A Supplier Guide to Carbon Reduction Management
Herzogenaurach
03.07.2023

1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

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Schaeffler at a Glance

The Paris Agreement is considered a milestone in global climate protection✓ Limiting the temperature rise to below 2°C (ideally: below 1.5°C)✓ Commitment to national reduction targets✓ Extension through the EU Green Deal (2022): climate neutrality by 2050
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PUBLICHowever, current ambitions and reduction targets are far from sufficient

Key aspects:• In order to achieve the Parisclimate goals, a massive
acceleration in the reductionof absolute emissions isessential• The remaining global CO2ebudget to reach atemperature increase of
below 1.5°C will be used up in
less than 7 years

Source: www.climateactiontracker.org

A Guide to Carbon Reduction Management

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It is imperative to implement effective climate protection now

96%of the companies have set reduction targets in at least one scope.

11%

have reduced their emissions in line with their targets in the last 5 years.

9%

comprehensively measure their emissions.

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Schaeffler’s commitment and sustainability strategy is based on ESG

Key aspects:• We define sustainability along
the three dimensions ofEnvironment, Social, andGovernance (ESG)• The Schaeffler Group commits
itself towards the Paris
Agreement, the 17 SDG goals
as well as supports the ten
principles of the UN Global
Compact• The focus of this presentation
lies on climate neutrality• Further details can be foundhere: Sustainability Report

A Guide to Carbon Reduction Management

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1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

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2. Approach towards a low carbon intense company and supply chain

I
Calculate Carbon
FootprintVI

Set Reduction
Targets

V

IV

III

II

Implement
Reduction Levers

EngageSuppliers

Communicate
Transparently

Governance Structure

A Guide to Carbon Reduction Management

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I. Carbon Footprint Calculation: Operational boundaries

Key aspects:

CO2• According to the Greenhouse
Gas Protocol (GHG), CO2eemissions are divided into
scopesand other greenhouse gases
Purchased Goods &Services

Generated Waste
Business Travel
Leased or rented
buildings

Directemissionsfrom thecompany’s
vehicle fleet

Processing ofsold products
End-of-Life Treatmentof sold products
Downstream
Leased Assets
Franchises• Scope 1: Self-controlled
emissions (direct)

SCOPE 3Purchased
electricity for
own useDirectemissionsfrom company
facilities

SCOPE 1

Distribution andTransportation

Purchased
heat, steam
and coolingfor own use

SCOPE 2

Fuel & Energy related
activities

SCOPE 3

Capital Goods

Downstream
transportation anddistribution• Scope 2: Purchased energy(indirect)• Scope 3: Upstream anddownstream emissions(indirect)

Investments

Commuting

Upstream Activities

Own Operation

Downstream Activities

A Guide to Carbon Reduction Management

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I. Carbon Footprint Calculation: Organizational boundaries

Key aspects:

Minority interest(Minority of stakes)• Own operation andsubsidiaries with a controllingstake (majority of stakes)
must be included in thecorporate carbon accounting• In case of M&A activities, arestatement of the base year
might be necessary

Controlling Stake(majority of stakes)
Company

Subsidiary companies(consolidated)

A Guide to Carbon Reduction Management

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Physical Unit

Emission Factors

EmissionsAggregate supplier-specificvolume (e.g. weight for physicalgoods, liters for liquids, tonkilometer in logistics) data

Use case-specific emission
factors per physical unit thatcan be weighted-averaged byregion, industry or, in case oflogistics, transportation mode

Obtain case-specific emissions
that can be aggregated byregion, purchasing category, ortransportation mode forexampleHaving transparency across a company’s Scope 1 (direct from own operation), Scope 2 (indirect from own operation) and Scope 3(up- and downstream) emissions is the first step towards a climate-neutral operation.
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II. Set Reduction Targets: Know your reduction path

Key aspects:

The Schaeffler Group’s SBTi targets:

Scope 1 & 2

Reduction (%)

0%base year 2019

Scope 3 Upstream-25% bis 2030

25%

• Based on the carbon
accounting from the previous
step concrete reduction
targets can be derived• Ideally these targets are
science based and in line with
the Paris Agreement

50%-75% bis 2025

75%

min. -90% bis 2040

min. -90% bis 2030

100%
2019

2025

2030

2040

Reduction targets helps with monitoring and tracking an operations climate impact
as well as to commit to the implementation of concrete reduction levers.
A Guide to Carbon Reduction Managementt• The Science-Based-Target
Initiative (SBTi) provides
guidance and certifies thetargets based on theremaining global emission
budget until the year 2100
• Schaeffler does not accept
carbon compensation to
reduce emissions
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III. Implement Reduction Levers: Identify and analyze hotspots
Example of typical OEM Scope 1-3U levers:

Key aspects:

400• A majority of levers can be
implemented at a relatively
low cost (e.g. switch torenewable power).

Abatement costs (€/t CO2e, 2030)

200

0
100%

• Some carbon reduction levers
even hold the potential for
additional cost savings (e.g.
increase process efficiency)

Abatement potential (t CO2e, 2030)-200

Circularity/recycling

Renewable power

New processes

Material and process efficiency

Renewable heat

Fuel switch

CCUS

Note: Few very minor levers not explicitly shown
Source: World Economic Forum & BCG report 'The Supply Chain Opportunity' (Jan 2021)

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IV. Supplier Engagement: Carbon reduction as a joint effort

Fulfilment ofbasic requirements

Further Development

Continues Sustainable
Business Relation• Consideration of Schaeffler Sustainability
Policies• Implementation of risk mitigation
measures based on Sustainability risk
assessment• 100% usage of renewable energy sources@ suppliers latest till 2030

• Acceptance of Schaeffler Supplier Code of
Conduct• Conflict Mineral Compliance• Alignment of further steps via
Sustainability Target Agreement• Support of addressed measures based on
Sustainability risk assessment according
German Act on Corporate Due Diligence
Obligations in Supply Chains• Continuous improvement of SAQ Score
via NQC• Completion of requested
CCF/ PCF disclosures• Validated CO2 calculation
based recognized standards(e.g. ISO 14067, GHG etc.)• Continuous development of carbonreduced product portfolio• Circular economy strategy support• Transparent and risk free critical raw
materials supply chain• Improving transparency towards carbon
emissions / decarbonization strategies
More Information | News for suppliers
Schaeffler Supplier Landing Page
Sustainability• CDP disclosure (upon request)

Status Quo

2023 + 2024

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V. Transparent Communication and Trainings

Communication:

Trainings:• A Sustainability Report can help increasetransparency and foster credibility of thecompany• General sustainability trainings increaseawareness and nurtures understanding for therequired changes• Internal communication regarding sustainable
activities will increase awareness and results in achange in mindset• Topic-specific trainings will provide employees in
the respective departments with relevant andapplicable know-how• The continuous presence of sustainability andthe resulting need to act helps in facilitation thetransformation towards a climate-neutral entity• It is important to keep the focus group in mind:
team members might need different informationand degree of detail than managers

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VI. Governance Structure

IMPORTANT:The sustainability governance structure might look different for each company
depending on its overall organizational setup and priorities.

However, a few general characteristics and criteria should be considered when implementing a sustainability organization,
among others:❑ Having a central steering body for decision-making, target setting and overall sustainability strategy❑ Identifying relevant action fields along the ESG framework will help to set the focus❑ Implement sustainability in the general decision-making process❑ Establish experts and coordinators within relevant departments / regions / divisions / functions
KEY CHALLENGE: Establishing a sustainability network that is embedded in the organization to ensure knowledge building, lever
implementation, and target achievement.
A Guide to Carbon Reduction Management

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1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

All rights reserved to Schaeffler AG, in particular in case of grant of an IP right.

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3. Overview of reduction levers: AVOID and REDUCE carbon emissions

3.1

3.2

Optimize
Energy &Process
Efficiency

Purchase &Generate
Renewable
Energy

3.5

3.4

3.3

Increase
Recycling/
Scrap Rate

Optimize
Logistics

Further
Reduction
LeversThis section is meant to provide a universal overview of the most common levers. The different stages along the supply chain,from mining raw materials to assembling the end-product, might require varying reduction levers.
A Guide to Carbon Reduction Management

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1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

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3.1 Optimize energy & process efficiency

Implement energy management system:
1.

Identify and focus on most relevant energy hotspots and consumers

2.

Reduce base load (e.g. turnoff equipment/illumination during weekends and times of shut down)

3.

Integrate energy efficiency as purchasing criteria for new equipment

4.

Perform life cycle cost evaluation (invest + operating costs)

5.

Regular internal audits and checks can help to control energy consumption

Examples of levers to improve energy efficiency can be:
Ventilation

demand-oriented deployment, install heat recovery systems

Heating and Coolingcentral temperature control system, improvement of insulation

Lighting

switch to LEDs, use of motion/time switch for rarely used areas, install central lighting control system

Compressed Air

leakage control

Optimizing energy and process efficiency does not only reduce carbon emission, but it also has a major impact on cost savings.
A Guide to Carbon Reduction Management

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1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

All rights reserved to Schaeffler AG, in particular in case of grant of an IP right.

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3.2 Purchase and generate renewable energy
Purchasing renewable energy:

Generating own renewable energy:
Electricity by solar power:--

Electricity consumption can often be the biggest source of CO2eemissions and thus the most (cost) effective opportunity to reducecarbon emissions
It is important to purchase green electricity from renewable sources(wind-power, solar, hydropower) and the corresponding certificates oforigin in deregulated markets (i.e. Guarantees of Origin – GoO)-

Using photovoltaic panels to convert sunlight into electricity-

6-8 m2 solar panels can generate up to 700-1000 kWh annually-

National tax incentives can increase economic feasibility

Heating with biomass boilers:-

Biomass boilers are operated with wood chips, wood pellets or biogas-

Electricity from nuclear power sources are NOT renewable due to its
hazardous output waste. However, it is a very low carbon footprint-

Operate fully automated and can be implemented as contracting-

Power Purchase Agreement (PPA) can help to secure renewableelectricity in the long-term including a price guarantee-

Consider space requirements (fuel storage), legal requirement (e.g. fire safety)

Cooling with geothermal energy:-

Use energy piles as a geo-cooling source, e.g. for cooling buildings and offices-

High-performance energy piles can be installed in open areas

Solar heat:-

Solar hear installation consists of solar collectors, a heat exchanger, pipes, a
pump, a control unit and a hot water tank, and can support hot water

Nuclear energy is not referred to as renewable energy due to its hazardous output waste. It is also not accepted by OEMs of our
joint supply chain. However, it does have a lower carbon footprint compared to fossil-based energy generation.
A Guide to Carbon Reduction Management

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1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

All rights reserved to Schaeffler AG, in particular in case of grant of an IP right.

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3.3 Increase share of recycled and scrap material

Using secondary material:-

Increase proportion of secondary materials whenever possible (especially for steel, aluminum, and plastics)-

In case of aluminum, savings of up to 80% CO2e reduction can be achieved-

1 ton of primary aluminum:ca. 13 tCO2e-

1 ton of secondary aluminum:ca. 1.5 tCO2e

Secondary material can come from three sources:-

Own production (Cutouts and other scrap leftover)-

Externally from upstream suppliers (Cutouts and other scrap leftover)-

Extracting new resources from recycled finished products

Benefits:-

Besides saving resources, a closed loop approach can also decrease cost of materials substantially

A Guide to Carbon Reduction Management

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1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

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3.4 Optimize logistics: Potential measures to reduce logistics emission-

Increase and optimize utility rate, especially for truck loads
Efficiency trainings for fleet managers and truck drivers as how you drive has a major impact on fuel consumption.
Setup an internal awards scheme for efficient drivers
Aerodynamic truck kits might lower your trucks fuel consumption
Vehicles with GPS cruise control make use of peak momentum based on digital maps and GPS on gradients

Modal Shift-

Avoid air transportation whenever possible
Switch from road transport to inland waterways or rail
Compare CO2e emissions when selecting carriers as a criterion for awarding transport contracts

Alternative
Drives-Favor contractors with alternative drivers especially truck vehicles based on electricity, hydrogen or e-/biofuelssuch as HVO or Bio-Diesel; ships with BAF; and air freight based on SAF-

Switch to LED lighting
Radiant heating systems to target heat supply for parts of warehouse where staff are working
No need to heat warehouse areas where staff are not working (or minimal heating only)
Use electric radiators and green energy wherever possible

Optimize
Transportation
Network

Warehouse
Optimization

A Guide to Carbon Reduction Management

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1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

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3.5 Further reduction levers

Business
TravelCarbonCompensation

IT Usage

Options to reduce travel emissions:

General and server specific measures:

Carbon compensation is not accepted:-

MS-Team meeting an alternative

-

-

-

Use train and public transportation wheneverpossibleUse green energy to operate computers andservers

Carbon investments should be focused on actual
reduction and avoidance measures-

Optimize cooling and ventilation systems-

Actual emissions that have been emitted must be statedwhen reporting PCF/CCF-

Carbon compensation cannot be accepted as it will not
be included in carbon accounting-

Check for car sharing possibilities-

Switch company car fleet to electric vehicles

Office-related measures:-

Fly economy (better space utilization compared tobusiness/first class, hence, less emissions per person)-

Turn off equipment when not used (not standby) especially for weekends and holidays-

Use direct flights (shorter distance and less take-off
and landing, which is energy intense)-

Decrease data usage by deleting files no longer
needed and/or reducing data send via email-

Avoidance projects hold no longer the quality
standards compared to carbon capture and storage-

SBTi refers to carbon neutralization and only
accepts carbon removal and permanent storage ofresidual emissions*-Customers do not accept compensation*Net-Zero-Standard.pdf (sciencebasedtargets.org) (Page 20, Chapter 2.3)

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1. Introduction to climate change
2. How to develop a climate strategy
3. Overview of reduction levers
3.1 Optimize energy & process efficiency
3.2 Purchase and generate renewable energy
3.3 Increase share of recycled and scrap material
3.4 Optimize logistics
3.5 Further reduction levers

4. Glossary and definitions

A Guide to Carbon Reduction Management

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4. Glossary and definitions (1/4)

Abatement cost:
The abatement cost is the cost of an intervention (e.g. carbon reduction measure) that will reduce greenhouse gas emissions by one ton.
CDP (Carbon Disclosure Project):
CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to measure andmanage their environmental impact
Climate-neutrality:
Climate neutrality refers to the idea of achieving net zero greenhouse gas emissions by balancing those emissions, so they are equal (or lessthan) the emissions that get removed through the planet’s natural absorption. In basic terms it means we reduce our emissions throughclimate action. Actual carbon avoidance and reduction is priorities over carbon compensation.
CO2 Equivalents (CO2e):
A carbon dioxide equivalent or CO2 equivalent, abbreviated bas CO2e, is a metric measure used to compare the emissions from various
greenhouse gases on the basis of their global-warming potential (GWP), by converting amounts of other gases to the equivalent amount ofcarbon dioxide with the same global warming potential.
Corporate Carbon Footprint (CCF):
A corporate carbon footprint balances a company’s own and all relevant greenhouse gas emissions that are caused along the value chain inwhich the company under consideration is located. This applies a top-down approach.

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4. Glossary and definitions (2/4)

ESG (Environment, Social, Governance):
The abbreviation “ESG” stands for Environmental, Social and Governance and describes a comprehensive set of rules for evaluating thesustainable and ethical practices of companies.

Emission factor:
The release of greenhouse gas emissions into the atmosphere depends mainly on the activity and the product. In order to estimate
greenhouse gas emissions per unit of available activity, a specific emission factor per unit is used. Applicable emission factors can be found inestablished databases (e.g. GaBi, DEFRA, EcoInvent).
Global Warming Potential (GWP):
Global-warming potential, abbreviated as GWP, is a term used to describe the relative potency, molecule for molecule, of a greenhouse gas,taking account of how long it remains active in the atmosphere.
Greenhouse Gas Protocol:
The Greenhouse Gas Protocol (GHG Protocol) provides standards and tools that help countries, cities and companies progress toward climate
goals and account appropriately for their carbon emissions they have caused.
Guarantee of Origin (GoO):
A Guarantee of Origin is an EU guarantee that a given amount of power is produced at a particular power plant. It is a voluntary certification
scheme allowing consumers to choose a source of production, typically the choice between renewable and non-renewable electricity.

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4. Glossary and definitions (3/4)

NQC:
NQC is a leader in supply chain risk management with over ten years experience providing technology and insight to global industry andgovernments.

Product Carbon Footprint (PCF):
A product carbon footprint balances all greenhouse gas emissions – based on a defined unit of benefit – that oocur during the life cycle of a
product. This applies a bottom-up approach.
Power Purchase Agreement (PPA):A power purchase agreement (PPA), or electricity power agreement, is a long-term contract between an electricity generator and a customer,
usually a utility, government of company. PPAs may last anywhere between 5 and 20 years, during which time the power purchaser buys
energy at a pre-negotiated price.
Renewable energy:
Renewable energy is energy derived from natural sources that are replenished at a higher rate than they are consumed. Sunlight and wind, forexample, are such sources that are constantly being replenished. Renewable energy sources are plentiful and all around us. Nuclear energy is
not included in renewable energy.
SAQ (Sustainability Assessment Questionnaire):
The SAQ is a tool by NQC to measure and enhance a companies sustainability performance in the supply chain.

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4. Glossary and definitions (4/4)

SBTi (Science based target initiative):
The SBTi defines and promotes best practice in science-based carbon target setting, offering a range of target-setting resources, guidance, andverification of climate targets to align with the global effort to prevent the worst effects of climate change.

Scope 1:
Scope 1 includes all direct greenhouse gas emissions, such as primary energy sources used directly in company real estate. Examples include
natural gas, heating oil, petrol or diesel.
Scope 2:
Scope 2 include the indirect greenhouse gas emissions resulting from the generation of the energy procured. The CO2 emissions result fromthe consumption of secondary energy sources such as electricity, district heating, steam or cooling energy in buildings and in electric vehicles.
Scope 3 upstream:
Scope 3 upstream emissions are the indirect emissions related to a reporting company’s suppliers, from the purchased materials that flow into
the company to the products and services the company utilizes. This includes purchased goods and services, capital goods, fuel and energyrelated activities, upstream transportation and distribution, waste generated in operations, business travel, employee commuting, andupstream leased assets.
Scope 3 downstream:
Scope 3 downstream emissions are the emissions related to customers, from selling goods and services to their distribution, use, and end-oflife stages. This includes downstream transportation and distribution, processing of sold products, use of sold products, end-of-life treatmentof sold products, downstream leased assets, franchises, and investments.
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A Guide to Carbon Reduction Management

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PUBLICA Guide to Carbon Reduction Management