It’s Time for a Radical Change

Sustainability has been part of Danfoss' purpose since the company's founding. Our DNA and corporate culture have been fundamental in building our leadership position in multiple industries. For many years, we have had a sustainability program that focused our efforts on significant impacts. Ten years ago, we created the first Sustainability Strategy, reflecting a double contribution toward the mitigation of climate change through solutions that help reduce the carbon footprint by applying high standards and setting ambitious goals in the people, climate, and environmental agenda.

This environmental, social and governance (ESG) perspective has resulted in the central factors to measure the impact and performance of a company's sustainability. Our new ESG goals and objectives are built on that earlier work we did with sustainability and focus us on three turnaround initiatives.

1. Decarbonization

Energy efficiency is essential; improving it means that the total energy demand is reduced and the remaining energy needs are covered more efficiently. The principle of "energy efficiency first" is central to helping us achieve our goal of becoming carbon neutral in our global operations by 2030.

In 2021, we continued reducing energy use even further in our buildings and processes to achieve the goal of doubling energy productivity and halving our energy intensity by 2030. Compared to 2007, we have achieved both goals nine years ahead of schedule. Energy productivity improved 104% in 2021 compared to 2007 and energy intensity has been 51% lower. This means that today we produce twice as much as we did in 2007 with the same energy consumption.

With more than 90% of energy related emissions coming from electricity, our next priority is to decrease energy consumption. Since January 2021, Danfoss has been using carbon-neutral electricity with three approaches: reducing consumption; then reusing energy that we already used once and finally, recovering by replacing fossil energy sources with renewable ones. In 2022, 85% of the heating demand was covered with green energy from carbon-neutral district energy, excess heat utilization and heat pumps.

The electrification of our company car fleet is an important part of our goal to become carbon neutral by 2030. In 2020, Danfoss joined EV100, an initiative of The Climate Group to support the global transition to electric vehicles by transforming our car fleet. To eliminate harmful emissions, we're replacing our fossil fuel-powered cars with electric vehicles, including plug-in hybrids. We now have around 100 electric and hybrid cars on the road in 10 countries. We are also installing charging points at our largest sites and facilitating installation at employee homes for those who have electric vehicles.

2. Circularity

As the economy continues to grow with rapid urbanization as one of the main drivers, there is a growing demand for more products, which means more raw materials must be extracted and more waste is produced. For Danfoss, this means more pressure in terms of how we source our materials.

We strive to deliver the best circular solutions on the market by developing innovative circular business models with our customers and suppliers. Our commitment is reflected in all our activities as we evaluate and improve the reuse and recycling of materials throughout the value chain. We take responsibility for the entire life cycle of our products; we design our solutions with the goal of  their sustainable useful life in mind. That is the reason our circularity goals for 2030 are:

• More than 80% of newly developed products are covered by the circularity approach.

• Circularity collaborations with more than 80% of the Top 25 clients.

Life-cycle thinking has been integrated into our product and process development for years, and we are now focusing our efforts on the Life Cycle Assessment (LCA) methodology, which is the analysis of the potential environmental impact on the life cycle of a product. This serves as the basis for developing Environmental Product Declarations (EPDs) for our solutions.

In 2022, we implemented and built the capacity to respond to increasing customer requests in this area and helped our customers to achieve their environmental goals. We also work collaboratively with them, keeping the components and materials in use for as long as possible, thus reducing the impact on the environment and ensuring the efficiency of the materials. We can offer our customers refurbished parts through a service exchange of spare parts solution. This measure helps us to keep customer operations running and to avoid significant delays.

3. Diversity and Inclusion

The experience of our employees is rooted in an inclusive culture, our foundation is diverse and characterized by high-performing teams. We strongly believe that caring for our people and our working environment, where everyone feels engaged, respected and included, is essential for Danfoss' growth.

The diversity of our employees drives high performance, accelerates innovation, enables creative solutions, and optimizes agility in an evolving world. This is especially relevant with our expanding global presence and our strategic intent to lead the green transition. At Danfoss, we aspire to foster an inspiring and inclusive workplace that unlocks the full potential of our people and empowers them to thrive in a purpose-driven career. We are committed to providing an engaging employee experience that values and respects all aspects of diversity, the seen and the unseen, and creating environments of belonging.

The ERG (Employee Resource Groups) initiative provides employees with an outlet to help shape organizational culture and create an environment of belonging through communities of shared identity, experience and interests, as well as providing resources that empower employees. leaders and teams to foster inclusion. Together with our ERGs, we established 10 new Regional Inclusion Councils that represent a global perspective that provides solutions by identifying and removing systemic barriers in order to provide an even more inclusive workplace for all.

Launched global ERGs include:

• Danfoss MULTICULTURAL AND NATIONS: Focuses on employees of all ethnicities/nationalities and allies.

• Danfoss GENDER: Focuses on employees of all gender identities (female, male, non-binary, for example) and allies.

• Danfoss SKILLS: Focuses on employees with mental and/or physical disabilities and allies.

• Danfoss GENERATIONS: Focuses on employees of all ages and allies.

• Danfoss PRIDE: Focuses on employees from the LGBTQ+ community and their allies.

Our Diversity, Equity and Inclusion (DE&I) priorities include increasing the representation of women and supporting their professional development at all levels as well as ensuring their inclusion and representation in STEM (Science, Technology, Engineering and Mathematics) careers, which is important because diversity of thought drives innovation and will support Danfoss' objectives of leading the green transition. Women were represented in 2022 only by 28% of engineering graduates and 33% of all STEM researchers worldwide. We are working to close the gender gap in all roles, including STEM.

Currently, 29% of our science-educated workforce are women. In line with our ESG goals, we aim to have at least 30% women in leadership roles by 2025.

Finally, Danfoss' global mentoring program accelerates talent development to enable a purpose-driven career path for our portfolio of executive talent. We are committed to mentoring because we know it increases employee engagement, strengthens the Danfoss culture, and increases retention of high-potential employees. In this program, members of the group's executive team and other senior leaders mentor high-potential employees across the business. They share their personal experiences and ideas to support the professional development of trainees, develop competencies and accelerate their careers.

We are convinced that with these three pillars focused on our ESG objectives, we will reach our goal in the 2030 agenda faster than we think.

Xavier Casas is the Managing Director of Danfoss Mexico. He has developed his entire professional career within the company and in the last two years he was the global head of the supply chain of Commercial Refrigeration and Air Conditioning, being at the forefront of the strategy in the operations in the Danfoss factories located in India, China, Poland and Denmark, with the aim of increasing flexibility and business agility to meet the needs of customers.