Sustainability 2012/13

Year in Review

This section provides an overview of Ford Motor Company's sustainability performance for 2012 and early 2013. It includes executive messages, a summary of key data, goals and commitments, a timeline of highlights, and details on the assurance process for the report.

Executive Messages

Letter from William Clay Ford, Jr., Executive Chairman: Emphasizes Ford's purpose to make lives better through outstanding products, community investment, and technological leadership in tackling global sustainability challenges. He highlights the evolution of sustainability into a core business practice, the success of the ONE Ford plan, investments in electrified vehicles, waste reduction goals, and the company's commitment to human rights and addressing future mobility challenges with the "Blueprint for Mobility."

Letter from Alan Mulally, President and CEO: Reinforces the ONE Ford plan's success, noting profitability and global expansion. He details product development achievements, including 25 new vehicles and 31 powertrains launched globally in 2012, record sales in Asia Pacific, and the revitalization of the Lincoln brand. Mulally highlights fuel economy leadership with EcoBoost engines and electrified vehicles, sustainable manufacturing practices, and the company's commitment to using resources responsibly for economic, social, and environmental benefits.

Letter from Robert Brown, Vice President, Sustainability, Environment and Safety Engineering: Discusses the integration of sustainability into Ford's business plan, products, and operations. He provides examples of sustainability integration in Product Development (e.g., recycled materials in the Ford Fusion), Purchasing (human rights code in the supply chain), and Research and Innovation (climate change strategy, water strategy, Blueprint for Mobility). Brown also explains how sustainability performance is measured and linked to compensation, and emphasizes the importance of external collaboration.

Performance Summary

Key performance data for Financial Health, Climate Change and the Environment, Water, Vehicle Safety, Supply Chain, and People are presented in tables, showing trends from 2010 to 2012.

Financial Health

Climate Change and the Environment

Water

Vehicle Safety and Driver Assist Technologies

Supply Chain

People

Ford's Goals, Commitments and Status

This section summarizes Ford's goals, commitments, targets, and progress in material issue areas. Key areas include Financial Health, Climate Change and the Environment, Water, Vehicle Safety, Supply Chain, and Health and Safety.

Financial Health

• Goal/Commitment: Execute ONE Ford plan for a leaner, more-efficient global enterprise. 2012 Progress: Strengthened balance sheet, highly profitable year in North America. On Track? Yes.
• Goal/Commitment: Achieve profitability in 2012. 2012 Progress: Reported $8 billion pre-tax profit for the third consecutive year; earned investment grade rating. On Track? Yes.
• Goal/Commitment: Align capacity to demand. 2012 Progress: Globalized vehicle platforms, executing European Transformation Plan. On Track? Yes.
• Goal/Commitment: Reverse trend of losing money on small-car production in the U.S. 2012 Progress: Increased small vehicle production, maintained lean cost structure, enhanced revenues. On Track? Yes.
• Goal/Commitment: Set new goals under "Blueprint for Mobility" in early 2012. 2012 Progress: Defined future transportation landscape and required technologies/partnerships. On Track? Yes.

Climate Change and the Environment

• Goal/Commitment: Stabilize CO2 concentrations at 450 ppm. 2012 Progress: Reduced U.S. fleet-average CO2 emissions by 15% (2007-2012 model years); reduced European fleet-average CO2 emissions by 15.5% (2007-2012 calendar years). On Track? Yes.
• Goal/Commitment: Ensure all new/redesigned vehicles are best-in-class for fuel economy. 2012 Progress: Vehicles introduced meet this commitment; will continue in future launches. On Track? Yes.
• Goal/Commitment: Reduce global facility CO2 emissions per vehicle by 30% by 2025 (vs. 2010 baseline). 2012 Progress: Reduced emissions by 1% per vehicle compared to 2011. On Track? In Process.
• Goal/Commitment: Reduce facility energy use per vehicle globally by 25% (2011-2016). 2012 Progress: Improved energy efficiency by 6.4% compared to 2011. On Track? In Process.
• Goal/Commitment: Increase use of recycled, renewable, and lightweight materials. 2012 Progress: Soy foam seating used on 100% of North American vehicles; expanded use of recycled-content fabrics; continued development of sustainable materials strategy. On Track? Yes.
• Goal/Commitment: Use soy foam seat cushions and backs on 100% of Ford vehicles manufactured in North America. 2012 Progress: Achieved since 2011. On Track? Yes.
• Goal/Commitment: Use at least 25% recycled content in seat fabrics on all new/redesigned vehicles sold in North America. 2012 Progress: Expanded use of recycled-content fabrics. On Track? Yes.
• Goal/Commitment: Increase use of allergy-tested and air-quality-friendly interior materials. 2012 Progress: Continued implementation of low-emissions and allergy-free material specifications. On Track? Yes.
• Goal/Commitment: Reduce waste sent to landfill by 40% per vehicle (2011-2016). 2012 Progress: Reduced landfill disposal by over 19% per vehicle compared to 2011. On Track? In Process.
• Goal/Commitment: Maintain volatile organic compound (VOC) emissions from painting at North American assembly plants at 23 grams/square meter or less. 2012 Progress: Achieved 18 grams/square meter in 2012. On Track? Yes.

Water

• Goal/Commitment: Cut water use per vehicle by 30% globally by 2015 (vs. 2009). 2012 Progress: Reduced water use per vehicle by 8.5% from 2011 to 2012. On Track? In Process.

Vehicle Safety

• Goal/Commitment: Design/manufacture vehicles with high safety performance and offer innovative safety/driver-assist technologies. 2012 Progress: Remained global leaders in safety; earned 91 IIHS Top Safety Picks historically; 93% of 2013 model year vehicles were IIHS Top Safety Picks; achieved highest NCAP scores for seven vehicles; received Euro NCAP Best in Class and Advanced rewards. On Track? Yes.
• Goal/Commitment: Meet or exceed all regulatory requirements for safety. 2012 Progress: Continually met this goal; internal standards often exceed regulatory requirements. On Track? Yes.
• Goal/Commitment: Provide information, educational programs, and technologies for safe driving. 2012 Progress: Invested in Ford Driving Skills for Life (DSFL); offered MyKey® system. On Track? Yes.
• Goal/Commitment: Play a leadership role in vehicle safety research and innovation. 2012 Progress: Collaborated on precompetitive safety projects, supported research, awarded URP grants. On Track? Yes.
• Goal/Commitment: Play a leadership role in research and development relating to "connected vehicles." 2012 Progress: Participated in European simTD and DRIVE C2X projects; continued U.S. collaboration via CAMP and VIIC. On Track? Yes.

Supply Chain

• Goal/Commitment: Encourage key production suppliers to introduce codes of conduct, develop management systems, and extend expectations to their own suppliers. 2012 Progress: Over 80% of ABF suppliers have aligned codes of conduct; 35% meet all three Ford milestones. On Track? In Process.
• Goal/Commitment: Help suppliers build capacity for managing supply chain sustainability issues through training. 2012 Progress: Trained over 325 Ford suppliers in 2012; global total nearly 2,100 since inception. On Track? Yes.
• Goal/Commitment: Assess Tier 1 suppliers for compliance. 2012 Progress: Conducted over 800 third-party audits since 2003. On Track? Yes.
• Goal/Commitment: Work collaboratively across the industry on supply chain sustainability. 2012 Progress: Active member of AIAG, chaired work groups, founding member of UN Global Compact Advisory Group. On Track? Yes.
• Goal/Commitment: Better understand the carbon footprint of Ford's supply chain. 2012 Progress: Surveyed 135 suppliers regarding GHG emissions, achieving a 92% response rate. On Track? In Process.
• Goal/Commitment: Source at least 10% of U.S. purchases from minority- and women-owned businesses annually. 2012 Progress: Purchased $5.7 billion from minority-owned and $1.2 billion from women-owned businesses. On Track? Yes.

Health and Safety

• Goal/Commitment: Safety Fatalities target is always zero. 2012 Progress: No employee work-related fatalities in 2012 (except one at a joint venture). On Track? Yes.
• Goal/Commitment: Serious injuries target is zero; attain industry competitive lost-time and DART levels. 2012 Progress: Lost-time case rate at 0.51 (10% improvement); 139 serious injuries (vs. 143 previous year). On Track? Yes.
• Goal/Commitment: Maintain or improve employee personal health status. 2012 Progress: Active health promotion programs in most regions; exceeding participation targets for health-risk appraisals in the U.S. On Track? Yes.

Map of Our Year (2012 Highlights)

• January: Reported strong profits, launched new global brand promise "Go Further," unveiled 2013 Ford Fusion, announced Silicon Valley research lab, showcased MyFord Mobile app.
• February: Outlined "Blueprint for Mobility," revised Human Rights Code (Policy Letter 24), kicked off health program in India, received EPA Climate Leaders Award.
• March: Named one of World's 100 Most Ethical Companies, ranked #1 in Human Rights category by Corporate Responsibility Officer, Ford Focus Electric achieved 105 mpg-e, doubled team working on fuel-saving technologies.
• April: Announced expansion in China, launched eco-documentary series, highlighted small, efficient engines like EcoBoost.
• May: Certified dealers for Focus Electric, celebrated reclaiming the Blue Oval after Moody's upgrade, highlighted driver assist technologies in Fusion, provided grants for environmental projects.
• June: Introduced MyFord Mobile iPhone app, Ford SYNC inducted into Computer History Museum, 1.0-liter EcoBoost engine won "International Engine of the Year," announced operational energy reductions and plans for further efficiency.
• July: Showcased RUTH the robot for interior feel assessment, launched Ford Escape Hunger Drive, reported record Fusion sales, donated to disaster relief efforts.
• August: Highlighted global EcoBoost engines, announced expansion in electrification capabilities and green jobs, noted C-MAX Energi's top EV-only speed, launched Drive 4 UR Community program.
• September: Set record sales in China, celebrated 350 millionth vehicle produced (Ford Focus), announced reduction in rare earth metals use for batteries, set Guinness World Record for "Red Light – Green Light" game.
• October: 1.0-liter EcoBoost engine received Popular Mechanics Breakthrough Award, proposed restructuring of European manufacturing operations, unveiled Warriors in Pink® documentary, named Corporation of the Year by Michigan Minority Supplier Development Council, introduced online game for Ford Driving Skills for Life.
• November: Introduced Transit Connect Wagon, Ford Escape named Car of the Year by Popular Mechanics, started production of C-MAX Energi plug-in hybrid at Michigan Assembly Plant (MAP), unveiled reinvented Lincoln MKZ.
• December: Celebrated 150th anniversary of Henry Ford's birth with oldest surviving Ford car, reported strong sales performance in Thailand, announced highest total Company fourth-quarter pre-tax profit in over a decade.

Our Blueprint for Sustainability

Ford defines sustainability as a business model that creates value consistent with the long-term preservation and enhancement of environmental, social, and financial capital. This section details the company's strategy, materiality analysis, value chain impacts, and governance structures.

Strategy

Ford's business strategy is embodied in the "ONE Ford" plan, focused on restructuring for profitability, accelerating new product development, strengthening the balance sheet, and fostering teamwork. This plan aims to deliver Great Products, a Strong Business, and a Better World. The company anticipates growth in Asia Pacific and an increasing mix of small vehicles, while maintaining a balanced portfolio. In 2012, Ford continued its financial turnaround, driven by strong North American results and the success of models like the Ford Focus, the world's best-selling vehicle nameplate. The company emphasizes fuel efficiency through technologies like EcoBoost® and various powertrain options.

Materiality Analysis

Ford updates its materiality analysis to identify the most significant sustainability issues for the company and its stakeholders. The analysis categorizes issues based on their concern to stakeholders and their impact on Ford. Key material issues include climate change, water, supply chain sustainability, human rights, and governance. The analysis process involves identifying issues from business documents and stakeholder inputs, assessing value chain impacts, and prioritizing issues using a materiality matrix. The matrix plots issues based on stakeholder concern (y-axis) and impact on Ford (x-axis), with issues in the "upper right" sector considered most material. The analysis is reviewed internally and by external stakeholders, such as the Ceres Stakeholder Committee.

Materiality Matrix Description: The materiality matrix visually represents the relative importance of sustainability issues. Issues are plotted based on two dimensions: 'Concern to Stakeholders' (increasing upwards) and 'Impact on Ford' (increasing to the right). Issues in the 'High Impact, High Concern' quadrant are considered the most material and set the agenda for the sustainability strategy and reporting.

Key Material Issues (Examples from High Impact, High Concern quadrant):

• Sustainability vision, governance and management
• GHG/fuel economy regulation
• Low-carbon strategy
• Vehicle GHG emissions
• Electrification strategy
• Water strategy – local community impacts
• Water strategy – water impacts of operations
• Environmental management
• Human rights in the supply chain
• Sustainable raw materials

Our Value Chain and Its Impacts

Ford's value chain encompasses product planning and design, raw material extraction, logistics/transportation, supplier parts manufacturing, Ford manufacturing, sales, use, service, and end-of-life management. Each stage has distinct environmental, social, and economic impacts and stakeholders.

• Product Planning and Design: Focuses on R&D, new technologies, and product decisions impacting fuel economy, emissions, and materials. Key issues include GHG/fuel economy regulations, low-carbon strategy, and electrification.
• Raw Material Extraction: Significant impacts on local communities. Ford works to reduce negative impacts, addressing Conflict Minerals and human trafficking. Key issues include water strategy and sustainable materials.
• Logistics / Transportation: Transport of parts and vehicles. Creates jobs but also impacts emissions, waste, and road safety. Key issues include low-carbon strategy and GHG emissions.
• Supplier Parts Manufacturing: Provides business to suppliers, creating jobs and investment. Ford works to improve supplier sustainability and human rights. Key issues include supply chain sustainability, ethical business practices, and human rights.
• Ford Manufacturing: Core operations creating employment and investment. Focuses on environmental performance and employee working conditions. Key issues include environmental management, health and safety, and emissions.
• Sales: Communicating product value to customers through dealerships. Key issues include product competitiveness and alignment of production with demand.
• Use: The primary stage for product impacts, including tailpipe emissions and safety. Ford delivers fuel-efficient products and promotes safe driving. Key issues include vehicle GHG emissions, fuel economy, and safety.
• Service: Dealership service centers create jobs and investment. Ford works to reduce environmental impacts of service processes. Key issues include sustainable mobility and quality.
• End of Life: Vehicles are recycled or reused. Ford aims for high recyclability rates. Key issues include waste generation and sustainable materials.

Governance

Ford's governance includes fiduciary responsibility to shareholders and accountability for its impact on the world and stakeholders. The company maintains strong ethical standards, formalized in policies and integrated into core business processes. In 2012, Ford enhanced its anti-corruption program and received numerous awards for corporate responsibility and governance.

Sustainability Governance

Ford's governance of sustainability is integrated into core business structures. The Board of Directors, through its Sustainability Committee, reviews strategic sustainability issues. Management, led by the VP of Sustainability, Environment and Safety Engineering, oversees sustainability strategy and implementation. A dedicated Sustainability & Vehicle Environmental Matters group coordinates corporate-wide efforts, reporting, and stakeholder engagement. Sustainability is also embedded into core functions like Product Development, Purchasing, and Manufacturing.

Sustainability Management

Sustainability is managed within key functions like Product Development and Manufacturing. The Product Development system incorporates environmental performance criteria and a Design for Sustainability (DfS) approach. The Ford Production System (FPS) drives lean, flexible manufacturing with a focus on Safety, Quality, Delivery, Cost, People, Maintenance, and Environment (SQDCPME).

Corporate Governance – Board of Directors

The Board of Directors is guided by corporate governance principles and ethics codes. It operates through committees including Audit, Compensation, Finance, Nominating and Governance, and Sustainability. The Sustainability Committee, formed in 2008, reviews strategic sustainability issues. The Board emphasizes ethical standards, integrity, and diversity among its directors.

Policy Letters and Directives

Ford establishes a framework of principles through Policy Letters and Directives. Key policies relevant to sustainability include:

• Human Rights: Embodied in the Code of Human Rights, Basic Working Conditions, and Corporate Responsibility (Policy Letter 24), based on international standards and covering workplace issues, community engagement, and human trafficking.
• Diversity: Commitment to equal opportunity and fostering a diverse, inclusive workforce.
• Bribery and Corruption: Policy to comply with laws and prohibit improper payments. Enhanced in 2012 with increased training and strengthened supplier contracts.
• Political Contributions: Covered under governmental relationships policy.
• Customer Satisfaction and Safety: Policies emphasizing product quality and vehicle safety, aiming to meet or exceed regulations and advance safety technology.
• Environment and Employee Health and Safety: Policies integrating environmental protection and employee well-being into business decisions and operations.
• Privacy: Commitment to responsible privacy and data-handling practices for customers and employees.
• Social Media Interactions: Guidelines for responsible employee participation in social media.

Ethical Business Practices

Ford's Corporate Compliance Office manages a comprehensive program for ethical practices, overseen by senior management and the Board's Audit Committee. The program includes awareness raising, policy definition, reporting infrastructure, investigations, risk assessments, and training. The Code of Conduct Handbook serves as a fundamental ethical guidance document, available in 14 languages. Mandatory online training courses reinforce ethical standards. Reporting mechanisms are available for policy violations or legal issues, with assurances against retaliation.

Reporting and Transparency

External reporting is crucial for accountability and organizational learning. Ford's reporting strategy includes:

• Materiality: Focuses reporting on issues most material to the company and stakeholders, updated via a materiality analysis.
• Assurance: Details third-party review of the report and data.
• External Guidelines: Aligned with GRI G3 Guidelines (A application level) and discloses UNGC implementation.
• Targeted Reporting: Produces executive summaries and regional reports.
• Benchmarking and External Feedback: Seeks feedback and has received recognition for its sustainability reporting quality.