives and are implementing a number of key changes based on shareholder feedback.”Jim Umpleby Chairman&CEO2022 Lobbying Report:The Purpose of EngagementOUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 31 Caterpillar has been a technology leader for nearly a century,and over the past 20 years,we have invested more than$30 billion in R&D to deliver best-in-class innovation and we will continue investing in innovative technologies and solutions for our customers.We are increasing our investments in autonomy,alternative fuels,connectivity and digital,and electrification(AACE).We will continue to invest more in AACE as we work with our customers to help them achieve their sustainability objectives.Today,for example,all gas turbines offered by Caterpillar can operate on hydrogen blends and some of these turbines can operate on 100%hydrogen.We also offer reciprocating generator sets capable of operating on hydrogen blends and the Cat G3516H gas generator set can be configured to use 100%hydrogen.We continue to invest in power sources that offer lower emissions without sacrificing performance.Our products can use an increasingly wide range of fuels,including renewable fuels,biodiesels,biogas,hydrogen blends and hydrotreated vegetable oil.Caterpillar is committed to delivering robust electrified products and solutions for our customers.Caterpillar demonstrated our first battery electric 793 large mining truck prototype,operated fully loaded at its rated capacity in a live demonstration with key mining customers in November of 2022.Our electric Cat R1700 XE offers 100ttery electric propulsion,producing zero-exhaust emissions for underground load,haul and dump mining operations.Our CI segment is expanding its product portfolio and displayed four battery-powered electric machines in October 2022.Our E&T segment has initiated numerous sustainability innovations covering a range of technologies through both organic and inorganic growth and development,including the acquisition of CarbonPoint Solutions,which provides customers access to carbon capture solutions.Caterpillar also offers the Cat Energy Storage System,or ESS,a rapidly deployable electric power solution to help customers integrate multiple power sources on a worksite.Cat ESS can provide grid stabilization,transient assist and renewable energy storage.Learn more about Caterpillars sustainability-related product innovations and solutions in this report.In addition to our investments,we have also taken important actions to further strengthen our sustainability and climate-related efforts which are also responsive to shareholder feedback,including:Incorporating ESG performance into the 2022 incentive plan for executives;Releasing our first-ever disclosure of Scope 3 GHG emissions data in 2023;Publishing our first-ever TCFD report in 2023;and Creating an executive leadership position of CSO,reporting directly to the CEO.Caterpillar sets and achieves meaningful ESG goals and part of our long-standing commitment to sustainability includes reducing our own GHG emissions.We announced our first sustainability goals in 2006 and refined them in 2013 to include a 50%reduction in Scope 1 and 2(direct and indirect)GHG emissions intensity from 2006 to 2020.We actually achieved a 51%reduction against this goal.As part of our continuous sustainability journey,we disclosed a new goal in 2021 to further reduce absolute Scope 1 and 2 GHG emissions by 30tween 2018 and 2030.Weve reduced those emissions by 33%since 2018 through improvements in operational efficiency,as well as implementing energy and GHG reduction initiatives at our facilities.In 2021,we further emphasized our commitment to reducing product-related emissions by disclosing an additional new goal that 100%of our new products through 2030 will be more sustainable than the previous generation.All of the more than fifty new products introduced in 2022 fulfilled the goal criteria for reduced waste,improved design for rebuild/remanufacturing,improved efficiency and/or lower emissions.The Executive Summary of our Sustainability Report provides more information about Caterpillars 2030 goals and progress.OUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 32 Our Path AheadCaterpillar recognizes shareholders interest in climate change and is increasing our disclosures in this area.Caterpillar values shareholder feedback.Through regular shareholder engagement,we hear their interest in how Caterpillar is addressing and reporting on Caterpillars sustainability journey.We are continuing to demonstrate our commitment to shareholder responsiveness,including delivering important enhancements to climate disclosures in 2023.Caterpillars 2022 Sustainability Report includes for the first time the disclosure of our companys estimated Scope 3 GHG emissions data and includes our first-ever TCFD report,which summarizes how we govern our strategy to address climate-related risks and opportunities and support customers in the energy transition.Our enhanced reporting also includes a description of how our company incorporated ESG into the 2022 incentive plan for executive officers.The 2022 shareholder proposal which Caterpillar supported requests that our company publish a report disclosing GHG targets aligned with the Paris Agreements goal of limiting global temperate rise to 1.5 degrees Celsius for the full scope of the companys operational and product-related emissions or rationale for any decision not to set these targets.Caterpillar reports progress annually against its Scope 1 and 2 GHG reduction goal.While we have not publicly reported or established a numeric reduction goal that encompasses Scope 3 GHG emissions,we have committed that 100%of our new products through 2030 will be more sustainable than the previous generation.Disclosing our Scope 3 GHG data for Category 11 use of sold products emissions for the first time is an important step on our sustainability journey and demonstrates responsiveness to shareholder feedback.As a global industrial manufacturer with a diverse portfolio of products and solutions,Caterpillars business has a global scope,and is subject to variables such as long product life-span and many other data collection,calculation and verification complexities.Read more about Caterpillars five-year trend of estimated Scope 3 GHG emissions,including information about the impact of macroeconomic conditions on product mix changes and unit volumes throughout that period,as well as the influence of customer demand and anticipated shifts in product mix for 2023.Our company has not set a Scope 3 GHG emissions reduction goal as there are significant factors impacting Scope 3 GHG emissions reductions which Caterpillar cannot control and additional uncertainty continues to impact the path ahead.While our products are helping customers achieve their climate-related objectives,our ability to set specific GHG emissions reduction goals that include activities outside Caterpillars operations depends on various factors that are fluid and difficult to predict.These include the range of potential pathways for decarbonization;development,deployment and adoption of new technologies by Caterpillar,our suppliers and our customers;and the impacts of governmental regulations and policies around the world and other factors that could significantly alter customer adoption of new technologies.We have worked diligently to ensure that Caterpillars current ESG and GHG emissions goals are meaningful,credible and achievable.Caterpillar is driven to help enable our customers success and doing so will require our company and our customers to address a vast array of complex engineering and technology challenges.We are committed to have lower-carbon products and solutions available for our customers,however,uncertainty exists regarding the rate of customer adoption in the near-,intermediate-and long-term horizons.Caterpillar has a global customer base,and many of our customers are developing infrastructure to meet the basic needs of society such as shelter,clean water,transportation and reliable energy.For example,customers use our products to develop the infrastructure necessary for clean drinking water in remote areas of Africa.Additionally,current estimates suggest that less than half of the population of sub-Saharan Africa has access to reliable electricity.Without that access,battery-powered machines are not a viable option and diesel-powered machines are required to build critical infrastructure.Caterpillar has a role to play in serving the diverse range of customer needs globally without the constraints of an emissions reduction imperative that is too narrow or doesnt account for such differences.The ongoing dialogue with our shareholders during our engagement process includes important input and feedback that also influences our path ahead.Throughout the last year,Caterpillars shareholders have expressed support for our progress and acknowledged the technical and other challenges and complexities associated with reducing Scope 3 GHG emissions especially given our companys diverse product portfolio serving a wide range of industries and customers and they have expressed their desire for Caterpillar to strike the best balance between climate-related progress,together with financial performance and returns that are in the best interest of shareholders.Despite the longer-term uncertainties,we are committed to continue reducing our own emissions and making progress toward the achievement of our 2030 sustainability goals,including our commitment that 100%of our new products through 2030 will be more sustainable than the previous generation.Caterpillar is also well-positioned to design,engineer and manufacture products;and to develop and deploy technology,services and solutions that will help our customers meet their climate-related objectives while also delivering long-term profitable growth and shareholder value creation.While we recognize the complex challenges and evolving environment on the path ahead,Caterpillars long-standing commitment to sustainability will continue to inspire us to help our customers build a better,more sustainable world.OUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 33 ETHICS&INTEGRITY We operate according to Our Values in Action Caterpillars Code of Conduct.The Code defines our values Integrity,Excellence,Teamwork,Commitment and Sustainability which represents what we stand for and how we conduct ourselves with our customers,suppliers,communities,and one another.It guides our employees,affiliates and board members in living our values each day.Some of the topics that the Code covers include avoiding conflicts of interest,fair competition,anti-bribery,trade compliance,employee performance and development,non-harassment,non-discrimination,personal privacy,supplier expectations and environmental responsibility.Code of Conduct TrainingAll Caterpillar employees are annually required to complete Code of Conduct training.As part of this training,employees must certify that they have read,understand and agree to comply with the Code of Conduct.Additional compliance training is also provided to employees based on risks identified in their job roles.Ethics&Compliance Helpline We hold ourselves to the highest standard of integrity and ethical behavior.We promote and respect the rule of law and expect our employees and suppliers to do the same.We encourage individuals to report situations in which they have a good-faith belief that any circumstance or action has violated our Code of Conduct,enterprise policy or applicable law.Those who wish to report a concern can do so confidentially and anonymously through resources maintained by our Office of Business Practices.These resources include:Online reporting Email reporting at BusinessP Telephone reporting with toll-free and call-collect dialing options that support reporting in multiple languages and from multiple countries Caterpillar will not take any action or tolerate any reprisal against any party for raising an issue in good faith.Learn more about our governance framework,corporate governance initiatives and board composition:Caterpillar Proxy Statement Board Committees Caterpillar Code of ConductOUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 34 POLITICAL ENGAGEMENTWe advocate for policies,trade agreements,legislation and regulations that enable us to help our customers.Where allowable by law,Caterpillar may make corporate contributions to political organizations or committees to support public policies we believe will promote our business interests.Any corporate political contributions by Caterpillar must be approved by our senior vice president of Global Government&Corporate Affairs.In addition,the board annually reviews the companys political spending policy and political activities,including corporate political contributions,political contribution activities of the Caterpillar Inc.Political Action Committee(CATPAC),trade association participation,and Caterpillars lobbying priorities.1 CATPAC contributions are made only in U.S.federal and state elections.CATPAC is funded through voluntary contributions by eligible individuals.A steering committee comprised of Caterpillar non-officer employees representing a diverse mix of U.S.locations and business units oversees all CATPAC disbursements to ensure they promote the companys business interests.Caterpillar also maintains memberships in trade and industry associations that may advocate on behalf of business community segments.We support these organizations as they champion public policies that contribute to the business communitys growth and success.The 2022 Caterpillar Lobbying Report highlights how our memberships in U.S.trade and industry associations complement the achievement of our goals and priorities and explains how we manage instances where an associations positions may not be completely aligned with Caterpillars priorities.A climate lobbying section is also included to address our advocacy for policies that help us support our customers during the energy transition.Additional information regarding Caterpillars corporate contributions,CATPAC contributions and trade association memberships is available on our political engagement website.Our commitment to transparency and disclosure in our advocacy activities has long been recognized.As part of that commitment,numerous voluntary disclosures and links to filings related to our political engagements are provided on our website.Additionally,we have changed the reporting threshold for U.S.trade and industry association contributions.In previous years,Caterpillar reported membership contributions of$50,000 or more annually.For 2022,we reduced the threshold to$25,000.For 2023,we will report all U.S.trade and industry association memberships biannually.You can find this information and the percentage of 2022 membership dues used for federal lobbying as reported by each organization in the Lobbying Report.Read the 2022 Lobbying Report1.Caterpillars participation as a member of any trade association comes with the understanding that we may not always agree with all of the positions of the organization or other members.OUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 35 RISK MANAGEMENT Risk is an inherent part of conducting global business,and managing risk is fundamental to the way we work.Through robust programs,including Enterprise Risk Management,Compliance and Audit,we engage across the enterprise to identify,prioritize and manage risks.Enterprise Risk Management and our enterprise strategy are linked.To better inform our decision-making,we evaluate risks at the business unit and enterprise levels,considering the likelihood and potential impact of each risk.These evaluations guide our approach for risk management,allow us to understand the challenges these risks bring,and position our business for the opportunities they present.We consider risks across many categories,including strategic,operational,financial,compliance and hazard risks.We embed ESG risks into each risk category as part of our commitment to sustainability.We treat these ESG risks with the same priority and rigor as other risks across the business.In 2022,Caterpillar conducted its first global climate scenario analysis to identify climate-related risks and opportunities,as summarized in our TCFD report.The results from this analysis are informing the Enterprise Risk Management process for 2023 to further integrate climate-related risks into our evaluations.As risk management is fundamental to our culture,there is strong engagement in risk management from the CEO,executives and senior leaders.The companys officers share accountability for business risks,and the board of directors has oversight of the enterprise process.The board and its committees also oversee risk and have regular updates on topics that are identified through the risk management process.Outputs from risk management drive strategic initiatives and disclosures.Our risk management culture enables us to critically evaluate risks to our business and identify opportunities to create value for our employees,customers and shareholders.Our commitment to sustainability is reflected in our risk management practices as we strive to build a better,more sustainable world.OUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 36 RESPONSIBLE SOURCINGCaterpillar is committed to responsibly sourcing the raw materials used to build our products.Our supply base includes approximately 27,000 suppliers around the world providing raw materials and manufactured components across broad categories and technologies for aftermarket and production parts.These purchases include a variety of unformed steel products,cut or formed to shape and machined in our facilities;steel and iron castings and forgings,machined to final specification;and finished components,made to Caterpillar or supplier-developed specifications.We also help keep those materials in circulation for as long as possible.We maintain global strategic sourcing models to meet our global facilities production needs while building long-term supplier relationships.We pursue suppliers and business allies who demonstrate strong values and commit to the ethical principles outlined in the Caterpillar Supplier Code of Conduct.We also expect suppliers to comply with the sound business practices we embrace,follow the law and conduct activities in a manner that respects human rights.Supplier DiversitySupplier diversity continues to be a focus for our strategic procurement team.With a strong base of diverse suppliers already in place,we are investing in tools that will help identify diverse suppliers for new business opportunities.This is key to delivering on our commitment to foster and increase business purchases with diverse suppliers.Responsible Mineral SourcingMany considerations go into the responsible sourcing of minerals used in our products.Tin,tungsten,tantalum and gold(3TG),collectively known as conflict minerals,have been associated with human rights violations in the Democratic Republic of the Congo and adjoining countries.Our Conflict Minerals Position Statement contains clear expectations for our suppliers regarding their sourcing of these materials.We have established a process that identifies areas of risk on an ongoing basis,and corrective action plans to mitigate or remediate such risks relating to conflict minerals.A suppliers failure to take corrective actions when required may lead to additional actions,up to and including the termination of our business relationship.Caterpillar supports the Responsible Minerals Initiative to help influence smelters engagement to support supply chain transparency and leverage industry collaboration toward greater business intelligence.Year after year,we strive for an increased supplier response rate,emphasizing 3TG priority suppliers.Caterpillar also publicly discloses the results of our Reasonable Country of Origin process and any necessary due diligence in our Conflict Minerals Report we file with the Securities and Exchange Commission,which discloses metrics and results of inquiries we execute within our first-tier suppliers.In these reports,we describe our due diligence efforts,including risk mitigation and process improvements we expect to implement in the following year.100%of Caterpillars priority suppliers completed a Supplier Code of Conduct self-assessment in 2022 Read:Supplier Code of Conduct Conflict Minerals Position StatementOUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 37 HUMAN RIGHTS In accordance with Our Values in Action,Caterpillar is committed to respecting internationally recognized human rights principles throughout our global operations.We Support Individual and Collective Rights Across the Globe.Our Code of Conduct,Human Rights Policy,Slavery and Human Trafficking Statement and Supplier Code of Conduct represent our commitment that we will not condone and will strive to eliminate all forms of forced labor,child labor,human trafficking and discrimination in the workplace.We remain committed to establishing safe and healthy working conditions.We value diversity as a foundational key to the success of our business strategy and seek to compensate our employees fairly and competitively where they work.We respect the principles of freedom of association and the right to collective bargaining.We have compassion for all persons affected by conflict wherever it occurs,and we expect our directors,officers,employees,business partners and suppliers,including in conflict-affected areas,to comply with all applicable laws and conduct activities in a manner that respects human rights.This also applies to our subsidiaries and majority-owned joint ventures.Read our Human Rights PolicyOUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 38 BEYOND CATERPILLAR:INVESTING IN COMMUNITIESIn 2022,Caterpillars philanthropic organization,the Caterpillar Foundation,celebrated seven decades of helping build resilient communities.The Foundations global work in science,technology,engineering and mathematics(STEM)education,workforce readiness,sustainable natural infrastructure,access to basic services,disaster relief,employee volunteerism and matching gifts,have helped communities around the world achieve sustainable progress.Since its founding,the Caterpillar Foundation has invested nearly$900 million to help improve the lives of people around the world.As a company,Caterpillar works alongside its dealers and customers to build the societal infrastructure necessary for a better,more sustainable world.The Foundation focuses on the complementary human,natural and basic services infrastructure needed for individuals to thrive and communities to be resilient.Our combined success contributes to the stability of regions around the world.The Foundation has four key areas of focus:Empowering the workforce of the 21st century:Through skills development and STEM,we help equip individuals with the skills required for tomorrows workforce.Skills-based education leads to better jobs and better jobs lead to better futures.Building resilient communities to address critical environmental challenges:The Foundation supports natural infrastructure development and access to basic services,such as water resource management and access to energy.Focusing on diversity and inclusion:We bridge community gaps by supporting underrepresented populations and those with the greatest needs.Giving back in our communities:Caterpillars global team helps build a better,more sustainable world using their passion,time and talent to give back,maximizing impact through the Foundations disaster and matching gifts programs,United Way and volunteer efforts.Creating the Workforce of the 21st Century Understanding the importance of equipping individuals and communities with the skills,resources and services they need to thrive in our changing world,the Foundation invested about$16M million in 25 countries to support workforce readiness and STEM.An example is the Foundations partnership with Malaika,a nonprofit grassroots organization that empowers Congolese girls and their communities through education and health programs.Together,we have built a Technical and Education Training Center that provides mechanical and electrical training,focusing on closing community skills gaps and providing new job opportunities in the Democratic Republic of Congo.Malaikas community-driven model has been integral since its founding in 2013 and has led to transformative change.The students have 1,200 contact hours in group classes and cover topics such as safety,machine mechanics,diesel mechanics,gasoline engine management,auto electronics,brake systems,suspension and steering,and manual driving skills.Establishing Natural Infrastructure In 2022,the Foundation had nearly 70 active sustainable infrastructure programs,committing over$13 million across 30 countries to restore natural ecosystems to withstand natural disasters and environmental challenges.Together with the Foundations partners,these programs seek to remove,sequester or capture carbon by restoring land.One such program is Blue Forest Conservations Forest Resilience Bond,which bridges the finance gap for much-needed forest restoration across the western U.S.and supports natural infrastructure projects on public land.In the Sierra and Yuba counties in California,the program impacted approximately 81,000 residents,creating more than 200 jobs in the local community and providing hydroelectric power,drinking water,and flood control for over 30,000 people.Alongside our partners,the Caterpillar Foundation participated in many thought leadership events,including the 2022 United Nations General Assembly/Climate Week in New York.OUR VALUES IN ACTION|Caterpillar 2022 Sustainability Report 39 The Foundation is partnering with Conservation International and others to develop a“Green-Gray Cost-Benefit Analysis Tool”to compare green and gray alternatives for infrastructure and coastal resilience projects in Mexico and the North Brazil Shelf.“Green”infrastructure(wetlands and forests),alongside traditional“gray”infrastructure(seawalls or dams)not only provide environmental and biodiversity benefits,but can also extend the life of coastal infrastructure including roads,bridges,and highways.By better understanding the benefits of blending“green”conservation with“gray”engineering techniques,communities can enjoy the benefits of both solutions.Disaster Relief The Caterpillar Foundation is a member of the American Red Cross Annual Disaster Giving Program.The Foundations$1 million annual global investment helps provide a funding base,allowing the Red Cross to provide immediate relief to those impacted by disasters big and small.This model ensures that the Red Cross has funds to prepare for disasters before they occur.The Foundation has donated more than$1 million to support both urgent and long-term needs of the Ukraine humanitarian crisis.This donation supports organizations that include the American Red Cross in support of the global Red Cross network response to the Ukraine humanitarian crisis,Project HOPE and the Center for Disaster Philanthropy.Caterpillar team members eager to help in a time of crisis,along with a Foundation match,contributed another more than$1 million,making an even greater impact.The Foundations disaster preparedness support also enabled partner organizations to respond to disasters such as in the Mayfield,Kentucky,area when tornadoes ripped through the center of the U.S.;catastrophic flooding in several European and African countries,India,Pakistan,Bangladesh,and China;Western U.S.wildfires;Hurricane Fiona that impacted Puerto Rico;and an earthquake in Afghanistan.Diversity&InclusionCommunities are strongest when there is equality for all.In 2022,Foundation investments targeted support for several underserved populations.Through partnership with DigDeep,families within the N
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2022Sustainability Report5 FOREWORD7 ABOUT THIS REPORT10 SUSTAINABILIT Y IN THE GROUPS DNA11 Corporate Governance 14 NEW AUTO Group Strategy 18 ESG Performance Management and Materiality Analysis20 Sustainability Management 22 Sustainability Impact of New Mobility Options 24 Stakeholder Management 26 Environmental Compliance Management33 Risk Management35 Corporate CitizenshipCONTENTSA detailed description of the sustainability activities of the Volkswagen Groups brands and regions is available at: Sustainability Reporting&ESG Performance NAVIGATION References to chapters in the Sustainability Report References to websites References to the Annual ReportFOCUS TOPICS1 DECARBONIZATION36 Decarbonization56 EU Taxonomy2 CIRCUL AR ECONOMY68 Circular Economy3 PEOPLE IN THE TR ANSFORM ATION75 People in the Transformation 4 DIVERSITY89 Diversity5 INTEGRITY94 Integrity 6 SUPPLY CHAIN AND HUMAN RIGHTS104 Supply Chain and Human Rights114 APPENDIX115 Independent Auditors Limited Assurance Report118 Contact Information2TABLE OF CONTENTSSUSTAINABILITY IN THEGROUPS DNASUSTAINABILITY AND ESG(ENVIRONMENTAL,SOCIAL,GOVERNANCE)ARE PART OF THE NEW AUTO GROUP STRATEGYESG PERFORMANCEESG PERFORMANCECIRCULAR ECONOMYDIVERSITYINTEGRITYPEOPLE IN THETRANSFORMATIONSUPPLY CHAIN ANDHUMAN RIGHTSDECARBONIZATION06|ESG,Decarbonization and IntegrityTECH PLATFORMSTECH PLATFORMSTECH INITIATIVESTECH INITIATIVESVOLUMEPREMIUMSPORT&LUXURYBASE INITIATIVESBASE INITIATIVESMECHATRONICSSOFTWAREBATTERY&CHARGINGMOBILITY SOLUTIONSAs we transition from automotive manufacturer to mobility group,we are resetting our priorities with the NEW AUTO Group strategy and positioning ourselves for the future.We are keeping our aim of being a world-leading provider of sustainable mobility firmly in our sights and making the Group more focused,efficient,innovative,customer-oriented and sustainable,as well as systematically gearing it toward profitable growth.The NEW AUTO Group strategy defines the six key focus issues shown above for the area of sustainability and ESG in Group initiative 6.This Sustainability Report including nonfinancial report is structured in accordance with these.In addition,the Sustainability in the Groups DNA chapter provides a definition of sustainability for the Group and an insight into topics such as risk management,environmental management,stakeholder management and corporate citizenship.The aim is to improve performance in the capital markets ESG ratings and rankings so as to increase the ability to invest and optimize the cost of capital.3FOCUS TOPICS2022 HIGHLIGHTS633,881 metric tons of CO saved through the Aluminum Closed Loop process since 2017.12.8 m training hours in the Volkswagen Group.94%of managers have taken part in the Diversity WinsVolkswagen program.The T4I program has been rolled outin 784 controlled companies to date.Development and implementation of a new management approach for responsible supply chains.Reconditioning a gearbox reduces CO emissions by 54%and reduces the primary energy requirement by 52%compared with the new part.Proportion of women in management worldwide and internationality of top management increased.1,517 inquiries were processed at the compliance information point.2,900 suppliers were trained on sustainability.CIRCULAR ECONOMYDIVERSITYINTEGRITYPEOPLE IN THESUPPLY CHAIN ANDTRANSFORMATIONHUMAN RIGHTSDECARBONIZATION 26Vs 572,100 all-electric vehicles delivered to customers worldwide.1.5 C as goalSBTi confirms tightened climate targets in production.Training costs in the Volkswagen Group:398.6 m1 Further information on the figures on this page,such as definitions and scope,can be found in the relevant chapters.Dear stakeholders and colleagues,Leaving a better world for future generations is,in our eyes,the greatest challenge of our times.Sustainability is not a fad.Its firmly embedded at Volkswagen as one of five principles of corporate governance.We think of sustainability holistically:Its about the environment including climate protection and about our social responsibility,the transformation of the workforce and the way we run our company.In the Group,we have set ourselves the long-term goal of becoming net carbon neutral by no later than 2050 this includes our supply chains,plants and business divisions and our customers use of the vehicles.The biggest contribution to reducing our emissions has been made by electric mobility.And its share in our sales is rising:In 2022,almost 7%of all the vehicles we delivered globally were all-electric.At 572,000 units,we sold a good 26%more e-cars in total than in the previous year.Our attractive e-models,including the Volkswagen ID.Buzz,the ID.5 and the Audi RS e-tron GT,have been impressing customers since their launch.For this year,were aiming for 11%of our sales to be electric vehicles,and we want to increase this to 20%by 2025.The Volkswagen Group is also the first automotive manufacturer to directly support the expansion of renewable energy on an industrial scale.The Group brands have already supported the construction of wind farms in Germany,Sweden and Finland in 2022.It is planned that all the projects together will generate around seven terawatt GRI 2-22Oliver Blume,Chairman of the Board of Management of VolkswagenAGDaniela Cavallo,Chairwoman of the General and Group Works Council of Volkswagen AGFOREWORDhours of additional green electricity by 2025.This should even better cover the electricity needs of the electric vehicles brought to market and mean a net carbon-neutral use phase can be achieved for the electric fleet.Its clear that Volkswagen is committed to the electric drive for decarbonization for cars,trucks and buses.Were delighted that the renowned Science Based Targets initiative last year honored our more stringent CO2 targets in production.By 2030,we want to reduce our passenger cars and light commercial vehicles production-related CO2 emissions by 50%instead of our previous target of 30%.The Science Based Targets initiative has confirmed to us that this means our Group meets the requirements for the 1.5 C goal for the production phase.In battery production too,were mindful of sustainability.We laid the foundation for our own first battery cell factory at the Salzgitter site in 2022.Five more factories in Europe will follow by the end of the decade in order to cover the rising demand for electric cars.Each factory will be run entirely on renewable energy and will be de-signed for future closed loop recycling with the aim of recycling as much material as possible and keeping our own raw materials loop as closed as possible.Our first battery cell manufacturing facility shows that the focus on e-mobility and software development is going to change work.Volkswagen wants to make this transition in an employee-friendly and socially acceptable way.5FOREWORD Table of Contents In 2022,we continued to anchor sustainability in our core business.We were able to use our social power at the start of the year when many people were experiencing immeasurable suffering as a result of Russias invasion of Ukraine.We provided help with donations of goods,financial support and the use of our vehicles.Were proud of our employees in Germany,who donated more than 2 million for emergency aid.The big Volkswagen family shows solidarity and holds together in times of crisis.Not only does the transformation to e-mobility underline the need to safeguard jobs,so do other challenges from the past year,includ-ing the aftereffects of the Covid-19 pandemic,the impact of the war in Ukraine,the supply-chain bottleneck and striking increases in the prices of raw materials and issues with their availability.This makes it all the more crucial that job security,which we consider one of the most important action areas for our Group,has been planned in advance until 2029.This gives us a decisive competitive edge compared with other companies looking for new employees.This security plays a major role for our future colleagues when they are choosing where to work and increases our attractiveness as an employer.The codetermination tools,which were set up at an early stage,offer new talent attractive future prospects and ensure a high level of internationalization in top management,because codetermination is an important factor here as well.Gender diversity is also taken for granted in codetermination at Volkswagen.We actively encourage an increase in the proportion of female managers and participate in the UN Global Compacts Target Gender Equality program.Our goal is gender equality at all levels of the Group.We are in communication with our suppliers around the world in order to achieve environmental and social improvements in supply chains.We want to act as a role model in the design of circular,cli-mate-neutral and fair supply chains.In order to identify particularly high risks in the chains,we introduced the human rights focus system in 2022.It identifies and addresses particularly high risks in the area of human rights and the environment.Our newly appointed human rights officer will independently monitor whether human rights due diligence requirements are being met.As part of the 10-point plan,which defines the Groups most im-portant action areas,we are going to anchor sustainability even more strongly in daily business in 2023.We are now going to go a step further and break down our ambitious ESG targets into brands and business divisions.Its about the brands and sites in the Group living up to their responsibility as a whole.In the end,there will be uniform ESG profiles for all brands.This is important because doing business sustainably is becoming increasingly important including for our investors.Sustainability is also firmly anchored in our strategy in 2023.We are going to continue to advance the key topics of decarbonization of transportation and production,the transformation of the work-force and our responsibility in supply chains.You are cordially invited to join us in this.Oliver Blume and Daniela Cavallo GRI 2-226FOREWORD Table of Contents ABOUT THIS REPORTREPORT STRUCTUREThis 2022 Group Sustainability Report is based on internationally established frameworks and requirements,such as the standards of the Global Reporting Initiative(GRI,see also following section),the German CSR Directive Implementation Act(CSR-Richtlinie-Umsetzungsgesetz CSR-RUG),ESG sustainability ratings and stake-holder expectations.The report is supplemented by a detailed de-scription of the sustainability activities of our brands and regions and of the Volkswagen Groups corporate citizenship projects.Further information,particularly information relevant to ESG in-vestors for example,on the brands and regions sustainability activities and also ESG KPIs is available on the Groups corporate website and is not part of this report.Sustainability in the Groups DNA Sustainability Management Sustainability in the Groups DNA ESG Performance Management and Materiality Analysis Sustainability Reporting&ESG Performancewww.volkswagen- COMMUNICATION Sustainability Reporting WEBSITE2022 Nonfnancial Statement2022 SUSTAINABILITY REPORTVOLKSWAGEN GROUP SUSTAINABILITY COMMUNICATIONincludingBASIS FOR REPORTFor reporting year 2022,Volkswagen AG is issuing a nonfinancial statement at Company level and a nonfinancial Group declaration,which are being published together as a combined separate non-financial report within the meaning of German Commercial Code(Handelsgesetzbuch HGB)sections 289b para.3 and 315b para.3.The nonfinancial report is drawn up in accordance with HGB section 315c,in conjunction with sections 289c through 289e.In line with the German CSR Directive Implementation Act(CSR-RUG),this non-financial report concentrates on the focus issues necessary for an understanding of the Volkswagen Groups business development,overall performance and position as well as the Volkswagen Groups impact on nonfinancial aspects.We are again reporting on our climate protection activities in line with the requirements of the Task Force on Climate-related Financial Disclosures(TCFD).Furthermore,the GRI Standards are used as the framework for drawing up the nonfinancial report.In this Sustainability Report,Volkswagen systematically uses the GRI Standards(with reference to)as the underlying structure for reporting on management ap-proaches and the specific standard disclosures.The GRI Content In-dex has been separated from the 2022 Sustainability Report and can be found as a separate document in the Group portal: Sustainability Reporting&ESG Performance Sustainability ReportAs a member of the United Nations Global Compact,we also contin-uously report how we are putting the Ten Principles into corporate practice.Our current progress report can be found on the UN Global Compacts website:United Nations Global CompactThe strategy chapter and the six following chapters on focus issues in the report each consist of a text section plus a consolidated KPI table at the end of each chapter.GRI 2-27ABOUT THIS REPORT Table of Contents References to disclosures outside the nonfinancial report are sup-plementary information and do not form part of this report.The following passages are also not part of the nonfinancial report:Foreword(pp.56)The German Corporate Governance Code A Blueprint for Successful Corporate Governance(p.12)Further Information and The Volkswagen Value Chain(p.13)Making the Social and Environmental Impact of Our Actions Measurable(p.19)The information in this report relates to the Volkswagen Group as a whole.Where information relates to individual Group divisions only,this is clearly indicated in the text.Unless indicated otherwise,any information provided for the Group also applies to Volkswagen AG.In addition to Volkswagen AG,the Group includes all major sub-sidiaries inside and outside Germany that are directly or indirectly controlled by Volkswagen AG.In the financial data,our joint ventures in China are reported using the equity accounting method.However,they are included in full(100%)in volume-related data(sales,production and workforce)and in production-related environmentally relevant data.The manage-ment approaches described in this report(e.g.,the environmental compliance management system ECMS and the compliance man-agement system for business and human rights CMS BHR)apply to all the Volkswagen Groups controlled companies.With our non-controlled companies i.e.,companies that are not controlled by a company of the Volkswagen Group as the majority owner we work to the extent feasible and permitted by law toward implementation of the adjusted management approaches.The Chinese joint ven-tures are included in the information on the Volkswagen Group in the KPIs and the associated targets on the topics of the UEP,the DCI,the Opinion Survey,the diversity index,training hours per employee,accident indices and accident figures.The risks of the Chinese market are recorded by Volkswagen(China)Investment Company Ltd.The KPIs presented in this report build on the indicators presented in previous years.Any material changes to the methods used to collect and measure the data on our sustainability performance are explicitly disclosed for the respective KPIs.All figures shown in the report are rounded,so minor discrepancies may arise from addition of these amounts.REPORT AUDITINGErnst&Young GmbH Wirtschaftsprfungsgesellschaft(EY)con-ducted a voluntary,limited assurance engagement in accordance with ISAE 3000(Revised)on the combined separate nonfinancial report prepared in accordance with HGB sections 289b para.3 and 315b para.3 to verify that its disclosures comply with the relevant statutory requirements.Further information on the engagement can be found in the independent practitioners report on a limited assurance engagement on the nonfinancial reporting.DISCLOSURES IN CONNECTION WITH THE ANNUAL FINANCIAL STATEMENTSConnections have been identified in this combined nonfinancial report to amounts reported in the 2022 annual or consolidated financial statements.In fiscal year 2022,the operating result in the Passenger Cars Business Area was affected by negative special items of 0.4billion in connection with the diesel issue.These special items were mainly attributable to additional expenses for legal risks.To hedge the currently known legal risks related to the diesel issue,the provisions for litigation and legal risks as of December 31,2022 include an amount of around 1.4 billion,based on existing infor-mation and current assessments.Insofar as these can be adequately measured at this stage,contingent liabilities relating to the diesel issue were disclosed in the notes to the consolidated financial state-ments in an aggregate amount of 4.2 billion,whereby 3.6 billion of this amount results from lawsuits filed by investors in Germany.The provisions recognized,the contingent liabilities disclosed,and the other latent legal risks in the context of the diesel issue are in part subject to substantial estimation risks given the complexity of the individual relevant factors,the ongoing coordination with the au-thorities,and the fact that the fact-finding efforts have not yet been concluded.Should these legal or estimation risks materialize,this could result in further substantial financial charges.In particular,adjustment of the provisions recognized in light of knowledge acquired or events occurring in the future cannot be ruled out.The remaining provisions relate to a wide range of identifiable indi-vidual risks,price risks and contingent liabilities,which are fac-tored in in the amount of their probable occurrence.Depending on the jurisdiction concerned,risk provisions for any non compliance with statutory emissions limits are also included.Their measure-ment takes into account,among other things,the respective sales volume and the legally defined fee or the cost of acquiring emission rights from other manufacturers.Advantage has been taken of synergies between individual brands of the VolkswagenGroup by establishing emission pools where possible.Additional information on this matter and the valuation assumptions and bases can be found in the Annual Report in the notes to the consolidated financial statements.GRI 2-2,2-4,2-58ABOUT THIS REPORT Table of Contents ADDITIONAL REPORTING WITHIN THE GROUPBy referencing this combined separate nonfinancial report,all Group companies that are required by national legislation to disclose nonfinancial and diversity-related information pursuant to Direc-tive 2014/95/EU but do not issue their own nonfinancial statement are exempted from the obligation to submit their own nonfinancial reports.TERMINOLOGY RELATING TO CLIMATE PROTECTIONThe use of the term CO2 emissions in this report includes the con-sideration and identification of additional climate-damaging green-house gases such as methane(CH)and laughing gas(N2O)(CO2 equivalents).All figures in this report on CO2 emissions correspond to CO2 equivalents,except for fleet emission figures.Net carbon neutrality is achieved when anthropogenic CO2 emissions are balanced worldwide through avoidance,reduction and offsetting over a specific period of time.With regard to climate protection,in addition to CO2 emissions Volkswagen also pays attention to all other relevant greenhouse gases.Avoidance and reduction have priority over offsetting for the Volkswagen Group.For offsetting measures,the Group follows internationally established standards.EDITORIAL NOTESWhenever this report uses the term Sustainability Report,this ex-pression includes the nonfinancial report each time it is mentioned to the extent described on page 8.REPORTING PRACTICESThe nonfinancial report is published annually.The last nonfinancial report was published on March 15,2022.In addition to information about the Groups sustainability activities in the 2022 fiscal year(January 1 to December 31,2022),this 2022 nonfinancial report also contains selected information from the 2023 fiscal year.ABOUT THIS REPORTThe editorial deadline was February 17,2023.The Group Sustain-ability Report is published in the first quarter of 2023 and is also available in the original German.In the event of any discrepancies,the German authoritative version of the document takes precedence over the English translation.LEGAL INFORMATIONThis sustainability report contains statements relating to the future business development of the Volkswagen Group.These statements are based on assumptions relating to the development of the eco-nomic,political and legal environment in individual countries,economic regions and markets,and in particular for the automotive industry,which we have made on the basis of the information avail-able to us and which we consider to be realistic as of the time of go-ing to press.The estimates given involve a degree of risk,and the actual developments may differ from those forecast.Any changes in significant parameters relating to our key sales markets,or any significant shifts in exchange rates,energy and other commodities or the supply of parts relevant to the Volkswagen Group,or devia-tions in the actual effects of the Covid-19 pandemic from the sce-nario presented in this report will have a corresponding effect on the development of our business.In addition,there may be depar-tures from our expected business development if the assessments of the factors influencing sustainable value enhancement,and of risks and opportunities,presented in this sustainability report develop in a way other than we expect at the time of publication,or if additional risks and opportunities or other factors that affect the development of our business emerge.GRI 2-39ABOUT THIS REPORT Table of Contents 10CORPORATE GOVERNANCEOUTLINE OF THE LEGAL STRUCTURE OF THE GROUPVolkswagen AG is the parent company of the Volkswagen Group.Itdevelops vehicles and components for passenger cars and light commercial vehicles for the Volkswagen Passenger Cars and Volkswagen Commercial Vehicles brands.In its capacity as parent company,Volkswagen AG holds direct or indirect interests in AUDI AG,SEAT S.A.,KODA AUTO a.s.,Dr.Ing.h.c.F.Porsche AG(Porsche AG),TRATON SE,Volkswagen Financial Services AG,Volkswagen Bank GmbH and a large number of other companies in Germany and abroad.More detailed disclosures are contained in the list of shareholdings in accordance with sections 285 and 313 of the German Commercial Code(Handelsgesetzbuch HGB),which can be accessed on the website and is part of the annual financial statements.GRI 2-1,2-6VOLKSWAGEN AG SHAREHOLDER STRUCTUREas of December 31,2022,in%of voting capitalEMPLOYEES BY MARKETas of December 31,2022,in%State of Lower Saxony 11.8Qatar Holding LLC 10.5German institutional investors 2.6Porsche Automobil Holding SE 31.9Foreign institutional investors 22.2Private shareholders/others 21.0Asia-Pacifc 16North America 6South America 5Europe(excluding Germany)/other markets30Germany43The Volkswagen Group is one of the leading multi-brand groups in the automotive industry.The Groups business activities comprise the Automotive and Financial Services divisions.Our core brands within the Automotive Division with the exception of the Volkswagen Passenger Cars and Volkswagen Commercial Vehicles brands are independent legal entities.The Automotive Division comprises the Passenger Cars,Commercial Vehicles and Power Engineering business areas.The Passenger Cars Business Area essentially consolidates the Volkswagen Groups passenger car brands and the Volkswagen Commercial Vehicles brand.Activities focus on the development of vehicles,engines and vehicle software,the production and sale of passenger cars and light commercial vehicles,and the genuine parts business.The product portfolio extends from small cars through to luxury vehicles in the premium segment.It also includes motor-cycles and is supplemented by mobility solutions.The Commercial Vehicles Business Area primarily comprises the development,produc-tion and sale of trucks and buses,the corresponding genuine parts business and related services.The commercial vehicles portfolio ranges from light vans to heavy trucks and buses.The collaboration between the commercial vehicle brands is coordinated within TRATONSE.The Power Engineering Business Area combines the large-bore diesel engines,turbomachinery and propulsion components businesses.The Financial Services Divisions activities comprise dealer and customer financing,vehicle leasing,direct banking and insur-ance activities,fleet management and mobility services.With its Investor RelationsVolkswagenAG is a vertically integrated energy supply company as defined by section 3 no.38 of the German Energy Industry Act(Energiewirtschaftsgesetz EnWG)and is therefore subject to the provisions of the EnWG.In the electricity sector,VolkswagenAG generates,sells and distributes electricity together with Group subsidiaries.The Volkswagen AG Board of Management has sole responsibility for managing the Company.The Supervisory Board appoints,monitors and advises the Board of Management and is directly consulted on decisions of fundamental significance for the Company.brands,the Volkswagen Group is present in all relevant markets around the world.The key sales markets currently include the Western Europe region and China,the USA,Brazil,Poland,Mexico,Trkiye and the Czech Republic.VolkswagenAG and the Volkswagen Group are managed by the VolkswagenAG Board of Management in accordance with the VolkswagenAG Articles of Association and the rules of procedure for VolkswagenAGs Board of Management issued by the Supervisory Board.Accordingly,responsibilities were divided among 11 board-level management functions starting from January1,2022.In addition to the Chair of the Board of Management,which also includes the Volume brand group,the other Board positions are Purchasing,Technology,Finance,Human Resources and Truck&Bus,Integrity and Legal Affairs,Premium,Sport&Luxury,IT,China,and Volkswagen Passenger Cars.A new Group Sales function was created with effect from February1,2022.As of September1,2022,the Volkswagen Group refined its Group management.The Board of Management was streamlined,and responsibilities were reallocated:The Purchasing and Group Sales Board functions were dissolved.In addition,the Volkswagen Passenger Cars function was renamed Volume.Since then,responsibilities have been divided between ten board-level management functions.In addition to the Chair of the Board of Management,the other Board positions are Technology,Finance,Human Resources and Truck&Bus,Integrity and Legal Affairs,11SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsVolume,Premium,Sport&Luxury,IT,and China.The Chair of the Board of Management is also responsible for Sport&Luxury.Directly connected to the Board are a number of Group Management functions that act as an extension to the board-level management functions.These comprise the Group Sales,Group Production,Procurement and Technical Architecture functions.The allocation of responsibilities of the Board of Management is based on the schedule of responsibilities decided by the Supervisory Board,which takes into account the changes in the management during the reporting period.Its structure contributes to enabling the Board of Management to focus on key tasks such as strategy,central decisions on the Companys direction,capital allocation and finan-cial requirements.The tasks of the extended Group management serve to leverage synergies in the Group and to connect the brands and divisions.In addition,at Group level,Board of Management committees address key strategic issues relating to products,technologies,in-vestments,digital transformation,integrity and compliance,risk management,human resources and management issues.We are continually revising and optimizing the committees in order to verify that they still align with our corporate strategy and to further increase the efficiency of their decision-making.This is intended to reduce complexity and reinforce governance within the Group.The matrix of brand groups and technology platforms created under the Group Steering Model base initiative from the Group strategy NEW AUTO was enhanced in both dimensions during the reporting period.This involved both strengthening the brand groups and creat-ing new units for key technology areas of the future within our strate-gic technology platforms.The Group steering model will be further refined in the future on this basis.The Volume brand group comprises the Volkswagen Passenger Cars,KODA,SEAT/CUPRA and Volkswagen Commercial Vehicles brands.The Premium brand group comprises the Audi,Lamborghini,Bentley and Ducati brands.The Sport&Luxury brand group consists of the Porsche brand.The company responsible for this brand,Porsche AG,has been listed on the stock market since the end of September 2022.In the Truck&Bus brand group,TRATONSE acts as the umbrella for the Scania,MAN,Volkswagen Truck&Bus and Navistar commercial vehicles brands.TRATON SE is also a listed company.As well as strengthening the brand groups,the reorganization and creation of new units enabled substantial progress with the Software,Battery&Charging and Mobility Solutions technology platforms in the reporting period.The software subsidiary CARIAD was further ex-panded,getting a subsidiary of its own in China,among other things.In addition to this,Volkswagen founded PowerCoSE in the reporting period as part of the Battery&Charging technology platform.This company is responsible for the Groups global battery business.In addition to producing battery cells,it will also take on other activi-ties along the battery value chain in the future.In the Mobility Solutions technology platform,Volkswagen strengthened the Groups expertise in advanced fleet management through the equity investment in the Europcar Mobility Group in the reporting period.The aim is to be able to achieve even better coverage of all customers mobility needs based on a new mobility platform.We are convinced that our corporate structure,which efficiently connects the brand groups and technology platforms,will enable us to make better use of existing expertise and economies of scale,leverage synergies more systematically and accelerate decision-making.Clear responsibilities and a high degree of business respon-sibility in the brand groups and technology platforms will enable comprehensive implementation of the Groups NEW AUTO strategy.LEGAL FACTORS INFLUENCING BUSINESSLike other international companies,the business of the Volkswagen companies is affected by numerous laws in Germany and abroad.In particular,there are legal requirements relating to services,de-velopment,products,production and distribution,as well as super-visory,data protection,financial,company,commercial,capital market,antitrust and tax regulations and regulations relating to labor,banking,state aid,energy,environmental and insurance law.THE GERMAN CORPORATE GOVERNANCE CODE A BLUEPRINT FOR SUCCESSFUL CORPORATE GOVERNANCECorporate governance provides the regulatory framework for corpo-rate management and supervision.This includes a companys orga-nization and values and the principles and guidelines for its business policy.The German Corporate Governance Code(the Code)contains principles,recommendations and suggestions for corporate man-agement and supervision.Its principles,recommendations and sug-gestions were prepared by a dedicated government commission on the basis of the material provisions and nationally and internation-ally accepted standards of sound,responsible corporate governance.In the interests of best practice,the government commission regu-larly reviews the Codes relevance in light of current developments and updates it as necessary.The Board of Management and the Supervisory Board of Volkswagen AG base their work on the Codes principles,recommendations and suggestions.We consider good corporate governance to be a key prerequisite for achieving a lasting increase in the Companys value.It helps strengthen the trust of ourshareholders,customers,employees,business partners and in-vestors in our work and enables us to meet the steadily increasing demand for information from national and international stake-holders.You can find our published Declaration of Conformity with the German Corporate Governance Code here: Investor Relations Corporate Governance Declarations12SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsFURTHER INFORMATION Explanations of the composition,working methods and diversity concept of the Board of Management and the Supervisory Board and information on voting rights are available in the Corporate Governance chapter in the 2022 Annual Report.2022 Annual Report Corporate GovernanceExtensive explanations of the remuneration system and the indi-vidual remuneration of the members of the Board of Management and Supervisory Board can be found in the Remuneration Report for fiscal year 2022,which forms part of the 2022 Annual Report,in the notes to Volkswagens 2022 consolidated financial statements and in the notes to the 2022 annual financial statements of Volkswagen AG Investor Relations Corporate Governance RemunerationTHE VOLKSWAGEN VALUE CHAINRESEARCH&DEVELOPMENTThe Automotive Divisions research and development costs in the reporting year totaled 18.9 billion and were thus 21.3%higher than in the previous year.In addition to new models,our activities focused above all on the electrification of our vehicle portfolio,digitalization,new technologies and enhancements of our modular and all-electric toolkits and platforms.PROCUREMENTEvery year,the Volkswagen Group purchases a wide range of raw materials,components and other goods.A sustainable supply chain and environmentally compatible transportation are important for fully assuming responsibility for human rights,environmental protection and the battle against corruption.PRODUCTIONThe Volkswagen Group manufactured an average of around 24,000vehicles globally every working day in 2022.Efficient production ranks alongside environmental protection and employee health and safety as one of our core goals.MARKETING&SALESBusiness relationships with fleet customers are often long-term and stable partnerships.The Volkswagen Groups share of commercial fleet customers is 43.5%in Germany and 25.7%in the rest of Europe.AFTER-SALES&FINANCIAL SERVICESOur service includes supporting dealerships to ensure they can provide quality advice and maintenance,managing our original parts business,and providing vehicle-related financial services.RECYCLINGIn addition to recycling vehicles at the end of their useful life,we pay close attention during the new-vehicle development stage to the recyclability of the required materials,the use of high-quality recycled materials,and the avoidance of pollutants.The Volkswagen AG Group Board of Management has adopted an update of the tax strategy principles,which has been published on Volkswagen AGs website.Each year,Volkswagen AG sends the German Federal Central Tax Office a country-by-country report,which includes information on tax payments and tax expenses/income by country.The Volkswagen Group has the ambition of implementing its marketing and communication activities transparently and respon-sibly.This includes attentiveness towards our environment and re-quires us to treat all individuals with respect and honesty and as equals.This applies internally and externally,online and off.To this end,the Group has developed principles that serve as a com-pass for implementing the Volkswagen Groups values with regard to marketing and communication Sustainability Strategy,Policy&Engagement Policy GRI 2-613SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsNEW AUTO GROUP STRATEGYIn the context of the fast-changing environment and the challenges resulting from it,the Group Board of Management adopted the Group strategy“NEW AUTO”Mobility for Generations to Come in May 2021 with the approval of the Supervisory Board.The strategys focus is the world of mobility in 2030.As technology advances,the automotive industry is rapidly forging ahead with its transformation toward e-mobility and digitalization.We therefore expect the market for electric vehicles to grow strongly in the next few years,meaning that cost-efficient and sustainable production of battery systems and the expansion of charging infrastructure will be crucial to suc-cess.The shift to connected,intelligent and eventually self-driving vehicles,however,will bring more wide-reaching changes for the automotive industry.Autonomous driving will change the customers mobility experience forever and lay the ground for new business models.Sources of revenue will gradually shift and will expand be-yond the core product of the automobile.This shift will be depen-dent on increasing software development capabilities so as to excite customers with constantly improving digital functionality.As with technological trends,global economic as well as geopolitical con-straints are increasingly confronting the automobile industry with greater challenges for example,the economic influence wielded by the biggest mobility markets,China,the USA and Europe,and the way they are diverging.Sustainability will continue to be a recurring theme in the business world and will gain further pertinence,driven by the increasingly noticeable consequences of climate change,a greater consciousness of sustainable lifestyles on the part of the customer and,not least,un-derlying factors such as the Paris Climate Agreement.As we transi-tion from automotive manufacturer to mobility group,we are reset-ting our priorities with NEW AUTO and positioning ourselves for the future.We are keeping our aim of being a world-leading provider of sustainable mobility firmly in our sights and making the Group more focused,efficient,innovative,customer-oriented and sustain-able,as well as systematically gearing it toward profitable growth.THE 12 INITIATIVES OF THE NEW AUTO STRATEGYMECHATRONICS06|ESG,Decarbonization and Integrity12|Financing the Transformation07|Business Model 2.008|NAR Region09|China Region10|Group Steering Model11|People&TransformationSOFTWAREBATTERY&CHARGINGMOBILITY SOLUTIONS01|Backbone and Scalable Systems Platform(SSP)02|CARIAD:One E3 Platform and Autonomous Driving Stack03|Cell and Battery Strategy 04|Charging and Energy Services05|Mobility SolutionsTECH INITIATIVESTECH INITIATIVESVOLUMEPREMIUMSPORT&LUXURYBASE INITIATIVESBASE INITIATIVESTECH PLATFORMSTECH PLATFORMS14SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsTo this end,we have established 12 Group initiatives across the brand groups.We will use these to develop the competences needed to implement the strategy.The focus is on the main multidisciplinary topics of mechatronics,software,battery&charging,and mobility solutions,on which the five tech initiatives described below are based.A further seven base initiatives form the basis for the Volkswagen Groups strategic realignment.These are ESG,Decarbonization&Integrity,Business Model 2.0,North America(NAR)and China Re-gions,Group Steering Model,People&Transformation and Financ-ing the Transformation.To make the progress in the relevant Group initiatives of our strategy as transparent as possible for management and employees,the Group Board of Management decided to structure and regularly measure the strategic goals and milestones using the OKR(objectives and key results)method.Achievable strategic objectives and envis-aged key results are defined for each Group initiative.These are to be realized largely through time-limited projects and work packages,each of which is measured by specific key performance indicators.The degree of achievement is discussed three times a year with the Board of Management.The relevance of the initiatives,and their objec-tives,milestones,projects and work packages,are regularly reviewed at Group level.Their focus is continuously monitored and adjusted as necessary or integrated into standard operations.Mechatronics Backbone and Scalable Systems PlatformA future-oriented mechatronics platform will form the backbone for innovations,technology and lasting competitiveness at Volkswagen.With the Scalable Systems Platform(SSP),we are creating the next generation of an all-electric,fully digital and highly scalable mecha-tronics platform on the basis of a standardized software architec-ture.With this standardized platform,which can be scaled from the smallest vehicles all the way up to the premium segment,the Volkswagen Group aims to rapidly and efficiently provide its cus-tomers with innovative functions and technologies in their vehicles,across all brands.By reducing complexity and the number of versions,the SSP will offer us maximum synergy effects and make fast,regular technology updates possible,while lowering invest-ment costs and ensuring the necessary differentiation between the products of the individual brands in the Groups portfolio.Software CARIAD:ONE E Platform and Autonomous Driving(AD)Stack The purpose of the Groups own software and technology company CARIAD is to create the technical basis for data-based business models,new mobility services and automated driving(Level 4)and to leverage cross-brand synergies.Our aim is to increase the proportion of software in the vehicle that is developed in house.CARIAD is already working with the Porsche and Audi brands to introduce the new E 1.2 platform,which optimizes the harmonization of the hardware with the vehicle software from CARIAD.This facilitates the deployment of over-the-air updates and is a key lever for intro-ducing new services even after vehicle production has begun.In the long term,the standardized E 2.0 software architecture that is al-ready being developed,together with the VW.OS software platform and the Volkswagen Automotive Cloud,will form the basis of a complete digital ecosystem,offering customers a wide range of soft-ware-based services throughout the product life cycle.The aim is for every function that is needed or requested and every service to be customized for the users in the various markets and to be avail-able for download at any time.This will also open up new sources of revenue for us.Automated driving applications at various levels(up to level 4)are to be gradually introduced to the new vehicle models in the Group brands.Battery&Charging Cell and Battery StrategyThe battery is a key component in an electric vehicle and an im-portant cost factor.The appeal and market success of e-mobility is determined not only by the price,but also by the range and the charging speed.We must become a profit-generating expert across the entire battery life cycle to achieve our objective of transforming into a world-leading provider of sustainable mobility.To this end,theCell and Battery Strategy tech initiative pools expertise across the Group and is driving the transformation process in cooperation with our strategic partners.The aspects covered include battery management,cell production and recycling.Our aim is to develop battery cell technology into a core competence in the Group,and we are also working with partners to achieve this.At the heart of this strategy is the new unified cell,which can contain different chem-istries and will be used in up to 80%of Group models by 2030.The excellent economies of scale this generates will reduce costs by up to 50%and put us in a leading cost position.To cover the high de-mand for battery cells,Volkswagen plans to build six gigafactories in Europe alone,with a production capacity totaling 240GWh.Battery&Charging Charging and Energy ServicesCharging,energy and a sustainable energy supply infrastructure for all-electric vehicles are key prerequisites for accelerating the transition to battery-electric mobility of the future.It is therefore our intention to also become a comprehensive charging and energy services provider in the future,and we are investing heavily in building an open fast-charging network worldwide.By 2025,we and our partners plan to create around 45,000 high-power charging points in Europe,China and the USA.The product portfolio also in-cludes the full range of charging solutions for private customers and companies.In addition to the Groups own wall box and the flexible fast-charging station,contract-based charging services and smart green electricity tariffs in particular are becoming the focus.Charging processes will then systematically use renewable energy and reduce pressure on power grids.In a next step,Volkswagen intends to develop the electric vehicle as a mobile power bank,thus helping electric vehicles to become an active part of the energy system in the future as storage devices.In this way,Volkswagen wants to enable its customers to participate in one of the leading smart-charging and energy ecosystems for decarbonized mobility.15SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsMobility SolutionsWith the motto,“Mobility for Generations to Come,”the Volkswagen Group is developing mobility solutions of the future,taking into account global trends and changing customer needs.The Group plans to bring together all of its brands mobility services on one mobility platform over the coming years.Autonomous driving com-bined with new mobility solutions is expected to mark Volkswagens transformation into a leading provider of sustainable mobility.A vehicle fleet covering all of the many services,from vehicle rental to car subscription and ride pooling,will ensure high availability,usage and profitability.With these solutions,we plan to gain market shares and generate long-term competitive and attractive margins.ESG,Decarbonization and IntegrityESG(Environmental,Social,Governance)refers to the basic principles of doing business sustainably.The Groups stakeholders(e.g.,inves-tors,employees,customers and non-profit organizations)have high expectations of the Companys ESG performance,including in areas such as decarbonization and integrity,and also of its conduct as an employer and as part of society.The Groups ESG performance there-fore directly affects its market capitalization,cost of capital and investing activities.We aim for a top position relative to our com-petitors in sustainability ratings.We are committed to the Paris Climate Agreement and align our own activities with the 1.5 C goal.We aim to achieve net carbon neutrality by 2050.By 2030,we have also set ourselves the target of reducing CO2 emissions from passenger cars and light commercial vehicles over the total life cycle by 30%compared with 2018.As part of this effort,we are look-ing for ways to increase the proportion of recyclable materials in our SSP-based vehicles.We also wish to become the benchmark for ethical corporate conduct.Volkswagen sees itself as an equal op-portunities employer.The intention is therefore for at least a fifth of Company management positions to be held by women by 2025,and for at least a quarter to be held by international managers.Business Model 2.0The Business Model 2.0 base initiative is developing a Group-wide portfolio of services,the purpose of which is to create a seamless and innovative product experience to connect brands,customers,dealerships,our partners and whole markets.The aim is for the key technologies needed for this to be integrated into a majority of theplatform-based vehicles by 2030.Using connected vehicles,the Groups brands are to be able in the future to remain in contact with their customers throughout the entire vehicle life cycle and thus to offer them services and functions for their individual needs.This will allow us to build a competitive,data-driven service portfolio that also maintains our leading position in the automotive market in future.North America(NAR)regionFor the Volkswagen Group,North America,and particularly the United States,is the region with the greatest growth potential,espe-cially where e-mobility is concerned.We intend North America to become our third core region alongside Europe and China by 2030.Our aim there is to achieve a total market share for the Volkswagen Group of 10%.We aspire to expand our presence in the region with strong brands and prepare ourselves for the future with market-specific products.We also wish to participate to a disproportionately high extent in the growth of the increasingly electrified markets in the USA and Canada.We will therefore substantially expand our range of all-electric models across the Group and develop models specifically for these markets.The proportion of battery-electric vehicles in our sales in the USA and Canada is to increase to 55%by 2030.In addi-tion,we wish to maximize the potential for synergies in the region and build significantly more expertise,industrial capacity and vertical value chains in the North America region.China RegionChina is of major strategic significance to the Volkswagen Group as its largest single market,and we expect it to continue growing in the future.This strategic base initiative therefore brings together all of the key measures needed to continue the success story of Volkswagen in China.These include a comprehensive program of measures with a focus on cost,long-term technological competitiveness,localized development activities that are tailored to the market,and the further consolidation of our existing partnerships.Our aim is to achieve high market shares in the electric vehicle segment and establish ourselves as a leading provider.For vehicles with combustion engines,our aim is to maintain our share of the market,as these will also make a contribution to profit in the future if unit sales remain high.We are therefore continuing to accelerate our Group-wide localiza-tion strategy in China so as to offer our Chinese customers tailor-made products,and we are using not only global platform technol-ogies(hardware and software),but are increasingly employing platform technologies that have been developed locally.In this way,we wish to stand our ground in the face of constantly growing competition in the new intelligent connected vehicle(ICV)segment.Group Steering ModelTo achieve the objectives of the Group strategy and thereby safe-guard the Volkswagen Groups long-term success,we are under-taking far-reaching optimization of our Group steering model.It is essential that we establish a consistently high level of mechanisms that facilitate swift decision-making,the development and use of 16SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human Rightsplatform technologies and the exploitation of synergies,and that we constantly enhance these.The updated Group Steering Model places the brand groups and technology platforms center stage in order to scale the latter across the entire Group product portfolio,taking account of synergies.A new strategy and product planning process that has been optimized for efficiency is being developed on the basis of this approach.The package of measures for this initiative hones the definition of roles and responsibilities in the Group and improves transparency in this respect both inside and outside the Company.It also promotes the entrepreneurship of the independent units and brands and at the same time strengthens collaboration across the Group.People&TransformationAs it becomes a global tech company,the Volkswagen Group will see the biggest transformation of its workforce in its corporate history.To ensure the Group remains competitive in the future,we need to attract top talent and support existing employees by providing ex-tensive training where required.Our aim is to retain staff for the long term.It is therefore fundamental that we address the changing needs of our employees and offer them an outstanding employee experience.To achieve our Groups ambitious objectives,we must also create and promote an environment for productive teams,re-sulting in a strong,sustainable and socially responsible corporate culture that fosters a sense of belonging and loyalty to the Company.A further focus is on aligning the Company with society and the environment.Financing the TransformationThe transformation being driven by digitalization and electrifica-tion will require extensive investment.To meet this need for fi-nancing,the Financing the Transformation base initiative aims to leverage even more Group-wide synergies across all functional areas along the value chain,focusing on costs and efficiency.The Group has therefore set itself the objective of lasting improvements to its fixed-cost structure,plant productivity,procurement,distri-bution expenses and working capital management.2015 2025 targetOperating return on sales6.0%8 to 9%Research and development ratio(R&D ratio)in the Automotive Division7.4%6%Ratio of capex to sales revenue in the Automotive Division6.9%5%Net cash flow in the Auto-motive Division8,887million 10billion Payout rationegative 30%Net liquidity in the Automo-tive Division24,522million 11.5%of Group sales revenueReturn on investment(ROI)in the Automotive Division0.2%1 The content of the strategic financial KPI is currently being revised.2 2015 before special items.STRATEGIC KEY FINANCIAL PERFORMANCE INDICATORS:17SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsESG PERFORMANCE MANAGEMENT AND MATERIALITY ANALYSISMATERIALITY ANALYSIS LINKED WITH GROUP STRATEGY AND ESG PERFORMANCEThe materiality analysis is used to identify and evaluate the most important sustainability issues for the Group.Based on the business model and its impact on society,the focus is on key ESG requirements,stakeholder expectations,and compliance with legal requirements and internationally established reporting standards.The Group conducted another materiality analysis in the reporting period.In reviewing a large number of potentially material issues,we considered both external and internal company perspectives.For the external side,80 topic clusters were derived from 700 topics and weighted along 330 criteria.This was based on:Results of dialog processes with the Sustainability Council and the Stakeholder Panel Reputation surveys Requirements of relevant international and national frameworks such as the EU Taxonomy,the German Commercial Code (Handelsgesetzbuch HGB),the UN Global Compact,the Sustain-ability Accounting Standards Board(SASB),the Global Reporting Initiative(GRI)or the Sustainable Development Goals(SDGs)Key ESG ratings KI-supported trend analyses and management studiesFor the internal dimension,we primarily took account of all Group policies on sustainability management,materiality analyses of the Group brands and country-specific risk analyses of Volkswagen Group production sites.The focus issues prioritized for the NEW AUTO Group strategy were confirmed with this years materiality analysis and classified as material by the Group Sustainability Steering Committee.The five nonfinancial matters arising from the German CSR Directive Implementation Act(CSR-Richtlinie-Umsetzungsgesetz CSR-RUG)are covered by the six focus issues.In addition,these six focus areas,in turn,cover a significant part of the assessment criteria of ESG ratings:Decarbonization Circular economy People in the transformation Diversity Integrity Supply chain and human rightsEach focus issue is to the extent currently possible linked with clear targets and milestones and with KPIs and packages of measures.ESG-related KPIs such as the decarbonization index(DCI)and the diversity index are already reflected in the remuneration of members of the Board of Management.Corporate GovernanceThe topics classified as material also provide the foundation for the structure of this sustainability report and serve as the basis for managing the Volkswagen Groups sustainability program.ACTION PROGRAM FOR OPTIMIZED ESG PERFORMANCEThe NEW AUTO Group strategy focuses not only on technological and product-related initiatives but also on improving the Groups ESG performance.This is because this directly and indirectly im-pacts Volkswagens market capitalization,costs of capital and at-tractiveness to investors.This is partly due to increasing density of regulations on sustainability as a result of frameworks such as the EU Taxonomy or regulations on the responsible shaping of supply chains.Moreover,capital market players such as institutional in-vestors not only expect transparency on the Groups sustainability performance but also an effectively implemented strategy that leads to continuous improvement in sustainability performance.A significant share of globally managed assets is already oriented toward ESG criteria.In the past reporting year,we significantly expanded our action program that targets improvement of our results in ESG ratings by 2025.It consists of four pillars:1.ESG performance management:We are closing existing gaps inESG performance and creating additional transparency by dis-closing our measures and key performance indicators.2.ESG engagement:We are intensifying our communication on ESG and sustainability in the capital market by communicating our messages and results in roadshows,investor conferences and other formats.In this way,we explain our current performance and at the same time benefit from the learning effects and knowledge transfer that this dialog makes Investor Relations Financial Calendar GRI 3-1,3-218SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human Rights3.Management of controversies:We aim to reduce the negative impact of legal or media controversies regarding the Volkswagen Group on our rating results.We have developed a controversy management process for this,where a controversy forum was established that identifies existing and possible controversies and derives measures to be taken.Our own web-based information on existing ESG controversies around Volkswagen makes an additional contribution to clarification and Investor Relations Corporate Governance ESG Controversies4.Internal ESG data infrastructure:We are working on establishing comprehensive ESG data reporting tools for better data-supported infrastructure and will create comprehensive and custom ESG information offerings for relevant stakeholders in the future.Compared with prior years,the Groups score in the ESG rating from Sustainalytics substantially improved from 29.6 to 26.1.In fiscal year 2022,Volkswagen continued to have a score of A in the CDP climate rating and had an A rating in the Water Disclosure Project(WDP).MAKING THE SOCIAL AND ENVIRONMENTAL IMPACT OF OUR ACTIONS MEASURABLEThe Volkswagen Group wants to measure the impact of its actions even more comprehensively in quantitative terms in the future and,if possible and reasonable,to monetize this.This involves assessing positive and negative effects on,among other things,the environ-mental and social systems for the purpose of the inside-out per-spective.This impact relates to the Groups entire business,includ-ing its supply chain and its products and services.This means we are not only taking on board impetus from regulatory developments as it emanates from the EU CSR Directive or the EU Green Bond Standard,but also impetus from international initiatives and organi-zations such as the Organisation for Economic Co-operation and Development(OECD)and the World Business Council for Sustainable Development(WBCSD).At the same time,like other global companies,we are endeavoring to make even greater use of an impact assess-ment in our decision-making and management processes,risk management,reporting and communication with our stakeholders.Impact assessments already represent tried and tested tools at Volkswagen,particularly for the assessment of mobility concepts.Here,new options are continuously investigated for their sustain-ability impact and readjusted as necessary.Sustainability Impact of New Mobility OptionsWe are currently developing a Group-wide concept for measuring impact with the name of“Impact ValuationVolkswagen Group.”The concept is based on the successful implementation of two pilot projects at site and brand level.In order to advance the topic of impact measurement and develop comparable concepts,the Volkswagen Group is a member of the Value Balancing Alliance(VBA)together with the Porsche brand.This initiative champions the development of uniform assessment standards for impact measurement and the financial balancing of sustainability impacts on an international level across sectors.In ad-dition to the Volkswagen Group,the VBAs members include numer-ous global companies,such as Bosch,BASF,BMW,Michelin and SAP.2020 2021 2022CCC B B41.7(severe risk)29.6(medium risk)26.1(medium risk)C C C ESG rating scales MSCI:CCCAAA;Sustainalytics:1000;ISS:D A 19SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsSUSTAINABILITY MANAGEMENTSTRUCTURE AND TASKS OF THE SUSTAINABILITY ORGANIZATIONSustainability means maintaining intact environmental,social and economic systems with long-term viability at global,regional and local level.The Volkswagen Group can influence these systems in various ways and actively takes responsibility to make a contri-bution to preserving their sustainability.An extensive sustainability management system was set up for this purpose.The related structures,processes and responsibilities are codified in a specific Group policy.We view sustainability management as a continu-ous improvement process.The Chairman of the Board of Management of Volkswagen AG has cross-functional overall responsibility for sustainability.Additional responsibility is taken by members of the Board of Management with their responsibility for specific management systems relating to sustainability and by the Group Steering Committee for Sustain-ability.The members of this steering committee include managers from central Board of Management business areas and Group func-tions,representatives of the brands and the Group Works Council.The steering committee defines concrete strategic targets and pro-grams,sets out measures for uniform cross-business-area,cross-brand and cross-regional development of sustainability manage-ment and makes decisions on sustainability-related basic issues and positions in the Volkswagen Group.In addition,topic-specific questions on sustainability are addressed in Group initiative 6 of the NEW AUTO Group strategy.Board of Manage-ment levelManagement of cross-functional topicsManagement of function-specific topicsGroup function sustainability managersDiscussion of core sustainability processesDiscussion of function-specific topicsGroup levelBrand levelRegion levelSustainability Councilcommunica-tion/adviceOrganizational structureStructure of bodiesBoard of Manage-mentK-VSChairman of the Board of Manage-ment(CEO)Members of the Board of ManagementGroupfunctionsGroup SustainabilityGroup strategy and Office of the Corporate SecretaryGroup pro-ductionGroup HRBrand functionsPro-ductionHRBrand Sustainability Manager(Audi,Porsche.)GSC for SustainabilityBrand BMBrand bodyTop body of GroupRegion/siteK-VS=Group Board of Management meetingGSC=Group Steering CommitteeBrand BM=Brand board of management meetingSUSTAINABILITY EMBEDDED IN THE VOLKSWAGEN GROUPGRI 2-9,2-12,2-1420SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsThe Groups sustainability function(Group Sustainability)coordi-nates all sustainability-related activities and the Group-wide and cross-functional network for sustainability.Communication with Group functions,brands and companies is structured via defined core processes.They serve to create transparency on external re-quirements and translate these into corporate action.The core pro-cesses include the sustainability strategy and materiality analysis,stakeholder management,ESG ratings and rankings,sustainability policies and sustainability reporting.Group Sustainability is allo-cated to Group strategy and the Office of the Corporate Secretary in order to ensure that sustainability is closely linked with the strategic corporate goals and the core business.It is also responsible for the office of the Group Steering Committee for Sustainability.In addition to the Group Steering Committee for Sustainability,regular discussions within the Group-wide sustainability network take place through various formats.One example of this is the Group Sustainability Summit.In 2022,this was held in Berlin,and its focus areas were ESG,mobility of the future,community en-gagement and business models.The participants included manag-ers from the Group and from the brands and regions.The Sustain-ability Manager Core Team is another central communication platform,where representatives from the Group and the brands regularly address current sustainability issues.In addition,there are specific steering models for individual topics,such as ESG performance management.At brand level,the brand sustainability managers carry out the cross-functional coordination of sustainability topics,develop the sustainability strategy,are responsible for content and reporting on sustainability topics within the brand,represent the brand on sustainability topics externally and coordinate with Group Sustainability.THE SUSTAINABILITY COMMITTEE AS AN INDEPENDENT DRIVING FORCE AND PARTNERAt Group level,the Sustainability Council has a prominent position.The advisory committee created in 2016 supports the Volkswagen Group with important strategic sustainability topics and is made up of internationally renowned experts from the academic world,politics and society.The Council establishes its own working meth-ods and areas of focus independently,has extensive rights for the purposes of exchanging information,consultation and initiating action,and consults regularly with the Board of Management,top management and the employee representatives.In 2022,the dialog between the Group and the Sustainability Council focused on comprehensively enshrining sustainability topics in the NEW AUTO Group strategy,the future alignment of mobility solu-tions in this strategy and the impact of the war in Ukraine on the Volkswagen Group.In addition,in connection with various projects the Council dealt with the following topics,among others:Dealing with the German Supply Chain Due Diligence Act(Lieferketten-sorgfaltspflichtengesetz LkSG),digital technologies as enablers for sustainability,the Zero Impact Factory concept,workforce trans-formation,training staff and decarbonization of the Group.Further information on the letters of recommendation to the Group Board of Management and the results of the Council projects are provided on the Sustainability Council web Sustainability Strategy,Policy&Engagement Engagement Sustainability CouncilUN GLOBAL COMPACTSince 2021,after a five-year hiatus,the Volkswagen Group has offi-cially been reinstated as a participant of the UN Global Compact,the worlds largest corporate sustainability initiative,and participates in national and international initiatives.AUDI AG has also been reinstated as a participant in the UN Global Compact.Porsche AG and Traton SE have been new participants of the UN Global Compact since 2022.In addition,the brands MAN Truck&Bus and Scania are also signatories of the UN Global Compact.For investors and asset managers in the capital market,membership of the UN Global Compact is an important criterion for investability in Volkswagen AG shares and bonds.Sustainability-oriented funds have grown significantly in the last few years and have become in-dispensable as stakeholders.The Volkswagen Group and its brands report on their progress in implementing the Ten Principles of the UN Global Compact and their activities for promoting sustainable development in the annual Communication on Progress,which can be viewed on the UN Global Compact website.United Nations Global CompactGREEN FINANCE FRAMEWORK FOR INVESTMENTS IN SUSTAINABILITYMassive investment is needed to transform the Volkswagen Group.At the same time,investors are looking for sustainable investment options.Volkswagen AG has had a Green Finance Framework for various forms of financing such as green bonds since 2020.This document defines the framework for financial instruments geared to sustainability.In the reporting year,we refinanced fiscal year 2021 capital expenditure aligned with the EU Taxonomy on the basis of the Green Finance Framework newly published in 2022 by issuing 2.5 billion in green bonds.The Volkswagen Group has thus issued a total of 6.0 billion in green bonds to refinance capital expendi-ture for BEVs since 2020.In 2022,the Volkswagen Group published a new Green Finance Framework that was further developed in particu-lar through the integration of the EU Taxonomy.As was the case in the previous Green Finance Framework,the Volkswagen Group continues to focus on the exclusive inclusion of all-electric vehicle models(BEVs)in sustainable financing.Under the new Green Finance Frame-work,the only investments that will be considered are investments for BEVs produced by the Volkswagen Group that are aligned with the EU Taxonomy.This systematically links our corporate objective of net carbon neutrality by 2050 with our financing strategy.The funds raised under the Green Finance Framework are specifically used on environmentally friendly projects such as e-mobility.This both fulfills the clean transportation category of the Green Bond Princi-ples of the International Capital Market Association(ICMA)and is in line with the goals of the United Nations and the European Union for sustainable development.Sustainalytics has confirmed again for the new Green Finance Framework that the framework complies with the ICMAs Green Bond Principles and the Green Loan Principles of the Loan Market Association(LMA).Volkswagen published the second Green Finance Report,which con-tains the Allocation Report and the Impact Report,during the report-ing year.More information is available on our corporate Investor Relations Fixed Income&Ratings Green Finance21SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsSUSTAINABILITY IMPACT OF NEW MOBILITY OPTIONSMAKING MOBILITY SOLUTIONS MEASURABLY MORE SUSTAINABLE Our global society today faces the major challenge of finding the right balance when shaping mobility.The pressures of noise,traffic jams,accidents,traffic areas or air quality need to be reduced in many areas.At the same time,many people do not have suffi-cient,affordable and accessible transportation,limiting their par-ticipation in society.This is not only the case in economically weaker regions but also in rural areas and suburbs.The Volkswagen Group offers both innovative vehicle technologies and forward-looking mobility services.Through these,the Group wants not only to meet its customers requirements but also to help to solve local environmental and traffic problems in urban and rural areas and to protect the climate worldwide.Global cooperation with partners outside the Group plays an important role.We are guided here by the“Mobility for Generations to Come”vision that our NEW AUTO Group strategy describes.NEW AUTO Group StrategyCompletion of the acquisition of Europcar Mobility Group(EMG)in July 2022 by the consortium company Green Mobility Holding S.A.(GMH)with the partners Attestor Limited and Pon Holdings B.V.represents another important milestone for Volkswagen in its NEW AUTO strategy.EMG will become the cornerstone of a new platform that will cover customers mobility needs,from using a vehicle for a few hours to subscription for multiple months.Our expectation is that most people will still prefer individual mobility by 2030,but it will be more about using and less about owning vehicles.SIMULATION PLATFORM FOR MOBILITY CREATES TRANSPARENCY AND ENABLES IMPROVEMENTSIt has been shown many times that new mobility concepts in par-ticular increase the range of options in urban areas but are not au-tomatically sustainable.Creating a basis of assessment is therefore important so that mobility solutions can be assessed for their sus-tainability impact and also influenced.This is because determining the right framework conditions and regulations is of decisive im-portance to make substantial contributions to sustainable cities and tap into business models for the Group.Political players and cities are also increasingly requiring early proof that mobility solutions actually have sustainability effects,and operating licenses may be conditional on this proof.Against this background,the mobility simulation framework is being continuously developed as part of the Volkswagen Groups sustainability management.Its focus is on impact assessments that digitally replicate mobility on the basis of real data.Technolo-gies such as data analytics and machine learning help us to virtually pilot certain services in advance on a large scale in what is known as a digital twin.This means that possible improvements and also any undesirable side effects can be discovered early and taken into account when developing mobility solutions.We endeavor to regularly communicate with stakeholders on these and other issues and continuously analyze trends so that we can update targets and criteria as needed.The methods and models for mobility simulation are also being continuously developed in collaboration with universities.In addition to having a practical ap-plication,our results feed back into the academic world through publications and dialogs.Moreover,we use real data and empirical figures from mobility providers to continue to improve this.For example,MOIA,a young mobility company in the Volkswagen Group,has developed on-demand ride pooling services and created and published an extensive and scientifically independent long-term study on the impact of(autonomous)ride pooling on the Hamburg traffic system as part of accompanying research in Hamburg.We use various key figures that are scientifically recognized and also reflect the requirements of various players to evaluate mobility services.For example,short and reliable journey times are impor-tant for customers,while access for citizens and the reduction of CO2 emissions is important for society;towns and cities for their part want traffic to occupy as little space as possible and to improve air quality,while good utilization of its services is essential to the mobility provider.IMPORTANCE OF OVERARCHING IMPACT ANALYSES Measures for increasing efficiency and better capacity utilization continue to be important steps on the path to sustainable mobility.In the case of ride pooling services such as MOIA,the transportation needs of various customers must be linked as optimally as possible in order to balance detours and waiting times with capacity.Model-ing and impact assessments provide valuable services here in order to represent the high level of complexity.It should be noted that these analyses always take an overarching view of traffic.This is be-cause users take other options into account when making decisions.Central to the sustainability assessment is what users of new services for example,ride pooling,e-scooters or car sharing would otherwise use or have previously used.22SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsFor example,there is a much debated question about whether ride pooling might ever overtake public transportation.Initial fears are,however,proving wrong.MOIAs accompanying research instead proved the opposite:The research showed that the mobility net-work and especially public transportation would benefit from the expansion of ride pooling.MOIA has maintained a close partner-ship in Hamburg with the transportation company Hamburger Hochbahn since its service started in 2019.One example of this was the use of MOIA vehicles as a building block in the rail replacement service when fire damaged a suburban railroad bridge in August 2022.This strengthened the traffic systems resilience to disruptions.ANALYSIS RESULTS SHOW POTENTIAL OF OPTIMIZED VEHICLE USEThe impact assessments provide important pointers to which levers can be used to improve the sustainability impact of new mobility solutions.This particularly applies with regard to reducing CO2 emissions and better use of scarce space in towns and cities.In addi-tion to ride pooling,the focus is also on more efficient use of vehi-cles.In particular,privately used cars are mostly underutilized.On average,they are only used for around an hour per day and occupy parking spaces in private or public areas for the rest of the time,which in turn takes up valuable urban space.The life cycle of the vehicle is long,which leads to less environmentally friendly,outdat-ed technologies being used for too long on the roads.By contrast,electric robotaxis could operate around the clock in the future.Car sharing can increase the use of cars to several hours per day by means of multiple users using a vehicle over the course of a day.Both solutions lead to more efficient mobility with fewer cars and less need for parking space in towns and cities.UNDERSTANDING URBAN MOBILITY AND DEVELOPING IT SUSTAINABLY TOGETHERIn general,shaping urban mobility plays a key role for the Volkswagen Group because many mobility options are primarily available in cities.According to the UNs estimates,almost 70%ofthe global population will live in cities by 2050.The traffic-induced problems are the most urgent in urban centers and their commuter belts,and the potential for change is also the greatest here.As a member of the World Business Council for Sustain-able Development(WBCSD)for many years,we seek dialog with other companies contributing to the transformation and with stake-holders in order to identify our own scope for action.For example,the Volkswagen Group continued its collaboration on the WBSCDs Transforming Urban Mobility(TUM)project in 2022.Focal topics included commuter traffic and digitalization.The research topics included the ways in which data and new technologies can positively impact sustainable development.ASTYPALEA:TRANSFORMATION TO A SMART AND GREEN ISLANDAstypalea is a living lab for smart and sustainable mobility solu-tions in Europe.The Greek island is located in the Aegean Sea,has 1,300 citizens and is similar in size to the German island of Sylt.In addition,36,000 tourists on average visit the island every year.Originally,about 1,500 internal combustion engine vehicles and one bus line with two diesel buses were providing mobility on the island.Astypalea shall now be transformed into a smart and green island.To this end,the Volkswagen Group has joined forces with the Hellenic Republic.Traffic on Astypalea will be gradually con-verted to e-mobility.This includes the public transport system,local authority vehicles(e.g.,police)as well as companies and the private vehicles of the inhabitants.At the same time,an extensive network of private and public charging stations will be set up.Fully electric vehicle sharing and ridesharing services have been furthermore newly launched on the island.Unlike the previous bus system,the new smart mobility services will operate the whole year and they will cover all the hotspots on the island.E-cars,e-scooters and e-bikes make up the vehicle sharing service.These services shall become an alternative to privately owned vehicles and perspectively con-tribute to a reduction of the vehicle fleet size by around a third to approximately 1,000.Around 25,000 trips and 167,000 km in total have been carried out with the ridesharing service ASTYBUS alone in the first seven months since its implementation on the island in June 2022.The energy system of Astypalea will also be gradually converted to solar and wind energy under the leadership of the Hellenic Republic.23SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsSTAKEHOLDER MANAGEMENTSTRATEGIC STAKEHOLDER MANAGEMENTOur stakeholders are individuals,groups or organizations who have a material influence on or are materially influenced by the way in which the Group reaches its corporate decisions and the implica-GRI 2-29For us,stakeholder management means interacting with the Com-panys key stakeholder groups systematically and continuously as part of the Group initiative with the focus topics of ESG performance,decarbonization and integrity,which is part of the NEW AUTO Group strategy.Our aim is open,constructive and also critical communica-tion with the stakeholder groups listed in the diagram about their requirements and expectations of us,as well as central issues of our Group strategy and its implementation.Volkswagen GroupCUSTOMERSWORKS COUNCILSUSTAIN-ABILITY COUNCILSUPERVISORY BOARDEMPLOYEESInvestors and analystsAcademics and expertsBusiness partners and suppliersNGOs/non-proft organizationsResidents and local authoritiesMediaCompetitors123Policymakers and associationsVOLKSWAGEN GROUP STAKEHOLDERSOur brands and regions have their own stakeholder management strategies.The Groups task is to bring together and orchestrate these activities in an integrated framework.This framework includes:Stakeholder engagement on a Group level with specific commit-tees,formats and a focus on stakeholders relevant across the Group Advising and coordinating the brands and regions on the imple-mentation of their stakeholder engagement activities Carrying out regular stakeholder analyses and stakeholder surveys24SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human Rightstions of those decisions.Our employees and customers are at the center of our stakeholder network.In addition,we have identified eight further groups.Continuous communication between internal and external stakeholder groups is important to us.For this reason,the Groups supervisory and advisory bodies i.e.,the Supervisory Board,the Works Council and the Sustainability Council act as a special interface between internal and external stakeholders.Stakeholder management is one of the core processes of sustain-ability management in the Group.Tasks,responsibilities and orga-nization are set out in the Group policy on sustainability management.As an international business,our business activities impact the lives of a large number of different people.Appropriately aligned stakeholder management is essential so as to determine the sustainability strategys material areas for action and become aware of stakeholders expectations of us at an early stage.It also involves continuously in-forming and regularly communicating with all business areas.This communication not only helps us to identify our stakeholders re-quirements,it also plays a key role in achieving corporate goals and complying with reporting standards and legal requirements.The transformation of the Volkswagen Group from a vehicle man-ufacturer to a world-leading,software-driven mobility provider will also change and expand the range of relevant stakeholder groups as a result of new areas of expertise such as autonomous driving,battery technology,charging infrastructure and energy services.Here,too,we aspire to involve all our stakeholders in this transfor-mation process and actively use their feedback for the sustainable development of our Group and society.Our aim is to position our Group robustly for the future amid ever faster and more strongly changing economic,environmental and social framework condi-tions and sustainably improve its acceptance and reputation.The Volkswagen Group is a player in numerous networks of experts and decision-makers who have a significant influence on our business and the agenda in the sociopolitical environment.An overview of the Groups most important memberships is available Sustainability Strategy,Policy&Engagement Engagement MembershipsREPUTATION KPI MEASURES STAKEHOLDER TRUSTThe reputation key performance indicator(KPI)makes a decisive contribution to anchoring stakeholder management in the sustain-ability strategy.The indicator reflects the degree to which external stakeholders trust the Volkswagen Group.Since 2017,we have asked annually for an assessment of the Volkswagen Groups reputation.Eliciting this KPI enables a holistic view of attitudes and opinions on the Group and allows us to identify whether and how evaluations change over the course of time.The Audi,Porsche and Volkswagen Passenger Cars brands are consistently represented in the survey.The survey data are based on personal telephone interviews conducted with representatives of importance to the Volkswagen Group from the fields of politics and associations,media,academia,NGOs,investors and analysts and also business partners in the three markets(Germany,China and the USA).Fundamentally,representatives of the highest possible decision-making level are surveyed in all the stakeholder groups.In Germany,the 2022 reputation KPI for the Volkswagen Group is 78%.The Group obtained the following results in 2022:78%of stake-holders in Germany stated that they trust the Volkswagen Group(2021:80%).In China the proportion was 98%(2021:97%)and in the USA it was 70%(2021:67%).In Germany,the reputation KPI thus decreased slightly compared with 2021,which,however,is in line with the trend in results in the overall competitive environ-ment in Germany.In China and the USA,the reputation KPI contin-ued to steadily improve.STAKEHOLDER PANEL AS A CRITICAL COMPANIONIn addition to the Sustainability Council,Volkswagen Group has established a Stakeholder Panel,which has overseen the Group sus-tainability activities for over 20 years.The whole panel(Germany/Austria/Switzerland,EU)currently comprises more than 200 institu-tions and organizations.The pandemic meant that we had to inter-rupt communication with our stakeholders in 2020 and 2021.In the reporting year,we were able to resume it on a smaller scale.The focus was on the topics of decarbonization and sustainability in the sup-ply chain.Accompanied by members of the Sustainability Council,an open and controversial discussion was held in April with NGOs and was also held in September as part of a larger stakeholder dialog.The key drivers of the discussion were the speed of electrification and the challenges of controlling supply chains.The plan for 2023 is to intensify communication with our stakeholders,and to extend and deepen its content.GRI 2-28,2-2925SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human RightsENVIRONMENTAL COMPLIANCE MANAGEMENTCOMMITMENT TO AN UNDAMAGED ENVIRONMENTAs one of the largest automotive manufacturers in the world,we have to observe extensive legal requirements for all sites and mar-kets and aim to live up to our internal and external stakeholders high expectations of the effectiveness of environmental compliance management including,and especially following,the diesel issue.We also want to live up to our voluntary commitments on envi-ronmental matters and compliant behavior.The environmental compliance management system is therefore in particular a risk provision against breaches of regulations that may be associated with damage to the environment,our Group and society.Our envi-ronmental compliance management system helps us to continu-ously improve our environmental performance and reduce our environmental impact.One of the focuses of the NEW AUTO Group strategy is the Groups ESG performance.In environmental protection,decarbonization and circular economy are the focus issues.These are also core ele-ments of the“goTOzero”Group environmental mission statement.At the same time,the environmental compatibility of our products,services and processes is one of our Group Essentials.With elec-tric drives,digital connectivity and autonomous driving,we want to make the car cleaner,more intelligent,quieter and safer.We use our innovative power in order to reduce our environmental foot-print over the entire life cycle of our products and mobility solu-tions.Our innovations are at the same time intended to help our customers to be more environmentally friendly.THE“GOTOZERO”MISSION STATEMENT:MINIMIZATION OF NEGATIVE EFFECTS ON THE ENVIRONMENTThe“goTOzero”environmental mission statement serves as the framework for all the Volkswagen Groups environmental activities.This mission statement commits us to the vision of a carbon-neutral way of doing business with minimal environmental impact that we want to achieve by 2050 at the latest.We want to be a world-leading provider of sustainable mobility and a role model for environmen-tal protection.To this end,we are systematically and verifiably reducing the environmental impact along the life cycle of our prod-ucts and services.Compliance with environmental regulations,standards and voluntary commitments is a basic prerequisite of our actions.The Group mission statement combines all strategic and compliance-related aspects of the Groups environmental activities and forms the basis for linking targets,key performance indicators,programs and measures.The mission statement is continuously re-viewed and its objectives adjusted to new requirements and changes in conditions.The mission statement,which has been revised in the current reporting year,puts the Groups focus on the four fields for action presented in the diagram below and their underlying objectives.26SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human Rights“GOTOZERO”ENVIRONMENTAL MISSION STATEMENT:ACTION AREASProtecting THE CLIMATEWe are committed to the Paris Climate Agreement and aim for an ambition level of 1.5 degrees celsius.We systematically focus on the electrification of our products,decarbonization of our entire value chain and expansion of renewable energy generation to supply our sites and customers.We want to be a net-carbon-neutral company by 2050 at the latest.ConservingRESOURCESWe reduce the volumes of prima-ry raw materials needed by using recycled material and renewable raw materials.We maximize our energy and resource efficiency and establish closed loops for materials and water.Together with our business part-ners we cut down on the amount of natural resources utilized throughout our supply chain.ConservingECOSYSTEMSWe reduce harmful emissions in air,soil and water.We mitigate the impact of our business operations on biodiver-sity and ecosystem performance and support projects to conserve these.EnsuringENVIRONMENTAL COMPLIANCEWhere integrity and compliance are concerned,we aim to be a role model for a modern,trans-parent,successful enterprise.We use effective environmental compliance management systems to identify and manage environ-mental risks and opportunities throughout the lifetime of our mobility solutions.We conduct open dialog with our stakeholders and incorporate their expectations into our decisions.MANAGEMENT AND COMPLIANCE IN MATTERS OF THE ENVIRONMENTThe Volkswagen Group has created an environmental policy that calls on managers and the workforce to implement environmental goals with joint responsibility.In its environmental policy,the Group commits to reducing the environmental impacts across the entire life cycle of the processes,products and services,to meet binding obligations and continuously improve its environmental compliance management system and environmental performance.We have also implemented a Group policy for the environmental compliance management system describing requirements,tasks and responsibilities with regard to the environment and compliance.This policy provides the framework for implementing environmental compliance management systems across all phases of the business and the entire life cycle of vehicles in our brands and companies.The policy defines the minimum requirements for operating orga-nizations regarding implementing an environmental compliance management system and gives them the flexibility to implement this in a manner in line with their business activities.In general,all production and development sites in the Group are required to have their environmental management systems certified to ISO 14001 or validated to the Eco-Management and Audit Scheme(EMAS).Good progress has been made as regards external certification.In 2022,105 of our 119 sites,including central devel-opment units,have ISO 14001 certification or EMAS validation.In terms of employee numbers,this equates to more than 98%.In addition,61 of the production sites have certified their energy management systems in accordance with ISO50001,meaning 80%of the total energy consumption of the Groups production sites is currently covered by a certified energy management system.SEAT development is also certified in accordance with ISO 14006.These standards do not,however,answer the question of how to avoid misconduct and how to respond appropriately to it.The Volkswagen Group has therefore expanded the established environ-mental management systems to include important compliance aspects.The intention of our environmental compliance manage-ment systems is to ensure that environmental aspects and obliga-tions are recognized and appropriately taken into account in our business operations.We consider disregard of environmental obli-gations,fraud or misconduct to be serious compliance breaches and prosecute these.To what extent our actions conform to the re-quirements of our environmental policy and other environment-related Group specifications is evaluated annually and reported to the Group Board of Management,to the respective boards of manage-ment of the brands and to the managing directors of the companies.The Group Board of Management is the highest internal decision-making level for environmental matters.Both the Volkswagen AG Board of Management and the boards of management of the brands take account not just of economic,but also social and environ-mental aspects when making relevant business decisions.The Group-wide management of environmental protection,including implementing the resource-efficiency programs and monitoring target achievement,is the responsibility of the Group Steering Com-mittee for the Environment and Energy.It is the highest environ-mental committee in the Volkswagen Group and is responsible for reporting to the Group Board of Management or the environmen-tal officer in the Group Board of Management.The Group Steering Committee for Fleet Compliance manages important individual aspects for our products such as CO2 and exhaust emissions.The Volkswagen Group coordinates the activities of the brands,which in turn manage measures in the individual regions.The brands and companies are organizationally responsible for them-selves when it comes to environmental matters.They base their own environmental protection activities on the targets,guidelines and principles that apply throughout the Group.In order to prove that we have achieved our targets,we disclose environmental key performance indicators annually and report transparently on the progress on the environmental performance by the Group and the brands.Checking and Complying with LimitsIn internal combustion engines,we adhere to national and interna-tional legal norms and limits.For example,the Euro 6d-ISC-FCM emissions standard has been obligatory for new registrations in the European Union since January 1,2021.In addition to the use of the Worldwide Harmonized Light Vehicles Test Procedure(WLTP),it also requires measurement in accordance with the RDE(=Real Driving Emissions)standard.Unlike with WLTP,emissions are not measured on a test bench they are measured in actual road traffic.27SUSTAINABILIT Y IN THE GROUPS DNA Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity|Supply Chain and Human Rights1 The figures for December of the reporting year include an estimate.The estimated figures for the prior year were replaced in the current data collection.2 Scope:Passenger Cars and Light Commercial Vehicles division.Scope:Waste for disposal includes only production-specific volumes.REDUCTION OF THE ENVIRONMENTAL IMPACT OF PRODUCTION(UEP)In connection with the production strategy,we have defined the KPI of the reduction in environmental impact in production(UEP)and underpinned it with targets for the Group and its brands.By 2025,the production-related environmental impact at all sites where we produce passenger cars and light commercial vehicles is to be re-duced by 45%per vehicle compared to 2010.The figures below show the development from 2010 to 2022(data:11 1 months):1UEP:37.4%(2021:29.1%)In the reporting year,the five indicators of the UEP KPI were as follows:Energy requirements per vehicle:14.1%(2021:3.4%)CO2 emissions per vehicle:43.1%(2021:33.5%)Water consumption per vehicle:17.4%(2021:11.6%)Waste for disposal per vehicle:68.5%(2021:61.7%)VOC emissions per vehicle:65.9%(2021:62.0%)In 2022,the production situation remained strained due to supply chain disruptions on global markets and a structural shortage of semiconductors.Compared with the previous year,production volume nevertheless increased.Successfully implemented measures to further reduce the adverse environmental impact of our factories as well as the more stable utilization of production sites capacity had a positive impact on the specific environmental KPIs per vehicle.The UEP improved significantly overall from 29.1%to 37.4%.LIFE CYCLE APPROACH DETERMINES ANALYSIS AND ACTIONSWe consider the environmental impact we cause throughout the entire life cycle and at all stages of the value chain of our products.This includes the manufacturing process with the associated ex-traction of raw materials,the production of materials,the processes at our suppliers and our own production operations at our sites,the use phase with the resulting vehicle emissions and the necessary supply of charging current and fuel,and ultimately the recycling of the vehicle at the end of its life cycle.For detailed,ISO-standardized life cycle assessments(LCA),we use Spheras GaBi software with the LCA database LEAD(Life Cycle Environmental Assessment Data-base),which is based on Spheras Professional Database.This en-ables the exchange of harmonized data throughout the Group and a standardized basis for calculating our environmental perfor-mance.In the next step,we identify hot spots in the life cycle and deduce suitable solutions to reduce the environmental impact.In line with our lif
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EnvironmentSocialGovernance2022SUSTAINABILITY REPORTAs of February 28,2023Please refer to the Sustainability Website for the latest information.Top Commitment 5Message from Executive Vice President5Philosophy and Approach Related to Sustainability 7Philosophy and Approach7The Three Corporate Principles7Corporate Standards of Conduct8Mitsubishi Corporation Code of Conduct9Mitsubishi Corporation Environmental Charter10Mitsubishi Corporation Social Charter10MC Group Vision11Value Creation Process12Materiality 13Overview of Materiality 14Integrating Materiality into Management 15Relevance of MCs Materiality to the SDGs 16Materiality Identification Process 17Materiality Details 18Contributing to Decarbonized Societies18Related SDGs Themes18Action Plan Regarding this Material Issue18Conserving and Effectively Utilizing Natural Capital 25Related SDGs Themes 25Action Plan Regarding this Material Issue 25Promoting Stable,Sustainable Societies andLifestyles28Related SDGs Themes28Action Plan Regarding this Material Issue28Utilizing Innovation to Address Societal Needs32Related SDGs Themes32Action Plan Regarding this Material Issue32Addressing Regional Issues and Growing Togetherwith Local Communities38Related SDGs Themes38Action Plan Regarding this Material Issue38Respecting Human Rights in Our BusinessOperations44Related SDGs Themes44Action Plan Regarding this Material Issue44Fostering Vibrant Workplaces That Maximizethe Potential of a Diverse Workforce47Related SDGs Themes47Action Plan Regarding this Material Issue47Realizing a Highly Transparent and FlexibleOrganization54Related SDGs Themes54Action Plan Regarding this Material Issue54MCs Sustainability Promotion Framework58MCs Sustainability Promotion Framework58Sustainability Initiatives58Companywide Sustainability Framework59Promoting Sustainability Through Business60Cycle for Integrating Sustainability into Business Strategy60Sustainability Promotion Framework in Each Business Group60Incorporating Sustainability into Individual Projects61Disclosure(about the Sustainability Website)62Collecting Sustainability Information on a Consolidated Basis63Dialogue with Stakeholders(Incorporating External Perspectives)64Dialogue with Stakeholders in FY202164Sustainability Advisory Committee65Participation in Initiatives 67Support for the UN Global Compact 67WBCSD 68Task Force on Climate-related Financial Disclosures（TCFD）68Climate Change 70Our Approach70Introduction and Mission70Creating MC Shared Value71Partnerships with Stakeholders73Governance75New Activities Based on the Roadmap to aCarbon Neutral Society and Midterm CorporateStrategy 2024-Creating MC Shared Value77Roadmap to a Carbon Neutral Society77Sustainability as a Growth Lever771.5 Scenario Analysis79Approach to Scenario Analysis79The 1.5 Scenario Used in FY202279Influences and Considerations for the FY2022 1.5C Scenario81Results of the 1.5C Scenario Analysis andRelevant Implications82Identification of Businesses Subject to Analysis82Climate Risks82Climate Opportunity89Summary91Physical Risks92Physical Risk Assesment Process92Physical Risk Assessment Results94Key GHG Metrics and Disclosure Highlights95Targets 95Our Footprint(Scope 1&2)97Independent Practitioners Assurance 99Scope 3 Category 11 100Avoided Emission 101Policy on Coal-fired Power Generation Businesses(IPP and EPC)104Mitigation and Adaption Initiatives(FY2022)105Japanese Offshore Wind Power Generation Business105New Service Model Aimed at the Spread of EVs106Smart Charging Platform in the Mobility Area107Studies on the Production and Use of Hydrogen at New ChitoseAirport Area107Participation Agreement for Carbon Sequestration Project inLouisiana107Award of Greenhouse Gas Assessment Permit in Western Australia 108Launch of New Startup Accelerator Program to Promote Decarbonization 109Joint Feasibility Study Aimed at Commercializing SAF and Other Next-generation Fuels in Japan 109Beyond Materials Corporation,a Specialized Strategy and Engineering Service Provider to Support Materials Suppliers Area 110Mitigation and Adaption Initiatives(Before FY2021)111Renewable Energy 111Electric Vehicles(EVPHEV)/Battery 116Ammonia Fuel/Hydrogen Energy 118CCUS 121Carbon Credit 125Other Low-Carbon/Decarbonized Businesses(Green Logistics,Green Buildings,etc.)127Other Data and Report137Other Reference Data137Climate Reports138TCFD Reporting138Natural Gas and LNG-related Data139Equity Share of Oil and Gas Upstream Production139Involvement in LNG Projects140Renewable Energy Related Data143List of Renewable Energy Projects143List of Power Transmission Businesses Related to Offshore WindPower Generation Projects144EnvironmentEnvironmentSustainability Report 2022Mitsubishi CorporationContents1External Collaboration189Marunouchi Ecoben Project189Japan Foreign Trade Council189Performance190Toxic Waste Emissions190NOx,SOx,VOC Emissions190Efficient Use of Resources 191Policy191Structure191Risk Management191Targets192Initiatives193Recycling and Closed-Loop Business Initiatives(Livestock Feed Production Business)193Recycling and Closed-Loop Business Initiatives(Livestock Business)194Recycling and Closed-Loop Business Initiatives(“NAGIE”BrandMitsubishi Corporation Fashion Co.,Ltd.)195Participation in the PET Chemical Recycling Business196Performance197Paper Consumption(Non-Consolidated)197Recycling Volume197Water Discharge198Waste Emissions199Independent Practitioners Assurance199Environmental Management 145Policy145MCs Environmental Policy145Green Procurement Policy146Structure 147Environmental Management Systems(EMS)Promotion Framework 147Status of ISO 14001 Acquisition 148Environmental Audits 151Environmental Communications151Initiatives 152Procurement of CO2-Free Electricity for the Head Office Building 152Relevant Data153Number of Environmental Reports and Corrective Measures153Water Resources 154Policy154Targets154Structure155Risk Management155Initiatives157Initiatives to Maximize Water Efficiency157Initiatives to Reduce Water Consumption157Initiatives in Water-Stressed Regions160Providing Solutions through our Business Activities161External Collaboration163Responding to CDP163Participation in the Water Project of the Ministry of theEnvironment of Japan163Collaboration with NGOs163Performance164Water Withdrawal164Water Consumption164Water Recycling Volume and Rate165Independent Practitioners Assurance165Biodiversity 166Policy166Targets166Structure167Risk Management167Identifying and Responding to Dependencies and Impacts onNature Using the TNFD Beta Framework168Initiatives171Examples of Protection/Conservation Activities throughBusiness Operations171External Collaboration176Status of Participation in the Round Table on Responsible SoyAssociation(RTRS)176Compliance with the Soy Moratorium(Moratria da Soja)176Participation in CDP176Cermaq Initiatives177Examples of Collaboration with Government Bodies178Examples of Collaboration with International Organizations andNGOs179Foundation and Fund Activities181Examples of Collaboration with Other Companies181Performance182Results of Social Contribution Activities182Prevention of Pollution 183Policy183Targets183Structure184Risk Management184Initiatives 185Initiative to Reduce Waste Production(Non-Consolidated Basis)185MC Fashions“THE ME”Business 186Initiatives with Lawson,Inc.to Reduce Waste Losses187Initiatives to Reduce Waste Production(Mitsubishi Shokuhin Co.,Ltd.)187Application of Life Cycle Analysis in our Salmon Farming Business 188Initiatives to Prevent Oil Spills 188Climate Change 70Our Approach70Introduction and Mission 70Creating MC Shared Value 70Partnerships with Stakeholders 73Governance 75New Activities Based on the Roadmap to a Carbon Neutral Society and Midterm Corporate Strategy 2024-Creating MC Shared Value 77Roadmap to a Carbon Neutral Society 77Sustainability as a Growth Lever 771.5 Scenario Analysis79Approach to Scenario Analysis 79The 1.5 Scenario Used in FY2022 79Influences and Considerations for the FY2022 1.5C Scenario 81Results of the 1.5C Scenario Analysis andRelevant Implications 82Identification of Businesses Subject to Analysis 82Climate Risks 82Climate Opportunity 89Summary 91Physical Risks92Physical Risk Assesment Process 92Physical Risk Assessment Results 94Key GHG Metrics and Disclosure Highlights95Targets 95Our Footprint(Scope 1&2)97Independent Practitioners Assurance 99Scope 3 Category 11 100Avoided Emission 101Policy on Coal-fired Power Generation Businesses(IPP and EPC)104Mitigation and Adaption Initiatives(FY2022)105Japanese Offshore Wind Power Generation Business 105New Service Model Aimed at the Spread of EVs 106Smart Charging Platform in the Mobility Area 107Studies on the Production and Use of Hydrogen at New Chitose Airport Area 107Participation Agreement for Carbon Sequestration Project in Louisiana 107Award of Greenhouse Gas Assessment Permit in Western Australia108Launch of New Startup Accelerator Program to Promote Decarbonization 109Joint Feasibility Study Aimed at Commercializing SAF and Other Next-generation Fuels in Japan 109Beyond Materials Corporation,a Specialized Strategy and Engineering Service Provider to Support Materials Suppliers Area110Mitigation and Adaption Initiatives(Before FY2021)111Renewable Energy 111Electric Vehicles(EVPHEV)/Battery 116Ammonia Fuel/Hydrogen Energy 118CCUS 121Carbon Credit 125Other Low-Carbon/Decarbonized Businesses(Green Logistics,Green Buildings,etc.)127Other Data and Report137Other Reference Data 137Climate Reports 138TCFD Reporting 138Natural Gas and LNG-related Data139Equity Share of Oil and Gas Upstream Production 139Involvement in LNG Projects 140Renewable Energy Related Data143List of Renewable Energy Projects 143List of Power Transmission Businesses Related to Offshore Wind Power Generation Projects 144Human Rights 201Policy201Basic Approach on Human Rights201Policy on Childrens Rights204Policy on Indigenous Peoples Rights204Policy on the Appointment of Armed Security204Structure205Consultation Desk Framework206Dialogue with Stakeholders206Human Rights and Environmental Due Diligence 207Human Rights and Environmental Risks 207Initiatives209Employee Training209Support for Vulnerable Children and At-Risk Youth210Friendship Camp for Mothers and Children210Examples of External Collaboration211Examples of Collaboration with International Organizations211Participation in Initiatives211Labor Practices 2121.Labor Standards,Labor Environmentand Related Matters212Policy212Basic Approach to Human Resources212Policy on Labor Practices213Structure214Risk Management214Initiatives215（1）Conducting Fair Recruitment Activities and Providing JobOpportunities215（2）New Work Styles Befitting MC216（3）Respect for Human Rights216Relevant Data217SocialSocialSustainability Report 2022Mitsubishi CorporationContents2Human Rights201Policy201Basic Approach on Human Rights 201Policy on Childrens Rights 204Policy on Indigenous Peoples Rights 204Policy on the Appointment of Armed Security 204Structure 205Consultation Desk Framework 206Dialogue with Stakeholders 206Human Rights and Environmental Due Diligence 207Human Rights and Environmental Risks 207Initiatives209Employee Training 209Support for Vulnerable Children and At-Risk Youth 210Friendship Camp for Mothers and Children 210Examples of External Collaboration211Examples of Collaboration with International Organizations 211Participation in Initiatives 211Labor Practices2121.Labor Standards,Labor Environment and Related Matters212Policy212Basic Approach to Human Resources 212Policy on Labor Practices 213Structure 214Risk Management 214Initiatives215（1）Conducting Fair Recruitment Activities and Providing Job Opportunities 215（2）New Work Styles Befitting MC 216（3）Respect for Human Rights 216Relevant Data2172.Employee Relations218Policy(Freedom of Association and Collective Bargaining)218Basic Approach218Policy on Freedom of Association and Collective Bargaining 218Collective Bargaining218Structure219Risk Management219Initiatives220Performance221Agreement on Collective Bargaining221Diversity Management 222Policy222A Flexible and Powerful Organization Capable of Adapting toChanging Business Environments222Structure224Initiatives224Supporting Employees with Family Responsibilities224Supporting Womens Careers at MC228Engaging the Senior Workforce230Diverse Employment Opportunities for Persons with Impairments 231Engaging a Global Workforce231Relevant Data232Data on Employees Using MCs Various Systems(As of March31 Each Year)232Percentage of Women in Management-Level Positions andGender Composition of Board Members234MC Women Overseas(As of April 2022)235Employment Rate of Persons with Impairments236Independent Practitioners Assurance236Evaluation by Society237Key Certifications237Well-being(Health&Productivity Management,Occupational Safety and Health)239Policy239Management Message239MC Group Occupational Safety and Health(OSH)Policy239Fostering Vibrant Workplaces That Maximize the Potential of aDiverse Workforce and Reducing Health Risks240Supply Chain Initiatives240Policy to Proactively Address Global Health Issues(HIV/AIDS,Tuberculosis,Malaria)240Targets241MC Group241MC241Structure242Employee Participation244Loan and Investment Screening244Risk Management(Risk Assessment)245Reporting of Workplace Accidents245Initiatives246Initiatives on a Non-Consolidated Basis246Employee Health Management247Initiatives on a Consolidated Basis252Performance Data255Occupational Safety and Health Data(Consolidated and Non-Consolidated Basis)255Other Data258Independent Practitioners Assurance260Human Resource Development 261Policy261Principles of Human Resource Development261Targets262Priority Targets and Current Status262Structure264MC Group HRD Program Structure264Initiatives265Introduction of Human Resource Development Programs265Performance272Human Resource Development and Training Data272Customer Responsibility 274Policy274Responsible Advertising and Marketing274Policy and Approach Related to Food Products Businesses 275Access to Better Nutrition and Medical Care275Targets278Initiatives278Initiatives on a Non-Consolidated Basis278Initiatives in the Food Science Business279Response to Issues Related to the Food Products Business 280Nutritious Product Initiatives284Initiatives for Better Access to Medical Care286Corporate Philanthropy287Participation in External Initiatives289Global Multi-Stakeholder Partnerships-UN Global Compact ActionPlatform for Sustainable Ocean Principles289Seafood IndustrySeaBOS289Salmon Aquaculture Industry Global Salmon Initiative(GSI)289Community 290Policy290Basic Approach290Policy on Community Investment290Policy on Local Employment and Procurement290Policy on Mine/Site Decommissioning291Structure291Risk Management291Corporate Philanthropy Activities292Employee Volunteer Activities292Examples of Initiatives301Urban Development Projects to Enhance Urban Value in Indonesia 301HEREs DX Business302Local Procurement in the MDP Business303Mine Closure Initiatives303Community Investment304Other Reference Data308Donation Amounts308Supply Chain Management 309Policy309Basic Policy309Individual Guidelines311Animal Welfare Policy for Suppliers312Bluefin Tuna Sustainable Sourcing Policy312Structure313Risk Management314Initiatives322Employee Training322External Collaboration322Participation in Supply Chain Initiatives322Cermaq Initiatives324Mitsubishi Corporation Packaging Ltd.Initiatives325Lawson,Inc.325Princes326MC FOODS Ltd.Initiatives326Olam327Related data329Data on RSPO-Certified Palm Oil329Data on ASC-Certified Products329Data on FSC CoC-Certified Products329Sustainability Report 2022Mitsubishi CorporationContents3Directors and Audit&Supervisory Board Members Remuneration:Total Amounts and Number of Eligible Persons in the Fiscal 379Names,Titles,Total Amounts of Consolidated Remuneration and Amount by Type of Remuneration for Each Director and Audit&Supervisory Board Member 381Significant Employee Salaries of Directors and Audit&Supervisory Board Members Serving Concurrently as Employees 382Employee Salaries 382Compliance 383Policy383Structure 384Investigations of Compliance Violations and Response Systems 384Monitoring System 388Initiatives389Initiatives for Preventing Corruption389Initiatives in Selecting and Managing Agencies,Intermediaries,etc.390Mitsubishi Corporation Groups Anti-Corruption Guideline390Cases of Corruption390Internal Whistleblowing System391Supervision by the Board of Directors393Performance394Results of Compliance Training394Number of Compliance Violations394Provisions Concerning Legal Violations and Litigation395Tax Transparency395Risk Management 396Policy396Risk Management System396Overview396Responding to Business Investment Risk398Crisis Management on a Consolidated Basis/Business Continuity Management(BCM)399Structure and Concept399Status of Initiatives in Normal Conditions400Business Continuity Management(BCM)401Implementation Status Monitoring403Information Security and Cyber Security Measures404Independent Auditors404MCs Primary Stakeholders 405Customers and Partners406Examples of Engagement406Employees406Examples of Engagement406Shareholders,Investors and Creditors407Examples of Engagement407Local Communities407Examples of Engagement407NGOs408Examples of Engagement408Governments and Local Authorities408Examples of Engagement408External Evaluations 409Independent Practitioners Assurance Report 411Corporate GovernanceBoard of Directors and Shares,etc.331MCs Basic Policy on Corporate Governance331Board of Directors 332Composition and Size of the Board of Directors and the Policyand Process for Appointing Nominated Directors 332Skills Matrix of Directors and Audit&Supervisory Board Members 333Composition of the Board of Directors335Matters Deliberated by the Board of Directors341Board of Directors Advisory Bodies342Governance,Nomination and Compensation Committee342International Advisory Committee343Independent Directors and IndependentAudit&Supervisory Board Members345Selection Criteria for Independent Directors and IndependentAudit&Supervisory Board Members348Enhancing the Monitoring Function of the Board ofDirectors350Briefing Sessions Before Board of Directors Meetings350Meetings of Independent Directors and Independent Audit&Supervisory Board Members 350Discussion between Independent Members of the Board and Officers and Employees 351Dialogues with and Site Visits to Business Subsidiaries and Affiliates 351Orientation upon Assumption of Office 351Evaluation of the Effectiveness of the Board of Directors 352Review Midterm Corporate Strategy 2021/Formulation for Midterm Corporate 353Initiatives on Japans Corporate Governance Code 354MCs Stance on Acquisition,Holding,and Reduction in ListedShares 354MCs Pension Management Structure355Policy and Procedures for Appointment and Dismissal of Management Executive and Appointment of Nominated Directors and Audit&Supervisory Board Members 355Details of Retired Executives Currently Serving in Advisory Positions 357Policy of Dialogue with Shareholders 357Corporate GovernanceAudit&Supervisory Board and Audit 360Audit&Supervisory Board Members/Audit&Supervisory Board360Audit Plans362Audits of Management Performance363Enhancing the Effectiveness and Auditing Activities of the Audit&Supervisory Board(Members)365Enhancement of Tripartite Audits366Audit367Audit&Supervisory Board Member Audits367Internal Audits367Accounting Audits368Mutual Cooperation among Audit&Supervisory Board MemberAudits,Internal Audits and Accounting Audits,and theirRelationship with Internal Control Departments368Corporate GovernanceDirectors and Audit&Supervisory Board Members Remuneration,etc.369Directors and Audit&Supervisory Board MembersRemuneration369Basic Approach to the Package369The Process for Setting Remuneration for Directors and Audit&Supervisory Board Members371Calculation Method for Performance-Linked Remuneration 373Conceptual Image of Payment Mix for Remuneration of ExecutiveDirectors377Guideline for Share Ownership(Standard)377Deliberation Process Regarding the Revision of RemunerationPackage for Executive Directors378GovernanceGovernanceSustainability Report 2022Mitsubishi CorporationContents4Mitsubishi Corporation(MC),since its establishment,hasheld the Three Corporate Principles as its core philosophy,and aims to contribute to the sustainable development ofsociety by conducting its global business activities withintegrity and fairness in line with these principles.The need to find solutions to the challenges facing theglobal environment and society is becoming more urgent,and expectations upon the private sector to be part ofthose solutions to societal issues such as climate change,human rights,and biodiversity are increasing year by year.In Oct 2021,MC formulated its“Roadmap to a Carbon Neutral Society”which sets out our steps towardsachieving a carbon neutral society,fulfilling our responsibility as an active player in industries including resourcesand energy by maintaining stable energy supply while providing decarbonization solutions.In this Roadmap,in addition to committing to halve GHG emissions by FY2030&achieve Net Zero by 2050,wehave also established“Integrated EX(Energy Transformation)/DX(Digital Transformation)initiatives to Create aNew Future”as a common theme for company-wide business promotion.Furthermore,Midterm Corporate Strategy 2024 sets forth MC Shared Value(MCSV)as the continuous creationof significant shared value by enhancing the MC Groups collective capabilities in order to address societalchallenges.Through our efforts to create MCSV,we aim to continue to grow together with society by linking the growth ofour employees with the development of the company.In addition,with the aim of creating MCSV,we also announced the redefinition of our previous Key SustainabilityIssues in the form of eight Materiality as the crucial societal issues that the MC Group will prioritize through ourbusiness activities,and our intention to utilize these issues as concrete measures for achieving our Roadmap to aCarbon Neutral Society.ESG has become an indispensable perspective for long-term corporate growth in recentyears,making the formulation of management strategies which incorporate environmental and social impacts animperative.Through proactive dialogue with our stakeholders,including by expanding information disclosure in line with therecommendations of the TCFD1,MC will work to grasp the needs and expectations of society,and in addition tosupporting the United Nations Global Compact2,we will fulfill our responsibilities as a member of the globalcommunity.The MC Group,which has achieved growth by boldly shifting our business models in line with societal changes,will continue to help provide solutions,including with respect to global agenda items such as responding toclimate change,through our business.Top commitmentMessage from Executive Vice PresidentSocialEnvironmentGovernance51 Voluntary disclosure framework formulated by the TCFD(the Task Force on Climate-Related Financial Disclosures,launched by the UN Financial Stability Board)stipulating information that companies and other entities should discloseto financial markets,with the aim of helping those markets to appropriately evaluate the risks and opportunitiespresented by climate change.2 A United Nations initiative for businesses and other organizations to support 10 universal sustainability principles in thefields of human rights,labor standards,environment and anti-corruption.MC declared its support for this initiative in2010.Yutaka KashiwagiMember of the BoardExecutive Vice PresidentCorporate Functional Officer,IT,CAO,Corporate Communications,Corporate Sustainability&CSRSocialEnvironmentGovernance6Contributing to Society through Business Firmly Rooted in Principles of Integrity andFairnessThe Three Corporate Principles Corporate Responsibility to Society,Integrity and Fairness,and GlobalUnderstanding Through Business have served as MCs core philosophy since MCs inception,inspiring us toconduct fair and sound business activities at all times.We have constantly endeavored to enhance our complianceinitiatives.Measures have included establishing the Corporate Standards of Conduct to set forth our expectationswith regard to how business should be conducted,in conjunction with developing various compliance-relatedinternal rules,introducing a compliance officer system,and expanding and upgrading risk managementframeworks.The Mitsubishi Corporation Code of Conduct requires employees to conduct business in compliancewith laws and regulations as well as global standards such as the Universal Declaration of Human Rightsestablished by the United Nations(UN)and the core labor standards of the International Labor Organization(ILO).It also requires officers and employees(including full-time and part-time employees,secondees andtemporary staff;hereinafter only referred to as officers and employees)to act in a socially responsible mannerby complying with the highest ethical standards,and to acknowledge commitment to the Mitsubishi CorporationCode of Conduct.MC adopted the Environmental Charter and Social Charter in accordance with the ThreeCorporate Principles,and we commit to increase our corporate value as well as to contribute to the sustainabledevelopment of society,as a globally integrated business enterprise.MC Group companies share a commonhistory and philosophy as they continue to grow together and learn from one another.The Three Corporate Principles,Corporate Standards of Conduct,Code of Conduct,Environmental Charter,and SocialCharter are shared with all MC Group employees globally via a portal site for MC Group companies as well as throughvarious internal training programs.Philosophy and Approach Related toSustainabilityThe Three Corporate PrinciplesCorporate Standards of ConductMitsubishi Corporation Code of ConductMitsubishi Corporation Environmental CharterMitsubishi Corporation Social CharterMC Group VisionValue Creation ProcessPhilosophy and ApproachThe Three Corporate PrinciplesSocialEnvironmentGovernance71.Aim of Corporate Business ActivitiesThrough its business activities,Mitsubishi Corporation will endeavor to increase its value.At the same time,MC will strive to enrich society in all ways,developing and offering its customers the best services andproducts,with the highest regard for safety.2.Fairness and Integrity in Corporate Business ActivitiesMitsubishi Corporation will continue to develop its business activities in compliance with all relevant laws,international regulations and internal rules.MC will act responsibly and will respect the highest socialstandards.3.Respect for Human Rights and EmployeesMitsubishi Corporation will respect human rights and will not engage in any discrimination.MC will preserveand improve its corporate strengths through the development of its employees,all the while respecting thecharacter and individuality of each employee.4.Information Security and DisclosureWhile Mitsubishi Corporation will continue to develop,implement and improve the effectiveness of itsinformation security management system,at the same time MC will disclose information accurately and in atimely fashion,so as to maintain transparency and be correctly understood by both its stakeholders and thegeneral public.5.Consideration for Environmental IssuesMitsubishi Corporation understands that an enterprise cannot continue to prosper without consideration forits environmental performance,and will strive to protect and improve the global environment and pursuesustainable development through all aspects of its business activities.6.Contribution to SocietyAs a responsible member of society,Mitsubishi Corporation will actively carry out philanthropic programs inan effort to promote the enrichment of society.Moreover,MC will support efforts of its employees tocontribute to society.Corporate Standards of ConductSocialEnvironmentGovernance8All officers and employees of Mitsubishi Corporation(the“Company”)must comply with all applicable laws,rulesand regulations where they operate,international standards and rules,and all internal corporate rules andpolicies.In addition,all officers and employees of MC must act in a socially responsible manner by complying withthe highest ethical standards in the conduct of their business.1Respect human rights,and do not discriminate on any basis or engage in any form of harassment.2Maintain a high regard for environmental considerations in conducting our business operations,and ensurethat our business is conducted in an environmentally sustainable manner,and comply with treaties,laws andregulations concerning the environment.3Promote fair business practices and comply with trade rules,regulations,and internal corporate rules andpolicies.4Comply with the rules and regulations of international trade.5Protect and properly use confidential and proprietary information,protect the rights of MC and respect therights of others.6Do not engage in insider trading.7Avoid conflicts of interest with MC;maintain a distinction between corporate and private business.8Record and report accounting and financial information timely and accurately.9Maintain proper legal and ethical standards with respect to gifts and entertainment.10Resolutely oppose any organization,group or individual engaged in unlawful activities and do not providemoney or other types of economic benefits to them.11Promptly report to or consult the superiors,the Group Compliance Officers,the relevant departments,theSecretariat for the Compliance Committee,or the outside counsel in charge of Compliance upon discoveringor committing any violations of this“Code of Conduct.”Mitsubishi Corporation Code of ConductBasic PolicyBasic PrinciplesSocialEnvironmentGovernance9At Mitsubishi Corporation we consider the Earth itself to be our most important stakeholder and are continuallyworking towards the realization of a sustainable society through our business activities.We will strive to reduce greenhouse gas emissions by continually implementing new efficiency measures andembracing new technologies.We will promote the sustainable use of natural resources including energy,minerals,food stocks and waterthroughout our global business operations.We recognize the critical importance of what ecosystems can provide and are committed to protectingecosystems and mitigating any potential impacts on biodiversity.We will strive to create and enhance environmental value through environmental conservation andenvironmental impact reduction measures including pollution prevention.We will continue to actively engage and work with our various stakeholders openly and transparently anddisclose information on the environmental impacts of our business operations in an appropriate and timelymanner.We will conduct all of our activities in compliance with environmental laws while adhering to international rulesand social standards.Mitsubishi Corporation strives to achieve sustainable societal value though our business operations by contributingtowards lasting solutions to the wide spectrum of sustainability challenges facing todays global society.We will work to address local societal challenges in the regions and communities in which we operate,contributing towards lasting and sustainable development through our business activities.We will continue our wide-ranging philanthropic commitments while regularly adapting our approach in linewith ever-evolving societal needs and challenges.We will fully respect human rights and indigenous peoples rights.We will fully respect fundamental labor rights and endeavor to ensure the provision of proper workingenvironments with consideration for safety,health,and other aspects.We will not engage in corruption of any kind and will take appropriate preventative measures to safeguardagainst such practices.We will continue to actively engage and work with our various stakeholders openly and transparently anddisclose information on the social impacts of our business operations in an appropriate and timely manner.Mitsubishi Corporation Environmental CharterMitsubishi Corporation Social CharterSocialEnvironmentGovernance10Achieving Sustainable Growth for the MC Group and SocietyThe MC Group aims to deliver sustainable growth by adapting to changes in the business environment andfulfilling societal needs in due consideration for the United Nations Sustainable Development Goals(SDGs).Toachieve this aim,the MC Group shall rely on three core strengths,namely its collective capabilities to adopt aholistic view of industry,the foresight to identify new seeds of growth,and its execution skills to germinate them.Mission&Corporate PhilosophyThe Three Corporate Principles serve as the MC Groups core philosophy and underpin its commitment tofair,responsible,and global business practices.By pooling its collective capabilities,the MC Group strives to fulfill societal needs and meet stakeholderexpectations by simultaneously generating economic,societal and environmental value.AdaptabilityThe MC Group prides itself in adapting to our ever-evolving world,anticipating and responding to changes ingeopolitical,economic and industrial landscapes,the last two of which are being increasingly driven byinnovations in technology.Consolidated Growth StrategyThe MC Group includes approximately 1,700 enterprises,and as the MC Group works to raise theirconsolidated earnings,it remains equally committed to growing their individual corporate value,whilesimultaneously generating three values.By leveraging the diverse expertise found throughout its network of Group companies and more than 130Business Units,MC shall continue to innovate and inspire global industries.MC shall optimizes its portfolio by dynamically allocating management resources based on its level ofengagement in each business.Sizeable growth investments are companywide commitments to develop next-generation earnings drivers.The MC Group is dedicated to rearing the highest quality of management professionals,ehically groundedleaders with the foresight to identify new seeds of growth and the execution skills to germinate them.Regardless of how our world evolves,there will always be opportunities to deliver goods and services thatmeet societal needs and improve our quality of life.This recognition is the very foundation of MCsconsolidated growth strategy.MC Group VisionSimultaneously Generating Economic Value,Societal Value andEnvironmental Value through Our BusinessesSocialEnvironmentGovernance11MCs businesses are underpinned by financial and other capitals which exist both internally and externally.We invest the capitals into businesses to address social challenges through our businesses and continuouslycreate significant shared value.The created shared value strengthens the capitals and becomes a source offurther value creation.By repeating this cycle,we aim to achieve sustainable growth.For more details of Value Creation Process,please refer to our Integrated Report(Integrated Report/AnnualReport|Mitsubishi Corporation).Value Creation ProcessSocialEnvironmentGovernance12Based on the Three Corporate Principles,which have served as MCs core philosophy since its inception,MCidentified a set of Key Sustainability Issues in 2016 as mileposts for proactively realizing“triple-value growth”through the simultaneous generation economic,societal and environmental value.While responding to therequests of all stakeholders,MC has worked to address various societal issues through its business activities andhas contributed towards the sustainable development of society as well as value creation.Six years have passed since the Key Sustainability Issues were identified,and stakeholder expectations ofcompanies regarding issues such as climate change have grown even higher,while the issues that companiesmust address also continue to evolve.Against this backdrop,in order to further raise our corporate value over themedium to long term,we conducted a review of our Key Sustainability Issues from the perspective of theirimportance to our business activities.The revised Materiality was announced in Midterm Corporate Strategy2024 as a set of crucial societal issues that we will prioritize through our business activities,towards thestrategys goal of continuous creation of MC Shared Value.Out of the eight redefined material issues,the six that we will pursue through our business activities arecategorized as“Realizing a Carbon Neutral Society and Striving to Enrich Society Both Materially and Spiritually”,while the two that we will pursue through organizational management are grouped as“Striving to Serve as aPlatform for Generating Triple-Value Growth”.Guided by our Materiality,we will continue to strengthen our effortstoward sustainable corporate growth.MaterialitySocialEnvironmentGovernance13IssuesOverviewRealizing a Carbon Neutral Society and Striving to Enrich Society Both Materially and SpirituallyStriving to Serve as a Platform for Generating Triple-Value GrowthOverview of MaterialityContributing toDecarbonized SocietiesContribute to the realization of decarbonizedsocieties by striving to reduce greenhouse gas(GHG)emissions,while providing products andservices that support decarbonization during thetransition period.moreConserving andEffectively UtilizingNatural CapitalRecognizing the Earth itself to be our mostimportant stakeholder,strive to maintainbiodiversity and conserve natural capital,andwork to create circular economies while reducingour environmental footprint.morePromoting Stable,Sustainable Societiesand LifestylesPromote sustainable societies and lifestyles ofthe future through businesses in a diverse rangeof countries and industries,while fulfilling ourresponsibility to provide a stable supply ofresources,raw materials,products,services,etc.,in line with the needs of countries andcustomers.moreUtilizing Innovation toAddress Societal NeedsCreate businesses that help to address societalneeds while working to spur major industryreforms that are supported by businessinnovation.moreAddressing RegionalIssues and GrowingTogether with LocalCommunitiesStrive to contribute to the development ofeconomies and societies by addressing issuesfacing countries and regions,while seeking togrow together and collaborate with diversestakeholders,regions and communities.moreRespecting HumanRights in Our BusinessOperationsRespect the human rights of all stakeholdersinvolved in promoting our diverse operationsworldwide,and pursue solutions for value chain-related issues,while considering the localconditions in each country.moreFostering VibrantWorkplaces ThatMaximize the Potentialof a Diverse WorkforceRecognizing that our human resources are thegreat assets of our businesses,foster a diverseand versatile talent pool that drives efforts togenerate triple-value growth throughout ourorganization,and also seek to develop anorganization where diverse human resourcesshare common values and grow together whilefurthering their connections and inspiring oneanother to excel.moreRealizing a HighlyTransparent andFlexible OrganizationWhile swiftly responding to changes in thebusiness environment,strive to realize effectivegovernance on a global,consolidated basis andmaintain/strengthen a sound organization that istransparent and flexible.moreSocialEnvironmentGovernance14MC regards its Materiality as a navigating principle for the continuous creation of significant MC Shared Value,aswe aim to create this value by strengthening the MC Groups collective capabilities to address societal challenges.To effectively achieve this target,each Division and Business Group establishes“Action Plans”,which serve asmid-term plans related to the relevant material issues for each business or initiative,and tracks their progressthrough annual reviews.MC has thereby established a mechanism to confirm how our Materiality serves ourbusiness strategies,initiatives and organizational management that lead to the creation of MCSV.Here is a typical example of such an Action Plan.Integrating Materiality into ManagementSocialEnvironmentGovernance15By leveraging its collective capabilities and engaging in a variety of businesses,our company will contribute toaddressing a wide range of societal challenges and ensure sustainable growth.We believe that promotingbusinesses based on our material issues will also help to achieve the Sustainable Development Goals(SDGs)related to each key issue.IssuesOverviewRealizing a Carbon Neutral Society and Striving to Enrich Society Both Materially and SpirituallyStriving to Serve as a Platform for Generating Triple-Value GrowthRelevance of MCs Materiality to the SDGsContributing toDecarbonized SocietiesmoreConserving andEffectively UtilizingNatural CapitalmorePromoting Stable,Sustainable Societiesand LifestylesmoreUtilizing Innovation toAddress Societal NeedsmoreAddressing RegionalIssues and GrowingTogether with LocalCommunitiesmoreRespecting HumanRights in Our BusinessOperationsmoreFostering VibrantWorkplaces ThatMaximize the Potentialof a Diverse WorkforcemoreRealizing a HighlyTransparent andFlexible OrganizationmoreSocialEnvironmentGovernance16Materiality Identification ProcessSocialEnvironmentGovernance17Contribute to the realization of decarbonized societies by striving to reduce greenhouse gas(GHG)emissions,while providing products and services that support decarbonization during the transition period.We regard achieving a decarbonized society as one of our important corporate issues that should be challenged,and we are promoting carbon reduction and decarbonization through our business activities with“Contributing toDecarbonized Societies as one of our materialties.By leading this transformation and connecting it to our ownbusiness growth,we will create MC Shared Value.In addition to promoting our own decarbonization(Halve byFY2030(compared to FY2020)and net zero by 2050),we will contribute to the decarbonization of society bycreating avoided emissions through EX-related investments on a scale of 1.2 trillion yen over the three-yearperiod of Midterm Corporate Strategy 2024.Materiality DetailsContributing to Decarbonized SocietiesConserving and Effectively Utilizing Natural CapitalPromoting Stable,Sustainable Societies and LifestylesUtilizing Innovation to Address Societal NeedsAddressing Regional Issues and Growing Together with Local CommunitiesRespecting Human Rights in Our Business OperationsFostering Vibrant Workplaces That Maximize the Potential of a Diverse WorkforceRealizing a Highly Transparent and Flexible OrganizationContributing to Decarbonized SocietiesRelated SDGs ThemesAction Plan Regarding this Material IssueSocialEnvironmentGovernance18MC is expanding its renewable energy business in Japan and abroad to achieve a decarbonized society.Inconnection with this initiative,MC is moving ahead with the goal of doubling its renewable energy equitygeneration capacity from 3.3 GW in FY2019 to 6.6 GW in FY2030.Initiatives in Europe for the Proliferation of Renewable Energy(Eneco)Eneco,a Dutch integrated energy company and MC subsidiary,operates power generation businesses,power andgas trading businesses,power and gas retail businesses,and district heating businesses focused in theNetherlands,Belgium,and Germany with renewable energy at its core.With a solid customer base that is thethird largest in the Netherlands,Eneco has approximately 1,800MW of renewable energy assets.Since 2007,Eneco has developed renewable energy ahead of its competitors and has established a position as a green brandby providing consumers with 100%green energy(including the use of green certificates)since 2011.Eneco is aninnovative company that has set customer-focused services as an objective since an early stage.In addition,in2021,Eneco announced its updated One Planet Plan,which aims to achieve carbon neutrality by 2035,coveringCO2 emissions not only from its own activities(Scope 1/2)but across its value chain(Scope 3)as well,whichincludes electricity,gas retailing and heat retailing to businesses and households.Eneco is also recognized bothdomestically and internationally as a company actively working toward measures to address climate change.Doubling Renewable Energy Power Generation CapacitySocialEnvironmentGovernance19MC is focusing on the practical implementation of hydrogen in society and the commercialization of ammonia,anexcellent means of transporting and storing hydrogen.MC is proceeding with joint testing with our partners ateach stage of the value chain,“production,”“transportation”and“usage.”Advanced Hydrogen Energy chain Association fortechnology DevelopmentImplementation of Next Generation Energy Supply ChainsSocialEnvironmentGovernance2 0Hydrogen EnergyMC participated in the New Energy and Industrial Technology Development Organization(NEDO)-subsidizedDemonstration of Unused Energy-Based Hydrogen Supply Chain Using Organic Chemical Hydride Method project,which came to a successful conclusion in December 2020,and we have now entered the commercial projectdevelopment phase.MC is currently proactively working to establish an international hydrogen value chain.In March 2020,MC,along with five private Singaporean companies and Chiyoda Corporation signed amemorandum of understanding(MOU)aimed at the realization of a sustainable hydrogen economy in Singaporein the presence of Singapore government officials.In addition,MC signed an MOU in July 2021 with the Port ofRotterdam Authority,Koole Terminals and Chiyoda for the joint study of commercial-scale imports of hydrogen tothe Port of Rotterdam.In October 2021,MC signed an MOU with Sembcorp and Chiyoda to establish a strategicalliance aimed at exploring the feasibility and implementation of a commercial-scale,decarbonized hydrogensupply chain in Singapore,and have been engaged in specific discussions and studies.As a result,in October2022,a new agreement was reached to further examine the technical and commercial aspects of the hydrogensupply chain business and to accelerate detailed studies toward a final investment decision,including a conceptualplant design.Chiyoda Corporations hydrogen storage and transportation technology(SPERA Hydrogen)is expected to play akey role in MCs aforementioned initiatives.MC continues to discuss,consider and take concrete steps towards therealization of a cost-effective,international hydrogen energy supply chain together with the above companies andothers who have shown significant interest in SPERA Hydrogen technology and related business opportunities.SocialEnvironmentGovernance2 1Ammonia FuelFor the“production”stage of the fuel ammonia,MC is currently assessing the production process with acombination of fossil fuels and Carbon Capture,Utilization and Storage(CCUS).MC is considering this as apractical option both from a technical and economic perspective.However,at the same time,MC is alsoproceeding with reviewing more environmentally-friendly methods such as hydrogen and ammonia productionderived from renewable energies and hydrogen production that utilizes photocatalytic technology.For the“transportation”stage,it is assumed that large-scale transportation and storage of ammonia fuel will benecessary,so MC will respond by utilizing its expertise in logistics cultivated through its existing businesses.Forthe“usage”stage,MC will leverage our relationships with energy industry players that we have cultivatedthrough our existing businesses.MC has also begun detailed studies for the joint full-scale introduction at eachcompany.As a concrete example,MC has reached an agreement with the Texas-based independent energy companyDenbury Inc.(“Denbury”)on the key term-sheet of CO2 transport and storage operations,via Denburys whollyowned subsidiary Denbury Carbon Solutions LLC.The business is in line with MCs aim to commence productionof fuel-use ammonia in the US Gulf of Mexico.The estimated CO2 volume to be captured from the ammoniafacility is maximum 1.8 million metric tons per annum.Under the terms of our agreement with Denbury,thecaptured CO2 will be either sequestered underground via Denburys EOR(Enhanced Oil Recovery)or CCS,whichDenbury plans to develop in the future.The term sheet contemplates an initial period of 20 years,with the abilityto extend further.SocialEnvironmentGovernance2 2Mineral resources such as copper are essential products which are used for renewable energy and electrificationand are vital to achieving a decarbonized society.MC aims to expand our copper business through organic growthopportunities in existing assets,which boast some of the worlds largest copper reserves,increasing our interestin existing assets,acquiring new assets and utilizing new technologies to improve resource recovery.Quellaveco Copper Project InitiativesQuellaveco is a large-scale,highly cost-competitive copper mine in Southern Perus Moquegua Region,jointlydeveloped by MC and Anglo American plc,which is adopting advanced technologies and eco-conscious initiatives.MC is one of Japans largest copper producers,with a present attributable equity production of around 250,000tons per annum.After the mine starts full-scale production,the equity copper production is expected to beapprox.320,000-370,000 tons.It is the first mine in the country to deploy autonomous mining equipment suchas trucks and drills focusing on digital transformation(DX).Also,the operation is powered by 100%renewableenergy.Copper is essential for decarbonization,as it plays a crucial role in developing electric vehicles and renewableenergy infrastructures such as wind and solar farms.Consequently,mid-to-long-term demand for copper isexpected to continue to rise.However,declining ore grades and environmental restrictions are increasing hurdlesto developing new mines,making stability of supply a significant concern.Quellaveco is a mine which integrates the Energy Transformation(EX)and DX initiatives of MCs MidtermCorporate Strategy 2024.MC intends to grow its copper portfolio to respond to global demand and sustainabilityof supply,thereby helping societies achieve carbon neutrality.Supply of Mineral Resources to Promote an Electrified SocietySocialEnvironmentGovernance2 3MC,as a company aiming to contribute towards achieving the goals of the Paris Agreement,recognizes that CCUSwill play a major role in achieving those goals.The International Energy Agency(IEA)has stated that CCUS mustbe used to reduce roughly 1.5 billion tons of CO2 emitted in 2050 in order to achieve the 1.5C target(theremaining amount to be reduced through renewable energy and energy-saving technology),and theIntergovernmental Panel on Climate Change(IPCC)has also emphasized the role that technology should play.CCUS is a field that spans multiple industries,from those that are the source of CO2 emissions,to those thatproduce end-products such as fuel and chemical materials.Therefore,MC recognizes CCUS as a businessopportunity to demonstrate its collective capabilities as a company that interacts with many industries.To takeadvantage of this business opportunity,MC will promote the commercialization of CCUS by establishing a taskforce spanning multiple business groups as well as a liaison committee.Application in the field of Building MaterialsCarbonCure Technologies Inc.is a Canadian company that possesses technology for fixing CO2 into concretebuilding materials.MC has made an equity participation in CarbonCure and has a business partnership to expandbusinesses related to CarbonCures technology.CarbonCures carbon recycling technology fixes and utilizes CO2into fresh concrete during production,reducing CO2 emissions by reducing the amount of cement used.Thestrength and dependability of CarbonCures concrete is the same as traditional concrete,and it is currently widelyused commercially,mainly in North America.Further details regarding MCs initiatives on climate change are available here.CCUS InitiativesSocialEnvironmentGovernance2 4Recognizing the Earth itself to be our most important stakeholder,strive to maintain biodiversity and conservenatural capital,and work to create circular economies while reducing our environmental footprint.Every business in our company is built on the foundation of the natural capital benefits that the ecosystemprovides.Therefore,we recognize that the conservation and effective utilization of this natural capital areindispensable to achieving sustainable growth together with society.MC is committed to realizing a circulareconomy by taking advantage of business opportunities while trying to diminish our negative impact on the globalenvironment.Conserving and Effectively Utilizing Natural CapitalRelated SDGs ThemesAction Plan Regarding this Material IssueSocialEnvironmentGovernance2 5MC considers the realization of regional circular economies rooted in“local production for local consumption”to bea pillar of our EX initiatives.To achieve this,it is essential to make effective use of limited resources and ensurethey are able to circulate as efficiently as possible.MC is committed to the environmentally friendly materialsmanufacturing business through the recycling of materials by utilizing new technologies,bio-carbon recycling,new businesses related to product recycling,and materials and products that support a low-carbon,decarbonizedsociety.PET Chemical Recycling Business with Thai ShinkongMC entered the PET chemical recycling business through an investment in Thai Shinkong Industry CorporationLtd.,which produces PET resins for beverage bottles.PET is highly recyclable mono-material with a wide range ofapplications,including in food and beverage containers as well as in textiles,thanks to its excellent transparency,barrier properties,and well-established collection and recycling systems.As the transition to a circular economyprogresses worldwide,we will expand our capacity for producing PET resins,for which demand is expected togrow in line with the shift towards mono-materials,and by introducing chemical recycling technologies throughour participation in the PET chemical recycling business with the aim of“Conserving and Effectively UtilizingNatural Capital”.Promotion of a Circular EconomySocialEnvironmentGovernance2 6Almost all MC businesses interact with the environment and depend upon the benefits ecosystems can provide.Inorder to ensure the future continuity of our business activities,MC needs to understand the extent of ourenvironmental dependencies and impacts,analyze risks and opportunities,minimize excessive reliance andnegative impact on the natural environment,and pursue initiatives that contribute to environmental recovery.Trial Analysis Using the TNFD BetaFrom this perspective,MC conducted a trial analysis based on the beta version of the TNFD recommendations inFY2022,ahead of the release of the final recommendations.The analytical methods employed to measure levelsof business dependency and impact on the environment are still at the development stage,therefore we willcontinue to refine and enhance our analysis methods and strive to incorporate the latest frameworks and analysismethods,including the TNFDs final recommendations.More details regarding MCs initiatives on biodiversity are available here.Assessment on Environmental Dependencies and ImpactsSocialEnvironmentGovernance2 7Promote sustainable societies and lifestyles of the future through businesses in a diverse range of countries andindustries,while fulfilling our responsibility to provide a stable supply of resources,raw materials,products,services,etc.,in line with the needs of countries and customers.Ensuring the stable lives of people is one of our companys greatest mandates,and we believe it is important tofulfill this in a sustainable manner through our business.While continuing to provide the goods and servicesnecessary for maintaining the operation of the current societal system,we will promote businesses which movesociety forward towards a more sustainable future.Promoting Stable,Sustainable Societies and LifestylesRelated SDGs ThemesAction Plan Regarding this Material IssueSocialEnvironmentGovernance2 8Global energy demand is expected to increase mainly due to population growth and economic development.While the switch to renewable energy is expected to progress in the power sector in the future,dramatictechnological innovation is essential to supplement renewable energy sources in terms of intermittency,locationand other factors.Therefore,to meet the worlds growing energy demand and at the same time realize a carbon-neutral society,it is essential to decarbonize fossil fuels.MC is committed to fulfilling its responsibility to provide a stable supply of natural gas and LNG,which will supportthe transition period with its relatively low environmental impact among fossil fuels,as well as reduce GHGemissions throughout the value chain via improvements in operational efficiency,CCUS and other methods.Tangguh LNG Project InitiativesTangguh is the largest gas-producing project in Papua Barat Province of Indonesia,accounting for around 20%ofthe countrys gas output.MC is participating in the project as a joint venture with bp,the project operator.Tangguh LNG Project began operations in 2009 and has safely delivered more than 1,450 cargoes to globalmarkets including Indonesia and Japan.It has two LNG production trains with a combined capacity of 7.6 milliontons of LNG a year,with a third LNG train currently under construction.Tangguh Train 3 will increase the projectsproduction by approximately 50%.In addition,we are planning the next phase of development including CCUS project,which is based on a Plan ofDevelopment approved by SKK Migas(Special Task Force for Upstream Oil and Gas Business Activities Republic ofIndonesia)in 2021.Once the CCUS project is implemented,which is subject to a final investment decision byTangguh Partners,it will remove up to 90%of the reservoir-associated CO2 which represents nearly half ofTangguhs LNG emissions,making Tangguh one of the lowest GHG intensity LNG plants in the world.Fulfilling Our Responsibility for Ensuring a Stable Energy Supply to Supportthe Transition PeriodSocialEnvironmentGovernance2 9Since steel is a basic material that is difficult to replace,its demand is expected to remain strong over the longterm in line with global economic growth.In the steel industry,the ironmaking process(blast furnace method),which uses primarily iron ore as raw materials,emits a high amount of GHG emissions.Therefore,it is expectedthat the use of electric furnaces,which mainly use steel scrap,and the use of hydrogen in the ironmaking processwill expand in the future.However,it will take considerable time to realize the necessary technological innovationsand switching of production facilities.Therefore,decarbonization of the blast furnace ironmaking process,which iscurrently the mainstream process,will be an important issue for the time being.MC will continue to contribute tothe decarbonization of the steel industry by fulfilling our responsibility to provide customers with a stable supplyof high-quality metallurgical coal as one of raw materials for the blast furnace ironmaking process,one of MCsmajor commodities,and contribute to the decarbonization of the existing blast furnace method.MDP InitiativesMitsubishi Development Pty Ltd.(MDP)which conducts exploration,development,production,and sales ofmineral resources,jointly operates its metallurgical coal business,BMA,together with its partner,BHP.BMAoperates one of the worlds largest metallurgical coal operations,with an annual production volume of approx.63million tons and a share of approx.30%of seaborne trade volume.BMA is fulfilling its responsibility to provide astable supply of high-quality metallurgical coal that contributes to the decarbonization of the blast furnace methodof steelmaking.Also,while staying aware of changes in the business environment,MDP will strive to reduce GHG emissions fromBMAs production processes.Furthermore,together with its metallurgical coal business partner BHP,MDP isworking to support research that contributes to reducing emissions throughout the entire metallurgical coal valuechain.In October 2022,MDP entered into a collaboration agreement with ArcelorMittal,Mitsubishi HeavyIndustries,Ltd.and BHP regarding the application of CO2 capture technology in the field of steel making and willjointly conduct demonstration tests for the application of CO2 capture technology at ArcelorMittals steel works.Ensuring a Stable Supply of High-quality Metallurgical CoalSocialEnvironmentGovernance30With demand for seafood rising in line with global population growth,and an increased interest in sustainablesupply,the importance of fish farming in addition to wild-caught fish is ever-increasing.MC is working to developa sustainable production,processing and sales business model,as well as increasing products that haveinternational fishing/farming certifications such as MSC/ASC.Cermaq InitiativesCermaq is one of the major salmon(including coho)farming,processing and sales companies in the world whichbecame a subsidiary of MC in 2014.Cermaq produces salmon in Norway,Chile and Canada for a total productionquantity of around 200 thousand metric tons per year and supplies sustainable,safe and secure farmed salmon toconsumers around the world.Cermaq has also identified biodiversity conservation as a key part of its license to operate in all of the countrieswhere it is present.Cermaq works actively in cooperation with local stakeholders to protect wild salmonids in allareas where they are present to conserve the ecosystem,removes litter from the ocean,and tracks bird andmarine mammal mortalities at its sites in compliance with all laws and regulations of the countries in which itoperates.In its feed supplier Code of Conduct,Cermaq mandates that no fish meal or fish oil used in the feed forits fish shall originate from vulnerable,endangered or critically endangered species.Sustainable Food SupplySocialEnvironmentGovernance31Create businesses that help to address societal needs while working to spur major industry reforms that aresupported by business innovation.We recognize that innovation has great potential to enable us to solve societal and industrial issues and toconsiderably enrich peoples daily lives.MC will achieve sustainable growth by dynamically transforming ourcurrent businesses,whilst approaching business opportunities that are generated by innovation.Utilizing Innovation to Address Societal NeedsRelated SDGs ThemesAction Plan Regarding this Material IssueSocialEnvironmentGovernance32MC has many physically based businesses that require DX-driven solutions.By providing DX functions to thesebusinesses,we will optimize logistics and improve productivity,increase business value,and contribute to thedevelopment of the industry as a whole and the realization of vibrant local communities.By developing cross-industry DX functions that leverage our broad business knowledge and then providing themas services,MC will help to improve the value of industries themselves.Toward this end,we aim to improve theproductivity of industry and society as a whole and create sustainable value by building a“cross-industry digitalecosystem”in which industries,companies,local communities and others can organically connect and coexist.Activity at MC DigitalMC develops business in a wide range of industries,but there are areas where further value can be added byutilizing cutting-edge IT.MC Digitals mission is to update business models by leveraging technology,and thecompany will utilize the latest technology,such as AI,to generate innovative solutions to issues in all theindustries that MC conducts business in.MC Digital will also collaborate with overseas innovation ecosystems,aswell as academic and administrative institutions,while striving to develop new businesses and provide solutionsfor various fields.Building a Cross-industry Digital EcosystemSocialEnvironmentGovernance33Food waste in Japan has been calculated to be 5,700,000 tons(2019),and the scale of this food waste isequivalent to 1.4 times the amount of the WFPs(World Food Programme)world food aid(2020).Additionally,around 54%of Japans total food waste is comprised of commercial food waste that is disposed of during thedistribution and production process.This is recognized as a key issue to be solved for the food distributionindustry.MC is proceeding with initiatives to reduce food waste using digital technology,including AI.Reduction of Food WasteSocialEnvironmentGovernance34DX Business in Food DistributionSpecifically,MC has begun developing solutions to enable the prediction of demand and automation of ordering atfood wholesalers.Through the utilization of AI to calculate appropriate order quantities,in order to not causeshortages,while reducing the stock amount at food wholesalers and then connecting this to actual orders,the“purchasing of the necessary amounts of necessary items”will become possible.Therefore,MC can contribute tothe reduction of food waste at food wholesalers.In the demonstration experiment,compared to current manualordering processes,it was possible to reduce stock volume while also reducing the probability of stock shortages.This solution is anticipated to display sufficient efficacy.Going forward,by popularizing this solution that MC is currently developing throughout the entire food wholesaleindustry,MC will contribute to the reduction of food loss in the food wholesale industry.MC will also aim fordistribution optimization and reduction of food waste across the entire foodstuff distribution value chain byproviding solutions for food manufacturers and food retailers.SocialEnvironmentGovernance35Supply chains connecting producers and consumers are made possible through effective combinations of storageand transportation-based logistics capabilities.Japans domestic warehousing market is central to those supplychains and worth approximately seven trillion yen.Various negative pressures including labor shortages,dependencies on specific individuals for certain jobs and lease agreements have resulted in inflexible inventorycapacities,which has in turn contributed to wasteful,inconsistent and burdensome fulfillment practicesthroughout numerous industries.Other countries,such as the US and China,are facing similar challenges,whichhas prompted innovators to develop new business models such as self-driving warehouse robots and schemesthat allow users to share vacant warehouse spaces.Gaussys Warehouse DX ServicesConsidering that the“Roboware”subscription service allows anyone,regardless of their background or skills,touse robots to easily manage their warehouse facilities,it presents a viable solution to the labor-shortage andoverreliance problems mentioned above.“WareX”is a similarly straightforward system that anyone can use toshare available warehouse space,thus addressing the problems of limited or excess capacities.Gaussy will offer customers both of these services,the former(Roboware)of which employs six types ofwarehouse robots and has already been rolled out in more than 20 facilities across Japan,and the latter(WareX)of which has more than 1,250 facilities registered on its nationwide system.Large,medium and small enterprisesalike have been taking advantage of“WareX,”as it provides them with an efficient way to lease vacant warehousespaces on a pay-as-you-go basis.Driven by its vision to create new opportunities in logistics,Gaussy is committed to developing flexiblemechanisms that will adapt to evolving warehousing needs and cargo volumes.All of its partners look forward tooffering fulfillment customers with new and unprecedented options for their businesses.Solution to Wasteful,Inconsistent and Burdensome Practices by Optimizingthe Entire Supply Chain through Digital TechnologySocialEnvironmentGovernance36Decarbonization is an urgent issue that requires fast-paced initiatives on a global scale.To this end,MC believes itis important not only to develop completely new decarbonization technologies,but also to innovate at the scale-up stage,moving technologies that have already completed R&D to implementation as quickly as possible.In order to realize a carbon neutral society,MC is already promoting the development of EX-related businessessuch as next-generation energy.In order to complement and further accelerate these initiatives,MC will work toscale-up innovative decarbonization technologies through public-private partnerships.Participation in BECMC invested in Breakthrough Energy Catalyst(BEC),a program dedicated to accelerating innovative climatetechnologies,as the first company headquartered in Asia to make a commitment to the fund.BEC creates a framework in which Breakthrough Energy and its public and private sector partners includinggovernments,corporations,and philanthropic organizations will work together to commercialize high-impactdecarbonization technologies and scale them up through measures such as equity investment,grant funding andofftake agreements.The current focus areas are(1)Clean Hydrogen(and related infrastructure),(2)Long-duration Energy Storage(LDES),(3)Sustainable Aviation Fuel(SAF),and(4)Direct Air Capture(DAC).In the future,the Catalystprogram and its partners may expand its focus to include other hard-to-abate sectors.MC also considers thesetechnologies vital to its own EX Strategy and Roadmap to a Carbon Neutral Society.By participating in this program,MC is demonstrating a commitment to growing climate technologies and tofurther reducing our carbon footprint.Contributing to the Realization of a Carbon-Neutral Society throughTechnological InnovationSocialEnvironmentGovernance37 We believe that MC can create significant value by leveraging our companys unique collective capabilities andconnections with various industries,and by interconnecting with diverse stakeholders and local communities.Wewill pursue sustainable growth together with local communities by resolving issues that communities are facingand also by approaching peripheral business opportunities.Addressing Regional Issues and Growing Together withLocal CommunitiesRelated SDGs ThemesAction Plan Regarding this Material IssueSocialEnvironmentGovernance38In May 2022,MC announced its new management plan,entitled“Midterm Corporate Strategy 2024 Creating MCShared Value.”The plan details MCs growth strategy to promote regional revitalization through utilizingintegrated EX and DX initiatives.MC has embarked on initiatives to promote specific measures for regionalrevitalization throughout the company,including the creation of new carbon-neutral industries,supporting smoothtransitions to decarbonized societies and developing vibrant communities.Creating self-sustained decentralized communitiesSocialEnvironmentGovernance39Establishment of New Branches in Akita and ChoshiIn November 2022,MC opened new domestic branches in Japan for the first time in 35 years in both Akita andChoshi.MC was appointed as one of the operators of Japans first,general-sea-area fixed-foundation wind farmswhich are being developed off the coasts.With the themes of utilizing local energy resources such as renewableenergy,creating new carbon neutral industries,and creating vibrant communities by addressing regional issues,MC aims to create a new future through the fostering of new industries and regional revitalization,such as byaddressing challenges facing society and industry through collaboration with various stakeholders includingpartners and local government authorities,while taking advantage of our unique,wide-ranging industrialnetwork.The Akita and Choshi regions are a precedent for this,and MC will continue to work closely with ourelectric power subsidiaries and offshore wind project companies that will develop the offshore wind powerbusiness for more than 30 years to come,with the aim of developing not only offshore wind power,but also ofrealizing MCs goal of promoting regional revitalization through the integrated EX and DX initiatives.Akita BranchChoshi BranchSocialEnvironmentGovernance40Regional Development Agreement with Local GovernmentsIn 2022,MC signed partnership agreements with the three cities of Yatsushiro in Kumamoto Prefecture,Kurashikiin Okayama Prefecture and Nasushiobara in Tochigi Prefecture to resolve regional issues and promote initiativesfor regional development and revitalization.Specific cooperation items cover a wide range of areas,including therevitalization of local and regional communities using digital technology and improvement of civic services such asenergy,mobility,and health.In addition,as a first step in the partnership agreement,Yatsushiro City and Nasushiobara City have starteddemonstration projects for the following two services.Community portal apps:Communication tools within the community,such as community associations andPTAs,which are currently paper-based,and information distribution tools from the city and regional operators.Tourism app:A tool to promote tours and consumption for tourists using LINE,and to support relatedpopulation growth.SocialEnvironmentGovernance41The explosive expansion of the middle class and rapid urbanization,particularly in emerging economies,hasincreased the need for development and management of social infrastructure projects that take into accountsocial and environmental values.In the midst of such changes in the external environment,MC aims to contribute to the economic growth of thecountries in which it operates,while also helping to reduce environmental impacts,by promoting thedevelopment and management of large-scale,high-value-added urban development projects to sustainably createhigh-quality living,working,medical,educational,logistics,and transportation environments.Smart City Management in BSD City in JakartaBased on the concept of creating Indonesias first Transit Oriented Development,MC is developing a smart city ona new development site of over 100 hectares in BSD City,a suburb of Jakarta.The development will integrateurban functions such as housing,commercial facilities,schools,hospitals,parks,and transportation hubs.MC isalso considering the introduction of urban services for the entirety of BSD City,such as AI/IoT data platforms,urban portals,mobility,and energy-related contents.By introducing digital technology,MC will also contribute toaddressing social and environmental challenges in Indonesia,such as by taking measures to alleviate trafficcongestion.Development and Management of Smart CitiesSocialEnvironmentGovernance42In regional communities facing depopulation,there is a growing need for on-demand transportation services thatallow for the streamlining of transportation,and more services utilizing digital technology.MC will work to addresssocietal challenges through our mobility services business and aim for further expansion by further strengtheningour business foundation,which includes functions we have developed over many years and our ability to buildcommunity-based networks.Trials of“KnowRoute”in Shiojiri CityMC is part of a consortium that is set to commence trial operations of a mobility-as-a-service(MaaS)project inShiojiri City,Nagano Prefecture.The“Shiojiri Project”is being undertaken as part of an initiative launched byJapans Ministry of Economy,Trade and Industry(METI)to promote new,regional MaaS applications.MCspartners in the consortium include Next Mobility Co.,Ltd.and the municipal government of Shiojiri City.NextMobility is a joint venture between MC and Nishi-Nippon Railroad Co.,Ltd.In FY2022,based on the results of demonstration projects,some service areas were shifted to full-scaleoperation.Other than rail,the only means of public transportation in Shiojiri City is a community bus service,butit has been hampered by a lack of drivers,a limited fleet and other problems.The city is also aging.About 28%of its roughly 67,000 residents are at least 65 years old,which has led to an even greater need for publictransportation.The Shiojiri Project aims to address both of these challenges.Solutions for Regional Transportation Challenges through On-demandMobility ServicesSocialEnvironmentGovernance43Respect the human rights of all stakeholders involved in promoting our diverse operations worldwide,and pursuesolutions for value chain-related issues,while considering the local conditions in each country.It is impossible to conduct sustainable business or to increase corporate value without respecting the humanrights of the people we involve in our business activities.MC will not only respect human rights when promotingits businesses but will also pursue business opportunities which create added value by tackling human rightsissues.Respecting Human Rights in Our Business OperationsRelated SDGs ThemesAction Plan Regarding this Material IssueSocialEnvironmentGovernance44MCs current activities have expanded far beyond its traditional trading business to include project development,production and manufacturing operations,working in collaboration with our trusted partners around the globe.Furthermore,since MC handles a wide range of products and services around the world,we believe in theimportance of identifying and analyzing the negative impacts of our business on human rights and theenvironment in order to ensure that such impacts are avoided/mitigated.MC is conducting human rights andenvironmental due diligence with this in mind.Further details of MCs initiatives on human rights are available here.Procurement based on MCs Policy for Sustainable Supply Chain ManagementIn order to monitor suppliers compliance with our Policy for Sustainable Supply Chain Management,we haveidentified products with high environmental and social risk in 2016 and 2020 with advice from consultants andexternal advisors.MC conducts annual surveys of suppliers(via our Sustainable Supply Chain Survey),with afocus on those industries where social risks including human rights and labor conditions,as well as environmentalrisks,are considered higher.当社100%Mitsubishi Corporation Fashion Co.,Ltd.,a fully owned subsidiary of MC,is working to enhancesustainable procurement of apparel products,strengthen communication and dialogue with suppliers through ourSustainable Supply Chain Survey,and promote the development of a sustainable supply chain.Implementing Human Rights Due Diligence for Business ActivitiesSocialEnvironmentGovernance45The MC Group has a global workforce of approximately 86,000 professionals,who we recognize as some of ourmost important stakeholders.In order for the MC Group to continue generating corporate value sustainably,it isnecessary for diverse human resources,regardless of gender,nationality,etc.to be able to fully demonstrate theirrespective capabilities in response to the further diversification and globalization of business.We believe that thefundamental premise for this is the development of a working environment based on respect for human rights,starting with ensuring workplace safety.For further details of initiatives and progress,please also visit here.Ensuring the Safety of EmployeesSocialEnvironmentGovernance46Recognizing that our human resources are the great assets of our businesses,foster a diverse and versatile talentpool that drives efforts to generate triple-value growth throughout our organization,and also seek to develop anorganization where diverse human resources share common values and grow together while furthering theirconnections and inspiring one another to excel.We must continue to be a dynamic,spirited and vibrant organization that responds promptly to global changesand in our management strategies,while seeking to connect our versatile and diverse workforce that works withpride to address societal challenges.This is the reason why maximizing the value of human capital is necessary inorder to achieve sustainable growth,and in line with this,we are developing various initiatives to maintain andfoster the value of the human capital within the MC Group.Fostering Vibrant Workplaces That Maximize the Potentialof a Diverse WorkforceRelated SDGs ThemesAction Plan Regarding this Material IssueSocialEnvironmentGovernance47With the aim of implementing an HR strategy that is able to respond promptly to management strategies,MC ispromoting a number of measures to respond to rapid changes in the operating environment,promote the rightpeople to the right positions,and strengthen our ability to respond to changes in the environment so that allemployees can demonstrate their capabilities.Strategic HR Assignments/AppointmentsMC will flexibly structure the organization in response to advancements in the Value-Added Cyclical Growth Modeland management strategies such as integrated EX/DX initiatives,as well as dynamically shift and appoint humanresources across organizations.Shifting human resources to focus areas and promoting the placement of the right people to the right positionsCross-organizational transfers increased significantly due to the foundation of the company-wide cross-functionalFood Industry DX Task Force and Power&Retail DX Task Force.MC will promote collaboration broadly acrossorganizations by allocating and appointing talent from various groups across the company,including the newlyestablished Industry DX Group and the EX Task Force newly established on July 1st,2022.In order to further ensure the placement of the right people in the right positions,MC will promote thevisualization of positions of high importance and difficulty on a consolidated basis and the human resources whoare capable for such role or position.Also,MC will implement the visualization of human resources for our HRsubsidiaries to promote the matching of human resources with abilities and motivations to proper dutiesregardless of age,gender,or other factors.HR StrategySocialEnvironmentGovernance48Strengthening our Ability to Respond to Changes in the Business EnvironmentIt is important to update our capabilities in response to changes in the business environment,and in particular,MC is focusing on reskilling to enhance the ability of our human resources and organizations to respond to suchchanges.Doing so will allow us to take on the challenge of and implementing integrated EX/DX initiatives andgrowth strategies as set out in Midterm Corporate Strategy 2024.Reskilling to Adapt to ChangeSpecifically,through a wide variety of HR development programs,MC is working to update leadership skills inresponse to changes in the business environment.MC will embrace HR diversity to make the most of our diverseand versatile talent pool and strengthen growth support skills.MC believes that employees in Team Leaderpositions play a particularly important role in realizing a“dynamic,spirited and vibrant organizations”,and basedon this,we hold the MC Leadership Program for newly appointed Team Leaders,where we conduct exercises tosupport team members growth as well as workshops to self-reflect and formulate workplace action plans basedon the results of 360-degree management reviews.In order to develop human resources who can contribute to increasing corporate value through EX,based on thethree themes of“proactive”,“defensive”,and“integrated initiatives with DX”,MC is establishing training programson EX-related themes within orientation training for newly hired employees,training for newly appointedmanagerial staff,and training for executive leadership regardless of Business Group or corporate departmentaffiliation.To accelerate DX,MC has defined“DX Talent Types”,each with expected relevant skills.In FY2022,all executivesand employees have begun taking the MC DX Advancement Program,an on-demand training program that allowseach participant to acquire IT/digital skills according to their individual level.In addition,we are working todevelop human resources to lead DX projects through other training programs including programming training forthose in charge of DX promotion and new business launches,a workshop called“MC Innovation Lab”forlaunching web services,management courses,CDO training courses,and innovation training.SocialEnvironmentGovernance49“Dynamic and spirited:”MC aims to achieve high employee engagement,and towards this end,will makeimprovements in terms of both people and organization so that employees can work with peace of mind and asense of attachment to the organization and to their work.Fostering a Corporate Culture That Capitalizes on DiversityMC will encourage connections that transcend organizations,age group,and job titles to foster a corporateculture that capitalizes on diversity.In order to promote active communication between top management andemployees,as well as interconnections between employees,we will expand the opportunities for dialogue,as wellas introduce and utilize IT infrastructure that encourages knowledge and information sharing.Promoting InterconnectionsTo enhance opportunities for dialogue between top management and employees,MC holds town hall meetingswith the President and CEO in an effort to enhance direct communication with employees.These help to deepeneach employees understanding of management strategies,creating an open organizational culture,and help toimprove engagement.Strengthening EngagementSocialEnvironmentGovernance50DE&I InitiativesMC is working to maintain and increase diversity by appointing employees based on their abilities andperformance,ensuring to assign the right person in the right position,regardless of age,gender or nationality orany other irrelevant factors.In particular,in order to increase the number of women in managerial positions(target of 15%or more by FY2025)and to accelerate their appointment to key positions,we are promotingcareer support tailored to women such as a mentorship programs for women in managerial positions.MC is alsofocusing on initiatives aimed at 100%utilization of childcare-related systems by men.Establish a company-wideworking group directly under MCs President and promote the development of an environment and organizationswhere all employees can flourish by fully demonstrating their individual strengths.Proceed to study/implementinitiatives that empower employees to succeed by respecting/accepting their individuality and leveraging ourversatility.SocialEnvironmentGovernance51Occupational Health and Safety InitiativesIn creating safe working environments for employees and contractors(safety,health,labor management,riskmanagement,etc.),MC aims to build and operate management systems that go beyond simply meeting the legalrequirements in the countries where we operate to provide support that is more substantial.Within the MCGroup,there are companies with OSH management systems that have acquired ISO45000 and OHSAS18001,theinternational standards for occupational health and safety management systems.Furthermore,in order topromote OSH management throughout the entire MC Group,we will are working to develop an organizationalframework,clarify responsibilities and continuously monitor progress in order to refine,maintain and furtherimprove our activities.In addition,MC aims to steadily reduce the number of workplace accidents and maintain and promote healththrough continuous monitoring of KPIs such as reducing the frequency rate of workplace accidents compared tothe previous year and ensuring a 100%health check-up rate for domestic(Japan-based)employees.Health Checkup Rate for Domestic(Japan-based)Employees(Non-Consolidated Basis)FY2019FY2020FY2021Health checkup rate for domestic(Japan-based)employees10000%Talent Management That Leverages IndividualityMC will strive to improve employee engagement while respecting diverse individual work styles and values andexpanding our efforts to support career autonomy,to ensure that our diverse and versatile talent pool can engagein their work with satisfaction and pride and continue to grow and play an active role while making use of theirabilities to the fullest.Expanding Initiatives to Encourage Career AutonomyBased on individual career aspirations along with skills and qualities that employees want to develop in the future,MC will promote Career Choice System(open recruitment and transfer system to emporwer employees transferfor the positions they wish to take on,Dual Career System(in-house dual work assignments system whichprovides opportunities for skill acquisition and growth),and Sabbatical Leave System(Educational Leave).SocialEnvironmentGovernance52In order to confirm the effectiveness of various initiatives in terms of our HR Strategy and”StrengtheningEngagement”,MC is developing a foundation for the collection,analysis and observation of various human capital-related data.Expansion of Effectiveness Evaluations and DisclosureMC will collect,analyze,and survey human capital-related data,and demonstrate our commitment to internal andexternal stakeholders through disclosure,while at the same time promoting various HR policies with greatereffectiveness.Disclosure of HR DataMC discloses data including regarding diversity and human resource development.Initiatives and data regardingdiversity management are available here.Initiatives and data regarding human resource development are available here.Initiatives and data regarding wellbeing(occupational health and safety,health and productivity management)are available here.Data UtilizationSocialEnvironmentGovernance53While swiftly responding to changes in the business environment,strive to realize effective governance on aglobal,consolidated basis and maintain/strengthen a sound organization that is transparent and flexible.In this era of rapid transformation,it is essential to have the mobility to promptly adapt to the changes in theworld while having a broad perspective in order to realize sustainable growth.In addition,we recognizestrengthening corporate governance on an ongoing basis as an important management issue,as it is thefoundation for ensuring sound,transparent and efficient management,all of which are integral for sustainablegrowth.From this perspective,our chief initiatives are as follows.Realizing a Highly Transparent and Flexible OrganizationRelated SDGs ThemesAction Plan Regarding this Material IssueSocialEnvironmentGovernance54As MC engages in a global network of business operations across all regions and industries,MC has accumulatedintangible assets in the form of intelligence and industry expertise.Through the efficient and effective division offunctions among our Head Office,global offices and subsidiaries,as well as group companies,we are constantlycollaborating to enhance our ability to respond to change and generate the next source of significant growth.Establishment of the Global Intelligence(GI)CommitteThrough our global network developed over many years,MC possesses multifaceted intelligence and know-how inmacroeconomics,industry and geopolitics.In order to connect this diverse intelligence and further strengthen ourability to respond to changes in the external environment,MC has newly established the Global Intelligence(GI)Committee.By incorporating the analysis of the GI Committee into the MC Shared Value(MCSV)Forum,whichdiscusses and formulates cross-industry companywide strategies,we will strengthen the driving force of ourBusiness Groups and collaboration across all industries.Incorporating Global Intelligence into ManagementSocialEnvironmentGovernance55MC has always been flexible in adapting its businesses and systems to match the changing times.The need forsuch flexibility is greater than ever in these turbulent times,requiring companies to be even more agile.We willcontinue to flexibly reshape our organizational structure and human resources in order to respond rapidly tochanges in the business environment and management strategies,and to create shared value.Organizational Change for the Next GenerationFollowing the announcement of our Roadmap to a Carbon Neutral Society in October 2021,in which MC set forthIntegrated EX/DX Initiatives to Create a New Future,MC established the EX Task Force in FY2021 and theIndustrial DX Group in FY2022 to accelerate these efforts.In January 2023,in order to further promote our EXstrategy,MC announced the establishment of a new Next-Generation Energy Business Group effective as of April1,2023.Also in January 2023,a new Chief Stakeholder Engagement Officer(CSEO)was appointed to integrate IR/SRactivities that had previously spanned multiple departments with the aim of providing thorough explanations offinancial and non-financial initiatives and information to stakeholders.MC will continue to modify its organizational structure in order to adapt appropriately to the ever-changingexternal environment.Flexible Organizational RestructuringSocialEnvironmentGovernance56The Board of Directors is responsible for making decisions concerning important management issues andoverseeing business execution.In-house Directors utilize their rich experience of working within MC,andIndependent Directors utilize their practical,objective,and professional perspectives to ensure appropriatedecision-making and management oversight.Initiatives to Enhance the Effectiveness of the Board of DirectorsIn recent years,MC has reviewed the regulations and operations of the Board of Directors and is continuouslyworking to improve the content of its deliberations,so that the Board of Directors can fulfill its role andexpectation to indicate the major direction of business strategies and monitor their implementation.In an effortto enhance the effectiveness of the Board,prior to each Board of Directors meeting,briefing sessions are held forIndependent Directors and Independent Audit&Supervisory Board Members to carefully explain strategicpositioning and the key points of each project,to help them deepen their understanding of the agenda items.Inaddition to the above,dialogue opportunities and small group meetings for Independent Directors andIndependent Audit&Supervisory Board Members are routinely organized,including with the Business GroupCEOs and division managers,with the Executive Vice Presidents,as well as opportunities for dialogue with juniorand mid-level employees.Through such efforts,MC strengthens the connections between the IndependentMembers of the Board and employees,ensuring the effectiveness of the Board of Directors.In the Successor Selection Process,careful deliberation regarding the succession plan was carried out by theGovernance,Nomination&Compensation Committee,of which the majority is composed of IndependentDirectors.Furthermore,Independent Members of the Board engaged in thorough dialogue and discussionmultiple times outside of committee meetings.More details about MCs corporate governance are available here.Transparent and Effective Operation of the Board of DirectorsSocialEnvironmentGovernance57MCs Three Corporate Principles call upon us to strive to enrich society,both materially and spiritually,whilecontributing towards the preservation on the global environment.In recent years,expectations and demands for companies to address various societal challenges have beenincreasing.Guided by our Materiality,a set of crucial societal issues that we will prioritize through our businessactivities,we aim to continue to grow together with society by continuously creating MC Shared Value,as setforth in Midterm Corporate Strategy 2024.Furthermore,in order to increase our corporate value in line with the ever-changing demands of society,we haveestablished an effective promotion framework that recognizes the importance of dialogue with our stakeholdersand a cycle of business strategy execution based on this dialogue.Cycle of Dialogue and Business Strategy ExecutionDetermination of policyExecution led by each Business GroupDisclosureDialogue with stakeholdersMCs Sustainability Promotion FrameworkMCs Sustainability Promotion FrameworkCompanywide Sustainability FrameworkPromoting Sustainability Through BusinessDisclosure(about the Sustainability Website)Dialogue with Stakeholders(Incorporating External Perspectives)MCs Sustainability Promotion FrameworkSustainability InitiativesSocialEnvironmentGovernance58In MCs management framework,sustainability initiatives are overseen by the Director/Corporate FunctionalOfficer in charge of Corporate Sustainability and CSR.The Corporate Sustainability&CSR Department plans anddrafts related policies and measures.Following deliberations by the Sustainability&CSR Committee,whichconvenes approximately twice a year,items are put forward or reported to the Executive Committee and theBoard of Directors.Reference:Sustainability Advisory CommitteeMain Discussion Themes for the Sustainability&CSR Committee in FY2021Climate changeGHG emissions management and reductions(e.g.,portfolio decarbonization and reinforcement mechanisms inMidterm Corporate Strategy 2024)Management of climate risks/opportunitiesMaterialitySupply chain managementStakeholder engagementCorporate philanthropy activitiesCompanywide Sustainability FrameworkSocialEnvironmentGovernance59To continuously create societal value and environmental value through our business activities,we haveestablished a framework through which not only Corporate Departments,but also Business Groups proactivelypromote sustainability.Following deliberations by the Sustainability&CSR Committee,the President and each Group CEO will holdfurther Business Strategy Meetings to discuss future strategy.In these meetings,policies for businesses that are deemed to be most affected by climate change are checkedagainst the results of a 1.5 scenario analysis.To further promote Business Group initiatives,management personnel responsible for promoting businessstrategy in each Business Group have been appointed as Chief Sustainability Officers.To promote collaboration,MC holds meetings for Group Sustainability Managers as needed to shareinformation and explain measures related to sustainability.Promoting Sustainability Through BusinessCycle for Integrating Sustainability into Business StrategySustainability Promotion Framework in Each Business GroupSocialEnvironmentGovernance60Framework for putting forward proposal applicationsMC confirms the significance of each business against our Materiality when screening investment and loanproposals.Environmental and societal risks and opportunities(including scenario analysis and carbon pricingimpact analysis)are mandatory checks.System for Screening ProposalsWithin the Corporate Sustainability&CSR Department,dedicated staff are appointed for each Business Groupand are tasked with providing support and checks on both environmental and societal risks and opportunitiesfor individual proposals based on the latest external trends,stakeholder demands,and internationalstandards.In addition,by having the General Manager of the Corporate Sustainability&CSR Departmentserve as a member of the Investment Committee,MC has put in place a screening system to facilitate decisionmaking that takes into account specialized insight on environmental and social impacts.Incorporating Sustainability into Individual ProjectsSocialEnvironmentGovernance61We believe that the cycle of disclosing our sustainability initiatives in a timely and appropriate manner based onthe requests of our stakeholders,gaining their understanding,and reflecting their feedback on our initiatives iscrucial.We will continue to proactively disclose sustainability-related information based on the recognition thatthis cycle contributes to enhancing our corporate value over the medium to long term.Disclosures are made through the Sustainability Website after approval by the Corporate Functional Officer incharge of Corporate Sustainability&CSR and after reporting to the Disclosure Committee,a subcommittee of theExecutive Committee.The website was established with the aim of centralizing ESG-related information disclosed separately throughsuch channels as the Integrated Report and the ESG Data Book,and of responding in a timely manner to theincreasingly complex requirem
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2022ENVIRONMENTAL，SOCIAL AND GOVERNANCE REPORT ContentsAbout This ReportChairmans Letter2022 Key Results:Overview0111111112134748495154363739424546020356Appendix I:key performance indicatorsAppendix II:GHG verification statementAppendix IV:index of reporting indicatorsAppendices040407About VipshopBusiness overviewCorporate governance 27283234Vipshop EcologyContributing to carbon neutralityClimate risk governanceEnvironmental managementESG Governance frameworkESG Development strategyStakeholder engagementMaterial topic analysisV-TalentProtecting employees rights and interestsA culture of diversity,equality and inclusivitySupporting employee developmentHealth and safety in the workplaceImproving employees sense of wellbeing V-CharityCharity strategySupporting rural revitalizationEmpowering womens developmentCo-creating a beautiful community141517Vipshops DevelopmentEnsuring product qualityProviding exceptional customer service202324Information security and privacy protectionCreating a sustainable supply chainA co-constructed industry ecosystem56585859Sustainable Development Management Appendix III:GHG inventory and verification basis and boundariesAbout this report 012022 Key Results:OverviewAbout VipshopChairmans letterSustainable development managementVipshop EcologyV-Talent V-CharityAppendicesVipshops developmentReporting scopeReport approvalReporting standardsNotesDisclaimersAccessThe organization scope of this report covers Vipshop Holdings Ltd.,its subsidiaries,branches,and variable interest entities.For ease of presentation and reading,this report also utilizes the terms Vipshop,the Group,the Company and we.This annual ESG report covers related data from January 1 to December 31,2022.To enhance comparability with past and future periods referred to within the report,some content has been extended.This report was ratified and approved by Vipshops ESG Committee.This report has primarily been written in accordance with the GRI Sustainability Reporting Standards(GRI Standards)of the Global Reporting Initiative(GRI).Vipshop guarantees this report does not contain any false records,misleading statements,or significant omissions.The information,data,and calculation methods quoted in this report are consistent with the relevant indicators disclosed in the Companys annual report.The Board of Directors is responsible for the authenticity and accuracy of the content of this report and unless otherwise stated,this report uses RMB as the primary unit of currency.Part of this report contains projections,including,among others,those regarding the planning and targets for the future development of the Company.This part of the report may be impacted by uncertainty which may result in discrepancies between the described content and actual results.Vipshop is not responsible for the updating of any statements of projection included in this report.This report can be read and downloaded from Vipshops official website(http:/).If you have any further enquiries,or any questions or comments about this report,please contact the Company via the contact details below:Postal Address for Guangzhou Headquarters:Vipshop Headquarters,No.128 Dingxin Road,Haizhu District,Guangzhou.Telephone No.:95718 or 400-6789-888(9:00-24:00)Zip Code:510335About This Report02About this report 2022 Key Results:OverviewAbout VipshopChairmans letterSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans LetterFor Vipshop,2022 was a critical year for pushing forwards with sustainable development.In 2022,Vipshop established its ESG Committee,part of a three-tiered system for sustainable development governance composed of the Board of Directors-ESG Committee-ESG Task Force,and in the same year,Vipshop embarked upon the drafting of its ESG strategy,targeting“Co-creation of a new sustainable life”,and deeply embedding the concept of sustainable development within the Companys strategy and business operations,working with stakeholders to explore a sustainable development pathway that is both better for the environment and humanity.Kinder to the environment protecting natural ecosystemsFrequent extreme weather events have given us first-hand experience of the impacts caused by climate change and the way that these effect every one of us.As a socially responsible and mission-oriented business,Vipshop has constantly explored how to develop as a green e-commerce business,continually contributing Vipshops knowledge,solutions,and power.Based on this target,Vipshop has started from its own operations,to systematically understand the risks and opportunities associated with climate change and draft the Companys targets for carbon neutrality.Vipshop pledges that carbon neutrality in its own operations will be achieved by no later than 2030,and that the greenhouse gas intensity of scope 3 emissions will be reduced by 50%,no later than 2030.Based on improvements in energy efficiency and transformation of the energy structure,Vipshop has drafted a detailed pathway to reduce emissions,working hard across multiple scenarios to improve efficiency and reduce emissions,and taking advantage of the business intrinsic strengths as a platform-based business,motivating all components of the value chain,including consumers,brands and partners,to co-create a green,low-carbon ecosystem,and usher in a new era of green consumption across the industry.Everything lives in harmony and relies on each other for growth.In light of this,in the future,Vipshop will ceaselessly continue to explore ways to be greener,reduce its carbon footprint,and protect biodiversity,thinking beyond the Companys own needs,work with others to protect the planet that we all share.Better for everyone conveying that Vipshop caresWhether they are customers,employees,brands,the community,or the general public,Vipshop cannot afford to overlook any of its stakeholders,who act as both guides and companions on the Companys growth journey.The Companys intentions remain steadfast,seeking to further empower others,and to increase value for all.Carefully selecting good products,to satisfy customer demand for high-quality products as part of a good life.To satisfy customers demands for diverse,high-quality products,Vipshop has enriched its differentiated product offering,strictly controlled product quality,and ensured that 100%of its products are genuine.Vipshop has created“V-pulse”,which defines an upgrade plan for all stages of operations including selection of products,supplier logistics and after-sales service,in order for customers to feel the“pulse-like”customer service,close to their hearts.Vipshop pays great attention to partner collaborations,creating its middle-platform evaluation dashboard,empowering suppliers with the digital capabilities to allow them to better understand their strengths and weaknesses,and the areas that leave their customers dissatisfied,and working with brands to create a platform for the sale of quality products.Vipshop has been pleased to observe the number of active Super VIP customers increase to 6.7 million in 2022,representing 41%of our online spending,further expanding the high-quality customer base,and aiding the platforms high-quality development.Empowering growth,to satisfy employees desires for a proactively inclusive workplace.Vipshop advocates a culture of diversity,equality and inclusivity,and has developed a specialist recruitment program to allow more people with disabilities to gain meaningful work experience,and to unlock more possibilities for them.Vipshop is steadfast in its opposition to sexual harassment and violence in the workplace,and has established reporting channels,and incorporated these into Vipshops Management Red Lines,providing employees with an increased sense of security.Vipshop has actively built a women-friendly workplace,providing thoughtful additions such as mother and baby rooms,to allow women to feel more comfortable at work.In 2022,the proportion of female employees at Vipshop reached 52.6%,exceeding the latest average Gender Equality Index(GEI)value published by Bloomberg.Vipshop has also expanded its culture of integration to the community,opening up the Company HQs football pitch as a charitable space for the city,offering dedicated free sessions for children with special needs.Vipshop also encourages employees to get involved as volunteers,allowing them to experience the values and concepts of integration and inclusivity through charitable action.Fostering good thoughts,to fulfil the publics hopes for a warm-hearted and caring community.Vipshop has proactively developed its charitable programs including V-Love Mothers,rural revitalization,and the V-Love Charity Program,with charitable investment surpassing RMB200 million in 2022.In terms of rural revitalization,Vipshops Langtou Village Rural Revitalization project has developed the culturally and historically significant,national-level settlement of Langtou,located in the Huadu District of Guangzhou City.This project,centered around a core of cultural revitalization,has coupled preservation with development,to breathe new life into the village of Langtou.In terms of womens charities,by the end of 2022,the V-Love Mothers initiative had helped more than110,000 single-parent families in need by relieving their burdens and empowering them.Vipshop has encouraged more women to follow their scientific dreams,with the Westlake Women in Science Development and Support Program helping several female doctors develop their research projects and unlock more of lifes possibilities.Only by committing oneself and taking responsibility,can one hope to achieve success.Even though the road ahead has many uncertainties,at Vipshop,we are committed to our original ethos.We believe that we must uphold our philosophy of sustainable development and work hard with our partners,if we are to build a more inclusive,more environmentally friendly,and more harmonious world,and establish a more lasting future.Chariman of Vipshops Board of Directors and CEOChairman of Vipshops ESG CommitteeEric Ya Shen03About this report 2022 Key Results:OverviewAbout VipshopSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letterEnvironmental IssuesVipshop has formulated a plan for the Groups carbon neutrality targets,and will achieve carbon neutrality in its own operations no later than 2030,and that the greenhouse gas intensity of scope 3 emissions will be reduced by 50%,no later than 2030Vipshop established its ESG Committee,chaired by the Companys Chairman and CEO,which holds 1-2 meetings per quarter,systematically monitoring and leading the rolling out of all ESG objectivesThe Group-level ESG strategy has been formulated,defining the 5 key components of Vipshops ESG strategy:New Sustainable Choices,Happy Consumption,Proactive Inclusivity,Beautiful Society and Dependable ComplianceVipshop requires all senior-level managers to sign a Compliance Commitment,with departmental employees compliance forming part of senior managers performance reviews.This further enforces managers compliance responsibilities and aids the effective implementation of the compliance system100%of employees received anti-corruption training,with a total of 273,867 staff attendances recordedVipshop has promoted the use of clean energy,generating 61,538 MWh of solar power in 2022 and planning for the Companys HQ to use 100%green energy in 2023Vipshop has gained ISO 27001 Information Security Management System(ISMS)accreditation and ISO 27701 Privacy Information Management System accreditation,with no incidents of information security or network security incidents during the entire yearVipshop has promoted green packaging,optimized the thickness of colored plastic packaging and cardboard packaging materials and reduced material usage;throughout the year,approximately 21.19 million cardboard boxes have been recycled,reducing the weight of cardboard used by 2,556 tonsVipshop has promoted the recycling and use of discarded items,using measures such as recycling baskets on the packaging line,resulting in the logistics center recycling 16,774 tons of discarded packaging materialsSocial IssuesGovernance IssuesQuality inspection of new brands,inspection of received goods and on-site inspection,online quality inspection and targeted inspection have been used to ensure product quality at every stage and ensure that 100%of products are genuineProduct-specific customer service and 33 problem-solving listening groups have been established as a means of practically resolving the issues encountered by customers;customer problem solving satisfaction rate reached 98.01%in 2022Vipshop was named by Forbes China as“Chinas Best Employer 2022”and“Chinas Most Sustainable Employer 2022”Female employees make up 52.6%of Vipshops workforce,exceeding the latest Bloombergs average Gender Equality Index(GEI)value(of 43%),with 42.2%of managers being female100%of staff have received training,with an average of 28.3 hours of training per employeeIn 2022,more than RMB 200 million was committed to charitable investment,bringing the total in excess of RMB 558 millionIn 2022,Vipshops V-Love Mothers charity program for single-parent families increased the amount of phone consultations by 61%year-on-year;the monthly average number of appointments made through the app,recorded a year-on-year increase of 100%;By the end of 2022,V-Love Mothers had helped more than 110,000 single-parent families in needBy the end of 2022,the V-Love Charity Program had gained 13.44 million users,and had issued 20.1 billion V-Love points,funded more than 31 outstanding charitable initiatives,working in areas including assisting sick children,supporting vulnerable groups and supporting women in needVipshop has promoted a culture of equality,inclusivity,and diversity,and has developed its“Chasing dreams together with Vipshop initiative aimed at recruiting those with disabilities.Vipshop has also established channels to report discrimination,harassment,and bullying,and has carried out training and internal communications on these topics2022 Key Results:Overview04About this report About VipshopSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopBusiness overviewVipshop(NYSE:VIPS)is an online e-commerce business,built around a core of discount retail for brands,that was established in Guangzhou,China in 2008.In China,Vipshop has pioneered an innovative sales model of selected brands,significant discounts,and limited-time purchases,asserting itself as the long-established Chinese-market leader for time-limited flash sales and online discount retail.Since its listing in 2012,Vipshop has been profitable for 41 consecutive quarters and has been named on the“Fortune China 500”and“Chinas Top 500 Private Enterprises”lists on multiple occasions.Annual net revenuesRMB billion103.2Annual active customers2million84.80Annual total orders1739.51.“total orders”refers to the total number of orders placed during the relevant period,including the orders for products and services sold through our online sales business and on our online marketplace platforms(excluding,for the avoidance of doubt,orders from our offline stores and outlets),net of orders returned.For more information,please refer to Vipshop 2022 Form 20-F.2.“active customers”refers to registered members who have purchased from our online sales business or our online marketplace platforms at least once during the relevant period.For more information,please refer to Vipshop 2022 Form 20-F.Notes：million05About this report About VipshopSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewIn 2022,Vipshop used the VIPSHOP name to expand into the Southeast Asian market,establishing its headquarters in Singapore.The Company continued to use the brand flash-sales approach,collaborating with more than one hundred famous overseas brands and domestic Chinese brands,to provide all types of products including carefully selected fashion items,shoes,bags,sports wear,cosmetics,mother&baby items,appliance,and electrical items.Vipshop hopes to use their optimal shopping experience and customer service offerings to continue to satisfy the needs of consumers from even more markets across Southeast Asia.By April 2023,Vipshop had already successfully launched in the two significant markets of Singapore and Malaysia.Nowrain is an important overseas brand for Vipshop that targets the US-European womens fashion market.In 2022,Nowrain was awarded TikToks official Seller Gold award,establishing Nowrain as one of TikToks leading female fashion brands.Shan Shan OutletsOverseas businessIn 2019,Vipshop started to operate its own physical stores,focused on four core urban areas across China,forging a connection between Vipshop and offline consumers,strengthening online-offline linkages,and helping to spread the“discount retail”concept far and wide.By the end of 2022,Vipshop was operating stores across 17 provinces,municipalities,and autonomous regions throughout China,including in Guangdong,Wuhan,Changsha,Chongqing,Chengdu,and Beijing.Physical storesOther business strategyVipshop is focused on its merchandising strategy and is committed to working with quality brands.Besides online business,Vipshop has developed several sub-sectors of its business including offline stores and outlets,and overseas e-commerce in recent years to seek-out growth opportunities in the post-Covid era,striving to provide more quality and branded products to more customers around the globe.In July 2019,Vipshop acquired Shan Shan Outlets.As one of the leading players in the offline outlet management industry in China,the combination of Shan Shan Outlets vast depth of operations experience,their absorption of exceptional management experience from overseas and the unique characteristics of Chinese consumers,has created an entirely new Outlet ,Outlet Gurus concept.This concept takes outlets as the core and then overlays limitless scope for business innovation,to provide consumers with a more beautiful life and give rise to a new outlet format for China.By the end of 2022,Shan Shan Outlets were already operating 14 outlets across China,covering a total area of 1.47 million square meters and featuring over 3,000 brands.In addition to their experience in operating physical stores,Shan Shan have also been exploring new ways to combine offline and online formats.Guided by its customers demand,Shan Shan has constructed a digitalized operating system that has formed a new type of data-driven,offline-online business.City Outlets are a component of Vipshops flash sale offering that rely on Vipshops fundamental data,technical abilities,and financial resources to establish physical flash sale retail plazas.These plazas bring together international brands,fashion retail,lifestyle accessories and featured food products to create one-stop City Outlet experience centers that simultaneously satisfy a broad spectrum of consumers needs for fashion retail,family experiences,food and beverages,entertainment,culture and more.By the end of 2022,Vipshop had opened three City Outlets experience centers in Hefei and Nanjing,featuring over 300 brands.City Outlets06About this report About VipshopSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewCorporate culture To improve the quality of life and enhance the experience of happinessTo become a world-class e-commerce platformMissionValuesBusiness PhilosophyVisionWith utmost gratitude,Vipshop practices actively corporate social responsibility under the framework of ESG to establish a healthy corporate image;Vipshop supports public welfare,helps more people in need,and gives back to society.Giving back to societyPartners are also customers.Vipshop respects each and every partner,collaborating sincerely and operating with integrity to build an ecosystem of interdependence and mutual benefits.Caring for partnersEmployees are the Companys greatest assets and Vipshop continuously encourages employees to unleash their potential,helping them grow and achieve success with the Company.Vipshop cares about each employee and enables them to enjoy a happy life at the same time as working hard.Caring for employeesVipshop works for its customers and strictly adheres to its customers first approach,continuously listening to and working to understand customers needs,and proactively improving customer experience.Vipshop is committed to providing an overall experience and customer service that goes above and beyond customers expectations,ceaselessly surprising customers and creating value for them.Caring for customersCustomers FirstCollaborative and ResponsibleSimplicity and IntegrityEfficient And EffectiveInnovation And Perfection07About this report About VipshopSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewCorporate governanceVipshop strictly abides by the requirements of the Company Law of the Peoples Republic of China and the New York Stock Exchanges Listed Company Manual and other laws and regulations,has established a reasonable and scientific governance system with clearly defined responsibilities,and regulates the Companys governance work.Corporate governance frameworkThe Board of Directors established four specialist committees:the Audit Committee,the Compensation Committee,the Nominating and Corporate Governance Committee and,the ESG Committee.For matters that fall under the scope of duties of each specialist committee,these are submitted to the Board of Directors for review after being approved by the relevant specialist committee.Among them,members of the Audit Committee,Compensation Committee,Nominating and Corporate Governance Committee are all independent directors,taking advantage of their benefits as independent entities in terms of supervision and decision-making.Diversity of board members is an important stimulus for innovative concepts,and for the promotion of the sustainable development of the Company.Each year,the Nominating Committee,together with the Board of Directors,examine the structure of the Board in terms of its members,including aspects such as independence,cultural and educational background,technical ability,industry experience and diversity of the members.At present,the Board of Directors has ten members,five of whom are independent directors and one who is an independent female director.Board members industry experience includes information communication technology and services,consumer electronics distribution and strategic investment.Two of the independent directors and one director have internet industry experience,one independent director has IT management experience,and one non-executive director has e-commerce industry experience.Board of DirectorsAll Top-tier DepartmentsManagement TeamCompensation CommitteeAudit CommitteeNominating and Corporate Governance CommitteeESG CommitteeAn effective Board of Directors is essential for the Companys governance.Each year,the Company distributes a survey to each board member to assess the Boards performance as a method for examining the Boards operational efficiency.In terms of board members attendance,in 2022,all board members attended all board meetings.In 2022,the average tenure for each board member was 9 years thus ensuring both the continuity of the Boards membership and the updating of skills and perspectives.The Companys management is responsible for the Companys operational management,organizing and implementing the Boards resolutions,the Companys annual plan and the Companys strategic plan,as well as performing other functions and powers conferred by the Articles of Association or the Board of Directors.The Company has established policies,set up systems and provided process guidelines for all aspects of the Business including procurement,operations,sales,human resources,and finance,in order to standardize day-to-day business operations.08About this report About VipshopSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewImproving complianceFeedback and assessment of compliance riskVipshop has established a compliance mailbox:,whereby if an employee discovers any actions that violate compliance management,they can report it via this channel or provide feedback to the Chief Compliance Officer.Any employee who violates compliance guidelines will be punished in accordance with the facts and circumstances of the situation in question,including the potential termination of employment relations.From March 2023,Vipshop has required all senior managers to sign a Compliance Commitment.If a senior manager,or an employee working in a senior managers department,violates the compliance regulations,this will directly impact on the managers performance review.This further emphasizes the compliance managers responsibilities and promotes the effective implementation of the compliance structure across all projects.Strengthening compliance controlsVipshop announced ten special compliance themes including Competitive Compliance,Data Security and Personal Information Protection,Platform Governance,Operations Management,Protection of Consumers Rights,Labor and Employment,and the Foreign Corrupt Practices Act(FCPA).Through direct engagement,the Company provided compliance evaluation and auditors comments to every department within the business at their respective critical moments,thus deepening the integration of compliance management across all aspects of the business.Establishment of special compliance themesInternal and external compliance auditingThe Internal Audit Department regularly conducts independent audits of all departments,independently and objectively evaluating the appropriateness,compliance and effectiveness of various operational activities and internal controls.It gives advice for optimization to facilitate the strengthening of the effectiveness of corporate governance,risk management and control processes.Since its listing,Vipshop has undertook an Internal Controls audit in line with Sarbanes Oxley Act(SOX)404 and engaged a third-party institution to carry out an external audit which encompassed all of the Groups operational entities.Online Platform Rules CenterIn 2022,the Platform Rules Center was added to Vipshops official website,creating a one-stop platform for the management and display of rules regarding products,suppliers,and the management of third-party merchants,reinforcing the management structure for stakeholder compliance.Compliance is an endogenous demand for the promotion of the Companys high-quality development and adhering to the law is a prerequisite for ensuring the ongoing,highly efficient advancement of the Companys business and for the realization of ever-higher targets.The Companys strict adherence to laws and regulations,continued improvement of the Companys internal governance management structures and systems,establishment of the Compliance Committee in 2021,chaired by the Chairman of the Groups Board of Directors,and,at the same time the setting up of a top-level Compliance Department,have all strengthened the unified treatment of compliance issues.The Compliance Committee meets every quarter,to evaluate the Companys compliance risk and to draft an improvement plan,continually improving the quality of compliance management.In 2022,the Board of Directors of the Company has appointed the Companys General Counsel as the Chief Compliance Officer.09About this report About VipshopSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewVipshop pays attention to the protection of its intellectual property rights,and also safeguarding the reasonable rights and interests of third-party intellectual property rights holders.The Company has established an internal monitoring and tracking system,to examine the work done to protect the Companys own intellectual property rights and to safeguard third-partys intellectual property rights.In 2022,the Company revised regulations relating to the banning of the sale of counterfeit products,increased the scale of the fines and widened the scope of the net to cover famous IPs counterfeit patterns and wearable product accessories.In addition,Vipshop scrutinized online sellers websites to decrease the risk of intellectual property right infringement.Beyond this,Vipshop also provided intellectual property rights training for overseas projects,the Singapore commercial(team)and operations employees,raising the relevant employees awareness of how to reduce risk of intellectual property rights infringement and standardizing the safeguarding of intellectual property rights.Protection of intellectual property rightsIn order to consolidate all employees awareness of compliance,and to strengthen their understanding of the concept of compliant operations,the Company designated January 14 as its annual Compliance Day.On January 14,2022,Vipshop hosted a Compliance Day event with the theme of,“Compliance for Good,Foundation for Longevity”,running a week-long series of events including a compliance quiz and compliance training to help foster a culture of compliance and promote an ethos of“Compliance for Good”.The compliance training included a variety of content tailored for the Compliance Committee,designated departments,and the entire workforce,in order to meet the needs of different levels of employee and increase their awareness of risk mitigation.For promoting a culture of compliance,each month,the Company sends a compliance bulletin to all members of the Compliance Committee,sends a data compliance bulletin to all employees working on operations and information safety and,shares a publication on platform operations with those working in commerce and operations,to strengthen the compliance awareness of key personnel,and bolster the front line of defense.Promoting a culture of complianceRegulated commercial conductof employees received anti-corruption training0Number of times staff have attended anti-corruption training:273,867copyrighted works228By the end of 2022,Vipshop had trademarks2,186204amassedauthorized patentsVipshop has always held a firm,zero-tolerance attitude towards fraud and corruption,strictly adhering to laws and regulations including the Anti-Unfair Competition Law of the Peoples Republic of China and stipulating the Companys own Measures for the Management of Anti-Money Laundering.In addition,the Company has published its own Code of Business Conduct and Ethics on its official website,to clarify the work rules and disciplinary measures for employees.Vipshop has set up a Corruption Reporting platform with dedicated reporting channels available on Vipshops official website,official Weibo account,Integrity Promotion WeChat public channel Breeze,supplier platform,internal OA(Office Automation)and Weimi IM office software.A reporting mailbox,phone line,and WeChat account are available for customers,suppliers,the media,investors,and all company employees to submit complaints and reports.The Company has drawn up a standardized process for handling fraud and corruption complaints.Upon receiving such reports,the Asset Protection Department promptly starts an investigation,and accepts the supervision of the Audit Committee and the Board of Directors.In the Vipshop(Group)Employee Integrity Provisions 3.0 and the Asset Protection Departments Case Investigation System,the Company clearly states that information and materials relating to the complainant,or the informant,will be protected,with only those directly involved with the processing of the reported incident able to come into contact with the informants information.If any investigator contravenes confidentiality rules,they will be dealt with in strict accordance with the Companys systems.Vipshop strictly prohibits any form of retaliation against employees who seek help or report known or suspected violations and protects the personal safety and interests of informants to the utmost extent;cash rewards may be awarded if the reported matters are verified to be true.To instill a culture of integrity,Vipshop has developed a series of training and information events,including,but not limited to,organizing all employees to watch the Central Commission for Discipline Inspections anti-corruption documentary series,Zero Tolerance,sending out anti-corruption reminders and information to all employees,suppliers,and other partners in advance of the holidays.In addition,Vipshop has organized awareness-raising educational workshops,and on December 9th,hosted events to mark International Anti-corruption Day.All of these efforts strengthened employees anti-corruption awareness and reduced the risk of employees engaging in corruption.On November 18,2022,the company conducted anti-corruption training for all members of the Board of Directors.After the training,all board members signed the Anti-Corruption Commitment.In 2022,Vipshop didnt receive any fines and has not been required to make any reconciliation settlements for any anti-competition activities.010About this report About VipshopSustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewStrengthening risk managementVipshop has referred to frameworks such as the Committee of Sponsoring Organizations(COSO)framework for enterprise risk management,when drafting the Vipshop Group Risk Management System,creating a risk control format and organizational system that is suited to the present development stage and business characteristics of the Company,ensuring that all critical risks faced by the Company during its business activities are fully identified and appropriately controlled,in order to realize stable development.The Board of Directors is the most-senior leadership and decision-making body in terms of risk management.They assume responsibility for the effective management of risk on behalf of the shareholder(summit)meeting.Of the board members,four independent non-executive board members and one non-executive board member have professional experience in risk management.The Audit Committee is responsible to the Board of Directors,and in terms of risk management,is primarily responsible for the approval of the Annual Work Plan and other directives provided by the Internal Audit Department.The Internal Audit Department is primarily responsible for assisting the Audit Committee to establish and improve the risk management system and organize annual risk assessment work.It is a top-level department that reports to the Audit Committee and is independent from other departments.In addition,the Audit Committee is comprised of three independent board members,ensuring that risk management and the lines of business remain independent.In terms of operations,Vipshops highest-level representative is Chief Operating Officer,Arthur Hong Xiaobo,who is specifically responsible for risk management.The highest-level individual who is responsible for the monitoring and review of operations risk management performance is Audit Committee Chairman,Kathleen Chien.The Company adds some risk management indicators in the KPI reviews of its managers including senior officers and department directors,including cases of corruption and,information security and privacy incidents,to encourage individuals to monitor the effective deployment of all risk management monitoring measures.Risk identification and evaluationProcess for reporting of internal riskIn 2022,the Internal Audit Department systematically reviewed risk within each of the Groups business sectors,through a combination of approaches including risk interviews and document checks.A risk database list for the Group was drawn up based on the results of the risk evaluation process,covering financial risk,strategic risk,market risk,operating risk,legal risk,and other categories of risk.In parallel with this,Vipshop conducted scenario analysis and sensitivity analysis to assess the potential financial and business impacts of major risks,evaluate the possibility of risk occurrence and the scale of potential impact.This analysis was used to ascertain a risk level,undertake adequate risk prevention,stipulate risk control measures,and formulate alternative plans,as part of a risk prevention system.If an employee uncovers risk during their day-to-day work,they can contact the Internal Audit Department at any time via the Weimi IM service,email,phone or face-to-face.The Internal Audit Department will then carry out risk evaluation and activate several risk prevention measures including help to build processes,mitigate any control system deficiencies and execute auditing in accordance with the likelihood of the risk occurring and the danger associated with this,with the aim of avoiding or minimizing losses to the Company.Risk management and monitoringVipshop has integrated international risk management standards with the Companys own circumstances,establishing an internal control model of Three Lines of Defense to ensure effective risk management and an effective internal control system.Made up of various business and functional departments,the First Line of Defense is responsible for the design and execution of internal controls during the process of day-to-day business operations.For example,when the Company was developing its application product,the Commercial Department was required to consider relevant risk factors to mitigate all types of risk.Made up of the Financial,Legal and Compliance departments,the Second Line of Defense assists the First Line of Defense to establish and improve its risk management and internal control systems,as well as monitoring the effectiveness of the internal control work carried out by the First Line of Defense.Made up of the Internal Audit Department,the Third Line of Defense organizes regular independent evaluation and verification of the effectiveness of the Companys risk management and internal control systems.The First Line of DefenseThe Second Line of DefenseThe Third Line of Defense011About this report Sustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development management ESG Governance frameworkESG Development strategy In 2022,Vipshop established the ESG Committee,part of a three-tiered system for sustainable development governance,composed of the“Board of Directors-ESG Committee-ESG Task Force”.This group meets 1-2 times per quarter and systematically evaluates,monitors,and drives forward ESG-related projects,ensuring the smooth progress of ESG related work and creating sustainable value for stakeholders.Vipshop has defined its ESG strategy,setting the target of“co-creation of a new sustainable life”,and exploring a pathway of sustainable development established around the five core areas of:New Sustainable Choices,Happy Consumption,Proactive Inclusivity,Beautiful Society and Dependable Compliance.Vipshop(“V”)aspires to bring together stakeholders including brands,consumers,employees,communities,and partners to create a platform for sustainable living(“We”),working with all parties to design,explore and create a new sustainable life.Membership compositionIncludes members of the BoardChaired by the Companys Chairman and CEO,in addition to the Vice Chairman and COO,and one independent directorThese groups are headed by the main person responsible for each department or division,including the Companys Compliance and Legal departments,the Business and Operations Centers,and Charitable Foundation.The other members of each group are all key personnel from the relevant departmentDefines ESG related strategy,targets,and action plans;assesses and evaluates proposals from the ESG Task Force;coordinates the resources required to progress with ESG topicsMakes proposals to the ESG Committee;responsible for the implementation and execution of ESG workEvaluates and monitors strategies and targets related to ESG work Board of DirectorsESG CommitteeESG Task ForceResponsibilitiesUniting brands to provide consumers with higher quality and more sustainable product choicesUniting packaging suppliers to increase the usage of sustainable packaging materials,and provide consumers with sustainable packagingUpholding responsible procurement principles,proactively selecting suppliers with superior ESG performance and,promoting healthy development of the supply chainCreating a liberal,inclusive,diverse working environment and,listening to and respecting the opinions of employees from all backgrounds to increase employees sense of identityEstablishing an ESG governance system and ensuring the effective implementation of the ESG strategyDeveloping climate action and,tracking of climate risk and opportunities;defining targets for carbon neutrality,and pledging to achieve carbon-neutral in its own operations no later than 2030,encouraging the value chain to reduce emissions and creating a low-carbon societyCreating an environment of responsible consumption,encouraging consumers to be sustainable while ensuring the source of products and the accuracy of information providedCreating an eco-friendly platform,advocating the preservation of forests and wild animals,to create an ecological society Creating an environment of safe consumption,protecting consumer privacy and information security through technology optimization and management improvementCreating an environment of hassle-free consumption,increasing the friendliness of the platform,while improving the quality of customer service and resolving customers problems in a timely manner,providing more friendly experience to seniors,those with disabilities and other disadvantaged groupsFocusing on womens charities,to empower womens growth,and contribute to an equal societyPromoting digital philanthropy and helping disadvantaged groups integrate with digital life,to create an integrated societyLeveraging the online sales platforms advantages and harnessing the culture of rural revitalization to create a mutually prosperous societyIncorporating ESG risk into the Group s risk management system,ensuring ESG management complianceFostering gender equality at work,providing leadership training for women and,increasing female representation at all employment levelsCreating a development platform to meet employees needs,strengthening the foundations of the training system,and supporting junior employees growthCreating a compliant platform to ensure employees health and safety,and providing them with the conditions to work safelySustainable product choicesSustainable packaging choicesSustainable supply chain choicesAn inclusive workplaceESG governance monitoring systemClimate change and carbon neutralityResponsible consumptionEco-friendlySafe consumptionHassle-free consumptionFemale friendlyDigital integrationRural revitalizationESG risk management systemGender equality at workEmployee development platformHealth and safety platformConstructing a good governance system,and acting as compliant,disciplined corporate citizensCo-creation of a new sustainable lifeCreating a platform for sustainable consumption,innovating new sustainable choices with the value chainCreating a platform for inclusive development,establishing a mutually inclusive workplace with employeesCreating an environmentally and societally friendly platform,developing a beautiful society for allCreating a platform for happy consumption,creating a new experience with and for consumersNew sustainable choicesProactive inclusivityDependable complianceBeautiful societyHappy consumption012About this report Sustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopStakeholdersGovernment and supervisory agenciesCustomersEmployeesInvestorsPartnersEnvironment and SocietyMedia and Non-Government Organizations(NGOs)Primary concernsCommunication methodResponse(s)adopted in 2022Legal and Compliant operationsProduct qualityLegal rightsCorporate governanceSupply chain managementTackling climate changeInformation disclosureCommunity participationEstablishment of a cooperation systemAnnual report,quarterly report and other announcementsOrganized Annual General MeetingFace-to-face with Vipshop52.6%of all employees are femaleGovernment-business symposiumsOnline and offline platforms6,815 employees in 2022Total net revenues in 2022 was RMB 103.2 billion Create employment opportunitiesCustomer service experienceCompensation and benefitsInvestment returnsHonest cooperationBiodiversityInteraction with the mediaSocial welfare eventsPromotional campaignsSupplier trainingAnnual General MeetingDawn Light mailbox100%of employees received trainingProvision of informationComplaints hotlineMarket researchCustomer satisfaction surveysDrive the growth of economyPrivacy and data protectionTraining and developmentRisk managementMutual benefitsEnvironmentally friendly packagingContributions to NGOsSocial welfareImpact on sustainable developmentRural revitalizationSupplier contracts and agreementsInvestor emails and online and offline meeting Hosted hundreds of online and offline investor communication sessions360 ManagementOccupational health and safetyESG performanceCEO online mailboxThe number of attending Occupational Health&Safety training sessions was 90,034 person-times100%of suppliers signed Honest Cooperation contractsFormulated plans for the design and implementation of the Groups high-level,zero-carbon strategy,committed to make its own operations carbon neutral no later than 2030Regular publication of Financial and ESG reportsMedia conferencesInformation disclosureOver RMB 200 million invested in charitable projects in 2022;by the end of 2022,more than RMB 558 million had been invested in charitable projectsEquality and diversityEmployee BBSThe resolution rate of the telephone channel increased to 88%during the first instance,and the resolution rate of the online channel increased to 86%during the first instance Stakeholder engagementVipshop values communication and collaboration with all corporate stakeholders and uses multiple approaches to undertake effective,timely communication with them.These approaches ensure stakeholders Right to Information and Right to Participate are respected and improve their understanding and sense of the business identity.013About this report Sustainable development managementVipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopMaterial topic analysisVipshop earnestly communicates with and surveys all stakeholders including shareholders,government,employees,and customers,using their opinions and feedback to identify ESG material topics.Vipshop continually tracks and works on the selected issues and emphasizes their disclosure in the annual report.1.002.003.004.005.006.007.008.009.0010.000.002.004.006.008.0010.00Vipshop integrates national regulatory policies,GRI Standards,capital market ESG evaluation indicators,Company strategic planning,and leading industry figures key issues of concern in a five-pronged,multi-dimensional approach that identifies and organizes each years key issues,and adds them to the topic library.Importance to Companys Development Establishment of an ESG topic libraryVipshop collates and organizes the opinions of various stakeholders on the Companys sustainable development,including those of government and monitoring institutions,shareholders and investors,employees,customers,partners,media and society,and NGOs,to help ascertain which of the various ESG topics are most important.Stakeholder communicationVipshop analyzes and draws statistics from survey results in accordance with substantive procedures,arranges topics in order of importance to stakeholders and business development,and constructs a topic importance chart.Vipshops management and external specialists also review and evaluate the results of the topic selection process.Analysis of issues importanceVipshop specifies and steadily carries out a relevant action plan for each of the material topics that emerge and emphasizes the disclosure of the results in the Companys reports.Responses and disclosure of topics1 12 23 34 41151712618821420931521104162271131911517126188214209315211041622711319Importance to StakeholdersEmployee compensation,benefits and developmentProduct qualitySocial welfareTackling climate changeOccupational health and safetyPrivacy and data securityBusiness ethnicsBiodiversityCompliant employmentIntellectual property protectionCompliant operationGreen packagingConsumer servicesDigital technology innovationCorporate governanceEnvironmental managementGreen consumptionSupply chain managementRisk managementDiversity,equality and inclusivity Responsible marketingRural revitalization014About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementVipshops mission is,To improve the quality of life and enhance the experience of happiness.Vipshop is dedicated to providing high quality products and services,continuously improving information security,and protecting customers personal data,collaboratively working with suppliers and partners to create a sustainable development ecosystem and enable customers pursuit of a comfortable life.Vipshops Developmentof customer complaints resolvedof suppliers signed Honest Cooperation contractscases of information security breaches or other network safety issues99.36005About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementBrand selection reviewQuality review systemQuality inspection of new brandsOnline quality inspectionTargeted inspectionsWarning light systemInspection of received goods and on-site inspectionsStandardized monitoringImprovement through simulationComprehensive consideration of the credentials for each brands product,market performance,product recognition and other factors form part of the assessment of compatibility between each brand and Vipshop,with the final decision to onboard a brand being made after the multi-stage review process.During the approval process,a third-party quality inspection company is invited to inspect the brands products and projects,including,but not limited to,product packaging,labelling,external appearance,safety,functionality,and performance,to assure the product meets Vipshops purchasing standards.Before a product goes online,the suppliers credentials are reviewed and they are asked to upload product inspection reports;once online,Vipshop works with an authorized third party who anonymously purchases the products,carries out random inspections of internal quality and,undertakes laboratory testing of the physical and chemical characteristics of the product in accordance with national standards.If any substandard products are discovered,the selling of all related product variants is immediately suspended,and if the problem is deemed serious,the brand will be taken offline,and a decision will be taken,in accordance with the seriousness of the problem,whether to continue working with the brand in question.In collaboration with third-party quality inspection partners,Vipshop works with brands who fail the received goods inspection,on-site inspection,monthly quality assessment or receive customer complaints,by developing critical,targeted tests to ensure that the product passes before being sold on Vipshops platform again.This system has been designed so that if a product receives more than a specified number of negative reviews within a designated time period,the brand will be strictly dealt with.In 2022,Vipshop adopted the warning light system as part of improving its management of products that had multiple quality issues or severe quality issues and required the Quality Control department to carry out additional product checks.Front-and second-line customer service agents can use the warning light system for feedback,and its scope has been broadened to cover the management of issues including non-accurate imagery,non-new products,multiple shipping errors etc.,helping to strictly enforce product quality and the quality of product information provided online and,minimizing the impact on customers experience when product issues occur.To ensure product quality,products delivered to Vipshops logistics center undergo inspection before being accepted.For products that are sent out directly by the supplier,an inspection team carries out an on-site inspection.In addition to checking product quality,the inspection also monitors and facilitates the optimization of the suppliers warehouse management systems and customer returns processes.In accordance with product quality risk and consumer complaints,Vipshop carries out sampling of product quality to ascertain whether standards are being met.If a suppliers product is found to be sub-standard,they shall enter a six-month period of intensive monitoring during which Vipshop will carry out another 1 to 6 sample inspections of the suppliers products and then adjust the length of the monitoring period,based on the results of the sample inspections.Vipshop simulates customers to test the purchasing experience,and if any issues are encountered,Vipshop provides the supplier with resolution strategies to help optimize the customers experience.Vipshops principles of thorough brand selection and strict price controls are applied across brand selection,brand quality reviews and third-party quality auditing,to ensure the quality and authenticity of products,and to provide customers with high quality,value for money products.In 2022,the Company reinforced supplier credential reviews,added invoice audits to the review process,and improved measures for ensuring the provision of genuine products.Ensuring product quality016About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementQuality auditingVipshop carries out annual supplier assessments from multiple perspectives such as customer return rates and customer satisfaction ratings and provides each supplier with feedback.Each supplier can make improvements in accordance with the assessment results and the quality of their products.Supplier trainingTermination of brand agreementsEvery year,training sessions are held,covering topics including product quality and suppliers codes of conduct,to help suppliers improve their understanding of product quality.All suppliers received training.The above-mentioned monitoring applies to private-label brands.If serious issues emerge or the number of substandard products found by quality control during a given period exceeds standards,termination of the brand agreement will be initiated.For third-party merchants,a points system is used,and if total deductions reach 100 points,termination of the brand agreement will be initiated.017About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development management Customer communication Customer complaint managementNewly added pre-sales serviceOptimized customer feedback channelsVipshop has established multiple channels for customer communication including online and over the phone customer services,the official website and in store.Vipshops professional customer service team provide rapid,effective solutions to the customers problems.In 2022,Vipshop progressed further with the implementation of robotic smart calling,improving the technologys ability to resolve customer service enquiries,and enabling the specialized robots to become familiar with customer service and handle questions more rapidly.In May 2022,Vipshop added a customer service portal on individual products information pages.This addition of a pre-sales customer service offering filled a gap in Vipshops service provision.This service promptly answers customers product-related queries and improves their pre-purchasing,sales consultation experience.Since 2014,Vipshop has held an annual event around May 20th entitled Standing by our customers.In this event,Vipshops managers meet face-to-face with real customers to listen to their concerns.Since December 2020,Vipshop has standardized the“Standing by our customers”event,creating multiple channels and mechanisms including online and offline channels,Youwei platform to listen to our customers,thus enabling the Group to remain sensitive to customers demands and establishing a listen-resolve-improve-listen again loop so that every manager and every member of the Vipshop team remains dedicated to the daily,ongoing improvement of the customer service experience.In May 2022,Vipshop officially set up 33 listening groups as part of its system for problem resolution.Having heard opinions from offline groups,group discussions were held,problems defined,and solutions proposed.Following a report of the outcomes,the Customer Experience department carried out a comprehensive assessment,approved the initiative and started the process of accurately resolving the issues encountered by customers.In parallel with this project,the Customers Voices”channel and tracking system were established,calling on the combined strengths of the entire workforce to collaboratively solve the problems.In 2022,Vipshop completed the basic data construction of its customer feedback products,realizing experience insights and a real-time early warning system for the entirety of the customers experience,enabling a better understanding of,and an increased ability to satisfy customers demands.Customers first is one of Vipshops core values,and customer satisfaction is the starting point for all of the Companys work.Vipshop has established a variety of channels to listen to and understand customers needs,proactively improving customers experience.In order to improve the customer service agents professionalism,Vipshop has established a comprehensive customer service team training system,incorporating induction sessions for new recruits and training tailored for different areas of the business.In parallel,Vipshop assesses the quality of multiple aspects of the customer service provided by our agents including their attitude,problem-solving,speed of response,accuracy of task execution and respective customer feedback,with the results incorporated into each agents profile.We demand high standards from our customer service agents,stand up for the customers rights and guarantee an outstanding customer service experience.Vipshop has formulated and implemented the E-Commerce Platform After-sales Service Specifications,and won the title of Leader of Chinese Enterprise Standards in 20221.Vipshop has established a process to handle customer issues arising from any scenario,regularly conducting service and process-related training,modifying process standards,and striving for perfection.In parallel with this,the Customer Service Center has used its efficient communication mechanism to work with suppliers and the Business Center to quickly respond to customer complaints and improve the timeliness of the resolution of the customers problems.For customer feedback,related departments regularly undertake retrospective analysis,incorporate customers feedback and strive to improve their products,services,and customers experience.of customer complaints resolved99.36%Listening to our customersNote:1.The Leader of Chinese Enterprise Standards is a standardization encouraging policy,jointly implemented by 8 ministries and commissions including the State Administration for Market Regulation,the National Development and Reform Commission,and the Ministry of Finance,approved by the State Council.Providing exceptional customer service018About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementOptimization of service experience A more caring service A more personalized serviceVipshop has optimized their customer service talent system,establishing a system of product-specific customer service specialists,who provide additional professional understanding and resolve issues faster.This has resulted in quicker resolution of customers complaints,and a 1.4-5.7%increase in the amount of customer complaints that are resolved in the first instance.In parallel with this,the continued optimization of measures,including complaint-handling approaches and processes across all customer complaint scenarios,has helped to ensure the customer service team were able to resolve issues as quickly as possible,striving to do so in one interaction.In 2022,88%of issues raised by phone and 86%of issues raised online were solved in the first instance,representing respective year-on-year improvements of 8.6%and 8.0%.At Vipshops City Outlets,Vipshop has added services including dedicated mother-and-baby rooms,strollers and sewing kits.In parallel with this,Vipshop provides special customers with the services they need,for example,providing step-free access and assistance with using elevators to customers with mobility issues,to ensure that the customers needs receive the caring service they deserve.At Shan Shan Outlets,each Shan Shan Outlet Plaza is equipped with multi-functional mother and baby rooms,and provides free of charge services such as diapers,milk storage bags,drinking water,and refrigerated storage,for the convenience of customers with children.Shan Shan Outlets are equipped with a gender-neutral toilet,which facilitates consumers with mobility issues and families with children.In addition,Shan Shan Outlets also provides services such as free shuttle buses,mobile libraries,free power banks for charging,and childrens play facilities,to cater to the consumers every need.Improving the rate of first-time resolutions A more professional serviceVipshop has increased customers access to customer service,ease of interactions with the customer service team and,monitored the number of interactions per issue to ensure that once a threshold number of interactions is exceeded,the issue is transferred to the dedicated team to expedite the resolution process.Optimization of feedback processing channelsFor locations or product types that meet certain conditions but are not supported by doorstep returns,Vipshop helps customers to access SF Express system and use their valet ordering service at no extra cost.Tailored serviceSecond chance of product exchange serviceThe service system was upgraded to permit customers that meet the conditions to request a second product exchange,enabling Vipshop to further satisfy customers needs.Vipshop has continued to evolve its price guarantee service,including but not limited to,offering multiple price guarantees,guaranteed coupon prices and resolving instances where the price cannot be guaranteed by the system,ensuring customers enjoy their purchasing experience.Price guarantee serviceBy building our own testing and appraisal team and cooperating with several authoritative inspection and testing organizations,both domestically and abroad,Vipshop has developed its capacity to identify the authenticity of luxury brands.By the end of 2022,Vipshop was able to identify luxury goods in almost all categories,helping to alleviate customers concerns.Appraisal Center upgradeShan Shan Outlets has overhauled its VIP/VVIP benefits,combining additional discounts,localized service privileges,and salons for high-end members,and has increased members participation through the establishment of a members day and one-to-one services,etc.Upgrade of Shan Shan Outlet membership privileges019About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementVipshop insists on responsible marketing.In addition to compliance with laws and regulations,and information security principles,Vipshop promotes a unified,standardized customer-facing template to standardize the platforms and suppliers content that is shared through the media.Vipshops Rules for the Resolution of Supplier Violations V3.0 clearly state that:Suppliers are required to produce accurate product information,and are forbidden from using false,misleading content to dupe or mislead consumers.In addition to this,the Commercial,Operations and Compliance departments verify product descriptions and images to ensure that the promotion and advertising of products satisfies the relevant requirements.To protect vulnerable market segments,Vipshop follows the four key principles of perceptibility,operability,understandability and compatibility to promote projects to make Vipshops app is both senior-friendly and accessible.These projects have involved the refinement of over 350 pages including,but not limited to,optimizing the layout of the apps front-end interface,improving the readability of interface content,providing more convenient assistance functions(such as screen reading,payment,etc.),and effectively improving the user experience for seniors and those who have visual or auditory impairment.In 2022,Vipshop established its dedicated seniors service for customers aged 60 and over,including specified calling hours,no calls during afternoon nap time,callback appointments and simplified post-sales services,allowing seniors to access Vipshops customer service in a simpler,more effective,and friendly manner.In 2022,Vipshop conducted a brand awareness survey related to the theme of sustainability,listing questions such as customers knowledge of sustainable brands and customers assessment of Vipshops sustainable performance,to gain an overview of customers knowledge of Vipshops sustainable brand and recommendations for Vipshops sustainable development brands.Responsible marketingThrough continuous iteration of the recommendation algorithm,and exploration of a wide variety of content,Vipshop has steadily reduced the number of repeated recommendations,increasing the diversity and freshness of the content offered to customers,and satisfying their increasingly varied demands.In 2022,Vipshop set up“crisis groups”as part of its customer service offering,adopting additional measures including increased risk monitoring pinboards,rapidly identifying risky customer complaints,rapid responding,and reporting,contacting the relevant departments,rapidly allocating tasks and providing proposals for case resolution,as part of the ongoing refinement and upgrading of the crisis resolution system.In parallel with this,a dedicated channel for urgent complaints was added for those customers with urgent complaints or urgently seeking a response,arranging ad-hoc callbacks to clients(within one hour)in accordance with the nature of the issue and expedited callbacks(within 4 hours during working hours)to urgently resolve customers problems.A more innovative service Resolution of customer crises020About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementVipshop has established and improved its information security,privacy protection management systems and governance frameworks,continuously strengthening relevant measures to create a safe and trustworthy online shopping experience for customers.Information security and privacy protection Awarded ISO 27001 Information Security Management System(ISMS)and ISO 27701 Privacy Information Management System accreditationVipshop conducts an annual review of strategies,guidelines and policy documents on information security and privacy.Additionally,if Vipshop faces significant changes because of an environmental or commercial situation,a request from regulators,a legal requirement or a technical issue,the Company will promptly conduct a review to ensure that content,such as information security and privacy policies,remain appropriate,adequate,and effective.In 2022,Vipshop updated its policies on information security including,the Information Security and Privacy Management Handbook and Employee Information Security Handbook,continuously improving strategies and requirements of the Companys information security and privacy protection,and promptly publishing updates on Vipshops internal platform for staff to familiarize themselves with.Vipshop established the Information Security and Privacy Protection Committee composed of senior officers and representatives from the Information Security,Internal Auditing,Asset Protection,Legal,Compliance and other departments,to specify,implement and carry out the development strategy and planning of the Companys information security and privacy protection measures,in accordance with the Companys overall development strategy.Vipshops senior management authorized Yang Wenfeng,with his background in security and technology,to represent them on the Committee(as Chief Security Officer),assisting the Companys senior management to perform their duties relating to the information security and privacy protection of the Group.The Committee established sub-groups for information security and privacy protection,which are responsible for establishing,operating and maintaining the information security and privacy management system.Vipshop defined its Information Security Rewards and Punishments Guidelines,clarifying the operational principles and needs for information security rewards and fines for violations.The guidelines also clarified that an information security credit rating score will be used as a quantitative index to assess all employees information security related work performance,and will be included in each employees performance assessment,to encourage and improve their awareness of information security issues.In parallel with this,the Vipshops Management Red Lines clearly states that the stealing,leaking,selling or use of confidential company information(including commercial secrets and personal information)constitute forbidden actions.If such violations occur,the offenders employment contract will be immediately terminated regardless of their position,previous achievements or whether their actions resulted in a significant impact.In addition to this,relevant actions will be undertaken to apportion responsibility.Improving information security and privacy protection management systemsTotal amount of fines incurred as a result of any information security or network security incidents during the reporting yearNo information security or network security incidents recorded during the reporting yearRMB0021About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementReducing information security risk Network Security Protection Platform Reporting of information security incidents Information security training and,promotion and implementation Third-party information security requirements Industry cooperation on information security Third-party accreditation and supervision inspections Response to unexpected incidents and systems testing1 12 23 36 67 75 54 4Vipshop has established an in-depth security system at the network,main frame,application，and terminal levels,collecting all system logs and,maintaining operations by using the information security and event management platform to quickly resolve any network security risks.Vipshop has established an R&D pipeline that adopts a secure development process and has utilized automated tools and manual security tests at each stage of requirements,development,testing,and deployment,in order to reduce the risk of applications introducing viruses to the system.The Company has established the Vipshop Safety Emergency Response Center to establish links with external white hat users and deal with reported security risks.The Measures for the Management of Information Security and Privacy Incidents clearly states the reporting process and pathway to be followed by workers who discover any information security or privacy incidents.If a staff member finds anything suspicious in terms of information safety,they can use several methods including email,internal communication software or phone to report to the Information Safety department,with the information filed in a report including,but not limited to,the nature of the incident,the time of occurrence,what occurred,the scope of the impact,and the extent of the impact.Educational training and exams on information security awareness have been developed for new recruits and all current employees,with the content covering information security management requirements,regulations and associated rewards and punishments.Training was conducted both face to face and through a combination of online animated videos and knowledge tests,with 100%of staff receiving training.Information Security Awareness Week is held annually,with September 2022s event held in partnership with the Haizhu District of Guangzhous Cyberspace Administration Office.The events theme of Internet security both for the people and reliant on the people,guided the promotion,implementation,and improvement of employees information security awareness.An information security system has been established that targets suppliers and business partners as described in the Third-Party Information Security and Privacy Management Measures and,Data Security Partner Management Measures.When a supplier is on boarded,they are requested to sign a Letter of Commitment to Personal Information and Data Protection and complete the Data Security Compliance Requirements Specifications,which detail information security requirements.The Merchant Points Management Rules requires merchants to strictly enforce user privacy protection measures.If a merchant publishes,discloses,provides,or disseminates others personal information without authorization,or is suspected of infringing on others privacy or personal rights,minor cases will see a deduction of points and the issuing of a fine,while serious cases will see measures including the removal of that merchants products and the shuttering of their store,in addition to Vipshop reserving the right to pursue legal action in accordance with the law.Vipshop proactively seeks cooperation with professional organizations and research institutions including the National Information Security Standardization Technical Committee,the China Communications Standards Association and the China Academy of Information and Communications Technology(CAICT),participating in the development and discussion of relevant national and industry standards for information security and data security.With its grasp on industry trends,Vipshop is well placed to make suggestions for data security and the high-quality development of the digital economy,and at the same time improve the Companys technical and management capabilities in information security,personal privacy,and data security.Vipshop has gained ISO 27001 Information Security Management System(ISMS)and ISO 27701 Privacy Information Management System accreditation.These accreditations cover all of Vipshops commercial systems management related activities including operations and maintenance,management of computing hardware,individual information protection etc.The independent,third-party accreditation bodies carry out annual supervision inspections to verify if the Company continues to fulfil the requirements for information security management systems and personal privacy management systems.Vipshops Business Continuity Security Management Measures clearly defines business continuity plans and incident response procedures.The updated Information Security and Privacy Incidents Management Measures clarifies the management responsibilities and procedures for information security and privacy incidents such as network attacks,information destruction,data leakage,and other catastrophic events.The Measures also specifies the procedures for the classification of incidents,reporting,responding,seeking resolution,conducting reviews and system improvements.Vipshop has specified emergency response procedures for security incidents including webpage tampering,DDoS,data leaks,ransomware and mining malware.Vipshop has carried out quarterly security drills,simulating high-risk scenarios including ransomware attacks,DDoS attacks and data leaks;and carried out monthly penetration testing in accordance with business metrics,and organized quarterly red-blue confrontations,continuous uncovering of new risks and improvement of defense capabilities,to ensure safe and smooth system operations.022About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementStrengthening privacy protection mechanismsVipshop abides by national laws and regulations including the Cybersecurity Law of the Peoples Republic of China,Data Security Law,and Personal Information Protection Law,and has formulated the App Privacy Compliance Management Regulations to clarify the basic principles,processing procedures and define each departments responsibilities for privacy compliance management.These regulations are updated in accordance with the latest laws,regulations,and national standards.Vipshops privacy policies are applicable to all operations,including the management of the entire life cycle of customers personal information.In parallel with this,Vipshop has specified standards relating to supplier data exchange and personal privacy protection and,reviews the scope,intention,and necessity of supplier cooperation scenario data to ensure that suppliers are compliant in their data usage.Privacy policies are already systematically embedded within the scope of the Groups compliance management with the Compliance and Information Security departments carrying out daily inspections to implement the privacy policies.If any discrepancies between the apps handling of personal information and privacy policies are discovered,the relevant departments will raise a rectification request,synchronize updates on the progress of the rectification work and check and approve the results.In addition to this,each month,Vipshop engages a third party to conduct compliance audits on the content and implementation of the Companys privacy policies in accordance with laws,regulations,and regulatory compliance requirements.The Vipshop Basic Functionality Privacy Policy published on Vipshops official website,adopts the principles of openness,transparency,and minimum necessary information.When collecting customers information,customers are clearly informed of the nature of the information that is being obtained,the use and scope of the collected information,the time period that the data will be stored in the Companys database,how customers information is protected and policies for third-party disclosure.During the registration process,when users agree to authorization,they can decide how their personal data is collected,used,stored,and processed.Vipshop employs unified storage media access control management measures and carries out encrypted storage management of data stored in its databases.Vipshop promises to only retain customers personal information for the amount of time required for the purposes stated in Vipshop Privacy Policy for Basic Functions,except where there are legally mandated data retention requirements.When a customer requests to cancel their Vipshop account or after Vipshop ceases to provide services or operate,Vipshop will either delete or anonymize customers personal information.Technology has been used to identify open data interface information and,to maintain an online manifest of all maintained interfaces and monitor all open data interfaces.In addition,regular upgrades of data security and protection measures and,data security audits for outgoing data interfaces have been carried out.The Operation Guide for Data Permission Application explains the operational specifications for the entire data life cycle,and outlines approaches for the destruction of data used during core business activities and the destruction of storage media.Encryption technology is used to encrypt transfer channels,and desensitization and anonymizing technology is employed to protect transferred data,ensuring data security during the transfer process.The Vipshop Privacy Policy for Basic Functions clearly states that Vipshop will only share customers personal information with partners when it is legal,appropriate,necessary,specific and has a defined target,and will only share the personal information necessary to enable service provision.Partners have no authority to use personal information shared with them for other uses unrelated to the Companys product or service.In parallel with this,Vipshop signs strict data processing agreements with its partners,requiring them to fulfil their duty of ensuring information security.Vipshop takes into account data size,category and usage when dynamically adjusting data security protection strategies such as data encryption and authorized access controls,in order to mitigate the risks associated with large-scale aggregation of data(including personal information).In terms of data encryption,all data that is identified as sensitive is,by default,encrypted and stored on disk.In regard to authorized access controls,data in different environments including production,testing,and development is subject to strictly enforced network isolation;for employees working in different areas such as operations and maintenance,testing and,development,employees access to data and data access rights are strictly restricted.Data collection Data storage Data retention Data monitoring Data processing and destruction Data transfer Data sharing Data usageVipshop has constructed a methodology for entire data life-cycle control and management incorporating the collection,use,transfer,processing,and destruction of personal information,continuously improving the Companys personal information protection mechanisms,and ensuring privacy and security.Total number of complaints throughout year,received from external parties and substantiated by Vipshop,regarding breaches of customer privacyTotal number of complaints received from regulators regarding violations of customer privacy00023About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementCompliant procurementVipshop abides by the concept of sunlit procurement,providing all suppliers with guidance in the form of the Sunlit Procurement Cooperation Acknowledgement,which clearly stipulates business ethics based on honesty and integrity,and zero tolerance for any commercial bribery.In parallel with this,all suppliers are required to sign the Supplier Anti-bribery Agreement,and where sensitive matters are involved,a Non-disclosure Agreement must also be signed.If international business is involved,suppliers must also abide by the Foreign Corrupt Practices Act and maintain high standards for ethical business practice.Vipshop is dedicated to creating a sustainably developed supply chain system,to promote multiple benefits throughout the value chain.Vipshop is committed to compliant procurement,with the Procurement Management Procedures and Supplier Management Procedures specifying multiple aspects of the supplier management framework,creating a closed-loop supplier management process,and ensuring management of each suppliers entire life cycle.Creating a sustainable supply chain Supplier management261,378344102Number of first-rate suppliersNumber of key-first-rate suppliers1Number of Non-first-rate suppliersNumber of Key-non-first-rate suppliersNumber of Suppliers in 2022Supplier selection and terminationSupplier risk managementAll suppliers must strictly abide by regulations relating to the protection of human rights,banning of child labor and protection of employees occupational health and safety.If any adverse events that seriously violate the ethos of ESG occur,such as workplace accidents,employee relationship incidents,labor disputes or environmental violations,the process for the removal of the supplier will be initiated.Vipshop also follows the principles of sustainable development and gives priority to the onboarding of suppliers that have been accredited with the ISO 9001 Quality Management System Certification,ISO 14001 Environmental Management System Certification,SA 8000 Social Responsibility Standards,ISO 27001 Information Security Management System Certification,and ISO 27701 Privacy Information Management Certification.The Procurement Department uses on-site inspections and,reviews of credentials and certifications to assess suppliers potential for sustainable development risk and coordinates those involved with risk management including the demand management,Finance,and Legal departments.When there is anticipated risk,this is assessed as either high-,medium-or low-risk and a corresponding response mechanism and emergency files are established.Supplier audit and evaluationIn accordance with Vipshops Supplier Management Procedures and based on the principle of“selecting the best through comprehensive evaluation”,a bi-annual evaluation of suppliers is carried out,taking into account multiple aspects of their performance including fulfilment of suppliers orders or contracts(in terms of products,services,payment,quality and technology),response time,willingness to collaborate,business costs and significant events.The evaluation identifies if a supplier is exceptional,outstanding,good,requires improvement or will have their agreement terminated.This process enables the management of supplier classification,motivates suppliers to continuously refine their supply/service quality and sees the removal of substandard suppliers.The aforementioned significant events include components of the ESG framework such as suppliers environmental protection efforts,corporate social responsibility,and personal privacy protection.Their inclusion in the evaluation process encourages suppliers to improve their own ESG performance.2022Number of suppliers who have been conducted risk assessments(units)165Number of suppliers assessed to have significant actual/potential negative impacts(units)13Percentage of suppliers with significant actual or potential negative impacts that have implemented corrective actions or improvement plans76.9%Number of suppliers terminated with significant actual/potential negative impact(units)3Note:1.A key supplier refers to a supplier whose purchase amount reaches a certain standard.024About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementInnovative events,empowering brandsA co-constructed industry ecosystemA focused use of the Super Brand Day IP with industry leading brands,can help to set new sales benchmarks.These events leverage brands significant investment in terms of product prices,users,and marketing by utilizing resources across Vipshops entire website for maximal brand exposure,and using the platforms power to drive sales increases for the brand.For those promising,on-trend brands with untapped potential,the“Todays Top Brands”channel is used to provide brand exposure and efficiently utilize resources.For newly emerging industry brands,Vipshops“Little Pink Box”hosts events and maximizes the brands footfall advantage through intensive marketing,and attracting new customers to ultimately accelerate growth in results.Marketing approaches including“time kill”sales,flash sales,day events and live streaming pop-ups help develop key brands bestselling and must-have items.Adhering to the column localization of selected brands,significant discounts,Vipshop organized multi-dimensional marketing activities such as single brand,group brand,style category,topic category,trend category through the Fengqiang channel,to enrich users shopping scenarios and promote the rapid growth of brand performance.Brand channelsKuaiqiang channelFengqiang channel025About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementFILAs Super Brand Day created a new single day sales record for the brandIn 2022,Vipshop collaborated with FILA,using the good brands at good prices everyday strategy and continually working across sectors including product supply,user operations and product structure to innovate,optimize and,through Vipshop Online Platform,help the brands products achieve sales figures with year-on-year double digit growth.In terms of product supply,seeing the addition of 140 collaborative brand stores with a 20%year-on-year increase in the value during campaigns in 2022.In terms of product structure,Vipshops platform was utilized to perform a survey of users demands and optimize product selection,with the most popular sneakers generating sales achieving 30%growth year-on-year.In terms of user operations,a focus on high-value items and young member-customers,with an increase in the supply of,and marketing investment for,celebrity endorsed and co-branded designer items created an acceleration in the accumulation of user data assets.The use of successive big-hitting channels such as Super Brand Days and Todays Top Brands enabled FILA to establish more direct,higher frequency communication with platform users.FILA repeatedly set new sales records,with their September 14 Super Brand Day smashing the record for single-day brand sales,with a 199%increase of sales in comparison to the same event last year,in the process becoming the sales leader among all Super Brand Days in fall,2022.CaseNavigare“For our brand,Vipshop offers an exceptional channel that is able to offer reliable sales.Ironing out the ups and downs allows brands like us to feel confident and secure and helps further strengthen the bond of trust that exists between Vipshop and us as partners.”Swisse“Vipshops continuous development of user tools and marketing approaches throughout 2022 allowed Swisse to respond quicker to the complex trading environment.Thus,we achieved 26%growth in annual sales.”026About this report Vipshop EcologyV-TalentV-CharityAppendicesVipshops developmentChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementGovernment-enterprise cooperation,driving consumer passionTesting the water,promoting the digital economyFully electronic invoicing,rolling out taxation reformConsumption is one of the three key driving forces behind the economy.Vipshop has engaged with 13 areas including Guangzhou,Chengdu,Shanghai and Xian to develop consumer coupon promotional events.These events have utilized government subsidies and the platforms and brands preferential price,with this type of government-enterprise cooperation delivering multiple benefits to consumers and helping to stimulate the market.In parallel with this,Vipshop has successfully leveraged its platforms own strengths,working with major brands to roll out the first Lucky Festival sales event,working with over 200 large-and medium-scale companies across China,using an employee benefits sales model that combines platform based incentives business collaboration,providing approximately 400,000 employees of large-and medium-scale companies with better value,more personalized,high quality products and exceptional services to satisfy their demands for varied,high-quality products.The digital economy has already become an important driver in the ongoing push for high-quality economic development.In May,2022,Guangzhou led the way with the rolling out of Data Brokers”,aimed at the mining of high value data elements and the promotion of data element development.As one of the three companies selected as a test site to pilot“Data Brokers”,Vipshop will use this computing technology based,open application that uses multi-source data,to run data interpretation,manage data authorized applications and develop a tool that provides data analysis guidance.Steady development of the pilot project will create brand-empowered data products and an intelligent supplier platform.Based on this platform,Vipshop will endeavor to maximize the potential of the Data Broker as a bridging tool,connecting suppliers or brands data and marketing data,mine data value deeply.The platform will also allow service suppliers or brands to market the data ecosystem,unlocking the benefits of digitalization in all areas including suppliers timely adjustment of production and marketing strategies,industrial upgrading,and the governments latest governance.In parallel with this,Vipshop will continue to upgrade its own data security capabilities,through the construction of data management systems,development of security compliant data output approaches and evaluation of data monitoring management.These upgrades will reinforce Vipshops digital security measures,helping ensure the stable and balanced development of the digital economy.In order to meet the requirements of the General Office of the Chinese Communist Party and the General Office of the State Council as described in Opinions on Further Deepening the Reform of Tax Collection and Administration,on March 29,2022 Guangdong Province published its Announcement of the Electronic Invoice Pilot Test Locations for the Further Development of Comprehensive Digitalization,confirming that some tax payers in the Guangdong region would be taking part in the pilot testing of electronic invoices.Built on the foundation of a reliable identification system and an electronic invoice service platform,fully electronic invoices are brand-new,fully functional invoices,that are legally equivalent to their paper counterparts and can be used in all fields and at all stages of the invoice process.Electronic invoices are characterized by being medium free,format flexible,tagged,streamlined,valid in the credit system and each assigned with their own unique number.As one of the first pilot companies,Vipshop is actively facilitating the promotion of electronic invoices,helping to push forward the transformation from“using invoices to control taxes”to“using data to govern taxes”and“using data to govern the team”.This assists the systematic reform and modernization of tax collection and helps to create a smart tax system.027About this report Vipshop EcologyV-TalentV-CharityAppendicesChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementVipshops developmentVipshop EcologyThe 14th 5-year Plan for E-commerce Development remarks that e-commerce businesses must adapt to low-carbon,environmental development demands,establish a green development mindset,and proactively shoulder social responsibility for environmental protection,whilst raising the level of green innovation.Vipshop constantly improves its own environment management systems,develops climate risk governance,assesses low-carbon opportunities that consider the entire value chain,establishes zero-carbon targets and action plans,and strives to be a low-carbon leader and pioneer in the e-commerce sector.Total photovoltaic power generatedMWhmillion61,538carbon boxes recycled by Vipshops logistics centers during the year21.19Committed to achieve carbon neutrality in its own operations no later than 2030028About this report Vipshop EcologyV-TalentV-CharityAppendicesChairmans letter2022 Key Results:OverviewAbout VipshopSustainable development managementVipshops developmentContributing to carbon neutralityPledge for carbon neutralitySince General Secretary Xi Jinping pledged to strive to hit peak carbon dioxide emissions before 2030 and to achieve carbon neutrality before 2060 at the general debate of the 75th session of the United Nations General Assembly in 2020,the Chinese government has continuously published its“1 N”1 series of policies,to systematically promote the goals of peak carbon and carbon neutrality.Vipshop has willingly accepted its responsibility,drafting its own targets for carbon neutrality and an action plan,focusing on aspects including green energy,green packaging and green logistics,as part of its practical actions to contribute to carbon neutrality.Status of Vipshops carbon emissionsFor greenhouse gas emission accounting,Vipshop primarily refers to the Greenhouse Gas Protocol:Corporate Accounting and Reporting Standard(Greenhouse Gas Protocol)developed by the World Resources Institute(WRI)and the World Business Council for Sustainable Development(WBCSD)and has set organizational boundaries based on the operational control criterion to calculate greenhouse gas emissions within the scope of the business as scope 1,scope 2 and scope 3 emissions.In accordance with the statistics,Vipshops total greenhouse gas emissions for 2022 were 920,195.4 tons,composed of 12,153.9 tons of scope 1 emissions,84,711.3 tons of scope 2 emissions and 823,330.2 tons of scope 3 emissions3.This data has been certified by an independent third-party verification agency(please refer to Appendix 2 for further details).1.Chinas“1 N”policy framework for peak carbon and carbon neutrality consists of“1”,which refers to The Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy,published by the Central Committee of the Communist Party of China and the State Council,and“N”which includes the State Councils Action Plan for Carbon Dioxide Peaking Before 2030 and,other policies and case studies from other critical sectors and industries.2.Targets for reducing each category of Scope 3 greenhouse gas emissions intensity take 2022 as the base year.Greenhouse gas emission intensity=greenhouse gas emissions/net revenues.3.In 2022,Vipshop comprehensively accounted for its sources of greenhouse gas emissions,and further broadened the statistical categories and boundaries used in its accounting of greenhouse gas emissions,as part of the Companys continuous action to improve their emissions management system.In terms of statistical categories,in addition to CO2,Vipshop also calculated N2O produced during fuel combustion,CH4 released from sewage in septic tanks and HFCs arising from the use of fire extinguishing agents.In terms of the statistical boundaries,Vipshop has incorporated the emissions generated from the operation of Shan Shan Outlets and two City Outlets;scope 2 emissions have incorporated the emissions indirectly produced from purchased heating and cooling;scope 3 emissions have incorporated the emissions arising from categories including Vipshops waste processing and upstream leased assets,etc.Notes:Vipshops pledgeVipshop will achieve carbon neutrality in its own operations no later than 2030 and will achieve its target of reducing the greenhouse gas intensity of its scope 3 emissions by 50%,no later than 20302.Total scope 1 emissionsTotal scope 2 emissions
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ChairmanChairman s Statements StatementDearDear shareholders,shareholders,partnerspartners andand friends,friends,On behalf of Autohome,I am pleased to present our 2022 environmental,social andgovernance(ESG)report.Commitment to corporate social responsibility has alwaysbeen one of our core values,one which has guided our steps in this era full ofchallenges and opportunities.As a leading company in the automotive internetindustry,we are also devoted to promoting the sustainable development of thebroader industry through our own corporate social responsibility efforts.Throughout the past year,we have made considerable progress on our environmental,social and corporate governance initiatives.In terms of environmental protection,weactively promoted in-depth cooperation with new energy vehicle brands and built abattery recycling trading system.We also launched the Autohome new energy spacestation and implemented forward-looking strategies in new energy,new retail andother business areas to reduce automobiles environmental impact.On the socialfront,we sought ways to improve employee welfare and wellness,enthusiasticallyparticipatedinpublicwelfareprojects,andcontributedtolocaleconomicdevelopment and social harmony.Furthermore,we continue to strengthen ourcorporate governance and risk management mechanisms while strictly abiding bylaws and regulations to ensure business compliance.Going forward,we will remain dedicated to the concept of sustainable developmentand promoting the industrys green,intelligent and shared development.At the sametime,we will faithfully undertake Autohomes social mission,actively fulfill our socialresponsibilities,and create greater value for our employees,shareholders,customersand society.Finally,I would like to thank all of Autohomes shareholders,partners and friends foryour loyalty and support.We will continue to work hard to promote green car buyingbehaviors among consumers while also helping our customers innovate and thrive aswe improve their digital marketing capabilities,reduce costs and increase efficiency.Through our unremitting efforts to promote the industrys carbon reduction activities,we believe we are well-positioned to realize our double carbon goal while driving theecological development throughout Chinas automotive industry.Chairman and CEO of Chairman and CEO of AutohomeAutohomeMr.Quan LongMr.Quan LongContents01About this Report 202About Autohome4IntroductionKey ESG performance in 2022ESG honors and rewards in 202255803ESG governance9Statement of the Board of DirectorsESG governance frameworkCommunication with stakeholdersAnalysis of material issues1010111204Fulfilling product responsibility13Content quality assuranceEnhancing service qualityCultivating technological innovationConstant industry empowerment1417242605Strengthening the management foundation29Information security and privacy protectionStrengthening the integrity constructionAdvertising compliance managementIP managementSupplier management303538394006Pursuing people-centered philosophy42Employees rights and interests protectionEmphasizing health and safetyAssisting coordinated development43464707Promoting green operation50Climate change responsePromoting the carbon peaking and carbon neutrality strategyOptimizing resource utilization51525608Jointly working for a better home60Youth automobile public welfare activitiesPublic welfare activities for children and teenagers on traffic safetyEducation-related donations to remote areasHarmonious development between human and nature61626566Appendix68Appendix Index of ESG indicators of the Stock Exchange of Hong Kong Limited69About this ReportAbout this Report0101This is the first ESG report prepared and released by Autohome Inc.(Autohome,the Company orwe)-the Environmental,Social and Governance Report 2022(ESG Report 2022，this Report),which objectively and fairly presents the Companys concepts,specific practices and key achievementsin environmental,social and governance matters.Reporting scopeThis Report covers information from January 1,2022 to December 31,2022(this year).To enhance thecomparability and completeness of this Report,part of the content may involve information before orafter this year.Reporting guidelinesThis Report is prepared in accordance with theEnvironmental,Social and Governance Reporting Guidein Appendix 27 to the Main Board Listing Rules of Hong Kong Exchanges and Clearing Limited(HKEX).Reporting principlesMateriality:Significant stakeholders and ESG issues they concern are identified in the preparation ofthis Report.These issues are disclosedin this Report according to their materiality.Quantitative:Key environmental and social performance indicators are presented in this Report in aquantitative manner.The measurement criteria,methodology,assumptions and/or calculation tools forthese indicators in this Report,as well as the source of conversion factor,are described in theappropriate chapters.Consistency:Key performance indicators and the statistical methodology disclosed in this Report areconsistent from year to year unless otherwise indicated.Data sourceInformation in this Report is derived from relevant internal statistical statements,documents andreports of the Company,stakeholder surveys and interviews.Emission and energy usage indicators aremeasured and calculated in accordance with national regulations or international standards.CurrencyAll amounts are presented in RMB unless otherwise stated.LanguageThis Report is released in simplified Chinese,traditional Chinese and English.Should there be anyinconsistency between the Chinese and English versions,the Chinese version shall take precedence.How to get this ReportThe electronic version of this Report is available at the website of HKEX(https:/www.hkexnews.hk)orthe website of investor relations of the Company(http:).For any suggestions andcomments about our ESG management,please feel free to contact us via .About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendixAutohome 2022 Environmental,Social and Governance(ESG)Report3About About AutohomeAutohome02026Service guaranteeHigh-quality contentMore than 400 thousand pieces of original content were developed in total,with more than 25 thousand contributed this year.100%of Companys products and services went through the verification process.A total of 1,633intellectual property rights,including patents,trademarks and copyrights,were obtained.100%of our personnel received information security training.100%of user complaints were handled.We had over 20 thousand automotive content creators,9.23 millioncertified car owners,and over 35 million followers on our platform.The overall annual customer satisfaction percentage was 94.8%,while the satisfaction rate for call center services reached 91%.About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromoting greenoperationJointlyworkingfor a better homeAppendixGreen conceptAutohomeCarbon Neutrality Action Report was prepared and released.The climate-related goal of achieving carbon neutrality by 2030 was announced.Environmental management targetswere set and activities toidentify climate change risks were carried out.Employee-centeredFemale employees accounted for 39%There was nouse of child labor or forced labor,and 100%of our employees were covered by Chinas social security system.Training courses were delivered to employees in both online and offline formats,with an participation rate of100%and average training hours exceeding 38.5 hours.Social responsibilityThe donation of RMB 1,000,000 was made to public welfare activities nationwide.Autohome contributed 160 hoursto public welfare activities in Beijing.Autohome 2022 Environmental,Social and Governance(ESG)Report78ESG honors and rewards in 2022During the Seventh GuruclubGlobal Investment Carnival 2022,the Company received the Annual Golden Annual Golden Award of Social Award of Social ResponsibilityResponsibility in the category of Best Listed Greater China Company.December 16,2022In the The third Annual Review of Listed Companies by Futu 2022,the Company was recognized as Enterprise with Enterprise with the Outstanding the Outstanding ESG Governance ESG Governance Among Chinese Among Chinese Companies Companies Listed in Hong Listed in Hong Kong and the Kong and the United StatesUnited States out of nearly one thousand contestants.December15,2022XINHUANET,China Enterprise Reform and Development Society,and China ESG Research Institute of Capital University of Economics and Business selected the Companys public welfare project of science popularization for adolescents as the Outstanding Outstanding ESG Innovation ESG Innovation CaseCase at the 2022 BoaoForum for Entrepreneurs.November 26,2022During the 2022 New Energy Vehicle Conference,the Company was awarded the honorary title of New Energy New Energy Technology Technology PioneerPioneer.August 27,2022About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromoting greenoperationJointlyworkingfor a better homeAppendixESG governanceESG governance0303Communication with stakeholdersWe connect with stakeholders via multiple channels in order to comprehend their needs,and we use thecollected feedback as a guide for the Companys ESG activity.Following is a list of the primary ESG-related concerns of major stakeholders and the channels from which these concerns were gathered.Key stakeholdersKey stakeholdersIssues concernedIssues concernedChannelsChannelsGovernments and Governments and regulatorsregulatorsClimate changeInformation securityAnti-corruptionInformation disclosureRegulatory meetingsAutohome 2022 Environmental,Social and Governance(ESG)Report11Shareholders and Shareholders and investorsinvestorsClimate changeIntellectual property rightsCustomer servicesAnti-corruptionShareholders meetingsInformation disclosure(annual and interim reports,performance announcement,corporate announcements at HKEX,information on the page of investor relations,etc.)EmployeesEmployeesEmploymentHealth and safetyDevelopment and trainingLabor standardsEmployee opinion surveyInternal communication meetings with employeesInternal corporate announcementsIndividual usersIndividual usersIntellectual property rightsCustomer servicesInformation securityAnti-corruptionCustomer satisfaction survey and follow-up callsDaily operation/communicationComplaints and feedbacksQuestionnairesSuppliers and partnersSuppliers and partnersSupply chain managementAnti-corruptionSupplier management policyPeer exchangeDealers and OEMsDealers and OEMsClimate changeProduct innovationAnti-corruptionDealer management policyOn-site investigationThe public and The public and communitycommunityCommunity investmentPublic welfare activitiesSocial mediaA3A2B8A4B6-1B5B3B6-2B4B2B6-4A1B1B7B6-3Fulfilling product Fulfilling product responsibilityresponsibility0404(1)Content quality assurance As the leading automotive service platform in China,Autohome has never lost sight of its purpose tofacilitate the robust growth of Chinas automotive sector.We are devoted to become the platform ofchoice for customers to buy and sell cars.To attain this objective,the Company employs the followingthree strategies:First and foremost,we prioritize content quality assurance and stress on providingusers with accurate,useful,and exhaustive information about automobiles.Second,we actively listen toand respond to consumer input in order to continuously enhance the user experience.Thirdly,westrengthen our capacity for independent innovation to advance the automobile sector.The content businesss objective is to become the most prominent automotive platform in China,providing clients with the most professional and factual automotive information.Taking into account ofour business characteristics,we aspire to establish a competent content security team,manageassurance for our products and services,and assume the primary responsibility for the automotivecontent service platform.We routinely review new content,including keywords,images,and other formsof information.We also collaborate with highly skilled audit professionals to conduct daily contentaudits.We collaborate with qualified review vendors to audit new content in real-time based on themost recent review guidelines.Diversified contentDiversified contentThe company adheres to the three more strategy,i.e.,the strategy of more people,more content,andmore scenarios.The platforms material is separated into four categories:i.e.,occupationally-generatedcontent(OGC),professionally-generated content(PGC),user-generated content(UGC)and AI-generatedContent(AGC),thereby providing users with a full-chain content service ecology.Our unique content is created by our industry-leading editorial staff in terms of scope and depth ofknowledge.The OGC team is comprised of seven divisions:rim information,vehicle evaluation,newenergy vehicles(NEV),vehicle modification,video material,and vehicle model library.OGC provides anobjective review of automotive items,allowing consumers to make quicker and more informedselections.Occupationally-generated content(OGC)OGC has a more authoritative and professional tone thanother content kinds.The team that generates originalcontent consists of 136 skilled and devoted editors.Theteam has together produced more than 400 thousandpieces of content,achieving outstanding results with over64 billion cumulative article reads and 9.5 cumulative videoviews.Our websites vehicle model library contains 95percent of all available vehicle models.More than fiftyautomobile-related video programs have been released bythe company,spanning eleven auto-related topics.About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix14As the demand for new energy vehicles continues to rise,we are in the vanguard of constructing asystem of new energy vehicle data and content with five major functions:a search engine for new-energy-vehicle-related data(such as endurance,energy consumption,charging efficiency,and batteryperformance attenuation),a personalized selection service,a virtual experience of intelligent technologyconfiguration,a vehicle control video application,and an intelligent car selection mode.The systemintends to deliver a premium selecting experience for new energy vehicles.Concurrently,we havemodified and enhanced the new energy platform in order to establish an aggregation platform thatincludes new energy vehicle statistics,evaluation,information,video,and other content to assistcustomers in making purchasing decisions.By virtue of the companys long-standing reputation andcumulative user popularity,we hold a leading position in the automobile industry in terms of contentcreation.EnhancingEnhancing contentcontent managementmanagementThe companys audit platform encompasses all goods products and services(excluding professionalaudit of finance and other qualifications).We have established a comprehensive set of auditingprocedures for images,text,audio,video,live broadcasts,instant messaging,etc.,relying on thecompanys internal content security team,which has years of experience with quality control.Inaddition,we cooperate with the market leader in auditing and integrate its high-quality machine audit,human audit,etc.The rule content review prior to release is required for all account and content categories.Throughtwo rounds of preliminary review at the back-office end,quality inspection on a percentage of material,and inspection at the front-office end,we reduce the likelihood of content violations during the contentreview procedure.For the user behavior risk control,we built the Chedun system to evaluate and identify the frequencyand severity of violations in user account behavior in order to establish if the account is a risk accountand if it must be classed as a blacklist account.The preventive actions include an account ban andnotification to the relevant authority.Our platforms product design includes a user-reporting interfacethat allows users to file concerns at any time.After receiving a complaint or report,the back-office endanalyzes and assigns the complaint to the appropriate business department for handling.When thecomplaint is resolved,we communicate the outcome to the reporter.We conduct closed-cycle reportmanagement using these methods.About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix16(2)Enhancing service qualityThe company consistently adheres to a user-centered and service-oriented philosophy and provideseffective and prompt support to users.Service quality control measures encompasses the entire userexperience process,including service standards and efficiency,as well as customer satisfaction anddemands.Service quality management structureService quality management structureTo continually enhance the quality of customer service,the Company has established a user experiencecommittee with the following structure:Optimizing user experienceOptimizing user experienceAs Chinas leading automotive content platform,user experience has always been the cornerstone of ourcontent business.To assure and enhance user experience and satisfaction,we monitor products basedon the results of user satisfaction surveys conducted through core market penetration channels.User Service TeamUser Research TeamFront-line OperationFront-lineAgent TeamBusinessSupport TeamQualityInspt.Team400-hotlineAgent TeamIM OnlineAgent TeamBusinessTeamOperation GuaranteeOperation Mag.TeamBusiness Mag.TeamTrainingOperationManagementQualityControlDirector of User Experience CommitteeExecutive SecretoryMembers of User Experience CommitteeOEM GroupDealer GroupUsed Car GroupC-end and Middle-officeProduct R&DInformation GroupAutomotiveEcosystem GroupExperienceGroupUser Operation GroupAutohome 2022 Environmental,Social and Governance(ESG)Report17User experience feedback group of AutohomeWe believe that employees,as product creatorsand users,can help us get to the bottom of theproblem.We built an effective internal feedbackchannelforemployees,namelytheuserexperiencefeedbackforum,togatherandincorporate employees recommendations andideas in a convenient manner.The group servesas an effective forum for discussing,reporting,and dealing with difficulties.The group chatfocusesoncollectingstrategicproposalsproduced by internal personnel as well as dealingwith problems as they arise.Employees canprovide feedback on product experience issuesand communicate ideas with professionals incharge of the indicated items.Employees canalso submit their findings to the feedback center.Problems can be discovered early and dealt withefficiently through either of these methods.Sincethe launch of the feedback program,an averageof over 3,000 feedback messages and ideas havebeen received,with 100%of them being handledper month and a suggestion adoption rate ofroughly 20%.On average,more than 3,000pieces are received every monthrecommended20%The feedback has been processed100se:Employee feedback program on user experienceAbout this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix18The Company constantly investigates additional opportunities to increase the service efficiency.As AIcontinually improves search relevance,users experience an increase in overall search efficiency.Inaddition,the expansion of the vehicle on has significantly improved the effectiveness of automobileselection.Case:Search service upgrade for a better experienceWe carried out an overall iterativeupdate of the search system in the thirdquarter of 2022,primarily optimizingsearchsemanticvectorization,upgrading the visual experience at thefront-end,and implementing iterativecommoditization.User satisfaction forsearch results matching increased to 99percent after the change.User satisfaction 99%Autohome 2022 Environmental,Social and Governance(ESG)Report19Case:One-stop comparative test drive serviceOn September 5,2022,the company launched a one-stop comparative test drive service for a variety ofcar models,allowing users to easily test drive,thoroughly experience vehicle performance,andmakequickpurchasedecisions.Userscanexperiencevehiclehandlingandintelligentconfiguration in different test drive sections duringthe test drive and fully understand the technicalparametersofthevehiclemodelthroughtheexplanation provided by the Autohome AI test drive.Our test-drive experience personnel attend to theneeds of customers and promptly answer theirquestions.Userscanmakeabetterpurchasedecision in less time after testing and driving severalmodels at once.We currently have several test-driveservice centers in Shanghai,all of which are locatedin major urban areas.Our ultimate goal is to offer anovel door-to-door test-drive experience.Shanghai Autohome Test Drive TeamWe conducted bench testing to provide customerswith energy consumption data for new electricvehicles on more complex road conditions.Theresults of the bench testing are available on ourwebsite.We collected various data during the benchtesting,including the road spectrum of Beijingsurban roads,highway conditions,and comprehensiveroad conditions.We were able to avoid the influenceof drivers,changes in road conditions,and otherexternal factors by using renowned German powermeasuring machines.It now takes only three monthsto complete energy consumption testing on nearly100 vehicles,covering the majority of the new energyvehicles available on our website.In the future,we plan to gradually expand thecoverage of road conditions in key cities across thecountry to provide users with more functional data.The site of bench testingWe continually expand the scope and quality of our automotive services.Our users,for example,can usetest drive and AI narration services to compare similar vehicle models from other brands,gaining first-hand driving experience.Another example is our extensive vehicle selection and purchasing guidance,which includes energy consumption testing,vehicle condition assessment,policy interpretation,andselection guidance.This way,users can gain a thorough understanding of the product performance andthen make more informed decisions.Case:Bench testing of NEV energy consumptionAbout this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix20Considering the growing transactions and circulation of used cars,the company has launched avideo series,Used Car for Sale.This series includes useful tips for used car transactions,theinterpretation of interim policies,and specific model selection advice for both sellers and buyers.At the moment,the Used Car for Sale series airs 10 episodes per month on average.Used Car for Sale seriesCase:Used Car for Sale Video SeriesAutohome 2022 Environmental,Social and Governance(ESG)Report21With a broader service scope and higher service quality,the company has actively integratedtheresourcesoftheentireautomotiveservicechaintofurtheroptimizecustomersexperiences in selecting,purchasing,and using vehicles.The common issues of traditionaloffline used car trading include inconsistent dealer service quality,ambiguous retail pricingpolicies,questionable condition of used cars,etc.In order to solve these problems,we usedata models that accurately match buyers and sellers.The use of a data model results in anincrease in the number and quality of sources.Furthermore,we have established a one-stoptrading system for used cars that provides selection,test drives,payment by instalments,and after-sales services for used cars.Autohomes one-stop used car trading platformAutohome,and Ping An Group have gathered the efforts and resources toaccelerate the construction of the one-stop trading platform for used cars.Regardingbuyers,they now have access to a complete service chain,starting from the carselection and purchase to the car registration and maintenance.For sellers,weaccurately predict their car purchase intention,therefore redirecting them to the usedcar platform,as well as effectively matching OEM products with user needs.Since theestablishment of the one-stop trading platform for used cars,users interest hasincreased by five times.The number of cars viewed per capita has been reduced from15 to 10.Case:One-stop used car trading platformAbout this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix22 Responding to users demandsResponding to users demandsCustomer service quality control is extremely important to the company.Customer service personnelprovide services to users in strict accordance with theCustomer Service Centers Service Manual.Toensure that our services are truly customer-oriented,the service quality control specialist conductsregular spot checks on first-line service quality and pushes personnel involved to improve it inaccordance with internal policies such asRegulations on Quality Inspection Ratio of Customer ServiceCenter,Quality Inspection Standards of Customer Service Center,andQuality Inspection Process ofCustomer Service Center.Listening to user feedbackWe value user feedback and experience.Our customer service representatives record user feedback andsuggestions in work orders and prepare a report that includes a summary of suggestions.The reportthen is emailed to the relevant business departments.We quickly respond to urgent messages andprovide feedback on non-urgent messages weekly.The Customer Service Center uses the collectedsuggestions to improve Companys products and services in collaboration with appropriate departmentpersonnel.Resolving user complaintsWe have launched 400 customer service hotlines,an online IM customer service system,corporateWeChat,and other complaint channels in order to respond to user complaints quickly and effectively.When the Customer Service Center receives a complaint from a user,the personnel will reassure thecustomer,gather information,create a work order,and handle the complaint.After determiningresponsibility,the work order will be sent to the appropriate departments.In exceptional cases,theLegal Department will be called upon.We take complaint handling seriously,providing immediatefeedback for regular cases,we respond in 1-2 working days for problematic cases,and we send ananswer in 2 working days for special cases.We have implemented a comprehensive and efficientcomplaint-handling mechanism that allows us to respond quickly to user complaints and feedback.As of December 31,2022,the Company had handled a total of 23,637 batches of user complaints,with acomplaint acceptance rate of 100%;a satisfaction rate of 91%for manual service via the telephonechannel;and a 24-hour closure rate of 94.8%,with an average closure duration of 6.6 hours.Case:UEC feedback platformThe company has established a UEC feedback platform to collect user inquiries and suggestions.The feedback and suggestions received are classified by product line and questionnaire type,andare broadly classified into three categories:enquiries/complaints,BUG,and requests.The systemroutes work orders to the Operations Department for follow-up,where customer servicerepresentatives handle inquiries and complaints.After customer service personnel confirm withusers,the system transfers bugs and requests to the Technical and Product Department forsubsequent verification and resolution.Depending on the situation,all responses and resolutionreports will be consolidated into daily/weekly/monthly reports.Autohome 2022 Environmental,Social and Governance(ESG)Report23In addition to responding to complaints and suggestions,we make phone surveys on a regular basis andcarefully consider public opinion across the Internet.External public opinion channels,jointly operatedby the Media Team,the Product Publicity Team,the Customer Service Center,and business departments,form a comprehensive and efficient process for collecting,responding to,and handling suggestions andopinions.(3)Cultivating technological innovationAs a big data-driven automotive technology company,the Company has made consistent efforts toincrease investment and strengthen technical innovation in application system R&D and digitaloperation management.Following the customer-oriented strategy in our system architecture,wecreated a powerful and scalable technology platform powered by AI,big data,and cloud technology,dedicated to delivering a full range of services in car selection,purchase,usage,and exchange.This hasresulted our Company to create many products,that are personalized,convenient and user-friendly.To meet users demands for digital transformation,the Company leverages its technical strengths andfocuses on improving product quality.We rely on AI and 3D technology research and development.Withthe use ofartificial intelligence,big data,and cloud computing,we have launched a number ofinnovative digital products for OEMs,including CarSmart Cloud,CarSmart Library,Brand Privateer,andVI Sales Champion Magic.Moreover,we continue to provide value-added services to distributorsthrough digital marketing solutions that cover 12 products.In addition,the Company has launched the Internets largest vehicle model library,motorcycle modellibrary,and used car model library,as well as 3D tuning tools,in order to fully satisfy users demandsand extend car service life cycle.Case:Tuning channel of Autohome and 3D tuning configuratorWe created a 3D car tuning configuration tool to meet users demands for a one-of-a-kindpersonalized car tuning experience.We also created a 3D tuning tools own social ecology byincorporating the metaverse concept.That is,users can create a one-of-a-kind personalized trendvirtual car while also making friends with like-minded and similar tastes.The 3D configurationtuning tool also serves as an important platform for connecting users and enterprises.The toolgenerates functional data for the enterprise by identifying which type ofproducts users demand.Autohome 3D tuning configuratorAbout this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix24In response to the national low-carbon strategy,the Company has developed the Energy SpaceStation,the Simulation Data Query Tool for New Energy Vehicles,the EV Intelligent Cloud Big DataPlatform,and other achievements in independent and cooperative R&D.We have made continuedefforts to educate the public about the new energy vehicle technology.Case:Energy Space Station empowered by metaverseOn September 5,2022,Autohomes first Energy Space Station was launched in Shanghai.TheEnergy Space Station,the worlds first one-stop car viewing platform.The station provides animmersive car viewing and test drive opportunity for the public via holographic naked-eye 3Dtechnology and other interactive digital technologies.Users can fully understand the internalstructure and technical features of new energy vehicles and make a purchase decision moreefficiently.The platform has realized the entire customer experience,including car selection,testdrive,and purchase,which has received widespread praise from automobile consumers andindustry professionals.Autohomes Energy Space Station in ShanghaiCase:ExclusivestrategiccooperationagreementbetweenAutohome and BitneiTheCompanyenteredintoathree-yearexclusivestrategic cooperation agreement with Beijing BitneiCorp.,Ltd(Bitnei)on August 5,2022.We worked closelywith Bitnei on the application of new energy simulationdata in vehicle information,owner service,used carevaluation,andotherscenarios,developingandlaunching the new energy vehicle simulation data querytool,batterydetectiontool,newenergyvehicleperformance index ranking,and new energy vehiclereport,as well as continuing iterative optimization.Wedeveloped the EV Smart Cloud big data platform projectin November 2022,which tracks and displays the actualuse effect of new energy products from various hostplants.The platform collects data statistics,analyzes it,and provides insight,as well as conclusions about themarket situation,competitive relationship,user demand,audience insight,etc.The Cloud can also be used formarketing and customer service decision and datasupport.Exclusive strategic cooperation agreement signing ceremony between Autohome and BitneiAutohome 2022 Environmental,Social and Governance(ESG)Report25Based on Companys core competitive advantages in marketing,research,technology,and digitalization,as well as its long-established brand,we are able to connect the upstream and downstream of theautomobile industry.We are working to establish industry standards in collaboration with industryassociations and authoritative data institutions,drawing on our experience with data,algorithms,andmodels.We have made consistent efforts to develop innovative products and business models,therebygreatly improving industry efficiency and sustainability.(4)Constant industry empowermentCase:China Auto Forum 2022The China Auto Forum,organized by the China Association of Automobile Manufacturers(CAAM),took place as planned in Shanghai from November 8 to November 10,2022.The forum was heldunder the theme Cohesion,stability,and future as the largest and highest-level comprehensivesummit of the automotive industry in 2022.Mr.Quan Long,Chairman and CEO,attended thesummit and discussed current industry trends with leaders of national ministries andcommissions as well as heads of automotive companies.Mr.Bibo Xiang,Chief Technology Officer(CTO),delivered a keynote speech and released theInsight on Automotive Consumer TrendsinChina,which was based on Autohome platform data.The report reflected consumer needs,analyzed current enterprise development,and provided insight into the rise of Chinese brands inthe new energy vehicle industry.Closed-door summit of the China Auto Forum 2022About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix26Case:818 Global Auto FestivalSince 2019,the Company has held the 818 Global Auto Festival for four consecutive years in orderto boost consumer confidence in the automobile market and promote the sustained developmentof Chinese car makers,with the goal of jointly building an IP in the automobile industry.Thefestival was celebrated in various cities through online auto shows,gala nights,car modelcontests,industry summits,and auto shows.The gala night in 2022,themed Autohome 818-Focus on the Future,co-hosted by CCTV,highlighted the changes brought about by technologyand digitalization in the industry.To encourage rapid digital transformation and upgrading of theautomobile industry,we presented scientific insights on the industrys future at the gala.As ofAugust 18,2022,the gala had received 12.7 billion views on the Internet,with long videosreceiving over 100 million views and short videos receiving 730 million views,as well as 192trending hashtags on social media platforms and 129 trending hashtags on Weibo alone.The Gala Night Themed on Autohome 818 Focus on the Futurein 2022Case:Future Automotive Industry Strategist ProgramIn December 2022,we launched the Future Automotive Industry Strategist program in jointefforts with Peking Universitys Guanghua School of Management and the CAAM.This programbrought together senior management from OEMs and component suppliers,founders ormanagement and decision makers from technology companies,major decision makers fromsmart transportation and smart travel companies,senior management from traditional energyand renewable energy companies,senior management from financial institutions,and investorsfrom investment firms,all of whom have a long-term interest in the automotive industry.TakingadvantageoftheGuanghuaSchoolofManagementsacademicstrengthineconomicmanagement and industry,Peking Universitys edge in basic disciplines,and the developmentmomentum of new engineering,the program is designed to cultivate talents who specialize in theindustry and have a mindset geared toward industrialization,informatization,urbanization,andagricultural modernization.The program aims to accelerate Chinas automotive industrysdevelopment.Autohome 2022 Environmental,Social and Governance(ESG)Report27The emergence of new energy vehicles presents the automotive industry with both an opportunity and achallenge.Using our industrial resources and digital capabilities,we assist industry players in seizingopportunities and overcoming challenges,exploring the new energy vehicle market,developing cutting-edge strategies for the new energy vehicle sector,and continuing to empower the development of newenergy vehicles across the value chain.Case:China EV100 Forum 2022As an official partner of the 2022 China EV100 Forum,Autohome participated in forum activitiesand delivered a keynote speech titledNew Pattern and Opportunities for Used New EnergyVehiclesat the New Energy and Intelligent Vehicle Aftermarket Forum from March 25 to March 27,2022.We released the Autohome Research Institutes Report onUsed New Energy Vehicles,whichdrew over 230,000 viewers during the live broadcast.The forum was organized in partnership withChina EV100.On the forum,we expressed our concern about the development of new energyvehicles and presented the findings of our research on the industrys current situation anddevelopment trends.China EV100 Forum 2022About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix284Strengthening Strengthening the management the management foundationfoundation0505We have always adhered to the management philosophy of creating a strict compliance culture andoptimizing cooperation,and on that basis,we have made sustained efforts to strengthen informationsecurity protection,integrity building,advertising and intellectual property management,and suppliermanagement in general.We strive to achieve the corporate vision of becoming the worlds largestautomotive consumer and service platform.We take information security and user privacy seriouslyand have established a comprehensive internal system and security management structure toconstantly improve the technical level and management capability of our security operations whilestrictly abiding by the law.To improve compliance management,we established a comprehensive andefficient compliance system and provided training on its implementation.To ensure sustainabledevelopment,we have established values of openness,fairness,and justice.The Company strictly adheres to theCybersecurity Law of the Peoples Republic of China,theDataSecurity Law of the Peoples Republic of China,thePersonal Information Protection Law of the PeoplesRepublic of China,theProvisions on the Administration of Algorithm-generated Recommendations forInternet Information Servicesand other laws,regulations and industry norms,and has established acomprehensive and systematic internal management system for information security,such as theAutohome Information Security Policy,theAutohome Information Security Strategy,theAutohomeInformation Security Norm,theAutohome Information Security Standard,theAutohome Data SecurityManagement Policy,theAutohome Data Security Management Policy,theAutohome Data SecurityManagement System,the Autohome Data Leak Prevention Management Specification,andtheAutohome User Rights Protection System,which clarify the objectives,principles,security frameworkand specific security requirements for our information security management,which are then approvedby senior management and released via email,the OA system,and the Autohome APP system.InformationInformation securitysecurity managementmanagement structurestructureTo strengthen information security even further,the company established the Autohome SecurityCommittee,which consists of following sub-committees:network,data,algorithms,content,product,government regulation communication,etc.,to jointly build an efficient information securitymanagement system.The Security Committee,as the highest body to deal with all aspects ofinformation security,is led by the Vice President of Content Security as the Director,and the CTO and theVice President in charge of enterprise clients and consumer services as the Deputy Directors,and theExecutive Secretary and members of the sub-segments are all middle-level managers or above.Toensure rapid decision making,robust execution,precise and closed-loop management of informationsecurity issues,the Committee has established daily operational procedures,emergency responsemechanisms,and a dedicated working group for major events.(1)Information security and privacy protection30About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix Information security control measuresInformation security control measuresThe Company has implemented a number of technical means and control measures to ensure thesecurity of the network and database management system,based on a scientific and meticulous systemdesign and collaborative management structure.Firewall protectionThe internal network access level is determined by security and function ranking system.Critical networkzones are separated using Firewall.Access controlServers are managed in a unified manner through the bastion host.The bastion host and theO&M terminal conduct strict identification and authentication.The audit records are stored onthe backup server.Autohome 2022 Environmental,Social and Governance(ESG)Report31Monitoring and warningSecurity and network equipment,as well as server is monitored by the monitoring system in acentralized manner.When the threshold value is reached,the alarm is triggered.Intrusion detectionThe threat awareness platform has been deployed to detect network attacks,by reviewing thenetwork and host logs.It employs a host intrusion detection system to detect and preventinternal users from connecting to the external network.Vulnerability managementThe security vulnerability response platform performs regular host vulnerability testing.Whena security vulnerability is detected,a security work order is created to address the vulnerabilitypromptly.Case:Collaboration with Butian vulnerability response system to improve the cybersecurity of AutohomeSince 2016,the Company has collaborated with Butian,a leading security vulnerability responsesystem in China,to establish a dedicated Security Response Center(SRC).We have received alarge amount of information on security vulnerabilities since the launch of SRC,and by collectingand fixing them,we have effectively improved the security of our information systems,protecteduser information,and reduced security risks.Meanwhile,we reward employees who detectnetwork vulnerabilities and encourage more people to contribute to our cybersecurity.We hadpaid nearly RMB 0.6 million in bonuses to employees who detected vulnerabilities as of December31,2022.ProtectingProtecting useruser privacyprivacy andand securitysecurityThe Company always prioritizes the protection of users rights and the security of their personalinformation.We insist on tracking and managing the entire life cycle of users personal information,fromcollection to transmission,storage,usage,exchange,and destruction,and we strictly adhere to theprinciple of minimum permission requests in our applications in order to protect users informationsecurity.TheUser Agreement and Privacy Policyhave been established in this regard.We alsoemphasize the rights of users as data subjects in these policies to help them make accurateauthorization decisions.32About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendixWhenWhen gaininggaining accessaccess toto a a usersusers personalpersonal information,information,thethe systemsystem willwill issueissue severalseveral promptsprompts andand requestrequestauthorizationauthorization.TheThe collectioncollection ofof personalpersonal informationinformation fromfrom usersusers is is basedbased onon thethe specificspecific businessbusiness andandscenarioscenario inin whichwhich thethe useruser is is involved,involved,andand onlyonly thethe informationinformation requiredrequired byby suchsuch businessbusiness andand scenarioscenario is isgatheredgathered.ToTo ensureensure thethe minimumminimum necessitynecessity ofof datadata collection,collection,allall typestypes ofof informationinformation collectedcollected areare strictlystrictlyevaluatedevaluated internallyinternally andand testedtested andand confirmedconfirmed byby a a thirdthird partyparty securitysecurity companycompany.FollowingFollowing useruser consent,consent,thethe CompanyCompany collectscollects andand usesuses personalpersonal informationinformation inin accordanceaccordance withwith privacyprivacypoliciespolicies andand provideprovide necessarynecessary businessbusiness servicesservices.DuringDuring thethe service,service,thethe CompanyCompany takestakes variousvarious technicaltechnicalmeasuresmeasures toto securesecure personalpersonal information,information,suchsuch asas encryptedencrypted oror anonymousanonymous storagestorage ofof personalpersonal data,data,strictstrictdatadata accessaccess controlcontrol mechanisms,mechanisms,andand multiplemultiple identityidentity authenticationauthentication technologies,technologies,toto ensureensure thetheconfidentiality,confidentiality,fairness,fairness,effectiveness,effectiveness,andand retrievabilityretrievability ofof datadata processingprocessing systemssystems.UsersUsers cancan viewview thetheinformationinformation collectedcollected inin thethe APPAPP andand requestrequest datadata export,export,correction,correction,andand deletiondeletion fromfrom thethe CompanyCompany.WhenWhen thirdthird partiesparties areare entrustedentrusted withwith processingprocessing usersusers personalpersonal informationinformation oror personalpersonal informationinformation is issharedshared withwith thirdthird partiesparties inin thethe coursecourse ofof applicationapplication servicesservices andand operations,operations,thethe CompanyCompany willwill identifyidentifysecuritysecurity andand privacyprivacy risksrisks inin eacheach scenarioscenario andand taketake stepssteps suchsuch asas informinginforming users,users,exposingexposing thirdthird partyparty logos,logos,andand signingsigning DataData ProcessingProcessing AgreementsAgreements andand DataData SharingSharing AgreementsAgreements withwith thirdthird partiesparties toto clarifyclarify bothbothpartiesparties responsibilitiesresponsibilities.WhenWhen usersusers cancelcancel theirtheir accounts,accounts,thethe systemsystem willwill completelycompletely deletedelete allall theirtheir personalpersonal informationinformation toto ensureensurethatthat theirtheir rightsrights areare protectedprotected.Sincethe enactmentofthePeoples RepublicofChinasCryptographyLawandtheimplementation of related standards and algorithms,sensitive personal information in databasesmust be encrypted in accordance with regulatory requirements.As a response,the Companyintroduced database encryption middleware to further improve the efficiency,stability,andreliability of encryption,as well as to ensure the subsequent update and upgrade of sensitive dataencryption algorithms.We have also improved database encryption tools by adding newencryption tools while maintaining the original encryption API.The new encryption tools havesignificantly improved the dependability and sustainability of user information encryption whilealso protecting user privacy.Case:Providing more technical options for user information encryption,and offer continuous support for transformation and upgrading of encryption technology Regular external auditsRegular external auditsIn order to achieve safe operation in accordance with laws and regulations,the Company takesresponsibility for enterprise information security,conducts self-inspection on compliance on a regularbasis,and rectifies problems identified in strict accordance with the time frame.To protect data,thecompany adheres to the industrys highest standards and accepts regular audit and verification by thirdparties.We will hire an external third-party security company to conduct a comprehensive penetrationtest of all our network information systems at least once a year in order to identify and address securityvulnerabilities and risks.In addition,at least once a year,we will engage an external third-party securitycompany to conduct a compliance check on users personal information protection for all of our activeAPPs in order to identify and fix problems related to personal information and privacy protection.Thisyear,we completed the penetration test and compliance check on personal information protection.Allidentified vulnerabilities and problems have been repaired and resolved.Meanwhile,we classify protection objects using our own systems and business,and we finish filingclassification protection.The filing system encompasses all of the Companys information systems.Suchfull-scale coverage ensures that the level corresponds to the systems actual situation.We hire a qualifiedagency to evaluate all third-and second-level filing systems for classified cybersecurity protection on anannual and biennial basis.All of our third-and second-level systems passed the assessment in 2022.Training and publicityTraining and publicityTo increase awareness of information security and privacy protection,the Company provides privacy andinformation security training to all employees at least twice a year,including offline training and onlinelectures.On our internal online education platform,we launch information security training courses forall employees,with content covering cybersecurity awareness,data compliance,and personalinformation protection.We interpret relevant laws and regulations and provide a recap of corporatecompliance solutions to keep all employees from breaching information security protection.Autohome 2022 Environmental,Social and Governance(ESG)Report33Autohome Information Security trainingFurthermore,the Company distributes a monthly journal on information security to all employees,covering a wide range of topics such as security awareness,our security requirements,technical securityknowledge,and security compliance requirements.The awareness of all our personnel on risks relatedto privacy protection and information security has been continuously enhanced through daily publicityand the occasional release of risk tips,and the ability to identify and prevent risks has been significantlystrengthened,laying a solid foundation for the construction of a comprehensive and efficientinformation security management system.Autohome Information Security training35About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix ComplaintsComplaints andand adjustmentsadjustmentsThe Company has put in place a mechanism for consultations and complaints about personalinformation,as well as a process for handling complaints.ThePrivacy Policyspecifies and provides validmeans and procedures for enquiring,deleting and correcting user information,revoking consent,andlogging out,and expressly states that no unreasonable terms shall be imposed for the aforementionedrequests.We receive and respond to personal information consultations and complaints in a timelymanner via our customer service hotline,online customer service in our applications,and dedicatedmailbox.We keep records of the receipt and handling of complaints and reports on users personalinformation,and contact these users on a regular basis.The Privacy Policy of Autohomehttps:/ Company abides by the code of business ethics and industry guidelines,and strictlyfollows theCriminal Law of the Peoples Republic of China,the Foreign Corrupt Practices Actand other external laws and regulations.We have formulated a comprehensive and detailedinternalmanagementsystemsandrequirements,suchastheAutohomeEmployeeHandbook,theAutohome Code of Ethics and Business Conduct,theAutohome Red,Yellowand Blue Cards Penalty System,and theTen Rules of Self-Discipline for AutohomeEmployees,which are designed to regulate employees business ethics and behavior.TheCompany has also taken practical measures against bribery and corruption,and clarified thepenalty standards and procedures for violations of the law,so as to fundamentally preventimproper business practices such as influence peddling,and create a clean workingenvironment.(2)Strengthening the integrity constructionAutohome 2022 Environmental,Social and Governance(ESG)Report35Define punishment standards and procedures for employees violation of regulations.0304Regulate the behavior of employees and educate them on integrity at work.Autohome Red,Yellow and BlueCards Penalty SystemTen Rules of Self-Discipline for Autohome EmployeesSpecify the code of conduct and the violation of discipline for employees.0102Require employees to behave following the principle of honesty and ethics and in compliance with applicable laws and regulations.Autohome Employee HandbookAutohome Code of Ethics andBusiness Conduct Focusing on the integrityFocusing on the integrityTo strengthen the top-level system of business ethics,the Company has established the ComplianceCommittee,comprising the Companys Head of Compliance(i.e.the Chief Financial Officer,CFO),theLegal Department and the Internal Compliance Department,with the CFO as the Chairman of theCommittee.The Committee is responsible for overseeing compliance with the Code of Ethics andBusiness Conduct,compliance with the Foreign Corrupt Practices Act,prevention of insider trading,whistleblowing investigations and other related matters.In 2022,we updated the Autohome Code ofEthics and Business Conduct,which has further clarified the requirements of the Code of Business Ethics,so as to better guide and regulate employees behavior in compliance.Partner integrity monitoring mechanismPartner integrity monitoring mechanismIn order to encourage suppliers and related partners to act with honesty,integrity and self-disciplineand by law in their business activities with Autohome,the Company required them to sign theCommitment on Integrity(Anti-Corruption and Anti-Bribery)when agreements are concluded,so as tostrictly prevent violations of law and discipline,and ensure fair and open cooperation.This will also raisethe awareness of both parties to strive for survival by quality,sustained cooperation by reputation anddevelopment by integrity.We will make constant efforts to strengthen the control of integrity duringcooperation,regular select and evaluate partners,and take immediate actions to suspend thecooperation with partners involved in integrity violations,in a bid to accelerate the building of an open,transparent,competitive and orderly business environment.Periodic ethical auditPeriodic ethical auditThe Company has established an Audit Committee under the Board of Directors,comprising threeindependent directors.The Committee is responsible for overseeing the compliance with the Companyscode of business conduct and ethics,including reviewing the adequacy and effectiveness of internalcontrol procedures and receiving quarterly reports from the Compliance Committee on compliance withthe code of business conduct and ethics.The Company will conduct an annual special audit led by the Internal Compliance Department,coveringhigh-risk sectors requiring special attention every 2 to 3 years.During the special audit in high-risksectors,we will conduct audit on external suppliers business ethics based on actual projects ifprocurement projects are involved.If there is a breach of business ethics by an insider or relevant tip-off,we will carry out an investigation of the insider and the corresponding business,and report the auditresults to the Audit Committee.Publicity and trainingPublicity and trainingTo raise employees awareness,the Company makes constant efforts in optimizing the publicity andtraining on integrity at work.In 2022,we continued to provide training for all new employees on thecode of ethics and business conduct,covering Code of Ethics and Business Conduct,Foreign CorruptPractices Act,Anti-Fraud Reporting,Insider Trading,Confidentiality System,Commercial Briberyunder Chinese Law and other modules.We have engaged all the employees in the special anti-corruption campaign of Three Donts(i.e.do not have the audacity,opportunity,or desire to becomecorrupt)and various forms of case study to effectively enhance the awareness of integrity among allstaff.We convey our spirit in the special campaign of Three Non-Corruptions and determination toresist corruption through posters,videos,special training,articles in the Home of Integrity and other on-line and off-line channels.The Company also communicates key issues relating to the Foreign CorruptPractices Act to all Directors by questionnaire per annum and receives feedback.These training andcampaigns for new and senior employees fully showcase the Companys philosophy of andrequirements for anti-fraud,anti-corruption and anti-bribery.36About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix(100%of coverage,with 1,910 employees(100%of coverage,with 1,910 employees participated in 2022)participated in 2022)All new employees will complete the training andexamination within 3 months,covering Code ofEthics and Business Conduct,Foreign CorruptPracticesAct,Anti-FraudReporting,InsiderTrading,ConfidentialitySystem,CompanyInformation Release Standard and CommercialBribery under Chinese Law.Training on code of ethics and business conduct for new employeesPosters&videos on anti-corruption(800 views,with all employees engaged off(800 views,with all employees engaged off-line)line)We convey our spirit in the special anti-corruptioncampaignandourdeterminationtoresistcorruption through on-line and off-line posters andvideos.The anti-corruption videos were repeatedlybroadcast on large screens in public areas.The off-line posters were displayed prominently on theposter board,mainly advocating the spirit of anti-corruption and our reporting channels.(over(over2 2,700700 views,views,withwith allallemployeesemployees engagedengaged bybyemail)email)We published our recent integrity events in the Home ofIntegrity,including the special anti-corruption campaign,avoidance of conflict of interest,Red,Yellow and Bluepenalties,and notification of violations.In 2022,wepublishedfiveissuesoftheHomeofIntegritysimultaneously through OA system,Autohome APP andemail.The Home of IntegrityArticles in the Home of Integrity Original peripheral products on integrity of AutohomeAutohome 2022 Environmental,Social and Governance(ESG)Report37(over 4,200 views,with 2,000 employees engaged)(over 4,200 views,with 2,000 employees engaged)In March 2022,the Party Committee of Autohome,the leadership of the EconomicManagement Committee,the working group on the special campaign,and over 120department heads and team leaders participated in the off-line kick-off meeting&videoconference of Autohomes special anti-corruption campaign with the theme of do nothave the audacity,opportunity,or desire to become corrupt.A 35-minute video was thenuploaded to the Home of Learning for online learning.Kick-off meeting of Three Donts special campaign&training on warning casesOn-line/off-line posters for the special anti-corruption campaignShort video of the special anti-corruption campaignMeasures for Investigation and Handling of Employee Frauds and ViolationsReporting and Anti-fraud Management ProcessExternal websitesInternal OA official websiteMonthly email sent to all employeesSupplier bidding&procurement platformNotice on whistleblower protection and awarding Reporting and adjustmentsReporting and adjustmentsReporting channelsReporting follow-upReporting protection38About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendixNotice on whistleblower protection and awardingThe Company sets specific and public reporting channels,includingexternal websites,internal OA official website,monthly email sentto all employees,supplier bidding&procurement platform,toensure that reports can be delivered promptly to the right person.The Company has well-defined regulations for reporting follow-up.Reports related to fraud and bribery are processed by the InternalCompliance Department.We have established full-fledged andefficient internal management systems to standardize the follow-up,processing and approval process related to reporting.Among them,theReporting and Anti-fraud Management Processclarifies thepurpose of anti-fraud work,the concept and forms of fraud,theaccountability for anti-fraud processing,and the investigation(jointly performed by Internal Compliance Department,LegalDepartment and HR Department)and reporting,as well asremediation and punishment.TheMeasures for Investigation andHandling of Employee Frauds and Violationsfurther clarifies theinvestigation,handling and approval procedures for employeefrauds and violations,which highlights the structure of thepunishment execution team,and the rights and obligations ofemployees.In addition,the Internal Compliance Departmentreportswhistleblowingcasesandfollow-upactionstotheCompliance Committee every month.Since2020,theCompanyhaspublishedandimplementedregulations and processes related to whistleblower protection andawarding,which further illustrates principles and scope of reportacceptance,reporting channels,and whistleblower protection andawarding.Details are published on the Companys internal websiteand the external bidding&procurement platform,providing evensecured incentives for internal or external whistleblowers.(3)Advertising compliance managementFor advertising and publicity compliance management,the Company strictly abides by laws,regulationsand standards,includingthe Advertising Law of the Peoples Republic of China,theDetailedImplementing Rules for the Regulation on Advertisingand theInterim Measures for the Administration ofInternet Advertising,and has formulated theInternal Advertising Review Standardsand other internalrules and policies to protect the rights and interests of the Company and others,and ensure that thepublicity contents are true and legal.Meanwhile,we follow up on updates of relevant national laws andregulations,and conduct corresponding publicity and trainings for relevant personnel in charge ofadvertisement publishing and review to learn about the latest policies and industry standards.For reports related to internal corruption,we will organize a special investigation team to conductimmediate action.Based on the investigation result,we will implement the punishment standards andprocedures as per the CompanysMeasures for Investigation and Handling of Employee Frauds andViolations,theRed,Yellow,and Blue Cards Penalty Systemand other relevant policies.Illegal cases willbe reported to judicial authorities in accordance with the law.Then,based on the nature and causes ofspecific cases,we will perform rectification,summarize experiences,review the overall cases andformulate targeted improvement measures to prevent recurrence ofsimilar cases.In 2022,there were no concluded litigation cases involving corruption made by the Company and itsemployees.Autohome 2022 Environmental,Social and Governance(ESG)Report39 Publicity and trainingPublicity and trainingIn 2022,the Company carried out trainings on the advertising law through online and offline channelsto all new and existing employees engaging in advertising business,content review&publishing,andstrictly implemented special compliance management on advertising to eliminate potential risks.ToenableemployeesbetterunderstandthelegalobligationsofAutohome as an advertisement publisher and the red lines of advertisingcontent,on October 10,2022,the Companys Legal Department invitedofficer from the Advertising Department of Haidian District Administrationfor Market Regulation to give trainings on advertising law,includingintroducing relevant provisions of theAdvertising Law of the PeoplesRepublic of China,and theMeasures for the Administration of InternetAdvertising,to ensure the compliance of the Companys advertisingbusiness.Offline training on advertising lawCase:Inviting government authorities to give trainings on latest advertising regulations(4)IP managementThe Company strictly complies with thePatent Law of PRC,theCopyright Law of PRC,theTrademark Law of PRC,theComputer Software Protection Regulations of PRCand other IP laws and regulations,and has formulated theAutohome IP Management Measures,theAutohome Management Regulations for Science and Technology ServiceInvention Award,theAutohome Guidelines for Trademark Registration Application,theAutohome Procedures forSoftware IP Applicationand other internal rules and regulations,forming an IP management and protection systemcovering patent rights,copyrights and trademark rights.At the same time,we require relevant staff to study thelatest laws and regulations to ensure the compliance and timeliness of the IP we used,so to prevent from infringingothers IP while safeguarding our own interests.Content creator intellectual property rights protectionContent creator intellectual property rights protectionTo protect legitimate rights and interests of content creators,the Company utilizes advanced searching technologiesand algorithms to monitor all platforms 7*24.If any infringement was detected,we will collect electronic evidence asper court permission immediately,send deletion notice to the infringer and inform our lawyer,who will send alawyers letter and follow up the rights protection lawsuit.The individual or platform causing the infringement will beblacklisted.We will promptly determine the response plan for infringements made by large or medium platforms.For those made by illegal websites,we will directly order them to delete relevant content.As of December 31,2022,with the originally generated content monitoring technology,Autohome protected 2,017 articles,more than 630,000pictures and 2,224 videos;detected 856 infringements among over 550,000 articles,2.6 million pictures,and 130,000videos of all websites under monitoring,which greatly protected content creators IP production.In terms of trademark monitoring and protection,during the trademark application,the Company monitorstrademarks that are suspected of infringing competitors trademarks and trademarks found similar duringpreliminary review,and promptly intercept the trademark if any infringement is detected and summarize monthlybased on the monitoring results.Meanwhile,we monitor trademarks of all kinds on the Internet that have beenapproved and about to be published.We will send warning notice promptly if similar trademarks are detected andraise objections against trademarks that may infect the Company.During the trademark use and rights protectionperiod,we continuously monitor the Internet,protect rights against illegal and fraudulent use of the Companystrademarks or use of similar logo,notarize the infringement facts,and determine the rights protection plan based onthe type and content of the specific notary.As of December 31,2022,we found 177 trademarks similar to ours andraised objections to intercept 16 trademarks;discovered 80 fraudulent or similar trademarks,8 of which receivedcancellation application.40About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix Innovation and development achievementsInnovation and development achievementsBased on our comprehensive and systematic IP management system and various efficient and accuratemanagement measures,the Company is committed to safeguarding innovation achievements andcreating an environment for independent innovation.In order to encourage employees to invent patentsand conduct technological innovation,the Company has set up Special Awards for ProductTechnology,which are calculated quarterly and paid with salary.Since the establishment of the awardsystem,we have issued awards for 13 times.Among them,732 employees won the Patent AcceptanceAward with 360 inventions;331 employees won the Patent Authorization Award with 117 inventions.As of December 31,2022,the Company has issued 280 patent authorizations,including 158 inventionpatents,1 utility model and 121 appearance designs;and submitted 474 patent applications,including468 invention patents.In addition,the Company has issued 563 trademark authorizations andsubmitted 790 software copyrights.The company works closely with its suppliers to jointly explore a green and compliant sustainabledevelopment path.We developed stringent supplier quality management standards that clarify theclassified supplier management system and establish corresponding requirements for supplier selectionand assessment,addition and change of standards and processes,risk and performance evaluation,monitoring and improvement,and exit mechanism.(5)Supplier managementRegionRegionNumber of suppliersNumber of suppliersMainland China and Hong Kong,Macao and TaiwanMainland China and Hong Kong,Macao and Taiwan9,958OverseasOverseas367KPI:SuppliersThe Companys suppliers are divided into two categories:physical product suppliers and servicesuppliers.Fixed asset suppliers,printing material suppliers,and administrative goods suppliers areexamples of physical product suppliers.We highlight the green supply chains and product responsibilitystandards of such suppliers.We impose strict requirements on the safety management and protection ofemployee rights and interests of service suppliers,which include software service suppliers,marketsuppliers,decoration and construction suppliers,content cooperation suppliers,content productionsuppliers,and training suppliers.We have strict requirements on all suppliers and include environmentaland social terms in the contract to bind on their practices to ensure the stability of the supply chain andstrengthen supply chain management.We use a multi-index evaluation method for supplier risk and performance evaluation and adhere to fourprinciples:systematic and comprehensive,simple and scientific,stable and comparable,flexible andoperable.The evaluation is conducted online with three modules,namely the basic informationevaluation,the monthly performance evaluation and the quarterly manual evaluation.All admittedsuppliers are subject to evaluation(with the exception of individual suppliers,overseas suppliers,andnon-contract payment suppliers).The evaluation rate reaches 100%.The last-place elimination policy isimplemented for a specific category of suppliers to ensure suppliers sense of competition and tostrengthen their determination to continue improving management.If there are violations of laws andregulations,the system will either deal with them directly or order suppliers to leave based on the resultsof risk control monitoring.We strive to reduce the environmental and social impacts of supply chainswhile pursuing mutual benefits with partners in order to achieve sunshine procurement(open,transparent,and scientific procurement)and sustainability.We work with our suppliers to create a fair and clean cooperation environment and to establish long-term win-win cooperation on the basis of continuously reducing the environmental and social impacts ofsupply chains.During supplier bidding and procurement,we prominently display an advocate for theestablishment of a fair and transparent business culture in the supplier-end of the Companys biddingand procurement platform,and we provide integrity reporting channels.Furthermore,the InternalCompliance Department,in collaboration with the Administration Departments procurement team,reviews quotations and bidding procedures to analyze suppliers behavior during previous biddings inorder to prevent potential bidding rigging.We will suspend cooperation or stop working with suppliersinvolved in risks under special circumstances to ensure a fair environment for sunshine procurementfrom the source.Case:Maintaining integrity to co-create the Sunshine HomeIn April 2022,the Company sent promotional email to more than 2,800 active supplierswith the theme of upholding integrity to co-create the home of sunshine.The emailexemplifies Autohomes integrity philosophy,lays out strict integrity requirements,emphasizesAutohomesreportingchannels,andbroadenspetitioncoverage.Furthermore,we highlight Autohomes requirements for overall supplier management inevery email sent to suppliers during the procurement year,and we provide them withtheAutohome Supplier Compliance Guidelinesto learn and follow.A letter to Autohome suppliersAutohome 2022 Environmental,Social and Governance(ESG)Report410606Pursuingpeople-centeredphilosophyThe Company always considers talents as the driving force for the healthy development of enterprisesand the foundation for value creation.To attract more talents,we provide competitive remunerationand benefits,respect and safeguard employees rights and interests;care about employeesoccupational health and safety,promote sustainable development of the Company and employees;reinforce talent building and cultivation,striving to create a platform where employees can improveprofessional capabilities while seeking long-term development.(1)Employees rights and interests protectionThe Company strictly abides by theLabor Law of PRC,theLabor Contract Law of PRCand other relevantlaws and regulations,and has formulated internal rules and manuals such as theAutohome EmployeeHandbook 2022 Edition.TheAutohome Employee Handbook 2022 Editionregulates work related toprotection of employees rights and interests.We prohibit any form of child labor and forced labor,promise equal opportunities from recruitment,admission,remuneration and benefits,training,promotion,to resignation and retirement,and uphold diversity and inclusiveness with zero-tolerance toany discrimination and harassment regarding race,ethnicity,religious belief,gender,age,health status,nationality or other protected groups,aiming to eliminate employment discrimination and implementwork equality.In addition,we regulate the employee resignation management process to protectemployees rights and interests of all kinds during resignation.Talent acquisitionTalent acquisitionThe Company continues to build a high-quality talent team.We utilize campus recruitment,websitesand other channels to introduce industry talents and reserve new forces based on fairness,justice andopenness.IndicatorIndicator20222022年年Total number of employeesTotal number of employees5,3555,355GenderGenderMale3,480Female1,875AgeAgeBelow 301,83631 to 503,495Over 5024KPI:Employee recruitment and turnoverAutohome 2022 Environmental,Social and Governance(ESG)Report43RegionRegionMainland China5,348Hong Kong,Macao and Taiwan4Overseas3Job levelJob levelSenior management79Middle management887Junior management(including junior supervisor)4,389 Remuneration and benefitsRemuneration and benefitsThe Company provides fair,reasonable and competitive remuneration,incentives andbenefits.TheAutohome Employee Handbook 2022 Editiondefines the remuneration systemand its management.The handbook also provides performance bonus policies for excellentperformance and fulfilment of corporate culture made by employees and teams.To furthermotivate employees,we implement a corporate-wide equity incentive mechanism and hasformulated and implemented theAutohome Long-term Incentive Management Manual,which clarifies the long-term incentive position and management on pricing,authorities andincentive granting.We also provide employee care and other non-remuneration benefits to achieve work-lifebalance.In addition to various social insurances,we provide solid vacations and organizevarious activities for all employees,including daily fruit and afternoon tea,the Goddess Day,theFamily Open Day,the Production Research Festival,the Autohome Anniversary,football club,fitnessoffers,etc.to create a harmonious,pleasant,lively and progressive corporate culture,and enhanceemployees sense of integration and identity.All these enable our employees to enjoy achievements ofthe Companys development while working hard.We deliver our care to employees by concrete actionsto improve employees work experience and happiness.IndicatorIndicator20222022年年EmployeeEmployee turnoverturnover25.4%GenderGenderMale27.4male22.0%AgeAgeBelow 3036.31 to 5022.0%Over 5023.8%RegionRegionMainland China28.1%Hong Kong,Macao and Taiwan0.0%Overseas20.0DAbout this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendixCase：Exquisite festival gifts for exclusive careIn each statutory holiday,such as the Spring Festival,the Mid-Autumn Festival and the Dragon Boat Festival,we prepareexquisite and exclusive gifts for all employees,so as toincrease employees sense of ceremony and belonging.AutohomeAutohome exclusive festival giftsexclusive festival giftsEmployeeEmployee communicationcommunicationThe Company regularly conducts internal communications online and offline and provides variouscommunication channels,striving to create an internal communication mechanism in multipledimensions and high frequency.We carry out Chairman Online and Chairman Reception Day foremployees to initiate one-one talk with the Chairman for any questions and suggestions that they mayhave.We also hold offline Sharing Meeting for department heads to share the departmentsresponsibilities and business plans with employees and give one-one talk to help employees efficientlysolve problems,so as to protect employees rights and interests and improve employee satisfaction.46About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendixThe Company strictly abides bythe Labor Law of PRCand other laws and regulations relatedto occupational health and safety,and has established the employee health and safetymanagement system.We provide safe and comfortable office environment,advocate healthyand balanced working style and protect employees occupational health and safety.Health managementHealth managementTo protect employees health,the Company provides annual health check to help themdiscover,understand and manage their health problems in a timely manner.During thepandemic,we prepared pandemic prevention packages containing necessary medicines,sanitizer,alcohol,thermometers,etc.,together with multiple other measures,to protectemployees health and safety.(2)Emphasizing health and safety2022 health check poster Safety protectionSafety protectionWe irregularly organize trainings on safety knowledge and skills and arrange fire drills tofurther improve employees awareness of fire prevention,as well as self-rescue and riskresponse capability.Workplace medicine box poster(3)Assisting coordinated developmentThe Company values talent cultivation and always regards employee development as an importantdriving force behind enterprise development.We develop specific career development plan for eachposition and assist employees to improve their career development path and progression system,aiming to achieve co-development of both the Company and employees.Talent developmentTalent developmentTheCompanyprovidesadual-pathcareerdevelopmentsystemofprofessionalpathandmanagement path.The professional development path focuses on the refinement of professionalcapabilities while the latter focuses on management ability.We will provide well-defined careerdevelopment path based on employees intentions and abilities.IndicatorIndicator20222022年年20212021年年20202020年年Total number of died at workTotal number of died at work000Percentage of died at workPercentage of died at work000Working days lost due to workWorking days lost due to work-related injuriesrelated injuries000KPI:Employee health and safetyAutohome fire prevention training and fire drillOn October 26,2022,we invited Mr.Qingsheng Zhao,former Deputy Director of the GuidanceOffice of Fire Prevention Department of Beijing Public Security Fire Corps,to lecture on fireprevention.On November 1,we organized a fire drill participated by all employees to harness thefire prevention knowledge in daily practice.This training provided comprehensive fire safetyknowledge and firsthand experience of the danger of fire accident,and demonstrated differentfire prevention and rescue methods,as well as the use of facilities and equipment.Case:Fire protection education to enhance safety awarenessAutohome 2022 Environmental,Social and Governance(ESG)Report47To accurately assess the professional growth and future development potential of our employees,weregularly conduct individual performance assessment.The assessment includes two parts:performancetargets and cultural values.Employees performance is scored by their direct leaders,and subject toreview and adjustment by the leader of a higher level,HRBP(human resources business partner)andrespective business head.After the performance assessment,employees can log in the performancesystem to check their results and give feedback.Their direct heads will carry out targetedcommunication and coaching to effectively promote their development.Professional trainingProfessional trainingThe Company has formulated a series of talent cultivation management systems,including theAutohome Academy(Autohome Online Learning Platform,or Xuegong in Chinese)Student ManagementSystem,the Autohome Academy Management System and the Autohome Academy Course ManagementSystem,to provide career development training courses in multiple dimensions and layers,establishdiversified self-improvement channels for certain positions,and create a talent development systemwith Autohomes characteristics and in line with the industry development.Autohome AcademyStudent Management SystemThissystemregulatescompulsorylearning courses and requirements forall employees,including new joiners,new managers(new team leaders)andnew directors(new department heads).Autohome AcademyManagement SystemThis system illustrates the structureofAutohomeAcademy,personneldivisionandresponsibility,andrequirementsforthereviewandupload of courses.Autohome Academy Course Management SystemTargeting at all employees,the system regulates the content and resource managementof the training system of Autohome Academy,and encourages employees to review anddisseminate knowledge,share and learn excellent experiences.48About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendixCase:TOP elite training camp for department headsThe annual TOP elite training camp istargetedatalldepartmentheads.Committed to the philosophy of thinking,acting,and leading,the camp integratesvarious interesting programs,includingtheintegrationandexpansionprojectrowing outward bound and the thinkingcoursesixthinkinghats,aimingtoimprovemutualcooperation,teamintegration and transposition thinking.In2022,a total of 47 department headsparticipated in the TOP elite trainingcamp.Department heads in the TOP elite training campCase:Autohome Academy ForumInthisyear,wesuccessfullyheldthefirstAutohomeAcademy Forum.Yu Yang,CCTV special commentator forthe 20th CPC National Congress,was invited to interpretthespiritofthe20thCPCNationalCongresstoallemployees,which clicked more than 1,000 views online andoffline.As a platform for employee empowerment built bythe Company,Autohome Academy Forum aims to broadenemployees horizons and improve their thinking.Leadersfrom various industries and fields are invited to discuss thelatesttopicsabouteconomy,politics,societyandtechnologies.Autohome Academy ForumIndicatorIndicator20222022年年Percentage of participants by genderPercentage of participants by genderMale100male100%Percentage of participantsPercentage of participantsby job levelby job levelSenior management100%Middle management100%Grassroots staff100%Average training hours receivedAverage training hours receivedby genderby genderMale34.6Female44.6Average training hours receivedAverage training hours receivedby job levelby job levelSenior management56.1Middle management50.2Grassroots staff35.1KPI:Employee trainingCase:Cultivation program for management traineesThe 2022 cultivation program for management traineeswill be conducted from 2022 to 2024,aiming to cultivateyoung talents and future core force for the Company.Theprogram covers occupational training,business coaching,outward bound and other courses to assist managementtrainees to better understand the Companys strategiesand businesses.All management trainees have completedoccupational training and outward bound.They also haverotated5-7corepositionsbeforeworkedinafixedposition.The program will further empower managementtrainees through business and professionalism.2022 cultivation program for management traineesAutohome 2022 Environmental,Social and Governance(ESG)Report490707Promoting green Promoting green operationoperationIn active response to national and industry guidelines and policies on environmental protection,theCompany incorporates green development into business operations and identifies and copes withpossible climate change risks.In this regard,we promote green lifestyle through reinforced wastemanagement,optimized resource utilization,and leading new energy vehicles development,takingpractical measures to reduces carbon emissions,contributing to Chinas strategic target of achievingpeak CO2 emissions before 2030 and carbonneutrality by 2060.(1)Climate change responseThe climate change is exerting profound impacts on the global ecosystem,natural environment,as wellas social economy and enterprise development.The Company pay close attention to global climatechange and integrates mitigation of and adaptation to climate change into the Companys ESGmanagement.In FY2022,by referring to the classification by the Task Force for Climate-related FinancialDisclosure(TCFD),the Company identified and assessed the potential impact on its developmentbrought by transition risks and entity risks,and took active measures to avoid impacts of climate changeon business operation and explore new business opportunities.In order to cope with impacts brought by climate change,the Company has identified climate changerisks and responses based on actual operations:Transition risksTransition risksSourceSourceDescriptionDescriptionResponsesResponsesPolicy and regulation Policy and regulation riskriskStricter requirements on carbon emission reporting and complianceIdentify and disclose our carbon emissions in operation;Identify,prevent and control legal risks,and carry out legal risk management.Technology riskTechnology riskAgainst the backdrop of Chinas carbon peaking and carbon neutrality goals,the task of low-carbon transition for energy saving and consumption reduction is arduous,which requires to improve overall energy efficiency and increases cost burdens on enterprises.Grasp opportunities to deploy new energies,select green equipment and data centers,and strengthen energy-saving and emission-reduction management in operations.Market riskMarket riskAs the public consumption shifts towards low carbon,failure to reduce carbon emissions in production and operation may lead to a decline in operating income resulted from lower demands for related products and services by downstream customers due to consumption preference for low-carbon products.Set up the new energy vehicle module on the platform,communicate the concept of sustainable development to users through diversified marketing methods,and motivate users to select new energy vehicles.Reputation riskReputation riskStakeholders are increasingly concerned about the Companys performance in green and low-carbon development and its responses to climate change.The Companys reputation may be detained if it fails to meet expectations.Accelerate low-carbon transition;Establish a green and low-carbon corporate image,such as promoting new energy vehicles,participating in innovative new energy technologies,and advocating green travel.Autohome 2022 Environmental,Social and Governance(ESG)Report51SourceSourceDescriptionDescriptionResponsesResponsesAcute riskAcute riskExtreme weather such as floods,deluges,blizzards,and typhoons may interrupt the power supply,network,security and stability of data centers,thereby threatening the Companys ordinary course of business.Keep a close eye on extreme weather forecasts provided by the climate sector;Establish emergency response plan,select remote backup centers,and establish the disaster tolerance mechanism in equipment deployment,network egress and core systems.Chronic riskChronic riskThe rise in average temperature may cause adverse effects on the Companys operation and maintenance,including shortened service life of facilities and equipment in data centers and higher power consumption in the operation of offline experience stores.Entity riskEntity riskSourceSourceDescriptionDescriptionResponsesResponsesResource efficiencyResource efficiencyLower operating costs resulted from reduced energy consumption.Formulate energy-saving management measures and achieve energy-saving and emission-reducing targets progressively;Select premium energy-saving and environmental-friendly products and suppliers.Goods and servicesGoods and servicesIntensifying climate change around the world pushes more and more users to choose environmental-friendly products or services.Based on the national carbon peaking and carbon neutrality strategy and users actual demands,formulate strategies to promote new energy vehicles and used cars,and enhance competitive advantages by setting up new energy vehicle purchase module,exploring the recycling and trading system for waste power batteries of new energy and building a one-stop trading platform for used cars.Climate change opportunitiesClimate change opportunities(2)Promoting the carbon peaking and carbon neutrality strategy As a world-leading automobile Internet platform that owns abundant enterprise-side and user-sideresources,the Company plays a crucial role in connecting upstream and downstream in the automotiveecology.and can efficiently reach automobile consumers,automobile OEMs,dealers and used cardealers.Being a social influencer,we actively undertake corresponding social responsibility regardingcarbon reduction,and strive to be the engine of the automotive industry in its transition efforts tocarbon peaking and carbon neutrality.We are committed to establishing a green automotive ecologyand driving accelerated low-carbon transition.In this regard,we guide consumers to choose green travelmode,empower OEMs in green transition and assist dealers to conduct online marketing and digitaloperation,contributing to Chinas grand target of achieving peak CO2 emissions before 2030 andcarbonneutrality by 2060.52About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendix Accounting for carbon emissionAccounting for carbon emissionAt the beginning of 2022,the Company conducted an internal accounting of greenhouse gas(GHG)emissions in accordance with the Greenhouse Gas Protocol.In 2021,our total GHG emissions were21,099.69 tonnes of CO2 equivalent,divided into the following three categories:Direct emissions from sources owned or controlled by the Company(Scope 1)were 852.59 tonnes of CO2 equivalent,accounting for 4.04%of total emissions.Scope 1Indirect emissions from electricity or other energies purchased(Scope 2)were 1,367.73 tonnes of CO2 equivalent,accounting for 6.48%of total emissions.Scope 2Indirect emissions from the supply chain or other relevant activities made by the Company(Scope 3)were 18,879.37 tons of CO2 equivalent,accounting for 89.48%of total emissions.Scope 3 Carbon neutrality goalCarbon neutrality goalIn response to the national goal of carbon peak and carbon neutrality and carbon emission reductiontargets of the automotive industry,and to better address the challenges posed by climate change,theCompany is committed to achieving carbon neutrality in operations by 2030,ahead of the country andthe automotive industry.Taking carbon reduction as one of our corporate priorities,we jointly releasedtheAutohome Carbon Neutrality Action Report 2021with Peking Universitys Guanghua School ofManagement in August 2022,using the report as a proclamation and action plan for carbonneutrality and setting the milestone goal of achievingachieving carboncarbon neutralityneutrality inin operationsoperations byby 20302030.As anautomotive internet platform featured with data mining,technology application and system linkcapabilities,we will follow the path of energy conservation and efficiency improvement-additionalrenewable energy development-carbon elimination to achieve decarbonization,and continuouslymake great efforts to provide consumers with high-quality automotive consumption and life services.Wewill explore green power trading and renewable energy business models in due course,call on allemployees to participate in carbon reduction,increase of carbon sinks and ecological protectionactivities,and gradually reduce the carbon emission intensity per unit of output value,to pursue greenand zero-carbon growth.At the same time,we give full play to the leading role of high-quality content,digital products and intelligent platforms,actively guide consumers to act in a green manner,andencourage more people to take low-carbon actions,jointly supporting the sustainable development ofthe automotive industry by realizing green and low-carbon goals with concrete actions.Autohome Carbon Neutrality Action Report 2021Autohome 2022 Environmental,Social and Governance(ESG)Report53 Facilitating the lowFacilitating the low-carbon transformation of the automotive industrycarbon transformation of the automotive industryWe are well aware that the automotive industry generates carbon emissions not only during utilizationof cars,but also during their manufacturing in the upstream industry chain.To solve carbon emissionproblems of the automotive industry,we need to take actions across the whole industry chainthroughout the whole life cycle,and promote green and low-carbon manufacturing,thus furtherimproving the emission reduction capacity of the automotive industry.Under the guidance of carbonpeak and carbon neutrality,it is inevitable that the new power system mainly based on new energy andnew energy vehicles will develop together.To promote low-carbon development in the automotiveindustry led by technological innovation and market promotion,we will actively build a one-stop vehicleecological platform that is conducive to the green transformation of the automotive industry chain,andcontinue to empower the high-quality development of the new energy vehicle industry chain.Case:2022 World New Energy Vehicle CongressFrom August 25 to 28,2022,as a platinum sponsor and strategic cooperation media of the WorldNew Energy Vehicle Congress,the Company conducted in-depth reporting on the congressthroughout the period by actively using its media advantages,and hosted the 2022 New EnergyVehicle User Ecological Development Forum.At this congress,Mr.Quan Long,Chairman andCEO,shared Autohomes carbon neutrality strategy and path for carbon reduction;Mr.YouZhou,Vice President,shared the Report onCharging Behavior Insight and Consumption Space,providing new ideas and perspectives for new energy vehicle OEMs,charging service providersand related industry enterprises.Scene of 2022 World New Energy Vehicle CongressCase:Construction of a recycling and trading system for new energy waste power batteriesWhile the new energy vehicle industry chain is developing vigorously,the current retired powerbatteries are exposed to a lengthy transaction,with potential risks in testing,quotation,financing,logistics and other aspects.To solve a series of market problems of retired powerbatteries,at the end of September 2022,the Company and Beijing BITNEI Corp.,Ltd.(BeijingBITNEI),based on their exclusive strategic cooperation relationship,reached a cooperationintention to facilitate the construction of a recycling and trading system for new energy wastepower batteries and promote the pilot project,aiming at initially building a recycling andtrading system for new energy waste power batteries in 2023.At the same time,we hope toadvance efficient trade and circulation through the national battery traceability platform andcompliant recycling of waste batteries by promoting the systematic construction of a recyclingand trading system for waste power batteries,thus further accelerating the sustainabledevelopment of the new energy vehicle industry.54About this ReportAbout AutohomeESG governanceFulfilling ProductresponsibilityStrengtheningthe management foundationPursuingpeople-centered philosophyPromotinggreenoperationJointlyworkingfor a better homeAppendixTo effectively promote the steady implementation of carbon peak and carbon neutrality,we strictly comply withtheEnvironmental Protection Law of the Peoples Republic of China,theEnergy Conservation Law of the PeoplesRepublic of China,theBeijing Municipal Household Garbage Management Regulations,theBeijing MunicipalSmoking Control Regulationsand other relevant laws and regulations,and have formulated internal systemdocuments such as the7S Management Specification for Workplace Environment V5.0to carry out severalenvironmental protection measures in all office areas including energy conservation,water conservation,wastemanagement and paperless office and strengthen the optimization of energy conservation and consumptionreduction,striving to reduce the negative impact of the companys operation on the ecological environment,andpracticing the enterprises concept of green and sustainable development.Practicing green officePracticing green officeTo enhance employees awareness of energy
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Building abrighter future2022 Corporate Social Responsibility ReportAbout this report 3Letter from our CEO 4Highlights 5Our Company 6Our Mission in action 6Our values 7Our brands 8Our performance 9Innovation 10Our CSR commitment 12CSR strategy 12Corporate governance 13Stakeholder engagement 15Materiality assessment 16Ethics 17Data privacy 20Cybersecurity 21Operations 22Quality 23Environmental,health and safety 25Responsible sourcing 26Colleagues 29Diversity and inclusion 31Talent management 34Benefits and well-being 38Communities 40STEM education 42Colleague involvement 45Global health equity 46Environment 47Climate 50Nature 53Design for Sustainability 55Endnotes 58Awards 61Data summary 62Appendices 67Contents22022 Corporate Social Responsibility R Mission is to enable our customers to make the world healthier,cleaner and safer.About this reportOur Corporate Social Responsibility(CSR)report reflects our commitment to society and all our stakeholders and details our progress on relevant environmental,social and governance(ESG)priorities.The programs,achievements and performance covered in this report are presented in line with our CSR strategy,which is focused on four key pillars:Operations,Colleagues,Communities andEnvironment.Topics that are foundational to all four pillars are introduced in the OurCSR commitment section.They include corporate governance,ethics,data privacy and cybersecurity.This publication covers the reporting period from January 1 to December 31,2022,and,unless otherwise noted,includes data for our clinical research business,which was acquired as PPD,Inc.on December 8,2021.We are committed to the continuous improvement of our reporting and disclosures to increase visibility into our efforts.To that end,we proactively gather feedback from our stakeholders to inform our approach.Our reporting is further guided by internationally recognized standards and frameworks,including the Global Reporting Initiative(GRI)Standards(2021),the International Financial Reporting Standards(IFRS)Foundations SASBStandards for Medical Equipment and Devices,the Task Force on Climate-Related Financial Disclosures(TCFD)and the United Nations Sustainable Development Goals(SDGs).See Appendices 1 through 5 for more information.As a member of the United Nations Global Compact(UNGC),Thermo Fisher Scientific remains committed to aligning our Company strategy with the Ten Principles on human rights,labor,environment and anti-corruption.This report provides insight into our progress,including our approach to relevant topics such as human rights,pay equity and design for sustainability.For select environmental performance indicators,Bureau Veritas has provided independent external assurance.Assured data is clearly marked in the Data summary and a copy of the assurance statement is available here with details on the assurance scope,standards used,work undertaken and conclusions.For questions or comments regarding this report or our CSR approach,please contact us at .32022 Corporate Social Responsibility R from our CEOThermo Fisher was built to serve society,and our business is grounded in a simple but very profound Missionto enable our customers to make the world healthier,cleaner and safer.We understand the important role we play in improving lives worldwide as we help our customers diagnose disease,develop new treatments,protect our planet and keep people safe.This defines us as a Company and inspires our 125,000 colleagues to bring their best every day.As a Mission-driven Company,we also know that our role in making the world a better place goes beyond enabling our customers success.Our responsibility extends to supporting our communities,being a good steward of our planet,creating a great work environment for our colleagues and always doing business the right way.Im very proud of the way we delivered on these responsibilities in 2022,and Im grateful to our extraordinary global team for making it possible.To support our colleagues in reaching their full potential and achieving their career aspirations,we continue to create a vibrant and inclusive environment where unique backgrounds and perspectives are embraced.Our teams diversity of thought spurred remarkable innovation in 2022,generating an exciting pipeline of new products that will be launched in the years ahead and lead to improvements across our Company.We are committed to diversity and inclusion because its the right thing to do and it makes us stronger.Our colleagues also demonstrate a deep commitment to serving others,both on the job and in their communities,and Im continually inspired by their compassion and enthusiasm for making a difference.Through their involvement and the leadership of our Community Action Councils(CACs),our team collectively volunteered more than 120,000 hours.As part of this activity,our CACs leveraged our Foundation for Science to support more than 4,000 Mission-aligned nonprofit organizations around the world.Through corporate initiatives,we launched new signature partnerships to advance our commitment to science,technology,engineering and math(STEM)education access and equity.For example,through a partnership with Society for Science,we became the title sponsor of the Thermo Fisher Scientific Junior Innovators Challenge,the premier middle school STEM competition in the United States,which will reach over 65,000 students annually.This year brought its share of crises in the world,and as always,there was an immediate outpouring of generosity across the Company.Thanks to colleague contributions and our Company matching gift program,we collectively donated nearly$6 million to critical causes globally,including humanitarian aid for the crisis in Ukraine.We also reinvested in our global team with supportive initiatives such as special payments to help offset the impact of inflation and a new employee assistance program(EAP)focused on mental health.Im also proud of our continued progress to advance our environmental sustainability roadmap.Since 2018,weve reduced greenhouse gas emissions from our operations by 25%,and in 2022 we increased our goal,committing to a 50%reduction in Scope 1 and Scope 2 emissions by 2030.Our new Scope 1 and 2 target as well as our Scope 3 and net-zero goals have been approved by the Science Based Targets initiative(SBTi),an independent organization that drives climate action in the private sector.This makes Thermo Fisher one of the first companies in our industry to have a net-zero target validated by the SBTi.As we move ahead,we are building greener facilities and making changes to existing sites to reduce the use of fossil fuels.Our colleagues are taking an active role on this journeycontributing innovative ideas and participating in efforts to accelerate our path forward.As of the writing of this letter,more than 150 of our sites are now fully powered by renewable energy,and by 2026 all our current US sites will operate on 100%renewable electricity,thanks to power purchasing agreements finalized in the past year.We accomplished a lot in 2022 and none of it would be possible without the passion and commitment of our incredible global team.We are proud to be on this journey together,striving to be an even stronger partner for our stakeholders,making an even greater impact for society,and fostering a workplace where all colleagues can pursue long-term,Mission-driven careers.I encourage you to read more about our contributions in this report.It provides a glimpse into the many ways we are building a brighter future for our customers,our colleagues,our communitiesand the world at large.Marc N.CasperChairman,President and CEO2022 Corporate Social Responsibility R spend with small and diverse suppliers89.5K students reached through STEM education25%reduction in absolute Scope 1 and 2 emissions since 20182Net-zero emissions by 2050with near-and long-term targets validated by the Science Based Targets initiativeThermo Fisher Scientific Junior Innovators Challenge launched to reach 65,000 students annuallyPay equity study conducted to measure and advance our diversity and inclusion progressAccelerating our ambition with an updated 2030 target of reducing our Scope 1 and 21 emissions by 50%#6in the 2022 Return on Leadership ROL100 ranking500alumni hired from historically Black colleges and universities since 2020,already surpassing our 2023 goal$1.5Bin R&D investment93%of sites adhering to current GoodManufacturing Practices and/or certified to ISO9001,ISO 13485 standards41sites with ISO 14001 environmental management system certification51%of global leadership roles filled internallyHIV drug resistance testing made accessible in 25 low-and middle-income countries120Kvolunteer hours by colleaguesHighlights52022 Corporate Social Responsibility R CompanyThermo Fisher Scientific,Inc.is the world leader in serving science.Our Mission is to enable our customers to make the world healthier,cleaner and safer.Whether our customers are accelerating life sciences research,solving complex analytical challenges,increasing productivity in their laboratories,improving patient health through diagnostics,or developing and manufacturing life-changing therapies,we are here to support them.Our global team delivers an unrivaled combination of innovative technologies,purchasing convenience and pharmaceutical services.Our Mission in actionWe fulfill our Mission in countless ways,making a difference in the world through the work we do.Here are just a few examples from 2022 that remind us of that greater purpose and inspire us every day.Healthier Helped improve health and save lives by working with national and international organizations,like Donate Life America,to advance transplant diagnostics and increase access to organs for patients in need Equipped blood banking centers across India to protect blood supplies Launched a new electron microscope to help our customers accelerate drug discovery for debilitating disorders such as Alzheimers,Parkinsons and Huntingtons diseasesCleaner Supported researchers around the world,like those at the Universit Grenoble Alpes in France,who are advancing climate research through the Ice Memory project Enabled automakers like Toyota in Japan to improve the efficiency of electric vehicles and advance the transition to a low-carbon economy Helped scientists study microplastic pollution and better understand the impact of these contaminants on the environment and human healthSafer Helped to make the world safer by providing technologies to monitor the quality of water around theworld,including in war-ravaged areas of Ukraine Equipped law enforcement and first responders with handheld narcotics analyzers to protect them from accidental exposure to dangerous street drugs Provided food safety testing laboratories with solutions for detecting the presence of pesticides infood products 6IntegrityHonor commitments,communicate openly and demonstrate the highest ethical standardsIntensityBe determined to deliver results with speed,excellence and a passion to succeedInnovationCreate value by transforming knowledge and ideas into differentiated products and services for our customersInvolvementMake connections to work as one global team,embracing unique perspectives and treating others with dignity and respectOur valuesOur 4i Values of Integrity,Intensity,Innovation and Involvement are the foundation of our culture and fundamental to our growth.They guide our interactions with our customers,suppliers,partners,communities and with each other,upholding our commitment to do business the right way as we build a brighter future for our Company and our world.Values spotlightInnovating for a more sustainable futureAs one of our 4i Values,Innovation is at the core of how we build a brighter,more sustainable future.Our colleagues put this value into practice every day,including through our efforts to achieve net-zero emissions by 2050.By rethinking foam packaging thats traditionally used for cold transport,we designed a readily recyclable 100%paper cooler.We use this greener solution for shipping our own products and share it with our customers for their use.Learn how one of our customers is advancing sustainable agriculture and reducing plastic waste by using the paper cooler for temperature-sensitive shipments:Innovating for a greener future Play video on YouTubeFeature story2022 Corporate Social Responsibility R integration of PPDAt Thermo Fisher,we have a history of successfully acquiring innovative businesses to strengthen our customer offering and create value for all our stakeholders.We take a thoughtful approach to integration to bring the best of both organizations together and support a smooth transition for all.In 2022,we integrated PPD,which we acquired in 2021,adding clinical research services to our portfolio.By enabling our pharma and biotech customers to accelerate innovation and increase productivity within the drug development process,we can help them reduce the time and cost of bringing life-changing medicines to patients who need them.Our approach to integration always starts with people.Based on our accumulated experiences,we have an integration playbook that sets forth our guiding principles:engage our new colleagues in the success of the combined companies,treat people fairly and with respect,and minimize distractions so colleagues can focus on their critical work and serve our customers.For us,mergers and acquisitions(M&A)do not end at integrationwe continue to invest in new businesses to drive growth,advance innovation,and create career opportunities to develop and retain our talented colleagues.Less than one year after acquiring PPD,we opened a new state-of-the-art bioanalytical lab in Richmond,Virginia,to support the increasing demand for consistent,high-quality laboratory services that will accelerate drug development.This facility expands our clinical research operations in the city to 350,000 square feet,making it one of the largest laboratories of its kind in the world.And over the coming three years,we will continue to invest in the local economy,adding at least 500 new jobs to the team of 1,200 clinical research colleagues we currently employ in Richmond.Our comprehensive integration approach,like all other aspects of how we run our business,is powered by our Practical Process Improvement(PPI)Business System,a deeply ingrained philosophy of operational excellence and continuous improvement.We regularly assess how acquired businesses are performing in terms of value creation,accelerated revenue and cost synergies,and colleague sentiment and engagement.These reviews are conducted over the short and long term,allowing us to leverage key insights that further refine our integration playbook and strengthen our approach and results for future M&Atransactions.Our brandsOur industry-leading brands enable our customers to push science and technology a step beyond where they are today.Analytical precision and diagnostics excellenceInspiring meaningful genetic analysisAccelerating discovery researchOne-stop access for scientific productsInstrument and enterprise servicesPharma servicesDrug development and clinical trials82022 Corporate Social Responsibility R executionOur Mission is our purpose:to enable our customers to make the world healthier,cleaner and safer.Our teams around the world strive to achieve this Mission every day,and our actions ultimately create an even brighter future for Thermo Fisher and all our stakeholders.Our formula for success starts with our aspirations for the decade ahead.To achieve our 2030 Vision,focused execution is key.We set a rolling five-year strategic plan that we deliver on through our annual Goal Tree,which represents our priorities for the year.Our work is powered by our PPI Business System,4i Values and the management of our environmental,social and governance(ESG)priorities.Wecontinue to build on our Mission-driven culture through the exceptional talent we attract and develop.Sets our aspirations for the decade aheadRolling 5-year plan to achieve our VisionCompany strategy:Enterprise-level initiativesand capital allocation decisionsBusiness strategy:Medium/long-term decision making and priorities for our businessesAnnual goals and metrics:Translates strategies to annual commitmentsActivities:Near-term prioritization and implementation cadence5-year strategyAnnual Goal TreeDaily work alignedwith our priorities2030VisionOur Mission4i ValuesPPI Business SystemESGEnablers:Drive colleague engagement and delivery of results TalentOur performanceWe measure our success in several waysnot only by our financial results,but also by being the strongest partner for our customers,providing an excellent work experience for our colleagues,creating sustainable value for our stakeholders and making a positive impact on society.By all these measures,2022 was another exceptional year for Thermo Fisher.Read more about our financial performance in our latest Annual Report on Form 10-K.Complementary segmentsRevenue2018$24.36B20192020 20212022$44.92BAnalytical instrumentsLaboratory products&biopharma servicesSpecialty diagnosticsLife sciences solutions$44.92BRevenue10G)022 Corporate Social Responsibility R Thermo Fisher,our focus on high-impact innovation enables our customers to address some of the worlds greatest challenges.As we deliver new technologies and services,we help our customers break new ground in their important work.This includes helping them accelerate research so that they can bring life-changing therapies to patients.Today,with rapid advancements in science and technology,there has never been more hope for tackling diseases that were once difficult or impossible to treat.Thermo Fisher is proud to be part of this evolution that will greatly benefit society.Helping doctors identify the best treatmentIn the fight against cancer,the tide is turning because there are many promising new therapies emerging based on the genetic makeup of a persons specific cancer type.Determining the best treatment for a patient based on their individual cancer can make a significant difference in the outcome for that patient.Thats why the development of companion diagnostics with pharma and biotech partners is so groundbreakingand used increasingly in oncology to provide a personalized approach to treatment.In the past,treatment selection has often been based on clinical best practices for first-line treatment.A doctor might have to try numerous treatment options,with varying efficacy,for their patient and sometimes the answer comes too late.But today,with advancements in genomic testing technology,an individuals cancer can be analyzed at the molecular level so the patient can be matched to the best treatment option right away.Thats the promise of precision medicine and thats where our companion diagnostics come in.Companion diagnostics provide information that is essential for the safe and effective use of a corresponding drug or biological product.They help healthcare professionals determine whether a particular therapeutic may yield a better outcome for an individual patient based on their cancers genomic profile,and they can even help doctors match patients to targeted therapies that are sometimes still in clinical trials.In one example,Thermo Fisher is expanding on its ongoing collaboration with AstraZeneca to develop a solid tissue and blood-based companion diagnostic test that seeks to identify patients with non-small cell lung cancer who may be eligible for treatment with TAGRISSO tablets(osimertinib).The collaboration will leverage our Ion Torrent Oncomine Dx Express Test and our Ion Torrent Genexus Dx System3 to identify tumors that exhibit specific mutations that are indicators for treatment with TAGRISSO.Time is of the essence for patients with non-small cell lung cancer,which is often not detected until it is Our partnership with AstraZeneca will help bring targeted oncology treatments to more patients in need of new care options.By leveraging the Genexus Dx Systems unprecedented turnaround time,we can help make molecular testing results more readily available to inform vital treatment decisions and get patients on the right treatment,right away.Garret Hampton President of Clinical Next-Generation Sequencing and Oncology at Thermo Fisher Scientificadvanced and has spread to other parts of the body.For most of these patients,conventional therapies dont always have the desired efficacy.Finding an appropriate targeted therapy can be critical,but sequencing results have historically taken weeks.Together,the Ion Torrent Oncomine Dx Express Test and Ion Torrent Genexus Dx System can provide a fully integrated,next-generation sequencing solution that delivers results in as little as 24 hours.2022 Corporate Social Responsibility R a global leader in higher education,collaborative research and pioneering innovation,UC San Diego has a deeply embedded culture of advancing scientific discovery to improve the human condition and the planet.Our partnership with Thermo Fisher will enhance existing pathways to develop novel technologies,reduce our carbon footprint and train a more diverse and equitable future workforce.Pradeep K.Khosla Chancellor at the University of California San DiegoAccelerating research,innovation andequityIn 2022,Thermo Fisher and the University of California(UC)San Diego launched a strategic partnership that will have a positive impact on society.The 10-year relationship is the first of its kind in the life sciences space for both Thermo Fisher and the university,and focuses on four key objectives:Establishing a“Technology Sandbox”Collaborating on research Creating a pipeline of diverse talent Developing more sustainable operationsThe Technology Sandbox is a state-of-the-art facility being developed at UC San Diego to expand access to cutting-edge technologies and expertise and accelerate collaboration,discovery and workforce development.It will serve both students and alumni and is designed to drive innovation in emerging areas of science.Thermo Fisher is providing the instruments for the Technology Sandbox,including cryo-electron microscopy,mass spectrometry and genetic and cell analysis instruments,as well as providing financial support for instrument training.In turn,students and researchers at the university will provide feedback and insights as they use these instruments,which will help us continue to improve our products and further advance technological innovation to better serve our customers.As part of the relationship,we will provide support for various research initiatives and collaborate with UC SanDiego on STEM(science,technology,engineering and math)and community outreach programs and career mentorship.This includes continuing an internship program that began in 2021 to build a pipeline of diverse talent for both the Company and the university.Held at our Carlsbad,California site,the six-month program offers UC San Diego students an immersive,hands-on work experience using our technologies.Students gain skills in advanced research methods and applied scientific techniques.Theprogram includes structured mentoring and professional development opportunities,preparing students to become the scientists of tomorrow.In addition,both organizations are working together to advance their mutual sustainability goalsespecially in developing a more sustainable supply chain for research supplies.One example is a pilot program already launched at the university,which leverages the Thermo Scientific ART Pipette Tips recycling program.Through this program,pipette tips,boxes and associated plastic packaging are recycled rather than entering the waste stream.With the successful completion of this pilot program,Thermo Fisher and UC San Diego are now developing a process to expand the recycling program campus wide and explore other sustainable end-of-life solutions for single-use lab plastics.112022 Corporate Social Responsibility R CSR commitmentCSR strategyAs the world leader in serving science,we understand that we have a unique opportunity and responsibility to use our position to make a positive impact on societynot only by enabling our customers success,but also through our actions as a Company to make the world a better place.Our CSR approach is focused on four key pillarsOperations,Colleagues,Communities and Environment.This strategic framework allows us to effectively manage the environmental,social and governance(ESG)priorities that are fundamental to our business,driving competitive differentiation,and creating sustainable value for all ourstakeholders.Our CSR strategy supports our long-term success as we continue to create a great place to work for our colleagues,provide high-quality products for our customers,deliver strong returns for our shareholders,make a difference in our communities and reduce our impact on the environment.ReportingWe are committed to transparent CSR reporting to foster stakeholder understanding of our priorities and results.To advance our CSR approach and disclosures,we consider internationally recognized reporting standards and reference frameworks.Since 2019,Thermo Fisher has been a signatory to the UN Global Compact,which supports companies in their alignment with the Ten Principles on human rights,labor,environment and anti-corruption.Through our voluntary participation in this community of practice,we continuously improve the way we manage ESG risks and impacts,advance our contributions to the UNSustainable Development Goals(SDGs),and report on our progress annually.We also participate in trusted sustainability rating assessments that are relevant to our business and help further validate our progress over time.Those of particular interest to our stakeholders,especially our customers,are the CDP4 and EcoVadis5 ratings.We have participated in CDP for more than 10 years and,in 2022,were recognized for the acceleration of our climate program.Our climate change disclosure received a“B”score or“management”rating,indicating that we are taking coordinated action on climate issues.Additionally,we received an“A-”score for supplier engagement,which places us on CDPs leaderboard.Thermo Fisher has been active with EcoVadis for 10 years,participating in an evidence-based rating system across four themes:environment,labor and human rights,ethics,and sustainable procurement.In 2022,the results of our assessment earned us a silver medal and placed us in the 83rd percentile of all companies assessed globally.For more information on the standards and frameworks that guide our work and a list of the awards and recognitions we proudly received during 2022,see the Awards section and Appendices 1 through 5.EnvironmentInnovating to serve our customers while advancing our net-zero roadmap by2050ColleaguesProviding resources and embracing unique perspectives to reach our full potential as one global teamOperationsLeveraging our capabilities to support our customers while conducting our business and relationships with integrityCommunitiesMaking a difference worldwide with an emphasis on promoting STEM education and global health equity122022 Corporate Social Responsibility R governanceScott M.SperlingLead Independent DirectorMarc N.CasperChairman,President andCEORuby R.ChandyDirectorNelson J.ChaiChair,Audit CommitteeTyler Jacks,PhDChair,Science and Technology CommitteeC.Martin Harris,MDDirectorJim P.ManziDirectorR.Alexandra(Alex)KeithDirectorLars R.SrensenChair,Nominating and Corporate Governance CommitteeJames C.MullenDirectorDion J.WeislerChair,Compensation CommitteeDeborah SparChair,Strategy and FinanceCommitteeBuilding a bright future for Thermo Fisher and all our stakeholders begins with an intense focus on corporate governance and strong oversight of our global activities.We are guided by our 4i Values and rigorous ethical standards,taking accountability in all we do to enable our customers success while maintaining the long-term health of our business.Company oversightOur Board of Directors is elected by our shareholders to oversee their interests in the long-term success of the Company.The Nominating and Corporate Governance Committee seeks to develop a Board that,as a whole,reflects diverse viewpoints,backgrounds,skills,experiences and expertise by considering attributes such as race,gender,ethnicity,age,culture and nationality.The Committee also regularly reviews the desired skills,experiences and backgrounds that should be represented on the Board to align with the Companys strategic vision,business and operations.Throughout the year,our Board and its committees oversee operations and Company strategy,which for 2022 focused on navigating a dynamic macroeconomic and geopolitical environment,while accelerating the Companys growth strategy to realize our 2030 Vision.Our Board meetings include regular sessions with business leaders and executives across key corporate functions,including finance,tax,information technology,cybersecurity,risk and human resources,through which the Board remains informed on the implementation of operational goals,performance and strategies.At regular meetings,the Board also considers drivers of our business execution along with key risks,challenges and opportunities and considers how they relate to the effectiveness of our Company strategy.132022 Corporate Social Responsibility R oversight and managementThe Board oversees our CSR strategy and key initiatives as an integrated part of the Companys overall strategy and risk management.Certain matters related to CSR are delegated for discussion at the committee level,while other matters span multiple functional categories and areas of oversight and are discussed at the full Board level.This focus is reflected in the Companys Corporate Governance Guidelines and committee charters,which the Board recently revised to more expressly highlight its role in the oversight of CSR,including climate change-related matters.CSR is foundational to our Company strategy,and our CSR performance is driven by strong leadership that advances our commitments,priorities and cross-functional collaboration to manage ESG risks and opportunities through our daily operations and practices.At Thermo Fisher,we view CSR as everyones responsibility,and it is deeply embedded in our operating model.Board of DirectorsOversees strategic,financial,and execution risks and exposures associated with ouroperations and strategy.Nominating and Corporate Governance CommitteeOversees corporate governance,priorities,risks and external reporting related to CSRmatters,and political spending strategy.Key CSR focus areasCompensation CommitteeOversees risks related to compensation practices,pay for performance(including non-financial ESG strategic targets),and talent management and succession planning ofexecutive officers.Audit CommitteeOversees financial reporting,systems and internal controls,cybersecurity,regulatory,compliance and litigation risks,and SEC reporting related to CSR matters.Science and Technology CommitteeAdvises the Board on new and emerging innovations,markets and applications of Company products,and receives updates on matters involving bioethics and the use ofour technologies.ManagementChairman,president and CEOLeads the Company leadership team,approves CSR strategy and commitments,and monitors Company-wide progress on the management of ESGpriorities.Company leadership teamShares ownership and accountability for delivering on our CSR strategy and presents ourESG priorities,progress and annual global enterprise risk management program to theBoard.Steering CommitteeOversees CSR implementation and includes our chairman,president and CEO,as well as key executives with responsibility for functions,businesses and programs critical to advancing our social and environmental commitments,targets and roadmaps.The committee conducts a formal program review at least twice annually.Core teamsShape and execute winning strategies for their specific areas of specialization,directing progress throughout the Company so we can achieve our CSR priorities in the most impactful way.Network of practitionersIs a community of subject matter experts that amplify our CSR progress by cascading priorities and messages to drive focus,change and results.Global businesses and colleagues Leverage our Practical Process Improvement(PPI)Business System to find a better way every day,contribute innovative ideas and implement initiatives that deliver on our CSRcommitments.142022 Corporate Social Responsibility R engagementWe are committed to creating sustainable value for all our stakeholders.Our robust stakeholder engagement program includes proactive outreach on a regular basis throughout the year to help us understand our stakeholders evolving interests and expectations as we build strong relationships and mutual understanding of the issues most relevant to the Companys success.These interactions are invaluable and stakeholder input informs our CSR strategy,which is activelyrefreshed to identify opportunities to create value and minimize risk.The following is a list of key stakeholders with examples of our recurring interactions during 2022.Stakeholders2022 interaction examples6CustomersExecutive steering committees,subject-specific steering committees,quarterly business reviews,sustainability surveys,EcoVadis assessment and scorecard,supplier days,trade associations and industry groups,trade shows,tendering processes,sales calls and product demonstrations,virtual and in-person meetings,and group conferencecallsColleaguesEmployee Involvement Survey(EIS),performance management and development process(PMD),Business Resource Groups(BRGs),Community Action Councils(CACs),Company matching gift program,Belonging Week campaign,quarterly town halls,internal newsletters,intranet,internal announcements,and recruiting eventsCommunitiesCACs,BRGs and colleague-led volunteering events,philanthropic support though our Thermo Fisher Scientific Fund:The Foundation for Science,impact investments through our sustainable finance strategy,Thermo Fisher site visits,community project site visits,reduced access product pricing for non-governmental organizations,product donations,humanitarian aid,virtual and in-person meetings,and conference callsShareholders,investors and ESG rating agenciesQuarterly earnings calls,Annual Investor Day,Annual Meeting of Shareholders,governance outreach,conferences,non-deal roadshows,perception surveys,sustainability surveys,virtual and in-person meetings,and group conference callsGovernments and regulatorsIn-person meetings with national and regional leaders,hosting dignitaries at our operations,submitting formal comments,virtual meetings,CSR programming and events,policy briefings,and varied trade association engagement(Board roles,subject-specific committees,members)Suppliers and business partnersEcoVadis assessment and scorecard,CDP supply chain engagement,sustainability trainings,supplier business reviews,supplier audits,mentoring small and diverse suppliers,executive meetings,virtual meetings,and group conference calls152022 Corporate Social Responsibility R assessment7In 2020,we reported the results of an in-depth materiality assessment8.With the help of a third-party consulting firm,we prioritized ESG issues based on their importance to our business success and our stakeholders,using direct stakeholder feedback to address the latter.Our CSR approach includes regularly refreshing our full materiality assessment.Interim analyses allow us to more actively monitor the dynamic global landscape for real-time insights.In 2022,we initiated an interim materiality assessment leveraging an intelligence solution that enabled a data-driven review of our ESG priorities,risks,impacts,materiality,and benchmarking.The results of our 2022 assessment indicated that the six ESG issues prioritized through our last materiality assessment continue to be relevant topics for Thermo Fisher.They include the following:innovation,product safety and quality(Operations),diversity and inclusion(Colleagues),talent management(Colleagues),community engagement and development(Communities),and climate change(Environment).The analysis also uncovered early insights on evolving markets,regulations,and societal and environmental expectationsdetails that will inform our next comprehensive materiality assessment and help shape the future direction of our CSR strategy,commitments and impact.Sustainable financeThermo Fisher designed our Sustainable Financing Framework to align our sustainability priorities with our funding needs.Our framework is consistent with the International Capital Markets Association(ICMA)2021 Green Bond Principles and the 2021 Social Bond Principles and is based on four core components:use of proceeds,project evaluation and selection,management of proceeds,and reporting.The net proceeds raised from the sale of any sustainable financing instrument issuances must align with our framework and be used to finance and/or refinance,in whole or in part,one or more eligible projects subject to ICMAs principles.On November 18,2021,we issued a 550 million sustainability bond in line with our Sustainable Financing Framework.Throughout 2022,we fully allocated the net proceeds of the sustainability bond to social projects,specifically those eligible under the criteria for the COVID-19 response category.Our Sustainability Bond Report provides details on the allocation process and impact of the investments.162022 Corporate Social Responsibility R 4i Values of Integrity,Intensity,Innovation and Involvement are the foundation of our culture,guiding our behaviors and our colleagues interactions with our customers,suppliers and partners,communities,and with each other.As the first of these values,Integrity reminds our colleagues to honor commitments,communicate openly and demonstrate the highest ethical standards.Code of ConductOur values are represented in the Thermo Fisher Code of Business Conduct and Ethics(the Code),which defines our expectations for all colleagues to adhere to these practices and comply with all applicable laws and regulations.The Code is translated into 21 languages and covers a broad range of topics,including policies related to conflicts of interest,honest and ethical fair dealing,bribery and improper payments,insider trading,export control awareness,human rights,privacy matters,and sexual harassment.Standalone policies governing these critical topics are also in place to expand our colleagues understanding,set expectations and provide more detailed guidance on topics such as anti-corruption&anti-money laundering,antitrust,banking,environmental health&safety,human rights&equal employment opportunity,export/import controls,global data privacy,records management,and more.All directors and colleagues are responsible for certifying annually that they have reviewed and are following the Code.All colleagues undergo annual training on specific Code elements to understand what is expected of them.Reporting a concernEveryone must do their part to honor our values and maintain our high ethical standards.Our Global Ethics Hotline is a confidential incident reporting system managed through a third party.It is available to colleagues,customers and other external stakeholders to raise concerns related to any issue,observed or suspected,including a violation of any law,regulation,the Code,or Company policy as well as product,quality,environmental or workplace concerns.Colleagues also have the option to contact the Companys Legal department.The hotline staff,together with members of our Legal department,review and investigate reports and take appropriate action.Escalation and resolution processes differ depending on the type of issue raised.Any concerns and complaints related to accounting or auditing are also reported to the Audit Committee of the Board.We are deeply committed to doing business the right way and strive to provide an environment in which colleagues and other stakeholders feel encouraged to raise issues so we can work to resolve them.Through our annual Employee Involvement Survey,we regularly evaluate how empowered our colleagues feel to report concerns,which provides valuable insights that we use to continue cultivating a supportive and transparent reporting culture.Our Global Ethics Hotline allows reports to be made anonymously,and the Company will not discipline,discriminate or retaliate against any colleague who reports a complaint or concern in good faith.For more information on how colleagues are encouraged to and protected when they report issues,please refer to our CSR webpage.Involving colleagues in complianceTo build on robust policies and training,we work to increase our colleagues focus on the importance of compliance during our annual Compliance and Ethics Week.In 2022,a wide range of topics were covered,including data privacy,healthcare compliance,government contracts,anti-bribery and anti-corruption,and global trade compliance.The learning experience included live events at more than 40 sites across the globe with thousands of colleagues participating in town hall sessions,question and answer meetings,and interactive games to reinforce their commitment to integrity and compliance.Feature story99%Ethics and compliance training completion rate9172022 Corporate Social Responsibility R rightsWe are committed to upholding and respecting human rights for all.Building a brighter future means managing our global operations ethically and with integrity to positively impact the people and communities linked to our business.Guiding principlesThermo Fisher is able to support human rights for all people by conducting business with the highest ethical standards and in compliance with applicable laws and Company policy.We are guided by principles set forth in our Human Rights and Equal Opportunity Policy,which was updated in 2022 and establishes our standards for business conduct related to respecting human rights and fair labor practices across our global operation.This policy helps us implement our commitment to human rights in alignment with leading international standards,including the UN Universal Declaration of Human Rights and the International Labour Organization(ILO)Declaration on Fundamental Principles and Rights at Work.As signatories to the UN Global Compact,we are also committed to aligning our corporate strategy with the Ten Principles on human rights,labor,environment and anti-corruption.When differences arise between our standards and legal requirements,we generally apply the stricter standard in compliance with applicable laws.Engaging our stakeholdersThrough our human rights management approach,we engage transparently and collaboratively with our stakeholders to drive the effectiveness of our program.Colleagues:Our Code of Business Conduct and Ethics outlines the expectations for all directors,officers and colleagues of the Company,including compliance with all internal policies such as those governing human rights.Annual certification of compliance with this code is required and biannual training enhances our colleagues knowledge of human rights within the context of our business and their role in respecting them.Our procurement colleagues receive additional training on the expectations of our supplier responsibility programs,including those related to labor and human rights for our suppliers.Suppliers:Our Supplier Code of Conduct shares our compliance expectations for suppliers and their subcontractors in the areas of ethics,labor,health and safety,environment,and management systems.It is integrated into supply agreements and terms and conditions,and suppliers are expected to share their performance against code expectations at the request ofThermo Fisher.Suppliers must have a training program to educate their workforce to address the expectations outlined in this code and are required to participate in Thermo Fisher trainings,as applicable.Customers and distribution partners:We provide training,education and resources to helpcustomers,resellers and distributors use ourinstruments and products as designed and to follow global scientific and ethical standards for the responsible selling,or reselling,of our technologies.Should we be alerted to any ethical question or concern in relation to how customers may be using our technologies,the matter is immediately escalated to our Bioethics Committee.Policymakers and influencers:We engage with governments,regulators and non-governmental organizations to contribute to good global policy,such as the responsible application of technology and appropriate security protocols and procedures for safeguarding individual privacy rights.Active engagement and feedback from our partners support the continuous improvement of our approach.If,at any time,a stakeholder has a human rights concern,they have the option to contact our Global Ethics Hotline and can submit a report anonymously if desired.Learn more about our hotline inthe previous section.Continuous improvementWith the rapid evolution of technology,societys needs and stakeholder expectations,we continue to strengthen our policies and business processes for identifying,assessing and managing human rights risks.Through the Company policies outlined above,our human rights principles,standards and practices are incorporated into a broader suite of policies,which reinforce one another and are provided in up to 14 languages.We conduct periodic internal reviews of our systems and controls,participate in human rights peer networks for best practice sharing,and comply with the reporting requirements of laws such as the United Kingdom Modern Slavery Act and Australian Modern Slavery Act.These engagements and disclosures enhance the transparency with which we honor our commitment to uphold and respect human rights.18In addition,our longstanding participation in an independent sustainability assessment by EcoVadis supports us in identifying opportunities to evaluate and address risks related to labor and human rights within our operation and supply chain.As we make improvements,we also provide our customers with visibility to our performance scorecard through the EcoVadis platform so they can understand and monitor our progress over time.BioethicsAs science advances at an unprecedented pace,we continuously focus on the ethical and social issues that relate to our role in biotechnology and biomedical research.We value the importance of identifying,assessing,tracking,managing and overseeing bioethics matters,policies and practices.Our procedures reflect careful consideration throughout our research,development,manufacturing and sales and distribution processes to prioritize the safety and efficacy of our products.We strive to operate in a way that is consistent with global best practices and ethical principles,including our Code of Business Conduct and Ethics;the appropriate local,national,regional and international governing bodies;and standards found in guidelines for Good Laboratory Practices(GLP),Helsinki International Ethical Guidelines for Biomedical Research Involving Human Subjects and applicable privacy and data protection standards.Bioethics committeeOur bioethics framework is monitored and managed by the Thermo Fisher Bioethics Committee,which is dedicated to the socially responsible use of biotechnology to save or improve lives.The Bioethics Committee is a cross-functional team of senior leaders who report regularly to the chairman,president and CEO.Committee members include our executive vice president,chief medical officer,chief scientific officer,and leaders representing our life sciences,clinical research and diagnostics businesses,as well as legal and communications functions.The committee works to ensure we satisfy transparent,compliant and ethical business practices and standards with unyielding integrity throughout our global operations.This includes defining and articulating our corporate policy and position on current and emerging bioethics topics;considering feedback from colleagues,key opinion leaders in the scientific community,customers and other key stakeholders on our corporate policies on bioethical issues;and reviewing existing bioethics policies on an ongoing basis,including providing updates to the Science and Technology Committee of the Board.If we receive an ethical question or concern regarding how customers may be using our technologies,the Bioethics Committee is immediately engaged.Following an investigation,the committee determines the course of actions to follow in accordance with our values,codes and policies.Examples of past remedial actions have included ceasing the sale of a product to certain customers,engaging with law enforcement and regulatory authorities,and implementing enhanced safeguards and controls.Additional information on our Bioethics Committee is available on our CSR webpage.19Healthcare Code of ConductThe Thermo Fisher Healthcare Code of Conduct was developed in accordance with the AdvaMed Code of Ethics on Interactions with Healthcare Professionals,which is based on the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals,the MedTech Europe Code of Ethical Business Practice,and other similar guidance.These codes account for the uniqueness of interactions between medical device manufacturers and healthcare professionals.Our healthcare compliance program consists of written policies and procedures overseen by compliance officers within each business.Our colleagues receive extensive training and education annually,at a minimum,on relevant topics to remain compliant.The promotion of medical devices and diagnostic products is subject to strict global regulations,including the Food Drug&Cosmetic Act,Anti-Kickback Statute,the Physician Payments Sunshine Act and other international regulations.Our policies require that our sales practices,product descriptions and marketing practices must always be fair,accurate and consistent with product labeling.We prohibit promoting our products for uses that have not been approved by the appropriate regulatory body,and promotional claims must be based on valid scientific evidence and provide accurate,objective and complete information about the product.Customers or suppliers are not prevented from doing business with our competitors as part of our fair-trade practices.Data privacyWe value privacy and the protection of personal data,meaning any information that can directly or indirectly identify an individual.The Thermo Fisher Global Privacy Notice communicates to our stakeholders and third parties how we collect,use and safeguard personal data.Our policies are continuously reviewed based on changes to jurisdictional privacy laws and regulatory guidance,and our colleagues throughout the organization are supported in understanding the privacy needs and solutions for their area of the business.We have nine privacy Centers of Excellence(COEs)to implement our strategy and support our businesses in collecting and handling data in a way that protects our colleagues,customers and patients and complies with all applicable data privacy laws.These COEs oversee privacy for business development,clinical research,contracting,digital and innovation,health data,human resources and marketing.With additional specialization,our COEs help the Company consider privacy matters in all business areas within an evolvinglandscape.In 2022,we added a Privacy by Design COE to proactively incorporate privacy into the design and operation of IT systems,networked infrastructure and business practices,such as the launch of a product,service,tool or solution.Our enterprise privacy management platform is used to document legal and compliance activities,including privacy assessments and investigations,contract reviews,individual rights requests,and relevant due diligence on third parties,including vendors.202022 Corporate Social Responsibility R the support of our colleagues vigilance,we continue to strengthen our security measures.Everyone at Thermo Fisher is responsible for safeguarding data and maintaining the trust our customers place in us.Our efforts include ongoing reviews with our suppliers to confirm they are complying with our security standards,as well as collaborating with our customers to develop capabilities to secure integrated networks.We make significant investments in our global cybersecurity program,designed toprotect the confidentiality,integrity and availability of data and systems within the Companys environment.To best support our business objectives and customer needs,we combine infrastructure and security oversight into a single,comprehensive program,which enables us to work in unison and take a more integrated approach to security and resilience while aligning priorities with better transparency and visibility.We use a risk-based,defense-in-depth approach to identify,protect,detect,respond to and recover from ever-evolving global cyber threats.Recognizing that no single technology,process or business control can effectively prevent or mitigate all risks,we employ multiple technologies and controls,all working independently but as part of a cohesive strategy to minimize risk.Our approach is tested through audits,independent program assessments,penetration testing and other exercises designed to assess effectiveness.In 2019,our corporate cybersecurity program earned an ISO 27001 certificate,a globally recognized standard for information security management systems.The recertification occurs annually,most recently in December 2022.Cybersecurity is prioritized as a Company-level goal each year.We regularly educate and share best practices with our colleagues to raise awareness of cyber threats through training,including cyber-event simulations and attestation to our Technology Acceptable Use Policy.In addition,all colleagues are regularly trained and recertified on our policies and applicable data protection laws that govern the confidentiality,use,processing,retention,integrity and disclosure of personal data and promptly report any non-compliance,whether intentional or inadvertent.In 2022,we added the role of chief product security officer to take a more formalized approach to securing our instruments and devices,including software,at every stage of the product life cycle,to meet the security requirements of our customers andregulators.Our cybersecurity program is led by the Companys vice president and chief information security officer who,along with the senior vice president and chief information officer,provides quarterly updates to the Audit Committee of the Board and annual updates to the full Board.Those updates include information about the cybersecurity threat landscape,investments in infrastructure and opportunities to protect and enhance the Companys systems and security of products and operations.Learn more about our commitment to information security here.ISO 27001certification of our corporate cybersecurity program using the globally recognized standard for information security management systems2022 Corporate Social Responsibility R OperationsOur customers rely on our products,services and expertise as they deliver life-saving therapies to patients,protect our air and water,and keep the public safe.Thats why we strive to adhere to the highest ethical,quality and safety standards,embedding rigorous practices throughout our operations to ensure our customers can count onus.Wehave a diverse network of suppliers that is expected to uphold our standards and support a more resilient supply chain that delivers greater sourcing options and competitive pricing.To remain the best possible partner for our customers,we are committed to:QualityEnvironmental,health and safetyResponsible sourcing22Owning quality atevery stepIn 2022,we expanded our Making Quality Personal education program to reach more colleagues globally.In its second year,the program further elevated the message that quality is everyones responsibility,and it should be part of every aspect of our daily work.An instructor-led session showed colleagues how their roles influence quality and compliance every day and how they can implement the latest quality tools and techniques.Making Quality Personal amplifies the importance of quality across the Company,and our collective focus results in a better experience for our customers and their patients while driving value for Thermo Fisher.To date,25,000 of our colleagues have participated in theprogram.Feature story23QualityOur customers rely on our products and services to consistently meet their expectations and requirements,which is why we put quality at the center of all we do.We must always operate with integrity and transparency,meeting the highest quality standards and global regulatory compliance.Our corporate Quality Policy requires that all Thermo Fisher colleagues around the world understand and take personal ownership of quality in their daily work and create a consistent customer experience.Additional corporate procedures,such as corrective and preventive action(CAPA),document retention practices,and competence and awareness training provide minimum performance expectations for our quality management system.All new colleagues are educated on the quality management system and related policies through an onboarding process.We reinforce our commitment to quality through ongoing,required training and internal auditing managed by each of our businesses.Quality management certificationsGiven the diversity of our operations,our sites hold different certifications and registrations where applicable and required by the regulators of the markets where we sell our products.That means that 93%of our eligible sites worldwide adhere to current Good Manufacturing Practices(cGMP)10 and/or are certified to ISO 9001,ISO 13485 quality system standards.Some sites,where applicable,additionally hold an ISO 17025 certification.For a list of certified sites and accompanying standard certifications,please visit our CSR webpage.We also expect high quality standards from our suppliers and strive to source from those holding ISO certifications or suppliers who adhere to cGMP where applicable.To enable our customers success in an increasingly competitive global environment,we leverage our Practical Process Improvement(PPI)Business System,a deeply ingrained philosophy of operational excellence that allows us to optimize processes,solve challenges and reduce inefficiencies.Initiated by our colleagues,PPI ensures we work smarter for and deliver greater value to our customers.It empowers all colleagues to find a better way every day,driving productivity and improving product and service quality to strengthen customerallegiance.93%of our eligible sites worldwide adhere to cGMP and/or are certified to ISO 9001,ISO 13485 quality system standardsOur operating discipline2022 Corporate Social Responsibility R innovationInnovation is critical to helping our customers succeed.Across our Company,new products are developed within a stage gate design control framework,our product ideation and introduction process.Products are then verified and validated to meet customer expectations and international standards for quality,performance and safety.Our quality management system tracks all processes to completion according to established procedures,including proper record retention.Products are then registered according to country-specific requirements with the proper government and regulatory authorities.Product testingEmbedded within our business segments,quality control teams oversee product testing at various stages of manufacturing.In-process and end-of-line testing affirms11 that the product,equipment or medicine will perform as expected when it reaches the customer.If a defect is detected,the product is put on hold or quarantined until the issue is resolved.In our quality control labs,we conduct sample testing using a recognized statistical sampling approach to confirm a products performance before distribution.Responding to a product issueWhen a customer contacts us with a concern,we immediately enter the complaint into our quality system,which alerts the relevant manufacturing site or business.Within the quality system,the issue is evaluated against regulatory requirements to determine whether authorities must be notified.After determining whether the defect or deviation can be replicated,an investigation determines the root cause and launches a corrective action or countermeasure to prevent the issue from repeating.Committed to transparency,we keep our customers informed throughout the process.242022 Corporate Social Responsibility R contained in widely accepted EHS management system standards and practices,such as ISO 14001,ISO 45001 and US OSHAs“Recommended Practices for Safety and Health Programs.”We have adapted and customized our standard for effective integration with the Thermo Fisher corporate governance structure and operating model.Our EHS-MS in brief1Management support and leadership2Colleague participation3Regulatory compliance4Hazard identification and risk management5Education and training6System evaluation and improvementTo consolidate all operations into one platform and unify us around a single global process,we are introducing a new EHS information software management system throughout our organization.This platform will strengthen corporate oversight through improved reporting,data management and target tracking and will optimize enterprise-wide capabilities to manage trending incidents and corrective actions.Environmental,health and safetyWe are dedicated to protecting the environment,and the health and safety of our colleagues,customers and the communities where we operate.The Thermo Fisher Environmental,Health and Safety(EHS)Policy outlines our pledge and incorporates the principles of continuous improvement,sustainability and transparency,and all colleagues are responsible for upholding our EHS values and meeting compliance standards.In 2022,we refreshed our policy to align with our core EHS requirements and to expand on our commitments to environmental sustainability.Environmental,Health and Safety Management System standardOur EHS Management System(EHS-MS)and the involvement of our colleagues helps us maintain a safe work environment.Our EHS-MS is based on the same Prioritizing colleague safetyWe track EHS progress from the Company to site level using two metrics to identify opportunities for improvement,total recordable injury rate(TRIR)and lost-time injury rate(LTIR).These metrics are standard industry rates that measure either the number of injuries resulting in a recordable incident(as defined by US OSHA)or lost workdays,both per 100 workers.Our proactive approach to site safety and continuous improvement have helped decrease our TRIR by more than one third in the last five years.20212022Lost-time injury rate13 (per 100 workers)0.200.21Total recordable injury rate14 0.450.4341operating facilities ISO 14001 EMS certified by the end of 202212 25EHS leadership Creating a safe work environment for our colleagues and protecting the environment where we operate is of the utmost importance to us.Thermo Fisher has established an EHS operating model that consists of a network of EHS professionals at the corporate,business,regional and site levels who work together to meet compliance requirements and drive continuous improvement.As our Company has grown,we have expanded and incorporated the EHS operating model into each business to ensure oversight and support for our global operations.EHS compliance audit programAt the corporate level,we oversee our internal EHS audit compliance program to evaluate site operations for compliance with all applicable environmental,health and safety laws,regulations and other related standards we may adopt and endorse.We leverage our CAPA processes to resolve any non-compliance issues that are discovered.In-person baseline audits are conducted to assess the operations of any newly acquired business within the first year.In 2022,baseline compliance audits were conducted at manufacturing and laboratory sites for both PeproTech and PPD,which were each acquired in late 2021.Property loss preventionBuilding on our internal EHS audit process,we conduct regular external property/loss prevention audits for all major operating sites.15 These audits help us assess business resilience in the event of fires or natural disasters such as hurricanes,floods,earthquakes or tornadoes.In 2022,we held our first Loss Prevention Summit at the property loss prevention scientific research and product testing facility of our property and business interruption insurance partner.This unique learning environment features 12 different labs devoted to educating visitors about common risks such as fire,ignitable liquid,natural hazards,equipment malfunction and electrical breakdown.A cross-functional Thermo Fisher team comprised of EHS,engineering and corporate real estate colleagues attended the two-day summit and learned more about the importance of investing in loss prevention strategies and how to manage future risk with the expansion of our existing facilities and new sites.Another focus of the summit was how to best incorporate environmental sustainability efforts in our facilities without increasing risks to our physical assets.Responsible sourcingFulfilling our Mission requires a large supply base across our global network.These suppliers provide the services to support our research and development teams and the raw materials,lab equipment,chemicals and other vital goods used across our manufacturing and service network around the world.We have a Supplier Code of Conduct that outlines supplier responsibility expectations.We also strive for a supply chain that generates economic development in local communities and promotes diversity,which we achieve through our robust Supplier Diversity program.We have an expansive network of direct and indirect suppliers.To optimize the effectiveness of our supplier responsibility programs,we segment our supplier engagement activities based on contribution to our spend and criticality in delivering products to meet customer demand.420EHS professionals worldwide Operational resilienceOur San Jose,California site,a large manufacturing and R&D location within our chromatography and mass spectrometry business,was recognized with Highly Protected Risk status by the property insurance company that collaborates with Thermo Fisher on our global corporate risk management program.Highly Protected Risk status is awarded to facilities that successfully manage property-related risks.Our San Jose site was recognized for steps taken to prevent or minimize the occurrence of damage to machinery,equipment and facilities that are essential to our business and our customers.Feature story26Supplier Code of ConductThe Thermo Fisher Supplier Code of Conduct outlines our expectations for suppliers/partners and their subcontractors in the areas of ethics,labor,health and safety,environment and management systems,supply chain transparency,product and service innovation,and customer satisfaction.In 2022,we revised our code to include greenhouse gas(GHG)emissions management.This allows us to work with suppliers in support of our climate objectives by improving GHG measurement,reporting,target setting and reduction.We also reviewed and aligned the code to capture expectations associated with new local laws and regulations.The code is integrated into supply agreements and terms and conditions,and suppliers are expected to share their performance against code expectations at our request.Supplier risk assessment and monitoringOur risk-based approach to supplier engagement and monitoring allows us to focus our resources on areas with the largest potential impact.Criteria considered in our risk assessment include:Geography in which the supplier operates and inherent environmental,social and governance(ESG)related risk in the region Industry-specific risks,such as those found in mining of 3TG materials(also known as conflict minerals)Previous supplier performance in environmental and social assessments or audits Criticality of supply or strategic nature of the buyer-supplier relationshipWe use the globally recognized EcoVadis16 platform to monitor compliance with our Supplier Code of Conduct and to assess and accelerate improvements in supplier ESG practices affecting the environment,labor and human rights,ethics,and sustainable procurement.In 2020,we set a goal to have 80%of direct materials supply assessed through the program by 2025,with suppliers in the program meeting or exceeding the EcoVadis scoring threshold of 45 to demonstrate strong management practices.We are on track to achieve this target,demonstrating strong year-over-year growth.In 2022,we extended our use of EcoVadis to the Fisher Scientific channel to engage direct materials suppliers in high-risk regions.We also conduct audits to provide insights into a suppliers adherence to our Supplier Code of Conduct and develop corrective action plans to improve supplier performance,drive continuous improvement and mitigate risk.Our team also engaged third-party auditors to interview colleagues for a series of onsite audits of Fisherbrand suppliers.The audits covered CSR,compliance,ethical trading,labor regulations and standards,and responsible production practices.202020212022131P 25 target%assessed for ESG0 80Direct materials spend272022 Corporate Social Responsibility R chain decarbonizationFor Thermo Fisher,over 95%of our value chain emissions are generated outside of our operations.To address this,our Scope 3 emissions target,which has been validated by the Science Based Targets initiative(SBTi),is to have 90%of our suppliers by spend set climate-related,science-based targets by 2027.In 2022,we invited hundreds of our largest and most emissions-intense suppliers to participate in the CDP supply chain program17 to share information on their climate goals and progress.We also provided training and hosted meetings with key suppliers to help educate them and grow their understanding of their environmental impacts.As a result,we were able to expand our community of suppliers who have either set,or committed to set,science-based targets.20212022Suppliers with science-based climate targets186%Suppliers committed to set a science-based climate target189%We also work with our transportation carriers to identify opportunities for carbon reduction in the shipment of our products.We have developed a project pipeline for reducing emissions by transitioning eligible air shipments in major lanes to less intensive distribution methods,such as ocean and ground-based transportation.Our first pilot in one of our largest air travel lanes successfully diverted 37%of the lanes shipment volume from air transport to ocean transport,resulting in an estimated reduction of 5,000 metric tons of carbon dioxide equivalents(MTCO2e).Our full Scope 3 emissions inventory is third-party assured and published in our CDP climate disclosure.In our Purchased Goods and Services and Transportation categories,we are investing in maturing our data systems to further improve our emissions calculations from spend-based,environmentally extended input-output modeled emissions to more granular,activity-based methods in alignment with the Greenhouse GasProtocol.To learn more about our emissions reduction efforts,see the Environment section.Supplier diversityBuilding a program with diverse suppliers supports a more resilient supply chain by delivering greater sourcing options,more innovative solutions and access to quality products at competitive prices.We actively build and maintain relationships with qualified small businesses as well as veteran-,minority-,LGBT-,disabled-,and women-owned enterprises.19 We establish strong relationships with advocacy organizations and certifying bodies that promote diverse and small business suppliers and participate in events and conferences to develop a larger network.In 2022,our spend with small and diverse suppliers was$2 billion.As advocates for supplier diversity,we collaborate across our sector to share learnings.This includes informal engagements as well as formal mentoring to help our customers develop more robust supplier diversity programs and expand opportunities for diverse suppliers.Through mentorship,we help them grow their capabilities and strengthen their competitive positioning in our supply chain.Thermo Fisher is proud to be represented on the board of directors for Diversity Alliance for Science,a nonprofit organization advancing inclusive procurement practices within the life sciences and healthcare industries.Training and capability buildingAs we continually improve our responsible procurement processes and champion our suppliers sustainability initiatives,we are advancing our education offerings,which nowinclude:Offering a series of nine webinars on supplier responsibility topics,such as GHG emissions,ESG performance ratings and the Supplier Codeof Conduct Launching a new introduction to supplier responsibility training course,which was taken by more than 600 procurement colleagues and is now included in standard onboarding training for new procurement colleagues Continuing internal training on our Supplier Diversity Policy,which reinforces our commitment to supplier diversity and outlines the programs objectives and expectations for our procurement and sourcing specialists Making webinars available to suppliers through our supplier climate disclosure program in conjunction with CDP Holding webinars related to EcoVadis in local languages;more than 200 suppliers participated in EcoVadis Academy courses in2022 Joining the Sustainable Procurement Pledge,an international,nonprofit organization for procurement professionals,academics and practitioners,driving awareness and knowledge of responsible sourcing practices and empowering people in procurement282022 Corporate Social Responsibility R colleagues are our Companys greatest asset,and they bring their best every day to serve our customers and communities.As a Company that thrives on innovation,we continue to build a workforce that reflectsthe rich cultural,ethnic and experiential diversity of the world.Our colleagues unique perspectives spark new ideas and make our Company stronger.We prioritize strategies,practices and processes that allow them to build rewarding careers in a vibrant culture by enhancing:Benefits and well-beingTalent managementDiversity and inclusion 29Our more than 125,00020 Thermo Fisher colleagues are united in fulfilling our Mission and are dedicated to advancing our customers important work to make the world healthier,cleaner and safer.As the world leader in serving science,our success is connected to our ability to attract,develop and retain the brightest talent.Our passionate global teamUS colleague representation2021222022Women2142P%Women in executive management roles21,23357%Women in leadership roles21,24 38G%Racially and ethnically diverse people25399%Racially and ethnically diverse people in executive management roles23,2523#%Racially and ethnically diverse people in leadership roles24,25300%total colleagues127,732AmericasEMEAAPACColleagues by region2252RR332%MaleFemaleUndisclosedGlobal representation21,2249WX%2%3F%502022 Corporate Social Responsibility R and inclusionOur diversity and inclusion(D&I)strategy is fundamental to who we are,helping to create a culture where everyone shares a sense of belonging.We are committed to a fair,equitable and rewarding work experience for all colleagues,and we continue to build an inclusive environment where everyone is empowered to contribute,collaborate and innovate.RepresentationWe are always working to advance diversity within our Company.By the end of 2022,we completed year four of our five-year D&I strategic plan,and since 2019,we increased global representation of women in our workforce by 5.9%.In the same timeframe,US representation of women in our colleague population has increased by 8.6%,with an increase of 9.3%for those in executive management roles.Since 2019,US representation of racially and ethnically diverse colleagues has increased by 2.5%overall and by 2.6%for those in executive management roles.Fostering an inclusive organizational cultureDriving inclusion through colleague insightsAsking for our colleagues opinions and listening to their feedback is essential to bringing our 4i Values to life and building a culture of belonging and inclusion.Our annual Employee Involvement Survey(EIS)is our most comprehensive listening tool for gauging our strengths and improvement opportunities in three key areas:Involvement Measures colleague engagement at Thermo Fisher,pride in working for the Company and confidence in our future Leadership and management effectiveness Measures qualities that reflect successful and effective managers,including role modeling our values,being supportive and providing recognition Inclusion Measures the behaviors that contribute to a sense of inclusion and well-being,including respecting differences,empowering colleagues and valuing diverse perspectivesEmbracing an inclusive cultureWe continue to invest in our vibrant and inclusive culture so colleagues can share their unique perspectives and bring their best every day.The truest measure of our progress is the feedback we received directly from our team,including nearly 26,000 colleagues from our new clinical research business who had the opportunity to participate in our annual EIS for the first time.The EIS saw an 85%response rate in 2022.We are also pleased that our commitment to inclusion continues to be recognized externally,earning top scores once again on the Human Rights Campaigns Corporate Equality Index for LGBTQ inclusion(8th consecutive year)and on Disability:INs Disability Equality Index(5th consecutive year).Among other awards,Forbes named Thermo Fisher one of the Worlds Top Female-Friendly Companies,Americas Best Employers for Veterans,and Best Places to Work for Disability Inclusion.Fostering an inclusive organizational cultureReinforcing infrastructure for inclusive policies&practicesCreating personal accountabilityOur D&I frameworkOur D&I strategy aligns initiatives,programs and policies to drive organizational and business priorities within a framework of three key pillars that help us track our progress.2022 Corporate Social Responsibility R annually in more than 20 languages and in a mobile-friendly version to all colleagues globally,the survey measures our progress and provides leadership with insights to improve our colleagues experiences.Survey results influence annual Company-wide goals and shape leader action plans to increase opportunities for engagement and unlock the full potential of our colleagues contributions.Belonging WeekIn 2022,we brought our teams together virtually from around the world to celebrate Belonging Week,which offers a simple way for our colleagues to connect with our Mission and reinforce how we make a difference when we work together as one team and Company.We offered workshops,hosted town halls and shared tips and tools to strengthen trust and build colleague networks.As a result of this event,70%of colleagues who participated in Belonging Week reported feeling an increased sense of belonging.Business Resource Groups Another way we foster organizational culture is through our Business Resource Groups(BRGs).Our BRGs provide opportunities for colleagues to develop alongside peers with shared identities and interests,and those who support them as allies.BRGs also advance our Company goals,such as fostering inclusion and belonging,supporting talent and strengthening our communities.In 2022,we integrated eight BRGs as part of the acquisition of PPD and rebranded the groups to create one cohesive community.The new emblems highlight the unique identities of each group while further unifying more than 250 chapters across the globe.BRGs also provide our colleagues with opportunities for professional development to build their professional and social networks and strengthen engagement.Demonstrating the incredible impact of these groups,colleagues who participate in BRGs rated their feelings of engagement and inclusion at the Company three points higher in the annual EIS than those colleagues who do notparticipate.Our BRGs9BRGs30countries representedlocal chapters25010th anniversary of our BRGsThrough my participation in the BRG,I was able to initiate conversations that would not have been relevant to my daily work and advocate for changes that could help colleagues who look like and grew up like me.BRGs have been a surefire way of breaking down silos and creating connections that span various businesses,functions and levels within the organization.Im so thankful for the unique opportunities provided through the BRG which had an indelible impact on my career here at Thermo Fisher.Michelle Choi Senior Director,Customer Experience atThermo Fisher Scientific322022 Corporate Social Responsibility R infrastructure for inclusive policies and practices Optimizing inclusive hiring To support our colleagues ability to thrive over the long term,we evaluate our human resources systems and processes to provide all colleagues with equal access and opportunities to develop their careers.As an example,beginning in 2020,as part of an evaluation of our hiring practices,we examined our applicant tracking process and identified ways to help hiring managers engage in more inclusive recruiting.We introduced a tool that helps them overcome unconscious bias when writing job descriptions and educated hiring managers on how making simple wording changes can improve the quality and diversity of our applicant pool.We have since standardized these practices,which is transforming our hiring pipeline.Importantly,the conversion rate from applicant to hire has increased by 1.1%for women globally and 4.7%for racially and ethnically diverse people in the US.Addressing pay equity26 We also evaluate our pay practices to ensure our colleagues receive fair,competitive and equitable pay for their contributions to Thermo Fisher.In 2021,we engaged a third-party firm to launch our first pay equity study,which was completed in 2022.We analyzed data in two ways to gain balanced insights for furthering our D&I progress.By voluntarily increasing the transparency of these disclosures,we are reinforcing our commitment to stakeholders and the continuous improvement of our D&Iinitiatives.Adjusted pay equity analysis A pay equity audit of our US non-executive workforce compared the pay of colleague groups who do similar work.The analysis was adjusted by considering factors that are known to influence total pay,such as job title,performance and tenure.By reviewing our US non-executive workforce,the analysis included 99%of our US colleague population and 42%of our global population.Our pay equity analysis27 showed that non-executive colleagues who are women earned 98%of the total pay earned by men in similar roles.Racially and ethnically diverse colleagues earned 99%of the total pay earned by White/Caucasian colleagues in similar roles.These first-time results reflect the rigor of our compensation policies and processes,and the results of the analysis will inform our work going forward.Unadjusted median pay analysis Our unadjusted median pay analysis considered colleague representation across the US and is not affected by other job-related influences.The 2021 analysis gathered total pay amounts for all colleagues,including executives,and identified the value in the middle of the data setthe medianwithout adjusting for factors like job title,performance or tenure.The difference in the median total pay between two colleague groups is referred to as the median unadjusted pay gap.Our analysis concluded that for US-based colleagues,including executives,the median unadjusted pay for women is 91.4%of total pay for men,and the median unadjusted pay for racially and ethnically diverse colleagues is 77.4%of total pay for White/Caucasian colleagues.27 Continuing to execute on our D&I strategy and increasing representation in leadership and executive management roles will reduce these gaps between the medians.percentage point increase in global applicants who are women and US applicants who are racially and ethnically diverse5.533Based on the insights from this study,we will continue to invest in training,tools and programming to drive ourprogress.To ensure colleagues around the world are compensated equitably,we plan to expand our pay equity studies and disclosures globally,beyond the UK,France and Ireland,where we already conduct annual median gender pay gap analyses in compliance with regulatory requirements in those three countries.In the US,we will complete an analysis of the non-executive workforce in our clinical research business,which was acquired in 2021 after our pay equity study was already underway.Creating personal accountability As one of our 4i Values,Integrity reinforces the importance of being accountable,honoring commitments and communicating openly.All colleagues are expected to look for opportunities to foster greater collaboration and Innovation,another one of our 4i Values.Our senior leaders serve as role models and allies in advocating for our colleagues from historically underrepresented communities.Many members of the Company leadership team serve as BRG executive sponsors and champion their groups,enhancing awareness through calls to action with a heightened focus during BRG spotlight months.Through their involvement,our leaders broaden and deepen their understanding and appreciation of the lived experiences of our colleagues,particularly those from diverse backgrounds.These connections help to create more genuine and authentic advocacy on behalf of our colleagues.In 2022,we launched a D&I learning channel and developed an educational journey to activate allyship by raising awareness of the difference between equality and equity.Colleagues explored how earned and unearned advantages impact access and opportunities and were encouraged to proactively share their experiences with their peers.We provided specific opportunities for colleagues to become allies and to understand how being an ally is tied to our 4i Value of Involvement.Human resources(HR)further supports programs that advance our personal accountability goals,including leading discussions on diversity in our succession planning process and facilitating action planning for implementing colleague feedback thats received in our annual EIS.Talent managementThe success of Thermo Fisher is fueled by an empowered,adept workforce that embraces our Mission,values and inclusive culture.Our talent strategy ensures we have a skilled global team to support our customers while enabling our colleagues to reach their full potential and having long and rewarding careers with our Company.We invest in our talent at all career stagesfrom interns and early career professionals to managers and executive leadersto enhance our colleagues skills and knowledge,providing the opportunities and resources they need to thrive.Leveraging the power of technology,we create an exceptional colleague experience,from recruitment through ongoing development.Our BRGs represent the diversity of our colleagues around the world,especially their desire to bring our Mission and purpose to life.As a BRG executive sponsor,its my privilege to work closely with these passionate teams to ask questions,learn from them,understand our challenges and ultimately better leverage the power of diversity to create a Company culture where everyone feels like they belong.Michel Lagarde Executive Vice President and Chief Operating Officer at Thermo Fisher Scientific 342022 Corporate Social Responsibility R attraction and acquisitionOur colleagues can realize their best personally and professionally,while taking pride in the significant impacts they are making on society.During 2022,more than 26,000 new colleagues28 chose to join the Company.We identify,attract and engage top talent with diverse backgrounds and unique skillsets to enable our customers to solve some of the worlds most pressing problems.Our approach to hiring talent to meet the broader goals of the business begins with market data and insights.Our sourcing and talent attraction strategy is accelerated through the use of talent intelligence and data science to identify diverse candidate slates,gaining a competitive advantage in the hiring process.We also deploy local,market-specific approaches to continuously improve connections with candidates who share our values and will best complement the skills of our global teams.Delivering a seamless experienceWe are committed to delivering a seamless experience for external candidates as well as current colleagues looking for the next chapter in their career at Thermo Fisher.Innovative technology solutions enable automation at key stages of the hiring process,providing greater transparency and responsiveness to keep candidates informed of their status.This also allows for dedicated personal interaction where it matters most during the candidate journey.Our global career site offers nine robust,regional experiences with localized content that provides prospective colleagues with the most relevant information for their interests and skills,making it easier and faster to find opportunitiesultimately simplifying the application process.Cultivating the next generation of colleaguesBuilding a brighter future for Thermo Fisher includes finding the next generation of talent and helping more colleagues establish long-term careers here.We invest in meaningful early talent attraction and acquisition programs for students who will become future scientists,engineers,business leaders and managers.Part of our approach includes engaging our Company leaders to identify the skills and roles needed for the future.Early talent and the emergent capabilities they possess help build a talent pipeline prepared to meet tomorrows challenges while offering roles well suited to their expertise.One way we connected with early talent in 2022 was by piloting a virtual real-time PCR diagnostics simulation provided at no cost to undergraduates around the world.This program allowed students to progress through the curriculum by completing tasks at their own pace.By deploying a virtual program,we democratized access to learning and expanded awareness of science,technology,engineering and math(STEM)to students globally.Attracting diverse talent Attracting and retaining a workforce that reflects the diversity of our customers and our communities is integral to our talent strategy and allows us to fuel innovation and build a culture of belonging.To reach talent of all backgrounds and experience levels,we partner closely with our BRGs.With their support,we engage with diverse organizations to support STEM communities,share career opportunities and activate our diversity hiring strategy.Our network includes National Society of Black Engineers(NSBE);Out in Science,Technology,Engineering,and Mathematics(oSTEM);the US Department of Veterans Affairs;and Society of Women Engineers(SWE).We participate in hiring events,panel discussions and learning sessions and provide services such as resume reviews and mock interviews to promote learning and development opportunities for individuals from all backgrounds.Distinguished 2022 employer accoladesForbes 2022 Americas Best Employer for New GradsRippleMatch 2022 Campus Forward Award,Enterprise Early Career Programs937students enrolled in virtual STEM simulation pilot43%of students who identified as first-generation college students352022 Corporate Social Responsibility R addition to formal development conversations,Thermo Fisher University,our AI-driven learning platform,is a comprehensive resource for colleagues at all levels to access leadership,management and professional development in ways best suited to their learning styles.Content is available through the platform for colleagues to explore on their own.In addition,personalized content is shared proactively with colleagues based on their individual development needs and aspirations.In 2022,we had more than 1.8 million colleague visits to Thermo Fisher University.Formal training programsIn addition to individual self-serve training via Thermo Fisher University,we also offer formal management and leadership development programs,including aspiring manager through experienced manager development programs.Multiple leadership and executive development programs are also offered to support individuals as they transition to increasingly complex,higher-impact roles in the Company.These instructor-led programs are designed for participants to learn and practice new skills to successfully implement them in their roles.We offer both open enrollment and nomination-based programs,with special offerings for critical talent.Our programs provide a wide variety of options,from aspiring managers to senior executives,to increase the skills and capabilities of our future and current leaders so they can take the next career step or further develop in an existing role.Developing our talent Early talentWe believe that investing in early talent is essential to achieving our long-term ambitions.Our full-time,multi-year,formal rotational programs,some of which have been offered for more than 20 years,provide a way for individuals entering the workforce to gain unique and Welcoming new colleaguesOur New Colleague Onboarding program is an immersive,two-way learning journey designed to instill confidence and competence and grounds our new hires in our Mission as they move into their roles.Managers are critical to the success of the new colleague experience and are given a series of resources and action items,including the development of customized 90-day onboarding plans and an automated process for assigning ambassadors who are available to support a smooth transition into Thermo Fisher.During their first 90 days,all new colleagues learn about our culture,processes and policies,as well as how to grow their professional capabilities through a dynamic learning experience.Onboarding content has been expanded in recent years to include new modules on the customer experience,our Practical Process Improvement(PPI)Business System,our CSR strategy and more.By equipping new colleagues with the tools they need to be successful,we create a supportive environment for them to quickly begin building their Thermo Fisher careers.Colleagues who join us through the Just Project,our historically Black college or university(HBCU)alumni recruitment initiative for early career and experienced talent,are immediately introduced to our BRGs as this network supports improved retention and transparency to the career development opportunities available.In 2020,we set a goal to hire 500 HBCU alumni by the end of 2023a milestone we achieved one year early.Talent developmentLearning is a continuous journey,and we regularly invest in the development of our colleagues as they grow their careers at Thermo Fisher.Managers,supervisors and HRbusiness partners all take an active role in encouraging all colleagues to take advantage of these opportunities,especially during the bi-yearly performance management and development process(PMD)when professional development goals are set and discussed.Open enrollmentManagement EssentialsDeveloping Frontline LeadersRole of the LeaderNext-Level Leader programNomination-basedAspiring General Manager programGeneral Manager Development programOperations Leader Development programR&D Leader Development programDeveloping Emerging LeadersGlobal Leader Development programHighlighted training programsdynamic work experiences supporting critical functions such as operations,quality assurance and regulatory affairs,IT,data science,product engineering and finance.Our global graduate leadership development programs support roles in both general management and HR.We are pleased that many alumni from these programs now hold a variety of roles across the Company,including on our Company leadership team.362022 Corporate Social Responsibility R talent29Developing our associate talent pipeline is another critical focus area at Thermo Fisher.In partnership with site and HR leaders,we offer virtual and location-based training aimed at strengthening the associate experience and supplement existing colleague feedback processes with tools that specifically target associates to capture their concerns and experiences.We also invest in developing the managerial effectiveness of colleagues leading our associate population and train them on how to effectively engage associates in career conversations.Career development workshops are another initiative to help associates plan for future opportunities with Thermo Fisher.Supporting talent mobility Providing our colleagues with a variety of work experiences is one of the most effective ways to help individuals achieve their career aspirations.We actively manage our talent through rotations across our businesses,functions and geographies to provide new experiences as well as enable colleagues to share knowledge and broaden their skills.Talent mobility is also a key component of our continuous succession planning processes,which leverages workforce data and predictive analytics to create meaningful job rotations for each colleague while benefiting the Company.In 2022,we enhanced our internal talent marketplace to expand access to global opportunities and simplify the process for colleagues to find openings and apply.The relaunched platform,MyCareer,provides access to career development resources,peer-to-peer networking,our BRGs and suggested reading to support colleagues as they prepare for their next roles.MyCareer supplements the already robust offerings of Thermo Fisher University,which is regularly refreshed with new content,tools and templates to support our colleagues and managers in career development and planning.Succession planningBuilding a brighter future requires thoughtful succession planning efforts,and our approach means Thermo Fisher is positioned to continue to thrive under strong leadership for the long term.Critical role successionA dedicated team actively manages the careers of individuals serving in our most critical roles,including general management,operations,sales,quality,and research and development.By mapping all roles,incumbent talent,and talent pipelines within these critical capabilities,we begin planning 12 months in advance of potential moves to ensure we have rich talent pipelines and business continuity.In addition,graduates of key development programs such as the Aspiring General Management,General Management,Operations,and R&D Leadership programs are matched to vacancies and succession plans for critical roles.Our succession process is comprised of a year-round series of facilitated reviews.A biannual meeting with our CEO,chief operating officer,chief human resources officer,and other senior leaders focuses on succession planning and talent pipelines.At bi-yearly Company leadership team calibration meetings,the discussion is centered on our most senior talent,their performance and potential,and in monthly management reviews,our chief operating officer,executive vice president and chief human resources officer review top talent and moves under consideration.High-potential talent readinessWe recognize the importance of improving role readines
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A JOURNEY TOWARDSA SUSTAINABLE FUTURESamsung Electronics Sustainability Report 2022Approach to Sustainability 10Business Sustainability 11Sustainability Highlights of Major Products 13Sustainability Achievements 16Recognition&Awards 17Sustainability Governance 18Stakeholder Engagement 19Joining UN Global Compact 20Business Model of Sustainability 21 ManagementOur CompanyCEO Message 2Company Overview 3Global Network 4Corporate Governance 5Compliance and Ethics 7Environment 22Environmental Management Governance 23Climate Action 25Maximizing Resource Circularity 32A JOURNEY TOWARDSA SUSTAINABLE FUTUREInteractive User GuideSamsung Electronics Sustainability Report is created in interactive PDF and allows the viewer to go directly to the relevant websites through hyperlinks in the document.Click on the icons on the nav-igation bar at the top of each page to go directly to the cover page,the table of contents,the previ-ous or next page,or print.Go to the cover page of the report.Go to the table of contents in the report.Go to the previous page in the report.Go to the next page in the report.Go to the last page viewed in the report.Find information through word search.Go to Samsung Electronics homepage or access information available on external websites.Empowering Communities 41Corporate Citizenship 42SME-Startup Support 46Future Technology Cultivation Initiative 48Sustainable Supply Chain 76Responsible Supply Chain 77Mutual Growth throughout the Supply Chain 81Sustainable Supply Chain 82Transparent Management of 83 Responsible Minerals Sustainability Foundation 84Materiality Assessment 85Alignment with UN SDGs 86Sustainability Value Creation 88Digital Responsibility 49Privacy 50Cyber Security 52AI Ethics 55Accessibility 57Digital Wellbeing 58Our Employees 59Labor and Human Rights 60Diversity and Inclusion 65Health and Safety 69Human Resources Development 73Organizational Culture 74Facts&Figures 89Economic Performance 90Social Performance 91Environmental Performance 94Performance by Business Division 97Appendix 98Independent Assurance ReportVerification Statement on Greenhouse Gas Emission GRI IndexTCFD IndexSASB IndexCustomer Communication and PerformanceAbout this Report99100101104106108109View detailed information Dear shareholders,customers,partners and employees,I would like to express my deepest gratitude for your unsparing support for Samsung Electronics in overcoming many unexpected obstacles over the past year.In 2021,we came face-to-face with several challenges,from the prolonged COVID-19 pandemic to the accelerating climate crisis,which threatens the sustainable future of humanity,and from the economic impact of global supply chain disruptions to the intensifying conflicts among nations and communities.These challenges serve as a stark reminder of our call to action for securing a sustainable future.In this context,we drastically strengthened our sustainability governance to highlight that sustainability remains our top priority in our business operations and to embed this priority in every aspect of the organization.In addition to establishing the Sustainability Management Office within each business unit and elevating the existing company-wide function as the Corporate Sustainability Center,we expanded the Governance Committee under the Board of Directors as the Sustainability Committee in 2021 to reinforce the Boards oversight of sustainability activities.We also placed the Sustainability Council,an executive-level consultative body,under the direct leadership of the CEO in 2022.These changes have perfected a virtuous cycle where the pursuit of sustainability leads to advanced products and enhanced business competitiveness.Our sustainability governance serves as a momentum in identifying new drivers for sustainable growth,strengthening our future competitiveness,and fulfilling our corporate responsibility.Our ultimate goal is to help consumers join us in our journey to build a better tomorrow through our innovations.We focus on stepping up our efforts to create technologies that further widen the gap with our competitors while linking consumers decision to choose our products to reflect their sustainable lifestyles.Our eco-conscious advances,including low-power semiconductors,the SmartThings Energy service designed to reduce energy consumption using AI-based energy-saving features on smart appliances,the SolarCell Remote Control charged by sunlight or indoor lighting,and smartphone models made with materials recycled from discarded fishing nets,are the proud results of our continued pursuit of sustainability.The COVID-19 pandemic and intensifying international conflicts once again remind us that cooperation with diverse stakeholders is imperative in ensuring success as a global company.We will continue to mutually grow and advance with communities we serve by capitalizing on our rich legacy,expertise,and wealth of resources.We will expand our corporate citizenship activities centered on nurturing the technological prowess of the younger generations,while reinforcing and launching forward-looking initiatives to narrow the technological gap amid the transition to a digital society,including support for SMEs through the smart factory system.We will provide tailored training and consulting for our partner companies and related smart factory support to assist them with the green transition.To achieve meaningful progress and have material impact,we believe it is critical to communicate and work together with all stakeholders.In this context,we joined the United Nations Global Compact,an initiative to encourage businesses to adopt sustainable policies,earlier this year.We will continue to seek opportunities to reach out to and cooperate with our diverse stakeholders to catalyze more meaningful changes to the environment and communities by engaging in partnerships with other industrial sectors,civil society groups,and international organizations.The world is currently facing many tough challenges political,economic and social.There are even skepticisms about whether a sustainable future for our planet is possible.However,we firmly believe that our competitiveness and sustainable growth goes hand in hand with harnessing our technological solutions to preserve the environment and contribute to building a better world.We look forward to your continued interest and support in our journey to achieving a sustainable future.Thank you.Message from Our CEOCEO and Vice Chairman Samsung ElectronicsHan Jong-heeSamsung Electronics Sustainability Report 20222Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix2DSDevice SolutionsDevice eXperienceDXAbout Our Organization Samsung Electronics is divided into two main divisionsDX(Device eXperience)and DS(Device Solutions)and we ensure that each division is operated independently.DX took a new leap forward with the integration of the CE Division(responsible for TVs,monitors,air conditioners,refrigerators,etc)and the IM Division(responsible for mobile devices,network systems,computers,etc)in 2021.This integration is aimed at reflecting more differentiated products and services to optimize consumer experiences.The DS division consists of Memory,System LSI,Foundry businesses,etc.Company OverviewWe aim to make a positive contribution to peoples everyday lives by offering products and services of great quality built with our innovative technology by our talented workforce.The Global Code of Conduct articulates our commitment to helping the world move forward based on our five Key Values.We will uphold the Key Values and achieve the goals of the Global Code of Conduct by challenging the status quo.*Sales and Operating Profit above are based on 2021 figures,excluding SDC and Harman.SalesKRW 166,259.4 billionOperating ProfitKRW 17,386.6 billionNetworksMobile eXperience(MX)Visual Display(VD)Digital Appliances(DA)Medical DevicesSystem LSIMemoryFoundrySalesKRW 95,387.2 billionOperating ProfitKRW 29,192.0 billion Major Business UnitsSamsung Electronics Sustainability Report 20223Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix3Global NetworkAs of the end of 2021,our global business network consists of more than 230 production sites,sales offices,R&D centers,and design centers.We have 15 regional offices around the world,including our global headquarters in Korea,as well as in North America,Southeast Asia,Europe,Africa,and other regions.North AmericaRegional officesSales officesProduction sitesR&D centersDesign centersOthers2237113Regional officesSales officesProduction sitesR&D centersDesign centersOthersCentral and South America 1731112EuropeRegional officesSales officesProduction sitesR&D centersDesign centersOthers21633115CISRegional officesSales officesProduction sitesR&D centersOthers141241216Regional officesSales officesProduction sitesOthersAfricaRegional officesSales officesProduction sitesR&D centersOthersMiddle East182410Regional officesSales officesProduction sitesR&D centersDesign centersOthers245715ChinaRegional officesSales officesProduction sitesR&D centersOthersSoutheast Asia286310Regional officesSales officesProduction sitesR&D centersDesign centers11651 KoreaRegional officesSales officesR&D centersDesign centersOthersJapan11211Regional officesSales officesProduction sitesR&D centersDesign centersOthersSouthwest Asia112517R&D ExpenditureKRW22.4trillionCountries74Suppliers2,129Employees266,673Regional Offices15Sales Offices54Production Sites32R&D Centers39Design Centers7Others2)83Regions1)Total1)Regional classification is based on Samsung Electronics internal management criteria2)Sales Branches,Service Centers,Distribution Bases,etc.Samsung Electronics Sustainability Report 20224Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix4Corporate GovernanceOur Board of Directors welcomed new members appointed at the general shareholders meeting in March 2022.The heads of all major business divisions,including DX and DS,are now executive directors on the Board,with the goal of achieving responsible management.Additionally,outside experts in a range of fields are serving as independent directors to help maintain accountability.A former global investment expert was appointed as an independent director to help us better identify the needs and views of global investors,and to enhance diver-sity and inclusion,we appointed additional non-Korean director.In July 2021,the Governance Committee was replaced by the Sustainability Committee to better promote sustainability man-agement while enhancing shareholder value.shareholders meeting held in March 2022,three independent direc-tors and four executive directors were newly appointed,thus bringing the total number of directors to 11(six independent directors and five executive directors).With Independent Directors Han Wha-jin and Park Byung-gook resigning from the Board on April 20,2022 and May 17,2022,respectively,the two posts will be filled at the next general shareholders meeting pursuant to Article 542-8(3)of the Commer-cial Act.As of the end of May 2022,the Board consists of nine mem-bers,including four independent directors.Independence and Transparency of the BoardTo ensure independence and transparency in the operation of the Board,we prohibited holding the concurrent positions of the Chair-man of the Board and the CEO in 2018.We also appointed one of the independent directors as the Chairman,a first in the Companys his-tory,and we did so again in March 2020.The Chairman remains open to the opinions and suggestions of the executive and independent directors and serves as a mediator to ensure that the Board oversees our corporate management in a more objective manner.The inde-pendent directors hold separate meetings to seek ways to deliver leadership results across all aspects of our business operations,including the creation of shareholder value.Board CompositionThe Board consists of no less than three and no more than 14 mem-bers pursuant to Article 24 of the Articles of Incorporation.Although Article 383 of the Commercial Act simply mandates that a board of directors shall have no less than three members,we internally set the maximum number at 14 considering our corporate scale and the oper-ational and decision-making efficiency of the Board.At the general Director Appointment and Term of OfficeDirectors are appointed by the resolution of shareholders at the gen-eral shareholders meeting in accordance with Article 382 of the Com-mercial Act.Executive directors are selected among the candidates recommended by the Board,while independent directors are selected among the candidates recommended by the Independent Director Recommendation Committee pursuant to Article 542-8 of the Com-mercial Act.The same Article stipulates that the majority of an inde-pendent director recommendation committee must be composed of independent directors.Our Independent Director Recommendation Committee consists only of independent directors and strictly abides by the preset candidate recommendation procedures.Each directors term of office is three years.A director may be reappointed through the general shareholders meeting after the end of his/her term.How-ever,an independent directors total term is restricted to six years pursuant to the Commercial Act.Expertise and Diversity of the BoardThe fast-changing business environment requires that the Board be equipped with expertise and diversity to help our company take for-ward-looking,strategic steps.We take extra care to ensure diversity on the Board in terms of nationality,gender,religion etc,.Independent directors,in particular,are selected among experts in finance,law,IT,public sector,ESG,and other fields.They bring diverse perspectives to find optimal solutions and offer objective and professional oversight and advice to the executive management.Board CompositionBoard ValuesKim Han-jo*Han Jong-heeKyung Kye-hyun*Roh Tae-moon*Park Hark-kyu*Lee Jung-bae*Kim Sun-uk Kim Jeong-hunKim Jun-sung*NameFinance and CSR DX DS MX Corporate Management Memory Business Law and Human Rights IT and Business OperationFinance and Investment Area of SpecialtyChairman,Hana Nanum Foundation/Former Vice Chairman,Hana Financial Group CEO and Vice Chairman,Samsung Electronics/Head,DX Division and Visual Display Business,Samsung ElectronicsCEO and President,Samsung Electronics/Head,DS Division,Samsung ElectronicsPresident and Head,MX Business,Samsung Electronics/Former Head,Development Office,Mobile Division,Samsung ElectronicsPresident and Head,Corporate Management Office,DX Division,Samsung Electronics/Former Head,Corporate Management Office,DS Division,Samsung ElectronicsPresident and Head,Memory Business,Samsung Electronics/Former Head,DRAM Development Office,Memory Business,Samsung ElectronicsProfessor Emeritus,School of Law,Ewha Womens University/Former Minister,Ministry of Government Legislation/Former member,Policy Advisory Committee,National Human Rights Commission of KoreaExecutive Chairman,Kiswe Mobile/Former President,Alcatel-Lucent Bell LabsCIO,Endowment Fund,National University of Singapore/Former Managing Director,Government of Singapore Investment Corporation(GIC)Career HighlightsChairman and Independent directorExecutive directors Independent directors PositionIndependent directors are selected among those equipped with rich knowledge and experience in business management,economy,accounting,law,technology,and sustainability management.To ensure diversity in the Board,we do not limit independent direc-tor candidates by nationality,gender,place of birth,religion,area of expertise,etc.Those responsible for our everyday business affairs,our largest share-holders and other important stakeholders,and those who have experi-ence working for our company within the last two years are not eligible to be appointed as an independent director.Executive directors shall be appointed from among the candidates recommended by the Board,and candidates for independent directors shall be recommended by the Independent Director Candidate Recom-mendation Committee composed of all independent directors.*Directors newly appointed or reappointed at the general shareholders meeting in March 2022*Independent Directors Han Wha-jin and Park Byung-gook resigned from the Board on April 20,2022 and May 17,2022,respectively.Their posts will be filled by the resolution of the next general shareholders meeting.Indepen-denceTrans-parencyExpertiseDiversitySamsung Electronics Sustainability Report 20225Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix5OperationWe hold seven ordinary Board of Directors meetings each year for the quarterly approval of financial statements and the regular convocation of the general shareholders meeting.Beyond regular meetings,the Board of Directors hold special meetings whenever the need arises.Board ConvocationTo convene a Board meeting,the Chairman notifies each director of the date,time,venue,and agenda at least 24 hours prior to the meet-ing,pursuant to Article 30 of the Articles of Incorporation and Arti-cle 8 of the Board of Directors Regulations.Individual directors are entitled to request the Chairman to convene a Board meeting,with the agenda and reasons clearly defined,if deemed necessary.If the Chairman fails to uphold this responsibility without justifiable reason,the respective director may convene a Board meeting.Board ResolutionPursuant to Article 31 of the Articles of Incorporation and Article 9 of the Board of Directors Regulations,an agenda item is deemed to have been resolved with the attendance of a majority of the directors and a majority vote of the attendees unless otherwise prescribed in relevant laws.As specified in Article 391 of the Commercial Act,all directors may participate in a Board meeting digitally using remote telecommunications devices capable of simultaneous voice trans-mission and reception.We systematically avoid potential conflicts of interest by restricting the voting rights of those directors with special interests in certain agenda items pursuant to Article 9 of the Board of Directors Regulations.Committees under the BoardThe Board delegates its authorities to six affiliated committees pur-suant to Article 28-2 of the Articles of Incorporation and Article 11-2 of the Board of Directors Regulations to ensure greater efficiency.The Management Committee comprises five executive directors entrusted with relevant authorities to resolve general management matters in a timely manner.The other five committees consist of only independent directors to reinforce independence.The composition,operation,and authorities of each committee are specified in the individual com-mittee regulations enacted by the resolution of the Board.Matters resolved by the committees are notified to all directors within two days.Directors may request the Chairman of the Board to convene a Evaluation of Independent DirectorsIndependent directors are evaluated on all of their Board activities based on our internal criteria.Qualitative and quantitative evalua-tions are conducted by considering their meeting attendance rates,performance as individual committee members,level of expertise,understanding of material issues,and endeavors to ensure inde-pendence.Evaluation results are used as reference to innovate Board operations and enhance the efficiency and composition of the Board and its affiliated committees.Board meeting if deemed necessary,and the Board may reconsider and revote on the decisions made by each committee.However,the Audit Committees decisions are not subject to revote to ensure its independence.“With sustainability continually growing in impor-tance as a key driver of corporate growth,the roles and responsibilities of the Board of Directors continue to expand in both breadth and depth.As an extension of our efforts to effectively address ESG issues and improve our ESG performance,we reconfigured the Governance Committee into the Sustainability Com-mittee in July 2021.The Board will strive to ensure the integrity and transparency of the Board and help our company march forward as a responsible corporate citizen.”-Kim Han-jo,Chairman of the Board of Directors -Corporate Governance Report Committees under the BoardSustainability Committee Responsible for taking action to promote sustainability management and enhance shareholder value All four members are independent directors.Compensation Committee Aimed at ensuring objectivity and transparency in the decision-making process for compensation for directors.Both members are independent directors.Related Party Transactions Committee Aimed at enhancing business transparency by promoting voluntary adherence to fair transaction regulations All three members are independent directors.Independent Director Recommendation Committee Screening and recommending candidates based on the requirements of their independence,diversity and individual competence One member(Independent Director)Audit Committee Responsible for auditing all business affairs including the financial status All three members are independent directors.Management Committee Responsible for deliberating and making decisions on general management matters,finance-related issues,and matters delegated by the Board All five members are executive directors.*The Sustainability Committee was established in July 2021 by reorganizing the Gov-ernance Committee under the aim of promoting sustainability management and enhancing shareholder value in ESG-related matters.*Director Han Wha-jin was a member of the Independent Director Recommendation Com-mittee and The Sustainability Committee,but resigned from the BoD on April 20,2022.*Inde pendent director Park Byung-gook was a member of the Compensation Com-mittee,the Sustainability Committee,and the Independent Director Recommenda-tion Committee,but resigned from the Board on May 17,2022.Samsung Electronics Sustainability Report 20226Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix6In order to uphold a fair corporate culture,we post Employees Busi-ness Conduct Guidelines on our intranet system to encourage our employees to practice ethical management in their daily activities.For our partner companies,we post Samsung Electronics Business Guide-lines,which detail prohibited business practices,on the websites they use.Compliance and Ethics ProgramWe are operating an effective Compliance and Ethics Program aimed at promoting compliance and ethical management through the three stages of prevention,monitoring,and response.PreventionWe provide employees with detailed compliance policies and guide-lines via CPMS for reference when performing their tasks.To mini-mize legal risks,we also identify the latest regulatory trends and pro-vide training programs for employees.If employees have questions or require assistance determining the legality of specific matters based on the guidelines,they can seek one-on-one consultation with experts at the help desk on CPMS.Monitoring Compliance and ethics audits are conducted annually by the organi-zational units and staff members in charge.The results are reported to the Board of Directors at least once a year.Whistleblowing chan-nels have been established to facilitate the reporting of legal viola-tions committed by our company or individual employees.We ensure whistleblower confidentiality and protect whistleblowers from dis-criminatory and retaliatory actions.ResponseWe devise ways to prevent recurrences of compliance violations by improving the process based on audit results as well as responses to submitted reports.If any violations are detected,disciplinary and remedial actions are taken pursuant to our internal standards based on the gravity of the specific incident.We also operate compliance and ethics programs along with annual legal risk assessment.We evaluate the effectiveness of our compliance control system,includ-ing compliance and ethics programs,and report the results to the Board of Directors once a year.Compliance and EthicsPrinciples of Compliance and EthicsAt Samsung Electronics,compliance with laws and ethical standards is the top priority among our Business Principles.We disclose our Business Principles to external stakeholders,including partners,cus-tomers,and investors,via our website.S Business Principles To achieve sustainable growth as a leading global company,we con-tinually work to ensure compliance and ethics across all aspects of business.Through our commitment to compliance and ethics,we strive to conduct our business in compliance with laws and ethical standards,and build a sound corporate culture that is free from ille-gal and unfair practices.Management of Compliance and EthicsWe operate the Compliance Team,which directly reports to the CEO,and the Chief Compliance Officer attends all Board meetings and the Management Committees meetings to ensure lawful decision-making.The Compliance Team implemented the Compliance Program Manage-ment System(CPMS),an IT system that enables efficient management of Compliance and Ethics,while also managing potential risks in the focused areas of management(anti-corruption,fair trade,intellectual property rights,privacy protection,labor and human rights,environ-ment and safety,etc.)Focused Areas of ManagementCompliance and Ethics ProgramCompliance and Ethics TrainingWe operate a wide range of compliance and ethics training programs to minimize risk and prevent any illegalities that may occur during everyday business activities.Training for Top ManagementBased on our strong belief that the leadership of top management plays an instrumental role in reinforcing compliance and ethical man-agement,we provide compliance training targeted to our executive management.In June 2021,the Chief Compliance Officer conducted training for the CEOs and top executives on precautions to take while performing their duties.Employee Training on Ethical Standards and Compliance1)We conduct training on ethical standards in various formats for all of our employees at least once a year.Additionally,we conduct annual mandatory compliance training(including anti-corruption training)to highlight our focus on compliance and ethical management.In 2021,we offered job-specific training courses to allow employees to receive training aligned with their specific jobs and tasks.1)Refer to the Ethics training and Compliance training in Facts and Figures section.PreventionResponseMonitoringIntellectual Property RightsAnti-corruptionFair TradePrivacy ProtectionSubcontractingEnvironment and SafetyConsumer ProtectionTradeLabor and Human Rights Providing policies and guidelines Identifying regulatory trends Conducting employee training Responding to inquiries Analyzing and assessing results Establishing recurrence prevention measures Taking appropriate actions for viola-tions Conducting audits Operating whistleblowing channels and Investigating Responding to issuesSamsung Electronics Sustainability Report 20227Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix7Audits and WhistleblowingWe are equipped with organizational units and members dedicated to performing compliance and ethics audits,operating whistleblowing channels,and handling whistleblowing investigations.Compliance and Ethics AuditsWe perform both regular and special audits of ethical standards and compliance on our business sites in Korea and abroad and report the results to the Board of Directors at least once a year.We identify points of improvement based on the results and reflect them in our business activities to ensure company-wide compliance with all rele-vant laws and regulations.In 2021,we monitored our domestic business sites for compliance with the mandates in the Occupational Safety and Health Act and conducted online checks of the operation status of the compliance program at our overseas business sites.We also investigated whether our business sites were in compliance with our external sponsorship and internal transactions review processes built to ensure the pre-vention of risks in relation to corruption and unfair internal trans-action.The results showed that our performance was satisfactory overall,and we implemented remedies in areas deemed capable of further improvement pursuant to our internal standards.Compliance and Ethics WhistleblowingIn addition to the existing in-house whistleblowing channel targeting our employees,we opened a new whistleblowing channel for exter-nal stakeholders on our website(S Ethics&Compliance Management https:/sec-)in 2020.Contact informa-tion including the email address,telephone number,and fax number is posted online to help whistleblowers submit reports easily.We protect the confidentiality of whistleblowers identities and reports based on our internal regulations,and all of our whistleblow-ing channels guarantee anonymity.All reports submitted are handled in accordance with our internal standards for the entire whistleblow-ing process,from reporting to investigation and remedial action.The opening of new whistleblowing channels has led to a steady increase in the number of reports from 2020 onwards.1)We conduct investi-gations on reports to verify their facts and take corrective measures.In 2021,we took disciplinary action against those who violated our internal processes and also against their managers.In accordance with internal guidelines,we discipline those verified to have commit-ted infractions based on the severity of each incident and report the results to the Audit Committee twice a year.1)Refer to the status of Compliance whistleblowing and Ethics whistleblowing in facts and figures section.Major Improvements for Compliance and Ethical ManagementAnti-Corruption Policy and GuidelinesWe provide employees with our revised Global Anti-Corruption and Brib-ery Policy in 2020 to highlight our unwavering commitment to compli-Major Audit Activities in 2021Q1 Q2 Q3Q4 Whistleblowing ChannelsTelephone 1811-6341 1577-7988Fax 031-277-1166 031-200-9966In-house whistleblowing channel CPMSWhistleblowing Ethical Management WhistleblowingWhistleblowing channel for external stakeholders S Ethics&Compliance Managementhttps:/sec-https:/sec-*Some channels are for domestic use only.Email QuarterActivityArea Preface Basic Principles Gifts,Hospitality,and Other Benefits Donations,Contributions,and Sponsorships Third-Party Agents Books and Records Policy ImplementationDetails of the Global Anti-Corruption and Bribery Policy The purpose of this Policy is to offer our employees a clearly defined set of criteria for discerning and preventing corrupt practices.We abide by all anti-corruption laws and policies including the Foreign Corrupt Practices Act of the US,the Improper Solicitation and Graft Act of Korea.Engagement in providing money and valuables in exchange for unfair gains and soliciting public officials for illegal acts or abuse of power is prohibited.Gifts and hospitality provided must conform to all applicable laws and the policies of a recipients organization,serve a legitimate business purpose,and be deemed reasonable in terms of price and frequency.The provision of benefits with any intent for unfair gains or the exercise of leverage is prohibited.Receiving gifts and hospitality,provided by partner companies with the expectation of reciprocity is prohibited.Illegal political donations from our assets are prohibited.Charity donations,contributions,and sponsorships must be made in compliance with our internal process without any intent for unfair gains and/or the exercise of leverage.The use of a third-party agent to evade anti-corruption laws is prohibited.Proper measures shall be taken when a third-party agent violates this Policy and/or relevant laws.All expenses must be recorded in accounting books and related documents and be preserved.Disclosing false information is strictly prohibited.Anti-corruption compliance programs must be operated and continually improved to ensure effective implementation of this Policy.The head of the Corporate Compliance Team is vested with independent authority and responsibility for prevention of corruption and bribery.Compliance with the Occupational Safety and Health ActPrevention of Competitors Trade Secret Piracy RiskOnline Compliance Check of Overseas SubsidiariesExternal Sponsorship Review processInternal Transaction Review processMisuse of Technologies for Patent ApplicationEnvironment and Safety Intellectual Property Rights Compliance Programs Anti-corruptionFair TradeIntellectual Property Rights ance with domestic and international anti-corruption laws and ethical business practices.The Policy and detailed guidelines are posted on CPMS.Samsung Electronics Sustainability Report 20228Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix8Process for Anti-CorruptionWe have strengthened the review process for external sponsorship expenditures in order to prevent potential corruption.The External Sponsorship Council,formed in 2017,conducts prior review of exter-nal sponsorships of KRW 10 million or above,and review results is reported to the Audit Committee.Approval of the Board of Directors is required for external sponsorship of KRW 1 billion or above.In 2020,the Councils operations were strengthened by appointing the Chief Compliance Officer as its chairperson and expanding the review targets to encompass overseas subsidiaries.The anti-cor-ruption review process was also established to conduct a necessary review and attain the Compliance Teams approval prior to vendor registration and contract conclusion.External Sponsorship CouncilExecutive EvaluationAnti-corruption Review for Vendor RegistrationOrganizational Performance EvaluationAnti-corruption Review for Contract ConclusionEmployee AwardsImprovements for Compliance-Oriented CultureTo foster a culture of compliance,we increased the weight of compli-ance-related factors in the executive evaluation in 2020 and added compliance-related factors to the organizational performance eval-uation in 2021 as well.In 2020,we also implemented the SEC Annual Awards,presented by the CEO,which acknowledge the achievements of employee or organization in compliance management.Samsung Compliance CommitteePurpose and CompositionThe Samsung Compliance Committee(the Committee)was launched on February 5,2020 under the aim of practicing integ-rity-based management,which is one of our key values,by rein-forcing compliance monitoring and control over the seven major member companies1)of Samsung Group.The Committee is an external organization with its independence and autonomy guaranteed.It comprises six external members,including the chairperson and one internal member.Lee Chan-hee,a former president of the Korean Bar Association,is currently serving as the second chairperson following the first chairper-son,Kim Ji-hyung,a former justice of the Supreme Court of Korea.The Committees external members are selected from experts equipped with knowledge and experience in diverse fields related to compliance monitoring(law,accounting,economy,public administration,etc.).1)Samsung Electronics,Samsung C&T,Samsung SDI,Samsung Electro-Mechanics,Samsung SDS,Samsung Life Insurance,and Samsung Fire&Marine InsuranceKey Activities of the CommitteeThe Committee communicates with the Chief Compliance Officers of member companies through monthly meetings as well as spe-cial meetings.The Committee reviews reports from member com-panies regarding their external sponsorship and internal trans-actions,and it issues recommendations as an independent body.It also operates separate whistleblowing channels of its own to collect reports about compliance violations of the member com-panies via post,email,and external organizations.The details of its meetings with the member companies and the statements it releases are disclosed on its website.The Committee held a conference with executive management,including the CEOs of the member companies,in January 2021 and met with the labor-management relations advisory group in April and November 2021.The Committee members actively promoted compliance by providing training for the member companies exec-utives in July and August 2021.It also held a seminar with outside experts in January 2022 to discuss the current status and points of improvement of compliance issues.Implementation of the Committees RecommendationsThe Committee delivers recommendations for a range of issues to improve the compliance management practices of member com-panies.We have faithfully crafted and implemented measures to ensure such recommendations are followed.For the recommendation to establish measures to prevent recur-ring labor compliance risks,we formed a labor-management rela-tions advisory group of outside experts under the Board of Direc-tors and realigned all of our labor-related regulations to ensure the protection of the three primary labor rights.Regarding suggestion to enhance communication with civil society organizations,we have engaged in a range of activities to earn greater trust,such as stag-ing a conference between senior members of civil society organiza-tions and our executive management.For the recommendations to include and expand compliance-re-lated items in the evaluations of executives,we updated our inter-nal regulations and increased the weight of compliance-related factors.We also established a quarterly council of the Chief Compli-ance Officers to enable them to discuss ways to reinforce the com-pliance monitoring activities of relevant organizational units at the member companies.We will work in collaboration with the committee to establish an advanced monitoring program and compliance system and care-fully manage the legal risks of the company and the manage-ment,implementing Integrity Management and building trust and respect from the public.Samsung Electronics Sustainability Report 20229Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix9APPROACH TO SUSTAINABILITYBusiness Sustainability 11Sustainability Highlights of Major Products 13Sustainability Achievements 16Recognition&Awards 17Sustainability Governance 18Stakeholder Engagement 19Joining UN Global Compact 20Business Model of Sustainability Management 21Samsung Electronics Sustainability Report 202210Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix10Business SustainabilityDXDevice eXperience DivisionSustainability is a core value and key driver of our operations,and we strive to embed it in every product and service that we offer.We will remain committed to activities that minimize our environmental impact,including the use of recycled materials in all stages of mobile device and home appliance manufacturing processes by 2025.The Samsung Global Goals app introduces our global efforts to meet the 17 Sustainable Development Goals of the United Nations and allows users to donate directly to the goals of their choice Donations raised in 20211)amount to USD 2.69 million1)November 2020 October 2021Samsung Global Goals Galaxy S22 and Tab S8,as well as high-resolution monitors released in 2022,are equipped with parts made with recycled ocean-bound plastic1)1)PET bottles and discarded fishing nets,etc All the Visual Display models2)will use recycled plastic materials in 20222)TVs,monitors,and remote controls.(including outsourced products)Use of Recycled Materials EPS cushions inserted in the box for Visual Display products and plastic used for sub packaging1)are made with recycled materials1)Sub packaging:Accessory bag,PP band,box holder,and stand bag Eco-Packaging,designed to be upcycled as small and versatile household items,has been implemented in all TV products and is scheduled to be expanded to the vacuum cleaners,air purifiers,Bespoke Qooker and moreEco-Packaging SmartThings Energy enables users to monitor total power consumption of their household as well as the power consumption for connected smart home appliances1).It also offers the SmartThings Energy Service2)designed to help reduce energy consumption by using an AI-based smart power saving mode1)Service available in Korea,the US,the UK,India,and Brazil 2)Service available in Korea only*Total power consumption monitoring service is available only for those households connected to a smart meter.SmartThings Energy Through a collaboration with renowned active wear brand Patagonia,Samsung is developing a specialized washer that reduces the release of microplastics,particles that are highly damaging to the worlds oceans and our healthReducing the Release of Microplastics We developed SolarCell Remote Control that can be charged via sunlight or illumination without the need for disposable batteries.Recycled materials are used in the exterior of the remote control(for QLED TV from 2021,expanded to air conditioners in 2022)We plan to replace the lithium-ion battery with a supercapacitor,which emits less GHGs,and use this remote control for all smart TV products in 2022 SolarCell Remote Control Galaxy Upcycling at home program:A recycled smartphone can be repurposed into a sound sensor,illumination sensor,and notification sender for your cur-rent smartphone via the SmartThings app Digital vision tester(EYELIKE):This device is designed to diagnose various eye disorders that may lead to loss of vision using a used Galaxy smartphone.Devices are provided to developing countries such as Vietnam,India,Morocco,and Papua New GuineaGalaxy Upcycling To reduce home appliance waste,we began to provide lifetime warranties for the key parts(digital inverter motor/compressor)of new products released in Korea from 2021 Plan to provide 20-year warranty of digital inverter motor and digital inverter compressor for washers sold in the US(for washers made in the US)and refrigerators and washers sold in Europe(From the 2nd Half of 2022)Lifetime Warranty for Key PartsImage of Lifetime Warranty for Key PartsSamsung Electronics Sustainability Report 202211Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix11Business SustainabilityDSDevice Solutions DivisionWe strive to enhance the energy efficiency of major semiconductor products,including memory devices,image sensors,and driver ICs,to reduce the power consumption of data centers and IT devices such as smartphones and laptops.Reducing GHG emissions by 6.03 million tonnes in the manufacturing process -Reducing GHG emissions by 3.03 million tonnes through improving flue gas treatment,change to alternative gases and reducing fuel consumption -Reducing GHG emissions by 480,000 tonnes by using high-efficiency equipment and parts,and by managing equipment power systems -Reducing GHG emissions by 2.52 million tonnes by using renewable energy Eco-conscious performance in the semiconductor manufacturing process -Managing water resources to save 6,857 tonnes of water per day and reducing sulfate ion concentration -Reducing and recycling waste Eco-Conscious Manufacturing Process Reduce the power consumption of LED products-Improve luminance efficiency of the lighting LED package(LM301B)device by 2ch year -Improve luminance efficiency of the vehicle head lamp LED solution(C-series)device by 3ch year Energy Consumption Reduction 24 products of strategic importance have attained the Carbon Trusts product carbon footprint in 2021 Certification and AwardProduct carbon footprint labeling20191 UFS20208 DRAM/SSD/memory cards20214 system semiconductors and 20 DRAM/SSD/memory cardsWe have attained low-carbon product certification from the Korea Environmental Industry and Technology Institute(KEITI)and the Reducing CO2 Label by the Carbon Trust.-Low-carbon product certification by KEITI:Portable SSD T7(1TB)-Reducing CO2 Label by the Carbon Trust:HBM2E(8GB),GDDR6(8Gb),UFS 3.1(512GB),Portable SSD T7(1TB),and Micro-SD EVO Select(128GB)*Lower Carbon Label:Certification for a product that has already attained the Carbon Footprint Label or for its follow-up product found to have reduced GHG emissions across all life cycle stages Attained global certifications for the information security management of our foundry business -Security certification ISO 27001(Information security management)-Common Criteria of the German Federal Office for Information Security(Bundesamt fr Sicherheit in der Informationstechnik)Gained global recognition for LED products -User-centric lighting1):Winner at the CES 2021 Innovation Awards in the Health and Wellness category -Plant cultivator lighting2):Included in the 2021 IES3)Progress Report1)Lighting technology that positively impacts biological rhythms by influencing melatonin levels2)Technology emitting light in wavelengths that promote plant growth3)Illuminating Engineering Society,a not-for-profit organization that develops standards related to lighting Implementing semiconductor products with lower energy consumption through the commercialization of an ultra-fine foundry process-Reduce power consumption by nearly 50%compared to the 5nm process by applying gate-all-around technology1)to the 3nm process Enhance the System on Chip(SoC)design and applying fan-out wafer-level packaging2)Reduce Large-cale Integration(LSI)power consumption by securing IPs that reinforce its power competitiveness 1)Gate-all-around refers to a modified transistor structure where the gate contacts the channel from all sides and enables continued scaling.2)Fan-out wafer-level packaging is an integrated circuit packaging technology that carries out redistribution first and then dices the wafer.In this process,the surface area of redistribution is larger than the chip.3 memory products won the CES 2022 Innovation Awards -PCIe 5.0 SSD PM1743,512GB DDR5 RDIMM,and ZNS NVMe SSDSamsung Electronics Sustainability Report 202212Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix12Sustainability Highlights of Major Products Intelligent energy-saving function(automatic screen-off and power-off using the light sensor and motion sensor)SolarCell Remote made with recycled plastics Applied Eco-Packaging and recycled EPS1)Carbon Trusts Reducing CO2 certification 1)Expandable polystyrene(Styrofoam)TV(Neo QLED 8K TV/QN900B)Best-in-industry lamp efficiency with vehicle energy consumption reduced by over 10%Reduced vehicle energy consumption,improved fuel efficiency,and reduced carbon emissions First to be third party-certified by UL1)for Carbon Footprint in the LED parts industry1)Underwriters Laboratories Vehicle Headlamp Solution(C-Series Gen3)Recycled fishing nets used for the key brackets and interior of S22 Ultra S Pen PCM1)plastic applied to the speaker modules and interior of the volume key Eco-Packaging(made 100%with recycled paper and minimize the use of plastic)Carbon Trusts product carbon footprint label1)Post-consumer materials created from recycled plasticsSmartphone(Galaxy S22 Series)Energy-saving function applied(Eco-saving plus)Grade-A energy efficiency rating(ErP1)Recycled ocean-bound plastics used in the back cover of the product ENERGY STAR,EPEAT2)(bronze),and TCO Certified3)certification Applied Eco-Packaging Carbon Trusts Reducing CO2 certification1)Energy-Related Products Directive of the EU 2)Electronic Product Environmental Assessment Tool of the US3)Sustainability certification created by Swedish Confederation of Professional EmployeesMonitor(ViewFinity S8/S80PB)2.7 times higher output and 55%less energy consumption for maximum output compared to the first generation Product size reduced by 14%and product weight by 24%compared to the first generation,thereby saving more resourcesSecond Generation Massive MIMO Radio Fastest speed(8.5Gbps)among all our existing mobile DRAM solutions(1.3 times faster than LPDDR5 running at 6.4Gbps)Energy efficiency improved by 20%compared to the previous generationMobile DRAM Solution(LPDDR5X)Samsung Electronics Sustainability Report 202213Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix13 Dynamic Peaking technology applied to realize the highest display brightness with lower energy consumption (maximum brightness:1,600nit)Applied Eco-Packaging Carbon Trusts Reducing CO2 certificationLED Signage(The Wall/LH012IWA)Recycled fishing nets used in the interior of the brackets and touchpad holder of Galaxy Book2 Pro 360 New algorithm applied to extend the life cycle of the battery,reduce standby power,thereby decreasing the need for battery replacement Eco-conscious AMOLED display(ULs GREENGUARD Gold Certification)Note PC(Galaxy Book 2 Pro)Worlds first solution with a plant-exclusive spectrum(437nm),boasting 6%higher PPFD1)50%more nutrients and 20%less microorganisms in plants compared to the previous generation Showcased in the 2021 IES Progress Report1)Photosynthetic photon flux densityLight Solution for the Smart Plant Grower(LM301H EVO)Productivity improved by 20%compared to the previous generation based on its best-in-industry wafer level integration Power consumption reduced by nearly 20%and speed increased two-fold(7.2Gbps)compared to the previous generationDRAM(14nm EUV DDR5)First-grade energy efficiency rating1)High-efficiency heat pump Energy consumption monitoring and AI-based energy-saving mode(SmartThings Energy)AI-based tailored drying function applied to enable the optimization of the temperature and cycle time using 11 sensors1)A classification of the energy use or energy consumption efficiency of home appliances in KoreaBESPOKE Grande AI Dryer(DV20B9760NE)First-grade energy efficiency rating Water filtration system certified by National Sanitation Foundation(NSF)1)for its microplastics removal capacity Energy consumption monitoring and AI-based energy-saving mode(SmartThings Energy)1)Certification obtained pursuant to NSF/ANSI 42,53,and 401 Filtration Systems Standards and NSF/ANSI/CAN 372 Technical RequirementsBESPOKE Refrigerator Infinite Line(RR40B9981APG)Sustainability Highlights of Major ProductsSamsung Electronics Sustainability Report 202214Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix14Sustainability Highlights of Major Products Recycled materials used in the back cover of the product ENERGY STAR and EPEAT(bronze)certification Applied Eco-Packaging Carbon Trusts Reducing CO2 certificationSignage(Crystal UHD Signage/QH55B)First-grade energy efficiency rating Eco-conscious refrigerant(R32)Energy consumption monitoring and AI-based energy-saving mode(SmartThings Energy)SolarCell RemoteWind-Free Air Conditioner(AF20BX934WAN)Lower energy consumption realized through the integration of the DTV SoC and image processor Carbon Trusts product carbon footprint label 1)Digital TV8K DTV1)SoC First-grade energy efficiency rating Eco BubbleTM Technology(high energy efficiency,reduced cycle times,and minimized damage to cloth)AI-based tailored wash technology that automatically dispenses detergent in preset amounts in accordance with cloth type,weight,and soil and stain level Energy consumption monitoring and AI-based energy-saving mode(SmartThings Energy)“No-detergent wash drum cleaning ”cycle added to enable the cleaning of the wash drum and door frame without detergentBESPOKE Grande AI Washer(WF24B9600NE)Premium 5G modem SoC2)5nm EUV(energy consumption reduced up to 20%of 7nm EUV)Reinforced CPU3),GPU4),and NPU5)Carbon Trusts product carbon footprint label1)Application Processor 2)System on Chip3)Central Processing Unit4)Graphic Processing Unit5)Neural Processing UnitMobile AP1)(Exynos 2100)Samsung Electronics Sustainability Report 202215Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix15EnvironmentSustainability Achievements Use of Renewable Energy 5,278GWh*31%increase compared to the previous yearEHS management system at our production sites 100rtified Recycling 96%Collection 5.07*Cumulative sum,2009-2021Recognition of Our Efforts to Respect Human Rights Ranked 1st Digital ResponsibilityHours of employees volunteer work9,903,186hours*Cumulative sum,2012-2021Number of beneficiaries of our CSR activities22,150,865people*Cumulative sum,2012-2021Number of companies adopting Smart Factories 2,812companies*Cumulative sum,2015-2021Suppliers rated outstanding in the comprehensive supplier evaluation68%*The comprehensive competitiveness of our suppliers is evaluated each year.All smelters and refiners in our supply chain100%RMAP certified1)Responsible Minerals Assurance ProcessCases of internal consulting on privacy protection 9.7%4th*Digital Inclusion Benchmark conducted by the World Benchmarking Alliance.2021 Digital Inclusion BenchmarkSustainable Supply ChainOur EmployeesEmpowering Communitiesmillion tonnes of discarded electronic goodsof manufacturing wasteincrease compared to the previous year(ICT sector)among companies benchmarked by Global Child Forum(electronics sector)ISO 450011)certified Safety and Health Certification at our production sites100%1)International standard for occupational health and safety management systemsSamsung Electronics Sustainability Report 202216Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix16Recognition and AwardsRankingsCommon Criteria Certification1)for 5G Solutions 1)Global security certificationProduct Carbon Footprint Label by the Carbon Trust 11 TV models,3 monitor,and 2 signage 10 smartphone models including Galaxy S22 Ultra and 4 tablet models 4 system semiconductors 20 memory semiconductors UL Gold Certification Galaxy S22,S22 ,S22 Ultra and 16 other modelsElectronic Product Environmental Assessment Tool Certification(US)6 TV models including BE75T-H,14 Signage models including LH43QMBEBGCXZA,90 Monitor models including S27A400UJN,Note PC NP930QDBA,etc.CertificationsLower Carbon Label by the Carbon Trust Galaxy S21,S21 ,and S21 Ultra 13 TV models,3 monitor,and 2 signage 5 memory semiconductors)Carbon Trust Triple Standard All semiconductor business sites certified for reduced impacts related to carbon,water,and wastea first for any manufacturer in the industry.4 LED Package Products,Underwriters Laboratories(UL)Certification CES 2022 Innovation Awards Selected as the highest rated winner (4 products)Selected as the winner(39 products)2021 Sustainable Materials Management Electronics Challenge by the United States Environmental Protection Agency Sustained Excellence for SolarCell Remote Gold Tier for excellence in the responsible collection and recycling of electronic wasteNational Quality Management Awards by the Korean Ministry of Trade,Industry and Energy Presidential Citation Foundry Business for securing unmatched quality enessNational Technology Awards by the Korean Ministry of Trade,Industry and Energy Presidential Prize Foundry Business for developing processing technology for 14nm RF and succeeding in the worlds first mass-productionAwardsEnergy Winners of the Year by Consumers Korea 8 prizes including Grand Prize and Minister of Trade,Industry and Energy Prize Health-Friendly Company Certification by the Korean Ministry of Health and Welfare Minister of Health and Welfare Prize Certified for the operation of tailored healthcare programs,in-house clinics,the Musculoskeletal Disorder Prevention Exercise Center,healthcare-themed concerts,etc.ENERGY STAR Awards,US EPA Partner of the year awards for environmental protection Honored with sustained Excellence nine timesIDEA 2021(48 products)5th in Best Global Brands 2021(USD 74.6 billion,20%increase from previous year)1st in Worlds Best Employers for two consecutive years in 2020 and 2021Win-Win Index by Korea Commission for Corporate Partnership under the Korean Ministry of SMEs and Startups Rated outstanding for 10 consecutive yearsSamsung Electronics Sustainability Report 202217Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix17iF Design Award 2021(71 products)Sustainability Governance We strive to achieve sustainability governance through the establishment of company-wide governance system including the Board of Directors and Sustainability Management Office in each business unit.The Board oversees our sustainability activities as the overarching decision-making body.The Sustainability Committee under the Board was established in July 2021 by expanding the role of the existing Governance Committee to push ahead with various ESG activities and increase shareholder value.The Sustainability Council brings together heads of business units and functional teams responsible for a wide range of sustainability issues.The Council,previously led by the head of the Corporate Management Office,has been placed under the direct supervision of the CEO since 2022.As the sustainability management control tower,the Corporate Sus-tainability Center is responsible for establishing overall strategies for sustainability,monitoring relevant outcomes,and facilitating external cooperation and communication through collaboration with related departments and councils.The Sustainability Management Office of each business establishes sustainability strategies tailored to its operations and characteristics,and supports their execution.Sustain-ability Management Offices outside of headquarters identify regional issues that concern our stakeholders and establish and implement strategies accordingly.Sustainability training is offered to employees and executives to integrate ESG principles into their day-to-day tasks.Since 2021,we have included sustainability-related items in our per-formance evaluation system for executives and business units to ensure adherence to sustainable practices.We plan to continually update our evaluation and compensation system.Monitoring overall sustainability direction and performance Key agenda:Environmental issues such as climate change and circular economy,social contribution,labor and human rights,safety and health,ethics,and compliance Held at least every 6 monthsBoard of Directors Reviewing sustainability issues with those in charge of sustainability in different business areas*Agenda items discussed by the Sustainability Council and the results reported to the Board and Sustainability Committee Headed by the CEO Held at least every 6 months ParticipantsCorporate Management Corporate Sustainability Center,Corporate Human Resource Team,Corporate Management Team,Partner Collaboration Center,Global EHS Center,Global CS Center,Compliance Team,IR Team,Global Marketing Center,Communication Team,Mechatronics and Manufacturing Technology Center,and Corporate Citizenship Office,etc.Business Units Heads of major business units and the Sustainability Management OfficeThe Sustainability CouncilDepartments Dedicated to Sustainability Corporate Sustainability Center Sustainability Management Office of the DS Division Sustainability Management Office of major business unit(VD,DA,MX,Memory,Foundry,etc.)Sustainability Management Functions at regional offices Councils by Category Environment Environment Management Task Force,EHS Council,Eco Council Digital Responsibility Security and Privacy Protection Council,AI Ethics Council,Accessibility Council Employees Labor and Human Rights CouncilDedicated Departments&CouncilsSamsung Electronics Sustainability Report 202218Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix18Stakeholder Engagement Engagement with our stakeholders is essential for us to fulfill our responsibilities as a responsible global company.We strive to build a cooperative relationship and enhance mutual understanding in sustainability topics with our stakeholders through various activities such as multi-stakeholder forums,surveys,and on-site visits.StakeholdersMajor ConcernsCommunication ChannelsMajor ActivitiesCustomers Product and service quality Product safety Product information accuracy Communication transparency Customer satisfaction surveys Contact centers and service centers Samsung Newsroom Samsung Semiconstory Young Samsung Community Reinforcement of quality and safety management systems Establishment of country-specific websites to share product information Identification and resolution of customers needs Stable profit generation Enhancement of shareholder return policies Reinforcement of transparency in external sponsorshipsShareholders and Investors Economic outcomes Risk management Information-sharing Sustainability agenda (Environment,Social,Governance,etc.)IR meetings and roadshows General shareholders meetings One-on-one meetings Analyst Day Investor ESG roadshows Mentoring by Millennial and Gen Z employees for executive management Management of workplace environments Cultivation of a corporate culture that promotes creativity Operation of a career design program tailored to individual stages Organization of townhall meetings(business status presentations by individual divisions,etc.)Employees Working environment safety Diversity and inclusion Training and career development Employment security and welfare Labor-management relations Labor unions and labor-management councils Counseling centers Satisfaction surveys Internal communication channels Whistleblowing systems (compliance and ethics)Promotion of fair transactions and shared growth Support for partner companies innovative initiatives Staging of technology transfer fairs Operation of partner company support funds Management of partner companies working environmentsSuppliers Fair transactions Shared growth Labor and human rights of workers Hotline,online whistleblowing systems,etc.Conferences with partner companies Partner Collaboration Day Shared Growth Academy Supplier Consulting Group Support for SMEs for establishing smart factories,etc.Preservation of river ecosystems near our business sites Promotion of CSR programs regarding training and employmentLocal Communities Recruitment of local jobseekers,revitalization of the local economy,etc.Indirect economic effects Environmental conservation for local communities Community outreach through donations,volunteer work,etc.Local volunteer centers Local community councils Collection of opinions and suggestions from global NGOs RBA,and BSR activities EPRM and RMI activitiesNGOs,Organizations,and Expert Institutions Social responsibility for local communities and the environment Contributions to UN SDGs Joining UN Global Compact Transparent and prompt information disclosure Corporate conferences Meetings with NGOs Meetings with civil society groups Operation of programs to support SMEs in collaboration with the government Operation of venture investment counters in collaboration with the governmentGovernment Indirect economic effects Fair transactions Occupational health and safety Compliance Policy conferences National Assembly meetings Policy advisory bodiesMedia Support for news coverage activities PR Planning Staging of Media Day Transparent and prompt information disclosure Press releases Samsung Newsroom Press InterviewSamsung Electronics Sustainability Report 202219Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix19Joining UN Global Compact(UNGC)We joined the United Nations Global Compact,a global initiative to encourage businesses to align their operations and strategies with universal sustainability principles,in March 2022.By joining the UN Global Compact,we expressed our commitment to embedding its principles in all aspects of our management and corporate culture and expanding our cooperation with global stakeholders,including the United Nations.As a global corporate citizen,we remain committed to sustainability and take shared responsi-bility to preserve the environment and build an inclusive world in partnership with stakeholders.United Nations Global Compact(UNGC)The United Nations Global Compact is a non-binding initiative that encourages its participants to incorporate universal sustainability principles on human rights,labor,environment,and anti-corruption into their business operations and strategies.It is joined by over 19,000 members(including 15,000 corporate members)from 164 countries.10Businesses should work against corruption in all its forms,including extortion and bribery.07Businesses should support a precautionary approach to environmental challenges;08Businesses should undertake initiatives to promote greater environmental responsibility;and09Businesses should encourage the development and diffusion of environmentally friendly technologies.01Businesses should support and respect the protection of internationally proclaimed human rights;and02Businesses should make sure make sure that they are not complicit in human rights abuses.03Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;04Businesses should seek the elimination of all forms of forced and compulsory labor;05Businesses should seek the effective abolition of child labor;and06Businesses should seek the elimination of discrimination in respect of employment and occupation.INTERVIEW“Samsung Electronics is a very respected player within the RBA Community,and has grown its visibility within RBA a lot as an active member company.Samsung has improved its commitment regarding key sustainability topics,and the company is committed to supporting suppliers.Next step for Samsung may be to scale its efforts to support sup-pliers with their due diligence practices and systems.”-Bart Devos,Senior Director of Public Policy,Responsible Business Alliance-“Samsung Electronics has a strong involvement in educating the future generation of leaders.Initiatives like Solve for Tomorrow stimulate youths potential for innovative thinking and responsible attitude and through this,create the foundation for more sustainable communities whose members are able to act for the common good.”-Alice Dutu,Deputy CEO,Junior Achievement Romania-“Our work together on the Climate Superstar Challenge demonstrates Samsungs commitment to encouraging sus-tainability in the next generation.The Challenge presents fun and educational activities that help middle school stu-dents understand where their energy comes from and how it can affect the environment.Samsungs support of the Climate Superstars Challenge is a great example of a strong commitment to educating students in meaningful and unique ways.”-Meri-Margaret Deoudes,President&CEO,National Environmental Education Foundation(NEEF)-“Samsung Electronics Sustainability Management program has made great strides during the past few years.In the US,the program started with a solid foundation on electronics recycling and has steadily expanded recently into an industry-leading consumer self-repair initiative and groundbreaking partnerships like the one announced with Patagonia at CES 2022.Samsung Electronics also provides industry leadership at CTA on sustainability initiatives,including chairing CTAs Environmental Policy Committee from 2019-2021.”-Walter Alcorn,VP,Environmental Affairs and Industry Sustainability/Consumer Technology Association-Samsung Electronics Sustainability Report 202220Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix20Business Model of Sustainability ManagementWe introduced the integrated reporting framework to more effectively communicate the tangible and intangible values created by our business operations to our stakeholders.This framework clas-sifies all injected capital as financial capital,manufacturing capital,social and relationship capital,human capital,intellectual capital,or natural capital and defines how these six forms of capital work to raise stakeholder value through our organization consisting of two divisions and our five ESG pillars.Human Capital Employee satisfaction:90 point Ratio of female employees:36.3%Number of employees with disabilities:1,574 persons Number of employees training:8.18 million casesHuman Capital Number of employees:266,673 Costs of employee training:13.21 KRW million Hours of training per employee:54.9Intellectual Capital Number of domestic patents(cumulative sum):47,900 Number of overseas patents(cumulative sum):216,404Intellectual Capital R&D workforce:75,229 persons Costs of R&D:22.4 KRW trillionNatural Capital GHG emissions reduction:17,400 thousand tonnes CO2e Rate of product energy consumption reduction:33%Rate of conversion of waste to resources:96%Amount of recycled plastic used:33,319 tonnes Amount of recycled packaging:13,788 tonnes Number of leakage of substantial harmful chemicals:0Natural Capital Energy consumption:33,755 GWh Total water intake:163,660 thousand tonnes Investments in EHS management:1.4 KRW trillionInputBusiness ActivitiesDivisions and BusinessesESG PillarsStakeholdersOutput Sales:279.6 KRW trillion Operating profit:51.6 KRW trillion Net income:39.9 KRW trillion Credit rating:Moodys:Aa3,S&P:AA-Financial Capital Equity:304.9 KRW trillion Liabilities:121.7 KRW trillion Tangible asset:149.9 KRW trillionFinancial Capital Actual output:Image Devices 44,133 thousand units,HHP 260,501 thousand units,DS(Memory)1,7 trillion units Operating rate:Image Devices 81.4%,HHP 81.5%,DS(Memory)100%Manufacturing Capital Production capacity:Image Devices 54,235 thousand units,HHP 319,550 thousand units,DS(Memory)1,756,009,941 thousand units Production Sites:32Manufacturing Capital Employees of suppliers who received training:18,725 Rate of suppliers rated outstanding in the comprehensive evaluation:68%Number of beneficiaries of CSR activities:536,770 Number of beneficiaries of smart factory support:286Social and Relationship Capital CSR costs:0.4 KRW trillion Purchasing costs for suppliers:192 KRW trillion Hours of employee volunteer work:824,329Social and Relationship CapitalGovernmentCustomersEnvironmentClimate Action,Circular EconomyEmpowering CommunitiesCorporate Citizenship,support for SMEsDigital ResponsibilityPrivacy Protection,Cyber SecurityOur EmployeesLabor and Human Rights,Diversity and InclusionSustainable Supply ChainSupply Chain Driving Mutual GrowthLocal communitiesNGOs,Associations andExpert organizationsShareholders and investorsSuppliersEmployeesPeopleExcellenceChangeIntegrityCo-prosperityMediaDSDRAM,NAND flash,mobile AP,etc.DXTVs,monitors,refrigerators,washers,air conditioners,HHPs,PCs,Network Systems,etc.Samsung Electronics Sustainability Report 202221Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix21ENVIRONMENTBased on our strong conviction that the future hinges on the wellbeing of the planet,we take an environmentally conscious approach to business.This approach is reflected in our commit-ment to advancing the co-prosperity of humanity and nature and building a brighter future for the planet.Our commitment is the driving force behind our continued pursuit of sustainability in everything we do.Environmental Management 23 Governance Climate Action 25Maximizing Resource Circularity 325.07 million tonnes7.5 million tonnesCollected E-WasteCollected E-WasteAcquire Zero Waste to Landfill Certification for All Manufacturing Sites96%recycledWaste from Manufacturing SitesContinue to reduce power consumption standby for major products334million tonnes(cumulative 2009 2021)Reduction in GHG Emissions in the Product Use PhaseContinue to reduce GHG Emissions6.41million tonnes GHG ReductionContinue to expand use of renewable energy5,278GWh*31%increase YoYRenewable Energy UsePerformance in 2021Future Targets(cumulative from 2009)(cumulative from 2009)Samsung Electronics Sustainability Report 202222Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix22We are in the process of establishing a mid-to-long-term envi-ronment strategy to address global challenges on climate and environment that cuts across every aspect of our business.We look forward to sharing this plan as soon as possible.We strive to address environmental challenges and minimize our impact on the environment from our business.Climate change,product energy efficiency,water resources,and waste management are the issues that directly affect our operations and financial performance.We report these issues to the Board of Directors,our overarching decision-making body.The Board oversees the imple-mentation of our climate actions and resource circulation measures.The CEO holds the responsibility and authority to ensure that our environmental strategy and investments are implemented in a man-ner that achieves our environmental goals.The CEO,together with other chief officers,leads the Sustainability Council.The council,which consists of environment-related executives,works to establish sustainability-related plans and review their outcomes.Semiconductor Environmental Performance Index(SEPI)As semiconductors are being implemented in a growing number of prod-ucts,achieving eco-conscious semiconductor manufacturing has become a major issue with far-reaching impacts on many industries around the world.To transparently share our performance and practices,we devel-oped environmental management guidelines tailored to the traits of the semiconductor industry and the Semiconductor Environmental Perfor-mance Index(SEPI),our internal semiconductor-related environmental management index disclosed on our website.Consisting of 32 indicators within six themes,SEPI is used to evaluate outcomes in four categories:contributions to eco-conscious semiconductor manufacturing,environ-mental management of partner companies,environmental performance of individual business sites,and environmental benefits for users.We aim to more accurately and efficiently communicate with diverse stakeholders by disclosing our performance systematically assessed through SEPI.1)Semiconductor Environmental Performance IndexCASESets company-wide climate change response strategies and goals,identifies major risks and opportunities,and makes decisions on relevant agenda itemsDiscusses company-wide climate change response strategies and goals,major risks and opportunities,and implementation performanceSupervises and monitors each business sites climate actions and efforts to mitigate GHG emissionsSeeks ways to facilitate the development of eco-conscious productsEHS Councils (DS/DX divisions)Eco-CouncilOutlines tasks for for climate actions&resource circulation and monitors their implementation Environment Management Task ForceSustainability CommitteeSustainability CouncilCorporate Environment Management CouncilThe Environment Management Task Force outlines the tasks required to accomplish such plans and monitors their implementation.Each division operates the EHS Council to monitor its business sites and find solutions to their environmental challenges,including issues result-ing from climate change.The Eco-Council seeks ways to facilitate the development of eco-conscious products and monitors the results.The Global EHS Center,Global CS Center,and Environment and Safety Center are also in place to help business sites mitigate GHG emissions and reduce the environmental footprint of our products.Management SystemsOur business sites are required to meet international standards for environmental management and energy management systems.As of 2021,all of our business sites have attained ISO 14001(environ-mental management system)and ISO 50001(energy management system)certifications and implemented strategies and tasks within these frameworks across all stages of operations,from purchasing to development,manufacturing,distribution,and recycling.We also include GHG mitigation levels and other environmental indi-cators in the performance assessment of each division and business.In order to raise our employees awareness on the importance of eco-conscious management and eliminate environmental risks,we conduct environmental training for all employees at least once a year as well as special job-specific training.Risk ManagementRisks and opportunities related to climate change,waste genera-tion,water resources,and other environmental factors have a serious impact on our products,services,manufacturing processes,supply chains,R&D,and sales.We closely monitor our business sites around the world to identify potential risks pursuant to our risk management processes and manuals for environment and safety,climate change and energy,and compliance.At the same time,we strive to develop products with high energy efficiency,reduce GHG emissions from our manufacturing sites,mini-mize landfill waste,and preserve water resources.The SEPI 5 principlesAssess progress of environmentalmanagement areasFrom systems to the whole value chainLow-power,high-performancesemiconductor supplySustainability reports,annual reports,etc.Greenhouse gases,industrial water,wasteand chemicalsTechnological standard and PFC emissionsAssess the mainenvironmental factorsAssess contribution tocleantechDevelop acharacteristics indexConsult disclosedannual dataEnvironmental Management GovernanceSamsung Electronics Sustainability Report 202223Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix23Planning products with lower energy consumptionClimate actionDesigning products that more easily disassemble for recycling/Extending product life cycles/Expanding the use of eco-conscious materialsResource circularityEco-Conscious Activities along the Value Chain We have pushed ahead with diverse environmental initiatives at different stages of the value chain to minimize our environmental footprint across the entire product life cycle,from development to purchasing,manufacturing,distribution,use,and disposal.Improvement plans and tasks for these priorities are established for climate action and resource circularity,the two areas requiring extensive concerted efforts at the global level.Their implementation status is closely monitored on a continuous basis.Product DevelopmentExpanding renewable energy use/Reduction of GHG emission in the manufacturing processMinimizing water consump-tion and expanding water reuse /Minimizing waste generation and expanding recycling/Developing alter-natives for chemical sub-stancesManufacturingReducing energy consump-tion and GHG emissions through logistics optimiz-ationApplying eco-conscious materials(recycled paper,etc.)to packaging/Reduc-ing the volume and weight of packagingDistributionReducing indirect GHG emissions through products with high energy efficiencyImproving product perfor-mance/Upgrading firmware/Offering extended product warrantiesUseIncreasing the number of repair service centers around the world/Offering opportu-nities to extend product life cycles through remote and expert diagnosis servicesRepair and ReuseMonitoring GHG emissions during product disposal.Operating country-specific programs to collect discarded products/Separating recy-clables by material for recy-clingTake-Back and RecyclingSupporting suppliers in Reducing GHG emissions and expanding renewable energy use Purchasing materials and parts with less environmen-tal impact/Working with companies with Eco-Partner certificationProcurementENVIRONMENTProduct DevelopmentRepair and ReuseUseDistributionTake-Back and RecyclingProcurementManufacturingDelivery of repair products using eco-conscious trans-portationSamsung Electronics Sustainability Report 202224Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix24Climate Action Our Response to Climate ChangeClimate change is one of the most serious threats facing human-ity and a challenge that significantly affects our business.As such we have set up a climate change response strategy centered on the expansion of renewable energy use,reduction of gases used in semiconductor manufacturing,and improvement of energy efficiency across the entire manufacturing process.We are also moving forward with a wide range of programs to mitigate GHG emissions in all stages of our value chain,from product development to manufacturing and logistics.The GHGs emitted outside our business sites,as well as those emitted directly by our business sites,are subject to such programs.GHG ManagementWe closely monitor the GHGs generated at all of our business sites around the world.We require each business site to enter GHG data in relation to electricity use,fossil fuel use,and gas use in semiconductor manufacturing into the EHS System.This allows us to identify and analyze the causes of fluctuations in GHG levels at individual sites on a monthly basis.The organizational unit in charge keeps GHG emissions from domestic and overseas sites under control based on the findings of the analysis.The credibility and alignment of the data are verified through the annual third-party audit.Climate Change Risks and OpportunitiesWe identify the substantive financial and strategic impacts of climate change risks,establish response measures in accordance with the magnitude and extent of such impacts,and reflect them in our business.These risks include changes in the global climate system,region-specific regulatory reinforcement,market trends,stakeholder needs,the changing physical environment,and more.In the short term,we view emissions permit price increases,extreme weather events,and the requirement to introduce high-efficiency technologies as potential risks,and emissions permit purchasing and reduced energy costs as opportunities.We project changing consumption patterns and expanded renewable energy use as mid-term opportunities and the physical impacts such as climate change and water stress as long-term risks.We establish response measures for long-term risks based on the country-specific emissions mitigation plans pursuant to the Paris Agreement,emissions scenarios of the Intergovernmental Panel on Climate Change(IPCC),and Energy Technology Perspectives of the International Energy Agency(IEA).Our Response to Climate Change by StageGHG emissions reduction at business sites Operating equipment for the abatement of fluorinated gases in semiconductor manufacturing Implementing projects to improve energy efficiency through-out the manufacturing process Expanding the use of renewable energyGHG emissions reduction in other value chain stages Controlling GHG emissions from suppliers,logistics compa-nies,business trips of employees,etc.GHG emissions reduction in the stage of product use Mitigating GHG emissions from product use through the development of products with high energy efficiency Developing low-energy semiconductors with power efficiency improved by over 10%compared to the previous generation EHS,marketing,sales,and compliance organizational units regularly assess risks in relation to business operations,product planning,and external trends based on ISO 14001,ISO 50001,and other international standards for energy management systems.Identification and Assessment of Risks Energy consumption,GHG emissions,renewable energy use,and impacts of climate change are monitored by organizational units dedicated to EHS.Relevant issues affecting global business sites are discussed and managed by regularly convened councils such as the EHS Council.The Sustainability Council discusses and makes necessary decisions regarding climate change risks and opportunities.The Eco-Council examines business opportunities,shares the results with relevant businesses and organizational units,and implements action plans.Management of Risks and Opportunities Climate change-related regulatory risks are managed through the compa-ny-wide risk management system in an integrated manner.Risks include region-specific risks and global regulatory and market changes that may adversely affect our business and reputation.Integration of Climate Risks and Opportunities into theCompany-Wide Risk Management ProcessClimate Change Risk Management ProcessGHG emissions reduction based on cooperation with external partners Securing emissions permits through carbon reduction projects with external partners,such as the Clean Development Mech-anism(CDM)Samsung Electronics Sustainability Report 202225Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix25 GHG emissions trading Adoption of high-efficiency technologies Changes in customer behavior Expansion of renewable energy use Natural disasters such as typhoons and floods Global temperature rise and yellow dustTransition risks and opportunitiesPhysical risks and opportunitiesShort-termShort-termMid-termMid-termShort-termLong-termCDP Report(Climate Change)Annual Business Report Risks and Opportunity AnalysisBusiness impacts Probability of occurrence534216 Increased costs due to the rise in GHG emissions permit prices and reinforced pollutant discharge regulations*Refer to the Annual Business Report.Increased investment in high-efficiency equipment,GHG emissions reduction equipment,and water resource recycling equipment Increased R&D investment to develop advanced emissions reduction technologies Increased costs for attaining high-efficiency and eco-conscious product certifications Reduced sales of products with low energy efficiency ratings Increased R&D costs for high-efficiency and eco-conscious products Increased production costs due to the rise in short-term energy costs Reduced B2B sales due to customer demand for renewable energy use Increased investment costs for the installation of environmental/safety/emergency facilities for natural disaster prevention Increased costs for business restoration and lost busi-ness opportunities in the event of a natural disaster Increased business site operating costs due to cooling and heating device installation,etc.Increased investment costs for air pollution prevention equipment installationFinancial Impacts of Climate Change Risks Purchase of permits minimized through GHG emissions reduction activities Easing of price sensitivity by attaining permits through projects in cooperation with outside partners Reduction of GHG emissions and energy costs of business sites Creation of business opportunities such as energy management systems Release of high-efficiency and eco-conscious products Leading to increased sales and brand awareness Energy cost reduction by sourcing renewable energy and participation in renewable power generation projects Decreased insurance costs through investment in natural disaster response facilities New business opportunities such as the launch of the National Disaster and Safety Network Increased sales from the expansion of high-efficiency air conditioner,air purifier,and dryer businessesFinancial Impacts of Climate ChangeOpportunitiesClimate Change Risks andOpportunitiesSamsung Electronics Sustainability Report 202226Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix26GHG Reduction ActivitiesWe prioritize finding solutions for the eco-conscious treatment of gases used for semiconductor manufacturing,expansion of renewable energy use,and conservation of energy.With the recent expansion of facilities and increase in production,our business sites are work-ing hard to minimize the increase in GHG emissions by enhancing manufacturing process efficiency and reducing energy consumption.For semiconductor manufacturing sites,we established the Decar-bonization Committee to monitor their mitigation of GHG emissions every quarter based on our roadmap for the mitigation of GHG emis-sions.Each site is required to project its GHG emissions,identify tasks for the mitigation of GHG emissions in manufacturing processes,and implement action plans on a yearly basis.In 2021,we reduced GHG emissions by a total of 6.41 million tonnes through 476 projects including improving gas treatment equipment efficiency,installing high-efficiency equipment,and enhancing manufacturing efficiency.Energy Conservation in the Manufacturing ProcessIoT-Based Infrastructure We monitor our energy consumption through IoT and AI-based HVAC system for better efficiency and con-trol.Operation data from the central air conditioning system and individual air conditioning units is analyzed every minute to set the optimal control value,which is adjusted based on algorithms.This solution was applied to business sites in Korea,Vietnam,and the US and worked to reduce energy consumption by 11-13%per year.We plan to apply it in Europe,Southwest Asia,and Central and South America as well and are reviewing the possibility of sharing it with our partner companies.Energy Reduction in Semiconductor Manufacturing To reduce energy consumption across all stages of semiconductor manufacturing,we strive to innovate the process,reduce main equipment testing time through operation optimization,improve auxiliary equipment oper-ation temperature conditions,install high-efficiency equipment,and neutralize the wet scrubber(harmful gas processing device).To reduce LNG use,we introduced the Regenerative Catalytic System(RCS)for heat sources on a pilot basis,while also collecting waste heat through the coolant system and heat exchanger and adjusting the air temperature and air flow of outdoor air control units.We plan to expand the implementation of the RCS depending on the results of on-site testing.Energy Consumption Monitoring We analyze our energy consump-tion in real time based on energy data,the operating status of major facilities,and product manufacturing information collected through IoT modules and sensors and display the findings on the monitoring system.We ran a pilot test of this system at our Vietnam business site in 2021 and plan to apply it to more sites,starting with those with greater energy consumption.The energy consumption monitoring system is capable of real-time energy consumption monitoring,tar-get management,consumption management in accordance with pro-duction,and energy consumption pattern analysis for different time periods.Reduction of Semiconductor Process GasesImprovement of Treatment Efficiency for Semiconductor Process Gases To improve the efficiency and utilization of gas treatment facil-ities,we are expanding the installation of the Regenerative Catalytic System(RCS).In July 2020,we developed a new catalyst for GHG emissions reduction equipment through three years of joint R&D with our partner companies and raised the gas treatment rate to 95%.Reduction in the Use of Semiconductor Process Gases We are striving to minimize the use of semiconductor process gases while enhanc-ing efficiency in gas treatment.To this end,we have pushed ahead with a project to optimize the processing time,stages,and recipes for individual processes and continue to monitor our performance on a monthly basis.Development of Alternative Gases We remain committed to develop-ing and applying alternatives to replace gases with high global warm-ing potential(GWP).Since 2018,we have used G1,in lieu of C4F8,forsome of the processes.We will continue to actively engage in R&D onalternatives for CF4,CHF3,C4F6,and SF6.Decarbonization Committee OperationsThe Decarbonization Committe oversees the operation of GHG emis-sions mitigation activities at our semiconductor manufacturing sites and secures technologies to address different emitters.The committee is chaired by the Head of Global Manufacturing and Infra Technology and comprises relevant organizational units including the EHS Center,Infra-structure Technology Center,and Manufacturing Technology Center.The committee establishes roadmaps for the reduction of emissions for dif-ferent sources of GHGs,from semiconductor process gases to fossil fuels,electricity,and renewable energy.It also monitors the outcomes of GHG emissions mitigation activities on a quarterly basis.CASE43%GHG Emissions Reduction Activities in 202144%1%0.1%Expanded use of renewable energy sourcesEquipment operation efficiency improvementManufacturing process efficiency improvementOthersEco-conscious treatment of gas used in the manufacturing process2021Samsung Electronics Sustainability Report 202227Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix27Expansion of Renewable Energy UseMid-to-Long-Term Renewable Energy PlanWe are expanding the use of renewable energy at our business sites around the world.The legal systems and infrastructure conditions,which vary by region,require region-specific transition plans.The business sites1)in the US,Europe,and China were converted to 100%renewable energy sources in 2020 and are in the process of replacing their REC system with the PPA system.1)Includes non-manufacturing operations in buildings/office spaces that are owned by Samsung Electronics and those in rental spaces that consume over 1,000 MWh/year.The rate of renewable energy in Brazil and Mexico increased to 94%and 71%in 2021,respectively.We expect to be able to attain 100%renewable energy in Latin America and Southwest Asia by 2025.These regions are considered more advantageous as PPA and Green Pricing are common practice.We will actively expand the use of renewable energy in areas where the use of renewable is relatively low such as Southeast Asia and Africa,considering the legal system and infrastructure of respective countries.Status of Major Business SitesKorea The Suwon and Giheung business sites are equipped with 1.9MW and 1.5MW-capacity photovoltaic power generators,respectively.The Pyeongtaek business site is equipped with a 0.4MW-capacity photovoltaic power generator and 200RT-capacity geothermal power generator.We installed a 0.08MW-capacity photovoltaic power generator at the Onyang business site in 2021.We plan to install an additional 0.2MW-capacity photovoltaic power generator at the Onyang business site and a 0.15MW-capacity photovoltaic power generator at the Gumi business site.We also purchased 490GWh of renewable energy using the Green Premium implemented in 2021.We will continually expand the use of photovoltaic and geothermal power generators,and the Green Premium,at our domestic business sites.Central and South America The business site in Campinas,Brazil,completed its conversion to 100%renewable energy in 2021 by signing power supply contracts with local wind power,photovoltaic power,and hydropower stations.The business site in Manaus,Brazil,is currently powered by 92%renewable energy sourced from Green Pricing.The site plans to use 100%renewable energy by 2025.The business site in Mexico increased its share of renewable energy to 71%in 2021,up from 4%in 2020,through contracts including REC purchases.This site is seeking to further expand its renewable energy suppliers and achieve conversion to 100%renewable energy by 2025.Southwest Asia The business site in Chennai,India,achieved 53%conversion to renewable energy by sourcing electricity from local photovoltaic power,wind power,and biomass power stations.The business site in Noida,India,installed photovoltaic power generators with a total capacity of 0.7MW in parking lots and pedestrian passages and is seeking to expand its network of renewable energy suppliers.Mid-to-Long-Term Roadmap for Renewable Energy UsageDeclaration to expand the use of renewable energy2018Business sites in the US,Europe,and China powered with 100%renewable energy2020Business sites in Central and South America and Southwest Asia powered with 100%renewable energy2025Renewable Energy Use (Unit:GWh)5,2782021 4,0302020 3,2202019 2021 5,278 GWhRenewable Energy Use in Major Regions with Operations (Unit:%)BrazilMexicoIndia1)ChinaEurope US1001009610010095100100909493903.84.371142823 2019 2020 20211)In 2021,the rate of renewable energy use in India decreased,due to the increase in power consumption.Samsung Electronics Sustainability Report 202228Our CompanyDigital ResponsibilityEnvironmentSustainable Supply ChainFacts&Figures Approach to SustainabilityOur EmployeesEmpowering CommunitiesSustainability FoundationAppendix28Product Energy EfficiencyWe closely monitor the latest developments in environmental regulations and technologies to reduce energy consumption via the company-wide Eco-Council consisting of specialists in the field and each business units consultative body of working-level staff members.To mitigate GHG emissions in the product use phase,we continually develop and implement energy efficiency measures for new products.In 2021,the annual energy consumption of our products was reduced by an average of 33%compared to 2009 through the implementation of the high-efficiency heat exchangers for air conditioners,enhanced cleaning power for washers,and high-efficiency driver ICs for TVs.GHG Emissions Reduced in the Product Use Phase1)2021 20202019333343013127027Home AppliancesSmartThings Energy is our AI-based solution that allows more energy-efficient use of connected home appliances.The solution monitors1)the energy consumption of smart home appliances,including refrigerators,washers,dryers,and air conditioners.It also offers a smart energy-saving mode2).1)Korea,the US,the UK,India,and Brazil 2)Korea PCsWe enhanced the energy efficiency of our laptops by adding circuits designed to reduce the electricity loss of the OLED panel and optimized the energy consumption of chargers by eliminating standby power.Our eco-conscious efforts for the planet,SolarCell RemoteWhile seeking ways to produce more eco-conscious remote controls,we noted that existing remote controls all use disposable batteries.This means that each household discards 14 batteries throughout the typical life cycle of a TV,which is about seven years,by changing the disposable batteries once a year.To eliminate the use of disposable batteries,we developed the low-power SolarCell
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