To verify sustainability - that is the challenge

To verify sustainability - that is the challenge Michael Robertson ABB Sustainability Affairs

Agenda • ABB’s commitment to sustainability • DNV’s assessment - scope, benefits • Social performance - the third dimension • Measuring sustainability - today’s challenge • Closing remarks

ABB Product Range - From Wellhead to Wire to End Use Resource recovery Refining Energy conversion Electrical transmission Electrical distribution Electricity consumption • 7 divisions • Process industries • Manufacturing and consumer industries • Utilities • Oil, and petrochemicals • Automation technology products • Power technology products • Financial Services Operations in over 100 countries 160,000 employees globally Revenues of $25 billion

To manage global development in a way that we meet the needs of the present without compromising the ability of future generations to meet their own needs Sustainable Development - a definition Brundtland Commission 1987

ICC Business Charter for Sustainable Development 16 principles for Environmental Management 1. Corporate priority 9. Research 2. Integrated management 10. Precautionary approach 3. Process improvement 11. Contractors and suppliers 4. Employee education 12. Emergency preparedness 5. Prior assessment 13. Transfer of technology 6. Products and services 14. Contributing to the common effort 7. Customer advice 15. Openness to concerns 8. Facilities and operations 16. Compliance and reporting

How ABB supports sustainability Sharing technology • 45,000 employees in developing countries • Majority stake in all operations • Ecoefficient products • Innovative R&D programs • Life Cycle Assessment LCA • Environmental declarations for core products Economic performance Sustain- ability Environmentalperformance Socialperformance • Contributionto common efforts • Environmental/social improvement projects • World Commission on Dams • WEC 1 Gton pilot program • AGS - China Energy program • IEA - GHG R&D program • ABB’s environmentalperformance • ISO 14001 in place (97% of sites = 535 sites) • Continuous improvement

Policy Policy • Environmental aspects • Management • Legal and other Review requirements Act Plan Act Plan • Environmental objectives and targets • EMS audit • Env. management Continual Continual programs improvement improvement • Structure & responsibility • Training, awareness & competence • Records Check Do Check Do • Communication • Non-conformance, • EMS Documentation corrective and preventive action • Document control • Operational control • Monitoring & measurement • Emergency preparedness & response ISO 14001 Env. Management System - products - processes - activities - suppliers

Implementation of ISO 14001 ISO 1401 implemented in 97% of ABB sites Continuously improving performance driven by a comprehensive sustainability management program 600 500 Sites (551) 400 ISO 14001 (535 sites) • 39 Operational Performance Indicators, to: • reduce demand on resources • phase-out unwanted substances • reduce emissions & waste • identify hazards • optimize recycling • 3 H&S indicators 200 0 1997 1998 1999 2000 What gets measured - gets done!

Scrapping & recycling of motor Environmental impact Waste Emission Resource depletion Noise Disposal Use of motor 20-30 years Recycling Manufacturing of motor Manufacturing of materials Emissions Power demand Fuel ABB Utility Gate 3 Gate 1 Gate 2 Utility Cradle Grave Life-Cycle Assessment (LCA) - what is it? LCA is a tool to define the environmental impact during the product’s whole life cycle from cradle to grave

Environmental Product Declarations Goal: To develop Environmental Product Declarations for all core products based on Lifed Cycle Assessment Purpose of an EPD: • To improve the environmental performance of a product by identifying its significant environmental aspects, goals, and improvement programs • To provide customers with comparable environmental performance information to facilitate product selection • To improve our competitive edge - to improve the environment Verifiable - certifiable

Environmental performance - ABB’s progress Result of assessment against the ICC principles by Det Norske Veritas, December 2000 Corporateposition Specific environmental performance Basicactivities 1 Compliance 14 2 9 6 16 13 3 8 4 Good progress Moving Forward 11 10 12 5 15 7 Base established Startup phase 2000 1999 1998 1997

DNV Assessment - background • 1992 -ABB signs ICC charter • 1993 -ABB seeks 2nd opinion of its plans - ICC - no resources, DNV - positive response • 1995 -Frame Agreement with DNV for BS 7750 certifications triggered by ABB Supply Management Shop inspections - quality + environmental verification (renewed in 2000) DNV - open, flexible, creative, listening to their customers - 18% of ABB’s business (BVQI 25%, SGS 6%, Lloyds 6%) • 1997 -First annual environmental performance assessment • 2000 -First attempt to include social performance

DNV Assessment - scope • Overall compliance with ICC’s 16 principles • Activities at corporate, country and business area level • Progress with Environmental Product Declarations • Country communications and common efforts • Introduction of ABB’s new social policy • Spot checks - ISO 14001, H&S, training, suppliers, emergencies 35 interviews, corporate, country, business area sustainability and communication controllers 4 external interviews WWF, WCD, H-Q, WEC 4 factory visits + spot checks 14 countries covered 4 person team 41 man-days work 5 man-days on UN Global Compact DNV

DNV Assessment - benefits ABB audits what it does - not what it says DNV is accredited - accounting companies are not • Independent, objective, professional, consistent • Painful - homework, resources, costs, time - therefore serious • Identifies weak spots • Focus on low-hanging bubbles • Transparent - results published (report + website) • Raises ABB’s credibility with all stakeholders • Provides solid base for UN Global Compact • Provides a stimulus to continually improve It’s like riding a bicycle - you have to keep moving Percy Barnevik

Broadening stakeholder base Society Customers Employees Shareholders

Good citizenship - license to operate Factors most influencing public impressions of individual companies Open-ended responses, percent of total sample* Social responsibilities (labor practices/business ethics/environment) Brand quality/ image/reputation Business fundamentals (financial factors/size/ strategy/management) * Source: Millennium Poll, Environics: Interviews with 25,000 people in 23 countries, 6 continents Co-sponsored by Prince of Wales Business Leaders Forum, Conference Board

Social Responsibility matters to ABB • ABB - an early mover as a global player - an insider, not an invader • 160,000 employees in 100 countries45,000 in developing countriesInfrastructural activities cause social impacts We face tough social conditions • Poverty - greatest threat to international stability - 3 billion people live on less than 3 CHF/day • Being a good corporate citizen is vital • licence to operate • shareholder value • access to capital • financial guarantees • employee engagement Address concerns

Corporate Social Responsibility (CSR) A good Definition (WBCSD): ”Corporate Social Responsibility is the commitment of business to sustainable economic development, working with employees and their families, the local community and society at large to improve their quality of life.” employees and their families, the local community and society at large • Other definitions exist • None universally accepted

Dams Debate ABB targeted WCD ABB Commissioner UN Global Compact - Human Rights - Labour Rights - Environment Triggers Dow Jones Sustainability Index Social focus Benchmarking - Global Compact - OECD Guidelines - SA 8000 standard - Sullivan principles Actions Case Studies Social impacts BR,CH,CN,EG, PL,UK,ZA Sustainability Task Force Results ABB Social Policy - Human Rights - Labour Rights - Community - Ethics 13 principles Dow Jones Index ABB tops industry group for 2nd year UN Global Compact Operationalise Concrete projects Developing countries Peer collaboration CSR - how is ABB responding?

UN Global Compact’s nine principles Human Rights 1. Businesses should support and respect the protection of internationally proclaimed human rights 2. Make sure they are not complicit in human rights abuses. Labour 3. Uphold the freedom of association and the effective recognition ofthe right to collective bargaining. 4. Eliminate all forms of forced and compulsory labour; 5. Abolish child labour. 6. Eliminate discrimination in respect of employment and occupation. Environment 7. Support a precautionary approach to environmental challenges. 8. Undertake initiatives to promote greater environmental responsibility. 9. Encourage the development and diffusion of environmentaly friendlytechnologies.

ABB Tops Dow Jones Sustainability Index • ABB ranks first in Industry group for the second year running • World’s first sustainability Index • Tracks more than 230 companies in 60 industry groups in 33 countries • Ranking criteria include economic, environmental and social policies/reporting, health and safety procedures, intellectual capital management.

Dow Jones Sustainability Group World Index (January 1, 1994 - June 30, 2000, Euro, Price Index) 340 290 240 190 140 90 240.6% DJSGI World DJGI World 174.1% Dec 93 Jun 94 Dec 94 Jun 95 Dec 95 Jun 96 Dec 96 Jun 97 Dec 97 Jun 98 Dec 98 Jun 99 Dec 99 Jun 00

ABB’s new social policy - 13 principles 1. ABB in society 2. Human rights 3. Children and young workers 4. Freedom of engagement 5. Health and safety 6. Employee consultation and communication 7. Equality of opportunity 8. Mobbing and disciplinary practices 9. Working hours 10. Compensation 11. Suppliers 12. Community involvement 13. Business ethics In line with UN Global Compact

GLOBAL COMPACT GLOBAL COMPACT ABB’s road to sustainable development - Global Compact Sustainability Management Social responsibility New social policy supports Global Compact Environmental Manage- ment Products Env. Product Declarations, LCA ”Baseline Management” Sites Implementation of ISO 14001 ABB’s organizational structure Local Regional Global 1990 2000

Measuring sustainability - sites and products OK 1) Financial performance - revenues, earnings, cashflow 2) Environmental performance- ABB factories - 36 indicators- ABB products - Envronmental Declarations 3) Social performance - ABB’s new Social Policy- Principle 5 - H&S - 3 new indicators- Labour principles 3-10 - indicators feasible OK ??? Human rights Business ethics Community involvement Social responsibility How ?? Progress through the Global Reporting Initiative (GRI)

Measuring sustainability - companies Dow Jones Sustainability Group Index • started 1999 • 230 companies from 2000 in DJ World Index • world’s first real sustainability measurement FTSE4 Good • starts July 2001 • focus on social responsibility, human rights • less than half of FT All Shore Index companies qualify Benchmarking + peer pressure = improved ratings

External assessment of Env. Performance 0 2 4 6 8 10 12 Env. Advisory Board ISO certificates world-wide Dow Jones S.G. Index DNV assessment

Solved! Will be solved! Investor’s quote “With the social issues, we are at the same stage we were five years ago when we considered environmental issues. Companies either don’t have the information or are not used to supplying it to respond to the investors’ needs. Moreover, some firms may be reluctant to provide such delicate figures.” Ingeborg Schumacher, UBS 1993 - Environmental Performance - how to measure? 2000 - Social Performance - how to measure?

Total involvement Financial R & D Governance H & S Manu- facturing Economic performance Legal Human Resources Sustain- ability Environmentalperformance Socialperformance Env.affairs Public Relations Communications Quality All contribute to sustainability

We create value By making our customers more competitive in a networked world By offering our employees opportunities to learn, grow and share in the value created by their efforts By achieving returns that meet or exceed the expectations of our shareholders For society, by living our commitment to sustainability ABB The Value Creator

Sustainability To balance doing well with doing good

Sustainability is sound strategy? To safeguard our license to operate To move from compliance to involvement To maintain public acceptance • Economic performance depends on access to markets and technologies • Environmental performance enhances competitiveness through optimum design, lower costs, desirable clean products • Social performance creates space for the business - making it easier • to hire talent • to obtain good financing and payment guarantees • to gain regulatory consent and support from authorities • to strengthen shareholder and employee engagement “Sustainability is like quality. You just have to have it!”CEO, ABB, Jörgen Centerman

To verify sustainability - that is the challenge