TCFD Report

This report presents the eleven disclosures recommended by the TCFD in the sections regarding governance, strategy, risk management, and metrics and targets. For more detailed information, please follow the links provided as they refer to GF’s existing disclosures in its Annual and Sustainability Reports including to the CDP, formerly known as the Carbon Disclosure project.

GF believes sustainability is a topic of critical importance. Therefore, in 2020, GF formed a Sustainability Committee – a part of the Nomination and Sustainability Committee – to support the Board of Directors in executing their role of strengthening the focus on Environmental, Social and Governance (ESG) topics. The Charter of the Nomination and Sustainability Committee defines that regular meetings are held at least twice a year. In 2021, the committee met three times to discuss climate-related issues. The agenda explicitly refers to GF’s eight sustainability goals for 2025, which include climate change. Since 2020, climate change has been discussed in every meeting. GF’s overall progress is monitored against a predefined timeline and the strategy cycle of 2021-2025.

An essential role of the Sustainability Committee is to ensure that executive remuneration is linked to ESG targets and aligns with the eight goals of GF’s Sustainability Framework 2025. Accordingly, each Executive Committee member has the company-wide CO2e target as a remuneration incentive and a target to implement the recommendations of the TCFD and publish GF’s first TCFD report in March 2022 as part of the company’s annual report.

The Executive Committee has direct oversight over the progress made towards the strategic goals and targets, including those that are climate-related. In addition, the Executive Committee conducts performance reviews on a regular basis (two to four times a year) and within the management meetings of each division. These reviews enable the Executive Committee to take the necessary strategic and operational actions that ensure target achievement remains on track.

The Board of Directors declared Sustainability as the strategic topic of the year 2021. For the rollout of the Sustainability Framework 2025, a Corporate Sustainability Council (CSC) was established on Executive Committee level. The CSC coordinates and steers all activities relating to sustainability. It is headed by the CSC Chairwoman, advises the Executive Committee and consists of the CEO, CFO, Divisional Presidents, corporate and divisional sustainability teams and other members of GF’s top management. The key responsibilities of the CSC include the reporting and tracking of the progress and measures with regards to the Sustainability Framework 2025; supporting the Executive Committee with decisions on cross-divisional, strategic sustainability projects and initiatives; the coordination and supervision of the projects and initiatives and the reporting of the progress of the projects and initiatives to the Executive Committee. The CSC meets at least biannually.

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Each department and division is responsible for continuously integrating sustainability aspects (including climate change) into GF’s daily operations to achieve the targets of the Sustainability Framework 2025. The topic is coordinated at the corporate level by the Corporate Sustainability Team (CST). The CST is positioned within the CFO’s organization and is led by the Head of Investor Relations & Sustainability. The Head Sustainability Transformation is the Chairwoman of the CSC with responsibility to lead key strategic, cross-functional sustainability-related projects and initiatives. The Head Corporate Sustainability is responsible for sustainability reporting, including the engagement with ESG rating agencies and is a member of the Sustainability Committee and Corporate Risk Council. Both the Head Sustainability Transformation and the Head Corporate Sustainability are reporting to the Head of Investor Relations & Sustainability.

The CST works in close contact with the dedicated sustainability teams within the three divisions to ensure the tracking of progress of individual locations, business units towards achieving set targets. The CST is responsible for raising awareness in the organization on sustainability and, as part of that, climate-related risks.

The divisional sustainability units evaluate the sustainability performance every quarter and present their findings to their respective management teams. The following aspects are reviewed: the achievement of sustainability targets and the implementation status of agreed-upon actions, the monitoring of the sustainability performance of business partners, and the development and marketing of products and solutions offering sustainability benefits to GF customers.

The divisions define a set of measures each year to implement the sustainability targets adopted by the Corporation. Each divisional sustainability manager is responsible for ensuring the individual locations define and put forward required measures to meet the set goals, compiles an aggregated overview for their division to track progress, and coordinates with the CST on status, experience-sharing across divisions and, where needed, for escalation.

Corporate target achievement – including achievement of sustainability-related ones such as the reduction of greenhouse gas emissions – is incentivized at various levels. For example, for the Executive Committee members, individual goals are defined as well as for the corporate and divisional sustainability teams.

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GF has identified hazards in categories relevant to its business model and in the context of climate-related risks and opportunities. These risks include both acute and chronic physical risks, transition risks and opportunities.

Physical risks include tropical cyclones, sea level rise, river flooding, precipitation, fire, drought and heat. For more information, please refer to the in-depth analysis and conclusions drawn from this report.

Transition risks include GHG prices, the security of energy and processes, regulations and taxes, litigation, consumer preferences, the availability of capital, the energy transition and raw materials. More information is available in section 3.1.

Opportunities include transportation, production and distribution processes, recycling, low-emissions energy sources, the carbon market, growing consumer demand, the diversification of business activities, availability of capital and substitutes for existing resources. More information is available in section 3.1.

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GF’s product portfolio is dedicated to delivering solutions that help customers mitigate their climate impacts. GF has significant opportunities in all three divisions as changing consumer preferences and growing investor pressure require their product portfolios to become more energy-efficient and sustainable. We provide our customers with sustainable products and enter new markets with increased demand for sustainable alternatives.

Across its diverse product portfolio and operations, GF procures the majority of its raw materials, goods and services locally. This procurement policy is a pre-emptive measure to ensure our raw material deliveries reduce the impact of intercontinental distribution networks, while recognizing the consequences of these activities and the effect that a changing climate may have on the supply chain. In addition, GF’s manufacturing sites are in close proximity to their customers and strive to constantly optimize their logistics footprints, such as the two new Chinese factories in Shenyang (GFCS) and Yangzhou (GFPS).

The GF Code for Business Partners, which defines and monitors strict adherence to environmental, social and compliance practices bind GF suppliers across all three divisions. At the same time, GF heavily relies on the timely delivery of raw materials, goods and services. Acute physical risks, such as heavy rain, wildfires or floods can lead to the destruction of necessary infrastructure that hinders transportation and risks creating product supply shortages.

GF is committed to delivering solutions that help customers mitigate their contribution to climate change or build resilience and adaptation to it, driven by a core focus on product innovation and R&D. Therefore, GF invests in R&D to create innovative new products and solutions that provide environmental, climate and social benefits for its customers during the product’s use phase. In 2021, GF’s overall R&D budget was CHF 112 million. GF’s Sustainability Report 2020 describes how these investments translate into climate-related opportunities on pages 24 to 42.

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The resilience of GF’s future strategy is affected by the transition to a low-carbon economy which presents both opportunities and risks. Therefore, GF has analyzed a range of climate scenarios that show possible outcomes under different climatic conditions. To project a scenario aligned with the Paris Agreement’s goal of limiting global warming to 2°C or a lower scenario, the International Energy Agency’s (IEA’s) Sustainable Development Scenario was used. It analyzes various factors that could impact GF’s future business strategy and its ability to achieve long-term profitability.

Furthermore, to assess GF’s exposure to physical risks, the Intergovernmental Panel on Climate Change’s (IPCC’s) representative concentration pathways (RCP) was used in a business-as-usual scenario (RCP 4.5) and a 4°C scenario (RCP 8.5) until 2050. In the analysis, 2050 was used as a reference year in line with the Paris Agreement’s 2050 target for net-zero emissions. The Sustainability Committee made an explicit decision not to use climate scenarios beyond 2050.

This climate risk analysis was prepared using the “Climate Change Edition” of the “Location Risk Intelligence” software from reinsurer Munich Re. It was found that physical risks such as tropical cyclones and sea level rise were deemed immaterial to GF’s operations, whereas river flooding and precipitation posed a high risk to some operations. The percentages below refer to the share of GF’s global production sites that are exposed to a specific risk category.

Undefended river flood describes the risk of flooding in areas where no flood protection systems or defense structures (such as dams) are in place. Under a 4°C scenario in 2050, the share of high-risk flood sites increases from 21% today to 28%. River flood is a particularly strong hazard in the Chinese sites of all divisions.

Due to global warming and rising ocean temperatures, air contains more moisture, which leads to an increase in heavy precipitation events. Heavy rainfall increases the risk of floods, which often lead to the destruction of infrastructure. The share of high-risk sites for heavy rain increases from 24% in 2021 to 28% in 2050, with a strong impact projected on sites in China, Switzerland and the United States.

Wildfires are destructive hazards that can occur naturally or be caused by humans. Fires destroy vegetation and lead to the destruction of infrastructure and economic resources. No GF sites fall into the high-risk category, but the share of medium-to-high risk sites at GF increases from 12% today to 19% in 2050 under a 4°C scenario. All other sites face only minor hazards.

Increasing temperatures combined with changes in precipitation patterns could cause drier weather conditions and more frequent and intense droughts that have severe economic, environmental and social impacts. Bakersfield (US) was identified as the only high-risk site for drought, but the number of medium-risk sites increases from 12% today to 31% in 2050 under a 4°C scenario.

Global warming leads to increasing temperatures and more intense and frequent heatwaves. Heat stress affects humans, infrastructure and ecosystems. In 2021, only 3% of GF sites are in the high-risk range, but this increases to 10% in 2050 under a 4°C scenario. GF’s projections show heat stress is of particular significance for Chinese sites in all divisions.

Risks identified at GF are based on a biannual risk mapping analysis and assessed for their likelihood of occurrence and potential impacts. Where possible and appropriate, the consequences of the identified risks are quantitatively evaluated, taking into consideration the frequency of consequences and any mitigation measures already implemented (alternatively, a qualitative assessment of the risk exposure is applied). As a result, the risk consequences are classified in terms of their potential financial cost to the business:

GF determines the potential overall impact of identified risks by combining their likelihood of occurrence with their potential financial consequences and factoring in any other relevant concerns, such as reputational damages or legal impacts. Substantive impacts are evaluated based on a tiered system of threshold values, depending on the risk scope. Risks at the corporate, division and site levels are each attributed different sets of thresholds as the sites vary in size.

In general, an impact is considered substantive in the following cases:

In 2021, GF conducted a workshop with experts from all three divisions, Corporate Risk Management and Corporate Sustainability to define the main climate-related risks and opportunities and assess their possible impacts. On the one hand, GF considered impacts on its business activities that could result from the physical effects of climate change and transition risks such as political, technological, market and reputational developments. On the other hand, GF derived relevant climate-related opportunities resulting from resource efficiencies, energy sources, products and services, and market demands.

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GF employs various tools to manage internal and external risks, including those directly related to climate change. For example, the Enterprise Risk Management (ERM) tool (Thomson Reuters Accelus) is used at the corporate and site/asset level in direct operations, as well as in the value chain, to assess specific upstream and downstream risks. The assessment includes systematic identification, evaluation and reporting on strategic, operational, financial, social, environmental and climate-related risks, in addition to maintaining comprehensive insurance coverage.

GF also identifies climate-related risks using the Munich Re tool, specifically regarding physical risk assessments. GF’s Corporate Sustainability Team also conducts independent research in cooperation with externally appointed consultants.

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Climate-related risks are integrated into GF’s risk management system via its combined ERM process. The clear organization of climate activities and governance roles ensures that GF works efficiently and continuously improves. In the future, GF plans to further align the TCFD risk management process with its on-site risk management process to create a single approach for all risk categories. This consolidation will ensure the complete integration of climate-related risks and opportunities into GF’s enterprise risk management system.

In October 2021, GF’s Corporate Sustainability Council approved a more ambitious science-based target aligned with the 1.5°C warming scenario. This decision aligns GF’s ambition level with the latest climate science and the IPCC’s recommendation.

As GF sets corporate targets over a five-year period, this means that a 21% reduction of absolute CO2e emissions will need to be reached by 2026, or 4.2% per year for scope 1 and 2 GHG emissions. We will achieve this target by focusing on energy efficiency measures across all production sites, engaging power purchase agreements to hedge volatile renewable energy prices and procuring renewable energy certificates.

As GF’s scope 3 emissions are almost five times its scope 1 and 2 emissions combined, it also set a target at this level. Therefore, the second part of GF’s climate strategy aims to reduce scope 3 emissions by 2% per year as an intensity target with no absolute growth in emissions.

GF will reduce its scope 3 emissions by working closely with its suppliers to implement dedicated CO2e reduction measures and transition its energy portfolio to renewable energy. For GF’s customers, it is clear that GF’s product portfolio is advantageous as it provides numerous sustainable product offerings that can help them to lower their CO2e footprint. In addition, GF has set a target to have 70% of its portfolio deemed sustainable by 2025 from 58% in 2020. For GF Piping Systems, this target includes replacing raw materials with bio-based alternatives, deploying automated flow solutions to reduce non-revenue water and maintaining leakage-free piping systems for the safe transport of water, gases and chemicals. For GF Casting Solutions, the focus remains on manufacturing lightweight automotive components. For GF Machining Solutions, milling and EDM machines will become even more energy-efficient and it will employ laser technology to replace hazardous chemical processes.

GF committed to setting a science-based target in November 2021 and plans to submit it to the science-based targets initiative (SBTi) in March 2022, with a validation expected within six weeks of the SBTi panel’s review.

Energy efficiency measures were identified for all production sites and typically addressed replacing or retrofitting equipment in cases where it is possible to achieve energy reductions of up to 20%. Other measures include upgrades to heating, cooling and compressed air systems, the insulation of equipment and improving the energy consumption of buildings and production sites. GF has also placed a significant focus on installing solar panels on its sites and initial estimates project energy savings of around 2% to 5% for scope 2 CO2e emissions.

GF is also already working on setting a net-zero target to be achieved no later than 2050. GF’s net-zero roadmap will be aligned with the Net-Zero Standard that was released on 28 October, 2021 by the SBTi.

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GF believes we must take great care to avoid potentially adverse environmental impacts and has identified “climate and energy” as one of its most relevant material topics. The scope of this focus includes reducing GHG emissions across the value chain and decreasing energy consumption throughout GF’s global operations. In practical terms, this means improving energy efficiency, promoting the use of renewable energy sources, evaluating measures to self-generate renewable energy on-site and procuring renewable energy certificates.

In 2021, GF increased the frequency of its sustainability reporting from annually to quarterly (internally only), and since October 2021, it has included specific references to its progress in reducing its CO2e footprint. GF’s quarterly reporting focuses on approximately 34 production sites responsible for over 90% of total CO2e emissions while applying the equity share approach.

Scope 3 emissions data were calculated using a combination of methods for each category as prescribed by the GHG Protocol. For those categories that contribute most to emissions, primary supplier data were used whereas for those activities that contribute least to emissions, secondary data were used. For “purchased goods and services”, supplier specific data based on GHG inventory sources for raw materials were obtained. For the “use phase of sold products”, activity data were used based on the electricity consumed during operating hours for each type of machine.

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Although GF has set its climate targets in absolute terms across all three scopes from 2021 onwards, its target in prior years consisted of a single intensity target based on production volumes for scopes 1 and 2.

Between 2015 and 2020, GF’s target was to reduce its operations’ GHG emissions intensity by 10% from 2016 to 2020. At the end of 2020, GF had exceeded this goal by 2%. Under its Sustainability Framework 2025, GF intends to reduce its absolute GHG footprint by 21% by 2025 for scope 1 and 2 emissions. A target for scope 3 emissions will be published in 2022. This target focuses on GF’s purchased goods and services and the use of sold products for GF Machining Solutions. These two categories represents 88% of GF’s scope 3 emissions.

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