Next Generation Mobility - Responsible Transformation - Sustainability Report 2020

 
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
Next Generation
Mobility –
Responsible
Transformation.

Sustainability Report 2020
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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.
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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.
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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.
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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.
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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.
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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.
Next Generation Mobility - Responsible Transformation - Sustainability Report 2020
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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