GLOBAL SUSTAINABILITY REPORT 2023TABLE OF CONTENTSON THE COVER:Abbott and Abbott Fund have been work.
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2023 Sustainability&Social Impact Report THE POWER OF WE Reimagining a healthier future for all peop.
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FC1 The Home Depot 2022 ESG Report 2022ESG ReportDOING OUR PART1The Home Depot 2022 ESG Report CONTENTSOverview03 CEO Letter:Our Success Starts With Our Culture05 Engaging Stakeholders&Setting Priorities07 ESG Priority Assessment Framework08 ESG Priority Touchpoints09 Home Depot Goals11 ESG Transparency13 2021 Ratings&Recognition15 FAQ:We All Own Sustainability16 2021 HighlightsFocus on Our People19 Diversity,Equity&Inclusion25 Associate Engagement27 Learning&Development28 Benefits31 The Homer Fund32 Associate SafetyOperate SustainablyProtecting the Climate34 Carbon Footprint35 Store Operations37 Supply ChainSourcing Responsibly38 Ethical Sourcing39 Conflict Minerals40 Sustainable ForestryReducing Environmental Impact 42 Greener Products 44 Circularity46 Responsible Chemistry48 Energy-Saving Products49 Water-Saving Products50 Gardening51 Cleaning53 Waste Management&Recycling55 Sustainable PackagingStrengthen Our Communities58 Community Partnerships60 Supplier Diversity62 Retool Your School63 Team Depot64 The Home Depot Foundation67 U.N.Sustainable Development GoalsInternational Retail Operations70 Canada72 MexicoOur Business75 Code of Conduct76 Corporate Governance 78 Government Relations80 Corporate Taxes81 Data Security&PrivacyReporting Framework83 Global Reporting Initiative(GRI)Standards90 Sustainability Accounting Standards Board (SASB)Disclosure Matrix93 Task Force on Climate Related Financial Disclosures(TCFD)Framework95 EEO-1 ReportThis report covers The Home Depots year of environmental,social and governance(ESG)progress in Fiscal 2021.Note:Unless otherwise indicated,this report does not include data for HD Supply Holdings Inc.,which was acquired on Dec.24,2020.2The Home Depot 2022 ESG Report Resources&Reports Corporate ResponsibilityRESOURCESOVERVIEWForward-Looking Statements:All statements in this report that are not historical constitute“forward-looking statements”as defined in the Private Securities Litigation Reform Act of 1995.These forward-looking statements may relate to,among other things,our goals,commitments and programs,and projections of future results,including our ability to meet our goals;the impact on our business,operations and financial results of the COVID-19 pandemic and the related recovery;our business plans,strategies,initiatives and objectives and their expected execution and impact;management of relationships with our associates,potential associates,suppliers and service providers;cost and availability of labor;costs of fuel and other energy sources;international trade disputes,natural disasters,climate change,public health issues(including pandemics and quarantines,related shut-downs and other governmental orders,and similar restrictions,as well as subsequent re-openings),cybersecurity events,military conflicts or acts of war,and other business interruptions that could disrupt operation of our facilities,our ability to operate or access communications,financial or banking systems,or supply or delivery of,or demand for,the Companys products or services;the impact of regulatory changes;the impact of acquired companies on our organization;and our assumptions,expectations and projections regarding any of the foregoing.Forward-looking statements are based on currently available information and our current assumptions,expectations and projections about future events.They are not guarantees of future performance and are subject to future events,risks and uncertainties many of which are beyond our control,dependent on the actions of third parties,or currently unknown to us as well as potentially inaccurate assumptions that could cause actual results to differ materially.These risks and uncertainties include,but are not limited to,those described in the“Risk Factors”section and elsewhere in our most recently filed Annual Report on Form 10-K,and also in future reports we file with the Securities and Exchange Commission.We encourage you to review these filings.Forward-looking statements speak only as of the date they are made,and we do not undertake to update these statements other than as required by law.You are advised,however,to review any further disclosures we make on related subjects in our filings with the Securities and Exchange Commission and in our other public statements.Note on Materiality:Materiality,as used in this report,and our ESG priority assessment process,is different than the definition used in the context of filings with the Securities and Exchange Commission.Issues deemed material for purposes of this report may not be considered material for SEC reporting purposes.OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail Operations3The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsWe organize our approach to corporate responsibility around three key pillars:Focusing on Our People,Operating Sustainably and Strengthening Our Communities.CEO LETTEROUR SUCCESS STARTS WITH OUR CULTUREContinues on next pageWhen I joined The Home Depot more than 22 years ago,I could never have imagined that I would have the opportunity to lead such an incredible organization.Prior to becoming CEO,I had the privilege to work in multiple departments across the organization.One thing that has always been clear to me is that our values-driven culture and passion for our customers has been instrumental to our success.Built around our core values,our approach to ESG centers around three key pillars Focus on Our People,Operate Sustainably,and Strengthen Our Communities.By identifying these three pillars,we can concentrate on the areas where we can have the greatest impact.Our 2022 ESG Report details the daily work we do to support these three pillars,as well as the progress we made in 2021 thanks to the dedication and ingenuity of our associates and suppliers.Our focus on people centers around continuously striving to create a work environment that is inclusive,engaging,and rewarding to associates.Our associates outstanding performance in 2021 enabled 100%of our stores to qualify for Success Sharing bonus payments to non-management associates.We also offer training and development that transforms jobs into careers,which is reflected in the fact that approximately 90%of our U.S.store leaders began as hourly associates.Our U.S.workforce is more ethnically diverse than the U.S.working population.In addition,we increased the representation of female and underrepresented minority groups across our managers and above cohort in the U.S.during 2021.CEO Letter“Built around our core values,our approach to ESG centers around three key pillars Focus on Our People,Operate Sustainably,and Strengthen Our Communities.By identifying these three pillars,we can concentrate on the areas where we can have the greatest impact.”Ted Decker,CEO and president of The Home DepotWe believe our associates should reflect the customers and communities we serve.In 2021,approximately 36%of our U.S.new hires were women,while more than 57%of U.S.new hires were from an underrepresented minority group.Our commitment to diversity also extends to our supplier relationships.In 2021,we increased our spend with diverse suppliers to$3.3 billion and have announced a goal to achieve$5 billion in direct annual spend with diverse suppliers by 2025.We also completed our goal to launch a Tier II supplier diversity program to encourage our suppliers to spend with diverse businesses.We will continue to push forward in this area by partnering with organizations like the Billion Dollar Roundtable,an association geared at celebrating corporations that spend at least$1 billion per year with minority-and woman-owned suppliers,to further amplify our supplier diversity efforts.Our efforts to operate sustainably begin with our understanding that our biggest impact on the environment comes from the products we sell.Our partnership with suppliers allows us to give our customers access to hundreds of products that are good for their homes,good for the environment,and good for their wallets.In 2021,we estimate our customers purchases of Energy Star products helped reduce annual electricity use by 7 billion kilowatt hours,saving$950 million on energy costs,and lowering carbon emissions by 4.9 million metric tons.Our water-saving products allowed customers to reduce consumption by over 66 billion gallons.4The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsTed DeckerCEO and president of The Home DepotCEO Letter“We know that when we invest in running a responsible,sustainable company,we make our business stronger,more agile,and more resilient.”Ted Decker,CEO and president of The Home DepotWe also made progress in 2021 by operating more sustainably in our own business,reducing electricity consumption in our U.S.stores by approximately 11%year-over-year.We cut U.S.store electricity usage a remarkable 50%since 2010.A hallmark of progress in this area has been the transition to LED overhead lighting in our U.S.stores,which join our Canada and Mexico stores in having nearly all of interior lighting powered by LED bulbs.While we remain focused on reducing our energy consumption,we are also making progress towards our goal of producing or procuring 100%renewable electricity equivalent to the electricity needs for all Home Depot facilities worldwide by 2030.We focus on strengthening our communities by giving back financially and through our associates time and efforts dedicated to Team Depot volunteer activities a hallmark of who we are.In 2021,approximately 14,000 associates volunteered in communities across 150 cities nationwide.Our Team Depot volunteers helped our communities prepare and respond to natural disasters like tornados,hurricanes,and wildfires,while also achieving more than 1.25 million hours of service to veterans since 2011.We also value our nonprofit partners that enable The Home Depot Foundation to improve the homes and lives of U.S.veterans,train skilled tradespeople to fill the labor gap,and support communities affected by natural disasters.In 2021,the Foundation achieved a milestone of ten years and over$400 million invested in support of veteran causes,on track to contribute half of a billion dollars to veteran causes by 2025.While we have made significant progress,there is more work to do.On Pages 9 and 10 of this report,you will see the goals weve set as we strive to build a better and more sustainable business.We know that when we invest in running a responsible,sustainable company,we make our business stronger,more agile,and more resilient.2021 was another year filled with great accomplishments,and I want to thank our associates and supplier partners for the many ways they enable us to do our part and live our values every day.5The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsENGAGING STAKEHOLDERS&SETTING PRIORITIESAs the largest home improvement retailer in the world,we have the unique opportunity to create positive impacts across a broad number of stakeholders.We have also been reminded over the last two years how quickly our world can change,which is why we continue our practice of proactive engagement and provide numerous channels for feedback,so we can remain attentive to the concerns and needs of our stakeholders.We have learned over the years that one of the best ways for us to make sure we understand the relevant environmental,social and governance(ESG)impacts of our business and the current areas of focus of our many stakeholders is to engage with our stakeholders.This engagement comes through multiple channels.We receive constant feedback from our customers through the more than a billion and a half transactions across our stores and digital channels annually.We survey our approximately 500,000 associates to measure how emotionally connected they are to their work.We collaborate with our vendors and suppliers in an effort to lessen the environmental impact of the products we sell.Individuals and organizations from around the globe reach out to us with questions or concerns about our operations or products.We meet with shareholders and nongovernmental organizations(NGOs)interested in our business practices.We take part in industry efforts to raise awareness about the ESG responsibilities we all share.Our ongoing interactions may be formal or informal,as detailed in our ESG Priority Assessment Framework on Page 7.These interactions help validate our own priority assessment;they also help us gauge the impact of our business,refine ESG priorities,measure our progress and design ways to improve.Climate ChangeResponsible SourcingEnergy ReductionNatural ResourcesCommunitiesWaste&RecyclingChemical ConcernsAREAS OF FOCUSCorporate GovernancePeopleWe value seeing ESG impact and opportunities through our operational lens and also through the lenses of our stakeholders.By better understanding our impact and collaborating with stakeholders,we position our company to set objectives that allow us to contribute to building a better business,workplace and world.Our Sustainability Council,composed of representatives from different areas of the business,oversees our approach to sustainability.Members of the Council share stakeholder feedback from their functional areas.The Council focuses on several key areas,as shown below.The Council meets twice a year,and its chair presents our sustainability strategy and activities to the Board of Directors annually.We also provide quarterly updates to our Nominating and Corporate Governance Committee regarding our ESG engagement.Our ESG priorities and plans are communicated internally and externally via various channels,including in this annual report.Engaging Stakeholders&Setting Priorities6The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsCustomers“Be a global-impact conscious company,and provide products that help me reduce my homes environmental impact.”Associates“Empower us to be contributing team members of a values-based organization.”Communities“Support me and my neighbors by making a positive difference in our community.”Suppliers“Give us an outlet to market innovative,sustainable products and a way to gather timely customer feedback.”Investors“Tell us your primary risks and how you handle oversight of them.”Government“Create partnerships with local,state and federal officials that help bridge industry innovation to public policy advancement.”Academia“Give us insight into customer trends and habits to aid our research.”NGOs“Work with us to elevate our causes to action and progress.”OUR STAKEHOLDERSStakeholders share their perspectives on our ESG practices.Their input helps shape our strategy.7The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsESG PRIORITYASSESSMENT FRAMEWORKThis chart outlines the process The Home Depot uses to assess,prioritize and address potential ESG issues.Trigger ESG AssessmentEngage Relevant Internal Business TeamsGather Information and RecommendationsSTEP 1Identify Potential ESG IssueExamples:STEP 2STEP 3STEP 4Establish Ongoing PlanContinue ProgressSTEP 5Develop SolutionSTEP 6STEP 7 Chemicals Circular Economy Fuel Cells Global Warming Human Capital Invasive Plants Organics Pollinator Health Rainforest Depletion Recycled Content Renewable Energy Worker Well-Being Corporate Communications Diversity,Equity&Inclusion Government Relations Human Resources Information Technology Investor Relations Legal Merchandising Operations Real Estate&Construction Supply Chain SustainabilityCATALYSTSIssues Identified by Concerned StakeholdersConcerned StakeholdersHome Depot ExpertsorEducate Concerned StakeholdersModify Current PathMonitor and Review PeriodicallyExit ProgramorororSet Improvement GoalsShare FindingsTest AlternativesTrack and ReportPriority Issues Identified by The Home DepotFact-Finding,Data Collection,Scientific ResearchESG Priority Assessment Framework8The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsESG PRIORITY TOUCHPOINTSIMPACTSAssociatesCustomersSuppliersGovernmentNongovernmentalOrganizationsAcademics&EducatorsInvestorsLocal CommunityFocus on PeopleAssociate DevelopmentTraining,education,promotion,supportAssociate Well-BeingSafety,health,wages,hoursDiversity,Equity&InclusionAssociate engagement,workforce diversity,talent acquisition,associate resource groupsGovernanceEthics,culture,data privacy and security,risk managementThird-Party Worker Well-BeingSafety,health,wages,hours,unforced laborOperate Sustainably|OperationsEnergy UseCarbon emissionsHazardous MaterialsWaste,disposalWasteRecycling,landfill,incinerationWater UseResponsible consumptionOperate Sustainably|ProductsEco ProductsEco Options,Eco Actions,WaterSense,Energy Star,Chemical Strategy,Wood Purchasing PolicyEnd of LifeCircularity,waste,recyclingManufacturing ProcessNatural resources,chemicals,carbon emissions,packagingTransportationCarbon emissionsStrengthen Our CommunitiesSupplier DiversityInnovation,mentoring,business growth,networkingCommunity SupportDiverse,equitable and inclusive communities,trades training,veterans and military families,disaster responseKey Impacted StakeholdersESG Priority TouchpointsOperate Sustainably|ProductsStrengthen Our CommunitiesFocus on Our PeopleOperate Sustainably|OperationsESG Priority Touchpoints9The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsGOALSFOCUS ON OUR PEOPLEOPERATE SUSTAINABLY:OPERATIONSGLOBAL IMPACT:CLIMATE(PAGES 34-37,48)Create career advancement opportunities for 50,000 front-line associates over a five-year periodUtilizing science-based targets to reduce Scope 1 and Scope 2 emissions 40%by 2030,50%by 2035Help reduce customers greenhouse gas emissions by 20 million metric tons(since 2017)PROGRESSGoal Date:2023Produce/procure 100%renewable electricity for all Home Depot facilities worldwide by 2030PROGRESSGoal Date:2030PROGRESSGoal Date:2030,2035PROGRESSGoal Date:2020HOME DEPOT PILLARSPROGRESS KEYJust getting startedAchieved our goalMaking progressGLOBAL IMPACT:PEOPLE(PAGES 21-27)The Home Depot sets goals to drive ESG progress,benefiting our associates,customers,suppliers and communities,as well as our company.Continues on next pageEliminate certain chemicals in paint20%reduction in U.S.store kilowatt-hour electricity use,compared to 2010 levelsEliminate certain chemicals from cleaning productsPROGRESSGoal Date:2022PROGRESSPROGRESSGoal Date:2020Goal Date:2020GLOBAL IMPACT:RESPONSIBLE CHEMISTRY(PAGES 46-47,50-52)Expand associate resource groups to include more associates and increase engagement and participationPROGRESSGoal Date:2021Procure/produce 335 megawatts of renewable or alternative energyPROGRESSGoal Date:2025Invest more than 1 million hours per year over five years in training and development to help our front-line associates grow their careersPROGRESSGoal Date:2022Home Depot Goals10The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsOPERATE SUSTAINABLY:PRODUCTSSTRENGTHEN OUR COMMUNITIESGLOBAL IMPACT:PLANET(PAGES 40-41,48-49,55-56)GLOBAL IMPACT:COMMUNITIES(PAGES 57-66)Eliminate certain chemicals in insulationEliminate certain chemicals in carpetPROGRESSGoal Date:2018PROGRESSGoal Date:2018Remove ortho-phthalates from vinyl flooringReduce formaldehyde levels in laminate/engineered flooringPROGRESSGoal Date:2017PROGRESSGoal Date:2016Exclude expanded polystyrene(EPS)foam and polyvinyl chloride(PVC)film from private-brand packagingImplement additional requirements regarding tropical deforestation standardsPROGRESSGoal Date:2023PROGRESSGoal Date:2018GLOBAL IMPACT:RESPONSIBLE CHEMISTRY(PAGES 46-47,50-52)Help customers save$2.8 billion on utility bills through energy-efficient products(since 2017)PROGRESSGoal Date:2020The Home Depot Foundation plans to contribute$500 million to veteran causes with a focus on housingPROGRESSGoal Date:2025The Home Depot Foundation plans to invest$50 million to train 20,000 skilled tradespeople,including veteransPROGRESSGoal Date:2028Help reduce consumers water use by 250 billion gallons(since 2017)PROGRESSGoal Date:2020Achieve$5 billion in direct annual spend with diverse suppliersPROGRESSGoal Date:2025HOME DEPOT PILLARSEliminate neonicotinoids from live goods,except where legally requiredPROGRESSGoal Date:2019Launch a Tier II supplier diversity program that measures and encourages our Tier I suppliers spending with diverse suppliersPROGRESSGoal Date:2022Home Depot Goals11The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsFY 2019FY 2020FY 2021Focus on Our PeopleAssociatesUnderrepresented minority groups among new hires in the U.S.52.3R.8W.3%Women among new hires in the U.S.33.45.55.7%Success Sharing paid to associates$201 million$616 million$739 millionHomer Fund assistance paid to fellow associates$16 million$16.2 million$18.7 millionLost time incident rate per 200,000 hours1.211.071.23Recordable incident rate per 200,000 hours4.894.034.25Operate SustainablyCarbon EmissionsCDP Climate Change scoreA-A-Estimated reduction of customers GHG emissions through the purchase and proper use of energy-saving products(MT CO2e)(includes Energy Star,4.9 million MT in 2021)6.9 million7.6 million7.5 millionDirect(Scope 1)GHG emissions(MT of CO2e)*554,000607,000642,000Indirect(Scope 2)GHG emissions(MT CO2e)*1,394,0001,214,0001,007,000Reduction of GHG emissions since 2009(MT CO2e;Scope 1&2)*-1.2 million-1.3 million-1.5 million%Reduction of GHG emissions since 2009(Scope 1&2)*-38%-42%-47%Number of stores with fuel cell energy source203203204Fuel cell energy capacity for U.S.operations(MWac)40.940.941.3Solar energy capacity companywide,rooftop and off-site(MWac)44.662.9141.7Wind energy capacity companywide(MWac)626262Diesel used(MWh)*106,922199,176213,000Electricity purchased(MWh)*3,479,1713,103,1152,935,500Electricity generated(MWh)*308,566302,200300,600Natural gas used(MWh)*2,371,6962,457,4392,601,500Propane used(MWh)*247,669272,844280,200Energy consumption within the organization(MWh)*6,634,7056,445,0716,444,300GHG emissions intensity Scope 1 2(MT of CO2e per billion U.S.dollars of revenue)*17,67513,78410,900Operating SustainablyReduction of kWh used by U.S.stores,year over year-11.79%-14.11%-10.63%Rechargeable battery recycling by all stores(pounds)1,170,2001,240,4001,162,800CFL bulb recycling(pounds)804,300562,700514,200ESG TRANSPARENCYThis chart highlights The Home Depots key ESG metrics.Some of our 2021 results continue to be impacted by the ongoing effects of the COVID-19 pandemic.All data reflects Home Depots fiscal year,unless otherwise noted.For detailed diversity,equity and inclusion data,see pages 21-24.ESG Transparency12The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsFY 2019FY 2020FY 2021Operate SustainablyLead-acid battery recycling(battery cores)235,200184,600204,300Cardboard recycling(tons)250,600261,500272,900Nonhazardous waste generated(MT)851,330919,5741,048,500Waste sent to landfill(MT)575,344627,196728,300Waste recycling(MT)275,986292,378320,200Waste incineration(pounds)*2,331,1103,107,6292,959,900Fuel blending(pounds)*5,207,9335,505,0965,571,300Responsible SourcingCombined factory audits and follow-up visits by THD3,0443,0123,119Product tests conducted by third parties*37,04425,83118,753Transit tests conducted by third parties*15,46912,62812,887Pre-shipment product inspection visits21,48226,24328,300Expanded polystyrene(EPS)foam elimination(CF)19,100873,200274,600Polyvinyl chloride(PVC)film elimination(SF)5,729,000961,1001,119,700ProductsNumber of restricted substance categories in Chemical Strategy888Energy-saving products offered in stores and online (includes Energy Star,15,225 in 2021)24,67723,66822,700Energy-saving product sales(includes Energy Star,$7.02 billion in 2021)$6.03 billion$8.76 billion$7.59 billionEstimated annual customer savings from purchase and proper use of energy-saving products(includes Energy Star,$950 million in 2021)$1.2 billion$1.4 billion$1.5 billionWater-saving products offered in store and online (includes WaterSense,5,579 in 2021)9,4609,9948,100Water-saving product sales(includes WaterSense,$1.71 billion in 2021)$1.36 billion$1.65 billion$1.79 billionEstimated annual customer savings from purchase and proper use of water-saving products(includes WaterSense,$873 million in 2021)$650 million$746 million$895 millionStrengthen Our CommunitiesCommunityHome Depot direct spend with diverse suppliers$2.1 billion$3.2 billion$3.3 billionThe Home Depot Foundation grants$82.6 million$52.9 million$66.7 millionTeam Depot volunteer hours315,000*84,000U.S.political contributions by The Home Depot PAC$2,282,468$1,885,107$2,447,000U.S.corporate political contributions$150,000$420,000$400,000CF=cubic feetCO2=carbon dioxideCO2e=CO2 other greenhouse gas emissionsGHG=greenhouse gaskWh=kilowatt hoursMT=metric tonsMW=megawattsMWac=megawatts of alternating currentMWh=megawatt hoursSF=square feetAll monetary amounts are U.S.dollars.*2021 data reflects our fiscal year;2020 and 2019 reflect the calendar year.Our fiscal 2021 includes activity during February 1,2021 through January 30,2022,compared to calendar year 2020,which includes activity during January 1,2020 through December 31,2020.*Annual activities halted because of the pandemic;did not track.*Prior year data updated based on more complete data available.Not available at time of publication.ESG Transparency13The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsRATINGSA-Positions The Home Depot as an industry leaderOur ESG risks are low compared to the industryLOWRISKAssesses action on climate change;score was based on 2020 data,the latest availableAnalyzes corporate environmental,social and governance(ESG)progressOur score has improved from an initial C in 2017;our latest scoreis from March 2021BGrades retailers progress in selling products with safer chemicalsOn a scale of 0-5;we rank better than the industry average of 2.33.1Measures ESG risk and performance of publicly traded companiesSecond-highest rating;positions us as an industry leader in key ESG areasAAMeasures resilience to long-term,financially relevant ESG risksLeading third-party sustainability rating organizations monitor and report on our progress.Below are some key ratings for our company in 2021.Ratings&Recognition14The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsRECOGNITIONGartnerNo.38 Top Supply ChainsFortuneNo.19 Worlds Most Admired CompaniesNational Retail FederationNo.4 Top RetailersEPA(Environmental Protection Agency)SmartWay Excellence Award WaterSense Partner of the Year Award Safer Choice Partner of the Year AwardMilitary Friendly Employer Spouse Employer Company&BrandHuman Rights Campaign No.90 Corporate Equality Index(USA)No.82 Corporate Equality Index(Mexico)Comparably No.25 Best Company Work-Life Balance No.50Best Sales Team No.8 Best Places to Work in AtlantaCanadas Best Diversity Employers 12th Consecutive YearCorporate Social Responsibility Award for Labor Equality&Nondiscrimination MexicoForbes No.22 Worlds Best Employers No.69 Best Employers for VeteransEnergy StarRetail Partner of the YearAtlanta Business Chronicle HR Excellence Award for Most People-Focused CEO(Craig Menear)Here are some of the organizations that recognized our efforts in 2021 to build a better workplace,business and world.Ratings&Recognition15The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail OperationsHome Depots chief sustainability officer Ron Jarvis has spent more than two decades driving sustainability improvements at The Home Depot.Here he offers insights into our progress.FAQ:WE ALL OWN SUSTAINABILITYWho drives ESG at TheHome Depot?How is The Home Depot helping customers increase the sustainability of their homes and businesses?Is sustainability a competitive advantage for The Home Depot?How have associates helped drive ESG progress at The Home Depot?Many associates and business leaders throughout our enterprise!They take pride in improving their departments and businesses in multiple ESG aspects.Our leadership understands that an effective environmental,social and governance strategy cannot happen in isolation.It is not the sole responsibility of a corporate ESG team.Rather,our ESG strategy must reflect The Home Depots core values,and it must be embedded in all aspects of how we run our business.Everybody owns it.Our Eco Actions program,which builds on our original Eco Options program that we launched in 2007,helps our customers take on more sustainable DIY projects and choose greener products that can save water,conserve energy or are formulated to reduce certain chemicals.Products can only qualify for this distinction if manufacturers provide third-party verification of environmental claims that meet our programs requirements.This program also offers customers green project ideas and tips,for example,how to grow an organic garden(see Page 50).In addition,we encourage our customers to drop off used compact fluorescent light bulbs and rechargeable batteries for recycling.In 2021,we collected 1,162,800 pounds of recycled batteries,a 24%increase since 2014(see Page 54).We also help our customers go greener in ways that may be less apparent to them.For example,we offer circularity-centered products like our Home Depot-branded moving boxes,made from 100%post-consumer recycled paper fiber(see Page 45),as well as composite deck boards made from recycled plastic waste from our stores.We continue to make progress on our goal to exclude expanded polystyrene(EPS)foam and polyvinyl chloride(PVC)film from our private-brand product packaging by the end of 2023.When customers rent tools from us,they help avoid the environmental impact of new product manufacturing.Another example:Our stores have cut electricity consumption 50%since 2010,providing our customers a lower energy intensive shopping environment.Overall,we believe good business decisions drive sustainability.Examples of this can be seen through the investments weve made to create the most efficient supply chain in home improvement.These investments have helped us reduce the number of trucks needed and distance traveled to get our products from our supplier to our customers,while also reducing fuel emissions.Another example of this is our store investments,part of which included transitioning stores to LED lighting,which helped us reduce operating costs and electricity consumption.We also believe that by working with our suppliers to bring innovative and sustainable products to market,we help our customers create more sustainable homes and workplaces.Our efforts to drive innovation can be seen in every aisle of the store,and we believe this is a key differentiator in the market.We also want to see sustainability be the norm for our entire industry.We are encouraged when we see other retailers take big swings and do innovative things that push all of us to do a better job of protecting the planet,and we hope the innovation that we bring through our operations and products motivates others to do the same.One of our eight core values is Do The Right Thing,which drives our associates to find new ways that our organization can reduce its environmental impact.This can be seen through our packaging team who looks for ways to reduce the package footprints and ways to use more sustainable materials for our private-label products(see Page 55).Another example are our associates who work to find ways to upcycle the packaging waste in our stores and supply chain into new products like Trex composite decking.-Ron JarvisChief Sustainability Officer Reducing The Home Depots environmental impact is essential to our efforts to build a better business,workplace and world.FAQ:We All Own Sustainability16The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail Operations2021 HIGHLIGHTSOur core values guide how we focus on our people,operate sustainably and strengthen our communities and provide a benchmark for measuring progress.These highlights reflect progress made in 2021.$739 millionSuccess Sharing payments to our non-management associates ofWe paid record90%of our U.S.store leadersstarted as hourly associatesApproximately36%of our U.S.new hires were women57%were ethnically/racially diverseand more than$230 million11.4%$150 billionin grants,assisting approximately164,000associates since 199930.1%Diluted earnings per share were$15.53,an increase ofcompared to fiscal 2020ApproximatelyTotal company comp sales increasedAchieved the milestone of overin sales2021 Highlights100%increased over Sales from Digital Platformson a 2-year basisOUR BUSINESSFOCUS ON OUR PEOPLEand U.S.comp sales increased 10.7The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail Operations$400 millionThe Home Depot Foundation towards veteran causes,since 201150%We decreased electricity consumption in our U.S.stores since 2010CDPWe have committed to participating in the OPERATE SUSTAINABLYSTRENGTHEN OUR COMMUNITIESoff the road for a yearforests questionnaireSince 2009,our Retool Your School grant program has helped fund over by asking our suppliers to spend more with themwith diverse suppliersIn 2021,we spenthas contributed more than$7 millioncommitted more thanto help communities impacted by natural disasters in 2021The Home Depot Foundation$3.3 billion286private-brand packagesWe redesignedto reduce size and materials.This helped us eliminate 1,119,700 square feet of PVC filmenough to cover19 football fieldsCompleted our multi-year project to convertto LED lightingU.S.StoresWe reduced our Scope 1 and 2 carbon emissions by approximately 172,000 metric tons,equivalent to taking more than37,000 carsto veteran causes Since 2011,Team Depot has volunteered more than1.25 million service hours100 projects benefitting 65%of HBCUs 2021 Highlights18The Home Depot 2022 ESG Report Diversity,Equity&Inclusion Home Depot Core Values Military Transition Portal Associate Resource Groups Home Depot Benefits4U The Homer FundRESOURCESFOCUS ON OUR PEOPLE50,000front-line associates over a five-year period ending in 2023Create enhanced career opportunities forhours per year through 2022 in training and development to help our front-line associates grow their careersBy the end of 2021,expand associate resource groups to include more associates and increase engagement and participationInvest more than1 millionWe focus on our people by striving for an environment centered on The Home Depots core value of respect for all people,where diversity,equity and inclusion are celebrated and associates have opportunities to grow.We believe our approximately 500,000 associates are our greatest asset,and they differentiate us in the marketplace.GOALSOverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail Operations19The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyWhile our office of Diversity&Inclusion has existed within the company for more than a decade to help diversify our workforce and support change in our communities,we expanded in 2020 and renamed it to fit an enhanced mission:Diversity,Equity and Inclusion(DEI).Adding equity to our focus reflects our desire to promote fairness,remove bias and ensure all of our associates and business partners have access to the resources they need to succeed at work.In 2021,we met our goal to expand our associate resource groups(ARGs)beyond our Store Support Center(corporate facility)to include more associates and increase engagement and participation.Through our new associate engagement platform,Yammer,all our U.S.associates are now able to access our ARGs.We also leveraged Yammer to reach more associates with C.A.R.E.talks,a series of diversity discussions that Champion Awareness,Respect,and Equity for all associates.Learn more here:Page 26.We were also able to meet our goal to launch a Tier II supplier diversity program in 2021.Beyond the$3.3 billion we spent with diverse Tier I(direct)suppliers last year,our new program will help us measure and encourage our Tier I suppliers to spend more with diverse businesses.Find out more about our supplier diversity efforts on Page 60.At The Home Depot,we define diversity,equity and inclusion as:Diversity:Composition of people,such as their similarities and differences(e.g.,gender,race/ethnicity,sexual orientation)Equity:Norms,practices and policies in place that ensure just and fair opportunities and outcomes,allowing individuals to reach their full potential Inclusion:How we embrace and enable our associates to feel safe,respected,engaged,motivated and valued for who they are and their contributions KEY AREAS OF FOCUS At The Home Depot,we focus on three key areas to create meaningful change through thoughtful actions that align with all eight of our core values.ASSOCIATE ENGAGEMENT DIVERSITY,EQUITY&INCLUSIONWe strive to create an environment centered around our eight core values,where diversity,equity and inclusion fuel opportunities for our associates,communities,and suppliers.CHECK IT OUTWhen Khareem Mitchell started with The Home Depot in 2018,he discovered a workplace where his personal principles aligned with company values.His Afro-Hispanic roots play a big role in how he conducts his life both inside and outside of work.Increasing diverse representation throughout our organization Creating an environment where every associate feels included and valued for who they are Promoting equal opportunity in recruitment,hiring,training,development and advancementWe have many initiatives currently in the works,including an expansion of our existing Retool Your School program to further strengthen our commitment to historically black colleges and universities(HBCUs).This expansion,set to launch in 2023,will include more programming and a broader reach(See Page 62).In addition,we are working to enlarge our network of external partner organizations to enhance the career development of our female,minority,LGBTQ and veteran associates.COMMUNITY PARTNERSHIPSSUPPLIER DIVERSITY Striving to close the wealth gap Advancing education for all Increasing our penetration and spend with diverse suppliers Developing diverse suppliers by providing mentorship and shared resources Learn more about how we work with our community partners across the nation and how spending with diverse suppliers benefits our company and our communities on Pages 58-61.Diversity,Equity&Inclusion20The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyDerek BottomsChief Diversity Officer and Vice President of Associate RelationsDerek Bottoms,chief diversity officer and vice president of associate relations,explains how diversity,equity and inclusion align with our company values.DOING THE RIGHT THINGSPOTLIGHTWhat does diversity,equity and inclusion mean at The Home Depot?At The Home Depot,our values guide us on everything we do.They serve as our foundation,and they are embedded in our culture.Our expanded focus on diversity,equity and inclusion supports all eight of our core values,including respect for all people,giving back and building strong relationships with other associates and our customers.We strive to build a workplace and retail space that reflect the communities we serve.A diverse and inclusive workplace also creates shareholder value by providing different perspectives and fresh ideas that spark innovation.What are some ways The Home Depot is driving progress for its stakeholders?We recently expanded our associate resource groups(ARGs)to all associates companywide,including in stores and distribution centers.Previously,these groups were only available to our Store Support Center(SSC)associates.(Go to Page 26 to learn more.)In an aligned effort,we are identifying tools and platforms to directly engage with our hourly front-line associates to share DEI-related information and resources.We also are raising awareness of DEI and its importance by modernizing our learning materials;holding listening sessions where executives hear from associates across the organization;and focusing on recruiting and talent-planning strategies that emphasize diversity and inclusion.On the community side,we are continuing to partner with local and national organizations focused on closing the wealth gap and advancing education for all.We continue to amplify our supplier diversity efforts to drive innovation,economic opportunities and shareholder value by directing more of our dollars,directly and indirectly,toward diverse businesses.We look to partner with organizations like the Billion Dollar Roundtable whose mission aligns with our focus areas.To further our commitment to supplier diversity,we are also seeking to achieve$5 billion in direct annual spend with diverse suppliers by 2025.See Page 60 to learn more about our supplier diversity efforts.What project excites you?Im excited about our plans to expand Our Retool Your School program in 2023,which has provided campus beautification funding to historically black colleges and universities(HBCUs)since 2009.By expanding the reach of this program,we can further strengthen our commitment to HBCUs and their students,including through career development opportunities.(Learn more on Page 62).Mission StatementThe Home Depot ignites the doer in all of us to build a culture of understanding,acceptance and appreciation.Vision StatementThe Home Depot is building a more diverse,equitable and inclusive organization,within our enterprise and the communities we are proud to serve.Grounded in our core values,we have the conviction,capabilities and tools to make a difference for our associates,community partners and suppliers.Diversity,Equity&Inclusion:Spotlight21The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyDiversity,Equity&InclusionMale 62male 37 19Male 62male 38 20Male 62male 38 21White 54%Underrepresented Minority Groups 46%White 52%Underrepresented Minority Groups 47 192020White 50%Underrepresented Minority Groups 48 21White 64%Underrepresented Minority Groups 36%White 61%Underrepresented Minority Groups 39 1920202021201920202021WhiteUnderrepresented Minority GroupsMale 53male 47%Male 53male 47%Male 53male 47%BUILDING A DIVERSE WORKFORCEOur diverse workforce strengthens our competitive advantages and reflects the customers and communities we serve.A comparison against U.S.Department of Labor data shows that our U.S.workforce is more ethnically diverse than the nations working population.In 2021,we also expanded the number and percentage of women and minorities at the manager level and above.These charts reflect the demographics of The Home Depots U.S.workforce from fiscal 2019 through fiscal 2021.Certain percentages may not sum to 100%due to rounding or,in 2020 and 2021,some associates choosing not to self-identify by race/ethnicity or gender.2019 percentages included these non-disclosing associates in the white or male categories,as applicable.Source:Latest available data from the U.S.Bureau of Labor Statistics;2021 data is estimatedU.S.WORKING POPULATIONTHD U.S.WORKFORCE*THD U.S.WORKFORCE BY RACE/ETHNICITYTotal Number of U.S.Associates:2021:437,000 2020:441,000 2019:370,00020212019202050.0%White22.3%Hispanic 17.9%Black3.1%Asian4.9%Other1.7%Undisclosed51.5%White21.8%Hispanic 17.0%Black2.9%Asian5.0%Other1.7%Undisclosed53.7%White20.0%Hispanic 16.5%Black2.9%Asian4.9%Other2.0%Undisclosed*The 2020 and 2021 results include data for HD Supply Holdings Inc.637The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyDiversity,Equity&InclusionMale 68male 32 19Male 68male 32 20White 65%Underrepresented Minority Groups 35 19White 64%Underrepresented Minority Groups 35 20Male 65male 34 21White 62%Underrepresented Minority Groups 38 21U.S.MANAGERS AND ABOVE*(EXCLUDES OFFICER LEVEL)Total Number of U.S.Managers and Above:2021:24,600 2020:19,100 2019:18,100*Includes manager-level positions and above at stores,distribution centers and other field locations,as well as at our Store Support Center;excludes officers.The 2020&2021 results include data for HD Supply Holdings Inc.20212019202061.7%White15.3%Hispanic 13.9%Black3.7%Asian4.6%Other0.8%UndisclosedU.S.MANAGERS AND ABOVE*BY RACE/ETHNICITY63.7%White13.5%Hispanic 12.9%Black4.8%Asian4.2%Other0.9%Undisclosed64.8%White13.3%Hispanic 12.4%Black4.5%Asian4.2%Other0.9%Undisclosed23The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyDiversity,Equity&InclusionWhite 76%Underrepresented Minority Groups 24 19White 74%Underrepresented Minority Groups 26 20Male 73male 28 19Male 71male 29 20WhiteUnderrepresented Minority Groups2021MaleFemale 2021U.S.OFFICERS*Total Number of U.S.Officers:2021:126 2020:127 2019:12020212019202072.2%White9.5%Hispanic 10.3%Black5.6%Asian2.4%Other0%UndisclosedU.S.OFFICERS BY RACE/ETHNICITY75.8%White10.0%Hispanic 7.5%Black4.2%Asian2.5%Other 0%Undisclosed74.0%White9.4%Hispanic 10.2%Black3.9%Asian2.4%Other0%Undisclosed*The 2020&2021 results include data for HD Supply Holdings Inc.72(p0$The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyDiversity,Equity&InclusionDID YOU KNOWSince 2013,The Home Depot has added 11 directors to its Board,seven of whom were women,members of a historically under-represented racial or ethnic group or both.As of May 2022,our Board had 10 male directors(71%)and 4 female directors(29%).And of the 12 independent directors,33%are women and 33%are members of historically under-represented racial or ethnic groups.White 75%Underrepresented Minority Groups 25 19White 75%Underrepresented Minority Groups 25 20Male 75male 25 19Male 75male 25 20WhiteUnderrepresented Minority Groups2021MaleFemale 2021BOARD OF DIRECTORS*Total Number of Board Members:2021:11 2020:12 2019:122021201975.0%White8.3%Hispanic 16.7%Black0%Asian0%Other202075.0%White8.3%Hispanic 16.7%Black0%Asian0%Other72.7%White9.1%Hispanic 18.2%Black0%Asian0%OtherBOARD OF DIRECTORS BY RACE/ETHNICITY*2021 data as of the fiscal year ended January 30,2022.For additional information on our board composition,visit the Corporate Governance section of our website.73%The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyASSOCIATE ENGAGEMENTVoice of the Associate Survey Highly engaged associates care about their work and the performance of The Home Depot.Our passion is to create an engaging and inclusive workplace;we do so by proactively engaging with our associates,while also listening and responding to their feedback.In 2021,we introduced an additional Voice of the Associate survey to all our associates.Our two Voice of the Associate surveys Census and Pulse provided us the opportunity to hear from our associates at least twice in 2021.Our Census survey is an annual in-depth look at our associates engagement and satisfaction with their job and with the Home Depot,while our Pulse survey is typically shorter and seeks feedback on specific topics.Based on the Voice of the Associate 2021 Census survey,we saw the highest engagement numbers across the enterprise that we have seen in the past few years.In addition,we also added two additional surveys Onboarding and Exit,into our“Lifecycle Listening”toolbelt.These additional surveys allow us to intentionally connect with associates at specific moments within their career at The Home Depot.Engagement Platform In 2021,our new associate engagement platform-Yammer,which was launched at the end of fiscal 2020-helped create new collaboration spaces and opportunities for reaching associates across the business.Whether through on-site desktops or on-the-go mobile devices,more than 450,000 associates across the U.S.and Canada have access to Yammer.With more than 650 active communities in the network,the digital hub links associates to both their local co-workers and corporate support across North America.It serves as a central hub to recognize associates for living our values,promote company news,cultivate connections between front-line and corporate associates and fuel the orange-blooded entrepreneurial spirit thats part of what drives our business every day.Success Sharing and Compensation Enhancements Our philosophy of taking care of our people and motivating them to deliver a superior customer experience shapes our profit-sharing program for hourly associates.Success Sharing provides semi-annual cash awards for performance against our business plan,including sales and productivity goals.The program has granted awards totaling more than$1 billion to associates over the last two years.The outstanding performance of our associates in fiscal 2021 enabled 100%of stores to qualify for Success Sharing in both the first and second half of the year.This resulted in record award payments to our non-management associates of approximately$739 million.We also continue to make investments in our associates recent actions include our decision at the end of 2020 to transition our COVID-related enhanced associate pay and benefits to permanent compensation enhancements for front-line,hourly associates.In addition,we continued matching contributions under our FutureBuilder 401(k)Plan,and merit-based salary increases.Associate engagement is the emotional connection associates have to our company and our goals.It is vital to The Home Depots culture and success.Associate EngagementDID YOU KNOWIn 2021,Home Depots Yammer network was recognized as the#1 Yammer network among large organizations in the Americas by SWOOP Analytics.ASSOCIATE ENGAGEMENT Our People:Pay Equity The Home Depots commitment to doing the right thing and taking care of our people extends to our pay practices.To ensure that we are paying our associates fairly,we conduct an annual analysis of our pay and compensation practices for our U.S.associates(who comprise approximately 89%of our workforce),in consultation with expert third-party firms following industry-leading standards.Our review of our U.S.associates total W-2 compensation for calendar year 2021,including base pay,cash bonuses,and stock,showed that,adjusting for relevant factors such as tenure,position,location and hours worked,associates who identified as female earned approximately 101%of what male associates earned,and associates who identified as members of a racial or ethnic minority earned approximately 99%of what non-minority associates earned.Not adjusting for those factors,our analysis showed that the median annualized W-2 pay for U.S.associates who identified as female was 98%of the median for men,and that the median pay for racial/ethnic minority associates in the U.S.was 94%of the median for non-minority associates.The Leadership Development and Compensation Committee of the Board of Directors,which is tasked with providing oversight of our human capital management strategy and our diversity and inclusion efforts,receives regular updates on these findings.We will continue to strive to ensure equal pay across our organization.26The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyASSOCIATE RESOURCE GROUPSOur associate resource groups promote inclusion and support diversity.Associate Resource GroupsAssociates with DisabilitiesAsian and Pacific Islander AssociatesMilitary-AffiliatedAssociatesAfrican AmericanAssociatesHispanic and LatinoAssociatesLGBTQ AssociatesWomen AssociatesOur associate resource groups(ARGs)are led by associates and sponsored by executive leaders.They drive associate engagement and promote inclusion across our company through fostering professional development,raising cultural awareness,celebrating diversity,and community outreach.We have seven U.S.ARGs,each supporting the companys business objectives and policies,particularly those related to developing our associates,creating diversity awareness and engaging diverse community partners.In 2021,we revised our ARG structure to further support the career development of associates who voluntarily lead these groups.We also achieved our goal of expanding associate resource groups to include more of our people.We hosted more than 70 ARG events virtually in 2021 to celebrate diversity,raise cultural awareness and foster professional development.We continue to expand outreach to associates to encourage their engagement in our ARGs.DID YOU KNOWThe Home Depot was named to Forbes list of Best Employers for Diversity in 2019,2021 and 2022.SPOTLIGHT:C.A.R.E.TALKSWe launched Caring Conversations in 2020 in response to the unrest in our community.The virtual events for all associates included panel discussions where senior company leaders shared candid stories about race and ethnicity,and experts from outside our company educated associates about civil rights,laws,voting and more.In 2021,Caring Conversations evolved into C.A.R.E.Talks,a series of diversity discussions that Champion Awareness,Respect,and Equity for all associates.These discussions include external speaker series,panel discussions,and small group listening sessions,and we occasionally partnered with our Associate Resource Groups on elevating keynote speakers in this format.At the enterprise level,we hosted 13 C.A.R.E.Talks in 2021.These diversity discussions will be expanded to include additional formats in 2022.Comments from Associate Feedback Survey:Supplier Diversity Panel:“The impact HD and many of its suppliers have on making their associates have better lives is inspiring and heartfelt.Love working for and with folks that care.Pun intended.”HBCU Panel:“The alignment between THDs values and the values instilled in students attending HBCUs resonated with me.As an HBCU alum,my experience was similar to the panelists experiences,i.e.earning a values-based education in addition to the academics.”Kens Krew Program:“The sheer pride that poured out of that young man and his mother literally made my day.We take for granted sometimes the roles we have and this was a nice reminder.”(Learn more on Page 59)27The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyLEARNING&DEVELOPMENTThe Home Depot strives to build a learning-rich workplace where associates and leaders are prepared to succeed,motivated to serve our customers well and given opportunities to grow.Our Home Depot University,now in its 12th year,is critical to the development of values-based leaders who take care of our associates,customers,and communities.In 2021,we continued to respond to the unique and ever-changing challenges related to the pandemic by serving up relevant content and leveraging multiple learning platforms.E-learning:Media-rich,self-directed learning offers focused,interactive activities and actionable feedback.Virtual Instructor-led Experiences:Engaging virtual training that allows two-way communication,group activities,and skills practice,provides consistent and timely development to multiple audiences totaling 94,000 completions across the company in the U.S.Mobile Learning:On-demand content and activities inside the workstream improve learning retention and guide associates in assisting customers.Online Resources:Our library of online,on-demand resources includes videos,courses,book summaries,reference materials,and performance support tools for associates to continue their development journey.We support associate training at all levelsof the career journey.As a result of our efforts,this year we achieved our goal to create career advancement opportunities for 50,000 front-line associates over a five-year period.In addition,we continue to strengthen our connection to our customers by expanding trainingopportunities for them.New-in-Role:A blend of instructor-led training,e-learning,on-the-job activities,leader involvement,and new associate coaches supports a successful assimilation.Ongoing Development:Continuous development of technical and leadership skills delivered in multiple ways and made up of both universal and role-specific content.This development ensures associates at every level continue to evolve their skills to meet the demands of a rapidly changing and increasingly complex environment.Advanced Development:Programs that prepare select associates to lead effectively at the next level.These programs prepare experienced leaders for the challenges theyll face as they move to higher-level roles.Customer Training:Homeowner 101 and Do-It-Yourself live virtual workshops that meet customers evolving home maintenance and improvement needs.Over 71,000 customers attended workshops in 2021.Trades Training:To help solve the skilled labor shortage and support our Pro customers,over 590 customers completed the Path to Pro training program.This program is designed to provide knowledgeable and qualified candidates to our loyal Pro customers in need of skilled labor.Our learning and development programs expand skills and capabilities so associates can master their current roles and prepare for future ones.Learning&Development90%of our U.S.store leaders started as hourly associatesApproximatelyDID YOU KNOWAssociates achieved 27 million learning completions in 2021.Technology:Expanding the use of existing learning platforms and adding new ones We provided more mobile learning opportunities for associates adapting to evolving procedures,protocols and customer needs.We embedded how-to training inside operational systems for easily accessible,needs-based performance support.CHECK IT OUT22-year associate,Kisha Perez,discusses how Home Depots focus on teaching and development helped her go from part-time cashier to department supervisor.28The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyBENEFITSAssociates are at different life stages,and our benefits hub guides them to the right resources.With one click,associates can find support for wherever they are on lifes journey.For example,the money module is the place to go for help with personal finance education or retirement planning.The elders module provides guidance on everything from finding caregivers for aging parents to negotiating the complexities of Medicare.In 2021,the COVID-19 response team continued to support associates as they faced challenges created by the pandemic,as detailed on Programs&Tools FutureBuilder 401(k):Associates can save for the future while taking advantage of tax savings.Eligible associates who contribute to the plan get up to 3.5%of eligible compensation in matching contributions from the company.Employee Stock Purchase Plan(ESPP):Twice-a-year plans provide a 15%discount on Home Depot stock.Associates who enroll may set aside up to 20%of eligible pay(up to$21,250 annually)to purchase stock.Personal finance education:All associates have access to a suite of online webinars,activities,tools and resources designed to help them increase financial knowledge and build the confidence that can help relieve money-related stress.Alight Financial Advisors:Associates have access to independent advisory services to help them gauge whether theyre on track for retirement.Insurance:To prepare for the unexpected,associates have access to policies for medical care,disability,life,home,auto and pet health insurance.Identity theft protection:Associates are automatically enrolled in free AllClear ID identity repair services,and they can sign up for additional proactive identity monitoring at a reduced rate.Perks at Work:Associates have access to special discounts on a wide variety of everyday goods and services from nursery items to mobile phone service,gym memberships,computers,vacations and more.Our people make The Home Depot successful,and its our responsibility and privilege to take care of them.Associate Assistance CARE/Solutions for Life:Our free and confidential assistance program helps associates manage personal and work-life challenges.Licensed counselors and medical professionals are available by phone 24/7/365 to our people and their household members,including spouses,domestic partners,other relatives and roommates.Program team members assist with specific interventions that meet the everyday needs of our workforce from childcare to eldercare,marital concerns,bereavement,emotional stress,legal or financial concerns and more.In addition,CARE/Solutions for Life is available to assist our management teams dealing with disaster relief and responding to traumatic events in the workplace or community.Family Support Paid parental leave:Associates with at least one year of service who are having a baby,adopting or fostering a child can take six weeks of paid parental leave.This benefit is available to both mothers and fathers.Birth mothers are eligible for an additional six-week paid maternity benefit.BenefitsContinues on next pageYears Ahead:Associates have access to resources to plan care for their elders,including referrals to memory and hospice care facilities and independent and assisted-living communities.Adoption assistance:The Home Depot reimburses certain adoption-related expenses to assist eligible associates.Rethink:Best-practice resources and training help associates support their children with developmental disabilities or challenges with learning and behavior.The comprehensive program provides access to easy-to-follow videos,custom learning plans,a training center and one-on-one sessions with licensed experts.Milk Stork:Associates who are breastfeeding and must travel for work can use this specialized delivery service to send breast milk home to their babies.Back-Up Care:Weve partnered with Bright Horizons to offer eligible associates back-up care when:Regular caregiver/stay-at-home spouse is unavailable Associate is between childcare or adult/eldercare Childs regular childcare center/school is closed Associate is transitioning back to work after returning from leave Child or adult/elder relative is ill or needs assistance Associate or spouse is recovering from surgery Sittercity:An extensive database of background-checked babysitters,nannies,elder companions,pet sitters and housekeepers is available to associates.29The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyBenefitsMetLife Legal Services:This legal-assistance voluntary benefit provides consultation and document review for issues from adoption to wills,powers of attorney,divorce,nursing home agreements and more.Educational Assistance EdAssist:Associates have access to academic and college financial advisers to assist them in reducing the time,cost and stress of pursuing their educational goals.This program also includes access to tuition discounts at more than 200 educational institutions nationwide.Orange Scholars:The Homer Fund offers scholarships to qualified dependents of hourly associates based on financial need,academic performance,community involvement and leadership.Financial need is the highest consideration.College Coach:Counselors and online resources guide associates and their families through the college-admissions process and help them create financial strategies for educational costs.Healthy Life Aaptiv:Offering thousands of workouts,this trainer-led fitness app works for all fitness levels.On-demand virtual classes offered at no cost to associates help boost mental and physical health through yoga,meditation,sleep support,running,strength training and more.Take Care Of You:To assist with the unique challenges brought on by COVID-19,this free-to-associates wellness hub provides resources to help associates keep it all in balance and focus on their mental and physical health and well-being.Flu prevention:Free flu shots are available for associates to protect them and our customers during cold and flu season.Health screening:Associates have access to biometric screenings with their personal physicians or at a Quest Diagnostic Patient Service Center.Tobacco cessation:Personalized,one-on-one strategies and support are available at no cost to associates to help them mentally and physically prepare to quit.24/7 care:Associates and family members they care for including elderly parents have access to Teladoc virtual doctors for minor illnesses and behavioral health support from home anytime,including after hours,on weekends and during holidays.Time Off Paid sick leave:Salaried,salaried non-exempt,full-time hourly and part-time hourly associates are all eligible for paid time off for health or personal situations that require time off from work.The amount of paid sick leave varies based on the associates position(e.g.,salaried vs.hourly)and geographic location.Vacation:Salaried,salaried non-exempt,full-time hourly and part-time hourly associates are all eligible for paid vacation time off.The amount of vacation time off is based on length of service with The Home Depot.CHECK IT OUTIn March 2021,associate Keoki Souza purchased his first home.“As a result of my career with The Home Depot,Ive been able to help provide the life my family deserves.”Health care support team:Included Health helps associates navigate health care for themselves and their family members.Associates have 24/7 access to a Health Care Support Team,where they can find in-network doctors,get help tackling a complicated bill,or receive a medical second opinion.The program is free to associates.AccessHope:The Cancer Support Program through AccessHope connects associates and their family members to leading experts from City of Hope,a renowned,comprehensive cancer center,to support them through their cancer journey.Its provided at no cost to associates.30The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyMilitary service members and military spouses are resilient,resourceful and team-minded.Supporting them is the right thing to do for our communities and our company.FOCUSING ON THOSE WHO SERVESPOTLIGHTHonoring those who serve or who have served us is fundamental to our ESG pillar of Strengthening our Communities.Our focus on the military community and their families includes the tens of thousands of veterans and military spouses in our workforce.Through our recently expanded Military Relations department,we look for ways to make The Home Depot an employer of choice for military members,veterans and their families.One of those veterans is Pete Capel,who has created a 30 year career with The Home Depot.Like his father who served in the Navy during WWII,Pete joined the Marine Corps in 1983.During his 7-year military career maintaining radar systems,he was promoted to the rank of sergeant and was awarded the Navy Achievement Medal twice,an award that recognizes outstanding achievement or meritorious service and is recognized across all military branches.After Pete left the Marine Corps in 1990,he began to think about what was next in his life.Thats when his story with The Home Depot started in the most unlikely of ways.Pete was getting his hair cut when Bernie Marcus and Arthur Blank,Home Depot co-founders,appeared on TV.As they were talking about how the company got started,Pete looked up and saw that there was a Home Depot store across the street.After his appointment ended,Pete walked over and immediately applied for a job.Pete was originally employed as a store sales associate in the electrical department.Since then,hes held positions of increasing responsibility over his 30-year career.Today,hes the vice president of field merchandising for the northern,southern,and western divisions.Just as Pete did more than 30 years ago,Richard Cranford and Aminah Meho recently left careers in the Army and Air Force,respectively,and found new opportunities with The Home Depot.Through programs like Hiring our Heroes,The Home Depot partners with organizations that support military members who are transitioning into a second career and can help veterans find a role they enjoy.Made-to-Fit Benefits The Home Depot offers specialized benefits for veterans,military service members and military spouses who are Home Depot associates:Military leave of absence for reservists,National Guard,and active-duty associates Differential pay when activated or deployed Fellowships for transitioning service members Military family international leave of absence Military Spouse Relocation program for hourly associates Over 5,000 remote eligible jobs that can be relocated with military moves Support resources,such as counselors,financial advisers and childcare assistance directories CHECK IT OUTThe Home Depot supports associates who are spouses of military members with flexible hours to help address the unique challenges the military might bring.Hear from military spouse and 6-year associate Alexis(Lexi)Strom on how The Home Depots flexible hours helped her balance family responsibilities during the pandemic.DID YOU KNOWThe Home Depot recently enhanced its military discount benefit to include all U.S.veterans,active service members and military spouses every day,reaffirming the companys commitment to serving the U.S.military community nationwide.Learn more here.Benefits:SpotlightPete CapelVice President of Field Merchandising for Northern,Southern,and Western Divisions31The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyThe Homer Fund provides financial assistance to associates facing unexpected hardships,helps associates children pay for college and supports our people with financial information to help them prepare for emergencies.Grant Programs Direct Grants help associates facing emergencies and tragic events,such as the death of a parent or child,natural disaster,illness or injury,a spouses layoff and more,up to$10,000.Matching Grants are a unique way The Homer Fund recognizes the generosity of associates toward one another.When associates collect donations for a co-worker in need,their money is matched by The Homer Fund$2 for every$1 associates collect,up to$5,000 or the associates actual need.Matching Grants may be used for qualifying expenses that are ineligible for Direct Grants.They also may be used to complement Direct Grants,providing additional support to associates in need.Scholarships for Associates ChildrenThe Homer Funds Orange Scholars program offers scholarships to qualified children or dependents of hourly associates based on financial need,academic performance,community involvement and leadership.Financial need is the highest consideration.Since the Orange Scholars launch in 2006,the program has awarded scholarships to more than 15,000 recipients,totaling$36 million.Financial PreparationIn addition to our grant and scholarship programs,we provide associates with access to a range of Homer Fund-backed resources to support their financial well-being and decision making,including how to save for emergencies and protect themselves against fraud.Highlights In 2021,The Homer Fund continued to support our people in times of need:Nearly$18.8 million was awarded through Homer Fund grants 12 consecutive months of grant distributions related to natural disasters helped associates cope with a variety of challenges 8,800 associates received financial assistance linked to the pandemic,hurricanes,wildfires and more Associate financial assistance included 358 grants totaling$1.2 million related to COVID-19 hardships,and 2,920 grants totaling$2.7 million for disaster recovery THE HOMER FUNDSince 1999,The Homer Fund grants totaling approximately$230 millionhave assisted approximately 164,000 associates facing unexpected hardships.A majority of Homer Fund contributions come from associates.Every dollar our people donate helps a co-worker in need.The Homer FundCHECK IT OUTLearn how The Homer Fund touched lives through the generosity of fellow associates.#OrangeAtHeart 32The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyASSOCIATE SAFETYThe Home Depot strives to provide the safest working and shopping environment for our associates and customers.A major component in the strategy is raising awareness of risks among both front-line associates and leaders.When our people are trained to recognize and correct hazards,our workplace is primed for continual improvement.Safety Takes EveryONE In 2021 we launched an awareness campaign called Safety Takes EveryONE.This message exemplifies that everyone,at all levels of the organization,must contribute to the safety of our associates and customers.At the individual level of the campaign,each associate is provided tools to avoid risk,with every decision made,resulting in everyday safety.Safety Takes EveryONE is our rally cry to remind associates that safety is their most important responsibility and allows us to send everyone home safely.The leader approach to Safety Takes EveryONE utilizes the acronym ONE.This second arm of the campaign focuses of our leaders efforts to increase awareness of the higher-risk injury categories.The O is for OverexertionWhether associates are handling product in a distribution center,receiving freight in a store,helping a customer load product into their vehicle or delivering bulky product to a jobsite,lifting too much or too frequently can result in injury.To prevent these injuries,we ask our leaders to engage with associates to create sustainable habits centered on our Lift it Close to Home ergonomic program.This program reminds individuals to minimize strain on their shoulders and back by anchoring the product lifted to their aprons Home Depot logo,promoting safer lifting techniques.The N is for New Hire Our focus is to ensure our newest associates are set up for safety success.Starting with their initial onboarding,we have simplified and prioritized safety training earlier in an associates experience to raise awareness around the riskiest tasks.We reinforce our onboarding program with monthly awareness topics and leader-driven engagements during the first six months of employment to allow associates to ask questions and provide feedback to improve safety.Safety Takes EveryONE requires leaders to engage with their associates early in their career to establish a positive safety culture.The E is for Equipment Equipment is essential to all areas of our business and it is paramount that it is operated in a safe manner.Safety Takes EveryONE requires leaders to interact with associates through safety engagements focusing on the safe operations of both the driver and the associates working around the equipment.The results of these engagements are reviewed and shared with leaders to create a continuous improvement model.This heightened awareness drives innovation that will remove risk from our business and improve the safety within our stores and facilities.Safety is not one persons responsibility,Safety Takes EveryONE to create an environment that fosters feedback,empowers our associates and leaders to make the safest decision,and allows every associate and customer to go home safely to their loved ones every day.Our people are our most important assets.By focusing on workplace safety training and risk reduction,we help keep our associates and customers injury-free.DID YOU KNOWThe Home Depots lost time incident rate was lower than industry averages for our retail class,according to data from the U.S.Bureau of Labor Statistics.4.894.0320194.25202020211.211.071.23201920202021RECORDABLE INCIDENT RATEWork-related injury that typically warrants medical care beyond store-provided first aid(per 200,000 hours)*LOST TIME INCIDENT RATEMore significant injury that results in time away from work(per 200,000 hours)*Associate Safety*Recordable and lost time incident rates for U.S.store associates.33The Home Depot 2022 ESG Report Greenhouse Gas Protocol Responsible Sourcing Wood Purchasing Policy Forest Stewardship Council U.N.Food and Agriculture Organization Eco Options/Eco Actions Chemical Strategy Energy Star WaterSense USDA National Organic Program Safer Choice GREENGUARD Leaping Bunny Science Based TargetsRESOURCESOPERATESUSTAINABLYWe strive to reduce our carbon footprint by improving the efficiency of our store and supply chain operations,and by investing in alternative energy solutions.We partner with suppliers focused on social and environmental responsibility,and we help our customers reduce their environmental impact by offering products and packaging created with sustainability in mind.GOALSof renewable or alternative energy by 2025Procure/produce335 megawatts40%Science-based target to reduce Scope 1&2 emissionsby 2030,50%by 2035Procure/produceequivalent to the needs for all Home Depot facilities worldwide by 2030100%renewable electricityEliminateEPS foam&PVC filmfrom ourprivate-brand packaging by 2023OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessOperate SustainablyReporting FrameworkTable of ContentsInternational Retail Operations34The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyThe Home Depot uses the GHG Protocol Corporate Accounting and Reporting Standard,which has been adopted by numerous companies worldwide to calculate metric tons of greenhouse gas emissions and efforts to reduce them.We continually review and refine our emissions measurements to reflect changes to our business and improvements in data collection and reporting.We participate in the CDP reporting process.CDP,formerly the Carbon Disclosure Project,is an independent,international,nonprofit organization that provides a global system for companies and cities to measure,disclose,manage and share environmental information.Our latest score of A-from CDP reflects our leadership and high level of action on climate change mitigation,adaptation and transparency.PROTECTING THE CLIMATECARBON FOOTPRINTScope 1:Direct emissions from combustible sources and refrigerants totaled approximately 642,000 metric tons.Scope 2:Indirect emissions from purchasing electricity totaled approximately 1,007,000 metric tons.Scope 3:We are currently assessing our Scope 3 emissions.2021 RESULTSProtecting the Climate:Carbon FootprintBy driving efficiencies and investing in green energy,we reduced our absolute combined Scope 1 and 2 carbon emissions by approximately 172,000 metric tons in 2021.Under our science-based target goal linked to our annual CDP reporting,we have committed to reducing our Scope 1 and Scope 2 carbon dioxide emissions 2.1%per year to achieve a 40%reduction by 2030 and a 50%reduction by 2035.New this year,our annual GHG emissions and carbon intensities correspond to our fiscal year results,which will also be disclosed in our response to the annual CDP Climate Change questionnaire.Our results include data for HD Supply Holdings Inc.,which we acquired on December 24,2020.In 2021,we decreased our Scope 1 and 2 carbon intensity.Our investments in efficiency helped us achieve a 21%reduction in the carbon dioxide emitted for each dollar of revenue we earned,compared to 2020.The Home Depot joined RE100 with our goal to produce or procure 100%renewable electricity equivalent to the electricity needs for all Home Depot facilities by 2030.This action helps us move towards the companys emission reduction targets.CHECK IT OUT35The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyPROTECTING THE CLIMATESTORE OPERATIONSRunning our stores more efficiently furthers both our business and sustainability goals.In 2021,we hit key milestones,including a 50crease in U.S.store electricity use since 2010.When we launched our store electricity conservation efforts a few years ago,we anticipated reducing U.S.store electricity use 20%over a decade.But by tapping into technologies and closely tracking and analyzing use,we were able to save more electricity than we originally imagined.(See chart.)In 2021 alone,we reduced year-over-year U.S.store electricity use approximately 11%.We learned a great deal from the progress we made reducing electricity use in our stores,and now we are applying our experience and proven strategies to conserving resources in other areas of our business,including electricity use in our supply chain and water use in store irrigation.Our successful energy conservation efforts have helped us move closer to our goal of producing or procuring 100%renewable electricity equivalent to the electricity needs for all Home Depot facilities worldwide by 2030.LEDs Help Reduce Store Electricity Usage In 2021,we completed our multi-year project to upgrade U.S.stores to overhead LED lighting,retrofitting 383 stores in 2021 alone.Now LEDs light up nearly all our store aisles across the U.S.,Canada and Mexico.In the U.S.,we have invested approximately$230million in total capital expenditures onLED upgrades since 2018.Our U.S.stores with LEDs consume about 30%less electricity than similar stores withconventional lighting.Capitalizing on Solars Evolution Harnessing power from the sun is essential to our renewable electricity aims,and were making progress by buying electricity from large-scale commercial solar farms.In 2021,Enel Green Powers Azure Sky began operating in Haskell County,Texas,west of Dallas,providing us with 75 megawatts of renewable electricity.We have agreed to purchase another 150 megawatts from companies building solar farms elsewhere in Texas.Once operating,we expect these commercial solar farms,in addition to our wind farm projects,to provide us with enough electricity to power the equivalent of more than 500 Home Depot stores.Protecting the Climate:Store OperationsBy conserving resources we reduce business costs and our companys impact on the environment.Making Every kWh CountThe Home Depot reduced U.S.store electricity consumption 50%since 2010 through a multifaceted effort to find energy savings in every corner of the store.See our annual year-over-year progress below:2021201220112013201420152016201720182019Annual reduction in millions of kilowatt hours(kWh)0501001502002503003504002020500Continues on next pageEnel Green Powers Azure Sky solar and storage plant in Texas began operating in 2021 and provides 75 megawatts of solar power to Home Depot stores.DID YOU KNOW36The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyProtecting the Climate:Store OperationsOn average,fuel cells helped power 204 U.S.stores with more than 100%of their electricity needs annually.The energy capacity we purchase from the Los Mirasoles Wind Farm in McAllen,Texas,is enough wind power to run 125 Home Depot stores.PROGRESS ON POWER800 U.S.stores participate in demand mitigation to optimize our electricity costs during peak demand and help local utilities better manage grid capacity.At 55 U.S.stores,on-site batteries store power during off-peak times for use when demand spikes.Rooftop Solar Harvests Renewable EnergyWe also help our customers harness the power of the sun.In partnership with Sunrun,we help our customers create clean and sustainable electricity.CHECK IT OUTSeeing the potential to use soccer-field-size space atop our stores to harvest the suns power,we installed our first rooftop solar farm in 2014.By the end of 2021,solar farms operated on 76 Home Depot stores and one distribution center in the U.S.In 2022,were increasing our emphasis on rooftop solar by:Increasing the amount of roof space allocated to solarpanels at our storesExploring possibilities for adding solar panels atopmore distribution facilitiesA pilot program launched in 2019 showed us the potential of using smart irrigation systems to save water at our stores.We rolled out the technology to 164 additional stores in 2021;503 U.S.stores were using smart irrigation systems by the end of the year.On average,there is a 29%reduction in water used to irrigate landscaping,compared to stores with traditional timer-based irrigation systems.Heres how it works:In-ground sensors,real-time weather data and other data sources guide when sprinklers come on and how long they operate.So,a stores landscaped areas are watered according to plants needs,rather than the clock.Water Use Drops with Smart Irrigation37The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate Sustainably1Added over 30 distribution centers-increasing speed and efficiency.2Moved approximately 6.9 billion cubic feet of products through our supply chain-a company record.3Reduced supply chain miles driven-despite moving record volumethrough our supply chain.PROTECTING THE CLIMATESUPPLY CHAINWe continue to make progress on our multi-year supply chain initiative to create the fastest,most efficient and reliable delivery network for home improvement products.When we announced our approximately$1.2 billion supply chain initiative in 2017,we could have never envisioned the disruption to the global supply chain because of the pandemic.Due to our supply chain investments,however,we have demonstrated our ability to navigate any environment.In addition,our supply chain investments have helped us move record amounts of product more efficiently.Despite seeing another year of record product volume move through our business,our new supply chain facilities helped us reduce the miles driven to get products from our vendors to our customers.Even as supply chain volume increased,the efficiencies we gained in our operations and our investments in green energy helped us reduce our carbon intensity.Learn more on Page 34.We sell available space on our trucks and buy space from other companies,ensuring fewer underloaded trailers hit the road.That space sharing saves about 2 million driven miles a year.By partnering with suppliers to forgo pallets,we can stack products to the top of trailers,resulting in a reduction in the number of truckloads needed to transport some goods.WAYS WERE DRIVING SUPPLY CHAIN IMPROVEMENTSIn 2021,we installed hydrogen fuel cells at three U.S.supply chain facilities,giving us 15 locations with emissions-free fuel for forklifts.We estimate these fuel cells helped us reduce electricity consumption by about 21 million kilowatt hours in 2021.By making our supply chain more efficient,we reduce business costs and the impact that our product distribution has on the environment.We do a technology-assisted assessment of scheduled pickups and deliveries,then recommend optimized routes to reduce miles traveled,fuel consumed and trucks on the road.As we roll out our new distribution facilities,weve partnered with Plug Power to fuel some of our new facilitys material handling fleets,like forklifts,with zero-emission hydrogen fuel.This is another way we are reducing our environmental impact while building a best-in-class supply chain.Optimization technology guides how we pack trucks or ocean-bound containers.We maximize the product load,reducing the number of truckloads and containers and overall emissions.Protecting the Climate:Supply ChainDID YOU KNOWWe participate in the U.S.Environmental Protection Agencys SmartWay program to collect and report greenhouse gas emissions data from corporate supply chains.The Home Depot is a seven-time recipient of the SmartWay Excellence Award.3 ECO-FRIENDLY SUPPLY CHAIN INNOVATIONS38The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablySOURCING RESPONSIBLYETHICAL SOURCINGWe owe it to our customers,associates and communities to further the collective commitment to human rights,safety and environmentally sound practices through ethical sourcing.We engage our suppliers in this commitment by requiring them to produce products in factories that adhere to responsible sourcing standards.We report on our progress in an annual Responsible Sourcing Report.Our Responsible Sourcing Standards mandate that suppliers and factories abide by all applicable international and local laws,rules and regulations in the manufacturing and distribution of merchandise or services provided to us.We conduct audits of factories around the world to ensure compliance with our responsible sourcing standards.Suppliers must maintain on-site documentation that demonstrates compliance with our responsible sourcing standards.They also must allow Home Depot associates and/or representatives full access to production facilities,worker records,production records and workers for confidential interviews in connection with monitoring visits.We expect our suppliers to promptly correct any noncompliance,starting with timely preparation and presentation of a corrective and preventative action plan.We also re-audit supplier facilities,with the frequency depending on their performance in prior audits.If suppliers fail to improve,we may terminate our business relationships with them.Equally important,we support factories that take action to create lasting social and environmental compliance programs.We encourage suppliers and factory workers to communicate concerns via processes outlined in our corporate Code of Conduct.Our responsible sourcing audits are designed to assess compliance in these areas:Laws and regulationsChild laborForced laborHarassment and abuseCompensationHours of workNon-discriminationFreedom of association andcollective bargainingHealth and safetyEnvironmentSubcontractingCommunicationBusiness ethicsMonitoring and complianceWe support suppliers that take action toward maintaining our collective commitment to human rights and safety in our supply chain.1,487232factoriesaudited for compliance at peak productionfactory auditsand 1,632 follow-up visits conducted in 39 countries under our responsible sourcing policy in 2021BY THE NUMBERS83subcontractorsaudited in 2021Internal Audit associates conduct annual audits to ensure our responsible sourcing program is effective and operating as expectedManagementresponsible for owning and managing risks and implementing actions to ensure responsible sourcing objectivesThird-Party Auditors conduct our responsible sourcing compliance auditsExecutive Leadership Teamsets the tone for our ethical standards and provides oversight and guidance,as neededHome Depot Global Sourcing Offices work with our supply chain to ensure compliance with our standards THDs Responsible Sourcing Team dedicated associates focused on ensuring factories adhere to our standardsBoard of Directors and/or Audit Committee of the Board provides general oversight;receives annual progress report on and reviews results of the annual internal audit of the responsible sourcing program Responsible Sourcing Startsat the TopSourcing Responsibly:Ethical Sourcing39The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablyCONFLICT MINERALS SOURCING RESPONSIBLYThrough our due diligence process,which aligns with guidance from the Organisation for Economic Co-Operation and Development,we received 100%participation from our in-scope private brands and proprietary-product Tier 1 suppliers.Sixty-two percent of our in-scope Tier 1 suppliers indicated that one or more conflict minerals were necessary to the functionality or production of covered products,up from 32%in 2020.Of the smelters or refiners reported by these suppliers,only 48 out of a total of 311 uniquely identified smelters or refiners sourced conflict minerals from covered countries.Forty-three of these smelters or refiners were certified as DRC conflict-free by the Responsible Minerals Initiative,the London Bullion Market Association and/or the Responsible Jewellery Council.We continue to work closely with our suppliers to ensure they implement responsible sourcing;obtain current,accurate and complete information about the supply chain;and encourage their smelters to obtain a“conflict-free”designation from an independent third-party auditor.We work with our suppliers to ensure they implement responsible sourcing and encourage their smelters to obtain“conflict-free”designations.100%of our in-scope private brands and proprietary-product Tier 1 suppliers participated over the last three years in our efforts to collect conflict minerals information.Sourcing Responsibly:Conflict MineralsOur company expects all suppliers that manufacture our products to provide appropriate information and conduct due diligence to enable our compliance with conflict minerals laws.We also expect these manufacturers to obtain products and materials from suppliers that are not involved in funding conflict in the Democratic Republic of the Congo(DRC)and adjoining covered countries.We partner with our private brands and proprietary product suppliers whose products contain tin,tungsten,tantalum or gold(referred to as 3TG)to identify the source of any of these minerals in the supply chain.2021 ProgressAs detailed in The Home Depots Conflict Minerals Report for the year ended Dec.31,2021,our efforts focused on collecting and disseminating information about the sourcing practices of our suppliers.We cataloged that information in a database using the conflict minerals reporting template developed by the Responsible Minerals Initiative.We report this data for the calendar year,rather than our fiscal year,in line with U.S.Securities and Exchange Commission(SEC)rules.Our in-scope Tier 1 suppliers decreased to 21 in 2021 from 91 in 2020 and from 71 in 2019.In 2021,as part of our annual assessment of products in scope,we continued to exclude any supplier of products where the supplier merely affixed company brands,trademarks,logos or labels to generic products manufactured by a third party,as permitted by SEC guidance.40The Home Depot 2022 ESG Report OverviewStrengthen Our CommunitiesFocus on Our PeopleOur BusinessReporting FrameworkTable of ContentsInternational Retail OperationsOperate SustainablySUSTAINABLE FORESTRYSOURCING RESPONSIBLYThe Home Depots focus on selling products made from sustainable sources of wood dates to 1994,when certified-sustainable wood shelving first arrived in our aisles.We recognize the environmental impact our company can have on the worlds woodlands by working with suppliers that adhere to set standards of forest management and tree species selection.To help protect endangered forests and support efforts to preserve timber for future generations,we first issued our Wood Purchasing Policy in 1999.Since then,we have continued to update this policy,and have worked to lead our suppliers to understanding and practicing sustainable forestry throughout the world.We know that responsible forest management is essential to protecting the health of our ecosystems,critical biodiversity and the more than one billion people who depend on forests for their livelihoods.The goal of our sustainable forestry efforts is to ensure timber and healthy forests remain available for future generations.We are proud of our ability to create positive change by encouraging sustainable forestry practices.We strive to better understand the social and economic effects that wood purchases have around the world,especially in regions with endangered forests.Over the years,we have focused our efforts to ensure the protection of forests at highest risk.While we sell less than 2%of the roundwood cut worldwide,we believe our efforts have had an outsized impact on the industry.We source approximately 86%from North America,approximately 8%from South America,approximately 3%from Asia,and less than 1%from each of Europe,Africa,and Oceania.We believe that through our ongoing work with suppliers to sustainably manage forests and the commitments listed in our Wood Purchasing Policy,we have helped to expand forest land coverage in North America.Through the sharing of best practices with suppliers and ongoing engagement with stakeholders,we seek to build upon the progress weve made to protect the worlds forests.The positive impact of our work with suppliers can be seen in our results.We also source lumber from a number of the largest forestry companies in North America,which work with sustainable forest management organizations like Forest Stewardship Council(FSC),Sustainable Forest Initiative(SFI),Programme for the Endorsement of Forest Certification(PEFC),and American Tree Farm to ensure their trees are being sourced sustainably.Suppliers of ours like Mendocino Redwood Company(MRC )and Humboldt Redwood Company(HRC)seek to be examples of forest restoration and show how private forest management can protect and restore the ecological attributes of the forest,and whose forestlands
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55Ians Address to 2022Environmental,Social&Governance Report2022ContentsLetter from Managing Partner.
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2023SUSTAI NAB ILIT Y REPORTContentsNavigation References to chapters in the Sustainability Report References to websites6 Foreword9 About This Report12 Sustainability in the Groups DNA13 Corporate Governance 17 NEW AUTO Group Strategy 22 ESG Performance Management and Materiality Analysis25 Sustainability Management 27 Sustainability Impact of New Mobility Options 30 Stakeholder Management 33 Environmental Compliance Management42 Risk Management45 Corporate CitizenshipFocus Topics1 Decarbonization 48 Decarbonization 69 EU Taxonomy2 Circular Economy 83 Circular Economy3 People in the Transformation 90 People in the Transformation4 Diversity 104 Diversity5 Integrity and Compliance 109 Integrity and Compliance6 Supply Chain and Human Rights 117 Supply Chain and Human Rights131 Appendix132 Independent Auditors Limited Assurance Report135 Contact Information 2Volkswagen GroupSustainability Communication2023ANNUAL REPORT2023SUSTAI NAB ILIT Y REPO RT Information Accompanying the ReportingESG KPIsIndicators along our focus topics are clearly presented in Excel.GRI indexGRI content index(with reference)SASB indexAutomobiles indexReports on Special IssuesResponsible Raw Materials ReportProgress on transparency and risk mitigation in the raw material supply chain(annual)Association Climate Review ReportOverview of climate policy positionsGreen Finance ReportImplementation of sustainable financing strategies(annual)Further ESG topicsInformation on further topics of importance for sustainability and ESG Information on the Group WebsitePoliciesVoluntary commitments and principles that apply across the GroupESG controversiesFactual information on current and ongoing controversiesInternational InitiativesUN Sustainable Development GoalsActivities and projects that help achieve the sustainability goals(annual)UN Global Compact Implementation of the Ten Principles of the UN Global Compact(annual)CDP Score Report Climate ChangeAssessment of climate-related risks,goals and measuresCDP Score Report Water SecurityAssessment of water resources Sustainability and ESG Are Part of the Group StrategyESG PerformanceESG PerformanceThe 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.As 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 andaninsight into topics such as risk management,environmental management,stakeholder management and corporate citizenship.Sustainability in the Groups DNA Decarbonization Circular Economy People in the Transformation Diversity Integrity and Compliance Supply Chain and Human RightsProgressiveCoreSport LuxuryTrucksArchitectureSoftwareBattery,Charging&EnergyVolkswagen Group Mobility06|ESG,Decarbonization and IntegrityHighlights 20231 DecarbonizationAccess to600,000 charging pointsin EuropeBy 2030,the whole dealer networks carbon footprint is to be decreased by at least 30%.Circular EconomyMore than850,000 metric tons of COhave been saved in net terms since 2017 through the Aluminum Closed Loop.In 2023,we processed 77,090 toolsto make them suitable to return to use.People in the Transformation14.3 million training hours in theVolkswagen Group72 locationsare certified in accordance with ISO 45001.Diversity94%of managers have taken part in the Diversity WinsVolkswagen program.Proportion of women in management worldwide andinternationality of top management increased.In 2023,more than 4,100 business partnerswere audited.1,551inquiries were processed at the compliance information point.Supply Chain and Human RightsIntegrity and Compliance7,791 direct suppliers worldwide were trained on sustainability.Suppliers with a positive S rating account for 79%of revenuein the total procurement volume.1 Further information on the figures on this page,such as definitions and scope,can be found in the relevant chapters.6GRI 2-22Dear stakeholders and colleagues,Values create value.We in the Volkswagen Group remain true to this principle.Its an important compass for our actions.And this stance lets us sustainably create long-term added value.For our staff,for our customers,for our investors and for society as a whole.As one of the worlds largest industrial groups,we carry a special responsibility.We can make a dif-ference.We want to and will seize this opportunity.We think of sustainability holistically in terms of nature,people,society and value-adding entrepreneurship.From the supply chain through our production to the delivery and use of our products.Our goal is to help to shape nature and society positively.Thats ambitious.And it will take a great deal of work.At the same time,achieving this goal is an obligation internally to our colleagues and externally to our customers,society and,in particular,future generations.Sustainability Strategy:Clear Goals,Clear Responsibility Sustainability is one of our top priorities.As a strategic field,we set ourselves clear goals and plans for sustainability which are binding with clear responsibilities.The focus is on implementing our strategic measures.We also leverage the synergies in the Volkswagen Group here:All goals are systematically broken down into goals for the brands and Group companies.Management has personal re-sponsibility for complying with these.Decarbonization:What Drives Us The Volkswagen Group is clearly committed to electric mobility.Inspirational product innovations of recent weeks and months such as the Audi Q6 e-tron,the VW ID.7,the Porsche Macan electric or the long wheelbase version of the ID.Buzz show that e-mobility is synonymous with emotion and fascination.Our delivery figures confirm this trend too.In 2023,the Volkswagen Group delivered 771,100 all-electric vehicles.This is equivalent to a year-on-year rise of 34.7%.The share of deliveries accounted for by all-electric vehicles increased to 8.3%.Oliver Blume,Chairman of the Board of Management of VolkswagenAGDaniela Cavallo,Chairwoman of the General and Group Works Council of Volkswagen AG Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human RightsForeword 7A key lever for reducing emissions is production:Our aim is to reduce production-related CO emissions from passenger cars and light commercial vehicles by 50.4%by 2030 compared with the base year 2018.The renowned Science Based Targets initiative(SBTi)con-firmed that our Group meets the requirements for contributing to limiting global warming to 1.5 degrees Celsius with this objective for the production phase(Scope 1 and 2).SBTi has confirmed that the aim of reducing CO emissions by 30%in the use phase(Scope 3)is in line with limiting global warming to two degrees Celsius.This confirmation spurs us on.The Volkswagen Group is aiming to reduce the average CO emissions per vehicle(passenger cars and light commercial vehicles)over the entire life cycle by 30%by 2030 compared with 2018.Ramping up electric mobility and expanding renewable ener-gies go hand in hand here.Thats why we are supporting the construction of wind farms and solar parks on an industrial scale.New wind farms and solar parks are to be constructed in several regions of Europe by 2025.In Germany,for example,Volkswagen supported the construction of a solar plant with a total capacity of 170million kWh a year.The plant in Tramm-Gthen in Mecklenburg in northeastern Germany is the largest of its kind in Germany with around 420,000 solar panels.The Team:Engine of the Transformation Employees are any companys most valuable asset.The Volkswagen Group is only as strong as the people who work for it.Particularly in times of skills shortages,employer at-tractiveness is vital for companies future viability.Our sectors shift toward e-mobility but also toward new business models and digitalization brings with it considerable changes for many workers.Jobs are being realigned,and new fields of work are emerging,while others permanently disappear.We are managing and monitoring these changes in a sustainable and socially responsible manner in the inter-ests of our colleagues.This is also very much intended to ensure corporate success.Because employer attractiveness has long been more than a question of salary.Talented indi-viduals also assess potential employers on factors such as flexibility,work-life balance,diversity,social benefits and personal responsibility.What do these changes mean for the Volkswagen Group?The responsibility for“people in the transformation”is at the core of our current and future activities in human resources.The“Transform to Tech”Group People Strategy,which the Group Board of Management adopted in 2021,plays a key role.When it comes to training,the Volkswagen Groups focus is on training colleagues on future technologies.This includes closely supporting them in the transformation process.For example,Volkswagen specifically added courses on e-mo-bility to its professional training program with the aid of the Volkswagen Group Academy.Newly designed and innovative programs from our Health department look after our em-ployees psychological safety during the transformation.And where major changes are planned in a factory or office,we have transformation offices on hand.They are intended to give people an outlook for the future and provide a clear direc-tion for the change process in the transformation.Job secu-rity until 2029 at Volkswagen AG gives employees the sup-port they need.Holistic Responsibility:The Supply Chain at a Glance In addition to responsibility for its own employees,the Volkswagen Group also has a global responsibility.The Ger-man Supply Chain Due Diligence Act,which has been in force in Germany for more than a year,has a special role here.Focuses include protecting human rights and minimizing environmental risks both topics the Volkswagen Group identifies with through and through.The Sustainability Pro-curement Network shares information between our brands and regions,which serves as a component in managing sus-tainability in our supply chains.More than 110 experts from five continents work together in the network.The network allows the identification of current developments and chal-lenges in the regions of the world and enables joint solutions to be developed.This is crucial because Volkswagen has over 63,000 direct suppliers in more than 95 countries.Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human RightsGRI 2-22 8Technology:The True Key to Sustainability The Volkswagen Group has been a technology company for many decades.This is expertise we will also use in sustain-ability because we believe that technology is the key to prog-ress in the sustainability strategy.As the Volkswagen Group,we are one of the few companies in the world that is taking the strategic expansion of technology leadership in electric mobility fully into its own hands from cell and battery re-search to the development and production of breathtaking electric vehicles.Since PowerCo was launched in July 2022,the battery com-pany has already defined three sites(Salzgitter,Valencia and St.Thomas),introduced the concept of the unified cell,founded a joint venture with Umicore to produce cathodes and introduced activities to secure the supply of raw materials.We are also taking on the task of expanding the charging in-frastructure.By 2025,the Volkswagen Group wants to en-able more than 40,000 fast-charging points in China,North America and Europe to be put into operation.The Volkswagen Group stands for tradition and for strong brands.For advancing developments and overcoming chal-lenges.Today,we are undergoing automotive historys greatest transformation:We want to enable sustainable mo-bility for generations.Sustainability is deeply rooted in the Volkswagen Groups identity.It is an integral part of our Group strategy.For 2024,we are providing important and targeted new impetus.The Volkswagen Group is aware of its role,importance and responsibility.Together,we will do ev-erything we can to make our important contribution with team spirit,fairness and passion.Daniela Cavallo and Oliver Blume Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human RightsGRI 2-22 9Report StructureThis 2023 Group Sustainability Report is based on interna-tionally 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(Environmental,Social,Governance)and stakeholder expectations.The report is supplemented by a detailed description of the sustainability activities of our brands and regions and of the Volkswagen Groups corpo-rate citizenship projects.Further information,particularly information relevant to ESG investors for example,ESG KPIs is available on the Groups corporate website and is not part of this report.www.volkswagen- ESG-Performance&ReportingFor reporting year 2023,Volkswagen AG is issuing a non-financial statement at Company level and a nonfinancial Group declaration,which are being published together as a com-bined separate nonfinancial report within the meaning of German Commercial Code(Handelsgesetzbuch HGB)sec-tions 289b para.3 and 315b para.3.The nonfinancial report is drawn up in accordance with HGB section 315c,in con-junction with sections 289c through 289e.In line with the German CSR Directive Implementation Act(CSR-RUG),this nonfinancial 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)as the underlying structure for reporting on management approaches and the specific standard disclosures.The GRI Content Index has been separated from the 2023 Sustainability Report and can be found as a separate document in the Group portal:www.volkswagen- ReportingVolkswagen Group Sustainability Communicationwww.volkswagen- Press Releases www.volkswagen- SustainabilityADDITIONAL COMMUNICIATIONwww.volkswagen- ESG-Performance&ReportingWEBSITE2023 SUSTAINABILITY REPORT2023 Nonfinancial Statementincluding Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human RightsAbout This Report 10The KPIs presented in this report build on the indicators presented in previous years.Any material changes to data collection or to measurement methods for our sustainability performance are explicitly disclosed by the respective KPIs.All figures shown in the report are rounded,so minor discrepancies may arise from addition of these amounts.Report AuditingEY GmbH&Co.KG Wirtschaftsprfungsgesellschaft con-ducted a voluntary,limited assurance engagement in accor-dance 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 in-formation on the engagement can be found in the indepen-dent practitioners report on a limited assurance engagement on the nonfinancial reporting.Disclosures in Connection with the Annual Financial Statements No material special items in connection with the diesel issue were recognized in fiscal year 2023.To hedge the currently known legal risks related to the diesel issue,the provisions for litigation and legal risks as of De-cember 31,2023 include an amount of around 0.9(1.4)billion,based on existing information and current assessments.I nsofar as these can be adequately measured at this stage,contingent liabilities relating to the diesel issue were dis-closed in the notes to the consolidated financial statements in an aggregate amount of 4.0(4.2)billion,whereby 3.8(3.6)billion of this amount results from lawsuits filed by in-vestors 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 authorities,and the fact that the fact-finding efforts have not yet been con-cluded.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 identifi-able individual risks,price risks and contingent liabilities,which are factored in in the amount of their probable occur-rence.Depending on the jurisdiction concerned,risk provisions for any non-compliance with statutory emissions limits are also included.Their measurement takes into account,As a member of the United Nations Global Compact,we also continuously 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 con-solidated KPI table at the end of each chapter.References to disclosures outside the nonfinancial report are supplementary information and do not form part of this report.The following passages are also not part of the non-financial report:Volkswagen Group Sustainability Communication(pp.34)Foreword(pp.68)The German Corporate Governance Code A Blueprint for Successful Corporate Governance(p.15)Further Information;The Volkswagen Value Chain(p.16)Making the Social and Environmental Impact of Our Actions Measurable(p.24)The information in this report relates to the Volkswagen Group as a whole.Where information relates to individual Group di-visions only,this is clearly indicated in the text.Unless indi-cated otherwise,any information provided for the Group also applies to Volkswagen AG.In addition to Volkswagen AG,the Group includes all major subsidiaries inside and out-side 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 in-cluded in full(100%)in volume-related data(sales,production and workforce)and in production-related environmentally relevant data.The management approaches described in this report(e.g.,the environmental compliance management system)apply to all the Volkswagen Groups controlled companies.With our non-controlled companies i.e.,com-panies 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 ventures are included in the information on the Volkswagen Group in the KPIs and the associated targets on the topics of reduction of the environmental impact of production(UEP),the decarbonization index(DCI),the Opinion Survey,the di-versity index,training hours per employee,accident indices and accident figures.The risks of the Chinese market are assessed by Volkswagen China Investment Company Ltd.GRI 2-2,2-4,2-5 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 11among 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 Volkswagen Group by establishing emission pools where possible.Addi-tional information on this matter and the valuation assump-tions and bases can be found in the Annual Report in the notes to the consolidated financial statements.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 Directive 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 CO emissions in this report includes the consideration and identification of additional climate-dam-aging greenhouse gases such as methane(CH)and laughing gas(NO)(CO equivalents).All figures in this report on CO emissions correspond to CO equivalents,except for fleet emission figures.Net carbon neutrality is achieved when anthropogenic CO emissions are balanced worldwide through avoidance,re-duction and offsetting over a specific period of time.With regard to climate protection,in addition to CO emissions,Volkswagen also pays attention to 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 expression includes the nonfinancial report each time it is mentioned,to the extent described on page 10.Reporting PracticesThe nonfinancial report is published annually.The last non-financial report was published on March 12,2023.In addi-tion to information about the Groups sustainability activities in the 2023 fiscal year(January 1 to December 31,2023),this 2023 nonfinancial report also contains selected infor-mation from the 2024 fiscal year.About This ReportThe editorial deadline was February 14,2024.The Group Sustainability Report is published in the first quarter of 2024 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 economic,political and legal environ-ment in individual countries,economic regions and markets,and in particular for the automotive industry,which we have made on the basis of the information available to us and which we consider to be realistic as of the time of going 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 will have a corresponding impact on the development of our business.In addition,there may be de-partures from our expected business development if the as-sessments of the factors influencing sustainable value en-hancement,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 opportu-nities or other factors that affect the development of our business emerge.GRI 2-3 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 12Sustainability in the Groups DNA13 Corporate Governance 17 NEW AUTO Group Strategy 22 ESG Performance Management and Materiality Analysis25 Sustainability Management 27 Sustainability Impact of New Mobility Options 30 Stakeholder Management 33 Environmental Compliance Management42 Risk Management45 Corporate Citizenship 13Outline of the Legal Structure of the GroupVolkswagen AG is the parent company of the Volkswagen Group.It develops vehicles and components for the Group brands,but also produces and sells vehicles,in particular pas-senger 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,TRATON SE,Volkswagen Financial Services AG,Volkswagen Bank GmbH and a large number of other companies in Germany and abroad.More detailed dis-closures are contained in the list of shareholdings in accor-dance 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.www.volkswagen- Annual Financial StatementsVolkswagenAG 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 elec-tricity sector,Volkswagen AG generates,sells and distributes electricity as a group together with its subsidiaries.The Volkswagen AG Board of Management has sole respon-sibility for managing the Company.The Supervisory Board appoints,monitors and advises the Board of Management;it is consulted directly on decisions of fundamental significance for the Company.Corporate GovernanceVolkswagen AG Shareholder Structure as of December 31,2023,in%of voting capitalEmployees by Marketas of December 31,2023,in%State of Lower SaxonyQatar Holding LLC German institutional investors Porsche Automobil Holding SE Foreign institutional investors Private shareholders/others11.810.02.231.920.024.1Asia-Pacific 16North America 7South America 5Europe(excluding Germany)/other markets 29Germany 44Organizational Structure of the GroupThe 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 primarily consolidates the Volkswagen Groups passenger car brands and the Volkswagen Commercial Vehicles brand.Activities focus on the develop-ment 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 ranges from compact cars to luxury vehicles and also includes motorcycles and is supplemented by mobility solutions.The Commercial Vehicles Business Area primarily comprises the development,production and sale of trucks and buses,the corresponding genuine parts business and related services.The commercial vehicles portfolio ranges from light vans toheavy trucks and buses.The collaboration between the commercial vehicle brands is coordinated within TRATONSE.GRI 2-1,2-6 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 14The Financial Services Divisions activities comprise dealer and customer financing,leasing,direct banking and insurance activities,fleet management and mobility services.With its brands,the Volkswagen Group is present in all of the markets around the world that are relevant for the Group.The key sales markets currently include Western Europe,China,the USA,Brazil,Trkiye,Mexico,Poland 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 in the Board of Management are currently divided among ten Board functions.In addition to the“Chair of the Board of Management”function the other Board functions are“Technology”,“Finance and Operations”(formerly“Finance”),“Human Resources and Trucks brand group”(formerly“Human Resources and Truck&Bus”),“In-tegrity and Legal Affairs”,“Progressive brand group”(formerly“Premium”),“Sport Luxury brand group”(formerly“Sport&Luxury”),“IT”,“China”,and“Core brand group”(formerly“Volume”).The Chair of the Board of Management is also re-sponsible for the“Sport Luxury brand group”Board function.Directly attached to the Board are a number of Group Man-agement functions that act as an extension to the Board functions.These comprise the“Group Sales”,“Group Pro-duction”,“Group Procurement”and“Group Research and Development”functions.The allocation of responsibilities on the Board of Management is based on the rules of procedure decided by the Supervisory Board.The way this is structured helps the Board of Manage-ment to focus on key tasks such as strategy,central deci-sions on the Companys direction,capital allocation and fi-nancial requirements.The task of the extended board-level management functions is to leverage synergies in the Group and to connect the brands and divisions.Board of Management committees exist at Group level for the following areas:products,technologies,investments,digital transformation,integrity and compliance,risk management,human resources and management issues.In addition to the responsible members of the Board of Management,the rele-vant central departments and the relevant functions of the divisions are also represented on the committees.We are continually revising and optimizing these and other top management committees in the Group in order to verify that they still align with our corporate strategy and to further in-crease the efficiency of their decision making.This reduces complexity and reinforces governance within the Group.As part of the“Group Steering Model”base initiative from the NEW AUTO Group strategy,a new leadership model for the Group was presented at the Capital Markets Day in June 2023 that will sharpen the focus on customer orientation,entre-preneurship and team spirit.It follows the“value over volume”principle,prioritizing sustainable value creation over volume growth.As part of this,the brand groups will receive a new steering model.In addition,the brand positioning and the product range are to be sharpened.The realignment also in-cluded a renaming of the brand groups:Volume has become Core,Premium is now called Progressive,Sport&Luxury has been changed to Sport Luxury,and Truck&Bus to Trucks.The Core brand group comprises the Volkswagen Passenger Cars,koda,SEAT/CUPRA and Volkswagen Commercial Vehicles brands.The Progressive brand group comprises the Audi,Lamborghini,Bentley and Ducati brands.The Sport Luxury brand group consists of the Porsche brand.The com-pany responsible for this brand,Dr.Ing.h.c.F.Porsche AG(Porsche AG),has been listed on the stock market since the end of September 2022.In the Trucks brand group,TRATON SE acts as the umbrella for the Scania,MAN,Volkswagen Truck&Bus and Navistar commercial vehicles brands.TRATON SE is also a listed company.In addition to the strengthening of the brand groups,the reorganization and expansion of new units also enabled substantial progress to be made with the“Architecture”,“Software”,“Battery,Charging&Energy”,and“Volkswagen Group Mobility”technology platforms in the reporting year.The structures and product processes at the software subsidiary CARIAD will be optimized further.We are convinced that our corporate structure,which effi-ciently connects not only the brand groups but also the 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 responsibility in the brand groups and technology platforms will enable comprehensive implementation of the Groups NEW AUTO strategy.GRI 2-6 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 15Legal Factors Influencing BusinessLike other international companies,the business of Volkswagen companies is affected by numerous laws in Germany and abroad.In particular,there are legal requirements relating to services,development,products,production and distribu-tion,as well as supervisory,data protection,financial,com-pany,commercial,capital market,anti-trust and tax regula-tions and regulations relating to labor,banking,stateaid,energy,environmental and insurance law.The German Corporate Governance Code A Blueprint for Successful Corporate GovernanceCorporate governance provides the regulatory framework for corporate management and supervision.This includes a companys organization and values and the principles and guidelines for its business policy.The German Corporate Governance Code(the Code)contains principles,recommen-dations and suggestions for corporate management and supervision.Its principles,recommendations and suggestions were prepared by a dedicated government commission on the basis of the material provisions and nationally and inter-nationally accepted standards of sound,responsible corpo-rate governance.In the interests of best practice,the govern-ment commission regularly 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 principles,recom-mendations and suggestions of the Code.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 our shareholders,customers,employ-ees,business partners and investors in our work and enables us to meet the steadily increasing demand for information from national and international interest groups.The Group Corporate Governance Declaration is available in the Annual Report and is permanently accessible on our website.www.volkswagen- Declaration of ConformityEach brand within the Volkswagen Group is managed by a brand board of management,which is responsible for the brands independent and self-contained development and business operations.To the extent permitted by law,the board adheres to the Group targets and requirements laid down by the Board of Management of Volkswagen AG,as well as with the agreements in the brand groups.This allows Group-wide interests to be pursued,while at the same time safeguarding and reinforcing each brands specific charac-teristics.Matters that are of importance to the Group as a whole are submitted to the Volkswagen AG Board of Man-agement to be agreed upon,to the extent permitted by law.The rights and obligations of the statutory bodies of the relevant brand company thereby remain unaffected.The Volkswagen Group companies are managed solely by their respective managements.The management of each in-dividual company takes into account not only the interests of its own company but also the interests of the Group,the relevant brand group and the individual brands in accordance with the framework laid down by law.Material Changes in Equity InvestmentsIn May 2023,the Volkswagen Group completed the sale of its shares in OOO Volkswagen Group Rus(Volkswagen Group Rus),Kaluga/Russia and its local subsidiaries(OOO Volkswagen Components and Services,Kaluga/Russia,OOO Scania Leasing,Moscow/Russia,OOO Scania Finance,Moscow/Russia,OOO Scania Insurance,Moscow/Russia)to OOO ART-FINANCE,Moscow/Russia,which is supported by the Russian automotive dealer AO Avilon Automotive Group,Moscow/Russia.On registration of the transaction also in May 2023 ownership of the shares in Volkswagen Group Rus was transferred from the seller to the buyer.The trans-action includes the production facilities in Kaluga,the im-porter structure of the Group brands Volkswagen Passenger Cars,Volkswagen Commercial Vehicles,Audi,koda,Bentley,Lamborghini and Ducati for potential after-sales business and the warehousing activities as well as Scania financial services activities with all associated employees.GRI 2-6 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 16Further Information Explanations of the composition,working methods and diver-sity concept of the Board of Management and the Supervisory Board and information on voting rights are available in the Corporate Governance chapter in the 2023 Annual Report.2023 Annual Report Corporate GovernanceExtensive explanations of the remuneration system and the individual remuneration of the members of the Board of Management and Supervisory Board can be found in the Re-muneration Report for fiscal year 2023,which forms part of the 2023 Annual Report,in the notes to Volkswagens 2023 consolidated financial statements and in the notes to the 2023 annual financial statements of Volkswagen AG.www.volkswagen- RemunerationThe 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 infor-mation on tax payments and tax expenses/income by country.The Volkswagen Group has the ambition of implementing its marketing and communication activities transparently and responsibly.This includes attentiveness toward our environ-ment and requires 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 compass for implementing the Volkswagen Groups values with regard to marketing and communication activities.www.volkswagen- PoliciesGRI 2-6,207-4The Volkswagen Value ChainResearch&DevelopmentThe Automotive Divisions research and development costs in the reporting year totaled 21.7 billion and were thus 14.8%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 more than 26,660vehicles globally every working day in 2023.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 47.0%in Germany and 27.6%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.Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 17In 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 gener-ations to come”in May 2021 with the approval of the Super-visory 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 continue to grow in the next few years,meaning that the cost-efficient and sustainable production of battery systems and the expansion of the charging infrastructure will be crucial to success.The shift to connected,intelligent and eventually self-driving vehicles,will,however,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 beyond the core product of the auto-mobile.Increasing software development capabilities in order to excite customers with constantly improving digital func-tionality is the prerequisite for this.In equal measure to technological trends,the global eco-nomic and geopolitical environment is also posing increased challenges for the automotive industry.These include,forexample,the economic influence of the largest mobility markets,China,the USA and Europe,and their diverging development.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,underlying factors such as the Paris Climate Agreement.As we transition from automotive manufacturer to mobility group,we have reset our priorities with NEW AUTO and are 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.To this end,we have established clearly defined Group initia-tives across the brand groups,with a focus on our central technology platforms:“Architecture”,“Software”,“Battery,Charging&Energy”,and“Volkswagen Group Mobil ity”.Furthermore,base initiatives form the foundation for the Volkswagen Groups strategic realignment.These are“ESG,Decarbonization&Integrity”,“Business Model 2.0”,“North America(NAR)Region”,“China Region”,“Group Steering Model”,“People&Transformation”and“Financing the Trans-formation”,which are described below.The most important targets for each calendar year are de-fined,and a Top 10 program is developed at Group level so that the strategy can be implemented in operations throughout the year.Priorities in the Groups Top 10 program for 2023 were financial robustness and planning,products,the China and North America regions,software,technologies,battery and charging,mobility solutions,sustainability,and capital markets.This Top 10 program methodology has been adopted by many business units in their functional area strategies,and it is being used to accelerate the implementation of the strategy with a high level of focus.NEW AUTO Group Strategy Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 18To make the progress in our focus topics consisting of the initiatives of the NEW AUTO strategy and the objectives of the Groups Top 10 program applicable to the fiscal year as transparent as possible for management and employees,the Group Board of Management decided to structure and regu-larly measure the strategic objectives and milestones using the OKR(Objectives and Key Results)method.Accordingly,strategic objectives and envisaged key results are defined for all focus topics.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 usually presented to the Board of Manage-ment three times a year.As such,the relevance of the focus topics,and their objectives,milestones,projects and work packages,are regularly reviewed at Group level.Their focus is continuously monitored and adjusted as necessary or inte-grated into standard operations.We report on the main targets achieved and key results in the fiscal year in the“Management and Key Figures”,“Structure and Business Activities”and“Sustainable Value Enhancement”chapters of the Annual Report.2023 Annual Report Group Management ReportArchitecture A future-oriented mechatronics platform will form the back-bone 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 mechatronics platform on the basis of a standardized software architecture.With this standard-ized 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 customers with in-novative 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 in-vestment costs and ensuring the necessary differentiation between the products of the individual brands in the Groups portfolio.NEW AUTO with Focus on Technology Platforms ProgressiveCoreSport LuxuryTrucksArchitectureSoftwareBattery,Charging&EnergyVolkswagen Group Mobility Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 19Software 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.Here we are pursuing the following strategy:We intend to develop software for central control points in the vehicle either in-house or together with third parties in strategic partnerships.CARIAD is collaborating with leading technology companies to integrate further innovative solutions.Together with the Porsche and Audi brands,CARIAD is working to introduce the new E3 1.2 platform,which optimizes the interaction between the hardware and the vehicle software and is also intended to serve as a key lever for data-driven development and for the introduction of new services even after vehicle produc-tion has begun.In the long term,the standardized E3 2.0 software architecture is to form the basis of a complete digital ecosystem,offering customers a wide range of software-based services through-out the entire product life cycle.The software-centric ap-proach of the E 2.0 architecture constitutes a paradigm shift in vehicle development.This is to form the basis for the Volkswagen Groups software-defined vehicles.The aim is for every function that is needed or requested,and for every service,to be customized for the customers in the various markets and to be available for download at any time.This will also open up new sources of revenue for us.Applications at various levels of automated driving(up to Level 4)are to be gradually introduced to the new vehicle models in the Group brands.In this context,CARIAD is responsible for developing software and a tech nology stack for automated driving.Battery,Charging&Energy Cell and Battery StrategyThe battery is a key component in an electric vehicle and an important cost factor.The appeal and market success of e-mobility is determined not only by the price,but also by the vehicles range and its charging speed.In order to achieve our objective of transforming into a world-leading provider of sustainable mobility,we intend to become a profit-generating expert across the entire battery life cycle.To this end,the Cell and Battery Strategy tech initiative pools expertise across the Group and is driving the transfor-mation process in cooperation with our strategic partners.The aspects covered include battery development,cell pro-duction,vertical integration,large-scale storage systems,and recycling.Our primary aim is to develop battery cell tech-nology 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 unified cell,which can contain differing chemistries and is to be used in up to 80%of Group models by 2030.The economies of scale this generates are expected to reduce costs by up to 50%and put us in a leading cost po-sition.To cover the high demand for battery cells,Volkswagen plans to build its own gigafactories around the world.The cornerstone for these activities was laid in Salzgitter/Germany.Using the standard factory concept to optimize investment,further factories are to follow swiftly in Valencia/Spain and St.Thomas/Canada.The aim is to meet about half of the rapidly growing need for battery cells ourselves by 2030.Battery,Charging&Energy Charging and Energy ServicesA sustainable,stable charging and energy infrastructure is a key prerequisite for accelerating the transformation to the battery-electric mobility of the future.It is therefore our in-tention to also become a comprehensive charging and energy service provider in future,and we are investing heavily in the worldwide development of an open,fast-charging network.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 includes the full range of charging solutions for private customers and companies.In addition to our own wall box and flexible fast-charging station(Flex-pole),the focus is particularly on contract-based charging services and smart green electricity tariffs.The aim is for charging processes to be controlled in such a way that they tap into renewable energy,thus reducing the pressure on the power grids.In a next step,Volkswagen intends to use the electric vehicle as a mobile power bank,and thus help to enable electric vehicles to act as additional storage units and become an active part of the energy system in the future.In this way,Volkswagen wishes to make its customers part of the smart-charging and energy ecosystem for decarbon-ized mobility.Our goal here is farsighted use of scarce re-sources in the electric power industry.Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 20Volkswagen Group Mobility In keeping with its mission statement,“Mobility for genera-tions to come”,the Volkswagen Group is developing mobility solutions for the future,taking into account global trends and changes in customer needs.The Group plans to bring together all of its brands mobility services on one mobility platform over the coming years.Autonomous driving combined 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,is to ensure high availability,usage and profitability.With these solutions,we plan to gain market shares and generate long-term competi-tive and attractive margins.ESG,Decarbonization and IntegrityESG(Environmental,Social,and Governance)refers to the basic principles of doing business sustainably.The Groups stakeholders(e.g.,investors,employees,customers and non-government organizations)have high expectations of the Companys ESG performance,including in areas such as decarbonization,circular economy and integrity,and also of its conduct as an employer and as part of society.The Groups ESG performance therefore directly affects its market capitalization,cost of capital and investing activities.We aim for a top position relative to our competitors in sustainability ratings.We are committed to the Paris Climate Agreement and align our own activities with the 1.5 degree target.We aim to achieve net carbon neutrality by 2050.By 2030,we have also set ourselves the target of reducing CO 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 looking for ways to increase the proportion of renewable energy sources used in the product emergence process and the proportion of recyclable materials in our vehicles.We also wish to be perceived as a benchmark for ethical corporate conduct.Volkswagen sees itself as an equal opportunities employer.The intention is therefore for at least a fifth of Group management positions to be held bywomen 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 cus-tomers 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 strong position in the auto-motive market in future.North America(NAR)RegionFor the Volkswagen Group,the North America region,and particularly the USA,has a great growth potential,especially 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 very strong increase in total market share for the Volkswagen Group by then.We aspire to further 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.With our new vehicle brand Scout,we intend to address the core segments of the North American electric vehicle market with tailor-made products.The proportion of battery-electric vehicles in our sales in the USA and Canada is to increase to 55%by 2030.In addition,we wish to maximize the potential for synergies in the region and build more expertise,industrial capacity and vertical value chains in the North America region.Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 21China RegionChina is of major strategic significance to the Volkswagen Group as its largest single market.All key measures are therefore brought together in this strategic base initiative in order to continue Volkswagens success story in China.These include localized development activities that are tailored to the market(the in China for China approach),competitive products,the deepening of our existing partnerships and forging of new ones,and a comprehensive program of mea-sures for achieving a permanent reduction of costs to safe-guard long-term profitability.Our aim for 2030 is to take a leading role in China as an in-ternational mobility provider and manufacturer of fully con-nected vehicles.As part of our localization strategy(in China for China),we therefore want to pool and expand our local development capacity to a greater extent in the coming years.In so doing,we want to considerably speed up the develop-ment of intelligent connected vehicles(ICVs)and be in a position to offer tailor-made products to our Chinese custom-ers faster.In the market for vehicles with conventional drive systems,we want to further strengthen our share of the market with new vehicles and secure it for the long term,as these vehicles high unit sales will also make a correspond-ing contribution to profitability in future.Group Steering ModelTo achieve the objectives of the Group strategy and thereby safeguard the Volkswagen Groups long-term success,we are extensively optimizing our Group Steering Model.It is es-sential that we establish a consistently high level of mecha-nisms that facilitate swift decision-making,the development and use of platform technologies and the exploitation of syn-ergies,and that we constantly enhance these.The updated Group Steering Model places the brand groups and technol-ogy platforms center stage in order to scale up the latter while maximizing synergies across the entire Group product portfolio.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 entre-preneurship 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 ex-isting employees by providing extensive training where re-quired.Our aim is to retain staff for the long term.It is there-fore fundamental that we address the changing needs of our employees and offer them an outstanding employee experi-ence.To achieve our Groups ambitious objectives,we must also create and promote an environment for productive teams,resulting in a strong,sustainable and socially respon-sible 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 Transformation The transformation being driven by digitalization and elec-trification will require extensive investment.To meet this need for financing,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 costs,distribution expenses and working capital management.Strategic Financial Performance Indicators20222030 targetOperating return on sales8.1%9 to 11%Automotive investment ratio 13.6%9sh conversion rate in the Automotive Division129.2%Net liquidity in the Automotive Division 43.0 billion2 15.4%of consolidated sales revenue Return on investment(ROI)in the Automotive Division 12.0%1 Net cash flow as a percentage of the operating result in the Automotive Division.2 Including cash inflows from the IPO of Dr.Ing.h.c.F.Porsche AG.Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 22Materiality Analysis Linked with Group Strategy and ESG PerformanceThe materiality process 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 com-pliance with legal requirements and internationally established reporting standards.The Group conducted a materiality analysis in 2022.In review-ing a large number of potentially material issues,we consid-ered 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 frame-works such as the EU Taxonomy,the German Commercial Code(Handelsgesetzbuch HGB),the UN Global Compact,the Sustainability Accounting Standards Board(SASB),the Global Reporting Initiative(GRI)or the Sustainable Development Goals(SDGs)Key ESG ratings AI-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 ana-lyses of Volkswagen Group production sites.The focus topics prioritized for the NEW AUTO Group strategy were confirmed with the 2022 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 and compliance Supply chain and human rightsThe focus topics identified were reviewed in 2023,taking into account the requirements of the German Supply Chain Due Diligence Act(Lieferkettensorgfaltspflichten gesetz LkSG)and changes in the material ESG ratings.Ultimately,the six focus topics were reconfirmed.A comprehensive ma-teriality analysis in accordance with the requirements of the European Corporate Sustainability Reporting Directive(CSRD)and European Sustainability Reporting Standards(ESRS)is being conducted in a separate process to prepare for the 2024 reporting.Each 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),the diversity index,and the governance factor are already reflected in the remuneration of members of the Board of Management.2023 Annual Report Remuneration ReportThe topics classified as material also provide the foundation for the structure of this sustainability report and serve as thebasis for managing the Volkswagen Groups sustainability program.ESG Performance Management and Materiality AnalysisGRI 2-19,3-1,3-2 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights ESG rating scales MSCI:CCCAAA;Sustainalytics:1000;ISS:D-A 1 Disclaimer:https:/ 2022 2023B B B29.6(medium risk)26.1(medium risk)26.4(medium risk)C C C 23Action Program for Optimized ESG PerformanceThe NEW AUTO Group strategy focuses not only on techno-logical and product-related initiatives but also on improving the Groups ESG performance.This is because this directly and indirectly impacts Volkswagens market capitalization,costs of capital and attractiveness to investors.This is partly due to increasing density of regulations on sustainability as a result of frameworks such as the EU Taxonomy,CSRD,or regulations on the responsible shaping of supply chains.More-over,capital market players such as institutional investors not only expect transparency on the Groups sustainability performance but also an effectively implemented strategy that leads to continuous improvement in sustainability per-formance.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 close existing gaps in ESG performance and create additional transparency by disclosing our measures and key performance indicators.2.ESG engagement:We are intensifying our communication on ESG and sustainability in the capital market by com-municating our messages and results in roadshows,in-vestor conferences and other formats.In this way,we ex-plain our current performance and at the same time benefit from the learning effects and knowledge transfer that this dialog makes possible.www.volkswagen- Financial Calendar3.Management of controversies:We aim to reduce the neg-ative impact of legal or media controversies regarding the Volkswagen Group on our rating results.Our own web-based information on existing ESG controversies around Volkswagen makes a contribution to clarification and ob-jectivization.www.volkswagen- ESG Controversies4.Internal ESG data infrastructure:We are working on es-tablishing comprehensive ESG data reporting tools for better data-supported infrastructure and aim to create comprehensive ESG information offerings for relevant stakeholders in the future.Compared with prior years,the Groups score in the ESG rating from ISS improved from C to C .The Volkswagen Groups Sustainalytics rating remained stable in 2023 at a rating level of“medium risk”(2022:26.1;2023:26.4).In fiscal year 2023,Volkswagen continued to have a score of B from MSCI and had a climate rating of A from CDP.Volkswagen reported material content in the Water Disclosure Project(WDP)but was not assessed in fiscal year 2023.A change in valuation methods meant that,at the end of 2022,financial services provider MSCI ESG Research gave Volkswagen AG a red flag in its ESG Controversies report for alleged human rights violations in a plant in rmqi inthe Xinjiang region that is operated by a subsidiary of Volkswagens Chinese joint venture SAIC Volkswagen Auto-motive Co.Ltd.No signs of human rights violations were found either during the visit by the member of the Board of Management of Volkswagen AG for China,Ralf Brandsttter,in February 2023 or after Loening Human Rights&Re-sponsible Business GmbH conducted an independent audit of the plant in November 2023.On December 11,2023,MSCI ESG Research raised Volkswagen AGs rating from red flag(score 0)to orange flag(score 1).Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 24Making 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 environmental and social systems for the purpose of the inside-out perspective.This impact relates to the Groups entire business,including its supply chains and its products and services.This means we are not only taking on board impetus from regulatory developments as it emanates from the requirements of the CSRD or the EU Green Bond Standard,but also impetus from international initiatives and organizations 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 en-deavoring to make even greater use of an impact assessment in our decision-making and management processes,risk management,reporting and communication with our stake-holders.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 sustainability impact and readjusted as necessary.Sustainability Impact of New Mobility OptionsWe are currently developing a Group-wide concept for valuing impact with the name of“Impact Valuation Volkswagen Group.”The concept is based on the successful implementa-tion of two pilot projects at site and brand level.In order to advance the topic of impact valuation 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 valuation and the financial balancing of sustainability impacts on an interna-tional level across sectors.In addition to the Volkswagen Group,the VBAs members include numerous global companies,such as Bosch,BASF,BMW,Michelin and SAP.Value Balancing Alliance Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 25Structure 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 responsi-bility to make a contribution to preserving their sustainability.An extensive sustainability management system was set up for this purpose.The related structures,processes and re-sponsibilities are codified in a specific Group policy.We view sustainability management as a continuous 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 manage-ment systems relating to sustainability and by the newly appointed Chief Sustainability Officer at Group level.Sustainability is part of the Top 10 program and is managed through the NEW AUTO strategys strategic management structure.The content is regularly evaluated and reported in the Board of Management.Furthermore,the Groups sustainability function(Group Sus-tainability)coordinates all sustainability-related activities and the Group-wide and cross-functional network for sus-tainability.Communication with Group functions,brands and companies is structured via defined core processes.They serve to create transparency on external requirements and translate these into corporate action.The core processes include the sustainability strategy and materiality analysis,stakeholder management,ESG ratings and rankings,sus-tainability policies and sustainability reporting.Group Sus-tainability is allocated to Group and Product Strategy and to the Office of the Corporate Secretary in order to ensure that sustainability is closely linked with the strategic corporate goals and the core business.In the reporting period,the Volkswagen Group began revising its structure and workflows in light of new and upcoming regulatory requirements and is expected to complete this process in 2024.Sustainability ManagementGRI 2-9,2-12,2-13,2-14Board of Management levelGroup levelGroup levelRegion levelBoard of ManagementChairman of the Board of Management(CEO)Members of the Board of ManagementGroupfunctionsGroup Sustainability(CSO)Group strategy and Office of the Corporate SecretaryGroup ProductionGroup HRBrand functionsProductionHRBrand Sustainability Manager(Audi,Porsche.)Region/siteCEO=Chief Executive OfficerCSO=Chief Sustainability OfficerManagement of cross-functional topicsManagement of function-specific topicsGroup function sustainability managersDiscussion of core sustainability processesDiscussion of function-specific topicsSustainability Embedded in the Volkswagen Group Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 26At 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.This advisory committee,which was created in 2016,supports the Volkswagen Group with important strategic sustainability topics and is made up of internationally re-nowned experts from the academic world,politics and society.The committee establishes its own working methods and areas of focus independently,has extensive rights for the purposes of exchanging information,consultation and initi-ating action,and consults regularly with the Board of Manage-ment,top management and the employee representatives.The previous Sustainability Councils mandate ended at the end of 2022.In the reporting period,we began to reorganize its strategy and composition.Further information is available on the Sustainability Committees website:www.volkswagen- Sustainability CouncilUN Global CompactVolkswagen AG is a participant in the UN Global Compact,the worlds largest corporate sustainability initiative,and participates in national and international initiatives together with other Group companies,including AUDI AG,MAN Truck&Bus SE,Dr.Ing.h.c.F.Porsche AG,Scania AB and TRATON SE.Fund managers in the capital markets view membership of the UNGC as an important factor when deciding to invest in shares and bonds of Volkswagen.Sustainability-oriented funds have grown in recent years and have become indispens-able as stakeholders.As part of the annual Communication on Progress,the Volkswagen Group and its brands report on their progress in implementing the ten UNGC principles and their activities to support the Sustainable Development Goals(SDGs).The progress reports of Volkswagen AG,AUDI AG,Dr.Ing.h.c.F.Porsche AG and TRATON SE,which comprise all other participants in the Group,can be viewed on the UN Global Compact website.UN Global Compact VolkswagenGreen Finance Framework for Investments in SustainabilityMassive investment is needed to transform the Volkswagen Group.At the same time,investors are looking for sustain-able 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 frame-work for financial instruments geared to sustainability.In the reporting year,we refinanced fiscal year 2022 capital expenditure aligned with the EU Taxonomy on the basis of the Green Finance Framework newly published in 2022 by issuing 3.5 billion in green bonds.The Volkswagen Group has thus issued a total of 9.5 billion in green bonds to refi-nance capital expenditure for all-electric vehicles(BEVs)since 2020.In 2022,the Volkswagen Group published a new Green Finance Framework that was further developed in particular 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 in-clusion of BEVs in sustainable financing.Under the new Green Finance Framework,the only investments that will be con-sidered are investments for BEVs produced by the Volkswagen Group that are aligned with the EU Taxonomy.This system-atically 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 to refi-nance environmentally friendly projects such as e-mobility.This both fulfills the clean transportation category of the Green Bond Principles 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 its third Green Finance Report,which contains the Allocation Report and the Impact Report,during the reporting year.More information is available on our corpo-rate website.www.volkswagen- Green FinanceGRI 2-12,2-13 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 27Mobility Solutions with Measurable Benefits for People and the EnvironmentOur global society today faces the major challenge of find-ing 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 sufficient,affordable and accessible transportation,limiting their participation 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 technol-ogies 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 prob-lems and protect the climate.The 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 Strategy Our expectation is that most people will still prefer individual mobility by 2030,but their focus will be more on using vehicles than on owning them.In light of this,Volkswagen Financial Services AG is developing a platform for the Volkswagen Group and its brands that covers customers different mobility needs from using a vehicle for a few minutes to a subscrip-tion for multiple years.The Europcar Mobility Group will be an important element of this platform.Assessing the Sustainability of Mobility Services Using SimulationsIt has been shown many times that new mobility concepts increase the range of options in urban areas but are not auto-matically sustainable.Creating a basis of assessment is there-fore important so that mobility solutions can be assessed for their sustainability impact and also influenced.This is be-cause determining the right framework conditions and regu-lations is of decisive importance to make substantial contri-butions 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 condi-tional on this proof.Against this background,the Volkswagen Group is continu-ously developing the mobility simulation framework.Its focus is on impact assessments that digitally replicate mobility on the basis of real data.Technologies 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 unde-sirable side effects can be discovered early and taken into account when developing mobility solutions.We also developed the Mobility Impact Analyzer(MIA)in the reporting year to present the complex effects of a solution such as ride pooling over time and geographically for cities or public transportation operators.This data-supported cloud application shows how a mobility solution can be integrated into a citys mobility system and what effects certain scenarios have.MOIA,our on-demand ride pooling provider,presented MIA to an expert audience at the UITP Global Public Transport Summit in Barcelona in June 2023.Sustainability Impact ofNew Mobility Options Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 28We endeavor to regularly communicate with stakeholders on mobility solutions and analyze trends on an ongoing basis so that we can update targets and criteria as needed.The methods and models for mobility simulation are also being continuously developed.For example,in the reporting year we developed a new method that reduces a simulations lengthy computing times.It was presented at the meeting of the Transportation Research Board in the USA.In addition,we aim to steadily improve the quality of our results by compar-ing these with mobility providers real data and experience.We use various key figures that are scientifically recognized and also reflect the requirements of various players to evaluate mobility services.Customers value short and reliable journey times,while access for citizens and the reduction of CO 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.MOIA:Recognizing and Serving Mobility NeedsMeasures for increasing efficiency and better capacity utiliza-tion continue to be important steps on the path to sustainable mobility.In the case of ride pooling services such as MOIA,the transport needs of various customers must be linked as optimally as possible in order to balance detours and waiting times with high utilization of capacity.Modeling 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 because 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 pre-viously used.For example,there is a much debated question about whether ride pooling might ever overtake public trans-portation.Initial fears are,however,proving wrong.MOIAs accompanying research instead proved the opposite:The research showed that the mobility network and especially public transportation would benefit from the expansion of ride pooling.MOIA expanded its revenue model in the reporting year.The company has introduced a licensing model for ride pooling and established a new business unit Mobility Analytics.Asa result,MOIA will no longer operate exclusively in the customer market but also offers cities,public transportation operators and local authorities all the services necessary toimplement ride pooling within the framework of public transportation.In addition to service design and consulting,the new licensing model includes operating models,the fully integrated ride-pooling and operating software required for this and,where applicable,the use of the MOIA brand.In Hamburg,MOIA has been providing its ride pooling service in close partnership with the transportation company Ham-burger Hochbahn since 2019.Since the start of 2023,the company has been integrated in Hamburgs local public transportation system as a self-sustaining on-demand ride pooling service licensed under the amended Passenger Transportation Act.MOIA has carried more than 8.9 million passengers in Hamburg to date.Achieving More with Comprehensive Solutions The intermodal impact assessments and analyses provide important pointers to which levers can be used to improve the sustainability impact of new mobility solutions.One factor that impacts the effectiveness of an individual solution is its integration into the transportation and energy system.A good example of this is an e-car sharing pilot project in southern Germany,in which AUDI AG is involved as a partner.The project is being run in our rural area where,for the most part,private vehicles predominate and car sharing has so far barely gained acceptance.It aims to close mobility gaps in public transportation services and contribute to reliable mobility.In addition to electric vehicles,other partners from the Group are also contributing solutions for charging infra-structure(Elli)and booking systems(SEAT:Code).The value of solutions that do not isolate the energy and mobility systems but take a holistic view of them was also evident in another context.As a long-standing member of the World Business Council for Sustainable Development(WBCSD),in 2023 the Volkswagen Group continued its in-volvement in the“Transport and Mobility Pathway”one of the new action areas in the WBCSDs Vision 2050.The energy sector focal issue of charging infrastructure was considered together with mobility behavior here.The result was that the location and power of public charging points should also take account of the real routes taken by e-vehicle drivers so that they can charge their e-vehicles without unnecessary detours and as close to the destination as possible.During the vehicles idle time,charging or feedback of power into the grid should be synchronized with the availability of renew-able energy.Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 29Improving Participation in Society In addition to environmental and economic objectives,social aspects,such as access to and participation in society,also play an important role for mobility solutions.This includes attractive public transport,especially in urban areas.Our MAN brand,for example,makes a contribution that benefits the population as a whole with electric,efficient,digital,and,in the future,also automated transportation solutions.In addition,for example,Volkswagen Passenger Cars and Volkswagen Commercial Vehicles provide people with disabilities with barrier-free access to their own vehicle for example,through hand controls.So that passengers with mobility restrictions such as wheelchair users can also spontaneously and con-veniently get from A to B,MOIA has been operating 15 acces-sible vehicles in Hamburg with appropriately trained drivers since the start of 2023.And like in Hamburg public trans-portation,people with severe disabilities also travel for free with MOIA.AUDI AGs electric car-sharing project described above goes a step further when it comes to inclusion.The plan is to found an inclusion company together with partners to help people with impairments to find their way into per-manent employment.Astypalea:Transformation to a Smart and Green IslandAstypalea is a living lab for smart and sustainable mobility solutions in Europe.The Greek island is located in the Aegean Sea,has 1,300 inhabitants and is similar in size to the German island of Sylt.In addition,36,000 tourists on average visit the island every year.Astypalea is now to be transformed into a smart and green island by 2026.To this end,the Volkswagen Group has joined forces with the Hellenic Republic.Traffic on Astypalea will be converted to e-mobility.This in-cludes the public transport system,local authority vehicles(e.g.,police),company vehicles and the private vehicles of the inhabitants.All new vehicles registered here are now ex-clusively electric vehicles.At the same time,an extensive network of private and public charging stations is being set up.The all-electric vehicle-sharing service astyGO and the ride-sharing service ASTYBUS have been launched.Unlike the previous bus system,ASTYBUS operates the whole year and can call at all the hot spots on the island.In the first year of operation since June 2022,it has completed more than 200,000 customer kilometers,and a fourth of the inhabitants use the service regularly.E-cars,e-scooters and e-bikes make up the vehicle-sharing service.Bookings are made by smart phone using the integrated astyMOVE app.The results of an independent,accompanying scientific study show a high level of approval from the people of Astypalea:In general,80%see the transformation positively and ASTYBUS even has an approval rating of 97%.The energy system of Astypalea will also be gradually converted to solar and wind energy under the leadership of the Hellenic Republic:In 2024,the existing solar park will be expanded to an output of 3.5 MW and a storage battery will be added to not just supply the e-vehicles with green energy but also cover up to 60%of the islands entire energy needs with renewable energy.Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 30Strategic 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 implications of those decisions.Our employees and customers are at the center of our stakeholder network.Inaddition,we have identified eight further groups.Continuous communication between internal and external stakeholder groups is important to us.In this context,the Supervisory Board and the Works Council act not only as supervisory and advisory bodies but also as interfaces between internal and external stakeholders.Stakeholder ManagementVolkswagen Group StakeholdersGRI 2-29 Policymakers and associationsBusiness partners and suppliersCompetitorsAcademics and expertsResidents and local authoritiesNGOs/non-profit organizationsVolkswagen GroupWORKS COUNCILSUPER VISORY BOARDCUSTOMERSEMPLOYEES123MediaOwners,investors and analysts Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 31For us,stakeholder management means interacting with the Companys key stakeholder groups systematically and con-tinuously 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,con-structive and also critical communication with the stakeholder groups listed in the diagram about their requirements and ex-pectations of us,as well as central issues of our Group strategy and its implementation.Our brands and regions have their own stakeholder management strategies.The Groups task is to bring together and orchestrate these activities in an inte-grated framework.This framework includes:Stakeholder engagement on a Group level with specific committees,formats and a focus on stakeholders relevant across the Group Advising and coordinating the brands and regions on the implementation of their stakeholder engagement activities Carrying out regular stakeholder analyses and stakeholder surveysStakeholder management is one of the core processes of sus-tainability management in the Group.Tasks,responsibilities and organization are set out in the Group policy on sustain-ability management.Sustainability ManagementAs an international group,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 changing expectations of us at an early stage.It also involves continuously informing andregularly communicating with all business areas.This communication not only helps us to identify our stakeholders requirements,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 manufacturer to a world-leading,software-driven mobility provider is being expanded through new areas of expertise such as autonomous driving,battery technology,charging in-frastructure and energy services.This changes the range of relevant stakeholder groups and their expectations and re-quirements of the Group.Here,too,our aim is to take all stake-holders into consideration equally.We want to inform them in a way appropriate to the target audience,actively involve them in the transformation process by requesting and encouraging their feedback and suggestions for the sustainable develop-ment 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 conditions and sustainably improve its acceptance and repu-tation.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 environ-ment.An overview of the Groups most important member-ships is available online.www.volkswagen- MembershipsReputation KPI Measures Stakeholder TrustThe reputation key performance indicator(KPI)makes a decisive contribution to anchoring stakeholder management in the sustainability 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 rep-resentatives of importance to the Volkswagen Group from the fields of politics and associations,media,academia,NGOs,investors and analysts and also business partners.Fundamen-tally,representatives of the highest possible decision-making level are surveyed in all the stakeholder groups.In Germany,the 2023 reputation KPI for the Volkswagen Group is 83%.GRI 2-28,2-29 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 32From 2017 through 2022,the survey was conducted in the three markets of Germany,China and the USA.Due to the homogeneous competitive environment,there were no sig-nificant changes in the results in the USA or China in the past few years from which we were able to derive important impetus for action for the markets.This particularly applies to China,where,since the start of the study,the Volkswagen Group has gained and held the top position.The situation is different in Germany,where the competitive environment is becoming increasingly varied and thus more challenging due to international competitors.As one of the Groups most important and sensitive core markets,closely monitoring the market is vital here for future decisions and activities.For this reason,the 2023 survey was only conducted in Germany.Additional open questions were added to the reputation study in 2023.The aim was to proactively obtain individual feedback from stakeholders by these means in order to be able to identify and validate requirements and expectations even more specifically and include these in future decision-making processes.The Group obtained the following results in 2023:83%of stakeholders in Germany stated that they trust the Volkswagen Group(2022:78%).The reputation KPI thus improved sig-nificantly compared with 2022.In contrast to the previous years results,this is not in line with the overall competitive environment in Germany and is partly due to stable business performance despite the economically and politically chal-lenging situation.A fundamental revision and realignment of the study is planned for 2024 in line with the changing eco-nomic,social and regulatory framework conditions.Stakeholder Panel as a Critical CompanionThe Volkswagen Group has also established a Stakeholder Panel,which has now overseen the Group sustainability ac-tivities for over 20 years.The whole panel(Germany/Austria/Switzerland;EU)currently comprises more than 200 institu-tions and organizations.In 2023,the Volkswagen Group started to develop a systematic analysis process for stake-holders,which is to be implemented in 2024.Following the interruption caused by the pandemic in 2020 and 2021 and the resumption of our communication activities in 2022,we started to restructure and redesign our stakeholder manage-ment in the reporting year.We want to incorporate our stakeholders suggestions and recommendations even better in the future through the introduction of new formats in-tended to create the opportunity for even more interactive and transparent communication on important sustainability issues relevant to corporate strategy and society.GRI 2-29 Table of Contents The Groups DNA|Decarbonization|Circular Economy|People in the Transformation|Diversity|Integrity and Compliance|Supply Chain and Human Rights 33Consistent Compliance with Environmental RequirementsCompliance with environmental laws and requirements at all our sites is a high priority for Volkswagen.Our effective environmental compliance management is intended to ensure that we not only meet legal requirements but also the re-quirements of other internal or external stakeholders.At the same time,it allows us to live up to our binding commitments on environmental matters and compliant behavior.The envi-ronmental compliance management system is,in particular,a risk provision against breaches of regulations that may be associated with damage to the environment,our Group and society.It helps us to continuously 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,de-carbonization and circular economy are the focus issues.At the same time,the environmental compatibility of our prod-ucts,services and processes is one of our Group Essentials.With electric 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 footprint over the entire life cycle Environmental Compliance Managementof our products and mobility solutions.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.With this mission statement,we aspire to reduce environmental impact along the entire life cycle from raw material extraction until end-of-life for all our products and mobility solutions in order to keep ecosystems intact.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 perfor-mance indicators,programs and measures.The mission statement is continuously reviewed,and its objectives are adjusted to new requirements and changes in conditions.The mission statement puts the Groups focus on the four fields for action presented in the diagram below and their underlying objectives.goTOzero Environmental Mission Statement:Action AreasPROTECTINGthe 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,decarbon
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我们专注于我们的承诺，到2030年实现我们整个足迹的碳中和，我们自己的运营已经实现了这一目标。与此同时，我们正在努力，希望有一天我们的产品不需要从地球上获取，并成为我们周围世界公平的一股力量。
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这项工作可以有多种形式。但是，无论是保护隐私权，设计人人都能使用的技术，还是在我们的产品中使用比以往更多的回收材料，我们一直在努力为我们服务的人们和我们居住的地球带来改变。作为一家公司，我们知道我们对人们生活的影响超出了我们创造的技术
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2021 Global Citizenship&Sustainability ReportPURPOSE THAT FEEDS THE FUTUREWerepassionate aboutfeeding afuture with more purpose because its our responsibility to create aRecipe for Goodfor all.TABLE OF CONTENTSAPPROACH Citizenship&Sustainability Goals and CommitmentsCorporate GovernanceMateriality6ESG REPORTINGPerformance SummaryGRI IndexSASB IndexAbout This Report 40PEOPLEPeople DashboardConnections Across Our Recipe for Growth&GoodUnlocking Opportunity Equity&Inclusion Education Entrepreneurship Brand Community ImpactEthics&Human Rights14FOODFood DashboardFood SafetyBalanced Choices Across Our PortfolioAnimal WelfareLimiting Antibiotic Use24PLANETPlanet DashboardClimate ActionInitial Areas for Emissions Reduction Restaurants&Offices Supply ChainDeforestationSustainable Packaging&Waste ReductionWater30Transparency&VerificationReporting&Disclosures Stakeholder EngagementThe last two years have presented one of the most challenging environments that the world,along with Yum!Brands,have navigated:year two of a global pandemic,associated supply chain disruptions and persistent labor shortages.We ended 2021 stronger than ever,marking the strongest growth year in our history and setting an industry record for unit development.We opened nearly 4,200 gross units during the year an average of one new restaurant every two hours.Our success is a testament to our Recipe for Growth&Good,showing that a focus on environmental,social and governance(ESG)issues is not incidental to growth,but rather,an enabler of it.Our shareholders and other stakeholders understand this.As a result,we are actively embedding ESG considerations into our business strategy and adopting responsible business practices that resonate with our values.We made significant progress in 2021 toward our three Recipe for Good priority pillars of People,Food and Planet.One of Yum!s defining characteristics is the culture that we create in our restaurants and professional teams and the way we take care of people in our communities.During the year,we invested in Yum!s social purpose,unlocking opportunities for our people and communities through initiatives like the launch of the Yum!Center for Global Franchise Excellence at the University of Louisville,which will create pathways to entrepreneurship for underrepresented people of color and women interested in franchising.2021 was a milestone year for our environmental commitments:We announced science-based targets(SBTs)to reduce greenhouse gas(GHG)emissions nearly 50%by 2030 and set an ambition to achieve net-zero emissions by 2050.We have initiated several pilot projects to help reduce emissions in our restaurants and supply chain and have introduced a harmonized packaging policy that creates a common set of standards across all four of our brands.In terms of our food,we remain focused on safety,listening and responding to customers evolving preferences,and improving the nutritional value of our menu items.We continue to introduce relevant and distinctive plant-based offerings at our brands,including in restaurants in the United States,Canada and Europe.As I reflect on the past two years,Im incredibly proud of the way our teams have collaborated to serve our customers and community while fueling growth for our franchisees and shareholders.Our performance in 2021 demonstrates that our iconic brands can thrive and win in any environment,and as we make our way through 2022 our 25th anniversary year Im confident and energized about what lies ahead.Thanks for your support.A MESSAGE FROMDAVID GIBBSYUM!RECIPE FOR GOOD AT A GLANCEDavid GibbsChief Executive Officer Yum!Brands,Inc.ESG RANKINGS&RATINGSNamed to 2021 Dow Jones Sustainability North America IndexAchieved A-Score on 2021 CDP Palm Oil&Water Security,B Score on CDP Climate,Cattle&Timber Scored 100 on the Human Rights Campaign Foundations 2022 Corporate Equality IndexListed on 3BL Medias 100 Best Corporate Citizens of 2022 rankingRanked on Newsweeks list of Americas Most Responsible CompaniesOUR HIGHLIGHTSALMOST 30 PROGRAMS supported through the Unlocking Opportunity Initiative GALVANIZED INAUGURAL LEADERSHIP SUMMIT for Black and Hispanic leaders and high-potential employees YUM!FRANCHISE ACCELERATOR LAUNCHED within the Yum!Center for Global Franchise Excellence at the University of Louisville SET SCIENCE-BASED TARGETS to reduce GHG emissions nearly 50%by 20301,000 YUM!RESTAURANTS converted to renewable energy using credits in 2022 JOINED SUPPLIER LEADERSHIP ON CLIMATE TRANSITION a training program for our suppliers of poultry,beef and dairyNEW HARMONIZED PACKAGING POLICY INTRODUCED for all brands Committed to source 100GE-FREE EGGS BY 2026 at the majority of our restaurants1 MILLION franchise system employees4 BRANDS1.5Kfranchisees 53Krestaurants155 countries&territories5Our success is a testament to our Recipe for Growth&Good,showing that a focus on environmental,social and governance issues is not incidental to growth,but rather,an enabler of it.67APPROACHAPPROACH We Feed the FutureCitizenship&Sustainability Goals and CommitmentsWATER2025Reduce average restaurant water consumption by 10%,from 2017 baseline.AnnuallyReport progress to CDP and use World Resources Institutes(WRI)Aqueduct biannually to evaluate water risk.NUTRITION2025Remove artificial colors,flavors and partially hydrogenated oils(PHOs)from core food ingredients globally.By 2025,Taco Bell will achieve a 25%sodium reduction across the menu from its 2008 baseline.2030Offer 50%of menu items consistent with Yum!global nutrition criteria for meal options.AnnuallyReport against our nutrition and clean label goals.PACKAGING2022Remove Styrofoam and Expanded Polystyrene(EPS)across all brands.2025Eliminate unnecessary plastics across all brands.Reduce virgin plastic content by 10ross all brands.Move consumer-facing plastic packaging to be reusable,recyclable or compostable across all brands.Divert 50%of operational waste,measured by weight,generated in U.S.restaurants.Taco Bell to provide recycling and/or composting bins in restaurants,where infrastructure permits.2030Reduce food loss waste 50%in U.S.with Food Loss and Waste 2030 Champions.AnnuallySupport expansion of recycling and composting programs,infrastructure systems and food recovery through strategic partnerships and advocacy.Disclose progress made on our packaging goals.2023Conduct assessment to better understand areas where more recycled content can be included to inform goal-setting across all brands.DEFORESTATION2022Purchase 100%of paper-based packaging with fiber from responsibly managed forests and recycled sources.2030End natural forest loss by 2030 in accordance with the New York Declaration on Forests.AnnuallySource 100%of palm oil used for cooking from responsible and sustainable sources.Report progress to CDP.EQUITY&INCLUSION2030Achieve gender parity in leadership globally by 2030 in alignment with Paradigm for Parity.AnnuallyPublish U.S.Workforce Diversity Report,including board of directors data.2021Move 1,000 restaurants to renewable energy.2030Reduce Scope 1 and 2 GHG emissions generated by corporate restaurants and offices to 46low 2019 levels.Reduce emissions per franchisee restaurant and per metric ton of beef,poultry,dairy and packaging to 46low 2019 levels.2050Ambition to achieve net-zero emissions.AnnuallyReport progress to CDP and use the Task Force on Climate-related Financial Disclosures(TCFD)framework.CLIMATEANIMAL WELFARE2022Pizza Hut to remove antibiotics important to human medicine from wings as the final step in fulfilling its commitments to source chicken raised without antibiotics important to human medicine in the U.S.2025Taco Bell to reduce antibiotics used in human medicine by 25%in U.S.and Canada beef supply chain2026Source 100ge-free eggs across at least 25,000 restaurants,including the U.S.,Western Europe and other markets for all menu items and ingredients2030Source 100ge-free eggs for all menu items and ingredientsAnnuallyMaintain existing verification programs for poultry and disclose progress on cage-free eggsAPPROACHAPPROACH89Yum!s role as a global restaurant company and a leading franchisor means that the decisions we make have ripple effects around the world.Our business strategy is known as our Recipe for Growth&Good.Our Recipe for Growth includes four growth drivers and is the foundation on which our sustainable,long-term results are built.These drivers allow us to keep our promises to serve delicious food,make our food accessible to customers,give employees a place to grow and make a difference,offer opportunities for franchisees and deliver strong returns and long-term value creation for our stakeholders.These growth capabilities are the key drivers of same-store sales and net-new unit growth and serve as our guiding principles in all business decisions.Our Recipe for Good embodies our ESG strategy and is the critical lens through which we deliver growth it reflects our priorities for social responsibility,risk management and sustainable stewardship of our people,food and planet.While our Recipe for Growth&Good strategies were formally integrated at the beginning of 2020,we continue to find ways to further cascade our business and ESG priorities across the company.For example,we are providing more frequent updates to our board on ESG topics and investing in capacity and capability planning to meet our ESG goals.Relevant,Easy&Distinctive BrandsInnovate and elevate iconic restaurantbrands people trust and championBold RestaurantDevelopmentDrive market and franchise unit expansion with strong economics and valueUnmatched Operating CapabilityRecruit and equip the bestrestaurant operators in the world to delivergreat customerexperiencesFoodServe deliciousfood people trustPeopleUnlockopportunityPlanetGrow sustainablyUnlocking opportunity for Better collaboration Better experiences Better economics Better growthPURPOSE&GOODGOODGROW THUnrivaled Culture&TalentLeverage culture and people capability to fuel brand performance and franchise successCorporate GovernanceGood corporate governance is a critical factor in achieving business success,and we embrace practices that align with management and shareholder interests.The Yum!board of directors consists of 12 directors,11 of whom are independent,based on New York Stock Exchange rules for director independence.In 2021,the board was led by an independent,nonexecutive chair.Our board believes that its independence and oversight of management are effectively maintained through a strong independent chair or lead director and through the boards composition,committee system and policy of having regular executive sessions of nonemployee directors.The board has three independent committees:Audit Committee Management Planning&Development Committee Nominating&Governance CommitteeOnly independent directors serve on the Audit,Management Planning&Development and Nominating&Governance Committees in accordance with our Corporate Governance Principles.The board has instituted an annual self-evaluation process,led by the Nominating&Governance Committee,through which directors assess how the board can better contribute to the company.Our Audit,Management Planning&Development and Nominating&Governance Committees conduct similar self-evaluations.ESG GOVERNANCE&LEADERSHIPOversight for ESG issues ultimately resides with the Yum!board of directors.The board is briefed a couple times a year on current issues and focus areas through its Audit Committee and is updated on a weekly basis through broader business updates.Our cross-brand Global Leadership Team,led by our chief executive officer(CEO)and comprised of our executive team and brand CEOs,is regularly engaged with and updated on material topics.At the operational level,the chief communications&public affairs officer oversees Yum!s global reputation,assesses and manages ESG risks and shapes the Global Citizenship&Sustainability strategy in partnership with the chief sustainability officer&vice president of Global Government Affairs and other senior leaders who comprise our ESG Council,including:chief operating officer&chief people officer chief financial officer chief communications&public affairs officer chief sustainability officer&vice president of global government affairs chief strategy officer chief food safety officer chief equity&inclusion officer chief legal&franchise officer&corporate secretary chief food innovation officer chief development officer vice president,supply chainBOARD DIVERSITYA diverse range of experiences and perspectives among our directors support the success of the board in overseeing our complex,varied global businesses.When recruiting new directors,we look for leaders from different backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity.For complete selection criteria and policies,please see our corporate governance principles.Currently,five of our 12 directors are women,and three are people of color.OUR FRANCHISE MODELAs of the end of 2021,over 98%of our restaurants were franchise-owned.Our franchisees are an incredibly important part of our business.Yum!,through its brands,connects franchisees with suppliers of food,packaging,marketing materials and restaurant equipment,while these independent business owners control how their stores are run,where to build,how to recruit and train team members,what benefits to provide,and how to compensate employees.We work to cultivate strong relationships with franchisees in all parts of the world,and theyre crucial partners as we continue to make progress on our ESG journey.APPROACHAPPROACH1011TRUEVIEW INSIGHTS ACROSS OUR BUSINESS2,500surveys issued155 countries Tracking suppliers compliance with animal welfare standardsAuditing for safety hazards to food,packaging and people Generating reports that we can use to inform planningBecoming more intelligent and predictive over time Transparency&Verification High integrity data is a key element to help us drive progress against our commitments and enable regular,transparent disclosure.Attention to ESG issues,such as addressing climate change and inequality,must be part of any companys approach to enterprise risk management(ERM),and Yum!is no exception.We continue to evaluate how priority ESG issues integrate into our global ERM activities.This allows us to sharpen our top ESG issues from an ERM perspective and prioritize them according to their importance to our business and stakeholders.To support further data transparency and disclosure,we are increasing our investments in technology.TrueView,our data collection tool,captures information gathered throughout the company,such as by our food safety and supply chain teams,providing a comprehensive picture of our business.In 2021,the tool was used to collect important ESG data such as equity and inclusion,food safety,utility consumption,supply chain procurement and philanthropy metrics,and was used across all business units and almost all functions in 2022.We plan to have it fully rolled out to all functions for ESG survey activities by 2023.We have also established a global membership in Sedex,an organization that works with businesses to strengthen responsible supply chain practices with our initial focus on improving working conditions in global supply chains.MaterialityRegular materiality assessments help us identify and prioritize our most significant ESG impacts,risks and opportunities.We conducted our most recent assessment in 2021,soliciting input from a diverse range of key internal and external stakeholders that have expertise and a vested interest on the ESG issues impacting our industry,including company leaders,investors,franchisees,suppliers,non-governmental organizations(NGOs),industry associations and thought leaders.The result is a list of 20 priority topics,mapped in the materiality matrix at right.Animal Welfare was categorized under the Planet pillar when this materiality assessment was conducted;however,it is now captured within the Food section of our Recipe for Good structure.While all topics are important and can impact business success,the most important outcome of our assessment was the emergence of five clear Tier I topics:Climate Impact;Equity,Inclusion&Belonging;Food Safety;Packaging;and Operational Waste&Recycling.Each of these topics was judged to be highly important both to Yum!and our stakeholders,and we will provide the most robust discussion on these topics in our reporting going forward.Choice&Nutrition Food SafetyFood Technology&GMOsResponsible Marketing Climate ImpactAnimal WelfareSustainable SourcingWaterOperational Waste&Recycling PackagingCommunity&PhilanthropyEquity,Inclusion&BelongingEmployee Health&SafetyHuman Rights&Labor Practices Talent Attraction,Engagement&RetentionESG Corporate GovernanceEthics&ComplianceTax StrategyLobbying&Public PolicyInformation Security&Data PrivacyImportance to External StakeholdersImportance to Internal StakeholdersFoodPlanetPeopleGovernanceYum!Materiality Matrix13Antibiotics in foodInternational Consortium for Antimicrobial Stewardship in Agriculture Renewable energy certificates(RECs)3Degrees DeforestationNew York Declaration on Forests Food insecurityFood Donation Connection Human rights and working conditions in our supply chainSedex Animal welfareInternational Poultry Welfare Alliance Circular economyNextGen Consortium EntrepreneurshipUniversity of Louisville Economic equalityOneTen Coalition Employee training&education Initiative for a Competitive Inner City APPROACHReporting&DisclosuresRegular reporting is the primary way that we share our progress and show transparency around our ESG practices.In addition to publishing annual updates on our Recipe for Good,which is completed in accordance with core Global Reporting Initiative(GRI)standards,we participate in comprehensive,voluntary disclosures such as the Bloomberg Gender-Equality Index;CDP Climate Change,Forests and Water Security;the Dow Jones Sustainability Index;and the Roundtable on Sustainable Palm Oil(RSPO)Annual Communication of Progress.We also align our priority areas of work with the United Nations Sustainable Development Goals(UN SDGs).We continue to seek ways to better meet the needs of our stakeholders.To that end,we are building on our first response to the Sustainability Accounting Standards Board(SASB)framework for the Food&Beverage sector and Restaurant industry,with a more robust data set this year.Investors have identified this industry-specific approach as useful for comparison of restaurant companies.Yum!also discloses our climate-related risks and opportunities through a TCFD report.The results of our TCFD assessment,conducted in 2021,provide an analysis of the physical and regulatory risks that directly impact our restaurants and supply chain across regions and brands.This helps guide the prioritization of our work in addressing and mitigating risks of climate issues.In addition to our TCFD assessment,Yum!reports on other priority areas including workforce diversity and responsible supply chain.We continue to monitor other emerging frameworks for reporting on and responding to the risks we face,including the Taskforce on Nature-related Financial Disclosures.Stakeholder Engagement Our key stakeholders include system employees,customers,franchisees,shareholders,suppliers,NGOs and communities.We follow a process for identifying,prioritizing and engaging with stakeholders on a range of issues that aligns with our materiality assessment in addition to a number of other factors such as brand alignment,potential impact,risk mitigation and shared values.Throughout this report,you can read examples of how Yum!engages with stakeholders as part of our daily work.A few issues on which we engage and examples of our partners include:APPROACHOther key partners include:Academy of Nutrition and Dietetics American Potato Trade Alliance American Vegetarian Association Ashoka CEO Action for Diversity&Inclusion Clean Energy Buyers Association Conference for Food Protection Consortium for Graduate Studies in Management Dairy Farmers of America Dairy Management Incorporated FAI Farms Ltd Food Industry Asia Food Waste Reduction Alliance Hatch Enterprise Innovation Centers Dairy Sustainability Alliance Institute for Food Technologists International Franchise Association International Poultry Council Louisville Sustainability Council Multicultural Foodservice&Hospitality Alliance National Chicken Council National Pork Board National Restaurant Association National Retail Federation Ocean Plastics Leadership Network Paradigm for Parity Roundtable on Sustainable Palm Oil Serving Europe Sevalanka Foundation Socialbee STOP THE TRAFFIK Sustainable Packaging Coalition Tropical Forest Alliance The UK Roundtable on Sustainable Soya USA Poultry&Egg Export Council U.S.Chamber Business Councils U.S.Green Building Council U.S.Roundtable for Sustainable Beef U.S.Roundtable for Sustainable Poultry&Eggs We Are All Human-Hispanic Promise Womens Foodservice Forum World Wildlife Fund12PEOPLE1415PEOPLE We Unlock OpportunityOPPORTUNITIES&CHALLENGES Fostering an engaging and effective culture across four brands,thousands of global locations and both company-and franchise-owned restaurants Retaining employees in a competitive labor market by offering a range of benefits and providing opportunities for people to grow their careers Promoting equity,inclusion and belonging within the system and in the communities where we and our franchisees operate Ensuring that we are gathering the right metrics as we seek to make progress KEY TAKEAWAYS Approved over$50 million in funding to almost 30 social impact programs across nine countries through our Unlocking Opportunity Initiative(UOI)to fight inequality inside and outside Yum!through equity and inclusion,education and entrepreneurship.We launched Coach Academy,a global,virtual program for people managers and continued to expand the availability of Heartstyles,a leadership development program,in restaurants.The New Legacy Summit provided a forum for high-potential Black and Hispanic employees to network and interact with Yum!leadership.We continue to learn about the complexities of our supply chain and its intersections with human rights and are beginning to develop phased onboarding plans for our global markets to the Sedex supply chain platform.MATERIAL ISSUES Equity,Inclusion&Belonging Employee Health&Safety Talent Attraction,Engagement&Retention Community&Philanthropy Human Rights&Labor PracticesALIGNED UN SDGsHarvest,Yum!s prepared food donation program,continues to feed people through donations to hunger relief organizations.Education is one of the focus areas of the UOI,through which we will make investments to help system employees and community members grow their skills.Our franchise restaurants provide jobs for more than 1 million people worldwide,and were constantly evaluating opportunities to support our franchisees as they address the development needs and aspirations of system restaurant teams and leaders.As part of the UOI,key markets for each brand are implementing programs that address local inequities in communities.PEOPLEPEOPLE17Deepening our investments in efforts to create equity,inclusion and belonging across all aspects of our brands and throughout our franchise businesses and beyond.Expanding access and funding of education and skills training to empower restaurant team members and other frontline workers,to build their best lives and also uplift our communities.Creating pathways to entrepreneurship for restaurant employees wanting to lead a business,franchise or social enterprise,as well as for small businesses and social entrepreneurs looking to make a meaningful difference in their communities.Equity&InclusionEducationEntrepreneurshipUnlocking Opportunity Yum!Brands social purpose is to unlock opportunity for our restaurant team members,franchisees and communities.We do this by providing employment and professional development opportunities that allow people to build rewarding careers.By investing in tools and resources to support our franchisees,particularly those from underrepresented backgrounds.And by making strategic investments in the thousands of communities that we operate in around the world.We are focused in three areas:Equity&Inclusion,Education and Entrepreneurship.While were known for our food,everything that we do is made possible by our people.Were building on our strengths and taking on new challenges by investing in strategic initiatives that unlock opportunity and create an inclusive culture for all talent to thrive at work and at home.That means investing in globally scalable development programs that franchisees can leverage to benefit system employees,with a focus on restaurant general managers(RGMs),so we can unlock growth for our 1,500 franchisees and make a difference in the world.SUPPORTING OUR EMPLOYEES Attracting and retaining unrivaled talent gives us a competitive advantage.For our above-restaurant corporate employees,that means offering flexible,hybrid work options,knowing that geographic flexibility gives us access to ever-wider pools of talent.Yum!is also evolving the way we care for employees by expanding paid sick time,employee assistance programs and mental health benefits for corporate employees.In the U.S.,we added dedicated mental health counselors that employees can call or meet with directly and began offering our programs in more international markets and to franchisees.We assess our peoples satisfaction with the work environment weve created with biennial engagement surveys.Our most recent survey revealed record-high levels of engagement,well above industry benchmarks.Yum!has been investing in our people-first culture for 25 years.The launch of the UOI in 2020 marked another milestone in our journey and is a critical way for us to achieve our social purpose.Unlocking Opportunity Initiative(UOI)is a five-year,$100 million commitment to have a positive and sustainable social impact on the communities where we operate and the restaurant team members who work on the front lines of our brands around the world.To date,we have awarded funding for almost 30 social impact programs across nine countries,with several more underdevelopment.UOI was designed around the following key principles:Provide a global framework for local relevance,enabling each of our brands to bring UOI to life in its own unique way,based on market relevancy and brand purpose Deliver systemic change by closely partnering with nonprofit organizations that are tackling the root cause of societal issues Create measurable impact that ladders up to selected UN SDGs Be self-sustaining,utilizing UOI as seed investment to build lasting programs and funding mechanisms that endureUOI is supported by robust governance,which includes working with third-party vendors to conduct due diligence on possible grantees,a cross-functional investment committee,which reviews program proposals and approves funding levels and a third-party impact measurement partner who works directly with nonprofits to report on program KPIs.Equity&InclusionIn 2021,Yum!helped unlock opportunity in each of our three focus areas,inside and outside our company,through UOI funding and other initiatives.EQUITY,INCLUSION&BELONGINGAs a major employer,a global franchisor and an important part of cultures and communities around the world,fostering equity,inclusion&belonging(EIB)is a top priority.Whether in our board rooms or our four brands restaurants,were making room for all people and voices at our tables.Employee Initiatives Yum!s chief equity&inclusion officer oversees all equity,inclusion and belonging initiatives.However,to truly deliver against our bold ambitions,we are also democratizing accountability for this work amongst other Yum!leaders,including our chief operating officer&chief people officer,chief communications&public affairs officer,chief legal&franchise officer and chief financial officer.This allows us to reach all our key stakeholders employees,customers,franchisees,suppliers and communities and keep EIB top of mind and embedded in our decision-making.We are making space for conversations about these important topics through forums like Yum!s new internal podcast,“Belonging.”The podcast has hosted discussions between Yum!employees at all levels on topics such as reverse mentoring and confronting stereotypes about certain/specific ethnicities and cultures.Employee resource groups(ERGs)remain a way for like-minded employees to connect.In 2021,Yum!launched a new Women in Technology ERG,and The Habit Burger Grill launched its first ERG,C.R.A.F.T.,for multicultural employees.Yum!supports leaders on their EIB journeys in many waysas well as creating pathways for people from historically underrepresented backgrounds to succeed.Some of our development opportunities include:Inclusive Leadership A training program on unconscious bias,developed in partnership with Heartstyles.The program has been offered to corporate employees,RGMs and,most recently,to franchisees.New Legacy Summit An in-person gathering designed for Black and Hispanic employees and attended by Yum!s executive leadership team.This new program will help create community and understanding and build future leaders throughout the organization.Reverse Mentorship Intentional relationships between employees at different levels and from different backgrounds that create deep understanding between mentors and mentees,as well as opportunities for advancement.Leadership Pipeline Program Cultivating relationships with high-potential Black and Hispanic talent so that they consider Yum!in future career decisions.Connections Across Our Recipe for Growth&GoodRelevant,Easy&Distinctive BrandsInnovate and elevate iconic restaurabrands people trust and championntUnmatched Operating CapabilityRecruit and equip the bestrestaurant operators in the world to delivergreat customerexperiencesBold RestaurantDevelopmentDrive market and franchise unit expansion with strong economics and valueUnrivaled Culture&TalentLeverage culture and people capability to fuel brand performance and franchise successPlanetGrow sustainablyFoodServe deliciousfood people trustPeopleGOODGOODGROWTHPEOPLEPEOPLE1819External CommitmentsIn addition to the internal actions taken within Yum!and our brands,we have joined several national and global commitments designed to make an impact on a larger scale.In recent years,we have significantly increased the number of women in senior leadership across the organization and are on track to achieve gender parity in leadership globally by 2030 in alignment with Paradigm for Parity.We have also committed to the Hispanic Promise,a national pledge to hire,promote,retain and celebrate Hispanics in the workplace,and the CEO Action for Diversity&Inclusion.And as a member of the OneTen coalition,we are partnering with a group of U.S.businesses to create career mobility and advancement opportunities for 1 million Black individuals over the next 10 years.In 2021,Yum!hired or promoted employees into family-sustaining-wage jobs at CONNECTING FRANCHISEES&COMMUNITIESTaco Bell is creating deeper connections with consumers,employees and franchisees as culture and social priorities continue to advance.As part of this work,the brand partnered with cultural impact agency Cashmere who helped pilot a series of interactive events.Select franchisees sat down with local community leaders for discussions around emerging cultural spaces,intersectional identities and what it means for Taco Bell.These events aimed to empower franchisees with a better understanding of the changing consumer base and to equip them to become culture leaders.our equity-owned stores and corporate offices at a significantly higher rate than the OneTen signatory average of 50 new jobs.Yum!is also a member of the Publicis Media Once&For All Coalition,a multiyear,cross-industry collaboration to build a more equitable advertising ecosystem for ethnically diverse media suppliers,content creators and production partners,with an initial focus on Black and Hispanic suppliers.We have established a U.S.Multicultural Marketing Leadership Council to drive cross-brand implementation of our multicultural marketing strategies,including multiyear partnerships with diverse-owned media,content creators and production properties,and are committed to significantly increasing our marketing spend with agencies owned by people from underrepresented communities.KEY EQUITY&INCLUSION PARTNERSHIPSEDUCATIONAn education is an asset that can open many doors.Yum!invests in both personal and professional development programs for employees and education initiatives in local communities.In 2021,we introduced Coach Academy,a global,virtual program for managers on how to be an effective leader and coach.More than 750 employees participated in the first cohort of this program.We also rolled out the Heartstyles leadership development program,Leading with Heart,now available in 26 languages,to franchisees and RGMs worldwide.Evidence from multiple markets suggests that participation in this program helps reduce turnover and improves customer satisfaction.Within Pizza Hut,more than 5,500 RGMs have been trained in the brands custom leadership course,Leading With a Growth Mindset.We have an important role to play in helping people further their educationsparticularly in the foodservice and restaurant industries.At Pizza Hut South Africa,the LeadHERship program,in partnership with the nonprofit,YES4Youth,is connecting young females from marginalized communities,with access to education and career opportunities.The Youth Employability Program has been developed with the Sevalanka Foundation and Pizza Hut to provide vocational education(food preparation,service,soft skills,hygiene and grooming,financial management and English language)and certification for people with disabilities and marginalized youth.Over four years,the program will refurbish and develop 31 vocational training centers and train more than 3,000 students.For use on WhiteENTREPRENEURSHIP As a global franchisor,helping people realize the benefits of franchise ownership is something were uniquely positioned to do.The Yum!Center for Global Franchise Excellence at the University of Louisville is creating new opportunities in franchising for underrepresented individuals.In 2021,we launched the Yum!Franchise Accelerator,a one-of-a-kind MBA elective opportunity supporting underrepresented people of color and women interested in the franchise restaurant industry.Meanwhile,Taco Bell launched the Taco Bell Business School,a six-week program specifically designed to help turn Taco Bell restaurant leaders into entrepreneurs.Pizza Hut recently hosted a Pathways to Possibility conference that highlighted the benefits of franchise ownership.In the U.S.and Canada,KFC and Pizza Hut are partnering with Initiative for a Competitive Inner City on a free executive education and virtual training program designed to help strengthen and grow minority,immigrant,indigenous and disabled-owned small businesses.Other entrepreneurship programs include the Taco Bell Ambition Accelerator Program,a new program through which we will provide funding to young social entrepreneurs to develop their business ideas.EntrepreneurshipPEOPLEPEOPLE2021Social Purpose Activated at Our BrandsBelow is a selection of programs funded by the UOI,demonstrating our global reach and the potential impact we can have in our three focus areas when our brands partner with experienced nonprofits.Brand Community Impact Our brands have been giving back to their communities for decades,particularly in the areas of hunger relief,literacy and youth education.We continue to respond to the numerous natural and human-made disasters around the world that impact communities and have continued to provide assistance to those still acutely affected by the COVID-19 pandemic.DISASTER&PANDEMIC RELIEF Yum!Brands social purpose initiatives are enabled by the Yum!Brands Foundation.The foundation also supports our priorities related to hunger relief,literacy and COVID-19 relief,as well as responding to disasters that affect our employees and franchisees in all parts of the world.We use matching gift programs to multiply the support these causes receive.In 2021 and early 2022,the foundation responded to disasters including:Tropical Depression Eta(Honduras)Johor flooding(Malaysia)Winter Storm Uri(U.S.)New South Wales and Queensland flooding(Australia)Civil unrest(South Africa)Tropical Storm Elsa(Barbados)Hurricane Ida(U.S.)Midwest tornado(U.S.)Typhoon Rai(Philippines)Russia-Ukraine War(Ukraine)EDUCATIONThe Taco Bell Foundation reached its goal of awarding:The Taco Bell Foundation awarded$8 million in Live Ms Scholarships in 2022,with more than$2 million supporting Taco Bell team members.The Taco Bell Foundation is also awarding more than$7 million to 400 youth-serving nonprofit organizations across the country through its Community Grants program.In the U.S.,Pizza Hut has operated the BOOK IT!reading program for students since 1984.The program designed by educators,implemented by teachers,and encouraged by parents was created in an effort to foster a lifelong love of reading and increase literacy rates across the country.The brand continues to offer the BOOK IT!Bundle,a meal deal that donates$1 from every purchase to its nonprofit literacy partner,First Book,to provide access to book and educational resources.The Habit Burger Grill has engaged with ProStart,a culinary education organization,and other partners on a culinary competition through which prospective students can earn scholarships.HUNGER RELIEFHarvest is Yum!s signature food donation program,through which surplus food from KFC and Pizza Hut restaurants is donated to food banks and other organizations in need.Since 1992,this program has enabled us to:donate 213 MILLION pounds of food and avoid the negative environmental impacts of food waste.KFC South Africa continued its popular Add Hope program,which became even more essential in light of chronic food shortages in the country.The program is funded by customers rounding up the cost of their meals.The Habit Burger Grill has a long-term partnership with No Kid Hungry and provides both food donations and monetary support to local food-security organizations,including Second Harvest Food Bank.Yum!Center for Global Franchise ExcellenceUniversity of LouisvilleUnited States|Yum!Ambition AcceleratorTaco Bell Foundation&AshokaUnited States|Taco Bell3x Youth Employability ProgramSevalanka FoundationSri Lanka|Pizza HutFeeding MindsProLiteracyEgypt|KFCNasaaAl-NahdaSaudi Arabia|KFCBucketSearchEquitable Education FundThailand|KFCInner City Capital ConnectionsInitiative for a Competitive Inner CityCanada&United States|KFC&Pizza HutLeadHERShipYES4YouthSouth Africa|Pizza HutHatchUK YouthUnited Kingdom|KFCa cumulative$21 MILLION in Live Ms Scholarships by the end of 2021.PEOPLEPEOPLE2223Ethics&Human Rights At Yum!,we understand our long-term success and growth is predicated on operating a resilient and socially responsible business that creates value for all stakeholders.A key component of this is the high standard of ethical conduct we set for ourselves and our stakeholders,particularly franchisees and suppliers.We reference many leading frameworks in building our policies and procedures,including the UN Guiding Principles on Business and Human Rights and the International Labour Organisation(ILO)Declaration on Fundamental Principles and Rights at Work.Our commitments and expectations around these standards are expressed in our Global Code of Conduct for which all employees are required to certify their acceptance as part of annual compliance training,which also covers anti-discrimination and harassment.When it comes to interacting with one another,employees are expected to demonstrate mutual respect.Sexual,racial,ethnic,religious or any other type of harassment has no place at Yum!.It is our policy to deal fairly with employees;provide equal opportunity for all in recruiting,hiring,developing,promoting and compensating without regard to race,religion,color,age,gender,disability,genetic information,military or veteran status,sexual orientation,gender identity and/or expression,citizenship,national origin or other legally protected status;maintain a professional,safe and discrimination-free work environment;and recognize and compensate employees based on their performance.We encourage employees to raise any ethical or other concerns relating to our operations.Employees have 24/7 access to an independent,third-party-operated ethics hotline and online portal,known as The Speak Up Helpline.Translation services in nine different languages are available.The Audit Committee of our board of directors has additional procedures for handling employee concerns related to accounting and auditing matters.Any person may also use the Yum!corporate citizenship email address listed on Y to raise ESG-related issues.SUPPLY CHAIN RESPONSIBILITY&HUMAN RIGHTSWe view our suppliers as key stakeholders within our wider system.At a minimum,suppliers are required to abide by all applicable laws,codes or regulations and to conform their practices to the published standards for their industry.Our Supplier Code of Conduct is a mandatory declaration for all suppliers seeking to work with Yum!Brands and clearly articulates our expectations of compliance on operational standards,ethics and human rights.In addition,we have commitments in key sourcing areas,including palm oil through our membership to the RSPO and fresh produce as part of the Fair Food Standards Council.Our suppliers have always been subject to assessments,audits and inspections to verify compliance with our Supplier Code of Conduct and the terms of their contract.Where corrective action is required,we strive to work collaboratively with suppliers to address areas of concern and effect real change,but reserve our right to termination.While responding to identified issues is important,we are committed to building a more proactive response to managing ethical risks within our supply chain.In 2020,Yum!established a global membership with Sedex,one of the worlds leading ethical trade membership organizations that works with businesses to create more responsible and sustainable business practices.Sedex assesses risk at each supplier site,across four main areas labor standards,health and safety,business ethics and environment and uses a combination of self-assessments and third-party,ethical audits to determine both potential and actual exposure.Gaining this additional visibility further strengthens our existing supply chain auditing capabilities,adding increased focus on human rights and labor practices,within responsible sourcing more broadly.To date,our KFC U.K.&Ireland,KFC Western Europe and KFC South Pacific(SOPAC)markets are active in Sedex and have undergone a rigorous supplier onboarding process over several years.We are leveraging learnings from these markets to develop the global strategic implementation plan to drive system-wide adoption and,in doing so,are reassessing our timeline for execution given the complexities encountered.Our initial focus remains core,direct food suppliers in higher-risk markets where we believe we can have the most impact.Our work is informed by our recent inherent risk assessment,which indicated potential areas of concern in developing geographies,and within the manufacturing and agriculture,forestry and fishing industries(specifically meat packing and processing,palm oil and hand-picked agriculture).The recent and continuing supply chain challenges highlight the importance of embedding further resilience into our supply chain.We consider Sedex a powerful tool to achieve this by gaining better data and insights into our suppliers operations and establishing a broader set of values upon which we do business.Markets around the world,such as Australia and the U.K.,have strengthened regulations regarding human rights issues that include modern slavery,forced labor and the rights of migrant workers.While our restaurants are not particularly at risk for these issues,our brands are working to improve their own due diligence around these topics in order to comply.KFC U.K.&Ireland is working with STOP THE TRAFFIK,a human trafficking prevention organization,on a supply chain risk mapping focused on high-risk packaging and food suppliers for Western Europe.In addition,an e-learning package will be launched to help our restaurant teams identify modern slavery issues.CommitTrack&MonitorActionIdentify&AssessCommunicate&ReportStakeholderEngagementGrievance&RemedySupplier Engagement Due Diligence Approach252425FOOD DashboardOPPORTUNITIES&CHALLENGES Using data to better manage and respond to risks related to food safety and quality Responding to consumer trends and balancing preferences for craveable menu items with commitments to improve the nutritional profile of our food Creating transparency around how animals used for our food are cared for at every phase of life and communicating animal welfare practices to stakeholdersKEY TAKEAWAYS We added a risk-sensing tool to our food safety management system that gives us real-time visibility into potential food safety risks around the world.Despite pandemic-related disruptions,in 2021,Yum!achieved our highest level of supplier compliance and performance to date.We transitioned from annual to quarterly collection of animal welfare data from poultry suppliers,allowing us to better track and drive progress.In 2021,we published a report on the antimicrobial resistance(AMR)landscape and continue to work with industry partners to make progress on this issue.MATERIAL ISSUES Food Safety Choice&Nutrition Food Technology&GMOs Responsible Marketing Animal Welfare ALIGNED UN SDGsHarvest,Yum!s prepared food donation program,continues to feed people through donations to hunger relief organizations.Harvest also allows us to address the challenge of food waste by diverting food from the landfill and reducing GHG emissions.FOOD We Serve Food People Trust27FOOD27FOODFood SafetyMaintaining food safety and quality are foundational to protecting customers and upholding their trust.Food safety is not a competitive advantage,but rather a public health imperative,and there is always room for us to improve.Throughout the challenges of the pandemic and beyond,we are proud of the work our food safety teams around the globe have done to ensure weve upheld our standards and protected guests.We attribute our success to consistent communication about and leadership focus on food safety.EVOLVING OUR PROGRAMS In 2021,Yum!expanded our food safety management system to include new risk-sensing capabilities.Our risk-sensing tool constantly scans for potential risks to food,packaging or people,and notifies us of hazards and their potential impacts to our suppliers or business.For example,droughts can lead to water potability issues,which can,in turn,impact suppliers and restaurants in affected areas.Early awareness of possible drought conditions allows us to work with experts in water quality and sanitation and implement protective measures like improved filtration systems.The tool relies on predictive analytics,and will become more effective over time,allowing us to continuously improve how we respond to risks.Innovation is a top priority at Yum!and testing ideas for potential adoption across our restaurants.Many concepts are relevant to food safety,such as sensors and cameras that simplify manual tasks and enable us to identify and address issues in real time.While technology is allowing us to work smarter,there is no substitute for the expert judgment that our food safety teams can provide.Today,our leaders are evolving from compliance managers to risk managers,and we are investing in their continued development at Yum!.Twice per year,we conduct global talent assessments of our food safety organization to identify high-potential talent and expose them to opportunities such as job shadows,professional conferences and new roles across our brands.This increased knowledge and experience,in turn,leads to a stronger food safety organization.EXTERNAL ENGAGEMENTYum!food safety leaders are in constant conversation with our suppliers and franchisees through audits,conferences and other communications.We have end-to-end visibility of our global and local supply chain,including active management with each supplier to our rigorous standards.As a result of this close engagement,in 2021,Yum!achieved our highest level of supplier compliance and performance to date.We also engage globally and locally with industry partners and regulators to align on food safety risks and mitigation strategies.In 2020,we formed virtual“colleges”that convened suppliers,franchisees and third-party auditors for continuing education and discussion of food safety topics.While these were initially established in response to pandemic-related travel limitations,we continue to offer this virtual format,which has significantly increased participation and engagement.Yum!has conducted more than578K restaurant food safety audits since 2016.26Balanced Choices Across Our Portfolio Yum!strives to offer choice on our menus and evolve our offerings in ways that matter most to our consumers.We pay close attention to consumer trends regarding nutrients or ingredients to add or limit in our menu items,and we strive to provide options that meet a wide range of consumer values,lifestyle choices and dietary needs.In 2021,we announced a global strategic partnership with Beyond Meat,Inc.Through this partnership,were leveraging our brands industry-leading research and development capabilities to co-create new plant-based protein menu items.Some of these changes result in new menu items designed to catch consumers attention.Other changes are made more quietly designed to improve our foods nutritional profile without compromising delicious taste.Here are a few highlights:Sodium reductionIn 2021,the U.S.Federal Drug Administration(FDA)released its voluntary guidance for sodium reduction for the food industry,and after conducting an analysis we found that,on average,75%of our individual products in the U.S.meet its upper bound sodium concentration targets.Plant-based cheesesOffered at a growing number of Pizza Hut restaurants including in Portugal,Spain and the U.K.Clean labeling We continue our efforts to remove artificial colors,artificial flavors and PHOs from core food ingredients globally by 2025.Balanced optionsBy 2030,we intend to represent 50%of menu food offerings to be consistent with Yum!global nutrition criteria for meal options.As of 2021,our brands were 64%of the way there,putting us on track to meet the goal.Plant-based proteinsPizza Hut has made Beyond Pepperoni a permanent menu item in some markets.Better beveragesIn the U.S.,Taco Bell aims to meet its 2022 goal of offering at least 50%of its medium(20 fl oz)fountain beverages at 100 calories or less and 20 grams of sugar or less.FOOD2829FOODAnimal Welfare At Yum!Brands,we have a responsibility to be a good steward of the animals raised for food throughout our supply chain.Our approach is articulated in our Global Animal Welfare Policy and guided by our Sustainable Animal Protein Principles and the experts on our Animal Welfare Advisory Council.We also support the Five Freedoms for all animals used for food.Visibility into our supply chain is an important part of how we make progress because Yum!itself does not raise or process animals.In 2021,we transitioned from annual to quarterly collection of chicken welfare data from our suppliers to better track progress and identify and address gaps more quickly.To better support data collection,we also established animal welfare leaders within each of our regional markets that are responsible for responding to this data and engaging with suppliers as appropriate.CHICKEN The welfare of chickens both those who lay eggs used in products across our brands and broiler chickens used for meat is a material topic for our stakeholders and the greatest focus of our animal welfare programs.In 2021,Yum!announced a new cage-free egg commitment,pledging to:transition to100GE-FREE EGGSfor the majority of restaurants by 2026,including the U.S.,Western Europe and other leading markets,across all brands and for all menu items and ingredients.Longer-term,we hope to transition to 100ge-free eggs by 2030.We expect supply challenges as we work toward this goal and will be transparent about the challenges we face and the progress we make in the years to come.These commitments build upon previous actions,including Taco Bells transition to cage-free eggs for the U.S.in 2016 and Canada in 2018,and transitions in other market areas including KFC Western Europe and Pizza Hut U.K.To help us work toward this goal,Yum!s supply chain management organization has created a transition plan that identifies all menu items with egg ingredients and the suppliers associated with each.Regarding broiler chicken welfare,we are working to increase transparency and create consistency across our brands and around the world.KFC has established global chicken key welfare indicators(KWIs)and in 2022,shared its global chicken welfare platform.KFC U.K.&Ireland and KFC Western Europe published a second welfare progress report in 2021,and KFC U.S.published a similar report earlier this year.Membership in the International Poultry Welfare Alliance and the U.S.Roundtable for Sustainable Poultry&Eggs allows us to give input to emerging industry-level indicators and reporting frameworks and ensure we are aligned with our peers.OTHER PROTEINSBeyond poultry,our company is taking action on other proteins of interest to our stakeholders.Dairy-based cheese is a major sourcing category for Pizza Hut.The brand conducted a survey of select core cheese suppliers welfare practices and confirmed that all have animal welfare programs in place.Limiting Antibiotic Use Keeping farm animals healthy occasionally requires the use of antibiotics.Yum!shares concerns regarding the rising threat of AMR and supports the thoughtful and judicious use of these treatments.We also support One Health,a holistic and multi-sector,long-term effort to combat AMR by the United Nations World Health Organization(WHO),the Food and Agriculture Organization,the World Organisation for Animal Health and other key stakeholders.In 2021,Yum!published a report detailing potential strategies for eliminating the systemwide costs of AMR.By continuing to better understand the broader AMR landscape and existing research,we will continue to make progress around programs and policies that will improve the global AMR challenge.We remain compliant with our previously met KFC,Pizza Hut and Taco Bell public commitments to reduce antibiotics important to human medicine in our U.S.poultry supply chains.Additionally,Pizza Hut U.S.is working toward removing antibiotics from chicken used for wings and expects to meet this goal by the end of 2022.NATIONAL PROGRESS TOWARD ANTIBIOTICS REDUCTION Reducing the use of medically important antimicrobials is an important priority across our industry.Through a combination of government and private sector actions,a reduction of antimicrobial use has been seen by the FDA.MEDICALLY IMPORTANT ANTIMICROBIAL DRUGS APPROVED FOR USE IN FOOD-PRODUCING ANIMALS DOMESTIC SALES ACTIVELY MARKETED IN 20162020Species2016 Estimated Annual Totals(kg)32017 Estimated Annual Totals(kg)32018 Estimated Annual Totals(kg)32019 Estimated Annual Totals(kg)32020 Estimated Annual Totals(kg)3%Change 20162020%Change 20192020Cattle3,605,5432,333,8392,517,3862,529,2812,449,441-32%-3%Source:FDA Antimicrobials Sold or Distributed for Use in Food-Producing Animals Summary ReportIn 2019,Taco Bell committed to reduce antibiotics important to human health in its U.S.and Canada beef supply chain by 25%by 2025 and pledged to provide an interim update on its progress in 2022.At the halfway mark toward this goal,the brand is seeing a decline in the use of medically important antibiotics across the animal protein industry.In 2019,Taco Bell published a Beef Policy and has since made progress with approximately 15%of its raw beef supply being procured from reduced antibiotic sources.The brand is engaging with industry partners on best practices and next steps to improve antibiotic use.Taco Bell has been an active member of the U.S.Roundtable for Sustainable Beef(USRSB)since 2017 and shares sustainability aspirations with the organization,including its recently announced climate goal.In 2021,Taco Bell joined the International Consortium for Antimicrobial Stewardship in Agriculture(ICASA).Through ICASA,industry participants and public sector funding have authorized$4.4 million in antimicrobial research.3031PLANET DashboardOPPORTUNITIES&CHALLENGES Tracking climate impacts of the products we source across a multitiered and global supply chain,while also mitigating risk of disruption and meeting customer demands Moving the needle on renewable energy and emissions reduction for our company and franchisees Responding to fragmented global regulations around sustainable packaging and leading in circularityKEY TAKEAWAYS Following a multiyear process of data collection and analyzing impacts across our value chain,we announced our first SBTs in 2021.Yum!initiated a global study on renewable energy markets in 2022 to identify and invest in low carbon solutions at restaurants across the globe.To educate and engage with suppliers on the subject of GHG,we joined Supplier LoCT,a training program,where our focus is on beef,poultry and dairy emission reductions in support of our science-based targets.A variety of partnerships and programs with suppliers,NGOs,governments and industry are underway to address deforestation and related risks.A harmonized packaging policy has been created for all brands,with a focus on eliminating unnecessary packaging,shifting materials,supporting better recovery and recycling systems,and investing in circularity.Less than 1%of reported plastic packaging is EPS as we move toward achieving our target to remove 100%of EPS by the end of 2022.MATERIAL ISSUES Climate Impact Operational Waste&Recycling Packaging Sustainable Sourcing WaterALIGNED UN SDGsAt Yum!,our restaurants have taken steps to reduce water use,and weve conducted a global water risk assessment to better understand our footprint.In 2021,we announced new SBTs,which give us a roadmap for reducing GHG emissions to levels aligned with the Paris Agreement.Yum!partnered with FAI Farms to identify and eliminate deforestation risk in our supply chain.PLANET We Grow SustainablyPLANETPLANET3233OUR CLIMATE JOURNEYOUR KEY CLIMATE ACTIVITIESOver the past several years,we have further prioritized our work on climate.In 2021,we set our first SBTs and pledged our ambition to achieve net-zero emissions by 2050.We will reduce Scope 1 and 2 GHG emissions at our corporate restaurants and offices 46low 2019 levels and will work across our value chain to reduce Scope 3 emissions 46low 2019 levels by 2030 on an intensity basis.To arrive at this target,we conducted an in-depth assessment of each area of our GHG impact,as well as options for abatement.This includes impact areas both within our business,such as the efficiency of offices and restaurants,and within our supply chain,such as the agricultural and land use practices employed when raising animals.Within our Scope 1 and 2 emissions,89%are attributable to our company-owned restaurants,and 11%are associated with our offices.Through this exercise,we also learned that 76%of our supply chain emissions from purchased food come from poultry,beef and dairy.We are working closely with brands,franchisees,suppliers and producers to cut emissions from franchisee restaurants on a per-restaurant basis and on a per-metric ton basis for poultry,beef,dairy and packaging.Climate ActionAddressing climate change is one of Yum!s top priorities,weve been on a journey to reduce our carbon footprint for more than 15 years.Yum!GHG Reduction HistoryRENEWABLE ENERGYLAND USE CHANGE SUPPLY CHAIN EFFICIENCYEMISSION MITIGATIONENERGY EFFICIENCY Initial Areas for Emissions ReductionAs included in our approved submission to the Science Based Targets initiative(SBTi),initial research shows that our path to remove 12.5 million metric tons(MMT)of GHG emissions by 2030 reflects restaurants accounting for approximately 9 MMT and supply chain accounting for 3.5 MMT.The roadmap below outlines our approach for the 46%GHG reduction.202020300 MMT12.5 MMTPOULTRY,BEEF,DAIRY&PACKAGINGSUPPLY CHAIN:APPROX.30%RESTAURANTS:APPROX.70%CORE EQUIPMENT EFFICIENCY ENERGY EFFICIENCY&AUTOMATION RENEWABLE ENERGYAnnual Corporate Restaurant&Offices GHG Emissions(Scope 1&2)YearAnnual Emissions(mtCO2e/Restaurant)5004504003503002502001501005013 14 15 16 17 18 19 20 21 22 23Emissions data shown are location based for 2013-2018 and market based since 2019 Yum!has a long history of energy reduction work rooted in running more sustainable and efficient restaurants and data collection and reporting.Set first energy conservation goal(2006)Opened first green building(2009)Started CDP Climate disclosure(2010)Introduced Green Building standard(2014)Over the years,weve strengthened our climate work by making commitments beyond restaurants energy usage and assessing our systemwide carbon footprint.Set first palm oil goal(2015)Committed major supply chains to no deforestation(2019)Conducted GHG inventory(2019)Set target to transition 1,000 of our restaurants to renewable electricityOn the heels of setting climate targets and conducting a climate risk assessment,Yum!is focused on climate action through projects that offer scalability while addressing key risk areas.Establishing SBTs and net-zero pledge(2021)Prioritizing climate actions through the TCFD(2021)GETTING STARTEDEXPANDING THE SCOPEDRIVING CHANGE123We have made long-term steady progress due to development of more efficient new buildings,energy conservation measures in existing buildings,refranchising and improvement in utility use of renewable energy.PLANETPLANET3435SUPPLY CHAINReducing emissions in our supply chain is a critical priority on the path to reach our climate goals.According to the Environmental Protection Agency,agriculture made up 11%of GHG emissions in the U.S.in 2020.Reducing emissions from the food that we purchase and achieving our SBTs requires us to work closely with our suppliers.This includes both educating suppliers on sustainable practices and learning from those who are already leaders in this space.In 2021,we joined the Supplier LoCT,a consortium of multinational companies created to accelerate action throughout the supply chain in the march toward net-zero GHG emissions.Currently,56%of our suppliers of beef,poultry and dairy in the U.S.and Canada already have climate targets in place or are part of the Supplier LoCT program.The program helps suppliers build climate knowledge,calculate emissions,set their own SBTs and share climate roadmaps and playbooks.We are planning to roll out Supplier LoCT more broadly around the world in the future.Changing animals diets is another way to reduce emissions on the farm.In the U.S.,Pizza Hut is partnering with the Dairy Farmers of America(DFA),and dairy suppliers on a joint dairy project to provide participating farmers with technology and data needed to help reduce GHG emissions.Pizza Hut has begun working alongside DFA and dairy suppliers to enroll interested dairy farm families within their supply chain,where theyll participate in annual farm-level GHG and energy foot-printing through the Farmers Assuring Responsible Management and Environmental Stewardship(FARM ES)evaluation over a three-year period.By 2025,the end of the three-year period,Pizza Hut aims to source 50%of the dairy used to make its pizza cheese in the U.S.from dairy farms enrolled in the FARM ES program.Additionally,farmers participating in the program will have the chance to adopt other practices and technologies such as feed management enhancements and energy-efficient lighting.An additional source of emissions reduction will be the continued expansion of plant-based protein on our menus.We continue to innovate around Taco Bells plant-based beef alternative products in the U.S.,Pizza Huts plant-based toppings and KFCs chicken substitutes.Pizza Hut U.K.introduced a“CARBON-NEUTRAL”flatbread,for which we purchase carbon offsets from a local partner for each item sold.Raising animals for food can also contribute to climate change in areas where deforestation occurs.Soy,which is a primary ingredient in our chicken feed,has a complex supply chain,involving soybean farmers,processors,feed mills,poultry suppliers and finally Yum!restaurants.While our business is at least five steps removed from the soybean field,we continue to work across our supply chain to achieve greater levels of visibility and accountability.Yum!worked with FAI Farms in 2021 to understand and address sourcing soy from areas with high risk for deforestation.In early 2022,we expanded our data collection process to begin accounting for global soy usage used as feed in our supply chain.In addition to animal products,we are also working to ensure responsible sourcing of other raw materials whose cultivation can contribute to deforestation,including palm oil and fibers used for packaging.RESTAURANTS&OFFICES Reducing our Scope 1 and 2 emissions requires us to transition to lower-carbon energy sources to power our offices and restaurants.Our lower-carbon energy journey started early on through energy efficiency at the restaurant level as part of our LEED building development.We are now exploring renewable energy options to benefit both equity and franchisee restaurants.Key lessons from this work will further our renewable energy plan.At the corporate level,Yum!s U.S.offices have been powered 100%by renewables since 2020 through the use of renewable energy certificates(RECs)and a power purchase agreement(PPA).In 2022,we moved 1,000 of our restaurants to renewable electricity by purchasing RECs equivalent to the restaurants estimated,anticipated energy consumption.This phase is an interim step as we explore ways to convert more restaurants and find longer-term solutions for renewable energy procurement.GREEN BUILDING PRACTICES ACROSS BRANDS&MARKETS FRANCHISEE ENGAGEMENT Pizza Hut developed a GREEN BUILDING PLAYBOOK that franchisees can use to improve sustainable building practices,stemming from Yum!s Blueline standards.ENERGY OPTIMIZATION KFC is piloting multiple energy optimization systems across its markets.A recent test in Malaysia led toSUSTAINABLE FURNISHINGSThe Habit Burger Grill is continuing to incorporate sustainable materials such as upholstery,lighting and efficiency-focused equipment into its restaurants.PROCESS IMPLEMENTATION In 2021,our brands reported over 125,000 implementations of the Blueline approaches in their buildings.These save energy and water,as well as reducing our GHG emissions.18%overall energy savings.In 2021,KFC U.K.&Ireland announced a commitment to be net-zero by 2040 or sooner,and a new partnership with the University of Liverpools Zero Carbon Research Institute.KFC U.K.&Ireland is working with the Institute to review the carbon footprint of its restaurants and how each of those restaurants can become net-zero carbon through sustainable design,operations and integration of renewable energy.With these learnings,the market plans to build its first net-zero carbon restaurant and develop a scalable playbook that can be used across the Yum!system.INDUSTRY PARTNERS DEDICATED TO CLIMATE ACTIONDairy Farmers of America Set SBT to reduce direct and value chain GHG emissions by 30%by 2030 National Chicken Council Carbon footprint down 18tween 2010 and 2020 U.S.Roundtable for Sustainable Beef Achieve U.S.beef supply chain climate neutrality by 2040Collaboration with climate-forward partners helps us to innovate around clean energy and stay accountable.These partnerships include organizations such as 3Degrees who is partnering with Yum!on a global study on renewable energy markets in 2022,to identify approaches in low-carbon solutions at its restaurants worldwide.It also includes other important partners in this space such as the Clean Energy Buyers Association,U.S.Green Building Council and Guidehouse.Beyond contributing toward our SBT,reducing energy use,as well as decreasing water consumption and waste can reduce expenses for Yum!and our franchisees.Yum!s corporate-owned restaurants serve as testbeds for innovation,allowing us to pilot new equipment and approaches that can then be introduced across our system,such as integrating Internet of Things-based solutions into our energy management systems.Our tried-and-true green building approaches are captured in our Blueline standard and adopted by brand requirements to provide franchisees a roadmap for reaching their environmental and business goals.PLANET3637Sustainable Packaging&Waste ReductionAnother way we can reduce our environmental footprint and mitigate our carbon impact is by reducing the volume of materials that go to waste.We do this by diverting unused food for donation,recycling cooking oil and corrugated board into new products,and rethinking our food packaging.Packaging has been a significant focus of our efforts over the past year,given its importance to our customers and other stakeholders.In 2021,we held a Global Leadership meeting with leaders from across Yum!and our brands to address the importance of sustainable packaging and hear from external influencers in the space.Historically,our brands have set packaging goals specific to the main types of packaging they use and unique challenges they face.But we recognize that we can make more progress when we work together,across Yum!and externally.The policy is grounded in the time-honored wisdom of waste reduction:reduce,reuse,then recycle.Removing unnecessary packaging from our system Choosing packaging that is made from reusable or renewable materials Taking steps to ensure that packaging can be recycled once again at the end of its life and supporting policies and systems to help make this possible This policy builds upon Taco Bell and KFCs existing packaging goals,providing a single aspiration for all of our brands to work toward by 2025,including moving all consumer-facing packaging to be reusable,recyclable or compostable.Weve engaged with our stakeholders,including our brands,NGOs,investors and regulators,to ensure the policy is comprehensive and inclusive of multiple perspectives given the complex nature of packaging opportunities at the local,national and global levels.We also continue to work closely with World Wildlife Fund(WWF)on this topic,which has helped elevate our data collection processes for plastics and packaging.ELIMINATING UNNECESSARY PACKAGINGLess packaging translates to less carbon.As a result,we are working to remove substances of concern from our packaging,including EPS,which we are on track to remove from all of our brands products by the end of 2022.Taco Bell is in the process of testing a new paper wrap suite that will be recyclable and industrial compostable,eliminating the need for wax coatings and per-and polyfluoroalkyl substances.Reduction of plastics is another priority.Plastics in consumer-facing packaging have been eliminated from Pizza Hut restaurants across Australia,India and Sri Lanka.Meanwhile,The Habit has transitioned from plastic to-go bags to paper ones in 2022,eliminating 288,000 pounds of plastic annually.The Habit has set new commitments to eliminate plastic from burger and sandwich wrappers,which currently contain recycled plastic.What do trees have to do with the meal on your plate?More than you might think.Yum!s supply chain intersects with land use change in numerous ways,which means there are many actions we can take to make a difference.We are collaborating with suppliers,NGOs,governments and industry partners and employing innovative technology to address deforestation and related risks.We aspire and support efforts to eliminate deforestation from our supply chain by 2025,and remain committed to ending natural forest loss by 2030 in accordance with the NYDF.View our Global Forest Stewardship policy for more details.HOW OUR SUPPLY CHAIN IMPACTS DEFORESTATIONRaising Animals&Their FoodHow poultry and livestock are raised is important to their environmental impact.We seek to minimize or avoid livestock that are raised and feed that is grown in areas of deforestation.We estimate that 98%of our beef supply was sourced from regions of lower risk of tropical deforestation in 2021 with about 80%coming from the U.S.and Canada.Growing Oil Palm TreesConversion of land to grow the trees that produce palm oil can have adverse impacts on ecosystems and communities.As a member of the RSPO,we are committed to sourcing palm oil used for cooking from responsible and sustainable sources and give preference to suppliers that are certified by the RSPO.Growing Trees For Paper-Based Packaging Globally,demand for virgin paper products is a significant driver of deforestation.We recognized this issue nearly a decade ago and set our first paper-based packaging goal in 2014.HOW WE PROTECT FOREST RESOURCESHOW YUM!IS MAKING A DIFFERENCE FOR FORESTSIndustry Engagement As an active member of the New York Declaration on Forests,Tropical Forest Alliance,and UK Roundtable on Sustainable Soya,Yum!and our brands are monitoring legislation worldwide and participating in discussions about how governments and businesses can protect forests.Advanced Technology Yum!uses Global Forest Watch Pro,a satellite technology,to analyze and mitigate deforestation risks across our palm oil supply chain.Supply Chain MappingThrough a partnership with FAI Farms,in 2021,we mapped our sourcing of Brazilian soy for chicken feed going to Western Europe.We also recently revised our beef and soy supply chain plan,which is based on the Accountability Framework initiative.Through this plan,we will partner with suppliers to reduce deforestation in key landscapes and support deforestation-free supply chains.Sourcing LocationsThe impact of agriculture is greater when crops or animals are grown on freshly deforested or converted land,because carbon can no longer be sequestered by trees.Many of our suppliers are aligned with Brazils Amazon Soy Moratorium to avoid purchasing soybeans from areas deforested after 2008.In addition,KFC U.K.&Ireland is a signatory to the UK Soy Manifesto and together with the KFC Western Europe supply chain team,is creating a roadmap toward deforestation-and conversion-free soy.Sustainable Packaging We are committed to purchasing 100%of our paper-based packaging with fiber from responsibly managed forests and recycled sources and are exploring sustainable alternative fibers like bamboo.Yum!introduced a HARMONIZED PACKAGING POLICY.123VIEW NEW POLICY IN OUR ESG LIBRARY.PLANET3839WaterWater is connected to nearly all facets of our world and our business,which makes understanding location-specific conditions associated with water increasingly important.In nearly every community,there are shared water challenges that can impact our supply chain,restaurants and neighborhoods.Yum!has a long history of working to reduce water consumption.Our 2025 water goal is to reduce average restaurant water consumption by 10%from our 2017 baseline,and we have currently achieved 34%of our goal.We also continue to focus our efforts on areas of high water stress.Every two to three years,we conduct a risk assessment using the WRIs Aqueduct tools to determine areas at highest water risk.Access to water and water quality are both evaluated due to their essentiality in restaurant operations and food production.For the first time in 2021,we included a portion of our supply chain,assessing risks to our beef,poultry,dairy and fiber suppliers,and found that 68%of our supply chain components have low water risk,and 14%are considered moderate risk.The assessment also concluded which brands and countries have the highest level of water risk.For more information,see our CDP Water Security response.SHIFTING TO MORE SUSTAINABLE MATERIALSAs we remove plastics and other compounds from our packaging,we are making a transition to materials that are either compostable or recyclable.We are also exploring ways to use recycled content to help drive a more circular model.In many cases,this means using paper fibers,which can be recycled and reused many times over.It is estimated that 13%of plastic in our system is resin types 1 and 2,which are typically highly recyclable in many municipalities.Taco Bell and The Habit Burger Grill are leading the way with over 97%of their paper-based packaging originating with fiber from responsibly managed forests and recycled sources in 2021.Our brands are committed to achieving 100%by the end of 2022,except in China where the goal is to be 100%FSC-certified by 2025.KFC Canada has replaced all plastic straws and bags with fiber-based alternatives and,introduced a fully compostable bucket in 2021.The market is also exploring compostable cutlery made from bamboo,corn and sugarcane,which will eliminate 40 million pieces of plastic cutlery each year when scaled across the restaurant system.All of KFC Canadas consumer-facing packaging will be 100%home compostable by 2025.SUPPORTING BETTER RECOVERY&RECYCLING SYSTEMSTransitioning to recyclable packaging is only one step in moving to more sustainable,circular packaging systems.For packaging to actually be recycled or composted,each municipality must adopt recovery infrastructures and consumers must understand how to recycle or compost properly.In an effort to help educate consumers on recycling Yum!packaging,in 2021 we joined How2Recycle,the leading recycling labeling system in North America.Using How2Recycles standardized labeling system,were now providing clear and consistent instructions on our packaging to enable more and better recycling.Yum!is also working with partners in the National Restaurant Association and Foodservice Packaging Institute to understand emerging legislation related to extended producer responsibility.On the international stage,Yum!was an active participant in the Global Plastics Treaty Dialogues,an activist-to-industry series of online summits focused on a global treaty for plastics convened by the Ocean Plastics Leadership Network(OPLN).Yum!continues to engage with OPLN and its member organizations on the challenges and solutions that surround plastic waste.INVESTING IN CIRCULARITYSometimes the best packaging is no packaging at all.While quick-service restaurants do not typically offer reusable dishware and silverware,we are beginning to explore what this might mean for our brands.Pilots underway at Taco Bell in California and KFC in France will serve as learning labs that will help us determine next steps in this area.As members of the NextGen Consortium,we are also exploring ways to design and commercialize reusable to-go cups.Reusable models must consider the full life cycle,including the infrastructure,to support this method.GIVING SAUCE PACKETS AN EXTRA KICK Whether Mild,Hot or Fire,Taco Bells sauces help make meals that much more delicious.And now,sauce packets can continue to do good even when the sauce inside is gone.Taco Bell recently renewed its partnership with TerraCycle,an international recycling leader that collects traditionally nonrecyclable items,cleans them,then melts and remolds them into hard plastic that can be used to make recycled products.Together,we are undertaking a pilot to transform these packets and give them a second life.Since the majority of Taco Bell transactions currently take place at the drive-thru and most consumers eat their meal out-of-restaurant,U.S.customers can use a prepaid label to mail their empty sauce packets to TerraCycle.Weve introduced the program to consumers through our app,website,emails and in-store signage.We completed a pilot with John Tomasulo,a New Jersey-based franchisee,to increase awareness even further.We placed collection boxes at several of his Taco Bell restaurants and over 100 locations in the surrounding community,with the goal of determining whether recycling access increases participation in the program and sales for the restaurants.Packets collected through this local pilot will be recycled into picnic tables for local parks and the Trenton Thunder Ballpark.“In this day and age,everyones concerned about sustainability and the environment,”Tomasulo says.“This is a small way we can participate in that cause.”PLANETOVERALL WATER RISKLOW(01)LOW-MEDIUM(12)MEDIUM-HIGH(23)HIGH(34)EXTREMELY HIGH(45)No dataSource:WRI Aqueduct,accessed on 3/2022.Aqueduct.wri.orgPEOPLE 2021 Performance Summary4141Advance our social purpose to fight inequality globally,support initiatives related to hunger relief,literacy and youth education,act as a strong community partner in our hometown headquarters and support employees and restaurant workers during times of disaster Donate food,funds,time and talent to help local and global communities.Our global organization donated$58 million in 2021,supporting brand efforts such as KFC Foundation charitable assistance programs,Pizza Huts BOOK IT!Program and the Taco Bell Foundations Live Ms Scholarship and Community Grants program.We also donated 4.3 million pounds of food through our Harvest program in 2021.Fight inequality through our Unlocking Opportunities Initiative(UOI)by investing$100 million over five years for employees and communities around the world.Approved over$50 million in funding to almost 30 social impact programs across nine countries through our Unlocking Opportunity Initiative to fight inequality inside and outside Yum!through entrepreneurship,education and equity and inclusion.Social Purpose&Community ImpactGoalStatusCreate a culture of engagement that attracts,retains and grows the best people and creates high performance in our restaurantsMeasure our employee engagement.In 2021,Yum!conducted our bi-annual employee engagement survey with all corporate employees that revealed an engagement level of 88%,well above industry benchmarks.Provide system employees with training and development that builds world-class leaders and business results.Above-restaurant employees participated in almost 14,000 training instances in 2021 including Leading with Heart,our leadership development program,and Inclusive Leadership,our unconscious bias program,as well as our compliance policies.At the restaurant level,nearly 6 million hours of operational training were completed.Culture&TalentHold our employees,franchisees and suppliers to the highest standards of professional and ethical conductRemain committed to our Global Code of Conduct and Supplier Code of Conduct,which addresses guidelines for working conditions consistent with frameworks such as those of the International Labour Organization and the United Nations Guiding Principles on Human Rights.Published updated version of Yum!s Human Rights&Supply Chain policy.Through Yum!s membership with Sedex,a leading ethical trade membership organization that works with businesses to improve working conditions in global supply chains,6,000 core category supplier sites were pre-screened for indicators of inherent responsible sourcing risk.Developing strategic implementation plan to drive adoption of responsible sourcing assessment processes and supplier engagement tools.Over 18,000 corporate employees received training on the Global Code of Conduct.Ethics&Human RightsBuild an inclusive culture among our employees,franchisees,suppliers and partners to reflect the diversity of our customers and communitiesContinue building upon ongoing inclusion efforts to help create workplace environments where all people can be successful.We continued expanding Employee Resource Groups across corporate campuses globally and hosted regular webcasts to facilitate dialogue and awareness on how to build an inclusive culture.In 2021,Yum!conducted an equity,inclusion and belonging assessment for above-restaurant leaders across all brands in the U.S.Significantly increase the number of women in senior leadership globally and achieve gender parity in leadership globally by 2030 in alignment with Paradigm for Parity.In 2021,42%of global corporate leadership roles were held by women,and about 51%of our global workforce was comprised of women.Significantly increase diverse representation of people of color in the U.S.among corporate employees.In 2021,we continued our partnership with CEO Action for Diversity&Inclusion and the Hispanic Promise.In 2021,we joined the OneTen coalition,a group of U.S.businesses leading a bold initiative to create career mobility and advancement opportunities for 1 million Black individuals in the U.S.over the next 10 years.Continue rolling out Inclusive Leadership training training across our system including company-owned and franchise restaurants.Continued expanding our Inclusive Leadership training to employees and franchisees around the world,part of our broader companywide training program efforts where nearly 14,000 above-restaurant employees participated holistically in 2021.Started to develop an online module of the program to help provide more access to the curriculum.Equity,Inclusion&BelongingFOOD 2021 Performance SummaryGoalStatusMaintain the safest,highest-quality food supply and preparation in the industryThrough food safety audits,we provide restaurant team member training on employee health,product handling,ingredient and product management and prevention of cross-contamination.Since 2016,Yum!has conducted more than 578,400 restaurant food safety audits.Build on Yum!supplier audit track record and assess 100%of Tier 1 suppliers annually by 2021.In 2021,80%of Yum!Tier 1 suppliers required a food safety audit,of which 99%were audited and achieved on 98%performance.Food SafetyBe the preferred restaurant for consumers seeking delicious,balanced options by offering more choice and nutritional improvements to our foodOffer lower-calorie menu options across main dishes,combos and sides,consistent with Yum!s global nutrition standards that align with the World Health Organization and the Dietary Guidelines for Americans,to continue to improve our foods nutrition.By 2030,we intend to represent 50%of menu food offerings to be consistent with Yum!global nutrition criteria for meal options.Together,the brands reported that they are 64%on the way to meeting the goal.Provide consumers with convenient access to food information regarding menu labeling and allergens.Continue publishing online nutrition calculators for the brands U.S.menus and providing consumers with convenient access to allergen and nutrition information.Details can be accessed online:KFC,Pizza Hut,Taco Bell,The Habit Burger GrillOffer plant-forward product innovations to meet the lifestyle choices of consumers.Taco Bells vegetarian offerings represent more than 12%of sales.The brand offers over 30 vegetarian ingredients on its menu which can be combined for nearly 1 million combinations.Increased plant-based protein options including in Pizza Huts markets globally.Plant-based cheeses have also been introduced in Portugal,Spain and the U.K.at Pizza Hut.The Habit Burger Grill launched two new Impossible Burgers.Continue clean label efforts to remove artificial colors,artificial flavors and partially hydrogenated oils from core food ingredients globally by 2025.Removed 94%of artificial coloring Removed 86%of artificial flavors Removed 95%of PHOsBalanced ChoicesBe a good steward of the animals raised for food throughout our supply chainContinue engaging with beef,dairy and poultry suppliers to gather robust data on animal welfare and sustainable production systems as well as to educate them on the Five Freedoms and our Sustainable Animal Protein Principles.KFC introduced new global chicken key welfare indicators(KWIs)as a critical step on its animal welfare journey.Taco Bell continues to source 100ge-free eggs for all menu items and ingredients in the U.S.and Canada.Taco Bell will reduce use of antibiotics important to human medicine in its U.S.and Canada beef supply chain by 25%by 2025,while Pizza Hut U.S.will remove them in chicken used for wings by 2022.KFC,Pizza Hut(chicken for its pizzas)and Taco Bell in the U.S.have met public commitments to remove antibiotics important to human medicine from our U.S.poultry supply.In 2019,Taco Bell published a Beef Policy and has since made progress with approximately 15%of its raw beef supply being procured from reduced antibiotic sources.Pizza Hut U.S.is working toward removing antibiotics from chicken used for wings and expects to meet its goal by 2022.Raised ResponsiblyPromote transparency about our food through responsible labeling and advertising practices in our restaurants and beyondLimit marketing communications to children under 12.We follow U.S.and international guidelines to limit marketing to children.Responsible MarketingGRI INDEX4342PLANET 2021 Performance SummaryEngage in building a responsible supply chain that protects forests,respects human rights,supports sustainable sourcing and enables good stewardshipIn line with our approved SBTs,cut GHG emissions generated by:suppliers(Scope 3)46low 2019 levels by 2030 on per-metric ton basis of beef,poultry,dairy and packaging procured.In 2021,we joined the Supplier Leadership on Climate Transition(Supplier LoCT),a consortium of multinational companies created to accelerate action throughout the supply chain in the march toward net-zero GHG emissions.Currently,56%of our suppliers of beef,poultry and dairy in the U.S.and Canada already have climate targets in place or are part of the Supplier LoCT program.In the U.S.,Pizza Hut is partnering with the Dairy Farmers of America(DFA),and dairy suppliers on a joint dairy project to provide participating farmers with technology and data needed to help reduce GHG emissions.Endorsed the New York Declaration on Forests and the private sector goal of eliminating deforestation from the production of agriculture commodities such as palm oil,soy,paper and beef products no later than 2020 and striving to end natural forest loss by 2030.As part of this work,we will purchase 100%of our paper-based packaging with fiber from responsibly managed forests and recycled sources by the end of 2022.In 2021,an estimated 74%of fiber came from certified forests or recycled sources.Taco Bell has reached 98%.In 2021,100%of palm oil used for cooking supported the production of sustainable palm oil and deforestation-free supply chains.We estimate that 98%of our beef supply was sourced from regions of lower risk of tropical deforestation in 2021 with about 80%coming from the U.S.and Canada.Disclose progress to CDP Forests on palm oil,soy,paper and beef.Building on KFC and Taco Bells existing goals,Yum!established an elevated and harmonized cross-brand packaging policy that covers four focus areas:eliminating unnecessary packaging,shifting materials,supporting better recovery and recycling systems,and investing in circularity.Expanded polystyrene,of which Styrofoam is a component,makes up of under 1%of the reported plastic used by our system.As we currently understand data submitted by suppliers,an estimated 16%of resins come from recycled sources comprised of 14%pre-consumer and 2%post-consumer.Approximately 13%of plastic used by our system is currently estimated to be commonly recyclable(defined as resin types 1 and 2).Supply ChainGoalStatusDesign,build and operate restaurants to be measurably more sustainable using green building standards to drive reductions in energy consumption,water use,greenhouse gas(GHG)emissions and wasteIn line with our approved science-based targets(SBTs),cut GHG emissions generated by:Company restaurants and offices(Scope 1 and 2)46low 2019 levels by 2030.Franchisee restaurants(Scope 3)46low 2019 levels by 2030 on a per-restaurant basis for franchisees.Our Scope 1 and 2 emissions for buildings have decreased approximately 24%,on an absolute basis,as compared to our baseline year 2019.Franchisee emissions,measured on an intensity basis,have decreased approximately 20%.Use renewable electricity to power 1,000 restaurants and our corporate offices in the U.S.Yum!s offices in the U.S.have been using 100%by renewable electricity since 2020 through the use of Renewable Energy Certificates(RECs)and a power purchase agreement(PPA).In 2022,we moved 1,000 of our restaurants to renewable electricity by purchasing RECs equivalent to the restaurants estimated energy consumption.We have implemented onsite solar in Australia where 43 company-owned KFC restaurants are partially powered by rooftop photovoltaic systems.Collins Foods,a Yum!franchisee,had seven systems in 2021 and committed to adding over 100 systems over the next year.Reduce average restaurant water withdrawals by 10%,from 2017,by the end of 2025.We have currently reached 20%of our goal to reduce water withdrawals on a per-restaurant basis.We completed a water risk assessment using the World Resources Institutes Aqueduct tools to determine areas at highest water risk.For the first time in 2021,we included a portion of our supply chain,assessing risks to our beef,poultry,dairy and fiber suppliers and found that 68%of our supply chain components have low water risk,and 14%are considered moderate risk.Divert 50%of back-of-house operational waste,measured by weight,generated in our U.S.restaurants by the end of 2025.In 2021,we estimated that 983,629 tons of waste was removed from our U.S.restaurants,and we diverted an estimated 19%of that material.Taco Bell will add recycling and/or composting bins to restaurants where infrastructure permits.Reduce food loss waste by 50%by 2030 in accordance with U.S.Food Loss and Waste 2030 Champions.Yum!and our franchisees donated 4.3 million pounds of food in 2021,with 28 countries participating.Green BuildingsGRI StandardsDisclosure NumberDisclosure TitleResponseGRI 102:GENERAL DISCLOSURESOrganizational profile 102-1Name of the organizationYum!Inc.2021 Form 10-K,Cover Page102-2Activities,brands,products,and servicesYum!does not intentionally sell items that are banned in individual markets.2021 Form 10-K,pg.3102-3Location of headquartersLouisville,Kentucky2021 Form 10-K,Cover Page102-4Location of operationsAs of December 31,2021,there were 53,424 restaurants in 157 countries and territories,98%of which were franchised.2021 Form 10-K,pg.3102-5Ownership and legal formPublicly traded company2021 Form 10-K,Cover Page102-6Markets servedAs of December 31,2021,there were 53,424 restaurants in 157 countries and territories,98%of which were franchised.2021 Form 10-K,pg.3102-7Scale of the organizationTotal Number of Employees:2021 Form 10-K,pg.7Total Number of Operations:2021 Form 10-K,pg.3Net Revenues:2021 Form 10-K,pg.31Quality of Products or Services Provided:2021 Form 10-K,pgs.3-7102-8Information on employees and other workersWorkforce Diversity Report Total Number of Employees:2021 Form 10-K,pg.7102-9Supply chainSupplier Engagement&Due Diligence2021 Form 10-K,pg.6102-10Significant changes to the organization and its supply chainNone102-11Precautionary Principle or approachYum!does not have an official policy as it pertains to the precautionary principle,but we do assess risks across our organization.Approach2021 Form 10-K,pgs.9-24102-12External initiativesApproach Stakeholder Engagement102-13Membership of associations Approach Stakeholder EngagementThe 2021 Global Citizenship&Sustainability Report is prepared according to Global Reporting Initiatives(GRI)Standards Core option.GRI is the most widely recognized framework for sustainability reporting.GRI INDEXGRI INDEX4445Disclosure NumberDisclosure TitleResponseStrategy102-14Statement from senior decision-makerIntroduction A Message from David Gibbs102-15Key impacts,risks,and opportunitiesCDP Climate Change,2022 ResponseCDP Water Security,2022 ResponseCDP Forests,2022 ResponseEthics&Integrity102-16Values,principles,standards,and norms of behavior Global Code of ConductSupplier Code of Conduct102-17Mechanisms for advice and concerns about ethicsGlobal Code of ConductSupplier Code of ConductGovernance102-18Governance structure Approach Corporate Governance 2022 Proxy Statement,pgs.7-27Stakeholder Engagement102-40List of stakeholder groups Approach Stakeholder Engagement 102-41Collective bargaining agreementsAs of December 31,2021,approximately 15%of employees reported to be represented by an independent trade union or covered by collective bargaining agreements.102-42Identifying and selecting stakeholders Approach Stakeholder Engagement102-43Approach to stakeholder engagementApproach Stakeholder Engagement102-44Key topics and concerns raisedApproach Stakeholder EngagementReporting Practice102-45Entities included in the consolidated financial statements 2021 Form 10-K,pg.3102-46Defining report content and topic Boundaries Approach Materiality102-47List of material topics Approach Materiality102-48Restatements of informationYum!has no restatements of information in this reporting cycle.102-49Changes in reporting Approach Materiality102-50Reporting period About this Report102-51Date of most recent report July 2022102-52Reporting cycleAnnual Disclosure NumberDisclosure TitleResponse102-53Contact point for questions regarding the report Please send comments or questions about this report to .102-54Claims of reporting in accordance with the GRI StandardsApproach Reporting&Disclosure102-55GRI content index2021 GRI Content Index102-56External assurance Our GHG Emissions and Water Withdrawal for the year ending December 31,2021 has been verified by an independent third-party accountant to be presented in accordance with the WRI/WBCSD Greenhouse Gas Protocol:A Corporate Accounting and Reporting Standard,Revised Edition for Scope 1 and 3 and the WRI/WBCSD Greenhouse Gas Protocol Scope 2 Guidance;an amendment to the GHG protocol Corporate Standard and the Water Withdrawal using attestation standards established by the American Institute of Certified Public Accountants(AICPA).We do not currently seek external assurance for our report.GRI 200:ECONOMICGRI 201:Economic Performance103-1Explanation of the material topic and its Boundary2021 Form 10-K103-2The management approach and its components 103-3Evaluation of the management approach201-1Direct economic value generated and distributed2021 Form 10-K,pg.54201-2Financial implications and other risks and opportunities due to climate changeCDP Climate Change,2022 ResponseCDP Water Security,2022 ResponseCDP Forests,2022 ResponseTask Force on Climate-related Financial Disclosures(TCFD)reportGRI 205:Anti-corruption103-1Explanation of the material topic and its BoundaryYum!s success is built on the integrity and high ethical standards of our employees.Our Global Code of Conduct is the foundation for the way that we conduct ourselves and do business throughout the world.Every year,our board of directors and Yum!s 2,000 most senior employees must certify in writing that they have read and understand the code and compile a conflicts of interest questionnaire.The code is available online in seven languages.People Ethics&Human RightsGlobal Code of ConductSupplier Code of Conduct103-2The management approach and its components 103-3Evaluation of the management approach205-3Confirmed incidents of corruption and actions takenThere were no confirmed incidents of corruption during 2021.GRI 206:Anti-compe
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TSMC 2023SustainabilityReportContents1341411501579711011712676An Innovation PioneerSustainable Supply ChainA Responsible PurchaserClimate and EnergyWater StewardshipCircular ResourcesAir Pollution ControlDiversity and InclusionTalent Attraction and RetentionTalent DevelopmentOccupational Safety and HealthAn Admired EmployerPower to Change Society172175184415870Innovation ManagementProduct QualityCustomer RelationsOverviewSustainability at TSMCSustainability StoriesAwards,Recognitions,and Ratings91013194197199Corporate GovernanceFinancial PerformanceTaxOperations and GovernanceInformation SecurityBusiness and Human Rights200202205208151621ESG Implementation FrameworkESG Management PlatformMateriality Analysis andStakeholder EngagementSustainable Business PracticesSustainability ImpactCarry Out the UN Sustainable Development Goals35394567Letter from the ESG Steering Committee ChairpersonLetter from the ESG Committee ChairpersonAbout TSMCInnovation ValueSocial ImpactTSMC Education and Culture FoundationTSMC Charity FoundationA Practitioner of Green PowerAppendixAbout This ReportSustainability InformationDisclosure FrameworkClimate-related Information of Listed CompaniesParticipation in Industry Associations and Non-Profit OrganizationsESG Performance SummaryIndependent Third Party Assurance StatementContact InformationGlobal Reporting Initiative IndexUnited Nations Global Compact IndexTSMC Climate and Nature Management FrameworkSustainability Accounting Standards Board IndexWEF IBC Stakeholder Capitalism Metrics Index209211213221222SustainabilityRolesOne Wafer,One WorldInnovation drives TSMCs continuous growth.Each wafer carries the promise of future prosperity,creating a blueprint for sustainable common good around the world.As a responsible global corporate citizen,TSMC partners across sectors to invest resources,achieve harmony between technology,nature,and humanity.Gathering every ounce of positive energy,spreading like the ripples in a pond,TSMC changes the world for the better.2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview4 4I believe that TSMCs sustainable actions will ripple outwards and make an impact.Mark LiuChairman and ESG Steering Committee ChairpersonAt TSMC,we believe in the value of Common Good.TSMC employees around the world have deeply embedded our sustainability principles in every aspect of the companys operations,making TSMC a driving force for a better world.Looking back at the past year,the Annual 2023 Global Climate Report published by the U.S.National Oceanic and Atmospheric Administration(NOAA)reported that 2023 was the hottest year in the historical record.We cannot ignore the impact of climate change,and we can expect that as global warming continues,climate change will impact our ecosystems and communities.Companies are playing an increasingly critical role as they carry out environmental commitments and drive low-carbon transformation around the world.TSMC is committed to achieving net-zero emissions through continued investment in a wide range of green initiatives and innovative energy-saving and carbon-reducing technologies.Every year,we boldly set more ambitious goals and take action to meet the challenges of climate change.In 2023,TSMC accelerated its execution of RE100,aiming to achieve its goal 10 years ahead of schedule.By 2040,the companys manufacturing sites will use 100%renewable energy,steadily moving towards the goal of net-zero emissions by 2050.Overseas sites have already fully adopted renewable energy,and we will continue to carry out the right environmental conservation actions for each site.We have issued a Biodiversity Statement with the goal of achieving net-zero deforestation,no net loss of nature and biodiversity,and a net positive impact on nature and biodiversity by 2050.Through regular and ongoing transparent disclosures,we work with stakeholders from all sectors to step into a sustainable future together.Letter from the ESG Steering Committee ChairpersonThe 28th Climate Change Conference of Parties(COP28)was the first global stocktake since the signing of the Paris Agreement,which revealed that we need greater,faster,and longer-lasting controls on greenhouse gas emissions.TSMC is more sharply focused on driving operational models with low environmental impact,and integrates resources through a dedicated green manufacturing organization to thoroughly execute projects on climate and energy,water stewardship,circular resources,and air pollution control.At the same time,we have established a responsible semiconductor supply chain and are steadfast supporters of our suppliers continuous improvements in carbon management and climate risk response capabilities.This year,TSMC also carefully revised its Human Rights Policy,responding to the UN General Assemblys resolution in 2022 stating that the right to a clean,healthy,and sustainable environment is a basic human right.We have incorporated environmental rights into one of our six human rights commitments and further supported multiple international standards and guidelines on women and children,disclosed human rights management policies,and extended human rights protection to a wider range of stakeholders beyond employees and the supply chain.In the spirit of embracing innovation and change,TSMC is committed to creating an inclusive workplace where everyone can feel at ease,and to serving local communities through the TSMC Education and Culture Foundation and TSMC Charity Foundation.TSMC strives to make contributions towards human well-being and the natural environment.I am proud of the changes brought about by TSMC employees in the past year,and I believe that TSMCs sustainable actions will ripple outwards and make an impact.Chairman Mark Liu officially retired on June 4,20242023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview5TSMC strives to integrate technology with sustainable development,joining hands with stakeholders to advance together towards prosperity and growth.The Worlds political,economic,and natural environments have been going through great changes in recent years under the impact of extreme weather events,geopolitical conflict,and post-pandemic transformation to the supply chain and ways of work.The latest Global Risks Report,issued by the World Economic Forum,points out that in the next decade,environmental issues will continue to dominate the global risk landscape.These risks,along with the trends of multipolar international competition and the development of artificial intelligence(AI),underscore the importance of rebuilding trust.TSMC strives to integrate technology with sustainable development,joining hands with stakeholders to advance together towards prosperity and growth.In 2023,TSMC continued to lead the industry with successful volume production of our enhanced 3-nanometer technology,N3E,and brought 11,895 innovative products through 288 distinct process technologies to life for our customers,powering the unceasing progress of technology and society.We leveraged AI to realize intelligent precision manufacturing,optimized workflows and operations efficiency,and supported our customers success with high-quality production.We also broadened our global talent deployment,expanded industry-university collaboration projects,and galvanized innovation from the inside out,cultivating semiconductor talents in both quantity and quality.In addition to extending our roadmap for advanced technologies,TSMC also acted on its net-zero commitment,announcing that we plan to reach our RE100 target ahead of time by 2040.Responding to the consensus at COP28 on transitioning away from fossil fuels,we carried out 822 energy conservation projects and established a Zero Waste Manufacturing Center.Furthermore,we led our supply chain towards sustainable transformation in 2024,pioneering a Supplier Environmental Information Digital Platform,and inviting suppliers to participate for joint purchases of renewable energy.We disclosed our efforts in green manufacturing in our first Climate and Nature Report,deepening our influence on the industry.Letter from the ESG Committee ChairpersonBesides fulfilling our environmental responsibilities,TSMC demonstrated its concern for human rights in 2023 with the establishment of a Human Rights Working Group with the Board of Directors at the highest level of governance,and published the companys first Human Rights Report.In addition,to strengthen our culture of diversity,equity,and inclusion,TSMC continued to support female talent at all stages of their careers,established Employee Resource Groups(ERGs)for under-represented groups,and extended concern for DEI and human rights to our supply chain.We created a zero-incident workplace,offered a wide variety of activities to promote physical and mental health,and continued to to connect the Company with external resources to ensure the health and safety of workers.In the spirit of leave no one behind,TSMC proactively published the UN SDGs Action Report for a third consecutive year,disclosing our progress towards Sustainable Development Goals(SDGs),and drove a variety of public welfare projects through the six core services of the TSMC Education and Culture Foundation and the TSMC Charity Foundation.In 2023,we integrated our environmental profit and loss and our social impact to publish our first Sustainability Impact Valuation Report,systematically evaluating resources invested and outcomes produced,and weighing the changes that TSMC has brought to the entire value chain in terms of externalities.Transparency is a key principle in carrying out ESG.Through different themed ESG reports,we maintain stakeholders trust,and uncover opportunities to improve our sustainability governance.Looking ahead,TSMC will continue to forge a culture of ESG among all employees through the ESG AWARD,link executive compensation with ESG results,and accelerate our sustainability momentum.We will continue to stay ahead of global ESG initiatives and trends,and keep creating shared value for the environment and society with the spirit of“Driving Positive Change”at the center of our efforts.Lora HoSenior Vice President and ESG Committee ChairpersonProvided with 288 distinct process technologies for their product needs58%of revenue generated from advanced processes of 7nm and below,up five percentage pointsfrom 2022Hsinchu Science Park198777,045HeadquartersFounded inNumber of Employees$838.5 Billion12 Million Wafers3 Nanometers528 Customers58%Net income(NT$)Shipment reached an equivalent of 12 million 12-inch wafersIndustry-leading process technology entered high-volume productionHigh-performance ComputingInternet of Things(IoT)AutomotiveElectronics6%Other Product38%Smartphones43%Consumer Electronics2%8%6%8%Asia-Pacific Market Excluding Japan and China68%North American Market6%European,Middle Eastern,and African MarketJapanese MarketChinese Market62023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverviewAs the trusted long-term provider of technology and capacity in the global logic IC industry,TSMC is committed to pursuing innovation and social progress.In the face of global economic developments and the emergence of generative AI applications,the Company upholds its Trinity of Strengths:Technology Leadership,Manufacturing Excellence,and Customer Trust by continuously strengthening services and expanding R&D capabilities.TSMC strives for industry-leading achievements while embracing a responsible business ethos,actively engaging with stakeholders including employees,shareholders/investors,customers,suppliers/contractors,government/industry associations,and society.TSMC aims to integrate ESG into the operations to create shared value for a sustainable future.In Taiwan,TSMC has established four 12-inch wafer Gigafab facilities,four 8-inch wafer fabs,and one 6-inch wafer fab.The Company possesses a network of overseas fabs,including TSMC(Nanjing),TSMC(China),TSMC Washington,LLC,TSMC Arizona,and the JASM facility in Kumamoto,Japan.TSMC also operates subsidiaries or offices in the United States,Europe,Canada,Japan,South Korea,and other countries.In 2023,the Company announced the establishment of the European Semiconductor Manufacturing Company(ESMC)in Germany,aiming to offer customers timely access to technical and business services.About TSMCRevenue Share by Customer Headquarters LocationRevenue Share by Product PlatformInnovations for SustainabilityTSMC continues to advance semiconductor technologies and services,enabling customers to unleash more than 11,890 chip innovations in 2023.These innovations make products more advanced,capable,intelligent,energy-efficient,and safer,greatly increasing the quality of life and helping to build a sustainable society for the common good.Technology Development FocusesBenefits to Customer Product InnovationContinue to drive semiconductor scaling for both logic and specialty technologiesContinue to expand specialty technology offeringsContinue to advance and expand TSMC 3DFabricTM technology offeringsBoost product computing powerIncrease product energy efficiencyEnable smaller form factorProvide greater chip design flexibility2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview7Semiconductors drive the continuous evolution of technology and have significantly transformed the way humans live,learn,and work.Semiconductor technology plays a key role in enabling innovations in communications,data processing,environmental protection and energy conservation,medical care,smart homes,smart transportation,entertainment,and many other areas.Through the five major technology platforms including High-performance Computing(HPC),Smartphone,Internet of Things(IoT),Automotive,and Digital Consumer Electronics(DCE),TSMC provides comprehensive and competitive logic process technologies,specialty technologies,IPs,and packaging and testing technologies to help customers accelerate their product innovation,and continue to contribute to economic growth,environmental protection,and sustainable social progress.Innovation ValueMake vehicles,including hybrid/electrical cars,safer,smarter,and greenerEnable AI-powered smart devicesEnable 5G,artificial intelligence(AI),cloud,and data centers for transferring and processing vast amounts of data anywhere and anytimeMake work,play,and learn possible anytime and anywhere,and make communication more effectiveHigh-performanceComputingSmartphoneInternet of Things AutomotiveDigital Consumer ElectronicsHPC supports powerful AI-driven technology that trains complex predictive models on data center servers and makes CPUs/GPUs faster and more accurately to perform simulations and analysis.It also identifies solutions and optimizes resources via early warning systems that aid in mitigating extreme climate disasters.The integration of neural processing units(NPUs)in smartphones has significantly enriched their Edge AI capabilities.With NPUs,smartphones can perform complex on-device AI tasks such as natural language processing,image recognition,and predictive analytics.This enables faster response times and improved privacy and allows for more personalized experiences.Intelligent IoT has the potential to revolutionize industries,improve efficiencies,reduce waste and loss,and enhance the quality of life for individuals.For example,ultra-low power RAIN RFID tag chips are known to have delivered significant social benefits as they enabled timely global distribution of critical medical resources like vaccines to those in need during the COVID-19 pandemic(Photo:Courtesy of Impinj).The automotive industry is going through fundamental transformations that will make electric vehicles increasingly eco-friendly,AI-enabled advanced driver-assistance systems(ADAS)safer,and autonomous driving a reality.AI facilitates to optimize battery performance,manage energy consumption,and detect potential hazards,improving road safety.AI-enabled digital consumer electronics have transformed peoples lives,allowing for optimized automation,connectivity between devices,and user experiences.For example,many smart digital TVs(DTVs)now come equipped with voice recognition technology and picture quality(PQ)enhancement.Continuous innovations in DCE will pave the way for further AI advancements that make modern living more immersive and enriched.Customer Products/ApplicationsCentral Processing Unit(CPU)Graphics Processor Unit(GPU)Field Programmable Gate Array(FPGA)Server CPUArtificial Intelligence/Machine Learning(AI/ML)AcceleratorNetwork Processing Unit(NPU)High-speed Networking Chip,etc.Application Processors(AP)BasebandRF TransceiversWireless Local Area Networks(WLAN)CMOS ImageSensor(CIS)Near Field Communication(NFC)BluetoothGlobal Positioning System(GPS)Ultra-wideband(UWB),etc.Near Field Communication(NFC)BluetoothEmbedded Flash MemoryRadio Frequency Identification,(RFID),etc.Microcontroller Unit(MCU)BasebandRF TransceiversWireless Local Area Networks(WLAN)CMOS Image Sensors(CIS)Near Field Communication(NFC)BluetoothEmbedded Flash MemoryPower Management ICsTiming Controllers(T-CON),etc.Microcontroller Unit(MCU)BasebandRF TransceiversWireless LocalArea Networks(WLAN)CMOS Image Sensors(CIS)Near Field Communication(NFC)BluetoothEmbedded Flash MemoryRadio Frequency Identification,(RFID),etc.MicrocontrollerUnit(MCU)Application Processors(AP)BasebandRF TransceiversWireless LocalArea Networks(WLAN)CMOS ImageSensors(CIS)Empower innovations for AIoT and accelerate digital transformation to make a more convenient and greener living,and to improve healthcare quality2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview8Five Technology Platforms100%Patent approval rate near 100%in the U.S.,better than any other top 10 patent holder5,846 MillionR&D expenditures accounted for 8.5%of the revenue(US$)11,895 ProductsFabricated for 528 customers through manufacturing excellenceEconomicEnvironmentalSocial1.86 TrillionOutput value(NT$)and 272,000 jobs generated in Taiwan94%Customer trust and satisfaction rate830 GWhAdditional energy saved through 822 energy-saving measuresAccelerated the goal of using 100%renewable energy for global operations to 2040Waste recycle rate around the worldRE10096%Replacement of water resources with reclaimed water in Taiwan fabs99%Reduction rate of volatile organic gases239.8 BillionTotal compensation and welfare for TSMC employees around the world(NT$)People received trainingBeneficiaries of social engagement programs2,596,3221,031,4336,133Employees recruited worldwide1.454 BillionInvested into social engagement(NT$)2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview9Sustainability at TSMCLearn moreProduct QualityStrengthen Interdisciplinary Innovation MomentumDrive Quality Competitiveness through InnovationDeepen Customer Trust and SatisfactionLearn moreTSMC leveraged the Supplier Environmental Information Data Platform to establish functionalities for collecting and analyzing supplier environmental data,and identifying carbon emission hotspots.Additionally,TSMC devised carbon reduction plans totaling 900,000 metric tons for major emissions contributors,continuously enhancing its carbon reduction effortsLearn moreIn the Renovate to Innovate project,TSMC aided suppliers in identifying production line anomalies and establishing procedural management and contingency mechanisms for abnormal events.This led to a 93.5%reduction in abnormality rates in a single suppliers factory for the year,bolstering supply chain resilienceSustainable Supply ChainCollaborate with Suppliers to Bolster Operational ResilienceTSMC inaugurated the Production Equipment Component Energy Monitoring System,accurately monitoring power usage efficiency.This system supported four component improvement plans for EUV lithography machines,with an estimated annual electricity saving of 940,000 kWhLearn moreTSMC continued to optimize TSMC-Online by introducing three innovative features:standard operation interface,personalized workspace,and intelligent guidance service,improving system usability.Additionally,TSMC created 10 instructional videos to assist customers obtain information more efficientlyLearn moreTSMC pushed the boundaries of EUV exposure technologies,overcoming production challenges with four groundbreaking innovations:Perfect Ratio for Composites,Innovative Double Layer Composite Technology,Wet Angstrom-grade Thick Etching Self-calibration Technology,Measurement Exclusive Automated Design System.These efforts culminated in the successful development of the High-Transparency EUV Photomask Protective Film,increasing the light transmittance by 12%and securing three patentsInnovation ManagementCustomer RelationsLearn moreTSMC launched long-term campus collaboration programs featuring Course Collaboration,Industry-academia Collaboration,and Career Guidance,with a total investment of NT$774 million throughout the year.This program reached over 10,000 undergraduate and graduate students,enriching the semiconductor talent pool2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview10Sustainability StoriesTSMCs sustainability story is a vital part of its pursuit of sustainable development that aspires to act as a catalyst for positive social change.Together with stakeholders,the Company aims to continuously exert this influence.Dedicated to becoming an Innovation Pioneer,TSMC strengthens its innovation capabilities to enhance quality,competitiveness,customer trust,and satisfaction,while maintaining industry leadership.Operating as a Responsible Purchaser,the Company deepens cooperation with the supply chain,systematizes carbon emission management,and helps suppliers fortify their operational resilience,driving industry upgrades.Embracing its role as a Practitioner of Green Power,TSMC harnesses cutting-edge process technologies to contribute to global energy conservation,strive for water-positive status and a circular economy,and dedicate itself to environmental stewardship through technological innovation.Meanwhile,TSMC unleashes the potential of its workforce through a culture of diversity and inclusion,offering competitive compensation,benefits,and robust career development programs.By strategically cultivating its global talent pool,the Company aims to position itself as an Admired Employer while ensuring comprehensive workplace safety by incorporating Artificial Intelligence(AI)technology and upgrading protective equipment.Beyond pursuing business growth,TSMC actively addresses diverse social issues through the TSMC Education and Culture Foundation and the TSMC Charity Foundation.By actively listening to,supporting,and empowering target groups,the Company promotes various charitable projects aligned with the United Nations Sustainable Development Goals,catalyzing the power to change society and creating shared value for all.Circular ResourcesCreate Circular Resources and Regenerative ValueClimate and EnergyAid Global Energy Conservation through Advanced ProcessesLearn moreIn TSMCs relentless pursuit of net-zero emissions by 2050,the Company collaborated with customers to conserve energy across industry and society through innovative technologies.By 2030,each kWh used in TSMCs production will save 4.28 kWh globally,with high-performance computing chips achieving a 6.8 kWh reduction per kWh,advancing energy-efficient information and communications technology(ICT),according to estimates by the Industrial Technology Research Institute(ITRI)Learn moreIn collaboration with suppliers,TSMC improved waste activated carbon regeneration technology,applying it across all TSMC Taiwan fabs.Furthermore,partnering with the Ministry of Environment,we developed a leasing model,establishing a circular procurement business approach that replaces purchasing,marking another milestone in circular resourcesLearn moreThrough resource integration and enhanced verification efficiency,TSMC Taiwan fabs obtained the highest-level UL 2799 platinum certification,marking a pioneering achievement in the global semiconductor industryWater StewardshipGenerate Positive Benefit through Water RestorationLearn moreThrough the Diverse Water Supply Integration Platform,TSMC kept track of water usage while increasing the replacement rate of reclaimed water.JASM,for example further advanced water conservation projects,successfully restoring approximately 2 million cubic meters of groundwater by integrating conservation ponds with a rainwater collection system,thereby promoting a water-positive impactAir Pollution ControlUpgrade Technology to Manage Potential Risks in Real-timeTSMC improved control equipment with source segregation and multi-stage treatment technologies.By introducing Low NOx Mean Temperature Combustion Technology,the Company reduced nitrogen oxide emissions by 60%.Additionally,Real-time Air Pollution Monitoring Technology was used to shorten detection time from one week to one minute,enabling continuous monitoring for prompt identification of pollution sources.This optimized treatment processes,mitigating risks of exposure to acidic and alkaline gases for on-site personnel taking samplesLearn more2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview11Diversity and InclusionLearn moreAs part of the Companys commitment to creating an equitable and inclusive workplace,TSMC hosted the first Diversity and Inclusion Campaign to raise employee awareness of diversity and inclusion.Meanwhile,we offered the Mentoring Her Bootcamp to support the development of female talent and increase female representation in management roles,empowering women to pursue theircareer aspirationsFoster an Inclusive Culture to Unleash Talent PotentialLearn moreTSMC recruited talent worldwide,bringing in fresh perspectives into the Company.Through competitive compensation and benefits,TSMC attracted,nurtured,and retained talentLearn morePromoting work-life balance,TSMC promoted a lifestyle where every day is a sports day,raising employee awareness of diverse sustainability issues.TSMC introduced the ISO 20121 Event Sustainability Management Systems into our sports events for the first time,further elevating ESG benefitsTalent Attraction and RetentionEstablish a Global Talent PoolLearn moreThrough competency-based learning modules,diverse and flexible learning approaches,and training and development programs tailored to various job levels,TSMC supported continuous learning for employees.Introducing the Team Development Discussion(TDD)program enabled TSMC to craft customized training plans,execute learning and skill-building activities,and enhance organizational development capabilitiesTalent DevelopmentNurture Talent to FlourishLearn moreTSMC employed AI technology to improve the accuracy of health risk classification and promoted safety,health,and wellness projects.Additionally,in collaboration with R&D units,TSMC adopted measures to control chemical risks at the sourceLearn moreIn partnership with suppliers,TSMC expanded the range of personal protective equipment to include 52 new models of comfortable and convenient gear,ensuring both employees and contractors had access to suitable equipment,fostering a friendly and safe workplaceOccupational Safety and HealthEnsure ComprehensiveWorkplace SafetySocial ImpactElevate Sustainable Value through Collaborative PartnershipsLearn moreWith a long-term dedication to addressing diverse societal concerns,TSMC drove numerous charitable projects through the TSMC Education and Culture Foundation and the TSMC Charity Foundation.The company listened to,supported,and empowered target groups across six core strategies while employing the Impact Reporting and Investment Standards(IRIS )framework to gauge the effectiveness of the longstanding Teach and Learn Program and vocational empowerment projects.This ensured that input resources effectively addressed issues,aligned with the United Nations Sustainable Development Goals,and consistently amplified TSMCs social impact2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview122023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverviewForbesCorporate Knights&As You SowThe Financial Times and Statista2023 Carbon Clean 200TM ListAsia-Pacific Climate Leaders 20232023 Worlds Best EmployersTaiwan Stock ExchangeInstitutional Investor MagazineTop 5%in Corporate Governance Evaluation of Listed Companies for the 9th consecutive yearMost Honored Company(Technology/Semiconductors)All-AsiaBest Overall ESG(Technology/Semiconductors)1st Place(buy-side and sell-side)All-AsiaTaiwan Institute of Sustainable EnergyTaiwan Top 10 Sustainability Exemplary Awards for the 8th consecutive year Corporate Sustainability Report Awards Circular Economy Leadership Awards Information Security Leadership AwardsSupply Chain Leadership Awards Sustainable Water Management Leadership AwardsClimate Leadership AwardsFORTUNESustainalytics2023 Worlds Most Admired CompaniesCompany ESG Risk Ratings:Low ESG Risk Semiconductor IndustryMorningstarThe Best Sustainable Companies to Own in 2023Dow Jones SustainabilityIndices(DJSI)Dow Jones Sustainability World Index for the 23rd consecutive yearISS ESGPrime Rated by ISS ESG Corporate RatingFTSE4Good Emerging Index componentFTSE4Good All-World Index componentFTSE4Good TIP Taiwan ESG Index componentFTSE4Good IndexTalent Sustainability AwardCommonWealth MagazineSDG 2000 The 2,000 Most Influential CompaniesWorld Benchmarking Alliance(WBA)Platinum Class Certification for the 4th consecutive yearAlliance for Water Stewardship,AWSPlatinum Rating for UL 2799 Waste Recycling StandardUL SolutionsMSCI ACWI ESG Leaders Index componentMSCI ESG Research AAA RatingsMSCI ACWI SRI Index componentMSCI ACWI Islamic Index componentMSCI Emerging Markets ESG Leaders IndexMSCI ESG Indexes13Awards,Recognitions,and RatingsSustainableBusinessPracticesESG Implementation Framework15163539407596133171ESG Management PlatformSustainability ImpactCarry Out the UN Sustainable Development GoalsAn Innovation PioneerA Responsible PurchaserSustainability RolesA Practitioner of Green PowerAn Admired EmployerPower to Change Society21Materiality Analysis and Stakeholder Engagement2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview142023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverviewGovernanceRolesStakeholdersEthicsLegal ComplianceBusinessStandardsEnvironmentalProtectionBalanced LifeCommon GoodEconomic GrowthA ResponsiblePurchaserA Practitioner ofGreen PowerAn AdmiredEmployerPower to Change SocietyAn InnovationPioneerShareholdersInvestorsCustomersSuppliersContractorsGovernmentIndustryAssociationsSocietyEmployeesAbilitiesCustomerRelationsSupply ChainManagementEnvironmentalManagementHuman ResourceManagementStakeholderEngagementInnovationResearchManagementDirectionsCare for theUnderprivilegedBuild aSustainableSupply ChainCreate a Diverseand InclusiveWorkplaceDevelop TalentDrive GreenManufacturingValuesCreatedESG CommitteeESG SteeringCommitteeBoard ofDirectorsVisionUplift SocietyMissionsAct with Integrity Strengthen Environmental ProtectionCare for the Underprivileged15Aligned with its vision to Uplift Society,TSMC upholds its ESG Policy as the paramount guideline for sustainable development.The ESG Matrix,set by TSMC founder Dr.Morris Chang,delineates TSMCs ESG scope.Within this Implementation Framework,TSMC ensures sustainability governance across its core business of IC foundry services through the five ESG directions and by leveraging its influence.TSMC continually enhances its six key sustainability management abilities,collaborating to create value together with stakeholders including employees,shareholders/investors,customers,suppliers/contractors,government/industry associations,and society.ESG Implementation Framework2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverviewThe Board of Directors/Nominating,Corporate Governance,and Sustainability CommitteeThe highest governing body for sustainable developmentESG Steering CommitteeAnInnovation PioneerA ResponsiblePurchaserA Practitionerof Green PowerAn AdmiredEmployerPower toChange SocietyOperationsand GovernanceChairpersonMembersMeetingsTasksExecutive SecretaryESG CommitteeChairpersonMembersMeetingsTasksChairmanQuarterlyESG Committee ChairpersonESG Departments&OrganizationsBusiness Development,Customer Service,Environment,Safety and Health,Finance,Human Resources,Informationtechnology and materials and risk management,Investor Relations,Legal,Operations,Public Relations,Quality andReliability,Research&Development,TSMC Charity Foundation,TSMC Education and Culture FoundationSenior Executive appointed by ChairmanQuarterlySenior Executives from organizations includIng Business Development,Finance,Human Resources,Information Technology and Materials Management&Risk Management,Legal,Operations,Research&DevelopmentManagement Representatives nominated by functional organizations relating to the economy,environment,society and governanceIdentify material sustainability topics and formulate action plansSupervise interdepartmental communication and coordinate resource integrationCompile ESG-related budgets for all functionsTrack achievements across various sustainability issues and formulate plans for further improvementThe Committee Chairperson reports achievements and work plans to the Board of Directors every quarterThe Chairman and the management team discuss and formulates the Companys ESG vision and strategies,collaborates with the ESG Committee for implementation,strives towards a culture of sustainability,and becomes a driver for positive change16ESG Management PlatformTSMC oversees its sustainable development efforts through the Board of Directors/Nominating,Corporate Governance,and Sustainability Committee.It has established two key management platforms:the ESG Steering Committee and the ESG Committee.The Chairman of the Board leads the ESG Steering Committee,while the Chairperosn of the ESG Committee acts as the Executive Secretary.Together with the management team,they conduct quarterly reviews of ESG issues relevant to the Companys operations.They then establish mid-to-long-term development strategies and goals for each sustainability issue in line with the vision and mission outlined in the TSMC ESG Policy.The ESG Committee carries out resolutions from the ESG Steering Committee,pools resources across departments,and instructs the ESG Department,the responsible organization,and representatives from various management sectors to jointly identify material issues relevant to TSMCs operations and stakeholders concerns.The ESG Committee assembles task forces for each issue,linking competitive advantages and core functions to formulate strategies,targets,and action plans.Every quarter,the Chairperson of the ESG Committee reports to the Board of Directors Nominating,Corporate Governance,and Sustainability Committee on the progress of ESG initiatives and future plans for their feedback and advice.In 2023,the ESG Committee oversaw the progress of 75 sustainability projects and continued to host the ESG AWARD to cultivate a companywide ESG culture.This ensures full integration of ESG strategies into TSMCs daily operations,aligning actions with global sustainability trends and embodying the ESG vision to Uplift Society.2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview17Dr.Y.J.MiiSenior Vice President,Research&DevelopmentWe actively nurture innovative talents,encourage colleagues to tackle challenges,and collaborate to develop world-leading semiconductor technologies.By assisting clients in realizing innovation,TSMC brings about a sustainable and brighter future for the world.Dr.Michael WuVice President,Research&Development/Platform DevelopmentTechnology leadership is one of the key cornerstones enabling TSMCs continuous growth.We are committed to fostering an environment that is open and innovative,as well as diverse and inclusive,and promoting digital excellence within the R&D organization to unleash employees full potential and achieve the goal of corporate sustainability.Dr.Kevin ZhangSenior Vice President,Business Developmentand Overseas Operations OfficeAs we enter the AI era,semiconductor technology is the core of innovation for AI products and applications.We are committed to establishing meaningful partnerships with global customers,developing sustainable technology blueprints,jointly developing more powerful and energy-efficient products,and ultimately fostering a brighter society.Sylvia FangVice President,Legal and GeneralCounsel/Corporate Governance OfficerThe core value of Integrity drives TSMC to uphold the highest standards of corporate governance,professional ethics,and risk management,while also considering the interests of all stakeholders,in pursuit of sustainable business operations.Y.P.ChynSenior Vice President,Operationsand Overseas Operations OfficeStarting from its core values of environmental sustainability and green manufacturing,TSMC develops cutting-edge technologies and implements intelligent digital management.Together with its partners,it strives to build a future of net-zero sustainability.Ray ChuangVice President,Operations/Fab Operations IBy employing intelligent precision manufacturing,TSMC enhances global production efficiency and quality.Simultaneously,we are dedicated to sustainable development,fostering efficient and sustainable manufacturing environments,and implementing ecological sustainability measures such as energy conservationand reducing carbon emissions.Note:Ordered according to the sequence of sustainability roles for which responsible2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview18Dr.L.C.LuTSMC Fellow and Vice President,Research&Development/Design&Technology PlatformTSMCs OIP 3DFabric alliance assists customers in achieving higher levels of 3D IC integration.Through innovative collaboration within an ecosystem focused on advanced packaging design methodologies,it fosters continuous improvement in system performance while maintaining sustainable energy efficiency.Lora HoSenior Vice President,Human ResourcesIn response to the TSMCs global expansion,creating a diverse and inclusive environment is crucial to our talent vision.We respect differences,allowing colleagues to unleash their potential,ignite team enthusiasm,and ultimately realize sustainable talent development for both the company and the industry.Dr.Jun HeVice President,Quality and Reliabilityand Operations/Advanced PackagingTechnology and ServiceTSMC is fully committed to quality excellence,investing in a comprehensive quality culture and continuously innovating quality capabilities.We work closely with customers and suppliers to achieve high-quality products,driving prosperity and growth across the industry.Dr.Cliff HouSenior Vice President,Europe&Asia Sales/Technology DevelopmentIn an era of rapid change,TSMC continues to innovate while upholding the core value of Customer Trust.We strengthen supply chain resilience,actively expand our global presence,and provide advanced technology and capacity.Deepening customer cooperation,we aim to achieve customer success together and create win-win outcomes.J.K.LinSenior Vice President,Information Technologyand Materials Management&Risk Management/Chief Information Security OfficerTSMC is committed to driving a positive industry cycle,constructing a green and responsible supply chain,and extending ESG principles to more suppliers.This ensures that the ESG DNA is pervasive,advancing towards the goal of net-zero emissions by 2050 and embracing a future of sustainable well-being.Note:Ordered according to the sequence of sustainability roles for which responsible2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview19Dr.Arthur ChuangVice President,Operations/FacilityThrough green manufacturing initiatives such as constructing low-carbon green buildings,enhancing energy-saving and carbon-reduction measures,promoting resource recycling,developing low-carbon technologies,and implementing smart management practices,TSMCs Facility Division aims to establish a sustainable operating environment.Dr.T.S.ChangTSMC Fellow and Vice President,Operations/Advanced Technologyand Mask EngineeringTSMC incorporates environmental sustainability factors into the process of researching and developing advanced processes.We integrate innovative energy-efficient components,deepen low-carbon manufacturing capabilities,enhance energy efficiency in new fabs,and continue to strive for sustainable development.Y.H.LiawVice President,Operations/Fab Operations IITSMC is dedicated to promoting low-carbon transformation and advancing towards net-zero sustainability.Guided by a green mindset,we drive technological innovation and digital transformation,while expanding green influence through cross-border,cross-disciplinary collaboration.Dr.F.C.TsengChairman,TSMC Education andCulture FoundationThe TSMC Education and Culture Foundation focuses on youth development,educational collaboration,and arts and culture promotion as its main pillars of work.Committed to achieving the United Nations Sustainable Development Goals,it calls on young people to support sustainable living and drive positive social cycles.Sophie ChangChairperson,TSMC Charity FoundationThe TSMC Charity Foundation encourages volunteers to provide long-term professional services and collaborates with governments and businesses to take action in addressing the needs of rural areas.With TSMCs comprehensive ESG efforts,we continue to connect with frontline efforts.Wendell HuangVice President,Finance and Chief FinancialOfficer/SpokespersonDespite ongoing industry uncertainty,TSMC continued to provide long-term returns for investors through its strong financial performance,sustainable dividend policy,and sound corporate governance,accelerating customers product innovation and driving a more sustainable society through technology.Note:Ordered according to the sequence of sustainability roles for which responsible2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverviewAccelerated the target of achieving 100%renewable energy usage in global operations to the year 2040 in response to the 2050 net-zero emissions blueprint.At the same time,continued to enhance performance in green manufacturingPioneered a groundbreaking model for domestic Joint Procurement of Renewable Energy Project,fostering a low-carbon supply chain.TSMCs advocacy for diversity,inclusion,and human rights has further bolstered ESG development across the Companys supply chainPrioritized the advancement of female talent at every career stage,amplified support for the Employee Resource Group,and orchestrated a series of diverse,inclusive activities to cultivate an open,welcoming workplace environmentExpanded global industry-academia collaborations and actively promoted STEM education and science literacy Implemented AMAZING IDEAS winning projects from past ESG AWARDs and introduced the ESG ENTHUSIASTIC PROMOTION AWARD in the 4th ESG AWARD to cultivate a vibrant globalESG communityUtilized sustainability reports as ESG management tools,updating the Climate and Nature Report while continuing to publish the UN SDGs Action Report and Materiality Analysis Report,thereby enhancing sustainability disclosures and transparencyEnhance process production efficiency,continue to procure renewable energy,expand the use of recycled water and resources,and fulfill TSMCs commitment to net-zero emissionsProvide guidance to suppliers in developing carbon reduction plans,promote digital management of carbon emissions information,and enhance suppliers sustainability management capabilities Update the Diversity,Equity,and Inclusion Statement and use the Human Rights Policy as a guideline to extend human rights protection throughout the value chainContinue to establish collaborative education programs at various stages to cultivate semiconductor and STEM talentsCollaborate with cross-sector partners to promote rural care,elderly support,arts and culture accessibility,and education empowerment,thus constructing a robust social support networkRelease the inaugural Human Rights Report and publish the Sustainability Impact Valuation Report,integrating social impact and environmental cost-benefit analysesAchievementsAchievements2023 AchievementsESG Reporting to the Board of Director2023ESG Steering Committee2023ESG Committee20232024 Work PlansReviewed the 2050 Net Zero target and progress in related action plans,and supported renewable energy purchases by the supply chain to accelerate RE100 progressPublished the Biodiversity Statement,setting the targets of net zero deforestation,no net loss of nature and biodiversity,and net positive impact by 2050Amended the Human Rights Policy to support human rights-related standards and expand the scope of stakeholdersImplemented sustainable development,and continued to align with global sustainability standards,management trends and best practices to set TSMCs ESG goalsTo energize the Companys sustainability culture,drove the 4th ESG AWARD,attracting 3,166 sustainability proposals from employees and organizations,increasing nearly 68%from the previous yearSet and supervised the Companys sustainability-related budgets and financial controls,consolidated ESG resource needs,and distributed resources according to planEnhanced the Companys sustainability efforts by increasing recycled water usage and developing innovative air pollution testing and controlling technology;inaugurated Taiwans first Zero Waste Manufacturing Center which aims to boost internal waste recycling rates and resource utilization;established the biodiversity taskforce to conduct biodiversity assessment and create action plansMade significant strides in climate change mitigation,achieving net-zero emissions in scope 1 and scope 2 at TSMC overseas operations;expanded its onshore wind farm power supply,increasing the proportion of renewable energy usage from 40%to 60%by 2030,and proposed 822 energy-conservation programs,resulting in a total reduction of 800 GWh in electricity consumptionImplemented robust sustainable supply chain management practices by requiring raw material and equipment suppliers to participate in the CDP Supplier Carbon Disclosure Project;promoted the use of renewable energy and the 1 N Carbon Management Project within the Companys supply chain and published the ESH Bluebook on Fab Construction to enhance safety management during contractor constructionAddressed salient human rights issues through due diligence and policy formulation;designed and distributed the Supply Chain Human Rights Supplemental Questionnaire;promoted human rights management with suppliers,and for the first time,mandated that suppliers establish diversity and inclusion policies as an annual targetImplemented a series of new employee caring measures,including the establishment of Global Familytsmc and Accessibilitytsmc,aimed at providing support and unlocking employee potentialActively engaged with social dynamics through the TSMC Education and Culture Foundation and TSMC Charity Foundation.These efforts translate TSMCs commitment into tangible actions for societal well-being20Trend 2Trend 3Trend 4Trend 1SustainableSupply ChainClimateand EnergyTalent Attraction andRetention,TalentDevelopmentInnovationManagementExert industry influence and lead the supply chain to respond to the challenges of net zero andhuman rightsImplement a green manufacturing blueprint to transform from low-carbon to a comprehensive decarbonization pathway towards net zero emissionsCreate a diverse,equitable,and inclusive workplace and utilize global talents to support the growing momentum of the CompanyReinforce the core value of technology leadership,support customers success,and make changesfor society2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview21Materiality Analysis and Stakeholder EngagementIn compliance with the Global Reporting Initiative(GRI)3:Material Topics 2021 of the GRI Universal Standards 2021 and the European Sustainability Reporting Standards(ESRS)distributed by the World Economic Forum(WEF)and European Financial Reporting Advisory Group(EFRAG)for the Corporate Sustainability Reporting Directive(CSRD),TSMC has established the TSMC Dynamic and Double Materiality(TDDM)methodology.The TDDM is based based on the Double Materiality principle of Impacts,Risks,and Opportunities(IRO)to integrate the three dimensions of Stakeholder Concern,Impact on Organizations and Impact on Sustainability.TDDM methodology sorts the priority and importance of ESG issues based on the level of communication,growth,and impact to determine a materiality matrix and serve As the GRI Universal Standards 2021 moved Human Rights issues to GRI 2:General Disclosures 2021,TSMC moved Business and Human Rights material issues to the Operations and Governance chapter.Meanwhile,considering the multifaceted nature of human rights issues and their importance to corporate sustainability,TSMC expects to issue its first Human Rights Report in 2024 to describe the companys human rights policies and commitments,due diligence process,mitigation and remedial mechanisms,and long-term goals.For more information,please see the latest TSMC Human Rights Report.as a basis for advancing the companys sustainable management and improve communication with stakeholders.Please refer to the latest TSMC Materiality Analysis Report for further details.TSMC conducts materiality analysis every two years.In 2023,a total of 1,693 stakeholders and over 200 TSMC executives/colleagues responsible for promoting sustainability participated in the materiality analysis.The company considered the result of the surveys on Stakeholder Concerns,Impact on Organizations and Impact on Sustainability,and identified 14 material issues,which were reported to the Board of Directors after confirmation by the ESG Committee.In addition to setting long-term goals for the year 2030 and monitoring achievements,TSMC has further integrated the Enterprise Risk Management(ERM)process to identify risk factors,risk trends,impact,and the probability of occurrence to plan ESG strategies and gain insights on its sustainability impact in terms of opportunity and risk.The TSMC Dynamic and Double Materiality(TDDM)method and the process and results of the materiality analysis in 2023 were verified by DNV Business Assurance Co.Ltd.,an independent third party.The top five material issues were Sustainable Supply Chain,Climate and Energy,Talent Attraction and Retention,Talent Development,and Innovation Management,leading TSMC to implement four major trends in sustainable development.12Deputy Fab Directors/Deputy Directors/Deputy Project Directors/Deputy Technical Directors73371913155352023443933541Governance 6 issuesEconomy 4 issuesEnvironment 5 issuesSociety 6 issuesStep 3Internal/external consultant confirmationSenior executive reviewReport to the Boardof Directors102233233531,693Step 1IdentifyESG IssuesStakeholder ConcernsStep 2Step 4Step 5CommunicatonGrowthImapctImpact onOperationsImpact on SustainabilityDefineMaterial Issues6 TypesStakeholders1,693Stakeholders participated4 Dimensions Defining the Companys values or operating Impact233 Participated executives and colleagues20 Positive&negative impacts on the economy,environment,and people,including impacts on their human rights53 Participated executives and colleaguesDynamic MaterialityDouble MaterialityUnderstandstakeholder concernsPlan a sustainabilitystrategy mapReinforce external communication effectivenessIdentify positive and negative impactsCompile and disclose the sustainability reportShareholders/InvestorsSocietyCustomersSuppliers/ContractorsGovernment/IndustryAssociationsEmployeesPrincipal Engineers/Senior Engineers/EngineersPrincipal Administrators/Senior Administrators/AdministratorsAssistant Managers/AssistantProjectManagers/AssistantTechnical ManagersManagers/Project Managers/Technical ManagersSenior Vice Presidents/Vice PresidentsSenior Fab Directors/Senior Directors/Fab Directors/DirectorsDeputy Fab Directors/Deputy Directors/Deputy Project Directors/Deputy Technical Directors29Department Managers/Senior ManagersPrincipal Administrators/Senior Administrators/AdministratorsAssistant Managers/Assistant Project Managers/Assistant TechnicalManagers6Managers/Project Managers/Technical Managers9Department Managers/Senior ManagersPrincipal Engineers/Senior Engineers/Engineers16Senior Fab Directors/Senior Directors/Fab Directors/Directors2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview22Process for Determining Material IssuesImpact on SustainabilityImpact on OperationsStakeholder ConcernsLowHighAn Innovation PioneerA Responsible PurchaserA Practitioner of Green PowerAn Admired EmployerPower to Change SocietyMaterial IssuesCorporate GovernanceTaxationBiodiversityFinancial PerformanceRisk ManagementIntelligent Manufacturingand ProductionSocial ImpactInnovationManagementCircularResourcesAir PollutionControlWaterStewardshipOccupational Safetyand HealthBusiness andHuman RightsProduct QualityTalent DevelopmentTalent Attractionand RetentionClimateand EnergyCustomer RelationsDiversity and InclusionCode of Ethics and Business ConductData and Information SecuritySustainable Supply Chain2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview23TSMC Materiality MatrixTC-SC-320a.1,TC-SC-320a.2 TC-SC-410a.2TC-SC-110a.1,TC-SC-110a.2,TC-SC-130a.1TC-SC-140a.1 TC-SC-440a.1TC-SC-410a.1TC-SC-150a.1TC-SC-330a.1 SASBStandardUpstreamNote 1ProcurementStageWaferFabricationPackaging/TestingCustomerUseDownstreamNote 3TSMC OperationNote 2Innovation ManagementProduct QualityCustomer RelationsIndirect Economic Impact and EnergyCustomer Health and SafetyCustomer PrivacySustainability RolesAn InnovationPioneerA Practitionerof Green PowerA ResponsiblePurchaserMaterial IssuesGRI-specific TopicsRevenueGrowthCustomerSatisfactionEmployeeCohesionOperationalRisksAn AdmiredEmployerPower to Change Society SustainableSupply ChainProcurement Practices,Supplier Environmental Assessment,Supplier Social AssessmentEnergy,Emissions,Economic PerformanceWater and EffluentsEmissionsWasteDiversity and Equal OpportunityEconomic Performance,Market Presence,Labor/Management Relations,Diversity and Equal OpportunityOccupational Safety and HealthEconomic Performance,IndirectEconomic ImpactTraining and EducationClimate and EnergyDiversity and InclusionTalent DevelopmentOccupational Safetyand HealthSocial ImpactTalent Attractionand RetentionWater StewardshipCircular ResourcesAir Pollution Control2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview24Note 1:Upstream boundaries are raw materials,equipment,and related services purchased by TSMCNote 2:TSMC Operations boundaries are wafer fabrication and packaging/testing services offered by TSMCNote 3:Downstream boundaries are customer products manufactured by TSMCNote 4:signifies the issue has real impact on this stage or that the issue is a spotlight issueMaterial Issues and Value ChainInnovation ManagementProduct QualityCustomer RelationsSustainable Supply ChainFailure to foresee changes in technologies or develop innovative technologiesPatent Protection-R&D results unprotected due to lack of patentChallenges to product quality and yieldCustomers cannot acquire necessary technology serviceConcentrated sourcing and suppliers noncompliant with TSMC orregulatory requirementsMaterial IssuesRisk Aspects/TypeRisk Evaluation andMitigation MeasuresLikelihood and TrendImpactStrategy OperationUpwardsSidewaysDownwardsAlmost CertainLikelyPossibleUnlikelyRareCatastrophicMajorModerateMinorInsignificantWafer quality control grows increasingly difficult as products become more complex.Inability to detect defects could incur a loss to our customers and impact company reputationIf defects remain undetected in raw materials,it could lead to scrapping the final product,impacting customers and operationsPlease refer to Product Quality in this reportIf customers do not understand TSMCs technology offerings,they may seek an alternative foundry suppliers solutionTSMC collects customers technology requests through irregular and regular review meetings.In 2023,there were 994 wafer technologies and 149 advanced packaging technologies available to customersPlease refer to Customer Relations in this reportDisruptions in the supply chain(for raw materials or equipment)will impact Company operations and our commitments to customersPlease refer to 6.3 Risk Management in the 2023 Annual Report and Sustainable Supply Chain in this reportAdvanced processes involve increasingly complex technologies,higher production costs,and more complicated supply chains.The Companys competitive edge and market share could suffer if we are unable to identify technological changes and develop new technologiesPlease refer to Innovation Management in this reportTSMC protects R&D results with patents to ensure we remain technology leaders in the industry and to protect the operational freedom of TSMC and our global customers.Inadequate patent protection could impact TSMCs technological competitivenessPlease refer to Innovation Management in this report and 6.3 Risk Management in the 2023 Annual Report2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview25Material Issues and Risk ManagementImproper use or failure of air pollution control equipment could result in excess emissions,penalties from the authorities,and impact on company reputationPlease refer to Air Pollution Control in this reportOperational impact from climate disasters,increasing GHG emissions,regulations against GHG emissions,and other requirementsPower shortageor outageWater shortage or suspension,and environmental impact from wastewaterSupplier failure to properly handle waste,polluting the environmentEnvironmental impact frompollutant emissionsClimate and EnergyWater StewardshipCircular ResourcesAir PollutionIncreasing demands from stakeholders to increase usage of renewable energy could increase costs and,if demands are not met,fab construction progress and customer orders could be impactedPlease refer to Climate and Energy in this reportUnstable power supply will limit production capacity and impact company operations,and its ability to meet customer demandPlease refer to Climate and Energy in this reportWaste management vendors failing to handle waste in compliance with regulations may subject TSMC to liabilities for waste cleanup and environmental recovery,impacting company reputationPlease refer to Circular Resources in this reportUnstable water supply will limit production capacity,impacting its ability to meet customer demandAnomalies in effluents will pollute the environment and negatively impact company reputationPlease refer to Water Stewardship in this reportMaterial IssuesLikelihood and TrendImpactUpwardsSidewaysDownwardsAlmost CertainLikelyPossibleUnlikelyRareCatastrophicMajorModerateMinorInsignificantRisk Aspects/TypeStrategy OperationRisk Evaluation andMitigation Measures2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview26Material Issues and Risk ManagementDiversity and InclusionTalent Attractionand RetentionTalent DevelopmentOccupational Safety and HealthBusiness andHuman RightsFailure to uncover TSMC employees full potentialsFailure to attract or retain a sufficient number of high quality talents when neededTalents failing to progress with evolving landscapesEarthquakesor firesOccupational injuries,occupational diseases,and chemical hazardsPandemicFailure to protect the human rights of TSMC employees and suppliersThe Companys understanding of society and grasp of various aspects of the market may suffer if the mix of employees is unable to reflect the current social landscape,further impacting the Companys competitive advantagePlease refer to Diversity and Inclusion in this reportCompany operations could suffer from failure to attract and retain a sufficient number of high-quality talentswhen neededPlease refer to Talent Attraction and Retention in this reportThe Companys competitive advantage and growth momentum will suffer if talents fail to progress with evolving landscapesPlease refer to Talent Development in this reportCompany reputation,customers interests,employee morale,and talent recruitment could suffer from the lack of proper protection for the human rights of its employees and suppliersPlease refer to Business and Human Rights and Sustainable Supply Chain in this reportEarthquakes and fires could damage the Companys equipment and result in disrupted operations and financial lossesPlease refer to Occupational Safety and Health in this report and 6.3 Risk Management in the 2023Annual ReportEmployees could suffer from injuries and diseases due to non-compliance with safety guidelinesCluster infections of pandemic could result in disrupted operationsMaterial IssuesRisk Evaluation andMitigation MeasuresImpactAlmost CertainLikelyPossibleUnlikelyRareCatastrophicMajorModerateMinorInsignificantLikelihood and TrendUpwardsSidewaysDownwardsRisk Aspects/TypeStrategy Operation2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview27Material Issues and Risk Management12%2.7X%Top 75u hours10,000 students14%0,000 students0900g.500e%Top 250 hours200%SustainabilityRolesMaterial IssuesSustainability Impact Indicator2030 Goals2023 Targetsand AchievementsNote35,000 studentsAn InnovationPioneerA Practitionerof Green PowerA ResponsiblePurchaserAn AdmiredEmployerPower to Change Society Innovation ManagementProduct QualityCustomer RelationsSustainable Supply ChainClimate and EnergyDiversity and InclusionTalent DevelopmentOccupational Safetyand HealthSocial ImpactTalent Attractionand RetentionWater StewardshipAir Pollution ControlCircular ResourcesNumber of undergraduate and graduate students developed through industry-academia collaborationNumber of female high-school students participating in STEM programsCases of product recalls due to safety concernsPercentage of suppliers carbon emissions reductionPercentage of global local sourcing for indirect raw materials Ratio of tier 1 suppliers setting Diversity,Equity and Inclusion policies or statementsReduction in unit water consumption(L/12-inch equivalent wafer mask layer)Reduction in unit air pollutant emissionsWaste recycling rateWomen in managementPercentage of women among newly-hired fresh graduates technical professionalsRank of the Sustainable Engagement in the Employee Engagement SurveyAnnual average hours of learning for employeesIncident rate per 1,000 employeesCumulative hours of volunteer serviceCumulative amount of Matching DonationsPercentage of renewable energy used at all TSMC faboperation sitesCustomer trust and satisfaction rate100%Total Shareholder Return,TSRTSMC Sustainability Impact,TSIAspectFinanceESGAchievementWeightIndicator2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview28Executive Compensation ESG IndicatorTSMC provides Employee Restricted Stock to executives,with a maximum of 110%of their eligible shares each year.100%of the calculation is based on the companys relative performance to Total Shareholder Return(TSR).The Compensation and People Development Committee adjusts the eligible shares within a range of 10sed on the companys annual ESG achievement,which is defined as the TSMC Sustainability Impact(TSI),linked to the 18 long-term goals for 2030 of TSMCs material issues to determine the number of Employee Restricted Stock Awards received by the executives.The Linkage to the Employee Restricted Stock and Performance EvaluationNote:Please refer to each chapter for progress and informationExceededAchievedMissed targetThe Company consistently improves maternity leave benefits and promotes a more supportive workplace.As a mother of two,I deeply feel the support,which grants me additional time to recuperate and take care of my family.This initiative ensures that mothers receive fair and equitable treatment in their rolesHui-ling Ma TSMC Employee4,911Cases handled throughinternal communication channels106Silicon Garden Meetings(Labor-management meetings)Expect the Company to make more contributions to society and advance towards sustainable developmentStrengthened internal communication through 106 Silicon Garden Meetings and 4,911 opinion exchanges to let colleagues understand the Companys prospectsLaunched the TSMC ChildCare Benefit Program 2.0 to support employees work-life balanceHope to maintain a balance between work,family,and personal life,thus achievingmutual growthHope to have more opportunities to participate in diverse ESG activities and achieve sustainable actionsLeveraged the TSMC ESG AWARD as a platform to promote sustainable thinking and action,and expanded the event to overseas subsidiaries.A total of 3,166 sustainable innovation proposals were collectedProvided paid volunteer leave to facilitate employees participation in volunteer services,broadening social engagementProvided the Annual Ethics and Compliance Training Course,with a total of 73,034 TSMC and subsidiary employees completing the training courseDesignated employees and managers were provided with online courses covering anti-trust compliance,insider trading prevention,and export control complianceLook forward to gaining the latest regulatory updates and compliance guidelines,i.e.,zero tolerance for corruption,conflict of interest avoidance,etcThe first-ever Risk Management Summit and Risk Awareness Culture Survey were held,with 704 executives and 34,111 colleagues participating respectivelyIssued risk management newsletters and conducted online training courses,engaging a total of 72,635 employeesExpect to understand risk management processes,methods,and tools to enhance risk management capabilitiesExpect the Company to build a diverse and inclusive workplace,and unleash the potential of talentsHosted the inaugural Diversity and Inclusion Campaign,with a turnout exceeding 1,150 individualsSupported the establishment of employee resource groups:Womentsmc,Global Familytsmc,Accessibilitytsmc,aimed at promoting self-realization among employeesOrganized various courses to enhance respect and inclusion awareness,with a 97%completion rate for the training program on Understanding TSMCs Human Rights Policy,Cultivating a Friendly Workplace,and Combating Sexual HarassmentEmployeesConcerned with the continued growth and success of the Company as well as meaningful work,a safe and healthy workplace,competitive compensation and welfare,opportunities to grow,and work-life balanceConcern IssuesCommunication ChannelsDiversity and inclusionTalent attraction and retentionSocial impactTalent developmentEthics/regulatory complianceRisk managementEmployee Opinion Survey on Company Core Values,Employee Engagement Survey/once every two yearsEmployee trainings/annuallySilicon Garden Meeting(labor-management meeting)/quarterlyCommunication meetings for various levels of managers and employees,e.g.the executive communication meeting,skip-level and communication meetings in individual functions or divisions/quarterlyHuman Resources Business Partner Team/as neededOmbudsman system,whistleblower reporting system,irregular business conduct reporting system,and sexual harassment investigation committee/as neededCorporate intranet(myTSMC),internal emails,and other announcement channels(such as promotional posters at facilities),TSMC eSilicon Garden Stories/as neededEmployee suggestion channels,such as the Fab Caring Circle,Employee Opinion Box,Wellness Center,wellness website,employee PIP&IT Security mailbox and hotline,etc./as neededThe fourth TSMC ESG AWARD ceremonyResponses from TSMCFocus Areas2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview29Stakeholder CommunicationAt Fidelity International,we fundamentally believe that companies that are managed sustainably will outperform in the long run.Therefore,understanding a firms approach to sustainability is an integral part of Fidelitys investment process.Through our ongoing engagements with TSMC,we have been impressed to discover a solid commitment to integrating sustainability into its business and growth plans,setting specific targets,regular reviews and providing thorough disclosures.Actions like these enable us to deliver sustainability outcomes alongside long-term value creation for our clients.Terence TsaiAnalyst&Portfolio ManagerFidelity International2023 TSMC Annual General MeetingShareholders/InvestorsConcerned with the investment value of TSMC including market prospects,competition,growth strategy,overseas expansion,profitability,dividend policies,shareholder returns,and sustainability performance497Institutional investors367Conferences and meetingsConcern IssuesCommunication ChannelsFinancial performanceRisk managementTalent attraction and retentionInnovation managementClimate and energyWater stewardshipGeneral shareholders meeting/annuallyAnnual Reports,Sustainability Reports,Theme Reports(UN SDGs Action Reports,Materiality Analysis Reports,Sustainability Impact Valuation Report,Climate and Nature Report,Human Rights Report),and U.S.Securities and Exchange Commission Form 20-F/annuallyEarnings conference/quarterlyDomestic and overseas broker conferences/as neededFace-to-face meetings,video conference calls and telephone conference call/as neededMajor announcements on the Market Observation Post System,and corporate press releases on the Companys website/as neededResponses from TSMCFocus AreasLong-term profitabilityDespite short-term margin headwinds,TSMC continues to believe it can achieve its long-term financial targets of:(1)gross margin of 53%and higher and(2)ROE of 25%and higherImpact of geopolitics and macroeconomic environment on the business,and TSMCs responseCommunicated the impact of macroeconomic downturn and customers inventory correction on semiconductor demand in investor conferencesOverseas investment operation risk and challenges in talent recruitmentResponse to climate change and renewable energy useThe impact of AI-related opportunities on semiconductor demand,and technology development and competitive advantageCommunicated the latest status of overseas fab projects and talent recruitment in investor conferencesCommunicated the AI-related opportunities,strategy,and technology development in investor conferencesIn 2023,TSMC announced an acceleration of its RE100 sustainability timetable,moving its target for 100%renewable energy consumption for all global operations forward to 2040 from 2050.TSMC also raised its 2030 target for company-wide renewable energy consumption to 60%from 40%Water resource risks and replacement with reclaimed waterContinue to collaborate with the government on water reclamation plant projects2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview30TSMC is the leader in advanced process technology,and possesses solid experience and a high level of integrity as well as sense of responsibility for the semiconductor industry.NXP Semiconductors N.V.,Concern IssuesCommunication ChannelsInnovation managementProduct qualityCustomer relationsRisk managementCustomer satisfaction survey/annuallyBusiness and technology assessment/quarterlyCustomer meetings/as neededCustomer visits/audits/as neededCustomersConcerned with TSMCs technology development and production planning,including fulfillment of customer capacity demand,product quality,comprehensive protection of proprietary customer information,assisting customers with successful production application and gaining time-to-market advantage100Quarterlyassessment meetings1,500Management-levelcustomer meetingsTSMCs customer service team offers educational training coursesResponses from TSMCFocus AreasTechnology development schedulesand plansOffered 994 process technologies and 149 advanced packaging technologies in line with TSMCs technology roadmapProduct quality Continued perfecting production technologies and product quality.Reduced engineering defects per one million 12-inch wafers to 25%of 2019 levelCapacity planning and production informationBusiness resilience and continuity managementIn 2023,the monthly browsing rate of the upgraded TSMC-OnlineTM exceeded 50,000 visits,providing access to comprehensive technology and production information servicesA total of 16 audit sessions were conducted by customers regarding the Business Continuity Plan,resulting in TSMC achieving an average audit score of 96 points2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview31Chih-chuan TsaiPresidentChang Chun Petrochemical Co.,Ltd.Under Chang Chun GroupWe are honored to receive the 2023 TSMC Supplier Excellent Performance and Green Manufacturing Award in recognition of our achievements in electronic chemical recycling.We are eager to sustain our collaboration to advance toward additional milestones in resource sustainability.Reducing carbon emissions presents both challenges and opportunities.We are dedicated to closely partnering with TSMC to execute carbon reduction policies and progress resolutely,ensuring steady advancement along this path.Chi-fa SunVice PresidentShiny Chemical Industrial Co.,Ltd.Suppliers/ContractorsConcerned with the development of new process technologies,improving product quality,environmental,safety and health(ESH)regulations,ethics and regulatory compliance,and information security;desire to strengthen and deepen partnerships for sustainable supply chain management218Supplier audit andcommunication meetings194Suppliers participatedin the Supply Chain ESHTraining ForumConcern IssuesCommunication ChannelsSustainable supply chainEthics/regulatory complianceProduct qualityOccupational health and safetyClimate and energySupplier Code of Conduct promotion/annuallySupplier Sustainability Management Self-Assessment Questionnaire(SAQ)/annuallySupply chain environment,safety and health training/annuallySustainable Supply Chain Environment,Safety and Health Forum/annuallyCarbon reduction follow-up meeting with major emission contributors/every two months,semiannuallySupplier meetings/as neededOn-site support and audit/as neededSupply Chain Employee Grievance Channel/as neededSupply Online 360 Global Responsible Supply Chain Platform/as neededResponses from TSMCFocus AreasLook forward to enhancing sustainability resilience and growing together with TSMCAnticipate staying abreast of ethics and regulatory compliance to establish a foundation for sustainable managementExpect to enhance sustainability risk management capabilities and improve raw material qualityExpect to establish effective environmental safety and health management mechanismsHope to cultivate carbon emission management capabilities and achieve a green and low-carbon supply chainThe TSMC Supplier Sustainability Academy launched a total of seven programs consisting of 80 courses,totaling 2.2 million visits70 significant suppliers underwent third-party supplier audits on sustainability risks by RBA-certified institutions,with 39 follow-up audits completedTen suppliers received consultation on process advancement and quality improvementHeld the Sustainable Supply Chain Environment,Safety and Health Forum,along with various consulting courses and diversity-themed workshops,empowering suppliers in sustainable operationsContinued to enhance ESH and loss prevention capabilities in the supply chain and commended outstanding suppliers.In 2023,Scientech Corps Hukou plant was given the Supplier Environment,Health and Safety Excellence Award,and Shiny Chemical Industrial Cos Yongan plant was given the Supplier Environmental,Health and Safety improvement AwardAssisted ten suppliers in implementing energy-saving practices,resulting in the identification of 42 potential energy-saving solutionsRequired 135 raw material and equipment suppliers to participate in CDP supplier carbon disclosure projectCollaborated with major emission contributors to develop specific carbon reduction plans,with the aim of achieving a cumulative reduction of 900,000 metric tons by 2030All tier 1 suppliers signed the Supplier Code of Conduct related provisions(completion rate 100%)Distributed the Supply Chain Human Rights Supplemental Questionnaire to promote the awareness of diversity,equity and inclusion(DEI)to the supply chainTSMC presents the Supplier Environmental,Safety and Health Excellence Award2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview32Industry development/Intellectual property/Trade secret protectionCorporate governance,regulatory compliance,and risk managementResponse,suggestion,and promotion of environmental protection related regulationsRenewable energy/carbon credit transactions/circular resources/water stewardshipGlobal talent deployment and cultivationSupply chain sustainability and environmental safety and health management improvementGave introduction on advanced process technology to the US Patent Office.Spearheaded IP strategy alliances for the industrys supply chain and helped to formulate IP laws amendments and provide suggestionsParticipated in industry promotion associations and trade associations to provide for the charitable sharing of trade secret registration and intelligent management insights to the publicParticipated in seminars on the latest export control regulations and conducted industry practice exchange Enhanced the disclosure of risk management information,including risk appetite statements,sensitivity analysis and stress testing,and top emerging risksFacilitated domestic and international industry-academia collaboration projects to nurture top semiconductor talentEngaged in discussions with representatives from industry,government,and academia in the US,Japan,and Germany on issues concerning semiconductor industry development and talent cultivationRepresented the Taiwan Semiconductor Industry Association in discussions with the Ministry of Environment concerning amendments to subsidiary laws of the Climate Change Response Act and Air Pollution Control and Emissions Standards for the Semiconductor Industry,promoting positive industry developmentOrganized various workshops,trainings,and interactive courses on sustainability and ESH topics to create a responsible supply chainCollaborated with the Energy Administration and the Bureau of Standards,Metrology,and Inspection to initiate the Green Power Distribution Sandbox Program,garnering industry recognition and participationParticipated in the initial transactions on the Taiwan Carbon Solution Exchange and invested in funds related to global nature-based carbon credits to bolster the development of the carbon credit marketLaunched the Zero Waste Manufacturing Center and collaborated with five suppliers to recycle approximately 200 metric tons of waste liquid into reusable energyExpanded the utilization of reclaimed water at TSMC sites in Southern Taiwan Science Park,increasing daily usage from 6,500 cubic meters to nearly 50,000 cubic meters46GovernmentAdministrations106AssociationsThe Taiwan Semiconductor Industry Association announces its shared commitment to achieving net-zero emissions throughvoluntary reductionsTSMC continues to promote innovation in semiconductor process technology.After analysis by our professional team,their semiconductor-based ICT Enabling Technology will make significant contributions to global carbon reduction.Edwin Liu PresidentIndustrial Technology Research InstituteConcern IssuesCommunication ChannelsInnovation managementCorporate governance/regulatory compliance/risk managementTalent attraction and retentionClimate and energy/circular resources/water stewardshipAir pollutionSustainable supply chain managementIndustry association communication platforms/monthlyOfficial correspondence and visits/as neededOffer industry experience and advice,and give keynote speeches/as neededConferences(e.g.,briefings,public hearings,symposia,seminars,meetups)/as neededGovernment/Industry AssociationsConcerned with process technology and industry development,talent attraction and retention,net zero emissions,water stewardship,supply chain management,overseas investments,and regulatory revision trendsResponses from TSMCFocus Areas2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview33Foster youth,promote popular science education,support rural students and empower teachers,cultivate literary and advance the artsEmpower rural communities to bridge vocational education and employment gaps,provide care for the elderly and establish social support networks,advocate for environmental conservation,and minimize resource wasteIn 2023,the TSMC Education and Culture Foundation invested NT$118.24 million,focusing on three service strategies:Cultivating Young Generation,Promote Educational Collaboration,and Promoting Arts and Culture,aimed at fostering societal well-being and building a foundation in arts and education.Ongoing programs include the TSMC Journeys of Female Scientists,nurturing future female scientific talents;the Udreamer Project,attracting 180 groups of youth to collectively address sustainability issues.The company organized the 1st TMSC Penmanship Competition to develop calligraphy arts and advance the Chinese Opera on Campus Program and the TSMC Theatre.Also held the 20th Hsin-Chu Arts Festival and attracted 52,252 visits,boosting cultural appreciationIn 2023,the TSMC Charity Foundation invested NT$256.72 million,focusing on rural empowerment with TSMC volunteers through three service strategies:Empower Education,Care for the Elderly,and Protect the Environment.The foundation offered popular science education alongside vocational exploration workshops and job fairs,integrating education with practical skills.In addition to financially assisting disadvantaged families,it also collaborated with medical and social welfare institutions through the Network of Compassion to strengthen eldercare service.Furthermore,seven charitable organizations and 240 rural schools received operational support from the Foundations Public Welfare Green Energy Project.Through the energy-saving techniques and ecological conservation experience sharing from TSMC,the foundation continued to reinforce environmental awarenessThe TSMC Charity Foundation organized a high school and vocational school job fair to show students and parents a promising blueprint for the future,providing more diverse options and opportunities beyond further education.The TSMC Education and Culture Foundation initiated the Udreamer Project to motivate youth to step out of the classroom and into society,learning and growingthrough practice.Fu-yuan Peng,DirectorGeneral of the K-12 Education Administration,Ministry of EducationSteven YangFounder and CEO of Canopy Impact Investment216690Charity partnersCharity programsConcern IssuesCommunication ChannelsJob fairs provide vocational high school students with direct opportunities to engage with businesses,raising industry awareness and facilitating mutual matchmakingResponses from TSMCFocus AreasSocietyConcerned with the integration of industry,government,academia,and volunteer services,and the construction of a social support system for rural areas encompassing education,health,and environment faciliated by the TSMC Charity Foundation Concerned with the resources for education and arts offered by the TSMC Education and Culture Foundation to cultivate well-rounded talents for the new eraVolunteer activities and services/quarterlyVolunteer cadre meetings/15 volunteer activities a weekProject collaboration and visit/as neededSponsorship of charity projects and educational projects/as neededSending Love charity platform/as neededTSMC Education and Culture Foundation and TSMC Charity Foundation websites/as neededESG website,ESG Newsletter,ESG mailbox and social media(Facebook and LinkedIn)/as neededSocial impact2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverview342023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverviewValue chain:Operationalimpact:Human ResourcesRecruit like-minded talent and strengthen talent cultivation so employees may grow with the Company$SocietyGive back to society and obtain its trust through social participationEnvironmentReduce consumption of natural resources and maintain optimal usage efficiency through source managementInnovation ManagementInnovation R&DCustomer ServiceSupply ChainManagementEnvironmentalManagementHuman ResourceManagementStakeholderEngagementProduct Quality Customer RelationsSustainable Supply ChainClimate and EnergyWater StewardshipCircular ResourcesAir Pollution ControlTalent Attraction and Retention Talent DevelopmentSocial ImpactBusiness and Human RightsOccupational Safety and HealthDiversity and InclusionSix MajorCapitalsProcess andMethods FinanceGenerate economic value and returns through the effective management of financial resourcesManufacturingProvide services that customers need and carefully maintain manufacturing resources for equipment and buildingsSenior Management SupportMid-level Management ParticipationMid-level management is the backbone of the Companys pursuit of sustainability,cooperating across organizations and departments in the face of complex sustainability issues to bring about real changeChairman is personally engaged in ESG efforts and invited senior executives to lead their functional organizations in proposing sustainable solutions based on core competen-cies in order to expand positive impactThe ESG Steering Committee and ESG Committee meet regularly to formulate long-term strategies,engage in interdepartmental communication and cooperation,as well as supervise program progress and performance to maintain momentum for sustainability within the organizationESG GovernancaeOrganization CultureFoster an organizational culture that doesnt make commitments casually,but is fully devoted to the commitment when it does.Set long-term goals for sustainability issues,strive for change,review progress regularly,and continue to commit to doing betterProcurementTSMC operationsCustomer useCustomersatisfactionEmployeecohesionOperationalrisksRevenuegrowthIntelligenceStrengthen TSMCs knowledge capital through continued investment into innovative R&D and patentsIntegrity Leadership/Six Sustainable CompetenciesFour Core Elements35Sustainability ImpactTSMC integrates six major capitals,four core elements,and six sustainable management competencies to cultivate its trinity of strengths:Technology Leadership,Manufacturing Excellence,and Customer Trust.The Company continues to drive technological innovation,foster the success of customer products,and fuel profitable growth.Additionally,TSMC plays a pivotal role in driving output value in the semiconductor industry,generating both direct and indirect job opportunities while prioritizing the respect of human rights and ensuring the health and safety of its workforce.Furthermore,TSMC champions green innovation,enhancing resource efficiency and safeguarding natural ecosystems and biodiversity.By dedicating corporate resources and encouraging employee participation,TSMC expands its initiatives for common good.TSMC holds itself to a high standard of ESG performance,aiming to create tangible positive impact for stakeholders while mitigating negative impact.Through a Profit and Loss(P&L)mindset,the Company strives to build long-term value by establishing a sustainability impact management framework rooted in triple bottom line(TBL)principles and evaluate its contribution to the broader value chain from an external perspective,embodying its ESG vision to Uplift Society.2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverviewSocietyExternal employeeNote 3External employeeExternal employeeEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentEnvironmentCustomers/Shareholders/InvestorsSuppliersGovernment,SocietyPI5478Procurement demand driving industry supply and demand relationshipsEnvironmental impact of GHG emissions derived from supply chain production processesEnvironmental impact of air pollution emissions derived from supply chain production processesRisks of forced labor resulting in loss of freedom and risks to physical and mental health for workersRisks of child labor resulting in loss of access to quality education and future incomeProcurement demand creating supply chain job opportunities Effectiveness of Supplier Consultation Water ConsumptionUse of Reclaimed WaterEffectiveness of Water-saving MeasuresWastewater DischargeOI1479OI2496OI3324OI6697 OI0263OI1927OI4015OI0386 Net RevenueDepreciation and AmortizationTaxes OI6192 Sustainability Impact Pathway Cause of the ImpactOutput MetricNote 2Material IssueNote 1Impact on well-beingImpacted StakeholdersIndicatorsImpact LevelFPFP9462FP5261SustainableSupply ChainClimate andEnergyWaterStewardshipAir Pollution ControlCircular ResourcesPayment to Suppliers for ProcurementAir Pollution EmissionsWaste DisposalDriving technological development in industries and generating revenue for suppliersAssisting customers in product success and providing returns to investorsSupporting government initiatives for infrastructure expansion and social welfareChanges in GHG concentrations mitigating global warmingChanges in GHG concentrations mitigating global warmingChanges in GHG concentrations mitigating global warmingChanges in water resource availability intensifies water usage pressure in nearby communitiesChanges in water resource availability prevents water usage pressure in nearby communitiesChanges in water resource availability prevents water usage pressure in nearby communitiesChanges in pollutant concentrations in water bodies leading to health and ecological impactsChanges in air pollution concentrations in the atmosphere leading to health and ecological impactsAir pollution and GHG emissions from incineration and landfill Supply Chain Output Value Driven by TSMCSupply Chain Employee CompensationRisk of Human Rights Violations-Forced LaborRisk of Human Rights Violations-Employ-ment of Child LaborGHG Emissions from the Supply ChainAir Pollution Emissions from the Supply ChainEnergy-saving Consultation for the Supply ChainWater-saving Consultation for the Supply ChainWater Resource Consumption from TSMC OperationsBenefits of Using Reclaimed WaterBenefits of Promoting Water-saving MeasuresWastewater Discharge from TSMC OperationsAir Pollution Emissions from TSMC OperationsWaste Disposal from TSMC Operations GHG Emissions from TSMC OperationsBenefits of Using Renewable EnergyBenefits of Using Renewable EnergyBenefits of Promoting Energy-saving MeasuresWaste Reduction Consultation for the Supply ChainUpstream procurementTSMCoperationsGHG EmissionsUse of Renewable Energy(Self-generated)Use of Renewable Energy(Purchased)Effectiveness of Energy-saving Measures Net RevenueDepreciation and AmortizationTaxes FinancePerformancePI6065PI6065PI6065Assisting suppliers in energy-saving to avoid environmental impact from GHG emissionsAssisting suppliers in water-saving to avoid environmental impact from water resource scarcityAssisting suppliers in waste reduction to avoid environmental impact from waste generation Sustainable Value Changes in GHG concentrations driving global warmingIndicators:Impact level:Social externalitiesGross value addedPositive impactNegative impactEnvironmental externalities36TSMC draws upon globally recognized methodologies such as the Natural Capital Protocol,Social&Human Capital Protocol,and ISO 14008:2019 Monetary Valuation of Environmental Impacts and Related Environmental Aspects.Through a Sustainability Impact Pathway derived from causal relationships by converting all positive impacts(values)and negative impacts(costs)into monetary values,beginning from the direct and indirect impacts of upstream procurement,TSMC operations,and customer use.This approach facilitates stakeholder communication and aims to drive economic growth,reduce environmental resource depletion,uphold human rights,promote diversity and inclusion,and ultimately enhance societal well-being,generating positive change.For further details,please refer to the TSMC 2023 Sustainability Impact Valuation Report.2023 Sustainability ReportAn Innovation PioneerAn Admired EmployerPower to Change SocietyA Responsible PurchaserA Practitioner of Green PowerOperations and GovernanceAppendixSustainable Business PracticesOverviewIndicators:Impact level:Social externalitiesGross value addedPositive impactNegative impactEnvironmental externalitiesInternal employeeNote 3Internal employeeInternal employeeCustomer useOI1855 OI4724OI2742OI9077 Compensation Balancing Quality of LifeSupport for Life and FamilySexual HarassmentOI7877 Training Benefits for Employee Future IncomeEmployees with Improved Health ManagementOccupational Accidents Involving EmployeesOccupational Accidents Involving ContractorsOI4061OI3757OI6525OI3757OI6525Employee Health ManagementEmployee Occupational AccidentsContractor Occupational AccidentsTalent DevelopmentInnovationManagementDiversityand InclusionOccupational Safety and HealthTalent Attractionand RetentionEmployee Support ProgramsIncidents of Workplace Sexual HarassmentEmployee Compensation and BenefitsEmployee Training and DevelopmentGender Pay GapIncreased happiness and purchasing power from compensation above the living wageWork-life balance improvement through paid leave and family-friendly supportMedical costs and loss of future well-being resulting from physical and mental injuriesLifestyle and health improvements through health educationPhysical and mental impact of workers and healthcare expenditurePhysical and mental impact of workers and healthcare expenditureEnhanced professional skills and employability through trainingGender disparities in high-paying positions resulting in the occupational segregationInternal employeeInternal employeeInternal employeeInternal employeeExternal employeeOI1619 Value of Social InvestmentsSocial ImpactSocial InvestmentsPromotion of local community relations and improvement of life qualitySocietyPI7623 Energy-efficient Product DesignBenefits of Energy-efficient ProductsAssisting customers in product energy efficiency to avoid and mitigate environmentalimpacts from GHG emissionsCustomers,EnvironmentalTSMCoperations Equal OpportunitySustainability Impact Pathway Cause of the ImpactOutput MetricNote 2Material IssueNote 1Impact on well-beingImpacted StakeholdersIndicatorsImpact LevelSustainable Value 1,000,000500,000-1,000,000100,000-500,00050,000-100,00010,000-50,0001,000-10,000100-1,0000-100 1,000,000500,000-1,000,000100,000-500,00050,000-100,00010,000-50,0001,000-10,000100-1,0000-100Positive ImpactNegative ImpactMonetary ValueMonetary ValueImpact LevelImpact LevelUnit:NT$MillionUnit:NT$Million37Note 1:In response to the GRI Universal Standards 2021 which moved human rights issues to GRI 2:General Disclosures 2021,and considering the multifaceted nature of human rights issues an
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