Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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2 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX REPORTING PROFILE Reporting Profile This is the ninth edition of the ZF Sustainability Report published by ZF Fried- GRI 102-45 richshafen AG. It is based on the fiscal year 2020 and was not submitted for external assurance. The most recent report was published in March 2020, as the sustainability reporting of the Group is conducted annually. The report is intended to provide transparency, with a particular focus on sus- tainability activities and targets. It is aimed at customers, employees, suppliers, politicians, authorities and all others who are interested in the ZF Group and want to know about the company’s values, principles and actions. At the same time, the ZF Sustainability Report represents the progress report to the United Nations Global Compact, which ZF joined in May 2012. This report has been prepared in accordance with the GRI Standards: Core option. The GRI Standards request companies perform a materiality analysis which sets priorities for, and boundaries of, the reporting. The latest materiality analysis was conducted in summer 2018 and is still valid. The process is described on page 27. Regarding the scope of reporting, in addition to ZF Friedrichshafen AG, 42 German and 307 international subsidiaries controlled by ZFFriedrichshafen AG are inclu- ded in the consolidated financial statements. With the takeover of WABCO, 79 subsidiaries and two associates were acquired. WABCO, which was fully acquired in May 2020, is partially being reported but will be fully included in the 2021 sustainability report.
3 ZF SUSTAINABILITY REPORT 2020 CONTENTS 04 Introduction 19 Performance 78 Appendix 04 ZF at a glance 20 Responsibility 78 GRI Content Index Governance 05 CEO Interview Risk management 85 Imprint Values and behavioral norms 07 Markets and solutions Compliance Reporting 10 People and processes Stakeholder management Sustainability program 11 Sustainability strategy 35 Value Creation 15 Sustainability organization Tax approach Supply chain 18 Milestones and Highlights Sustainable product portfolio 47 Environment ZF climate neutrality strategy Energy Water management Materials and resource efficiency 59 People Employment Fair remuneration The icons can be used throughout Labor-management relations this Sustainability Report for the following functions: Training and education Diversity and equal opportunity Table of contents Health and safety Print Internal references External references
4 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX ZF at a glance ZF Group Profile ZF was established in 1915 as a specialist for the The main sales markets of the Group include Europe aviation industry. Now the Group is a mobility tech- at 46 percent, North America at 26 percent and nology company that supplies systems enabling next- Asia-Pacific at 24 percent. At 79 percent, cars and generation mobility in passenger cars, commercial light commercial vehicles make up the major share of €2.516 vehicles and industrial technology worldwide. Thanks the sales distribution by sector, whereas commercial to its comprehensive portfolio, ZF offers one-stop so- vehicles over six tons make up 12 percent, and con- lutions for established automobile manufacturers and struction and agricultural machinery, marine craft, million in research and mobility service providers as well as newly emerging aircraft, special and rail vehicles as well as wind development spending companies from the fields of transport and mobility. power account for 9 percent of the minor shares. Digital networking and automation constitute a fur- ther development focus of ZF’s systems. ZF enables vehicles to see, think and act. When the Group acquired WABCO in June 2019, its expertise in the field of technologies for heavy commercial vehicles, 100 buses and trailers was significantly increased. The combined Group now has 153,522 employees percent of the production at some 271 locations across 42 countries, and it and main development locations manage environmental possesses an international service network of around issues according to the ISO 14001:2015 standard 130 of its own service locations and 650 service 11.9 partners. In 2020, ZF generated €32.6 billion in revenue and invested 7.7 percent of last year’s annual turnover in research and development. percent women in Thanks to its innovative portfolio, ZF is aiming at management positions “Next Generation Mobility” for passenger cars, commercial vehicles and industrial applications.
5 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX CEO Interview Interview with Wolf-Henning Scheider, Chief Executive Officer of ZF Friedrichshafen AG Sustainability is a multi-faceted process Has the EU’s Green Deal from December 2019 affected ZF’s business? I don’t see that it’s brought about a fundamental change of direction, but it has accelerated things through its even more ambitious targets. Climate- friendly solutions for sustainable traffic have guided our actions for a long time already, though. As we see it, it would be a good idea for market objectives to be defined for the long term and validated by scientific evidence – to make them both plannable and transparent. Are your sustainability activities already yielding a competitive edge for you? We’re witnessing a significant increase in sustain- ability criteria demanded by customers. What’s more, the pandemic has proved that swift and effective solutions are possible when necessary. This must also apply to traffic if we want to meet the Paris climate targets. This realization is playing into our hands, because we’re offering solutions for more efficient traffic in all areas of mobility and are Wolf-Henning Scheider successful in doing so. … ZF CEO
6 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX INTERVIEW “Our plan is to cut our carbon emissions by 80 percent by 2030 as compared to 2018 – and we’re confident that we can meet this goal.” How important is the supply chain for your company’s ability to meet its sustainability goals? The supply chain has traditionally been an impor- tant element in any sustainability strategy. For a company of our size, compliance with human rights, employee rights and climate neutrality at every stage of the value chain is an indispensable building block when it comes to enhancing worldwide acceptance and reputation. For us at ZF, these aspects have always played an important role. Which is why we’re also fully com- mitted to the UN Global Compact, which we joined in 2012, as well as the UN Sustainable Development Goals (SDGs), set in 2015. Are there any sustainability areas where you feel you have some catching up to do? … How far are you on your journey towards Sustainability is multi-faceted process. Which is becoming climate neutral? why it’s not about catching up but instead, about a We can contribute to climate neutrality in two ways: continuous need to act. In 2021, a major focus of through our products, which reduce emissions in ours will be diversity. We already began working on street traffic, and through our production. In our several projects in this field last year. Another topic strategy, we’ve firmly anchored the goal of becom- where we still see great potential is the circular ing climate neutral by 2040 – that’s ten years ahead economy. We’re also placing great hope for sustain- of the deadline set by the Paris Climate Agreement. able development on digitalization, which we see This year, we’ll continue to refine our plan of mea- as a major driver of the green transformation. In sures and lay down concrete intermediate steps on this area, however, we’re largely dependent on a our path towards becoming carbon neutral. modern and future-oriented infrastructure.
7 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Markets and solutions Markets and solutions Mobility of the future Two years ago, ZF presented its “Next Generation Mobility” corporate strategy. Its objective is to enable clean, safe, comfortable and affordable mobility for everyone, everywhere. Now the strategy is being rolled out with solutions ready for serial production in the four technology domains of electro- mobility, autonomous driving, vehicle motion control and integrated safety. Digitalization stands above all of these areas as their common enabler. As a software developer and provider, ZF is further accelerating the transformation. This makes the company a systems provider who’s setting the pace in all core areas of mobility. ZF’s non-automotive products are benefiting from this as well by, for instance, showing significant market growth in our wind power division outside of Europe.
8 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Markets and solutions Electromobility on the rise Wind turbine gear units for the energy transition ZF is expecting a considerable market shift to occur For the transformation to succeed, however, the by 2030 thanks to electrification. Within a decade, expansion of renewable energy generation must be the proportion of conventional engines will decrease accelerated. According to the International Renew- from 90 to less than 50 percent. At a share of 40 able Energy Agency (IRENA), renewable energies percent, pure battery electric vehicles (BEVs) will would need to climb to 86 percent of electricity have clearly overtaken plug-in hybrid electric vehicles generation by 2050 to achieve the objectives of (PHEVs). ZF supplies both of these driveline tech- the Paris Agreement. In this scenario, wind energy nologies. The development of the next generation of is set to become one of the biggest drivers of the BEVs now amounts to a paradigm shift: It is no lon- global energy transition, supplying more than one- ger power and torque that come at the top the speci- third of total electricity demand, and this at strongly fication sheet – current e-vehicles possess plenty of increasing energy generation needs. ZF is already that – but rather efficiency. And because range is the playing a significant role in this development even currency of efficiency, ZF is pulling out all the stops today: A quarter of all wind turbines worldwide when it comes to the electro vehicle system. contain a ZF Wind Power gear unit. Overall, ZF technicians are expecting efficiency • Cooperation lowers generation costs: ZF Wind potentials of up to 13 percent thanks to combining Power and wind turbine manufacturer Vestas these measures. pooled their expertise in 2020 and brought a powertrain to the market, lowering power Equipped for heavy-duty traffic generation costs. The EnVentus powertrain There is particular pressure to act when it comes guarantees an output of up to 6 megawatts to buses. In its Clean Vehicle Directive, the EU (MW). Due to the modular platform design, Commission is requiring a binding quota for vehicle customers from all around the world will benefit procurement starting in August 2021: At least 45 from more flexible solutions and a wider range of percent, i.e., just under half of new additions to customer-specific turbine varieties. fleets, must be equipped with low-emission en- gines. Since acquiring WABCO, ZF has had access • SHIFT enables best-of-breed torque density: to all commercial vehicle segments – including Also in 2020, ZF Wind Power first exceeded heavy-duty trucks, buses and trailers – and is well- the torque density limit of 200 Newton meters positioned to make a valuable contribution. The ZF per kilogram thanks to the SHIFT 7k modular offer covers the complete range of electrification: gearbox platform. This enables a material from hybrid vehicles to pure electric solutions and reduction and thus a decreased nacelle weight from e-transporters to electrified trucks. From 2023 – a decisive argument when it comes to turbine onwards, the portfolio will include electric engines towers growing ever taller. for all weight classes of up to 44 tons.
9 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Markets and solutions Key for innovation and efficiency Networking and digitalization have become indispensable parts of our everyday lives. The enormous amounts of information available everywhere and in real-time have enabled new functions and business models that would have been incon- ceivable just a few years ago. ZF has presented the open software platform Middleware and implemented a Global Software Center for developing tailored customer-oriented software solutions. Dr. Dirk Walliser, ZF Senior Vice President Research & Development, Innovation & Technology, explains the new approach. Dr. Dirk Walliser ZF Senior Vice President Research & Development Dr. Walliser, today’s vehicles are primarily In other words, cars are turning into the How will your customers benefit? perceived as products that mainly differ in much-cited smartphones on wheels? They’ll greatly benefit from accelerated development terms of their hardware. Is this about to change? Not exactly. Because even though the operation processes and reduced complexity. Today, vehicles Without intelligent software, it’s barely possible to of a vehicle is becoming more and more like that may have around 100 different control units, each increase safety and efficiency any further. Software of a smartphone, the difference lies mainly in the with their own software. In the future, software func- expertise is a growing factor that’s key for innovation type and number of hardware systems to which tions will run on a central system with few domain and is becoming an indispensable feature of technol- a software platform – such as ZF Middleware – control units – for instance for autonomous driving ogy leaders. This is also true for mobility and indus- must intelligently connect in order to transport functions. This shortens development times. All these trial applications: The prerequisite for successful pro- people and goods in a smooth and safe fashion. software applications are going to benefit from the ducts is the ability to network individual components seamlessly integrated platform, which is ZF Middle- to create comprehensive systems that act autono- Is that software platform a new ZF offer? ware, as it ensures system integration. What’s more, mously and continue to learn thanks to artificial intel- It is. Middleware is ZF’s new open software plat- the functions can be updated, extended or provided ligence and deep-learning algorithms. In this sense, form which functions as an intermediary between on demand throughout the vehicle’s entire life cycle. it really is all about “software-defined vehicles”. the operating system of a vehicle’s computer and its software applications. From 2024 onwards, ZF Middleware will be available in production vehicles to control the abstraction of the computer hardware from software applications as well as the communi- cation between these applications.
10 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX People and processes People and processes The transformation of work The year 2020 put heavy demands on people all • Ensuring that the best employees are in the right Diversity campaign over the world. ZF employees and executives were place at the right time Diversity plays a crucial role for the entire ZF culture, suddenly faced with situations and necessary • Promoting leadership qualities, diversity and as only diverse talent leads to true innovation. It’s the measures for which, in theory, they may have been team culture wide range of ideas, thoughts, experiences, educa- prepared, yet which they never expected would • Supporting cost competitiveness tion paths, mindsets and approaches that challenge actually occur. The global pandemic dictated almost • Improving speed, simplicity and agile working the status quo. The ZF diversity campaigns began on every development and activity and its effects will • Becoming truly digital May 26, 2020 with Diversity Day, when ZF subsidi- remain visible far beyond 2020. The transformation of aries from all around the world participated, despite the working world has speeded up. ZF has worked A focus on teamwork the pandemic. on its structure, strategy and processes guided by Initiatives and concrete projects were defined for all the question: What changes does the company need targets. For instance, regarding the strategic goal of The ZF diversity campaign is geared towards one to make to be well positioned for the future in this “Promoting leadership qualities, diversity and team specific goal: making clear to all employees that “new normal”? culture,” the “Improving feedback culture” initiative diversity is everyone’s concern. To do so, a virtual glo- was established. From this, programs were develo- bal photo and video campaign was initiated where “Next Generation Mobility” strategy ped such as a new employee dialogue, skip-level employees worldwide were asked to submit contribu- The objective of the new HR strategy is to support meetings and the 360° feedback rollout. The “Team tions on the topic of “I am diverse because…” The ZF the “Next Generation Mobility” business transforma- beats silo” motto has also been designed as an diversity guide, published in 2020, is an online guide- tion through an excellent HR organization, one that’s integral part of ZF’s DNA to promote a wide range of line, regularly updated, with general information on highly efficient, innovative, diversified and networked. diversity aspects, including gender, place of origin, the topic. Special categories for such issues as “per- In 2019, the rollout began when the status quo of life philosophy/religion, age and sexual identity. sonality types” shed light on diversity from various relevant processes and methods in the regions and Concrete goal attainment, in terms of the different angles and create in-depth insight for executives. divisions was captured. By involving all relevant measures contributing to the HR strategy, is mea- stakeholders, the current situation, customer needs sured through various key indicators including a five- and overall business transformation will be reflected star rating for products and processes, the Leader- in the new strategy. It will center around five top ship Excellence Score, the HR Satisfaction Score, the strategic goals: number of cross moves, and a ZF employer ranking in strategic markets.
11 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Sustainability strategy Sustainability strategy The guardrails of transformation The ZF Group’s framework for action is set by the SDGs and the Paris Climate Agreement. Sustainability requires foresight. In 2012, ZF joined the UN Global Compact and has subscribed to its ten principles, among them improving working condi- tions for employees worldwide, respecting human rights and fighting corruption and bribery. Today, sustainability is an integral part of the Group’s strategy. With “Next Generation Mobility,” ZF is pursuing an agile and integrated approach to shaping the fundamentally changing mobility needs of tomorrow. The overarching goal is to harmonize society’s mobility needs with the requirements of a healthy ecosystem. Humanity must ensure that all its activities respect ecosystem boundaries while also bringing about sustainable and future-oriented solutions. ZF is step- ping up its efforts to embrace these ecological and social challenges, following the clear vision of being part of the solution.
12 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Sustainability strategy Challenges and action fields Ever since ZF began engaging in corporate sustain- Sustainability strategy ability management and sustainability reporting in 2012, the company’s material topics have regularly been evaluated. This has always been preceded by a careful analysis of global challenges, the company’s s Pr own impact as well as stakeholder expectations. ee od oy uc pl Training and education: Climate change has therefore always been a major Sustainable product Em ts Aiming to continuously contribute portfolio: Gradually increasing topic and, along with it, energy use in production, to improve the organization, in order the share of revenue from as well as product solutions aimed at reducing car- to achieve a global learning culture of sustainable products and services innovative learning and development bon emissions in traffic. The topics of demographic Product safety: Zero accidents and zero change and urbanization have long played a major Safety at work and health protection: fatalities through smart product solutions Striving to improve safety performance by role for ZF, too, as well as supply chains and ques- conducting professional incident manage- and highest quality assurance tions of personnel development such as gender ment, Safety Leadership and Behavior Material efficiency of products: equality and diversity promotion. Based Safety actions as well as ainability@ Reducing the use of raw materials improving functional safety areas st and realizing circular economy ZF Su More recently, the goal has been to better include the SDGs in the company’s activities and make a positive contribution to implementing them. In the context of ZF’s business activities, eight SDGs were identified Standards in the supply chain: Emissions of plant operations: relating to areas where the company can make the Aiming for an implemented supply Reducing CO₂ emissions caused biggest contribution – either by minimizing negative chain sustainability management by plant operations effects or developing new solutions with a positive Water: Saving water resources and impact. They guide ZF’s sustainability strategy. Upstream and downstream emissions: supporting clean water quality Slowing down climate change and The ZF climate strategy working towards healthier Waste: Supporting recycling environments management and reducing In late 2019, ZF adopted an ambitious climate strat- Su hazardousness of waste n egy. The goal is to become climate neutral by 2040 io pp ct ch du ly across all emission categories. Already by 2030, ai o production-related emissions are to be cut by 80 n Pr pecent, as compared to 2018. At the same time, ZF is working on reducing emissions from its entire supply chain and minimizing the environmental impact of its products. This way, ZF is making an active contribu- tion to achieving the goals of the Paris Climate Agree- ment and limiting the global temperature increase to well below 2 degrees and, if possible, to 1.5 degrees. The Group is also contributing to the implementation of the European Green Deal. This pursues the goal
13 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Sustainability strategy By joining the Alliance of CEO Climate Leaders, These include, among other things, the use of renew- ZF takes responsibility and seeks to use its able energies and recycled materials. In addition, so-called decarbonization dialogues were initiated position of influence to drive climate protection. with important suppliers of production and non- production materials. A significant outcome of this dialogue has been the identification of measures of making Europe a frontrunner in terms of sustain- The members of the Alliance of CEO Climate Leaders that will be implemented through joint projects. able technologies and, by 2050, the first continent to pledge to become climate neutral. The goals that ZF has set for Sustainable finance itself have been aligned with the SDGs, the Science • publicly define a net zero target for 2050 at In the context of the EU strategy for financing Based Targets initiative (SBTi), CDP Climate and the the latest; sustainable growth – Sustainable Finance for short recommendations of the Task Force on Climate- • join the “Business Ambition for 1.5°C”campaign – which is closely linked with the Green Deal, ZF is related Financial Disclosures (TCFD). of the Science Based Targets Initiative (SBTi) perceiving increased demand to act and growing and the UN Global Compact; request for transparency from financial institutions To coordinate the various initiatives, measures and • define interim emission reduction targets and and rating agencies. ZF is responding to this with its effects for the entire company, ZF has established a paths that are in line with the 1.5°C scenario climate strategy and expanded sustainability report- steering group. This is made up of representatives of the Paris Agreement, ing. ZF strives to meet upcoming requirements of the from expert committees from the areas of sales and • and transparently report on emission reduction EU taxonomy, i.e., demanding that companies clas- customer development as well as innovation and progress, e.g., via the Carbon Disclosure Project sify their investments and revenues by sustainability technology, along with the responsible executive (CDP). criteria. The ZF Group is well aware that in the future, board members for sustainability, materials manage- to a much larger degree than in the past, access to ment, production and finance. Beyond this, the Alliance is implementing the TCFD capital will come to depend on a company’s ability to recommendations regarding the disclosure of climate- substantiate its successful sustainable management. Partnership for climate protection related data and ensuring that the guidelines for The entire industry still has a long way to go before effective controlling of climate risks are implemented ZF has also begun developing a Green Finance fully rising to meet the many ecological and social and monitored by the company management. Framework (GFF) so it can take advantage of new challenges of sustainable development. The com- financing opportunities for projects that contribute to plexity of these challenges means they cannot be Supply chain management a lower-emission and more climate-friendly economy. solved by individual companies but only through ZF began early on with the integration of sustain- The GFF will be directed towards the SDGs and cor- collaboration and partnerships. To underline its ability aspects in its purchasing processes and sup- responds to the ICMA Green Bond Principles and engagement in this field, ZF has joined the Alliance plier evaluations. Materials management initiated its the LMA Green Loan Principles. of CEO Climate Leaders of the World Economic first project as early as in 2012. Today, the depart- Forum. Its position is that the private sector must ment has dedicated employees dealing with human Education for sustainable development take responsibility and actively engage in efforts to rights questions and climate protection topics in the In the context of the new HR strategy, which places reduce greenhouse gas emissions, thereby help- supply chains. a focus on empowering executives and employees ing to shape the global transition to a low-carbon, to carry out the transformation, sustainability has climate-resistant economy. To drive forward the topic of climate neutrality in the grown into an important topic of internal training, supply chain, ZF communicated quantified expecta- recruitment as well as collaborations with schools tions for essential carbon reduction levers in 2020. and educational institutions.
14 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Sustainability strategy Three questions for Sabine Jaskula Sabine Jaskula Member of the Board of Management, responsible for sustainability What opportunities do you associate with sustainability management? We’d like to assume a growing degree of respon- sibility to society and bring it to the outside world. How does ZF stand out from other companies in What topics are you currently focusing on? As I see it, successful sustainability management is its field with regard to sustainability? Climate protection is what we’re currently attaching the foundation upon which we can build societal as For one thing, ZF offers a unique product portfolio. great importance to. Achieving climate neutrality by well as economic viability. Being awarded customer We don’t just provide highly efficient systems for the 2040 is an ambitious goal and in doing so, we’ve orders already hinges on meeting sustainability electrified automotive powertrain, but also products intentionally opted for a credible approach based on goals today. Due to ever more restrictive emission that actively contribute to sustainable energy genera- technical measures. Which is why we’re currently legislation as well as carbon taxation, low-emission tion, such as wind power turbine gearboxes. What’s re-sharpening our climate strategy and uniformly products yield a clear competitive edge. This trend more, we don’t simply set top sustainably standards aligning the different divisions’ activities throughout is going to gain even more momentum in the future. for ourselves – we oblige our supply chain partners the Group. This requires embedding sustainability Not least, I personally find that a consistent focus to comply with these standards, too. The SDGs serve targets in all operative business processes. Like on sustainability also increases ZF’s attraction as as our benchmark. this, sustainability isn’t just the responsibility of the an employer. Often people apply for jobs with us various departments, but rather encompasses our because they are motivated by their desire to make entire business model. a contribution to sustainable development.
15 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Sustainability organization Sustainability organization Responsibility takes the driver’s seat At ZF, questions of sustainable governance are firmly ancho- red in the company guidelines. More than just part of every individual’s behavior, they’re a central aspect of all business activities in every day’s decision processes. Yet sustainability cannot simply be dictated from the top down – it must be filled with life throughout the entire organization. EHS man- agement as a longstanding globally established approach has served ZF as its basis for this and has been implemented at all ZF locations.
16 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX SUSTAINABILITY ORGANIZATION Guidelines, principles and management systems The tasks of this high-ranking interdisciplinary Guidelines such as the principles of social responsi- committee include: ZF Sustainability Organisation bility, environmental policy, respect for human rights policy statement and the Code of Conduct for emplo- • Developing and implementing an appropriate yees serve as guardrails worldwide. Step by step over sustainability strategy and monitoring progress Board of Management the past two years, the Group has further developed for the ZF Group. In this endeavor, it assists the its ZF Enterprise Risk Management. This included Board of Management in fulfilling its responsibility defining and regulating clear roles and responsibi- for oversight of relevant sustainability and corpo- lities along with Group-wide standardized risk ma- rate social responsibility aspects of the company. nagement processes. A further significant addition • Regularly reviewing the materiality matrix. to the reviewed Enterprise Risk Management (ERM) • Drawing up an annual review of ZF’s ZF Sustainability Committee is an integrated governance, risk management and sustainability strategy. compliance (GRC) approach, characterized by impro- • Anchoring the top issues in the sustainability ved interfaces between control systems, compliance, program as well as in the respective departmental Sustainability & EHS Quality R&D corporate audit and corporate risk management. As strategy and management. part of the Group’s ISO 14001 certified environmen- • Regularly reviewing the appropriateness and tal management system, the respective risks and effectiveness of ZF’s strategy, targets and Materials Management Supplier Management Production opportunities are evaluated at both the location and measures. the Group level and reported as part of the manage- • Providing regular progress reports on target ment review. This procedure was adjusted to the achievements or related measures. Communication Key Account Management Corporate Strategy new corporate risk management norm in 2020. • Monitoring external trends and requirements and recommending additional actions in response. Organizational anchoring of sustainability • Within the context of risk management, Finance Compliance Human Resources The sustainability department is located in the identifying, assessing and managing risks human resources domain. It reports to the head of associated with sustainability issues. sustainability, environment, health and safety. The • Reviewing and approving the annual Health Protection Environment Safety sustainability department is responsible for sustain- Sustainability Report. ability reporting, serves as the internal contact point • Coordinating the internal and external for all sustainability-related questions, advises the communication of sustainability – stakeholder Board of Management and manages stakeholder dialogue. dialogue. In coordinating sustainability topics within the company, the sustainability department is sup- To gain an overview of newly arising company topics Regions Divisions ported by a 15-member steering group. Comprised and to elaborate initial starting points for dealing with of representatives from all relevant departments, them, the steering committee may establish working this group meets on a quarterly basis. groups that will then address specific tasks in depth.
17 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX SUSTAINABILITY ORGANIZATION STATEMENTs FROM THE “Sustainability at ZF is not only about complying with regulations. It is an integral part of our strategy. By embedding sustainability in SUSTAINABILITY processes and decision-making, we interlink our long-term business success with our responsibility for society and the environment.” COMMITTEE Dr. Michael Karrer Corporate Sustainability “We’ve set ambitious climate targets for ourselves. That’s why we’ve up- dated our corporate product strategy, even though ZF products were already meeting many of the criteria. As a result, ZF will no longer be manufacturing component parts for combustion engine-powered drive systems.” Joachim Seliger Research & Development “We consider electrical energy a central lever for reaching our climate goals. We’re focusing on energy efficiency measures and purchasing green energy in ever-growing proportions. What’s more, we’re also currently looking into expan- ding our internal power generation through wind power and photovoltaic plants” Gabriel Gonzalez-Alonso Production “Thanks to our sustainability criteria for suppliers, we now have a cen- tral steering element that’s a mandatory part of our sourcing process. Our next step is to intensify our monitoring of, and collaboration with, suppliers to improve our joint sustainability performance.” Michael Schmitt Supplier Management
18 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX ZF milestones Sustainability – an overview ZF milestones ZF joins the “Alliance of CEO Climate Leaders” Environmental protection is ZF signs the anchored in ZF company guidelines UN Global Compact Compliance department is “ZF hilft.” is established as a charitable extended to include sustainability Target of climate neutrality organization for employees’ social engagement by 2040 is set Sustainability steering committee is established First worldwide employee ZF environmental policy survey is carried out Human rights policy ZF principles of social Sustainability integration is drawn up statement is drawn up responsibility are created begins in supplier management 2004 2008 2009 2013 2014 2016 2019 1986 1996 2005 2011 2012 2015 2020 Compliance department is established First combined Code of Conduct is published sustainability report of ZF in ten languages and former TRW units. All locations with over 50 employees become certified in environmental management processes First sustainability report is published, Commitment to the UN in line with the reporting framework of GRI Sustainable Development Goals is made ZF signs the German Diversity Charter Sustainability management of supply chains is established in materials management
19 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX AKTUELLES KAPITEL PERFORMANCE 20 Responsibility 35 Value Creation 47 Environment 59 People Governance Tax approach ZF climate neutral strategy Employment Risk management Supply chain Energy Fair remuneration Values and behavioral norms Sustainable product portfolio Water management Labor-management relations Compliance Materials and resource efficiency Training and education Reporting Diversity and equal opportunity Stakeholder management Health and safety Sustainability program
20 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Responsibility Responsibility Governance While a company can only achieve For these reasons, the Group has firmly anchored The shareholders exercise their voting rights at the sustainable corporate management factors in its annual shareholders’ meeting. The Zeppelin Foun- business success in an intact economic guiding principles. These factors are seen not as dation holds 93.8 percent of shares, which are man- environment, its focus on success individual actions, but rather as central aspects of aged by the City of Friedrichshafen. The remaining entrepreneurial activity in the day-to-day decision- 6.2 percent are held by the Dr. Jürgen and Irmgard must also match the development of making processes of the company. Ulderup Foundation in Lemförde (Germany). the companies that surround it and With regard to corporate social responsibility, the ZF Group and the ZF Friedrichshafen AG are led by depend upon it so that sustainable Group founded ”ZF hilft.“ in 2005. The registered the Board of Management, which manages the com- corporate governance is possible for all. nonprofit association was set up for worldwide aid pany, and by the Supervisory Board, which monitors and relief for humanitarian affairs, e.g., for victims of the Board of Management. For the most part, the This principle plays a major role in all natural disasters, epidemics, infectious diseases, and activities of the Board of Management are strategic relationships with business partners, famine. All donations received are destined for relief in nature and comprise responsibility for all corporate projects because the ZF Group covers the complete functions, divisions and regions. In this context, par- as well as in investments in production general administration expenses of the association. ticular importance is placed on close networking and materials and capacities. cooperation within the Group. Operational topics are In addition, each year ZF gives dividends to its share- mainly addressed in the divisions and business units. holders: The Zeppelin Foundation operates in line with its articles of association, especially in the fields In the 2020 fiscal year, the Board of Management of science and research, art and culture, as well as consisted of seven members: Chief Executive Of- child and youth development. The Dr. Jürgen and ficer Wolf-Henning Scheider, Dr. Konstantin Sauer, Irmgard Ulderup Foundation in Lemförde supports Sabine Jaskula, Michael Hankel, Wilhelm Rehm, the education and vocational training of young peo- Dr. Martin Fischer and Dr. Holger Klein. Stephan ple as well as nature and landscape conservation. von Schuckmann was appointed to the Board of Jürgen Ulderup was the founder of the Lemförder Management on July 29, 2020, with a starting date Group, a company that is part of the ZF Group today. of January 1, 2021. Michael Hankel stepped down on December 31, 2020.
21 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Responsibility RISK MANAGEMENT The Board of Management is under the oversight of ZF’s culture of opportunities and risks is focused the Supervisory Board, whose members are appointed on sustaining the Group’s continued existence and Risk management at ZF with equal representation. It is supported by an Execu- increasing its value. The enterprise risk management tive Committee and an Audit Committee, which are system aims to identify and benefit from opportuni- both composed of members of the Supervisory Board. ties as early as possible, while preempting risks In the 2020 fiscal year, Dr. Ing. Franz-Josef Paefgen that could adversely affect the value of activities. Supervisory Board served as Chair of a Board comprising 20 members. The ZF risk management system covers the whole Group and involves all operational reporting units For information regarding representation of women and corporate functions via dedicated processes and and men in managerial positions, see the Diversity contact points in order to utilize the strength of the Board of Management chapter. ZF Group matrix organization. The Board of Management bears overall responsibil- Risk Committee ity for the risk management system. It informs the Audit Committee and the Supervisory Board on a Group audit regular basis, promptly – at least every three months Auditors – and comprehensively about the opportunities and Group Risk Management risks of the ZF Group and the respective control measures initiated and planned. The Supervisory Board oversees the effectiveness of the risk manage- ment system. The implementation of the ZF enter- Corporate functions Operational units prise risk management system is regularly audited for internal and external compliance by Corporate Audit. In addition, external auditors check ZF’s early risk detection system as part of the annual financial statement audit. More detailed information about the Group’s overall approach to risk management can be found in the 2020 Annual Report. Annual Report 2020
22 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Responsibility Values and behavioral norms Risks and opportunities due to climate change The ZF Group has earned the recognition and trust Sustainable action is the decisive factor A key development in the analysis of risks is the intensified consideration of climate change impacts of its customers through its responsible corporate governance, compliance, and outstanding products for the success of a company. Many – for which the Group follows the recommenda- and services. The aim is to maintain the company's challenges can only be solved together. tions of the Task Force on Climate-related Financial commitment and the high esteem it has earned in the Disclosures (TCFD). The increased integration of future as well. the TCFD is being conducted parallel to the further Supported initiatives implementation of ZF's climate neutrality strategy. Regarding behavioral norms for employees, the ZF ZF believes that cooperation is key to achieving sus- The Group has been reporting climate data within Code of Conduct provides guidance when questions tainable development. Many corporate units engage the CDP reporting scheme on an annual basis since arise about proper behavior and compliance. For with stakeholders to exchange knowledge and to 2016. Since the CDP is widely aligned with the more information, see the Compliance chapter. work towards viable solutions. The External Affairs TCFD recommendations, information was provided department coordinates this commitment. Associa- regarding risks and opportunities due to climate ZF’s Business Partner Principles require all suppliers tion membership fees amount to less than €1 mil- change (physical risks) and risks due to increasing and service providers to commit to abiding by law lion. A respective directive states that ZF prohibits climate protection requirements (transitory risks). and relevant regulations at all locations worldwide. sponsoring and donations favoring: A so-called TCFD index will be published on the Suppliers and service providers must ensure that • Politicians, political parties and organizations, company website in the fall of 2021 after this year's human rights are respected and human dignity is or party-related foundations updated CDP questionnaire has been submitted and protected, for example, in all business processes. • Individuals or organizations that are not made publicly available. For more information, see the Supply Chain chapter. charitable • Organizations that discriminate against third Sustainable Product Portfolio For more information regarding the adaptation of ZF’s The ZF Way parties on the basis of skin color, gender, age, product portfolio to climate change related impacts, Values and principles of conduct have been anchored nationality, origin, religion, sexual orientation, see the Sustainable Product Portfolio chapter. in guidelines, and they are ensured by various cor- disability or other legally prohibited grounds. porate functions. It is more important, however, that Environment For more information regarding ZF’s climate neutrality they be recognized and supported by all employees Exceptions to this include donations made through strategy, see the Environment chapter. – i.e., that they be lived out in day-to-day interaction. political action committees (PACs) in the United Over its more than one hundred years of company States, provided that this is done in strict compli- history, ZF has developed a unique corporate culture, ance with the law and that the distribution of these based on the entrepreneurial spirit of its founders donations reflects political neutrality on the part of and with a strong innovation focus. For more infor- the party and candidates. Payments to private ac- mation about the ZF Way, see the People chapter. counts or in cash are prohibited.
23 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Responsibility The ZF Group acknowledges the core labor stan- governing bodies. By joining this alliance, ZF seeks Memberships dards of the International Labour Organization (ILO), to use its position and influence to drive change: the contents of the German Corporate Governance Capital, the industrial sector and regulation are com- The ZF Group and its companies are committed to Code (DCGK) and the OECD Guidelines for Multina- ing together to address climate change. a wide range of associations and interest groups. tional Enterprises. ZF also respects and supports the The following list provides a representative selection: Universal Declaration of Human Rights and the UN In light of Germany’s National Action Plan on Busi- Guiding Principles on Business and Human Rights. ness and Human Rights (NAP), ZF took part in the • Association of German Engineers (VDI) – NAP Monitoring 2019 and 2020 led by EY to learn Lake Constance regional association ZF therefore signed the United Nations Global and receive an outside-in view. ZF is an active (as a supporting member) Compact on May 1, 2012, committing the Group to member of the NAP Automotive Industry Dialogue • Automotive Industry Action Group (AIAG) observing and promoting its ten principles. Since under the lead of the Federal Ministry of Labour and • Chamber of Industry and Commerce joining, ZF has also become a member of the Ger- Social Affairs (BMAS) and the Deutsche Gesellschaft Hochrhein Bodensee man Global Compact Network and participates in für Internationale Zusammenarbeit (GIZ) and with • Compliance Network e.V. exchanges among the member companies. the participation of civil society. The target of the • Employers’ Association Südwestmetall dialogue is to create a common perspective on fulfill- • European Association of Automotive Suppliers In late 2019, ZF announced its climate neutrality ing requirements appropriately, creating a common (CLEPA) (i.g., Green Deal Task Force or strategy (see the Environment chapter for more infor- overview of the major risks in the industry and be- Energy and Environment Working Group) mation). Additionally, CEO Wolf-Henning Scheider yond countries/commodities and identifying areas for • Foundation of German Business – joined the Alliance of CEO Climate Leaders at the individual and collective action. ZF is also engaged Remembrance, Responsibility, and Future World Economic Forum in Davos 2020. The aim of in the NAP industry dialogue of the Mechanical En- (as a donor) this initiative is to build momentum for an ambitious gineering Industry Association (VDMA) on machine • German Aerospace Industries Association global climate change deal and to catalyze greater and plant construction, to strengthen standards be- (BDLI) (ZF Luftfahrttechnik GmbH, Kassel-Calden and broader private-sector commitment and action yond industries and to support small and medium- is a member) on climate change. ZF’s climate neutrality strategy sized companies. ZF has also joined the Sustainabil- • German Association of Materials meets the requirements of the Alliance. In addition, ity in the Supply Chain working group of the German Management, Purchasing, and Logistics (BME) members pledge to implement the recommenda- Association of the Automotive Industry (VDA). This • German Digital Association (Bitkom e.V.) tions of the Task Force on Disclosure of Climate group is working on the development and implemen- • German Global Compact Network Related Financial Data (TCFD) and to adhere to the tation of an industry assessment standard called the • German Association of the Automotive guidelines for effective climate governance of the Automotive Sustainability Audit (ASA). Industry (VDA) (e.g., sustainability working group in the supply chain and the PG ASA standardization project) • German Engineering Federation (VDMA) • German Federation for Motor Trades and Repairs (ZDK) • German Diversity Charter (Charta der Vielfalt e.V.) • Industria Nacional de Autopartes (INA) • Original Equipment Suppliers’ Association (OESA) • Wissenswerkstatt Friedrichshafen e.V. (as a supporting organization)
24 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Responsibility Compliance Compliance is an essential element of success- Compliance regulations The primary goal of the CMS is to meet the ful management and good corporate governance. Compliance and legal regulations include rules gov- following requirements: It supports reliable and respectful dealings with erning anti-corruption and antitrust law. They also customers, business partners, employees and the include the correct approach to handling favors, gifts • The independence and effectiveness of the environment. Compliance also constitutes the basis and hospitality. The following topics are covered by Compliance Organization of lasting collaboration in an atmosphere of trust. the regulations: • The integration of compliance into business processes ZF is intent on rising to the challenge posed by • Lawful and responsible behavior • The transparency of decision-making processes globalization. This requires honest, law-abiding, and • Ban on corruption • Respective HR processes (sanctions) responsible behavior on the part of its employees at all • Business partner integrity levels and in all areas as the core value of its corporate • Handling favors, gifts and hospitality The three pillars of the CMS are prevention, detec- culture. ZF proactively communicates the relevant • Correct behavior in competition tion and response. The Compliance Organization is rules to its employees, for example through its Code of • Conflicts of interest set up in line with the organizational structure of the ZF Code of Conduct Conduct (CoC) or other compliance regulations. • Contacting the Corporate Compliance Office and ZF Group. reporting incidents The CoC defines binding principles for correct, law- • Responsibilities, tasks and authority of the In joint ventures where ZF is the majority shareholder, abiding and ethical behavior. It includes subjects Compliance Organization the ZF Board representatives must ensure that either such as adherence to laws, fair competition, human the ZF CMS or a comparable system is in place. rights, anti-corruption, business and social respon- Compliance management sibility, product compliance, occupational safety, The ZF Compliance Management System (CMS) data protection and transparency. The CoC is a core constitutes the framework for meeting the respec- ZF Compliance Organization element of the Compliance Management System tive legal requirements worldwide. The objective of (CMS) and is available in more than 25 languages. the CMS is to ensure compliance with internal and Prevent Detect and respond As managers at every level are responsible for the external regulations. The CMS focuses on prevent- compliance culture within the company, they must ing and investigating violations by employees and • Risk analysis • Notification confirm receipt of the CoC and commit to following business partners in the areas of: • Regulations • ZF Trustline its principles. • Communication • Investigation • Fraud • Training • Monitoring • Reputational damage • ComplianceHelpdesk • Remediation and • Corruption/bribery • Business partner sanctioning • Conflicts of interest due diligence • Gifts/entertainment
25 ZF SUSTAINABILITY REPORT 2020 INTRODUCTION PERFORMANCE APPENDIX Responsibility Compliance tools • Business partners can pose a compliance risk if With regard to corruption-related categories, all • The ComplianceHelpdesk is a preventive tool their actions or failure to act can be attributed operations are regularly assessed over a target period for systematically clarifying and documenting to ZF. All business functions of the Group must of about three years. To achieve more precise results, general compliance questions. ZF employees can therefore take appropriate measures – preferably the risk analysis process is currently being revised contact the ComplianceHelpdesk whenever they before business relations with a partner are initiated with a focus on product lines and the use of online are faced with a compliance-related question in – to ensure that business partners are adequately survey tools. their day-to-day business activities. assessed and instructed. A business partner due diligence process was established in 2015. • The ZF CMS is complemented by the ZF Trustline, an electronic notification system that employees and third parties can use to anonymously report suspected serious misconduct. Such incidents Integrierte Governance, Risk & Compliance (GRC) might include violations of competition and anti- trust law, cases of corruption and bribery, conflicts of interest, fraud and financial reporting concerns, From ZF House of to INTEGRATED GRC COOPERATION employment-related matters, violations of human Governance Closer cooperation and rights and other material violations of policies exchange of information of the or law. In 2019, 232 cases were received by the governance functions Group audit case management system, which includes reports received through the ZF Trustline and other re- porting channels. In 2020, the ZF Trustline was Board of Management Internal made available to employees of the new Com- control system mercial Vehicle Control Systems division. In 2020, 137 incidents were reported directly via the ZF ZF Group Risk Management Trustline and 71 incidents were reported through Compliance Management Internal control system other internal avenues tracked by the ZF Trustline, synergies for a total of 208. Of these 208 reports, only 85 identified GRC Group audit fell within the scope of Corporate Compliance. Compliance ZF Group Risk Management Management • ZF is in the process of updating its risk analysis process for compliance risks. The objective of this analysis is, at an early stage and based on ZF’s risk profile, to identify and assess compliance- relevant risks and then to counteract them. ZF Trustline
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