— Annual report 2020 — ABB AT A GLANCE — ABB (ABBN: SIX Swiss Ex) is a leading global technology company that energizes the transformation of society and industry to achieve a more productive, sustainable future. By connecting software to its electrification, robotics, automation and motion portfolio, ABB pushes the boundaries of technology to drive performance to new levels. With a history of excellence stretching back more than 130 years, ABB’s success is driven by about 105,000 talented employees in over 100 countries. — www.abb.com Contents — Annual report 2020 — 01 Introduction 6 – 37 — 02 Corporate governance report 38 – 61 — 03 Compensation report 62 – 93 — 04 Financial review of ABB Group 94 – 227 — 05 ABB Ltd statutory financial statements 228 – 245 — 06 Supplemental information 246 – 250 01 Introduction — 6 – 37 8 Chairman and CEO letter 12 The ABB Way 14 Our Purpose and values 16 Sustainability strategy 2030 20 Electrification 22 Industrial Automation 24 Motion 26 Robotics & Discrete Automation 28 Highlights 2020 29 Financial overview 34 Cash generation and capital allocation 8 ABB ANNUAL REPORT 2020 01 INTRODUCTION — CHAIRMAN AND CEO LETTER Dear shareholders, customers, partners and employees, The year 2020 is not one that we are likely to In our 2030 sustainability strategy (see below), forget. Never in living memory has the world we are targeting a yearly reduction in lost time faced a challenge matching the scope and impact from injuries. of the COVID-19 pandemic. The economic costs were high, as lockdowns dampened business Financial performance activity across much of the world. But the human costs were far higher. At ABB, some of us lost Thanks to the commitment, ingenuity and family members, friends and colleagues, as did hard work of our people, in 2020 we delivered millions of others around the world. a solid financial performance in what was an extremely challenging year. As expected, Leading ABB through the COVID-19 pandemic our markets were impacted by COVID-19 pan- demic: For the full-year 2020, orders declined But the COVID-19 pandemic also brought out the by 7 percent to $26.5 billion and revenues were best in ABB. Across the world, our people came down by 7 percent. However, our operational together to take care of each other, while continu- EBITA margin – our main measure of profitability ing to support our customers and to help in their – was stable at 11.1 percent, showing that we communities. Our first priority, as always, was took the right and necessary actions in response health and safety – we took every precaution to to the pandemic. safeguard our people, ensuring that we were fully aligned with local government and World Health In line with our policy of paying a sustainable Organization guidelines and making appropriate dividend over time, we will be proposing arrangements for employees to work from home. a dividend of CHF 0.80 per share to our share- holders to be voted on at the annual general Many of our leaders donated part of their com- meeting on March 25, 2021. pensation or salary to help affected employees, and many employees took leave to do volunteer Strongly positioned for growth work in their communities. Our main fundraising effort, for the COVID-19 relief program of the The challenges posed by the COVID-19 pandemic International Committee of the Red Cross, raised accelerated several megatrends and none more so CHF 2 million in employee and company donations. than the shift to digital connectivity and automa- In December, we made another donation tion, as industries sought ways to maintain of $1 million to support the World Childhood operations with fewer people on site. At the Foundation’s work with vulnerable children. same time, growing public awareness of the need for action on climate change and the over-use Thanks to our global footprint, well-established of natural resources has driven sustainability to crisis management processes, and strong techno- the top of the agenda for governments, investors, logical expertise, we were able to keep our corporations and multilateral organizations. operations running, which was crucial as we are A related megatrend is urbanization, which recognized as a critical supplier for power and is placing cities under huge pressure to expand essential infrastructure to nations and industries. sustainably, reduce energy consumption and Our technologies also helped us and our custom- traffic congestion, and improve air and water ers overcome many of the obstacles created quality. by the lockdowns. One way we supported our customers was by making some of our software For ABB, these megatrends represent compelling services available free to ensure uninterrupted business opportunities. Our market and techno- power supplies to critical healthcare applications logy leadership in electrification position us and to support commercial and industrial facili- strongly in a market where demand is growing at ties in better managing their facilities. twice the pace of other energy sources. Our leadership in automation, robotics and motion Thanks to our strong focus on safety, the number means we are ideally placed to help industries of serious work injuries among employees and improve energy efficiency and productivity. contractors was stable compared with 2019 and And our solutions for the transport sector gives fell compared with previous years. Tragically, we us commanding positions in marine, rail and had two fatalities in 2020, and two in 2019, com- electric mobility on the road. pared with four in each of the two previous years. ABB ANNUAL REPORT 2020 01 INTRODUCTION 9 COVID-19 information: For health and safety reasons, each person was photographed individually to ensure physical distancing. 10 ABB ANNUAL REPORT 2020 01 INTRODUCTION — Our Purpose During the summer of 2020, we formulated our The COVID-19 Purpose, representing the “why” we are in business. Our Purpose was developed in consul- pandemic accelerated tation with key stakeholder groups: employees, customers, shareholders, partners and multi- several megatrends lateral organizations. First and foremost, our Purpose is to create superior value for our and none more so stakeholders. We do so by continuously pushing the boundaries of technology, and by helping than the shift to to transform industries and society to achieve a more productive, sustainable future. digital connectivity Sustainability and automation, A key part of our company Purpose and the value that we create for stakeholders is sustainability. as industries sought We believe that sustainable development means progress towards a healthier and more prosper- ways to maintain ous world for future generations. This means balancing the needs of society, the environment operations with fewer and the economy. people on site. Having delivered a good performance against all of our environmental, social and governance targets for 2020, and exceeded most of them, we Finally, our domain knowledge in all of these launched our 2030 sustainability strategy, focus- areas has allowed us build up a strong portfolio ing on those areas where we can make the biggest of digital solutions and services under the impact – reducing carbon emissions, preserving ABB Ability™ brand. As demand for digitally resources and promoting social progress. enabled solutions increases, we see tremendous Our key targets for 2030 include: achieving carbon opportunities for our remote monitoring, neutrality in our own operations; helping our preventive maintenance and other connected customers reduce their annual CO2e (carbon solutions for industry, cities and transport. dioxide equivalent) emissions by at least 100 megatons, equivalent to the annual emissions Continuing our transformation of 30 million combustion cars; and embedding circularity across our value chain (see page 16). To position ABB to take full advantage of these emerging megatrends, we embarked on an ambi- We will achieve these targets by transitioning tious transformation program in 2019. Our aim to renewable sources of energy, converting our was to simplify our organizational structure to vehicle fleet to electric or other non-emitting foster a high-performance culture and to focus on alternatives, and by improving energy efficiency complementary businesses in which ABB can in our own and our customers’ operations. maintain and strengthen its market leadership. In 2020, we completed our organizational trans- Last year, we also introduced our global diversity formation with the divestment of Power Grids, and inclusion strategy 2030, with the clear goal which was successfully handed over to Hitachi on of increasing diversity across all dimensions, July 1, 2020, and by implementing our new operat- including: gender, LGBTQ+, abilities, ethnicity and ing model called the “ABB Way”. generations. By 2030, we are targeting a doubling of the number of women in senior management Today, under Hitachi’s majority ownership, roles to 25 percent. the Hitachi ABB Power Grids joint venture is a successful company that is continuing to win To ensure progress on our targets, we have devel- impressive orders and to develop pioneering and oped a new sustainability governance framework. digital technologies. In line with our commitment We will also link ABB’s remuneration policies to ABB shareholders, we intend to return cash to the achievement of our sustainability targets. proceeds of $7.6-7.8 billion from the divestment The Board of Directors will be responsible of Power Grids through a share buyback program. for overseeing the sustainability strategy and The first part of the program will end on the day monitors progress and target achievements, as of our annual general meeting, when shareholders part of its overall responsibility for the company’s will be asked to approve the cancellation of shares strategy and targets. bought back. ABB ANNUAL REPORT 2020 01 INTRODUCTION 11 Decentralized business model Under the ABB Way, we safeguard our company from financial and reputational harm through In parallel to our Purpose, we introduced the a comprehensive governance framework, based ABB Way operating model, which covers “how” on integrity and transparency.