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More than a decade ago, Danfoss became a signatory to the UN Global Compact Initiative, which deals with human rights, labor rights, the environment and anti-corruption. We continue to sup-port the Global Compact, as a governing principle in our sustainability efforts.

In 2013, our efforts resulted in a new sustainability program for the Danfoss Group that combines existing and new sustainability initiatives. During its implementation period, the program will guide the work on sustainability at Danfoss within a strengthened group-wide framework, while at the same time setting out clear goals for the work in our organization in the areas of energy savings, occupational health and safety, ethics and product lifecycles.

A new and ambitious climate strategy launched in November 2015 paves the way for a 50% reduction in both the company’s energy intensity and CO2 intensity before 2030.

Danfoss wishes to play an active role in a sustainable global development where social responsibility, environmental and climate considerations go together with sound business development. We therefore make it a priority not only to respond to the circumstances which have an immediate effect on the company, but also consider the trends that outlines the challenges and the opportunities of the future.

This document describes the key elements in Danfoss approach to sustainability and you are invited to read more on our webpage: http://www.danfoss.com.

Inquiries regarding Danfoss’ work with Sustainability can be directed to Danfoss Public Affairs & Sustainability at sustainability@Danfoss.com.

Danfoss A/S

Flemming Lynge Nielsen Director Public Affairs & Sustainability

March 2019

Sustainability in Danfoss - an introduction

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Sustainability is fundamental for us

Sustainability is fundamental for us and it is an important element in the Behavior section of Danfoss Core & Clear strategy. We believe that balancing financial, environmental and social issues creates the greatest and most sustainable value for all our stakeholders.

Danfoss’ sustainability policy:

Danfoss’ ambition is to make sustainability a real business driver and a fundamental element of our business based on the following elements:

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Roles and responsibilities

Roles and responsibilities in Danfoss’ sustainability efforts are consistent with Danfoss’ general governance and risk management principles.

• Danfoss’ Board of Directors and Group Executive Team have the overall responsibility and define the framework for Danfoss’ sustainability efforts.

• Danfoss’ Public Affairs & Sustainability function is responsible for defining and implementing Danfoss’ global sustainability program, which also includes preparation of guidelines and instructions and coordination of activities across the.

• All people managers are responsible for ensuring that their areas are aware of and comply with Danfoss’ rules and guidelines. In addition, all factory managers are responsible for environmental and occupational health and safety activities at individual sites.

• All employees are responsible for ensuring that they are aware of and comply with Danfoss’ rules and guidelines. Furthermore, all employees have a duty to report any breaches of Danfoss’ rules and guidelines they may become aware of or have reason to suspect.

• Danfoss’ Group Risk & Compliance function is responsible for following up on compliance with guidelines and compliance programs. The function is also responsible for Danfoss’ whistle-blower function called Danfoss Ethics Hotline.

• Danfoss’ Ethics Committee deals with violations of Danfoss’ ethical guidelines. • Danfoss’ Internal Audit function performs unannounced inspections to ensure compliance with the ethical guidelines

and legislation in special areas such as anti-corruption.

Sustainability policies

Danfoss has established rules and guidelines to supplement legislation governing how Danfoss intends to act as a reliable business partner in social, ethical and environmental matters. They include:

• Anti-Corruption Manual • Binding corporate rules - data protection • Business Conduct • Competition Compliance Manual • Compliance with European RoHS directive • Danfoss Climate Strategy 2030 • Danfoss Supplier Quality Manual • Danfoss Sustainability Program • Danfoss’ conflict minerals policy • Danfoss’ Negative List of chemicals and substances • Environment, health & safety in Danfoss • Ethics Handbook • Export Control Compliance Manual • Global Recruitment • Performance management • REACH product compliance at Danfoss • Reporting unethical behavior • Risk Management • Risk management handbook • Roles and responsibilities with respect to ethical cases • Safety at Danfoss

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Danfoss Ethics Handbook

The Ethics Handbook outlines Danfoss’ ethical guidelines in three main sections:

• Danfoss and our employees • Danfoss and our external partners • Danfoss and the society

The handbook applies for all employees and companies in the Danfoss Group, including subsidiaries and joint ventures where Danfoss has a controlling interest.

All Danfoss’ companies, business units, departments and employees must, as a minimum, comply with the local laws of the countries in which they operate. Complying with the country’s legislation is regarded as a basic requirement. In addition, the ethical guidelines in the Ethics Handbook must be complied with at all times.

Training and compliance programs

Danfoss has implemented training and compliance programs to anchor and sustain its ethical guidelines at all levels in the Group. The Group has compliance programs in a number of areas covering ethics, anti-corruption and competition law.

Compliance efforts are based on extensive preventive programs based on clear rules and guidelines and key employee training. Follow-up procedures to verify the effectiveness of such rules form an integral part of internal controls and audits at Danfoss, as do spot checks conducted by the Group’s internal audit function.

All managers must complete the Ethics program within a defined time frame. The program addresses competition, anti-corruption, equal treatment, anti-discrimination and other issues.

Danfoss follows up on managers’ and key employees’ completion of the programs: failure to complete mandatory training may have severe consequences for their employment.

Ethics, Human rights & UK Modern Slavery Act

In 2018, as part of our commitment to live up to the UN Guiding Principles for Human Rights, Danfoss deployed processes for human rights due diligence in Russia, Brazil and Mexico. Building capacity and training the local management in the human rights due diligence process and handling of human rights aspects, create strong ownership at local level.

Assessment of legislation and actual practices in the countries where we operate is an important and integral part of our human rights due diligence process. Based on this, we conduct a thorough process where human rights issues are identified, assessed, prioritized and mitigated. Action plans addressing the actual or potential impacts on human rights are drawn up with local management and regular follow-up meetings ensure that the process is maintained.

Regulation like the UK Modern Slavery Act and California Transparency Act require Danfoss to handle issues like forced labor, if we were to be faced with them. More than 3,500 suppliers of direct materials used in our products and 10,000 suppliers of services and indirect materials, make assessment of human rights issues quite complex. To gain more understanding of this, outsourced facility management services, like cleaning and construction, were included in the due diligence process in Russia, Brazil and Mexico in 2018.

Companies are required to report which of the human rights are most salient to them; meaning which of the rights could be most severely impacted by the operation of the company.

The table on the text page shows which human rights are most salient to Danfoss, examples of what the salient rights could entail and how we mitigate them.

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Ethics Hotline and AskUs query function

Danfoss has a whistleblower function called the “Ethics Hotline”, where employees can report suspected breaches of law and internal guidelines anonymously and without involving a manager. To ensure professional treatment of all such reports, Danfoss has entered into an agreement with the company EthicsPoint who will receive the reports either via internet or by telephone and will forward them to Danfoss' Ethics Committee for decision.

Danfoss also has a query function called “AskUs”, which the Group’s employees can contact for immediate advice or find answers to any questions regarding ethics and compliance. The purpose of AskUs is to minimize uncertainty among the Group’s employees and prevent unintended non-compliance.

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Climate strategy

Climate change involving drought and flooding, scarcity of resources, and a number of other impacts pose huge challenges for the world, requiring long-term, targeted work and investments. Danfoss is a world-leading supplier of technologies and solutions that support the growing need for efficient energy utilization and better climate control and we develop, manufacture and sell products that lower energy consumption and reduce CO2 emissions and thus help meet these challenges.

For this reason, it is natural for Danfoss to seek to reduce the climate impact of our own activities. In November 2015 Danfoss has taken its climate strategy an ambitious step up, with new targets to be met by 2030. The focus of Danfoss Climate Strategy 2030 is the company's own business processes, production processes and buildings and the aim is two-fold; to halve the amount of energy Danfoss uses and to halve the intensity of CO2 in the energy actually used.

In figures, this means that Danfoss in 2030 only will consume 90 MWh for every million EUR of net sales instead of the 180 MWh consumed in 2007. The CO2 intensity will be brought down to 29 tons CO2 per EURm net sales from 58 tons CO2 per EURm in 2007.

Environment and occupational health & safety

Danfoss regards environment and health & safety as important elements in all business activities, ranging from product design and manufacturing processes to the maintenance of buildings and plants.

For many years, Danfoss has worked systematically to reduce the environmental impact of its operating activities, including production and transportation. One of the Group’s targets is for all factories to maintain environmental and occupational health and safety management systems.

Every company in the Group prioritizes working environment and safety, as set out by Danfoss’ environmental and working environment policy, which defines the issues and target areas that the business units must address. Making sure that all employees are not exposed to work-related danger is deeply rooted in Danfoss’ culture.

The Group’s policies concerning environment and health and safety ensure high managerial focus on the compliance of national and international guidelines and declarations.

Use of chemical substances

In manufacturing its products, Danfoss uses a number of chemical substances which may be harmful to humans or to the environment. Danfoss continually aims to limit the use of such chemicals: if they cannot readily be omitted or replaced, Danfoss makes sure they are utilized as efficiently as possible, and that measures are taken to protect employees and the environment.

The global Danfoss Negative List is the cornerstone of the Group’s efforts to reduce the use of harmful substances in processes and to ensure that unwanted substances are used neither in production nor in the products. The Negative List has been implemented in all Danfoss business divisions and is regularly updated to include new legislation or changed requirements. Danfoss ensures that electronic updates are available to suppliers through a subscription service.

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Conflict minerals

Danfoss supports the efforts of governments and human rights organizations to end violence and atrocities in conflict zones e.g. in Central Africa. Danfoss has established a process to ensure that our suppliers adopt policies and management systems with respect to conflict minerals.

Danfoss requires its suppliers to establish own due diligence program to ensure conflict-free supply chains. Suppliers are required to supply materials to Danfoss that are documented conflict-free.

Danfoss aligns its conflict-free efforts with practices established by industry peers – including the Electronics Industry Citizenship Coalition (EICC) and Global e-Sustainability Initiative (GeSI) – to enable companies to source conflict-free minerals.

Responsible supplier management

Danfoss works systematically with risk assessment and supplier management. Since 2004, Danfoss has had a Code of Conduct for Suppliers that defines the Group’s environmental and social requirements. All suppliers are required to sign the Code, and Danfoss performs regular supplier audits to verify compliance and to ensure that any non-compliance is addressed.

In addition to following the Code, suppliers of goods used directly in Danfoss products are subject to audits in which Danfoss’ own specialists or external independent consultants assess if the suppliers and their operations represent substantial risk of human rights abuses or the like.

Danfoss Procurement has set up a dedicated organization in order to handle supplier management and assessment, thereby taking responsibility to ensure that our supply chain complies with the principles in Global Compact.

A dedicated procurement organization in China ensures that suppliers in China are assessed on the basis of the special Chinese conditions.

Stakeholder relations

Danfoss seeks to engage actively with our employees, managers and external stakeholders such as customers and NGOs. This enables Danfoss to adapt our processes and tools to match the requirements of the global community and developments in countries and areas where Danfoss operates.

Being challenged on our attitudes and policies is considered a natural and necessary part of dealing with global challenges and living up to our commitments as a global business.

In the context of our new sustainability program, Danfoss intends to engage even more effectively with stakeholders, including customers, thought-leaders and decision-makers.