Sustainability governance

In December 2022, for the third year in a row, the London-based CDP (formerly, Carbon Disclosure Project) rating agency awarded GF an A- rating (leadership level) for its efforts regarding climate change and water security. GF’s management of its environmental and climate impacts is embedded in its Sustainability Framework 2025.

In 2022, GF obtained an overall score of 63, an increase of two points compared with 2021. For the very first time, GF was recognized as a Sustainability Yearbook Member for its good rating performance in 2022 in the S&P Global Sustainability Yearbook. Only 708 companies qualified for the yearbook out of over 7’800 in 61 industries that were assessed. The S&P Global Corporate Sustainability Assessment (CSA) is an annual evaluation of companies’ sustainability practices. The CSA focuses on sustainability criteria that are both industry-specific and financially material.

Both GF Piping Systems and GF Casting Solutions received an EcoVadis silver medal, placing them among the top 25% of companies assessed. The award recognizes their performance in 2022 on criteria relating to the environment, labor and human rights, ethics and sustainable procurement.

In 2022, GF maintained a AA rating from MSCI, a global agency that measures and ranks companies’ management of financially relevant sustainability risks and opportunities. GF was among just 28% of companies to achieve a AA score in 2022.

After reducing its GHG emission intensity by 10.9% between 2015 and 2020, GF now ranks among the top five of 26 machinery and industrial equipment companies in the 2022 FT and Statista Climate Leaders list. The financial media outlet and the statistics portal recognize companies that achieve the greatest reduction in their scope 1 and 2 greenhouse gas (GHG) emission intensity in a five-year period. The FT and Statista have defined emission intensity as tonnes of GHG emissions per EUR 1 million of revenue.

An environmental management system (EMS) enables GF to manage resources more efficiently and sites to take corrective actions if their consumption exceeds defined targets. An EMS also helps facility operators create data-driven approaches for improving energy efficiency and reducing consumption.

At the end of 2022, 93% of GF’s legal entities with production facilities reported their data into the Sustainabilty Information System (SIS) tool and 89% of them had an EMS in place that was certified to ISO 14001, an internationally recognized standard for environmental management systems. In addition, nine facilities from GF Piping Systems and GF Casting Solutions were certified to the energy management standard ISO 50001. These nine sites account for 47% of GF’s total energy consumption.

GF has formalized its goal of reducing injuries through its global adoption of the occupational health and safety (OHS) management system according to ISO 45001. The company had committed that all its production plants worldwide must be certified to ISO 45001 and that newly acquired companies have up to three years from their acquisition to achieve certification. At the end of 2022, 48 plants, representing 86% of production companies, were ISO 45001 certified. GF Urecon’s newly acquired companies have now been certified to ISO 45001.

The GF Board of Directors is responsible for the company’s overall sustainability performance. In mid-2020, sustainability came under the remit of the Nomination Committee, which was renamed the Nomination and Sustainability Committee. More information about the areas of focus and meetings held in the year under review can be found in the chapter Nomination and Sustainability Committee. GF measures its overall progress against a predetermined timeline and the strategy cycle.

The Sustainability Committee also ensures that executive compensation is aligned with GF’s sustainability goals – in particular, the eight targets of the Sustainability Framework 2025. As a result, each Executive Committee member’s short-term incentive (STI) is linked to the company-wide CO₂e emission target. Members also have individual targets linked to initiatives such as the zero accidents campaign, as well as circular economy benchmarks or targets to implement the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The Executive Committee oversees GF's progress in reaching its strategic goals and targets. It also conducts performance reviews between two and four times per year and within each division's management meetings. These reviews allow the Executive Committee to take the strategic and operational actions needed to ensure the company is on track to meet its sustainability goals.

To assist the Executive Committee in implementing the Sustainability Framework 2025, GF established the Corporate Sustainability Council (CSC). Headed by the CSC Chairperson, who advises the Executive Committee, the council also oversees and coordinates all sustainability-related activities. The CSC meets twice a year. Members include the CEO, CFO, divisional presidents, corporate and divisional sustainability teams and high-level members of management.

The CSC's key responsibilities include the following:

Corporate Sustainability manages and coordinates all relevant sustainability activities within GF and with its external stakeholders. In a broader sense, it also raises organizational awareness about sustainability and climate-related risks. Its core duties include implementing the Sustainability Framework 2025 as an integral part of the Strategy 2025 and collaborating with the divisions to support the rollout of sustainability activities.

Corporate Sustainability is also responsible for the transparent annual disclosure of the company's sustainability performance in the annual sustainability report and other channels. The department’s ongoing cooperation with external ESG rating agencies is an important task and is closely linked to Investor Relations. It also works in close contact with each division’s sustainability teams to track the progress of individual sites, business units and divisions against their targets.

Reporting to the CFO, the Head of Corporate Sustainability leads the Corporate Sustainability team in focusing on key strategic, cross-functional sustainability-related projects and initiatives. They are also responsible for sustainability reporting, including coordinating with external ESG rating agencies. The Head of Corporate Sustainability participates in Sustainability Committee meetings.

To meet the goals of the Sustainability Framework 2025, all of GF’s divisions and departments are responsible for continuously integrating sustainability into their activities, products and solutions. The divisional sustainability units review their sustainability performance every quarter and present the results to their respective management teams.

The divisions review:

Every year, the divisions establish a list of actions needed to achieve the company's sustainability targets. Among their responsibilities, the divisional sustainability managers:

GF provides incentives to achieve its corporate targets at various levels within the company. For example, it defines individual goals for Executive Committee members and for the corporate and divisional sustainability teams.

The European Commission has set climate targets for 2030 underpinned by an action plan, the European Green Deal, to reduce the European Union's net greenhouse gas (GHG) emissions to zero by 2050. A core element of the European Green Deal is the EU taxonomy, a classification system for defining "environmentally sustainable" economic activities. In accordance with Article 10 (3) of Regulation (EU) 2020/852, an activity is "sustainable" ("taxonomy-aligned") if it makes a substantial contribution to at least one of six environmental objectives according to the technical screening criteria defined by the EU taxonomy:

In addition, the activity may not significantly harm the achievement of other objectives and must comply with "Social Minimum Safeguards". Companies are then required to disclose the proportions of sales, capital and operating expenditures for their taxonomy-eligible (economic activities that are described and have technical screening criteria in the taxonomy) and taxonomy-aligned economic activities.

GF supports the EU Taxonomy Regulation as an important step in sustainably transforming the economy. In 2022, GF assessed its business activities against the developed taxonomy criteria and voluntarily disclosed information on its implementation of the EU Taxonomy Regulation and taxonomy-eligible activities, but without financial ratios as it does not yet fall under the taxonomy’s regulatory scope. However, mandatory reporting will be required from GF in the future with the adoption of the Corporate Sustainability Reporting Directive (CSRD).

To implement the EU taxonomy's requirements, GF set up a project group led by the heads of Investor Relations and Corporate Sustainability. The core team worked closely with the Sustainability and Controlling specialists from the three business divisions of GF Piping Systems, GF Casting Solutions and GF Machining Solutions. In addition, the functional departments were also involved in the process.

First, the project group conducted mapping sessions to assign GF's economic activities to the taxonomy’s relevant activity descriptions to identify those covered by the EU Taxonomy Regulation, known as taxonomy-eligible activities. In addition to revenue-relevant activities, the project group also considered cross-cutting activities, to which only capital and operating expenditures are attributed. In a second step, the taxonomy-eligible activities were also selectively checked for taxonomy alignment. To follow the EU taxonomy’s approach in future reporting periods, GF will enhance the taxonomy alignment checks for its activities and seek to disclose taxonomy KPIs.

There is a general uncertainty around the initial reporting requirements based on the EU Taxonomy Regulation. For GF, this is because the taxonomy covers only particular focus industries, which account for the largest share of GHG emissions. In addition, the taxonomy only focuses on original manufacturers rather than all supply chain contributors such as component manufacturers. As a result, only GF Casting Solutions has some degree of exposure to the EU taxonomy, whereas GF Piping Systems and GF Machining Solutions have minor overlapping potential within the scope of their activities. Furthermore, many of the taxonomy's regulations and notes have unclear or ambiguous formulations, leading to a level of interpretation.

The following activities defined by the EU Taxonomy Regulation have been identified for the recognition and assignment of GF sales revenues, CAPEX and OPEX.

In addition to revenue-relevant activities, cross-cutting activities to which only capital and operating expenditures are attributed were also considered, such as solar PV projects.

GF aims to gradually expand its reporting and disclosure of taxonomy-eligible and taxonomy-aligned activities, including the proportions of sales, capital and operating expenditures. To date, only the first two environmental objectives have been assessed. In a next step, the technical screening criteria of the remaining four activities will be assessed as soon as the final criteria are released. However, a trend is already emerging. For example, GF Piping Systems' solutions, such as corrosion-resistant piping and leak detection, are enabling the industries mentioned in the draft of the technical screening criteria.