Danfoss Sustainability Report 2013

Danfoss at a glance

Danfoss is a world-leading supplier of technologies that meet the growing need for food supply, modern infrastructure, efficient energy utilization, and climate-friendly solutions. The Group operates through two business segments: Danfoss Climate & Energy and Danfoss Power Solutions. Danfoss Climate & Energy specializes in food refrigeration, air conditioning systems, electric motor controls, building heating systems, and renewable energy components (solar and wind). Danfoss Power Solutions focuses on hydraulic systems and components for mobile machinery in agriculture, construction, materials handling, and specialty equipment.

Founded over 80 years ago, Danfoss is a privately-owned company that has continuously enhanced its expertise in energy-efficient solutions. The company sells products in over 100 countries and employs approximately 22,500 people worldwide.

• Approximate headcount: 22,500
• Products sold in over 100 countries worldwide
• Top five markets: USA, Germany, China, Russia, and Italy
• 59 factories in 17 countries and sales offices in 58 countries
• Headquartered in Nordborg, Denmark

Find Danfoss online:

• Facebook: www.facebook.com/Danfoss
• Twitter: www.twitter.com/Danfoss
• Google+: http://plus.google.com/+danfoss
• YouTube: www.youtube.com/DanfossGroup
• LinkedIn: www.linkedin.com/company/Danfoss

Sustainability Highlights

The following tables summarize Danfoss' performance across key sustainability areas in 2013, with comparative data from previous years.

Energy Consumption and Climate

Environment

People and Accidents

Responsible Supplier Management

Social Responsibility

* Highlights include Danfoss Power Solutions and are thus not directly comparable with prior years.

Danfoss Launching New Sustainability Strategy

Danfoss has been a signatory to the UN Global Compact Initiative for over a decade, aligning its efforts with principles of human rights, labor rights, the environment, and anti-corruption. This report serves as Danfoss' Communication on Progress to the UN, detailing the advancement of its sustainability initiatives.

In 2013, Danfoss developed a new sustainability strategy for the period 2014-2017. This strategy aims to guide the company's sustainability work through a strengthened framework, setting clear goals for energy savings, occupational health and safety, ethics, and product lifecycles. Danfoss is committed to regularly reporting on its progress.

The company continued its ethical conduct training for managers in 2013, with over a thousand managers and key employees completing the anti-corruption program. Danfoss is also developing compliance programs for competition law, export controls, and data privacy, which will be mandatory for managers and key employees.

In 2013, Danfoss acquired the remaining shares in Sauer-Danfoss, now operating as Danfoss Power Solutions. The sustainability achievements of Danfoss Power Solutions are integrated into this report.

Niels B. Christiansen
President & CEO

Photo of Niels B. Christiansen, President & CEO of Danfoss.

Sustainability Reporting at Danfoss

This sustainability report adheres to the principles of the UN Global Compact Initiative, outlining Danfoss' policies, goals, efforts, and results concerning human rights, labor rights, the environment, and anti-corruption. Data on sustainability efforts and results are collected annually from all Danfoss factories to inform the report and guide future priorities. Key parameters are also collected quarterly for financial reports.

The report encompasses all Danfoss Group companies where Danfoss holds controlling influence. Data from Danfoss Power Solutions is included for 2013 and will be integrated into quarterly reporting from 2014 onwards. Environmental and occupational health and safety data are primarily sourced from Danfoss' financial systems.

Environmental and climate data are gathered from factories with over 20 employees and significant energy, raw material, chemical, and waste volumes. All factories contribute energy consumption and occupational health and safety data, regardless of size. Sales-only entities do not contribute environmental data.

Online questionnaires collect data on human rights, labor rights, anti-corruption, local commitment, and stakeholder relations from all Group factories and sales companies. Information on employee dismissals for unethical conduct is gathered via the Danfoss Ethics Hotline and manager questionnaires.

Danfoss has also reported its climate activities and greenhouse gas emissions to the Carbon Disclosure Project's Supply Chain program since 2009, with reports available at www.danfoss.com. While external verification of sustainability reports ceased after 2011, Danfoss maintains that the current report accurately reflects its efforts based on the principles applied at that time. Danfoss conducts follow-up inspections to verify environmental, social, and ethical practices and to enhance communication with local management.

Organization and Management Systems

This section details Danfoss' management approach and systems designed to ensure continuous improvement and compliance with the Group's sustainability values and guidelines.

Danfoss' Sustainability Strategy

The Group's corporate sustainability strategy, developed based on global megatrends, business area expectations, and stakeholder interviews, is set for implementation from 2014 to 2017. It supports Danfoss' growth strategy by providing a clear structure, goals, and follow-up for prioritized areas.

Key Sustainability Themes

Through a systematic materiality assessment conducted with an external consultant, Danfoss identified over 100 potential topics relevant to its sustainability approach. The key themes are prioritized based on their importance to Danfoss (impact on revenue, earnings, reputation, compliance) and to its stakeholders (media, public, customers, legislators, NGOs, employees, management, owners). Themes marked as 'Prioritized for 2014' are key focus areas, while 'In process' and 'To be addressed from 2015' indicate ongoing or future initiatives.

Danfoss' New Sustainability Strategy Rests on Two Pillars

Danfoss views being a responsible business partner as fundamental to its 'license to operate.' The company aims to be a leader in energy efficiency, leveraging this position to meet the global demand for efficient energy consumption and climate change mitigation.

The sustainability strategy, approved in December 2013, will be implemented from early 2014 with a focus on:

• Energy-efficient business
• Revision of Danfoss' climate strategy and targets
• Energy-saving projects in Danfoss' 15 largest factories
• Energy-efficient transportation of products
• Products' material content and lifecycle
• Products' compliance with environmental regulations

Distribution of Roles and Responsibilities

Danfoss' sustainability efforts are structured according to its general governance and risk management principles. The Board of Directors and Executive Committee hold overall responsibility and set the strategic framework. The corporate sustainability function defines and implements the global strategy, targets, and activities, including reporting. People managers are responsible for ensuring compliance within their teams, while factory managers oversee site-specific environmental and occupational health and safety activities. All employees are responsible for adhering to rules and guidelines and reporting any breaches.

The corporate risk management and compliance function monitors compliance with guidelines and programs, managing the Danfoss Ethics Hotline. An Ethics Committee addresses ethical guideline violations, and the internal audit function conducts unannounced inspections.

Ethical Guidelines and Sustainability Policies

Danfoss maintains comprehensive rules and guidelines, including its policy on business conduct, the Ethics Handbook, the Anti-Corruption Manual, competition law guidelines, risk management guidelines, environmental and social responsibility standards, the Danfoss Negative List (detailing substances to limit or avoid), and a Code of Conduct for Suppliers.

Training and Compliance Programs

Danfoss implements training and compliance programs to embed ethical guidelines across the Group. The ethics program requires all managers to complete training within their first month of appointment, covering topics like competition, anti-corruption, and equal treatment. Other compliance programs focus on anti-corruption, export controls, and ethics. In 2013, one thousand employees completed mandatory anti-corruption training. A new e-learning program on competition law was rolled out to approximately four thousand employees.

Query Function and Ethics Hotline

The 'AskUs' query function, available since 2012, provides employees with answers to ethics and compliance questions. In 2013, it handled 69 enquiries. The 'Ethics Hotline' allows employees to report suspected guideline breaches anonymously.

Ethical Behavior and Human Rights

Danfoss acknowledges the risk of contributing to human rights or environmental violations through its operations or supply chain. The company conducted a due diligence process in 2013 to identify and prevent adverse human rights impacts, ensuring compliance with UN Guiding Principles. Results of this process are detailed later in the report.

Climate Strategy

Danfoss' '3x25' climate strategy aims to reduce absolute CO2 emissions from energy consumption, transportation, and business travel by 25% and increase the use of CO2-neutral energy by 25% by 2025, relative to 2007 levels. The goal is to cap emissions at 135,000 tonnes by 2025, down from approximately 180,000 tonnes in 2007.

Environmental and Occupational Health and Safety Certification

Danfoss systematically works to reduce its environmental impact. Most Danfoss Climate & Energy factories are certified to ISO 14001, and many are also certified to OHSAS 18001. Danfoss Power Solutions factories also hold ISO 14001 and OHSAS 18001 certifications.

Use of Chemical Substances

Danfoss aims to limit the use of potentially harmful chemical substances in its manufacturing processes, utilizing them as efficiently as possible and implementing protective measures. The Danfoss Negative List guides efforts to reduce and eliminate unwanted substances, and is regularly updated.

Responsible Supplier Management

Danfoss implements systematic risk assessment and supplier management, including a Code of Conduct for Suppliers that outlines environmental and social requirements. Suppliers are audited regularly to ensure compliance. The risk assessment model prioritizes suppliers in high-risk areas and emphasizes preferred suppliers.

Stakeholder Relations

Danfoss actively engages with employees, managers, and external stakeholders like NGOs and customers to adapt its processes and tools to global community requirements. This engagement helps Danfoss stay aware of operational framework conditions and adapt to new legislation and initiatives.

Work and Achievements in Core Areas

This section details Danfoss' work and achievements in 2013 across key sustainability focus areas.

Energy-Efficient Business

Energy Consumption and CO2 Emissions

In 2013, Danfoss emitted approximately 251,000 tonnes of CO2 from electricity and heat consumption. This figure is higher than in 2012 due to the inclusion of Danfoss Power Solutions data. Danfoss Climate & Energy emitted 129,600 tonnes of CO2, a slight increase from 2012, attributed to higher activity in China and the inclusion of Danfoss Turbocor in the US. Electricity consumption accounted for 84% of the Group's total CO2 emissions (212,000 tonnes), with heating contributing 39,000 tonnes.

Total energy consumption increased by 76% to 2,296 TJ, largely due to the inclusion of Danfoss Power Solutions. Electricity represented 67% of total energy consumption, with 14% from renewable sources, 13% from nuclear power, and the remainder from fossil fuels.

Energy consumption for heating rose by 37%, primarily from fossil sources (85% natural gas). The report notes that factory-level electricity source breakdowns were not fully available for Danfoss Power Solutions.

Danfoss' climate strategy and CO2 emission targets will be reviewed in 2014.

Global Energy-Saving Project

In 2013, Danfoss continued its efforts to reduce energy consumption at its 15 largest factories. Seven energy mapping projects and four energy evaluation projects were conducted. The first major project was completed at the Monterrey, Mexico factory. These projects identified 77 local energy-saving projects with expected savings of 11% in electricity, 20% in heating, and 6,776 tonnes of CO2 emissions, to be implemented in 2014.

Establishing the Largest Solar Power Plant in the Nordic Region

To reduce fossil fuel reliance, Danfoss installed a large solar power plant at its Nordborg headquarters in late 2013. The plant, with a capacity of 2.1 MW, is expected to generate 2 million kWh annually, enough to power 400 homes. It consists of 9,300 solar panels connected to 130 Danfoss solar inverters. This initiative symbolizes Danfoss' commitment to sustainable energy transition.

Energy Renovation of Old Buildings at Nordborg

Over the past 20 years, Danfoss factories in Nordborg have halved their energy consumption for space heating through various projects. This includes reusing hot air from process exhausts in heat production halls, a system in place since the 1980s, which is expected to generate savings of up to 30%. Renovation of the E1 building at Nordborg involved replacing 50-year-old ventilation systems with modern heat recovery systems, reducing energy consumption by over 50%.

Optimizing Freight Transportation

Danfoss is working to reduce CO2 emissions from product transportation by truck, ship, and aircraft, aiming for a 25% reduction by 2025. Efforts include consolidating logistics, reducing carriers, and optimizing vehicle load factors. Future plans involve implementing a modeling tool to calculate and reduce CO2 emissions from freight transportation, with a transition from air to road transport potentially reducing emissions by 90%.

Photograph of a large electricity pylon against a sunset sky.

Occupational Health and Safety

Employee Safety

Employee safety is a high priority at Danfoss, with ongoing efforts to improve occupational health and safety conditions. For instance, all employees and visitors at Danfoss Power Solutions factories are required to wear protective eyewear and footwear in production areas. A review in 2014 will consider extending similar rules across the Group.

Work-Related Accidents

Danfoss is committed to creating a safe working environment and reducing work-related accidents, a trend that has been declining since 1999. In 2013, the total accident rate was 4.7 (down from 5.2 in 2012). The accident rate for production staff was 8.1 (down from 9.2), and for white-collar employees, it was 0.5 (down from 1.5). The accident rate is measured per million hours worked. Danfoss recorded 172 accidents resulting in at least one day's absence in 2013, with injured employees absent for a total of 3,039 days, averaging 17 days per accident. Reducing accidents and improving occupational health and safety remain a focus for 2014.

The Environment

Water and Wastewater

Water consumption for processes and sanitary purposes increased to 808,000 m³ in 2013 from 637,000 m³ in 2012, largely due to the inclusion of Danfoss Power Solutions. Danfoss Climate & Energy's consumption decreased by 5%. Industrial wastewater discharge also rose to 182,950 m³ in 2013 from 156,000 m³ in 2012.

Raw and Auxiliary Materials

Danfoss' raw material consumption reflects its position in the metal processing industry, with metals comprising three-quarters of materials used. Steel consumption increased significantly due to the inclusion of Danfoss Power Solutions data. Auxiliary material consumption also saw an increase.

Waste

Waste volumes doubled in 2013 compared to 2012, primarily due to increased metal recycling from Danfoss Power Solutions, a metal processing business. The table details waste categories and volumes.

Chemical Substances

Danfoss uses various chemical substances, aiming to limit their use if they are harmful to humans or the environment. The amount of CRAN substances (carcinogenic, allergenic, or harmful to the reproductive or nervous systems) increased by 41% in 2013, partly due to increased consumption by a facility in Mexico and increased use of chlorinated oils by Danfoss Power Solutions.

Environmental Impact of Products: Conflict Minerals

In compliance with the Dodd-Frank Act, Danfoss addresses customer requests for information on the origin of materials like gold, tin, tantalum, and tungsten, particularly concerning conflict minerals from the Democratic Republic of the Congo. In 2013, over 400 suppliers were asked to specify the origins of these materials to ensure they are sourced from conflict-free smelters.

Photograph of a large solar panel installation.

Ethical Behavior

Ethics Cases

In 2013, 31 employees left Danfoss Climate & Energy due to unethical conduct, down from 47 in 2012. These cases included theft, bribery, fraud, conflicts of interest, espionage, abuse of alcohol/drugs, harassment, and policy violations. The number of dismissals was based on data from the Ethics Hotline and manager questionnaires.

Mapping of Potential Human Rights Abuses

Danfoss conducted a due diligence process in 2013 across its Climate & Energy segment to identify human rights and labor rights risks. The process involved extensive questionnaires, with a 95% response rate. Findings indicated general compliance with Danfoss' policies, with remedial actions taken in areas like discrimination in recruitment. Procedures for salary deductions as disciplinary punishment were also reviewed for compliance with human rights standards.

Employees

Diversity

Danfoss values a diverse workforce for competitive advantage and innovation, incorporating diversity into its recruitment policy. The company aims to increase the percentage of female managers to 20% by 2015, up from 18% in 2013, to better reflect the overall workforce composition (29% female employees in 2013).

Employee Engagement and Development

Employee engagement remains a key focus, with 2013 survey results showing high engagement levels and improvements over 2011. Employee turnover decreased from 15.0% in 2012 to 13.7% in 2013. At the end of 2013, Danfoss employed 22,463 people, a 2.7% decrease from 2012, attributed to ongoing adaptation to market conditions.

Photo of a woman on the phone, looking at a tablet.

Responsible Supplier Management

Danfoss enhances its supply chain standards through systematic risk assessment and supplier management. The Code of Conduct for Suppliers, established in 2004, requires suppliers to meet environmental and social requirements. Audits verify compliance, and the risk assessment model prioritizes suppliers in high-risk areas. Training on the Code of Conduct is provided to employees who interact with suppliers. In 2013, 809 suppliers signed the Code, and 134 audits were conducted.

Community Engagement

Danfoss supports local community initiatives through sponsorships, trade organization involvement, and social work. An example is the renovation of a local elementary school in Panrutti, India, funded by Danfoss India's CSR program 'Joy of Giving,' which improved facilities and provided a better environment for children.

The Fabrikant Mads Clausen Foundation

Established in 1960, the Fabrikant Mads Clausen Foundation supports charitable projects in Denmark and abroad. In 2013, it distributed DKK 11.7 million to 386 recipients, including schools, hospitals, and cultural organizations. Notable donations included support for cancer research, sports equipment, and humanitarian aid.

The Danfoss Employee Foundation

The Danfoss Employee Foundation provides consultation and financial support to employees facing financial difficulties or life events. In 2013, it considered approximately 300 applications and granted DKK 2.9 million in financial support. Its legal aid system handled about 200 requests.

Photograph of a large electricity pylon against a sunset sky.

Photo of a young girl in a classroom setting.

Donations Overview

Fabrikant Mads Clausen Foundation Donations

• 53% Art and Culture
• 19% Hospitals, Institutions and Health
• 13% Research and Education
• 11% Leisure and Sport
• 4% Outside DK

Danfoss Employee Foundation Donations

• 35% Financial problems
• 13% Illness, dentist, etc.
• 10% Divorce, dissolved partnerships
• 12% Confirmation
• 8% Change of address
• 9% Continuation school
• 4% Funeral aid
• 9% Other