SUSTAINABILITY REPORT 2016 Sustainability Report 2016 Report Sustainability CONTENTS

A.P. MØLLER - MÆRSK A/S

A.P. Møller - Mærsk A/S - Mærsk Møller A.P. SUSTAINABILITY REPORT 2016 Sustainability Report 2016 Report Sustainability CONTENTS

INTRODUCTION SHARED VALUE RESPONSIBILITY 01–07 08–19 20–33

Foreword by the CEO 01 Breaking the ship recycling stalemate 10 Our commitment to personal safety 22

Our business 02 Advocating CO2 regulation Understanding human rights in shipping 14 – impacts and actions 24 Strategy and governance in a time of transition 04 Inclusive growth through trade 16 Removing barriers to inclusion 28

Materiality beyond the matrix 06 TAX FEATURE 30

RISK ASSURANCE AND PERFORMANCE DATA About the report 34–43 This report covers activities in the 2016 44–46 calendar year. Our approach to reporting is to focus on material issues and activities, Independent assurance report 44 in line with stakeholder concerns and relevance in terms of context, Performance data 45 completeness and balance. We strive for optimal accuracy, timeliness, clarity and reliability in the way we communicate. This report also represents our statutory statement on social responsibility & Continuing the fight against corruption 36 underrepresented gender in accordance with sections §99a & b of the Danish Engaging to mitigate supplier risks 38 Financial Statements Act. Call for enforcement of A.P. Moller - Maersk’s Sustainabiity environmental regulations 40 accounting principles can be downloaded here: www.maersk.com/sustainability- Ensuring a culture of prevention 42 report-2016-accounting-principles Previous years’ data and our UN Global Compact Communications on Progress table is also available online. Please visit http://www.maersk.com/en/the- maersk-group/sustainability/reports Introduction | Foreword by the CEO

and regulations. Based on our experience, we strongly advocate for increased global regulation of CO2 emissions in the shipping industry. We were happy to see that the Paris agreement on Climate Change also led to renewed momentum in the International Maritime Organization (IMO), resulting in a roadmap for long term CO2 reductions. We will work to help ensure the right level of ambition is defined by 2018.

Changing an industry Our decision to invest in upgrading the ship recycling industry was a source of concern as well as pride in 2016. We came under fire from critical stakeholders who believe we are stepping away from our commitment to responsible ship recycling. To the contrary, we are actively stepping up our FOREWORD commitment to responsible ship recycling by cooperating with selected, certified yards in Alang, India. BY THE CEO Significant and independently certified progress, in terms of both labour and environmental conditions, was made at the Shree Ram yard, where two of our vessels Dear reader, We will continue to unlock growth for are currently being dismantled. More societies and our business through new and yards are signing up to invest in similar The 2016 A.P. Moller - Maersk Sustainability better ways of organising trade, providing improvements, and we remain convinced Report comes at a time of change for us and access to global markets for still more that our activities are the beginning of the the industries in which we operate. Among people in the world. Global trade delivers end for the present gridlock in the ship low economic growth rates, increasing economic benefits to the large majority recycling industry, which currently sees pressures on the concept of free trade and of people, and solutions need to be found a vast majority of global tonnage being changes in energy consumption, we have to ensure that these benefits extend to all recycled at unregulated beach facilities. responded with a whole new strategy for people. As a business built around global A.P. Moller - Maersk and its businesses. trade, we will continue to provide data and Safety will always be our first priority In the future, A.P. Moller - Maersk will research on trade and its societal impacts, Although our company is undergoing focus on global transport and logistics. Our not to mention on-the-ground projects to far-reaching change, the safety of our overall strategic aim is to create a stronger, test new models for enabling trade. I am employees is and always will be our very more integrated container, logistics, and pleased to see that the pilot projects we first priority. Nothing comes before safety. ports business. It is the intention that our oil launched three years ago are now ready It is therefore deeply regrettable that two of and oil-related businesses will be separated to be implemented on a larger scale with our colleagues lost their lives while working from A.P. Møller - Mærsk A/S. The new the participation and ownership of a wide at Maersk-owned port and storage facilities strategy, and underlying structure, will group of stakeholders. in 2016. I express my sincere regret and my allow us to focus on growth and enhancing A high-level working group established sympathies go to the families and friends synergies within transport and logistics, by then UN Secretary General Ban Ki-Moon, who suffered this loss. Such incidents are while ensuring the agility of our oil-related with the participation of A.P. Moller - Maersk, simply not acceptable. We will continue our businesses in the pursuit of individual describes sustainable transport as quest to find ways to prevent fatal accidents strategic solutions for future development. being essential for economic and social and will not be satisfied until fatalities are development. Maersk Line demonstrates eradicated from our operations. Unlocking sustainable growth that it is possible to decouple business Our commitment to sustainable and growth and CO2 emissions. However, it is responsible business will not change, and becoming increasingly difficult for individual we remain committed to the United Nations companies to sustain progress without the Søren Skou Global Compact. backing of broad industry commitments CEO of A.P. Moller - Maersk A/S

Sustainability Report 2016 | 01 Introduction | Our business

OUR BUSINESS In 2016, the Board of Directors took a decision to reorganise A.P. Moller - Maersk in two divisions: Transport & Logistics and Energy. The integrated Transport & Logistics division has multiple brands and is a global leader in shipping and ports. The Energy division has four oil and oil-related businesses, which will continue to be managed and operated as individual entities. Indicators of performance and examples of where some of our material sustainability issues can occur across our businesses and value chains are depicted below.

RESOURCES A.P. MOLLER - MAERSK OUTCOMES

Invested capital TRANSPORT & LOGISTICS Revenue Facilitation GHG emissions The Transport & Logistics division consists of Maersk Line, APM Terminals, Damco, Svitzer payment reduction USD 42.8bn and Maersk Container Industry. The mission of these businesses is to enable and facilitate USD 35.5bn 36,169 global supply chains and provide opportunities for our customers to trade globally. 59% 1,000 tonnes CO eq. Total assets Result across our businesses p. 14–15 p. 36–37 USD 61.1bn USD -1.9bn Relative CO reduction Enabling trade Ship recycling Employee Employees p. 16–19 p. 10–13 Disaster Underlying result engagement survey 25% response CO eq. 2010 baseline 87,736 p. 27 USD 0.7bn 76% p. 14–15 favourable SOx emissions Fatalities 513 Conict 2 1,000 tonnes zones p. 22–23 p. 40–41 p. 24–27 Oil spills 1 p. 42–43

Security services Labour standards p. 24–27 Electricity p. 24–27 2016 CASH OUTFLOW DISTRIBUTION

524 Land 1,000 MWh acquisition p. 24–27 Fuel oil 10,115 Ballast water 1,000 tonnes ENERGY p. 40–41 The Energy division consists of Maersk Oil, Maersk Drilling, Maersk Supply Service 3% 3% 4% 10% 14% 66% Public sector Shareholders Repayment of Investments Employees Suppliers and Maersk Tankers. Our Energy businesses support and provide global oil and gas (taxes) (dividends) borrowings (net) (salaries) p. 38–39 production as well as oshore marine services. p. 30–33

PARTNERSHIPS

02 | A.P. Moller - Maersk Introduction | Our business

RESOURCES A.P. MOLLER - MAERSK OUTCOMES

Security services Labour standards p. 24–27 Electricity p. 24–27 2016 CASH OUTFLOW DISTRIBUTION

PARTNERSHIPS

UN High-level Advisory Group on Sustainable Transport

Sustainability Report 2016 | 03 Introduction | Strategy & governance

STRATEGY AND GOVERNANCE IN A TIME OF TRANSITION With the changes to A.P. Moller - Maersk’s strategy and organisational structure, our sustainability strategy and governance structures will need to be updated. The foundational structures remain the same.

The new A.P. Moller - Maersk structure and strategy threshold of mainstreaming and developing all of the The Commit has made its mark on all corners of the company, projects to scale. governance as organisational structures, strategic priorities and framework governance frameworks are being aligned with the Sustainability decision-making A.P. Moller - Maersk’s new reality of the company. Following the re-organisation of A.P. Moller - Maersk governance system, One immediate consequence for Maersk’s in 2016, sustainability governance and performance Commit, aims to provide sustainability work is that a review and update to management tools will undergo a revision as well. clarity and guide employees on how we work and achieve our sustainability strategy will be initiated in 2017. However, the existing structures and tools remained our main objectives. The key In the interim, some adaptations of the 2014 – 2018 in place throughout 2016. mandatory elements in the Sustainability Strategy have taken effect. A.P. Moller - Maersk’s main governance and framework are: This strategy focuses on unlocking growth for supervisory body on sustainability is the Sustainability business and society, by leveraging our capabilities Council, which operates on behalf of the Management Core Values embody the essence of our core to deliver impact and drive change within energy Board. The Council is chaired by a Management Board company culture and efficiency, trade and education. member and has members representing the main provide guidance on our Due to a change in the business environment businesses within the Transport & Logistics and behaviour to ensure that for energy, the sector to which the education focus Energy divisions. we make ethically sound decisions. was strategically tied, it was determined that In 2016, the Sustainability Council’s work included the business case for our education activities no the approval of an addition to A.P. Moller - Maersk’s Policies provide guidance longer exists, and the programme was put on hold ship recycling policy related to the recycling of ships on what we stand for. They in 2016. sold off prior to end-of-life; discussions of governance govern how we act and In the area of enabling trade, the work on our and organisational requirements on sustainability in engage with our customers, colleagues, suppliers and pilot projects has progressed faster than originally the businesses; and the approval of a position on CO2 society at large. expected. See pages 16–19. We are already on the emissions from shipping. Rules are internal regulations or decision- making processes for areas that are relevant Sustainability governance 2016 from governance and risk management perspectives. Management ownership is clearly assigned for each Management Board element, and assurance on policies, rules and values is carried out on an annual Commit framework Sustainability Council basis.

Programme owners in functional areas Sustainability department

Businesses

04 | A.P. Moller - Maersk Introduction | Strategy & governance

Sustainability issues related to UN Global Compact commitments are governed and managed through the Commit governance framework, see sidebar on page 4. Other issues that have been added to the corporate agenda more recently, or that are primarily managed through positioning and advocacy, are governed by the Sustainability Council or the Human Resources Board. The table below provides an overview of governance and issue owners. More information on our policies and positions can be found at www.maersk.com/sustainability.

Tools for oversight In 2016, the established tools for oversight and supervision remained in effect. • A sustainability dashboard is reviewed by the Sustainability Council on a semi-annual basis and provides an overview of progress and performance on key indicators related to strategic sustainability priorities and progress on sustainability integration in the businesses • The sustainability department conducts CEO reviews to gauge the businesses’ progress and performance on sustainability, and to facilitate forward-looking dialogues with the CEOs on sustainability priorities. Each business is reviewed every second year. The outcome of the reviews is reported to the Sustainability Council and the Management Board

Governance of issues in 2016 – an overview

Issues Guidance framework Issue owner / department Issues governed through the Commit Framework Safety Rule on HSE Management Systems Health and Safety Committee

Responsible tax Rule on Tax Compliance and Tax Principles (currently under revision) Tax

Anti-corruption Rule on Anti-Corruption Legal

Responsible procurement Rule on Responsible Procurement Procurement

Labour standards Rule on Global Labour Relations Human Resources Issues governed by the Sustainability Council

Air emissions Position on SOx Maersk Maritime Technology

Ballast water Position on Ballast Water Maersk Maritime Technology

Ship recycling Responsible Ship Recycling Standard Sustainability

Climate change/CO2 emissions Climate Change Position Sustainability

Enabling trade Sustainability Strategy Sustainability

Human rights Human Rights Action Plan Sustainability Issues governed by the HR Board Diversity & inclusion Diversity & Inclusion Strategy Human Resources

Sustainability Report 2016 | 05 Introduction | Materiality

MATERIALITY BEYOND THE MATRIX A new way to assess our material sustainability issues allows us to better understand each issue and take actions to adequately respond to the challenges presented.

Understanding which issues are material to our As a result, we set out to improve the way we business and our stakeholders is integral to how conduct our materiality assessment. Our aim is we work with sustainability at A.P. Moller - Maersk. to create a richer environment for materiality We conducted our first materiality assessment in that expands our understanding of the issues 2012, and have since updated and published the involved and our criteria for prioritisation, as well materiality matrix on an annual basis. Our strategy as provides guidance on how to manage a and activities have evolved since then, but we have particular issue. found in recent years that the insight provided by The matrix tended to provide us with a slightly the materiality matrix has become somewhat static, blurred picture of what and why issues were not fully reflecting nor guiding our approach to material to us, as different dimensions of an issue managing material issues. were compiled in a single expression of importance.

Top material issues in 2016 across the three dimensions of materiality

y it Responsibility il Risk R ib s is Where we have a responsibility to prevent n k Where sustainability issues pose a o or mitigate risks to society in the form of p significant financial or reputational risk s a significant potential negative impact on e The three to our business objectives. people, society or the environment. R dimensions of materiality ISSUES: ISSUES: Major accident / Oil spill / Chemical spill Injuries and fatalities Major non-compliance with Labour rights in indirect hiring and of corruption regulations subcontracted workers Sha ue red val Supplier non-compliance with Third Diversity & inclusion Party Code of Conduct

Tax practices & transparency Shared value Uneven playing field in the enforcement Where we, through our business, have the of global SOx regulations Transport and other services to/from capacity to pursue and scale solutions conflict zones Investment in ballast water systems in to significant systemic challenges to the an unclear regulatory environment Land acquisition and resettlement by benefit of society and, at the same time, linked third parties deliver a positive return for the business.

Disaster response ISSUES: Armed security services Disposal of vessels and rigs for recycling Reduction of CO2 emissions

Enabling trade

06 | A.P. Moller - Maersk Introduction | Materiality

With the new approach, we are moving away business to explore the opportunities for change and Continuous from a matrix and towards a model that will provide development. We manage risks through mitigation stakeholder us with better information about why and how an processes that will reduce the risk to society and to our engagement issue is material to us and, consequently, how we can business. This is most commonly achieved through Issue owners at A.P. Moller - best manage it. strong internal processes and training activities. We Maersk continuously engage manage responsibility issues by limiting their negative with relevant external Material issues 2016 impacts and ensuring performance improvements. stakeholders. Engagement occurs as part of daily work Sustainability issues can be material as a responsibility, and in dedicated fora, of risk, or shared value. The definition we apply to each Materiality and the SDGs which A.P. Moller - Maersk or can be seen in the figure on page 6. The United Nations’ Sustainable Development its businesses are members. The overview of material issues includes only the Goals (SDGs) have been applied in our materiality In addition to our ongoing top prioritised issues within each dimension. Other assessment this year as an expression of the engagement, in 2016, we invited representatives from issues, such as education and waste management, expectations of the global stakeholder community. six external stakeholder were part of the assessment process but are not Corresponding to our current strategic sustainability groups to our headquarters included in the overview as they did not come out priorities, we see the greatest potential for positive in Copenhagen for a as high priority issues. Compared to 2015, other impact at scale through our business on Goals number roundtable discussion. On the agenda were six topics issues were reframed, as is the case with what was 8: decent work and economic growth, 9: industry, selected by us, as well as an previously defined as process safety. When applying innovation, and infrastructure, and 13: climate action. open forum for additional the criteria for each of the three dimensions, this area When engaging in global value chains and energy stakeholder concerns. was seen to constitute a risk specifically linked to major production, our business touches on all 17 SDGs, The topics discussed accidents and oil spills. Finally, new issues emerged either directly or indirectly. Many of the goals and were biodiversity, waste and marine litter, the transport as being material, for example enabling trade, disaster targets cover issues that are already core to our sector and goods shipped, response and the use of armed security services. sustainability efforts, including anti-corruption, value chain responsibility All sustainability issues will have elements labour rights, responsible procurement, diversity and due diligence, of several or all three dimensions. However, the & inclusion, safety and environment. In each of responsible lobbying, and identification of a dominant dimension allows for the following chapters, we mark the relationship the positive and negative impacts of trade. greater impact in the way we manage issues. between the topic at hand and the SDGs. The participants We manage shared value opportunities by engaging Our full analysis, comparing our current business included the UNEP World in partnerships and multi-stakeholder alliances with and sustainability priorities with the 17 Goals and 169 Conservation Monitoring a view to bringing about change on a broader scale. targets, can be viewed online at www.maersk.com/ Centre, WWF Denmark, At the same time, we will take actions in our own sustainability. IBIS-Oxfam, International Centre for Trade and Sustainable Development China, Action Aid Denmark, and Transparency Materiality input & assessment criteria International. The outcome of the To accommodate our ambition and understanding of the three dimensions of materiality, we have developed roundtable helped to inform a new process. We will further refine and develop this approach in the coming years. our thinking and materiality assessment of the issues in question, and will inform RESPONSIBILITY SHARED VALUE RISK part of the work to update our strategy in 2017. Inputs / • UN Guiding Principles on • Sustainability strategy • Risk assessment considerations Business and Human Rights • Business strategy • Input from stakeholders • Input from stakeholders • Input from stakeholders • External research • UN Sustainable • External research Development Goals • External research

Assessment Does society Is there a major Does it have a social criteria expect us to contribute societal need/challenge? or environmental impact? to managing the issue? Is A.P. Moller - Maersk able to Does the issue present Do our values require us deliver market solutions at scale a significant financial or to take action? through our existing business? reputational risk to A.P. Moller - Maersk’s ability to reach its Does A.P. Moller - Maersk have Can we drive collective action business objectives? significant impact on an issue? for change within the industry?

Sustainability Report 2016 | 07 Shared value

08 | A.P. Moller - Maersk Shared value

SHARED VALUE – solving systemic challenges

Some global sustainability challenges are particularly related to our business operations and at the same time in need of collective and collaborative solutions. By taking action in our own business and establishing partnerships and other alliances, our ambition is to create new opportunities for progress on systemic challenges.

Issues approached as shared value opportunities share three characteristics: 1. There is a global need for responding to the challenge presented 2. A.P. Moller - Maersk is able to deliver market-based solutions to the challenge and scale through our business 3. We are able to take the lead in driving collective action for change at a systemic level across industries and/or a broader coalition of stakeholders

This is the case for the following three issues: Ship recycling, reducing CO2 emissions in shipping, and enabling trade.

Sustainability Report 2016 | 09 Shared value | Ship recycling

BREAKING THE SHIP RECYCLING STALEMATE

More than three quarters of all vessels The UN’s Hong Kong Convention, which Main achievements reaching end of life are dismantled on was negotiated in the International Maritime 2016 three beaches in Southeast Asia. This has Organization (IMO), sets global minimum standards been the case for more than 30 years, for safety and environment. Seven years after it was adopted in 2009, it has still not been ratified by 100% despite obvious negative impacts on the of workers in Shree Ram enough countries to come into force. Although the received safety training. environment, workers’ conditions and rights, convention does not cover social issues and leaves and the local community. A.P. Moller - Maersk ample room for interpretation, it is still important has embarked on a process to change this that the convention is ratified as an established 3 situation, starting in Alang, India. minimum to work from. yards approved according to the A.P. Moller - Maersk A.P. Moller - Maersk also established a policy for responsible ship recycling the responsible recycling of ships in 2009, stating standard and ready to Ten kilometers of beach with the highest tidal that we will only dismantle our vessels and rigs at receive vessels. difference in the area has brought old supertankers, yards that comply with a strict interpretation of the car ferries, container ships and ocean liners to Alang Hong Kong Convention and who are able and willing since the first ship-breaking yard opened here in to upgrade to our standard within a short timeframe. 1983. High tides carry them onto the beaches and Between 2009–2015 we recycled 40–50 vessels, the hundreds of manual labourers dismantle the ships, vast majority at facilities in Turkey and China. as yard owners resell the steel cut out of the vessels. Controversies over working conditions, workers’ On the beaches, nothing changes Related Sustainable living conditions, and the impact on the environment The combination of surplus capacity in the container Development Goals have been tied to Alang’s yards. Yet, nearly half of the shipping market together with global demand for world’s ship recycling takes place here. recycled steel will result in more vessels being sent for We are committed to recycling our vessels in a recycling in the coming years. This is true for A.P. Moller - responsible way when they reach end of life, ensuring Maersk and for ship owners across the globe. workers’ safety and rights as well as minimising Today, the majority of the world’s vessels are sent the environmental impact. Our stakeholders expect for recycling where the highest possible price for this and it is in line with our values. We have a clear the steel can be obtained. This is in shipyards on the responsibility to respect human rights. beaches of India, Bangladesh and Pakistan, where low

10 | A.P. Moller - Maersk Shared value | Ship recycling

standards in terms of environmental and workers’ What remains is the lack of progress in ship Mending a gap: conditions mean lower costs. This enables these yards recycling practices, policies, and standards. This is new requirements to offer better prices for the vessels than those offered the stalemate that A.P. Moller - Maersk decided that when selling vessels by competing shipyards with higher standards. we will try to break. In 2015, we began exploring the With the addition of a new The result is clear: In 2016, 87% of the world’s creation of a third option to be added to the current requirement in September ships were dismantled on these beaches, despite practices: responsibly dismantling vessels in yards 2016, A.P. Moller - Maersk’s most large shipping companies having policies on on a beach. Our investigations found that some yards ship recycling policy intends to minimise the financial the responsible recycling of their own vessels. Most in Alang had begun to upgrade their facilities to incentive for buyers company policies do not, however, cover vessels sold comply with the Hong Kong Convention. to recycle our vessels off just before end of life, and it is highly likely that irresponsibly. Three options these vessels end up on one of these beaches. Neither How we work are defined in the policy and the industry, global society, the shipyards nor the From 2016, we have begun working with yards that applicable to any sale of an A.P. Moller - Maersk vessel: countries concerned have succeeded in changing this have made these investments. However, our standard • If the value of the ship is situation. There is no global regulation and neither and effort goes beyond this. When we engage with less than shipowners nor shipyards have been able to regulate a yard in Alang, we want to guarantee that the themselves due to competitive pressures. yard is not only equipped to work responsibly, but 25% above the highest recycling will actually implement the means and practices price, we will not sell Creating a third option necessary to comply with A.P. Moller - Maersk’s off the ship, but instead Historically, responsible shipowners have had two Responsible Ship Recycling Standard (RSRS). The recycle it ourselves in options for the recycling of their vessels. Vessels could RSRS implies: accordance with our policy • If the value is between be sent to yards in, for example, China and Turkey for • going beyond the Hong Kong Convention in responsible recycling, which was typically done for relation to social and anti-corruption issues 25–40% a small number of vessels. Alternatively, ships could • relying on a strict interpretation of the Hong above the highest recycling be sold off some time before they reached end of life. Kong Convention in relation to health, safety and price, we require that the new owner operates the This would remove shipowners from the decision of environmental issues vessel for at least two whether or not to take advantage of the very large • Monitoring compliance by having people on the years after the sale, or difference in recycling prices between the yards in ground at the yard with a contractual right to stop recycles it in accordance China and Turkey and the yards on the beaches. the work if necessary with our standards We have realised that limiting our responsibility • If the value is more than to our own vessels is not enough, and in 2016, we Making progress 40% added a new requirement to our policy and standard At the end of 2016, two A.P. Moller - Maersk vessels above the highest on responsible ship recycling concerning the sale had been sent to the Shree Ram yard in Alang. recycling price, there are of vessels. The purpose of the amendment is to We are supervising the responsible recycling of these no restrictions on the sale of the vessel, as there is eliminate, in nearly all cases, the financial incentive vessels. Our supervisors working at the yards assist no financial incentive to recycle irresponsibly. See the requirements in the in upgrading practices, processes and facilities in for the buyer to recycle at sidebar to the right. accordance with our standard. that point in time

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk To ensure the financially The first two A.P. Moller - Upgrade more yards in In spite of known and We have a responsibility to attractive and responsible Maersk vessels are India to meet A.P. Moller - serious environmental and ensure that the recycling recycling of our own vessels, undergoing responsible ship Maersk’s standard. social challenges, such as of our vessels is done in a and to play a proactive role recycling in Alang, India. Ensure greater international underpayment of salaries, responsible way. It is also in in upgrading standards for All workers have contracts, transparency on unsafe working conditions our strategic interest that all all yards in the Alang area are trained in safety, and shipbreaking policies and and serious environmental vessels in the industry are with a view to develop the paid minimum wage plus practicies. pollution, 87% of the total being scrapped responsibly entire shipbreaking industry. 200% overtime. gross tonnage scrapped so that the existing Initiate actions for the is sold to non-certified advantage of low standard Significantly upgraded improvement of the greater facilities in ship recycling scrapping is eliminated from housing for all employees. Alang area. yards on beaches in India, the market. Pakistan and Bangladesh. All blocks are cut to fall inside the vessel (except the bow and stern).

Sustainability Report 2016 | 11 Shared value | Ship recycling

Since sending vessels to the Shree Ram yard in in different types of yards. We will use the results to “ There is a better Alang for the first time in May 2016, we have seen guide our decisions in the future. safety culture here, significant progress in several areas: there is drinking • 70% of the workers have received intensive Engaging other shipowners water, there is training and instructions from the LR Group in We are encouraged by the speed at which change housing, there is the UK and India and other qualified training is occuring on the ground in the Shree Ram yard electricity, all of organisations. The remaining 30% of the workers, in Alang. Yet we also understand that reaching the which is for free for who perform less dangerous tasks, have also ultimate aim, which is to transform the entire ship the workers and received training targeted at their tasks breaking industry, will be a lengthy process. In order there is personal • As opposed to practices used elsewhere in the to reach that goal, other shipowners need to engage protection equipment area, the class-approved ship recycling plan and and provide commercial incentives for more yards beyond just overalls dismantling sequence for the yard means that to upgrade. Throughout the year, we engaged with and a helmet. This the entire vessel, except the bow and stern, is shipowners, especially from Japan and Europe, an is all provided by dismantled on a surface where there is no contact effort we will increase in 2017. the yard and it is between ship parts and sand or water Engaging in yards on beaches is a challenge • Appropriate personal protective equipment is for shipowners in general, as it is connected with the combination of available and required considerable reputational risk. This is due in part all these things that • All workers are paid the minimum wage plus to the firm belief of some stakeholders that the makes me want to 200% in overtime payment and they have a dismantling of ships at yards located on beaches work at Shree Ram.” contract – neither of which is the practice of the can never become responsible. Moreover, many M. D. Arif industry in the area shipowners have been met with strong criticism — Worker at Shree Ram • Housing for all of the shipyard’s employees has when using the beach facilities in the past. for the past year been constructed and significantly upgraded Beginning community engagement As part of a tender issued in December 2016, we Our commitment and engagement in the Alang awarded contracts for the recycling of four ships to area goes further than the yards we use. There are Shree Ram and Y.S. Investments in Alang. This tender still unacceptable shortcomings in the surrounding was the first time we saw ship recyclers compete not infrastructure. One of the most pressing problems only on price, but also on standards. is healthcare and access to proper treatment in the The environmental impacts of ship recycling, case of accidents. We are in dialogue with the Indian whether on beaches or in certified yards in China and Red Cross Society, who run a clinic in the area, on Turkey, are an understudied area. We are currently ways to collaborate on improving conditions. We will undertaking research to understand these impacts continue and increase our efforts in this area in 2017.

Watchdog criticism of our actions A.P. Moller - Maersk’s decision to engage with yards on the beach in Alang transferred to a buyer in April 2016. The contract stipulated that has been criticised by some NGOs from the time of its announcement. if redeployment was not possible, the unit was to be dismantled responsibly. Yet, in August 2016, we were made aware of the fact The core criticisms raised in 2016 were: that the North Sea Producer had been sent to a recycling yard in Bangladesh. We are extremely disappointed with the outcome When engaging with shipyards in Alang, we were allowing and 1 of this process, and have therefore terminated all commercial paying for practices that were dangerous to people and harmful relations with the buyer to the environment. Some of the practices critics claimed to have revealed were resolved by the improvement plans agreed between • The contract on 14 chartered container ships known as A.P. Moller - Maersk and Shree Ram. Please read the full text in this Starflotte was terminated ahead of time. An agreement was chapter for our response to these allegations negotiated with the owners of the 14 vessels regarding the termination of the contract and recycling of the ships in return 2 On two occassions, vessels and rigs previously owned by for compensation. The termination of the agreement indirectly A.P. Moller - Maersk businesses were dismantled on the beaches of incentivised the owners to recycle at sub-standard yards in 2013. Bangladesh. This was the case for: We recognise that in this case we regrettably did not live up to the intention of our recycling policy. To avoid this going forward, • The North Sea Producer, a floating production, storage and we have added a new requirement to our ship recycling policy to offloading unit formerly owned by A.P. Moller - Maersk FPSOs minimise the financial incentive for buyers to recycle our vessels and since owned and operated by a joint venture, of which irresponsibly. See sidebar on page 11 Maersk owned 50%. The ship was sold for redeployment and

12 | A.P. Moller - Maersk Shared value | Ship recycling

Timeline for A.P. Moller - Maersk in Alang, India 2015 – 2016 The A.P. Moller - Maersk standard for responsible recycling

MARCH 2015 A.P. Moller - Maersk’s responsible ship recycling standard incorporates the Hong A.P. Moller - Maersk’s first Kong Convention on Safe and Environmentally Sound Recycling of Ships, with visit to Alang DECEMBER 2015 additional demands made particularly in the areas of labour & human rights, anti- Four ship recycling corruption and sub-contractors’ conditions. facilities in Alang receive FEBRUARY 2016 certification by Class NK For a yard to receive business from A.P. Moller - Maersk, it must comply with the The internal Responsible documenting that their Hong Kong Convention as certified by an authoritative third party organisation Ship Recycling Standard standards meet the Hong from the onset. An audit of the facility is subsequently conducted including a gap (RSRS), which goes beyond Kong convention analysis leading to an improvement plan with clearly defined actions and timelines. the standards set by the After the improvement plan is agreed upon, Maersk ships can be recycled at the Hong Kong convention, is yard. All critical requirements must be closed prior to activating the contract, published MARCH 2016 Commercial negotiations whereas major and minor gaps can be closed during operations. This is in line with Independent audits of the with the four ship standard practice in responsible procurement programmes. four ship recycling facilities recycling facilities have Finally, our practice means that we do not rely solely on statements of are carried out been entered. Shree Ram compliance and audits, but are represented at the yard to monitor activities directly A press release is issued plot number 78 is selected throughout the dismantling process. regarding the intention to Of 229 elements, send vessels to Alang for 79 gaps are found. An recycling. The only way to improvement plan is make a difference for the outlined to rectify findings Yard certied as industry is by engaging able to comply with Audit with vessels on the ground MAY – JUNE 2016 Hong Kong convention Maersk Wyoming and SEPTEMBER 2016 Maersk Georgia land on Three additional facilities plot number 78 Gap undergo successful audits analysis by ClassNK in accordance NOVEMBER 2016 with the Hong Kong A.P. Moller - Maersk issues Convention a tender in which five Improvement plan, incl. clearly ship recycling facilities dened actions and timelines, DECEMBER 2016 in India and China were agreed upon by both parties The number of gaps at invited to participate. All the Shree Ram is down to ship recyclers agreed to eleven, ahead of schedule the A.P. Moller - Maersk Responsible Ship Recycling All critical ndings closed Contracts for the recycling prior to contract activation of eight ships are awarded Standard (RSRS) as a to Shree Ram and Y.S. prerequisite to enter the Investments in Alang, tender Major and minor gaps India and Jiangyin Xiagang A.P. Moller - Maersk closed during operations Changjiang Ship Recycling ships arrive at yard in China with Maersk oversight Another 18 facilities have begun talks with ClassNK to upgrade their yards

Sustainability Report 2016 | 13 Shared value | CO2 emissions in shipping

ADVOCATING CO2 REGULATION IN SHIPPING A.P. Moller - Maersk is a key actor in global container shipping and leads the industry in CO2 reductions. We advocate for global regulation and targets for the reduction of the shipping industry’s CO2 emissions.

Reducing the CO2 emissions from transport and 60% per container moved by 2020, compared to 2007. Related Sustainable logistics is a challenge facing governments and In 2016, reductions in CO2 emissions per TEU per km Development Goals corporations across the world. In spite of current leveled off. The accumulated reduction since 2007 progress in producing energy from renewable is 42%, and our target for 2020 remains unchanged. sources, the lion’s share of global activity is still The leveling off of relative CO2 performance this year powered by fossil fuels. In the same vein, our is the result of several factors, such as low fuel price business activities consume or produce these fuels. and changes in market conditions, which have led to International shipping accounts for over 2% of all slight increases in the average sailing speed, as well CO2 emissions globally. as smaller vessels entering the fleet. A.P. Moller - Maersk takes responsibility for reducing emissions from our activities. CO2 efficiency Decoupling under pressure is a shared priority for all our businesses. Our target While we continue to improve our CO2 performance, for relative CO2 reductions is 30% by 2020 across all the improvement rates are diminishing and the businesses. The relative reduction for 2016 was 25%, decoupling of growth in volume transported and CO2 compared to the 2010 baseline. emitted is under pressure. We continue to invest in 84% of our total CO2 emissions derive from innovations in ship design, new and more efficient Maersk Line’s activities. We are a leading player vessels, tools for managing shipping networks as in the ocean shipping industry and we invest the well as collaborating with customers to understand majority of our efforts in impacting CO2 reductions and reduce the carbon impact of their transport and in this area. Maersk Line has a reduction target of logistics activities. However, while the efficiencies

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk Relative CO2 reduction Review activities and future More severe weather events, The effects of climate target of 25% plans in light of the new higher death rates among change will impact energy relative CO2 reduction for company structure and new humans, higher extinction consumption and global 30% A.P. Moller - Maersk sustainability strategy. rates for animals, more trade patterns. Furthermore, in 2020 compared to 2010 since 2010. Sustain public engagement in acidic oceans and higher sea mitigating CO2 emissions for A.P. Moller - Maersk. the area of global regulation levels are the consequences from shipping will 42% of CO2 emissions from of rising temperatures due dramatically change the relative CO2 reduction for 60% shipping. to climate change. way ships are designed and reduction in CO2 per Maersk Line since 2007. operated in the long term. container moved by 2020 compared to 2007 for Maersk Line.

14 | A.P. Moller - Maersk Shared value | CO2 emissions in shipping

achieved through these efforts are adequate for Share of total CO2 eq. emissions Learning from progressing towards our targets, we are reaching Maersk Line’s CO2 emissions constitute the vast majority each other: Energy the limits of what we can achieve on our own. of A.P. Moller - Maersk’s total emissions. efficiency at Maersk Drilling The need for global regulation For oil-service businesses It is A.P. Moller - Maersk’s position that the shipping such as Maersk Drilling, sector now needs global regulation and standards more differentiation has become than ever, as it is becoming increasingly challenging for much more important in recent years. Inspired individual companies to continue to drive significant by the shipping industry, improvements in CO2 efficiency on their own. 3% 4% 9% 84% Maersk Drilling is applying As such, we were disappointed to see that Others Maersk Tankers Maersk Oil Maersk Line technologies and knowledge shipping was not included in the Paris Agreement on that will cut fuel costs for Climate Change in 2015. However, in 2016 it became clients. In 2016, Maersk Drilling evident that the Paris agreement created new completed a two-year momentum for the negotiations in the International individual customer. In 2016, Maersk Line established energy efficiency pilot Maritime Organisation (IMO) on this subject. In its first Carbon Pact in Asia, when an agreement was project. By installing fuel October 2016, a road map for addressing emissions signed with Huawei Technologies, establishing a flow and energy metres and from shipping in the long term was agreed to by IMO commitment to reduce Huawei’s CO2 emissions per software used in shipping, adapted to a drilling rig, it members. A.P. Moller - Maersk welcomes this result. container transported with Maersk Line by 18% from was possible to optimise The next important milestone is to ensure that 2016 to 2020. the use of auxiliary engines, the preliminary strategy for reductions projected We see the partnership as a strengthening of our pumps, power generators, to be finalised in 2018 is ambitious and with real relationship with Huawei, a practical tool to bring lighting and work practices. content. We would like to see it include a long term sustainability elements into purchasing decisions, During the pilot, fuel consumption was reduced CO2 reduction trajectory for shipping that establishes and an opportunity to move the sustainability by 14.2%, which translates a peak year for emissions as well as outlines a agenda forward in China. into significant annual universe of measures to be applied. We will engage As part of the Carbon Pacts, both companies savings for the client, as well proactively throughout 2017 and 2018 on this matter. also pledge to jointly drive transparency and as reductions in CO2 and establish aligned sustainability reporting metrics, other emissions. During 2016, the approach and equipment Sharing commitments with customers ultimately promoting integration of these metrics were implemented on six Carbon Pacts are multi-annual sustainability into commercial decision-making processes. more rigs, and Maersk Drilling partnerships where Maersk Line commits to a CO2 Currently, Maersk Line has established partnerships has set up incentive-sharing target specifically tailored to the business of the with 12 customers. partnerships with clients. Fuel cost is sixth on the clients’ list of costs related to drilling. Maersk Drilling is also testing slow steaming for Decoupling volume transported and CO2 emissions transporting rigs as well as The graph shows actual development in absolute reductions in CO2 emissions participating in a research at growing volumes transported by Maersk Line. project using flywheel technology for energy Growth in transported containers (TEUs) storage as part of efforts to 53% lower energy consumption and CO2-emissions. 25%

0 Partners 2007 18% 21% 2012 2016 Reduction in global CO2 emissions (tonnes)

Sustainability Report 2016 | 15 Shared value | Trade & economic development

INCLUSIVE GROWTH THROUGH TRADE

A.P. Moller - Maersk’s greatest potential providing global logistics services to companies Related Sustainable to deliver societal benefits through our large and small, we have first-hand knowledge of Development Goals business lies in our deep connection with the challenges developing economies face when international trade. Putting our knowledge integrating into the global economy through trade. In the area of trade, our name carries weight and to use enhances opportunities for people, our reach allows us to test new ideas for removing countries and regions across the globe, barriers to trade integration and efficiency. Ideas that and for our future business. can also generate innovative business solutions. In 2013, we placed the challenge of enabling trade at the core of A.P. Moller - Maersk’s strategy for In an era where the basic concept of globalisation is sustainability. Increased participation in global trade being challenged, it follows that some stakeholder creates economic growth and job opportunities locally. groups also question whether integration in People around the world can improve their lives, skills global trade positively affects the quality of life in levels, prospects and living standards as a consequence. communities around the world. We are strongly Since the launch of our strategy and subsequent conviced that it does. Conclusive evidence from the pilot projects in enabling trade, partnerships, World Bank shows that expanding trade is integral advocacy and innovation have moved the projects to growth, which can create more opportunities for along faster than initially expected. We are already a country and its people. Supported by adequate beginning to scale up the ideas tested. policies and public investments, these benefits can reach all members of a society. Progress on projects Carrying 15% of goods transported by sea, Our sustainability strategy defines the route to operating ports in a wide variety of countries and enabling trade as initiating pilot projects that

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk We will enable trade through All of the four pilot projects Review of activities and Alleviating barriers to trade will With more than 75% of building partnerships are moving towards future plans in light of the provide an estimated growth A.P. Moller - Maersk’s outside our own sector implementation at scale new company structure and potential of USD one trillion1, commercial activities related that alleviate trade barriers, See table on page 17. new sustainability strategy. creating development to global trade, supporting its allowing us to promote opportunities for countries development and growth is opportunities for growth and people. essential to us. beyond those provided by our everyday business.

1 “Payoff from the World Trade Agenda 2013”, Peterson Institute for International Economics, 2013

16 | A.P. Moller - Maersk Shared value | Trade & economic development

Overview of enabling trade pilot projects

TRANSPORT AND LOGISTICS INFORMATION PIPELINE CONNECT-AMERICAS

Objective and partner(s) Future plans Objective and partner(s) Future plans Development of a digital transport Development of the tool ready for Empowering small/medium-sized Deep integration of the platform and logistics information tool distribution and implementation at enterprises (SMEs) in the Americas with Maersk Sealand (the that reduces the challenges in scale. to trade through a digital platform Maersk Line intra-Americas shipping communication and documentation for information sharing and training line) customer network. This will related to shipping, in collaboration Promotion of the tool as a global on trade regulation, processes and bring in more users and expand the with TradeMark East Africa. documentation standard. opportunities. The platform is owned by reach and impact of the platform, the Inter-American Development Bank while at the same time supporting Progress 2016 Potential impact who partnered with A.P. Moller - Maersk and delivering added value to The project left the pilot phase, and a Significant decrease in time to and with Google, Alibaba, DHL and Visa. Sealand customers. scalable IT-solution is being prepared market and reduced costs of trade in collaboration with IBM. with potential for increased export Progress 2016 Potential impact revenue for local firms An online training programme and Higher economic growth distributed Large-scale testing is under way in a cost estimator will be rolled out in to more people through increased Kenya, and new international partners Colombia and Mexico in early 2017. participation of SMEs in cross-border have been brought on board. trade in the Americas.

BITUNG – FROM OUT-PORT TO MODEL PORT FROMTU – ONE-STOP SHOP MAKING TRADE SIMPLE

Objective and partner(s) Future plans Objective and partner(s) Future plans Collaboration with the Government Continue dialogue with the Indonesian Develop the digital B2B trading Continue development and finalise of Indonesia to realise the economic government on initiatives to regenerate platform, Fromtu, that connects platform with launch planned for potential of Bitung and develop the fishing activities in the Bitung area. African sellers with global and intra- 2017 in selected markets, beginning area into a model port for possible African buyers, allowing them to trade in East Africa. replication. Focus on reducing supply Trading in more commodities and in a simple and transparent manner. chain obstacles using tuna and higher-value products to increase job A.P. Moller - Maersk leads and is the coconut as test commodities. creation. main investor in this project, working with the Inter-American Development Progress 2016 Potential impact Bank and USAid, which provided The partnership succeeded in Creation of jobs and new avenues of initial research funding. its efforts to reduce barriers to income to enable growth in Eastern trade by making the processing Indonesia, which suffers from Progress 2016 Potential impact of trade documentation available decade-long under-development. The project progressed through user Fromtu will provide African producers locally, negotiating for new fishing and market research and technical and traders with the tools to grow licenses, introducing new processing There has been a 30% increase in development of the platform. At their networks, businesses and technologies that increase the trade from Bitung in 2016. the same time, the organisational knowledge – especially within the value and export opportunities for setup took form and dialogues with SME segment. The platform will coconuts, construction of a new potential partners were initiated. simplify the trading journey for buyers container yard at the Bitung port and and sellers, thereby contributing to launch of new shipping service by global development and prosperity by Maersk Line partner Multiline. breaking trade barriers.

Sustainability Report 2016 | 17 Shared value | Trade & economic development

explore ways to alleviate barriers to trade, always in projected a potential 1 trillion USD addition to gross Partners partnership with local or regional partners. domestic product globally4. The table provides an overview of progress A.P. Moller - Maersk is on the steering committee and status for the four initial pilot projects. These of the WTO Global Alliance for Trade Facilitation projects are now being scaled up through our (the Alliance), established in 2015. It combines public business operations. In terms of sustainability, our development funds with corporate expertise in trade focus is currently on advocacy and research on to implement trade facilitation reform and further breaking down barriers to trade by removing the ratification of the Trade Facilitation Agreement. hidden costs. A.P. Moller - Maersk’s particular contribution to this partnership consists of studies based on a model Building knowledge to support trade facilitation developed by us for establishing the total transport In 2013, 160 members of the WTO finalised and logistics costs. See the case on page 19 on a study negotiations on a Trade Facilitation Agreement, conducted in India. The key concept introduced in focusing on processes to expedite the international this model is that hidden costs in trade can account transportation of goods and on collaboration for up to half of the total cost. At the same time, it is a between customs and other authorities2. field ripe with potential for cost reductions. Fully implementing the Trade Facilitation In 2016, the Alliance carried out studies in Agreement would reduce worldwide trade costs by Colombia, Vietnam, Kenya and Ghana, of which we The Indonesian between 12.5 and 17.5%, with lower-income countries were involved in the latter two. The studies have Government achieving the greatest benefit3. Earlier studies have assessed the total trade and logistics costs, covering

Globalisation is being challenged There is ample evidence that free trade and downsides, such as job losses in the home countries “You can show globalisation are under pressure and not delivering of the companies that move production offshore, the nuances of equal benefits for all people or societies. Public protests and potential adverse impacts on labour rights trade impacts. against new trade agreements, the rise of nationalist and environmental issues. What is becoming more political parties in many countries, and the UK’s vote apparent is that globalisation and free trade does not You can use your to withdraw from the European Union are all palpable benefit everyone equally, and some people not at all. business activities signs of this pressure. to ensure diffusion According to the World Trade Organization, Government initiatives needed of technology, international trade in 2016 will grow at its slowest “Whether the sum total of benefits and downsides knowledge and pace since 2007. In 2015, Global Trade Alert, an of trade is positive depends not solely on trade itself. independent trade-monitoring group, cited at least Sustainable development also requires education, management 644 discriminatory trade measures imposed by the infrastructure and more,” said Wallace S. Cheng. skills. To me, G20 economies with the U.S. at the forefront. Imports This sentiment is echoed by Chad P. Bown, a trade Maersk’s continued among the world’s 20 largest economies have fallen expert at the Peterson Institute for International participation in the as a share of their gross domestic product for four Economics in Washington, who in an interview with global discussion consecutive years5. the New York Times concluded that while we need to have trade agreements, “…we do need to be cognisant on trade is crucial Two sides to the story that there are going to be losers, and we need to have to showing the At a stakeholder roundtable meeting conducted at policies to help them.” benefits of trade.” A.P. Moller - Maersk headquarters in September It is A.P. Moller - Maersk’s understanding that 2016, trade and the increasingly contentious trade globalisation can only begin to work for everyone if Wallace S. Cheng environment was on the agenda. national governments and international fora take this — International Center for Trade and Sustainable “The economic case for trade leaves no room for challenge upon themselves. Development, China uncertainty, and yet trade and globalisation are Wallace S. Cheng also commented on the role that coming under increasing pressure,” said Dr. Wallace S. A.P. Moller - Maersk can play: Cheng, Managing Director of the International Center “You can show the nuances of trade impacts. You for Trade and Sustainable Development, China. can use your business activities to ensure diffusion of Trade has benefits – such as economic growth, technology, knowledge and management skills. To me, technology and knowledge transfer, expansion Maersk’s continued participation in the global discussion of markets, supporting peace and stability – and on trade is crucial to showing the benefits of trade.”

2 The agreement has not been ratified by the required number of countries, and has thus not entered into force. 3 OECD Trade Facilitation Indicators, 2015 4 “Payoff from the World Trade Agenda 2013”, Peterson Institute for International Economics, 2013 5 Harvard Business Review, October 2016

18 | A.P. Moller - Maersk Shared value | Trade & economic development

“ Businesses and entrepreneurs in many developing and emerging economies are being constrained from the global marketplace due to costly and inefficient border processes. Governments must consider trade facilitation reforms as a strategic priority to make trade work for all.”

Philippe Isler — Director of the Global Alliance for Trade Facilitation

not only the direct costs related to transportation, but also the indirect costs such as spoilage and breakage costs and a range of potential costs related to delays. The analyses also provide ideas for possible interventions, enabling policy makers to act in areas that yield the most benefits, for example initiatives to reduce delays and minimise spoilage.

Reducing the hidden costs of transport and logistics in India Focusing on four export sectors, pharmaceuticals, textiles & garments, of up to 5–8%. This means that within each of the four sectors, making electronics, and auto components, A.P. Moller - Maersk completed a trade 10% more efficient could potentially generate between USD 0.2bn study in 2016 on the total transport and logistics costs in India. While and up to USD 3.1bn in extra exports per sector creating new jobs and there is often much debate about the direct costs of transportation income within Indian society, as a whole. and logistics, such as terminal rates, freight rates and inland transport The outcome of the study is a documented understanding of the costs, the most significant costs can be the indirect and hidden costs total cost of transport and logistics in India, as well as of how our stemming from delays and inefficiencies. activities contribute to these. The businesses in A.P. Moller - Maersk Reducing these costs is a significant source of potential savings provide services that support our customers in reducing transport and improved competitiveness on the part of exporters and importers, and logistics costs, particularly indirect costs. In 2016, we collaborated adding to a country’s potential for economic growth and job creation. with the Confederation of Indian Industry on further research and The study found that the indirect and hidden costs of trade engagement of government and industry leaders in India to prioritise accruing from delays and unreliable transportation services amount and initiate possible interventions, with a view to reducing indirect to up to nearly half of total transport and logistics costs. Reducing the costs in particular. costs of trade by 10% has the potential to generate additional exports

… in USD this would translate into: The study found that the indirect costs of trade amount to 38 – 47% of total transport and logistics costs Pharmaceuticals Textiles & garments Electronics Auto components

Exports today, USD … reducing the has the potential 11.7bn 38.6bn 9.0bn 4.0bn costs of trade by to generate up to Added export 10% 5 – 8% potential, extra exports USD 0.5–0.9bn 1.9–3.1bn 0.5–1.2bn 0.2–0.3bn

The technical background study was conducted by QBis Consulting

Sustainability Report 2016 | 19 Responsibility

RESPONSIBILITY – managing our potential impacts on society

For many of our material sustainability issues, our response is primarily determined by a recognition of responsibility as an employer, a business partner or active participant in local and global communities. Three factors are in play when we define a responsibility: 1. Our Core Values call on us to act 2. There is a solid expectation from our external stakeholders that we engage 3. Human rights due diligence confirms that we are in fact either causing, contributing or linked to the issue

The issues included in this section are: The safety of our employees and efforts to prevent serious injuries and fatalities related to our activities, along with human and labour rights impacts through indirect hiring, transport to and from conflict zones, armed security services, and the resettlement of third parties related to our investments, as well as the issues of diversity and inclusion in our leadership. Finally, there is a special feature on tax practices and transparency.

20 | A.P. Moller - Maersk Responsibility

Sustainability Report 2016 | 21 Responsibility | Safety

OUR COMMITMENT TO PERSONAL SAFETY

Keeping our employees safe is the greatest (electricity); working at heights; and control of Safety performance responsibility we have as a business. contractors who enter the terminal. Lost-time injury frequency per business Safety performance across our businesses 2016 2015 2014 Across all of our businesses, we want a working The 2016 data on lost-time injury frequency (LTIf) environment in which safety is deeply embedded in our indicates that some of our businesses improved their Maersk Line 0.42 operations and business culture. Our goal is to prevent safety performance, while others showed increases Maersk Line 0.55 all fatalities and ensure that A.P. Moller - Maersk is a in frequency. There are two reasons for the latter. 0.42 0.71 safe place to work. At Damco, increased safety awareness has led to 0.55 increased reporting of incidents. For other businesses, APM Terminals0.71 1.53 Two fatalities in 2016 LTIf has increased as a result of a decrease in exposure APM Terminals 1.94 1.53 Two workers lost their lives as part of our business hours, combined with fluctuations in already low 1.41 operations in 2016. numbers of lost-time injuries (LTIs). LTIf is calculated 1.94 Damco 1.41 Fatal accidents are unacceptable to us. When fatal as a function of LTIs relative to exposure hours. 1.04 Damco accidents occur, we work to uncover the root causes Maersk Line achieved an LTIf reduction of 0.63 1.04 and implement preventive measures. 24% through dedicated focus on leadership and 0.43 0.63 In addition to the operating business’ own engagement. Maersk Container Industry saw a Svitzer 0.43 investigation of a fatal accident, A.P. Moller - Maersk’s substantial turnaround in safety performance. This 0.63 Svitzer Health and Safety Committee reviews the accident and is mainly a result of workers at the factory in Chile 0.53 0.63 1.06 its analysis to ensure thoroughness and knowledge gaining more experience, coupled with intensive 0.53 sharing among our businesses. In 2016, the Committee safety awareness efforts. Maersk Oil continues with Maersk Container1.06 Industry 1.90 found that we can improve our performance by a positive LTIf trend through initiatives such as the Maersk Container Industry 2.87 strengthening the safety element in onboarding new roll-out of the Front-Line Leadership Program and 1.90 1.98 employees and contractors’ employees. Control of Work. APM Terminals reduced LTIf by 21% 2.87 Fatalities most often occur in connection with through continued reduction of operational risk, and Maersk Oil 1.98 0.43 APM Terminals’ activities. APM Terminals’ work to the “Fatal Five” programme delivering performance Maersk Oil 0.58 0.43 prevent fatalities is guided by a programme entitled improvements in 2016. 0.73 “Fatal Five” that focuses on the five risk areas In the case of APM Terminals, accidents involving 0.58 Maersk 0.73Drilling associated with 90% of fatal injuries that occur in third-party truck drivers on its sites continue to be a 0.49 Maersk Drilling terminal operations. These are: transportation (the challenge. In response, APM Terminals has set up a 0.31 0.49 movement of containers or cargo within the terminal global project that changes operational, process and 0.57 0.31 yard); suspended loads and lifting; stored energy facility lay-out. In addition, more than 100,000 truck Maersk0.57 Supply Service Maersk 0.72Supply Service 0.11 0.72 0.57 0.11 Fatalities 2016 Maersk 0.57Tankers Maersk0.40 Tankers Business Location Description Employed by 0.13 0.40 0.41 APM Terminals Mexico City, Mexico Security guard died as a result of fall through hatch on security tower Contractor 0.13 0.41 APM Terminals Onne, Nigeria Electrician died as a result of electrocution when connecting cables APM Terminals

22 | A.P. Moller - Maersk Responsibility | Safety

drivers per year receive safety awareness training. pose a potential threat to the safety of our employees. Safety essentials Good progress was made towards APM Terminals’ This is why A.P. Moller - Maersk has systems in place A.P. Moller - Maersk’s aspirations to have all truck drivers entering the to mitigate the effects of such threats. work on personal safety company's facilities remain inside their trucks, and Each of our locations around the world has is based on three safety the work continues in 2017. developed a set of local security plans and essentials, which form the mandatory evacuation plans for countries in what basic principles of all safety programmes across our A shared experience are defined as risk areas. We did not have to evacuate businesses. Based on these, The Global Safety Day at A.P. Moller - Maersk coincides offices in 2016. Travel related risks are managed each business designs its with the ILO-designated World Day for Safety and through a system that tracks all employees during own safety programme with Health at Work. In 2016, a global communication travel based on their ticket purchases, as we did for activities and messages directed at employees and package including a message from the CEO prepared employees on business travel in Turkey during the relevant to the specifics of the organisation for work with the theme “Safe attempted coup in July 2016. its operations and culture. for you – safe for me”. This translated into various A security incident reporting system was rolled activities, including: Maersk Line’s focus on cargo out across A.P. Moller - Maersk businesses in the fires and preparedness; gamification of safety second half of 2016. training through an online video and quiz for Svitzer; Maersk Line experienced three hijacking attempts We all have and locally adapted drills and risk identification off the coast of Nigeria in 2016, all of which were the responsibility. activities, as well as personal recognition for safety averted. Safmarine Kuramo was attacked on the 5th If you see a risk, you own it. leadership behaviour at APM Terminals. of February, Maersk Cotonou on the 19th November, and Maersk Calabar on the 21st of December. Ensuring employees’ security A.P. Moller - Maersk contracted security services for Political upheavals, operating in zones of conflict, passage through these waters in 2016, as the risk of natural disasters and modern day piracy – all of these piracy was perceived to have increased significantly. We all have the authority. Stop any unsafe action or operation.

How we follow up on a fatality When the security guard fell from a security tower at Both towers on the site were locked off Cuautitlán, an inland services facility in Mexico in April immediately, and corrective measures were put in We all have an obligation. 2016, review procedures were set in motion. place: Among these were: initiatives ensuring that safe Look out for each other. In keeping with APM Terminals’ fatality protocol, systems of work are in place for non-core tasks; the site was locked off and a specialist from the verification of safe systems of work from contractors corporate safety function joined local management prior to the commencement of work; improved follow and safety staff to lead the investigation. This and up on near-miss incidents; improvements in training further investigation by the Health and Safety and safety induction; and improvement contractual Committee showed that the identification of all elements. A learning pack and corrective actions were Related Sustainable hazards was not complete, and that the facility’s safety shared across the globe. Such actions are mandatory Development Goal system did not cover all non-core activities. Also, the and must be implemented by all other facilities. A security guard was employed by a contractor with follow-up review was carried out six months after the whom there was no formal contractual agreement, incident to verify that all remedial/corrective actions and no induction or job training had been performed. have been implemented at the site.

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk Zero fatalities. Two fatal accidents. Continue to drive improvements in safety Our commitment to respect Keeping our employees safe Improvements in injury performance across our human rights obligates as they perform their work frequency at some of our organisation. all employers, through duties is an integrated part businesses. conventions and legislation, of our Core Values. Focus on personal to prevent work-related safety leadership. injuries and fatalities. Drive collaboration and sharing.

Sustainability Report 2016 | 23 Responsibility | Human rights

UNDERSTANDING HUMAN RIGHTS – IMPACTS AND ACTIONS With global activities and a presence in 130 countries around the world, A.P. Moller - Maersk will inevitably be confronted with human rights issues. When do we have a responsibility to act?

Connection to human rights impacts us. In these cases, however, our ability to influence Complying with Our assessment of our responsibility for sustainability the impacts is limited and we have a different The UK Modern issues is based on the United Nations Guiding responsibility. Slavery Act Principles on Business and Human Rights (UNGPs). The UK Modern Slavery These principles are recognised by A.P. Moller - Maersk, Due diligence outcomes Act requires commercial the private sector, NGOs and governments alike. A due diligence process executed throughout our organisations with a certain Through our own activities, and those of our value chain in 2015 has enabled us to focus on the level of income to prepare a slavery and human business associates, we can either cause, contribute most severe issues, and to prioritise these for further trafficking statement every or be linked to potential adverse impact on one action. See due diligence graphic on page 25. This financial year. or more human rights. The nature of a given resulted in the identification of 34 issues, which were relationship helps define our responsibility to act. consolidated into the following areas: For example, A.P. Moller - Maersk would have the • Assets under construction (including ship yards 17 potential to cause negative impact on human health, and construction sites) A.P. Moller - Maersk business entities were had we not had programmes in place to ensure the • Asset disposal and decommissioning required to publish a safety of our employees. Here, we have influence as • Use of armed security services in high risk settings statement describing our well as a clear responsibility to act. At the other end • Transport services to and from conflict settings policies and procedures that of the scale, our global presence in shipping could • Environmental practices near communities mitigate the risk of slavery potentially lead to us being linked to the adverse and fishing areas and human trafficking taking place in any of its human rights impacts of goods transported by • Health and safety supply chains and in any part of its own business.

See http://www.maersk.com/ Three ways A.P. Moller - Maersk may be involved with human rights impacts en/the-maersk-group/ sustainability/human-rights

CAUSE CONTRIBUTION LINKAGE

Third Third Human Rights party Human Rights party Human Rights A.P. Moller - Maersk impacts impacts impacts

Related Sustainable Development Goal A.P. Moller - Maersk A.P. Moller - Maersk

Example: Impacts on seafarers’ Example: Impacts through Example: Links to impacts through safety and security our supply chain transportation services of certain types of cargo

24 | A.P. Moller - Maersk Responsibility | Human rights

Due diligence process Subcontractors The due diligence process was carried out with support and input from the Danish Institute for Human Rights. The majority in Indonesia of the 109 issues identified are already being managed. The five action issues singled out for further action are issues that A Damco warehouse in are complex and require stakeholder collaboration in order to mitigate the risk of negative impacts. Indonesia hired third- party workers through a local contractor between A.P. Moller - Maersk’s businesses identified activities and relationships 2012–2016. A government HUMAN RIGHTS ISSUE with the greatest potential for us to cause, contribute or be linked to investigation showed that IDENTIFICATION 109 severe issues. Aggregation and removal of redundancies, as well as the the workers were not paid ISSUES elimination of highly unlikely issues, reduced this list to: the minimum wage or provided with mandatory The list was validated with A.P. Moller - Maersk’s businesses, and social security. In the end, CALIBRATION through consultation with business and human rights experts. Damco discontinued the 43 Removing the least severe issues, the list consisted of: contract. With no admission ISSUES of legal responsibility, Damco, out of respect for the workers in question and Continuing the analysis of the severity of impacts, the 34 issues were their families, negotiated PRIORITISATION prioritised and grouped. The majority of these issues are understood and monetary compensation BASED ON GAPS 34 managed, for example health and safety in our own operations, prevention with two labour unions ISSUES of oil spills, recruitment and employment conditions of our employees. representing PT TBS workers. When the process of prioritisation was complete, there were a final: A subsequent analysis pointed to a gap in due Looking at governance and management maturity in A.P. Moller - Maersk, diligence and follow-up on ACTION 5 five issues were prioritised for further action. third party labour contracts. ISSUES A programme to train relevant staff in responsible procurement due diligence and follow-up was initiated. Per request, A.P. Moller - Maersk met with representatives of the • Labour relations Across these five issues, there is a concentration of Clean Clothes Campaign • Displacement and resettlement in relation to potential impacts related to the supply chain for our (CCC) in Denmark, who were interested in knowing investments in large infrastructure development assets and to the provision of transport services for what we are doing to • Lobbying and government affairs certain types of cargo. In 2016, additional in-depth work prevent similar cases in the on these issues resulted in the development of new future. CCC is a global NGO The majority of these issues are already understood risk management measures, standards and action focusing on the garment industry, and suggested and managed, for example health and safety in our plans with a view to mitigating potential impacts. that we look to best own operations, management of oil spills, recruitment We continue to carry out a due diligence process practices from this sector and employment conditions of our employees. Other when new programmes are developed. for inspiration. issues are complex, and efforts and activities to mitigate the risk of negative impacts on human rights Labour rights in focus will require collaboration with business partners and It is in our supply chain that risks concerning labour other stakeholders. Five such issues were singled out rights are predominantly present. We are committed for further action with a view to closing the gaps in to providing all employees with good and fair labour their management. See overview on page 26. conditions in order to ensure their welfare and our

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk Ensure that we conduct our Progressed on action plans Strengthen governance Respect for human rights In line with our values, business in alignment with related to 5 priority issues. mechanisms for human contributes to an environment we want to ensure that the UN Guiding Principles on rights. where people may live we respect human rights Business and Human Rights. with freedom and dignity. in our operations as well This enables sustainable as through our business development and prosperity. relations.

Sustainability Report 2016 | 25 Responsibility | Human rights

compliance with labour conventions and regulation. The ability of workers to organise and collectively Channels to voice The labour conditions of workers hired through third bargain over their wages and working conditions is concerns parties and employees working for companies in our a fundamental human right. Sometimes, however, Internal and external parties supply chain are one of the five human rights issues labour disputes turn into work stoppages. The continue to have access prioritised for further action. impact on both workers, their communities and our to reporting human rights A labour rights self assessment was completed business is considerable, and minimising the risk of concerns related to our operations or our suppliers, by the Global Labour Relations Council in 2016, which labour disputes is important to A.P. Moller - Maersk. contractors, or other further confirmed the prioritisation of the issue. In 2016, we began a programme to ensure that business partners through In 2017, we will be launching an awareness the 42 terminals and 56 inland service centres fully A.P. Moller - Maersk’s whistle campaign across all our businesses for procurement owned by APM Terminals prepared a local vision blower system. Subjects on and HR functions about third-party labour and strategy for labour relations¹. Furthermore, which reports are accepted include actions harming responsibilities. We will also be commencing training labour relations were made part of APM Terminals’ people, their livelihood or activities in the mandatory procedures for due operating plans for 2016, whereby training was properties, child labour, diligence and follow-up in relation to the procurement conducted for staff involved in negotiating with human trafficking and of labour through third-party suppliers. These unions on collective bargaining agreements in forced labour. efforts will be addressed through our responsible Maersk Supply Service and in APM Terminals’ procurement programme. See pages 38 – 39. operations in India.

Human rights priority issues: Closing the gaps

ASSETS UNDER INDIRECT HIRING TRANSPORTATION AND USE OF SECURITY ECONOMIC CONSTRUCTION AND RECRUITMENT SERVICES TO/FROM SERVICES IN HIGH RISK DISPLACEMENT AND CONFLICT ZONES SETTINGS RESETTLEMENT

At stake At stake At stake At stake At stake The safety and employment Recruiting workers and crew Our global presence As part of A.P. Moller - A.P. Moller - Maersk may conditions of sub-contracted through third parties (hiring means we are vulnerable Maersk’s business be linked to adverse workers building vessels, and employment agencies, to being used for improper activities, we may use human rights impacts rigs, and terminals can local agents or partners), and illicit transportation security services to protect in connection with the result in workers being can link A.P. Moller - Maersk that may have a negative assets and people involved development of port injured, not paid a wage that to negative human rights impact on human rights. in transport and storage terminals or onshore is in compliance with local impacts if the third party We need to further assess in high risk and conflict oil activities, where regulations or other types involved does not provide options to strengthen the settings. Deployment of land acquisitions and of human rights abuses. adequate conditions and management of this issue. security services serves resettlement are necessary. A gap in our governance terms for the workers, for as a protection, but may These processes could lead of supplier relationships example paying minimum 2016 activities & results also have adverse impacts to people being deprived needs to be closed. wage, allowing for freedom Maersk Line assessed on human rights such of their property without of organisation or offering screening options within as violence, coercion or access to a fair and public 2016 activities & results social services. A gap in three high-risk categories: detaining people against hearing. Processes to Subcontractor the governance of these the transportation of arms, their will, if not executed ensure that our activities requirements have been relationships needs to be certain chemicals and properly. We need to build do not have such negative embedded in an existing closed. optics. We found that where a shared approach and impacts should be put in programme managed by cargo descriptions alone criteria for managing these place. the teams building and 2016 activities & results serve as identifiers are those relationships. managing relationships A.P. Moller - Maersk’s that are already subject 2016 activities & results with asset suppliers. Global Labour Relations to regulatory controls. 2016 activities & results Maersk Oil recently began Programme has conducted For other commodities, An A.P. Moller - Maersk involvement in operations Risk management further analysis of the the level of information standard on the use onshore. As part of this measures have been issue and will be launching available to an ocean carrier and hiring of armed change, an action plan on activated, for example awareness campaigns is not sufficient to make a security services was how to mitigate human through contract clauses and training in 2017. Our meaningful evaluation. developed in 2016, with rights risks related to land and other agreements responsible procurement implementation and acquisition was prepared. with suppliers granting Maersk Tankers is programme has also governance design us the right to audit sub- exploring its role and initiated training activities to take place in 2017. contractor conditions. responsibilities in potential in this area. See section Read more in chapter on human rights impacts in this chapter on labour responsible procurement through the provision of rights. on pages 38 – 39. transportation services.

1 APM Terminals operates 72 terminals and 140 inland service centres. Only entities with full or majority ownership and of a certain size were in scope for this project.

26 | A.P. Moller - Maersk Responsibility | Human rights

What’s in the box? We acknowledge that there is a link between our transport and logistics One example of collaboration is the United for Wildlife Transport businesses and the potential misuse or abuse of the transported goods. Taskforce, of which Maersk Line is a member. In 2016, signatories However, there are legal limitations to what actions we can take. The from 40 airlines, shipping firms, port operators, customs agencies, first being that we are prohibited from opening the containers. intergovernmental organisations and conservation charities agreed to Increased control of cargo requires a collaborative approach, adopt a zero-tolerance policy against illegal wildlife trade. Mechanisms enhanced implementation of already existing conventions, as well as and systems for implementing this decision are under development. more regulation of goods or tradelanes.

2 Could the cargo be misused and have negative impacts on human rights? 1 Is the cargo and transport regulated? Examples include electronic equipment, which might be used For instance, is trade in the product transported regulated? for unlawful surveillance, and fertilisers, which might be used Is the country sending or receiving the cargo under sanction? as components in bombs. Is the sender or recipient on a recognised watchlist? Maersk Line does not have the necessary information to If so, Maersk Line applies screening processes that enable establish the intent of the sender or recipient to be able to us to control the cargo, as is the case with weapon determine potential impacts on human rights. shipments, for example.

3 Should we transport cargo that might be detrimental to sustainable development? With no established definitions of which products would be in this category, the basis for possible action is far too weak.

Responding to disaster On the 4th of October 2016, Hurricane Matthew struck Haiti. Over 140,000 were left homeless while more than 2.1 million people were in need of urgent humanitarian assistance, including access to quality water, education, shelter, child protection, health and nutrition. A.P. Moller - Maersk contributed to the aid effort in Haiti, as part of the Logistics Emergency Team (LET). This is a cross company partnership between A.P. Moller - Maersk, Agility, and UPS that supports the Logistics Cluster led by the UN World Food Programme in providing global humanitarian relief efforts during natural disasters. Our contribution consisted of the free shipping of 33 containers containing food, shelter toolkits, vehicles, mosquito nets, and other relief items, as well as lending of forklifts, operators and other services so that local operations could run more efficiently.

Pictured: Humanitarian relief arriving in Haiti

Sustainability Report 2016 | 27 Responsibility | Diversity & inclusion

REMOVING BARRIERS TO INCLUSION Everybody working for A.P. Moller - Maersk must have the opportunity to reach his or her full potential, and we work to remove the unconscious obstacles that may prevent this.

A.P. Moller - Maersk is committed to inclusive encourage the businesses to set clear strategies on Related Sustainable practices in the way we employ, promote and treat how they are going to achieve their targets. All but Development Goals our employees, out of respect for our Core Values one of our businesses have set such targets and are and the human rights of our employees. There is also establishing ways to reach them. business value to be gained: if A.P. Moller - Maersk can A core element in the strategies is awareness and act without bias, we have access to the widest possible strategies for circumvention of unconscious bias. talent pool, not only in terms of recruitment, but also in Examples of bias are an unconscious preference terms of our employees’ ideas and talent contributing for people similar to ourselves or only registering to innovation and the development of our business. information that confirms our pre-conceived beliefs. Research shows that businesses perform better Research suggests that the best-in-class employment when they have diverse teams. For example, McKinsey policies can only go so far in supporting inclusive work has found that the most diverse companies in terms environments. We believe that driving change in our of gender or race and ethnicity are more likely to have behaviour by understanding and interrupting bias in higher financial returns compared to the middle levels our people processes and decision-making is the key to of returns for companies in their country.¹ truly leveraging the potential of diversity and inclusion.

Small steps forward Training to reduce unconscious bias While diversity encompasses much more than just In 2016, we organised workshops for our human gender and nationality, these are the two areas for resources community that focused on unconscious which we have set targets. bias awareness. Maersk Oil ran a specific program In 2016, we closed in on our 2018 targets for the for 72 global leaders and their executive teams on management levels, while the Board of Directors tools to promote and be accountable for inclusion. remained unchanged. Reaching the targets depends Progress continues to be tracked through quarterly on the businesses’ decisions when hiring or diversity dashboards and employee engagement promoting at management levels, which is why we survey responses.

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk To support successful First steps taken in building Embed unconscious bias Enabling all people to go as Attracting and retaining business performance we awareness in managing management capability into far as their talent and desire talented people is highly want to build a culture of unconscious bias. our organisation. inclusion where diversity takes them is important for important to our business, Global maternity and return to Move from diversity to of thought is valued and creating prosperous societies. as is the chance for all work-policy launched in 2016. a focus on inclusion by leveraged and all employees employees to reach their full building a culture where are able to reach their full Progress made on targets potential in support of the diversity of thought is potential. for gender and nationality in business. valued and leveraged to leadership positions. build organizational success.

1 “Why diversity matters”, Vivian Hunt, Dennis Layton, and Sara Prince, McKinsey, 2015

28 | A.P. Moller - Maersk Responsibility | Diversity & inclusion

Global maternity and The new policy includes a global minimum of 18 Targets and return to work-policy launched weeks maternity leave on full pay for all employees. performance on To increase the retention of women following In addition, a phased return to work programme diversity and childbirth or child adoption, A.P. Moller - Maersk has been introduced for all onshore employees inclusion implemented the Global Maternity Leave and Return with a view to supporting their reintegration to Target 2019 Target 2018 to Work programmes in April 2016, which improve work following the period of leave. Programme 2016 2015 benefits during and after maternity leave for participants have the opportunity to work 20% less employees globally. hours at full contractual pay for up to six months Representation of women Our long-term aspiration is to reach a global within the first year of childbirth or adoption. in leadership positions best practice maternity retention rate of 90%. For Since the policy was announced, more than Board of Directors A.P. Moller - Maersk this rate was approximately 500 women have gone on maternity leave, and we 33.3% 70% in 2014. Of the 30% leaving, 80% did so in the will monitor the progress and success of the policy 25% first 12 months after their return to work. The loss throughout 2017. The new policy has improved the 25% of knowledge and experience, as well as the cost of terms compared to the statutory minimum in at Executives replacing these employees, hurts our business. least 51 of the 130 countries in which we operate. 18% 13% 11%

Senior Leaders New global maternity policy at work 12% 10% As a result of A.P. Moller - Maersk’s new global policy on 8% maternity leave, Kalisha Brooks received 18 weeks of fully paid leave after she had her child in July. Working Leaders for Maersk Line in the USA, the terms provided before 19% the new paid parental leave policy in the U.S. would 18% have offered her only six weeks of paid leave, plus an 16% additional six weeks of unpaid statutory leave, which could have been supplemented by paid vacation time. Senior Managers The new programme meant financial security 27% throughout her maternity leave. While this was 24% important, Kalisha Brooks emphasises a different aspect 24% of the programme as being the main benefit for her: “Knowing that the business in general and my Representation of non-high management in particular were committed to and income OECD nationalities supportive of my decision to stay at home for a full 18 in leadership positions weeks, assured me that I was a valued member of the team and put me at ease.” Executives 12% Flexibility is key to returning to work 10% After 18 weeks of paid leave, Kalisha Brooks came 8% back to work full-time. She decided not to make use of Senior Leaders the new policy’s transitional parental leave, however, 12% which gives primary caregivers additional paid leave 11% of up to one day per week for 26 weeks, as outlined in 10% A.P. Moller - Maersk’s paid parental leave policy. “It is a great option, but I personally don’t feel as if I Leaders need a fixed agreement on reduced work hours. To me it is 23% much more important to have flexibility around travelling 21% and child appointments, and this is what my manager 19% and I have agreed to focus on,” Kalisha Brooks says. Senior Managers At 12 weeks, it seems difficult 35% Reflecting on the milestones of her maternity leave, 34% Kalisha Brooks says: “Had I only had 12 weeks leave 32% and very little flexibility at work, I might have had to contemplate not going back to work. I know from friends how difficult it can be to make it work.”

Pictured: Kalisha Brooks and her son

Sustainability Report 2016 | 29 TAX FEATURE

TAX UNDER THE MICROSCOPE Public scrutiny and regulatory activities related to corporate tax are on the rise. A.P. Moller - Maersk has added significant resources and taken steps to meet the increased requirements.

The tax laws and regulations that apply to multinational businesses, which is mandatory for the 2016 A.P. Moller - Maersk companies are increasingly complex. Interpretations financial year. tax principles of tax laws are changing rapidly over time, • In 2016, the EU Commission proposed a directive Living up to our tax significantly increasing the risk of unintentional imposing a requirement on EU and non-EU principles requires: non-compliance. A.P. Moller - Maersk recognises this, multinational groups to publish a yearly report • Identifying applicable and has responded by adding significant resources on the profit and tax charged in EU and tax haven tax laws and regulations, ensuring compliance with and centralising the tax organisation to ensure countries. local requirements and compliance with laws and regulations. practices, and disclosure Tax transparency and disclosure has become How tax is managed by A.P. Moller - Maersk of all relevant facts a focal point for lawmakers and societal debate The starting point for A.P. Moller - Maersk in • Adopting a justifiable and nationally and globally. A.P. Moller - Maersk is also managing tax is the legislation, both in the form of defendable tax position where the tax regulations local tax laws and international tax regulations. addressing these requests, which have been put allow for different forward to multinational companies. The Board of Directors governs the handling of interpretations or choices A.P. Moller - Maersk’s tax affairs. In this role, it is the • Ensuring that a technical Growing expectations and regulation highest approving authority of our tax principles, assessment is made The call for greater transparency has been translated whereby we commit to comply with all applicable and where appropriate, obtaining an external into new regulation, most prominently: rules for tax reporting, as well as for paying taxes opinion for all major • Danish law now requires disclosure of tax payments and disclosing tax charges. transactions where a tax on a country-by-country basis in the annual report Tax matters are monitored by the tax department position must be adopted. of businesses in the extractive industries. Maersk at our corporate headquarters, which also manages A.P. Moller - Maersk will only adopt a tax position if Oil discloses such data for the 2016 financial year. country and regional tax centres in key locations. we are prepared to defend See http://investor.maersk.com/financials.cfm it in the appropriate • Regulation based on the OECD’s Base Erosion How we engage in the corporate tax debate tribunals or courts and Profit Shifting (BEPS) project aims to ensure A.P. Moller - Maersk shares its experiences that income is taxed in the countries where value and practices with politicians, NGOs and other is created. We are prepared for this country-by- stakeholders in order to contribute to a broad country reporting to tax authorities for all our understanding of corporate tax issues.

Total tax charge

(USD million) 2014 2015 2016

Result before tax 5,311 1,447 -843

Total tax charge 2,972 522 1,054

Tax as percentage of profit before tax 56% 36% n/a*

* Despite the consolidated negative result before tax, taxes are still payable in various countries as a result of local profits, ring fencing of oil profits, timing differences in adjustments and fixed tonnage-based taxes, which also limits the deduction of carry forward operational losses. Tax charge is the total profit and loss tax.

30 | A.P. Moller - Maersk TAX FEATURE

We follow and participate in the developments in In Denmark, A.P. Moller - Maersk participates international and national tax legislation by liaising in “The Tax Dialogues”, organised by the NGO with tax authorities, academics and advisors, e.g. Oxfam IBIS, together with other companies, via the International Fiscal Association, the Tax ActionAid, investors and academics to develop a Commission of the International Chamber of shared understanding on tax, transparency and Commerce and the EU Joint Transfer Pricing Forum. responsibility. In 2016, this included participation A.P. Moller - Maersk also contributes to the work of in the Conference on Responsible Tax and Global the UN Committee of Experts on the international Competition, attended by more than 100 participants taxation of shipping. at our headquarters.

Our businesses and how they are taxed

DAMCO

MAERSK LINE APM TERMINALS MAERSK OIL MAERSK DRILLING Maersk Line owns or charters A.P. Moller - Maersk’s terminal Maersk Oil has production in Maersk Drilling owns and operates over 700 vessels and three million business consists of 72 operating Qatar, the UK, Algeria, Denmark, 24 rigs. containers. It operates offices port and terminal facilities and Kazakhstan, and the USA and A shore-based company or in approximately 112 countries. 140 Inland Services operations in Iraqi Kurdistan. branch is set up in the country It has ship-owning companies 69 countries. The terminals are A special hydro carbon tax where drilling takes place and is outside Denmark, principally in taxed on their activities in the regime, or production sharing taxed locally on the income from Singapore, Hong Kong and the countries in which they are agreement, with a higher tax rate drilling activities. USA, which charter vessels to located at the corporate tax rates than normal corporate tax rates, The shore-based companies Maersk Line in Denmark. applied there. is applied in all of these countries pay the rig owner (Maersk Drilling Maersk Line is taxed except Kazakhstan. Denmark or Singapore) for rent where operations are carried Total tax charge in 2016: USD 149m For example, in Denmark, of the rig. In Denmark, Maersk out – centrally in shipowning the profits from the oil activity Drilling pays regular corporate tax. companies according to regular are taxed at a 25% corporate Singapore taxes rigs according to corporate tax regimes or SVITZER tax rate, with a hydrocarbon a regime similar to the tonnage industry-specific tonnage tax Svitzer has a fleet of 430 vessels surcharge. Profits are taxed tax regime applied in shipping. regimes. In some countries a operated by individual companies at total of around 64%. In the The rental payment on several special freight tax is levied. in the countries in which they UK, the regular corporate tax is of the rigs is also taxed in the In addition, Maersk Line local operate. For the most part, they supplemented by a hydrocarbon countries where they are located. agencies are taxed in accordance are taxed under regular corporate surcharge of 10%, and in the US, with local corporate tax rules. income tax regimes. In some the profits from the oil activity Total tax charge in 2016: USD 3m countries, the companies pay are subject to both corporate Total tax charge (income) in 2016: tonnage tax on their ocean-going income tax and a royalty. USD 20m activities. MAERSK SUPPLY SERVICE Total tax charge in 2016: USD 931m Maersk Supply Service is a Total tax charge in 2016: USD 6m – See the §99c table online at worldwide owner and operator of DAMCO http://investor.maersk.com/ supply ships. The taxation of the Damco is a provider of global financials.cfm supply activities follows the local logistics solutions active in MAERSK CONTAINER and national regulations in the over 100 countries, where it has INDUSTRY country of operation. In addition, operating companies that are each Maersk Container Industry MAERSK TANKERS the ship-owning companies taxed under the regular corporate develops and manufactures Maersk Tankers has shipowning are subject to tax similar to tax rules in the respective refrigerated and dry containers, activities in Denmark and Maersk Line. countries of operation. and the Star Cool refrigeration Singapore. The taxation of machine. MCI has R&D and Maersk Tankers is similar to Total tax charge (income) in 2016: Total tax charge in 2016: USD 24m engineering test facilities in that of Maersk Line, in that the USD 24m Denmark, with production facilities businesses are subject to local in China and Chile. Corporate taxes freight taxes, as well as taxation are paid where MCI has operations. on ship-owning activities.

Total tax charge (income) in 2016: Total tax charge in 2016: USD 2m USD 8m

Sustainability Report 2016 | 31 TAX FEATURE

HOT TOPICS IN CORPORATE TAX The majority of the public debate on tax focuses on transparency in relation to multinational companies’ tax practices. To provide clarity, this section explains our practices on four of the most discussed tax topics: paying taxes where value is created, tax havens, tax incentives, and double taxation treaties.

1. Paying taxes where value is created 2. Tax havens

What is the issue? What is the issue? Tax laws are predominantly a national matter. The cross- Tax havens is a generally accepted term used to describe low- border element of allocating profits and taxes between tax jurisdictions that offer low or no tax to foreign companies. countries within a multinational company is addressed Often, financial information in such countries is also protected through transfer pricing regulations. By complying with from scrutiny by the local legislation. transfer pricing regulations, it is possible to ensure that a multinational’s profits and tax are distributed according to What does A.P. Moller - Maersk do? where value is created. A.P. Moller - Maersk is actively present in 130 countries, including some countries with no or low taxation. It is A.P. Moller - Maersk’s What does A.P. Moller - Maersk do? policy to comply with the tax regulation in the countries in which we A.P. Moller - Maersk agrees to the principle of paying tax where operate, regardless of the local corporate tax rate. We are prepared value is created and this is also our policy. for country by country reporting to the relevant tax authorities. In most countries, transfer pricing regulations require Furthermore, the Danish tax rules require that financial A.P. Moller - Maersk affiliates to document that the pricing of income from so-called CFC companies (Controlled Foreign our operating entities’ transactions with A.P. Moller - Maersk Companies) is taxed in Denmark. The Danish CFC rules have been companies takes place on market terms. For example, we have put in place to prevent profits from financial income being shifted obtained an agreement on how much a Maersk Line owned to subsidiaries where little or no operational activity takes place. agency in China should charge Maersk Line in Denmark for One example of A.P. Moller - Maersk being present in a services provided. Tax authorities in both Denmark and China country often named as a tax haven is Panama, where Maersk met to mutually agree on the correct principles. Line, Damco and APM Terminals (including inland services) have significant presence and activities. These companies have activities in the country, due to its position as a major shipping “ The use of tax planning strategies that exploit gaps and destination, centred around the Panama Canal. mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity undermines the fairness and integrity of tax systems. It is “ The overall effect of tax havens is to reduce potential revenues of major significance for developing countries due to their that can be used to fund vital public services, which often leads heavy reliance on corporate income tax, particularly from policy makers to rely instead on indirect taxes such as those on multinational enterprises.” consumption of goods and services – both of which are likely to — The OECD website on the Base Erosion hurt people at the bottom of the distribution. Tax haven secrecy and Profit Shifting project also undermines a range of other policies designed to support good governance for the wider benefit of societies.” — Oxfam in its 2016 report “Ending the Era of Tax Havens: Why the UK government must lead the way”

32 | A.P. Moller - Maersk TAX FEATURE

Four examples: Total turnover in 2016 (USD) Result before tax in 2016 (USD)

The map shows A.P. Moller - Maersk’s key indicators and tax charges Denmark Morocco Denmark Morocco in relation to the countries used as examples of the hot topics in corporate tax, and for our headquarters in Denmark. 27,700m 86m -1,466m 12m Ghana Panama Ghana Panama 330m 39m 175m 3m

FTE (Full-time equivalents) 2016 Total tax charge in 2016 (USD) Denmark Denmark Morocco Denmark Morocco Morocco 9,771 833 907m 2m Panama Ghana Ghana Panama Ghana Panama 759 362 32m 1m

3. Tax incentives 4. Double taxation

What is the issue? What is the issue? Governments seeking to stimulate or attract foreign Governments negotiate agreements on how to allocate taxation investment and growth in certain industries, provide relief rights over the same income to avoid double taxation. The from income taxation in different ways. resulting tax treaties define how much the source and residence countries can tax a company’s cross-border income and profits. What does A.P. Moller - Maersk do? A.P. Moller - Maersk states in its tax principles that we will What does A.P. Moller - Maersk do? make use of tax incentives where available, but we will only do It is our policy to provide tax authorities with the information this when they are within the intention of the law. required to evaluate whether A.P. Moller - Maersk is entitled to A common incentive is the tax holiday, which is a full treaty benefits. We are of the opinion that tax treaties provide exemption from income tax for a limited period of time. certainty in the allocation of taxing rights as well as dispute Tax holidays are often put in place for large infrastructure resolution and we take steps to ensure that our companies are investment, as a risk-sharing measure and to ensure fully qualified recipients before claiming treaty benefits. infrastructure development as a platform for growth. The most An example is related to the payment of dividends from recent example of a tax holiday negotiated by A.P. Moller - Maersk Maersk Maroc SA to Damco International A/S. According to was in Ghana, where APM Terminals is conducting a major the domestic rules, a withholding tax of 15% applies to the upgrade to the terminal in Tema. payment of dividends from a Moroccan company to a foreign At the end of a negotiated tax holiday, A.P. Moller - Maersk company, in addition to the local corporate tax of 30%. However, does not establish new corporate structures to artificially according to the Double Taxation Treaty between Morocco and renew tax holidays. Denmark, this rate is reduced to 10%. When the dividends are paid out, individual shareholders pay a dividends tax.

“ Empirical evidence finds that taxes matter for investment, although most likely less so in developing countries. Tax incentives’ “Whether a capital importing country benefits from signing fiscal cost can be high, reducing opportunities for much-needed a bilateral tax treaty (BTT) depends on whether it realises public spending on infrastructure, public services or social support, sufficient gains from increased foreign direct investment to or requiring higher taxes on other activities. Transparency [on offset any revenue loss. The primary benefit that developing tax incentives] is necessary to facilitate accountability and countries seek from signing a BTT is increased inward reduce opportunities for rent seeking and corruption.” investment – an important policy objective – as a result of both — THE IMF, OECD, UN AND WORLD BANK in research paper increased certainty and lighter taxation. Against this, however, for the G20 Development working group, September 2015 by committing to reduced withholding tax rates countries that are primarily capital importers forego revenue.” — IMF Policy Paper, Spillovers in International Corporate Taxation, May 2014

Sustainability Report 2016 | 33 Risk

RISK – mitigating potential threats to our ambitions

In a sustainability context, risk takes on two meanings: the risk business activities pose to societies and the people that inhabit them, and the risk sustainability issues pose to our business objectives.

The issues in this section address both, but are discussed from the perspective of risk to our business. We performed a risk assessment across all our businesses. Four issues are included in this category on the basis of their potentially high impact. These are: corruption, supplier non-compliance with our Third Party Code of Conduct, an uneven playing field in the enforcement of global SOx regulations, investment in ballast water systems in an unclear regulatory environment and major accidents related to spills.

34 | A.P. Moller - Maersk Risk

Sustainability Report 2016 | 35 Risk | Anti-corruption

CONTINUING THE FIGHT AGAINST CORRUPTION

Operating in all corners of the world, the systems and processes, such as tools for assessing Related Sustainable risk of corrupt practices is present in our anti-corruption and foreign trade controls risks, Development Goal businesses. We continue to strengthen automated due diligence systems, best-practice our tools to mitigate this risk. guidance for avoiding facilitation payments and an upgraded whistle-blower system. A.P. Moller - Maersk continues to cooperate with authorities on ongoing investigations in which there Non-compliance with corruption regulations is one have been allegations of involvement. of only a handful of sustainability risks deemed to have major financial impact on A.P. Moller - Maersk. Reduction in facilitation payments The likelihood of a major non-compliance occuring Although the risk of large-scale corruption is low, is, however, low, due to the many controls in place to our shipping businesses constantly liaise with port mitigate the risk, see sidebar. authorities, customs officials and other inspectors. Throughout 2016, we continued to strengthen our These encounters can carry a high risk of demands mitigation framework, with new compliance tools, for facilitation payments.

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk To always conduct our Implementation of new Social and economic Failure to mitigate the business in an upright 87% e-learning in 2017. development suffers when risk of corruption brings manner and to eliminate reduction in facilitation corruption is present. both financial and facilitation payments within payments for Maersk Line, Continued focus on Societies cannot grow and reputational damages the foreseeable future. compared to 2015. facilitation payment prosper equitably when fair to A.P. Moller - Maersk. reduction and integration business is impeded. 59% of compliance into daily reduction in facilitation operations. payments across our vessel- Continued compliance operating and logistics assurance actions. businesses, compared to 2015.

36 | A.P. Moller - Maersk Risk | Anti-corruption

Mitigating the risks Whistleblower reports A.P. Moller - Maersk’s anti- corruption programme A.P. Moller - Maersk’s whistleblower system was upgraded generally, have factored into an increase in the number includes, among other in April 2016. At the same time, we updated the guidance of genuine reports and a drop in the number of non- things: materials for persons making reports, explaining which genuine reports, which should be reported outside the • Due diligence of new issues are intended for reporting and which are not. We system, such as business proposals and an employee’s agents, joint venture reiterated that according to EU and Danish laws, the disagreements with a manager. Further, in 2016, two partners, key suppliers, system may only process reports alleging violations of incidents generated 11 separate reports. Despite this, as well as mergers and laws or key company policies. The roll-out was promoted there has not been a significant increase in the ratio of acquisitions targets prior globally on our intranet sites, and we encouraged our substantiated cases overall. to signing of contract businesses to promote and explain the upgraded system. All reports are investigated using A.P. Moller - Maersk’s • Risk assessments before These activities, together with increasing employee procedures, and appropriate remedial actions are acquiring a company or awareness of the importance of compliance issues taken, if substantiated. entering a new country • Recording all facilitation payments made and 2016 2015 2014 working consistently Total reports in the Genuine whistleblower reports* Whistleblower reports towards eliminating them whistleblower system alleging corruption** • Ensuring compliance with rules on travel, 303 87 11 meals, lodging and 298 51 4 entertainment 383 51 13 • Continued global

* Non-genuine whistleblower reports are reports regarding issues that are not within the legal scope and purpose of the whistleblower system. communication on ** Six reports are unsubstantiated, five are under investigation, none of which have been substantiated. compliance issues, progress and training • Management commitment on all levels It is our ambition to achieve zero facilitation the development of an OECD-backed project on payments in the foreseeable future, and progress facilitation payment reduction in selected countries. is well underway. All of our vessel-operating and We are also a founding member of the Maritime logistics businesses achieved significant reductions Anti-Corruption Network (MACN). Furthermore, in facilitation payments compared to 2015: Maersk Maersk businesses participate in a number of Tankers by 43%, Damco by 45%, Maersk Supply Service projects aimed at eliminating faciliation payments. by 82%, and Maersk Line by 87%. For Maersk Line, For example, Maersk Line partnered with World this was driven by a new strategy involving 24-hour Maritime University (WMU), supported by the IMO, support for vessels, and increased communications in developing and running its first ever course on and knowledge-sharing between captains. anti-corruption and business integrity, while also offering to mentor any student that starts an anti- Collaborating for progress corruption initiative. A.P. Moller - Maersk works with the Business & Industry Advisory Committee to the OECD on

Quantifying sustainability risks to our business A full analysis and overview of our sustainability risk landscape aids us Performed using classic risk management tools and methodologies, in understanding how sustainability issues may impact our business. the assessment resulted in a comprehensive risk register in alignment Issues identified through the risk analysis include: major accidents with the enterprise risk management system. The long-term ambition related to spills, corruption, supplier non-compliance with our Third for the sustainability risk register is to also assess all risks for their Party Code of Conduct, an uneven playing field in the enforcement of reputational impact. In 2016, we developed and tested a scale to assess global SOx regulations and investment in ballast water systems in an reputational risk in collaboration with the Reputation Institute. The unclear regulatory environment. pilot included an assessment of reputational risks in our supply The defining characteristic of the issues included in this section chain, which we have incorporated into the materiality assessment in of the report is that they pose not only a risk to society, but also a 2016. As the reptuational scale is not fully developed, we have not yet significant risk to A.P. Moller - Maersk’s business. applied it across all issues. The prioritised risks are those that are assessed as having a In 2017, we aim to further develop and integrate the reputational high impact and high likelihood in the dedicated sustainability risk risk scale into our risk assessment of sustainability issues. assessment carried out in 2016, with input from across the businesses.

Sustainability Report 2016 | 37 Responsibility | Responsible procurement

ENGAGING TO MITIGATE SUPPLIER RISKS Our focus on high-risk categories in the supply chain helps us target our risk mitigation.

A.P. Moller - Maersk interacts with thousands of whose commitment to anti-corruption, health and Supplier categories suppliers around the world. We mitigate the risks safety, labour and human rights and environmental with highest from these relationships through a responsible management varies. For the audits covering potential impact procurement programme based on our Third environmental factors, most of the problems relate The 10 categories with Party Code of Conduct, including due diligence to the management of solid and hazardous waste. the highest risk of requirements and contract clauses. The governance causing negative social or and implementation framework for these measures is Engaging with suppliers environmental impact were determined in 2015 as part in place and partially integrated across the businesses. in high-risk categories of an assessment process In 2015, we shifted our focus to supplier Our supplier base spans a large business across all our businesses.* categories with a high risk of adverse impacts on network from small local enterprises to massive The categories are: humans an the environment, as well as those that conglomerates with global reach. Out of a global 1. Assets under are most likely to pose financial and reputational population of 100,000 suppliers, we have contracts construction risks to our business (See sidebar). with approximately 20,000. Based on our list of high- 2. Manning and crewing The issues most often included in improvement risk categories, we engage with approximately 1,500 agencies plans for suppliers are human and labour rights. suppliers from this group through a combination Through our responsible procurement programme, of audits, self-assessments and documentation 3. Security companies we have found gaps in our suppliers’ own operations. reviews. Depending on the outcome of these 4. Chemicals and paint Even more common, however, are weaknesses assessments, we establish improvement plans in 5. Cleaning and canteen in our suppliers’ management of subcontractors, collaboration with the supplier in question. services 6. Docking and repairs 7. Warehousing and Process and performance 2016 distribution 8. Promotional items Shipyards Improvement 9. Logistics and AUDITS Critical and major Plans transportation findings AUDITS 15 13 10. Raw materials

Compliant

Suppliers in the high-risk category* 41 32 Critical and major AUDITS +/-1,500 Other findings Improvement AUDITS Plans Compliant

283 214 * In addition to this list defined by Critical and major SELF-ASSESSMENTS A.P. Moller - Maersk’s responsible procurement programme, the * excl. trucking Other findings Improvement individual businesses have lists companies SELF-ASSESSMENTS Plans adapted to their business needs

38 | A.P. Moller - Maersk Responsibility | Responsible procurement

“ Under the contract with Maersk Supply Service we have focused on safety, for example through the installation of signage and extension of the customer’s requirements to yard contractors. As an incentivising measure, Maersk Supply Service and COSCO together established a safety fund that rewards workers with high health and safety performance. In combination, this has led to the project we work on for Maersk Supply Service having the best safety record in the yard’s history.” Cheng Gang (程刚) — Project Commercial Manager, COSCO (Dalian) Shipyard Co.,Ltd

Due to the shift to a high-risk focus, we are seeing more audits and assessments performed. Furthermore, more improvement plans were closed in 2016, compared to 2015, as a result of increased collaboration with suppliers. However, we are still experiencing some delays in closing the improvement plans, for two main reasons. First, some items in the plans relate to complex, systemic issues that we cannot expect our suppliers to solve on their own. A good example of this is keeping working hours within the norm set by legislation, where the limit corresponds poorly with the culture and wishes of the workers. Second, some repairs differs from the others, as, since 2015, a full Related Sustainable improvements will take longer to implement than audit and establishment of improvement plans are Development Goal the duration of our contract with the supplier. For required prior to the signing of contracts. example, the implementation of a functioning Furthermore, our human rights due diligence system for working with subcontractors will often process had pointed to the working conditions for take longer than the timespan of our contracts. migrant and subcontracted labour in shipyards and construction sites as an area where a more solid Audits before contracts management approach needed to be established. See Within the group of high-risk suppliers, the process pages 24–27. Additional measures to improve and for working with ship yards and suppliers of ship monitor conditions will be identified in 2017.

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk Ensure that we effectively Further implementation of Continue implementation Purchasing decisions have Operating as a responsible mitigate the risk of incurring the programme’s new focus of new programme focus the potential to create business partner financial and reputational on suppliers in high-risk on suppliers in high-risk positive environmental, contributes to mitigating damages from our categories. categories. human and economic the environmental and relationships with suppliers, 56 audits performed by Continue audits at suppliers. impacts or to maintain poor social risks in our supply as well as strengthening independent auditors or the standards in the same areas. chain, as well as financial the resilience of our supply Responsible Procurement Continue training own and reputational risks, to chain. team. employees, such as category protect our business. managers and auditors. 31 training workshops for buyers and HR staff.

Sustainability Report 2016 | 39 Risk | Environmental regulation

CALL FOR ENFORCEMENT OF ENVIRONMENTAL REGULATIONS

Increased regulation of the environmental Risks to our business and to society Related Sustainable impact of vessels is necessary, but A.P. Moller - Maersk complies with all applicable Development Goal uncertainty regarding technologies and regulations related to emissions to air and ballast enforcement regimes carries risks for water. The primary financial risk to A.P. Moller - Maersk is not the regulation itself but ensuring a level playing shipowners and society. field and enforcement measures. In the case of ballast water, the risk is investing in ballast water systems that may not be compliant with all future global regulations. Ocean-going shipping’s impact on air quality is a The challenge is that compliance comes at a much researched and debated issue. Research has substantial cost. Complying with the existing limits found that air pollution related to emissions from on SOx has added substantially to our fuel costs, and international shipping activities is responsible for compliance with new global regulation will further premature deaths and increased health costs. Invasive add to this. Installing the necessary ballast water species alter ecosystems when they are brought to systems will cost A.P. Moller - Maersk in excess of alien marine environments as part of ocean-going 300 million USD. ships’ ballast water systems, which may also have A.P. Moller - Maersk participates and invests societal impacts due to changes in local ecosystems. in measures to limit the negative environmental

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk Advocate for strong Working groups on ballast Actively advocate and Air emissions related We are in a highly enforcement measures for water treatment and on contribute to the enforcement to ocean shipping have competitive industry and the global sulphur cap. SOx established. and compliance agenda for a substantial negative must ensure that there is a air emissions in the shipping impact on human health. level playing field in terms of and maritime community. Invasive species can affect compliance and enforcement For ballast water, we will the natural environment of environmental regulation take the necessary steps to negatively. in order to do business. comply with regulations.

40 | A.P. Moller - Maersk Risk | Environmental regulation

impacts of our activities. We work to ensure that the regulations across the globe since 2014, we will Facts measures proposed hold the potential to achieve contribute to this process as much as possible. We The estimated cost of the desired improvements. This is important for our also support the Trident Alliance’s stance that a installing the necessary business and for people and the natural environment level playing field for the industry is far away, but is ballast water systems across the globe. nevertheless necessary if the 0.5% global sulphur cap to comply with future regulations is in excess We support transparency and consequences is to have the intended positive impact on human of USD associated with non-compliance, in order to health and the environment. incentivise all shipowners to comply and ensure a Nitrogen oxides (NOx) are also emitted from fuel level playing field. powered engines. Emission controlled areas in the 300m Baltic Sea, the North Sea and the English Channel State of play for air emissions were approved by the IMO in 2016 and will take effect A regional cap on the content of sulphur in fuel is on the 1st of January 2021 for vessels constructed already in place for current emission control areas, on or after that date. The emission controls for which include the Baltic Sea and the North Sea along the North American area and the United States with the English Channel, North American area and Caribbean Sea area already cover NOx as well as SOx. the United States Caribbean Sea area. As far as the Enforcement of NOx regulations does not present the available data shows, the number of cases of gross same challenges as do those for SOx, as compliance is non-compliance inside these areas is very low across mainly dependent on the installation of equipment. the industry. The financial risk to A.P. Moller - Maersk is related Ballast water moving forward to a global sulphur cap of 0.5% which the IMO agreed As with all legislation, A.P. Moller - Maersk intends in 2016 will become effective as of the 1st of January to comply with the Ballast Water Treatment 2020. Ensuring the effectiveness of the global cap Convention, which enters into force on the 8th requires monitoring and enforcement on the open of September 2017. We are currently monitoring seas. We support this decision but remain concerned the situation closely in order to ensure timely about the availability of enforcement mechanisms. compliance. This means that all our vessels will be This concern is also recognised by the IMO, whose fitted with a ballast water treatment system when members will begin to investigate options in early required by the rules and regulations. 2017. As members of the Trident Alliance, a coalition of 39 shipowners and operators that have worked to ensure the robust implementation of sulphur

Sustainability Report 2016 | 41 Risk | Process safety

ENSURING A CULTURE OF PREVENTION

Solid processes and continuous training The risk of a major accident is one of the most Oil spills mitigate the risk of major accidents occurring significant in our sustainability risk register. If such In January 2016, strong as part of our operations. Our businesses an incident were to occur, it could be related to the winds in Izmit, Turkey, led to have comprehensive programmes in place nature and location of our operations at high sea, in a tug being called to assist harsh weather conditions and with heavy duty and Maersk Ahram. While doing that focus on the prevention of accidents. often complicated equipment and processes involved so, it accidentally rammed into the side of the vessel, in carrying out the work. compromising the hull The loss of life and damage to the environment and resulting in an oil spill Some industrial accidents are so large and have are by far the worst consequences of a major of 12.7m3. such a wide impact that they become household incident. Seen through the lens of risks to our The oil was cleaned up by a local response team, names. The Macondo accident, commonly known businesses, the loss of our license to operate would no damage to natural under the name “Deepwater Horizon”, where a be extremely damaging as it would make us sanctuaries was found and hydrocarbon release led to an explosion, resulting in commercially unattractive. no legal implications were fire, 11 fatalities, many injuries and massive oil spills, To mitigate this risk, we work to prevent incidents incurred. still hovers over the offshore oil and gas industries. such as blowouts in wells, fires, explosions, ship or rig This was the only hydrocarbon spill above 10m3 It reminds us of the massive impact on human collisions. Each of our businesses has comprehensive across all our businesses life, the natural environment, as well as corporate and detailed programmes in place for managing in 2016. reputations and financial performance that just one these risks, including containment and recovery case of less than adequate safety processes can have. plans if an accident or spill occurs.

42 | A.P. Moller - Maersk Risk | Process safety

simulators as well as the monitoring of performance. Prevention of oil spills Towed vessels sunk In 2016, 10 well control incidents were managed. Seven out of the ten recorded incidents were related Based on analyses of On the 22nd of December 2016, two towed to actual influx from formations. All incidents trends in the past three Maersk Supply Service vessels, Maersk Searcher and were handled according to established well control years’ data, Maersk Line Maersk Shipper, sank 60 miles off the coast of France. procedures and none of the incidents were critical. annually determines The towed vessels were unmanned. Investigations its priorities in oil spill Maersk Tankers focuses on high severity incidents were still ongoing at the time of this report’s prevention. In 2016, the publication. Key conclusions will be communicated such as major oil spills with prevention measures focus was on replacing upon completion of the incident investigation. embedded in the construction of vessels, procedures, the traditional lubricants equipment and training of crews. Drills are conducted used in engines with throughout the year in collaboration with oil spill biogdegradable ones, which, if released, would response providers, customers, terminals and other be absorbed by the natural Safe processes in the oil-related businesses stakeholders, the results of which are reviewed to environment. The switch Due to the nature of the work involved and intense ensure continuous improvement. Other collaborative was to occur on ships customer demands for the management of such risks, efforts consist of the development of a risk modelling that came into dock for A.P. Moller -Maersk’s businesses in the energy sector project with industry peers, and a loss-preventative maintenance. The target was set in late February, have historically focused on process safety risks. project in collaboration with insurers to understand with a goal line of In recent years, Maersk Oil has reinvigorated and reduce collisions and groundings, whereby the process safety work, to build a learning organisation risk of suffering a major oil spill will be reduced. 80% that is better equipped to address root causes of all dockings in 2016, a discovered through incident investigations. In 2016, Transport & logistics businesses prevent losses target that was reached. a framework for setting clear expectations for 20 In the shipping-related businesses, the prevention of elements of process safety management was launched. high-severity incidents is focused on preventing loss Further to that, a large part of the focus was on training. of lives, cargo and physical assets. Thousands received training in a newly established Maersk Line focuses its work in three main areas: set of eight life-saving rules and controls for safety. fires in containers, nautical incidents (collisions or Furthermore, 330 frontline technicians were assessed, grounding) as well as maintenance and mechanical resulting in certified vocational qualifications, including failures. As part of the safety strategy for 2015–2017, an improved understanding of the processes and risks Maersk Line established a nautical excellence involved in their day-to-day tasks and processes. programme dealing with equipment usage, At Maersk Drilling, there is a constant focus procedures, incident follow-up, knowledge sharing, on well control, which relates to every aspect of training as well as audits, drills and exercises. operating at depths of up to 3,650 metres, and drilling During 2016, Maersk Line, APM Terminals and Related Sustainable wells more than 12,000 metres deep. Incidents are Damco investigated possibilities for improved end- Development Goal typically related to gas, oil, water flowing back into to-end control of dangerous goods, for example the drilling system and/or well fluids being released explosives, in the container shipping supply chain. into the environment. Significant efforts are put into The work focuses on setting standards, training and risk analysis and prevention, training in advanced risk assessments.

Why this matters Why this matters Our ambitions Our progress Next steps to society to A.P. Moller - Maersk We want to create an Finalise operational and Accidents resulting from Process safety prevents incident-free environment 1 functional process safety process safety failure high impact – low likelihood for both major spills and fatal oil spill >10m³ across all our mapping. have serious impacts on incidents like fires, major accidents. businesses in 2016. human health and/or the spills and explosions. The environment. risk of human fatalities and 10 injuries goes against our most well control incidents. fundamental values. Moreover, great damage to both reputation and the bottom line is the likely result of any such incident under our name.

Sustainability Report 2016 | 43 Assurance and performance data | Assurance

INDEPENDENT ASSURANCE REPORT

To the Stakeholders of A.P. Møller - Mærsk A/S A limited assurance engagement undertaken in accordance with We have undertaken a limited assurance engagement on the ISAE 3000 involves assessing the suitability in the circumstances of A.P. Møller - Mærsk A/S Sustainability Report 2016. A multidisciplinary A.P. Møller - Mærsk A/S’s use of stated accounting policies as the basis team including assurance practitioners, engineers and other experts for the preparation of the consolidated sustainability data. Furthermore, have conducted this engagement. it involves assessing the risks of material misstatement, whether due to fraud or error, responding to the assessed risks as necessary in the Management’s responsibility circumstances and evaluating the overall presentation of the consolidated Management Board is responsible for preparation of the 2016 sustainability data. A limited assurance engagement is substantially less A.P. Møller - Mærsk A/S Sustainability Report in accordance with in scope than a reasonable assurance engagement in relation to both Group accounting policies, which can be found at www.maersk.com/ the risk assessment procedures, including an understanding of internal sustainability-report-2016-accounting-principles. This responsibility control, and the procedures performed in response to the assessed risks. includes design, implementation and maintenance of internal control relevant to the preparation of the sustainability data ensuring that data The procedures we performed were based on our professional judgment are free from material misstatement, whether due to fraud or error. and included: A.P. Møller - Mærsk A/S’s accounting policies for the Sustainability • Interviews with management at Group and Business Unit level Report contain the Management Board’s reasoning for the selection of responsible for the sustainability strategy, management and topics and indicators as well as defined reporting scope for each data type. reporting • An assessment of materiality and the selection of topics for the 2016 Our Independence and Quality Control A.P. Møller - Mærsk A/S Sustainability Report and comparison to the We have complied with the Code of Ethics for Professional Accountants results of a media search issued by the International Ethics Standards Board for Accountants, • Review of reporting guidelines and the results of internal control which includes independence and other requirements founded on procedures at Group level and in three major Business Units fundamental principles of integrity, objectivity, professional competence regarding the data to be consolidated in the 2016 Sustainability and due care, confidentiality and professional behavior. Report PwC applies International Standard on Quality Control 1, and accordingly • Analytical review of the data and trend explanations submitted by maintains a comprehensive system of quality control including documented all business units for consolidation at Group level policies and procedures regarding compliance with ethical requirements, • Evaluation of requested internal and external documentation to professional standards and applicable legal and regulatory requirements. determine whether information in the 2016 Sustainability Report is supported by sufficient evidence Our Responsibility Our responsibility is to express a limited assurance conclusion on data Limited Assurance Conclusion and information in the 2016 A.P. Møller - Mærsk A/S Sustainability Report Based on the procedures we have performed and the evidence based on the procedures we have performed and the evidence we have we have obtained, nothing has come to our attention that obtained. We conducted our limited assurance engagement in accordance causes us not to believe that the 2016 A.P. Møller - Mærsk A/S with International Standard on Assurance Engagements 3000, “Assurance Sustainability Report is free of material misstatements and that Engagements other than Audits or Reviews of Historical Financial Group data are prepared, in all material respects, in accordance Information”. That standard requires that we plan and perform this with the stated accounting policies as stated on www.maersk.com/ engagement to obtain limited assurance about whether the consolidated sustainability-report-2016-accounting-principles. social and environmental statement is free from material misstatement.

Copenhagen, 8 February 2017

PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no. 33 77 12 31

Mogens Nørgaard Mogensen Gert Fisker Tomczyk State Authorised Public Accountant State Authorised Public Accountant

44 | A.P. Moller - Maersk Assurance and performance data | Performance data

PERFORMANCE ON SOCIAL, ENVIRONMENTAL AND ECONOMIC INDICATORS

DAMCO

A.P. Moller - Maersk Maersk Line APM Terminals Damco Svitzer

2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 Social performance Our employees Number of employees 87,736 88,355 89,207 31,858 32,750 32,622 22,615 21,171 20,639 11,292 11,087 11,313 2,870 2,847 2,723 4,005 4,427 4,475 3,325 3,965 4,741 1,726 2,066 2,114 2,415 2,366 2,487 6,291 6,392 7,365 1,339 1,284 728 (FTEs) Gender – female/total 25 25 23 34 35 36 11 10 10 48 52 38 6 6 6 23 23 24 9 9 9 8 8 8 3 3 3 13 11 10 36 38 42 (% based on FTE) Women in leadership 16 15 14 17 17 16 15 13 15 30 26 24 24 21 16 15 14 14 13 9 10 6 3 3 3 3 3 8 6 5 23 23 24 (% based on FTE)

Fatalities (headcount) 2 7 11 0 0 1 2 4 10 0 1 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0

Lost-time injury frequency n/a n/a n/a 0.42 0.55 0.71 1.53 1.94 1.41 1.04 0.63 0.43 0.63 0.53 1.06 0.43 0.58 0.73 0.49 0.31 0.57 0.72 0.11 0.57 0.40 0.13 0.41 1.84 n/a n/a n/a n/a n/a (based on exposure hours) Employee engagement – percentage favourable 76 76 73 76 76 75 79 78 74 75 77 68 77 74 72 67 71 73 79 80 81 68 77 73 77 77 73 n/a n/a n/a n/a n/a n/a (% based on headcount) Environmental performance Energy consumption Fuel oil (1,000 tonnes) 10,115 9,455 9,388 9,477 8,858 8,699 4 5 4 0 0 0 57 55 51 57 65 72 23 17 14 32 54 33 457 392 501 7 8 13 1 1 1 Gas fuels (1,000 tonnes) 617 683 651 1 2 4 1 3 1 1 1 4 0 0 0 610 674 639 0 0 0 0 0 0 0 0 0 3 3 3 1 0 0 Other fuels (1,000 tonnes) 289 192 189 8 8 8 200 114 116 3 3 3 0 0 0 77 65 59 0 0 0 0 0 0 0 0 0 1 2 3 0 0 0 Electricity (1,000 MWh) 524 808 794 54 60 63 231 481 468 37 38 38 10 9 10 123 112 119 2 2 3 1 1 1 0 0 0 64 102 90 2 3 2 Energy consumption 454,853 428,874 423,796 387,290 362,405 355,129 8,249 6,189 6,165 300 319 481 2,473 2,373 2,211 34,745 37,483 36,156 974 731 620 1,354 2,300 1,422 18,707 16,112 20,450 716 916 1,109 45 45 53 (total, TJ) Greenhouse gas (GHG) emissions (1,000 tonnes CO2 eq) GHG emissions 36,169 33,459 32,808 30,461 27,973 27,332 662 576 574 32 35 44 200 193 181 3,088 3,064 2,798 79 59 50 109 185 114 1,458 1,260 1,588 76 110 123 4 4 4 Direct GHG emissions 35,917 33,044 32,406 30,429 27,935 27,294 573 358 366 11 11 22 196 189 176 3,025 3,006 2,737 78 58 49 109 185 114 1,458 1,259 1,588 36 40 57 2 3 3 (scope 1 GHG Protocol) Indirect GHG emissions 252 415 402 32 38 38 89 218 208 21 23 22 4 5 5 63 58 61 1 1 1 0 0 0 0 0 0 40 71 66 2 1 1 (scope 2 GHG Protocol) Other air emissions (1,000 tonnes)

SOx 513 482 500 489 458 466 0 0 2 0 0 0 0 1 1 2 2 4 0 0 0 0 1 1 22 19 26 0 1 0 0 0 0

NOx 809 755 752 751 702 690 4 2 3 0 0 0 4 4 4 8 9 10 2 1 1 2 4 3 36 31 40 2 2 1 0 0 0 Other resource consumption Waste (1,000 tonnes) 226 479 461 125 317 338 24 70 34 5 5 5 1 3 3 15 21 42 1 2 0 3 4 1 17 12 11 33 45 27 2 0 0 Water (1,000 m3) 2,384 4,025 3,730 308 321 345 739 2,249 2,051 237 250 215 36 40 46 474 466 327 14 14 16 56 54 18 176 218 259 334 407 447 10 6 6 Spills >10 m3 (number of spills) 1 3 n/a 1 1 n/a 0 0 n/a 0 0 n/a 0 1 n/a 0 0 n/a 0 1 n/a 0 0 n/a 0 0 n/a 0 0 n/a 0 0 n/a Economic performance (USD million) Revenue 35,464 40,308 47,569 20,715 23,729 27,351 4,176 4,240 4,455 2,507 2,740 3,164 642 669 812 4,808 5,639 8,737 2,297 2,517 2,102 386 613 778 877 1,058 1,175 915 1,185 1,480 -1,859 -2,082 -2,485 Result -1,897 925 5,195 -376 1,303 2,341 438 654 900 31 19 -293 91 120 -270 477 -2,146 -861 -694 751 478 -1,228 147 201 62 160 132 -117 316 408 -581 -399 2,159 Underlying result 711 3,071 4,532 -384 1,287 2,199 433 626 849 31 15 -225 89 116 82 497 435 1,035 743 732 471 -44 117 189 58 156 139 – –– – –– Tax 1,054 522 2,972 +20 128 163 149 106 234 24 21 52 6 6 20 931 175 2,327 3 163 123 +24 10 18 2 1 +1 – –– – ––

Financial scope. Covered by the Group’s Generally Accepted Accounting Policies and controlling guideline. Operational scope. Covered by the Group’s Generally Accepted Accounting Policies. Described in the Group’s Generally Accepted Accounting Policies, but data coming from other sources than the financial and operational scoped data. Financial data is taken from the audited Annual Report of A.P. Moller - Maersk. The annual accounts and independent auditors’ report can be found at http://investor.maersk.com/financials.cfm

45 | A.P. Moller - Maersk Assurance and performance data | Performance data

Maersk Oil Maersk Drilling Maersk Supply Maersk Tankers Other businesses Unallocated Service and eliminations 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 2016 2015 2014 Social performance Our employees Number of employees 87,736 88,355 89,207 31,858 32,750 32,622 22,615 21,171 20,639 11,292 11,087 11,313 2,870 2,847 2,723 4,005 4,427 4,475 3,325 3,965 4,741 1,726 2,066 2,114 2,415 2,366 2,487 6,291 6,392 7,365 1,339 1,284 728 (FTEs) Gender – female/total 25 25 23 34 35 36 11 10 10 48 52 38 6 6 6 23 23 24 9 9 9 8 8 8 3 3 3 13 11 10 36 38 42 (% based on FTE) Women in leadership 16 15 14 17 17 16 15 13 15 30 26 24 24 21 16 15 14 14 13 9 10 6 3 3 3 3 3 8 6 5 23 23 24 (% based on FTE)

Fatalities (headcount) 2 7 11 0 0 1 2 4 10 0 1 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0

SOx 513 482 500 489 458 466 0 0 2 0 0 0 0 1 1 2 2 4 0 0 0 0 1 1 22 19 26 0 1 0 0 0 0

NOx 809 755 752 751 702 690 4 2 3 0 0 0 4 4 4 8 9 10 2 1 1 2 4 3 36 31 40 2 2 1 0 0 0 Other resource consumption Waste (1,000 tonnes) 226 479 461 125 317 338 24 70 34 5 5 5 1 3 3 15 21 42 1 2 0 3 4 1 17 12 11 33 45 27 2 0 0 Water (1,000 m3) 2,384 4,025 3,730 308 321 345 739 2,249 2,051 237 250 215 36 40 46 474 466 327 14 14 16 56 54 18 176 218 259 334 407 447 10 6 6 Spills >10 m3 (number of spills) 1 3 n/a 1 1 n/a 0 0 n/a 0 0 n/a 0 1 n/a 0 0 n/a 0 1 n/a 0 0 n/a 0 0 n/a 0 0 n/a 0 0 n/a Economic performance (USD million) Revenue 35,464 40,308 47,569 20,715 23,729 27,351 4,176 4,240 4,455 2,507 2,740 3,164 642 669 812 4,808 5,639 8,737 2,297 2,517 2,102 386 613 778 877 1,058 1,175 915 1,185 1,480 -1,859 -2,082 -2,485 Result -1,897 925 5,195 -376 1,303 2,341 438 654 900 31 19 -293 91 120 -270 477 -2,146 -861 -694 751 478 -1,228 147 201 62 160 132 -117 316 408 -581 -399 2,159 Underlying result 711 3,071 4,532 -384 1,287 2,199 433 626 849 31 15 -225 89 116 82 497 435 1,035 743 732 471 -44 117 189 58 156 139 – – – – – – Tax 1,054 522 2,972 +20 128 163 149 106 234 24 21 52 6 6 20 931 175 2,327 3 163 123 +24 10 18 2 1 +1 – – – – – –

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