Integrated Report of Economic, Environmental and Social Sustainability P O S C O R E P O R T 2 0 1 6 About this report Integrated Report The POSCO REPORT (hereafter “Report”) is an integrated report which contains our economic, social, and environmental performances in 2016. Milestone in Reporting 1995~2003 Environmental Report 2004~2011 Sustainability Report 2010~2013 Carbon Report (focusing on climate change issues) 2012~2013 POSCO REPORT (integration of annual report and sustainability report) 2014~Present POSCO REPORT (integration of carbon report) Reporting Guideline This Report was prepared in accordance with POSCO’s own reporting process with a reference to the following reporting guidelines. • GRI (Global Reporting Initiatives) Standard • The 10 Principles of the UN Global Compact Financial Information Standard The reporting framework and definition of the financial information contained in this Report are based on K-IFRS (Korea-International Financial Reporting Standards). Reporting Cycle The Report has been published every year since 2004. Reporting Period This report includes the relevant information from January 1 through December 31, 2016. Quantitative data for the latest three fiscal years are provided for a better under- standing of our performances, while the scope of some qualitative data is extended to March 2017. The corporate governance section is based on the decisions made by the Board of Directors at the meeting held on March 11, 2017. Reporting Scope This Report contains the economic, social, and environmental performances of Po- hang Works, Gwangyang Works, Pohang Head Office, and Seoul Office. Performances in 2016 and management plans in 2017 include POSCO’s consolidated financial data and the Integrated Sustainability Performance Index covers POSCO and its major seven subsidiaries. Information on fair trade, quality management, safety, and health refers to overall supply chain such as our domestic and overseas subsidiaries and out- sourcing partners as well as POSCO. Assurance To ensure the reliability of reporting process and information, the Report was assured Cover Image by Samil PwC, an independent external assurance provider in accordance with the The cover image shows automobile bumper beam ISAE3000 and AA1000AS Type II. For more details, please refer to the assurance state- made of POSCO’s World Premium product “Giga ments below. Steel.” As a ultra-high strength steel with 1 gigapascal* • Independent Assurance Report_ page 126 • Independent Assurance Report On Carbon Reporting_ page 128 of tensile strength or higher, Giga Steel provides automakers with stronger, lighter, eco-friendlier, and Feedback more economic solutions. This Report was published in Korean and English and can be downloaded at POSCO’s * ‌One gigapascal strength steel even with a size of 10 cm- website. We also receive feedback from stakeholders through diverse channels such length and 15 cm-width can give support to the load of 1,500 as e-mail and telephone. one-ton compact vehicles. Address POSCO REPORT http://www.posco.co.kr Head Office 6261, Donghaean-ro, Nam-gu, Pohang-si, Gyeongsangbuk-do, Korea Social Contribution Website http://www.poscolove.co.kr Seoul 440, Teheran-ro, Gangnam-gu, Seoul, Republic of Korea Pohang 6262, Donghaean-ro, Nam-gu, Pohang-si, Gyeongsangbuk-do, Korea Gwangyang 20-26, Pokposarang-gil, Gwangyang-si, Jeollanam-do, Republic of Korea For inquiries on the Report Energy & Environment Business Dept. T. 82-2-3457-0198 E-mail IR [email protected] PR [email protected] Social contribution [email protected] Sustainability/Environment [email protected] Integrated Report of Economic, Environmental and Social Sustainability P O S C O R E P O R T 2 0 1 6 Contents 01 02 Overview Activities and Performances About POSCO 08 Investor Stakeholder Engagement 64 Corporate Governance 09 Investor Information 25 New Eco-friendly Products Board of Directors 10 Performances in 2016 and in 2016 65 Interview with Executives 11 Plans for 2017 26 Carbon Management 68 Vision and Strategy 13 Performance Highlights 32 Climate Change Response Activities 76 Strategy, Opportunities, and Risks in 2017 14 Customer Climate Change Partnership 83 Sustainability Management at POSCO 15 World Premium Products 34 Risk Management 16 Solution Marketing 35 Safety and Health Definition of Stakeholders and Quality Management 37 Safety at POSCO 84 Engagement Principles 18 Health at POSCO 86 Stakeholder Engagement around Innovation Business Sites 19 Technological Innovation 39 Business Ethics Interview with Stakeholders 20 Major Achievements Business Ethics 88 Materiality Analysis 22 in Technology Development 39 Global Human Rights Business Innovation 41 Management 91 Supply Chain Management Employee Fair Trade 44 Organizational Culture 92 Shared Growth Policies and HR Development 95 Programs 46 Global Talents Cultivation 96 Enhancing Suppliers’ Employee Data 101 CSR Competitiveness 52 Venture Support Program 54 Society Focused Areas 102 Environment POSCO 1% Sharing Environmental Management 56 Foundation 108 Environmental Performance 58 Biodiversity Policy and Activities 62 03 04 Financial Statements Assurance Report Independent Auditors’ Report 114 Independent Assurance Report 126 Consolidated Statements of Financial Position 117 Independent Assurance Report Consolidated Statements of On Carbon Reporting 128 Comprehensive Income 118 Consolidated Statements of Changes in Equity 119 Consolidated Statements of Cash Flows 120 Separate Statements of Financial Position 121 Separate Statements of Comprehensive Income 122 Separate Statements of Changes in Equity 123 Separate Statements of Cash Flows 124 05 06 Norms and Guidelines Appendix Code of Ethics 130 GRI INDEx 138 Code of conduct for POSCO Group supplier 135 UN SDGs 144 UN Global Compact Index 144 POSCO REPORT 2016 CEO’s Message 06 CEO’s Message Dear stakeholders, POSCO is bracing for another leap forward based on the steady In order to ensure a smooth sail in our future endeavors, it would be growth achieved over the past five decades since its foundation in essential to remind us of the importance of safety and business ethics 1968. The POSCO REPORT covers our sustainability activities and that are no longer a matter of choice, but a matter of course for cor- consequent performances in 2016, where we focused on enhancing porate survival. In this regard, we will engage in continuous efforts to competitiveness amid challenges both at home and abroad as well prevent accidents and four major unethical behaviors to build a safe as an overview of our plans for 2017. and pleasant workplace for our employees and set an example for our society. We are also committed to developing training programs and The year 2016 was a difficult year due to global steel oversupply, rising fostering an optimal environment for nurturing talents that are ready price of raw materials, and mounting challenges to realize profit, espe- to stand at the forefront of the Fourth Industrial Revolution. cially after recording the first ever net loss the previous year. Instead of surrendering to such difficulties, POSCO was able to achieve the most Moreover, POSCO is deeply engaged in developing sustainable and remarkable operating performance within the global steel industry eco-friendly products as part of our ongoing efforts to address energy thanks to strong support and encouragement from our stakeholders. shortage and environmental degradation. By bringing eco-friendly ma- terials to the world that can be adopted in highly-efficient home appli- In 2016, POSCO focused on offering high value-added products ances and electric vehicles, we can play a bigger role in saving energy to our customers based on solution marketing, reducing cost and and reducing CO2 emissions. At the same time, all POSCO subsidiaries pursuing profit-oriented activities through Innovation POSCO (IP) and affiliates will devote themselves to thoroughly managing working projects. Such efforts successfully resulted in a double-digit operat- environment risks in order to ensure safety of our employees. ing margin and a huge jump in stock price by more than 50 percent. Furthermore, we have been listed on the DJSI World (Dow Jones As such, POSCO is fully committed to complying with sustainability Sustainability Indices) for 12 consecutive years, and were recognized principles with regard to environment, human rights, labor practic- as the best company in responding to climate change issues in the es, and anti-corruption, which is unambiguously required of global global steel industry by the CDP (Carbon Disclosure Project). We have enterprises. The consequent performance of such commitment will also maintained our position at the top tier in the Shared Growth In- be shared with all stakeholders including investors, customers, and dex listings among large-sized enterprises and SMEs. local communities in a prompt and transparent manner. With the aim of building a foundation for another successful five We now stand at half way in our journey toward becoming a world-lead- decades of growth, POSCO will concentrate on four core strategies ing company with 100 years of history and culture. We believe such in 2017: Make further advances in the steel business, strengthen progress was possible largely attributable to the unwavering support POSCO Group’s business structure, develop future growth engines, and trust of our stakeholders. Going forward, we will continue to devote and establish a flexible and creative corporate culture. Specifically, ourselves