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General

ORGANIZATIONAL PROFILE

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Name of the organization

ZF Friedrichshafen AG

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Activities, brands, products, and services

ZF Group is a leading worldwide supplier of automotive components and systems. With our vision of zero accidents and zero emissions, we shape our future in four technology areas: Vehicle Motion Control, Integrated Safety, Electric Mobility and Automated Driving across three segments: passenger cars, commercial vehicles and industrial applications. ZF is currently the only supplier to deliver autonomous driving systems, electric drivelines and predictive maintenance technologies to both automotive and industry applications.

As our technology can be found in many applications, mobility solutions range from motorcycles and construction equipment to trucks and yachts. In the world of electromobility, ZF stands not only for efficient power consumption in electric vehicles, but also for intelligent power generation through renewable energy sources such as wind parks. At the same time, the Group transfers its expertise to all other areas of application, including connectivity and cloud‑based solutions, and is working on digital solutions for mobility providers and new automotive customers.

We also digitalize our products to enable Intelligent Mechanical Systems, which are being used for vehicles to see, think and act. Autonomous driving becomes a reality through networking environmental sensors, such as camera and radar (see), electronic control units (think) and intelligent mechatronics in driveline, chassis and steering (act).

The Group also offers a wide range of services that are marketed mainly by the ZF Aftermarket organization. These services primarily involve the spare parts business for driveline and chassis technology as well as maintenance and repair services. The most important ZF Aftermarket product brands include:

  • SACHS: clutches, dual‑mass flywheels, torque converters and shock absorbers for passenger cars, motorcycles, commercial vehicles and agricultural machinery
  • LEMFÖRDER: steering and suspension parts, rubber‑to‑metal components for passenger cars and commercial vehicles
  • TRW: braking systems, steering and suspension parts and shock absorbers for passenger cars and commercial vehicles. Brakes, clutches, handlebars, pretensioners, radar, switches, accessories and footrest systems for motorcycles
  • BOGE: shock absorbers for passenger cars and commercial vehicles
  • ZF OPENMATICS: connectivity and diagnostics solutions for passenger cars, trucks, industrial applications, manufacturers, fleets and end consumers. Solutions for intralogistics and asset tracking.

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Location of headquarters

Friedrichshafen, Germany

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Location of operations

As of 2018, ZF has 20 main development locations and operates at 230 locations in 40 countries. The Group has an international service network of about 120 service locations and 650 service points that offer ZF customers an extensive range of services worldwide.

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Ownership and legal form

ZF Friedrichshafen AG is a non‑listed corporation in accordance with German law. The shareholders of ZF are the Zeppelin Foundation, which is administered by the City of Friedrichshafen and holds 93.8 percent of the company’s shares, and the Dr. Jürgen and Irmgard Ulderup Foundation, Lemförde (Germany), which holds 6.2 percent of the company’s shares. Employee stocks are not issued.

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Markets served

The main sales markets of the Group are Europe (47%), North America (28%) and Asia‑Pacific (21%).

Cars and light commercial vehicles make up the major share (80%) of the sales distribution by sectors, whereas commercial vehicles over six tons (12%) and construction and agricultural machinery, marine craft, aircraft, special and rail vehicles, wind power (8%) account for the minor shares.

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Scale of the organization

At the end of 2018, ZF had a workforce of 148,969 employees at approximately 230 locations and 20 main development locations. ZF had a portfolio of several thousand products, over 6,400 single brands and generated sales of €36.929 million in 2018. For detailed liabilities and equity, please see the Consolidated statement of financial position, p. 31 in the 2018 Annual Report.

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Information on employees and other workers

On December 31, 2018, ZF employees worldwide numbered 148,969. This represents an increase of 1.93 percent over the previous year.

The year‑on‑year increase in the number of employees took place in all regions except Africa. The small increase in the total number of employees results from the sale of the Vehicle Control Systems business unit (Body Control Systems). It was completed in April 2018 and accounts for around 4,500 employees worldwide. To support ZF’s Next Generation Mobility strategy a technology center in Hyderabad (India) was established. In view of the increasing importance of India, since 2018 the country has not been listed as part of Asia‑ Pacific but as a separate region.

Almost two‑thirds of the Group’s employees work in Europe, most of them in Germany, and 96 percent of employees have regular contracts with the ZF Group. The percentage of women employed by the ZF Group is 16,1, with the North America region showing the highest proportion with 27,4 percent. The Active & Passive Safety Technology Division is not included in this data, as gender is currently not being reported in regard to region or contract type. In 2018, ZF had a total of 12,421 External Agency Workers.

Employee structure worldwide

Number of people¹ 2018 2017 2016
ZF Group (total) 148,969 146,246 136,820
Europe 86,388 85,294 81,667
of which Germany 50,794 50,618 49,094
North America 36,762 35,885 31,900
South America 5,509 5,470 5,118
Asia-Pacific² 17,396 18,367 16,974
India² 1,980 - -
Africa 934 1,133 1,161
Employee category³
Direct 78,281 77,797 72,109
Indirect 70,688 68,352 64,711
Work contracts
Regular⁴ 143,198 141,954 133,802
Limited⁴ 5,771 4,194 3,018
Full time 146,383 143,513 134,339
Part time 2,586 2,635 2,481
Apprentices and temporary workers⁵
Apprentices 2,756 2,856 2,800
External Agency Workers 12,421 15,195 14,137
1Number of employees by contracts in accordance with IFRS regulations at the end of the year.
2As of 2018, India is not listed as part of Asia‑Pacific but as separate region.
3Direct and indirect participation in value creation processes.
4The corporate wording changed from “permanent” employees to “regular”, and “temporary” employees to “limited”.
5The corporate wording changed from “temporary workers” to “external agency workers”

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Supply chain

Solely for the procurement of production materials, ZF maintains a global network consisting of approximately 7,000 suppliers, ranging from small family businesses through to large groups.

The purchasing volume for production materials totaled €20.1 billion in 2018 and includes directed buy volumes. The value of non‑production materials amounted to some €6.1 billion.

Since ZF manufactures products at 230 locations in 40 countries worldwide, a major part of value creation in production lies in the supply of components. The costs for materials purchased from suppliers account for some 54 percent of sales. ZF suppliers are normally contractors who procure the raw materials or basic components for the products ordered, manufacture the products and, in some cases, also design products.

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Significant changes to the organization and its supply chain

There were no significant changes relevant to this report.

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Precautionary principle or approach

A core element of ZF’s environmental management system is the evaluation of environmental risks. In the operation of facilities, the precautionary principle based on the result of the risk evaluation is an essential part of the Environment, Health and Safety (EHS) management system. All locations conduct environmental aspect assessments and risk assessments for their respective facilities and processes in a local context on a regular basis. Internal and external audits are also conducted. All locations follow the principle “prevention before reaction” and therefore use processes to minimize risks.

Risk assessment and evaluation are carried out prior to the introduction of procedures and substances.

In preparation for emergencies, every location has an emergency organization in place. Emergency response teams are provided with adequate equipment and procedures. Mock emergency drills are carried out on a regular basis. Technical installations (e.g. flood or fire protection, collection trays, redundant installations) are company standard, as are behavior‑based measures for increasing awareness for prevention of environmental damage.

Environmental due diligence is conducted as part of the acquisition process to minimize liability and financial risks.

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External initiatives

The ZF Group observes the core labor standards of the International Labour Organization (ILO), the content of the German Corporate Governance Code and the OECD Guidelines for Multinational Enterprises.

ZF signed the United Nations Global Compact on May 1, 2012, thus committing the Group to observe and promote its ten principles. Since joining, ZF has also become a member of the German Global Compact Network and participates in exchanges between the member companies.

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Membership of associations

The ZF Group and its companies are committed to a wide range of associations and interest groups. The following list provides a representative selection:

  • Association of German Engineers e.V. (VDI) – Lake Constance regional association (as a supporting member)
  • Automotive Industry Action Group (AIAG)
  • Carbon Composites e.V.
  • Chamber of Industry and Commerce Hochrhein Bodensee
  • Chamber of Industry and Commerce Oberschwaben, Weingarten
  • Compliance Network e.V.
  • Employers’ Association Südwestmetall
  • European Association of Automotive Suppliers (CLEPA)
  • Foundation of German Business – Remembrance, Responsibility, and Future (as a donor)
  • German Aerospace Industries Association (BDLI) (ZF Luftfahrttechnik GmbH, Kassel-Calden is a member)
  • German Association of Materials Management, Purchasing, and Logistics e.V. (BME)
  • German Global Compact Network
  • German Association of the Automotive Industry e.V. (VDA)
  • German Association of Electrical Engineering and the Electronics Industry (ZVEI) (Member is the Auerbach plant, Electronic Systems business unit)
  • German Engineering Federation e.V. (VDMA)
  • German Federation for Motor Trades and Repairs
  • German Diversity Charter (Charta der Vielfalt e.V.)
  • Wissenswerkstatt Friedrichshafen e.V. (as a supporting organization)

STRATEGY

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Statement from senior decision-maker

Statement from senior decision-maker

Dear readers,
The entire automotive industry is facing a fundamental transition. Carmakers and their supply chains are being challenged, balancing multiple technological trends like electric mobility or the increasing autonomy and connectivity of vehicles. At the same time, we need to look after the people being impacted by these trends by upholding and promoting human rights in the supply chain and qualifying our employees for future tasks.

As the world is rapidly developing, and quicker than many observers anticipated, we adjusted our strategy towards “Next Generation Mobility”: with a strengthened focus on our core technology domains – Automated Driving, Vehicle Motion Control, Integrated Safety and Electric Mobility – as well as a flexible, agile and open business culture.
At the same time, we are determined to strengthen our sustainability performance. Therefore, during the summer of 2018, a profound materiality analysis served as the basis for not just updating our Sustainability Report but for overhauling our sustainability program.

More strategic steps were resolved, like stepping up our supply chain management and increasing our decarbonization efforts to contribute towards a low carbon economy. In a first step, the Board of Management signed a new EHS policy and the EHS management system underwent major revision. Also, several departments are implementing new reporting tools to provide smarter data and improve target tracking.

Since 2012, ZF has been a signatory to the United Nations Global Compact, promoting its ten principles in the areas of human rights, labour standards, environmental protection and fighting corruption. In the light of major challenges facing us and our industry, we are positioning ourselves to answer them in an agile and decisive manner. With this report we wish to inform you of our progress; we welcome your feedback and engagement.

Yours sincerely,
Wolf-Henning Scheider
Chief Executive Officer
Clean and safe mobility. Automated, comfortable and affordable. For everyone, everywhere.

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Key impacts, risks, and opportunities

ZF’s opportunities and risks culture is focused on sustaining the Group’s continued existence and increasing its value. Our risk management system aims to identify and take opportunities as early as possible while preempting risks that could adversely affect the value of our activities by identifying them early, assessing them appropriately and initiating suitable management measures.

The Board of Management is responsible for the risk management system and reports to the Supervisory Board and the Audit Commit‑ tee about the identified opportunities and risks on a regular basis but also on an ad hoc basis as situations arise. The Supervisory Board is responsible for monitoring the Board of Management and therefore oversees the effectiveness of the risk management system. The implementation of the ZF risk management system is regularly audited in terms of compliance by Corporate Audit. In addition, the external auditors check ZF’s early risk detection system as part of the annual Group audit.

ZF’s risk management system is set out in a ZF Group directive which can be accessed by all employees. The directive describes responsibilities and processes of the risk management system. The directive is subject to regular review and updating and is binding for all ZF Group companies. Major opportunities are also listed and analyzed. They are then actioned if substantiated. Risks and opportunities are not set off against each other. More detailed information about our general approach regarding risk management can be found in the 2018 Annual Report, p. 38.

The context for our sustainability considerations is to a large extent shaped by global megatrends. For instance, progressive globalization has a major impact on ZF’s sales and sourcing markets and therefore requires stronger international focus in regard to structures and competencies. In addition, demographic change and increasing urbanization are leading to changes in consumer behavior – with a fundamentally growing demand infinite resources, which is leading to increased conflict. Several trends require a technology shift toward efficiency and resource conservation, which ZF is pushing for by continually reducing CO₂ and noise emissions, for example. Megatrends also play a central role when setting targets for innovation. ZF identifies a need for action, principally in the areas of efficiency, advanced driver assistance systems, autonomous driving and integrated safety.

Innovative solutions in these areas are directed towards our Vision Zero: Zero accidents. Zero emissions. ZF therefore offers solutions for almost all vehicle segments which are showcased for example by the Vision Zero Vehicle, the ZF Tractor, the ZF Innovation Truck or the ZF Advanced Urban Vehicle. In order to take full advantage of these opportunities, ZF has invested in companies, creating a close network of strategic cooperation. We call this the ZF Vision Zero Eco System.

With strong partners and wide‑ranging expertise, ZF can make this vision real one day: Driver assistance systems and the continuous development of automated and autonomous driving can drastically reduce the number of accidents. At the same time highly efficient hybrid drives and locally completely emission‑free electric drives are contributing to emission reduction.

ZF SUSTAINABILITY PROGRAM

The sustainability program presented here was revised following the updated materiality analysis during the reporting year 2018. Strategic objectives correspond to the identified material topics of ZF. We will regularly report and comment on how we are proceeding to achieve these targets, which projects and measures have already been implemented and what progress has been made.

PRODUCTS

Strategic Objective Targets Actions/Status
Product safety: Zero accidents and zero fatalities through smart product solutions and highest quality assurance ZF will develop an integrated concept for functional safety and SOTIF with regards to technologies of the future. New target
ZF will develop a concept to align our systems expertise with benefits for all segments. New target
Upstream and downstream emissions: Slowing down climate change and working towards healthier environments Vision: Zero Emission
ZF will continue to improve product efficiency and as a result reduce CO₂ emissions.
Projects: EVD2 (PassCar) ; CeTrax (city buses; commercial vehicles) ; AxTrax (city buses)
CO₂ reduction in tons in the course of the development of new products, using carbon footprinting and life cycle assessments. Review of the target by 2020. Target was rolled out to Divisions together with a new program for product‑related environmental protection, which is part of the development process acc. to GD PEP.
By 2020, the existing monitoring system will be extended to upstream and downstream emissions. New target
By 2020, a new initiative will be introduced worldwide to reduce the highest CO₂ emitting supplies and suppliers within the product life cycle. ZF Supply Chain Management is taking part in an initiative by BMW on CO₂ transparency in steel and aluminum supplies.
Logistics: A pilot was set up for local logistics to compare CO₂ effects of combustion engine, gas and electrical trucks in context of new logistics contract.
Material efficiency of products: Reducing the use of raw materials and realizing a circular economy Demonstrate environmental compatibility in product development, taking life cycle aspects into consideration (GD PEP in combination with ZFN 9005) Recyclability of ZF products as part of ZFN 9005 assessment.
Sustainable product portfolio: Gradually increasing the share of revenue from sustainable products and services By 2020, a concept will be developed to align environmental compatability of our products with the new ZF Product Strategy Process New ZF Product Strategy Process
Demonstrate environmental compatability in product development

SUPPLY CHAIN

Strategic Objective Targets Actions/Status
Standards in the Supply Chain: We aim for an implemented supply chain sustainability management by 2025. Increase coverage on sustainability‑related certificates (e.g. ISO 14001) within the ZF supplier base ISO 14001 is required for new sourcing decisions for environmentally critically parts.
Increase CSR self‑assessment for new suppliers 100% implementation of CSR Assessments for new suppliers. No new supplier approval without a CSR Assessment.

EMPLOYEES

Strategic Objective Targets Actions/Status
Globally attractive employer: We aim to be among the most attractive engineer employers worldwide and well positioned in growing markets By 2025, we aim to be among the Top 15 engineering & IT employers in our strategic markets. Fostering and increasing university cooperations; Trendence/Universum rankings in combination with International ZF Benchmark Study in strategic markets. Overall target achievement by 2018 was 50%.
By 2020, the turnover rate for the Group will be lower than 12% (compared to 13.3 in 2017). With a turnover rate of 13.9 the target was not yet achieved.
By 2025, functional excellence will be established through standardized operational processes. Major recruiting and learning processes reviewed and standardized. Global rollout supported by a new digital HR platform in early 2019.
By 2025, more than 90% of our employees would recommend ZF as an attractive employer, based on internal employer surveys. The next Global Employee Survey is being planned to take place in early 2020.
Training and Education: We aim to continuously contribute to improve the organization, in order to achieve a global learning culture of innovative learning and development By 2025, a global and innovative learning culture and a new leadership style will be established across divisions, functions and regions. New open content networks and new digital learning formats have been made available and a learning culture analysis was kicked off in 2018. Target definitions and actions will be subsequently derived.
Re‑inventing leadership style A learning culture analysis was kicked off in 2018. Target definitions and actions will be subsequently derived.
Safety at work and health protection: In order to support the ZF Strategy 2025 through following our “Vision Zero”, we strive to improve our safety performance by conducting professional incident management, Safety Leadership and Behavior Based Safety actions as well as improving our functional safety areas Reduction of the Group accident rate (LTAR: accidents with more than one day absence from work per million working hours) by 10% per year.
(Goal for 2019: 4.2)
Near‑miss reporting, safety alerts, root cause analysis and Safety Leadership program led to an improvement of 16% (5.5 ‑> 4.5) in 2018.
Safety Leadership & Behavior Based Safety (BBS):
Conduct 200 Safety Leadership workshops worldwide per year.
Add 15 sites to the ZF global Behavior Based Safety program in 2019
Approximately 345 workshops were conducted by internal Safety Leadership Coaches. Globally five sites in total were added to the BBS program.
Internal Transportation: Improve the safety of internal transport by reducing the potential risk to pedestrians and the number of incidents compared with the previous year by 20% New target
Occupational health management: We aim to ensure the protection of the health, and to promote the well‑being, of our employees worldwide Developing and conducting a health campaign with a focus on office workers Founding a project task force, developing a campaign concept, delivering campaign material, conducting the campaign, reporting the activities
Continuing the program “Leadership and Health” in the involved sites. Roll out the program “Leadership and Health” at additional sites in Germany. Conducting trainings at all German sites. Reporting of participation rate. Supporting the rollout at additional sites.
Establishing an “International Health Group” to work on health issues which are internationally relevant Nomination of participants, constitutional meeting
Initiate Health Management standards worldwide Information of involved person in charge and expert functions. Perform and analyze first self‑assessment.
Compliance: We aim to continually improve our Compliance Management System to uphold the good reputation we have earned and to ensure the Group’s long‑term business success By 2020, all compliance‑relevant policies will be harmonized within the entire Group. New and uniform harmonization process was initiated in 2018.

PRODUCTION

Strategic Objective Targets Actions/Status
Emissions of plant operations: Reduce CO₂ emissions caused by plant operations By 2020, CO₂ emissions will be reduced by 10% relative to sales based on the ZF Group performance of 2017 (including direct emissions caused by ZF operations). CO₂/energy steering team established. New targets on CO₂ and energy reduction were set up and rolled out.
Target achievement by end of 2018: reduction of 7.3%
By 2020, a well‑established and comprehensive CO₂ reduction program will be in place covering energy efficiency and renewable energy. Energy survey was carried out.
Start of development of a concept on renewable energy strategy
By 2020, the emissions profile of purchased energies will be part of the evaluation during the procurement process. Programs to support locations in energy efficiency projects
By 2020, energy consumption will be reduced by another 10% relative to sales based on the ZF Group performance of 2017. Target achievement by end of 2018: reduction of 3.7%
By 2020, energy productivity will be included in regular operations reviews. Energy efficiency as part of Operational Review process.
In 2019 the work on the review of the current target setup will start. Science‑based target setting will be evaluated in this context.
Water: Saving water resources and supporting clean water quality By 2020, water consumption relative to sales will be lower than the previous year. Reduction for raw water could not be achieved due to hot summer 2018 (increase for complete water consumption is 0.44%). Reduction for municipal water was achieved.
Target achievement by end of 2018: reduction of 7.7%
By 2020, in water‑scarce areas project‑related targets will be defined and monitored. Expert group is currently elaborating definitions and setting up a monitoring system.
Waste: Supporting recycling management and reducing hazardousness of waste By 2020, the amount of waste for disposal relative to sales will be lower than the previous year. Alignment with Purchasing in scrap metal program. Program intensifies recycling activities, e.g. in Mexico.
Target achievement by end of 2018: reduction of 4%
A special focus will be placed on minimizing landfilling of hazardous waste. Sorocaba, Brazil, increased recycling volumes.

ETHICS AND INTEGRITY

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Values, principles, standards, and norms of behavior

A company can only achieve business success in an intact economic environment. A company’s focus on success must match the development of the surrounding and dependent companies so that sustainable corporate governance is possible for all. This principle plays a major role in relationships with business partners, but also in investments in production materials and capacities. This is why the Group has firmly anchored sustainable corporate management factors in its Guiding Principles. They are seen not as individual actions, but as a central aspect of entrepreneurial activity in the day‑to‑day decision‑making processes.

ZF Charter

As an integral part of the ZF Management System, the ZF Charter defines aspects regarded as most important across all our divisions, functions and regions. The Guiding Principles of the ZF Charter are: Innovation Approach, Customer Focus, Result Orientation, and Commitment to People. The Guiding Principle “Commitment to People” helps us create a corporate culture that supports trusting collaboration and motivates top performance.

The ZF Management System with its focus on Speed, Simplicity and Target Focus and its four principles are at the core of all our activities and actions and represent everything that makes ZF special. By concentrating on them, we become stronger, and grow faster and more sustainably.



Code of Conduct

Correct, responsible and sustainable business management and accepting corporate social responsibility are fundamental components of our corporate policy. We reject all forms of human trafficking and support the abolition of slavery, forced labor and child labor. Our Code of Conduct explicitly states that we do not tolerate any discrimination, especially on the grounds of race, gender, religion, age, nationality, social or ethnic origin, pregnancy, disability, belief, sexual orientation, or political and trade union engagement. These principles apply to all new and existing employees and the collegial relationships between employees, our dealings with business partners and, lastly, how employees are promoted within the organization. See GRI 205 for more information and the recent revision of our Code of Conduct.



Business Partner Principles

The ZF Business Partner Principles (BPP) require all suppliers and service providers to make a commitment to respect national and international laws and regulations at their locations worldwide. They must ensure that human rights are respected and human dignity is protected in all business processes. See GRI 204 for more information on the BPP.

GOVERNANCE

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Governance structure

The shareholders, the Zeppelin Foundation and the Dr. Jürgen and Irmgard Ulderup Foundation exercise their voting rights at the annual shareholders’ meeting.

ZF Friedrichshafen AG and the ZF Group are led by the Board of Management, which manages the company, and by the Supervisory Board, which monitors the Board of Management. For the most part, the activities of the Board of Management are strategic in nature and comprise responsibility for the corporate functions, the divisions and the regions. In this context, particular importance is placed on close networking and cooperation within the Group. Operational topics are mainly addressed in the divisions and business units.

On January 31, 2018, Wolf‑Henning Scheider was appointed chief executive officer effective February 1, 2018, succeeding Dr. Konstantin Sauer, who alongside his responsibility as CFO had taken interim charge of the company along with the R&D Corporate Function and the Aftermarket Division. After Jürgen Holeksa resigned his mandate as a member of the Board of Management on September 30, 2018, Wolf‑Henning Scheider was appointed director of labor relations effective October 1, 2018. On January 1, 2019, Sabine
Jaskula was appointed to the Board of Management, taking charge of the HR and Legal Corporate Function. On September 30, 2018, Peter John Lake took retirement and left the Group, stepping down as a member of the Board of Management. Dr. Holger Klein was appointed as a member of the Board of Management effective as of October 1, 2018. He assumes responsibility for the Car Chassis Technology and Aftermarket Divisions as well as the Regions of Asia‑Pacific and India and the Key Account Management of passenger car customers in these regions.

The supervision of the Board of Management by the Supervisory Board, whose members are appointed with equal representation, is supported by an Executive Committee and an Audit Committee which are both composed of members of the Supervisory Board. Under the leadership of its chairman Dr. Ing. Franz‑Josef Paefgen, the Supervisory Board comprised 20 members as of year‑end 2018.
In light of German legislation governing equal representation of women and men in managerial positions in the private and public sectors, targets for the relevant managerial levels have been dis‑ cussed and set for ZF Friedrichshafen AG to be achieved by June 30, 2022.

  • At the first managerial level (executive vice president/senior vice president) and the second managerial level (vice president) below the Board of Management, the percentage of women is planned to increase to 15.0 percent each.
  • For vacancies regarding the Board of Management, a quota of 10.0 percent female Board of Management members is envisaged. The appointment of Sabine Jaskula as member of the Board of Management for the HR and Legal Corporate Function means that this target has already been met.
  • For vacancies regarding the Supervisory Board, a quota of 30.0 percent was set. The quota is currently 10.0 percent.

STAKEHOLDER ENGAGEMENT

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List of stakeholder groups

There are many significant stakeholders at ZF, including employees, customers, suppliers, the company owners, authorities, trade unions, associations, the media and politicians as well as business partners and residents at company locations. An increasingly important group includes the next generation of employees, which is why schools, vocational schools, universities of applied sciences, universities and scientific institutes can be found at the top of the list of stakeholder groups to be involved. As a B2B company, ZF has rarely been in direct contact with national, non‑governmental organizations (NGOs) that represent ecological and social issues. However, as is the case with local environmental initiatives that are often in direct communication with the location managements, these NGOs likewise number among the stakeholder groups that we consider important

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Collective bargaining agreements

The Group values open communication among its employees and respects their right – as is consistent with applicable law – to join or assist a labor union or works council, or to refrain from doing so. No employee or employee representative shall be disadvantaged as a consequence of exercising his or her rights in this regard. Approximately 60 percent of our employees worldwide are covered by national, regional or local labor agreements. More precise reporting will be possible in the future as HR tools are currently being implemented.

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Identifying and selecting stakeholders

As our approach to stakeholder communication and engagement has been applied and refined for several years, all relevant stakeholders are well identified. Each group is important, since it contributes unique insights and feedback. Our day‑to‑day interaction influences the way we reconsider and reevaluate topics, process and priorities.

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Approach to stakeholder engagement

ZF is in regular contact with its stakeholders through the following channels: the German Global Compact Network, personal contact with residents at company locations, the media, direct discussions with customers and suppliers, as well as surveys on topics such as sustainability, and with employees via the Works Council as well as through internal events and Group media.

Customer satisfaction

Delivery reliability, the ability to innovate and cost competitiveness are basic qualifiers in today’s automotive industry. Due to regulatory changes, rising consumer awareness and new supply chains for megatrends such as electrification, the sustainability expectations towards the automotive industry are constantly growing.

In this environment the role of a Tier 1 automotive supplier such as ZF is rapidly changing. From selling components and systems we are now offering complex vehicle functions to a greater extent, such as autonomous driving or vehicle motion control. This requires not only new skills but also a different market approach, offering the entire competence and product portfolio of ZF from the one source. Furthermore, our customers expect an empowered counterpart that can represent the entire Group.

In 2018 we therefore focused on building a new sales organization with the input of our top customers to better serve them and to provide solutions that only a unified sales approach can offer. We will continue to survey our customers’ opinions (VOC) in 2019 to ensure that we are fulfilling their expectations.



Employee survey

Since employees collaborate on an everyday basis, feedback and recognition are ever‑present. Another element of employee engagement is the comprehensive Global Employee Survey (GES). The objective is to sustainably contribute to company goals through increased transparency and by involving employees on all levels. The first survey took place in 2015 and received over 15,000 suggestions for improvement. One‑third of these were put into practice the same year. ZF is currently planning its second GES, to take place early in 2020.


Supplier Award

Around 300 ZF specialists and executive managers, along with representatives from the most important suppliers, met at the Global Supplier Summit at the ZF Forum in Friedrichshafen, the Corporate Headquarters of the Group. The event was an opportunity to share knowledge and discuss strategies on purchasing and logistics. The ZF Materials Management team used the event to honor seven outstanding suppliers in four different categories for their outstanding performance. The award for the best service provision in the digitalization sector premiered in 2018. For 2019, we intend to award in the additional category “Excellence in Sustainability”.


ZF Excellence Award

The fourth ZF Excellence Award set a new record with 776 applications from more than 100 locations in 29 countries. Participation across regions, divisions, and departments was very balanced. Of the 15 teams that made it to the final, the Executive Board and top management selected five winners in each of the categories.

In addition to the categories “Products and Manufacturing Processes”, “Health, Safety, Environment and Social Affairs”, “Small Projects”, “Learning from Each Other” and “Business Processes and Methods”, a special “Best Performing Plant” prize was again awarded in 2018.

Types of stakeholder communication

Groups
Media
Employees
"we>move" employee magazine, social intranet „Zoom“ including CEO Blog and various news channels, townhall meetings, webinars, innovation challenges and pitch event, Excellence Award and family days, zf.com, social media, ZF hilft, ZF BarCamp New Work, ZF Digital Convention
Potential employees
Cooperations with universities, Annual Report, Sustainability Report, advertisements, ZF website, involvement in trade fairs, “vision” print/online magazine, social media
Former employees
ZF website, ZF pensioner association, ZF Family Day Senior Professionals Program, “vision” magazine online, social media
Customers
Annual Report, Sustainability Report, “vision” company magazine, ZF website, brochures, advertisements, customer days, involvement in trade fairs, key account management
End customers
Annual Report, Sustainability Report, involvement in trade fairs such as the International Motor Show, North American International Auto Show, CES, non‑automotive trade fairs, advertisements, ZF website, vision online magazine, social media
Suppliers and partners
Annual Report, Sustainability Report, ZF website, involvement in trade shows, advertisements, supplier days, key purchasing strategy, ZF Global Supplier Summit, “vision” online magazine, social media
Politics, associations, interest groups
Annual Report, Sustainability Report, ZF website, personal discussions, department “Associations & Politics”
Educational institutions
Sustainability Report, Cooperations with universities and schools, ZF website, involvement in trade fairs, advertisements, “vision” online magazine, social media
Press and the media
Annual Report, Sustainability Report, ZF website, press releases, press conferences, “vision” online magazine, social media
Communities
Press, ZF website, advertisements, sponsoring, regional events, “vision” online magazine, social media

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Key topics and concerns raised

The manifold communication with and involvement of stakeholders clearly shows: With all the challenges that promoting sustainability entails, conflicts of interest and conflicts of goals between quality aspirations, sustainability and business success arise not just between but also within stakeholder groups. While current customer preferences oppose a product‑based sustainability strategy. In terms of product development, advantages on the one hand are always achieved at the expense of weaknesses elsewhere.

The topics of training and further education are currently regarded as additional challenge, since the lack of skilled specialists is aggravated by trends such as rapid technological and demographic change.

Occupational health and safety are seen as an international competitive advantage, and compliance as an increasingly important economic factor. Social commitment helps a company to reinforce the moral awareness of its employees; together with training, every employee must be taught the meaningfulness of his or her work. New leadership cultures and models are also discussed. ZF is addressing many topics and challenges with its updated Sustainability Program.

REPORTING PRACTICE

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Entities included in the financial statement

On August 30, 2017, ZF concluded an agreement with Luxshare Limited to sell its Global Body Control Systems Business Unit after the Supervisory Board of ZF Friedrichshafen AG had granted its consent. The full transfer of the business unit was successfully completed on April 27, 2018. The transfer was implemented partly as a share deal and partly as an asset deal. In connection with the share deal, five companies left the Consolidated Group. The disposal led to a deconsolidation income of €83 million that was recognized under other income. The Global Body Control Systems Business Unit with its headquarters in Radolfzell (Germany) employs 6,000 people worldwide at 16 locations in eleven countries.

More detailed information about entities belonging to the Group can be found in ZF’s 2018 Annual Report, pages 53 and 113.

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Defining report content and topic boundaries

Since the integration process of the Active & Passive Safety Technology Division was concluded by 2018, ZF conducted a new materiality analysis in cooperation with a sustainability consultancy.

In a first step, a list of all sustainability topics potentially relevant to ZF was compiled. An industry analysis and general sustainability standards served as the basis. In the next step, this list was evaluated by an external expert panel via qualitative telephone interviews and a supplementary online survey. Additionally, opportunities and risks were concretized; and ZF’s opportunities to exert influence were discussed. As part of a workshop of the Sustainability Steering Committee, the topics were then prioritized with regard to business relevance, relevance from the stakeholders’ point of view, and the impacts of ZF’s business activities. Topics for reporting and topics that should be the focus of strategic further development were identified in this process. The results of the materiality analysis were finally confirmed by the Board of Management.

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List of material topics

  • 201 Economic performance
  • 203 Indirect economic impacts
  • 204 Procurement practices
  • 205 Anti-corruption
  • 301 Materials
  • 302 Energy
  • 303 Water
  • 305 Emissions
  • 306 Effluents and waste
  • 307 Environmental compliance
  • 308 Supplier environmental assessment
  • 401 Employment
  • 402 Labor management relations
  • 403 Occupational health and safety
  • 404 Training and education
  • 405 Diversity and equal opportunity
  • 406 Non-discrimination
  • 414 Supplier social assessment
  • 416 Customer health and safety
Prioritization of fields of action according to social and business relevance

ZF Materiality Matrix

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Restatements of information

A few figures were updated with explanatory footnotes under respective disclosures.

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Changes in reporting

In accordance with the updated materiality.

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Reporting period

This is the seventh edition of the Sustainability Report published by ZF Friedrichshafen AG and follows the 2017 Sustainability Report. It is based on the fiscal year 2018.

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Date of most recent report

March 2018

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Reporting cycle

Annual

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Contact point for questions regarding the report

ZF Friedrichshafen AG

Corporate Governance Sustainability

Löwentaler Straße 20

88046 Friedrichshafen

Email: sustainability@zf.com

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Claims of reporting in accordance with the GRI Standards

This report has been prepared in accordance with the GRI Standards 2016: Core option.

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GRI content index

This GRI table is the GRI content index.

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External assurance

This report was not submitted for an external assurance.