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Annual Report 2014 CEO statement Sustainability governance Strategic priorities Performance and progress Snapshots GRI & UNGC

Setting Priorities

Keeping track of stakeholders’ priorities and their views on Group performance helps ensure we have the right strategic focus.

By combining new insight gained during 2014 with our Group materiality process from previous years, ten priority themes have been identified, described in Materiality process. The ten themes help to build clarity and alignment and will guide priority-setting under the three pillars of the Electrolux sustainability strategy.

Electrolux Materiality Framework 

Products and services People and operations Stakeholder and society
Product efficiency Operational efficiency Social investment
Material efficiency Health and safety Responsible Sourcing 
Eliminating hazardous substances Human and labor rights  
Middle of the pyramid Ethical business  

From a universe of approximately 50 aspects, streamlined to around 20, Electrolux identified 10 themes as most material to the business across the three pillars of the sustainability strategy.

Products, services and markets

The themes ‘Product efficiency’, ‘Material efficiency’ and ‘Middle of the pyramid’ are growing societal priorities and there is competitive advantage to be gained from leadership in these areas. Greenhouse gas emissions and climate change are also captured within these themes. Our most significant environmental impact is the carbon dioxide emissions coming from electricity generation needed to power products when they are used. This is where we can make the biggest difference to reduce our wider footprint. In 2014 our primary material issue was therefore product efficiency.

Improving energy and water efficiency across our product range and growing the market for efficient products are our highest priorities. This is why we have set the objective to be Number 1 or 2 in product efficiency based on main product categories, in main markets and consumer segments. Product efficiency is also a priority for investors. During 2014, through Green Range sales, we also saw an increase in consumer preferences for greener products. Electrolux offers a Green Range of the most efficient products to meet increasing demand for energy and cost-efficient appliances. In 2014, the Green Range represented 13% of products sold and 25% of gross profit.

Material efficiency was another key priority. With global resource scarcity emerging as a significant business concern, there is growing interest in the concept of a circular economy. ‘Material efficiency’ embraces aspects such as use of recycled materials, take-back of discarded products, repairability and durability. At our 2014 Sustainability Investor Day, shareholders were keen to understand how Electrolux was approaching the challenge of resource scarcity. Greater use of recycled materials and modularization are key areas.

With increased use of chemicals, the proliferation of chemical legislation and development of global product platforms within Electrolux, the theme ‘Eliminating hazardous substances’ is a high priority. To address this the Electrolux Chemicals Office was launched in 2014 with the objective of leveraging Group competence and driving global phase-out of chemicals that may cause concern. ‘Eliminating hazardous substances’ includes phase-out of high impact greenhouse gases and is part of the 50% reduction target.

People & operations

Environmental management is an area in which Electrolux performs well—shown by our CDP score of 97% and DJSI ranking as sector leader for the 8th year. Feedback from ratings agencies and investors in 2014 was that sustainability is well integrated into company strategy and processes. Improving efficiency by reducing energy, water, waste and emissions across our operations remains a top priority, therefore ‘Operational efficiency’ has been identified as a sustainability area to excel in. Improved energy efficiency at our factories lowers energy costs by more than SEK 375m per year, and equates to a reduction in carbon dioxide emissions of 200,000 tons compared with 2005. The Green Spirit program, which operates across all Electrolux factories worldwide, aims to reduce energy usage by more than 50% by 2020.

‘Health and safety’ will remain an important theme on our sustainability agenda, and is well established as a key priority within our manufacturing operations. 2014 was the first year it was included in the assessment criteria for our sector in the Dow Jones Sustainability Index, indicating rising investor interest in this area.

‘Human rights and labor rights’ is another area where stakeholder expectations are rising. Industry practices relating to implementation of the UN Guiding Principles on Business and Human Rights (UNGPs) are developing rapidly. States are taking a more active role in their application and calls are growing for a binding international treaty. As a consequence, investors and human rights organizations expect increased transparency and activity from businesses in this area.

In 2014, our Code of Conduct was updated and requirements strengthened in the areas of human rights and labor standards. It constitutes our human rights policy (in line with the UNGPs), and has been approved by Group Management. Efforts to introduce and roll out these higher standards within the Group and amongst suppliers began in 2014, and will remain a key focus for the company in 2015.

‘Ethical business’ has been defined as another important theme. Strengthened regulation on corruption and bribery following a number of corporate scandals in recent years has prompted companies to improve management of business ethics, including corruption. Investors are also showing increased interest in this area. In 2011 Electrolux launched a global Ethics Program, encompassing both ethics training and a whistle-blowing system— the Electrolux Ethics Helpline.

Stakeholders and society

Being an open and trustworthy corporate citizen is central to maintaining sustainability leadership.

‘Social investment’ was identified as one of the ten themes in 2014 and reflects our global presence. Improving social and economic conditions in the communities where we operate is beneficial for both society and our company, and is an effective way to demonstrate our commitment to respect and support human rights.

‘Responsible sourcing’ is a priority for Electrolux. In addition to periodic audits it includes training, performance reporting and tools tailored to particular supplier groups. Worldwide, there is evidence of greater maturity in responsible supplier programs. Trends include a movement to engage new supplier groups, such as service suppliers and suppliers further up the supply chain. In the area of conflict minerals, for example, industry initiatives are emerging as an effective way to engage.

An important part of being a responsible corporate citizen is constructive dialog with employees and employee representatives. In 2010 Electrolux signed an accord with union representatives on the Group’s commitment to international labor standards. The International Framework Agreement is based on our Code of Conduct requirements and includes provisions to protect the rights of every employee to join trade unions of their choosing. Dialog with investors has confirmed the importance of good labor relations.

In 2014, Electrolux adopted a new Industrial Relations strategy, to ensure common principles across countries and regions with different customs and levels of maturity in labor relations. This strategy is being rolled out in tandem with the updated Code of Conduct. An important topic of the dialog with unions in recent years has been responsible restructuring. We maintain our commitment to minimize the negative impacts of any site closures and downsizing.

Emerging issues

In the course of our stakeholder engagement activities during the past 12 to 24 months, a number of trends and issues have emerged that Electrolux will need to monitor going forward. One such issue is ensuring consumer privacy as connected appliances enter the market. This relates to information gathered about consumer product use, as well as the integrity of interconnected systems. Another area of increased attention is 'the consumer promise'. For reasons of both consumer protection and resource efficiency, consumer organizations and policymakers are focusing on how companies fulfill product specifications and expectations over product durability. Responsible taxation is another area of growing interest, with socially responsible investors requesting increased transparency on tax payment approaches.

In the area of labor standards, there is sustained interest in the topic of fair wage and company practices are evolving. On the issue of child labor, responsible sourcing practices are focusing more on responsible employment of authorized minors, e.g. ensuring workers above minimum age but younger than 18 are not screened out by recruitment processes, and that working conditions for these young workers are appropriate and in line with legal requirements.

Finally climate change continues to be a high priority, and monitoring the impact of indirect emissions along the value chain —so-called Scope 3 emissions—is receiving increased attention.