PIRELLI & C. S.p.A. – Milan U. SUSTAINABILITY REPORT 2012 CONTENTS 2 CONTENTS Y. ANNUAL FINANCIAL REPORT AT DECEMBER 31, 2012 O. REPORT ON CORPORATE GOVERNANCE AND STRUCTURE OF SHARE OWNERSHIP 2012* U. SUSTAINABILITY REPORT 2012 A NOTE ON METHODOLOGY 08 PRINCIPAL SUSTAINABILITY KPIS AND TARGETS 12 1. CREATION OF SUSTAINABLE VALUE 16 Sales by geographical area 19 Geographical Distribution Of Employees 20 1.1 Sustainable governance 21 3 The principles underlying the Pirelli sustainability model 21 The Values and Ethical Code 21 Code of Conduct 22 Social Responsibility Policy for Occupational Health, Safety and Rights, Environment 22 Equal Opportunities Statement 22 Quality Policy 23 Green Sourcing Policy 23 The Model 24 Stakeholder Engagement 24 Sustainability in the organisational structure 26 Sustainable planning and management 27 1.2 Sustainable growth strategy: from current Plan 2012-2014 with vision to 2015 to the new Industrial Plan 27 1.3 Long-term Governance tools 29 Corporate Governance 29 Risk management system 30 Risk and uncertainties 31 Independent audits of Social and Environmental Responsibility 33 SWITCHING POINT OF VIEW Compliance 38 Group Whistleblowing procedure 40 1.4 Stock market indices and ethical finance 41 Dow Jones sustainability indices 42 FTSE4GOOD indices 43 Carbon Disclosure Leadership Index (CDLI) 43 Stoxx Global ESG Leaders Indices 43 ECPI indices 43 Axia Asi (Axia Sustainable Index) 43 1.5 Principal awards and recognitions 44 2. ECONOMIC DIMENSION 52 2.1 Added value 54 2.2 Loans and contributions received from the public administration 56 2.3 Shareholders, investors and the financial community 56 Financial communication 57 2.4 Our customers 58 Costumers focus 59 Trasparency 59 Information and training 60 Regulation on general safety of motor vehicles (EC 661/2009) 61 Tyres labelling regulation (EC 1222/2009) 61 Listening and exchanging ideas as sources for continual improvement 62 ISO 9001 quality certification 63 4 FLEXIBILITY ISO/TS 16949 68 ISO/TS 17025 68 Focus on human health and the environment 68 Product safety, performance and eco-sustainability 68 Road safety culture and international initiatives 69 Cultura della sicurezza stradale e iniziative internazionali 69 2.5 Our suppliers 70 Supply chain sustainable management system 71 Green Sourcing Policy 73 Trend of purchases 73 Training on sustainability issues 75 2012 Supplier Award 76 2012 Supplier Convention 76 Engagement 76 Independent audits of vendor sustainability 76 2013 Targets 77 3. ENVIRONMENTAL DIMENSION 78 3.1 Product First: the approach and premium strategy of Pirelli 81 3.2 The new Green Sourcing Policy 82 3.3 Product environmental sustainability 84 Research and development of raw materials 84 Silica from rice husks 85 Product and use phase 86 Car Tyres 87 Motorcycle Tyres 89 Truck Tyres 89 Cyber Tyre 91 End-of-life Management of Tyres 92 Products that can be obtained from recycling ELTs 93 End-of-Life Tyres and Cradle-to-Cradle approach 93 Other business 95 Pirelli Environment Services and Products 95 PZero 95 FRATERNITY 3.4 Process environmental sustainability 100 Process phases to produce a Tyre 100 Pirelli plant environmental management system and certifications 102 Monitoring of environmental performance 102 Scope of performance reporting 102 Performance index trend 104 5 Energy 104 Greenhouse gas emissions 106 Initiatives for analysis, reduction and offsetting of CO2 emissions 108 Partnership with the Italian Environment Ministry 108 Company car fleet Policy 108 Vizzola Ticino test track 109 Monitoring of CO2 for transport 109 Water 110 Waste 111 Handling of packaging 113 Other environmental aspects 114 Solvents 114 NOX emissions 114 Biodiversity 115 Other emissions and environmental aspects 116 Investments for improvement of environmental performance 116 3.5 Environmental culture 116 Observatory for renewable energies and energy efficiency 116 Environment week in Brazil 117 4. SOCIAL DIMENSION 118 4.1 Internal community 120 Pirelli employees around the world 121 A note on methodology 121 Employee flows by geographic area, category and age group 123 Diversity Management 125 Compensation and international mobility 131 Employer Branding, development and training 133 Getting to know Pirelli: Employer Branding activities 133 Development 134 Performance Management 134 Competence Mapping 135 Training 135 Sustainability training 137 Group Opinion Survey 138 Internal communication: international outlook, engagement and sharing 138 The new intranet 138 The launch of On Air, the core of communications on the intranet 138 “Glocal” magazines 139 A new look for World 139 Special initiatives and projects: the new editorial projects focus on creativity more than just words and figures 139 :PBook goes international 139 Welfare and initiatives for the internal community 139 Industrial relations 141 6 PERSEVERANCE European Works Council (EWC) 146 Compliance with statutory and contractual obligations governing overtime, time off, freedom of association, equal opportunities and non discrimination, ban of child and forced labour 146 Labour and social security lawsuits 147 Unionisation levels and industrial action 147 Occupational retirement and health-care plans 147 Occupational Health, Safety and Hygiene 148 Safety management system 148 Safety Culture 149 Safety training 150 Monitoring of performance 150 Performance 150 Fatalities 151 Best Practices 151 Occupational Diseases 151 Health and Safety expenditure 152 Health and Safety targets 152 Healthcare assistance during working hours and prevention Campaigns 152 4.2 External Community 152 Relations with Institutions and Public Authorities 152 Principal international commitments for sustainability 155 ETRMA – European Tyre and Rubber Manufacturers Association 155 IRSG – International Rubber Study Group 155 WBCSD – World Business Council for Sustainable Development 155 EU-OSHA – European Occupational Safety and Health Agency 156 CSR Europe 156 The Carbon Price Communiqué 157 Company initiatives for the external Community 157 Road safety 157 Social solidarity 158 Health 158 Education and training 159 When sport becomes an expression of solidarity 159 Environmental initiatives 160 Corporate culture 160 SUMMARY TABLES 164 ASSURANCE STATEMENT 168 * This volume is a specific, integral section of the Directors’ Report on Operations. 7 A NOTE ON METHODOLOGY 10 A NOTE ON METHODOLOGY The Pirelli Group Sustainability Report, in 2012 at the eight edition is a comprehensive expression of a cor- porate culture based on the integration of economic, environmental and social choices, in line with the triple bottom line approach. For this reason, instead of being published separately, the description of Pirelli sustainable performance is included in the Pirelli Annual Financial Report at December 31, 2012, of which it is the third volume: Volume Y: Annual Financial Report at December 31, 2012; Volume O: Annual Report on Corporate Governance and the structure of share ownership 2012; Volume U: Sustainability Report 2012. In light of this integration, note that: the Chairman’s Letter at the beginning of Volume Y of the Pirelli Annual Financial Report addresses Group sustainability issues; the scope of this annual report is the same as the Group’s Annual Financial Report at December 31, 2012 - Volume Y; this report gives a summary of the corporate identity, Group structure and operating performance in 2012, insofar as these topics are discussed in detail in Volume Y, to which reference is made for further information. The Sustainability Report has been drawn up according to the Sustainability Reporting Guidelines issued by the Global Reporting Initiative (GRI – G3.1), and the principles of completeness, materiality and responsive- ness set out in Standard AA1000. The analysis of sustainable performance is based on a set of Key Performance Indicators (KPIs), developed in accordance with the GRI-G3.1 indicators, the ten principles of the Global Compact (to which Pirelli adhered in 2004) while also taking account of data periodically monitored by the leading rating agencies of sustain- able finance. The sections on economic and social dimensions have also drawn on the Reporting Standards issued by the Italian Sustainability Report Study Group (GBS – Gruppo di Studio per il Bilancio Sociale). In this report, we have concentrated on what we believe will be of most interest to the Group’s wide variety of stakeholders, highlighting and explaining the progress made in 2012 in relation to the contents of the 2011 report, with an overview of trends during the past three years as well as the new 2013 and/or multi-year targets. The Summary Tables found at the end of the report refer to topics discussed in the text in compliance with the specific GRI-G3.1 indicators, as well as to the Global Compact principles. This report includes the Assurance Statement by independent third party. Finally, it is published – in Italian and English – in the Sustainability section of the website www.pirelli.com. To submit comments and ask for clarifications or further details, please refer to the Contacts published in the Sustainability section of the website. The “Sustainability Channel” can be accessed from the Sustainability section. This is an interactive com- munication channel between Pirelli and the web community interested in sustainability news and events regarding the Group. Interested users may comment on the published information through the Sustainability Channel. 11 SUSTAINABILITY REPORT 2012 MAIN PERFORMANCE INDICATORS