BUILDING BETTER
2016 SUSTAINABILITY REPORTTO OURSTAKEHOLDERS

Table ofContents

FOR MORE THAN 90 YEARS, CATERPILLAR HAS BEEN
BUILDING BETTER: BETTER LIVES, BETTER COMMUNITIESAND, ULTIMATELY, A BETTER WORLD. OUR CUSTOMERSUSE OUR EQUIPMENT TO DEVELOP INFRASTRUCTURE,
ENERGY AND NATURAL RESOURCE ASSETS THAT IMPROVE
LIVING STANDARDS AND MAKE SUSTAINABLE PROGRESSPOSSIBLE AROUND THE WORLD.

CEO LETTER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUSTAINABILITY AT CATERPILLAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
J I M U M P L E BY

CATERPILLAR PEOPLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
OPERATIONAL IMPACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
PRODUCT STEWARDSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
VALUE CHAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  50
GOVERNANCE & ETHICS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  56
COMMUNITY IMPACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  66
ABOUT THIS REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  75

ABOUT THE COVER:
Great Lakes Dredge & Dock Company restoring beaches as part of Hurricane Sandy recovery efforts

Chief Executive Officer

Our dedication to building
better is stronger than ever.
Caterpillar, our customers
and dealers are investing
to help address the world’s
persistent challenges, suchas resource and energy
scarcity, poor sanitation,
unsafe water and poverty.
This year’s report covers
efforts in several of thoseareas. I’ll highlight a few
in this letter.

NATURAL INFRASTRUCTURE

Cat ® products build infrastructure – roads, dams, airports
and schools – that support local, regional and national
economies. Cat products are also at work restoring natural
infrastructure – forests, prairies, farmlands, wetlands andcoastal landscapes – that are essential for healthy economies,
societies and environmental preservation.
Natural infrastructure removes carbon from the atmosphereand returns it to the earth as a valuable component of soils,
plants and ecosystems. That returns land to a more healthy
state, and when land is healthy, it’s productive for farming,
recreation and many other uses.
Unfortunately, much of the world’s natural infrastructure
has been lost or degraded.

Cat Reman recovers materials and restores engines andcomponents to same-as-when-new specifications. These
solutions are a win-win-win for our customers, theenvironment and Caterpillar.
We’ve been supporting the circular economy for decades.
We’re committed to making these practices available to as
many customers in as many countries as possible.

ENERGY ACCESS

Availability and access are also major sustainability
goals for our energy businesses. We know affordable anddependable energy is essential for economic prosperity,
growth and security, and we’ve been a leader in developing
products to address these needs.
For example, we provide solutions that include combined
heat and power, waste to energy, landfill gas to energy, coalmine methane to energy, and more. We’re also excited about
the potential to bring a host of new innovations in renewableenergy technologies for applications in both developing anddeveloped regions.

A BETTER CATERPILLAR

As we contribute new solutions to solve global problems,
we’re always working to be a better company. We’ve madeprogress, but know there is always room to improve. That’s
why we are committed to safety, diversity and inclusion
improvements for our employees, and sustainability practices
in what we manufacture and how we manufacture it.
In 2016, we moved forward on these fronts in meaningful ways:•	We lowered our recordable injury frequency rate to 0.50,
a 92 percent improvement since 2003.
•	We reduced absolute greenhouse gas emissions from ouroperations by 7 percent from 2015.
•	We set targets to increase the number of women to nearlya third of our workforce and 25 percent of our leadershipby 2022.
•	The Caterpillar Foundation invested $36.8 million dollars
in global communities in 2016.

We’re helping reverse this in three ways. First, our customers
use Cat products and solutions at restoration job sites.
Second, our company and the Caterpillar Foundation fundand support restoration projects. Third, we’re collaboratingwith public and private partners to raise awareness andadvocate for policies that support natural infrastructure
restoration.

Our stakeholders can count on us to keep working to build
a better world. It’s fundamental to our values, and who weare as a company and a global team.

CIRCULAR ECONOMY PRACTICESJim Umpleby
Chief Executive Officer

Through remanufacturing and rebuilding our used machinesand components, we are also an active participant in thecircular economy. Every year, we extend the life of Cat
equipment and components and divert millions of poundsof end-of-life material away from landfills.

2016 SUSTAINABILITY REPORT 1

SUSTAINABILITY AT CATERPILLAR

Sustainability
at Caterpillar

CATERPILLAR
AT-A-GLANCE$38.5B

2016 Consolidated Sales
and Revenues

59%

3M+

Sales and Revenues
Outside U.S.

Products at Work Around
the World

470,000

95,400172

Global Cat® Dealers

Connected Assets

Employees

PRODUCTSC onstruction EquipmentM ining EquipmentD iesel & Natural Gas EnginesI ndustrial Gas Turbines

17-Year Member2
 015 Industry MoverD iesel-Electric Locomotives

2 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 3

SUSTAINABILITY AT CATERPILLARSUSTAINABILITY AT CATERPILLARHOW CATERPILLAR SUPPORTS THE
U.N. SUSTAINABLE DEVELOPMENT GOALSVISIONAs the world’s leading manufacturer of construction andmining equipment, diesel and natural gas engines, industrial
gas turbines and diesel-electric locomotives, at Caterpillar, we
support sustainable development around the world. That is
why we are working toward the 17 United Nations Sustainable
Development Goals (SDGs), put forth in September of 2015,as a part of our corporate sustainability strategy.

• Work toward alleviating
extreme poverty throughthe Caterpillar Foundation• Help provide energy accessto the developing world• Champion programs that
support providing all
people with ‘Basic Human
Needs’ through theCaterpillar Foundation• Support programs
to restore Natural
Infrastructure•C hampion programs that
support providing all people
with ‘Basic Human Needs’
through the Caterpillar
Foundation• Create alternative energy
infrastructure including
combined heat and power(CHP) technology, microgrids
and biofuels• Provide clean cook stove
grants through theCaterpillar Foundation

A world in which all people’s basic needs – such as shelter, clean water,
sanitation, food and reliable power – are fulfilled in a sustainable way and acompany that improves the quality of the environment and the communities
where we live and work.

MISSION nable economic growth through infrastructure and energy development, and toEprovide solutions that support communities and protect the planet.

• Prepare for disaster
response efforts• Provide back-up power forcommunities and hospitals•C hampion programs that
support education throughthe Caterpillar Foundation•E ncourage Caterpillar
employees to volunteer
as mentors through Junior
Achievement and otherschool programs• Support the Caterpillar
Foundation’s
ToGetHERstronger campaign• Support the Caterpillar
Women in Leadershipinitiative• Maintain our core businessof fostering economic
development throughinfrastructure• Continue to focus on
Human Rights throughout
all aspects of our business• Support programs to restore
Natural Infrastructure• Maintain our core businesses ofConstruction Industries, Energy &Transportation and Resource
Industries• Invest in Research & Development• Engage in innovative partnerships
such as Uptake, XPRIZE andNASA Maker Faire• Advocate for immigration• Develop local workforces• Promote global trade
agreements•S upport programs
to restore Natural
Infrastructure• Offer remanufacturing
and rebuild solutions• Continue to focus on Human
Rights throughout all aspectsof our business• Responsible sourcing
of conflict minerals usedin our products• Remove hazardous materials
from our supply chain•S upport programs to restore
Natural Infrastructure• Implement our worldwide
Code of Conduct across allof our operations•C ontinue to focus on
Human Rights throughout
all aspects of our business• Engage with stakeholders
through global government
affairs

STRATEGY
We provide work environments, products, services and solutions that make safe,
productive and efficient use of resources as we strive to achieve our vision.
We apply innovation and technology to improve the sustainability performanceof Caterpillar’s products, services, solutions and operations.
We believe sustainable progress is made possible by developing better systems
that maximize life cycle benefits, while also minimizing the economic, social andenvironmental costs of ownership, as reflected in our sustainability principles.

Learn more
about oursustainability
principles

 e will execute our strategy by working to meet our aspirationalWsustainability goals.

SUSTAINABILITY PRINCIPLESPrevent Waste (Improve Safety, Efficiency and Productivity)
Improve Quality (Team, Community, Environment and Operations)
Develop Better Systems (Innovate)

4 2016 SUSTAINABILITY REPORT• Help our customers achievefuel efficiency gains,
worksite efficiency andoperational productivity•R educe our own
operational GHG emissions• Support programs
to restore Natural
Infrastructure2016 SUSTAINABILITY REPORT 5

SUSTAINABILITY AT CATERPILLARSUSTAINABILITY AT CATERPILLARSTAKEHOLDERENGAGEMENTA KEY ELEMENT OF CATERPILLAR’SSUSTAINABILITY STRATEGY IS ENGAGEMENTWITH STAKEHOLDERS. ENGAGEMENT IS
UNDERTAKEN ON A NUMBER OF LEVELS ANDACROSS A RANGE OF TOPICS AND ISSUES AS
WELL AS WITHIN FUNCTIONAL AREAS.
Our External Sustainability Advisory Board iscomposed of experts from academia, industry andnongovernmental organizations. This group examines
the concept of sustainability broadly and, more
specifically, as it relates to topic areas that we haveidentified as important to Caterpillar and its stakeholders.
The Advisory Board provides input and counsel onenterprise sustainability strategy, opportunities andchallenges, emerging issues in sustainability, progressin implementation and public reporting.

Internally, the Caterpillar Sustainability Steering
Committee provides guidance and support for ourinternal sustainability initiatives. This group is comprisedof leaders from a number of business units, particularly
focused on responsibilities that cross multiple divisions.
In 2016, Caterpillar launched an internal Sustainability
Advocates program. This grassroots effort encourages
all employees to learn more about sustainability atCaterpillar, share information and ideas withcolleagues, provide feedback and input, and embedsustainability principles into everything we do.
Stakeholder engagement is also managed throughour various business units, which is demonstrated
throughout this report. We communicate with andobtain feedback from stakeholders through a variety
of means, including surveys, in-person interactions,trade organizations and others.

In addition to providing feedback and counsel
throughout the year, these experts have provided theircomments on Caterpillar’s sustainability report andprogress toward achieving our aspirational goals.

AFFILIATIONS &INVESTMENTS

EXTERNAL SUSTAINABILITY ADVISORY BOARD
AIDAN DAVY

Chief Operating Officer,
International Council on
Mining & Metals

STUART L. HART

S.C. Johnson Professor
Emeritus, Cornell
University; President,
Enterprise for a Sustainable
World; Steven Grossman
Chair in Sustainable
Business, Grossman
School of Business,
University of Vermont

WILLIAM R. MOOMAWProfessor, Center forInternational Environment
and Resource Policy, theFletcher School,
Tufts University

6 2016 SUSTAINABILITY REPORTTHOMAS LOVEJOY

University Professor ofEnvironmental Scienceand Policy, George
Mason University;
Senior Fellow,
United Nations
Foundation

STEVE SKERLOS

Thurnau Professor of
Mechanical Engineering,
Director of Sustainability
Education Programs,
University of Michigan

KEVIN MCKNIGHT

Sustainability
Consultant, former
Chief Sustainability
Officer and Vice
President for Alcoa
and Arconic

LEENA SRIVASTAVA
Vice Chancellor,
TERI University

Caterpillar Inc., our subsidiaries and the Caterpillar
Foundation work with diverse organizations inorder to advance economic, environmental andsocial issues and share best practices acrossindustries. Our affiliations and investments include:• Business Council for Sustainable Energy• Business Roundtable• Canada’s Oil Sands Innovation Alliance• Conflict-Free Sourcing Initiative• Diesel Technology Forum• Energy Technologies Institute• Remanufacturing Industries Council• U.S. Green Building Council• Woody Biomass Coalition• World Resources Institute

The Caterpillar Foundation invests with theseorganizations, and others, to support programs
that are focused on alleviating poverty:• American Red Cross• Charity: water• Feeding America• Global Poverty Project• International Youth Foundation• Local Initiative Support Corporation• ONE Campaign• Opportunity International• The Nature Conservancy• United Nations Foundation• United Way• Water.org

Learn more
about theCaterpillar
Foundation

2016 SUSTAINABILITY REPORT 7

SUSTAINABILITY AT CATERPILLARSUSTAINABILITY AT CATERPILLAR

FOCUS AREAS

FOCUS AREAS

AS PART OF OUR WORK IN SUSTAINABLE DEVELOPMENT, WE HAVE IDENTIFIED A SET OF
FOCUS AREAS THAT INTERSECT WITH OUR BUSINESS ON A DAILY BASIS AND THAT GUIDEOUR THINKING AS WE MAKE DAY-TO-DAY BUSINESS DECISIONS.
Many of these areas are associated with our 2020 aspirational, operational and product stewardship goals,
while others represent areas impacting our long-term business and that are important to our various
stakeholders. These focus areas were originally identified and validated as part of an assessment in 2014and have been further refined, based on stakeholder input, over the past two years. This assessment
process included:

IDENTIFICATION

A total of 35 sustainability
topics were identified
and surveyed, covering
environmental, social and governanceconsiderations, based on our existing
strategy and goals, peer reviews
and criteria in external indices andframeworks, such as the Dow Jones
Sustainability Index and the Global
Reporting Initiative.

PRIORITIZATION

Stakeholders universally
agreed that all 35 topics
identified were important,but identified several “material” topics
as among the most important to manage
on a continuing basis.

8 2016 SUSTAINABILITY REPORTEVALUATION

Survey results werediscussed in a workshopthat included our External
Sustainability Advisory
Board, as well as several Caterpillar vicepresidents, selected Caterpillar leaderswith sustainability responsibilities, ourSustainable Development team and ourchairman and CEO. Insights gained from theworkshop were combined with the survey
results to refine and prioritize “material”
topics. These topics inform and direct future
activities for strategic improvements.

FOCUS AREA

“ M A T E R I A L” T O P I C S I N C L U D E DWITHIN THIS FOCUS AREA

Caterpillar People

Employee occupational health and safety

Operational Impact

Energy efficiency, greenhouse gas, water and waste
management

Product Stewardship

Innovation management, customer safety, energy
efficiency and air emissions and life cycle productdevelopment

Value Chain

Dealer network

Governance and Ethics

Business ethics and core values, business strategy,
financial performance of the enterprise, energy &climate policy and human rights

ASSESSMENT

The engagement processincluded a survey of more than
100 customers, employees,
shareholders, dealers, suppliers,
nongovernmental organizations, tradeorganizations and academia to identify
the sustainability topics most influential tothem in their decisions about Caterpillar.
Internally, we surveyed Caterpillar executive
officers, vice presidents and other key
personnel to obtain insight from our strategic
leaders as to the sustainability topics mostimportant to the success of our business.

2016 SUSTAINABILITY REPORT 9

SUSTAINABILITY AT CATERPILLARSUSTAINABILITY AT CATERPILLARGOALS &PROGRESSENERGY GOAL

RENEWABLE ENERGY GOAL

Reduce energy intensity by 50 percent from 2006 to 2020.

Caterpillar has set aspirational, long-term goals for its operations and product stewardship. We believethese standards affirm our determination to lead our industry to a more sustainable future. Intensitybased goals are measured against company sales and revenues, and a decline in sales and revenues in2016 directly affected our progress toward these goals. Nevertheless, we continued to focus on efficiency
improvements, and these efforts contributed to year-over-year performance gains in these areas in 2016
when measured on an absolute basis.

Use alternative/renewable sources
to meet 20 percent of our energy
needs by 2020.

EnergyEnergyIntensity
Intensity66

Total
TotalElectricity
ElectricityConsumption
Consumption

Alternative/Renewable Energy1,2,3

Absolute
Absolutegigajoules
gigajoulesenergy
energyuse/use/millionmilliondollars
dollarsof
ofrevenue
revenueSum
Sumof
ofpurchased
purchasedandandself-generated
self-generated
electricity
electricityin
inmillion
millionMWh
MWh

Sum of alternative and renewable electricalenergy use/total electrical use x 100

692
692

2.72
2.72 2.72
2.72
618
618
502
502

496
496

525
525

Alternative

2.50
2.50

Energy Intensity6
Absolute gigajoules energy use/
million dollars of revenue

2006
2006 20132013 20142014 2015
2015 20162016 2020
2020
692
Operational
Operationalenergy
energyintensity
intensitydecreased
decreased
618
11
11percentpercentfrom
from2006
2006toto
2016.
2016.
In
Inaddition,
addition,525
502 energy
496 consumption
ourourabsoluteabsolute
energyconsumptiondecreased
decreased
44percentpercentfrom
from2015
2015toto2016.
2016.
346

44
Total
Total
Absolute
GHG
Emissions2006 Absolute20132014 GHG
2015 Emissions
2016 2020

17%

9.4%

9.8%

9.9%

10.1%

Absolute
Absoluteenergy
energy 18.6%
Total Electricity Consumption
reduction
reduction2006-2016
2006-2016
Sum of purchased and self-generated
electricity in million MWh

17.6%

17.2%

17.8%

2014

2015

2016

92%

We have improved our
Recordable Injury Frequency
rate by 92% from our 2003
base year and 15% from ourlast reporting period.

Reduce our recordable workplace injury rate to 0.6 and lost-time injury
case rate to 0.15 by 2020.
Lost-Time Case
Frequency Rate (LTCFR)

Recordable injuries per
200,000 hours worked

Work-related injuries resulting in losttime per 200,000 hours worked

6.22

2.97

10 2016 SUSTAINABILITY REPORT

1.265
1.265million
millionmetric
metrictons
tonsmarket-based
market-based
Scope
Scope22GHG
GHGemissions
emissions(indirect(indirectemissions
emissions
fromfrompurchased
purchasedelectricity,
electricity,heat
heatororsteam)steam)
1.314
1.314million
millionmetric
metrictonslocation-based
location-based
2.13tons
Scope
Scope22emissions
emissions5 5

94%

We have improved our
Lost-Time Frequency Rate by
94% from our 2003 base year
and 5% from our lastreporting period.

Total Absolute GHG Emissions4
0.863
0.863million
millionmetricmetrictonsScope
Scope11GHG
GHG
Millionmetrictonstons
emissionsemissions(direct(directemissions)emissions)

Recordable Injury
Frequency (RIF)

2013
2013 20142014 2015
2015 20162016
2.72 2.72
Total
Totalelectricity
electricity2.50
consumption,
consumption,including
includingboth
both
2.37
purchasedpurchasedandandself-generated
self-generatedelectricity,
electricity,
decreased
decreased55percent
percentfrom
from2015
2015toto2016.
2016.

17%

2013

In 2016, 27.9 percent of our electrical energy
was from renewable or alternative sources.

17%
29%

Absolute energy
reduction 2006-2016

GHG
GHG
Emissions
Intensity44
2013 Emissions
2014 2015 Intensity
2016

Absolute
Absolutemetric
metrictons
tonsofofCO2e/CO2e/ TOTAL ABSOLUTE
ENERGY CONSUMPTION
millionmilliondollars
dollarsof
ofrevenue
revenue including
Operational energy intensity decreased
Total
electricity
consumption,
bothEMISSIONS
GHG
Absolute energy
reduction
11 percent from 2006 to 2016. In addition,purchased and self-generated electricity,
2006-2016
Absolute GHG emissions
72.1
72.1
our absolute energy consumption decreased
decreased
5 percent from 2015 to 2016.
reduction 2006-2016
4 percent from 2015 to 2016.
55.2
55.2
2.13
2.13
48.8
48.8
44.7
44.7
44.3
44.3
GHG EMISSIONS GOAL
36.0
Reduce greenhouse gas emissions intensity by 50 percent from36.0
2006 to 2020.

MillionMillionmetric
metrictons
tons

SAFETY GOAL

Renewable

28.0% 27.4% 27.1% 27.9%

2.37
2.37

346
346

2020 OPERATIONAL GOALSGOALS & PROGRESSGHG Emissions Intensity4
Absolute metric tons of CO2e/
million dollars of revenue

2006
2006 20132013 20142014 2015
2015 20162016 2020
2020
72.1
ThroughThrough2016,
2016,Caterpillar
Caterpillarhas
hasreduced
reducedGHG
GHGemissions
emissionsintensity
intensityfrom
fromour
ourfacilities
facilities
55.2
by
with
our
2006
base
by23
23percentpercentcompared
compared
with
our
2006
base
48.8
44.3
year.
2015
toto2016,
year.From
From201544.7
2016,ourourabsoluteabsoluteGHG
GHG
emissionsemissionsdecreased
decreased77percent.
percent. 36.0

29%

0.78

0.71

0.59

0.50

0.60

0.29

0.23

0.20

0.19

0.15

2003 2013 2014 2015 2016 20202003 2013 2014 2015 2016 2020

92%

94%

We have improved our

We have improved our

0.863 million metric tons Scope 1 GHG
Absolute
Absolute
GHG
emissionsemissionsemissionsGHG(direct
emissions)
reduction
reduction2006-2016
2006-20161.265 million metric tons market-based
Scope 2 GHG emissions (indirect emissions
from purchased electricity, heat or steam)
1.314 million metric tons location-based
Scope 2 emissions529%

2006 2013 2014 2015 2016 2020
Through 2016, Caterpillar has reduced
GHG emissions intensity from our facilities
by 23 percent compared with our 2006 baseyear. From 2015 to 2016, our absolute GHG
emissions decreased 7 percent.

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bemade,made,2016 SUSTAINABILITY REPORT 11

SUSTAINABILITY AT CATERPILLARSUSTAINABILITY AT CATERPILLARGOALS & PROGRESSEMISSIONS REDUCTION

2020 OPERATIONAL GOALS (Continued)

2020 PRODUCT STEWARDSHIP GOALSWATER GOAL

SAFETY GOAL

Reduce water consumption intensity by 50 percent from 2006 to 2020.
6,7 6,7 6,7
Water
Water
Water
Consumption
Consumption
Consumption
Intensity
Intensity
Intensity

Absolute
Absolute
Absolute
thousandthousandthousandgallons
gallons
gallonsofof
water/
water/
of water/millionmillionmilliondollars
dollars
dollarsofof
revenuerevenueof revenue

Total
Total
Total
Absolute
Absolute
Absolute
Water
Water
Water
Consumption
Consumption
Consumption

Water
Water
Water
Sources
Sources
Sources

SYSTEMS OPTIMIZATION GOAL

Provide leadership in the safetyof people in, on and aroundour products.

Increase managed fleet hours by 100 percent from 2013 to 2020.

BillionBillionBilliongallons
gallons
gallons

98%

76.3
76.376.3
64.9
64.964.9
57.1
57.157.1
50.5
50.550.5
48.9
48.948.9
38.2
38.238.2

GOALS & PROGRESS

Increase in fleet hours
managed by Caterpillar
Job Site Solutions(2013 to 2016)

3.87
3.87
3.87

126%
Increase in number ofmachines covered by service
agreements with Caterpillar
Job Site Solutions(2013 to 2016)2006
20062006
2013
20132013
2014
20142014
2015
20152015
2016
20162016
2020
20202020
ThroughThroughThrough
2016,
2016,
we
2016,
we
have
we
have
reducedhave
reducedreduced
water
water
water
consumption
consumption
consumption
intensity
intensity
intensity
at atourouratfacilities
ourfacilities
facilities
byby
a totalabytotal
aof
total
of
15 15
percent
ofpercent
15 percent
from
from
our
from
our
2006
our
20062006
base
base
year.
base
year.
year.

BY-PRODUCT MATERIALS GOAL

1.37
1.37
billion
1.37
billionbilliongallons
gallons
gallons
non-contact
non-contact
non-contact
coolingcoolingcooling
water
water
water
2.50
2.50
billion2.50
billionbilliongallons
gallons
gallons
enterpriseenterpriseenterprise
water
water
water
consumption
consumption
consumption
excludingexcludingexcludingnon-contact
non-contact
non-contact
coolingcoolingcooling
water
water
water

35%
35%
35%

Reduce by-product materials intensity by 50 percent from
Absolute
Absolute
Absolute
water
water
water
2006 to 2020.
consumption,
consumption,
consumption,
includingincludingincluding
By-ProductMaterials
Intensity
By-ProductMaterials
Intensity

Absolute metric tons of by-product
Absolute metric tons of by-productmaterials/million dollars of revenue
materials/million dollars of revenue

14.0
13.8
14.0
13.8 12.5
12.5

non-contact
non-contact
non-contact
coolingcoolingcooling
water
water
water

By-ProductMaterials
2006-20162006-20162006-2016
By-ProductMaterials
Thousand metric tons
Thousand metric tons

6.9

SUSTAINABLE
CONSTRUCTION GOAL

Design all new facility construction
to meet Leadership in Energy andEnvironmental Design (LEED) or
comparable green building criteria.
Facilities designed to the LEED criteria are moreenergy- and resource-efficient than traditional
construction. LEED facilities are also designed tocreate a healthier indoor environment for employees.

14.4 14.5
14.4 14.5

558

35%
35%
non-contact
35%
non-contact
non-contact
coolingcoolingcooling
water
water
water
28%
28%
municipal
28%
municipal
municipal
water
water
water
22%
22%
groundwater
22%
groundwater
groundwater
15%
15%
surface15%
surfacesurface
water
water
water

558

6.9
83% recycled
recycled
17% 83%
disposed(sent to landfill
or incinerated)
17% disposed (sent to landfill
or incinerated)

In 2016, the following Caterpillar facilities received
certification in accordance with the U.S. Green Building
Council’s LEED BD+C (Building Design and Construction)
certification process or comparable criteria:

100%

Facilities that completed
construction in 2016 met
LEED or comparable green
building criteria

12 2016 SUSTAINABILITY REPORT

Increase remanufactured and rebuild business sales by 20 percent
from 2013 to 2020.
Reman End-of-Life“Take-Back” By Weight8

Reman End-of-Life“Take-Back” Percent8

Millions of pounds of end-of-lifematerial received

Actual end-of-life returns/eligible
returns x 100

171

174

166

94%
154

93%

94%

93%

91%

125

PRODUCT, SERVICES& SOLUTIONS GOAL

Leverage technology andinnovation to improve sustainability of our products, services
and solutions for our customers.
21%

2016 reported sales and revenues derived fromproducts, services and solutions that demonstrate
an improved sustainability benefit over existing
offerings.9

LEED Silver• Bevel Gear Facility, Monterrey, Mexico

2006 2013 2014 2015 2016 2020
LEED Certifiable2006 2013 2014 2015 2016 2020
• Perkins Large Engine Facility, Aurangabad, India
Our by-product materials intensity increased• Regional Training Center, Dubai, United Arab Emirates
5 percentfrom ourmaterials
2006 baseintensity
year to 2016.
Our by-productincreased
However,
wedecreased
ourgenerationof
5 percent from our 2006 base year to 2016.
total
absoluteweby-productmaterials
byHowever,decreased
our generationof
17totalpercent
from 2015
to 2016. materials
the
the
the
piechart
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chart
chart
isisconverted
convertedis converted
totoart
to
artto
art
topunch
to
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a aholehole
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thru
thru
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it.it. it.
absolute
by-productby pieAbsolute
waste generation
2006-201617 percent from 2015 to 2016.
Absolute
waste
generation
there
plot
versionhidden.
edits
needbemade,
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isisa aisplot
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totobetobemade,2006-2016

3%
3%

REMAN & REBUILD GOAL

2012 2013 2014 2015 20162012 2013 2014 2015 2016

Reman sales decreased 13 percent 2013-2016
Rebuild sales decreased 10 percent 2013-2016

2016 SUSTAINABILITY REPORT 13

Caterpillar
PeopleSafety. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
Diversity & Inclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
Talent Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
Collective Bargaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21

Our employees are the backbone of Caterpillar’s
success. They provide the innovative and diverse
thinking we need to serve our customers. We arecommitted to fostering a diverse, inclusive and safe
environment where all employees can thrive and be
successful. By leveraging each individual’s unique
skills, abilities, experiences and cultural background,Caterpillar people can achieve superior businessand personal results.
Employees by Region
North America 41,200
EAME

20,000Latin America 11,400

142016 SUSTAINABILITY REPORT

Asia/Pacific22,800Total

95,4002016 SUSTAINABILITY REPORT 15

CATERPILLAR PEOPLE SAFETY

CATERPILLAR PEOPLE

SAFETY

IMPROVING SAFETY THROUGH CULTURE

We are dedicated to the safety of everyone at Caterpillar, including our extended team ofcontractors, dealers, suppliers and customers. Our commitment to safety begins with theengineering of our products and manufacturing processes, and extends to operator training,job site solutions and promoting a culture of safety that guides the way we work.
Caterpillar’s Health & Safety professionals play a key role in providing expertise and support toCaterpillar operations around the world. By leveraging culture improvement tools from
Caterpillar Safety Services, many Caterpillar operations have been able to make great strides
in improving their safety culture.
Caterpillar’s risk assessment process brings a global focus to safety and ergonomic risk and has
resulted in the reduction of risks for thousands of work elements, further driving the reduction
in ergonomic and other injuries. Initiatives at many of our locations continue to positively
impact our safety results.

Recordable Injury
Frequency (RIF)

Lost-Time Case
Frequency Rate (LTCFR)

Recordable injuries per
200,000 hours worked

Work-related injuries resulting in losttime per 200,000 hours worked

6.22

2.97

0.78

0.71

0.59

0.50

0.60

2003 2013 2014 2015 2016 2020

92%

We have improved ourRecordable Injury Frequency
rate by 92% from our 2003
base year and 15% from ourlast reporting period.

16 2016 SUSTAINABILITY REPORTWITH OVER 1,000 EMPLOYEES ACROSS THREE SHIFTS, INJURIESHAVE BEEN SIGNIFICANTLY REDUCED AT SOLAR TURBINES’TURBOMACHINERY OPERATIONS (TMO) IN SOUTHERN CALIFORNIA.
In 1991, TMO recorded 248 recordable injuries and decided it was time to begin
implementing safety initiatives. By 2012, the number had been reduced to 11. This,
however, was just the beginning.

0.29

0.23

0.20

0.19

0.15

2003 2013 2014 2015 2016 2020

94%

We have improved ourLost-Time Frequency
Rate by 94% from our 2003
base year and 5% from ourlast reporting period.

In 2014, the TMO leadership team turned to Caterpillar Safety Services’ Zero-Incident
Performance (ZIP) Process to develop a more robust safety culture through employee
engagement. The ZIP Process included administering a Safety Perception Survey toidentify improvement opportunities, forming a Safety Steering Team to develop andexecute a strategic plan for improvement, assembling four continuous improvement
teams to build or improve safety processes, and conducting employee safety training
across all levels of the organization. TMO then became the first organization within
Caterpillar to develop the Safety Culture Coordinator position, solely dedicated to
improving safety culture throughout the organization.
Positive progress has continued. By driving safety throughout the organization,
TMO realized a 26 percent reduction in Recordable Injury Frequency (RIF) in 2015 –the division’s best performance to date. In addition, Solar Turbines facilities acrossthe United States have begun to implement the ZIP Process to facilitate culturalsafety improvements in their daily operations.

2016 SUSTAINABILITY REPORT 17

CATERPILLAR PEOPLE

CATERPILLAR PEOPLE DIVERSITY & INCLUSION

DIVERSITY &INCLUSIONWOMEN’S LEADERSHIP INITIATIVE

Diverse and inclusive work environments embrace thevalues and unique talents, experiences and viewpointsof employees. This approach is aligned with ourstrategic goal of Best Team.
To achieve the Best Team goal, our global Diversity
and Inclusion strategy includes:• Defining roles, responsibilities and accountabilities
for all employees• Holding leaders accountable for results throughdiversity and inclusion metrics• Building sustainability by embedding diversity
and inclusion into key people processes
Caterpillar Employee Resource Groups (ERGs) help:• Drive innovation• Provide personal and professional development
opportunities• Attract talent at recruiting events•R etain this talent through mentoring andnetworking opportunities
In addition, ERG members frequently reach out toserve the communities where they live and work,
demonstrating their support of learning institutions,charitable organizations, crisis relief efforts andcultural and artistic programs, to name a few.
ERGs are independent, voluntary and nonprofit
by nature. Membership in any ERG is open to all
Caterpillar employees interested in supporting thegroup’s stated mission and objectives. Members of an
ERG help sustain an engaged workforce at Caterpillar –as evidenced by members responding more positively
on engagement surveys.

DiversityInc

HUMAN RIGHTSCAMPAIGN FOUNDATIONWOMAN ENGINEERMAGAZINE

CAREERS & THE
disABLED MAGAZINE

25 Noteworthy
Companies

Corporate Equality
Index, 90%

Top 50 Employers,#7

Top 50 Employers,#2Enterprise Employees
by GenderEnterprise Leadershipby Gender

Includes management andproduction employees

Includes management andproduction employees

2022 Targets

29%
25%
19% / Female

80% / Male

81% / Male18 2016 SUSTAINABILITY REPORT

Caterpillar has set ambitious targets in several key areas to increase the mix of qualified, capable females acrossour enterprise to industry benchmark levels by 2022. These goals include increasing our total female workforce
to 29 percent and increasing our total female leaders to 25 percent.
These aggressive goals recognize the value of improving gender balance at all levels of our organization. Thisfocus is a global priority that will increase our competitiveness through enhanced innovation and idea sharing
to solve today’s complex business challenges. We need the right talent, in the right place, at the right time.

DIVERSITY RECOGNITION

20% / Female

INCLUSION DRIVES BUSINESS RESULTS, AND CATERPILLARKNOWS THAT WHEN IT FOCUSES ON HAVING THE BESTTALENT – INCLUDING A MORE GENDER-BALANCEDWORKFORCE – EVERYONE BENEFITS. THE MORE DIVERSEOUR GLOBAL TEAM, THE BETTER POSITIONED WE ARE TO
MEET THE NEEDS OF OUR CUSTOMERS. OUR WOMEN IN
LEADERSHIP INITIATIVE IS AN INTENTIONAL, FOCUSEDSTEP ON A CONTINUOUS JOURNEY TOWARD A GLOBALLY
DIVERSE TEAM.

Female employees
Female leaders

The Women in Leadership (WIL) initiative is focused on three key pillars to drive cultural change:1)	Executive sponsorship focused on driving action across all levels of the enterprise to generate internal
commitment that positions us for long-standing change2)	Pipeline development that looks inside and outside of Caterpillar for creative and innovative sourcing
solutions that drive talent attraction and retention3)	Culture change focused on our current policies and procedures to help us better understand what ouremployees seek in their work culture

BREAKTHROUGH LEADERSHIP WORKSHOPS

Since the initiative’s inception, Caterpillar’s standout Breakthrough Leadership for Women program has grown insize with plans to graduate nearly 1,000 women from the program in 2017. Breakthrough Leadership was createdby a Caterpillar Employee Resource Group – the Women’s Initiatives Network (WIN) – focused on development
and retention of high-potential, high-performing, female talent. The workshop develops skills in the areas of
networking, negotiating for leadership success, solving gender dilemmas and coaching on leadershipchallenges. Since its inception in 2014, Breakthrough Leadership has served as a catalyst to ignite the larger
WIL project and is a foundational component of that strategy.
Recognizing that 80 percent of Caterpillar’s workforce is male, the need to identify and develop men as advocates
became clear. A similar program – Breakthrough Leadership for Men – was created in 2016. The course isdesigned for men to develop inclusive leadership strategies and sharpen awareness of their leadership journey,
our organizational culture and gender biases. Participants explore how they can become more fully empowered,inclusive leaders and advocates of gender equality by creating more success for both men and women. We expectthat more than 500 men and 200 women will participate in Breakthrough Leadership for Men in 2017.
Breakthrough Leadership for Women and Breakthrough Leadership for Men graduates come together for
in-depth discussions about bias, privilege and leadership. Participants share real-life business examples,
highlighting Caterpillar’s organizational culture and gender biases, and leave with a personal action plan
including how to identify, mentor and sponsor high-performing talent across the organization.

2016 SUSTAINABILITY REPORT 19

CATERPILLAR PEOPLE

CATERPILLAR PEOPLETALENT
DEVELOPMENT

COLLECTIVEBARGAINING
As a company with hundreds of global locations
that serve diverse industries such as transportation,
construction, oil and gas, mining, marine andforestry, we are in a unique position to offer
opportunities and valuable experiences for all our
employees. This includes learning opportunities
both inside and outside of Caterpillar, targeted
leadership, skills and language training and formal
benefits such as medical plans that help promote
the long-term health and wellness of ouremployees and their families.

We respect the rights of our employees to join,
form or not to join an employee association ortrade union of their choice without fear of reprisal,interference, intimidation or harassment, and ina manner that is consistent with national law andpractice. Recognizing that exercising the right tochoose whether to join or not to join a trade union
is an important decision that requires thoughtfulconsideration, we believe it is critical that ouremployees exercise that right with the benefit
of available information.

We value the direct relationship we share with our
employees. Where employees are represented by an
employee association or trade union in accordancewith applicable national law, we commit to seeking
a constructive dialogue, or where appropriate, tobargain in good faith. We expect the same of those
employee associations or trade unions seeking
dialogue with us. In 2016, Caterpillar had more than
130 labor contracts with 50 different labor organizations
representing employees in our global workforce.

We support a learning journey and recognize theimportance of multi-faceted experiences through avariety of formal and informal opportunities forindividuals to increase skills and knowledge.
These include:• In-person and e-learning training• Coaching and feedback• Formal training programs
Our formal training and development programs include:• Leadership Excellence in Accountability and Development (L.E.A.D.) is a global leadershipprogram that provides the skills required to effectively develop and guide individuals andteams to achieve business results• Digging Deep provides leaders an opportunity to travel to diverse markets such as China andBrazil, and go beyond classroom learning through participation in practical learning projects
that address actual business challenges• The Caterpillar Learning Management System is a web-based program that can be accessed
through our intranet and allows employees worldwide to browse the online course catalog,
register for information and courses in their local language, launch web-based training, track
individual learning history and review learning experiences with their supervisor

RECOGNITIONFAST COMPANYFORTUNETop 50 Places toInterview, #3

The World’s Most
Admired Companies,#47

20 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 21

Operational
Impact

EHS Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
Energy Conservation & GHG Emissions Reduction. . . . . . . . . . . . . . . . . . . . . . .  24
Alternative & Renewable Energy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
Water Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
Waste Minimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30

A DECADE OF PROGRESS 2006-2016

GHG
EMISSIONSENERGYCONSUMPTIONWASTE
GENERATIONALTERNATIVE/
RENEWABLE
ENERGY USE

WATERCONSUMPTIONWASTE
RECYCLED

-29%

27.9%

-17%

-35%

-3%

83%
in 2016

in 2016

22 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 23

OPERATIONAL IMPACT

OPERATIONAL IMPACT

EHS
MANAGEMENT

ENERGY CONSERVATION & GHG EMISSIONS REDUCTION (Continued)
Our Code of Conduct states that we “protect thehealth and safety of ourselves and others” and“focus on environmental responsibility andpreventing waste.” Our EHS Management System,
known as the Caterpillar EHS Assurance Manual:
A Practical Global Framework, establishes the global
requirements for environmental, health and safetycompliance. This assists operations in complying
with the various EHS requirements around the world.
The EHS Assurance Manual sets out mandatory
standards that are consistent across the enterpriseand periodically assessed at the facility level toimprove management of enterprise environmental,
health and safety compliance. The EHS Assurance
Manual applies to all Caterpillar facilities worldwide,
including majority-owned subsidiaries and joint
ventures, and is designed to effectively implement
an EHS enterprise-wide management system.

ENERGY CONSERVATION &GHG EMISSIONS REDUCTION
As a manufacturer of heavy equipment, some ofCaterpillar’s operations are energy-intensive. But evenin our most energy-dense environments, Caterpillar
employees have found ways to implement innovative
energy solutions that reduce our energy costs as wellas our environmental impacts.
We have set energy efficiency targets in our operations
since 1998 and greenhouse gas emission reduction
targets since 2003. We currently have operationaltargets for the increased reliance on alternative andrenewable energy, energy intensity and greenhousegas emissions intensity.
Our enterprise energy management team is instrumental
in building awareness, encouraging action anddeveloping solutions in the areas of energy efficiency
and alternative/renewable power generation.

ENERGY CONSERVATION & GHG REDUCTION

Examples of our increased reliance on renewable energy
sources include facilities’ installation of renewable energy
sources such as biogas and photovoltaics (PV), as wellas their purchase of renewable energy certificates. Ourlargest contribution to alternative energy consumption is
the operation of combined heat and power (CHP) systems
to power several manufacturing facilities. The energy
management team is evaluating additional opportunities
for replication of CHP at other locations.
As we work to achieve our 2020 energy-related goals,
one important facet of our efforts is to continuallyassess and improve the efficiency of our existing
operations. Systems and facilities that were state-ofthe-art for energy efficiency and performance when
first installed can fairly quickly be eclipsed by newtechnologies and best practices.

Energy Intensity6

Total Electricity Consumption

Absolute gigajoules energy use/
million dollars of revenue

Sum of purchased and self-generated
electricity in million MWh

692

2.72

2.72

618
502

496

2.50

525

2.37

17%

346

Absolute energy
reduction 2006-2016

2006 2013 2014 2015 2016 20202013 2014 2015 2016

Operational energy intensity decreased
11 percent from 2006 to 2016. In addition,
our absolute energy consumption decreased
4 percent from 2015 to 2016.

Total electricity consumption, including bothpurchased and self-generated electricity,
decreased 5 percent from 2015 to 2016.

Total Absolute GHG Emissions4

GHG Emissions Intensity4

Million metric tons

Absolute metric tons of CO2e/
million dollars of revenue

72.1

2.13

44.3

44.7

48.8

55.2
36.0

0.863 million metric tons Scope 1 GHG
emissions (direct emissions)1.265 million metric tons market-based
Scope 2 GHG emissions (indirect emissions
from purchased electricity, heat or steam)
1.314 million metric tons location-based
Scope 2 emissions52006 2013 2014 2015 2016 2020
Through 2016, Caterpillar has reduced
GHG emissions intensity from our facilities
by 23 percent compared with our 2006 baseyear. From 2015 to 2016, our absolute GHG
emissions decreased 7 percent.

29%

Absolute GHG emissions
reduction 2006-2016

24 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 25

OPERATIONAL IMPACT

OPERATIONAL IMPACT

ENERGY CONSERVATION & GHG EMISSIONS REDUCTION

REAL-TIME ENERGY DATA HELPS DRIVE RESULTS
SEEING IS BELIEVING. THAT MAXIM HAS
PROVEN TO BE TRUE AT CATERPILLAR CHINA
MACHINERY COMPONENTS CO. (CCMC)
OPERATOR STATION FACILITY(OSF) IN WUXI, CHINA.
The facility utilizes real-time data to manage energy,
reduce emissions and build upon its overarchingsustainability culture. This data, however, is notcontained to a simple spread sheet for analysis. Rather,
the facility’s visual management system displays
real-time electricity consumption and production
volume by workshop on monitors throughout thefacility. This electricity consumption matrix also
projects daily and incremental goals and targets in facility common areas, for all employees andleadership to see. Viewing this real-time data enables employees to act quickly to respond to abnormal
incidents, such as spikes in energy use. In 2016, this and other sustainability initiatives accounted
for nearly 3,100 metric tons of GHG emissions reduction, equivalent to taking 655 passenger
vehicles off the road for one year.

ALTERNATIVE &RENEWABLE ENERGY
Across Caterpillar’s global operations, our employees
are exploring ways to incorporate alternative andrenewable energies to improve our efficiency andsustainability performance. In 2016, 27.9 percent of ourelectrical energy was from renewable or alternative
sources. This includes purchased and on-site generated
alternative and renewable energy, as well as calculating
the percentage of renewable energy from gridpurchased electricity using data obtained from theInternational Energy Agency.

Alternative/Renewable Energy1,2,3
Sum of alternative and renewable electricalenergy use/total electrical use x 100
Alternative

Renewable

28.0% 27.4% 27.1% 27.9%
9.4%

9.8%

9.9%

10.1%

18.6%

17.6%

17.2%

17.8%

2013

2014

2015

2016

In 2016, 27.9 percent of our electrical energy
was from renewable or alternative sources.

SOLAR INSTALLATIONS IN INDIA HELP DRIVE RENEWABLE ENERGY GOAL
BY 2020, CATERPILLAR HAS A GOAL TO USE ALTERNATIVE/
RENEWABLE SOURCES TO MEET 20 PERCENT OF ITSENERGY NEEDS.
To this end, our Hosur, India plant recently installed 150 kilowatt solar
panels on its roof, which have the capability to generate an average of
15,400 kWh per month with an annual savings of $27,000. In addition to
reducing the plant’s greenhouse gas emissions by over 100 metric tons
per year, the solar installation is expected to provide alternative energy
for about 10 percent of the facility’s total energy needs.

26 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 27

OPERATIONAL IMPACT

OPERATIONAL IMPACT

WATER
MANAGEMENT
The scarcity of water resources is an issue that crosses
cultures, geographies and industries. Today, water
scarcity affects around 700 million people, and current
trends indicate the problem will escalate, according to
the United Nations. By 2025, two-thirds of the world’s
population could be living in water-stressed regions.
The implications are so significant that world leadersconsistently rank water crises as one of the top risksfacing the global population. While our manufacturing
operations are not as water-intensive as those of otherindustries, we nonetheless recognize the far-reachingeconomic, social and environmental implications thatwater scarcity may have in the future – and have taken
steps to reduce our consumption.

Water Consumption Intensity6,7Absolute thousand gallons of water/
million dollars of revenue

TEST VEHICLE WASHING HELPS SAVE WATER
We continue to implement conservation strategies to:• Reduce water use in our operations• Explore water-treatment technologies• Introduce water-recycling processes at new andexisting facilities• Train employees about water resources to raise theirawareness of the issue
Around the world, Caterpillar facilities are taking water
scarcity and water management seriously, with resultsthat highlight the scale of positive impact that oursustainability work can have. Through 2016, our absolute
water consumption, including non-contact cooling water,
has decreased 35 percent.

Total Absolute
Water Consumption

Water Sources

Billion gallons

76.3
64.9
48.9

50.5

57.1
38.2

3.87

2006 2013 2014 2015 2016 2020
Through 2016, we have reduced water
consumption intensity at our facilities
by a total of 15 percent from our 2006
base year.

WATER MANAGEMENT

1.37 billion gallons non-contact
cooling water
2.50 billion gallons enterprisewater consumption excluding
non-contact cooling water

35% non-contact cooling water
28% municipal water
22% groundwater
15% surface water

OUR FACILITY IN QINGZHOU, CHINA (CQL) IDENTIFIED A KEYOPPORTUNITY TO SIGNIFICANTLY REDUCE WATER CONSUMPTION BY
REDESIGNING THE VEHICLE WASHING PROCESSES FOR ALL OF OUR
CAT® 950GC WHEEL LOADER AND SEM BRANDED TEST PRODUCTS.
The initial outdoor washing method consumed water, not only from cleaning, butalso from running water during the winter to prevent freezing. To reduce excesswater discharge, CQL moved this process to their indoor touch-up workshop, which
eliminated the need to run water during the winter entirely. Then, they began to use
recycled water to wash machines, and upgraded washing equipment to allow users toregulate water pump pressure directly. Reducing water consumption is particularly
important at CQL, located in an area of extreme water scarcity, as defined by theWorld Resources Institute. In all, new washing practices are saving this facility
1.76 million gallons of water per year, and over $13,000 in water consumption,
treatment and fuel costs.

35%

Absolute water
consumption, including
non-contact cooling water
2006-201628

2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 29

OPERATIONAL IMPACT

OPERATIONAL IMPACTWASTE
MINIMIZATION
Minimizing waste in our processes not
only reduces costs, but also reduces ouruse of materials, energy, water and land.
We are focused on a goal to reduce allby-product materials, waste generated
by our production processes.
The use of the term by-productmaterials in our 2020 aspirational
goal reflects our focus on minimizing
our production waste and effectively
managing the remaining wastes
through remanufacturing, rebuilding,reusing and recycling. We focus on byproduct material reduction strategies
that are associated with improved
efficiency and quality measures, asthese offer the greatest opportunity
to enhance cost competitiveness andreduce the potential for short- andlong-term environmental impacts.

SIMULATION REDUCES PAINT WASTE

By-Product Materials Intensity

By-Product Materials

Absolute metric tons of by-productmaterials/million dollars of revenue

Thousand metric tons

13.8

12.5

14.0

14.4

14.5

558
6.9

2006 2013 2014 2015 2016 2020
Our by-product materials intensity increased
5 percent from our 2006 base year to 2016.
However, we decreased our generation of
total absolute by-product materials by
17 percent from 2015 to 2016.

By taking a critical look at every phaseof our operations, teams have beenable to uncover unexpected and highimpact methods to reduce waste while
maintaining or improving performanceand customer satisfaction.

83% recycled
17% disposed (sent to landfill
or incinerated)

3%

Absolute waste generation
2006-2016

ONE OF THE LAST STOPS IN THE MANUFACTURING PROCESS IS
THE PAINT SHOP, WHERE OUR MACHINES ARE COATED IN ICONICCATERPILLAR YELLOW.

pie chart is converted
SLAG RECYCLING REDUCES MAPLETONtheLANDFILLWASTEto art to punch a hole thru it.

there is a plot version hidden. if edits need to be made,OUR MAPLETON, ILLINOIS IRON FOUNDRY,
WHICH CASTS ENGINE BLOCKS, HEADS, LINERS,SEAL RINGS AND OTHER MISCELLANEOUSPARTS, GENERATES ANYWHERE FROM
2,000 TO 4,000 TONS OF SLAG ANNUALLY –A BY-PRODUCT FROM THE IRON MELTING
PROCESS.

30 2016 SUSTAINABILITY REPORTWASTE MINIMIZATION

While primarily a mixture of metal oxides, about
18 percent of Mapleton’s slag contains valuable anddifficult-to-extract metals. Historically, this slag wassent to landfill due to cost and limited recycling options.
With the assistance of Veolia Environmental Services,
however, Mapleton has developed a cost-effective slag
recycling process. A local scrap metal recycler, CIMCO,
began accepting slag. The valuable metals are now
extracted from the slag and resold to steel foundries.
Since the implementation of the project in 2013, morethan 2,000 tons of metal have been extracted andsold, generating $76,000 and diverting a significant
amount of the waste from landfill.

Using Computational Fluid Dynamics (CFD), we are now able to evaluate how
painting equipment operates, long before our iron even sees the painting facility.
For electro-coating paint systems, CFD simulation helps reduce chemical waste
and energy associated with trial-and-error process development. CFD simulation
also helps ensure the proper draining of parts, which reduces cross-contaminationof chemical baths and the need for paint rework, all while improving the finish qualityand durability. Caterpillar has used CFD simulation to evaluate the effectivenessof proposed curing oven designs before purchasing the equipment, avoiding what
has historically been a two-year process for oven redesigns and commissioning.
These enhancements reduce chemical waste and avoid production delays, whichhave both environmental and economic benefits.

2016 SUSTAINABILITY REPORT 31

Product
Stewardship

32 2016 SUSTAINABILITY REPORT

Innovation Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
Customer Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
Circular Economy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
Customer Sustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
Natural Infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
Job Site Efficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  48

Product stewardship covers the full lifespan of ourequipment – from the supply chain to the customer’s
job site to remanufacturing. This means taking
active steps to reduce potential environmental,
health and safety impacts, as well as optimizing
operational quality and efficiency throughout thelife of the product. We accomplish this by:• Engineering products to eliminate hazardous
substances• Utilizing more sustainable energy sources• Extending a product’s life through the useof remanufactured parts or rebuilt machines• Working with customers and distributors toencourage the proper disposal or recyclingof end-of-life materials

PRODUCT STEWARDSHIPPRODUCT STEWARDSHIP INNOVATION MANAGEMENTINNOVATIONMANAGEMENTOur Enterprise Technology Strategy establishes thefoundation of Caterpillar’s product development
innovation, focusing on key technology areas that
impact many facets of sustainability by:• Providing foundational components for a wide rangeof digital solutions• Reducing customers’ owning and operating costs• Promoting safety and sustainability• Increasing product reliability• Providing customers with the tools they need tosucceed anywhere they do work
• Allowing Caterpillar to maintain a competitive advantage
The strategy direction is driven by customers’ needs,
deep market research, regulatory requirements andglobal economic indicators to inform decision making.
Each of the technologies under development includes
customer-focused goals that serve as targets against
which progress can be measured.
Our Enterprise Simulation Strategy lays the foundation
for Caterpillar’s advanced use of simulation in the
product development process. This strategy is closelyaligned with the Technology Strategy and facilitates
sustainability throughout the entire product development
process. Caterpillar uses simulation in all stages of
product development – from the conceptual phasesof research and design through production.
Using simulation allows Caterpillar engineers to virtually
explore potential product and process designs without
having to first build prototypes in iron – which uses
significant resources. Simulation drives R&D efficiency,
saves R&D dollars and decreases time spent doing
re-work, all of which allows for fast-paced innovationthat benefits both our customers and the company.
Both the Technology Strategy and the Simulation
Strategy are governed through multitiered councils
composed of leaders from all areas of the business,from our Executive Office to engineering and technicalleaders. These councils create and execute the vision
for future technologies and processes at Caterpillar,
as well as ensuring consistent and sufficient funding
for Caterpillar’s technology investments.

THE SUSTAINABILITY OF ADDITIVE MANUFACTURING AT SOLAR TURBINES
committee forearthmoving
In 2016
machines. Our
global standards
and regulations
TECHNOLOGIES WERE
team works closely
TRANSFERRED FROM
with organizations
like the ISO to
RESEARCH INTO NEW
enhance machine
PRODUCT
safety standards
INTRODUCTION
worldwide.
PROGRAMS.
Caterpillar also
provides input
to regulatory
agencies to help ensure the smooth introductionof new technologies.

25

TECHNICAL EXPERTISE

Caterpillar makes management and technicalexpertise available to regulatory bodies in advisory
roles and provides technical assistance as new
product standards are developed. These activities
include participation, membership and leadershiproles in organizations such as:• The International Organization forStandardization (ISO)• Industry associations• Governmental and nongovernmental delegations
to international bodies such as the International
Maritime Organization; European Union industry
expertise panels; and federal advisory committees
chartered under the U.S. Environmental
Protection Agency

Research and Development Expenses
Dollars in millions

Since 2013, Solar Turbines has worked to use AM,
more specifically Laser Powder Bed Fusion (L-PBF)
and Laser Metal Deposition (LMD), to produce andrepair production components in-house. Replacing conventional casting with these technologies
allows Solar Turbines to develop and test components more quickly, produce components lessexpensively and repair components that would otherwise be scrapped.
The 20/20 Fuel Injector Swirler is a component which delivers an air/fuel mixture into the
combustor section of our gas turbine engines. By producing the Swirler using L-PBF, rather thancasting it, Solar Turbines has been able to improve the component design process, reduce annual
capital and operating expenses by over $350,000, and decrease production time by several
months. Not only is L-PBF manufacturing more efficient, but the Swirlers themselves also match
the performance of a casted part. There are also significant potential cost savings in service parts,
since AM reduces the need to hold inventory of finished goods.
Additionally, as part of the remanufacturing of their rotating gas turbine line, Solar has changed
their approach to repairing labyrinth seals, which prevent turbine leaks. While they previously
repaired these seals using Semi-Automatic Gas Tungsten Arc Welding (GTAW), switching to LMD
for these repairs has reduced overhaul time by approximately 70 percent, which results in morethan $650,000 in savings each year.
The LMD process also helps reduce waste in two key ways. First, the process itself is much more
efficient, using 25 percent less metal. LMD can also repair parts that would have previously been
scrapped. For example, though trials have been proposed with various repair processes, LMD is
the only one capable of repairing an $18,000 ‘taper’ for an AFT Compressor Hub, a critical component
which serves as a connection/transition from the last stage of the compression to the rotor shaft.
The implementation of this repair process has the potential to save Solar Turbines $1.3 million
annually, while eliminating 20,975 pounds of Inconel 901 material from being scrapped. As a fully
automatic and enclosed process, LMD has also eliminated safety risks such as welding arc flash,burns due to contact with hot parts and inhalation of welding fumes.
The critical process knowledge learned from their investments in AM continues to propel
Caterpillar and Solar Turbines into the future of manufacturing.

$2,380$2,119Above is a labyrinth seal repaired using LMD Additive Manufacturingon the right, and the left has been repaired using GTAW. While thetwo components are nearly identical, the right cost $120 less to repair,reduced repair time by 70 percent and took 2 hours less time to repair
than the left.

ADDITIVE MANUFACTURING (AM),OTHERWISE KNOWN AS 3D PRINTING,
IS THE COMPUTER-CONTROLLED PROCESSUSED TO CREATE THREE DIMENSIONALOBJECTS BY ADDING SUCCESSIVE LAYERS
OF MATERIAL.

$1,951$1,552

STANDARDS HARMONIZATION

Industry consensus standards, including those forvisibility, rollover protection structures, braking andsustainability, apply to earthmoving equipment. We
are involved on an international level to develop andupdate global standards through the International
Standards Organization (ISO) and chair the technical
34 2016 SUSTAINABILITY REPORT

2013

2014

2015

2016

2016 SUSTAINABILITY REPORT 35

PRODUCT STEWARDSHIPPRODUCT STEWARDSHIP CUSTOMER SAFETY

CUSTOMER
SAFETY

CATERPILLAR ADVANCED CABIN FILTRATIONPROMOTES OPERATOR HEALTH AND SAFETY

Caterpillar’s safety culture extends beyond our internal operations to include the safe
operation of our products in the field, as well as the safety and health of all individuals
who come into contact with Cat® products. This commitment encompasses:• Product design and engineering• Operator training and certification• Solutions for the job site
• Tools and resources to improve workplace culture

Learn more
about ZeroIncident
Performance36

ZERO-INCIDENT PERFORMANCE (ZIP™) PROCESS

3

1

2

ENGAGE LEADERSHIPASSESS THE CULTURE

BUILD THE PLAN

Introduce Zero-Incident
Performance principles
in a Safety Culture
Leadership Roundtable.

Assess the health of theculture with the Safety
Perception Survey andQualitative Interviews.
Communicate thefindings that drive thestrategic plan. Identify
the milestones to create
traction and ensure
progress.

Set the foundation to carryout the vision; establish
the structure to elevatesafety management
processes; build
involvement, overcome
deficiencies and drive
systems of accountability.

4

5

6

DEVELOP THE
PROCESSES

IMPLEMENT
THE PROCESSESCHECK THE
PROCESSES

Form Continuous
Improvement Teams toarrive at the specific tactics
to advance high-priority
processes. Timelines,
milestones and the
beginnings of a safetyaccountability system arebeing put in place.

Continuous Improvement
Teams deliver the outcomes:
what needs to improve andhow. Processes developedby the Continuous
Improvement Teams
will be tested, thenfully implemented.

Ensure sustainability.
An Evaluation Teamobserves and reports
on each focus area,
evaluates revised
processes and identifies
potential shortcomings.

2016 SUSTAINABILITY REPORTPROPERLY SECURED CAB ENCLOSURESPROMOTE THE HEALTH OF THOSE WHO
OPERATE CATERPILLAR MACHINES.
The Caterpillar Advanced Cabin Filtration (ACF)system has been designed to promote optimal air
quality and operator health, as well as to comply
with increasingly strict global regulations on safe
exposure limits of airborne contaminants andparticulates.
The Caterpillar ACF provides twice as much fresh
air as required by ISO standard 10263-4, helping
operators to stay alert during machine operation.
The fresh air also improves the ability of the HVAC system to pressurize the operator enclosure,keeping potentially harmful airborne particulates outside the cab. With four levels of standard
particulate, HEPA, odor and sulfur dioxide/hydrogen sulfide filtrations, the ACF can be used inboth standard construction and specialty applications, such as landfills and mining. The system also
removes up to 99.95 percent of particulates as small as 0.3 microns in size, and its air pre-cleaning
capability increases the time needed between air filter replacements to 500 hours, exceeding thetypical interval by more than 300 hours. The ACF is an example of how we uphold the safety of
our customers and meet their business needs as well.

2016 SUSTAINABILITY REPORT 37

PRODUCT STEWARDSHIPPRODUCT STEWARDSHIP CIRCULAR ECONOMYCIRCULARECONOMY
Wherever possible, we keep resources in the Caterpillar
value chain through a circular flow of materials, energy
and water. Our focus on developing better systems
optimizes our use of resources, maximizes the total life
cycle value of our products and minimizes the cost ofownership for our customers. Viewing our equipment
through a total life cycle lens allows us to makesustainable progress for communities, the environment
and the economy.
Caterpillar strives to provide customers withquality equipment that provides the best economic
proposition for their business. Our remanufacturing(reman) and rebuild businesses provide customers
not only with immediate cost savings, but also help
extend life cycles and use materials more efficiently.
Rebuild programs increase the lifespan of equipmentby providing customers with product updates for afraction of the cost of buying a new machine.
A complete Cat® Certified Rebuild includes
more than 350 tests and inspections, automatic
replacement of approximately 7,000 parts and alike-new machine warranty. In addition, trained
dealer service professionals perform this work
using genuine equipment and parts. Caterpillar
provides information, data, training and service
tools to help dealers make the most appropriate
decisions on which parts to reuse in order toachieve expected longevity of rebuilt components.
Reuse of components helps us use materials andenergy more efficiently. Given the significant rolethat remanufacturing and rebuild operations playin our sustainability initiatives, our goal is to growremanufacturing and rebuild business sales by
20 percent from 2013 to 2020.
The remanufacturing and rebuild programs allow
customers to maximize the built-in value of theirequipment by:• Maximizing productivity• Increasing reliability and equipment uptime• Driving improved cost-effective performance• Offering a like-new warranty• Increasing the customer’s return on their investment•P roviding the customer with a variety of repair
options to meet their service needs• Providing the customer with a higher resale value•P roviding the lowest total owning and operating life
cycle costs

38 2016 SUSTAINABILITY REPORTCAT CERTIFIED REBUILDS AND REMANUFACTURING AT-A-GLANCE• Preserving the majority of energy and materials
required to make the original component or machine

INCREASING GLOBAL ACCESS TO
REMANUFACTURED PRODUCTS

While global customers have driven demand forremanufactured products, not all customers canbenefit from the significant cost and efficiency savings
that Cat Reman products deliver, due to import andexport challenges. Certain countries – mostly indeveloping markets – fail to recognize the value of
remanufactured goods for the environment and theirnational economies and thus place trade barriers
around remanufactured products.
There are typically two types of trade barriers:• A tariff barrier might include excessive fees ortaxes levied by a certain country that significantly
increase the customer’s cost of choosing a viable
remanufactured product.
• A nontariff barrier might be customs officials
categorizing remanufactured goods as “used” goods,
which cannot be imported under any circumstanceor can only be imported after complying with special
inspection, certification, licensing or other onerous
requirements.
Similar barriers are often faced when customers seek
to export their cores and return them to Caterpillar inexchange for a remanufactured engine or component.
With the durability, performance, quality and a warranty
that is the same as all other Cat engines and components,
Cat Reman products should not be treated as “used”
goods for the purpose of trade barriers. Indeed, thisfact has been acknowledged in a number of free trade
agreements and other multinational statements suchas the Asia-Pacific Economic Cooperation (APEC)
Pathfinder Initiative. For the purposes of trade barriers,
countries participating in the global economy should
treat remanufactured products the same way new goods
are treated.
Caterpillar continues to work with policymakers
around the globe to open markets and expand
remanufactured options for our global customers,
providing them with cost-effective, sustainable
solutions for extending the life of their existing
equipment. The company informs and educatesgovernment regulators around the world on thesustainable benefits of Cat Reman products.

GOAL

REBUILD PROGRAMS

Grow Remanufacturing
and Rebuild
Business Sales byCat® Certified Rebuilds
Component Overhauls at Cat Dealers
Solar Turbines Overhauls
Progress Rail Service Rebuilds

-10%

20%

2013-2020-13%

REBUILDS

7,000

REMAN

Percent Business Sales
Growth Since 2013

Approximate
Parts Replaced
Cat Certified Rebuild

Percent Business Sales
Growth Since 2013

Reman End-of-Life“Take-Back” By Weight8

Reman End-of-Life“Take-Back” Percent8

Millions of pounds of end-of-lifematerial received

Actual end-of-life returns/eligible
returns x 100

171

174

166

94%
154

93%

94%

93%

91%

125

2012 2013 2014 2015 20162012 2013 2014 2015 20162016 SUSTAINABILITY REPORT 39

PRODUCT STEWARDSHIP CIRCULAR ECONOMYPRODUCT STEWARDSHIP CIRCULAR ECONOMY

500TH CAT® CERTIFIED REBUILD PT FREEPORT INDONESIA MINEREPOWERS FOR RAIL

CAT® MACHINES ARE A TRIPLE-BOTTOMLINE WINNER, DELIVERING POSITIVEENVIRONMENTAL, SOCIAL AND
ECONOMIC BENEFITS FOR THE MINE
AND NEARBY COMMUNITY.
Fifteen years after Caterpillar, Cat® dealer
PT Trakindo and customer PT Freeport Indonesia
signed a strategic alliance agreement, the groupcelebrated its 500th Cat Certified Rebuild in 2016.
Rebuilding these 500 machines has saved the gold
mine over $350 million in replacement costs alone.
Every dollar saved from this initiative has been
directly reinvested into the mine or the mining
community, which 32,000 people from 26 different countries call home. The entire town relies
on mine-funded hospitals, health clinics, schools, religious centers and recreational centers. To
further benefit the community, our dealer hired and trained 405 local employees to operate its
Lowland Kuala Kencana Rebuild Center, which opened its doors 15 years ago. The center supports
a total of 43 rebuilding bays and has achieved OHSA18001 certification, a health and safety
management system.
Beyond the community, the benefits of rebuilding contribute positively to the mine’s economic
performance. Rebuilt machines lower the mine’s cost per ton, so savings are compoundedthrough the life of each product, especially the underground equipment that is approaching its
fourth or fifth rebuild. This benefits the customer, the dealer and Caterpillar.
During the rebuilding process, Caterpillar also updates and improves each machine over its previous
model. This results in an enhanced operator experience and enables more advanced upgrades, suchas adding Command technology for Cat Load-Haul-Dump (LHD) Loaders. Command technology
allows remote operation of the LHD from a safe location, and in some cases can increase theproductivity of the mine. Through its rebuild and continuous improvement culture, PT FreeportIndonesia’s fleet is operating 85 percent of the time and rotating through regularly scheduled
maintenance practices the other 15 percent. This high availability rate means the mine can focus
on operations.
The 500th Cat Certified Rebuild with PT Freeport Indonesia signifies much more than reuse ofmaterials; it represents long-term business stability, community growth and brand loyalty for themine. For Caterpillar, rebuilds show the value and long-term quality that come with the Cat brand,
and they provide the aftermarket sales and services on which our business model depends.

40 2016 SUSTAINABILITY REPORTCATERPILLAR’S RAIL SUBSIDIARY,PROGRESS RAIL, IS ONE OF THE
LARGEST DIVERSIFIED PROVIDERS OFROLLING STOCK AND INFRASTRUCTURE
SOLUTIONS AND TECHNOLOGIES FORGLOBAL RAIL CUSTOMERS.
Through replacing old, inefficient engines andantiquated controls systems with new, state-of-the-art
technology, the company’s repower programs provide
customers with tailored and cost efficient solutions for
upgrading older equipment.
The newly designed EMD24B is the most recent
repower locomotive to be added to Progress Rail’s
repower portfolio. Rated at 2,000 horsepower, theEMD24B comes equipped with a single Cat® 3512C HD
engine and after-treatment technologies proven tolower emissions. The EMD24B utilizes rebuilt EMDstyle locomotive components and has been
constructed with a remanufactured underframe andcab from an existing EMD GP-40 style locomotive.

“The EMD24B demonstrates our commitment tocustomers through its reliability and sustainability,
while emphasizing Caterpillar’s broad engine
expertise, with a strong focus on lowering emissions,maintaining fuel efficiency and safety,” commented
Progress Rail Chief Executive Officer and Caterpillar
Senior Vice President Billy Ainsworth.
The design and manufacture of the EMD24B involved
various teams within the company, including ProgressRail’s repower engineering team, employees fromthe company’s Patterson, Ga., facility, and its Brazilian
subsidiary, Zeit, which provided the locomotive
control system.
Testing to certify the locomotive per the U.S.
Environmental Protection Agency’s (EPA) stringent
Tier 4 emissions standards has been completed, andthe EMD24B is currently undergoing the California Air
Resource Board’s 3,000-hour in-service verification
test, launching with Pacific Harbor Line (PHL) railroad.
Upon completion, this locomotive will be the first
Tier 4 certified and verified repower offered by Progress
Rail, with the ability to reduce fuel consumption by up
to 15 percent.

2016 SUSTAINABILITY REPORT 41

PRODUCT STEWARDSHIPPRODUCT STEWARDSHIP CUSTOMER SUSTAINABILITYCUSTOMERSUSTAINABILITY
As customers increasingly demand greater fuelefficiency and technology that helps them reduce
GHG emissions, we are further motivated to help ourcustomers achieve their emission-reduction goals.
Their needs provide valuable business opportunities
to Caterpillar.
We continue to invest in research and development
aimed at products with fewer direct emissions,improved energy efficiency and/or improved
productivity. In doing so, we help our customers
improve their own operations, while also driving
our competitors to improve.
Job site fuel efficiency, which contributes to reductionsof GHG emissions, is strongly considered in our new
product development efforts. By developing products,
services and solutions that increase customer efficiency,
we are also reducing the emissions that would otherwise
have been generated from the use of less efficient
products or solutions. We also collaborate with dealers
and customers to deliver customized solutions that help
optimize energy use and provide training for customer
operators on how to use our equipment more efficiently.
A significant part of our business is committed to the
supply of energy through efficient power-generation
solutions. With distributed generation solutions

Golden Peacock Award for
Sustainability
In October 2016, Caterpillar
India won the Golden
Peacock Award for
Sustainability for theirorganization-wide sustainability efforts.
This award, named after India’s national
bird, is designed to provide a powerfulself-assessment tool to help organizations
build brand equity on sustainability.

42

2016 SUSTAINABILITY REPORT

6020B HYDRAULIC MINING SHOVEL FUEL EFFICIENCY

utilizing diesel
and natural gas
engines, as well as
alternative fuels,
reported sales and revenues
we help get power
derived from products, services
where it needs toand solutions that demonstrate
be. Further, Cat®
an improved sustainability
benefit over existing offerings9
equipment helps
meet the demandsof the mining andresources industries to get raw materials where theyneed to be to create increased access to power.

21%

Caterpillar has implemented hundreds of distributed
power generation systems all over the world,which contribute to improving energy access in thedeveloping world while emitting fewer GHG emissions
compared with traditional power grid systems. We
provide combined heat and power systems, andcombined-cycle power systems that can double
the efficiency of power generation when comparedwith the efficiency of conventional power grids.
Additionally, our power systems utilize fuels fromdiverse sources such as gas from landfills, livestock
operations, wastewater treatment operations, mine
methane, flare gas, syngas and biofuels. Thesesystems provide energy diversity from plentiful (andin many cases, renewable) energy sources.

FUEL ECONOMY CONTRIBUTES UP TO 50 PERCENT OF THE TOTAL COSTOF OWNING A HYDRAULIC MINING SHOVEL.
That’s why Caterpillar is constantly evolving its products to be more fuel efficientso that customers can reduce operating costs and emissions. By maximizing
hydraulic system efficiency, the 6020B Hydraulic Mining Shovel has significantly
reduced its fuel consumption. In a traditional Cat® hydraulic system, pumps must
work as a system and operate at the pressure of the highest active circuit. The
common pressure must then be adjusted per the pressure of each individual
circuit. This causes “compensation loss,” which amounts to a loss of 15 to 25 percentof the total available hydraulic power.
In the 6020B hydraulic system, each circuit has a dedicated pump or set of pumps.
Only the required number of pumps are allocated to each circuit individually,
eliminating the need for pressure compensation and its inherent losses. The new,more efficient Cat 6020B burns up to 20 percent less fuel than competitive equipmentof the same size, while loading up to 10 percent more material, delivering higher
production with a significantly lower emissions impact.

2016 SUSTAINABILITY REPORT 43

PRODUCT STEWARDSHIP CUSTOMER SUSTAINABILITY

CAT® D6T FUEL EFFICIENCYSECTIONSUSTAINABILITYSUB SECTION
PRODUCT STEWARDSHIP CUSTOMERBRINGING RELIABLE ENERGY TO THE BRAZILIAN AMAZONTHE NEARLY HALF MILLION RESIDENTS
OF RORAIMA, BOA VISTA ARE SEPARATEDFROM THE REST OF BRAZIL BY THE NEARLYIMPENETRABLE AMAZON RAINFOREST.
Isolated from the national power grid, the town faced theeffects of aging power generation equipment in 2009 andwere in dire need of an immediate energy solution. The
regional electrical utility, Eletrobras Distribuição Roraima(EDR), turned to Oliveira Energia, a supplier of power
plants and emergency power installations throughout
the region. In eight short weeks, Oliveira Energia began
supplying more than 40 MW of power from the UTE
Floresta Plant, a temporary installation near an existing
substation in Boa Vista that included 32 containerizedCat ® 3516A and 3516B diesel generator sets.

AS ONE OF CATERPILLAR’S MOST VERSATILE DOZERS, THE NEW FULLYAUTOMATIC D6T CONTINUES TO DRIVE CUSTOMER VALUE THROUGHDRAMATICALLY IMPROVED FUEL EFFICIENCY AND EASE OF USE.
The powertrain iron and controls were redesigned to include:• An optimized torque divider and a lock-up clutch for improved efficiency;• 4 -speed transmission with an additional gear to allow for smoother shifting andlonger lock-up clutch engagement; and• The first full-time auto shift in a Cat ® dozer, which automatically optimizes gear
selection so operators of all skill levels can work more efficiently.
Additional enhancements include: improved shift quality; deep integration between theengine and powertrain; factory integrated grade control technology. These improvementsin the powertrain and controls dramatically cut the machine’s fuel consumption whilestill offering up to 2.5 percent productivity improvement. The result is a 15 to 20 percent
reduction in fuel consumption across most applications and up to 30 percent in lighter
applications, which contributes to lower greenhouse gas emissions at the job site.

Though these generator sets were intended to be a temporary fix until there could be
a connection with the Brazilian power grid, EDR, instead, began planning for its own
permanent power plant to meet current and future needs. Together, Oliveira Energia,
Caterpillar and the local Cat dealer, Sotreq, got to work designing, constructing andcommissioning the UTE Monte Cristo Thermal Power Plant with a capacity of 107 MW
to serve 115,000 customers in Boa Vista and nine other municipalities in the stateof Roraima.
Due to the region’s extremely high temperatures and humidity, it was imperative to
use low-emitting and strong-performing generator sets. In addition to these conditions,the team had to design the plant in a modular way that allows for physical expansion
and the installation of additional generator sets as demand rises in the years ahead.
Though similar projects can take up to three years to complete, this project wascompleted in eight months and fully outfitted with 34 Cat C175-20 diesel generator
sets supplying 3150 kW of gross power in continuous power applications.
To help offset the environmental impact of the power plant, Oliveira Energia and EDR
have committed to grow a million tree seedlings per year in a nursery located next tothe new power plant. These will be donated to local schools, conservation groups andother volunteers to help preserve the natural beauty of the region. Oliveira Energia isalso leveraging another abundant resource by training students who attend nearby
technical schools and hiring local talent. In fact, nearly all of the 80 employees at theplant are from Boa Vista and the surrounding region.
“For many years, the power supply in Boa Vista was unreliable, impeding economic
development throughout the region,” said Orsine Oliveira, president and chief
executive officer of Oliveira Energia. “These Cat generator sets not only serve asa consistent, reliable source of power for local residents and businesses, they alsodeliver the stability that this region needs for lasting economic and social progress.”

44 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 45

PRODUCT STEWARDSHIPPRODUCT STEWARDSHIP NATURAL INFRASTRUCTURE

NATURALINFRASTRUCTURE
Conventional infrastructure – sanitary sewers,
treatment plants, roads and bridges – is not the only
infrastructure in need of rebuilding. Ecosystems thatare essential to the health of our economy, communities
and planet – forests, prairies, agricultural lands,
estuaries, coastal landscapes and wetlands – also
are in critical need of restoration. Unfortunately, asignificant portion of the earth’s natural infrastructure
has been lost or degraded. These ecosystems purify
our water and air, sequester carbon, produce
nourishment and supply other raw materials. Our
products and solutions are well equipped to addressthese types of restoration projects.
As an example, consider the New Jersey coastline.
Hurricane Sandy and Winter Storm Jonas caused morethan $30 billion in financial, social and environmental
damage to the shoreline. In response to such events,
Caterpillar is taking a proactive role supporting ourcustomers and dealers in coastal dredging, protection
and reclamation on coastlines in the U.S. and aroundthe world.
Since these storms hit the Jersey shore, Cat® equipment
is being used by multiple dredging contractors to
restore the beaches and dunes. These projects – andothers around the world – are examples of how Cat®
machines help rebuild natural infrastructure that isvital to improving coastal resilience and help protect
social and environmental assets on coastlines fromfuture storm surge and flood damage.
To increase attention to and understanding of natural
infrastructure restoration, Caterpillar is working witha group of like-minded organizations to create a coalition
on restoring natural infrastructure. The planned
coalition will focus initially on coastal resilience,
inland waterways and dam removals. Its role is to add
value by accelerating the frequency and pace of natural
infrastructure projects in this area and supporting
increased funding for these types of projects. It will
also identify and help remove or reduce regulatory
and commercial barriers to implementing projects.
Other activities would include a public campaign toraise awareness of the environmental, social andeconomic benefits of restoring natural infrastructure
and promoting a positive agenda with policymakers
to provide incentives to invest in restoring natural
infrastructure projects through tax benefits, federal
funding and public-private partnerships, as well asother public policy initiatives.

WHY NATURAL INFRASTRUCTURE RESTORATION IS CRITICAL

THE MOST IMPORTANT
ROLE OF NATURALINFRASTRUCTURE IS TOSEQUESTER BILLIONS OFTONS OF CARBON. MORE
CARBON RESIDES IN SOIL
THAN IN THE ATMOSPHERE.

SOIL

2,500 BILLION TONS CO2

ATMOSPHERE800 BILLION TONS CO2TODAY THE UNITED
NATIONS ESTIMATES:

25% LAND IS

NATURALINFRASTUCTURERESTORATIONCAN REVERSESOME OF THISDAMAGE.

HIGHLY DEGRADED

50%+ WETLANDS

1-3 BILLIONTONS ANNUALLY

3.5-11 BILLIONTONSAnnual increase incarbon storage capacity
due to soil restoration

HAVE BEEN LOST

Annual carbon emissions
eliminated due to soil
restoration

Sources:Ontl, T. A. & Schulte, L. A. (2012) Soil Carbon Storage. Nature Education Knowledge
United Nations report, the State of the World’s Land and Water Resources for Food and Agriculture (SOLAW)
Ohio State University’s Carbon Management and Sequestration Center46 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 47

PRODUCT STEWARDSHIPPRODUCT STEWARDSHIP JOB SITE EFFICIENCYJOB SITEEFFICIENCY
Our customers need to realize the full value of theirassets on the job site. Our solutions business model
is designed to meet that need by going “beyond theiron” to increase asset utilization. Designed anddelivered by the Caterpillar Job Site Solutions (JSS)team in partnership with Cat ® dealers, these solutions
help customers find new and innovative ways toimprove their operations and be more competitive inthe marketplace. JSS leverages Caterpillar’s financial,technological, application and management expertise
to tailor solutions based on the customer’s own
needs, typically in the areas of safety, sustainability,
equipment, productivity and financials. As a result,every solution is different, scalable and can range
from a short-term consulting engagement to a
multiyear fleet management solution.

JOB SITE SUSTAINABILITY IMPACT
Job Site Solutions in Action
For example, the Caterpillar JSS teamhelped a pulp and paper manufacturer in
the United States save an estimated
60,000 gallons of fuel per year throughmore efficient equipment use, fleet design
improvement and operator training
enhancement. In total, these measures
saved the facility over $114,000 in 2016.

TOTAL CUSTOMERSUSTAINABILITY VALUE$1,244,000 IN 2016
$5,260,000 SINCE 2007

OPERATOR SAFETY$649,000
Savings value realized by
avoiding occupational
health & safety incidents

We consistently find that the cost savings unlockedby our JSS team also deliver additional sustainability
benefits. For instance, optimizing fleet efficiency
not only reduces costs, but it also can improve themaintenance and component replacement cycles ofindividual machines. Better maintenance execution
can extend the life of a machine, which, in turn,
reduces fluid and maintenance parts consumption
and avoids the manufacturing and resource-use
impacts of purchasing an entirely new machine. The
integration of these services is showcasing the three
dimensions of sustainability – economic growth,environmental stewardship and social responsibility –for our customers.

ENERGY & FUEL
$3,117,000
Savings value realized
by reducing energy
and improving
fuel economy

48

2016 SUSTAINABILITY REPORTOPERATIONALIMPROVEMENTS$807,000
Savings value realized by
reduced tire wear and improved
compaction density

SITE
MAINTENANCE
EFFICIENCY$688,000
Savings value realized
by improving machine
availability andrepairing machines
more efficiently

2016 SUSTAINABILITY REPORT 49

ValueChain

Supplier Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  52
Dealer Network. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  55

Caterpillar is building capabilities to deliver an
integrated value chain. The company that connects
its end-to-end business – from customer all the way
back through its chain – will gain and maintain
industry leadership. To do so, we must engineer ourvalue chains just like we engineer our products intoa synchronized system that maximizes quality,
value and speed to the customer.

OUR INTEGRATED VALUE CHAIN

SUPPLIERS

Provide productinputs andmaterials

50 2016 SUSTAINABILITY REPORTCATERPILLAR
Manufactures
equipment andprovidestechnology
solutions

DEALERS

Distribute our
products andsolutions to
our customers

CUSTOMERS

Use our products
and solutions
on job sites
and in energy
applications

2016 SUSTAINABILITY REPORT 51

VALUE CHAINVALUE CHAIN

SUPPLIER NETWORK

SUPPLIER
NETWORK
Our suppliers are an essential link within our value
chain and our commitment to quality. We look forsuppliers who demonstrate strong values and commit
to the ethical principles outlined in our Supplier Codeof Conduct. We expect suppliers to comply with thesound business practices we embrace, follow the law
and conduct activities in a manner that respects
human rights.
Our Supplier Code of Conduct was refreshed in 2015
to add several new provisions, including human rights,
innovation, and diversity and inclusion. Several otherprovisions were enhanced, including environmental
responsibility and sustainability.
To ensure impacted suppliers understand our
expectations, we request that they respond to our supply
network assessment or complete a training program.
As issues arise, members of our senior management
are apprised, and suppliers are expected to implement
corrective action plans for mitigation or remediation.
Any supplier’s failure to take corrective actions whenrequired may lead to additional actions, up to andincluding the termination of our business relationship.
Caterpillar continues to expand the Assurance ofSupply Center (ASC) to support our enterprise strategy
to manage a world-class supply network. The ASC is522016 SUSTAINABILITY REPORTa network knowledge
service organization
In 2016, we completed
transportation projects thatand data platform that
reduced CO2 emissions by
captures and transforms
complex supply network
data from dozens ofsystems into a suite of
metric tons.
That is equal to removing
simple but powerful
488 cars from the road.
business tools that canbe used for everyday
decisions. This technology
enables an agile supply network that delivers at theright time and right cost, while reducing waste causedby trial and error or delayed decision making.

2,312

Another supply network consideration at Caterpillar
is compliance with applicable laws and regulations.
Caterpillar works with its suppliers to determine thecontent in each of the products Caterpillar manufactures
or contracts to manufacture. In some instances,
Caterpillar is also required to expand its due diligenceto determine the origin of certain components. A crossfunctional business team develops systems andprocesses for conducting such reviews. Caterpillar
monitors metrics that could indicate risks in the supply
network. These efforts continue to be important increating transparency in the supply network.

SUPPLIER DIVERSITYDiversity within our supply base is important toCaterpillar and we strive to mirror the demographicsof the varied markets in which we operate. Our goal isto provide sourcing opportunities to a wide range ofdiverse business types – minority-owned small
businesses, veteran-owned small businesses andmany others – throughout our enterprise. Seamlessintegration of these businesses allows for synergies
as we assist them in growth and development.

A MORE SUSTAINABLE LOGISTICS NETWORKFor transportation, sustainability has always been afocal point of how to design shipping networks, optimize
transportation modes and configure products for optimal
shipping. The Global Supply Network Division (GSND)
transportation team manages movement of production
material and service parts around the world to support
Caterpillar manufacturing and dealers. The group seeks
to identify the optimal schedules to increase truckload
utilization, which in turn reduces the number of trucks
on the road. Transportation also works closely withpackaging teams to determine the best way to stackmaterial on a single truck or in an ocean container.
Higher utilization of a single vehicle reduces the numberof shipments overall.

China Association of Enterprises
with Foreign Investment
Caterpillar China was named to
the 2016 Best CSR Practices ofForeign-Invested Enterprises
in China, including the Best
Partner Award. This recognition fromthe China Association of Enterprises with
Foreign Investment recognizes our efforts
to progress together with suppliers to
improve product quality and operational
efficiency by leveraging Caterpillar’soutstanding enterprise management system
and remarkable technological innovation.

Today we are leveraging the scale and expertise ofCaterpillar’s supply network to help our dealers and customers receive theirproducts more efficiently. We now transport product from the production yard to
the dealership. Dealers can collaborate with us on when and where they want amachine shipped, check the shipping status online and instantly get information
on location and estimated time of arrival. By including the “last mile” as part ofour overall value chain design, we are delivering products with higher dealer
satisfaction, improved delivery performance and visibility, and lower cost.

2016 SUSTAINABILITY REPORT 53

VALUE CHAINVALUE CHAIN

SUPPLIER NETWORKDEALERNETWORKGLOBAL PARTS EVC PROGRAM DELIVERS
PROFITABILITY WITH SUSTAINABILITY
WITH THOUSANDS OF SUPPLIERS,
PLANTS, DEALERS AND CUSTOMERSIN THE CATERPILLAR VALUE CHAIN,
THERE ARE OPPORTUNITIES TO IMPROVEEFFICIENCIES IN MOVING RAW MATERIALSAND FINISHED PRODUCTS FROM POINT
A TO POINT B.
This is why, in 2015, we launched the Global Parts
Engineered Value Chain (EVC) program to takeadvantage of a shrinking world and our global
capabilities. Created to remove aftermarket inventory
without disrupting service levels to our customers,
the program helped realize immense economic,
environmental and social benefits. By collaborating
across the supply network, the “Plan For Every Part” (PFEP) program evaluates total cost ofownership by optimizing order quantities, transportation, taxes and duties, and material cost.
To date, the program has saved $45 million in supply chain costs alone.
In addition to the significant profitability improvements, the EVC program helps prevent productand packaging waste, reduces emissions from global transportation, conserves natural resources
via raw material resource utilization and decreases utilities via lower inventory on shelf. In total,
this program resulted in 300 tons of CO2 emissions removed in the first year and is expected toincrease significantly in the future. The PFEP program also creates jobs in developing countries
and ensures an ethical supply base.
Consider how a spindle made in India used to travel to its destination in Singapore. Previously,
a 1,600-pound spindle from India would have to travel through Grimbergen, Belgium, to beinspected, packaged and processed for reallocation where needed in the network to meet dealer
demand. The spindle would then be shipped back to Asia to be stocked at our distribution centerin Singapore. We replicated processes and technology in place in Shanghai to Singapore, making
it an entry point capable of inspection, paint and packaging of direct supplier parts. Now thesespindles move directly from India to Singapore. From the 42 spindles sold every year alone, thisproject reduced packaging cost and landfill waste by 40 percent, reduced travel by over 28,000
kilometers and associated CO2, decreased transit time by 50 days, and saved $325,000 in total
cost of ownership.

fulfillment and world-class rebuild capabilities. We
work with our dealers to provide products, services
and support solutions necessary to satisfy customer
needs worldwide. Other brands in our portfolio are
distributed through their respective channels that
optimize customer value in accordance with theirbrand value propositions.
Our distribution model, which has consistently
delivered unmatched local support, is increasingly
measured by global standards. Caterpillar and Cat
dealers have worked together to define and lay thefoundation for a strategy that addresses our mutual
challenges and builds the foundation for our next
century of progress. Together, we have mapped thepath forward around four objectives:
Our independent dealers serve as a critical link between
our company and our customers. We rely on them tocollaborate with us in building and maintaining ourlong-standing customer relationships. Cat® branded
products and services are distributed through aworldwide network of Cat dealers, 49 of which arelocated in the United States and 123 located outside
the United States.
The large majority of our worldwide dealers are
independently owned and operated, and many ofthese businesses have been in families for multiple
generations. The Cat dealer network brings value tocustomers through unmatched service, integrated
solutions, after-sales support, fast and efficient parts

172

GLOBAL CAT
DEALERS

54 2016 SUSTAINABILITY REPORTDEALER NETWORK• Strengthening the Cat dealer model• Enhancing customer focus• Achieving superior economics for Caterpillar
and the dealer• Seizing opportunities while mitigating risks
Our dealers worldwide have been working side-byside with Caterpillar employees from every area ofthe company on projects focused on such things as
e-business, technology-enabled solutions, service
strategy, rental and used equipment strategy andparts logistics.

157,000

CAT DEALEREMPLOYEES

2016 SUSTAINABILITY REPORT 55

Governance &Ethics56 2016 SUSTAINABILITY REPORT

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  58
Risk Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  59
Public Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  60
Human Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  64

Caterpillar’s current Code of Conduct – Our Valuesin Action – defines what Caterpillar stands for andwhat we believe in, documenting uncompromisingly
high ethical standards for our company. The Code of
Conduct helps Caterpillar employees every day byproviding detailed guidance on the behaviors that
support Our Values in Action – Integrity, Excellence,
Teamwork, Commitment and Sustainability.

2016 SUSTAINABILITY REPORT 57

GOVERNANCE & ETHICS

GOVERNANCE & ETHICSCORPORATEGOVERNANCE

RISKMANAGEMENT
Risk is an inherent part of conducting global business. Caterpillar regularly
identifies and monitors business risks through a robust internal management
system and engages in constructive regulation and public policy discussions that
benefit employees, customers and shareholders. We manage operational, strategic,
financial and compliance risk through two programs: the Business Risk
Management (BRM) Program and Caterpillar’s Ethics and Compliance Program.
Each year, we conduct a comprehensive Enterprise Risk Assessment by reviewing
risk information from multiple sources, including business units. To better informour decision making, Caterpillar evaluates risks using three dimensions(significance, likelihood and velocity) at the business unit and enterprise level.
The results of this BRM risk assessment are incorporated into future action plans to
mitigate the identified risks. Compliance risks are also reviewed as part of the BRM
risk assessment process and are managed as part of Caterpillar’s Ethics andCompliance Program. These risks cover a broad range of issues, including legal andregulatory compliance, labor, and health and safety.
Every risk identified under the Ethics and Compliance program has an Enterprise
Risk Owner who is responsible for managing efforts to mitigate the risk forCaterpillar. They help drive risk management through governance, evaluation,
controls, communication and training, and compliance audits throughout theworld. Through these programs, Caterpillar can better manage risk and gauge thepotential impact of various outcomes on our ability to achieve strategic goals.

Our commitment to good corporate governance stems from our belief that a strong
governance framework creates long-term value for our shareholders, strengthens
Board and management accountability and builds trust in the Company and its brand.
Our governance framework includes the following highlights:

Learn more
about theBoard
and its
committees

Learn more
about theCaterpillar
Code of
Conduct

58

BOARD AND GOVERNANCE INFORMATIONBOARD AND GOVERNANCE INFORMATION

Size of Board

13

Average Director Tenure

Number of
Independent Directors

12Supermajority Voting Thresholdfor Mergers

No

Average Age of Directors

62

Proxy Access

Yes

Board Meetings Held in 20169

Shareholder Action
by Written Consent

No

Shareholder Called Special Meetings

Yes

Poison Pill

No

Annual Electionof Directors

Yes

Mandatory Retirement Age

72

7 years

Women and Minority
Board Members

38%

Code of Conduct for Directors,
Officers and Employees

Yes

Majority Voting in
Director Elections

Yes

Stock Ownership Guidelines for
Directors and Executive Officers

Yes

Separate Chair and CEO

Yes

Anti-Hedging and Pledging Policies

Yes

Independent Chair

Yes

Compensation Recoupment Policy

Yes2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 59

GOVERNANCE & ETHICS

GOVERNANCE & ETHICS PUBLIC POLICY

PUBLICPOLICYWe are providing products with leading integrated
technology to various energy markets and leveraging
our technology and innovation to meet the world’s
growing energy needs.

CARBON REGULATIONGreenhouse gas (GHG) accumulation in theatmosphere is a major concern in both the public andprivate sectors because of the potential for thesegases to affect climate patterns. As a result, many
governmental and intergovernmental organizations
are implementing mechanisms in an attempt to reduce
GHG emissions.

Government decisions with regard to laws andregulations around the world can have a significant
impact on our employees, customers and shareholders.
Within applicable legal parameters, Caterpillar strives
to constructively advocate for public policy outcomesthat help promote sustainable business conditions
for our company, dealers, customers, suppliers andshareholders. The form of advocacy Caterpillar uses
may differ depending on the political system andlocal law.
We communicate the importance of key public policy
issues to our employees and other stakeholders,
including dealers, suppliers and retirees. In somecountries, we may encourage them to express theirviews to lawmakers if this practice is consistent withlocal custom and citizenship rights. Our leaders will
also utilize opportunities to interact with government
officials directly to advocate our legislative positions.

candidates or political action committees that support
public policies that we believe will have an impact on
our business. As outlined in Our Values in Action, allcorporate contributions are approved
by Caterpillar Government Affairs.

Learn more

Caterpillar employees in the U.S. also
about politicalfund and administer the Caterpillar
contributions
Employee Political Action Committee(CATPAC). CATPAC is funded throughvoluntary contributions by eligible
employees. A Steering Committee comprised ofCaterpillar non-officers who represent a diversemix of U.S. locations and business units oversees
all donations made by CATPAC. CATPAC contributions
go to federal and state political campaigns
and organizations.

ENERGY & CLIMATE POLICY

Finally, we support many organizations andassociations as they champion public policies that
contribute to the success and growth of the business
community and manufacturing industry as a whole.
We do so by:• Advocating and seeking implementation of policies
and legislation that allow Caterpillar, our dealers andcustomers to succeed.
• Engaging with elected officials and policymakers toensure their understanding on the key public policy
issues that impact our business, such as trade, tax,
infrastructure and energy.
Where allowable by law, Caterpillar may makecorporate contributions to campaigns, individual

60 2016 SUSTAINABILITY REPORTAs a global energy consumer and industrial
manufacturer, as well as a major manufacturer ofenergy conversion and power-generation products,
Caterpillar has a fundamental interest in, andunderstanding of, energy needs around the world.

Caterpillar supports integrated carbon and climate
policies that effectively balance environmental andeconomic considerations. We understand that themost immediate and measurable benefits will occur
through energy-efficiency improvements andcorresponding GHG emissions reductions.
In response to the challenge of reducing GHG emissions,
we are:• Setting aggressive energy-efficiency and GHG-reduction
goals for our operations.
• Investing in energy-efficiency and GHG-reduction
technologies for our products that are important toour stakeholders and represent significant areas ofopportunity for our business.
• Committing to the development and deployment ofadvanced technologies that capture and store GHG
emissions.
• Supporting policies and mechanisms that harness
the marketplace to drive innovation, mobilize
investment and facilitate sharing these technologies.
• Encouraging the coordination of domestic andinternational programs that maximize the use offlexible, proven mechanisms to sequester carbon insoils, plants and ecosystems.

Despite divergent proposals under discussion worldwide,
technology and innovation play a key role in any
successful strategic approach to emissions reduction.
Further, the private sector must take the lead indeveloping and deploying technology solutions to
reduce GHG emissions. Ideally, regulatory structures
should provide a technology-neutral and level playing
field in which competitive solutions can be developed.
Businesses will struggle to find solutions if vastlydiffering approaches to GHG reduction are implemented
around the world. That is why we continue to endorse acomprehensive, international approach that encompasses
GHG-reduction commitments from all major economies.
We encourage a constructive dialogue and a proactive
approach to providing energy safely, efficiently andaffordably to the billions of people who inhabit
our planet.

Additionally, we support the reduction of GHG
accumulation through improved GHG management
practices. Atmospheric GHG accumulation can occur
as a result of inefficient or excessive fossil fuelcombustion, poor waste management practices or poor
land management practices. Caterpillar is a leader inthe development and deployment of innovations andtechnologies that, through our products, assist in the
mitigation of all three of these sources.

2016 SUSTAINABILITY REPORT 61

GOVERNANCE & ETHICS PUBLIC POLICYCARBON RESEARCH INVESTMENTS

Carbon can offer productive uses in a variety of
applications. We are investing in research andadvocating for policies that support thesedevelopments in diverse areas such as improved
land management, restoration of degraded lands,
and carbon capture and storage technologies.
For example, we are a founding member and co-funderof the Energy Technologies Institute (ETI), a collaboration
between industry and the U.K. government to accelerate
the development of technologies that address thechallenges of climate change and provide affordable
energy access. Additionally, Caterpillar is a member ofthe project advisory group for the Midwest GeologicalSequestration Consortium. With the objective to safely
demonstrate the viability of this CO2 emission reduction
technology, the Consortium is currently gatheringscientific data and monitoring the 1 million metric ton(1.1 million U.S. ton) CO2 storage site in Decatur, Illinois.

INFRASTRUCTURE POLICY

Governments have a responsibility to maintainappropriate levels of productive investment ininfrastructure while providing a level playing field
for suppliers. Leveraging private investment canbring additional sources of funding, provided that62 2016 SUSTAINABILITY REPORTGOVERNANCE & ETHICS PUBLIC POLICY

investment is supported by fair and predictablepolicies to maximize the certainty and timeliness offinancial returns.
Growth-enhancing infrastructure investments, however,cannot be fully delegated to the private sector, andpublic financing should continue to comprise the bulk of
infrastructure investment. Governments can influence
the affordability of infrastructure through the facilitationof permitting, the reduction of administrative burden
and the simplification of related requirements. The
role of government for infrastructure financing should
be based on national needs, including urbanization,commerce and trade policy, transportation, disasterprevention and mitigation, defense and global
competitiveness.

TRADE POLICY

economic, environmental and social policies to achievesustainable development. Balanced economic,
environmental and social policies provide a common
framework for allowing environmental and trade
policymakers to engage stakeholders, analyze issues
and evaluate policy more efficiently.

requirements. Our employees around the world, andtheir respective communities, benefit from a higher
standard of living, as they have access to more productchoices at lower prices. Free trade also allows us toprovide more and better job opportunities, because
open markets lead to improved competitiveness.

Caterpillar has a long history of advocating for free
trade. Our interest comes not from the perspective of
any one country, but from our global perspective andwith the foundational belief that companies compete
best in a free trade environment. Free trade requires
us to continually improve our global competitivenessand creates an environment that allows us to better
respond to our customers’ needs and to grow ourbusiness. It offers us the opportunity to source
globally and thus compete effectively while providing
maximum value to users. Our suppliers, in turn, also
have an easier time satisfying our global sourcing

Caterpillar will continue to support policies thatenhance competition in the global marketplace andreduce – or better yet, eliminate – trade and investment
barriers. We believe that developed countries should
adopt policies that allow the benefits of the global
economy to be extended to developing countries. To
this end, Caterpillar also recognizes that humanitarianand developmental assistance is necessary to fightdisease, improve living conditions and combat
corruption – all of which can be barriers to free tradeand economic growth in the world’s poorest countries.

The best means of economic development and theefficient distribution of goods and services is the pursuitof business excellence in a climate of free enterprise, free
trade and global competition. Further, such international
exchange promotes better understanding across borders
and cultures, leading to a more peaceful world. Thesebenefits have been demonstrated by the enormous risein post-World War II gross domestic product and living
standards in countries participating in internationalcommerce. By contrast, many isolated countries havefrequently not experienced such advantages.
Increased commercial engagement leads to economic
gains that raise standards of living, improve the qualityof life and promote sustainable development. More
importantly, trade liberalization can promote peace andunderstanding and can be an important contributor tosolving the global problems of hunger, poverty anddisease. Economic growth through international tradeis essential for poverty reduction, but also comes withchallenges. Chief among them is the need to balance

2016 SUSTAINABILITY REPORT 63

GOVERNANCE & ETHICS

GOVERNANCE & ETHICS HUMAN RIGHTSHUMAN
RIGHTS
Our Human Rights Policy is guided by the international
human rights principles described in the Universal
Declaration of Human Rights (UDHR) and theInternational Labour Organization’s (ILO) Declaration
on Fundamental Principles and Rights at Work. Ourhuman rights program is governed by leadership withaccountability across the enterprise, led by our Global
Human Rights Manager, focused on awareness-raising,information sharing, external reporting, monitoringand mitigation of impacts on an ongoing basis incollaboration with process and risk owners. Through theexisting grievance reporting mechanism, we investigate
and respond to human rights concerns. Human rights
metrics and key issues are reported to the corporate
secretary and to the Public Policy and GovernanceCommittee of the Board of Directors on a regular basis.
In 2015, Caterpillar conducted a human rights impact
assessment (HRIA) to identify actual and potential humanrights issues and impacts on vulnerable groups along
our value chain (such as children, migrant labor, workers
or local communities). In addition to the HRIA, Caterpillar
has introduced mechanisms to understand our humanrights impacts across our value chain with our partners.
In 2016, more than 11,000 of our suppliers were asked tocomplete a self-assessment on a variety of the issues
set out in our Supplier Code of Conduct. The humanrights questions focused on whether our suppliers
have policies and procedures to manage the issues
determined to be salient for Caterpillar’s supply
network. This assessment is the first step to supporting
Caterpillar’s understanding and locating the areas ofrisk in our supply base. As part of our process, we work
to investigate and mitigate identified risks.
Corrective actions were executed with the high risk
suppliers to further evaluate risk exposure or mitigate therisk identified.
As we continue to advance our human rights program,we will look to engage with our suppliers on these topics
as well as consider the use of on-the-ground humanrights impact assessments or audits in high risk regions
or facilities to improve understanding of human rights
issues and impacts.

SALIENT ISSUES

Our salient issues are determined based on consultation
and requests from our stakeholders, our Code of
Conduct and our human rights impact assessment. We
focus on nine salient issues that put us at risk of having
a negative impact on rights-holders through ouractivities or business relationships. We recognize that64

2016 SUSTAINABILITY REPORTSUPPORTING THE REMOVAL OF LANDMINES
other human rights may become greater priorities overtime, and we regularly review our priority areas.
• Child Labor• Wages and working hours• Discrimination and harassment• Health and safety• Forced labor and human trafficking• Impacts on local communities• Controversial use of Cat® equipment• Doing business in conflict-affected areas• Freedom of association and the right tocollective bargaining
In 2016, more than half of the requests or grievancesfrom interested parties related to these three issues:
controversial use of Cat equipment, doing businessin conflict-affected areas and freedom of associationand the right to collective bargaining. These issues
are currently the focus of our attention.

117

REQUESTS RELATED TO
HUMAN RIGHTS THROUGHOUR FORMAL GRIEVANCEMECHANISMS

100%
ADDRESSEDTRAINING AND COMMUNICATIONSIn 2016, we developed a human rights awarenesstraining program and prioritized the roll-out toexecutive leadership and risk owners of areas where
human rights risks were deemed to be highest.
Training was offered to:• Executive leadership• Human resources leadership and professionals• Retail business development team
• Direct sales team
• Directors of global supply network division
In addition, training was offered within our value
chain to:• Members of the dealer human resources steeringcommittee• Caterpillar trademark licensees, with responsibility
for the manufacturing of $2.2B in retail product sales
in 2016.

IN MANY INSTANCES, CAT® EQUIPMENT IS USED TO FACILITATEA POSITIVE IMPACT ON HUMAN RIGHTS. ONE EXAMPLE OF THISIS OUR SUPPORT OF THE DIGGER FOUNDATION.
About 110 million land mines are still in the ground as a result of past or current
conflict or wars. Landmines restrict the movement of people and humanitarian aid,
make land unsuitable for cultivation, and deny citizens access to water, food, careand trade. Thousands of people die or lose limbs from stepping on a landmine
every year – and the majority of these victims are civilians. Removing landminesis critical to creating safer communities and rebuilding war-torn areas.
In 2016, Caterpillar connected with a Swiss non-profit organization called theDigger Foundation. This organization works in the field of humanitarian mineclearance by helping mine clearers increase their efficiency, improve safety andlower costs. They already use Caterpillar products for their main mine-removal
tool – the D-250. Our Caterpillar office in Geneva, Switzerland collaborated with
Digger which led to the donation of a Cat® 319 excavator for Digger’s new projectcalled DOME (Digger Management and Operating Environment). Digger will retrofit
the excavator so it can be operated remotely – and safely – thereby not putting
human lives at risk during mine clearance and removal. This prototype machine
will clear cities that have been reduced to rubble and contaminated with unexploded
devices. Once the system is ready, the donated excavator, fully equipped by Digger,
will ultimately find its way to Iraq and be part of the humanitarian effort to clear
war-torn cities.

We are committed to increasing the capacity of ourmanagement and employees to effectively identify
and respond to concerns. In 2017, Caterpillar will
require human rights training for all employees,
provided in 18 languages.

2016 SUSTAINABILITY REPORT 65

Community
ImpactEnergy Access and Poverty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  68
Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  70
Philanthropy/Social Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  72

Our success contributes to the social stabilityof regions around the world. Caterpillar andour employees focus on contributing time andresources to promoting the health and welfare
of communities in which we work and live. We
conduct our business in a manner that respects
human rights individually.
Employees are encouraged to actively engage
in activities that contribute to the bettermentof society through volunteering time and talents
or investing monetary resources in worthwhile
community projects and initiatives. In addition,
Caterpillar supports the Caterpillar Foundation,
which has been dedicated to transforming lives
in communities around the world since 1952. The
Foundation champions programs that support
education, environment and basic human needs.

66 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 67

COMMUNITY IMPACTCOMMUNITY IMPACT

ENERGY ACCESS &POVERTY
One of the biggest differences between a developing
nation and a developed nation is reliable access toenergy. Lack of access to modern energy services
hinders economic and social development, making it
more difficult to provide water purification, sanitationand education. Today, technology and natural resources
exist to rapidly expand energy access, but the challenge
is accomplishing this in an effective and efficientmanner. To increase energy access, we believe:• Access to affordable and dependable energy
resources is critical for energy security, economic
prosperity and growing economies. Caterpillar
supports balanced and comprehensive energy
policies for the responsible development andutilization of all energy resources, including
traditional sources of energy and expanded useof alternative energy technologies.
• No single solution can provide abundant, reliable,
secure and reasonably priced energy on a global
basis. Market-based, cost-efficient energy solutions
are the best way to help meet the world’s growing
energy demands.
• Political and industry leadership is required to forge
consensus and a commitment to providing energy
and related infrastructure that address economic
development, stability and environmental impacts.
• When regulation is necessary, regulatory structures
should provide a technology-neutral and levelplaying field that embraces competition and in which
Caterpillar, our independent dealers and ourcustomers can operate.
• We support the development and use of strategies
and technologies to increase energy efficiency andreduce emissions.
Energy diversification – such as coal in combination
with carbon capture and storage, new nuclear
buildouts, new natural gas reserves, plus renewableenergy sources like biogas, wind, photovoltaic or
solar, tidal and others – will contribute to an energy
portfolio that helps eliminate energy poverty, raises
standards of living and propels economic growth withless impact on the environment. Eliminating energy
poverty is a vision that can be achieved.

MICROGRID SOLUTIONS

Cost-effective electric power is a challenge forcommunities and industrial or commercial
installations that lack access to a strong utility grid. In
these situations, providers must rely on engine- or

68 2016 SUSTAINABILITY REPORTENERGY ACCESS & POVERTYTUCSON PROVING GROUND REDUCES EMISSIONSUSING NEW CAT® MICROGRID SOLUTION
American Chamber of Commercein Singapore
In April 2016, Caterpillar was
one of 20 companies to receive
an American Chamber ofCommerce in Singapore
Cares Award, recognizing corporatesocial responsibility.

turbine-driven generator sets that, while highly
reliable, typically produce power at a much higher
cost than a large utility.
Now a better model, called microgrid solutions, isemerging that combines cost-effective renewableenergy from solar or wind sources with conventional
diesel- or gas-fueled generation. Cat ® Microgrid
Solutions are designed to significantly increase powersystem stability, reduce fuel expenses, decrease
harmful emissions, lower the total cost of ownershipand achieve favorable payback periods.
Aided by sharp declines in the cost of solar and windenergy, as well as lower energy storage costs relative
to the price of fuel, microgrids are well suited to a hostof applications, including individual buildings, resorts,
mine sites, remote villages, small islands and others.
The most promising applications are those with total
power demand from 100 kW to 20 MW.
In addition to industrial applications, microgrids area sustainable solution for emerging markets as well.
With more than 1.2 billion people lacking access toelectricity and many more needing a reliable grid forbasic human needs such as access to clean water,
healthcare, lighting and education, Cat Microgrids
are designed to power a better world.

LOCATED ABOUT 30 MILES SOUTHWEST
OF TUCSON, ARIZONA, CATERPILLAR’STUCSON PROVING GROUND (TPG) CONSISTSOF LARGE OPEN-AIR TEST AREAS WHERE
MINING EQUIPMENT IS TRIED BEFORE
BEING BROUGHT TO MARKET.
While remote, TPG has a high demand for power with
employees working on projects ranging frommachine tear downs and builds to welding to office
and administrative tasks.
With the nearest local utility grid nearly eight miles
away, the site has relied on three Cat® C15 diesel
generator sets that are designed to run continuously
all year long, consuming approximately 250,000 gallons of diesel fuel each year. Altogether, thegenerator sets typically run a combined 11,000 hours per year.
In order to help reduce fuel costs, decrease dependency on generator sets and lower emissions
on the site, TPG installed 500 kWp of thin-film photovoltaic (PV) solar panels and 500 kW ofshort-term energy storage from the new Cat Microgrid solution suite of product offerings.
Officially launched in April 2016, the Cat Microgrid solution offers solar panels, state-of-the-art energy
storage, and advanced monitoring and control systems in combination with Caterpillar’s traditionalline of power generation equipment, including Cat generator sets, switchgear, uninterruptible
power supplies and automatic transfer switches. Ideal for a broad range of applications such as
mining sites, rural electrification and telecommunication towers, the Cat Microgrid solution isdesigned to reduce fuel expenses, lower utility bills and decrease emissions while increasingenergy efficiency in even the most challenging of environments.
Thanks to the Cat Microgrid solution, TPG expects to lower its diesel fuel use by 33 percent andits generator set operation by 25 percent, saving about 1,000 tons of carbon dioxide emissions
a year.
In addition to the TPG project, the microgrid team has recently supplied a 1000 kW PV system
to the Illinois Municipal Electric Agency in Rantoul, Illinois, and a complete off-grid microgrid,
including solar panels, diesel generator sets and energy storage, to a game and wildlife parkin the West African country of Gabon.

2016 SUSTAINABILITY REPORT 69

COMMUNITY IMPACTCOMMUNITY IMPACTECONOMICDEVELOPMENT
Caterpillar and our products support economic
growth around the world, both in developed
countries, where aging networks need improvement,
and emerging markets, where new infrastructure isrequired. Our products help ensure that investments
in transportation, energy, telecommunications, waste
and water infrastructure produce maximum benefits.
We support these investments as key enablers forsustainable development, economic growth,competitiveness and long-term job creation.
Our facilities in more than 61 countries provide quality
jobs and opportunities for the people in those locations.
At the end of 2016, Caterpillar had approximately
95,400 full-time employees, which accounts for only afraction of the jobs directly associated with Caterpillar,
typically represented by our flexible workforce,
extended dealer network and supply chain. In addition
to the direct economic contributions to the local
economies associated with employee, dealer and suppliercompensation and other operating expenditures,
additional indirect and induced contributions occur
as a result of spending by the employees, dealers,
suppliers and customers who visit our facilities
throughout the world.

ECONOMIC DEVELOPMENT

CATERPILLAR INVESTS IN AFRICA
Empower a Woman,
Change the World.
The Caterpillar Foundation believes that energy
access empowers people to rise out of poverty,
and that journey starts with gender equality. Since
girls and women are disproportionately impacted
by lack of energy access, this has a subsequentand profound impact on communities at large.
Reliable energy access improves maternal healthand reduces child mortality rates, surges women’s
employment and increases chances for girls tocomplete primary education. Attaining thisfinancial stability, education, healthcare andnourishment, in turn, helps build healthy
communities and strong economies.

WITH THE FASTEST-GROWING MIDDLE
CLASS IN THE WORLD AND A POPULATIONEXPECTED TO DOUBLE BY 2050, AFRICA
HAS TREMENDOUS POTENTIAL FOR
GROWTH IN THE CONSTRUCTION,AGRICULTURE, MINING, POWER, ENERGYAND TRANSPORTATION SECTORS.
Caterpillar, our dealers, and the Caterpillar Foundation,
together, are committed to helping the continent
realize this potential by investing in service facilities,
logistics facilities, and education and skills development.
As Africa continues to grow as an emerging market
for Caterpillar and other international investors, so too does the demand for a skilled, local workforce.
Despite this need for talent, there is a substantial deficit of untapped human capital, as the region’s
workforce lacks access to appropriate training and education. The Technicians for Africa project wasborn out of this need for technical education support across the continent. With 18 free-of-charge
courses, the program leverages Caterpillar’s state-of-the-art e-learning solutions through its accessible
platform made available on computers, tablets and mobile devices. Now any African worker who has
an internet connection can begin to develop a career as a heavy equipment technician with eventual
Caterpillar certification. Successful pilot programs in English-speaking Nigeria, Portuguese-speaking
Mozambique and the French-speaking Democratic Republic of Congo are in place, and Caterpillar
has now expanded Technicians for Africa to a total of 15 African countries.
Announced in 2017, Caterpillar will establish a new district office in Abidjan to enable us to be closer
to our customers in Ivory Coast and neighboring countries. The office will gradually increase thenumber of employees in Ivory Coast over the coming years. The dealer network is present inalmost every African country, serving customers that help build and power communities and,ultimately, better lives.

$2.18TMANUFACTURERS
CONTRIBUTED TO
U.S. ECONOMY IN 2016

$1.00
=
$1.81

SPENT ON MANUFACTURING

In addition to the company’s commitment to Africa, since 2010, the Foundation has invested
approximately $50 million in Africa, and has committed another $15 million between now and2020 to support projects in Africa focused on impacting those living in poverty, and specificallygirls and women, through training, policy work, entrepreneurship programs and more. These
investments are benefiting hundreds of thousands with access to education, energy, clean waterand sanitation, and microfinance.

~27%

HIGHER EARNINGSMANUFACTURING VERSUSNONMANUFACTURING

TO THE ECONOMY

SOURCE: NATIONAL ASSOCIATION OF MANUFACTURERS

70 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 71

COMMUNITY IMPACTCOMMUNITY IMPACT

PHILANTHROPY/SOCIAL INNOVATIONPHILANTHROPY/SOCIAL INNOVATION

HOW WE MAKE A DIFFERENCE – THE CATERPILLAR FOUNDATION
Since 1952

Key Areas of Support$685M+
Contributions

Environment:
Restoring natural
infrastructure while
improving thequality of life as it
relates to poverty

Education:

Numeracy and literature,
improving academic
outcomes, financial
literacy and workforce
readiness

Direct (cumulative)
Number of people in millions

As the company works to build a stable societal
infrastructure, the Caterpillar Foundation is focusedon building human infrastructure through strategic
investments and collaborations focused on alleviating
poverty and making sustainable, scalable progresspossible for all. As a company, we collaborate acrossour value chain to develop programs that provide job
training and increase workplace safety. Globally, ouremployees generously volunteer their time, skills
and talents to achieve significant community impact
where they work and live.
While the Foundation’s total budget has decreased
over the last four years, consistent with Caterpillar’ssales and revenues, we are continuing to grow ourinfluence and impact. In 2016, we formally launched
Together.Stronger.™, the Foundation’s collaborative
impact platform that unites businesses, non-profits,
governments and citizens to combine their strengths
to help 50 million people rise out of poverty by 2020.
We also convened leaders from key non-profit partners
for our first-ever policy roundtable positioning theFoundation as a strategic thought leader in policy.

50.0

3500 Genset Giveaway
The Cat® 3500 engine platform is the industry standard
for heavy duty diesel and gas engines worldwide andone of our most powerful engines. With more than
190,000 engines in the field and 3 billion operating
hours in mining, rail, electric power, oil & gas andmarine applications, the 3500 exemplifies Caterpillar’slong-standing focus on technical innovation.
To commemorate the 35th anniversary of the 3500
engine platform in 2016, and as an expression ofCaterpillar’s commitment to powering humanDirect (cumulative)
progress through energy access, the company
announced it would donate a generator set poweredNumber of people in millions
by a 3500 engine to the St. Luke Foundation for
50.0
Haiti. St. Luke’s provides healthcare, education anddignified humanitarian outreach to the least-served
populations of Haiti, employing more than 1,000
38.6
Haitian staff. Every year, 150,000 lives will be impacted,
30.6
thanks to this generator providing energy access tothe three hospitals, schools, orphanages, a fishery,
20.9
a bakery and other community institutions
supported by St. Luke’s.

38.6

72

2016 SUSTAINABILITY REPORT

GOAL

Place 50 million
people on
the path toprosperityby 2020.

30.6
20.9
10.5

2013 2014 2015 2016 2020

53% Health &Human Services
21% Education
18% Policy/Advocacy

6% Environment
2% Arts & Culture

The Caterpillar Foundation
impacts people throughour non-profit partners’ workon the ground to directly
address the root causes ofpoverty. Since 2013, we haveworked to put more than

38.6M PEOPLE
on the path to prosperity.

$11.5M $3.2M$36.8M

53% Health &Human Services
21% Education
18% Policy/Advocacy

Food, water, shelter,
energy and disaster
relief6% Environment
2% Arts & Culture

Areas of Investment

10.5

2013 2014 2015 2016 2020

Areas of Investment

Basic Human
Needs:

2016 Caterpillar
Foundation
Community
Investments

2016 United Way
Total Donations

Caterpillar
Foundation
Matching Gifts
Program11(includes employee andretiree contributions andthe Foundation match)2016 SUSTAINABILITY REPORT 73

COMMUNITY IMPACT

PHILANTHROPY/SOCIAL INNOVATION

More to come this year! We havesome exciting upcoming sustainability
initiatives, including an art contest forCaterpillar employees’ children, an
active presence at the 2017 Chicago
Ideas Week and a Cat® generator set
powered by a 3500 engine installed in
Haiti this year.

CATERPILLAR INVESTS IN FIRST ROBOTICS AND FUTURE WORKFORCE
WITH THE UNITED STATES SIGNIFICANTLYBEHIND IN PRODUCING A QUALIFIEDSCIENCE, TECHNOLOGY, ENGINEERINGAND MATH (STEM) WORKFORCE,
CATERPILLAR IS DEDICATED TO BUILDINGA GLOBAL ENGINEERING TALENTPIPELINE, CRITICAL NOT ONLY TO OURCONTINUED GLOBAL GROWTH AND
COMPETITIVENESS, BUT ALSO TO THE
SUCCESS OF OUR COMMUNITIES.
Our support ranges from monetary contributions
that sponsor curriculum development, academic competitions, scholarships andinternships to employee mentorship programs.
An example is our Caterpillar work with For Inspiration and Recognition in Scienceand Technology (FIRST), which provides global, mentor-based programs to help
students of all ages build STEM skills. Through FIRST, students learn about STEM
via hands-on activities and competitions. Students are also encouraged to build
upon their own experiences and volunteer in the community.
In 2005, Caterpillar sponsored 10 teams and had over 50 employees who volunteered
more than 5,000 hours with 200 students in the Peoria, Illinois, area. Today, Caterpillar
sponsors over 200 FIRST teams around the world, counts 800 employee volunteers,
donates over 100,000 hours and reaches 2,500-plus students annually. As a testament
to the program’s success, many of the FIRST mentees who participated in the pilot
program over 10 years ago are now Caterpillar engineers.

ABOUT THIS REPORTAt Caterpillar, our sustainability practices focus on ways
to maximize the life cycle benefits of our products while
minimizing the economic, social and environmental costsof ownership for Caterpillar customers. Our most recent
results are reflected in this 2016 Sustainability Report,
and build on the themes and results described in our 2015
report. The reporting period is the 2016 calendar year,
which is also Caterpillar’s fiscal year.
In preparing report content, Caterpillar consulted the
Global Reporting Initiative G4 reporting framework toserve as an informal guideline. Report content represents
100 percent of the products and operations of Caterpillar
Inc. and its subsidiaries where we have a controlling
financial interest. Where noted, Caterpillar’s independent
dealer network and supplier network are also represented.
Caterpillar and subsidiary brands are listed here:
http://www.caterpillar.com/brands.
Caterpillar’s environmental and safety metrics for
operations are consolidated based on the Greenhouse
Gas Protocol “operational control” approach.10 Caterpillar
is currently headquartered in Peoria, Illinois, USA. Contact
us here: http://www.caterpillar.com/en/contact.html.
ERM Certification and Verification Services (ERM CVS) has conducted independent assurance of
selected 2016 environmental and safety data. To understand the scope, activities and conclusionsof the assurance process, please see the ERM CVS Assurance Statement on the following page.

74 2016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 75

Endnotes

Independent Assurance Statement to Caterpillar
ERM Certification and Verification Services (ERM CVS) was engaged by Caterpillar to provide limited assurance inrelation to specified 2016 data in the Caterpillar Sustainability Report 2016 (‘the Report’) as set out below.
Engagement summary
Whether the Caterpillar 2016 data for the following indicators are fairly presented, in all material
respects, with the reporting criteria:
Environmental data
Absolute and intensity:

Scope of our
assuranceengagement

Scope 1 GHG emissions [million metric tons
CO2e and million metric tons CO2e/ million
dollars of revenue];
Scope 2 GHG emissions [million metric tons
CO2e and million metric tons CO2e/ million
dollars of revenue] – by location (absoluteonly) and market based methodology;
Total GHG emissions [million metric tons
CO2e and million metric tons CO2e/ million
dollars of revenue];

Energy intensity [GJ/ million dollars ofrevenue] and total 2016 consumption in
GJ used to calculate this;Absolute only: Total electricity [MWH];
Safety data

Lost Time Case Frequency Rate (LTCIR);

Recordable Injury Frequency Rate (RIF) –per 200,000 hours worked.

Reportingcriteria

The WBCSD/WRI GHG Protocol (2004, as revised January 2015) for the Scope 1 and 2 GHG
emissions and Caterpillar’s internal reporting criteria and definitions for the other indicators.

Assurance
standard

ERM CVS’ assurance methodology, based on the International Standard on Assurance Engagements
ISAE 3000 (Revised).

Assurance level

Limited assurance.

Respective
responsibilities

Caterpillar is responsible for preparing the data and for its correct presentation in reporting to third
parties, including disclosure of the reporting criteria and boundary.
ERM CVS’s responsibility is to provide conclusions on the agreed scope based on the assurance
activities performed and exercising our professional judgement.

Our conclusions
Based on our activities, nothing has come to our attention to indicate that the Caterpillar 2016 data for the indicators, as listed
above, are not fairly presented, in all material respects, with the reporting criteria.
Our assurance activities
Our objective was to assess whether the selected data are reported in accordance with the principles of completeness,comparability (across the organisation) and accuracy (including calculations, use of appropriate conversion factors andconsolidation). We planned and performed our work to obtain all the information and explanations that we believe were necessary
to provide a basis for our assurance conclusions.
A multi-disciplinary team of EHS and assurance specialists performed the following activities:
Interviews with relevant staff to understand and evaluate the data management systems and processes (including IT
systems and internal review processes) used for collecting and reporting the selected data;A review of the internal indicator definitions and conversion factors;
An analytical review of the data from all sites and a check on the completeness and accuracy of the corporate data
consolidation.
Year-end assurance activities at corporate level including the results of internal review procedures and the accuracy of theconsolidation of the data for the selected indicators from the site data.
The limitations of our engagement
The reliability of the assured data is subject to inherent uncertainties, given the available methods for determining, calculating or
estimating the underlying information. It is important to understand our assurance conclusions in this context. As our engagement
was limited to the 2016 data we do not provide any assurance on reduction from baselines which we did not assure.

Jennifer Iansen-Rogers, Head of Corporate Assurance Services
8 May 2017
ERM Certification and Verification Services, London
www.ermcvs.com; email: post@ermcvs.com

1	Total includes purchased and on-site generated alternative and renewable energy, as well as calculating the percentage of renewableenergy from grid-purchased electricity using data obtained from the International Energy Agency.
2	Renewable Energy: Caterpillar defines renewable energy as energy resources that are naturally replenishing over a short period oftime and virtually inexhaustible. Power generation examples include wind, solar, hydro, geothermal, tidal, wave, biomass and biogas
from anaerobic digestion.
3	Alternative Energy: Caterpillar defines alternative energy as any source of usable energy that offers substantial environmental
benefits compared to the conventional sources of energy that it replaces. Power generation examples include landfill gas, coalmine and abandoned mine methane, combined heat and power (cogen, trigen and quadgen), coal with carbon sequestration andlocalized power generation. Transportation fuel examples include pure methanol, ethanol blends of 85 percent or more with gasoline,
pure natural gas, natural gas blends of 85 percent or more with diesel fuel, liquid fuels domestically produced from natural gas(compressed natural gas, liquefied natural gas and gas to liquid fuels), propane, coal-derived liquid fuels, hydrogen and electricity.
4	GHG emissions intensity reduction goal is based on our combined Scope 1 (direct) and Scope 2 (indirect, market-based) GHG
emissions using a 2006 baseline year. Likewise, total absolute GHG emissions are a sum of Scope 1 and Scope 2 (market-based)emissions.
5	Location-based Scope 2 GHG emissions are provided in accordance with the GHG Protocol updated Scope 2 guidance. In 2015,
the GHG Protocol provided updated Scope 2 calculation guidance. Our market-based Scope 2 emissions are calculated using
the updated Scope 2 Quality Criteria. The following instruments were used in calculating our market-based Scope 2 emissions:
Renewable Energy Guarantees of Origin, energy contracts, supplier specific emission rates, Caterpillar owned combined heat andpower cogeneration facilities, and, for the remainder of our facilities, grid average emission factors from USEPA’s eGRID and theInternational Energy Agency’s data. For 2015 calculations, Caterpillar did not use residual mix factors.
6 Data prior to 2016 has been restated due to data updates realized from improved accuracy.
7 Water consumption intensity does not include non-contact cooling water.
8 Data does not include Progress Rail, Electro-Motive or Solar Turbines.
9	This includes remanufacturing, component overhauls at Cat® dealers, power generation using alternative energy sources, customer
job site optimization and innovative new products. The components are evaluated each year to adjust for acquisitions, divestitures,
offerings that become standard and improvements to data accuracy.
10	Environmental data includes all manufacturing and office facilities with more than 500 employees. Safety data includes employees
in all manufacturing and office facilities within Caterpillar’s reporting boundary.
11 	This represents employee and retiree donations made in the calendar year 2015, and the Caterpillar Foundation’s match made in thecalendar year 2016.

Legal Statements
Certain statements in this 2016 Sustainability Report relate to future events and expectations and are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “believe,” “estimate,” “will be,” “will,” “would,” “expect,”“anticipate,” “plan,” “project,” “intend,” “could,” “should” or other similar words or expressions often identify forward-looking statements.
All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding
our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance and speak only as ofthe date they are made, and we do not undertake to update our forward-looking statements.
Caterpillar’s actual results may differ materially from those described or implied in our forward-looking statements based on a numberof factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve;(ii) commodity price changes, material price increases, fluctuations in demand for our products or significant shortages of material;(iii) government monetary or fiscal policies; (iv) political and economic risks, commercial instability and events beyond our control in the
countries in which we operate; (v) our ability to develop, produce and market quality products that meet our customers’ needs; (vi) the
impact of the highly competitive environment in which we operate on our sales and pricing; (vii) information technology security threats
and computer crime; (viii) additional restructuring costs or a failure to realize anticipated savings or benefits from past or future cost
reduction actions; (ix) failure to realize all of the anticipated benefits from initiatives to increase our productivity, efficiency and cash flow
and to reduce costs; (x) inventory management decisions and sourcing practices of our dealers and our OEM customers; (xi) a failure to
realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xii) union disputes or other
employee relations issues; (xiii) adverse effects of unexpected events including natural disasters; (xiv) disruptions or volatility in global
financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (xv) failure to maintain our credit
ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position
and access to capital markets; (xvi) our Financial Products segment’s risks associated with the financial services industry; (xvii) changes
in interest rates or market liquidity conditions; (xviii) an increase in delinquencies, repossessions or net losses of Cat Financial’s customers;(xix) currency fluctuations; (xx) our or Cat Financial’s compliance with financial and other restrictive covenants in debt agreements;(xxi) increased pension plan funding obligations; (xxii) alleged or actual violations of trade or anti-corruption laws and regulations;(xxiii) international trade policies and their impact on demand for our products and our competitive position; (xxiv) additional tax expense
or exposure; (xxv) significant legal proceedings, claims, lawsuits or government investigations; (xxvi) new regulations or changes infinancial services regulations; (xxvii) compliance with environmental laws and regulations; and (xxviii) other factors described in moredetail in Caterpillar’s Forms 10-Q, 10-K and other filings with the Securities and Exchange Commission.

ERM CVS is a member of the ERM Group. The work that ERM CVS conducts for clients is solely related to independent assurance activities andauditor training. Our processes are designed and implemented to ensure that the work we undertake with clients is free from bias and conflict ofinterest. ERM CVS staff that have undertaken this engagement have provided no consultancy related services to Caterpillar in any respect.

762016 SUSTAINABILITY REPORT2016 SUSTAINABILITY REPORT 77

www.caterpillar.com